4.90.7  Claims

Manual Transmittal

May 9, 2013

Purpose

(1) This transmits a Table of Contents and text for IRM Part 4, Examining Process, Chapter 90, Federal State and Local Governments, Section 7, Claims.

Material Changes

(1) Minor corrections made to text and procedures updated as appropriate.

(2) Added definitions, including those for adjusted return and amended return.

(3) Added details related to RCCMS procedures, letters and reports to use for various examination outcomes related to claims.

(4) Added procedures for initiating credit transfer related to adjusted amended returns.

(5) Updated references to sections of IRM 4.23.13, which were previously renumbered

(6) Added an exhibit to provide an example of a completed Form 3870 related to credit transfer on adjusted amended returns.

(7) Incorporated applicable guidance from Interim Guidance Memo 52.

Effect on Other Documents

This section supersedes IRM 4.90.7, Claims, dated June 30, 2007.

Audience

This section contains instructions and guidance for all FSLG Compliance employees when dealing with claims.

Effective Date

(05-09-2013)

Paul Marmolejo
Director, Federal State and Local Governments

4.90.7.1  (05-09-2013)
Overview

  1. This section provides detailed procedures on how to examine or survey claims. Claims processed by Federal State and Local Governments (FSLG) will generally be associated with employment tax issues. For general information regarding claims, refer to IRM 4.23.13.

  2. It is important to know the difference between a 'claim for refund' and a 'request for abatement', due to the examination procedures involved. The key is determining whether the assessed tax is paid.

    1. “Requests for abatement” occur when the taxpayer requests an abatement of tax, penalties and interest which have been assessed but not paid. Requests for abatement, audit reconsiderations, and amended returns increasing tax are not considered claims.

    2. A ‘claim’ is a request by the taxpayer for a refund of assessed tax that has been paid (tax, penalties, and interest).

  3. An amended return is any subsequent return which changes information submitted on the original filed return. The taxpayer will send the amended return to the Campus Center where the original return was filed. A Transaction Code (TC) 976/977 will generally be posted to the taxpayers account to indicate an amended/duplicate return has been filed. These TCs will generate an –A freeze code. The Specialist needs to determine whether the TC 976/977 indicates the filing of a claim

  4. Claims for refunds can be either formal or informal. Whenever a claim provides the necessary information, whether formal or informal, it is handled as a valid claim for refund.

    1. A formal claim is a request by the customer for refund or credit of income, employment, gift, or estate tax that has been made following the statutory requirements of Federal Tax Regulation 301.6402. A formal claim is generally made using an amended return (Forms 94X) or Form 843, Claim for Refund and Request for Abatement. The claim must set forth in detail the grounds upon which a credit or refund is claimed and facts sufficient to apprise the Commissioner of the exact basis, including the appropriate tax periods.

    2. An "informal claim" is a request for refund submitted by the taxpayer either on a non-standard form (written request) or by some other means as long as the required claim elements are identified, e.g., tax year, identification number, refund requested and reason for the refund. Several court cases discuss this concept including United States v. Kales, 314 U.S. 186 (1941); Newton v. United States, 163 F. Supp. 614 (Ct. Cl. 1958). For example, a letter from the Taxpayer can be an informal claim.

  5. Generally, a protective claim is a formal claim or amended return for credit or refund based on current litigation or expected changes in tax law or other legislation. Taxpayers file a protective claim when their right to a refund is contingent on future events and may not be determinable until after the statute expires. If a protective claim cannot be closed due to contingency action, the claim is forwarded to the appropriate field group to contact the taxpayer and suspended (Status Code 38) until the contingency is resolved.

  6. Effective for errors discovered on or after January 1, 2009, Regulations were issued in connection with the IRS’s development of new "X" adjusted or claim for refunds. These forms correspond and relate line-by-line to the employment tax returns they are correcting and to the tax periods in which the error actually occurred. The "X" forms affect taxpayers that file:

    • Form 941, Employer’s QUARTERLY Federal Tax Return,

    • Form 943, Employer’s Annual Tax Return for Agricultural Employees,

    • Form 944, Employer’s ANNUAL Federal Tax Return,

    • Form 945, Annual Return of Withheld Federal Income Tax, and

    • Form CT-1, Employer’s Annual Railroad Retirement Tax Return.

  7. Taxpayers will continue to use Form 843 for requesting abatement of assessed penalties and interest.

  8. The new “X” forms allow taxpayer’s to file either an “adjusted” (Box 1) or “claim” (Box 2) employment tax return (adjusted return/claim for refund). While the taxpayer’s selection between the two blocks does not affect how the case is worked by the examiner, it does affect the final processing of the case. Returns with the “adjusted” block marked will generally not result in a refund issued to the taxpayer. Any credit balance resulting from the examination or processing of the return MUST be moved to the quarter in which the “X” adjusted return was filed. The Specialist will prepare Form 3870, Request for Adjustment, at the closing of the examination to transfer any necessary credits. See IRM 4.90.7.8 for procedures completing Form 3870.

  9. Unless specified, the term “claim” as used in the remaining IRM section below includes amended returns for “adjusted” tax assessments (Box 1), “adjusted” overreported amounts (Box 1) and “claim” overreported amounts (Box 2). “Adjusted” overreported amounts refers to a claim for refund when the overpayment is applied to the tax period in which the form is filed.

  10. In accord with Policy Statement P-4-103, when employment taxes are assessed based upon an examination, the taxpayer will generally be required to pay the assessment and file a claim for refund before receiving any further consideration on the case. However, some cases may warrant prior consideration. For additional guidance, refer to IRM 4.23.13.3.

4.90.7.2  (05-09-2013)
Claims Received on Open Examinations, Such as Status 10, 12, 20, 51, and Other

  1. Generally, the Service Center will forward amended returns, Forms 843, and other claims for refund to the field office if there is an open Audit Inventory Management System (AIMS) audit indicator. If the Specialist receives an amended return, Form 843, or other claim for refund on an open examination (Status 12) showing a decrease in tax liability, he or she should request a current IDRS transcript to determine whether the claim has been paid.

    1. If the claim has been paid, it is no longer a claim. The Specialist should verify that the allowance of the claim was correct. If not correct, then the appropriate adjustment should be considered as part of the examination.

    2. If it has not been paid, consider the issues presented as part of the examination. If the claim issues will be disallowed, follow the appropriate disallowance procedure outlined in IRM 4.90.7.5.2. If the claim issues will be allowed as part of the examination, follow normal examination procedures. The source code will generally not be updated to 30, unless the scope of the examination will be primarily related to the claim issues.

  2. If there is an assigned examination case that is still in Status Code 10, the Specialist or Group Manager should consider whether the scope of the examination will be related to the classified issues per the FSLG Case Data (FCD) form or be limited to the claim. If the scope will be limited to the unpaid claim, update Source Code to 30.

  3. An examination case will be returned to the Field Group from Review or the Closing Unit if a claim is received with an -A freeze code on IDRS before the examination closes to Status Code 90.

4.90.7.3  (05-09-2013)
Examining Claims

  1. Claims are high-priority cases. If the Service does not act on a claim within six months from the filing date of the claim, the customer is entitled to file suit. Examination action on claims must be started within thirty (30) days of receipt in the group.

  2. The first step in examining a claim that is not part of an on-going examination is to review a current IDRS transcript to ensure the claim has not been paid. If the Source Code is 30 and the claim has been paid, the Source Code needs to be updated to 31. The Specialist should verify that the allowance of the claim was correct. If not correct, then the appropriate adjustment should be considered as part of the examination.

  3. When reviewing claims, the Specialists should reconcile all assessments and adjustments beginning with the original Form 941 (or applicable amended return) and any subsequent abatements and assessments to determine the correct amount of tax. In addition, the Specialists should reconcile these with Form W-2 and W-2c to ensure employees were issued correct Forms W-2. The Specialist should gather information from the taxpayer to do this. The Specialist may also need to request documents related to all assessments and adjustments to the original TC 150 from RCCMS or the Campus to Complete this reconciliation. The Specialist can request the documents from the Campus by using IDRS command code ESTAB and the appropriate DLN (Document Locator Number) per TXMOD or BMFOLT.

  4. When the Specialist receives a Form 941-X directly from the Campus or the taxpayer, he or she must contact the FSLG Claims Coordinator to request any Ad Hoc Closing Agreements on file for the taxpayer. Any existing closing agreements will be reviewed by the Specialist to ensure that the claim under consideration does not involve an issue that was the substance of a prior agreement.

  5. If the taxpayer presents a valid claim for refund, an examination can include any other large, unusual, or questionable items that warrant examination, and is not limited to the issues raised in the claim. If the Assessment Statute Expiration Date (ASED) has passed, the Service may net out the amount requested with adjustments, provided the refund involves the same taxpayer and the same tax period. Move the unassessable portion to XSF. See IRM 25.6.1.10.2.. for more information.

  6. If substantiated, a taxpayer may offset the Service's adjustments with deductions for which the Refund Statute Expiration Date (RSED) has passed.

4.90.7.4  (05-09-2013)
Statute of Limitations (§ 6511)

  1. The Specialist must always check claims to verify that they were timely filed. Generally, a claim must be filed by the customer within three years from the time the original return was filed, or two years from the time the tax was paid (or applied from another return), whichever period expires later. See IRM 25.6.6.

    1. If a claim for refund is filed within three years from the time the return was filed, only the tax paid within the three years preceding the filing of the claim, plus the period of any extension of time for filing the return, can be refunded. (IRC 6511(b)(2)(A))

    2. If a claim is not filed within the three year period, then only the tax paid within the two years preceding the filing of the claim can be refunded. (IRC 6511(b)(2)(B))

    3. If no claim is filed, then only the tax paid that would have been allowable, under (a) or (b) above, if the claim was filed on the date the credit or refund was allowed can be refunded. (IRC 6511(b)(2)(C))

    The fact that a claim has been filed never extends the statute for assessing an additional deficiency. Taxable amended returns have the same statute of limitations as the original returns.

  2. When a customer files a claim timely, the statute remains open for the IRS to examine it. If the IRS takes no action on the claim within six months from the time it was filed, the customer can file suit in court to recover the amount claimed. The period for filing suit lasts until two years after the date a certified notice of claim disallowance is mailed to the taxpayer or the date the taxpayer signed Form 2297, Waiver of Statutory Notification of Claim Disallowance. See IRM 4.23.13.10 and 4.23.13.11.

  3. An executed consent extends the time to file a claim. If a customer does not file for a claim within the time limits prescribed by IRC section 6511(a), the customer may still file a claim if the statute of limitation for assessment has been extended by agreement of the Service and the customer (IRC 6511(c)). This filing period will last until six months after the expiration of the extension period.

  4. If, after the execution of a consent and within six months after the expiration of the extension period, a claim is filed, or a credit or refund is allowed when no claim is filed, the amount of credit or refund is limited. This limit is the portion of the tax paid after the execution of the consent and before the filing of the claim (or making of the credit or refund), PLUS the portion of the tax paid within the period which would be applicable under IRC section 6511(b)(2) if a claim had been filed on the date the consent was executed.

  5. If the Service allows the claim (this could be done by the Service Center prior to the case being sent to the field for examination), it is no longer a claim. Generally, the Service must assess tax within two years from making the refund. See IRC 6502 and 6532(b).

  6. If a taxpayer files a claim for refund after the RSED to perfect a claim filed before the RSED, the claim should be considered. A general claim may be amended after the RSED has expired, provided that the original claim has not been formally disallowed by the IRS at the time the amendment is filed and the amendment merely makes clear the specific matters the Service has already considered by investigating the original defective claim. The supplemental claim will not generally be considered an amendment if the Service took final action on the original claim by rejecting the original claim or allowing it in whole or in part. A final action disallowing a claim does not occur until the notice of claim disallowance is sent. If no formal disallowance was made, there is no specific time period within which the supplemental claim must be filed.

4.90.7.5  (05-31-2006)
Procedures on Processing Claims

  1. This section discusses general procedures for processing claims for refunds and claims for abatement of employment taxes. Also see IRM 4.23.13.

4.90.7.5.1  (05-31-2006)
Establishment and Closure of Claims on Audit Inventory Management System (AIMS):

  1. FSLG customers generally file claims at the Ogden campus. These are then forwarded to the FSLG Compliance and Program Management office (CPM) for classification. The cases will be established on TE/GE Reporting Compliance Case Management System (RCCMS) and AIMS by CPM using source code 30 (claims) and updated to the appropriate field group." The claims will be closed through CPM Quality Review.

  2. Alpha Statute “AA” will normally be used when the statute on the original return or extended statute is 180 days from expiration and there are no other issues warranting examination other than the amounts reflected on the filed claims for tax assessments and adjusted return/claim for refund. Remember that if the claim has been paid by the Service Center, it is no longer a claim and the "AA" statute is not applicable.

  3. The FSLG Specialist has the authority to close the claim by disallowance (full or partial), or allowance in full. All cases are subject to review by the Field Manager and/or CPM Quality Review. Only the Field Manager may survey the claim before assignment and must approve any survey after assignment recommended by the Specialist.

4.90.7.5.2  (05-09-2013)
Processing Claims

  1. The procedure for processing claims for refund depends upon whether the claim is surveyed or examined.

  2. The procedures in this IRM section generally refer to Form 941-X. If the amended return is other than a Form 941-X (e.g., 940-X, 945-X, etc.), the Specialist will adjust the RAR forms, mandatory language and RCCMS processes as needed.

  3. The Specialist will use the following Claim Type in the RCCMS Compliance Activities Record General (2/2) tab that best describes the claim. For example:

    1. If the claim has FICA (SSW &/or Medicare) changes, select “FICA”.

    2. If the claim has FICA and WH changes, select “Other”.

    3. If a Protective Claim, select “Protective”.

4.90.7.5.2.1  (05-09-2013)
Claim Amount

  1. When establishing a claim, the claim amount on RCCMS Compliance Activity Record General (2/2) tab will be completed. If this is a protective claim, the Specialist will ensure that the claim amount is changed, if needed, to reflect the final correct claim amount upon closure.

4.90.7.5.2.2  (05-09-2013)
Survey Before or After Assignment

  1. Claims may be surveyed before or after assignment if the Group Manager or Specialist concludes after a review of the case file that the claim is clearly allowable in full and that the case does not, otherwise, warrant examination.

  2. A claim should not be surveyed if an examination has been conducted and closed by the group and there is an open AIMS record (e.g., Status Code 12, 20, or 51). The claim will be returned to the Specialist who conducted the examination. The Specialist should consider the issues on the claim, and then incorporate any allowable adjustments into the examination report.

  3. When surveying a claim, Form 2503, Survey After Assignment-Excise or Employment Tax, will be used to explain the reason for surveying the claim and should be signed by the Specialist and Group Manager. Digital signatures are sufficient. If there is any paper case file, the Form 2503 must be printed and enclosed.

  4. Surveyed claims require an AIMS Disposal Code of 34 and RCCMS Disposal Code 103. The case file may be closed 100% electronically.

    1. The following fields in RCCMS need to be completed: Claim Amount, Assessment Information on RCCMS (Transaction Code and Amount), Credit and Tax Computation Adjustment (Reference Numbers), Case Grade (Class, Activity Grade, Estate Return and Related Return).

    2. The following fields in RCCMS should be blank: Claim Type, Claim Amount Disallowed, Claim Hours, Examiner’s Time, Technique Code and Examiner’s Name.

  5. The case can be closed 100% electronically as long the Forms 941-X are electronic and included in the RCCMS Office Documents.

  6. If the amended return is an “adjusted” overreported amount (box 1), the Specialist will use the special procedures described in IRM 4.90.7.8 to complete the Form 3870.

4.90.7.5.2.3  (05-09-2013)
Examined Claims

  1. The use of disposal codes, approval forms, letters and completion of RCCMS fields depends on whether the claim is allowed or disallowed in whole or part.

  2. Form 2297 and Form 3363, Acceptance of Proposed Disallowance of Claim for Refund or Credit, will be used when claims are disallowed in part or whole.

  3. Examined claims may use a variety of disposal codes, depending upon the situation. Refer to the following table:

      AIMS DC RCCMS DC
    Allowed in Full 03 102
    Partially Allowed 03 102
    Partially Allowed - Unagreed 07
    10
    11
    601
    604
    603
    Disallowed in Full 01 303
    Withdrawal of Claim by TP 01 303

  4. For general information related to the completion of the audit reports (e.g., 2504, 4666 and 4668) refer to IRM 4.23.10.

  5. In addition, depending on the outcome of the examination, claim cases will be processed as agreed or unagreed as described below.

4.90.7.5.2.3.1  (05-09-2013)
Claim Allowed in Full with no Additional Tax Adjustments

  1. Forms 2297 and 3363 are not needed in this situation. It is also not necessary to get the customer’s signature on Form 2504, Agreement of Assessment and Collection of Additional Tax and Overassessment. However, Form 4666, Summary of Employment Tax Examination, and 4668, Employment Tax Examination Report Changes Report, will be issued to the taxpayer. On Form 4666, the following statement must be included: “On (date) you filed claim form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, or an informal claim for a refund of $___ for (period/year). As a result of our examination, we allowed your claim in full as shown in the attached report.” When there are multiple claims, include a summary listing quarters and amounts on a Form 886-A. In addition, the appropriate Section 530 language per IRM 4.90.9.2.6 must be included.

  2. The Specialist will prepare Letter 570, Examination Report (Claim Allowed in Full). The Group Manager will mail the letter if subject to sample review. If subject to mandatory review, CPM will issue the letter.

  3. Use AIMS Disposal Code 03 and RCCMS Disposal Code 102.

  4. The case file may be closed 100% electronically. If Source Code 30, the following fields in RCCMS, in addition to normal examination fields need to be completed:

    1. On the Compliance Activities Record: Claim Type and Claim Amount.

    2. On the Closing Record: Claim Hrs, Claim Amount Disallowed of $0, Examiner’s Time (at least 1 hour), Assessment Information on RCCMS (Transaction Code 301 and Amount allowed) and Credit and Tax Computation Adjustment (Reference Numbers) based on the tax and wage adjusted amounts.

  5. If the amended return is an “adjusted” overreported amount (Box 1), the Specialist will use the special procedures described in IRM 4.90.7.8 to complete the Form 3870.

4.90.7.5.2.3.2  (05-09-2013)
Claim Allowed in Full with an Additional Refund

  1. If during the examination of the claim additional overassessments are discovered, the Specialist will secure amended returns (e.g., F941-X) or an informal claim to address the additional overassessments. If the employer does not agree with the overassessments, proceed allowing the original claim as filed. Follow the procedures in IRM 4.90.7.5.2.3.1

4.90.7.5.2.3.3  (05-09-2013)
Claim Allowed in Full with Additional Tax Adjustments

  1. When examining claims, Specialists may encounter large, unusual, and questionable items that result in additional tax assessments not related to the claim. If it is determined that the claim is not the primary examination issue, then the Specialist needs to change the source code from 30 to 92, or other applicable source code. If the source code is changed from 30, the RCCMS claim information fields discussed below are not required but, the forms and letters discussed below will remain applicable.

  2. Forms 2504, 4666 and 4668 will be issued to the taxpayer for the net tax adjustments (the net of claim and additional tax adjustments). On Form 4666, the following statement must be included: “On (date) you filed claim form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, or an informal claim for a refund of $___ for (period/year). As a result of our examination, we allowed your claim in full. The total amount of the refund is, however, decreased by other adjustments, as shown in the attached report.” When there are multiple claims, include a summary listing quarters and amounts on a Form 886-A. In addition, the appropriate Section 530 language per IRM 4.90.9.2.6 must be included.

    1. If the taxpayer signs Form 2504, the Specialist will prepare Letter 1002, Notification Letter for Agreed Audit Changes. The Group Manager will mail the letter if subject to sample review. If subject to mandatory review, CPM will issue the letter. The Specialist will use AIMS disposal code 03 and RCCMS disposal code 102

    2. If the taxpayer refuses to sign Form 2504, the case will be processed in the same manner as a partial unagreed case. The Specialist will use AIMS disposal code 10 and RCCMS disposal code 604 or disposal code 07 and RCCMS 601, depending on whether the case is appealed.

  3. If Source Code 30, the following fields in RCCMS, in addition to normal examination fields, must be completed:

    1. On the Compliance Activities Record: Claim Type and Claim Amount.

    2. On the Closing Record: Claim Hrs, Claim Amount Disallowed of $0, Examiner’s Time (time related to additional assessment), and Assessment Information on RCCMS (Transaction Code 308 if net increase in tax (or 300, if net increase is not interest-free, or 301 - if a net decrease in tax) and Amount of Adjustment and Credit and Tax Computation Adjustment (Reference Numbers) based on the tax and wage adjusted amounts.

  4. If the amended return is an “adjusted” overreported amount (Box 1), the Specialist will use the special procedures described in IRM 4.90.7.8 to complete the Form 3870.

4.90.7.5.2.3.4  (05-09-2013)
Claim Disallowed in Full Without Additional Tax Adjustments

  1. Form 4666 will be issued to the taxpayer. On Form 4666, the following statement must be included: “On (date) you filed claim form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, or an informal claim for a refund of $___ for (period/year). As a result of our examination, the claim was disallowed in full.” When there are multiple claims, include a summary listing quarters and amounts on a Form 886-A. In addition, the appropriate Section 530 language per IRM 4.90.9.2.6 must be included.

  2. The Specialist will solicit Forms 3363 and 2297 using Letter 569, Form 4666 and Form 886-A.

    1. If the taxpayer signs both the Forms 3363 and 2297, the Specialist will use AIMS disposal code 01 and RCCMS disposal code 303. CPM will not issue an additional closing letter.

    2. If the taxpayer refuses to sign Form 2297, the case can still be closed agreed if the agreement is secured on Form 3363. However, CPM will need to prepare and issue Letter 906, Certified Notice of Claim Disallowance, in order to begin the two year statute. The Specialist will indicate on Form 3198-A: "Issue Letter 906". The Specialist will use AIMS disposal code 01 and RCCMS disposal code 303.

    3. If there is no reply from the taxpayer after thirty days or the taxpayer does not agree but does not provide a protest, the Specialist will close the case to CPM. CPM will prepare and issue Letter 906. The Specialist will use AIMS disposal code 01 and RCCMS disposal code 303.

    4. If the taxpayer does not agree with the disallowance of the claim and files a protest, the Specialist will prepare a written rebuttal, if necessary, or make a copy of the unagreed issue workpapers. The rebuttal or workpapers should be given to the taxpayer. The Specialist will prepare a Form 4665, Report Transmittal, which can provide additional confidential information or a summary of the unagreed issues. See IRM 4.23.10.17. The Specialist will close the case to CPM using AIMS disposal code 07 and RCCMS disposal code 601.

  3. If source code 30 and if using AIMS disposal code 01 and RCCMS disposal code 303, the following RCCMS fields, in addition to normal examination fields, need to be completed:

    1. On the Compliance Activities Record: Claim Type and Claim Amount.

    2. On the Closing Record: Claim Rejection Date, Claim Hours, Claim Amount Disallowed of $X, Examiner’s Time (leave blank), Assessment Information on RCCMS (Transaction Code 300 and $0). There are no Adjustments (Reference Numbers) required.

  4. If Source Code 30 and if using AIMS disposal code 07 and RCCMS disposal code 601, or AIMS disposal code 07 and RCCMS disposal code 601, the following RCCMS fields, in addition to normal examination fields, need to be completed:

    1. On the Compliance Activities Record: Claim Type and Claim Amount.

    2. On the Closing Record: Claim Rejection Date, Claim Hours, Claim Amount Disallowed of $X, Examiner’s Time (time related to additional assessment), and Assessment Information on RCCMS (Transaction Code 300 and $0). There are no Adjustments (Reference Numbers) required.

4.90.7.5.2.3.5  (05-09-2013)
Claim Disallowed in Full with Additional Tax Adjustments

  1. When examining claims, Specialists may encounter large, unusual, and questionable (LUQ) items that result in additional tax assessments not related to the claim. If it is determined that the claim is not the primary examination issue, then the Specialist needs to change the source code from 30 to 92, or other applicable source code. If the source code is changed from 30, the RCCMS claim information fields discussed below are not required. But, the forms and letters discussed below will remain applicable.

  2. The Specialist will solicit Forms 3363 and 2297 using Letter 569, Form 4666 and Form 886-A.

    1. If the taxpayer refuses to sign Form 2297, the case can still be closed agreed if the agreement is secured on Form 3363. However, CPM will need to prepare and issue Letter 906. The Specialist will indicate on Form 3198-A: "Issue Letter 906".

    2. If there is no reply from the taxpayer after thirty days or the taxpayer does not agree and does not provide a protest, the Specialist will close the case to CPM. CPM will prepare and issue Letter 906.

    3. If the taxpayer does not agree with the disallowance of the claim and files a protest, the Specialist will prepare a written rebuttal, if necessary, or make a copy of the unagreed issue workpapers. The rebuttal or workpapers should be given to the taxpayer. The Specialist will prepare a Form 4665, Report Transmittal, which can provide additional confidential information or a summary of the unagreed issues. See IRM 4.23.10.17

  3. Form 2504, 4666 and 4668 will be issued to the taxpayer for the net tax adjustments (net of claim and additional adjustments). On Form 4666, the following statement must be included: “On (date) you filed claim form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, or an informal claim for a refund of $___ for (period/year). As a result of our examination, we disallowed your claim in full.” When there are multiple claims, include a summary listing quarters and amounts on a Form 886-A. In addition, the appropriate Section 530 language per IRM 4.90.9.2.6 must be included.

    1. If the taxpayer signs Form 2504, the Specialist will prepare Letter 1002. The Group Manager will mail the letter if subject to sample review. If subject to mandatory review, CPM will issue the letter.

    2. If the taxpayer refuses to sign Form 2504, the case will be processed in the same manner as an unagreed case.

  4. If source code 30, the following RCCMS fields, in addition to normal examination fields, must be completed:

    1. On the Compliance Activities Record: Claim Type and Claim Amount.

    2. On the Closing Record: Claim Rejection Date, Claim Hrs, Claim Amount Disallowed of $X, Examiner’s Time (time related to additional assessment), Assessment Information on RCCMS (Transaction Code 308 (or 300 if not interest-free) and amount of adjustment and Credit and Tax Computation Adjustment (Reference Numbers) based on the tax and wage adjusted amounts.

    3. If all issues (claim and additional tax adjustments) are agreed, the Specialist will use AIMS disposal code 03 and RCCMS disposal code 102. If there are unagreed issues, either related to the claim or the additional tax adjustments, the Specialist will use AIMS disposal code 10 and RCCMS disposal code 604 or disposal code 07 and RCCMS 601, depending on whether the case is appealed.

4.90.7.5.2.3.6  (05-09-2013)
Claim Partially Disallowed Without Additional Tax Adjustments

  1. Forms 4666 and 4668 will be issued to the taxpayer. On Form 4666, the following statement must be included: “On (date) you filed claim form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, or an informal claim for a refund of $___ for (period/year). As a result of our examination, we allowed your claim in part as shown in the attached report. ” When there are multiple claims, include a summary listing quarters and amounts on a Form 886-A. In addition, the appropriate Section 530 language per IRM 4.90.9.2.6 must be included.

  2. The Specialist will solicit Forms 3363 and 2297 using Letter 569, Preliminary Claim Disallowance, Form 4666, Form 4668, and Form 886-A.

    1. If the taxpayer signs both the Forms 3363 and 2297, the Specialist will use AIMS disposal code 03 and RCCMS disposal code 102. CPM will not issue an additional closing letter.

    2. If the taxpayer refuses to sign Form 2297, the case can still be closed agreed if the agreement is secured on Form 3363. However, CPM will need to prepare and issue Letter 905, Letter Notifying Taxpayer of Partial Refund Claim Disallowance, in order to begin the two-year statute. The Specialist will indicate on Form 3198-A: "Issue Letter 905”. The Specialist will use AIMS disposal code 03 and RCCMS disposal code 102.

    3. If there is no reply from the taxpayer after thirty days or the taxpayer does not agree, the Specialist will close the case to CPM. CPM will prepare and issue Letter 905. The Specialist will use AIMS disposal code 10 and RCCMS disposal code 604.

    4. If the taxpayer does not agree with the disallowance of the claim and files a protest, the Specialist will prepare a written rebuttal, if necessary, or make a copy of the unagreed issue workpapers. The rebuttal or workpapers should be given to the taxpayer. The Specialist will prepare a Form 4665, Report Transmittal, which can provide additional confidential information or a summary of the unagreed issues. See IRM 4.23.10.17. The Specialist will close the case to CPM using AIMS disposal code 07 and RCCMS disposal code 601.

  3. If source code 30, the following RCCMS fields, in addition to normal examination fields, need to be completed:

    1. On the Compliance Activities Record: Claim Type and Claim Amount.

    2. On the Closing Record: Claim Rejection Date, Claim Hrs, Claim Amount Disallowed of $X, Examiner’s Time (at least 1 hour), Assessment Information on RCCMS (Transaction Code 301 and Amount allowed) and Credit and Tax Computation Adjustment (Reference Numbers) based on the tax and wage adjusted amounts.

  4. If the amended return is an “adjusted” overreported amount (Box 1), the Specialist will use the special procedures described in IRM 4.90.7.8 to complete the Form 3870.

4.90.7.5.2.3.7  (05-09-2013)
Claim Partially Disallowed with Additional Tax Adjustments

  1. When examining claims, Specialists may encounter items that result in additional tax assessments not related to the claim. If it is determined that the claim is not the primary examination issue, then the Specialist needs to change the source code from 30 to 92, or other applicable source code. If the source code is changed from 30, the RCCMS claim information fields discussed below are not required. But, the forms and letters discussed below will remain applicable.

  2. The Specialist will solicit Forms 3363 and 2297 using Letter 569, Form 4666, Form 4668 and Form 886-A.

    1. If the taxpayer refuses to sign Form 2297, the case can still be closed agreed if the agreement is secured on Form 3363. However, CPM will need to prepare and issue Letter 905 in order to begin the two year statute. The Specialist will indicate on Form 3198-A: "Issue Letter 905.”

    2. If there is no reply from the taxpayer after thirty days or the taxpayer does not agree and provide a protest, the Specialist will close the case to CPM. CPM will prepare and issue Letter 905.

    3. If the taxpayer does not agree with the disallowance of the claim and files a protest, the Specialist will prepare a written rebuttal, if necessary, and Form 4665 to provide any additional information rebutting the taxpayer’s protest. See IRM 4.23.10.17.

  3. Form 2504, 4666 and 4668 will be issued to the taxpayer for the net tax adjustments (net of claim and additional adjustments). On Form 4666, the following statement must be included: “On (date) you filed claim form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, or an informal claim for a refund of $___ for (period/year). As a result of our examination, we allowed your claim in part as shown in the attached report.” When there are multiple claims, include a summary listing quarters and amounts on a Form 886-A. In addition, the appropriate Section 530 language per IRM 4.90.9.2.6 must be included.

    1. If the taxpayer signs Form 2504, the Specialist will prepare Letter 1002. The Group Manager will mail the letter if subject to sample review. If subject to mandatory review, CPM will issue the letter.

    2. If the taxpayer refuses to sign Form 2504, the case will be processed in the same manner as an unagreed case. The Group Manager will mail the letter if subject to sample review. If subject to mandatory review, CPM will issue the letter.

  4. If the taxpayer agrees to only a portion of the additional tax adjustments or the claim disallowance, the case will be closed as a partially agreed case. The Group Manager will mail the letter if subject to sample review. If subject to mandatory review, CPM will issue the letter.

  5. If source code 30, the following RCCMS fields, in addition to normal examination fields, must be completed:

    1. On the Compliance Activities Record: Claim Type and Claim Amount.

    2. On the Closing Record: Claim Rejection Date, Claim Hrs, Claim Amount , Examiner’s Time (time related to additional assessment), Assessment Information on RCCMS (Transaction Code 308 - if net increase in tax or 300, if net increase is not interest-free, or 301, if a net decrease in tax) and Amount of Adjustment and Credit and Tax Computation Adjustment (Reference Numbers) based on the tax and wage adjusted amounts.

    3. If all issues (claim and additional tax adjustments) are agreed, the Specialist will use AIMS disposal code 03 and RCCMS disposal code 102. If there are unagreed issues, either related to the claim or the additional tax adjustments, the Specialist will use AIMS disposal code 10 and RCCMS disposal code 604 or AIMS disposal code 07 and RCCMS disposal code 601, depending on whether the case is appealed.

  6. If the amended return is an “adjusted” overreported amount (Box 1), the Specialist will use the special procedures described in IRM 4.90.7.8 to complete the Form 3870.

4.90.7.6  (05-31-2006)
Claims in Cases Previously Considered by Appeals

  1. If a claim is received on a case that was previously closed by Appeals, the Specialists will need to determine whether the claim issue is related to the issues considered by Appeals. See IRM 4.23.13.8.

4.90.7.7  (05-09-2013)
Claim for Abatement of Employment Tax

  1. A claim for abatement of an employment tax examination assessment (Audit Reconsideration) will be considered on its merits after employment taxes have been assessed and the circumstances in IRM 4.23.13.3, Employment Tax Abatement Claims, have been met. When it is determined that an Audit Reconsideration request should be considered on its merits, the taxpayer will be afforded consideration by the Appeals Office. Refer to 4.23.13.3.

  2. When it is determined that an abatement (Audit Reconsideration) request should not be considered on its merits, or there has been no previous examination action, the taxpayer will be issued a no-consideration letter and will not be afforded consideration by the Appeals Office. Use Letter 924, No Consideration Letter on Abatement Claim, for all claims for abatement of employment taxes that are not considered. Never use Letter 569, Form 3363, Form 2297, or any other letter that explains appeal rights. The customer has no appeal rights beyond the group level without paying the tax and filing a formal claim. This should be explained to the customer with the following paragraph: "If you do not agree with our determination, you may, after paying the additional tax due, file an amended return or claim for refund. If you file a claim or amended return, you should do so within three years from the date your return was filed, or, if later, two years from the time the tax was paid."

4.90.7.8  (05-09-2013)
Adjusted Amended Return Resulting in a Credit Balance

  1. Form 94X-X series amended returns (including Forms 941-X, 943-X, 944-X, and 945-X) permit taxpayers to apply credit balances (refunds) to the Form 94X-X for the period during which the amended return was filed. The new “X” forms allow the taxpayer to file either an “adjusted” (Box 1) or “claim” (Box 2) employment tax return. While the taxpayer’s selection between the two blocks does not affect how the case is worked by the examiner, it does affect the final processing of the case. Returns with the “adjusted” block marked cannot result in a refund issued to the taxpayer. Any credit balance resulting from the exam or processing of the return MUST be moved to the quarter in which the “X” adjusted return was filed. Any credit balance transfer will be completed using a Form 3870 after the examination. The following additional procedures are necessary to ensure that the refunds are applied to the appropriate tax period(s).

  2. If the Specialist determines that the credit is no longer needed to pay an unemployment tax liability, then an additional Form 3870 will need to be prepared to release the credit from the quarter the money was moved to.

4.90.7.8.1  (05-09-2013)
Part 1 of Form 94X-X Process

  1. If the “Claim box” is checked (Form 941-X, Part 1, box 2), or if the audit results will not create a credit balance (refund), the case will be processed using normal procedures.

  2. The procedures in 4.90.7.8.2 will only apply when:

    1. Line 1 - Adjusted Employment Tax Return box is checked. See explanation in Part 3 Line 21 - first bullet (941-X 1-2011 revision). Note: line number is different for each Form 94X-X series and revision date) AND

    2. Audit results will create a credit balance (amount to be refunded) on the module.

4.90.7.8.2  (05-09-2013)
Procedures for Adjusted Amended Return Resulting in a Credit Balance

  1. The Specialist will inform the taxpayer that the credit request will NOT be applied to the quarter for the tax period in which they filed the Form 94X-X until the examination is completed, and NOT to rely on the credit as a payment toward any taxes due.

  2. If an amended return is received on which Line 1, Adjusted Employment Tax Return, is checked and is related to a quarter of an on-going exam, the Specialist should explain to the TP that this may affect the credit requesting to be applied to the quarter the F94X-X was received.

  3. Specialists will, upon completion of the examination:

    1. Prepare case for final closure from the group.

    2. Prepare a Form 3870 (example and instructions below) for each separate quarter of the Form 94X-X (i.e. 03, 06, 09 and 12).


      • If multiple Forms 94X-X for the same quarter (e.g., 200909) are filed in the same “tax period” (e.g., filed January 1, 2011 and February 2, 2011) in which the form is filed/received, then one Form 3870 is prepared to transfer the funds to the same tax period (201103).




      • If multiple Forms 94X-X for the same quarter (e.g., 200909) are filed in different tax periods (January 1, 2011 and November 30, 2011) in which the form is filed/received, one Form 3870 can be prepared to transfer the funds to the different tax periods (201103 and 201112).

    3. The “tax period” in which the form is filed is determined by the received date stamp on the front of the F94X-X.

    4. The Specialist and Group Manager must digitally sign the Forms 3870.

    5. Place the Form(s) 3870 at the front of the case file and upload into RCCMS Office Documents. The naming convention for the Form 3870 should start with “2” for RCCMS purposes.

    6. Enter Hold Code 2 in the Closing Records General tab on RCCMS. This will keep the credit balance from being refunded to the taxpayer.

    7. Enter “Adjusted Return involving a Credit Balance” in the comment section on the Form 3198A and on the Comments tab on the RCCMS Closing Record.

    8. Closing Unit will monitor the accounts to verify the necessary postings were made and review the Forms 3870 for accuracy.

4.90.7.8.3  (05-09-2013)
Instructions for Completion of Form 3870

  1. Complete all pertinent information in Blocks 1 – 10.

  2. Complete Block 11 with the following wording: The Taxpayer filed a Form 94X-X (Note a) Adjusted Employment Tax Return on Date (Note b). Please input the following credit transfer:

    1. From MFT XX (Note c)
      Tax Period XXXXXX (Note d)
      Transaction Code: 830 Date: XX/XX/XX (Note e)
      Amount: $XX (ii)

    2. To MFT (Note f)
      XX Tax Period (Note g)
      XXXXXX Transaction Code: 710 Date (Note h)
      XX/XX/XX Amount: $XX

  3. Notes:

    1. 94X-X will be the specific type of amended return (941, 943, 944, and 945 that were filed).

    2. Date – The date the F94X-X was received by the Service.

    3. MFT – Specific MFT for the type of return.

    4. Tax Period – The quarter of the amended F94X-X.

    5. Date – The due date of the return for which the F94X-X was filed.

    6. MFT – Specific MFT for the type of return.

    7. Tax Period – The quarter the F94X-X was received by the Service.

    8. Date – The 1st day of the quarter in which the F94X-X was filed.

  4. See Exhibit 1.

  5. If the Specialist determines that the credit is no longer needed to pay an employment tax liability in the quarter to which the money was moved, then an additional Form 3870 will be needed to release the credit. Transaction Code 290 for $0 will be used.

  6. See Exhibit 2.

4.90.7.9  (05-09-2013)
Barred Refunds

  1. The filing of an original tax return reflecting an overpayment constitutes a claim for credit or refund. Accordingly, a tax return and claim for refund can be filed simultaneously through one document. The taxpayer who files an original tax return reflecting an overpayment is considered to have filed a claim within three years of filing a return, and a refund would be allowed if payment was made within three years of the date the original return/claim for refund is considered filed, as long as no petition is filed with the Tax Court.

  2. If no return had been filed as of the date of mailing of the notice of deficiency, and the notice of deficiency was mailed more than 3 years after the due date of the return (with extensions), the taxpayer is only entitled to recover amounts paid within two years prior to the mailing of the notice of deficiency.

  3. IRC section 6513(b)(1) provides that for purposes of IRC section 6511 any tax withheld with respect to a wage earner shall be deemed to have been paid on the fifteenth day of the fourth month following the close of the wage earner's taxable year (individual returns only). Similarly, IRC section 6513(b)(2) provides that any estimated tax payments made during any calendar year are deemed paid on the last day prescribed for filing the return for that year without regard to any extensions. Therefore, if a customer files a tax return more than three years after the due date for the return (including valid extensions), any overpayment due on the tax return as a result of income tax withheld or estimated tax payments is forfeited and will not be refunded to the customer.

  4. Furthermore, barred refund amounts cannot be carried forward or back to offset delinquent accounts or future tax liabilities of the customer. The refunds are posted to an excess collections account using Form 8758, Excess Collection File Additions.

  5. Issue a preliminary claim disallowance Letter 569, when a delinquent return seeks a claim for refund for withheld / estimated taxes, earned income credits or payments that are barred by the period of limitations under IRC Section 6511. If an Appeals conference is not requested, Letter 906 will be issued). Annotate Form 3198-A, "Issue L-906, Certified Notice of Claim Disallowance - Transfer barred refund to an excess collections account ". CPM will prepare and issue Letter 906.

4.90.7.10  (05-09-2013)
No Consideration Given To Certain Refund Claims

  1. There are instances where claims will not be considered. Requests for Reconsideration of Disallowed Claims, and Requests for Withdrawal of a Claim, are the two that will most likely be encountered by Specialists. For other instances, refer to IRM 4.23.13.5.

4.90.7.10.1  (05-09-2013)
Requests for Reconsideration of Disallowed Claims

  1. ) Requests for reconsideration will not be treated as original claims. There is no provision in the Internal Revenue laws or regulations authorizing or requiring the issuance of a certified notice of the denial or disallowance of a customer's request for reconsideration of a claim for refund previously disallowed by certified notice. The Specialist’s report must not state or imply that a certified notice of disallowance will be issued. See IRM 4.23.13.9.

4.90.7.10.2  (05-09-2013)
Request for Withdrawal of a Claim

  1. If a customer files a request for withdrawal of a claim, the only action required is to issue a Letter 906, which starts the two-year statute.

  2. If the customer advises that the claim was filed for the sole purpose of instituting suit and that he or she does not wish to exercise appellate rights, the Specialist should state this in the "Other Information” section of the examination report.

  3. Specialist will use AIMS disposal code 01 and RCCMS disposal code 303. The following RCCMS fields, in addition to normal examination fields, need to be completed:

    1. On the Compliance Activities Record: Claim Type and Claim Amount.

    2. On the Closing Record: Claim Rejection Date, Claim Hrs, Claim Amount Disallowed, Examiner’s Time (leave blank), Assessment Information on RCCMS (Transaction Code 300 and $0). There are no Adjustments (Reference Numbers) required.

4.90.7.11  (05-09-2013)
Case File Assembly

  1. Case files for examined claims will be assembled in the same manner as case files for other examinations. See also 4.90.12.

  2. Attach the Forms 94X-X to the “required return document”. Generally, the required return document is a BRTVU or TRDBV print, see IRM 4.90.12.6 for “copies” of returns required in case file. The required return document is required regardless of whether the case file is 100% electronic or there is a paper case file. If the case is 100% electronic, the required return document is required to be in the RCCMS Office Documents only. If there is any paper case file, then the required return document is required to be printed and enclosed in the paper case file.

  3. Before closing the case to CPM, Specialist should check IDRS to ensure that the claim has not been paid or no additional claims have been filed.

Exhibit 4.90.7-1 
Example - Completed Form 3870 for Adjusted Returns

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Exhibit 4.90.7-2 
Example - Completed Form 3870 for Releasing Credit If No Longer Necessary

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