4.36.3 Examination Team Responsibilities

Manual Transmittal

September 23, 2015

Purpose

(1) This transmits revised IRM 4.36.3, Joint Committee Procedures, Examination Team Responsibilities.

Material Changes

(1) Added link to acronym database and list of acronyms in IRM 4.36.3.1.

(2) Removed references to Limited Issue Focused Examinations in IRM 4.36.3.2.

(3) Added references to the new $5 million Joint Committee threshold for C corporations throughout.

(4) Clarified use of Form 870 in IRM 4.36.3.2.6.

(5) Removed IRM 4.36.3.2.6.1 relating to net deficiency cases and qualified waivers and renumbered subsequent subsection.

(6) IRM 4.36.3.3 and IRM 4.36.3.8 were updated to include new electronic referral procedures.

(7) Removed IRM Exhibit 4.36.3-1, IRM Exhibit 4.36.3-2 and IRM Exhibit 4.36.3-4 and renumbered subsequent exhibits.

(8) Added new IRM Exhibit 4.36.3-4 on CCP instructions for LB&I examination teams.

(9) Various editorial changes and corrections have been made throughout this IRM.

Effect on Other Documents

This section supersedes IRM 4.36.3, Examiner's Responsibilities, dated May 4, 2010.

Audience

LB&I, SB/SE, TE/GE

Effective Date

(09-23-2015)

Tina Meaux
Director, Pre-Filing and Technical Guidance (PFTG)
Large Business and International Division

Introduction

  1. This section sets forth examination team responsibilities and procedures relative to Joint Committee cases. It covers the following areas:

    1. Examination procedures (IRM 4.36.3.2)

    2. Types of Joint Committee reviews (IRM 4.36.3.3)

    3. Survey after assignment criteria (IRM 4.36.3.4)

    4. Statute of limitations (IRM 4.36.3.5)

    5. Documentation requirements (IRM 4.36.3.6)

    6. Reporting prior to resolution of all issues (IRM 4.36.3.7)

    7. Submission of case to Joint Committee Review (IRM 4.36.3.8)

    8. Inquiries from Joint Committee Review (IRM 4.36.3.9)

    9. Disclosure of correspondence with Joint Committee on Taxation (JCT) (IRM 4.36.3.10)

    10. Referral to Taxpayer Advocate Service by the examination team (IRM 4.36.3.11)

    11. Examination/Appeals case coordination (IRM 4.36.3.12)

  2. A complete list of commonly-used acronyms in Joint Committee cases can be found in IRM 4.36.1.1. In addition, the meanings of most IRS acronyms can be found in the Acronym Database, http://rnet.web.irs.gov/Other/acronymdb.asp. The following acronyms are not listed in the database:

    ACRONYMS
    ARC Aging Reason Code
    CRT Case Return Transmittal
    GBC General Business Credit
    GHW Global High Wealth
    JCR Joint Committee Review Program (LB&I)
    JCS Joint Committee Specialist (LB&I JCR Program)
    NSR Notice of Suspended Referral
    PC Project Code
    Rev. Rul. Revenue Ruling
    SRM Staff Review Memorandum

Examination Procedures

  1. Joint Committee cases are to be given the same thorough examination as other cases of a similar size and difficulty. It is the examination team’s responsibility to determine the scope and depth of the examination. The JCT will generally accept business decisions that are made in examinations, but those decisions must be properly supported and documented. In addition, other management initiatives, such as Fast Track Settlement and Accelerated Issue Resolution, may also be used in resolving issues in Joint Committee cases. However, see IRM 4.36.4.7 for applicable closing agreement procedures.

  2. When a loss is attributable to a flow-thru entity, the examiner should, at a minimum, inspect the return and determine whether an examination is warranted. A copy of the flow-thru return, whether examined or not, should be included in the case file for informational purposes.

  3. When Competent Authority is involved in a Joint Committee case, keep in mind that closing agreements (if prepared) must be reviewed by the JCT before being signed by the Service.

  4. Fully agreed cases are reported to the JCT.

  5. For unagreed cases, no report is required at the time the case is closed to the Office of Appeals. However, once an agreement has been reached and the case still meets JCT criteria, Appeals will be responsible for preparing and submitting a report to the JCT.

  6. Partially agreed cases will require reporting to the JCT if the taxpayer is entitled to a refund over $2 million ($5 million for C corporations) regardless of the resolution of the unagreed issues. This situation is known as a minimum refund. If the taxpayer signs Form 870 requesting the refund, the examiner will follow the Joint Committee procedures, and Joint Committee Review will prepare and submit a report to the JCT on the minimum refund. The Appeals Officer will submit a supplemental report to the JCT when the unagreed issues are finally resolved even if the resolution of such issues does not cause an additional refund or credit. See IRM 4.36.3.7.1 for detailed information and procedures on minimum refunds.

Case Identification

  1. The examination team is responsible for identifying all Joint Committee cases in their inventory, or when the case qualifies as the result of the examination. The examination team must ensure that all returns in the case file have project code 0077 on ERCS/AIMS. See IRM 4.36.2.4 for guidance in determining the jurisdictional amount.

Claim Filed During Examination

  1. Where a case is under examination or has been examined but not closed out by the examination team and the taxpayer files a claim for refund or application for tentative allowance sufficient to bring the case within the jurisdiction of the JCT, the examination will be extended to include such source year. Certain cases can be closed and reported to the JCT prior to the resolution of all issues. See IRM 4.36.3.7.2 for the procedures and criteria for tentative allowances from unexamined source years and IRM 4.36.3.7.3 for the procedures and criteria for claims from unexamined source or refund years.

    Example 1:
    Facts:
    Examination resulted in an overassessment of $1,600,000 for 2013. During the examination a claim (Form 1040X, Amended U.S. Individual Income Tax Return)is filed for 2013 for $410,000 based on a 2015 NOL.
    Conclusion:
    The examination should be extended to include 2015, since the aggregate amount of the refunds or credits under IRC 6405(a) exceeds $2 million.
    Example 2:
    Facts:
    Examination resulted in an overassessment of $1,600,000 for 2013. During the examination a claim (Form 1120X, Amended U.S. Corporation Income Tax Return) is filed for 2013 for $410,000 based on a 2015 NOL.
    Conclusion:
    The examination should not be extended to include 2015, since the aggregate amount of the refunds or credits under IRM 6405(a) is not in excess of $5 million (threshold for C corporations effective 12/19/2014).
    Example 3:
    Facts:
    Examination resulted in an over-assessment of $700,000 for 2013. During the examination an application for tentative allowance (Form 1139, Corporation Application for Tentative Refund) is filed for 2013 for $1,400,000 based on a 2015 NOL.
    Conclusion:
    The examination will not be extended for purposes of JCT consideration since separate computations of jurisdictional limits under either IRC 6405(a) or IRC 6405(b) do not exceed $5 million (threshold for C corporations effective 12/19/2014).
    Example 4:
    Facts:
    Examination resulted in an overassessment of $900,000 for 2013. During the examination an application for tentative allowance (Form 1139, Corporation Application for Tentative Refund) is filed for 2013 for $4,200,000 based on a 2015 NOL.
    Conclusion:
    The examination will not be extended for purposes of JCT consideration since separate computations of jurisdictional limits under either IRC 6405(a) or IRC 6405(b) do not exceed $5 million (threshold for C corporations effective 12/19/2014).

Discovery that Report Was Not Prepared

  1. Upon discovery that an overpayment in excess of $2 million ($5 million for C corporations) has been refunded without a report to the JCT, the examiner will notify the manager and the Joint Committee Specialist team.

  2. When a case that requires reporting to the JCT was inadvertently not reported, the examination team that concluded the examination of the case will be responsible for securing the files and preparing the case for Joint Committee review. The normal guidelines will be followed, even though the examination has been completed and closed. See IRM 4.36.5.4.

Claim Filed for Previously Examined Year

  1. All pertinent years (both refund and source years) must be covered in a current examination or survey action, even if one or more of the refund years has been previously surveyed or examined. All prior audit or survey reports pertaining to such years must be included in the case file.

  2. If the refund or credit is for a year that was previously examined, that year should not be reexamined unless such action is necessary under reopening criteria, also known as case return criteria.

Information Given to Taxpayer

  1. Upon completion of the examination, the examination team will solicit an agreement to the findings and inform the taxpayer that a report to the JCT is necessary and additional processing time will be required. The examination team should also advise the taxpayer to expect written notification when the report has been forwarded to the JCT. The examination team should answer any taxpayer questions until Letter 1573 (P) is issued at which time Joint Committee Review will answer questions about Joint Committee procedures. Letter 1573 (P) is a letter Joint Committee Review sends to the taxpayer when the JC Report is sent the JCT.

Form 870

  1. Joint Committee cases are considered "Excepted Agreed Cases" and as such the reopening procedures do not apply. IRM 4.10.8.4 states that Form 870, Waiver of Restriction on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment, will be used along with Form 4549-A in all Joint Committee cases.

  2. Form 870 must not contain any restricted language.

  3. A qualified Form 870 will not be accepted for Joint Committee cases.

Assessment Prior to Review
  1. If six (6) months or less remain on the statute of limitations, and the taxpayer will not extend the statute, the deficiency must be assessed prior to forwarding the case to Joint Committee Review.

Refund Prior to Review

  1. When the taxpayer signs an unqualified Form 870 and the net overassessment is less than $2 million ($5 million for C corporations), the overassessment (and deficiency, if any) may be processed prior to reporting the IRC 6405(b) refund (tentative allowance) to the JCT. This only applies if there is sufficient time open on the statute of limitations to follow deficiency procedures.

Restricted Interest

  1. Adjustments due to carrybacks will result in restricted interest. Even if there is no tax change to a carryback year, there may be a net interest assessment or abatement. The restricted interest provisions should be explained to the taxpayer.

  2. The JC Specialist or the Tax Computation Specialist (TCS) (if assigned) is responsible for the preparation of Part I of Form 2285, Concurrent Determinations of Deficiencies and Overassessments in Cases Involving Restricted Interest Provisions of the Internal Revenue Code. For estate tax, use Form 1366, Tax Analysis Worksheet of Overassessment of Estate Tax Involving Restricted Interest. Form 2285 is required if there are tax changes from current year adjustments and at least one carryback year, or changes from two or more carryback years without any current year adjustments. The examination team should review the computations with the TCS.

  3. If all of the tax adjustments to a year are due to an increase or decrease of just one carryback year, the Form 3198, Special Handling Notice for Examination Case Processing, needs to have this information. Form 2285 will not be required for this year.

Claim Disallowance In Agreed Cases

  1. Because of the time required to process a Joint Committee case, the examiner will not solicit Form 2297, Waiver of Statutory Notification of Claim Disallowance, in an agreed claim case involving the disallowance in full or in part of a claim for refund or credit. Such action disadvantages the taxpayer by prematurely starting the running of the two-year period for filing suit. On Joint Committee cases, Form 3363, Acceptance of Proposed Disallowance of Claim for Refund or Credit, should be secured in addition to Form 870.

  2. The examiner should indicate on Form 3198 (or other special handling form) that a statutory notice of claim disallowance should be issued after release from the JCT.

Types of Joint Committee Reviews

  1. Joint Committee Review is responsible for the preparation of the report that is furnished to the JCT. These reviews are either conducted as Joint Committee electronic case reviews or as physical case reviews.

JC Electronic Case Reviews (LB&I except for IIC)

  1. The Joint Committee electronic case reviews are conducted remotely by Joint Committee Review with the examination team’s participation as needed for all of LB&I’s Joint Committee cases except for the International Individual Compliance (IIC) organization. The instructions to request the mandatory Joint Committee review are at: http://lmsb.irs.gov/hq/pqa/4/downloads_JC/JCCaseMailingandClosingInstructions.asp.

  2. To initiate a Joint Committee review, the Joint Committee Electronic Referral form is required to be prepared and submitted by the examination team. The form can be accessed electronically on the LB&I Joint Committee Review website: http://lmsb.irs.gov/hq/pqa/4/home.asp.

JC Physical Case Reviews (SB/SE, TE/GE, and LB&I’s IIC)

  1. A physical case review is conducted after the JC case has been forwarded from the examination team to Joint Committee Review. Joint Committee Review is responsible for statute controls, controlling the case on ERCS, and closing the case to Centralized Case Processing (CCP) upon clearance of the JC case from the JCT. See IRM 4.36.3.8 for submission procedures.

  2. Joint Committee Review conducts a focused review of the case which includes the RAR, JC spreadsheet, and other supporting documentation. This JC review and the preparation of the report to JCT take place at the JC Specialist’s post-of-duty.

Case Processing After JCT Clearance - JC Electronic Case Review
  1. When the clearance letter or staff review memorandum is received from the JCT, Joint Committee Review will prepare and mail Letter 1574(P) to inform the taxpayer and authorized representative, if applicable. See Exhibit 4.36.3-4 for case closing instructions to the examination team.

Survey After Assignment Criteria

  1. Returns in Joint Committee cases may be surveyed after assignment if the returns would normally have been surveyed before or after assignment during a regular examination except for the fact that the returns require Joint Committee review. The examination team can survey some or all of the returns.

Survey Documentation

  1. There must be sufficient documentation in the examiner’s case file to justify that an examination is not warranted. If the reason, economic or otherwise, for the overassessment is not readily available from the return or file, attempts should be made to obtain the necessary information from public sources (e.g., annual report, Security Exchange Commission’s filings, Moody’s, Standard and Poor’s, etc.) or directly from the taxpayer.

  2. Examination’s request for retained copies of the taxpayer's tax returns, prior RARs, or information otherwise available from public sources is within the confines of a survey action. If the taxpayer is contacted, the examination team should point out that the Service proposes to accept the return as filed; that such action is subject to review by the JCT; and that certain additional information is needed to properly prepare the report. See the JC Website at http://lmsb.irs.gov/hq/pqa/4/Joint_Committee/jcforms.asp for an example of a pro-forma survey contact letter and information document request for survey cases.

  3. However, if examination makes an inspection of any portion of the taxpayer's books and records (except as provided in this section) or discusses any potential issues with the taxpayer, the return may not be surveyed under this procedure.

Survey Forms

  1. All returns will be surveyed using Form 1900, Income Tax Survey After Assignment. The survey form will fully explain the reasons for the survey and include references to pertinent portions of the examiner's case file.

  2. Each year must be shown separately on the survey form. Entries for the tentative allowance column are from Form 1139 or Form 1045. Entries for the claim amount column are from Form 1120X or Form 1040X. The form requires both the examiner's and team manager's signature.

Procedural Requirements – Survey Cases

  1. All pertinent years (the refund years and the source years i.e., NOL, credit, etc.) not currently being examined must be covered in the survey action, even though one or more of the refund years may have been previously closed either by survey or examination. Also, all prior examination reports pertaining to such years must be included in the case file.

  2. Surveys of tax returns may be made on the basis of the taxpayer's retained copies. However, care must be taken to insure that the tax shown on the copies agrees with current transcripts (no more than 30 days old at time of submission).

  3. The documentation requirements of IRM 4.36.3.6 are applicable.

  4. Form 3198 or other special handling form will be completed and marked "Mandatory Review" and "Joint Committee Case" .

  5. Form 5351, Examination /Non-Examined Closings, will be signed by the manager and included in the case file.

  6. Form 5344, Examination Closing Record, is required where there are unpaid survey claims (Form 1120X or 1040X).

  7. The case file should contain a detailed explanation justifying the survey action. An explanation of the reason for the overassessment and prior audit history should also be included.

  8. Form 5231, Joint Committee Case Check List, must be prepared.

Refund Counsel Inquiries on Survey Cases

  1. If an inquiry from the JCT cannot be resolved without taxpayer contact, Joint Committee Review should contact the JCT Refund Counsel to discuss any problems that exist. All inquiries from JCT are Congressional Inquiries subject to disclosure rules.

  2. If the Refund Counsel and the Service believe the requested information is critical, the taxpayer's returns will be examined only to the extent necessary to respond to the inquiry. The examination may take the form of a telephone call to the taxpayer, perhaps coupled with a letter of explanation to the taxpayer or representative, or limited in scope to an in-process examination of specific portions of the taxpayer's books and records that are relevant to respond to the inquiry. Therefore, survey procedures are no longer applicable and a RAR is required.

  3. Absent formal instructions to the contrary, requests by the JCT Refund Counsel for additional documentation in specific cases will not be considered precedents for similar documentation in other cases involving the same issue.

Statute of Limitations

  1. Every effort will be made to obtain consents to extend the statute of limitations so that at least 12 months remain on the statute for both source and carryback years. If the taxpayer will not extend the statute and there are less than 12 months remaining on the statute, the examination team should contact Joint Committee Review. Refer to IRM 25.6.23 for statute control procedures.

Restricted Consents

  1. Restricted consents will not be used in Joint Committee cases since it would restrict the rights of the JCT to perform their oversight function.

Alpha Statutes

  1. The statute date of the carryback years should be updated on IDRS and ERCS with the correct alpha code when the regular statute has expired or is about to expire. See IRM Exhibit 25.6.23-3 for instructions on updating the statute .

  2. For unpaid claims, replace the day field with AA. The month and year do not change.

  3. When the claim or tentative allowance has already been paid, BB (NOL) and DD (credits) replace the day. The month and year will be changed to those of the earliest source year return.

Examination Action on Short Statutes

  1. The examination team is required to comply with IRM 25.6, Statute of Limitations.

  2. Form 895, Notice of Statute Expiration, must be placed on the outside of the case folder on top of all other documents, whenever a statute will expire within 180 days.

Statute Control During Review and JC Report Process

  1. For a Joint Committee electronic case review, the examination team retains the case files and closes the case to CCP. The examination team is responsible for maintaining the required statute controls.

  2. For a Joint Committee physical case review, Joint Committee Review retains the case files and closes the case to CCP. Joint Committee Review will maintain statute controls under existing procedures throughout the review and reporting process. Occasionally, a case may need to be sent back to the examination group to close out to CCP.

Documentation Requirements

  1. IRC 6405 requires a report to be submitted to the JCT. These reports are the principal source of information for the JCT. The examiner is expected to adequately explain and to furnish necessary supporting information for the issues reflected in the RAR. Therefore, care must be taken to ensure that the case files contain sufficient information for the preparation of the report.

Revenue Agent's Report (RAR) Requirements

  1. A Form 5231, Joint Committee Case Checklist, must be completed by the examination team for each case. An RAR will be prepared for all examined cases, and will include all of the following:

    1. Form 4665, Report Transmittal

    2. Form 870, Waiver of Restriction on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment

    3. Form 4549-A, Income Tax Examination Changes

      Note:

      Tentative refunds should be shown separately on Line 13(a).

    4. Computation schedules for other taxes and credits

    5. Alternative Minimum Tax (AMT) schedules, even if there is no AMT liability

    6. Written explanation of adjustments on Forms 886-A or 5701 must be attached to the Form 4549-A

    7. All electronic data files used to generate the RAR must be included.

  2. Per IRM 4.10.8.15.3.3, when there are tentative NOL carrybacks, the RAR should show the correct net operating loss deduction (NOLD) amount. If the NOLD is allowed in full, the entire NOLD would be shown as an adjustment. If the NOLD is not allowed, the adjustment would be zero. The taxable income should be before the NOL carryback. The total corrected tax liability should be shown as follows:

    Line 12 - Tax Per Return or as Previously Adjusted XXXXXXXX
    Line 13(a)-(d) Tentative Allowances XXXXXXXX
    Line 14 - Deficiency or Overassessment XXXXXXXX

Closing Agreements

  1. Closing agreements must not be executed on behalf of the Government until reviewed by the JCT. See IRM 4.36.4.7 .

  2. Except as explained below, if a case requires the execution of a closing agreement and must be reported to the JCT, the case files should be provided to Joint Committee Review with the closing agreement not executed on behalf of the IRS. Upon receipt of the clearance letter, the examination team will be responsible for execution of the closing agreement. The examination team will close the case to CCP after the closing agreement has been signed by the appropriate official.

  3. In those situations where an issue is resolved early in the examination, such as Fast Track Settlement or Early Referral to Appeals, and it is known or likely that the case will require a report to the JCT, the examination team may request an advanced review of the closing agreement by the JCT prior to the case closing. If the examination team wishes to pursue this option, the examination team will prepare a cover memo and forward a copy of the closing agreement and any relevant supporting documents to Joint Committee Review. JCR will forward the documents to the JCT. After review by JCT, the agreement can be signed by the appropriate Service official. (See Exhibit 4.36.3-3.)

  4. When the examination is still in process, there is a disclosure issue in sending a closing agreement to the JCT. The examination team will solicit written authorization from the taxpayer to provide the closing agreement to the JCT. If the taxpayer refuses, a redacted copy will be sent.

Competent Authority
  1. Competent Authority determinations can be executed by the Service prior to review by Joint Committee. However, these agreements must be included in the Service’s report to JCT.

  2. Under certain circumstances, a Minimum Refund Report can be submitted to the JCT. Under the Minimum Refund procedure, all issues relating to an ongoing Competent Authority determination will be considered as unagreed issues in determining whether the Minimum Refund procedures apply. If a Minimum Refund report is submitted, a supplemental report to the JCT will be required upon completion of the Competent Authority determination provided that any resulting additional refund meets the applicable jurisdictional threshold. See IRM 4.36.3.7.1.

Advance Pricing Agreements (APAs)
  1. Advance Pricing Agreements must be finalized before a report can be submitted to the JCT. A copy of the APA should be provided to Joint Committee Review for inclusion in the report to the JCT.

Compliance Assurance Process (CAP)

  1. At the conclusion of a Compliance Assurance Process review, if it is determined that the filed tax return will result in a JC refund claim, JC procedures will apply. Closing agreements in these cases must be submitted to the JCT prior to being signed by the Service.

  2. For a Full Acceptance return, once the post-filing review is complete, the Account Coordinator will prepare the necessary documents for submission to Joint Committee Review.

  3. For a Partial Acceptance return, once all of the remaining issues have been fully resolved, the report will be sent to the JCT.

  4. Additional information relative to required documentation for CAP cases is located on the LB&I Joint Committee Review website at http://lmsb.irs.gov/hq/pqa/4/home.asp .

Taxpayer Information - Report Transmittal Requirements

  1. Form 4665, Report Transmittal, (also known as the transmittal letter or T-Letter) will explain the cause or causes of the overassessments. If the overassessments result from a net operating loss, the economic reason for such loss must be briefly explained.

  2. Information concerning the financial history and changes in capital structure of corporations will be furnished in every case. This should include:

    1. Date and place of incorporation

    2. A brief statement of the principal business activity and/or principal products and any major changes in these during years under examination

    3. If stock is closely held, who controls the corporation

    4. Names of subsidiaries or affiliates (if numerous, state the number and indicate where names can be found in case file)

    5. Any changes in capital structure such as mergers, acquisitions, dispositions, etc, during the years under examination or survey

    6. Whether the stock is publicly held and on which exchange it is listed

  3. If an issue arises as to the proper carryback period of losses or credits of a newly acquired member of a consolidated group, the report will state whether the newly acquired corporation was organized by or for a preexisting member of the consolidated group.

Contact Information - Examination Team
  1. The team manager's and examiner’s name, address and telephone numbers must be entered on Form 4665, Report Transmittal, or survey form. The name and title of the taxpayer’s corporate officer who is to receive correspondence must also be included on Form 4665.

Short Taxable Periods
  1. Short taxable periods have numerous possible tax consequences. In order to fully understand the tax implications of the tax years reported, the examination report will disclose the existence and cause of any short taxable period.

Large, Unusual or Questionable Items
  1. Any large, unusual or questionable items (LUQ) will be fully explained, even if not adjusted, on Form 4665.

Joint Committee Spreadsheets

  1. Spreadsheets for regular tax and Alternative Minimum Tax (AMT) must be included with the case. Joint Committee spreadsheets can be found on the LB&I Joint Committee Review website for individual, corporate, and life/non-life insurance groups.

  2. Additional Joint Committee spreadsheets should be prepared if the taxpayer has credits carried from numerous years. Separate spreadsheets should also be prepared for foreign tax credits involving different categories or baskets.

Transcripts of Accounts

  1. The examination team must check the transcript against information in the case file to to ensure that all deficiencies, overassessments, claims paid, and refunds or credits, including tentative allowances and abatements, are properly reflected in the tax computation for the RAR and JC spreadsheets.

Change of Accounting

  1. Copies of Form 3115, Change of Accounting Method, and approval memorandum from Counsel will be included in the case file.

Reporting Prior to Resolution Of All Issues

  1. Certain cases can be reported to the JCT prior to the resolution of all issues. These cases include:

    • Cases with unagreed issues - minimum refund - see IRM 4.36.3.7.1

    • Tentative allowances from unexamined source years - report required (CIC cases only) - see IRM 4.36.3.7.2

    • Request for refund - claims from unexamined source or refund years -modified expedite refund report - IRM 4.36.3.7.3

Cases with Unagreed Issues - Minimum Refund

  1. Upon completion of the examination, if the taxpayer is entitled to an IRC 6405(a) refund, and there are unagreed issues, the case may be a "minimum refund" case.

  2. A minimum refund is an amount that the taxpayer is due to receive after offsetting any potential unagreed deficiency. The taxpayer would receive the net minimum refund amount regardless of the outcome of the unagreed issues.

  3. A minimum refund may be processed before the case is sent to Appeals if:

    1. The unagreed issues require a substantial period of time to resolve (one year or more for Coordinated Industry Cases (CIC), six months or more for all other cases), and the delay would deprive the taxpayer of a timely refund to which it is clearly entitled, in spite of the resolution of the unagreed issues, and

    2. The taxpayer signs Form 870 indicating agreement with the minimum refund. See examples below for determining the "minimum" refund due the taxpayer.


    Example 1

    Year 1 Year 2 Total
    Agreed Overassessment (4,500,000) (2,000,000) (6,500,000)
    Unagreed Deficiency 1,000,000 500,000 1,500,000
    Total results of examination (3,500,000) (1,500,000) (5,000,000)
    Minimum amount entitled to receive 5,000,000


    Example 2

    Agreed overassessment (3,000,000)
    Unagreed overassessment (2,000,000)
    Total results of examination (5,000,000)
    Minimum amount entitled to receive 3,000,000
  4. If the minimum refund exceeds $2 million ($5 million for C corporations), and the taxpayer has indicated agreement with the examination team’s findings by signing Form 870, Joint Committee Review must report the refund to the JCT before releasing the unagreed issues to Appeals. A final report (supplemental report) will be submitted to the JCT by Appeals when the unagreed issues are finally resolved.

  5. Once JCT clearance is received on the minimum refund report, the examination team must process the minimum refund and ensure that the overassessment posts to the master file before the unagreed issues can be forwarded to Appeals. The case file must be clearly documented and verification included in the case file that the minimum refund has been issued to the taxpayer.

  6. A minimum refund may also apply when there are unfinished flow-thru entity examinations. See IRM 4.36.4.11 for TEFRA and non-TEFRA flow-thru suspense procedures.

Documentation Requirements on Minimum Refund Cases
  1. If a taxpayer indicates agreement to issues in the examination report, but refuses to sign the Form 870 indicating formal agreement with the minimum refund, the examiner will document the taxpayer’s indication of agreement as well as their reason for not signing Form 870. In this situation, the examiner will treat the entire case as unagreed, including the "agreed issues" , and write up all issues in unagreed report format.

  2. The examination team will advise taxpayers that in order for Appeals to accept the case, they will be required to provide an adequate response to all issues in the protest, even the ones the taxpayer agreed to informally. A proper protest must be secured from the taxpayer and the appropriate rebuttal must be prepared by the examination team prior to forwarding the case to Appeals. Appeals will return the case if all issues are not addressed.

  3. If the taxpayer refuses to address all issues in the unagreed report, and refuses to sign the Form 870, the examination team should consider other appropriate actions such as the issuance of a Statutory Notice of Deficiency or Statutory Notice of Claim Disallowance.

Tentative Allowances from Unexamined Source Years-Report Required

  1. A case can be submitted to Joint Committee Review with tentative allowances from unexamined source years, if:

    1. It qualifies as a Joint Committee case without regard to the carryback from the unexamined source years, and

    2. The examination of the source years will not be completed for a substantial period of time (six months or one year for CIC taxpayers).

  2. When an NOL, capital loss, or credit carryback is allowed subject to future examination of the subsequent year, the examination report, (Form 4549-A) should contain the following statement:
    "The net operating loss (or capital loss or credit) carryback from the year ending XX/XX/XXXX, reflected herein, is subject to correction upon examination of the tax return from which it originated."

  3. If, as a result of the examination, the tentative allowances are reduced to less than the jurisdictional amount, the examination team will notify Joint Committee Review in writing. Otherwise, these source years and their carrybacks will be submitted for review at the completion of their examination or survey.

  4. If the current examination would not be a Joint Committee case but for those carrybacks, the case should not be submitted to Joint Committee Review for review until the examination action is completed on the subsequent source years.

Request for Refund – Claims from Unexamined Source or Refund Years – Modified Expedite Refund Report

  1. The Service can issue a conditional refund in excess of $2 million ($5 million for C corporations) prior to the completion of the examination or survey action if:

    1. The taxpayer has requested the refund.

    2. The examination team, in their discretion, are satisfied that the claim issues resulting in the refund will reasonably lead to allowance of all or a substantial part of the claimed refund.

    3. No disadvantage to the government will occur.

    4. The taxpayer posts security. See Exhibit 4.36.3-1.

    5. The examination will not be completed within six months from the date the taxpayer requests the refund.

    6. There is sufficient time on the statute of limitations to complete the examination.

  2. This procedure is also applicable if the taxpayer files a claim after the due date to correct errors on its original return. An amended return filed before the due date does not require that a report be submitted to the JCT.

  3. A Modified Expedite Refund Report will be prepared by Joint Committee Review and submitted to the JCT.

  4. A Supplemental Report may be required at the completion of the examination.

  5. See Exhibit 4.36.3-2 for the procedures to be followed.

Posting of Security Modified Expedite Refund Report

  1. The taxpayer is required to post a bond or other similar security for the amount of the refund as a condition for submitting a modified expedite refund report. The Director of Field Operations or Area Director is responsible for determining the sufficiency of collateral. Refer to IRC 7101, the Regulations thereunder and IRM 5.6.1, Collateral Agreements and Security Type Collateral, for further guidance. At the discretion of the Director of Field Operations or Area Director , an additional amount of bond or security may be required with respect to interest on the refund in the event all or part of the refund must be repaid. This amount should be measured by the reasonably anticipated time to complete the examination and the interest rate currently in effect under IRC 6621. The posting of the bond must be accomplished prior to the submission of the claim to Joint Committee Review . A copy of the security agreement signed by the taxpayer must accompany the modified expedite refund report. The security agreement will be executed on behalf of the Service subsequent to the expiration of the 30-day period after the submission of the report. The refunds must not be released until Joint Committee Review notifies the examination team that the appropriate documents may now be executed and such action has been taken.

  2. It is necessary to submit a copy of the executed security or collateral agreement with the modified expedite refund report. The agreement should reflect the amount of the proposed refund, plus previously assessed interest, if any, and estimated refund interest, if required. The agreement must be executed by the taxpayer prior to submission. Upon expiration of the 30-day period after submission of the report, the Director of Field Operations or Area Director having jurisdiction over the case should execute the agreement on behalf of the Service. Coordination with local Counsel in the development of the security agreement is required.

  3. Any security or collateral agreement needs to specify that in fully agreed cases the agreement will not terminate until the JCT determines (if required by law) that it has taken no exception to the results of the examination. See Exhibit 4.36.3-1 for a sample security agreement.

Case Ready for Joint Committee Review

  1. Once the examination of the agreed or partially agreed Joint Committee case is complete, the examination team requests a mandatory Joint Committee review by following the instructions at: http://lmsb.irs.gov/hq/pqa/4/downloads_JC/JCCaseMailingandClosingInstructions.asp.

Joint Committee Review Contact Information

  1. Check the Joint Committee Review web site at http://lmsb.irs.gov/hq/pqa/4/home.asp for current contact information.

Inquiries from Joint Committee Review

  1. There are times when it may be necessary for the Joint Committee Specialist to contact the examination team for additional information or clarification regarding a Joint Committee case. Inquiries will be treated with the highest priority.

  2. The need for additional information or clarification may arise while the case is being reviewed by Joint Committee Review or as a result of a formal or informal inquiry the Joint Committee Review may have received from the JCT. They should be treated as a priority.

  3. There may be times when it is more expedient for the examination team to communicate directly with the JCT. Joint Committee Review will arrange for this contact and remain involved to ensure the staff attorney receives a timely and satisfactory response.

    Caution:

    All IRS personnel should remember that the JCT Staff Attorneys are congressional staff and any inquiry from them constitutes a congressional inquiry.

Types of Inquiries

  1. There are two types of inquiries from Joint Committee Review:

    1. Informal – Telephone or email

    2. Formal – Written memorandum via a Case Return Transmittal (CRT) or Notice of Suspended Referral (NSR)

  2. See IRM 4.36.4.2 for case return criteria and IRM Exhibit 4.36.4-3 for guidance on dispute resolution.

Proposed Changes to the RAR

  1. If the examination team does not agree with the position of Joint Committee Review or the JCT regarding proposed changes to the RAR and the matter cannot be resolved on a mutually satisfactory basis, the dispute will be elevated according to the schedule in Exhibit 4.36.4–3.

Disclosure of Correspondence with Joint Committee on Taxation

  1. Generally, any IRS records generated during an examination or other process giving rise to the credit or refund should be considered agency records subject to the Freedom of Information Act (FOIA).

  2. Informal or formal correspondence, including email, from the JCT should also be considered agency records subject to FOIA but should not be released to the taxpayer without the permission of the JCT. If the JCT communication contains a legend that says the document should be treated as a Congressional record and is beyond the scope of FOIA, it should be treated as such.

  3. When the JCT raises an issue on a case, the Service has two options:

    1. Agree to adopt that position and present it to the taxpayer as the position of the Service; or

    2. Reply to the Committee with the reasons for disagreement.

  4. Any documents created by the Service in connection with a response to any JCT correspondence should also not be released to the taxpayer without permission of the JCT.

Referral to Taxpayer Advocate Service by the Examination Team

  1. Complete Form 911, Request for Taxpayer Advocate Service Assistance (and Application for Taxpayer Assistance Order), and refer the taxpayer to the Taxpayer Advocate Service (TAS) if, during a taxpayer contact on a case subject to Joint Committee Review:

    1. The taxpayer asks to be referred to the TAS

    2. The taxpayer meets TAS case criteria (see IRM 13.1.7)

    3. You cannot resolve the issue

    See http://tas.web.irs.gov/ or http://www.irs.gov/Advocate for more information.

  2. Do not refer a taxpayer to TAS if you are able to resolve the taxpayer's problem or take steps to resolve the taxpayer's problem within 24 hours, unless the taxpayer asks to be referred to TAS.

Examination/Appeals Case Coordination

  1. Appeals and Examination often have different years open for the same taxpayer; however, when the taxpayer files a tentative refund or refund claim affecting the years under Appeals jurisdiction which is attributable to the year under examination, then the examination team needs to consider the situation in light of Joint Committee reporting requirements. See IRM 8.7.9.5.1.3 for details.

Sample Security Agreement

This is only an example of a security agreement where an Irrevocable Letter of Credit will be posted as collateral. Any agreement that is drafted must, at a minimum, contain the termination events in paragraph 6. Counsel must be involved in the drafting of the agreement.

AGREEMENT
This AGREEMENT is hereby entered into between (name of taxpayer) (hereinafter "taxpayer" ), having an address at (taxpayer’s address) and the UNITED STATES OF AMERICA (hereinafter USA), having an address in care of its agent, Director, Field Operations (Industry) of Internal Revenue (hereinafter DFO), (industry headquarters address).
Whereas on (date), the taxpayer filed a Form 1120X, Amended U. S. Corporate Tax Return for the tax year ending (date of year end) (hereinafter (YYYYMM) tax year), claiming (reason and amount), resulting in a refund of income tax for the (YYYYMM) period in the amount of (amount of refund) (hereinafter the (YYYYMM refund); and
Whereas the examination of the (YYYYMM) tax year has not commenced; and
Whereas the taxpayer has requested the (YYYYMM) refund be issued prior to the initiation and conclusion of the examination of the tax return for the (YYYYMM) tax year; and
Whereas the taxpayer desires to furnish an Irrevocable Letter of Credit (hereinafter the letter) to the DFO in order to induce the issuance of the (YYYYMM) refund.
Now, THEREFORE, in consideration of the mutual covenants, promises, obligations, and conditions contained herein, the parties hereby agree as follows:
1. Prior to the issuance of the (YYYYMM) refund, the taxpayer shall deliver to the DFO the letter consistent with the terms set forth herein. The letter shall be in favor of the DFO, and the DFO will hold the aforesaid letter in safekeeping in accordance with the terms and conditions herein.
2. The letter to be provided to the DFO shall be for the total amount ($ amount), which represents the sum of the following ($) amount of the tax to be refunded, plus ($), the estimated interest to the date of the refund.
3. The letter is given to indemnify the Internal Revenue Service for all or any part of the (YYYYMM) refund plus interest which may be due back to the Internal Revenue Service in the event the DFO determines there is any income tax due for the (YYYYMM) year.
4. As soon as practicable after delivery of the letter, the DFO shall commence an examination of the (YYYYMM) tax year.
5. If, as a result of the examination, the DFO determines there is a deficiency in the income tax for the (YYYYMM) tax year and notice and demand for payment thereof is issued as permitted by IRC section 6303(a), the Internal Revenue Service may draw upon the letter by draft at sight unless within 90 days from the date of the notice and demand, the taxpayer pays in full the amount(s) so determined (including statutory accruals). The draft shall be accompanied by a statement executed by the DFO (or his delegate) stating that notice and demand have been made and the taxpayer has failed to pay within 90 days of the date of such notice and demand. The foregoing statement shall be sufficient to satisfy any requirements for documentation supporting the taxpayer’s failure to pay within the 90 day period.
6. The taxpayer shall have the right to terminate the letter upon the occurrence of any of the following TERMINATION EVENTS pursuant to the PROCEDURES described below:
(a) TERMINATION EVENTS
(i) in the event the examination results in a fully agreed case (that is, no issues remain to which the taxpayer has not agreed), the later of, the date of payment in full of all such agreed liabilities (if any), plus statutory accruals or the completion of the review of the Joint Committee Supplemental report and release by the Joint Committee on Taxation
(ii) in the event the examination does not result in a fully agreed case, the later of, the date which is 120 days after "notice and demand" have been made upon the taxpayer with respect to the final issue(s) in the case ( taking into account the taxpayer’s ability to pursue all available administrative and judicial procedures to challenge the determination(s) of the DFO in whole or in part), or the completion of the review of the Joint Committee Supplemental report and release by the Joint Committee on Taxation or
(iii) in the event the Internal Revenue Manual provisions addressing the reports to the Joint Committee in cases involving claims for refund prior to completion of an examination are modified so as to no longer require the taxpayer to post a bond or similar security in order to obtain the refund prior to completion of the examination, but only upon mutual consent of the DFO and the taxpayer.
(b) PROCEDURES
In order to terminate the letter, the taxpayer must establish to the DFO that a termination event has occurred. Thereafter, the DFO (or his delegate) and the taxpayer shall execute a statement which sets forth the basis for the termination and the effective date for such termination. The statement shall be prepared by the taxpayer and executed by the DFO within 5 days of receipt of the taxpayer’s request to execute the statement. THE LETTER SHALL NOT BE TERMINATED UNTIL THE STATEMENT HAS BEEN FULLY EXECUTED BY THE PARTIES AND DELIVERED TO THE DFO .
7. The funds under the letter shall continue to remain available to the DFO until the letter is terminated pursuant to the provisions of paragraph 6. In the event the funds may cease to be available to the DFO (i.e. due to the expiration of time or the refusal to extend), the DFO shall have the right to draw upon the full amount of funds available (or any part thereof) beginning ten (10) days prior to the expiration date unless prior to that time, the taxpayer provides another letter (hereinafter the substitute letter) which is comparable in all respects to the letter which is about to expire (hereinafter the first letter). The DFO’s determination as to whether the substitute letter is comparable to the first letter shall be binding on the parties.
8. Nothing contained herein shall be construed as a waiver of or limitation on any collection action(s) available to the DFO pursuant to applicable law.
WITNESS our signatures and seals this ___ day of _____________, (year).

(Taxpayer Name)
By: ______________________________________
(Typed name of signer)
(Position)
UNITED STATES OF AMERICA
By: _______________________________________
(Typed name of signer)
Director of Field Operations (Industry)

Procedures for Cases Involving Claims From Unexamined Source or Refund Years - Modified Expedite Refund

These procedures are an accommodation to taxpayers and are not statutorily required. These procedures are only applicable when the examination team is satisfied that the claim issues resulting in the refund will reasonably lead to allowance of all or a substantial part of the claimed refund.

These procedures are to be followed when taxpayers request prompt payment of Form 1120X claims under the provisions of IRM 4.36.3.7.3. Under these provisions, taxpayers are required to post bonds or other similar types of security (e.g. an irrevocable bank letter of credit) to protect the Government’s interest until resolution of the claim. In these cases, typically Coordinated Industry Cases, examination or survey of the claim will not be completed within six months from the date of the taxpayer’s request.

  1. To invoke Modified Expedite Refund procedures the taxpayer must file a claim and request that it be paid prior to a final determination.

  2. The taxpayer is required to provide a draft of the Security Agreement. In addition, the taxpayer will furnish a draft of the surety bond or other form of collateral to the examining officer, who will arrange a meeting with the appropriate Counsel Office to review the drafts. A Joint Committee Specialist may participate in the meeting. Since a Security Agreement is a legal document, it must contain, at a minimum, that specific language identified as mandatory in Exhibit 4.36.3-1.

  3. The examining officer will return the draft to the taxpayer for preparation of a final version, incorporating any additions and/or deletions provided by Counsel.

  4. The taxpayer will execute and return the approved Security Agreement and collateral documents as required. Upon receipt of the agreement and other required documents the examining officer will inform the taxpayer that the Service will execute the agreement after it has been reviewed without objection by the Joint Committee on Taxation (JCT).

  5. The examining officer will prepare a processing file and submit it to the Joint Committee Specialist staff consisting of the following documents:

    1. Three copies of the executed Security Agreement and collateral documents

    2. A memorandum, addressed to the Manager, Joint Committee Review, which includes a brief taxpayer history and the basis for the refund claims

      Note:

      If claims are for carrybacks of NOLs, then the economic reasons for NOLs should be stated. In addition, the facts and circumstances regarding the proposed return of funds should also be included.

    3. Copies of each Form 1120X claim and first four pages of each related Form 1120 tax return and Form 4626, Alternative Minimum Tax

    4. Current transcript (no more than 30 days old) for each claim year

    5. Form 5344, Examination Closing Record, for each claim year

      Note:

      Since this is being used merely for processing purposes the examiner should only complete the taxpayer information section and Box 15.

    6. Forms 872, Consent to Extend the Time to Assess Tax, extending the statute(s) sufficient to allow completion of the examination

      Note:

      This includes the source year for any NOL, Foreign Tax Credit or Capital Loss carrybacks.

  6. These procedures DO NOT apply to years where the statute is open by claim only. See IRM 4.36.3.5 and IRM 25.6.23 for statute requirements.

  7. The statutes must be protected for all years, including the source year(s), until the supplemental report has been released by the JCT.

  8. Joint Committee Review will prepare a Modified Expedite Refund Request Report to the JCT. A copy of the Security Agreement and collateral documents executed by the taxpayer (but not yet executed by the Service) will be attached to the report.

  9. If the JCT does not raise concerns about payment of the refund(s) within 30 days from the date the JCT receives the Modified Expedite Refund Request report, the Joint Committee Specialist will notify the examiner that the appropriate documents may now be executed on behalf of the Service by the executive (or authorized delegate) having jurisdiction over the case.

  10. The examining officer will provide the taxpayer with a copy of the fully executed documents.

  11. Joint Committee Review will coordinate the processing of the refund through Case Processing Support.

  12. The examination team will continue to be responsible for obtaining all necessary letter of credit extensions and statute extensions until the case is closed.

Sample Request For Advanced Review of Closing Agreement

Internal Revenue Service
Memorandum
Date:
To: Senior Refund Counsel, Joint Committee on Taxation
Thru: Joe Brown, Joint Committee Specialist
From: Mary Smith, LB&I Team Manager
________________________________________
Subject: Request for Advance Review of Closing Agreement - Taxpayer, Inc.
In accordance with IRM 4.36.3.6.2 and 4.36.4.7 we are requesting your office review the attached closing agreement in advance of a Section 6405 report. [Insert concise statement as to the issue and the source of resolution. For example, "This was a COLI issue that was resolved in the Fast Track Process.]"
If you have any questions, please call me at (123) 456-7890
Attachments:
Form 906 - Closing Agreement
Explanation of Adjustment

CCP Instructions for Examination Team (Only LB&I Examination Teams Except for IIC)

The following documents should be placed at the top of the case file in the following order when closing a case to CCP:

  1. Letter 1574P – JC Specialist sends to the taxpayer after clearance letter is received.

  2. Clearance Letter (Release Letter) – The taxpayer does not get a copy of the release letter

  3. Joint Committee Report – The taxpayer does not get a copy of the report.

  4. Letter 1573P – JC Specialist sends to the taxpayer after case is sent to the JCT for review.

  5. Where applicable, any spreadsheets or other documents which were submitted to JCR which had to be changed.

The above letters are file copies. The clearance letter (release letter) and the Joint Committee Report should not be provided to the taxpayer.

The following may be helpful information to consider when closing the case to CCP:

  1. Make a SAIN 022 and put all the JC documents in that section.

  2. Form 3198 – Include the following statement in the Other section: "JC Case cleared and Letter 1574P issued to taxpayer" .

  3. Form 3198: Check the restricted interest box if appropriate.

  4. Update ERCS to Status 51.

  5. Mail to appropriate CCP. Complete a form 3210 for closing and note on it that this is a JC case being closed. Attach a CCP Routing document on top of the Form 3210.