7.21.7  Moving Cases Through the Inventory Control Subsystem

7.21.7.1  (01-01-2003)
Overview

  1. Updates to EDS information should be entered directly on ICS at the time the change occurs. This includes status updates, correcting information on the Master Record and/or closing updates. The Area Office may choose to allow group clerks to close cases on the Case Approval Screen after the group manager has approved the case for closing. Every effort should be made to ensure that cases are not erroneously deleted from inventory. Instructions that refer to managerial case approval and record updates should be interpreted in this light.

  2. ICS will automatically update the case to status code 55 (Awaiting Closing Approval) when any of the proposed closing codes is entered on the Master Record. Please note that any action that requires Quality Assurance approval (e.g., proposed adverse letter or technical advice request) is considered a proposed closing by ICS even though the case is not actually closed.

  3. ICS will identify all mandatory review cases except EO cases with controversial issues, regional or national impact, widespread adverse publicity, and IRC 6110. If the case is subject to mandatory review, the specialist must attach Form 3198, Special Handling Document, or a locally developed form, to the face of the administrative file before forwarding the case to the group manager for approval. If the case is not one identified by ICS, the manager must update the status to Quality Assurance by entering an "x" next to the case number on the Case Approval Screen.

  4. Cases approved by a manager may be automatically selected by EDS for the TE/GE Quality Measurement Standards (TEQMS) review. Cases are randomly selected by EDS for Quality Assurance. If the case is selected, "TEQMS" is reflected on the comment line of the Case Approval Screen. A copy of the TEQMS rating form must be placed in each case identified for TEQMS before the case is sent to Quality Assurance, otherwise Quality Assurance Staff will need to research each case to identify the cases selected for TEQMS review.

  5. A Case Closing sheet (Form 8670) may be printed and placed in the case file after all proposed closing data has been entered at the specialist level. If the case is to be returned to the specialist (e.g., specialist’s actions are unacceptable), the manager should update the record to status 53. If the specialist’s actions are acceptable, the manager should:

    1. Indicate his/her approval of the closing by initialing the Case Closing Sheet in the designated space.

    2. Enter the case approval on the Approval of Case Closing Screen.
      (Note: For cases subject to mandatory review that are not identified by ICS, the manager must update status to 31).

  6. Cases identified as merit closures can be updated for closing at any time. There is no ICS time restriction for closing EO cases; therefore, the manager must manually monitor the 30-day hold period established to ensure that the user fee check has cleared before issuing the determination letter or closing the case.

  7. An unpostable code will appear on the Master Record of each case opening or closing that was not accepted on the transfer from EDS to the master file. The code identifies the unpostable condition and indicates whether it occurred on opening or closing. Cases can be updated for closing but the unpostable condition must be resolved before the manager approves the closing. To do otherwise will result in another unpostable record. The unpostable codes and conditions are explained in Chapter 8.

  8. If the case is to be returned to the specialist by Quality Assurance, the Master Record is updated with the appropriate status code (32 or 33). There is no approval screen for such updates, therefore, if the Quality Assurance manager is required to approve the return of the case (or Quality Assurance memorandum), it is recommended that the group clerk, not Quality Assurance, update the status after the Quality Assurance manager’s approval to ensure that the case is returned immediately after the record is updated.

  9. In rare instances, the Area Office is required to prepare a final adverse determination letter. This will occur when the taxpayer did not appeal a proposed adverse letter or when the response to technical advice request is adverse to the taxpayer and the taxpayer does not correct the deficiency. Cases in Quality Assurance (Technical Advice and EO church cases) can be returned to the specialist for preparation of the final adverse letter. This action must be updated by the Quality Assurance manager to code 34, Area Counsel Quality Assurance. The case closing is approved by the Quality Assurance manager through the Case Approval Screen when it is returned by Area Counsel for issuance of the final adverse letter. The final closing code must be entered.

  10. When a case is returned for preparation of a favorable letter after Tax Court proceedings, the favorable letter will be prepared to include a caveat to rescind the prior adverse letter and a final closing code must be entered on the ICS record. The case closing will be approved by the Quality Assurance manager through the Case Approval Screen and the favorable letter will be issued.

  11. Closing letters are generated without a date or signature. Therefore, these letters (and all other letters) must be dated and signed before mailing. Rubber stamps may be used for this purpose.

7.21.7.2  (01-01-2003)
Closing Codes and Descriptions

  1. One of the following codes must be entered on the Master Record before a case can be closed or updated to Quality Assurance:

    1. 40 (Proposed Adverse Determination) — This code should be used to update the record after preparation of an appropriate adverse letter.

    2. 41 (Proposed Technical Advice) — This code should be used to update the record after the specialist has completed all action necessary for managerial review of the case before it is sent to Quality Assurance Staff for transmission to the Headquarters.

    3. 01 (Favorable Determination) — This code should be used to update the record for all favorable determinations after preparation of the appropriate determination letter.

    4. 02 (Final Adverse determination) — The record should be updated with this code after an appropriate denial letter is prepared.

    5. 03 (Returned Incomplete) — This code should be used if the application is incomplete.

    6. 04 (Withdrawn by Taxpayer) — This code should be used to update the record after preparation of the letter to accept the taxpayer’s request to withdraw his/her determination letter request or after the Area Office notifies the organization that it has been previously recognized as exempt.

    7. 06 (Closed on Merit) — cannot be entered if the case is in Status 52, Assigned to Specialist — This code should be used to update the record if the case is closed at the technical screening level.

    8. 08 (EO Refusal to Rule) — This code is used in the rare instance when the applicant is unable or unwilling to furnish adequate information to permit the conclusion that it qualifies for exemption.

    9. 11 (EO Failure to Establish) — This code is used to administratively close applications when the applicant fails to respond to requests for additional information.

    10. 12 (Other Closing) — This code is used primarily for church and foreign applications that fail to establish exempt status (no taxable filing requirements are generated) and to close group rulings. If the application is for the parent organization, it must be closed 01 to establish the "first" account. This code may also be used for certain amendment cases.

      Note:

      These closures count as MIR accomplishments, but do not post to the EO/BMF. A master Form 2363–A (aka pilot voucher) will be submitted to the Submission Processing Center to establish the group ruling subordinates on the EO/BMF.

    11. 30 (Correction Disposal) — This code is used to close applications that were established erroneously.

      Note:

      These cases are not counted as MIR accomplishments.

7.21.7.3  (01-01-2003)
EO Screen Options

  1. There are seven options on the Update Master Record for EO cases. These options are:

    1. Option 1 — Research Only

    2. Option 2 — Update Status (Open Codes Only)

    3. Option 3 — Update Master Record Only

    4. Option 4 — Update Status, Master Record or Closing Data

    5. Option 5 — Update MIR Data After Closing

    6. Option 6 — Print Case History

    7. Option 7 — Print Closing Forms

  2. No data can be changed under Option 1 (i.e. all fields are protected). Only TE/GE Adjustments Unit may update records using Option 5. Most updates will be made through Option 2, 3 or 4. Updates allowed through Options 2 and 3 can also be made through Option 4. For example, if it is necessary to update the status of the case and other data elements on a record, both can be done in one session by accessing Option 4 instead of accessing Option 2 and 3 which would require the user to access and exit two separate Options.

  3. Queries may be made based on either DLN, case number, EIN, FFN, or Name Control.

  4. Validity checks and specific system user information is contained in the EDS Users Manual.

7.21.7.3.1  (01-01-2003)
Case Control Screen

  1. This screen is used by the specialist to indicate changes in status or to correct entries in the Master Record that were made in transcription.

  2. The data fields are listed below, in the same order as the User Manual, with descriptions and the conditions for making changes. Items shown in the User Manual as "display only" cannot be changed.

  3. Case Number — The case number is computer-generated upon initial input of an application. It is a nine digit number consisting of the Area Office code (first and second digits). the current year digit (third digit) the julian date (fourth, fifth and sixth digits), and the generated serial number — 001 through 999 (seventh, eighth and ninth digits). The case number cannot be changed by the specialist.

  4. EIN — Input item. If the EIN is present on application the transcriber should enter on the EDS application screen.

  5. Form Number — Display only. Valid form numbers are 1023, 1024, 1025 (dummy form number), 1026 (group ruling), and 1028. If it is incorrect, the case must be closed as correction disposal and reopened using the correct form number. When a Form 1024 is submitted to cover exemption prior to the effective date of 501(c)(3) exemption, the Form 1024 will not be established on EDS.

  6. Revision — Display only. This represents the revision date of the application form.

  7. File Folder Number — The FFN is assigned in DTS. On non-initial applications the original number assigned on the previous application should be used. Corrections should be made to the FFN if it is in error.

  8. Document Locator Number — The DLN is assigned by Cincinnati Submission Processing Center (CSPC).

  9. Subsection — The IRC subsection code reflected on the Master Record should be updated by the specialist if the two digit entry representing the subsection code is incorrect and the correct entry is valid for the Form number (e.g. 04 may be changed to 05 since both are valid codes for Form 1024). If it is determined that the entry is in error and the correct entry involves a different form number (e.g. 03 on Form 1023 to 05 on Form 1024), the case must be closed as a correction disposal and re-established through DTS. The two-digit entries that correspond to the code sections are reflected in Exhibit 7–1.

  10. Area of Location — This code represents the Cincinnati Submission Processing Center.

  11. Type of Request — Display only. If the type of request is incorrect, the case must be closed as a correction disposal and reestablished through DTS.

  12. Control Date — The control date, which starts the aging of the application, is generally the date the application was postmarked. Correctable while in inventory only by closing case as a correction disposal and reestablishing it through DTS.

  13. Accounting Period — This two digit number represents the month in which the organization’s accounting year ends, e.g. 01 for January, 12 for December, etc. Enter 12 is no accounting period is indicated on the application. The accounting period must be entered if the determination code is 01 and should be updated if it is incorrect.

  14. National Taxonomy of Exempt Entities (NTEE) — This four digit number classifies organizations based on descriptive data in the organizations application for recognition of tax-exempt status.

  15. North American Industry Classification System (NAICS) — The six digit NAICS is an industry classification system that groups establishments into industries based on the activities in which they are primarily engaged. See Exhibit 7.4.4.7–3 list of valid Exempt Organizations NAICS Codes.

  16. Organization Name — Should be updated if incorrect. Abbreviations or chapter numbers formerly used for organizations that are part of a group ruling are not valid input items. ICS will automatically adjust the name control to correspond to the changed name.

  17. Name Control — Display only.

  18. 1st Submit Date — Display only. Information used by specialist to determine the organization meets the requirements of IRC 508(a).

  19. DBA — This entry represents a second name, (e.g. Doing Business As or Also Known As) and should be changed if incorrect.

  20. Address — (Includes street, city, state and zip code) This should be updated if incorrect.

  21. MF and MF Date — Display only. MF indicates the status of the EDS record on the masterfile. See User’s Manual for more details.

  22. Date — The date should be entered any time there is a change in the status of the case.

  23. Status — Update, as necessary, according to instructions in Sections 6.1, 7.1 and 7.2.

  24. Specialist Number — This number is entered when the case is assigned and indicates the specialist to whom the case is assigned. A "dummy" specialist number may be used to identify cases held at the group level pending assignment to actual specialists. Must be present for certain status codes and most closings.

  25. Specialist Hours — Enter the aggregate number of hours charged to the case by all specialists who spent time on the case. Fractions of hours must be recorded in one decimal place; e.g., two and one-half hours is recorded as 2.5 hours.

  26. Case Grade — Must be entered if closed status 01, 02, 06, 08, or 11. Updates must be approved by a manager.

  27. Reviewer Number — If present, this number represents the reviewer to whom the case is assigned. The reviewer number must be entered to close the case.

  28. Reviewer Hours — Enter the aggregate number of hours charged to the reviewer of the case. An entry must be present for all cases closed through Quality Assurance and should be updated as necessary. If a correction to hours is required after the Approval of Case Closing screen is completed, the correction must be made by TE/GE Adjustments Unit.

  29. Last Letter Created — This is a display of the number of the last letter created in the Letter Generation System.

7.21.7.3.2  (01-01-2003)
Master File Data Screen

  1. This screen is used to update the master file when cases are closed as status code 01, 02, 06, 08, and 11 if the type request is "I" , "S" , "A" or "F" .

  2. The transcriber will insert an INOLE print in the case file for amendments resulting in substantive changes and for foundation follow-ups when the case is opened. This print will be used to complete the Master File Data Screen for cases other than initial qualifications. Corrections to the INOLE information should be made as needed through the Master File Data Screen.

  3. Items 1 through 6 on this screen are "Display Only" fields.

  4. Filing Requirement — This must be consistent with other fields and should be updated as necessary. Enter the code to indicate the return(s) required to be filed by the applicant. If the information contained in the application indicates that an organization is likely to have unrelated business income, enter a "1" in the Form 990–T block. If an organization is to be issued an adverse determination (status 02, 08, or 11) and will be required to file a return on Form 1120, 1065, or 1041, enter a "09" in the Form 990 block and a "1" or "01" as appropriate in the 1120, 1065, or 1041 block. An "0" entered in a block eliminates the filing requirement. The filing requirement code descriptions are listed on Exhibit 7–4.

  5. Employment Code — Enter a "W" if the organization is exempt under IRC 501(c)(3) to indicate exemption from FUTA. This entry must be consistent with other filing requirements.

  6. Classification Code — Enter the code or codes, in the order of importance, that most accurately describe the organization’s general purpose(s). An entry is required (from one to four one-digit codes may be entered) for all cases where the Master File Data Screen is completed. See Exhibit 7–1 for the codes and their definitions.

  7. Determination Code — The applicable code from Exhibit 7–4 MUST be entered whenever the Master File Data Screen is completed

  8. Effective Date — Whenever the Master File Data Screen is completed there MUST be an entry using the YYYYMM format If an organization is recognized as exempt under 501(c)(3), but is recognized under 501(c)(4) for an earlier period due to IRC 508, enter the effective date for the 501(c)(4) exempt status. The deductibility year will be the effective date of the 501(c)(3) status.

    Note:

    The Form 1024 will not be established in EDS.

  9. Affiliation Code — The applicable code from Exhibit 7–5 MUST be entered if the Determination Code is "1" .

  10. Ruling Date — If the Determination Code is "1" , the effective date of the determination MUST be entered in YYYYMM format.

  11. Foundation Code — An entry is required for all subsection 03 or 70 closings with a status code of 01. Leave blank in all other situations. Enter the appropriate two-digit code from the valid ranges 02–04 and 09–18. If the foundation code is 02, Private Operating Foundation Exempt from Payment of Section 4940 Taxes, the code should be 02.

  12. Advance Ruling Date — If Letter 1045 is issued, a six-digit number MUST be entered to indicate the year and month the advance ruling will expire using YYYYMM format; e.g. 200109.

  13. Deductibility Code — Whenever the Master File Data Screen is completed a deductibility code MUST be entered.

  14. Deductibility Year — If the deductibility code is 1 or 4, enter the year in which deductibility of contributions becomes effective.

  15. Entity Type — Whenever the Master File Data Screen is completed an entity type MUST be entered.

  16. Pension Plan — Enter a "1" if the organization has a pension plan or "2" if it does not have a pension plan. An entry is required if the Determination Code is "1" .

  17. Group Exemption Number — Group Exemption Numbers are assigned by the TE/GE Adjustments Unit. Enter a number if it has previously been assigned.

Exhibit 7.21.7-1  (01-01-2003)
Table of EO Subsection and Classification Codes

Subsection Code Classification Code Classification Subsection
01 1 Government Instrumentality 501(c)(1)
02 1 Title-Holding Company 501(c)(2)
03 1 Charitable Organization 501(c)(3)
03 2 Educational Organization 501(c)(3)
03 3 Literary Organization 501(c)(3)
03 4 Orgs. to Prevent Cruelty to Animals 501(c)(3)
03 5 Orgs. to Prevent Cruelty to Children 501(c)(3)
03 6 Orgs. for Public Safety Testing 501(c)(3)
03 7 Religious Organization 501(c)(3)
03 8 Scientific Organization 501(c)(3)
04 1 Civic League 501(c)(4)
04 2 Local Association of Employees 501(c)(4)
04 3 Social Welfare Organization 501(c)(4)
05 1 Agricultural Organizations 501(c)(5)
05 2 Horticultural Organization 501(c)(5)
05 3 Labor Organization 501(c)(5)
06 1 Board of Trade 501(c)(6)
06 2 Business League 501(c)(6)
06 3 Chamber of Commerce 501(c)(6)
06 4 Real Estate Board 501(c)(6)
07 1 Pleasure, Recreational, or Social Club 501(c)(7)
08 1 Fraternal Beneficiary Association (Non-Gov’t. Emps) 501(c)(8)
09 1 Voluntary Employees’ Beneficiary Association (Gov’t. Emps.) 501(c)(9)
09 2 Voluntary Employees’ Beneficiary Association (Gov’t. Emps.) 501(c)(9)
10 1 Domestic Fraternal Societies and Association 501(c)(11)
11 1 Teachers Retirement Fund Assoc. 501(c)(11)
12 1 Benevolent Life Insurance Association 501(c)(12)
12 2 Mutual Ditch or Irrigation Co. 501(c)(12)
12 3 Mutual Cooperative Telephone Co. 501(c)(12)
12 4 Organization Like Those on Three Preceding Lines 501(c)(12)
13 1 Burial Association 501(c)(13)
13 2 Cemetery Company 501(c)(13)
14 1 Credit Union 501(c)(14)
14 2 Other Mutual Corp. or Assoc. 501(c)(14)
15 1 Mutual Insurance Company or Assoc. Other than Life or Marine 501(c)(15)
16 1 Corp. Financing Crop Operations 501(c)(16)
17 1 Supplemental Unemployment Compensation Trust or Plan 501(c)(17)
18 1 Employee Funded Pension Trust (Created before 6/25/59) 501(c)(19)
19 1 Post or Organization of War Veterans 501(c)(19)
20 1 Legal Service Organization 501(c)(20)
21 1 Black Lung Trust 501(c)(21)
22 1 Multiemployer Pension Plan 501(c)(22)
23 1 Veterans Association Formed Prior to 1880 501(c)(23)
24 1 Trust Described in Section 4049 of ERISA 501(c)(24)
25 1 Title Holding Co. for Pensions, etc. 501(c)(25)
40 1 Apostolic and Religious Org. 501(d)
50 1 Cooperative Hospital Service Organization 501(e)
60 1 Cooperative Service Organizations of Operating Educational Org. 501(f)
70 1 Child Care Organization 501(k)
80 1 Farmers’ Cooperative 521
90 1 Nonexempt Charitable Trust (Split Interest) 4947(a)(2)
91 1 Nonexempt Charitable Trust (Public Charity) 4947(a)(1)
92 1 Nonexempt Charitable Trust (Treated as Prv’t Fdn.) 4947(a)(1)
93 1 Taxable Farmers’ Cooperative 1381(a)(2)

Exhibit 7.21.7-2  (01-01-2003)
Valid Exempt Organizations North American Industry Classification System (NAICS) Codes

112000 Animal Production
115000 Support Activities for Agriculture and Forestry
   
511000 Publishing Industries
512000 Motion Picture and Sound Recording Industries
513000 Broadcasting and Telecommunication
514000 Information Services and Data Processing Services
522000 Credit Intermediation and Related Activities
523000 Securities, Commodity Contracts, and Other Financial Investments and Related Activities
524000 Insurance Carriers and Related Activities
525000 Funds, Trusts, and Other Financial Vehicles
541000 Professional, Scientific, and Technical Services
561000 Administrative and Support Services
   
611000 Educational Services
621000 Ambulatory Health Care Services
622000 Hospitals
623000 Nursing and Residential Care Facilities
624000 Social Assistance
   
711000 Performing Arts, Spectator Sports, and Related Industries
712000 Museums, Historical Sites, and Similar Institutions
713000 Amusement, Gambling, and Recreation Industries
721000 Accommodation
   
812000 Personal and Laundry Services
813000 Religious, Grant Making, Civic, Professional, and Similar Organizations
   
921000 Executive, Legislative, and Other General Government Support
923000 Administration of Human Resource Programs
999000 Unclassified Establishments

Exhibit 7.21.7-3  (01-01-2003)
Filing Requirement Codes

Return Code Description
941 01 Withholding and FICA
  06 941SS, Virgin Island, Guam and American Samoa Filers.
  07 941PR, Puerto Rico Filers.
     
1120 01 Taxable Corporation
  09 1120POL
  10 Form 1120H
     
1041 1 Trust
1065   Partnership or Apostolic Organization — IRC 501(d).
940 1 Subject to FUTA
  7 Form 990PR (Puerto Rico). If input, Form 941 filing requirement must equal 7.
990C 1 Exempt or taxable farmers cooperative.
990T 1 Unrelated business income. If entered a Form 990 filing requirement must also be 01, 02, 04, 06, or 13; or the Form 990PF must be 1.
5227 1 Form 5227 required.
  2 Form 5227 and 1041 are required.
990PF 1 Private Foundation
990 01 Gross Receipts are $25,000 or more.
  02 Gross Receipts are less than $25,000.
  04 Black Lung Trust, Form 990BL required.
  06 Church not required to file.
  07 IRC 501(c)(1) not required to file.
  09 Denied, failed to establish or refusal to rule.
  13 Religious organization (non-church) not required to file Form 990.
  14 Instrumentalities of states not required to file Form 990
Determination Codes
Code Title and Description
01 Approved — Use this code when an organization has established its exempt status and is issued a favorable determination or ruling letter.
70 Denied — Use this code when the exemption is denied based on the merits of an application for exemption.
71 Failure to Establish — Use this code when an organization has not submitted requested information or documentation necessary to clearly establish its exempt status.
72 Refusal to Rule/Withdrawal of Application — Use this code when an organization is either unable to furnish a detailed description of its planned activities or directs that its application for exempt status be withdrawn.

Exhibit 7.21.7-4  (01-01-2003)
Affiliation Code Descriptions

Code Description
1 Central — Enter this code if an organization is a central organization (not part of a group exemption) over a national or regional group of organizations.
2 Intermediate — Enter this code if an organization is an intermediate organization (not part of a group exemption) included in a national or regional group of organizations (such as the state headquarters of a national organization).
3 Independent — Enter this code if an organization is an independent entity, not affiliated with any group.
6 Parent of a group ruling (not a church).
7 Intermediate parent (subordinate by state).
8 Parent of a group ruling (church).
9 Subordinate of a group ruling (also, group return).

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