4.75.16  Case Closing Procedures

Manual Transmittal

February 15, 2013

Purpose

(1) This transmits revised IRM 4.75.16, Case Closing Procedures. This manual explains when to close an audit, how to close the audit, and what to do with the case when the audit is closed.

Material Changes

(1) This manual has been reorganized, with many sections either removed or reintroduced from prior manuals. All sections were rewritten to comply with the Plain Writing Act. For additional information on the Plain Writing Act, see http://www.plainlanguage.gov.

(2) Regarding RCCMS, references to the naming convention have been removed, and replaced with instructions concerning the use of folders. Specific instructions can be found in Exhibit 4.75.16-18.

(3) Where appropriate, terms such as examiner, examination, and examine were changed to agent, audit, and audit, in connection with the Plain Writing Act. See IRM 4.75.16.1 for the list of changes of terms.

(4) References to the Political Activity Committee Initiative (PACI) have been eliminated.

(5) Cases are no longer closed to ESP in Brooklyn. All examined and non-examined cases are closed to ESS in Dallas.

(6) IRM 4.75.16.1 has been completely rewritten, changing from an introduction to an overview.

(7) IRM 4.75.16.3.3.1 regarding Form 10904 deviations was moved to IRM 4.75.16.3.1.4.

(8) Within IRM 4.75.16.3.2.1 the sentence in (1) was broken into a shorter sentence with bullets.

(9) In IRM 4.75.16.3.2.3, the instructions in (1) were modified into an If...Then table to clarify the actions to take.

(10) Updated IRM 4.75.16.4.2, regarding statute considerations. For consistency purposes, red folders and generation of Form 895 are required for cases with less than 270 days to the ASED. Examination groups generally assume responsibility of preparation (not issuance) of final closing letters (including 90-day letters) and the mailing package if the statute bars in less than 270 days, unless excepted by the Manager, Mandatory Review. Special procedures were added in certain short statute cases regarding the issuance of 90-day letters by Mandatory Review while the examination group maintains AIMS controls.

(11) Updated IRM 4.75.16.4.2.4 to reflect Form 895 criteria based on IRM 25.6.23.4.

(12) Added IRM 4.75.16.4.4.1 to provide guidance and clarity in the use of disposal codes. EO agents will begin using DC 53 (302) for no-change periods in a CSP agreement.

(13) IRM 4.75.16.4.4.2 has consolidated the three previous sections on principal issue codes to eliminate duplications in the text.

(14) Reinstated IRM 4.75.16.4.8.1 regarding instructions on the completion of Form 5666 for revocations.

(15) Added IRM 4.75.16.5.2, Auto Revocations Under IRC 6033(j).

(16) IRM 4.75.16.5.6 provides updated directions for inadequate records notices, that supersede the directions in IRM 4.75.13.5.7 (3/14/2006). To avoid taxpayer confusion, only one examination closing letter will be issued (Modified Letter 4095 at Exhibit 4.75.16-20).

(17) IRM 4.75.16.5.8 consolidated the directions in 4.75.16 and 4.75.13, and now supersedes the directions in IRM 4.75.13.6 (3/14/2006).

(18) IRM 4.75.16.5.9 modifies and replaces the status 36 procedures contained in IRM 4.75.21.17 (6/25/2010). As these organizations are not subject to declaratory judgment procedures, Mandatory Review involvement only becomes necessary when the case is subject to a protest to Appeals or unagreed after the issuance of a 30-day letter proposing income tax.

(19) IRM 4.75.16.5.10 expands and clarifies procedures for terminations.

(20) IRM 4.75.16.6 was revised to add IRC 4962 abatement requests of first tier taxes and cases with AIMS "W" Freeze Codes to cases subject to Mandatory Review. Also clarified that all reopened cases are closed to Special Review.

(21) IRM 4.75.16.7.1, 4.75.16.7.2, and 4.75.16.7.3, now include a revised list of documents to be attached to the outside, inside, and within a case file folder. The lists were extracted from the 2003 revision of 4.75.16. The lists were updated to reflect changes in the various forms, as some have been made obsolete, while others are new.

(22) Removed IRM 4.75.16.11, Processing Agreed Unpaid Deficiency Cases Requiring Prompt Assessment or Overassessment.

(23) Removed IRM 4.75.16.16, Updating the Determination File. This process is no longer required.

(24) Added Exhibit 4.75.16-18, Guidelines for Using EO Sub-Folders in RCCMS.

(25) References to EO Examinations Classification function are changed to EO Case, Selection and Delivery Unit (CS&D)

(26) References to EO Examinations Classification function for managing referrals-in and information s are changed to the Classification-Referrals group.

(27) The following table provides a list of where sections were previously located:

Current Manual Section Previous Manual Section
4.75.16.1, Overview 4.75.16.1, Introduction
4.75.16.2, Deciding to Close a Case New
4.75.16.2.1, Paper Versus Paperless 4.75.16.2, RCCMS and Printing Considerations
4.75.16.2.2, Timely Closing 4.75.16.7, Guidelines for Timely Closing Cases
4.75.16.2.3, Use of RCCMS New
4.75.16.3, Non-Examined Closures New
4.75.16.3.1, Deleting AIMS Accounts 4.75.16.3, Deleting AIMS Accounts
4.75.16.3.1.1, Disposal Code 99 Procedures 4.75.16.3.1, Procedures for Disposal Code 801 (AIMS: DC 99)
4.75.16.3.1.2, Disposal Code 33 Procedures 4.75.16.3.2, Procedures for Disposal Code 901 (AIMS: DC 33)
4.75.16.3.1.3, Form 10904 Package New
4.75.16.3.2, Surveying Returns 4.75.16.4, Surveying Returns
4.75.16.4, Examined Closures New
4.75.16.4.1, Pre-Closure Review 4.75.16.5, Pre-closing Review of Case File by Agent
4.75.16.4.2, Statute Considerations 4.75.16.6, Statute Control Procedures
4.75.16.4.3, Closing Conference New (4.10.7.5.1 Closing Phase of the Audit)
4.75.16.4.4, Form 5599/RCCMS Closing Record New
4.75.16.4.4.1, Disposal Codes 4.75.16.8, Disposal Codes
4.75.16.4.4.2, Principal Issue Codes 4.75.16.9, Principal Issue Codes
4.75.16.4.5, Form 2363-A 4.75.16.10.1, Form 2363-A, Request for IDRS Input for BMF-EO Entity Change
4.75.16.4.6, Form 3198-A 4.75.16.10.2, Form 3198-A, TE/GE Special Handling Notice
4.75.16.4.7, Form 4881 4.75.16.10.3, Form 4881, Chapter 42 Taxes - Disqualified Person/Foundation Manager
4.75.16.4.8, Form 5666 4.75.16.10.4, Form 5666, TE/GE Referral Information Report
4.75.16.4.9, Time and Reporting Reconciliation New
4.75.16.5, Special Situations New
4.75.16.5.1, Administrative Record New
4.75.16.5.2, Auto Revocations Under IRC 6033(j) New
4.75.16.5.3, Classification Settlement Program Agreements New
4.75.16.5.4, Closing Agreements New
4.75.16.5.5, Form 990-N 4.75.16.14, Procedures for Processing Form 990-N Cases
4.75.16.5.6, Inadequate Records 4.75.13.5.7, Inadequate Records
4.75.16.5.7, Installment Agreements New
4.75.16.5.8, Not Required to File Form 990 4.75.16.12, Closing Procedures for Organizations Not Required to File Form 5456
4.75.16.5.9, Status 36 Cases 4.75.21.17, Procedures for Processing Business Master File Status 36 Cases
4.75.16.5.10, Terminations 4.75.16.15, Terminations and 4.75.13.6
4.75.16.5.11, Unable to Locate 4.75.16.13, Procedures For Closing Unable To Locate Organizations
4.75.16.6, Cases Subject to Mandatory Review 4.75.16.21, Mandatory Review Cases
4.75.16.7, Case File Assembly .
Requires red folders for cases with less than 270 days (9 months) remaining on the statute date, consistent with Form 895.
4.75.16.17, Case File Assembly
4.75.16.7.1, Forms Attached to Outside of Folder 4.75.16.18.1, Forms Attached to Outside of Folder and 4.75.16.12.2 (5/13/2003)
4.75.16.7.2, Forms Attached to Left Inside of Case Folder 4.75.16.12.3 (5/13/2003), Forms Attached to Left Inside of Case Folder
4.75.16.7.3, Returns, Forms, and Other Documents Enclosed in the Case File 4.75.16.18.2, Returns, Forms, and Other Documents Enclosed in the Case File and 4.75.16.12.4 (5/13/2003)
4.75.16.7.4, Documents Attached to the Return 4.75.16.18.3, Documents Attached to the Return and 4.75.16.13 (5/13/2003)
4.75.16.7.5, Multiple Folders 4.75.16.18, Case Folders
4.75.16.8, Closing the Case 4.75.16.20, AIMS/RCCMS Group Processing Responsibilities
4.75.16.8.1, Closing to the Manager New
4.75.16.8.2, Group Manager: Closing From the Group 4.75.16.19, Group Manager Responsibilities
4.75.16.9, Shipping From the Group 4.75.16.20, AIMS/RCCMS Group Processing Responsibilities
4.75.16.9.1, Paperless Closures 4.75.16.18.4, Paperless Closures
Exhibit 4.75.16-1, Instructions for Preparing Form 1900 4.75.10.13.5 (5/1/2004), Completing Form 1900, Income Tax Survey After Assignment
Exhibit 4.75.16-2, Instructions for Preparing Form 2503 4.75.10.13.6 (5/1/2004), Preparing Form 2503, Survey After Assignment - Excise or Employment Tax
Exhibit 4.75.16-3, Principal Issue Codes - No Change Case Examples 4.75.16.9.1, Principal Issue Codes in No Change Cases
Exhibit 4.75.16-4, Principal Issue Codes - Change/Unagreed Case Examples 4.75.16.9.2, Principal Issue Codes in Change and Unagreed Case
Exhibit 4.75.16-5, Form 2363-A Required Input Chart Exhibit 4.75.16-1, Form 2363-A Required Input
Exhibit 4.75.16-6, Instructions for Preparing Form 2363-A Exhibit 4.75.16-2, Form 2363-A - Instructions for Completion
Exhibit 4.75.16-7, Instructions for Preparing Form 4881 Exhibit 4.75.16-3, Instructions for Preparing Form 4881, Chapter 42 Taxes-Disqualified Person/Foundation Manager
Exhibit 4.75.16-8, Instructions for Preparing Form 5666 Exhibit 4.75.16-4, Instructions for Preparing Form 5666, TE/GE Referral/Information Report
Exhibit 4.75.16-9, Closing Letter for Automatic Revocation Under IRC 6033(j) New
Exhibit 4.75.16-10, Sample Form 1900 for Automatic Revocation Under IRC 6033(j) New
Exhibit 4.75.16-11, Sample Form 2807 New
Exhibit 4.75.16-12, Status 36 Case Scenarios 4.75.21.17, Procedures for Processing Business Master File Status 36 Cases
Exhibit 4.75.16-13, Status 36 Case: Form 6018-A Instructions New
Exhibit 4.75.16-14, Status 36 Case: Form 2363-A Instructions New
Exhibit 4.75.16-15, Draft Examination Termination Letter IRC 501(c)(3) Exhibit 4.75.16-9, Draft Examination Termination Letter
Exhibit 4.75.16-16, Draft Examination Termination Letter IRC 501(c)(other) Exhibit 4.75.16-9, Draft Examination Termination Letter
Exhibit 4.75.16-17, Closing Procedures for "Unable to Locate" Situations

Removed the row titled, "Submit information to Cincinnati to update the determination file." This process is no longer required.
Exhibit 4.75.16-6, Closing Procedures for Unable to Locate Situations
Exhibit 4.75.16-18, Guidelines for Using EO Sub-Folders in RCCMS New
4.75.16-19, Form Form 4844, Request for Terminal Action Exhibit 4.75.13-6, Form 4844, Request for Terminal Action
Exhibit Exhibit 4.75.16-20, Modified Letter 4095, Inadequate Records Notice Exhibit 4.75.13-4, Notice of Inadequate Records
Exhibit 4.75.16-21, Principal Issue Code List New

Effect on Other Documents

The July 12, 2010, revision has been superseded.
The May 1, 2004 revision of IRM 4.75.10.13 has been superseded.
The March 14, 2006 revisions of IRM 4.75.13.5.6 and IRM 4.75.13.5.7 have been superseded.
The June 25, 2010 revisions of IRM 4.75.21.17 and IRM Exhibits 4.75.21-3 through 4.75.21-14 have been superseded.

Audience

TE/GE Exempt Organization Revenue Agents

Effective Date

(02-15-2013)

Lois G. Lerner
Director of Exempt Organizations
Tax Exempt and Government Entities

4.75.16.1  (02-15-2013)
Overview

  1. This manual covers closing procedures for audits. This manual tells you:

    • When you should close an audit

    • How to close the audit

    • What to do with the case once it is closed

  2. This manual only discusses closing procedures for audits. For other procedures prior to case closing, see:

    • IRM 4.75.10, EO Pre-Examination Guidelines and Procedures

    • IRM 4.75.11, On Site Examination Guidelines

    • IRM 4.75.12, Required Filing Checks

    • IRM 4.75.13, Issue Development

    • IRM 4.75.15, Closing Letters and Reports of Examination

    • IRM 4.75.21, EO Special Examination Procedures

    • IRM 4.75.22, EO Delinquent and Substitute Return Procedures

    • IRM 4.75.25, Exempt Organizations Examinations Closing Agreements

    • IRM 4.75.28, Discrepancy Adjustments

    • IRM 4.75.32, Declaratory Judgment Cases And The Administrative Record

    • IRM 4.75.36, Procedures For Processing Technical Advice Cases

    • IRM 4.75.31, Conversion of Returns Upon Revocation of Exemption

  3. For purposes of this manual, the term agent refers to the Internal Revenue Agent (General Series 0512) who is auditing an entity. The term audit refers to examinations and exams. The term audit does not include compliance checks. General definitions are as follows:

    1. Case - Defined as a return open for audit for one tax year (or tax period) plus other returns, if any, involving interrelated interests and/or transactions that require concurrent audit. Other returns are defined to include returns subsequent and/or prior to the selected return of the taxpayer, as well as returns for related taxpayers for the primary year (or tax period) and subsequent and/or prior years (or tax periods).

    2. Primary Return - Denotes the annual EO information return. This is the return under EO jurisdiction around which other returns revolve. The primary return also serves as the return-of-record for statute purposes. Primary returns include Forms 990, 990-EZ, 990-PF, 990-BL, 5227, and 1065 (for IRC 501(d) apostolic organizations).

      Note:

      The Form 990-N (e-postcard) does not constitute a "return" for statute of limitations purposes; however it is treated as a primary return for disposal code purposes upon closure.

      Example:

      The agent is assigned to examine Z, a small charity for calendar year 2011 (MFT 67). Z properly filed Form 990-N for 2011. During the audit, the agent secures delinquent Form 990-T for 2011. There were no other issues. The agent issues a written advisory to Z regarding Z's failure to file Form 990-T. Because a delinquent related return was secured, the agent must close the 2011 MFT 67 with disposal code 05 (207) on Form 5599, even if the 2011 MFT 67 (Form 990-N) is not an actual return.

      Note:

      A substitute for return (or NMF) representation of a primary return is treated as a "primary return" for disposal code purposes.

    3. Related Return - A "related return" is any return of the same taxpayer. However, discrepancy adjustment returns and Forms 4720-A arising from transactions with the EO are treated as related returns for disposal code and principal issue code purposes. Related returns need not be of the same tax year as the primary return. Related returns include returns under the jurisdiction of employee plans and tax-exempt bonds. Related returns also include payee information returns and statements, such as Forms W-3 /W-2, Forms 1096 /1099 series, and includes returns such as Forms 8282, Forms 8899, etc., and secured converted returns.

4.75.16.2  (02-15-2013)
Deciding to Close a Case

  1. For non-examined cases, general information is provided in IRM 4.75.16.3. The following summarizes types of non-examined closings:

    1. If you have created an AIMS control in error, see IRM 4.75.16.3.1, Deleting AIMS Accounts.

    2. If you have a return on AIMS NMF and the return was also established on AIMS Master File (MF), see IRM 4.75.16.3.1, Deleting AIMS Accounts.

    3. If the group manager has decided not to audit a return prior to assigning it to an agent, see IRM 4.75.16.3.2.1, Survey Before Assignment.

    4. If you have been assigned a return and you decide that there is no reason to conduct the audit, see IRM 4.75.16.3.2.2, Survey After Assignment.

    5. If after making initial contact with an authorized individual, you decide that there is no need to pursue an audit, see IRM 4.75.16.3.2.3, Survey After Taxpayer Contact.

  2. For unable-to-locate cases: Refer to the various closing options in IRM 4.75.16.5.11, and Exhibit 4.75.16-17.

  3. For examined cases based on the following audit results:

    1. Referrals to other business units: Go to IRM 4.75.16.4.8 and Exhibit 4.75.16-8.

    2. Changes in status - Declaratory Judgment cases: Go to IRM 4.75.16.5.1, Exhibit 4.75.16-5 and Exhibit 4.75.16-6.

    3. Revocations (other than automatic revocations): Go to IRM 4.75.16.4.8.1 and Exhibit 4.75.16-6

    4. Employment Tax Classification Settlement Program (CSP) Agreements: Go to IRM 4.75.16.5.3

    5. Closing Agreements: Go to IRM 4.75.16.5.4

    6. Inadequate Records Notice: Go to IRM 4.75.16.5.6.

    7. Terminations: Go to IRM 4.75.16.5.10.

  4. For examined cases based on the following special situations:

    1. Short statute cases: Go to IRM 4.75.16.4.2

    2. Taxpayer subject to automatic revocation during the audit: Go to IRM 4.75.16.5.2.

    3. Form 990-N filers: Go to IRM 4.75.16.5.5

    4. Non-filers - Not required to file Form 990: Go to IRM 4.75.16.5.8

    5. Status 36 Organizations: Go to IRM 4.75.16.5.9.

    6. Installment Agreement: Go to IRM 4.75.16.5.7.

    7. Cases subject to Mandatory Review: Go to IRM 4.75.16.6

  5. For all examined closures, verify that you have done the following:

    • Addressed all issues identified in the pre-audit risk analysis. See IRM 4.75.10

    • Reviewed all records requested and pertinent to your issues. See IRM 4.75.11.9

    • Documented all actions taken on the case. See IRM 4.75.11.8

    • Performed a compliance check. See IRM 4.75.12

    • Fully developed any issues that were identified. See IRM 4.75.13

    • For cases with proposed changes in tax or status, issued a report of examination (RAR). See IRM 4.75.15

    • For no-change, advisory and agreed cases, prepared and issued a closing letter. See IRM 4.75.15.

    • Sent any copies of checksheets and closing letters to the CSCI project analyst.

  6. If you issued a report of examination (RAR) reflecting a change in tax or status, and the taxpayer...

    • agrees with the proposed change, close the case to the Examination Support Section (ESS), unless otherwise subject to Mandatory Review or Special Review.

    • submits a valid written protest, issue a rebuttal letter and then close the case to Mandatory Review.

    • submits an invalid protest, make a reasonable attempt to obtain a complete and valid protest.

    • fails to reply , and it has been 30 days since you sent the RAR, you may in some tax cases issue Letter 923, No Response to 30-Day Letter after Expecting Protest, Allowing 15 more days to Protest before Issuing Statutory Notice of Deficiency , or Letter 923-E , No Response to 30-Day Letter after Expecting Protest, Allowing 15 more days to Protest before Assessment .

      Note:

      Letter 923-E is applicable for employment tax cases (other than NRP and worker classification issues) and gaming excise taxes.

      Note:

      For both Letters 923 and 923-E, the agent 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:

      Agents may prepare a comparable letter to Letters 923 and 923-E for status changes. The letter is issued at the discretion of the group manager.

    • fails to reply or an invalid protest is received, and it has been 37 days since you sent the RAR (45 days if Letter 923 or comparable letter was issued), close the case to Mandatory Review.

      Exception:

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

  7. If you determine no changes to tax or status are necessary, close the case to ESS, unless otherwise subject to Mandatory Review or Special Review. See IRM 4.75.16.9 for shipping instructions.

4.75.16.2.1  (02-15-2013)
Paperless Case Files

  1. Certain cases may be closed 100% paperless. To qualify, the case must:

    1. Close with AIMS Disposal Codes (DC) 02, 08, 52, 53, 04, 05, 06, 31, 32, 36 (RCCMS DC 107, 213, 214, 302, 205, 207, 208, 910, 908, 909)

    2. Be without an original return (RCCMS Requisition Code 3), and

    3. Not be a NMF case

    Exception:

    Any case subject to Mandatory Review and project cases designated as paper cases must be closed with a paper case file.

  2. For paperless cases, place documents with original signatures, such as Form 2848, Power of Attorney and Declaration of Representative, Form 8821, Tax Information Authorization and Form 872, Consent to Extend the Time to Assess Tax, in a correlating paper file and ship the paper file to ESS. See IRM 4.75.16.9 for shipping instructions.

  3. If closing paperless, upload to, or internally generate within RCCMS all workpapers, forms, reports, letters, and other documents that would normally be included in a paper case file. Close the case on RCCMS.

  4. For information relating to construction of an electronic case file, see IRM 4.75.16.7, Case File Assembly. For the use of RCCMS, see IRM 4.75.16.2.3.

4.75.16.2.2  (02-15-2013)
Timely Closing

  1. Make your best effort to close audits within the established time-frames. Document any delays or extended periods of inactivity on Form 5464. If using an electronic and paper version of Form 5464, make sure both are updated.

  2. The established time-frames for closing cases are as follows:

    1. Ten (10) calendar days to close agreed or no-change audits. For no-change audits, the 10 days start from the date the no-change determination is made, which is usually the date of last taxpayer contact when the agent discusses the audit results with the taxpayer. For agreed cases, the 10 days start when the agent receives the signed agreement.

    2. Twenty (20) calendar days to close unagreed audits. The 20 days start from the date of final closing conference or the date a closing conference was declined.

    3. Ten (10) calendar days for the manager to initial and date the case chronology after receipt from the agent.

  3. Record the date you close the case on Form 5464. The group manager records on Form 5464 the date he/she approved the closure.

4.75.16.2.3  (02-15-2013)
Use of RCCMS

  1. Using RCCMS to process AIMS establishments, updates and closures eliminates the need for the following AIMS documents:

    • Form 5595, TE/GE Update

    • Form 5596, TE/GE Non-Examined Closings

    • Form 5597, TE/GE IMF/BMF/EPMF Request

  2. If not using RCCMS for AIMS updates and corrections, you need to use one of the above listed forms to establish, update, and close the AIMS controls.

  3. RCCMS is also used for case file management.

  4. Cases closed as other than paperless require printed copies of the Form(s) 5599. If Forms 5595, 5596, 5597 were also used, include these in the paper case file.

  5. For information on constructing an electronic case file, see IRM 4.75.16.7, Case File Assembly. See also Exhibit 4.75.16-18, Guidelines for Using EO Subfolders in RCCMS.

  6. If a RCCMS record is open in error without a corresponding AIMS record, or a corresponding AIMS record was closed without closing the RCCMS record, follow the steps below to close the RCCMS record:

    1. The group manager sends a secure e-mail message to the EO Exams Systems Analyst. The e-mail should include the name of the case, EIN and MFT(s), tax period, and explanation of the error.

    2. Complete the RCCMS Closing document by selecting the appropriate disposal code for a deletion (901 – Error Accounts or 801 – Information Report) and then selecting 7- Paperless Non-Examined in the “Closing with:” field. Complete the fields at the bottom of the closing document with the group’s information (PBC, SBC, and EGC).

    3. RCCMS controls are closed to ESS using the following information: PBC – 400, SBC – 11115, EGC – 7996, and Status Code 56. Be sure to leave the AIMS box unchecked.

4.75.16.3  (02-15-2013)
Non-Examined Closures

  1. Non-examined closures are known as "short closures" . Short closures include deletions of AIMS records, deletions of accounts, and surveys.

  2. ESS (Examination Support Section) uses command code AMSOC to close these cases. Form 10904, Request for Record Deletion from AIMS, and Form 5596, TE/GE Non-Examined Closings historically provided the information needed for input of AMSOC. If using RCCMS, you do not need Form 5596.

  3. Close cases involving both deletions and surveys to ESS in Dallas.

4.75.16.3.1  (02-15-2013)
Deleting AIMS Accounts

  1. Deletion of an AIMS record is usually needed for AIMS accounts established in error. Use Form 10904 to delete an AIMS account.

  2. AIMS deletions are commonly Non-Master File (NMF) closures while surveys are generally Master File (MF) closures.

  3. Some MF accounts may be deleted, such as a filed return ordered or classified but not received. This only applies if the return was not examined.

  4. In order to delete an AIMS account, provide sufficient information in the "Reason for Request (Narrative)" block of Form 10904 to warrant a deletion.

  5. Follow statute procedures for all Form 10904 closings.

  6. Use Disposal Code (DC) 99 (801), Information Report and Miscellaneous, when:

    • Converting from NMF to MF

    • Changing from one MFT to another

    • Changing from one tax period to another

    • Transferring from one TIN to another (such as a parent TIN)

      Note:

      Make sure the correct transferee TIN is identified in the "Reason for Request (Narrative)" block of Form 10904.

  7. Use DC 33 (901), Error Accounts with no Returns, when correcting:

    • A keypunch error

    • An error account

    • An incorrect TIN

      Note:

      Identify the correct TIN in the "Reason for Request (Narrative)" block of Form 10904, and attach documentation showing the correct TIN is fully established.

  8. Also use DC 33 (901) when the taxpayer is not liable for filing a return (no audit started), or when a claim was opened in error because it was not timely filed. The "Reason for Request (Narrative)" block of Form 10904 must explain why the case should not be opened.

4.75.16.3.1.1  (02-15-2013)
Disposal Code 99 Procedures

  1. The group manager and area manager approve all DC 99 (801) deletion requests.

  2. Complete Form 10904 with an explanation. Make the explanation clear, legible and sufficiently detailed. Leave no question that the AIMS deletion is warranted.

  3. Check for AIMS freeze codes or claim amounts on AMDISA prints for the return being deleted. Deletion can not occur when a claim amount or a freeze code is present. These must be removed before deletion. See IRM 4.75.16.3.1.4 for removing these items.

  4. For AIMS conversions, include AMDISA prints for both NMF and MF controls (if this is the reason for deletion). Fully establish the MF record on AIMS. Do not proceed with an AIMS NMF deletion based on a TC 424 skeletal record on MF. A full establishment includes a TC 150.

  5. For other than AIMS conversions, include available documentation to support the reason for deletion. The "Form 10904 Package" will consist of Form 10904 with explanation, AMDISA prints, and supporting documentation. See IRM 4.75.16.3.1.3 for additional information on the Form 10904 Package.

  6. Secure e-mail the Form 10904 Package to your group manager for approval.

  7. Group Manager: Electronically sign and then secure e-mail the complete Form 10904 package to your area manager.

    Note:

    Do not transfer AIMS/RCCMS controls to the Area office. The controls stay with the group.

  8. Area Manager or their designee: Review the Form 10904 Package.

    1. If the Form 10904 Package is incomplete, return the package to the group manager for correction.

    2. If the package is complete, electronically sign Form 10904 and secure e-mail the package back to the group manager.

  9. Agent: Import the complete Form 10904 Package into RCCMS. Group manager or their designee: Mail the paper Form 10904 Package to ESS for closure, and transfer the AIMS/RCCMS controls to ESS using status 51.

    Note:

    Coordinate any expedites with the ESS manager.

4.75.16.3.1.2  (02-15-2013)
Disposal Code 33 Procedures

  1. The group manager, the area manager, the systems analyst and the system analyst’s manager together approve DC 33 (901) deletion requests.

  2. Complete Form 10904 with an explanation and supporting documentation. Make the explanation clear, legible and sufficiently detailed. Leave no question that the AIMS deletion is warranted.

  3. Secure e-mail the Form 10904 Package to your group manager for approval. See IRM 4.75.16.3.1.3 for information on the Form 10904 Package.

  4. Group Manager: Electronically sign and then secure e-mail the completed Form 10904 Package to your area manager.

    Note:

    Do not transfer AIMS/RCCMS controls to the Area office. The controls stay with the group.

  5. Area Manager: Review the Form 10904 Package.

    1. If the Form 10904 Package is incomplete or required documentation is missing, return the package to the group manager for correction.

    2. If the package is complete, electronically sign Form 10904 and secure e-mail the package to the *TEGE-EO-10904 mailbox for the systems analyst’s (AIMS Coordinator) and the ESS manager’s approval.

  6. Systems Analyst: Review the Form 10904 Package.

    1. If required documentation is missing, secure e-mail the request back to the area manager for perfection and carbon copy the group manager.

    2. If everything is properly included as shown above, electronically sign the Form 10904 and forward to the ESS manager for approval.

  7. Manager, ESS or their designee: Approves the deletion if he/she concurs. Secure e-mail the approved Form 10904 package back to the area manager and cc the group manager.

  8. Agent: Import the complete Form 10904 Package into RCCMS. Group Manager or their designee: Mail the paper Form 10904 Package to ESS for closure, and transfer the AIMS/RCCMS controls to ESS using Status Code 51.

    Note:

    Coordinate any expedites with the ESS manager.

  9. ESS: Delete the AIMS/RCCMS controls and save the paper file for one year.

4.75.16.3.1.3  (02-15-2013)
Form 10904 Package

  1. Assemble all Form 10904 packages to be sent to ESS as follows:

    1. Form 10904 (first page only), with explanation

    2. Form 5546, Examination Return Charge-Out Sheet, if an original return was obtained from the Service Campus

    3. AMDISA print for module being deleted from AIMS

    4. AMDISA print, if applicable, for corresponding module established on MF

    5. IMFOLT/BMFOLT, if applicable

    6. TXMODA, if applicable

    7. Supporting documentation, if applicable

  2. Staple the Form 10904 Package together. Most Form 10904 Packages will only include three (3) pages. Form 10904 requests are not to be placed in a folder. There is no case file associated with a Form 10904.

  3. Forward Form 10904 Packages to ESS. See IRM 4.75.16.9 for the ESS address.

4.75.16.3.1.4  (02-15-2013)
Form 10904 Deviations

  1. Prepare Form 10904 Packages for returns with a claim amount or freeze code the same as instructed for Disposal Code 99 (801) or Disposal Code 33 (901). Follow the approval process based on the disposal code used.

  2. Typographical errors are no longer required to be established on both inventory systems.

    1. For returns established on AIMS only, prepare Form 10904 that so states. Attach your one AMDISA print, have it approved and mail it to ESS.

      Note:

      ESS does not accept Forms 10904 uploaded to RCCMS or faxed.

    2. For returns established on RCCMS only, send RCCMS controls to ESS via secure e-mail, let the Systems Analyst know you have sent the controls and what the return information is so it can be controlled to the RCCMS Library.

  3. AIMS freeze codes must be released before the Form 10904 package can go to ESS.

    1. Classification-Referrals: Releases "V" Freezes. Update AIMS/RCCMS to Status 60. Close to ESS when you have released the freeze.

    2. The Systems Analyst releases all other freeze codes. Update AIMS/RCCMS to the Systems Analyst using Status Code 56.

  4. Group manager or designee: Regarding a claim amount – these can not be deleted until the claim amount is removed. Forward AIMS/RCCMS controls to the Systems Analyst in ESS using Status Code 56.

    "V" Freeze Release Claim Issues or other Freeze Codes
    Mail Form 10904 to Classification-Referrals E-mail Form 10904 to Systems Analyst in ESS
    Internal Revenue Service
    TE/GE:EO:E:PR:C
    MC 4910 DAL
    1100 Commerce St.
    Dallas, TX 75242
    *TEGE-EO-10904

4.75.16.3.2  (02-15-2013)
Surveying Returns

  1. You and your group manager have the authority to determine whether to survey a return in lieu of conducting an audit. Surveyed returns do not count towards any statistics maintained with respect to audit results. Before surveying a return, consider:

    • Whether a survey is permitted at all.

      Note:

      Certain projects cannot have returns surveyed, especially if they are a statistical sample project such as NRP.

    • How much time is left before the ASED.

      Example:

      AIMS Status 10 cases with less than 18 months remaining on the statute date are considered for survey.

    • Whether the same issue is present in subsequent years

    • Whether an audit would likely result in a material change

    • Whether an organization has already taken steps to correct a reported issue, as reflected in subsequent years returns

  2. CSCI Project Analyst or Team Leader: review and approve/disapprove all surveys of returns selected for Market Segment studies or Compliance projects.

  3. Group Manager: review and approve/disapprove all surveys (before assignment, after assignment, and after taxpayer contact).

  4. Area Manager or their designee: review and approve/disapprove surveys of returns with international features.

4.75.16.3.2.1  (02-15-2013)
Survey Before Assignment

  1. A return selected for audit can be surveyed before assignment if:

    1. it is disposed of without contact with taxpayers or their representatives, and

    2. it has not been assigned to an agent

  2. Group Manager: you may survey returns before assignment unless survey is prohibited by other manual requirements or special project procedures. Contact the team CSCI project analyst or team leader in charge of a project to obtain permission to survey and open a subsequent year.

  3. Group Manager: you may assign an agent or group secretary to prepare the paperwork for the closure. You are responsible for stamping and signing the stamped area of any original returns.

  4. Group Manager: you may survey unassigned cases if the statute remaining is less than 18 months, and a more recent return has been filed. In such situations, survey the assigned year and request establishment of the subsequent year via RCCMS. Obtain electronic copies of the original filed return from the On-line SEIN system.

  5. Locally procure a stamp, approximately 3 inches X 1 inch in size, and imprint on each original return surveyed. The form of the stamp should be as follows:

    CLOSED SURVEY BEFORE ASSIGNMENT
           
    Group Manager   Date  

    Note:

    Do not stamp copies of returns, such as those retrieved from Online SEIN.

  6. Group Manager: Sign and date in the signature field.

4.75.16.3.2.2  (02-15-2013)
Survey After Assignment

  1. You may survey a return after assignment if there is no contact with taxpayers or their representatives, and you believe that an audit of the return would result in no material change in tax liability, foundation status, or exempt status.

  2. You may survey returns or claims after assignment unless survey is prohibited by other manual requirements or special project procedures. Any surveys of project cases must be approved by the CSCI project analyst or team leader.

  3. You may survey unopened cases if the statute remaining is less than 18 months, and a more recent return has been filed by the organization. In such situations, survey the assigned year and request establishment of the subsequent year via RCCMS (or AIMS if not using RCCMS) pending managerial approval. Obtain electronic copies of the original filed return from the On-line SEIN system.

  4. Locally procure a stamp, approximately 3 inches X 1 inch in size, and imprint on each original return surveyed. The form of the stamp should be as follows:

    CLOSED SURVEY AFTER ASSIGNMENT
           
    Internal Revenue Agent   Date  
           
    Approved - Group Manager   Date  

    Note:

    Do not stamp copies of returns, such as those retrieved from Online SEIN.

    Note:

    Old stamps stating "Group Supervisor" are permissible in consideration of budget constraints.

  5. Sign and date in the signature field. Group Manager: Sign and date in the signature field.

4.75.16.3.2.3  (02-15-2013)
Survey After Taxpayer Contact

  1. Under certain circumstances, you can survey a return after taxpayer contact, unless survey is prohibited by other manual requirements or special project procedures. Any surveys of project cases must be approved by the CSCI project analyst or team leader.

  2. In order to survey after taxpayer contact, you must not have inspected or reviewed the taxpayer's books or records.

    Exception:

    EO returns of organizations automatically revoked during an audit may be surveyed even if the taxpayer's books and records were examined. See IRM 4.75.16.5.2 and Exhibit 4.75.16-9.


    See Rev. Proc. 2005-32, to determine whether you have inspected or reviewed a taxpayer's books and records.

    If the return is Notify the taxpayer that an audit will not be conducted by issuing:
    A tax return Letter 3616
    An information return A drafted letter (managerial approval required)
    An AIMS account for a non-filer audit A drafted letter (managerial approval required)

  3. You may survey returns after initial contact for, but not limited to, cases:

    1. involving repetitive audits

    2. assigned to an agent who moved or left the Service

    3. where the only contact with the taxpayer was to secure a Form 872, Consent to Extend the Time to Assess Tax

    4. involving a taxpayer you are unable-to-locate as stated in situations 2 and 6 of Exhibit 4.75.16-17

  4. Locally procure a stamp, approximately 3 inches X 1 inch in size, and imprint on each original return surveyed. The form of the stamp should be as follows:

    CLOSED SURVEY AFTER ASSIGNMENT
           
    Internal Revenue Agent   Date  
           
    Approved - Group Manager   Date  

    Note:

    Do not stamp copies of returns, such as those retrieved from Online SEIN.

  5. Sign and date in the signature field. Group Manager: Sign and date in the signature field.

4.75.16.3.2.4  (02-15-2013)
Survey Procedures

  1. Survey a return if, after conducting the in-depth analysis and evaluating audit potential, you and your manager determine an audit would result in no material change in tax liability, foundation status, or exempt status.

    Note:

    Refer to IRM 4.75.16.5.2(4) regarding survey of automatically revoked organizations (EOBMF Status 97).

  2. After you decide to survey a return:

    1. Prepare Form 1900, Survey After Assignment, (or Form 2503, Survey After Assignment - Excise or Employment Tax). For instructions on completing these forms, refer to Exhibit 4.75.16-1 and Exhibit 4.75.16-2.

    2. If not using RCCMS, complete Form 5596.

    3. Digitally sign the forms in Adobe Acrobat and secure e-mail the signed forms Form 1900/2503 and Form 5596 if applicable, to your group manager.

      Note:

      For project cases, before secure e-mailing the signed forms to your group manager for signature, obtain approval from your CSCI project analyst or team leader by digitally signing Form 1900/2503, and Form 5596 if applicable.

  3. Group Manager: Upon receipt of the form(s):

    1. Digitally sign the forms in Adobe Acrobat.

    2. Forward the digitally signed Form 1900/2503 via secure e-mail to your area manager for signature.

    3. Return the digitally signed forms back to the agent via secure e-mail.

  4. Area Manager or their Designee: Upon receipt of the form(s):

    1. Digitally sign the forms in Adobe Acrobat.

    2. Return the digitally signed Form 1900/2503 via secure e-mail to the group manager.

  5. Agent: Upon receipt of the digital signed forms:

    1. Enter onto the closing record screen in RCCMS the appropriate RCCMS survey disposal code from Document 6379.

    2. Stamp the original return as indicated in IRM 4.75.16.3.2.2 (5).

      Note:

      If surveying a Form 990-N, prepare a dummy return (one page), complete the name and address fields and attach BMFOLT and AMDISA to it.

    3. Prepare Form 3198-A with the name of the entity, EIN, MFT, and tax year. Enter "Survey After Assignment" or "Survey After Initial Contact" under the block labeled "Other" .

      Note:

      Group Manager: If surveyed before assignment, enter "Survey Before Assignment" under the block labeled "Other"

      .

    4. Upload the signed forms to RCCMS.

    5. Close the case to the group manager on RCCMS.

    6. Perform a send/receive within RCCMS.

      Note:

      If not using RCCMS, prepare a paper case file with the Forms 1900/2503, 5596, and original/copy of the return. Stamp the return with the appropriate survey stamp. Give the paper file to the group manager.

  6. Group Manager: Once the case file has been received on RCCMS:

    1. Notify ESS of the closure of a totally electronic no change case.

    2. Prepare a Form 3210, Document Transmittal, to ESS.

    3. Send Form 3210 to designated printer in ESS.

    4. Close the case to ESS using PBC 400, SBC 11115, Employee Group Code 7996, and Status 51.

    Note:

    Messages generated by RCCMS are not used for notification in lieu of a Form 3210, nor may Forms 3210 be secure e-mailed to the closing function for notification purposes.

  7. Group Manager: If a paper file was received, and the agent does not use RCCMS:

    1. Countersign the survey stamp on the return.

    2. Complete the closing record on RCCMS.

    3. Prepare a Form 3210, Document Transmittal, in triplicate to ship the case to ESS.

    4. Ship the case file with two copies of the Form 3210 to ESS. Retain the third copy of the Form 3210.

  8. Forward all short closings and AIMS disposal codes 20 (906), 21 (905), 22 (904), 25 (902), 31 (910), 32 (908), 35 (913), 36 (909) and 45 (802) to ESS in Dallas. See the address in the next paragraph.

  9. Maintain documents with original signatures (i.e. Forms 2848, 8821, 872, original returns) in a correlating paper file. Group Manager: Forward these files, with a copy of the Form 3210, to:

    Internal Revenue Service
    MC: 4980 DAL
    1100 Commerce Street
    Dallas, TX 75242

  10. Include the message "100 Percent RCCMS (if applicable), Form 2848, 8821 and/or Form 872 sent via mail" in the comments section for each totally electronic closure.

  11. Do not survey Non-Master File cases.

4.75.16.4  (02-15-2013)
Examined Closures

  1. The following procedures are required for all cases that are not surveyed or deleted. These procedures include:

    • Reviewing a pre-closure checklist. See IRM 4.75.16.4.1.

    • Following directives concerning short statutes of limitations. See IRM 4.75.16.4.2.

    • Holding the closing conference. See IRM 4.75.16.4.3.

    • Completing the Form 5599 and/or RCCMS Closing Record. See IRM 4.75.16.4.4.

    • Reconciling the time on various forms

  2. In addition to completing these procedures, verify that all required paperwork has been completed. Include in the case file:

    • Closing letters

    • Audit reports (RAR), if applicable

    • Returns and substitutes for returns

    • Forms 5772, 5773, 5464, and 5774 if applicable

    • Supporting workpapers

    • Correspondence to and from the taxpayer

  3. For instructions on case file assembly, see IRM 4.75.16.7.

  4. Examined cases may be closed from the examination group to either one of the following Examination Programs and Review (EPR) functions:

    • ESS. Ultimately for all cases.

    • Mandatory Review. For listing of cases subject to Mandatory Review, see IRM 4.75.16.6.

    • Special Review. For reopened cases only, including those otherwise subject to Mandatory Review.

    • Classification-Referrals. For release of AIMS "V" Freeze Codes, prior to sending the case to any of the above units. The "V" Freeze Code identifies referral-in cases.

    See IRM 4.75.16.9 for addresses to each of these EPR units.

4.75.16.4.1  (02-15-2013)
Pre-Closure Review

  1. Check and proofread closing letters and audit reports (RARs) for completeness and grammatical, spelling or typographical errors.

  2. Properly complete and sign Form 895 if the statute expires in less than 270 days (nine months). See other criteria at IRM 25.6.23.4.

  3. Complete all of the items in the heading of Form 5772 correctly. See IRM 4.75.16.4.9.

    Note:

    Also include the letter number to be issued by Mandatory Review in the Mandatory Review section of Form 3198-A.

  4. For private foundation cases, prepare and complete Form 5774.

  5. Match the conclusions on Form 5773 to the conclusions in the workpapers, audit reports (RARs), and closing letter(s). Clarify the scope and conclusions for each workpaper or group of workpapers.

  6. Review workpapers for completeness and accuracy before closing the case to your group manager.

  7. Verify that all of the workpapers are needed. Purge all unnecessary or duplicate workpapers.

    Caution:

    Do not purge workpapers and RARs that you provided to the taxpayer during the audit. If you change the workpaper or RAR, note in the top margin of the original workpaper or a comment such as, "Superseded by workpaper C14" or "Superseded by Report Dated 12/2/2003" in bold letters.

    Caution:

    If the case involves a declaratory judgment issue, refer to IRM 4.75.32 for documents includible in the "Administrative Record" . If you secure documents (originals or copies) that are related to an issue to be litigated, do not make notes on these documents. Make notes on a copy (or second copy), in a workpaper, on a cover sheet, or in the Form 5773.

    Note:

    If you secure and place copies of the taxpayer's records in the workpapers, note the reason for inclusion in your workpapers or in Form 5773.

  8. Organize all of the workpapers in a logical manner. Index them according to Form 5773. If using RCCMS, place them in the appropriate folder that corresponds to the applicable entry on Form 5773. (For additional information, see IRM 4.75.10.22. IRM 4.75.11-3. Label all of the workpapers with the taxpayer's name, workpaper title, date completed, and your initials (or name).

    Exception:

    If a workpaper contains multiple pages, you may enter the label on the first page only. If you do so, enter the total number of pages, e.g., Analysis of Entertainment Expenses, 3 pages.

  9. Attach copies of all pertinent workpapers to the Form 5666, TE/GE Referral Information Report, if prepared for a subsequent year audit.

    Note:

    You can secure e-mail Forms 5666 and the supporting documentation to *Manager EO Classification at any time during the audit for those referrals that do not depend on the outcome of the audit. This includes both electronically completed and scanned versions. For example, do not e-mail Forms 5666 to the Classification-Referrals group for an issue that depends directly or indirectly on concurrence by Mandatory Review or Appeals. Instead, keep the prepared Form 5666 in the case file (inside-left)

    .

  10. Verify that your Form 5464 contains complete and accurate documentation of the case history.

  11. Group Manager: Document all of your actions on Form 5464. Note your review of the case on Form 5464 uploaded on RCCMS.

  12. If using RCCMS, complete all updates prior to closure. Complete the closing record and upload any documents not created in RCCMS. If not using RCCMS, complete all updates on AIMS using Forms 5588, 5595, 5597, 5598, and 5599.

  13. If proposing both revocation of an IRC 501(c)(3) organization and IRC 4958 taxes, see IRM 7.27.30.16.

  14. For compliance and market segment project cases, send copies of any checksheets, closing letters, written advisories, or Form 886-A to the CSCI project analyst.

4.75.16.4.2  (02-15-2013)
Statute Considerations

  1. Before closing the case, verify the correctness of the statute of limitations date shown on AIMS and RCCMS for each return in your inventory. Make every attempt to complete the case before a statute extension becomes necessary.

  2. For Servicewide statute procedures, refer to the statute of limitations handbook, IRM 25.6. To the extent the procedures in this IRM impose tighter controls than the those stated in IRM 25.6 use the procedures in this IRM.

    Example:

    IRM 25.6.23.4 requires statute controls for returns with assessment statutes that expire within 180 days. This IRM section for EO Examinations requires statute controls for returns with statutes that expire within 270 days. Follow the instructions with respect to statute controls from this IRM, because statute controls for EO Examinations take effect sooner than those stated in IRM 25.6.23.4.

  3. A "short statute return" for EO returns is one with less than 270 days remaining before the Assessment Statute Expiration Date (ASED). Red folders must be used, and examination groups must generate Form 895, Notice of Statute Expiration. Form 895 remains with the case file even after a statute date is extended.

    Reminder:

    The statutory period for assessment begins on the later of the due date of the return or the date the return was filed. There are special rules for identifying statute dates of subordinate EO returns (such as Forms 4720 and 990-T) where the period for assessment is based on the filing of a primary return (the return of record). See IRM 4.75.10.7; see IRM 7.27.30.11 regarding IRC 4958 taxes; see IRM 4.76.4.19 regarding Chapter 42 taxes for private foundations.

    Note:

    Form 990-N does not begin the period of limitations for assessment when filed. You may update a Form 990-N module to reflect alpha ASED code "EE" , No Return Filed, assuming no primary returns are filed.

  4. At the time of closing and shipping the case from the examination group, ensure all cases that close directly to ESS (no-change and agreed cases) have at least 180 days remaining before the ASED. Ensure cases that go to Mandatory Review or Special Review have at least 270 days remaining before the ASED at the time of shipping the case from the examination group. If you are unable to conclude the audit before these dates, consider executing a statute extension, subject to the consent of the taxpayer.

  5. Maintain proper statute controls for all audited short statute returns, whether or not controlled on AIMS. See IRM 25.6.23.3 for the components of statute controls.

  6. "Proper statute controls" for EO returns include:

    • Ensuring the ASED is accurate, including any alpha codes

    • Timely soliciting of statute extensions (See IRM 25.6.22. Use Letters 3600, 3599, 3598, and 3612 in place of Letters 907, 928, 929, and 1343 respectively)

    • Reconciling AIMS Table 4.0, Returns with Statute Date Pending, to RCCMS at least monthly. See IRM 4.75.16.4.2.3

    • Completing and signing Form 895, Notice of Statute Expiration

    • Using a red folder for returns with less than 270 days remaining until the ASED

      Note:

      It is also acceptable to use Form 10364-A, Statute Expiration Case Notice, if ordered from the National Distribution Center under catalog number 24613P (it will be delivered as a pre-printed red folder).

      Note:

      A red folder is not needed if a statute date is extended beyond the 270 day threshold or if an alpha ASED code is used, even if a Form 895 is otherwise required.

    • "Advance written notification" of the upcoming closure of short statute returns to the Manager of the appropriate EPR function. Include an advance phone call if less than 180 days remain toward the ASED. See 4.75.16.4.2.1(4) and IRM 4.75.16.4.2.2(3) regarding "advance written notification"

    • Maintaining controls on any returns which have potential tax adjustments as a result of the EO audit

    • Closing short statute returns promptly, and explaining of delays on Form 5464

    • Taking other appropriate actions to protect the government’s interest

  7. Include the following items on all cases sent to ESS, Mandatory Review or Special Review (and to Classification-Referrals group if applicable):

    • Documentation of proper statute controls in paragraph (6)

    • Current AMDISA, BRTVU, and INOLES prints (no more than 30 days old)

    • Proper updates on AIMS to status 51, 20, 20, or 60 for ESS, Mandatory Review, Special Review or Classification-Referrals group, respectively.

    • A completed Form 3198-A, placed on the outside of the case folder.

      Note:

      You may scan or digitally sign Forms 895 and upload them to RCCMS. Upload all Forms 3198-A to RCCMS.

  8. Any unit in EPR (ESS, Mandatory Review, Special Review, Classification-Referrals group) may return short statute cases without the required items in paragraph (7).

  9. If the statute of limitations for assessment has expired, Form 3999, Statute Expiration Report, must be completed. Refer to instructions in IRM 25.6.1.13, Barred Assessments/Barred Statute Cases. If a statute expires after the case is assigned to an agent, he/she must complete Form 3999 explaining the facts and circumstances. If the statute expired before the agent received the return, he/she will prepare a preliminary Form 3999 and give it to his/her group manager. The group manager will forward the preliminary Form 3999 to the group/area that had possession of the return when the statute expired.

    Exception:

    Form 3999 does not have to be completed if (1) the total lost revenue, including tax, interest, and penalty is less than $1,000; (2) a case is a no change, or (3) a case is opened on AIMS after the statute has expired.

  10. If a decision is made to allow a statute to expire, there must be a memorandum in the case file dated no later than the statute expiration date and approved by the area manager allowing the statute to expire before closing the case.

4.75.16.4.2.1  (02-15-2013)
270 Days Before ASED - Cases Subject to Review

  1. All unagreed cases subject to Mandatory Review or Special Review, must have at least 270 days remaining before the ASED when closed and shipped from the group. If you are unable to conclude the audit before this date, solicit and execute a statute extension on Form 872, Form 872-A, or Form SS-10.

    Reminder:

    All cases subject to mandatory review are identified in IRM 4.75.16.6. All reopened cases are closed to Special Review even if they otherwise meet mandatory review criteria. Any case with an AIMS V Freeze must first be transferred to the Classification-Referrals group to remove the V-freeze before forwarding the case to any review function or to ESS.

  2. No Statute Extension. If the organization indicates that it will not extend the statute of limitations for assessment for a short statute return, the examination group generally assumes responsibility for preparing the final closing letter and mailing package for Mandatory Review or Special Review, including a pre-addressed mailing envelope. This includes preparing 90-day letters where Area Counsel approval is required. The examination group must also maintain AIMS controls until Mandatory Review or Special Review can issue the final closing letter to the taxpayer on behalf of the group. Refer to IRM 4.75.16.4.2.3 for special procedures regarding the issuance of 90-day letters. The Managers, Mandatory Review or Special Review may exercise discretion to permit exceptions (allowing normal closing letter processing by these functions) on a case by case basis in the interest of efficient tax administration.

    Note:

    Effective September 24, 2012, Delegation Order 4-8 (Rev. 1) authorizes TE/GE area managers to issue statutory notices of deficiency for income tax and Chapter 42 excise tax. However, this authority is reserved for TEP cases, and for certain short statute cases that are unable to close to review functions, but that require immediate issuance of a statutory notice of deficiency.

  3. No Statute Extension for Protested Cases. If an organization indicates that it will not extend the statute of limitations for assessment, remind the organization that not extending the statute date for assessment jeopardizes its right to appeal. In your reminder, state that Appeals requires 180 days remaining on the statute date before it considers a case. See IRM 8.2.1.3. For declaratory judgment cases, also inform the taxpayer that if it does not avail itself to Appeals, that it can be considered a failure by the taxpayer to exhaust administrative remedies within the IRS, which may preclude a hearing in Tax Court by reason of IRC 7428(b)(2). Inform the taxpayer that without a statute extension it could be subject to immediate:

    • issuance of a 90-day letter (reserved for declaratory judgment cases and tax cases in general).

    • assessment (reserved for employment taxes other than worker classification taxes, and gaming excise taxes)

    • revocation, modification or disqualification (reserved for other thanIRC 501(c)(3) organizations)

      Note:

      Advise the organization that since 90-day letters are not issued in these cases, the 30-day letter can become final.

      Note:

      Include in the advance written notification to the Manager, Mandatory Review or Special Review (prior to closure) of the taxpayer's refusal to extend the statute of limitation for assessment.

    In your reminder to the taxpayer, cite Treas. Reg. 601.201(n)(6)(viii) and section 12.02 of Rev. Proc. 2012-9 (updated annually), which provides that only in circumstances where delay would be prejudicial to the interests of the Service (such as in cases of 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.

  4. Group Manager Procedure Prior to Closing: For cases with less than 270 but at least 180 days remaining before the ASED:

    • Provide "advance written notification" . Notify the Manager, Mandatory Review or Special Review via secure e-mail regarding the upcoming submission of the case

    • Provide documentation of timely solicitation of the consent to extend the statute of limitations for assessment

    • State whether the taxpayer refuses or is unable to extend the statute date

    Reminder:

    Appeals requires at least 180 days (6 months) before the ASED in order to accept protested cases.

    Reminder:

    Unagreed without protest employment tax audits (other than NRP and worker classification issues) and gaming excise tax audits must close directly to ESS, unless otherwise subject to Mandatory Review or Special Review.

  5. For cases subject to Mandatory Review or Special Review with less than 180 days remaining before the ASED, see additional items needed in the case file in paragraph (3) of IRM 4.75.16.4.2.2.

4.75.16.4.2.2  (02-15-2013)
180 Days Before ASED

  1. Examined cases (and non-examined cases) should have at least 180 days remaining when shipped from the group to ESS. Note that assessment cases with insufficient time left before the ASED may require manual quick assessments.

  2. There will be instances when it will be necessary to close cases with less than the required 180-day time frame by the time the case reaches ESS. These instances should be rare.

  3. Group Manager: For cases (including deletion requests on Form 10904) with less than 180 days remaining before the ASED, provide advance written notification to the Managers, ESS, Mandatory Review, or Special Review, (and to Classification-Referrals group if applicable), ranging from the first-line recipient-manager up to and including the Director, EO Examinations as follows:

    1. 120 – 179 days: Group Manager: Make a phone call and send a follow-up secure e-mail (advance written notification) to the receiving manager(s) or actor prior to transferring the case on RCCMS. Send cases via UPS next day air.

    2. 61 – 119 days: Group Manager: Same as (a), except send a copy of the follow-up secure e-mail (advance written notification) to the area manager and to the Manager, EPR. Indicate whether or not an assessment is to be made.

    3. 60 days or less: Group Manager: Same as (b), except include a copy of the follow-up secure e-mail (advance written notification) to the Director, EO Examinations or his/her designated staff member. Area Managers and Group Managers: Monitor the case to AIMS closure to ensure assessments are timely made.

  4. For cases subject to Mandatory Review or Special Review, the case file must contain the following additional items prior to transferring any RCCMS controls or physically mailing the case to these review functions:

    • Documentation of observing additional instructions in paragraph (3) above.

    • A memo or other documentation with the signature and concurrence of the area manager attesting to knowledge of the facts that occurred during the audit which resulted in the short statute situation.

4.75.16.4.2.3  (02-15-2013)
Short Statute Cases - 90-Day Letter Process

  1. For unagreed short statute returns that review functions are unable to accept, examination groups assume the responsibility for preparing the 90-day letter, including attachments and pre-addressed envelope.

    Reminder:

    Unagreed employment taxes (other than worker classification issues) and gaming excise taxes do not require a 90-day letter. These cases close directly to ESS for assessment.

  2. A 90-day letter is issued for cases involving:

    • A revocation or foundation status reclassification subject to IRC 7428 (final adverse determination letter)

    • An unagreed income tax or Chapter 41 or 42 excise tax assessment (statutory notice of deficiency, such as Letter 531 or Letter 1753)

    • An unagreed worker reclassification issue (notice of determination of worker classification, such as Letter 3523)

  3. For instructions on preparation of a final adverse determination letter, see IRM 4.75.20, Final Case Processing.

  4. For instructions on preparation of a statutory notice of deficiency, see IRM 4.75.20 and IRM 4.8.9, Statutory Notices of Deficiency.

  5. For instructions on preparation of a notice of determination of worker classification, see IRM 4.8.10, Notices of Determination of Worker Classification.

  6. Group Managers may contact the Manager, Mandatory Review by secured e-mail to request the assignment of a reviewer to assist in the preparation of the 90-day letter and the mailing package.

  7. Do not include the Form 886-A that was used in the report of examination with the 90-day letter. Prepare a brief (one to two paragraph) summary of the reason for change. For final adverse determination letters, include the reason in the body of the letter. For statutory notices of deficiency, prepare the summary in a Form 886-A, to accompany the letter. If citing law, cite the highest authority available (Code and Regulations in lieu of court cases.)

  8. The following table lists the enclosures for each letter:

    Letter: Enclosures:
    Final adverse determination Pub 892
    Form 6018
    Return envelope
    Statutory notice of deficiency (excise tax)
    Letter 1753
    See IRM 4.75.20
    Pub 1
    Pub 594
    Form 886-A
    Form 4883
    Form 4089
    Return envelope
    Statutory notice of deficiency (income tax)
    Letter 531 Series
    See IRM 4.75.20
    Pub 1
    Pub 594
    Form 886-A
    Form 4549-A
    Form 4089
    Return envelope
    Notice of determination of worker classification
    Letter 3523
    See IRM 4.75.20
    Pub 3953
    Form 2504-WC
    Form 4666
    Form 4667
    Form 4668

  9. Obtain Area Counsel review of all 90-day letters.

    Exception:

    Area Counsel's approval is not required for agreed IRC 7428 cases.

    Caution:

    Area Counsel generally requires up to 45 days to provide legal advice.

  10. After Area Counsel's approval, the group manager must submit a written request by secured e-mail to the Manager, Mandatory Review or Special Review to assign a reviewer to issue the 90-day letter while the group retains case controls. The 90-day letter package must contain Counsel's approval and must be ready for signature and issuance.

  11. While retaining case controls, send the entire 90-day letter package to Mandatory Review or Special Review for signature and issuance as directed by the Managers of these functions. The reviewer will then notify the group by secure e-mail that the 90-day letter has been issued to the taxpayer. Upon receiving such notification, the group will then close the case and send controls to Mandatory Review or Special Review.

    Note:

    See IRM 1.2.43.9, Delegation Order 4-8, IRM 1.2.43.27, Delegation Order 4-26, and IRM 1.2.46.3, Delegation Order 7-2 to identify those with the authority to sign and issue 90-day letters. Agents and group managers in field groups are not authorized to sign and issue 90-day letters.

  12. In the event a statute is imminent (less than 90 days) and a 30-day letter has not yet been issued and the taxpayer refuses to extend the statute date, 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 report of examination 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 Notice 1214 for the current list of Taxpayer Advocate offices. 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. 2012-9 (updated annually).

  13. Depending on the circumstances, the letter of separate cover might explain what the organization can do so that 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. Such a letter must be issued prior to or the same date as the issuance of the 90-day letter to which it pertains.

4.75.16.4.2.4  (02-15-2013)
Short Statute Listing and Form 895

  1. If you receive a short statute listing, provide the following information for the returns on your list to the group manager or their designee. Provide the type of closure expected (i.e. agreed, unagreed, or no change) for all returns shown on the listing. Additionally, make the following annotations as applicable for each return:

    1. Updated/corrected statute date.

    2. Date consent was solicited.

    3. Date submitted to the manager for closure.

    4. Estimated completion date (if agreed or no change closure expected.)

    5. Estimated date 30-day letter will be submitted to manager for review (if unagreed closure expected.)

  2. Send responses to your group manager or designee by the due date.

  3. Prepare Form 895 when:

    • Less than 270 days remain on the ASED

    • No return is filed (Substitute for Return) (EE alpha code)

    • Counsel provides a six year statute memo (NN alpha code)

    • Any other alpha code applies to the case

    • A statute extension is executed

    Note:

    Other criteria are noted in IRM 25.6.23.4

    Note:

    See instructions for Form 895 at IRM 25.6.23.6.2 and IRM 25.6.23.7.1.3

  4. Note all updates regarding statutes on Form 895. Changes to the ASED must be accompanied by an explanation.

  5. Group Manager: Sign off on all Forms 895 and approve/disapprove all ASED updates.

  6. For paper file closures, print out the Form 895 and place it on the outside of the file folder.

4.75.16.4.3  (02-15-2013)
Closing Conference

  1. As you conclude your audit, conduct a closing conference, where you present your findings, explain proposed adjustments, and solicit agreements. Each situation is unique and techniques vary widely, but there are basic procedures to follow.

  2. Propose and discuss substantive issues with the organization and/or a representative in a face to face meeting. If economically unfeasible, hold a conference call.

    Example:

    You are conducting an audit of an organization located in a remote location, where in addition to flying to the closest large city, you drove for an additional six hours to get to your destination. After spending a week reviewing the records of the organization, you hold a closing conference. You inform them that aside from an agreed employment tax assessment for unreported employee fringe benefits, the case will close as a no change with advisory. Later, back at the office, your manager rejects the case back to you to change the audit results. You may hold any subsequent closing conference by phone.

  3. Do not issue a formal report (described in IRM 4.75.31.2 ) to a 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

  4. You may mail a revised report to the organization rather than presenting it in a face to face meeting.

  5. To facilitate discussion at closing conferences, you may provide the organization with a listing and brief description of items to be discussed.

  6. Choose the order in which issues will be presented at the closing conference. You can modify the order during the conference. While there is no "right" order which is best for all occasions, resolve factual issues or issues involving an established application of law first. Discuss less certain issues last.

  7. Closing conferences vary in the degree of formality. See the table below for areas to be covered.

    Steps to take during the conference:
    1. Discuss your findings with the organization and/or representative.

    Note:

    Be prepared to converse knowledgeably, explain proposed adjustments and provide the taxpayer with copies of relevant court cases, regulations, revenue rulings, revenue procedures, and workpapers showing computations. Instructions to returns and publications that explain and support regulations and rulings are also helpful, but are not citable as legal precedent.

    2. Provide the organization and/or representative with the authority for your findings (law, argument and conclusion.)
    3. Address any concerns from the organization and/or representative. Listen to the organization's officers / trustees / directors / representative(s). Get a clear understanding from all persons present that there are no pertinent facts other than those of which you are aware. State "This is my understanding . . .," and then detail the facts as you understand them. "Are we all in agreement on this? Are there any other material facts or circumstances of any consequence? "
    4. Solicit an agreement from the organization and/or representative. This can be done by issuing an initial report of examination (RAR). At the group's discretion an initial report may be bypassed in favor of issuing a formal RAR with 30-day letter, either at the conference, or after the conference by certified mail.
    5. On agreed tax cases, solicit payment of tax, interest and penalties (solicit tax returns for agreed revocations)
      a. If the organization indicates an inability to pay the tax due at closing, discuss alternative payment methods. Offer an installment agreement if the organization meets the requirements. Use Form 9465, Installment Agreement Request, to solicit a payment agreement. See IRM 4.75.16.5.7 for more information.
      b. If the organization and/or representative agrees with the findings, but do not wish to pay the deficiency immediately, explain that a statement for the deficiency plus interest will be mailed. Their cancelled check will be their receipt. Secure appropriate waivers and close the case.
    6. On unagreed cases:
      a. Offer the organization a managerial conference. See IRM 4.75.31.9 for description of a managerial conference.
      b. Determine if the case is wholly or partially agreed.
      c. Solicit the organization's position on unagreed issues.
      d. Advise the organization of the appellate process and its appeal rights.
      e. If known to be unagreed, you can issue a formal 30-day letter and RAR at the conference or after the conference by certified mail.

  8. Document any closing conferences in Form 5464. Indicate the results of the conference. If not held, explain why not.

4.75.16.4.4  (02-15-2013)
Form 5599/RCCMS Closing Record

  1. Form 5599, and by extension the RCCMS Closing Record screens, is used as an input document for the Audit Information Management System (AIMS), which captures the closing information on audited cases. The system also transmits Form 5599 adjustment information to the Business Master File to update taxpayer account records.

  2. Prepare and print Form 5599 for all cases not closed 100% totally electronic (paperless). If using RCCMS, complete the Closing Record screens.

  3. The primary instructions for completing Form 5599 are found in IRM 4.5.2.3. Additional instructions for employment tax are found in IRM 4.23.8, IRM 4.23.9, and IRM 4.23.10.

  4. For instructions on completing the Closing Record in RCCMS, see http://tege.web.irs.gov/lib/my-resources/RCCMS_Comprehensive_Text_April_2010.pdf.

4.75.16.4.4.1  (02-15-2013)
Disposal Codes

  1. AIMS allows for one disposal code that best describes the principal audit result. In cases involving multiple issues, determine which issue has the highest priority. Document 6379 contains a table of EO disposal codes listed in priority order; this includes NRP cases.

    Example:

    If the audit of the primary return results in a low-priority outcome - that is, DC 19 (201), 01 (210), 13 (501), 08 (213), 52 (214), 02 (107) - but a related return had been secured, the appropriate disposal code for the primary return is DC 05 (207), Delinquent Related Return Secured. If both DC 05 (207) and DC 04 (205), Change to Related Return, are applicable to the same primary return, the correct disposal code for the primary return will be DC 05 (207) because it is a higher priority disposal code than DC 04 (205).

  2. For examined returns, determine the correct disposal code with the highest priority and select the appropriate three digit closing code from the drop down menu in the Closing Record in RCCMS.

    Note:

    Disposal codes are identified herein by 2 digit numbers for AIMS purposes, followed by the corresponding 3 digit RCCMS closing code in parenthesis. Thus, a no-change disposal code is identified as DC 02 (107).

  3. Disposal codes are reflected on item 13 of the closing record (Form 5599) for each examined return.

  4. Refer primarily to Document 6379, Exempt Organizations Management Information Systems Codes - Quick Reference for EO Employees, for the descriptions of each disposal code. Supplemental information for some disposal codes is provided in the paragraphs that follow.

  5. Disposal Code 01 (210), Regulatory/Revenue Protection.

    1. Use this code for agreed reduction of a net operating loss (NOL) that does not affect the tax liability. If unagreed use either DC 07 (601) or DC 10 (604).

    2. Applies to agreed disallowances of claims in full. Use DC 10 (604) for unagreed disallowed claims in full unless the disallowance is protested to Appeals, which would require DC 07 (601). For agreed allowances of claims in full or in part, use DC 03 (102).

    3. Applies to agreed disallowances of abatements in full. Use DC 10 (604) for unagreed disallowed abatements in full unless the disallowance is protested to Appeals and the Area Manager agrees the issues merit Appeals review, which would require DC 07 (601). For agreed allowances of abatements in full or in part, use DC 03 (102).

      Note:

      Any abatement request under IRC 4962 where no tax has been previously assessed, and that is resolved by either tolerance or by reasonable cause must use DC 18 (301) or DC 54 (304).

    4. Not applicable to no-change periods that are part of a CSP agreement. EO agents will instead use DC 53 (302), No Change to a Related Return. To the extent this instruction is contrary to IRM 4.23.6.14.10, EO agents will follow this IRM.

  6. Disposal Code 02 (107), No Change

    1. Use this code to close an audit with no changes to tax, penalties or status. A "change in status" includes revocations, modifications of exempt or foundation status, disqualifications and terminations.

    2. All significant return information is complete and correct, and the applicable return is accepted as filed. The taxpayer's activities are consistent with the purposes for which exempt status was granted.

    3. Applies to single issue and limited scope audits.

    4. Does not apply where the agent issues a written advisory. Instead, use DC 08 (213) or DC 52 (214).

    5. Does not apply to reductions of NOLs that do not affect tax liability. Instead use DC 01 (210), DC 07 (601) or DC 10 (604).

    6. Does not apply to abatements.

    7. Does not apply to Status 36 cases. No change results for Status 36 cases are always advisories informing organizations of the application for exemption.

  7. Disposal Code 03 (102), Agreed Tax or Penalty Change

    1. Use this disposal code to close tax returns. This includes Form 990-PF or 990-BL.

    2. Also applies to certain penalties that require deficiency procedures and agreement. See IRM Chapter 20.1

      Note:

      "Deficiency Procedures" are procedures under Subchapter B of chapter 63 (including IRC 6211 to IRC 6216) of the Internal Revenue Code. With certain exceptions, deficiency procedures are required before an audit assessment can be made. Deficiency procedures are exemplified by a 30-day letter process, appeals process if applicable, and a 90-day letter process.

    3. Does not apply when imposing miscellaneous civil penalties in a separate case file folder under MFT 13. Instead use DC 08 (213) or DC 52 (214) on the closing record of the primary return, unless a higher priority disposal code applies.

    4. Applies to claims and abatements allowed in full, or allowances in part that are agreed.

      Note:

      For abatements under IRC 4962 allowed, the taxes must have been previously assessed; otherwise, use DC 18 (301) or 54 (304) for abatements resolved by tolerance or reasonable cause.

    5. Applies to agreed changes to employment taxes for periods included within a CSP agreement.

    6. There must be a signed waiver form in the case file, except for claims and abatements allowed in full.

  8. Disposal Code 04 (205), Change to Related Return

    1. Use this disposal code to close primary returns only.

    2. A "related return" is any return of the same taxpayer, including other primary returns. A discrepancy adjustment return and a Form 4720-A arising from a transaction between the EO and a disqualified person will be treated as a related return. Related returns need not be of the same tax year as the primary return. This includes any changes made by EP agents on employee plans returns made during a team audit.

    3. The "change" to a related return is a change in tax, penalty, or status. A "change in status" for this disposal code includes revocations, modifications of exempt or foundation status, disqualifications and terminations affecting other tax years. A closing agreement involving a related return will be treated as a change in tax or status for purposes of this disposal code.

      Example:

      The 2009, 2010 and 2011 Forms 990 are under audit. The only issue is inurement in 2011. The agreed revocation would be effective 1/1/2011. The disposal code for the 2011 tax year is DC 09. The disposal codes for the 2009 and 2010 Forms 990 are DC 04 because the audit of the related 2011 return reflects a change in status (revocation). If Forms 990-T were also open for audit for the same tax years and all were no-changed, the 2011 Form 990-T would close with DC 09 because Form 990-T is an EO-only return, and 2011 is an affected tax year for a revocation. The 2009 and 2010 Forms 990-T would close DC 02 because DC 04 is only available for primary returns.

    4. Applies if DC 18 (301) or DC 54 (304) applies to a related return.

    5. Applies if the related return reflects a claim or abatement request allowed in full or in part (including surveyed claims).

    6. Applies if the related return reflects a claim or abatement request disallowed in full, and there is additional tax.

    7. Does not apply if the related return reflects a claim or abatement request disallowed in full, with no additional tax.

    8. If a single related return is adjusted, and there are multiple primary returns open for audit, all primary returns may reflect DC 04 (205).

  9. Disposal Code 05 (207), Delinquent Related Return Secured

    1. Use this disposal code to close primary returns only.

    2. A "related return" for DC 05 purposes is any return of the same taxpayer. A secured Form 4720-A is treated as a related return. Related returns include secured returns under the jurisdiction of employee plans or tax-exempt bonds. This also includes secured payee information returns. The secured related return need not be from the same tax year as the primary return.

    3. A second taxpayer has its own set of related returns. Do not use DC 05 (207) when securing the tax returns of other entities, other than Form 4720-A. Instead use DC 13 (501) if a referral is prepared.

    4. Two or more primary returns are related returns with respect to each other.

      Example:

      The 2010 and 2011 Forms 990 are under audit. Only the 2010 Form 990 was filed. The agent secures the 2011 Form 990 during the audit. There were no other issues. The agent issues a written advisory regarding the taxpayer's failure to file the 2011 Form 990 timely. Because a delinquent related return was secured, the 2010 Form 990 will close using DC 05. Disposal code 08 is not used because it is a lower priority disposal code than DC 05. This is true even if the agent prepared a written advisory and Form 5666 for a future audit. The proper disposal code for the 2011 Form 990 would be DC 06.

    5. The use of DC 05 (207) will not necessarily mean there will be a corresponding related return closed with DC 06 (208). The converse is also true.

    6. If a single related return is secured, and there are multiple primary returns open for audit, all primary returns may reflect DC 05 (207).

  10. Disposal Code 06 (208), Delinquent Return Secured

    1. Use this disposal code to close the secured delinquent return (or converted return), whether or not delinquency penalties are recommended on Form 3198-A.

    2. If the agent subsequently adjusts a secured delinquent tax return (or converted return) after posting, use either DC 03 (102), DC 07 (601) or DC 10 (604), whichever is applicable.

    3. The use of DC 06 (208) will not necessarily mean there will be a corresponding related return closed with DC 05 (207). The converse is also true.

    4. Does not apply to secured amended primary returns (or securing missing return information). Instead, use DC 08 (213) or DC 52 (214). Do not solicit amended tax returns. Filed tax returns must be adjusted.

  11. Disposal Code 07 (601), Unagreed - Protest to Appeals

    1. This disposal code is used for unagreed changes in tax, penalty, or status, with protest to Appeals, or for unagreed disallowances of claims in full or in part with protest to Appeals.

    2. A "change in status" for this disposal code includes revocation, modification of exempt or foundation status, and disqualification.

    3. Does not apply to unagreed revocations or foundation modifications of churches. Use instead DC 15 (602). Unagreed church declaratory judgment issues under IRC 7611 are not subject to Appeals consideration.

    4. Applies to unagreed reductions of a net operating loss (NOL) that do not affect the tax liability. For agreed reductions, use DC 01 (210).

    5. Applies to unagreed disallowances of abatements in full or in part under protest to Appeals. If there is no protest, use instead DC 10 (107). If the disallowance of abatement in full is agreed, use DC 01 (210).

  12. Disposal Code 08 (213), Written Advisory - Form 5666 Required

    1. Use this disposal code to close primary returns only.

    2. Do not close tax returns with a written advisory, unless it happens to be a primary return (Form 990-PF and 990-BL).

    3. If you are examining a subordinate return and you want to issue an advisory, you must open a primary return on AIMS and RCCMS.

    4. Applies to inadequate records notice cases.

    5. Applies to secured amended primary returns (or securing missing return information). Do not solicit amended tax returns. Filed tax returns must be adjusted.

    6. Miscellaneous civil penalties (Form 8278) or return-related penalties (Form 3870) may or may not accompany this disposal code; however, you must justify not imposing penalties on an organization closed with this disposal code.

  13. Disposal Code 09 (211), Agreed Revocation

    1. If a revocation is proposed, all primary returns (except Form 5227) and subordinate EO-only returns (such as Forms 990-T) for affected tax years will reflect the same revocation disposal codes.

    2. If an affected tax period of a subordinate EO-only return is open for audit, the alternative issue must be addressed in the revocation RAR.

    3. "Subordinate EO-only" returns are returns filed only by exempt organizations, such as Form 990-T. Forms 941, 940, and 4720 are not EO-only returns because they can be filed by taxable entities including an organization that loses its exempt status; thus, DC 09 would not be available for these returns.

    4. Close other primary returns using DC 04 (205) if they are not affected by the revocation.

    5. Applies to agreed disqualifications of organizations not independently recognized as tax-exempt and not required to apply for tax-exempt status, such as churches, subordinate organizations in a group ruling, and other IRC 508(c) organizations.

    6. Does not apply to agreed disqualifications of IRC 501(c)(12), IRC 501(c)(15), and Status 36 organizations. Instead, use DC 13 (501), Referrals to Other Operating Divisions. DC 09 (211) is only appropriate for IRC 501(c)(12) or IRC 501(c)(15) organizations if they agree to a proposed revocation as a result of a technical advice memorandum.

    7. When this disposal code is used, Item 22, Status Code, of Form 2363-A , must be either 22, 18, or 19.

  14. Disposal Code 10 (604), Unagreed - Without Protest

    1. This disposal code is used for unagreed changes in tax or penalty without protest.

    2. For unagreed revocations and modifications without protest, use instead DC 55 (605). For unagreed disqualifications without protest, use DC 13 (501).

      Note:

      DC 55 (605) does not apply to unagreed revocation or unagreed modification of foundation status of churches. Instead use DC 15 (602).

    3. Applies to unagreed disallowances of abatements, without protest.

    4. Applies to unagreed reduction of a net operating loss (NOL) that does not affect the tax liability. For agreed reductions, use DC 01 (210).

  15. Disposal Code 12 (104), Closing Agreement

    1. This code is used to close an audit of a return subject to an executed closing agreement.

    2. Related primary returns under audit that are not part of the closing agreement may use DC 04 (205).

    3. Does not apply to employment tax returns that are subject to a CSP agreement. Instead use DC 03 (102) for the agreed tax periods, and DC 53 (302) for the no-change periods if applicable.

  16. Disposal Code 13 (501), Referrals to Other Operating Divisions

    1. Use this disposal code if the agent identifies a tax or penalty adjustment (or identifies a delinquency) under the jurisdiction of LB&I, SB/SE and W&I. Do not use this code for referrals to other business units within TE/GE, such as employee plans. Instead use DC 08 (213) or DC 52 (214).

    2. Requests for assistance by specialists, such as CAS, engineers, economists, etc. are not referrals for purposes of this disposal code.

    3. Applies to agreed and unagreed without protest disqualifications. (e.g. Status 36 cases and IRC 501(c)(12) and IRC 501(c)(15) cases).

  17. Disposal Code 14 (212), Termination

    1. This disposal code will be used to close the most recent examined primary return of an organization that has terminated its exempt status. The Service recognizes a termination by issuance of a termination letter and posting a Status 20 in the EO BMF. See Exhibits 4.75.16-15 and 4.75.16-16.

    2. Use this disposal code only if the criteria in IRM 4.75.16.5.10 have been satisfied.

    3. Close other primary returns under audit with DC 04 (205) because those tax years are not affected by the termination. This is permissible even if the termination letter lists all tax years under audit.

  18. Disposal Code 18 (301), Chapter 42 Under Tolerance - Private Foundations, and Disposal Code 54 (304), Chapter 42 Under Tolerance - Non-PF Form 990

    1. These disposal codes will be used for identifying Chapter 42 tax adjustments, but which are resolved by application of tolerances, or by a determination that a taxable event was due to reasonable cause and not to willful neglect. In the case of IRC 4955 excise tax on political expenditures, substitute the phrase "not willful and flagrant" for the phrase, "due to reasonable cause and not to willful neglect"

    2. Does not apply to abatements of chapter 42 excise taxes after they have been previously assessed. Instead, use DC 03 (102) if abated in full or in part (agreed).

  19. Disposal Code 19 (201), Amendment Secured

    1. This code should be used to close an audit in which an executed amendment to governing instruments is necessary to satisfy exemption and foundation status requirements.

    2. Does not apply to secured amended primary returns (or securing missing return information). Instead use DC 08 (213) or DC 52 (214). Do not solicit amended tax returns. Filed tax returns must be adjusted.

  20. Disposal Code 52 (214), Written Advisory - No Form 5666 Required

    1. Use this disposal code to close primary returns only.

    2. Do not close tax returns with a written advisory, unless it happens to be a primary return (Form 990-PF and 990-BL). If you are examining a subordinate return (such as Form 990-T) and you want to issue an advisory, you must open a primary return on AIMS and RCCMS.

    3. Applies when the taxpayer's activities are generally in compliance with applicable tax laws, but some aspect may be noncompliant. The noncompliance is not necessarily intentional or substantive enough to jeopardize tax-exempt status, but the taxpayer may have demonstrated some indifference to certain aspects of EO tax law.

    4. Does not apply for penalties subject to deficiency procedures. Instead, use DC 03 (102) if agreed, or DC 07 (601) or 10 (604) if unagreed.

    5. Applies to amended primary returns (or missing return information) if they are secured. This is true only if the incomplete or inaccurate return information is not sufficiently significant to warrant the preparation of Form 5666; otherwise, use DC 08 (213). For incorrect tax returns, agents must adjust the returns and should not solicit amended tax returns.

    6. Miscellaneous civil penalties (Form 8278) and return related penalties may or may not accompany this disposal code.

  21. Disposal Code 53 (302), No Change to a Related Return

    1. Applies to no-change periods that are part of a CSP agreement. To the extent this instruction is contrary to IRM 4.23.6.14.10, EO agents will follow this IRM.

  22. Disposal Code 55 (605), Unagreed Revocation Without Protest

    1. Use this disposal code for unagreed revocations without protest. Ensure the appropriate revocation Principal Issue Code (PIC) is reflected on Form 5599 and on RCCMS.

    2. Does not apply to unagreed revocations or foundation modifications of churches. Use instead DC 15 (602).

    3. May be used for unagreed modifications of exempt status or of foundation status, without protest.

4.75.16.4.4.2  (02-15-2013)
Principal Issue Codes

  1. Principal Issue Codes (PICs) assist in providing historically available data from audits to create a model that distinguishes compliant from non-compliant returns. In order for this model to work correctly, you must use Principal Issue Codes accurately and consistently.

  2. For PIC purposes, no change returns are defined as those closed under the following disposal codes:

    • Disposal Code 02 AIMS (107 RCCMS) - No-Change

    • Disposal Code 53 AIMS (302 RCCMS) - No-Change to a Related Return

  3. For PIC purposes, no change with advisory returns are defined as those closed under the following disposal codes:

    • Disposal Code 08 AIMS (213 RCCMS) - Written Advisory – Form 5666 Required

    • Disposal Code 52 AIMS (214 RCCMS) - Written Advisory - No Form 5666 Required

  4. For PIC purposes, change returns are defined as those closed under the following disposal codes:

    • Regulatory/Revenue Protection Change Disposal Codes: 01 (210), 18 (301), 19 (201) and 54 (304)

    • Tax or Status Change Disposal Codes: 03 (102), 04 (205), 05 (207), 06 (208), 07 (601), 09 (211), 10 (604), 11 (603), 12 (104), 13 (501), 14 (212), 15 (602), 16 (204), 17 (203), 34 (103), 50 (101) and 55 (605).

  5. It is mandatory to enter PICs on Form 5599 (unless 100% paperless) and on the closing record in RCCMS. At a minimum, one PIC must be used for every closing record (Form 5599) of an examined return. A maximum of four codes may be listed in order of priority from left to right.

  6. If more than one type of return is being examined, such as Forms 990, 990-T, and 941, the PICs that relate to each specific return should be recorded on its closing record. However, the PICs for related returns should also be applied to the closing record for primary returns.

  7. Use the PICs specific to your audit issues addressed during the audit. Refer to Exhibit 4.75.16-21 for the table of 3-Digit PIC numbers, which is divided into major issue categories. Select PICs in the following order:

    1. Select all change issues by order of major issue category in paragraph (8). These PICs must end in any letter other than"A" and do not have the word "Advisory" in the PIC title.

    2. Primary Returns Only: Select all advisory issues by order of major issue category in paragraph (8). These PICs must end in any letter other than"A" .

    3. If there are no more change or advisory issues, select all no-change issues addressed in the audit by order of major issue category in paragraph (8). These PICs must end with the letter "A" .

    Note:

    The closing records of tax returns (other than Forms 990-PF and 990-BL) never reflect advisory PICs with the word "Advisory" in the PIC title. Tax returns are either changed or no-changed.

  8. The priority order of major issue categories is as follows:

    1. Exemption issues

    2. Excise tax issues

    3. Unrelated business income (UBI) issues

    4. Employment tax issues

    5. Other issues

      Example:

      Agent has examined XYZ Charity and has prepared a report of examination proposing a revocation of tax-exempt status. Agent is preparing Form 5599 for the Form 990 return under audit. During the audit, Agent addressed two issues in her report that resulted in a proposed revocation: (1) political activity and (2) not operating in furtherance of an exempt purpose. The political activity is the primary exemption issue by reason of significance of the issue. Agent also pursued the inurement issue, but there was no evidence to substantiate that issue. Additionally, Agent determined that XYZ failed to properly withhold on prizes and proposed a tax change on Form 945. A worker classification issue was identified for a bookkeeper, but it was determined that the bookkeeper routinely performed bookkeeping services for other similar organizations and there was no adjustment.

      Step 1, Select All Change Issues: Select all change issues for the organization; in this case, they include political activity, not operating in furtherance of exempt purposes, and backup withholding tax. Among the change issues, the two revocation issues are the highest priority issues because they fall under the exemption issues category in paragraph (8). The appropriate PICs for the revocation issues will be "04D" and "04B" respectively. The political activity issue was listed first among the revocation issues because that was the primary reason for proposing a revocation. The backup withholding issue is the last of the change issues, which is under the employment tax issues category in paragraph (8), and is issue "19C" .

      Step 2, No-Change Issues: Since there are no more change issues and there is no advisory in this case, the no-change issues are then selected. The no-change issues include the inurement issue and the worker classification issue. The inurement issue is the highest priority among the no-change issues because it is an exemption issue in paragraph (8). Consequently, the first no-change PIC code is "06A, Inurement/Private Benefit Issues - No Change" . Because the no-changed worker classification is an employment tax category issue, select "15A, EE Class.-No Change" to follow the no-change exemption issue.


      Step 3, Complete Form 5599 and Input PICs in RCCMS : Form 5599 will list the PICs in priority order from left to right as follows: 04D, 04B, 19C and 06A. Note that PIC "15A" will not be included because only a maximum of four codes can be listed.


      Assume the two exemption issues in this example did not result in a revocation, but instead resulted in an advisory. The appropriate PICs for the Form 990 closing record would be in priority order from left to right as follows: 19C, 08B, 03B, and 06A, The only change issue in this situation is the backup withholding issue, followed by the advisory issues and the highest priority no-change issue.


  9. If there are two or more issues within each major category, follow the guidance below in prioritizing PICs:

    Type of issue: Action to take:
    Two or more exemption issues Determine and list in order of highest to lowest significance.

    "Significance" is determined by such factors as time and resources spent on the issue, and sensitivity and importance of the issue.

    Significance is generally reflected in the order the issues are presented and addressed in the report of examination or in the advisory letter.
    Two or more UBIT issues List in order of greatest to least revenue.
    Two or more employment tax issues List in order of greatest to least tax amounts.

  10. If auditing more than one type of return, such as Form 990 and Form 990-T, list the PICs that relate to each specific return in the appropriate Form 5599 (and RCCMS closing record).

  11. See Exhibit 4.75.16-3 for specific examples of principal issue codes in no change cases.

  12. See Exhibit 4.75.16-4 for specific examples of principal issue codes in change and unagreed cases.

  13. See Exhibit 4.75.16-21 for the entire list of specific PICs.

4.75.16.4.5  (02-15-2013)
Form 2363-A

  1. Use Form 2363-A, Request for IDRS Input for BMF-EO Entity Change to establish or change EO accounts on BMF. For instructions on completing the Form 2363-A refer to Exhibit 4.75.16-5 and Exhibit 4.75.16-6, or IRM 25.7.2, EO/BMF Processing Procedures, for detailed instructions.

  2. Complete a Form 2363-A to reflect any changes resulting from your audit of a tax exempt organization. Correct any MF entity errors identified during the audit.

  3. Submit Forms 2363-A to the FAST unit as the need for a change is identified.

    Exception:

    When subject to Mandatory Review, do not send the form to the FAST.

  4. Some common changes requiring the preparation of a Form 2363-A and the disposition of the Form 2363-A are as follows:

    For Submit the Form 2363-A
    A Name and/or Address Change Immediately
    An Exempt Status Change With the case file
    A Foundation Status Classification Modification With the case file
    A Filing Requirement Change  
      Delinquent Return Secured Immediately
      Contested Filing Requirement With the case file
    NTEE Immediately

  5. Secure e-mail Forms 2363-A to be processed immediately to the FAST unit.

  6. Place in the workpapers retained copies of Forms 2363-A submitted to the FAST unit before the case is closed and label them "Copy - Original Secure E-mailed to the FAST on Date."

  7. If Forms 2363-A to be processed are enclosed in the case file, prepare a Form 3198-A with "Form 2363-A to be Processed" entered in the "Special Instructions" section. Do not complete the initials and date section in "Special Instructions."

    Note:

    Mandatory Review completes these items or destroys the Forms 3198-A and 2363-A, as appropriate.

4.75.16.4.6  (02-15-2013)
Form 3198-A

  1. Attach a Form 3198-A, TE/GE Special Handling Notice, to any case file requiring special handling.

  2. Appropriately note the following items on Form 3198-A:

    1. Cases subject to mandatory review

    2. Cases that include a Form 2363-A to be processed

    3. Cases closed based on an organization's retained copy of a return

    4. Cases where an amended return was received directly from the taxpayer during the audit

    5. Power of Attorney instructions

    6. Discrepancy adjustments cases

    7. Restricted interest cases

    8. Unagreed cases

    9. Cases with less than 270 days (9 months) until the statute of limitations for assessment expires

    10. Instructions for notification of state officials

    11. Related case files

    12. Any other special instructions regarding the case that may be helpful in the closing process

4.75.16.4.7  (02-15-2013)
Form 4881

  1. Form 4881,, Chapter 42 Taxes-Disqualified Person/Foundation Manager, is a manually processed assessment and accounting document used in conjunction with RCCMS for all cases involving the assessment of Chapter 42 taxes on a disqualified person or foundation manager.

  2. Prepare a separate form for each tax period and person for which there is an assessment of Chapter 42 taxes.

  3. For instructions on preparing Form 4881, see Exhibit 4.75.16-7.

4.75.16.4.8  (02-15-2013)
Form 5666

  1. Form 5666, TE/GE Referral Information Report, is used as an information notice and for recommending a future year audit. The general instructions for completing a Form 5666 are on the back of the form. Detailed instructions are included at Exhibit 4.75.16-8. Refer to IRM 4.75.16.4.8.1 for instructions in the case of revocations.

  2. Electronically generate all Forms 5666. Digitally sign the forms and forward them to your group manager via secure e-mail for their electronic signature.

  3. Scan, or obtain in electronic format, supporting documentation and attach it to the Form 5666.

  4. Secure e-mail all Forms 5666 to *Manager EO Classification. Do not enter the name and telephone number in Item D, Forward Report to Name/Date/Organization/Telephone Number, as all Forms 5666 now go to the EO Classification-Referrals group in Dallas. Item D should include the following information:

    1. EO Classification-Referrals, MC 4910 DAL

    2. Current Date

      Exception:

      If the case is subject to Mandatory Review, do not enter the current date. Mandatory Review: Enter the current date when closing the case.

  5. Prepare a Form 5666 in cases where a subsequent year audit is warranted due to certain activities or operations disclosed during the audit that could jeopardize the organization's exempt status.

  6. If the case involves a tax liability which extends beyond the taxable years covered by the audit report and into a taxable period for which a return is not yet due, prepare a Form 5666 recommending a future year audit to ensure compliance.

  7. Prepare and submit Form 5346, Examination Information Report, to the appropriate Division (LB&I/SB/SE) via Classification-Referrals group, if information is discovered during the audit of an exempt organization that:

    • Will affect the tax liability of individual or taxable entity

    • The issue can not be addressed using discrepancy adjustment procedures

4.75.16.4.8.1  (02-15-2013)
Form 5666 - Revocations

  1. An organization whose tax-exempt status is revoked based on an audit should be brought current on its filing obligations and its income tax liability not barred for assessment.

  2. For every revocation, EO agents will either:

    • Prepare an information report on Form 5666 for later enforcement by SB/SE or LB&I, or

    • Enforce the income tax after a revocation is final. For EO enforcement criteria, see IRM 4.75.31.5 #

  3. If a tax case does NOT meet EO enforcement criteria in IRM 4.75.31.5 #, prepare Form 5666, TE/GE Referral Information Report, for the EO information return case file.

    Exception:

    Form 5666 is not required for a proposed revocation of a private foundation.

  4. Form 5666 will recommend an audit for either the first year in which the organization is a taxable entity or for an appropriate subsequent year. Information submitted with the Form 5666 will include the following:

    • A statement that the organization’s exemption has been revoked

    • The effective date of the revocation

    • The date the organization was incorporated or created

    • A statement that, as a taxable entity, the organization should be reporting any income, employment and excise taxes for which it may be liable

    • A list of the taxable returns secured by the agent, including the form number, MFT and the tax period and a statement that the original returns are being processed by EO Examinations

    • A statement that contributions to the organization are no longer deductible as charitable contributions, if applicable

    • The effective date after which contributions are no longer deductible as charitable contributions, if known

    • If discrepancy adjustments have not been proposed, list the names and social security numbers or employer identification numbers of contributors who will not be able to deduct contributions made before the revocation is published in the Internal Revenue Bulletin

      Note:

      A contributor cannot deduct contributions prior to the date an announcement is published in the Internal Revenue Bulletin, if the contributor (1) had knowledge of the revocation of the ruling or determination letter, (2) was aware that such revocation was imminent, or (3) was in part responsible for, or was aware of, the activities or deficiencies on the part of the organization which gave rise to the revocation. See Treas. Reg. §1.509(a)-7(a) and Rev. Proc. 2011-33, which supersedes and modifies Rev. Proc. 82-39, and Rev. Proc. 2009-32.

  5. Attach the following documents to Form 5666:

    • A copy of the report of examination in agreed cases for other than IRC 501(c)(3) organizations.

      Note:

      In agreed cases, the reviewer will attach a copy of the letter transmitting the report to the taxpayer. In unagreed cases (and all IRC 7428 cases), the reviewer or Appeals officer will attach the final revocation letter or conference report after a final determination is made.

    • A copy of any taxable returns which have been obtained

    • If no taxable return has been obtained because the organization did not submit appropriate returns as requested by the EO agent, or because the conversion of the Form 990 to Form 1120 or Form 1041 is complex and requires the expertise of income tax agents, a statement to that effect and a recommendation that the return be secured by LB&I or SBSE

    • Any pertinent financial or other information or documents

  6. Place Form 5666 on the inside-left of the EO information return case file, ready for processing in the event the proposed revocation is sustained.

4.75.16.4.9  (02-15-2013)
Time and Reporting Reconciliation

  1. Track the time spent on the case. Update your Form 5464 when working on the case. Record the hours spent on both the Form 5464 and on WebETS.

  2. If working multiple returns, list all of the returns on WebETS. As needed, use the Copy button when viewing a case on WebETS (Case Quick View, click on the case.) Change the tax year and click Add Case.

  3. Split the time among related returns, if working those returns.

    Example:

    If working 12 Forms 941 in a NRP case, split the time equally among the returns.

    Example:

    If working a Form 990 and a Form 990-T, split the time based on which issue is being worked.

  4. At closing, record the total hours for each type of return on the Form 5772. Prepare one Form 5772 for each type of return worked.

    Example:

    You are auditing the 201012 and 201112 Forms 990 and 990-T. Prepare a Form 5772 for the Forms 990, and a Form 5772 for the Forms 990-T.

  5. Record the agent's time on item 28 of Form 5599 and on the RCCMS Closing Records Details Tab to the nearest tenths of an hour (one decimal place), in 15 minute increments. A zero, "0," is required if the tenths field is zero. Report the 15-minute increment as follows:

    • 00 minutes = .0

    • 15 minutes = .3

    • 30 minutes = .5

    • 45 minutes = .7

  6. Use the Form 6490, TE/GE Technical Time Report, created by WebETS (the monthly report) to complete the Form 5599. The Form 5464 tracks the total time spent, while WebETS tracks the time per return. Use the Form 6490 to also complete the closing record in RCCMS.

  7. Verify that the time on Forms 5599 and 5464 match, and that they reconcile to Form 5772 and 6490 (WebETS).


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