The primary objective of the EO examination program is regulatory, emphasis on continued qualification of exempt organizations (Policy Statement 4-119, formerly P-7-20). IRM 1.2.1.5.36.

IRC 7602 gives examiners the authority to:

Examiners and managers are also responsible for being familiar with and acting in accord with taxpayer rights. See IRC 7803(a)(3).

During an examination, examiners are responsible for:

Examiners and managers are also responsible for being familiar with and acting in accord with taxpayer rights. See IRC 7803(a)(3).

The table lists commonly used acronyms and their definitions.

Related sources that provide guidance on these IRM procedures:

Tax and information return forms:

Waiver and acceptance forms (agreement forms):

Basic report forms:

Administrative processing forms:

Examination final closing letters - no change and no-change advisory:

Examination agreed final closing letters - tax deficiencies:

Examination final closing letters - claims or abatements:

30-day letters - proposed status changes:

30-day letters - proposed tax deficiencies:

30-day letters - proposed disallowances of claim or abatement:

Form 886-A, Explanation of Items, is mandatory for:

Use Form 886-A to explain examination changes. Prepare it as an attachment to the waiver/agreement or the basic report forms described in IRM 4.75.15.7.

Form 886-A consists of six elements:

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

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

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

Correction of Erroneous Reports - If you find an error in a report already issued to a taxpayer:

Issue Form 6018, Consent to Proposed Action, for any change in the exemption or other status of the organization.

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

Declaratory judgment cases include:

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

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

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

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

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

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

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

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

Correction of Erroneous Reports - If you find an error in a report already issued to a taxpayer:

Form 4549-B, Income Tax Examination Changes, is a continuation sheet for Form 4549 and 4549-A. Use it when you have more adjustments than there are lines on Form 4549 and 4549-A.

Form 4549-E, Income Tax Discrepancy Adjustments, is used to explain income tax changes for discrepancy adjustments. The preparation of Form 4549–E is substantially the same as the preparation of Form 4549.

Include a schedule with the applicable Form 4549 to show the tax computations.

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

Prepare this summary report in agreed and unagreed cases.

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

Prepare this summary report in agreed and unagreed cases.

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

Use Form 4883 for excise taxes imposed on:

Don’t use Form 4883 for gaming excise taxes. See IRM 4.24.6.6.3, Excise Examinations with Wagering Issues, for report writing procedures in gaming excise tax cases.

If the taxpayer makes a request for an installment agreement. For procedures Refer to IRM 4.75.28.5.5, Installment Agreement Procedures.

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

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

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

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

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

In the case of excise and ETs, use the appropriate report forms corresponding to Form 4549-A and 870 used for income taxes. See report forms in Exhibit 4.75.15-3.

Final disposition of the case will require:

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

Use the following letters and forms for proposed revocations:

If an organization fails to qualify for tax-exempt status, send the 30-day proposed revocation letter and RAR to the organization. Hold the case for up to 30 days pending the taxpayer’s response. Update AIMS from Status 12 to Status 13 while in group suspense. If more time is needed for the taxpayer to reply, see IRM 4.75.15.10(10).

For IRC 501(c)(3) revocations only, follow the instructions for IRC 6104(c) notification of certain states in IRM 4.75.21.13.2.

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

If the organization doesn’t agree with the proposed revocation, it can submit a written protest in response to the 30-day letter. See IRM 4.75.15.12 for preparing a rebuttal.

Because revocations are declaratory judgment cases:

Refer to the following references:

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

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

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

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

Except as indicated in paragraphs (5) and (6), a reclassification of a foundation status is generally effective when the organization fails to qualify for the existing foundation status. If the organization ceased to qualify for the foundation status during a year prior to the year of examination, obtain approval from the GM before expanding the examination. If the examination is not expanded to the prior tax years, the effective date of foundation reclassification is the first day of the first tax year under examination. See IRM 4.75.13.8.6, Effective date in IRC 7805(b) Relief Cases.

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

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

Reclassifying a public charity to a PF constitutes a conversion of Form 990 to a tax return, Form 990-PF. Conversions are covered by IRM 4.75.31. Basic instructions on reclassifying a publicly supported organization to a PF are as follows:

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

If the organization’s foundation status must be changed, send a 30-day letter (Letter 3620) and RAR to the organization. Hold the case for up to 30 days pending the taxpayer’s response. Update AIMS from Status 12 to Status 13 while in group suspense. If more time is needed for the taxpayer to reply, see IRM 4.75.15.10 (10).

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

If the organization doesn’t agree with the proposed foundation reclassification, it can submit a written protest in response to the 30-day letter. See IRM 4.75.15.12 for preparing a rebuttal.

Because reclassifications of foundation status are declaratory judgment cases:

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

Refer to the following references:

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

Proposed disqualifications are a change in status. There are three types:

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

A Status 36 organization is an organization that would otherwise be a taxable entity. They are characterized by:

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

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

If an organization doesn’t meet the requirements for exemption for the specified tax years under IRC 501(c), send a 30-day letter (Letter 3618 or Letter 4700) and a RAR to the organization. Hold the case for 30 days pending the taxpayer’s response. Update AIMS from Status 12 to Status 13 while in group suspense. If more time is needed for the taxpayer to reply, see IRM 4.75.15.10(10).

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

If the organization doesn’t agree with the proposed disqualification, it can submit a written protest in response to the 30-day letter. See IRM 4.75.15.12 for preparing a rebuttal.

Because disqualifications are declaratory judgment cases:

Refer to the following references:

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

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

Refer to Publication 4779, Facts about Terminating or Merging Your Exempt Organization.

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

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

Verify whether a termination claimed by an EO actually occurred.

If the EO was automatically revoked, survey the return under examination. See IRM 4.75.16.5.2.

If you are unable to locate the EO, follow Unable-to-Locate Scenario Guidance Table. See Exhibit 4.75.16-3.

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

If the EO properly terminated:

Close the case to the EO closing unit.

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

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

If you secure a delinquent EO income tax return (such as Form 990-T or Form 1120-POL) and you don't make an adjustment to that return, the following procedures don't apply. See IRM 4.75.22 for delinquent return procedures. See IRM 4.75.15.5 for no change advisory procedures.

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

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

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

If an organization has an income tax deficiency, send a 30-day letter (Letter 3614) and an RAR to the organization. Hold the case for 30 days pending the taxpayer’s response. Update AIMS from Status 12 to Status 13 while in group suspense. If more time is needed for the taxpayer to reply, see IRM 4.75.15.10 (10).

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

If after receiving a reply to the 30-day letter the organization agrees with the tax change, issue a final agreed closing letter using Letter 3607. Close the case to the EO closing unit for assessment.

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

If the organization doesn’t agree with the proposed tax change, it can submit a written protest in response to the 30-day letter. See IRM 4.75.15.12 for preparing a rebuttal.

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

If in connection with a tax change, you have a primary return (or e-Postcard) also under examination, issue a separate advisory letter to the EO that makes reference to the RAR for the tax change.

Refer also to the tables in the following exhibits:

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

In general, follow IRM 4.23.10, Report Writing Guide for Employment Tax Examinations.

Refer also to the tables in the following exhibits:

Close all agreed tax changes and unagreed tax changes without protest (non-worker classification only) to the EO closing unit. Close all other unagreed tax changes to Mandatory Review. Use the following disposal codes for the closing record of the tax return you are changing, unless a higher priority disposal code applies:

Examiners will use SB/SE’s 30-day Letter 950-C, Employment Tax 30-Day Letter-Tax Court (TC)IRC 7436 Issues and Letter 950-D, Employment Tax 30-Day Letter for ET adjustments. While versions of Pub 5 and Pub 3498 in effect at the date of this manual state that all EOs must use the formal written protest method when choosing to appeal an IRS decision, Appeals won’t deny an EO from opting to use the "small case request" method of appeal when ET adjustments are $25,000 or less, until further notice.

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

IRC Chapter 42 imposes several excise taxes. These taxes are assessed against the foundation and some are assessed against its disqualified persons and foundation managers. See Exhibit 4.75.15-10, Chapter 42 Excise Tax Reference Chart - Private Foundations.

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

A Thorne Letter:

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

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

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

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

Give the taxpayer schedules detailing computations for the adjustments. Show the adjustments on Form 4883.

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

Prepare the agreement form, Form 870-E for excise tax adjustments. See IRM 4.75.15.7.2 for additional information on Form 870-E.

Send a 30-day letter (Letter 3614) and an RAR to the liable party. Hold the case for 30 days pending the taxpayer’s response. Update AIMS from Status 12 to Status 13 while in group suspense. If more time is needed for the taxpayer to reply, see IRM 4.75.15.10(10).

Follow the instructions for IRC 6104(c) notification of certain States in IRM 4.75.21.13.2.

If after receiving a reply to the 30-day letter the liable party agrees with the tax change and has fully corrected the acts or failures to act that gave rise to the initial tax, issue a final agreed closing letter using Letter 3607. Close the case to the EO closing unit for assessment.

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

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

If the taxpayer doesn’t agree with the proposed tax change, it can submit a written protest in response to the 30-day letter. See IRM 4.75.15.12 for preparing a rebuttal.

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

If in connection with a tax change, you have a primary return (or e-Postcard) also under examination, issue a separate advisory letter to the PF that makes reference to the taxable event that gave rise to a potential tax liability.

Refer also to the tables in the following exhibits:

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

IRC Chapters 41 and 42 imposes several excise taxes on entities other than PFs. The IRC imposes some of these taxes on specified EOs and some on their disqualified persons and organization managers. See Exhibit 4.75.15-11, Chapter 41 and 42 Excise Tax Reference Chart - Non-PFs.

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

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

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

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

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

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

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

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

Prepare the agreement form, Form 870-E for excise tax adjustments. See IRM 4.75.15.7.2 for additional information on Form 870-E.

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

If after receiving a reply to the 30-day letter the liable party agrees with the tax change and, in the case of two-tiered excise taxes, has fully corrected the acts or failures to act that gave rise to the initial tax, issue a final agreed closing letter using Letter 3607. Close the case to the EO closing unit for assessment.

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

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

If the taxpayer doesn’t agree with the proposed tax change, it can submit a written protest in response to the 30-day letter. See IRM 4.75.15.12 for preparing a rebuttal.

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

If in connection with a tax change, you have a primary return (or e-Postcard) also under examination, issue a separate advisory letter to the organization that makes reference to the taxable event that gave rise to a potential tax liability.

Refer also to the tables in the following exhibits:

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

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

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

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

If you are examining any IRC 4947 trust (Form 990, Form 990-PF or Form 5227), and the examination results in a no change, issue Letter 5452-A for the examination of that return. See Exhibit 4.75.15-1 for a list of no-change and advisory closing letters.

If you are examining Form 990, Form 990-PF or Form 5227, and the examination results in written advisory, issue Letter 3609 (either without a selectable paragraph, or with Selectable Paragraph 3) for the examination of that return if you determine the trust has:

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

IRC 4947 trusts are subject to income tax if there is positive taxable income, and may be required to file Form 1041. Refer to income tax deficiency procedures in IRM 4.75.15.8.5. IRC 4947 trusts are not recognized as tax-exempt.

If an NECT doesn't meet the requirements for IRC 509(a)(3) as a supporting organization, reclassify the NECT to a PF. Follow the instructions in IRM 4.75.15.8.2.

If you identify a Chapter 42 taxable event, based on Rev. Proc. 83-32, 1983-1 C.B. 723, follow the instructions in IRM 4.75.15.8.7.

Split-interest trusts are:

For the disposal codes used for foundation reclassifications, see IRM 4.75.15.8.2 (15).

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

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

A secondary ground for revocation may be that the inactive organization failed to establish that it was observing the conditions necessary for continuation of exempt status and thus didn't comply with IRC 6033. However, automatic revocation may preempt the closing of such examinations. In that event, see survey procedures for IRC 6033(j) automatically revoked organizations at IRM 4.75.16.5.2, Auto Revocations Under IRC 6033(j).

If an inactive organization (not subject to auto-revocation) properly terminated before the completion of the examination or can’t be located, it may be recognized as terminated if it meets the criteria in IRM 4.75.15.8.4, Termination of exempt status, or is described in Examples 1 and 3 of IRM Exhibit 4.75.16–3, Unable-to-Locate Scenario Guidance Table.

If an inactive organization has not properly terminated (or is unable-to-locate in Examples 2, 4, 5, and 6 of IRM Exhibit 4.75.16-3), you may do one of the following:

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

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

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

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

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

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

A Status 36 organization:

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

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

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

Refer to the six Status 36 scenarios at Exhibit 4.75.15-4.

For no-change advisory cases, use DC 52 (RCCMS 214) or DC 08 (RCCMS 213). Don’t use DC 02 (RCCMS 107) for Status 36 cases because a notification item is embedded in Letter 4102 regarding the application for exemption.

For agreed disqualifications:

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

A separate case file is required for miscellaneous civil penalties. Tracking of miscellaneous civil penalties is controlled through RCCMS as MFT 99 and not through AIMS.

Generally the penalties listed on Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties, are the penalties contemplated in this subsection.

For instructions on creating a penalty case file and a RCCMS record, see IRM 4.75.22.13.2.

An advisory is only required if the primary return is open for examination. Issue an advisory if imposing miscellaneous civil penalties against a tax-exempt organization or if not imposing the penalty due to reasonable cause.

Miscellaneous civil penalties are generally not subject to deficiency procedures, and are therefore not subject to appeals before making an assessment. See instructions to Form 8278. For information on whether a certain penalty requires deficiency procedures, see IRM 20.1, Penalty Handbook. Also, refer to the Office of Servicewide Penalties (OSP) at https://portal.ds.irsnet.gov/sites/vl015/Pages/default.aspx

Close a penalty case file and a RCCMS record to the EO closing unit at anytime during the examination after fully developing the penalty. If basing the penalty on an issue subject to Mandatory Review, close the penalty case file to Mandatory Review with the remainder of the case file.

FTS resolves factual and legal issues.

FTS enables the taxpayer to work with the EO examiner, the EO GM and the Office of Appeals.

Both parties must commit to settling the issues involved.

The prohibition against ex parte communications (Public Law 105-206, Section 1001(a)) between Appeals Officers and other IRS employees doesn't apply to the FTS process. See Rev. Proc. 2012-18, Section 2.05. Appeals personnel:

If the parties fail to resolve any issue in FTS, the taxpayer retains the right to protest the issue through the traditional Appeals process.

For EO, FTS can only resolve unagreed issues in the following types of examinations:

FTS is generally unavailable for the following EO cases:

In revocation cases, the issue of a retroactive effective date of revocation isn't eligible for FTS. IRC 7805(b) governs relief from retroactive application of adverse determination, which requires a request for a technical advice memorandum. See Rev. Proc. 2019-2, 2019-01, IRB 230, (updated annually).

As the examiner, you:

The EO GM or designee:

The Appeals Team Manager responsible for TEGE programs serves as the Appeals FTS Program Manager and may consult with the EO GM.

Taxpayers interested in participating in FTS or having questions about the program and its suitability for their cases, should contact you or your GM to discuss resolution of an issue for the periods currently under examination.

To apply for the FTS program, the taxpayer submits a completed Form 14017, Application for Fast Track Settlement.

Write up all unagreed issues in a RAR format. Use Form 5701 for this purpose. Add Form 886-A if more room is needed.

The taxpayer must prepare a full written response explaining their position on each issue.

Assemble the FTS Submission Package:

Submit the FTS Submission Package to your GM for signature on Form 14017.

Secure e-mail the FTS Submission Package to the area manager.

Secure e-mail the FTS Submission Package approved by your area manager to the Appeals Program Manager using the mailbox ap.tege.fts@irs.gov..

If accepted, the Appeals Program Manager (or designee) assigns an FTS Appeals Officer who acts as the FTS Appeals Official (FTS AO) to help resolve the case.

If the case isn't accepted for inclusion in FTS:

If the case is accepted in FTS, the FTS AO:

The taxpayer doesn’t need to have a representative to participate in the FTS process, but if they do, this individual must have a power of attorney from the taxpayer (Form 2848, Power of Attorney and Declaration of Representative).

The FTS AO may ask you and the taxpayer to limit the number of participants at the FTS session to facilitate the process.

Before the FTS session, the FTS AO advises the participants of the procedures and establish ground rules.

Generally, the FTS AO considers only those issues outlined in the FTS Report, except by mutual agreement of the parties.

Both parties retain the right to withdraw throughout the entire FTS process. A party wishing to withdraw should provide written notice to the FTS AO and the other parties.

The FTS session may include joint sessions with all parties, separate meetings, or both as determined appropriate in the sole judgment of the FTS AO.

The FTS AO may modify the rules and procedures during the FTS session to adapt to changes in circumstances.

The FTS session may include other individuals with decision making authority and information and expertise necessary to help the parties during the settlement process.

During the FTS AO prepares the FTS Session Agenda and the FTS Session Report and provides both parties with copies.

Generally, the FTS AO considers only those issues outlined in the FTS Report, except by mutual agreement of the parties.

If the taxpayer presents information during the FTS session that wasn’t previously presented during the examination, the FTS AO adjusts the targeted completion date to give the appropriate IRS officials time to evaluate the information.

During the FTS session, the FTS AO may propose settlement terms for any or all issues, and may consider settlement terms proposed by either party.

If the parties resolve any disputed issue at the conclusion of the FTS session:

The signature of the parties on the FTS Report doesn’t:

If the taxpayer accepts the FTS AO’s settlement proposal, but the EO GM rejects it, the EO area manager must review the settlement proposal and either concur in writing with the rejection or accept the settlement proposal on behalf of EO.

Include any resolution of an issue (or disagreement) through the FTS process for specified tax periods in your workpapers. Appropriately index the resolution in the Form 5773 to support your conclusions.

A resolution by the parties through the FTS process won’t bind the parties for taxable periods or issues not covered by the FTS agreement, unless addressed expressly in a closing agreement reached as part of the FTS process.

If the parties can’t reach an agreement, process the case under normal “unagreed” procedures.

If applicable, the IRS will report a proposed resolution reached as a result of EO FTS to the Joint Committee on Taxation in accordance with IRC 6405.