4.31.3 TEFRA Examinations - CTF Procedures

Manual Transmittal

April 26, 2017

Purpose

(1) This transmits revised IRM 4.31.3, Pass-Through Entity Handbook, TEFRA Examinations - CTF Procedures.

Material Changes

(1) Various editorial changes made throughout the IRM.

(2) Changed Local TEFRA Coordinator to Technical Services TEFRA/Pass Through Coordinator throughout.

(3) Changed Campus TEFRA Coordinator to Campus TEFRA/Pass Through Coordinator, throughout.

(4) IRM 4.31.3.1.1 - Partnership Control System (PCS). New section.

(5) IRM 4.31.3.1.2 - TEFRA CDI Application. New section.

(6) IRM 4.31.3.1.4 - Contact with Potentially Dangerous Taxpayer (PDT) or Caution Upon Contact (CAU) Taxpayers. New section.

(7) IRM 4.31.3.3.1 - Receipt of an NBAP Package. Replaced reference to generic NBAP with TMP NBAP.

(8) IRM 4.31.3.3.2 - Linking Partners. Removed the requirement to send partner NBAPs via certified mail if other procedures are followed. Added additional procedures to allow the campus to focus on material partners.

(9) IRM 4.31.3.3.2.3 - Limited Liability Companies That are Disregarded Entities. Updated procedures for linking a disregarded entity.

(10) IRM 4.31.3.3.2.4 - Grantor Trust. Updated procedures for linking a grantor trust.

(11) IRM 4.31.3.3.2.1 - Non-Master File Linkages and Using Dummy Numbers. Removed requirement to link all entities with a Schedule K-1 to the key case.

(12) IRM 4.31.3.3.2.2.1 - Linking Parent/Subsidiary Partner. Changes procedure which only required the parent return to be linked.

(13) IRM 4.31.3.3.2.5.1 - Individual Retirement Accounts (IRA). Moved to be a subsection under TEGE Partners.

(14) IRM 4.31.3.3.2.7 - Foreign Partners. Updated procedures for linking a foreign partner.

(15) IRM 4.31.3.3.2.9 - No-Load Tiers. Added note to explain that only tier partners subject to an assessment needed to be linked.

(16) IRM 4.31.3.3.2.11 - No-Load Tiers. Changed the procedures for no load tiers.

(17) IRM 4.31.3.3.2.12 - Partners of Large and Publicly Traded Partnerships (PTP). Changed title to include large partnerships.

(18) IRM 4.31.3.3.2.13 - Linking for Foreign Withholding. Updated criteria to address materiality.

(19) IRM 4.31.3.3.4 - Key Case Administrative File Maintenance. Paragraph (2), updated status codes.

(20) IRM 4.31.3.4.1 - CTF Employee Group Codes. Updated EGC table.

(21) IRM 4.31.3.4.4 - Screening of Partner Returns. Paragraph (3), removed requirement to screen returns for other exam issues.

(22) IRM 4.31.3.4.4.4 - Unperfected but Exhausted. New section.

(23) IRM 4.31.3.4.8.3 - Carryback and carry over Returns. Added a caution about securing carryback/carry over returns too early in the process. Securing too many returns to quickly can exponentially and unnecessarily increase workload volumes.

(24) IRM 4.31.3.4.8.4 - Partners Linked to a Key Case Partnership with an AC Statute. New section to AC statute procedures.

(25) IRM 4.31.3.4.11 - Receipt of Amended Returns and Claims. Added reference to the Letters 4505.

(26) IRM 4.31.3.4.12 - Tiers. Added note to explain that only tier partners subject to an assessment needed to be linked.

(27) IRM 4.31.3.4.17 - Added paragraph (4) to explain the need for a Form 895 or other electronic statute monitoring per IRM 25.6.23.

(28) IRM 4.31.3.4.19 - Power of Attorney (POA) for TEFRA Partners. New section.

(29) IRM 4.31.3.4.19.1 - Form 2848, Part 1 (TEFRA Partner POA). New section.

(30) IRM 4.31.3.4.19.2 - Form 2848, Part 3 (TEFRA Partner POA). New section.

(31) IRM 4.31.3.4.19.3 - Form 2848, Part 5 (TEFRA Partner POA). New section.

(32) IRM 4.31.3.4.19.4 - Form 2848, Part 7 (TEFRA Partner POA). New section.

(33) IRM 4.31.3.4.20 - Killed in Terrorist Action/Killed in Action Indicator

(34) IRM 4.31.3.5.2 - Processing of 60-Day Letter. Added note after paragraph (3) regarding scribner errors.

(35) IRM 4.31.3.5.6 - FPAA. Added note after paragraph (8)(c) regarding scribner errors.

(36) IRM 4.31.3.6 - Closing Packages. Add reference to Form 14513.

(37) IRM 4.31.3.6.3.1 - Consistent Settlement. New section.

(38) IRM 4.31.3.6.3.5 - Execution of Agreements. Added paragraph (6) to clarify the signing of a Form 56.

(39) IRM 4.31.3.7 - Closing Packages Resulting in Refunds. New section.

(40) IRM 4.31.3.7.1 - Letters 4505. New section.

(41) IRM 4.31.3.7.1.1 - Letter 4505-A, Notification of Potential Refunds Resulting from a Partnership AAR. New section.

(42) IRM 4.31.3.7.1.1.1 - Deadline for Filing Partner Amended Returns Based Upon Letter 4505-A. New section.

(43) IRM 4.31.3.7.1.2 - Letter 4505-E, Notification of Potential Refunds Resulting from a Partnership Exam. New section.

(44) IRM 4.31.3.7.1.2.1 - Deadline for Filing Partner Amended Returns Based Upon Letter 4505-E. New section.

(45) IRM 4.31.3.7.1.3 - Letter 4505-E, Notification of Potential Refunds Resulting from a Partnership Exam. New section.

(46) IRM 4.31.3.10.1 - Seven Month Assessment (SMD) Dates. Change from an eight month date to a seven month date to allow time for processing.

(47) IRM 4.31.3.11 - Undeliverable Correspondence. Changed to allow NBAPs to be sent to the most current address.

(48) IRM 4.31.3.12.1 - TEFRA Report Writing Assessment Cases. Section updated to clarify policy.

(49) IRM 4.31.3.12.2 - TEFRA Report Writing Refund Cases. New section added to clarify policy.

(50) IRM 4.31.3.12.3 - Calculating the Strategic Limit. Added paragraph (2)

(51) IRM 4.31.3.12.4.1 - Review Closing Package. Paragraph (5) added additional information the 6404(g) date.

(52) IRM 4.31.3.12.6.2 - Examination Report with Penalties and/or Affected Items. Removed information for processing reports for years ending prior to August 6, 1997.

(53) IRM 4.31.3.12.8 - Completion of Form 5344 – Examination Closing Record. Removed reference to IRM 20.2.5.16.

(54) IRM 4.31.3.12.8.1 - Case File Assembly. Removed need for TSUMYI print when case is no changed (DC02) and closed through the GII.

(55) IRM 4.31.3.12.9.2 - TEFRA Partners in LB&I. Removed corporate as section applies to all partners controlled by LB&I.

(56) IRM 4.31.3.12.13 - No Change Partner Returns. Added clarifying language within the table and added paragraph (2).

(57) IRM 4.31.3.13.11 - Non-Filer TEFRA Closing. Added paragraph (3) with references to SFR procedures.

(58) IRM 4.31.3.17.1 - Reports. Added paragraph (2) to reference electronic means for monitoring returns and statutes.

(59) IRM 4.31.3.13.17.2 - Accomplishments and Inventory. Added reference to PCS Report 4-4.

(60) IRM 4.31.3.13.17.3 - Inventory Validation Listing (IVL). New section.

(61) Exhibit 4.31.3-2 - IAT Tools. Removed the reference to Refund Suite.

Effect on Other Documents

IRM 4.31.3, Pass-Through Entity Handbook, TEFRA Examinations - CTF Procedures, dated 6-11-2013 is superseded

Audience

Field and campus personnel working TEFRA pass-through entities and/or their partners. LB&I plans to develop a separate IRM. Until that occurs, LB&I personnel should check with their manager to see if the particular IRM section applies or if there is other guidance to follow.

Effective Date

(04-26-2017)

Signed by Michael Damasiewicz,
Director, Examination - Field and Campus Policy
Small Business/Self Employed

Overview

  1. In section 2 of this Handbook, procedures for TEFRA examinations and support for those examinations by Technical Services were discussed.

  2. In this section the procedures required to pass the results from the key case examination to the partner returns are discussed. This section provides an overview of the process. The campuses may create local desk instructions to provide more detailed guidance.

  3. For each linked key case under examination, the underlying partner area or partner Campus TEFRA/Pass Through Function (CTF) should receive Form 5546, Examination Return Charge-Out showing the cross reference linkage. The underlying partner area or partner CTF should also receive the carbon copy of Form 5546 or Form 6658, Notice of Special Investor Action from the key case CTF transmitting the underlying partner's Schedule K-1, or other similar document provided by the examiner showing the flow-through items allocated to the partners, and a TSINQ print.

Partnership Control System (PCS)

  1. PCS is the system of record for controlling pass-through returns. The PCS database establishes an electronic linkage between a pass through and all partners linked to it. This linkage ensures the correct partners are properly provided notices and allows the campus to monitor statutes unique to TEFRA. Statutorily required TEFRA notices are systemically generated through PCS, as well as mailing lists. The system also generates several canned inventory and statute reports. All returns brought into the campus TEFRA Program inventory must be linked on PCS if possible.

TEFRA CDI Application

  1. The TEFRA CDI Application is a workaround database. The TEFRA CDI Application replaces a locally created Access database. The replacement application provides the campus with functionality that PCS cannot yet provide. The campus will load all returns onto the CDI application to assist with processing and statute control. Local procedures will be developed regarding the proper use and function of the CDI application.

  2. The CDI application will be replaced once the PCS redesign is complete.

Integrated Automation Technologies (IAT)

  1. Employees must use the Integrated Automation Technologies (IAT) tools shown in Exhibit 4.31.3-1 whenever possible. The use of some of the tools is mandatory when applicable for use. The IAT tools simplify processing by assisting the user with IDRS research and input. The tools reduce the chance of errors and improve productivity. They are desktop productivity enhancing tools. The IAT Web site should be check periodically for new tools that may assist in processing cases. Descriptions of each tool as well as job aids for each tool can be found on the web site.

  2. If a mandated tool is not used because it was determined not to be appropriate due to a specific situation, those circumstances should be documented in the case file.

  3. If an IAT tool is not available, or an employee has a problem with the IAT Task Manager, the case should be processed through IDRS following established procedures. Make a note in the case file if an IAT tool is not used.

  4. IAT tool users can visit the IAT Web site, where you can sign up to become a subscriber to the IAT newsletter. The iNews details all ongoing IAT activity with tool retirements and rollouts.

Contact with Potentially Dangerous Taxpayers (PDT) or Caution Upon Contact (CAU) Taxpayers

  1. If you need to contact a taxpayer designated as PDT or CAU, please refer to IRM 25.4, Employee Protection, for the most current guidance.

Screening Incoming Mail

  1. The CTF will screen all incoming mail to determine routing, priority handling, and to ensure that all documents affecting the CTF inventory are processed.

  2. All incoming mail will be stamped to reflect the date received.

    Note:

    Care should be taken not to stamp any documents sent to the CTF by the field that are intended to be sent to taxpayers. An example of this is the TMP letter. It is also important to stamp documents in areas where the least amount of information will be stamped upon.

  3. Correspondence normally received in the CTF includes one or more of the following:

    1. Form 870-PT, Form 870-LT, Form 870-PT(AD), or Form 870-LT(AD); Form 4549, Income Tax Examination Changes; and RARs;

      Note:

      Form 870-P, Form 870-L, Form 870-P(AD), or Form 870-L(AD) should still be received if the partnership tax year ended before August 6, 1997.


    2. Form 906;

    3. Advance payments;

    4. Checks;

    5. Cash bonds (these must have a "999" blocking series to preclude the assessment of interest);

    6. Taxpayer protests;

    7. Form 1040-X and Form 8082;

    8. Copies of tax returns;

    9. Form 5546 and Schedules K-1;

    10. Form 6657, Related Returns Examination Report, and Form 6658, Notice of Special Investor Action (formerly Notice of Examination of Flow-through Entity);

    11. Default notices;

    12. Court decisions;

    13. Account maintenance transactions;

    14. CP 2000 notices;

    15. Taxpayer correspondence or inquiries; and

    16. Appeals settlements.

  4. Screening of incoming mail will be performed by Tax Examiners or qualified clerical personnel trained to be familiar with and knowledgeable about handling of the documents listed above.

  5. These personnel should be familiar with the Taxpayer Advocate Service (TAS) criteria in order to correctly identify those cases that should be referred to TAS. See IRM 13.1.7, Taxpayer Advocate Service (TAS) Case Criteria.

CTF Key Case Procedures

  1. The key case CTF provides support assistance for each key case examination.

Receipt of an NBAP Package

  1. The key case examiner will forward the Form 14090 (for an LB&I key case) or Form 14091 (for an SBSE key case), TEFRA Linkage Request Check Sheet, directly to the CTF through the group E-mail box shown on the form. A complete linkage package includes:

    1. A scanned or electronic return. (Schedules K-1 must be included with the scanned or LIN image. If the return has a LIN image, the LIN link will need to be included on the check sheet. For paper returns, fax to the number provided on the check sheet. If the return is too large, it may be mailed to the address on the check sheet.

    2. A copy of the election Form 8893, Election of Partnership Level Tax Treatment, or other election statement if the partnership elected to be covered by TEFRA proceedings.

    3. Electronic files of the TMP NBAP letters.

    4. The date the TMP NBAP letter(s) were mailed and the Certified Mailing Number

    5. A spreadsheet file verifying the reconciliation of the Schedules K-1 percentages of profits.

    6. Scanned images of all Form 870-P or other authority used to extend the key case statute.

  2. The TEFRA partnership must be fully established on AIMS prior to submitting the linkage package.

  3. If any partner returns will be examined in the field, those return must also be established on AIMS prior to linkage.

  4. An analysis of the entire partnership structure should be completed to determine the impact of any adjustments. If potential partnership adjustments will not result in material assessments to the underlying partners, then linkage should be reconsidered.

  5. There must be at least seven months on the key case statute when the campus receives the package. If less than seven months remain, reject the package to the agent to follow the TEFRA procedures in IRM 4.31.2.2.1, Initiating Timely Examination of Key Case Returns.

Administration of the Group E-mail Box
  1. It is recommended that access to the group E-mail box be limited for inventory control purposes.

  2. Users are added or removed by the owner of the mailbox. User changes can be made by opening the Outlook address book and typing in "Access to" followed by the name of the email box without the "*" . Right click on the name and open properties. A box on the right will allow the owner to modify the users.

  3. The group E-mail box will accept secure E-mail.

  4. The users need to ensure the secure messaging certificates are renewed timely.

  5. An ITAMS ticket must be submitted to request a new certificate.

  6. The certificate expiration date can be found by looking up the group e-mail box on the Global Address Locator (GAL). Look up the mailbox in the GAL, right click on it and go to Properties. Click on the Add to Contacts button at the bottom of the properties and the click on the certificates tab. Click on the Properties button along the right hand side of the box. A box will open reflecting the certificate information and expiration date.

  7. A new certificate can be requested up to 30 days prior to expiration date.

Linking Partners

  1. The field will submit linkage packages to the campus the earlier of 180 days of the NBAP being sent to the partnership or when the adjustments are known.

    Note:

    An NBAP may only be withdrawn within 45 days. The 45 day period is established by regulation.

  2. Prior to linking the partners, a Revenue Agent Reviewer will complete a preliminary build out using the Tier Structuring Tool (TST). This could include:

    1. Analyzing the build out to identify the material partners throughout the partnership structure.

      Note:

      Materiality is defined in IRM 4.31.3.12.1 # and IRM 4.31.3.12.2 #.

    2. Identify any unknown partners and look for special allocations.

    3. Direct any Schedule K-1 perfection that needs to be started immediately. This could be the K-1 of an unknown partner that has a large percentage of ownership.

    4. Determine if there will be more than 100 material partners (direct and indirect).

    5. Determine the suspense period (3-12 months) before indirect linkage or follow up. The age of the case, statute or other special circumstances need to be considered when determining the length of the suspense period.

      Note:

      You may need to contact the field agent to determine their proposed adjustments if those weren’t provided on the linkage request form.

    The campus should begin linking and noticing all material notice partners before adjustments are known in order to avoid untimely notice procedures. The campus should delay linking the material non-notice and indirect partners until adjustments are known. It may be necessary to begin some limited linkage before adjustments are known in order to ensure there is enough time to process any partner adjustments, or to secure returns before they are destroyed.

    Note:

    Start linking all material partners three years from the date the key case was filed. (Confirm with agent that adjustments are still being pursued)

  3. The CTF will research and verify the material Schedules K-1 TINs are correct. If a TIN is incorrect, the CTF will attempt to obtain the correct TIN. If the CTF is unsuccessful, the field agent may be contacted for assistance on direct level partners. The preliminary build out will be updated as new information is received.

  4. Key cases with more than 100 material partners will be flagged as a large case. Input "(<100)" on PCS using the special user message (CC TSCHG Item 07) and check the CDI TEFRA application large case box.

  5. The CTF Inventory Control Manager (ICM) will monitor the key cases for movement into status 27 by using PCS Weekly Report 21-3. The ICM will alert the responsible campus agent that adjustments are known.

  6. Once adjustments are known, or a determination is made to begin linking the remaining material partners, the Revenue Agent Reviewer will prepare a final build out spreadsheet. The adjustment amount used to create the final build out will be entered onto PCS (CC TSCHG Item 08). The build out will be used as a guide for linking all material partners. Once linkage is complete, the partners linked on PCS should match the build out spreadsheet. Revenue Agent Reviewer will initiate partner linkages by providing the final build outs to the linkage tax examiners.

    Note:

    If adjustments are known at the time of linkage, immaterial notice partners should not be linked. Notice partners are only required to be linked and noticed if we intend to make an adjustment.

  7. The key case CTF will perform the research to verify that a partner return has been filed by using CC IMFOL or CC BMFOL. If no TC 150 is posted on Master File and the partner is material then non-filer procedures should be followed see IRM 4.31.3.3.2.9. A non-masterfile AIMs will need to be established prior to linkage.

  8. If the information available from the partner indicates the flow-through entity EIN is "applied for" , the examiner should request NAMEE research to verify that the return was filed.

  9. If the taxpayer (partner) leaves the flow-through entity EIN blank, the examiner should ask the taxpayer for the EIN. If the taxpayer provides an EIN, no further action will be taken. If an EIN is not provided, the examiner will verify that the return was filed by requesting the research in (3) above.

  10. Special consideration needs to be given to non-filers, parent/subsidiary partners, and TE/GE partners. For procedures for these partners see IRM 4.31.3.3.2.1, Using Dummy Numbers and Non-Master File Linkages. All partners will be linked as needed based upon the impact of the adjustments to those partners.

  11. Only the remaining partners identified as material should be linked. No partner (direct or indirect) should be linked if they are not on the build out spreadsheet. Linkage of additional partners should only be done after consultation and approval of the Linkage Agent.

  12. The Revenue Agent Reviewer will ensure Schedule K-1 perfection is complete. A perfected Schedule K-1 is one that has the correct entity information. Schedules K-1 may be secured using KIN, EUP or using data from yK1.

  13. The CTF inputs CC TSLODK when linking the notice partners. Material non-notice partners and indirect partners will be loaded onto the PCS using CC TSLOD, using Form 8341, PCS Establish or Add.

    Note:

    A non-notice partner exists when a partnership has more than 100 direct partners, and a partner owns less than a one percent interest in the profits of the partnership. A Tax Matters Partner is generally responsible for forwarding copies of all notices to each partner not entitled to notice. See Treas. Reg. 301.6223(g)-1.

  14. After loading compare partners linked to TSUMY and build outs to verify that all material partners are accounted for and the structure is complete.

  15. Do not forward key case for processing until PCS and AIMS are fully established.

  16. The partner’s percentage of profits will be entered on all linked material direct and indirect partners. (CC TSCHG Item 06). The input of the percentage of profits are important as they will be used to determine materiality once the partnership adjustments are finalized.

  17. To expedite linking of the indirect partners, AM424 may be done prior to linkage.

  18. When complete, PCS linkage must match the build out. Verify that all AIMS is fully established before building case files for the partner returns.

  19. The CTF will send the NBAP to each linked notice partner using regular mail and attesting to the mailing by signing a statement to that effect. The statement is part of the mailing list that is generated through PCS.

  20. NBAPs should be sent to the partner’s most current address on Masterfile (CC INOLES). Spouses are not required to be sent a separate NBAP unless the spouse is listed separately as a partner on the Schedule K-1, otherwise identified as a partner on the partnership return, or identified as a partner entitled to notice as provided in Treas. Reg. § 301.6223(c)-1(b).

  21. An employee mailing the partner NBAPs via regular mail must sign the mailing list of the partners that were sent NBAPs. The employee signing the mailing list is attesting to the mailing of all notices included on the listing. This mailing list could be used in court to verify that the Service issued the notices as required by law.

    Note:

    Typographical errors (Scribner Errors) such as a mistyped name or EIN will not invalidate a notice. However, care should be taken to ensure the notices are correct.

  22. Within 10 days after mailing of the NBAP, a copy of the mailing list will be sent to the area revenue agent. A copy of the mailing list will be placed in the CTF key case administrative file, and another will be placed in the Certified Mail List/Mail List Book maintained by the campus indefinitely. The Certified Mail List/Mail List Books should never be destroyed without approval from Headquarter TEFRA Analyst(s).

  23. The CTF will update the key case 120 day date on the PCS using CC TSCHG, item number 13. The 120 day date is computed by adding 120 days to the date the last NBAP was mailed to any partner.

Using Dummy Numbers and Non-Master File Linkages
  1. Several instances could arise where a non-Master File AIMS data base is necessary to link the partner to the key case. For example, the entity could be a grantor trust and not required to file a return and the ultimate beneficiary has not filed either. In that case, use the trust's EIN when creating the non-Master File AIMS data base and link the trust to the key case. If the trust does not have an EIN, then a "dummy" number is secured and that is used for the EIN of the trust.

  2. Exempt organizations will also require a non-Master File AIMS data base be created prior to linking. The PCS will not allow for a link to an exempt organization Master File account. Use the exempt organization’s EIN when creating the account.

  3. A non-Master File AIMS must be created when there is no record of a partner return being filed. See IRM 4.4.23, AIMS Procedures and Processing Instructions.

  4. The AIMS non-Master File database is retained in the key case CTF, and research performed utilizing National Access Information (NAI), CFOL command codes, and CC NAMEE or NAMES.

Identifying a Parent Return
  1. When a subsidiary is a direct partner, only the parent needs to be linked.

  2. When trying to identify a parent corporation of a subsidiary, CC INOLES may be used but it may not always be accurate. INOLE may show who the parent is currently, but that may not be the same parent for the year under examination. A better means to identify the parent for the year under examination is to use CC BMFOL.

  3. Request a BMFOLI on the subsidiary EIN. Find the taxpayer record with the same year-end as the key case or the proper year-end of the subsidiary for which the key case Schedule K-1 information would flow to the subsidiary.

  4. Request a BMFOLT for the module identified in (2) as being the correct one for the year in question.

  5. The BMFOLT should reflect a TC 590 and an EIN of the parent for that tax period. If more than one EIN is shown, an inspection of the prior and subsequent year taxpayer records may provide the answer. Contact the Revenue Agent Reviewer for assistance. If still unable to make a determination, the Technical Services TEFRA/Pass Through Coordinator may need to contact the key case examiner for clarification.

  6. If no taxpayer record was identified in (2) above, check BMFOLT for the years before and after. If the same parent is identified in those two records, it is reasonable to conclude that the parent will be the same in the middle year. If the parent indicated is not the same in both years, contact the key case examiner for clarification.

  7. Once the parent EIN is determined, a BMFOLT is requested to verify the parent filed a return. If the parent did not file, further research should be conducted to determine if the parent is also a subsidiary. If it is determined the parent is also a subsidiary, the research will continue until the "ultimate" parent is determined. The ultimate parent will be linked to the key case. Any intervening levels of parent corporations will not be linked.

  8. If the parent did not file, and is not a subsidiary, contact the Revenue Agent Reviewer for assistance.

Linking Parent/Subsidiary Partners
  1. When a subsidiary return is identified, only the parent needs to be linked.

    Note:

    If the parent entity no longer exists, there is no entity to assess and the subsidiary will have to be linked NMF.

  2. The PCS User Special Message can be used to identify specific problems or unique situations. An example would be to enter the literal "Parent" and its TIN where a subsidiary has to be linked as the partner in a flow-through entity because the parent no longer exists.

Limited Liability Companies That are Disregarded Entities
  1. If an LLC that is a disregarded entity is a direct partner, that entity should be bypassed and the owner of the disregarded entity should be linked as the direct partner instead.

  2. If the owner cannot be identified, then the disregarded entity will be linked non-masterfile. Letter 5640 will be sent to the Schedule K-1 address asking where the partnership items were reported. If the disregarded entity must be linked, use TSCHG 04 to add a secondary name line which identifies the ultimate partner of the disregarded entity. For example, the second name line would show single member of XYZ, LLC. This additional line is needed for notice purposes.

  3. The disregarded entity does not file a return, but still has an EIN. If the disregarded entity's EIN is not shown on the Schedule K-1, and the disregarded entity is a direct partner, the field revenue agent may be contacted for assistance. A dummy number will be used as a last resort.

  4. When the disregarded entity is not linked directly to the key case, but is itself an indirect partner, the owner/member should be linked directly and ignore the disregarded entity. The file should be notated.

Grantor Trusts
  1. Grantor trusts will be linked similarly to disregarded entities. A grantor trust that is a partner in a key case may be by passed and the beneficiary directly linked to the key case.

  2. If the beneficiary cannot be identified, then the grantor trust will be linked. If the grantor trust must be linked, use TSCHG 04 to add a secondary name line which identifies the ultimate partner of the disregarded entity. For example, the second name line would show single member of XYZ, LLC. This additional line is needed for notice purposes.

  3. The best practice is to link the beneficiary directly and ignore the trust. The beneficiary should be linked to the tier in place of the grantor trust.

TE/GE Partners
  1. TE/GE partners include employee plans and exempt organizations. This may include charities, pensions, IRA’s, etc.

  2. TE/GE partners must be established on NMF prior to linkage.

  3. TE/GE will be forwarded a list of all TE/GE partners linked to TEFRA key cases each month. The listing will be sent to addresses provided by the SBSE HQ TEFRA Analyst.

  4. TE/GE will be forwarded closing packages as the related key cases close.

  5. TE/GE will be responsible to make any flow-through adjustments affecting their partners.

Individual Retirement Accounts (IRA)
  1. Some taxpayers invest in partnerships through their IRAs. Usually the Schedule K-1 will reflect that the partner is an IRA, but may show the taxpayers SSN. These returns should also be referred to TE/GE if there will likely be a material adjustment.

  2. If the IRA partner is invested directly in the key case, then the IRA partner will be linked for notice purposes. The notice should be addressed to Joe Partner, IRA with Joe’s SSN. The IRA may be subject to excise tax so it should not be bypassed as a partner.

Linking Partners to Returns that are in Appeals
  1. The input of a TSLOD on a partner when the pass through return is in Appeals (PBC 6XX) will result in the partner being established in a 295 PBC with a BSC CTF Indicator. If the partner is controlled by the Ogden campus, the partner should be established on AIMS in PBC 398 prior to the TSLOD. That will allow the partner to be established under the jurisdiction of the correct campus.

  2. If a partner establishes under a 295 PBC in error, the partner database must be AMSOC'd back to PBC 398. A TSCHG will also have to be input to change the CTF indicator from BSC to OSC.

  3. Updating the CTF indicator is important because it allows Appeals to determine which campus controls the partner. If the CTF indicator is not updated properly, Appeals will likely send the closing package to the wrong campus. It also ensures the partner return appears on the statute report in the correct campus.

Foreign Partners
  1. When a foreign partner is identified as a material partner in a TEFRA partnership key case and has filed a return, link the filed return.

  2. If the return is not filed, check NMF database for an NR return. If an NR return exists, link the return. Contact may need to be made with a international specialist.

  3. The examining agent will be sent a memo stating that there is a foreign partner linked to the key case. The memo will be sent with the mailing list.

  4. If a material foreign partner is identified in an underlying tier, then a memo should be prepared and sent separately to the agent.

Partnerships Filing a 761 Election
  1. Certain partnerships may file an election to be excluded from all of Subchapter K as provided in Treas. Reg. 1.761-2. This election is made with the first return, and then future Form 1065 filing requirements are removed. However, the partnership still exists and can invest in other entities. As a result, these entities may be partners in TEFRA partnerships. In that event, a NMF record will be created. The partners will need to be linked to the NMF entity under MFT 35.

  2. These returns present another problem in that identifying the partners requires taxpayer contact. Because there are no filing requirements, Schedules K-1 are not available. In some cases, the originally filed return may be secured but the taxpayer should still be contacted to ensure there are no changes.

Non Filers
  1. The key case CTF will send a non-filer letter to obtain information regarding the loss, income, or deduction taken on the partnership, trust or individual return. Do not contact the taxpayer if there is a "Z" Freeze or a TC 914 on the taxpayer account. If there is a "Z" Freeze or a TC 914 on the taxpayer account, give the partner information to the Campus TEFRA Pass Through Coordinator for immediate, appropriate action. If the Campus TEFRA/Pass Through Coordinator learns the taxpayer is the subject of a criminal investigation, and that the taxpayer was sent notification that their partnership items have converted to nonpartnership items, that removes the taxpayer from the TEFRA proceeding. The Campus TEFRA/Pass Through Coordinator will inform the cooperating agent (or Special Agent) of the TEFRA proceeding of the related key case and the cooperating agent or Special Agent will take the appropriate necessary action.

  2. For taxable IMF and BMF non-filers, a review of IRPTR transcripts needs to be completed to determine if a referral as an SFR is warranted.

  3. In the case of non-filing trusts, every attempt will be made to determine if the trust is a flow-through entity, either through research or through contact with the taxpayer. If the trust is linked directly to the partnership, the key case agent may be contacted for assistance.

  4. If the non-filing entity is identified as a Form 1120-S (filing requirement 1120-02 on INOLE) or a Form 1065, research should be done to determine the shareholders or partners. Every effort should be made to have material partners identified and linked as soon as possible. Taxpayer contact may be necessary.

  5. The filing date of a partner's return is the beginning of the three year IRC 6501 . The IRC 6501 will not be shortened by the earlier running of the IRC 6229.

  6. TEFRA partnership items from an ongoing proceeding (e.g., DOJ cases) cannot be assessed by computational adjustment until after an SFR assessment is made. Where a taxpayer has not filed a tax return, there is no return information to which the partnership items can be computationally applied. Partnership item and affected item adjustments may be included as part of the SFR and stat notice if the SFR is not processed until after the TEFRA proceedings are complete.

SFR Procedures
  1. Research to see if a return was established on Master File.

    1. IMF - ENMOD or INOLES

    2. BMF - ENMOD, IMFOLE, or INOLES

  2. The entity does not exist on Master File. TC 150 has not posted.

    1. Input AM424 with a push code 036 using "EE" in the day field of the statute.

    2. Joint filing status is not permitted under SFR procedures. Taxpayers must file a delinquent return to elect Joint filing status.

    3. If a Criminal Investigation (CI) freeze code "-Z" is present, the SFR will not post.

    4. If CI agrees to allow the SFR to post, reinput the AM424 using Push Code 049.

  3. If a return is received, a TC 971 with action code 282 needs to be input. This will set the numeric ASED at Master File.

  4. Refer to IRM 4.4.9.6, Substitute for Return, for more information.

Delinquent Return Procedures
  1. Upon receipt of a delinquent return where no TC 150 has posted, follow the procedures in IRM 4.4.9.5 , Delinquent Return Secured - No TC 150 Posted.

Pass Through Partners
  1. Pass through partners should only be loaded if they have material partners as explained in IRM 4.31.3.3.2 . An exception would be a pass through notice partner loaded to generate a notice where firm adjustments are not yet known.

  2. All partners in a pass through partner are not required to be linked. Only those partners that will be subject to an adjustment above tolerance should be linked. It may be necessary to link more partners if the impact of the adjustment is not determinable.

  3. Initial loading may have been completed based upon estimated adjustments. The final adjustment numbers may result in a change to the build out. This may result in a change in the number of partners linked.

  4. Changes to the loading plan will be directed by a Revenue Agent Reviewer.

No-Load Tiers
  1. Some partnerships may have been designated as no load tiers. Those were tiers where no underlying partners were loaded because the adjustments became immaterial. With the application of AM2015-003 those tiers will no longer be loaded if they are immaterial.

  2. No load tiers could still exist if an immaterial tier is loaded to generate a notice. This can occur when notices are sent before adjustments are known.

  3. When a no load determination is made, it is important to remember to update the indicator on the PCS. Inputting the no load indicator on PCS will remove the tier from the PCS 8-7 Report, Unperfected Tier Report, and add it to the PCS 8-6 Report, No-load Report. The no load indicator is added using PCS command code TSCHG 35-X.

  4. Paragraphs 5 through 12, below, are the explanation and procedures of no-load tiers for reference only. These were the procedures used prior to the release of this IRM when it was the practice to load all partners in a tier without regard to materiality.

  5. Some partnerships have many levels of tiering. As a result, the percentage of any potential key case adjustment that may impact some lower level tiers becomes very diluted. When this occurs, the campus should review the tier to determine if resources should be expended to link it's partners. There is no sense linking the tier partners if it is very likely that any adjustments will fall below tolerance. If there is any question as to whether the key case adjustment will impact the lower partners, then the tier investors should be linked.

  6. The determination on whether or not to link should be made by a campus Revenue Agent and may require discussions with the key case agent.

  7. The first step is applying the tolerance levels outlined in IRM 4.31.3.12.1 # at the tier level (see prior IRM revision). This should be a straight percentage. For example, a partnership adjustment (or potential adjustment) of $x divided by the number of partners. If the average adjustment will result in tax below tolerance, then no load the tier.

  8. An exception to that rule occurs when the overall adjustment is very large. For example, if the overall adjustment is $50,000, then it may be worth the effort to check the Schedules K-1 for a taxpayer with a large percentage of ownership. If the Schedules K-1 indicate that a taxpayer will receive a large percentage of the adjustment, then a check for special allocations should be made. We should only work a partner if they are going to receive a large enough percentage of the adjustment that it will make it worth our investment in processing.

  9. The significance of the adjustment will vary from case to case depending on the size of the adjustment compared to a partner’s allocation. Revenue Agents making the determination must use their best judgment in making the determination. The decision to load or not load should be documented in the case file.

  10. When making a no load determination, you should not attempt to determine if a partner has multiple linkages. If we already have that information, then it should be considered. No load determinations should be made as quickly as possible to avoid loading as many downstream partners as possible.

  11. Making a no load determination is an imperfect process, and decisions will be made based upon the facts at that time. The agent needs to document the case file to support their determination. Incorrect determinations based upon reasonable judgment may occur from time to time. A barred statute report will not be prepared if, based upon new information, a properly documented no load tier or underlying partner is later found to fall above tolerance.

  12. Tier Structuring Tool (TST) and related tools should be used when making the no load determination. These tools can greatly assist in the decision making process.

Partners of Large and Publicly Traded Partnerships (PTP)
  1. Generally, a large partnership is consider to have more than 100 direct or indirect partners. The definition of a large partnership may be adjusted locally but must be documented in local procedures.

  2. A PTP is a publicly traded partnership with a very large number of partners. They often have tens of thousands of partners. As a result, it is unlikely that all partners will be impacted significantly by any adjustment made at the partnership level.

  3. A complete evaluation of the potential adjustments should be made before linking the large partnership or any partners beyond the direct level. Contact with the field will be necessary to determine the extent of potential adjustments.

Linking for Foreign Withholding
  1. Taxes withheld on a foreign partner’s income under IRC 1441, IRC 1442, and IRC 1446 are considered Partnership items. An examination of a TEFRA partnership with respect to these withholding tax sections is subject to the TEFRA partnership procedures. IRC 6231(a)(3); Treas. Reg. 301.6231(a) (3)-1(a)(1) and (b).

  2. The linkage package must clearly state that the partnership is being linked strictly for pursuing foreign withholding. If foreign withholding is the only issue, then the campus will only link the notice partners. No indirect partners will be linked. The notice partners need to remain open for notice purposes only. This is one of the few exceptions where all notice partners may need to be liked regardless of materiality. Contact your HQ analyst if you have a large number of notice partners and have concerns.

Linking Returns Where there is a Technical Termination in the Same Month
  1. A technical termination can create situations where more than one partnership return is filed in the same month. If the field is examining both returns, only the first return filed in the month will have a TC 150 posting. Subsequent flings in the same month will be reflected as a TC 976. The field will need to establish the short period key cases on NMF and submit separate linkage packages to the CTF.

    Note:

    Multiple filings in the same year can also result in a subsequent return being filed as a TC 976.

Follow-Up on Establishment of Key Case and Partner Linkage

  1. A Form 5546 labeled "Flow Through Notification" is generated for each partner that is successfully linked on PCS and AIMS is fully established.

    1. Generally the partner file will be controlled in the same CTF as the key case. A contact point in each CTF will be established to send the Form 5546, or Form 6658, with Schedule K-1 attached when the partners file is located in the other CTF or the field.

    2. The original of the Form 5546 is filed in the key case administrative file.

  2. Rejects are perfected using the TC 424 Reject Register. When accounts loaded through CC TSLOD do not match at Master File, they are listed on the TC 424 Reject Register as status 99 rejects.

    1. These accounts do not establish on AIMS and no Form 5546 is produced.

    2. This condition may be caused by an input error, an incorrect MFT, tax period, or name control. This condition may also be caused by the lack of a TC 150 or the requested module is on retention.

    3. The TC 424 Reject Register is distributed weekly to each CTF.

    4. Status code 99 rejects must be worked promptly by each CTF.

    5. TSUMYP can be used to check if linked partners match Schedules K-1. (See IRM 4.29.2.2, Establishing Investor Records on PCS (TSLOD).)

Key Case Reports

  1. Weekly, each CTF will receive PCS Report 22-3, National Directory, for each TEFRA flow-through record within its campus jurisdiction. Report 22-3 shows the key case record with partners that have not established a full AIMS, or AIMS has closed but still open on PCS. Report 22-3 is used to monitor AIMS controls and must be worked each week as follows:

    1. Partner linkages without a full AIMS data base which appear with a name control and no statute date must be perfected before they drop off the data base;

    2. Each partner on the build out that does not appear on Report 22-3 must be re-established;

    3. Key Case and partners TEFRA indicators must be checked; and

    4. Corrections must be made within one week.

  2. The Report 22-3 should be retained for 60 days to allow time for periodic reviews of the case files to ensure they are being worked timely.

  3. Report 21-3, TEFRA Key Case Action Report CTF, is a weekly report listing key cases whose status codes have been updated to 27, 28, 29, 8X or 90.

    1. The CTFs will follow up on key cases that were updated to status 90 to ensure that all partners have agreed or that notice of a defaulted FPAA was received from the field.

    2. The administrative files of key cases that have been updated to status 82 must be flagged to show that the case is in docketed status.

Key Case Administrative File Maintenance
  1. Each key case file should include several folders.

    1. Key Case Statute Report History Sheet

    2. Return /K-1 included with Form 14090

    3. Form 5546/Form 6658/K-1 Copies

    4. Misc.(prints, and PCS forms)

    5. Build Out Folder. The folder will include the build out of material partners and any related TSUMYP prints

    6. Settlement Agreement

    7. NBAP

    8. Other notice folders should be created as needed

  2. Partners on the build out in status 90 must be checked to ensure that they have not closed prematurely.

CTF Partner Procedures

  1. Partner returns are requested from files systemically when the cases are loaded onto PCS which establishes AIMS controls. The return request is not completed until AIMS is fully established.

  2. If AIMS is fully established and a return is not received within 60 days, research to determine if the return was electronically filed. If not, a second request should be made using CC ESTAB or a Form 2275.

  3. If there is no return or no Form 4251 is received from Files (or the Form 4251 indicates the return cannot be found) after the second request, conduct additional research to see if there is another DLN that should be requested.

  4. If you are unable to locate the return, taxpayer contact may be needed. The Letter 5639, Return Information Request Letter, should be used.

    Note:

    In the event a taxpayer questions if our request for information means they are under audit, we need to be clear that the inspection of a Schedule K-1 or retention of a return does not constitute an examination.

CTF Employee Group Codes

  1. All TEFRA partner returns in the CTF are maintained in AIMS status 34 unless they are also linked to a nonTEFRA key case. In those instances the status will be 33 and the EGC in 54XX and a PICF code of 4.

  2. Status codes 24 should be used for returns when a stat notice is sent due to affected item issues.

  3. Status 51 is used when cases are closing.

  4. The CTF will use the following AIMS EGC to control their inventories. No other EGCs may be used.

    Employee Group Code Description Aging Criteria
    5700-5799 Pre-Filing Notification None
    5800-5899 TEFRA Returns None
    5800 Newly Established Partner Returns 60 days
    5801-5808 Incomplete Files 90 days
    5809 LIN Return 14 days
    5810 Classification (local option) 60 days
    5811 Barred Case with Management 120 days
    5812 Technical Assistant Requests 30 days
    5813 No Return Cases (Subs, Grantors, Disregarded Entities, Foreign, etc.) None
    5814 Perfected but Exhausted Partners None
    5815 K-1 Discrepancy Info Requests None
    5816 NonTEFRA converting to TEFRA 30 days
    5817 Transfers-In (incoming to the CTF) 60 days
    5818 Regular Suspense Files None
    5819 Carryback or Carry Over (local option) None
    5820-5838 Report Writing 60 days
    5839 Bankruptcy
    5840-5849 30-Day Letter/Penalties or Affected Items 45 days
    5850-5859 90-Day Letter/Penalties or Affected Items 120 days
    5860-5869 Tiers None
    5862 Unperfected but exhausted tiers None
    5870-5879 District Court and Court of Federal Claims controlled partners, after assessment None
    5880-5884 Surveys None
    5885-5886 Special Projects None
    5887-5889 Identity Theft None
    5880-5899 Reserved for future use None
  5. Where EGC ranges are provided (except 5880-5899), codes within the range may be assigned at local option with HQ approval. EGCs 5000-5399 are reserved for Correspondence Examination; 5400-5499 are for nonTEFRA (See IRM 4.31.6); 5700-5799 PFN, and TEFRA/NonTEFRA reserved; 5500-5699 and 5900-5999 are available for local option.

  6. When a case file is created, but there is no return, the EGC can be updated from 5800 to 5801. Once a return is received, the file can be updated to EGC 5805.

  7. Where aging criteria is none, EGC specific aging criteria may be determined locally as needed.

Return Charge-Out Documents

  1. The Form 5546 or Form 4251 should be reviewed to see if the return is already charged out to another area, missing or destroyed. If the return is charged out, the CTF will attempt to secure a copy of the return if it meets the criteria for campus processing. If missing or destroyed, then taxpayer contact may be necessary.

  2. Form 5546 with the literals "RELATED INVESTOR NOTIFICATION" is also generated if the partner return is already open on AIMS. It is filed in the partner case file to show that an additional linkage was established.

  3. If Item 29, Employee Group Code, indicates that the partner return is established in an EGC other than 54XX or 58XX:

    1. The partner CTF will coordinate with the function charged with the return to obtain a copy of the return for the partner's suspense file.

      Note:

      A copy of the return will not be solicited for those partner returns that are LB&I, Joint Committee or other corporate specialty cases. Any adjustments that may be necessary to these returns as a result of the examination of a related flow-through entity will be made by the examination group that has the control of the partner return. The CTF is only a conduit to ensure the examination group has the closing package necessary to compute any adjustments that may be necessary. The CTF will not be preparing any of the reports, the computations or making the assessments. The CTF should not keep a "dummy" file for the partner.

    2. The partner CTF should request returns in status 06 or 08 as soon as the returns are linked.

    3. When the copy of the return is received, the partner CTF will reconcile the Schedule K-1 to the partner return.

Distributing Schedules K-1

  1. When a partner is controlled in a CTF other than the key case CTF, the key case campus will provide an electronic copy of the Schedules K-1 to the partner campus. The receiving campus should acknowledge the receipt of the documents within 5 days.

  2. When a partner return is controlled outside the CTF, a copy of the Form 6658 is noted with the contact point and telephone number of the key case CTF contact. The Form 6658 is forwarded via Form 3210 to the other area to notify them of the linkage and to include in the partner’s case file.

Receipt of Schedules K-1 From Another Campus

  1. When a campus receives an electronic Schedule K-1 from another campus, it should be acknowledged within 5 days. The Schedule K-1 should also be printed and associated with the partner’s case file.

  2. The database should be updated within 3 days.

  3. The partner Schedule K-1 will be reconciled to the partner tax return. If the return does not reconcile, see IRM 4.31.3.4.5.2.

Case Building of Material Partner Returns

  1. Returns need to be reviewed to ensure the case file is complete. The complete partner file consists of:

    1. Partner return (or copy),

    2. Form 5546,, and/or Form 4251

    3. History sheet, and

    4. Copy of the Schedule K-1 from the key case return

    This process should be completed within 120 days of linkage.

  2. The transcripts (TXMOD, IMFOL, BMFOL) of each return needs to be reviewed for:

    1. Prior adjustments,

    2. Freeze Codes,

    3. CIC Indicators, and

    4. Proper AIMS control

    If prior adjustments have been made to the taxpayer's return for this tax year, the adjustment documents or copies are also included in the file. If there have been any prior amended returns, the amended returns or copies must also be included. See IRM 4.31.3.4.12 for amended return processing. If a return has a CIC indicator, the AIMS should remain in the field and not brought into the campus for suspense.

    Note:

    Returns in Status 06 or 08 need to be requested and secured. Returns in EGC 1917 are LIN returns that need to be requested and updated to EGC 5809 upon receipt.

  3. Each completed partner return file must be reviewed by technical personnel prior to suspense.

    1. All Schedules K-1 must be reconciled to the linked partner returns before a change report is written.

      If Then
      An indirect, related partner is identified by a pass-through partner. The key case CTF may need to establish the indirect partner using CC TSLODA if said partner is subject to an adjustment.
      The screening process reveals a difference in the amount of income or loss between the Schedule K-1 and the partner return with no explanation on the return. The taxpayer should be contacted to explain the difference.
      A material nominee condition exists. The key case CTF must establish linkage using CC TSLODA.
    2. If the amounts shown on the Schedule K-1 do not equal the amounts shown on the return, an inquiry must be sent to the taxpayer requesting an explanation for the discrepancy using Letter 5640 . Care should be taken with regard to losses. Losses may be limited at the partner level and may not match the Schedule K-1. A technical referral should be considered before sending out an inquiry to the taxpayer. Our inquiry may prompt the taxpayer to file a claim that may not be valid.

      Note:

      For more information on Schedule K-1 discrepancies, See IRM 4.31.3.4.5.2, Schedule K-1 Discrepancy.

    3. All responses should be reviewed by technical personnel who will identify actions needed as follows.

    If Then
    The wrong taxpayer was linked Attempt to identify the correct taxpayer and establish linkage.
    The wrong taxpayer received notices Initiate disclosure procedures per IRM 11, Disclosure of Official Information Handbook. http://discl.web.irs.gov/rptunauth.asp is also a good reference.
    A loss was limited to basis Note the taxpayer file, associate correspondence, and suspense the return awaiting results of the key case examination.
    The taxpayer does not respond Do not allow any loss NOT claimed on the return.
    A potential carryback or carry over is identified on a partner return The screener will order a complete RTVUE or BRTVUE to determine if the loss or credit was carried back or carried over.
    A carryback or carry over is identified The carryback or carry over return must be requisitioned and established on AIMS when it is determined that adjustments will impact those years. Returns may be requested before adjustments are determined if there is a risk those returns may be destroyed due to their age.
  4. Newly secured partner returns that are within the 26-27 month Examination Cycle should be classified for non-TEFRA issues if the prior status was 06. Classification isn't required for other returns, but if unusual items are noted, selection should be considered or referred for consideration.

    1. If nonTEFRA issues warrant examination, the return will be stamped "Selected" and will be sent via Form 3210, Document Transmittal, to the appropriate area for examination of these issues. The field will acknowledge the Form 3210 within three days of receipt. If the individual who would normally acknowledge the Form 3210 is unavailable, the manager will ensure the Form 3210 will be acknowledged by another employee (or himself/herself) within that three day period.

    2. The partner CTF must keep a copy of SBSE returns sent to the field. This copy should be noted "Copy-original sent to field" . Copies of LB&I returns should not be kept.

    3. Any return that the area does not choose to examine should be stamped "Surveyed" , updated on AIMS to Status Code 34, EGC 5817, and returned to the CTF via Form 3210. The CTF will review the return to ensure it doesn’t meets the criteria in IRM 4.31.3.4.8.1, TEFRA Partnership Exam With Unresolved NonTEFRA Partner Exam, or IRM 4.31.3.4.8.2 , NonTEFRA Partner Exam WIth Unresolved TEFRA Partnership Exam. If the return should be held in the field, the case will be returned the field for suspense. Review IRM 4.4.33, AIMS Procedures and Processing Instruction, before accepting the return into inventory. The CTF will acknowledge the Form 3210 within three days of receipt. If the individual who would normally acknowledge the Form 3210 is unavailable, the manager will ensure the Form 3210 will be acknowledged by another employee (or himself/herself) within that three-day period.

    4. If no nonTEFRA issues are identified during the technical review, the return will be updated on AIMS to EGC 5818 and placed in CTF suspense pending completion of the TEFRA key case examination(s).

    5. The CTF technical reviewer will stamp each return "Accepted - for NonTEFRA Issues Only" before placing it in suspense.

  5. If a partner return is secured after receipt of a no change closing package special consideration must be taken. The return may need to be classified for nonTEFRA issues if within the 26-27 month exam cycle if the prior status was 06. Classification isn't required for all other returns, but if unusual items are noted, selection should be considered or referred for consideration. K-1 discrepancies will not need to be identified, and only amended returns that are still in process need to be secured. If an A freeze exists on the taxpayers module, then it must be secured.

  6. If a partner return is a Form 1065, Form 1120-S, or Form 1041, i.e., a tier, the partner CTF will use the Schedules K-1 information filed with that return to prepare Form 8341, PCS Establish or Add.

    1. Form 8341 is used for loading the partners by CC TSLOD (then TSLODA) establishing and linking these returns.

    2. When building returns for tiered partners the procedures in this section must be followed.

LB&I Imaging Network (LIN)
  1. LB&I key case returns and their related Schedules K-1 are processed using LIN and are scanned and stored on-line.

  2. Paper copies will not be provided. A web link is provided where the data can be accessed. The Schedule K-1 can be accessed using LIN and compared to the taxpayer's return without needing a paper copy.

  3. If a return has a LIN link, the return should be updated to EGC 5809. LB&I monitors returns in this EGC and it alerts them to send out the web link to the appropriate campus.

Schedule K-1 Discrepancy
  1. If a Schedule K-1 discrepancy is identified, the return should be checked for a statement of inconsistency. If no such statement was filed, the taxpayer will be contacted to explain the discrepant item(s) using Letter 4641-C. If contacting a taxpayer by phone, their identity must be verified. If by phone, see IRM 21.1.3.2.3 , Required Taxpayer Authentication, for an example of authentication language. See IRM 21.1.3.9 , Mailing and Faxing Tax Account Information, for an example of faxing guideline language.

  2. The taxpayer's response will be reviewed by technical personnel.

    1. If all items are explained, and all other screening is complete, the partner's return can be suspensed in EGC 5818 until the TEFRA key case issues are resolved.

  3. If the taxpayer states the loss was divided with and claimed by other taxpayers, a nominee situation exists. Ensure the other nominee partners are linked.

Direct Partners
  1. If all K-1 items are explained, and the case file is complete, the partner's return can be suspensed in EGC 5818 until the TEFRA key case issues are resolved.

  2. If the taxpayer does not respond, or there are still discrepant issues remaining, the following action will be taken:

    1. Any overstatement in income or understatement in loss will be noted in the file, and will not be processed until the TEFRA proceedings are completed. The additional loss will not be processed immediately to provide the maximum interest offset to the taxpayer. If the taxpayer wants the income or loss processed, it is recommended to get that request from the taxpayer in writing. As part of the request, the taxpayer should explain that they understand that any future assessment as a result of the TEFRA examination may result in additional interest than would be charged otherwise. The partner return will be suspensed in EGC 5818 after all appropriate action is taken.

    2. Any understatement in income or overstatement of loss will be immediately adjusted via a computational adjustment, unless the taxpayer filed a statement identifying the inconsistency with their return in accordance with IRC 6222(b). Treas. Regs. 301.6222(a)-2(c)(2) and 301.6222(b)-2(a) allow the Service to adjust the taxpayers return via a computational adjustment in order to bring the taxpayer's return in agreement with the Schedule K-1. Such assessments can be made immediately if made before the issuance of an FPAA. If an FPAA was issued, the discrepant items should be included with the audit adjustments and made during the OYD period. Computational adjustments are made directly to the taxpayer's return with no agreement necessary. The partner return will be suspensed in EGC 5818 after all appropriate action is taken.

Indirect Partners
  1. If all K-1 items are explained, and all other screening is complete, the partner's return can be suspensed in EGC 5818 until the TEFRA key case issues are resolved.

  2. If the taxpayer does not respond, or there are still discrepant issues remaining, the following action will be taken:

    1. Any overstatement in income or understatement in loss will be noted in the file, and will not be processed until the TEFRA proceedings are completed. The additional loss will not be processed immediately to provide the maximum interest offset to the taxpayer. If the taxpayer wants the income or loss processed, it is recommended to get that request from the taxpayer in writing. As part of the request, the taxpayer should explain that they understand that any future assessment as a result of the TEFRA examination may result in additional interest than would be charged otherwise. The partner return will be suspensed in EGC 5818 after all appropriate action is taken.

    2. If the discrepant amount is directly and computationally traceable to the key case, then any understatement in income or overstatement of loss will be adjusted via a computational adjustment, unless the taxpayer filed a statement identifying the inconsistency with their return in accordance with IRC 6222(b). Treas. Regs. 301.6222(a)-2(c)(2) and 301.6222(b)-2(a) allow the Service to adjust the taxpayers return via a computational adjustment in order to bring the taxpayer's return in agreement with the Schedule K-1. Such assessments can be made immediately if made before the issuance of an FPAA. If an FPAA was issued, the discrepant items should be included with the audit adjustments and made during the OYD period. Computational adjustments are made directly to the taxpayer's return with no agreement necessary. Computational adjustments to a direct partner can be made as long as there is an open TEFRA statute at either the partner or partnership level. The partner return will be suspensed in EGC 5818 after all appropriate action is taken.
      For example: Key Case partnership ABC is flowing through capital gains, and XYZ is flowing through only the capital gains from ABC, and Partner A does not pick up those capital gains then we can make the computational adjustment because we can trace the capital gains to ABC.

    3. If the discrepant amount cannot be traced to the key case, then any understatement in income or overstatement of loss will be assessed following deficiency procedures. The assessment should be made within the natural statute (IRC 6501) of the taxpayers return.

    4. Since it may be difficult to trace amounts back to the key case, it is best to always issue a stat notice reconciling the indirect partner's return with the partnership return and tiers within the partner's normal statute.
      For example: ABC is flowing through capital gains, and XYZ is flowing through capital gains from ABC and gains of its own, and partner A does not report all of the capital gains reported on the Schedule K-1, then we cannot make a computational adjustment because we cannot say for sure if the gains that were not reported were from ABC.

Failure of a TEFRA Partner to File a Return
  1. If a material partner does not file a return, the CTF will attempt to secure one from the taxpayer. Letter 729-A may be sent to obtain an income tax return from the taxpayer. If a direct partner, the CTF may have to refer the case to the examining agent to attempt to secure a delinquent return. The filing date of a partner's return is the beginning of the three year IRC 6501. The IRC 6501 will not be shortened by the earlier running of the IRC 6229.

    1. Thepartner CTF will perform the basic research, i.e., IMFOL/BMFOL. . If no tax return is received from the taxpayer, research will be conducted to determine whether to pursue Substitute for Return (SFR) procedures. See IRM 4.31.3.3.2.9.1 , SFR Procedures.

    2. Upon receipt of the research, the Campus PCS Coordinator will request that Form 2209, Courtesy Investigation, is issued on each partner for whom there is no filing record. The request will be sent to the campus Collection Operation and will include the following documents:
      • A copy of the Schedule K-1;
      • Copies of the AIMS and PCS requests;
      • Output that was generated from the requests;
      • Account research from the CTF; and
      • Other information or additional steps taken to locate the taxpayer and secure the tax return.

    3. When Collection secures a partner's tax return or TIN, they will forward the information to the Campus PCS Coordinator.

    Note:

    Do not transfer the NMF data base. It is used when closing the key case if no return is secured by anyone.

Unperfected but Exhausted
  1. Multiple steps are taken to secure returns, receive responses related to special allocations, Schedule K-1 Discrepancies and non filed returns. Once all the steps are taken with no success, the cases are treated as unperfected but exhausted. The returns should be placed in EGC 5815 for partners or 5862 for tiers. This lets everyone know that the returns are not perfected, but all efforts to perfect the cases have been attempted.

  2. Material tier and BMF cases that are unperfected, with all efforts (Letter, Phone call, 2nd ESTAB) exhausted to obtain all information, will be placed in a unique colored folder and updated to TECH with a Technical Assistance Request (TAR) signed off by team manager. Ensure all research is included in the case along with detailed history notes on what research was done. Technical will then decide if the case can go to EGC 5862 on Tiers or EGC 5815 on BMF partners. No case should be put in EGC 5862 or 5815 (BMF partners) without a TAR from Technical. This will provide a more accurate number of unperfected but exhausted cases and Tech will know they have already researched them.

  3. IMF cases will be worked a little different then TIERS and BMF. Tax Examiners will send a letter for return or K-1 discrepancy, wait the 6 weeks and then follow up with a phone call. If no response is received then the case will need to be signed off by lead or manager to go to EGC 5815. All research and detailed history notes need to be included for IMF also.

  4. Once the key case package is received and one year date has been input, the TE will attempt another letter and phone call before sending to TRW if the case is a change case. No additional attempts will be made for a no change case.

Verification of Distributable Income (Loss)

  1. The distributive share of income or loss and other flow-through items reflected on the copy of the Schedule K-1 received from the key case campus will be matched against the amount of the flow-through items reflected on the partner's return.

    1. Where the amounts do not reconcile, appropriate action will be taken to clarify mismatched information through taxpayer contact (see IRM 4.10, Examination of Returns). Use Letter 5640 , Schedule K-1 Verification, when making taxpayer inquiries about discrepant or missing items.

    2. This mismatch may be attributable to a variety of situations (i.e., the name on the Schedule K-1 may be a nominee, actual losses may exceed the allowable loss limitation, etc.).

    3. After contact, any pertinent information will be provided to the key case CTF if the partner is directly invested in the key case.

  2. In some instances, partners of a principal (key case) partnership are other partnerships (tier partnerships), S corporations, trusts, nominees, etc. It is possible to have several tiers.

    1. Any adjustments to the principal entity may flow to individual taxpayers (i.e., the partners of the tier partnership, the shareholders of the S corporation, and the beneficiaries of the trust, etc.) through the particular entities of which they are members and not directly from the principal entity.

    2. When a tiering situation is found, necessary steps to link any additional material returns should be taken.

Control of Partner Returns

  1. This subsection discusses the procedures used for the returns received when the key case was linked.

Case Set up
  1. Newly established returns will be established in EGC 5800. Once a folder is created the Schedule K-1 is associated and it should be updated to EGC 5801. All case files will contain a Schedule K-1 unless they are PICF Code 0 or blank. (e.g. Carryover, etc.) When the original return is received, or electronic return is secured, the case file will be updated to EGC 5805. If the return is identified as having a LIN link, the case file will be updated to EGC 5809 in order to request the LIN web link. The LIN web link allows you to view the return.

Foldering
  1. Use IRS Form 4607.

  2. Use a color folder over the Form 4607 to designate specific types of cases.

  3. Status Labels with Form 5546 will be stapled to the back of the orange folder (if applicable). Place a status label on the front right corner of the of the folder. If status labels are not available, place a blank label and write in the taxpayer’s TIN, MFT and tax period and below write the taxpayer’s name.

  4. Bar code labels are attached to the upper left corner of the partner file and upper right corner of the history sheet.

  5. Insert History Sheet(s)

    1. Form 12616-T. All actions taken should be notated on the CTF NonTEFRA/TEFRA Examination History Sheet, Form 12616-T. On page one, complete the taxpayer information. Mark the box as TEFRA unless already linked to a nonTEFRA case, then it should be marked as Dual Linkage. Place a bar code label in the upper right corner being careful not to cover the NonTEFRA or POA box.

    2. Form 12600, TEFRA History Sheet (optional). Complete the taxpayer information. Write 34 next to status. Write 5800 next to Organization. The EGC will be updated as the case moves through processing. Write in the original ASED where indicated. Then follow with the ASED with the appropriate alpha statute. Write all key case and tier information where indicated. This information can be found using TSUMYI.

  6. Specific AMDISA

  7. TSUMYI

Passing Through Adjustments to the Related Partner Returns

  1. TEFRA issues will be identified by the key case agent, and TEFRA assessments or over assessments will be made by the CTF with the partner return.

  2. When a tiering situation exists, the case(s) will be processed as follows:

    1. First tier material partners are notified and assessed their share of any TEFRA first tier (key case) examination results. Additionally, any second tier material partners are separately notified and assessed for their share of any TEFRA first tier examination results.

    2. If a material tier partner has TEFRA and other linkages, the flow through adjustments will be made as the related key case examinations are finalized.

    3. The material tier partners will be separately notified and assessed for their share of the TEFRA or nonTEFRA examination results. It is important not to combine the two types of adjustments because, the taxpayer has no right to petition the TEFRA adjustments as they were agreed to at the partnership level. The TEFRA adjustments should not be included on a nonTEFRA examination report. The same is true of nonTEFRA adjustments not appearing on a TEFRA examination report.

  3. Statute control for TEFRA issues is the primary responsibility of the key case agent because the partner statute of limitations is controlled by the key case statute of limitations. Once there is a final determination and a one year statute is established, the primary responsibility for the partner statutes shifts to the CTF. For items not related to TEFRA, the statute is still the responsibility of the controlling campus.

TEFRA Partnership Exam With Unresolved NonTEFRA Partner Exam
  1. When a TEFRA partnership exam is resolved before the nonTEFRA partner exam, the CTF with control of the partner return will:

    1. Request a copy of the partner return (except for LB&I returns), Joint Committee and/or other corporate specialty tax returns) from the partner area through the Operations Manager, or PSP as needed, to make the assessment on the TEFRA issue.

      Note:

      For Appeals, go through Processing Services of the specific Appeals office to locate the person with possession of the partner return.

    2. Forward a copy of the examination report, any work papers related to the flow-through adjustment, and a Form 5344 (Examination Closing Record) prepared for the partner after each assessment, to the partner area through the Operations Manager, PSP (or the Technical Services TEFRA/Pass Through Coordinator) to assist the examiner in preparing a Form 5344 and Revenue Agent Report when the nonTEFRA issues are resolved. The transfer should be made using Form 3210.

  2. TEFRA related partner Joint Committee cases will be suspensed in the Examination function with the other suspense cases in the field office file(s) with the exception of cases described in this Handbook. (See IRM 4.31.3.4.9.2, NonTEFRA Partner Exam With Unresolved TEFRA Partnership Exam.)

    1. However, prior to placing a Joint Committee case in suspense, any agreed deficiencies relating to nonTEFRA issues will be assessed, and the case will be forwarded to the Joint Committee key area for a procedural and technical review under the general provisions of IRM 4.36, Joint Committee Procedures.

    2. Upon completion of the review and resolution of any questions raised by the Joint Committee reviewer, the case will be returned to PSP (without the preparation of a Joint Committee report) and suspensed until notification is received from the CTF that the TEFRA issues are resolved.

    3. When notified, any deficiencies will be assessed following area partial assessment procedures.

    4. Upon the field's receipt of the Form 5344 and an examination report, the examining area office will forward the completed Joint Committee case to the key area Technical Services for final processing and preparation of the Joint Committee report.

  3. TEFRA related partners that are also LB&I (or previously adjusted LB&I returns), Joint Committee and/or those with other corporate specialty returns, are suspensed in the examination group. Prior to placing the case in suspense, any agreed deficiencies relating to nonTEFRA issues are assessed.

    Note:

    If the related partner return is controlled by Appeals, they will resolve the nonTEFRA issues and return the case to the area office to be suspensed in the appropriate location. When the TEFRA proceeding is completed, the area office will compute and assess the results of the TEFRA proceeding.

  4. For TEFRA related Joint Committee and/or LB&I returns, or other corporate specialty cases, the CTF controlling the key case return will notify the field when the TEFRA issues are resolved. The campus will forward a closing package to the field so they can prepare an audit report reflecting the pass-through adjustments.

    Note:

    Appeals, for cases they control, will prepare flow-through adjustments for corporate returns with an activity code of 219 or above, CIC corporation and corporate specialty returns, which are any corporate returns filed with a Form 1120 followed by a letter (for example, Form 1120-L life insurance company) except Form 1120-A, Form 1120-S or Form 1120-X. Appeals will also prepare flow-through adjustments for Joint Committee returns. Non-corporate returns, and corporate returns with activity codes below 219, with flow-through adjustments, will have to be computed by the campus and forwarded to Appeals.

NonTEFRA Partner Exam With Unresolved TEFRA Partnership Exam
  1. If the nonTEFRA exam is resolved before the TEFRA exam, the nonTEFRA exam will be closed to Technical Services using normal closing procedures; however, the return is processed as a partial assessment.

    1. If the nonTEFRA exam issues are agreed, then:

      The field agent secures an agreement in the format prescribed in IRM 4.10.8, Report Writing. Technical Services forwards the partner case file through Centralized Case Processing (CCP) for a partial assessment on the nonTEFRA issues. After the partial assessment, CCP forwards the case to the appropriate CTF for suspense until resolution of the TEFRA issues with the exception of Joint Committee, LB&I (or previously adjusted LB&I returns), and other corporate specialty cases which will remain with the field group.(See IRM 4.31.3.4.9.2, Field Suspense of LB&I Partners, for instructions regarding the processing of Joint Committee, CIC corporation and other corporate specialty cases.)

    2. If the nonTEFRA issues are unagreed, then:

      The field agent prepares a report in the format prescribed in IRM 4.10.8, Report Writing. The partner case file is forwarded following nonTEFRA closing procedures. If a protest is filed on the nonTEFRA issues before the TEFRA issues are resolved, the case is forwarded from the Technical Services, to Appeals. Appeals forwards the case to the CTF with control of the partner return for suspense if the TEFRA issues remain unresolved after Appeals consideration. (See IRM 4.31.3.4.9.2, Field Suspense of LB&I Partners, for instructions regarding the processing of corporate LB&I, CIC corporation, Joint Committee, and other corporate specialty cases.)

    3. If the nonTEFRA issues are no changed, then:
      The field agent prepares a report in the format prescribed in IRM 4.10.8, Examination of Returns, Report Writing. Technical Services forwards the partner case file through CCP to the partner CTF for suspense until resolution of the TEFRA issues. If the case is corporate specialty, it will be returned to the examination group for suspense.

Suspension of TEFRA Related Partners

  1. In general, all linked TEFRA partners will be suspensed at either the Brookhaven or Ogden Campus.

  2. The Brookhaven CTF will work all Small Business/Self Employed (SB/SE) key cases and their related partners, with exceptions. (See IRM 4.31.3.4.8.1 , TEFRA Partner Exam With Unresolved NonTEFRA Partnership Exam.)

  3. The Ogden CTF will work all Large Business and International (LB&I) key cases and their related partners, with exceptions. (See IRM 4.31.3.4.8.2 , NonTEFRA Partner Exam With Unresolved TEFRA Partnership Exam.)

  4. Partners will be completely worked in the campus where they were first linked. For example, partner S is linked to an SB/SE key case and suspensed in Brookhaven. If Ogden links partner S to an LB&I key case, that partner will stay suspensed in Brookhaven until completion of all linkages. The partner case file will remain at Brookhaven even if the SB/SE linkage closes first and only an LB&I linkage remains. There may be exceptions where it makes sense to transfer a partner to the other CTF. In such instances, both campuses must agree to the transfer.

Field Suspense of SB/SE Partners
  1. TEFRA related partner returns that are corporate specialty cases (Form 1120 with letters after the 1120 other than A, S, or X) are forwarded to the field office by the CTF.

  2. The field will also hold all partner returns where the TEFRA statute is controlled at the partner level. See , IRM 4.31.2.4.3.1, TEFRA Statutes controlled at the Partnership Level (AC Statute Procedures).

  3. These cases will be suspensed in the field group.

  4. Joint Committee cases will be suspensed in the field group until the TEFRA issues are resolved.

Field Suspense of LB&I Partners
  1. TEFRA related partner returns that are CIC corporation, Joint Committee, or other corporate specialty cases (Form 1120 with letters after the 1120 other than A, S, or X) in status 14 will remain there until closed.

  2. The CTF may forward some cases to the field if other related years are CIC. For example, an adjustment is made to an earlier non-CIC year that impacts an NOL. There are later years impacted by that NOL that are CIC. The campus will forward those returns to the field to be worked since the earlier year adjustments will impact those later CIC years.

  3. The field will also hold all partner returns where the TEFRA statute is controlled at the partner level. See IRM 4.31.2.4.3.1,TEFRA Statutes controlled at the Partnership Level (AC Statute Procedures).

  4. All other returns that were previously adjusted by LB&I field exam will be suspensed in Ogden pending the resolution of the TEFRA issues. Once the TEFRA issues are resolved, the Ogden campus will coordinate the computation of the adjustments with an LB&I TCS team.

Carryback and Carry Over Returns
  1. Caution should be used when requesting carryback or carry over returns. These returns should be requested later in the process after the field examination has had time to develop their case. Ordering CB/CO returns too soon results in many returns that need to be refiled, and eats up resources unnecessarily. Waiting to request CB/CO returns until key case adjustments are known ensures that only returns that are needed are ordered.

  2. When partner returns are initially reviewed, carryback or carry over issues should be noted. If the key case adjustments will impact those earlier identified carry over issues, then those returns should be requested. In general, carryback and carry over year returns should not be requested until the key case adjustments are known.

  3. The campus should request and suspend all prior and subsequent partner returns that may be impacted by a partnership level adjustment, unless already controlled on AIMS.. The carryback and carry over returns will be held in suspense pending the outcome of the partnership examination. Carryback and carry over years cannot be linked on PCS.

  4. If the field has AIMS control of a potential carryback or carry over return, the campus PCS Coordinator should be contacted to input a Freeze Code 6 to prevent the return from closing. CCP will forward the return to the CTF after processing the partial closure. When it is determined that the carryback or carry over year is no longer needed, or the return is linked and no longer needs the freeze code, the campus PCS Coordinator should be contacted to remove the Freeze Code 6.

Partners Linked to a Key Case Partnership with an AC Statute
  1. When a key case statute is allowed to expire, the statute is changed to an alpha AC. The key case statute protects all statutes of the underlying partners. These partners are typically controlled in the campus and have an HH alpha statute. Letting the key case statute expire means each individual taxable partner's statute must be controlled. When this occurs, all the underlying key case partners will be transferred to the agent examining the key case. The HH will be removed, and the statute will be updated to the current numeric statute before the case is forwarded to the field.

Follow-Up Procedures for Returns

  1. Research IDRS using CC AMDIS (or AMDISA), CC TSUMY, IMFOL, and/or BMFOL. If the partner return is established on AIMS in a Primary Business Code (PBC) other than a CTF PBC, take the following action:

    1. If the return is in status 06 or 08, request the return and the AIMS control.

    2. If the status is other than 06 or 08, send that function a copy of the "FLOW THROUGH NOTIFICATION Charge-Out" or Form 6658, and Schedule K-1. Request a copy of the return and note the partner file history sheet. The charge out notification alerts the field group of the linkage and a partial closure may be necessary.

    3. If the partner return is LB&I, Joint Committee or corporate specialty, send the Flow Through Notification Charge-Out or Form 6658, and Schedule K-1 to the field group and do not request a copy of the return. The CTF will not be making any adjustments to the partner return. The area with control of the return will make any necessary adjustments when the examination results of the key case flow-through entity(ies) are known.

  2. When the PBC is a CTF PBC, and no return was received, attempt to locate the return using the following steps:

    1. Research for a better DLN and order the return from files using CC ESTAB;

    2. Research IDRS using CC TXMOD with a definer "A" to identify an open case control in an area other than Examination (IMFOL or BMFOL may be utilized to find a "route" for a TXMOD);

    3. Research the taxpayer record for TC 922; if present, contact the Automated Underreporter Function for a copy of the return and coordination of any proposed assessments; and

    4. If after performing follow-up steps, the partner CTF is still unable to secure the original return, contact the taxpayer for a copy using Letter 5639, Return Information Request. Do not contact the taxpayer if there is a "Z" Freeze or a TC 914 on the taxpayer account. If there is a "Z" Freeze or TC 914 on the taxpayer account, give the file to the Campus TEFRA/Pass Through Coordinator for immediate, appropriate action.

Partner Cases Transferred to CTF

  1. Returns are transferred into the CTF in status code 34, EGC 5817. Ensure the return is transferred per IRM 4.4.33, AIMS Procedures and Processing Instructions.

  2. The CTF will screen and process all partner cases transferred in from the area as follows:

    1. Ensure the return does not meet the requirements of a field controlled case as per IRM 4.31.3.4.8.1, TEFRA Partner Exam With Unresolved TEFRA Partnership Exam, or IRM 4.31.3.4.8.2, NonTEFRA Partner Exam With Unresolved TEFRA Partnership Exam.

    2. Secure a TSUMYI print to verify that the return is linked to a TEFRA key case. If no linkage is shown, check to see if the return is needed for a carryback or carry over issue. If the return is not needed, reject the transfer by updating AIMS to the prior employee group code and status code and return the case to the area or to the function, which initiated the transfer.

    3. Order a TXMOD, IMFOL or BMFOL to determine that necessary partial adjustments were assessed.

    4. If partial agreements were secured and have not been assessed, return the partner file to the originating office for assessment provided adequate time (more than six months) remains on the statute. Update AIMS to the prior originating office employee group code and status code. Retain a copy of the return in the TEFRA suspense file.

    5. If adequate time does not remain on the statute, the CTF must make the partial assessment. Provide feedback to the originating office.

    6. Upon verification of the assessment, identify the TEFRA linkages and reconcile the return to the Schedules K-1. Identify any potential carryback and carry over issues. Update AIMS to employee group code 5818 and status code 34. File the partner file in the partner suspense files.

    7. If a partner suspense file was already created, combine the contents of this file with the return package and refile in the partner suspense inventory.

Receipt of Amended Returns and Claims

  1. The CTF will screen and process all amended returns and claims received. An amended return may be received as a paper document, or identified by an A freeze. Amended returns and claims include the following:

    1. An advance payment of deficiency and interest;

    2. An attempted removal from the TEFRA proceedings;

    3. An adjustment related to a TEFRA partnership;

    4. A Form 1045, Application for Tentative Refund, based on a carryback from or to a suspensed year;

    5. Protective claims, see IRM 4.31.4.2.6, Protective AARs, or for a claim not related to the TEFRA key case the claim should be processed per IRM 21.5.3.4.7.3.2 , Processing Protective Claims; and

    6. NonTEFRA issues resulting in a claim for a refund or an additional balance due.

  2. Procedures to follow upon receipt of a Form 1040X, Amended U.S. Individual Income Tax Return, and/or other taxable claim (Form 1120-X, 1041-X) are:

    1. Secure the partner file from the suspense files and associate the document (timely) with a TSUMYI print and an IMFOLT/BMFOL print;

    2. Forward all claims to a technical employee for screening, and update AIMS to EGC 5807 (local option);

    3. Screen the document(s) to see if the amended return or claim relates to a TEFRA return. Perform a technical screening to determine whether:

      • The necessary assessments have been made, and if an assessment is required, ensure that it is made by the IRC 6501 statute
      • The claim is allowable
      • A formal claim disallowance is required
      • The taxpayer needs to be advised that the claim filed is related to a TEFRA examination, Letter 5663, TEFRA Related Amended Return Response.
      • The amended return or claim (including protective claims for nonTEFRA cases) is worthy of examination and requires forwarding to the field for examination

    If Then
    The amended return or claim is not worthy of examination and does not require forwarding to the area office Update the AIMS employee group code to 5818 and refile in the CTF suspense file.
    The amended return or claim is worthy of examination Update to the area PBC, SBC and EGC, make a copy of the document(s) for the CTF suspense file, and forward the original amended return and/or claim to the area office.
    The AAR or claim was filed due to a Letter 4505-A or Letter 4505-E, the partner’s return is open on AIMS, and the claim is otherwise allowable. Process the claim and allow the adjustment.
    The AAR or claim was filed due to a Letter 4505-A or Letter 4505-E, the partner’s return is open on AIMS, but the claim is not allowable. Disallow the claim.
    The AAR or claim was filed due to a Letter 4505-A or Letter 4505-E, and the partner's return is no longer open on AIMS. Return the claim to Accounts Management for processing. See IRM 21.5.3-1, Claim Processing with Examination Involvement.
  3. Generally, taxable amended returns that address TEFRA issues related to an open key case examination should not be assessed before the proceedings are completed. However, if the taxable amended return is accompanied by a payment, the assessment should be made. A "deficiency" does not include amounts paid (i.e., amounts "collected without assessment" ). IRC 6211(a)(1)(B). A "deficiency" also does not include amounts shown on the taxpayer's return. "Return" for this purpose includes an amended return, unless the amended return indicates that the amounts are disputed. Treas. Reg. 301.6211-1(a) (last sentence). The payment eliminates the deficiency.

  4. If there is any possibility that the "payment" can be construed as merely a "deposit" rather than a payment, or if the amended return indicates that the additional amount is being disputed, then the assessment cannot be made until the TEFRA proceeding is complete.

  5. Taxable amended returns that do not address any TEFRA issues should be assessed. These should be assessed by the area that received them. If the amended return was not assessed, it should be returned to that area unless the IRC 6501 statute will expire within 90 days. If the amended return is identified by the A freeze, the amended return must be secured or reviewed electronically to ensure an assessment was made. Allow 60 days from the date of the A freeze is established to allow for the assessment to be made and the return uploaded to the Correspondence Imaging System (CIS).

    Note:

    It may take as long as 60 days for the case to be processed and upload to CIS or sent to the campus. After 60 days, if not on CIS or no copy is received, research TXMOD and contact the person who processed the amended return to secure a copy.

  6. Claims that address TEFRA related issues related to an open key case examination should not be refunded.

  7. If the claim includes other non-pass through adjustments that result in an overstatement in income or understatement in loss will be noted in the file, and will not be processed until the TEFRA proceedings are completed. The additional loss will not be processed immediately to provide the maximum interest offset to the taxpayer. If the taxpayer wants the income or loss processed, it is recommended to get that request from the taxpayer in writing. As part of the request, the taxpayer should explain that they understand that any future assessment as a result of the TEFRA examination may result in additional interest than would be charged otherwise. The partner claim will be associated with the original file after all appropriate action is taken.

Tiers

  1. Each CTF must identify TEFRA partner returns that are flow-through entities (tiers).

  2. Following are the procedures for tier returns:

    1. All BMF returns (Form 1041, Form 1065, Form 1120, U.S. Corporation Income Tax Return, and Form 1120-S) should be screened by revenue agents for nonTEFRA and potential carryback or carry over issues;

    2. Generally, all tiers should be reviewed by revenue agents to determine if special allocations exist. Letter 5299 should be used to secure allocation schedules from tier partners.

      Note:

      All partners in a tier are not required to be linked. Only those partners that will be subject to an adjustment above tolerance need to be linked. It may be necessary to link more partners if the impact of the adjustment is not determinable.

    3. The materiality of underlying partners should be considered when making a decision not to load a tier. As a best practice, a current Tier Structuring Tool map or similar tool should be reviewed if available. In general, the Revenue Agent Reviewer will make the determination on whether or not to link tier returns. The structure of a partnership may be such that adjustments will appear to be de minimis when looking at the mid level tiers. However, all the adjustments may ultimately flow down into only a few partners. Seeing the entire partnership structure will assist the agent in determining whether a tier should be loaded. Also, PCS should be checked to determine whether or not other linkages exist. Multiple linkages may increase the likelihood of a significant adjustment.

    4. If the potential adjustments are material, Form 8341 will be prepared to establish PCS linkage using CC TSLOD to link the material partners, shareholders, or beneficiaries to the tier;

    5. The Schedules K-1 (and any Schedule K-1 attachments) from the tier should be copied for establishment of the partner files; under NO circumstances should the original Schedules K-1 be used to establish the partner files;

    6. Special care should be taken when a tier is a partner in two or more key cases (this is called a multi-linked tier), or is a key case in its own right;

    7. When a Form 886-S, Partners' Shares of Income, Deductions, and Credits, a Form 886-W, Beneficiary's Shares of Income, Deductions, Credits, Etc., or a Form 886-X, Shareholders' Share of Income, Deductions, and Credits is used to reflect the distributive share of income (loss), the report writer must note whether the individual partner, shareholder, or beneficiary should be closed as a full closure, or as a partial closure and then suspensed;

    8. When the tier partner returns are received, they should be reviewed for discrepancies in Schedule K-1 reporting and/or carryback or carryforward issues;

    9. Only tiers with material partners must have reports written; and

    10. The one-year date for multiple level tiers should be input on PCS in a timely manner even though the flow-through tier reports may not be prepared until a later date.

Electing Large Partnerships
  1. An electing large partnership (ELP) may be a tier. If an ELP is a tier, all adjustments will be addressed at the partnership level.

  2. It is important to verify that the ELP is still filing returns. If the ELP stops filing returns, the underlying partners for those years under examination may need to be linked. If this occurs, please discuss the appropriate action with your Campus TEFRA/Pass Through Coordinator.

  3. In the event the ELP ceases to exist at the time the adjustments are determined, then the adjustments are flowed through to the underlying partners. Depending on the size of the partnership it may not be necessary to link all of the partners.

Responding to Field Requests for Returns

  1. Both of the CTF's will establish a liaison to respond to area requests for tax returns. The name, address, and telephone number of the identified liaison will be distributed to all Technical Services TEFRA/Pass Through Coordinators and is available on the TEFRA and Appeals website.

  2. The CTF will keep a copy of each return forwarded to the field in the suspense file, except for returns requested by LB&I, and send the original to the requestor via a Form 3210. The requesting agent will acknowledge the Form 3210 within three-days of receipt. If the individual who would normally acknowledge the Form 3210 is unavailable, the manager will ensure the Form 3210 will be acknowledged by another employee (or himself/herself) within that three day period. Follow up on an acknowledgement within 3 to 4 weeks if not received.

  3. The CTF will update the partner's activity record to indicate that the original return was forwarded to the area if a copy is kept.

  4. The CTF will ensure that the AIMS data base was updated to reflect the requesting office's status, PBC, SBC and EGC codes, and the correct statute date.

  5. Copies of returns for court requests will be certified and processed following "blue ribbon" procedures.

Notice of Bankruptcy

  1. The Insolvency Interface Program (IIP) updates Masterfile when a TC 520 is input with the appropriate closing code. The PCS Report 5-4 will notify the CTF of a linked partner's bankruptcy filing.

  2. The CTF will follow the procedures listed below when advised of a bankruptcy:

    1. Determine the one-year assessment statute date and input it on PCS. Generally, the one-year assessment statute date is one year from the date on which the taxpayer filed for bankruptcy, although the actual limitation on assessment may be longer.

    2. Four PCS element changes are required when a partner becomes bankrupt. If the partner has more than one linkage to a key case, these TSCHG items are required for all key case linkages. Input the following items via CC TSCHG:
      •09-D, to remove the partner TEFRA indicator on PCS (see note below).

      Note:

      Removing the TEFRA indicator will change the PICF Code from 5 to 6.


      •22-B, to update the report package received indicator for Bankruptcy.
      •29-B, to set the bankruptcy indicator on PCS.
      •07-Bankrupt. This adds the literal "bankrupt" to the PCS user special message.

    3. Forward a Form 3210 to the key case CTF clearly marked with the one-year assessment statute date and the notation "Bankruptcy - TEFRA partner" .

    4. If the partner is controlled outside the CTF send a Form 3210 clearly marked with the one-year assessment date and the notation "Bankruptcy - TEFRA partner" to the group controlling the case on AIMS (see note below). The receiving office will acknowledge the Form 3210 within three days of receipt.

  3. See IRM 4.31.7, TEFRA Bankruptcy, for more details.

    Note:

    For joint returns, the Form 3210 should be noted "See Jewell Dubin vs. Commissioner" .

Fraud Considerations

  1. Each CTF must evaluate its inventory for potential fraud cases.

  2. Criminal Investigation (CI) controlled cases must be handled using the following procedures:

    1. When an AM424 reject shows that a CI freeze code TC 914 is on a partner's module, AIMS and PCS controls cannot be established. The key case CTF will establish the partner account on non-Master File. The CTF will coordinate with CI to reverse the freeze. When the freeze is removed, Master File linkage will be established.

    2. If the CI freeze code TC 914 cannot be reversed, agreement must be reached with CI on issuance of TEFRA notices and procedures for assessments.

    3. If CI determines that a partner account is subject to their jurisdiction, the partner will be removed from TEFRA suspense. The CTF must secure a copy of Form 14098-A or similar written documentation from CI before removing PCS linkage and closing AIMS. PCS linkage would be removed using CC TSDEL.

    4. When CI initiates special enforcement actions against a taxpayer, the partnership items may convert to nonpartnership items. CI should be consulted when they have controls on a partner to see if special enforcement action is underway. If so, CI should state whether the taxpayer should be contacted regarding the conversion of their partnership items. If a notice of conversion is required, work with Technical Services on the generation and signing of the notice. For the items to convert and the one year date to start, the partner must receive notice in accordance with Treas. Reg. 301.6231(c)-5. Delegation Order 4-19 (20) allows SB/SE Area Directors of Compliance; LB&I Industry Directors; Appeals Director, Technical Services; and Appeals Directors, Field Operations to issue such notices.;

    5. When a taxpayer’s partnership items convert, the partner TEFRA indicator will be removed using CC TSCHG item 09-D on all TEFRA linkages.

    6. Notification that the partnership items have converted to nonpartnership items and that no more notices should be issued to the taxpayer will be sent to the key case CTF, if different from the partner CTF, via Form 3210. The key case CTF office will acknowledge the Form 3210 within three days of receipt.

    7. CI should be contacted at least 60 days before the one year date expires for approval to issue the stat notice, or to secure a Form 14098-Bif they want the statute to expire.

Form 906

  1. When a Form 906, Closing Agreement on Final Determination Covering Specific Matters, is received by a partner CTF, a TSUMYI (or TSINQI) print will be secured and associated with the Form 906.

  2. The TSUMYI or TSINQI print and Form 906 will be forwarded to the Technical Unit for review.

  3. The Technical Unit will review for the following:

    1. Ensure that the Form 906 applies to a TEFRA issue;

    2. Ensure that the Form 906 is valid and properly countersigned; and

    3. Determine if nonTEFRA issues are open under old Form 872, Consent to Extend the Time to Assess Tax, or Form 872-A, Special Consent to Extend the Time to Assess Tax.

    Note:

    A statutory notice may terminate these extensions. Contact Area Counsel if this situation exists.

  4. The one-year assessment statute date must be determined and input on PCS using CC TSCHG. The literal "Form 906" will be input in the PCS user special message field using CC TSCHG, Item 07. A copy of the Form 906 will be transmitted via Form 3210 to the key case or tier CTF, if different than the partner CTF, who will note on the Form 886-Z.(or equivalent spreadsheet) "906 secured - issue no notices to the taxpayer." The key case CTF will acknowledge the Form 3210 within three days of receipt.

  5. The Form 906 will be associated with the partner's suspense file. If the CTF has control of the AIMS data base, it will be updated to status code 34, EGC 582X or 583X. The partner file is then forwarded to the Report Writing Unit as outlined in text IRM 4.31.3.12, TEFRA Report Writing Procedures.

  6. The Report Writing Unit will process the Form 906 as a Form 870-PT as outlined in text IRM 4.31.3.6.3, Agreed Cases.

  7. Chief Counsel attorneys and Appeals Officers have been advised of the problems caused by Form 906's that affect TEFRA partners and/or issues. Many taxpayers, practitioners, and attorneys still prefer to use a Form 906 in resolving their case.

PCS 4-4 Report

  1. The PCS 4-4 report is a listing of all returns on PCS with a one-year assessment statute date. The report is used to monitor TEFRA statutes to ensure partner returns are assessed in a timely manner.

  2. The CTF Code determines on which CTF report the partner record will appear.

  3. The report can be sorted electronically to provide each unit with a listing of their statutes.

  4. The campus also generates a listing for the field for all statute cases that they control. These listings are sent monthly to each Technical Services TEFRA/Pass Through Coordinator by Area. Each Coordinator has specific groups that they are assigned based upon their geographic location.

  5. The campus should follow up directly with the field if a statute is within 60 days. This is to ensure the field is aware of the impending statute.

  6. A Form 895 is prepared for each return. One copy is attached to the case file, the other will be maintained in a file for the monitoring of the statute of limitations date. A statute database may be used instead of the Form 895. Use of the statute database should be notated on the history sheet.(IRM 25.6.23, Statute of Limitations - Examination Process-Assessment Statute of Limitation Controls)

Combat Zone

  1. The combat zone freeze must be released before a case can be established on AIMS. Contact your local AIMS Coordinator to release the freeze.

Power of Attorney (POA) for Partners in a TEFRA Partnership

  1. When working with taxpayers that are direct or indirect partners in TEFRA partnerships, the examiner will occasionally need to work with a POA at the partner level. This commonly occurs when a partner wants their POA to execute a TEFRA statute extension (e.g. Form 872 or Form 872-A) or sign off on a TEFRA settlement agreement (e.g. Form 870-PT or Form 870-LT).

  2. In order for the POA to work with the examiner on TEFRA related matters, the partner level Form 2848 must still comply with the requirements of Treas. Reg. § 301.6223(c)-1(e) and should state in some way that the POA is for purposes of subchapter C of chapter 63 of the Code.

  3. A POA for a TEFRA partner does not need to specifically name the TEFRA partnership before the service can deal with the POA for the TEFRA partnership issues. However, it does need to meet the following specific requirements as detailed in the sections below.

  4. A hard copy of the physical POA must be kept in the case file to ensure the POA is properly completed. A CFINQ cannot be relied upon for TEFRA cases. CFINQ does not provide a way to determine if a POA is completed properly for TEFRA purposes. Relying on CFINQ could result in improper disclosure.

Form 2848, Part 1 (TEFRA Partner POA)
  1. For a partner level POA, Part I, Line 1 of Form 2848 should reflect the partner’s tax information. This includes the partner’s name, address, and TIN. If partner Jane Doe is executing this type of POA, Part I would include Jane’s name and address and Jane’s TIN.

    Figure 4.31.3-1

    This is an Image: 36879001.gif

    Please click here for the text description of the image.

Form 2848, Part 3 (TEFRA Partner POA)
  1. Under Description of Matter, "Income, Including TEFRA Partnership Items" should be entered. Under tax forms, the partners federal tax from number (Form 1040, Form 1120, etc.) should be entered as well as Form 1065. Under Year(s) or Period(s) the applicable years should be listed.

  2. If an existing POA does not have the proper language or cover the correct tax periods, a new POA, with the above statement or the correct years included, should be secured. The years on the POA need to include the tax period of the key case partnership as well as the partner’s tax period. Considering fiscal year filing and tiering levels, the partner may not be aware that the key case tax period is different from their own. The POA needs to be reviewed upon receipt to ensure the appropriate years are included. A correct POA may have to be requested from the taxpayer.

    Figure 4.31.3-2

    This is an Image: 36879002.gif

    Please click here for the text description of the image.

  3. The language above exhibit meets the requirements of Treas. Reg. § 301.6223(c)-1(e). This means the Form 2848 covers TEFRA as well as income tax. In the Jane Doe example, Part 3 Tax Form Number, would list both Form 1065 and Form 1040.

Form 2848, Part 5 (TEFRA Partner POA)
  1. Though not required, under Part 5a of Form 2848, it is a best practice to list each act the taxpayer authorizes the POA to perform. These would be acts other than the normal authorization to work with the examiner and exchange confidential information.

    Figure 4.31.3-3

    This is an Image: 36879003.gif

    Please click here for the text description of the image.

  2. Care should be taken to identify any restrictions to the POA’s authority to act for the taxpayer under Part 5b.

    Figure 4.31.3-4

    This is an Image: 36879004.gif

    Please click here for the text description of the image.

Form 2848, Part 7 (TEFRA Partner POA)
  1. Form 2848 should reflect the partner’s signature and printed name.

    Figure 4.31.3-5

    This is an Image: 36879005.gif

    Please click here for the text description of the image.

Killed in Terrorist Action/Killed in Action Indicator

  1. See IRM 21.6.6.3.23.2.1, KITA/KIA Procedures, for more information when the indicator exists on the module.

Notice Packages

  1. The following subsections provide explanations of notice packages.

60-Day Letter

  1. When the TEFRA Key Case examination is completed, the case is forwarded to area Technical Support for preparation of the 60-day letter package.

    1. The 60-day procedures must be followed whether the key case is agreed, unagreed, or no changed if at least one partner did not execute a Form 870-PT or Form 870-LT.

    2. Technical Services will prepare a 60-day letter for the TMP and for the TMP's power of attorney (POA), if applicable, but only if the partner requests that the power cover TEFRA proceedings in a statement furnished to the Service.

    3. The package will be forwarded electronically to the CTF using the shared drive or IMS.

    4. The CTF will review package for completeness and acknowledge the Form 14434, TEFRA Package Check Sheet, within 3 days of receipt.

  2. The 60-day package must contain the following:

    1. An original undated 60-day (Letter 1827(DO)-F) letter addressed to the "Tax Matters Partner" for the partnership and signed on behalf of the appropriate designated field official;

    2. A Form 870-PT (a Form 870-LT with Letter 1829(DO)-F may be appropriate in certain circumstances) addressed to the TMP including a schedule of adjustments which shows all adjustments to each adjusted item;

    3. A complete copy of the revenue agent's report including the Form 4605-A, Examination Changes-Partnerships, Fiduciaries, S Corporations and Interest Charge Domestic International Sales Corporations, an explanation of all adjustments, and the appropriate distribution schedule;

    4. If applicable, a copy for the POA of the 60-day letter addressed to the TMP, with the cover letter (Letter 937);

    5. A copy of the completed 60-day letter addressed to the TMP (One copy to accompany mail out, one to keep in the case file, and the last to send back to the originator to show proof of mail out);

    6. A Form 886-Z (or equivalent spreadsheet) with correct distributive shares completed for each adjusted item;

    7. A supplemental report for penalties, if applicable, including statutory notice language (not used for tax years ending after August 5, 1997); if penalties are not applicable, it should be noted in the package; and

    8. A completed Form 14434, TEFRA Package Check Sheet, verifying all required items are included in the 60-day letter package.

  3. If the package is incomplete, Technical Services will be contacted. The CTF will attempt to perfect the package without returning it to Technical Services. Packages with major omissions will be returned to Technical Services for perfection.

Processing of 60-Day Letter

  1. The CTF will review the most current build out map to ensure that all material partners are linked or in the process of being linked. If any material partners are not linked, immediate corrective action must be taken before letters are issued.

    1. Unlinked notice partners must be re-linked using CC TSLODA, and the partner's Schedule K-1 name and address must be input using CC TSCHG. Research for the most current address and use it if different.

    2. If a correct TIN was not identified, an NMF database must be established using CC AMNON before input of TSLODA.

    3. All partners who had their partnership items converted to nonpartnership items must have the "TEFRA" indicator removed.

    4. DO NOT use a one-year assessment date to prevent notices from being generated, because entering a one-year date will distort PCS reports. If you only need to issue a few FPAAs, use TSNOT with a definer "I" to issue specific notices to individual partners.

  2. Input the partnership adjustment amount on PCS using TSCHG, item 08. The adjustment amount is important in allowing us to capture data to determine the productivity of partnership examinations.

  3. The CTF will input a penalty/affected item code on the key case record using CC TSCHG, if the key case examiner is proposing penalties or affected items. The code on the PCS record will indicate whether the penalty claim is legitimate. The penalty/affected item code will also cause the correct forms with the appropriate attachments to generate.

  4. The CTF will generate partner 60-day letters using PCS CC TSNOT2. When the letters are received, the CTF will verify that there is a letter for each partner by comparing the certification listing to the 60 Day mailing list. If any partner letters are missing or incorrect, they may be reissued by PCS using CC TSNOT2, or a manual letter may be prepared.

    Note:

    Typographical Scribner errors such as a mistyped name or EIN will not invalidate a notice.

  5. A copy of the partnership schedule of adjustments will be attached and sent with each partner letter. A copy of the explanation of items can be secured from the TMP.

  6. The CTF will date stamp the TMP letter with the same date as the partner letters. The original 60-day letter addressed to the TMP (and the POA, if applicable) and one copy will be mailed with a field office return address envelope or with the address label provided.

    1. Partner letters will be folded and enclosed in envelopes bearing the return address of the CTF, including a return envelope for the partner.

    2. The 60-day mailing list will be initialed and dated and all letters (including the TMP and POA, if applicable), will be mailed simultaneously.

    3. A copy of the mailing list will be forwarded to Technical Services with a Form 3210.

  7. The key case administrative file will be documented and a copy of the 60-day letter and the signed mailing list will be placed in the file. The CTF should mail the 60-day letters within 45 days of receipt of an acceptable 60-day letter package from Technical Services.

Protest of 60-Day Letter

  1. Protests to 60-day letters must be immediately forwarded to Technical Services with a Form 3210 to the area controlling the key case.

  2. If a protest is received and more than 45 days have elapsed since the issuance of the 60-day letter, telephone contact should be made with the TEFRA/Pass Through Coordinator in Technical Services to alert them of the protest in order to prevent premature default of the 60-day letter.

Appeals Settlement Letter

  1. Appeals will direct the key case CTF to issue settlement letters to partners in TEFRA entities that were protested by forwarding a settlement package using a Form 14298.

  2. The CTF must mail the settlement offers within 30 days of receipt of the Form 3210 from Appeals.

  3. The CTF will review the package for completeness and acknowledge the Form 14298 within 3 days of receipt. The settlement package must contain the following:

    1. A Form 14298 annotated as a settlement offer package which clearly reflects the key case name, tax year, EIN, and statute date;

    2. A Form 14642, Appeals TEFRA Team (ATT) TEFRA Key Case Transmittal;

    3. A letter to the TMP, (generally not applicable);

    4. A Form 870-PT(AD) or Form 870-LT(AD), including a schedule of adjustments which identifies the items adjusted and the amount of each adjustment;

    5. If available, include a copy of the docket sheet;

    6. A copy of the Appeals Case Memo (ACM) (formerly, supporting statement) for the partnership marked "Information Only - Do Not Mail to Taxpayer" ;

    7. A Form 886-Z (or equivalent spreadsheet) with corrected distributive shares for each adjusted item as reflected in the settlement offer (Appeals does not use Form 886-Z for a no change settlement.);

    8. A completed Form 4605-A (Appeals does not use Form 4605-A for a no change settlement);

    9. Affected Items, including partner level defenses to penalties. (This applies to tax years beginning after August 5, 1997.) Affected item information includes:
      • An instruction to mail affected item notices to non-notice partners, if necessary;
      • If the TMP has signed an agreement to bind non-notice partners, Appeals will provide a special insert to be sent to non-notice partners explaining that they should sign for affected items, including partner level defenses to penalties, if they wish to accept the offer;
      • Special instructions, if any, for the mailing of affected items, including partner level defenses to penalties; and
      • If affected items, including partner level defenses to penalties, are not applicable, it should be noted in the package.

    10. Penalty information and affected items. (This applies to tax years ending before August 6, 1997.) Penalty information includes the following:

      • An instruction to mail affected item/penalty notices to non-notice partners, if necessary;
      • If the TMP has signed an agreement to bind non-notice partners, Appeals will provide a special insert to be sent to non-notice partners explaining that they should sign for affected items and/or penalties if they wish to accept the offer;
      • Special instructions, if any, for the mailing of affected items/penalties; and
      • If affected items and/or penalties are not applicable, it should be noted in the package.

  4. If the package is incomplete, the CTF will take every action to coordinate with Appeals in order to perfect it. All avenues should be exhausted before sending a case back. As a last resort, only packages with major omissions will be returned to Appeals for perfection. Major omissions include missing one or more of the following:

    1. A Form 14642; Appeals TEFRA Team (ATT) TEFRA Key Case Transmittal,

    2. Appeals case memos (formerly supporting statements), if not included on the Form 14642;

    3. Form 886-A with penalty or affected item language;

    4. A missing Form 886-Z (or equivalent spreadsheet)( Form 886-Z is not needed for a no change.);

    5. A missing Form 4605-A (Appeals does not use Form 4605-A for a no change.); and/or

    6. An omitted schedule of adjustments.

  5. If penalties or affected items are proposed, the CTF will ensure that the penalty/affected item code is present on the PCS. If necessary, the penalty/affected item code will be input using CC TSCHG.

  6. Input the partnership adjustment amount on PCS using TSCHG, item 08. The adjustment amount is important in allowing us to capture data to determine the productivity of partnership examinations.

    Note:

    It is possible that the partnership adjustment amount was previously input when a 60 day letter or FPAA package was received. The partnership adjustment amount, if no longer correct, will need to be removed and the correct amount re-entered.

  7. Appeals settlement letters are generated by PCS to all linked partners when CC TSNOT4 is input, and to all TEFRA linked partners when CC TSNOT5 is input. Only TSNOT4 will generate the Form 870-LT(AD) for cases with a penalty/affected item code.

  8. When the PCS generated letters are received, the CTF will verify that there is a letter for each linked partner who should receive a notice by comparing the certification listing to the Appeals Settlement Letter mailing list.

    1. If it is determined that additional letters are needed, they will be generated by the PCS or manually prepared.

    2. A copy of the schedule of adjustments received from Appeals will be attached to each partner letter.

    3. Partner letters will be folded and enclosed in envelopes bearing the return address of the CTF, including a return envelope for the partner unless Appeals specifically instructs otherwise and includes a return envelope for the partners.

  9. After the Appeals certification listing is verified and signed, and letters are mailed, one copy of the certification listing will be forwarded to Appeals for inclusion in the key case return file; one copy is placed in the key case administrative file with the settlement offer package. The key case administrative file will be noted with all actions taken.

  10. Form 870-PT(AD) and Form 870-LT(AD) may be executed by Revenue Agents GS-12 and above in the Campus TEFRA Function, or Appeals personnel, in accordance with Delegation Order 4-19.

No Adjustments

  1. No adjustment packages are forwarded to the key case CTF with a Form 14434, TEFRA Notice Package Check Sheet from Technical Services. The Form 14434, TEFRA Notice Package Check Sheet, will reflect the name, tax year(s), EIN, statute date, and the package should contain the following:

    1. One copy of the No Adjustment Letter (Letter 2621) the Revenue Agent sent to the TMP, as required; and

    2. A Form 4605-A showing that no adjustment has been made.

      Note:

      Appeals will use Form 14642 instead of Form 4605-A. Forms 886-Z is not needed for no change cases.

    The statute date will vary depending upon the issue date of the Letter 2621. The OYD input will be the shorter of the key case statute, or one year from the date the Letter 2621 was issued. Since no FPAA was issued, there is no OYD that will extend past the statute (IRC 6229) of the key case.

  2. The key case unit will prepare a package for each partner containing the following:

    1. One copy of Letter 2621, No Adjustment Letter; and

    2. Form 4605-A.

      Note:

      Appeals package will only have a copy of Form 14642. Appeals does not use Form 4605-A. Form 886-Z are not needed in no change cases.

  3. The packages will be sent to the partner(s) CTF.

FPAA

  1. For key cases (whether agreed, unagreed or no-change) that have non-protested 60-day letters or for key cases that were protested but have not settled, Technical Services or Appeals must prepare an FPAA package for the TMP and for the power of attorney, if applicable.

    1. Technical Services or Appeals must ensure that 120 days have elapsed since the last NBAP was mailed to any partner.

    2. The key case file remains in Technical Services or Appeals.

    3. The package is forwarded to the key case CTF with a Form 14434, TEFRA Notice Package Check Sheet.

  2. The key case CTF will receive the FPAA package, review it for completeness, and acknowledge the Form 14434, TEFRA Notice Package Check Sheet, (within 3 days of receipt). The package should contain the following:

    1. Form 14434, TEFRA Notice Package Check Sheet (Appeals uses Form 14298);

    2. A Letter 1830-F signed on behalf of the Technical Support Manager for each TMP address;

    3. A Form 870-PT addressed to the TMP, including a schedule of adjustments which shows the adjustment amount for each item. The Form 870-LT is not used with an FPAA. Affected Items cannot be petitioned through a partnership proceeding.;

    4. An explanation of all adjustments (statutory notice language). Appeals generally does not use a separate explanation of adjustments on a no change FPAA, but includes the language on the schedule of adjustments.;

    5. One copy of each dated FPAA, both named and generic, mailed to the TMP.

    6. A Form 886-Z with corrected amount for each adjusted item for each partner and correct profit percentages or a spreadsheet with the same information. If the Schedules K-1 show various, then leave blank (Form 886-Z is no longer used on a no-change FPAA). The Schedule of Adjustments and the Form 4605 must be reviewed to ensure the figures match. The Form 886-Z (or equivalent spreadsheet) must then be matched to the Schedules K-1. Any special allocations or reallocations must be noted on the check sheet.;

    7. A Supplemental Report for affected items.;

    8. A complete copy of the revenue agent's or Appeals report including Form 4605-A, the explanation of adjustments, and the appropriate distribution schedule. This will be sent whether a 60-day package was issued or not (Appeals does not use a Form 4605-A on a no change FPAA.);

    9. A completed check sheet verifying all required items are included in the FPAA package. The check sheet will be included if the FPAA package is originating from Technical Services. If the package is originating in Appeals, they will use Form 14298, Appeals TEFRA Notice Package Check Sheet; and

    10. Form 14642, if the package is originating in Appeals.

  3. If the package is incomplete, the CTF will contact Technical Services or Appeals to take every action to perfect the package.

    1. As a last resort, packages with major omissions will be returned to Technical Services or Appeals for perfection if there is adequate time remaining on the statute.

    2. Where less than 90 days remain on the statute, the CTF and Technical Services or Appeals will coordinate completion of the package and protection of the statute.

  4. Take caution to ensure that the statute is protected. Technical Services will prepare and issue the FPAA to the TMP and immediately provide the CTF with an FPAA package (and certified mailing list) for partner notification. Generally, Appeals will prepare a TMP FPAA, and include it with the FPAA package, for the campus to mail. If the statute will expire within 45 days, Appeals will mail the FPAA to the TMP using certified mail and simultaneously mail a copy of the FPAA and a copy of the certified mailing list to the CTF.

  5. The CTF will review the most recent build out to ensure that all material partners are linked. If any partners are not linked, determine what corrective action must be taken.

    1. Unlinked material notice partners must be re-linked using CC TSLODA. The partner name and address must be input using CC TSCHG after research is done to secure the most recent address.

    2. Any material partners who have had partnership items converted to nonpartnership items should have the "TEFRA" indicator removed.

    3. Do not enter one-year assessment date to stop notices from being generated, as this will distort PCS reports. If you only need to issue a few FPAAs, use TSNOT with a definer "I" to issue specific notices to individual partners.

  6. If penalties are being proposed and no 60-day letter was previously issued, the CTF will input the penalty indicator on the key case record using CC TSCHG.

  7. The FPAA to the TMP should be dated and mailed by certified mail. A copy mailed to a POA, if applicable, should be sent regular mail.

    1. The 60-day date, which is the date that the FPAA was mailed to the TMP, is input using CC TSCHG.

  8. The PCS CC TSNOT3 will generate letters for all TEFRA linked partners with no one-year assessment statute date. An additional spousal notice is generated on jointly filed returns. This provides the spouse with an opportunity to file a petition.

    1. The CTF will verify that all unagreed material notice partners had a letter generated by the PCS by comparing the Certified Mail listing to the build out.

    2. If any notice partner does not have a letter generated, a manual letter will be prepared.

    3. A copy of the schedule of adjustments and an explanation of adjustments (statutory notice language) that was attached to the TMP letter is attached to each partner letter.

      Note:

      Typographical errors such as a mistyped name or EIN will not invalidate a notice.

  9. Partner letters will be folded and enclosed in envelopes bearing the return address of the CTF, including a return envelope for the partner unless Appeals specifically instructs otherwise and includes a return envelope for the partner. If the CTF is mailing the FPAA to the TMP it will be dated and mailed at the same time as the partner letters.

    1. The partner letters must be mailed before the 60th day after the field mailed the dated letter to the TMP. Failing to meet the 60 day time frame will result in having to follow untimely notice procedures.

    2. All notice partner FPAAs are mailed by certified mail because the courts accept the certified mail listings as proof that the notice was mailed.

  10. The key case administrative file will be noted and copies of the FPAA(s) issued to the TMP and the partners will be associated with the file. The CTF should mail the FPAAs to the partners within 30 days after the receipt of the package in the CTF.

  11. The CTF will ensure that the freeze code "H" is not removed from the key case AIMS record by CC AMFRZR until final action on the key case is completed. For example, the freeze code would be removed after the receipt of the FPAA default package or court decision package, but not until the one-year date is entered for the partners and Form 8339 is entered to reflect an item 08, Partnership Adjustment Amount, entry. The adjustment amount is important in allowing us to capture data to determine the productivity of partnership examinations.

    Note:

    It is possible that the partnership adjustment amount was previously input when a 60 day letter or Appeals settlement package was received. The partnership adjustment amount, if no longer correct, will need to be removed and the correct amount re-entered.

  12. The CTF will send the following back to Technical Services or Appeals:

    1. A Form 3210 addressed to originator of package (Technical Services or Appeals);

    2. A dated copy of each FPAA issued to the TMP if mailed by the CTF; and

    3. One copy of each certified mail listing, both PCS generated and manually generated.

Untimely Notice Procedures

  1. There must be 120 days between the date the last NBAP was issued to a partner, and the date the FPAA was issued to the TMP. All partner FPAAs must be issued to the partners within 60 days from the date the FPAA was issued to the TMP. If either of these time frames are not met, the notices were not sent timely and the partners may elect to have their partnership items treated differently.

  2. There are two different types of untimely notice procedures.

    1. The TEFRA proceedings are still ongoing, or

    2. The TEFRA proceedings are complete.

TEFRA Proceedings Ongoing
  1. An untimely notice when the proceedings are still ongoing can occur when there is less than 120 days on the partnership statute and the field wants to begin an examination. This requires the NBAP, FPAA and Letter 3857, Untimely Notice Letter (TEFRA Proceedings Ongoing), to be issued at the same time. It is possible to have this situation if a partner was inadvertently not sent an FPAA within 60 days of the TMP FPAA. In this instance, the partner FPAA and the Letter 3857 should be sent together.

  2. The Letter 3857 notifies the partner of the untimely notice and provides them an opportunity to

    1. elect to have their partnership items treated as nonpartnership items, or

    2. elect to have any prior settlement agreement apply to them

  3. The election must be filed within 45 days from the date they received their FPAA. The election must be completed as explained within the Letter 3857.

  4. If no election is filed, the partner will remain part of the TEFRA proceedings.

  5. If an election is filed, the one year assessment period will being on the date the FPAA was mailed to the partner. The TEFRA indicator needs to be removed from PCS. A statutory notice of deficiency must be issued and assessed during the one year period. When the statutory notice is issued the Report Package Indicator needs to be updated to "S" .

TEFRA Proceedings Completed
  1. An untimely notice when the proceedings are complete can occur when a partner wasn’t provided an FPAA on a case that got petitioned. After the court decision is entered, but before the expiration of the OYD we discover that no FPAA was issued. This requires the FPAA and Letter 3858, Untimely Notice Letter (TEFRA Proceedings Complete), be issued at the same time.

  2. The Letter 3858 notifies the partner of the untimely notice and provides them the opportunity to file an election to have their partnership items treated according to

    1. the FPAA,

    2. a final court decision, or

    3. a prior settlement agreement

  3. The election must be filed within 45 days of the date they received their FPAA. The election must be completed as explained in the Letter 3858.

  4. If no election is filed, the partner’s partnership items will convert to nonpartnership items. A one year assessment period will begin on the date the FPAA was mailed to the partner. The TEFRA indicator should be removed from PCS. A statutory notice of deficiency must be issued and assessed during that one year period. When the statutory notice is issued the Report Package Indicator needs to be updated to "S" .

  5. If an election is made, the partner’s return will be adjusted using the election option they chose. A one year assessment period will being on the date the FPAA was mailed to the partner. The adjustments will be made using normal TEFRA procedures.

Closing Packages

  1. The following subsections provide explanations on closing packages. Form 14513, TEFRA Case Report, should be completed and used as a cover sheet with all tier and BMF closing packages.

FPAA Default

  1. If no petition is filed with respect to the key case, Technical Services or Appeals (whichever office initiated the FPAA) will default the FPAA. Technical Services or Appeals will forward a default package to the key case CTF to initiate the closure of the partner cases. The CTF will input the one-year assessment statute date using CC TSCHG or MSCHG.

  2. The default package includes the following:

    1. A Form 14434, TEFRA Notice Package Check Sheet, marked "Default Package" clearly showing the key case name, EIN, tax period, and the one-year assessment statute date;

    2. A Form 886-Z (or equivalent spreadsheet) stamped "Default" on all pages, showing the corrected amount for each adjusted item of the key case entity return (Form 886-Z is not used on a no-change FPAA.);

    3. A completed Form 4605-A (Appeals does not use a Form 4605-A on a no change FPAA.); and

    4. Penalty information (not used for tax years ending after August 5, 1997, because the penalty issues must be in the Form 4605-A). If penalties are not applicable, note that fact in the package.

  3. Upon receipt of the default package, the CTF will ensure that the one-year assessment statute date is input using CC TSCHG or MSCHG. The one-year assessment statute date for a default package is one year plus 150 days from the date the FPAA was issued to the TMP.

    1. If the one-year assessment statute date is not on PCS, the CTF will input it using CC MSCHG.

    2. The CTF will verify that Form 8339 was entered to reflect an item 08, Partnership Adjustment Amount, entry, and freeze code "H" is removed from the key case on AIMS.

    3. Use CC AMFRZR to remove freeze code "H" from the key case AIMS record, but not until the one-year date is entered for all material partners, including tiers.

  4. The key case CTF will forward a partner default package to the partner CTF, if not the same as the key case or tier CTF, within 30 days of receipt of the key case default package from Technical Services or Appeals.

    Note:

    If the partner return is a LB&I, CIC corporation, Joint Committee, and/or corporate specialty case, the CTF will forward the information to the area office location that has the partner return in suspense as determined by the AIMS data base for that partner.

  5. The partner default package will include:

    1. A Form 14434, TEFRA Notice Package Check Sheet, marked "FPAA Default Package" which clearly reflects the key case name, EIN, and tax period. The Form 14434, TEFRA Notice Package Check Sheet, will reference the fact that a TSUMYP print is included to identify the partners and their one-year date.

    2. A Form 886-Z (or equivalent spreadsheet) stamped "Default" which indicates the partner's corrected amount for each adjusted item.

    3. A completed Form 4605-A, with all attachments and Explanation of Items.

    4. Penalty information, if applicable, (included in the Form 4605-A for key case tax years ending after August 5, 1997). If penalties are not applicable, note that fact in the package.

    5. Any recent correspondence issued to or received from the taxpayer.

  6. If less than three months remain on the one-year assessment statute date and the partner CTF is different than the key case or tier CTF, the Team Leader of the key case CTF will contact the Team Leader of the partner CTF to advise that a package with a short statute will be sent. The Campus TEFRA/Pass Through Coordinators or Inventory Control Managers between the two locations may make the contacts instead of the two Team Leaders. If the package is not too voluminous, a copy should be sent electronically to the partner CTF.

  7. If the partner is a CIC corporation, corporate specialty or Joint Committee case in Appeals jurisdiction, the Team Leader of the key case CTF will contact the Appeals Domestic Operations - Technical Specialist - TEFRA to advise that a package with a short statute will be sent. The TEFRA/Pass Through Coordinator of the key case CTF may make the contact instead of the Team Leader. The Team Leader of the key case CTF will fax a copy of the package to the Appeals Domestic Operations - Technical Specialist - TEFRA, or if too bulky, mail by overnight mail.

  8. After all packages are forwarded to the partner CTF's, the default package received from Technical Services or Appeals is filed in the key case administrative file which will be so noted.

  9. The key case administrative file remains filed in the CTF closed key case files for a minimum of 18 months. After 18 months, if there are no open partners, all contents, which are not a duplication of the key case return file, are sent to the Federal Records Center for association with the key case return.

    Note:

    The key case administrative file is not refiled and the 18-month period does not begin, until all partners have one-year dates, the "H" Freeze is removed and Form 8339 is entered to reflect an item 08, Partnership Adjustment Amount, entry. The adjustment amount is important in allowing us to capture data to determine the productivity of partnership examinations. It is possible that the partnership adjustment amount was previously input when a 60 day letter, Appeals settlement or FPAA package was received. The partnership adjustment amount, if no longer correct, will need to be removed and the correct amount re-entered.

Petitioned Key Cases

  1. A key case may be petitioned to the Tax Court, a district court where the partnership's principal place of business is located, or the Court of Federal Claims.

  2. The venue chosen and the rules of the particular court determine the procedures that must be followed.

Petitioned Tax Court Cases
  1. The docket list should be monitored by the CTF to determine if a partner has filed a petition in the United States Tax Court. The CTF should also be sensitive to other indications that a petition has been filed, e.g., an AIMS update of the key case to a status 8X.

  2. Technical Services or Appeals (whichever organization initiated the FPAA) will notify the CTF that a petition was filed. If the CTF receives a copy of the partner's filing, other than from Technical Services or Appeals, it will be forwarded to Technical Services or Appeals to be associated with the key case file. A copy will be retained for the campus key case administrative file. If less than 15 days remain on what would be the default date for the FPAA, a copy of the petition (without any attachments, if any) will be faxed to Technical Services or Appeals.

    1. If the key case is in Technical Services, then only the key case administrative file is sent to Appeals as a docketed case.

    2. The CTF key case administrative file and the partner files will remain in CTF suspense.

  3. When the CTF receives notice from Appeals or Technical Services that a petition was filed, the key case file will be noted to reflect the docketed case status. The docket number will be input on the PCS using CC TSCHG, item number 28. The campus key case administrative file is refiled pending the outcome of the court case.

Petitioned District Court and Court of Federal Claims Cases
  1. Under the unified proceedings, partners may file a petition directly with either a district court or the U.S. Court of Federal Claims and gain direct access to that court. However, if either of these courts is used, each partner who files the petition must make a deposit equal to the amount their tax liability would be increased if the adjustment in the FPAA were fully sustained.

    1. The amount deposited is treated as a tax payment only for the purpose of computing interest.

    2. If jurisdiction to the court is dismissed because of the priority of a Tax Court action, the partner may request a refund of the deposit.

    3. If members of a 5-percent group file a petition, each member of the group must make the required deposit.

    4. The deposit must be made on or before the date the petition is filed.

    5. The deposit requirement is satisfied if there is a good faith attempt to deposit the correct amount and any shortfall is timely paid.

    6. The deposit amount need only include the tax. Interest and penalties do not need to be deposited.

  2. The petitioner may bring or mail in a deposit to any function within IRS. It doesn't matter if the deposit is sent to the field, the campus or Appeals. The check should include the TIN, tax period & that it is a bond to go to district court. A letter stating all the these is nice but not needed.

  3. If an action is brought in district court or the U.S. Court of Federal Claims, only the petitioning partner is required to make a deposit. The Service will assess and collect the tax deficiency against all partners (petitioning and non-petitioning) who have an interest in the proceeding (partnership items haven’t converted to nonpartnership items), including penalties and interest. The deposit may be applied to the assessment of the petitioning partner. No partial assessments stemming from the petition may be made prior to the close of the 150th day after the day the FPAA was mailed to the TMP.

  4. When the CTF is notified of a petition filed with a district court of the United States, or the United States Court of Federal Claims, the key case is treated and processed as if the FPAA had defaulted. The key case is updated to status code 90 so the partner assessments may be billed and collected. In order for AIMS to be closed, the "H" freeze must be removed. These procedures are similar to the refund litigation procedures applicable to claims.

  5. The key case CTF will prepare a closing package for each partner file. The closing package will include:

    1. A cover sheet noting that the closing package is a district court or Court of Federal Claims closing package and clearly indicating the partnership name, tax year, EIN and a "one-year" assessment statute date. The cover sheet must also specifically state the partner cases are to be processed as partial assessments and must remain open pending the final outcome of the litigation.

      Note:

      Since there is no true OYD for the partnership, a one year date needs to be input so the returns will appear on the PCS 4-4 report. It is recommended a one-year date be input that is not more than 60 days from the date the package is prepared. The key case does not really have a one year date at this time, but the venue the partnership has selected to litigate the partnership issues requires the partners be assessed and part, if not all, of the tax be paid if they are to remain parties to the proceedings. The assessments must be made as soon as possible for the case to proceed in the courts. The placeholder OYD may be extended another 60 days if needed.


    2. A Form 886-Z (or equivalent spreadsheet) with the corrected amount for each partner of each adjusted item of the key case return. This Form 886-Z (or equivalent spreadsheet) is the same one that was included in the FPAA package.

    3. A complete copy of the revenue agent's or Appeals report including the Form 4605-A, the explanation of adjustments and any other attachment that may be included in the report. If penalties were proposed, for tax years ending on or before August 5, 1997, they must not be assessed at this time. For tax years ending after August 5, 1997, penalties must be assessed at this time. The Form 4605-A should be sent via regular mail along with Letter 4735, Notice of Computational Adjustment.

      Note:

      Affected Item are not part of the partnership proceedings and will not be assessed until after the decision of the court becomes final.

    4. Once the partner assessments are completed, the OYD will be updated to "55555555" . This signifies that the assessments per the petition were completed but there is still a court case pending which could change the adjustments.

      Note:

      If the key case is also a tier in another partnership, the 5’s may need to be removed to accommodate another OYD. However, the "5’s" should be replaced upon completion of the other key case adjustments.

  6. See IRM 4.31.4 of this Handbook for the procedures for petitioned AAR's.

  7. The key case is updated to status 90, but the 18-month period for refiling the key case administrative file in the closed key case files does not begin until the litigation is final.

  8. The key case CTF will note the key case administrative file to reflect the docket status and input the docket number on the PCS using CC TSCHG, item number 28. Use PCS Special User Message, TSCHG 07, to notate the applicable court jurisdiction ("Tax Court" , "Court of Claims" , etc.)

Court Decisions Finalized
  1. The key case CTF will receive notification from Appeals (or in rare instances from Area Counsel) that a decision was entered with respect to a docketed case.

  2. The court settlement (stipulated decision) or court decision package will include:

    1. A Form 3210 noted as a court decision package which clearly indicates the partnership name, tax year, EIN, and one-year assessment statute date;

    2. A Form 886-Z (or equivalent spreadsheet) with the corrected amount for each adjusted item of the key case entity return that reflects the terms of the court decision or settlement;

    3. A copy of the court decision document;

    4. A completed Form 4605-A; and

    5. Penalty information (not used for tax years ending after August 5, 1997, since penalties must be included in the Form 4605-A). If penalties are not applicable, it should be notated in the package.

  3. When the package is received it will be reviewed by the key case CTF who will acknowledge the Form 3210 within three days of receipt. If the individual who would normally acknowledge the Form 3210 is unavailable, the manager will ensure the Form 3210 will be acknowledged by another employee (or himself/herself) within that three-day period. The individual signing the Form 3210 is only acknowledging that a package was received. It does not mean that the package was complete or that everything listed on the Form 3210 was actually received.

  4. The one-year assessment statute date will immediately be input on the key case partners and all related tiers using CC MSCHG.

    1. The one-year assessment statute date is no less than one year plus 60 days from the date the court decision is entered or no more than one year from the date the decision becomes final.

    2. A Tax Court Decision is final 90 days after the decision is entered. No assessments can be made before the 90 days have passed.

    3. If the Tax Court decision is appealed, technically the case is not "final" , however the partners may be assessed after the 90-day period has elapsed.

    4. By appealing the Tax Court decision the case is similar to a refund litigation case in that the partners are looking to reduce or eliminate a Tax Court decision that increases the partner's tax liability. The assessments are processed as partial assessments like petitions originally filed in District Court or the Court of Federal Claims. The partner cases remain open pending the resolution of the appeal process.

    5. If a bond is posted in an amount equal to the entire amount of the increase in the tax liability(ies) from the Tax Court decision, the assessment(s) may be delayed until all appeals have been exhausted. If no bond is posted and assessments are being made a "one-year date" of 60 days from the date the packages are prepared should be input on the PCS. This forces the partner cases to appear on the PCS Report 4-4 and they should be worked as expeditiously as possible. The placeholder "OYD" may be extended another 60 days if more time is needed.

  5. The key case CTF will forward a court decision package to the partner CTF, if different from the key case CTF, within 30 days from the date the decision package is received from Appeals or Area Counsel.

  6. The package will include:

    1. A Form 3210, if mailed, noted as a court decision package, which clearly indicates the key case name, tax period, EIN, one-year assessment statute date, partner name, TIN, and tax period.

    2. A copy of the court decision document.

    3. A Form 886-Z (or equivalent spreadsheet) showing the corrected amount for each adjusted item of the key case entity return.

    4. A completed Form 4605-A.

    5. Any recent correspondence issued to or received from the partner.

    6. Penalty information (not used for tax years ending after August 5, 1997, since penalties are included in the Form 4605-A). If penalties are not applicable, note that fact in the package.

  7. If the partner return is controlled on AIMS by LB&I or Joint Committee the CTF will forward the information to the exam location that has the partner return in suspense as determined by the AIMS data base for that partner. Appeals will prepare flow-through adjustments for corporate returns with an activity code of 219 or above, CIC corporation, and corporate specialty returns, which are any corporate return filed with a Form 1120 followed by a letter (for example, Form 1120-L life insurance company) except Form 1120-A, Form 1120-S or Form 1120-X. Appeals will also prepare flow-through adjustments for Joint Committee returns. Non-corporate returns, and non-CIC corporate returns with activity codes below 219, with flow-through adjustments, will have to be computed by the campus and forwarded to Appeals.

  8. If the partner is a CIC corporation, corporate specialty or Joint Committee case in Appeals jurisdiction, the Team Leader of the key case/tier CTF will contact the Appeals Technical Specialist - TEFRA to notify them that a package with a short statute will be sent. The TEFRA/Pass Through Coordinator of the key case/tier CTF may make the contact instead of the Team Leader. The Team Leader of the key case/tier CTF will fax a copy of the package to the Appeals Technical Specialist - TEFRA, or if too bulky, mail by overnight mail.

  9. If less than three months remain on the one-year assessment statute date and the partner CTF is different than the key case/tier CTF, the Team Leader of the key case CTF will contact the Team Leader of the partner CTF to notify them that a package with a short statute will be sent. The TEFRA/Pass Through Coordinators between the two locations may make the contacts instead of the two Team Leaders. If the package is not too voluminous, a copy should be sent by fax to the partner CTF.

  10. After forwarding the packages to the partner CTF, the court decision package received from Area Counsel (through Appeals generally) is associated with the campus key case administrative file, which is so noted.

    1. The key case administrative file is filed in the closed TEFRA files in TIN order.

    2. The key case administrative file remains filed in the TEFRA closed key case files for a minimum of 18 months. After 18 months, if there are no partners with open OYDs, all contents, which are not a duplication of the key case return file, are sent to the Federal Records Center for association with the key case return.

      Note:

      The key case administrative file is not refiled and the 18-month period does not begin, until all partners have one-year dates, the "H" Freeze is removed and Form 8339 is entered to reflect an item 08, Partnership Adjustment Amount, entry. The adjustment amount is important in allowing us to capture data to determine the productivity of partnership examinations. It is possible that the partnership adjustment amount was previously input when a 60 day letter, FPAA or Appeals settlement package was received. The partnership adjustment amount, if no longer correct, will need to be removed and the correct amount re-entered.

Agreed Cases

  1. The subsections below discuss the processing of agreements unique to TEFRA examinations.

  2. Consider the impact of an agreement on all other partners in view of their right to consistent settlement.

Consistent Settlement
  1. IRC 6224(c)(1) allows partners to enter into a settlement agreement to fix the correct treatment of partnership items with finality. IRC 6224(c)(2) gives other partners the right to request a settlement that is consistent with another partner’s settlement.

  2. The request for consistent settlement must be made by the later of:

    1. 150 days after an FPAA was mailed to the TMP;

    2. 60 days after the other partner’s settlement agreement was accepted by the Commissioner; or

    3. 45 days after an untimely FPAA is mailed to the partner.

  3. The partner must request the consistent settlement in writing and identify the specific settlement for which he/she/it is requesting consistent settlement. The request shall be submitted to the office that entered into the settlement. Treas Regs 301.6224(c)-3.

  4. The consistent settlement will be processed on Form 870-PT and identified as "Consistent Settlement" . "Consistent Settlement" should be written on the top of the agreement form.

    Note:

    If the agreement is not identified as a consistent settlement, another partner may claim the agreement starts a second 60-day period for requesting consistent settlement.

Agreements Received at the Closing Conference
  1. The key case examiner may receive a signed Form 870-PT or Form 870-LT from the partners in the key case. These will be transmitted with the RAR to Technical Services for acceptance by the Commissioner.

  2. The Forms 870 will be forwarded by Technical Services to the key case CTF within 5 days of execution. Packages are submitted to the campus by two methods, either scanned or mail.

  3. Packages should be scanned if they are not too large.

    1. Within 5 days of execution, the entire package (countersigned Form 870-PT/Form 870-LT, Form 886-A, Form 4605-A, Form 886-Z (or equivalent spreadsheet)) along with the notice package check sheet should be forwarded to the appropriate CTF using the shared drive or IMS.

    2. Within 5 days of execution, all of the originally executed agreements should be mailed to the appropriate CTF. The CTF will send the executed agreements to the partners and issue a Letter 2398 to the TMP notifying him/her which partners have agreed.

    3. The one-year assessment statute date for all partners who have signed agreements that have been accepted for the Commissioner must be input on PCS using CC TSCHG within 10 days of receipt of the agreement package from Technical Services. If all of the material partners in the key case have signed the agreements and all of the agreements have been accepted for the Commissioner on the same date, PCS CC MSCHG may be used to input the one-year date for the partners.

    4. Input the partnership adjustment amount on PCS using TSCHG, item 08. The adjustment amount is important in allowing us to capture data to determine the productivity of partnership examinations.

    5. If all linked partners have agreed, then the H freeze should be released.

  4. Packages that are very large must be mailed.

    1. Within 5 days of execution mail the entire package (countersigned Form 870-PT/Form 870-LT, Form 886-A, Form 4605-A, Form 886-Z (or equivalent spreadsheet)) with the notice package check sheet to the appropriate CTF.

    2. The CTF will send the executed agreements to the partners and issue a Letter 2398 to the TMP notifying him/her which partners have agreed.

    3. Input the partnership adjustment amount on PCS using TSCHG, item 08. The adjustment amount is important in allowing us to capture data to determine the productivity of partnership examinations.

    4. Within 10 days of receipt of the agreements and acknowledgement of the Form 3210, the CTF will input the one year dates, and release the H Freeze if all material partners have agreed.

  5. Within 30 days of the execution (acceptance) date, a package containing the original agreements accepted by the Service will be transmitted to the partner CTF if different from the key case CTF, via Form 3210 with the one-year assessment statute date clearly shown on the face of the Form 3210. The partner CTF will acknowledge the Form 3210 within three days of receipt. If the individual who would normally acknowledge the Form 3210 is unavailable, the manager will ensure the Form 3210 will be acknowledged by another employee (or himself/herself) within that three-day period. The individual signing the Form 3210 is only acknowledging that a shipment was received. It does not mean that the shipment was complete or that everything listed on the Form 3210 was actually received. However, if every thing on the Form 3210 was not received appropriate notations and action should be taken by the receiving individual.

  6. The agreement package sent to the partner CTF will contain:

    1. A Form 3210 transmittal with the one-year assessment statute date clearly indicated on the transmittal.

    2. The original executed Form(s) 870-PT or 870-LT including the schedule of adjustments.

    3. A completed Form 886-Z (or equivalent spreadsheet) showing the corrected amount for adjusted items of income, loss, or deduction of the key case entity return that will be used for the computation of the assessment or overassessment on the partner returns.

    4. A completed Form 4605-A.

    5. Penalty information (not used for tax years ending after August 5, 1997, since penalties are included in the Form 4605-A), if applicable.

    6. A TSUMYP print to verify the partner is established and the one-year assessment statute date has been entered.

  7. If the partner return is controlled on AIMS by LB&I or Joint Committee the CTF will forward the information to the exam location that has the partner return in suspense as determined by the AIMS data base for that partner.

  8. Appeals will prepare flow-through adjustments for corporate returns with an activity code of 219 or above, CIC corporation and corporate specialty returns, which are any corporate return filed with a Form 1120 followed by a letter (for example, Form 1120-L life insurance company) except Form 1120-A, Form 1120-S or Form 1120-X. Appeals will also prepare flow-through adjustments for Joint Committee returns. Non-corporate returns, and non-CIC corporate returns with activity codes below 219, with flow-through adjustments, will have to be computed by the campus and forwarded to Appeals.

  9. Copies of Form(s) 870-PT or 870-LT and the schedule of adjustments are distributed as follows:

    1. One copy is mailed to the appropriate partner; and

    2. One copy must be placed in the campus key case administrative file.

  10. A list of the partners for whom agreements were executed is sent to the TMP.

  11. Note the actions taken on the history sheet in the key case administrative file.

Agreements Received as a Result of a 60-Day Letter or FPAA
  1. All Forms 870-PT or Forms 870-LT (60-day letter only) and the schedule of adjustments received directly from the partners or shareholders must be screened for altered documents or taxpayer initiated requests for settlement. The schedule of adjustments from the campus key case administrative file must be compared to the schedule of adjustments received from the partner or shareholder. If discrepancies exist, the agreements cannot be executed .

  2. All Forms 870-PT or Forms 870-LT will be executed for the Service by a Revenue Agent, GS-12 or higher (per Delegation Order 4-19), within five days of receipt in the key case CTF. Under no circumstances, other than a short statute, should a Form 870-PT or Form 870-LT be executed by anyone other than the key case CTF.

  3. If the key case is in docketed status, coordinate with Appeals or Area Counsel.

  4. Within five days after acceptance for the Commissioner of the Forms 870-PT or 870-LT, input the one-year assessment statute date on PCS using CC TSCHG, item number 05.

  5. Process any accepted Form 870-PT or Form 870-LT as stated in the text of IRM 4.31.3.6.3.2, Agreements Received at the Closing Conference.

Settlement Agreements Received as a Result of Appeals Letters
  1. A Form 870-PT(AD) or Form 870-LT(AD) and Form 870-PT or Form 870-LT, when received for a key case in Appeals jurisdiction, must be accepted for the Commissioner within 5 days of receipt in the CTF.

  2. Appeals settlement agreements may be executed by Revenue Agents GS-12 and above in the Campus TEFRA Function, or Appeals personnel in accordance with Delegation Order 4-19.

  3. Once accepted, forms listed in (1) above are processed as outlined in IRM 4.31.3.6.3.2, Agreements Received at the Closing Conference, of this Handbook.

Settlement Agreements in Docketed Cases
  1. In a docketed case, when processing a settlement agreement under IRM 4.31.3.6.3.2, Agreements Received at the Closing Conference, the notification to the TMP must include the following:

    1. The identity of the parties to the settlement agreement and the date of the agreement;

    2. The year(s) to which the settlement agreement relates; and

    3. The terms of the settlement as to each partnership item, and the allocation of such items among the partners.

Settlement Agreements Secured on District Court or Court of Federal Claims Cases
  1. Settlement Agreements are different for cases controlled by the Department of Justice (DOJ). The DOJ does not use standard closing agreements. DOJ enters into settlement agreements though an exchange of letters (offer and acceptance) rather than using Form 870-PT, Form 906, or closing agreements.

  2. A settlement agreement with the Department of Justice converts partnership items to nonpartnership items and starts the one year period for assessment under IRC 6229(f). This generally waives deficiency procedures so that we do not have to issue an affected item notice of deficiency to assess any of the amounts agreed to in the exchange of letters.

Execution of Agreements
  1. Generally, agreements must be signed by the partner of the key case partnership. Determining who can sign may be tricky in some circumstances. If there is any doubt on who should be signing an agreement, contact the Technical Services TEFRA/Pass Through Coordinator. See IRM Exhibit 4.31.2-4 for additional information about who should sign the agreement.

  2. For tax years beginning before June 28, 2002, parent corporations that are part of a consolidated group must sign agreements of subsidiary partners. Even if the subsidiary is the partner, the parent must sign since any tax will ultimately impact the parent's return. The format for the name on the parent's agreement will read, XYZ Corporation, on behalf of consolidated group including ABC Subsidiary.

  3. For tax years beginning on or after June 28, 2002 (see Treas. Reg. 1.1502- 77), agreements secured from consolidated groups for partnership and affected item adjustments, should have both the subsidiary partner’s and its parent’s signatures on the waiver. If a subsidiary, who is the actual partner under state law, insists on being the sole signatory on the waiver, the examiner should contact local area Counsel before executing the waiver. A subsidiary partner that is the TMP can solely sign an agreement as TMP in order to bind non-notice partners.

  4. If there is a subsidiary partner, or multiple subsidiary partners with the same parent, then only the parent needs to sign the agreement. The exception is if the parent entity no longer exists and the subsidiaries are the only parties left to assess. In that case we would need to link the subs and secure agreements from all the subsidiary partners.

  5. For partners who are non-subsidiary corporations, trusts, or partnerships, the agreements should be signed by an authorized corporate officer, trustee, or general partner authorized to bind the partnership under state law, respectively. The title of the person signing should be included on the appropriate line on the agreement form.

  6. Trustees signing on behalf of a trust must complete a Form 56, Notice Concerning Fiduciary Relationship, to declare their eligibility to sign as the beneficiary. If the beneficiary trustee is signing the form to bind only themselves, then no Form 56 is needed.

  7. When countersigned agreements are received by the campus or countersigned by campus personnel, Letter 2398 will be completed along with a listing of the taxpayers who settled and their date of settlement. The letter and listing are used to notify the TMP as to what partners have agreed so the TMP can meet the legal obligation under Treas. Reg. 301.6223(g)-1(b)(1)(iv). Use Letter 1908 to send a copy of the countersigned agreement back to the partner for their records. If the partner's Letter 1908 is returned as undeliverable, the campus should research for a current address.

    Note:

    The title of Letter 1908 is "Transmittal Letter Agreed Form 870-P" ; however, the language of the letter allows it to be used with any of the Form 870 agreement forms used in TEFRA.

Acceptance of Faxed Agreements and Statute Extensions
  1. Consents to assess additional tax (Form 4549, Form 870, and others) can be accepted by fax if taxpayer contact has been made and the case history documents the date of contact and the desire of the taxpayer to submit the consent by fax.

  2. Closing agreements involving tax amounts can be accepted by fax if taxpayer contact has been made and the case history documents the date of contact and the desire of the taxpayer to submit the consent by fax.

  3. Consents to extend the statute of limitations for assessing tax (Form 872, Form 872-P, and other consent forms) can be accepted by fax if taxpayer contact has been made and the case history documents the date of contact and the desire of the taxpayer to submit the extension by fax.

Closing Packages Resulting in Refunds

  1. IRC 6230(d)(5) states that overpayments will be refunded where practicable. In cases were it is determined not to be practicable to process refunds, taxpayers should be provided an opportunity to request refunds.

Letters 4505

  1. When key case partnership adjustments result in a refund, and processing those adjustments is not practicable, the campus may issue Letter 4505-A, Notification of Potential Refunds Resulting from a Partnership AAR, or Letter 4505-E, Notification of Potential Refunds Resulting from a Partnership Exam.

  2. The letters include direction for the partnerships to provide instructions to their partners. The instructions explain how the partners need to file their amended returns to ensure they are not rejected during processing. Partners that do not follow the instructions may have their claims disallowed.

  3. Because the adjustments stem from a TEFRA partnership, the statute is controlled at the partnership level. The partners’ individual statute may appear to be expired. Following the instructions in the 4505 letter provides the campus with the information they need to verify the statute is still open and the refund is allowable.

  4. Letter 4505 may be issued to the TMP and procedures applied at the key case level. The TMP will then be required to provide amended Schedules K-1 to all partners. Partners considered to be notice partners for other TEFRA notices are not required to be noticed separately here. These letters may also be issued at a lower tier level if appropriate.

    Note:

    All related partners need to be closed as soon as possible after issuing the Letter 4505, otherwise amended returns will be forwarded to the open AIMS.

Letter 4505-A, Notification of Potential Refunds Resulting from a Partnership AAR
  1. When a partnership filed AAR results in a refund, it may not be practicable for the campus to process the refunds. In those situations, the campus may send a Letter 4505-A to the partnership. This will instruct the partnership to inform their partners that they may file amended returns. The partners' amended returns should include:

    1. "Letter 4505-A/AAR" written on the top center of the amended return

    2. A copy of the amended Schedule K-1 from the partnership

    3. A copy of the Letter 4505-A provide by the partnership

Deadline for Filing Partner Amended Returns Based Upon Letter 4505-A
  1. The period for Service to issue refunds expires two years after the TMP AAR is filed.

  2. The refund period after the AAR is filed can be extended by a Form 9248 for TMP AAR’s and Form 9247 for partner-level AAR’s.

  3. Generally, a partner may file an AAR at any time which is within 3 years of the later of the date the partnership return was filed or the last day for filing the partnership return (determined without regard to extensions). If the assessment period under IRC 6229 is extended with Form 872-P, the period for filing an AAR will not expire until 6 months after the extension ends.

  4. Letter 4505-A notifies the partnership to provide amended Schedules K-1 to their partners so they may file their own AARs.

  5. Partners may file their own AARs during this refund period.

  6. Partners may file their own AAR’s within the period specified in paragraph (3). Also, if the partner’s assessment period is extended with Form 872, the partner’s period for filing his own AAR will not expire until 6 months after the extension ends. See IRM 4.31.4 for more information on AARs.

  7. Partner AARs must be processed within 2 years of the partner filing their AAR. This two-year period can be extended by a Form 9247 from the partner.

Letter 4505-E, Notification of Potential Refunds Resulting from a Partnership Exam
  1. When a partnership exam results in a refund, it may not be practicable for the campus to process the refunds. In those situations, the campus may send a Letter 4505-E to the partnership. This will instruct the partnership to inform their partners that they may file amended returns. The partners' amended returns should include:

    1. "Letter 4505-E" written on the top center of the amended return

    2. A copy of the amended Schedule K-1 from the partnership

    3. A copy of the Letter 4505-E provide by the partnership

  2. The Letter 4505-E may be issued directly to the TMP, or it may be used at a lower level within the partnership structure.

  3. When the Letter 4505-E is sent to the TMP, no other partners will be provided a notice. The letter instructs the TMP to provide their partners with amended Schedules K-1 so they amend their returns.

Deadline for Filing Partner Amended Returns Based Upon Letter 4505-E
  1. Letter 4505-E notifies the partnership to provide amended Schedules K-1 to their partners so they may file their own amended returns.

  2. The partners must file their amended returns within 2 years of a final partnership determination. (Agreement, defaulted FPAA or court decision). The date provided on the Letter 4505-E should be the OYD plus one year.

H Freeze Release

  1. The campus will release the H freeze within 5 days once a OYD is entered on all material key case partners.

  2. On closing packages that impact all partners (i.e., court decisions, defaults, etc.) the "H" freeze will be released in 5 days.

  3. Generally, the campus will execute agreements they secure within 5 days. Once all partners have agreed, the "H" freeze will be released within 10 days and Technical Services will be notified.

Partial Agreements

  1. The Taxpayer Relief Act of 1997 passed by Congress on July 31, 1997 and signed into law on August 5, 1997 changed portions of the TEFRA examination process. One notable change in particular provides that partial agreements can be secured for any settlements entered into after August 5, 1997. Partial agreements may be made for any tax year. By law, a partial agreement does not start the running of the one-year assessment date.

  2. In the normal processing of an agreed TEFRA case, once the partner has signed a settlement agreement form, the partnership items convert to nonpartnership items. The conversion of items from partnership items to nonpartnership items starts the running of the one-year assessment statute date. The statute of limitations for assessment of the newly converted nonpartnership items will not expire before the date which is one year after the date on which the conversion occurs.

  3. Since partial agreement cases do not have "one-year" statute dates, report writing may be delayed due to processing of cases that have established "one-year" statute dates. However, the idea behind a partial agreement is to have that portion of the deficiency assessed as soon as possible. TEFRA partial agreements may be secured by agents in the field or by an Appeals Officer during the appeals process.

  4. If the area negotiates a partial agreement with the TMP, partial agreements will be secured from all of the notice partners. If there are non-notice partners, the special language will be used on the Form 870-PT signed by the TMP to bind all of the non-notice partners.

  5. TEFRA partial agreements must have the annotation "Partial Agreement" (hand written, typed or stamped) on all pages of the Form 870-PT Form with the following statement added:

    This partial agreement becomes effective upon execution by the Commissioner of Internal Revenue or his delegate. It does not settle all of the partnership items. The remaining unsettled partnership items as well as any unsettled penalty, addition to tax, or additional amount that relates to an adjustment to a partnership item will remain subject to determination under the partnership-level administrative and judicial procedures. The period of limitations for assessing any tax attributable to the settled items shall be determined as if such agreement had not been entered into.

  6. The statement above will also be entered on the schedule of adjustments page. The Form 886-Z (or equivalent) will also be identified and marked as a partial agreement. The Form 3210 used to transmit the package will also be identified and clearly marked, TEFRA "Partial Agreement" and "Special Processing Required" to reflect that the attached package is for a partial agreement.

  7. The area will monitor the receipt of the signed partial agreements and retain them until all are received. The area will sign for the Commissioner and send all of the partial agreements to the key case CTF for processing at one time. The Technical Services TEFRA/Pass Through Coordinator will sign the agreements and not the CTF, since the area is fully aware of the agreed issues. Prior to signing for the Commissioner, the area will ensure both the notation "Partial Agreement" and the statement above are on all of the forms and attachments as required.

  8. When the partial agreements are received by the CTF for processing, a 60-day package will be included that includes all agreed and unagreed items. The CTF will send the all inclusive 60-day package to all of the partners, whether partially agreed or not, because all adjustments must be included in the schedule of adjustments.

    1. When the signed partial agreement forms are received by the CTF, process as normal, the "Partial Agreement" notation and the statement at the bottom will be highlighted (preferably in yellow). If the agreements have not been signed for the Commissioner by the area and have not been marked "Partial Agreement" , but it is known that they are in fact partial agreements, the agreement forms will not be signed by the CTF. The agreement forms will be returned to the originator. Subsequent modifications to agreement forms already signed by the taxpayer and executed cannot be made. The CTF will give the partial agreement forms expedited handling. Although not a true one year date, a placeholder "one-year" date will be entered. The CTF will input a date that is 5 months from the acceptance date on the agreement forms. This will be done to ensure timely processing. Instead of inputting a "Y" on PCS an "M" will be input. This ensures better control over these cases and will be used until a unique code can be obtained to indicate a partial agreement. There is currently an informal procedure in place to utilize the "M" as an indicator for partial agreements as well as for manual assessments.

    2. For these partial agreements only, the CTF will only be required to process packages for the partners and to notify the area. No TMP notification (Letter 2398) will be required since the TMP is fully aware of who accepted the partial agreements. However, the taxpayer should be sent their copy with Letter 1908 if the area did not already send the taxpayer an executed copy. In most cases, the campus will send the taxpayer their executed copy with Letter 1908.

      Note:

      The title of Letter 1908 is "Transmittal Letter Agreed Form 870-P" , however, the language of the letter allows it to be used with any of the 870 agreement forms used in TEFRA.

  9. When the area submits the 60-day package for processing and the area has solicited partial agreements, the CTF cannot and will not process the package until all partners have signed and agreed to the partial report unless the area specifically instructs the CTF to do so. Advance coordination with the CTF in this situation is required. Keep in mind that an undue burden is placed on the CTF if not all of the partial reports have been signed and agreed. PCS won't generate a 60-day letter with a "one-year" date still remaining on the partner. The CTF will request the 60-day letters prior to inputting the "one-year" date for the partial agreements. If a 60-day package is not included with the partial agreements, the partial agreement package will be returned to the area.

  10. The 60-day package the area prepares and submits to the CTF will address all issues, i.e. both agreed and unagreed. The schedule of adjustments page will include all of the issues. The package will include all of the items listed in IRM 4.31.3.5.1, 60-Day Letter, of this Handbook. All partners must agree to a partial agreement before those agreement will be executed.

  11. When final closing packages are received from the area or Appeals, the CTF will check TSUMYP to ensure all partners were previously worked for the partial agreement. It is anticipated that no partner will have either a "one-year" date or "11’s" in the "one-year" date field when the final agreement is received. The CTF must pay particularly close attention to the TSUMY print to verify no partner has a "one year" date with the TEFRA (T) indicator removed. In those instances the "one-year" date will not be changed. If the CTF is unsure of the research, the Campus TEFRA/Pass Through Coordinator or technical personnel should be consulted for guidance. The campus report writers can compare the final closing package with any prior packages and/or reports to see if any issues were previously processed as partially agreed and prepare the final reports accordingly.

One-Year Assessment Dates

  1. A one-year date is a statute expiration date that affects a taxpayer's account as the result of a TEFRA examination. It is exactly one year from the date a partner's partnership items became nonpartnership items. The one-year date is not 365 (or 366) days, but is exactly one year. If items convert on February 28, 2015 the OYD will be February 28, 2016. The only exception to the one year rule is if a taxpayer's partnership items convert on February 29 in a leap year. The one-year date in that instance would be February 28 of the next year and not March 1. The Code (IRC 6229(f)) specifically states the period for assessment "…shall not expire before the date which is 1 year after the date on which the items become nonpartnership items."

  2. The one-year date also applies to affected items that are computational in nature such as any percentage limitation based on adjusted gross income (i.e. deductible medical expenses change with a change to adjusted gross income or a change to a net operating loss carryback or carry over due to a change in adjusted gross income). Affected items that are factual in nature require a partner level proceeding and an agreement by the taxpayer. If the taxpayer doesn't agree to these affected items a 30-day and/or 90-day letter will be issued to the taxpayer. This partner level proceeding must be initiated before the expiration of the one-year date. Examples of factual affected items are penalties (for years ending before August 6, 1997 only; for years ending after August 5, 1997, penalties are treated as partnership items), basis issues, at-risk issues and passive loss issues.

  3. The date partnership items become nonpartnership items is not as easily determined and it may occur in many ways. The most common event where items convert is when the taxpayer signs a settlement agreement such as a Form 870-PT, Form 870-LT or Form 906 and it is accepted by the Commissioner. This will be discussed in more detail below.

  4. Some items do not become nonpartnership items immediately upon completion of an event by either the taxpayer or the Service. There is a "waiting period" between an event date and the conversion date. It is not a "suspension" period in the normal context, but until this waiting period has passed, no assessments can be made. The event causing the conversion determines the length of this waiting period.

  5. Events that occur where partnership items will convert to nonpartnership items on the date of the event include:

    1. The Secretary mails the partner a notice that partnership items will be treated as nonpartnership items.

    2. The partner files suit under IRC 6228(b) after the Secretary fails to allow an AAR.

    3. The Secretary enters into a settlement agreement with the partner. (The date the Commissioner signs the agreement, not the taxpayer.)

    4. The Secretary fails to provide proper notice under IRC 6223(e).

    5. Special enforcement areas under IRC 6231(c)

    • Termination or jeopardy assessments.

    • Criminal investigations. (Not automatic, written notification of our intent to convert the partnership items to non-partnership items is required.)

    • Indirect method of proof cases.

    • Bankruptcy and receivership situations.

    • Request for prompt assessment.

  6. The simplest way to compute a one-year date (if the start of the one-year date does not occur on the same day as the final determination or conversion) is to use Julian dates. The date of the event is converted to a Julian date. The appropriate waiting period is added to the Julian date of the event. This new Julian date is converted back to a calendar date. This is the start date. The one-year date is one year after this start date.

    Note:

    As a matter of practice, the campuses will subtract one day from the true one-year date when the one-year date is entered on the PCS. This is done to help ensure the assessments are made prior to the expiration date.

  7. If the Julian date with the waiting period added to it is over 365 (366 for a leap year), then 365 (or 366) is subtracted from the total. (If the total is exactly 365, or 366 if the event occurs in a leap year, then no subtraction is made.) The remainder is then converted back to a calendar date. Here are two examples of the calculation of a one-year date for a Tax Court decision:

    Date decision entered April 9, 2001 November 30, 2001
    Julian date 99 334
    Add 90 days 90 90
    Subtotal 189 424
    If over 365 (366) - subtraction amount 365
    Julian date as adjusted 189 59
    Calendar date (also decision final date) July 8, 2001 February 28, 2002
    One year date July 8, 2002 February 28, 2003
  8. In the above example for the April 9, 2001 decision entered date, no assessment may be made before July 9, 2001. Also, generally, no assessment may be made after July 8, 2002. For the November 30, 2001 decision entered date, no assessment may be made before March 1, 2002 (There is no February 29 in 2002) and generally no assessment may be made after February 28, 2003.

    Note:

    This only applies to those taxpayers who did not previously sign an agreement form converting their partnership items to nonpartnership items. If they did sign an agreement form they would have had a one-year date computed from the date the agreement form was signed for the Commissioner.

  9. Below is a calculation table to assist in computing the One-Year Date.

    Calculation of One-Year Dates Where the start of the One-Year Date period is not Simultaneous With the Date of the Event
    Type of event (a)
    Date of the event
    Date of the event converted to a Julian date
    Number of days for the waiting period (b)
    Subtotal (Start Date)
    Subtraction for subtotal over 365 (366) (c)
    Julian date as adjusted
    Julian date converted back to a calendar date
    One year date (d)
    1. The event may be:
      • A Notice of Conversion
      • A suit filed when the Service fails to process an AAR
      • A Signed settlement agreement
      • An Untimely Notice
      • An FPAA to the TMP
      • A Tax Court decision
      • A District Court decision
      • A Court of Federal Claims decision
      • A United States Court of Appeals decision
      • A United States Supreme Court decision

    2. The number of days to add for the waiting period is:
      • For a defaulted FPAA - add 150
      • For a Tax Court decision - add 90
      • For a District Court decision - add 60
      • For a Court of Federal Claims decision - add 60
      • For a United States Court of Appeals decision - add 90
      • For a United States Supreme Court decision - add 60

    3. The Julian date for any year cannot be more than 365 (366 for a leap year). If this calculation yields a number in excess of 365 (366), then 365 (366) must be subtracted from the subtotal to compute the date in the next year.

    Note:

    As a matter of practice, the campuses will subtract one day from the true one-year date when the one-year date is entered on PCS. This is done to help ensure the assessments are made prior to the expiration date.

  10. All returns with a one-year date that are moved between teams must use Form 3210 or an electronic transmittal database. The paper trail is needed to ensure returns with a live statute are properly controlled.

Seven Month Assessment (SMD) Dates (Chief Counsel Notice 2009-011)

  1. Those cases that have affected items that fall under Chief Counsel Notice 2009-011 should have an assessment date posted that is 7 months after the final determination. This will allow the campus time to issue stat notices and make the related assessments before the actual OYD expires.

  2. To calculate the SMD, compute the OYD as above and subtract 150 days.

  3. The area submitting the closing package to the campus must prominently state on the package that affected items must be stat noticed and assessed prior to the expiration of the OYD.

  4. Notice 2009-011 applies when the agent is unsure whether adjustments are computational or affected items. When this occurs, the adjustments are processed using both procedures. A statutory notice of deficiency is issued so that it will default prior to the expiration of the OYD. If the taxpayer agrees, or the statutory notice defaults, then Letter 4537 , Notice of Computational Adjustment, will be issued and the tax assessed.

  5. The package must clearly reflect that CC Notice 2009-011 applies. This will alert you to issue the notice of computational adjustment and make the assessment after the statutory notice of deficiency is agreed to, or has defaulted.

Updating the OYD when Issuing Statutory Notices of Deficiency

  1. When a statutory notice of deficiency is issued a package report indicator of "S" should be added.

  2. After the partner’s computational adjustments have been assessed, the OYD should be extended 90 days to allow for the processing of the statutory notice.

  3. The one-year assessment date will be updated for the affected items or partner level penalties using Form 8339 (TSCHG, 05). The new OYD will be input as (YYYYMMDDXP) where X is the applicable partner closing code (IRM 4.29 3.2.1.1.1 ) followed by the P. These entries are completed in sequence on the same Form 8339. This is the only time that 11111111s can be overlaid.

  4. The OYD may need to be adjusted again depending upon the action taken by the partner.

  5. If the partner agrees within the first 30 days, the OYD may be shorter than the 90 day period and need to be adjusted to 60 days from the agreement date plus the number of days suspended. If the partner agrees after 30 days, the OYD will be longer and need to be adjusted to 60 days from the agreement date plus the number of days suspended. See IRM Exhibit 4.8.9-3. Depending upon when the SNOD was issued compared to the OYD there may be additional tack on days.

  6. If the statutory notice is petitioned, 11111111 will be entered into the OYD. The dollar amount entered on PCS will be the amount shown on the stat notice. The time should reflect the amount of technical time spent up until the case is transferred to Appeals.

  7. The ASED will be updated by the Appeals Coordinator to a "QQ" alpha code.

Suspension of OYD Due to Combat Zone

  1. See IRM 25.6.1.10.2.9.6, Combat Zone, for guidance on identifying a taxpayer located in a combat zone, and the time period for making assessments.

  2. The statute for taxpayers in a combat zone is suspended during they time they are in the combat zone plus 180 days after they exit the combat zone.

  3. When the taxpayer is in a combat zone, the OYD will be extended on PCS for no more than 90 days. At that time, the taxpayers combat zone status will be checked again. If the taxpayer has not left the combat zone, the OYD will be extended again for no more than 90 days. This process will continue until the system shows the taxpayer has exited the combat zone and their return can be processed. Refer to IRM 25.6.1.10.2.9.6 , Combat Zone, to determine when assessments may be made.

Undeliverable Correspondence

  1. NBAP (Notice of Beginning of an Administrative Proceeding):

    1. If any NBAP is returned as undeliverable, associate it and the envelope with the key case file.

    2. If a letter was returned undelivered or refused, indicate that on the key case copy of the mailing list.

    3. An undeliverable NBAP will not be reissued or re-mailed if the NBAP was mailed to the partner's most current address.

    4. If the undeliverable NBAP was mailed to a partner's address other than the most current address shown on IDRS, a new letter will be mailed to the partner's most current address. Care should be taken to ensure the correct address was used. Mailing a new letter will start a 120 day date again. Inform the agent, if the key case is in status 12, that the 120 day date has reset, and to inform their Technical Services TEFRA/Pass Through Coordinator if they plan on issuing an FPAA before the 120 period expires. If the case is in status 21 or above, contact Technical Services TEFRA/Pass Through Coordinator.

      Reminder:

      A new mailing list will be generated when NBAPs are resent and a new 120 day date is created.

      A notation must be made on the original mailing list for the partners that were issued new NBAPs and the date those letters were issued.

    5. If the NBAP was mailed to the most current address at the time, but there is now a new address on IDRS, re-mail the original correspondence to the new address. This will not start a new 120 day date since we used the most current address on our system at the time of mailing. No new mailing list should be generated. Notate on the original mailing list the date, and address to which the letters were issued for each affected taxpayer.

  2. 60-Day Letter:

    1. If any 60-day letter to a partner is returned as undeliverable, the CTF will perform all necessary research to identify a new address.

    2. If research identifies a new address, the 60-day letter will be re-mailed; however, the original letter date must be used. Do not re-mail to the new address if the FPAA has been issued.

  3. Appeals Settlement Letter:

    1. If any Appeals Settlement letter to a partner is returned as undeliverable, the CTF will perform all necessary research to identify a new address.

    2. If research identifies a new address, the Appeals Settlement letter will be re-mailed; however, the original letter date must be used. Do not re-mail to the new address if the FPAA has been issued.

  4. Notice of Final Partnership Administrative Adjustment (FPAA):

    1. If the FPAA to a partner is returned as undeliverable and a new address was previously available but not used, reissue using certified mail with a new letter date and mail to the new address. Notify Technical Services that submitted the FPAA notice package of the new letter date and send them a copy of the new certified mailing list. This may result in the need to follow untimely notice procedures if the new letters are not issued within 60 days of the TMP FPAA.

    2. If the FPAA to a partner is returned as undeliverable and a new address is obtained subsequent to the initial mailing, re-mail the original correspondence using certified mail. Notate on the original certified mailing list the address and date the new FPAA was reissued. It should be clear on the notation that the second FPAA is a reissuance of the original.

    3. Under no circumstances should a new FPAA be re-issued after the original FPAA default date.

    4. If there is no other address to which the FPAA can be mailed, a copy of the undeliverable FPAA needs to be kept in the partner’s case file. The case will be closed disposal code 13 after the FPAA defaults.

Undeliverable TMP Letters

  1. Typically Technical Services will mail out the TMP letters and include an electronic file in the linkage package. The TMP NBAP, 60 Day or FPAA letters have the return address of the campus. When the TMP letter is returned as undeliverable, the appropriate Technical Services TEFRA/Pass Through Coordinator needs to be promptly informed. Contact should be made within 5 days of receiving the letter.

TEFRA Report Writing Procedures

  1. The following subsections provide guidance on TEFRA report writing procedures. Also refer to any other necessary IRM or Training Guides as needed.

≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  5. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

Processing Closing Packages

  1. The following subsections cover closing package procedures.

Report Writing Review of Closing Package
  1. Upon assignment, the report writer should check the case file to determine if it includes the following items:

    1. The original tax return, or a copy;

    2. A Form(s) 870-PT, 870-LT, 870-PT (AD), or 870-LT (AD) with the schedule of adjustments, default documents, or other assessment documents;

    3. A Form(s) 886-S, 886-W, 886-X, or 886-Z (or equivalent spreadsheet) showing the corrected ordinary income or loss; any basis or affected item adjustments; any penalty information;

      Note:

      A Form 886-Z is not needed with a no change package.

    4. Form 14434, TEFRA Notice Package Check Sheet, or the package review cover sheet must be notated with the IRC 6404(g) date, and whether an agreed closing package (executed Form 870-PT or Form 870-LT (60 day letter only)) is the result of a 60-Day Letter or FPAA.

    5. IMFOLT (or BMFOLT) and TSUMY prints;

    6. Schedule K-1;

    7. Prior assessment information such as a Form 1040, partial assessments, or other changes to the partner's account;

    8. Any related tax returns for carryback and/or carry over issues; and

    9. Any related tax returns with Form 8615.

  2. The Report Writer should review the Closing Package by verifying the partner’s profit percentage on Form 4605-A to the percentage identified on the related partnership Schedule K-1. Math verify the adjustment amount, which is the difference between "as reported" and the "corrected figure" on Form 4605-A and compare to the amount on Form 886-Z (or equivalent spreadsheet). In addition, a complete review should be done of the entire Closing Package for any other information that would need to be included in the report of adjustments being issued to the taxpayer i.e. basis, at-risk, penalties, special allocations, etc. This information should be included on Form 886-Z (or equivalent spreadsheet), but could be found anywhere in the closing package.

    Note:

    All adjustment computations need to be included in the package. The campus is not responsible for computing the partnership adjustments amounts flowing from the key case to the underlying partners. In addition, those adjustments should be sufficiently explained so the report writers can make the requested changes to the partners. Special allocations may exist and need to be considered.

  3. Only the material partners need to be listed on the Form 886-Z (or equivalent spreadsheet) along with an "other partners" section to account for the remaining adjustment. Cross-reference this information from Form 886-Z (or equivalent spreadsheet) with the partner's Schedule K-1 for discrepancies.

  4. Both Form 886-Z (or equivalent spreadsheet) and Form 4605-A should have the same corrected amounts.

  5. The report writer also needs to verify whether or not IRC 6404(g) applies. The IRC 6404(g) date, if applicable, should be included with the closing package.

  6. Agreed packages with Forms 870 included need to have a notation as to whether the agreement was received from a 60 day letter or an FPAA. This information is necessary to ensure the report writer has the information needed to determine the correct disposal code. Without that information, the report writer has no way of knowing whether the agreement form was secured via a 60-day letter or an FPAA.

  7. If any of these items are not present in the partner case file, the report writer must secure the information necessary for the preparation of the examination report. Depending on the statute, this may require returning the case file to another unit to secure the necessary information.

  8. The report writer must verify that the one-year assessment statute date is correct.

Verify Statute
  1. For agreed packages, the one-year assessment statute date is one year from the date the Form(s) 870-PT, 870-LT, 870-PT (AD), or 870-LT (AD) was executed;

  2. For defaulted FPAA packages, the one-year assessment statute date is one year plus 150 days from the date the FPAA was mailed to the TMP.

  3. For court decisions, the one-year assessment statute date is no less than one year from the date the decision become final. The date the decision is final is the date the decision is entered plus the applicable waiting period as mentioned in IRM 4.31.3.10 , One-Year Assessment Dates.

  4. If the IRC 6229(a) statute is barred, a IRC 3999-T should be in the CTF key case administrative file. A copy of the Pattern Letter(s) P-430 and/or P-431 (pro-forma) should be in the barred statute package received from the key case area.

  5. A partner barred statute package will be prepared for the partner CTF, if any. The package will include a legible copy of Pattern Letter(s) P-430 and P-431, if applicable. See examples in IRM 4.31.2.4.2.1.

Check for Penalties and Affected Items
  1. The report writer must determine whether penalties and/or affected items were recommended for the key case.

    1. For tax years ending after August 5, 1997, all penalties are determined at the partnership level and are agreed to on a Form 870-PT or Form 870-PT(AD).

    2. For tax years ending after August 5, 1997, all other affected items are still determined at the partner level and are agreed to on Form 870-LT or Form 870-LT(AD).

    Penalties and affected items that are agreed to on one of the above reports must be assessed via a computational adjustment. If affected items, or penalties for tax years ending before August 6, 1997, are not agreed to (default package, etc) then they must be proposed using deficiency procedures with Letter 525, 30 Day Letter, or Letter 531 or Letter 3219, Notice of Deficiency. A computational adjustment can be made for disputed penalties not agreed to for tax years ending after August 5, 1997 after a defaulted FPAA or court decision.

    Note:

    For tax years ending after August 5, 1997, penalties determined at the partnership level that are computed on any affected-item deficiency must be assessed as part of the computational adjustment, and not included in the affected-item notice of deficiency.

  2. IRC 6751(b) requires that penalties be approved by a manager before they are assessed. Penalties determined at the partnership level should have been approved in the field before the closing package was submitted to the campus. Any penalties that the campus believes should be applied at the partner level should be approved by campus management before they are applied.

  3. Penalties determined at the partner level will be included on the statutory notice of deficiency. The application of the penalties should be clearly stated on the affected items report.

Schedule K-1 Accuracy Related Penalty
  1. The report writer will reconcile the Schedule K-1 to the return.

  2. If the taxpayer has not reported income or loss consistent with the Schedule K-1, and has not responded with information, which explains the difference, the file will be referred to a campus revenue agent for consideration of the IRC 6662 penalty. The penalty can only be applied to a direct partner unless the IRC 6501 statute is still open.

Referring Complex SBSE Issues to the Field
  1. If, due to the complexity of the case, an employee believes that they cannot adequately prepare a partner audit report, the employee should consult with the Campus TEFRA/Pass Through Coordinator. The campus TEFRA/Pass Through coordinator will provide the employee with assistance, or work with the appropriate Headquarters Analyst in order to have the case worked in the field. Campus personnel should make every effort to work all campus controlled partners at the campus. However, there are times when the complexity of the case will require assistance from the field. It is the complexity of the issues, and not the size of the case, that will dictate whether a case gets sent to the field.

Tier Report Writing

  1. Technical personnel in the CTF will prepare examination reports for partners that are flow-through entities (tiers). Tier files will be forwarded for report writing using the guidelines in the text (See IRM 4.31.3.5, Notice Packages) of this Handbook.

  2. Tier reports must be written on a priority basis so as not to adversely impact on the one-year assessment statute date of the tier partners.

    Note:

    All tier cases need to be given priority over all other cases except for statute cases. It is important that multiple tier cases not be worked in normal statute date order. Doing so can create an unnecessary hardship on the BMF and IMF report writers as little time can be left on the one-year assessment date to work the terminal partners. It also creates unnecessary expense as short statute cases require manual assessments.

  3. Form 4700-T or Form 4318, Examination Workpapers, may be used for report writing workpapers. The report writer will attach the Form 886-Z (or equivalent spreadsheet) and other documents received from the key case CTF to the workpapers.

  4. The report writer will generate a Form 4605-A, which will reflect the adjustments to the tier from the key case. A Form 886-S or Form 886-W needs to be prepared for all partners to ensure the amounts are distributed correctly. The report writer will notate the material partners on the Form 886-S or Form 886-W to reflect the correct amount of income or loss for each material partner to include in the closing package. The material partners will match those listed on the build out. (See IRM 4.10.8, Examination of Returns, Report Writing.) If the key case examination results in a no-change, no Form 4605-A will be prepared for the tier, and the key case closing package will be used in lieu of a Form 886-S or Form 886-W.

  5. If a tier is a partner in more than one key case or is a key case in its own right, special care should be taken in preparation of the flow-through reports. The Form 4605-A and Form 886-S or Form 886-W must clearly indicate that related partner cases should be processed as partial assessments and suspended pending subsequent adjustments. Tier reports should also reflect whether penalties are applicable to the partners. If penalties are not applicable, it should be noted in the report.

  6. The tier CTF will forward a report package to the related partner CTF or field agent controlling the partner return within 30 days from completion of the flow-through entity report. The package will include the following:

    1. A Form 3210 which clearly reflects the tier name, EIN, and tax year; the partner name, TIN, and tax year; the one-year assessment statute date, and the type of package being sent;

    2. A copy of the schedule of adjustments for the tier which reflects the adjustments flowing through from the key case (including the Form 886-S or Form 886-W which lists the tier as a partner and the tier's correct distributive share of each adjusted item);

    3. A Form 886-S or Form 886-W showing the corrected distributed share to the related partners; and

    4. Penalty information (not used for tax years ending after August 5, 1997, because the penalties are included in the Form 4605-A). If penalties are not applicable, note that fact in the package.

    Note:

    If the tier report results in a no change, the campus may input the 11111111 to allow the field to close the case. The 11111111's should be removed with an 05-T if the partner is linked to other open key cases.

  7. If less than three months remain on the one-year assessment statute date, the Team Leader of the tier CTF will contact the Team Leader of the related partner CTF to advise that a package with a short statute will be sent. The Campus TEFRA/Pass Through Coordinators can make contact instead of the Team Leaders.

  8. If the partner is a CIC corporation, corporate specialty, corporations with activity code 219 or above, or Joint Committee case in Appeals jurisdiction, the Team Leader of the key case CTF will contact the Appeals Technical Specialist - TEFRA to advise that a package with a short statute will be sent. The Campus TEFRA/Pass Through Coordinator of the key case CTF may make the contact instead of the Team Leader. The Team Leader of the key case CTF will send a copy of the package to the Appeals Technical Specialist - TEFRA, or if too bulky, mail by overnight mail.

  9. After the packages are forwarded to the related partner CTFs, the tier return is closed with the Form 5344 prepared in accordance with the text of this Handbook (See IRM 4.31.3.12.7, Completion of Form 5344 – Examination Closing Record). If the tier return has other TEFRA linkages, it will be returned to suspense in the CTF files.

  10. The PCS CC TSCHG is used to update the one-year assessment statute date and assessment results as follows: 05-11111111$TIER,EC. If the AIMS status code is less than 80, time must also be entered.

  11. Reports must be sent to tier partners with the appropriate letter.

Tier Partners Requesting Partnership Level Assessments
  1. Tier partners can request to pay the tax due for all underlying partners. When such a request is made, the tier return must be referred to the examining agent.

  2. The field agent will need to work with their local counsel to secure a Form 906, and secure payment.

  3. When payment is secured, the CTF will be notified to close the underlying partners.

  4. The partners will be closed as agreed cases.

Preparation of Partner Examination Report

  1. The following subsections provide information on the preparation of partner examination reports.

Determining Adjustments
  1. The partner return will normally be adjusted to reflect the corrected amount shown on the Form 886-S , Form 886-W, or Form 886-Z (or equivalent spreadsheet), unless the adjustment document reflects an allowable loss and the partner did not report the loss from this flow-through return on the original return.

    1. In this situation, the report writer must consider the correspondence in the file, which explains the difference between the amounts shown on the Schedule K-1 and the return.

    2. If the partner did not respond to the inquiry or responded that the loss was not claimed because of a limited basis or previous execution of a Form 906, the examiner should allow no loss as a result of the examination of the flow-through return.

  2. TEFRA report writing is unique in that a separate report will be issued for each linkage if they close at different times. This is done so as not to jeopardize the separate one-year assessment statute dates. Each report is prepared based on the income as adjusted on the prior report.

  3. The Form 4549-A should list each issue and the EIN of the partnership from where the adjustment came. The EIN provides a unique identifier to help the taxpayer understand where the changes came from. It also provides clarity when there are multiple partnership adjustments.

  4. Assessments must be made as soon as possible after the completion of the Form 4549-A. If there are penalties or other linkages that prevent a full closure from being made at this time, a partial assessment will be made.

  5. Form 8339, PCS Change, is used to update the one-year assessment statute date on PCS and to enter the amount of any partial assessment that is being made. A separate Form 8339 will be prepared for each linkage. In addition, more than one Form 8339 may need to be prepared if the partner's assessment is attributable to adjustments from more than one key case even if they go through the same direct linkage.

  6. In reference to Accounts Receivable Dollar Inventory (ARDI), the procedures in IRM 4.20, Examination Collectibility Handbook, must be followed.

  7. Each time a report is written, the report writer will determine whether a partial or complete closure should be made.

  8. All reports sent to taxpayers must be sent with a Letter 4735, Notice of Computational Adjustment. Letter 4735 should be sent regular mail, and should generally be sent before or the same day assessments are made.

Report Preparation for Previously Adjusted, Large or Complex LB&I Returns
  1. When return adjustments are too complex for the campus to work, LB&I Tax Computations Specialists (TCS) may be used to assist with preparing these reports.

  2. LB&I has designated two TCS teams to work with the campus on complex cases. Contact information can be provided by HQ TEFRA Analysts.

  3. The campus will maintain AIMS control of the return as well as the statute responsibility.

  4. The campus will scan the portions of the case file needed to prepare a report and send them to the TCS. The TCS will prepare the report within 30 days and return it to the campus.

  5. If the statute will expire within 60 days, contact should be made with the TCS before sending the returns. It may be necessary to make a protective assessment.

Examination Report with Affected Items or Partner Level Penalties
  1. The report writer will generate a Form 4549-A, Income Tax Examination Changes, for tax and penalties, if the taxpayer has signed Form 870-PT, Form 870-PT(AD). Any Form 4549-A must include the name, telephone number and the unique identifying number of the person to contact.

  2. Affected Items are handled similarly. Affected items must be agreed to by signing Part II of Form 870-LT or Form 870-LT(AD), or through deficiency procedures. Affected item agreements, Form 870-LT, are provided with a 60-Day Letter. Affected items are not under the jurisdiction of the courts with regard to partnership proceedings and are not provided with FPAAs. If Part II of the Form 870-LT is not signed, the affected items may be protested or petitioned using deficiency procedures after the partnership proceedings are complete. Any partners subject to affected items and/or partner level penalties will be noticed using deficiency procedures and be sent Letter 525, 30 Day Letter, or Letter 3219, Notice of Deficiency, Form 4549-A and Form 4089-B, Notice of Deficiency - Waiver, to secure signatures.

  3. The following table will help explain how penalties or affected items are agreed to by the taxpayer.

    Reports With Tax year ending after August 5, 1997
    No Penalties or Affected Items Form 870-PT, Form 870-PT(AD)
    Penalties Only Form 870-PT, Form 870-PT(AD)
    Affected Items Only Form 870-LT, Form 870-LT(AD), both Parts I and II must be signed.
    Both Penalties and Affected Items Form 870-LT, Form 870-LT(AD), both Parts I and II must be signed.
  4. Each agreement needs to be reviewed carefully to determine the procedures to use. An FPAA is only issued with a Form 870-PT. Any affected items and/or penalties must be agreed to separately from partnership items using deficiency procedures with Letter 525 , 30 Day Letter, or Letter 531 or Letter 3219 , Notice of Deficiency. 30 Day Letters should only be issued if more than 90 days remain on the One Year Assessment Date statute. Although not a requirement to issue a 30 day letter the taxpayer should be given the opportunity to be heard in Appeals rather than Tax Court.

  5. All reports sent to taxpayers that address computational adjustment must be sent with a Letter 4735, Notice of Computational Adjustment. Computational Adjustment, include penalties determined at the partnership level. The RAR should include the following statement when such penalties apply: "During the TEFRA unified proceedings, it was determined that the addition to tax under IRC (penalty code section) will be asserted on any partner-level liability resulting from the partnership-level proceedings. Partner level defenses to such penalties can only be asserted through refund actions following assessment and payment. See the attached Form 886-A, Explanation of Items."

  6. When affected items or partner level penalties will be assessed after the computational adjustments are processed, a new OYD will be entered on to PCS. This is done by overlying the 11111111s with the new OYD followed by the closing code and a "P" . These entries are completed in sequence on the same Form 8339 (TSCHG, 05).

  7. The "P" is the Penalty Assessment Indicator. The penalty/affected item report indicator is displayed on PCS reports and TSINQ and TSUMY screens immediately after the one-year assessment statute date, i.e., MMDDYYYYXP (04151998XP) (Where X = the Investor Closing Code) See IRM 4.29 3.2.1.1.1.

  8. The affected item/ partner level penalty report indicator "P" identifies one-year assessment statute dates that are present only for affected items, or partner level penalty purposes. When the indicator is present, it alerts the CTFs to the fact that the one-year assessment statute date is for an affected item and/or partner level penalty issue, and that the TEFRA tax adjustment issue is already complete. The indicator causes affected item/ partner level penalty records to sort to separate pages on PCS Report 4–4, and that allows monitoring of the affected item/ partner level penalty one-year assessment statute dates separately from the TEFRA one-year assessment statute dates.

  9. See IRM 4.31.3.10.2, Updating the OYD when Issuing Notices of Deficiency, for determining the new OYD after issuing a statutory notice of deficiency. It is important to note that this new date only applies to the affected item adjustments and does not cover any computational adjustment amounts that should have been assessed from the original OYD.

  10. When issuing a Statutory Notice of Deficiency to a partner due to affected items or if assessing penalties determined at the partner level, an "S" should be input as the report package received indicator.

Protest received after the receipt of a 30 day letter on affected items
  1. If a protest is received in response to 30 day letter for affected items the report writer must determine the correct statute date. Appeals require a minimum of 12 months on the statute when the case is received. In order to consider the transfer time at least 13 months should remain. If the IRC 6501 statute (ASED) is longer than the One Year Date then IRC 6501 date should be considered. If the IRC 6501 date is less than 13 month or has expired and the relied upon statute is the IRC 6501 One Year Date, then a statute extension Form 872, Consent to Extend the Time to Assess Tax, should be requested.

  2. The Form 872, statute extension must be received and executed prior to the expiration of the IRC 6501 or IRC 6229 statute date.

  3. The statute date (ASED) and One Year Date should be updated to the extended date prior to forwarding the case to Appeals. Update the OYD using the procedures in IRM 4.31.3.10.2.

  4. All partnership item adjustments (computational adjustments) must be made before forwarding the affected item protest to Appeals.

IRC Section 6404(g), Suspension of Interest and Certain Penalties
  1. In the case of an individual who files a return on or before the due date for the return (including extensions), the Service has 36-months (18 months effective for tax years where the 18 month period ended on or before November 25, 2007.) beginning on the later of:

    1. the date on which the return is filed; or

    2. the due date of the return without regard to extensions,

    in which to provide notice to the taxpayer specifically stating the taxpayer's liability.

  2. If notice is not provided to the taxpayer before the close of the 36-month period, (18 months for notices issued on or before November 25, 2007.) then the imposition of any interest, penalty, additions to tax or additional amounts that are calculated by reference to the period during which any failure relating to the return is suspended.

  3. The term "suspension period" means the period:

    1. beginning on the day after the close of the 36-month period (18 months effective for tax years where the 18 month period ended on or before November 25, 2007.) under (1) above; and

    2. ending the date which is 21 days after the date on which notice is provided to the taxpayer. A notice for purposes of IRC 6404(g) must contain sufficient information for the partner to calculate his or her portion of the partnership liability and the reason for the adjustment(s). Counsel has determined that sending such a notice to a TMP is sufficient notification. Generally, this will be the date the 60-day letter is sent to the TMP. In some instances, a 60-day letter may not be sent before the issuance of an FPAA. In that case, the date the FPAA is mailed to the TMP will be the date the notice is provided to the taxpayer.

      Note:

      If, as of November 25, 2007, the 18 month period has closed and the Service has not provided notice to the taxpayer, interest and applicable penalties will be suspended beginning on the day after the close of the 18 month period and ending on the date that is 21 days after the notice is provided. In all other cases, interest and applicable penalties will be suspended beginning on the day after the close of the 36 month period and ending on the date that is 21 days after the notice is provided.

  4. The exceptions to the general rule for suspension of interest and certain penalties where the Service fails to contact the taxpayers are:

    1. any penalty imposed by IRC 6651;

    2. any interest, penalty, addition to tax, or additional amount in a case involving fraud;

    3. any interest, penalty, addition to tax, or additional amount with respect to any tax liability shown on the return;

    4. any interest, penalty, addition to tax, or additional amount with respect to any gross misstatement;

    5. any interest, penalty, addition to tax, or additional amount with respect to any reportable transaction with respect to which the requirement of IRC 6664(d)(2)(A) is not met and any listed transaction (as defined in IRC 6707A(c)); or

    6. any criminal penalty.

  5. The notice date must be annotated on the Form 886-Z (or equivalent spreadsheet) of the partner closing package prepared by the CTF, and also annotated on the partner's Examination Report in the "Remarks" area with the following statement: "IRC 6404(g) does apply and notice was provided on (mail out date)."

  6. The earlier of the date the 60-day letter was sent to the TMP or the date the FPAA was sent to the TMP will be the IRC 6404(g) date. That date will apply to all notice or non-notice partners directly or indirectly invested in the partnership.

  7. In the event that partners agree before any notices are issued, the execution date of the settlement agreement will be the IRC 6404(g) date.

  8. TC 971 with Action Code 064 will be input on Master File for the identified cases to record the notice date. Master File will automatically compute the interest with only one notice date. Cases with additional notice dates will require manually computed restricted interest (TC 340).

  9. All IRC 6404(g) cases where an assessment is being made will require special instructions on Form 3198. If another assessment is necessary, it must again be stated whether IRC 6404(g) applies, and if it does, the notice date for the subsequent assessment must be entered in the "Special/Restricted Interest Features" section of the Form 3198.

Completion of Workpapers
  1. The report writer will complete Form 4700-T, Examination Workpapers, on all cases (see IRM 4.10.9, Examination of Returns, Workpaper System and Case File Assembly, and IRM 4.19.13, General Case Development and Resolution) to reflect the partner's applicable adjustment from the flow-through return. The report writer will attach Form 886-S, Form 886-W, or Form 886-Z (or equivalent spreadsheet), and other documents received from the key case CTF, to the Form 4700-T as part of the workpapers.

Report Generation System (RGS)
  1. RGS is used in the CTF when preparing IMF reports.

  2. Reason codes should be input on RGS for each item adjusted in order to capture Examination Operational Automation Database (EOAD) data per IRM 4.10.16 , Examination Returns - Examination Operational Automation Database (EOAD). The list of reason codes can be found in IRM Exhibit 4.10.16-1.

  3. Most, if not all, TEFRA adjustments will originate from a partnership examination. Therefore, the reason codes from the flow through section should be used. An exception would be an adjustment specific to the partner’s return. For example, if the partner filed an amended return where the issues are not related to the partnership examination, those amended return adjustments should use non flow through related reason codes.

  4. Generally, TEFRA cases will fall under non-NRP. The use of NRP issue codes would only be applicable if the partnership that was examined was part of an NRP sample. In such an instance, the case file will be clearly marked to identify it as an NRP related partner.

Innocent Spouse Relief - TEFRA
  1. Innocent spouse requests for relief from TEFRA proceedings will be considered only after there is a final determination concerning the treatment of partnership items (e.g., a settlement is entered into, or the decision of the court becomes final). In addition, an innocent spouse request for relief will be considered for each assessment made, rather than limiting requests to one for each tax year. See IRM 4.11.34, Innocent Spouse.

Passive Activity Losses (PAL)
  1. Examiners need to ensure that all applicable forms are completed when computing the PAL adjustments. The Form 8582 worksheets do not need to be completed for all cases, but should be completed when needed. For example, they should be completed to communicate changes to the taxpayer in the case of dispositions or PAL carry overs.

Carry Over/Carryback Adjustments
  1. Case files for carryback and carry over years need to have copies of the workpapers from the source year supporting the adjustments. Adjustments such as Schedule A (contributions), NOL, possibly credits and PAL Credits would also require the closing documentation from the source year and computations for any carryback or carry over. Case files may be electronic as long as they are maintained on an enterprise system (e.g., CEAS) that is archived so the data can be accessed later.

  2. When there are PAL carry overs, for example, the case files for those years need to have all of the necessary work papers to support the PAL adjustment. The carry over case file should have the closing documents from the source year as well as the Form 8582 reflecting the PAL carry over changes. Without the source documentation, there is nothing in the carry over year file to support the changes. This information is necessary in the event a subsequent taxpayer inquiry is made.

Processing of Adjustments

  1. If there are no other TEFRA linkages on PCS, and the return is not needed as a carryback/ carry over for any other year, the return is sent for final closure. If TEFRA linkages are present, a partial assessment (AMCLS F) is made, and the return file is suspensed pending completion of the other related partnership examination(s).

  2. Form 5344, Examination Closing Record, is prepared by the partner CTF to process partner or shareholder return flow-through adjustments each time an executed Form 870-PT, Form 870-LT, Form 870-PT(AD), or Form 870-LT(AD) , defaulted FPAA, or court settlement is received by the partner CTF from the key case CTF.

    1. A copy of the Form 5344 will remain in the file until all flow-through issues have been resolved.

    2. The closing function will input the PCS CC TSCLS as part of the final AMCLS E procedure. See IRM 4.4, AIMS/Processing Handbook, for general instructions.

  3. Some exemptions to the Form 5344 preparation and processing are:

    1. Adjustments received for partner returns that are linked to more than one partnership return will be processed individually as "Partial Closures" each time a flow-through adjustment is received (See IRM 4.4, AIMS/Processing Handbook);

      Note:

      If OYDs are closed, it is possible to include multiple adjustments together within the same closing. In that case, only one Form 5344 would be necessary. However, separate Form 8339 would be required to close each individual linkage and capture the assessment information.

    2. Only one TC 30X per week per module can be accepted at Master File; one exception is when the adjustment received is for the last linked flow-through entity; in this situation the adjustment will be processed as a final closing;

    3. Adjustments received for partner returns with no other issues or linkages are processed as final closings;

    4. TEFRA assessments must be separately identified to ensure proper Master File blocking series identification; place the word TEFRA at the top of the Form 5344.

  4. Cases must be closed with more than 60 days on the statute for the case to close systemically. Cases with 60 days or fewer on the statute must be closed manually.

Completion of Form 5344 – Examination Closing Record

  1. Special attention must be given to certain entry items on Form 5344.

    1. Notate "TEFRA" on the top of the Form 5344 per local instructions.

    2. CC TSCLS - This block should be checked when a partner return is linked on PCS. This portion will only be completed at the time of the final closing.

    3. Item 8 - Agreement Date (partial or final closings). This entry will be completed for tax years beginning after August 5, 1997. (IRC 6601(c).) If an agreement is secured on Form 870-PT, Form 870-LT, Form 870-PT(AD), Form 870-LT(AD) or Form 906, the agreement date is the date the form is signed on behalf of the Commissioner. If an agreement is received using normal deficiency procedures (affected items requiring partner level agreement), the date the agreement was received is required to be entered if the disposal code is 03, 04, or 09 and Item 12 contains an increase in tax and the MFT is 02, 05, 30, 31, 33, 51 or 52. See IRM 4.4.12.5.18, Item 08: Agreement Date. For tax years beginning before August 6, 1997, cases will be closed using disposal code 08 and no agreement date.
      For TEFRA adjustments with return due dates ending on or before August 5, 1997, See IRM 20.2.5.9.4, Waiver Date Processing regarding TMT Interest and Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), if Tax Motivated Interest applies.

    4. Item 9 - Priority Code. Priority Code 05 should be used on all non-flow through cases unless another priority code applies. PC 05 is not needed on flow through returns.

    5. Item 13 - Disposal Code. Cases closed no change should use disposal code 01 or 02. The adjustment amount on the Form 5344, Examination Closing Record, should be blank. Cases closed agreed or unagreed will generally use disposal codes 03, 04, or 09. The adjustment amount on the Form 5344, Examination Closing Record, requires an entry other than zero. If you have a situation where the adjustments made to the entity net to zero, enter $1.
      01 - No Change with Adjustments
      This code should be used when changes are made to the entity's ordinary income, loss, or separately stated items reflected on the return or Schedule K-1, and a partner's return is adjusted as a result of the flow-through examination but result in no tax. This would include adjustments to basis, at-risk, passive loss rules, taxable loan repayments, or adjusting the partner's return to match the Schedule K-1 flow-through amounts. Disposal Code (DC) 01 applies to de minimis adjustment and tier closures unless the key case is a no change. It may be used with carryback/carry over years where the return was ordered in for potential issues, but was not needed. For example, if a return was needed to determine the amount of a carryforward adjustment impacting a later year, but not impacting that return, the return should be closed DC 01.

      Note:

      An audit report is not required for cases closed below the tax tolerance in the Campus TEFRA Function (CTF). An exception will be when the tax changes impact a prior or subsequent tax year (NOL, PAL, etc.) or if the partner is linked directly to the key case and received a notice and would not otherwise receive notification that the exam was complete. Any partner that was issued an NBAP, but not receiving an audit report, should be sent a no change letter as a matter of closure and good customer service.


      02 - No Change
      In general, this code should be utilized when the examination results in no changes to the key case and no changes will be made to the partners as a result. All partners below the key case being closed DC 02 should be closed DC 02 as well, given no other linkages exist or prior partials were processed.
      03 - Agreed Before 60-Day Letter
      Used when agreements are secured after the closing conference and before issuance of a 60-day letter or an FPAA.
      04 - Agreed After the 60-Day Letter or Appeals Settlement Letter
      Used for 1998 and subsequent TEFRA agreed cases (with or without penalties) with an agreement date.
      08 - Other
      Used for 1997 and prior TEFRA agreed cases (with or without penalties). Also used for AARs and stipulated decisions.
      09 - Agreed
      Applies only to returns if an agreement is received after the issuance of a 90-day letter, or FPAA.
      10 - Default
      Applies only to returns if the taxpayer fails to file a petition or sign an agreement after the issuance of a 90-day letter or FPAA, or the notice goes unclaimed by the taxpayer.
      11 - Petitioned
      (11 is considered appealed on the AIMS tables) - Applies only to returns if the taxpayer petitions court after the issuance of a 90-day letter or FPAA. Not valid with MFT 01, 04, 09–12, 17–19, 71, 72, or 80.
      13 - Undeliverable - Notice of Deficiency or FPAA
      31 - Survey Before Assignment
      May be used under specific circumstances with HQ approval. Generally, this disposal code should only be used when closing returns that should never have been brought into the campus inventory. Consult with HQ regarding the circumstance for using this disposal code and secure their agreement before closing any returns. Cases closed using this disposal code will not count as a closure.
      32 - Survey After Assignment
      Used with carryback/carry over years where the return was ordered in for potential issues, but was not needed. For example, if a return was needed to determine the amount of a carryforward adjustment impacting a later year, but not impacting that return, the return should be closed DC 01. DC 32 should only be used only if no analysis of the return was conducted. For example, carry over years were secured for potential capital loss carry over adjustments but the key case exam did not change capital losses. In that case, the return would be closed DC 32. Cases closed using this disposal code will not count as a closure.

    6. Item 14 - Statute Extended to Date (where we are processing an assessment or reversing a tax credit as a partial or final closure). See IRM 4.4.12.5.23 , Item 14: Statute Extended to. Because of the various situations that can exist on TEFRA closures, care should be used to ensure that the correct information is shown on AIMS. To compute the ASED after a notice of deficiency, refer to IRM 4.8.9.20.1, Updating the Assessment Statute Expiration Date.
      • Full Closure - If the IRC 6501 date has sufficient time remaining to make the necessary adjustment, no entry will be required. If the IRC 6501 has insufficient time remaining to allow an adjustment to be made, or the IRC 6501 has expired, the Extended to Date should reflect the one-year assessment date. Use the later of the One Year Date or IRC 6501 date. NEVER shorten the taxpayer’s ASED.
      • Partial Closure - On partial assessments, after the partial closure has been completed, the statute date on AIMS must be corrected to the original date. If the statute date on AIMS contains alpha characters in the statute date, such as BB, DD, or HH, that date must be updated to the one-year assessment statute date in order to input the adjustment. Use the later of the One Year Date or IRC 6501 date. NEVER shorten the taxpayer’s ASED. On partial assessments, after the partial closure is completed, the statute date on AIMS must be corrected to the appropriate alpha code to reflect the true condition of the statute date, and prevent the case from showing as an action item on the AIMS 4.0 listing. If AIMS has "872-A" as the statute date, the Statute Extended to Date should reflect the one-year assessment statute date. On partial assessments, after the partial closure is completed, the statute date on AIMS must be corrected to "872-A" .
      • No Change or GII Closure Cases - It is not necessary to update the Alpha code to numeric if the IRC 6501 statute has expired. See IRM 4.4.12.5.23.1.2, No Change Cases.

      Note:

      There may be times when a numeric entry is required in the statute date field as a result of various validity checks. In those instances where the system requires the statute be updated, use the later of the one-year assessment date or IRC 6501 date. NEVER shorten the taxpayers ASED.

    7. Item 28 - Examiner's Time (final closing only). Enter the technical time spent processing the return. This will include the report writing time and any technical research time. Local procedures must be developed to record the cumulative time applied to each return by the CTF technical employees so Form 5344 will record all technical time applied . Campus technical employees are defined in IRM 4.31.1.

    8. Item 30 - Examination Technique (final closing only). Enter "2" . See IRM 4.4, AIMS/Processing Handbook.

    9. Item 31 - Examiner's Grade (final closing only). Enter the grade of the examiner. Entry of 03-09 or 11 is optional. Will default to a grade 7 if not completed.

    10. Item 34 - Adjustment Amount. Whole dollars only. Not used with Disposal Code 01 or 02.

  2. See IRM 4.4 , AIMS/Processing Handbook, for instructions on reporting adjustments. Items 12, 18, and 34 may be involved.

  3. In an instance where a partner must be fully closed after a prior partial assessment, and the final linkage is a no change, that partner needs to be closed using the disposal code of the most recent partial closure.

Case File Assembly
  1. After completion of the required reports, Form 4549-A or Form 4549 (affected items or prior nonTEFRA) and closing documents, Form 5344 and Form 8339 (if return is linked on PCS), the report writer should prepare the case for processing by clerical personnel. The case file should contain the following documents:

    1. A Form 5344; (required)

    2. The taxpayer's return or an electronic copy; (required)

    3. Schedules K-1;

    4. If an amended or duplicate return is included in the case file, staple the amended or duplicate to the back of the original return or the electronic print.

      Note:

      Old year amended returns will have their own DLN. If so, these need to be refiled separately. Please inspect old year amended returns for DLNs.

    5. Full AIMS print; (required)

    6. An Examination Report (Form 4549-A, a PC Report, or computer report input documents) or No-Change Letter;

    7. Other correspondence in descending date order; (if present either RGS or paper);

    8. Form 4700-T attached to each closing package, work papers, closing package, unless stored electronically on RGS/CEAS. If electronic, that fact must be noted on history sheet.

    9. An executed Form 870 will always be put in cases;

    10. Any original Forms 872/Forms 872-A;

    11. Original Form 2848 completed to authorize TEFRA representation;

    12. current TSUMY attached to the top and Schedules K-1, in descending date order of OYD’s (required);

    13. A Form 8339, or in lieu of the Form 8339 a TSCHG print notated with the name of the person who did the input, for each key case adjustment impacting the assessment; (required)

    14. Miscellaneous papers; (if present)

    15. Form 895; (if present)

    16. Form 3198; (if present)

    17. Transcripts if pertinent to the exam; and

    18. History Sheet. (required)

  2. The report writer will indicate on the history sheet what letters should be issued or any additional actions that may be required. The history sheet will also indicate the appropriate closing action. The report writer is responsible for instructing clerical and closing operators of the appropriate actions required based on the type of closure.

Streamlined No Change Closures
  1. For cases closed no change through the GII without having had a report written, a streamlined closing process may be used. Cases closed using the streamlined process will include the following:

    1. Form 5344 on top of the file, and in any order;

    2. Return or electronic copy;

    3. Schedules K-1;

    4. An executed Form 870 will always be put in cases;

    5. Any original Forms 872/Forms 872-A;

    6. Original Form 2848 completed to authorize TEFRA representation;

    7. Amended return stapled to the back no DLN;

    8. History Sheet;

    9. Form 5546 or AIMS print (page one only);

    10. Form 8339 or TSCHG print;

    11. Closing Package, unless stored electronically on RGS/CEAS. If electronic, that fact must be noted on history sheet;

    12. Efforts should be made to discard any unneeded prints in the folder.

  2. Partner work papers are not needed with streamline no change cases. When the flow-through entity is a no-change, and all partners will be no-changed, streamline no-change procedures can be implemented.

  3. Once a partner is in a report writing function streamlined closing may no longer be used.

TEFRA Assessment Prior to NonTEFRA Closing

  1. For purposes of the discussion below, the partner's division is determined by the Primary Business Code (PBC) where the partner is being worked, not the PBC of the key case.

TEFRA Partners in SB/SE, W&I, or Appeals
  1. If the TEFRA partnership examination is completed prior to Examination or Appeals (Status 10, 12 and above) completing action on the non flow through issues, the partner CTF will make a partial assessment based on the copy of the return and input Form 8339, PCS Change .

  2. A copy of the examination report, any other workpapers relating to the flow-through adjustment, and Form 5344 will be forwarded to the function working the non flow through issues. If there are no unresolved TEFRA links, see (5) below.

  3. All partners being worked in the field (Status 10 or above) that are not in a 3XX PBC will have a report prepared by the campus as explained above. The examiner in the field should be contacted about the TEFRA closure before preparing the report to determine the status of the case. The examiner may want to prepare the audit report for the TEFRA adjustments, or wait for the campus to make their adjustments.

    Note:

    Appeals will prepare flow-through adjustments for corporate returns with an activity code of 219 or above, and corporate specialty returns, which are any corporate return filed with a Form 1120 followed by a letter (for example, Form 1120-L life insurance company) except Form 1120-A, Form 1120-S or Form 1120-X. Appeals will also prepare flow-through adjustments for Joint Committee returns. Non-corporate returns, and corporate returns with activity codes below 219, with flow-through adjustments, will have to be computed by the campus and forwarded to Appeals.

  4. When other open TEFRA linkages exist, the photocopy partner file will be returned to suspense after the partial assessment. The partner CTF will retain copies of Form 5344, Form 4549-A and Form 8339 each time an assessment is made until the non flow through examination is closed. This is necessary so that each deficiency is computed on the revised taxable income.

  5. When no other TEFRA linkages are open, but another function has control of the partner return, the CTF will forward the complete file to the function that has control of the partner return. The file will be clearly flagged with a Form 3198, Special Handling Notice, showing the special instructions: "TEFRA linkage has been closed by the Campus TEFRA Function. Report enclosed reflects those adjustments and has been provided to the taxpayer. The TEFRA assessment(s) has (have) been made" .

TEFRA Partners in LB&I
  1. TEFRA partners that are in LB&I and are open in field exam will be worked by the field when TEFRA issues are complete before closure of the case. Due to the complexity of the returns, all LB&I agents working partners for nonTEFRA issues will prepare their own TEFRA adjustments. LB&I agents need to be made aware of the TEFRA one-year assessment date and the need to make the adjustments promptly when TEFRA issues are complete before closure of their case.

  2. A TEFRA partner in LB&I is any partner being worked in field exam that is in a 3XX PBC and status 10 and above. The fact that a partner is linked to an LB&I key case does not make it an LB&I partner.

  3. If the there is less than 6 months on the OYD, Team Managers should be contacted before a package is sent to the field. If the case was closed, contact the Technical Services TEFRA/Pass Through Coordinator to locate the case.

  4. The campus will send the closing package to the field with a Form 14671, TEFRA Closing Package Notification, and Form 3210. Once the package is sent to the field, the field will assume the responsibility for monitoring of the one-year date. The field should acknowledge the receipt of Form 3210 within 5 business days.

    Note:

    Appeals will prepare flow-through adjustments for corporate returns with an activity code of 219 or above, CIC corporation, and corporate specialty returns, which are any corporate return filed with a Form 1120 followed by a letter (for example, Form 1120-L life insurance company) except Form 1120-A, Form 1120-S or Form 1120-X. Appeals will also prepare flow-through adjustments for Joint Committee returns. Non-corporate returns, and corporate returns with activity codes below 219, with flow-through adjustments, will have to be computed by the campus and forwarded to Appeals.

Processing Partial Agreements

  1. When the CTF report writing or technical unit receives a partial agreement, the agreement will receive expedited priority treatment.

    1. The report will be prepared and mailed immediately.

    2. Normal partial report procedures will apply. (See IRM 4.31.3.9, Partial Agreements)

    3. Form 8339, PCS Change, with 11111111, amount and time will be input.

    4. Immediately after the input of the 11111111, amount and time, an 05-T and a 22-D will be input. This will allow for the next one-year date to be input when necessary and removes the package received indicator.

    5. Since no actual one-year date exists, manual processing is not needed as with other cases closed with less than 60 days remaining on the statute.

    6. After the partial assessment document is returned, the partner file should be suspensed.

    7. Appropriate documentation must be in the file to identify the existence and processing of prior partial reports before resuspensing the case.

  2. When the CTF report writers receive the final closing package for the partner, they will compare it with any prior packages and/or reports to determine if any issues were previously processed as partially agreed and prepare the final reports accordingly.

Non-Filer TEFRA Closing

  1. If a return was not filed by a partner and one has not been secured by the CTF, and a one-year assessment date was entered on PCS, the CTF should not assess the tax on the TEFRA adjustment unless there is evidence that the partner's taxable income would be increased by the partnership adjustment.

  2. If such evidence does exist, the CTF report writer will assess the tax on the TEFRA adjustment by applying the highest tax bracket applicable for the tax period to the amount of the adjustment without benefit of exemptions or deductions. AIMS should be established using Push Code 036. IRM 4.4.9.4.1.1, Form 5345-B, Examination Request Non- ERCS Users, covers the correct procedures. See IRM 4.31.3.3.2.9.1, SFR Procedures.

  3. SFR procedures will apply to all unreported income as well as partnership adjustments unless the partnership items converted due to a settlement agreement. If there was a settlement agreement, then the partnership items should be adjusted by computational adjustment. Deficiency procedures must be used on all non-computational adjustments, affected item or partnership items not agreed to by a settlement agreement (i.e., FPAA default or court decision).

Closing Employee Returns with TEFRA Links

  1. Employee Accounts are indicated by the "E" Employee indicator on AIMS specifics.

  2. Prior to closing the case will be forwarded to the CTF PCS Coordinator.

  3. The PCS Coordinator needs to provide the Employee Audit Analyst with the TIN, Tax Year and a brief explanation of the adjustment. A contact person can be found at http://mysbse.web.irs.gov/exam/tip/emplaudit/contacts/11076.aspx.

  4. The Employee Audit Analyst will give written permission to change the audit code. This will allow the case to be closed as normal.

No Change Partner Returns

  1. When no changing a partner there are two parts to consider: the AIMS record and the linkage record. Partners may have several linkage records, but will only have one AIMS record. Each linkage record will be closed with a Form 8339, PCS Change. There can be several partial closures on the AIMS record, but it may be fully closed only once. The final AIMS closure is where the disposal code is captured. When a partner’s last closure results in a no change, but there have been other prior AIMS partial closures, the disposal code should reflect that of the last tax adjustment.

  2. Partner linkages can be no changed under the following circumstances (See IRM 4.31.3.12.7, Completion of Form 5344 – Examination Closing Record, for disposal codes if fully closing the AIMS linkage):

    If Then
    The TEFRA key case is no changed, Letter 2064, No Change FPAA. The key case CTF will issue a no change FPAA (Letter 2064) to the TEFRA notice partners. Because notice partners have been notified of the results of the examination, the partner CTF will not prepare Form 4549-A or issue any additional letters. Form 8339 will be input as a no change and history sheet updated that Letter 2064 was sent to the partner. The returns may be closed from AIMS using streamline closing procedures in IRM 4.31.3.12.7.1.1, Streamlined No Change Procedures.

    Note:

    If the Letter 2064 was issued for an Administrative Adjustment Request (AAR), partner returns should be checked to ensure no amended returns were filed to reflect amended Schedules K-1. Partner returns will need to be corrected if an amended Schedule K-1 was claimed.

    The TEFRA key case is no-changed, and Letter 2621, No Adjustment Letter. The TMP is required to notify the partners of the results of the examination. The key case CTF will not issue an FPAA to all notice partners. Because partners have been notified of the results of the examination, no Form 4549-A will be prepared. Form 8339 will be input as a no change and the history sheet updated that Letter 2621 was sent to the TMP. The returns may be closed from AIMS using streamline closing procedures in IRM 4.31.3.12.7.1.1, Streamlined No Change Closures.
    The TEFRA key case examination results in a material change, but it does not change the partner's tax liability in any year (including carrybacks or carry overs for NOL, credits, etc.).
    • The partner CTF will prepare a Letter 4735, workpapers, Form 4549-A, and other documents as outlined in the text of this Handbook (See IRM 4.31.3.12, TEFRA Report Writing Procedures.

    • Form 5344 is prepared to process so that the Reference Code 888 is updated to reflect the correct amount of adjusted gross income on the return. Reference Code 886 is updated to reflect the correct amount of taxable income.

    • A copy of the Form 4549-A and the closing document must remain in the file.

    • If a partial closure future changes may result in a need to recompute the tax liability, these adjustments will be included in the subsequent computation.

    • Returns full closed in this manner should be a change no change.

    The key case adjustments result in a de minimus change to the partner's tax liability. The partner CTF will prepare workpapers, and other documents as outlined in the text of this Handbook (See IRM 4.31.3.12, TEFRA Report Writing Procedures). The Form 5344 will reflect change no change.
  3. Partner returns should only be closed DC 02 if the key case partnership was closed DC 02.

    Note:

    Any taxpayer that was issued an NBAP should be sent a no change letter as a matter of closure and good customer service, unless they were previously issued a Letter 2064, Notice of Final Partnership Administrative Adjustment (no change). .

Special Processing for Tax Changes over $10 Million
  1. IRM 4.4.18.5, Over $10 Million Deficiency, should be followed when adjustments result in a Balance Due (this includes interest and penalties) over $10 million.

  2. Each year stands alone when determining the $10 million threshold.

  3. For each tax period, where the Balance Due (this includes interest and penalties) is $10 million or more, the report writer will prepare a copy of the Form(s) 4318, or Form(s) 4700-T, and the examination report(s) to be sent to the Office of Unpaid Assessment Analysis. This information will be sent by Centralized Case Processing after the case is closed.

  4. If the case is closed by the CTF, then the information should be faxed to the Office of Unpaid Assessment Analysis.

Quality Responsibilities

  1. The CTF should ensure that an acceptable level of quality on the CTF reports is maintained.

  2. A sample review for quality must be made. The sample review will be analyzed to detect error trends, and recommendations for corrective action will be made. Errors will be recorded on Form 3990, Reviewers Report.

Barred Statute Reports

  1. The partner CTF is responsible for determining the correct assessment statute dates on all partner inventory and immediately identifying cases with barred statutes. Responsibility for the preparation of the Form 3999, Statute Expiration Report, or Form 3999-T, Statute Expiration Report for TEFRA Key Case, in tier situations, and the related processing procedures are found in IRM 25.6.1.13.2.8.1, Procedures for the Submission of SB/SE Statute Expiration Reports and IRM exhibit 25.6.1-4, SB/SE Statute Expiration Reporting Timetable (for examination-related activities).

Erroneous Refunds

  1. A refund issued in error can be reassessed if the partnership or partner assessment is still open. Erroneous refund procedures are needed when the assessment statutes have expired.

  2. When an erroneous refund is identified, the identifying area needs to complete the Form 12356, Erroneous Refund Worksheet, and send it to the appropriate Accounting Function.

  3. The form should be sent to the coordinator or their manager per IRM Exhibit 3.17.80-4.

Training

  1. The employees of the CTF are to receive standardized training, which will include the areas of the PCS, AIMS, report writing, and necessary TEFRA law and statutes needed for their positions, no later than six months after their selection.

Reports and Accomplishments

  1. The Partnership Control System (PCS) generates the administrative reports used to monitor the suspensed returns and the related key cases.

  2. The level to which unit and dollar accomplishments are distributed is now restricted to the National Headquarters and the area.

Reports
  1. Each CTF will use PCS reports to monitor linked returns. Specific information is provided on PCS reports in IRM 4.29, Partnership Control System (PCS) Handbook. The CTF personnel should use the PCS Handbook if they have questions about PCS generated reports.

  2. The campuses should also use A-CIS and SSIVL to monitor their returns and statutes.

  3. Cases in status code 34, Employee Group Code 58XX, or with a "T" indicator will be included on the CTF PCS reports. These three criteria, although not all three for every report, are also used to determine CTF staffing levels and for specific measurements.

    1. TEFRA related partner or shareholder returns that are in area office possession for examination of nonTEFRA issues will not be in the CTF physical inventory.

    2. However, these returns (not Joint Committee, CEP, or corporate specialty cases) are sent to the CTF for suspense if the nonTEFRA examination is completed before the TEFRA entity examination.

    3. Centralized Case Processing will update the case to Employee Group Code 5817, Status Code 34, and the Primary and Secondary Business Codes before shipping the case.

    4. When received the Employee Group Code should be updated to any other valid 58XX employee group code after verifying that the return meets the criteria to be added to campus inventory. See IRM 4.31.3.4.8.1, TEFRA Partnership Exam With Unresolved NonTEFRA Partner Exam, and IRM 4.31.3.4.8.2, NonTEFRA Partnership Exam With Unresolved NonTEFRA Partner Exam.

Accomplishments and Inventory
  1. Accomplishments for CTF closures where the report writing was done in the campus will be closed in employee group code 58XX according to the designated breakouts.

  2. The results for returns are found on AIMS Table 38 generally using Special Project Codes 0013 and 0015.

    1. PCS Report 8-3 reflects CTF TEFRA results by links closed; it also reflects inventory as of the report period for Report Writing and Suspense.

    2. PCS Report 2-2 is the weekly Report Writing TEFRA inventory; the inventory differs from the PCS Report 8-3 in that returns with a package indicator other than "Y" are not included in the 2-2 Report. Also included on the 2-2 Report are returns with one-year dates (other than 11111111) and where the package indicator is blank.

    3. Report Writing inventory is determined from those returns that have a numeric one-year date in the one-year date field.

    4. The PCS 4-4 Report provides a listing of all returns with open OYDs.

    5. Suspense inventory is determined from those returns where the one-year date field is blank.

    6. Report 8-3 is a weekly report, and Table 38 is a monthly report.

    Note:

    Remember: PCS reports deal with linkages; AIMS Tables deal with returns.

Inventory Validation Listing (IVL)
  1. Inventory validations must be completed as outlined in IRM 4.4.16.3, Inventory Validation Listing (IVL).

  2. In addition, consideration needs to be given to the accuracy of PCS linkages, any other database records and statutes.

  3. When taking the time to conduct an IVL, care should be given to ensure not only AIMS is correct but other aspects of the case as well. AIMS may be correct, but all PCS linkages may be closed and the case is no longer needed in inventory. An IVL is the time to identify such returns and clean up the inventory.

Key Case Administrative File Suspense

  1. The key case administrative file remains filed in the CTF closed key case files for a minimum of 18 months. The 18 month suspension period does not apply if the key case was no changed. After 18 months, if there are no open partners, all contents, which are not a duplication of the key case return file, are sent to the Federal Records Center for association with the key case return.

  2. No changes cases may be refiled after all investors are worked.

    Note:

    The key case administrative file is not refiled, and the 18-month period does not begin, until all partners have one-year dates, the "H" Freeze is removed and Form 8339 is entered to reflect an item 08, Partnership Adjustment Amount, entry.

IAT Tools

The following table contains IAT Tools that must be used when appropriate.

ID Number Tool
10 ESTAB
848 Fill Forms
984 Quick CC
1043 Letters

The following table contains other IAT Tools that may be useful in working TEFRA cases. These tools should be considered for use when appropriate. This list is not all inclusive. Check the IAT Tools web site for other tools.

ID Number Tool
1 Case Monitor
3 My Info
12 Closures
16 CCPE Research
138 Search 6209
215 L90 Day Prints
366 TC 520-530 Search
435 CCPE_Letters
474 IBTF Batch Process
496 Exam Batch
547 ICE
675 BOD Code
961 Manager Tool
975 TFRP Calc
983 Phone Number
985 New Name Search
1036 FSRT
1075 Address