4.5.3  TE/GE AIMS Special Processing Procedures (Cont. 1)

4.5.3.6 
Procedures for Handling Short Closings or Non-Examined Closings

4.5.3.6.2  (09-29-2015)
Non-Examined Closings With Partnership Linkages

  1. Non-examined closings containing partnership linkages will be closed only by contacting a TEFRA Coordinator when a PCS Freeze is found.

4.5.3.6.3  (09-29-2015)
Short Closings or Non-Examined Closings With Duplicate Filing Conditions

  1. If an original return is received with a duplicate or amended return which has no tax or refund due, and the case is to be surveyed, the TC 976/977 freeze code must be released on the AIMS section of the TIF. The reject message will consist of a TC 976/977 in the module.

  2. In order to release the freeze, a statement must be noted in the file by the Examiner that the amended/duplicate return was considered.

    1. The Closing Unit will prepare Form 8485, Assessment Adjustment Case Record (refer to IRM 4.4, AIMS Procedures and Processing Instructions, to input a TC 290 with a -0- if the amended/duplicate return has been considered.

    2. If the amended/duplicate return has not been considered, return the case file to the originator for consideration.

4.5.3.7  (09-29-2015)
Expedite Processing of Large Deficiency or Overassessment Cases

  1. These instructions apply to income, estate, gift, and employment tax cases, including those that are subject to the "interest-free adjustment" procedures of IRC 6205.

  2. Unpaid, agreed deficiency cases of $10,000 or over, must receive expedite processing within twenty-two calendar days of the date IRS receives a signed waiver. Twenty-two calendar days equate to approximately sixteen actual workdays. To meet the sixteen workdays, the IRS functions must follow the following time frames:

    1. Actions by the group after receipt of a waiver - three days;

    2. The closing function for sample review cases transmitted to Technical Staff - one day;

    3. Technical Staff actions - five days; and

    4. The closing function closing actions - six days.

  3. In addition, quick assessment procedures will process unpaid, agreed deficiency cases of $50,000 or more. The use of Form 3198, Special Handling Notice for Examination Case Processing, is mandatory for agreed deficiencies or overassessments of $50,000 and over. Agreed deficiency cases of $50,000 and over must be manually assessed within twenty-two (22) calendar days of the received date of the signed agreement form.

  4. Tax Examiners must notify the immediate supervisor when a case involving a deficiency of $50,000 or over cannot be processed within the twenty-two (22) day period. Upon completion of the case file, the closing unit Terminal Function must forward Form 3198 for filing.

  5. The term "deficiency" pertains to a single deficiency or sum of deficiencies in the case file, without regard to any offsetting overassessment, for any one taxpayer.

  6. Overassessments of $10,000 or more, must receive expedite manual processing. However, an overassessment that results in a million dollars or more, including allowable interest, should be refunded using manual refund procedures.

  7. Tax Examiners must attach Form 3198, to all cases with deficiencies or overassessments of $50,000 or more. At local option, these forms may be used for deficiencies or overassessments of $10,000 or more. Each employee handling the case must initial Form 3198 and record the date they handled the case. If Tax Examiners encounter delays in transmitting the case to the next processing level, they must record the reason on Form 3198.

4.5.3.7.1  (09-29-2015)
Filing Form 3198

  1. Locally, the Closing Unit may appoint a coordinator to control the tracking of deficiencies or overassessments of $50,000 and over.

  2. In Primary Business Codes where a Form 3198-A is used to track assessments of $10,000 and over, Form 3198-A should also be forwarded to the Coordinator after terminal input. The closing function must maintain Forms 3198-A in searchable order.

  3. Forms 3198-A must be disposed of after one year, following IRM 1.15.24, Records Control Schedule for Tax Exempt and Government Entities.

4.5.3.8  (09-29-2015)
Statute Expiration Within 60 or 90 Days

  1. IDRS terminals will not accept a deficiency case for closing if the statute of limitation has expired or will expire within 60 days, unless:

    1. Fraud is involved (entry in Item 38 of Form 5599, TE/GE Examined Closing Record)

    2. The case is closed to Appeals

    3. The statue of limitations has been extended and the Examiner has entered the extended statute date in Item 14 of Form 5599. An entry in Item 14 will update the statute of limitation date on AIMS and on the MF.

  2. If the statute has not been extended, prepare Form 2859.

  3. IDRS terminals will not accept a transfer of a case, DC 30, if the statute of limitations has expired or will expire within 90 days, unless:

    1. Source Code is 30 (claim for refund)

    2. Fraud indicator is present on AIMS

    3. MFT Code is 06

    4. Alpha characters (AA-OO) have been used to update the AIMS statute date

  4. All short statue or expired cases will be handled by the Classification area for special processing.

4.5.3.9  (09-29-2015)
Processing Deficiencies After Statute Expiration

  1. Instances may occur when processing an examination closing is necessary after the statute of limitations has expired. Some examples and closing procedures appear below.

    1. If a payment was not received, do not make an assessment. Process Form 5599 with DC 01, enter TC 300 in Item 12 with a zero (0) amount, and a $1.00 in Item 35.

    2. If the taxpayer makes a voluntary payment after the statute has expired, do not make an assessment. Process Form 5599 as described in a) above. The taxpayer’s payment must be processed using Form 3244-A, Payment Posting Voucher-Examination.

    3. If an advance payment was processed before the statute expiration date, do not make an assessment. Form 5599 should be processed as described in a) above, entering a Hold Code 4 in Item 07. Prepare Form 8758, Excess Collections File Addition requesting removal of the advance payment from MF to the XSF. Send the Form 8758 to the Ogden Campus EUMR Area MS: 6250. Include the taxpayer’s TIN, name and tax period involved. Attach a transcript of account showing the advance payment. Ensure that a letter was issued to the taxpayer, advising him or her of the barred deficiency, see IRM 3.17.220, Accounting and Data Control, Excess Collections File, for instructions.

4.5.3.10  (09-29-2015)
Prior Year Returns

  1. The appropriate campus reviews all prior year returns received in the Area Office directly from taxpayers or taxpayers’ representatives to decide whether 90 days, or less, remain on the Assessment Statute Expiration Date (ASED) and to determine if the return is:

    1. A prior year amended return declaring additional tax.

    2. A possible duplicate return, i.e., no indication that it is an original delinquent return per the taxpayer’s correspondence or other information.

  2. Prior year returns meeting the criteria in a) or b) above should be forwarded to the closing function for a quick assessment, if required.

4.5.3.10.1  (09-29-2015)
Procedures for Handling Prior Year Returns

  1. Tax Examiners must process prior year returns as follows:

    1. Secure a MF transcript of the account to avoid duplicate assessments. After terminal research, if the tax period is currently under examination, coordinate with the function who has control of the return before making the quick assessment.

    2. Prepare Form 2859, Request for Quick or Prompt Assessment and attach it to the tax return and Form 3244, Payment Posting Voucher. Assess according to guidelines outlined in IRM 4.4.17, AIMS Procedures and Processing Instructions, Jeopardy Assessments/Termination Assessments/Transferor-Transferee Assessments, & IRM 4.4.25, AIMS Procedures and Processing Instructions, Quick Assessments.

    3. If the taxpayer made a full payment with the return, (i.e., tax, delinquency penalty, and interest), notate in the "Remarks" section, "Withhold Collection/Do Not Bill Taxpayer."

    4. If the payment does not cover the full deficiency, do not notate to withhold collection.

    5. Compute interest using normal interest computation procedures. If restrictions appear on the MF transcript, use applicable restricted interest procedures.

    6. Tax Examiners should compute delinquency penalty TC 16X, unless prepayment credits exceed tax per return and a refund will be due to the taxpayer after assessment. In these cases, a delinquency penalty is not required.

4.5.3.11  (09-29-2015)
Adjustments Involving Married Taxpayers

  1. This section provides instructions for the Tax Examiner on handling adjustments involving married taxpayers.

4.5.3.11.1  (09-27-2006)
Separate to Joint

  1. During an examination, a husband and wife who originally filed their returns on a separate basis, find that it would be to their advantage to use Joint Tax Computations. To have this advantage of filing a joint return the taxpayers are not required to actually file a joint return. Instead, execution of a joint agreement will be sufficient to make this election. To make this election the tax must be paid in full.

    Exception:

    IRC 6020(b) returns filed by the Secretary, do not preclude a taxpayer from obtaining the benefit of joint rates under IRC 6013, whether a Statutory Notice of Deficiency has been issued or not, even if the tax is not paid in full. This exception will not apply to taxpayers who have a petition in Tax Court or when one or both spouses previously filed a separate return.

  2. The following documents and returns should be present when both husband and wife filed a return.

    1. Form 3198-A, indicating "Separate Return Converted to Joint" and when applicable, credits for estimated tax payments are transferred to the joint account.

    2. The husband’s and wife’s separate returns. The Tax Examiner must prepare a Form 2363, to add the wife’s name to the account and to correct the filing status from "3" (married filing separately) to "2" (married filing joint return). The wife’s original separate return should be refiled under the refile DLN assigned to Form 5599 for that return.

    3. Form 5599, with the wife’s SSN, Item 12 reflecting the reduction of tax, penalties, and interest previously posted to her account to zero. Prepare Form 2424, to transfer cash credits to the joint account. Form 5599, Item 15, should reflect amount necessary to reduce the unrefunded prepayment credit. Also in Item 15 (decrease line), enter Reference Number 999 with a blank amount. This will indicate an adjustment to the primary account and "turn off" the multiple filer indicator. If the wife’s account shows zero tax and entire prepayment credit refunded, close the case as a "No Change" (DC 02). A closing letter is not prepared in this situation for the wife.

  3. Special entries on Form 5599 for the husband’s account are:

    1. The wife’s name entered in Item C.

    2. Tax and penalties for the joint account entered in Item 12.

    3. The wife’s unrefunded prepayments entered as an increase in Item 15.

  4. Special entries required on the wife’s account Form 5599 are:

    1. The appropriate TC’s and amounts in Item 12 to reduce all tax and penalties to zero.

    2. Reference Number 999, with a zero amount in Item 15.

    3. Necessary entries to reduce unrefunded prepayment credit by the same amount allowed as a credit on the joint return.

  5. The following documents should be present when only one spouse filed a return:

    1. Form 3198-A, indicating separate returns converted to joint return.

    2. Only one taxpayer’s return.

  6. The Closing Function Tax Examiners need to prepare a Form 2363 to change the filing status from "3" (married filing separate returns and the spouse is not required to file a return, spouse exemption is claimed) to "2" (married filing joint return) and add the name of the spouse who has not filed.

  7. When a delinquency penalty must be applied against a non-filing spouse, the penalty must be computed manually. Any delinquency penalty imposed on the spouse, who has previously filed, should not be duplicated in the computation. Form 3198-A should show the amount of the penalty. The manually computed delinquency penalty should be entered in Item 12, using TC 160 on Form 5599.

  8. When cash payments such as estimated payments, remittances with return, etc., are shown on the account that is being reduced to zero:

    1. Enter Hold Code 2 in Item 7 of Form 5599.

    2. Prepare Form 2424, to transfer the cash credits to the joint account, using TC 570 to prevent a refund of any credits that post before Form 5599 is processed.

    3. Input Form 2424 in the same cycle as the wife’s Form 5599 is input.

    4. Then input the joint Form 5599.

4.5.3.11.2  (09-27-2006)
Joint to Separate Returns

  1. When it is determined during an examination that the taxpayers are not entitled to file a joint return, the case must be flagged with Form 3198-A noted "Joint to Separate." Prepare Form 2363 to remove one taxpayer’s name from the account (it should be lined through on Form 5599). Usually the account will be under the husband’s SSN and the wife’s name will be removed. If the spouse, whose name is removed from the account, is required to file a return, it must be included in the case file. If the return is in the case file, just forward the return for original processing.

    Note:

    When preparing a Form 2363 that involves name changes, always enter the name control where required; NEVER enter a check digit.

4.5.3.11.3  (09-27-2006)
Joint Return Deficiency for One Spouse

  1. If one spouse files a petition with the United States Tax Court or otherwise avails himself/herself of appeal rights on a proposed joint return deficiency, and the other spouse agrees to a deficiency or does not take appeal action, the agent must submit a request on Form 3198-A for a NMF assessment (do not input through terminal) for the non-petitioning spouse. The NMF account will be maintained in the name of the non-petitioning spouse concurrently with the account on the MF. Do not move the NMF account to the MF.

  2. For those cases suspended in the 90 day files, where the statute will expire within 120 days, and it appears that only one spouse has petitioned the Tax Court, the Review Staff must contact Appeals and ask them to review the petition since it appears from the docket list that only one taxpayer has petitioned.

    IF AND THEN
    Appeals determine there is a non-petitioning spouse the 90-day period has expired for the non-petitioning spouse Make a NMF assessment
    The 90-day period has not expired to the non-petitioning spouse Prepare a "dummy" case file and retain it in the 90-day suspense file. STATUTE CONTROL MUST BE MAINTAINED.
    An agreement is received for the non-petitioning spouse   Make a NMF assessment for that spouse.
  3. Review Staff must prepare Form 3210, Document Transmittal, to transmit the petitioned case and include the following information on a Routing Slip attached to the case file:

    1. "Non-Petitioning Spouse Case"

    2. Petitioning Spouse’s Name

    3. Non-Petitioning Spouse’s Name

    4. Statute Date

    5. Indicate whether an assessment has been made against the non-petitioning spouse

    6. Indicate who was contacted in Appeals for petition information and the date.

  4. Prepare Form 3210, to transmit the "dummy" case file after the non-petitioning spouse case has been assessed and include the following information on a Routing Slip attached to the file:

    1. "Non-Petitioning Spouse Case"

    2. Non-Petitioning Spouse’s Name

    3. Indicate that the assessment has been made against the Non-Petitioning Spouse.

  5. For those cases, suspended in the 90 day suspense files, where more than 120 days remain on the statute and it appears that one spouse has not petitioned, transmit the case to Appeals using Form 3210, noted "Possible Non-Petitioning Spouse Case."

4.5.3.11.4  (06-01-2003)
Multiple Filers

  1. Both spouses file a joint return and one spouse files a separate return for the same year.

    1. If TE/GE determines the joint return is valid and both taxpayers elect to file jointly, zero out the separate return. Reduce the tax and penalties on the separate return in Item 12, Form 5599, (TC 301 $); reduce the unrefunded prepayment credit in Item 15, Form 5599 (TC 807 $). Enter Reference Number 999 in Item 15, Form 5599 for the blank amount.

    2. If there is no tax liability on the separate return and the prepayment credit has been refunded, the case can be closed No Change (DC 02). A closing letter is not required.

  2. In the above situation, a Form 2363 is not required, since the MF shows joint names and joint filing status already.

4.5.3.11.5  (09-27-2006)
Invalid Joint Return-Husband Not Required to File Separate Return

  1. Zero out the incorrect joint account by preparing Form 5599 with the appropriate Transaction Codes(TC) and amount in Item 12 to reduce to zero all tax and penalties assessed.

    1. Make whatever entries are necessary in Item 15 to reduce the unrefunded prepayment credit by the amount allowed as a credit on the wife’s separate account.

    2. Process Form 5599 with the original joint return.

    3. Transfer cash payments with Form 2424 to the wife’s separate account.

  2. Prepare and process a substitute return (TC 150 -0-) to set up the wife’s separate account. The received date for the substitute return should be the same as that of the joint return.

    1. When the TC 150 posts to the MF, establish the account on AIMS.

    2. Prepare and process Form 5599 for the wife’s return entering in Item 12 the total tax including any adjustment by TE/GE.

    3. Enter in Item 15, the withholding credit equal to that which was decreased on the joint account.

    4. Process Form 5599 with a copy of the substitute return numbered in the 90X blocking series.

4.5.3.11.6  (09-27-2006)
Innocent Spouse-Public Law 91-679

  1. Public Law 91-679 provides that in certain cases a spouse will be relieved of liability arising from a joint income tax return. The three types of situations that can occur:

    1. An assessment against the culpable spouse only

    2. Two assessments-one against the culpable spouse, and one against the joint account

    3. An assessment against the culpable spouse and an overassessment to the innocent spouse

  2. An appropriate notation on Form 3198-A should identify Innocent Spouse cases received from the field.

4.5.3.11.6.1  (06-01-2003)
Processing Form 5599 and Form 3177

  1. Assessment against the culpable spouse only.

    1. On a new or copy of Form 5599 for the joint account, line out the name of the innocent spouse and note in the top center of the form "Innocent Spouse Case."

    2. Do not process through the terminal. Process as an NMF assessment - the account must not be transferred to the MF. Process the joint Form 5599 with DC 02 and TC 300 with a zero ($0.) amount, through the terminal. If the deficiency IS NOT fully paid, input TC 130 on Form 3177, Notice of Action for Entry on Master File, with the names as they appear on the MF.

  2. Form 3177 should:

    1. Include the form number and tax period of the outstanding liability

    2. Include any cross-reference taxpayer ID numbers

    3. Annotate as "Innocent Spouse Case"

    4. Route to the Campus Center "Attn: CP 44 Processing Unit. "

    5. For EO Form 3177 is input by the Data Transcriber in the Closing Unit.

  3. Assessment against both the culpable spouse and the innocent spouse.

    1. The RAR must show the amount assessed jointly and the additional amount of the assessment against the culpable spouse.

    2. Prepare two Forms 5599, one for the joint account and one for the culpable spouse only.

    3. Process Form 5599 for the culpable spouse as an NMF assessment. Do not process through the terminal. DO NOT transfer it to the IMF.

    4. Process Form 5599 for the joint account through the terminal. Refile the case under the refile DLN assigned this Form 5599.

    5. If the deficiency IS NOT fully paid, input TC 130 on Form 3177 with the names as they appear on the MF. See (2) above.

  4. Assessment against a culpable spouse, overassessment to an innocent spouse.

    1. The RAR must show the amount assessed and the amount of the overassessment.

    2. Prepare one Form 5599 for the joint account and another Form 5599 for the culpable spouse.

    3. Process Form 5599 for the culpable spouse as an NMF assessment and DO NOT transfer it to the MF. Do not process through the terminal.

    4. If the overassessment of the innocent spouse will result in a refund, prepare Form 3753, so the refund will be issued in the name of the innocent spouse only. Enter the amount of allowable interest.

    5. The joint Form 5599 must be used to process the overassessment for the innocent spouse, but a name change should NOT be initiated.

    6. Process through the terminal, use Hold Code 1 in Item 07, and include in Item 12, TC 770 with a zero amount.

    7. Submit both Forms 5599 and Form 3753 at the same time.

    8. If the deficiency IS NOT fully paid, input TC 130 on Form 3177. See (2) above. The case must be filed under the refile DLN of the joint Form 5599.

4.5.3.12  (09-27-2006)
Joint Committee Cases

  1. IRC 6405(a) provides that "no refund or credit" of income, profits, estate or gift tax, or any tax imposed by Chapters 41 through 44 in excess of $2,000,000 will be made until after the expiration of 30 days from the date a report is submitted to the Joint Committee on Taxation (referred to as "Joint Committee" ) giving the name of the person to whom the refund or credit is to be made, the amount of such refund or credit, and a summary of the facts and the decision of the Commissioner or Deputy Commissioner (see Delegation Order 4-18, as revised). Thus, in any case involving the allowance of an IRC 6405(a) net refund or credit in excess of $2,000,000, review by the Joint Committee is required.

4.5.3.12.1  (09-29-2015)
Cases Requiring Review by Joint Committee on Taxation

  1. To quickly release 6405(a) refunds to the taxpayers, the expedite refund request procedures were instituted. Under the expedite refund request procedures, the Service may issue the refund if the Committee does not express an objection within 30 days from the time the report is submitted to them. However, the expedited refund procedures should not be applied in cases where the expiration of the statute of limitations is imminent, or where the Service may have difficulty in recouping the refund.

  2. IRC 6405(b) provides a similar rule for Joint Committee review of a refund or credit made under IRC 6411, which relates to carry back adjustments. In such a case, if the net tentative refund or credit is more than $2,000,000 it will not be reported to the Joint Committee before making the refund or credit, but will be reported when the correct amount of tax is determined. If such determination results in a deficiency, but with a net refund or credit previously allowed under IRC 6411 (i.e., partial recoupment of the tentative allowance), the procedure as to Joint Committee review will be the same as with a refund or credit more than $2,000,000 not involving IRC 6411.

  3. If more than one taxable year is involved, only the overpayment, for each taxable year is considered. Any taxable year, for which there is no net overpayment, is not considered.

    Example:

    In a case involving two taxable years, the determined overpayment must be reported to the Joint Committee if a net overpayment is more than $2,000,000 for either year, or if there is a net overpayment for each year and, added together, they total more than $2,000,000.

4.5.3.12.2  (09-29-2015)
Processing Joint Committee Cases

  1. After the case clears the Joint Committee on Taxation, the following documents should be in the case file:

    1. Completed Form 4081, Transmittal Memorandum Joint Committee Case.

    2. Completed Form 5466-B, Multiple Record of Disclosure, (Privacy Act of 1974). (For individual taxpayers only).

    3. Yellow copy of the report to the Joint Committee signed on behalf of the Commissioner.

    4. Copy of the letter of notification from the Joint Committee to the Commissioner that no exception has been taken (the Joint Committee letter should sometimes contain a list of unrelated taxpayers).

    5. The case files, if previously forwarded to the Joint Committee.

  2. Upon receiving the above documents, the Tax Examiner must compare the taxpayer’s name on the yellow copy of the report to the Joint Committee with that listed on the letter from the Joint Committee. The name on the Joint Committee letter should be compared exactly with that on the yellow copy. In the case of a variance in the names, return the cases to the Technical Staff for further guidance.

  3. All Joint Committee cases require that a manual refund be issued if the monies have not already been refunded.

  4. Upon receiving acknowledgment of receipt by the Joint Committee of an "Expedite Refund Request" report, the examining area office QMS should promptly forward a "dummy" work file to the closing function to start refund processing. The work file must be transmitted with Form 3198-A, specifying the scheduled date for the refund. The scheduled refund date should be 31 days from the day the Committee received the "Expedite Refund Request" report. The closing function must coordinate with the Campus Center to schedule the refund to go out on the specified date. If the area office QMS is notified that the Joint Committee objects to the release of the refund, QMS must immediately contact the closing function to stop the processing of the refund.

    Note:

    To expedite all IRC 6405(a) refunds, send via Federal Express to:

    Internal Revenue Service
    Office of Compliance Specialization
    901 D St. SW, Room 108
    Washington, D.C. 20024

4.5.3.13  (06-01-2003)
Claims

  1. Request for Refund or Abatement - A claim, tentative allowance or other request submitted by or for a taxpayer to reduce liabilities previously assessed. Such requests for refunds or abatements include:

    1. Form 843, Form 1040-X, Form 1045, Form 1120-X, Form 1139, Form 8038-R, and Form 8038-CP informal claims, or amended TE/GE returns filed after the due date and showing a decrease in liability;

    2. A letter or other document (informal claim) which contains all facts necessary to decide that a reduction in tax liability is involved;

    3. A claim for abatement of excise, windfall profit, or employment tax assessed as the result of a prior examination.

4.5.3.13.1  (06-01-2003)
Identification of Claims and Returns Showing Increase in Tax

  1. Campus Center personnel must scrutinize all requests for refunds (Form 843, Form 1045, and Form 1139). Campus Center personnel are responsible for processing tentative refunds and forwarding all other TE/GE types of claims to the Area Office. All Form 1040-X and Form 1120-X, indicating the original return is under TE/GE jurisdiction, must be forwarded to the Directors of the Business Units (i.e., EP, EO, FSLG, ITG or TEB).

  2. In TE/GE, claims are generally filed for:

    1. Form 11-C, Occupational Tax and Registration Return for Wagering

    2. Form 730, Monthly Tax Return for Wagers

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

    4. Form 941, Employer’s Quarterly Federal Tax Return

    5. Form 945, Annual Return of Withheld Federal Income Tax

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

    7. Form 990-T, Exempt Organization Business Income Tax Return

    8. Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons

    9. Form 4720, Return of Certain Excise Taxes on Charities and Other Persons Under Chapter 41 and 42 of the Internal Revenue Code

    10. Form 5330, Return of Excise Taxes Related to Employee Benefit Plans

    11. Form 8038-T, Arbitrage Rebate and Penalty in Lieu of Arbitrage Rebate

    12. Form 3753, Manual Refund Posting Voucher

  3. Taxable Increase Adjustment - An amended individual or corporation return which shows an increase (additional) tax over that reported on the original return.

  4. Superseding Return - Any return filed prior to the due date changing the data reported on the original return.

  5. When a Campus Center Adjustment Branch receives a timely filed TE/GE claim, they must secure the original return (Index Card and the ANMF transcript for NMF returns) and determine whether the organization or plan is under examination. If it is under examination (TC 420 in the module), they must forward the entire case to the Director of the Business Unit (EP, EO, FSLG or ITG). Forward TEB claims to the Compliance and Program Manager.

  6. If the organization/plan is NOT under examination, the entire case must be forwarded to the Campus Center Examination Branch for AIMS opening input. Campus Center personnel should not generate overassessment transactions on TE/GE returns, unless directed or requested by local TE/GE offices except for math or Campus Center errors.

  7. Upon receipt, Campus Center Examination Branch must prepare and input the following Forms:

    1. Form 5597, TE/GE IMF/BMF/EPMF Request, to open IMF, BMF or EPMF accounts on AIMS.

    2. Form 5588, TE/GE NMF Request, to open a NMF account on AIMS for a claim filed on Form 4720-A or Form 5330 (pre-2001).

  8. Claims should have a Source Code of 30 on Form 5546, Examination Return Charge-Out. After the account is established on AIMS and the charge-out is received, the entire case file must be forwarded to the specific Primary Business Code.

4.5.3.13.2  (09-27-2006)
Amended Returns

  1. An amended return is a second return filed, after the due date, which changes information submitted on the original return. The taxpayer will send their amended return to the Campus Center where the original return was filed. The amended return should then be posted to the taxpayers account on MF with a TC 976/977. If TC 420 is present, then a TC 470 will post to MF.

  2. In some instances, amended returns may require consideration by TE/GE to change tax liability on the IMF or BMF.

    1. For amended returns referred to TE/GE, all assessment/overassessment documents are included in the administrative file. However, check the file to determine if a change in tax liability has been made as evidenced by a CP-36 or CP-193 notice with a TC 290 or 291 or computer notices indicating an adjustment has been made.

    2. If the form is not included and doubt exists, secure a transcript of account to make this determination. Any necessary adjustments to refundable credits on individual or corporate returns, except estimated tax payments or credits, should be reflected in the workpapers.

  3. If an amended return is filed with the Examiner and an examination is not warranted, process the amended return directly to the Campus Center for input to the BMF/IMF/EPMF following the applicable delinquent return procedures in Section 4.75.22for EO & EP. Do not establish on AIMS.

4.5.3.13.2.1  (06-01-2003)
Additional Tax Due on Amended Return

  1. When the taxpayer has filed an amended return showing additional tax due, secure a current transcript using CC BMFOL/IMFOL/TXMOD to determine if a change in tax liability has been made (TC 29X or 30X). Be sure to verify this to prevent the taxpayer from being assessed twice. Also, compare the 4549 (or the equivalent), with the figures on the report to the amended return to determine if the increase has been considered in the examination.

  2. Whenever an amended return has posted to a taxpayer’s account, a 976/977 freeze code is generated.

    1. To release this freeze, use Priority Code 1.

    2. Use Priority Code 3 to bypass an unpostable condition that normally occurs when the settlement amount (Item 10, Form 5599) does not match the total corrected tax on MF and to release the 976/977 freeze on MF.

4.5.3.13.3  (09-27-2006)
Surveyed Claims

  1. Claims for refund, including amended returns and informal claims, other than TEB claims, may be surveyed after assignment if it is determined that the claim issue is clearly allowable in full and the return does not warrant examination.

  2. The Examiner must complete Form 1900, Income Tax Survey After Assignment or Form 2503, Survey After Assignment-Excise or Employment Tax, for cases involving carry backs, if the information upon which the survey is based is not disclosed on the returns affected. The Examiner must also explain the reason for survey on Form 1900. The Group Manager must sign these forms.

  3. If the correct claim amount is not shown on Form 5546 or AMDISA, Examiners must prepare a Form 5598, TE/GE Correction Request to update AIMS with the correct amount.

    Note:

    The only claims that cannot be surveyed are those requiring Appeals consideration or Joint Committee cases.

  4. Form 1139, Corporation Application for Tentative Refund, is not treated as a claim when the amount requested has been refunded, although a claim form with the same issue and tax period was filed at the same time.

  5. Surveyed claims require a DC of 34 in Item 13 of Form 5599. Other required entries on Form 5599 include P7-18, P21-22, P24-29, P31-34, C, P36, P38-40, P52-54 and Items 12 and 36. Additional optional entries include Items 02, 6a, 6b, 6c, 07, 09-11, 15, 39, 40, 43 and 50-53.

4.5.3.13.4  (09-27-2006)
Claim Disallowance

  1. In cases involving the disallowance of a claim for refund, whole or in part, a notification letter must be issued to the taxpayer. The area office issues certified notices of disallowance. The Examiner prepares the following forms to inform the taxpayer of a full or partial disallowance of their claim.

    1. Form 2297, Waiver of Statutory Notification of Claim Disallowance.

    2. Form 3363, Acceptance of Proposed Disallowance of Claim for Refund or Credit.

    3. L569(P), Partial and/or full disallowance (accompanies the forms listed above). The Examiner must also prepare a report, unless they disallow a claim in full, and there are no other adjustments.

  2. If a certified notice of claim disallowance is issued, Form 3198-A, should notify the closing function or designee, with the appropriate blocks checked. The following letters are forwarded to the taxpayer by the closing function or designee to inform the taxpayer of the full or partial disallowance of their claim:

    1. Letter 905(DO) - For claims partially disallowed

    2. Letter 906(DO) - For claims disallowed in full

  3. The reason for the disallowance must be at the bottom of the letter.

4.5.3.13.5  (06-01-2003)
Conditions That Extend Refund Statute Expiration Date (RSED)

  1. Specific provisions extending the time for filing claims are listed in the following cases:

    1. Overpayment resulting from bad debts and worthless security losses, or their effect on carryovers and carry backs.

    2. Overpayment resulting from Net Operating Loss (NOL) or capital loss carry backs or certain credit carry backs.

    3. Overpayment resulting from foreign tax credit.

    4. Certain overpayment of self-employment tax.

    5. Overpayment attributable to reduction of life insurance companies of policyholders, surplus accounts.

    6. Overpayment relating to employee plan distributions included in income and later recaptured in connection with plan termination.

    Note:

    Claims for Refund of Arbitrage Rebates do not have a Refund Statute Expiration Date.

  2. Special rules are also provided for certain manufacturing sugar payments, for overpayments attributable to items of Federally registered partnerships for windfall profit tax, and trade rubber.

  3. Windfall Profit Tax (WPT) - The statute is based on when the WPT was paid rather than the personal income tax payment date. Amounts of WPT withheld are treated as having been paid by the producer on the due date or extended due date of the income tax return. (The credit for overpayment of WPT has been repealed effective for tax periods beginning after August 1988.) All claims or requests for adjustments to WPT are forwarded to the Austin Campus Center (AUSC).

  4. Self-Employment Tax - If an agreement by a state or subdivision, under Section 218 of the Social Security Act, covering its employees, results in a retroactive reduction of their self-employment taxes, an otherwise barred claim for refund will be timely if made by the last day of the second year after the calendar year of the agreement [IRC 6511(d)(5) ].

4.5.3.14  (09-29-2015)
Conversions

  1. Taxpayers often file the wrong type of tax return. Their income, type of business, or the structure of the business may have changed during the tax period. The Examiner discovers the discrepancy and makes the adjustments to convert to the correct type of tax return.

4.5.3.14.1  (09-29-2015)
Form 1120-S Converted to Form 1120

  1. If it is found that a corporation does not qualify as a small business and the business is terminated, Form 1120-S Return must be converted to a regular Form 1120. The Examiner must identify the case by attaching a Form 3198-A to the file and should prepare Form 5598, to change the Form 1120-S Activity Code to the appropriate code for Form 1120, as indicated on Form 3198-A.

  2. Form 5599 for the Form 1120-S Return should also be used for Form 1120. Tax Examiners must complete coding and editing in the normal manner.

  3. For unagreed cases closed to the Appeals Office, the appropriate DC (07 or 11) must be entered on Form 5599.

  4. For agreed cases, two additional steps are required:

    1. Prepare Form 2363, to input TC 091, changing the filing requirements to those of a corporation. Process Form 2363 two cycles ahead of Form 5599.

    2. Prepare a routing slip addressed to the Campus Center Entity Control. The routing slip must include the statement, "Form 1120-S converted to Form 1120 by TE/GE Division; update Form 2553." (Form 2553, Election by Small Business Corporation.)

    3. Furnish to Entity Control the following information: The taxpayer’s name, address and EIN; the effective date of termination; the reason for the termination; the district office code; and, a statement that Form 2363 has been input.

4.5.3.14.2  (09-29-2015)
Form 1041 Converted to Form 1120

  1. This kind of case must be identified with Form 3198-A. The case file may include the original or a copy of Form 1120.

    1. In agreed cases the file should contain a Form 1120 or a photocopy of Form 1120 marked "1041 Converted to 1120 by TE/GE Division. "

    2. In unagreed cases, the file must include a Form 1120 marked "Substitute for Return Prepared by TE/GE Division."

  2. The procedures for conversion are as follows:

    IF And THEN
    1. The case is agreed   Close Form 1041 in the normal manner.
    The examination results in a tax decrease, Enter Hold Code "1" on Form 5599.
    Transfer all credits to Form 1120.
      Prepare Form 2363 to input TC 016 to eliminate the 1041 filing requirements.
    Secure a transcript using CC BMFOL to determine if Form 1120 has posted to the MF.
    The account is not on MF,
    After the return has posted to the MF, input Form 5597, to establish the account on AIMS.
    Process Form 5599 for Form 1120 in the normal manner, using return copy procedures.
    (2) The case is unagreed   Place the converted Form 1120 substitute for return in the case folder.
    Process Form 5599 for Form 1041 in the normal manner by closing the case to Appeals. Do not change the filing requirements.
    If necessary, Appeals should take action to process Form 1120 to MF, open the case on AIMS and request a change to the filing requirements.

4.5.3.14.3  (09-29-2015)
Form 1065 Converted to Form 1120 or Form 1041

  1. Examiners must identify conversion cases on Form 3198-A attached to the file.

    1. Agreed cases should be processed in the same manner as conversion of Form 1041 to Form 1120, except that the return forms involved will be Form 1065, Form 1120 or Form 1041, as appropriate.

    2. Unagreed cases should be processed in the same manner (except the return forms involved) as conversion of Form 1041 to Form 1120.

4.5.3.14.4  (09-27-2006)
Form 990 Converted to Form 1120

  1. Agreed case files should contain a Form 1120 or a photocopy marked "Form 990 converted to Form 1120" . This kind of case must be identified with a Form 3198-A attached to the case file.

  2. In order for the Form 1120 to post to MF, the MF should reflect compatible filing requirements and status.

    1. Once the Form 1120 has been secured, change the filing requirement and status in order for the Form 1120 to post.

    2. After Form 1120 has posted, change the filing requirement and status back to the original filing requirement and status in order to close out the Form 990 as a revocation.

  3. Submit Form 5599 with Form 990 to close off the AIMS data base as a revocation, using DC 09.

  4. For unagreed cases, place the converted Form 1120 substitute for return in the case folder.

    1. Process Form 5599, for Form 990, in the normal manner by closing the case to Appeals. Do not change the filing requirement.

    2. If necessary, Appeals must take action to process Form 1120 to MF, open the case on AIMS, and request a change to the filing requirements.

4.5.3.14.5  (09-27-2006)
Conversion to Form 1041

  1. In the event that an examination results in the revocation of the exempt status of the trust, follow the procedures below in disposing of Form 1041, U.S. Income Tax Return for Estates and Trusts. Form 5500 Series Returns will be closed upon final disposition of the examination.

  2. When converting a Form 1041, the Campus Center will follow these procedures:

    IF THEN
    Form 1041 was timely filed, a. The Campus Center processes return and TC 150 posts to the EPMF.
    b. The return is screened in the Campus Center EP Classification Section.
    c. If the return is selected for examination, the Campus Center EP Classification Section prepares and processes Form 5597, TE/GE IMF/BMF/EPMF Request, to establish AIMS control. The return is then sent to the TE/GE Area Office function as soon as the Examination Assembly is received.
    Form 1041 was not timely filed, a. The return is unpostable. No TC 150 is posted to the EPMF.
    b. The return is screened in the Campus Center EP Classification Section.
    c. If the return is selected for examination, the Campus Center EP Classification Section prepares and processes Form 5588, TE/GE NMF Request, to establish temporary AIMS control. The return is then sent to the TE/GE Area Office as soon as the Examination Assembly is received.
  3. At the time of closing, the Examiner will print in the top margin of Form 1120 and on Form 3198-A, Special Handling Notice, "Form 1041 Converted to Form 1120 by TE/GE" . The Examiner will also add the activity code of the new Form 1120 to the Form 3198-A.

  4. The "received date" on the new return is the date of the timely filed return, if the return being converted is timely filed. Otherwise, it is the date that the return being converted was filed. The amount of tax resulting directly from the conversion is shown in the tax computation of Form 1120 or Form 1041.

    Resolution Action
    AGREED Transmit the newly prepared form to the Campus Center for processing through the closing function. When appropriate, instruct the Campus Center to transfer credit for tax payments.
    Keep the original return in the case file until the final disposition of the case.
    Re-establish the account on AIMS after the newly converted return has been processed.
    Close the original AIMS control through the terminal using the original Examination Assembly.
    UNAGREED Forward the unprocessed Form 1120 or Form 1041 with the original return to Appeals.

4.5.3.14.6  (09-29-2015)
Forms 1331 and 1331-B Notice of Adjustment

  1. Form 1331 and Form 1331-BNotice of Adjustment, is used to process NMF overassessments resulting in abatement, credit and or refunds.

  2. The heading information should be completed as follows for Forms 1331 and 1331-B:

    1. Enter the taxpayer’s EIN/SSN

    2. Enter the taxpayer’s Form/MFT/Tax Period in YYYYMM format/Abstract Number

    3. Enter the taxpayer’s name and address

    4. Amount of check, if the check is enclosed

    Form 1331

  3. Section I - Computation of Decrease in Liability. Complete only the applicable fields.

    1. Item 1: Tax withheld - enter the amount of tax plus any penalty or interest withheld

    2. Item 2: Paid on estimated tax - amount of estimated tax paid should be entered

    3. Item 3: Tax due per return - enter the amount of tax due per return plus any penalties or interest

    4. . Item 4: Additional tax charged - Account Number - enter additional tax charged plus any penalties or interest

    5. Item 5: Total tax previously charged - enter the total amount of tax previously charged plus any penalties or interest

    6. Item 6: Less: Correct tax - enter the amount of corrected tax plus any penalties or interest

    7. Item 7: Decrease liability - enter the amount of decrease in liability plus any penalties or interest

    8. Item 8: Less: Amounts previouslyrefunded or credited to other accounts - enter amounts previously refunded or credited to other accounts plus any penalties or interest

    9. Item 9: Net decrease in liability - enter the net decrease in liability plus any penalties or interest

    10. Item 10: Reason for adjustment - check the appropriate box; if "Other" box is checked; enter the specific reason for adjustment; enter the DLN; if manual refund is to be issued make a notation: Please process full abatement, Form 3753 attached to process manual refund with interest; fax to appropriate Campus

    11. Date - enter present date

    12. Prepared by - enter originator’s name

    Form 1331-B

  4. Section I - Computation of Decrease in Liability

    1. enter DLN from transcript

    2. enter the specific reason for adjustment

    3. notate if letter or notice is going to taxpayer - Yes or No

    4. if manual refund is to be issued make a notation: Please process full abatement, Form 3753 attached to process manual refund with interest; fax to appropriate Campus

    5. enter transactions code and amounts that reflect the decrease in tax, penalties and interest

    6. Date - enter present date

    7. Prepared by - enter originators name

    Forms 1331 & 1331-B

  5. Section II - Disposition of Decrease in Liability and Interest allowed on Overpayment - Complete as follows for Forms 1331 and 1331-B:

    1. Refund - enter the interest computation date in the Allowable Interest Computed To column; all other fields leave blank

    2. Allowable interest Paid - leave all fields blank

    3. Elimination - Liability not paid or owed - enter tax period in the Tax Period Account column; enter the total amount of the refund in the Amount column; all other fields leave blank

    4. Credit (amount overpaid) applied as credit to tax (T), penalty (P) and interest (I) due onoutstanding accounts - enter the amount of tax, penalty and interest in the Amount column; all other fields leave blank

    5. Total decrease in liability eliminated and credited - enter the total amount being decreased in the Total Paid column

    6. Allowable interest credited - leave all fields blank

    7. Total amount eliminated and credited - enter the total amount being eliminated in the Total Paid column

    8. Field Office or Service Center - enter the appropriate Campus processing Form 1331 or 1331-B

    9. Signature of Approving Official - secure the proper signature

    10. Completed by - person preparing form

    11. Date - enter date prepared

4.5.3.15  (09-27-2006)
Processing Delinquent and Substitute Returns

  1. A delinquent return is a return that was not filed before the due date, including extensions, which the taxpayer voluntarily files with the Service.

  2. A substitute return is prepared by the Agent and is used to establish an account for a taxpayer who refuses to file, or is unable to file, a required tax return.

    Note:

    Effective January 2006, Substitute for Returns are established on AIMS using Push Code 036, which automatically establishes a TC150, without sending the return to the Campus.

  3. Once the agent forwards the original return that is under examination to the appropriate Campus Center and the Command Code AM424 or AMNON is input to establish the return on AIMS, a photocopy of the delinquent/substitute package is maintained as the workin copy for the examination case file.

  4. Send Secured delinquent returns not under examination or delinquent returns received with remittance directly to the Campus Center by the Agent.

4.5.3.15.1  (09-27-2006)
Delinquent Returns and Substitute for Returns Procedures

  1. When evidence that a required return has not been filed, the Examiner will request a transcript of the account to document what action has been taken. The request can be submitted as follows:

    1. Form 5644, TEGE Inquiry Request,

    2. Form 6882, IDRS/Master File Information Request, or

    3. Perform on-line research

      For Use when performing research
      EP CC EMFOL/INOLES
      BMF CC BMFOL/INOLES
      IMF CC IMFOL
      EP, BMF and IMF CC SUMRY and TXMODA
  2. Based on the above, a transcript of the account must accompany each delinquent or substitute for return. This transcript will be attached to the return when submitted to the Campus. The transcript will be used by the Agent to perform processing verification responsibilities and will be kept in a suspense file.

    1. EP - Do not submit a delinquent or substitute return if a TC 150 has posted.

    2. EO/GE - Do not submit a delinquent or substitute return if a TC 150 has posted. A TC 150 posting with no tax liability followed by a TC 240 posting for $500, W-4 penalty, indicates that the Campus Center has posted a dummy return. Any adjustments must be made as subsequent adjustments, i.e., TC 300.

  3. If a return has not been filed (TC 150), use Form 4844, Request for Terminal Action, to input the following codes into IDRS to close any Collection controls and halt any notice that may be issued requesting the return.

    For Input
    EO, GE or EP Forms 5330 TC 599 Closing Code (CC) 094 or 096
    EP TC 599 CC 97
  4. The current or appropriate year’s tax form should be used. Substitute for returns should contain entity information only. Do not attach additional schedules.

  5. The Examiner will mail all delinquent return packages not under examination and delinquent/substitute return packages with payments to the appropriate Campus Center.

  6. The Examiner will mail delinquent return packages under examination, without payments, to the appropriate campus.

  7. Delinquent/Substitute Returns must be established on AIMS as soon as it is known that an examination will be made or when examination time is first applied. The appropriate Push Code must be used when establishing the case on AIMS in order to hold the TC 424 at the EPMF, BMF or IMF until the TC 150 posts. It is extremely important that the delinquent or substitute be submitted for processing since a CP 87 or CP 187 will be generated after the TC 424 posts, if a TC 150 has not posted. Establishing the returns on the EPMF, BMF or IMF, immediately establishes inventory controls and avoids unnecessary delays in closing.

    Note:

    Effective January 2006 Push Code 036 will be valid for Substitute For Returns. When using Push Code 036 there is no requirement for the SFR to forward to the Campus for processing. The use of Push Code 036 will cause a TC 150 to post to master file 2 cycles after input.

4.5.3.15.1.1  (09-27-2006)
Delinquent Returns

  1. Upon receipt of a delinquent return, the Agent must ensure that the following items are on the return prior to forwarding to the Campus Center:

    Return field Entry
    Name of the employer or organization Type or print legibly, with no strikeovers, the employer’s or organization’s name. When possible, it must duplicate the name used on a previously filed return with the same Employer Identification Number (EIN). The name used with a recently acquired EIN should duplicate the employer’s/organization’s SS-4, Application for EIN.
    If the name is not correct, prepare or secure a corrected return and solicit the employer’s/organization’s signature on the corrected delinquent return.
    Mark an "X" across the face of the incorrect return.
    Write the word "Invalidated," sign and date below the notation.
    Address of the employer or organization Verify with the employer or organization that the address shown on the return is the employer’s or organization’s current address.
    Employer Identification Number Verify the EIN shown on the return is correct by researching AIMS, EPMF or BMF. If the employer or organization does not have an EIN, follow IRM 4.75.22.4.3 procedures
    Required forms and schedules Verify that all forms and schedules are present and the computations are correct. TE/GE is responsible for the accuracy of the return and no further verification is done.
    Signature and Date The employer’s or organization’s original signature and the date the return was signed.
    Taxable Period Use the current or appropriate year’s tax form depending on local Campus Center preference.
  2. The Agent will write in red on the top margin of the original return, "DELINQUENT RETURN SECURED BY TE/GE." .

    Reminder:

    Room in the upper right corner must be left for the DLN to be entered by the Campus Center.

  3. The Agent must date stamp the delinquent returns when they are accepted. If a date stamp is not available, the Agent should annotate in the middle of the return over the wording, but not over the numbers, "Received" , the date received and the Agent’s name and title. The Agent should keep a copy of the tax return for the examination file.

  4. Write in red on the bottom margin of the original delinquent return, "TC 599-CC 096, TC 599-CC-094" (EO, GE or EP Form 5330) or "TC 599-CC 97" (EP Form 5500).

  5. Attach Form 3198-A, TEGE Special Handling Notice, to each return being submitted to indicate if the delinquency penalty should or should not be assessed. Also attach Document 13133, Expedite Processing Cycle, to the front of each return being submitted. Check the box for "DELINQUENT RETURN." It is essential that a separate Document 13133 be prepared for each tax period.

  6. If not on AIMS, prepare Form 5597, TE/GE IMF/BMF/EPMF Request.

    For Insert Action
    EP Form 5500 Item 8 Place a "1" or "3" since a return is not requested.
    Item 9 Enter the Push Code 080 for delinquent returns.
      Item 22, Reason for Request, Write "DELINQUENT RETURN SECURED BY TE/GE."
    EO/GE Item 8 Place a "1" or "3" since a return is not requested.
    ,
    Item 11 Enter the Push Code 020 for delinquent returns.
    Item 22, Reason for Request Write "DELINQUENT RETURN SECURED BY TE/GE."
  7. Forward, with the return package, a copy of a recent (not more than sixty days old) transcript which was used in the determination of the employer's or organization's failure to file.

    Reminder:

    Attaching a current transcript is mandatory.

  8. If payment is secured, the Agent will prepare Form 3244-A, Payment Posting Voucher Examination, following normal procedures. Indicate payment as remittance with return, TC 610. A copy of Form 3244-A should be attached to the delinquent return.

  9. Both an original and a copy of the delinquent return package with payment are necessary. The original delinquent return, Form 3198-A, and Document 13133 should be sent to the Campus Center. The copy is kept by the Agent and is closed out with the EP, EO or GE administrative file when the examination is completed.

  10. If a secured delinquent 5500 Series Return is examined, the Agent will complete Form 5734, Non-Master File Assessment Voucher, showing the IRC section and dollar amount of penalties assessed if the Agent is recommending assessing the penalty. The Form 5734, if present, will be sent to the Campus Center along with the original delinquent return. Form 3198-A should not be submitted if Form 5734 is submitted. The penalty information should be retained by the Agent to use when completing Form 5650 on closing.

  11. For EP Form 5500 - If the secured delinquent return is closed agreed, Item 603 - Penalty/Section, of Form 5650 should be completed in cases where the examination resulted in no additional assessments. These examinations should be closed using DC 06.

4.5.3.15.2  (09-27-2006)
Delinquent MF Returns Processing Procedures

  1. The Agent must perform a review and perfection of the delinquent return package under examination upon receipt prior to being sent to the Campus Center for processing.

  2. The following steps should be taken:

    1. Review the tax return for an official date stamp and notation "Delinquent Return secured by TE/GE."

    2. Review the transcript of account using CC BMFOL (BMF), IMFOL (IMF), or EMFOL (EPMF), SUMRY and TXMODA, attached to the return to determine that a TC 150 (posting of the return) is not present or pending.

      IF THEN
      A TC 150 is posted on the module The Examiner must keep the return for his file as the return has already been posted.
      Payments are posted on the account that were transferred to the Excess Collections File Complete Form 8758, Excess Collection File Addition and forward it to the Campus Center Accounting Branch with a transcript of the account showing the payment/credit.
    3. Review the transcript to confirm the month in which the fiscal year ends (FYM) and the filing requirements. If the FYM on the return is different from that on the transcript and/or the filing requirements are not present, prepare Form 2363/2363-A to correct the FYM or filing requirement and submint to the appropriate area for processing. For EO returns, also confirm that a submodule is present.

      Exception:

      A submodule should not be present if the return is a 990-T (401(a) Trust) or 990-T (408(e)). A 990-T (401(a) Trust) is not an Exempt Organization Return (refer to chart below.)

      IF the submodule And IF THEN
      1. Is present and the Status is 41 (No Reply to Solicitation)   Prepare Form 2363-A to TC 022 the account only if the EIN is that of the Trust if it is a Form 990-T.
      the return is other than a Form 990-T and the application data went unpostable, Prepare a Form 2363 or Form 2363-A to correct the Master File.
      the return is submitted to the Campus Center, it will not post to the Master File and will create an unpostable condition 329-1 or 329-2.
      2. Reflects a Status 40 (Application Pending-Inactive No Exemption)   Determine whether or not the organization is exempt for preparation of Form 2363-A.

      Reminder:

      Refer to IRS Processing Codes & Information, ADP and IDRS Information for Filing Requirements, Status Codes and Unpostable Codes.

    4. Special Situations - If a Form 990-T is received with the block checked "Type of Organization" as a Section 401(a) or Section 408(e), review the transcript to ensure the filing requirement is a Form 990-T-2. An Exempt Organization submodule should not be present. A Form 990-T, 401(a) or 408(e), must have an Employer Identification Number for the trust, not that of the plan sponsor. Check CC INOLES with a "P" behind the EIN number to ensure that the EIN on Form 990-T is not the same Identification Number as the plan sponsor.

      IF THEN
      1. The EIN is the same, Research CC NAMEE/NAMEB to secure the correct EIN.
      2. A submodule is present as well as a 990-T-2 filing requirement, Contact the Ogden Campus Center to remove any Forms 990-T that should have a trust EIN and re-post to the Trust.
      3. A filing requirement is a 990-T-1 or not present, Research must be conducted to ensure that the 990-T-1 filing requirement was done in error. If the filing requirement of 990-T-1 is incorrect then a TC 022 must be used to remove the submodule. This should only be done if the account is positively identified as that of the Trust. If the T/P is filing 990-T-1 type of returns, research must be done to secure the Trust EIN.
    5. Ensure that the filing status and exemption blocks are completed for Forms 1040 only.

    6. Verify the taxpayer’s SSN/EIN and name with the transcript.

      IF THEN
      1. The name is incorrect, If the name on the Master File is incorrect, prepare Form 2363 to correct the name.
      2. The TIN is incorrect, Contact the Ogden Campus Center to have the account resequenced to the appropriate EIN.
      3. The return is annotated "taxpayer unwilling to obtain SSN/EIN, temporary SSN/EIN necessary," Contact the Campus Center Entity Control Section to obtain a temporary SSN and the assignment of a permanent EIN.
    7. Review the package for presence of Form 3198-A, (which must be on each return ) annotated to either "Assess Delinquency Penalty" or "Do Not Assess Delinquency Penalty-Reasonable Cause Established."

    8. If Form 3198-A is not present, the Examiner must make a determination of whether or not to assess the penalty or waive the penalty.

      Note:

      Form 5734, Non-Master File Assessment Voucher, instead of Form 3198-A, may be present for Form 5500 Series Returns to assess the penalties. Form 5734 should not be used to assess penalties against secured delinquent returns, Form 4720-A, and Form 990-BL.

    9. Verify entries on Document 13133, Expedite Processing Cycle, for name, address and phone number of the initiator, and name, TIN, MFT, plan number or report number (if applicable) and tax year of the taxpayer.

    10. Ensure that Form 4844, is notated either TC 599-97 for EP Form 5500 Returns and EP Form 5330 Returns or TC 599-096. TC 599-094 for EO/GE Returns.

    11. Verify all entries on Form 5597.

    12. Attach the transcript research data that verifies that a TC 150 has not posted for each delinquent return.

    13. Ensure that Form 3198-A and Document 13133 are attached to the package.

    14. After package verification is completed, verify that Form 5597, has Push Code 080 for EP Form 5500 Series Returns and 020 for EP Form 5330 returns, EO or GE Returns, indicating that a delinquent return is being processed to ensure that the TE/GE examination request remains on MF, pending the posting of TC 150.

    15. The tax return, with Document 13133, Form 3198-A, (if present) and the transcript research data should be forwarded to the appropriate campus. If a delinquent return requires quick assessment processing, do not sent the package to the campus. Process the return according to procedures contained in IRM 4.4.9.

      Note:

      One instance where a quick assessment is needed, would be for the receipt of Form 4720 when either IRC 4912(b), IRC 4941(a), IRC 4944(a)(2), IRC 4945(a)(2), IRC 4955(a)(2) or IRC 4958(a) contain an entry. The statute for Form 4720 is ruled by the filing of Form 990, Form 990-EZ, Form 990-PF or Form 5227, not by Form 4720.

      Exception:

      If one of the above returns was not filed, then the filing of the signed Form 4720 will begin the statute. Otherwise, the delinquent return package must be transmitted on Form 3210.

    16. The Agent will maintain the case file comprised of a copy of the entire package submitted to the campus for posting of the TC 150. Monitor the case file until the TC 150 posts to MF.

4.5.3.15.2.1  (06-01-2003)
Monitoring the Delinquent MF Suspense File

  1. Secure a transcript to verify the status of the TC 150. If the TC 150 has posted, and a full AIMS account is not present, take the necessary action to establish the account on AIMS (may be a "Hanging" 424). Once established, close the case in the normal manner. If a TC 150 has not posted The Agent will notate Form 5464, Case Chronology Record with each follow up action.

  2. Each case awaiting a TC 150 to post to MF the Agent must pull at least once a month for follow up action.

4.5.3.15.3  (09-29-2015)
Delinquent NMF Returns Processing

  1. The Agent must review and perfect the NMF delinquent return package under examination without payment, upon receipt prior to sending the package to the Campus Center for processing.

  2. The following returns are processed in accordance with NMF procedures.

    1. Form 990-BL (EO)

    2. Form 4720 (EO), IRC 4912(b), IRC 4941(a), IRC 4944(a)(2), IRC 4945(a)(2), IRC 4955(a)(2) or IRC 4958(a), Form 4720-A

    3. Form 8038 Series Returns (TEB) - prior to 01/01/2001.

  3. The Agent must take the following steps:

    1. Review the tax return for an official date stamp and notation "Delinquent Return Secured by TE/GE Division."

    2. Request a NMF transcript to review the transcript to the account to determine if a TC 150, posting of the return is not present. If a TC 150 is posted on the module, do not submit the package to the Campus.

    3. Since a Form 4720/4720-A can also be processed as a NMF return when IRC 4912(b), IRC 4941(a), IRC 4944(a)(2), IRC 4945(a)(2), IRC 4955(a)(2) or IRC 4958(a) applies, retrieve a transcript of the MF Form 4720 to ensure that a TC 150 has not posted to the MF in error.

      IF THEN
      1. IRC Sections on the delinquent return are IRC 4912(b), IRC 4941(a), IRC 4944(a)(2), IRC 4945(a)(2), IRC 4955(a)(2) or IRC 4958(a), Process the return using NMF delinquent return processing.
      2. The return has posted the MF in error, Prepare an audit report or Form 3870, Request for Adjustment, to request abatement of taxes, interest, and penalties that are reflected on the MF transcript.
      3. Payments were made on the MF account in error, A Form 3198-A should be attached, notating the transfer of payments to the NMF Form 4720. Form 3198-A should also be notated that the payment was erroneously applied to the MF Form 4720.
    4. Research CC INOLES to verify the taxpayers SSN/EIN and name against the delinquent return. If the name or SSN/EIN is incorrect, make the appropriate corrections.

      Note:

      For Form 5330 cases with a minimum funding deficiency, the delinquent return should reflect the employers EIN/SSN, and for prohibited transaction cases, reflect the EIN/SSN of the disqualified person.

    5. Review the package for presence of Form 3198-A, notated to either "Assess Delinquency Penalty" or "Do Not Assess Delinquency Penalty/Reasonable Cause Established" . If Form 3198-A is not present, the Agent must make a determination of whether to assess the penalty.

    6. Verify entries on Document 13133, for name, address and phone number of the initiator and name, TIN, MFT, plan number (Form 5330 only) or report number (GE - MFT 46 only) and tax year of taxpayer.

    7. Form 4844, with a TC 599-97 for EP Form 5500 Returns and EP Forms 5330 Returns, or TC 599-096, TC 599-094 for EO or GE Returns.

    8. Verify entries on Form 5588.

    9. Attach the research data to the back of each return.

    10. Form 3198-A, and Document 13133, must also be attached to the package.

    11. After package verification is completed, submit Form 5588, to the Terminal Operator for input.

      Note:

      Immediately upon terminal input the NMF account will establish a full AIMS account.

  4. The tax return, with Document 13133, Form 3198-A, and research data must be forwarded to the Campus. If the Delinquent Return package requires quick assessment processing, do not send the package to the Campus. Process the return in accordance with procedures contained in IRM 4.4.9. Quick Assessment Procedures would apply in the following situations:

    1. Delinquent Form 4720 contains entries under IRC 4912(b), IRC 4941(a), IRC 4944(a)(2), IRC 4945(a)(2), IRC 4955(a)(2) or IRC 4958(a). The statute for Form 4720 is ruled by the filing of Form 990, Form 990-EZ, Form 990-PF or Form 5227, not by Form 4720.

      Exception:

      If the applicable return was not filed, then the filing of the signed Form 4720 will begin the statute. Otherwise, the delinquent return package must be transmitted on Form 3210.

    2. Delinquent Form 5330 reflects entries under IRC 4975. The statute for Form 5330 is ruled by the filing of Form 5500. For prohibited transactions the return must be assessed Non Master File only if the statute is imminent.

      Note:

      For prohibited transactions, the statute of limitations is six years whenever adequate disclosure was not made on Form 5500. If adequate disclosure was made on Form 5500, the statute is three years.

  5. The Agent will maintain the case file comprised of a copy of the entire package submitted to the campus for posting of the TC 150.

  6. The Agent will monitor the case file until the TC 150 posts to NMF.

4.5.3.15.3.1  (06-01-2003)
Monitoring the NMF Suspense File

  1. Requiest a NMF transcript to verify the status of the TC 150. If a TC 150 has not posted, the Agent will notate Form 5464, Case Chronology Record with each follow up action.

  2. Each case awaiting a TC 150 to post to NMF, the Agent must pull at least once a month for follow up action.

4.5.3.15.4  (09-29-2015)
Delinquent Returns Received with Remittances

  1. Examiners are responsible for insuring that any delinquent returns received with remittance are forwarded to the appropriate Campus Center by Certified Mail within one workday of receipt.

4.5.3.15.5  (09-29-2015)
Closing Delinquent Return MF Cases

  1. EP Form 5650 or TE/GE Form 5599 cannot be processed until TC 150 has posted to the MF and the MF control is fully established on AIMS.

  2. Closing procedures are as follows:

    Unit/Return Actions
    EP - Form 5650 Entries Item 603 should reflect the amount of penalties on an original delinquent return, unless additional penalties are proposed, then include the net amount in Item 603.

    Note:

    If a Form 5330 is secured, as well as a Form 5500 Series Return, Enter the appropriate disposal code in Item 13 (see paragraph b), below).

    EO or GE and EP BMF Form 5330 - Form 5599 Entries a. If no additional tax and/or penalty is assessed, enter TC 300 with zero amount in Item 12.
    b. If additional tax and/or penalty is proposed, only that amount would be included in Item 12.
    c. Enter the appropriate disposal code in Item 13 as outlined in Document 6476, Employee Plans Systems Codes, Document 6379, Exempt Organizations Management Information Systems Codes or Document 11308, Government Entities Computer Systems Codes.
    d. Item 414 must include the tax liability amount plus penalties from the original delinquent return. Do not include the additional adjustments proposed by the agent in the amount entered in Item 414.
    e. Compete Item 37 when closing delinquent returns picked up during the examination and sent to the Campus for processing. This entry is what gives TE/GE credit for a delinquent return pick-up on Report 20. If the delinquent return is incorporated into the examination, this item must be blank.
    f. Segregate the closing records of delinquent returns secured.
  3. For each type of return included in the case file, enter a " T" on the latest year closing record. Enter a " R" on all of the prior years closing records having the same MFT code as the closing record just marked with a "T" .

4.5.3.15.6  (09-29-2015)
Substitute for Returns Processing

  1. The Substitute for Return (SFR) is used when the employer or organization, upon receiving the due notice from the Service, refuses to file a required return. In such cases, the return must be prepared containing the following entries:

    1. Prepare a "dummy/SFR" and Form 13496, IRC Section 6020(b) Certification for each tax period or plan year ending date by entering in red in bold print across the top margin on the face of the return "SUBSTITUTE FOR RETURN PREPARED BY TE/GE."

    2. Enter the current or appropriate year’s tax form, depending on local Campus Center preference. If using the current form, cross out the plan year ending date and write the SFR plan year ending date in red using "YYYYMM" format.

    3. Enter the plan name/non-filer’s name from the EPMF or BMF, entering a bracket in front of the last name in red.

    4. For EP Form 5500 - Enter the name(s) and the address of the plan sponsor

    5. Enter the correct EIN

    6. For EP Form 5330 - Enter the plan number

    7. For GE - Enter the report number (MFT 46 only)

    8. For EP Form 5500 - Enter the name, address, EIN and plan number of the plan administrator, if applicable

    9. Use the current date as the received date in "MM/DD/YYYY" format.

    10. For EO/GE - Code the entity with a "P" code (partial entity) in red above the name area. An address will not be entered on "dummy SFR’s." Form 2363 or Form 2363-A, must be used to update addresses to BMF.

    11. Write TC 599 CC 096, or CC 094 or CC 97 on bottom margin in red.

      Reminder:

      Using Push Code 036 "Effective January 2006" will cause a TC 150 to post to master file with no return due at the Campus level.

  2. For EP Form 5500 - Establishment request are submitted to the Classification area using the local EP request documents. If the return is not on AIMS, prepare Form 5597, TE/GE IMF/BMF/EPMF Request. Use a "1" or "3" for return not requested. Enter either Push Code 080 or Push Code 036 for substitute for return. In Item 22, Reason for Request, write "TE/GE-SFR."

  3. For EO/GE and Form 5330 - If the return is not on AIMS, prepare Form 5597, TE/GE IMF/BMF/EPMF Request. Enter a"1" or "3" for return not requested. Enter Push Code 036 for substitute for return. In Item C, Reason for Request, write "TE/GE-SFR. "

  4. Include with the return package, a copy of a recent transcript (not more than sixty days old) which was used in the determination of the employer’s or organization’s failure to file.

    Reminder:

    Attaching a current transcript is mandatory.

  5. The substitute for return, Form 13496, transcript and Document 13133 is kept by the Agent and disclosed out with the EP, EO, GE administrative file when the examination is completed. The filing of the return will establish filing requirements for the employer/organization.

  6. If the return is examined, establish the return on AIMS using Form 5597. A copy of the original return will be kept by the Examiner and marked in red"COPY OF SUBSTITUTE FOR RETURN PREPARED BY TE/GE DIVISION."

4.5.3.15.6.1  (09-29-2015)
Substitute for Returns Procedures

  1. A substitute return is only prepared by the Agent when a taxpayer refuses to file a required tax return. The Agent is responsible for preparing the substitute return package.

  2. Ensure that the return is notated in bold red letters "Substitute For Return Prepared by TE/GE" at the top of the first page of the return.

  3. Ensure that the taxpayer’s name, address, tax period, EIN, plan number (only applicable to Form 5500 Series Returns or Form 5330) or report number for MFT 46 only and date of preparation is present. If any of the above items are omitted, make the necessary corrections.

  4. The package must contain a Form 4844, and the Remarks Section must be notated either TC 599-97 for EP Form 5500 Returns and EP Form 5330 Returns or TC 599-096 or TC 599-094 for EO/GE BMF/IMF returns and EP flow through returns.

    Exception:

    Do not complete Form 4844 for Form 4720/4720-A or Form 990-BL returns.

  5. A Form 3198-A should be attached to each substitute for return to address whether or not the penalty is assessed for the situations described below:

    1. Returns Before 07/30/96 - For Form 990, Form 990-EZ, Form 990-PF, and Form 1041-A a $10 a day penalty should be assessed for each day a return is late, up to a maximum of $5,000 under IRC 6652(c)(1)(A), unless reasonable cause exists. Also IRC 6652(c)(1)(B) provides for the penalty of $10 per day to be assessed on the organization’s official or trustee who fails to provide the needed information after receiving written demand from the Service, up to a maximum of $5,000.

    2. Returns After 07/30/96 - For Form 990, Form 990-EZ, Form 990-PF, and Form 1041-A, a $20 a day penalty should be assessed for each day a return is late, up to a maximum of $10,000 under IRC 6652(c)(1)(A), unless reasonable cause exists. Also IRC 6652(c)(1)(B) provides for the penalty of $20 per day to be assessed on the organization’s official or trustee who fails to provide the needed information after receiving written demand from the Service, up to a maximum of $10,000.

    3. For Form 5500 Series Returns, if the return is late, or after corresponding for incomplete return items, the taxpayer fails to provide critical elements under IRC 6652(e), a $25 per day penalty for each day the return is late or each day the return has at least one missing or invalid "critical" item, a penalty of up to a maximum of $15,000 may be assessed if reasonable cause does not exist.

    4. For organizations with gross receipts of $1,000,000 or more, the late filed penalty is $100 a day, not to exceed $50,000.

  6. Verify entries on Document 13133 for name, address and phone number of the Examiner, and the name, TIN, MFT, plan number (if applicable) and tax year of taxpayer. If any of the above information is omitted, make the necessary corrections.

  7. For EO type returns, ensure that an EO submodule is present. If the submodule is present and the Status is 40, Return Filed, No Record of Exemption, determine whether or not the organization is exempt and prepare Form 2363-A, if applicable. If a submodule does not exist, prepare Form 2363-A. Refer to IRS Processing Codes & Information, for Filing Requirements and Status Codes.

  8. Verify the taxpayers name, SSN, EIN with the transcript. If these blocks are not completed, make the necessary corrections.

  9. Verify the entries on Form 5597/RCCMS.

  10. Attach the transcript research data that verifies a TC 150 has not posted to each substitute for return.

  11. After package verification is complete, verify that Form 5597/RCCMS contains a Push Code 036 for EP, EO or GE returns Push Code 080 for EP Form 5500 and Form 5330 Returns or a Push Code 021 and 020 for EO/GE and EP BMF Returns, indicating that a substitute for return is being processed. This should ensure that the TE/GE Examination Request remains on MF pending the posting of a TC 150.

  12. The tax return, along with Document 13133, Form 3198-A, Form 13496 and the transcript research data will remain in the case file as a working copy.

4.5.3.15.6.2  (09-29-2015)
Group Closing Actions

  1. To avoid unnecessary delay in closing a case, requisitions using Form 5597, TE/GE IMF/BMF/EPMF Request or Form 5588, TE/GE NMF Request for examination assemblies should be prepared and forwarded for terminal input as soon as it is known that an examination will be made.

  2. When a case is closed from the group, the following items should be present:

    1. The copy of the delinquent or substitute for return marked in red at the top "COPY OF DELINQUENT RETURN (DATE)" or "TE/GE-SFR" as appropriate.

    2. Form 5650, EP Examined Closing Record or Form 5599, TE/GE Examined Closing Record.

    3. AMDISA print must be attached to Form 5650 or Form 5599.

    4. A TE/GE RAR.

      Note:

      The delinquency penalty, if assessed on the original return, must be adjusted and included in the RAR. If the estimated tax penalty is applicable, it is also asserted by the Examiner on the RAR.

    5. Form 895, Notice of Statute Expiration, if required. Make a note of the TC 150 date per transcript, on all substitute for return packages.

    6. Form 3198-A, TEGE Special Handling Notice instructions - If a delinquent return is secured after the SFR (dummy TC 150) has posted, notate on Form 3198-A that the return is incorporated in the RAR. The statute of limitations begins with the received date of the secured delinquent return. Enter the correct statute date in Item 14 of Form 5650 or Form 5599.

  3. Ensure that the tax return package is complete, all required entries are on the return, and it has been math verified. A recent transcript (not more than 60 days old) is mandatory.

  4. The examination case file can be closed as soon as casework is completed. If the case is still a TC 424 skeletal record, it will be held in suspense by the Agent. If there is no AIMS record, the group must prepare Form 5597, TE/GE IMF/BMF/EPMF Request. The group may be required to re-submit the entire package depending on the transcript secured.

  5. All plan year ending periods/tax periods must have either a TC 150 showing a return was filed or a satisfying transaction code, TC 59X, (excluding TC 595) to show that the employer/organization is not liable. If a TC 59X is applicable, the Examiner must document the workpapers with the reason. Use Form 3198-A to instruct the closing function to input TC 59X to EPMF/BMF.

  6. When a case is closed as a substitute for return, the Agent should enter in red the words "Substitute for Return Prepared by TE/GE" in bold print at the top of the first page of the return.

  7. A case closed on a retained substitute copy of the return is identified by a Form 3198-A before it is sent to the closing function.

4.5.3.15.6.3  (09-27-2006)
Disposing of EO or GE Returns When Using Push Codes

  1. Using Push Code 020 and 036 when completing Form 5597 establishes a pending AIMS skeletal TC 424 account. Full Establishment of Delinquent/Substitute Return Records on TIF, is generated weekly at the Campus Center. This is a listing of AM424 records containing push codes that have converted to full AIMS records. This report or research on AIMS can be used to determine when a return has posted and the record fully established an AIMS account. Charge-Out and labels are not generated for delinquent/substitute returns.

  2. If there is a TC 424 account, either pending or fully established, as soon as the Examiner completes the examination on the copy, it should be forwarded to the closing function. If the return has not been fully established, the Examiner should keep the case in a suspense file in EIN order until the return has completed processing and BMF records the filing by posting a TC 150.


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