4.71.3 Unagreed Form 5500 Examinations and EP Examinations Closing Agreements

Manual Transmittal

October 30, 2019

Purpose

(1) This transmits revised IRM 4.71.3, Employee Plans Examination of Returns, Unagreed Form 5500 Examination Procedures and EP Examinations Closing Agreements.

Material Changes

(1) Revised contact information in section IRM 4.71.3.1.4, Contact Information for Business Units, to update the contact information for the FAC/EP DOL Coordinator and the Manager, EP Mandatory Review.

(2) Revised paragraph (5) of IRM 4.71.3.1.5, Overview of Unagreed Form 5500 Examinations and EP Examinations Closing Agreements, to be in agreement with Rev. Proc. 2019-2 and IRM 4.71.13.4.1, Mandatory Technical Advice, which provide that the proposed revocation/non-qualification of a collectively bargained plan is no longer mandatory technical advice.

Effect on Other Documents

This supersedes IRM 4.71.3 dated July 9, 2019.

Audience

Tax Exempt and Government Entities
Employee Plans

Effective Date

(10-30-2019)

Catherine L. Jones
Acting Director, Employee Plans
Tax Exempt and Government Entities

Program Scope and Objectives

  1. The Employee Plans (EP) examination program was established to ensure compliance with the provisions of Internal Revenue Code (IRC) 401(a).

  2. Purpose: IRM 4.71.3, Employee Plans Examination of Returns, Unagreed Form 5500 Examination Procedures and EP Exam Closing Agreements, provides the basic examination procedures that will enable Employee Plans (EP) agents and their managers to properly process EP case files when they discover an issued during a Form 5500 series examination that could potentially disqualify the plan.

  3. Audience: This IRM provides procedures for agents, managers, and support staff in EP Exam.

  4. Program Owner: Director, EP Examinations.

  5. Program Authority: EP Examinations derives its authority to conduct examinations, resolve issues and determine tax liability from Title 26, Internal Revenue Code, Subtitle F – Procedure and Administration, which includes but is not limited to:

    1. IRC section 7602 - Examination of books and witnesses, which falls under Chapter 78 - Discovery of Liability and Enforcement of Title.

      Note:

      IRC 7602 provides agents with the authority to:
      * Audit any books, papers, records or other data necessary to complete an audit.
      * Take testimony under oath to secure additional information needed.
      * Issue summons for information necessary to complete an audit.
      * Ask about any offense connected to the administering or enforcing of the Internal Revenue laws.

    2. IRC section 6201- Assessment authority, which falls under Chapter 63 - Assessment.

      Note:

      EP Examinations derives its authority to resolve issues from its authority to make determinations of tax liability under IRC 6201.

  6. This IRM section is authored by EP Mandatory Review. For questions, information or suggestions, contact the manager of EP Mandatory Review

Program Controls

  1. To ensure examinations are conducted according to technical, procedural and administrative requirements, EP Examinations established:

    • Mandatory Review, see IRM 4.71.14, Employee Plans Examination of Returns, EP Mandatory Review

    • Special Review IRM 4.70.7, Special Review (SR) and Tax Exempt Quality Measurement System (TEQMS) Procedures

  2. EP Examinations uses the Tax Exempt Quality Measurement System (TEQMS) quality control system used to oversee the examination program. For more information on TEQMS, see IRM 4.70.7.1.3, Program Overview.

  3. All examinations are done according to the Taxpayer Bill of Rights as listed in IRC 7803(a)(3).

    Note:

    Find additional information on the IRS.gov website at Taxpayer Bill of Rights

  4. The IRS is fully committed to protecting the privacy rights of taxpayers and employees.

    1. Privacy laws are included in the IRC, the Privacy Act of 1974, the Freedom of Information Act, and IRS policies and practices.

    2. For more information about these laws, visit the IRS Electronic Freedom of Information Act Reading Room.

    3. For questions on privacy, send an email to *Privacy.

    4. For question on disclosure, send an email to *Disclosure.

Acronyms, Forms, and Publications

  1. This manual uses the following acronyms and references the following forms.

    Acronyms

    Acronym Definition
    AIMS Audit Information Management System
    BMF Business Master File
    CAP Closing Agreement Program
    CCR Case Chronology Record
    CECA Checksheet for Employee Plans Compliance Activities
    DO 8-3 Delegation Order 8-3
    DOL Department of Labor
    EIN Employer Identification Number
    EP Employee Plans
    ERISA Employee Retirement Income Security Act of 1974
    EPCRS Employee Plans Compliance Resolution System
    FICA Federal Insurance Contributions Act
    HCE Highly Compensated Employee
    IDR Information Document Request (Form 4564)
    IDRS Integrated Data Retrieval System
    IMF Individual Master File
    IRA Individual Retirement Account
    IRC Internal Revenue Code
    IRM Internal Revenue Manual
    LB&I Large Business and International
    MFT Master File Tax
    MPA Maximum Payment Amount
    NHCE Non-highly Compensated Employee
    PBGC Pension Benefit Guaranty Corporation
    POA Power of Attorney
    POD Post of Duty
    RAR Revenue Agent Report
    RCCMS Reporting Compliance Case Management System
    SARSEP Salary Reduction Simplified Employee Pension
    SB/SE Small Business/Self-Employed
    SCP Self-Correction Program
    SEP Simplified Employee Pension
    SIMPLE IRA Savings Incentive Match Plan for Employees
    TEQMS Tax Exempt Quality Measurement System
    VCP Voluntary Correction Program
    W&I Wage and Investment

     

    Forms and Pubs

    Form Name
    Form 872-H Consent to Extend the Time to Assess Tax on a Trust
    Form 990-T Exempt Organization Business Income Tax Return
    Form 1040 U.S. Individual Income Tax Return
    Form 1041 U.S. Income Tax Return for Estates and Trusts
    Form 1120 U.S. Corporation Income Tax Return
    Form 2363 Master File Entity Change
    Form 2848 Power of Attorney and Declaration of Representative
    Form 3198-A TE/GE Special Handling Notice
    Form 3210 Document Transmittal
    Form 3244-A Payment Posting Voucher - Examination
    Form 4442 Inquiry Referral
    Form 4549-E Income Tax Discrepancy Adjustments
    Form 4564 Information Document Request (IDR)
    Form 5330 Return of Excise Taxes Related to Employee Benefit Plans
    Form 5456 Reviewer’s Memorandum - EP/EO
    Form 5464 Case Chronology Record
    Form 5500 Annual Return/Report of Employee Benefit Plan
    Form 5500-EZ Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan
    Form 5500-SF Short Form Annual Return/Report of Small Employee Benefit Plan
    Form 5599 TE/GE Examined Closing Record
    Form 5650 EP Examined Closing Record
    Form 5666 TE/GE Referral Information Report
    Form 5734 Non-Master File Assessment Voucher
    5772--A Employee Plans (EP) Workpaper
    Form 5773-A Employee Plans (EP) Workpaper Summary Continuation
    Form 6212-B Examination Referral Checksheet B
    Form 6533 Examination Referral Worksheet
    Form 9814 Request for Mail/Shipping Service
    Form 13133 Expedite Processing Cycle
    Form SS-4 Application for Employer Identification Number
    Pub 1 Your Rights as a Taxpayer
    Pub 594 The IRS Collection Process
    Pub 1020 Appeal Procedures EP Examinations

     

Contact Information for Business Units

  1. Address, phone, e-fax and email information:

    Group Email Contact Contact Phone Number/ Address
    AIMS Coordinator
    Email: Charles.Mazzarisi@irs.gov

    e-fax: 855-821-0089
    Phone: 718-834-5055
    Appeals Ronda Pennington
    ronda.a.dwan@irs.gov

    Internal Revenue Service
    Attn: Boston Appeals Office
    10 Causeway, Room 493
    Boston, MA 02222-1047
    Phone: 617-788-0628
    Classification (all referrals except Form 6212-B)

    Note:

    Type "EP Referral" in the subject line of email

    Note:

    Classification & Case Assignment (C&CA) is a sub-function of Compliance Planning & Classification (CP&C). This IRM refers to C&CA as Classification.

    EOclass@irs.gov
    IRS –Classification & Case Assignment
    1100 Commerce St., Mail Code 4910DAL
    Dallas, TX 75242
    Classification (case establishment on RCCMS and AIMS) Classification - Case Assignment (tege-cpc-classification@irs.gov)  
    EP Mandatory Review  
    IRS - EP Mandatory Review
    c/o Samantha Nolan
    2970 Market Street
    2-H20-133
    Philadelphia, PA 19104
    Manager, Mandatory Review
    Steven.Moses@irs.gov

    Phone: 202-317-8575
    e-fax: 877-773-2723
    FAC/EP DOL Coordinator (Form 6212-B Referrals to DOL)

    Note:

    Type "DOL Referral" in the subject line.


    George.D.Brim@irs.gov
    FAC/EP DOL Coordinator (Form 6212-B Referrals to DOL):
    IRS
    George Brim
    50 West State St.; 12th Floor
    Attn: EP:7600 GB
    Trenton, NJ 08608
    Phone: 609-858-797
    Ogden Submission Processing Campus &CTR ODN Ogden Tellers (ctr.odn.ogden.tellers@irs.gov)
    IRS
    Attn: Teller Unit
    1973 N. Rulon White Blvd.
    Stop XXXX*
    Ogden, UT 84201-1000
    *For payments less than $100,000 use Mail Stop 1999; if $100,000 or more use Mail Stop 2003.
    Form 9814: Reflect Teller Unit (Field Office) as recipient and phone number: 801-620-3972
    TE/GE Closing Group 7697 in Baltimore ( for Great Lakes, Gulf Coast and Pacific Coast Areas closing agreed Forms 5500 on RCCMS and AIMS)  
    IRS
    TE/GE Closing Group 7697
    31 Hopkins Plaza
    Room 1550
    Baltimore, MD 21201
    Phone: 443-853-5586
    TE/GE Closing Group 7697 in Brooklyn (for Northeast and Mid-Atlantic Area (including Mandatory Review) groups closing agreed Forms 5500 on RCCMS and AIMS)  
    IRS
    TE/GE Closing Group 7697
    2 Metrotech Center
    100 Myrtle Avenue, 6th Floor
    Brooklyn, NY 11201
    Phone: 718-834-5076

Overview of Unagreed Form 5500 Examinations and EP Examinations Closing Agreements

  1. Unless specifically stated otherwise, this IRM is written to provide specific instructions to EP agents who discover an issue during a Form 5500 series examination that could potentially disqualify the plan.

  2. Plan qualification issues (IRC 401(a) failures) discovered through a Form 5500 examination can be resolved through:

    1. EPCRS

    2. A DO 8-3 closing agreement

    3. The unagreed case process

  3. Most qualification issues discovered on EP examinations are resolved under EPCRS. EPCRS guidelines are covered in IRM 4.71.3.5.1, EPCRS Closing Agreements and Rev. Proc. 2019-19.

  4. When qualification issues can’t be resolved through EPCRS, they will either be:

    1. Resolved through a DO 8-3 closing agreement, or

    2. Processed as an unagreed case.

  5. Determine if the issue is an issue requiring Mandatory Technical Advice. Certain issues such as violations of the exclusive benefit rule under IRC 401(a)(2) (for plans that fall under Title I of ERISA) require mandatory technical advice.

    Note:

    See Rev. Proc. 2019-2 (as updated annually) and IRM 4.71.13.4.1, Mandatory Technical Advice, for a complete list of issues requiring mandatory technical advice.

  6. When examining a Form 5500 series return, follow the guidelines and procedures in IRM 4.71.1, Overview of Form 5500 Examination Procedures, up to the point the issues in the case become unagreed. This IRM covers procedures to process a case from the time it becomes unagreed until it’s closed to EP Mandatory Review.

    Note:

    See IRM 4.71.3.1.5, Definitions, for the definition of an unagreed case.

  7. This IRM also provides procedures for:

    1. Closing agreements - see IRM 4.71.3.5.1, EPCRS Closing Agreements.

    2. Agreed revocation and non-qualification cases resolved through DO 8-3 closing agreements. See IRM 4.71.3.3.2, DO 8-3 Closing Agreements.

  8. All unagreed cases closed to EP Mandatory Review must have a complete hard copy case file per IRM 4.71.12.4, Assembly Guidelines for All Unagreed Examinations.

Definitions

  1. An unagreed Form 5500 examination is one that involves a qualification issue that we can’t resolve via EPCRS or a DO 8-3 closing agreement.

  2. The term "revocation" refers to the proposed disqualification of a plan that has a prior determination letter issued in the plan's name.

  3. The term "non-qualification" refers to the proposed disqualification of a plan that has no prior determination letter.

  4. Any reference to Form 5500 in this IRM also includes Form 5500-EZ and Form 5500-SF.

Safeguarding Personally Identifiable Information (PII)

  1. When possible, mask the first five digits of a taxpayer’s SSN on letters, forms, notices, workpapers and emails.

    Example:

    XXX-XX-9999

Related Resources

  1. IRM 4.70.3, TE/GE Examinations, Promoter Investigations.

Addressing Issues that Effect Plan Qualification

  1. When you discover an issue during an examination of a plan that could potentially result in a plan revocation or non-qualification, discuss the issue with your group manager before formally advising the taxpayer that the IRS is proposing disqualification of the plan.

    1. The purpose of this discussion with your manager is to confirm that you’re properly analyzing the facts, to determine which issues you should pursue and to determine whether we can resolve the issue(s) through EPCRS.

    2. You shouldn’t proceed with the proposed revocation/non-qualification until you and your manager have determined that the issue can’t be resolved through EPCRS.

  2. When you determine a qualification issue exists, in most cases, you should expand the examination to include subsequent years (and possibly prior years).

    1. See IRM 4.71.1.14.1, Prior Year, Subsequent Year and Related Returns, for procedures to open an examination of a related Form 5500 that has been filed.

    2. If a subsequent year Form 5500 return is due but hasn’t been filed, solicit a delinquent return from the plan sponsor. See IRM 4.71.1.21, Amended, Substitute and Secured Forms 5500, for delinquent and substitute Form 5500 procedures.

  3. Document managerial involvement and guidance on Form 5464 (CCR).

  4. Use the CCR (or similar document) to record in clear, legible form, a factual accounting of all conferences and/or telephone conversations with the taxpayer or taxpayer's representative (representative).

    1. Since the administrative record in declaratory judgment cases (which includes proposed revocation/non-qualification cases) consists only of the documentation that was submitted in writing and exchanged between the parties, it is vital that you formally document all discussions and conferences for the record and share them with the taxpayer/representative.

    2. If you want pertinent portions of the CCR or similar documentation included in the administrative record, you must send them to the taxpayer/representative in letter format. The pertinent portions should include, but are not limited to, any discussions with the taxpayer or representative that are relevant to the audit scope, affirmation of tax liability or the plan’s qualified status.

  5. After you fully develop the relevant issues, present proposals for resolution to the taxpayer/representative.

    1. This allows the taxpayer/representative an opportunity to agree with your proposal(s), make changes to resolve the issue(s), present additional facts for consideration, and/or present his/her position.

    2. Make every effort to resolve the issues at the lowest possible level.

    3. Advise the taxpayer/representative that their additional facts won’t be considered a part of the administrative record unless they submit them to the IRS in writing.

  6. If the plan qualification issue can be resolved through EPCRS or through a DO 8-3 closing agreement, offer the taxpayer the opportunity to enter into negotiations for a closing agreement.

    1. See Rev. Proc. 2019-2 for EPCRS Audit CAP closing agreement procedures.

      Note:

      Part IV of the Rev. Proc. covers Self Correction (SCP) and Part VI of the Rev. Proc. covers Audit CAP.

    2. See IRM 4.71.3.5.2, DO 8-3 Closing Agreements, for DO 8-3 closing agreement procedures.

  7. When you have a qualification issue, you must clearly explain the qualification issue(s) to the taxpayer in writing by issuing a preliminary Revenue Agent’s Report (RAR).

    Note:

    Letter 1756 must be addressed to the plan sponsor (Dear ABC, Inc.). Do not use an individual’s name. The address line of the letter can include an individual name.

    Example:


    ABC, Inc.
    c/o John Doe
    12 Main Street
    City, State Zip

    1. This preliminary RAR should satisfy parts "a" through "d" of the final RAR, but should be clearly notated as a "Draft" or "Preliminary" copy. See IRM 4.71.3.6.3, Revenue Agent Report.

    2. The preliminary RAR is important for two reasons: 1) It’s written documentation that the IRS clearly discussed (and cited adequate authority) specific issues with the taxpayer. 2) It places the document in the administrative record for declaratory judgment purposes.

    3. Mail the preliminary RAR with an individually designed cover letter to the taxpayer and give them sufficient time to provide a response before you close the case unagreed to Mandatory Review.

      Note:

      Mandatory Review will mail out the final RAR with the 30-Day Letter (Letter 1756). See IRM 4.71.3.6.2, 30-Day Letter Package.

  8. If the qualification issue(s) can’t be resolved, propose plan revocation/non-qualification and process the case unagreed, following the procedures in IRM 4.71.3.6, Unagreed Form 5500 Procedures.

Tax Effect of Plan Revocation/Non-Qualification

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

    1. In general, once a plan is disqualified, it remains non-qualified until the qualification issue(s) is corrected and the plan is re-qualified through a closing agreement.

    2. A plan may be disqualified in a year for which the Form 5500/1041 statute has already expired. Although tax cannot be assessed in a barred year, the consequences of disqualification continue for all subsequent years and IRS can assess tax in subsequent years for which the statute is still open.

    3. The IRS's ability to pursue a qualification issue in any year is not impacted by the Form 1041 statute of limitations. The expiration of the statute of limitations for Form 1041 for any given year does not prevent the IRS from pursuing a qualification issue in that year (see Yarish Consulting, Inc. v. Commissioner, T.C. Memo 2010-174).

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

    1. Realized earnings of trust assets are taxable each year the plan is not qualified (if the assessment of tax is not barred by statute). Trust earnings must be reported on Form 1041, which the trustee must file annually, on a calendar year basis.

    2. Per IRC 402(b)(4), if the plan is disqualified for failure to meet IRC 401(a)(26) (participation failure) or 410(b) (coverage failure), each highly compensated employee (HCE) must include in income his/her entire vested accrued benefit (or account balance) not yet included in income.

    3. Per IRC 402(b)(1) If the plan is disqualified for any reason, plan contributions allocated in a given year to any plan participant (HCE or NHCE) in a defined contribution plan, (in a defined benefit plan the increase in the present value of the accrued benefit) are taxable on the plan participant’s Form 1040 to the extent nonforfeitable.

      Reminder:

      Normally, discrepancy adjustments are limited to only the HCEs. However, you and your manager may determine that an NHCE discrepancy adjustment is appropriate.

      Note:

      If a participant is not fully vested, amounts that become vested in a subsequent year will be taxable in the subsequent year to the extent they become vested.

    4. In a defined contribution plan, contributions allocated to participant accounts are not deductible on the plan sponsor’s tax return (for example, Form 1120) to the extent they are forfeitable by the participant.

    5. In a defined benefit plan, in most cases, none of the contributions made are deductible on the plan sponsor’s tax return (for example, Form 1120), because separate accounts are not maintained in a defined benefit plan. If there is only one participant, the employer can deduct the contribution to the extent the participant includes the contribution into income.

      Note:

      Per IRC 404(a)(5) and 26 CFR 1.404(a)-12, the employer can deduct the amount of the employer’s contribution in the non-qualified year to the extent that the amount is includible in the employees participating in the plan gross income, only if separate accounts are maintained for each employee where there is more than one employee.

    6. Per IRC 402(b)(2),distributions made from the plan are ineligible for rollover to another qualified plan or to an IRA, and therefore, are taxable to the individual on his/her Form 1040 in the year of the distribution.

    7. Any funds rolled into an IRA from a plan that is determined to be not qualified under IRC 401(a) are subject to excise tax on excess contributions under IRC 4973.

      Note:

      IRC 4973 tax will be due each year until the excess contributions are distributed from the IRA.

    8. Any funds rolled from a non-qualified plan to a qualified plan can potentially cause the recipient plan to be non-qualified.

    9. Employer contributions allocated to each participant’s account in a defined contribution plan become subject to FICA taxes.

  3. 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 to Mandatory Review.

    Note:

    Subject to managerial approval, you may also consider prior years calculations.

Closing Agreements

  1. Qualification issues may be resolved through different types of closing agreements:

    1. Audit Closing Agreement Program (Audit CAP) Closing Agreements – Designed to allow the plan to retain it’s qualified status and developed under the EPCRS principles outlined in Rev. Proc. 2019-19.

    2. DO 8-3 Closing Agreements – Designed to resolve issues that don’t fall under EPCRS. In most cases, the taxpayer(s) 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." These closing agreements often include income tax, penalties and interest as part of the sanction, and In some limited instances, can be used to resolve excise tax matters.

  2. If the plan qualification issue can be resolved through EPCRS or through a DO 8-3 closing agreement, offer the taxpayer the opportunity to enter into negotiations for a closing agreement. See IRM 4.71.3.5.1, EPCRS Closing Agreements, and IRM 4.71.3.5.2, DO 8-3 Closing Agreements.

  3. Find a sample closing agreement on TE/GE Connect on the Audit Closing Agreement Program/Self-Correction Program page, the EP SharePoint Site, or contact your Area CAP Coordinator for help.

EPCRS Closing Agreements

  1. Audit CAP closing agreements are available for plans under IRC 401(a), IRC 403(b), SEPs, SARSEPs and SIMPLE IRAs, for correction of all qualification failures found on examination that haven’t been corrected under SCP or VCP (Rev. Proc. 2019-19, Section 4).

  2. Discuss all potential EPCRS resolutions with both your group manager and the Area CAP Coordinator before you discuss resolution with the taxpayer.

  3. Follow these Audit CAP processing procedures:

    1. Fully develop the issue(s) before you discuss the facts with your group manager.

    2. Prepare the Audit CAP Checksheet listing case information.

    3. Spell out correction methods in writing, including any proposing retroactive amendments.

      Note:

      This may involve amending the plan retroactively.

    4. Determine the Maximum Payment Amount (MPA).

    5. Send the Audit CAP Checksheet and MPA calculation to the Area CAP Coordinator through your group manager.

    6. The Area CAP Coordinator reviews the documents and gives both you and your manager a memo outlining steps to complete to resolve the issues and the sanction range.

    7. Discuss the qualification failures you discovered and the option of resolving the failures with EPCRS with the taxpayer/representative.

      Note:

      If the taxpayer doesn’t agree on both the correction(s) and sanction, document the case chronology record and the workpapers with the reason an agreement was not reached and proceed with closing the case unagreed per IRM 4.71.3.6, Unagreed Form 5500 Procedures.

    8. Prepare a draft closing agreement and submit it to the Area CAP Coordinator.

      Note:

      The Area CAP Coordinator will help you prepare the closing agreement.

    9. When you receive the Area CAP Coordinator’s approval, send the draft closing agreement to the taxpayer using Letter 1595.

      Note:

      See IRM 4.71.3 Exhibit 7 at IRM 4.71 - Employee Plans Examination Exhibits for a copy of Letter 1595 with electronic payment information.

    10. If the taxpayer or Power of Attorney (POA) requests changes to the closing agreement language, get the Area CAP Coordinator’s approval.

    11. Secure documentation that the plan sponsor has corrected the qualification issue(s) before you send the final closing agreement to the taxpayer/POA.

    12. Send three copies of the final closing agreement to the taxpayer/POA using Letter 1595-A along with execution and payment instructions (if appropriate).

      Note:

      See IRM 4.71.3 Exhibit 8 at IRM 4.71 - Employee Plans Examination Exhibits for a copy of Letter 1595-A with electronic payment information.

  4. You may accept the signed closing agreements from the taxpayer in hard copy or by efax (sanctions under $250,000).

    Note:

    You can accept them by efax if you have contacted the taxpayer by phone or in-person and documented the case chronology record with the contact date and noted that the taxpayer wishes to send the closing agreement by efax.

  5. As soon as you receive the signed EPCRS closing agreements and payment, send the following documents to the Area CAP Coordinator:

    1. Form 3210 addressed to the Area CAP Coordinator listing the three closing agreements and the payment, per the local check processing procedures

      Note:

      Taxpayers may now pay the sanction electronically in lieu of a check on pay.gov. See IRM 4.71.3.5.3, Electronic Payments of Closing Agreement Sanctions.

    2. Three closing agreements signed by the taxpayer

    3. The sanction check (unless electronic payment is made)

      Note:

      See IRM 4.71.3.5.3, Electronic Payments of Closing Agreement Sanctions for electronic payment instructions.

    4. Form 3210 addressed to the Kansas City Service Center effective October 1, 2018. Mail Form 3210 to:

      IRS
      333 W Pershing Road
      Attention: Nashay Irven
      Manual Deposit
      Stop 7777
      Kansas City, MO 64108

    5. Form 3244-A listing the payment of the sanction (if a check is being processed)

    6. Form 5734

    7. Memorandum to Kansas City Service Center.

    8. Letter 1595-C, Final Signed and Approved Closing Agreement Transmittal Letter

    9. Letter 937-A, Transmittal of Information to Power of Attorney (if applicable)

      Note:

      Mail items (a) through (c) above to the Area CAP Coordinator "Next Day Air" . Email items (d) through (i) to the Area CAP Coordinator.

      Note:

      You can find all of these documents at TE/GE Connect on the Audit Closing Agreement Program/Self-Correction Program page or you can obtain them in RCCMS.

  6. Upon receipt, the Area CAP Coordinator will send the signed closing agreements to the Area Manager for his/her signature.

  7. After securing the fully executed closing agreements, the Area CAP Coordinator will mail a fully executed closing agreement the items listed in paragraph (5)(c) through (g) to the Kansas Service Center "Next Day Air" .

  8. The Area CAP Coordinator will mail a fully executed closing agreement to the:

    1. Agent

    2. Taxpayer with Letter 1595-C

    3. POA with cover Letter 937-A (enclosing a copy of Letter 1595-C and the closing agreement).

      Note:

      If a valid Form 2848 has not been supplied to the Area CAP Coordinator, the agent will mail a copy of the closing agreement, Letter 1595-C with cover Letter 937-A to the POA, if a valid Form 2848 has been secured for the years under examination covered by the closing agreement.

  9. When you receive the fully executed closing agreement, close the case as an agreed case per IRM 4.71.1.22, Report Writing and Closing Procedures, and its subsections. Close the case disposal code 15 and use the applicable closing letter per IRM 4.71.1.22.1, Closing Procedures for Agreed Form 5500 Examinations.

DO 8-3 Closing Agreements

  1. 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 prior to the date of agreement and related specific items affecting other taxable periods. " (Delegation Order 8-3).

  2. DO 8-3 closing agreements are used to resolve issues that are not permitted to be resolved through EPCRS.

  3. In most DO 8-3 closing agreements, the taxpayer(s) 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."

    1. The taxpayer is legally forgoing their right to an Appeals hearing and their right to petition the Tax Court.

    2. When a DO 8-3 closing agreement is fully executed by the taxpayer and the IRS, the case becomes an agreed case in every respect, just like a case resolved under EPCRS.

    Note:

    In very limited situations, excise tax and/or unrelated business income (UBI) issues may be resolved through a DO 8-3 closing agreement; however, you must obtain pre-approval from the Director, EP Examinations.

  4. As with EPCRS closing agreements, you must closely coordinate DO 8-3 closing agreements with the Area CAP Coordinator.

  5. When doing a DO 8-3 closing agreement, follow EPCRS closing agreement procedures in IRM 4.71.3.5.1, EPCRS Closing Agreements, with these exceptions:

    1. The Director, EP Examinations signs the closing agreement for the IRS.

    2. You must get approval from the group manager, Area Manager, and the Director, EP Examinations before you propose a DO 8-3 agreement.

    3. An Executive Summary which includes Form 886-A, Revenue Agent Report (or the equivalent) and/or Form 4549-E (tax calculations)

  6. Ask your Area CAP Coordinator for a sample DO 8-3 closing agreement or find an example on the EP SharePoint Site.

  7. Before you send the DO 8-3 closing agreement to the taxpayer, prepare the following documents and secure email them to your group manager for approval:

    1. DO 8-3 Transmittal Checksheet

    2. Executive Summary which includes Form 886-A (or the equivalent) and/or Form 4549-E (tax calculations)

    3. Draft DO 8-3 closing agreement

    Note:

    Ask your Area CAP Coordinator for examples of the DO 8-3 Transmittal Checksheet and the Executive Summary.

  8. The group manager reviews and approves the files, then secure emails them to the Area CAP Coordinator.

  9. The Area CAP Coordinator reviews the DO 8-3 Transmittal Checksheet, the Executive Summary and the draft DO 8-3 closing agreement. If these documents are acceptable, then the Area CAP Coordinator will forward them to the following approving parties:

    • Area Manager

    • Director, EP Examinations

  10. If these documents are not acceptable, the Area CAP Coordinator will contact the agent for the appropriate revisions.

  11. Use these letters in the DO 8-3 process:

    1. Letter 1595 - to mail draft closing agreements to the taxpayer/representative.

      Note:

      See IRM 4.71.3 Exhibit 7 at IRM 4.71 - Employee Plans Examination Exhibits for a copy of Letter 1595 with electronic payment information.

    2. Letter 1595-A - to mail closing agreements to the taxpayer/representative to formally sign the closing agreement.

      Note:

      See IRM 4.71.3 Exhibit 8 at IRM 4.71 - Employee Plans Examination Exhibits for a copy of Letter 1595-A with electronic payment information.

    3. Letter 1595-D - to mail fully executed DO 8-3 closing agreements back to the taxpayer/representative.

    4. Letter 1745 - as the closing letter for the 5500 examination when a DO 8-3 closing agreement is secured and IRS determined the plan is disqualified from inception and remains disqualified.

      Note:

      Use Letter 1745-A when you’re coordinating the examination with SB/SE or LB&I.

  12. You may accept the signed closing agreements from the taxpayer in hard copy or by efax (sanctions under $250,000).

    Note:

    You can accept them by efax if you have contacted the taxpayer by phone or in-person and documented the case chronology record with the contact date and noted that the taxpayer wishes to send the closing agreement by efax.

  13. The Area CAP Coordinator will mail a fully executed closing agreement to the:

    • Agent

    • Taxpayer with Letter 1595-D

    • POA with Letter 1595-D and cover Letter 937-A

  14. When you receive the fully executed closing agreement, close the case as an agreed case per IRM 4.71.1.22, Report Writing and Closing Procedures, and its subsections. Close the case disposal code 15 (disposal code 106 on RCCMS) and use the applicable closing letter per IRM 4.71.1.22.1, Closing Procedures for Agreed Form 5500 Examinations.

Electronic Payments of Closing Agreement Sanctions

  1. Taxpayers may now pay the sanction electronically in lieu of a check on pay.gov.

    1. Go to pay.gov.

    2. Select "Make a Payment" .

    3. Search "Form 3244-A" . Use the "IRS TEGE EP Closing Agreement Payment Posting Voucher" (for audit closing agreements), not "Form 3244 IRS TEGE VC Closing Agreement Payment Posting Voucher" (for voluntary compliance agreements).

    4. Complete the highlighted portions of the on-line Form 3244-A.

      Note:

      Give the taxpayer the specific instructions in paragraph (2) below to complete Form 3244-A.

    5. Submit the payment.

  2. When completing the highlighted portions of the on-line Form 3244-A, the taxpayer must complete it as follows:

    1. "Taxpayer Information," "EIN" and "Amount" must be the same as reflected in the closing agreement.

    2. Use the 3 digit plan number in the closing agreement. If there is no plan number, use "999" .

    3. "Tax Period" (current year and month) and "Transaction Date" should correspond to the date submitting the payment.

    Note:

    See IRM 4.71.3 Exhibit 9 at IRM 4.71 - Employee Plans Examination Exhibits for a copy of the on-line Form 3244-A.

  3. When they complete the submission process, the taxpayer will receive a payment tracking number. They must record the tracking number and provide this number to the agent with the three copies of the executed closing agreement.

  4. The agent includes the tracking number in lieu of the check when they send the closing agreement package to the Area CAP Coordinator per with IRM 4.71.3.5.1, EPCRS Closing Agreements.

Unagreed Form 5500 Procedures

  1. If the qualification issue is not resolved through EPCRS or a DO 8-3 closing agreement, follow the procedures in this subsection.

  2. Solicit Form(s) 1041 from the trustee. See IRM 4.71.3.6.1, Solicitation of Form 1041.

  3. Pick up prior and subsequent year Forms 5500 for examination (at your group manager’s discretion, and in some cases, the Area Manager’s or the Director, EP Examinations’ discretion). See IRM 4.71.1.14.1, Prior Year, Subsequent Year and Related Returns.

    1. In general, you should expand the examination to include subsequent year Forms 5500 that are due.

    2. If you don’t include the subsequent year returns in the examination, the group manager will prepare a written statement in the case chronology, memo, or email to include in the workpapers, giving the reasons the subsequent years are not included.

    3. You may need to open an examination of a year in which the normal statute of limitations has expired. This happens when the IRS has determined that an operational issue has occurred that retroactively disqualifies the plan.

    4. The IRS's ability to pursue a qualification issue in any year is not impacted by the Form 1041 statute of limitations. The expiration of the statute of limitations for Form 1041 for any given year does not prevent the IRS from pursuing a qualification issue in that year (see Yarish Consulting, Inc. v. Commissioner, T.C. Memo 2010-174).

    5. If you solicit plan or trust records for a given plan year, that year is considered to be under examination and you must establish the Form 5500 on AIMS and RCCMS even if the Form 5500/1041 statute has expired. If the statute of limitations has already expired, update the statute to alpha code "PP" per IRM 4.71.9.10, Use of Alpha Codes.

    6. Document your decision to examine (or not) related years in the case chronology.

    7. Include your group manager's concurrence to examine prior years through a confirmation email or by signing the case chronology.

    8. See IRM 4.71.1.14.1, Prior Year, Subsequent Year and Related Returns, for procedures to open an examination of a related Form 5500 that has been filed and IRM 4.71.1.21, Amended, Substitute and Secured Forms 5500, for delinquent and substitute Form 5500 procedures.

  4. Initiate (at the discretion of the group manager) Form 1040 discrepancy adjustments (when there is a taxable event) on all or some plan participants or at a minimum those individuals with substantial tax impact, depending on workload considerations. See the discrepancy adjustment procedures in IRM 4.71.4, Employee Plans Examination of Returns, Discrepancy Adjustments.

    Note:

    Before initiating a discrepancy adjustment, secure an AMDISA print to determine if a Form 1040 examination is already in process.

    Note:

    If you don’t do a discrepancy adjustment, annotate the CCR, explaining the reasons why.

  5. Initiate (at the discretion of the group manager) a Form 1120 discrepancy adjustment on the plan sponsor per the discrepancy adjustment procedures in IRM 4.71.4, Employee Plans Examination of Returns, Discrepancy Adjustments.

    Note:

    Before initiating a discrepancy adjustment, secure an AMDISA print to determine if a Form 1120 examination is already in process.

    Note:

    You may need to ask SB/SE for help to generate the income tax adjustment on Form 4549-E.

    Note:

    Normally, the agent mails out the 30-Day Letter (Letter 3605) for Forms 1040/1120 discrepancy adjustments (See IRM 4.71.4.4.5, Preparation of the Discrepancy Adjustment Package). However, when you do a discrepancy adjustment with (or because of) a proposed revocation/non-qualification, you prepare the adjustment (Form 4549-E) and all reports, but Mandatory Review mails Letter 3605 with Form 4549-E and attachments to the taxpayer. The agent works the discrepancy adjustment file(s) simultaneously with the proposed revocation/non-qualification. The discrepancy adjustment file will continue to be part of the proposed revocation/non-qualification package until you close the case to Mandatory Review.

    Note:

    If you don’t pursue a discrepancy adjustment, annotate the CCR, explaining the reasons why.

  6. Make timely referrals to the applicable EFU (LB&I SB/SE, and W&I) on Form 5666 if either:

    1. The trustee does not file the solicited Forms 1041.

    2. The agent does not initiate Forms 1040 or 1120 discrepancy adjustments.

      Note:

      See IRM 4.71.6.7, EP Group Procedures – Making Referrals to Examination Functional Units, for referral procedures.

  7. Make a referral to DOL on Form 6212-B through the FAC/EP DOL Coordinator. See IRM 4.71.3.1.3, Contact Information for Business Units.

    Note:

    If applicable, also make a referral to PBGC on Form 6533. See IRM 4.71.6.9, EP Group Procedures – Making Referrals to Pension Benefit Guaranty Corporation (PBGC), for referral procedures.

  8. Prepare the 30-Day Letter package for the unagreed Form 5500 examination per IRM 4.71.3.6.2, 30-Day Letter Package.

  9. Prepare a final RAR per IRM 4.71.3.6.3, Revenue Agent Report. Update the preliminary RAR that you mailed to the taxpayer (as discussed in IRM 4.71.3.4, Addressing Issues that Effect Plan Qualification) for:

    1. Any necessary clarification to parts "a" through "d" (Issue, Facts, Law, or Government's Position)

    2. The taxpayer's response (if one is received) and

    3. The IRS’s rebuttal of the taxpayer’s response (if one was received).

      Note:

      Add a Taxpayer’s Position section to the RAR after the Government’s Position section. Add an IRS Rebuttal section to the RAR after the Taxpayer’s Position section addressing each point raised by the taxpayer.

  10. Prepare the administrative record per IRM 4.71.3.6.4, Administrative Record.

    Note:

    All cases subject to declaratory judgment (which includes unagreed Form 5500 examinations) require you to prepare an administrative record and index to the administrative record.

  11. Complete Form 5650 per IRM 4.71.3.6.6, Completion of Form 5650.

  12. Complete the Unagreed Plan Disqualification Checksheet before you close the case to Mandatory Review. See IRM 4.71.3 Exhibit 1 at IRM 4.71 - Employee Plans Examination Exhibits for an example of the Unagreed Plan Disqualification Sheet.

  13. Assemble the paper case file per IRM 4.71.12.4, Assembly Guidelines for All Unagreed Examinations.

  14. Prepare Form 5772-A and Form 5773-A (or its equivalent) to document examination procedures and findings and save them in the RCCMS Office Documents folder using the RCCMS Naming Convention. See IRM 4.71.3 Exhibit 2 at IRM 4.71 - Employee Plans Examination Exhibits for the RCCMS Naming Convention.

  15. Include current copies of IDRS prints in the case file and in the RCCMS Office Documents folder of:

    • AMDISA prints for all cases under examination

    • EMFOLT prints for all Forms 5500 examined

    • IMFOLT prints for any Forms 1040 picked up as a result of the revocation.

      Note:

      See IRM 4.71.3.6, Unagreed Form 5500 Procedures.

    • BMFOLT prints for any Forms 1120 picked up as a result of the revocation

      Note:

      See IRM 4.71.3.6, Unagreed Form 5500 Procedures

  16. Save the 30-Day Letter package, all IDRS research and all forms and letters prepared during the examination in the RCCMS Office Documents folder (for the Lead examination File) using the RCCMS Naming Convention.

  17. Complete the CECA checksheet per IRM 4.71.1.22.5, Checksheet for Employee Plans Compliance Activities (CECA Checksheets).

    1. The group manager should not email an "electronic copy" of the checksheet to the CECA mailbox.

    2. Save the CECA checksheet in the RCCMS Office Documents folder.

    3. The group manager notes on the Case Chronology Record (which was saved in RCCMS by the agent) that he/she reviewed the agent-completed CECA checksheet in RCCMS that Mandatory Review will process.

      Note:

      EP Mandatory Review emails the CECA checksheet to the CECA mailbox for all unagreed cases.

  18. Complete all required fields in RCCMS before you close the case from the group. When you select "Validate for: Close" in RCCMS, complete all required fields highlighted in red font with the correct information.

    Note:

    These fields correspond to the required items on Form 5650 as detailed in IRM 4.71.3.6.6, Completion of Form 5650.

  19. The group mails the hard copy case file to EP Mandatory Review (Philadelphia) in IRM 4.71.3.1.3, Contact Information for Business Units).

  20. Update the case to status 20 on AIMS and RCCMS and close the case to Mandatory Review.

    Note:

    If Mandatory Review later returns the case with a Form 5456 Inquiry or Correction Memorandum, update the case to status 13. Keep it in status 13 until you close the case from the group.

  21. If you/your group receive correspondence after you close the case, send it immediately to Mandatory Review to associate with the case file.

    Reminder:

    All cases sent to Mandatory Review remain assigned to the field group that worked the case.

Solicitation of Form 1041

  1. If your examination results in the proposed revocation/non-qualification of the tax exempt status of the trust and the issue could not be resolved under Audit CAP or a DO 8-3 closing agreement (as described in IRM 4.71.3.5.2, DO 8-3 Closing Agreements), the trust becomes taxable and Form 1041 is required to be filed for all open years.

    1. Forms 1041 are filed on a calendar year basis per IRC 644(a).

    2. The statute of limitations on the trust year runs with the filing of the Form 5500 for the plan year in which the trust year ends.

      Note:

      See IRM 4.71.9.6.1, Securing Consents for Forms 5500/1041, for a detailed explanation.

    3. Use Form 4564 to solicit Form(s) 1041 for all open trust years that correspond with the plan years being disqualified.

    4. Sometimes, these years may be short years.

      Example:

      Assume that the plan year being examined is the year ending June 30, 2016 and that the plan is being disqualified for the plan year ending June 30, 2016 and all subsequent years. The effective date of disqualification is July 1, 2015. Assume that on November 1, 2018, you solicit Forms 1041. You should solicit Forms 1041 for the trust tax year beginning July 1, 2015 and ending December 31, 2015; the trust tax year beginning January 1, 2016 and ending December 31, 2016; and the trust tax year beginning January 1, 2017 and ending December 31, 2017.

    5. See IRC 443(b) for the required computation of taxable income for a taxable entity that is required to file a tax return for a short tax year.

    6. Form 1041 cannot be filed using the EIN of the plan sponsor. The trust must obtain its own EIN. See IRM 4.71.3.6.1.1, Obtaining a Trust EIN, for instructions on how to get an EIN for the trust.

  2. Do not establish Forms 1041 on AIMS or RCCMS whether or not received from the taxpayer because EP does not have jurisdiction over Forms 1041. Apply time spent on the examination to Forms 5500 examined, or if discrepancy adjustments are initiated, to the discrepancy adjustment cases.

  3. If you receive solicited Forms 1041:

    1. Enter on the top margin in bold face print "FORM 5500 CONVERTED TO FORM 1041 BY TEGE:EP."

    2. Date stamp Form 1041 to establish the date actually received.

    3. Attach Form 3198-A with the following items completed:

      • List your name, ID number, phone number, POD and group number in the "Required Entries" section.

      • List the trust EIN, return MFT (05), year of the attached Form 1041, taxpayer's name and name control in the "Required Entries" section.

      • List all years for the same taxpayer that are being processed simultaneously, with the applicable statute date.

      • Recommend the assessment or non-assessment of failure to pay and failure to file penalties in the "Other Instructions" section. Highlight the instruction regarding penalties on the form.

    4. Attach Form 13133 with the following completed:

      • List your name, phone number and mail code.

      • Check "Delinquent Return."

      • Check "See attached Form 3198-A."

      • If penalties should not be assessed, check "Penalties" and insert "Do not assess penalties" in the space provided.

    5. If you receive payment, prepare Form 3244-A for each Form 1041 received. Complete these items with comments as noted:

      • EIN

      • Form number/MFT: Enter 1041/05

      • Tax period

      • Plan number

      • Transaction date: Enter the date the payment was received.

      • Taxpayer name, date, address and zip code

      • Transaction Data: List the entire amount received for the year under transaction code 610 (Remittance With Return) and the same amount under "Total payment."

      • Remarks: List the check number and the amount of the check. If the payment is to be broken out over more than one year, list each year and the amount applied to each year.

      • Prepared by: Enter the agent’s name, group number and phone number.

    6. Make a copy of the Form 1041, Form 3198-A, Form 13133, the check and Form 3244-A (if applicable) for the case file.

    7. Prepare Form 3210

      • List all Forms 1041 being forwarded.

      • If you received payment, list all check numbers and the amounts.

    8. Mail Form 1041 packages without remittance to:

      IRS
      1973 N. Rulon White Blvd.,
      Mail Stop 6052
      Ogden, UT 84404

    9. Mail Form 1041 packages with remittance less than $100,000 to:

      IRS
      Attn.: Teller Unit
      1973 N. Rulon White Blvd.,
      Mail Stop 1999
      Ogden, UT 84404

      Note:

      If remittance of $100,000 or more, mail the Form 1041 package to Mail Stop 2003 instead of Mail Stop 1999.

    10. When you address Form 9814, the recipient name should be "Mail Supervisor" with the recipient phone number of (801) 620-3750, whether or not payment is remitted.

  4. The receipt of a Form 1041 from the taxpayer does not make the case agreed. You must continue to:

    1. Close the case to Mandatory Review.

    2. Give the taxpayer Appeal rights and the right to petition Tax Court.

    3. Process the case as an unagreed revocation/non-qualification (except you don’t have to make a Form 1041 referral to SB/SE or LB&I).

    4. Prepare the 30-Day package (including the RAR) and the administrative record.

  5. If the trustee does not agree to complete and sign Form 1041, prepare Form 5666 for Form 1041 to send to SB/SE or LB&I (as applicable), since EP does not have examination jurisdiction over Forms 1041. Unless the trust has it’s own EIN, prepare the referral using the plan sponsor's EIN.

    1. Send the referral to Classification; however if SB/SE or LB&I is directly involved in the case, send the referral to SB/SE (or LB&I). If you send the referral to SB/SE (or LB&I), send a copy of it to Classification at the address listed in IRM 4.71.3.1.4, Contact Information for Business Units.

    2. Attach a copy of the RAR to the Form 5666 along with a rough calculation of Form 1041 tax due.

    3. Make copies of all referral packages (Form 5666, the RAR and tax calculations) for the paper case file and include as part of the workpapers.

      Note:

      You should also make similar referrals for Forms 1040 and 1120 if you don’t do discrepancy adjustments. Also include a copy of the RAR and an estimate of tax due with these referrals.

Obtaining a Trust EIN
  1. When you solicit a Form 1041 for a plan that is being disqualified, request the trust EIN from the plan sponsor.

    Note:

    If the trust doesn’t have an EIN, request the plan sponsor to complete Form SS-4, and file or efax it to the appropriate IRS office listed on the Form SS-4 instructions.

  2. If the plan sponsor agrees to file a Form 1041 and provides a trust EIN, get a BMFOLI print to make sure the EIN isn’t being used to file non-trust returns.

    Note:

    A Form 1041 with an EIN used for any purpose other than for filing a trust Form 1041 or Form 990-T, won’t be processed by the Ogden Campus; the return will reject and a new trust EIN will be assigned.

  3. When a plan sponsor voluntarily files a Form 1041, but uses an erroneous EIN (such as the plan sponsor’s EIN),, obtain a EIN for the trust by efaxing Form 4442 to the EO Entity Unit at Ogden Campus. The efax number is 855-306-0953. See IRM 4.71.3 Exhibit 10 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 4442. Make sure to provide the taxpayer with the trust’s newly assigned EIN.

    Note:

    Obtaining a new EIN for the trust will automatically establish an entity module. You don’t need to prepare Form 2363 or Form 4442 to establish the entity.

  4. When a plan sponsor refuses to file a Form 1041, there is no need to request a trust EIN. It is up to the Business Unit receiving the referral to obtain the EIN.

30-Day Letter Package

  1. The 30-Day Letter package for a proposed revocation/non-qualification consists of:

    1. Letter 1756 (for proposed revocation or proposed non-qualification)

    2. Pub 1, generated by Mandatory Review

    3. Pub 594, generated by Mandatory Review

    4. Pub 1020, generated by Mandatory Review

    5. Revenue Agent Report

    6. Return envelope

  2. The agent prepares the applicable 30-Day Letter (Letter 1756 leaving the contact information in the upper right of the letter blank; Mandatory Review mails them after they review the case.

  3. Include a paper copy of the 30-Day Letter package in the case file (as well as an electronic copy within RCCMS) per IRM 4.71.12.4, Assembly Guidelines for All Unagreed Examinations.

  4. Name all prepared forms and letters using the RCCMS Naming Convention and save them in the RCCMS Office Documents folder.

Revenue Agent Report

  1. Fully explain the qualification issue(s) in the RAR. Include only items that are relevant to the issue(s) in the RAR. Organize the RAR into the following sections:

    1. Issues– Each separate issue will be clearly stated and numbered. For example, assume that during an examination of the plan year ending December 31, 2015, it was determined that a plan did not comply with the top-heavy minimum contributions requirements and did not make distributions to participants who separated from service in conformity with the top-heavy vesting schedule. Issue One would be: "Whether minimum contributions per IRC 416(c)(2) were made for a top-heavy plan for the plan year ending December 31, 2015." Issue Two would be: "Whether the accelerated vesting provisions under IRC 416(b) were applied to all plan participants or former participants who received distributions during the plan year ending December 31, 2015."

    2. Facts– The facts section of the RAR will include a brief history of the plan and provide pertinent details surrounding the qualification issue(s). This section should also cite any plan provisions relevant to the issues raised. For the top-heavy issues stated above, the plan sections dealing with top-heavy contributions and accelerated vesting should be described. Examples of information that would be included (as applicable to the issues) are:
      • The plan years under examination
      • Type of business of the plan sponsor
      • Date business started/incorporated
      • Ownership of business sponsoring the plan
      • Type of tax return filed by the plan sponsor and the tax year end
      • Effective date of plan
      • Type of plan
      • Latest determination letter
      • Number of plan participants
      • Plan participants affected
      • Contributions made to the plan for the years under examination
      • Specific applicable plan sections and
      • Other relevant case specific details.

    3. Law– The law section is where the authority for the qualification issue(s) is cited. An agent can cite the following sources that relate to the issue(s) raised as authority for the government’s position: the Internal Revenue Code (IRC), Temporary and Final Regulations, Revenue Rulings, Revenue Procedures, Court Decisions and Congressional Committee Reports.

      Note:

      Proposed Regulations can be referenced for interpretive purposes but cannot be cited as authority. Do not cite General Counsel Memos (GCMs), Private Letter Rulings (PLRs), or the Internal Revenue Manual (IRM) as sources of authority in the RAR.

    4. Government's Position– This section should discuss each issue separately and apply the law and the facts relevant to each specific issue. This section should also indicate the date on which the plan failed to qualify. An explanation of why EPCRS was not used must be provided. This section should be concluded by clearly stating the government’s position.

    5. Taxpayer's Position– This section should reflect the taxpayer's position including any rebuttals the taxpayer has made regarding the government's position. If the taxpayer has not provided a position on the issue(s), a simple statement to the effect that the taxpayer has not provided a response is sufficient.

    6. Rebuttal/Conclusion– If the taxpayer provides a position on the issue(s) during the examination or in response to the draft RAR, the RAR should contain a rebuttal to the taxpayer’s position when the case is closed to Mandatory Review. The government’s position should be restated as a conclusion in all cases.

  2. In general, do not includeForm 1040, Form 1120, or Form 5330 information in the RAR for the revocation/non-qualification because they involve separate legal entities. If you open a:

    1. Discrepancy adjustment of a related Form 1040 and/or 1120 discrepancy adjustment, prepare a separate RAR(s) and a separate examination file(s).

    2. Form 5330 examination, prepare a separate RAR and a separate examination file.

      Note:

      Don’t include the above information in the administrative record.

      Note:

      See IRM 4.71.4.6, Unagreed Case Procedures, for unagreed Form 1040/1120 discrepancy adjustments, and IRM 4.71.5.9, Unagreed Cases, for unagreed Form 5330 procedures.

  3. See IRM 4.71.3 Exhibit 3 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a detailed RAR covering several possible qualification issues.

  4. Name the RAR using the RCCMS Naming Convention and save it in the RCCMS Office Documents folder.

Administrative Record

  1. The administrative record is the written record of the administrative proceedings between the IRS and the taxpayer in connection with a determination or examination.

    1. The administrative record will be used in Tax Court if the taxpayer files a petition to go to court (in response to the 90-Day Letter issued by Mandatory Review).

    2. Generally, the Court will decide a declaratory judgment solely on the basis of the administrative record.

  2. Prepare an administrative record for all unagreed Form 5500 examination cases before you close the case to Mandatory Review from the group.

  3. Include all information obtained or exchanged during the examination in the administrative record.

  4. Information must be exchanged between the taxpayer and the IRS (or vice versa) before it can be included in the administrative record.

  5. If there is any doubt that a document has been exchanged, mail it to the taxpayer with an individually designed cover letter.

  6. Organize the documents included in the administrative record in a separate folder in this order:

    1. Place the EP Administrative Record Index first. See IRM 4.71.3 Exhibit 4 at IRM 4.71 - Employee Plans Examination Exhibits for the proper format of the EP Administrative Record Index.

    2. Fully describe the "Description of Document" portion of the EP Administrative Record Index. Don’t just list a form number or letter number.

    3. Prepare the EP Administrative Record Index so the subsequent reviewer may readily find any document, return, or correspondence contained in the file.

    4. Assemble all items that make up the administrative record in chronological order with the oldest item on top as number 1.

      Note:

      To list letter dates in the Administrative Record Index, use the date that appears on the letter. To list documents received with a letter in the Administrative Record Index, use the date that appears on the associated letter. To list documents you received in person in the Administrative Record Index, list the date received.

    5. Affix tabs in the administrative record to a blank cover sheet corresponding to the items in the Administrative Record Index. The tabs shouldn’t be permanently affixed to the original documents.

    6. Include a separate hard copy administrative file case folder with the examination case file for all proposed unagreed and proposed agreed revocations/non-qualification cases.

    7. Include a copy of the plan and trust agreement for the period under examination and copies of all prior determination letters (if any), copies of any plan amendments adopted after the period under examination, and copies of any written correspondence (with attached documents) between the agent and the taxpayer/representative.

    8. In general, don’t include internal documents, such as interoffice memos, reviewer's memos, your workpapers, the Case Chronology Record, or summaries of telephone conferences. Only incorporate these internal documents into the administrative record where the content/issue is specifically pertinent and has been shared in writing between the IRS and the taxpayer.

  7. Do not deface documents received from the taxpayer/representative in any way (writing, highlighting, noting, punching holes in, or scribbling, etc.). If you need to write information on a document, make a copy for that purpose.

  8. Note when you receive documents from the taxpayer. You can note dates in the administrative record index.

  9. Include pertinent information that was discussed orally between you (the agent) and the plan sponsor or representative in the administrative record only if reduced to writing and exchanged with the plan sponsor or the representative.

  10. Make sure you include all attachments you referred to in your correspondence with the taxpayer, in the administrative record and associate them with the related document. This includes publications, notices, etc., that you attached to your letters.

  11. Clarify incorrect computations, misinterpretations of law (IRC, Regulations, Revenue Rulings, etc.) or incorrect conclusions you made in writing to the taxpayer in subsequent correspondence.

    1. Any information that has been provided to the taxpayer becomes a part of the administrative record; therefore, include incorrect information that you put in writing and sent to the taxpayer/representative in the administrative record.

    2. To correct a mistake, do not remove the document from the administrative record. Rather, admit your mistake and submit a corrected statement or revised calculation to the taxpayer/representative in writing.

  12. Name the EP Administrative Record Index using the RCCMS Naming Convention and save it in the RCCMS Office Documents folder.

Examples of Documents Included in the Administrative Record
  1. See the list below for examples of documents you must include in the administrative record:

    • Copies of all pertinent information returns and tax returns.

      Note:

      If you secured these internally, make sure you mail them to the taxpayer with an individually designed letter so that they can be included in the administrative record.

    • All letters, documents and attachments you exchanged with the plan sponsor relating to the examination.

    • All letters and attachments you received by mail from the plan sponsor/representative, maintained intact.

    • A copy of the plan document, the trust document, plan amendments and determination letters issued on the plan.

    • A copy of Form 2848 or Form 8821, if applicable.

    • Copies of employer records the plan sponsor provided to you.

      Example:

      Payroll records may relate to the qualified status of the plan if for example, an IRC 415 limit issue is in an examination.

    • Copies of bank statements and cancelled checks provided to the agent by the plan sponsor during an examination.

    • If, in response to your questions about qualification issues, the plan sponsor's written reply contains erroneous information, you should refute the misstatement in a formal, written response. Include both letters in the administrative record because the parties exchanged them and they affect a major qualification issue.

    • Taxpayer’s request for technical advice, if applicable.

    • Letters to the taxpayer from Associate Chief Counsel regarding technical advice and all responses from the taxpayer, if applicable.

    • The technical advice letter issued by Associate Chief Counsel, if applicable.

    • All Information Document Requests (IDRs) and responses to IDRs issued by mail or exchanged at the audit site.

Statute Considerations

  1. The normal statute of limitations date expires three years from the later of the due date of the Form 5500 series return or the date the Form 5500 series return was filed.

  2. Complete and place the Statute Expiration Chart in the paper case file for Form 1041. See IRM 4.71.3 Exhibit 5 at IRM 4.71 - Employee Plans Examination Exhibits for the Form 1041 Statute Expiration Chart.

  3. Solicit a Form 872-H if there is less than 12 months remaining on the statute of limitations on the Form 5500/1041.

  4. See IRM 4.71.9, Statute Control Procedures, for Form 5500 statute of limitations procedures.

Completion of Form 5650

  1. Use Form 5650, EP Examined Closing Record, to close examined Forms 5500.

  2. Complete the following line items on Form 5650 as noted:

    1. P7-18: Enter the taxpayer’s EIN with a "P" .

    2. P21-22: Enter the MFT code.

    3. P24-29: Enter the tax period.

    4. P31-34: Enter the name control.

    5. P58-60: Enter the plan number.

    6. C: Enter the name of the taxpayer.

    7. Item 13: Leave item 13 blank on Form 5650, but use disposal code 601 in RCCMS.

    8. Item 14: Enter the statute expiration date whether or not the statute has been extended with Form 872-H.

    9. Item 28: Enter the agent’s time on the case.

    10. Item 30: Enter the technique code:
      2 – Correspondence examination - full scope
      4 – Field examination - full scope
      6 – Correspondence examination - limited scope/focused examination
      7 – Field examination - limited scope/focused examination

    11. Item 31: Enter the agent’s grade.

    12. Item 32: Enter the grade of the case.

    13. Item 33: Enter the agent’s last name, leave a space and then first initial.

    14. Item 40: Enter the project code. If there is none, enter 0000.

    15. Item 42: If the disposal code is 03, 06 or 15, enter the appropriate Accounts Receivable Dollar Inventory (ARDI) code.

    16. Item 50: Enter the agent’s group number.

    17. Item 602: Enter excise tax picked up during the examination that is not reflected on Form 5599 of a related Form 5330 examination.

    18. Item 603: Enter any penalties picked up during the examination that are not reflected on Form 5599 of a related Form 5330 examination.

    19. Item 604: Enter totals from item 603.

    20. Item 605: An entry is required when disposal code 13 is used. Enter the amount of proposed adjustments referred to an Examination Functional Unit (e.g., SB/SE) for the specific plan and year to which the Form 5650 relates. Do not enter an amount on this line if the case is being closed disposal code 15.

      Note:

      If you are working an EP Large Case Support Examination coordinated with LB&I or EO, enter the total recommended deduction adjustment (increase or decrease) for all corporate tax years and for all deferred compensation arrangements qualified or otherwise when establishing only one record.

    21. Item 606: Enter deductions claimed for contributions to the specific plan and year to which the Form 5650 relates. Don’t include salary deferrals. If the examination is a focused examination and deductions is not a selected issue, enter the employer contribution amount listed on Form 5500 Schedule I or Schedule H (as applicable) line 2a(1). If the amount deducted is $0 or $1, enter $1.

      Note:

      If you are working an EP Large Case Support Examination coordinated with LB&I or EO and only one return is established on RCCMS and AIMS, enter the total deduction taken for all corporate tax years and for all deferred compensation arrangements qualified or otherwise.

    22. Item 607: Enter total trust assets as of the end of the plan year. Must be at least $1.

    23. Item 608: Enter the number of participants that were directly affected by the examination (i.e., a change in account balance or vesting percentage). Must enter 0 if none are directly affected (cannot be left blank).

      Note:

      A participant is not considered directly affected merely because the plan could have been disqualified.

    24. Item 609: Enter plan type: 1 for a defined benefit plan, 2 for a defined contribution plan

    25. Item 610: Enter the applicable Issue Code(s) that relate to the disposal code. Enter only one Issue Code for Disposal Code 02 (issue code 37Z). Use issue codes that relate to the issues you found during the examination. If you use a disposal code other than 02, then you may enter up to four issue codes. Fill any remaining spaces with zeros. See Document 6476 for a list of issue codes.

    26. Item 612: Enter the applicable NAICS Code (see Document 6476).

    27. Item M: Enter "5500."

  3. See IRM 4.71.3 Exhibit 6 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 5650.