4.75.21  EO Special Examination Procedures

Manual Transmittal

May 22, 2012

Purpose

(1) This transmits a partial revision and table of contents and text for IRM 4.75.21, EO Special Examination Procedures dated June 25, 2010.

Background

This IRM corrects errors and includes updates to IRM 4.75.21, EO Special Examination Procedures, dated June 25, 2010. Information regarding Political Activities Compliance Initiative (PACI) project case procedures have been removed. Cross-referencing updates are included.

Material Changes

(1) Added paragraphs (3) and (4) to IRM 4.75.21.1 to refer to special case development procedures in IRM 4.75.13.2, and special closing situations in IRM 4.75.16.5.

(2) Added paragraphs (8) and (9) in IRM 4.75.21.2 to make reference to IRM 21.7.7.4.23.1.3.1 listing incomplete return items (IRIs), and to make reference to Schedule O.

(3) Changed the order of IRM 4.75.21.4 to new IRM 4.75.21.3. Consequently, old IRM 4.75.21.3 became new IRM 4.75.21.4.

(4) In new IRM 4.75.21.3, Dummy Returns, clarified the definition and applicability of "Dummy Returns"

(5) Grand Jury Suspense procedures have been updated in IRM 4.75.21.5 to reflect the shifting of duties from the Area Manager, Great Lakes/FIU to the Area Manager, FIU. In addition, groups are to suspense cases in the group, in lieu of forwarding to SB/SE Technical Services, as otherwise directed in IRM 25.1.5.2.

(6) Procedures in IRM 4.75.21.5.3 were updated to reflect the use of Form 10498-B.

(7) IRM 4.75.21.14.1 was revised to correct the definition of a "Third Party Contact" . Clarification was also provided about when follow up calls become third party contacts.

(8) IRM 4.75.21.14.1 was updated to reflect the elimination of the annual list of third party contacts being issued to taxpayers. The Service discontinued this practice per final regulations, Treas. Reg. 301.7602-2.

(9) Removed IRM 4.75.21.16, Political Activities Compliance Initiative (PACI) Project Case Procedures,

(10) The information related to Status 36 cases formerly in IRM 4.75.21.17 has been revised, removed, and relocated to IRM 4.75.16, Case Closing Procedures.

(11) This section was revised to comply with the Plain Writing Act. Terms such as examiner, examination, and examine have been changed to agent, audit, and audit. The term, agent is intended to denote examining agents only.

Effect on Other Documents

This material updates and replaces IRM 4.75.21, EO Special Examination Procedures, dated June 25, 2010.

Audience

TE/GE (EO Examinations)

Effective Date

(05-22-2012)

Lois G. Lerner
Director, Exempt Organizations
Tax Exempt And Government Entities (EO)

4.75.21.1  (03-01-2004)
Introduction

  1. This IRM provides procedures for issues not covered in other sections of the Manual. These procedures are only meant to assist you in conducting an audit. Use your professional judgment to establish the appropriate scope and depth of the audit, with manager concurrence.

  2. For specific guidelines on how to audit a particular type of exempt organization (e.g., an IRC 501(c)(7) social club), refer to the appropriate chapter of IRM 4.76, Exempt Organizations Examination Guidelines.

  3. Special case development procedures, not conducted in the normal course of an examination, are contained in IRM 4.75.13.2.

  4. Special closing situations, not conducted in the normal course of an examination, are also indicated in IRM 4.75.16.5.

4.75.21.2  (03-01-2004)
Incomplete Returns

  1. IRC 6033(a)(1) states, in part, "every organization exempt from taxation under § 501(a) shall file an annual return, stating specifically the items of gross income, receipts, and disbursements, and such other information for the purpose of carrying out the internal revenue laws as the Secretary may by forms or regulations prescribe, and shall keep such records, render under oath such statements, make such other returns, and comply with such rules and regulations as the Secretary may from time to time prescribe... "

  2. IRC 6652(c)(1) imposes the penalties on the exempt organization and the responsible person for failure to:

    • File a return required under IRC 6033 or

    • Include any of the information required to be shown on the return or

    • Show the correct information

  3. An incomplete return is a return:

    • In which the entity omitted material information and

    • The omission would hinder the Service from being able to perform its duties.

    This type of return is treated in the same manner as if no return had been filed when considering whether to impose penalties.

  4. The Service Campus usually resolves this issue by contacting the taxpayer and obtaining the necessary information. You may on occasion receive a return which does not contain sufficient information to conduct a complete and efficient audit.

  5. If you receive a return that you can't audit without additional information being obtained from the organization, send an Information Document Request (IDR) to the taxpayer to request the missing information.

  6. If the taxpayer does not supply the specific information, determine if the information is essential to the completion of the case. If it's not, consider issuing an advisory using Letter 3609 .

  7. If the information is essential to the completion of the audit, with the concurrence of your manager, send a letter to the taxpayer advising of the possible loss of exemption for failure to supply the information. See Rev. Rul. 59-95 C.B. 627.

  8. Refer to IRM 21.7.7.4.23.1.3.1 for incomplete return items (IRIs).

  9. Effective January 1, 2011, all Forms 990 secured for tax years beginning in 2008 and afterward need to have Schedule O, Supplemental Information to Form 990 or 990-EZ, completed and attached to the return(s). If Schedule O is not completed and attached to Form 990, the return will be considered incomplete.

    1. Schedule O is a schedule with blank lines, similar to Form 886-A. Schedule O is used by organizations to provide supplemental information to describe or explain the organization’s responses to questions contained in the core form and schedules.

    2. At a minimum, Schedule O must be used to explain certain answers on Form 990, Part VI.

4.75.21.3  (05-22-2012)
Dummy Returns

  1. A dummy return is a single blank page of an annual EO information return that is a representation of what would otherwise be a filed return, except that the organization is not required to file an annual EO information return (or annual notice on Form 990-N). It is a paper document placed in the case file for administrative purposes. A dummy return includes the organization's name, address, TIN and tax year, and is annotated in red on the top margin, "DUMMY RETURN," or "DUMMY RETURN-OF A CHURCH."

  2. Every organization exempt under IRC 501(c) must file a Form 990, 990-EZ, 990-N, 990-PF, or 990-BL, except:

    • A church, an interchurch organization of local units of a church, a convention or association of churches

    • An integrated auxiliary of a church

    • A church-affiliated organization that is exclusively engaged in managing funds or maintaining retirement programs

    • A school below college level affiliated with a church or operated by a religious order

    • Church-affiliated mission societies if more than half of their activities are conducted in, or are directed at persons in, foreign countries

    • An exclusively religious activity of any religious order

    • A state institution, the income of which is excluded from gross income under IRC 115

    • A corporation exempt under IRC 501(c)(1)

    • A stock bonus, pension, or profit-sharing trust that qualifies under IRC 401

    • A religious or apostolic organization described in IRC 501(d)

    • A governmental unit or an affiliate of a governmental unit that meets the requirements of Rev. Proc. 95-48, 1995-2 C.B. 418

    • A political organization that is a state or local committee of a political party, a political committee of a state or local candidate, a caucus or association of state or local officials, or required to report under the Federal Election Campaign Act of 1971 as a political committee

    For all other nonfiling exempt organizations, if the organizations are required to file EO information returns but refuse or are unable to file the solicited information returns, agents will establish EO information returns on AIMS Master File using push code 036, Substitute for Return (SFR). The paper representation of the SFR is sometimes referred to as the "Dummy SFR". See IRM 4.5.3.16.6.

  3. For all other nonfiling exempt organizations, if the organizations are required to file EO information returns but refuse or are unable to file the solicited information returns, agents will establish EO information returns on AIMS Master File using push code 036, Substitute for Return (SFR). The paper representation of the SFR is sometimes referred to as the "Dummy SFR". See IRM 4.5.3.16.6.

    Note:

    Form 4720-A (MFT 66) is a Non-Master File return applicable to disqualified persons, organization managers, and entity managers, and is not a return of the organization.

  4. Only filed Forms 990-N are established on AIMS Master File. Thus, non-filed Forms 990-N for organizations required to file Form 990-N are established on AIMS NMF. Though Form 990-N is not a return, a paper dummy return is required for the case file, with a BMFOLT and AMDISA attached indicating the filing (or nonfiling) of Form 990-N.

  5. See IRM 4.5.3.5 regarding using "DUMMY RETURNS," for missing or destroyed returns.

4.75.21.4  (03-01-2004)
Awards of Attorney Fees In Tax Cases

  1. The purpose of this section is:

    • To advise EO agents of the provisions of the Equal Access to Justice Act (P.L. 96-481) and § 292(a) of the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 (P. L. 97-248).

    • To emphasize the principles that must be upheld when performing their duties.

  2. The Equal Access to Justice Act, P.L. 96-481, 94 Stat. 2328, amended Title 28, the Judicial Code, to award costs, attorney fees and other expenses to "prevailing parties" in any civil tax action in the U.S. District Courts or the Court of Claims where:

    1. The Government has acted in "bad faith" .

    2. The Service is unable to prove that its position was "substantially justified " .

    Bad faith is described in the legislative history as including vexatious, wanton, or oppressive behavior. The Act does not apply to litigation in the United States Tax Court or State courts. Also, no award is allowed for fees and costs incurred by a taxpayer in IRS administrative proceedings.

  3. Section 292(a) of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) added IRC 7430 and provides that with respect to civil tax litigation begun in the Federal courts, including the United States Tax Court, after February 28, 1983, a taxpayer who prevails may be awarded reasonable litigation costs, including attorney fees, in such proceeding.

  4. Although effective tax administration sometimes results in judicial proceedings in which taxpayers prevail, strict adherence to existing IRM provisions safeguard against a court's finding that you acted in bad faith or that we have taken an unreasonable position.

  5. As long as our position is found to have a reasonable basis both in law and fact, no award is authorized under P.L. 96-481 or P.L. 97-248 even though we lost the case. Thus, neither Act curtails your statutory duty to effectively enforce the Internal Revenue laws. The principles you are to follow in carrying out your duties are set forth in Rev. Proc. 64-22, 1964-1 C.B. 689.

4.75.21.5  (06-25-2010)
Federal Grand Juries

  1. Federal grand juries are convened for the purpose of inquiring into alleged criminal violations of Federal statutes. In the context of Federal tax investigations, a Grand Jury Request may be made where the administrative process (the IRS investigation) cannot develop the relevant facts within a reasonable period of time.

  2. The Internal Revenue Service, a United States Attorney, or a Strike Force Attorney may request to initiate a grand jury. The Service cannot initiate a grand jury investigation on its own. The Criminal Section of the Justice Department's Tax Division approves grand jury investigations of suspected tax violations.

  3. An attorney for the government, such as an Assistant United States Attorney, may request the Service's assistance in an ongoing or proposed grand jury investigation whenever information available to the attorney indicates possible commission of crimes. Within the Service, Criminal Investigation (CI) has jurisdiction over grand jury cases. Consequently, all such requests for Service assistance are made through CI.

4.75.21.5.1  (06-25-2010)
Request for Assistance in Grand Jury Investigations

  1. CI and the Department of Justice attorney or the Assistant United States Attorney have complete jurisdiction over grand jury cases. CI completes a Form 6544, Request for Cooperating Examiner, to request the assistance of an agent(s) in a grand jury investigation. CI forwards the completed Form 6544 to the Area Manager, FIU.

  2. Item 1b of Form 6544 lists entities identified as being related to the taxpayer under grand jury or other criminal investigation.

  3. Area Manager, FIU: review the Form 6544. Note the taxpayer which is the subject of the request, and entities identified as related entities. CI and Area Counsel are later consulted regarding whether to suspend audits of such related entities. Area Manager, FIU: within five business days of receipt, forward Form 6544 to the FIU group manager for the geographic area in which the taxpayer is located.

    Note:

    Ideally, the cooperating agent is not from the group that has responsibility for the civil audit of the taxpayer. However, it is recognized, due to the fact that in most geographic locations there is only one group from which agents can reasonably be drawn, the cooperating agent and the agent assigned the civil aspects of the case are often in the same group. Take extreme care to ensure that no information is exchanged between the two agents that would create problems for the ensuing civil case.

  4. FIU Group Manager: within five business days of receipt of the request from the Area Manager, FIU:

    1. Review the Form 6544. Note the organization which is the subject of the criminal investigation, and any identified related entities. Do not start civil actions on related entities. If started, suspend until such time as it is determined, through consultation with CI and Area Counsel, that civil action would not compromise the criminal case.

    2. Assign an agent to assist in the grand jury investigation.

    3. Complete Item 13 of Form 6544 reflecting the assignment of that agent.

    4. Forward the completed Form 6544 to CI.

    5. Forward a copy of the completed Form 6544 to the Area Manager, FIU.

  5. Area Manager, FIU: place a copy of the completed Form 6544 in the Grand Jury Suspense file.

  6. Upon return of the completed Form 6544, CI completes Form 9510, Grand Jury Access List, to add the assigned agent(s) to the list of those authorized to have access to grand jury information.

4.75.21.5.2  (06-25-2010)
Grand Jury Suspense

  1. During grand jury investigations, or a subsequent criminal trial, the case is no longer under the control of any function within the Service. The case is either under litigation by the Assistant U.S. Attorney due to an indictment, or evidence is being gathered and developed as requested by the Assistant U.S. Attorney through a grand jury investigation.

  2. The Government's general policy is to suspend civil enforcement until the criminal aspects of the case are resolved, unless the civil action will not imperil the criminal prosecution of the case (Policy Statement P-4-84). Suspend civil actions that could compromise criminal prosecution of a case as follows:

    1. To ensure that criminal prosecution of a case is not imperiled by any civil action, coordinate with CI and Area Counsel prior to taking any civil action on a taxpayer who is the subject of a grand jury or other criminal proceeding, and prior to taking civil action on related organizations, and/or on individuals such as officers or other insiders with respect to such organizations. Coordination takes place first at the FIU agent/FIU group manager level with any disagreements to be aired and negotiated up the respective management chains.

    2. CI has complete jurisdiction over grand jury cases. Prior to referring a matter for grand jury investigation, CI should already have determined whether the taxpayer is under audit. The Area Manager, FIU serves as the contact point for CI to determine whether any civil actions are currently ongoing.

    3. Once a request for a grand jury has been approved, the CI Director of Field Operations, notifies the Area Manager, FIU that a taxpayer is under criminal investigation, and that 914 freeze codes are in effect. CI may or may not specify whether the criminal investigation is a grand jury investigation.

    4. Area Manager, FIU: determine whether the taxpayer is under civil audit. If an audit is in progress, notify the EO group manager of the group conducting the audit immediately that a criminal investigation of the taxpayer is under way.

    5. EO Group Manager: Upon notification of the criminal investigation, direct the agent to immediately suspend the audit of the taxpayer for all periods.

    6. Before initiating or continuing any civil audit of a taxpayer currently under grand jury or other criminal investigation for a different type of tax, or other years, or before initiating or continuing a civil audit of a related taxpayer, coordinate with CI and Area Counsel.

    7. Agent: ensure that all workpapers and documentation contained in the file are appropriately dated, initialed, and indexed. This eliminates any doubt as to the origin of the information available for civil use.

    8. Agent: prepare a report using available information at that time. Forward the report, through your EO group manager, along with the original returns and administrative file, to the Area Manager, FIU for transmittal to CI.

    9. EO Group Manager: prior to submitting the case to CI, make copies of the returns, reports, and administrative file. Submit the original file to CI.

    10. EO Group Manager: verify the statute of limitations dates for all returns contained in the file.

    11. EO Group Manager: review the file and prepare a cover sheet submitting the case to grand jury suspense.

    12. EO Group Manager: during the period the case is suspended, maintain a copy of the suspended case file in suspense.

    13. EO Group Manager: coordinate with CI on all imminent statutes. This coordination continues throughout the period the case is in suspense.

    14. EO Group Manager: update the case status code to 32 Suspense, General Fraud.

    15. Upon completion of the grand jury proceedings, and when the criminal aspects of the case have been resolved, CI issues a memorandum to the Area Manager, FIU releasing the case for civil disposition.

    16. Area Manager, FIU: return the case to the examining EO group to resume the suspended civil audit.

4.75.21.5.3  (05-22-2012)
Control of Statutes of Limitations in Grand Jury Cases

  1. In the case of audits of returns under jurisdiction of TE/GE Division for civil purposes, TE/GE is responsible for monitoring all statutes in grand jury and other criminal investigation cases, including prior and subsequent year(s) and related returns.

  2. Form 10498-B is used to document decisions made, and actions taken in grand jury cases for solicitation of consents to extend the statute of limitations, or decisions to let the statute expire.

  3. EO Group Managers: make written requests to CI for approval, prior to soliciting any consents to extend the three or six-year statute of limitations. See the Instructions to Form 10498-B .

  4. CI provides their response to this request via Form 10498-B . If CI, after consulting with the appropriate Department of Justice attorney or Assistant U.S. Attorney, approves the solicitation of consents, you are to solicit Forms 872 as indicated on the form, and submit the signed consents to the EO group manager for signature.

  5. If CI does not approve the solicitation of consents, and instead requests that EO let the statute of limitations expire, or if the taxpayer refuses to execute a consent, the following procedures will apply:

    1. EO Group Manager: provide the relevant facts to the EO Area Manager.

    2. EO Area Manager: after considering the facts, decide whether to let the statute expire as recommended by CI, or whether to recommend issuing a statutory notice of deficiency. Seek the opinion of TE/GE Counsel, as appropriate, regarding whether to let the statute expire. TE/GE Counsel coordinates with Criminal Tax Counsel.

    3. EO Area Manager: complete the final line of Form 10498-B indicating such agreement and return it to the EO group manager.

    4. If an agreement cannot be reached, it will be forwarded to Director, EO Examinations for resolution with CI.

4.75.21.6  (06-25-2010)
EO Fraud Referral Procedures

  1. Initiate a discussion with your group manager and the TE/GE Fraud Specialist (TE/GE FS) when indicators (signs or symptoms) of fraud are identified. If it is determined that the indicators of fraud may warrant fraud development, arrange a meeting for the participants to discuss the issue(s) with the local Fraud Technical Advisor (FTA). If potential fraud is an issue, timely and appropriate actions are very important.

  2. If you, your group manager, the TE/GE FS and the FTA agree that the potential for fraud exists, prepare Form 11661, Fraud Development Recommendation – Examination, and forward the completed form, via secure e-mail, to the group manager for approval and a copy to the TE/GE FS. Form 11661 is used to document the FTA’s involvement and initially to place a case in Fraud Development (Status Code 17). Do not place a case into or out of Fraud Development without consulting with the FTA. If a disagreement exists on whether a case should or should not be placed in Fraud Development, the ultimate decision rests with the group manager.

  3. EO Group Manager: review the Form 11661 . Indicate approval by entering your name and date on the form. Secure e-mail the completed form to the FTA for consideration.

  4. If the FTA concurs, he/she will recommend placing the case in Fraud Development (Status Code 17) on AIMS using the Reporting Compliance Case Management System (RCCMS) by completing Form 11661 (entering his/her name, date and tax periods in section 7a) and returning the completed form to the EO agent, group manager and TE/GE FS.

  5. If Fraud Development is recommended, jointly develop a plan of action as early as possible to develop and document the affirmative acts of fraud. An integral part of the plan of action involves establishing that sufficient affirmative acts exist to support a finding of fraud. The plan is a joint effort of the EO agent, the group manager, the TE/GE FS and the FTA. The plan of action helps guide the case to its appropriate conclusion in a timely manner. The role of the FTA can be more advisory or consultative. The jointly developed plan of action can and should specify any direct assistance the FTA will provide. Note that some cases may not require a face-to-face meeting with the FTA.

  6. The FTA provides a written plan of action in the following format:

    • Form 11660, Fraud Development Checksheet or

    • Page 2 of Form 11661, Plan of Action or

    • Memoranda

      Note:

      Place a copy of the initial plan of action and those plans containing follow up action items in the workpapers.

  7. Upon receipt of an approved Form 11661, place the case in Fraud Development (Status Code 17), request copies of the original returns, if the original returns have not been secured, and proceed with the plan of action until affirmative acts of fraud are established or a determination is made that fraud is no longer an issue. Return a case to Status Code 12, if it is determined that the potential for fraud no longer exists. If affirmative acts of fraud are identified, discontinue the audit and immediately contact the FTA for advice on how to proceed. Cycle time is excluded from the monthly "aging" reports to management (Month At a Glance Report) while the case is in Fraud Development Status.

    Note:

    Timely action is required on all cases that are in Fraud Development Status. You and your group manager should never seek advice from CI for a specific case under audit.

  8. A case stays in Fraud Development Status as long as there is active involvement, in an ongoing audit or a decision is made to:

    • Return the case to Status 12 or

    • Update the case to Status 18, if CI decides to accept the criminal fraud referral for criminal investigation or

    • Assert the civil fraud penalty and/or the fraudulent failure to file penalty and close the case

  9. If it is determined that the potential for fraud no longer exists, the FTA writes on Form 11661 the reason(s) and the recommendation to return the case to Status Code 12.

  10. Return the case to Status 17 after CI involvement has concluded, if assertion of the civil fraud and/or fraudulent failure to file penalty is being developed.

4.75.21.7  (06-25-2010)
Cooperating Examiner and Summary Witness Request Procedures

  1. There may be instances when EO will be requested to assist Criminal Investigations (CI) with a criminal investigation concerning an exempt organization. In these events, CI follows the procedures outlined in IRM 25.1.9.4.3, Request for Cooperating Examiner.

  2. These procedures provide guidance for requesting cooperating agents and/or summary witnesses from TE/GE EO Examinations. CI completes Form 6544 and forwards it to the Area Manager, FIU. This process is followed even if the requested agent is the agent that referred the case initially to CI. If an FIU Forensic Investigator is not available to be assigned as the cooperating agent, an EO revenue agent in the general program may be assigned.

  3. CI’s request for a summary witness is normally made on behalf of Counsel or the Department of Justice. If a summary witness is required and the summary witness had not already worked as the cooperating agent on the case, CI completes Form 6544 and forwards it to the Area Manager, FIU. Generally a Forensic Investigator is assigned as the summary witness. However, if a Forensic Investigator is not available, the request may be filled by an EO revenue agent that has been trained as a summary witness.

  4. The exception to the referral process would occur if one of the following conditions is met:

    1. A revenue agent with international/offshore transaction expertise is needed.

    2. The referral involves a non-citizen with U.S. tax liabilities.

    3. The request involves a U.S. possession.

  5. In such instances, CI’s request will be forwarded to an SB/SE Specialty Programs, International TM. If the agreement cannot be reached in assigning an agent, the resolution process in IRM 25.1.4.2(3) will be followed.

4.75.21.8  (06-25-2010)
Forensic Investigation Unit

  1. The Financial Investigations Unit (FIU) consists of two groups of Forensic Investigators, who perform forensic investigations and audits of the most complex exempt organizations and other related activities. They serve as an expert, conducting and interpreting policy for forensic investigation activities, financial investigations, and audits of exempt organizations. A Forensic Investigator is a key member of the investigative team during audit and criminal investigations. Forensic Investigators provide expert testimony in Federal or State criminal and civil proceedings as to all findings and disclosures.

  2. The work of the FIU is from three categories:

    • Joint Terrorism Task Force (JTTF)

    • Cooperating Agent for Criminal Investigations (CI)

    • Exempt Organizations (EO) Fraud

  3. EO FIU groups work cases involving organizations on terrorist watch lists. The terrorism cases can involve, but are not limited to:

    • Related entities to individuals on the Terrorist Watch List.

    • Grants and allocations being made to questionable organizations or individuals, either foreign or domestic.

    • Prohibited transactions involving OFAC sanctioned countries, such as Iran.

      Note:

      The OFAC terrorist list is located at http://www.treas.gov/offices/enforcement/ofac/sdn/ and the State Department list is located at http://www.state.gov/s/ct/rls/fs/2004/37191.htm.

  4. EO FIU groups also work cooperating agent cases with Criminal Investigation. CI requests for cooperating agents or CI Indicator on Transcript Requests are to be forwarded to the Area Manager, FIU. See IRM 4.75.21.7.

  5. Based on a lack of sufficient information in the classification process or subsequent development, cases meeting the FIU criteria may be assigned to another field audit group or a team audit group. When it is discovered that the case meets the FIU criteria, a determination must be made whether to work the case in the assigned group or refer the case to the FIU.

  6. During an agent’s pre-audit analysis of a return, review of the information in the case file may identify substantial indicators of potential fraud. Elements of potential fraud include, but are not limited to:

    • Specific indicators involving the misuse of EO assets (diversion, embezzlement, inurement). Indicators may include evidence of funds going overseas without the appropriate control or oversight, or allegations of fraud that include specific documentation.

    • Indication of unreported taxable income (UBIT), willful intent or intentional disregard by the exempt organization or disqualified person(s).

    • Intentional misuse of exempt status (use of exempt status for non-exempt activity).

  7. In addition to indicators of potential fraud, any case being considered by an exam group for FIU involvement should also meet one or more of the following criteria:

    • Larger organization – (generally grade 12 or 13 case; however, grade 11 cases should not be precluded if multiple other indicators are present);

    • Complex organization – Multiple entities (for-profit or tax exempt, individuals, partnerships, corporations, trusts, etc.);

    • Referral is from more credible sources – includes referrals from State or Federal Agencies, court documents, newspaper articles, attorneys, CPAs, IRS referrals (CI, SB/SE, LB&I, EO, EP, etc.);

    • Based on first hand knowledge of source vs. hearsay; or

    • Contains significant documentation vs. unsubstantiated allegations.

    Note:

    Examples of fraudulent scenarios can be found at IRM 25.1.9.4.4.

4.75.21.8.1  (06-25-2010)
Contacting the FIU: Examination Not Started

  1. If in preparation for an audit, you believe there may be fraudulent issues, prior to contacting the FIU, you must discuss the issues of the case with your manager.

  2. EO Group Manager: determine whether FIU involvement is needed. If involvement is merited, schedule a conference call with one of the FIU managers, to discuss the issues with your agent, yourself, and the FIU manager.

  3. FIU manager: make a determination whether the case should be transferred to the FIU. Inventory considerations and complexity of the issues will play a role as to whether the case should be transferred.

  4. If a mutual resolution cannot be made during the call, raise the issue to the appropriate area managers for a final disposition.

4.75.21.8.2  (06-25-2010)
Contacting the FIU: Examination Started

  1. Once an audit is started, any case with firm indicators of fraud should be discussed with the TE/GE Fraud Specialist. See IRM 4.75.21.6.

  2. For cases where the audit has just started, or firm indicators have yet to be identified, discuss the case with your manager to determine whether FIU involvement is needed.

  3. If no involvement is required, continue to work the case to conclusion.

  4. EO Group Manager: If FIU involvement is needed, schedule a conference call with one of the FIU managers, and your agent to determine the appropriate level of FIU involvement.

  5. Involvement could include technical assistance in an advisory role to a request to transfer the case to the FIU. Inventory consideration and complexity of the case will play a role as to whether the case should be transferred.

  6. If a mutual resolution cannot be made during the call, raise the issue to the appropriate area managers for a final disposition.

4.75.21.9  (06-25-2010)
Collateral Examination

  1. In order to develop the issues being audited properly, sometimes it is necessary to request information from another IRS office, or request the audit of another taxpayer in another IRS office, concurrently. Use a collateral examination for this purpose in conjunction with the initial audit and/or cooperating audit.

  2. A collateral examination is requested when an exchange of information between areas is essential to resolve an issue of material consequence. Use collateral examinations only when the information can't be obtained from the taxpayer, the taxpayer’s representative, or third parties. Make every reasonable effort to secure the information rather than routinely requesting a collateral examination.

  3. Collateral activity is the performance of work of short duration, work that does not require the audit of books and records, and work that calls for little independent judgment or conclusions. For example, a collateral examination would be justified where:

    1. An interview is required to obtain sworn testimony or affidavit(s).

    2. A document is to be obtained.

    3. A transcript of an account or a listing of invoices is needed.

    4. A summons needs to be served.

  4. Before making a collateral request, conduct IDRS research to determine if the taxpayer located within the jurisdiction of the other office is currently under audit (AIMS status 12 through 18). If the taxpayer is under audit, contact the agent located in the other jurisdiction directly to exchange information pertinent to the issues.

  5. Give all collateral requests priority treatment.

  6. If the collateral examination results in a finding of nationwide interest, your group is to furnish information to the Director, Exempt Organizations (EO) Examinations. Other divisions are responsible for generating reports for their respective directors.

  7. This is not intended to replace the Specialist Referral System (SRS), where participation by a specialist, such as an International examiner, Engineer, or Employee Plan specialist, is requested. See IRM 4.10.2.6.5.2.1, Specialist Referral System (Online Referrals). Do not make a referral for an Employment Tax specialist, as all EO exam groups are employment tax trained.

4.75.21.9.1  (06-25-2010)
Collateral Examination Procedures: Initiating Area

  1. The area office requesting a collateral examination submits its request on Form 6229, Collateral Examination. The request needs to be complete, with the name and telephone number of the person in the requesting area office who may be contacted, if necessary, to discuss the matter.

  2. If assigned the return, prepare the original Form 6229 in PDF. The PDF file contains five copies of the same page. One page will be sufficient for loading onto RCCMS, after being approved by your group manager.

    1. Include sufficient background information to clearly state the problem in the narrative section of Form 6229 . Include additional schedules and attachments as needed. Include a copy of the out-of-area return, if available.

    2. Include your name and telephone number so the receiving area has the correct person to contact for clarification of the issue, if needed.

    3. Submit the completed Form 6229 to your group manager for review via secure e-mail. Group Manager: After approval, forward Form 6229 via secure e-mail, with a copy to the agent.

    If the collateral examination involves: Then send the Form 6229 to:
    Employee Plans the area office for the exam group where the taxpayer is located
    Exempt Organizations the area office for the exam group where the taxpayer is located
    Federal/State/Local Governments FSLG Compliance and Program Management
    Indian Tribal Governments ITG Classification Unit (under Compliance and Program Management)
    Large and Mid-Size Business LB&I Territory Manager for the taxpayer’s industry
    Tax Exempt Bonds TEB Outreach Planning and Review

    Note:

    As exempt organization returns can be downloaded from On-line SEIN (http://sein.osc.irs.gov) and employee plans return information is available from http://freeerisa.com, RICS, and IDRS, you do not need to forward the Form 6229 through the respective classification units.

4.75.21.9.2  (06-25-2010)
Collateral Examinations Procedures: Receiving Area

  1. The receiving area must acknowledge receipt of the request by completing the Form 6229 and returning it to the initiating area via secure e-mail. Informal responses can be made by phone call.

    1. The receiving agent must include his/her name, address, telephone number, and date received. If the case is reassigned, the new agent must notify the initiating area of the change.

    2. Secure e-mail, fax, and phone calls are used for subsequent communications between the receiving agent and the requesting agent. If a formal response is required, complete the Form 6229 and forward it via secure e-mail to the requesting area office.

    3. The receiving agent must provide a clear, concise response to each question raised.

  2. The office receiving a request for collateral examination is responsible for promptly completing the necessary action and reporting the results to the requesting area office within 20 days from receipt of the Form 6229 for a decision to work the collateral request. Staffing concerns would be addressed to the area/territory/group manager receiving the request.

  3. The protection of the statute of limitations is the responsibility of the receiving office.

  4. If the receiving office believes the anticipated results of a collateral examination would not justify the time and other costs of conducting the audit(s), a memorandum to that effect will be sent to the requesting area office. The area manager will approve any declination memorandum with a copy sent to the respective Classification (or Planning and Special Programs) units.

  5. The area managers of both offices should resolve any disagreement between the requesting and receiving offices concerning the need for collateral examination. Any disagreement between the area managers should be referred to the Director of EO Examinations.

4.75.21.10  (06-25-2010)
Information Referrals

  1. Form 5666, TE/GE Referral Information Report, is used as an information notice and for recommending a future year audit from TE/GE to other functional audit areas. The general instructions for completing a Form 5666 are on the back of the form. (Also contained in IRM 4.75.16.)

  2. Submit referrals to Tax Exempt Bonds (TEB) or Federal State & Local Governments (FSLG) electronically via the Specialist Referral System (SRS). Referrals to TEB are mandatory if an IRC 501(c)(3) organization is proposed for revocation and it has issued tax-exempt bonds.

4.75.21.11  (06-25-2010)
Guidance for Exempt Organizations Audits Related to Indian Tribal Government Entities

  1. The Indian Tribal Governments Office (ITG) within TE/GE serves as the central point for all Service contacts with federally recognized Indian tribes. ITG is not only responsible for most Service compliance activities with tribes, but is also responsible for ensuring that the Service is in compliance with relevant Presidential Executive Orders that outline the relationships and protocols required in working with tribes. The ITG staff is specially trained in the unique areas of tax law and protocol that apply to Indian tribes.

  2. You are required to contact the local area ITG specialist before making initial contact on EO audits related to ITG entities, or as soon as such relationship becomes apparent. For example, an EO located on tribal land, or an EO established and controlled by members of a tribal council. For a current list of the local area contacts, consult the ITG website on the IRS intranet website.

  3. When an EO/ITG relationship is apparent, Classification includes a copy of the ITG contact listing in the file. However, there are no defining codes for these entities, so it's your responsibility to determine whether or not ITG must be contacted. Area Manager: Once identified, monitor these cases monthly as sensitive cases.

4.75.21.12  (03-01-2004)
IRS-DOL Coordinated Compliance Agreement

  1. To facilitate the exchange of information between the IRS and the Department of Labor, a formal agreement was signed between the Commissioner of the Internal Revenue Service and the Deputy Assistant Secretary for Program Operations at the Department of Labor to coordinate their audit and litigation activities.

  2. The agreement provides for the exchange of information at regular intervals on plans under audit and/or identified for audit, thereby reducing the likelihood of duplicate audit efforts.

  3. For Exempt Organizations, the agreement covers all field or office audits of:

    • IRC 501(c)(4) employee welfare benefit plans

    • IRC 501(c)(9) voluntary employment benefit associations

    • Supplemental unemployment benefit trusts

    • Group legal services plans

  4. The Restructuring and Relief Act of 1998 changed the structure of Employee Plans and Exempt Organizations as well as the chain of communications between the entities, eliminating the use of audit referral checklists. EP Classification receives Department of Labor referrals and forwards them to Exempt Organizations on formal memorandums. The Exempt Organizations Classification Unit reviews the referral for audit potential.

4.75.21.13  (03-01-2004)
State Notification Of Examination Results

  1. IRC 6103(d) and IRC 6104(c) currently require disclosure of certain audit results, and in some cases the proposed assessments/revocations of specific types of exempt organizations, to state authorities. This section discusses in detail the provisions of the law, the procedures to follow, and the appropriate authorities to whom the results are disclosed. Examiners may also refer to IRM 7.28.2, Disclosure of Information About Exempt Organizations to Appropriate State Officials as Described in IRC 6104(c).

4.75.21.13.1  (06-25-2010)
IRC §6103(d) Disclosures

  1. IRC 6103(d)(1) permits the disclosure of returns and return information with respect to taxes imposed by chapters 1, 2, 6, 11, 12, 21, 23, 24, 31, 32, 44, 51, 52, and subchapter D of chapter 36, to any State agency, body or commission, or its legal representative, charged under the laws of the State with the responsibility for the administration of any State tax law. Such disclosure may be made only in response to a written request by the head of the agency, body or commission only for the purpose of, and extent necessary in, the administration of such tax laws.

  2. A basic agreement provides for the mutual exchange of tax data between a specific State tax agency and the IRS. Arrangements for continuing disclosures are made by means of an "implementing agreement" . Governmental Liaison and Disclosure and the head of the State tax agency develop and negotiate the scope of the basic agreement and subsequent implementing agreement.

  3. Various states have an agreement in place in order to receive information regarding Forms 990-T return adjustments. In the future, additional states may request this information. Governmental Liaison and Disclosure develops and handles those agreements, and informs the EO Fed/State Liaison of any additional states to be added to the list. The EO Fed/State Liaison maintains a list of the approved states, and is responsible for updating and disseminating this list as additions are made. See list in Exhibit 4.75.21-2.

  4. If the case involves an exempt organization located in one of the approved states, the procedures are outlined below to meet the requirements of IRC 6103(d).

  5. When a 990-T delinquent return is secured or a 990-T adjustment is made on a case, make a copy of the Form 4549, Income Tax Examination Changes, or Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment, the related Revenue Agent Report (RAR), and applicable Forms 990-T return(s). Place them in a mailing envelope. The disposition of the envelope depends upon the status of the case.

    1. If the issue is agreed (the taxpayer has signed the Form 4549 or Form 870), seal and forward the envelope to the EO Fed/State Liaison. See Exhibit 4.75.21-2 for address. Notate in the return case file that the information has been forwarded to the EO Fed/State Liaison pursuant to IRC 6103(d).

    2. If the issue is unagreed (the taxpayer has not signed the Form 870), the unsealed envelope remains with the unagreed case file and is forwarded to EO Mandatory Review. Notate in the case file that the information must be forwarded to the EO Fed/State Liaison upon completion of case processing. In addition, prepare a Form 3198-A, TE/GE Special Handling Notice, and note in "Other Instructions" the following: "Form 990-T information enclosed for EO Fed/State Liaison pursuant to IRC 6103(d)" .

      Note:

      EO Mandatory Review is responsible for mailing the envelope to the EO Fed/State Liaison when the case review and processing are completed.

  6. If the case goes to Appeals, the unsealed envelope remains with the case file and is forwarded to the Appeals office by EO Mandatory Review. If Appeals sustains the issue, the Appeals office mails the envelope to the EO Fed/State Liaison when the Appeals process is completed. If Appeals doesn't sustain the issue, the Appeals office shreds the 990-T information contained in the envelope.

4.75.21.13.2  (06-25-2010)
IRC 6104(c) Disclosures: Proposed and Final Revocations

  1. Examiners may also refer to IRM 7.28.2, Disclosure of Information About Exempt Organizations to Appropriate State Officials as Described in IRC 6104(c), for detailed guidance.

  2. Section 1224 of the Pension Protection Act of 2006 (PPA) amended IRC 6104(c) which governs disclosures concerning IRC 501(c)(3) organizations to State tax or charity agencies. The PPA significantly expanded the scope of information available to these agencies, as well as giving the IRS the ability to provide this information much earlier in the audit process.

  3. The legislation included a provision requiring recipients of taxpayer information under IRC 6104(c) to meet comprehensive technical, procedural and administrative Federal safeguard requirements pursuant to IRC 6103(p)(4).

  4. Prior to the PPA, EO Examinations provided notifications of final revocations for organizations exempt under IRC 501(c)(3) to both State tax or charity agencies in all fifty states. All automatic notifications to those agencies ceased on August 17, 2007.

  5. In order for agencies to now be eligible to receive disclosures pursuant to IRC 6104(c), agencies must meet certain requirements. Agencies must submit a Safeguard Procedures Report (SPR) and be approved to receive the information. In addition, State agencies are required to enter into a memorandum of understanding with the IRS outlining permitted disclosure and use of information as well as committing to the statutory safeguard responsibilities.

  6. Any 501(c)(3) organization (both public charities and privation foundations) or disqualified persons located in these states fall under these provisions. Agents in other states need to know these procedures because cases are often assigned to agents that are not in the geographic locale of the taxpayer. These procedures do not apply to modifications of non-PF status, nor to organizations exempt under sections other than IRC 501(c)(3).

  7. EO Fed/State Liaison will be responsible for updating the state list and providing the updated list to the field as additions or deletions are made.

4.75.21.13.2.1  (06-25-2010)
IRC 6104(c) Disclosures: Proposed and Final Revocations: Field Agents

  1. If the case involves an IRC 501(c)(3) organization located in one of the approved states, follow the procedures outlined below.

  2. In accordance with current group closing letter procedures, send the 30-day proposed revocation letter and revenue agent report (RAR) to the taxpayer unless the case is part of a project requiring 30-day letter pre-issuance approval by Mandatory Review. Hold the case for the appropriate period of time (ideally, this is a 30-day period).

  3. At the same time that you send the 30-day letter and RAR to the taxpayer for a proposed revocation of an IRC 501(c)(3) organization, prepare and send a package to the EO Fed/State Liaison consisting of copies of the following:

    • 30-day letter

    • Form 6018, Consent to Proposed Adverse Action

    • Revenue Agent Report (RAR)

    • Forms 990 for all applicable tax periods

    See address at Exhibit 4.75.21-2.

  4. If the case requires approval of the 30-day letter by Mandatory Review prior to sending it to the taxpayer, send the package to the EO Fed/State Liaison after Mandatory Review has approved the 30-day letter.

  5. Notate in the case chronology "§6104(c) package for [state(s)] was sent to the EO Fed/State Liaison on dd/mm/20XX)" .

  6. Attach a Form 3198-A, TE/GE Special Handling Notice, to the front of the return case file indicating the case involves a state agency authorized to receive disclosures under IRC 6104(c). The Form 3198-A serves as a flag to Mandatory Review that this is a case subject to these special disclosure provisions.

4.75.21.13.2.2  (06-25-2010)
Disclosures: Proposed and Final Revocations: Mandatory Review & EO Fed/State Liaison

  1. The EO Fed/State Liaison sends the proposed revocation package to the appropriate state agency. The EO Fed/State Liaison keeps the appropriate records and notifies the Disclosure Office to account for the disclosures under IRC 6103(p)(3).

  2. The EO Fed/State Liaison coordinates with Mandatory Review and tracks the progress of the proposed revocation case (i.e., agreed or unagreed).

  3. If the issue is agreed or unagreed without protest Mandatory Review prepares a 90-day letter (final revocation) and sends it to the taxpayer. The EO Fed/State Liaison is responsible for securing a copy of the 90-day letter from Mandatory Review and sending it to the appropriate state agency.

  4. If the issue is unagreed with protest and forwarded to the Appeals Office by Mandatory Review, the EO Fed/State Liaison tracks the progress of the case and coordinates with the Appeals Office.

  5. The Form 3198-A stays attached to the unagreed case file in order to alert the Appeals office the case involves an unagreed proposed revocation in a state which is eligible to receive disclosures pursuant to IRC 6104(c).

  6. The EO Fed/State Liaison ensures the appropriate state agency is notified as to whether or not the proposed revocation is upheld.

4.75.21.13.3  (06-25-2010)
IRC 6104(c) Disclosures: Chapters 41 and 42 Assessments

  1. In addition to disclosure of proposed and final revocations of IRC 501(c)(3) organizations, approved state tax and charity agencies are also eligible to receive notices of proposed and final deficiencies of tax imposed under IRC section 507 or Chapter 41 or 42 against an organization, or its disqualified persons. See Prop. Treas. Reg. §301.6104(c)-1, 2011-1 C.B. 591. These assessments include:

    • Initial and second tier taxes on private foundations under IRC 4940 through IRC 4945 for net investment income, self-dealing, failure to distribute income, excess business holdings, investments that jeopardize charitable purpose, and taxable expenditures;

    • Initial tax on certain supporting organizations and donor advised funds for excess business holdings under IRC 4943;

    • IRC 4911 tax on excess lobbying expenditures by public charities that have elected to be subject to IRC 501(h) regarding expenditures to influence legislation;

    • IRC 4912 tax on excess lobbying expenditures that result in loss of IRC 501(c)(3) tax-exempt status;

    • IRC 4955 tax imposed on any amount paid or incurred by a IRC 501(c)(3) organization that participates or intervenes in any political campaign on behalf of, or in opposition to, any candidate for public office;

    • IRC 4958 initial taxes on disqualified persons and organization managers of IRC 501(c)(3) organizations that engage in excess benefit transactions;

    • IRC 4959 tax imposed on hospitals organizations for failing to meet the requirements of IRC 501(r)(3);

    • IRC 4965 taxes related to prohibited shelter transactions;

    • IRC 4966 taxes on taxable distributions by sponsoring organizations maintaining donor advised funds; and

    • IRC 4967 taxes on distribution of prohibited benefits from donor advised funds.

4.75.21.13.3.1  (06-25-2010)
IRC 6104(c) Disclosures: Chapters 41 and 42 Assessments: Field Agents

  1. If the case is located in one of the approved states, follow the procedures outlined below.

  2. At the same time that you send the 30-day letter and RAR on an issue involving an assessment under Chapter 41/42 to the taxpayer, prepare and send a package to the EO Fed/State Liaison consisting of copies of the following:

    • 30-day letter

    • Form 870-E, Waiver of Restrictions on Assessment and Collection of Deficiency and Acceptance of Overassessment

    • Revenue Agent Report (RAR)

  3. Note in the case chronology "§6104(c) package for [state(s)] was sent to the EO Fed/State Liaison on dd/mm/20XX) " .

  4. Notify the EO Fed/State Liaison if the issue is agreed or if the issue is unagreed and being forwarded to Mandatory Review. If the issue is unagreed and sent to Mandatory Review, attach a Form 3198-A to the case file to alert Mandatory Review that this is a case subject to the disclosure provisions of IRC 6104(c).

4.75.21.13.3.2  (06-25-2010)
IRC §6104(c) Disclosures: Chapters 41 and 42 Assessments: Mandatory Review & EO Fed/State Liaison

  1. The EO Fed/State Liaison sends the Chapter 41/42 deficiency package to the appropriate state agency. The EO Fed/State Liaison keeps the appropriate records and notifies the Disclosure Office to account for the disclosure under IRC 6103(p)(3).

  2. If the Chapter 41/42 issue goes unagreed, the EO Fed/State Liaison coordinates with Mandatory Review and Appeals, if applicable, and tracks the progress of the case.

  3. For those cases forwarded to the Appeals office, the Form 3198-A stays attached to the case file to alert them that the case involves an unagreed issue in a state which is eligible to receive disclosures pursuant to IRC 6104(c).

  4. The EO Fed/State Liaison ensures the appropriate state agency is notified as to whether or not the proposed assessment is upheld.

4.75.21.14  (06-25-2010)
Third Party Contacts

  1. The provisions of IRC 6103 and the regulations thereunder apply to all third party contacts. It is the Service’s policy to obtain information relating to a liability or collectability determination directly from the taxpayer whenever possible.

  2. Generally, contacts with third parties are made when you are unable to obtain the information from the taxpayer/representative or to verify information provided by the taxpayer/representative. Make every effort to first obtain information from the taxpayer/representative.

  3. For third party contacts made for the purpose of determining or collecting a tax liability, IRC 7602(c) requires the IRS to:

    1. Provide advance notice to the taxpayer that third party contacts may be made.

    2. Provide a list of third party contacts to the taxpayer upon request.

      Note:

      Any tax period under investigation by Criminal Investigation is not subject to the requirements of IRC 7602(c). A criminal investigation may be initiated when an administrative referral based on a firm indication of fraud is made to Criminal Investigation. Third party contacts to develop the referral are contacts under IRC 7602(c). Other exceptions to the notification requirements are set forth below in IRM 4.75.21.14.6.

4.75.21.14.1  (05-22-2012)
Third Party Contact Defined

  1. For purposes of IRC 7602(c), a third party contact has been made when an IRS employee initiates contact with a person other than the taxpayer and asks questions about a specific taxpayer with respect to that taxpayer's Federal tax liability.

  2. For purposes of IRC 7602(c), the following are not third party contacts:

    1. Searches on computer databases, which do not require any personal involvement on the other end (e.g., LEXIS, Information America.)

    2. Contact with employees of the Postal Service if the contact is limited to determining the taxpayer's current address (i.e. postal tracer.)

    3. Unsolicited Information received from a third party when the third party initiates the contact.

    4. Unsolicited information received from a foreign country pursuant to an exchange of information clause within a tax convention between the United States and that foreign country.

    5. The dissemination of tax information via electronic format to other taxing jurisdictions.

    6. Contacts with individuals who have a valid power of attorney for the taxpayer.

    7. Contacts made by the IRS to respond to a request from a treaty partner for information concerning a taxpayer and tax liability of the treaty partner.

    8. Contacts made for the purpose of obtaining information about an industry or market segment where specific taxpayers have not yet been identified.

    9. Contacts made by Service employees during litigation if the contact relates to a matter and issue being litigated. This includes, but is not limited to, the service of Tax Court subpoenas on third parties by employees.

    10. Contacts made with other Service employees, including employees of the Office of Chief Counsel, acting within the scope of an employee's official duties.

    11. Contacts made as the result of unsolicited requests for payoff of a Notice of Federal Tax Lien or to respond to requests for information regarding the priority of a lien.

  3. The following are considered third party contacts:

    1. An employee of the IRS initiates contact with a person other than the taxpayer and asks questions about a specific taxpayer with respect to the determination or collection of that taxpayer's tax liability.

    2. Solicitation by an IRS employee for additional information as a result of a follow up to a third party-initiated call.

  4. Returning an unsolicited call is not considered a third party contact. A call made after the return call to gather additional information is considered a third party contact. Therefore it is important to remember to make a reprisal determination during an initial conversation with an informant. You may not make inquiries identifying a taxpayer with respect to a tax liability unless the taxpayer is under an open examination.

    Example:

    An IRS employee receives a message to return an unsolicited call. The employee returns the call and speaks with a person who reports information about a taxpayer who is not meeting his tax responsibilities. Later, the employee makes a second call to the person and asks for more information. The first call is not a contact initiated by an IRS employee. Just because the employee must return the call does not change the fact that it is the other person, and not the employee, who initiated the contact. The second call, however, is initiated by the employee and so meets the first element in the factors listed above. Before this second call can be made, the taxpayer first must be under an open examination. Secondly, the taxpayer must be notified through the use of a Pub 1 (2005), unless an exception applies.

4.75.21.14.2  (06-25-2010)
Third Party Contact Notification Procedures

  1. IRS employees may not contact any third parties without first providing reasonable notice to the taxpayer that contacts with persons other than the taxpayer may be made.

  2. When it is determined that a third party contact is necessary, review the case file to verify whether the taxpayer has received the required notification for all tax periods under audit.

    Note:

    Another employee or function may have issued the required general notice.

  3. If the taxpayer has not received prior notification for the year(s) under audit and a third party contact is necessary:

    • Provide Pub 1,Your Rights as a Taxpayer (by regular mail or personal delivery) to the taxpayer at the time of initial contact and in advance of any third-party contact being made. If Pub 1 is mailed, do not make a third-party contact before 10 calendar days in order to provide a reasonable period of time for the taxpayer to receive the publication. Discuss the third party contact provisions as outlined in Pub 1, during your opening interview. Document this in the case file.

    • Pub 1 serves to satisfy the advance general notice requirement for all tax periods included in the current audit cycle (case) for the same taxpayer. Provide other taxpayers that may be part of the audit with a separate Pub 1. Examinations of subsequent cycles require the re-issuance of the publication.

    • Document the Case Chronology Record (CCR) with the date of mailing or personal delivery of Pub 1 to the taxpayer. It is extremely important to document that the publication has been provided to the taxpayer in advance of any third-party contact so that the IRS can demonstrate the provisions of IRC 7602(c)(1) and other IRC provisions have been met.

    • If you make initial contact with the taxpayer by phone, mail Pub 1 to the taxpayer with the audit appointment confirmation letter. If you make initial contact by mail with the taxpayer, include Pub 1 with the initial contact letter.

    • In keeping with the separate notice requirements in joint return situations, issue Pub 1 separately to each spouse and document in the CCR that separate notices have been provided.

    • Provide the authorized representative, if any, a copy of Pub 1 in accordance with our normal procedures for providing copies to the representative, unless the taxpayer has indicated that such copies should not be given to the representative. Document in the CCR that you provided a copy of Pub 1, as well as any other correspondence, to the representative.

4.75.21.14.3  (06-25-2010)
Recording Third Party Contacts

  1. When you make a third party contact, complete Form 12175, Third Party Contact Report Form.

  2. If you make a third party contact, you are responsible for complying with these provisions regardless of which function has control of the case.

  3. Multiple contacts with the same third party on different dates require a separate Form 12175 for each contact. If you make more than one contact with the same third party on the same day, complete only one Form 12175.

  4. Include the following information on Form 12175:

    1. Taxpayer TIN

    2. Name control

    3. The telephone number, mail stop number and ID card number of the employee making the contact

    4. Secondary TIN. Indicate if the recorded contact is for the primary TIN, secondary TIN (spouse on a joint account), or both (joint accounts only)

    5. Master File tax codes and tax periods for all periods associated with the contact

    6. Date of the contact

    7. Name of party contacted, if known. If unknown, use a descriptive term such as neighbor, business associate, etc. DO NOT include the address or telephone number of the third party.

4.75.21.14.4  (06-25-2010)
Third Party Contact Coordinator’s Duties

  1. The Third Party Contact Coordinator is responsible for:

    1. Ensuring the contact is added to the Third Party Contact database;

    2. Maintaining Forms 12175; and

    3. Providing a contact list when requested by taxpayer.

4.75.21.14.5  (06-25-2010)
Providing Taxpayers With Notice of Third Party Contacts

  1. Except as provided in IRM 4.75.21.14.6, the IRS provides the taxpayer with a list of third parties when requested by the taxpayer.

  2. When a taxpayer requests a contact list, the employee receiving the request is to:

    1. Secure the taxpayer's name, TIN, and mailing address (if different from Master File address).

    2. Refer the request to the Third Party Contact Coordinator.

  3. The Third Party Contact Coordinator researches the request and prepares Letter 3173 (DO).

  4. Letter 3173 (DO) lists all third party contacts made after the later of:

    • January 18, 1999 or

    • The last annual listing

  5. The Third Party Contact Coordinator can hand deliver or mail the Letter 3173 to the taxpayer.

    Note:

    If mailed, send it to the address provided by the taxpayer or the Master File address.

4.75.21.14.6  (06-25-2010)
Exceptions to Taxpayer Notification Requirements

  1. IRC 7602(c) does not apply:

    1. To any contact which the taxpayer has authorized.

    2. If good cause is shown that such advance notice would jeopardize collection of any tax, or such notice may involve reprisal against any person.

    3. With respect to any pending criminal investigation.

    4. With respect to any matter in litigation.

      Note:

      Authorization can be verbal or written. If a verbal authorization, document the case file with the name of person who authorized the contact, date, time, etc. For written authorizations, use Form 12180, Third Party Contact Authorization. The taxpayer may provide a written authorization in another format, but it must identify specific third parties and cannot be a "blanket " authorization.

4.75.21.14.7  (06-25-2010)
Taxpayer Authorized Third Party Contacts

  1. If a taxpayer authorizes a third party contact:

    1. Prepare a Form 12180 or obtain other written evidence listing the names of all third parties the taxpayer has authorized you to contact.

    2. Tell the taxpayer that the IRS will not maintain or provide a record of the authorized contacts.

    3. Document the case file with the date the taxpayer provided the authorization.

    4. Keep Form 12180 in the case file.

    5. Complete Form 12175, but do not forward it to the Third Party Contact Coordinator.

      Note:

      For joint returns, both spouses must authorize the contact.

4.75.21.14.8  (06-25-2010)
Collection Jeopardy Situations

  1. If you are making a third party contact and determine, for good cause shown, that providing the taxpayer with advance general notice or notice of a specific contact would jeopardize the collection of the tax liability, notification is not required.

  2. If a jeopardy situation exists, take the following actions:

    1. Document the case file with specific information about the third party.

    2. Document the case file with the basis for the jeopardy determination.

    3. Complete Form 12175, but do not forward it to the Third Party Contact Coordinator.

  3. When the jeopardy situation no longer exists, forward Form 12175 to the Third Party Contact Coordinator.

  4. Jeopardy may apply to any type of tax.

4.75.21.14.9  (06-25-2010)
Reprisal Situations

  1. If you determine that providing the advance notice or a record of a specific contact to a taxpayer may result in reprisal against any person, prepare a separate Form 12175 to report the reprisal situation. Include only the following information:

    1. Date of contact.

    2. The word REPRISAL in the name field.

    3. Taxpayer TIN.

    4. Employee badge number.

  2. The reprisal determination must be:

    1. Made on a case by case basis (no blanket determinations.)

    2. Documented in the case file.

  3. Send the Form 12175 to the Coordinator.

  4. In every third party contact, advise the third party before the conclusion of the interview that by law the IRS is required to provide their name to the taxpayer as a third party contact and ask if doing so may result in reprisal against any person. This is particularly important in situations that may involve subsequent contacts with confidential informants.

  5. If any reprisal concerns exist, complete Form 12175 with only the information in IRM 4.75.21.14.9 (1) above.

  6. Depending on the facts and circumstances, you may make the reprisal determination based upon facts already known.

4.75.21.14.10  (06-25-2010)
Third Party Summons

  1. As indicated in IRM 25.5.1.4(1), attempt to obtain information informally from third party sources. If the third party voluntarily provides the information, you do not need to follow formal summons procedures.

  2. This approach also applies when seeking financial records from financial institutions, except in cases governed by the Tenth Circuit's interpretation of the Right to Financial Privacy Act (RFPA).

  3. In all circuits other than the Tenth, the Service takes the position that an informal request for records is a procedure authorized under IRC §7602. The Tenth Circuit reached the opposite conclusion in Neece v. Internal Revenue Service, 922 F.2d 573 (10th Cir. 1990) and ruled that a bank's voluntary disclosure of a customer's financial records to the Service, without prior notice to the customer, violated the RFPA.

  4. The Tenth Circuit states are Kansas, Oklahoma, Wyoming, Utah, Colorado, and New Mexico. When issuing a summons in the Tenth Circuit, follow the procedures of IRC §7609 (if applicable), and refrain from seeking financial information from financial institutions by using only credentials, letters of circularization or any other non-summons method if the following conditions exist:

    1. The financial institution is located in the Tenth Circuit.

    2. The information sought concerns taxpayers residing in the Tenth Circuit, regardless of the location of the financial institution.

    3. The Internal Revenue Service office is located in the Tenth Circuit, regardless of the location of the financial institution or the residence of the taxpayer.

  5. Seek the advice of Area Counsel if there is any doubt as to whether Neece applies.

  6. Do not attempt to obtain financial information voluntarily from financial institutions if the above conditions exist. To do otherwise could result in actual and punitive damages awarded in suits against the Service, and the expenditure of valuable resources in defending such damage suits.

  7. The Service does not follow the Neece rationale in other circuits. You may continue to obtain information voluntarily from financial institutions in other circuits using credentials or voluntary methods.

4.75.21.15  (06-25-2010)
Procedures for Resolution of Credit Counseling Cases

  1. In order to be eligible for exemption as an IRC 501(c)(3) organization, a credit counseling organization that provides services to the public at large must be furthering an educational purpose.

  2. As part of the Service’s ongoing compliance project to explore abuses in the credit counseling industry, a Core Analysis Tool (CAT) has been developed to assist agents in evaluating open credit counseling audit inventory.

  3. The CAT sets forth the baseline (minimum) standards for exemption and defines characteristics and attributes of a credit counseling organization. If properly used, it is reliable in identifying how close to qualification an organization is and the steps it needs to take to become compliant. The Core Analysis Tool (CAT) is intended to help an agent develop the facts in a credit counseling organization case efficiently.

  4. The CAT is organized to collect information on three factors that are relevant in determining whether the organization furthers an educational purpose. They are:

    • Counseling sessions

    • Counselor education, and training

    • Outreach and advertising

  5. For each factor, there are sub-elements that look for specific facts that are to be developed during the audit.

  6. Completion of the CAT Part I should always precede consideration of a revocation, closing agreement, no-change, or no-change with advisory. The CAT, among other things, is a tool for sorting organizations into three categories based on how they provide counseling, train their counselors, and provide outreach to the public. The three categories are as follows

    • Category 1 - Facts are sufficient to establish that the credit counseling organization is furthering an educational purpose.

    • Category 2 - Facts are sufficient to establish that the credit counseling organization is not furthering an educational purpose.

    • Category 3 - Facts are mixed on whether the credit counseling organization is furthering an educational purpose.

  7. Close Category 1 as no change unless you have developed separate issues. No enforcement action, including closing agreement or no-change with advisory on exempt purpose, is necessary unless separate issues existing outside of those raised by the CAT are sufficiently developed.

  8. Develop Category 2 organizations for revocation based on failure to operate in furtherance of an exempt purpose. If you developed other issues, notice of revocation should cover those as well, to the extent you found noncompliance. Closing agreements and advisory letters are not applicable to this category of organizations.

  9. Category 3 organizations have some but not all of the CAT sub-elements of the "furthers educational purpose" column, and possibly also have some sub-elements of the "not furthering educational purpose" column. Consider Category 3 organizations for a closing agreement or no-change with advisory. As in all EO situations this depends on the facts and circumstances of each case. Follow the CAT and make a recommendation to your manager for concurrence.

  10. After you and your manager determine to proceed with the closing agreement or no-change with advisory, the Credit Counseling Review Team (CCRT) reviews the case file for consistency. Direct any questions during the resolution process to a member of the CCRT. Contact EO Mandatory Review in Dallas for the names and contact information for the current members.

  11. In performing the analysis of whether to pursue revocation, closing agreement, or a no-change with advisory some questions to consider are:

    • How difficult would it be for the organization to fix the CAT elements that are not in the educational column? If it is easy and takes very little work, perhaps the failures are fairly minimal and a no change advisory is in order.

      Example:

      If an organization only needs to put in place resources, training sessions, and a procedure for making referrals when someone needs help with a non-financial problem like substance abuse, employment or child support enforcement, but the rest of their counseling sessions and counselor training is good, this could be an organization where a no change with advisory is a reasonable outcome. If it’s difficult and extensive -- e.g., completely revamping training for staff -- then at least a closing agreement should be considered.

    • How are the CAT sub-elements falling out? If most of them are in the educational column and only a few are missing or are in the non-educational column, then pursuing revocation will be challenging. However, if all the sub-elements in a factor do not reflect an educational purpose, then the case for revocation is stronger. See Exhibit 4.75.21-1 for an example of the CAT.

4.75.21.15.1  (06-25-2010)
Developing Facts For Completion of CAT, Part I

  1. Counseling Sessions: Information about what counselors do in sessions with clients can generally be found from a number of common sources. In an audit setting, the most detailed and probative information will come from tapes or transcripts of the actual sessions and client files showing the information collected on specific individuals.

  2. Other information includes instructions given to clients on what to bring to an interview, other forms used with clients, training materials that instruct counselors on what to ask, and interviews with counselors or their supervisors describing what they are expected to ask.

  3. Sub-element 1: Counselors ask clients to provide detailed information about the type, amount and source of all significant items of income, assets, liabilities (including secured and unsecured debt), and expenses.

  4. Sub-element 2: Counselors interview clients about their budget and finances, discussing topics including their employment, education, buying habits, significant expenditures, and any significant past or anticipated changes in their earnings, assets, expenses and liabilities, including the reason or cause for those changes.

  5. When considering whether counselors collect complete financial information, look for evidence in the organization’s forms, transcripts of telephone calls, and elsewhere that clients are asked to provide detailed information about:

    • The type, amount, and source of current and expected future income

    • Their assets

    • Their monthly and annual expenses

    • Secured debt such as mortgages and car loans debt

    • All kinds of unsecured debt, including student loans as well as credit cards

    • Other liabilities such as child support, alimony, tax liabilities

    • Their employment

    • Their education

    • Buying habits

    • Significant past or anticipated changes in earnings, assets, expenses, and liabilities, including the reason

    • Health and other life issues that may affect their financial situations.

  6. Sub-element 3: Based on this information, counselors develop and present to clients a number of options and strategies for addressing their debt problems, including creating and maintaining a budget, establishing debt management payment plans with creditors, negotiating directly with creditors on payment or interest rate relief, and filing for bankruptcy.

  7. When considering whether counselors present a full range of options to credit counseling clients, seek evidence from training materials, transcripts of counseling sessions, and other sources that the counselors:

    • Coach clients on negotiating directly with creditors in appropriate cases

    • Discuss mechanics and advantages of creating and maintaining a budget

    • Recommend changing buying habits or strategies for saving money

    • Discuss custom-designed payment plans

    • Present advantages and difficulties of all options including bankruptcy, debt management plans, and self-administered payment plans

  8. Sub-element 4: The counselors discuss the advantages and disadvantages of each of these options with clients and will make recommendations for which options are best suited to meet the clients’ individual needs, goals, and circumstances.

  9. When investigating the criteria that counselors use to formulate recommendations to potential clients, ascertain that counselors routinely:

    • Analyze all information collected

    • Use objective criteria to recommend options best suited to meet clients' individual needs, goals and circumstances

  10. Sub-element 5: Counselors also provide referrals to other organizations for appropriate support services, such as employment, training, and psychological counseling. To ascertain whether counselors routinely provide specific and appropriate referrals to social service organizations for problems identified during discussions (for help with such problems as employment, training, substance abuse, improving literacy and psychological issues

    • Look at training materials

    • Evaluation criteria

    • Scripts

    • Transcripts of actual calls

    • Statistics kept by the organization

4.75.21.15.2  (06-25-2010)
Counselor Education and Training

  1. Information on this factor is likely to be found in qualifications used in:

    • Job postings

    • Training materials and manuals

    • Curricula for training courses

    • Credentials of instructors or authors of materials

    • Tests or exams counselors must pass before working with clients

    • Information about how counselors are supervised when they are new and as they gain experience

    • Criteria for employee evaluations

    • Individual employee evaluations and criteria for pay, bonuses and raises

    • Information on the amount of time spent on training, and on employee turnover may also be useful

  2. Sub-element 1: Counselors receive comprehensive training in counseling skills, personal finance, budgeting, and credit and debt management in live or interactive training sessions and through detailed written manuals. To assess the training given to counselors in substantive issues of personal finance, budgeting, credit, and debt management, obtain:

    • Video recordings of the organization’s in-person training program

    • Or copies of written materials used

    • Or detailed description of access to training given by another entity

  3. Sub-element 2: Counselors also receive training on how to develop options and recommendations that address the particular circumstances of each client. To determine whether counselors are trained to develop options and recommendations that address the particular circumstances of each client:

    • Analyze the above sources or

    • Interview past or current counselors

  4. Sub-element 3: Counselors are trained in identifying underlying personal problems (such as illness, loss of employment) that might contribute to financial problems and on making appropriate referrals. Determine whether counselors are trained to identify underlying personal problems such as illness, job loss, suicidal risk that cause or accompany credit problems, and to make appropriate referrals.

  5. Sub-element 4: Counselors are evaluated on how thoroughly and effectively they develop and present options to match the particular circumstances of each client. They are not evaluated or compensated based on whether their clients enroll for additional services such as debt management plans. As an indication of whether the organization is actually operating according to the exempt standards, investigate the way that counselors are evaluated:

    • Are individual performance evaluations based on how thoroughly and effectively the staff develop and present options to match the particular circumstances of each client?

    • Are individual performance evaluations based on numbers of debt management plans sold, the amount of debt in the debt management plan, the number of clients who make first or third payments, or whether clients purchase any additional services sold by the organization or any other maker for profitability or sales?

    • Are any bonuses or raises based upon markers for profitability or sales?

4.75.21.15.3  (06-25-2010)
Outreach Advertising

  1. Information on this factor will be found generally on the organization’s web site, in the materials it mails or otherwise distributes to the general public, in client files that reflect the source of the referral, in statistics the organization may keep on referrals, on any correspondence with community organizations soliciting referrals, and in responses to questions asking whether the organization ever purchases mailing lists, telephone lists, or other sources of referrals.

  2. Sub-element 1: The organization uses the Internet, mass media and direct mail to advertise its counseling and debt management services. The advertisements primarily focus on counseling services (based on visual prominence and relative amount of time and space devoted). Debt management plans are mentioned as only one possible option for addressing debt problems.

  3. Analyze the way that the organization uses its Website, as a reflection of the way that it wants to be viewed by the public and potential clients. Copy and analyze the initial page:

    • Does it require registration?

    • Does it request contact information for those interested in debt management plans?

    • Does it primarily focus on counseling services or on debt management plans as measured by visual prominence and relative amount of time and space devoted to each?

  4. Copy and analyze the educational pages of the website:

    • Can they be accessed without providing contact information?

    • Do they provide objective and useful information on personal finance, credit, and budgeting?

  5. To analyze advertising used by the organization, obtain copies of advertising in mass media and direct mail to determine:

    • Whether it primarily focuses on counseling services or debt management plans as measured by visual prominence and relative amount of time and space devoted to each.

    • Whether it mentions debt management plans as one possible option for addressing debt problems or as the universal solution to the financial problems of all individuals.

  6. Sub-element 2: The organization receives referrals from employers, union leaders, clergymen, community organizations or creditors, but does not purchase lists of, and pay for referrals of, debtors.

  7. Determine and document the way that the organization obtains its clients as an indication of whether the organization is genuinely focused on providing education to those who have indicated a specific desire for it or whether it is selling its services to the maximum number of people that it can reach:

    • Potential clients are referred to the organization by employers, union leaders, clergy, community organizations or some other person or organization that knows the client?

    • Does the organization purchase lists of debtors from credit card companies or from other sources?

    • Does the organization pay for referrals to Internet advertisers, telemarketers, credit card companies or others?

4.75.21.15.4  (06-25-2010)
Developing Facts For Completion of CAT, Part ll

  1. Development of the facts for Part II are ONLY necessary if the results of Part I show some sub-elements in the educational purpose column and some sub-elements in the lack of educational purpose column.

  2. Governance: Is there a community-based board that is independent of creditors, with a majority of representatives from a variety of segments of the community, such as religious organizations, civic groups, labor unions, business groups, and educational institutions?

  3. To assess the composition of the board, ask for resumes of the directors and officers.

  4. Funding Sources: Contributions and grants, including "fair share" payments, may come in some instances from credit card companies and other creditors.

  5. The organization should provide financial statements that show the sources of its funding. Ask additional questions in order to be able to identify:

    • Funds (whether as contributions, grants, fees, or something else) from entities who provide services to the organization, such as administration of debt management plans.

    • Fees for referrals or for marketing the goods or services of other entities with a commercial interest in the clients of the organization.

  6. See Exhibit 4.75.21-1.

4.75.21.15.5  (06-25-2010)
Closing Agreement or Advisory Letter Procedures

  1. Follow the following procedure when you and your manager have concluded, through the completion and/or refinement of the CAT, that a closing agreement or a no-change advisory letter is appropriate.

  2. Do not request cases that have closed from the group back from Mandatory Review or Appeals for consideration of an advisory letter without prior approval from the Credit Counseling Program Manager and the respective area manager.

  3. Prior to the issuance of any closing agreement or advisory letter the case must be reviewed by Counsel. Additionally, a 30-day letter must be prepared if you are proposing a closing agreement. The 30-day letter will be sent to the organization prior to the closing agreement moving through the approval process.

  4. The group manager, after coordinating with the Credit Counseling Review Team member, will send the case file, if necessary, and the proposed closing agreement or no-change advisory letter for review and concurrence by the CCRT.

  5. The CCRT will make a decision, sign off and return it to the group manager. The group manager will finalize the closing agreement and return it to the Closing Agreement Coordinator in Mandatory Review. After this review, it will be forwarded for approval by the Director, EO Examinations.

  6. If the group manager receives an approved no-change advisory letter back from the CCRT, current IRM case closing procedures will be followed (IRM 4.75.16, Case Closing Procedures).

4.75.21.15.6  (05-22-2012)
Credit Counseling Walk-in Closing Agreements

  1. All walk-in closing agreement requests will be processed by the EO Closing Agreement Coordinator (EOCAC). If a taxpayer contacts an EO agent and/or manager to verbally discuss a walk-in closing agreement, the taxpayer and/or representative should be referred to the EOCAC. See IRM 4.75.25, Exempt Organizations Examinations Closing Agreements.

Exhibit 4.75.21-1 
Credit Counseling Core Analysis Tool (CAT)


CREDIT COUNSELING CORE ANALYSIS TOOL
PART I

This table shows the CAT baseline (minimum) standards for exemption and defines characteristics and attributes of a credit counseling organization
Factors Showing Organization is Furthering Educational Purposes Comments Factors Showing Organization is Not Furthering Educational Purposes Comments
Counseling Sessions Counseling Sessions Counseling Sessions Counseling Sessions
1. Counselors ask clients to provide detailed information about the type, amount and source of all significant items of income, assets, liabilities (including secured and unsecured debt), and expenses. 1. 1. Counselors ask clients to provide information on their income, assets, liabilities and expenses only to the extent necessary for the counselor to determine whether they qualify for a debt management plan. 1
2. Counselors interview clients about their budget and finances, discussing topics including their employment, education, buying habits, significant expenditures, and any significant past or anticipated changes in their earnings, assets, expenses and liabilities, including the reason or cause for those changes. 2. 2. Counselors generally do not interview clients about their budget and finances except to the extent necessary to qualify the client for a debt management plan. 2.
3. Based on this information, counselors develop and present to clients a number of options and strategies for 3. 3. Counselors generally only present debt management plans as a possible option. They generally do not present 3.
addressing their debt problems, including creating and maintaining a budget, establishing debt management payment plans with creditors, negotiating directly with creditors on payment or interest rate relief, and filing for bankruptcy.   other alternatives for addressing the client’s financial problems, such as budgeting, negotiating directly with creditors or bankruptcy.  
4. The counselors will discuss the advantages and disadvantages of each of these options with clients and will make recommendations for which options are best suited to meet the clients’ individual needs, goals and circumstances. 4. 4. Counselors generally only recommend debt management plans as a possible option. 4.
5. Counselors also provide referrals to other organizations for appropriate support services, such as employment, training, and psychological counseling. 5. 5. Counselors generally do not provide referrals to other organizations for appropriate support services. 5.
Factors Showing Organization is Furthering Educational Purposes Comments Factors Showing Organization is Not Furthering Educational Purposes Comments
Counselor Education & Training Counselor Education & Training Counselor Education & Training Counselor Education & Training
1. Counselors receive comprehensive training in counseling skills, personal finance, budgeting, and credit and debt management in live or interactive training sessions and through detailed written manuals. 1. 1. Counselors primarily receive training in marketing, qualifying for and establishing debt management plans. They receive only limited training in personal finance, budgeting, and credit and debt management. 1.
2. Counselors also receive training on how to develop options and recommendations that address the particular circumstances of each client. 2. 2. Counselors do not receive training on how to develop options and recommendations that address the particular circumstances of each client. 2.
3. Counselors are trained in identifying underlying personal problems (such as illness, loss of employment) that might contribute to financial problems and on making appropriate referrals. 3. 3. Counselors are not trained in identifying underlying personal problems that might contribute to financial problems or on making appropriate referrals. 3.
4. Counselors are evaluated on how thoroughly and effectively they develop and present options to match the particular circumstances of each client. They are not evaluated or compensated based on whether their clients enroll for additional services such as debt management plans. 4. 4. Counselors are evaluated and compensated, in part, on how many clients they sign up for debt management plans. 4.
Outreach Advertising Outreach Advertising Outreach Advertising Outreach Advertising
1. The organization uses the Internet, mass media and direct mail to advertise its counseling and debt management services. The advertisements primarily focus on counseling services (based on visual prominence and relative amount of time and space devoted). Debt management plans are mentioned as only one possible option for addressing debt problems. 1. 1. The organization uses the Internet, phone solicitations, mass media and direct mail to advertise its counseling and debt management services. Its advertisements primarily promote debt management plans (based on prominence and relative amount of time and space devoted). 1.
2. The organization receives referrals from employers, union leaders, clergymen, community organizations or creditors, but does not purchase lists of, and pay for referrals of, debtors. 2. 2. The organization receives referrals from employers, union leaders, clergymen, community organizations or creditors, and purchases lists of, and pays for referrals of, debtors, whom it contacts to offer services. 2.

PART II
This part of the CAT is to be completed only if the organization fails to have all the factors (including all supplements) showing qualification for exemption
Factors Showing Organization is Furthering Educational Purposes Comments Factors Showing Organization is Not Furthering Educational Purposes Comments
Governance Governance Governance Governance
1 Community based board that is independent of creditors, with a majority of representatives from a variety of segments of the community such as religious organizations, civic groups, labor unions, business groups, and educational institutions. 1. 1. Small, related board or board dominated by creditors, banks, credit card companies, or others with a financial interest in the organization. 1.
Funding Sources Funding Sources Funding Sources Funding Sources
1. Contributions and grants, including “fair share” payments, which may come in some instances from credit card companies and other creditors. 1. 1. Funds labeled as “voluntary contributions” and/or grants are received in exchange for DMP services. Organization receives funds from entity with financial interest in the organization, and for which conditions are placed on the receipt of funding. 1.

Exhibit 4.75.21-2 
List of States Eligible for IRC 6104(c) and 6103(d) Disclosure

Disclosure Code Section Approved States Types of Adjustments Information to be Included Send Information to:






IRC 6104(c)




CA
GA
HI
NH
NY
PA
SC
Proposed and final revocations and terminations of IRC 501(c)(3) organizations; and, proposed and final notices of deficiency for Chapter 41 and 42 excise taxes imposed on IRC 501(c)(3) organizations and "Taxable Persons" 30-Day Letter, Form 6018,
RAR,

Form 4883 (Chap 41/42)


Final Adverse Determination Letter (FADL),

Statutory Notice of Deficiency (Chap 41/42)





Fed/State Liaison
IRS
1616 Capitol Ave.
Stop 4730
Omaha, NE 68102










IRC 6103(d)
AK
AL
CA
CT
DC
GA
IA
ID
IN
MD
MN
MS
MT
NC
ND
NE
NM
SC
UT
VA
WA
WI
WV









Form 990-T







Form 4549 or 870,
RAR
990-T Returns










Fed/State Liaison
IRS
1616 Capitol Ave.
Stop 4730
Omaha, NE 68102

Examiners may refer to IRM 7.28.2, Disclosure of Information About Exempt Organizations to Appropriate State Officials as Described in IRC 6104(c), for guidance.


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