4.71.4  Discrepancy Adjustments

Manual Transmittal

November 04, 2015

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) IRM 4.71.4.5.1, Agreed Tax Change, and IRM 4.71.4.12, Closing Procedures, were revised to require, if possible, the scanning and saving of Form 4549-E in Reporting Compliance Case Management System (RCCMS).

(2) IRM 4.71.4.6.1, Disagreement by the Taxpayer, and IRM 4.71.4.6.2, Failure of the Taxpayer to Properly Respond, were revised to require discrepancy adjustments done through the Report Generation Software (RGS) are to be saved on a disk and the Guardian Edge Removable Storage (GERS) password is to be emailed to the Manager, EP Mandatory Review.

(3) IRM 4.71.4.6.1, Disagreement by the Taxpayer, and IRM 4.71.4.6.2, Failure of the Taxpayer to Properly Respond, were revised to specify the Information Data Retrieval System (IDRS) research to be saved in RCCMS.

(4) Paragraph (22) of IRM 4.71.4.6.1, Disagreement by the Taxpayer, was added to clarify that cases returned from Mandatory Review with a Form 5456 Inquiry or Correction Memorandum, are to remain in status 13 until the case is closed from the group.

(5) Other minor editorial changes, including revisions to reflect plain language requirements, were made throughout the document..

Effect on Other Documents

This supersedes IRM 4.71.4 dated June 20, 2014.

Audience

Tax Exempt and Government Entities
Employee Plans

Effective Date

(11-04-2015)


Robert S. Choi
Director, Employee Plans
Tax Exempt and Government Entities

4.71.4.1  (11-04-2015)
Overview of the Discrepancy Adjustment Program

  1. Chief Counsel has concluded that discrepancy adjustments do not constitute an inspection of the taxpayer’s books and records within the meaning of IRC 7605(b).

  2. Discrepancy adjustments applied in accordance with these procedures will not constitute an examination of the taxpayer’s books and records if these guidelines are followed.

  3. If these guidelines are not followed, Large Business and International (LB&I), Small Business/Self-Employed (SB/SE) or Wage and Investment (W&I), which are collectively referred to as Exam Functional Units (EFUs), may have to institute reopening procedures for a return that TE/GE Division is deemed to have examined.

  4. The discrepancy adjustment program was established to reduce the number of referrals to the EFUs for minor adjustments to income.

  5. This program allows Employee Plans (EP) agents to make certain line item adjustments to income tax returns for issues found in the examination of a Form 5500 series return or a non-return unit (NRU) such as Simplified Employee Pension Individual Retirement Arrangements (SEP IRAs), Savings Incentive Match Plan for Employees (SIMPLE IRAs), IRC 403(b) plans or IRC 457 plans. Discrepancy adjustments may be prepared for income tax adjustments to —

    1. Form 1040, U.S. Individual Income Tax Return

    2. Form 1040A, U.S. Individual Income Tax Return

    3. Form 1040EZ, Income Tax Return for Single and Joint Filers With No Dependents

    4. Form 1120, U.S. Corporation Income Tax Return

  6. An adjustment may arise when there is a discrepancy between information reported on an income tax return and facts developed during an EP examination.

  7. An adjustment may originate directly from a related TE/GE examination or any other information that TE/GE has access to, such as determination letter applications and/or compliance projects.

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

  9. Adjustments are reported on Form 4549-E, Income Tax Discrepancy Adjustments, and the Revenue Agent's Report (RAR).

    Note:

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

  10. These procedures are written to provide instructions to EP agents, unless otherwise specified.

4.71.4.2  (11-04-2015)
Referrals to an Examination Functional Unit (EFU)

  1. If the adjustment does not fall within the guidelines of the discrepancy adjustment program, make a referral to the appropriate EFU.

  2. Make a referral when the related income tax return:

    1. Is a Form 1120-S, U.S. Income Tax Return for an S Corporation

    2. Is a Form 1065, U.S. Return of Partnership Income

    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 Forms 1040 or Forms 1120 will not be secured by EP.

    8. Is currently under examination by an Examination Functional Unit

    9. Involves complex credit carry backs

    10. Involves capitalized pension or profit sharing costs

  3. Situations described in a. through d. in IRM 4.71.4.2 (2), may be processed as discrepancy adjustment cases by EP agents with the approval of the affected EFU Area Director.

    1. EP Area Managers and EFU Area Directors may develop local procedures.

    2. Any local procedures agreed upon should be coordinated with the Area Manager, EP Examinations, Programs and Review.

  4. Under certain circumstances it may be advisable to refer the discrepancy adjustment issues to the EFU (for example, if the related income tax return is complex or a more detailed inspection of income tax books and records is necessary to resolve the potential income tax issue).

  5. Related cases that are, or have been, examined by an EFU may be examined by an EP agent, however:

    If... Then...
    a. The return is open in an EFU The discrepancy issue will generally be referred to that examiner for resolution.
    b. The EFU has completed the examination EP will process the discrepancy adjustment.
    c. The return is in inactive status

    Example:

    unassigned in an EFU

    A referral should be made to the EFU.

    Note:

    The income tax return must be closed off the EFU’s Audit Information Management System (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 the case is closed by the EFU, the return may still be secured. However, it may be preferable for the EP agent to secure an amended return, if the return had been previously examined.

  6. The EP group manager, at his or her discretion, may refer any adjustment to an EFU if it is determined that the adjustment would be better handled outside of EP.

4.71.4.3  (11-04-2015)
Identifying Discrepancy Adjustments

  1. The EP agent is responsible for identifying the discrepancy during the course of an examination, and initiating the discrepancy adjustment process.

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

    1. A RTVUE or BRTVU printout may be used as an original return for this purpose.

    2. To obtain a copy of the return, complete Form 2275, Records Request, Charge and Recharge, and forward it to EP Classification via the EP Classification mailbox at *TE/GE-EP-Classification.

4.71.4.3.1  (11-04-2015)
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

4.71.4.4  (11-04-2015)
Processing Discrepancy Adjustments

  1. You (the agent) are responsible for initiating the discrepancy adjustment process.

  2. During the course of your duties, you should be satisfied that the correct amount of income has been reported and the correct amount of tax paid.

  3. Procedures involved in successfully working a discrepancy adjustment follow.

4.71.4.4.1  (11-04-2015)
IDRS Research

  1. When it is determined that a possible discrepancy adjustment exists, conduct research on IDRS.

  2. Obtain an AMDISA print to determine if a Form 1040 or 1120 return has been established on AIMS by an EFU.

    Note:

    If so, contact the EFU to coordinate resolution of the issue. In most instances the discrepancy issue will be referred to the EFU examiner for resolution.

  3. Secure and review BMFOLT (Form 1120) or IMFOLT (Form 1040) transcripts for each effected income tax return to determine the time remaining on the statute of limitations. Determine whether the:

    1. Statute of limitations needs to be extended

    2. Return has already been examined by the IRS

    3. Return was amended since it was initially filed

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

    5. Service Campus has made any other adjustments to the return that was initially filed by the taxpayer

      Note:

      Refer to Chapter 8 of Document 6209, IDRS Processing Codes and Information, for an explanation of transaction codes (TC) and action codes.

  4. Obtain an INOLES print to determine the last known address of the taxpayer.

  5. Obtain an 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.

  6. Obtain a RTVUE (Form 1040) or a BRTVU (Form 1120) print and review it 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.

  7. Include a copy of all IDRS research discussed in this section in the case file.

4.71.4.4.2  (11-04-2015)
Establishing the Case on AIMS and RCCMS

  1. Secure your manager’s approval before initiating a discrepancy adjustment and document concurrence on Form 5464, Case Chronology Record (CCR).

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

    Note:

    Form 5597, TEGE IMF/BMF EPMF Request, may be used for this purpose, or at the discretion of the group manager, the group may use its own internal form.

  3. Establish discrepancy adjustments on AIMS through RCCMS.

  4. If Form 5597 is used, complete the following line items:

    1. Item P7-8: Enter a source code of 87.

    2. Item P10-12: Enter the primary business code as follows:

      Primary Business Code Area
      401 Northeast
      402 Mid-Atlantic
      403 Great Lakes
      404 Gulf Coast
      406 Pacific Coast
    3. Item P20-23: Enter the examiner’s group code (i.e., 7653).

    4. Item P25-26: Enter an MFT of 30 for Form 1040. Enter an MFT of 02 for Form 1120.

    5. Item P28-29: Enter a status code of 12.

    6. Item P31: Enter 3 for return request indicator.

    7. Item P33-36: Enter the project code of the related Form 5500, Annual Return/Report of Employee Benefit Plan. If there is none, enter 0000.

    8. Item P48: Enter a flow-thru indicator of 1.

    9. Item P1-12: Enter the taxpayer’s EIN/SSN.

    10. Item A: Enter the taxpayer’s name. For Form 1040, the individual's last name should appear first, followed by a comma and the individual's first name and middle initial.

    11. Item P14-17: Enter the name control for the taxpayer.

    12. Item P19-24: Enter the tax period.

    13. Item P26-28: Enter the three digit activity code. Refer to Document 6476, Employee Plans Systems Codes.

    14. Item B: Enter the taxpayer’s address.

    15. Item C: Enter the reason for the establishment of the Form 1040 or 1120.

    16. Item D: Enter the examiner’s name, group number and date.

    17. Item E: Secure the group manager’s signature.

    18. Item 2: Enter the tax period and the applicable statute of limitations date. If the statute has been extended, also enter that date (statute update).

      Note:

      See IRM 4.71.4 Exhibit 1 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 5597.

  5. Use the information on Form 5597 to establish the return on RCCMS and AIMS.

4.71.4.4.3  (11-04-2015)
Statute of Limitations

  1. You have the responsibility to ensure that 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.

    Note:

    Restricted consents should rarely be accepted on discrepancy adjustment cases. See IRM 25.6.22.8, Restricted Consents, for the limited circumstances when restricted consents may apply and for special procedures to be followed.

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

  3. Follow statute procedures in IRM 4.71.9, Statute Control Procedures. This includes the group manager either providing the agent with a partially completed Form 895-EP, Notice of Statute Expiration, or instructing the agent to prepare one where the statute of limitations will expire within 270 days as required by IRM 4.71.9.3, Group Manager Responsibilities and Procedures. The CCR must document that Form 895-EP was prepared.

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

    1. Obtain your manager’s approval prior to issuing a 30-Day Letter for a return with less than 12 months left on the statute.

    2. In such cases, include Form 872, Consent to Extend the Time to Assess Tax, with Letter 907-A at the same time the 30-Day Letter is mailed to the taxpayer.

    Note:

    See IRM 4.71.4.4.5 (5) for information about the 30-Day Letter.

  5. Regarding the use of fax and signature stamps:

    1. Preparer/taxpayer signature stamps are not permitted on Form 872.

    2. Form 872 will not be accepted if sent by fax.

    3. The taxpayer’s original signature is required on Form 872 to extend the statute of limitations.

4.71.4.4.4  (11-04-2015)
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 prior to RCCMS and AIMS establishment to the related return.

  3. The appropriate activity code will depend on the type of return to which the adjustment applies. See Document 6476.

  4. Verify the AIMS generated activity code within RCCMS, and ensure that it agrees with the code used on WebETS, prior to closing the case.

  5. The project code should be the same as the code used on the related examination. If no other code is warranted, use "0000."

  6. Do not use a plan indicator on WebETS for the discrepancy adjustment case.

4.71.4.4.5  (11-04-2015)
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. The "Other Information" section on page two of Form 4549-E should reflect the following comments in all cases:

    1. "This discrepancy adjustment does not constitute an examination of your tax return."

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

    Note:

    A third comment should be included 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 Report Generation Software (RGS) software.

  3. Attach a Revenue Agent Report (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, Explanation of Items, for your write-up of the issue(s).

  4. The RAR should be organized into the following components:

    1. Issue(s)– The issues should be clearly stated. 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 Jones 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– The facts section of the RAR will include a brief history of the plan and provide pertinent details surrounding the issue. This section should also cite any plan provisions relevant to the issues raised.

    3. Law– The law section should contain a summary of Code sections, Revenue Rulings, court cases, etc., that relate to the issue(s) raised. Do not cite General Counsel Memos (GCM) or Private Letter Rulings (PLR) as sources of authority in the RAR.

    4. Government's Position– This section should discuss each issue separately and apply the law and the facts relevant to each specific issue. This section should also provide a summary of taxes due and the applicability of penalties.

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

    6. Conclusion– If the taxpayer provides a position on the issue(s), the RAR should contain 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-A (30-Day Letter) as the cover letter for the discrepancy adjustment package mailed to the taxpayer. See IRM 4.71.4 Exhibit 2 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Letter 3605-A.

    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-A. Do not include interest being assessed on Letter 3605-A.

  6. The discrepancy adjustment package consists of the following:

    1. Pub. 1, Your Rights as a Taxpayer

    2. Pub. 5, Your Appeal Rights and How To Prepare a Protest If You Don't Agree

    3. Pub. 504, Divorced or Separated Individuals, (if the subject return is a Form 1040 series return and the taxpayer was married)

    4. Pub. 594, The IRS Collection Process

    5. RAR

    6. Two copies of Form 4549-E

    7. Penalty calculations (if penalties are being assessed)

    8. Interest calculations

    9. Form 9465, Installment Agreement Request (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. If an unagreed proposed revocation, or proposed disqualification case results in discrepancy adjustments being proposed and established, prepare the 30-Day Letter and discrepancy adjustment package, but don’t mail them to the taxpayer.

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

    2. Mandatory Review will issue the 30-Day Letter and discrepancy package, simultaneously with the issuance of the 30-Day Letter for the proposed revocation/disqualification of the Plan.

  9. The 30-Day Letter notifies the taxpayer of their rights, including Appeal rights.

  10. The 30-Day Letter gives the taxpayer 30 days to respond. If the taxpayer does not respond within 30 days, the case can be closed unagreed to EP 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. To obtain the taxpayer’s last known address, secure an INOLES print.

      Note:

      INOLES reflects the address last given to the IRS through the most recent filing of a return by the taxpayer or other notification by the taxpayer.

    2. If you obtain knowledge through other sources, that the taxpayer’s address has changed subsequent to the address reflected on INOLES, mail the discrepancy adjustment package to that 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:

      Each letter should be individually prepared and addressed. The primary social security number should be used on both letters.

    2. Secure separate Forms 2848, Power of Attorney and Declaration of Representative, for each spouse when the taxpayer(s) desire someone to represent them.

4.71.4.4.6  (11-04-2015)
Penalties and Interest

  1. You (the agent) must determine whether penalties should be assessed.

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

  3. Per IRC 6751(b)(1), before certain penalties can be assessed, managerial approval is required (in writing).

    1. Per IRC 6751(b)(2), penalties assessed under IRC 6662 are not exempted from this requirement.

    2. When you determine that penalties under IRC 6662 should be applied, obtain managerial approval before the 30-Day Letter package is mailed to the taxpayer.

    3. For this purpose, document managerial approval on Form 5464, Case Chronology Record.

  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 the applicability of penalties and whether or not penalties are being assessed.

  6. Per IRC 6404(g), if the IRS does not 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 with respect to any failure relating to that return.

    1. For 2005 returns filed after May 25, 2006 and for later years, interest will be suspended beginning on the day after the close of the 36 month period and ending on the date that is twenty-one days after the notice is provided. 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-A) 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 end of the 36 month period and ends on the day which is 21 days after the day the 30-Day Letter package is mailed.

      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. For example, if on October 15, 2015, the 30-Day Letter is mailed for a discrepancy adjustment being proposed on a 2012 Form 1040 that is timely filed on April 15, 2013, 6404(g) does not 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, interest should be calculated on Form 4549-E from the original due date of the Form 1040 return through the 36 month period.

    10. If IRC 6404(g) does not apply, interest should be calculated 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) does not 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 Allen timely files her 2013 Form 1040 on April 15, 2014. Amanda neglects to include a taxable pension distribution in the amount of $150,000 on her Form 1040. A 30-Day Letter package is mailed to Amanda on October 15, 2015 and Amanda signs Form 4549-E and pays the deficiency on November 15, 2015. Amanda owes interest on the deficiency from April 16, 2014 through November 15, 2015. The suspension of interest under IRC 6404(g) does not apply because notice was provided prior to the end of the 36 month suspension period.

  8. When you determine that penalties should be imposed on a Form 1040 or Form 1120 discrepancy adjustment, follow these requirements:

    1. Obtain managerial approval prior to assessing any penalty under IRC 6662.

      Note:

      Penalties under IRC 6651, IRC 6654, and IRC 6655 are exempted from the approval requirement.

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

  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.

  10. Interest is assessed on both taxes that are not timely paid and on penalties that are assessed.

4.71.4.4.7  (11-04-2015)
Taxpayer Responses to the 30-Day Letter (Letter 3605-A)

  1. If the taxpayer submits information that changes the discrepancy amount or penalties (but does not 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.

  2. If the taxpayer submits information that does not 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.

  3. If it is determined that a more detailed inspection of books and records is necessary to resolve an income tax issue, refer the case to the appropriate EFU.

  4. In general, 26 CFR 601.105(d)(1) does not permit any extension of time to reply to a 30-Day Letter. However, as a matter of practice, 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. Sickness or injury of the taxpayer or representative.

    4. Issues are complex and require extensive research.

  5. Requests for extensions of time to respond to the 30-Day Letter should be in writing and should explain the reason(s) why additional time is needed. Since many requests are made by telephone, the extension may be granted verbally and confirmed in writing upon receipt of the written request.

  6. Do not 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. You need to make sure there is plenty of time to process the case.

  7. Obtain approval from your manger or their designee before granting the extension.

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

  9. Extensions are normally granted for no more than 30 days unless there is a good reason for additional time.

  10. If the taxpayer does not 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 no later than seven calendar days after the response date of the original 30-Day Letter. See IRM 4.71.4 Exhibit 9 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Letter 923-A.

  11. If the 30-Day Letter is returned as undeliverable to the address on file, then attempt to obtain the correct address.

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

      Note:

      The period in which the taxpayer may respond starts with the date the letter was re-mailed.

    2. If the taxpayer’s correct address cannot be determined, process the case as outlined in IRM 4.71.4.6.2, Failure of the Taxpayer to Properly Respond.

4.71.4.5  (11-04-2015)
Agreed Case Procedures

  1. Cases are considered agreed if one of two events occurs:

    1. There is an "agreed tax change" . In this instance, 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. Additional information is provided that results in a "no change" . In this instance, the taxpayer provides information or the agent obtains information through other sources that verifies that no adjustment is warranted.

4.71.4.5.1  (11-04-2015)
Agreed Tax Change

  1. If a signed Form 4549-E is secured from the taxpayer or power of attorney (if authorized to sign on behalf of the taxpayer on Form 2848), the case is agreed.

    1. An agreed case may be closed without payment from the taxpayer; however, make a reasonable effort to 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 Procedures, for information on Installment Agreements.

  2. Regarding the use of fax and signature stamps:

    1. You can accept a faxed Form 4549-E if the additional tax is $250,000 or less, you have made taxpayer contact and the case chronology record documents the date of contact and the desire of the taxpayer to submit the Form 4549-E by fax.

    2. Secure Form 4549-E with original signatures if the amount of additional tax is $250,000 or more.

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

    Note:

    If there is a related Form 5500 exam, close it with disposal code 04.

  4. If the total discrepancy adjustment to one taxpayer results in an over-assessment, or an agreed but unpaid deficiency of $10,000 (pursuant to the changes enacted under RRA 3103) 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 payment is received, process the check in accordance with GAO recommendations:

    1. Make sure the check is made out to the "United States Treasury" . If the payee line is blank or the check is made out to "IRS" , overstamp the check with the "United States Treasury" stamp.

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

    3. Complete Form 3244-A, Payment Posting Voucher - Examination. 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, Document Transmittal, to accompany the payment being sent 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. Forward the Form 3210 and Form 3244-A to the group manager who will review the Form 3210, compare it to the Form 3244-A and sign the Form 3210.

      Note:

      The person who prepares the Form 3244-A cannot be the same person who signs the Form 3210.

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

    7. 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 4.71.4.5.1 (6) or IRM 4.71.4.5.1 (7), by the end of the next business day after receipt.

    8. If the check cannot be mailed to Service Campus the same day it is received, secure it in a locked file overnight.

    9. The check must be placed in a separate addressed envelope along with the completed Form 3244-A when placed within the express mail envelope.

    10. Send an email notification to the Ogden Teller Unit in accordance with IRM 4.71.4.5.1 (8).

    11. If the acknowledgement copy of Form 3210 is not received back 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:

    Do not include a copy of Form 4549-E with the payment package sent to the Service Campus. Doing so may cause double assessment of tax to occur.

  6. Mail remittance less than $100,000 to:
    IRS
    Attention: Teller Unit
    1973 N. Rulon White Blvd.,
    Mail Stop 1999
    Ogden, UT 84201-1000

  7. If remittance of $100,000 or more is received, mail the check to the same address in IRM 4.71.4.5.1 (6) but use Mail Stop 2003.

  8. If the remittance is $100,000 or more, send an email to the teller unit to &CTR ODN Ogden Tellers with the following information:

    1. UPS tracking number

    2. Dollar amount of the remittance

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

  9. When addressing the Express Services Routing slip (Form 9814), the recipient name should be "Mail Supervisor" and the recipient phone number of (801) 620-3750 should be used. This is the case whether or not payment is remitted.

  10. Do not prepare a closing letter for discrepancy adjustments when there is an "agreed tax change" .

  11. If interest is being suspended in accordance with IRC 6404(g) as described in IRM 4.71.4.4.6, Penalties and Interest, follow these steps to notify Examinations Special Support and Processing (ESSP) 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 is as follows: "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, TE/GE Special Handling Notice, include the following: "IRC 6404(g) does apply, and notice was provided on ___ (insert the date Form 4549-E was mailed to the taxpayer). Interest should be suspended beginning ____ (insert the date the suspension period begins) through ____ (insert the date the suspension period ends)." Attach Form 3198-A to the outside of the case file. 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, Notice of Action for Entry on Master File, in accordance with IRM 4.71.4 Exhibit 13 at IRM 4.71 - Employee Plans Examination Exhibits and attach it to Form 5599, TE/GE Examined Closing Record. The input of transaction code 971 with action code 064 and the "notice date" will suspend the interest as required by IRC 6404(g).

  12. Prepare Form 5772-A, Employee Plans (EP) Workpaper Summary, and Form 5773-A, Employee Plans (EP) Workpaper Summary Continuation Sheet, (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

  13. Include all IDRS research discussed in IRM 4.71.4.4.1, IDRS Research, in the case file. Secure a current AMDISA print and attach it to Form 5599 before the case is closed.

  14. Prepare Form 5599 in accordance with IRM 4.71.4.12.1, Completion of Form 5599.

    Note:

    See IRM 4.71.4 Exhibit 5 at IRM 4.71 - Employee Plans Examination Exhibits

    for an example of a completed Form 5599.

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

    Note:

    If possible, scan the executed Form 4549-E and save it in RCCMS.

  16. Place the following paper documents in a manila folder for the lead Form 1040 with a completed Form 10329, Transmittal Sheet-Related Cases, stapled on front:

    1. Form 895-EP (if required to be prepared in accordance with IRM 4.71.9.3 (3)) if not scanned and saved in the RCCMS Office Documents folder

    2. Copy of all Forms 1040/1120 (or RTVUE/BRTVU prints)

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

    4. 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)

    5. Form 4549-E

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

  17. If there are multiple years, place each related year in a separate folder with a completed Form 10329 stapled on front of each file and the following documents inside each related file:

    1. Form 895-EP (if required to be prepared in accordance with IRM 4.71.9.3 (3)) if not scanned and saved in the RCCMS Office Documents folder

    2. Copy of all Forms 1040/1120 (or RTVUE/BRTVU prints)

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

    4. Form 4549-E

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

  18. Complete closing tabs as required within the RCCMS activity.

  19. 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.

  20. Close the case file to Examinations Special Support and Processing (ESSP).

4.71.4.5.2  (11-04-2015)
"No Change" Cases

  1. If the agent receives information during the 30 day period that verifies no adjustment is warranted, take the following actions:

    1. Retain a copy of the return (or applicable RTVUE or BRTVU print) in the case file.

    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 should mail Letter 2656 to the taxpayer and POA before closing the case.

  2. Prepare Form 5599.

    1. Use disposal code "02" on AIMS and "107" on RCCMS.

    2. Refer to the instructions under IRM 4.71.4.12.1, Completion of Form 5599, for lines required to be completed.

      Note:

      See IRM 4.71.4 Exhibit 14 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 5599 for a "no change" case.

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

  4. Place the following paper documents in individual folders for each year with a completed Form 10329 stapled on front:

    1. Form 895-EP (if required to be prepared in accordance with IRM 4.71.9.3 (3)) if not scanned and saved in the RCCMS Office Documents folder

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

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

    4. 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)

  5. Complete closing tabs as required within RCCMS.

  6. 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.

  7. Close the case file to ESSP.

4.71.4.6  (11-04-2015)
Unagreed Case Procedures

  1. "Unagreed Case Procedures" will be followed in two instances:

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

    2. The taxpayer fails to submit a proper response to the 30-Day Letter.

  2. For all unagreed case files, prepare a complete hard copy file and save all relevant documents in RCCMS.

4.71.4.6.1  (11-04-2015)
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 that does not 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 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" .

  4. If the taxpayer does not submit a valid protest, close the case to EP Mandatory Review for the issuance of a 90-Day Letter.

  5. If the protest is valid, but does not 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 EP Mandatory Review with AIMS disposal code 07 (601 on RCCMS).

    Note:

    Mandatory Review will review the case before forwarding it to Appeals.

  6. If the protest is valid and changes the report, but does not eliminate the income tax adjustment, mail a revised report to the taxpayer, giving the taxpayer an additional 15 days.

    1. If agreement is secured from the taxpayer, close the case as an agreed case.

    2. If the taxpayer does not agree, close the case to EP Mandatory Review for forwarding to Appeals with AIMS disposal code 07 (601 on RCCMS).

  7. Save a copy of the final RAR in the RCCMS Office Documents folder using the RCCMS Naming Convention.

  8. Copy the case information on RGS onto a disk or flash drive and include it in the case file.

    Note:

    Email the Guardian Edge Removable Storage (GERS) password to the Manager, EP Mandatory Review at *TE/GE-EP-Mandatory Review, so Mandatory Review will be able to access the disk.

  9. If interest is being suspended in accordance with IRC 6404(g) as described in IRM 4.71.4.4.6, Penalties and Interest, take the following actions to notify ESSP 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 is as follows: "IRC 6404(g) does apply, and notice was provided on ___ (insert the date Form 4549-E was mailed 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 Form 4549-E was mailed to the taxpayer). Interest should be suspended beginning ____ (insert the date the suspension period begins) through ____ (insert the date the suspension period ends)."

    3. Prepare Form 3177 in accordance with IRM 4.71.4 Exhibit 13 at IRM 4.71 - Employee Plans Examination Exhibits and attach it to Form 5599. The input of transaction code 971 with action code 064 and the "notice date" will suspend the interest as required by IRC 6404(g).

  10. 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.

  11. Include all IDRS research discussed in IRM 4.71.4.4.1, IDRS Research, in the case file and save it in the RCCMS Office Documents folder, following the RCCMS Naming Convention.

  12. Secure and attach a current AMDISA print to Form 5599 before the case is closed.

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

  14. Prepare Form 5599 in accordance with IRM 4.71.4.12.1, Completion of Form 5599.

    Note:

    See IRM 4.71.4 Exhibit 15 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Form 5599 for an unagreed case.

  15. Complete the closing tabs as required within RCCMS.

  16. Save a copy of Form 5772-A, Form 5773-A, Form 4549-E, the RGS Variance Report, supplemental workpapers, and all other forms and letters prepared by the agent within RCCMS, following the RCCMS Naming Convention.

  17. Update the status code to 20, Review, on RCCMS and AIMS.

  18. Attach Form 3198-A to the outside of the case file, identifying the case as "Mandatory Review" , and notate: "Unagreed Discrepancy Adjustment" .

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

    Note:

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

  20. Assemble the case file in accordance with IRM 4.71.12.4, Assembly Guidelines for All Unagreed Examinations.

  21. Close the case to EP Mandatory Review on RCCMS and mail the paper case file to the following address:

    IRS
    EP Mandatory Review
    801 Broadway, Room 397
    MDP 13
    Nashville, TN 37203

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

    Note:

    If the case is later returned to the group from Mandatory Review with a Form 5456, Inquiry or Correction Memorandum, the case will be updated to status 13. The case will remain in status 13 until the case is closed from the group.

4.71.4.6.2  (11-04-2015)
Failure of the Taxpayer to Properly Respond

  1. Close the case to EP 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 (i.e., signs Form 4549-E) nor protests within the 30 day period.

    2. The 30-Day Letter was not received by the taxpayer, but the IRS exercised due diligence in determining the taxpayer’s last known address.

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

    4. Follow-up action was taken without success.

  2. The Revenue Agent Report (RAR) must be modified to state that the taxpayer failed to respond. Include a copy of the RAR in the case file and save it in the Office Documents folder in RCCMS.

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

    Note:

    Email the GERS password to the Manager, EP Mandatory Review at *TE/GE-EP-Mandatory Review, so Mandatory Review will be able to access the disk.

  4. If interest is being suspended in accordance with IRC 6404(g) as described in IRM 4.71.4.4.6, Penalties and Interest, take the following actions to notify ESSP 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 is as follows: "IRC 6404(g) does apply, and notice was provided on ___ (insert the date Form 4549-E was mailed 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 Form 4549-E was mailed to the taxpayer). Interest should be suspended beginning ____ (insert the date the suspension period begins) through ____ (insert the date the suspension period ends)."

  5. 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.

  6. Include all IDRS research discussed in IRM 4.71.4.4.1, IDRS Research, in the case file and save it in the RCCMS Office Documents folder, following the RCCMS Naming Convention.

  7. Secure and attach a current AMDISA print to Form 5599 before the case is closed.

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

  9. Prepare Form 5599 in accordance with IRM 4.71.4.12.1, Completion of Form 5599.

    Note:

    See IRM 4.71.4 Exhibit 15 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Form 5599 for an unagreed case.

  10. Close the case disposal code 10 (604 on RCCMS - Unagreed - Without Protest).

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

  12. Update the status code on AIMS and RCCMS to 20, Review.

  13. Complete the closing tabs as required within RCCMS.

  14. Attach Form 3198-A to the outside of the case file, identifying the case as "Mandatory Review" , and notate: "Unagreed Discrepancy Adjustment."

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

    Note:

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

  16. Assemble the case file in accordance with IRM 4.71.4.12.4, Assembly Guidelines for All Unagreed Examinations.

  17. Close the case to EP Mandatory Review on RCCMS and mail the paper case file to the following address:

    IRS
    EP Mandatory Review
    801 Broadway
    MDP 13
    Nashville, TN 37203

4.71.4.7  (11-04-2015)
Simultaneous Closing with Related Cases

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

    Note:

    Remember that if a Form 5500 "unagreed revocation" has corresponding discrepancy adjustments, EP Mandatory Review (not the group) will issue the 30-Day Letters for both the discrepancy adjustment and the proposed revocation simultaneously.

  2. If the related case is an unagreed CEP case, the agent must close the discrepancy adjustment and the CEP case simultaneously.

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

    Note:

    If the Form 5500 file is closed separately, ensure that copies of all materials from the related EP case file necessary to document the discrepancy adjustment are included in the discrepancy adjustment file.

4.71.4.8  (11-04-2015)
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. A typical situation might be where 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 not appropriate if the taxpayer agrees to the proposed adjustments in a specific tax period and does not agree with proposed adjustments in a prior or subsequent tax period.

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

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

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

  4. Forward 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 does not sign the report containing both agreed and unagreed issues, prepare an explanation of which items and amounts were agreed to by the taxpayer.

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

    2. Do not send it to the taxpayer.

    3. The case should be closed as an unagreed case as outlined above.

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

  7. Close the case to EP Mandatory Review as an unagreed case in accordance with IRM 4.71.4.6.1, Disagreement by the Taxpayer.

4.71.4.9  (11-04-2015)
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 inquires 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, regarding pursuit of this relief.

    4. If the taxpayer requests IRC 6015 relief, refer this matter to EP Classification for appropriate routing with Form 5666, TE/GE Referral Information Report.

    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 send the IRC 6015 relief request to:
      Internal Revenue Service, CSPC
      Stop 840 F
      201 West Rivercenter Blvd.
      Covington, KY 41012.

  2. EP personnel should no longer consider a Form 2848 to be valid that includes both spouses (or former spouses) on the same Form 2848. Instead, a separate Form 2848 must be secured for each spouse when the taxpayer(s) desire someone to represent them.

4.71.4.10  (11-04-2015)
Claims

  1. If a taxpayer files a formal claim with a Service Campus on Form 843, Claim For Refund and Request for Abatement, Form 1045, Application for Tentative Refund, Form 1139, Corporation Application for Tentative Refund, Form 1040X, Amended U.S. Individual Income Tax Return, or Form 1120X, Amended U.S. Corporation Income Tax Return, while the income tax return is open on AIMS in EP, the Service Campus will forward the claim to the EP agent for action.

  2. On receiving 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, the report will also contain Form 2297, Waiver of Statutory Notification of Claim Disallowance.

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

4.71.4.11  (11-04-2015)
Installment Agreement and Bankruptcy Procedures

  1. If the taxpayer is unable to pay the full amount owed, you may offer an installment agreement. This can be accomplished 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. If the statute of limitations is imminent, Form 872 should be secured to enable sufficient time to process the case. See IRM 4.20.4, Installment Agreements, for more information on installment agreements.

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

    1. Coordination with the appropriate EFU may be required.

    2. Form 9439, Collectibility Evaluation Form, may also be required when collectibility becomes an issue.

      Note:

      See IRM 4.71.23, Bankruptcy Procedures, for further guidance.

  4. The taxpayer will complete Form 433-D, Installment Agreement, to enter into an installment agreement.

4.71.4.12  (11-04-2015)
Closing Procedures

  1. Close all discrepancy adjustment cases using Form 5599. See IRM 4.71.4 Exhibit 5 ("agreed tax change" cases), Exhibit 14 ("no change" cases) and Exhibit 15 (unagreed cases) at IRM 4.71 - Employee Plans Examination Exhibits for examples of Form 5599.

  2. No closing letter is required to be prepared for either "agreed tax change" cases or unagreed cases.

  3. A closing letter (Letter 2656) is only required when contact has been made with the taxpayer, and the case is closed "no change" .

  4. IRC 6621(c) imposes additional interest on amounts due if tax of $100,000 or more is being assessed 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 assure that the additional 2% interest is assessed, the agent must enter the date the 30-Day Letter was issued in item 03 of Form 5599. The agent must also enter the amount of tax and penalties due for the year in item 04 of Form 5599.

  5. Process agreed cases in accordance with IRM 4.71.4.5, Agreed Case Procedures.

  6. Process unagreed cases in accordance with IRM 4.71.4.6, Unagreed Case Procedures.

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

    Note:

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

  8. Complete the closing tabs as required within RCCMS.

  9. Update the case to the proper status code on RCCMS and AIMS (status 20 or 51) before the case is closed from the group. Form 5595 may be utilized for this purpose, or at the discretion of the group manager, the group may use its own internal form.

4.71.4.12.1  (11-04-2015)
Completion of Form 5599

  1. Complete Form 5599 for all discrepancy adjustment cases.

  2. ESSP makes tax assessments, penalty assessments, and adjustments for prepayment credits related to discrepancy adjustments from the amounts that are listed by the agent in items 12 and 15 of Form 5599. Therefore, be careful to input the correct amounts. See the guidance provided in the instructions for item 12 and item 15 in IRM 4.71.4.12.1 (4).

  3. If the case is partially agreed, indicate in Part B (upper left portion of form) that the file is a partial agreement. Place a check mark in Box identified PartiaI = F. If partial agreement is secured, close the file to EP Mandatory Review with the words "discrepancy adjustment — partial agreement" written in the remarks section of Form 3198-A.

  4. Complete Form 5599 as follows. You will also need to complete various closing entries within the RCCMS activity screens:

    ITEM EXPLANATION
    P7-18—TIN Insert the EIN or SSN for the Taxpayer.
    P21 - 22— MFT Form 1040 = 30; Form 1120 = 02.
    P24 -29 — Tax Period Insert the tax year being adjusted.
    P31-34—Name Control Insert the first four letters of the last name for Form 1040 or the first four letters of the name for Form 1120.
    C—Name Insert the taxpayer's name (last name first for Form 1040).
    02—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.
    08—Agreement Date Insert the date the signed Form 4549-E is received.
    12—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.
    12—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 on item 15.

    12—Interest Leave blank. Interest will be computed and input by ESSP.
    13—Disposal Code 02 = "No Change"
      03 = "Agreed Tax Change"
      07 = "Unagreed - Protest to Appeals"
      10 = "Unagreed - Without Protest"
    14— Statute Extended to Insert current Statute of Limitations date if the statute has been extended. If the statute has not been extended, leave this item blank.
    15— Credit and Tax Computation Adjustments 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.
    28— Examiner’s Time Time must be entered in whole hours and in tenths of hours.
    30— Technique Code 2 – Office/Correspondence Exam (OCEP) - full scope
    4 – Field exam - full scope
    6 – OCEP - limited scope/focused audit
    7 – Field exam - limited scope/focused audit
    31— Agent’s Grade Enter applicable grade level.
    32— Case Grade Enter the grade of the case in the blocks from left to right as two digits:
    Grade 9 = 09
    Grade 11 = 11
    Grade 12 = 12
    Grade 13 = 13
    33— Examiner’s Name Last name, first initial.
    40— Special Project Code Use same project code as used for Form 5500.
    41a— No Change Issue Codes Enter "99999999" for Form 1040 with Disposal Code "02" . Otherwise, no entry is required.
    42— ARDI Code An entry is required only if the disposal code is "03" . Leave blank if case is being closed "no change" or is unagreed.
    Applicable Codes:
    1— Fully Paid
    2— Not Paid
    3— Partially Paid
    4— Installment Agreement with payment
    5— Installment Agreement without payment
    50— Employee Group Code Enter the group number of the agent working the case.
     

    Note:

    Check the box at the bottom of page one to indicate that there is an entry on page two.

    701— Principal Issue Code Use Code "27A" or "27B" (as applicable) in most cases. See Document 6476. On unagreed cases leave line 701 blank.

4.71.4.12.2  (11-04-2015)
Closing Letters

  1. Use Letter 2656 as the closing letter in cases where the taxpayer’s response to the 30-Day Letter results in the discrepancy adjustment issue being dropped. 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.

4.71.4.12.3  (11-04-2015)
Case File Assembly

  1. Assemble all agreed Forms 1040 or 1120 discrepancy adjustments in accordance with IRM 4.71.12.3 (8), Assembly Guidelines for All Agreed Examinations.

  2. Assemble all unagreed Forms 1040 or 1120 discrepancy adjustments in accordance with IRM 4.71.12.4, Assembly Guidelines for All Unagreed Examinations.

  3. Use a separate folder for each taxpayer’s income tax return established on AIMS and RCCMS.

  4. Label each folder with the taxpayer name, EIN/SSN, year and return (Form 1040 or 1120).

  5. Use red folders to identify cases with less that 180 days remaining on the statute of limitations.


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