4.81.5  Examination Process (Cont. 1)

4.81.5.7 
Examination Techniques

4.81.5.7.7  (11-01-2009)
Third Party Contacts

  1. The provisions of IRC section 6103 and the regulations there under apply to all third party contacts. See IRM 11.3, Disclosure of Official Information.

  2. Generally, contacts with third parties are made when an IRS employee is unable to obtain the information from the issuer/representative or to verify information provided by the issuer/representative. However, employees should make every effort to first obtain information from the issuer/representative.

  3. IRC section 7602(c) requires the IRS to:

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

    2. Periodically provide a list of all third party contacts to the taxpayer.

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

    Note:

    There are several exceptions to the notification requirements of the IRC section 7602(c), which are set forth in IRM 4.81.5.7.7.4.

4.81.5.7.7.1  (11-01-2009)
Third Party Contact Defined

  1. For purposes of IRC section 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 that taxpayer's federal tax liability (including the issuance of a levy or summons to someone other than the taxpayer). The statute does not apply to contacts initiated by third parties.

    Note:

    Contacts with federal, state, local, tribal or foreign government officials are also included in this definition, except as noted below in paragraph (3).

  2. Generally, IRS employees should identify themselves when attempting to obtain information from third parties. However, in the limited situation where an IRS employee attempts to reach a taxpayer by telephone, but instead reaches the taxpayer's secretary, family member or another third party, and the examiner does not seek any information from the person who answers the telephone, the IRS employee should not tell the third party that he works for the IRS unless expressly asked by the third party. Examiners can only seek additional information from the person answering the telephone if:

    1. The issuer has been provided advanced notification of potential third party contacts in the examination letter,

    2. The examiner identifies himself/herself as an IRS employee, and

    3. The examiner treats the telephone conversation as a third party contact.

  3. The following are not third party contacts:

    1. Searches made on computer databases that do not require any personal involvement of any party other than the employee engaged in the search (e.g. LEXIS, ACCURINT, EMMA, EDGAR).

    2. Contacts made with government officials to obtain information that is available to the public (i.e. contacting the Postal Service to obtain a current address).

    3. Information received where the third-party initiates the contact.

    4. Contacts with individuals who have a valid Power of Attorney for the issuer.

    5. Contacts made to obtain information regarding an industry or market segment where specific issuers have not been identified.

    6. Contacts made by examiners during litigation if the contact relates to a matter and issue being litigated, including, but not limited to, the service of Tax Court subpoenas on third parties by employees.

    7. Contacts made with other IRS employees in the scope of an examiner's official duties, including employees of the Office of Chief Counsel.

    8. When the taxpayer under investigation is a business, contacts made with employees who are acting within the scope of their employment.

  4. Returning an unsolicited call is not considered a third party contact; however, 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 third party. See IRM 4.81.5.7.7.4.2 for specific requirements regarding reprisal determinations.

4.81.5.7.7.2  (11-01-2009)
Notification Requirements

  1. Examiners may not contact any third party without first providing reasonable notice to the taxpayer.

  2. The TEB examination letters issued when the examination is initiated include the language necessary to provide the issuer with reasonable notice.

4.81.5.7.7.3  (11-01-2009)
Providing Issuers with List of Third Party Contacts

  1. Pursuant to IRC section 7602(c)(2), the IRS is required to provide a taxpayer with a list of third party contacts periodically and also when requested by the taxpayer.

4.81.5.7.7.3.1  (11-01-2009)
Recording Third Party Contacts

  1. When an examiner makes a third party contact, they must complete the Form 12175, Third Party Contact Report Form.

    1. The employee who makes a third party contact is responsible for complying with these provisions regardless of which function has control of the case. See IRM 4.81.5.7.7.4.2 for specific requirements regarding reprisal determinations.

    2. Multiple contacts with the same third party on different dates require a separate Form 12175 for each contact.

    3. If the same employee makes more than one contact with the same third party on the same day, only complete one Form 12175.

  2. Include the following information on Form 12175:

    1. Issuer EIN.

    2. Name control.

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

    4. Date of the contact.

    5. Reprisal Determination (check box if "fear" has been indicated).

    6. Name of the third party contacted, if known. If the name of the third party is not known, please refer to the instructions to Form 12175 for the type of information to enter. DO NOT include the address or telephone number of the third party.

    7. Report number.

    8. Master File tax code (46) and tax period (date of issue) relating to the Form 8038 series under examination.

  3. When Form 12175 is completed:

    1. Send via secure e-mail to the Third Party Contact Coordinator in TEB CPM as soon as possible after it is completed.

    2. Associate a copy with the case file.

    3. Document the case chronology record to show the action taken.

4.81.5.7.7.3.2  (11-01-2009)
Third Party Contact Coordinator's Duties

  1. The Third Party Contact Coordinator's duties include:

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

    2. Maintaining electronic copies of Forms 12175, and

    3. Providing a contact list when requested by the issuer.

4.81.5.7.7.3.3  (11-01-2009)
Providing Issuers the Contact List when Requested

  1. When an issuer requests a third party contact list, the examiner receiving the request is responsible for:

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

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

  2. Issuers must submit a separate request for each list of contacts. A blanket request for a list of future third party contacts will not be accepted.

  3. The Third Party Contact Coordinator will research the request and prepare Letter 3173, Third Party Contacts .

  4. Letter 3173 will list all third party contacts made after the later of:

    1. January 18, 1999, or

    2. The date the issuer received the latest periodic report of contacts.

  5. Letter 3173 can be hand delivered or mailed to the issuer. If mailed, it should be sent to the address provided by the issuer.

4.81.5.7.7.4  (11-01-2009)
Exceptions to IRC section 7602(c) Requirements

  1. IRC section 7602(c)(3) provides situations when the IRS is not required to provide the issuer with advance general notice or to include a particular third party contact on the list of third party contacts that we provide to the issuer. The exceptions are:

    1. Issuer authorizes the third party contact

    2. Reprisal

    3. Pending criminal investigation

4.81.5.7.7.4.1  (11-01-2009)
Taxpayer Authorized Third Party Contacts

  1. If an examiner has requested that the issuer provide a waiver of the notice requirements of IRC section 7602(c)(3) and the issuer has agreed to do so, the examiner will:

    1. Prepare Form 12180 , Third Party Contact Authorization Form. List each third party the issuer authorizes the IRS to contact. A blanket authorization covering all third party contacts is not acceptable.

    2. Secure the taxpayer's signature and date signed on Form 12180.

    3. Document the case history with the date the issuer provided the authorization.

    4. Maintain a copy of Form 12180 (or other written authorization) in the case file.

    5. Continue to document contacts with third parties in the case chronology record; however, Form 12175 is not needed.

    Note:

    IRC section 7602(c) does not require an IRS employee to obtain authorization from the taxpayer in order to contact a third party. A taxpayer may not prevent an IRS employee form contacting a third party by refusing to provide authorization. Obtaining authorization only means that the employee is not required to provide the advance general notice to the taxpayer (if not already provided) or make a record of the contact that was authorized.

4.81.5.7.7.4.2  (11-01-2009)
Reprisal

  1. Examiners should determine whether providing the advance notice or record of specific contact to an issuer may result in reprisal (i.e. retaliation) against any person. If it is determined that a reprisal is possible, the examiner should prepare a separate Form 12175 to report the reprisal situation. Include only the following:

    1. Issuer's EIN

    2. Issuer's name control

    3. Examiner's badge number, examiner's telephone number, and examiner's stop number

    4. Date of contact

    5. Place a check in the REPRISAL box

    Caution:

    DO NOT INCLUDE THIRD PARTY INFORMATION ON THE FORM 12175.

  2. Send the Form 12175 to the Third Party Contact Coordinator for input to the database. The information will be retained in the database, but will not be included in the list of third parties contacted (Letter 3173) that is provided to the issuer.

  3. The examiner making the contact must make a reprisal determination for all third party contacts. The reprisal determination is made on a case-by-case basis with no blanket determinations for different types of contact.

  4. A reprisal determination may be based on any information available to the examiner. If the determination can not be made based upon facts already known, the examiner will advise the third party that, by law, the IRS is required to provide their name to the issuer as a third party contact and ask the third party if they have a fear of reprisal.

  5. The examiner must document the case file with the facts surrounding the reprisal determination.

4.81.5.7.7.4.3  (11-01-2009)
Pending Criminal Investigation

  1. Any tax period under investigation by the Criminal Investigation Division (CI) is not subject to the requirements of IRC section 7602(c); however, third party contacts made to develop a referral to CI are subject to the requirements of IRC section 7602(c).

4.81.5.7.8  (11-01-2009)
RCCMS Case Closing Procedures

  1. Examiners are responsible for completing, and group managers are responsible for ensuring, compliance activity tabs are completed correctly within the TE/GE Reporting and Electronic Examination System (RCCMS), prior to requesting acceptance for closure from the TEB Inventory Processing Unit (" TEB Closing Analyst" ).

  2. Examiners and group managers will process cases in accordance with official RCCMS operational guidelines as delineated by RCCMS User Manual. Additional guidance in processing cases is detailed in the RCCMS program by accessing "RCCMS Help" on the "Help" menu. Periodic updates to RCCMS are found on the IRS Intranet and can also be accessed on the "Help" menu by selecting "RCCMS on the Web."

4.81.5.7.8.1  (11-01-2009)
Prepare Closing Tabs

  1. Examiners will accurately complete all of the tabs within the RCCMS activity, prior to requesting closure from his or her group manger. This section describes which fields within the closing tabs are to be completed and gives direction on how to complete them accurately.

  2. The following information should have previously been input into RCCMS by the TEB Closing Analyst or by the field when manually established by the agent or group manager: Name, Type, Bond Issue Name, Activity Code, Tax Period, Name Control, Master File Type, MFT code, Project code, Source Code, Status code, and Return Requisition code.

  3. Examiners will ensure that the status code is "12" , on the "Codes" tab before attempting to close. With the exception of cases closed surveyed before assignment and surveyed after assignment when no taxpayer contact is made, all cases must be updated to status 12 before a request for closure can be made.

  4. Examiners will select "Close" on the drop down menu for "Validate For" and verify the Update AIMS box is checked, if the case is on AIMS.

4.81.5.7.8.1.1  (11-01-2009)
No Change Closing

  1. On the "Codes" tab:

    • Select "3 - EO-501(c) - All Others/GE - Tax Exempt Bonds " , from drop down menu for "Class" ,

    • Select appropriate grade of case from drop down menu for "Grade" , and

    • Select "1-Usual and Typical Issues" , from drop down menu for "Estate return" .

  2. On the "Closing - General" tab:

    • Select "107 - No Change" from drop down menu for "Disposal Code" ,

    • Select either "1 - Original Return" , " 2 - Taxpayer Return" or "3 - Electronic Prints" , depending on the circumstance, from drop down menu for "Closing With" , and

    • If there is a correlating paper file, type "Paper File to Follow" in the "Remarks and Comments" , along with any other items that would normally be noted on Form 3198-A.

  3. On the "Closing - Details" tab:

    • Input the hours on the case, next to "Examiner's Time" ,

    • Unless otherwise specifically designated as part of a correspondence examination project, always select "4 - Field Examination" from the drop down menu for "Examination Technique" , and

    • Select your name from the drop down menu for " Examiner's Name" .

  4. On the "Closing - Individual/Bus (1 of 3)" tab enter "transaction code" 300 and "amount" 0.00 in the "Assessment Information" field.

  5. On the "Closing - Individual/Bus (2 of 3)" tab select appropriate code(s) from the drop down menus for "Principal issue codes" . An entry is required in all four fields. At a minimum, the first field must include a code. Any fields not containing a code select "00" . The following codes are applicable to TEB:

    • 00 - Required for Use if no Other Code Applies

    • 04 - Delinquent Filing of Return

    • 34 - Other - (default if no other code applies)

    • 54 - Bonds Taxable

    • 55 - Arbitrage Rebate

    • 56 - Advanced Refunding

    • 57 - Yield Restriction

    • 58 - Yield Burning

    • 59 - Private Use

    • 60 - Change in Use

    • 61 - $10 million limitation

    • 62 - $40 million limitation

    • 63 - Issuance Costs

    • 69 - Penalty Failure to File

  6. On the "Closing - Individual/Bus (3 of 3)" tab there are no applicable fields to complete.

4.81.5.7.8.1.2  (11-01-2009)
No Change with an Advisory Closing

  1. On the "Codes" tab:

    • Select "3 - EO-501(c) - All Others/GE - Tax Exempt Bonds " , from drop down menu for "Class" ,

    • Select appropriate grade of case from drop down menu for "Grade" , and

    • Select "1-Usual and Typical Issues" , from drop down menu for "Estate return" .

  2. On the "Closing - General" tab:

    • Select "213 - Written Advisory Form 5666 Required" from drop down menu for "Disposal Code" ,

    • Select either "1 - Original Return" , " 2 - Taxpayer Return" or "3 - Electronic Prints" , depending on the circumstance, from drop down menu for "Closing With" , and

    • If there is a correlating paper file, type "Paper File to Follow" in the "Remarks and Comments" , along with any other items that would normally be noted on Form 3198-A.

  3. On the "Closing - Details" tab:

    • Input the hours on the case, next to "Examiner's Time" ,

    • Unless otherwise specifically designated as part of a correspondence examination project, always select "4 - Field Examination" from the drop down menu for "Examination Technique" , and

    • Select your name from the drop down menu for " Examiner's Name" .

  4. On the "Closing - Individual/Bus (1 of 3)" tab enter "transaction code" 300 and "amount" 0.00 in the "Assessment Information" field.

  5. On the "Closing - Individual/Bus (2 of 3)" tab select appropriate code(s) from the drop down menus for "Principal issue codes" . An entry is required in all four fields. At a minimum, the first field must include a code. Any fields not containing a code select "00" . The following codes are applicable to TEB:

    • 00 - Required for Use if no Other Code Applies

    • 04 - Delinquent Filing of Return

    • 34 - Other - (default if no other code applies)

    • 54 - Bonds Taxable

    • 55 - Arbitrage Rebate

    • 56 - Advanced Refunding

    • 57 - Yield Restriction

    • 58 - Yield Burning

    • 59 - Private Use

    • 60 - Change in Use

    • 61 - $10 million limitation

    • 62 - $40 million limitation

    • 63 - Issuance Costs

    • 69 - Penalty Failure to File

  6. On the "Closing - Individual/Bus (3 of 3)" tab there are no applicable fields to complete.

4.81.5.7.8.1.3  (11-01-2009)
Closing Returns Related to Secured Delinquent Return

  1. When a delinquent return is secured, as a result of an examination, examiners will establish the delinquent return on RCCMS, in accordance with IRM 4.81.5.9.8. The delinquent return will be closed using the instructions in IRM 4.81.5.7.8.1.4 and the related return will be closed using the following instructions.

  2. On the "Codes" tab:

    • Select "3 - EO-501(c) - All Others/GE - Tax Exempt Bonds " , from drop down menu for "Class" ,

    • Select appropriate grade of case from drop down menu for "Grade" , and

    • Select "1-Usual and Typical Issues" , from drop down menu for "Estate return" , and

    • Check the box next to "Related Return" .

  3. On the "Closing - General" tab:

    • Select "207 - Delinquent Related Return Secured" from drop down menu for "Disposal Code" ,

    • Select either "1 - Original Return" , " 2 - Taxpayer Return" or "3 - Electronic Prints" , depending on the circumstance, from drop down menu for "Closing With" , and

    • If there is a correlating paper file, type "Paper File to Follow" in the "Remarks and Comments" , along with any other items that would normally be noted on Form 3198-A.

  4. On the "Closing - Details" tab:

    • Input the hours on the case, next to "Examiner's Time" ,

    • Unless otherwise specifically designated as part of a correspondence examination project, always select "4 - Field Examination" from the drop down menu for "Examination Technique" , and

    • Select your name from the drop down menu for " Examiner's Name" .

  5. On the "Closing - Individual/Bus (1 of 3)" tab enter "transaction code" 300 and "amount" 0.00 in the "Assessment Information" field.

  6. On the "Closing - Individual/Bus (2 of 3)" tab:

    • Select "S" from the drop down menu for "Related ret. Alpha code" ,

    • Select appropriate code(s) from the drop down menus for "Principal issue codes" . An entry is required in all four fields. At a minimum, the first field must include a code. Any fields not containing a code select "00" . The following codes are applicable to TEB:

    • 00 - Required for Use if no Other Code Applies

    • 04 - Delinquent Filing of Return

    • 34 - Other - (default if no other code applies)

    • 54 - Bonds Taxable

    • 55 - Arbitrage Rebate

    • 56 - Advanced Refunding

    • 57 - Yield Restriction

    • 58 - Yield Burning

    • 59 - Private Use

    • 60 - Change in Use

    • 61 - $10 million limitation

    • 62 - $40 million limitation

    • 63 - Issuance Costs

    • 69 - Penalty Failure to File

    • Enter the dollar amount of the delinquent related return in the "Delinquent return amt" , under "Miscellaneous" .

  7. On the "Closing - Individual/Bus (3 of 3)" tab there are no applicable fields to complete.

4.81.5.7.8.1.4  (11-01-2009)
Delinquent Returns Closing

  1. When a delinquent return is secured as a result of an examination, examiners will establish the delinquent return on RCCMS, in accordance with IRM 4.81.5.9.8. The related return will be closed using the instructions in IRM 4.81.5.7.8.1.3 and the delinquent return will be closed using the following instructions.

  2. On the "Codes" tab:

    • Select "3 - EO-501(c) - All Others/GE - Tax Exempt Bonds " , from drop down menu for "Class" ,

    • Select appropriate grade of case from drop down menu for "Grade" , and

    • Select "1-Usual and Typical Issues" , from drop down menu for "Estate return" , and

    • Check the box next to "Related Return" .

  3. On the "Closing - General" tab:

    • Select "208 - Delinquent Return Secured" from drop down menu for "Disposal Code" ,

    • Select "2 - Prevents a credit from refunding and a notice from being generated" from drop down menu " Hold Code" ,

    • Select either "1 - Original Return" , " 2 - Taxpayer Return" or "3 - Electronic Prints" , depending on the circumstance, from drop down menu for "Closing With" , and

    • If there is a correlating paper file, type "Paper File to Follow" in the "Remarks and Comments" , along with any other items that would normally be noted on Form 3198-A.

  4. On the "Closing - Details" tab:

    • Input the hours on the case, next to "Examiner's Time" ,

    • Unless otherwise specifically designated as part of a correspondence examination project, always select "4 - Field Examination" from the drop down menu for "Examination Technique" , and

    • Select your name from the drop down menu for " Examiner's Name" .

  5. On the "Closing - Individual/Bus (1 of 3)" tab enter "transaction code" 300 and "amount" 0.00 in the "Assessment Information" field.

  6. On the "Closing - Individual/Bus (2 of 3)" tab:

    • Enter the EIN of return that the delinquent return is related to in the "Primary return TIN" field,

    • Enter the tax period of return that the delinquent return is related to in the"Primary tax period" field,

    • Select MFT 46 from the drop down menu next to the "Primary ret. MFT" ,

    • Select "S" from the drop down menu for "Related ret. Alpha code" ,

    • Select appropriate code(s) from the drop down menus for "Principal issue codes" . An entry is required in all four fields. At a minimum, the first field must include a code. Any fields not containing a code select "00" . The following codes are applicable to TEB:

    • 00 - Required for Use if no Other Code Applies

    • 04 - Delinquent Filing of Return

    • 34 - Other - (default if no other code applies)

    • 54 - Bonds Taxable

    • 55 - Arbitrage Rebate

    • 56 - Advanced Refunding

    • 57 - Yield Restriction

    • 58 - Yield Burning

    • 59 - Private Use

    • 60 - Change in Use

    • 61 - $10 million limitation

    • 62 - $40 million limitation

    • 63 - Issuance Costs

    • 69 - Penalty Failure to File

  7. On the "Closing - Individual/Bus (3 of 3)" tab input the amount of the liability on the delinquent return in the "GE entry only" field.

4.81.5.7.8.1.5  (11-01-2009)
Appealed Case Closing

  1. On the "Codes" tab:

    • Select "3 - EO-501(c) - All Others/GE - Tax Exempt Bonds " , from drop down menu for "Class" ,

    • Select appropriate grade of case form drop down menu for "Grade" , and

    • Select "1-Usual and Typical Issues" , from drop down menu for "Estate return" .

  2. On the "Closing - General" tab:

    • Select "601 - Appealed - Protest to Appeals" from drop down menu for "Disposal Code" ,

    • Select "121 - Nondocketed-Boston, MA" from drop down menu for "Appeals office code" ,

    • Select "5- No Return" from drop down menu for "Closing With" , and

    • Type "Paper File to Follow" in the "Remarks and Comments" , along with any other items that would normally be noted on Form 3198-A.

  3. On the "Closing - Details" tab:

    • Input the hours on the case, next to "Examiner's Time" ,

    • Unless otherwise specifically designated as part of a correspondence examination project, always select "4 - Field Examination" from the drop down menu for "Examination Technique" , and

    • Select your name from the drop down menu for " Examiner's Name" .

  4. On the "Closing - Individual/Bus (1 of 3)" tab, the "EO/GE Appeals issue codes" should be completed. On the first drop down, menu select the recommended action. On the second drop down menu, select the primary issue. On the third drop down menu, indicate whether there is a secondary issue, by selecting either "other" or "none" .

  5. On the "Closing - Individual/Bus (2 of 3)" tab, select appropriate code(s) from the drop down menus for "Principal issue codes" . An entry is required in all four fields. At a minimum, the first field must include a code. Any fields not containing a code select "00" . The following codes are applicable to TEB:

    • 00 - Required for Use if no Other Code Applies

    • 04 - Delinquent Filing of Return

    • 34 - Other - (default if no other code applies)

    • 54 - Bonds Taxable

    • 55 - Arbitrage Rebate

    • 56 - Advanced Refunding

    • 57 - Yield Restriction

    • 58 - Yield Burning

    • 59 - Private Use

    • 60 - Change in Use

    • 61 - $10 million limitation

    • 62 - $40 million limitation

    • 63 - Issuance Costs

    • 69 - Penalty Failure to File

  6. On the "Closing - Individual/Bus (3 of 3)" tab there are no applicable fields to complete.

4.81.5.7.8.1.6  (11-01-2009)
Cases Resolved with Closing Agreement

  1. On the "Codes" tab:

    • Select "3 - EO-501(c) - All Others/GE - Tax Exempt Bonds " , from drop down menu for "Class" ,

    • Select appropriate grade of case from drop down menu for "Grade" , and

    • Select "1-Usual and Typical Issues" , from drop down menu for "Estate return" , and

  2. On the "Closing - General" tab:

    • Select "1 - Fully Paid" on the drop down menu for "ARDI Code" ,

    • Select "2 - Prevents a credit from refunding and a notice from being generated" from drop down menu for " Hold code" ,

    • Select "104 - Closing Agreement" from drop down menu for "Disposal Code" ,

    • Enter the dollar amount of the closing agreement in the "Manual assessment amount" field,

    • Select either "1 - Original Return" , " 2 - Taxpayer Return" or "3 - Electronic Prints" , depending on the circumstance, from drop down menu for "Closing With" , and

    • If there is a correlating paper file, type "Paper File to Follow" in the "Remarks and Comments" , along with any other items that would normally be noted on Form 3198-A.

  3. On the "Closing - Details" tab:

    • Input the hours on the case, next to "Examiner's Time" ,

    • Unless otherwise specifically designated as part of a correspondence examination project, always select "4 - Field Examination" from the drop down menu for "Examination Technique" , and

    • Select your name from the drop down menu for " Examiner's Name" .

  4. On the "Closing - Individual/Bus (1 of 3)" tab:

    • Enter "transaction code" 300 and "amount " 0.00 in the "Assessment Information" field.

    • Enter transaction code "689" and the closing agreement dollar amount in the "Credit and tax computation adjustments" field.

  5. On the "Closing - Individual/Bus (2 of 3)" tab, select appropriate code(s) from the drop down menus for "Principal issue codes" . An entry is required in all four fields. At a minimum, the first field must include a code. Any fields not containing a code select "00" . The following codes are applicable to TEB:

    • 00 - Required for Use if no Other Code Applies

    • 04 - Delinquent Filing of Return

    • 34 - Other - (default if no other code applies)

    • 54 - Bonds Taxable

    • 55 - Arbitrage Rebate

    • 56 - Advanced Refunding

    • 57 - Yield Restriction

    • 58 - Yield Burning

    • 59 - Private Use

    • 60 - Change in Use

    • 61 - $10 million limitation

    • 62 - $40 million limitation

    • 63 - Issuance Costs

    • 69 - Penalty Failure to File

  6. On the "Closing - Individual/Bus (3 of 3)" tab, there are no applicable fields to complete.

4.81.5.7.8.1.7  (11-01-2009)
Civil Penalty Case Closing

  1. These instructions apply only when there is a Civil Penalty, such as under IRC section 6700 of the Code, which is being assessed. When an IRC section 6700 investigation results in a closing agreement, the case should be closed in accordance with IRM 4.81.5.7.8.1.6.

  2. In processing a Civil Penalty Case file, the activity record should be in a separate RCCMS folder. It should NOT be in the same RCCMS folder as the 8038 return series.

  3. Civil Penalty RCCMS files are non Master File; therefore, the AIMS Update box should not be checked. Examiners will, in coordination with the group manager, contact the TEB AIMS Coordinator and request a dummy module MFT 13 (Business) or MFT 55 (Individual) be created. The group secretary will request establishment on AIMS and monitor the account and notify the group manager and examiner when the AIMS account is fully established. The group manager should not request closure of the NMF case until the dummy module is fully established on AIMS. The dummy module is not established through RCCMS.

  4. Examiners will ensure that the status code is "12" on the "Codes" tab before attempting to close. A case must be updated to status 12 before a request for closure can be made.

  5. On the "Codes" tab:

    • Select "3 - EO-501(c) - All Others/GE - Tax Exempt Bonds " , from drop down menu for "Class" ,

    • Select appropriate grade of case form drop down menu for "Grade" , and

    • Select "1-Usual and Typical Issues" , from drop down menu for "Estate return" .

  6. On the "Closing - General" tab:

    • Select "401 - IRC 6700 Penalties on Related Parties" from drop down menu for "Disposal Code" ,

    • Select "5- No Return" from drop down menu for "Closing With" , and

    • If there is a correlating paper file, type "Paper File to Follow" in the "Remarks and Comments" , along with any other items that would normally be noted on Form 3198-A.

  7. On the "Closing - Details" tab:

    • Input the hours on the case, next to "Examiner's Time" ,

    • Unless otherwise specifically designated as part of a correspondence examination project, always select "4 - Field Examination" from the drop down menu for "Examination Technique" , and

    • Select your name from the drop down menu for " Examiner's Name" .

  8. On the "Closing - Individual/Bus (1 of 3)" tab, there are no applicable fields to complete.

  9. On the "Closing - Individual/Bus (2 of 3)" tab, select appropriate code(s) from the drop down menus for "Principal issue codes" . An entry is required in all four fields. At a minimum, the first field must include a code. Any fields not containing a code select "00" . The following codes are applicable to TEB:

    • 00 - Required for Use if no Other Code Applies

    • 04 - Delinquent Filing of Return

    • 34 - Other - (default if no other code applies)

    • 54 - Bonds Taxable

    • 55 - Arbitrage Rebate

    • 56 - Advanced Refunding

    • 57 - Yield Restriction

    • 58 - Yield Burning

    • 59 - Private Use

    • 60 - Change in Use

    • 61 - $10 million limitation

    • 62 - $40 million limitation

    • 63 - Issuance Costs

    • 69 - Penalty Failure to File

  10. On the "Closing - Individual/Bus (3 of 3)" tab, input the amount of penalty in the field labeled "GE entry only" .

4.81.5.7.8.1.8  (11-01-2009)
Survey before Assignment

  1. On the "Codes" tab:

    • Select "3 - EO-501(c) - All Others/GE - Tax Exempt Bonds " from drop down menu for "Class" ,

    • Select appropriate grade of case form drop down menu for "Grade" , and

    • Select "1-Usual and Typical Issues" from drop down menu for "Estate return" , and

  2. On the "Closing - General" tab:

    • Select "910 - Surveyed Before Assignment" from drop down menu for "Disposal Code" ,

    • Select either "1 - Original Return" or " 3 - Electronic Prints" , depending on the circumstance, from drop down menu for "Closing With" , and

    • If there is a correlating paper file, type "Paper File to Follow" in the "Remarks and Comments" , along with any other items that would normally be noted on Form 3198-A. You must include one of the following reason codes for surveying the case:

      • A - No large unusual Questionable items

      • B - No change in prior year

      • C - Beyond cycle (includes statute issue)

      • D - Lack of Resources

      • E - Other

  3. On the "Closing - Details" tab:

    • Input the hours on the case next to "Examiner's Time" ,

    • Unless otherwise specifically designated as part of a correspondence examination project, always select "4 - Field Examination" from the drop down menu for "Examination Technique" , and

    • Select your name from the drop down menu for " Examiner's Name" .

  4. On the "Closing - Individual/Bus (1 of 3)" tab, there are no applicable fields to complete.

  5. On the "Closing - Individual/Bus (2 of 3)" tab, there are no applicable fields to complete.

  6. On the "Closing - Individual/Bus (3 of 3)" tab, there are no applicable fields to complete.

4.81.5.7.8.1.9  (11-01-2009)
Survey after Assignment

  1. On the "Codes" tab:

    • Select "3 - EO-501(c) - All Others/GE - Tax Exempt Bonds " from drop down menu for "Class" ,

    • Select appropriate grade of case from drop down menu for "Grade" , and

    • Select "1-Usual and Typical Issues" from drop down menu for "Estate return" , and

  2. On the "Closing - General" tab:

    • Select "908 - Surveyed After Assignment" from drop down menu for "Disposal Code" or "Surveyed Bond Return after Initial Contact" depending on circumstance,

    • Select either "1 - Original Return" or " 3 - Electronic Prints" , depending on the circumstance, from drop down menu for "Closing With" , and

    • If there is a correlating paper file, type "Paper File to Follow" in the "Remarks and Comments" , along with any other items that would normally be noted on Form 3198-A. You must include one of the following reason codes for surveying the case:

      • A - No large unusual questionable items

      • B - No change in prior year

      • C - Beyond cycle (includes statute issue)

      • D - Lack of resources

      • E - Other

  3. On the "Closing - Details" tab:

    • Input the hours on the case, next to "Examiner's Time" ,

    • Unless otherwise specifically designated as part of a correspondence examination project, always select "4 - Field Examination" from the drop down menu for "Examination Technique" , and

    • Select your name from the drop down menu for " Examiner's Name" .

  4. On the "Closing - Individual/Bus (1 of 3)" tab, there are no applicable fields to complete.

  5. On the "Closing - Individual/Bus (2 of 3)" tab, there are no applicable fields to complete.

  6. On the "Closing - Individual/Bus (3 of 3)" tab, there are no applicable fields to complete.

4.81.5.7.8.2  (11-01-2009)
Requesting Closure of Case

  1. Once the Examiner completes all of the RCCMS tabs with the appropriate information and checks the AIMS box, the Examiner is ready to request closure through the RCCMS system.

  2. Examiner will request case closure by:

    • Highlighting the activity (or case) to be closed from the RCCMS List View,

    • Selecting "Actions" from the top line menu,

    • Clicking on "Request Closure" ,

    • Typing any required comments, such as "Paper Case to Follow " , if applicable, in the comments "request closure" dialog box,

    • Clicking "OK" , and

    • Clicking "Send/Receive" .

  3. This action will lock the case and RCCMS will generate a request to the group manager, which may be accepted or rejected by the group manager.

  4. An acceptance of the request to close the case will remove the case from the Examiner's inventory and place it in the group's unassigned folder.

4.81.5.7.8.3  (11-01-2009)
Managerial Review

  1. Once the group manager accepts a request for closure by the Examiner, the case resides in the group’s unassigned folder. Since an activity cannot be opened in the unassigned folder, it cannot be reviewed. The activity must be moved to either the group manager’s folder or some other designee. To move the activity, do the following:

    • Highlight the activity (or case) to be closed in the unassigned folder,

    • Select "Actions" from the top line menu,

    • Click on "Assign/Reassign" ,

    • Select the individual reviewing the case from the drop down menu in the "Assign/Reassign" to dialog box,

    • Select the existing status code of the case from the drop down menu in the "Assign/Reassign" to dialog box,

    • Uncheck the AIMS box in the "Assign/Reassign " to dialog box,

    • Type Reassign for Review in the comments,

    • Click "OK" , and

    • Click "Send/Receive" .

  2. Once the case moves to the manager or his/her designee’s folder, it is available for review. The group manager is responsible for ensuring all of the appropriate information was entered correctly by the Examiner prior to requesting acceptance from TEB Closing Analyst.

4.81.5.7.8.4  (11-01-2009)
Requesting Acceptance by the TEB Closing Analyst

  1. Once the group manager reviews the activity and ensures all tabs are completed correctly, the group manager will request acceptance of the case from the TEB Closing Analyst by doing the following:

    • Highlight the activity (or case) to be closed in the unassigned folder,

    • Select "Actions" from the top line menu,

    • Click on "Close" ,

    • In the "Close Case" dialog box, select the following from the respective drop down menu:

    • "Primary Business" : 400-Nationwide

    • "Secondary Business" : 25116-HQ TEB – Compliance and Program Management

    • "Employee Group" : 7211 – Compliance and Program Management

    • "Status Code" : 51 – Closing Evaluation

    • If there is a correlating paper file, type Paper File to Follow in the "Comments" box

    • Click "OK"

    • After you click "OK" , the IDRS Operator dialog box appears if the "Update AIMS " check box was selected. On the IDRS Operator dialog box, enter the following information about the person who will complete the AIMS update:

      • "Primary Business" : 400-Nationwide

      • "Secondary Business" : 25102 – TEB-Field Operations

      • "Employee Group" : The IDRS Operator’s group

      • "Employee" : The name of the employee who will connect to IDRS to do the AIMS update.

      • Click "OK"

      • Click "Send/Receive" .

  2. The action above will generate a message to the IDRS Operator. Once the IDRS Operator approves the AIMS update, RCCMS will generate a message to the TEB Closing Analyst. This message will allow the TEB Closing Analyst to accept or reject the activity. Once the TEB Closing Analyst receives any correlating paper file, it will accept the RCCMS case and RCCMS will interface with AIMS, updating the status code to 51. The case will no longer appear in the group’s inventory on RCCMS.

4.81.5.8  (11-01-2009)
Summons Procedures

  1. The authorized purposes for a summons (IRC section 7602) are to:

    1. Examine a return

    2. Prepare a return for a non-filer

    3. Determine the tax liability of any person or any transferee or fiduciary

    4. Inquire into any matter related to the administration or enforcement of the Internal Revenue Laws

  2. For general summons information, procedures, and examples, refer to IRM 25.5, Summons.

4.81.5.9  (11-01-2008)
Communicating Identified Issues

  1. Once an examiner has identified a potential issue(s), it is important to discuss that issue with the taxpayer or the taxpayer's representative as soon as possible. Discussing the potential issue(s) with the taxpayer or the taxpayer's representative can lead to an early resolution of the case.

  2. If the taxpayer concurs with the examiner’s position on the identified issue(s), the examiner should notify the manager and initiate closing agreement procedures.

  3. If the taxpayer does not concur, the examiner will discuss the issue(s) with the manager. With the manager’s concurrence, the examiner will provide the taxpayer or the taxpayer's representative with a written summary of potential issues on Form 5701-TEB, Notice of Proposed Adjustment.

    The Form 5701-TEB should include the issues, facts, law, and examiner's position.

    The taxpayer will be provided 30 days to respond to the Form 5701-TEB.

    Lack of response will be treated as non-concurrence.

  4. If the taxpayer concurs with the examiner's position as outlined on Form 5701-TEB, the examiner should notify the manager and initiate closing agreement procedures.

  5. If at any time the taxpayer requests technical advice on an identified issue, the examiner should follow Revenue Procedure 2009-2 or the succeeding annual revisions. Additional procedures to be followed are being developed and will be published in IRM 4.81.9.

    Note:

    The significance of the identified issue(s), to which the taxpayer has concurred, will determine whether the examiner will continue to follow the original audit plan or modify the scope of the examination.

4.81.5.9.1  (11-01-2008)
Proposed Adverse Determination

  1. Upon completion of the examination, all unresolved issues will be included in Letter 4413, Notice of Proposed Adverse Determination Letter. Prior to issuance, the examiner’s group manager will review the letter for accuracy and forward to the Manager, Field Operations, for approval. Once the Manager, Field Operations, provides written approval, the proposed adverse determination letter should be mailed certified mail, with a request for return receipt.

  2. Upon issuance of the Letter 4413, the examiner should initiate procedures to identify bondholders as outlined in IRM 4.81.7.

  3. In case of a conduit financing, if the conduit borrower is under examination by another operating division, simultaneously with the issuance of Letter 4413, the examiner should prepare Form 5701-TEB (Notice of Proposed Adjustment) disallowing the deduction under IRC section 150(b) and forward it to the examining operating division.

  4. If the taxpayer does not timely request an appeal in writing, the examiner will follow the procedures in IRM 4.81.5.9.2 for a final adverse determination.

  5. If the taxpayer provides a timely request for an appeal, the examiner should review the request and determine if it conforms to the requirements of Rev. Proc. 2006–40, 2006-42 I.R.B. 694 and IRS Publication 5.

    If the request does not conform to the requirements, the examiner should follow up with the taxpayer or the taxpayer's representative to perfect the request.

    Once the request is perfected, the examiner should review the perfected request and prepare a rebuttal to the arguments raised by the taxpayer or the taxpayer's representative. The examiner will then prepare the case for closure, in accordance with IRM 4.81.5.9.6 , and forward the case to the manager.

    The manager will review the case for accuracy and completeness. If the manager concurs, the case will be forwarded to CPM for review.

  6. An examiner shall make a bondholder referral, in accordance with IRM 4.81.7.1, to the bondholder unit in all proposed adverse cases.

4.81.5.9.2  (11-01-2008)
Final Adverse Determination

  1. Final adverse determinations will arise as a result of a proposed adverse determination not being appealed or as a result of a proposed adverse determination being upheld in the Office of Appeals. The examiner is responsible for required actions arising from the final adverse determination.

  2. When a case results in a final adverse determination, as a result of the proposed adverse determination not being appealed, the examiner will issue Letter 4409, Notice of Final Adverse Determination. This letter will be sent by certified mail, with a request for return receipt. The group manager will forward a copy of this letter to the Manager, Bondholder Unit, in accordance with IRM 4.81.7.4.

  3. When a case results in a final adverse determination, as a result of a proposed adverse determination being upheld after administrative appeal, a letter notifying the taxpayer will be sent by the Office of Appeals.

  4. When a case results in a final adverse determination, as a result of either, the following actions should be taken:

    1. In the case of a conduit financing, if the conduit borrower is under examination by another operating division or another TE/GE function, the examiner should inform them of the final adverse determination and coordinate as needed.

    2. In the case of a conduit financing, if the conduit borrower is not under examination, the examiner should make a referral to the appropriate operating division or other TE/GE function.

4.81.5.9.3  (11-01-2008)
No Change Examinations

  1. As a result of the examination of a bond issue, the examiner may conclude that there is no change to the position that interest received by bondholders is excludable from gross income under IRC section 103. The examiner will obtain the manager's concurrence.

  2. The examiner will prepare the closing letter, assemble the case file as outlined in IRM 4.81.5.9.6, and forward the case to the manager. The manager will review the case file and issue the closing letter, Letter 4411, No Change Letter.

4.81.5.9.4  (11-01-2008)
No Change Advisory Examinations

  1. As a result of the examination of a bond issue, the examiner may conclude that there is no change to the position that interest received by bondholders is excludable from gross income under IRC section 103. However, the examiner may have identified issues that may result in a future rebate liability or an adverse determination, unless future corrective action is taken.

  2. Examples of issues that have no impact on the current examination which may have an impact in the future are:

    1. The examiner determines that currently a facility, financed with a governmental bond, has private use in excess of the amount permitted. If the level of private use continues throughout the remainder of the measurement period, the bonds will be private activity bonds. The No Change Advisory Letter , Letter 4410, will advise the Issuer that if private use continues at the current level, the bonds may be taxable.

    2. The examiner determines the bonds under examination do not qualify for any of the spending exceptions and the exam reveals a potential rebate liability; however, the first computation date for computing rebate liability has not occurred. Letter 4410 will advise the Issuer that they do not qualify for any of the spending exceptions and therefore, may have a potential future rebate liability.

  3. With the manager's concurrence, the examiner will prepare Letter 4410 listing the identified issues.

  4. Examinations requiring Letter 4410 will be closed using a " Written Advisory" disposal code (RCCMS-213 or 214/AIMS-08).

4.81.5.9.5  (11-01-2008)
Coordination with Other Operating Divisions

  1. In the case of a conduit financing, the examiner should verify that tax-exempt bond financed assets are depreciated using the straight line method, in accordance with section 168(g) of the Code.

    • If the conduit borrower is a taxable entity for federal income tax purposes or an organization exempt under IRC section 501(c)(3) and subject to Unrelated Business Income Tax (UBIT), the examiner should determine compliance with the requirements of IRC section 168(g). If the conduit borrower is not a taxable entity for federal tax purposes, any non-compliance with IRC section 168(g) would have no tax effect (for example, an organization exempt under IRC section 501(c)(3), not subject to UBIT, a government or municipal entity).

    • If it is determined that an IRC section 168(g) adjustment is necessary, the examiner should discuss the adjustments with their manager and obtain concurrence.

    • If the conduit borrower is currently under examination by another operating division and TEB is entering into a closing agreement to which the conduit borrower is a party, the examiner should coordinate with the other operating division to determine whether TEB is to include the IRC section 168(g) adjustment in the closing agreement or refer the adjustment to the other operating division. If the other operating division is to include the adjustment in its examination, the examiner should forward the proposed adjustment to the appropriate point of contact.

    • If the conduit borrower is not currently under examination by another operating division and TEB is resolving the examination with a closing agreement, then the IRC section 168(g) adjustment should be addressed.

    • If there are no issues impacting the tax-exempt nature of the interest paid on the bonds under IRC section 103, the examiner should consider a closing agreement, solely on the IRC section 168(g) issue. If the conduit borrower does not wish to enter into a closing agreement on the IRC section 168(g) issue, the examiner should prepare a report proposing the adjustment as an attachment for an Information Report, Form 5666, for the appropriate operating division.

    • If there are other issues present in the bond examination that resulted in a proposed adverse determination to which the Issuer has submitted a timely protest, TEB will take an alternative position that the assets are tax-exempt bond financed and the IRC section 168(g) adjustment will be proposed.

  2. In the case of a conduit financing where the conduit borrower is under examination by another operating division, the examiner should prepare, simultaneously with the issuance of the proposed adverse determination, a Form 5701-TEB disallowing the deduction under 150(b) and forward it to the examining operating division.

4.81.5.9.6  (11-01-2008)
Case File Assembly and Closing

  1. Because further technical, administrative, and procedural action is sometimes required on a case after being closed from the examiner's inventory, it is important that the file be properly organized. This will assist group managers, reviewers, appeals officers, processing personnel, and others who may subsequently become involved with the case.

  2. The examiner is responsible for processing the examination case file within the Reporting Compliance Case Management System ("RCCMS " ) as delineated by Training Catalog Number 22269. Additional guidance for completion of the examination is detailed in the RCCMS program by accessing "RCCMS Help" on the "Help" menu. Periodic updates to RCCMS are found on the IRS intranet and can also be accessed on the "Help" menu by selecting "RCCMS on the Web" .

  3. In addition, the RCCMS Naming Convention was implemented pursuant to a memorandum dated April 11, 2008. This provides an established set of rules for naming files within RCCMS, so they may be logically and easily identified by users.

  4. Examiners will prepare all workpapers and other case file documentation in electronic format. All electronic files are to be included in the RCCMS case file and will close with the case. Any files which cannot be stored electronically, such as correspondence from the taxpayer or items with original signatures, should be included in the corresponding paper case file and forwarded to the Closing Unit simultaneously with the case closure on RCCMS.

4.81.5.9.6.1  (11-01-2008)
Case File Assembly

  1. Listed below are the documents which are part of a closed case file. Any documents not established, imported, or scanned into the RCCMS environment should be included in the paper case file.

  2. The paper case file must be identified with the taxpayer name, TIN, MFT, tax period, and report number on the folder tab. (Use a " status" label from the labels attached to the Form 5546, when available.)

  3. Form 3198-A, Special Handling Notice, must be stapled to the outside front of all paper case files and included as an electronic file within RCCMS. The Form 3198-A should identify the taxpayer name, tax period, and any special handling instruction (e.g. project, initiative, unagreed case, penalty, referral).

  4. Confidential informant documents must be in a confidential envelope, with Document 6441 on the outside of the envelope. This must be attached to the inside left of the paper case file. Confidential informant documents include Form 211 (Application for Reward for Original Information), Form 838 (Confidential Report on Claims for Reward), and Form 3949 (Criminal Investigation Information Item), etc.

  5. Place on the inside of case folder, not fastened, in order listed (top down):

    1. Undated original closing letter on TE/GE letterhead. (Manager will date, sign, and mail letter, including fully executed closing agreement when applicable. A copy of the closing letter will be included in the case file. An original fully executed closing agreement will also be included, when applicable. See paragraph (6)(a) below.

    2. Undated transmittal letter to the power of attorney. (Manager will date, sign, and mail with copy of the closing letter and place copy in case file. See paragraph (6)(b) below.

    3. Stapled together in the following order: Form 5546, Examination Return Charge Out; Form 3244-A, Payment Posting Voucher-Examination; copy of the check received as payment; copy of the examined return; Form 8821, Tax Information Authorization; Form 2848, Power of Attorney and Declaration of Representative; and conflict of interest waivers.

    4. In an unagreed case, examiner will include as a package Form 4665, Report Transmittal, examiner's rebuttal to the protest, taxpayer's protest and the proposed adverse letter.

  6. Clip or fasten on right side of the case file in the order listed (top down):

    1. Copy of the closing letter inserted by manager;

    2. Fully executed closing agreement inserted by manager;

    3. File copy of the transmittal letter to the power or attorney inserted by the manager;

    4. Form 5772 (EP/EO Workpaper Summary)

    5. Form 5773 (EP/EO Workpaper Summary Continuation Sheet); and

    6. The following items indexed to the Form 5773: workpapers; correspondence; Form 5464 (Case Chronology Record); attachments to workpapers; and exhibits.

4.81.5.9.6.2  (11-01-2008)
Case Closing Procedures

  1. Upon completion of the examination, the examiner is responsible for ensuring that the conclusion reached is technically correct and that the case is accurate from a procedural perspective. This includes, but is not limited to:

    1. Correctly preparing the closing letter and any transmittal letter(s) to the power of attorney;

    2. Identifying documents received in response to IDRs which are not necessary to support audit conclusions and preparing Letter 4412, Records Return Letter, addressed to the provider of the documents (e.g. taxpayer, conduit borrower, taxpayer's representative).

    3. Verifying workpaper documentation supports the conclusion(s) and are properly indexed to the Form 5772, EP/EO Workpaper Summary and the Form 5773, EP/EO Workpaper Summary Continuation Sheet.

    4. Ensuring case file is assembled as set forth in IRM 4.81.5.9.6.1;

    5. Purging unnecessary documents, including duplicate letters, envelopes, routing slips, etc.;

    6. Completing closing tabs on the RCCMS compliance activity correctly.

  2. The examiner is responsible for timely requesting closure through RCCMS and immediately mailing, utilizing Form 3210 (Document Transmittal), the paper case file to the manager.

  3. For unagreed cases, if the bonds were redeemed during, or prior to the examination, resulting in a situation where any remaining open statute years would be in jeopardy of being lost, the examiner should clearly indicate this information on Form 4665, Report Transmittal.

4.81.5.9.6.3  (11-01-2008)
Case Closing Procedures for Managers

  1. Upon receipt of a closed case from an examiner, the manager is responsible for ensuring that the conclusion reached is technically correct and that the case is accurate from a procedural perspective. This includes, but is not limited to:

    1. Reviewing the case timely;

    2. Returning the case to the examiner where appropriate;

    3. Pulling and mailing to the appropriate parties the closing letter, closing agreement, transmittal letter for copies to the power of attorney, and inserting copies in the paper case file;

    4. Mailing documents identified by examiner to be returned to provider, with Records Return Letter, and inserting copies in the paper case file; and

    5. Timely closing case in RCCMS and immediately mailing, utilizing Form 3210 (Document Transmittal), the paper case file to the Closing Unit.


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