4.75.13 Issue Development and Conclusion

Manual Transmittal

October 16, 2019


(1) This transmits revised IRM 4.75.13, Exempt Organizations Examination Procedures, Issue Development and Conclusion.

Material Changes

(1) Incorporated Interim Guidance Memorandum TE/GE-04-0419-0011, Elimination of requirements to use Form 5772 on EO examinations and modifications to Form 5773 into IRM

(2) Incorporated Interim Guidance Memorandum TE/GE-04-0819-0015 dated August 23, 2019 into IRM, Authority.

(3) Removed references to Guidestar and Foundation Center to encourage examiners to retrieve data directly from On-Line Statistics of Income EO Image Net (SEIN).

(4) Incorporated Interim Guidance Memorandum TEGE 04-0118-0001, Procedures for Requests for Relief from Retroactive Revocation or Modification of a Determination Under IRC 7805(b), into new IRM

(5) Added Exhibit 4.75.13 - 2, Application for Section 7805(b) Relief.

(6) Added requiring examiners notify taxpayers of approval or disapproval of their request for relief from retroactive revocation.

Effect on Other Documents

This material supersedes IRM 4.75.13, Issue Development, dated April 11, 2017.
This manual supersedes Interim Guidance Memorandum TEGE-04-0118-0001 Procedures for Requests for Relief from Retroactive Revocation or Modification of a Determination Under IRC 7805(b).
This manual supersedes Interim Guidance Memorandum TE/GE-04-0419-0011, Elimination of requirements to use Form 5772 on EO examinations and modifications to Form 5773.


Tax Exempt and Government Entities
Exempt Organizations

Effective Date


Margaret Von Lienen
Director, Exempt Organizations
Tax Exempt and Government Entities

Program Scope and Objectives

  1. Purpose: This IRM section describes the examiner’s responsibilities in developing and concluding issues present in an examination. Topics addressed include:

    1. Fact development.

    2. Rules of evidence.

    3. Special procedures for specific issues.

    4. Concluding an issue.

    5. Research of tax law.

  2. Audience: The procedures in this IRM apply to Exempt Organizations Examination employees in the following series:

    • EO examiners.

    • FSL/ET specialist.

    • Tax law specialist and reviewers.

    • Tax examiners.

    • Front-line examination group managers.

  3. Policy Owner: Director, Exempt Organizations.

  4. Program Owner: Exempt Organizations.

  5. Contact Information: To recommend changes or make any other suggestions to this IRM section, email the EO Examinations Mandatory Review office at tege.eo.review.staff@irs.gov.


  1. The primary objective of the EO examination program is regulatory, with emphasis on continued qualification of exempt organizations (Policy Statement 4-119, formerly P-7-20). See IRM

  2. IRC 7602 gives examiners the authority to:

    1. Examine any books, papers, records or other data necessary to complete an examination.

    2. Issue a summons for information necessary to complete an examination.

    3. Take testimony under oath to secure additional information needed.

    4. Ask about any offense connected with administering or enforcing of the Internal Revenue laws.

  3. Examiners and managers are also responsible for being familiar with and acting in accord with taxpayer rights. See IRC 7803(a)(3).


  1. During an examination, examiners are responsible for determining if the organization:

    1. Meets the requirements for exemption.

    2. Has the proper foundation status (501(c)(3) organizations only).

    3. Has filed all required tax and information returns.

    4. Has reported information and tax liabilities on filed returns completely and accurately.

  2. Taxpayer Bill of Rights(TBOR): In June of 2014 the IRS adopted the TBOR therefore, examiners are also responsible for:

    1. Conducting a quality examination with fairness and integrity.

    2. Being familiar with and acting in accord with t/p rights. See IRC 7803(a)(3).


    For additional information refer to Policy 1-236.

  3. Along with their managers, examiners are responsible for controlling and monitoring statutes on their assigned cases.


  1. The table lists commonly used acronyms and their definitions.

    Acronym Definition
    AIMS Audit Information Management System
    ATAT Abusive Tax Avoidance Transactions
    CFR Code of Federal Regulations
    EO Exempt Organizations
    EP Employee Plans
    EPR Examination Program and Review
    FBAR Foreign Bank and Financial Account Report
    IDR Information Document Request
    IRC Internal Revenue Code
    ITG Indian Tribal Government
    K-Net Knowledge Management Network
    LB&I Large Business & International
    LUQ Large, unusual, questionable
    NMF Non-Master file
    NOL Net operating loss
    PACER Public Access to Court Electronic Records
    RAR Revenue Agent Report
    SB/SE Small Business/Self-Employed
    SPDER Office of Servicewide Policy, Directives and Electronic Research
    SRS Specialist Referral System
    TAM Technical Advice Memorandum
    TE/GE Tax Exempt/Government Entities
    UBI Unrelated business income

Developing the Facts

  1. Well-developed facts are a vital part of a quality examination.

  2. You can develop the facts by:

    • Examining the organization’s books and records.

    • Interviewing the organization’s representatives and management.

    • Touring the organization’s facilities.

    • Contacting third parties to corroborate taxpayer statements and get information the taxpayer fails to provide (See IRM 25.27.1, Third Party Contacts).

  3. At a minimum, to conduct a thorough examination of the books and records:

    1. Determine if the books explain the organization's activities, income, expenditures, assets, and liabilities.

    2. Identify Large, Unusual, Questionable (LUQ) transactions.

    3. Reconcile amounts reported on returns to amounts totaled in the books and records.

    4. Test the organization's books and records for reliability.

    5. Evaluate how the organization is using its assets and resources.

    6. Identify the source and nature of the organization's gross receipts.

    7. Identify the relationships of persons doing business with the exempt organization.

    8. Determine whether private interests are being served at the expense of the organization's exempt purposes.

    9. Evaluate transactions such as purchases, sales, gifts, loans, expense reimbursements, etc.


    Document all the work you perform and the conclusions you reach.

  4. Developing facts in a case also includes identifying and documenting transactions that result in:

    • Inurement (26 CFR 1-501(c)(3)-1(c)(2)).

    • Impermissible private benefit (26 CFR 1-501(c)(3)-1(d)(1)(ii)).

    • Excess benefit transactions (IRC 4958).

    • Self-dealing transactions (IRC 4941).

  5. Determine whether a transaction is a listed or reportable transaction or whether a transaction is a prohibited tax shelter transaction under IRC 4965. These transactions warrant specialized examination procedures. For further information on:

    1. Reportable transactions, see IRC 6707A(c) and 26 CFR 1.6011-4.

    2. Prohibited Tax Shelter Transactions, see IRC 4965.

    3. Listed transactions, see 26 CFR 1.6011-4, IRC 4965(e).

    4. Abusive Tax Avoidance Transactions, see IRM 4.32, Abusive Transactions, and IRM 4.75.35, Fraud and Abusive Transaction Procedures.

    5. Foreign grants, see IRM, Financial Investigations Unit.

    6. Prohibited Transactions applicable to IRC 501(c)(17) organizations, IRC 501(c)(18) organizations, and IRC 4948 foreign private foundations, see IRC 503 and IRC 4948.

Collecting and Recording the Facts

  1. Use judgment when gathering facts to support a given position. A case file’s weight and thickness aren’t indicators of a well-developed case.

  2. Every document in the file should have some relevance; otherwise, omit it.

  3. Index documents secured during the examination, to Form 5773, EO Workpaper Summary. Include a statement in the work papers showing how the documents support your conclusion.

  4. Documents may include:

    • Copies of minutes.

    • Financial statements.

    • Leases.

    • Newsletters.

    • Annual reports.

    • Brochures describing activities.

    • Copies of checks.

    • Contracts and agreements directly relating to the issue.

  5. The degree to which you collect and record facts depends on the facts and circumstances of each case.


    You discover by reviewing an organization’s publications that it’s engaging in substantial legislative activity. You have to support the unagreed issue. You should secure copies of all newsletters, minutes, or publications reflecting the legislative activities, regardless of the volume. Keep in mind, the case could go to Appeals or tax court. In either case, adequate documentation is needed to uphold the IRS’ position.


    You briefly note each newsletter reviewed on a work paper entitled “Newsletter”. You note one article mentions an unallowable activity. You should make a copy of the article.


    If the newsletter contains advertising you should analyze each page with ads and note your findings in the work paper. It isn’t necessary to keep a copy of the entire newsletter because you recorded the necessary details in the work papers.

  6. Determining whether an item is significant or material depends on your evaluation of a return as a whole and the items on the return. Consider these factors when determining whether an item is significant:

    • Comparative size of the item - an expense item of $6,000 would be considered large in comparison to the total expenses of $30,000; however, if total expenses were $300,000, the item would generally not be considered large.

    • Absolute size of the item - a $50,000 item may be significant even though it represents a small percentage of taxable income.

    • Inherent character of the item - although the amount of an item may be insignificant, the nature of the item may be significant (such as airline tickets claimed on a volunteer fire department’s return).

    • Evidence of intent to mislead - this may include missing or incomplete schedules, mis-classified entries, or obviously incorrect items on a return.

    • Beneficial effect of the way in which the organization reports an item - this may include expenses reported on Form 990-T that aren’t directly related to the production of the organization’s UBI.

    • Missing items - consider items which aren’t shown on the return but would normally appear on similar taxpayers’ returns.

  7. Use sampling appropriately to enhance examining the taxpayer’s books and records. See IRM, Sampling Techniques, for further details.


  1. A fact is something that is indisputably the case. It is a truth that can be proven.

  2. Evidence, on the other hand, is a means by which the truth of an alleged fact is proven or refuted. It’s something that furnishes proof.

  3. During an examination, you gather facts and supporting evidence to correctly determine an organization’s status and tax liability.

  4. You will base your determination on all available facts and evidence, including those that support the taxpayer’s position. The following discusses the two types of evidence (oral and documentary) you’ll encounter.

Oral Testimony

  1. The IRC requires all taxpayers to keep adequate records. There are times, due to unusual circumstances, when records don’t exist. In these cases, oral testimony may be the only evidence available.

  2. Follow these general guidelines when considering oral testimony:

    • Don’t use oral testimony in place of available documentary evidence.

    • Establish the credibility of the taxpayer. You can accomplish this by considering corroborative or contradictory evidence.


      The taxpayer was able to prove payment of the loan in question and provided a travel log and receipts for the travel expenses shown on the return. The taxpayer has established credibility. You can, therefore, reasonably accept his/her oral testimony about the payment made for supplies even though he/she can’t produce receipts for that expense.

    • If you doubt the oral testimony, you should verify the facts from other sources of evidence (such as public records, third parties).

    • If the issue involves specific record keeping required by law (for example, IRC 274), then oral testimony alone can’t be substituted for necessary written documentation.


    IRC 274(d) specifies record keeping rules required in certain situations. It’s permissible to allow a deduction without complete documentation if the taxpayer can show he or she has "substantially complied" with the adequate record keeping requirements (26 CFR 1.274-5(c)(2)(v)). Use your skill and judgment. Treat the taxpayer fairly, but don’t allow them to profit from failure to keep records.

Memorandum of Interview
  1. When you interview a taxpayer or third party, and you learn information that is pertinent to your case, summarize the interview in writing. Prepare a summary of the conversation or taxpayer or witness statement (memorandum of interview) as a documentation of oral testimony.

  2. The memorandum of interview should always contain:

    1. Date, time and place of contact.

    2. Name of parties present.

    3. Description of what transpired.

    4. Signature of taxpayer (or third party).

    5. Signature of examiner.

  3. Send the written memorandum of interview to the taxpayer if he/she wasn’t the interviewee. The interviewee should confirm the accuracy before you send it to the taxpayer. By sharing the memorandum with the taxpayer, it can be included in the administrative record. If not, the memorandum of interview likely will not be admissible evidence in court.

  4. A memorandum of interview can impeach the interviewee/witness in court if they deny having made the oral statement.

Oral Testimony - Affidavits
  1. Sometimes we need a more formal written statement when documentation isn’t available and oral testimony significantly affects the case. If you think the case may eventually be resolved through litigation, consider using an affidavit to record taxpayer or third-party statements.

  2. An affidavit is an attested statement and has great validity when properly prepared and voluntarily given. Affidavits may be used:

    1. When other documentary evidence is unavailable.

    2. When you want the taxpayer’s statements to become part of the case file.

    3. To help gather complete and accurate information.

    4. To record the testimony of a witness.

    5. To prevent a taxpayer from changing testimony.

  3. See IRM for more information on affidavits.

Documentary Evidence

  1. Documents are another form of evidence.

  2. Send documents you obtain from a third party to the taxpayer for comment so that they can become part of the administrative record.

  3. In litigation, the court will likely admit both documentary evidence and oral testimony (in addition to the administrative record). Getting both documents and memoranda of interviews into the administrative record will ensure the court sees the relevant evidence.

  1. Always try to obtain information voluntarily from taxpayers and third parties. However, in certain circumstances you may need to issue a summons.

  2. Delegation Order 25-1, Summonses, Oaths, Certifications, and Related Functions, provides the delegated authority to issue a summons. See IRM, Delegation Order 25-1 (formerly DO-4, Rev. 23).

  3. If you’re considering a summons, first discuss it with your group manager. The group manager or other supervisory official above that level must pre-authorize the issuance of the summons. See IRM 25.5, Summons, for detailed summons information and procedures.

  4. The IDR enforcement process may culminate in a summons. See IRM 4.75.10, Exempt Organizations Examination Procedures, EO Pre-Contact Procedures.

  5. Consult with Area Counsel for questions about a summons. See IRC, Issues to Bring to Counsel’s Attention.

  6. The following types of summonses require pre-issuance review from Area Counsel:

    • Any summons involving a church or church records.

    • Any "John Doe" summons, or "dual purpose" summons. See IRM, Relevancy and Materiality of Summoned Information.

    • Summons issued in connection with a promoter investigation.

    • Summons issued in connection with ATAT or Listed Transactions.

    • Any summons issued to another federal agency or ITG (ITG must also be consulted).

    • FBAR Title 31 Summons. See IRM 4.26.17, Report of Foreign Bank and Financial Accounts (FBAR) Procedures.

    • Requests for examination or tax accrual work papers, tax reconciliation work papers, or any other privileged information document.

    • Summons involving potential trade secrets, protected information, software codes, and international transactions.

    • Any summons where the examination group is unsure whether it was prepared properly.


    Counsel must review all non-routine summonses (usually means all non-bank summonses) that IRS issues on behalf of tax treaty partners. See Chief Counsel Directive Manual (CCDM) IRM, Tax Treaty and TIEA Summonses, for further explanation of this process.

Special Case-Development Procedures

  1. Occasionally you may need to apply special development procedures to confirm an exempt purpose or determine a tax liability. Special case-development procedures are discussed below.

Requesting Procedural Assistance

  1. Submit questions on procedural matters to the EO Examinations Mandatory Review mailbox at *TEGE EO Review Staff. Mandatory Review responds within three business days. When you submit questions to the mailbox:

    1. Identify the research already conducted. State the research materials used and the tax law considered (such as IRM, court cases, senior examiner, etc).

    2. Provide only relevant information.

    3. Don’t reveal the taxpayer’s identity.

Requesting Technical Assistance

  1. Submit your technical questions to the K-Net at Knowledge Management Portal. Don’t reveal the taxpayer’s identity.

  2. Contact Area Counsel if you need legal advice to properly interpret and apply the Code. See IRM, Referral or Consultation with Counsel.

  3. You many need help from specialists such as engineers or economists (for example, to confirm the value of property). When requesting help from specialists from other operating divisions, use the SRS at Specialist Referral System. (See IRM, Requesting Assistance from Specialists). This includes requests for:

    • Engineers

    • Economists

    • Financial products specialists

    • Computer audit specialists

    • International language specialists

    • Other specialists

  4. For further information on other speciality areas see the following:

    For information on: See:
    Employee Benefit Plans Referrals IRM, Employee Benefit Plans Returns
    Fraud Referral Procedures IRM, Procedures
    Revoking an IRC 501(c)(3) that issued tax exempt bonds IRM, Referral to Tax Exempt Bonds (TEB)
    Referrals to other operating divisions IRM, Referrals to Other Operating Divisions
    Potential discrepancy adjustment on a return that is under examination by another operating division IRM, Examination Activities by other Operating Divisions
    Abusive Tax Avoidance Transactions IRM 4.75.35, Fraud and Abusive Transaction Procedures
    Collateral examination IRM, Collateral Examination
    Church examination Procedures IRM 4.76.7, Churches

Requests for Technical Advice Memorandum (TAM)

  1. A TAM is written, technical advice from Office of Associate Chief Counsel (TE/GE).

  2. The authority for technical advice procedures is Rev. Proc. 2019-2 (updated annually).

  3. For TAM procedures see IRM 4.75.36, Procedures for Processing Technical Advice Cases and Rev. Proc. 2019-2 (updated annually).

Procedures for Processing an IRC 6707A Penalty

  1. IRC 6707A provides for a monetary penalty for failing to include on any return or statement, any information required to be disclosed under IRC 6011 and associated regulations regarding "reportable transactions." Currently a taxpayer’s participation in a "reportable transaction," including a "listed transaction," is disclosed on Form 8886, Reportable Transaction Disclosure Statement. This penalty may be imposed in addition to any other penalty that may be imposed (such as IRC 6662, accuracy related penalties) and applies without regard to whether the transaction ultimately results in an understatement. Refer to IRM, Penalty Handbook, Preparer, Promoter, Material Advisor Penalties, and IRM 4.32.4, Abusive Transactions, IRC 6707A Penalty for Failure to Include Reportable Transaction Information with Return. Refer to IRM for information regarding rescission of the IRC 6707A penalty for failure to disclose participation in a "reportable transaction" that is not a "listed transaction."


    A "reportable transaction" is any transaction with respect to which information is required to be included with a return or statement under IRC 6011 because the IRS and the Treasury Department have determined that the transaction has the potential for tax avoidance or evasion.


    Reportable transactions under Treas. Reg. 1.6011-4 are reported on Form 8886. If the reportable transaction is also a prohibited tax shelter transaction, an EO may also have to file Form 8886-T under IRC 6033(a)(2) and be subject to an excise tax under IRC 4965 that is reported on Form 4720.

  2. You should request assistance from SB/SE Counsel to determine if a transaction should have been disclosed pursuant to 26 CFR 1.6011-4, 53.6011-4, or 26 CFR 56.6011-4.

  3. If the normal statute has expired under IRC 6501(a), written approval from SB/SE Counsel is required for support of the extended statute for a "listed transaction" under IRC 6501(c)(10).

IRC 45R Credit for Small EO Employers

  1. The Affordable Care Act (March 23, 2010), Public Law No. 111-148 added IRC 45R to the Code. The law provides a tax credit to eligible small employers, including tax-exempt organizations that provide health insurance coverage to their employees. Find definitions and background information in:

    • Final Regulations sections 1.45R-0 through 1.45R-5 (78 FR 52719; 2013-38 IRB 211).

    • Notice 2014-06.

    • Revenue Procedure 2013-35, 2013-47 I.R.B. 537.

    • Notice 2010-82.

    • Notice 2010-44.

    • Notice 2015-08.

    • Notice 2016-75.

    • Notice 2018-27.

    • Revenue Ruling 2010-13, 2010-21 I.R.B. 691.

  2. For tax-exempt employers, the tax credit under IRC 45R is a refundable credit based on premiums paid. If a tax-exempt employer appears to be eligible for the tax credit, you must inform the employer of its potential eligibility. If the employer wants to claim the tax credit, they can file with you Form 990-T, Exempt Organization Business Income Tax Return, and attach Form 8941, Credit for Small Employer Health Insurance Premiums. If Form 990-T has already been filed, the tax-exempt employer must file an amended Form 990-T with Form 8941 attached.

  3. Refer tax-exempt employers to the online Estimator so they can get an estimate of the tax credit. This tool, developed by the Taxpayer Advocate Service, is online at: http://www.taxpayeradvocate.irs.gov/calculator/SBHCTC.htm#StartCalculator.


    This calculation only gives an estimate of the credit. Neither you nor tax-exempt employers may rely on the its correctness. To determine the exact amount of the Small Business Health Care Tax Credit, tax-exempt employers must complete the Form 8941 and attach it along with the other appropriate forms and file it with Form 990-T.

  4. See IRM 4.75.38, Exempt Organizations Examination Procedures - Small Employer Health Care Tax Credit Under Section 45R, for further instructions.

Arriving at Conclusions

  1. Fact gathering is complete after you’ve:

    • Interviewed taxpayers and third parties

    • Examined the books, records, and supporting documents

    • Toured facilities

    • Researched questionable items

  2. You seldom have all of the information you’d like to resolve an issue. Decide when you have enough to make a determination; the sooner you do, the sooner you can complete the case. This is less burdensome on you and the taxpayer.

  3. Tax-exempt status and foundation status are based strictly on the laws that govern qualification for those statuses. Don’t consider collectibility when determining:

    • The continuation of tax-exempt status.

    • The appropriate foundation status.

  4. Consider collectibility for certain types of tax examinations, such as the examination of a converted return. See IRM, EO Enforcement Criteria. For collectibility guidelines on income tax examinations, see IRM, Collectibility.

  5. Attempt to resolve issues as the examination progresses.

  6. Conclude all identified issues, as well as any issues raised by the taxpayer.

  7. In arriving at a conclusion:

    • Make an impartial evaluation of all evidence.

    • Treat all taxpayers fairly and consistently.

    • Apply procedures and tax law fairly and consistently.

    • Correct mistakes made by the IRS.

    • Refuse to take unfair advantage of taxpayer mistakes or ignorance.

  8. When you reach your conclusion for an issue, discuss it with the taxpayer or representative. Provide copies of work papers, if requested.

  9. Ensure your work papers document the following:

    • Issues considered

    • Evidence reviewed

    • Steps taken to arrive at your conclusion

    • Conclusion reached


    See IRM, Arriving at Conclusions, for information on arriving at conclusion of income tax examinations.


    See IRM, Large Unusual or Questionable (LUQ) Items Defined for information on tax deficiencies tolerances.


    Tolerances for IRC 4962 abatements require special disposal codes 18 (301) and 54 (304), unless higher disposal codes apply.

Proposing Changes in Tax or Status

  1. Critical to the examination process is on-going communication with the taxpayer or the taxpayer's authorized representative. Frequently discuss the progress of the examination and proposed issues with the taxpayer. This can lead to an early resolution of both the issues and the case.

  2. Fully develop adjustments before presenting them to the taxpayer or representative for review.

  3. Use tact when explaining proposed changes or pointing out errors in the taxpayer's books or records.

  4. Be patient in explaining the provisions of the law, bearing in mind that what is clear to you may not be clear to someone who doesn’t deal with exempt organizations in their occupation.

  5. In change cases, consider providing a written summary of the issues to the taxpayer and representative. See IRM 4.75.15, EO Closing Letters and Reports of Examination, for further instructions on the initial and formal report procedures.

    1. In non-declaratory judgment cases, you can opt to prepare an initial RAR if you reasonably expect to secure an agreement before having to issue a 30-day letter and formal RAR. The initial RAR will contain sufficient information to allow the taxpayer and the representative to understand the issues and why you are proposing the adjustment.

    2. In declaratory judgment issues, prepare a formal RAR. See IRM

  6. In potential revocation cases, discuss both the issues that jeopardize tax-exempt status and the impact on filing requirements, deductibility of contributions, income tax liability, IRC 403(b) plans, and any tax-exempt bonds.

  7. Discuss substantive issues with the taxpayer or the representative in a face-to-face meeting. In some circumstances, a telephone conference or call may suffice.

  8. Calculate any deficiency or over-assessment on the appropriate report forms. If you later discover an error in the report, you may mail a revised report to the taxpayer and representative rather than present the report in a face-to-face meeting.

  9. Diligently secure timely responses from the taxpayer or representative.

Proposing Alternative Positions

  1. An "alternative position" is a secondary position the IRS may ultimately rely on if the primary position isn’t upheld. You must address all alternative positions; Appeals won’t raise them if they don’t sustain the primary position. Therefore, thoroughly document the facts, law, taxpayer’s position and conclusion for all alternative positions if the primary position isn’t sustained.

  2. If you are proposing an alternative position in an unagreed case, discuss it fully with the taxpayer or representative.

  3. Present the alternative position at the end of Form 886-A, Explanation of Items, after the conclusion statement on the primary position. Label it as "Alternative Position" and follow the same issue, facts, law, taxpayer’s position, government’s position, and conclusion format.


    If proposing revocation and the Form 990-T is also under examination, develop the unrelated business income tax issue as an alternative issue in the revocation report. The proposed revocation letter will include Form 990-T at the heading. See IRM, Effect on Form 990-T and Other EO Tax Examinations.

  4. Mark on top of the basic report forms for the alternative issue “ALTERNATIVE POSITION” and include them in the examination report after the conclusion of the primary issue.


    You discover an excessive amount of unrelated business income which places the main purpose of the organization into jeopardy. You propose revocation as the primary issue and UBI as an alternative issue in the report. If the revocation position fails in Appeals, the IRS can pursue the UBIT issue.

The Closing Conference

  1. The closing conference with the taxpayer or their representative includes:

    • An explanation of your findings based on the facts and current law.

    • An explanation of proposed adjustments.

    • An explanation of appeal rights.

    • A solicitation of agreements.

    • Answering any questions and concerns.

  2. Each closing conference situation is unique and techniques vary widely, but there are basic procedures to follow.

  3. The closing conference is held once the examiner reaches conclusions on all issues.

  4. Closing conferences will be productive if the taxpayer and representative are kept informed of the issues throughout the examination.

  5. Closing conferences may be followed by a “managerial conference(s)”, which can be held anytime until the case closes. Managerial conferences are applicable primarily because the group manager did not attend the closing conference.

  6. There can be more than one closing conference, and managerial conference.

  7. Propose and discuss substantive issues with the organization or a representative in a face to face meeting. If economically unfeasible, hold a conference call.


    You are conducting an examination of organization A located in a remote location, where in addition to flying to the closest large city, you drove for an additional six hours to get to your destination. After spending a week reviewing the records of the organization, you hold a closing conference. You inform A that aside from an agreed employment tax assessment for unreported employee fringe benefits, the case will close as a no change with advisory. Later, back at the office, your manager rejects the case back to you to change the examination results. You may hold any subsequent closing conference by phone.

  8. Don’t issue an examination report to a taxpayer without discussing findings and issues with the organization or representative. Exceptions to this rule are for the following:

    1. No-show / no-response appointments

    2. Uncooperative taxpayers

  9. You may mail a revised report to the organization rather than presenting it in a face to face meeting.

  10. To facilitate discussion at closing conferences, you can provide the organization with a listing of items to be discussed.

  11. Choose the order in which issues will be presented at the closing conference. You can modify the order during the conference. While there is no "right" order which is best for all occasions, resolve factual issues or issues involving an established application of law first. Discuss less certain issues last.

  12. Closing conferences vary in the degree of formality. See the table below for areas to be covered.

    Steps to take during the conference:
    1. Discuss your findings with the organization or representative.


    Be prepared to converse knowledgeably, explain proposed adjustments and provide the taxpayer with copies of relevant court cases, regulations, revenue rulings, revenue procedures, and workpapers showing computations. Instructions to returns and publications that explain and support regulations and rulings are also helpful, but are not citable as legal precedent.

    2. Provide the organization or representative with the authority for your findings (law, argument and conclusion.)
    3. Address any concerns from the organization or representative. Listen to the organization's officers / trustees / directors / representative(s). Get a clear understanding from all persons present that there are no pertinent facts other than those of which you are aware. State "This is my understanding. . .," and then detail the facts as you understand them. "Are we all in agreement on this? Are there any other material facts or circumstances of any consequence?"
    4. Solicit an agreement from the organization or representative. In the case of non-declaratory judgment issues, this can be done by issuing an initial RAR where you reasonably expect an agreement. At the group's discretion an initial report may be bypassed in favor of issuing a formal RAR with 30-day letter, either at the conference, or after the conference by certified mail.
    5. On agreed tax cases, solicit payment of tax, penalties and interest. For agreed revocations and disqualifications you can solicit income tax returns generally allowing up to 30 days, but you are not required to hold the primary return case file waiting for the returns. See IRM for agreed adverse status changes.
      a. If the organization indicates an inability to pay the tax due at closing, discuss alternative payment methods. Offer an installment agreement if the organization meets the requirements. Use Form 9465, Installment Agreement Request, to solicit a payment agreement. See IRM for more information.
      b. If the organization or representative agrees with the findings, but do can’t pay the deficiency immediately, explain that a statement for the deficiency plus interest will be mailed. Their cancelled check will be their receipt. Secure appropriate waivers and close the case.
    6. On unagreed cases:
      a. Offer the organization a managerial conference. Also ensure the group manager’s contact information is on the 30-day letter.
      b. Determine if the case is wholly or partially agreed.
      c. Solicit the organization's position and basis in law for unagreed issues.
      d. Advise the organization of the appellate process and its appeal rights.
      e. You can issue a formal 30-day letter and RAR at the conference or after the conference by certified mail.
  13. Document the conduct of a closing conference and managerial conference on the case chronology record or activity record. Summarize the main result of the conference. If a closing conference was not held, explain why not on Form 5464 or Form 9984. Details of the conference can be explained in the workpapers.

Issuing a Report

  1. Generally, don’t mail an RAR to a taxpayer without discussing your findings, except for:

    1. No-show/no-response appointments.

    2. Uncooperative taxpayers.

    3. The taxpayer provides additional records for your consideration.

  2. Refer to IRM 4.75.15, EO Closing Letters and Reports of Examination.

Corrected Reports

  1. See IRM and IRM for further instructions on corrected reports.

Specific Issues - Special Considerations and Procedures

  1. This subsection provides procedures and other information for identifying and properly resolving specific issues you may encounter during an examination.

Revocation of Tax-Exempt Status

  1. The term, "revocation of tax-exempt status," for purposes of EO examinations, means revocation of a ruling or determination letter granting tax-exempt status because an organization failed to meet the statutory requirements for continued recognition of tax-exempt status. See Rev. Proc. 2019-5 Section 12(updated annually).


    A termination of tax-exempt status is not a revocation. A termination results from an entity voluntarily dissolving in accordance with State law. See IRM, Terminations, for procedures to recognize a proper termination of an entity’s existence.

  2. Organizations can also automatically lose exemption for failing to file annual EO information returns or Form 990-N, e-Postcard, for three consecutive tax years (IRC 6033(j)). For more information, see IRM, Auto Revocations Under IRC 6033(j).


    Automatic revocations don’t confer appeal rights. Automatic revocation is an operation of law, not a determination made by the IRS.

  3. If a proposed adverse revocation appears imminent during the conduct of the examination:

    • Expand the primary return examination to include primary returns for all subsequent tax years not barred for assessment, unless the facts and circumstances warrant not establishing those years.

    • Document the facts and circumstances for not expanding the primary return examination to subsequent tax years.

    • Prepare an administrative record.


    Consider examination cycle time, statute of limitations, and available resources

    . Consider the extent of voluntary correction of non-compliant activities in subsequent tax years.

  4. If you expand the primary return examination to include subsequent tax years, you can focus that examination on determining:

    • The extent the noncompliant activities continue or were voluntarily corrected,

    • The potential converted tax liability (see IRM for each affected tax year, or

    • Both.

  5. Get your group manager’s approval to propose revocation.

  6. When proposing revocation:

    1. Inform the organization of activities or transactions that jeopardize tax-exemption.

    2. Advise the organization of their appeal rights. See IRM 4.75.15, Closing Letters and Reports of Examination, Pub. 3498, The Examination Process, and Pub. 892, How to Appeal an IRS Decision on Tax Exempt Status, for more details on taxpayer appeal rights.

    3. Create the administrative record. See IRM 4.75.32, Declaratory Judgment Cases and the Administrative Record.

    4. Prepare a formal report. See IRM and IRM

    5. Determine the course of action based on the taxpayer's reply to the formal report.

    6. Determine whether you will prepare an information report Form 5666 or enforce income tax. See IRM

    7. Close all proposed revocation cases to Mandatory Review.

  7. Agreed revocations become final when Mandatory Review concurs. Protested revocations become final when sustained by Appeals.

  8. For revocations resulting from:

    1. Inadequate records, see IRM, Revocation Due to Inadequate Records or Failure to Provide Requested Information.

    2. Inability to locate a taxpayer, see tables at IRM 4.75.16-8, Closing Procedures for Unable to Locate Situations.

  9. For information about revocations involving organizations in a group ruling, see IRM, Revocations.

Disqualification of Tax-Exempt Status

  1. Disqualification (or denial) of tax-exempt status applies to certain organizations under EO examination jurisdiction who have:

    1. Not applied for tax-exempt status.

    2. Not received a ruling or determination letter granting such status.

  2. Treat disqualification of IRC 508(c) organizations that don’t apply for tax-exempt status and fail to qualify for exemption as revocations for all purposes (such as disposal code, etc.) for:

    1. Churches, their integrated auxiliaries, and conventions or associations of churches.

    2. Subordinate organizations in a group exemption ruling. See Treas. Reg. 1.508-1(a)(3).

    3. Other organizations not required to apply for tax-exempt status under IRC 508(c).

  3. Status 36 organizations are IRC 501(c) organizations (other than IRC 501(c)(3), IRC 501(c)(9), and IRC 501(c)(17)) that declare tax-exempt status by filing Form 990 or 990-EZ. IRC 501(c)(4) organizations may also declare tax-exempt status by filing Form 8976. If they fail to meet the qualification of tax-exempt status, disqualify them for the examined tax years for which they declared exemption. See:

    • IRM, Status 36 Cases.

    • IRM 4.75.15-10, Status 36 Case Scenarios.

    • IRM 4.75.15-12, Status 36 Case: Form 6018 Instructions.

    • IRM 4.75.15-11, Status 36 Case: Form 2363-A Instructions.

  4. Refer to IRM, for preparing reports for Status 36 organizations.

  5. Disqualification also applies to IRC 501(c)(12) and IRC 501(c)(15) organizations for the tax years they fail their respective 85 percent member income test or gross receipts test for specific tax years.

Revocation Effective Dates

  1. The key to establishing the effective date of revocation is to determine when the organization first failed to qualify for exempt status.

  2. Attempt to establish the date the organization first failed to qualify for its particular status by:

    1. Interviewing the officers, employees, or members of the organization.

    2. Inspecting the prior year returns.

    3. Reviewing the determination file, if available.

    4. Reviewing books and records for indications of the acts.

  3. If the organization failed to qualify for its particular status due to on-going activities, the effective date of revocation is the first day of the tax year in which the noncompliant activities began. Be sure to:

    1. Document the nature of the acts.

    2. Determine when the activity first triggered the qualification issue.

  4. If the organization failed to qualify for its particular status due to a specific act (or set of acts), the effective date of revocation is the date of the first act triggering the change. Be sure to document:

    1. The nature of the act that caused the qualification issue.

    2. The date of the act.

  5. If the organization ceased to qualify for exemption during a prior year, get manager approval before expanding the examination.


    In most cases, you won’t expand the examination if the statute has expired.


    A revocation effective the date of inception will not permit a reclassification of an IRC 501(c)(3) public charity to a private foundation since the organization was never described under IRC 501(c)(3) to begin with.

  6. In all cases, the effective date of revocation must be substantiated. Thus, if the examination is not expanded to prior tax years from which the noncompliant activities continued, the effective date of revocation is the first day of the first tax year under examination.


    Revocations effective for a date other than the first day of a tax year triggers a short tax year return filing requirement. See IRM 4.75.31, Conversion of Returns.

  7. A revocation may qualify for relief from retroactive effect under IRC 7805(b). If the organization qualifies for relief under IRC 7805(b), the effective date of the revocation is prospective. See IRM below.

Reclassification Effective Dates

  1. For public charity reclassifications under IRC 509(a)(1) and IRC 170(b)(1)(A)(vi), and IRC 509(a)(2), verify the amounts on Form 990 Schedule A, Public Charity Status and Public Support.

  2. If the calculation is incorrect, re-do the schedule.

  3. Determine whether the organization meets the public support test.

  4. If the organization fails a public support test for any two consecutive years beginning with its fifth year of existence, the effective date of reclassification is the first day of the second consecutive tax year the organization failed the public support test.

  5. For special rules that apply to reclassifications of IRC 509(a)(1) and IRC 170(b)(1)(A)(vi), and IRC 509(a)(2) charities, see IRM, Reclassification of Foundation Status.

Requests for Relief from Retroactive Revocation or Modification of a Determination under IRC 7805(b)

  1. Rev. Proc. 2019-4 and 2019-5 provide that an organization may seek relief from the retroactive revocation or modification of a determination letter under IRC 7805(b) by submitting a written request to the examiner or specialist assigned to the case before issuance of the final adverse determination letter. In addition, you may independently determine that circumstances warrant limiting retroactivity under IRC 7805(b).

    1. A request that the determination letter "shall be applied without retroactive effect" under IRC 7805(b)(8)may be initiated by you or the taxpayer. If initiated by the taxpayer, it must be submitted to you prior to the issuance of the final adverse determination letter.

    2. The request must be in writing in the same form and with the content specified in Rev. Proc. 2019-4 and 2019-5 as appropriate, or their successors.

    3. You will review with the group manager the written request (including any attached supporting documentation that bear on the request). The group manager, with your input, shall make a decision recommending whether IRC 7805 relief should be granted.

    4. If the group manager believes the request should be denied or that further consideration is warranted to make an appropriate recommendation, the group manager will forward the request to the appropriate TEGE Division Counsel (TEGEDC); Area Counsel (AC), based on either geography or subject matter.

    5. If forwarded, AC will review the information from the group and furnish a memorandum to the group manager giving TEGEDC’s legal opinion as to whether the determination letter should be "applied without retroactive effect" under IRC 7805(b)(8).

    6. After the group manager makes a decision whether IRC 7805 relief should be granted or not - based on the legal advice from the AC or review of the case, you will prepare and transmit a recommendation memorandum to the Examinations or Rulings and Agreements Director, as appropriate. See Exhibit 4.75.13-2

    7. The appropriate Director will review the recommendation memorandum. If the Director concurs with the recommendation, the Director will return the memorandum with signature to you and your group manager.

    8. If the Director doesn’t concur with the recommendation in the memorandum, the Director will, if disagreeing with relief from retroactivity, raise the issue with the appropriate AC. In any case, the Director will indicate the decision on the memorandum, including an explanation in writing of the rationale, and sign and return the memorandum to you and your group manager.

    9. You must notify the taxpayer, in writing, if retroactivity is or is not granted under IRC 7805(b).

Effective Date In IRC 7805(b) Relief Cases

  1. IRC 7805(b) provides discretionary authority to determine the extent to which any ruling may apply without retroactive effect. IRC 7805(b) relief applies to:

    • Revocations.

    • Determinations of liability for UBI.

    • Determinations of liability for excise taxes.

    • Private letter rulings.

    • Technical advice issues.

  2. When an entity receives a determination letter or ruling, and later loses exemption due to a change in facts or law, revocation is effective the first day of the first tax year in which the change occurs. Under these circumstances, there is no need to request application of IRC 7805(b) relief.

  3. When an entity erroneously receives a determination letter or ruling due to an omission or misstatement of material facts, the effective date of revocation is the first day of the first tax year. In this case, don’t recommend relief under IRC 7805(b). It’s generally not available.

  4. When an entity erroneously receives a determination letter or ruling due to an IRS misinterpretation of the law, recommend IRC 7805(b) relief.

  5. The following table recaps the situations described above:

    Entity’s Determination Letter revoked due to: Revocation effective date: IRC 7805(b) Applicability:
    Change in tax law or organization alters its operation after initial recognition of exemption First day of first tax year in which organization altered its operations or the law changed Not necessary, but taxpayer may request a TAM if disputing whether it altered its operations
    Omission or misstatement of material facts by the applicant organization Retroactive to the first day of the first tax year Not Available
    Misinterpretation of law by IRS Determined by IRC 7805(b) relief Applies. Recommend requesting relief
  6. You or the organization may raise the question of IRC 7805(b) relief.


    In revocation cases, advise the organization of the provisions of IRC 7805(b).

Converted Returns

  1. For proposed revocations, disqualifications or reclassification from a public charity to a private foundation, bring the taxpayer current on their filing and tax obligations by either:

    • Preparing Form 5666 information report (see IRM

    • Securing a "converted tax return" accepted as filed (see IRM

    • Adjusting the secured converted tax return (see IRM

    • Establishing a substitute for converted tax return (see IRM

  2. Refer to IRM 4.75.31, Conversion of Returns, for specific procedures.

Inadequate Records

  1. If the taxpayer doesn’t maintain adequate books and records, discuss the inadequacies with your group manager. Determine whether to issue an "Inadequate Records Notice." See IRM, Inadequate Records.

The PATH Act and Issues Subject to Declaratory Judgment Under IRC 7428

  1. For an organization’s initial or continuing exempt status, Section 406 of the Protecting Americans from Tax Hikes Act of 2015 (PATH Act), P.L. 114-113, expands declaratory judgment rights under IRC 7428 to:

    1. All IRC 501(c) organizations regardless of paragraph

    2. IRC 501(d) organizations

  2. Based on the PATH Act, all revoked or disqualified exempt organizations, and reclassifications of foundation status have declaratory judgment rights.

  3. The PATH Act also applies to disqualifications of tax-exempt status on a year-to-year basis for IRC 501(c)(12) or IRC 501(c)(15) organizations that fail their respective 85 percent member income test or gross receipts test for a particular tax year.

  4. As a result of these expanded rights, modification of tax-exempt status, such as modifying a recognized section IRC 501(c)(4) exemption to a section IRC 501(c)(7), no longer applies.

  5. Share all documentary evidence and statements relevant to the loss of tax-exempt status with the organization. Doing so allows the documents to be included in the administrative record.

  6. You can't change a private foundation to a public charity, unless the initial classification is shown to be an error by the IRS. You can only terminate a private foundation status under IRC 507.

  7. Refer to IRM 4.75.32, Declaratory Judgment Cases and the Administrative Record, for information on IRC 7428 and assembling the administrative record.

Group Suspense

  1. Examination groups may place certain cases in group suspense pending a needed administrative or judicial action or decision. Managers may place cases in AIMS status code 39, Suspense in Group, only under the following conditions:

    • Requests for Technical Advice Memorandum. See IRM, Formal Request For Technical Advice.

    • Examinations interrupted by federally declared disasters impacting the organization. IRM 25.16.1, Program Guidelines.

    • Request by the Area Manager and agreed to by the Area Manager, FSL/ET. The written request must include a list of all of the related cases to place in status 39, an explanation of reason the cases have been delayed, and an estimated closure date.


    Don’t place a case in status 39 solely due to taxpayer delays.

  2. Group suspense statuses other than status 39 include:

    • Cases transferred to Area Counsel (AIMS status code 25).

    • Cases transferred to Joint Committee (AIMS status code 21).

    • Criminal referral cases accepted by Criminal Investigations (AIMS status code 18).

    • Grand Jury Suspense (AIMS status code 36).

  3. The group charged with a return in suspense is responsible for protecting the statute of limitations for assessment.

Form 1254 Suspense Cases

  1. Cases involving issue(s) that have nationwide impact or those within a particular judicial jurisdiction are, at times, suspended to ensure consistent treatment of the issue(s). This includes cases having the same issue or one similar to one in a case awaiting final action by EO Technical or the Office of the Chief Counsel (TE/GE).

  2. Send "suspense cases" to EO Examinations FSL/ET Mandatory Review using Form 1254, Examination Suspense Report.

  3. The group manager advises the manager, EO Examinations FSL/ET Mandatory Review, of any statutes that expired.

  4. Complete the following before you send the case to EO Examinations FSL/ET Mandatory Review:

    • Resolve all other examination issues.

    • Ensure the statute is protected for at least one year.

    • Prepare the Form 1254. Change references to "SB/SE, Technical Services Group Manager" to "TE/GE EO Exam FSL/ET Mandatory Review Manager," using the Adobe Touch Up Text Tool.


      For a group of cases with an identical issue, prepare a Form 1254 for each cases.

    • Prepare and mail Letter 3617, Action on Return - Exempt Organization, to the taxpayer explaining the reason for suspended action on the return.

  5. Mandatory Review places the Form 1254 in suspense using AIMS status code 30.

  6. Until you receive advice, don’t take action on the case other than actions to protect the statute.

  7. When a final decision is made on an issue in suspense, EO Exam FSL/ET Mandatory Review returns the case files to the originating Area with:

    • A synopsis of the decision.

    • Any guidelines.

Procedures for Disposition of IRC 501(p) Cases

  1. Refer to IRM 4.75.34, Procedures for Disposition of IRC 501(p) Cases, for specific procedures.

  2. Other useful IRMs include:

    • IRM, Financial Investigation Unit.

    • IRM 25.4.1, Potentially Dangerous Taxpayer.

    • IRM 25.4.2, Caution Upon Contact Taxpayer.

Restricted Interest Cases

  1. IRC 6601(d) and IRC 6611(f) restricts the amount of interest charged on deficiencies and paid on refunds respectively, in the following situations:

    • NOL carrybacks under IRC 172(b).

    • Capital loss carrybacks under IRC 1212.

    • Business credit carrybacks under IRC 39.

    • Foreign tax credit carryback under IRC 904 as amend by P.L. 94-455 Sec. 1901(a)(114).

  2. When working a case:

    1. Identify situations when restricted interest applies.

    2. Determine if Form 2285, Concurrent Determinations of Deficiencies, is required.

  3. Form 2285 is required when one or more of the following are present:

    • Loss or credit carrybacks from more than one year are carried back to the same year.

    • Current year adjustments result in more than $100 in tax and there is a carryback loss or credit from at least one subsequent year.

    • Both general adjustments and restricted interest adjustments are involved.

  4. Form 2285 isn’t required when:

    • A taxpayer protests an unagreed case to Appeals.

    • A taxpayer petitions tax court.

    • The only adjustment on the RAR is a single year carryback.

  5. Exhibit 4.75.13-1 provides different scenarios to help determine when Form 2285 is required.

  6. If you can’t determine if Form 2285 is needed, contact the Restricted Interest Coordinator at *TE/GE-EO-EPR Digest to discuss.

  7. If you determine Form 2285 isn’t required, prepare Form 3198-A"other instructions" section of as shown in Exhibit 4.75.13-1. Close the case using normal closing procedures as described in IRM 4.75.16, Case Closing Procedures.

  8. If you determine a Form 2285 is required:

    1. Send an email to the TE/GE-EO-EPR Digest mailbox. A special reviewer will work with you while your case is still in your inventory.

    2. If the form is required, the special reviewer will complete the form.

    3. Place the reviewer completed form in your case file.

    4. Prepare the “other instructions” section of Form 3198-A. See examples in Exhibit 4.75.13-1.

    5. Close the case using normal using closing procedures in IRM 4.75.16.

  9. See IRM 20.2.8, Restricted Interest, for more information on restricted interest.

Inactive Organizations

  1. You may find during an examination or compliance check that an organization has become inactive. Inactive organizations present unique processing challenges:

    1. An organization subject to IRC 6033(j) auto revocation. See IRM, Auto Revocations Under IRC 6033(j).

    2. A terminated organization. See IRM, Terminations.

    3. An unable to locate organization. See IRM, Unable to Locate.

  2. Some inactive organizations may not be filing the required Form 990 series information returns or Form 990-N. Thus, automatic revocation by the IRS Service Center may preempt completion of the examination.

  3. If an inactive organization not automatically revoked (i.e., files Form 990-N each year) doesn’t voluntarily terminate its existence, propose a revocation if it:

    • Hasn’t consistently operated.

    • Has shown no concrete plans to operate.

    • Has shown no reasonable acts or steps to begin operations.

    Consistent inactivity constitutes a failure to meet the requirements for the tax-exempt status granted. Determine consistency after considering all the facts and circumstances unique to each case. For example, lack of any activity over a period of five years in some cases may be regarded as consistent inactivity.

  4. If you must propose a revocation of an inactive IRC 501(c)(3) publicly supported organization not automatically revoked that doesn’t voluntarily terminate, first propose a reclassification to a private foundation if:

    1. It is in existence for more than five years.

    2. Has failed the public support test for two consecutive tax years.

    3. Doesn’t otherwise qualify for one of the other exclusions from private foundation status.


    Revoked private foundations become taxable private foundations always required to file Form 990-PF and Form 1120 (or Form 1041) while in existence. Also, disqualified person status attaches to certain related persons for purposes of Chapter 42 private foundation excise taxes.

  5. If you decide not to propose a revocation of an inactive organization, issue a no change advisory to the organization.

  6. If the inactive organization will retain exemption, secure any delinquent returns. See IRM, Inactive Organizations.

Researching an Issue and Citing the Law

  1. A critical part of issue development is accurate research. The conclusions you reach must reflect correct application of the law, regulations, court cases, revenue rulings, etc.

  2. The K-Net https://organization.ds.irsnet.gov/sites/tegekm/Pages/KMPortalHome.aspx provides a series of networks for employees and managers who share a common interest, need, or expertise in a given technical issue. See IRM

  3. Refer to IRM, Researching Tax Law, for information on researching and citing federal tax law. It provides profiles of various tax authorities and helps you become familiar with the most common, but by no means all, sources or available research techniques.

    • IRM, Internal Revenue Code.

    • IRM, Committee Reports.

    • IRM, Code of Federal Regulations.

    • IRM, Internal Revenue Bulletin.

    • IRM, Cumulative Bulletin.

    • IRM, Revenue Rulings and Procedures.

    • IRM, Bulletin Index-Digest System.

    • IRM, IRS Publications.

    • IRM, Court Decisions and Case Law.

    • IRM, Private Letter Rulings and Technical Advice Memorandums.

    • IRM, General Counsel Memorandums.

    • IRM, Technical Memorandums.

Citators: Researching Case History

  1. Research of case law isn’t complete until you review the citator. For example, you must consider if:

    • The case is current.

    • There are other cases on point that should be considered.

    • The ruling is still valid.

    • The revenue procedure has been modified.

  2. A citator lists the history on cases, revenue rulings, and procedures.

  3. Citators are published by commercial publishers of tax services such as,CCH Inc. and Research Institute of America. While formats differ, commercial citators provide basically the same information.

  4. Refer to IRM, Citators: Researching Case History, for general information on citators.

Other Research Sources

  1. You have a wide-range of tax literature to use when developing an issue. Monthly publications such as "The Exempt Organization Tax Review" , published by Tax Analysts, provide articles exclusively about tax matters for exempt organizations.

  2. See available tax services from commercial publishers that provide explanations and annotations on a variety of exempt organization tax issues (such as CCH "Exempt Organization Reports" , Bloomberg BNA "Tax Management Portfolios" ). You can research these using LexisNexis or Westlaw.

On-line Research

  1. Use on-line sites and services as your primary way to research tax.

  2. IRS contracts with commercial vendors (such as LexisNexis and Westlaw) supply electronic access to extensive legal research libraries.

  3. Employees who require LexisNexis, Westlaw, or other electronic research must obtain a user profile.

  4. Request access to these services through OL5081 https://ol5081.enterprise.irs.gov/OL5081/olne_home_page_display.show_page.

    • In the "Application Name" field type the name of the service and click search.

    • When the results appear, select the application that applies to your specific organization.

  5. For training and other assistance, access Electronic Research Training http://rnet.web.irs.gov/Training/.

  6. You can access LexisNexis at http://www.lexisnexis.com or though the IRS intranet site at http://www.lexisnexis.com/clients/irshome/. These two addresses access the same LexisNexis database, use the same customer ID number, and have the same basic features. The main difference is the IRS intranet site provides quick links to commonly used sources.

  7. You can access Westlaw at http://www.westlaw.com, or http://tax.westlaw.com. These two addresses access the same Westlaw database, use the same customer ID number, with a slightly different emphasis in the search features provided. The main difference is the tax website provides a search feature that searches multiple commonly used separate databases at the same time.

IRM Online
  1. SPDER teamed with LexisNexis to provide employees with a complete IRM in an easy to research electronic format.

  2. Find tutorials and help using the online version of the IRM at http://irm.web.irs.gov/.

Accurint - Public Records Research Tool
  1. LexisNexis® Accurint is a LexisNexis® product that offers online access to asset/locator information through an easy to use interface. It gives customized reports with:

    • Real and personal property data.

    • Motor vehicle information.

    • State corporation data.

    • Personal credit header data.

    • Business credit reports.

    • Other information.

  2. Request access to Accurint through OL5081. See IRM, for link to Online 5081.

    • In the "Application Name" field type "Accurint" and click search.

    • When the results appear, select the application that applies to your specific organization.

  3. Visit LexisNexis® Accurint, http://www.accurint.com/ for further details on Accurint.

On-Line SEIN
  1. The On-Line Statistics of Income EO Image Net (SEIN) system, is an internal web site provided by the Statistics of Income Division. It provides the original, unredacted images of forms:

    • 990, Return of Organization Exempt from Income Tax.

    • 990-EZ, Short Form Return of Organization Exempt from Income Tax.

    • 990-PF, Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation.

    • 1120-POL, U.S. Income Tax Return for Certain Political Organizations.

    • 4720, Return of Certain Excise Taxes on Charities and Other Persons Under Chapters 41 and 42 of the IRC.

    • 8871, Political Organization Notice of Section 527 Status.

    • 8872, Political Organization Report of Contribution and Expenditures.


    Only authorized officers or representatives may receive copies of a return. The public may receive copies through regular disclosure channels for redacted copies of returns.

  2. Due to site license limitations, access to Online SEIN may be limited and requires an approved request via OL5081. See IRM for link to Online 5081.

  3. For groups having only one or two people with access to the system, research requests require management approval.

  1. PACER, a product of the Administrative Office of the U.S. Courts, provides case and docket information from:

    • Federal Appellate Court.

    • District Court.

    • Bankruptcy Court.

    • U.S. Party/Case Index.

  2. You must submit a request via OL5081. See IRM for link to Online 5081 to obtain access PACER.

Restricted Interest Examples

Example 1
Organization X timely filed a Form 990-T, Exempt Organization Business Income Tax Return, for the taxable year ended 12/31/2012 reporting $15,000 taxable income with taxes due of $2,250.
As a result of an examination of the Form 990-T for the taxable year ending 12/31/2012, you reduce deductible expenses by $20,000. You compute corrected taxable income as follows:
  Income as shown on the return 15,000
  Plus decrease in expenses 20,000
  Corrected taxable income 35,000
The examination results in a deficiency of $3,000.
This is not a restricted interest case. The reduction in expenses is a current year adjustment.
A Form 2285 is not required.
You are not required to enter any statements regarding interest on a Form 3198-A, TE/GE Special Handling Notice.
Example 2
Organization X timely filed a Form 990-T, Exempt Organization Business Income Tax Return, for the taxable year ended 12/31/2012 reporting $15,000 taxable income with taxes due of $2,250.
As a result of an examination of the Form 990-T for the taxable year ended 12/31/2012, you allow a NOL carryback of $4,000 from the year ended 12/31/2013. You make no other adjustments. You compute corrected taxable income as follows:
  Income as shown on the return 15,000
  Minus the NOL carryback from 2013 4,000
  Corrected taxable income 11,000
The NOL carryback adjustment results in an over-assessment of $600.
This is a restricted interest case.
A Form 2285 is not required because the NOL carryback was from a single subsequent year and there were no current year adjustments or other carrybacks.
Form 3198-A is required. Prepare a Form 3198-A and notate in bold letters in the "Other Instructions" section "Restricted Interest IRC 6611(f). No Form 2285 is required."
Example 3
Organization X timely filed a Form 990-T, Exempt Organization Business Income Tax Return, for the taxable year ended 12/31/2011 reporting $15,000 taxable income with taxes due of $2,250.
As a result of an examination of the Form 990-T for the taxable year ended 12/31/2011, you allow NOL carrybacks of $4,000 and $6,000 from the years ended 12/31/2012 and 12/31/2013, respectively. You make no other adjustments. You compute corrected taxable income as follows:
  Income as shown on the return 15,000
  Minus the NOL carryback from 2012 4,000
  Minus the NOL carryback from 2013 6,000
  Corrected taxable income 5,000
The adjustments result in an over-assessment of $1,500 in taxes, a decrease of $600 from the NOL carryback from the year ended 12/31/2012 and a decrease of $900 from the NOL carryback from 12/31/2013.
This is a restricted interest case.
A Form 2285 is required because there are carrybacks from 2 succeeding years.
Form 3198-A is required. Prepare a Form 3198-A and notate in bold letters in the "Other Instructions" section "Restricted Interest IRC 6611(f). Form 2285 is required."
Example 4
Organization X timely filed a Form 990-T, Exempt Organization Business Income Tax Return, for 201212 reporting $15,000 taxable income with taxes due of $2,250.
As a result of an examination of the Form 990-T for the taxable year ended 12/31/2012, you reduce deductible expenses by $20,000 and allow a NOL carryback of $4,000 from the year ended 12/31/2013. You compute corrected taxable income as follows:
  Income as shown on the return 15,000
  Plus decrease in expenses 20,000
  Minus the NOL carryback from 2013 4,000
  Corrected taxable income 31,000
The adjustments result in a deficiency of $2,400 in taxes, a $3,000 increase from the decrease in expenses in the examination year and a decrease of $600 from the NOL carryback from 12/31/2013.
A Form 2285 is required because there is a current year adjustment and a restricted interest adjustment from a succeeding year.
In restricted interest cases, like the one in this example, involving current year adjustments and a restricted interest adjustment, prepare a Form 3198-A and notate in bold letters in the "Other Instructions" section "Restricted Interest IRC 6601(d). Form 2285 is required."
Example 5
Organization X timely filed a Form 990-T, Exempt Organization Business Income Tax Return, for the taxable year ended 12/31/2012 reporting no taxable income.
As a result of an examination of the Form 990-T for the taxable year ended 12/31/2012, you reduce deductible expenses by $20,000 and allow a NOL carryback of $20,000 from the year ended 12/31/2013. You compute the corrected taxable income for the year ended 12/31/2012 as follows:
  Income as shown on the return 0
  Plus current year adjustments 20,000
  Minus the NOL carryback from 2013 20,000
  Corrected taxable income 0
The current year adjustment, the decrease in expenses, is offset by the NOL carryback from 12/31/2013 so there is no tax as a result of the adjustments. However, the current year adjustments create a phantom tax until the NOL is available for carryback. Interest is due on this phantom tax even though there is no tax deficiency.
A Form 2285 is required because there is a current year adjustment and a carryback loss from a succeeding year.
Form 3198-A is required. On the Form 3198-A notate in bold letters in the "Other Instructions" section "Assess restricted interest only - no tax deficiency. See Form 2285."

Application for Section 7805(b) Relief

Internal Revenue Service
To: Director, [EO] [EP] [Rulings and Agreements] [ Examinations] SE:T:[__:__]
From: Group Manager, [_______________________________] SE:T[:__:__:]
Subject: Application for Section 7805(b) Relief in the case of:
[Taxpayer name] [(EIN:___-_______)]
Whether [taxpayer name] should be granted relief under IRC 7805(b) for all taxable years up until the issuance of a letter revoking its exempt status under section [____] of the Code.
[Taxpayer name] was recognized as exempt from federal taxation under section [_____], effective [___________]. [Provide additional fact relevant for section 7805 analysis and recommendation.]
[Taxpayer name] argues that relief under section 7805(b) is appropriate for all taxable years because:
[Summarize reasons and arguments of taxpayer and reference any documents that were included as bearing upon the request. See section 23 of Rev. Proc. 2019-4 or Section 12 of Rev. Proc. 2019-5 for relevant criteria].
The group manager proposes revoking [taxpayer name] tax exempt under section [______________] effective as of [date]. Revocation is proposed because:
[summarize reasons for revocation.]
Furthermore, the revocation should be effective [date] because:
[summarizes reasons for effective date of proposed revocation; reference any legal memorandum obtained from TEGEDC pursuant to 7805(b) case processing procedures.]
[Section 23 of Rev. Proc. 2019-4, 2019-X I.R.B. XXX] [Section 12 of Rev.Proc. 2019-5, 2018-X I.R.B.XXX], sets forth criteria which must be met for an organization to obtain relief under section 7805(b). First, ***
Delegation Order 30-1 (Rev. 3) delegates authority to the Director, [EO] [EP] [Rulings and Agreements] [Examinations], to prescribe the extent to which any ruling relating to the internal revenue laws shall be applied without retroactive effect for letter rulings and determination letters issued by the Commissioner, Tax Exempt and Government Entities.
In the present case, [insert analysis taking into account relevant criteria]
We believe granting relief under section 7805(b) [would] [would not] be appropriate in this case. [Taxpayer name] [has] [has not] met the criteria of Rev. Proc. [2019-4] [2019-5] for relief under section 7805(b) because [summarize reasons for recommendations].
Therefore, we recommend the Director, [EO] [EP] [Rulings and Agreements] [ Examinations] exercise discretionary authority [to limit] [not to limit] the retroactivity of the revocation. In accordance with [section 23 of Rev. Proc. 2019-4] [section 12 of Rev. Proc. 2019-5], revocation of [taxpayer’s] exempt status should be effective [date] based on [significance of date].
Retroactivity [limited.] [not limited.]
If decision is not to limit retroactivity, Director’s office to provide rationale for decision if not otherwise described previously in memorandum.]

Approved By:____________________ ________Date:______________________
[EO] [EP] [Rulings and Agreements] [Examinations]