- 4.13.4 Area Office (AO) Examination
- 220.127.116.11 Routing the Reconsiderations to the Planning and Special ProgramsSupport (PSP)
- 18.104.22.168 Screening the Case in PSP
- 22.214.171.124 Area Office (AO) Examination Group Procedures
- 126.96.36.199 Examining the Issues
- 188.8.131.52 Full Allowance (Abatement) Case
- 184.108.40.206 Partial Disallowance - Report Writing
- 220.127.116.11 Taxpayer Rights - Partial Disallowance, Full Disallowance (No AbatementCases)
- 18.104.22.168 Appeal Request Received - Partial Disallowance Case
- 22.214.171.124 Appeal Request Received - Full Disallowance (No Abatement)
- 126.96.36.199 Area Office Taxpayer Walk-In
- 188.8.131.52 Receipt of Correspondence in the Area Office
Part 4. Examining Process
Chapter 13. Audit Reconsideration
Section 4. Area Office (AO) Examination
This chapter discusses the transfer of cases back to the Area Office (AO). The PSP office in the Area Office will receive Audit Reconsideration cases referred from the CRU.
The examiner in the CRU will send a case to the area examination function to be worked if:
The taxpayer requests a face to face examination, and/or
The completion of the case requires an examination of books and records, and/or
The CRU has not received the training to work the reconsideration issue(s).
CRU will establish the case to be transferred on AIMS using Source Code 73, the applicable original Project Code and aging Reason Code 53.
CRU will review the status of the collection freeze and update if necessary.
A designated examiner will review the reconsideration requests within 30 days of receipt in PSP.
The PSP examiner will review the case to ensure that a completed case has been received. If the case does not include the items below, coordinate with CRU to obtain them:
all taxpayer correspondence including the taxpayer request
tax return or RTVUE
The case may be accepted (abatement allowed) during the classification process in accordance with classification procedures. This also applies to prior SFR cases where the IRS has now received an original delinquent return.
If the PSP examiner does not accept the case during the classification process, he/she will prepare the case to be sent to the appropriate examination group in accordance with local procedures. He/she will:
Requisition the administrative file if it is not included in the package received from the CRU.
Review the collection freeze and update as appropriate. If there is less than one year remaining on the collection statute, do not input a collection freeze and remove any collection freeze already present. Per IRC 6502(a) the IRS cannot generally extend the collection statue unless it is for installment agreement purposes.
Use TC470 with the appropriate closing code to prevent collection activity if the case is in Collection status 22 or above (TDA status).
Secure current research for the three prior and subsequent years to the requested abatement period (TXMOD). If the case involves a joint return, include research of the spouse’s account for the same tax years.
Review research for the following:
Verify the TIN, tax periods, and assessment. If the case has an open control forward the request to the controlling Exam Unit.
If research reflects the taxpayer is currently under examination or investigation for other years, contact the applicable office. (i.e. Appeals or Criminal Investigation) to determine if the request should be transferred.
If research reflects the taxpayer has not filed subsequent year returns, or has other unpaid assessments, send the appropriate Non-filer Letter. The letter can be used to ask the taxpayer the reason for non filing and/or unpaid assessments.
If the taxpayer indicates a tax return should have been filed, secure original returns with payment if possible.
If the taxpayer indicates an inability to pay in full, follow Installment Agreement procedures.
If there is an indication of a change of address, send Form 8822 to the taxpayer to be completed. The completion of this form by the taxpayer gives the Service "clear and concise " notification of the taxpayer’s change of address. Upon receipt of Form 8822, complete Form 3198, Special Handling Notice, with the applicable corrections clearly identified. Attach to the outside of the case file.
If the assessment is partially paid, the statute of limitation for filing a claim for refund on that portion of the request for reconsideration may have expired. If so, notify the taxpayer of the statute expiration.
When a case comes into an AO group from PSP the Group Manager will review the case and assign it to an AO Examiner. It should be assigned within 15 days.
The AO examiner will review the case and telephone or write the taxpayer within 15 days of receipt to inform them that their case has been received in AO Examination. The AO examiner will also request additional documentation if necessary:
An appointment should be scheduled when appropriate.
A letter should be sent to the taxpayer confirming the appointment.
If the taxpayer does not furnish the additional information in the requested timeframe or fails to keep the scheduled appointment without adequate explanation, the case should be closed.
Use Disposal Code 12 if the reconsideration was a new opening on AIMS.
If the reconsideration case is not a new opening on AIMS use the original disposal code.
The purpose of the audit reconsideration process is to examine information that was not previously considered.
If the taxpayer presents new information that was not previously considered, evaluate that information and determine if a change to the assessment is warranted. Document workpapers and activity record. If a change to the assessment is warranted, make that change.
If the taxpayer cannot or does not present new information in support of his/her position, do not abate any tax.
Audit reconsiderations are an administrative procedure provided to the taxpayer by the Internal Revenue Service in order to provide better customer service. The IRS does not want to force the taxpayer to pay the assessment and file a claim if he/she has additional information to be considered.
After receipt and evaluation of the taxpayer’s information the AO examiner will:
Issue the audit reconsideration full allowance (full abatement of assessment), Letter 2738 DO, or
Issue the audit reconsideration full disallowance (no abatement), Letter 2726 DO, with an "Explanation of Adjustments" , or
Issue the audit reconsideration partial disallowance Letter 2737 DO, Examination Report, and an "Explanation of Adjustments" . The taxpayer’s signature is not required on the report unless the examination has been "reopened" .
On the partial disallowance and full disallowance (no abatement) cases, send Publication 3598, "What You Should Know About the Audit Reconsideration Process" and Publication 5, "Your Appeal Rights and How to Prepare a Protest If You Don’t Agree" with the letter to the taxpayer.
A full allowance case can be closed out as soon as it is completed. It does not need to be held pending receipt of a request for appeals consideration.
For a partial disallowance case the starting point of the audit is the previous examination report not the return as filed.
The "Per Return or As Previously Adjusted" amounts for both taxable income and tax are the amounts as shown in the previous report or notice of deficiency as reflected on a current transcript of the account.
It is not necessary to repeat adjustment(s) previously made. Enter only the adjustment(s) to the previous report or notice of deficiency determined as a result of receiving the additional information.
The taxpayer may request a conference with the AO examiner’s manager if there is a disagreement with the AO examiner’s findings.
The taxpayer may submit a written request for an Appeals hearing within 30 days of the date on the partial disallowance or the full disallowance letter.
The taxpayer must explain which issues he/she disagrees with and why.
The taxpayer will send the appeal request to the AO examiner handling the reconsideration.
Because the reconsideration taxpayer has appeal rights, the AO examiner will hold a partial or full disallowance case for 45 days (30 days plus 15 days extra) from the latter date when he/she has issued a partial or full disallowance (no abatement) determination.
The AO examiner will notate the letter date on the Activity Record.
If the taxpayer does not submit an appeal request within the 45 day timeframe, close the case per local procedures.
If the taxpayer requests an appeal on a partial disallowance:
Notate date of receipt on the Activity Record.
Include a copy of the Examination Report and Explanation of Adjustments.
Ensure workpapers have been updated and are complete.
Notate Form 3198 – "Send Case to Appeals" – "Partial Disallowance Audit Reconsideration Case" .
Close the case according to local procedures.
This is not an audit reconsideration case for the office of Appeals. Appeals considers these cases an original appeal request.
If the taxpayer requests an appeal request on a Full Disallowance:
Notate date of receipt in Activity Record.
Include a copy of the Examination Report and "Explanation of Adjustments" that was previously prepared and mailed to the taxpayer is included in the case file.
Ensure workpapers have been updated and are complete.
Notate Form 3198 - "Send Case to Appeals" – "Audit Reconsideration Full Disallowance (NO Abatement) Case."
Close case according to local procedures.
If a taxpayer should appear in AO Examination:
Follow the procedures in sections 184.108.40.206 and 220.127.116.11 for Contact Employees.
However, instead of using the Service Center Correspondex documentation Letter 3338C, use Letter 3400 (DO)
Give the taxpayer Publication 3598 "What You Should Know About the Audit Reconsideration Process" .
Examiners will charge this time to Activity Code 575. This is considered direct examination time.
Managers will charge their time to Activity Code 675. This is below the line time.
Use "8" "World Class Customer Service " in the fourth position of the activity code.
Use "9" , "Non Market Segment" in the fifth and sixth positions of the activity code.
If the taxpayer sends his/her audit reconsideration request to AO Examination function the AO examiner will:
Determine if the audit recon issue is conducive for campus exam. Campus employees do not work Schedule C, E or F issues.
If the issue is not conducive for campus exam, follow procedures in 18.104.22.168 and screen for Area Office reconsideration.
If the issue is conducive for campus exam, determine from research which campus the case should be forwarded to. The File Location Code is the first two digits of the DLN. Campus exam recons should be addressed by the campus that performed the original examination based on the DLN of the TC 420 and EGC. See Exhibit 4.13.7-2 and 4.13.7-3 for a list of campuses. Send the taxpayer’s request to the CRU at the Service Center shown by the DLN. See exhibit 4.13.7-4 for a list of the Service Center addresses.
Inform the taxpayer by phone or letter which campus will be handling the request. Tell the taxpayer that the Central Reconsideration unit will contact him/her within 60 days.