5.1.15  Abatements, Reconsiderations and Adjustments

Manual Transmittal

October 09, 2012

Purpose

(1) This transmits revised IRM 5.1.15, Abatements, Reconsiderations and Adjustments.

Material Changes

(1) IRM 5.1.15.3 Provided definition of the three distinct types of reconsiderations and added new paragraph listing forms that can be assessed under IRC 6020(b).

(2) IRM 5.1.15.3.1 Restructured this subsection by utilizing two paragraphs for procedures for better clarity and added example of suggested wording for Form 3870.

(3) IRM 5.1.15.3.2 Added If/Then table and restructured information into the table.

(4) IRM 5.1.15.3.4 Changed the title of this subsection for clarification. Clarified statute information.

(5) IRM 5.1.15.4.1 Restructured the information in this subsection into a table, added one additional exhibit for routing purposes, and added an example of suggested wording to be used on Form 3870.

(6) IRM 5.1.15.4.2 Restructured the information in this subsection into a table and added an example of suggested wording to be used on Form 3870.

(7) IRM 5.1.15.4.2.1 Removed tables providing information on correct envelope procedures. Added link for new PII mailing procedures.

(8) IRM 5.1.15.4.3 Restructured the information in this subsection into a table for clarity. Added information on determining the correct BOD code and correct ICS template to use for routing purposes. Added an example of suggested wording to use on Form 3870.

(9) IRM 5.1.15.4.4.1 Added information on date stamping a secured return.

(10) IRM 5.1.15.4.4.3 Revised timeframes for processing SFR/ASFR Reconsideration requests.

(11) IRM 5.1.15.4.5.1 Added information to clarify discrepancies and consider Identity Theft.

(12) IRM 5.1.15.5 Clarified procedures on sending case closing letter.

(13) IRM 5.1.15.5.1 Added example of suggested wording to be used on Form 3870.

(14) IRM 5.1.15.5.2 Added toll free number for Collection FORT.

(15) IRM 5.1.15.5.3 Added toll free number for Collection FORT.

(16) IRM 5.1.15.5.6 Added example of case study.

(17) IRM 5.1.15.6 Added new paragraph on how to identify and process ETNF Exam program adjustments. clarified procedures on sending case closing letter. Added two examples of suggested wording to be used on Form 3870 of full and partial adjustments.

(18) IRM 5.1.15 .7 Removed tables that are no longer applicable for routing of CAWR adjustment cases. Added new routing procedures and link for routing SSA-CAWR and IRS-CAWR adjustment cases. Added note with information on misrouted cases being forwarded by CAWR campus.

(19) IRM 5.1.15.7.1 Added information on reasonable cause for Information Return Penalties. Added example of suggested wording for Form 3870 when making a SSA-CAWR adjustments.

(20) IRM 5.1.15.7.2 Added example of suggested wording for Form 3870 when making IRS-CAWR adjustments.

(21) IRM 5.1.15.7.3 added new paragraph on adjusting IRC 6721 Civil Penalty reference code 502 based on reasonable cause. Added example of suggested wording for Form 3870 when abating a TIN Penalty.

(22) IRM 5.1.15.8 Added a caution when an assessment is not a FUTA assessment. Added new paragraph on forwarding all FUTA adjustments to Cincinnati campus for processing. Added link for state mapping.

(23) IRM 5.1.15.9 Added new paragraph on procedures for requesting an abatement on Form 5500 MFT 74/76.

(24) IRM 5.1.15.11 Corrected information on stopping a refund. Added example of suggested wording for Item 11 Form 3870 when adjusting tax assessed on the incorrect entity.

(25) IRM 5.1.15.12 Corrected information on stopping a refund.

(26) IRM 5.1.15.13 Updated information on Identity Theft.

(27) IRM 5.1.15.14 Added information on misapplied payments and asking taxpayer to provide proof of payment.

(28) IRM 5.1.15.14.1 Added If/Then table for determining correct action request on payment tracer based on CSED information. Restructured information in this subsection for better flow of guidelines. Added information on EFTPS.

(29) IRM 5.1.15.15 Added information on RSED. Added paragraph on transferring overpayment.

(30) IRM 5.1.15.15.1 Added information on transferring credits of $100,000. or more to excess collection.

(31) IRM 5.1.15.16 Updated information on case closing letters.

(32) IRM 5.1.15.16.1 Added two MFTs that RCA can now process for penalty relief. Added caution when RCA cannot be used. Added information on three new FTA letters which will generate after the adjustment posts.

(33) IRM 5.1.15.16.2 Added information on an Appeals case when the penalty was sustained and how to recognize this. Added example of suggested wording for Item 11 of Form 3870 when RCA cannot be used.

(34) IRM 5.1.15.16.3 Added two new paragraphs on referrals to IAC and which cases the IAC does not work. Added reminder on calculating payoff amount and how to calculate the correct amount for payoff.

(35) IRM 5.1.15.16.4 Changed the subsection title for more clarity. Added information on preparing a penalty appeal request for transmittal to Appeals. Added link for determining correct routing of case to Appeals.

(36) Exhibit 5.1.15–3 Added new exhibit showing the state mapping for IRS-CAWR and SSA-CAWR adjustment routing.

(37) Various grammatical and editorial changes were made throughout the IRM.

(38) Corrected various links to web sites throughout the IRM.

Effect on Other Documents

This IRM supersedes IRM 5.1.15, dated April 16, 2010. Interim Guidance Memoranda SBSE-05-0812-062 dated August 20, 2012, Ex Parte Communciations with Appeals has been incorporated into this revision.

Audience

The target audience is revenue officers in SB/SE Field Collection.

Effective Date

(10-09-2012)

Scott D. Reisher
Director, Collection Policy
Small Business/Self Employed

5.1.15.1  (10-09-2012)
Tax Abatements - Internal Revenue Code and Regulations

  1. According to the Code and Regulations, the Service has the authority to abate tax.

  2. Code - The Service's general abatement authority is found in IRC 6404(a). It provides :

    1. The Secretary is authorized to abate the unpaid portion of the assessment of any tax or any liability in respect thereof, which is excessive in amount, or is assessed after the expiration of the period of limitation properly applicable thereto, or is erroneously or illegally assessed.

  3. Regulations - Treasury Regulation 301.6404–1 provides (in part):

    1. The district [area] director or the director of the regional service center [servicing campus] may abate any assessment, or unpaid portion thereof, if the assessment is in excess of the correct tax liability, if the assessment is made subsequent to the expiration of the period of limitations applicable thereto, or if the assessment has been erroneously or illegally made.

    2. No claim for abatement may be filed with respect to income, estate, or gift tax.

    3. Except in case of income, estate, or gift tax, if more than the correct amount of tax, interest, additional amount, addition to the tax, or assessable penalty is assessed but not paid to the district [area] director, the person against whom the assessment is made may file a claim for abatement of such overassessment. Each claim for abatement under this section shall be made on Form 843, Claim for Refund and Request for Abatement.

    4. The Commissioner may issue uniform instructions to district [area] directors authorizing them, to the extent permitted in such instructions, to abate amounts the collection of which is not warranted because of the administration and collection costs.

5.1.15.2  (04-16-2010)
Types of Assessments

  1. The IRS determines the correct amount of assessments:

    1. By conducting an audit based on the original return filed by the taxpayer, i.e., an examination of the taxpayer's books and records pertinent to the return, in a field or campus location,

    2. By matching documents to resolve discrepancies based on the original return filed by the taxpayer, i.e., matching Information Return Program (IRP) documents to the income/deductions reported by the taxpayer on the return, in the campus Automated Underreporter (AUR) Units, Combined Annual Wage Reconciliation (CAWR) document matching and Federal Unemployment Tax Act (FUTA) state certification program, or

    3. Pursuant to the Individual Master File (IMF) Substitute for Return (SFR), Automated Substitute for Return (ASFR) or Business Master File (BMF) assessment procedures under IRC 6020(b), Execution of Return by Secretary, when a taxpayer fails to make any return required by any Internal Revenue law or regulation.

5.1.15.3  (10-09-2012)
Types of Reconsiderations - Audit, Automated Underreporter (AUR), Substitute For Return (SFR) and Automated Substitute For Return (ASFR)

  1. A reconsideration is when the taxpayer submits information not previously considered after the issuance of a final determination. The information must be different than what was previously considered.

  2. There are three distinct types of reconsiderations based on the type of assessment:

    1. Audit Reconsideration An Audit Reconsideration is the process the IRS uses to reevaluate the results of a prior audit where additional tax was assessed and remains unpaid, or a tax credit was reversed. If the taxpayer disagrees with the original determination he/she must provide information that was not previously considered during the original examination.

    2. AUR Reconsideration is a claim for a credit or refund not previously reported or allowed, or a request for abatement of tax, penalty, and/or interest. An underreported (UR) condition exists when there is income reported to IRS by payors that was not reported by the taxpayer on Form 1040, Form 1040A, or Form 1040EZ. Proposed tax adjustments are based on these UR amounts, as well as on reported income amounts for which the taxpayer failed to include the required additional taxes (e.g., Self-Employment tax (SET)).

    3. SFR/ASFR Reconsideration The ASFR is a non-filer or return delinquency program for individual and individual business non-filers who are identified via matching programs. The IRS computes tax, penalty and interest using the Information Reporting Program (IRP) data and other internally available information and assesses under IRC 6020(b). A reconsideration of SFR/ASFR is an original filing of a tax return by the taxpayer requesting a decrease or increase of tax, penalty, and interest. (.

  3. The forms assessed under IRC 6020(b) are:

    • Individual - Form 1040

    • Business - Forms 940, 941, 943, 944, 720, 2290, CT-1, and 1065.

5.1.15.3.1  (10-09-2012)
Reconsiderations - General Procedures - Audit, Automated Underreporter (AUR), Substitute For Return (SFR) and Automated Substitute For Return (ASFR)

  1. For Audit, AUR, and SFR/ASFR reconsiderations always :

    1. Consider cross-compliance and, if necessary, attempt to bring any noncompliant taxpayer into compliance.

    2. Secure levy sources for future collection.

    3. Suspend collection only on the amount being considered for an adjustment.

    4. Advise the taxpayer that failure to respond or cooperate with the examiner working the adjustment case will result in the case being returned to Collection to resume collection action. No further consideration will then be given to the reconsideration request until the tax is paid in full.

    5. Document case history and proceed with appropriate collection actions to resolve the remaining balance if the adjustment will not result in Status 12.

    6. If the adjustment results in Status 12, and there are no open Del Ret modules, and the collection investigation on the taxpayer entity is concluded, then the RO is required to send case closing Letter 4222, Notice of Case Resolution, to the taxpayer and/or Power of Attorney. If there is a POA record in good standing on the module, a POA copy of the letter along with Letter 937 will print. Letter 4222 will generate systemically on ICS. When generated systemically, a systemic history will be written. If managerial approval is required, when the manager selects the approval button, the Print Manager will open which includes the option on ICS to allow the manager to print the Case Closing letter or email it to the initiator of the request for them to print and mail.

  2. Form 3870 processing items required for reconsideration requests:

    1. Indicate if a Notice of Federal Tax Lien (NFTL) has been filed in Item 11 "Reason for Adjustment" of Form 3870, Request for Adjustment. The determination to abate the TC 360 NFTL fee should be made on a case by case basis considering the situation surrounding the adjustment and utilizing the best judgment of the employee assigned the account. See IRM 5.12.3.5.

    2. Attempt to resolve any obvious errors or discrepancies with the taxpayer and annotate your efforts in Item 11 of Form 3870.

    3. Complete a separate Form 3870 for each year for which the taxpayer is requesting an adjustment. Include the taxpayer's full address and daytime phone number in Item 2. Include your name, email address, work telephone number, fax number, and date in Item 13, to facilitate contact by campus employees. Sign in Item 13 "Signature of Preparer" .

      Note:

      Taxpayers need to sign the Form 3870 only when they have not already provided a signed written request for reconsideration. An original tax return or an amended tax return will satisfy this requirement. For non-resident aliens, an adjustment request can be submitted without an original return if warranted by circumstances.

    4. Insert your group manager's email address in Item 14 to facilitate contact by campus employees. Manager's approval signature is not required. For non-resident aliens, managerial approval is required on Form 3870 when an original return is not secured.

    5. Include a copy of Form 2848, Power of Attorney, or Form 8821, Tax Information Authorization, if applicable. If Form 2848 or Form 8821 is not available, attach IDRS print of command code (CC) CFINK.

    6. If the adjustment will fully satisfy the module, close the Bal Due module by selecting "Abatement" on ICS to suspend further collection notices. This will upload "TC 470 CC 90" . See example below of wording to write in Item 11 of Form 3870 for Audit Reconsideration request.

      Caution:

      Select the proper collection suspension code when processing a taxpayer claim to adjust taxes and/or locate payments on a balance due account. Do not use TC 470 cc 90 if the account will not update to Collection Status 12. See Document 6209, IRS Processing codes and Information, Section 11 (Collection) for further information on TC 470 and other Closing Codes Chart.

    Example:

    Audit Reconsideration
    Requested Action: Taxpayer requests reconsideration of Audit/Examination assessment. Adjust tax, penalty, and interest (if restricted) based on tax return attached.
    Justification: Provide the reason for the reconsideration, i.e. Taxpayer moved and notices were not sent to new address.
    Attach signed tax return, POA information and substantiation.
    Annotate your efforts to resolve any discrepancies with taxpayer.

5.1.15.3.2  (10-09-2012)
Criteria for Reconsideration Request

  1. Taxpayers may request a reconsideration to provide correct or additional information to dispute assessments.

    If the taxpayer Then Forward for processing
    did not receive any notification of the assessment/adjustment prior to Collection contact the correct information must be provided to dispute the assessment for reconsideration
    • to Examination for Audit Reconsideration

    • to AUR for underreported income reconsideration

    • to ASFR/SFR for reconsideration

    has moved since filing the return in question and did not receive any correspondence from IRS such as the notice of the examination results the taxpayer will be provided an opportunity to produce the information necessary for a reconsideration request
    • to Examination for Audit Reconsideration

    • to AUR for underreported income reconsideration

    • to ASFR/SFR for reconsideration

    failed to appear for the audit the taxpayer will be provided an opportunity to produce the information necessary for a reconsideration request to Examination for Audit Reconsideration
    never had an opportunity to submit required substantiation and now has the necessary documentation and/or submitted a document that was not considered the taxpayer will be provided an opportunity to produce the information necessary for a reconsideration request
    • to Examination for Audit Reconsideration

    • to AUR for underreported income reconsideration

    • to ASFR/SFR for reconsideration

    disagrees with an audit determination due to additional information not available at the time of the audit the taxpayer will be provided an opportunity to produce the information necessary for a reconsideration request to Examination for Audit Reconsideration
    disagrees with a Notice of Deficiency assessment created by either Automated Substitute for Return (ASFR) or SFR processing under the authority of IRC 6020(b) and wants to submit an original return to correct the assessment the taxpayer will be provided an opportunity to produce the information necessary for a reconsideration request to ASFR/SFR for reconsideration

    Reminder:

    Forward to the ASFR campus based on the BOD code determined by the schedules attached to the tax return.

    wants to claim tax credits, e.g. Earned Income Tax Credit (EITC), which were denied during a prior audit and/or submitted a document that was not considered the taxpayer will be provided an opportunity to produce the information necessary for a reconsideration request to Examination for Audit Reconsideration

5.1.15.3.3  (04-16-2010)
Exclusions from Reconsideration Processing

  1. Reconsideration procedures do not apply in the following situations:

    1. The taxpayer paid the liability in full and submitted a claim for refund. Claims are submitted by the taxpayer on Form 843, Claim For Refund and Request for Abatement, and are worked by the appropriate campus.

    2. Requests for abatement of interest for ministerial or managerial delay under IRC section 6404(e)(1), Abatement of Interest Attributable to Unreasonable Errors and Delays by Internal Revenue Service are processed according to procedures found in IRM 20.2.7, Interest - Abatements and Suspension of Interest: IRC 6404 and 7508.

5.1.15.3.4  (10-09-2012)
Rejecting a Request for Reconsideration

  1. Revenue officers (RO) have discretionary authority to reject a taxpayer's request for reconsideration.

  2. There are three basic reasons you can reject the taxpayer's request for reconsideration. Rejection is appropriate when the request includes returns that are:

    1. Unsigned,

    2. Frivolous, or

    3. Filed after the assessment or refund statute expiration date.

      Note:

      The IRS can consider a reconsideration request that will result in an adjustment of the tax due, even after the ASED and RSED have expired. See IRM 25.6.1.9, Assessments and IRC 6501 for Assessment Statute Expiration Date (ASED). See IRM 25.6.1.10, Claims, Abatements, and Refunds and IRC 6511 for Refund Statute Expiration Date (RSED).

      Note:

      For taxpayers who are absent from the United States for a continuous period of at least six months, see IRC 6503(c). This may be applicable regarding the extension of the collection statute.

  3. The taxpayers' request for reconsideration can also be rejected if they do not provide any new, pertinent information.

    1. This reason does not apply to an original return filed to correct an SFR/ASFR assessment.

      Note:

      The Service will accept a signed Form 1040X, Amended U.S. Individual Tax Return, to amend the Form 1040, U.S. Individual Income Tax Return , filed by the Service during SFR/ASFR processing as the taxpayer's original return if it is complete, with all required schedules attached.

    2. The taxpayer must refute the rationale for a tax assessment based on an audit assessment or AUR adjustment by providing new information for the examiner to consider. The amended return (or other written statement requesting reconsideration) must address the audit determination or the income/deduction issue(s) that generated the AUR adjustment. If new information is not provided, you can reject the reconsideration request and proceed with collection action.

    3. If it is unclear whether the return or other written statement provides new information for the examiner to consider, then annotate that fact on Form 3870 and forward for processing.

  4. Forward frivolous returns to the Frivolous Return Program (FRP). Frivolous filers are taxpayers that file non-processable returns based on arguments not supported by tax law. See IRM 5.1.11.4.3, Frivolous Non-filers or refer to the FRP web page at http://mysbse.web.irs.gov/AboutSBSE/aboutccs/ccsprog/frp/default.aspx .

  5. Check applicable assessment and refund statutes of limitations before accepting signed, non-frivolous returns. See IRM 25.6.1, Statute of Limitations - Processes and Procedures, andIRC 6503(c), Suspension of running of period of limitation.

    1. The "filing" of a SFR/ASFR return by the Service does not start the running of the period of limitations for assessment or collection (ASED/CSED). The "assessment" based on such a return does start the running of the statute of limitations for collection purposes. See IRM 25.6.1.9.4.5, Substitute for Return (SFR), for the applicable period of limitations for assessment and collection.

    2. If the Service has prepared SFR/ASFRs for both spouses, the three-year time limit in IRC 6013(b)(2), Joint returns of income tax by husband and wife, is not applicable and the taxpayers can file a joint return at any time. If, however, one of the spouses filed a MFS return, the joint return must be filed within three years from the due date of the return for that year (excluding extensions).

      Note:

      Married taxpayers who have filed previously and reported their income for any particular year on separate returns, can nonetheless file a joint return for that year so long as they do so within the time limits specified in IRC section 6013(b)(2). Under section 6013(b)(2)(A), taxpayers cannot switch from separate to joint more than three years after the due date of the return for that year (excluding extensions).

    3. Accept an amended return (or other written statement requesting reconsideration) for Audit or AUR reconsideration processing only if it provides new, pertinent information for the examiner to consider. Generally, to claim a refund, a Form 1040X must be received within three years after the date the taxpayer filed the original return or within two years after the date the taxpayer paid the tax, whichever is later. See IRC 6511, Limitations on Credit or Refunds, for additional information.

  6. Notify the taxpayer of your decision to reject the request. If the taxpayer requested reconsideration orally, you can reply orally but should follow-up with a written communication. If the request was in writing, reply in writing. In either case, document the history.

  7. Document case history on ICS and proceed with normal collection actions to resolve any remaining balance.

5.1.15.4  (04-16-2010)
Audit, Automated Underreporter (AUR), Substitute For Return (SFR) and Automated Substitute For Return (ASFR) Reconsideration

  1. This section provides guidelines for each distinct type of reconsideration based on the type of assessment.

5.1.15.4.1  (10-09-2012)
Audit Reconsiderations

  1. Audit reconsiderations refer to requests to reevaluate the results of an audit assessment when a taxpayer disagrees with the original audit determination.

  2. An audit assessment is identified on IDRS command code (cc) TXMOD by Transaction Code (TC) 420, indicating an audit assignment, followed by a TC 300 amount.

  3. Follow the criteria for reconsideration requests in IRM 5.1.15.3.1 & 2 prior to the steps shown in the table below:

    If the assessment is the result of an audit of a previously filed return
    a) Inform the taxpayer that he or she can only request a reconsideration when new information is now available that was absent in the original audit. If they have new information, inform the taxpayer to submit the information with a written request for audit reconsideration.
    b) Provide the taxpayer with Publication 3598, What You Should Know About the Audit Reconsideration Process.
    c) Advise the taxpayer that, if possible, the reconsideration will be worked by the area which previously performed the audit. If that is no longer possible, the audit reconsideration will be processed by the campus currently working the type of program the original audit was based on.
    d) Try to secure a copy of the examination report, Form 4549, Income Tax Examination Changes, from the taxpayer. If you secure a copy of the report from the taxpayer, attach it to the Form 3870. If unable to secure a copy of the examination report from the taxpayer, do not attempt to secure the original return and audit papers by using CC ESTAB. Annotate your efforts to secure the report from the taxpayer on Form 3870, item 11, Reason for Adjustment, and submit the reconsideration package with the original return and audit papers.
    e) Stamp a copy of the written request for reconsideration on the front and signature pages of the return with the "COPY" stamp or write "COPY" on it for retention in the collection case file along with your copy of the Form 3870.
    f) Provide the reason and justification for the request on Form 3870, Item 11. If the adjustment results in a credit balance, indicate on Form 3870, Item 11 where the credit should be applied or if it should be refunded. See IRM 5.1.15.3 for information regarding lien fees.
    g) Attach the pertinent supporting documentation to Form 3870 and forward to the campus that created the TC 300. For routing see IRM 4.13.7-2 Exhibit, Routing of Campus Reconsideration Requests, IRM 4.13.7-3, Exhibit Routing of Area Office Reconsideration Requests, and IRM 4.13.7-4 Exhibit Central Reconsideration Unit (CRU) Addresses for processing.
    h) Expedite processing of Form 3870 only for an imminent statute. Annotate on Form 3870 Statute Imminent (with date) MM/DD/YYYY.
    i) Do not attach IDRS CC TXMOD prints to Form 3870. IDRS prints are no longer necessary.
    j) Document the case history with actions taken and proceed with normal collection actions to resolve any remaining balance. See example below for suggested wording to write in Item 11 of Form 3870 for Audit Reconsideration.

    Note:

    Select ICS template titled Form 3870- OTHER (Manual Processing) for Audit reconsideration requests.

    Example:

    Audit Reconsideration
    Requested Action: Taxpayer requests reconsideration of Audit/Examination assessment. Abate tax, penalty, and interest (if restricted) according to the secured return attached.
    Justification: Provide the reason for the reconsideration, i.e. Taxpayer moved and notices were not sent to new address.
    Attach signed tax return, POA information and substantiation.
    Annotate efforts to secure the Exam report from the taxpayer.

5.1.15.4.2  (10-09-2012)
Automated Underreporter (AUR) Reconsiderations

  1. Automated Underreporter (AUR) is an automated analysis and processing of potential underreported (UR) and/or over-reported (O/R) discrepancies identified through information return (IR) matching. AUR matches information returns against individual income tax returns to verify that income is reported and deductions are taken correctly.

  2. The two primary sources of AUR cases are:

    • Individual Master file (IMF) which contains the information reported to the IRS by taxpayers and

    • Information Returns Master File (IRMF) which is information that is matched with the IMF information to verify all income is reported.

    AUR reconsiderations refer to requests to reevaluate the results of a prior AUR assessment when a taxpayer disagrees with the original AUR determination. See IRM 4.19.3, IMF Automated Underreporter, for additional information.

  3. An AUR reconsideration is identified on IDRS CC TXMOD by a TC 922, indicating an AUR adjustment, followed by a TC 29X amount.

    Note:

    Although the vast majority of AUR assessments are TC 29Xs, AUR also processes tax decrease issues. It is possible that a taxpayer would want a reconsideration of a refund case that AUR processed.

  4. Follow the criteria for reconsideration requests in IRM 5.1.15.3.1 & 2 prior to the steps provided in the table below:

    If the assessment is the result of an AUR of a previously filed return
    a) Inform the taxpayer that he or she must either submit a written request for reconsideration and/or file an amended return which identifies the specific income/deduction issues that resulted in the AUR adjustment and the reason for the change, i.e., what new information is available that was absent during the AUR adjustment.
    b) Advise the taxpayer the reconsideration will be worked by the campus currently working the AUR program where the original assessment was based.
    c) Secure a copy of the AUR report CP 2000 Notice from the taxpayer, if available, and attach to Form 3870. If the taxpayer cannot provide the AUR report, annotate your efforts to secure the report from the taxpayer in Item 11 of Form 3870 "Reason for Adjustment" , and send the reconsideration package without the documents from files. Do not attempt to secure the original return and adjustment documents from files using CC ESTAB. CP 2000 is available to ROs through the AMS.

    Note:

    If a copy of the CP 2000 is not available, you may contact an AUR Coordinator to provide a copy. AUR Coordinators should be able to obtain an electronic version of the CP 2000 Notice through the Accounts Maintenance System (AMS). A listing of AUR Coordinators is provided on Servicewide Electronic Research Program (SERP) under the "Who/Where" tab or click on the following link http://serp.enterprise.irs.gov/databases/who-where.dr/aur-coordinators.htm .

    d) Stamp a copy of the written request for reconsideration on the front and signature pages of the amended return with the "COPY" stamp or write "COPY" on it for retention in the collection case file along with your copy of Form 3870.
    e) Provide the reason and justification for the request on Form 3870 Item 11. If the adjustment results in a credit balance, indicate on Form 3870 Item 11 where the credit should be applied or if it should be refunded. The determination to abate the TC 360 NFTL fee should be made on a case by case basis considering the situation surrounding the adjustment and utilizing the best judgment of the employee assigned the account. See IRM 5.12.3.5.
    f) Attach the pertinent supporting documentation to Form 3870 and refer to IRM 4.13.7-6, Addresses for AUR Reconsideration Requests , for address of AUR reconsideration campus. Do not attach IDRS CC TXMOD print to Form 3870. IDRS prints are no longer necessary.
    g) Expedite processing of Form 3870 only for an imminent statute. See IRM 25.6.1.9.9.1, Procedures for Expeditious Assessments.
    h) Document case history with actions taken and proceed with normal collection actions to resolve any remaining balance.

    Note:

    Select ICS template titled Form 3870 -OTHER (Manual Processing) for AUR reconsideration requests.

    Example:

    AUR Reconsideration
    Requested Action: Taxpayer requests reconsideration of AUR assessment. Adjust tax, penalty, and interest (if restricted) according to the secured return.
    Justification: Provide the reason for the reconsideration, (i.e. taxpayer disputes income information). Taxpayer must provide pay stubs or documentation to show all income.
    Attach date stamped, signed tax return, POA information and substantiation.
    Annotate efforts to secure the AUR information from the taxpayer.
    When there are too many documents then write on 3870 "RO reviewed supporting documents. Taxpayer is holding supporting documents for review by the examiner" .

5.1.15.4.2.1  (10-09-2012)
Audit and Automated Underreporter (AUR) Reconsideration Supporting Documentation

  1. Attach supporting documents relating to:

    1. Specific issue(s) identified in an audit that caused the tax increase, or

    2. Reported income/deduction that caused the AUR adjustment.

    Example:

    If the original audit adjusted a specific Schedule A deduction, and the taxpayer disputes the tax increase, then the only documentation that needs to be attached is the documentation relevant to that Schedule A deduction.

    Example:

    If the AUR adjustment was for additional wages, and the taxpayer disputes the amount of additional wages shown on the CP 2000 Notice, then the only documentation that needs to be attached is the documentation relevant to the taxpayer's wages, such as pay-stubs or other documentation to support his/her claim.

    Caution:

    If the supporting documentation does not appear to be authentic refer to the frivolous submissions area of IRM 5.20.10, Frivolous Tax Submissions Subject to a § 6702 Penalty, for additional information.

  2. Effective July 1, 2012, an Interim Guidance Memorandum was issued for all employees to follow when shipping hardcopy documents containing personally identifiable information (PII) by a carrier other than the United States Postal Service. Additional information about shipping PII can be accessed on the IRS intranet at the publishing web site using the link provided. http://publish.no.irs.gov/mailtran/PIIHardcopy.html.

5.1.15.4.3  (10-09-2012)
Substitute For Return (SFR) and Automated Substitute for Return (ASFR) Reconsiderations

  1. SFR/ASFR Reconsiderations refer to reconsiderations of SFR/ASFR assessments created by either ASFR (Compliance) or SFR (Examination) processing which includes but is not limited to High Income Non-Filer (HINF) processing.

  2. A taxpayer must request reconsideration of an SFR/ASFR assessment by filing an original return.

    Note:

    The Service will accept a signed Form 1040X, Amended U. S. Income Tax Return, filed by the taxpayer as the taxpayer's original return if it appears to be complete, with all required schedules attached.

    Caution:

    Brookhaven Service Center (BSC) will not process original returns that were not subject to an SFR/ASFR assessment.

  3. An SFR/ASFR assessment is identified on IDRS CC TXMOD by the following:

    1. A TC 150 followed by "0.00" and the literal "SFR" to the right of the TC 150 assessment Document Locator Number (DLN),

    2. Tax class 2 with Document Code 10 in the DLN,

    3. Blocking Series 000-299,

    4. The tax amount assessed will appear as a TC 290 (Collection ASFR Assessment) or TC 300 (Examination SFR Assessment) with blocking series 540-549 or 640-649,

    5. Transaction Code (TC) 599 with Closing Code (CC) 88, no response to SFR notifications, and/or

    6. TC 599 with CC 89, taxpayer agreed to the SFR assessment.

      Reminder:

      If the TXMOD shows a TC 599 CC 89, the taxpayer agreed to the ASFR/SFR assessment and the tax return will be forwarded to CCP for processing. ASFR will not process these requests.

    Caution:

    If the IDRS CC TXMOD shows that an assessment was originally created by SFR processing, ensure that no subsequent TC 599 CC XX with an audit assessment or AUR adjustment appears on the module. If it does, you will need to secure an amended return or other written request for reconsideration if it is an AUR assessment, and a written request for reconsideration if it was an Examination assessment, other than the SFR.

  4. If the Service has prepared SFR/ASFRs for both spouses, the three-year time limit in IRC 6013(b)(2), Joint returns of income tax by husband and wife., is not applicable and the taxpayers can file a joint return at any time. If, however, one of the spouses filed a Married Filing Separate (MFS) return, the joint return must be filed within three years from the due date of the return for that year (excluding extensions). See the Note in IRM 5.1.15.3.4(5)(b) for additional information. See IRM 25.6.1.9.4.4, Joint Return After Separate Return, for the applicable period of limitations for assessment and collection when taxpayers switch from separate to joint after the service has prepared an SFR/ASFR for at least one of the spouses.

  5. Follow the criteria for SFR/ASFR reconsideration requests in IRM 5.1.15.3.1 & 2 prior to the steps provided in the table below:

    If the assessment is the result of an Individual Master File (IMF) SFR/ASFR assessment under IRC 6020(b)
    a) Secure a signed original tax return. The taxpayer must file a signed original return to request reconsideration of an SFR assessment. All secured original tax returns must be date stamped with the date received, using the IRS official date stamp, prior to processing the return reconsideration. Immediately process all return reconsideration requests.
    b) Check the return to ensure there are no obvious problems.
    c) Attempt to resolve errors or discrepancies between income reported on the return and the information located on IRS records using CC IRPTR and/or SUPOL. Document the errors or discrepancies on Form 3870 and annotate your efforts to have them corrected. ASFR should not reject your request for reconsideration if these steps are taken.
    d) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    e) ROs are not required to request the SFR assessment documents from files using CC ESTAB. Do not attach IDRS CC TXMOD print to Form 3870.
    f) Indicate "SFR RECONSIDERATION REQUEST—TAXPAYER RETURN ATTACHED" on Form 3870, Item 11, "Reason for Adjustment" .
    g) If the adjustment results in a credit balance, indicate on Form 3870, Item 11 where the credit should be applied or if it should be refunded.

    Caution:

    Annotate "Pending SFR Assessment" on Form 3870, Item 11 if the TC 290/300 SFR assessment is pending on IDRS (shows as PN on IDRS) and there is no TC 290/300 posted on the module. The campus will reject a Form 3870 if no TC 290/300 is present on a module when they receive a request for reconsideration.

    h) Retain a copy of Form 3870 and the return, i.e. either the actual return marked "DUPLICATE" or the photocopy of the actual return marked "COPY" , in the collection case file. Document the case history with actions taken and continue with normal collection actions to resolve any remaining balance.
    i) Determine the correct Business Operating Division (BOD) code of the secured tax return based on the schedules and forms attached. The BOD code must be identified in order to determine the correct campus for processing your SFR/ASFR reconsideration. The BOD code found on TXMOD is not always accurate.
    • SB/SE - Schedules C, E, F, J, SE and Forms 1116, 2106, and 2555

    • W&I - Schedules A and/or D or tax return with no schedules

    Note:

    All IMF international tax returns are processed at BSC, even those with only wages.

    See example below for suggested wording to use in Item 11 of Form 3870.

    Note:

    Select ICS template titled Form 3870 - ASFR Reconsideration to BSC for SB/SE ASFR reconsideration requests.
    Select ICS template titled Other (Manual Processing) for W&I ASFR reconsideration requests.

    Example:

    ASFR/SFR Reconsideration
    Requested Action: SFR reconsideration request - taxpayer return attached for reconsideration of ASFR/SFR assessment. Adjust tax, penalty, and interest (if restricted) according to the secured return.
    Justification: Provide the reason for the reconsideration, (i.e. taxpayers are electing to file joint and meet the criteria to do so).
    Attach date stamped, signed tax return, POA information and substantiation.
    Document any errors and annotate efforts to secure the correct information.
    Indicate where credit should be applied or refunded.

  6. Send the reconsideration request by email, fax or mail to the Brookhaven or Fresno campus for processing according to the procedures in the table below. Requests to BSC should be sent by email unless it is not practical (e.g., the attachment is too large or a scanner is not available).

    Note:

    Select ICS template titled Form 3870 - ASFR Reconsideration to BSC for all SB/SE reconsideration requests.

    Scan and E-mail Fax or Mail
    • Stamp the actual return with the "DUPLICATE" stamp or write "DUPLICATE" on the return.

    • Scan the return and save it as a PDF file.

    • Attach the PDF file to an email message along with the completed Form 3870.

    • Send the message and attachments via secure email to the address shown in the table below.

    • Indicate "SFR Recon" in the subject line of your email message.

    • Stamp the copy of the return with the "COPY" stamp or write "COPY" on the return for retention in the collection case file.

    • Retain a copy of the return in the case file.

    • Attach the actual return and all supporting documentation to Form 3870.

    • Fax or mail the complete Form 3870 package to the Brookhaven campus at either the fax number or the mailing address shown below.

  7. Forward only IMF returns (Form 1040 with Schedule C, E, F, J or Form 1116, 2106, or 2555) and IMF international returns (even those with only wages) to the Brookhaven campus as shown below. (SB/SE only):

    E-Mail Address Fax Number Mailing Address
    *SBSE ASFR-RECONS (631) 447-4017 Internal Revenue Service ASFR Operation Stop 654
    1040 Waverly Avenue
    Holtsville, NY 11742-9013

  8. Forward IMF returns with Schedules A and/or D and returns with no schedules that are Wage and Investment (W&I) cases to the Fresno Campus. There is no email option for the W&I ASFR Reconsiderations.

    Note:

    Select ICS template Form 3870 - OTHER (Manual Processing) for all FSC W&I reconsideration requests.


    Mailing Address Private Delivery Service (PDS)Overnight Mailing
    Internal Revenue Service
    ASFR Operation Stop 81304
    PO Box 24015
    Fresno, CA 93779
    Internal Revenue Service
    ASFR Operation Stop 81304
    5045 E Butler
    Fresno, CA 93888

    Note:

    Follow guidelines for PII shipping procedures. PDS mailings should only be used for urgent shipping.

5.1.15.4.4  (04-16-2010)
Return Processing Guidelines for Audit, Automated Underreporter (AUR), Substitute For Return (SFR) and Automated Substitute For Return (ASFR) Reconsiderations

  1. This sub-section provides guidelines for processing returns secured in conjunction with a request for reconsideration.

5.1.15.4.4.1  (10-09-2012)
Accepting a Return for Reconsideration Processing

  1. For secured returns:

    If Then
    The return is received by mail...
    1. Date-stamp the return with the date received using the official IRS date stamp.

      Note:

      Always date-stamp a return received by mail.

    2. Review the return.

    3. Attempt to secure the taxpayer's signature if missing.

    The return is received in person from the taxpayer...
    1. Review the return.

    2. Request that the taxpayer sign the return if unsigned.

    3. Date-stamp a signed return with the date received using the official IRS date stamp.

      Note:

      BSC will not process an unsigned tax return.

  2. Do not process a return filed by the taxpayer unless it is signed. If the return is for married filing joint taxpayers, both taxpayers must sign the return or the return is not processable. Once a signed return is secured and date-stamped, it should be forwarded for reconsideration processing as soon as possible. Do not hold a signed and date stamped return for any period of time. The statute begins to run on the date the return is stamped for a return that will be treated as the taxpayer's original return (e.g. following an SFR/ASFR).

    Note:

    The fact that a return has been date-stamped does not mean it must be accepted for reconsideration processing.

    Unsigned Returns with Missing Information Signed Returns with Missing Information
    • Attempt to secure the taxpayer's signature(s).

    • Do not send an unsigned return to the campus for processing.

    • Send an unsigned return back to the taxpayer requesting original signature and any other missing information. SeeIRM 5.1.15.4.4.2 Rejecting a Secured Return.

    • Continue with appropriate collection action.

    • Attempt to have the taxpayer perfect the return, i.e. supply the missing SSN, schedule(s), etc.

    • Annotate Form 3870 regarding the obvious errors and your attempt(s) to contact the taxpayer for missing information.

    • Forward the return to the campus for processing.

      Note:

      The campus will adjust the taxpayer's account.

5.1.15.4.4.2  (04-16-2010)
Rejecting a Secured Return

  1. After contact is made with the taxpayer and a return is secured for reconsideration, review the return at the point of contact to determine if the secured return includes new information. Return a rejected secured return back to the taxpayer even if it has been signed by the taxpayer and date-stamped by the IRS instead of forwarding it for audit or AUR processing if it doesn't include new information. Document the case history to reflect action taken and explain the reason(s) for rejecting the return.

    Caution:

    Do not reject a signed return filed by the taxpayer to replace an SFR/ASFR return filed by the Service.

    Caution:

    If the return appears to include frivolous information refer to the frivolous submissions area of IRM 5.20.10, Frivolous Tax Submissions Subject to a § 6702 Penalty, for additional information.

  2. When returning a rejected return to the taxpayer, include an explanatory note along with the rejected return. It should state the following:

    • Taxpayer identifying information,

    • Identify missing or incomplete information,

    • Your contact information, and

    • The statement "I have attempted to contact you about correcting this return but have not received a reply. I am returning your tax return and cannot continue processing the adjustment to your tax account for this tax period until you provide the information needed."

  3. Proceed with appropriate collection actions to resolve the module balance after rejection of a return.

5.1.15.4.4.3  (10-09-2012)
Processing Time Frames for Reconsideration Requests

  1. Do not contact a campus employee to follow up on a request for reconsideration before the expiration of the applicable time frame. Unnecessary status update requests will delay processing.

  2. The specific processing time frames are displayed in the table below:

    Type of Reconsideration Average Time Frame Delays Beyond the Average Time Frame
    Audit Reconsideration 60 - 90 days
    1. Check IDRS for an indication that Audit Recon is working the case. IDRS case assignment is located on TXMOD.

    2. Campus employees will send Letter 2645–C, Interim Letter, or Letter 2644-C, Second Interim Response, to advise the taxpayer that additional time is needed when an Audit reconsideration is not worked within 30 days. The additional time can range from 120 - 180 days.

    AUR Reconsideration (Form 1040 individual return only) 45 days
    1. Check IDRS for an indication that AUR RECON is working the case. IDRS case assignment is located on TXMOD.

    2. Campus employees will send interim letter, Letter 2645–C or a second interim letter, Letter 2644–C, to advise the taxpayer that additional time is needed when an AUR reconsideration is not worked within 45 days. The additional time can range up to 60 days.

    SFR /ASFR Reconsideration 60 - 90 days
    1. Check IDRS for an indication that ASFR RECON is working the case. IDRS case assignment is located on TXMOD.

    2. Request a status update via secure email to *SBSE ASFR-Recons if the case-control has not changed and there is no indication that ASFR RECON received the case.

    3. Do not close the BAL DUE module on ICS if the reconsideration does not resolve the Bal Due.

5.1.15.4.4.4  (04-16-2010)
Appeal Rights on Reconsiderations

  1. The taxpayer will qualify for an appeal when the return is accepted for reconsideration and the result of the reconsideration is that the taxpayer's request is disallowed in full or in part.

  2. The taxpayer will not qualify for an appeal if:

    • Reconsideration request is denied

    • Taxpayer does not respond to the appointment letter or

    • Taxpayer does not appear for the appointment

  3. If the taxpayer wishes to dispute an Audit reconsideration determination that the taxpayer chose not to appeal or for which the taxpayer did not qualify for an appeal, the taxpayer may file a refund claim with the Service after paying the full amount due. Claims are processed upon the taxpayer submitting Form 843, Claim For Refund and Request for Abatement. Generally, to claim a refund, Form 843 must be filed within three years from the time the original return was filed or within two years from the time the tax was paid, whichever is later. See IRC 6511, Limitations on Credit or Refund. See IRM 4.13.6.1, Appeal Rights.

5.1.15.4.5  (04-16-2010)
Comparison of Reported Income on Secured Return

  1. Check the income displayed on IDRS/CFOL and compare it to the income reported on the taxpayer's return. Verify that all income is included or accounted for on the return.

    1. Example: Comparison of reported income to the income on the taxpayer's return:

      IDRS / CFOL Return
      Income Source Amount Amount Difference
      Div & Int $37 $37 0
      Non EE Comp $145,233 $118,227 $27,006
      Other $1,418 $1,418 0
      There is a significant income discrepancy ($27,006) on this return which you need to resolve with the taxpayer prior to forwarding the request for reconsideration.

  2. Request CC IRPTR, SUPOL or other IDRS or CFOL command code to obtain information from documents such as Form W-2, Form 1099, Form 5498, if necessary.

    Note:

    Command code SUPOL is the basis for the ASFR 30/90-day letters and is available for longer periods than IRPTR.

  3. Proceed with processing the request for reconsideration if there are no significant income discrepancies.

5.1.15.4.5.1  (10-09-2012)
Resolving Income Discrepancies on Audit, Substitute For Return (SFR) and Automated Substitute For Return (ASFR) Reconsiderations

  1. When discrepancies are identified, inform the taxpayer that he or she needs to include the additional income shown on IRS records, i.e. IDRS/CFOL, to correct their return. If the taxpayer agrees, secure the corrected return.

  2. If a taxpayer claims to be a victim of Identity (ID) theft, due to the income discrepancy see IRM 5.1.12, Cases Requiring Special Handling. An ASFR/SFR/AUR assessment may have been made against the victim, as a result of income reported on Form W-2's associated with the stolen SSN provided by the ID thief. An ID thief may have used a taxpayer’s SSN for employment purposes. Employment fraud occurs if someone works using a stolen social security number causing the victim to have unreported income.

  3. Follow the steps below if the taxpayer disagrees with the income displayed on IDRS or CFOL :

    1. Request CC IRPTR with definer "W" , to receive the IRP information from Form(s) W-2 and /or 1099 for the taxpayer or print a "Wage and Income Document" transcript through the Transcript Delivery System,

    2. Provide the Form W-2/1099 information to the taxpayer for review and

    3. Secure a corrected return if the taxpayer agrees with the IDRS/CFOL income.

    Note:

    Up to 10 tax years can be referenced in IRPTR.

  4. Follow the steps below if the taxpayer still disagrees with the income displayed on IDRS or CFOL:

    1. Secure a written explanation from the taxpayer regarding the information that is incorrect. Attach the statement and any supporting documentation to the reconsideration request.

    2. Forward the request for processing.

  5. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

5.1.15.4.5.2  (09-01-2007)
Resolving Income Discrepancies on Automated Underreporter (AUR) Reconsiderations

  1. Compare the issues raised in the taxpayer’s request for reconsideration against the AUR Report (CP 2000 Notice) or against CC IRPTR and/or SUPOL information.

    Note:

    AUR Coordinators should be able to obtain an electronic version of the CP 2000 Notice through AMS if the taxpayer does not provide it. A listing of AUR Coordinators is provided on SERP or click on this link http://serp.enterprise.irs.gov/databases/who-where.dr/aur-coordinators.htm .

  2. Ensure that the taxpayer provides an explanation and any applicable documentation to support his/her claim for income/deduction issues raised on the CP 2000 Notice.

    Note:

    IRS operations have an effect on victims of identity (ID) theft, such as resolving duplicate returns or engaging in various compliance activities that target unreported income. When these situations occur, the innocent taxpayer must provide the IRS documentation to establish that he or she is a victim of ID theft. Click on this link for general information about ID theft: http://irweb.irs.gov/AboutIRS/bu/pipds/pip/itim/idtheft/default.aspx . See also 5.1.15.13 for ID Theft abatement procedures.

  3. If the taxpayer includes additional deductions not addressed on the CP 2000 Notice, e.g. additional IRA deduction or Early Withdrawal Penalty, review CC IRPTR to determine if there is payer information to support the additional deductions.

  4. Request that the taxpayer provide documentation to support any issue not claimed on the original return, (e. g. additional exemptions, corrected Schedule A, or credits). If there is any issue for which the taxpayer has no supporting documentation, a written explanation must be attached.

  5. Forward the request for processing.

5.1.15.4.5.3  (04-16-2010)
Appropriate Forms and Schedules

  1. Check to ensure all appropriate forms and schedules are included with the return and appear to be complete. Inform the taxpayer that he or she needs to submit any missing or incomplete forms or schedules.

  2. Note line items on the return that require an attachment, (e.g. Form W-2, Schedule D Capital Gains and Losses, Form 2441 , Child and Dependent Care Expenses), and verify that they are attached.

  3. Proceed with processing the request if there are no obvious missing or incomplete forms or schedules.

  4. Document ICS case history.

5.1.15.5  (10-09-2012)
Adjustments - General Procedures

  1. Use Form 3870, Request for Adjustment, for all requests of full or partial tax adjustments and/or penalty or restricted interest abatements when use of RCA is not applicable. Requests should be sent by email unless it is not practical (e.g. the attachment is too large or a scanner is not available). Select the applicable 3870 ICS template. Use Form 3870 - Penalty Adjustments (Form 3870 E) ICS template for penalty abatements only when use of RCA is not applicable.

  2. If the adjustment fully satisfies the amount owed, prepare Form 3870 and:

    1. Complete Items 1–11 and 13 and Items 12 & 14 as appropriate.

    2. Write TC 470 CC 90 in Item 3 for master file tax.

      Reminder:

      Request TC 470 and a STAUP 89 if the tax module is Non Master File (NMF). This will remove the NMF account from collection status.

    3. Have the taxpayer sign the form or attach taxpayer’s letter explaining reason for the adjustment.

    Note:

    If there is adequate evidence that an adjustment is needed because of an error made by the Service, (e.g., taxpayer was out of business during the period of an IRC 6020(b) assessment), the above is not necessary.

  3. If the adjustment results in Status 12, and the collection investigation on the taxpayer entity is concluded, then the RO is required to send case closing Letter 4222, Notice of Case Resolution, to the taxpayer and/or Power of Attorney. Document the case closing summary sheet statement that a closing letter for Status 12 will be issued. There is no requirement to hold the case open on ICS until the closing action posts to IDRS and the account goes to Status 12. If the case and modules are closed on ICS, module information must be manually entered in the ICS template. If the Form 3870 requires group manager (GM) approval, when the GM selects the approval button, the Print Manager will open which includes the option to allow the GM to print the Case Closing Letter or email it to the initiator of the request for him/her to print.

  4. If the adjustment does not fully satisfy the balance due, process the request for adjustment and continue to pursue collection. Do not close the Bal Due module on ICS.

  5. If the balance that is not to be abated, is full paid before the adjustment posts, close the remaining Bal Due module on ICS selecting "abatement " option. This will upload TC 470 CC 90.

  6. If the Collection Statute Expiration Date (CSED) is less than one year from the date the adjustment or payment tracer is being requested, special handling is required.

    1. If between six and twelve months remain before the CSED expires, write "Statute Expiration Date MM-DD-YYYY" in BOLD or RED on the request for adjustment or payment tracer. For payment tracers, close the Bal Due module on ICS by selecting Payment Tracer. This will upload TC 470 CC 93. For abatements, if the adjustment fully satisfies the module, close the Bal Due module on ICS by selecting "abatement" . This will upload the TC 470 CC 90.

    2. If less than six months remain before the CSED expires, mark the request as in (a) above, but do not close the Bal Due module. Hold it in inventory, and monitor it at least every 30 days until the adjustment or payment tracer has been completed.

    Note:

    IRC 6503 (c) provides circumstances under which the CSED may be extended, for example, where the taxpayer is outside the United States.

  7. If a Notice of Federal Tax Lien (NFTL) has been filed on an IMF or BMF liability that is expected to be satisfied by an adjustment or payment tracer, be sure that the lien file indicator TC 582 has been input. This is necessary for timely release of the lien. See IRM 5.1.15.3.1(2).

  8. If a TC 150 is on the tax module and a return is secured to increase or decrease the tax, forward the return with Form 3870 to Centralized Case Processing (CCP) for processing.

    Caution:

    If the return is sent for processing without Form 3870 it creates a duplicate return freeze code "-A" . Installment agreements cannot be input if a "-A " freeze is on the account.

5.1.15.5.1  (10-09-2012)
Form 1040X Adjustments

  1. There are two types of Form 1040X , Amended U.S. Individual Tax Return, processes.

    1. A Form 1040X adjustment that is amending an item on the original Form 1040.

    2. A Form 1040X that is being accepted as an original return for an SFR reconsideration.

    Each of these is processed using different methods. Scan and attach Form 1040X, that is amending an item on the original Form 1040, to Form 3870 before forwarding for processing, in all cases where the account to be adjusted is assigned to a revenue officer. See the example below for suggested wording to use in Item 11 of Form 3870.

    Reminder:

    Do not use this process for a Form 1040X being submitted for abatement of an SFR/ASFR or Examination Audit assessment reconsideration.

  2. Check the validity of the amended return and determine whether or not the claimed adjustment will fully satisfy the tax. If it will, request input of TC 470 CC 90 to remove your account from collection status if applicable.

    Caution:

    If the taxpayer has submitted a tax return with frivolous information do not forward the return for processing. Forward the return to the Frivolous Return Processing (FRP) unit.

  3. If Form 1040X pertains to a carry-back, interest is computed to the credit availability date, which is the due date of the loss year tax return without extensions. Carryback claims require expedited handling due to the 45-day interest free period if receiving a refund. See IRM 20.2.9, Interest on Carryback of Net Operating Loss.

  4. Computer generated penalties will be automatically recomputed based on the adjustment of tax. Generally, there is no need to include them on Form 3870. The exception to this is TC 176, Failure to Make Estimated Tax Payment Penalty.

  5. Estimated tax penalty is computed on the original tax and is not increased or decreased with subsequent changes (after the due date including extensions) to the tax. The exceptions to this rule are:

    • An amended return received before the due date (called a superseding return),

    • Internal or processing error (such as misapplied credits),

    • Withholding taxes allowable as a credit, and

    • Separate filing status to joint filing status (the penalty must be recomputed on the joint liability).

  6. An estimated tax penalty cannot be adjusted because of the change in tax unless the amended return was filed before the due date of the original return or the original return was a result of a SFR assessment.

  7. Identify potential statute cases. Use prompt assessment procedures when within 4 months of the ASED. See IRM 25.6.1.9.9.1, Procedures for Expeditious Assessments, for procedures.

    Example:

    Form 1040X Adjustment
    Requested Action: Process attached Form 1040X. Adjust tax, penalty, and interest (if restricted) according to the amended return.
    Justification: Taxpayer filed corrected return. (i.e. taxpayers are amending Schedule A Itemized Deductions to include Real Estate Tax).
    Attach date stamped, signed 1040X tax return, POA information and substantiation.
    Attached all schedules and forms to substantiate the tax changes.
    Indicate where credit should be applied or refunded.

5.1.15.5.2  (10-09-2012)
Form 1040X Processing Issues

  1. When Accounts Management (AM) Campus Operations receives a Form 1040X on a status 26 account that is assigned to a Revenue Officer, IRM 21.3.3.4.10.2.1, Amended Returns/Claims - Compliance Criteria, requires them to send the return to the revenue officer. Do not return these to the AM campus operation as misdirected mail. The return must be attached to a Form 3870 and state in Item 11 of Form 3870 "Please process" then forward to CCP using ICS procedures.

  2. If you sent Form 1040X to the campus for processing, and the campus rejects the adjustment for any reason, that information will be posted to TXMOD on that module, and the return sent back to the Revenue Officer. If the adjustment has not been processed within a reasonable amount of time (3 cycles) check CC TXMOD to see if your request has been rejected. If you are checking on the status of your case, contact CCP Collection FORT at GCP Internal Line (For Internal Use Only) at 1-800-831-0284.

    Note:

    CCP has implemented a 72 hour response time on electronic rejections for the RO to provide a correction or the information requested. If the information requested is not received within 72 hours, the item will be rejected back to the field.

5.1.15.5.3  (10-09-2012)
Amended Return/Claims - Carryback

  1. Carryback claims require expedited handling due to the 45-day interest free period. Carryback claims can be IMF or BMF. Claims for carryback adjustments may be filed on Form 1045, Application for Tentative Refund and Form 1139 , Corporation Application for Tentative Refund. Claims may also be filed on Form 1040X , Amended U.S. Individual Income Tax Return , Form 1120X, Amended U.S. Corporation Income Tax Return, an amended Form 1041, U.S. Income Tax Return for Estates and Trusts,Form 1120–C , U.S. Income Tax Return for Cooperative Associations, and Form 990–T, Exempt Organization Business Income Tax Return.

  2. Scan and attach to Form 3870 the carryback claim and supporting documentation with date stamped and signed amended return. Write in "remarks" section on Form 3870 NOL Carryback and route to CCP for processing to Accounts Management (AM).

  3. Do not contact Accounts Management (AM) campus personnel on Net Operating Loss (NOL) issues. Inquiries should be directed to the CCP Collection FORT for assistance at 1-866-897-4289.

5.1.15.5.4  (04-16-2010)
Employment Tax Adjustments

  1. This section only applies to situations where the taxpayer had originally filed a valid employment tax return, but while working with the revenue officer it is determined the return was inaccurate and a corrected return is necessary. This section does not apply to situations where the taxpayer has been audited or the RO created the assessment under IRC 6020(b). See IRM 21.7.2.4.6, Adjusted Employer's Federal Tax Returns or Claim for Refund, for additional information.

  2. Scan and attach the appropriate "X" form (e.g. Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund) that corresponds to the return you are correcting, to Form 3870 before electronically transmitting to CCP in all cases where the account to be adjusted is assigned to a revenue officer. RO's should review IDRS to compare with the original filed return.

  3. If you send an "X" form to the campus for processing, and the campus rejects the adjustment for any reason, that information will be posted to IDRS CC TXMOD on that module, and you will be notified by email of the rejection. If tax returns with original signatures were sent to CCP they will be returned to the originator. If the adjustment has not been processed within a reasonable amount of time (3 cycles) check CC TXMOD to see if your request has been rejected and contact CCP if necessary. Rejected adjustments received electronically by CCP will be destroyed and will need to be resubmitted with the complete information.

  4. There is no "X" form for Form 940, Employer's Annual Federal Unemployment(FUTA)Tax Return . Use Form 940 and check the box in the upper right hand corner of Form 940 marked "Amended" to correct a previously filed Form 940.

5.1.15.5.5  (04-16-2010)
Decrease Tax

  1. If the change involves a decrease in Federal Insurance Contributions Act (FICA) tax, a certification is required on the "X" form. The taxpayer must complete the certification area in Part 2 of the "X" form. Part 5 of the "X" form must be signed by the taxpayer or an authorized representative. Taxpayers are required to certify on the "X" form that they have filed or will file Form W-2 or Form W-2c, as required. If the taxpayer is unable to contact employees, or if the employees will not comply, the taxpayer can still receive a refund or credit of the employer share only, by certifying that an attempt was made to locate the employees but was unsuccessful or that the employees will not comply.

  2. Decrease to withheld income tax may only be allowed if the error is identified during the calendar year in which the error occurred and if the employer repays or reimburses the employee the amount of the overwithheld income tax before the end of the calendar year in which the wages were paid. Decreases identified after the end of the year may only be allowed to correct an administrative error or if section 3509 rates apply. The adjustment is made to each affected period.

  3. Indicate on the Form 3870 the amount of Federal Tax Deposit (FTD) penalty, if any, to be adjusted. If the reduction in tax is zero, a TC 181 is not necessary unless there's a TC 180 or 181 on the module. See IRM 20.1.4.23(11)(a).

  4. If the taxpayer reports that the correction is due to an administrative or typographical error, we accept the taxpayer’s figures without the certification.

5.1.15.5.6  (10-09-2012)
Increase Tax

  1. If tax was understated on the original return, the taxpayer can file an "X" form to correct the amount of tax. For errors on Form 941, in the case of a FICA error, the increase in tax will be assessed on the latest quarter of the year involved. For errors on Form 941, in the case of a withholding error, the increase in tax will be assessed on the last quarter of the year . If the taxpayer files the "X" form by the due date of the return for the period in which the error was discovered and pays the tax increase in full with the "X" form, IDRS will create an interest free period from the due date of the period which reflected the error until the due date of the period in which the error was ascertained, reported, and paid. An interest computation date will be reflected on CC TXMOD or CC BMFOLT immediately following a TC 298. In this instance the taxpayer will not receive an FTD penalty increase.

    Example:

    On August 12, 2011, an employer discovers an error with the Form 941 they filed for the 201103 tax period. They must file a Form 941-X reporting the correction by October 31, 2011 in order to qualify for an interest free tax adjustment.

  2. If the taxpayer does not file the " X" form by the due date of the return for the period in which the error was ascertained, the tax will be increased on the applicable period(s) and interest will be charged from the due dates of that period(s). The taxpayer must submit a new Record of Federal Tax Liability (ROFTL) to determine the increased FTD penalty on each period. If the taxpayer files the "X" form timely, but does not pay when the "X" form is filed, the FTD penalty is 10% of the unpaid tax increase. See IRM 20.1.4.21.5,

5.1.15.6  (10-09-2012)
Business Master File (BMF) IRC 6020(b) Adjustments

  1. BMF IRC 6020(b) adjustments refer to an adjustment of a return prepared and assessed under IRC 6020(b). The Service has the authority to prepare returns for any person who fails to submit a return required by Internal Revenue law or regulation at the time prescribed, or makes (willfully or otherwise), a false or fraudulent return. The following returns may be prepared, signed and executed by revenue officers under the authority of IRC 6020(b):

    1. Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return;

    2. Form 941, Employer's Quarterly Federal Tax Return;

    3. Form 943, Employer's Annual Tax Return for Agricultural Employees;

    4. Form 944, Employer's Annual Federal Tax Return;

    5. Form 720, Quarterly Federal Excise Tax Return;

    6. Form 2290, Heavy Highway Vehicle Use Tax Return;

    7. Form CT-1, Employer's Annual Railroad Retirement Tax Return; and

    8. Form 1065, U. S. Return of Partnership Income.

  2. A BMF 6020(b) assessment is identified on TXMOD by the literal "6020B" to the right of the TC 150 assessment DLN. See Document 6209, IRS Processing Codes and Information, for TDI 599XX closing codes.

  3. If you identify Form 941 and 940 returns that were assessed under SFR instead of 6020(b), they are part of a special project being conducted by Examination on employment tax at the Cincinnati Exam campus. The project is titled Employment Tax Non Filer (ETNF). The employment tax returns (Forms 941 and 940) assessed under this program can be identified on TXMOD by a TC 300 assessment with Project Code 0453 and Source Code 20. When you secure the original returns from the taxpayer you need to date stamp the returns, attach them to Form 3870 and forward to Cincinnati campus Examination for classification. The assessments can be adjusted. Because Examination assessed these returns, they need to be classified by Examination prior to any adjustment of tax. The mailing address for the ETNF project is located on the MySB/SE web page at http://mysbse.web.irs.gov/Collection/toolsprocesses/CaseRes/adj/send/ETAdj/JobAids/18170.aspx.

  4. A taxpayer must request adjustment of a BMF 6020(b) assessment by filing a signed original return.

    Reminder:

    If the Trust Fund Recovery Penalty (TFRP) assessment was completed on the 6020(b) assessment then the RO must also request an adjustment on the TFRP account(s). See IRM 5.7.7.5Abatements and Adjustments of a TFRP.

  5. If the adjustment results in full abatement, input TC 470 CC 90. Any manually assessed penalty and restricted interest, lien fees, and all Failure to Deposit (FTD) penalties (manually and computer generated) must be included on Form 3870 for adjustment or abatement at the time of the adjustment request. See IRM 5.1.15.3.1(2)f. for information on abatement of lien fees.

    Caution:

    Do not use TC 470 CC 90 if the abatement does not fully satisfy the module or the account will not update to Collection Status 12. See Document 6209, IRS Processing Codes and Information, Section 11 (Collection) for further information on TC 470 and other Closing Codes Chart.
    Effective July 1, 2011, CCP began reversing TC 470 CC 90 requests when the adjustment/abatement did not result in the module being resolved in full. The initiating RO now receives an email, with a copy to the GM, about input of the TC 472 so that the remaining balance can be addressed. CCP assigns the module back to the RO that requested the TC 470 CC 90. When the case is closed on ICS, CCP assigns the module back to the group hold file.

  6. For completion of Form 3870 for BMF IRC 6020(b) adjustment requests see below:

    1. Indicate BMF IRC 6020(b) Adjustment Request--Taxpayer Return Attached on Form 3870 Item 11 "Reason for Adjustment. "

    2. If the adjustment results in a credit balance, indicate on Form 3870 Item 11 where the credit is to be applied or if it should be refunded.

    3. If the taxpayer was out of business provide the date (MM-DD-YYYY) the business closed. Final out all filing requirements.

    See the example below for suggested wording for Item 11 of Form 3870 for a full abatement of a IRC 6020(b) assessment:

    Example:

    BMF IRC 6020(b) Adjustment in full - Taxpayer not liable
    Requested action: Abate tax (TC 150) dated (MM-DD-YYYY) in amount of (provide the amount of the TC 150); Abate FTD Penalty (TC 186) dated (MM-DD-YYYY) in amount of (provide amount of FTD penalty); Full abatement.
    Justification: This was a 6020(b) assessment. Taxpayer was out of business (provide the date the business closed) (MM-DD-YYYY). No employees.

  7. If the adjustment results in Status 12, and the collection investigation on the taxpayer entity is concluded, then the RO is required to send case closing Letter 4222, Notice of Case Resolution, to the taxpayer and/or Power of Attorney. A systemic history will be written when Letter 4222 is generated. There is no requirement to hold the case open on ICS until the closing action posts to IDRS and the account goes to Status 12. The letter will be systemically generated for the RO to send to the taxpayer once the case is closed on ICS. If the case and modules are closed on ICS prior to the closing letter being generated, module information must be manually entered in the ICS template. If the Form 3870 requires GM approval, when the manager selects the approval button, the Print Manager will open which includes the option to allow the manager to print the Case Closing letter or email it to the initiator of the request for them to print.

  8. If the adjustment is a partial abatement or an additional assessment, add the statement: "Input TC 971 AC 012 to establish ASED" in Item 11 of Form 3870. The TC 599 and appropriate closing code must be written on the middle left margin of each tax return secured by the RO.

  9. Scan the original return signed by the taxpayer. Forward electronically to CCP in Philadelphia. See the example below for suggested wording to use in Item 11 of Form 3870 for a partial IRC 6020(b) adjustment.

    Note:

    If the return is a Form 940 adjustment also scan a copy of the state certification if the adjustment is not a full abatement.

    Caution:

    The Failure to Pay (FTP) penalty will need to be addressed on partial adjustments whether it is IMF or BMF. FTP penalty on 6020(b) assessments comes under the authority of IRC 6651(a)(2) and (a)(3) . See Treas. Reg. 301.6020-1(b)(3). FTP begins to accrue 10 business days following the date of the notice and demand for payment if the total assessment equals or exceeds $100,000. If the total assessment is less than $100,000, FTP begins to accrue 21 business days following the date of the notice and demand. The return made under IRC 6020(b) is treated as the return filed by the taxpayer for purposes of determining the amount of the addition to tax under IRC 6651(a)(2) and (a)(3). Failure to File (FTF) penalty under IRC 6651(a)(1) will usually have been assessed at the full 25% rate and will systemically be adjusted by the concurrent FTP penalty under IRC 6651(a)(2) to 22.5%. When full payment is secured, you must manually assess the remaining FTP (TC 270). The accrued FTP may be assessed as a debit entry using Form 3244, Payment Posting Voucher.

    Note:

    Maximum FTP penalty is 25%. Maximum FTF penalty is 22.5% when FTP under IRC 6651(a)(2) is also assessed.

    Example:

    BMF IRC 6020(b) Assessment Partial Adjustment
    Requested action: Abate tax (TC 150) dated (MM-DD-YYYY) in amount of (provide the amount of the TC 150); Abate FTD Penalty (TC 186) dated (MM-DD-YYYY) in amount of (provide amount of FTD penalty); Abate FTF Penalty (TC 166) dated (MM-DD-YYYY) in amount of (provide amount of FTF penalty); Assess FTP Penalty (TC 270) in the amount of (provide amount of FTP assessment if not already assessed under 6020(b)); Partial abatement of tax, penalty, and interest.
    Justification: This was a 6020(b) assessment. Taxpayer filed correct return.
    Attach original, signed, date stamped return and POA information.

  10. Retain a copy of Form 3870 and the return, (i.e. either the actual return marked "DUPLICATE" or the photocopy of the actual return marked "COPY" ), in the collection case file. Document the case history on ICS and proceed with normal collection action to resolve any remaining balance.

5.1.15.6.1  (04-16-2010)
Limited Liability Company (LLC) IRC 6020(b) Adjustments

  1. When a disregarded entity Limited Liability Company (LLC) fails to file employment tax returns for tax periods ending before January 1, 2009, prepare an IRC 6020(b) return. Although the single member owner (SMO) may file employment tax returns for these tax periods in the name and EIN of the SMO or the name and EIN of the LLC, the IRC 6020(b) return must be prepared in the name and EIN of the liable party, the SMO. If the SMO has previously filed an employment tax return for another business under the SMO EIN for the same tax period, then the return prepared under IRC 6020(b) should not be submitted to submission processing as a secured return. The return prepared under IRC 6020(b) will be processed on Form 3870 as a supplemental tax assessment. Ensure that an additional assessment is not prohibited by an ASED. Consult with Area Counsel, if necessary.

    1. Prepare Form 3870 using the name and Employer's Identification Number (EIN) of the SMO.

    2. In the Reason for Adjustment section of Form 3870 include the following statement: "This liability resulted from the operation of (Name and EIN of LLC), for which (Name of Single Member Owner) was liable as the employer, it should be added to the original assessment as a supplemental assessment. When the adjustment is processed, CCP should note the name and EIN of the LLC in the IDRS history on the module."

    3. Attach the entire 6020(b) package (Tax return, Form 5604, Section 6020(b) Action Sheet and any supporting documentation) to the Form 3870, and

    4. Forward by secure email to CCP.

5.1.15.7  (10-09-2012)
Combined Annual Wage Reconciliation (CAWR) Adjustments

  1. A CAWR assessment may be identified as shown below:

    1. SSA-CAWR - MFT 13 TC 240 Penalty reference number (PRN) 549 for failure to file (this is a penalty assessment),

    2. SSA-CAWR - MFT 13 TC 240 Penalty reference number(PRN) 550 for late filing (this is a penalty assessment),

    3. IRS-CAWR - MFT 01, 11,16 (941, 943, 944 or 945) TC 290 DLN blocking series (digits 9, 10, 11) of 500-559 (this is a tax assessment), or

    4. TIN Penalty - MFT 13 (BMF) or MFT 55 (IMF) with TC 240 Penalty reference number of (PRN) 500-514 (this is a penalty assessment). See IRM 5.1.15.7.3 for additional information on this type of penalty.

    See IRM 4.19.4.1, CAWR Overview, for additional information.

  2. The TC 290 DLN has a source document, which provides information on which the assessment was based. It shows the totals reported on Forms 941, Forms W-2, and Forms W-3 for the year. It may be necessary to get copies of the taxpayer’s filed Forms W-2. Any research request for Form W-2/W-3/Form 1099 information for the most current 10 years can be requested using IDRS CFOL cc IRPTR with definer "R" . Lines 6 and 8 of Form 3870 should reflect the assessment date and DLN of the TC 290.

  3. Research the cause of the CAWR adjustment and include this information with the Form 3870. CFOL command codes PMFOL, BMFOLA, (BMFOLU when an MFT 88 is present), or TXMOD may be used for this research. CC BMFOLU contains CAWR modules for the current CAWR and two other processing years. Tax years are available until December, four years after the tax year. See IRM 2.3.53, Command Code PMFOL, for complete information on the use of PMFOL.

  4. Adjustments for a CAWR assessment must include enough documentation to permit necessary adjustments to employees’ IMF accounts. The circumstances will dictate the necessary forms. The following are examples of situations and the supporting documents needed:

    1. For FICA tax adjustments, if there is a balancing error by SSA, attach corrected Forms W-2/W-3, the employers copy of Forms W-2/W-3 or a list of the employees’ names, SSNs, and wage information.

    2. For withheld income tax adjustments, attach a copy of Form 1040X for each affected employee or other verification that the affected IMF accounts have been adjusted.

    3. For cases involving EINs, attach copies of all applicable returns or a list of tax liabilities with the FICA tax breakdown for each EIN.

  5. Employers who do not comply with a request to file correct Forms W-2, are assessed a penalty (PRN 549) for intentional disregard of the filing requirements under IRC 6721(e), Failure to file correct information returns. A CP 215 generates advising the employer of the actual penalty assessment. The penalty is the greater of $100 per Form W-2 or 10% of the aggregate amount of the items required to be reported correctly. The penalty rate of $100 applies to Forms W-2 required to be filed on or before December 31, 2010. The penalty rate is $250 for Forms W-2 filed on or after January 1, 2011. There is no maximum to the intentional disregard penalty.

  6. Adjustments to the 549 Penalty assessment must include the original Form W-3 and Forms W-2 attached to Form 3870. State on Form 3870 why the Form W-3 and Forms W-2 were not filed timely. The reason for late filing should be addressed using the reasonable cause criteria.

  7. SSA-CAWR and IRS-CAWR should be routed to either the Memphis or Philadelphia campus according to the state in the address of the taxpayer. Selection of the correct ICS template should route your adjustment to the correct campus. All international CAWR adjustments should be routed to Philadelphia. Refer to Exhibit 5.1.15-3, State Mapping of CAWR , adjustments or click on this link. http://serp.enterprise.irs.gov/databases/who-where.dr/transshipment.dr/campus_locator_guide/27_cawr_futa.htm

  8. SSA-CAWR and IRS-CAWR adjustments will only be worked at MSC and PSC. These adjustments are routed based on the location of the taxpayer. Timeframes for processing CAWR/FUTA/TIN Penalty Forms 3870 are generally 45 days; however, due to inventory workloads at the campuses, the timeframe for responding to the CAWR/FUTA Form 3870s from the revenue officers is 60 days. Please allow at least a full 60 days for this type of adjustment before contacting the campus or liaison. If there is a pending taxpayer burden on a specific taxpayer, for example a levy, the CAWR liaison will be able to provide assistance to the revenue officer. For additional information click on this link for the CAWR/FUTA web site. http://wc.web.irs.gov/CAWR-SSA/Revenue%20Officer%20Contacts.htm

    Note:

    If an electronic Form 3870 was misrouted, the campus will forward the email to the correct campus and cc the RO. If the misroute is paper, the campus will forward to the correct location and alert the RO by email. Note that CAWR adjustments are not to be sent to CCP or processed using RCA. Penalties assessed with the CAWR assessment should be included on Form 3870 with the adjustment of the CAWR assessment.

5.1.15.7.1  (10-09-2012)
Social Security Administration-Combined Annual Wage Reconciliation (SSA-CAWR)

  1. Social Security Administration-CAWR (SSA-CAWR) is a document matching process initiated by the SSA to ensure that all employers are correctly reporting wages paid on Forms W-2 they provide to their employees and that employees receive proper credit from the SSA for their earnings. They match all the Forms W-2 received in a calendar year against information provided by the IRS on wages reported on Form 941, Schedule H (attached to a Form 1040), 943, 944, and 945 returns. If the total of the Forms W-2 is less than the return amount, the SSA sends the taxpayer up to two notices.

  2. The SSA refers the case to the IRS, which can propose and assess either a Failure to File (FTF) penalty with intentional disregard (549 reference number) or a Late Filing Penalty for late filed Forms W-2 (550 reference number).

  3. The employer will be assessed a FTF penalty (the greater of $100 per missing return or 10% of the total wages that were required to be reported for returns required to be filed prior to January 1, 2011) if the failure was due to intentional disregard. The penalty rate is $250 for returns required to be filed after December 31, 2010. See IRC 6721(e). This will appear as a MFT 13, Reference Number 549, and a CP 215 is sent to the employer.

  4. The employer will be assessed the late filing penalty ($50 per form for returns required to be filed before January 1, 2011) applicable under IRC 6721(a), for failure to file or timely file a Form W-2, for failure to include all of the required information, or for including incorrect information. The penalty rate is $100 for returns required to be filed after December 31, 2010 with a maximum of $1.5 million. It will appear as a MFT 13, with Reference number 550, and a CP 215 is sent to the employer. A Late Filing Penalty will be assessed for Forms W-2 secured by CAWR in response to the initial CAWR correspondence. This assessment is a penalty.

  5. The RO should attempt to secure the missing Forms W-2 and abate the FTF with Intentional Disregard Penalty (549 Penalty). The taxpayer would still be liable for the Late Filing Penalty (550 Penalty). The RO must address whether there was reasonable cause for the delay in proper filing of the Forms W-2. Taxpayer must request relief of the Late Filing Penalty and provide documentation regarding reasonable cause. Reasonable cause for the information return penalties exists when:

    • The filer acted in a responsible manner, both before and after the failure occurred, and

    • There were significant mitigating factors, or

    • The failure was the result of circumstances beyond the filer's control.

    Note:

    Secure managerial approval if the penalty is abated based on reasonable cause.

  6. Prepare Form 3870 and state in Item 11 of Form 3870 the type of penalty involved (549 FTF or 550 late filing) and whether the adjustment is based on missing or amended Forms W-2 or missing or amended payroll tax returns. If reasonable cause is established attach the taxpayer's documents and forward to the group manager for approval. Scan and attach all necessary documents to Form 3870 and forward to the appropriate campus for processing. See example below of suggested wording for Item 11 Form 3870.

    Example:

    SSA-CAWR adjustment of 549 penalty
    Requested Action: Abate SSA-CAWR 549 penalty dated (MM-DD-YYYY) in full [or in part and state amount] due to [state reasonable cause and RC codes]. Do not assert penalty code 550 (Late Filing) [in the amount of (provide the amount to be assessed)] due to [state reasonable cause and RC codes]. Missing W-2s and W-3 attached. [Or “Amended W-2s attached, etc.”]
    Abate penalties assessed with CAWR assessment (state penalty TC XXX dated (MM-DD-YYYY) in amount of (provide amount of each penalty to be abated).
    Justification: Attach a copy of the taxpayer's letter requesting reasonable cause. Attach W-3 and W-2's or other documents as appropriate.

5.1.15.7.2  (10-09-2012)
IRS-Combined Annual Wage Reconciliation (IRS-CAWR)

  1. IRS-CAWR compares Forms W-2, W-3, W-3c, W-2c, 1099-R and W-2G withholding amounts to the amounts reported on the Forms 94X (Forms 941, 943, 945), and Schedule H (Forms 1040, 1041) employment tax returns.

  2. If the wages on the returns for a given year total less than the sum of the W-2 wages for that year and the taxpayer does not respond to notices, an increase in tax is made on the last available quarter of the year for that return. A TC 290 is assessed increasing the amount of tax due.

  3. If Forms W-2 were not filed, secure them. If Forms W-2 were filed with incorrect amounts, then secure corrected Forms W-2. If the employment tax returns were prepared incorrectly or not filed, then secure the corrected or original returns.

  4. Prepare Form 3870 and state what type of assessment (IRS-CAWR assessment) and what is attached (Amended W-2c, W-3c,or 94X-X attached) on the form. Scan and attach the secured documents and forward to the appropriate campus for processing using the state mapping guide in Exhibit 5.1.15-3. See example below of suggested wording for Item 11 Form 3870.

    Example:

    IRS-CAWR adjustment of tax.
    Requested Action: Abate TC 290 dated (MM-DD-YYYY) in amount of (provide amount of adjustment)
    Justification: Taxpayer's 941's were correct as filed, but the original W-2s were prepared incorrectly.
    Attach: Copies of W-2's and W-3C to correct the W-2's with SSA.

    Reminder:

    The IRS-CAWR assessment is a tax assessment and reasonable cause is not applicable.

5.1.15.7.3  (10-09-2012)
Taxpayer Identification Number (TIN) Penalty

  1. IRS receives various Information Return Reporting (IRP) documents each year that are either incorrect (wrong TIN or name, not on magnetic medium, etc.) or late. These errors result in various penalty assessments.

  2. Use IDRS cc PMFOL to determine which of the various penalties were asserted on this type of case. See IRM Exhibit 20.1.1-4Penalty Reference Numbers (500 series) and IRM Exhibit 20.1.1–5Penalty Reference Numbers (600 Series) for a listing of the penalties by reference code number.

  3. Penalties may be imposed when information returns are filed:

    1. After the due date,

    2. Without all required or correct information, (including missing, incorrect and/or not currently issued TINs),

    3. On paper when required to be filed on magnetic media,

    4. When filed on magnetic media, in a manner that does not allow them to be processed or be read by machine (not processable) or,

    5. In an improper format, (using the wrong year Form 1096).

  4. The penalty for information returns is $50 per return with a maximum of $250,000 per calendar year thru December 31, 2010. Effective January 1, 2011, the penalty amount is $100 per return with a maximum of $1.5 million. The penalty amounts were increased by the Creating Small Business Jobs Act of 2010. This amount is subject to reductions and limitations. These penalties can be either MFT 13 (BMF) or MFT 55 (IMF) with a DLN blocking (digits 9,10,11) of 500-514.

  5. IRC 6721 Civil Penalty reference code 502 assessment, more commonly known as a TIN Penalty, is a result of TIN errors on various informational documents such as Form 1099. The TP/payor can request a penalty abatement by documenting that a solicitation was made to the payee for an accurate number within 30 days of notification from the campus. Additionally, the taxpayer may qualify for reasonable cause relief of this penalty, according to Pub 1586, Reasonable Cause Regulations and Requirements for Missing and Incorrect Name/TINs (including instructions for reading CD/DVDs and Magnetic Media). This penalty can be waived by showing that the failure was due to reasonable cause and not to willful neglect. The taxpayer must establish that they acted in a responsible manner both before and after the failure occurred, and that:

    1. There were either significant mitigating factors (for example, an established history of filing information returns with correct TINS), or

    2. The failure was due to events beyond the filer’s control (for example, a payee did not provide a correct name/TIN in response to a request for the corrected information).

    Acting in a responsible manner includes making an initial solicitation (request) for the payee’s name and TIN, if required, an annual solicitation. Upon receipt of this information, it must be used on any future information returns filed.

  6. Prepare Form 3870 and state on the form the specific penalty in question (code 500-514) and whether the taxpayer has been advised of the proper submission in the future. Explain whether reasonable cause exists (if so, provide the appropriate RC codes). If reasonable cause exists explain the reason and whether or not corrected documents were secured. Use the correct template for TIN penalty relief requests. See example below of suggested wording to write in Item 11 of Form 3870.

    Example:

    TIN Penalty adjustment [penalty code 500-514]
    Requested Action: Abate [or adjust] civil penalty dated (MM-DD-YYYY) [in full or partial (state amount)] due to [state reasonable cause and RC codes].
    Justification: The cause of penalty was [state specific cause]. Taxpayer has been advised as to how to file in the future.
    Attach supporting documentation. Copies of solicitations sent to the payees.

    Scan and attach the secured documents and forward to the appropriate campus for processing. All TIN Penalty requests are processed at PSC. Provide an explanation on Form 3870 why the documents are being forwarded for abatement. Secure managerial approval if penalty is abated for reasonable cause.

    Note:

    These requests are not processed by CCP.

5.1.15.8  (10-09-2012)
Federal Unemployment Tax Act (FUTA) Tax Adjustments

  1. The Federal Unemployment Tax Act (FUTA) Certification Program is the method IRS uses to verify with the states if the credit claimed on Form 940 and/or Schedule H (Form 1040) was actually paid into the states' unemployment funds. Employers whose payments are received by the state after the due date are allowed 90% of the credit that would have been allowed had the payments been made on time.

  2. State FUTA certification must be attached to all 940 adjustment requests including IRC 6020(b) adjustments. The taxpayer should provide you with both the certification of state payments and a copy of their return. There are two exceptions to this rule:

    • Full abatement of a IRC 6020(b) assessment where it was determined the taxpayer was out of business the entire year and not liable for taxes reported on Form 940.

    • No credit is claimed for state contributions.

  3. The FUTA assessment is assessed as additional tax with a TC 290 on either MFT 10 (Form 940) or MFT 30 (Schedule H, Form 1040) with numbers 50 or 51 in digits 9 and 10 of the DLN.

    Caution:

    If there is no TC 290 assessment on the TXMOD then it is not a FUTA assessment. For example, if a RO secures an amended Form 940 from the taxpayer adjusting the current tax year this is not a FUTA adjustment. An amended Form 940 is worked by CCP at PSC.

  4. If wages and taxes are being decreased, bracket "()" the line item adjustment amounts in Item 11 of Form 3870. Identify the amount of wages to be decreased.

  5. Any FTD penalties requiring adjustment must be corrected manually. Do not address any computer generated penalties or interest. See IRM 20.1.4.21.6.1, Computation of the FTD Penalty (CAWR and FUTA notices).

  6. When requesting State Certification, use Form 940–B, Request for Verification of Credit Information Shown on Form 940. Attach State Certification from each state in which the taxpayer paid wages.

  7. Complete the FUTA Worksheet in the Form 940 instructions or use the worksheet in Exhibit 5.1.15–1, in order to compute the correct amount.

  8. All FUTA adjustments are now processed at the Cincinnati campus, including the international adjustments. Use the correct ICS template for FUTA adjustments. Forward FUTA adjustments to the Cincinnati campus electronically or by mail or fax. If the FUTA adjustment is misrouted the campus FUTA unit should be forwarding on to Cincinnati for processing. The forwarding campus will notify the RO by email. Click on this link for the state mapping guide for FUTA adjustments http://serp.enterprise.irs.gov/databases/who-where.dr/transshipment.dr/campus_locator_guide/28_futa.htm. State on Form 3870 the cause of the problem and whether the 940 was incorrect or whether the taxpayer has subsequently paid all the contributions to the state. Attach any state certification, if required. See example of suggested wording for item 11 of Form 3870.

    Example:

    FUTA adjustment of tax
    Requested Action: Abate (or adjust) tax (in full or partially) dated (MM-DD-YYYY) in amount of (state amount) due to (state cause of mistake).
    Abate FTD penalty dated (MM-DD-YYYY) in amount of (state amount of FTD penalty).
    Justification: Provide reason (i.e. taxpayer erroneously included wages paid to his 16 year old son).
    Attach: Corrected return, signed and date stamped, and State Certification.
    Attach POA information.

5.1.15.9  (10-09-2012)
Tax Exempt and Government Entities (TE/GE) Adjustments

  1. TE/GE is comprised of three major business units; Exempt Organizations (EOs), Employee Plans (EPs), and Government Entities (GEs). Click on the TE/GE web site listed here for additional information http://tege.web.irs.gov/templates/TEGEHome.asp

  2. EO customers consist of religious, charitable, social, educational, political and other not-for-profit organizations. EO ensures that these organizations maintain compliance with the complex requirements for tax-exempt status, including an annual return filing requirement. Churches and some other organizations are not required to file an annual return. In addition, organizations other than private foundations and most supporting organizations are not required to file an annual return if they have gross receipts that are not normally in excess of $25,000.

  3. EP services customers with qualified employee benefit plans (such as pension, profit-sharing, 401(k), employee stock ownership (ESOP), and stock bonus plans) that are required to file an annual return. Simplified Employee Pensions (SEPs), SIMPLE plans, 403(b) tax-sheltered annuities, and IRC 457 governmental deferred compensation plans generally are not required to file returns, but they may be required to file an income tax return if they engage in an unrelated business or receive unrelated debt-financed income. Under the Pension Protection Act of 2006, most small tax-exempt organizations whose gross receipts are normally $50,000 or less must file Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations not Required To File Form 990 or 990-EZ. Before this law was enacted, these small organizations were not required to file annually with the IRS. The first filings were due in 2008 for tax years ending on or after December 31, 2007.

  4. GE customers consist of three distinct types of customers:

    1. Federal State and Local Governments (FSLG),

    2. Indian Tribal Governments (ITG), and

    3. Tax Exempt Bonds (TEB).

    These customers are not subject to Federal income tax, however, they are responsible for income tax withholding and paying employment taxes.

  5. IRM 20.1.8, Employee Plans and Exempt Organizations Miscellaneous Civil Penalties section in the penalty handbook covers the miscellaneous civil penalty provisions of the IRC that apply to EP and EO. Decisions on penalty issues are to be guided by the applicable statutes, regulations, and procedural instructions issued by the Service. See IRM 20.1.8.2, Exempt Organizations and Certain Trusts, for the applicable IRC sections regarding penalties assessed on EO and Certain Trusts. See IRM 20.1.8.3 , Employee Plans (EP), for the applicable IRC sections regarding penalties assessed on EP.

  6. A Daily Delinquency Penalty (DDP) for failure to file a timely return (unless there is reasonable cause) is assessed on EO. The most commonly worked TE/GE cases by ROs are:

    MFT Form Title of Form
    67 990/990EZ Return of Organization Exempt from Income Tax
    37 5227 Split-Interest Trust Information Return
    02 1120-POL U.S. Income Tax Return of Political Organization
    34 990-T Exempt Organization Business Income Tax Return
    36 1041-A U.S. Information Return- Trust Accumulation of Charitable Amounts
    50 4720 Return of Certain Excise Taxes on Charities and Other Persons Under Chap.41 and 42 of IRC
    44 990-PF Return of Private Foundation

    See IRM 21.7.7.2, Exempt Organizations Overview, for a list of all EO forms.

  7. The Daily Delinquency Penalty (DDP) on Form 990, Form 990-EZ, Form 990-PF, Form 1041-A and Form 5227 may be abated only in the following situations:

    • A reasonable cause explanation for late filing is provided.

    • The missing/incomplete information is submitted, along with a reasonable cause explanation as to why the information was not provided with the initial return.

    • A reasonable cause explanation is provided as to why the missing information cannot be provided.

    The penalty may be decreased if the return was filed late and incomplete and the removal of the “incomplete” condition allows for a lowered late filing DDP. The penalty should be adjusted to reflect only the late filing portion. See IRM 21.7.7.4.23.1, Daily Delinquency Penalty, for additional information on penalties.

    Note:

    Certain penalties on EO cannot be abated for reasonable cause. See IRM 20.1.8-3, EO Reasonable Cause Guidelines, for additional information.

  8. Use ICS template Form 3870 -OTHER Manual Processing for penalty abatement requests that are worked in EO or EP Accounts. A signed reasonable cause statement provided by the organization must be included with the Form 3870, along with any missing or incomplete information (if applicable). If the missing or incomplete information cannot be provided, a detailed explanation stating why the information cannot be provided must be included as well. The Form 3870 itself is not sufficient documentation for abating a penalty. Submit to group manager for approval. Form 3870 should be either mailed or faxed to OSC for processing. The mailing address is:
    Internal Revenue Service
    1973 N. Rulon White Blvd. MS: 6710
    Ogden, UT 84404

    OR


    Internal Revenue Service
    MS: 6710 P.O. Box 9941
    Ogden, UT 84409 The FAX number for OSC is (801) 620-5555.

  9. The following procedures should be followed when requesting an abatement of a Form 5500, Annual Return/Report of Employee Benefit Plan, MFT 74/76 tax module. The taxpayer may provide the requested information. This includes any of the following:

    1. A copy of an approved extension.

    2. A copy of, or a statement that, an automatic extension was used (4868, 5558, 7004 or 2758).

    3. A reasonable cause statement that is valid according to IRM 20.1.1.3.2.

    4. The requested missing or incomplete information.

    Prepare Form 3870, Request for Adjustment, attach the valid supporting documentation and forward to OSC at the address provided above.

5.1.15.10  (04-16-2010)
Adjusting Assessments of Personal Liability for Excise Tax

  1. Advisory has sole authority for abatements or adjustments to an assessment of personal liability for excise taxes.

    1. Advisory may abate the assessment when the liability is conceded by Appeals or when a Federal Court judgment is entered in favor of the taxpayer. Form 3870 and a revised Form 9494, Request For Assessment of Personal Liability For Excise Tax, page 3 computation will be forwarded to CCP for association with the case file.

    2. Advisory will prepare Form 3870 and a memorandum of authority to request reversal of a prior adjustment made on the assessment and forward to CCP. The memorandum will request reversal of the previous adjustment and will refer to a specific related Form 3870. The memorandum must be approved by the preparer's group manager. Once the adjustment has been made, a new NMF Bal Due will be issued which will be assigned to FC or, if in litigation, to Technical Services Advisory.

  2. See IRM 5.7.3.1.2, Personal Liability for Excise Taxable Fuel Taxes, for additional information.

5.1.15.11  (10-09-2012)
Tax Assessed on Incorrect Entity or Tax Period

  1. If a return is processed to an incorrect tax period or TIN and needs to be corrected, the return will need to be reprocessed to the correct tax period or TIN. The Service cannot assess additional tax on a return if the statute of limitations on assessment with respect to that return has already expired. The adjustment can still be made, but it requires a manual process. Indicate on the Form 3870, "Request criteria transfer per ASED expiration." The tax period will be reassessed on NMF.

  2. There are two options:

    1. Request an abatement of all assessments under the incorrect entity or tax period and request that CCP reprocess the return to the correct entity or tax period. This will assure the correct received date on the return so the correct amount of penalty and interest is assessed. Secure a statement from the taxpayer that the return was filed incorrectly or have the taxpayer sign the Form 3870.

    2. Secure a correct, signed return under the correct entity and process. Then abate all assessments under the incorrect assessment. This option will be particularly useful if you need to do an immediate prompt assessment to correct the accounts or if for some reason it is important to have the correct return signed by the taxpayer. Under this option the FTF penalty will be assessed if the return is a balance due even though the incorrect return may have been assessed timely and no FTF penalty was assessed.

  3. Do not address any of the computer-generated penalties or interest except FTD penalty, TC 186, when you are eliminating the tax completely. FTD penalty must be addressed, as it does not automatically re-compute. See IRM 20.1.4.23(11)a, Manual Adjustments.

  4. If there are credits on the module you are abating that you want transferred, add this statement to ensure they do not refund prior to transfer: "Please Input TC 570 .00 to hold credits." Check IDRS CC IMFOLT for IMF and/or CC BMFOLT for BMF to see if there is a current TC 846 on the module. If a TC 846 has posted on the module the refund can no longer be stopped. Command code NOREF should be used to stop a refund.

  5. When using Form 3870 template available through ICS, you will be asked the question, "Do you want TC 570 .00 to be input to hold credits?" If the answer is yes, the following statement will be added in Item 11 "Input TC 570 .00 to hold credits."

  6. Request the original return from files using cc ESTAB and attach the original return and documents received from files for both entities, if available, to Form 3870. If the ESTAB document is not available, note on Form 3870. See example of suggested wording for Item 11 of Form 3870, Reason for Adjustment, below:

    Example:

    Return Assessed Under Wrong Entity


    Requested Action: Abate tax (TC 150) dated (MM-DD-YYYY) in the amount of (state amount),
    Abate FTD penalty dated (MM-DD-YYYY) in amount of (state amount)
    Transfer: the following FTD payments from the EIN, MFT, and Tax Period listed on Form 3870 to EIN (XX-XXXXXXX), MFT (XX) Tax Period (XXXXXX): TC 650 dated (MM-DD-YYYY) in amount of (state amount). List all credits here that need to be transferred to the correct EIN.
    Reprocess: Return from the above entity to (provide name of correct entity and EIN XX-XXXXXXX, MFT (XX), and Tax period (XXXXXX)).
    Justification: (i.e., tax return erroneously filed using the old Sole Proprietorship EIN). TP incorporated on (provide date of incorporation) MM-DD-YYYY. Delete all filing requirements under (provide the old Sole Prop EIN) XX-XXXXXXX.
    Request input of TC 570 .00 to hold all credits till transfers are completed.
    Attach statement from the taxpayer that the return was filed under the incorrect TIN or have the taxpayer sign Form 3870.

5.1.15.12  (10-09-2012)
Multiple Taxpayer Identification Numbers (TINS) - Same Taxpayer

  1. If a taxpayer has multiple TINs and the tax modules under the TINs reflect different amounts, the accounts may be merged using Form 2363, Master File Entity Change. If multiple TINs exist and returns have been filed for different amounts for the same period, prepare Form 3870 abating tax under the wrong number and requesting assessment of additional tax under the correct TIN. Request that any credits be transferred to the correct TIN. Indicate on Form 3870 that refunds should be held until the account is corrected.

    Note:

    Advise the taxpayer to file corrected state reporting information and Forms W-2 as appropriate to avoid a future CAWR adjustment.

  2. When requesting an abatement of tax under an incorrect TIN and an assessment under the correct TIN, consider ASED problems, if applicable. The Service cannot assess additional tax on a return if the period of limitations on assessment with respect to that return has already expired. The adjustment can still be made, but it requires a manual process. Indicate on Form 3870, "Request criteria transfer per ASED expiration."

  3. Use IDRS and Corporate Files On Line (CFOL) command codes (BMFOL for BMF and IMFOL for IMF) to research entity and account records for both entities to determine if the accounts can be merged. If there are no identical tax periods with assessments (TC 150s) under both numbers, you can merge the accounts. Use Form 2363 requesting that the incorrect TIN be merged to the correct TIN. Form 2363 can be emailed to CCP.

  4. If you cannot merge the accounts, then take the following steps:

    1. If the TP filed two separate returns (each with a different TIN) prepare Form 3870 under the incorrect number, abating the tax and requesting that an additional assessment be made under the correct number. Prepare a separate Form 3870 for each tax period involved. For a BMF case the Form 3870 for the latest tax period involved should include a statement "Delete all filing requirements on this EIN" . Request that refunds be held and all credits be transferred to the correct TIN, if applicable.

    2. If the TP filed duplicate returns (one under each TIN) prepare a Form 3870 to abate the duplicate assessment under the incorrect TIN. Request that refunds be held and all credits be transferred to the correct number, if applicable. For a BMF case where both EINs have open 941 filing requirements but only one EIN is needed, retain the oldest EIN. For the newer EIN, include a statement on the Form 3870 "Delete all filing requirements on this EIN " .

    Note:

    Advise the taxpayer to file corrected state reporting information and Forms W-2 as appropriate to avoid a future CAWR adjustment.

  5. If there are credits on the module you are abating which you want transferred, add this statement to ensure they do not refund prior to transfer, "Please Input TC 570 .00 to hold credits." If a TC 846 has posted on the module, the refund can no longer be stopped. Command code NOREF should be used to stop a refund.

  6. When using Form 3870 template available thorough ICS, you will be asked the question, "Do you want TC 570 .00 to be input to hold credits?" If the answer is yes, the following statement will be added in Item 11, "Input TC 570 0.00 to hold credits" . Email Form 3870 to CCP in Philadelphia.

5.1.15.13  (10-09-2012)
Identity Theft

  1. Identity (ID) Theft occurs when someone uses an individual’s personal information, such as name, Social Security Number (SSN), or other identifying information without permission, to commit fraud or other crimes. Instances of identity theft can either be alleged by the taxpayer or can be identified by a Service employee.

  2. If it is determined that the taxpayer is a victim of identity theft, Form 3870 is prepared to correct the victim’s account. See IRM 10.5.3, Identity Protection Program and IRM 5.1.12, Cases Requiring Special Handling, for information on specific processing guidelines.

  3. If the taxpayer presents proof that he/she does not owe the tax due to identity theft, have the taxpayer provide substantiating documentation. Substantiating documentation includes a copy of the police report or Form 14039, Identity Theft Affidavit, and a copy of a valid United States federal or state government issued form of identification. Substantiating documentation is not required in instances of IRS identified ID theft. See IRM 5.1.12.2.2.1.2 for more information on procedures for IRS identified ID theft.

  4. Conduct research to determine if identity theft occurred. If after investigation it is determined that the taxpayer is a victim of identity theft, Form 3870 is prepared to correct the victim’s account. Prepare Form 3870 for partial or full abatement and write Identity Theft in Item 11 Reason for Adjustment in bold letters. State on 3870, "Abate TC 290 in amount of XXXX" . Include an explanation for the adjustment on Form 3870 and provide appropriate substantiation. Notate on Form 3870 to input TC 971 AC 501 or AC 506. The completed Form 3870 and all attachments are routed based on the type of assessment that needs adjusting. See complete instructions for guidelines and processing of Form 3870 in IRM 5.1.12, Cases Requiring Special Handling.

  5. Request input of the Identity Theft action code using Form 4844, Request for Terminal Action to flag the account according to the procedures in IRM 5.1.12.2.2.1.6, ID Theft Action Code Input Procedures.

  6. Review the MySB/SE Collection Identity Theft website at: http://mysbse.web.irs.gov/Collection/identitytheft/default.aspx for more information about Identity Theft. Review the Privacy, Information Protection & Data Security (PIPDS) website at: http://irweb.irs.gov/AboutIRS/bu/pipds/pip/itim/idtheft/default.aspx for general information about Identity Theft.

  7. Refer a taxpayer to the Identity Theft Toll-free number 1-800-908-4490 when the taxpayer needs assistance regarding non tax-related identity theft with no known tax administration impact.

5.1.15.14  (10-09-2012)
Tracing Payments

  1. A payment tracer is the process used to locate a missing or misapplied payment made by a taxpayer. A payment tracer case is not resolved until the missing or misapplied payment is correctly applied to the taxpayer's account. Payments can be misapplied when the payment:

    • Is separated from the return during processing.

    • Posts to another account or tax period.

    • Posts before the return is assessed and taxpayer fails to properly identify the payment.

  2. Use IDRS to access the module where the taxpayer intended the payment to be applied. Ask the taxpayer for proof of payment such as the front and back of a cancelled check. The back of most cancelled checks contains endorsement data that allows you to determine where a payment posted. A cancelled check with the endorsement data will provide the information to locate the payment using IDRS or CFOL command codes. If the taxpayer cannot provide the cancelled check, see IRM 5.1.15.14.1(6).

  3. Check CC IMFOLP or BMFOLP on IDRS using an appropriate date range that includes dates before and after the date the TP indicated the payment was made. IRS uses the date we received the payment as the payment date, not the date mailed. Be alert to payments that might have been split by the remittance unit when the payment was not intended to be split by the taxpayer. Add payments with the same date to see if they total the overall payment amount secured from the taxpayer.

  4. Use CC URINQ to research the Unidentified Remittance File. This file can be researched by the amount of the payment, the name control, or the DLN. If the DLN is not known, adding the Area Office code to one of the items used for the search will narrow the search to one Area, instead of all Areas covered by the campus. This can be useful when the amount of the payment is a common one,( e.g. $100, $500, or$1000).

  5. For BMF cases, check the FTD credit module. If there is at least one balance due module on IDRS, the credit module is available using CC SUMRY. The FTD credit module is indicated on IDRS by the presence of MFT 01 and tax period 000000. If there are no balance due modules on IDRS, use CC BMFOLI or BMFOLT to research the FTD credit module.

  6. Use CC IMFOL/BMFOL to research other modules for the taxpayer that are not on IDRS.

  7. Use CC UPTIN to check the Generalized Unpostable Framework (GUF) for a condition that might have made the payment go unpostable. Document information on Form 4159, Payment Tracer Request. Send your request electronically to CCP for processing.

  8. Check the excess collection file using CC XSINQ. The excess collection file can be researched in three different ways:

    • By amount of remittance,

    • Name control, or

    • DLN.

    .
    If the DLN is not known, adding the Area Office to one of the other data elements will narrow the search down from region wide to that area.

  9. Document all these steps in the case file before forwarding to the campus for payment tracing. See IRM 5.1.15.5 for information on issuing a case closing letter when the credit transfer will result in Status 12 on the account.

5.1.15.14.1  (10-09-2012)
Requesting Campus Tracing

  1. Use Form 4159 to request the campus to trace payments.

    1. If the tracer will fully satisfy the amount owed, close the Bal Due module on ICS by selecting, "Payment Tracer" as closure type. This will upload TC 470 CC 93.

    2. If the tracer will not fully satisfy the amount owed, process the Payment Tracer Request, but DO NOT request input of TC 470 CC 93.

    3. If the payment tracer will not fully satisfy the amount owed and the remaining balance due is later full paid before the credit posts, then close the payment tracer BAL DUE module on ICS by selecting, "Payment Tracer " as closure type. This will upload TC 470 CC 93.

  2. Actions required on payment tracer requests based on the Collection Statute Expiration Date (CSED) are shown in the table below.

    If Then
    more than 12 months remain until the CSED expires, close the Bal Due as Payment Tracer on ICS. This will upload TC 470 CC 93.
    between 6 and 12 months remain until the CSED expires,
    • Write "Statute Expiration Date _MM-DD-YYYY" in red or bold on the payment tracer in the "Other Details" section.

    • Close the Bal Due as Payment Tracer on ICS. This will upload TC 470 CC 93.

    less than 6 months remain until the CSED expires,
    • Write "Statute Expiration Date MM-DD-YYYY" _ in caps on the payment tracer in the "Other Details" section,

    • Do not close the Bal Due, and

    • Set a follow-up and monitor it every 30 days until the action is completed.

  3. When preparing a payment tracer, include the following information, as applicable:

    1. Taxpayer’s name and address,

    2. Taxpayer’s identification number,

    3. Type of tax (MFT code),

    4. Tax period,

    5. Amount of payment,

    6. Type of payment,

    7. Endorsing IRS office,

    8. Issue date of check, money order, etc.,

    9. Date of receipt, receipt number, and type of receipt,

    10. Date of IRS endorsement and information to identify the voucher or document used to process the payment, and

    11. DLN from back of check.

    If the payment was processed. . . Then. . .
    through IDRS a 13-digit Remittance Sequence Number is stamped on the front of the remittance (canceled check, money order, etc). See Document 6209 under chapter entitled "IDRS Sequence Number" for an explanation of the 13-digit number.
    • Manually by the campus,

    • Through the Remittance Processing System, or

    • Through the Optical Character Recognition Remittance Processing System,

    the endorsement information is on the back of the canceled check or money order.

  4. If possible, attach a clear photocopy of both sides of the canceled check or money order used to make the payment that needs to be traced.

  5. If the payment was made by cashier’s check or money order, and a copy of the canceled document is not readily available, get the serial number of the payment, the date it was bought, and the name and address of the business that issued it to the taxpayer.

  6. If the taxpayer cannot provide the cancelled check, you may be able to locate the missing payment from available information. Gather basic information from the taxpayer, including:

    • Amount of the payment.

    • Approximate date of the payment.

    • Where the payment was mailed.

    • Type of payment made, such as, cash, cashier's check, money order, levy, direct debit, Electronic Funds Tax Payment System (EFTPS), and payroll deduction.

    • Whether the taxpayer received any refunds since the date of payment.

    • Whether the taxpayer has multiple EINs for BMF cases.

  7. When preparing a request for a payment tracer, be sure the complete 14 digit DLN on the back of the check or money order is included rather than other numbers that are stamped on the payment.

  8. Beginning January 1, 2011, businesses must use electronic funds transfer (EFT) to make all federal tax deposits (such as deposits of employment tax, excise tax, and corporate tax). Prior to January 1, 2011, many employers were permitted to make their federal tax deposits at an authorized financial institution accompanied by an FTD coupon. The EFTPS is a system designed to use EFT to pay Federal taxes. The EFT number is shown on IDRS for the given module. Prior to submitting a payment tracer on a deposit made electronically, research the payment using CC EFTPS by:

    • EIN, EFT amount, and payment date,

    • Taxpayer supplied EFT number, or

    • Taxpayer supplied reference number (confirmation number of credit card payments).

    Forward to CCP for processing. See IRM 5.1.2.6.4.1 , The Electronic Federal Tax Payment System (EFTPS) or IRM 21.5.7.3.3 , IDRS Research for Federal Tax Deposits(FTDs).

    Note:

    If it is necessary to submit a payment tracer for an FTD, furnish a photocopy of both sides of the cancelled check or money order. The campus will request a photocopy of the bank’s transmittal sheet for the payment in question, if necessary. A FTD can be electronic or paper-based (except after 2010). If the FTD is electronic (via EFTPS), there would be no cancelled check or money order.

  9. If the payment tracer case involves numerous other actions, (e.g. claims, amended returns, offsets of overpayments, returns filed later, etc.), no initial research is needed. Instead, prepare Form 4159 with TC 470 CC 90 rather than 93, and close the Bal Due module on ICS after securing managerial approval.

    Caution:

    Select the proper collection suspension code when processing a taxpayer claim to adjust taxes and/or locate payments on a balance due account. Do not use TC 470 CC 90 if the account will not be fully satisfied or if the account will not update to Collection Status 12. See Document 6209, IRS Processing Codes and Information, Section 11 (Collection) for further information on TC 470 and other Closing Codes Chart.

  10. Attach supporting documents to the request for a payment tracer. Requests should be sent by email to CCP unless it is not practical (e.g. the attachment is too large or a scanner is not available). Attach Form 3210 if sent by mail.

  11. See IRM 5.4.10.3, Payment Tracers, for additional information regarding payment tracers.

5.1.15.15  (10-09-2012)
Credit Transfers

  1. A credit transfer moves a payment or credit from one account to another or reverses a credit previously applied. They can also be transferred from one TIN to another if a valid relationship exists, such as:

    • The same taxpayer with more than one business,

    • Two businesses with the same bookkeeper,

    • A parent company and subsidiary company, or

    • Transfers between spouses depending on the facts and circumstances.

  2. Identify the two modules affected by the credit transfer:

    1. The debit module - where the credit is moved from, and

    2. The credit module - where the credit is moved to.

  3. Determine the correct Refund Statute Expiration Date (RSED), document on ICS and on Form 3870 the actual RSED date when requesting an adjustment for the following:

    • Penalty Adjustments, other than those processed using RCA (this is a multiple period form for penalties only).

    • 6020(b) Adjustments.

    • 941X Adjustments.

    • 1040X Adjustments.

    • Other Adjustment Request.

    • Other (Manual Processing).

    The RSED is generally three years from the Return Due Date or Extended Due Date for prepaid credits if a return was filed, or two years from the payment date for other payments, whichever is later.  See IRC 6511, if the module credit created by the posting of an adjustment exceeds the amount of the credit that can be refunded or offset due to the recomputation of tax, penalties or interest. The revenue officer must transfer the barred portion of the overpayment to Excess Collection via Form 8758, and forward to CCP.  See IRM 5.1.15.15, Transferring Credits to Excess Collection. A manual refund may be needed to allow the correct refund.

  4. Use Form 2424, Account Adjustment Voucher, to transfer credits:

    1. Between two modules on the same Master File, or

    2. Between Master Files.

      Note:

      Form 2424 is available as an ICS template, paper (cutsheet pad) or fillable Portable Document Format (PDF) file.

  5. Changes in payment dates are also requested on Form 2424. To change a payment date:

    • Debit module out with TC 672 (if payment is a TC 670), same credit date, same credit amount, same DPC, and

    • Credit module in with TC 670 with correct credit date, same credit amount, and same DPC.

    Explain the reason for the change in date on the "Explanation" line of Form 2424.

  6. To change an existing Designated Payment Code (DPC) code:

    • Debit module out with TC 672 (if payment was a TC 670) , same credit date, same credit amount, same DPC, and

    • Credit module in with TC 670 with same credit date, same credit amount, and new DPC.

  7. When transferring an overpayment using Form 2424, use the codes shown below for transferring this credit:

    • Debit module out with TC 820 using the date the overpayment became available (use the later of the return due date; received date on delinquent filed returns; or date on which the credit was available).

    • Credit with RC 700 using same transaction date as debit.

  8. See Document 6209, IRS Processing codes and Information, Section 11 Collection for DPCs and their definitions. See IRM 3.17.21-4, Reversal Transaction Codes, for additional information.

5.1.15.15.1  (10-09-2012)
Transferring Credits to Excess Collection

  1. Internet research should be used in an attempt to locate a phone number or address for taxpayers with large dollar modules of $100,000 or more, if one cannot be obtained through IDRS or Directory Assistance. All research actions must be documented on Form 8758, Excess Collections File Additions. Whenever a taxpayer contact is unsuccessful, a TC 971 AC 296 must be requested on the module to indicate that the account has been thoroughly researched prior to transferring to excess collection. Request TC 971 AC 296 using Form 8758, Item 30.

  2. Funds are only to be moved to Excess Collection (XSF) after completing all research to establish that the funds could not be applied to a specific account or could not be refunded to the taxpayer. All large dollar credit modules of $100,000 or more, require managerial approval (originator's manager) on Form 8758 prior to the transfer of credit to XSF or URF. Any large dollar case sent to XSF not signed by the manager will be rejected back to the originator for a manager's signature. You must attach documentation providing existence of the credit (current TXMODA print or print of the transcript showing the credit) as well as the research performed prior to transferring to XSF. Prepare Form 8758 and transmit to CCP. For guidance in preparation of Form 8758 refer to IRM 3.17.220.2.1.1, Preparation of Form 8758 . Form 8758 can be transmitted electronically to the Area CCP mailbox. CCP will route Form 8758 to the appropriate accounting function for processing.

5.1.15.15.2  (04-16-2010)
Transferring Credits from Excess Collection

  1. Credits previously sent to XSF need to be returned to the taxpayer's account before the processing of a return is completed. This will prevent any balance due notices from being sent in error. Use Form 8765, IDRS Control File Credit Application , to transfer credits from XSF. Consult IRM 3.17.220.2.11 , Applying Amounts From the XSF - General for instructions on preparation of the form. Further guidance on completing Form 8765 is contained in IRM 21.5.7.4.4.2, Form 8765, IDRS Control File Credit Application.

  2. CCP will forward Form 8765 to the statute unit for clearance, if necessary. If the request is not approved by the statute function, Form 8765 will be rejected back to the originator (RO). If the Statute Unit clears the request, CCP will forward Form 8765 to the appropriate accounting function for processing.

5.1.15.16  (10-09-2012)
Penalty and Interest Abatements

  1. Review IRM 20.1, Penalty Handbook and the Penalty Policy Statement in IRM 1.2.20.1.1, Policy Statement 20-1 (Formerly P-1-18), when processing reasonable cause penalty relief requests. Review IRM 20.2.7, Abatement and Suspension of Interest for procedures and guidelines in processing requests for relief of interest.

  2. The IRC contains numerous civil penalty provisions. Some penalties are assessed with a specific Transaction Code (TC), while others are assessed with a TC 240 and a 3-digit Penalty Reference Number (PRN) (5XX, 6XX, or 7XX). Miscellaneous penalties assessed with a TC 240 and 3-digit PRN , (e.g. MFT 55 and MFT 13), are referred to as "Civil Penalty Modules" . The various penalties are identified with reference numbers as indicated in Document 6209, IRS Processing Codes and Information, and IRM Exhibits 20.1.1-4 (500 series) and 20.1.1-5 (600 series). Not all of these penalties are subject to reasonable cause abatement.

  3. Computer generated penalties will automatically recompute. If payments/deposits are transferred in or out of a module, the TC 186 will systemically recompute. If tax is reduced to zero, the TC 186 will reverse systemically. When penalties are abated or reduced, interest will systemically adjust.

  4. If the adjustment will fully satisfy the module and the collection investigation on the taxpayer entity is concluded, then the RO is required to send case closing Letter 4222, Notice of Case Resolution to the taxpayer and/or Power of Attorney. A systemic history will be written when Letter 4222 is generated. There is no requirement to hold the case open on ICS until the closing action posts to IDRS and the account goes to Status 12. The letter will be systemically generated for the RO to send to the taxpayer once the case is closed on ICS. If the case and modules are closed on ICS prior to the closing letter being generated, module information must be manually entered in the ICS template. After the Form 3870 is approved by the GM, when the manager selects the approval button, the Print Manager will open which includes the option to allow the manager to print the Case Closing letter or email it to the initiator of the request for them to print.

5.1.15.16.1  (10-09-2012)
Reasonable Cause Assistant (RCA)

  1. ROs are required to use RCA when the taxpayer requests relief of certain penalties due to reasonable cause. All adjustments, credit transfers, etc. should be resolved prior to processing a penalty relief case using RCA . RCA should be used for the following penalties:

    1. IMF Failure to File (FTF) and Failure to Pay (FTP)(RCA can be used for MFT 31 - Innocent Spouse/Mirrored Assessment Modules), and

    2. BMF Failure to Deposit (FTD). (BMF FTD penalty relief using RCA is currently limited to MFTs 01, 10, 11, 14 and 16.)

    Refer to IRM 20.1.1, Penalty Handbook - Introduction and Penalty Relief, for additional information.

    Caution:

    RCA cannot be used for ASFR, CAWR, or EXAM penalty abatement.

  2. If the taxpayer has not previously been required to file a return or if no prior penalties (except the Estimated Tax Penalty, TC 17X) have been assessed on the same MFT in the prior 3 years, RCA provides an option for First Time Abate (FTA).FTA is provided to the taxpayer under an Administrative Waiver and does not require managerial approval. If RCA reaches an FTA conclusion, RCA will generate one of three letters after CCP inputs the adjustment. The letters are as follows:

    • Letter 4722, First Time Abate Letter (IMF), used to notify taxpayers that relief of certain penalties (FTF and FTP) on IMF was granted.

    • Letter 4723, First Time Abate Deposit Frequency Letter (BMF) , used to notify taxpayers that relief was granted for the FTD penalty.

    • Letter 4724, First Time Abate FTD Penalty Letter (BMF), used to notify taxpayers that the FTD penalties were abated.

    See IRM 20.1.1.3.6.1, First Time Abate (FTA), for additional information.

    Caution:

    FTA can only apply to a single tax period on a given MFT. Subsequent periods will be based on reasonable cause.

  3. The reasonable cause explanation provided by the taxpayer will be considered after RCA performs the First-time Abate/Clean Compliance History analysis. If FTA criteria does not apply then the taxpayer's explanation will be used to determine if reasonable cause penalty relief criteria is met. The taxpayer is required to provide documentation to support their claim before a penalty relief determination can be reached.

  4. Prior to processing a request for penalty relief using RCA, the RO must check TXMOD on IDRS and verify that the action was not previously taken on the module. Otherwise, an unpostable action will occur.

  5. Reasonable cause penalty abatements must be approved by the group manager when RCA reaches the "Abate conclusion" . When the RCA conclusion is to "Sustain" the penalty and the RO decides to override the RCA conclusion, managerial approval is also required. The RO will provide the group manager a written reason and any documentation for the abatement request.

  6. Forward the approved penalty abatement to CCP by email and retain the taxpayer's letter and any other supporting documentation with the case file.

5.1.15.16.2  (10-09-2012)
Reasonable Cause Penalty Abatements

  1. Use Form 3870 - Penalty Adjustments (Form 3870 E) ICS template for processing penalty abatements only when RCA cannot consider. Multiple tax periods, for penalty abatement only, can be included on a single Form 3870 (E) ICS template.

  2. Submit the Form 3870 - Penalty Adjustments (Form 3870 E), including a complete explanation to justify the reason for the abatement to the group manager for approval. Group managers will review the taxpayer's letter with supporting documentation and IDRS prints verifying the amount of the proposed abatement when approving penalty abatements.

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Exception:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. If you are abating Failure to Pay (FTP) penalty now accrued and wish to have the penalty continue to be waived in the future, request input of TC 270 in the amount of ".00" . This will remove and stop the accruals.

  4. Adjust any manual assessment for Failure to File (FTF) penalty (TC 160) as it will not automatically recompute.

  5. Computer generated penalties will automatically recompute. The exception to this is TC 186, FTD penalty. Request adjustment of the FTD penalty as it will not automatically recompute regardless of whether it is a manual assessment or a computer generated assessment.

  6. When a manual computation is used for FTD computation, if there is a penalty code 11 on IDRS located below the Failure to Deposit (TC 186) amount, the penalty was imposed because the original return contained an inaccurate (or missing) FTD breakdown. Attach a Failure to Deposit Penalty Computation, or an accurate Form 941 with a completed liability section to support your adjustment.

  7. Revenue Procedure 84-35 may allow some partnership entities reasonable cause abatements if the individual partners have reported their shares of the partnership income on their timely filed income tax returns. See IRM 20.1.2.3.3, Penalty Relief.

  8. Penalties asserted by Examination may not be abated by Collection and require a request for Audit reconsideration. Forward the request for abatement to Examination for approval.

  9. Penalties or interest sustained by Appeals may only be abated by Appeals. A TXMOD will show a TC 290 for zero using Blocking Series 96, with a Penalty Reason Code (PRC) 062 (reasonable cause) in the first position and PRC 041 (sustained by Appeals) in the 4th position. This indicates that the penalty was appealed at one time and the penalty was sustained by Appeals. If Appeals partially abates a penalty using PRC 042 in the 4th position, that generally indicates they sustained the rest of the penalty and the case should be treated the same as those that Appeals sustained the entire penalty. The taxpayer should have received a letter from Appeals advising the next steps in the Appeals process. Forward to Appeals for the appropriate determination.

  10. See Exhibit 5.1.15-2, Identifying Reasonable Cause Categories.

  11. Forward the approved Form 3870 - Penalty Adjustments (Form 3870 E) to CCP by email and retain the taxpayer's letter and all other supporting documentation with the case file. See example below for suggested wording in Item 11 of Form 3870 (use this only when RCA cannot be used):

    Example:

    Abatement of FTF Penalty for Reasonable Cause
    Requested Action: Abate FTF penalty (TC 166) dated (MM-DD-YYYY) in amount of (provide amount to be abated)
    Justification: Taxpayer has established reasonable cause. Provide reason for delay in filing timely and timeframes which should be in line with the filing date. State when the return was filed and provide verification where available.

5.1.15.16.3  (10-09-2012)
Interest Abatement

  1. The Service does not abate interest for reasonable cause.IRC 6404(e)(1), Abatement of interest attributable to unreasonable errors and delays by Internal Revenue Service provides that the Commissioner may in his/her discretion abate interest on certain tax deficiencies, i.e. income, estate, gift, certain excise taxes (employment taxes are specifically excluded) assessed as a result of unreasonable errors or delays in the performance of a ministerial or managerial act by the Service. These requests must be routed to the Interest Abatement Coordinator in the Area where the alleged error or delay occurred. See SERP IRM tab then select "Penalty and Interest " for the Interest Abatement Coordinator in your Area or click on this link http://sbseservicewide.web.irs.gov/interest/iac/212.aspx

  2. An Interest Abatement referral to the IAC or Advisory should have the following critical items attached:

    • A detailed description as to when, how and to what length of time the Service caused a delay or how an unreasonable error caused increase interest,

    • Supporting documentation letters, payoff letters and date specific information. This information is of the utmost importance, as it provides the IAC with the points in time in which the interest will be determined, should their request prevail.

    • The Form 843 Claim for Refund and Request for Abatement requires the following words across the top of the form, "IRC 6404(e) Interest Abatement Request" .

  3. AI-Advisory works claims under IRC 6404(e)(1) ONLY. AI-Advisory DOES NOT work:

    • Interest Abatement Claims due to Exam/SFR assessments or Appeals requests.

    • Penalty and Interest abatement claims.

    • Form 1120 complex restricted interest cases.

    • Frivolous Claims.

  4. An extension of time to file does not extend the time to pay. Therefore, interest is due from the due date of the return without regard to any extension of time to file. However, the Commissioner in his/her discretion may abate the interest on any payment of tax to the extent that an officer’s or an employee’s erroneous or dilatory actions in performing a ministerial or managerial act in his/her official capacity caused an unreasonable error or delay in the payment of the tax. See IRC 6404(e)(1)(B).

  5. When calculating a payoff for interest that is systemically assessed, do not use ICS for calculating the payoff amount. Calculation of accruals must be verified with IDRS. The taxpayer will receive a notice for additional accruals if the payoff amount is not accurate. A request for abatement of the remaining interest "due to service error" is not appropriate. A manual calculation of the full pay amount and comparison with CC INTST calculated on IDRS should be completed.

  6. Restricted Interest refers to any interest that is computed from other than the normal interest start and stop dates. Transaction Codes 340 and 341 or a Master File -I freeze code will indicate restricted interest was computed on a tax module. Restricted interest requires manual computation of the adjustment to compute the correct amount of interest. ROs should forward their request for restricted interest computations to the FORT unit at CCP. ROs should refer interest computations on Exam related assessments to Exam.

5.1.15.16.4  (10-09-2012)
Penalty Denial and Appeals

  1. The RO will inform the taxpayer of the determination to not abate a penalty for reasonable cause. The RO must provide written notification to the taxpayer of the denial and of the taxpayer’s appeal rights, regardless of whether the request was received in person, over the phone, or in writing.

  2. If the taxpayer disagrees with the determination and maintains that the penalty should be abated, provide written notification to the taxpayer using Pattern Letter 2413(P), available as an ICS template.

  3. If the taxpayer submits a written appeal, the revenue officer who rejected the abatement request will review the appeal to determine if the taxpayer has raised new information. New information is information that was not previously discussed with or raised by the taxpayer, or not previously investigated and documented by the revenue officer. If the appeal contains new information that changes the abatement decision, the revenue officer will take the following actions:

    • Document receipt of the appeal in the ICS case history, and include details of the new information and basis for penalty abatement.

    • Secure managerial approval of the penalty appeal and follow abatement procedures.

  4. If the taxpayer submits a written appeal, the revenue officer who rejected the abatement request will review the appeal for additional information which may change the original determination to sustain the penalty. If there is no change in the penalty determination, document the receipt of the appeal request in the ICS case history with the statement that the taxpayer appeal was received on (date), did not contain new information and the case is being forwarded to the group manager for review prior to transmission to Appeals. Prepare the appeal request for transmittal to Appeals and attach the following:

    1. The taxpayer’s written request for appeal and other pertinent documents,

    2. A copy of the ICS history,

    3. Penalty appeals check sheet,

    4. A copy of the disallowance letter, Letter 2413 (P), and

    5. Prepare Form 3210, Document Transmittal.

    Forward the request to the group manager for review and concurrence. Refer to the Appeals Case Routing Guide available on the Appeals intranet site or click on this link http://appeals.web.irs.gov/APS/caserouting.htm, then click on "Case Routing and Instructions" on the left hand side on the page, and finally, click on "Case Routing by State and Zip Code" for Field Collection cases going to Appeals.

    Caution:

    The revenue officer should not make any commentary in the ICS history regarding the merits of the penalty appeal. The ICS case history made at the time of the original penalty denial determination should have sufficient documentation regarding the determination to sustain the penalty. No separate memorandum should be prepared for Appeals discussing the basis for the original penalty abatement denial. The Form 3210 transmittal must be limited to the list of attached documents shown above.

    The manager must ensure this requirement is met and that no prohibited ex parte communications are included before approving the transmittal of the case to Appeals. Refer to IRM 5.1.9.5 , Communications with Appeals, for additional information.

  5. If the appeal contains new information that requires additional investigation or ICS documentation, the revenue officer will take the following actions:

    • Document the receipt of the appeal request in ICS with a statement that the appeal was received on (date) and only the facts concerning the new information requiring additional investigation or consideration.

    • Conduct any additional consideration or investigation of the new information as appropriate and document the results in the ICS history.

    • Secure managerial concurrence of decision to sustain penalty abatement denial.

    • Attempt to make telephone contact with the taxpayer to explain the results of the additional investigation. The revenue officer will document the ICS history, notating if contact was made with the taxpayer.

    • If the revenue officer is unable to make contact with the taxpayer within a reasonable time period, the revenue officer will forward the case file to the group manager.

  6. The group manager will take the following actions:

    • Prepare a letter to the taxpayer that identifies the new information and a brief summary of the results of the additional investigation.

    • Document issuance of the letter to the taxpayer in the ICS history and attach a copy of the letter to the taxpayer appeal.

    • The manager must ensure that the ICS history is attached to the appeal request and that no prohibited ex parte communications are included before approving the transmittal of the case to Appeals.

  7. The revenue officer will then prepare the request for transmittal to Appeals and attach the following:

    • The taxpayer’s written request for appeal and other pertinent documents

    • Copy of the ICS history

    • Penalty Appeals Checksheet

    • Copy of the disallowance letter, Letter 2413 (P)

    • Copy of letter issued by the group manager

    • Form 3210, Document Transmittal

    The revenue officer may then forward the request to the appropriate Appeals office. Incomplete packages will be returned to the originating RO. Refer to the Appeals Case Routing Guide available on the Appeals intranet site.

  8. Encourage the taxpayer to full pay the liability prior to submitting an appeal to avoid further interest and penalties on the tax amount and interest on the penalty amount. If the taxpayer has submitted an appeal, continue collection activity on the unpaid tax and interest.

  9. Suspend collection activity only on the unpaid penalty portion of the assessment during the 15-day period granted to the taxpayer to file an appeal. Continue to suspend collection activity on the unpaid penalty portion during the period the penalty abatement is under consideration by Appeals unless collection of the tax liability is in jeopardy or the taxpayer is attempting to delay collection.

  10. A jeopardy situation may be characterized by the appearance that the taxpayer is placing assets beyond the reach of the Service by concealment or transferring assets to other individuals or entities. See IRM 5.11.3 , Jeopardy Levy without a Jeopardy Assessment.

  11. If it is determined that collection of the tax liability is in jeopardy or that the taxpayer has submitted an appeal solely to delay collection, secure group manager approval to pursue collection of the penalty while the penalty abatement is under consideration by Appeals. See IRM 5.1.9.4, Collection Appeals Program (CAP). Also see IRC 6330(f), Jeopardy and State refund collection.

  12. Document the ICS case history with the factors used to conclude that the abatement appeal was submitted primarily to delay collection.

  13. If the remaining balance on the account is the penalty portion of the assessment, close the Bal Due module on ICS selecting "Abatement" . This will upload TC 470 CC 90.

Exhibit 5.1.15-1 
FUTA Worksheet

FUTA Worksheet
STATE CREDIT  
.054 X Certified State Wages ______________  
Minus    
Cert. Exp. Rate X Cert. State Wages ______________  
Equals    
A) Additional Credit   _______________
Plus    
B) Timely Contributions   _______________
Plus    
C) Late Contribution x .90   _______________
Equals    
D) Total Tentative State Credit   _______________
     
ADJUSTED FUTA TAX  
E) Certified State Wages _______________  
F) Taxable Wages Reported on F940 _______________  
G) Adjusted Taxable Wages (greater of E or F)   _______________
H) G x .062 (gross tax)   _______________
Minus    
I) Lesser of D or .054 x G   _______________
J) Adjusted FUTA Tax   _______________

Exhibit 5.1.15-2 
Identifying Reasonable Cause Categories

These are only guidelines and are not to be used independently for determining reasonable cause.

Failure to File and Failure to Pay Penalties
Category Category Issues/Possible Questions
Absence
Taxpayer claims he or she was unable to comply because of absence, either his or her own or the absence of another person.

IRM 20.1.1.3.2.2.1
Who was absent?
Date(s) of the absence
Reason for Absence
How did the absence prevent compliance?
Is documentation provided?
Assessment-Error
The penalty(s) should not have been assessed in the first place, or the taxpayer disagrees with the amount of the penalty(s)
What type of assessment error?
   TP disagrees with penalty computation
    A payment was missing
    Payment was refunded in error
    Not given credit for extension
TP mailed return timely
Bankruptcy
The taxpayer claims to be in bankruptcy
What documentation is provided to confirm the bankruptcy?
Casualty
The taxpayer claims he or she was unable to comply because of a casualty.

IRM 20.1.1.3.2.2.2
Date(s) of casualty
Type of casualty, i.e.
    Fire
    Theft
    Accident
In a FEMA declared area?
What was destroyed?
Is documentation provided?
Death
The taxpayer, a relative, or someone affecting the taxpayer's business died.

IRM 20.1.1.3.2.2.1
Date of death?
Who died?
Is documentation provided?
Divorce
A divorce prevented the taxpayer from complying
Who got divorced?
How did the divorce prevent the taxpayer from meeting their obligation?
Elderly Taxpayer
The taxpayer did not comply because he or she is elderly or incapacitated.
Has someone taken responsibility for the affairs of the taxpayer?
    A legal guardian appointed
    A child or relative
Is there documentation?
Extension
Any problems associated with an extension
TP forgot to file an extension
Extension and/or payment lost in mail
Third party did not file extension
Ignorance
The taxpayer did not know about, or was unfamiliar with filing requirements, withholding, etc.; the taxpayer was unaware of income or did not know it was taxable.

IRM 20.1.1.3.2.2.6
TP claims ignorance of:
   Didn't understand filing requirements
   First time under-withholding of tax
   First time self-employment
   First time unanticipated income
   Believed too little income to file
   Didn't know the due date
   Not aware of income
   Not aware income taxable
   Involves a foreign language or custom
Illness
An illness of the Taxpayer or an illness of someone else caused the failure to comply.

IRM 20.1.1.3.2.2.1
Did illness stop the TP from taking care of normal financial activities?
Who was ill?
Impairment
The taxpayer is physically or mentally impaired.
Has someone taken responsibility for the affairs of the TP?
What is the extent of TP’s impairment?
IRS Error
Taxpayer claims that an IRS error caused the non-compliance

IRM 20.1.1.3.4
What was the nature of the IRS error?
    Error in an IRS or SSA Publication
    IRS employee gave incorrect technical advice
    IRS incorrectly processed TP's return
    IRS incorrectly processed TP's payment
    IRS failed to send promised forms
    What documentation is provided?
Lack of Forms
The taxpayer did not have the form or schedule required to file the return.
Did the TP request an extension of time to file?
Mail Problem
Taxpayer claims that return or payment was late due to a problem with the mail.

IRM 20.1.1.3.2.1
What was the nature of the mail problem?
    Return/payment sent to another taxing agency
    Return/payment sent to another creditor
    Return/payment lost in mail
    Insufficient postage
    Delayed in mail TP claims error by postal service.
    Sent timely to Lock Box
Mitigating Circumstance
A mitigating circumstance does not refer to an event beyond the control of the taxpayer, but it is an issue mentioned by the taxpayer. Identifying mitigating circumstances helps to produce a better penalty disallowance letter.
What kind of circumstance does the TP describe?
    Lack of willful intent
    TP called IRS for advice, but phones were busy
    Filing requirements are too complex
    TP's situation is special or unique
    First time TP received unanticipated income,     self-employment income, etc.
    TP changed jobs, moved, having marital difficulties
    TP took corrective action
    TP detected error in first place
    TP corrected the error
Other
Select this category only if the case does not fit into another category. An abatement in the Other category requires concurrence by manager.

IRM 20.1.1.3.2
What does the TP Claim?
When did the event preventing compliance begin and end?
What is the basis for the TP's claim?
What impact did this have on the TP?
What documentation is provided?
Does the manager agree to the abatement?
Records Unobtainable
The taxpayer was unable to obtain or reconstruct records.

IRM 20.1.1.3.2.2.3
What type of records were unobtainable?
From whom was the TP unable to obtain records?
Why was the TP unable to obtain the records?
Reliance
The taxpayer relied on someone else to file or pay, or relied on the advice of someone else.

IRM 20.1.1.3.2.2.5
Who did the TP rely on?
What was the nature of the reliance?
    Person said the TP did not need to file or pay
    Person handled everything
    Person failed to send in return or payment
    Person failed to file extension
What documentation is available?
Relocation
A move or relocation resulted in the taxpayer's inability to comply.
A relocation will not meet reasonable cause penalty relief criteria. Therefore, no questions are asked in this category. The penalty will automatically be sustained.
   
Signature
One or more required signatures were missing from the taxpayer's return.
What is the nature of the signature problem?
    Joint return unsigned by husband or wife
    Not signed, but otherwise complete
    Spouse unwilling to sign return or check
Tax Law Change
The taxpayer's failure to comply was directly related to a change in the tax law. An abatement in the Tax Law Change category requires the concurrence of a manager.
Did the TP cite a specific change in the tax law?
Would a return and/or payment have been due if no tax law change occurred?
When did the TP become aware of the need to file or pay?
Does the manager agree this case should be abated?
Unable to Pay
The taxpayer lacked the funds to pay or payment would have been a hardship.

IRM 20.1.1.3.3.3
An undue hardship must be more than an inconvenience to the taxpayer. Each request must be considered on a case-by-case basis. The mere inability to pay does not ordinarily provide the basis for granting penalty relief. The taxpayer must show that they exercised ordinary business care and prudence in providing for the payment of the tax liability. Information to consider when evaluating a request for penalty relief includes, but is not limited to the following:
When did the taxpayer know they could not pay?
Why was the taxpayer unable to pay?
Did the taxpayer explore other means to secure the necessary funds?
What did the taxpayer supply in the way of supporting documentation, such as copies of bank statements?
Did the taxpayer pay when the funds became available?
  See Treas. Reg. 1.6161–1(b) and Treas. Reg. 301.6651–1(e)

Failure to Deposit
Absence
The taxpayer claims he or she was unable to comply because of an absence, either his or her own absence or the absence or another person
Who was absent?
Date(s) of Absence
Reason for absence
Could someone else make the deposit?
Is documentation provided?
Avoidance
The taxpayer did not make the required deposit at an Authorized Depository or through EFTPS.
Payment was sent to a Service Center or unauthorized depository
No attempt to make the deposit
Is documentation provided?
Bank Error
The taxpayer claims the late deposit(s) was caused by an error by the bank.
Bank would not accept the deposit
Bank closed during business hours
Bank did not give credit for immediate credit item
Bankruptcy
The taxpayer claims to be in bankruptcy
What documentation is provided to confirm the bankruptcy?
Bookkeeping Error
The taxpayer specifically claims some type of bookkeeping error.
A bookkeeping error will not meet reasonable cause criteria. Therefore, no questions are asked in this category. The penalty will automatically be sustained.
Casualty
The taxpayer claims he or she was unable to comply because of casualty.

IRM 20.1.1.3.2.2.2
Date(s) of casualty
Type of casualty (Fire, Theft, Accident)
In a FEMA declared area
What was destroyed?
Is documentation provided?
Computer Failure
Either the taxpayer's or someone else's computer failed.
Who's computer failed?
Date of computer failure.
What caused the computer to fail?
Coupon Rejected
A bank would not accept the taxpayer's deposit coupon.
Why was the coupon rejected?
    Coupon altered?
    Bank not an authorized depository
    Bank no longer accepts deposits
Is documentation provided?
Death
The taxpayer, a relative, or someone affecting the taxpayer's business died.

IRM 20.1.1.3.2.2.1
Date of death
    Who died?
    Why couldn't someone else make the deposit?
    Business shut down because of death
    No one else was authorized
    Did not trust anyone else
Is documentation provided?
Depository Date Discrepancy
The taxpayer claims he or she did not get credit for making a timely deposit.
This category does not fall under reasonable cause criteria. Research will be required to consider other procedures, such as possible waivers, to substantiate the taxpayer's claim.
EFT Avoidance
The taxpayer failed to make a required electronic deposit.
Data analysis will be performed to determine if the non-EFT deposit was made during the waiver period(s).
Why was the TP unable to make the mandated deposit?
Embezzlement
An embezzler took funds that should have been deposited or took actions to conceal the non-filing of returns.
What steps were taken against the embezzler?
What documentation is available?
Date(s) of embezzlement
Ignorance
The taxpayer did not know, or was unfamiliar with deposit requirements in general.

IRM 20.1.1.3.2.2.6
TP claims ignorance of:
    A change in deposit frequency
    The deposit requirements
    Same day Fed Wire EFT payment
    Need for immediate credit item
    Bank's cut-off time
    EFTPS cut-off time
    The lookback period
Illness
An illness of the taxpayer or an illness of someone else caused the failure to comply.

IRM 20.1.1.3.2.2.1
Did illness stop the TP from taking care of normal financial activities?
Who was ill?
Why couldn't someone else make the deposit?
Impairment
The taxpayer is physically or mentally impaired.
Has someone taken responsibility for the affairs of the TP?
What is the extent of TP’s impairment?
IRS Error
Taxpayer claims that an IRS error caused the non-compliance.
IRM 20.1.1.3.4
What was the nature of the IRS error?
    Error in IRS publication
    IRS employee gave incorrect technical advice
    IRS incorrectly processed or coded TP's account
    Deposit frequency notice (CP 136) was incorrect
What documentation is provided?
Lack of Coupons
The taxpayer did not have the required deposit coupon.
Why wasn't the taxpayer able to obtain the needed coupon?
    Coupon registered, but not received in time
    Could not get coupons
    Lost coupons
    Assumed IRS could automatically send coupons
Lack of Funds
Taxpayer did not have sufficient funds to make deposit.
Why didn't the taxpayer have funds for the tax deposit?
    Used funds to pay other business expenses
    Funds were frozen by Court
    Another government agency failed to pay taxpayer
Mail Problem
Taxpayer claims deposit was late due to a problem with the mail.
IRM 20.1.1.3.2.1
What was the nature of the mail problem?
    Deposit was delayed in mail
    Deposit was lost in mail
    Deposit mailed/delivered to wrong place
    Insufficient postage
Mitigating Circumstance
A mitigating circumstance does not refer to an event beyond the control of the taxpayer, but it is an issue mentioned by the taxpayer. Identifying mitigating circumstances helps to produce a better penalty disallowance letter.
What kind of circumstance does the TP describe?
    Lack of willful intent
    Deposit requirements are too complex
    TP called, but IRS phones were busy
    Made some kind of data entry or phone entry error
    TP's situation is special or unique
    Overlooked making the deposit
    Some other inadvertent error
    TP took corrective action
    TP detected error in first place
    TP Corrected the error
Records Unobtainable
The taxpayer was unable to obtain or reconstruct records.
IRM 20.1.1.3.2.2.3
Why was the TP unable to obtain the records?
Records lost, unable to recreate
Reliance
The taxpayer relied on someone else to make deposit, or relied on the advice of someone else.
IRM 20.1.1.3.2.2.5
Who did the TP rely on?
What was the nature of the reliance?
    Person handled everything
    Person failed to make or initiate deposit
    Person gave bad advice about timing of deposit
    Person erred about due date or amount
Reporting Agent
A failure on the part of the agent (payroll service) or a problem encountered by the agent caused the deposit to be late.
The agent failed to make the deposit on time
Agent provided incorrect information to the TP
Agent used incorrect figures
Used an incorrect deposit method
Unaware of the client's deposit requirements
Tax Law Change
The taxpayer's failure to comply was directly related to a change in the tax law. An abatement in the Tax Law Change category requires the concurrence of a manager.
Did the TP cite a specific change in the tax law?
Is the TP eligible for a waiver?
Would the deposit have been correct if not tax change had occurred?
Does the manager agree this case should be abated?
Transition
A transition or change to the business caused the deposit to be late or incorrect.
What was the nature of the transition?
    The business was growing too fast
    A change in accountant/bookkeeper
    Change in personnel
    A business move or relocation
Note: Consult Document 6209, IRS Processing Codes and Information, for reason codes required with TC18x.

Exhibit 5.1.15-3 
State Mapping for IRS-CAWR and SSA-CAWR

All IRS CAWR and SSA-CAWR are now worked at Memphis or Philadelphia campus based on the state listed in the address of the taxpayer. All International, including Puerto Rico CAWR adjustments are worked at Philadelphia.

Note:

All Forms 941 Schedule D should be forwarded to the PSC CAWR/FUTA Operation.

State Campus State Campus State Campus
Alabama MSC Maryland/DC PSC Rhode Island PSC
Alaska MSC Massachusetts PSC South Carolina PSC
Arizona MSC Michigan PSC South Dakota PSC
Arkansas MSC Minnesota PSC Tennessee MSC
California MSC Mississippi MSC Texas MSC
Colorado MSC Missouri MSC Utah MSC
Connecticut PSC Montana PSC Vermont PSC
Delaware PSC Nebraska PSC Virginia PSC
Florida MSC Nevada MSC Washington MSC
Georgia MSC New Hampshire PSC West Virginia PSC
Hawaii MSC New Jersey PSC Wisconsin PSC
Idaho PSC New Mexico MSC Wyoming PSC
Illinois PSC New York PSC    
Indiana PSC North Carolina PSC    
Iowa PSC North Dakota PSC    
Kansas MSC Ohio PSC    
Kentucky PSC Oklahoma MSC    
Louisiana MSC Oregon MSC    
Maine PSC Pennsylvania PSC    

More Internal Revenue Manual