- 4.8.10 Notice of Determination of Worker Classification
- 188.8.131.52 Overview
- 184.108.40.206 Purpose
- 220.127.116.11 IRC 7436
- 18.104.22.168 When Issued
- 22.214.171.124.1 30 Day Letters
- 126.96.36.199 Authority to Issue Notice of Deficiency of Worker Classification (NDWC)
- 188.8.131.52 Who Prepares Notice of Deficiency of Worker Classification (NDWC)
- 184.108.40.206 Case Review Prior to Preparing Notice of Deficiency of Worker Classification (NDWC)
- 220.127.116.11.1 Preliminary Administrative Items Needed for Case Review
- 18.104.22.168.2 IDRS Prints
- 22.214.171.124.3 Correct Technical Conclusions
- 126.96.36.199.4 Proper Consideration and Computation of Penalties
- 188.8.131.52.5 Accurate Computation of Tax Deficiency - Reduced and Full Rates
- 184.108.40.206.6 Proper Completion of All Procedural Requirements
- 220.127.116.11.6.1 Form 5344
- 18.104.22.168.7 Proper Protection of the Taxpayer's Rights
- 22.214.171.124 Preparing NDWC
- 126.96.36.199.1 Taxpayer Name
- 188.8.131.52.2 Taxpayer Address
- 184.108.40.206.2.1 Last Known Address
- 220.127.116.11.2.2 Clear and Concise Notification
- 18.104.22.168.2.3 Elements of a New Address
- 22.214.171.124.2.4 New Addresses Secured by Telephone or Interview
- 126.96.36.199.2.5 Establishing the "Last Known Address"
- 188.8.131.52.2.6 Power of Attorney
- 184.108.40.206.3 NDWC Letter
- 220.127.116.11.3.1 Listing of Reclassified Workers - Table 1
- 18.104.22.168.3.2 Amount of Underpayment and Penalties for Reclassified Workers - Table 2
- 22.214.171.124.4 Waiver Preparation
- 126.96.36.199.5 Computation Statements
- 188.8.131.52.5.1 Preparation Instructions for Form 4666, Summary of Employment Tax Examination
- 184.108.40.206.5.2 Preparation Instructions Form 4667, Examination Changes - Federal Unemployment Tax
- 220.127.116.11.5.3 Specific Item and Line Instructions for Completing Form 4668, Employment Tax Examination Changes Report
- 18.104.22.168.6 Explanation of Adjustments
- 22.214.171.124.7 "Duplicate Original" Notices Defined
- 126.96.36.199 Before Issuing the Notice of Deficiency Worker Classification (NDWC)
- 188.8.131.52.1 Mandatory Area Counsel Review
- 184.108.40.206 Signing and Dating the Notice of Deficiency of Worker Classification (NDWC)
- 220.127.116.11 Disposition of Copies
- 18.104.22.168.1 Power of Attorney
- 22.214.171.124.1.1 Unenrolled Return Preparer
- 126.96.36.199.2 Records of Mailing
- 188.8.131.52.3 Consequences of an Incorrectly Mailed Notice
- 184.108.40.206 Notice of Determination of Worker Classification Suspense Files
- 220.127.116.11.1 Updating the Assessment Statute Expiration Date
- 18.104.22.168.2 Statute Controls
- 22.214.171.124.2.1 AIMS Table 4.0
- 126.96.36.199.3 Taxpayer Contact
- 188.8.131.52 Undeliverable Notice of Deficiency of Worker Classification (NDWC)
- 184.108.40.206.1 Internal Address Information
- 220.127.116.11.2 New Address Found
- 18.104.22.168.3 Unable to Locate Taxpayer
- 22.214.171.124 Protests Received After Issuance of the Notice of Deficiency of Worker Classification (NDWC)
- 126.96.36.199.1 Delinquent Return Secured
- 188.8.131.52 United States Tax Court Petition Filed
- 184.108.40.206.1 Petition Mailed to IRS Office
- 220.127.116.11.2 Importance of Timing
- 18.104.22.168.3 Identifying Petitioned Cases
- 22.214.171.124.3.1 Tax Litigation Counsel Automated Tracking System
- 126.96.36.199.3.2 Docketed Information Management System
- 188.8.131.52.3.3 U.S. Tax Court Website
- 184.108.40.206.4 Processing Petitioned Cases
- 220.127.116.11.5 Unlocatable Case Files
- 18.104.22.168.6 Status 90 Cases
- 22.214.171.124 Defaulted Notices
- Exhibit 4.8.10-1 Computation of Last Day to File a Petition with United States Tax Court and Computation of Default Date
- Exhibit 4.8.10-2 Assessment Statutes:Agreed Case Without Form 872-A or SS10 ConsentAgreed Case With Form 872-A or SS-10 ConsentDefaulted 90 Day Letter Without Form 872-A or SS-10 ConsentDefaulted 90 Day Letter With Form 872-A or SS-10 Consent
Part 4. Examining Process
Chapter 8. Technical Services
Section 10. Notice of Determination of Worker Classification
July 31, 2012
(1) This transmits revised IRM 4.8.10, Technical Services, Notice of Determination of Worker Classification.
(1) This transmittal reissues existing procedures which outline detailed instructions for the preparation, issuance and suspense of notice of determination of worker classification under IRC 7436.
(2) Modified IRM 126.96.36.199.5 to require the group to include a disk in the case file that includes the examiner's workpapers and report.
(3) Minor editorial changes have been made throughout this IRM. Website addresses, legal references, and IRM references were reviewed and updated as necessary.
Rodney M. Kobayashi
Director, Technical Services SE:S:E:TS
This section provides instructions for preparation of the Letter 3523, Notice of Determination of Worker Classification (NDWC). This section applies to both field and office cases.
Many of the procedures for NDWC are identical or similar to those used to prepare statutory notices of deficiency contained in IRM 4.8.9, Statutory Notices of Deficiency.
Some employment tax cases include both worker classification issues under IRC 7436, Proceedings for Determination of Employment Status, and other employment tax issues (non-worker classification issues). Therefore, basic information concerning the 30 day letter process is included to distinguish between the two types of cases.
IRM 4.23.10, Report Writing Guide for Employment Tax Examinations, provides guidance for writing employment tax examination reports and should be consulted when specific questions arise concerning cases involving IRC 7436 issues.
Under no circumstances should a change report of employment tax adjustments be incorporated into an audit report covering income tax adjustments.
The Service provides taxpayers a notice of determination described in IRC 7436(b) by sending the NDWC by certified or registered mail.
The NDWC gives taxpayers the opportunity and instructions to seek Tax Court review. It also includes a schedule listing the workers the Service has determined should be classified as employees. The NDWC shows each kind of tax with its proposed employment tax adjustment by taxable period.
IRC 7436 provides that taxpayers may seek Tax Court review of certain employment tax determinations made in connection with an audit.
IRC 7436 allows the Tax Court to review employment tax determinations involving:
Classification of the taxpayer's workers as employees, or
The taxpayer's entitlement to relief treatment under section 530 of the Revenue Act of 1978.
The proper amount of employment tax under such determination.
IRC 7436(a) requires that the determination(s) involve an actual controversy and that the determination(s) be made as part of an examination.
IRC 7436(a) provides that for purposes of Subtitle C of the IRC, the Tax Court has jurisdiction to:
Review the Service's determination that one or more individuals performing services for the taxpayer are employees.
Review the Service's determination that the taxpayer is not entitled to treatment under section 530(a) of the Revenue Act of 1978 with respect to those individuals.
Determine the proper amount of employment tax under the above determinations.
The employment taxes imposed by Subtitle C of the Code are:
Federal Insurance Contributions Act (FICA) taxes (IRC 3101 through IRC 3128),
Railroad Retirement Tax Act (RRTA) taxes (IRC 3201 through IRC 3232),
Federal Unemployment Tax Act (FUTA) taxes (IRC 3301 through IRC 3311),
The collection of income tax at source on wages (IRC 3401 through IRC 3406).
"Employment tax" under the statutory language includes the additions to tax, additional amounts, and penalties provided by Chapter 68 Subchapter A (but not B) of (IRC 6651 through IRC 6665). Thus, the Tax Court has jurisdiction to determine the proper amount of additions to tax, additional amounts, and penalties that relate to the employment tax imposed by Subtitle C with respect to determinations of worker classification and relief treatment under section 530 of the Revenue Act of 1978.
IRC 7436(a) does not provide the Tax Court with jurisdiction to review any employment tax determinations other than the three listed in the statute as noted in IRM 188.8.131.52.1 (1) above.
IRC 7436 also does not apply to employment status issues not arising under Subtitle C, such as the classification of individuals for purposes of pension plan coverage or the proper treatment of individual income tax deductions.
Since IRC 7436(a) only confers jurisdiction on the Tax Court to review determinations that are made as part of an examination, other Service determinations of employment status (including those that are made in the context of private letter rulings, technical advice memoranda, or Form SS-8, Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding, that are not made as part of an examination are not subject to review by the Tax Court.
It is important to ensure that workers who were issued Form W-2, Wage and Tax Statement, by the taxpayer for any period are not included in the notice of determination for the same periods. It is the position of the Service that Tax Court review is not available when there is no controversy regarding the classification of the workers, such as where the taxpayer treated the workers as employees by issuing Form W-2. See Notice 2002-5, IRB 2002–5.
The Service will issue a Notice of Determination of Worker Classification (NDWC) only after the Service has determined both :
That the taxpayer is not entitled to relief treatment under section 530 of the Revenue Act of 1978 and
That one or more individuals performing services for the taxpayer are employees for purposes of any tax imposed by Subtitle C.
The amount of employment tax under these determinations will also be determined and set forth in the NDWC.
Usually, a 30 day letter is issued to a taxpayer before a NDWC can be issued. If the taxpayer does not respond to the 30 day letter, the NDWC will usually be issued within sixty days after the expiration of the 30 day period.
IRM 4.23.10 is the Report Writing Guide for Employment Taxes.
Under IRM 184.108.40.206 (3), separate 30 day letters are issued when both IRC 7436 and non-IRC 7436 issues are present. Letter 950-C, Employment Tax 30 Day Letter-WC, will contain the IRC 7436 issues and Letter 950-D, Employment Tax 30 Day Letter, will contain the non-IRC 7436 issues.
Similarly, IRM 220.127.116.11 (2), Preparation of the Employment Tax Report, provides that if an examination involves both IRC 7436 and non-IRC 7436 issues, separate reports will be prepared. Form 4666, Summary of Employment Tax Examination, Form 4667, Examination Changes - Federal Unemployment Tax, and Form 4668, Employment Tax Examination Changes Report, will be noted "Form 2504-WC IRC 7436 issues" and "Form 2504 non-IRC 7436 issues" in the other information section near the bottom of the respective reports. This will prevent any confusion to the taxpayer as to the computation of tax for the separate issues.
Reports consist of the following forms:
Form 2504, Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment, for non-IRC 7436 issues or IRC 2504-WC, Agreement to Assessment and Collection of Additional Employment Tax and Acceptance of Overassessment in Worker Classification Cases, for IRC 7436 issues,
Form 4666, Summary of Employment Tax Examination,
Form 4667, Examination Changes - Federal Unemployment Tax,
Form 4668, Employment Tax Examination Changes Report, and
Form 886-A, Explanation of Items, for explanation of adjustments or equivalent.
If a taxpayer does not file a protest letter seeking review by Appeals, the proposed tax involving the IRC 7436 issues (worker reclassification/section 530 of the Revenue Act of 1978) will not be assessed. Instead, upon default of the 30 day period, a NDWC must be issued to the taxpayer. The NDWC suspends the statute of limitations only for the employment taxes dependent on the worker classification and section 530 of the Revenue Act of 1978 determinations. For purposes of suspending the period of limitations only, any applicable backup withholding with respect to workers included in the reclassification (that are ultimately determined not to be employees) may be considered dependent upon the worker classification issue. See IRM 18.104.22.168.1 (13)(b), General Overview of Section 7436 Procedures.
If there are adjustments for both IRC 7436 issues and non-IRC 7436 issues and the taxpayer does not file a protest letter for the non-IRC 7436 issues, the group must process a partial assessment for the non-IRC 7436 tax and penalties before transferring the case to Technical Services for preparation of the NDWC on the IRC 7436 issues.
The Commissioner is authorized to issue a NDWC pursuant to IRC 7436(a).
See Servicewide Delegation Order 4-26 in IRM 22.214.171.124, Delegation Order 4-26 (formerly DO-251), for the officials delegated by the Commissioner to sign and issue a NDWC.
As it relates to Technical Services, the Technical Services Territory Manager (TSTM) is delegated to sign and issue a NDWC. The TSTM may further delegate this authority by memorandum to specific individuals within his/her functional area.
Per IRM 126.96.36.199 (5), the group examiner prepares a list of reclassified workers (as defined in IRM 188.8.131.52.1 (5)). In addition, examiners will prepare a "working copy" draft of Table 2 to assist Technical Services in the preparation of Letter 3523, Notice of Determination of Worker Classification.
Reviewers will review the case file, prepare the final NDWC and attachments, and sign the notice. Tax examiners issue the NDWC with attachments.
All cases requiring a NDWC must have a limited review of the unagreed issues and procedural requirements. The case should be able to withstand the scrutiny of Appeals and potential litigation in Tax Court.
The scope of the case review will be sufficient to ensure:
Correct technical conclusions,
Proper consideration and computation of penalties,
Accurate computation of the tax deficiency,
Proper completion of all procedural requirements,
Proper managerial involvement, and
Proper protection of taxpayer rights.
Reviewers must determine if the case is sufficiently correct to support the IRC 7436 issues. When feasible, the reviewer should correct error(s) in the case instead of returning it to the examiner.
If a case contains an error, Technical Services will revise the report, if possible, and prepare the NDWC package so that it best supports the examiner's intent. At the same time, it is the duty and responsibility of reviewers to ensure the taxpayer's rights are protected during all stages of the examination process.
Reviewers should be aware of cycle time. IRM 184.108.40.206, Cycle Time, allows up to 45 days to review field cases and 15 days for office audit cases. Reviewers should document their time and activity on Form 9984, Examining Officer's Activity Record.
When the case is received, the contents of the file should be reviewed to ensure:
All returns are controlled on Audit Information Management System (AIMS) and Examination Records Control System (ERCS).
The returns reflected on ERCS are included in the case file and no other returns are included.
The case is in Status Code 25, Review Type 38, and Suspense Code 544.
The 30 day letter was sent to the taxpayer, if sufficient time remained on the statute(s).
The statute of limitations is correctly reflected on AIMS/ERCS.
Form 895, Notice of Statute Expiration, is properly completed, if required.
Reviewers must check the statute on Form 895 against the information data retrieval system (IDRS), the stamped received date, and mailing envelope. Do not rely on the statements on Form 895 or IDRS. Reviewers must check these items personally, to ensure the information is correctly reflected.
If Form 895 is correct, the reviewer will initial it. If Form 895 is not correct, the reviewer will update the information, initial the change, prepare Form 5348, AIMS/ERCS Update, and submit Form 5348 with the case to the manager for approval.
Obtain current IDRS prints to verify the following information about the case:
AMDISA to verify the applicable years are on AIMS;
INOLES to verify the taxpayer's name(s) and address(es);
CFINK to determine if a valid power of attorney is on file;
BMFOLT to verify the amount of tax per return (or as previously adjusted), as well as to verify any possible duplicate return postings and pertinent freeze codes;
If returns were filed, the reviewer will check the TC 150 and all TC 30X/29X amounts to ensure that all applicable amounts are considered, not just the original tax as filed.
BMFOLA to identify any previous adjustments that may have been made to the return and to verify the amount and source of the adjustments;
BMFOLR to verify the amount of taxable wages per return;
BMFOLU to compare the totals per Form 941, Employer's Quarterly Federal Tax Return, and/or Form 944, Employer's ANNUAL Federal Tax Return, to Form W-2 filed;
PMFOL to verify whether Form 1099-MISC, Miscellaneous Income, and Form W-2 were filed; and
Information Return Processing (IRP) Transcript, if available, for the TIN of the key taxpayer (individual, corporate, etc.) to verify address information.
Technical review of the issues will be made to determine whether the applicable law, regulations, and rulings have been correctly applied.
The review of the case will include:
The determination that one or more individuals performing services for the taxpayer are employees (IRM 220.127.116.11, Independent Contractor or Employee).
The determination that the taxpayer is not entitled to treatment under section 530(a) of the Revenue Act of 1978 with respect to those individuals and the reasons the taxpayer does not qualify for relief (IRM 18.104.22.168, Section 530 of the Revenue Act of 1978).
The determination of the proper amount of employment tax under the above determinations, including the proper use of IRC 3509 rates (IRM 4.23.8, Determining Employment Tax Liability).
Reviewers will review the case file to ensure the position presented is supported in the workpapers. The case file should include facts, supported by documentary evidence where possible, of:
The categories of workers,
Their basic job duties, and
An analysis of the behavioral control, financial control, and the relationship of the worker and the firm. (See IRM 4.23.5, Technical Guidelines for Employment Tax Issues).
The case file should illustrate the basic job duties of the reclassified workers, and identify the behavioral and financial control factors present in the case. Any agreements between the parties, such as work contracts, should also be included in the file, if available.
Documents that should routinely be part of the administrative file include:
A copy of information returns (e.g., Form 1099-MISC, Form 1096, Annual Summary and Transmittal of U.S. Information Returns, Form W-2, Form W-3, Transmittal of Wage and Tax Statements) issued by the taxpayer to the class(es) of workers at issue (at a minimum, transcripts should be in the file reflecting whether Form 1099-MISC and Form W-2 were filed).
A copy of prior period Form W-2s issued to categories of reclassified workers (or to named reclassified workers), if available.
A copy of filed employment tax returns
A copy of income tax returns (especially where the employment tax examination was a result of an income tax examination).
A copy of relevant materials from the income tax examination file if the case resulted from an income tax referral.
A copy of applicable pages of the general ledgers.
A copy of service agreements (e.g., "independent contractor agreements" ).
A copy of lease agreements with workers.
A copy of any evidence of payments to the workers.
A copy of interview notes.
A copy of relevant client contracts.
Since income tax case files often are separated from employment tax cases, it is imperative that all documents and information in the income tax file that are relevant to the employment tax case be duplicated and placed in the employment tax file.
All appropriate penalties should be asserted and computed correctly.
The penalty lead sheet should comment on the assertion or non-assertion of applicable penalties, including reasonable cause situations.
The case file should include a copy of the group manager's written approval for the assertion of any penalty other than failure to file (FTF) and failure to pay (FTP). If the case file does not contain the written approval, the reviewer will secure such written approval prior to issuing the NDWC.
A complete discussion regarding penalties for employment tax cases can be found in IRM 4.23.9, Employment Tax Penalty and Fraud Procedures.
Employment tax examiners have specialized software to prepare the reports for employment tax examinations. In many cases, this software is not available to reviewers. Therefore, if errors are found in the employment tax reports, the reviewer may need to coordinate with the examiner to secure revised reports.
If the reviewer needs to secure revised reports from the examiner, the reviewer may want to request the electronic files (Excel, Word, Adobe, etc.) used by the examiner to generate the reports. However, a disk with the examiner's workpapers and report should be included with the case file. This will allow the reviewer to make any minor corrections, such as minimal rounding corrections, that may be necessary to ensure all reports reconcile.
The reviewer should ensure the report reflects the correct amount of adjustments, which agree with the leadsheet and supporting workpapers. For more details on determining the correct amount of employment tax liability, refer to IRM 4.23.8.
In worker classification cases, reduced rates for income tax withholding and employee Federal Insurance Contributions Act (FICA) tax are the general rule. IRC 3509(a) and (b), Determination of Employer's Liability for Certain Employment Taxes. Full rates are appropriate only where the case file supports a finding that the taxpayer intentionally disregarded the requirement to deduct and withhold income taxes and employee FICA, the employer withheld income tax but not FICA tax, or if the case involves certain statutory employees. If the notice of determination calculates employment taxes using full income tax withholding and employee FICA taxes, the case file must contain a clear analysis supporting a finding of intentional disregard, or the other basis for not applying IRC 3509.
Reviewers should ensure procedural items are properly completed by the examiner:
Form 5344, Examination Closing Record, must be properly completed and attached to the appropriate returns. See IRM 22.214.171.124.6.1 below for additional details on Form 5344.
Form 3198, Special Handling Notice for Examination Case Processing, is properly attached to the case folder and appropriately marked as an employment tax case.
Form 9984, Examining Officer's Activity Record, is properly completed and documents all activity, including actions taken by the reviewer.
A 30 day letter was issued and suspended at the group level to allow the taxpayer time to file an adequate protest, if sufficient time remained on the statute of limitations.
For non-filer cases, the file includes Form 13496, IRC section 6020(b) Certification, and appropriate attachments for each substitute for return (SFR) period. If the reviewer makes any changes to the report, the reviewer must complete a new IRC 6020(b) package and sign a new Form 13496.
For cases involving both IRC 7436 and non-IRC 7436 issues in which the taxpayer did not file a protest for the non-IRC 7436 issues, a partial assessment was processed by the examiner prior to forwarding the case for NDWC for the IRC 7436 issues.
Ensure classification settlement program (IRM 4.23.6, Classification Settlement Program (CSP)), was offered. In most worker classification cases, an offer under the classification settlement program (CSP) should be made. All worker classification cases must:
Comment on CSP (including a statement in the workpapers that CSP was considered)
Comment on whether or not an offer was made
Comment on what type of offer was made, if any, and why
See IRM 126.96.36.199 (1).
If a taxpayer is eligible, CSP offers should be made prior to issuing a notice of determination. If a CSP was not offered, the reviewer should contact the examiner to determine the reason why. If appropriate, the examiner should be requested to contact the taxpayer and offer the CSP.
Currently, the Audit Information Management System (AIMS) website and the IRM indicate certain fields on Form 5344 are not required to be completed by examiners. However, these directions are intended for income tax examiners. Report Generation Software (RGS) is a program used for income tax that will populate certain fields on closing documents, making the completion of certain fields on the Form 5344 unnecessary for income tax examiners. Due to the difference in report writing availability, there are different expectations for employment tax examiners.
The following fields on Form 5344 will be completed by the employment tax examiner when closing a case:
P7 - 18 - TIN (self-explanatory)
P21 - 22 - MFT (self-explanatory)
P24 - 29 - Tax Period (self-explanatory)
P31 - 34 and NAME - Name Control and Name must match what is on the INOLE and ERCS Control
P38 - 40 - Block Number
* If closing off an Original or SFR - entry will be 00X
* If closing off a BRTVU, TRDBV, or ELF return - entry will be 30X
Item 02 - Penalty Reason Code
* Needed when abating penalties or when not asserting penalties that are otherwise applicable (e.g., reasonable cause, etc.)
Item 07 - Hold Code
* Enter a "2" when the statute for refund is barred
Item 11 - Interest Free Date
* If the taxpayer qualifies for interest free, then this block must be completed with the date the agreement was received
* There must be a corresponding TC 308 in Item 12
Item 12 - Tax Penalty and Interest Adjustment
* TC 300: Taxes not subject to Interest Free, Form 4668 (941) Line 13, Form 4667 (940) Line 8
* TC 308: Taxes that are subject to Interest Free, must have corresponding date in Item 11, Form 4668 Line 13, will never apply to Form 4667 (940)
* TC 160: IRC 6651 Failure to File Penalty (a) (1) ONLY - The amounts from the Form 4668 / Form 4667 will include both FTF and FTP. The examiner MUST separate the amounts and enter only the FTF portion of the penalty. Form 5318, Penalties for Failure to File Tax Return and Pay Tax, may be used to accomplish this. Form 4668 (941) Line 14, Form 4667 (940) Line 9.
* TC 180: IRC 6656 Penalty, Form 4668 (941) Line 15, Form 4667 (940) Line 9
* TC 270: Enter only when FTP is NOT being assessed, will always be zero
Item 13 - Disposal Code
* DC 01 - No change with adjustment, delinquent returns accepted as filed, claims disallowed in full
* DC 02 - No change
* DC 03 - Agreed prior to issuance of 30 day letter
* DC 04 - Agreed after issuance of 30 day letter
* DC 07 - Cases being closed to Appeals
* DC 08 - Unagreed cases not going to Appeals
Item 15 - Credit and Tax Computation Adjustments
* Do not complete for cases going to Appeals
* Do not complete for no change cases
* TC 111 Form 4668 (941) Line 11
* TC 112 Form 4668 (941) Line 10
The total of the TC 111 and TC 112 entries must equal the TC 300 or TC 308 entry in Item 12 to the penny.
* TC 004 Form 4668 (941) Line 1
* TC 073 Form 4668 (941) Line 1
* TC 079 if necessary will always be "0"
* TC 680 Accuracy Penalty, if any
* This entry for the 940 will depend on the two letter state abbreviation
TXX (XX = two letter state code) Form 4667 Line 8 - this amount must equal the TC 300 amount in Item 12 to the penny.
WXX (XX = two letter state code) Form 4667 Line 2
Item 16 - Appeals Office Code
* Complete only for cases going to Appeals.
* Code will be unique depending on where the cases are sent for Appeals hearings.
Item 18 - Unagreed amount Appealed/Petitions - dollars only
* Complete only for cases going to Appeals.
* Amount should be the unagreed portion of tax and credits, less any prepayments.
Item 28 - Examiner's Time
* This must equal the amount of time reflected on ERCS for each return.
Item 30 - Examination Technique Code
* 1 = Office Examination
* 2 = Correspondence Examination
* 3 = Field Examination
* 6 = No Reply
* 7 = Defaulted/Undeliverable
Item 31 - Examiner's Grade (self-explanatory)
Item 32 - Grade of Case
* Examiner will generally use their grade
* This entry must be validated by the manager and changed if appropriate.
* "R" will be entered at the end of the number for any quarter that is not the Key case. If an older revision of Form 5344 is used, circle the "R" when appropriate.
Item 33 - Examiner Name (self-explanatory)
Item 37 - Delinquent Return - Applies only if the secured delinquent return is processed under Delinquent Return procedures directly to the campus
* Enter "T" for the key quarter
* Enter "R" for any subsequent quarter(s)
Item 39 - Disclosure Code
* Used for agreed cases when a copy of the return is disclosed to the state.
* This code is unique to the examiner's state.
Item 405 - 408 - Related Return Information
* This should be the information from the key case return. For the key case, there should be a "P" in Item 408. The related quarters should have an "S" entered.
* If there is an "S" in this entry, there should be an "R" after grade of case in Item 32.
Item 411 - Payment Code (self-explanatory)
Item 412 - Installment Agreement Code (self-explanatory)
Item 418 - 3121(q) Amount
* Enter for TIP examinations
Reviewers must ensure the taxpayer's rights have been protected by considering:
Power of attorney (POA) requirements,
Confidential privileges - Accountant/client privilege,
Notification of Appeal rights,
Consideration of collectibility,
Confidentiality of taxpayer information/privacy requirements,
Unauthorized access (UNAX) requirements, and
Third-party contact requirements.
Reviewers must also ensure that the case is transferred to Appeals if a protest was received. If a taxpayer files a timely protest, the case should be sent to Appeals before a notice of determination is issued.
The notice of determination of worker classification (NDWC) is a legal determination that is presumptively correct.
The issuance of a NDWC is the beginning of potential litigation. Tax Court Rule 34(b)(8) requires that the petition should include a copy of the NDWC plus the accompanying statements material to the issues being petitioned. Thus, if a case goes to the Tax Court, the explanatory paragraphs become a part of the basic pleadings for the Commissioner. They set the pattern upon which the Government's case may be tried and therefore, care must be exercised in the preparation of the explanations for the determination of the asserted liability.
The NDWC consists of:
A letter explaining the purpose of the notice; the tax period(s) involved; the names of the reclassified workers; the amount of employment tax, additions to tax and/or penalties; and the taxpayer's options, as well as how to exercise the options.
A waiver to allow the taxpayer to agree to the additional tax liability and applicable penalties, if asserted.
A summary of the employment tax examination (Form 4666).
A computation statement (i.e., report) for Federal Unemployment Tax (Form 4667).
A computation statement (i.e., report) for other employment tax changes (Form 4668).
A brief summary of the Service's position in the case (explanation of adjustments).
Any schedules with explanations of the proposed assessment.
Pub 3953, Questions and Answers About Tax Court Proceedings for Determination of Employment Status Under IRC section 7436.
Reviewers must be sure to use the correct forms thatare listed on the Letter 3523 as enclosures. It is important to provide the correct forms when issuing the notices of determination, since the waivers are distinct for worker classification cases (e.g., Form 2504-WC rather than Form 2504).
Non-IRC 7436 issues should not be included in the NDWC. If the examination includes both IRC 7436 and non-IRC 7436 issues, the case file should include separate reports for each. If separate reports are not included (e.g., if the file includes one report that includes both IRC 7436 and non-IRC 7436 issues), the case should be returned to the examiner to follow the guidelines contained in IRM 188.8.131.52, 30–Day Letters.
The taxpayer's name and address appear throughout the notice of determination. It is extremely important that the taxpayer is correctly identified.
Even minor typographical errors in the name or address may affect the validity of a notice of determination.
For corporations, use the name of the corporation as shown on the corporate seal. If unavailable, use the name shown on the tax return. In corporate reorganizations, include both the current and the former name. Similarly, if the corporation changed its name since filing the return, identify the corporation on the letter, schedules and attachments as "ABC Corporation, formerly known as XYZ Corporation."
For sole proprietorships, use the "doing business as" name, if applicable, as well as the individual's name.
For disregarded entities (e.g., single member LLC filing on Schedule C), use the business name.
When in doubt, use the IDRS command code BMFOLE and/or NAMEE(S) for the business TIN for verification.
The mailing address for the NDWC should be the taxpayer's last known address.
Rev. Proc. 2010–16, IRB 2010-19 defines "last known address" as the address on the most recently filed and properly processed tax return unless the taxpayer has clearly and concisely notified the Service of a change of address. The Service may also update the taxpayer's address of record with a new address obtained from the United States Postal Service's (USPS) National Change of Address database (NCOA database) in accordance with Treas. Reg. 301.6212-2. The NCOA database is sent to the IRS on a weekly basis at which time master file is updated with any changes.
If there is any doubt as to what the last known address is, additional duplicate original notices of determination should be sent to each known address.
A statement signed by the taxpayer informing the Service to change the address of record is considered clear and concise notification. The statement must also contain the taxpayer's full name, signature, old address, and social security number and/or employer identification number.
Form 8822, Change of Address, may be used to make the change.
Correspondence sent by the Service that solicits or requires a response from the taxpayer that is returned to the Service by the taxpayer with corrected taxpayer address information constitutes clear and concise notification of a change of address (even if the taxpayer's signature is not on the correspondence).
Standing alone, the following situations will not constitute clear and concise notification of a new address and, therefore, should not result in a change to a taxpayer's address of record. A new address reflected on:
The letterhead of taxpayer correspondence,
The return envelope,
The taxpayer's remittance form, or
Post Office notice (other than by means of United States Postal Service's National Change of Address database).
Although the address of record should not be updated as a result of these new addresses, duplicate original notices should be sent to these addresses.
The following are elements of a new, complete address:
Number and street (or post office (P.O.) box number)
Apartment or suite number, if applicable
City or town, state and zip code
There should be no abbreviations in the taxpayer's address, except for the two-letter state code. However, if the last known address reflected on the last filed and properly processed tax return contains abbreviations, then that address (with abbreviations) may be used. If notices are sent to foreign countries, the name of the country should not be abbreviated.
Address changes to perfect an error in the existing address may only be made based on the taxpayer's oral statement (e.g., telephone or walk-in contact). These changes must be provided to the Service employee who initiated the contact after receipt of an account or adjustment request from the taxpayer.
Authentication of the caller's identity using the criteria in IRM 184.108.40.206.3, Required Taxpayer Authentication, and IRM 220.127.116.11.4, Additional Taxpayer Authentication, is required before making changes to the taxpayer's address of record.
Any request solely for an address change, other than for perfection or in connection with an open account or adjustment request, must be in writing.
The following steps should be taken to determine the taxpayer's "last known address:"
Search IDRS for the most recently filed tax return and other information using appropriate CFOL and IDRS command codes including INOLES, SPARQ, IRPTRO, BMFOLE, ENMODA.
Search under both the business TIN and the individual SSN, if applicable.
Search the administrative file for "clear and concise" notification since the date of the last filed return.
Scrutinize the power of attorney for a different address. Compare the signed dates found on the power of attorney to those found on the most current filed return.
If there is any indication of an alternative address, send a duplicate original notice to that address.
If a power of attorney address is the taxpayer's last known address, the NDWC should be addressed as follows:
Doe's Construction In care of Power of Attorney's Name Power of Attorney Address
This subsection does not refer to the copy of the NDWC that is sent to the Power of Attorney. See IRM 18.104.22.168.1, Power of Attorney.
Letter 3523 is the notice of determination letter used in employment tax cases involving IRC 7436 issues. The most current version of the letter should be used.
As noted in IRM 22.214.171.124 above, IRM 126.96.36.199 requires the group examiner to prepare and include a list of reclassified workers for use in Table 1 of Letter 3523. Additionally, the examiners will prepare a draft copy of Table 2 to assist reviewers in preparation of Letter 3523. The reviewer will prepare the final Letter 3523 based on the information for both tables included by the examiner.
The reviewer should not date the NDWC letter. The date will be added when the NDWC is issued.
The NDWC must include the name, telephone number, and the unique identifying number of the person to contact.
This person must clearly identify himself/herself using his/her name and employee identification number when answering a specific taxpayer inquiry.
The "Last Day to File a Petition With the United States Tax Court" date should not be inserted by the reviewer. This date will be added when the NDWC is issued.
The notice of determination must advise taxpayers of their right to contact the local office of the Taxpayer Advocate and must provide the location and telephone number of the appropriate office. Section 12 of Pub 3953, Questions and Answers About Tax Court Proceedings for Determination of Employment Status Under IRC Section 7436, fulfills this purpose.
Reclassified workers should be named, if known, in Table 1 of the notice, with the appropriate periods identified. The workers should be readily identified on a listing completed by the examiner. If there is confusion among similarly named individuals, examiners should provide the job description of the workers and make sure they explain what steps were taken to obtain the names and, if they are unavailable, the reason they are unavailable. Examples of identifying information include the shift worked, the specific job performed, etc. The use of social security numbers for identification of workers is not allowed on the NDWC.
The table will indicate with a mark (e.g., a check mark or an "X" ) the quarters each worker is being reclassified. Dollar amounts are not to be listed in Table 1.
If the names of the specific workers are not known, the workers should be named by category in Table 1 of the notice.
If workers were paid in cash and no name-specific payment log is available, Table 1 might include three worker categories, such as roofers, roofing assistants, and crew leaders. The same notice of determination may also include a named worker, such as the corporate president/sole shareholder. However, the notice should not include worker social security numbers.
Table 1 of the notice must be as specific as the case facts allow.
A notice of determination cannot be issued with a Table 1 category of worker listed as, for example, "workers paid in cash" or "workers pursuant to information maintained by the taxpayer" for numerous reasons, such as application of rates under IRC 3509, application of section 530 of the Revenue Act of 1978 (section 530), and establishing basic case development before the court.
If there are more workers than can fit in Table 1, an attachment may be used to reproduce Table 1. The attachment should be clearly identified at the top as "Attachment to the Letter." Table 1 on page 2 of Letter 3523 should reference the attachment by inserting "See Attachment to the Letter."
It is important to ensure that workers who were issued Form W-2, Wage and Tax Statement, by the taxpayer are not included in the NDWC for the same periods. It is the position of the Service that Tax Court review is not available when there is no controversy regarding the classification of the workers, such as where the taxpayer treated the workers as employees by issuing Form W-2. See Notice 2002-5, IRB 2002-3.
Include corporate officers, when appropriate. Refer to IRM 188.8.131.52.3, Corporate Officers. Often, employment tax examinations include multiple classes of workers, as well as additional non-worker classification employment tax issues (e.g., wage and tax adjustments related to fringe benefits provided to employees). If the file indicates the taxpayer did not issue Form W-2 to the employees for the periods contained in the notice, and did not otherwise treat the workers as employees for federal tax purposes, any employment tax adjustments associated with officer compensation must be made using the notice process, rather than the traditional employment tax assessment process.
Table 2 of Letter 3523, must include the Service's determination of the proper amount of employment tax, additions to tax, and/or penalties that arise from treating the workers listed in Table 1 as employees. Examiners will include a "working copy" draft of Table 2 information in the case file for reviewers to use in preparation of the NDWC.
The information about the proposed employment tax assessment must be moved from the reports (Form 4667 and/or Form 4668) to Table 2 of the notice of determination.
The amounts must be organized by type of employment tax rather than by type of return and listed separately for each quarter:
Old age, survivor, and disability insurance
Income tax withholding
The total FUTA tax will be reported in the December 31 tax period.
For substitute for return cases, the failure to file penalty (FTF) under IRC 6651(a)(1) and the failure to pay penalty (FTP) under IRC 6651(a)(2) are applicable. Each of the penalties must be separately stated on Table 2 of Letter 3523, rather than aggregated and shown as one combined amount. If the FTP has not reached the maximum (i.e., less than 50 months), an attachment to the letter must be completed with an explanation that the penalty will continue to accrue until paid. This statement should be similar to that included with regular statutory notices of deficiency. See IRM 184.108.40.206.2.5, Substitute for Return IRC Section 6651(g), for penalty explanations used with notices of deficiency.
A copy of Form 4666, Form 4667, and Form 4668 must be attached to the notice of determination to explain which rates were used in calculating the employment taxes.
Form 2504-WC, Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment in Worker Classification Cases, must be included as an attachment to the notice of determination to provide taxpayers with an opportunity to agree to the proposed employment tax adjustment administratively.
Form 2504-WC, contains the statement that allows taxpayers to waive restrictions on assessments under IRC 7436(d) and IRC 6213(a).
Form 2504-WC should contain the following:
Name, address, and EIN of the taxpayer exactly as they appear on the Letter 3523.
Summary of the employment tax liability carried over from Form 4666.
Entries for Form 940, Form 941, and Form 945 are placed on separate lines. Only entries for additional tax and penalties are shown.
The "Kind of Tax" and "Internal Revenue Code Section" are completed as follows:
Form 940 - FUTA IRC 3301
Form 941 - FICA and IT Withholding IRC 3101, IRC 3111, and IRC 3402
The amount of wages paid to reclassified employees and the corresponding employment taxes should be clearly and consistently stated.
The NDWC includes three computation statements (i.e., reports):
Form 4666, Summary of Employment Tax Examination,
Form 4667, Examination Changes - Federal Unemployment Tax, and
Form 4668, Employment Tax Examination Changes Report.
Generally, all three reports will be included with the NDWC. These reports are prepared by the examiner and included in the case file before the case closes from the group. If no changes are needed, it is not necessary to prepare new reports.
Date of Report - enter the date the report is completed.
Type of Report - check the applicable box.
Unagreed or Agreed - check the applicable box.
Calendar Year (Column a) - for annual returns, list calendar years examined. For quarterly returns, list only the year if all its quarters result in a change. When a combination of change and no-change occurs in one year's examination, show the year followed by the quarters, grouping the changes on one line and the no-changes on another line.
Return Form Number (Column b) - self-explanatory, except if a claim is involved, write "CLAIM" after the return form number.
Delinquent Tax, Increase(Decrease) in Tax (Column c) - enter the total amounts on line 13 of Form 4668 and/or on line 8 of Form 4667.
Penalty (Column d) - enter the applicable code sections and the total amount of penalties from lines 14, 15 and 16 of Form 4668 and/or line 9 of Form 4667.
Total (Column d) - enter the sum of Columns c and d for each line.
Other Information - enter: "This does not constitute an income tax examination." Also, enter such items as statements regarding revised or corrected reports, delinquency, information regarding penalties, explanation of adjustments, etc. If the examination included both IRC 7436 issues and non-IRC 7436 issues, indicate whether this report relates to a Form 2504-WCIRC 7436 Issue.
Date of Report - enter the date the report is completed.
Type of Report - check the applicable box.
Agreed or Unagreed - check the applicable box.
Line 4 - enter applicable rate from Form 940.
Line 9 - enter IRC section number if other than IRC 6651 or IRC 6656.
Line 10 - use a separate column for each state and experience rate period.
Line 11 - use a separate column for each state and experience rate period and enter calendar year if the taxpayer does not have an experience rate or where the experience rate is constant throughout the year.
Line 12 - enter the experience rate as determined by the state. If the experience rate exceeds 5.4%, enter 5.4%.
Line 13 - enter taxable FUTA wages as corrected in the examination. This should be the same as line 3.
Line 14 - enter the amount of wages subject to state tax that has been reported to the state. This will include the amount reported on the original return to the state plus any additional wages subsequently reported for which the taxpayer has received a statement from the state acknowledging the additional wages reported. The taxpayer should be given 30 days to obtain such statement from the state. If the taxpayer's experience rate is 0%, enter the wages that would have been subject to state unemployment tax if the 0% rate had not been granted.
Line 15 - enter 5.4%. Line 24 will be the same percentage.
Line 19 - Use the Worksheet for Credit Computation found in the instructions to the Form 940 to correctly compute the allowable credits if some of the taxable FUTA wages were excluded from state unemployment tax OR if any state unemployment tax was paid late.
Line 18 - enter contributions timely paid.
Line 21 - for any state to which the credit reduction is applicable, enter the rate from Form 940 for the year under examination.
Other Information - include such items as statements regarding revised or corrected reports, delinquency, explanation of adjustments, information regarding penalties, etc. If the examination included both IRC 7436 issues and non-IRC 7436 issues, indicate whether this report relates to a Form 2504-WCIRC 7436 Issue.
Return form number - enter 941, 943, 944, 945, or Schedule H.
Name and address of employer - self explanatory.
Employer identification number - self explanatory.
Calendar year - self explanatory.
Total tax plus penalty or (decrease) in tax - enter the total amount of lines 13 through 16.
Last quarter of this examination - enter the last quarter of the latest calendar year being examined.
Examination discussed with - self explanatory.
Agreed or unagreed - check the applicable box.
Line 1 - Enter the combined employer/employee social security and medicare rates (IRC 3101 and IRC 3111) in Column a and the amount of the wages adjustment in Columns b through e.
Line 2 - Enter the applicable social security and medicare rates under IRC 3509(a) in Column a and the amount of wage adjustment in Columns b through e.
Line 3 - Enter the applicable social security and medicare rates under IRC 3509(b) in Column a and the amount of wage adjustment in Columns b through e.
Line 4 - Enter the applicable social security and medicare rates (IRC 3101 and IRC 3111, if applicable) in Column a and the amount of the adjustment in Columns b through e.
Line 5 - Enter the applicable income tax withholding rate in Column a and the amount of the wage adjustment in Columns b through e.
Line 6 - Enter the applicable income tax withholding rate(s) under IRC 3509 in Column a and the amount of the wage adjustment in Columns b through e.
Line 7 - Enter the applicable rate in Column a and the amount of the payments subject to backup withholding in Columns b through e.
Line 8 - Use for any adjustment that does not affect an employee's social security or medicare wages.
Line 9 - Use for any adjustment that does not affect an employee's income tax withholding wages.
Enter any income tax withholding computed by the taxpayer for the examiner under IRC 3402(b) or IRC 3402(c) on unreported supplemental wages. (This can be abated under IRC 3402(d)).
Enter any income tax withholding actually deducted and withheld but not reported to the Service. (This is not subject to IRC 3402(d)).
Line 10 - Compute the social security and medicare taxes for lines 1, 2, 3, or 4 and adjustment for any amounts on line 8.
Line 11 - Compute the income tax withholding for lines 5 or 6, and adjust for any amounts on line 9.
Line 12 - Compute the backup withholding for line 7.
Line 13 - Enter the total of lines 10, 11 and 12.
Line 14 - Enter the amount of penalty under IRC 6651.
Line 15 - Enter the amount of penalty under IRC 6656.
Line 16 - Enter IRC section number in space provided for any other penalty and the amount of the penalty in Columns b through e.
Line 17 - Enter the maximum amount of tax subject to the provisions of IRC 3402(d). If not applicable enter "None" . The tax from line 6 (IRC 3509) and any portion of line 9 that is not subject to IRC 3402(d) cannot be abated.
The amount subject to IRC 3402(d) abatement listed in Line 17 INCLUDES amounts allowed by the examiner as part of the examination when using the two-step process described in IRM 220.127.116.11.2, Examination Procedures for IRC 3402(d) Relief. If the examiner does not use the two-step assessment process and instead nets the tax due, line 17 should reflect the remaining amount of tax available for abatement.
Enter the calendar year and the number of employees in the spaces provided in the statement regarding filing Form W-2c. Complete the mailing address.
The following notation, "Wage Statements Secured by Examiner," should be made in the block regarding the filing of Form W-2 / Form W-2c and in the other instructions section of the attached Form 3198, Special Handling Notice. If the examination included both IRC 7436 issues and non-IRC 7436 issues, indicate whether this report relates to a Form 2504-WCIRC 7436 issue.
As noted previously, the Tax Court has jurisdiction to:
Review the Service's determination that one or more individuals performing services for the taxpayer are employees,
Review the Service's determination that the taxpayer is not entitled to treatment under section 530(a) of the Revenue Act of 1978 with respect to those individuals, and
Determine the proper amount of employment tax under the above determinations.
The 30 day letter should contain an explanation of the worker classification issue and the consideration of section 530(a) relief. The Form 886-A or equivalent used for the explanation with the 30 day letter should not be included with the notice.
The notice of determination should contain a brief summary of the Service's position in the case, including the consideration of section 530 of the Revenue Act of 1978, the substantive issue of worker classification, and whether IRC 3509 or regular rates were used.
It is determined that the workers included in Table 1 are employees of [name of business] for the tax periods [list tax periods]. It is also determined that section 530 of the Revenue Act of 1978 does not apply since Forms 1099-MISC were not filed. It is further determined that the rates listed in IRC 3101, IRC 3111, and IRC 3402 are applicable since it has been determined that there was intentional disregard for the requirement to deduct and withhold taxes.
"Duplicate original" notices, a term used through this text, means an originally signed Letter 3523, Notice of Determination of Worker Classification, that is sent by certified or registered mail. The "duplicate" notice may reflect a different address for the taxpayer than the original notice.
The Letter 3523 and Form 2504-WC (waiver) must show the same name and address and thus, both of these will be originally prepared for each duplicate original. All other forms and attachments may be copies.
To ensure the accuracy of notices of determination, a final check of the NDWC will be conducted once the NDWC is prepared but before it is issued to ensure it is legally sufficient.
This double check of the NDWC is limited to:
The accuracy of the taxpayer's name, taxpayer identification number (TIN), and address on the letter and the waiver.
The proper consideration of the taxpayer's last known address, including the use of multiple addresses, if appropriate.
The identification of workers in Table 1.
The exclusion of workers who were issued Form W-2 for the same periods.
The inclusion of adjustments for compensation paid to corporate officers, as appropriate.
The reconciliation of wage and tax adjustments throughout the notice.
The documentation of the analysis supporting intentional disregard if the employment taxes are computed using the full rates.
The documentation of whether an offer was made under the classification settlement program, what type of offer was made, if any, and why.
The discussion of section 530 of the Revenue Act of 1978, detailing the reasons why the taxpayer does not qualify for relief.
The explanation of items does not include the Form 886-A used in the 30 day letter.
The use of the correct forms related to worker classification issues.
The cases subject to mandatory Counsel review are as follows:
Burden of proof - Where the Service will have the burden of proof regarding any issue contained in the notice of determination, such as asserting the civil fraud penalty under IRC 6663 or the fraudulent failure to file penalty under IRC 6651(f).
530 reasonable basis - Where the taxpayer has met the substantive and reporting consistency requirements of section 530 of the Revenue Act of 1978 ("section 530" ), and the disagreement revolves around whether the taxpayer has a reasonable basis.
Predecessor/successor - Where the case involves treatment of workers as employees by a predecessor organization and that treatment is being imputed to the current taxpayer as its successor for section 530 purposes.
$1,000,000 - Where the proposed amount of employment taxes plus penalties total $1,000,000 or more for all periods combined.
Three party arrangements - Where the case involves a three party arrangement in which workers provide services to one party but are paid by another, regardless of which entity is receiving the notice. Temporary employment agencies and professional employer organizations (PEOs) are common examples of this arrangement. While these cases may be difficult to identify upon review of draft notice, often the taxpayer's name (or the third party's name in the case where the notice is being sent to the client but the file indicates a third party arrangement was involved) will include the word "leasing," "staffing," "personnel," or "temporary."
Partnerships - Where the case involves reclassifying workers the taxpayer treated as partners in a partnership, including a limited liability company (LLC).
Criminal - Where the civil case is related to a criminal case.
International - Where the case involves workers performing services outside of the United States or where the notice of determination is issued to a taxpayer not located in the United States.
Governments - Where the notice of determination will be issued to a taxpayer that is a government entity, including an indian tribal government.
Projects - Where the notice of determination is issued as part of a project, including any project with an Issue Management Team (IMT) or Emerging Issue Team project. For example, notices issued as part of the Offshore Employee Leasing (OEL) IMT project.
If Area Counsel suggests changes to the proposed notice of determination, the following actions will be taken:
Area Counsel will provide written directions and guidance on how to perfect the notice of determination, if necessary.
The reviewer will consider Area Counsel's proposed changes and modify the notice as directed, if in agreement.
If the reviewer disagrees with Area Counsel's recommendations, he/she will discuss the case with his/her group manager. The Technical Services group manager will then discuss the case with the Area Counsel attorney to resolve the disagreement.
In order to override Area Counsel's advice, the case file must include a memorandum from the Area Director outlining the reason(s) for not following Area Counsel's recommendations.
All written communications to/from Area Counsel must be kept in the case file.
A notice of determination subject to mandatory review must be submitted to Area Counsel with at least 60 days remaining on the statute. If less than 60 days remain, the Technical Services group manager will call the appropriate Area Counsel to advise him/her of the imminent statute case and to coordinate the case review. The case should be hand delivered, if possible. If hand delivery is not possible, the case will be sent via express mail.
Area Counsel will return the case to the Technical Services reviewer within 45 days of receipt. The reviewer will follow-up on any case that has been pending in Area Counsel for more than 45 days and document the results on the reviewer's activity record.
Prepare Form 3210, Document Transmittal, and a cover memo to transmit a case to Area Counsel for review of the NDWC. The memo will include the following:
The taxpayer's name and taxpayer identification number,
The tax period(s) involved,
The earliest statute of limitations date,
The reason for review of the notice of determination,
The reviewer's name and contact telephone number,
The identification of any related cases being submitted for information or related review, and
Any other information the reviewer feels will assist Counsel in the review of the case.
The reviewer should clearly mark the case "priority handling" for any imminent statute.
The reviewer should ensure the case is updated to Review Type 42 and Suspense Code 542 on ERCS to indicate the case is with Area Counsel for review.
IRC 7436 authorizes the Secretary (of the Treasury) to issue a notice of determination by certified or registered mail.
Delegation Order 4–26 in IRM 18.104.22.168, Delegation Order 4-26 (formerly DO-251), delegates authority to sign notices of determination to other Service officials.
As it relates to Technical Services, the Technical Services Territory Manager (TSTM) is delegated to sign and issue a NDWC. The TSTM may further delegate this authority to specific individuals within his/her functional area. This is accomplished by way of memorandum, which must be updated periodically for changes in staffing.
Delegated individuals may sign the notices in any of the following ways:
Manually sign the name of the specified official followed by the initials of the delegated signing official.
Imprint the specified official's signature using a signature stamp followed by the initials of the delegated signing official.
Add the initials of the delegated signing official to the machine-imprinted, specified official's signature.
The specified official may personally sign or imprint his/her signature and title using a signature stamp.
For notices produced at correspondence production services print sites, imprint the specified official's signature and title using a machine-imprinting process.
"Signing official" must always be a delegated official pursuant to Delegation Order 4-26. "Specified official" must always be a delegated official pursuant to Delegation Order 4-26 but may, and generally would be, above the organizational level of the "signing official" . The "specified official's signature" is the signature of the individual designated by the particular function (e.g., TSTM), which is issuing the notice of determination, by having his/her signature reflected on the notice as the issuing official.
Signature stamps are locally procured with only the delegated officials having access. Proper security procedures should be used to prevent unauthorized use.
Two dates are included on the Letter 3523:
The date the letter is issued - This is the same date the letter is mailed to the taxpayer. See IRM 22.214.171.124.2, Records of Mailing, below.
The last day the taxpayer can file a petition with the Tax Court - This date is 90 days after the notice is issued (150 days if the taxpayer is located outside the United States). See Exhibit 4.8.10-1 for details of how to compute this date.
The reviewer preparing the notice of determination does not complete either of these dates. Both are completed by the person who mails the notice of determination.
Notices of determination will generally be prepared in duplicate.
The original, including all statements and attachments, is sent to the taxpayer by certified mail or registered mail (if mailed to a person outside the United States).
A copy is kept in the case file as evidence that the notice of determination was sent to the taxpayer. See Pietanza v. Commissioner, 92 T.C. 729 (1989). The case file is then suspended by the issuing office pending its ultimate disposition.
If a Form 2848, Power of Attorney and Declaration of Representative, is received by Technical Services, the reviewer should check the representative's status as described in IRM 126.96.36.199.2.2, POA Not Authorized to Practice Before the IRS.
If a taxpayer is represented by a duly authorized power of attorney, a copy of the notice of determination mailed to the taxpayer will be sent to the representative by regular mail. Letter 937 (DO), Transmittal Letter for Power of Attorney, is used as the cover letter to transmit the copy of the notice. The enclosure section of the letter should indicate Letter 3523.
If the power of attorney does not cover all periods in the notice of determination, the notice should not be sent to the representative. Instead, Letter 4368, Statutory Notice Not Sent to Representative - Tax Periods Not Specified, should be included with the taxpayer's notice of determination. The letter advises the taxpayer why a copy of the notice was not sent to the representative identified on Form 2848. If Form 2848 does not include all periods and a subsequent Form 2848 is submitted by the representative, a new page 2 must be signed by the taxpayer.
Document the case activity record (Form 9984 or equivalent) for any actions taken regarding the power of attorney that may appear to be in conflict with the Form 2848 instructions, including but not limited to:
If a copy of the notice of determination is not sent to the representative because the Form 2848 does not cover all years included in the notice.
If a copy of the notice of determination is sent to the representative but the Form 2848 (pre-March 2004 revision) specifies the original is to be sent.
Under Circular 230, Regulations Governing Practice before the Internal Revenue Service, and Treas. Reg. 601.502(b)(5)(iii), an unenrolled return preparer may only represent a taxpayer in the examination process for the tax year or period covered by returns the unenrolled return preparer prepared. An unenrolled return preparer may not represent a taxpayer beyond the examination process.
A copy of a notice of determination cannot be sent to an unenrolled return preparer, even if authorized to receive such notice, since they cannot represent the taxpayer beyond the examination process.
Letter 4369, Statutory Notice Not Sent to Representative - Limitations to Practice Before the IRS, will be sent to the taxpayer with the NDWC to notify him/her that a copy of the notice of determination was not sent to the unenrolled return preparer.
Each Technical Services Territory Manager must maintain a record of the dates the notices were mailed since:
The validity of the date of notice could be challenged by the taxpayer.
The Tax Court does not have jurisdiction over a case when the taxpayer files a petition after the 90th day (150th day, if the notice is addressed to a taxpayer outside the United States) or, if later, the date shown on the notice as the last day to file the petition.
The Commissioner has the burden of proof in establishing the date of mailing.
The record of certified and registered mailing is maintained on PS Form 3877, Firm Mailing Book for Accountable Mail, together with the certified/registered mail numbers, which are supplied by the United States Postal Service.
Across the first line of each form, type the following or use a stamp to imprint: "Notices of Determination, for the tax periods indicated, have been sent to the following taxpayers:"
The certified/registered mail number is entered along with the name and address of the addressee. Multiple addresses are entered separately.
In the "Remarks" column, enter the tax periods to which the notice is applicable.
The designated employee will stamp the front of the notice envelope with:
Certified Mail No. Or Registered Mail No.
The certified/registered number will be entered next to the stamp on the envelope.
The notices and the PS Form 3877 are taken to the Post Office. The Post Office employee will compare the count and numbers used with the envelope notices.
The Service employee will indicate delivery to the Post Office by signing and dating PS Form 3877 as part of the permanent record of mailing. The Post Office employee will insert the postmark on the PS Form 3877.
The receipted forms will be numbered consecutively and retained in separate folders for a period of 10 years. These receipted forms are kept with the receipted forms for statutory notices of deficiency but should never be commingled with any other mailing records.
If the notice is incorrectly addressed and/or mailed:
The taxpayer may raise a challenge that the notice does not conform with statutory requirements.
A notice may be held to be invalid if not mailed to the last known address or if it is not mailed by certified or registered mail, as required. Furthermore, a notice that is mailed outside the United States by certified mail rather than registered mail may also be held to be invalid.
If the notice is invalid and the assessment statute has expired so that no valid notice can be issued, any assessment based on a notice cannot be made and, if made, should be abated.
Notice of determination cases are suspended 105 days (165 days for taxpayers outside the U.S.) to await taxpayer correspondence, agreement, or notification of a petition with the U.S. Tax Court. The suspense period is comprised of 90 days (150 days for taxpayers outside the U.S.) plus an additional 15 days to determine if a petition was filed with the U.S. Tax Court.
When a case is received for suspense, the proper ERCS codes should be input. The status code will be updated to Status Code 24, ERCS Review Type 38, and ERCS Suspense Type 538.
Each case file will be marked with either the issue date or the default date of the notice of determination.
The case files are then filed by issue date or default date. Within these dates, the cases are filed either alphabetically by taxpayer name or numerically in TIN order. All related returns should remain together filed under the primary entity name or TIN.
On a monthly basis, the suspense inventory should be reconciled to ensure all returns are where they should be. This can be accomplished through the use of the Inventory Listing Report or the Status Report in ERCS.
The Inventory Listing Report can generate a complete inventory list, including returns assigned to employees. This report can also generate a partial inventory list of overage cases based on the number of days since the date in review.
The Status Report generates a list of returns in a single user entered status code. The report can be generated for any review status code, including Status Code 24.
Upon issuance of a notice, a case is updated to Status Code 24 and the statute of limitations is recomputed to reflect the maximum tack on time permitted by law for assessment (i.e., as if the notice defaults - 90 or 150 days, plus 60 days for processing). Generally, Exhibit 4.8.10-2, Defaulted 90 Day Letter Without Form 872-A or SS-10 Consent, should be used as a guide to recompute the assessment statute of limitations. Form 5348 should be prepared to update the recomputed statute.
If an agreement is received before the end of the 90 Day (150 Day) period, the statute should be recomputed a second time. Agreed cases should be a high priority item and closed as soon as possible to avoid having a barred assessment statute. Exhibit 4.8.10-2, Agreement Cases with/without Form 872 or SS-10 Consent, (whichever is applicable) should be used as guidance to recompute the final assessment statute. Form 5348 should be prepared to update the recomputed statute.
If a case is petitioned, the statute should remain as the updated assessment statute noted in paragraph 1 above. Under no circumstances will the ASED for a petitioned case be updated back to the original statute.
The Statute Expiration Reports in ERCS allows the user to print statute expiration notices and create reports to check for pending statutes. Two reports included within the Statute Expiration Reports are:
Pending Statute Report - Returns are included on this report if the statute expires within the user entered number of days.
895 Report - Returns are included on this report if the statute expires within the specific number of days set by SB/SE or LB&I. For Technical Services users, the number of days must be in the range 180 to 400. The same number is used in determining if a Form 895 should be generated.
The Pending Statute Report lists returns with numeric statute expiration date falling within a variable number of days as entered by the user. This report is useful in calling attention to returns with short statutes and determining if a Form 895 should be issued. The report also has a section containing a summary of employees with returns with short statutes.
The 895 Report generates a listing of returns in review statuses which meet any of the following criteria:
The statute date expires within the number of days determined by the area office or by LB&I,
The statute date is an alpha date (e.g. 04CC2009),
The statute date is a Form 872-A, Special Consent to Extend the Time to Assess Tax,
The statute date has already expired, or
A Form 895 has been issued for the return.
ERCS includes a return on the 895 Report based on the actual statute date if the statute is numeric. This means if the statute has been extended, the extended date is used to determine if the return should be on the report. If the statute has been changed but not approved, the earlier of the prior statute or the current statute is used.
Technical Services should review the Pending Statute Report on a weekly basis during peak times (January through April) and bi-weekly during the rest of the year. Suspense personnel should ensure that all cases with notices of determination are properly in Status Code 24 and have updated ASEDs, as previously discussed.
Identify and monitor as a "Statute Case" as follows:
If less than 120 days left on Then the case is a "Statute Case" and original ASED prior to issuance of Notice of Determination of Worker Classification, it must have the notice letter issued on or before the original ASED. revised ASED after issuance of notice of determination, it must be assessed on or before the revised ASED.
AIMS 4.0 Table is generated monthly and provides:
A report a list of all returns by status for which the statute of limitations will expire in 180 days or less.
A listing of returns with expired statutes.
Each Technical Services group, including the notice of determination suspense unit, is expected to reconcile the 4.0 Table with the ERCS Statute Pending Report on a monthly basis. The group should:
Run the ERCS Statute Pending report and the 895 report on the AIMS Cycle cut-off date (Doc. 6036).
Work the Table 4.0 report within 10 days of receipt. Once the table is worked, it should be signed and dated by both the manager and the employee designated to work the table.
Instructions for working the 4.0 Table are contained in IRM 188.8.131.52.1.1, Procedures for Working Statute Control Report. At a minimum, the following should be completed:
Research the listing on AIMS to eliminate those accounts which have been closed or transferred out.
Compare AIMS and ERCS. If AIMS and ERCS do not match, the location of the physical case should be determined and the status code should be updated on the appropriate system.
Place a "C" in front of the taxpayer's name if a case has been closed.
Place a "T" in front of the taxpayer's name if a case has been transferred,
Notify the manager having custody of cases of the early statute date.
Identify and verify first statutes expiring within 30 days.
Locate the return/case file for each account appearing for the first time. Place an "R" in front of the taxpayer's name to indicate that the return has been located.
Follow established missing return or case file procedures if research shows that the return or case file is missing.
Perform monthly managerial review of statute controls after staff reconciliation.
Sign and date 4.0 Table in red. The manager and the employee designated to work the 4.0 Table are both required to sign.
Retain the table for two years.
While the case is in suspense, the taxpayer may:
Make telephone contact
Send in correspondence
Submit additional information
Appear in person for further discussion
Any communication with the taxpayer regarding notices of determination should clearly state that reconsideration of the case will in no way serve to suspend or extend the 90 day or 150 day period in which a petition may be filed with the United States Tax Court.
If the taxpayer's representative calls or comes in to discuss the taxpayer's account, a valid Power of Attorney (POA) or Tax Information Authorization must be in the file or no information may be furnished. A request may be made to the taxpayer to obtain a completed POA. Without a POA on file, a general explanation of the notice of determination procedures may be provided.
It is imperative that all contacts with the taxpayer or power of attorney be documented on the reviewer's activity record.
When telephone contact is made, the designated contact person will:
Obtain the taxpayer's name, TIN, and issue date of the notice,
Pull the case file,
Answer routine questions, and
Refer technical questions to the designated notice reviewer.
Inform the taxpayer that the Notice of Determination gives them three options:
The right to petition the United States Tax Court,
The right to contact the Taxpayer Advocate Office, and
The right to agree with the tax deficiency by signing the waiver.
If the taxpayer does not agree, but does want to stop the continuation of interest, he/she may make a deposit under IRC 6603. Revenue Procedure 2005-18, IRB 2005-13, provides that the payment must be accompanied by a written statement designating the remittance as a deposit (known as a "IRC section 6603 Deposit" ).
It is imperative that all telephone contacts are documented in the case history, and a copy of any written documentation received is placed in the case file.
When correspondence is received, the designated contact person will:
Date stamp the correspondence,
Pull the case file, and
Route the case to the designated notice reviewer for technical review.
Letter 556 (DO), Acknowledgement of Protests, Correspondence and Requests for Interviews, may be used to acknowledge receipt of the correspondence if the taxpayer is not contacted by telephone.
The taxpayer must be clearly informed that reconsideration of the case will not suspend or extend the period for filing a petition with the U.S. Tax Court.
The reviewer may determine that the case should be sent back to the originating examination group for consideration of additional information.
If the case is returned to the group, follow the procedures outlined in IRM 184.108.40.206.3.4 below.
Any time a case is pulled from the notice suspense file and transferred to a reviewer, the employee code on ERCS is updated. This is an important step in order to keep track of all cases. The case is still maintained in Status Code 24 unless or until it is forwarded out of Technical Services. If the case is returned to the group it is sent back in Status Code 12 and a "dummy" file is prepared to enable the 90 day suspense personnel to monitor the case for either default or petition.
All contacts and actions taken on the case after the Notice of Determination is issued must be recorded in the case file.
When the taxpayer submits additional information or requests an appointment, the designated contact person will:
Route the case back to the designated notice reviewer to determine the appropriate course of action,
Annotate the date, action taken, and who initiated the action on both the control card and the statute control card files, and
Update the appropriate ERCS employee code when the case is sent out of the 90 day Suspense area.
All 90 day cases should be returned to the 90 day suspense area for final disposition.
IF THEN Agreement received, 1. Close all notice controls,
2. Update statute, and
3. Forward for assessment.
No agreement received, 1. Suspend awaiting default,
2. Follow default procedures if default date has passed, and
3. Follow petition procedures if a petition is filed.
If the designated notice reviewer determines that a case should be returned to the group for consideration of the correspondence and/or information received, the reviewer will prepare a Form 3990, Reviewer's Report, to transmit the case to the group. The Form 3990 should instruct the group to return the case to Technical Services as soon as their reconsideration is complete or prior to the default date. The Form 3990 should also instruct the group that the taxpayer must be informed during each contact (both verbal and written) that reconsideration does not suspend or extend the time to file a petition with the United States Tax Court.
Because the assessment statute expiration date (ASED) has already been updated to reflect the maximum assessment date (based on a default), the group must be cautioned about the statute, particularly for those cases for which the notice was issued with little time remaining on the normal statute.
The Form 3990 should include a detailed explanation of the ASED shown on the AIMS/ERCS system. The following sample paragraphs may be used for this purpose:
"The notice of determination issued to the taxpayer is enclosed in the file for your information. Please do not disturb, destroy, or alter the notice. It should remain on the front of the case file when the case is closed from the group after the reconsideration. Refer to IRM 220.127.116.11.1, 90-Day Pre-Assessment Cases, for the applicable procedures to follow for the audit reconsideration.
CAUTION REGARDING THE ASSESSMENT STATUTE: If the taxpayer neither agrees nor petitions the Tax Court by the last date to file a petition shown on the notice of determination in the case file, then the last day for assessment of the additional tax shown on the notice of determination is mm-dd-yyyy. AIMS/ERCS has already been updated to reflect this date.
If the taxpayer signs an agreement prior to the last day to file a petition shown on the notice of determination, then the 90 or 150 day period stops and the assessment statute is suspended from the date the notice was issued until the date the agreement is received by the Service plus an additional 60 days for the assessment to be processed. Therefore, if the taxpayer signs an agreement form during the audit reconsideration, it is important to return the case promptly to Technical Services so the assessment can be made prior to the expiration of the suspended statute of limitations. See Exhibit 4.8.10-2 for additional information."
After the Form 3990 is prepared, the case file and Reviewer's Report should be given to the Group Manager for signature.
Once the manager approves the Reviewer's Report, the case should be given to the notice suspense unit for preparation of a "dummy file" . This file is used as a back-up in the event it becomes necessary to make an immediate assessment and is filed in the suspense files. The file should include:
A copy of the tax return,
A complete copy of the notice of determination,
A copy of the most recent Form 5344, and
A copy of the Reviewer's Report transmitting the case back to the group.
Once the group has completed work on the case, it should be returned directly to the reviewer. The notice reviewer is responsible for notifying the taxpayer of the final outcome of the reconsideration via Letter 555-T, Reconsideration After Statutory Notice, or Letter 645-T, No Change - After Statutory Notice Issued.
The reviewer will then return the case to the notice suspense unit to either close the case if agreed or no-changed, or to continue suspending the case if the 90 day (150 day) suspense period has not expired. The notice suspense unit will destroy the dummy file when the original case file has been returned, ensuring that the original notice of determination still remains with the case file.
If the taxpayer requests transfer of a NDWC to another area, the area that issued the notice may transfer the case.
Associate the correspondence with the case file and forward the file to designated notice reviewer to approve and provide instructions.
Technical Services staff will update ERCS for the transfer per the reviewer's instructions and mail the case via Form 3210, Document Transmittal.
A notice of determination forwarded by certified mail and returned by the U.S. Postal Service because the addressee has moved and left no forwarding address, is considered undeliverable.
A notice returned by the U.S. Postal Service stamped "unclaimed" or "refused" is generally not considered undeliverable. These cases will be referred to the designated technical person.
Any time a notice is returned undeliverable or unclaimed, a determination of the taxpayer's correct address will be made. Documentation of the research is required to be maintained in the case file.
The following procedures are performed for undeliverable notices. Also, see IRM 18.104.22.168.2.1, Undeliverable Initial Contact Letters.
Date stamp the returned envelope and associate the undeliverable notice with the case file.
Check the envelope for a change of address annotated by the U.S. Postal Service.
Check all addresses on all notice of determination letters issued. Often, multiple duplicate original notices were issued to more than one address.
Check the telephone and/or city directory addresses to confirm the address.
Research for a new address using in-house address information and outside locator services.
Print INOLES and check the file to determine that the notice was correctly addressed to the last known address of the taxpayer. If the INOLES address is the same as the one used on the Letter 3523, a copy of the INOLES should be stapled to the bottom of the top page of the letter and the case should be returned to the notice suspense unit. If the INOLES address or the address from research in (b) through (e) above is different than the one used on the Letter 3523, the case should be returned to the designated notice reviewer to determine if the letter should be reissued.
The following procedures are performed for unclaimed or refused notices:
Date stamp the return envelope and associate the unclaimed or refused mail with the case file.
Check the envelope for a change of address annotated by the U.S. Postal Service.
Print INOLES and recheck the file to determine that the letter was correctly sent to the last known address of the taxpayer.
Print a copy of the INOLES and staple it to the bottom of the top page of the letter and return the case to suspense if the address is the same on the INOLES as the notice.
Return the case to the designated reviewer for re-issuance if the address is different on INOLES and the address was updated before the issuance of the notice. If sufficient time does not remain on the statute of limitations to reissue the notice, then upon expiration of the suspense period, the deficiency will be assessed by default (absent a petition or an agreement).
Based on the information secured using the above process steps, either reissue the notice, as specified below, or allow it to default.
Review the AIMS Weekly Update Report for possible address changes. Codes 18 and 19 show new addresses updated to Master File.
Request CFOL and IDRS research on both the business TIN and the individual SSN (for unincorporated businesses) using command codes INOLES, SPARQ, IRPTRO, BMFOLE/IMFOLE, ENMODA, and TELER (taxpayer's telephone number) to call the taxpayer.
Contact Collection (Insolvency function) if the taxpayer is in bankruptcy.
If a new address is obtained that was changed on IDRS prior to the issuance of the original notice and there is sufficient time remaining on the regular assessment statute, the notice of determination should be reissued. The period in which the taxpayer may petition the Tax Court starts with the date the new notice of determination is mailed.
If a new address is obtained that was changed on IDRS subsequent to the issuance of the original notice, the notice of determination should be re-mailed.
The envelope in which the letter was originally mailed and the notice of determination itself must be closed with the case file.
The envelope, letter, and research performed will be part of the notice of determination. This documentation will establish that the Service complied with the law and mailed the notice by certified or registered mail to the taxpayer's last known address.
The address on Master File will be considered the taxpayer's last known address if the taxpayer cannot be located or a new address is not provided or verified by the taxpayer. If research shows no later address, the envelope in which the letter was originally mailed and the notice will be securely stapled in the taxpayer's file as evidence that the Letter 3523 was sent by certified or registered mail to the taxpayer's last known address. However, the case should not be defaulted until the 105 day or 165 day suspense period has ended.
If a protest is received, the designated notice reviewer will review the protest to determine if it is sufficient. The reviewer will also coordinate with the Appeals office to determine if Appeals will accept the case file for consideration given that a notice of determination has already been issued. This is particularly important for cases with less than 180 days remaining on the ASED. See IRM 22.214.171.124, Unagreed Case Procedures: Preliminary (30-Day) Letters.
For other correspondence, the designated reviewer will determine what necessary action should be taken, if any, and will communicate this determination to the taxpayer and/or representative.
If the taxpayer in a non-filer case provides a completed tax return after the notice of determination is issued, treat the return as "substantial documentation" and follow normal examination reconsideration procedures. This applies whether or not an assessment has been made (TC 290 or 300), unless a petition has been filed with the Tax Court.
If a petition has been filed with the Tax Court, the delinquent return will be transmitted to the appropriate Appeals Office that serves the Area making the determination of the tax liability.
The statute of limitations must be updated to correctly reflect the receipt of the delinquent return.
A petition is a taxpayer's request to the Tax Court for a redetermination of the deficiency or amount of tax. A petition for a notice of determination must be filed within 90 days (150 days if addressed to a person outside the United States) of the date the notice was issued.
A docketed case is a tax case assigned a docket number in the U.S. Tax court. These cases include petitions filed in response to:
Notices of deficiency,
Final adverse determination letters (including notices of determination), and
Final partnership administrative adjustments.
A regular case is a tax case with a deficiency or amount of tax of more than $50,000 (including deficiency, tax, and penalties) for any one taxable period.
Taxpayers may elect to have their case conducted under the Court's simplified small tax case or "S" case procedures. Trials in small tax cases are generally less formal and result in speedier disposition. However, decisions entered pursuant to small tax case procedures cannot be appealed. Taxpayers may elect small tax case procedures for tax disputes involving $50,000 or less (including tax and penalties) for any one taxable period.
Technical Services notice suspense units are responsible for monitoring the docket list to determine if a petition is filed in response to a notice of determination. If a petition is filed, the case must be located, processed for closing and transmitted to Appeals within ten (10) calendar days of the receipt of the docket list.
Occasionally, the taxpayer or representative mails a petition to the IRS, specifically to the office that issued the notice of determination (e.g., Technical Services), rather than to the U.S. Tax Court.
If the petition is received before the expiration of the 90 day (150 day) period, the petition should be mailed by Technical Services to the Tax Court using regular mail that is postmarked on or before the 90 day period expires. The petition should be sent under cover of transmittal Letter 4370, Petition Transmitted to the US Tax Court, to the Tax Court. The taxpayer should be sent Letter 4371, Petition Forwarded to the Tax Court, to inform him/her the petition was forwarded.
If Technical Services receives the petition past the 90 day (150 day) period (even if the petitioner's envelope is postmarked before the 90th or 150th day) or it cannot be postmarked by the IRS prior to the expiration of the 90 day (150 day) period, Technical Services will return the petition to the taxpayer indicating that the document was mistakenly mailed to the wrong address. Letter 4372, Petition Returned to the Taxpayer, is used for this purpose.
If Technical Services receives a petition on the 90th (150th) day, but by the time it is processed through the clerical staff, the 90th (150th) day has expired, the petition will be returned to the taxpayer.
Technical Services should not forward a petition to the Tax Court if the 90 day (150 day) period has already expired.
The United States Tax Court requires the filing of an "answer" by the Commissioner of Internal Revenue in all docketed cases.
Employees responsible for monitoring the docket list must be aware of and take all necessary actions to ensure Counsel receives docketed administrative files with sufficient time remaining to meet the due date established by the U.S. Tax Court to answer the petition.
The "answer due date" , or the time within which the petition must be answered, is set by the Tax Court at sixty (60) days from the date the petition is served on the IRS. The answer due date for small tax case petitions is the same as it is for regular tax case petitions.
Counsel needs time to prepare its answer, therefore Appeals must ensure the cases are received in Counsel no later than twenty (20) days prior to the answer due date.
In order to meet these time frames, it is imperative that Technical Services employees timely identify, locate and process petitioned cases to the appropriate Appeals office.
The docket list is a list of cases docketed by the U.S. Tax Court.
Once a petition is received by the Tax Court, it is given a number, processed and then served on the IRS.
After the Tax Court serves the taxpayer's petition(s) to the Commissioner, the docket list is established by the Docket and Records Branch, Legal Processing Division, in the Office of the Associate Chief Counsel (Procedures and Administration) directly on the Tax Litigation Counsel Automated Tracking System (TLCATS). Once entered on TLCATS, the petitions and files are mailed to the assigned Appeals offices. Additionally, a hard copy of the list is e-mailed as an attachment to employees in the various operating divisions/functions who are members of an e-mail distribution list maintained by Counsel.
The hardcopy docket list shows:
Docket list number
Date list prepared by Counsel
Date petitions served on IRS
Docket number for each case
Notice date (date of notice of determination)
Taxpayer(s) name, address, and TIN(s)
Source of notice, if known (office that issued)
Area Counsel office
In addition to creating and distributing the hardcopy docket list by e-mail, Counsel also posts the docket list as a file to a server.
The hardcopy docket list is one method of identifying taxpayers who have filed petitions to the U.S. Tax Court.
One advantage of the hardcopy docket list is the speed of delivery. The docket list is usually generated within one or two business days of when the petitions are received. Since the list is then disseminated via e-mail to the users on the distribution list, it is received no more than three (3) business days from the petition's receipt.
One disadvantage of the hardcopy docket list is that the list includes the petitions for all Areas that are in docket number order only. Therefore, all users get the same listing and must go through each page to locate the petitions for the cases they control or need to locate.
For more detailed information concerning TLCATS, refer to IRM 30.7.1, Management Systems; Information Systems.
The Docketed Information Management System (DIMS) is an automated Appeals program similar to the docket list.
Appeals downloads the docket list file from the server and posts it on its automated system, DIMS, a sub-system of the Appeals Centralized Database System (ACDS).
The DIMS system is available to both Appeals and non-Appeals employees responsible for issuing and monitoring notices or letters containing Tax Court rights. Access to DIMS is obtained through the Online 5081 process.
The DIMS system listing is another method of identifying taxpayers who have filed petitions to the U.S. Tax Court.
One advantage of the DIMS system over the hardcopy docket list is that users are able to print either the entire list or sort the list so that it contains only the cases they control or need to locate.
One disadvantage of the DIMS system is that it is produced after the hardcopy docket list.
For more detailed information concerning DIMS, refer to IRM 8.4.1, Appeals Docketed Cases, Procedures for Processing and Settling Docketed Cases.
The last method of identifying docketed cases is through the U.S. Tax Court website (http://www.ustaxcourt.gov). This method is used for 90 day (150 day) cases that are not otherwise identified as petitioned on the hardcopy docket list or the DIMS list. These cases would be defaulted and processed for assessment. Before the cases are closed to Centralized Case Processing, each defaulted taxpayer is checked against the taxpayer database on the Tax Court website.
On the website's home page, select the tab titled "Docket Inquiry."
The Docket Inquiry screen allows the user to search by docket number, individual party name, or corporate name keyword. Since this method is used primarily as a safe guard for defaulted cases, the docket number is usually not known.
The Docket Inquiry page also has a Docket Inquiry Help link that will provide information on how to use the search functions. The help resource does not provide a topical search database. It merely provides general information on how to use each of the three search functions.
The Individual Party Name search page asks for the taxpayer's last name, first name, middle initial, and state code.
The Corporate Name Keyword asks for at least one keyword. The page also includes a link to a list of excluded keywords that cannot be used in the keyword search.
Docket records are available on the website for cases filed on or after May 1, 1986. The docket entries are updated Monday through Friday at approximately 6:00 p.m.
The advantage to this method is that it ensures the most diligent search possible and helps to prevent a situation in which Technical Services must re-establish a closed case because a petitioned taxpayer is untimely identified.
The disadvantage to this method is that it requires a direct search by taxpayer name, and each individual taxpayer must be searched separately.
Technical Services Notice Suspense Unit personnel are expected to use the DIMS generated docket list to pull up docketed case lists in numerical (and consequently, chronological) order. DIMS is the preferred method because users can sort the list so that it contains only the cases they control or need to locate. This, in turn, reduces the overall time needed to identify petitioned taxpayers.
While the use of DIMS is required, Technical Services personnel may also use the hardcopy docket list and/or the Tax Court website.
Using multiple methods to identify petitioned taxpayers increases Technical Services' ability to identify all petitioned cases. This helps prevent the need to re-establish prematurely closed cases where Technical Services was notified of the petitions after the cases defaulted.
Upon retrieval, the docket list will be date stamped.
Determine the taxpayer(s) who have filed petitions. Perform research on all taxpayers containing the unique office code, as well as those with "unknown" office codes.
The "unknown" cases are taxpayers without a pre-determined Area office code. Research should be conducted to determine which office these taxpayers are assigned to.
Within ten (10) calendar days of receiving the docket list, the cases must be located, processed for closing and transmitted through Technical Services to the Office of Appeals.
Notice Suspense Unit personnel will locate the case file, close out all controls, and forward the case file to the appropriate office. The docket list will be annotated to indicate the specific action taken on the case and the date.
If a case has been transferred to another area, notify that area or the transfer, and give them the date the petition was filed, the name of the petitioner, and the year(s) involved. A copy of the docket list page identifying the taxpayer and the tax year(s) should be forwarded to the area where the case was transferred.
If it is determined that the case is physically located in another area or campus, telephone the office having physical possession of the case to inform them that the taxpayer has petitioned the Tax Court. The docket list number and petition date must be provided.
After closing the case, it must be forwarded immediately to Appeals (hand carried whenever possible) to obtain immediate acknowledgement of the transmittal, via Form 3210.
At the end of each month, the Form 3210 tickler file will be reviewed and follow-up actions must be taken on any Form 3210 for which Part 4 has been outstanding for 30 days or more. This is done to determine whether the cases were received by Appeals and/or to determine why Part 4s were not returned.
When the Appeals acknowledgment copy is received, destroy the tickler file copy and replace it with the Appeals acknowledgment copy. The Appeals acknowledgment copy will be kept for one year from the date of receipt.
If the case cannot be physically located within three days of receipt of the docket list, prepare Form 5348, AIMS/ERCS Update (Examination Update), to input Freeze Code "Q" on AIMS. Any area attempting to update the status of the "Q" freeze coded case will forward the case to Technical Services' suspense file area upon notification of the freeze code. When the case is located, reverse the "Q" freeze code via a Form 5348.
Occasionally, a case appearing on the docket list has already been defaulted, tax assessed and closed out to the Campus file area. AIMS research will indicate Status Code 90. If this occurs, Technical Services is responsible for preparing Form 3177, Notice of Action for Entry on Master File, to input CC STAUP (15 cycles) to prevent the issuance of balance due notices to the taxpayer.
When a docketed case that is in AIMS Status Code 90 is identified, a current printout of a full AMDISA or TXMOD must be secured. This printout will be attached to a copy of the appropriate page of the docket list and will be forwarded to Appeals via Form 3210. Appeals will also be notified that the STAUP has been input to stop the notices. APPEALS WILL BE RESPONSIBLE FOR MONITORING THE STAUP TO INCREASE/DECREASE THE NOTICE SUPPRESSION TIME FRAME AND FOR RETRIEVAL OF THE CASE FILE FROM CAMPUS.
Examination must build a file that will include:
Full AMDISA and TXMOD prints of all docketed tax periods;
A copy of the page in the docket list identifying the taxpayer, tax periods, docket number and Appeals Office;
Photocopy of the closed control card showing the date the notice was issued; and
Form 5348 requesting CC AMSTUR, Status Code 24.
If no data is available, the file will include:
TXMOD and/or MFTRA print of the docketed tax periods which verify the TIN and reflects an examination closure,
Record of CC AM 424 request to create an AIMS database, and
A copy of the page on the docket list identifying the taxpayer, tax periods, docket number, and Appeals Office.
The file will be sent to the closing function for suspense until 40 days before the Status Code 90 date.
At the end of the 40-day period, the closing function will:
Re-establish the case using Form 5348, CC AMSTUR,
Prepare Form 5344, Examination Closing Record, to close the return to Appeals. Since the examination results contain the now unagreed to assessment, an amount of $1 must be entered in Item 18 to prevent a duplication of examination results.
Route the AIMS print, verifying Appeals status, to Appeals for association with the file.
APPEALS WILL REQUEST ABATEMENT OF THE ASSESSMENT.
It is the responsibility of Technical Services to take the necessary actions to ensure the assessment of the underpayment on any defaulted notice of determination is made within the statutory period for assessment.
If the taxpayer does not petition the Tax Court or agree to the underpayment within 90 days (150 if addressed to a person outside the United States), the case is considered to be defaulted. The underpayment is to be assessed immediately after the requisite number of days (105 or 165) have passed from the date of the issuance of the notice.
Assessment of the underpayment on any defaulted case must be made within the statutory period. Per Treas. Reg. 301.6503(a)-1, the period of limitation on assessment and collection of any deficiency (or in this case, proposed assessment on notice of determination) is suspended for 90 days (150 days, if addressed to a person outside the United States) after the mailing of a notice of such deficiency (or in this case, notice of determination) plus an additional 60 days thereafter. Do not count Saturday, Sunday, or a legal holiday in the District of Columbia as the 90th day.
Close out all controls and forward the defaulted case for closure to Centralized Case Processing (CCP) in Status Code 51.
Computation of Last Day to File a Petition with United States Tax Court
Computation of Default Date
|Description||Julian Date||Calendar Date|
|Notice of Determination Issued|
|Plus 90 (150) days|
|for 90 day letter||+||+|
|Plus 15 days for Notification of|
|Tax Court Petition||+_____||+_____|
|Equals Default Date||========||========|
Agreed Case Without Form 872-A or SS-10 Consent: If the taxpayer agrees to the tax before the end of the 90 days, then the statute is extended by the number of days suspended plus 60 days.
|Description||Julian Date||Calendar Date|
|Date Agreement is received||80||March 21|
|Minus date 90/150 day letter is issued||− 15||January 15|
|Equals number of days suspended from assessing||65|
|Plus 60 days to assess||+ 60||+ 60|
|Equals number of days to add to original statute||125|
|Julian date of original statute, including any Form 872 or SS-10 extension||+ 105||April 15|
|Julian date of corrected statute||230 |
Agreed Case With Form 872-A or SS-10 Consent: A notice of determination terminates Form 872-A or SS-10. If the taxpayer agrees, the statute date is extended for 60 days from the agreement received date. This is allowed by law to process the assessment.
|Description||Julian Date||Calendar Date|
|1. Date Agreement is received||194||July 13|
|2. Plus 60 days to assess||+ 60||+ 60|
|3. Equals Extended ASED||254||September 11|
Defaulted 90 Day Letter Without Form 872-A or SS-10 Consent: If the taxpayer does not petition Tax Court or agree to the deficiency by signing a waiver, then the case is closed as unagreed. The deficiency can then be assessed because the taxpayer has defaulted (i.e., has not responded to the Notice of Determination (90/150 Day Letter). The statute will be extended for the 90/150 days the case was suspended plus 60 days allowed by law to process the assessment.
|Description||Julian Date||Calendar Date|
|Original statute date||105||April 15|
|Plus 90 (150) days for 90 day letter||+ 90||(or 150)||+ 90||(or 150)|
|Plus 60 days to assess||+ 60 |
|+ 60 |
|Equals extended ASED||255||September 12|
Defaulted 90 Day Letter With Form 872-A or SS-10 Consent: A notice of determination terminates Form 872-A or SS-10. If the notice defaults, the statute date is extended for the 90/150 days the case was suspended plus 60 days allowed by law to process the assessment.
|Description||Julian Date||Calendar Date|
|Date 90 (150) Day Letter issued||105||April 22|
|Plus 90 (150) days for 90 day letter||+ 90||(or 150)||+ 90||(or 150)|
|Plus 60 days to assess||+ 60 |
|+ 60 |
|Equals extended ASED||255||September 19|