4.88.1  Examination Issues Pertaining to ITG Cases (Cont. 1)

4.88.1.8 
Tip Agreements

4.88.1.8.19  (01-08-2010)
Introduction of the Tip Coordinator to the Tribes

  1. Upon receipt of a new agreement, the ITG Tip Coordinator will send a letter of introduction to the tipped establishment offering assistance on federal tip issues and advising the entity of the annual reporting requirements required by the tip agreement.

  2. The ITG Tip Coordinator will set up a tip file for the entity that includes contact information along with any other relevant information on the entity. The file will include a copy of the tip agreement plus copies of any correspondence between the entity and the Tip Coordinator.

  3. The ITG Tip Coordinator will maintain an activity spread sheet in the file regarding contacts between the Tip Coordinator and the tribal entity along with related ITG Specialist contacts.

4.88.1.8.20  (01-08-2010)
ITG Tip Coordinator Monitoring of Tip Agreements

  1. The ITG Tip Coordinator sends annual letters to the tribal entities with tip agreements each January reminding the entity of the required annual reports and the due dates of those reports.

  2. The required annual reports are transmitted electronically or by mail to the ITG Tip Coordinator. In addition, the entity must send a copy of the filed Forms 8027 to the ITG Tip Coordinator each year.

  3. The ITG Tip Coordinator reviews the reports for completeness and for indications of tip reporting problems. Information from these reports and the Forms 8027 are included in the case building documents when the tip file is sent out for refreshment.

  4. ITG Specialists should relay any changes in the tribe's business operations that would affect the tribe's tip agreement for possible revisions to the Tip Coordinator.

  5. The Tip Coordinator enters the data on nonparticipating employees into prescribed spreadsheets for referral to the Fresno Campus for employee tips examinations. The spreadsheets are transmitted electronically.

  6. Following the completion of the nonparticipating employee audits, the Fresno Campus transmits the nonparticipating employee exam results to the ITG Tip Coordinator.

  7. The Tip Coordinator uses the nonparticipating employee exam results as a basis for issuance of notice and demand letters under IRC 3121(q) to the tipped entities. The Tip Coordinator will monitor the entity accounts to ensure that the additional tax is reported and paid.

  8. Failure to follow the requirements of the tips agreements may result in substantial unreported tip income and lost revenue to the federal government. Although the revocation of a tip agreement should be the last resort, a revocation may be necessary in egregious situations.

  9. The Director, Indian Tribal Governments has sole authority to terminate an agreement on behalf of the Service.

4.88.1.9  (01-08-2010)
Excise Taxes

  1. This section provides the general responsibilities for ITG specialists in handling excise taxes, in particular, wagering taxes of Indian tribal governments. See IRM 4.24, Excise Tax. The IRM:

    1. Serves as the foundation for addressing consistent administration of excise taxes. This includes providing procedures for planning and selecting excise tax returns for examination.

    2. Provides guidelines for the classification of claims and information items relating to excise tax returns.

    3. Describes techniques used for the identification of and selection of excise tax return non-filers.

  2. Excise Tax returns generally do not lend themselves to the classification techniques used for income tax returns because they do not reflect items of income, expenses, assets or liabilities. Therefore, alternative classification techniques and criteria are used.

4.88.1.9.1  (01-08-2010)
Responsibilities and Procedures

  1. A Memorandum of Understanding between Indian Tribal Governments (ITG) and Office of Specialty Programs (formerly known as the Office of Excise Taxes or OET) provides guidance for employees in those functions with regard to examination and education activities relating to the federal excise tax responsibilities of Indian tribal governments. Memorandum of Understanding

  2. On January 1, 2001, ITG assumed responsibility for all wagering tax issues relating to Indian tribal governments, including any subdivision, subsidiary, or wholly owned business of the Indian tribal government. Office of Speciality Taxes will keep jurisdiction over all other excise tax issues relating to Indian tribal governments.

  3. ITG Managers will refer any issues they identify concerning non-wagering excises taxes to the designated Excise Tax Managers. Office of Speciality Taxes managers will notify the applicable ITG manager prior to initiating any examination or outreach activity with an Indian tribal government.

4.88.1.9.2  (01-08-2010)
Excise Taxes Applicable to Tribal Governments

  1. Tribal governments are, for certain excise taxes, treated as states, and a political subdivision of a tribal government is, for certain excise taxes, treated as a political subdivision of a state under IRC section 7871 (a) and (d) respectively. This treatment is for purposes of any refund or credit, or any exemption from or payment of certain federal excise taxes if, and only if, the article is for the exclusive use of the tribe and the transaction involves the exercise of an essential governmental function of the Indian tribal government.

  2. Functions that qualify as essential governmental functions (fire and police protection, etc.) will generally include those that are customarily performed by State and local governments with general taxing powers.

4.88.1.10  (06-01-2006)
Nontaxable Income of Tribal Members

  1. Individual tribal members are citizens of the United States and are subject to federal income tax, unless specifically exempted by a treaty or statute.

    • To claim such an exemption, an individual must first provide proof of tribal membership.

    • A request for such proof can be sent to the tribe in which the individual claims membership.

    • Many tribes issue membership cards and maintain a list of their enrolled members.

  2. Wages received by individual tribal members are subject to federal income tax regardless of whether they are earned in or outside of Indian territory, unless there is a specific treaty or statute exempting those wages. Gambling winnings, even if they are won at a tribally-owned casino, also are subject to federal income tax. Likewise, cash prizes to the winners of dance contests at pow-wows or similar cultural events are taxable. See Private Letter Ruling (PLR) 200420028.

  3. The following items are specifically excluded from the taxable income of individual tribal members:

    1. Income directly derived by the Indian allottee from restricted allotted land that is held in trust by the United States Government;

    2. Income derived from a fishing rights-related activity, which is exempt under section 7873 of the Code;

    3. Income that is exempt under treaty or statute; and

    4. Income received from land claim settlements and judgements pursuant to 25 U.S.C. 1407.

4.88.1.10.1  (01-08-2010)
Income Derived From Land

  1. Restricted allotted land is land that is allotted to a tribal member but restricted as to alienation. Income directly derived from restricted allotted land includes the proceeds from sales of timber harvested from the land, grazing fees, and income from mineral rights. Examples of income not directly derived from restricted allotted land are income from:

    • smoke shops

    • motels

    • thrift shops

    • and gaming

    even if conducted on restricted allotted land.

  2. Once a tribal member acquires fee simple title to restricted allotted land, any income derived from the land, including the sale of the land, is subject to federal income tax.

  3. The tribal member's tax basis in the allotted land is determined using the fair market value as of the date the tribal member receives fee simple title, unless that value is less than the tax basis computed under the rules set forth in Rev. Rul. 58-341.

  4. Additional information for ITG Specialists is available as a " position paper" Income Derived from the Land on the ITG intranet site.

4.88.1.10.2  (06-01-2006)
Income Derived From Fishing Rights

  1. IRC section 7873 exempts from federal taxation (i.e., income, employment, and self-employment) any income derived by a member of an Indian tribe or a qualified Indian entity from a fishing rights-related activity of that member's or entity's tribe.

  2. The fishing rights must be guaranteed to a tribe by a treaty, statute, or executive order secured as of March 17, 1988. Any member of a tribe guaranteed a right to fish for subsistence or commercial purposes by treaty, executive order, or statute may be eligible for the exclusion.

4.88.1.10.3  (01-08-2010)
Fishing Rights-Related Activity

  1. A fishing rights-related activity is any activity directly related to harvesting, processing, or transporting fish harvested in the exercise of a treaty fishing right; or to selling such fish but only if all of such harvesting was performed by members of such tribe. This includes administrative, judicial, and enforcement activities. See Exhibit 4.88.1-6.

  2. FAQs regarding Fishing Rights-Related Activities are provided on IRS.gov/tribes.

4.88.1.10.4  (06-01-2006)
Fishing Claims

  1. Abatement Requests on Form 3870 that pertain to "fishing rights" should be sent directly to:
    Ogden Submission Processing Campus
    1973 North Rulon White Blvd.
    M/S 6552, BMF Adjustments
    Ogden, Utah 84404

  2. The following information is required by Ogden to process fishing rights claims:

    1. Signed statement from the employer, indicating they will not repay the over-collected amount to the employee, nor file a claim for a refund of the over- collected amount

    2. Employer Identification Number (EIN) and name of employer

    3. Copies of the Form(s) W-2 involved

    4. Certification of tribal membership, obtained from either the tribal council or the Bureau of Indian Affairs (a photocopy of tribal membership is acceptable)

    5. Certification of treaty fishing rights related employment

  3. If any one or more of the above items is omitted from the claim, the claim will be returned to the taxpayer, requesting the missing information.

4.88.1.11  (01-08-2010)
Miscellaneous Examination Procedures

  1. The following issues relate to matters that may be raised during an ITG examination. Reference to other source materials are provided.

  2. An additional aid on examinations for ITG Specialists is in the TREES system under the "other" tab in the document repository.

4.88.1.11.1  (06-01-2006)
Authority to Request Books, Records, and Accountants Work papers

  1. The Internal Revenue Code, IRS Regulations, Internal Revenue Manual, and the Indian Tribal Governments Specialist's Pocket Commission, provide the authority to request and receive books, records, etc., necessary to properly examine an entity's tax return.

  2. When a taxpayer indicates a reluctance to provide the necessary records, the examiner must be insistent, yet courteous, in requesting the records. Here are some suggestions:

    1. Apprise the taxpayer of the appropriate requirements to produce books and records. Explain that denying access to the records will only prolong the examination or investigation since third party inquiries will, by necessity, be initiated.

    2. Do not ever attempt to mislead or misrepresent the scope of the examination or investigation in an effort to secure records.

    3. Do not assert your authority in a manner that could be interpreted as a threat.

    4. Do not summons the records unless the action is first approved by your Group Manager.

  3. Accountant's work papers used in the audit of tax records or in preparation of a tax return are not the property of the taxpayer and are not privileged information. Therefore, the work papers can be summoned.

  4. See IRM 21.3.7, Processing Third Party Authorizations onto the Centralized Authorization File (CAF), for complete guidelines for requesting work papers. The guidelines provide that:

    1. The term "audit work papers" means work papers compiled for creditors, stockholders, and other third parties and not for compiling data preparatory to placing it on a tax return.

    2. The provisions do not apply to cases under joint investigation with Criminal Investigation (CI).

    3. Examiners will not request work papers as a matter of standard investigative procedures; request only the work papers believed to be materially relevant to the investigation. Examiners must remember that the primary source of information is the taxpayer's records, and the accountant's work papers will normally be used only as a collateral source of information.

4.88.1.11.2  (06-01-2006)
Summons

  1. This section provides a brief overview of summonses and serves as a reference for ITG Specialists when issuing or handling summonses on tribal governments or their subsidiaries. See IRM 25.5, Summons Handbook.

  2. The ITG Specialist is advised to only use the summons as a last resort after all other means to request records have been exhausted. In no event should a summons be issued for a tribal membership list.

4.88.1.11.2.1  (01-01-2003)
Provisions of Law

  1. The provisions of the law relating to the use and enforcement of a summons are contained in the following sections of the Internal Revenue Code (IRC):

      IRC section 7602 Examination of Books and Witnesses
      IRC section 7603 Service of Summons
      IRC section 7604 Enforcement of Summons
      IRC section 7605 Time and Place of Examination
      IRC section 7609 Special Procedures for Third-Party Summonses
      IRC section 7610 Fees and Costs for Witnesses
      IRC section 7612 Special Procedures for Summonses for Computer Software
      IRC section 7622 Authority to Administer Oaths and Certify
      IRC section 7402 Jurisdiction of District Courts
      IRC section 7210 Failure to Obey Summons
      IRC sections 6420(e)(2), 6421(g)(2) and 6427(j)(2) Statutes relating to examining certain books and records.
      IRC section 6503(j) Designated and Related Summons

4.88.1.11.2.2  (06-01-2006)
Delegation Orders

  1. The authority to issue, serve and enforce summonses, and to perform other related duties as described in the IRC sections listed above, is delegated to Indian Tribal Government Group Managers. See IRM 1.2.52.7.

  2. The authority to obligate appropriated funds for payment of search costs, reproduction costs and transportation costs in connection with third party summonses is discussed in IRM 1.2.52.12.

4.88.1.11.2.3  (06-01-2006)
Coordination with Other Divisions

  1. Due to the unique laws affecting Indian tribes, Service employees issuing summonses to a tribal entity must ensure that the information being sought is legally obtainable, and that the summons can be enforced if necessary. For that reason, employees should strongly consider a review of a summons by Counsel, with specific input by designated ITG field counsel. This includes any IRS summons, except those initiated by Criminal Investigation, served to a tribal government, regardless of its source.

  2. ITG must be notified in advance of the service of any summons to a tribal entity, except those initiated by Criminal Investigation. This includes summonses which originate from other IRS divisions (LMSB, SB/SE, etc.) or in any office of TEGE other than ITG.

4.88.1.11.3  (01-01-2003)
Power of Attorney (POA)

  1. Attorneys, CPAs, enrolled agents or other authorized individuals from whom an Indian tribal entity has requested assistance on tax problems may submit inquiries to the IRS. The third party expects a reply to the inquiries so the problem can be explained to the taxpayer.

    1. Procedures on processing POAs, and other third party authorization are set forth in IRM 21.3.7, Processing Third Party Authorizations on the Centralized Authorization File (CAF).

    2. Additional information on third party authorizations, including Tax Information Authorization, are available on the Office of Professional Responsibility (OPR) web site, OPR. Guidance is provided on making referrals to the OPR and on the tax professionals responsibilities for preparing returns.

  2. To authorize a third party reply, the representative may submit:

    1. Form 2848, Power of Attorney and Declaration of Representative (POA), or

    2. Form 8821, Tax Information Authorization (TIA).

  3. The Form 2848 and Form 8821 should contain the following information:

    1. Name and mailing address of the taxpayer (i.e. Indian tribal entity)

    2. Identification number of the taxpayer (i.e. Taxpayer Identification Number)

    3. Employee plan number (if applicable)

    4. Name and mailing address of the representative(s)/appointees

    5. The type of tax involved (e.g., employment, excise, etc.), the federal tax form number, the specific year(s)/periods(s) involved.

    6. The taxpayer(s)' signature(s) (e.g., authorized tribal government official) and date

    7. In the case of a Form 2848, a completed Declaration of Representative (Part II)

  4. Under the following circumstances, process the POA/TlAs as follows:

    IF THEN
    The POA/TIA is received, not attached to any return or document Fax it to the Submission Processing Campus CAF function *
    The authorization is attached to Correspondence Review to determine if other requests are involved
    Other requests are involved Photocopy the correspondence and send along with the authorization to the CAF function for processing
    Other requests are not involved Send correspondence and authorization to the Submission Processing Campus CAF function for processing

    Note:

    * See Publication 4019 for a list of current Submission Processing Campus Fax numbers

  5. The POA/TlAs filed for specific issues are not to be detached from the related document and sent to the CAF function, unless the document authorizes recognition for a return in addition to the specific issue. In this case a copy of the POA/TIA should be sent to the CAF function to input the return portion on the CAF system. Examples of specific issues include, but are not limited to the following:

    1. Form 843, Claim for Refund and Request for Abatement

    2. Form W-4, Employee's Withholding Allowance Certificate

    3. Form 5308, Request for Change in Plan/Trust Year

    4. Form 1128, Application to Adopt, Change or Retain a Tax Year

    5. Form SS-4, Application for Employer Identification Number

    6. "General" or " Durable" POA. Even if these instruments contain sufficient information to function as IRS POAs, they usually lack information sufficient to process on CAF. If a general or durable POA is submitted, attach a completed Form 2848 (a transmittal POA) and send both forms to the CAF function for processing.

  6. If proper authorization is secured, forward the POA/TIA, to the appropriate Submission Processing Campus.

    Note:

    Original documents, photocopies, or documents submitted by facsimile transmission (FAX) are acceptable for processing.

4.88.1.11.4  (06-01-2006)
Third Party Contacts

  1. The provisions of IRC section 7602(c) and the regulations thereunder apply to all third party contacts. It is the Service's policy to obtain information relating to a liability or collectibility determination directly from the taxpayer whenever possible. See IRM 11.3.17.5, Collecting Information Relating to Individuals from Third Party Sources.

  2. Generally, contacts with third parties are made when we are unable to obtain the information from the tribal government/tribal enterprises or to verify information provided by the tribal government/tribal enterprises. However, employees should make every effort to first obtain information from the tribal government/tribal enterprise.

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

    1. Provide advance notice to the tribal government/tribal enterprises that third party contacts may be made.

    2. Provide a list of third-party contacts to the tribal government/tribal enterprises upon request.

    Note:

    IRC section 7602(c) does not require an IRS employee to obtain authorization from the tribal government/tribal enterprise in order to contact a third party. A tribal government/tribal enterprise may not prevent an IRS employee from contacting a third party by refusing to provide authorization. Obtaining authorization only means that the employee is not required to give reasonable notice in advance that a third-party contact may be made.

4.88.1.11.4.1  (06-01-2006)
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 tribal government/tribal enterprise and asks questions with respect to that tribal government/tribal enterprise's federal tax liability. The statute does not apply to contacts initiated by third parties.

  2. Third Party Contact procedures relating to an examination for TE/GE personnel are the same as those for SB/SE personnel and are set forth in IRM 4.10.1.6.12.

4.88.1.11.5  (10-01-2006)
Fraud Procedures

  1. To ensure proper detection and prevention of fraud in Indian tribal government entities, and to ensure consistency within the Service, Indian Tribal Governments (ITG) will coordinate resources with the National Fraud Coordinator, located within SB/SE.

  2. The Director, ITG has designated a Fraud Coordinator (FC) from Group 7289, Abuse Detection and Prevention Team (ADAPT), to facilitate the development of cases, and assist with communications between operating functions.

  3. The ITG Fraud Coordinator, in conjunction with the Fraud Technical Advisors (FTA) from SBSE, will provide guidance to ITG Managers and Specialists on the development of fraud cases.

4.88.1.11.5.1  (01-08-2010)
Fraud Development

  1. As soon as an ITG Specialist discovers indicators of fraud, he/she should discuss the issue with their Group Manager.

  2. If the Group Manager concurs that the indicators of fraud are present, the ITG Specialist will contact the ITG Fraud Coordinator (FC) to discuss the indications of fraud. The FC and an ADAPT Manager will determine if the case should be referred to ADAPT or continue to be worked by the ITG Specialist.

  3. The ITG FC will contact the SBSE FTA in the appropriate location. If the SBSE FTA agrees, the ITG FC will set up a conference call or meeting with the ITG Specialist, ITG Group Manager and SBSE FTA to discuss the case. If all parties agree that the case should be developed for fraud, the ITG Specialist will complete Form 11661 (Fraud Development Recommendation -- Examination) and forward it the ITG FC for signature.

  4. The ITG FC will forward the Form 11661 to the SBSE FTA for their signature. The ITG FC and the SBSE FTA will prepare a plan of action and forward to the ITG Specialist. Under no circumstances should the ITG Specialist or ITG Group Manager contact CI at this stage.

  5. Upon receipt of a signed Form 11661, the ITG Specialist will update the case to Status 17 (fraud development) on AIMS (note: EOIC will not accept this designation), and proceed with the plan of action. (Development check sheet Form 11660).

  6. During the fraud development phase of the examination, one of the following will occur:

    • The case will be returned to status 12 on AIMS and worked as a normal case.

    • The case will be developed for civil fraud

    • The case will be referred to CI for criminal investigation

4.88.1.11.5.2  (03-01-2007)
Civil Fraud

  1. Once it is determined that criminal fraud is not an issue, and/or all criminal proceedings have been completed, civil fraud may be considered. The ITG Specialist will complete the development of the case, including the recommendation regarding the assertion of the civil fraud penalty. The ITG FC and/or the SBSE FTA will assist with the write-up if the need arises. The case will remain in status 17 on AIMS during this process.

4.88.1.11.5.3  (01-08-2010)
Criminal Fraud

  1. Once affirmative acts (actions taken by the taxpayer that establish criminal intent) have been established, and criminal criteria (criteria used by CI for selecting a case for criminal investigation) are present, the ITG Specialist will suspend all examination activity and refer the case to Criminal Investigation (CI). The referral will be made via Form 2797 (Referral Report of Potential Criminal Fraud Cases). The ITG FC and/or SBSE FTA will assist in the preparation where necessary.

  2. The completed Form 2797 will be routed through the ITG Group Manager and ITG FC for concurrence. The ITG FC will route the Form 2797 to the SBSE FTA, who will forward the approved Form 2797 to the appropriate CI field office for consideration.

  3. The Special Agent assigned to evaluate the criminal fraud referral will arrange an initial meeting to discuss the merits of the case within ten (10) working days of receipt of the referral. The ITG Specialist, ITG Group Manager, the ITG FC, SBSE FTA, and the Supervisory Special Agent will be invited to attend.

  4. CI will conduct a disposition conference within 30 working days of receipt of the criminal fraud referral to discuss acceptance or denial of the referral. If the criminal fraud referral is accepted, CI may make a request for a cooperating agent. The request is made on Form 2797, and must be made through the ITG Director. An ADAPT Group Manager will serve as an alternate.

  5. A copy of Form 11661 and Form 2797, which are completed in the process and returned to the examiner, should remain in the case file. In addition, forms submitted on all fraud cases to the ITG FC will be maintained as documented involvement

4.88.1.12  (06-01-2006)
Collection Issues

  1. Indian Tribal Governments' (ITG) role in the collection process involves education, outreach, assistance, facilitation and coordination. ITG personnel assist tribes in understanding pertinent collection policies and procedures. ITG personnel also facilitate resolution of collection matters by coordinating with other IRS employees and serving as a liaison with the tribe.

  2. Every effort should be made to prevent collection problems through education and outreach. When collection problems occur, efforts should be made to resolve the issue at the earliest possible stage.

  3. Examples of collection issues and procedures in which ITG personnel can provide information and assistance are:

    • federal Tax Return filing

    • federal Tax Deposits

    • Information Reporting

    • Interest and Penalties

    • Abatements and Adjustments

    • Offers-in-Compromise

    • Trust Fund Recovery Penalties

    • Installment Agreements

    • Other Collection Procedures

    Note:

    Several of these areas are addressed below, while others are covered elsewhere in this IRM 4.88.1.

4.88.1.12.1  (06-01-2006)
Penalty Abatement

  1. IRM 20.1, Penalty Handbook, provides detailed criteria, guidelines and procedures for both assessing and abating penalties.

  2. IRS employees can also reference LEM 20.l.

4.88.1.12.1.1  (06-01-2006)
Relief from Penalties

  1. In IRM 20.1.1.3, four general categories of penalty relief are discussed:

    • reasonable cause

    • statutory exceptions

    • administrative waivers, and

    • correction of IRS errors

  2. Other criteria for relief from penalties are also discussed, such as undue hardship, advice from a tax advisor, fire, casualty, and natural disaster.

  3. Reasonable cause is generally granted when ordinary business care and prudence is exercised by the taxpayer in determining his or her tax obligations.

  4. Reasonable cause, as well as other relief provisions, is to be administered in a consistent manner.

  5. ITG personnel should consider the definitions of "ordinary " and "prudence" as it pertains to the specific tribal taxpayer. Each case is to be judged individually based on the facts and circumstances at hand.

  6. For a further discussion of reasonable cause and the review of information to determine if ordinary business care and prudence were exercised, see IRM 20.1.1.3.

4.88.1.12.1.2  (01-08-2010)
Requesting Penalty Relief and Processing

  1. Requests for penalty relief may be received in conjunction with:

    • an outreach visit,

    • a compliance review,

    • in the course of, or after an examination,

    • with the filing of a return, or

    • in the form of a telephonic inquiry from an Indian tribal entity

    • or by e-mail

  2. When a telephonic inquiry is received, ITG personnel may advise the taxpayer as to the potential of a written relief request, subject to a determination by the appropriate IRS employee.

  3. Each request is to be evaluated on its own merit. The method to review the request and examples where relief may and may not be appropriate are discussed in IRM 20.1.1.3.4.

  4. IRM 5.1.15.10 covers the use of Form 3870, Request for Adjustment, for processing penalty abatements. Penalty abatements/adjustments are to be approved by the ITG Group Manager.

  5. Approved penalty adjustments of less than $1 million are input by the ITG designated CPM analyst.

  6. Methods of appealing penalties are discussed IRM 20.1.1.4.

4.88.1.12.2  (01-08-2010)
Interest Abatement and Adjustments

  1. Procedures for abatement of interest can be found in IRM 20.2.7. Reasonable cause is not a basis for abating interest. Interest-free adjustments are discussed under "Employment Taxes" in this ITG manual. See IRM 4.88.1.2 and IRM 4.23.8.3.

4.88.1.12.2.1  (06-01-2006)
Criteria for Relief

  1. IRC section 6404(a) allows abatement of interest that is:

    • excessive in amount,

    • assessed after the expiration of the period of limitations

    • or is erroneously or illegally assessed.

  2. IRC section 7508A provides for interest abatement in Presidentially - declared disaster areas.

  3. IRC section 6404(e)(2) provides for interest abatement on any erroneous refund under IRC section 6602, with certain qualifications.

4.88.1.12.2.2  (06-01-2006)
Delegation and Interest Calculation

  1. Delegation authority varies depending on code section and dollar amount of the request (see IRM 20.2.7.3 ). It addresses actions to take, referencing when the interest abatement issue is raised by the taxpayer and under what function (i.e., compliance, appeals, criminal investigation, etc.).

  2. Interest computation, transaction codes, blocking series, and periods to include in calculations are discussed in IRM 20.2.7.12 .

4.88.1.12.2.3  (01-08-2010)
Advising Taxpayer and Processing

  1. Provisions for advising the taxpayer of the abatement determination are included in IRM 20.2.7.1.

  2. Procedures for processing requests are discussed in IRM 20.2.7.4.3.

  3. Use of Form 3870, Request for Abatement, and other forms for processing abatements are found in IRM 5.1.15.1 and IRM 5.4.2.4.

4.88.1.12.2.4  (01-08-2010)
Appeal Rights and Dispute Process

  1. Appeals rights are discussed in IRM 20.2.7.11.

  2. The taxpayer may agree to any interest determination with a closing agreement, Form 906.

  3. The taxpayer has appeals rights on all claims. Processing directions on appeals of interest abatement denials are included.

  4. Disputes on the amount of interest, based on interpretation of law or as to the method used to compute, are to be resolved at the immediate supervisory level. See IRM 20.2.7.9.

4.88.1.12.2.5  (01-08-2010)
Processing Adjustments

  1. Form 3870 adjustments are to be approved by the ITG Group Manager.

  2. Approved adjustment documents will be inputted to IDRS by a CPM analyst.

  3. All Forms 3870 with or without supporting documents should be sent to the designated CPM analysts for analysis and input, including all attachments and taxpayer original documents.

  4. A copy of the Form 3870 and all supporting documentation will be maintained by each ITG Specialist to monitor for final and complete posting of the transaction. Upon verification of the completed transaction (final not pending), the Specialist will:

    1. shred all retained copies of the material, and

    2. date and mail the letter for denied or partially denied cases

    Note:

    IDRS Analyst's dollar limit is $1,000,000. If Group Manager prefers it to go to Ogden for processing, mail the form to :
    Internal Revenue Service
    Atten: BMF Adjustments
    1973 N. Rulon White Blvd. M/S 6552
    Ogden, Utah 84404-7843

4.88.1.12.3  (01-08-2010)
Offers-in-Compromise

  1. Sometimes an account receivable cannot be collected in full or there is a dispute on what is owed. The authority to compromise tax is found in IRC section 7122 and Regulation section 301.7122-1.

  2. Offers-in-Compromise (Offers) can be based on:

    • doubt as to collectibility

    • doubt as to liability

    • effective tax administration (additional Basis for Compromise), and

    • hardship considerations.

    See IRM 5.8.11.

    1. IRM 5.8, Offer in Compromise, provides procedures for Service employees to follow when working Offers. IRM 5.8 also covers the objectives of the Offer program, considerations in compromising Substitute for Return assessments, and the offer submission process.

  3. Policy Statement P-5-100 ( IRM 5.8.1.1.3 presents the Service's position on using offers. In short, the Service will accept an offer when it is unlikely that the liability can be collected in full and when the amount offered reasonably reflects collection potential. The goal is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to the government.

4.88.1.12.3.1  (01-08-2010)
Coordination with SB/SE

  1. SB/SE Collection is responsible for:

    • offers based on doubt as to collectibility

    • offers to compromise Trust Fund Recovery Penalty

    • offers on personal liability for excise tax, and

    • offers based on effective tax administration unless the original assessment determination was made by Appeals.

  2. Assignment of offers based on both doubt as to liability and doubt as to collectibility will be assigned initially to the SB/SE Collection function for a collectibility determination.

  3. SB/SE Examination is responsible for offers based solely on doubt as to liability, except the liabilities described above (see IRM 5.8.1.3).

  4. Examples of doubt as to liability offers that may be assigned to ITG Specialists include FICA, FUTA, income tax withholding, and excise tax pertaining to gaming.

4.88.1.12.4  (06-01-2006)
Trust Fund Recovery

  1. IRM 5.7 contains several sections concerning the Trust Fund Recovery Penalty (TFRP). The TFRP is based on IRC section 6672.

  2. Employment tax examinations in which full rates are used (see IRM 5.7.3.4) will necessitate a TFRP determination, with consideration to the dollar criterion. See LEM 5.7, Trust Fund Compliance.

  3. Also, a claim may be submitted by a tribal entity for consideration of an abatement of a TFRP assessment. "Responsibility" and "willfulness" (defined below) are the key elements that need to be established in order to assess and sustain the TFRP.

  4. As discussed below, the extent of SB/SE involvement in the TFRP process will be determined on a case-by-case basis.

4.88.1.12.4.1  (06-01-2006)
Responsibility and Willfulness

  1. IRM 5.7.3.3.1 and IRM 5.7.3.3.2 discuss responsibility and willfulness. The criteria to use in determining who is a responsible person and definitions of willful and willfulness are provided. Computing the statutory assessment period and extending the statutory assessment date are covered in IRM 5.7.3.5 and IRM 5.7.3.6.

  2. Factors to consider in determining whether a person is "responsible" are described. These factors involve whether a person has the status, duty and authority to ensure that the trust fund taxes are paid.

  3. The definitions of "willful" and "willfulness" which are provided are as follows:

    1. Willful -- Intentional, deliberate, voluntary, reckless, knowing, as opposed to accidental.

    2. Willfulness -- To show willfulness, the government generally must demonstrate that a responsible person was aware or should have been aware of the outstanding taxes and either intentionally disregarded the law or was plainly indifferent to its requirements.

4.88.1.12.4.2  (06-01-2006)
Investigation and Recommendation

  1. IRM 5.7.4 covers the investigation of all potential responsible persons and includes securing Form 4180, Report of Interview with Individual Relative to Trust Fund Recovery Penalty or Personal Liability for Excise Taxes. Also covered are securing additional information when necessary and considerations in the decision to pursue the investigation of the trust fund liability.

4.88.1.12.4.3  (06-01-2006)
Considering Installment Agreements, Collectibility and Alternatives

  1. The ITG Specialist, with a Revenue Officer, can secure an installment agreement on a business trust fund case. Considerations and procedures for installment agreements are discussed in IRM 5.7.7, IRM 5.14.7.4, and IRM 5.14.7.5.

  2. Alternatives to the TFRP, such as transferee assessments, suits, and payments on behalf of the corporation are discussed in IRM 5.7.4.1.1 and IRM 5.7.4.4 .

4.88.1.12.4.4  (06-01-2006)
Coordination with SB/SE Collection

  1. If an ITG Specialist, in consultation with his/her manager, determines that a Trust Fund Recovery Penalty (TFRP) may be applicable, they will refer the matter to a Revenue Officer for resolution.

  2. ITG will assist the Revenue Officer to make a determination (appropriate initial information and facts to assist making a decision). (See IRM 5.7.6 and IRM 5.7.4.3.)

4.88.1.12.4.5  (06-01-2006)
Other Compliance Procedures

  1. When SB/SE Collection considers use of certain procedures (e.g., federal tax liens, notice of levy, and seizure and sale), the circumstances shall be discussed with an ITG Specialist and/or an ITG Manager. The ITG Manager will determine in which instances the Director's involvement is appropriate.

  2. Tribal contact with ITG personnel may occur concerning the use of the procedures referenced above. ITG personnel may discuss the situation with the tribe, SB/SE Collection and/or Submission Processing Campus.

  3. In certain unusual and/or exigent circumstances (see IRM 5.10, 5.11 and 5.12), ITG personnel may need to use the above referenced procedures. If the procedures after consultation with the ITG Manager are determined to be necessary, Revenue Officer involvement is required.

4.88.1.13  (06-01-2006)
Account Resolution

  1. Tribes, tribal enterprises, or tribal members may request ITG assistance in resolving SB/SE Collection, Submission Processing Campus or other matters. ITG personnel may contact Collection, Submission Processing Campus and other IRS personnel to determine the status of a situation as appropriate and serve as a liaison in the resolution process.

    1. See IRM 4.88.1.12.2 for Abatement/Adjustment criteria and procedures relating to penalties and interest.

    2. See IRM 4.88.1.3.4 for a discussion of processing IRC section 3402(d) adjustments.

4.88.1.13.1  (06-01-2006)
Submission Processing Campus

  1. In some instances coordination with the Submission Processing Campus is needed. For example:

    • penalty and interest abatements

    • adjustments

    • enforced collection

    • payment and credit transfers

  2. Entity Issues:

    1. Changes - IRM 4.4.11 covers entity changes that can be accomplished by using the Form 2363, Master File Entity Change. These include, but are not limited to, name, address, and marital status changes. See IRM Exhibit 4.4.11-1 to complete Form 2363.

    2. Unpostables - Chapter 8 of ADP and IDRS Information, Document 6209 (for internal use only), gives explanations of unpostable codes. If a Submission Processing Campus employee controls the account on IDRS, it is helpful to ask for this person's assistance.

    3. Establishment - When ITG personnel have a customer which needs to establish an entity with the Service by securing an Employer Identification Number (EIN), the Form SS-4 , Application for Employer Identification Number, is used. The Submission Processing Campus can be telephoned to initially secure the EIN with a follow up by the mailing or faxing of the SS-4. The SS-4 instructions provide specific information on the application process. Direct contact information for the applicable Entity Control Unit is included.

4.88.1.13.2  (06-01-2006)
Payment Tracers and Credit Transfers

  1. IRM 5.4.2.4, IRM 5.4.2.6, and IRM 5.4.2.7 cover payment tracers, which is the process used to locate a missing or misapplied payment made by a taxpayer. This IRM Section provides procedures for locating missing payments and deciding who works payment tracer cases needing various levels of research.

  2. While ITG personnel may research misapplied payments and/or prepare/process Form 4159, Payment Tracer Request, if the case is assigned to a Revenue Officer (RO), coordination with the RO is required. If not assigned to an RO, assistance from Collection in the IDRS research and Form 4159 preparation may be necessary.

  3. Coordination with the Submission Processing Campus (SPC) may be needed if the SPC controls the account on IDRS. This coordination may include a telephonic resolution. Contact with the SPC prior to processing the Form 4159 is recommended. This contact will enable ITG personnel to determine SPC employee assignment and direct communication with that employee.

  4. IRM 21.5.8 contains procedures for transferring credits once payment tracer research has located any missing payments/credits.

  5. The mailing address for the Submission Processing Campus location that processes ITG account adjustments, payment tracers and credit transfers is:

    Internal Revenue Service
    1973 N. Rulon White Blvd.
    Mail Stop 6552
    Ogden, UT 84404-7843

4.88.1.13.3  (01-08-2010)
Taxpayer Advocate Service and Form 911

  1. The Taxpayer Advocate Service (TAS) is available to ensure protection of taxpayers' rights. IRM 13.1 , Taxpayer Advocate Case Procedures, provides pertinent information. Publication 1546, The Taxpayer Advocate Service --Your Voice at the IRS, provides contact and additional information.

  2. When coordination efforts between divisions do not resolve a tribal issue, TAS referrals should be considered as a potential avenue of resolution when the criteria are met.

  3. Any taxpayer, in certain hardship situations, can initiate a referral using Form 911.

  4. The Indian Tribal Governments office and the Taxpayer Advocate Service adhere to provisions of the TAS/ TEGE Service Level Agreement regarding the procedures and responsibilities for the processing of TAS casework when the authority to complete case transactions rests with ITG. For additional information, IRS employees may go to the TAS Web Site at http://tas.web.irs.gov/ .

4.88.1.14  (01-08-2010)
Private Letter Rulings and Technical Advice Requests

  1. Technical questions arising in ITG tax cases involving the interpretation and application of tax laws, regulations, or other precedents published by the ITG Headquarters to a specific set of facts may involve a request for a Private Letter Ruling (PLR) (by the taxpayer) or a request for a technical advice (TAM) (by the ITG Specialist). See Rev. Proc. 2009-4 and Rev. Proc. 2009-5 , (revised annually) for procedures for requesting private letter rulings and technical advice, etc.

  2. Upon written request, the Service issues interpretations to taxpayers or their authorized representatives to advise them of the proper application to specific situations of the provisions of the Internal Revenue laws, related statutes and regulations, or revenue rulings and other precedents.

  3. Technical advice is furnished as a means of assisting Service personnel in closing cases and establishing and maintaining uniformity in the treatment of issues.

  4. TE/GE Counsel is responsible for providing interpretations for ITG and its customers. When releasing letter rulings, technical advice, information letters, closing agreements, and determination letters that result from an Indian tribal or ITG request, Counsel provides an unredacted copy of the document to the Director, ITG as part of its normal distribution.

4.88.1.14.1  (01-08-2010)
Private Letter Rulings (PLR)

  1. Chief Counsel Directives Manual 33.2, Technical Advice and Technical Expedited Advice includes considerations of the timing and manner of processing letter rulings, including situations involving pending revenue rulings. Definitions of these interpretations can be found in the annual revenue procedures mentioned above, as can situations in which the interpretations will and will not be issued.

  2. Revocation and modification of the interpretations, the processing and withdrawal of requests, and requirements for submission of requests are covered, with reference to the applicable Rev. Proc. section.

  3. When a taxpayer is not under examination, but discusses an issue with an ITG Specialist, the Specialist may consult with Counsel in providing information to the taxpayer. The Specialist may also discuss with the taxpayer the use of a PLR request to receive further consideration of the issue from Chief Counsel.

  4. When a taxpayer decides to proceed with a PLR, the Specialist may work with the taxpayer to facilitate the submission of the request. The Specialist may provide the Revenue Procedure and may assist in processing the PLR request through Compliance and Program Management.

4.88.1.14.2  (01-08-2010)
Technical Advice Memorandums (TAM)

  1. Chief Council Directives Manual 33.2.2 provides standards for requesting and the effect of technical advice, as well as procedures for requests and issuing advice. Revenue Procedure 92-2, 1992-1 I.R.B. (revised annually) is cited. The Rev. Proc. is updated annually as the second Rev. Proc. of the year, but may be modified or amplified during the year. For example, Rev. Proc. 2005-2 was dated 01/03/05. Specifics on the preparation of the TAM request are included in the revenue procedure.

  2. As discussed in IRM 33.2.1.9 , field offices are encouraged to request technical advice at the earliest possible stage of the proceedings on any technical or procedural question that cannot be resolved on the basis of law, regulations, or a clearly applicable revenue ruling or other precedent. Technical advice should be requested in cases in which any of the following conditions exist:

    1. The law and regulations are not clear as to their application to the issue being considered and there is no published precedent for determining the proper treatment of the issue;

    2. There is reason to believe that a lack of uniformity in the disposition of the issue exists;

    3. A doubtful or contentious issue is involved in a number of cases;

    4. The issue is so unusual or complex as to warrant TAM consideration; or

    5. The Director or the Appeals Office believes that securing technical advice would be in the best interest of the Service.

  3. As discussed in IRM 33.2.1 , a technical advice memorandum represents an expression of the views of the Service as to the application of tax law, tax treaties, regulations, revenue rulings, or other published precedents to the facts of a specific case. Except in rare or unusual circumstances, a holding in a technical advice memorandum that is favorable to the taxpayer is applied retroactively. Also as discussed in Rev. Proc. 2005-2, section 15.02, an adverse holding is generally applied retroactively. Provisions for modification and revocation of holdings are also covered in IRM 33.1.2.

  4. Specifics on procedures for requesting and processing technical advice are covered in IRM 33.1.2.2.

  5. The Specialist, usually in consultation with TE/GE Counsel will initially develop the issue(s) involved. This initial development is to be a synopsis and will include the issue(s), the known facts and circumstances, existing relevant law and regulations, and any lack of clarity in the law impacting the determination for proper treatment in the subject case. Prior to proceeding further, Compliance and Program Management (CPM) will be consulted. CPM will review the synopsis and provide a response to the Specialist. See IRM 4.89.1.11, the ITG CPM IRM Section on TAMs.

  6. If CPM and the Specialist agree to proceed, the Specialist will further develop the TAM request. This may involve Information Document Request(s) and meetings with the taxpayer/representative. The Specialist should always consider reaching an agreement to resolve the issue(s) during this process. In preparing the TAM request, the Specialist is to follow the Rev. Proc. and may consult with Counsel during this preparation. The TAM request draft is to be shared with the taxpayer/representative in an attempt to reach agreement on the wording of the sections covering the issue(s), the facts, the law, and the Taxpayer's Position. The Specialist should transmit the completed TAM request, along with a completed ITG transmittal form, Form 13842, through CPM for the approval of the Director, ITG. Approved TAMs will be forwarded to Chief Counsel, Tax Exempt and Government Entities.

  7. CPM will send a reminder to the Specialist, upon receipt of a request for Counsel input, to update the TREES and AIMS status to 38.

  8. The CPM staff will track the progress of TAMs after they have been received by Counsel. Chief Counsel will return the completed TAM to CPM for transmittal to the originator. Counsel provides an unredacted copy of the document to the Director, ITG as part of its normal distribution.

4.88.1.15  (06-01-2006)
Coordination with Office of Professional Responsibility

  1. All issues regarding the performance of professional tax practitioners representing a tribe are to be referred to the IRS Office of Professional Responsibility of the Deputy Commissioner for Services and Enforcement.

Exhibit 4.88.1-1  (01-08-2010)
Gaming Withholding and Reporting Thresholds

GAME FORM 1099 Required FORM W-2G Proceeds Not Reduced by Wager FORM W-2G Proceeds Reduced by Wager FORM W-2G Withholding Required
See Note 1
FORM 1042S Foreign Payouts Verifiable Payments
See Note 2
Slot win   $ 1,200     Yes
Bingo win   $ 1,200     Yes
Keno win
1-20 games
over 20 games
    $1,500   Yes
Sweepstakes, lotteries, wagering pools
Proceeds > 300 times amount wagered.
Withholding required regardless of payout odds.
    $ 600
$5,000
Yes
Caribbean stud, let it ride, survival dice, 21 superbucks
Wagering transaction with proceeds > 300 times the amount wagered.
See Note 3.
    $ 600
$5,000
Yes
Tournament - no entry fee $ 600       Yes
Tournament - with entry fee
See Note 4.
         
Pari-mutuel, including horse racing, dog racing and Jai Alai
With proceeds > 300 times amount wagered.
    $ 600
$5,000
Yes
Drawings, promotions (prizes received with no wager) $ 600       Yes
Sports event or contest
Only reportable if proceeds exceed 300 times the wager.
    $ 600


$5,000
Yes

Note:

1. Winnings must be reduced by the amount wagered and the proceeds must exceed $5,000

2. Payments made to non-resident aliens are subject to withholding and reporting on Form 1042-S (Proceeds from blackjack, craps, roulette, baccarat, or big wheel 6 are exempt from withholding and reporting.)
3. Players of these table games can receive payments where the proceeds exceed 300 times the wager. These payments are subject to reporting at $600 in proceeds and withholding is applicable at $5,000 in proceeds.
Tournaments with entry fees must be analyzed to see if the entry fee is a wager, and if the proceeds exceed the wager by 300 times or more, or if the tournament is a wagering pool.

Exhibit 4.88.1-2  (01-08-2010)
General Guidelines - When to Withhold and Report Gaming Wins

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Exhibit 4.88.1-2 (XX-XX-XXXX) -- General Guidelines- When to Withhold and Report Gaming Wins

Exhibit 4.88.1-3  (01-08-2010)
General Welfare Exception Summary of Authority

Rev. Rul. 57-1, 1957-1 C.B. 15 Strike benefits paid by union to needy striking employees not excludable from income; general welfare exception rulings distinguished.
Rev. Rul. 57-102, 1957-1 C.B. 26 General welfare exception applies to state's payments to blind persons.
Rev. Rul. 63-136, 1963-2 C.B. 19 Benefits paid to persons undergoing training excluded under general welfare exception where no services required.
Rev. Rul. 65-139, 1965-1 C.B. 31, clarified by Rev. Rul. 66-240, 1966-2 C.B. 19 Where state hires unemployed persons to perform socially beneficial work and pays reasonable compensation for work performed, employment relationship arises and payments are not general welfare payments.
Rev. Rul. 66-240, 1966-2 C.B. 19 Basis for conclusion in Rev. Rul. 65-139 is that enrollees receive wages for services performed, even though services may embody some training.
Rev. Rul. 66-285, 1966-2 C.B. 455 Amounts paid to students under college work- study program are wages for services performed, not excludable under general welfare exception.
Rev. Rul. 67-144, 1967-1 C.B. 12, modified by Rev. Rul. 71-425, 1971-2 C.B. 76 Bifurcating amounts paid to needy persons into noncompensatory general welfare payments -- amounts in excess of that directly attributable to services performed -- and compensation for services performed. See Rev. Rul. 71-425 for modification.
Rev. Rul. 68-38, 1968-1 C.B. 446 Payments to participants in tribal program to train enrollees in construction skills to enhance employability are excludable under general welfare doctrine; main purpose is training.
Rev. Rul. 68-133, 1968-1 C.B. 136 Payments to "job service corpsmen" to aid in their efforts to acquire new job skills are general welfare payments; training.
Rev. Rul. 70-217, 1970-1 C.B. 13, superseding I.T. 3447, 1941-1 C.B. 191 Social security benefits excludable under general welfare exception.
Rev. Rul. 71-425, 1971-2 C.B. 76, modifying Rev. Rul. 67-144 Holding that on facts, payments to needy persons to participate in work experience programs to help them develop work habits to enhance employability are all excluded under general welfare exception. Note: concludes exclusion appropriate when payments are made in lieu of and not in excess of subsistence payments; if in excess of that amount, all payments are taxable except to extent the amount received exceeds the fair market value of the services performed under the program.
Rev. Rul. 72-340, 1972-2 C.B. 31 Stipend paid to encourage probationers to participate in job counseling/training/work experience program are general welfare payments; training.
Rev. Rul. 73-87, 1973-1 C.B. 39 Payments to needy families are excludable as general welfare payments where no services were required to be performed; university experiment encouraging work.
Rev. Rul. 74-74, 1974-1 C.B. 18 Payments by state to crime victims based on need are not income under general welfare exception.
Rev. Rul. 74-153, 1974-1 C.B. 20 State payments to needy adoptive parents to assist in raising adopted children are excludable under general welfare exception.
Rev. Rul. 74-205, 1974-2 C.B. 20 Payments to needy families whose homes have been taken by government action are excludable as general welfare payments where payments are designed to assist needy families in acquiring a decent home and suitable living conditions.
Rev. Rul. 74-413, 1974-2 C.B. 333 Wages paid by state to short-term employees hired to assist in disaster clean up are not excludible under general welfare exception despite needy status of hirees.
Rev. Rul. 75-32, 1975-1 C.B. 14 Amounts paid by USDOT for retraining discharged air traffic controllers is compensation to controllers because paid by USDOT in its capacity as employer with respect to past services.
Rev. Rul. 75-246, 1975-1 C.B. 24 Scenarios distinguish between amounts paid in connection with training -- excludable under general welfare exception -- and amounts paid in connection with services -- compensation.
Rev. Rul. 75-271, 1975-2 C.B. 23 Interest subsidies paid by HUD on behalf of needy families not income under general welfare exception.
Rev. Rul. 76-75, 1976-1 C.B. 14 Interest subsidy payments made by HUD on behalf of owners of low-income housing projects are income to project owners.
Rev. Rul. 76-131, 1976-1 C.B. 16 Bonuses paid by state to long-time residents not excludable as general welfare because not need based.
Rev. Rul. 76-144, 1976-1 C.B. 17 Disaster grants by states to needy individuals to pay for essential needs not income under general welfare doctrine.
Rev. Rul. 76-230, 1976-1 C.B. 19 Amounts paid by IRS under IRS Scholarship program not excludable under general welfare exception because relates to performance of services.
Rev. Rul. 76-373, 1976-2 C.B. 16 Relocation costs paid to families displaced by urban renewal project excluded under general welfare exception.
Rev. Rul. 76-395, 1976-2 C.B. 16 Home rehabilitation grants to needy families to correct substandard conditions are excludable as general welfare payments.
Rev. Rul. 77-77, 1977-1 C.B. 11 Payments to Indians to expand profit-making enterprises on or near reservations excludable under general welfare exception.
Rev. Rul. 78-46, 1978-1 C.B. 22 Forgiving repayment of interim survivor's benefit, paid by a governmental unit later found to be improperly paid not income under general welfare doctrine if forgiveness of the repayment is due to a showing of economic hardship.
Rev. Rul. 78-170, 1978-1 C.B. 24 Utility subsidy grants paid by state on behalf of needy residents not income under general welfare exception.
Rev. Rul. 82-106, 1982-1 C.B. 16 Relocation assistance payments made by landlord to evicted tenants, in accordance with local ordinance requiring flat payment, not excludable under general welfare exception.
Rev. Rul. 85-39, 1985-1 C.B. 21 Payments made by state of Alaska to residents regardless of need are not excluded from income under general welfare exception.
Rev. Rul. 98-19, 1998-1 C.B. 840 Payments made by city to residents moving from a flood-damaged residence to another residence are excluded from income under general welfare exception.
Rev. Rul. 99-44, 1999-2 C.B. 549 Interest earned by an Individual Development Account (IDA) project participant on funds deposited in a participant's personal account is includible in the participant's gross income; however, a participant may exclude parallel funds paid by a charity for a qualified expense as a gift under 102.
Notice 99-3, 1999-1 C.B. 271 Federal Temporary Assistance for Needy Families (TANF) payments will be excluded from income under general welfare exception if:
(1) the only payments received by individuals with respect to a work activity are received directly from the state or local welfare agency;
(2) individual eligibility is based on need, and the only payments relating to a work activity are funded entirely under a TANF program; and
(3) the size of payments is determined by the applicable welfare law, and the number of hours allowed for work activity is limited by the size of the individual's payment divided by the higher of the federal or state minimum wage.
Notice 2002-76, 2002-2 C.B. 917 Payments by governmental unit to help individuals pay for extra reasonable and necessary personal, living, and family expenses they incur as a result of the continuing effects of a Presidentially declared disaster under IRC Section 1033 are excluded from income under the general welfare exclusion and IRC Section 139. Payments in excess of such amounts and made regardless of any other needs-based criterion must be included in income.
Rev. Rul. 2003-12, 2003-1 C.B. 285, modifying Rev. Rul 131, 1953-2 C.B. 112. Payments received by individuals to help pay for unreimbursed reasonable and necessary medical, temporary housing, and transportation expenses they incur as a result of a Presidentially declared disaster under IRC Section 1033 are excluded from income under (i) the general welfare exclusion and IRC Section 139 if received from a governmental unit, (ii) Section 102 as a gift if received from a charity, or (iii) IRC Section if received from an employer..
Notice 2003-18, 2003-1 C.B. 699 Payments by governmental unit to aid businesses affected by a disaster do not qualify under the general welfare exclusion because the exclusion generally is limited to individuals who receive governmental payments to help them with their individual needs (e.g., housing, education, and basic sustenance expenses). In addition, the payments do not qualify for exclusion from income under IRC Section 139.
Rev. Rul. 2005-46, 2005-2 C.B. 120 Payments by a governmental unit to reimburse real and other tangible property losses incurred by businesses as a result of a disaster are not excluded from gross income under general welfare or IRC Section 139.
United Housing Foundation, Inc. v. Forman, 421 U.S. 837 (1975) In non-tax case, Court states, "The low rent derives from the financial subsidies provided by the State of New York. This benefit cannot be liquidated into cash; nor does it result from the managerial efforts of others. In a real sense, it no more embodies the attributes of income or profits than do welfare benefits, food stamps, or other governmental subsidies."
Bannon v. Commissioner, 99 T.C. 59 (1992) State payments to incompetent's mother in her capacity as care-giver are taxable as income and may not be excluded under general welfare exception; compensation for services performed.
Bailey v. Commissioner, 88 T.C. 1293 (1987) Facade grant paid to building owner as part of urban renewal initiative was not need based and may not be excluded under general welfare exception.
Graff v. Commissioner, 74 T.C. 743 (1980), aff'd 673 F.2d 784 (5th Cir. 1982) HUD's payment of interest payments on behalf of low income housing project owner are includible in owner's income; not excludable under general welfare exception.

Exhibit 4.88.1-4  (01-08-2010)
Comparison of TRDA and GITCA

  TIP RATE DETERMINATION AGREEMENT (TRDA) GAMING INDUSTRY COMPLIANCE AGREEMENT (GITCA)
Term of Agreement As stated in agreement 3 years or less -- May be renewed for additional terms of 3 years
Effective Date First day of the next calendar quarter following signature by both parties On date agreed within the body of the GITCA
Reopening of Rates On application by casino by 9/30 of each year Mutual agreement of both parties at any time during the term of the agreement
Threshold to Maintain Agreement 75% of eligible employees must participate to guarantee TRDA maintained 50% of eligible employees must participate to guarantee GITCA maintained
IRC 3121(q) Relief During the period the TRDA is in effect no IRC 3121 (q) assessment against the employer except for employee tips reported on Forms 4137 and 885-T. For any taxable year the GITCA is in effect no IRC 3121(q) assessment on tip income of the employees except for audit results on non participating employees and employee tip income reported on F-4137
Form 8027 Filing Required for all food and beverage operations and employees Not required for food and beverage operation and employees if records are given to the Service that includes all relevant data
Shift/Hour/Occupa- tional Category Reporting Requirements Required annually on non-participating employees Annual reporting required on all tipped employees
Tip Rate Calculation /Methodology By occupation and shift By occupation and shift--housekeeping occupations cannot be included
Tip Audits of Participating Employees No guarantee of retroactive relief No retroactive audit unless the employee declined prior participation in a TRDA or GITCA
Termination of Agreement At any time by the casino, or by IRS if less than 75% participation at the end of a calendar year, failure to comply with the agreement terms, or where an enforcement proceeding exists By joint agreement of both parties, or by IRS if participation is less than 50%, the employer fails to attempt to raise participation to 75%, or the employer fails to comply with any material provision of the agreement

Exhibit 4.88.1-5  (01-08-2010)
Tip Rate Determination Agreement

TIP RATE DETERMINATION AGREEMENT
(Gaming Industry)
between
and

[Name of Employer]
Department of the Treasury-Internal Revenue Service
 
(Taxpayer-Employer's name, address, and identifying number) ("Employer" ) hereby agree to the following Tip Rate Determination Agreement ("Agreement " or "Gaming TRDA" ).
All employees who receive tips are required (1) to keep contemporaneous and accurate records of the tips received, (2) to report the tips received to their employer at least monthly, and (3) to report those tips on their federal income tax returns.
This document has been developed pursuant to the Market Segment Understanding (MSU) Program. The purpose of this document is to implement a program (1) to ensure maximum compliance by the employees of the Employer with those provisions of the Internal Revenue Code of 1986, as amended, relating to tip income; and (2) to avoid disputes under section 3121(q) of the Code. This program will minimize the burden on the Employer resulting from tip compliance programs of the Internal Revenue Service as well as reduce enforcement costs.
The parties therefore agree as follows:
I. DEFINITIONS
A. "Service Representative" means the Internal Revenue Service employee or delegate authorized to execute or terminate this TRDA on behalf of the Internal Revenue Service and Indian Tribal Governments.

B. "Gaming establishment" means a casino or other building, vessel, or room used for gambling. It includes land and water based establishments, bingo parlors, card rooms, slot machine and keno facilities, and any similar place where wagering is conducted.

C. "Employee" means an individual who
1. is described in an Occupational Category defined in section I.E.,
2. has completed more than 30 consecutive days of service with the Employer, and
3. regularly and routinely receives tips (directly or indirectly) of at least $20 a month during the course of the Employee's employment.

D. "Employer" means _____________________________________
[insert name, address, and EIN].

E. "Occupational Category" means a category listed in Attachment A.

F. "Participating Employee" means an Employee who--
1. Gives to the Employer a signed Tipped Employee Participation Agreement (" TEP" ) (including, but not limited to, the language of Attachment B), indicating participation in the tip reporting program, and
2. In accordance with this Agreement, reports tips to the Employer, as required by law, at or above the tip rate established for the Employee's Occupational Category.
At the option of the Employer, a Participating Employee may also include a tipped employee with 30 or fewer days of service who has given the Employer a signed TEPA.

G. "Tip Rate" means the applicable rate described in Section III.
II. COMMITMENT OF EMPLOYER
A. Records maintenance requirements. While this Agreement is in effect, and in addition to records otherwise required to be maintained, the Employer agrees to maintain the following records:
1. Employee records. For each Employee, the Employee's name and social security number; the Employee's Occupational Category or Categories (as defined in section I.E.); the Employee's reported tips; and the Employee's shift(s) and/or hours. For food and beverage employees, the Employee's charged tips (if any) and sales (if appropriate),
2. Gaming establishment records. If the Employer is not otherwise required, by state statute or regulation, to maintain records of tips received by gaming establishment Employees,
a. For each instance of toke and chip-cashing, the dollar amount of tokes and chips presented to the cage for cashing by the toke committee (or other representatives of gaming establishment Employees), and
b. For each instance of toke and chip-cashing, a list of the tip splits furnished to the Employer by its Employees or the toke committee (or other representatives of gaming establishment Employees).
3. Food and beverage operations records. If the Occupational Categories defined in section I.E. include food or beverage servers,
a. Gross receipts subject to food or beverage tipping, and
b. Charge receipts showing charged tips.
4. Tip rates records. For each Occupational Category, all records of data used to determine the tip rates. The Employer must retain the records listed in this section II.A. for at least 4 years after the April 15 following the calendar year to which the records relate.

B. Requirements for furnishing information. The Employer will furnish to the Service Representative the following documents:
1. Annual report of Employees.
a. General rule. For each Employee who is a nonparticipating Employee on the last day of the calendar year, an annual report showing the Employee's name and social security number; the Employee's Occupational Category or Categories (as defined in section I.E.); and the Employee's shift(s) and hours. The report may list all Employees as long as the required information is included for all nonparticipating Employees. The report is due on March 31 following each calendar year.
b. Exception. No report is required for a calendar year if the Employees reported tips for the calendar year at a rate equal to or greater than the rates established under section III. of this Agreement.
2. Form 8027. If the Occupational Categories defined in section I.E. include Employees of one or more food or beverage establishments, a copy of the Forms 8027, Employer's Annual Information Return of Tip Income and Allocated Tips, filed for those establishments with the service center. The copies are due on the last day of February following each calendar year.

C. Requirements for making records available at the request of the Service Representative. At the request of the Service Representative, the Employer will furnish any of the records identified in section II.A.

D. Requirements for filing returns and paying and depositing taxes. The Employer will comply with the requirements for filing all required federal tax returns and paying and depositing all federal taxes.
III. TIP RATES
A. Methods of measuring tips. Depending on the Occupational Category and the Employer's business practices, tips can be measured in different ways. This Agreement contemplates the following types of measurements:
1. Actual tips. Actual tips generally apply to Employees in Occupational Categories where pooling of tips is common. Generally, they pool the tips collected during a shift and split the total among the Employees of the Occupational Category who worked the shift.
2. Tip rates. Tip rates generally apply to Employees in Occupational Categories where pooling of tips is not common. The rate may be a percentage of sales, a dollar amount per hour or shift, a dollar amount per drink served, a dollar amount per dealing hour, or other accurate basis of measurement.

B. Actual tips. Employees in Occupational Categories where tips are pooled and split must report the actual amount of tips they receive. The tip rate method of reporting tips is not available for these Employees.

C. Tip rates.
1. Methods for determining tip rates. The Employer will determine tip rates for the Occupational Categories based on information available to the Employer, historical information provided by the Service Representative, and generally accepted accounting principles. The rates will specify whether the tips are received as a percentage of sales, a dollar amount per hour or shift, a dollar amount per drink served, a dollar amount per dealing hour, or on another basis.
2. Initial tip rates. The initial tip rate approved for each Occupational Category is shown onAttachment A. Where Employees pool and split tips, the "Actual tips" method will be indicated on Attachment A.

D. Determination of subsequent tip rates and Occupational Categories.
1. Annual review. The Employer will review annually, on a calendar year basis, the tip rates assigned to its Occupational Categories. In connection with this review, the Employer may review its Occupational Categories. The initial rates for each Occupational Category shown on Attachment A will apply to the first full calendar year of this Agreement.
2. Procedures.
a. Employer submission. If the Employer believes that a revision of one or more rates or Occupational Categories is appropriate, the Employer will submit proposed revisions to the Service Representative by September 30. If the Employer fails to submit a proposed rate revision by September 30, the Employer will be treated as having submitted the rate in effect for the current year.
b. Service Representative review. The Service Representative of the Internal Revenue Service will review the proposed rates and notify the Employer in writing of its approval or disapproval by November 30. If the Service Representative does not approve one or more proposed rates, the existing rate or rates will be continued until no later than the last day of the following February. If the Employer and the Service Representative are unable to agree upon a rate or rates by the last day of the following February, this Agreement will terminate pursuant to section V.C.
3. Effective date of revised rates and Occupational Categories. Approved revised rates and Occupational Categories for a calendar year will become effective on the later of (1) January 1 of the calendar year, or (2) the first day of the month following the date the Employer and the Service Representative agree upon a revised rate.
IV. COMMITMENT OF INTERNAL REVENUE SERVICE
A. Participating Employee. The Internal Revenue Service will not examine a Participating Employee's tip income for any period for which a TEPA is in effect, if the Employee reports tips to the Employer at or above the tip rate established for the Employee's Occupational Category and the Employee reports that income on a timely filed return. B. Employer.
1. General rule. Except as provided in section IV.B.2. below, any section 3121(q) notice and demand issued to the Employer by the Service Representative with respect to tips received by Employees in the Occupational Categories defined in section I.E. shall be based solely on amounts reflected on one or more of the following forms:
a. Form 4137, Social Security and Medicare Tax on Unreported Tip Income, filed by an Employee with his or her Form 1040, or
b. Form 885-T, Adjustment of Social Security Tax on Tip Income Not Reported to Employer, prepared at the conclusion of an employee tip examination.
2. Special rules.
a. Termination. In the event of a termination under section V., the general rule in section IV.B.1. will apply with respect to tip income actually received by (or deemed under section 3121(q) of the Code to have been paid to) Employees during the period from the effective date of this Agreement until the effective date of termination.
b. Ongoing Tip Examination or TRDA Validation. This Agreement will not affect any tip examination or TRDA validation of the Employer that was begun before this Agreement is entered into.

C. Compliance review. The Internal Revenue Service may evaluate the Employer and its Participating Employees for compliance with the provisions of this Agreement.
V. TERMINATION
A. Termination by Employer. The Employer may terminate this Agreement at any time.
B. Termination by Internal Revenue Service. The IRS may terminate this Agreement if:
1. Lack of Employee participation. At the end of any calendar year, less than 75 percent of the Employees in the Occupational Categories defined in section I.E. are Participating Employees,
2. Failure of Employer to comply with section II. The Employer fails to meet any of the requirements of section II., or
3. Other. This Agreement can be revoked if the Service is involved in an administrative or judicial examination, investigation, or proceeding involving the Employer or a related party, whether the examination, investigation, or proceeding is initiated before or during the Employer's participation in the Agreement.

C. Termination upon failure of parties to agree to revision of tip rates. If the Employer and the Internal Revenue Service fail to agree to a revision of any of the tip rates under the procedures set forth in section III.D.2.b., this Agreement will terminate.

D. Notice of termination and effective date. Any termination under section V.A. or B. must be in writing and will be effective on the first day of the calendar quarter following the date of the notice.
VI. MISCELLANEOUS
A . Effective date of agreement. This Agreement is effective on the first day of the first calendar quarter following the date the Service Representative signs the TRDA.

B. Examinations and/or inspections of books and records. For purposes of this TRDA -
1. Compliance review. A compliance review is not treated as an examination or an inspection of the taxpayer's books of account or records.
2. Examination. The inspection of books of account or records pursuant to a tip examination is not an inspection of books or records for purposes of section 7605(b) of the Code, and is not a prior audit for purposes of section 530 of the Revenue Act of 1978.

C. Notices. The parties will send all correspondence pertaining to this TRDA to the stated below, unless notified in writing of a change of address. In the event of a change of address, the parties must send all correspondence to the new address. All notices are deemed to be sent or submitted on the date of the postmark stamped on the envelope or, in the case of a notice sent by certified mail, the sender's receipt.

D. Authority. The Employer represents that it has the authority to enter into this TRDA.

E. Statutory changes. The Commissioner of Internal Revenue Service may terminate this Agreement at any time following a significant statutory change in the FICA taxation of tips.

F. Statutory Changes. The Commissioner of Internal Revenue may terminate this agreement at any time following a significant statutory change in the FICA taxation of tips.
VII. PAPERWORK REDUCTION ACT
The collections of information contained in this document have been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U.S.C. 3507(c)) under control number 1545-1530.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number. The collections of information in this document are in sections II.A, II.B., II.C., III.D., V.A., and V.D. This information is required to comply with sections 6053(a) and 6001 of the Internal Revenue Code and to assist the Internal Revenue Service in its compliance efforts. This information will be used to monitor the Employer's performance under the Agreement. The collections of information are required to obtain the benefits available under the Agreement. The likely respondents are business or other for-profit institutions.

The estimated total annual reporting and/or record keeping burden is 4,367 hours.

The estimated annual burden per respondent/recordkeeper varies from 12 hours to 99 hours, depending on individual circumstances, with an estimated average of 44 hours. The estimated number of respondents and/or recordkeepers is 100.

The estimated annual frequency of responses (used for reporting requirements only) is on occasion.

Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by section 6103 of the Code.
VIII. SIGNATURES
By signing this Agreement, the parties certify that they have read and agreed to the terms of this document, including Attachments A and B.
 
EMPLOYER INTERNAL REVENUE SERVICE
________________________________
(Name of Employer)
Indian Tribal Governments
   
_________________________________
(Signature)
_________________________________
(Signature)
BY: _____________________________ BY: _____________________________
(Service Representative)
TITLE :___________________________ TITLE :Group Manager
   
________________________________
(Street -Headquarters)
________________________________
(Street )
   
________________________________
(City, State, ZIP code)
________________________________
(City, State, ZIP code)
DATE: ___________________________ DATE: ___________________________
Revised 01/29/2002
TRDA (Gaming Industry)
Attachment A
[sample format]
Dealers Actual tips
Food servers % of sales
Cocktail servers % of sales
Bartenders % of sales
Room service food servers % of sales
Bell persons $ /
Valets $ /
TRDA (Gaming Industry)
Attachment B
TIPPED EMPLOYEE PARTICIPATION AGREEMENT
 
I am an employee of _______________________________ and wish to participate in my employer's tip reporting program.
In accordance with a Tip Rate Determination Agreement (Gaming Industry) between my employer and the Internal Revenue Service, I agree to report my tips to my employer, as required by law, at or above the tip rate established by my employer and approved by the IRS for my Occupational Category.
 
EMPLOYEE
Name (printed):
 
Signature: __________________________________
Home address:
 
 
Social Security Number: __________________________
DATE:

Exhibit 4.88.1-6  (01-08-2010)
Tax Audit Guidelines for Internal Revenue Examiners

TAX AUDIT GUIDELINES FOR INTERNAL REVENUE EXAMINERS
Indian Fishing Rights-- IRC Section 7873

Section 3041 of the Technical and Miscellaneous Revenue Act of 1988 (TAMRA) added Internal Revenue Code section 7873, Income Derived by Indians from Exercise of Fishing Rights. This section exempts from federal taxation (i.e., income, employment, and self-employment) any income derived by a member of an Indian tribe or a qualified Indian entity from a fishing rights-related activity of that member's or entity's tribe. The fishing rights must be guaranteed to a tribe by a treaty, statute, or executive order secured as of March 17, 1988.

When a taxpayer reports the receipt of income as excludable from gross income under IRC Section 7873, the examiner should verify the following:

IF THEN
a) Excluding wages earned as an employee (1) Proof of tribal membership verified by the tribe. This can be verified with a statement from the tribe and with the tribal membership enrollment card. This card includes the enrollment number, the signature of the authorizing official, as well as the official seal.
(2) A statement from the employer verifying that it is either an arm of the tribe or that it meets each of the requirements for qualified Indian entities per IRC 7873. These requirements are:
1 It is engaged in treaty fishing rights-related activities of the employee's tribe.
2 It is 100% owned by one or more qualified Indian tribes or members of such tribes (or their spouses). An Indian tribe is a qualified Indian tribe with respect to an entity if such entity is engaged in a fishing rights-related activity of such tribe.
3 Substantially all of the management functions are performed by members of qualified Indian tribes.
4 If its business is the processing or transporting of fish, at least 90% of its annual gross receipts is derived from the fishing rights-related activities of one or more qualified Indian tribes, each of which owns at least 10% of the entity. This document should also state that the employer maintains records to support these requirements.

Note:

The exclusion does not apply to any amounts received as an employee of a government agency such as the Department of Interior or Bureau of Indian Affairs.


(3) Verification of time allocated to fishing versus non-fishing activity. For example, consider a game warden who is responsible for protecting other wildlife and has other duties, as well as patrolling the treaty waters of his tribe. His employer should verify the percentage of time he engages in fishing rights-related activities of his tribe. The employer should also indicate that the employer is maintaining records to support the allocation.
(4) When a taxpayer meets the established criteria (i.e., proof of tribal membership, verification of employer qualified status, and verification of the allocation) and is entitled to the exclusion, the source of the employer's funding is not relevant.
b) Excluding income from self-employment (1) Proof of tribal membership, verified by the tribe. For fisherman, a tribal fishing license is also necessary.
(2) Evidence that income is from treaty fishing rights-related activities of that individual's tribe. For fishermen, this could be copies of fishing logs or fish tickets or other documentation indicating that the activity was conducted in that tribe's protected waters. For transporters, copies of cargo logs/tickets would be acceptable, so long as such records clearly indicate that the transported fish were harvested in the exercise of a recognized fishing right of the tribe. For sellers, copies of purchase logs and receipts are needed, so long as such records clearly indicate that the sold fish were harvested to a substantial extent, by members of the seller's tribe.
(3) A corrected Schedule C, which includes the income and expenses attributable to non-treaty activities; in other words, activities related to fish harvested outside the treaty waters of that member's tribe. (Per IRC 265, you cannot deduct expenses related to income you are excluding.)

Exhibit 4.88.1-7  (01-08-2010)
Gaming Industry Tip Compliance Agreement (GITCA)

This Agreement is part of Rev. Proc. 2007-32. See it at Rev. Proc. 2007-32.


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