The processes and procedures provided in this IRM are consistent with the objectives or goals for Excise Tax Examination addressed in IRM 1.1.16.3.3.1, Organization and Staffing, Small Business and Self/Employed (SB/SE), Excise Tax Examination.

IRC 7522 , Content of tax due, deficiencies, and other notices, requires certain notices describe the basis for and identify the amounts of the tax due, interest, additional amounts, additions to tax and assessable penalties included in such notice. The notices specified include the first letter of proposed deficiency offering a review by Appeals, a notice of deficiency and notices of tax due. While the statutory requirement is limited to the specified notices, the conference report notes the Congress desires the Service make every effort to improve the clarity of all explanations sent to taxpayers. H.R. Conf. Rep. No. 1104, 100th Cong., 2nd Sess., pt. 2, at 219, 1988-3 C.B. 473, 481.

Director, Examination - Specialty Policy is the executive responsible for Excise Tax Examination policy and procedures.

Director, Examination - Specialty Examination is the executive responsible for examination operational compliance.

Chief, Estate & Gift/Excise Tax Examination is the executive responsible for ensuring information about closing excise reports is communicated to and carried out by excise managers and excise examiners.

Program Goals - The processes and procedures provided in this IRM are consistent with the objectives or goals for Excise Tax Examination addressed in IRM 1.1.16.3.3.1.

Program Reports - Information regarding the reporting of program objectives are included on, but not limited to Headquarters Examination Monthly Briefing, Program Manager Monthly Briefing, Examination Operational Review and Business Performance Reviews, which are provided to Director, Examination - Specialty Policy.

Program Effectiveness - Program effectiveness is measured by the Examination Quality Review Staff, located in FSEQ, that supports the SB/SE quality improvement program utilizing National Quality Review System (NQRS) to conduct independent case reviews from a statistically valid sample of examination case work. National, area and territory trend analysis for the quality attributes establish baselines to assess program performance, identify opportunities to improve work processes, analyze causes for failure, assess the feasibility of possible solutions and measure the success of quality improvement efforts.

Annual Review - Program Manager, Excise Tax Policy is responsible for reviewing information in this IRM annually to ensure accuracy and promote consistent tax administration.

The following chart contains terms and their definitions used throughout this IRM.

Refer to IRM 4.10.1, Examination of Returns, Overview and Basic Examiner Responsibilities, for guidance about the responsibilities excise examiners should understand and apply in the performance of their duties.

Refer to IRM 4.10.2, Examination of Returns, Pre-Contact Responsibilities, for guidance about completing required responsibilities and analyses before an examination is initiated, pre-contact planning of the examination and instructions for contacting the taxpayer.

Refer to IRM 4.10.8, Examination of Returns, Report Writing, for guidance about the preparation of audit reports, details regarding the preparation of corrected reports, issues that require special reports and forms and some case closing requirements.

Refer to IRM 4.24.2, Form 637 Excise Tax Registrations, for information about completing Form 637 registration program compliance cases.

Refer to IRM 4.24.8, Examination Guidance for Excise Claims for Refund or Abatement, for information about closing excise claim cases.

Refer to IRM 4.24.10, Appeals Referral Procedures, for information about closing unagreed cases (other than claims) to Appeals.

Refer to IRM 4.24.17, Excise Summary Terminal Activity Reporting System (ExSTARS) Compliance Examination Procedures, for information about closing fuel terminal and carrier compliance cases.

IRS formally adopted a Taxpayer Bill of Rights (TBOR) in June 2014, which provides the nation’s taxpayers with a better understanding of their rights and helps reinforce the fairness of the tax system. In 2015, Congress charged the Commissioner with ensuring IRS employees are familiar with and act in accordance with taxpayer rights as afforded by IRC 7803(a)(3), Execution of duties in accordance with taxpayer rights. IRS employees must be informed about taxpayer rights and be conscientious in the performance of their duties to honor, respect and communicate effectively those rights that may aid in reducing taxpayer burdens. IRS employees must administer the law with integrity and fairness and exercise professional judgment in conducting enforcement activities. Refer to Pub 1, Your Rights as a Taxpayer, for more information.

NQRS reviews, agreed or no change examinations are to be closed in 30 calendar days measured from the date the agreed report is received or the date the no change status is communicated to the taxpayer to the date the case is closed from the excise group and updated in Examination Return Control System (ERCS).

Examination Quality Review System (EQRS) reviews, agreed and no change examinations are to be closed within 30 calendar days. The 30 days are divided as follows:

The timeframe is calculated beginning the day immediately following the occurrence of one of the events described immediately above.

Delays in meeting the timeframe must be documented on Form 9984, Examining Officer’s Activity Record, by the excise examiner and/or excise manager. The excise manager may utilize whatever features are available in IMS to make comments (e.g., Case Comments via the time sheet on a Form 9984 or Case Level Activities at the Team Web Site). Documentation must explain the facts and circumstances that caused the delay. Timeframes may be extended whenever documentation establishes the excise examiner and/or excise manager exercised ordinary care and prudence.

Currently, excise taxes subject to the provisions for unpaid deficiencies of $100,000 and greater are administered by Tax Exempt/Governmental Entities not Excise Tax Examination.

The only excise taxes subject to these procedures are under Chapters 41 - 44 on certain exempt organizations and employee plan transactions.

The excise examiner and excise manager have 20 calendar days to close an unagreed excise case measured from the earlier of:

The timeframe is calculated beginning the day immediately following the occurrence of one of the events described immediately above.

Delays in meeting the timeframe must be documented on Form 9984 by the excise examiner and/or excise manager. The excise manager may utilize whatever features are available in Issue Management System (IMS) to make comments (e.g., Case Comments via the time sheet on a Form 9984 or Case Level Activities at the Team Web Site). Documentation must explain the facts and circumstances that caused the delay. Timeframes may be extended whenever documentation establishes the excise examiner and/or excise manager exercised ordinary care and prudence.

The excise case closing process requires a paper file closing and a separate IMS closing. The excise examiner will attempt to close both IMS and paper files at the same time.

The excise examiner will include all key documents in the IMS file. The excise examiner will also print and organize all key documents into the paper file, which will be mailed to the excise manager for further processing. Key documents will include, but are not limited to, work papers or supporting documentation (or portions thereof) detailing all proposed adjustments. Effort should be made by the excise examiner to index all key documents in the IMS file in a similar fashion to those in the paper file. The excise examiner should apply judgment as to what information is necessary to include in both IMS and paper files. The excise manager’s advice should be sought, if any question exists as to whether the document should be included.

The excise manager will review the closed excise case upon receipt. Review of the excise case will include a comparison by the excise manager of the paper file to the IMS file. If any inconsistencies exist, the excise manager will return the excise case file to the excise examiner for correction. The excise manager will document all closing actions in IMS on Form 9984, Examining Officer’s Activity Record, or through Case Level Activities at the IMS Team Web Site. If the excise manager added or changed any documents, those documents must be uploaded or saved in the IMS file and printed for the paper file.

The status of the IMS file must be updated to "closed" by the excise examiner but not until it reaches on the Examination Return Controls System (ERCS) either Status 51 or Status 52, which is determined as to when by the excise manager. The excise manager must then complete the managerial actions in IMS. After the excise manager has completed the review of the excise case, the paper file should be mailed to CCP or Tech Services for further processing and final closing.

The excise examiner should verify the correct statute of limitations (SOL) period for assessment of tax date is reflected on all transcripts. Transcripts must be less than 30 days old but preferably less than one week old.

The excise examiner should include the following IDRS material in the closed excise case:

The excise examiner should verify the Transaction Codes (TCs) are generated properly on Form 5344, Examination Closing Record, generated by IMS.

The excise examiner is responsible for completing Form 3198, Special Handling Notice for Examination Case Processing.

Form 3198 provides closing instructions to CCP, Tech Services or WSD.

Form 3198 is prepared in IMS.

IMS will automatically populate Form 3198 after the examiner enters the data into IMS. This will generally result in improved accuracy. The excise examiner will need to manually complete the remaining applicable fields and itemize the closing data on Form 3198 .

Under IMS, the excise examiner must identify and check the closing letters to be issued by CCP on Form 3198 or indicate no letter is to be sent by CCP. Closing letters must be prepared, signed and included in the paper file for CCP to date stamp and mail. Envelopes should be included when appropriate.

If Form 3198 is not annotated correctly with all closing actions, the excise case closing may be delayed and the excise case returned to the group for additional closing actions.

Refer to the Excise Tax Knowledge Base Homepage, Excise Examination Shelf at Closing an Examination for sample copies of completed Forms 3198 for No Change Reports, Agreed Reports and Unagreed Reports

Form 5344 serves as an input document for the AIMS, which captures the closing information on examined cases. The system also transmits Form 5344 adjustment information to the Master File to update taxpayer account records.

The IMS file cannot be closed until a closing document is generated. The excise examiner is responsible to verify all TCs are properly completed on Form 5344.

Form 5344 is generated in IMS, which will automatically populate when data is entered on the "IMS Entity Closing Data" tab. To complete Form 5344, the excise examiner must click "Submit on IMS."

Refer to the Excise Tax Knowledge Base Homepage, Excise Examination Shelf at Closing an Examination for sample copies of completed Forms 5344 for No Change Reports, Agreed Reports and Unagreed Reports.

For surveyed excise cases, the excise examiner must generate Form 5351 in IMS.

Refer to the Excise Tax Knowledge Base Homepage, Excise Examination Shelf at Closing an Examination for a sample copy of a completed Form 5351 for a Survey.

If the taxpayer has not been contacted, taxpayer books and records have not been inspected and an examination will most likely not result in a material change to the taxpayer’s tax liability, the excise examiner must survey the return after assignment by completing Form 2503, Survey After Assignment - Excise or Employment Tax.

The excise examiner is required to document the reason for the survey on Form 2503.

To support the decision to survey the return after assignment, the excise examiner must ensure the case file has been documented with all actions taken, which led to this conclusion, including, but not be limited to, consideration of Large, Unusual or Questionable items, completion of required filing checks, consideration of collectibility, evaluation of audit potential, repetitive audits and other materials that influenced his or her decision.

Paper surveys are required for unpaid claims and cases with original returns in the case file. If not required, paperless electronic survey procedures can be utilized. Refer to IRM 4.24.21.5.1.2 for more detailed guidance.

The excise examiner should stamp the face of the excise return or a paper copy of the Business Transactions File View (BRTVU) with the message "Closed Survey After Assignment," "Excise Examiner’s Signature and Date," and "Approved - Excise Manager’s Signature and Date." If a stamp is not available, the message may be handwritten. The excise examiner should sign and date the message. The excise manager should do the same.

When an excise return is surveyed after assignment Disposal Code (DC) 32 is entered on Form 3198 . DC 31 is entered by an excise manager for an excise return surveyed before assignment.

Refer to the IRM 4.24.8.8.1, Unpaid Claims - Survey, and/or the Excise Tax Knowledge Base Homepage, Excise Examination Shelf, Closing an Examination Chapter at Survey for more information about closing forms and procedures for surveying excise cases.

If the taxpayer agrees to all of the proposed adjustments, the excise case is agreed. An agreed excise report is prepared.

Form 5384, Excise Tax Examination Changes and Consent to Assessment & Collection, is prepared for agreed cases when the taxpayer indicated agreement. The taxpayer signs Form 5384 to establish agreement.

If a written explanation is needed for clarification of the excise examiner’s findings or requested by the taxpayer, Form 886-A or Excise Issue Summary Lead Sheet, must be issued.

Letter 4121-X, Letter to Transmit Expected Agreed Examination Report, must be issued on an agreed case when the taxpayer indicated probable agreement with the proposed examination changes. The response date added to Letter 4121-X is determined by the excise examiner based on the facts and circumstances of the case. When a taxpayer does not respond to Letter 4121-X within the requested time frame, the excise examiner should follow up with the taxpayer to determine if unagreed case procedures should be initiated. Refer to IRM 4.24.20.3.4, Unagreed Excise Reports, for more detailed guidance.

To further process an agreed excise examination, the excise examiner should take the steps itemized below:

DC 03 should be used for excise returns closed agreed prior to issuance and DC 04 should be used for excise returns close agreed after issuance of Letter 950-E.

Refer to Excise Tax Knowledge Base Homepage, Excise Examination Shelf, Closing an Examination Book at Agreed Reports for additional guidance about closing forms, letters and procedures for agreed excise cases where the taxpayer fully agreed to all proposed adjustments.

If an examination of books and records results in a decision the taxpayer is not liable for an excise tax in the period examined, the excise examiner will follow the procedures listed below:

The excise examiner must request and review the BMF screen using CC BMFOLE or INOLES to determine, if the Form 720 filing requirement is present.

If the taxpayer is not liable for an excise tax in the period under excise examination or for any future period, the excise examiner will follow the procedures listed below:

If the taxpayer is not liable for an excise tax in the period under examination but may have a filing requirement in a subsequent period, the excise examiner will follow the procedures listed below:

Submit the case file to the excise manager for review and closure to CCP.

The excise manager will review the case file and, if in agreement with the no change recommendation, will sign Letter 590-X and leave the letter in the case file.

Refer to Excise Tax Knowledge Base Homepage, Excise Examination Shelf, Closing an Examination Chapter at No Change Reports for more information about no change examinations.

This section addresses the forms, letters and procedures for unagreed excise cases that are not controlled under the Appeals Process described in IRM 4.24.10. This category of unagreed excise cases has less than 365 days remaining on the statute when it is received at Appeals or is one where the taxpayer did not timely respond to a Letter 950-E, which requires an assessment.

If the taxpayer does not agree to the proposed adjustments, the excise case is unagreed. An unagreed excise report is prepared.

The excise examiner will issue to the taxpayer a Letter 950-E package that includes Form 5385, Form 2504-E, Form 13683, Statement of Disputed Issues, and Pub 3498.

Form 2504-E is used in conjunction with Form 5385. This form is signed by the taxpayer upon agreement of an unagreed case after the Letter 950-E package is issued.

Form 4665, Report Transmittal, is prepared but not issued to the taxpayer.

Case status is updated to 13 on Form 5348, AIMS/ERCS Update (Examination Update), which is submitted for managerial approval when the Letter 950-E is issued to the taxpayer.

DC 07 is used for unagreed examinations when the taxpayer did not sign an excise report or request an Appeals conference.

Refer to Excise Tax Knowledge Base Homepage, Excise Examination Shelf, Closing an Examination Chapter at Unagreed Reports for more information about closing forms, letters and procedures for more information about closing unagreed excise cases where the taxpayer disagrees with the proposed adjustments and either did not file an acceptable protest, or the SOL will not have 365 days remaining on the excise case when received at Appeals and the taxpayer will not or cannot extend the SOL.

No Liability SFR Non-Filer excise cases are to be closed using DC 02. This applies only to excise cases where the excise examiner has taken actions that may include, but is not limited to, conducting an interview, reviewing books and records and ultimately making the decision the taxpayer is not liable for excise taxes.

Closing out the IMS file and the paper file to CCP requires the actions described in the paragraphs that follow.

Letter 930, Non-Filer No Liability Substitute for Return (SFR) Transmittal Letter, Procedures for No Liability SFR Non-Filer Examinations:

IMS Case Closing:

Case File Assembly Procedures - At a minimum the paper file, as well as the IMS file, will contain:

Excise Report - If an SFR examination results in a decision the taxpayer is not liable for an excise tax in the tax period examined, no excise report is required. Letter 930 is all that is necessary because the taxpayer did not file an excise return.

After the excise manager completes the review, the secretary or designated group closing official will update the status of the excise case in ERCS to status 51 and the excise case will be shipped to CCP for closure. Changing the status in ERCS to status 51 should be the last update prior to mailing the paper file.

SFR Filing Requirement Indicator - If the taxpayer is not liable for any excise tax, the excise examiner will prepare Form 3177, Notice of Action for Entry on Master File. This is necessary to release the expectation the taxpayer should file excise returns. Enter the following appropriate TC and Closing Code in the "Other" field:

The excise manager must document the excise case review on the IMS Case Level Activities found at the IMS Team Web Site.

The excise manager must document and explain all delays (i.e., shipment of the paper file, remote excise manager travel, etc.) from the date the excise case is closed to the excise manager to the date the excise case is closed from the excise group.

The excise manager should review the completed excise case, including but not limited to, Form 3198, Form 5344 and work papers or supporting documentation (or portions thereof) detailing all proposed adjustments.

At a minimum, the excise manager should review the current AMDISA, TXMODA, BMFOLI, BMFOLR, BMFOLT, CFINK and INOLES (less than 30 days old) to verify the accuracy of the balance on the account, all prior assessments have been acknowledged and used in computations and to confirm the correct SOL is being used in all systems, reports and excise case closing documents.

The excise manager determines the grade of case for all excise returns.

Refer to IRM 1.4.40, Resource Guide for Managers - SB/SE Field and Office Examination Group Manager, and Document 6036, Examination Division Reporting Codes Booklet, for more information about recording grade of case on Form 5344.

The case grading guidelines may be used at any point in the examination process. However, at assignment, only the excise return information will be available. Development during the course of the examination may more fully disclose the final grade of case. Final grading factors take into account excise return information, work papers and the excise report. Thus, the final grade may differ from grade at assignment. The final grade is entered by the excise manager in box "32" on Form 5344.