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4.32.2  The Abusive Transactions (AT) Process (Cont. 3)

4.32.2.11 
Promoter Penalties

4.32.2.11.5 
IRC 6707 - Failure to Furnish Information Regarding Reportable Transactions

4.32.2.11.5.2  (06-08-2012)
Computation of IRC 6707 Penalties

  1. For material advisors required to disclose reportable transactions for which material aid, assistance, or advice was given after October 22, 2004 (post-AJCA of 2004):

    1. IRC 6707(b)(1) imposes a penalty of $50,000 for failing to file an information return regarding a reportable transaction (other than a listed transaction) timely or for filing a false or incomplete return.

    2. IRC 6707(b)(2) imposes a penalty for failing to timely file an information return regarding a listed transaction before the date prescribed, or for filing a false or incomplete return. The penalty is the greater of 50 percent (75 percent in the case of an intentional failure) of the gross income derived from any aid, assistance, or advice provided before the date the return is filed regarding the listed transaction or $200,000.

    3. The term "reportable transaction" is defined in IRC 6707A(c)(1), and is any transaction with respect to which information is required to be included with a return or statement because, as determined under regulations prescribed under IRC 6011, such transaction is of a type that the Secretary determines has a potential for tax avoidance or evasion.

    4. The term "listed transaction" is defined in IRC 6707A(c)(2), and is a reportable transaction which is the same as or substantially similar to a transaction specifically identified by the Secretary as a tax avoidance transaction for purposes of IRC 6011.

  2. For tax shelters offered for sale before October 23, 2004 (pre-AJCA of 2004):

    1. IRC 6707(a) imposes a penalty for failing to register a tax shelter, failing to register a shelter timely (i.e., upon its first offering for sale of interests in the tax shelter) or for filing incomplete or false information.

    2. If promoter penalties are appropriate based on documents and testimony, and the tax shelter is not a confidential shelter as defined in IRC 6111(d), compute the tax s[helter ratio per IRC 6111(c).

      If the ratio exceeds 2 to 1 and

      If the investment offered for sale is Then
      required to be registered under a federal or state law regulating securities all the promoters of the tax shelter (i.e., co-promoters) are subject to IRC 6707 penalties
      sold pursuant to an exemption from registration requiring the filing of a notice with a federal or state law regulating the offering or sale of securities all the promoters of the tax shelter (i.e., co-promoters) are subject to IRC 6707 penalties
      a substantial investment and the tax shelter was not registered. all the promoters of the tax shelter (i.e., co-promoters) are subject to IRC 6707 penalties

    3. For tax shelters defined in IRC 6111(c), the penalty is the greater of $500 or 1 percent of the aggregate amount invested.

    4. For tax shelters defined in IRC 6111(d), pertaining to corporate tax shelters offered under conditions of confidentiality, the penalty is the greater of 50 percent (75 percent if the act is intentional) of the fees paid to all promoters, with respect to payments made before the date the shelter is registered, or $10,000. See pre-AJCA IRC 6707(a)(3)(b) and pre-AJCA IRC 6111(d) for tax shelter special rules.

    5. Pre-AJCA IRC 6111(b)(1) required any person who sold or transferred an interest in a tax shelter to furnish to each investor the identification number given to the shelter by the IRS. IRC 6707(b)(1) imposed a $100 penalty for each failure to furnish a tax shelter registration number to participants. This penalty applies only if the return was filed prior to October 23, 2004.

    6. Pre-AJCA IRC 6111(b)(2) required any person claiming deductions, credits, or tax benefits from a tax shelter to include the identification number on their return. IRC 6707(b)(2) imposed a $250 penalty for each failure to include the tax shelter registration number on a return. This penalty applies only if the return was filed prior to October 23, 2004.

    7. Pre-AJCA IRC 6707 penalties are not imposed if the failure is due to reasonable cause.

  3. A promoter may be liable for penalties both under former IRC 6707 and under IRC 6707 as amended under the AJCA. For example, if the shelter was offered for sale prior to October 23, 2004 but was not timely registered, the former penalty would apply. If the same promoter then made tax statements to a potential investor after October 22, 2004, and was a material adviser, that promoter could be liable for the new IRC 6707 penalty with respect to the same transaction if the transaction was both an abusive tax shelter and a reportable transaction.

  4. See IRM 20.1.6.16, Failure to Furnish Information Regarding Reportable Transactions - IRC 6707, for further information on IRC 6707 penalties.

4.32.2.11.6  (06-08-2012)
IRC 6708 - Failure to Maintain List of Advisees With Respect to Reportable Transactions

  1. For IRS requests made after October 22, 2004, post-AJCA IRC 6708, Failure to Maintain Lists of Advisees With Respect to Reportable Transactions, permits asserting penalties for failing to comply with the list-maintenance requirements against:

    1. A principal organizer, organizer, manager, or seller of a tax shelter who was required to maintain a list of investors under IRC 6112 (prior to amendment by the AJCA of 2004) for interests sold in investments before October 23, 2004; and

    2. A material advisor with respect to a reportable transaction who was required to maintain a list of advisees under IRC 6112, as amended by AJCA of 2004 for transactions with respect to which material aid, assistance, or advice is provided after October 22, 2004.

  2. IRC 6708 penalties can be applied in addition to any other penalty allowed by law.

  3. See IRM 20.1.6.18, Failure to Maintain Lists of Advisees with Respect to Reportable Transactions - IRC 6708, for more information.

4.32.2.11.6.1  (06-08-2012)
Assessment Statute of Limitations

  1. For material advisors required to disclose reportable transactions for advice given after October 22, 2004 (post-AJCA of 2004), IRC 6708 penalties for failing to make available the list of advisees regarding reportable transactions are not subject to a statutory period of limitation for assessment.

  2. For tax shelters required to be registered before October 23, 2004 (pre- AJCA of 2004), IRC 6708 penalties for failing to maintain a list of participants in potentially abusive tax shelters are not subject to a statutory period of limitations for assessment.

4.32.2.11.6.2  (06-08-2012)
Computation of IRC 6708 Penalties

  1. For advisee lists required to be maintained by material advisors after October 22, 2004 regarding reportable transactions and investor lists required to be maintained by principal organizers, organizers, managers, or sellers before October 23, 2004, for which a request for that list was made after October 22, 2004:

    1. Failure to make lists of advisees/participants available to the IRS after the date of a written IRS request as required by IRC 6112 is subject to penalty.

    2. For requests made after October 22, 2004, the penalty is $10,000 for each day the list is not furnished after the 20th business day of an IRS written request.

    3. This penalty can be imposed in addition to any other penalty provided for by law.

    4. The penalty is not imposed if the failure is due to reasonable cause.

    5. For requests made before October 22, 2004, the penalty is $50 for each person with respect to whom there is a failure, up to $10,0000.

4.32.2.11.7  (06-08-2012)
Post-Assessment Rights

  1. This section explains the post-assessment process for promoter penalties and the promoter’s rights.

  2. After assessment of the penalties, promoters receive a penalty assessment notice and demand for payment. If the promoter pays the penalties, then the promoter may file a claim for refund.

  3. Promoter rights differ depending on whether the penalties are assessed under IRC 6700, IRC 6701, IRC 6707, or IRC 6708.

4.32.2.11.7.1  (06-08-2012)
Promoter Rights for IRC 6700 and IRC 6701

  1. There are no pre-assessment appeal rights for IRC 6700 and IRC 6701 penalties.

  2. IRC 6703(b) specifically states that deficiency procedures used for income and other types of tax as provided for by Subchapter B of Chapter 63 of the IRC do not apply with respect to the assessment or collection of IRC 6700 and IRC 6701 penalties.

  3. IRC 6700 and IRC 6701 penalties may be challenged by following the special claim for refund procedures.

4.32.2.11.7.1.1  (06-08-2012)
Special Claim Procedures for Penalties Under IRC 6700 and IRC 6701

  1. A CP 15, Notice and Demand letter is sent to the promoter upon assessment of the penalties advising the promoter of the special claim procedures pursuant to IRC 6703(c).

  2. IRC 6703(c)(1) allows the promoter to pay at least 15% of the amount of the penalty within 30 days and file a claim for refund of the amount paid using Form 6118, Claim for Refund of Tax Return Preparer and Promoter Penalties.

  3. If the claim for refund is disallowed and a written request for Appeals consideration is received timely, Appeals may consider the IRC 6703 claim for refund in the same manner as any other claim for refund, except where the penalty is protested on moral, religious, political, constitutional, conscientious, or similar grounds.

  4. IRC 6703(c)(2) allows a promoter to begin a proceeding in United States District Court by filing suit within 30 days after the day that a claim for refund is disallowed or within 30 days after the expiration of 6 months after the day that a claim for refund was filed, whichever is earlier.

  5. Collection action is suspended pending the final resolution of any court proceeding.

    1. Under IRC 6703(c) collection by levy activity and the running of the statute of limitation on collection by levy are suspended during the period which the Secretary is prohibited from collecting by levy or a proceeding is in court.

    2. The examiner assigned the claim will request a transcript (TXMODA or IMFOLT) to validate that TC 470/CC 95 is present to stay collection activity on the Master File Tax (MFT) module 55 for individuals or MFT 13 module for entities. If TC 470 is not present, the examiner will complete Form 3177 for each year and fax it to Collection Centralized Case Processing at (fax number) (215) 516-1555. The examiner should follow-up in two weeks to ensure the codes have posted and document these actions on the activity record.

    3. When closing special claims, consideration must be given to the proper time to reverse the collection stay. For an agreed closure, the examiner will complete Form 3177 requesting input of TC 472, CC 95 for each year and fax it to Collection, Centralized Case Processing at (215) 516-1555.

    4. For unagreed special claims, the examiner uses Form 3198, Special Handling Notice for Examination Case Processing, to flag the special claim case for the reversal of the TC 470, CC 95. The "Other Instructions" item is checked in the Special Features section and the following explanation should be added: Form 3177, Notice of Action for Entry on Master File, with TC 472 CC 95 is to be completed by the function concluding the special claim and faxed to (215) 516-1555 for processing.

  6. See IRM 4.32.2.11.8.3.2.5, Claims for Refunds Procedures - SB/SE, for instructions and additional information on addressing claims for refund.

4.32.2.11.7.2  (06-08-2012)
Promoter Rights for IRC 6707 and IRC 6708 Assessments

  1. Post-assessment appeal procedures apply to IRC 6707 and IRC 6708 penalties. See IRM 20.1.1.4.1.2, Post-Assessment Appeals and IRM 8.11.1.5, Appeals Post-Assessment Penalty Program. There are no pre-assessment appeal rights for IRC 6707 and IRC 6708.

  2. Promoters may request from Appeals an abatement of the IRC 6708 penalty for reasonable cause within 30 days of receiving the notice and demand for payment. The request must be in writing. Penalties arising under IRC 6707 for failure to comply with IRC 6111 after October 22, 2004, may not be abated on grounds of reasonable cause. They may be abated on grounds that there was not a failure to comply with IRC 6111(a). The penalty can also be rescinded for non-listed reportable transactions. See Rev. Proc. 2007-21, 2007-9 IRB 613.

  3. Promoters are not required to pay any portion of the IRC 6707 or IRC 6708 penalty before requesting abatement.

  4. If the penalty is not abated by Appeals, it must be paid in full. Promoters may then file a claim for refund on Form 6118Claim for Refund of Tax Return Preparer and Promoter Penalties. The claim is assigned to the field for consideration. Promoters may not file a refund suit:

    1. Before 6 months from the date of filing the claim for refund, unless the IRS acts on the claim, nor

    2. After two years from the date of mailing a notice of claim disallowance.

    See IRC 6532, Periods of Limitation on Suits. Late filed claims will be disallowed in full.

4.32.2.11.8  (09-23-2011)
Penalty Case Processing Procedures

  1. This section discusses writing a penalty report, case file assembly, and closing procedures for promoter investigations.

4.32.2.11.8.1  (06-08-2012)
Penalty Report

  1. The penalty report is a narrative summary of the facts and conclusions of the investigation, including which persons or entities are liable for penalties, and the amount of penalties to be assessed against each person or entity.

  2. In an SB/SE examination, if an examiner injunction report (EIR) was prepared for referral to DOJ, it can be used as the penalty report. Update the EIR to reflect any new information secured during the injunction proceedings.

  3. If an EIR was not prepared, Form 886-A, Explanation of Items, may be used for the penalty report following the report-writing guidelines in IRM 4.10.8.11.2, Explanation of Items.

  4. In an SB/SE examination, examiners can prepare a single, comprehensive report (addressing all promoters, sub-promoters, and facilitators, all applicable penalties, and all years) and place a photocopy of this report in each related penalty case file. For penalty cases without injunctions, examiners should disregard the sections of the injunction referral report that refer to venue or injunction.

  5. In an LB&I examination, examiners should coordinate the preparation of the penalty report with the LB&I:F Promoter Program Manager.

4.32.2.11.8.1.1  (06-08-2012)
Penalty Computations

  1. The penalty report must include a detailed penalty computation. The penalty computation must contain enough information and supporting documentation to explain the basis for determining whether penalties are warranted. Keep in mind that this material will be used to defend the penalty assessment in Appeals and possibly in court.

  2. For each person who will be assessed a penalty, there must be a separate penalty computation for each year, and each computation must agree with the assessment shown on Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties.

    1. Form 8278 is an adjustment document used for the manual assessment or abatement of miscellaneous civil penalties. The penalty reference number (PRN) from the form is keyed in with the dollar amount to the proper master file tax account (MFT 13 for BMF, MFT 55 for IMF). The resultant TC 240 with the PRN indicates a miscellaneous civil penalty assessment. The PRN dictates the language in the CP 15 (IMF) or CP 215 (BMF), Notice of Demand, that provides an explanation of the penalty being assessed, the amount due, and the taxpayers recourse in contesting the assessment or paying the balance due.

    2. Always use the most current version of Form 8278 available from the electronic publishing website.

4.32.2.11.8.1.2  (06-08-2012)
Notification of Penalty

  1. There are no pre-assessment appeal rights for IRC 6700 and IRC 6701 penalties, but prior to closing the penalty investigation and assessing the penalties the examiner will send an explanation of the penalty assessment to the promoter(s) who will be assessed a penalty. See IRM 4.32.2.11.7.1, Promoter Rights for IRC 6700 and IRC 6701.

  2. The examiner must provide a penalty report and computations to the promoter before assessment of penalties. The timing of the notification will vary depending on the outcome of the investigation. In injunction cases, the penalty report is not provided at the closing conference. See IRM 4.32.2.7.7, Closing Conferences. If an injunction was not pursued, the penalty notification and closing conference may be held at the same time.

  3. While normal deficiency procedures do not apply to promoter investigations, the examiner must still consider any defense or rebuttal positions the promoter may offer. The examiner may provide the penalty report and computation to the promoter in advance of the closing conference in order to facilitate that process. If no closing conference will be held, the examiner should allow the promoter a reasonable time frame (generally no more than 30 days) to respond.

  4. For SB/SE examinations, a sample notification letter, which can be used to provide the penalty computation to the promoter, is included as Exhibit 4.32.2-11, Sample Pattern Letter - Penalty Report and is also available on MySB/SE, Promoter Investigations. Area Counsel should be consulted for any modifications to the sample letter.

  5. The timing of this action should take into consideration the needs of all interested parties, such as DOJ and CI. See IRM 4.32.2.8.1, Injunctions and IRM 4.32.2.8.2.2, Penalty Assessment - CI Parallel Investigation, for additional information.

  6. Examiners may use the penalty report as the explanation for the penalty notification with the following modifications:

    • Delete all references to parallel investigations or other CI involvement. If the promoter was convicted of a crime, this information can remain in the report.

    • Delete confidential informant information, including the existence of an informant.

    • Except with respect to the person who will receive the penalty explanation, remove all tax return information as defined in IRC 6103 of other individuals, including participants.

    • Remove references to other promoters, sub-promoters, or facilitators unless this information is necessary to explain the penalty assessment.

    • If the penalty report covers more than one person, review the entire report for other disclosure issues. See IRC 6103, Confidentiality and Disclosure of Returns and Return Information.

    • Delete any other sensitive information that should not be disclosed.

  7. The penalty explanation must include a computation of the penalty assessment against the specific promoter. It does not need to be as detailed as the penalty computation included in the penalty case file, nor does it need to identify each participant or client by name. Generic explanations that identify the activity subject to a penalty, such as "sale of trust package," "sale of tax defense package," "membership in the organization," "depreciation schedule." , or "response to Statutory Notice of Deficiency," along with the number of items sold or documents prepared, are adequate to explain the penalty.

  8. The penalty report and computations sent to a promoter should not contain the taxpayer identification numbers (SSN or EIN) of any persons other than the person to whom the explanation is sent. Other tax return information (such as full names, addresses, telephone numbers, or other information that can uniquely identify a person) of other persons should be included in the explanation only if an exception to IRC 6103 is applicable and the information is necessary to explain the liability for the penalties. See IRC 6103, Confidentiality and Disclosure of Returns and Return Information.

4.32.2.11.8.2  (09-23-2011)
Case File Assembly

  1. Penalty case files include the following:

    1. IRC 6700/IRC 6701 Investigation Workpaper or Form 4318, Examination Workpapers Index.

    2. Form 886-A, Explanation of Items.

    3. Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties.

    4. Form 3198, Special Handling Notice for Examination Case Processing.

    5. Form 4665Report Transmittal.

    6. Form 3244-A, Payment Posting Voucher - Examination (if applicable).

4.32.2.11.8.2.1  (06-08-2012)
IRC 6700 / IRC 6701 Investigation Workpaper or Form 4318, Examination Workpapers Index

  1. Examiners can utilize the IRC 6700 Investigation Workpaper or Form 4318 to summarize the investigation information and applicable penalties.

  2. Generally, the IRC 6700 Investigation Workpaper is better suited than Form 4318 for an SB/SE promoter investigation. This workpaper is available on My SB/SE, Promoter Investigations.

  3. Detailed penalty computations should be included in the workpapers along with supporting documentation for each penalty.

4.32.2.11.8.2.2  (06-08-2012)
Form 886-A - Explanation of Items

  1. Form 886-A, Explanation of Items, should be used to explain the penalty adjustments. However, it is not mandatory for SB/SE examiners to use Form 886-A for these reports if an EIR was already prepared for an injunction referral.

  2. The penalty explanation summarizes the facts, applicable law, promoter’s position (if known), argument,, and conclusion. See report-writing guidelines in IRM 4.10.8.11.2, Explanation of Items. It should specify

    • The name of the person assessed the penalty.

    • The taxpayer identification number of that person.

    • The year or period of the assessment.

    • The type of penalty to be assessed.

    • The amount of the penalty.

    • The penalty computation.

  3. A detailed explanation and computation of the penalties, including a listing of clients and penalties per client or evidence of the gross income derived, or to be derived from the promoter activity, should be included as an exhibit to the penalty report.

  4. Examiners should number each page of the document with the page number and the total number of pages (e.g., 1 of 5). Page numbers help future users of the reports know whether they have a complete document.

  5. LB&I examiners should prepare Form 886-A using the following format:

    1. Issue

    2. Facts

    3. Law

    4. Position of Promoter (if known)

    5. Conclusion

    6. Exhibits

4.32.2.11.8.2.3  (06-08-2012)
Form 8278 - Assessment and Abatement of Miscellaneous Civil Penalties

  1. Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties, is used for assessment and abatement of miscellaneous civil penalties. Examiners should complete the Form 8278 following the instructions on the form.

  2. A separate form is required for each type of penalty and each penalty period; however, multiple assessments of the same penalty for a single period may be consolidated.

  3. For IRC 6700 and IRC 6701 penalties, the tax period is a calendar year period (12/31/XXXX) for all taxpayers, including fiscal year filing taxpayers. The penalty is imposed for actions during the calendar year.

  4. For IRC 6707 and IRC 6708 penalties, the tax period used on Form 8278 is the period that the registration or disclosure was required to be filed or maintained.

  5. If a penalty is assessed against an individual, use MFT 55; if it is assessed against a business entity, use MFT 13.

  6. A statute date should not be entered on Form 8278 unless there is a corresponding statute of limitations for the penalty. See IRM 4.32.11, Promoter Penalties, and IRM 25.6, Statute of Limitations.

4.32.2.11.8.2.4  (06-08-2012)
Form 3198 - Special Handling Notice for Examination Case Processing

  1. Form 3198, Special Handling Notice for Examination Case Processing, is attached to the outside cover of the penalty case file.

  2. A notation "Civil Penalty Assessment IRC xxxx," citing the applicable penalty code section(s) should be made on the Form 3198.

  3. If the promoter does not pay the aggregate balance due or make satisfactory arrangements to pay, attach a Special Handling Alert for ATTI Case with Collection Issue form on top of the Form 3198. See IRM Exhibit 4.32.2-1 for this form. This will ensure the case is properly routed to Collection after it has been processed and the liability has been assessed. The name and address of the Collection AT Coordinator for the area where the taxpayer resides should be listed on the Special Handling Sheet before closing the case.

4.32.2.11.8.2.5  (06-08-2012)
Form 4665 - Report Transmittal

  1. Form 4665, Report Transmittal, is used to provide summary information regarding the penalty investigation. It can also be used for transfers, discontinuations, suspended penalty cases and investigations with injunctions but not penalties.

  2. LB&I examiners should include a Form 4665 in all promoter investigation closures

  3. The information on the Form 4665 should supplement, not duplicate or replace, information in the case file and may include:

    1. Background on the issue(s).

    2. Explanation of the disposition of the issue(s).

    3. A summary of the basis for the penalty.

    4. Identification of related cases.

    5. A summary of unagreed issues.

    6. Other relevant information not suitable for inclusion in the Form 886-A.

    Caution:

    As per Rev. Proc. 2012-18 regarding ex parte communications with Appeals, the Form 4665 or any similar document should not include statements or comments intended to influence Appeals' decision-making process. See Rev. Proc. 2012-18 for a full discussion of ex parte rules.

4.32.2.11.8.2.6  (06-08-2012)
Form 3244-A - Payment Posting Voucher - Examination

  1. Form 3244-A, Payment Posting Voucher – Examination, is used if a promoter makes an advance payment of the penalty.

  2. Enter the payment as TC 640 and MFT 55 for individual assessments or MFT 13 if assessed against a business entity.

  3. The tax year is the year for which the penalty will be assessed.

  4. Send Part 1 of Form 3244-A with the check separately via overnight traceable method to the remittance teller at the aligned Submission Processing Center for your area using IRM 4.4.24, Payments and Remittances procedures. Attach Part 2 of Form 3244-A to the front of Form 8278.

4.32.2.11.8.3  (09-23-2011)
Case Closing Procedures

  1. Procedures for case closing depend on the type of closure and whether it is an SB/SE or LB&I investigation.

4.32.2.11.8.3.1  (06-08-2012)
Penalty Assessments

  1. Generally, penalties should be recommended if an injunction has been granted; however, there might be circumstances that warrant non-assertion of the penalties. See IRM 4.32.2.8.1.2, Injunctions - No Penalty Assessment.

  2. Examiners may recommend asserting promoter penalties regardless of whether injunctive relief is pursued by the government so long as sufficient evidence has been obtained to demonstrate that the promoter engaged in conduct subject to penalty under IRC 6694, IRC 6695, IRC 6700, IRC 6701, IRC 6707, or IRC 6708.

  3. IRC 6751 requires managerial approval of penalties, including IRC 6700, IRC 6701, IRC 6707, and IRC 6708. See IRM 4.32.2.11.1, Approval of Penalties, and IRM 20.1.1.2.3, Managerial Approval for Penalty Assessments.

  4. In parallel investigations, CI may request suspending penalty assessment until conclusion of the criminal investigation. See IRM 4.32.2.11.8.3.1.3, Parallel Investigations.

  5. Examiners should prepare a promoter penalty report and a penalty investigative file as discussed in IRM 4.32.2.11.8.1, Penalty Report, and IRM 4.32.2.11.8.2, Case File Assembly.

4.32.2.11.8.3.1.1  (06-08-2012)
SB/SE Penalty Assessment Procedures

  1. In SB/SE, after approval by the group manager, the promoter investigation penalty case is forwarded to Area Counsel for review.

  2. Once Area Counsel reviews the proposed penalty, the case file is returned to the examiner for closing through the group manager to Centralized Case Processing (CCP) for assessment.

  3. A copy of the Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties, is sent to the SB/SE LDC and to the local AT Collection group or AT revenue officer assigned to the penalty case.

  4. CCP assigns a DLN to the investigation and assesses the penalty.

  5. The disposal code is DC 12 whether the case has been closed agreed or unagreed if penalties are being assessed.

  6. Always use the most current version of Form 8278 available from the electronic publishing website. Doing so will ensure that the penalty will be assessed with the correct penalty reference number.

  7. For step by step instructions, see Exhibit 4.32.2-12, Case Closing Job Aid Completed Investigation. The Promoter Penalty Case Closing Job Aid Completed Investigation With an Injunction and/or Penalties,is available on MySB/SE, Promoter Investigations.

4.32.2.11.8.3.1.2  (06-08-2012)
LB&I Penalty Assessment Procedures

  1. In LB&I, a promoter investigation must have the approval of the LB&I:F DFO, Manhattan in order to close.

  2. The disposal code should reflect whether the case has been closed agreed or unagreed. Disposal Code 12 should be used for withdrawal cases.

4.32.2.11.8.3.1.3  (06-08-2012)
Parallel Investigations

  1. If CI has requested suspension of the penalty assessment and the examiner has completed all investigation actions, the examiner will assemble the investigative case file and place the case in group suspense.

  2. The examiner must prepare the penalty report and a detailed penalty computation based on all available information.

  3. The case is updated to Status Code 16 on ERCS.

  4. While the investigation is in group suspense, the examiner should continue to have six-way conferences with CI and monitor the status of the criminal investigation.

  5. When the decision is made to proceed with closing the investigation and assessing the appropriate penalties, examiners must follow the closing procedures discussed in IRM 4.32.2.11.8, Penalty Case Processing Procedures.

  6. See IRM 4.32.2.6, Parallel Investigations, for additional information on parallel investigations.

4.32.2.11.8.3.2  (06-08-2012)
No Penalty Assessment

  1. In limited instances, examiners may determine assessment of penalties may not be in the best interest of the government, even if an injunction has been secured. See IRM 4.32.2.8.1.2, Injunctions - No Penalty Assessment.

  2. An investigation may be surveyed or discontinued before or after contacting the promoter. See IRM 4.32.2.8.5, Survey, and IRM 4.32.2.8.3, Discontinuations, for additional information.

  3. SB/SE examiners should consult with Area Counsel, AT/IMT SPA) and the SB/SE LDC prior to closing the investigation without a penalty assessment.

  4. LB&I examiners must contact Area Counsel prior to closing the investigation. Approval of the LB&I DFO with jurisdiction over the promoter investigation and the LB&I Financial Services, DFO, Manhattan must be obtained prior to closing the investigation.

4.32.2.11.8.3.2.1  (06-08-2012)
Injunctions - No Penalty Assessment

  1. Generally, if an injunction has been secured, penalties are proposed since conduct or activity subject to penalties under the various promoter penalty code sections is a requirement in order to seek an injunction pursuant to IRC 7407 or IRC 7408. However, there may be circumstances when a decision is made not to assess penalties. See IRM 4.32.2.8.1.2, Injunctions - No Penalty Assessment, for additional information.

  2. Examiners must consult with Area Counsel and the SB/SE LDC or the LB&I:F Promoter Program Manager prior to closing an enjoined promoter investigation without a penalty assessment.

  3. Form 4665, Report Transmittal, is used to document the basis for the non-assertion of penalties. A copy of this form is provided to the SB/SE LDC or to the LB&I:F DFO, Manhattan.

  4. Letter 1866, Discontinuance Letter, is not sent to the promoter if an injunction has been secured against the promoter.

  5. Cases are closed from the field compliance group using DC 12 through CCP when an injunction has been granted but no penalties are assessed.

  6. Form 8278 is completed and included in the case file. Column {c} is left blank and column {d} of the form for the applicable penalty will reflect the amount of zero (the 3 digit reference code is a mandatory field). CCP must insert a dummy blocking number to establish MFT 55 or 13 modules, as appropriate. CCP processes the zero posting after the MFT is established on Master File.

4.32.2.11.8.3.2.2  (06-08-2012)
Discontinuations

  1. A discontinued investigation is an investigation, other than a survey, that is closed without an injunction or penalty assessment regardless of whether or not the promoter was notified of the investigation. See IRM 4.32.2.8.3, Discontinuations, for additional information.

    Note:

    Only SB/SE has the option to survey an investigation.

  2. Letter 1866, Discontinuance Letter, is required unless:

    • There has been no contact with the promoter, or

    • CI requests that the discontinuation letter not be sent.

  3. For all discontinued investigations, examiners must close the case through CCP and complete Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties. Column {c} is left blank and column {d} of the form for the applicable penalty will reflect the amount of zero (the 3 digit reference code is a mandatory field). The discontinuation will be posted to the penalty module as -0- with an associated DLN assigned. The assignment of a DLN will allow for the subsequent retrieval of the administrative investigation file, if necessary.

  4. Examiners prepare Form 4665 explaining the reason(s) why the investigation is not being pursued.

  5. For SB/SE cases, a copy of the completed Form 4665 and the Form 8278 are sent to the SB/SE LDC.

  6. Once the Form 4665 is received by the SB/SE LDC, a reason code is assigned based upon the explanation provided by the examiner. The LDC will maintain a record of the closure and reason code.

  7. SB/SE groups should update ERCS to Status Code 51 using an appropriate disposal code.

  8. LB&I groups should update ERCS to Status Code 90 using Disposal Code 12 after approval by the LB&I Financial Services, DFO Manhattan.

  9. SB/SE groups should use one of the following disposal codes when closing promoter investigations:

    Disposal Code Reasons
    02 No Change
    31 Insufficient Information
    33 Established in Error
    39 Promoter Deceased or Other (age, health, no current activity or any other reason penalties are not assessed).
    40 Unable to Locate

  10. SB/SE groups follow local procedures to close the case to Memphis CCP using Form 3210, Document Transmittal. LB&I groups send the administrative case file to the LB&I:F DFO, Manhattan for approval using Form 3210. The LB&I:F DFO Manhattan's approval must be obtained for all penalty determinations for LB&I cases.

  11. For SB/SE Investigations, see Exhibit 4.32.2-13, Case Closing Job Aid Discontinuations for instructions. The Promoter Penalty Investigation Case Closing Job Aid/Discontinued Investigation job aid is available on MySB/SE, Promoter Investigations.

4.32.2.11.8.3.2.3  (06-08-2012)
SB/SE Surveys

  1. An investigation may be surveyed rather than discontinued if the promoter was not contacted and less than 10 hours was applied to the investigation.

  2. If more than 10 hours are charged to the investigation, follow closing procedures for discontinuations before contact. See IRM 4.32.2.11.8.3.2.2, Discontinuations.

  3. Examiners prepare Form 4665 explaining the reason(s) why the investigation is being surveyed. A copy of the completed Form 4665 is sent to the SB/SE LDC.

  4. Once the Form 4665 is received by the SB/SE LDC, a reason code is assigned based upon the explanation provided by the examiner. The LDC will maintain a record of the closure and reason code.

  5. SB/SE groups update ERCS to Status Code 41 using an appropriate disposal code.

  6. Use the most appropriate disposal code (other than DC 02) per the chart noted above in IRM 4.32.2.11.8.3.2.2, Discontinuations.

  7. For SB/SE, see Exhibit 4.32.2-14, Case Closing Job Aid Survey, for instructions. The job aid Promoter Penalty Investigation Case Closing Job Aid//Survey/No Contact <10 hours,is available on MySB/SE, Promoter Investigations,.

4.32.2.11.8.3.2.4  (06-08-2012)
Transfers

  1. There may be instances where a promoter investigation is transferred between areas (e.g., promoter moved, for association with related investigations, or workload management (case brokering)).

  2. Examiners should prepare Form 4665, Report Transmittal, explaining the reasons for transferring the promoter investigation.

  3. The promoter investigation must be closed on the ERCS database by the transferor area and a new ERCS record is established by the receiving area.

  4. For SB/SE cases, see Exhibit 4.32.2-15, Case Closing Job Aid Transfers, for detailed instructions to transfer an investigation. The job aidPromoter Penalty Investigation Case Closing Job Aid is available on MySB/SE, Promoter Investigations,.

4.32.2.11.8.3.2.5  (06-08-2012)
Claims for Refunds Procedures - SB/SE

  1. All IRC 6703 promoter claims are addressed by examiners following the procedures in IRM 4.32.2.11.7.1.1, Special Claim Procedures for Penalties Under IRC 6700 and IRC 6701.

  2. The IRC 6700 and IRC 6701 penalty claims are sent to the SB/SE LDC for review and assignment to a field compliance group. All attempts are made to secure the original examination file and associate it with the claim.

  3. Detailed instructions for processing promoter penalty claims can be found in Exhibit 4.32.2-16, Case Closing Job Aid Promoter Penalty Claim Allowed and Exhibit 4.32.2-17, Case Closing Job Aid Promoter Penalty Claim Disallowed In Full. They are also available on MySB/SE; see Promoter Penalty Investigation Job Aid Promoter Penalty Claims , Promoter Penalty Claims.

4.32.2.12  (06-08-2012)
Post-Injunction Activities

  1. After an injunction is granted and/or penalties are assessed, examiners need to consider additional steps to ensure the maximum compliance impact on the promoter and participants.

  2. A preliminary injunction granted by the court generally stops a promoter from engaging in unlawful activity. The work and actions of the DOJ attorney will continue, including filing a motion for a permanent injunction and, if necessary, contempt hearings.

  3. Additional compliance actions to be considered include:

    • Publicizing court actions including injunction.

    • Sharing information with the states.

    • Taking steps to bar the promoter from practicing before the IRS.

    • Moving participant returns into the examination stream.

    • Responding to claims for refund.

    • Monitoring compliance with court order(s).

  4. Results of an injunction or penalty assessment are shared with state agencies following disclosure procedures. The SPA assigned to participant case building coordinates this action. It is imperative that the Disclosure Office review any information prior to its release. This includes the name of the promoter, the names of any participants identified, the name of the abusive shelter, and the tax benefits the promotion promised to do for the participants.

4.32.2.12.1  (06-08-2012)
Publicizing Court Actions

  1. The injunction process allows the IRS to publicize civil enforcement actions taken against a promoter. This publicity informs the public of the government’s position regarding the promotion and enforcement actions being taken, and it deters others from participation in abusive promotions.

  2. Information regarding the government's enforcement actions should have the widest possible dissemination.

  3. DOJ is primarily responsible for the distribution of any press releases. The local Office of Communications and Liaison is informed of any pending press releases and assists in any local responses. Examiners and Area Counsel work closely with DOJ and the local media relations specialist in the Office of Communications and Liaison throughout the litigation process to get the releases to the national and local media as soon as possible.

  4. Press releases are generally made by DOJ at the:

    • Filing of the injunction suit.

    • Imposition of a temporary restraining order (TRO).

    • Order of a preliminary or permanent injunction.

    • Initiation of any contempt actions.

  5. In parallel investigations, DOJ coordinates the filing of the injunction with specific criminal actions to foster maximum press coverage. For example, the filing of an injunction may be postponed until a search warrant is executed on the promoter, so that both actions can be included in the press release.

4.32.2.12.2  (06-08-2012)
State Memoranda of Understandings

  1. SB/SE has a memoranda of understanding (MOU) with various states, Washington D.C. and some territories to share information regarding abusive tax transactions.

  2. Results of an injunction or penalty assessment are shared with state agencies in accordance with disclosure procedures. Release of this information is coordinated by an AT SPA and must be reviewed by the Disclosure Office prior to its release.

  3. IRS personnel should contact the Area Governmental Liaison if they receive information from the states. The liaison routes this information to the AT Coordinator in the Area PSP.

4.32.2.12.3  (06-08-2012)
Barring a Promoter From Practice

  1. Promoters frequently represent their clients before the IRS. Examiners can take the following actions to bar the promoter from practicing before the IRS:

    • Seek prohibition to practice as part of the injunction process.

    • Make referrals to OPR.

    • Notify state licensing agencies of the conduct outlined in public documents.

  2. The action taken is dependent upon the specific provisions which allow the promoter the right to practice before the IRS as well as the circumstances surrounding the injunction.

  3. If the promoter or the promoter’s power-of-attorney also represents participants in their examinations, a potential conflict of interest exists. If this situation occurs, the examiner should consult with Area Counsel regarding the appropriate action to take.

  4. Section 10.29 of Circular 230 discusses the rules regarding conflict of interest. It states that a conflict exists if "the representation of one client will be directly adverse to another client" or "there is a significant risk that the representation of one or more clients will be materially limited by the practitioner's responsibilities to another client, a former client or a third person, or by a personal interest of the practitioner."

  5. Circular 230 further states that the POA can still represent the client if "each affected client waives the conflict of interest and gives informed consent, confirmed in writing." Copies of these informed consents must be provided to the IRS upon request. "Informed consent" means more than simply obtaining a client's consent. There are occasions where, despite a client's consent, a practitioner cannot reasonably or effectively provide competent and diligent representation to each affected client. When these situations arise during an examination, Area Counsel should be consulted. If a suspected conflict of interest(s) occurred/occurs during the examination, a referral to OPR should be made at the conclusion of the examination.

4.32.2.12.3.1  (06-08-2012)
Courts Barring Promoters From Practice

  1. The injunction court order may include a provision permanently prohibiting individuals from practicing before the IRS.

  2. This court order has the practical effect of barring an enjoined promoter from practice before the IRS, but it is not a disbarment, suspension, or censure resulting from a Circular 230 proceeding. Historically, a Circular 230 proceeding was the only way that a barred practitioner’s name was publicized. See related discussion in IRM 4.32.2.12.3.2, Referrals to Office of Professional Responsibility (OPR).

4.32.2.12.3.2  (09-23-2011)
Referrals to Office of Professional Responsibility (OPR)

  1. OPR has oversight responsibility of tax practitioners authorized to practice before the IRS.

  2. Referrals should be made to OPR as soon as it appears that a practitioner may be in violation of Circular 230, Regulations Governing Practice before the Internal Revenue Service, (Circular 230, section 10.53(a)).

  3. Form 8484, Report of Suspected Practitioner Misconduct, is used to make a referral to OPR.

  4. Referrals to OPR are mandatory when penalties are asserted under IRC 6694(b) for willful or reckless conduct or when IRC 6700 or IRC 6701 penalties are asserted. For further information regarding referrals to OPR and instructions, see IRM 20.1.6.12.3, Referral to the Office of Professional Responsibility (OPR), for preparer and promoter penalties.

  5. Referrals to OPR should be made when penalties are asserted under IRC 6707 or IRC 6708 whether or not the promoter agrees to the penalties, See IRM 20.1.6, Preparer, Promoter, Material Advisor Penalties, for more information.

  6. The AJCA of 2004 added IRC 7408(c)(2) to allow injunctive relief to be sought for violations under Circular 230.

  7. If the statutory requirements of IRC 7408, IRC 7407, or IRC 7402 are met, an injunction referral should be made to DOJ. A referral to OPR should not be used in lieu of an injunction referral to DOJ but rather in addition to the DOJ referral. The injunction is generally a faster means to stop the promoter from engaging in prohibited conduct and is broader in scope.

  8. Refer to IRM 20.1.6, Preparer, Promoter, Material Advisor Penalties, for additional information on referrals to DOJ.

4.32.2.12.3.3  (09-23-2011)
Revocation of IRS e-file Participation

  1. An individual’s or firm’s participation in the IRS e-file program may be revoked as a result of the granting of an injunction.

  2. The LDC monitors court injunctions and may recommend revocation or other sanctions depending on the prohibitions outlined in a court order.

  3. See IRM 3.42.10.3.1, Court Injunctions and Revocation of IRS e-file Participation, and IRM 3.42.10.3.2, Court Injunctions and Sanctioning of Authorized IRS e-file Providers.

4.32.2.12.4  (06-08-2012)
Participant Returns

  1. Placing participant returns into the examination stream is an important aspect of AT compliance actions. See IRM 4.32.2.13, Participant/Investor/Advisee Lists, for information on processing of participant lists.

4.32.2.12.5  (06-08-2012)
Claims for Refund

  1. Post-assessment appeal procedures may apply to promoter penalties. The promoter may file a claim for refund. See IRM 4.32.2.11.7, Post-Assessment Rights, for a discussion of promoter post-assessment rights and procedures.

  2. See IRM 20.1.6.19, Appeal Rights, for additional information regarding IRC 6694(a) and IRC 6694(b) penalties.

4.32.2.12.6  (09-23-2011)
Monitoring Compliance

  1. The SB/SE LDC is responsible for monitoring compliance with injunction orders against SB/SE promoters. OTSA is responsible for monitoring compliance with injunction orders against LB&I promoters.

  2. IRS employees who learn of any new or continuing unlawful activity by an enjoined promoter must make a referral to the SB/SE LDC or OTSA.

  3. LB&I examiners should solicit future compliance agreements (Form 906). These agreements include provisions requiring promoters to adopt quality-control procedures to ensure compliance with the IRC 6111 and IRC 6112 requirements and allowing the Service to monitor such procedures.

  4. Form 906 agreements are not used by SB/SE in promoter investigations.

4.32.2.12.6.1  (06-08-2012)
Contempt Investigations

  1. A court order enjoining a promoter from certain activities has the effect of law and monitoring this compliance is important. Violations of a court order can result in civil or criminal contempt sanctions.

  2. A civil contempt sanction is designed to compel the promoter to comply with the injunction’s terms. A criminal contempt sanction is designed to punish the promoter for a violation of the injunction.

  3. The court’s injunction order outlines required actions and any prohibited acts by the promoter. Subject to the specific requirements of the court order, examples of potential violations include:

    1. Failing to shut down a website or starting a new website.

    2. Failing to inform participants of the court action.

    3. Failing to terminate the preparation of income tax returns.

    4. Continuing to conduct seminars or advertisements that advertise abusive promotions.

    5. Failing to provide a participant list to the IRS.

    6. Continuing to advise participants of the mechanics of an abusive tax promotion.

    7. Failing to comply with any portion of the court order.

    8. Any conduct or activity subject to penalties under IRC 6700, IRC 6701, IRC 6694, or IRC 6695, and violations of IRC 6111 and IRC 6112 subject to penalty under IRC 6707 and IRC 6708.

    9. Any acts which impair or impede the administration of the Internal Revenue Laws.

  4. If evidence of violations of the preliminary or permanent injunction order are found and DOJ still has an open litigation case, examiners and Area Counsel will notify the DOJ attorney and the SB/SE LDC or OTSA.

  5. If DOJ has closed its case, examiners should contact the SB/SE LDC or OTSA. If sufficient facts can be developed to prove injunction violations, a referral is made through Area Counsel to DOJ requesting initiation of a contempt proceeding.

  6. If there is sufficient evidence of contempt, DOJ will ask the court to find the promoter in civil contempt and order monetary fines, incarceration, or both. If the promoter's actions warrant a criminal contempt action, DOJ Tax Division Civil Section makes a referral to the criminal section in the Tax Division.

  7. Any IRS employee who learns of a potential injunction violation should contact the examiner assigned to the promoter, contempt investigation, the SB/SE LDC, or OTSA.

4.32.2.12.7  (06-08-2012)
Service of Injunction on Related Promoters

  1. An injunction order against the primary promoter is binding on any individuals acting in concert with the promoter. The order has the effect of law and generally enjoins any sub-promoter or co-promoter. This is true even if the sub-promoter/co-promoter was not referred to DOJ.

  2. Examiners, Area Counsel and DOJ attorneys coordinate their efforts to inform any known sub-promoters/co-promoters not specifically named in the injunction suit of the court action and its effect upon them. Failure to obey the court order may subject the sub-promoter/co-promoter to contempt proceedings.

  3. The injunction must be personally served on sub-promoters/co-promoters to be legally binding. An IRS employee, US Marshall or private process server may be used for this purpose.

  4. Examiners should not perform the personal service if the promoter's behavior demonstrates any propensity towards violence. In such cases, a special agent is requested to accompany the examiner, or the US Marshall or a private process server completes the service.

  5. The original certificate of service is returned to DOJ.

  6. Any IRS employee who discovers information related to ongoing or new unlawful activity by a sub-promoter/co-promoter should contact the SB/SE LDC or OTSA.

4.32.2.12.8  (09-23-2011)
Injunction Litigation Appeals

  1. Promoters may appeal any type of injunction or restraining order imposed by the courts. Examiners and Area Counsel continue to assist DOJ during the appeal process. Assistance could be in the form of obtaining evidence on the current actions of the promoter, providing updated calculations on the harm to the government, or other information about compliance with a court order.

4.32.2.13  (06-08-2012)
Participant/Investor/Advisee Lists

  1. This section covers procedures for submitting lists of participants/investors/advisees involved in AT promotions.

  2. Addressing participant non-compliance is a key aspect of AT compliance activities. Examiners should secure or develop a participant list as early as possible in the investigation.

  3. SB/SE and LB&I have different procedures for processing participant lists. For SB/SE see IRM 4.32.2.13.2, SB/SE Participant List Procedures. For LB&I see IRM 4.32.2.13.3, LB&I Participant Procedures.

  4. Various compliance actions may be taken by the IRS regarding participants, including, but not limited to:

    • Income tax examinations by field examiners or campus correspondence units.

    • Referrals to revenue officers for promotions involving attempts to impede collection efforts.

    • Correspondence to known participants soliciting self-correction of erroneous returns.

    • Referrals on erroneous refund cases or prevention of potential erroneous refunds.

    • Servicewide Electronic Research Program (SERP) alerts to flag returns or claims reflecting the abusive promotion during processing, to be worked as AT inventory.

    • Correspondence to participants as part of a Pre-Filing Letter Initiative (PFLI).

  5. A PFLI involves correspondence to participants prior to the filing of their income tax returns, advising of the unallowable promotion benefits and possible consequences if the promotion benefits are claimed. PFLI letters are not issued by examiners and must be coordinated with National Office Compliance and Area Counsel. See also IRM 4.32.2.7.3.5, Participant Contacts, and IRM 4.32.2.7.3.6, Participant Tax Examinations, for additional guidance on participant third-party contacts and examinations.

4.32.2.13.1  (06-08-2012)
Obtaining Participant Lists

  1. Participant lists are solicited from the promoter during the promoter investigation. See IRM 4.32.2.7.2.1, Commencement of SB/SE Investigations, and IRM 4.32.2.7.2.2, Commencement of LB&I Material Advisor Investigations.

  2. Participant lists should be secured from the promoter or prepared from other sources as quickly as possible to allow sufficient time for analysis and selection of returns for examination within the assessment statute of limitations.

  3. The court can order the promoter to provide a participant list as part of the injunction litigation or DOJ may obtain a list during the discovery phase of the litigation.

  4. Participant lists may also be constructed from evidence obtained during the investigation such as:

    • Bank records.

    • Third-party payees, such as credit card companies and Paypal®.

    • IDRS.

    • RPVUE (for tax return preparers).

    • CI search warrants.

    • Other federal or state agencies, such as the Securities and Exchange Commission.

    • Informants.

    • Participant lists provided pursuant to IRC 6107(b) for preparers and IRC 6112 for material advisors.

4.32.2.13.2  (06-08-2012)
SB/SE Participant List Procedures

  1. This section describes specific procedures for examinations related to participants in SB/SE promoter investigations.

4.32.2.13.2.1  (06-08-2012)
Completing the Participant List Package

  1. Once SB/SE examiners secure a complete participant list, the participant list package should be sent to the headquarters ATTI SPA using secure e-mail at *ATAT Listkeeper.

  2. A copy of the participant list should also be sent to the local PSP ATTI Coordinator.

  3. The participant package sent to the *ATAT Listkeeper should include:

    • Name of promoter.

    • Name and description of the promotion.

    • Background information on the promotion.

    • Description of how the promotion appears on the income tax return.

    • Name and telephone number of the examiner, group manager, and assigned Area Counsel.

    • Participants’ names, address (if available), and TINs.

    • Participant Job Aid. See IRM 4.32.2.7.3.6.1, Participant Job Aid.

    • Issue position papers.

    • Sample or standardized revenue agent report (RAR), if available.

    • Coordinated issue paper, if available.

  4. A participant list package must include, at a minimum, the participant’s name, TIN, form, and tax period. A sample template for compiling the participant list is available on MySB/SE, Promoter Investigations. See Exhibit 4.32.2-18, Participant List Template.

  5. If examiners are unable to provide the necessary information in the required format, they should contact the headquarters AT SPA by e-mail using secure messaging at *ATAT Listkeeper. Participant TIN research should not be conducted by the examiner or group manager except as necessary to identify participants for third-party contacts in the development of the promoter investigation.

  6. The ATAT listkeeper reviews participant list packages, coordinates the appropriate case-building requirements with the examiner and other AT stakeholders and forwards case-building requests to the appropriate campus.

4.32.2.13.2.2  (06-08-2012)
Local Case Building for SB/SE

  1. If it is determined that examinations are necessary for successful development of a promoter investigation, a maximum of 20 income tax returns can be built by the Area PSP office. No case-building activity is to be conducted at the group level.

  2. Examiners and group managers coordinate the identification of returns with the headquarters AT SPA and the local Area PSP office.

  3. All functions are responsible for ensuring that the proper source, project and tracking codes are placed on the selected participant tax returns.

4.32.2.13.3  (09-23-2011)
LB&I Participant Procedures

  1. This section describes specific procedures for examinations related to participants in LB&I promoter investigations.

4.32.2.13.3.1  (06-08-2012)
Participant List Processing Procedures

  1. Investor lists are forwarded to OTSA using a standard spreadsheet. Contact Financial Services Promoter SPA for a copy of the spreadsheet. A copy of all investor lists must also be sent to the Senior Program Specialist, Tax Shelters – Financial Services.

  2. The list should include the following information:

    • Investor names and TINs

    • Related entities and TINs

    • Year of investment along with projected tax benefit

    • Names of any sub-promoters or co-promoters

    • Shelter type or listed notice number

  3. OTSA incorporates the participant information in its database, identifies similar or related activity, and coordinates examination activity among the various examination groups.

  4. OTSA forwards investor information to the appropriate LB&I Industry PSP Analyst(s) and other operating division designated contacts, as necessary.

4.32.2.14  (06-08-2012)
Partnership Anti-Abuse Regulation

  1. Partnership Anti-Abuse Regulation

    • The partnership anti-abuse regulations give the Service the ability to recast transactions which may comply with the literal language of the code and regulations, but which produce tax results never contemplated by Subchapter K. The regulations refer to and incorporate the established judicial doctrines of the business purpose and substance over form. Partnership transactions, like all other business transactions, are subject to those doctrines. The anti-abuse regulations reiterate this point. The anti-abuse regulations are intended to clearly signal that partnerships are not a vehicle for non-economic, tax-motivated transactions. See Treas. Reg. 1.702-2

    • Given the Service's broad authorization to recast transactions to reflect the intent of Subchapter K, examiners must coordinate the application of the regulations with both the Partnership Technical Specialists (LB&I - Office of Pre-filing and Technical Guidance) and the IRS National Office, Associate Chief Counsel, Passthroughs and Special Industries. The practice is intended to result in fair and consistent use of the partnership anti-abuse regulations.

    • With the exception of the abuse of entity regulations, which were effective December 29, 1994 (see Treas. Reg. 1.702-2(e)), the partnership anti-abuse regulations became effective May 12, 1994.

Exhibit 4.32.2-1 
Special Handling Alert for ATTI Case With Collection Issue

SPECIAL HANDLING ALERT FOR ATTI CASE WITH COLLECTION ISSUE
 
TAXPAYER NAME: ________________________________
CASE TYPE
PROMOTER CASE
OTHER ATTI (CODE SECTION)___________________
 
DIRECTIONS FOR:
Exam, Appeals, EQMS, Case Processing Units
To ensure ATTI cases receive priority attention, case files must be expedited to Collection. After assessment, please recharge the Exam file to the local Collection Coordinator. Mail the entire administrative file and RARs to the Collection Coordinator for the area in which the taxpayer is located. Refer to IRM 4.32.2 for instructions on locating the Collection Coordinator.
Collection Coord: ________________________________
Address Line 1: _________________________________
Address Line 2: _________________________________
City, State, Zip: _________________________________
Phone Number: _________________________________

Exhibit 4.32.2-2 
Sample Summons Log

No. Date Issued Description Response Comments Reference Number
1. 04/23/02 Notice 2002-21, 2002-14 IRB 730, transactions involving the use of loan assumption agreement to claim an inflated basis asset acquired from another party. Yes – responded by affidavit on 6/14/02 Taxpayer did not enter into any transactions  
2. 04/23/02 Rev. Rul. 90-105. Contribution to qualified cash or defined arrangement. Partial response 05/12/02. Will provide remaining response by 06/30/02  
3.          
4.          
5.          
6.          
7.          
8.          
9.          

Exhibit 4.32.2-3 
LB&I Monthly Progress Report

Monthly Update of Promoter Penalty Case
Month Ended: Insert MMYY
LB&I FS Industry Director
Page 1 of 2
Your PROMOTER's Name:
NAMES
Territory Manager:
Team Manager
Lead Agent:
Team Members:
Specialists (Financial Products, IEs, etc.):

TELEPHONE NUMBERS
Soft Letter Sent:
Audit Letter Sent:
ECD if restricted promoter, put R.
Transactions Promoted and Co-Promoters
For listed transactions, please give name and Notice No. or Cite.
For unlisted transactions, please give name and note that it is unlisted.
Transaction Notice Co-Promoters
1.    
2.    
3.    
4.    
5.    
6.    
Additional Resources Needed:
If Yes, Additional Number of Agents Needed:
Yes/No
Impediments to Case Closing, If Applicable:
Impediment YES NO
Restricted Promoter    
Resource Issue    
Inadequate Responses by promoter/
Summonses to be issued/
Summonses not responded to
   
Summons Referred for Enforcement    
Counsel Advice and Support    
Other - please indicate the impediment (below)    
Not Applicable    

Exhibit 4.32.2-4 
Audit Tools

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Exhibit 4.32.2-5 
Six-Way Conference Discussion Job Aid

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Exhibit 4.32.2-6 
Elevation of Parallel Investigation - Record of Actions

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Exhibit 4.32.2-7 
Sample Action Plan

  Activity or Action Resp. Party ECD Comp. By
A Initiation of IRC 6700 investigation and IRC 7408 Injunction.
  1. Assignment of Investigation to Group made by PSP according to local procedures. PSP    
  2. Area Counsel and Collection assignments are requested according to local procedures. PSP/Group Manager/RA    
  3. Insure/confirm that case is established on ERCS, appropriate tracking codes and project codes are input. Group Manager/RA    
  4. Group Manager assigns investigation to Revenue Agent within a maximum of 5 business days. Group Manager    
B Examination Startup Phase
  1. Confirm whether CID is involved in your case or not:      
a. CID not involved - Set up a 4 way meeting with the following individuals within target date of 30 days after assignment:      
  1. Assigned Counsel attorney RA    
2. AT Group Managers (Examination and Collection) Management if necessary    
3. Assigned Revenue Agent and Officer      
b. CID involved - Set up a 6 way meeting including the additional individuals, again within target date of 30 days after assignment:      
  1. Assigned Special Agent      
    2. Special Agent in Charge      
  2. Send prepared (with Counsel approval) Letter 1844 notification letter and IDR to the promoter within target date of 30 days of assignment. RA    
  3. Schedule initial appointment within target date of 45 days after assignment. RA/Officer    
  4. Issue Letter 3164P within target date of 45 days after assignment. RA    
  5. Conduct initial interview with the promoter. RA/Officer and Area Counsel    
  6. Initiate income tax audit of promoter as appropriate. RA/Manager    
  7. Contact Fraud Referral Specialist if warranted. RA/Officer    
  8. As appropriate, use Summons authority, coordinate with Counsel for necessary approvals. RA/Officer    
  9. Use Summons enforcement if necessary. RA/Officer and Area Counsel    
  10. Identify and link previously identified participants with the promoter case using the ERCS tracking codes. RA/PSP    
C Identification of Participants
  1. Secure list of participants:      
a. From promoter if possible RA/Officer    
b. Develop/expand client/participant list by: Management Involvement if necessary    
  1. Summons of promoter bank records.      
  2. Review revenue agents' case files for additional participants.      
  3. Identify TDI cases associated with the promotion.      
  4. Contact CID regarding any ongoing or past investigations of principals/participants involved in this promotion.      
  2. Explore alternative methods to identify participants in the package:      
a. Consult with SPAs from ATTI and LDC. RA/Officer    
b. Obtain information on consumer complaints filed with local and state agencies. PSP    
c. Consider use of CAF (preparer) database to identify taxpayers represented by the promoters or related parties. PSP    
  3. Prepare to send investor list to campus for case building based on the instructions for participant lists:      
a. Notify SPA assigned to the promotion. RA/Officer    
b. Complete the participant spreadsheet template.      
c. Include a background memo, pro forma RAR if available, pro forma work papers, Counsel opinions, and any other supporting documentation.      
d. Transmit/send to appropriate campus.      
D Investigation Case Development and Injunction Phase
  1. Determine if it is necessary to examine participant(s) return(s) for evidence in the promoter case. RA/Manager    
  2. Identify promoters and other individuals directly or indirectly marketing the promotion. RA/Officer    
  3. Forward newly identified marketers of the promotion to the LDC for expedited approval and association back to your promoter case. RA/Officer    
  4. Prepare promotion organization flow-chart. RA    
  5. Secure copies of the promotional materials, trust packages, reliance letter packages, etc. RA/Officer    
  6. Obtain affidavits from taxpayers that have participated in the scheme. RA/Officer    
  7. Identify other parties subject to potential IRC 6700 penalties and IRC 7408 injunctions. RA/Officer    
  8. Coordinate with Area Counsel to consider readiness of case for temporary (quick) or permanent injunction procedures with DOJ. This step may require another meeting with Area Counsel (as in step B 1 above). RA/Officer    
a. If not appropriate to enjoin, consider additional development or move to penalty phase (see E). Management involvement if necessary    
b. If appropriate to enjoin prepare IRC 7408 referral letter to DOJ with the help of Area Counsel. Area Counsel    
E Penalty Phase
  1. Continue to work the case while awaiting the quick injunction. RA/Officer    
  2. Determine if IRC 6700 or IRC 6701 penalty should be applied to promoter. RA/Officer and Area Counsel    
  3. Prepare penalty report and case file for Area Counsel approval. RA and Area Counsel    
  4. If permanent injunction is pending suspend the penalty case. RA/Officer    
  5. Secure Area Director approval for proposed assessment, if necessary. RA/Officer and Manager    
  6. If penalty does not apply, discontinue investigation and mail promoter Letter 1866. RA/Officer    
F Outreach, Education and Promoter Monitoring Activities
  1. At any point during the investigation consideration should be made to contact/coordination with either or both the Rapid Response Team and TEC for assistance in: RA/Officer and Manager    
a. Tool Kits      
b. Outreach Activities      
c. New Release      
d. Coordination with operating divisions      
  2. Consider referral to the Director of Professional Responsibility. RA/Officer and Manager    
  3. Insure news releases reach local media outlets. RA/Officer    

Exhibit 4.32.2-8 
Sample Interview Questions for Promoter and/or Preparer

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Exhibit 4.32.2-9 
Sample Interview Questions for Sub-Promoters and/or Co-Promoters

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Exhibit 4.32.2-10 
Sample Interview Questions for Participants

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Exhibit 4.32.2-11 
Sample Pattern Letter - Penalty Report

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Exhibit 4.32.2-12 
Case Closing Job Aid Completed Investigation

Group Steps Workpaper Ref or Date

Note:

The steps in this job aid apply to all promoter penalty cases that are closed where an injunction was secured and/or promoter penalties are being assessed.

 
1 Verify the promoter's last known address is the address shown on Master File. See Rev. Proc. 2010-16, IRB. 2010-19 and Treas. Reg. 301.6212-2 for the definition of last known address.  
2 If necessary, update the address on Master File using Form 2363, Master File Entity Change. On Form 2363 complete the following items:  
    At the top of the form, enter the promoter’s name.
    On the left side of the form, enter the name control, TIN, (check the box for SSN or EIN), and place a check mark next to Transaction Code 014 (address change).
    On the right side of the form, enter the new address.
    Complete the bottom of the form (prepared by, org. symbols, area office, and telephone number).
    Fax the form to Centralized Case Processing (CCP) – SB/SE use 901-786-7106, LB&I use 801-620-2103, all others use 859-669-2674.
    Retain a copy of the form in the file.
   

Note:

The campus will issue a notice of penalty assessment to the promoter. It is important that this notice is issued to the last known address of the promoter (as defined in the Treasury Regulations). The Form 2363 needs to be sent to case processing as soon as possible so the address on Master File is updated before the campus sends the notice of assessment. It may be necessary to delay closing the case for one or two cycles (weeks) to allow the new address to post to Master File.

3 If penalties are being asserted, you must verify that there is an entity module established for the individual or entity on IDRS. If there is not (in the case of a non-filer) you will need to create one. To do so, you must properly complete a Form 2363 and fax it to CCP - (SB/SE use 901-786-7106, LB& I use 801-620-2103) for processing before closing your case.  
    Request an IMFOLE, BMFOLE for the individual/entity you are planning to assert penalties on.
    If the research shows no record, then a MF entity must be established using Form 2363, checking either IMF or BMF at top left of the form and the TC 000 box. Input the promoter, preparer or entity’s complete name and address, and TIN. Complete the originator information as explained in step 2 above. Fax to CCP.
    This will create a module and allows the penalty to be assessed.
4 If there is no injunction, or there is an injunction but no penalties, prepare a memorandum for the case file to explain the reasons either for not securing an injunction or for not asserting penalties. The memorandum should contain the opinion of Counsel assigned to the promoter investigation, and the opinion of either the IMT SPA or IMT Counsel (if the case is covered by an IMT) on the decision not to pursue an injunction or penalties.  
5 For parallel investigations, contact CI to make sure the penalty assessment will not conflict with the criminal case.

Note:

Check ALL the promoter’s modules on IDRS for Z freezes or TC 914s. These must be removed prior to closing your case or your penalties will not assess. Contact CI if any of these conditions exist to correct.

 
  It may be necessary to delay closing the case until all CI freeze codes or TC codes have been reversed.
6 If there is an injunction, contact the Department of Justice to ensure penalty assessment will not conflict with the injunction case.  
7 Organize and index the workpapers.  
8 Following local procedures, secure the approval of the group manager to assess the penalties, and document this approval in the case file.  
9 Report writing: prepare the penalty report and computation that will be closed with the case (see Lesson 12 of the Abusive tax Promotions text and IRM 4.32.2.11.8, Penalty Case Processing Procedures). Then prepare the copy of the report and penalty computation that will be provided to the promoter or preparer. Review the penalty report and remove any personally identifiable information, inappropriate disclosures, or other information that is not necessary to provide an explanation of the determination of the investigation and an explanation of the penalty assessment to the person against whom the penalty will be assessed. See IRM 4.32.2.7 and IRM 4.32.2.11 for additional information on this topic. Seek assistance from Counsel regarding material to remove.  
10 Prior to closing the case, the examiner must establish on ERCS each tax year for each person and entity that will be assessed a penalty. The year of the penalty assessment is determined as follows:  
    IRC 6700 – the year the activity occurs
    IRC 6701 – the year to which the document relates
  Use Form 5345-D, Examination Request – ERCS, to establish each tax year there will be a penalty assessed:
  IRC 6700 penalty: use MFT P6 and Activity Code 593
  IRC 6701 penalty: use MFT P7 and Activity Code 594
  Use the tracking code and project code that have been assigned, if any
   

Note:

Any years currently on ERCS that will have no penalty assessments will be closed at the same time as the years with penalty assessments. Prepare a Form 8278 for the year and MFT/activity code being closed showing -0- penalty amount to close that year.

11 Prepare a separate Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties, for each year for which an ERCS database was established. Always use the current version of the form. Complete the following items on this form:  
  Item 1 The name of the promoter or entity.
  Item 2 The current address of the promoter or entity shown in Item 1.
  Item 3 Check the appropriate MFT box (MFT 13 for an entity; MFT 55 for an individual).
  Item 4 Place an X for a penalty that has no assessment statute (e.g. IRC 6700 or IRC 6701 penalties); otherwise leave blank.
  Item 5 Enter the year.
  Item 6 Enter the assessment statute date for the penalty; leave blank if there is no assessment statute (Item 4 must have an X if there is no assessment statute).
  Item 7 Enter the TIN of the promoter or entity shown in Item 1.
  Item 8 Check the appropriate box.
  Item 9 In column C (number of violations), enter the number of penalties; for IRC 6700 penalties containing a false tax statement after October 22, 2004 (i.e. the penalty is computed on 50 percent of gross income), the number of penalties is 1.
    In Column D (amount assessed), enter total dollar amount of penalties to be assessed (for discontinuations the amount is -0-).
   

Note:

Columns E and F are only used when abating penalties.

  Items 10a/11a Completed by the agent (signature required).
  Items 10b/11b Completed by the group manager (signature required).
  Item 12 Enter the group code.
  Item 13 Enter contact telephone number in case there are questions.
12 Send a copy of each signed Form 8278 to the LDC group manager to record the penalty information in the LDC database. You may use the *LDC e-mail address to do this or fax them to 949-389-5083.  
  Send a copy of each signed Form 8278 to the local AT Collection group or the AT revenue officer assigned to the penalty case. Also provide any information regarding assets or levy sources that will assist with the collection of the penalty assessments.  
13
14 Review IRM 4.32.2.7, Promoter Investigation Guidelines. Hold closing conference to discuss report and penalty explanation as appropriate.  
15 Prepare the cover letter for the report and penalty explanation to be sent to the promoter, if necessary. See Exhibit 4.32.2-11 for a pattern letter that can be used for this purpose. With the approval of Counsel, the pattern letter can be modified to suit the business needs of the case.  
16 Send the cover letter, report and the penalty explanation to the last known address of the promoter, if necessary. Retain a copy of the package as mailed in the case file.  
17 Prepare Form 3198, Special Handing Notice, and attach to the outside of the penalty case file. In additional to the regular entries on this form, complete the following items:  
    Just below the Business Unit box, check the "Other" box and write-in "6700 [or 6701] Penalties – send to Memphis CCP" .
    If Form 2363 was sent to CCP to update the person’s address, check the box in the taxpayer name section and include a copy of Form 2363 in the case file. Note on the workpaper copy the date it was faxed or sent to CCP. If appropriate, also note that Form 3177 was sent to CCP in same box.
    In the Special Features section:
    Check the "Civil Penalties (Form 8278)" box.
    Check the Other Instructions box and type write the following: "FILE ALL PENALTY CASE WORKPAPERS USING FORM 8278 DLN" .
    At the bottom of the first page check the "Forward to CCP" box.
    Complete the case information section:
    Enter the tax period(s) that are to be closed.
    Enter penalty MFT (P6 for 6700, P7 for 6701, P0 for 6707, P8 for 6708).
    Disposal Code 12.
    Penalty section (6700 or 6701); leave blank if no penalty is to be assessed in that year.
    Penalty amount: Enter the amount shown on Form 8278; leave blank if no penalty is to be assessed in that year.
    On the second page of the form, in the "Letter Instructions for CCP" area, check the "No letter required to be sent by CCP" box.
18

Note:

You can highlight these items on the printed Form 3198 to assist CCP with locating this information.

 
19 If a person is a practitioner under the jurisdiction of the Office of Professional Responsibility (e.g. attorney, CPA, enrolled agent, enrolled actuary) and a penalty is asserted under IRC 6649, IRC 6695(f) (negotiating a check), IRC 6700, or IRC 6701, a referral to OPM is mandatory. Form 8484, Report of Suspected Practitioner Misconduct, can be used to make the referral. See IRM 20.1.6.12.3.  
20 On ERCS, update the Status Code to 51 for each closed year. Use Disposal Code 12 (Other).  
21 Follow local procedures to close the case to Memphis Campus Case Processing.  
   

Note:

30 days after closing the case the revenue agent should follow-up on ERCS to make sure the case goes to Status 90 (closed).

Exhibit 4.32.2-13 
Case Closing Job Aid Discontinuations

Group Steps Workpaper Ref. or Date

Note:

The steps in this job aid apply to promoter investigations, other than surveys and discontinued w/ minimal development, that are closed without either an injunction or a penalty assessment, regardless of whether or not the promoter was notified of the investigation.

 
1 Discuss the case with Area Counsel before discontinuing the case.  
2 If the case is covered by an IMT, discuss discontinuing the case with the IMT SPA or IMT counsel.  
3 Contact the LDC SPA listed on the authorization memo to discuss discontinuing the case. If there isn’t one, go to the ATTI LDC Contacts webpage to find the appropriate contact.  
4 Organize and index the workpapers  
5 Prepare Form 4665, Report Transmittal, to provide a brief explanation why the case is being discontinued, the investigative steps taken to date, Counsel’s opinion on the discontinuation, the opinion of the IMT (if applicable), and why an injunction or penalties cannot be pursued.  
6 The group manager signs Form 4665 to acknowledge the decision to discontinue the case.  
7 For parallel investigations, contact CI and secure concurrence to discontinue the case. Inform CI if the promoter will receive a discontinuance letter.  
  For parallel investigations, if CI advises not to send the discontinuance letter to the promoter, update the case to Status 16 (group suspense) on ERCS. The penalty case files, including the workpapers and supporting documentation, must be maintained in the group until CI concurs with sending the discontinuation letter to the promoter.  
  The agent and group manager should continue to have quarterly six-way conferences and to request that CI concur with sending the discontinuation letter.
8 When CI concurs with sending the discontinuation letter, update the case to Status 12 (started) on ERCS and continue following the steps in this job aid.
9 If the IRS notified the person of the investigation, prepare Letter 1866, Discontinuance Letter, to send to the promoter. Always use the current version of this letter. If the published letter does not meet the business needs of the case, the letter may be modified with the approval of Counsel.  
10 If required, send Letter 1866 to the last known address of the promoter.  
11 If necessary, update the promoter’s address on Master File using Form 2363, Master File Entity Change, (retain a copy in the case file and fax form to CCP before closing the case (SB/SE use 901-786-7106, LB& I use 801-620-2103). Complete the following items:  
    At the top of the form, enter the promoter’s name.
    On the left side of the form, enter the name control, TIN, (check the box for SSN or EIN), and place a check mark next to Transaction Code 014 (address change).
    On the right side of the form, enter the new address.
    Complete the bottom of the form (prepared by, org. symbols, area office, and telephone number).
12 You must verify that there is an entity module established for the individual or entity on IDRS. If there is not (in the case of a non-filer) you will need to create one. To do so, you must properly complete a Form 2363 and fax it to CCP (SB/SE use 901-786-7106, LB& I use 801-620-2103) for processing before closing your case.  
    Request an IMFOLE or BMFOLE for the individual/entity you are planning to assert penalties on.
    If the research shows no record, then a MF entity must be established using Form 2363, checking either IMF or BMF at top left of the form and the TC 000 box. Input the promoter, preparer or entity’s complete name and address, and TIN. Complete the originator information as explained in step 2 above. Fax to CCP.
    This will create a module and allows the penalty to be assessed.
13 Prepare Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties, as follows so the case file (workpapers) can be filed at the campus. Always use the current version of the form. Complete the following items:  
    Item 1 The name of the promoter or entity.
    Item 2 The current address of the promoter or entity shown in Item 1.
    Item 3 Check the appropriate MFT box (MFT 13 for an entity; MFT 55 for an individual).
    Item 4 Place an X for a penalty that has no assessment statute (e.g. IRC 6700 or IRC 6701 penalties); otherwise leave blank.
    Item 5 Use the year that is established on ERCS.
    Item 6 Enter the assessment statute date for the penalty; leave blank if there is no assessment statute (Item 4 must have an X if there is no assessment statute).
    Item 7 Enter the TIN of the promoter or entity shown in Item 1.
    Item 8 Check the appropriate box.
    Item 9 In column C (number of violations), leave blank.
      In Column D (amount assessed), enter 0.00.
     

Note:

Columns E and F are only used when abating penalties.

    Items 10a and 11a Completed by the agent (signature required).
    Items 10b and 11b Completed by the group manager (signature required).
    Item 12 Enter the group code.
    Item 13 Enter contact telephone number in case there are questions.
14 Using encrypted e-mail, send an electronic copy of the completed Forms 4665 and 8278 to the SB/SE LDC group manager. You may use the *LDC e-mail address to do this, or fax them to 949-389-5083.  
15 Prepare Form 3198, Special Handing Notice. In addition to the regular entries on this form, complete the following items:  
    Just below the Business Unit box, check the "Other" box and write-in "6700 [or 6701] Penalties – send to Memphis CCP" .
    If Form 2363 was sent to CCP to update the person’s address, check the box in the taxpayer name section and include a copy of Form 2363 in the case file.
    In the Special Features section:
      Check the "Civil Penalties (Form 8278)" box
      Check the "Other Instructions" box and type write the following: "FILE ALL PENALTY CASE WORKPAPERS USING FORM 8278 DLN" .
      At the bottom of the first page check the "Forward to CCP" box.
    Complete the case information section:
      Enter the tax period(s).
      Enter penalty MFT (P6 for 6700, P7 for 6701).
      Disposal Code 02.
      Penalty section (6700 or 6701).
      Penalty Amount: 0.00.
    On the second page of the form, in the "Letter Instructions for CCP" area, check the "No letter required to be sent by CCP" box.
   

Note:

You can highlight these items on the printed Form 3198 to assist CCP with locating this information.

16  Update the Status Code to 51 on ERCS.  
17 If the promoter is under the jurisdiction of the Office of Professional Responsibility (e.g. attorney, CPA, enrolled agent), prepare an information referral to the Office of Professional Responsibility if required.  
18 Follow local procedures to close the case to Memphis Campus Case Processing.  
   

Note:

30 days after closing the case the revenue agent should follow-up on ERCS to make sure the case goes to Status 90 (closed).

  Potential Descriptions for Decision to Discontinue Investigation  
  Insufficient evidence or information to support promoter/preparer involvement in the ATAT activity  
  Promotional activity not abusive in nature  
  No current promoter/preparer activity found  
  No recurrence of promoter/preparer conduct. No evidence of contempt.  
  Sub promoter/associate found not materially involved  
  Participants adjusted but insufficient evidence to support injunction or penalties on promoter/preparer  
  Field workload resources  
  Limited field resources or limited specialist resources (identify which one)  
  Criminal conviction and/or sentenced to substantial jail time  
  Serious health issues  
  Deceased  
  Unable to locate  
  Currently resides outside of the US. If promoter/preparer re-enters the US, will resume investigation  
  Referral to Counsel/DOJ resulted in dismissal or case was returned  
  IRC 6694/IRC 6695 penalties only. No injunction or IRC 6700/IRC 6701 penalties  

Exhibit 4.32.2-14 
Case Closing Job Aid Survey

Group Steps Workpaper Ref. or Date

Note:

The steps in this job aid apply to promoter investigations that are closed without either an injunction or penalty assessment, as a survey or discontinuation, no promoter contact and minimal developmental work (less than 10 hours generally).

 
1 Discuss the case with Area Counsel before discontinuing the case.  
2 If the case is covered by an IMT, discuss discontinuing the case with the IMT SPA or IMT counsel.  
3 Contact the LDC SPA listed on the authorization memo to discuss discontinuing the case. If there isn’t one, go to the ATTI LDC webpage to find the appropriate contact.  
4 Organize and index any workpapers.  
5 Prepare Form 4665, Report Transmittal, to provide a brief explanation why the case is being discontinued, the investigative steps taken to date, Counsel’s opinion on the discontinuation, the opinion of the IMT (if applicable), and why an injunction or penalties cannot be pursued.  
6 The group manager signs Form 4665 to acknowledge the decision to discontinue the case.  
7 For parallel investigations, contact CI and notify them of decision to discontinue the case.  
8 A copy of the signed Form 4665 is sent by e-mail to the SB/SE LDC group manager. You may use the *LDC Outlook mailbox address to do this or fax the form to 949-389-5083.  
9 Update case to Status 41 (PSP Suspense).  
10 Use the most appropriate disposal code:  
    Insufficient information – Disposal Code 31
    Established in error – Disposal Code 33
    Deceased – Disposal Code 39
    Cannot locate – Disposal Code 40
    Other (age, health, no current activity or any other reason) – Disposal Code 39
11 Use Form 3210, Document Transmittal, to send admin file and signed Form 4665 to your Area PSP AT Coordinator.  

Exhibit 4.32.2-15 
Case Closing Job Aid Transfers

Group Steps Workpaper Ref. Or Date Compl.

Note:

The steps in this job aid apply to transfer of a promoter investigation from one Area to another.

 
1 Discuss the need to transfer with the LDC Group Manager or SPA to insure that the receiving Area is aware and willing to accept the case.  
2 If the case is covered by an IMT, discuss transferring the case with the IMT SPA or IMT counsel.  
3 Organize and index any workpapers.  
4 Prepare Form 4665, Report Transmittal, to provide a brief explanation why the case is being transferred, the investigative steps taken to date, the opinion of the IMT (if applicable), and identify the Area the case is being sent to.  
5 The group manager signs Form 4665 to acknowledge the decision to transfer the case.  
6 For parallel investigations, contact CI and notify them of decision to transfer the case.  
7 Update case to Status 41 (PSP Suspense).  
8 Use Disposal Code 30 – transfer out of area.  
9 Use Form 3210, Document Transmittal, to send admin file and signed Form 4665 to your Area PSP AT Coordinator.  

Exhibit 4.32.2-16 
Case Closing Job Aid Promoter Penalty Claim Allowed

Steps for Promoter Penalty Claims Allowed in Full or in Part Workpaper Ref or Date
1 Use Form 5345-D, Examination Request – ERCS, to establish each tax year there was a claim filed:  
    IRC 6700 penalty: use MFT P6 and Activity Code 593.
    IRC 6701 penalty: use MFT P7 and Activity Code 594.
    Status Code is 19 and Source Code is 99.
    Use the tracking code and project code from the original case, if any.
2 Secure a current transcript of the penalty account (MFT 55 for IMF, MFT 13 for BMF). Verify that Transaction Code 470 Closing Code 95 was input. This will cause a stay in collection activity while the claim is addressed. If there is no TC 470 for a year, complete Form 3177, Notice of Action for Entry on Master File. E-mail to Collection CCP Campus at *CTR PHI CS GCP. Document action sheet. Follow up to insure transaction code posts correctly. Entries to complete the form are:  
    Complete the header information with appropriate agent info, TP data.
    In blank box at bottom, enter 470.
    Write in – "TP claim pending CC 95" .
    Enter the IRC section for the penalty being protested.
    Enter the appropriate MFT (55 for IMF, 13 for BMF).
    Enter the tax period.
    Complete a separate form for each year that a claim was filed.
3 Review file to determine basis for claim. If necessary, contact promoter/preparer to discuss.  
 
 
4 Make determination and write workpaper(s).    
    Prepare and mail a closing letter to the taxpayer. Use Letter 4666 for full allowance, Letter 4667 for partial allowance.

Note:

Partial allowance letter may have to be modified if TP does not have time to file suit (it has been more than 6 months and 30 days since claim was filed). Allow TP time to respond. For additional assistance, contact LDC penalty claims coordinator at 949-389-4857.

 
    Form 3363 and Form 2297, and the letters associated with these forms (e.g. Letter 569) are not used for promoter penalty claim cases.  
5 Prepare Forms 8278:    
    Prepare a separate Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties, for each year of the claim. Always use the current version of the form. Complete the following items on this form:  
    Item 1 The name of the promoter or entity.  
    Item 2 The current address of the person or entity shown in Item 1.  
    Item 3 Check the appropriate MFT box (MFT 13 for an entity; MFT 55 for an individual).  
    Item 4 Place an X for a penalty that has no assessment statute (e.g. IRC 6700 or IRC 6701 penalties).  
    Item 5 Enter the year.  
    Item 6 Leave blank (Item 4 must have an X).  
    Item 7 Enter the TIN of the promoter or entity shown in Item 1.  
    Item 8 Check the appropriate box.  
    Item 9 In column C (number of violations), enter the number of penalties; for IRC 6700 penalties containing a false tax statement after October 22, 2004 (i.e. the penalty is computed on 50 percent of gross income), the number of penalties is 1.  
      In Column E (amount abated), enter total dollar amount of penalties to be abated in parenthesis. Please insure that the amount abated does not exceed the amount originally assessed.  
      In Column F, enter the penalty reason code. See IRM 20.1.1-2 for a list of appropriate PRCs and explanations.  
    Items 10a and 11a Completed by the agent (signature required).  
    Items 10b and 11b Completed by the group manager (signature required).  
    Item 12 Enter the group code.  
    Item 13 Enter contact telephone number in case there are questions.  
6 Fax a copy of each signed Form 8278 to the LDC claims coordinator to record the claim determination in the LDC database. The fax number is 949-389-5083.    
7 Send a copy of each signed Form 8278 to the local AT Collection group or the AT revenue officer assigned to the penalty case. Also provide any information regarding assets or levy sources, if discovered, that will assist with the collection of the penalty assessments, if any, after the suspension period ends.    
8 Prepare case for closure from the group.    
    Agreed (abated in full or in part and full paid) – Close the case to the Memphis campus.  
    Disposal Code is 03.  
    Status Code is 51.  
    Send case to CCP.  
   

Note:

Closing steps below are same for Agreed and No Response or No Appeals request received, except for disposal code.

 
    No Response or No Appeals Request Received (abated in part and TP did not respond to closing letter) - close the claim case to the Memphis campus.  
    Disposal Code is 12.  
    Status Code is 51.  
    Send case to CCP.  
    LB & I cases are sent to
IRS – Centralized Case Processing
Scowcroft Building, Mail Stop 4030,
1973 North Rulon White Blvd.
Ogden, UT 84404.
 
    Prepare Form 3177, Notice of Action for Entry on Master File, to post TC 472, CC 95 for each year of the claim. E-mail to Collection CCP campus at *CTR PHI CS GCP. Document action sheet.  
9 Prepare Form 3198, Special Handing Notice, and attach to the outside of the penalty case file. In additional to the regular entries on this form, complete the following items:    
    Just below the Business Unit box, check the "Other" box and write-in "6700 [or 6701] Penalties Claim Case – Send to CCP" .  
    If Form 2363 was sent to CCP to update the promoter’s address, check the box in the TP name section and include a copy of form in the case file. Note on the workpaper copy the date it was faxed or sent to CCP. If appropriate, also note that Form 3177 was sent to CCP in same box.  
  In the Special Features section:  
      Check the "Civil Penalties (Form 8278)" box.  
      Check the "Other Instructions" box and write the following: "FILE ALL PENALTY CASE WORKPAPERS USING NEW FORM 8278 DLN" .  
    At the bottom of the first page, check the "Forward to CCP" box.  
    Complete the case information section:  
      Enter the tax period(s) that are to be closed.  
      Enter penalty MFT (P6 for 6700, P7 for 6701).  
      Disposal Code 03 (agreed), or 12 (partial abatement no response).  
      Penalty section (6700 or 6701).  
      Adjustment amount: Enter the amount shown on Form 8278.  
    On the second page of the form, in the "Letter Instructions for CCP" area, check the "No letter required to be sent by CCP" box.  
   

Note:

You can highlight these items on the printed Form 3198 to assist CCP with locating this information.

 
10 Prepare case for closure from the group. – Appeals Request  
    Prepare report of unagreed issues for Appeals. Rebut promoter’s position as stated in the Appeals request.  
    Close the claim case to the local Appeals office. Disposal Code for Appeals is 07. Update Status Code to 81. Send to local Appeals Office.  
11 Prepare Form 3198, Special Handing Notice, and attach to the outside of the penalty case file. In additional to the regular entries on this form, complete the following items:  
    Just below the Business Unit box, check the "Other" box and write-in "6700 [or 6701] Penalties Claim Case – Send to Appeals" .  
    If Form 2363 was sent to CCP to update the person’s address, check the box in the TP name section and include a copy of form in the case file. Note on the workpaper copy the date it was sent to CCP. If appropriate, also note that Form 3177 was sent to CCP in same box.  
    In the Special Features section:  
      Check the "Civil Penalties (Form 8278)" box.  
      Check the "Other Instructions" box and write the following: "FILE ALL PENALTY CASE WORKPAPERS USING NEW FORM 8278 DLN" .  
      Also note "Form 3177, Notice of Action for Entry on Master File to post TC 472, CC 95 is completed by Appeals when they have concluded their actions and are closing the case to files, and e-mailed to *CTR PHI CS GCP for processing" .  
    Complete the case information section:  
      Enter the tax period(s) that are to be closed.  
      Enter penalty MFT (P6 for 6700, P7 for 6701).  
      Disposal Code 07 (Appeals request).  
      Penalty section (6700 or 6701).  
      Adjustment amount: Enter the amount shown on Form 8278.  
     

Note:

You can highlight these items on the printed Form 3198 to assist CCP with locating this information.

 

Exhibit 4.32.2-17 
Case Closing Job Aid Promoter Penalty Claim Disallowed In Full

Steps for Promoter Penalty Claim Disallowed In Full Workpaper Ref. or Date
1 Use Form 5345-D, Examination Request – ERCS, to establish on ERCS each tax year there was a claim filed:  
    IRC 6700 penalty: use MFT P6 and Activity Code 593.
    IRC 6701 penalty: use MFT P7 and Activity Code 594.
    Status Code is 19 and Source Code is 99.
    Use the tracking code and project code from the original case, if any.
2 Secure a current transcript of the penalty account (MFT 55 for IMF, MFT 13 for BMF). Verify that Transaction Code 470 Closing Code 95 was input. This will cause a stay in collection activity while the claim is addressed. If there is no TC 470 for a year, complete Form 3177, Notice of Action for Entry on Master File. E-mail to Collection CCP campus at *CTR PHI CS GCP Document action sheet. Follow up to insure transaction code posts correctly. Entries to complete the form are:  
    Complete the header information with appropriate agent info, and TP data.
    In blank box at bottom, enter 470.
    Write in "TP claim pending CC 95" .
    Enter the IRC section for the penalty being protested.
    Enter the appropriate MFT (55 for IMF, 13 for BMF).
    Enter the tax period.
    Complete a separate form for each year that a claim was filed.
3 Review file to determine basis for claim. Contact the promoter/preparer to discuss as necessary.  
 
4 Make determination and write workpaper(s).    
    Disallow claim in full -Send closing letter.

Note:

There are different letters to use based on length of time since the taxpayer received their notice and filed their claim.

 
      Use Letter 4670 if it has been less than 6 months and 30 days since the taxpayer filed their claim, use Letter 4662 if it has been more than 6 months and 30 days. Letters are available from the forms repository.  
      For additional assistance, contact the LDC penalty claims coordinator at 949-389-4857.  
      Form 3363 and Form 2297, and the letters associated with these forms (e.g. Letter 569) are not used for promoter penalty claim cases.  
5 Prepare Forms 8278    
    Prepare a separate Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties, for each year of the claim. Always use the current version of the form. Complete the following items on this form:  
    Item 1 The name of the promoter or entity.  
    Item 2 The current address of the promoter or entity shown in Item 1.  
    Item 3 Check the appropriate MFT box (MFT 13 for an entity; MFT 55 for an individual).  
    Item 4 Place an X for a penalty that has no assessment statute (e.g. IRC 6700 or IRC 6701 penalties).  
    Item 5 Enter the year.  
    Item 6 Leave blank (Item 4 must have an X)  
    Item 7 Enter the TIN of the promoter or entity shown in Item 1  
    Item 8 Check the appropriate box  
    Item 9 In Column E enter (0) for full disallowance.  
      In the "Remarks" block enter "Claim Disallowed in FULL" .  
    Items 10a and 11a Completed by the agent (signature required).  
    Items 10b and 11b Completed by the group manager (signature required).  
    Item 12 Enter the group code.  
    Item 13 Enter contact telephone number in case there are questions.  
6 Fax a copy of each signed Form 8278 to the LDC claims coordinator to record the claim determination in the LDC database. The fax number is 949-389-5083.    
 
  Send a copy of each signed Form 8278 to the local AT Collection group or the AT revenue officer assigned to the penalty case. Also provide any information regarding assets or levy sources, if discovered, that will assist with the collection of the penalty assessments, if any, after the suspension period ends.    
   
7  
8 Prepare case for closure - No Response or No Appeals Request Received    
    Close the claim case to the Memphis campus. Disposal Code for full disallowance is 01 – No change. Status Code is 51. Send to CCP.  
    LB & I cases are sent to:
IRS – Centralized Case Processing
Scowcroft Building, Mail Stop 4030
1973 North Rulon White Blvd.
Ogden, UT 84404
 
9 Prepare Form 3177, Notice of Action for Entry on Master File, to post Transaction Code 472, Closing Code 95 for each year of the claim as per the instructions in step 2. This will release the stay on Collections. E-mail to Collection CCP campus at *CTR PHI CS GCP. Document action sheet.    
10 Prepare Form 3198, Special Handing Notice, and attach to the outside of the penalty case file. In additional to the regular entries on this form, complete the following items:    
    Just below the Business Unit box, check the "Other" box and write-in "6700 [or 6701] Penalties Claim Case – Send to CCP" .  
    If Form 2363 was sent to CCP to update the promoter’s address, check the box in the taxpayer name section and include a copy of Form 2363 in the case file. Note on the workpaper copy the date it was faxed or sent to CCP. If appropriate, also note that Form 3177 was sent to CCP in same box.  
    In the Special Features section:  
      Check the "Civil Penalties (Form 8278)" box.  
      Check the "Other Instructions" box and write the following: "FILE ALL PENALTY CASE WORKPAPERS USING NEW FORM 8278 DLN" .  
    At the bottom of the first page, check the "Forward to CCP" box.  
    Complete the case information section:  
      Enter the tax period(s) that are to be closed.  
      Enter penalty MFT (P6 for 6700, P7 for 6701).  
      Disposal Code 01 (full disallowance).  
      Penalty section (6700 or 6701).  
      Adjustment amount: Enter -0- for each year.  
      On the second page of the form, in the "Letter Instructions for CCP" area, check the "No letter required to be sent by CCP" box.  
   

Note:

You can highlight these items on the printed Form 3198 to assist CCP with locating this information.

 
11 Prepare case for closure - Requests for Appeals    
    Prepare report of unagreed issues for Appeals. Rebut promoter’s position as stated in the Appeals request.  
    Close the claim case to the local Appeals office. Disposal Code for Appeals is 07. Update Status Code to 81. Send to local Appeals Office.  
    Prepare Form 3198, Special Handing Notice, and attach to the outside of the penalty case file. In additional to the regular entries on this form, complete the following items:  
    Just below the Business Unit box, check the "Other" box and write-in "6700 [or 6701] Penalties Claim Case – Send to CCP" .  
    If Form 2363 was sent to CCP to update the promoter’s address, check the box in the taxpayer name section and include a copy of Form 2363 in the case file. Note on the workpaper copy the date it was faxed or sent to CCP. If appropriate, also note that Form 3177 was sent to CCP in same box.  
    In the Special Features section:  
      Check the "Civil Penalties (Form 8278)" box  
      Check the "Other" Instructions box and write the following: "FILE ALL PENALTY CASE WORKPAPERS USING NEW FORM 8278 DLN" .  
    At the bottom of the first page, check the "Forward to CCP" box.  
    Complete the case information section:  
      Enter the tax period(s) that are to be closed.  
      Enter penalty MFT (P6 for 6700, P7 for 6701).  
      Disposal Code 07 (Appeals request).  
      Penalty section (6700 or 6701).  
      Adjustment amount: Enter -0- for each year.  
      On the second page of the form, in the "Letter Instructions for CCP" area, check the "No letter required to be sent by CCP" box.  
   

Note:

You can highlight these items on the printed Form 3198 to assist CCP with locating this information.

 

Exhibit 4.32.2-18 
Participant List Template

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