4.75.15  Closing Letters and Reports of Examination

Manual Transmittal

March 31, 2014

Purpose

(1) This transmits text and exhibits for revised IRM 4.75.15, Exempt Organizations Examination Procedures, EO Closing Letters and Reports of Examination.

Material Changes

(1) This manual is restructured and rewritten to:

  • Follow a workflow process,

  • Discussing preparation of initial and formal reports of examination,

  • Determining whether a response is a valid formal protest to Appeals, and

  • Writing a rebuttal to a protest.

(2) The following table lists the various sections from the old IRM, the new section, and a description of the changes:

Prior IRM Section Number New IRM Section Number Description of Changes
4.75.15.1, Introduction 4.75.15.1, Introduction Some of the information is in other subsections more appropriate to the topic. This new subsection summarizes the information.
4.75.15.2, Closing Definitions 4.75.15.4, Types of Audit Results Expanded this subsection to include examples and a listing of various types of audit results.
4.75.15.3, Basic Report Forms 4.75.15.7, Proposing Adjustments Added additional forms and created two tables: one table for the waiver / agreement forms and one for the other report forms.
4.75.15.4, No Change Examinations 4.75.15.5, No Issues Modified this subsection to clarify when no change is used.
4.75.15.5, No Change With Written Advisory Examinations 4.75.15.6, Issues That Are Under Tolerance (Advisory) Modified this subsection to delete examples of the numerous types of advisories.
4.75.15.6, Draft Reports in Change Cases 4.75.15.7, Proposing Adjustments Expanded this subsection to discuss the RAR in more detail.
4.75.15.7, Reports of Examination 4.75.15.7.1, Form 886-A Deleted the information relating to the RAR.
4.75.15.8, General Guidelines for Presentation of Issues in Reports of Examination 4.75.15.7, Proposing Adjustments Expanded the information to include additional forms.
4.75.15.9, Revocation 4.75.15.8.1, Revocations The new sub-subsection eliminates references to sample RAR reports which are no longer available. Moved the information relating to the report to the initial reports and formal reports subsections. The required forms did not change.
4.75.15.10, Modification of Exempt Status - General 4.75.15.8.2, Modification of Exempt Status Moved the information relating to the report to the initial reports and formal reports subsections. The required forms did not change.
4.75.15.11, Reclassification of Foundation Status 4.75.15.8.3, Reclassification of Foundation Status and Modification of Operating Foundation Status The prior version broke out agreed from unagreed procedures. Moved this information into the initial reports and formal reports subsections. The required forms did not change.
4.75.15.12, Modification of Operating Foundation Status 4.75.15.8.3, Reclassification of Foundation Status and Modification of Operating Foundation Status Merged this section with the Reclassification of Foundation Status sub-subsection. Moved the information relating to the report to the initial reports and formal reports subsections. The required forms did not change.
4.75.15.13, Unrelated Business Taxable Income 4.75.15.8.5, Unrelated Business Income (UBI) The prior version broke out agreed from unagreed procedures. Moved this information into the initial reports and formal reports subsections. Incorporated the inclusion of Forms 870 and Form 4549-A for unagreed cases in lieu of Form 4549.
4.75.15.14, Private Foundation Excise Taxes 4.75.15.8.7, Private Foundation Excise Taxes The prior version broke out agreed from unagreed procedures. Moved this information into the initial reports and formal reports subsections. The required forms did not change.
4.75.15.15, Non-Private Foundation EO Excise Taxes 4.75.15.8.7, Non-Private Foundation Excise Taxes The prior version broke out agreed from unagreed procedures. Moved this information into the initial reports and formal reports subsections. The required forms did not change. The new version has a table for each type of tax for easier reference.
4.75.15.16, Nonexempt Charitable Trusts Examinations 4.75.15.8.9, Nonexempt Charitable Trusts Added cites to other relevant IRMs.
4.75.15.17, Claims N/A Removed this information as it is being included in a new manual, IRM 4.75.37, Claims, Requests for Abatement, Audit Reconsiderations and Offers in Compromise.
4.75.15.18, Citation Forms for Report Writing IRM 4.75.15.7.1.3, Law Moved this information to the sub-subsection relating to Form 886-A.
Exhibit 4.75.15-1, Closing Letters and Report Forms by Type of Case Exhibit 4.75.15-1, Closing Letters for No Change Cases
Exhibit 4.75.15-2, Initial Report Forms
Exhibit 4.75.15-3, Formal 30- Day Letters and Enclosures
Broke the information out into the appropriate exhibit instead of having it all in one exhibit.
Exhibit 4.75.15-2, Form 886-A, Explanation of Items IRM 4.75.15.7.1, Form 886-A The new IRM contains a specific sub-subsection relating to Form 886-A. Incorporated the information in the exhibit into this sub-subsection.
Exhibit 4.75.15-3, Form 886-A, Instructions for Completion IRM 4.75.15.7.1, Form 886-A The new IRM contains a specific sub-subsection related to each element of the Form 886-A. Incorporated the information in the exhibit into the appropriate sub-subsection.
Exhibit 4.75.15-4, Form 4621, Exempt Organizations - Report of Examination (Proposed Tax Changes) IRM 4.75.15.7.6, Form 4621 and Form 4621-A Created a new sub-subsection relating specifically to this form. Incorporated the information in the exhibit into this new sub-subsection.
Exhibit 4.75.15-5, Form 4621, Instructions for Completion Exhibit 4.75.15-4, Form 4621, Exempt Organizations - Report of Examination (Proposed Tax Changes), Instructions for Completion Updated the instructions under the "Remarks" section from agreed or unagreed changes to initial reports and formal reports.
Exhibit 4.75.15-6, Form 4621-A, Report of Examination - Exempt Organizations (Proposed Status Changes) IRM 4.75.15.7.6, Form 4621 and Form 4621-A Created a new sub-subsection relating specifically to this form. Incorporated the information in the exhibit into this new sub-subsection.
Exhibit 4.75.15-7, Form 4621-A, Instructions for Completion Exhibit 4.75.15-5, Form 4621-A, Exempt Organizations - Report of Examination (Proposed Status Changes), Instructions for Completion Updated the instructions under the "Remarks" section from agreed or unagreed changes to initial reports and formal reports. Also added a section relating to Status 36 organizations in the "Remarks" section.
Exhibit 4.75.15-8, Form 4883, Exempt Organizations Excise Tax Audit Changes IRM 4.75.15.7.7, Form 4883 Created a new sub-subsection relating specifically to this form. Incorporated the information in the exhibit into this new sub-subsection.
Exhibit 4.75.15-9, Form 4883, Instructions for Completion Exhibit 4.75.15-6, Form 4883, Exempt Organizations Excise Tax Audit Changes, Instructions for Completion Made no material changes.
Exhibit 4.75.15-10, Report of Examination for Modification of a 501(c)(3) Organization N/A Deleted
Exhibit 4.75.15-11, Revised Revocation Letter, No Form 1120 or 1041 filed (Agreed) N/A Deleted. Primarily for Mandatory Review. See IRM Exhibit 4.75.31-9.
Exhibit 4.75.15-12, Revised Revocation Letter, Form 1120 or 1041 filed (Agreed) N/A Deleted. Primarily for Mandatory Review. See IRM Exhibit 4.75.31-9
Exhibit 4.75.15-13, Revised Modification Letter (Agreed) N/A Deleted. Primarily for Mandatory Review.

(3) Added IRM 4.75.15.2, Terminology.

(4) Added IRM 4.75.15.3, Signing and Issuing Letters. This section sets correspondence rules for EO Examinations. It incorporates the relevant information contained in the April 8, 2010 Alert: Administrative Actions Required for Change in Leadership, as well as relevant information contained in the February 14, 2008 Memorandum: Control and Restricted Usage of Signature Stamps.

(5) Added IRM 4.75.15.7.1.7, Alternative Position.

(6) Created new sub-subsections to explain when each of the following forms are used: Forms 870, 870-E, 6018, 6018-A, 4549, 4549-A, 4549-B, 4549-E, 4621, 4621-A, and 4883. These sections are IRM 4.75.15.7.2 through 4.75.15.7.7.

(7) Added IRM 4.75.15.7.8, Fast Track Settlement.

(8) Added IRM 4.75.15.8.5, Employment Taxes. This section incorporated the information contained in the June 14, 2011 Alert: Revisions to Employment Tax Letters.

(9) Added IRM 4.75.15.8.9, Inactive Organizations.

(10) Added IRM 4.75.15.9, Initial Reports of Examination.

(11) Added IRM 4.75.15.10, Formal Reports of Examination. This section incorporated the relevant information in the July 10, 2007 Alert: Revision of EO Examinations Memorandum dated April 2, 2007 entitled "Revised Closing Procedures for Agreed Revocations and Modifications for Other than IRC 501(c)(3) Organizations" . It also contains the information from the October 12, 2007 Memorandum: Employment Tax 30-Day Letter default cases.

(12) Added 4.75.15.11, Formal Protests.

(13) Added 4.75.15.12, Rebuttals to Formal Protests.

(14) Added 4.75.15.13, Technical Advice Memorandum (TAM). Clarifies procedures for issuing a report when a TAM is involved.

(15) Added 4.75.15.14, Fast Track Settlement

(16) Added Exhibit 4.75.15-7, Form 870, Waiver of Restrictions on Assessment & Collection of Deficiency in Tax & Acceptance of Overassessment, Instructions for Completion.

(17) Added Exhibit 4.75.15-8, Form 870-E, Waiver of Restrictions on Assessment and Collection of Deficiency and Acceptance of Overassessment, Instructions for Completion.

(18) Added Exhibit 4.75.15-9, Form 4549, Income Tax Examination Changes, and Form 4549-A, Income Tax Examination Changes (Unagreed and Excepted Agreed), Instructions for Completion.

(19) Added Exhibit 4.75.15-10, Form 6018-A Consent to Proposed Action - Non Declaratory Judgment, Instructions for Completion, Instructions for Completion.

(20) Added Exhibit 4.75.15-11, Consent to Proposed Adverse Action, Instructions for Completion.

(21) Added Exhibit 4.75.15-12, Guidelines for Issuance of Letters. This table also includes a link to a list of EO examination letters.

(22) Added Exhibit 4.75.15-13, Rebuttal Letter.

(23) Added Exhibit 4.75.15-14, 30 Day Letter - Proposed Revocation of IRC 501(c)(3) Exemption - Based on a TAM

(24) Added Exhibit 4.75.15-15, 30-Day Letter - Proposed Reclassification of Foundation Status - Based on a TAM

(25) Added Exhibit 4.75.15-16, 30-Day Letter - Proposed Revocation of Exempt Status (other than IRC 501(c)(3)) - Based on a TAM

(26) Added Exhibit 4.75.15-17, 30-Day Letter - Proposed Modification of Exempt Status - Based on a TAM

(27) This manual incorporates the relevant information from the Interim Guidance memorandum dated April 4, 2006: Group Closing Letter Procedures.

(28) Eliminated references to the Political Activity Committee Initiative (PACI).

(29) Rewrote this manual to comply with the Plain Writing Act. For additional information on the Plain Writing Act, see http://www.plainlanguage.gov.

Effect on Other Documents

This supersedes IRM 4.75.15, EO Closing Letters and Report of Examination dated August 1, 2010.

Audience

TE/GE (Exempt Organizations Examiners)

Effective Date

(03-31-2014)

Tamera L. Ripperda
Director, Exempt Organizations

4.75.15.1  (03-31-2014)
Introduction

  1. The procedures outlined in this manual addresses the report issuance process and the appropriate closing letters for all EO examinations.

  2. This manual also provides a comprehensive list of audit results for which reports will be issued, as well as the letters and forms used in those reports.

4.75.15.2  (03-31-2014)
Terminology

  1. RAR - The examiner's report recommending a change in tax, status or claim disallowance. Also known as the "Revenue Agent's Report" or "Report of Examination" . Page one of every RAR for:

    Tax Issue: Report Form
    Status changes Form 4621-A, Exempt Organizations - Report of Examination (Proposed Status Changes)
    Chapter 41 or 42 excise tax changes (or IRC 507(c) tax) Form 4621, Exempt Organizations - Report of Examination (Proposed Tax Changes)
    Income tax changes including UBIT (or Proxy Tax) Form 4549, Income Tax Examination Changes, or Form 4549-A, Income Tax Examination Changes (Unagreed and Excepted Agreed)
    Employment tax changes Form 4666, Summary of Employment Tax Examination
    Gaming excise tax changes Form 5385, Excise Tax Examination Changes, or Form 5384, Excise Tax Examination Changes and Consent to Assessment and Collection

    Examiners may rescind a RAR and issue a corrected RAR. Discrepancy adjustments are not "examinations" . See IRM 4.75.28, EO Discrepancy Adjustments, for the use of Form 4549-E, Income Tax Discrepancy Adjustments, and the discrepancy adjustment process.

  2. Initial Report or Initial Proposal - Examiner's optional preliminary report consisting of an Information Document Request (or similar transmittal) and a summary RAR, which solicits an agreement to change in tax, status or claim disallowance, and solicits correction in the case of certain IRC Chapter 42 excise taxes if there is no full correction. The proposed change will be either agreed or unagreed based on a reply (or non-reply) to the initial report. Do not issue initial reports for church cases, subject to IRC 7611. Generally, do not issue initial reports in IRC 501(c)(3) cases subject to declaratory judgment under IRC 7428. A formal report is still required even if the taxpayer agrees.

  3. Formal Report - Examiner's formal report consisting of a 30-day letter with RAR, issued for unagreed cases (and all IRC 501(c)(3) declaratory judgment cases under IRC 7428), or consisting of a final agreed change letter with an RAR for agreed cases.

  4. 30-day Letter - The official letter that notifies the taxpayer of a proposed change in tax or status, or disallowance of claim or abatement, permitting the taxpayer an opportunity for administrative review in Appeals. The 30-day letter serves as a transmittal for the RAR and is required for all unagreed changes and disallowances, and for allIRC 501(c)(3) cases subject to declaratory judgment under IRC 7428. See Treas. Regs. 601.201(n)(6) for status changes; and IRC 7522(b)(3), IRC 7430(c)(2)(B), IRC 6603(d)(3)(B) and Treas. Regs. 601.105(d) for tax changes. The 30-day letter for tax purposes is also the "preliminary (30-day) letter" . See IRM 4.10.8.11, Unagreed Case Procedures: Preliminary (30-Day) Letters.

  5. Primary Returns - Denotes the annual EO information return. For EO Exam cases, all other returns revolve around this return. The primary return also serves as the return-of-record for statute purposes. The following returns are primary returns under EO jurisdiction:

    • Form 990, Return of Organization Exempt From Income Tax

    • Form 990-EZ, Short Form Return of Organization Exempt From Income Tax

    • Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation

    • Form 990-BL, Information and Initial Excise Tax Return for Black Lung Benefit Trusts and Certain Related Person

    • Form 5227, Split-Interest Trust Information Return

    • Form 1065 (for IRC 501(d) religious apostolic organizations), U.S. Return of Partnership Income

    Note:

    Although not a "return" , treat Form 990-N, e-Postcard, as a primary return for disposal code purposes.

  6. Related Returns - Any return of the same taxpayer relative to a primary return, including other primary returns. For EO Examinations Division, treat a discrepancy adjustment return and a Form 4720-A filed by or on behalf of disqualified persons, self-dealers, managers, donors, or donor advisors as related returns. The related returns need not be of the same tax year as the primary return.

  7. Case - A case consists of the primary return for one year plus other returns, if any, involving interrelated interests and/or transactions that require concurrent examination. Other returns include returns subsequent and/or prior to the primary return of the taxpayer, as well as returns for related taxpayers for the primary year and subsequent and/or prior years.

  8. Deficiency Procedures - Procedures under Subchapter B of chapter 63 (including IRC 6211 to IRC 6216) of the Internal Revenue Code. With certain exceptions, you must follow deficiency procedures before a closing unit can make an audit assessment. Deficiency procedures consist of a 30-day letter process, appeals process if applicable, and a 90-day letter process.

4.75.15.3  (03-31-2014)
Signing and Issuing Letters

  1. Delegated officials are those authorized to affix the signature stamp of the Director, EO Examinations on appropriate correspondence. Delegated officials include group managers, area managers (including Manager, EPR; Manager, EOCA; and, Manager, CSCI), and reviewers.

  2. Signature stamps are high (HS) security items. See IRM 1.4.6-2, Protectable Items.

  3. Groups locally procure signature stamps. Only designated officials have access to these stamps. Follow proper security procedures. See IRM 4.8.9.10.1(4) , Signing Notices.

  4. The signature block of the Director, EO Examinations is present only on "appropriate correspondence." Appropriate correspondence includes:

    Type of letter... Notes...
    All examination closing letters, whether:
    1. Change or no change.

    2. Official standard or nonstandard.

    3. Issued by groups or Mandatory Review.

      Note:

      Rebuttal letters are not official examination closing letters.

    Includes 30-day letters, termination letters, inadequate records notices, and the Status 97 closing letter.

    The Group Manager must carefully review and approve the contentt of nonstandard closing letters.

    If needing to edit form letters to fit the unique characteristics of a case, insert the words, "in lieu of" before or above the letter number at the lower right corner of the form letter.

    Managers must approve edits to form letters.
    "Examination closing letters" include all 90-day letters and similar final statutory notices, such as:
    1. Final Adverse Determination Letters (FADLs).

    2. Statutory Notices of Deficiency.

    3. Notices of Determination of Worker Classification (NDWCs).

    4. Statutory Notices of Claim Disallowance.

    The Manager EPR has the delegated authority to sign (or affix the Director's signature stamp on) FADL's and NDWC's. Refer to TE/GE Delegation Order (D.O.) 18 and IRM 1.2.46.3, Delegation Order 7-2 (formerly DO-113, Rev. 14), and IRM 1.2.43.24, Delegation Order 4-26 (formerly DO-251)

    Grade 12 reviewers and above have the delegated authority to sign (or affix the Director's signature stamp on) Statutory Notices of Deficiency. Refer to IRM 1.2.43.9, Delegation Order 4-8, Rev. 1 (formerly DO-4-8 and DO-77, Rev. 28).


    Note: Per IRM 4.75.16.4.2.1(2), area managers have the delegated authority to issue statutory notices of deficiency and NDWC's. However, this authority is reserved for TEP cases, and for imminent statute cases unable to close to review functions.



    Approved EOCA computer generated compliance letters. The Manager, EOCA has the delegated authority to determine which letters are eligible for the EO Exam Director’s signature block.
    Approved cover letters to State Attorney General or to other lawful federal or state officials prepared by the Federal-State Coordinator for IRC 6104(c) or IRC 6103(d) purposes. The Manager, CSCI has the delegated authority to determine which letters are eligible for the EO Exam Director’s signature block.

  5. Determine the appropriate address to include in the heading:

    If the letter is... Then use...
    All examination closing letters, except 30-day letters.
    For exam closing letters issued by groups:
    1100 Commerce St., MC 4900 DAL
    Dallas, TX 75242

    For exam closing letters issued by Mandatory Review:
    1100 Commerce St., MC 4920 DAL
    Dallas, TX 75242
    All other examination correspondence.
    This includes 30-day letters issued by groups.
    Sender's mailing address.
    All other correspondence. Sender's mailing address.

  6. Group managers, area managers, EOCA manager, CSCI manager, or reviewers and their managers (the "delegated signing officials" or "signature authority" ) have the authority to place their own signature and place the word, "for" before the EO Exam Director's name, (the "specified official" or "approving authority" ), consistent with delegation orders. If a signature stamp is not available at outlying posts of duty, agents Grade 11 and above (with group manager approval only) may place their signature in the manner stated herein.

  7. If the signature stamp is not available, group managers, area managers, EOCA manager, CSCI manager, or reviewers and their managers (the "delegated signing officials" or "signature authority" ) may sign the Director's name (the "specified official" or "approving authority" ), followed by their initials, consistent with delegation orders.

  8. Correspondence other than "appropriate correspondence" will have the signature block of the sender and his/her signature.

    Example:

    Soliciting a statute extension, appointment letters, and letters requesting additional information.

  9. Agents do not need to print letters issued by the review function. Simply indicate the letter number on Form 5772, EO Workpaper Summary, and in the Mandatory Review section of Form 3198-A, TE/GE Special Handling Notice.

  10. Mandatory Review has the primary responsibility to issue 90-day letters, certain final determination letters in agreed cases, termination letters, and inadequate records notices. See IRM 4.75.16.6(4). For short statute returns, refer to IRM 4.75.16.4.2.3, Short Statute Cases - 90-Day Letter Process.

  11. For a list of examination letters including closing letters and 30-day letters, see http://tege.web.irs.gov/article.asp?title=guidelines-issuance-letters&path=/my-job/1_revenue-agent/2_examination. For rules regarding the appropriate heading address, signature block, person-to-contact, and issuer of a letter, see Exhibit 4.75.15-12, Guidelines for Issuance of Letters.

    Reminder:

    Before issuing a letter, ensure that you have placed the date of issuance on the letter.

  12. Do not use nonstandard letters for official examination closing letters, unless the group manager approves. A nonstandard letter may be required if an official examination closing letter does not fit the unique circumstances of the case. These instances should be rare. If a nonstandard letter is required, notify Mandatory Review by sending a copy of the nonstandard letter to the mailbox at *TEGE EO Review Staff. State in your notification why you needed to use the nonstandard letter.

4.75.15.4  (03-31-2014)
Types of Audit Results

  1. Close each audited return under EO jurisdiction under one of the audit results listed below. Note that each change in tax or status must be either agreed or unagreed (except terminations and closing agreements). Unagreed changes are further classified as either "with" or "without" the taxpayer's protest for appeal:

    • No change

    • No change with advisory

    • No change with advisory, Form 5666, TE/GE Referral Information Report, required

    • No change with advisory, Form 5666 required - Inadequate Records Notice

    • Revocation of tax-exempt status (IRC 501(c)(3) - IRC 7428 case)

    • Revocation of tax-exempt status (501(c)organizations other than (c)(3), and 501(d))

    • Modification of tax-exempt status (501(c) organizations other than (c)(3)). See IRM 4.75.15.8.2.

    • Reclassification of foundation status (501(c)(3) organizations - IRC 7428 case)

    • Disqualification of tax-exempt status (Status 40 organizations - IRC 7428 case)

    • Disqualification of tax-exempt status (Status 36 and IRC 501(c)(12) or IRC 501(c)(15))

    • Closing Agreement. See IRM 4.75.25, Exempt Organizations Examinations Closing Agreements

    • Termination of tax-exempt status. See IRM 4.75.16, Case Closing Procedures

    • Change in tax

    • Allowance of a claim in full. See Exhibit 4.75.15-1

    • Allowance of a claim in full - surveyed claim

    • Disallowance of a claim in full or in part. See Exhibit 4.75.15-2 and Exhibit 4.75.15-3

    • Disallowance of a claim in full or in part, plus additional tax or penalty. See Exhibit 4.75.15-2 and Exhibit 4.75.15-3

    • Allowance of an abatement request in full

    • Disallowance of an abatement request in full or in part

    • Disallowance of an abatement request in full or in part, plus additional tax or penalty

    Note:

    Advisories can include reference to secured delinquent returns, changes to related returns, miscellaneous civil penalties imposed, and non-compliant issues of the organization.

  2. No Change - An audit that results in no change to exempt status, foundation status, or tax liability, where there are no issues for which a written advisory is appropriate.

  3. No Change With Advisory - An audit that results in no change to exempt status, but has other issues for which a written advisory is appropriate in an addendum to the closing letter. EO Examinations provides advisories only in connection with auditing primary returns. Generally, a written advisory is appropriate when:

    1. Some aspect of an organization's activities or operations, if enlarged or ongoing, may jeopardize the organization's exempt status, such as a proposed expansion of an unrelated business income producing activity.

    2. There are changes to tax addressed in separate reports.

    3. There are tax change issues that are below tolerances.

    4. There are identified delinquencies, or imposition of penalties.

    5. There are other compliance issues (not including status or tax change issues) which are appropriate to call to the attention of the organization.

    Example:

    An organization agrees to an employment tax report where the organization failed to report bonuses paid to employees. Assuming the organization continues to qualify for tax-exempt status, close the Form 990 audit with an addendum to the advisory letter referring to a separate report of examination on the agreed tax change.

    Example:

    Write an addendum to address a public patronage issue of club facilities by an IRC 501(c)(7) organization, if enlarged or ongoing, may jeopardize the organization's exempt status.

    Example:

    Write an addendum to present other compliance issues that did not merit an adjustment but are appropriate to call to the attention of the organization, such as gift cards given to employees (a possible de minimis adjustment).

  4. Change Cases - Cases in which the examination results in a change (or adjustment) in the organization's status or tax liability. Change cases are agreed, excepted agreed, partially agreed, unagreed with protest, or unagreed without protest.

  5. Agreed Change - There are agreed changes to tax or status. The taxpayer signs a waiver form agreeing to the changes. Claims and abatement requests allowed in full, or a tax adjustment in favor of the taxpayer do not need the taxpayer's signature. If there are two-tier Chapter 42 tax violations under IRC 4941, 4942, 4943, 4944, 4945, 4951, 4952, 4955, or 4958, violators must complete correction of all acts or failures to act that gave rise to such taxes before the audit is considered agreed.

  6. Excepted Agreed Change - The taxpayer agrees to proposed changes in tax or status by signing a waiver, but the audit results are subject to review, such as changes to exempt status and foundation status. The signing of the waiver:

    • Waives the statutory restriction upon assessment and collection of the deficiency of tax.

    • Waives the ability to contest the assessment in the United States Tax Court (unless an additional deficiency is proposed).

    • Stops the running of interest 30 days from the date of receipt if the tax is not assessed within the 30-day period.

    • Does not preclude assertion of a further deficiency.

    • Does not preclude a request for further consideration of the issues by the taxpayer.

    Note:

    The return is “excepted” from application of the case reopening criteria. See IRM 4.10.8.4, Excepted Agreed Cases.

    Example:

    You propose a revocation on a Form 990 audit of an IRC 501(c)(7) organization, and the revocation is agreed. All revocations are subject to Mandatory Review because Mandatory Review must concur with the revocation before finalizing it. The Form 990 audit is excepted-agreed.

    Example:

    You propose a revocation on a Form 990 audit that is unagreed, but the organization agreed to additional unrelated business income tax by signing Form 4549 in the event Mandatory Review or Appeals sustains the exemption. Because you cannot finalize the agreed UBIT issue due to a pending revocation issue, treat the Form 990-T audit as excepted-agreed. Therefore, the Form 990-T case file will ride with the Form 990 file to Mandatory Review. You must address an open Form 990-T audit as an alternative issue in a revocation RAR, whether the alternative 990-T issue was agreed or unagreed. See IRM 4.75.31, Conversion of Returns Upon Revocation of Exemption.

  7. Partially Agreed Change - At least one change issue is agreed and at least one change issue is unagreed, with respect to a specific type of tax (income, employment, or excise). Secure a signed waiver for the agreed issue for immediate processing by Mandatory Review, while the organization possibly contests the remaining issues in Appeals or in court. Partially agreed cases also include agreed changes in exempt status or foundation status, but the resulting tax is not agreed. If there are two-tier Chapter 42 tax violations under IRC 4941, 4942, 4943, 4944, 4945, 4951, 4952, 4955, or 4958, violators must complete correction of all acts or failures to act that gave rise to such taxes before the audit is considered agreed.

    Example:

    You propose changes to the unrelated business income tax for operation of a concession stand in a bingo hall, sales of pull-tabs, and you propose a change to the gaming excise tax on the sale of the pull-tabs. The organization agrees to the concession stand and gaming excise tax issues, but files a protest to Appeals over the sale of pull-tabs.

    Example:

    An organization agrees to the revocation of its exempt status, but does not agree to the agent's conclusion that the contributions received were program service revenue.

  8. Unagreed Change - The taxpayer does not agree to a change in tax or status, and in the case of two-tier Chapter 42 excise taxes, has not fully corrected. These can be unagreed with protest or unagreed without protest. All unagreed with protest cases are subject to Mandatory Review. If you receive a protest and sufficient time remains on the statute, Mandatory Review sends the returns to Appeals. If the taxpayer files a petition with Tax Court, the Court of Federal Claims, or the District Court for the District of Columbia, Appeals holds the returns. Most unagreed without protest cases are also subject to Mandatory Review, unless it is a:

    • Non-worker classification employment tax adjustment

    • Gaming excise tax adjustment

    • Status 36 disqualification case

    • Disallowance of abatement request

4.75.15.5  (03-31-2014)
No Issues

  1. If there are no issues meriting change in exempt status, reclassification of foundation status, or assessing some manner of tax or penalty (income, employment, and excise), close as a no change.

  2. No change cases require the following conclusions:

    • The organization's activities are consistent with the purposes for which we granted exemption.

    • The foundation status remains unchanged.

    • All significant return information is complete and correct.

    • You accept the applicable primary return as filed.

  3. Prepare the no change closing letter. See Exhibit 4.75.15-1, Closing Letters for No Change Cases, for the appropriate letter. Group managers approve and issue no change letters. Certain projects may require additional approval.

  4. See IRM 4.75.16, Case Closing Procedures, for further guidance.

4.75.15.6  (03-31-2014)
Issues Under Tolerance (Written Advisory)

  1. If an audit results in no change to tax-exempt status (and foundation status for 501(c)(3) organizations), but there are issues for which a written advisory is appropriate, prepare Letter 3609 identifying the primary return(s) under examination. Also prepare the addendum, which contains advisory paragraphs.

  2. Group managers approve and issue no change advisory letters. Certain projects may require additional approval.

    Note:

    Letter 3609 is limited to audits of Forms 990, 990-EZ, 990-PF, 990-BL and 1065 (apostolic organizations). For nonexempt charitable trusts and split-interest trusts, see IRM 4.75.15.8.9.

    Note:

    For audits of Form 990-N filers use a modified version of Letter 3609 by striking the sentence, "Accordingly, we accept the return(s) as filed," since no return has been filed. See additional edits in Exhibit 4.75.15-1.

  3. All advisory items must have a basis in tax law. Do not issue an advisory relating to the manner of keeping books and records. In the case of issues other than delinquencies, include the following for each advisory paragraph:

    1. Identify the noncompliant issue.

    2. Cite the law that requires compliance.

    3. Whether the taxpayer corrected the noncompliant issue.

    4. Whether we will impose a penalty, or whether the taxpayer established reasonable cause.

    5. Cite the law that authorizes the penalty.

    6. If the noncompliant issue jeopardizes tax-exempt status if it is expanded or enlarged, make a statement to that effect.

  4. If you recognize a delinquency (non-filed return), the advisory paragraph must include the following:

    1. Identifies the delinquent return.

    2. Cites the law that required the delinquent return.

    3. States whether we secured and accepted the delinquent return as filed.

    4. States whether we will impose delinquency penalties, or whether the taxpayer established reasonable cause.

    5. Cites the law that authorizes the penalty.

    6. States "Please be sure to file your return when due to avoid a penalty in the future," if you impose the penalty.

    7. States "There may be a penalty if your return is not filed when due for the same reason in a future year," if the taxpayer established reasonable cause, and if appropriate to so state.

  5. If an organization refuses or is unable to file a tax return, include in the advisory paragraph that there is or will be a substitute for return under IRC 6020(b) and a separate report for the tax. If known, state whether the tax is agreed, unagreed (with or without protest) or partially agreed.

    Reminder:

    Consider the existence of fraud before soliciting any return. See IRM 4.75.21.8.2.

  6. If an organization files an incomplete or inaccurate delinquent tax return, include in the advisory paragraph that there is or will be a separate report of adjustment to the secured delinquent tax return. If known, state whether the adjustment is agreed, unagreed (with or without protest) or partially agreed.

  7. If an organization, eligible to file Form 990-N, refuses or is unable to file Form 990-N or a primary return after two or more written requests from any IRS business unit (or files an incomplete or inaccurate primary return), issue a written advisory. The advisory must state that failing to file a Form 990-N (or a complete and accurate Form 990 or 990-BL) for three consecutive tax years jeopardizes the organization's tax-exempt status. Cite IRC 6033(j) in the advisory.

  8. If an organization, ineligible to file Form 990-N, refuses or is unable to file a primary return after two or more written requests from any IRS business unit (or files an incomplete or inaccurate primary return), issue a 90-day written demand letter. A sample of the 90-day written demand letter is provided at IRM 4.75.22-9. See also IRM 4.75.22.6.1.

  9. If after issuing a 90-day written demand letter:

    1. The organization files a complete and substantially correct primary return, issue a written advisory. The advisory must state that failing to file a complete and accurate Form 990, 990-PF or 990-BL jeopardizes the organization's tax-exempt status, and could result in delinquency penalties. Prepare Form 5666 for a future audit.

    2. The organization refuses or is unable to file a primary return, propose a revocation effective the 91st day after the issuance of the demand letter, unless mitigating circumstances requires the issuance of a written advisory. The written advisory must state that failing to file a complete and accurate Form 990, 990-PF or 990-BL jeopardizes the organization's tax-exempt status, and could result in delinquency penalties. Unless reasonable cause was established, prepare a penalty case file for the responsible officer, director, trustee, employee or other responsible person for purposes of imposing a penalty under IRC 6652(c)(1)(B)(ii), (c)(2)(B), or (c)(3)(B)(ii). The penalty is $10 per day for each day the failure continues after expiration of the 90 days specified in the demand letter, up to a maximum of $5,000 for any one return. For civil penalty procedures, refer to IRM 4.75.15.8.11.

  10. See Exhibit 4.75.15-1, Closing Letters for No Change Cases, for the appropriate advisory letters.

  11. Generally, use disposal code 52 (214) to close a no change advisory case, unless a higher priority disposal code applies. If any issue is one which, if expanded or enlarged, could jeopardize exempt status, use instead disposal code 08 (213) and prepare Form 5666 for a future examination, unless a higher priority disposal code applies.

  12. See IRM 4.75.16, Case Closing Procedures, for further guidance.

4.75.15.7  (03-31-2014)
Proposing Adjustments

  1. Fully develop issues prior to preparing any RAR. Present and address issues in the order of significance.

    Example:

    Agent C has one report proposing revocation that addresses a political activity issue and the issue of not operating in furtherance of an exempt purpose. Agent C spent most of her time addressing the political activity issue. The exempt purpose issue was incidental to the political activity issue. Agent C must first present and address the political activity issue in the report.

  2. The RAR should contain all the information necessary to ensure a clear understanding of the issues, the applicable law, and conclusions. The RAR, unlike workpapers, is a legally binding document and when executed, serves as the basis for tax law enforcement action. Prepare the RAR accurately and completely.

  3. There are two types of reports the agent can issue, the initial report (IRM 4.75.15.9) and the formal report (IRM 4.75.15.10).

  4. Listed below are the basic waiver/agreement forms requiring taxpayer's signature:

    Form Number/Purpose Title
    Form 870

    Use to secure agreement to a deficiency or overassessment. Use this form with formal reports presented with Form 4549–A, Income Tax Examination Changes (Unagreed and Excepted Agreed).
    Waiver of Restrictions on Assessment & Collection of Deficiency in Tax & Acceptance of Overassessment

    See Exhibit 4.75.15-7 for the completion instructions.
    Form 870-E

    Use to secure agreement for excise taxes under Chapter 42 of the Internal Revenue Code.
    Waiver of Restrictions on Assessment and Collection of Deficiency and Acceptance of Overassessment

    See Exhibit 4.75.15-8 for the completion instructions.
    Form 2297

    Use for every claim disallowance.
    Waiver of Statutory Notification of Claim Disallowance

    See IRM 4.10.8.9.4.1 for the completion instructions.
    Form 2504

    Use to secure agreement on employment tax adjustments, involving non IRC 7436 issues.
    Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment

    See IRM 4.23.10–5 for the completion instructions.
    Form 2504-E

    Use to secure agreement on gaming excise taxes.
    Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment (Excise Tax)

    See IRM 4.24.10 for additional information.
    Form 2504-S

    Use to secure agreement on employment tax adjustments when the audit did not include an audit of any worker classification issue.
    Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment (including Section 530 statement)

    See IRM 4.23.10-6 for the completion instructions.
    Form 2504-WC

    Use to secure agreement on employment tax adjustments relating to IRC 7436 issues of worker classification and Section 530.
    Agreement to Assessment and Collection of Additional Employment Tax and Acceptance of Overassessment in Worker Classification Cases

    See IRM 4.23.10-7 for the completion instructions.
    Form 3363

    Use for every claim disallowance.
    Acceptance of Proposed Disallowance of Claim for Refund or Credit

    See IRM 4.10.8.9.5.1 for the completion instructions.
    Form 4549

    Use with initial report for agreed income tax cases.
    Income Tax Examination Changes

    See Exhibit 4.75.15-9 for the completion instructions.
    Form 4549-E

    Use to secure agreement in discrepancy adjustment cases.
    Income Tax Discrepancy Adjustments

    Refer to Exhibit 4.75.15-9 for the completion instructions for Form 4549. The instructions are substantially the same.
    Form 5384

    Use to secure agreement on excise tax cases. Use when auditing Forms 720, 720-X, 2290, 730, 11-C, 8849, and any other excise tax form.

    Excise Tax Examination Changes and Consent to Assessment & Collection

    See IRM 4.24.10-1 for the completion instructions.
    Form 6018

    Use for IRC 7428 declaratory judgment cases, which includes 501(c)(3) revocations and reclassification of foundation status.
    Consent to Proposed Action - IRC 7428

    See Exhibit 4.75.15-11 for the completion instructions.
    Form 6018-A

    Use for non-declaratory judgment (IRC 7428) cases, including modification of exempt status and revocation of non IRC 501(c)(3) organizations.
    Consent to Proposed Action

    See Exhibit 4.75.15-10 for the completion instructions.

  5. Listed below are the basic report forms summarizing the adjustments:

    Form Number/Purpose Title
    Form 886-A

    Use for every unagreed case, every revocation case, every reclassification of foundation status, and every modification of operating foundation status. Optional for agreed cases.
    Explanation of Items

    See IRM 4.75.15.7.1 for a further explanation.
    Form 4549–A

    Use to explain unagreed income tax change cases.
    Income Tax Examination Changes (Unagreed and Excepted Agreed)

    See Exhibit 4.75.15-9 for the completion instructions.
    Form 4549-B

    Use as a continuation sheet for Form 4549 or Form 4549-A.
    Income Tax Examination Changes

    See IRM 4.75.15.7.5 for an explanation of Form 4549–B.
    Form 4621

    Use to summarize excise tax adjustments under Chapter 41, Chapter 42 of the IRC as well as IRC 507(c), IRC 170(f)(10)(F) and IRC 664(c)(2).
    Exempt Organizations - Report of Examination (Proposed Tax Changes)

    See Exhibit 4.75.15-4 for an explanation and the completion instructions.
    Form 4621-A

    Use for revocations, reclassification of foundation status, modifications of exempt status, modification of operating foundation status, disqualifications of status 36 organizations, and disqualifications of IRC 501(c)(12) or IRC 501(c)(15) organizations.
    Exempt Organizations - Report of Examination (Proposed Status Change)

    See IRM 4.75.15.7.6 for an explanation and the completion instructions. See also Exhibit 4.75.15-5.
    Form 4666

    Use as a cover and reference sheet and summarizes FICA, RRTA, income tax withholding, and FUTA adjustments.
    Summary of Employment Tax Examination

    See IRM 4.23.10-1 for the completion instructions.
    Form 4667

    Use to summarize the FUTA adjustments.
    Examination Changes - Federal Unemployment Tax

    See IRM 4.23.10-2 for the completion instructions.
    Form 4668

    Use to reflect the additional tax or overassessments for FICA, RRTA, and income tax withholding.
    Employment Tax Examination Changes Report

    See IRM 4.23.10-3 for the completion instructions.
    Form 4668-B

    Use to reflect adjustments of back-up withholding and income tax withholding reported on Form 945.
    Report of Examination of Withheld Federal Income Tax for Withholding Reported on Forms 1099 and W-2G

    See IRM 4.23.10-4 for the completion instructions.
    Form 4883

    Use for excise tax adjustments under Chapters 41 and 42 of the IRC as well as IRC 170(f)(10)(F).
    Exempt Organizations Excise Tax Audit Changes

    See Exhibit 4.75.15-6 for the completion instructions.
    Form 5385

    Use as a excise tax report for unagreed cases. Use in conjunction with Form 2504 when submitting the 30-day package to the taxpayer and use with auditing Forms 720, 720-X, 2290, 730, 11-C and 8849 and any other excise tax form.

    Excise Tax Examination Changes

    See IRM 4.24.10-1 for the completion instructions.

4.75.15.7.1  (03-31-2014)
Form 886-A

  1. Form 886-A, Explanation of Items, is mandatory for unagreed issues, agreed revocation cases, agreed reclassification of foundation status cases, agreed modification of operating foundation status, and for other agreed issues where the explanation does not fit in the space provided on the forms listed in IRM 4.75.15.7(5).

  2. Use Form 886-A to explain audit changes. Prepare it as an attachment to the waiver/agreement or the basic report forms described in IRM 4.75.15.7.

  3. Form 886-A consists of six elements:

    • Issues

    • Facts

    • Law

    • Taxpayer's Position

    • Government's Position

    • Conclusion

4.75.15.7.1.1  (03-31-2014)
Issues

  1. The issue section lists the questions that the report intends to answer. This section informs the reader as to what is at issue or proposed to be changed.

  2. State each issue clearly and precisely.

  3. Reports may contain one or more issues, including alternative issues.

  4. State alternative issues as options in the event that Mandatory Review, Appeals, or Counsel do not uphold the primary issues. See IRM 4.75.15.7.1.7, Alternative Position.

  5. Keep the issue statements simple. If the issue involves multiple considerations to arrive at the conclusion, break the statement into component issue statements. This method consists of tiered issue statements. Note the difference in the following two examples.

    Example:

    A complex issue statement: Are Z's payments to Y, the founder and president of X, a 501(c)(3) public charity, not reported on Form 1099 or W-2, subject to IRC 4958?

    Example:

    A set of tiered issue statements:
    Is X an applicable tax exempt organization for purposes of IRC 4958?
    Is Y, the founder and president of X, a disqualified person under IRC 4958?
    Are Z's payments to Y, not reported on Form 1099 or W-2, subject to IRC 4958?

  6. The advantage to this method is that the report will then address each aspect of the case in turn, building to a conclusion. The concept is similar to a syllogism: If A = B and B = C, then A = C. The advantages of tiered issue statements include:

    • Avoiding missing required elements

    • Building upon earlier statements

    • Clarifying the issues

    • Dividing the issue into parts

    • Ease of reading by taxpayers

    • Far less complicated

4.75.15.7.1.2  (03-31-2014)
Facts

  1. The fact section contains the facts identified during the audit. This section is to be devoid of bias or opinion. Provide a detailed explanation of the facts upon which each issue or change is based. Include facts relevant to both the government's position and the taxpayer's position. Do not attribute any reasoning for the taxpayer's actions in the fact pattern.

  2. Merriam-Webster's dictionary defines fact as:

    • A thing done

    • The quality of being actual

    • Something that has actual existence

    • A piece of information presented as having objective reality

  3. Merriam-Webster's dictionary defines opinion as:

    • A view, judgment, or appraisal formed in the mind about a particular matter

    • Belief stronger than impression and less strong than positive knowledge

    • A formal expression of judgment or advice by an expert

    • The formal expression of the legal reasons and principles upon which a legal decision is based

  4. Things to think about when writing the facts:

    1. Is this fact supported by testimony or a document?

    2. Is the statement neutral or does it show bias?

    3. Have I attributed reasons for an action?

    4. Are the calculations mine or the taxpayer’s?

    5. Have I reported just the facts?

    6. Was the statement written in a factual manner?

    7. Will my statement of fact be disputed?

  5. Facts include:

    1. Items written by the taxpayer or representative that do not include the taxpayer's arguments.

    2. Any third party records referencing the taxpayer.

    3. Any items reported on a form submitted to the Service (such as Form 1023, Form SS-4, Form 990, etc.)

    4. Any tax computations performed by the taxpayer or representative, regardless of whether they are correct.

    5. Any oral statements made by the taxpayer or representative, recorded in writing.

      Note:

      Address and dispute in the government's position any item of information presented by the taxpayer or representative that is incorrect.

4.75.15.7.1.3  (03-31-2014)
Law

  1. The law section contains the list of legal references relied upon in the report. Set forth in a clear and concise manner the pertinent law, regulations, published ruling of the Service, case law or other precedent. Cite all pertinent law regardless of whether it supports or opposes the government's position. Exercise care to ensure that cited law is current.

  2. IRM 4.75.13, Issue Development, explains how to cite the law and the types of law that can be cited.

  3. Do not cite the following types of documents:

    1. Private Letter Rulings (PLR)

    2. Technical Advice Memoranda (TAM)

    3. General Counsel Memoranda (GCM)

      Exception:

      If the ruling/memo is for your case.

  4. To use a PLR, TAM or GCM in a case:

    1. Modify the issue statements to be similar.

    2. Identify differences between the fact patterns.

    3. Cite the law cited in the document.

    4. Apply the analysis in the government’s position.

    5. Incorporate its conclusion into the conclusion.

  5. Full length recitations of the law are not necessary. Research the revenue rulings, revenue procedures, private letter rulings, tech advice memos, the field service advice, and general counsel memos to find condensed cites. Copy and paste these cites into the law section, if available. Do not attribute the abbreviated cite to the particular document, unless citing the document itself as law.

    Example:

    IRS Letter Ruling 201049046 (Sep. 15, 2010) states "Section 501(c)(3) of the Code provides for the exemption from federal income tax of corporations organized and operated exclusively for charitable and other exempt purposes." Copy and paste the brief quotation into the law section. Do not cite the ruling itself.

4.75.15.7.1.4  (03-31-2014)
Taxpayer's Position

  1. The taxpayer's position consists of any statements made by the taxpayer and/or representative with respect to the issue(s).

  2. For initial reports, state the taxpayer’s position in narrative form if known, including the legal authority, if any, that the taxpayer uses as the basis for their position. If unknown, type "The taxpayer's position on the issue(s) is currently unknown at this time."

  3. Subsequent reports are to include the text of any replies. If the taxpayer provided a written position statement, include the entire statement in this section if the written statement is brief. Otherwise, summarize the statement and include the entire document in the audit report as an exhibit.

4.75.15.7.1.5  (03-31-2014)
Government's Position

  1. The government's position relates the facts to the cited law through a narrative discussion to support the Service’s position.

  2. In the government's position, prepare and present:

    1. A separate argument for each issue.

    2. An opinion as to the facts.

    3. Any tax computations.

    4. Interpretations of the law with respect to the issues.

    5. The suggested outcome.

    6. An initial rebuttal to the taxpayer's position, if known.

  3. When preparing the report, do the following:

    1. Copy and paste the issue statements into the start of the government’s position.

    2. Address the specific issue on its own merits before moving onto the next issue.

    3. Remember to incorporate the facts and law applicable to that issue.

    Example:

    See TAM 200243057 for an example of an IRC 4958 case, as presented over the course of 17 issues.

4.75.15.7.1.6  (03-31-2014)
Conclusion

  1. The conclusion is a brief restatement of the Service's position.

  2. Do not restate the lengthy analysis presented in the government's position. State the proposed result and any impact, such as taxes to be paid, returns to be filed, and the effective date of revocation or modification, as applicable.

4.75.15.7.1.7  (03-31-2014)
Alternative Position

  1. Give consideration to whether to develop an alternative position.

  2. If proposing revocation and the Form 990-T, Exempt Organization Business Income Tax Return, is also open for audit, develop the alternative position for the Form 990-T. See IRM 4.75.31.13, Effect on Form 990-T and Other EO Tax Examinations. In all other revocation situations, indicate in your workpapers that you considered alternative positions, such as UBIT.

  3. Present the alternative position at the end of Form 886-A after the conclusion statement on the primary position. Label it as "Alternative Position" and follow the same issue, facts, law, taxpayer's position, government's position, and conclusion format.

4.75.15.7.2  (03-31-2014)
Form 870 and Form 870-E

  1. Issue Form 870, Waiver of Restrictions on Assessment & Collection of Deficiency in Tax & Acceptance of Overassessment, in a formal report to secure agreement on income taxes. Use Form 4549-A, Income Tax Examination Changes (Unageed and Excepted Agreed) with it.

  2. Use Form 870-E, Waiver of Restriction on Assessment and Collection of Deficiency and Acceptance of Overassessment, to secure agreement for excise taxes under Chapter 42 of the Internal Revenue Code.

  3. When needing more than one line to reflect proposed recommendations for a year (such as multiple penalties), or the audit covers more than four years, you may have more than one Form 870 or Form 870-E in the case file.

  4. Correction of Erroneous Reports - If you later find a report furnished to a taxpayer to be in error, prepare a corrected report and write "Corrected Report" at the top of Form 870 or Form 870–E. If the adjustment is in favor of the Government, the taxpayer must sign the corrected report for an agreed closure. If the adjustment is in favor of the taxpayer, the taxpayer need not sign the corrected report. Furnish the original and corrected report to the taxpayer. Include copies of both reports in the case file. If the taxpayer disagrees with the corrected report, apply unagreed case procedures.

  5. See Exhibit 4.75.15-7 for Form 870 preparation instructions.

  6. See Exhibit 4.75.15-8 for Form 870-E preparation instructions.

4.75.15.7.3  (03-31-2014)
Form 6018

  1. Issue Form 6018, Consent to Proposed Adverse Action - Section 7428, in IRC 7428 declaratory judgment cases. Execution of the form serves only to memorialize the intent of the taxpayer at the time of signing the form. Memorialization of intent to agree is not legally binding and does not waive declaratory judgment rights. Write up all proposed status changes on cases subject to declaratory judgment similar to an "unagreed" case, even if the organization executed a Form 6018.

  2. Declaratory judgment cases include:

    • Revocation of exempt status

    • Reclassification of private foundation status under IRC 509(a)

    • Classification as a non-operating foundation under IRC 4942(j)(3)

    • Modification of operating foundation status.

    See specifics at IRM 4.75.15.8.3.

  3. In cases where there are two or more declaratory judgment issues, such as revocation of IRC 501(c)(3) status and reclassification to a private foundation, use one Form 6018.

  4. Touch-up text editing may be needed on Form 6018 to cover certain reclassifications not included on the form, such as reclassification from a functionally integrated type III supporting organization to a non-functionally integrated type III supporting organization.

  5. Under no circumstances will Service personnel alter a waiver after securing a signature from the organization, nor will the Service request the organization to execute a blank waiver.

  6. Do not solicit Form 6018 unless fully advising an organization of its appeal rights. You must include a positive statement to this effect in the workpapers.

  7. See Exhibit 4.75.15-11 for Form 6018 preparation instructions.

4.75.15.7.4  (03-31-2014)
Form 6018-A

  1. Use Form 6018-A, Consent to Proposed Action - Non Declaratory Judgment, in audits of non-IRC 501(c)(3) organizations when proposing:

    • Revocation

    • Modification of its exempt status

    • Disqualification for Status 36 organizations

    • Disqualification for IRC 501(c)(12) organizations

    • Disqualification for IRC 501(c)(15) organizations

    This form allows the organization to waive its right to an administrative appeal and thus permit expeditious closing.

  2. Under no circumstances will Service personnel alter a waiver after securing a signature from the organization, nor will the Service request the organization to execute a blank waiver.

  3. Do not solicit Form 6018-A unless fully advising an organization of its appeal rights. You must include a positive statement to this effect in the workpapers.

  4. Refer to IRM 4.75.16-13 for Form 6018-A preparation instructions for Status 36 organizations.

  5. See Exhibit 4.75.15-10 for Form 6018-A preparation instructions .

4.75.15.7.5  (03-31-2014)
Form 4549, Form 4549-A, Form 4549-B, Form 4549-E

  1. Form 4549, Income Tax Examination Changes, is primarily for cases in which audit adjustments result in agreed income tax changes. Normally, use the form for the initial report only. However, Form 4549 is also appropriate in cases where adjustments to income or deduction items do not affect or warrant a change in tax liability or refundable credits on the return audited. In such cases, notify the taxpayer of, or secure his agreement to any adjustments, which affect subsequent year returns of the taxpayer.

    Example:

    An audit results in an adjustment to a net operating loss that does not cause an additional tax liability, but may affect subsequent year returns. The disposal code for closing the audit would be 01 (RCCMS - 210).

  2. If there are multiple issues or multiple years and some of them are agreed, encourage the taxpayer to enter into an agreement for the agreed issues or years by signing Form 4549.

  3. Use Form 4549-A, Income Tax Examination Changes (Unagreed and Excepted Agreed), to explain unagreed and excepted agreed income tax change cases. Use Form 4549-A in a formal report and when unsure of the taxpayer's agreement. Use this form with Form 870, Waiver of Restrictions on Assessment & Collection of Deficiency in Tax & Acceptance of Overassessment..

  4. When multiple year audits result in tax changes for some years, and no tax change for other years, use Form 4549 or Form 4549-A (as applicable) for all years audited. Use a separate column for each no-change year and enter "None" on lines 2, 14, and 16.

  5. Form 4549 and Form 4549-A are designed to cover three years. Regardless of the number of years audited, prepare one set of explanations. When reasons for an adjustment vary from year to year, detail them in one explanation. If auditing more than three years , reflect the additional years on Form 4549-B, Income Tax Examination Changes.

  6. Correction of Erroneous Reports - If you later find a report furnished to a taxpayer to be in error, prepare a corrected report and write "Corrected Report" at the top of Form 4549 or Form 4549-A. In the "Other Information" section of the corrected report, insert the comment: "This report supersedes report dated (enter applicable date)." If the adjustment is in favor of the Government, the taxpayer must sign the corrected report for an agreed case. If the adjustment is in favor of the taxpayer, the taxpayer need not sign the corrected report. Furnish the original and corrected report to the taxpayer. Include copies of both reports in the case file. If the taxpayer disagrees with the corrected report, apply unagreed case procedures.

  7. Form 4549-B, Income Tax Examination Changes, is a continuation sheet for Form 4549 and Form 4549-A. Use it when there are more adjustments than lines provided on Form 4549 and Form 4549-A.

  8. Use Form 4549-E, Income Tax Discrepancy Adjustments, to set forth and explain income tax changes for discrepancy adjustments. The preparation of Form 4549–E is substantially the same as the preparation of Form 4549. Refer to Exhibit 4.75.15-9 for those instructions.

  9. Include a schedule with the applicable Form 4549 to show the tax computations.

  10. See Exhibit 4.75.15-9 for Form 4549 or Form 4549-A preparation instructions.

4.75.15.7.6  (03-31-2014)
Form 4621 and Form 4621-A

  1. Use Form 4621, Exempt Organizations - Report of Examination (Proposed Tax Changes), as a summary report in the following types of cases:

    1. Excise tax changes under Chapter 41 and Chapter 42 of the IRC

    2. IRC 507(c) termination tax

    3. IRC 170(f)(10)(F)

    4. IRC 664(c)(2)

  2. Prepare this summary report in agreed and unagreed cases.

  3. Refer to Exhibit 4.75.15-4 for Form 4621 preparation instructions.

  4. Use Form 4621-A, Exempt Organizations - Report of Examination (Proposed Status Changes), as the summary report in the following types of cases:

    • Revocations

    • Reclassification of foundation status

    • Modification of operating foundation status

    • Modifications of exempt status (other than IRC 501(c)(3))

    • Disqualifications (denials) of Status 36 organizations for specified tax years

    • Disqualifications of IRC 501(c)(12) or IRC 501(c)(15) organizations for specified tax years

    Caution:

    Modifications are unavailable for private foundations seeking to convert to publicly supported organizations. Private foundations must terminate their status under IRC 507.

    Note:

    In cases where there are two or more status issues, such as revocation of a IRC 501(c)(3) and reclassification to a private foundation, use one Form 4621-A. The RAR can address both issues.

  5. Prepare this summary report in agreed and unagreed cases.

  6. Refer to Exhibit 4.75.15-5 for Form 4621-A preparation instructions.

4.75.15.7.7  (03-31-2014)
Form 4883

  1. Use Form 4883, Exempt Organizations Excise Tax Audit Changes (Chapter 41, Chapter 42 and Section 170(f)(10)(F) Excise Taxes), to set forth adjustments and calculate the tax for EO excise tax changes:

    Internal Revenue Code section: Reported on:
    Chapter 41 taxes under IRC 4911 and IRC 4912 Form 4720, Return of Certain Excise Taxes on Charities and Other Persons Under Chapters 41 and 42 of the IRC
    IRC 4940 and IRC 4948 taxes Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation
    IRC 4941 to IRC 4945 private foundation excise taxes Form 4720
    IRC 4951 and IRC 4952 taxes related to black lung trusts Form 990-BL, Information and Initial Excise Tax Return for Black Lung Benefit Trusts and Certain Related Person
    IRC 4955 tax on political expenditures of IRC 501(c)(3) organizations Form 4720
    IRC 4958 tax on excess benefit transactions Form 4720
    IRC 507(c) termination tax for private foundations A letter to the Manager, Exempt Organizations Determinations
    IRC 170(f)(10)(F) tax on premiums paid for personal benefit contracts Form 4720

  2. Use Form 4883 for excise taxes imposed on the private foundation or other exempt organization, as well as excise taxes on disqualified persons, self-dealers, organization managers, and foundation managers with respect to such exempt organizations.

  3. Do not use Form 4883 for gaming excise taxes. See IRM 4.24.10, Excise Tax, Excise Tax Examination Reports, Case Closing and Appeals Procedures, for report writing procedures in gaming excise tax cases.

  4. See Exhibit 4.75.15-6 for Form 4883 preparation instructions.

4.75.15.8  (03-31-2014)
Types of Issues

  1. Audits can result in a variety of adjustments. These include, but are not limited to, revocations, modifications of exempt status, reclassifications of foundation status, modifications of operating foundation status, unrelated business income tax, employment taxes, excise taxes, gaming taxes, proxy taxes, and discrepancy adjustments.

  2. In regards to gaming taxes, refer to IRM 4.76.50, Examinations of Organizations Conducting Gaming Activities, and IRM 4.24.10, Excise Tax Examination Reports, Case Closing, and Appeals Procedures.

  3. In regards to proxy taxes, refer to IRM 7.27.12, IRC 6033(e)(2) - Proxy Tax on Lobbying and Political Expenditures.

  4. In regards to discrepancy adjustments, refer to IRM 4.75.28, Discrepancy Adjustments.

4.75.15.8.1  (03-31-2014)
Revocations

  1. Propose revocation when the organization does not meet the code section requirements of the organization's recognized tax-exemption. If exempt under a code section other than IRC 501(c)(3), consider whether modification of exempt status is appropriate.

  2. IRM 4.75.13, Issue Development, provides additional information regarding revocations. In addition, IRM 4.75.31, Conversion of Returns Upon Revocation of Exemption, provides revocation procedures.

  3. Use Form 6018, Consent to Proposed Action - Section 7428, for IRC 501(c)(3) revocations. A signed Form 6018, is not legally binding. The organization can still protest the proposed revocation or seek a declaratory judgment. Even if you receive a signed Form 6018, treat the case as unagreed. You must prepare a Form 886-A, Explanations of Items. See IRM 4.75.15.7.3, Form 6018, for additional information.

  4. If the organization does not sign Form 6018, prepare an administrative record. Refer to IRM 4.75.32, Declaratory Judgment Cases and the Administrative Record, for administrative record preparation procedures.

  5. For IRC 501(c)(3) revocations, if following the initial report procedures, a formal report is still required. For revocations of other code sections, you can follow the initial report procedures and only issue the formal report if the case goes unagreed.

  6. Use Form 6018-A, Consent to Proposed Action - Non Declaratory Judgment, for all other 501(c) revocations. See IRM 4.75.15.7.4, Form 6018-A, for additional information.

  7. See Exhibit 4.75.15-2 for the listing of the initial report forms.

  8. See Exhibit 4.75.15-3 for the listing of the formal 30-day letter as well as the required forms.

  9. Refer to IRM 4.75.21.13.2, IRC 6104(c) Disclosures: Proposed and Final Revocations, for the procedures relating to state notification.

  10. Close all audit resulting in revocation to Mandatory Review.

    Note:

    This does not include IRC 6033(j) automatically revoked organizations. Survey and close such cases to ESS. See IRM 4.75.16.5.2.

4.75.15.8.2  (03-31-2014)
Modification of Exempt Status

  1. If an organization fails to qualify for tax-exempt status under the paragraph in IRC 501(c) for which it was granted tax-exempt status, but qualifies under another paragraph, propose a modification of tax-exempt status.

    Caution:

    By law, we cannot modify the exempt status of an IRC 501(c)(3) organization. If the organization does not meet the requirements under IRC 501(c)(3), propose revocation.

    Caution:

    You cannot modify an organization's exempt status to an IRC 501(c)(3), IRC 501(c)(9), IRC 501(c)(17), or IRC 501(c)(29) organization. These organizations must apply for tax-exempt status.

    Note:

    You cannot modify a subordinate organization in a group exemption ruling. If it fails to qualify for the exempt status granted to the group of subordinates, propose to remove it from the group ruling (effectively revoking its exemption). In order to obtain recognition of tax-exempt status and its own determination letter, the subordinate organization must submit an application for exemption with a user fee. A new or revoked exempt status does not necessarily affect the subordinate organization's affiliation with the central organization. See IRM 4.75.24, Group Rulings.

  2. See IRM 4.75.13, Issue Development, for additional information regarding modifications.

  3. Use Form 6018-A, Consent to Proposed Action - Non Declaratory Judgment, for modifications. See IRM 4.75.15.7.4, Form 6018-A, for additional information.

  4. See Exhibit 4.75.15-2 for the listing of the initial report forms.

  5. See Exhibit 4.75.15-3 for the listing of the formal 30-day letter as well as the required forms.

  6. Close all modifications to Mandatory Review.

4.75.15.8.3  (03-31-2014)
Reclassification of Foundation Status

  1. If an IRC 501(c)(3) organization (or IRC 4947(a)(1) NECT) does not qualify for the foundation status under which it is classified, propose a reclassification of foundation status.

    Note:

    The term, "publicly supported organization" denotes all 501(c)(3) organizations (or IRC 4947(a)(1) trust) that are not private foundations because they are described under IRC 509(a)(1), (2), (3) or (4).

  2. A reclassification of foundation status is a declaratory judgment issue under IRC 7428. Section 5.02 of Rev. Proc. 2014-10 (updated annually). It includes:

    • Reclassification from one type of publicly supported organization to another type

    • Reclassification from a publicly supported organization to a private foundation

    • Reclassification from a private operating foundation to a non-operating foundation

    • Reclassification from a type I or II supporting organization to a type III supporting organization, within IRC 509(a)(3).

    • Reclassification from a functionally integrated type III supporting organization to a non-functionally integrated type III supporting organization, within IRC 509(a)(3).

    Caution:

    A private foundation cannot be "modified" to a publicly supported organization. Private foundations must terminate their private foundation status under IRC 507.

    Note:

    Do not reclassify an organization to an exempt operating foundation described under IRC 4940(d)(2). Organizations must request that status using procedures in Rev. Proc. 2014-4 (updated annually).

  3. If proposing to reclassify a publicly supported organization to a private foundation, except as indicated in IRM 4.75.15.8.3 (4), the organization is a private foundation for all purposes effective the first tax year it is reclassified as a private foundation. For all reclassifications to private foundation status:

    • Prepare a report of examination over the foundation reclassification issue (MFT 67)

    • Solicit Form 990-PF reporting IRC 4940 tax (or 4948 tax) and the distributable amount (MFT 44)

    • Determine whether other Chapter 42 excise taxes apply (MFT 50 for the foundation; MFT 66 for the disqualified person). See IRM 4.75.15.8.7.

    Note:

    For Forms 990 established on AIMS Master File, establish Form(s) 990-PF on AIMS Non-Master File and on RCCMS in order to apply deficiency procedures for the IRC 4940 tax. Follow the initial and final report procedures provided in IRM 4.75.31.10, The Initial Report and IRM 4.75.31.11, The Formal Report, substituting Forms 4883 and 870-E for Forms 4549, and reclassification for revocation. Form 990-PF processing parallels that presented for Forms 1120/1041 in IRM 4.75.31.4, Converted Returns Case, replacing Form 990-PF for Forms 1120/1041, and reclassification for revocation where mentioned. There are no referrals made to SB/SE.

    Reminder:

    Consider the existence of fraud before soliciting any return. See IRM 4.75.21.8.2.

  4. Reclassify any publicly supported organization described in IRC 509(a)(1) and 170(b)(1)(A)(vi), and 509(a)(2), to a private foundation if the organization:

    • Fails the public support test for any two consecutive tax years beginning with its fifth year of existence,

    • Does not otherwise qualify for another exclusion from private foundation status, and

    • Has been in existence for more than five years.

    1. Reclassification is effective the first day of the second consecutive tax year the organization fails the public support test.

    2. The organization will be a private foundation for such first tax year for IRC 507, IRC 4940 and IRC 6033 purposes only.

    3. For all succeeding tax years, the organization will be private foundation for all purposes.

  5. If the audit discloses that an operating foundation fails to meet the required tests under IRC 4942(j)(3), modify the foundation status to a non-operating foundation.

  6. If you are examining a non-operating foundation contending to be an operating foundation on Form 990-PF, and:

    If the EO: Then:
    Qualifies as an operating foundation for the tax year (and will continue to so qualify) Issue an advisory to the organization that it can submit a request to Cincinnati on Form 8940 to receive a determination letter granting private operating foundation status. Do not modify the foundation status. Instead, the foundation can continue to claim operating foundation status on Form 990-PF so long as it actually meets the requirements on a year-by-year basis.
    Is in fact not an operating foundation Solicit an amended Form 990-PF, and if necessary, solicit a delinquent Form 4720 (or establish an SFR and propose an excise tax adjustment). If you secure a substantially correct amended Form 990-PF, issue an advisory that failing to file a complete and accurate Form 990-PF jeopardizes the organization's tax-exempt status, and could result in delinquency penalties. Prepare Form 5666 for a future audit. See IRM 4.75.22.5 for processing amended returns.

    Reminder:

    Consider the existence of fraud before soliciting any return. See IRM 4.75.21.8.2.

  7. If an organization, refuses or is unable to file a delinquent or amended Form 990-PF after two or more written requests from any IRS business unit (or files an incomplete or inaccurate Form 990-PF), issue a modified 90-day written demand letter (or prepare an SFR and propose an IRC 4940 tax adjustment). A sample of the 90-day written demand letter (subject to modification) is provided at IRM 4.75.22-9. See also IRM 4.75.22.6.1.

  8. After issuing a 90-day written demand letter in IRM 4.75.15.8.3 (7):

    If: Then:
    The organization files a complete and substantially correct Form 990-PF Issue a written advisory. The advisory must state that failing to file a complete and accurate Form 990-PF jeopardizes the organization's tax-exempt status, and could result in delinquency penalties. Prepare Form 5666 for a future audit.
    The organization files a complete but substantially incorrect Form 990-PF Determine whether to pursue adjustments to the IRC 4940 (or 4948) tax. Determine whether to recompute portions of the return to determine liability for IRC 4942. If pursuing the issues, prepare and issue an RAR (either initial or formal report or both).
    The organization refuses or is unable to file a Form 990-PF Propose a revocation effective the 91st day after the issuance of the written demand letter (as well as a proposal for IRC 4940 (or 4948) tax for a taxable foundation), unless mitigating circumstances require the continuation of tax-exempt status (as well as a proposal for IRC 4940 (or 4948) tax for an exempt foundation). Unless the EO established reasonable cause, prepare a penalty case file for the responsible officer, director, trustee, employee or other responsible person for purposes of imposing a penalty under IRC 6652(c)(1)(B)(ii), (c)(2)(B), or (c)(3)(B)(ii). The penalty is $10 per day for each day the failure continues after expiration of the 90 days specified in the demand letter, up to a maximum of $5,000 for any one return. For civil penalty procedures, refer to IRM 4.75.15.8.11.

  9. For additional information regarding reclassifications, see IRM 4.75.13, Issue Development. In addition, IRM 7.26, Private Foundations Manual, provides information on the determination of the correct foundation status.

  10. See Exhibit 4.75.15-1, Closing Letters for No Change Cases, for the appropriate advisory letters.

  11. Use Form 6018, Consent to Proposed Action - Section 7428, for foundation reclassifications, but it is not legally binding. An organization can still protest a reclassification or seek a declaratory judgment. Consequently, treat a signed Form 6018 as unagreed for closing purposes. (Do not prepare an administrative record.) You may need to touch-up text edit Form 6018 to cover reclassifications in IRM 4.75.15.8.3 (2) that are not included on the form. See IRM 4.75.15.7.3, Form 6018, for additional information.

  12. If the organization does not sign Form 6018, prepare an administrative record. For administrative record procedures, refer to IRM 4.75.32, Declaratory Judgment Cases and the Administrative Record.

  13. For declaratory judgment cases under IRC 7428, you must issue a formal report, even if you issued an initial report.

  14. See Exhibit 4.75.15-2 for the listing of the initial report forms.

  15. See Exhibit 4.75.15-3 for the listing of the formal 30-day letter as well as the required forms.

  16. Close all reclassifications to Mandatory Review.

4.75.15.8.4  (03-31-2014)
Disqualification of Status 36 Organizations

  1. In status 36 cases, a taxpayer declares tax-exempt status under IRC 501(c) other than IRC 501(c)(3), 501(c)(9), and 501(c)(17) for specified tax years by filing Form 990. The taxpayer has not:

    • Submitted a Form 1024, Application for Recognition of Exemption Under Section 501(a) or

    • Received a favorable ruling or determination letter granting tax-exempt status

  2. Because we do not recognize status 36 organizations as tax-exempt, we cannot revoke or modify their status. Agents must therefore determine whether the organization qualifies for tax-exempt status for the specific tax years under audit without issuing a "determination letter."

  3. See IRM 4.75.16.5.9, Status 36 Cases for specific procedures on such cases.

4.75.15.8.5  (03-31-2014)
Unrelated Business Income Tax (UBIT)

  1. If the organization conducts an unrelated business activity, determine if the activity meets the definition of an regularly carried-on unrelated trade or business, and the tax effect. Determine if the activity is large enough to jeopardize its exemption. If it jeopardizes exemption, consider revocation.

  2. For further information regarding UBI and the calculation of the tax, see IRM Chapter 7.27, Exempt Organizations Tax Manual.

  3. If you secure a delinquent Form 990-T, Exempt Organization Business Income Tax Return, and do not make an adjustment to that return, the following procedures do not apply. See IRM 4.75.15.5 for no change advisory procedures.

  4. If there are multiple unrelated businesses or multiple years involved and the EO agrees to some but not all of the proposed adjustments, attempt to secure a signed waiver form for the agreed items.

  5. Use either Form 4549, Income Tax Examination Changes, or Form 870, Waiver of Restrictions on Assessment & Collection of Deficiency in Tax & Acceptance of Oversassessment, to secure an agreement. Use Form 4549 for initial reports, and Form 870 for formal reports. See IRM 4.75.15.7.5 for additional information regarding Form 4549, and IRM 4.75.15.7.2 for additional information regarding Form 870.

  6. Provide the taxpayer with a schedule showing how the tax was computed.

  7. See Exhibit 4.75.15-2 for the listing of the initial report forms.

  8. See Exhibit 4.75.15-3 for the listing of the formal 30-day letter as well as the required forms.

  9. If in connection with a tax change, you have the annual information return (or e-Postcard) also under audit, issue a separate advisory letter that makes reference to the RAR for the tax change. There can also be separate closing letters if there is an agreement for some but not all of the years.

  10. If closing the Form 990-T as agreed, the examining group may issue Letter 3607, and close the case directly to ESS for assessment.

4.75.15.8.6  (03-31-2014)
Employment Taxes

  1. In general, follow IRM 4.23.10, Report Writing Guide for Employment Tax Examinations. However, because IRM 4.23.10 is an SB/SE manual, there are some variations to the letters referenced in IRM 4.23.10 as follows:

    Per IRM 4.23.10, issue... Use instead...
    Letter 950-C Letter 950-L
    Letter 950-D Letter 950-M
    Letter 3264 Letter 3264-B
    Letter 3263 Letter 3263-B
    Letter 3381 Letter 3623
    See Exhibit 4.75.15-1
    Letter 3382 Letter 3607
    See Exhibit 4.75.15-12

    Caution:

    Always follow specific project guidelines if they are different from the above guidance.

4.75.15.8.7  (03-31-2014)
Private Foundation Excise Taxes

  1. There are several excise taxes imposed by IRC Chapter 42. Some of these taxes assess against the foundation and some assess against its disqualified persons and foundation managers. These taxes include:

    • IRC 4940 Tax on Net Investment Income

    • IRC 4941 Self Dealing

    • IRC 4942 Distribution of Income

    • IRC 4943 Excess Business Holdings

    • IRC 4944 Jeopardizing Investments

    • IRC 4945 Taxable Expenditures

    • IRC 4948 Tax on Gross Investment Income of Foreign Private Foundations

    IRC Section Assessed Against Tax Rate Form Reported On 2nd Tier Tax Applicable Additional Resources
    IRC 4940 Private Foundation 2% of Net Investment Income
    (1% if IRC 4940(e) is met).
    See Note 1
    Form 990-PF No IRM 7.27.14
    IRM 4.76.4
    IRC 4941 Self-dealer 10% Form 4720-A 200% IRM 7.27.15
    IRM 4.76.4
    Foundation Manager 5%
    (Max $20,000 with respect to any one act)
    50%
    (Max $20,000 with respect to any one act)
    IRC 4942 Private Foundation 30% Form 4720 100% IRM 7.27.16
    IRM 4.76.4
    IRC 4943 Private Foundation 10% Form 4720 200% IRM 7.27.17
    IRM 4.76.4
    IRC 4944 Private Foundation 10% Form 4720 25% IRM 7.27.18
    IRM 4.76.4
    Foundation Manager 10%
    (Max $10,000 with respect to any one investment)
    Form 4720-A 5%
    (Max $20,000 with respect to any one investment)
    IRC 4945 Private Foundation 20% Form 4720 100% IRM 7.27.19
    IRM 4.76.4
    Foundation Manager 5%
    (Max $10,000 with respect to any one taxable expenditure)
    Form 4720-A 50%
    (Max $20,000 with respect to any one taxable expenditure)
    IRC 4948 Private Foundation 4% of Gross Investment Income derived from U.S. Sources Form 990-PF No IRM 7.27.27
    IRM 4.76.4
    Note 1 "- Exempt operating foundations" described under IRC 4940(d)(2) are exempt from IRC 4940 tax. Taxable private foundations and IRC 4947(a)(1) trusts are taxed at a rate of 2% of the net investment income plus the tax that would be imposed under IRC 511 if the organization were exempt, less the income tax reported on Form 1041 or 1120.
  2. For further information regarding preparing reports of examination for Chapter 42 excise taxes and the IRC 507(c) termination tax applicable to private foundations, see IRM 4.76.4, Private Foundations, and IRM 7.27, Exempt Organizations Tax Manual.

  3. Private foundations report their excise taxes on Form 4720, Return of Certain Excise Taxes on Charities and Other Persons Under Chapters 41 and 42 of the IRC, except for IRC 4940 and 4948 which they report on Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation.

  4. Liable parties must make correction for the acts and failures to act that gave rise to Chapter 42 excise taxes (except for IRC 4940 and 4948). If the liable parties fail to make correction, consider the case unagreed even if the taxpayer signs the agreement form (Form 870-E). If the liable parties fail to make correction, propose the second-tier tax in the formal report. For additional guidance regarding correction and when and how to include it in the report, see IRM 4.76.4, Private Foundations.

  5. Prepare Form 870-E, Waiver of Restriction on Assessment and Collection of Deficiency and Acceptance of Overassessment, for excise tax adjustments. See IRM 4.75.15.7.2, Form 870 and Form 870-E, for additional information regarding Form 870-E.

  6. For those situations regarding correction, include a description on Form 886-A as to how to correct each act.

  7. Situations may arise where tax liability extends beyond the taxable years covered by the audit report and into a future taxable year. In these cases, make a statement on Form 4621, Exempt Organizations - Report of Examination (Proposed Tax Changes), or Form 886-A, informing the taxpayer of its requirement to file a return, Form 4720, for the following taxable year and to pay any tax owed with respect to the act or failure to act remaining uncorrected into that following taxable year. Consider preparing a referral on Form 5666, TE/GE Referral Information Report, if there taxpayer indicates an unwillingness to make future corrections.

  8. Provide schedules detailing computations of adjustments to the taxpayer. Show the computation of the tax on the adjustments on Form 4883, Exempt Organizations Excise Tax Audit Changes.

  9. If the taxpayer only agrees to or corrects some of the transactions, treat the case as partially agreed. Attempt to secure agreement for the agreed corrected items.

  10. See Exhibit 4.75.15-2 for the listing of the initial report forms.

  11. See Exhibit 4.75.15-3 for the listing of the formal 30-day letter as well as the required forms.

  12. Refer to IRM 4.75.21.13.3, IRC 6104(c) Disclosures: Chapter 41 and 42 Assessments, for the procedures relating to state notification.

  13. If the taxpayer agrees and corrects (if applicable), issue Letter 3607 as the closing letter.

4.75.15.8.8  (03-31-2014)
Non-Private Foundation Excise Taxes

  1. IRC Chapters 41 and 42 imposes several excise taxes on entities other than private foundations. The IRC imposes some of these taxes on specified exempt organizations and some on their disqualified persons and organization managers. These taxes include:

    • IRC 170(f)(10)(F) Tax on Premiums Paid on Personal Benefit

    • IRC 664(c)(2) Tax on Unrelated Business Taxable Income of Charitable Remainder Trusts

    • IRC 4911 Tax on Excess Lobbying Expenditures

    • IRC 4912 Tax on Disqualifying Lobbying Expenditures

    • IRC 4951 Tax on Self Dealing (Black Lung Trusts)

    • IRC 4952 Tax on Taxable Expenditures (Black Lung Trusts)

    • IRC 4953 Tax on Excess Contributions (Black Lung Trusts)

    • IRC 4955 Tax on Political Expenditures of IRC 501(c)(3) Organizations

    • IRC 4958 Tax on Excess Benefit Transactions (EBT)

    • IRC 4959 Tax on Hospital Organizations for Failure to Meet Requirements of IRC 501(r)(3)

    • IRC 4965 Tax on Prohibited Tax Shelter Transaction (PTST)

    • IRC 4966 Tax on Taxable Distribution by a Sponsoring Organization with respect to a Donor Advised Fund

    • IRC 4967 Tax on Prohibited Benefit to Donor, Donor Advisor or to Related Person

    IRC Section Assessed Against Tax Rate Form Reported On 2nd Tier Tax Applicable Additional Resources
    IRC 170(f)(10)(F) EO 100% Form 4720 No See Note 1
    IRC 664(c)(2) Charitable Remainder Trust 100% Form 4720 No IRM 4.76.5
    Treas. Reg. 1.664-1(c)
    IRC 4911 EO 25% Form 4720 No IRM 4.76.3
    IRM 7.27.19
    IRM 7.25.3
    IRC 4912
    EO 5% Form 4720 No IRM 4.76.3
    IRM 7.25.3
    Organization Manager 5% Form 4720 -A
    IRC 4951 Self Dealer 10% Form 990-BL, Schedule A 100% IRM 4.76.27
    IRM 7.25.22
    Trustee 2.5% 50%
    IRC 4952 Trust Fund 10% Form 990-BL, Schedule A 100% IRM 4.76.27
    IRM 7.25.22
    Trustee 2.5% 50%
    IRC 4953
    Contributor 5% Form 6069 (Make a referral on Form 5666 to LB&I or SB/SE) No IRM 4.76.27
    IRC 4955 EO 10% Form 4720 100% IRM 4.76.3
    IRM 7.25.3
    Organization Manager 2.5%
    (Max $5,000 with respect to any one political expenditure)
    Form 4720 -A 50%
    (Max $10,000 with respect to any one political expenditure)
    IRC 4958 Disqualified Person 25% Form 4720 200% IRM 4.76.2
    IRM 4.76.3
    IRM 7.27.30
    Organization Manager 10%
    (Max $20,000 with respect to any one EBT)
    Form 4720 -A No
    IRC 4959 Hospital Organization $50,000 Form 4720 No Notice 2011-52
    IRC 4965 Tax-Exempt Entity
    Highest Income Tax Rate on the Greater of Entity Net Income or 75% of Transaction Proceeds.
    See Note 2
    Form 4720
    (The PTST is also reported on Form 8886-T)
    No Notice 2007-18
    Entity Manager $20,000 with respect to each approval or act Form 4720 -A
    IRC 4966 Sponsoring Organization 20% Form 4720 No Notice 2007-21
    Fund Manager 5%
    (Max $10,000 with respect to any one taxable distribution)
    Form 4720 -A
     
    IRC 4967 Donor/ Donor Advisor/ Related Person 125% Form 4720 -A No Notice 2007-21  
    Fund Manager 10%
    (Max $10,000 with respect to any one distribution)
     
    Note 1: "Personal benefit contracts" are certain life insurance, annuity, or endowment contracts where any beneficiary, or certain person(s) related thereto, are the transferor(s) to the exempt organization of such contract.
    Note 2: If the tax-exempt entity knew the transaction was a prohibited tax shelter transaction, the tax rate is the greater of 100 percent of the entity net income or 75 percent of the transaction proceeds.
     
  2. For the taxes which require correction, treat the case as agreed only if the taxpayer signs the agreement form and makes full correction. If the taxpayer fails to make full correction , consider the case unagreed even if the taxpayer signs the agreement form.

  3. Include a description on Form 886-A as to how to correct each act. Also include second-tier taxes on the formal report if the liable party fails to make correction.

  4. For the taxes which require correction, consider whether the penalty under IRC 6684 for repeated or willful and flagrant Chapter 42 tax violations applies. Explain this penalty on Form 886-A. Also include a comment on Form 4621 as to whether the penalty applies.

  5. Situations may arise where tax liability extends beyond the taxable years covered by the audit report and into a future taxable year. For example, the organization has been unable to fully correct by the time you are ready to close your audit. In these cases, make a statement on Form 4621, or Form 886-A, informing the taxpayer of its requirement to file Form 4720 for the following taxable year and to pay any tax owed with respect to the act or failure to act that remains uncorrected. Consider preparing a referral on Form 5666 if there is an indication that the taxpayer is not willing to make future corrections.

  6. Form 870-E is prepared for excise tax adjustments. See IRM 4.75.15.7.2 for additional information regarding Form 870-E.

  7. Schedules detailing computations of adjustments should be included in the audit report. The computation of the tax on the adjustments is shown on Form 4883.

  8. If the taxpayer only agrees or corrects on some of the transactions, treat the case as partially agreed. Attempt to secure agreement for the agreed corrected items.

  9. See Exhibit 4.75.15-2 for the listing of the initial report forms.

  10. See Exhibit 4.75.15-3 for the listing of the formal 30-day letter as well as the required forms.

  11. Refer to IRM 4.75.21.13.3, IRC 6104(c) Disclosures: Chapter 41 and 42 Assessments, for the procedures relating to state notification.

  12. If the taxpayer agrees and corrects (if applicable), issue Letter 3607 as the closing letter.

4.75.15.8.9  (03-31-2014)
Nonexempt Charitable Trusts

  1. Nonexempt charitable trusts (NECT's) described under IRC 4947(a)(1) file annual information returns on Form 990 or 990-PF depending on whether the trust has a determination letter granting IRC 509(a)(3) status.

  2. Nonexempt split-interest trusts described under IRC 4947(a)(2) file annual information returns on Form 5227, Split-Interest Trust Information Return. Split-interest trusts include:

    • Charitable remainder trusts

    • Charitable lead trusts

    • IRC 642 pooled income funds

  3. Refer to Rev. Proc. 83-32 for the various filing requirements of both nonexempt charitable trusts and split-interest trusts.

  4. The IRS does not revoke the tax-exempt status of NECT's. Chapter 42 excise taxes apply if charitable interests are diverted. A diversion of charitable interests may also require reclassification of an IRC 509(a)(3) NECT to a private foundation. In some cases, you may also make a discrepancy adjustment to deny the grantor of the trust the overvalued portion of the charitable deduction (or make a referral to SB/SE or LB&I using Form 5666).

  5. If an NECT does not meet the requirements for IRC 509(a)(3) supporting organization status, reclassify the NECT from an IRC 509(a)(3) organization to a private foundation. Follow the reclassification procedures in IRM 4.75.15.8.3.

  6. For a NECT classified as a private foundation, and split-interest trusts subject to Chapter 42 excise taxes on private foundations, you may need to solicit or propose an adjustment to Forms 4720.

  7. Split-interest trusts are:

    • Not subject to IRC 4942 tax.

    • Limited in the application of IRC 4943 and 4944 tax by IRC 4947(b)(3).

    • Limited in the application of IRC 507(a) by IRC 4947(b)(4).

  8. NECT's and split-interest trusts are subject to income tax. Fiduciaries and trustees are required to file Form 1041, U.S. Tax Return for Estates and Trusts, and Form 1041-A, U.S. Information Return for Trust Accumulation of Charitable Amounts on behalf of the trust.

  9. When the audit of a Form 1041 results in no change to the income tax reported, prepare Letter 3622.

  10. When the audit of a Form 5227 results in a no change, issue a modified Letter 3594. See Exhibit 4.75.15-1.

  11. If there is a tax change to Form 1041, follow the deficiency procedures similar to those applicable to Forms 990-T, except that you are applying the income tax under IRC 1 of the Code with respect to these trusts. The $1,000 specific deduction under IRC 512(b)(12) does not apply to IRC 4947 trusts. See IRM 4.75.15.8.5.

  12. If you are auditing Form 990 or 990-PF for an NECT, issue a drafted no-change with written advisory letter in any case in which you determine, as a result of an otherwise no-change audit, that the trust has:

    1. Failed to provide the information required by IRC 6033.

    2. Filed an incomplete return.

    3. Failed to fully disclose its various income sources.

      Example:

      A trust combines dissimilar types of income, and reports the aggregate as a single amount.

  13. Also issue a drafted no-change with written advisory letter if you

    1. Secured a delinquent Form 1041 which is accepted as filed, regardless of the establishment of reasonable cause.

    2. Secured a delinquent Form 1041 and you have further adjusted the tax in a separate report of examination (or you prepared a substitute for return).

    3. Noted some other compliance problem which does not cause a tax change but should be called to their attention.

  14. At the heading of Letter 3609, insert "4947 (a)(1)" using touch-up text, after the phrase "Exemption under Section" .

  15. For further information regarding these trusts, see IRM 4.76.5, Non-Exempt Charitable and Split Interest Trusts, and IRM 7.26.15, IRC 4947 Trusts

4.75.15.8.10  (03-31-2014)
Inactive Organizations

  1. Inactivity for a period of years could result in proposed revocation of tax-exempt status on the grounds that the organization does not conduct qualifying activities, and therefore does not meet the operational test indicated in Treas. Reg. 1.501(c)(3)-1(a)(1).

  2. A secondary ground for revocation may be that the inactive organization failed to establish that it was observing the conditions necessary for continuation of exempt status and thus did not comply with IRC 6033. However, automatic revocation may preempt the closing of such audits. In that event, see survey procedures for IRC 6033(j) automatically revoked organizations at IRM 4.75.16.5.2, Auto Revocations Under IRC 6033(j).

  3. If an inactive organization (not subject to auto-revocation) properly terminated before the completion of the audit or you cannot be located, it may be recognized as terminated if it meets the criteria in IRM 4.75.16.5.10, Terminations, or is described in Examples 1 and 3 of IRM Exhibit 4.75.16–17, Closing Procedures for Unable to Locate Situations. Terminations are subject to Mandatory Review.

  4. If an inactive organization has not properly terminated (or is unable-to-locate in Examples 2, 4, 5, and 6 of IRM Exhibit 4.75.16-17), you may do one of the following:

    • Issue an advisory (with preparation of Form 5666 for future year audit) that a lack of operations could result in revocation of tax-exempt status and/or reclassification to a private foundation, if applicable.

    • Propose revocation.

    • Survey the case if it falls under the survey guidelines.

  5. If an inactive publicly supported organization is subject to a proposed revocation, determine whether to reclassify the organization as a private foundation.

4.75.15.8.11  (03-31-2014)
Miscellaneous Civil Penalties

  1. Control and tracking of miscellaneous civil penalties is through RCCMS as MFT 99 and not through AIMS.

  2. Generally the penalties listed on Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties, are the penalties contemplated in this subsection.

  3. For instructions on creating a penalty case file and a RCCMS record, see IRM 4.75.22.

  4. Issue an advisory if imposing miscellaneous civil penalties against a tax-exempt organization or if not imposing the penalty due to reasonable cause.

  5. Miscellaneous civil penalties are generally not subject to deficiency procedures, and are therefore not subject to appeals before making an assessment. See instructions to Form 8278. For information on whether a certain penalty requires deficiency procedures, see IRM 20.1, Penalty Handbook. Also, refer to the Office of Servicewide Penalties (OSP) at http://sbseservicewide.web.irs.gov/penalty/default.aspx

  6. Close a penalty case file and a RCCMS record to ESS at anytime during the examination after fully developing the penalty. If basing the penalty on an issue subject to Mandatory Review, close the penalty case file to Mandatory Review with the remainder of the case file.

4.75.15.9  (03-31-2014)
Initial Reports of Examination

  1. An initial report is a summary report you issue to a taxpayer involving a change in tax or status. It is an efficient way to present a report and secure agreement when the taxpayer reasonably understands the changes and you expect will agree to those changes. Initial reports are optional and not appropriate for all cases. The decision to use an initial report rests with the agent and group manager. Agents can always resort directly to a formal report (with 30-day letter) whenever:

    • You have uncertainty regarding the taxpayer's understanding of the proposed changes.

    • The taxpayer indicates disagreement with the changes.

    Note:

    In some cases, you can formally present an issue to the taxpayer using Form 5701, and then prepare an initial report or formal report after you have gathered all of the taxpayer's comments on all issues. Form 5701 is not a "report" or a waiver form. Use it to formally raise issues and to document the taxpayer's agreement or comments on a per-issue basis.

    Note:

    Considering a Fast Track Settlement may be more appropriate for one or more unagreed issues. See IRM 4.75.15.14.

  2. The initial report allows agents the flexibility to present their findings, normally while on-site, without an elaborate formal report. The taxpayer's reply (or non-reply) tells the agent whether he/she has an agreed or unagreed case for purposes of determining the need for a formal report.

  3. The initial report is a proposal. The report allows more time to resolve any disputed facts of the case. The report is optional, and may be bypassed for a formal report based on the nature of the case, statute date and resource considerations. With respect to an initial report, you must:

    1. Fully develop the case before issuing the report.

    2. Solicit an agreement.

    3. Solicit correction for certain Chapter 42 excise taxes.

    4. Have a reasonable belief that the taxpayer will understand the changes and agree without much difficulty.

    5. Inform the taxpayer that the initial report does not constitute an official 30-day letter.

    Caution:

    Do not issue initial reports for church audits, subject to IRC 7611.

  4. Generally, an initial report is inappropriate for IRC 7428 issues, such as a proposed revocation of an IRC 501(c)(3) organization.

    Example:

    Even if the taxpayer agrees with an initial report by signing a Form 6018, Consent to Proposed Action - Section 7428, you still have to issue a formal report with a 30-day letter.

    Note:

    The example is distinguishable from a draft report. A draft report is a tool or workpaper used to resolve differences and achieve mutual understanding with the taxpayer over all aspects of a report. A draft report is not used to solicit and secure an agreement. Draft reports are also optional, and their use depends on time and resource constraints.

  5. Generally, you prepare the facts, law and argument portion of the RAR component in summary form. If prepared in summary form, the explanation must be sufficient to justify the proposed change.

  6. Give the report to the taxpayer with one of the following transmittals:

    • A Form 4564, Information Document Request

    • A Form 5701, Notice of Proposed Adjustment

    • A drafted nonstandard letter

  7. With respect to an initial report, you may:

    1. Use shorter reply time frames (less than 30 days), if desired.

    2. Consider Fast Track Settlement for an unagreed issue.

  8. If a taxpayer has verbally indicated they will agree to a proposed tax adjustment, an initial report does not need to include a Form 886-A, Explanation of Items.

    Note:

    Obtain proof of correction for two-tiered Chapter 42 excise taxes before considering the tax as agreed.

  9. If preparing Form 886-A, type:

    1. "This is an initial report" on the first page of the Form 886–A.

    2. "Initial report" in the header of the Form 886–A.

  10. If addressing multiple types of issues in a case, such as income, employment, and excise tax, prepare a separate report for each type of tax. See IRM 4.23.10, Report Writing Guide for Employment Tax Examinations, for further guidance on employment tax issues.

  11. Use the spelling and grammar checker.

  12. For a list of forms for issuance with respect to specific types of tax, see Exhibit 4.75.15-2. For revocations and proposed income taxes on revoked organizations, refer to the table in IRM 4.75.31.10 for the documents that make up the initial report.

  13. After the deadline for responding passes, determine if:

    • The taxpayer agreed to the proposed adjustment.

    • The taxpayer submitted a reply other than a signed agreement.

    • The taxpayer failed to reply to the initial report.

      Note:

      If you received no response as of a deadline, you may reasonably wait up to another week to allow for mailing time of the response.

  14. If the taxpayer signs the agreement, process as follows:

    If the issue is... Then...
    Subject to declaratory judgment rights under IRC 7428. (IRC 501(c)(3) revocation/reclassification, etc.) Issue a formal RAR. See IRM 4.75.15.10, Formal Reports of Examination.
    An agreed revocation (non-IRC 501(c)(3)). Close to Mandatory Review as revocation - agreed with disposal code (DC) 09 (RCCMS - 211).
    An agreed modification of code section. Close to Mandatory Review as change in subsection - agreed with DC 16 (RCCMS - 204).
    An agreed worker reclassification. Process any payments received. See IRM 4.75.22.4.1, Payment Processing, for instructions. Close to ESS as agreed with DC 03 (RCCMS - 102). If the EO signed a classification settlement program agreement, close the quarters where making assessments using DC 03 (RCCMS - 102). Close all other periods using DC 01 (RCCMS - 210). Refer to IRM 4.23.6.15.2(3). Use Letter 3607.
    Agreed tax changes including:
    • Excise (no correction required, or correction was required and fully made)

    • Employment taxes (non-worker classification)

    • Income taxes

    Process any payments received. See IRM 4.75.22.4.1, Payment Processing, for instructions.
    Verify correction, if applicable.
    Issue Letter 3607 with a copy of the signed agreement and initial (or formal) report.
    Close to ESS as agreed with DC 03 (RCCMS - 102).
    Chapter 42 excise tax adjustment without correction. Process any payments received. See IRM 4.75.22.4.1, Payment Processing, for instructions. Issue a formal RAR. Recommend imposition of the initial tax and propose the second-level tax in the event the act or failure to act giving rise to the initial tax is uncorrected within the taxable period. To ensure issuance of a notice of deficiency, you must recommend imposition of both taxes. The report brings together all the issues and alerts the taxpayer to the full consequences of the failure to correct. Fully describe the act or failure to act which gave rise to the tax liability in the report.
    Subject to multiple issues listed above. Process any payments received. See IRM 4.75.22.4.1, Payment Processing, for instructions. Issue separate formal reports of examination for each unagreed type of issue. Management may split cases by type of tax, closing unagreed issues to Mandatory Review and closing agreed issues to ESS.

    Caution:

    If subject to special projects, such as the National Research Program, comply with the project guidelines for closure.

    Note:

    If issuing one or more Letters 3607, with no other issues, prepare and issue Letter 3609 as the closing letter for the annual information return (or e-Postcard) audit. In the addendum, reference the agreed adjustment as being "issued under separate cover."

  15. If the taxpayer disagrees with the initial report (and does not request a Fast Track Settlement), review the reply and proceed as follows:

    If the additional information provided... Then...
    Alters the conclusion, resulting in a no change. Close as a no change. See Exhibit 4.75.15-1, Closing Letters for No Change Cases.
    Alters the conclusion, resulting in a modified adjustment. Consider Fast Track Settlement for the unagreed issue. See IRM 4.75.15.14. Otherwise, modify the report, and issue a formal RAR. See IRM 4.75.15.10.
    Does not modify the conclusion. Consider Fast Track Settlement for the unagreed issue. See IRM 4.75.15.14. Otherwise issue the formal RAR. See IRM 4.75.15.10.

  16. If no one replies to the initial report, issue a formal RAR via certified mail to the taxpayer and any representative(s). See IRM 4.75.15.10.

4.75.15.10  (03-31-2014)
Formal Reports of Examination

  1. The formal report is the official written report you issue to the taxpayer that presents your findings regarding a change in tax, status or claim disallowance. A formal report is unnecessary if you issued the optional initial report and the taxpayer agreed. All cases subject to declaratory judgment under IRC 7428, require a formal report, regardless of the agreement/disagreement on the issues.

  2. The RAR is generally more elaborate as to facts, law and argument than the initial report. The formal report:

    1. Combines a 30-day letter with an RAR.

    2. Transmits the RAR to the taxpayer via either a 30-day letter or a final agreed change letter.

    3. Eliminates consideration for a Fast Track Settlement (unless properly rescinded).

    4. Requires managerial approval prior to issuance.

    5. Requires issuance via certified (domestic) or registered (international) mail.

    Caution:

    Generally, do not issue a 30-day letter to the taxpayer unless the manager tried to resolve the controversies and reach an agreement.

    Note:

    Area Counsel must approve a formal report and closing letter to a church for issues covered under IRC 7611 before Mandatory Review issues it within the two-year audit period. See IRM 4.76.7, Church Tax Inquiries and Examinations - IRC 7611. Submit a proposed adverse determination to Mandatory Review at least 120 days before the two-year period expires.

  3. After issuing an initial report, create the formal report by modifying the initial report based on any replies received in response to the initial report. Modifications can include, but are not limited to:

    • Corrections of facts stated.

    • Changes in expense allocations.

    • Additions or subtractions of items (income, expenses, reclassified workers).

    • Additions of legal references.

    • Recomputations of taxes.

    • Additions to the taxpayer's position.

    • Revisions of the government's position to rebut the taxpayer's position.

    Reminder:

    Eliminate any references to initial reports in the Form 886-A, Explanation of Items, and other documents.

  4. Issue the report with the appropriate letter and enclosures. See Exhibit 4.75.15-3, Formal 30-day Letters and Enclosures.

    Reminder:

    Ensure you include the date of issuance on the letter.

  5. After waiting 30 days, determine if:

    • The taxpayer agreed to the adjustment.

    • The taxpayer submitted a formal protest.

    • The taxpayer failed to reply to the formal report.

      Note:

      Consider waiting up to an additional week after the deadline passes to allow mailing time before taking action, at managerial discretion.

  6. If the taxpayer agrees with a formal report, process as follows:

    If the issue is... Then...
    Subject to declaratory judgment rights under IRC 7428. (IRC 501(c)(3) revocation/reclassification, etc.) Close to Mandatory Review as revocation - agreed with disposal code (DC) 09 (RCCMS - 211) or change in foundation status - agreed with DC 17 (RCCMS - 203).
    An agreed revocation (non-IRC 501(c)(3)). Close to Mandatory Review as revocation - agreed with DC 09 (RCCMS - 211).
    An agreed modification of code section. Close to Mandatory Review as change in subsection - agreed with DC 16 (RCCMS - 204).
    An agreed worker reclassification. Process any payments received. See IRM 4.75.22.4.1, Payment Processing, for instructions. Close to ESS as agreed with DC 03 (RCCMS - 102). If the taxpayer signed a classification settlement program, close the quarters where making assessments using DC 03 (RCCMS - 102). Close all other periods using DC 01 (RCCMS - 210). Refer to IRM 4.23.6.15.2(3), CSP Examination Reports. Use Letter 3607.
    Agreed tax changes including:
    • Excise (no correction required, or correction was required and fully made)

    • Employment taxes (non-worker classification)

    • Income taxes

    Process any payments received. See IRM 4.75.22.4.1, Payment Processing, for instructions.
    Verify correction, if applicable.
    Issue Letter 3607 with a copy of the signed agreement and formal report.
    Close to ESS as agreed with DC 03 (RCCMS - 102).
    Chapter 42 excise tax adjustment without correction. Process any payments received. See IRM 4.75.22.4.1, Payment Processing, for instructions. Close to Mandatory Review as unagreed without protest with DC 10 (RCCMS - 604).
    Subject to multiple issues listed above. Process any payments received. See IRM 4.75.22.4.1, Payment Processing, for instructions. Close to Mandatory Review, if applicable. Otherwise, verify correction, if applicable, process any payments received, and close to ESS.

    Note:

    If subject to special projects, such as the National Research Program, comply with the project guidelines for closure.

    Note:

    If one or more Letters 3607 are issued, and there are no other issues, prepare and issue Letter 3609 as the closing letter for the annual information return (or e-Postcard) audit. The addendum must make reference to the agreed adjustment under a separate report of examination.

  7. If the taxpayer protests a formal report, review the reply and proceed as follows:

    If the additional information provided... Then...
    Alters your conclusion, resulting in a no change. Rescind the report. Close as a no change.
    See Exhibit 4.75.15-1, Closing Letters for No-Change Cases, for the appropriate letter to be issued.
    Alters your conclusion, resulting in a modified adjustment. Modify the report and issue the revised formal RAR, unless rescinding the report and considering a Fast Track Settlement for the unagreed issue. See IRM 4.75.15.14.
    Note: A new 30-day letter over a tax change is unnecessary if there are no new issues and the revised report is favorable to the taxpayer.
    Does not modify your conclusion, and constitutes a formal protest to Appeals. Prepare a rebuttal to the protest.
    Issue the rebuttal to the taxpayer.
    Close to Mandatory Review using DC 07, Unagreed-Protest to Appeals (RCCMS - 601).
    See IRM 4.75.15.12, Rebuttals to Formal Protests, for procedures on how to prepare a rebuttal.
    Does not modify your conclusion, and does not constitute a valid formal protest to Appeals. Send Letter 3615 to the taxpayer.
    Provide 10 days to respond.
    Does not modify your conclusion, and the taxpayer filed a petition to Tax Court. Send an individually designed letter, approved by the group manager, notifying the taxpayer that the petition is premature, and they have the option of filing a formal protest. Provide 10 days to respond.

    Caution:

    If still within the 30-day period of the formal letter when you receive the incomplete protest, the taxpayer has the remainder of the 30 days and the additional 10 days in which to reply with the formal protest (a total of 40 days from the date of the formal 30-day letter).

  8. If you receive a reply in response to Letter 3615 or to the individually designed letter, refer to the above table as to how to proceed. Send no more than two Letters 3615 in total to the taxpayer. If you receive no formal protest after the second Letter 3615, close to Mandatory Review as unagreed without protest.

  9. If the taxpayer fails to reply to a formal report, and:

    You sent the RAR... You may...
    More than 30 days ago In some tax cases issue Letter 923, Letter Extending Time to File Protest , or Letter 923-E, Letter Extending Time to File Protest See Notes 1, 2, and 3.
    37 days ago (45 days if you issued Letter 923 or a comparable letter) Close the case to Mandatory Review as unagreed without protest with DC 10 (RCCMS - 604) or DC 55 (RCCMS - 605). See Exception.

    Note:

    1.Letter 923-E applies to employment tax cases (other than NRP and worker classification issues) and gaming excise taxes.

    Note:

    2. For both Letters 923 and 923-E, you must insert the group manager's information in the contact section. The group manager must approve the issuance of Letters 923 or 923-E.

    Note:

    3. You may prepare a comparable letter to Letters 923 and 923-E for status changes. The group manager has discretion over issuance of the letter.

    Exception:

    Close employment taxes (other than NRP and worker classification issues) and gaming excise taxes to ESS, unless otherwise subject to Mandatory Review or Special Review.

4.75.15.11  (03-31-2014)
Valid Formal Protest

  1. A formal protest comes only in response to the certified 30-day letter. Responses to the initial report do not include formal protests, as the initial report does not convey appeal rights.

  2. Determine that a valid formal protest contains the required elements as outlined in Pub 3498, The Examination Process (or Pub 892, How to Appeal an IRS Decision on Tax Exempt Status):

    1. The taxpayer's name, address, and a daytime telephone number.

    2. A statement that the taxpayer wants to appeal the findings to the Appeals Office.

    3. A copy of the letter showing the proposed changes and findings (or the date and symbols from the letter).

    4. The tax periods or years involved.

    5. A list of the changes that are unagreed and reasons for disagreement.

    6. The facts supporting the taxpayer's position on any unagreed issues.

    7. The law or authority, if any, on which the taxpayer is relying.

    8. The taxpayer's signature under penalties of perjury.

  3. The jurat statement is "Under the penalties of perjury, I declare that I examined the facts stated in this protest, including any accompanying documents, and, to the best of my knowledge and belief, they are true, correct, and complete." If the statement is modified or missing, Appeals does not recognize the protest as a formal protest.

  4. If the representative prepared and signed the protest, the representative must substitute a declaration stating:

    1. That he or she submitted the protest and accompanying documents.

    2. Whether he or she knows personally that the facts stated in the protest and accompanying documents are true and correct.

      Note:

      If the declaration is missing, or the representative submitted the jurat statement instead, notify the representative of this requirement.

  5. For all situations where the formal protest contains the jurat statement (or substitute declaration), but not all of the required elements, consult Mandatory Review to determine whether the protest can be forwarded to Appeals.

  6. Return incomplete protests to the taxpayer using Letter 3615. Send a copy to the representative(s) via Letter 3597.

4.75.15.12  (03-31-2014)
Rebuttals to Formal Protests

  1. The rebuttal letter is the last opportunity to counter a taxpayer's arguments before Mandatory Review forwards the returns to Appeals. Issue a rebuttal letter if you receive a protest from the taxpayer and you determine the information does not alter your original position. Section 2.03(4)(c) of Rev. Proc. 2012-18.

  2. A proper rebuttal addresses each disputed fact, argument of law, and the position of the taxpayer. The rebuttal only addresses the protest. Do not introduce new issues not raised by the taxpayer. If necessary, issue a revised formal report.

  3. To prepare a rebuttal:

    1. Write the rebuttal on Form 886-A, Explanation of Items.

    2. Address the rebuttal to the taxpayer, not Appeals.

    3. Issue the rebuttal letter in Exhibit 4.75.15-13.

    4. Use Letter 3597 if sending a copy to the representative.

  4. The following table outlines how to address common issues raised in protests:

    If the protest... And... Then...
    Identifies a fact as erroneous The protest over the fact is correct Agree with the correction.
    Identifies a fact as erroneous The protest over the fact is wrong Confirm the validity of the original fact.
    Challenges the facts The challenge constitutes a difference of opinion Dispute the opinion and restate the applicable portion of the government's position.
    Identifies legal references not previously cited The citations are applicable Address the citations and identify any differences in application of the law.
    Identifies legal references not previously cited The citations are not applicable Explain why the law cited is not applicable.
    Challenges the legal interpretation Their analysis is flawed Clarify the law and point out the error in the analysis.
    Challenges the legal interpretation Their analysis is correct Agree with the interpretation.

  5. Some protests include negative comments as to the professional conduct of the audit. Do not address these comments. The taxpayer has the option of holding a conference with the manager, and the manager may address these assertions in the conference.

4.75.15.13  (03-31-2014)
Technical Advice Memorandum (TAM)

  1. If EO R&A (through Mandatory Review) issues a TAM to the taxpayer, close your case on the basis of the conclusions of the TAM.

  2. For favorable TAMs where no adverse changes are necessary, you may issue a no-change or no-change advisory letter, whichever is appropriate.

  3. For adverse TAMs addressing revocation, modification or foundation classification issues, the taxpayer cannot appeal the TAM's decision. Accordingly, do not issue the standard 30-day letter with your RAR (namely, Letters 3618, 3620, 3610-R and Letter 3610-M). Instead issue one of the following alternate 30-day letters:

    • Exhibit 4.75.15-14, 30 day Letter - Proposed Revocation of IRC 501(c)(3) Exemption - Based on a TAM

    • Exhibit 4.75.15-15, 30-day Letter - Proposed Reclassification of Foundation Status - Based on a TAM

    • Exhibit 4.75.15-16, 30-day Letter - Proposed Revocation of Exempt Status (other than IRC 501(c)(3)) - Based on a TAM

    • Exhibit 4.75.15-17, 30-day Letter - Proposed Modification of Exempt Status - Based on a TAM

  4. For tax deficiencies based on a TAM, follow normal deficiency procedures.

  5. Do not attach a TAM to the RAR. A summary RAR that refers to the TAM is acceptable. If the taxpayer wants another copy of the TAM, send the copy to the taxpayer under a letter of separate cover.

  6. For unagreed IRC 7428 issues, an administrative record is required. Enter disposal code 55 (for unagreed revocations) or 10 (for unagreed other status changes) on item 13 of Form 5599 (RCCMS 604 or 605 respectively).

  7. Close the case to Mandatory Review if the case meets Mandatory Review criteria in IRM 4.75.16.6.

4.75.15.14  (03-31-2014)
Fast Track Settlement

  1. You or the taxpayer may consider the Fast Track Settlement (FTS) process at any time after you fully develop a disputed issue but before you issue a formal report (30-day letter and RAR).

  2. TE/GE and Appeals jointly administers FTS, an alternative dispute resolution program designed to help taxpayers settle disputes at the examination group level. An appeals officer trained in mediation serves as an impartial third party by facilitating settlement negotiations, utilizing mediation techniques and some times settlement authority to resolve unagreed TE/GE issues. The goal of TE/GE FTS is resolution within 60 days. The benefits of TE/GE FTS include less time, expense, and burden on the both the taxpayer and the government.

  3. Announcement 2008-105 originally announced FTS for EO cases. Announcement 2012–34 makes the program permanent. This Announcement contains procedures as well as the types of issues that are and are not eligible for FTS.

  4. Find additional information regarding this program in Pub 5092, Fast Track Settlement A Process Resolution of Tax Exempt and Government Entities (TE/GE) Tax Issues, and at http://appeals.web.irs.gov/tech_services/adr/fasttrack.htm.

4.75.15.14.1  (03-31-2014)
Characteristics of Fast Track Settlement

  1. FTS resolves factual and legal issues.

  2. EO and Appeals jointly administer the FTS process.

  3. FTS enables the taxpayer to work with the EO agent, the EO group manager, and the Office of Appeals.

    1. All three parties (examination group, taxpayer, and Appeals) are active participants in the process.

    2. All three must agree before a proposed resolution can be implemented.

  4. You or the taxpayer can initiate FTS at any time after fully developing an issue, but before issuing a 30-day letter (or its equivalent).

  5. Both parties must commit to settling the issues involved.

  6. The prohibition against ex parte communications (Public Law 105-206, Section 1001(a)) between Appeals Officers and other IRS employees does not apply to the FTS process. Appeals personnel are:

    • Facilitating an agreement between the taxpayer and EO

    • Not acting in their traditional Appeals settlement role.

    See section 2.05 of Rev. Proc. 2012-18.

  7. If the parties fail to resolve any issue in FTS, the taxpayer retains the right to protest the issue through the traditional Appeals process.

4.75.15.14.2  (03-31-2014)
Eligibility for Fast Track Settlement

  1. For EO, FTS can only resolve unagreed issues in the following types of examinations:

    1. Form 990 series information returns (or Form 990-N) with exemption, foundation or qualification issues.

    2. Forms 4720 and 4720-A

    3. Forms 990-T

    4. Forms 1040 or 1120 discrepancy adjustments

    5. Employment taxes, including worker classification issues not resolved through Classification Settlement Program (CSP)

  2. FTS is generally unavailable for the following EO cases:

    1. Correspondence exam cases

    2. Campus cases (formerly known as Service Centers). These cases are not eligible for FTS as there is no decision-maker available to attend the session.

    3. No show or no response cases. (The taxpayer fails to respond to Service communications and did not previously submit documentation for consideration.)

    4. Listed transactions cases or abusive tax avoidance transactions (ATAT) cases

    5. Cases in which Appeals has no jurisdiction (e.g., IRC 6700 penalty cases)

    6. Cases involving potential for civil or criminal fraud

    7. Issues designated for litigation

    8. Issues under consideration for designation for litigation

    9. Issues identified in a Chief Counsel Notice, or equivalent publication, as excluded from the FTS process.

    10. "Whipsaw" issues (i.e., issues for which resolution with respect to one party might result in inconsistent treatment in the absence of the participation of another party)

    11. Issues that can be resolved through other established settlement initiatives, comparable to those described in Rev. Proc. 2006-27.

    12. Frivolous cases. (The taxpayer raises issues/arguments that clearly have no merit or legal sufficiency on their face.)

    13. Cases involving the failure or refusal to comply with the tax laws because of moral, religious, political, constitutional, conscientious, or similar grounds. See Treas. Reg. §601.106(b), Statement of Procedural Rules

    14. Tax Equity & Fiscal Responsibility Act (TEFRA) partnership cases

    15. Cases specifically excluded from FTS, by the IRS Commissioner, Chief Counsel or by a Director in EO

    16. Selected initiatives as determined by the individual Directors on an annual basis

  3. In revocation cases, the issue of a retroactive effective date of revocation is not eligible for Fast Track Settlement. IRC 7805(b) governs relief from retroactive application of adverse determination, which requires a request for a technical advice memorandum. See Rev. Proc. 2014-5 (updated annually).

4.75.15.14.3  (03-31-2014)
Fast Track Duties and Responsibilities

  1. The examining agent (you):

    1. Has a full understanding of the FTS program, process and eligibility requirements.

    2. Offers FTS for all eligible unagreed cases.

    3. Discusses FTS with the taxpayer/representative.

    4. Answers all questions of the taxpayer/representative pertaining to FTS.

    5. Fully develops each unagreed issue.

    6. Prepares to address the taxpayer's arguments during the FTS session with facts and citable precedent.

    7. Keeps the group manager and the Manager, CSCI, or his/her designee, updated on the status of the FTS case.

  2. The EO group manager or designee:

    1. Coordinates preparation and submission of the application package.

    2. Notifies the taxpayer of acceptance into or rejection from the FTS program.

    3. Participates in the FTS session on behalf of the government.

    4. Possesses primary responsibility for accepting or rejecting any settlement proposal that arises as a result of the FTS.

  3. The Appeals Team Manager responsible for TE/GE programs serves as the Appeals FTS Program Manager.

  4. In managing cases eligible for FTS, the Appeals FTS Program Manager may consult with the EO group manager.

  5. Taxpayers interested in participating in FTS, or having questions about the program and its suitability for their case(s), should contact you or your group manager to discuss resolution of an issue for the period(s) currently under examination.

4.75.15.14.4  (03-31-2014)
Fast Track Application Process

  1. To apply for the FTS program, the taxpayer submits a completed Form 14017, Application for Fast Track Settlement.

    Note:

    In order to participate in FTS, the taxpayer must consent, pursuant to section 6103(c), to the disclosure of the taxpayer's returns and return information pertaining to the issues being considered in the FTS process to those persons named on Form 14017.

  2. Write up all unagreed issues in a Revenue Agent Report (RAR) format. Use Form 5701, Notice of Proposed Adjustment, for this purpose. Add Form 886-A if more room is needed.

  3. The taxpayer must prepare a full written response explaining their position on each issue.

  4. Assemble Form 14017, your write-up, the taxpayer's written response, and your rebuttal, collectively referred to as the FTS Submission Package.

  5. Submit the FTS Submission Package to your group manager for signature on Form 14017.

  6. The group manager secure e-mails the FTS Submission Package to the Manager, Compliance Strategies and Critical Initiatives (CSCI).

  7. The Manager, CSCI, or his/her designee, indicates concurrence by e-mail and maintains a list and status of FTS cases.

  8. Secure e-mail the FTS Submission Package (with concurring e-mail from Manager, CSCI) to the area manager.

  9. The area manager approves the FTS Submission Package by signing Form 14017 as the approving operating division official.

  10. Secure e-mail the FTS Submission Package to the Appeals Program Manager using the mailbox *AP TEGE FTS.

  11. The Appeals Program Manager (or designee) contacts the EO group manager to inform him/her of the decision made regarding acceptance or rejection in FTS.

  12. If accepted, the Appeals Program Manager (or designee) assigns an FTS Appeals Officer who acts as the FTS Appeals Official (FTS AO) to help resolve the case.

  13. If the case is not accepted for inclusion in FTS:

    1. Notify the taxpayer accordingly

    2. Discuss other dispute resolution opportunities with the taxpayer, including closing agreement or 30-day letter procedures and the taxpayer's normal Appeal rights.

    3. Notify the Manager, CSCI or his/her designee accordingly.

      Note:

      The decision not to accept a case into the FTS program is not subject to administrative appeal or judicial review.

4.75.15.14.5  (03-31-2014)
Settlement Process for Cases Accepted in FTS

  1. If the case is accepted for inclusion in FTS, the FTS AO:

    1. Contacts the EO group manager (or EO agent) and the taxpayer to set up an FTS session to discuss resolution of the case.

    2. Holds the FTS session at the date and location agreed to by both parties.

    3. Meets with the taxpayer, the EO group manager (or designee) and the agent at the FTS session.

    4. Serves as a neutral party at the FTS session.

    5. Does not perform in a traditional Appeals role, but uses dispute resolution techniques to facilitate settlement between the parties.

  2. Both parties retain the right to withdraw throughout the entire FTS process. A party wishing to withdraw should provide written notice to the FTS AO and the other party.

  3. The FTS session may include other individuals with decision-making authority and the information and expertise necessary to assist the parties during the settlement process.

    Note:

    IRS employees, the taxpayer, and persons invited to participate by the IRS or the taxpayer shall not voluntarily disclose information regarding any communication made during the FTS session, except as provided by statute.

  4. The FTS AO may ask you and the taxpayer to limit the number of participants at the FTS session to facilitate the process.

  5. Prior to the FTS session, the FTS AO advises the participants of the procedures and establish ground rules.

  6. The FTS session may include joint sessions with all parties, separate meetings, or both as determined appropriate in the sole judgment of the FTS AO.

  7. The FTS AO may modify the rules and procedures during the FTS session to adapt to changes in circumstances.

  8. The taxpayer need not have a representative to participate in the FTS process, but if they do, this individual must have a power of attorney from the taxpayer (Form 2848, Power of Attorney and Declaration of Representative).

  9. During the FTS session, the FTS AO prepares the FTS Session Agenda and the FTS Session Report and provides both parties with copies.

    1. The FTS Agenda guides the communication in the FTS session, sets the order of issue discussion, and poses questions to clarify the issues.

    2. The FTS Report includes a list of all issues approved for the FTS program, a description of the issues, the amounts in dispute, conference dates, a plan of action for the FTS session and other information useful to the process as determined by the parties and the FTS AO.

      Note:

      The FTS AO updates the FTS Report after the FTS session with the developments of the session.

  10. Generally, the FTS AO considers only those issues outlined in the FTS Report, except by mutual agreement of the parties.

  11. If the taxpayer presents information during the FTS session that was not previously presented during the audit, the FTS AO adjusts the targeted completion date to give the appropriate IRS officials time to evaluate the information.

  12. During the FTS session, the FTS AO may propose settlement terms for any or all issues, and may consider settlement terms proposed by either party.

  13. If the parties resolve any disputed issue at the conclusion of the FTS session:

    1. The parties and the FTS AO sign the FTS Report acknowledging acceptance of the terms of settlement for purposes of preparing computations.

    2. You process the case under normal case processing procedures.

  14. The signature of the parties on the FTS Report does not:

    • Constitute a final settlement

    • Waive restrictions on assessment

    • Terminate consents to extend periods of limitation

    • Start the running of any periods of limitation

    • Constitute agreement to close the case.

  15. If the taxpayer accepts the FTS AO’s settlement proposal, but the EO group manager rejects it, the EO area manager must review the settlement proposal and either concur in writing with the rejection or accept the settlement proposal on behalf of EO.

    1. If the area manager accepts the settlement proposal, process the case in accordance with the proposal.

    2. If the area manager concurs with the group manager’s rejection of the settlement proposal, and an acceptable alternative settlement cannot be reached, the issue closes out of the FTS program as unagreed.

  16. If the parties cannot reach an agreement, process the case under normal "unagreed" procedures.

    Note:

    If the parties fail to resolve any issue in FTS, the taxpayer retains the option of requesting that the issue be heard through the traditional Appeals process.

  17. Include any resolution of an issue (or disagreement) through the FTS process for specified tax periods in your workpapers. Appropriately index the resolution in the Form 5773 to support your conclusions.

  18. A resolution by the parties through the FTS process will not bind the parties for taxable periods or issues not covered by the FTS agreement, unless addressed expressly in a closing agreement reached as part of the FTS process.

  19. Notify the Manager, CSCI or his/her designee, regarding the resolution (or disagreement) resulting from the FTS session.

  20. If applicable, the IRS will report a proposed resolution reached as a result of EO FTS to the Joint Committee on Taxation in accordance with section 6405.

    • The IRS may reconsider a proposed settlement, as reflected in a signed FTS Session Report, upon receipt of comments on the proposed settlement from the Joint Committee on Taxation.

    • If the taxpayer declines to agree with any changes by the IRS upon reconsideration, close the case unagreed, and the taxpayer will retain all the usual rights to request Appeals consideration of any unagreed issues.

Exhibit 4.75.15-1 
Closing Letters For No Change Cases and Allowance of Claim in Full

Type of return: Closing letter:
Form 940
Form 941
Form 944
Form 945
Letter 3623
Form 990
Form 990-BL
Form 990-EZ
Letter 3594


If there are advisories, use Letter 3609


Form 990-N
Modified Letter 3594, by striking the sentence, "Accordingly, we have accepted your return(s) as filed" , and inserting in its place, "Accordingly, we have accepted your eligibility to file Form(s) 990-N for the examined tax year(s)" .
Form 990-PF Letter 3593

If there are advisories, use Letter 3609
Church See IRM 4.76.7
Form 990-T
Form 1041
Form 1041-A
Form 1065
Letter 3622
Form 5227 Modified Letter 3594 by striking the first paragraph and inserting in its place, "Our recent examination of your return(s) for the above years shows no change is necessary in the information reported. We have accepted your return(s) as filed."
Form 1120-POL Letter 3623
Form 4720 Letter 3592
Allowance of Claim in Full Letter 3601


Reductions in tax must be reported on:
Form 4621 (for Chap 41 or 42 Tax)
Form 4883 (for Chap 41 or 42 Tax)
Form 4549 (for UBIT or Income Tax)
Form 5384 (for Gaming Excise Tax)
See IRM 4.23.13 for Employment Taxes
(no signatures necessary on waiver forms)

Note:

Any representative who is authorized via Forms 2848 or 8821 to receive copies of the taxpayer correspondence will be sent a copy of the closing letter using Letter 3597.


Note:

If an audit is for multiple years, no change letters should not be used unless all years are no changed.

Exhibit 4.75.15-2 
Initial Report Forms

Type of issue Forms
Revocation: IRC 501(c)(3) Form 4621-A
Form 6018
Form 886-A
Revocation: Non IRC 501(c)(3) Form 4621-A
Form 6018-A
Form 886-A
Reclassification: Foundation status
Modification of operating foundation status
Form 4621-A
Form 6018
Form 886-A
Modification: Code section Form 4621-A
Form 6018-A
Disqualification (Denial) - Status 36 Organizations
Also refer to IRM 4.75.16.5.9, Status 36 Cases

Form 4621-A
Form 6018-A. Check the other box, and add, "Disqualification and denial of tax-exempt status as an organization described under IRC 501(c) for the tax year(s) ending [enter tax years]" . If the organization qualified for exemption under another subsection, add instead, "Disqualification and denial of tax-exempt status as an organization described under IRC 501(c)(___) for the tax year(s) ending [enter tax years]" .
Tax: Form 11–C
Tax: Form 730
Form 5384
Tax: Form 940 (non-worker classification) Form 2504 or Form 2504-S
Form 4666
Form 4667
Tax: Form 940 (worker classification) Form 2504-WC
Form 4666
Form 4667
Tax: Form 941 (non-worker classification)
Tax: Form 944 (non-worker classification)
Tax: Form 945
Form 2504 or Form 2504-S
Form 4666
Form 4668
Tax: Form 941 (worker classification)
Tax: Form 944 (worker classification)

Form 2504-WC
Form 4666
Form 4668
Tax: Form 990-PF (IRC 4940 only)

Tax: Form 4720: Correction not required
Tax: Form 6069

Form 4621
Form 4883
Form 870-E
Tax: Form 990-T
Tax: Form 1120–POL


Form 4549
Tax: Form 4720: Correction required *
Tax: Form 990-BL

Form 4621
Form 4883
Form 870-E
Tax Upon Revocation:
Form 1120
Form 1041
See IRM 4.75.31.10, Conversion of Returns Upon Revocation of Exemption
Claims Disallowed in Full;
Claims Disallowed in Part, or
Claims Disallowed in Full with Additional Tax

Form 2297
Form 3363
Form 4621 (for Chap 41 & 42 taxes)
Form 4883 (for Chap 41 & 42 taxes)
Form 870-E (for Chap 41 & 42 taxes)
Form 4549 (for UBIT or Income Tax)
Form 5384 (for Gaming Excise Tax)
See IRM 4.23.13 for Employment Taxes
Form 886-A

Note:

Form 886-A is mandatory for unagreed issues, agreed revocation cases, agreed reclassification of foundation status, agreed modification of operating foundation status, and for agreed issues where the explanation cannot fit in the space on the forms indicated above. It is optional for all other situations. If a Form 886-A is prepared during the initial report phase, the various sections of the form are generally prepared in summary form. Indicate "Initial Report" on the top of Form 886–A.

Note:

For unagreed issues where Fast Track Settlement is a viable option to an eligible taxpayer, provide Pub 5092, Fast Track Settlement A Process Resolution of Tax Exempt and Government Entities (TE/GE) Tax Issues, with the initial report.

* When a disqualified person, self dealer, manager, donor or donor advisor signs a Form 4720-A for the Chapter 42 tax liability, each such person should be sent their own separate letter.

Exhibit 4.75.15-3 
Formal 30-Day Letters and Enclosures

Do not issue a formal report to the taxpayer prior to discussing findings and proposed issues with the organization and/or a representative. Exceptions to this rule are for the following:

  1. No-show / no-response appointments

  2. Uncooperative taxpayers

  3. When additional records are provided in response to the initial report

In the event a statute is imminent (less than 90 days) and a 30-day letter was not issued, consult with Area Counsel and consider not issuing a 30-day letter. In lieu of a 30-day letter, prepare a letter of separate cover conveying the RAR to the taxpayer. Summarize in the letter why a standard 30-day letter cannot be issued. Ensure that the letter contains the paragraph informing the taxpayer of their right to contact the Taxpayer Advocate. Refer to http://www.irs.gov/uac/Contact-a-Local-Taxpayer-Advocate for the current list of Taxpayer Advocate offices. Do not include a suspense date in the letter. Consult with Area Counsel concerning the content, format, and timing of issuing any cover letter used in lieu of a 30-day letter.

Note:

Only in circumstances where delay would be prejudicial to the interests of the Service (such as in cases involving the imminence of the expiration of the statute of limitations, or where immediate action is necessary to protect the interests of the Government) will the Service not afford an opportunity for the case to go to the Appeals Office. See Section 12.02 of Rev. Proc. 2014-9 (updated annually).

Depending on the circumstances, the letter of separate cover might explain what the organization can do so they can avail themselves the opportunity for Appeals Office consideration, such as by promptly submitting a valid consent on Forms 872, 872-A or SS-10.

Type of issue Letters, forms, and publications to be mailed
Revocation: IRC 501(c)(3) Letter 3618 (or Exhibit 4.75.15-14 if a TAM is issued)
Form 4621-A
Form 886-A
Form 6018
Pub 892
Pub 3498
Revocation: Non IRC 501(c)(3) Letter 3610-R (or Exhibit 4.75.15-16 if a TAM is issued)
Form 4621-A
Form 886-A
Form 6018-A
Pub 892
Pub 3498
Reclassification: Foundation status
Modification of operating foundation status
Letter 3620 (or Exhibit 4.75.15-15 if a TAM is issued)
Form 4621-A
Form 886-A
Form 6018
Pub 892
Pub 3498
Modification: Code section Letter 3610-M (or Exhibit 4.75.15-17 if a TAM is issued)
Form 4621-A
Form 886-A
Form 6018-A
Pub 892
Pub 3498
Tax: Form 11-C
Tax: Form 730
Letter 950-E
Form 886-A
Form 2504
Form 5385
Pub 3498
Tax: Form 940 (non-worker classification) Letter 950-M
Form 2504 or Form 2504-S
Form 4666
Form 4667
Form 886-A
Pub 3498
Tax: Form 940 (worker classification) Letter 950-L
Form 2504-WC
Form 4666
Form 4667
Form 886-A
Pub 1976
Pub 3498
Tax: Form 941 (non-worker classification)
Tax: Form 944 (non-worker classification)
Tax: Form 945
Letter 950-M
Form 2504 or Form 2504-S
Form 4666
Form 4668
Form 886-A
Pub 3498
Tax: Form 941 (worker classification)
Tax: Form 944 (worker classification)
Letter 950-L
Form 2504-WC
Form 4666
Form 4668
Form 886-A
Pub 1976
Pub 3498
Tax: Form 990-PF (IRC 4940 only)
Tax: Form 4720
Black Lung Trusts Tax
Letter 3614
Form 4621
Form 4883
Form 870-E
Form 886-A
Pub 3498
Pub 594
Tax: Form 990-T
Form 1120–POL
Letter 3621

Form 870
Form 4549-A
Form 886-A
Pub 3498
Pub 594
Tax Upon Revocation:
Form 1120
Form 1041
See IRM 4.75.31.11, Conversion of Returns Upon Revocation Of Exemption
Claims Disallowed in Full;
Claims Disallowed in Part, or
Claims Disallowed in Full with Additional Tax

Letter 3602 (modify text for appropriate report form number depending on the tax)
Form 2297
Form 3363
Form 4621 (for Chap 41 & 42 taxes)
Form 4883 (for Chap 41 & 42 taxes)
Form 870-E (for Chap 41 & 42 taxes)
Form 4549-A (for UBIT or Income Tax)
Form 870 (for UBIT or Income Tax)
Form 2504-E (for Gaming Excise Tax)
Form 5385 (for Gaming Excise Tax)
See IRM 4.23.13 for Employment Taxes
Form 886-A

Exhibit 4.75.15-4 
Form 4621, Exempt Organizations - Report of Examination (Proposed Tax Changes), Instructions for Completion

Refer to the exhibits in IRM 4.76.4 for examples.

The specific instructions for completion are as follows:

Line # Information to be inserted
1. Form No. Enter the form number(s) of the returns covered by the audit.
2. Area Office Enter the applicable EO Area Office.
3. Date of Report Enter the date of the report.
4. Taxpayer Name and Address Enter the taxpayer's legal name and current address. If the name on the return is different from the legal name, enter both names as follows:
"Legal Name (Shown on the return as Name on the Return) "
5. Name and Address of Private Foundation or Other Exempt Organization For EO excise tax cases where the taxpayer is a disqualified person, self dealer, manager, donor or donor advisor with respect to an exempt organization, enter the legal name and address of the related exempt organization.
6. SSN or EIN (of taxpayer) Enter the EIN of the taxpayer, or if the taxpayer is an individual, enter the social security number.
7. Tax Periods Ended (of taxpayer) List each tax year audited in the following format:
Calendar Year - Show ending date (12/31/2012)
Fiscal Year - Show ending date (6/30/2012)
Short period - Show beginning and ending date (1/1/2012 - 9/30/2012)
52/53 Week Year - Show last day of year (5/25/2012)
8. PF or Other EO's EIN If the tax change is on a disqualified person, self dealer, manager, donor or donor advisor with respect to an exempt organization, enter the EIN of such related exempt organization. If the tax is on the exempt organization, leave blank. Example - If the tax was on a self dealer, arising out of an act of self-dealing with a private foundation, you would enter the EIN of the private foundation.
9. Tax Periods Ended If the taxpayer is a disqualified person, self dealer, manager, donor or donor advisor with respect to an exempt organization, then enter the audited tax years of such related exempt organization in the format described in item (7) above. If the taxpayer is the exempt organization, leave this item blank.
10. Report Preparer's Name Enter the EO agent's name.
11. Agreement Secured "X" the appropriate item to indicate whether a full agreement, no agreement, or a partial agreement was secured to the proposed tax changes.
12. Findings Discussed With Enter the name and title of the individual with whom the proposed tax adjustments were discussed.
13 Agreement Date Enter the date a valid waiver or agreement form was received by the Service for the proposed adjustments.
14a. Summary of Proposed Adjustments Adjustments for different types of tax should be entered on separate lines so that the summary of proposed adjustments will reflect the specific IRC provision applicable to each adjustment. For this purpose, different taxes imposed by separate provisions within one IRC section (such as Chapter 42 initial taxes, and additional taxes) should be entered on separate lines, as well as taxes imposed by different IRC sections. For example, adjustments under the following provisions should each be entered on a separate line in columns (3) or (4) of item 14a: 4942(a), 4945(a)(1), 4945(b)(1).
(1) Internal Revenue Code Section
Enter the specific IRC provision which describes the tax adjustment proposed, with different types of adjustments each entered on separate lines.
(2) Period Covered by Examination
Enter the tax year for the adjustment in the format described for item (7) above.
(3) Amount of Tax
Enter the amount of the proposed adjustment. For Chapter 42 excise tax adjustments, the adjustment to initial tax goes in column 3.
(4) Additional Tax
This column only applies to second level taxes such as the additional taxes of Chapter 42 of the IRC. If the report is a formal report, enter the amount of proposed adjustment to second level Chapter 42 taxes in column (4).
14(b) Penalty 1. Internal Revenue Code Section:
Enter the specific IRC provision which describes the penalty proposed, with different types of penalty adjustments each entered on separate lines. Examples: 6684, 6651(a)(1).
2 Amount:
Enter the amount of the proposed penalty.
15. Remarks If there will be no change to exempt status on an open primary return audit, the "remarks" section should state that a separate advisory letter will be issued regarding exempt status. If there will be a proposed change to exempt status, state that a separate report will be issued regarding the issue of exempt status.
On Initial Reports
: The adjustments (reasonably expected to be agreed) may be explained in the remarks section. If more space is required, the proposed adjustments should be explained on Form 886-A and the remarks section should include a statement to see attached Form 886-A for an explanation of the adjustments.
On Formal Reports: The proposed adjustments are explained on Form 886-A. Therefore the remarks section of Form 4621 should contain a statement to see attached Form 886-A for an explanation of the proposed adjustments. For two-tier excise taxes indicate the fact that there was no correction of the acts or failures to act giving rise to the initial tax, or there was inadequate correction as of the date of the report.
16. Attachments List the attachments which are included as part of the RAR to the taxpayer. These would include Form 4883, Form 886-A, Schedules, Exhibits.

Exhibit 4.75.15-5 
Form 4621-A, Exempt Organizations - Report of Examination (Proposed Status Changes), Instructions for Completion

The specific instructions for completion are as follows:

Line # Information to be inserted
1. Form no. Enter the form number of the audited returns (990, 990-PF, etc.).
2. Area Office Enter the applicable EO Area Office.
3. Date of Report Enter the date of the report.
4. Name and Address of Taxpayer Enter the taxpayer's legal name and current address. If the name on the return is different from the legal name, enter both names as follows: "Legal Name (Shown on the return as Name on the Return)."
5. EIN Enter the exempt organization's employer identification number.
6. Tax Periods Ending List each tax year audited in the following format:
Calendar Year - Show ending date (12/31/2012)

Fiscal Year - Show ending date (6/30/2012)

Short Period - Show beginning and ending date (1/1/2012- 9/30/2012)

52-53 Week Year - Show last day of taxable year (5/25/2012)
7. Report Preparer's Name Enter the EO agent's name.
8. Agreement Secured "X" Yes or No to indicate whether a signed Form 6018 or Form 6018-A was secured. Caution:
Form 6018 applies only to IRC 7428 declaratory judgment cases. Execution of a Form 6018 serves only to memorialize the intent of the taxpayer at the time of signing the Form 6018, not to protest the proposed action or seek a declaratory judgment. However, that memorialization of intent to agree is not legally binding and declaratory judgment rights are not waived. All proposed status changes on cases subject to declaratory judgment must be written up as "unagreed" , even if Form 6018 was executed.
Form 6018-A applies only to status changes for non-declaratory judgment cases. If Form 6018-A was executed, then the non IRC 501(c)(3) case is processed as an "agreed" case.
9. Findings Discussed With Enter the name and title of the individual with whom the audit findings were discussed.
10. Agreement Date Enter the date a signed Form 6018 or Form 6018-A was received by the Service.
11. Current Foundation Status Classification The purpose of this item is to identify the foundation status of the organization prior to any change in such status, which is proposed as a result of the audit. Enter a narrative description and IRC references which describe the organization's current (not proposed) foundation status classification. If the organization is a non IRC 501(c)(3) to which foundation status classification does not apply, enter Not Applicable. Examples include but are not limited to:
  • Publicly supported organization under IRC 509(a)(1) and IRC 170(b)(1)(A)(vi)

  • An educational organization under IRC 509(a)(1) and IRC 170(b)(1)(A)(ii)

  • Publicly supported organization under IRC 509(a)(2)

  • Supporting organization under IRC 509(a)(3)

  • Private non-operating foundation under IRC 509(a)

  • Private operating foundation under IRC 4942(j)(3)

12. Nature of Proposed Status Change In all proposed status change cases, "X" the applicable line which describes the change being proposed in the organization's exempt status or foundation status, and enter the effective date of the proposed status change at the end of that line. Additionally, if the organization's exemption is being revoked, enter on the applicable line, the paragraph number of IRC 501(c) under which the organization was exempt.

If exemption is being modified, enter on the applicable line, the paragraph number of IRC 501(c) under which the organization was exempt, and the paragraph number of IRC 501(c) to which the change is proposed.

If foundation status of an organization not described under IRC 509(a)(1) is being modified to an organization described in IRC 509(a)(1), enter the sentence number of IRC 170(b)(1)(A) under which it is proposed the organization be classified (for example IRC 170(b)(1)(A)(iii), IRC 170(b)(1)(A)(vi), etc.).

If foundation status of an organization described in IRC 509(a)(1) is being modified to a different classification under IRC 170(b)(1)(A) enter the sentence number of IRC 170(b)(1)(A) for the proposed new classification (for example IRC 170(b)(1)(A)(iii), IRC 170(b)(1)(A)(vi), etc.).

If foundation status is being modified to an organization described under IRC 509(a)(2), (3), or (4), enter the applicable paragraph number of section 509(a) to which the organization's status is being changed, on the applicable line.
13. Remarks On Initial Reports: The proposed status change (normally expected to be agreed) may be explained in the remarks section. If more space is required, the proposed adjustments should be explained on Form 886-A and the remarks section should include a statement to see attached Form 886-A for an explanation of the proposed changes.
On Formal Reports
: If the case is unagreed, or treated as unagreed because it is subject to declaratory judgment under IRC 7428, the results of the audit will be explained on Form 886-A. Accordingly, in such cases the remarks section should contain a statement to see Form 886-A for an explanation of the proposed status change.
Status 36 Organizations: See specialized instructions for disqualification (denial) at IRM 4.75.16-12, Status 36 Case Scenarios, at the Note in Scenario 1.
14. Attachments List the attachments which are included as part of the RAR to the taxpayer. These could include but are not limited to: Form 886-A, Schedules, Exhibits.

Exhibit 4.75.15-6 
Form 4883, Exempt Organizations Excise Tax Audit Changes, Instructions for Completion

Form 4883 is a basic report form used for changes in Chapter 41 or 42 excise taxes. The specific instructions for completion are as follows:

Note:

Sections of the forms not discussed are self-explanatory. Refer to the exhibits in IRM 4.76.4 for examples.

Item/Line # Information to be included
Name of Taxpayer Enter the taxpayer's legal name. If the name on the return is different from the legal name, enter both names as follows: "Legal Name (Shown on the return as Name on the Return)" .
EIN / SSN Enter the Employer Identification Number of the taxpayer, or SSN if the taxpayer is an individual.
Schedule or Exhibit Assign an Exhibit number to the Form 4883 and enter in this field. Because the Form 4883 would normally be the first item under the Form 4621 in the RAR, Form 4883 usually would be Exhibit 1. If there is more than one Form 4883, assign consecutive exhibit numbers to them.
Name of Exempt Organization (if different from taxpayer) If the taxpayer is a disqualified person, self dealer, organization manager, donor or donor advisor, enter the name of the related exempt organization. If the taxpayer is the exempt organization, enter "Not applicable " .
Taxable Years Ended Enter the appropriate taxable year ending date in one of the three columns in the following format:
  • Calendar Year - Show ending date (12/31/2012)

  • Fiscal Year - Show ending date (6/30/2012)

  • Short Period - Show beginning and ending date (1/1/2012- 9/30/2012)

  • 52-53 Week Year - Show last day of taxable year (5/25/2012)

IRC Section for Proposed Adjustment Only one type of adjustment can be entered in a column for a particular tax year. If there is more than one type of adjustment for one year, separate columns must be used for each adjustment. More than one Form 4883 may be used if necessary. Enter in the applicable adjustment column (immediately below the tax year ending date) the IRC section reference for the proposed excise tax adjustment. Example: 4945(a)(2), 170(f)(10)(F), 4958(a)(1).
1. Adjustments Enter a description of the adjustment. Examples: Under distribution of income, Taxable expenditure, Excess lobbying expenditure, Self dealing, and Excess benefit transaction.
2. Total adjustments Enter the total of adjustments for each tax year.
3. Amount reported on return or as previously adjusted Enter the final taxable amount computed by the taxpayer on the last processed return (Form 4720, 990-PF, or 990-BL) or as computed on a prior processed agent’s report if applicable.
4. Total amount as corrected Add the total adjustments per line (2) to the taxable amount per return or as previously adjusted per line 3. Enter the total on line 4.
5. Applicable tax rate percent Enter the applicable tax rate percent for the type of excise tax being adjusted. Where the type of tax is an excise tax for which there are two tiers, the initial tax rate is entered in this field. (Second level taxes are entered on Line 9.)
6. Initial tax liability as corrected Enter the corrected initial tax liability (Line 4 x Line 5).
7. Initial tax liability reported Enter initial tax as previously reported on return (Form 4720, 990-PF, or 990-BL) or as previously adjusted.
8. Increase or (decrease) in tax Enter increase or (decrease) in tax (Line 6 - Line 7).
9. Additional tax (minimum) In cases where required correction of acts giving rise to initial tax liability was not completed, enter the amount of second-level excise tax liability to be proposed. In situations where the amount of second-level tax liability will continue to accrue, enter the amount of second-level tax computed up to the date of the RAR. A schedule setting forth the computation of the second-level tax should be included as part of the RAR. This amount may stand alone in a separate column under the same tax period. See examples in IRM 4.76.4-6, IRM 4.76.4-8, IRM 4.76.4-10, IRM 4.76.4-12, and IRM 4.76.4-14.
10. Penalties Code Section In the area to the left of the columns for dollar amounts, enter the IRC section for any applicable penalties. Examples - 6651(a)(1), 6684, etc. However, if more than one type of penalty applies, in the code section field enter "See below" and describe the penalty in the "Explanation of Adjustments" section. Include a statement in the "Explanation of" for the computation and code section for each penalty amount included on Line 10.
Explanation of Adjustments In agreed cases where the explanation of excise tax adjustments is brief, it can be entered in this area. If the case is unagreed or if the explanation is too lengthy for the available space on the form, the explanation should be entered on Form 886-A.

Exhibit 4.75.15-7 
Form 870, Waiver of Restrictions on Assessment & Collection of Deficiency in Tax & Acceptance of Overassessment, Instructions for Completion

Form 870 is an agreement form used for changes in income taxes including unrelated business income tax. The specific instructions for completion are as follows:

Note:

Sections of the form not discussed are self-explanatory.

Item/Line # Information to be included
Date received Enter the date received. Also, the EO agent, or other person receiving Form 870 must initial in this block.
Name and address Enter the taxpayer's legal name and current address. If the name on the return is different from the legal name, enter both names as follows:
    Legal Name (Shown on the return as Name on the Return)
Taxable Year Ended Enter each year on a separate line as follows:
  • Calendar Year - Show ending date (12/31/2012)

  • Fiscal Year - Show ending date (6/30/2012)

  • Short Period - Show beginning and ending date (1/1/2012- 9/30/2012)

  • 52-53 Week Year - Show last day of taxable year (5/25/2012)

Amount of tax Enter the increase or decrease in income tax (including UBIT), as agreed, on separate lines by years. This amount is generally the same as that shown on Form 4549-A. If the taxpayer agrees to the proposed tax but disagrees with the proposed penalty, the case is considered partially agreed. In partially agreed cases, a signature on this form and payment must be solicited for the agreed portion.
Penalties Enter the applicable penalties, as agreed, separately by years. The total of all penalties for each tax year should agree with the total penalties reported on Line 18 of Form 4549-A.
Signature of taxpayer See the instructions on the form.

Exhibit 4.75.15-8 
Form 870-E, Waiver of Restrictions on Assessment and Collection of Deficiency and Acceptance of Overassessment, Instructions for Completion

Form 870-E is an agreement form used for Chapter 41 or 42 excise taxes. The specific instructions for completion are as follows:

Note:

Sections of the form not discussed are self-explanatory.

Item/Line # Information to be included
Date received Enter the date received. Also, the EO agent, or other person receiving Form 870-E, should initial in this block.
Name and address Enter the taxpayer's legal name and current address. If the name on the return is different from the legal name, enter both names as follows: "Legal Name (Shown on the return as Name on the Return) "
Taxable Year Ended Enter each year on a separate line as follows:
  • Calendar Year - Show ending date (12/31/2012)

  • Fiscal Year - Show ending date (6/30/2012)

  • Short Period - Show beginning and ending date (1/1/2012- 9/30/2012)

  • 52-53 Week Year - Show last day of taxable year (5/25/2012)

Code section Enter the applicable Code sections on separate lines for the tax and penalty to be assessed.
Amount of tax
Enter the increase or decrease in Chapter 41 or 42 excise tax , as agreed, on separate lines by years and by Code sections. This amount is generally the same as that shown on Form 4621 or Form 4883. If the taxpayer agrees to the proposed tax but disagrees with the proposed penalty, the case is considered partially agreed. In partially agreed cases, a Form 870-E and payment should be solicited for the agreed portion.
Penalty Enter the applicable penalties, as agreed, separately by years and by Code sections.
Signature of taxpayer See the instructions on the form.

Exhibit 4.75.15-9 
Form 4549, Income Tax Examination Changes, and 4549-A, Income Tax Examination Changes (Unagreed and Excepted Agreed), Instructions for Completion

Form 4549 is a basic report form and agreement form for income taxes including unrelated business income tax, and is issued as part of an initial income tax report. Form 4549-A is a basic report form issued as part of a formal income tax report. The specific instructions for completion are as follows:

Note:

Sections of the form not discussed are self-explanatory.

Item/Line # Information to be included
Name and Address Enter the correct name and address of the taxpayer.
Person with Whom Examination Changes Were Discussed Enter the name of person with whom the audit changes were discussed. If the person holds a power of attorney or is a corporate officer, also enter title.
Period End Enter the taxable year for which the column applies as follows:
  • Calendar Year - Show ending date (12/31/2012)

  • Fiscal Year - Show ending date (6/30/2012)

  • Short Period - Show beginning and ending date (1/1/2012- 9/30/2012)

  • 52-53 Week Year -- Show last day of year (5/25/2012)

Adjustments to Income List adjustments. Place a bracket around the dollar amount if an adjustment is in the taxpayer's favor. If there are more than seven adjustments, write "See page ____" on line 1(a) and use Form 4549-B to list the adjustments.
Line 3: Taxable Income Per Return or as Previously Adjusted Enter the final figure computed by the taxpayer on the last processed return or as computed on a prior processed agent’s report if applicable. This will be zero, unless there is a TC 150 previously posted reporting taxable income. Refer to IDRS command code TXMOD. The amount on this line must agree with the TXMOD amount.
Line 4: Corrected Taxable Income Identify how the tax was computed (tax table, tax rate schedule, etc.) and the amount of tax. If additional tax applies, indicate on this line, and attach a schedule showing the computation of the corrected tax figure. Do not include alternative minimum tax on this line.
Line 8: Less Credits This line should include only non-refundable credits. Do not include credits such as earned income credits or withholding tax and excess FICA credits.
Line 10: Other Taxes Include recapture taxes, self-employment tax, alternative minimum tax, etc. Attach the appropriate forms detailing the computations.
Line 12: Total Tax Shown on Return or as Previously Adjusted Include tax per return plus any additional tax assessed as reflected on TXMOD.
Adjustment to EIC/Fuels Credit These refundable credits should be shown here as an adjustment (increase or decrease) to the credits originally reported on the return (or as previously adjusted). They are normally corrected based on adjustments to income. The calculation of these credits should be attached to the report.
Adjustments to Prepayment Credits Any changes to prepayment credits should be reflected on this line.
Penalties Identify penalties by IRC section and title. If the penalty cannot be currently computed, place an asterisk in the line amount field and describe the process of the calculation in the "Other Information" section. For substitute for returns, if there is no reasonable cause include the failure-to-file and failure-to-pay penalties.

Other examples and references for completing Form 4549 or 4549-A are as follows:

  • IRM 4.10.8-10, Sample Form 4549-A - Full Allowance of Tentative Net Operating Loss Deduction (NOLD)

  • IRM 4.10.8-11, Sample Form 4549-A - Partial Allowance of Tentative NOLD

  • IRM 4.10.8-12, Sample Form 4549-A - Full Disallowance of Tentative NOLD

Exhibit 4.75.15-10 
Form 6018-A, Consent to Proposed Action - Non Declaratory Judgment, Instructions for Completion

Instructions for preparing Form 6018-A are provided below. Please note, the exhibit is not an exact duplicate of the form, but is only meant to assist in completing the correct items on the form.

Note:

Refer to IRM 4.75.16–-13, Status 36 Case: Form 6018-A Instructions for Status 36 organizations.

Item/Line # Information to be included
Case Number Enter "N/A" .
Date of Latest Determination Letter Enter the date of the latest determination or ruling letter pertaining to the organization’s exempt status. If the organization’s determination or ruling letter is not available, enter the month and year of the ruling date indicated on IDRS records.
Date of Proposed Adverse Action Letter Enter date if applicable, otherwise leave blank.
Name and Address Enter the correct name and address of the organization.
Nature of Proposed Action Select the appropriate box. Check the Other block, for Status 36 disqualification cases, IRC 501(c)(12), or IRC 501(c)(15) disqualification cases.
 
 

Exhibit 4.75.15-11 
Form 6018, Consent to Proposed Adverse Action, Instructions for Completion

The instructions for completion of Form 6018 are generally the same as those for Form 6018-A, except for the following:

Nature of Proposed Adjustment:

If the adverse action block: Then:
"Classification as an organization described in section 509(a)( )," is checked The space must be filled in to indicate whether the classification is to IRC 509(a)(1), 509(a)(2), 509(a)(3), or 509(a)(4).
"Classification as an organization described in section 170(b)(1)(A)( )" , is checked The space must be filled in to indicate whether the classification is to IRC 170(b)(1)(A)(i), 170(b)(1)(A)(ii), 170(b)(1)(A)(iii), 170(b)(1)(A)(iv), 170(b)(1)(A)(v), or 170(b)(1)(A)(vi).

Exhibit 4.75.15-12 
Guidelines for Issuance of Letters

What goes in the heading:

  • MS 4920 DAL, for all examination closing letters issued by Mandatory Review

    Exception:

    MS 4900 DAL, for NRP no-change letters issued by Mandatory Review

  • MS 4900 DAL, for all other examination closing letters

    Note:

    Rebuttal letters are not examination closing letters

  • Examiner's mailing address, for 30-day letters

  • Sender's mailing address, for all other examination letters

What goes in the signature block:

  • The "Director, EO Examinations" for all examination closing letters

  • The "Director, EO Examinations" for all 30-day letters

  • The sender's signature block, for all other examination letters

What goes in the "Person to Contact" line:

  • The examiner's name, for letters issued by the examination group

  • The reviewer's name, for letters issued by Mandatory Review

For a current table that lists EO examination letters, including closing letters, refer to the intranet webpage at http://tege.web.irs.gov/article.asp?title=guidelines-issuance-letters&path=/my-job/1_revenue-agent/2_examination.

Note:

Examiners need not print letters to be issued by Mandatory Review. Indicate the letter number (or IRM exhibit number) at the heading of Form 5772 and in the Mandatory Review section of Form 3198-A, at check-box, "Prepare/Issue Letter:"

Note:

If specific project procedures contain different instructions, follow those procedures instead.

Note:

For church letters, refer to IRM 4.76.7, Church Tax Inquiries and Examinations - IRC 7611.

Exhibit 4.75.15-13 
Rebuttal Letter

 
Internal Revenue Service Department of the Treasury
TE/GE Exempt Organizations Examinations
[Insert street address]
[Insert city, state, and zip code]
 
Date: [Insert date] Taxpayer Identification Number:
[Insert TIN]
Form:
[Insert form number]
Tax Year(s) Ended:
[Insert tax periods]
Person to Contact/ID Number:
[Insert name, ID number]
Contact Numbers:
Phone: [Insert phone number]
Fax: [Insert fax number]
[Insert name of entity]
[Insert street address]
[Insert city, state, and zip code]

Manager's Name/ID Number:
[Insert name, ID number]
Manager's Contact Number:
[Insert phone number]
 
Dear Sir or Madam:
We have considered your protest and have concluded that it does not alter our original determination.
We are enclosing Form 886-A, Explanation of Items, addressing the disputed items, law, and your position.
Your case is subject to a mandatory technical review. After the review, assuming there is sufficient time remaining on the statute of limitations for assessment, we will forward your case to the Office of Appeals for further consideration. An appeals officer will contact you. You do not need to take further action at this time.
In general, if there is a proposed unpaid tax adjustment, any applicable interest continues to accrue on the proposed tax while this case is in Appeals.
Thank you for your cooperation.
  Sincerely,
 
 
  [Insert name]
EO Examining Agent
Enclosure:
Form 886-A

Exhibit 4.75.15-14 
30 Day Letter - Proposed Revocation of IRC 501(c)(3) Exemption - Based on a TAM

Like Letter 3618, this letter constitutes a "written determination" for purposes of the IRS electronic reading room and IRC 6110. Do not use Letter 3618 where a TAM revoking tax-exempt status is issued.

         
Internal Revenue Service Department of the Treasury
TE/GE Exempt Organizations Examinations
[Insert street address]
[Insert city, state, and zip code]
 
 
Date: [Insert date] Taxpayer Identification Number:
[Insert TIN]
Form:
[Insert form number]
Tax Year(s) Ended:
[Insert tax periods]
Person to Contact/ID Number:
[Insert name, ID number]
Contact Numbers:
Phone: [Insert phone number]
Fax: [Insert fax number]
[Insert name of entity]
[Insert street address]
[Insert city, state, and zip code]

Manager's Name/ID Number:
[Insert name, ID number]
Manager's Contact Number:
[Insert phone number]
 
CERTIFIED MAIL
Dear Sir or Madam:

Why you are receiving this letter
We propose to revoke your status as an organization described in section 501(c)(3) of the Internal Revenue Code (Code). Enclosed is our report of examination explaining the proposed action.
Our conclusion is based on the conclusions of a Technical Advice Memorandum (TAM) issued by EO Rulings and Agreements in Washington D.C. on [ date ].

What you need to do if you agree
If you agree with our conclusions, please sign the enclosed Form 6018, Consent to Proposed Action – Section 7428, and return it to the contact person at the address listed above. We'll issue a final revocation letter determining that you aren't an organization described in section 501(c)(3).

If we don't hear from you or if you disagree
If you disagree or don't respond to this letter within 30 calendar days from the date of this letter, we’ll issue a final revocation letter that explains your right to petition the federal courts. As explained in page 2 of Publication 892, How to Appeal an IRS Decision on Tax-Exempt Status, no IRS administrative appeal or Fast Track mediation will be available to you because our decision over your exempt status is based on a TAM.
Effect of revocation status
After we issue the final revocation letter, we’ll announce that your organization is no longer eligible for contributions deductible under section 170 of the Code. You'll be required to file federal income tax returns for the tax year(s) shown above as well as for subsequent tax years.

Information About the IRS Taxpayer Advocate Office
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. TAS helps taxpayers whose problems with the IRS are causing financial difficulties; who have tried but have not been able to resolve their problems with the IRS; and those who believe an IRS system or procedure is not working as it should. If you believe you are eligible for TAS assistance, call 1-877-777-4778, or for individuals who are deaf, hard of hearing, or have a speech disability, call TTY/TDD 1-800-829-4059. For more information, go to www.irs.gov/advocate.

How to Contact Us
If you have any questions, please call the contact person at the telephone number shown in the heading of this letter. If you write, please provide a telephone number and the most convenient time to call if we need to contact you.
Thank you for your cooperation.
  Sincerely,
 
 
  [Insert name]
Director, EO Examinations
 
Enclosures:
Report of Examination


Form 6018
Publication 892

Exhibit 4.75.15-15 
30-Day Letter - Proposed Reclassification of Foundation Status - Based on a TAM

Do not use Letter 3620 where a TAM changing foundation status is issued.

If this letter is issued to an IRC 501(c)(3) organization, there is generally no need to issue an advisory Letter 3609 unless there are other advisory items. If you must issue Letter 3609, it will include an advisory item referring to a separate report on the foundation classification issue, as well as the other advisory items.

         
Internal Revenue Service Department of the Treasury
TE/GE Exempt Organizations Examinations
[Insert street address]
[Insert city, state, and zip code]
 
 
Date: [Insert date] Taxpayer Identification Number:
[Insert TIN]
Form:
[Insert form number]
Tax Year(s) Ended:
[Insert tax periods]
Person to Contact/ID Number:
[Insert name, ID number]
Contact Numbers:
Phone: [Insert phone number]
Fax: [Insert fax number]
[Insert name of entity]
[Insert street address]
[Insert city, state, and zip code]

Manager's Name/ID Number:
[Insert name, ID number]
Manager's Contact Number:
[Insert phone number]
CERTIFIED MAIL
Dear Sir or Madam:
Why you are receiving this letter
We have enclosed a copy of our report of examination explaining why we propose modifying your foundation status under section 509(a) of the Internal Revenue Code (Code). Enclosed is our report of examination explaining the proposed action.
Our conclusion is based on the conclusions of a Technical Advice Memorandum (TAM) issued by EO Rulings and Agreements in Washington D.C. on [ date ].

[Your exempt status under section 501(c)(3) of the Code is still in effect.]
{Note: This paragraph does not apply to taxable private foundations, IRC 4947(a)(1) nonexempt charitable trusts, or if you must issue an advisory Letter 3609 because there are other advisory items}

What you need to do if you agree
If you agree with our conclusions, please sign the enclosed Form 6018, Consent to Proposed Action – Section 7428, and return it to the contact person at the address listed above. We'll issue a final determination letter over your foundation status.

If we don't hear from you or if you disagree
If you disagree or don't respond to this letter within 30 calendar days from the date of this letter, we’ll issue a final determination letter that explains your right to petition the federal courts. As explained in page 2 of Publication 892, How to Appeal an IRS Decision on Tax-Exempt Status, no IRS administrative appeal or Fast Track mediation will be available to you because our decision over your foundation status is based on a TAM.
Information About the IRS Taxpayer Advocate Office
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. TAS helps taxpayers whose problems with the IRS are causing financial difficulties; who have tried but have not been able to resolve their problems with the IRS; and those who believe an IRS system or procedure is not working as it should. If you believe you are eligible for TAS assistance, call 1-877-777-4778, or for individuals who are deaf, hard of hearing, or have a speech disability, call TTY/TDD 1-800-829-4059. For more information, go to www.irs.gov/advocate.
How to Contact Us
If you have any questions, please call the contact person at the telephone number shown in the heading of this letter. If you write, please provide a telephone number and the most convenient time to call if we need to contact you.
  Sincerely,
 
 
  [Insert name]
Director, EO Examinations
 
Enclosures:
Report of Examination


Form 6018
Publication 892

Exhibit 4.75.15-16 
30-Day Letter - Proposed Revocation of Exempt Status (other than IRC 501(c)(3)) - Based on a TAM

Like Letter 3610-R, this letter constitutes a "written determination" for purposes of the IRS electronic reading room and IRC 6110. Do not use Letter 3610-R where a TAM revoking tax-exempt status is issued.

         
Internal Revenue Service Department of the Treasury
TE/GE Exempt Organizations Examinations
[Insert street address]
[Insert city, state, and zip code]
 
 
Date: [Insert date] Taxpayer Identification Number:
[Insert TIN]
Form:
[Insert form number]
Tax Year(s) Ended:
[Insert tax periods]
Person to Contact/ID Number:
[Insert name, ID number]
Contact Numbers:
Phone: [Insert phone number]
Fax: [Insert fax number]
[Insert name of entity]
[Insert street address]
[Insert city, state, and zip code]

Manager's Name/ID Number:
[Insert name, ID number]
Manager's Contact Number:
[Insert phone number]
CERTIFIED MAIL
Dear Sir or Madam:

Why you are receiving this letter
Enclosed is a copy of our report of examination explaining why revocation of your organization's tax-exempt status is necessary.

Our conclusion is based on the conclusions of a Technical Advice Memorandum (TAM) issued by EO Rulings and Agreements in Washington D.C. on [ date ].

What you need to do if you agree
If you agree with our conclusions, please sign the enclosed Form 6018-A, Consent to Proposed Action, and return it to the contact person at the address listed above. We'll issue a final revocation letter determining that you aren't an organization described in section 501(c)[ _ ].

If we don't hear from you or if you disagree
If you disagree or don't respond to this letter within 30 calendar days from the date of this letter, we'll process your case based on the TAM's conclusions and this letter will become final. As explained in page 2 of Publication 892, How to Appeal an IRS Decision on Tax-Exempt Status, no IRS administrative appeal or Fast Track mediation will be available to you because our decision over your exempt status is based on a TAM.
Effect of revocation status
[After we issue the final revocation letter or if this letter becomes final, we’ll announce that your organization is no longer eligible for contributions deductible under section 170 of the Code.]
{Note: If the organization has deductibility code "2", this paragraph is not applicable}


You'll be required to file federal income tax returns for the tax year(s) shown above as well as for subsequent tax years.

Information About the IRS Taxpayer Advocate Office
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. TAS helps taxpayers whose problems with the IRS are causing financial difficulties; who have tried but have not been able to resolve their problems with the IRS; and those who believe an IRS system or procedure is not working as it should. If you believe you are eligible for TAS assistance, call 1-877-777-4778, or for individuals who are deaf, hard of hearing, or have a speech disability, call TTY/TDD 1-800-829-4059. For more information, go to www.irs.gov/advocate.

How to Contact Us
If you have any questions, please call the contact person at the telephone number shown in the heading of this letter. If you write, please provide a telephone number and the most convenient time to call if we need to contact you.
Thank you for your cooperation.
  Sincerely,
 
 
  [Insert name]
Director, EO Examinations
 
Enclosures:
Report of Examination


Form 6018-A
Publication 892

Exhibit 4.75.15-17 
30-Day Letter - Proposed Modification of Exempt Status - Based on a TAM

Do not use Letter 3610-M where a TAM modifying tax-exempt status is issued.

         
Internal Revenue Service Department of the Treasury
TE/GE Exempt Organizations Examinations
[Insert street address]
[Insert city, state, and zip code]
 
 
Date: [Insert date] Taxpayer Identification Number:
[Insert TIN]
Form:
[Insert form number]
Tax Year(s) Ended:
[Insert tax periods]
Person to Contact/ID Number:
[Insert name, ID number]
Contact Numbers:
Phone: [Insert phone number]
Fax: [Insert fax number]
[Insert name of entity]
[Insert street address]
[Insert city, state, and zip code]

Manager's Name/ID Number:
[Insert name, ID number]
Manager's Contact Number:
[Insert phone number]
CERTIFIED MAIL
Dear Sir or Madam:

Why you are receiving this letter
Enclosed is a copy of our report of examination explaining a potential modification to your organization's tax-exempt status.

Our conclusion is based on the conclusions of a Technical Advice Memorandum (TAM) issued by EO Rulings and Agreements in Washington D.C. on [ date ].

What you need to do if you agree
If you agree with our conclusions, please sign the enclosed Form 6018-A, Consent to Proposed Action, and return it to the contact person at the address listed above. We'll issue a final modification letter determining that you aren't an organization described in section 501(c)[ _ ], but that you are an organization described in section 501(c)(_).

If we don't hear from you or if you disagree
If you disagree or don't respond to this letter within 30 calendar days from the date of this letter, we'll process your case based on the TAM's conclusions and this letter will become final. As explained in page 2 of Publication 892, How to Appeal an IRS Decision on Tax-Exempt Status, no IRS administrative appeal or Fast Track mediation will be available to you because our decision over your exempt status is based on a TAM.
[Effect of modification of tax-exempt status]
[After we issue the final modification letter or if this letter becomes final, we’ll announce that your organization is no longer eligible for contributions deductible under section 170 of the Code.]
{Note: If the organization has deductibility code "2", this paragraph is not applicable}

Information About the IRS Taxpayer Advocate Office
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. TAS helps taxpayers whose problems with the IRS are causing financial difficulties; who have tried but have not been able to resolve their problems with the IRS; and those who believe an IRS system or procedure is not working as it should. If you believe you are eligible for TAS assistance, call 1-877-777-4778, or for individuals who are deaf, hard of hearing, or have a speech disability, call TTY/TDD 1-800-829-4059. For more information, go to www.irs.gov/advocate.

How to Contact Us
If you have any questions, please call the contact person at the telephone number shown in the heading of this letter. If you write, please provide a telephone number and the most convenient time to call if we need to contact you.
Thank you for your cooperation.
  Sincerely,
 
 
  [Insert name]
Director, EO Examinations
 
Enclosures:
Report of Examination


Form 6018-A
Publication 892

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