Disqualification of a plan in any given year causes the plan to be disqualified in that year and in all subsequent years.

The tax effect of revocation/non-qualification includes the following:

Compute the tax effect of the revocation/non-qualification for all open years, beginning with the year under examination and going forward and include a copy of the tax calculations in the case file with the RAR when you close the case.

The EPCRS SCP allows a plan sponsor to correct plan errors without contacting the IRS or paying a fee.

Find important resources on SCP on the Retirement Knowledge Management Base site:

To be eligible for SCP, the plan sponsor or administrator must have established practices and procedures (formal or informal) reasonably designed to promote and facilitate overall compliance with the law.

Plan sponsors may fix certain operational failures and plan document failures through SCP as described in Part IV of Rev. Proc. 2021-30. Plan sponsors satisfy the SCP requirements for an:

As soon as you discover operational failures that affects the plan qualification, you must fully develop the facts surrounding the failures before discussing the case with your group manager.

After you develop the facts, review and become familiar with the requirements of SCP. The Self-Correction Program Desk Guide is a great resource for understanding SCP procedures. If you determine that:

A key factor in SCP is the method of correction of the failure. Determine whether or not correction of the failure is in accordance with Appendix A or B of Rev. Proc. 2021-30.

Follow these procedures if the plan sponsor uses a correction method in accordance with Rev. Proc. 2021-30 Appendix A or B:

Follow these procedures if the correction method is not in Rev. Proc. 2021-30 Appendix A or Appendix B:

Audit CAP closing agreements are available to:

Find important resources on Audit CAP on the Retirement Knowledge Management Base site:

Examiners: Follow these initial Audit CAP processing procedures:

Send the completed Audit CAP Checksheet, Audit CAP MPA Worksheet, and any relevant work papers to your group manager.

Group manager: follow these procedures:

EP examiner:

≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

Examiner: When you receive approval from your manager and/or Mandatory Review, send to the taxpayer/POA, the following:

If the taxpayer/POA requests changes to the template closing agreement language, get the group manager’s approval.

Secure documentation that the plan sponsor has corrected the qualification issues before you send the final closing agreement to the taxpayer/POA.

Send one copy of the final closing agreement to the taxpayer/POA using Letter 1595 or Letter 1595-B along with execution and payment instructions (if appropriate).

You may receive the signed closing agreement from the taxpayer in hard copy (via mail) or electronic via EEFax, TDC, or secured email.

Tax Examiner: Follow these steps only for electronic payments made through pay.gov.

EP Examiner/group manager: When you receive the executed closing agreement and sanction (in the form of a cashier’s check, certified check made payable to the U.S. Treasury or ACH payment) from the plan sponsor, inspect both for errors.

Area manager/designee: Within five business days:

Group manager/examiner: Process the check within one business day of receiving the signed agreement from the area manager.

Examiner: Within three business days of receiving the fully executed closing agreement from the area manager, send a fully executed copy of the closing agreement to the plan sponsor/POA with Letter 1595-D.

Examiner: Save all documents forms and letters in the RCCMS Office Documents folder using the TE/GE RCCMS Naming Convention. See IRM 4.70.12.5.2, TE/GE RCCMS Naming Convention.

Examiner: Prepare the examination for closing. Include the following entries on the RCCMS Closing Record:

Prepare and mail the applicable closing letter per IRM 4.70.14.4.3.2, Functionally Unique Letters and Procedures.

Close the case as an agreed case per IRM 4.70.14.4, Closing A Case, and its subsections.

TE/GE Directors are delegated the authority "to enter into and approve a written agreement with any person relating to the Internal Revenue tax liability of such person (or of the person or estate for whom he or she acts) for a taxable period or periods ended before the date of agreement and related specific items affecting other taxable periods" . (Delegation Order (DO 8-3)).

DO 8-3 closing agreements are used to resolve issues that aren’t permitted through EPCRS.

In most DO 8-3 closing agreements, the taxpayers and the Commissioner formally agree that the plan under examination is not qualified, officially making the proposed revocation or proposed non-qualification an "agreed revocation" or "agreed non-qualification."

Examiners and managers are required to coordinate DO 8-3 closing agreements with Tax Exempt and Government Entities Division Counsel (TE/GEDC), as noted in the steps below.

EP Examiner: Before making a submission for a DO 8-3 agreement, make sure that you took proper actions to protect the applicable statute of limitations for all relevant tax returns, such as Forms 1040, 1120, 1065 and 5330.

When doing a DO 8-3 closing agreement, follow EPCRS closing agreement procedures in IRM 4.70.14.2.1.2.2, EP - EPCRS and Closing Agreements, with these exceptions:

Contact the group manager to discuss resolving the case under DO 8-3.

Group Manager: Within five business days of the discussion above, contact your area manager to discuss the facts of the case. If the area manager disagrees with the processing of the case under a DO 8-3 closing agreement, inform the examiner that it is not an option.

EP Examiner: When the area manager decides that a DO 8-3 closing agreement is proper:

Group manager: For DO 8-3 closing agreements for IRC 457(b) plans, contact the FSL/ET Program Manager as early as possible in the process for comment if there is an open, concurrent examination of the sponsor or if any proposed changes will affect employment taxes.

Group manager: If you agree with resolving the case through a DO 8-3 closing agreement, within five business days of receiving the documents listed in item 9 from the examiner:

Area manager: If you agree with the recommendation, review the draft DO 8-3 and executive summary. Forward the draft DO 8-3 closing agreement, Form 4549-E, and executive summary to the assigned contact points in TE/GE Division Counsel by sending the request to *CC TEGEDC Employee Plans Counsel Assistance.

TEGEDC review: TEGEDC reviews the DO 8-3 closing agreement and executive summary for legal sufficiency and substantial legal error. TEGE DC does not review the entire case. The TEGEDC review is limited to the issues that the DO 8-3 agreement proposes to resolve. TE/GE DC may approve the closing agreement package or return it to the examiner and group manager for further development.

Area manager: Upon receipt of TEGEDC’s approval of the agreement and executive summary, sign the transmittal and send it, along with the executive summary, Form 4549-E, and draft DO 8-3 closing agreement, to the functional assignment coordinator (FAC) and the Director, EP Examinations. Do not include more than the four just-listed documents unless otherwise directed by the FAC.

Director, EP Examinations or the FAC (for EP R&A: Director, EP R&A): either sign and return the transmittal check sheet accepting the draft closing agreement or respond to the area manager with any questions or concerns.

All EP Examinations employees: Use these letters in the DO 8-3 process:

You may accept the signed closing agreements from the taxpayer by mail, fax, or secure mail. See Letter 1595 for details.

Group manager: When the taxpayer/POA returns the signed closing agreement and verification of the sanction payment (Form 3244-A) to the examiner:

The Director, EP Examinations or FAC (for EP R&A: Director, EP R&A): return the fully executed closing agreement within five business days to the group manager and examiner via secure email.

Group manager/examiner: Process the check within one business day of receiving the signed agreement from the Director, EP Examinations or the FAC.

Group manager/examiner: Once you receive the signed closing agreement, email a copy of the agreement, the remittance (ACH transaction detail) and Form 3244-A to: *cfo.cfm.pay.gov.closing.agreements.racs.anmf@irs.gov

EP examiner: mail the following to the taxpayer/representative:

Taxpayers should pay the sanction electronically in lieu of a check on pay.gov.

The taxpayer receives a tracking number when they complete the submission process. They must record the tracking number and provide this number to the EP examiner with the executed closing agreement.

EP examiner: include the tracking number in lieu of the check when you send the closing agreement package to your group manager per IRM 4.70.14.2.1.2.2.2, EP – EPCRS Closing Agreements.

Forms 5330 are filed to report excise tax under Chapter 43. The most common taxes are:

Forms 990-T are filed to report UBI generated by trust assets.

The due date for filing a Form 5330 depends on the particular Chapter 43 excise tax involved. The table below indicates the due date by IRC section.

The final regulations under 26 CFR 54.6011-3 require that any employer or individual required to file an excise tax return on Form 5330 must file the excise tax return electronically using the IRS Modernized e-File (MeF) System through an IRS Authorized e-filing Provider for taxable years ending on or after December 31, 2023, if the filer is required to file at least 10 returns of any type with the IRS during the calendar year that the Form 5330 is due. See T.D. 9972 for more information.

Form 990-T is due on the 15th day of the fourth month following the close of the taxable year of the trust.

See IRM 4.70.13, Executing the Examination, for exam techniques and guidelines that apply to all types of cases. A few basics include -

Provide complete and accurate tax and penalty calculations to the taxpayer and POA. See IRM 4.70.13.12, Penalties Consideration for guidance.

For a return not yet due, the examiner must:

For claims filed on a Form 5330, or 990-T; follow the procedures in IRM 4.70.17, Claims and Abatements.

In most instances, Form 5330, and 990-T exams are initiated based on information discovered during a related Form 5500 exam.

Once the examiner and group manager agree that the information discovered warrants a Form 5330, or 990-T to be filed, the applicable taxpayer must be notified in writing of that decision.

The examiner must call the taxpayer (and POA) to discuss the issue(s) raised and, if applicable, opening of the exam. The call should take place -

You no longer need to establish delinquent Forms 5330, Forms 5329, or Forms 990-T that you accept as filed on RCCMS and AIMS. You will still need to process the accepted as filed delinquent returns to the service center, but you will not need to establish these returns for examination on RCCMS and AIMS. In instances where you don’t need to examine a secured return as you can accept it as filed, then after processing it to the Service Center, you only need to save a copy of the accepted return, the acknowledged Form 3210 received from the service center, or comparable record of confirmed receipt document (i.e., EEFax confirmation) in RCCMS.

Record the receipt of the return by completing the electronic RCCMS 3198-A Special Handling checksheet in the RCCMS compliance activity of the primary examination return.

Properly note in your workpapers that you accepted the returns as filed. Use the RCCMS 3198-A Special Handling checksheet to record the number and types of return secured in RCCMS to let CP&C capture the fact that you secured a return and accepted it without having to establish a related examination or create a Form 5329 discrepancy adjustment.

Delinquent Forms 5330, or 990-T received from the taxpayer that you are proposing adjustments to (not accepted as filed) are processed in accordance with IRM 4.70.13.9.5.2, EP Processing Delinquent Forms 5330 and 990-T.

Forms 5330, or 990-T received from the taxpayer for years not yet due are processed in accordance with IRM 4.70.13.9.5.2.1, EP Securing Forms 5330 and 990-T Not Yet Due.

In the instance a Form 5330 or 990-T was put under exam, Agreed Forms 5330 are processed in accordance with IRM 4.70.14.2.1.2.4, EP - Processing Agreed Forms 5330 and 990-T.

Establish a Substitute for Return (SFR) as soon as the examiner and manager believe the taxpayer will not voluntarily file the return(s) due. Form 5330 and 990-T Substitute for Returns can now be established electronically using RCCMS. It is no longer necessary to mail the paper substitute for return package to the Ogden Service Center. The SFR return(s) will be established using RCCMS after entity module verification. Follow the procedures in IRM 4.70.13.9.8.7, EP Processing Form 5330 or 990-T Substitute for Return.

When examining a Form 5330, or 990-T return previously filed by the taxpayer (such as a claim or when the tax reported is erroneous), conduct IDRS research.

A delinquent Form 5330, or 990-T is considered "agreed" when:

Follow the procedures in IRM 4.70.14.2.4.2.3, EP - Unagreed Forms 5330 and 990-T, if tax is due but the taxpayer refuses to:

Entity Module Verification– The examiner is responsible for securing an INOLES print to determine if an entity module is present.

If there is no entity module on the BMF, prepare Form 4442 as soon as possible to establish a module.

Once a delinquent return is received from the taxpayer, process it in accordance with IRM 4.70.13.9.5.2, EP Processing Delinquent Forms 5330 and 990-T.

Periodically request a BMFOLT or IMFOLT print to confirm that the return has been processed and posted.

The manager will email the approved Form 5500, 5330 and 990-T Request Form, (the Form) to Classification at tege-cpc-classification@irs.gov. Classification will establish the Form 5330 or 990-T on RCCMS and AIMS upon receipt of the Form.

Process Forms 5330, or 990-T received from the taxpayer for years not yet due in accordance with IRM 4.70.13.9.5.2.1, EP Securing Forms 5330 and 990-T Not Yet Due.

To close agreed delinquent secured from the taxpayer, follow IRM 4.70.14.2.1.2.4.8, EP - Closing Agreed Form 5330 and 990-T Exams.

On a case-by-case basis and when circumstances warrant, all or part of the excise tax under 4971(b) (the "b" tax), may be waived by a delegated official.

After all relevant information and documentation is considered, the group manager can request approval from the appropriate official to waive all or part of the "b" tax. The group manager will use the IRC 4971(b) Tax Waiver Approval Memo for this purpose. See Employee Plans Examination Exhibits for the IRC 4971(b) Tax Waiver Approval Memo.

The delegated official is either the EP Examination Area Manager or the Director, EP Examinations and is determined by the amount of the unpaid minimum required contribution as follows:

When IRC 497(b) tax is waived in this manner, document the CCR and include the signed IRC 4971(b) Tax Waiver Approval Memo in your exam workpapers.

Forms 5330 exams are considered agreed when:

Prepare Form 5773-A and workpapers to document exam procedures and findings and save them in the RCCMS Office Documents folder.

Prepare a closing letter that covers all Form 5330 years examined.

Use the following disposal codes:

Close the agreed Form 5330, or 990-T exam case file(s) and any related Form 5500 series returns to the TE/GE Closing Group in Brooklyn when the RCCMS files are received from Classification and the return has fully posted on AIMS.

You no longer need to establish delinquent Forms 5330, Forms 5329, or Forms 990-T that you accept as filed on RCCMS and AIMS. You will still need to process the accepted as filed delinquent returns to the service center, but you will not need to establish these returns for examination on RCCMS and AIMS.

In instances where you don’t need to examine a secured return as you can accept it as filed, then after processing it to the Service Center, you only need to save a copy of the accepted return, the acknowledged Form 3210 received from the service center, or comparable record of confirmed receipt document (i.e., EEFax confirmation) in RCCMS.

Record the receipt of the return by completing the electronic RCCMS 3198-A Special Handling checksheet in the RCCMS compliance activity of the primary examination return. Use the RCCMS 3198-A Special Handling checksheet to record the number and types of return secured in RCCMS to let CP&C capture the fact that you secured a return and accepted it without having to establish a related examination or create a Form 5329 discrepancy adjustment.

For cases which are put under exam, prepare the RCCMS tabs in accordance with IRM 4.70.14.2.1.2.4.9, EP - Preparation of RCCMS Tabs for Agreed Form 5330 and 990-T Exams.

As applicable, the following documents must be scanned and saved into the RCCMS Office Documents folder using the TE/GE RCCMS Naming Convention:

Save all copies of workpapers, forms and letters that you prepare, in the RCCMS Office Documents folder using the TE/GE RCCMS Naming Convention.

The closing letter will be mailed out by the group manager (or designee).

Close the case on RCCMS with the "Update AIMS" box checked. The case will be updated to status 51 by the group manager (or designee) when it is closed from the group.

Close all agreed Forms 5330, or 990-T on RCCMS and AIMS to the TE/GE Closing Group in Brooklyn.

Validate cases for closure in the RCCMS closing record using the table below.

Examples of reference numbers are:

Except for prohibited transactions, the statute of limitations (SOL) for assessment of taxes expires three years from the later of the due date of the return, or the date the return is filed (See IRC 6501(a)).

Forms 5330 filed for IRC 4975 excise tax:

Forms 990-T reporting UBIT:

In cases where the taxpayer omitted more than 25% of the excise tax due (other than prohibited transactions and UBIT), the statutory period to assess tax is six years from the later of:

Consult TEGEDC before pursuing a six-year statute of limitations. Document discussions and responses with Counsel in the CCR.

Make sure the statute of limitations reflected in the RCCMS Compliance Activity, General tab (1 of 2), is completed and is correct. BMF and IMF will automatically calculate a statute of limitations date for a Forms established on AIMS. However, the calculated date cannot be relied upon to reflect the normal statute date for prohibited transactions or SFRs established for all other taxes.
1. Presently, statute of limitation dates for all Forms are calculated on BMF and IMF as three years from the later of: The date the Form is filed, or the date due.
2. Forms 5330 reporting IRC 4975 excise tax:
1. BMF incorrectly calculates the statute of limitations date for prohibited transactions since there is no linkage to the Form 5500 series return statute date.

If AIMS and/or RCCMS reflects an incorrect statute date, notify your manager and update the statute of limitations through RCCMS with the "Update AIMS" box checked.

When the statute date is less than or equal to 270 days, complete the RCCMS Statute Validation Process:

Follow the statute control procedures discussed in IRM 4.70.12.3.8, EP Statute Control Procedures.

Sometimes Forms 5330, or 990-T are established on AIMS and RCCMS in error (for example, the taxpayer provides additional information which shows that tax is not due.)

If a Form 5330, or 990-T is established in error on AIMS:

For cases involving uncorrected minimum funding deficiencies or uncorrected prohibited transactions, the examiner will prepare a DOL referral package and forward it at the earliest possible time in the audit cycle.

The examiner will provide the group manager with the following items:

The group manager or designee will send approved referrals to the FAC/EP DOL Coordinator. See Employe Plans Examination Exhibits, for addresses.

See IRM 4.70.11.15.6, Referrals to Other Agencies.

Solicit the trust EIN from the plan sponsor.

If the plan sponsor provides a trust EIN, secure a BMFOLI print to make sure the EIN is not being utilized to file returns other than trust returns (e.g., Form 990-T or Form 1041).

If the trust does not have an EIN and the plan sponsor will not obtain one, obtain one by faxing Form 4442 to the EO Entity Unit at Ogden Campus. The e-fax number is 855-306-0953. See Employe Plans Examination Exhibits for an example of a completed Form 4442.

Obtaining a new EIN for the trust in a manner described in item (3) above will automatically establish an entity module.

During the exam of a Form 5330 or Form 5500 series return involving an accumulated funding deficiency or prohibited transaction, the employer or disqualified person may request or currently have pending:

These types of cases may be subject to mandatory technical advice procedures and require coordination with the Employee Benefits, Exempt Organizations, and Employment Taxes Office of Associate Chief Counsel (EEE Counsel) in Washington, D.C.

Waiver of the liquidity shortfall (as defined in IRC 430(j)(4)) excise tax under IRC 4971(f)(4) may need to be coordinated with EP Rulings and Agreements in Washington, DC.

EEE Counsel considers requests for waivers of the minimum funding standards under the following circumstances:

As described in IRM 4.70.14.2.1.2.4.7, EP – Waiver of the 100% 4971(b) Excise Tax, the IRS may waive part or all of the tax under IRC 4971(b).

Under ERISA section 3003, the IRS may grant waivers of taxes under IRC 4975.

All cases involving a taxpayer’s request for the abatement or waiver of taxes under IRC 4975 are subject to mandatory technical advice. See IRM 4.70.13.6.7.2, Technical Advice Memorandum (TAM) Procedures, for instructions on processing Technical Advice cases.

Cases involving prohibited transaction exemption requests with DOL are coordinated with DOL by the FAC/EP DOL Coordinator. This includes, for example, cases in which either the conditions of the exemption were not met or the facts were materially misrepresented in obtaining the exemption.

If DOL grants an exemption on a prohibited transaction, the IRS may not impose taxes under IRC 4975 on that transaction. If the IRS assessed tax before DOL granted the exemption, the tax must be abated.

Complete the exam to the extent possible and place the case in informal suspense in the group until such waiver or exemption request is approved or denied. See IRM 4.70.11.3, Case Suspense, regarding suspense cases.

See the following revenue procedures for additional guidance: Rev. Proc. 2023-1, Rev. Proc. 2023-2, Rev. Proc. 2023-3, Rev. Proc. 2023-4, Rev. Proc. 2000-17, Rev. Proc. 2004-15, and Rev. Proc. 81-44. The first four listed are revised annually, usually in January.

Close each examined return under EO jurisdiction using one of the examination results listed below:

No Change – An examination resulting in no change to exempt status, foundation status, or tax liability.

Change due to Correction of Operations – Examinations of primary returns, where the taxpayer took corrective actions during the examination to correct operational or other compliance issues that did not result in a change to exempt status.

Change Cases – Cases in which the examination results in a change (or adjustment) in the organization's status or tax liability. Change cases are agreed, excepted agreed, unagreed with protest, or unagreed without protest. Tax changes can be partially agreed.

Agreed Change or Agreed Disallowance – The taxpayer signs a waiver and acceptance form agreeing to the changes in tax or status (or to any disallowance of a claim or abatement). An allowance of a claim or abatement in full as requested by the taxpayer without additional adjustments and without a signed waiver form is deemed to be an agreed change. In the case of two-tier Chapter 42 excise taxes (IRC 4941, 4942, 4943, 4944, 4945, 4951, 4952, 4955, or 4958), a case remains unagreed until the act, or failure to act, giving rise to the tax is fully corrected.

Excepted Agreed Change – The taxpayer agrees to proposed changes in tax or status by signing a waiver, but the examination results are subject to review, such as changes to exempt status and foundation status. A signed waiver:

Partially Agreed Change – At least one change issue is agreed and at least one change issue is unagreed, with respect to a specific type of tax (income, employment, or excise). Secure a signed waiver for the agreed issue for immediate processing by Mandatory Review, while the organization possibly contests the remaining issues in Appeals or in court. Partially agreed cases also include agreed changes in exempt status or foundation status, but the resulting tax isn't agreed. In the case of two-tier Chapter 42 excise taxes (IRC 4941, 4942, 4943, 4944, 4945, 4951, 4952, 4955, or 4958), a case remains unagreed until the act or failure to act giving rise to the tax is fully corrected.

Unagreed Change or Unagreed Disallowance – A change in tax or status (or a disallowance of a claim or abatement request) without a taxpayer’s signed waiver and acceptance form. In the case of two-tier Chapter 42 excise taxes (IRC 4941, 4942, 4943, 4944, 4945, 4951, 4952, 4955, or 4958), a case remains unagreed until the act, or failure to act, giving rise to the tax is fully corrected. Unagreed cases are either with or without protest. A taxpayer’s failure to respond to a 30-day letter defaults to unagreed without protest treatment. Unagreed without protest cases are subject to Mandatory Review, except:

Follow the instruction in IRM 4.70.14.4, Closing a Case, to close a no change case.

Proposed adjustments apply to adjustments to status or tax. For purposes of this manual, proposed adjustments include disallowance of claims and abatements.

You’re required to prepare a RAR for proposed adjustments. You can prepare an initial examination report, see IRM 4.70.14.2.1.3.1.32, EO – Initial Examination Reports, or a formal examination report. Initial examination reports don’t apply to declaratory judgment cases.

The transmittal letter for the RAR solicits agreement to the proposal. For formal examination reports, this letter is a 30-day letter, which also informs an organization of their right to appeal.

There are many variations of reports depending on the type of tax or status change. See Exhibit 4.70.14-2, EO Reports and Closing Letters for Claims and Abatements and Exhibit 4.70.14-3, Reports and Closing Letters for Change Cases, for the many variations.

You must distinguish an examination report from a final closing letter that officially closes the examination. Final closing letters are issued by GMs.

Fully develop the issues of your examination prior to preparing any RAR. Address your issues in the RAR in the order of significance.

The RAR should contain all the information necessary to ensure a clear understanding of the issues, the applicable law, and conclusions. The RAR, unlike workpapers, is a legally binding document and when executed, serves as the basis for tax law enforcement action. Prepare the RAR accurately and completely.

Reports are accompanied with a waiver and acceptance form, also known as agreement forms. These forms require a taxpayer's signature if they agree with the proposed adjustment:

Issue Form 870 Form 870, Waiver of Restrictions on Assessment & Collection of Deficiency in Tax & Acceptance of Overassessment, in a formal examination report to secure agreement on income taxes. Use Form 4549-A, Income Tax Examination Changes (Unagreed and Excepted Agreed) with it.

Use Form 870-E, Waiver of Restriction on Assessment and Collection of Deficiency and Acceptance of Overassessment, to secure agreement for excise taxes under IRC Chapter 42.

When needing more than one line to reflect proposed recommendations for a year (such as multiple penalties) or the examination covers more than four years, you may have more than one Form 870 or 870-E in the case file.

Issue Form 6018, Consent to Proposed Action, for any change in the exemption or other status of the organization. See Exhibit 4.70.14-6, EO Status 36 Case: Form 6018 Instructions.

Write up all proposed status changes on cases subject to declaratory judgment similar to an unagreed case, even if the organization executed a Form 6018.

Declaratory judgment cases include:

In cases where there are two or more declaratory judgment issues, such as revocation of IRC 501(c)(3) status and reclassification to a PF, use one Form 6018.

Under no circumstances will the IRS personnel alter a waiver after securing a signature from the organization, nor will the IRS request the organization to execute a blank waiver.

Don’t solicit Form 6018 unless fully advising an organization of its appeal rights. You must include a positive statement to this effect in the workpapers.

Form 4549, Income Tax Examination Changes, is used for cases that result in:

If there are multiple issues or multiple years and some of them are agreed, encourage the taxpayer to enter into an agreement for the agreed issues or years by signing Form 4549.

Form 4549-A, Income Tax Examination Changes (Unagreed and Excepted Agreed), is used:

Form 4549 and 4549-A are designed to cover three years. Regardless of the number of years examined, prepare one set of explanations. When reasons for an adjustment vary from year to year, detail them in one explanation. If examining more than three years, show additional years on Form 4549-B, Income Tax Examination Changes.

When multiple year examinations result in tax changes for some years and no tax change for other years, use Form 4549 or 4549-A (as applicable) for all years examined. Use a separate column for each no-change year and enter "None" on lines 2, 14, and 16.

Use Form 4621, Exempt Organizations - Report of Examination (Proposed Tax Changes), as a summary report for these cases:

Prepare this summary report in agreed and unagreed cases.

Use Form 4621-A, Exempt Organizations - Report of Examination (Proposed Status Changes), as the summary report for:

Prepare this summary report in agreed and unagreed cases.

Use Form 4883, Exempt Organizations Excise Tax Audit Changes (Chapter 41, Chapter 42 and Section IRC 170(f)(10)(F) Excise Taxes), to set forth adjustments and calculate the tax for EO excise tax changes:

Use Form 4883 for excise taxes imposed on:

Don’t use Form 4883 for gaming excise taxes. See IRM 4.24.6.2.3, Excise Examinations with Wagering Issues, for report writing procedures in gaming excise tax cases.

You may offer an installment agreement to a taxpayer who is unable to pay the full amount owed if he/she is eligible. See eligibility criteria at IRM 4.20.4.2(6).

Send Form 9465, Installment Agreement Request, to the taxpayer with the 30-day letter package or after you have received the taxpayer's reply to the 30-day letter.

If the statute is imminent, secure Form 872 to ensure sufficient time to process the case.

If a taxpayer submits a request for an installment agreement:

Keep a copy of all forms in the work papers for information purposes.

Close the discrepancy adjustment case. The Campus collection function will contact the taxpayer about "setting up" an installment agreement.

Input the appropriate ARDI code for the installment agreement on the RCCMS closing record. Check the installment agreement box on the 3198-A Checksheet in RCCMS in the Mandatory Review section.

See IRM 4.20.4, Examination Collectibility, Installment Agreements, for more information on installment agreements.

If the taxpayer has filed bankruptcy, take the appropriate steps to protect the government’s interest. See IRM 4.27, Bankruptcy, for further guidance.

A partially agreed case contains more than one issue of which at least one issue is agreed and at least one issue is unagreed. Partially agreed cases are considered excepted agreed cases.

The Agreed Report: An agreed report will be processed as a partial closure of AIMS. A partial closure will allow an adjustment to be made to the tax module without closing the AIMS database. In the case of an income tax, prepare the agreed report as follows:

Prepare and Process the Agreed Report Package: Send the agreed report to the EO closing unit as a package that consists of the following:

Upon receiving proof of processing by fax from the EO closing unit, prepare the unagreed report.

The Unagreed Report: The unagreed report will process toward a full closure of AIMS. In the case of an income tax, prepare the unagreed report and closing documents as follows:

In the case of excise and ETs, use the appropriate report forms corresponding to Form 4549-A and 870 used for income taxes. See report forms in Exhibit 4.70.14-3, Reports and Closing Letters for Change Cases.

Examinations can result in several types of adjustments, including but not limited to:

See IRM 4.70.14.2.4.1, EP & EO Declaratory Judgment Cases and the Administrative Record.

See IRM 4.70.15, Discrepancy Adjustments, for discrepancy adjustments.

See IRM 4.70.14.2.1.3.3, EO - Conversion of Returns.

Proposed revocations are a change in status. Propose a revocation when the organization doesn't meet the requirements for the tax-exempt status granted to it by ruling or determination letter.

Use the following letters and forms for proposed revocations:

If an organization fails to qualify for tax-exempt status, send the 30-day proposed revocation letter and RAR to the organization. Hold the case for up to 30 days pending the taxpayer’s response. Update AIMS from Status 12 to Status 13 while in group suspense. If more time is needed for the taxpayer to reply or If the taxpayer fails to reply to a formal examination report and:

For IRC 501(c)(3) revocations only, follow the instructions for IRC 6104(c) notification of certain states in IRM 4.70.14.4.11.8.2, IRC 6104(c) Disclosures: Proposed and Final Revocations.

A revocation is agreed only if the organization signs Form 6018. A signed Form 6018 for a revocation isn’t legally binding and only serves to memorialize the agreement.

If the organization doesn’t agree with the proposed revocation, it can submit a written protest in response to the 30-day letter. See IRM 4.70.14.7, Closing Cases to Appeals, for preparing a rebuttal.

Because revocations are declaratory judgment cases:

Refer to the following references:

Close all revocations to Mandatory Review (not auto-revocations). Use the following disposal codes on the primary return closing record unless a higher priority DC applies:

Proposed foundation reclassifications are a change in status. If an IRC 501(c)(3) organization or IRC 4947(a)(1) NECT doesn't qualify for the foundation status under which it is classified, propose a reclassification of foundation status.

A reclassification of foundation status is an adverse status change subject to mandatory review.

A reclassification of foundation status is subject to declaratory judgment under IRC 7428. Rev. Proc. 2019-5, section 10, 2019-01 IRB 230, (updated annually). It includes:

Except as indicated in paragraphs (5) and (6), a reclassification of a foundation status is generally effective when the organization fails to qualify for the existing foundation status. If the organization ceased to qualify for the foundation status during a year prior to the year of examination, obtain approval from the GM before expanding the examination. If the examination is not expanded to the prior tax years, the effective date of foundation reclassification is the first day of the first tax year under examination.

In the case of reclassifying a IRC 170(b)(1)(A)(vi) or IRC 509(a)(2) organization to a PF, reclassification is effective only if the organization:

In the case of reclassifying a IRC 170(b)(1)(A)(vi) or IRC 509(a)(2) organization to a PF, the effects are as follows:

Reclassifying a public charity to a PF constitutes a conversion of Form 990 to a tax return, Form 990-PF. Conversions are covered by IRM 4.70.14.2.1.3.3, EO - Conversion of Returns. Basic instructions on reclassifying a publicly supported organization to a PF are as follows:

Effective Date in IRC 7805(b) Relief Cases:

Use the following letters and forms when preparing a formal report for reclassifying a foundation or public charity status:

If the organization’s foundation status must be changed, send a 30-day letter (Letter 3620) and RAR to the organization. Hold the case for up to 30 days pending the taxpayer’s response. Update AIMS from Status 12 to Status 13 while in group suspense. If more time is needed for the taxpayer to reply, see IRM 4.70.14.2.4.3.1, EO – Formal Examination Reports.

A foundation reclassification is agreed only if the organization signs Form 6018. A signed Form 6018 isn’t legally binding for foundation reclassifications and only serves to memorialize the agreement.

If the organization doesn’t agree with the proposed foundation reclassification, it can submit a written protest in response to the 30-day letter. See IRM 4.70.14.7, Closing Cases to Appeals, for preparing a rebuttal.

Because reclassifications of foundation status are declaratory judgment cases:

If you are examining a non-operating foundation contending to be an operating foundation on Form 990-PF

Refer to the following references:

Close all foundation reclassifications to Mandatory Review. Use the following disposal codes on the primary return closing record unless a higher priority disposal code applies:

Disqualification (or denial) of tax-exempt status applies to certain organizations under EO examination jurisdiction who have not applied for tax-exempt status or have not received a ruling or determination letter granting such status. Proposed disqualifications are a change in status. There are three types:

Treat disqualification of IRC 508(c) organizations that don’t apply for tax-exempt status and fail to qualify for exemption as revocations for all purposes (such as disposal code, etc.) for:

Status 36 organizations are treated as exempt under IRC 501(c) because the exempt status was declared on a filed Form 990. However, Status 36 doesn’t include IRC 501(c)(3), 501(c)(9), 501(c)(17) and 501(c)(29), organizations, because those organizations are required to apply for tax-exempt status.

A Status 36 organizations are IRC 501(c) organizations (other than IRC 501(c)(3), IRC 501(c)(9), and IRC 501(c)(17)) that declare tax-exempt status by filing Form 990 or 990-EZ, and that would otherwise be a taxable entity. They are characterized by:

Because the IRS never recognized a Status 36 organization as tax-exempt, there is no ruling or determination letter to revoke if the organization fails to qualify for exemption. You must therefore determine whether the self-declaring organization qualifies for tax-exempt status for the specified tax years exemption is declared.

Use the following letters and forms when preparing a formal report for disqualifications:

If an organization doesn’t meet the requirements for exemption for the specified tax years under IRC 501(c), send a 30-day letter (Letter 3618 or Letter 4700) and a RAR to the organization. Hold the case for 30 days pending the taxpayer’s response. Update AIMS from Status 12 to Status 13 while in group suspense. If more time is needed for the taxpayer to reply, see IRM 4.70.14.2.4.3.1, EO - Formal Examination Reports.

A disqualification is agreed only if the organization signs Form 6018. A signed Form 6018 isn’t legally binding for a disqualifications and only serves to memorialize the agreement.

If the organization doesn’t agree with the proposed disqualification, it can submit a written protest in response to the 30-day letter. See IRM 4.70.14.7, Closing Cases to Appeals, for preparing a rebuttal.

Because disqualifications are declaratory judgment cases:

Refer to the following references:

Close all disqualifications to Mandatory Review. Use the following disposal codes on the primary return closing record unless a higher priority disposal code applies:

Only an organization can terminate its own existence. An organization can terminate its existence in the following ways:

While organizations voluntarily terminate their existence in accordance with state law, examinations terminate the tax-exempt status by issuing a termination letter after reviewing the following evidentiary documents:

Only organizations recognized as tax-exempt under IRC 501(c) or IRC 501(d) can receive a letter terminating their exempt status.

Verify whether a termination claimed by an EO actually occurred.

If the EO was automatically revoked, survey the return under examination. See IRM 4.70.14.4.11.2, EO Automatically Revoked Organizations.

If you are unable to locate the EO, follow Unable-to-Locate Scenario Guidance Table. See Exhibit 4.70.14-17, EO Unable-to-Locate Scenario Guidance Table.

If an EO claims to terminate while the examination is in process, continue the examination to closure like any other case.

If the EO properly terminated:

Close the case to the EO closing unit.

Some organizations are terminated by the Ogden Campus due to filing inactivity (EOBMF Status 20). That contrasts with an organization’s voluntary termination of its existence in paragraph (1). Terminations by Ogden Campus are reversible if the organization later becomes active.

Organization managers are responsible for filing final returns, subject to penalty under IRC 6652(c)(2)(B) for failing to file a final return upon written demand. See 90-day Demand Letter 5325. You can’t recognize a termination of an exempt organization until you review the final return if the organization is required to file one.

In those cases where a final return hasn’t been filed, you must secure the final return. A PF must file a final return on Form 990-PF.

The final return will cover the period from the beginning of the EO’s fiscal year through the date of termination. In order to have the return processed prior to the end of the EO’s fiscal year, prepare Form 2363-A to update the EO’s fiscal year-end to the month of termination.

Final returns are due the 15th day of the 5th month after the dissolution or termination is completed.

An IRC 509(a)(3) organization must file a final Form 990 or 990-EZ, even if it is described in Rev. Proc. 95-48 and Rev. Proc. 96-10.

A secured final return must be complete and substantively correct before recognizing a termination.

A principal officer of an EO may submit a written statement of disposition of assets to the examiner or in a final return. You can’t recognize a termination of an exempt organization until you review the written statement of disposition of assets.

Refer to the Instructions to Schedule N, Form 990 or 990-EZ for guidance on the type of information needed.

For the following IRC sections, verify that the assets were distributed as required by the specific subsection:

Valid distributions for IRC 501(c)(3) include distributions:

If any final distributions are improper, solicit correction. If no correction is made, consider revocation of tax-exempt status. For example, if the assets weren't distributed properly, tell the EO to recover the assets. Ask the EO to redistribute them properly.

Improper distributions may be taxable income to recipients. If taxable, verify if they were reported on Forms 1099. If not reported, secure the delinquent information returns. Prepare a penalty file if you decide to impose penalties.

Verify if the income was reported on the recipient's tax return. If not, propose a discrepancy adjustment. See IRM 4.70.15. For those recipients who are not yet required to report the income, prepare a referral (Form 5666) to SB/SE for a current year examination.

A PF may submit a written statement on the disposition of assets to the examiner or in a final return. You can’t recognize a termination of a PF until you review a written statement of disposition of assets. Remaining assets of a PF may be distributed in the following ways:

Refer to the General Instruction T in the Instructions to Form 990-PF for guidance on the type of information needed.

A transfer to another PF must satisfy the requirements of all pertinent provisions of Chapter 42 of the Code. For example, if the transfer constitutes a taxable expenditure as defined in IRC 4945, the transferor is liable for the Chapter 42 tax that is incurred. See Treas. Regs. 1.507–3(d). Consequently, no termination letter can be issued until the taxable expenditure is fully corrected, and the initial tax deficiency has been fully processed and assessed (or abated under IRC 4962).

A termination of existence can’t be recognized until all Chapter 42 taxes against the foundation are assessed (or abated under IRC 4962) for acts or failures to act that occurred during the years of examination or as a result of the transfer, and such acts are corrected.

If a transfer described in IRC 507(b)(2) constitutes a willful and flagrant act in violation of Chapter 42, as described in IRC 507(a)(2)(A), then the provisions of IRC 507(a)(2) dealing with involuntary terminations are applicable, rather than the provisions of IRC 507(b)(2). In that event, the transferor foundation would be subject to IRC 507(c) tax. See Treas. Regs. 1.507–3(d) and 1.507–4(b).

For IRC 507(b)(2) transfers, the group may expand the examination or prepare Form 5666 for a future year examination of the transferee PF to ensure that the transferee properly assumed the Chapter 42 attributes of the transferred assets.

The organization may submit a dissolution document either to the examiner or in a final return. You can also obtain dissolution documents from certain state websites. You can’t recognize termination of an exempt organization until you review the dissolution documents.

Appropriate dissolution documents for terminations vary based on the type of entity.

A termination can only be recognized if all three documents in IRM 4.70.14.2.1.3.1.15 are secured.

For public charities, ensure there are no changes to exemption or reclassification to PF, and that the annual information return(s) under examination is accepted as filed before you recognize a termination.

For public charities, verify the correct foundation status. If an organization is described under IRC 170(b)(1)(A)(vi) or 509(a)(2) and it:

Don’t recognize a termination if there are Chapter 42 tax deficiencies or corrections that must be proposed against the organization or PF.

Determine whether bonds were outstanding at the time of the termination. If so, prepare Form 5666, addressed to Tax Exempt Bonds (TEB), identifying the year of termination.

To the extent terminations apply to IRC 501(c)(3) organizations they are subject to the rules on state notification under IRC 6104(c). See IRM 4.70.14.4.11.8, State Notification of EO Examination Results.

If the organization conducts an unrelated business activity, determine if the activity:

If you secure a delinquent EO income tax return (such as Form 990-T or Form 1120-POL) and you don't make an adjustment to that return, the following procedures don't apply. See IRM 4.70.13.9, Delinquent, Amended and Substitute for Returns, for delinquent return procedures.

If there are multiple unrelated businesses or multiple years involved and the EO agrees to some but not all of the proposed adjustments, attempt to secure a signed waiver form for the agreed items.

Use the following letters and forms when preparing a report for changes in UBIT or any other income tax required of EOs and IRC 4947 trusts:

Give the taxpayer a schedule showing how the tax was computed.

If an organization has an income tax deficiency, send a 30-day letter (Letter 3614) and an RAR to the organization. Hold the case for 30 days pending the taxpayer’s response. Update AIMS from Status 12 to Status 13 while in group suspense. If more time is needed for the taxpayer to reply, see IRM 4.70.14.2.4.3.1, EO – Formal Examination Reports.

A proposed income tax deficiency is agreed only if the organization signs Form 4549 or Form 870. Payment of tax is not agreement.

If after receiving a reply to the 30-day letter the organization agrees with the tax change, issue a final agreed closing letter using Letter 2511. Close the case to the EO closing unit for assessment.

Issue separate closing letters if there is an agreement for some but not all of the years.

If the organization doesn’t agree with the proposed tax change, it can submit a written protest in response to the 30-day letter. See IRM 4.70.14.7, Closing Cases to Appeals, for preparing a rebuttal.

If after receiving a reply to the 30-day letter the organization disagrees with the proposed tax change with protest, without protest, or doesn’t reply, close the case to Mandatory Review for the unagreed tax change. Mandatory Review or Appeals will issue a final closing letter in the form of a SNOD (90-day letter) if they agree with your adjustment.

If in connection with a tax change, you have a primary return (or e-Postcard) also under examination, issue Letter 1744, following the guidelines in IRM 4.70.14.4.3.1, TE/GE Change due to Correction of Operations, to the EO that makes reference to the RAR for the tax change.

Refer also to the tables in the following exhibits:

Close all agreed tax changes to the EO closing unit and all unagreed tax changes to Mandatory Review (except for employment tax cases that do not involve IRC section 7436 issues). Use the following disposal codes for the closing record of the tax return you are changing, unless a higher priority disposal code applies:

PFs report their Chapter 42 excise taxes on Form 4720 (MFT 50). Disqualified persons use Form 4720 (MFT 66), also referred to as "Form 4720-A" .

IRC Chapter 42 imposes several excise taxes. These taxes are assessed against the foundation and some are assessed against its disqualified persons and foundation managers. See Exhibit 4.70.14-10, EO Chapter 42 Excise Tax Reference Chart - Private Foundations.

Use the following letters and forms when preparing a report for changes in Chapter 42 excise tax:

A Thorne Letter:

In some cases, if the foundation or disqualified person (liable party) proposes a correction and:

A proposed Chapter 42 excise tax deficiency is agreed only if the liable party signs Form 870-E and, in the case of two-tiered Chapter 42 excise taxes, has made full correction. Payment of tax alone is not agreement.

If the liable parties fail to make correction, you must include the second-tier tax in the formal examination report. Describe each correctable activity and its remedy on Form 886-A of the report.

Sometimes the tax liability extends beyond the taxable years covered by the examination report and into a future taxable year. In these cases:

Give the taxpayer schedules detailing computations for the adjustments. Show the adjustments on Form 4886.

Consider whether the penalty under IRC 6684 for repeated or willful and flagrant Chapter 42 tax violations applies. Explain this penalty on Form 886-A. Include a comment on Form 4621 as to whether the penalty applies.

Prepare the agreement form, Form 870-E for excise tax adjustments. See IRM 4.70.14.2.1.3.1.4, EO – Form 870 and Form 870-E, for additional information on Form 870-E.

Send a 30-day letter (Letter 3614) and an RAR to the liable party. Hold the case for 30 days pending the taxpayer’s response. Update AIMS from Status 12 to Status 13 while in group suspense. If more time is needed for the taxpayer to reply, see IRM 4.70.14.2.4.3.1, EO – Formal Examination Reports.

Follow the instructions for IRC 6104(c) notification of certain States in IRM 4.70.14.4.11.8, State Notification of EO Examination Results.

If after receiving a reply to the 30-day letter the liable party agrees with the tax change and has fully corrected the acts or failures to act that gave rise to the initial tax, issue a final agreed closing letter using Letter 2511. Close the case to the EO closing unit for assessment.

If the taxpayer only agrees to or corrects some of the transactions, treat the case as partially agreed. Attempt to secure agreement for the agreed corrected items.

Issue separate closing letters if there is an agreement for some but not all of the years.

If the taxpayer doesn’t agree with the proposed tax change, it can submit a written protest in response to the 30-day letter. See IRM 4.70.14.7, Closing Cases to Appeals, for preparing a rebuttal.

If after receiving a reply to the 30-day letter the liable party disagrees with the proposed tax change with protest, without protest, or doesn’t reply, close the case to Mandatory Review for the unagreed tax change. Mandatory Review or Appeals will issue a final closing letter in the form of a SNOD if they agree with your adjustment.

If in connection with a tax change, you have a primary return (or e-Postcard) also under examination, issue Letter 1744, following the guidelines in IRM 4.70.14.4.3.1, TE/GE Change due to Correction of Operations, to the PF that makes reference to the taxable event that gave rise to a potential tax liability.

Refer also to the tables in the following exhibits:

Close all agreed tax changes to the EO closing unit. Close all unagreed tax changes to Mandatory Review. Use the following disposal codes for the closing record of the tax return you are changing, unless a higher priority disposal code applies:

IRC Chapters 41 and 42 imposes several excise taxes on entities other than PFs. The IRC imposes some of these taxes on specified EOs and some on their disqualified persons and organization managers. See Exhibit 4.70.14-11, EO Chapter 41 and 42 Excise Tax Reference Chart - Non-Private Foundations.

Use the following letters and forms when preparing a report for changes in Chapter 41 or 42 excise tax:

If you identify a Chapter 42 excise taxable event subject to correction, send a Thorne letter requesting the organization or disqualified person to fully correct the acts or failure to act before you prepare a formal report. Consult with TEGEDC when preparing a Thorne letter.

In some cases, if the organization or disqualified person (liable party) proposes a correction and:

A proposed Chapter 42 excise tax deficiency is agreed only if the liable party signs Form 870-E and, in the case of two-tiered Chapter 42 excise taxes, has made full correction. Payment of tax alone is not agreement.

In the case of two-tiered taxes, if the liable parties fail to make correction, you must include the second-tier tax in the formal report. Describe each correctable activity and its remedy on Form 886-A of the report.

Sometimes the tax liability extends beyond the taxable years covered by the examination report. In these cases:

Give the taxpayer schedules detailing computations of adjustments to the taxpayer. Show the computation of the tax on the adjustments on Form 4883.

Consider whether the penalty under IRC 6684 for repeated or willful and flagrant Chapter 42 tax violations applies. Explain this penalty on Form 886-A. Include a comment on Form 4621 as to whether the penalty applies.

Prepare the agreement form, Form 870-A for excise tax adjustments. See IRM 4.70.14.2.1.3.1.4, EO – Form 870 and Form 870-E, for additional information on Form 870-E.

Send a 30-day letter (Letter 3614) and an RAR to the liable party. Hold the case for 30 days pending the taxpayer’s response. Update AIMS from Status 12 to Status 13 while in group suspense.

If after receiving a reply to the 30-day letter the liable party agrees with the tax change and, in the case of two-tiered excise taxes, has fully corrected the acts or failures to act that gave rise to the initial tax, issue a final agreed closing letter using Letter 2511. Close the case to the EO closing unit for assessment.

If the taxpayer only agrees to or corrects some of the transactions, treat the case as partially agreed. Attempt to secure agreement for the agreed corrected items.

Issue separate closing letters if there is an agreement for some but not all of the years.

If the taxpayer doesn’t agree with the proposed tax change, it can submit a written protest in response to the 30-day letter. See IRM 4.70.14.7, Closing Cases to Appeals, for preparing a rebuttal.

If after receiving a reply to the 30-day letter the liable party disagrees with the proposed tax change with protest, without protest, or doesn’t reply, close the case to Mandatory Review for the unagreed tax change. Mandatory Review or Appeals will issue a final closing letter in the form of a SNOD if they agree with your adjustment.

If in connection with a tax change, you have a primary return (or e-Postcard) also under examination, issue Letter 1744, following the guidelines in IRM 4.70.14.4.3.1, TE/GE Change due to Correction of Operations, to the organization that makes reference to the taxable event that gave rise to a potential tax liability.

Refer also to the tables in the following exhibits:

Close all agreed tax changes to the EO closing unit. Close all unagreed tax changes to Mandatory Review. Use the following disposal codes for the closing record of the tax return you are changing, unless a higher priority disposal code applies:

Refer to Rev. Proc. 83-32, 1983-1 C.B. 723, for the various filing requirements of both nonexempt charitable trusts (NECTs) and split-interest trusts.

NECTs described under IRC 4947(a)(1) file annual information returns on Form 990 or Form 990-PF depending on whether the trust has a determination letter granting IRC 509(a)(3) status. A determination letter granting IRC 509(a)(3) status doesn’t grant the trust a tax-exempt status, but rather allows the trust to file a Form 990 instead of a Form 990-PF.

Nonexempt split-interest trusts described under IRC 4947(a)(2) file annual information returns on Form 5227. Split-interest trusts include:

When seeking information about a non-exempt charitable trust, send Letter 3407, requesting copy of trust instruments under Treasury Regulation 1.6012.

If you are examining any IRC 4947 trust (Form 990, Form 990-PF or Form 5227), and the examination results in a no change, issue Letter 6049 for the examination of that return. See Exhibit 4.70.14-1, Closing Letters for No Change Cases, for a list of no-change and letter for Change due to Correction of Operations.

If you are examining Form 990, Form 990-PF or Form 5227, and the examination results in corrective actions to correct operational issues that did not result in a change to exempt status, issue Letter 1744 following the guidelines in IRM 4.70.14.4.3.1, TE/GE Change due to Correction of Operations.

The IRS doesn't revoke a tax-exempt status for IRC 4947 trusts, because a tax-exempt status was never granted.

IRC 4947 trusts are subject to income tax if there is positive taxable income, and may be required to file Form 1041. Refer to income tax deficiency procedures in IRM 4.70.14.2.1.3.1.21, EO – UBIT and Other Income Taxes. IRC 4947 trusts are not recognized as tax-exempt.

If an NECT doesn't meet the requirements for IRC 509(a)(3) as a supporting organization, reclassify the NECT to a PF. Follow the instructions in IRM 4.70.14.2.1.3.1.13, EO – Reclassification of Foundation Status.

If you identify a Chapter 42 taxable event, based on Rev. Proc. 83-32, 1983-1 C.B. 723, follow the instructions in IRM 4.70.14.2.1.3.1.22, EO – Private Foundation Excise Taxes.

Split-interest trusts are:

For the disposal codes used for foundation reclassifications, see IRM 4.70.14.2.1.3.1.13(15), EO - Reclassification of Foundation Status.

Close all agreed tax changes to the EO closing unit. Close all unagreed tax changes to Mandatory Review. Use the following disposal codes for the closing record of the tax return you are changing, unless a higher priority disposal code applies:

Inactivity for a period of years could result in proposed revocation of tax-exempt status on the grounds that the organization doesn't conduct qualifying activities, and therefore doesn't meet the operational test in 26 CFR 1.501(c)(3)-1(a)(1).

A secondary ground for revocation may be that the inactive organization failed to establish that it was observing the conditions necessary for continuation of exempt status and thus didn't comply with IRC 6033. However, automatic revocation may preempt the closing of such examinations. In that event, see survey procedures for IRC 6033(j) automatically revoked organizations at IRM 4.70.14.4.11.2, EO Automatically Revoked Organizations.

If an inactive organization (not subject to auto-revocation) properly terminated before the completion of the examination or can’t be located, it may be recognized as terminated if it meets the criteria in IRM 4.70.14.2.1.3.1.15, Termination of Exempt Status, or is described in Examples 1 and 3 of Exhibit 4.70.14-17, EO Unable-to-Locate Scenario Guidance Table.

If an inactive organization has not properly terminated (or is unable-to-locate in Examples 2, 4, 5, and 6 of Exhibit 4.70.14-17), you may do one of the following:

If an inactive publicly supported organization is subject to a proposed revocation, determine whether to reclassify the organization as a PF.

IRC 6001 provides that every person liable for any tax imposed by Title 26, or for the collection thereof, shall keep such records, render such statements, make such returns, and comply with such rules and Regulations as the Secretary or his delegate may from time to time prescribe.

Whenever in the judgment of the Secretary or his delegate, it is necessary, he may require any person, by notice served upon such person or by Regulations, to make such returns, render such statements, or keep such records, as the Secretary or his delegate deems sufficient to show whether or not such person is liable for tax under Title 26.

IRC 6033 provides, in general, that every organization exempt under IRC 501(a) shall file an annual return, stating specifically the items of gross income, receipts, and disbursements, and such other information for the purpose of carrying out the Internal Revenue laws as the Secretary may by forms of regulations prescribe, and shall keep such records, render under oath such statements, make such other returns, and comply with such rules and Regulations as the Secretary may from time to time prescribe.

Treas. Reg. 1.6001-1(c) provides, in part, that organizations exempt from tax under IRC 501(a) shall "keep such books and records as are required to substantiate the information required by IRC 6033" .

An "Inadequate Records Notice" places taxpayers on notice that their record keeping practices are deficient and must be improved to meet the requirements of law. The issuance of an Inadequate Records Notice may result in a follow-up examination or compliance check. This notice is a tool to enforce compliance with the requirement to keep adequate books and records for purposes.

The following items together constitute an "Inadequate Records Notice" (the Notice):

Use your judgment to determine whether a taxpayer has:

Consider the facts and circumstances, including but not limited to the following factors:

If the taxpayer has failed to maintain adequate books and records, discuss the matter with your GM to determine whether to issue an Inadequate Records Notice.

When discussing the inadequate records issue with the taxpayer:

Document the following:

If the case involves a potential or existing record retention agreement, contact LB&I. Use the Specialist Referral System (SRS) to obtain the assistance of a Computer Examination Specialist. See IRM 4.70.13.6.2, Specialist Referral System.

If you and your GM agree that an Inadequate Records Notice is appropriate, take the following steps:

You may be assigned a follow up examination or compliance check of the taxpayer. Document in your workpapers your consideration of the inadequate record-keeping issue. State whether or not the taxpayer has corrected the inadequacies.

If the taxpayer is substantially complying with the requirements to keep adequate records, follow normal examination procedures with regard to the scope of the examination.

When closing the case, include the inadequate records notice information in the case file.

If, upon follow-up, the taxpayer is still not keeping adequate records, consider additional enforcement measures, including:

Every organization exempt from tax, whether or not required to file an annual information return, must submit such additional information as may be required by the IRS for the purpose of inquiring into its exempt status and administering the provisions of subchapter F, Chapter 1 of subtitle A of the Code, IRC 6033, and Chapter 42 of subtitle D of the Code. Treas. Reg. 1.6033-2(1)(2).

Any organization exempt from tax under IRC 501(a) is required to supply the IRS with such information as is required by the revenue procedures, the instructions to Form 990, and the schedules thereto, and to keep such books and records as are necessary to substantiate such information. IRC 6033, Treas. Reg. 1.6001-1(c) and Treas. Reg. 1.6033-2(a)(1) and 1.6033-2(i)(2).

Failure to maintain proper books and records, and make them available to the examiner, may result in revocation of tax-exempt status because the organization isn’t observing the conditions required for such status.

Although drafted prior to enactment of IRC 6652, Rev. Rul. 59-95 has never been withdrawn and can be used to support a revocation, where the organization will not supply the information necessary to enable the Service to make a determination as to whether there have been any substantial changes in the organization's character, purpose, or method of operation, and there is a substantial doubt that the organization should continue to be exempt.

If the organization continues to fail to comply substantially with the law and regulations for maintaining adequate books and records, or fails to provide requested information, discuss the inadequacies with your GM to determine whether to propose revocation of tax-exempt status.

If you and your GM decide revocation is appropriate, your workpapers and report of examination must demonstrate:

An Appeals conference is not given to taxpayers who agree to proposed adjustments but don’t execute Form 2807.

If the taxpayer doesn’t execute Form 2807 and the case is unagreed, inform the taxpayer of the opportunity to discuss the matter at an Appeals conference.

Status 36 in the EOBMF describes the following types of organizations that haven’t received a ruling or determination letter granting tax-exempt status, and aren’t covered under a group exemption ruling:

A Status 36 organization:

A disqualification from a self-declared tax-exempt status is subject to declaratory judgment rights.

If a Status 36 organization meets the requirements for the tax-exempt status as declared on Form 990 or Form 990-EZ:

If a Status 36 organization fails to qualify for tax-exemption for any tax year, prepare Letter 3618, Form 4621-A, Form 886-A, and Form 6018.

Refer to the six Status 36 scenarios at Exhibit 4.70.14-4, Status 36 Case Scenarios.

If the examination resulted in a change due to correction of operations or had changes to related returns, use DC 52 (RCCMS 214) and issue Letter 1744 as a closing letter with explanations of the changes on a Form 886-A. Use DC 02 (RCCMS 107) and issue Letter 6049 if there were no changes.

For agreed disqualifications:

For unagreed disqualifications, use DC 07 (RCCMS 601) or DC 10 (RCCMS 604).

An initial examination report is a preliminary summary report proposing a change in tax or status and soliciting an agreement. Initial examination reports:

For non-declaratory judgment cases, you can bypass an initial report process and resort directly to a formal report process if:

The taxpayer's reply or non-reply to an initial examination report determines whether you have an agreed or unagreed case moving forward.

The initial examination report:

For the initial examination report, you must:

Generally, you prepare the facts, law and argument portion of the RAR component in summary form. If prepared in summary form, the explanation must be sufficient to justify the proposed change.

Give the initial examination report to the taxpayer using one of the following transmittals:

If a taxpayer has verbally indicated they will agree to a proposed tax adjustment, an initial examination report doesn't need to include a Form 886-A, Explanation of Items.

If preparing Form 886-A, type:

Use the spelling and grammar checker. Refer to the tables listing various reports and letters that can be included in an initial examination report:

After the deadline for responding passes, determine if the taxpayer: