4.71.17  Non-Return Unit Examinations

Manual Transmittal

July 29, 2014

Purpose

(1) This transmits revised IRM 4.71.17, Employee Plans Examination of Returns, Non-Return Unit Examination Procedures.

Background

IRM 4.71.17 provides guidance and information to assist agents in working Non-Return Unit (NRU) examinations.

Material Changes

(1) IRM 4.71.17.1 was revised to reference related IRMs containing technical guidelines for IRC 403(b) plans, IRC 457 plans, multiemployer plans, nonbank trustee investigations, Simplified Employee Pensions (SEPs) and Salary Reduction Simplified Employee Pensions (SARSEPs).

(2) IRM 4.71.17.2 is revised to clarify the procedures to be followed when it is determined that a Non-Return Unit has a filing requirement.

(3) IRM 4.71.17.7 was revised to add closing conference procedures.

(4) IRM 4.71.17.8 has been revised to clarify the procedures to be followed when an NRU case is surveyed.

(5) IRM 4.71.17.9 has been revised to clarify procedures to be followed when an NRU exam is established in error.

(6) IRM 4.71.17.10 entitled, Checksheet for Employee Plans Compliance Activities (CECA Checksheets), was added.

(7) This IRM revision makes minor clarifying corrections to the June 6, 2012, published version of IRM 4.71.17.

(8) The links to the IRM Exhibits have been updated. The Exhibits are now posted on TE/GE Connect under the JOB tab at IRM 4.71 - Employee Plans Examination Exhibits.

Effect on Other Documents

This supersedes IRM 4.71.17 dated June 6, 2012.

Audience

TEGE, Employee Plans

Effective Date

(07-29-2014)


Robert Choi
Director, Employee Plans
Tax Exempt and Government Entities Division

4.71.17.1  (07-29-2014)
Overview

  1. TEGE, Employee Plans often examines retirement plans for which no return is filed. These are called Non-Return Units (NRU).

  2. This IRM provides procedures for examining NRU cases.

  3. The general examination guidelines found in IRM 4.71.1 also apply to NRU exams.

  4. An EP analyst will be designated to oversee specific NRU projects.

  5. The analyst should be consulted when specific questions arise.

  6. Examination guidelines have been developed for different types of NRU exams.

    1. IRM 4.72.13 provides technical guidance for examining IRC 403(b) plans.

    2. IRM 4.72.14 provides technical guidance for examining multiemployer plans.

    3. IRM 4.72.17 provides technical guidance for examining Simplified Employee Pensions (SEPs) and Salary Reduction Simplified Employee Pensions (SARSEPs).

    4. IRM 4.72.18 provides technical guidance for Nonbank Trustee investigations.

    5. IRM 4.72.19 provides technical guidance for examining IRC 457 plans.

  7. The Audit Information Management System (AIMS) Non-Master File (NMF) is programmed to include Master File Tax (MFT) 74 for the following types of NRU cases:

    • IRC 403(b) plans

    • IRC 457(b) plans

    • IRC 457(f) plans

    • IRC 401(a) Governmental plans

    • Simplified Employee Pensions (SEP IRA)

    • Salary Reduction Simplified Employee Pensions (SARSEP IRA)

    • Simple Retirement Accounts (SIMPLE IRA)

  8. The AIMS NMF is programmed to include MFT 99 for the following types of NRU cases:

    • Non-Bank Trustee/Custodian Investigations

    • Promoter Penalty Investigations

    • Return Preparer Penalties

    • Non-Filer Cases

    • Penalties for Failure to Disclose a Reportable Transaction - IRC 6707A

    • Other plans for which a return was not filed and there is not enough information available to determine if there is a filing requirement

    • Any other plan without a filing requirement

4.71.17.2  (07-29-2014)
Establishment of NRU Examinations

  1. All NRU cases will be established by EP Classification, although the decision to examine specific plans is made by EP Examinations, Planning and Programs and the EP examination Areas will determine which plans are to be examined, following the established case selection criteria. .

  2. All NRU cases are established on NMF AIMS and on the Reporting Compliance Case Management System (RCCMS) by EP Classification.

  3. MFT 99 has been programmed on the AIMS NMF for the Non-Bank Trustee/Custodian Investigations, Promoter Penalty Investigations, Return Preparer Penalties, Non-Filer Cases, and Penalties for Failure to Disclose a Reportable Transaction - IRC 6707A.

  4. Specific types of NRU cases are established as follows:

    Project Code Project Code Description Form Activity Code MFT EP Plan Type
    6040 EPTA IRC 403(b) Plan 5500 370 74 2
    6041 EPTA IRC 457(b) Plan 5500 370 74 2
    6044 EPTA IRC 457(f) Plan 5500 370 74 0
    6046 EPTA Governmental IRC 401(a) Plan 5500 383 74 DB=1; DC=2
    6048 EPTA (Reserved) 5500 370 74 2
    6213 IRC 403(b) Plan 5500 370 74 2
    6214 IRC 457(b) Plan 5500 370 74 2
    6215 IRC 457(f) Plan 5500 370 74 0
    6217 IRA Trust Compliance 5500 370 74 2
    6218 Governmental IRC 401(a) Plan 5500 383 74 DB=1; DC=2
    6219 Special Emphasis Governmental Plan 5500 383 74 DB=1; DC=2
    6221 Special Emphasis (Reserved)* 5500 370 74 0
    6433 SIMPLE IRA Plans 5500 370 74 2
    6436 IRC 412(i) Plans 5500 412 74 1
    6452 Special Emphasis (Reserved) 5500 383 74 2
    6453 SARSEP IRA 5500 383 74 2
    6454 SEP IRA 5500 383 74 2
    6506 EPCU IRC 403(b) UA 5500 370 74 2
    6182 Non-Bank Trustee Investigation 8278 182 99 N/A
    6422 Promoter Investigation 8278 505 99 N/A
    6424 Promoter Investigation - Support 8278 505 99 N/A
    6436 IRC 6707A Penalty Case 8278 505 99 N/A
    Various Preparer Penalty 8278 501 - 505 99 N/A
    Various Non-Filer ATAT Case 8278 507 99 N/A
    Various Non- Filer Non-ATAT Case 8278 508 & 549 99 N/A

    Note:

    * Any IRC 401(a) NRU plan picked up as an examination for any reason without an established project code should be established under project code 6221.

  5. When establishing NRU cases, EP Classification will use the most applicable source code (for example, source code 40 for a subsequent year pick-up).

  6. When a non-filer case is being examined and it is determined that a filing requirement exists, the agent will:

    1. Solicit the delinquent return(s).

    2. Establish the case on AIMS Master File for the applicable MFT. If the taxpayer has a Form 5500, Annual Return/Report of Employee Benefit Plan, filing requirement, the procedures found in IRM 4.71.1.21, Amended, Substitute and Secured Forms 5500, should be followed.

    3. Delete the AIMS NMF account (the NRU account) using Form 10904, Request for Record Deletion from AIMS.

  7. When an agent picks up an additional examination year for an NRU case being examined, he or she must:

    1. Complete Form 5588, TE/GE Non-Master File Request. See IRM 4.71.17.2.1 below and IRM 4.71.17 Exhibit 1 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 5588).

    2. Obtain group manager approval.

    3. Email Form 5588 to EP Classification at the following email address: *TE/GE-EP-Classification.

      Note:

      The email should include the statute of limitations statute date (Statute Date) of the related return that could be impacted by the NRU case. EP Classification will use this Statute Date in the RCCMS file for the NRU.

  8. When a 403(b)/457 Coordinator wants to establish a year for an IRC 403(b) or IRC 457 case, he or she will:

    1. Complete Form 5588 for each year being established, if there is no 5500 return that has been filed for a 403(b) plan.

    2. Email Form(s) 5588 to the EP 403(b)/457 Project Analyst with a copy to EP Classification (*TE/GE-EP-Classification).

    3. Email a completed Classification Sheet for each exam requested for establishment with focused audit issues selected for that taxpayer.

      Note:

      The email to the Project Analyst and EP Classification should include the Statute Date of the related return that could be impacted by the NRU case. EP Classification will use this Statute Date in the RCCMS file for the NRU.

      Note:

      Per current procedures, each EP Exam Area develops exam case listings following selection methodology agreed to by the 403(b)/457 Compliance Planning Group. These case listings are then approved by the 403(b)/457 Manager Champion, EPP Examination Manager and the Director, EP Examination for area selection.

  9. Plan numbers should be utilized in the following manner:

    1. A plan number is required for MFT 74 NRU cases.

    2. MFT 99 NRU cases should not have a plan number.

    3. For Governmental IRC 401(a) plans, use plan numbers beginning with 201. Additional plans examined for the same entity should be numbered with the next successive number (for example, 202).

    4. For IRC 403(b), IRC 457(b), and IRC 457(f) plans use plan numbers beginning with 301. Additional plans examined for the same entity should be numbered with the next successive number (for example, 302).

    5. For SIMPLE IRA, SARSEP, and SEP IRA plans use plan numbers beginning with 901. Additional plans examined for the same entity should be numbered with the next successive number (for example, 902).

    6. For NRU cases that were established with a plan number that does not follow the guidelines in paragraphs c) through e), the plan number initially assigned will continue to be utilized.

    7. For consistency, if an additional year is picked up, the same plan number or plan number series of the initial case should be used.

  10. EP Classification will use the command code AMNON to establish cases. See IRM 4.71.17 Exhibit 2 at IRM 4.71 - Employee Plans Examination Exhibits for AMNON Input Instructions.

  11. The NMF AIMS establishment is instantaneous. A full account record can immediately be viewed through command code AMDIS (for example, AMDIS 70-1234567N).

4.71.17.2.1  (07-29-2014)
Preparation of Form 5588

  1. Form 5588 should be used to establish NRU cases on RCCMS and AIMS NMF.

  2. Complete the following line items on Form 5588 (if utilized) as noted.

    1. Line 2 (P1-35): Enter the Taxpayer’s name.

    2. Line 3 (P1-35): Enter the Taxpayer's street address.

    3. Line 4 (P1-25): Enter the Taxpayer's city.

    4. Line 5 (P1-2): Enter the Taxpayer's state.

    5. Line 5 (P4-15): Enter the Taxpayer's zip code.

    6. Line 5 (P17-28): Enter the Taxpayer Identification Number (TIN) and File Source "N" .

    7. Line 6 (P1-6): Enter the tax period being examined.

    8. Line 6 (P8-13): For MFT 74 cases enter "5500" . For MFT 99 cases enter "8278" .

    9. Line 7 (P1-8): Leave blank for MFT 74 cases. Enter the Statute Date for MFT 99 cases.

    10. Line 8 (P1-2): Enter the applicable source code.

    11. Line 8 (P4-6): Enter the applicable activity code. See paragraph (4) of IRM 4.71.17.2, Establishment of NRU Examinations, above.

    12. Line 9 (P1-2): Enter the applicable MFT code (MFT 74 or 99) as detailed in paragraph (4) of IRM 4.71.17.2 above.

    13. Line 9 (P4): Enter "3" .

    14. Line 10 (P1-2): Enter the applicable status code (either "10" or "12" ).

    15. Line 10 (P4-6): Enter the applicable plan number. See paragraph (9) of IRM 4.71.17.2 above. Leave blank for MFT 99 cases.

    16. Line 10 (P8): Enter the applicable plan type definer code. See paragraph (4) of IRM 4.71.17.2 above. Leave blank for MFT 99 cases.

    17. Line 11 (P1-3): Enter the Primary Business Code.

      Primary Business Code Area
      401 Northeast
      402 Mid-Atlantic
      403 Great Lakes
      404 Gulf Coast
      406 Pacific Coast
      410 Exam Programs and Review
    18. Line 11 (P11-14): Enter the group number in which the case is being worked.

    19. Line 12 (P1-4): Enter the four character name control.

    20. Line 12 (P6-9): Enter the special project code. See paragraph (4) of IRM 4.71.17.2, Establishment of NRU Examinations, above.

    21. Reason for Request: Enter "Establish NMF AIMS."

    22. Requester/Date: Enter the examiner's name and current date.

    23. Approved By/Date: Enter the approving manager's name and current date.

  3. See IRM 4.71.17 Exhibit 1 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 5588.

4.71.17.3  (07-29-2014)
Locating the Taxpayer

  1. Obtaining the taxpayer's current contact information can be an issue since NRU plan sponsors have not filed a return.

  2. For most NRU examinations, EP Classification will complete and include AIMS research in the case file.

  3. If the taxpayer's full address and contact phone number are not in the case file, the agent will need to do additional research to locate the taxpayer and obtain a contact phone number. The following steps can be taken to find the taxpayer's phone number if not provided in the case file:

    1. Review local phone directories by internet and other means.

    2. Conduct research on Accurint.

    3. Research the company name on the internet.,

    4. Utilize directory assistance.

    5. Conduct additional research on the Integrated Data Retrieval System (IDRS) as described in paragraph (4).

  4. The following additional IDRS research can be helpful in finding a current address and phone number for the taxpayer:

    1. IDRS command code ERTVU may give the taxpayer phone number or plan sponsor phone contact.

    2. Command code INOLE with a definer "T" gives information for both business and employee plan information and requires only one input because the "P" is not entered after the Employer Identification Number (EIN).

    3. Command codes PMFOL and IRPTR also show address and phone numbers. This information is generated from information documents such as Form W-2, Wage and Tax Statement, or Form 1099.

    4. Command code NAMEE provides an EIN if only the Taxpayer name and at least a city and state are known. Information obtained from this command code will show EIN used for both business returns and employee plan returns.

  5. If a letter issued to a taxpayer is returned as undeliverable, a postal tracer can be done with the US Postal Service by completing Form 4759, Address Information Request - Postal Tracer, with the "agency return address" filled out on the form.

  6. If the taxpayer can still not be located, the agent should discuss the issue with the group manager to determine if there are other avenues to locate the taxpayer or if the case should be surveyed in accordance with IRM 4.71.17.8, Surveyed Cases.

4.71.17.4  (07-29-2014)
Monitoring the Statute of Limitations Expiration Date (Statute Date) on an NRU Case

  1. NMF AIMS is not programmed to allow the input of the Statute Date for MFT 74 cases.

  2. Although an NRU specifically does not have a Statute Date (because a return was not filed), there are returns with statute of limitations affected by the NRU plan under examination.

  3. RCCMS must be utilized to track the Statute Date of the affected related return.

    1. On the RCCMS NRU case, enter the Statute Date of the related Form 941, Employer's Quarterly Federal Tax Return, Form 1120, U.S. Corporation Income Tax Return, Form 1120S, U.S. Income Tax Return for an S Corporation, Form 1065, U.S. Return of Partnership Income, or Form 1040, U.S. Individual Income Tax Return, affected by the NRU examination.

    2. The Statute Date will assist the agent and group manager in monitoring the case for a timely referral or pursuit of a Form 1040/1120 discrepancy adjustment, or pursuit and assessment of applicable penalties, when necessary.

  4. For IRC 403(b) and IRC 457(b) examinations, the affected related return will be the last quarterly Form 941 for the tax year examined.

    Note:

    The last quarterly Form 941 return is due by 1/31 and has a three year Statute Date from 4/15 (for example, the Statute Date for the Form 941 for the quarter ending 12/31/2012 is 4/15/2016).

    1. Initially, EP Classification uses the normal Statute Date of the related Form 941 for IRC 403(b) and IRC 457(b) examinations for control purposes on RCCMS.

    2. The Form 941 return for IRC 403(b) and IRC 457(b) examinations will not be controlled on the AIMS system.

    3. Even though the Form 941 Statute Date will not be controlled through AIMS for the tax years reviewed, the agent should take the proper steps to protect the Government’s interests for any potential tax adjustments to that return before the statute of limitations expires.

    4. Steps to protect the Government's interest may include working with Exempt Organizations (EO) or Federal State Local Government (FSLG) business units to ensure the Form 941 Statute Date is protected for any adjustments being proposed.

    5. The Statute Date for the IRC 403(b) and IRC 457(b) examination may be updated to alpha "EE" in RCCMS and NMF AIMS when it has been determined by the agent and group manager that FSLG or EO is controlling the statute for the Form 941 return.

    6. A copy of the Form SS-10, Consent to Extend the Time to Assess Employment Taxes, should be kept in the EP case file regardless of whether the form is secured by another Business Operating Division within the IRS (for example Exempt Organizations).

  5. For SEP, SARSEP, SIMPLE IRAs, and IRC 457(f) examinations, the related return(s) affected will normally be Form 1040 for the tax years under examination for the individual participants.

    Note:

    The related Form 1120 can be a return of concern for a SEP, SARSEP, or SIMPLE IRA plan sponsor if potential discrepancy adjustments are proposed as a result of an improper deduction for employer contributions to the participant's IRA accounts.

    1. Initially, EP Classification uses the normal Statute Date of the related Form 1040 for SEP, SARSEP, SIMPLE IRA, and 457(f) examinations for control purposes on RCCMS.

    2. If the related Form 1040 discrepancy adjustment is actually established on AIMS and RCCMS, the Statute Date for the SEP, SARSEP, SIMPLE IRA, or IRC 457(f) examination may be updated to alpha "EE" .

    3. The Statute Date for the SEP, SARSEP, or SIMPLE IRA examination may also be updated to alpha "EE" in RCCMS and NMF AIMS when the agent and group manager determine that the SEP/SARSEP is in compliance with IRC 408(k) or the SIMPLE IRA is in compliance with IRC 408(p).

  6. Because related Forms 941, 1040 and 1120 can be affected by NRU examinations, agents should follow the IRM 4.71.9.4(5) time frames on the year worked when beginning an examination.

    1. Unless group manager approval is obtained, agents should not start an NRU examination for a given year if the Statute Date for the related tax return will expire within 12 months.

    2. For example, an agent should not start a SIMPLE IRA examination for the 2011 calendar tax year any later than April 15, 2014 (if the related Form 1040 was timely filed and there were no extensions), since starting the examination after that date would leave less than one year on the related Form 1040 Statute Date.

  7. For NRU examinations, the Statute Date for related tax returns should be closely monitored in accordance with IRM 4.71.9, Statute Control Procedures.

4.71.17.5  (07-29-2014)
Updates to an NRU Case

  1. Updates to an NRU case will be done through RCCMS at the group level.

    Note:

    Updates will be done by the receiving group if a case is transferred.

  2. It is important that both RCCMS and NMF AIMS are updated and mirror each other as much as possible.

  3. When an update to a case is requested on RCCMS, check the AIMS box so that the update is also done on NMF AIMS.

    Note:

    In order for the AIMS update to be done through RCCMS, the RCCMS account and the AIMS NMF account must match exactly (EIN, Plan Number, Plan/Tax Period, etc.). Otherwise, the NMF AIMS account will have to be updated manually, outside of RCCMS.

4.71.17.6  (07-29-2014)
Examination Procedures for SEP, SARSEP and SIMPLE IRAs Found to Be in Noncompliance

  1. When the examining agent determines that an examined SEP/SARSEP does not satisfy IRC 408(k) or a SIMPLE IRA does not satisfy IRC 408(p):

    1. The agent and the group manager must decide whether or not the violation can be corrected through the Audit Closing Agreement Program (Audit CAP) or through the Self-Correction Program (SCP).

    2. Any closing agreement will be coordinated with the Area CAP Coordinator. Rev. Proc. 2013-12 provides examples of acceptable correction methods for SEP, SARSEP, and SIMPLE IRA violations. Reasonable methods of correction should be discussed with the CAP Coordinator.

    3. If the examination is resolved through SCP, the examination will be closed using Letter 1744-A.

      Note:

      Letter 1744-A contains an option under "Type of Plan" that allows the agent to select the type of plan (SEP, SARSEP or SIMPLE IRA).

    4. If the violation is corrected through Audit CAP, the examination will be closed using Letter 1744-G or Letter 1744-H.

      Note:

      Letter 1744-G and Letter 1744-H contain an option under "Type of Plan" that allows the agent to select the type of plan (SEP, SARSEP or SIMPLE IRA).

    5. If the IRC 408(k) violations are significant and cannot be resolved through audit CAP, the SEP is considered to not be in conformity with IRC 408(k).

    6. Likewise, if the IRC 408(p) violations are significant and cannot be resolved through CAP, the SIMPLE IRA is considered to not be in conformity with IRC section 408(p).

  2. Appeal rights are not offered to the employer in conjunction with the NRU examination of the SEP, SARSEP or SIMPLE IRA plan that does not meet the requirements of the Internal Revenue Code and is not resolved through CAP.

    1. The agent should not prepare a 30-Day letter with a Revenue Agent Report (RAR) for the NRU examination.

    2. With group manager approval, taxable adjustments will be proposed as discrepancy adjustments on the related Forms 1040 of plan participants (normally highly compensated participants) and/or the Form 1120 of the plan sponsor, and appeal rights are provided for any related Form 1040 and/or Form 1120 discrepancy adjustment. See paragraphs 8 through 10 below.

      Note:

      The procedures of IRM 4.71.4 should be followed for Forms 1040 or 1120 picked up in conjunction with the SEP, SARSEP or SIMPLE IRA examination.

  3. SEP, SARSEP and SIMPLE IRA NRU cases are not subject to mandatory review, but should accompany any related unagreed discrepancy adjustment case when they are closed to EP Mandatory Review.

  4. SEP/SARSEP compliance with IRC 408(k) and SIMPLE IRA compliance with IRC 408(p) is determined on a year-by-year basis.

    1. Once it is determined that a SEP/SARSEP is not in conformity with IRC 408(k) in a given year, that year of nonconformity stands alone and remains in nonconformity until a closing agreement is entered into covering that specific year.

    2. A SEP, SARSEP or SIMPLE IRA that does not conform in a particular year is not automatically considered to not conform in a subsequent year. In order to be considered not in conformity in the subsequent year, IRC 408(k) or 408(p) must also be violated in the subsequent year.

  5. The agent will prepare Letter 1758-A to close a SEP or SARSEP examination that is determined to fail to comply with IRC 408(k) and is not resolved through CAP.

    1. If the SEP/SARSEP is determined not to satisfy IRC 408(k) and a CAP is not entered into, the closing letter should reflect the year(s) the SEP does not meet the requirements of IRC 408(k), and it should clearly state why the SEP does not meet the requirements of IRC 408(k).

    2. It should also specify the consequences of failure to meet the requirements of 408(k), including a list of participants with excess contributions and the amount of excess contributions.

    3. The closing letter should inform the SEP sponsor of the requirement to notify plan participants of their excess amounts and the applicability of IRC 4973 tax on the excess monies that are not withdrawn (plus earnings). See IRM 4.71.17 Exhibit 3 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Letter 1758-A.

  6. The agent should prepare Letter 1758-D to close a SIMPLE IRA examination that is determined to fail to comply with IRC 408(p) and is not resolved through CAP.

    1. If the SIMPLE IRA is determined not to satisfy IRC 408(p) and a CAP is not entered into, the closing letter should reflect the year(s) the SIMPLE IRA does not meet the requirements of IRC 408(p), and it should clearly state why the SIMPLE IRA does not meet the requirements of IRC 408(p).

    2. It should also specify the consequences of failure to meet the requirements of 408(p), including a list of participants with excess contributions and the amount of excess contributions.

    3. The closing letter should inform the SIMPLE IRA sponsor of the requirement to notify plan participants of their excess amounts and the applicability of IRC 4973 tax on the excess monies that are not withdrawn (plus earnings). See IRM 4.71.17 Exhibit 4 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Letter 1758-D.

  7. When a SEP/SARSEP is found to not meet the requirements of IRC 408(k) or a SIMPLE IRA is found to not meet the requirements of IRC 408(p), the primary recourse of addressing the issue(s) is through Form 1040 discrepancy adjustments.

    1. When a SEP/SARSEP does not meet the requirements of IRC 408(k) or a SIMPLE IRA does not meet the requirements of IRC 408(p), all contributions allocated to participant accounts become taxable to the individual in the year for which they are made, with the exception that the participant is still entitled to the traditional IRA contribution.

    2. The agent (with group manager involvement) will make a determination of whether or not to pursue Form 1040 discrepancy adjustments on the highly compensated participants or non-highly compensated participants with significant income tax adjustments.

    3. The procedures in IRM 4.71.4, Discrepancy Adjustments, should be followed when Form 1040 discrepancy adjustments are picked up. The SEP/SARSEP or SIMPLE IRA exam should be treated as an "Unagreed" case and the procedures in paragraph (7) of IRM 4.71.4.4.5, Preparation of the Discrepancy Adjustment Package, should be followed (the 30-Day Letter will be mailed out by Mandatory Review).

  8. A SEP/SARSEP or SIMPLE IRA failure will normally result in two tax issues on Form 1040 discrepancy adjustments:

    1. The addition to income of the amount of excess contribution in the current year (the amount allocated to the participant’s account in excess of the amount allowed as a traditional IRA contribution), and

    2. IRC 4973 excise tax on excess contributions for the current year and any excess contributions carried forward from prior years.

  9. The 6% excise tax under IRC 4973 is imposed on the individual participants, and applies to all excess contributions to an IRA until the excess amounts (plus earnings) are either distributed to the individual or absorbed as traditional IRA contributions in later years.

    1. An individual has until the due date of their Form 1040 (April 15 plus extensions) to distribute the excess to avoid the tax.

    2. There is no requirement that excess monies have to be removed, but they will be taxed accordingly until there is no longer an excess.

    3. IRC 4973 excise tax is reported on Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, which may be filed along with Form 1040 or filed separately.

    4. The filing of Form 5329 starts the running of the statute of limitations for purposes of IRC 4973 excise tax. This means that the Form 5329 and IRC 4973 excise taxes have their own Statute Date that is not linked to the Statute Date of a Form 1040 if the Form 5329 was never filed.

    5. If the Form 1040 statute of limitations is open and the decision is made to pursue a discrepancy adjustment on the participant’s Form 1040, IRC 4973 excise tax should be addressed as a discrepancy adjustment issue through RGS and reflected on Form 4549-E, Income Tax Discrepancy Adjustments.

    6. If the Form 1040 statute of limitations is not open or the Form 1040 statute of limitations is determined to be too short to pursue a discrepancy adjustment, IRC 4973 tax for these years can be referred to SB/SE or W&I on Form 5666, TE/GE Referral Information Report, if the taxpayer did not previously file Form 5329.

    7. Alternatively, the EP agent may pursue IRC 4973 tax for these past years, but the case should not be worked through RGS on Form 4549-E if the Form 1040 is not being worked. See IRM 4.4.14, AIMS Procedures and Processing Instructions - Individual Retirement Account (IRA), Education Savings Accounts and Medical Savings Account Adjustment, and contact EP Mandatory Review, if Form 5329 is being examined by the EP agent apart from Form 1040.

  10. IRC 72(t) tax applies to excess amounts distributed to individuals from a SEP, SARSEP or SIMPLE IRA to the extent that amounts distributed were not previously taken into income.

  11. If a SARSEP is determined not to meet the requirements of IRC 408(k):

    1. IRC 4979 excise tax is imposed on the employer.

    2. IRC 4979 excise tax applies to excess contributions determined for a SARSEP under IRC 408(k)(6)(A)(iii), if the SARSEP was qualified at any time.

    ,

    Note:

    The statute of limitations for IRC 4979 begins to run with the filing of Form 5330, Return of Excise Taxes Related to Employee Benefit Plans.

4.71.17.7  (07-29-2014)
Closing an NRU Case

  1. Prior to closing any NRU examination, the agent must conduct a closing conference with the taxpayer or taxpayer's representative (POA) either in person or by telephone. In the closing conference the agent will:

    1. Inform the taxpayer and/or POA that the audit has been completed.

    2. Inform the taxpayer and/or POA that a closing letter will be issued.

    3. Inform the taxpayer and/or POA of the years and returns covered by the letter.

    4. Discuss with the taxpayer and/or POA of the issues found during the exam.

    5. Discuss with the taxpayer and/or POA the actions taken to resolve the issues and prevent future occurrences.

    6. Document the case chronology record (CCR) that the closing conference occurred and the content of the conversation.

  2. Form 5650, EP Examined Closing Record, should be completed for all MFT 74 NRU examinations. The following line items on Form 5650 should be completed as noted:

    1. P7-18: Enter the taxpayer’s EIN followed by an "N" .

    2. P21-22: Enter the MFT code.

    3. P24-29: Enter the tax period.

    4. P31-34: Enter the name control.

    5. P58-60: Enter the plan number.

    6. C: Enter the name of the taxpayer.

    7. Item 13: Enter the applicable disposal code. See IRM 4.71.1.22.3, Disposal Codes.

      Note:

      If the disposal code is 15, an entry in item 613 is required.

    8. Item 28: Enter the examiner’s time on the case.

    9. Item 30: Enter the Examination Technique Code. Enter 2 for an OCEP and 4 for a field examination.

    10. Item 31: Enter the examiner’s grade.

    11. Item 32: Enter the grade of the case in the blocks from left to right as two digits (for example, Grade 9= 09).

    12. Item 33: Enter the examiner’s last name, leave a space and then enter the examiner's first initial.

    13. Item 40: Enter the current fiscal year project code. If there is none, enter 0000.

    14. Item 42: Enter the ARDI code if the disposal code is 15.

    15. Item 50: Enter the examiner’s group number.

    16. Item 600: Enter 512 (Revenue Agent) or 987 (Tax Law Specialist).

    17. Item 602: Enter excise tax picked up during the exam that is not reflected on Form 5599 of a related Form 5330 exam.

      Note:

      Item 613 was added to Form 5650. The sanction amount for a closing agreement should now be entered in item 613 instead of item 602

    18. Item 603: Enter any penalties picked up during the exam that is not reflected on Form 5599 of a related Form 5330 exam.

    19. Item 604: Enter totals from line 603.

    20. Item 605: An entry is required when disposal code 13 is used. Enter the amount of proposed adjustments referred to an Examination Functional Unit (for example, SB/SE).

    21. Item 606: Enter deductions claimed for contributions to the plan. Must be at least $1.

    22. Item 607: Enter total trust assets as of the end of the plan year. Must be at least $1.

    23. Item 608: Enter the number of participants that were directly affected by the examination. Must enter 0 if none are directly affected (item cannot be left blank).

    24. Item 609: Enter plan type (1) for a defined benefit plan or (2) for a defined contribution plan.

    25. Item 610: Enter the applicable Issue Code(s) that relate to the Disposal Code. Only one Issue Code for Disposal Code 02 (issue code 37Z) should be entered. Issue Codes should relate to the issues found during the examination. If a Disposal Code other than 02 is used then up to three Issue Codes can be entered. Any remaining spaces should be filled in with zeros. See Document 6476 for a list of Issue Codes.

    26. Item 612: Enter the applicable NAICS Code (see Doc. 6476).

    27. Item 613: Enter the sanction amount of any closing agreement. It is a required field when closing an MFT 74 using Disposal code 15 (RCCMS 106). If a closing agreement involves more than one year, enter the amount in the earliest year only and $1 in the other years.

    Note:

    See IRM 4.71.17 Exhibit 5 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 5650.

  3. Form 5599, TE/GE Examined Closing Record, should be completed for all MFT 99 NRU examinations. The following line items on Form 5599 should be completed as noted:

    1. P7-18: Enter the taxpayer’s TIN followed by a "N" .

    2. P21-22: The MFT is 99.

    3. P24-29: Enter the tax period.

    4. P31-34: Enter the name control.

    5. C: Enter the name of the taxpayer.

    6. Item 12 – Penalties (+): Enter the applicable Penalty Reference Number and the amount of penalties that are being assessed (if applicable). See chapter 11 of Document 6209 for Penalty Reference Numbers.

    7. Item 13: Enter the applicable disposal code.

    8. Item 14: Enter the statute expiration date.

    9. Item 28: Enter the examiner’s time on the case.

    10. Item 30: Enter the technique code: 4 – Field examination, or; 2 – OCEP.

    11. Item 31: Enter the examiner’s grade.

    12. Item 32: Enter the grade of the case in the blocks from left to right as two digits (for example, Grade 9= 09)

    13. Item 33: Enter the examiner’s last name; leave a space and then first initial.

    14. Item 35: Enter $1 if the disposal code is 15.

    15. Item 40: Enter the applicable project code.

    16. Item 42: Enter the ARDI code, if applicable.

    17. Item 48: Enter the EP Special Project Code Definer, if applicable.

    18. Item 50: Enter the examiner’s group code.

    Note:

    See IRM 4.71.17 Exhibit 6 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 5599.

  4. Complete all of the appropriate RCCMS closing actions, making sure the "Update AIMS" box is checked.

  5. Ensure the applicable paper forms have been completed: Form 5650 or Form 5599 (or Form 5596, TE/GE Non-Examined Closings, for surveyed cases).

  6. Prepare the applicable closing letter that pertains to the specific NRU case. The letter will be mailed out in accordance with general EP examination procedures. See IRM 4.71.1.22.1, Closing Procedures for Agreed Form 5500 Examinations, for a list of applicable closing letters.

  7. If the only paper documents are Form 5650, Form 5599, Form 5596, and/or a required checksheet, the case can be closed electronically (no paper file is necessary) as long as the applicable forms along with a Form 3210 (indicate in the remarks section that the case is 100% electronic) are faxed to Examinations Special Support and Processing (ESSP) in Brooklyn 718-834-6521 or Baltimore 443-853-5647 depending on where the RCCMS case will be closed.

    Note:

    These forms and/or checksheet will be faxed by the group manager (or designee).

4.71.17.8  (07-29-2014)
Surveyed Cases

  1. Under certain circumstances, a group may make the determination not to examine a return initially selected for examination. These cases may be closed by survey.

  2. After appropriate coordination with the responsible EP Project Analyst and their Area Manager, group managers may survey a return, before or after assignment, if an examination is not warranted or if the number of returns assigned to the group exceeds the number that can be examined and processed in a timely manner.

  3. Complete Form 5596 to reflect the EIN, MFT, Plan Number, Year, Taxpayer Name and disposal code 32 (Surveyed After Assignment). See IRM 4.71.17 Exhibit 8 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 5596.

  4. Use closing Letter 1024-B if a SEP, SARSEP or SIMPLE IRA exam is surveyed after contact was made with the taxpayer because it was determined not to be a SEP, SARSEP or SIMPLE IRA or because no contributions were made to an IRA plan.

  5. Close the case to ESSP.

  6. Surveyed NRU cases are closed in ESSP using command code AMSOC.

4.71.17.9  (07-29-2014)
NRU Cases Established in Error

  1. There are occasions when NRU cases are established on RCCMS and AIMS in error.

  2. When this happens, EP Classification should first be contacted to see if the issue can be corrected without deleting the case. EP Classification can be contacted by email at *TE/GE-EP-Classification@irs.gov

  3. If the NRU is established in error on AIMS and the case must be deleted:

    1. Complete Form 10904.

      Note:

      On Form 10904, make sure the box next to disposal code 33 is checked. See IRM 4.71.17 Exhibit 7 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 10904.

    2. Obtain manager and Area Manager approval through electronic signatures on Form 10904.

    3. Fax or email Form 10904 to the EP AIMS Coordinator in Examinations Special Support and Processing (ESSP). The fax number is (443) 853-5647.

    4. Save the electronically signed Form 10904 inside the Office Documents folder in RCCMS for the case being deleted.

    5. The RCCMS account will be closed to Support Processing (EP Closing Unit) with disposal 901 (error account).

    6. The account will be deleted by the EP AIMS Coordinator when the RCCMS record is received.

4.71.17.10  (07-29-2014)
Checksheet for Employee Plans Compliance Activities (CECA Checksheets)

  1. The CECA checksheet is required for each EP examination when an NRU exam results in a "change" closure (all disposal codes except 02).

    1. Tax amounts, from a Form 5330 or Form 990-T, Exempt Organization Business Income Tax Return, that are picked up in relation to a Form 5500 or an NRU exam, should be reflected on the checksheet that is completed for the Form 5500 or an NRU exam.

    2. A separate CECA checksheet should not be completed for a Form 5330 or Form 990-T exam.

    3. Results from a Form 5330 or Form 990-T exam that has no related Form 5500 exam will not be reported on any CECA checksheet.

    4. Income tax amounts from a Form 1040/1120 discrepancy adjustment that is picked up in relation to a Form 5500 or an NRU exam should be reflected on the checksheet that is completed for the Form 5500 or an NRU exam.

    5. A separate CECA checksheet should not be completed for a Form 1040/1120 discrepancy adjustment.

    6. Results from a Form 1040/1120 discrepancy adjustment that has no related NRU exam will not be reported on any CECA checksheet.

  2. One checksheet is required to be completed for each plan under examination.

    1. When multiple years for the same plan are under exam, only one checksheet that incorporates all years should be completed.

    2. Example: You are assigned a SEP examination for the plan year ending 12/31/2009. You discover several operational errors and pick up examinations of the plan years ending 12/31/2010 and 12/31/2011. Assume that all three returns are closed as "change" cases. In this instance, you should prepare one CECA checksheet with 12/31/2009 as the primary year, and ensure that the operational impact and restoration explanation pertaining to all three years is rolled into the single checksheet.

  3. A separate checksheet should be completed for each distinct plan examined.

  4. A CECA checksheet is required to be completed (if the case is a "change" case) for special project cases that have their own special checksheet for the project. In those instances two checksheets are required: a CECA checksheet and the special project checksheet.

  5. The current version of the CECA Checksheet can be downloaded from the EP Examination website using this link: Checksheet for EP Compliance Activities (CECA).

  6. When completing the CECA checksheet:

    1. Always set the Adobe View Percentage to “100%”. The use of this setting will resolve any difficulties that may arise when attempting to answer "No" to Questions 12B, 12C and 12D.

    2. Turn-off the Auto-Complete feature in Adobe. To turn-off the Auto-Complete feature, open an Adobe document; select Edit, then Preferences; within the Categories column, select Forms; set Auto-Complete to "Off".

      Note:

      Error messages regarding punctuation may be received when answering "zero" to a question (for example, Questions 14A-14K). These error messages can be eliminated by turning-off the Auto-Complete feature in Adobe.

    3. Always provide an answer to every CECA question, even if the answer is "zero." Leaving a question "blank" gives the impression that the questions were skipped.

      Note:

      Checksheets bearing unanswered questions (for example, Questions 14A–14K) will be returned to the originating group for proper completion by EP Examinations, Programs & Review.

  7. It is important that compliance results are accurately reported at the time of case closure.

    1. Complete and precise reporting is essential to the mission of EP in order to ensure that our efforts and results are correctly captured.

    2. Even though the effect behind the scenes may not be visibly seen, this information is vitally important for reporting purposes as well as for determining future compliance initiatives.

  8. After completing the CECA checksheet the EP agent should:

    1. Save the CECA checksheet in the RCCMS Office Documents folder using the RCCMS Naming Convention.

    2. Annotate the Case Chronology Record (Form 5464) that the CECA checksheet has been completed and save the Form 5464 in the RCCMS Office Documents folder using the RCCMS Naming Convention.

      Note:

      An electronic copy of the CECA checksheet is no longer required to be emailed by the agent to his/her group manager.

      Note:

      A paper copy of the CECA checksheet is no longer required to be placed in the case file.

    3. Close the case to the group manager.

  9. When the group manager receives the closed case from the agent, the following actions related to the CECA checksheet will be taken:

    1. The group manager will access the CECA checksheet in the RCCMS Office Documents folder.

    2. The group manager will review the completed CECA checksheet, ensuring that all questions have been answered and that the entered data is within the statistical norms for the type and size of the taxpayer plan reviewed, and the type of change issue(s) documented.

    3. If the case is unagreed, after completing his/her review of the CECA checksheet, the group manager shall securely email an electronic copy of the checksheet to the CECA mailbox (*TE/GE-EP-CECA).

      Note:

      When emailing a completed CECA checksheet, do not include the plan name or the taxpayer name in the subject line of the email since the subject is not secure.

    4. If the case is unagreed, the group manager shall not mail an "electronic copy" of the checksheet to the CECA mailbox.

      Note:

      EP Mandatory Review will email the CECA checksheet to the CECA mailbox for all unagreed cases.

    5. Whether the case is agreed or unagreed, a copy of the CECA checksheet will be saved in the RCCMS Office Documents folder.

    6. If the case is agreed, the Case Chronology Record which was saved in RCCMS by the agent) shall be annotated by the group manager that the CECA checksheet was completed by the agent, reviewed by the manager, and forwarded to the CECA mailbox.

    7. If the case is unagreed, the Case Chronology Record (which was saved in RCCMS by the agent) shall be annotated by the group manager that the CECA checksheet was completed by the agent, reviewed by the manager, and left within RCCMS for processing by Mandatory Review.


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