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 1.2.1.5.36.

IRC 7602 gives examiners the authority to:

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

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

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

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

The table lists commonly used acronyms and their definitions.

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.

Follow these general guidelines when considering oral testimony:

Documents are another form of evidence.

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

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.

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:

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

Contact Area Counsel if you need legal advice to properly interpret and apply the Code. See IRM 1.54.1.7, Referral or Consultation with Counsel.

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 4.75.10.20, Requesting Assistance from Specialists). This includes requests for:

For further information on other speciality areas see the following:

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

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

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

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 20.1.6.17, 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 4.32.4.9 for information regarding rescission of the IRC 6707A penalty for failure to disclose participation in a "reportable transaction" that is not a "listed transaction."

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.

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).

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:

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.

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.

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

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.

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

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.

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.

The closing conference with the taxpayer or their representative includes:

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

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

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

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.

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

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

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:

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

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

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.

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

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.

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

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

See IRM 4.75.15.7.4 and IRM 4.75.15.7.2 for further instructions on corrected reports.

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).

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 4.75.16.5.2, Auto Revocations Under IRC 6033(j).

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

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

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

Get your group manager’s approval to propose revocation.

When proposing revocation:

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

For revocations resulting from:

For information about revocations involving organizations in a group ruling, see IRM 4.75.24.4, Revocations.

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

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:

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:

Refer to IRM 4.75.15.8.12, for preparing reports for Status 36 organizations.

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.

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

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

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:

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:

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

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.

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 4.75.13.8.6 below.

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.

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

Determine whether the organization meets the public support test.

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.

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 4.75.15.8.2, Reclassification of Foundation Status.

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).

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:

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.

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.

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

The following table recaps the situations described above:

You or the organization may raise the question of IRC 7805(b) relief.

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:

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

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 4.75.16.5.6, Inadequate Records.

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:

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

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.

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.

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.

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.

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

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:

Group suspense statuses other than status 39 include:

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

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).

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

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

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

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

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

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:

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

Other useful IRMs include:

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

When working a case:

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

Form 2285 isn’t required when:

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

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

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.

If you determine a Form 2285 is required:

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

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

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

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.

Refer to IRM 4.10.7.2.9.7, Citators: Researching Case History, for general information on citators.

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.

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.

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

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

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

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

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

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.

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.