4.71.27 Form 5329 Examination Procedures

Manual Transmittal

November 07, 2017

Purpose

(1) This transmits revised IRM 4.71.27, Employee Plans Examination of Returns, Form 5329 Examination Procedures.

Background

IRM 4.71.27 contains procedures for examining, processing and closing Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts.

Audit Information Management System (AIMS) and Reporting Compliance Case Management System (RCCMS) are being programmed to enable EP Exam to establish Form 5329 exams. These procedures are effective when AIMS and RCCMS programming is complete, which is expected to be in January of 2017.

Material Changes

(1) IRM 4.71.27.1, Program, Scope and Objectives, and the subsections thereunder, were added to meet the new internal controls requirements.

(2) IRM 4.71.27.9, Unagreed Cases, was revised to incorporate the September 1, 2017 memorandum from the Commissioner, Tax Exempt and Government Entities entitled, Interim Guidance on Cases Subject to Mandatory Review, which provides that EP Exam groups will begin sending out 30-Day Letters for Forms 5329, effective October 1, 2017.

(3) IRM 4.71.27.9.3.1, Cases Returned From Appeals, was added.

(4) IRM 4.71.27.9.3, Preparation of Form 5599 and RCCMS Tabs for Unagreed Form 5329 Exams, in the previous published version has been renumbered to be IRM 4.71.5.9.4.

(5) Other minor editorial changes were made throughout the document.

Effect on Other Documents

None

Audience

Tax Exempt and Government Entities
Employee Plans

Effective Date

(11-07-2017)

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

Program, Scope, and Objectives

  1. The Employee Plans (EP) examination program was established to ensure:

    1. Compliance with the provisions of Internal Revenue Code (IRC) 401(a).

    2. That taxes related to trust assets are being properly reported.

  2. Purpose: IRM 4.71.27, Employee Plans Examination of Returns, Form 5329 Examination Procedures, provides the basic examination procedures that will enable EP agents and their managers to properly process Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts.

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

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

  5. Program Authority: EP Examination’s authority to resolve issues is derived from its authority to make determinations of tax liability under IRC 6201.

Authority

  1. EP Examination’s authority to resolve issues is derived from its authority to make determinations of tax liability under IRC 6201. EP Examination is the division designated to determine if a retirement plan is qualified under IRC 401, and the underlying regulations, and thus, exempt from tax under IRC 501.

Program Controls

  1. Tax Exempt Quality Measurement System (TEQMS) is the quality control system used to oversee the entire examination program. For more information on TEQMS, see IRM 4.71.15.1.3, Program Controls and Program Reports - TEQMS.

  2. All examinations will be done in accordance with the Taxpayer Bill of Rights as listed in IRC 7803(a)(3).

    Note:

    Additional information may be found on the irs.gov website at www.irs.gov/taxpayer-bill-of-rights.

Acronyms, Forms, and Publications

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

    Acronyms

    Acronym Definition
    AIMS Audit Information Management System
    ARDI Accounts Receivable Dollar Inventory
    CCR Case Chronology Record
    EP Employee Plans
    ESSP Examinations Special Support and Processing (Closing Unit)
    GCM General Counsel Memo
    IDRS Integrated Data Retrieval System
    IMF Individual Master File
    IRA Individual Retirement Account
    IRC Internal Revenue Code
    IRM Internal Revenue Manual
    MFT Master File Tax
    NRU Non-Return Unit
    OCEP Office/Correspondence Exam
    PLR Private Letter Ruling
    POA Power of Attorney
    RAR Revenue Agent Report
    RCCMS Reporting Compliance Case Management System
    RGS Report Generation Software
    SARSEP Salary Reduction Simplified Employee Pensions
    SB/SE Small Business /Self-Employed Division
    SEP Simplified Employee Pension
    SIMPLE Savings Incentive Match Plan for Employees of Small Employers
    SFR Substitute for Return
    SOL Statute of Limitations
    SSN Social Security Number
    TEQMS Tax Exempt Quality Measurement System
    TIN Taxpayer Identification Number (e.g., SSN)

     

    Forms and Pubs

    Form Name
    Form 870-EP Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment
    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 2848 Power of Attorney and Declaration of Representative
    Form 3198-A TE/GE Special Handling Notice
    Form 3210 Document Transmittal
    Form 3244-A Payment Posting Voucher - Examination
    Form 4549-E Income Tax Discrepancy Adjustments
    Form 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts
    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 5650 EP Examined Closing Record
    Form 5666 TE/GE Referral Information Report
    5772-A Employee Plans (EP) Workpaper
    Form 5773-A Employee Plans (EP) Workpaper Summary Continuation
    Form 8821 Tax Information Authorization
    Form 9814 Request for Mail/Shipping Service
    Form 10904 Request for Record Deletion from AIMS
    Pub 1 Your Rights as a Taxpayer
    Pub 594 The IRS Collection Process
    Pub 1020 Appeal Procedures EP Examinations

     

Overview of Form 5329 Exams

  1. This section provides procedures for examining and closing Form 5329.

  2. Although often filed with a Form 1040, Form 5329 is a distinct return from the related Form 1040.

  3. Form 5329 has its own statute of limitations date. The statute of limitations for tax required to be reported on Form 5329 does not begin to run until Form 5329 is filed.

  4. For EP purposes, examinations of Form 5329 returns may result in collection of additional taxes under IRC 4973, Tax on Excess Contributions to Certain Tax-Favored Accounts and Annuities, or IRC 4974, Excise Tax on Certain Accumulations in Qualified Retirement Plans.

  5. Form 5329 is generally picked up during a Form 5500 series exam (Form 5500), or during an examination of a NRU, IRA-based Plans not required to file a series Form 5500 return (SEP, SARSEPs and SIMPLE).

  6. A Form 5329 exam may originate from one of the following scenarios:

    1. You determine during your Form 5500 exam that the plan is not qualified under IRC 401(a), and plan distributions were rolled into an IRA (traditional or Roth IRA). The entire amount of all rollovers from the non-qualified plan to either type of IRA is subject to excise tax under IRC 4973.

    2. You determine during your IRA-based plan exam that the plan is not compliant with IRC 408. For each year the plan is non-compliant, contributions made on behalf of each participant in excess of the "traditional IRA deduction" limit under IRC 219(b) are excess contributions subject to IRC 4973 excise tax.

      Note:

      See IRM 4.71.17.6.1, Procedures for IRA-based Plans Found to Be in Non-compliance and Not Resolved Through a Closing Agreement.

    3. You determine during your Form 5500 exam that a participant or beneficiary did not receive the required minimum distributions under IRC 401(a)(9). The amounts required to be distributed are subject to excise tax under IRC 4974.

  7. Form 5329 is filed by the taxpayer that has the tax issue.

    Example:

    Suppose John and Jane Smith jointly file a Form 1040. If Jane Smith has an excess contribution to an IRA, Form 5329 would be filed for IRC 4973 tax using her social security number (SSN). If both John and Jane have excess contributions to their respective IRAs, separate Forms 5329 would be required, one for each individual taxpayer.

  8. IRC 72(t) tax should be addressed on Form 4549-E using current RGS software. Do not address IRC 72(t) issues on Form 5329.

    Note:

    For statute of limitations purposes, IRC 72(t) tax is treated as income tax.

    Note:

    See IRM 4.71.4, Employee Plans Examination of Returns, Discrepancy Adjustments, for processing procedures for Form 1040 discrepancy adjustments.

  9. RCCMS and AIMS establishment of all "agreed" delinquent Forms 5329 is required when tax is due in the amount of $500 or more in any year. For example, if IRC 4973 excise tax is due in the amounts of $400 and $600 for 201312 and 201412, respectively, delinquent Forms 5329 are required to be established on RCCMS and AIMS for both years.

    Note:

    If additions to tax is less than $500 in each year being considered, Forms 5329 should still be solicited, but RCCMS and AIMS establishment is at the group manager's discretion.

  10. AIMS processing requirements for "agreed" Forms 5329 secured as part of the exam process are reflected in IRM 4.71.27.6, Processing Agreed Forms 5329, (and subsections thereunder). An "agreed" Form 5329 is one where the taxpayer files a Form 5329 and reports the correct amount of tax.

    Note:

    It is not necessary for tax to be paid for a case to be "agreed" .

  11. AIMS processing requirements for "unagreed" Forms 5329 secured as part of the exam process are reflected in IRM 4.71.27.9, Unagreed Cases, (and subsections thereunder).

  12. When conducting internal research related to Forms 5329, see IRM 4.71.2, Overview of IDRS and Non-Master File Transcript Requests for a description of different IDRS command codes.

    Note:

    When a taxpayer files Form 5329, either with Form 1040 or separately, an MFT 29 module is established. Use command code IMFOLT with the taxpayer’s SSN to determine if a Form 5329 was filed.

    Caution:

    An MFT 29 module doesn’t always establish correctly when a Form 5329 is filed with the Form 1040 so additional IDRS research should be conducted (e.g., RTVUE, IMFOLT, etc.).

Form 5329 Due Dates

  1. Form 5329 is due at the same time the taxpayer’s Form 1040 is due, including extensions.

  2. If the taxpayer did not have an extension to file his/her Form 1040 or the taxpayer is not required to file a Form 1040 for that year, the due date would be April 15th of the year following the year in which the tax is attributable.

General Procedures for Form 5329 Exams

  1. Follow basic exam techniques and guidelines as detailed in IRM 4.71.1, Overview of Form 5500 Examination Procedures. This includes:

    1. Securing and reviewing source documents substantiating the applicability of additions to income tax and/or excise tax.

    2. Utilizing Form 5772-A and Form 5773-A (or its equivalent) and workpapers to document the exam findings regarding potential tax and penalty issues.

  2. Provide complete and accurate calculations of tax and applicable penalties to the taxpayer and POA. See IRM 20.1, Penalty Handbook, and IRM 20.1.8, Employee Plans and Exempt Organizations Miscellaneous Civil Penalties, for guidance related to penalties.

    Reminder:

    If a representative is involved, the Form 2848 must specifically list Form 5329 for excise/income tax in order to be the representative for Form 5329. This line item may be added to the Form 2848 secured for each individual taxpayer on a Form 2848 for a Form 1040.

  3. When working a claim filed on a Form 5329, follow the procedures in IRM 4.71.8, EP Claims.

Initial Contact with the Taxpayer

  1. In most instances, Form 5329 exams are initiated as a result of issues discovered in a related Form 5500 or NRU exam.

  2. Once adequate documentation has been gathered and the determination has been made to pursue a tax issue, notify the impacted taxpayer in writing of the Form 5329 exam.

    1. Issue an individually designed letter (i.e., a modified Letter 1346 or Letter 1474) containing pertinent facts, law, government position, and tax calculations ( if applicable, include IRC 6651(a) penalty calculations).

    2. Solicit the filing of Forms 5329 for all years in which returns are due.

    3. If additional tax is being assessed on a year when Form 5329 was previously filed, use Form 870-EP to secure agreement on the additional assessment of tax. See IRM 4.71.27 Exhibit 1 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 870-EP.

    4. Include penalty calculations if penalties are being imposed. The failure to file and failure to pay penalties under IRC 6651(a) are applicable to delinquent Forms 5329.

      Note:

      See IRM 4.71.18.2, Failure to File and Failure to Pay - IRC 6651(a)(1) & (2), for a discussion on IRC 6651(a) penalties.

    5. Solicit payment of tax and applicable IRC 6651(a) penalties to stop the accrual of further interest charges.

    6. Send Pub 1 if not previously given to the taxpayer with the modified initial appointment letter.

    7. Send a copy of the letter to any authorized POA.

Overview of Establishing Forms 5329 on RCCMS and AIMS

  1. Establish Forms 5329 on RCCMS and AIMS after either:

    1. You secure a delinquent Form 5329 from the taxpayer and the return is processed in accordance with IRM 4.71.27.6, Processing Agreed Forms 5329

    2. The taxpayer refuses to file a Form 5329. See IRM 4.71.27.9, Unagreed Cases.

  2. In most cases involving IRC 4973 tax, an adjustment on Form 5329 will occur simultaneously with a Form 1040 discrepancy adjustment; usually the amount reflected on the discrepancy adjustment will be the same amount subject to tax. Whether the taxpayer fully agrees, partially agrees or is in complete disagreement with the issues, two separate case files MUST be established (one for the Forms 1040 and one for the Forms 5329).

    Note:

    See IRM 4.71.4, Employee Plans Examination of Returns, Discrepancy Adjustments, if a discrepancy adjustment is warranted

    .

  3. When a delinquent Form 5329 is processed by the Kansas City Service Center, the return will post as MFT 29 on IMF.

  4. When the taxpayer refuses to file a delinquent Form 5329:

    1. Prepare Form 3177, Notice of Action for Entry on Master File, and send it to the EP AIMS Coordinator for processing. See IRM 4.71.27.9.2, Form 3177 - Substitute for Return Procedures.

      Note:

      It normally takes two weeks for the MFT 29 tax module to post once the AIMS Coordinator inputs the form.

    2. Prepare a Substitute for Return package and process it in accordance with IRM 4.71.27.9.2, Form 3177 - Substitute for Return Procedures.

  5. Once the entity module has been created and the return has posted, establish the case on RCCMS and AIMS through RCCMS. See IRM 4.71.27.5.1, Establishing Forms 5329.

  6. The related Form 1040 tax module (the Form 1040 module for the same taxpayer for the same year) must be updated to reflect the Form 5329 exam. Update the related MFT 30 module on IDRS whether or not you have a related Form 1040 issue that requires the establishment of the Form 1040 on AIMS.

    Reminder:

    Examination or control of the related Form 1040 is not a requirement for establishing a Form 5329 account.

    1. Use IDRS command code AMAXUC to update the MFT 29-Indicator to "1" .

      Note:

      This update will be done manually. Contact the EP Exam AIMS Coordinator if assistance is needed.

    2. The "1" indicator should appear in the IMFOLT transcript for the related MFT 30 module.

      Note:

      The "1" indicator informs SB/SE that Form 5329 has been examined or is being examined.

  7. Close agreed Forms 5329 that are due or delinquent per IRM 4.71.27.6.3, Closing Agreed 5329 Exams.

  8. At the first indication that a case is unagreed (e.g., the taxpayer refuses to properly file a Form 5329 that is due) follow substitute for return (SFR) procedures in accordance with IRM 4.71.27.9, Unagreed Cases.

  9. When examining a Form 5329 return that was previously filed by the taxpayer (i.e., claims and instances where a determination is made that insufficient tax was reported), conduct research on IDRS.

    1. Obtain a transcript of the account (IMFOLT and IMFOLR prints) for MFT 29 with the taxpayer’s SSN for the applicable year to verify the filed status of the return and the amount of tax assessed. The return was processed on Individual Master File (IMF) if a TC "150" is present.

    2. Verify the statute date displayed on IDRS is accurate for the return filed.

Establishing Forms 5329

  1. Once the entity module has been created and the return has posted, establish the case on RCCMS and AIMS through RCCMS.

    1. An entity module will automatically be created when a delinquent secured return is processed by the Kansas City Service Center. See IRM 4.71.27.6.1, Processing Delinquent Forms 5329 Received from the Taxpayer.

    2. If the taxpayer refuses to file a Form 5329 that is due, follow the procedures in IRM 4.71.27.9.2, Form 3177 - Substitute for Return Procedures to create an entity module.

  2. From the RCCMS main window, select "File" , then "New " then "Compliance Activity" .

  3. Select "Validate for Establish" .

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

  5. 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.

  6. 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.

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

  8. For the "General" tab:

    1. For "Type" , select "5329 Return" .

    2. For "Activity Code" , select "269" .

    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" . Source code 50 should always be used if the return has posted as evidenced by TC 150.

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

    5. Input the "Status Code" .

    6. For "Grade" , enter the grade of the related 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 29.

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

    11. Ensure that the "Flowthru" box is not checked.

    12. Input the Reason for request/Related return.

    13. Input comments as appropriate.

    14. Select "Save and Close" .

  10. You should not save an individual 5329 activity in the same case on RCCMS as the Form 5500 or Form 1040 or other lead examination. If this is done, it is a potential disclosure issue.

    1. The Form 5329 for a taxpayer should be saved in its own case.

    2. The only activities that should be combined with a Form 5329 for any taxpayer are multiple years of the same 5329 for the same taxpayer.

    3. Therefore, confirm that the "New Case" option is selected in RCCMS. This will establish the Form 5329 as its own activity in its own case.

Processing Agreed Forms 5329

  1. A delinquent Form 5329 is considered "agreed" when Form 5329 is filed and the amount of tax reported is correct or the taxpayer agrees with the tax adjustment proposed by the agent.

    1. RCCMS and AIMS establishment of all "agreed" delinquent returns is required when the tax due is $500 or more in any one year.

      Example:

      If taxes in the amounts of $400 and $600 are due in 201312 and 201412, respectively, delinquent Forms 5329 are required to be established on RCCMS and AIMS for both years

    2. If tax is less than $500 in all years being considered, Forms 5329 should be solicited, but RCCMS and AIMS establishment is at the group manager's discretion.

  2. Once a delinquent Form 5329 return is received from the taxpayer, process it in accordance with IRM 4.71.27.6.1, Processing Delinquent Forms 5329 Received from the Taxpayer.

  3. The agent is responsible for securing an IMFOLT print to determine that the return has posted on the IMF MFT 29 module.

    Note:

    The case should not be establish on RCCMS and AIMS until a return or SFR has posted on the MFT 29 IMF module for the applicable year.

    1. Periodically request an IMFOLT print to confirm that the Form 5329 has been processed and has posted. When the return posts, a 150 transaction code (TC 150) will be reflected on the account.

      Note:

      It normally takes four to eight weeks for the Kansas City Campus to process a return once it is received.

    2. Establish the case on RCCMS and AIMS when the return has been filed and there is a TC 150 reflecting that the return has posted on IMF.

      Note:

      The case must be fully established on RCCMS and AIMS before the case is closed to ESSP.

  4. Close agreed Forms 5329 per IRM 4.71.27.6.3, Closing Agreed Form 5329 Exams.

  5. Follow the SFR procedures in IRM 4.71.27.9, Unagreed Cases, if excise tax is due on a delinquent Form 5329 and the taxpayer refuses to file.

  6. Process Forms 5329 received from the taxpayer for years not yet due per IRM 4.71.27.6.2, Securing Forms 5329 Not Yet Due.

Processing Delinquent Forms 5329 Received from the Taxpayer

  1. Date stamp all delinquent Forms 5329 with the IRS received date as soon as possible after receipt from the taxpayer.

  2. Verify that the Form 5329 received is the most current version of the form.

  3. Verify the accuracy of the entire Form 5329, with specific attention given to the following items:

    1. Ensure that the filer's name is correct and matches the name on INOLES for the applicable SSN.

      Note:

      If the filer's name does not match what is on INOLES, the return will reject at the Kansas City Campus.

    2. Ensure that the correct amount of tax is reported on all applicable lines of the return and that supporting schedules are completed.

    3. Ensure that the correct tax year is listed.

    4. Ensure that the correct SSN is listed for the filer.

    5. Ensure that the return is signed by the taxpayer.

  4. Filing of original tax returns via fax will only be allowed as part of a return perfection process (e.g., securing a missing schedule or missing signature) initiated by the IRS or in the post-filing/non-filing activities. Tax returns can be received via fax as part of return perfection even if a taxpayer’s signature is required since Chief Counsel has advised that in circumstances where contact with the taxpayer has been made and documented, faxed signatures are legally sufficient.

  5. If Form 3177 was processed as an SFR in accordance with IRM 4.71.27.9.2, and the taxpayer is now filing a delinquent return with the agent, process the secured return as an amended return. See IRM 4.71.27.6.5, Amended Forms 5329.

    1. Check block "H" at the top of the first page of Form 5329, indicating it’s an amended return.

    2. Write "AMENDED RETURN SECURED BY TE/GE: EMPLOYEE PLANS" at the top of Form 5329.

  6. If payment is received, process checks in accordance with Government Accountability Office (GAO) recommendations:

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

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

    3. After preparation of Form 3244-A and Form 3210, a group manager must review the Form 3210, compare it to the Form 3244-A and sign the Form 3210. The person who prepares the Form 3244-A cannot be the same person who signs the Form 3210.

      Note:

      Make sure that the current version of Form 3244-A is used.

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

      Note:

      The Kansas City Submission Processing Campus is now returning the acknowledgement copy of Form 3210 to the originator through EEFax.

    5. Send the check along with the Form 5329 package by express mail (next day) to the Kansas City Submission Processing Campus by close of business the day after receipt.

    6. If the check cannot be mailed to Kansas City the same day it is received, secure it overnight in a locked cabinet.

    7. Put the check along with the completed Form 3244-A in a separately addressed envelope and put that envelope in the express mail envelope.

    8. If the acknowledgement copy of Form 3210 is not received back from the Kansas City Service Campus within 10 days after mailing, contact the Service Campus to follow-up on receipt of the check. Document these actions in the group logbook.

  7. If no payment is received, send the Form 5329 package as soon as administratively possible (preferably within three business days) to the Kansas City Campus.

  8. Write in bold red letters on the top margin of the original return: "DELINQUENT RETURN SECURED BY TE/GE EMPLOYEE PLANS" .

    Reminder:

    Leave room in the upper right corner for the DLN to be entered by the Service Campus.

  9. The prepared package forwarded to the Service Campus will contain the following:

    1. Form 3210

      Note:

      See IRM 4.71.27 Exhibit 2 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 3210.

    2. Any payments received (e.g., check) with Form 3244-A (placed in a separately addressed envelope per IRM 4.71.27.6.1 (6)(f) above).

      Note:

      See IRM 4.71.27 Exhibit 3 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 3244-A.

    3. Form 3198-A (attached to each Form 5329 being processed)

      Note:

      Instructions regarding the assessment or non-assessment of IRC 6651(a)(1) and IRC 6651(a)(2) penalties should be written in the "Other Instructions" section on the bottom of the form. Normally penalties will be assessed by the Kansas City Campus unless specific instructions are provided otherwise.

      Note:

      See IRM 4.71.27 Exhibit 4 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 3198-A.

    4. Original Delinquent Return

      Note:

      Fasten items b) through d) in corresponding order with the payment on top and the return on the bottom.

  10. Mail the return package to:

    IRS
    Attn: P&A Analyst
    P-5 Stop 6503
    333 W. Pershing
    Kansas City, MO 64108

  11. When addressing the Express Services Routing slip, Form 9814, the recipient name should be "P&A Analyst" with the recipient phone number of 816-499-5158. This is the case whether or not payment is remitted.

  12. Before mailing the Form 5329 package, make a copy of the entire package for the case file.

  13. Annotate in bold letters on the top of the retained copy: "DELINQUENT RETURN SECURED BY TE/GE EMPLOYEE PLANS—ORIGINAL RETURN SENT TO KANSAS CITY SC ON 00/00/00" (with 00/00/00 being the date mailed).

  14. Periodically request an IMFOLT print to confirm that the return was processed. When the return posts, a 150 transaction code (TC 150) will be reflected on the account.

    Note:

    It normally takes four to eight weeks for the Kansas City Campus to process a return once it is received.

  15. When the return posts, establish the return on RCCMS and AIMS through RCCMS.

Delinquent Forms 5329 Package Contents
  1. Address the Form 3210 as follows:
    IRS
    Attn: P&A Analyst
    P-5 Stop 6503
    333 W. Pershing
    Kansas City, MO 64108

    Note:

    When addressing Form 9814, and the Form 3210 the recipient name should be "P&A Analyst" with the recipient phone number of 816-499-5158.

  2. In the body of the Form 3210:

    1. List the forms secured (Form 5329), the taxpayer’s name and SSN, and the tax year(s) being sent.

    2. If payment is received also list the check number and the amount of the check.

    3. 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 is now returning the acknowledgement copy of Form 3210 to the originator through EEFax.

    Note:

    See IRM 4.71.27 Exhibit 2 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 3210.

  3. Complete Form 3198-A as follows:

    1. List your name, address, ID number, phone number, Primary Business Code (PBC), and group number in the "Required Entries" section.

      Reminder:

      PBCs are as follows:
      Northeast 401
      Mid-Atlantic 402
      Great Lakes 403
      Gulf Coast 404
      Pacific Coast 406

    2. List the taxpayer's SSN, MFT 29, year of the attached Form 5329, taxpayer's name, and name control in the "Required Entries" section.

    3. List all years for which the taxpayer’s Form(s) 5329 are being processed simultaneously, with the applicable statute date.

    4. In the "Other Instructions" section, provide instructions regarding the applicability of IRC 6651(a) penalties. If penalties are not being assessed, write and highlight: "Do Not Assess Penalties, Reasonable Cause Established" .

      Note:

      IRC 6651(a) penalties will automatically be assessed by the Kansas City Campus unless specific instructions are provided to the contrary.

      Note:

      The agent should document in the workpapers the basis for the assessment or non-assessment of IRC 6651(a) penalties.

    Note:

    See IRM 4.71.27 Exhibit 4 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 3198-A.

    Note:

    Attach a return specific Form 3198-A to each Form 5329. Penalties will be assessed if the agent fails to attach Form 3198-A.

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

    1. SSN: Enter the SSN.

    2. Form number/MFT: Enter 5329/29

    3. Tax period: Enter the tax year.

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

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

    6. Transaction Data: List the entire amount received for the year under transaction code 610 (Remittance With Return) and the same amount under "Total payment." Also list $0 next to transaction code 570.

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

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

      Example:

      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 $5000 that includes payment of $2000 for 201312 and $3000 for 201412, prepare a Form 3244-A for 201312 reflecting $2000 next to transaction code 610 and a second Form 3244-A for 201412 reflecting $3000 next to transaction code 610. List the total amount of the check in the "Remarks" section of the Forms 3244-A.

      Note:

      See IRM 4.71.27 Exhibit 5 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 3244-A.

Securing Forms 5329 Not Yet Due

  1. If the tax extends into a taxable year for which a Form 5329 is not yet due:

    1. Notify the taxpayer of the requirements to file Form 5329 and pay the tax shown thereon for such taxable year.

    2. If the taxpayer chooses to voluntarily file the Form 5329 return with the agent, check the accuracy of the return, prepare the Form 5329 package, and forward it to the Kansas City Submission Processing Campus in accordance with IRM 4.71.27.6.3, Closing Agreed Form 5329 Exams.

      Note:

      Write, "RETURN SECURED BY TE/GE: EMPLOYEE PLANS" at the top of the return. Do not prepare or submit Form 3198-A.

  2. Establish the return(s) on RCCMS and AIMS at the group manager's discretion. Since the return is not yet due, the group manager has complete discretion on whether it is established on RCCMS and AIMS. The rules for the establishment of delinquent returns are found in IRM 4.71.27.6 (1), Processing Agreed Forms 5329.

  3. If the return is established on RCCMS and AIMS follow the procedures for delinquent secured returns found in IRM 4.71.27.6.1, Processing Delinquent Forms 5329 Received from the Taxpayer with these exceptions:

    1. Use disposal code 02 (disposal code 107 on RCCMS).

    2. Do not put an entry in item 37 of Form 5599.

    3. Leave item 414 of Form 5599 blank.

  4. If the group manager determined that the return will not be established on RCCMS and AIMS, and there is a related Form 5500 exam, list the tax for the Form 5329 years not established on line 602 of the related Form 5650 (if required) and on the "EP taxes" line of the RCCMS Closing Record of the related Form 5500 exam.

    Note:

    See IRM 4.71.1.22.2, Completion of Form 5650 and RCCMS Tabs.

  5. If the taxpayer does not voluntarily file the Form 5329, prepare Form 5666 and forward to Classification via email or through the regular mail.

    1. If emailed, referrals should be sent to Classification's group mailbox: *TE/GE-EP-Classification.

    2. If mailed, referrals should be sent to Classification at:

      IRS - Classification
      9350 Flair Drive, 4th Floor
      El Monte, CA 91731-2885

Closing Agreed Form 5329 Exams

  1. Forms 5329 exams are considered agreed when:

    1. Form 5329 is secured from the taxpayer reflecting the correct amount of tax, or

    2. An executed Form 870-EP is obtained from the taxpayer reflecting an agreed change to the tax previously reflected on a filed Form 5329 return, or

    3. The agent determines that no additional tax is due on a previously filed Form 5329 return that he/she examined.

      Note:

      Follow the procedures in IRM 4.71.8, EP Claims, when working a claim.

  2. Prepare Form 5772-A and Form 5773-A (or its equivalent) and workpapers to document exam procedures and findings and save them in the RCCMS Office Documents folder.

  3. Use Letter 2085-B as the closing letter for an agreed Form 5329 exam.

    1. The agent will prepare the letter and it will be mailed to the taxpayer by the designated person in the group.

    2. Save a copy of the closing letter in the RCCMS Office Documents folder. If the group has a scanner, scan the signed and dated closing letter into RCCMS.

  4. The following disposal codes should be used:

    Disposal Codes Conditions
    AIMS 02 (RCCMS = 107) If a previously filed return is examined and there is no change to the tax liability, or a timely filed return is secured and there is no change to the tax liability reported.
    AIMS 03 (RCCMS = 102) The tax has been corrected on a previously filed return and the taxpayer agreed to the changes by signing a Form 870-EP or by amending Form 5329.
    AIMS 06 (RCCMS = 208) A delinquent return was secured.
    AIMS 08 (RCCMS = 206) When the exam discloses an operational or administrative practice that, if continued or enlarged, would have an adverse impact upon the plan in the future.
    AIMS 34 (RCCMS = 103) Claims allowed in full (surveyed)
  5. For disposal code 06 ( 208 in RCCMS), enter excise tax reported on the secured delinquent Form 5329 on line 414 of Form 5599, TE/GE Examined Closing Record, the closing document for Form 5329 exams.

    Note:

    No entry should be made in item 414 for disposal codes other than 06.

  6. Select the applicable principle issue code(s) in the RCCMS Closing Record:

    • 27Z - Taxable distributions

    • 32Z - Excess contributions made to an IRA

    • 36Z - Other issues

    • 37Z - No issues

  7. The agreed Form 5329 exam case file(s) and any related Form 5500 series returns may be closed to ESSP in Brooklyn when the RCCMS files are fully posted on AIMS.

    Note:

    The case must be fully established on RCCMS and AIMS before the case is closed to ESSP.

    Note:

    An AMDISA print showing full establishment of the case on AIMS must be saved in RCCMS.

  8. RCCMS and AIMS establishment of all agreed delinquent returns is required on original returns if one return has tax of $500 or more. See IRM 4.71.27.6.

  9. Prepare Form 5599 in accordance with IRM 4.71.27.6.4, Preparation of Form 5599 for Agreed Form 5329 Exams, and save it in the RCCMS Office Documents folder.

  10. Place the following paper documents in a manila folder for all agreed Form 5329 files with a completed Form 10329, Transmittal Sheet-Related Cases, stapled to the front:

    • Form 870-EP (if applicable)

      Note:

      If there is no Form 870-EP and all relevant case related documents are scanned and saved in RCCMS, the exam may be closed fully electronic. Form 10329 is not required if there are no other paper files or if there are no related returns.

      Note:

      If the group has access to a scanner, Form 870-EP should also be scanned and saved in RCCMS. Make sure that the document includes the date and signature.

  11. If not scanned and saved in RCCMS, the following additional paper documents must be in a manila folder for all agreed Form 5329 files with a completed Form 10329, Transmittal Sheet-Related Cases, stapled on front:

    • Form 872

    • Form 895-EP (if required by IRM 4.71.9.3(2), Group Manager Responsibilities and Procedures,)

    • Copy of the Form 5329 mailed to the Kansas City Campus

    • A copy of the check for payment of tax, penalties or interest

    • Form 2848 or Form 8821 attached to the back of the first page of the return (if there is a valid 2848 or 8821 and it wasn't scanned into the RCCMS Office Documents folder)

    • Any other paper documents necessary to document the exam trail (that are not saved in the RCCMS Office Documents folder) should also be included in the paper file.

  12. If the case is closed with less than 180 days left on the statute of limitations, place the paper case file (if there is one) in a red folder.

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

    Note:

    Any documents scanned into RCCMS should be the final version of that document that includes the date and signature, if applicable. For example, if the exam closing letter is scanned into RCCMS, it must be a copy that includes the date the letter was mailed and the signature of the Director, EP Exam.

  14. If the group has a scanner, scan all relevant documents received from the taxpayer or POA and save them in RCCMS using the RCCMS Naming Convention.

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

    Note:

    Make sure the letter is dated and contains the signature of the Director, EP Exam.

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

  17. Close all agreed Forms 5329 on RCCMS and AIMS to:

    Internal Revenue Service
    TE/GE:ESSP
    2 Metrotech Center
    100 Myrtle Avenue
    Sixth Floor
    Brooklyn, NY 11201

Preparation of Form 5599 for Agreed Form 5329 Exams

  1. Form 5599 is required to be completed (and saved in RCCMS) for all Form 5329 exams. Complete the related fields as appropriate within the RCCMS activity.

  2. The line items will be completed as noted:

    1. P7-18: Enter the taxpayer’s SSN.

    2. P21-22: The MFT is 29.

    3. P24-29: Enter the tax period.

    4. P31-34: Enter the name control.

    5. C: Enter the name of the taxpayer.

    6. Item 12 – Tax Liability Adjustment: Enter transaction code (TC) 300, Additional Tax Assessment by Examination or Appeals, and $0 if no additional tax is being assessed above the amount reported by the taxpayer on the Form 5329 secured by the agent. If additional tax is being assessed on Form 870-EP above what was reported on a previously filed Form 5329, enter TC 300 and the additional amount of tax being assessed.

      Caution:

      If you previously forwarded an agreed delinquent return that the taxpayer voluntarily filed with you to the Kansas City Service Campus, the tax assessment would have been made at the Service Campus when the return was processed. In order to avoid double assessment, do not reflect an additional tax amount in Item 12.

    7. Item 12 – Penalties (+): If Form 870-EP is signed by the taxpayer and IRC 6651 penalties are being assessed, enter TC 160, Manually Computed Delinquency Penalty, with the corresponding amount for the IRC 6651(a)(1) penalty, and TC 270, Manual Assessment Failure to Pay Penalty, with the corresponding amount for the IRC 6651(a)(2) penalty.

      Note:

      If a delinquent Form 5329 is secured and forwarded to Kansas City, the Service Campus will automatically assess the IRC 6651 penalties unless the agent provides instructions to the contrary in the "Other Instructions" section of the Form 3198-A accompanying the delinquent return when it is mailed to the Service Campus.

    8. Item 12 – Penalties (-): If the Service Campus erroneously assesses IRC 6651 penalties, they can be abated on Form 5599 by entering TC 161 (for IRC 6651(a)(1)) and TC 271 (for IRC 6651(a)(2)), as applicable, with the corresponding amounts.

    9. Item 13: Enter the applicable disposal code as follows:

      Disposal Codes Exam Outcome
      02 (RCCMS = 107) No change
      03 (RCCMS = 102) Agreed tax change
      06 (RCCMS = 208) Delinquent return secured
      08 (RCCMS = 206) Correction of Operational Practice - Future Impact
      34 (RCCMS = 103) Claims allowed in full (surveyed)

      Note:

      See Document 6476, Employee Plans Systems Codes, for definitions. Do not use disposal code 12, Amendment Secured, (RCCMS = 202) or disposal code 15, Closing Agreement, (RCCMS = 106) to close Forms 5329.

    10. Item 14: Insert the current statute of limitations date if the statute has been extended. If the statute has not been extended, leave this item blank.

    11. Item 15: This item will be left blank if the dollar amount in item 12 is $0. If item12 contains a dollar amount (i.e., additional tax is being assessed on a previously filed return), then a reference number (manual abstract code) should be listed here with the additional amount of tax being assessed (additional tax being assessed is listed in both items 12 and 15). For example, use reference number 164 if the issue is excess contributions (IRC 4973).

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

    13. Item 30: Enter the 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

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

    15. Item 32: Enter the grade of the case in the blocks from left to right as two digits (i.e., Grade 9= 09)

    16. Item 33: Enter the agent’s last name (no comma), leave a space and then first initial.

    17. Item 37: Enter the delinquent return code. If there is only one delinquent return, enter a "T" . If there is more than one delinquent return, enter a "T" in the most current year and a "R" in all prior years.

    18. Item 40: Enter the project code if there is one. If not, enter 0000.

    19. Item 42: Enter the ARDI Code, if applicable.

    20. Item 50: Enter the agent’s group code.

    21. Item 414: For disposal code 06 (RCCMS 208),delinquent return secured, enter the amount of tax assessed for the year.

      Note:

      No entry should be made for disposal codes other than 06.

      Note:

      Make sure the box under item 50 on page one of the form is checked if an amount is entered in item 414.

    22. Item 416: Enter a "1" if Form 870-EP was secured via fax. If not, leave blank.

    23. Item 701: Enter the principle issue code(s). See IRM 4.71.27.6.3 (6), Closing Agreed Form 5329 Exams, for a list of applicable codes.

  3. See IRM 4.71.27 Exhibit 6 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 5599 for an agreed Form 5329 exam with payment.

Amended Forms 5329

  1. Previously filed Forms 5329 returns can be amended two ways:

    1. Filing an amended Form 5329 and checking block "H" for amended return.

    2. Securing an executed Form 870-EP (See IRM 4.71.27 Exhibit 1 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 870-EP).

  2. If an amended Form 5329 return is filed with block "H" selected, process the return as provided in IRM 4.71.27.6.2, Securing Forms 5329 Not Yet Due, with the exception that the agent should write "AMENDED RETURN SECURED BY TE/GE: EMPLOYEE PLANS" on the top of Form 5329.

  3. If an executed Form 870-EP is received by the agent:

    1. The original Form 870-EP will remain in the file.

    2. The additional tax and IRC 6651 penalties are assessed from the information entered in item 12 of Form 5599. Specifically, item 12 (Tax Liability Adjustment and Penalties) should reflect TC 300 and if applicable, TC 160 and TC 270 with the applicable amount of increase for each item.

      Caution:

      Do not enter the revised tax and penalty amount. Enter only the increase for each item.

  4. Forms 870-EP can be accepted by fax if taxpayer contact has been made and the case history documents the date of contact and the desire of the taxpayer to submit the consent to assess tax by fax.

  5. Process payments received in accordance with IRM 4.71.27.6.1, Processing Delinquent Forms 5329 Received from the Taxpayer.

Case File Assembly

  1. Case file assembly instructions are found in IRM 4.71.12, Case File Assembly Guidelines. The RCCMS Office Documents folder should contain electronic versions of all prepared workpapers, forms, letters, etc., using the RCCMS Naming Convention.

  2. Any reports and/or workpapers that are no longer needed in the file must be removed by the agent prior to closing the case.

Abatement of Penalties

  1. If penalties on a secured return are assessed in error by the Service Campus, and the case is still open, they can be abated on Form 5599 by entering transaction code 161, Abatement of Delinquency Penalty, and 271, Manual Abatement of Failure to Pay Tax Penalty, (as applicable) with the dollar amount the penalty is to be decreased by on Item 12 (the Penalties (-) line) and by entering transaction code 300 and $0 on the Tax Liability Adjustment line (item 12 - Tax Liability Adjustment).

  2. If penalties on a secured return are assessed in error by the Service Campus, and the case is closed, contact the Manager of ESSP to get them abated.

Unagreed Cases

  1. "Unagreed" cases are those cases in which the taxpayer disagrees with the agent’s position, or agrees only in part. The case is unagreed if any of the following conditions exist:

    1. The amount of initial tax shown on the return is in dispute.

    2. The taxpayer refuses to file a delinquent Form 5329 or sign Form 870-EP.

  2. At the first indication that a case is unagreed, consult your group manager and annotate the Form 5464 (CCR) accordingly.

    Reminder:

    All group manager involvement must be recorded on the CCR.

  3. Use the CCR to clearly reflect case activities and contacts with the taxpayer/representative.

  4. If the taxpayer refuses to file a delinquent Form 5329, follow the substitute for return procedures IRM 4.71.27.9.2, Form 3177 - Substitute for Return Procedures.

  5. Establish unagreed Forms 5329 on RCCMS and AIMS in the same manner as agreed returns. See IRM 4.71.27.6, Processing Agreed Forms 5329.

  6. Prepare and mail a 30-Day Letter package by certified mail to the taxpayer (and POA if applicable). See IRM 4.71.27.9.1, 30-Day Letter Package, for instructions on what the agent is required to prepare.

    Note:

    The new general rule requires the agent to mail out the 30-Day Letter package. In the past, 30-Day Letters were mailed out by Mandatory Review, but effective October 1, 2017, the EP Exam groups will mail out 30-Day Letters. See IRM 4.71.27.9 (9) and IRM 4.71.27.9 (10) for two exceptions to the general rule.

  7. As part of the 30-Day Letter package, prepare a written Revenue Agent Report (RAR) explaining the basis of the proposed adjustments and citing the provisions of the law, regulations, published rulings, United States Tax Court and other court decisions on which the conclusions are based. See IRM 4.71.27.9.1.1, Revenue Agent Report (RAR).

  8. Verbally explain the issues either by telephone or through an arranged face-to-face meeting.

  9. A minimum of 12 months must remain on the statute when Appeals receives the case.

    1. It may be necessary to send out Form 872 with the 30-Day Letter to make sure Appeals has at least 12 months when they receive the case.

    2. Take processing time into consideration when you mail out the 30-Day Letter.

      Note:

      For this reason, it is advisable to include Form 872 with the 30-Day Letter if 15 months or less remain on the statute.

    3. If the taxpayer refuses to extend the statute, the taxpayer will basically forfeit their Appeal rights and a 90-Day Letter will be issued.

  10. If the statute of limitations on the Form 5329 will expire within 12 months and the taxpayer refuses to extend the statute of limitations, the case should be closed to Mandatory Review to issue a 90-Day Letter.

    Note:

    In these instances call the Manager, EP Mandatory Review to discuss the short statute and the need to issue a 90-Day Letter. Document the CCR accordingly.

  11. If the Form 5329 is related to a plan that is being disqualified, and the disqualification of the plan has a direct affect on whether or not the Form 5329 is due, the Form 5329 should be closed to Mandatory Review to issue the 30-Day Letter.

    Note:

    30-Day Letters related to Forms 5500 filed or due for years when plan revocation or non-qualification is being proposed are issued by Mandatory Review as are 30-Day Letters for related Forms 5329 that are directly impacted. Mandatory Review will issue the 30-Day Letter packages simultaneously.

  12. When the 30-Day Letter is mailed and the taxpayer timely files a valid protest to Appeals, the agent will close the case to Appeals. See IRM 4.71.27.9.3, Cases to Appeals.

  13. If the taxpayer agrees and files Form 5329 or signs Form 870-EP, close the case per IRM 4.71.27.6.3, Closing Agreed Form 5329 Exams, and process any returns or checks received per IRM 4.71.27.6.1 (6), Processing Delinquent Forms 5329 Received from the Taxpayer.

  14. If the taxpayer fails to timely file a valid protest to Appeals, the case will be closed to Mandatory Review to issue a 90-Day Letter.

    1. Inform the taxpayer/representative that the case is being closed unagreed to EP Mandatory Review.

    2. Explain the appeals process to the taxpayer or POA. See Pub 1020.

  15. As is the requirement for all exam cases, Form 5772-A, Form 5773-A (or equivalent) and other relevant workpapers must be prepared.

  16. Use the CCR to clearly reflect case activities and contacts with the taxpayer/representative.

  17. All unagreed cases going to Appeals or Mandatory Review require a paper copy of all workpapers, forms, letters, etc. assembled in accordance with IRM 4.71.12, Case File Assembly.

  18. Name all prepared workpapers, forms, and letters, using the RCCMS Naming Convention and save in the RCCMS Office Documents folder.

    Note:

    It is not necessary to save files on a CD for the case file if the files are saved in RCCMS.

  19. When closing a case unagreed, prepare Form 5599 in accordance with IRM 4.71.27.9.4, Preparation of Form 5599 and RCCMS Tabs for Unagreed Form 5329 Exams.

  20. Ensure that the statute procedures found in IRM 4.71.9.3, Group Manager Responsibilities and Procedures, and IRM 4.71.9.4, Agent Responsibilities and Procedures, are followed for both Forms 5329 and any related Forms 5500 exams closed to Mandatory Review.

  21. Assemble the case in accordance with IRM 4.71.12, Employee Plans Examination of Returns - Case File Assembly Guidelines.

    Note:

    All unagreed cases require a paper copy of all workpapers, forms, letters, etc.

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

  23. Make sure the case is fully established on RCCMS and AIMS before the case is closed to Appeals or Mandatory Review.

  24. Update the case on RCCMS to disposal code 601 if it is going to Appeals and disposal code 604 if it is going to Mandatory Review, and close the case to your group manager.

  25. If the case is closing to Appeals, the group manager (or designee) will make sure the case is processed in accordance with IRM 4.71.27.9.3, Cases to Appeals.

  26. If the case is closing to Mandatory Review, the group manager (or designee) will:

    1. Update the case to status 20 on RCCMS and AIMS

    2. Close the case and related Forms 5500 to Mandatory Review at:

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

    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.

30-Day Letter Package

  1. Effective October 1, 2017, the EP Exam groups will mail out 30-Day Letters.

  2. The issuance of the 30-Day Letter gives the taxpayer 30 days to request a hearing with Appeals.

  3. 30-Day Letters are used to furnish taxpayers a copy of the final exam report and advise them of their appeals rights when they do not agree with the results of an exam.

  4. The 30-Day Letter package consists of the following items, most of which are available within RCCMS:

    1. Letter 2005-B

      Note:

      See IRM 4.71.27 Exhibit 7 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Letter 2005-B.

    2. Agent generated schedules reflecting calculations of tax and penalties

    3. Agent generated RAR, which is used to support the assertion of taxes and penalties See IRM 4.71.27.9.1.1, Revenue Agent Report (RAR), below.

    4. Agent generated Form 870-EP See IRM 4.71.27 Exhibit 1 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 870-EP. Penalties, if applicable, must be listed using the format on the exhibit.

    5. Pub 1020

    6. Pub 1

    7. Pub 594

Revenue Agent Report (RAR)
  1. The RAR should be prepared on Form 886-A, which is available within RCCMS. See IRM 4.71.27 Exhibit 8 at IRM 4.71 - Employee Plans Examination Exhibits for a sample RAR.

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

    1. Issue(s)– The issues should be clearly stated. For example, if the issue is IRC 4973 excise tax, the issue might be stated as follows: "Whether an excess contribution to John Smith’s IRA results in an IRC 4973 excise tax liability for the taxable years ending December 31, 2012, 2013, and 2014?"

    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, treasury regulations, revenue rulings, court cases, etc., that relate to the issue(s). 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. The Government’s position should be restated as a conclusion in all cases.

  3. You may contact Mandatory Review for assistance in writing an RAR.

Form 3177 - Substitute for Return Procedures

  1. When the taxpayer refuses to file a Form 5329 (after receiving notice that a Form 5329 is due), establish the MFT 29 tax module on IDRS for each year excise tax is being pursued by preparing a Form 3177 as follows:

    1. The initiator is the agent.

    2. The date is the date Form 3177 and the SFR were prepared by the agent

    3. The name is the individual owner of the IRA or Plan account.

    4. Check the “Other” box and notate:
      "TC 971 AC 144; XREF TIN: SSN-SS-NSSN; XREF MFT 29" , when the tax is attributable to the primary taxpayer on a jointly filed Form 1040 or the individual filer of a Form 1040 when the filing status is Single, Head of Household or Married Filing Separately.
      If the tax is owed by the secondary taxpayer on a jointly filed return, then the SSN used in "X-REF TIN" will be that of the secondary taxpayer (this will establish an IRAF account on that SSN.)

      Example:

      For a completed Form 3177 see IRM 4.71.27 Exhibit 9, at IRM 4.71 - Employee Plans Examination Exhibits

      .

      Note:

      Prepare a Form 5329 for each year an adjustment is being pursued.

    5. Email Form(s) 3177 with IDRS research showing no MFT 29 module exists for the period(s) being established to the EP AIMS Coordinator (or designee) for processing.

    6. The EP AIMS Coordinator (or designee) will input each form within three business days to establish each year.

      Note:

      It normally takes about two weeks for the tax module to post.

  2. Secure a IMFOLI and/or IMFOLT print after about two weeks from the time Form 3177 is processed. When the tax module posts the applicable years will be reflected in the MFT 29 module and a TC 150 will be present in the IMFOLT transcript.

  3. Prepare a SFR Form 5329 package as follows:

    1. Print a Form 5329 and place it in the paper case file.

    2. Enter the words "Substitute for Return Prepared by TE/GE: Employee Plans" on the top margin on the face of the Form 5329.

    3. Complete only the top portion of the SFR. Complete the tax year beginning and ending, items A through G.

    4. Leave the dollar amounts on the Form 5329 return blank.

    5. Make a copy of the SFR package and place it in a paper case file.

  4. Mail the SFR package to:

    IRS
    Attn: P&A Analyst
    P-5 Stop 6503
    333 W. Pershing
    Kansas City, MO 64108

  5. Once the entity module has been created and the return has posted, establish the case on RCCMS and AIMS through RCCMS using the procedures in IRM 4.71.27.5.1, Establishing Forms 5329.

  6. Update the statute of limitations to alpha code "EE" per IRM 4.71.9.9(12), Use of Alpha Codes.

    Note:

    Since no return has been filed, the statute of limitations has not begun to run.

  7. When the return is fully established on RCCMS and AIMS, close the case unagreed to Appeals or Mandatory Review as applicable.

Cases to Appeals

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

    Note:

    Provide 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 does not alter the original conclusion, the agent will:

    1. Review the protest letter received from the taxpayer or POA to insure that it is a valid protest and notify the group manager (or designee) that a protest was received.

      Note:

      The elements needed for a valid protest are contained in Pub 1020.

    2. 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 Boston, MA (Office Code 121). 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. If the return is a SFR Form 5329 and IRC 6651 penalties are being asserted, complete Form 13496 in accordance with IRM 4.71.27.9.3 (3). Attach Form 13496 to the back of the SFR. See IRM 4.71.14 Exhibit 22 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Form 13496.

    6. Complete Form 3198-A selecting the box, "Forward to Appeals" .

    7. 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.

    8. Assemble the case file in accordance with IRM 4.71.12, Case File Assembly Guidelines.

  3. If IRC 6651(a) penalties are to be assessed on a SFR, the IRS must certify the SFR Form 5329 per IRC 6020(b). Form 13496 is used to provide the certification.

    1. The SFR package includes Form 13496, the SFR (Form 5329 sent to the Service Campus), the RAR (Form 886-A) and Form 5438 (for excise tax issue).

    2. The signature on the Form 13496 must be completed with an original signature and be dated on or after the date the 30-Day Letter is signed and dated and before the 90-Day Letter is signed and dated.

    3. The completed Form 13496 must identify the taxpayer by name and contain the taxpayer identification number, purport to be a valid IRC 6020(b) return, and must be signed and dated.

    4. Form 13496 requires the number of pages in the SFR package be noted. List the total number of pages in the SFR package.

    5. Whenever the agent revises a report of proposed adjustments that increases the total tax liability of the taxpayer, a recertification is required on another Form 13496 signed and dated on (or after) the date of the revised report.

    6. When the report of proposed adjustments involves more than one tax year, a separate Form 13496 must be prepared for each year.

      Note:

      See IRM 4.71.14 Exhibit 22 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Form 13496.

  4. Prepare Form 5599 per IRM 4.71.27.9.4, Preparation of Form 5599 and RCCMS Tabs for Unagreed Form 5329 Exams. Form 5599 is prepared as it is for agreed cases, with the following differences:

    1. The disposal code in item 13 should be 07 (601 in RCCMS), Appealed—Protest to Appeals.

    2. Do not make an entry on item 12 of Form 5599.

    3. Enter Appeals Office Code 121 in RCCMS and on item 16 of Form 5599.

    4. Enter the tax and failure to file penalties in item 18 of Form 5599 and on the "Unagreed Amount" line in tab 3 in the Closing Records tab in RCCMS.

  5. Make sure the RCCMS closing record is properly completed. When you "validate for close" in RCCMS, you must complete any field that appears in red.

  6. Before closing the case, make sure 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. Completed Form 5599, (as applicable)

    6. Copy of the return

  7. Before going to Appeals, the case will be reviewed by the group manager or their designee.

  8. The group manager or designee will send an email to Lead Tax Examining Technician in Examinations Special Support and Processing (ESSP or the EP Closing Unit) and to the Manager, ESSP, attaching the following items and a Form 3210, listing all of the items included:

    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. Completed Form 5599

    6. Copy of the return

  9. The group manager or designee will close the case on RCCMS to ESSP.

  10. When ESSP accepts the case and puts it in status 51, the group manager or designee will box up the paper case files and mail them with Form 3210 listing all returns to Appeals.

    Note:

    The Appeals address is:
    Internal Revenue Service
    Attn: Boston Appeals Office
    10 Causeway, Room 493
    Boston, MA 02222-1047

  11. When the acknowledged Form 3210 is returned from Appeals, the group manager or designee will send a copy to the Manager, ESSP.

  12. If information is received in the group while the case file is in appellate review, the Appeals Office will be notified of such information immediately.

Cases Returned From Appeals
  1. Periodically, cases may be returned to the group from Appeals for further development.

    Note:

    Until Appeals begins using RCCMS, only the physical case files will be returned to the group. AIMS will be updated accordingly. The RCCMS case files should be pulled from the RCCMS Case Library and assigned to the agent working the returned case.

  2. When the agent receives the case, it will be given high priority to work.

  3. After reviewing the case file and the memo from Appeals, the agent and the group manager will meet to discuss the issues raised by Appeals.

    1. If the agent can easily remedy the Appeals Officer's concerns, the agent will address the issue(s) and process the case in the appropriate manner.

    2. The agent will receive permission from the group manager before initiating any communication with Appeals. The manager will determine whether the proposed communication is necessary and whether it is 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 the work is complete, the case should either be returned to Appeals or closed per group manager instruction.

Preparation of Form 5599 and RCCMS Tabs for Unagreed Form 5329 Exams

  1. When you validate a case for closure in RCCMS, you must complete any field that appears in red. These fields correspond to the required items on Form 5599 as detailed below.

  2. Complete the following line items for unagreed exams going to Appeals or Mandatory Review:

    1. P7-18: Enter the taxpayer’s SSN.

    2. P21-22: The MFT is 29.

    3. P24-29: Enter the tax period.

    4. P31-34: Enter the name control.

    5. C: Enter the name of the taxpayer.

    6. Item 12: Leave blank.

    7. Item 13: The disposal code is 07 (601 in RCCMS) if the case is going to Appeals and disposal code 10 (604 in RCCMS) if the case is going to Mandatory Review.

    8. Item 14: If the statute of limitations has been extended, enter the statute expiration date.

    9. Item 15: Leave blank.

    10. Item 16: Enter 121 if the case is going to Appeals. Leave blank if the case is going to Mandatory Review.

    11. Item 18: Enter the amount of tax and penalties (excluding failure to pay penalties).

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

    13. Item 30: Enter the 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

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

    15. Item 32: Enter the grade of the case in the blocks from left to right as two digits (i.e., Grade 9= 09).

    16. Item 33: Enter the agent’s last name (no comma), leave a space and then first initial.

    17. Item 37: Leave blank when closing an SFR to Appeals or Mandatory Review. If a delinquent return was secured, enter the delinquent return code. If there is only one delinquent return, enter a "T" . If there is more than one delinquent return, enter a "T" in the most current year and an "R" in all prior years.

    18. Item 40: Enter the project code if there is one. If not enter 0000.

    19. Item 42: Leave blank.

    20. Item 50: Enter the agent’s group code.

    21. Item 414: Leave blank.

    22. Item 701: Enter the principle issue code(s). See IRM 4.71.27.6.3 (6), Closing Agreed Form 5329 Exams, for a list of applicable codes.

  3. See IRM 4.71.27 Exhibit 10 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 5599 for an unagreed case.

Statute of Limitations for Forms 5329

  1. The statute of limitations (SOL) for assessment of taxes expires the later of, three years from the due date of the Form 5329 return or the date the return is filed.

    1. If a Form 5329 is not filed, there is no SOL date.

    2. A return is deemed filed on its due date if filed on or before its due date.

  2. The statutory period for assessment of tax is six years from the date the return is filed when a determination is made that there has been an omission of more than 25% of the tax due. See IRC 6501(e)(3)).

    Note:

    Only Area Counsel can determine if a six-year statute of limitations is applicable. All discussions with and responses from Area Counsel must be documented fully in the CCR.

  3. IMF will automatically calculate a statute of limitations date for a Form 5329 established on AIMS; however, the calculated date cannot be relied upon to correctly reflect the statute date for a SFR for 4973 excise taxes.

  4. Update the statute of limitations to alpha code "EE" per IRM 4.71.9.9(12), Use of Alpha Codes, when no return has been filed and the statute of limitations has not begun to run.

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

  6. The procedures listed in IRM 4.71.9.9(13) related to alpha code "II" no longer apply to Forms 1040 related to Form 5329 exams (i.e., the statute date of Forms 1040 related to Forms 5329 under exam should no longer be updated to alpha "II" ).

Forms 5329 Established on AIMS in Error

  1. There are occasions when Forms 5329 are established on RCCMS and AIMS in error (i.e., it is later determined that tax is not due after establishment).

  2. If Form 5329 is established in error on AIMS:

    1. Complete Form 10904 and fax or email it to the EP AIMS Coordinator in ESSP. The fax number is 443-853-5647.

      Note:

      On Form 10904, make sure the box next to disposal code 33 is checked.

    2. Obtain approval of your manager and Area Manager by obtaining their electronic signatures on Form 10904.

    3. See IRM 4.71.27 Exhibit 11 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 10904.

    4. Save the electronically signed Form 10904 inside the Office Documents folder in RCCMS for the case being deleted.

    5. The RCCMS account will be closed to ESSP with disposal code 901 (error account).

    6. The group manager will update the case to status 51 on AIMS and RCCMS when it is closed.

    7. The account will then be deleted by the EP AIMS Coordinator when the RCCMS record is received.