4.71.4 Discrepancy Adjustments

Manual Transmittal

December 08, 2020

Purpose

(1) This transmits revised IRM 4.71.4, Employee Plans Examination of Returns, Discrepancy Adjustments.

Background

IRM 4.71.4 contains procedures for examining, processing and closing Forms 1040, U.S. Individual Income Tax Return, and Forms 1120, U.S. Corporation Income Tax Return, discrepancy adjustments.

Material Changes

(1) Changed the name and content of IRM 4.71.4.1.3 from Contact Information for Business Units to Related Resources. Placed contact Information in IRM 4.71.1 Exhibit 13 at IRM 4.71 - Employee Plans Examination Exhibits. The renamed section contains a link to the Exhibit.

(2) Revised IRM 4.71.4 to incorporate the provisions of the July 28, 2020 Interim Guidance Memo (IGM) TEGE-04-0720-0014 with the subject line, Interim Guidance on Fully Electronic (100% Paperless) Cases, from the Director, EP Examinations.

(3) Revised IRM 4.71.4 to incorporate the provisions of the July 31, 2020 Interim Guidance Memo (IGM) TEGE-04-0720-0018 with the subject line, Elimination of Requirement to Use Paper Form 895/895-EP, from the Deputy Commissioner, TEGE.

(4) Revised IRM 4.71.4 to incorporate the provisions of the September 28, 2020 Interim Guidance Memo (IGM) TEGE-04-0920-0024 with the subject line, Revision to Activity, Disposal, Source and Status Codes, from the Deputy Commissioner, TEGE.

(5) Revised the IRM to eliminate the requirement to prepare Form 5599 as directed in IGM TEGE -04-0720-0014.

(6) Revised and renamed 4.71.4.12.1, Completion of RCCMS Tabs, providing more detailed instructions to complete the RCCMS tabs.

(7) Updated the links to the IRM Exhibits throughout.

(8) Made editorial changes throughout the document including changes for Plain Language (the Plain Writing Act of 2010).

Effect on Other Documents

This supersedes IRM 4.71.4 dated July 25, 2019.

Audience

Tax Exempt and Government Entities
Employee Plans

Effective Date

(12-08-2020)

Eric D. Slack
Director, Employee Plans
Tax Exempt and Government Entities

Program, Scope and Objectives

  1. The Employee Plans (EP) examination program was established to ensure that plan sponsors and taxpayers:

    1. Comply with Internal Revenue Code (IRC) 401(a).

    2. Properly report taxes related to trust assets.

  2. Purpose: IRM 4.71.4, Employee Plans Examination of Returns, Discrepancy Adjustments, contains procedures for examining, processing and closing Form 1040 and Form 1120 discrepancy adjustments.

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

  4. Program Owner: Director, EP Examinations sets the program for the EP examination program.

  5. Program Authority: EP Examination.

    • Resolves issues in making tax liability determinations under IRC 6201.

    • Determine if a retirement plan is qualified under IRC 401, and its regulations, and exempt from tax under IRC 501.

Program Controls

  1. EP Examinations established two review groups to ensure agents conduct examinations per technical, procedural and administrative requirements:

    1. Mandatory Review - See IRM 4.71.14, Employee Plans Examination of Returns, EP Mandatory Review

    2. Special Review - See IRM 4.70.7, Special Review (SR) and Tax Exempt Quality Measurement System (TEQMS) Procedures

  2. Tax Exempt Quality Measurement System (TEQMS) is the quality control system TE/GE uses to measure the quality of the entire examination program. For more information on TEQMS, see IRM 4.70.7, Special Review (SR) and Tax Exempt Quality Measurement System (TEQMS) Procedures.

  3. All examinations will be done in accordance with the Taxpayer Bill of Rights as listed in IRC 7803(a)(3). Find additional information at: Taxpayer Bill of Rights and Pub 5169.

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

    1. For information on privacy laws, see 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 about privacy, email *Privacy.

    4. For question about disclosure, email *Disclosure.

Acronyms, Documents, Forms, and Pubs

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

    Acronyms

    Acronym Definition
    AIMS Audit Information Management System
    BMF Business Master File
    CCR Case Chronology Record
    CEP Coordinated Examination Program
    EFU Exam Functional Unit
    EP Employee Plans
    FAST Field Agent Support Team
    FEMA Federal Emergency Management Agency
    IDR Information Document Request
    IGM Interim Guidance Memo
    IDRS Integrated Data Retrieval System
    IMF Individual Master File
    IRA Individual Retirement Account
    LB&I Large Business and International Division
    MEF Modernized e-File
    NRU Non-Return Unit
    POA Power of Attorney
    RAR Revenue Agent Report
    RCCMS Reporting Compliance Case Management System
    RGS Report Generation Software
    SB/SE Small Business /Self-Employed Division
    SEP Simplified Employee Pension
    SIMPLE Savings Incentive Match Plan for Employees of Small Employers
    SSN Social Security Number
    TE/GE Tax Exempt & Government Entities Division
    TEQMS Tax Exempt Quality Measurement System
    TIN Taxpayer Identification Number
    W&I Wage and Investment
    WebETS Web-Based Employee Technical Time System
     

    Documents, Forms, and Pubs

    Form Name
    Document 6209 IDRS Processing Codes and Information
    Document 6476 Information Systems Codes Quick Reference for EP Agents/Specialists
    Form 433-D Installment Agreement
    Form 433-F Collection/Information Statement
    Form 843 Claim for Refund and Request for Abatement
    Form 872 Consent to Extend the Time to Assess Tax
    Form 886-A Explanation of Items
    Form 895-EP Notice of Statute Expiration
    Form 1040 U.S. Individual Income Tax Return
    Form 1040A U.S. Individual Income Tax Return
    Form 1040EZ Income Tax Return for Single and Joint Filers With No Dependents
    Form 1040-X Amended U.S. Individual Income Tax Return
    Form 1045 Application for Tentative Refund
    Form 1065 U.S. Return of Partnership Income
    Form 1120 U.S. Corporation Income Tax Return
    Form 1120-S U.S. Income Tax Return for an S Corporation
    Form 1120-X Amended U.S. Corporation Income Tax Return
    Form 1139 Corporation Application for Tentative Refund
    Form 1725 Routing Slip
    Form 2275 Records Request, Charge and Recharge
    Form 2848 Power of Attorney and Declaration of Representative
    Form 3177 Notice of Action for Entry on Master File
    Form 3198-A TE/GE Special Handling Notice
    Form 3210 Document Transmittal
    Form 3244-A Payment Posting Voucher - Examination
    Form 4549-E Income Tax Discrepancy Adjustments
    Form 5456 Reviewer’s Memorandum – EP/EO
    Form 5464 Case Chronology Record
    Form 5500 Annual Return/Report of Employee Benefit Plan
    Form 5599 TE/GE Examined Closing Record
    Form 5666 TE/GE Referral Information Report
    Form 5772-A Employee Plans (EP) Workpaper
    Form 5773-A Employee Plans (EP) Workpaper Summary Continuation
    Form 8857 Request for Innocent Spouse Relief
    Form 9439 Collectibility Evaluation Form
    Form 9465 Installment Agreement Request
    Form 9814 Request for Mail/Shipping Service
    Form 10329 Transmittal Sheet-Related Cases
    Pub 1 Your Rights as a Taxpayer
    Pub 5 Your Appeal Rights and How To Prepare a Protest If You Don't Agree
    Pub 504 Divorced or Separated Individuals
    Pub 594 The IRS Collection Process
     

Related Resources

  1. IRM 4.71.1 Exhibit 13 at IRM 4.71 - Employee Plans Examination Exhibits for contact information for individuals and business units referenced in this IRM.

  2. IRM 4.5.2, TE/GE AIMS Manual - TE/GE Examined and Non-Examined Closures for help with completion of Form 5599 (optional).

  3. Document 6476, Information Systems Codes Quick Reference for EP Agents/Specialists, for help completing Form 5599 (optional).

Overview of the Discrepancy Adjustment Program

  1. The discrepancy adjustment program was established to reduce the number of referrals we make to "Exam Functional Units," or "EFUs," for minor adjustments to income. These procedures instruct EP agents how to complete a discrepancy adjustment, unless otherwise specified.

  2. Discrepancy adjustments you apply using these procedures aren’t an examination or inspection of the taxpayer’s books and records per IRC 7605(b).

  3. If we don’t follow these IRM guidelines, LB&I, SB/SE, or W&I, EFUs may have to reopen an examination of a return that TE/GE is deemed to have examined.

  4. This program allows EP agents to make certain line item adjustments to income tax returns for issues we find in our examination of a Form 5500 series return or a NRU such as a SEP IRA, a SIMPLE IRA, IRC 403(b) plans or IRC 457 plans. We may prepare discrepancy adjustments for income tax adjustments to —

    1. Form 1040

    2. Form 1040A

    3. Form 1040EZ

    4. Form 1120

      Note:

      Except for IRC section 72(t) tax, Form 5329 taxes are not considered discrepancy adjustments. We don’t use Form 4549-E with a Form 5329 case. See IRM 4.71.27, Employee Plans Examination of Returns, Form 5329 Examination Procedures, for information on working a Form 5329 case.

  5. Discrepancy adjustments may arise when:

    1. When there’s a discrepancy between information reported on an income tax return and facts developed during an EP examination.

    2. From a related TE/GE examination or any other information TE/GE has access to, such as determination letter applications or compliance projects.

  6. Discrepancy adjustments fall within the scope of Rev. Proc. 2005-32, IRB 2005-23 1206.

  7. EP reports discrepancy adjustments on Form 4549-E and the RAR.

    Note:

    The RAR is the primary narrative for the taxpayer, to explain the issues involved in making adjustments to income and taxes due.

Case Suspense for Federally Declared Disaster, or Terrorist or Military Action

  1. When the IRS issues a Declaration Notice under IRM 25.16.1.5.3, the IRS freezes all IMF and BMF accounts with addresses in the FEMA-designated federally declared disaster area (the "covered disaster area" ) as qualifying for "individual assistance" during the Declaration Notice period (the "postponement period" ).

  2. A taxpayer may contact the IRS to self-identify as eligible for relief under a Declaration Notice. For these cases, contact the FAST Unit (see IRM 4.71.1 Exhibit 13) to have the –O freeze entered on the taxpayer’s account.

  3. Use the following guidance for all cases effected by a Declaration Notice:

    1. Use "Soft Contact Procedures" when communicating with affected taxpayers. Be considerate and sensitive to personal circumstances such as stress and fatigue even if the taxpayer didn’t experience any personal, monetary, or physical damage from the declared disaster.

    2. If you already sent an initial contact letter to the taxpayer before the postponement period, send Letter 6017 to notify the taxpayer that you’re suspending the examination and postponing any scheduled appointment until after the end of the postponement period. You don’t have to return documents the taxpayer sent you. Allow the taxpayer to continue the examination if they want to. If the taxpayer chooses to continue, document your conversation or the taxpayer’s correspondence in the CCR and contact the FAST Unit to replace the –O freeze with a –S freeze.

      Note:

      See IRM 4.71.1 Exhibit 13 at IRM 4.71 - Employee Plans Examination Exhibits for the FAST Unit contact information.

    3. Continue to work the case (in status 12) if you have all the necessary information to work the case and don’t need to contact the taxpayer. If the result is favorable to taxpayer, even if the case contains a written advisory (with or without Form 5666, TE/GE Referral Information Report), close the case as you normally would.

      Note:

      If your cases can’t closed with a –O Freeze in effect, email the FAST Unit and ask them to replace the –O freeze with an S freeze so you can close the case. The FAST Unit will put the –O freeze back on the module after the case is closed. See IRM 4.71.1 Exhibit 13 at IRM 4.71 - Employee Plans Examination Exhibits for the FAST Unit contact information.

    4. If you have an appointment scheduled, cancel it, subject to (f) and (g) below.

    5. If you have an IDR outstanding, postpone the due date to the end of the postponement period, subject to (f) and (g) below.

    6. If you don’t have all the necessary information to work the case and you previously spoke with the taxpayer, call the taxpayer/POA to inform them that you’ll suspend the examination unless they choose to continue. Discuss the contents of Letter 6017 and document your CCR of the material discussed.

    7. If you don’t have all the necessary information and can’t reach the taxpayer by phone, or you never spoke with the taxpayer, send the taxpayer/POA Letter 6017, Taxpayer Contact After Disaster – TE/GE.

    8. If the taxpayer opts out of the postponement period after receiving Letter 6017, document the taxpayer’s oral or written request to bypass the postponement period and continue with the examination before taking action. Document the substance of the conversation and the taxpayer’s correspondence in the CCR. For cases with a –O Freeze in effect that can’t be worked, contact the FAST Unit to replace the –O freeze with a –S freeze. See IRM 4.71.1 Exhibit 13 at IRM 4.71 - Employee Plans Examination Exhibits for contact information for the FAST Unit.

    9. If you can't continue to work on the case, place the case in status 21 suspense, stop all activity until the first business day after the close of the postponement period and document the CCR.

      Note:

      During the postponement period you may do electronic research (for example, West-Law, IDRS, Accurint) and prepare an action plan for the necessary case actions you’ll take when the examination resumes. You can’t require the taxpayer to provide documentation or take action unless the statute of limitations will expire during the postponement period and only if you secure your area manager’s approval.

    10. If you’re working on a closing agreement and the taxpayer has signed the agreement and paid the sanction, post the payment, make the assessment to balance the module, and close the case.

    11. If you issued a summons before the postponement period and the period for the taxpayer to quash expired before the beginning of the postponement period, you may proceed with summons enforcement if the bank or third party record-keeper doesn’t reply. Consult Division Counsel about enforcement of the summons. You can’t issue or enforce any other summons during the postponement period.

    12. If a 30-Day Letter is pending, notify the taxpayer that the response date may be extended until the last day of the postponement period.

    13. If a taxpayer provided a valid protest to Appeals before the postponement period, contact the taxpayer to confirm that the taxpayer is still prepared to continue with Appeals. If yes, update the CCR and contact the FAST Unit to change the –O freeze to a –S freeze. Forward the case to the Closing Unit. See IRM 4.71.1 Exhibit 13 at IRM 4.71 - Employee Plans Examination Exhibits for contact information for the FAST Unit.

    14. Include Notice 1155, Disaster Relief from the IRS in any correspondence (such as IDRs cancelling an appointment, postpone an IDR deadline or to request additional information when the taxpayer opts out of the postponement period) to the taxpayer/POA you send during the postponement period.

      Exception:

      You don’t have to include Notice 1115 isn’t required when you send Letter 6017 because it contains the same information as Notice 1155.

Mandatory Suspension of Activities During the Postponement Period
  1. You must suspend the following activities during the postponement period:

    • Contacting the taxpayer to schedule initial appointments where the taxpayer has been granted a suspension of examination activities and IDRS shows a –O freeze.

    • Making assessments except when the taxpayer agreed to the assessment before, or after, the start of the postponement period.

    • Inspecting books and records and conducting examination-related activities with the taxpayer (unless the taxpayer gives permission to continue with the examination).

    • Issuing summons to the taxpayer or third-party record-keeper.

    • Requiring the taxpayer to comply with a previously issued summon, except if the activity falls under IRM 4.71.4.1.5.

    • Initiating third-party contacts.

    • Issuing an examination report, see exception in paragraph (2) of this section above.

    • Entering into a Fast-track settlement.

    • Issuing a 30-day letter.

Statute of Limitations Expiring During the Postponement Period
  1. Discuss with your area manager approval to solicit a consent to extend the statute. If you solicit a statute extension, follow the procedures in IRM 4.71.9.

  2. If your area manager approves a statute extension during the postponement period, document the CCR accordingly.

  3. If you can’t contact the taxpayer or the taxpayer refuses to extend the statute of limitations, close the case to Mandatory Review.

    Note:

    You and your manager must first contact the EP Mandatory Review manager to discuss the case and get mailing instructions.

Referrals to an Examination Functional Unit (EFU)

  1. If the adjustment doesn’t fall within the guidelines of the discrepancy adjustment program, make a referral on Form 5666, to the appropriate EFU, when the related income tax return:

    1. Is a Form 1120-S.

    2. Is a Form 1065.

    3. Shows a net operating loss.

    4. Was filed by a taxpayer that has filed for bankruptcy.

    5. Was filed by a taxpayer that was dissolved, merged or sold.

    6. Is under the jurisdiction of LB&I or is listed in the Coordinated Industry Program (CIP) Identity File.

    7. Was never filed.

      Note:

      Delinquent Form 1040 or Form 1120 won’t be secured by EP.

    8. Is currently under examination by an EFU.

    9. Involves complex credit carry backs.

    10. Involves capitalized pension or profit sharing costs.

      Note:

      See IRM 4.71.6.7, EP Group Procedures – Making Referrals to Exam Functional Units.

  2. You may process situations described in a. - d. above as discrepancy adjustment cases with the affected EFU Area Director’s approval.

    Note:

    EP area managers and EFU area directors may develop local procedures.

  3. Sometimes, it’s better to refer the discrepancy adjustment issues to the EFU (for example, if the related income tax return is complex or IRS should inspect the books and records in more detail to resolve the potential income tax issue).

  4. You may examine related cases that the EFU is, or has examined, however:

    IF... THEN...
    a. The return is open in an EFU Refer the discrepancy issue to that examiner to resolve.
    b. The EFU has completed the examination EP processes the discrepancy adjustment.
    c. The return is in inactive status (for example, unassigned in an EFU) Make a referral to the EFU.

    Note:

    The income tax return must be closed off the EFU’s AIMS before it can be established on EP AIMS as a discrepancy adjustment. Although it can take up to 365 days to drop off of the EFU’s AIMS from the time they close it, you may still secure the return. However, you may ask the taxpayer for an amended return, if the return had been previously examined.

  5. The EP group manager may refer any adjustment to an EFU if they determine the adjustment would be better handled outside EP.

Identifying Discrepancy Adjustments

  1. You (EP agent) must identify the discrepancy during your examination and start the discrepancy adjustment process when the tax due is $500 or more in any one year.

    Example:

    If income taxes of $400 and $600 are due in 201812 and 2021912, respectively, pursue the discrepancy adjustment for both years.

  2. If income tax is less than $500 per year, discuss with your group manger whether you should pursue the discrepancy adjustment.

  3. Determine if the correct amount of income has been reported on the income tax return by research IDRS or getting a copy of the return.

    1. Use a RTVUE or BRTVU transcript as an original return for this purpose.

    2. Use MEF transcript of return as an original return for this purpose.

      Note:

      MEF returns are available for electronically filed returns only.

    3. Get a copy of the return, complete Form 2275 and email it to Classification. See IRM 4.71.1 Exhibit 13 at IRM 4.71 - Employee Plans Examination Exhibits.

Examples of EP Issues

  1. The following are examples of EP issues that can result in discrepancy adjustments:

    1. Unreported income due to unreported or incorrectly reported distributions from plans

    2. Taxable allocations to participant accounts in defined contribution plans due to the revocation of the tax-exempt status of the plan's trust

    3. Taxable distributions to participants resulting from violations of IRC 72(p) loan limits

    4. Adjustment to taxpayer deductions for contributions to a plan due to non-payment, late payment, excess contributions, plan disqualification, etc.

    5. Unreported income from reversion of excess plan assets after a plan termination

    6. IRC 72(t), 10% additional tax on early plan distributions

Processing Discrepancy Adjustments

  1. You start the discrepancy adjustment process.

  2. You should be satisfied the correct amount of income has been reported and the correct amount of tax paid.

  3. You should follow the procedures below to successfully work a discrepancy adjustment.

IDRS Research

  1. When you determine a possible discrepancy adjustment exists, research IDRS.

  2. Get an AMDISA print to determine if an EFU established a Form 1040 or 1120 return on AIMS.

    Note:

    If so, contact the EFU to coordinate. In most instances, we refer the discrepancy issue to the EFU examiner for resolution.

  3. Get and review BMFOLT (Form 1120) or IMFOLT (Form 1040) transcripts for each effected income tax return to determine whether the:

    1. Statute of limitations needs to be extended.

    2. IRS already examined the return.

    3. Return was amended since it was initially filed.

      Note:

      Transaction code (TC) 977 or TC 976 indicate that the taxpayer filed an amended return. TC 300 or TC 290 indicate an additional assessment has been made.

    4. Service Campus has already made an assessment of tax related to the discrepancy adjustment under current consideration

      Note:

      TC 922 means the Service Campus has selected the taxpayer’s Form 1040 for a possible adjustment. TC 925 means the Service Campus has selected the taxpayer’s Form 1120 for a possible adjustment. If TC 922 is followed by TC 300 or TC 290, the Service Campus has made a tax assessment.

    5. Service Campus has made any other adjustments to the taxpayer filed return.

      Note:

      Refer to Document 6209 Chapter 8 for an explanation of transaction codes (TC) and action codes.

  4. Get and review the following IDRS prints to analyze the return:

    • BMFOLT or IMFOLT print with TC 300 or TC 290 adjustments - secure and review applicable BMFOLA (Form 1120) or IMFOLA (Form 1040) transcripts to help you determine if a tax assessment has already been made for the same issue you’re considering pursuing.

      Note:

      Contact Mandatory Review for help in determining this.

    • INOLES print to determine the last known address of the taxpayer.

    • IRPTRL print for the taxpayer (and taxpayer’s spouse if the applicable return is a joint return) to determine total income and total tax withheld.

    • RTVUE (Form 1040) or a BRTVU (Form 1120) print to determine amounts taken into income, deductions taken, credits taken and tax withheld.

      Note:

      A RTVUE or BRTVU print is the equivalent of a taxpayer filed tax return if it provides sufficient detail to determine if there is a discrepancy, or if it gives sufficient line item detail to compute income tax due.

  5. Save all IDRS research in the RCCMS Office Documents folder for primary RCCMS case file using the RCCMS Naming Convention.

    Note:

    You can use a RCCMS sub-folder to compare this information in the primary case file.

Establishing the Case on AIMS and RCCMS

  1. Get your manager’s approval before starting a discrepancy adjustment and document concurrence on Form 5464 (CCR).

  2. If a discrepancy adjustment is warranted, establish the tax return on AIMS through RCCMS.

Establishing Forms 1040
  1. From the RCCMS main window, select "File," then "New " then "Compliance Activity" .

  2. Select "Validate for Establish."

  3. Check the AIMS box so your establishment will take place on RCCMS and AIMS.

  4. Enter the SSN for the primary taxpayer in the "TIN" field.

    Note:

    The default in the box next to TIN is "0" for a valid TIN.

  5. Enter the SSN for the secondary taxpayer in the "Secondary SSN" field, if applicable.

  6. Select the "Name" button, which will give you a pop up "Name" box for you to complete.

    1. Input the correct name information on each line.

    2. The spouse boxes are available if you entered a secondary SSN. They are grayed out if the secondary SSN box is left blank.

    3. Click "OK" when finished.

    4. Notice the "Name" field in the "Compliance Activity" window will populate based on your entries in the pop up window.

  7. Click on the "Address" button and fill in the taxpayer’s address.

  8. For the "General" tab:

    1. For "Type" , select "1040 Return" .

    2. For "Activity Code" , select the code appropriate to this 1040.

      Note:

      See page 49 of Document 6476 for the list.

    3. Input the tax period.

    4. Input the return due date.

    5. Input the return received date.

    6. Input the statute date.

  9. For the "Codes" tab:

    1. Input the "Name Control" .

    2. Input the "Project Code" .

      Note:

      This is normally the "Project Code" of the lead exam.

    3. Input the "Source Code." Generally this will be 87.

    4. For "Master File Type," select IMF.

    5. Input the "Status Code."

      Note:

      Forms 1040 will normally be established in status 12.

    6. For "Grade" , enter the grade of the case.

    7. Input the "Related Return Source Code" .

      Note:

      This will usually be the Source Code of your lead exam.

    8. For "Return Requisition Code" , select "3 - Return, Chargeout and Labels Not Requested" .

    9. For "MFT Code" , select 30.

    10. Ensure that the "Related Return" box is checked.

    11. Ensure that the "Flowthru" box is checked.

    12. Input the Reason for request/Related return.

    13. Input comments as appropriate.

    14. Select "Save and Close" .

  10. Don’t include an individual 1040 activity in the 5500 or other lead examination case file on RCCMS. This is a disclosure issue.

    1. Save the taxpayer Form 1040 in its own case.

    2. The only activities that should be combined with a Form 1040 for any given taxpayer are multiple years of the same 1040 for the same taxpayer.

    3. Therefore, confirm that the "New Case" option is selected in RCCMS. This establishes the 1040 as its own activity in its own case.

Establishing Forms 1120
  1. From the RCCMS main window, select "File" , then "New" , then "Compliance Activity" .

  2. Select "Validate for Establish" .

  3. Check the AIMS box so your establishment will take place on RCCMS and AIMS.

  4. Enter the EIN in the "TIN" field.

    Note:

    The default in the box next to TIN is "0" for a valid TIN.

  5. Select the "Name" button, which will give you a pop up "Name" box for you to complete.

    1. Ensure you input the correct name information on each line.

    2. Click "OK" when finished.

    3. The "Name" field in the "Compliance Activity" window will populate based on your entries in the pop up window.

  6. Click on the "Address" button and fill in the taxpayer’s address.

  7. For the "General" tab:

    1. For "Type" , select "1120 Return" .

    2. For "Activity Code" , select the code appropriate to this 1120.

      Note:

      See section 48 of Document 6476 for a list.

    3. Input the tax period.

    4. Input the return due date.

    5. Input the return received date.

    6. Input the statute date.

  8. For the "Codes" tab:

    1. Input the "Name Control" .

    2. Input the "Project Code" .

      Note:

      This is normally the "Project Code" of the lead exam.

    3. Input the "Source Code" . Generally this will be 87.

    4. For "Master File Type" , select BMF.

    5. Input the "Status Code" .

      Note:

      Forms 1120 will normally be established in status 12.

    6. For "Grade" , enter the grade of the case.

    7. Input the "Related Return Source Code" .

      Note:

      This will usually be the Source Code of your lead exam.

    8. For "Return Requisition Code" , select "3 - Return, Chargeout and Labels Not Requested" .

    9. For "MFT Code" , select 02.

    10. Ensure that the "Related Return" box is checked.

    11. Ensure that the "Flowthru" box is checked.

    12. Input the Reason for request/Related return.

    13. Input comments as appropriate.

    14. Select "Save and Close" .

  9. Don’t save an individual 1120 activity in the 5500 or other lead examination case on RCCMS. This is a disclosure issue.

    1. Save the taxpayer Form 1120 in its own case.

    2. Combine with a Form 1120 for any given taxpayer only the activities for multiple years of the same 1120 for the same taxpayer.

    3. Therefore, confirm that the "New Case" option is selected in RCCMS. This establish the 1120 as its own activity in its own case.

Statute of Limitations

  1. You must ensure the statute of limitations date on any Form 1040 or 1120 is correct and protected as necessary. Secure consents to extend the statute as needed.

    Caution:

    Carefully review restricted consents on discrepancy adjustment cases to ensure the restrictions are allowable. See IRM 25.6.22.8, Restricted Consents, for the limited circumstances when restricted consents may apply and for special procedures to follow.

  2. Verify that the correct statute of limitations date is shown on RCCMS and AIMS.

  3. When the statute of limitations is 270 days or less, as indicated by a red exclamation point (!), complete the RCCMS Statute Validation Process:

    1. Check the "Statute Valid" check box in the RCCMS Compliance Activity, General tab (1 of 2).

    2. Select "Actions" , "Request Statute Validation" , complete the "Comment" box and submit the request for your manager’s approval.

      Note:

      Use the RCCMS validation feature before you transfer or close a case with 270 days or less.

  4. You may propose adjustments on returns with short statutes if the adjustments are significant.

    1. Get your manager’s approval before you issue a 30-Day Letter for a return with less than 12 months left on the statute.

    2. Include Form 872 with Letter 907-A when you mail the 30-Day Letter to the taxpayer.

    Note:

    See IRM 4.71.4.4.5 (5), Preparation of the Discrepancy Adjustment Package, for information about the 30-Day Letter.

  5. You may accept Form 872 by EEFax or email if you have contacted the taxpayer by phone or in-person and the CCR:

    1. documents the prior contact, and

    2. the taxpayer’s wish to send the executed Form 872 by efax or email.

      Note:

      To document the origin of an email or EEFax, it is necessary to preserve as correspondence the incoming email or EEFfax that identifies the origin. Save the email or efax cover page as correspondence in the RCCMS Office Documents folder using the RCCMS Naming Convention.

  6. Document the CCR for all the actions you took to verify and update the statute.

Time Reporting

  1. Add discrepancy adjustment returns on WebETS when you establish the returns on RCCMS and AIMS.

  2. Charge any nominal time spent on the discrepancy issue before you establish the related return on RCCMS and AIMS.

  3. Use the appropriate activity code, which depends on the type of return to which the adjustment applies. See Document 6476.

  4. Verify the AIMS generated activity code within RCCMS, and Ensure it agrees with the code used on WebETS before you close the case.

  5. Use the same project code as that on the related examination. If no other code is warranted, use "0000."

  6. Don’t use a plan indicator on WebETS for the discrepancy adjustment case.

Preparation of the Discrepancy Adjustment Package

  1. Use Form 4549-E to communicate the discrepancy adjustment to the taxpayer and to request taxpayer agreement with the proposed discrepancy adjustment. Type in the Form 4549-E"Other Information" section on page two the following comments:

    1. "This discrepancy adjustment doesn’t constitute an examination of your tax return."

    2. "See the attached Revenue Agent Report for an explanation of the issue(s)."

    Note:

    Include a third comment if IRC 6404(g) applies. See IRM 4.71.4.4.6 (6), Penalties and Interest, for instructions when IRC 6404(g) applies.

    Note:

    See IRM 4.71.4 Exhibit 3 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Form 4549-E.

  2. Generate Form 4549-E using current RGS software.

  3. Attach an RAR, which includes an explanation of the issue(s) being raised in the discrepancy adjustment package.

    1. Clearly state the issue(s).

    2. Clearly explain the issue(s) as specified in IRM 4.71.4.4.5 (4).

    3. Use Form 886-A for your write-up of the issue(s).

  4. Organize the RAR into the following parts:

    1. Issue(s)– Clearly state the issues. For example, if the issue is whether a participant loan is a taxable distribution under IRC 72(p), the issue might be stated as follows: "Whether a participant loan to Bobby Caribou in the amount of $103,317 from the XYZ Corporation Profit Sharing Plan (the Plan) is a taxable distribution under IRC 72(p)."

    2. Facts– Include in the facts section a brief history of the plan and give pertinent details surrounding the issue. This section should also cite any plan provisions relevant to the issues raised.

    3. Law– Give a summary of Code sections, Revenue Rulings, court cases, etc., that relate to the issue(s) raised. Don’t cite General Counsel Memos (GCM) or Private Letter Rulings (PLR) as sources of authority.

    4. Government's Position– Discuss each issue separately and apply the law and the facts relevant to each specific issue. Also summarize taxes due and the applicability of penalties.

    5. Taxpayer's Position– Describe the taxpayer's position including any rebuttals the taxpayer has made on the Government's position. If the taxpayer hasn’t provided a position on the Issue(s), type a simple statement to the effect that the taxpayer hasn’t provided a response.

    6. Conclusion– If the taxpayer provides a position on the issue(s), you should prepare a rebuttal to the taxpayer’s position. Restate the Government’s position as a conclusion.

    Note:

    See IRM 4.71.4 Exhibit 11 at IRM 4.71 - Employee Plans Examination Exhibits for an example of an RAR.

  5. Use Letter 3605 (30-Day Letter) as the cover letter for the discrepancy adjustment package. See IRM 4.71.4 Exhibit 2 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Letter 3605.

    Note:

    Include only the tax deficiency and the penalties in the upper right under the "Tax Deficiency" and "Penalties" heading on the first page of Letter 3605. Don’t include interest being assessed on Letter 3605.

  6. Prepare the discrepancy adjustment package:

    1. Pub. 1

    2. Pub. 5

    3. Pub. 504 (if the subject return is a Form 1040 series return and the taxpayer was married)

    4. Pub. 594

    5. RAR

    6. Two copies of Form 4549-E

    7. Penalty calculations (if penalties are being assessed)

    8. Interest calculations

    9. Form 9465 (optional)

    10. Return Envelope

  7. Prepare the 30-Day Letter and the discrepancy adjustment package and mail it to the taxpayer unless the discrepancy adjustment has been established because of a proposed revocation or proposed disqualification of the related unagreed plan examination.

  8. After you mail the letter:

    1. Update the case to status 13.

    2. Call the taxpayer to discuss the issue(s).

      Reminder:

      Allow 14 and 21 calendar days before you call.

  9. If your discrepancy adjustment is for an unagreed proposed revocation or proposed disqualification case, prepare the 30-Day Letter and discrepancy adjustment package, but don’t mail them to the taxpayer.

    1. Close the discrepancy adjustment to Mandatory Review with the related unagreed Form 5500 case file.

      Note:

      Before you close any cases to Mandatory Review, your manager must call the Manager, EP Mandatory Review to discuss the case and get mailing instructions.

    2. Mandatory Review issues the 30-Day Letter and discrepancy package when they send the 30-Day Letter for the proposed plan revocation/disqualification.

  10. The 30-Day Letter:

    • Notifies the taxpayer of their rights, including Appeal rights

    • Gives the taxpayer 30 days to respond. If the taxpayer doesn’t respond within 30 days, close the case unagreed to Mandatory Review. See IRM 4.71.4.6, Unagreed Case Procedures.

  11. Mail the discrepancy adjustment package by certified mail to the taxpayer's last known address.

    1. Use an INOLES print to get the taxpayer’s last known address.

      Note:

      INOLES shows the address the taxpayer last gave the IRS on their most recent return filing or other notification.

    2. If you know through other sources, that the taxpayer’s address has changed from the INOLES address, mail the discrepancy adjustment package to the new address.

  12. If the applicable return is a Form 1040 filed jointly:

    1. Mail separate packages to each spouse, even if they live at the same address. Use the last known address of each spouse (or former spouse if no longer married).

      Note:

      Prepare and address each letter and send to both spouses individually. Use the primary social security number on both letters.

    2. Secure separate Forms 2848 for each spouse when the taxpayers want someone to represent them.

Penalties and Interest

  1. Determine if you should assess penalties.

    Reminder:

    Written managerial approval for all penalties is required except for those imposed by IRC 6651, failure to file tax return or to pay tax, or other penalties automatically calculated.

  2. The negligence penalty under IRC 6662(b)(1) is the most common penalty on discrepancy adjustment cases.

  3. Get your manager’s written approval before you issue any written communication of penalties to a taxpayer that offers them an opportunity to sign an agreement or consent to assessment or proposal of the penalty for all IRC 6751(b)(1) penalties. See IRM 20.1.5.2.3, Supervisory Approval of Penalties - IRC 6751 Procedural Requirements.

    1. When you determine IRC 6662 penalties apply, get supervisory approval before you mail Form 4549-E to the taxpayer (IRC 6751(b)(2)).

    2. Document your manager’s approval on Form 5464, through email, on a memo to the file, electronically or on a penalty approval form.

  4. Assert any applicable penalties through the penalty menu in RGS. The program will automatically compute penalties and provide an explanation of the penalties being included as part of the Form 4549-E report.

  5. Include in the workpapers, a brief discussion on whether penalties apply and whether you’re assessing them.

  6. If the IRS doesn’t provide a notice to the taxpayer (who has timely filed their tax return) specifically stating the taxpayer’s liability within a specified period of time, the IRS must suspend the imposition of any interest for any failure for that return (IRC 6404(g)).

    1. For 2005 returns filed after May 25, 2006, and for later years, interest is suspended on the day after the close of the 36 month period and ending 21 days after the IRS provides the notice. The "suspension period" begins 36 months after the later of (1) the date on which the return is timely filed, or (2) the due date of the return without regard to extensions.

      Note:

      See the example in IRM 4.71.4.4.6 (7).

    2. In all instances where interest is suspended, the "suspension period" ends 21 days after the date on which the IRS issues the required notice.

    3. "Notice" is considered to be made when the 30-Day Letter (Letter 3605) is mailed.

    4. Suspension of interest under IRC 6404(g) applies only to timely filed returns (returns filed by the original due date or by the extended due date if a valid extension was filed).

    5. Suspension of interest under IRC 6404(g) applies only to individuals, not to corporations.

    6. Suspension of interest under IRC 6404(g) has an impact on discrepancy adjustments only with regard to the assessment of interest.

    7. If IRC 6404(g) applies, the suspension of interest begins on the day after the 36 month period and ends 21 days after the IRS mails the 30-Day Letter package.

      Note:

      The suspension of interest over this period is granted whether or not Form 4549-E is signed or tax is paid.

    8. IRC 6404(g) applies only if the 30-Day Letter package is mailed to the taxpayer after the applicable suspension period has expired.

      Example:

      If IRS mails the 30-Day Letter for a discrepancy adjustment on October 15, 2021, proposed on a 2019 Form 1040 that was timely filed on April 15, 2020, 6404(g) doesn’t apply and interest should not be suspended for any period of time since the 30-Day Letter package is mailed before the end of the 36 month suspension period.

    9. If IRC 6404(g) applies, calculate interest on Form 4549-E from the original due date of the Form 1040 return through the 36 month period.

    10. If IRC 6404(g) doesn’t apply, calculate interest on Form 4549-E from the original due date of the return through 30 days after the date of the 30-Day Letter.

    11. IRC 6404(g) doesn’t apply to any penalty imposed by IRC 6651, any case involving fraud, any "listed transaction," or any criminal penalty.

  7. The following example helps illustrate the suspension period:

    Example:

    Assume Amanda Raccoon timely files her 2019 Form 1040 on April 15, 2020. Amanda neglects to include a $150,000 taxable pension distribution on her Form 1040. IRS mails a 30-Day Letter package to Amanda on October 15, 2020, and Amanda signs Form 4549-E and pays the deficiency on November 15, 2020. Amanda owes interest on the deficiency from April 16, 2020 through November 15, 2020. The suspension of interest under IRC 6404(g) doesn’t apply because IRS gave her the notice before the end of the 36 month suspension period.

  8. When you determine penalties apply on a Form 1040 or Form 1120 discrepancy adjustment:

    1. Get your manager’s approval before you assess any penalty under IRC 6662 (Negligence or Disregard of Rules and Regulations).

      Exception:

      You don’t have to get your manager’s approval if you assess penalties under IRC 6651 (Failure to File/Failure to Pay), IRC 6654 (Estimated Tax Penalty for Individuals), and IRC 6655 (Estimated Tax Penalty for Corporations).

    2. Notify the taxpayer in writing that penalties are being assessed and include the penalty Code section and a computation of the penalties.

    Note:

    See of the IRS Restructuring and Reform Act of 1998.

  9. Every notice sent to an individual which includes an amount of interest due must also include a detailed computation of the interest charged and a citation to the Code section under which the interest is imposed.

    Note:

    See the IRS Restructuring and Reform Act of 1998 Section 3306.

  10. IRS assesses interest on both taxes that are not timely paid and penalties we assess.

Taxpayer Responses to the 30-Day Letter (Letter 3605)

  1. If the taxpayer submits information:

    • that changes the discrepancy amount or penalties (but doesn’t eliminate it), issue Letter 2657 with a revised report to the taxpayer. See IRM 4.71.4 Exhibit 7 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Letter 2657.

    • that doesn’t change the original report, issue Letter 2658 along with a copy of the original report. See IRM 4.71.4 Exhibit 8 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Letter 2658.

  2. If you and your manager determine that IRS needs to inspect the books and records in more detail to resolve an income tax issue, refer the case to the appropriate EFU.

  3. In general, taxpayers aren’t permitted extended time to reply to a 30-Day Letter per 26 CFR 601.105(d)1. However, you may grant an extension under reasonable circumstances such as:

    1. The taxpayer retains a representative and demonstrates a need for more time to prepare a meaningful protest.

    2. The taxpayer retains a new representative.

    3. The taxpayer or representative is sick or injured.

    4. Issues are complex and require extensive research.

  4. Taxpayers must request extensions of time to respond to the 30-Day Letter in writing and explain the reason(s) why they need more time. Because many taxpayers and representatives request extensions by calling, you may grant one verbally, then confirm it in writing when you receive the written request.

  5. Don’t grant an extension if the statute of limitations will expire within 150 days until the taxpayer extends the statute of limitations by signing Form 872. Ensure there is plenty of time to process the case.

  6. Get your manager’s or designee’s approval before granting the extension.

  7. Notify the taxpayer in writing of the extension and the specific extended response date.

  8. Normally grant no more than 30 days unless there is a good reason for additional time.

  9. If the taxpayer doesn’t protest within the 30 day period, but previously indicated his/her intention to do so, you may send Letter 923-A to the taxpayer to allow an additional 15 days to file a protest. Send Letter 923-A by seven calendar days after the original 30-Day Letter response date. See IRM 4.71.4 Exhibit 9 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Letter 923-A.

  10. If the 30-Day Letter is returned as undeliverable, try to get the correct address.

    1. If you find the taxpayer’s correct address, re-mail the 30-Day Letter to the new address.

      Note:

      Use the date of the re-mailed letter to measure the 30 days for the taxpayer’s response.

    2. If you can’t find the taxpayer’s correct address, process the case per IRM 4.71.4.6.2, Failure of the Taxpayer to Properly Respond.

Agreed Case Procedures

  1. Cases are considered agreed if:

    1. There is an "agreed tax change." In this case, the taxpayer agrees with the proposed tax change by returning a signed Form 4549-E. See IRM 4.71.4.5.1, Agreed Tax Change, for further instructions.

    2. The taxpayer sends additional information that results in a "no change." In this case, either you find or the taxpayer provides information that verifies that no adjustment is warranted.

Agreed Tax Change

  1. If the taxpayer or representative (authorized to sign on behalf of the taxpayer on Form 2848) sends a signed Form 4549-E, the case is agreed.

    1. You may close an agreed case without payment from the taxpayer; however, try to reasonably secure full payment of taxes, interest and penalties (if applicable).

    2. If the taxpayer is unable to pay, see IRM 4.71.4.11, Installment Agreement and Bankruptcy Procedures, for information on Installment Agreements.

  2. You can accept an EEFaxed or emailed Form 4549-E if you have made taxpayer contact and the case chronology record documents the date of contact and the taxpayer’s wish to submit the Form 4549-E by EEFax or email.

    Note:

    To document your receipt of an email or EEFax, keep the correspondence the incoming email or EEFax that identifies it. Save the email or EEFax cover page as correspondence in the RCCMS Office Documents folder using the RCCMS Naming Convention.

  3. If you have an "agreed tax change," use disposal code 03 (RCCMS disposal code = 102).

    Note:

    If there is a related Form 5500 exam, close the 5500 exam with disposal code 04 (RCCMS disposal code = 205) unless a higher priority disposal code is appropriate.

  4. If the total discrepancy adjustment to one taxpayer results in an over-assessment, or an agreed but unpaid deficiency of $10,000 (per RRA 3103 changes) or more, close the case within 22 calendar days (16 business days) after the agreement is filed or the over-assessment is determined.

  5. If you receive payment, process the check per group procedures and GAO recommendations:

    1. Ensure the check is made out to the "United States Treasury." If the payee line is blank or the check is made out to "IRS," use the United States Treasury stamp to complete/correct the payee section of the check.

    2. Enter the check information (date of check, check number, amount, payer, IRS recipient name and date received) into the required group logbook.

    3. Complete Form 3244-A per IRM 4.71.4.5.1 (6) below. See IRM 4.71.4 Exhibit 4 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 3244-A.

    4. Complete Form 3210 to accompany the payment you send to the Service Campus. Include in the body of the Form 3210 the taxpayer’s name, SSN/EIN, tax return form number, amount of payment, and check number. If the payment applies to more than one tax period, note and itemize the breakdown on the Form 3210.

    5. Include, both your telephone number and your EEFax number on the "Originator Telephone Number" line at the bottom of Form 3210.

      Note:

      The Ogden Submission Processing Campus now returns the Form 3210 acknowledgement copy through EEFax.

    6. Forward the Form 3210 and Form 3244-A to your group manager who reviews the Form 3210, compares it to the Form 3244-A and signs the Form 3210.

      Note:

      The person who prepares the Form 3244-A can’t be the same person who signs the Form 3210.

    7. Make a copy of Form 3244-A, Form 3210 and the payment (i.e., check) to keep in the case file.

    8. Send the check along with the Form 3244-A and Form 3210 express mail (next day) to the Ogden Service Campus at the address listed in IRM 4.71.1 Exhibit 13 at IRM 4.71 - Employee Plans Examination Exhibits by the end of the next business day after receipt.

    9. If you can’t mail the check to Service Campus when you receive it, secure it in a locked file overnight.

    10. Place the check in a separate addressed envelope along with the completed Form 3244-A when you enclose it in the express mail envelope.

    11. Email the Ogden Teller Unit per IRM 4.71.4.5.1 (7).

    12. If you don’t receive the Form 3210 acknowledgement copy from the Service Campus within 10 days after mailing, contact the Service Campus to follow-up receipt of the check. Document these actions in the group logbook.

    Note:

    Don’t include a copy of Form 4549-E with the payment package you send to the Service Campus. Doing so may cause double assessment of tax to occur.

  6. If you receive payment, complete Form 3244-A for each year for which payment is received as follows:

    1. SSN/EIN: Enter the SSN or EIN (as applicable).

    2. Form number/MFT: Enter 1040/30 or 1120/02.

    3. Tax period: Enter the tax year.

    4. Plan number: Leave blank.

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

    6. Taxpayer name, address and zip code: Enter the taxpayer’s information.

    7. Transaction Data: List the amount received for the year under transaction code 640 (Advance Payment) and the same amount under "Total payment." Also list $0 next to transaction code 570.

    8. Remarks: List the check number and the amount of the check. If the check represents payments for more than one year, list each year and the amount applied to each year.

    9. Prepared by: Enter the agent’s name and group number.

      Note:

      A Form 3244-A is required for each year for which payment is received. For example, if you receive a check from the taxpayer for $5,000 that includes payment of $2,000 for 201312 and $3,000 for 201412, you should prepare a Form 3244-A for 201312 reflecting $2,000 next to transaction code 640 and a second Form 3244-A for 201412 reflecting $3,000 next to transaction code 640.

      Note:

      See IRM 4.71.4 Exhibit 4 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 3244-A.

  7. If the remittance is $100,000 or more, email the teller unit at the address in IRM 4.71.1 Exhibit 13 at IRM 4.71 - Employee Plans Examination Exhibits, the following information:

    1. UPS tracking number

    2. Dollar amount of the remittance

    3. The city/state the package is being shipped from

  8. Do the following additional actions if you receive a single remittance of $1 million or more:

    1. Find the designated remittance liaison on the Submission Processing Field Office Payment Processing page website at http://win.web.irs.gov/SP/Programs_Information/Standard_Proce_Webpages/Field_Office_Pymt_Proc.htm to obtain the Ogden Campus liaison's email address in the "Phone" column.

    2. Call, email, or EEFax the liaison that you’ll send a single remittance of $1 million or more and give them the tracking number for the overnight package of the remittance. See IRM 5.1.2.6.1.1, Remittance Over $1M.

  9. Don’t prepare a closing letter for discrepancy adjustments when there is an "agreed tax change."

  10. If interest is being suspended per IRC 6404(g) as described in IRM 4.71.4.4.6, Penalties and Interest, follow these steps to notify TE/GE Closing Group that interest is to be suspended:

    1. List the IRC 6404(g) notice date in the "Other Information" section of the file copy of Form 4549-E. Suggested language: "IRC 6404(g) does apply, and notice was provided on _______ (insert the date Form 4549-E was mailed to the taxpayer)."

    2. In the "Other Instructions" section of Form 3198-A, include the following: "IRC 6404(g) does apply, and notice was provided on _______ (insert the date you mailed Form 4549-E to the taxpayer). Interest should be suspended beginning _______ (insert the date the suspension period begins) through _______ (insert the date the suspension period ends)." See IRM 4.71.4 Exhibit 12 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Form 3198-A.

    3. Prepare Form 3177 per IRM 4.71.4 Exhibit 13 at IRM 4.71 - Employee Plans Examination Exhibits and save it in the RCCMS Office Documents folder using the RCCMS Naming Convention.

      Note:

      The TEGE Closing Group’s input of transaction code 971 with action code 064 and the "notice date" will suspend the interest as required by IRC 6404(g).

    4. The Exam group manager must email the TE/GE Closing group manager when the case is closed to let them know interest is suspended and Form 3177 is in the RCCMS Office Documents folder.

  11. Prepare Form 5772-A and Form 5773-A (or equivalent) along with any supplemental workpapers. Save a copy of Forms 5772-A, 5773-A (or equivalent), supplemental workpapers and all other relevant documents in RCCMS, following the RCCMS Naming Convention. The workpapers should:

    1. Be limited to the discrepancy adjustment issue(s)

    2. Include a discussion on IRC 72(t) when the issue involves pension distributions

    3. Include a brief discussion on the applicability of penalties and whether or not penalties are being assessed

  12. Save all IDRS research discussed in IRM 4.71.4.4.1, IDRS Research, in the RCCMS Office Documents folder using the RCCMS Naming Convention. Include a current AMDISA print before you close the case.

  13. Prepare and save Form 10329 and save all workpapers, forms and letters you generated in the RCCMS Office Documents folder using the RCCMS Naming Convention.

  14. Ensure the following documents for all years are scanned and saved in the RCCMS Office Documents folder using the RCCMS Naming Convention:

    1. Form 872 (if secured, attach face down to the back of Form 1040/1120)

    2. Form 2848 (if applicable) attached to the back of the first page of the return (if there is a valid 2848 and it is not scanned into the RCCMS Office Documents folder)

    3. Form 4549-E

    4. A copy of the check if payment is received (if not scanned and saved in the RCCMS Office Documents folder)

  15. Complete the RCCMS Closing tabs per IRM 4.71.4.12.1, Completion of RCCMS Closing Record.

    Reminder:

    You don’t have to complete Form 5599 but if you do, see IRM 4.71.4 Exhibit 5 at IRM 4.71 - Employee Plans Examination Exhibits for an example.

  16. Update the case to status code 51 on RCCMS and AIMS before the case is closed from the group.

    Note:

    This is done by the designated person in the group.

  17. Close the case file to TE/GE Closing Group.

"No Change" Cases

  1. If you receive information during the 30 day period that verifies no adjustment is warranted, do the following:

    1. Keep a copy of the return (or applicable RTVUE or BRTVU print) in the RCCMS Office Documents folder.

    2. Include the original return (if secured) with the closed discrepancy adjustment case file.

    3. Prepare Form 5772-A and Form 5773-A (or equivalent), along with any supplemental workpapers and all other relevant documents, fully explaining why the case is being closed "no change."

    4. Prepare Letter 2656. See IRM 4.71.4 Exhibit 6 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Letter 2656.

      Note:

      The group mails Letter 2656 to the taxpayer and POA before closing the case.

  2. Prepare Form 10329 and save it with copies of all workpapers, forms and letters you generated in the RCCMS Office Documents folder using the RCCMS Naming Convention.

  3. Ensure the following documents for all years are scanned and saved in the RCCMS Office Documents folder using the RCCMS Naming Convention:

    1. Copy of Form 1040/1120 (or RTVUE/BRTVU print)

    2. Form 872 (if secured, attach face down to the back of Form 1040/1120)

    3. Form 2848 (if applicable) attached to the back of the first page of the return for the lead file (if there is a valid 2848 and its not scanned into the RCCMS Office Documents folder)

  4. Complete the RCCMS Closing tabs per IRM 4.71.4.12.1, Completion of RCCMS Closing Record.

    Reminder:

    Form 5599 is no longer required but if you choose to complete Form 5599, see IRM 4.71.4 Exhibit 5 at IRM 4.71 - Employee Plans Examination Exhibits for an example.

  5. Update the status code to 51 on RCCMS and AIMS when the case is closed from the group.

    Note:

    This is done by the designated person in the group.

  6. Close the case file to TE/GE Closing Group.

Unagreed Case Procedures

  1. Follow "Unagreed Case Procedures" in two situations:

    1. The taxpayer disagrees and files a protest with Appeals (or petitions the Tax Court).

    2. The taxpayer doesn’t submit a proper response to the 30-Day Letter.

  2. Complete the following before you transfer unagreed case files to Mandatory Review:

    1. Scan all paper documents you exchanged with the taxpayer including envelopes or anything the taxpayer or representative marked.

    2. Scan and save all exchanged documents and relevant documents you prepared during the examination into RCCMS Office Documents folder using the RCCMS Naming Convention.

  3. Keep all records you upload into RCCMS or determine are no longer relevant to the case file per normal record retention requirements outlined in IRM 1.15.2.

Disagreement by the Taxpayer

  1. If the taxpayer disagrees with the proposed adjustments, inform the taxpayer of their:

    1. Right to discuss the proposed adjustment with a supervisor

    2. Appeal rights

  2. Encourage a taxpayer who doesn’t agree with the proposed adjustment to file a valid written protest for the case to go to Appeals.

    Note:

    Pub 5 summarizes the protest procedure.

  3. If there’s less than one year on the statute of limitations, request a statute extension on Form 872. See IRM 4.71.9.6.5, Securing Consents for Form 1040 and Form 1120, for special instructions.

    1. Appeals won’t accept cases with less than one year remaining on the statute of limitations.

    2. If the taxpayer refuses to extend the statute of limitations, or you can’t find the taxpayer, close the case to Mandatory Review to issue a 90-Day letter instead of sending the case to Appeals.

      Note:

      Before closing the case to Mandatory Review, the group manager must call the Manager, EP Mandatory Review at IRM 4.71.1 Exhibit 13 at IRM 4.71 - Employee Plans Examination Exhibits to discuss the case, noting the statute expiration date.

  4. If the taxpayer files a protest, review the protest to determine whether:

    1. The protest is a "valid protest"

    2. The case requires further development

      Note:

      See Pub 5 for Form 1040/1120 protests for all the items needed for a "valid protest" .

    3. See IRM 4.71.4.6.1.1, Cases to Appeals.

  5. If the formal written protest doesn’t comply with the requirements in Pub 5, you may, with managerial approval return the protest to the taxpayer and grant them additional time to perfect the protest.

    Note:

    The signature of only one spouse on a protest for a joint return doesn’t make the protest incomplete. Also, if the only item missing from the protest is a copy of the 30-Day letter, you can close the case using the copy in the file. Therefore, there is no need to return the protest to the taxpayer for perfection. Adequacy of a protest is generally not determined based on its substantive content, such as whether the protest contains sufficient factual or legal support.

    Note:

    If a taxpayer submits a formal written protest that includes all the information required by Pub 5 addressing the issues raised in the 30-Day Letter, reasons for disagreement, and factual information to support their position on the issues, then you must forward the case to Appeals for their consideration. Send to Appeals regardless of whether you disagree with the taxpayer’s facts or don’t consider the taxpayer’s position sufficiently supported. A taxpayer protest is adequate when it contains all information required by Pub 5.

  6. If the taxpayer doesn’t submit a valid protest, close the case to Mandatory Review to issue a 90-Day Letter.

    Note:

    Before closing any cases to Mandatory Review, the group manager must call the Manager, EP Mandatory Review to discuss the case and statute and get mailing instructions.

  7. If the protest is valid, but doesn’t change the government's position, revise the RAR to incorporate the taxpayer's position and the government's response to that position, and close the case to Appeals with AIMS disposal code 07 (601 on RCCMS).

    Reminder:

    Send a valid protest directly to Appeals.

  8. If the protest is valid and changes the report, but doesn’t eliminate the income tax adjustment, mail a revised report to the taxpayer, giving the taxpayer an additional 15 days.

    1. If the taxpayer agrees, close the case as an agreed case.

    2. If the taxpayer doesn’t agree, close the case to Appeals with AIMS disposal code 07 (601 on RCCMS).

  9. When closing a discrepancy adjustment to Appeals, save the final RAR and all supporting documentation for the discrepancy adjustment (e.g., loan documents and plan sponsor generated documents) in the RCCMS Office Documents folder using the RCCMS Naming Convention. Use RCCMS subfolders to organize document groupings when warranted.

  10. Copy the RGS information to an email to include or associate with your case. Ensure any passwords you use to encrypt the file is noted on the CCR.

  11. Follow these steps to send RGS file by email:

    1. Open the RGS program, highlight the case from "Case Management Window," which usually opens automatically, and hit "Select." If the "Case Management Window" doesn’t automatically (or you’ve been working in RGS on another case, select "File," "Open" and "Case" from the "Report Generation Software" window.

    2. From the "Report Generation Software" window, select "Copy Case" from the "File" drop down menu.

      Note:

      Selecting "Move Case" removes the case from RGS once case is copied to your hard drive.

    3. From the "Copy Case(s)" window, use "Select Location" in the "Copy Cases(s) To" box to navigate to the desired location on your hard drive.

    4. Select "Copy." A folder containing a file "NFORWARDI1.ZIP" (or similar name) is created.

    5. Send this file to the email address the Manager, EP Mandatory Review gave you. See IRM 4.71.1 Exhibit 13 at IRM 4.71 - Employee Plans Examination Exhibits, for contact information for the Manager, EP Mandatory Review.

  12. To extract RGS information in an email (the NFORWARDI1.ZIP file):

    1. Save the file to your hard drive.

    2. Open RGS.

    3. At the "Case Management" window, select "Merge" .

      Note:

      If the "Case Management" window doesn’t open automatically, select the "File" drop down menu and "Case" then "Open" from the "Report Generation Software" window.

    4. A "Merge" window will open.

    5. In the "Merge from" box navigate to the NFORWARDI1.ZIP file and select.

    6. Then select "Merge"

  13. If interest is being suspended per IRC 6404(g) as described in IRM 4.71.4.4.6, Penalties and Interest:

    1. List the IRC 6404(g) notice date in the "Other Information" section of the file copy of Form 4549-E. Suggested language is as follows: "IRC 6404(g) does apply, and notice was provided on _______ (insert the date you mailed Form 4549-E to the taxpayer)."

    2. In the "Other Instructions" section of Form 3198-A, include the following: "IRC 6404(g) does apply, and notice was provided on _______ (insert the date you mailed Form 4549-E to the taxpayer). Interest should be suspended beginning _______ (insert the date the suspension period begins) through _______ (insert the date the suspension period ends)." See IRM 4.71.4 Exhibit 12 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Form 3198-A.

    3. Prepare Form 3177 per IRM 4.71.4 Exhibit 13 at IRM 4.71 - Employee Plans Examination Exhibits and save it in the RCCMS Office Documents folder using the RCCMS Naming Convention.

      Note:

      The TEGE Closing Group’s input of transaction code 971 with action code 064 and the "notice date" suspends the interest as required by IRC 6404(g).

    4. The Exam group manager must notate in the CCR that interest is to be suspended and Form 3177 is saved in the RCCMS Office Documents folder.

  14. Prepare Form 5772-A and Form 5773-A (or equivalent) along with any supplemental workpapers and all other relevant documents. Ensure the workpapers:

    1. Are limited to the discrepancy adjustment issue(s).

    2. Discuss IRC 72(t) when the issue involves pension distributions.

    3. Briefly discuss the applicability of penalties and whether or not penalties are assessed.

  15. Save all IDRS research discussed in IRM 4.71.4.4.1, IDRS Research, in the RCCMS Office Documents folder, following the RCCMS Naming Convention.

  16. Get a current AMDISA print and save in the RCCMS Office Documents folder before you close the case.

  17. Secure a current IMFOLT print (Form 1040) or BMFOLT print (Form 1120) immediately before you close the case to Appeals or Mandatory Review to ensure that the Service Campus has not already made the assessment for the discrepancy adjustment. Save these in the Office Documents folder in RCCMS, using the RCCMS Naming Convention.

  18. Complete the RCCMS closing tabs per IRM 4.71.4.12.1, Completion of RCCMS Tabs.

  19. Prepare Form 3198-A, identifying the case as "Forward to Appeals" or "Mandatory Review," and notate: "Unagreed Discrepancy Adjustment," and save it in the RCCMS Office Documents folder.

    Note:

    Before closing the case to Mandatory Review, the group manager must call the Manager, EP Mandatory Review to discuss the case, noting the statute expiration date.

  20. If there’s less than one year on the statute of limitations, see IRM 4.71.9.6.5, Securing Consents for Form 1040 and Form 1120, for special instructions.

  21. Effective July 28, 2020, close the case fully electronically.

    Note:

    Consult with your manager on cases with unique circumstances that might justify closing with a paper case file.

    Note:

    See IGM TEGE-04-0720-0014, Interim Guidance on Fully Electronic (100% Paperless) Cases.

  22. If the taxpayer or POA submits a valid protest to Appeals, see IRM 4.71.4.6.1.1, Cases to Appeals.

  23. If the taxpayer or POA doesn’t submit a valid protest to Appeals, close the case to Mandatory Review on RCCMS.

    Note:

    Before closing the case to Mandatory Review, the group manager must call the Manager, EP Mandatory Review to discuss the case, noting the statute expiration date.

    Note:

    You’re strongly encouraged to close the related Form 5500 exam (if there is one) as a ride-along case with the discrepancy adjustment

  24. Update the case to status code 20 on AIMS and RCCMS if the case is closed to Mandatory Review.

    Note:

    If Mandatory Review later returns the case to the group with a Form 5456, it will be updated to status 13. The case stays in status 13 until the group closes it.

Cases to Appeals
  1. If the taxpayer or Power of Attorney (POA) files a valid timely protest to appeal the issues reflected in the 30-Day Letter, evaluate any new facts or arguments presented and prepare a revised RAR rebutting, if applicable, the new information and position.

    Note:

    Give the revised RAR to the taxpayer and POA, if applicable, under an individually-designed cover letter explaining the purpose of the revised RAR and the current case status (being processed to Appeals).

  2. If the protest doesn’t change the original conclusion:

    1. Review the protest letter you received from the taxpayer or POA to Ensure it’s a valid protest per Pub. 5 and notify the group manager (or designee) that you received a protest.

    2. Remember that all cases moving to Appeals require a minimum of 12 months remaining on the statute of limitations.

    3. Update the RAR to address the protest and send a copy to the taxpayer and POA, if applicable.

    4. Complete the Appeals routing slip (Form 1725) for the case to go to the Appeals Office in Chicago, IL (Office Code 131). See IRM 4.71.14 Exhibit 11 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Form 1725 for a case going to Appeals.

    5. Complete Form 3198-A selecting the box, "Forward to Appeals" and save it in the RCCMS Office Documents folder.

    6. Save all of the prepared forms and letters in the RCCMS Office Documents folder using the RCCMS Naming Convention, see IRM 4.71.1 Exhibit 2 at IRM 4.71 - Employee Plans Examination Exhibits.

    7. Scan all relevant paper documents and save them in the RCCMS Office Documents folder using the RCCMS Naming Convention.

    8. Keep in your exam group: all paper case documents until resolved by Appeals.

  3. Complete the RCCMS closing tabs per IRM 4.71.4.12.1, Completion of RCCMS Tabs and consider:

    1. The AIMS disposal code is 07 (601 in RCCMS), Appealed—Protest to Appeals.

    2. Do not make an entry for Tax, Liability or Interest.

    3. Enter Appeals Office Code 131 in RCCMS.

    4. Enter the tax and negligence penalties on the "Unagreed Amount" line in the Individual/Business (1 of 3) tab of the Closing Record in RCCMS.

    5. When you "validate for close" in RCCMS, complete any fields that appear in red.

  4. Before closing the case, Ensure the following items are prepared electronically and placed in RCCMS:

    1. Dated 30-Day Letter to the taxpayer with all attachments.

    2. Taxpayer’s valid protest letter with all attachments (scanned).

    3. RAR revised to address Taxpayer’s Protest including rebuttal to Taxpayer’s Position with individually-designed letter used to send the RAR with rebuttal to the Taxpayer (and POA, if applicable).

    4. Completed Form 1725.

    5. Complete set of all workpapers.

    6. Copy of the return.

  5. Before going to Appeals, the group manager or designee reviews the case.

  6. Group manager or designee:

    1. Email the EP AIMS Coordinator and to the TE/GE Closing Group Manager, attaching all items listed in IRM 4.71.4.6.1.1 (4) above.

    2. Update the case in RCCMS to status 51 and close the case to TE/GE Closing Group.

  7. The TE/GE Closing Group updates the case to status 81 and transfer the RCCMS case file(s) to Appeals.

  8. If the group receives information while the case file is in appellate review, notify the Appeals Office immediately.

Failure of the Taxpayer to Properly Respond

  1. Close the case to Mandatory Review for issuance of a statutory notice of deficiency in these situations:

    1. It appears reasonable that the taxpayer or authorized representative received the 30-Day Letter, and the taxpayer neither agrees (e.g., signs Form 4549-E) nor protests within the 30 day period.

    2. The taxpayer didn’t receive the 30-Day Letter, but the IRS exercised due diligence in determining the taxpayer’s last known address.

    3. The taxpayer is temporarily away and not expected to return within a reasonable period of time, or has not returned after a reasonable extension has been granted.

    4. You followed-up without success.

  2. Change the Revenue Agent Report (RAR) to state that the taxpayer failed to respond. Save a copy of the RAR in the Office Documents folder in RCCMS.

  3. Copy the RGS information to an email to include or associate with your case. Ensure any passwords you used to encrypt the file is noted on the CCR.

  4. Follow these steps to send the RGS file in an email:

    1. Open the RGS program, highlight the case from "Case Management Window," which usually opens automatically, and hit "Select" . If the "Case Management Window" doesn’t automatically (or you’ve been working in RGS on another case, select "File," "Open" and "Case" from the "Report Generation Software" window.

    2. From the "Report Generation Software" window, select "Copy Case" from the "File" drop down menu.

      Note:

      Selecting "Move Case" will remove case from RGS once case is copied to your hard drive.

    3. From the "Copy Case(s)" window, use "Select Location" in the "Copy Cases(s) To" box to navigate to the desired location on your hard drive.

    4. Select "Copy." A folder containing a file "NFORWARDI1.ZIP" (or similar name) is created.

    5. Send this file to the email address the Manager, EP Mandatory Review gave you. See IRM 4.71.1 Exhibit 13 at IRM 4.71 - Employee Plans Examination Exhibits, for contact information for the Manager, EP Mandatory Review.

  5. Copy the case information on RGS onto a disk and include it in the case file.

  6. If interest is being suspended per IRC 6404(g) as described in IRM 4.71.4.4.6, Penalties and Interest, notify TE/GE Closing Group that interest will be suspended:

    1. List the IRC 6404(g) notice date in the "Other Information" section of the file copy of Form 4549-E. Suggested language is as follows: "IRC 6404(g) does apply, and notice was provided on _______ (insert the date you mailed Form 4549-E to the taxpayer)."

    2. Include the following statement in the "Other Instructions" section of Form 3198-A: "IRC 6404(g) does apply, and notice was provided on _______ (insert the date you mailed Form 4549-E to the taxpayer). Interest should be suspended beginning _______ (insert the date the suspension period begins) through _______ (insert the date the suspension period ends)."

  7. Prepare Form 5772-A and Form 5773-A (or equivalent) along with any supplemental workpapers and all other relevant documents. The workpapers should:

    1. Be limited to the discrepancy adjustment issue(s).

    2. Include a discussion on IRC 72(t) when the issue involves pension distributions.

    3. Include a brief discussion on the applicability of penalties and whether or not penalties are being assessed.

  8. Save all IDRS research discussed in IRM 4.71.4.4.1, IDRS Research, in the RCCMS Office Documents folder, following the RCCMS Naming Convention.

  9. Get a current AMDISA print and save it in the RCCMS Office Documents folder before the case is closed.

  10. Secure a current IMFOLT print (Form 1040) or BMFOLT print (Form 1120) immediately before you close the case to Mandatory Review to ensure that the Service Campus has not already made the assessment for the discrepancy adjustment. Save these in the Office Documents folder in RCCMS, following the RCCMS Naming Convention.

  11. Save a copy of Form 5772-A, Form 5773-A (or equivalent), supplemental workpapers, and all other forms and letters prepared by the examiner within RCCMS, following the RCCMS Naming Convention.

  12. Complete the RCCMS closing tabs according to IRM 4.71.4.12.1, Completion of RCCMS Tabs. Use disposal code 604 on RCCMS – Unagreed - Without Protest.

  13. If there’s less than one year on the statute of limitations, request a statute extension on Form 872. See IRM 4.71.9.6.5, Securing Consents for Form 1040 and Form 1120, for special instructions.

    1. Appeals won’t accept cases with less than one year remaining on the statute of limitations.

    2. If the taxpayer refuses to extend the statute of limitations, or you can’t find the taxpayer, close the case to Mandatory Review to issue a 90-Day letter instead of sending the case to Appeals.

    3. The group manager must contact the Manager, EP Mandatory Review if a case is closed to Review with less than one year on the statute of limitations.

  14. Complete the following before you transfer a case to Mandatory Review:

    1. Scan all paper documents you exchanged with the taxpayer including envelopes or anything the taxpayer or representative marked.

    2. Upload all exchanged documents and relevant documents you prepared during the examination into RCCMS.

    3. Keep all records you upload into RCCMS or determine are no longer relevant to the case file per normal record retention requirements outlined in IRM1.15.2.

  15. Effective July 28, 2020, close the case fully electronically.

    Note:

    Consult with your manager on cases with unique circumstances that might justify closing with a paper case file.

    See IGM TEGE-04-0720-0014, Interim Guidance on Fully Electronic (100% Paperless) Cases.

  16. Update the case to status code 20 and close the case to Mandatory Review.

    Note:

    You’re strongly encouraged to close the related Form 5500 exam (if there is one) as a ride-along case with the discrepancy adjustment.

Simultaneous Closing with Related Cases

  1. If you do a discrepancy adjustment because of an unagreed plan qualification issue, you must close it with the related unagreed EP case (Form 5500).

    Reminder:

    Remember that if a Form 5500 unagreed revocation has corresponding discrepancy adjustments, Mandatory Review (not the field group) issues the 30-Day Letters for both the discrepancy adjustment and the proposed revocation at the same time. You must prepare all files in the 30-Day Letter package (as described in IRM 4.71.4.4.5, Preparation of the Discrepancy Adjustment Package), save the files in the RCCMS Office Documents folder, but not mail out the 30-Day Letter package to the taxpayer.

  2. If the related case is an unagreed CEP case, close the discrepancy adjustment and the CEP case at the same time.

  3. It is recommended, but not required, that you close a discrepancy adjustment simultaneously with a related agreed EP case (Form 5500).

    Note:

    If you close the Form 5500 file separately, be sure to include copies of all materials from the related EP case file necessary to document the discrepancy adjustment in the discrepancy adjustment file.

    Reminder:

    Before closing any cases to Mandatory Review, the group manager must call the Manager, EP Mandatory Review to discuss the case and get mailing instructions.

Partial Agreement Procedures

  1. If agreement can be reached on one or more issues, encourage the taxpayer to enter into a partial agreement by executing a Form 4549-E covering the agreed issues.

    Example:

    The taxpayer agrees to the discrepancy adjustment; however, he does not agree to the penalty associated with the adjustment to his tax liability.

  2. Partial agreement procedures are inappropriate if the taxpayer agrees to the proposed adjustments in a specific tax period and doesn’t agree with proposed adjustments in a prior or subsequent tax period.

  3. For partial agreements, complete two separate Form 4549-E reports. Prepare:

    1. One report showing only the agreed issues and write "Partial Agreement" on top of the Form 4549-E.

    2. A second report that includes both the agreed and unagreed issues.

  4. Send the above reports to the taxpayer with the 30-Day Letter and all enclosures listed on the 30-Day Letter.

  5. If the taxpayer signs only the Form 4549-E"Partial Agreement" report but doesn’t sign the report containing both agreed and unagreed issues, prepare an explanation of which items and amounts the taxpayer agreed to.

    1. Place this explanation in the file for Mandatory Review to mail.

    2. Do not send it to the taxpayer.

    3. Close the case as an unagreed case as outlined above.

  6. Update Form 3198-A with an entry stating that the discrepancy adjustment is "partially agreed."

  7. Close the case to Mandatory Review as an unagreed case per IRM 4.71.4.6.1, Disagreement by the Taxpayer.

Relief from Joint & Several Liability

  1. If a discrepancy adjustment involves a Form 1040 that was filed as a joint return, follow these procedures:

    1. Research IDRS to confirm the current address for each spouse and update the Master File if the address has changed. For detailed procedures on locating taxpayers and what constitutes proper notice, see IRM 25.15, Relief from Joint and Several Liability.

    2. Send a copy of the discrepancy adjustment report to each spouse, even if they live at the same address.

    3. If the taxpayer asks about IRC 6015 relief (innocent spouse relief), include documentation on Form 5464 (CCR) that IRC 6015 relief was discussed. Note the taxpayer’s response, if any, about pursuing this relief.

    4. If the taxpayer requests IRC 6015 relief, refer this matter to Classification for appropriate routing with Form 5666.

    5. If the taxpayer submits Form 8857, Request for Innocent Spouse Relief, (or a statement that contains substantially the same information signed under penalty of perjury), and the case is closed, date stamp the receipt date on the request and refer to IRM 25.15.2.4, Direct Receipt of Form 8857, for further processing guidance.

  2. Do not consider a Form 2848 valid if it includes both spouses (or former spouses) on the same Form 2848. Instead, secure a separate Form 2848 for each spouse when the taxpayers desire someone to represent them.

Claims

  1. If a taxpayer files a formal claim with a Service Campus on Form 843, Form 1045, Form 1139, Form 1040X, or Form 1120-X, while the income tax return is open on AIMS in EP, the Service Campus forwards the claim to the examiner for action.

  2. When you receive a formal or informal claim directly from the Service Campus, notify EP Classification of the receipt of the claim.

  3. If EP retains jurisdiction over the claim and the discrepancy adjustment is open, explain the disposition of the claim in the "Other Information" box of Form 4549-E making no reference to "examinations."

    1. If the claim is fully or partially allowed, enter the claim description and amount on the appropriate adjustment line of Form 4549-E.

    2. If a formal claim is fully or partially disallowed, include Form 2297.

  4. For additional information on claims, see IRM 4.71.8, EP Claims.

Installment Agreement and Bankruptcy Procedures

  1. If the taxpayer is unable to pay the full amount owed, you may offer an installment agreement. You offer one by sending Form 9465, Installment Agreement Request, to the taxpayer with the 30-Day Letter package. See IRM 4.71.4 Exhibit 10 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Form 9465.

  2. A taxpayer owing more than $50,000 must also complete Form 433-F, Collection Information Statement.

  3. If the statute of limitations is imminent, secure Form 872 to allow sufficient time to process the case. See IRM 4.20.4, Installment Agreements, for more information on installment agreements.

  4. If the taxpayer has filed for bankruptcy, take appropriate steps to protect the government’s interests.

    1. You may need to coordinate with the appropriate EFU.

    2. You may have to complete Form 9439 when collectability becomes an issue.

      Note:

      See IRM 4.71.23, Bankruptcy Procedures, for further guidance.

  5. The taxpayer completes Form 433-D to enter into an installment agreement.

Closing Procedures

  1. Closing letters aren’t required for either "agreed tax change" cases or unagreed cases.

  2. A closing letter (Letter 2656) is only required when you made contact with the taxpayer and close the case "no change."

  3. IRC 6621(c) imposes additional interest on amounts due if IRS assesses tax of $100,000 or more in any given tax year on a corporation.

    1. IRC 6621(c) applies to Forms 1120 discrepancy adjustments.

    2. IRC 6621(c) applies only to "C" corporations, not to individuals or trusts or "S" corporations.

    3. The additional 2% interest applies only when a 30-Day Letter has been issued and only if the amount due is not paid within 30 days of the issuance of the 30-Day Letter.

    4. To Ensure the additional 2% interest is assessed, enter the date the 30-Day Letter was issued, and the amount of tax and penalties due for the year in the RCCMS closing record.

  4. Process agreed cases per IRM 4.71.4.5, Agreed Case Procedures.

  5. Process unagreed cases per IRM 4.71.4.6, Unagreed Case Procedures.

  6. Save copies of all workpapers, forms and letters generated by the examiner in the RCCMS Office Documents folder using the RCCMS Naming Convention.

    Note:

    Save a scanned executed copy of Form 4549-E in the RCCMS Office Documents folder if the case is agreed.

  7. Complete the closing tabs within RCCMS according to IRM 4.71.4.12.1, Completion of RCCMS Tabs.

  8. Update the case to the proper status code on RCCMS and AIMS (status 20 or 51) before you close the case from the group. You may use Form 5595 for this purpose, or at the manager’s discretion, the group may use its own internal form.

Completion of RCCMS Tabs

  1. The TE/GE Closing Group makes tax assessments, penalty assessments, and adjustments for prepayment credits related to discrepancy adjustments from the amounts that are listed by the examiner on the Individual/Business (1 of 3) Tab of the RCCMS closing record. Therefore, be careful to input the correct amounts.

  2. If the case is partially agreed, indicate that the file is a partial agreement on top left corner of the General Tab of the RCCMS Closing record. Close the file to Mandatory Review with the words "discrepancy adjustment — partial agreement" typed in the remarks section of Form 3198-A.

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

    Note:

    All items highlighted in red are required to be completed.

    Note:

    Refer to IRM 4.5.2, TE/GE Examined and Non-Examined Closures, and Document 6476 for additional Information.

    RCCMS TAB ITEM EXPLANATION
    General Penalty Reason Code No entry unless penalties previously assessed are being abated. See Exhibit 4.5.2-2, TE/GE Penalty Reason Codes, of IRM 4.5.2, TE/GE Examined and Non-Examined Closures for applicable codes.  
    General Disposal Code
    102= "Agreed Tax Change"
    107= "No Change"
    601= "Unagreed - Protest to Appeals"
    604= "Unagreed - Without Protest"
     
    General ARDI Code An entry is required only if the disposal code is "102" . Leave blank if case is being closed "no change" or is unagreed.  
    General Appeals Office Code Enter 131 if the case is going to Appeals.  
    General Closing With Make the appropriate selection in the drop down menu, but in most cases select "electronic prints"  
    Details Examiner’s Time Time must be entered in whole hours and in tenths of hours.  
    Details Technique Code
    6- Office correspondence exam
    7 – Field exam - limited scope/focused examination
     
    Details Examiner’s Name Last name, first name  
    Details No Change Issue Codes Enter "99999999" for Form 1040 with Disposal Code "107" . Otherwise, no entry.  
    Individual/Business (1 of 3) Agreement Date Insert the date the signed Form 4549-E is received.
    Individual/Business (1 of 3) Assessment Information Tax Liability Adjustment Insert code "300" and the amount of the increase in tax as shown on line 14 of Form 4549-E, or
    insert code "301" and the amount of decrease in tax resulting from the discrepancy adjustment.
    Individual/Business (1 of 3) Assessment Information Penalties Insert code "320" and the penalty amount for civil fraud penalties.
    Insert code "160" for the amount of any delinquency penalty to be assessed on late filed returns.

    Note:

    Accuracy related penalties should be reflected by Reference Number under Credit and Tax Computation Adjustments.

     
    Individual/Business (1 of 3) Interest Leave blank. Interest will be computed and input by TE/GE Closing Group.  
    Individual/Business (1 of 3) Credit and Tax Computation Adjustments
    Use reference number "888" when the adjustment to AGI and Taxable Income are the same. The dollar entry is total adjustments reflected on Line 2 of Form 4549-E.
    Insert penalty reference number "680" for accuracy related penalties being assessed under IRC 6662.
    Insert reference number "806" to reflect tax withheld (i.e., on a distribution) but not previously claimed by the taxpayer or credited to his/her account by the Service Campus. This is the amount from line 15 of Form 4549-E (i.e., additional withholding).
    Insert reference number "765" if reducing an earned income credit.
     
    Individual/Business (1 of 3) Unagreed Amount Enter the tax and negligence penalties if the case is going to Appeals.  
        Applicable Codes:
        1— Fully Paid
        2— Not Paid
        3— Partially Paid
        4— Installment Agreement with payment
        5— Installment Agreement without payment

Closing Letters

  1. Use Letter 2656 as the closing letter when you drop the discrepancy adjustment issue because of the taxpayer’s response to the 30-Day Letter. See IRM 4.71.4 Exhibit 6 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Letter 2656.

  2. The 30-Day Letter is the final letter for agreed cases.

Case File Assembly

  1. Complete the following before you close a case:

    • Scan all paper documents you exchanged with the taxpayer including envelopes or anything the taxpayer or representative marked.

    • Save all exchanged documents, letters and forms you prepared during the examination into the RCCMS Office Documents folder using the RCCMS Naming Convention.

    • Keep all records you upload into RCCMS or determine they’re no longer needed per normal record retention requirements in IRM 1.15.2.

  2. Close all cases fully electronically to increase efficiency and reduce the need to mail paper case files. Consult with your manager on cases with unique circumstances that might justify closing with a paper case file.

Cases Returned from Appeals

  1. Periodically, Appeals may return cases for further development.

  2. When you receive the case, prioritize it.

  3. After reviewing the case file and the memo from Appeals, you and your manager discuss the issues Appeals raised:

    1. If you can easily address the Appeals Officer's concerns, act accordingly.

    2. Get your manager’s approval before you contact Appeals. The manager determines whether the proposed communication is necessary and whether it’s an ex parte communication covered by RRA 98 limitations. See IRM 8.1.10, Ex Parte Communications for the rules on ex parte communications.

  4. When you complete Appeal’s recommendations, return the case to Appeals or close it with your manager’s input.