4.75.16 Case Closing Procedures

Manual Transmittal

July 18, 2017

Purpose

(1) This transmits revised IRM 4.75.16, Exempt Organizations Examination Procedures, Case Closing Procedures.

Material Changes

(1) This revision incorporates editorial and procedural corrections from the previous version.

(2) As of the publication of this manual, TE/GE is undergoing a restructure which will affect titles, authorities, and offices.

  • All references to The Examination Program and Review (EPR) and the authorities granted to the manager of that office will be changed, pending announcement for the authorized replacement.

  • All references to Examination Special Support (ESS) are changed to "EO Closing Unit," EGC 7997.

  • All references to "EO Classification-Referrals" are changed to "EO Referrals Group."

(3) The terms "agent" or "agents" replaces "examiner" or "examiners" , and is intended to include GS-0512, GS-0526, GS-0592, or GS-0987 series employees. The terms "audit" , "auditing," or "audited" replaces "examine," "examination," "examining" or "examined" where appropriate, in compliance with the Plain Language Act. see www.plainlanguage.gov. Generally, official titles and designations do not reflect this change.

(4) Corrected terminology by replacing all references to "subordinate returns" with the term, "secondary returns." The term, "subordinate" describes organizations in a group exemption ruling under the control and supervision of a parent organization.

(5) This manual takes into consideration Section 406 of the Protecting Americans from Tax Hikes Act of 2015 (PATH Act of 2015), P.L. 114-113, enacted on December 18, 2015. The PATH Act extends declaratory judgment rights under IRC 7428 of the Internal Revenue Code from IRC 501(c)(3) organizations to all IRC 501(c) and IRC 501(d) organizations. These rights apply to all revocations of tax-exempt status.

(6) Clarifies that examined and non-examined closures other than paperless must retain paper AIMS documents.

(7) Eliminates the need for audit groups to close a case to the EO Referrals Group.

(8) The terms, "single issue audit" and "limited scope audit" are obsolete, replaced by "focused audit."

(9) The term, "modification" of exempt status is obsolete by reason of the PATH Act.

(10) Form 6018-A is obsoleted by the PATH Act. Non-declaratory judgment status changes are incorporated on Line 10 of Form 6018.

(11) Letter 3610-R and Letter 3610-M are obsoleted by the PATH Act. Letter 3618 replaces Letter 3610-R.

(12) IRM 4.75.16.1 - Inserted new Program Scope and Objectives subsection as required by IRM 1.11.2.2.5.

  1. IRM 4.75.16.1.2, Authority - Added the policies and legal authorities for examining EO returns.

  2. IRM 4.75.16.1.3, Responsibilities - Added the key responsibilities of the targeted employees for this manual.

  3. IRM 4.75.16.1.3, Terms - Added a list of frequently used terms in EO Examinations.

  4. IRM 4.75.16.1.3, Terms - Refined definition of "deficiency procedures" to align with IRC 6211 and 6212.

  5. IRM 4.75.16.1.5, Acronyms - Added a list of frequently used abbreviations and their terms in EO Examinations.

  6. IRM 4.75.16.1.6, Related Resources - IRMs - Added by centralizing IRM references with titles formerly in the body-text and in the MT, into this subsection.

  7. IRM 4.75.16.1.7, Related Resources - Forms and Pubs - Added by centralizing forms and pubs references with titles formerly in the body-text and in the MT, into this subsection.

(13) IRM 4.75.16.2 - Contracted and summarized, directing reader to the details in succeeding sub-subsections.

(14) IRM 4.75.16.2.1 - Moved to IRM 4.75.16.4.4.3 to eliminate redundancy. Created new subsection "Timely Closing."

(15) IRM 4.75.16.2.2 - Redesignated as IRM 4.75.16.2.1, and renumbered succeeding sub-subsections accordingly.

(16) IRM 4.75.16.2.2 - Revised to incorporate IG Memo TEGE-04-0216-0002 regarding paperless closings.

(17) IRM 4.75.16.3 - Clarified and revised to incorporate IG Memo TEGE-04-0216-0002 regarding paperless closings.

(18) IRM 4.75.16.3.1 - Clarified and revised to incorporate IG Memo TEGE-04-0216-0001 about deleting non-return units

(19) IRM 4.75.16.3.1.4 - Clarified and retitled for claims, and removed references to freeze codes.

(20) IRM 4.75.16.3.2 - Revised to emphasize justifying and documenting reasons to survey. Removed area manager from approval process. Incorporates IG Memo TEGE-04-0416-0008, dated 4/29/2016.

(21) IRM 4.75.16.4 - Clarified and re-sequenced and revised to bullet form for easier reading.

(22) IRM 4.75.16.4.1 - Clarified and deleted redundant information about workpapers described in IRM 4.75.10.

(23) IRM 4.75.16.4.2(2) - Clarified and added restriction on the use of alpha ASED Code "PP."

(24) IRM 4.75.16.4.2(7) - Clarified and revised to eliminate requirement to close referral cases to the EO Referrals group.

(25) IRM 4.75.16.4.2.4 - Clarified and revised Imminent Statutes

(26) IRM 4.75.16.4.2.5 - Added to incorporate ASED Alpha Code "PP" procedures.

(27) IRM 4.75.16.4.3 - Moved closing conference content to IRM 4.75.13 since this process precedes the closing procedures and shipping process addressed in this manual.

(28) IRM 4.75.16.4.4.1 - Clarified and shortened paragraphs (1) to (3), eliminated paragraph (4). Renumbered and revised succeeding paragraphs accordingly.

(29) IRM 4.75.16.4.4.1(5) Renumbered as (4) - Revised DC 01 (210) to include CSP no-change periods.

(30) IRM 4.75.16.4.4.1(5) - Added church tax inquiry closing to DC 02, with AIMS Activity Code 345. This is not an "examined" closure.

(31) IRM 4.75.16.4.4.1(13) - Renumbered as (12) and corrected. Agreed status 36, 501(c)(12) and (c)(15) disqualifications require a DC 05 (207) if income tax returns are secured, or DC 13 (501), if no income tax return was secured.

(32) IRM 4.75.16.4.4.1(14) and (22) - Updated. DC 55 (605) only applies to revocations.

(33) IRM 4.75.16.4.4.1(17) - Corrected. To clarify the use of DC 14 (212), Termination.

(34) IRM 4.75.16.4.4.1(19) and IRM 4.75.16.4.4.2(9) - Incorporates paragraph (4) of EO Exams Procedure section of Interim Guidance (IG) Memo TEGE-04-0117-0007.

(35) IRM 4.75.16.4.8 - Retitled for easier reference, and updated paragraph (8) to reflect that Form 5666 or the appropriate referral form used by the other divisions or functions may be used.

(36) IRM 4.75.16.4.9 - Retitled for easier reference.

(37) IRM 4.75.16.5.1 - Retitled and updated to refer readers to IRM 4.75.32 for instructions on declaratory judgment cases. Referred to PATH Act and deleted redundant content.

(38) IRM 4.75.16.5.2 - Updated. Status 97 generally posts one to 6 months after the statutory due date. Special audit procedures for at-risk or pre-at-risk cases removed. Instructions simplified and clarified.

(39) IRM 4.75.16.5.2(9) - Clarified. Organizations in status 97 are surveyed after taxpayer contact, DC 36 (909).

(40) IRM 4.75.16.5.2(12) - Added "An organization must have a ruling or determination letter from the IRS that it is tax-exempt in order to be eligible for the filing exception it is claiming."

(41) IRM 4.75.16.5.3 - Retitled to Employment Taxes Cases to create a broad category of these special closures. Created new sub-subsections under this category.

(42) IRM 4.75.16.5.3.1 - Created new sub-subsection, moving contents from 4.75.16.5.3 to this sub-subsection regarding CSP audits. Incorporated the closing procedure part of IG Memo TEGE-04-1016-0025, dated October 31, 2016.

(43) IRM 4.75.16.5.3.2 - Created new sub-subsection, to incorporate Alert dated November 9, 2016, regarding IRC 3402(d) relief audits.

(44) IRM 4.75.16.5.6 and all sub-subsections - Moved inadequate records content to IRM 4.75.15.8.10.

(45) IRM 4.75.16.5.8 - Removed paragraphs (1) and (4) due to contradiction. Clarified new paragraph (2) first bullet to apply to "subordinate" organizations in a "group return."

(46) IRM 4.75.16.5.9(5)d - Updated to reflect that Form 5666 or the unique referral form for the other division or function may be used.

(47) IRM 4.75.16.6 - Removed IRC 4962 abatements from mandatory review. Abatements are pre-approved by the Manager, EO Examination Programs and Review (EPR), (or designated successor after TE/GE reorganization), and in some cases subject to be reviewed by the Director, EO.

(48) IRM 4.75.16.6 - Removed from Mandatory Review any protested case for Appeals consideration, terminations, inadequate records notice and other items from Mandatory Review.

(49) IRM 4.75.16.7.2(1) and 4.75.16.7.3 - Corrected case file assembly (inside left and inside right of case folder).

(50) IRM 4.75.16.7.3(1) - Added Form 5774-A, IRC 4962 Abatements, to list.

(51) IRM 4.75.16.5.10(14) - Clarified and updated to remove reference to Area Counsel's approval of questionable dissolution documents.

(52) IRM 4.75.16.5.10.2(6) - Updated to reflect that Form 5666 or the unique referral form for the other division or function may be used.

(53) IRM 4.75.16.5.10.3 - Updated to remove reference to Area Counsel's approval of questionable dissolution documents.

(54) IRM 4.75.16.6 - Inadequate records and abatement requests, no longer subject to mandatory review; clarified joint committee cases.

(55) IRM 4.75.16.7.2 - Updated to add paragraph addressing the contents and password of the flash drive. Alert dated 3/11/2013 incorporated.

(56) IRM 4.75.16.7.3(1) - Corrected to include Forms 5772, 5773, and 5774, and removed confidential information (which belongs in a separate folder), Form 872-T (which belongs to the back of the return), and checksheets (which belong on the left-inside of the case file folder).

(57) IRM 4.75.16.7.4 - Incorporated IG Memo TEGE-04-0216-0001 by linking to IRM 4.75.21.

(58) IRM 4.75.16.7.5 - Revised to reflect confidential whistleblower information will be held in a separate folder with cover sheet; no longer included inside the case file.

(59) IRM 4.75.16.7.6 - Incorporated TEGE-04-0216-0002; expanded paperless closures to include surveyed claims and e-Filed returns.

(60) IRM 4.75.16.8.3 - Added to incorporate IG Memo TEGE-04-0713-0005 dated July 22, 2013.

(61) IRM 4.75.16.9 - Added reference to Document 13056, Employee Toolkit - Shipping Procedures for PII.

(62) Updated where appropriate to change "TEP case" to "cases meeting TEP criteria."

(63) Exhibit 4.75.16-11 - Moved Sample Letter 2807 contents more appropriately to Exhibit 4.75.15-13. This exhibit is placed in reserve.

(64) Exhibit 4.75.16-12 - Revised Status 36 scenarios - declaratory judgment applies; rearranged scenarios in logical order.

(65) Exhibit 4.75.16-20 - Removed Sample Letter 4095. New Letter 4095 was published in May 2017, with selectable paragraphs included. Exhibit in Reserve.

(66) Exhibit 4.75.16-21 - Removed PIC tables (see Document 6023). Replaced with examples of Alpha Code "PP."

(67) Exhibit 4.75.16-22 - Added Form 990-N samples, by incorporating IG Memo TEGE-04-1015-0024.

Effect on Other Documents

The February 15, 2013 revision of this manual has been superseded.
The May 1, 2004 revision of IRM 4.75.10.13 has been superseded.
The March 14, 2006 revisions of IRM 4.75.13.5.6 and IRM 4.75.13.5.7 have been superseded.
The June 25, 2010 revisions of IRM 4.75.21.17 and IRM Exhibits 4.75.21-3 through 4.75.21-14 have been superseded.
Incorporated IG Memo TEGE-04-0713-0005, Guidance for Using AIMS Status Code 39, dated July 22, 2013.
Incorporated IG Memo TEGE-04-0515-0011, ASED Alpha Code "PP," dated May 5, 2015.
Incorporated IG Memo TEGE-04-1015-0024, Form 990-N Case File Preparation, dated October 23, 2015.
Incorporated IG Memo TEGE-04-0216-0001, Establishing and Controlling MFT 67 Non-Return Units, dated February 2, 2016.
Incorporated IG Memo TEGE-04-0216-0002, Paperless Closings Expanded for Examined Cases, dated February 19, 2016.
Incorporated IG Memo TEGE-04-0216-0003, PATH Act - Impact on Revocations and Modifications of Exempt Status, dated February 22, 2016.
Incorporated IG Memo TEGE-04-0416-0008, Survey Returns, dated April 29, 2016.
Incorporated IG Memo TEGE-04-1016-0025, EO Classification Settlement Program - Case Processing, dated October 31, 2016.
Incorporated IG Memo TEGE-04-0117-0007, Review of Organizing Documents of Organizations that Attested to their Conformity in the Determination Process, dated January 30, 2017.

Audience

Tax Exempt and Government Entities
Exempt Organizations
Examinations

Effective Date

(07-18-2017)

Margaret Von Lienen
Director, Exempt Organizations
Tax Exempt and Government Entities

Program Scope and Objectives

  1. Purpose. This IRM section describes the closing process for examined and non-examined returns under EO jurisdiction. The closing process for examinations follows the process of communicating audit results to a taxpayer. This manual covers:

    • How to close a case

    • Where and how to ship the case.

  2. Audience. These procedures apply to IRS employees authorized to conduct audits of exempt organizations. This manual is also a key reference for their managers and reviewers, as well as other TE/GE employees in supporting roles.

    • Revenue agents, GS-0512

    • Tax compliance officers, GS-0526

    • Tax law specialists and reviewers, GS-0987

    • Tax examiners, GS-0592

    • Front-line examination group managers

  3. Policy Owner. Exempt Organizations (EO) is under the Tax Exempt and Government Entities business operating division (TE/GE).

  4. Program Owner. The Exempt Organizations Examinations function is the program office that oversees EO audits.

  5. Contact Information. To recommend changes or make any other suggestions to this IRM section, email the EO Examinations Mandatory Review office at *TEGE EO Review Staff.

Authority

  1. The primary objective of the EO audit program is regulatory, with emphasis on continued qualification of exempt organizations (Policy Statement 4-119). See IRM 1.2.13.1.36.

  2. IRC 7602 gives agents the authority to:

    1. Examine any books, papers, records or other data necessary to complete an audit.

    2. Issue a summons for information necessary to complete an audit.

    3. Take testimony under oath to secure additional information needed.

    4. Ask about any offense connected with administering or enforcing the Internal Revenue laws.

Responsibilities

  1. During an audit, agents are responsible for determining if the organization:

    • Meets the requirements for exemption

    • Has the proper foundation status (501(c)(3) organizations only)

    • Has filed all required tax and information returns

    • Has reported information and tax liabilities on filed returns completely and accurately.

  2. Taxpayer Bill of Rights: In June of 2014 the IRS adopted the Taxpayer Bill of Rights (TBOR) therefore, agents are also responsible for:

    1. Conducting a quality audit with fairness and integrity

    2. Being familiar with and acting in accord with taxpayer rights. See IRC 7803(a)(3).

    Note:

    For additional information refer to Policy 1-236.

  3. Along with their managers, agents are responsible for controlling and monitoring statutes on their assigned cases.

Terms

  1. General EO terms and definitions:

    Term Definition
    Administrative File The examination case file folder (paper or paperless) for one MFT for one taxpayer, with one or more tax periods under audit, including closing documents, check sheets, reports, returns, workpapers and the administrative record. See IRM 4.75.10.2.1.
    Administrative Record A written record of the administrative proceedings between the IRS and the organization under audit. Agents prepare the administrative record for Area Counsel in declaratory judgment cases. See IRM 4.75.32.
    Agent Any EO employee authorized to audit returns (GS-0512, GS-0526, GS-0592, or GS-0987 series).
    Audit Controls An audit establishment of a return or MFT 67 non-return unit in the AIMS and RCCMS database for control purposes.
    Audit record or audit account An AIMS and RCCMS record for a taxpayer’s MFT, for a tax period, for purposes of assessment, abatement, or other account action.
    Case A return open for audit for one tax period plus other returns, if any, involving interrelated interests or transactions that require concurrent audit. "Other returns" includes any related return of the same taxpayer and of related taxpayers for any tax period.
    Case File Synonymously used with the examination administrative file, or administrative file
    Closing Record The RCCMS Closing Records tab, and in the case of paper closures, Form 5599.
    Conversion For purposes of this IRM, the delinquent or substitute for return process used to convert an annual EO information return to a tax return. A conversion is intended to bring an organization current on its tax and filing obligations for the affected tax years not barred for assessment. See also IRM 4.5.3.14, Conversions.
    Converted Return For this IRM, a tax return converted from an annual EO information return
    Deficiency Procedures The process of preparing, approving, issuing and suspensing a 90-day statutory notice of deficiency
    Disqualification A loss of tax-exempt status for specified tax years for the following types of organizations:
    1. Organizations that self-declared their tax-exempt status by filing a an EO annual information return (status 36 organization)

    2. IRC 501(c)(12) or (c)(15) organizations that fail their respective 85 percent member income test or gross receipts test for a specific tax year

    3. Organizations treated as tax-exempt under IRC 501(c)(3) without a ruling or determination letter, such as an organization claiming to be a church (status 30 organization) or a small organization with gross receipts normally not more than $5,000 per year (status 31 organization)

    EO Closing Unit Formerly the Examination Special Support unit (ESS) in EO Examinations. The EO Closing Unit is under the jurisdiction of Compliance Planning and Classification (CP&C) in TE/GE.
    Group Return A Form 990 filed by a central organization on behalf of two or more subordinate organizations in a group exemption ruling. See IRM 4.75.24.3.1, Group Returns.
    Group Unless otherwise specified or suggested by context, the front line examination group or audit group
    PATH Act The Protecting Americans from Tax Hikes Act of 2015, P.L. 114-113
    Primary Return The annual information return under EO jurisdiction, such as Form 990, 990-EZ, 990-PF or 990-BL. This is the return around which other returns revolve. The primary return also serves as the return of record for statute purposes for certain related tax returns, such as Form 990-T.

    Note:

    Form 990-N, although not a return, is treated as a primary return for disposal code and principal issue code (PIC) purposes.

    Related Return Any return of the same taxpayer, without regard to audit jurisdiction. Discrepancy adjustment returns and Form 4720-A filed by related persons are treated as related returns.

    Note:

    Form 4720-A isn’t a standard form in the Electronic Publishing Products Catalog. A Form 4720 is designated as Form 4720-A (MFT 66) if a taxpayer completes Part II-A.

    Review function A general term describing either the EO Examinations Mandatory Review group or Special Review group.
    Secondary return Any return other than a primary return.
    Short closing A non-examined closing.
    Statute Unless stated otherwise in this manual, the term denotes the assessment statute expiration date (ASED).
    Short statute return A return with less than 270 days remaining on the ASED.
    Subordinate return A return of a subordinate organization in a group exemption ruling, usually a subordinate’s primary return.
    Working return For purposes of case file assembly, the physical or electronic representation of a filed return, SFR, or non-return unit under audit. See also IRM 4.75.16.7.4
  2. For additional AIMS terminologies, see IRM Exhibit 4.4.1-1, Reference Guide.

Acronyms

  1. The table lists commonly used acronyms and their definitions.

    Acronym Definition
    AIMS Audit Information Management System
    ASED Assessment Statute Expiration Date
    BMF Business Master File
    CSP Classification Settlement Program
    D.O. Delegation Order
    DC Disposal Code
    EGC Employee Group Code
    EIN Employer Identification Number
    EO Exempt Organizations
    EOBMF Exempt Organizations Business Master File
    EP Employee Plans
    EPR Examination Programs and Review
    EUP Employee User Portal
    FADL Final Adverse Determination Letter
    FAST Field Agent Support Team
    IDRS Integrated Data Retrieval System
    IRC Internal Revenue Code
    IRI Incomplete Return Item
    JCT Joint Committee on Taxation
    LB&I Large Business and International Business Operating Division
    MF Master File
    MFT Master file tax code
    NMF Non-Master File
    NDWC Notice of Determination of Worker Classification
    NRU Non-return unit (See IRM 4.75.21.3)
    MeF Modernized e-File
    OCEP Office/Correspondence Examination Program
    PBC Primary Business Code
    PIC Principal Issue Code
    PII Personally Identifiable Information
    RAR Revenue Agent’s Report
    RCCMS Reporting Compliance Case Management System
    SB/SE Small Business/Self-Employed Business Operating Division
    SBC Secondary Business Code
    SEIN Statistics of Income Exempt Organizations Return Image Net
    SFR Substitute for Return
    SND Statutory Notice of Deficiency
    SRS Specialist Referral System
    SSN Social Security Number
    TAM Technical Advice Memorandum
    TE/GE Tax Exempt and Government Entities business operating division
    TEB Tax-Exempt Bonds
    TEQMS Tax Exempt Quality Measurement System
    TIN Taxpaper Identification Number
    UBIT Unrelated Business Income Tax
    W&I Wage and Investment Business Operating Division
  2. For common IDRS research and command codes, refer to IRM 4.5.1.2. For their definer codes and definitions, refer to Exhibits 4.5.1-1 through 4.5.1-7.

Related Resources - IRMs

  1. The following lists IRMs referenced in this manual:

    • IRM 4.75.10, Exempt Organization Pre-Audit Procedures

    • IRM 4.75.13, Issue Development and Conclusion

    • IRM 4.75.15, EO Closing Letters and Audit Reports

    • IRM 4.75.21, EO Special Examination Procedures

    • IRM 4.75.22, EO Delinquent and Substitute for Return Procedures

    • IRM 4.75.24, Organizations Covered by a Group Ruling

    • IRM 4.75.25, Exempt Organizations Examinations Closing Agreements

    • IRM 4.75.27, Office/Correspondence Examination Program (OCEP)

    • IRM 4.75.28, Discrepancy Adjustments

    • IRM 4.75.32, Declaratory Judgment Cases And The Administrative Record

    • IRM 4.75.31, Conversion of Returns Upon Revocation of Exemption

    • IRM 4.75.37, Claims, Requests for Abatement and Audit Reconsiderations

  2. TE/GE IRMs mentioned in this manual include:

    • IRM 4.5.1, TE/GE AIMS Processing

  3. Servicewide or Other BOD IRMs mentioned in this manual include:

    • IRM 4.23.8, Determining Employment Tax Liability

    • IRM 4.23.9, Employment Tax Penalty and Fraud Procedures

    • IRM 4.23.10, Report Writing Guide for Employment Tax Examinations

    • IRM 25.16.1, Disaster Assistance and Emergency Relief, Program Guidelines

Related Resources - Forms and Pubs

  1. The following paragraphs provide a comprehensive list of the relevant forms and publications you may need to close an examined or non-examined case:

  2. Publications and Documents:

    • Pub 78, Cumulative List of Organizations [Electronic Format Only through EO Select Check]

    • Pub 892, How to Appeal an IRS Decision on Tax Exempt Status

    • Pub 1035, Extending the Tax Assessment Period

    • Pub 4779, Facts About Terminating or Merging Your Exempt Organization

    • Document 6379, Exempt Organizations Management Information Systems Codes - Quick Reference for EO Employees

    • Document 13056, Employee Toolkit - Shipping Procedures for Personally Identifiable Information (PII)

  3. AIMS forms:

    • Form 5546, Examination Return Charge-Out Sheet

    • Form 5588, TE/GE Non-Master File Request

    • Form 5595, TE/GE Update

    • Form 5596, TE/GE Non-Examined Closings

    • Form 5597, TE/GE IMF/BMF/E990PMF Request

    • Form 5598, TE/GE Correction Request

    • Form 5599, TE/GE Examined Closing Record

  4. Statute forms:

    • Form 872, Consent to Extend the Time to Assess Tax

    • Form 872-A, Special Consent to Extend the Time to Assess Tax

    • Form 872-T, Notice of Termination of Special Consent to Extend the Time to Assess Tax

    • Form 895, Notice of Statute Expiration

    • Form 3999, Statute Expiration Report

    • Form 10364-A, Statute Expiration Case Notice, from the National Distribution Center

    • Form SS-10, Consent to Extend the Time to Assess Employment Taxes

  5. Basic report forms:

    • Form 886-A, Explanation of Items

    • Form 4621, Report of Examination - Exempt Organization

    • Form 4621-A, Report of Examination-Exempt Organizations

    • Form 4549, Income Tax Examination Changes

    • Form 4549-A, Income Tax Examination Changes (Unagreed and Excepted Agreed)

    • Form 4549-E, Income Tax Discrepancy Adjustments

    • Form 5384, Excise Tax Examination Changes and Consent to Assessment & Collection

    • Form 5385, Excise Tax Examination Changes

    • Form 4666, Summary of Employment Tax Examination.

    • Form 4667, Examination Changes - Federal Unemployment Tax

    • Form 4668, Employment Tax Examination Changes Report

    • Form 4668-B, Report of Examination of Withheld Federal Income Tax for Withholding Reported on Forms 1099 and W-2G.

    • Form 4883, Exempt Organizations Excise Tax Audit Changes

    Note:

    The "audit report" includes the "Substitute for Return Package" described in IRM 4.75.22.7.1.

  6. Case closing forms:

    • Form 895, Notice of Statute Expiration

    • Form 1900, Income Tax Survey After Assignment

    • Form 2363-A, Request for IDRS Input for BMF/EO Entity Change

    • Form 2503, Survey After Assignment - Excise or Employment Tax

    • Form 3198-A, TE/GE Special Handling Notice

    • Form 4881, Chapter 42 Taxes - Disqualified Person Foundation Manager. See instructions at IRM Exhibit 4.5.1-19.

    • Form 5346, Examination Information Report

    • Form 5456, Reviewer's Memorandum - EP/EO

    • Form 5457, Response to Reviewer's Memorandum - EP/EO

    • Form 5599, TE/GE Examined Closing Record

    • Form 5666, TE/GE Referral Information Report

    • Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties

    • Form 10904, Request for Record Deletion from AIMS

  7. Case file and workpaper forms:

    • Form 5464, Case Chronology Record

    • Form 5772, EO Workpaper Summary

    • Form 5773, EO Workpaper Summary Continuation Sheet

    • Form 5774, Private Foundation Workpapers

    • Form 5774-A, Private Foundation - IRC 4962 Abatements

Closing a Case

  1. Non-examined cases are discussed in IRM 4.75.16.3. These are closed to the EO Closing Unit.

  2. Examined cases are discussed in IRM 4.75.16.4. These are closed to either:

    • The EO Closing Unit

    • EO Examinations Mandatory Review (see IRM 4.75.16.6)

    • EO Examinations Special Review (reopened cases only)

    Refer to IRM 4.75.16.9 for the addresses to these functions.

  3. Unable-to-Locate cases could be examined or non-examined depending on the facts and circumstances. Refer to IRM 4.75.16.5.11 and Exhibit 4.75.16-15..

Timely Closing

  1. Make your best effort to close audits within established time-frames.

    1. Document any delays or extended periods of inactivity on Form 5464.

    2. If using an electronic and paper version of Form 5464, make sure both are updated.

  2. The National Standard Timeframes for closing cases are guidelines for quality exam purposes in TEQMS:

    1. For no-change or agreed change audits, close the case from the examination group within 10 calendar days from the date you receive the taxpayer’s agreement to your report, or the date you communicate the no-change status to the taxpayer.

    2. For unagreed audits, close the case from the examination group within 20 calendar days from the date the 30-day letter defaults or the date your receive a request for appeals conference.

    3. Managers must ship the case within 10 calendar days after receipt from the agent.

  3. Record the date you close the case on Form 5464. The group manager records the date he or she approved the closure.

Use of RCCMS

  1. Reporting Compliance Case Management System (RCCMS) allows for the electronic establishing, updating, and closing of AIMS records.

  2. For paper case files associated with a RCCMS record, close the case with a printed copy of Form 5599, Form 5595, Form 5596 and Form 5597.

    Note:

    See IRM 4.75.16.4.4 for completing Form 5599.

  3. For information on assembling an electronic case file in RCCMS, see:

    • IRM 4.75.16.7.6, Case File Assembly, 100 Percent Paperless Case File

    • Exhibit 4.75.16-16, Guidelines for EO Sub-Folders in RCCMS

    • For information on an electronic Administrative Record, see IRM 4.75.32.4.1.

    Note:

    See also online the RCCMS collection of publications including training materials, automation guides and tips.

  4. For closing a RCCMS record, see IRM 4.75.16.4.4.3, RCCMS Closing Record - Closing With Field.

    Note:

    See also Document 13214, EO RCCMS Case Closing Desk Guide.

  5. In order to close a RCCMS record opened in error without a corresponding AIMS record, or an AIMS record is closed without a corresponding RCCMS record, the group manager:

    1. Sends a secure e-mail message to the EO Exams Systems Analyst. Include the name of the case, EIN and MFT(s), tax period, and explanation of the error.

    2. Completes the RCCMS Closing Document by selecting the appropriate disposal code for deletion (901 – Error Accounts, or 801 – Information Report).

    3. Selects "7- Paperless Non-Examined" in the "Closing with:" field.

    4. Completes the fields at the bottom of the closing document with the group’s information (PBC, SBC, and EGC).

    5. Leaves the AIMS box unchecked.

    6. Closes RCCMS controls to the EO Closing Unit using the following: PBC – 400; SBC – 11115; EGC – 7997; and, Status Code 56.

    Note:

    See also IRM 4.75.16.3.1.4 (5) for claims where a return is established in either AIMS or RCCMS without the other.

Non-Examined Closures

  1. Non-examined closures of returns are known as "short closures." Non-examined closures include:

    • Deletions of AIMS records or accounts (see IRM 4.75.16.3.1).

    • Surveys of returns (see IRM 4.75.16.3.2).

  2. Specific examples of reasons to request a non-examined closure include:

    1. AIMS records established in error.

    2. Duplicate AIMS NMF records, after establishing an AIMS MF record for the same return

    3. Selected returns for audit that don't get audited.

    4. Assigned returns for audit that don't get audited.

    5. Assigned returns where taxpayer contact was made, but you determine there is no audit potential.

    6. Surveying returns or non-return units of an organization auto-revoked by the Service Center during the audit.

  3. General information on non-examined closures:

    • Accounts closed on AIMS with a non-examined disposal code remain on AIMS database for 90 days

    • Non-Examined and NMF closures are closed on AIMS outside of RCCMS

    • Close non-examined returns and non-return units to the EO Closing Unit.

    • Non-examined NMF accounts can't close 100 percent paperless.

    • The EO Closing Unit uses command code AMSOC to close non-examined returns and MFT 67 non-return units

    • Forms 10904, 1900, 2503, and 5596 provides the information needed for AMSOC inputs.

    • You remain responsible for ensuring a non-examined returns are closed before the ASED.

  4. Refer to IRM 4.75.16.3.2.4 (7) for a list of disposal codes for various short closures not addressed in this manual.

Deleting AIMS Accounts

  1. Use Form 10904 to delete an AIMS account

  2. AIMS deletions are generally NMF closures. Surveys are generally Master File closures.

  3. You must justify and document an AIMS deletion in the "Reason for Request (Narrative)" block of Form 10904.

    1. Attach available documentation to support the reason for deletion.

    2. Attach AMDISA prints no more than 30 days old.

    3. Leave no question that the AIMS deletion is warranted.

  4. Some MF accounts may be deleted, such as a filed return ordered or classified but not received and you did not start the audit.

  5. AIMS deletions at the group level normally require one of two disposal codes:

    • DC 99 (801), Information Report and Miscellaneous (See description in IRM 4.75.16.3.1.1.)

    • DC 33 (901), Error Accounts with no Returns (See description IRM 4.75.16.3.1.2.)

Disposal Code 99 Procedures
  1. Use DC 99 (801) when:

    • Converting an audit record from NMF to MF

    • Changing from one MFT to another

    • Changing from one tax period to another

    • Transferring from one TIN to another (such as a parent TIN)

    Note:

    Ensure the correct transferee TIN is identified in the "Reason for Request (Narrative)" block of Form 10904.

  2. Check for AIMS freeze codes or claim amounts on AMDISA prints for the account being deleted.

    Note:

    A deletion can't occur when a claim amount or a freeze code is present. Adjust these items on RCCMS (manually on Form 5595) before deletion. For claims, you may also need to change the source code.

  3. The group manager approves all DC 99 (801) deletion requests.

  4. Go to IRM 4.75.16.3.1.3, for the contents and the approval process of the Form 10904 Package.

  5. Before deleting an NMF record for the purpose of converting the account from NMF to MF:

    • Fully establish the MF record on AIMS. A full establishment includes a TC 150 posting.

    • Don’t delete an AIMS NMF record based solely on a skeletal TC 424 record on AIMS MF.

    • Include AMDISA prints in the case file for both NMF and MF AIMS records.

Disposal Code 33 Procedures
  1. Use DC 33 (901) when:

    • Correcting a keypunch error

    • Correcting an error account

    • Correcting an incorrect TIN

      Note:

      Identify the correct TIN in the "Reason for Request (Narrative)" block of Form 10904. Attach documentation showing the correct TIN is fully established.

    • The taxpayer is not liable for filing a return and you did not start the audit

    • A claim was opened in error because it was not timely filed

    • You established an MFT 67 non-return unit on MF or NMF, but did not conduct the audit

  2. The group manager, area manager, systems analyst and the Manager, EO Closing Unit must approve DC 33 (901) deletion requests. See IRM 4.75.16.3.1.3 (4).

  3. Go to IRM 4.75.16.3.1.3, for the contents and the approval process of the Form 10904 Package.

  4. Complete Form 10904 with an explanation and supporting documentation.

    1. Make the explanation clear, legible and sufficiently detailed.

    2. Leave no question that the AIMS deletion is warranted.

  5. For more detailed information on error accounts, refer to IRM 4.5.2.7, Error Accounts with No Return.

Form 10904 Package
  1. Deletions of account can’t close paperless. For deleting a claims account, see also IRM 4.75.16.3.1.4.

  2. Assemble the Form 10904 package as follows:

    • Form 10904 (first page only), with explanation

    • Form 5546, if an original return was obtained from an IRS Campus

    • AMDISA print for module being deleted from AIMS

    • AMDISA print for corresponding module established on MF

    • IMFOLT or BMFOLT

    • TXMODA

    • Supporting documentation

  3. Secure approval of the Form 10904 package as follows while AIMS and RCCMS controls stay with the group:

    1. Scan (or print) the Form 10904 package to create a paper copy of the package if not already created manually.

    2. Secure email the electronic copy of the package to your group manager for e-signature.

    3. In the case of DC 33 (901) deletions, go to paragraph (4), otherwise, skip to paragraph (5).

  4. The approval procedures for DC 33 (901) deletions are as follows:

    1. The group manager secure emails the package he or she signed to the area manager for e-signature.

    2. The area office secure emails the signed package to the Systems Analyst at *TEGE-EO-10904 for e-signature.

    3. The systems analyst secure emails the signed package to the Manager, EO Closing Unit for e-signature

    4. The Manager, EO Closing Unit secure emails the signed package back to the area manager; cc to the group manager.

    Note:

    The systems analyst and the Manager, EO Closing unit will return the Form 10904 package to the area manager with a carbon copy to the group manager if the package is incomplete or the required documentation is missing

  5. Import the approved electronic copy of the Form 10904 package into RCCMS.

  6. Print the signed pages of the package and staple them to the paper copy of the Form 10904 package.

    Note:

    The paper copy of the package is not placed in a case file folder.

  7. The group mails the approved paper copy of the Form 10904 package to the EO Closing Unit. Transfer AIMS and RCCMS controls to the EO Closing Unit, Status 51.

    Note:

    Coordinate any expedites with the Manager, EO Closing Unit.

Form 10904 and Claims
  1. You can’t delete a claim record until the claim amount is removed from AIMS and RCCMS.

    • Adjust the claim amount on RCCMS (manually Form 5595) before deletion.

    • For claims, you may also need to change the source code.

  2. Prepare the Form 10904 package as stated in IRM 4.75.16.3.1.3 (2).

  3. Forward AIMS and RCCMS controls to the Systems Analyst in the EO Closing Unit, AIMS Status Code 56.

  4. E-mail the Form 10904 package to the Systems Analyst *TEGE-EO-10904. The EO Closing Unit doesn’t accept Forms 10904 uploaded to RCCMS or faxed.

  5. Follow the deletion instructions below for situations where a return is established in either AIMS or RCCMS without the other.

    1. For returns established on AIMS only, prepare Form 10904 indicating an AIMS only record. Attach one AMDISA print no more than 30 days old.

    2. For returns established on RCCMS only, send RCCMS controls to the EO Closing Unit via secure e-mail. Inform the Systems Analyst you have sent the controls so it can be controlled to the RCCMS Library.

    Note:

    See also IRM 4.75.16.2.2 (4) if a RCCMS record is open in error without a corresponding AIMS record, or an AIMS record is closed without the corresponding RCCMS record.

Surveying Returns

  1. You and your group manager have the authority to determine whether to survey a return instead of conducting an audit.

    1. The group manager must review and approve all surveys.

    2. There must be sufficient written justification and documentation to survey a return on the survey forms.

    3. You must use one of two survey forms: Form 1900 or Form 2503.

    4. Generally, surveying returns is allowed for 100 percent paperless closings. See IRM 4.75.16.7.6.

    5. Surveyed returns don’t count towards any statistics with respect to audit results.

  2. Before surveying a return, consider:

    • How much time is left before the ASED. Consider surveying returns with less than 18 months until the ASED.

    • Whether the same issue is present in subsequent years.

    • Whether an audit would likely result in a material change.

    • Whether an organization has already taken steps to correct a reported issue, as reflected in subsequent years returns.

  3. There are three types of surveys covered in this manual:

    • Survey Before Assignment, Disposal Code 31 (910) (see IRM 4.75.16.3.2.1)

    • Survey After Assignment, Disposal Code 32 (908) (see IRM 4.75.16.3.2.2)

    • Survey After Taxpayer Contact, Disposal Code 36 (909) (see IRM 4.75.16.3.2.3)

    • Surveyed Claim, Disposal Code 34 (103) (see IRM 4.75.16.3.2.4 (2) e)

      Note:

      Only the listed type of surveys above are eligible for 100 percent paperless closing.

  4. All determinations to survey will be treated with the same level of review.

Survey Before Assignment
  1. A return selected for audit can be surveyed before assignment (Disposal Code 31 (910)) if both:

    • The return hasn’t been assigned to an agent

    • There has been no contact with taxpayers or their representatives

  2. The group manager may assign an agent or group secretary to prepare the paperwork for closure.

  3. The group manager may survey unassigned cases if the statute remaining is less than 18 months, and a more recent return has been filed. In these situations, survey the assigned year and request establishment of the subsequent year via RCCMS. Obtain electronic copies of the original filed return from the On-line SEIN system.

  4. There must be sufficient written justification and documentation to survey a return on the survey forms (Form 1900 or Form 2503).

  5. Prepare Form 5596. You can use Form 5596 for more than one survey. Use Disposal Code 31 (910).

  6. Locally procure a stamp approximately 3 by 1 inches in size, and stamp each original return being surveyed. The form of the stamp should be as follows:

    CLOSED SURVEY BEFORE ASSIGNMENT
    Group Manager Date

    Note:

    Don’t stamp copies of returns, such as those retrieved from Online SEIN.

  7. The group manager signs and dates their signature and date field.

Survey After Assignment
  1. You may survey a return after assignment (Disposal Code 32 (908)) if there is no contact with taxpayers or their representatives, and you believe that an audit of the return would result in no material change in exempt status, foundation status, or tax liability.

  2. You may survey unopened cases (AIMS Status 10) if the statute remaining is less than 18 months, and a more recent return was filed. In these situations survey the assigned year and request establishment of the subsequent year via RCCMS. Obtain electronic copies of the original filed return from the On-line SEIN system.

  3. There must be sufficient written justification and documentation to survey a return on the survey forms (Form 1900 or Form 2503).

  4. Follow the approval instructions in IRM 4.75.16.3.2.4 for the survey after assignment process.

  5. Locally procure a stamp approximately 3 inches by 1 inch in size, and stamp each original return surveyed. The form of the stamp should be as follows:

    CLOSED SURVEY AFTER ASSIGNMENT
    Internal Revenue Agent Date
    Approved - Group Manager Date

    Note:

    Don’t stamp copies of returns, such as those retrieved from Online SEIN.

    Note:

    Old stamps stating "Group Supervisor" are permissible in consideration of budget constraints.

  6. Sign and date in the signature and date field. The group manager signs and dates within their signature and date fields.

Survey After Taxpayer Contact
  1. Under certain circumstances, you can survey a return after initial contact with a taxpayer (Disposal Code 36 (909)).

  2. In order to survey after taxpayer contact, you must not have inspected or reviewed the taxpayer's books or records.

    Exception:

    You generally must survey EO returns of organizations automatically revoked during an audit even if the taxpayer's books and records were examined. See IRM 4.75.16.5.2 and Letter 5433, Closing Letter for Automatic Revocation Under IRC 6033(j). For compelling reasons to continue the audit, see IRM 4.75.16.5.2 (5).

  3. Refer to Rev. Proc. 2005-32, to determine whether you have inspected or reviewed a taxpayer's books and records.

  4. You may survey returns after initial contact for cases:

    1. Involving repetitive audits

    2. Assigned to an agent who moved or left the Service

    3. Where the only contact with the taxpayer was to secure a statute extension, such as Form 872

    4. Involving a taxpayer you are unable-to-locate as stated in situations 2 and 6 of Exhibit 4.75.16-15

  5. Follow the approval instructions in IRM 4.75.16.3.2.4 for the survey after assignment process.

  6. If the group manager approves the survey, issue Letter 3616, signed by the group manager, notifying the taxpayer that an audit will not be conducted.

  7. Use the same survey stamp for surveys after assignment in IRM 4.75.16.3.2.2 (5).

    Note:

    Don’t stamp copies of returns, such as those retrieved from Online SEIN.

  8. Sign and date in the signature and date field. The group manager signs and dates within their signature and date fields.

Survey After Assignment Process
  1. Survey a return if, after conducting the in-depth analysis and evaluating audit potential, you and your manager determine an audit would result in no material change in exempt status, foundation status, or tax liability.

    Note:

    Refer to IRM 4.75.16.5.2 (4) for the surveying of automatically revoked organizations (EOBMF Status 97).

  2. Agent. After you decide to survey a return:

    1. Prepare the survey forms, Form 1900 or Form 2503. Use Disposal Code 32 (908) or Disposal Code 36 (909)

    2. Refer to Exhibit 4.75.16-1 and Exhibit 4.75.16-2 for instructions to these forms.

    3. There must be sufficient written justification and documentation to survey a return on the survey forms.

    4. Complete Form 5596 (not required for 100 percent paperless cases or surveyed claims). You can use Form 5596 for more than one survey. Use Disposal Code 32 (908) or Disposal Code 36 (909).

    5. For surveyed claims, complete Form 5599 (not required for 100 percent paperless cases). See IRM 4.5.3.13.3 and IRM 4.75.37.6.1. Use Disposal Code 34 (103).

    6. Digitally sign these forms and secure email the signed forms to your group manager.

    Caution:

    Follow the Joint Committee process for surveyed claims that meet those criteria before approving. See IRM 4.75.16.6 (2) and IRM 4.75.37.7.5.

  3. Group manager. Upon receiving the survey form(s):

    1. Review the agent’s justification and documentation for surveying a return.

    2. The justification is a critical item and must explain why the return is not going to be examined. A generic entry such as "survey" is not acceptable.

    3. Digitally sign Form 1900 or Form 2503, and Form 5596.

    4. Send the digitally signed forms back to the agent by secure email.

  4. Agent. Upon receipt of the digital signed forms:

    1. Enter the RCCMS survey disposal code at the Closing Record screen in RCCMS.

    2. Enter the justification in the remarks and comments box on RCCMS, at Closing Record, General Tab. The justification is a critical item and must explain why the return is not going to be examined. A generic entry such as "survey" is not acceptable.

    3. Stamp the original return as indicated in IRM 4.75.16.3.2.2 (5) and IRM 4.75.16.3.2.3.

    4. If surveying a Form 990-N e-Postcard due to auto-revocation, stamp either of the screen prints indicated in Exhibit 4.75.16-19 instead.

    5. Complete Form 3198-A with the name of the entity, EIN, MFT, and tax year. Enter "Survey After Assignment," or "Survey After Initial Contact," in the "Other Instructions" block.

    6. Upload to RCCMS the signed Form 1900 or Form 2503, and Form 5596.

    7. Documents received with original signatures, e.g., Form 2848, Form 8821, Form 56, and executed consent forms to extend a statute of limitations, must be maintained in a "correlating paper file."

    8. Close the case to the group manager. Perform a send/receive within RCCMS.

      Note:

      If surveying Form 990-N for auto-revoked organizations, prepare a dummy return. Attach BMFOLT and AMDISA prints. See IRM 4.75.16.7.4(4).

      Note:

      In any paper case file, include Form 1900 or 2503, 5596, and the original or copy of the return. Stamp the return with the appropriate survey stamp. Give the paper file to the group manager.

  5. Group Manager - 100 Percent Paperless Case. Once the group manager receives the case file on RCCMS:

    1. Notify the EO Closing Unit of the closure of a 100 percent paperless case.

    2. Prepare a Form 3210, Document Transmittal, to the EO Closing Unit. Include the disposal code for each return prominently on the form

    3. If there is a "correlating paper file," include the message "100 Percent RCCMS (if applicable), Form 2848, 8821 and/or Form 872 sent via mail" in the remarks section of Form 3210.

    4. Send Form 3210 to the designated printer in the EO Closing Unit. See printer address at IRM 4.75.16.7.6(9), and the Note below.

    5. Close the case to the EO Closing Unit using PBC 400, SBC 11115, Employee Group Code 7997, and Status 51.

    6. If there is a "correlating paper file," send it to the EO Closing Unit with a copy of the Form 3210 previously submitted.

    Note:

    Don’t use emails and messages generated by RCCMS to serve as notification in lieu of Form 3210

  6. Group Manager - Paper Case. If a paper file was received:

    1. Countersign the survey stamp on the return.

    2. Complete the closing record on RCCMS.

    3. Prepare a Form 3210 in triplicate to ship the case to the EO Closing Unit.

    4. Ship the case file with two copies of the Form 3210 to the EO Closing Unit. Retain the third copy of the Form 3210.

    Note:

    For more information on shipping instructions, see IRM 4.75.16.9.

  7. Forward the following short closing AIMS disposal codes to the EO Closing Unit in Dallas.

    • Disposal Code 20 (906)

    • Disposal Code 21 (905)

    • Disposal Code 22 (904)

    • Disposal Code 25 (902)

    • Disposal Code 31 (910), eligible for 100 percent paperless closing

    • Disposal Code 32 (908), eligible for 100 percent paperless closing

    • Disposal Code 35 (913)

    • Disposal Code 36 (909), eligible for 100 percent paperless closing

    • Disposal Code 45 (802)

    Internal Revenue Service
    MC: 4980 DAL
    1100 Commerce Street
    Dallas, TX 75242

  8. Don’t survey Non-Master File cases unless it is an automatic revocation.

Examined Closures

  1. Group managers will document their approval of the examined case closure on Form 5464.

  2. For specific closing and shipping instructions, see IRM 4.75.16.8 and IRM 4.75.16.9.

  3. For supplemental instructions on special or unusual characteristics, conditions or outcomes, see IRM 4.75.16.5

Pre-Closure Review

  1. Check the following items before closing and shipping your case:

  2. Communicate Audit Results to Taxpayer

    • Hold a closing conference. See IRM 4.75.16.4.3.

    • Issue a 30-day letter and audit report, or a final closing letter: no change, advisory, agreed tax change, or agreed disallowance of claim.

    • Issue Letter 5326, Rebuttal Letter, if the taxpayer protests the audit report and the protest doesn’t change your position.

  3. Finalize Workpapers

    • Ensure all identified issues were resolved and documented.

    • Ensure fraud was appropriately considered

    • Ensure penalties were appropriately considered

    • Purge all unnecessary or duplicate workpapers.

    • Index and review workpapers for conclusions, completeness and accuracy.

    • Ensure conclusions are consistent with audit reports and closing letters.

    • Ensure Form 5772, 5773, and 5774 (for private foundations) are complete.

    • For declaratory judgment cases - ensure an administrative record is present. See IRM 4.75.32.

    • For declaratory judgment cases (unagreed) - ensure the administrative record index is complete.

    • Follow case file assembly instructions. See IRM 4.75.16.7.

  4. Complete the Closing Documents

    • Verify, update or correct AIMS and RCCMS fields as needed; e.g., statute dates, claim amount, source codes, project code, etc.

    • Complete "Closing Records" tab on RCCMS (and Form 5599 for paper cases). See IRM 4.75.16.4.4.

    • Complete Form 2363-A if necessary to update status fields in the EOBMF. See IRM 4.75.16.4.5

    • Complete Form 3198-A for each MFT case file requiring special handling. See IRM 4.75.16.4.6.

    • Complete IRM 4.75.16.4.8, Information Report, if necessary. See IRM 4.75.16.4.8.

    • Document statute controls and update Form 895 for returns under audit that are "statute returns." See IRM 4.75.16.4.2.4.

    • Ensure time on case agrees between the closing record, Form 5772, Form 5464 and WebETS. See IRM 4.75.16.4.9.

    • Group managers will document their approval of the examined case closure on Form 5464. See IRM 4.75.11.7.

    Note:

    You may scan or digitally sign Form 895 and upload it to RCCMS. Upload all Forms 3198-A to RCCMS.

Statute Considerations

  1. Verify the correctness of the statute of limitations date:

    • For information on determining statute dates for EO, see IRM 4.75.10.6.1, Statute of Limitations.

    • For information on determining statute dates for EO claims, abatements and refunds, see IRM 4.75.37.4 and IRM 4.75.37.5.

    • For information on determining statute dates for IRC 4958 excise tax, see IRM 7.27.30.11.

    • For information on determining statute dates for private foundation excise taxes, see IRM 4.76.4.2.7.

    • For information on statutes for purposes of completing an EO closing record, see IRM 4.5.2.3.1.28.

    • For servicewide information on determining statute dates, see IRM 25.6.1, Statute of Limitations Processes and Procedures.

    • For servicewide information on extensions of statute dates by consent, see IRM 25.6.22.

    • For servicewide information on statute controls, see IRM 25.6.23.

    • For servicewide information on determining statute dates for claims, abatements and refunds, see IRM 25.6.1.10.

    • For instructions in updating statutes on AIMS, refer to IRM 4.5.1, and see the instructions to Form 5595.

  2. Make every attempt to complete the case before a statute extension becomes necessary.

  3. Identify short statute returns. A "short statute return" for EO is a return with less than 270 days remaining until the ASED.

  4. To the extent the procedures in this IRM impose tighter controls than those in IRM Chapter 25.6 use the procedures in this IRM.

    Example:

    IRM 25.6.23.4 requires statute controls for returns with assessment statutes that expire within 180 days. This manual requires statute controls for returns with statutes that expire within 270 days. Follow the instructions with respect to statute controls from this manual, because statute controls for EO Examinations take effect sooner than those stated in IRM 25.6.23.4.

  5. Maintain "statute controls" for all short statute returns under audit, whether or not controlled on AIMS. See also IRM 4.75.16.4.2.1.

Statute Controls
  1. "Statute controls" for returns under audit include:

    • Verifying the statute date is accurate, including ASED alpha codes.

    • Flagging the case with a red case file folder, and with Form 3198-A upon closure.

    • Attaching AMDISA and INOLES prints no more than 30 days old to the working returns.

    • Identifying related returns under audit with statute dates dependent on the filing of a primary return.

    • Initiating and updating Form 895.

    • Notifying the group manager and taxpayer as necessary.

    • Timely soliciting of statute extensions. See also IRM 4.75.16.4.2.1.1.

    • Reconciling AIMS Table 4.0, Returns with Statute Date Pending, to RCCMS at least monthly.

    • Closing short statute returns promptly, and explaining delays on Form 5464. See IRM 4.75.16.4.2.3.

    • Providing advance written notification of a forthcoming short statute return. See IRM 4.75.16.4.2.2.

    • Taking other appropriate actions to protect the government’s interest.

    Note:

    You may order Form 10364-A, a pre-printed red folder.

    Note:

    A red folder is not needed if you extend a statute beyond 270 days, even if Form 895 is required.

  2. Form 895. Initiate and complete Form 895 if the group secretary or manager didn’t furnish you one. Criteria for initiating Form 895 includes:

    • There are less than 270 days remain on the ASED.

    • A statute extension is executed.

    • You use an ASED Alpha code.

    • Counsel opines in writing that a six year statute or no statute applies to a filed return.

    • Other servicewide criteria are provided in IRM 25.6.23.4.

    Note:

    For instructions on completing Form 895, see IRM 25.6.23.6.2 and IRM 25.6.23.7.1.3.

    Note:

    Scan or digitally sign Form 895 and upload to RCCMS. Upload Form 3198-A to RCCMS.

  3. Invoking 6-year Statutes, No Statute, or ASED Alpha Code PP. Obtain Area Counsel’s written opinion on invoking these statute conditions. Area Counsel requires 45 days.

  4. ASED Alpha Code "PP" . Refer to additional instructions and examples in IRM 4.75.16.4.2.5 and Exhibit 4.75.16-18 respectively.

  5. Allowing Statute to Expire. Follow the instructions in IRM 25.6.23.6.6.2 and IRM Exhibit 25.6.23-3.

  6. Statute has Expired. If a statute for assessment has expired, complete Form 3999. Refer to the instructions in IRM 25.6.1.13.

    Exception:

    Form 3999 is not required if the tax, penalty and interest is less than the amount stated in IRM 25.6.1.13.2.4(2).

    1. Statute Expires Before You Receive Return. Prepare a preliminary Form 3999 and give it to the group manager. The group manager will forward the preliminary Form 3999 to the group or area that had possession of the return when the statute expired.

    2. Statute Expires After Case is Assigned to You. Complete Form 3999 explaining the facts and circumstances. Use DC 01 (210) for returns with barred statutes.

    3. Routing and disposition of Form 3999. Follow the instructions in IRM 25.6.13.2.8 using TE/GE equivalent offices as substitutes for SB/SE offices in the instructions.

  7. The EO Closing Unit and the review functions will not accept a short statute case without required statute controls.

  8. For servicewide instructions on statute controls, refer to IRM 25.6.23.6.

Extending the Statute Date
  1. Use Letter 3600 or Letter 3599 to solicit extensions from a taxpayer.

    • Enclose two copies of completed Form 872, 872-A or SS-10 (consent forms) for the taxpayer to sign (three copies if there is a designated representative).

    • Enclose current version of Pub 1035, Extending the Tax Assessment Period.

    • If there is a designated representative, issue Letter 3597 to the Power of Attorney, enclosing what you send the taxpayer.

    • Document these actions on Form 5464, with a due date for the reply.

  2. Other specialized letters to solicit statute extensions include:

    • Letter 907, Individual Income Tax Statute Extension Request

    • Letter 907-E, Erroneous Claim for Refund or Credit Penalty Statute Extension Request

    • Letter 907-P, Return Preparer Penalty Statute Extension Request

    • Letter 4934, Appraisal Penalty Statute Extension Request

  3. If the taxpayer signs and dates both copies of the consent forms (three copies if there is a designated representative):

    • Inspect the signed forms for errors, markings and edits, and a signature, date and title of an authorized individual.

    • Stamp all signed consent forms with the received date.

    • Submit all signed consent forms to your group manager for counter signature. Electronic signatures are not permitted.

    • Keep one original executed consent form for the case file, following case file assembly procedures.

    • Prepare Letter 3598 or Letter 1343 for the taxpayer, enclosing the second executed extension form.

    • If there is a designated representative, prepare Letter 3597 enclosing the third executed consent form.

    • Copy for the case file what you will be mailing to the taxpayer and to the designated representative.

    • Issue the letters and their enclosures to the taxpayer and designated representative

    • Update the statute date on RCCMS (manually on Form 5595 if needed), Keep a copy of Form 5595 for the case file.

    • Document these actions on Form 5464.

    • Update Form 895.

    Note:

    If the taxpayer only signs one copy of a consent form, refer to IRM 25.6.22.5.11(1)c.

  4. No Reply. If the taxpayer doesn’t reply to your request to extend the statute date by the due date:

    • Discuss the next course of action with your group manager.

    • If follow-up is the next course of action, issue Letter 3599, enclosing Pub 1035.

  5. Refusal to Extend the Statute. If a taxpayer won’t extend the statute of limitations for assessment:

    • Discuss the next course of action with your group manager.

    • For follow-ups generally, inform the taxpayer that not extending a statute date could jeopardize its right to appeal. The Appeals Office requires 365 days remaining on the statute date before it receives the case (180 days for cases previously returned to the audit group by Appeals). See IRM 8.2.1.4.

Advance Written Notification to Closing Units
  1. Group managers must notify the receiving manager of the EO Closing Unit or review function, via secure email, that a short statute return is forthcoming. Advance written notification includes:

    • The returns and years being closed

    • Actual statute expiration date for each return

    • The reason for the short statute condition

    • The dates a statute extension was solicited

    • The amount of tax and penalty for the short statute returns

    • An explanation why a statute extension wasn’t needed or wasn’t executed after extension requests

Timeline for Closing Audited Returns
  1. Closing to EO Closing Unit. The EO Closing Unit now under Government Entities/Shared Services in TE/GE, will accept cases with at least 91 days left on the statute.

  2. Closing to EO Closing Unit - Imminent Statute. The EO Closing Unit will accept cases with an "imminent statute date," on the condition that the audit group manager places a phone call to both the Manager, EO Closing Unit and the Program Manager, CP&C Planning and Monitoring, to discuss special handling instructions.

  3. Closing to Review Function - Without Protest. A review function will accept cases with at least 91 days left on the statute.

  4. Closing to EO Closing Unit - With Protest. The EO Closing Unit will accept cases with at least 455 days (15 months) remaining until the ASED (at least 270 days for cases previously returned to the audit group by Appeals).

    Note:

    Appeals requires at least 365 days remaining on the statute to accept a case (at least 180 days for cases previously returned to the audit group by Appeals)

  5. Closing to Review Function Imminent Statute Returns. Review functions will not accept an imminent statute return until the area office has issued a 90-day SND letter to the taxpayer covering the imminent statute return.

Imminent Statute
  1. An imminent statute return is a return with 90 days or less remaining until the statute expiration date.

  2. See IRM 4.75.16.4.2.3(2) for instructions for closing imminent statute cases to the EO Closing Unit.

  3. For imminent statute returns subject to a mandatory review, agents assume the responsibility for preparing final closing letters including 90-day letters.

  4. Agents:

    1. For instructions on preparing a final adverse determination letter, see IRM 4.75.20, Final Case Processing.

    2. For instructions on preparing a statutory notice of deficiency (SND), see IRM 4.75.20 and IRM 4.8.9.

    3. For instructions on preparation of a notice of determination of worker classification (NDWC), see IRM 4.8.10.

    4. Arrange for pre-issuance review of the draft 90-day letter with Area Counsel. See IRM Exhibit 4.75.20-2, Memorandum to Area Counsel. Refer also to the TE/GE Area Counsel Directory.

    5. Review functions are not available for pre-issuance review.

    6. With the group manager’s approval, send the completed 90-day letter package to the appropriate area address in order to obtain the signatures on the 90-day letter. Include pre-addressed mailing envelopes with the package. See IRM 4.75.17.2.5, 90-day Letter Preparation and Issuance, for the contents of the 90-day letter package.

    Note:

    Area Counsel's approval is not required for agreed declaratory judgment cases.

    Reminder:

    Area Counsel generally requires up to 45 days to provide legal advice.

  5. Area Offices:

    1. Regarding the SND and NDWC, the area manager signs and issues the 90-day letter to the taxpayer via certified mail.

    2. Regarding the FADL, forward the two copies of the FADL to the Manager, EPR (or designated successor after TE/GE reorganization) for signature. The Manager, EPR (or designated successor after TE/GE reorganization) will return the signed FADLs to the area office for issuance via certified mail.

      Note:

      TE/GE is undergoing a restructuring as of the publishing of manual.

  6. Audit groups indicate on Form 3198-A, the following:

    1. The 90-day letter that was issued and the date issued. See the "Other" checkbox (or the "Stat Notice Issued Date" checkbox), located in the "Mandatory Review/Operations, Planning & Review" section of the form

    2. The recomputed statute date after issuing an SND or NDWC. See IRM Exhibit 4.5.2-5, Computation of Statute Dates

      Note:

      There is no recomputed statute date after issuing a FADL.

  7. If you had not issued a 30-day letter by the time a statute date is imminent, do the following:

    1. Consult with Area Counsel whether to issue a substitute transmittal letter in lieu of a 30-day letter.

    2. If the substitute transmittal letter is to be issued, determine the content, format, timing and issuance of the letter with Area Counsel.

    3. Include in the transmittal letter why a standard 30-day letter can’t be issued if so advised by Counsel.

    4. Include the most recent Taxpayer Advocate Service (TAS) paragraph in the cover letter by reviewing TAS paragraphs in recently published 30-day letters.

    5. Enclose your report of examination if so advised by Counsel.

    6. Issue the substitute transmittal letter transmitting your report of examination, either before or on the day of issuance of the 90-day letter to which it pertains.

  8. Close the imminent statute case to Mandatory Review for suspense and storage within five (5) business days of issuance of the 90-day letter.

Form 990 and Using ASED Alpha Code "PP"
  1. Use ASED alpha codes to indicate that special conditions exist that affect a statute expiration date for an EO non-taxable returns, such as Form 990. See IRM Exhibit 25.6.23-3, Instructions for Updating the Statute on AIMS.

  2. EO Non-taxable returns are initially controlled with an actual statute expiration date. If properly authorized, you can update the statute to alpha code "PP."

    Caution:

    Persons making alpha code determinations must understand how the tax law impacting the periods of limitation applies in each particular situation. Assessment statutes have expired and the ability to assess tax has been lost through the improper use of alpha codes.

  3. Refer to:

    • IRM 4.75.10.6.1.2.1 for instructions on obtaining approval of ASED alpha code "PP" for Form 990, Form 990-EZ, or Form 990-N

    • Exhibit 4.75.16-18, Alpha Code "PP" - Examples of the Proper Use

  4. The use of alpha Code "PP" does not relieve the agent from carefully monitoring normal statute expiration dates for all examined returns.

Closing Conference

  1. The closing conference is part of the audit communication process that precedes the closing and shipping procedures of this manual.

  2. See IRM 4.75.13.7.2, The Closing Conference, for instructions on conducting a closing conference.

Form 5599 and the RCCMS Closing Record

  1. Complete RCCMS Closing Record screens, for examined closings. Complete Form 5599 for paper closures. Refer to IRM 4.5.2.3 for Form 5599 instructions.

    Exception:

    100 percent paperless cases for purposes of completing Form 5599.

  2. Other guidance for completing Form 5599 for employment tax returns are found in:

    • IRM 4.23.8

    • IRM 4.23.9

    • IRM 4.23.10

Disposal Codes
  1. Enter the proper disposal code on item 13 of Form 5599, the paper closing record for each examined return, unless the closure is 100 percent paperless.

    1. AIMS only allows one disposal code that best describes the principal audit result for the return or non-return unit under audit.

    2. In cases involving multiple audit results, select the audit result with the highest priority disposal code.

    3. Refer to the list of disposal codes and the Disposal Code Priority Table in Document 6379.

    Example:

    If the audit of a primary return results in a low-priority outcome, such as no-change advisory (DC 52 (214)), but you secure a delinquent related return, the correct disposal code for the primary return is DC 05 (207), Delinquent Related Return Secured. DC 05 (207) is a higher priority disposal code than DC 52 (214).

  2. For RCCMS purposes:

    1. Select the three digit RCCMS closing code that best describes the principal audit result from the drop down menu in the RCCMS Closing Record, the name of which corresponds to your selected AIMS disposal code.

    2. This manual will show AIMS two-digit disposal codes followed by the corresponding three-digit RCCMS closing code in parenthesis.

    Example:

    A no-change disposal code with its corresponding RCCMS closing code is identified in this manual as "DC 02 (107)."

  3. Before selecting a disposal code refer to Document 6379 for the official description of each disposal code. Each succeeding paragraph supplements Document 6379 to clarify the official descriptions. Consider each disposal code guidance in the succeeding paragraphs as including the phrase, "unless a higher priority disposal code applies."

  4. Disposal Code 01 (210), Regulatory/Revenue Protection.

    1. Use this code for an agreed reduction of an NOL without affecting tax liability. Use DC 07 (601) or DC 10 (604) if unagreed.

    2. Applies to any period accepted as filed as a result of a CSP offer. See IRM 4.75.16.5.3.

    3. Applies to an agreed disallowance of a claims in full. Use DC 03 (102) for agreed disallowances in part, or in full with tax change.

    4. Applies to an agreed disallowance of abatement requests in full. Use DC 03 (102) if agreed in part.

    5. Applies to closing returns with barred statutes

    6. Do not use this code for unagreed disallowance of claims or abatement requests. Instead use DC 07(601) or DC 10 (604).

  5. Disposal Code 02 (107), No Change

    1. Applies when there is no change to tax or status, and there are no advisories. The return if present is accepted as filed.

    2. Applies to closing a church tax inquiry with no audit. AIMS Activity Code 345 is required. This is not an examined closure

    3. This code can apply to focused audits.

    4. Applies to tax adjustments not made due to acceptable tolerances, except see DC 18 (301) and DC 54 (304).

    5. Does not apply if there is a reduction to an NOL. Use instead DC 01 (210), DC 07 (601) or DC 10 (604).

    6. Does not apply where a written advisory is required. Use instead DC 08 (213) or DC 52 (214).

    7. Does not apply to EOBMF Status 36 returns. Use instead DC 08 (213) or DC 52 (214).

  6. Disposal Code 03 (102), Agreed Tax or Penalty Change

    1. "Tax returns" include claims and requests for abatements allowed in full or to partial allowances if agreed.

      Note:

      If allowing an abatement under IRC 4962, the tax must have been previously assessed for purposes of this disposal code. Otherwise use DC 18 (301) or 54 (304) if no tax was previously assessed.

    2. "Tax returns" include primary returns on Form 990-PF and Form 990-BL.

    3. "Tax returns" include employment tax returns for periods included in a CSP agreement.

    4. "Penalty change" applies only to a penalty subject to deficiency procedures. See IRM 20.1.1.4.2.

    5. "Deficiency Procedures" are exemplified by a 30-day letter, appeal if protested, and a 90-day letter SND process.

    6. Does not apply to Form 4720-A if there is an agreed intermediate sanction payment under IRC 4958. Use instead DC 50 (101).

    7. Does not apply to full disallowances of claims and requests for abatement. Use instead DC 01 (210) if agreed, or DC 07 (601) or DC 10 (604) if unagreed.

    8. Does not apply to imposing miscellaneous civil penalties on the organization. Use instead DC 08 (213) or DC 52 (214) on the closing record of the audited primary return. Miscellaneous civil penalties are listed on Form 8278.

    9. There must be a signed waiver form in the case file except for claims and requests for abatement allowed in full.

    Note:

    Form 4720-A isn’t a standard form in the Electronic Publishing Products Catalog. A Form 4720 is designated as Form 4720-A (MFT 66) if a taxpayer completes Part II-A.

  7. Disposal Code 04 (205), Change to Related Return

    1. Use this disposal code for primary returns.

    2. The "changed related return" need not be the same tax period as the primary return under audit.

    3. The "changed related return" may be a discrepancy adjustment return or Form 4720-A.

    4. The "changed related return" may be a return under the audit jurisdiction of EP, TEB or SB/SE.

    5. The "changed related return" includes a claim or abatement request allowed in full or in part (including surveyed claims).

    6. The "changed related return" includes a claim or abatement request disallowed in full but there is additional tax.

    7. "Change in status" includes revocations, disqualifications, reclassifications of foundation status, and terminations.

    8. A "change" includes a closing agreement or CSP with respect to a related return under audit.

    9. A "change" to the related return includes using DC 18 (301), DC 50 (101) or DC 54 (304) for the related return.

    10. Does not apply if the related return is a claim or abatement request disallowed in full, with no addition to tax.

    11. If a single related tax return was adjusted in a multiple primary return audit, all primary returns will reflect this disposal code.

    Example:

    The 2009, 2010 and 2011 Forms 990 are under audit. The only issue is inurement in 2011. The agreed revocation would be effective 1/1/2011. The AIMS disposal code for the 2011 Forms 990 is DC 09 (211). The AIMS disposal codes for the 2009 and 2010 Forms 990 are DC 04 (205) because the audit of their related 2011 return resulted in a change in status (revocation).

    Example:

    Assume the same facts as the first example, except Forms 990-T were also open for audit for 2009, 2010 and 2011 and all are no-changed. The 2011 Form 990-T would close with DC 09 (211), Agreed Revocation. The 2011 tax year is an affected tax year with respect to a revocation. All EO-only returns filed for that tax year will reflect the same revocation disposal code. The 2009 and 2010 Forms 990-T would have to close with DC 02 (107) because DC 04 (205) is only available for primary returns.

  8. Disposal Code 05 (207), Delinquent Related Return Secured

    1. Use this disposal code to close primary returns.

    2. The "delinquent related return" need not be the same tax period as the primary return.

    3. The "delinquent related return" may be a discrepancy adjustment return or a Form 4720-A.

    4. The "delinquent related return" may be a related return under the audit jurisdiction of EP, TEB or SB/SE.

    5. The "delinquent related return" includes payee information returns and other special purpose returns, e.g., Form 1099.

    6. Using this disposal code won’t necessarily mean a related return will close with DC 06 (208). The converse is also true.

    Example:

    Forms 990 for 2015 and 2016 are under audit. Only the 2015 Form 990 was filed. The agent secures the delinquent 2016 Form 990 during the audit. There were no other issues. The agent issues a written advisory regarding the taxpayer's late filing of the 2016 Form 990. Because a delinquent related return was secured, the 2015 Form 990 will close using DC 05 (207), which is a higher priority than DC 52 (214) or DC 08 (213) for written advisories. The proper disposal code for the 2016 Form 990 would be DC 06 (208).

  9. Disposal Code 06 (208), Delinquent Return Secured

    1. Delinquent Return includes a secured converted return.

    2. "Delinquent Return" includes a secured Form 990 from a 990-N filer, even if TC 150 previously posted.

    3. Does not apply to secured amended returns or IRIs. Use instead DC 08 (213) or DC 52 (214).

    4. Does not apply if you later adjust the secured delinquent tax return or converted return. Use instead DC 03 (102), 07 (601) or 10 (604) for the change.

    5. Using this disposal code doesn’t mean the primary return will close with DC 05 (207). The converse is also true.

  10. Disposal Code 07 (601), Unagreed - Protest to Appeals

    1. Use this disposal code for unagreed change in status, tax or penalty.

    2. "Change in status" includes revocations, disqualifications, or reclassifications of foundation status.

    3. Applies to any appealable issue, including unagreed reductions of NOLs that do not affect tax liability.

    4. Applies to unagreed disallowance of claim or request for abatement.

    5. For revocations, all primary returns and related EO secondary returns (e.g., Form 990-T, Form 1120-POL) for the affected tax years will reflect the same disposal code.

    6. Does not apply to revocations or foundation reclassifications of churches. See IRC 7611(g).

  11. Disposal Code 08 (213), Written Advisory - Form 5666 Required

    1. Use this disposal code to close primary returns only.

    2. If examining a secondary tax return and you want to issue an advisory, you must establish audit controls for a primary return.

    3. Applies to returns closed with issuance of an inadequate records notice.

    4. Applies to secured amended primary returns or IRIs.

    5. Miscellaneous civil penalties may or may not accompany this disposal code depending on reasonable cause.

  12. Disposal Code 09 (211), Agreed Revocation

    1. All primary returns and related Forms 990-T for the affected tax years will reflect the same revocation disposal code.

    2. If Form 990-T is open for audit for the same year, address the alternate issue in the revocation RAR.

    3. Close other primary return tax years not affected by the revocation using DC 04 (205).

    4. Applies to IRC 508(c)(1) organizations such as churches, and to subordinates in a group ruling.

    5. Does not apply to agreed disqualification of 501(c)(12) and (c)(15) organizations. See below DC 13 (501).

    6. Does not apply to agreed disqualification of Status 36 organizations. See DC 13 (501) below.

    7. When this disposal code is used, Item 22, Status Code, of Form 2363-A, must be either 22, 18, or 19.

    8. This disposal code requires a signed waiver Form 6018 in the case file.

    9. Use the appropriate revocation PIC on Form 5599 and RCCMS.

  13. Disposal Code 10 (604), Unagreed - Without Protest

    1. This disposal code is used for unagreed changes in tax or status (other than revocations).

    2. Applies to unagreed disallowances of abatement requests and claims.

    3. Applies to unagreed reduction of NOLs that do not affect tax liability. Use DC 01 (210) if agreed.

    4. Does not apply to revocations. Use instead DC 55 (605).

    5. Does not apply to revocations of exempt churches or disqualification of non-recognized churches. Use instead DC 15 (602).

    6. Does not apply to foundation reclassifications of churches. Use instead DC 15 (602).

  14. Disposal Code 12 (104), Closing Agreement

    1. This code is used to close an audit of a return subject to an executed closing agreement.

    2. Related primary returns under audit that are not part of the closing agreement use DC 04 (205).

    3. Does not apply to employment tax returns subject to a CSP agreement. Instead use DC 03 (102) for the agreed tax periods in a CSP, and DC 01 (210) for the no-change periods.

  15. Disposal Code 13 (501), Referrals to Other Operating Divisions

    1. Use this disposal code for identifying adjustments and delinquencies under the jurisdiction of LB&I, SB/SE and W&I.

    2. Applies to agreed disqualifications only if you refer the ensuing income tax matter on Form 5666.

    3. Does not apply to agreed disqualifications if you enforce income taxes. Instead use DC 04 (205) or DC 05 (207).

    4. Does not apply to referrals to other business units within TE/GE, such as EP. Instead use DC 08 (213) or DC 52 (214).

    5. Does not apply to requests for assistance by specialists, such as CAS, engineers, economists, etc.

  16. Disposal Code 14 (212), Termination

    1. This disposal code applies to the final tax period of the organization if such tax period was examined.

    2. Applies to primary returns only.

    3. Use this disposal code only if the criteria in IRM 4.75.16.5.10 have been satisfied.

    4. Close other primary returns using the appropriate disposal codes for those returns, but no lower priority disposal code than DC 04 (205), because DC 04 (205) is a higher priority than a no-change or advisory disposal code.

  17. Disposal Code 17 (203), Change in Foundation Status

    1. This disposal code applies to IRC 501(c)(3) organizations.

    2. This disposal code also applies to IRC 4947(a)(1) trusts reclassified for treatment as a private foundation.

    3. This disposal code applies only to agreed reclassifications of foundation status.

    4. This disposal code requires a signed waiver Form 6018 in the case file

    5. For unagreed reclassifications of foundation status use either DC 07 (601) or DC 10 (604).

  18. Disposal Code 18 (301), Chapter 42 Under Tolerance - Private Foundations, and Disposal Code 54 (304), Chapter 42 Under Tolerance - Non-PF Form 990

    1. Use these disposal codes when identifying Chapter 42 tax adjustments, but which are resolved by application of tolerances, or by a determination that a taxable event was due to reasonable cause and not due to willful neglect. In the case of IRC 4955 excise tax on political expenditures, substitute the phrase "not willful and flagrant" for the phrase, "due to reasonable cause and not to willful neglect"

    2. Does not apply to abatements of chapter 42 excise taxes after they have been previously assessed. Instead, use DC 03 (102) if abated in full or in part (agreed).

  19. Disposal Code 19 (201), Amendment Secured

    1. Use this code if you require an amendment to an organizing document and you secure a conformed copy of the amendment.

    2. Does not apply to secured amended returns or IRIs. Instead use DC 08 (213) or DC 52 (214).

  20. Disposal Code 52 (214), Written Advisory - No Form 5666 Required

    1. Use this disposal code to close primary returns only.

    2. If you are only auditing a secondary tax return and you want to issue a written advisory, establish the primary return for audit.

    3. Applies when some aspect of the EO’s operations are noncompliant, but the noncompliance doesn’t necessarily jeopardize exempt status.

    4. Applies to secured amended returns or IRIs, but not enough to warrant Form 5666.

    5. Applies to imposition of miscellaneous civil penalties (Form 8278) against the organization.

    6. Does not apply to tax returns with a written advisory unless they are Form 990-PF and Form 990-BL.

    7. Does not apply to penalties subject to deficiency procedures. Instead, use DC 03 (102) if agreed, or DC 07 (601) or 10 (604) if unagreed.

  21. Disposal Code 55 (605), Unagreed Revocation Without Protest

    1. Use this disposal code for unagreed revocations without protest.

    2. All primary returns and related Forms 990-T for the affected tax years will reflect the same revocation disposal code.

    3. Does not apply to unagreed revocations or foundation reclassification of churches. Use instead DC 15 (602).

    4. Use the appropriate revocation PIC on Form 5599 and RCCMS.

Principal Issue Codes
  1. Principal Issue Codes (PICs) assist in providing historically available data from audits to create a model that distinguishes compliant from non-compliant returns. In order for this model to work correctly, you must use Principal Issue Codes accurately and consistently.

  2. For PIC purposes, no change returns are defined as those closed under the following disposal codes:

    • DC 02 AIMS (107 RCCMS) - No-Change

    • DC 53 AIMS (302 RCCMS) - No-Change to a Related Return

  3. For PIC purposes, no change with advisory returns are defined as those closed under the following disposal codes:

    • DC 08 AIMS (213 RCCMS) - Written Advisory – Form 5666 Required

    • DC 52 AIMS (214 RCCMS) - Written Advisory - No Form 5666 Required

  4. For PIC purposes, change returns are defined as those closed under the following disposal codes:

    • Regulatory/Revenue Protection Change Disposal Codes: 01 (210), 18 (301), 19 (201) and 54 (304)

    • Tax or Status Change Disposal Codes: 03 (102), 04 (205), 05 (207), 06 (208), 07 (601), 09 (211), 10 (604), 11 (603), 12 (104), 13 (501), 14 (212), 15 (602), 16 (204), 17 (203), 34 (103), 50 (101) and 55 (605).

  5. Enter PICs on Form 5599 (unless 100 percent paperless) and on the closing record in RCCMS. At a minimum, one PIC must be used for every closing record (Form 5599) of an examined return. A maximum of four codes may be listed in order of priority from left to right.

  6. If more than one type of return is being examined, such as Form 990, 990-T, and 941, the PICs that relate to each specific return should be recorded on its closing record. However, the PICs for related returns should also be applied to the closing record for primary returns.

  7. Use the PICs specific to your audit issues addressed during the audit. Refer to Doc 6379 for the table of 3-Digit PIC numbers, which is divided into major issue categories. Select PICs in the following order:

    1. Select all "change issues" by order of major issue category in paragraph (8). These PICs must end in any letter other than"A" and do not have the word "Advisory" in the PIC title.

    2. For primary returns only, select all "advisory issues" by order of major issue category in paragraph (8). Then follow these rules:

      1. If there is an "advisory PIC" available for the issue category of your issue, as demonstrated by the word "advisory" in the title of the PIC, select that advisory PIC.

      2. If there is no "advisory PIC" within your issue category, select the no-change PIC within that category (normally ending in "A" ). See steps 3 and 4 in this table for exceptions to this rule.

      3. For issue categories 01 (Filing Requirement) and 13 (Accountable Plans), select any PIC within these categories that best fits your advisory issue, other than 01A and 13A.

      4. For issue categories 23 and 25, without a no-change PIC, select any PIC within these categories that best fits your advisory issue.

      5. For applying steps 1 through 4 of this table, refer to the tool in Exhibit 4.75.16-3, Selecting Principal Issue Codes in Advisory Cases.

    3. If there are no more change or advisory issues, select all "no-change issues" addressed in the audit by order of major issue category in paragraph (8). These PICs must end with the letter "A" .

    Note:

    The closing records of tax returns (other than Form 990-PF and 990-BL) never reflect advisory PICs with the word "Advisory" in the PIC title. Tax returns are either changed or no-changed.

  8. The priority order of major issue categories is as follows:

    1. Exemption issues

    2. Excise tax issues

    3. Unrelated business income tax (UBIT) issues

    4. Employment tax issues

    5. Other issues

      Example:

      Agent has examined XYZ Charity and has prepared a report of examination proposing a revocation of tax-exempt status. Agent is preparing Form 5599 for the Form 990 return under audit. During the audit, Agent addressed two issues in her report that resulted in a proposed revocation: (1) political activity and (2) not operating in furtherance of an exempt purpose. The political activity is the primary exemption issue by reason of significance of the issue. Agent also pursued the inurement issue, but there was no evidence to substantiate that issue. Additionally, Agent determined that XYZ failed to properly withhold on prizes and proposed a tax change on Form 945. A worker classification issue was identified for a bookkeeper, but it was determined that the bookkeeper routinely performed bookkeeping services for other similar organizations and there was no adjustment.

      Step 1, Select All Change Issues: Select all change issues for the organization; in this case, they include political activity, not operating in furtherance of exempt purposes, and backup withholding tax. Among the change issues, the two revocation issues are the highest priority issues because they fall under the exemption issues category in paragraph (8). The appropriate PICs for the revocation issues will be "04D" and "04B" respectively. The political activity issue was listed first among the revocation issues because that was the primary reason for proposing a revocation. The backup withholding issue is the last of the change issues, which is under the employment tax issues category in paragraph (8), and is issue "19C."

      Step 2, No-Change Issues: Since there are no more change issues and there is no advisory in this case, the no-change issues are then selected. The no-change issues include the inurement issue and the worker classification issue. The inurement issue is the highest priority among the no-change issues because it is an exemption issue in paragraph (8). Consequently, the first no-change PIC code is "48A, Inurement - No Change." Because the no-changed worker classification is an employment tax category issue, select "15A, EE Class.-No Change" to follow the no-change exemption issue.

      Step 3, Complete Form 5599 and Input PICs in RCCMS: Form 5599 will list the PICs in priority order from left to right as follows: 04D, 04B, 19C and 48A. Note that PIC "15A" will not be included because only a maximum of four codes can be listed.

      Assume the two exemption issues in this example did not result in a revocation, but instead resulted in an advisory. The appropriate PICs for the Form 990 closing record would be in priority order from left to right as follows: 19C, 08B, 03B, and 48A, The only change issue in this situation is the backup withholding issue, followed by the advisory issues and the highest priority no-change issue.

  9. PIC Codes for noncomplying organizational documents:

    1. If you secure conformed copies of amended organizing documents after the start of the audit to satisfy organizational requirements, use PIC code 02B, Org. Req. - Advisory.

    2. If after discussion with the group manager, you propose a revocation for not satisfying organizational requirements, use Use PIC 02C, Org. Req. – Other, along with the proper revocation disposal code.

  10. If there are two or more issues within each major category, follow the guidance below in prioritizing PICs:

    Type of issue: Action to take:
    Two or more exemption issues Determine and list in order of highest to lowest significance.

    "Significance" is determined by such factors as time and resources spent on the issue, and sensitivity and importance of the issue.

    Significance is generally reflected in the order the issues are presented and addressed in the report of examination or in the advisory letter.
    Two or more UBIT issues List in order of greatest to least revenue.
    Two or more employment tax issues List in order of greatest to least tax amounts.
  11. If auditing more than one type of return, such as Form 990 and Form 990-T, list the PICs that relate to each specific return in the appropriate Form 5599 and RCCMS closing record.

  12. See Exhibit 4.75.16-3 for specific examples of principal issue codes in no change cases.

  13. See Exhibit 4.75.16-4 for specific examples of principal issue codes in change and unagreed cases.

RCCMS Closing Record - The "Closing With" Field
  1. Refer to Document 13214, EO RCCMS Case Closing Desk Guide.

  2. The Closing Record tab in RCCMS includes a "Closing with" field representing the form of working return you are using in the audit.

  3. 1 - Original Return (blocking series = 00X). Use for:

    • Original Tax Return

    • Original non-examined paper survey

    • SFRs including Non-Master File returns

    • Form 2275, Records Request, Charge and Recharge, in lieu of a return

  4. 2 - Taxpayer Return (blocking series = 90X). Use for:

    • Copy of taxpayer’s return

    • SEIN returns

    • RICS returns

    • Dummy returns that are not SFRs, including filed Form 990-N in the following forms:

      • Graphic Print of 990-N Postcard, available via Employee User Portal (EUP) database. See Exhibit 4.75.16-19 for a sample. Also, indicate on Form 3198-A the case includes proof of filing Form 990-N. (For references to EUP, see IRM 4.21.1.3.31, Employee User Portal (EUP), and IRM 21.2.3.1.2, IRS Systems.)

      • EO Select Check print for Filed Form 990-N. See Exhibit 4.75.16-19 for a sample. Also, indicate on Form 3198-A the case includes proof of filing Form 990-N.

  5. 3 - Electronic Prints (blocking series = 30X). Use for:

    • BRTVU prints (BMF)

    • RTVUE prints (IMF)

    • TRDPG prints (IMF and BMF)

    • Non-examined paper survey

  6. 4 - Paperless Examined (blocking series = 40X). Use for:

    • Examined paperless closures

  7. 5 - No Return (blocking series = 10X). Use for:

    • Closures to Appeals

    • Partial Assessments

  8. 6 - No Return/Workpapers (blocking series = 28X). Use for:

    • Non-examined paperless surveys (use only for BMF)

  9. 7 - Paperless Non-Examined (blocking series = 13X for IMF or 28X for BMF). Use for:

    • Paperless surveys (the return requisition indicator equals "3" )

    • RCCMS control clean up

Form 2363-A

  1. For instructions on completing the Form 2363-A refer to Exhibit 4.75.16-5 and Exhibit 4.75.16-6, or IRM 25.7.1.5 for detailed instructions.

  2. Complete Form 2363-A to correct any EOBMF entity errors identified during the audit, including name and address.

  3. Also, complete Form 2363-A to reflect any changes to an organization’s status resulting from your audit.

    Reminder:

    For cases subject to mandatory review, complete but don’t send Form 2363-A based on audit results to the FAST, such as a revocation.

  4. The FAST’s address and other contact information is provided below:

    FAST U.S. Postal Service Address and UPS Address
    Tax Exempt & Government Entities - FAST
    Attention: FAST M/S 1114
    324 25th St. Rm 6025
    Ogden, UT 84401-2344
    FAST Contact Numbers and E-mail Address:
    FAST General Phone Number 801-620-3343
    FAST Fax Number 801-626-0751
    FAST e-Fax Number 877-814-2236
    FAST e-mail address *TEGE FAST
  5. Some common changes requiring the preparation of a Form 2363-A and the disposition of the Form 2363-A are as follows:

    For Submit Form 2363-A
    A Name and/or Address Change To the FAST Immediately
    An Exempt Status Change With the case file to the review function
    A Foundation Status Classification Modification With the case file to the review function
    A Filing Requirement Change:
    • Delinquent Return Secured

    To the FAST Immediately
    • Contested Filing Requirement

    With the case file to the review function
    NTEE To the FAST Immediately
  6. Place in the workpapers retained copies of Form 2363-A processed. Mark as "Copy - Original Sent to the FAST on Date."

  7. For Forms 2363-A to be processed based on audit results, complete Form 3198-A by checking the box, "Entity Change Form 2363 Prepared _____."

Form 3198-A

  1. Attach a Form 3198-A to any case file requiring special handling.

  2. Appropriately note the following items on Form 3198-A:

    1. Cases subject to mandatory review

    2. Cases that require updating the EO BMF on Form 2363-A

    3. Cases closed based on an organization's retained copy of a return

    4. Cases where an amended return was received directly from the taxpayer during the audit

    5. Power of Attorney instructions

    6. Discrepancy adjustments cases

    7. Restricted interest cases

    8. Unagreed cases

    9. Cases with less than 270 days (9 months) until the statute of limitations for assessment expires

    10. Instructions for notification of state officials

    11. Related case files

    12. Any other special instructions regarding the case that may be helpful in the closing process

    13. The case includes proof of filing Form 990-N

  3. For revocations, refer to IRM 4.75.31.3.1.1 for further instructions on completing Form 3198-A.

  4. For a converted return case file, refer to IRM 4.75.31.4.5.2 for further instructions.

Form 4881

  1. Form 4881, Chapter 42 Taxes-Disqualified Person/Foundation Manager, is a manually processed assessment and accounting document used in conjunction with RCCMS for all cases involving the assessment of Chapter 42 taxes on a disqualified person or foundation manager.

  2. Prepare a separate form for each tax period and person for which there is an assessment of Chapter 42 taxes.

  3. For instructions on preparing Form 4881, see Exhibit 4.75.16-7.

Form 5666 Information Report

  1. Use Form 5666 to:

    • Recommend a future year audit of the same organization

    • Recommend the audit of another person, such as potential unreported gross income.

    • Recommend the audit of a revoked organization for income tax

  2. The general instructions for completing Form 5666 are on the back of the form. See Exhibit 4.75.16-8 for detained instructions

  3. Scan, or obtain in electronic format, supporting documents and attach them to Form 5666.

  4. In the case of Form 5666 that can you process immediately:

    • Electronically generate all Forms 5666.

    • Digitally sign the form

    • Forward Form 5666 to your group manager via secure e-mail for electronic signature

    • Secure e-mail Forms 5666 to *Manager EO Classification.

  5. Include the following in Item D, Forward Report to Name/Date/Organization/Telephone Number: All Forms 5666 go to the EO Referrals group:

    • EO Referrals Group, MC 4910 DAL

    • Current Date

    Exception:

    For cases subject to mandatory review, don’t enter the current date. The review function enters the current date when closing the case.

  6. The EO Referral’s group street address is:

    Internal Revenue Service
    EO Referrals Group
    4910 DAL
    1100 Commerce St.
    Dallas, TX 75242

  7. If the case involves a tax liability extending beyond the taxable years under audit or into a taxable period for which a return is not yet due, prepare a Form 5666 recommending a future year audit to ensure compliance.

  8. Prepare and submit Form 5666 or Form 5346 through the EO Referrals group to LB&I or SB/SE if you find:

    • The audit affects the tax liability of an individual or taxable entity

    • The issue can’t be addressed using discrepancy adjustment procedures

    Note:

    If you use EO Form 5666 for this purpose, it won’t be declined by reason of the TE/GE heading.

  9. Form 5666 is required if you observe activities or operations, which if enlarged or ongoing, may jeopardize the organization’s exempt status. Use DC 08 (213) unless a higher priority disposal code applies. Keep the form in the case file for the EO Closing Unit. The EO Closing Unit will be looking for the form to be processed. Don’t send the form to the EO Referrals Group in this case.

  10. Form 5666 for a future audit is required for inadequate records notices. The future audit applies to no less than two years subsequent to the year of the current audit.

  11. For revocations and disqualifications, in lieu of EO enforcing income taxes on the non-qualifying organization, you must prepare Form 5666.

    • Refer to IRM 4.75.31.3.4 on preparing Form 5666 in lieu of EO enforcing income taxes.

    • Don’t send Form 5666 to the EO Referrals Group.

    • Instead, include Form 5666 and its attachments in the revocation case file pending a final decision on the revocation issue.

Time Reporting

  1. Track the time spent on the case. Update your Form 5464 when working on the case. Record the hours spent on both Form 5464 and on WebETS.

  2. If working multiple returns, list all of the returns on WebETS. As needed, use the Copy button when viewing a case on WebETS (Case Quick View, click on the case.) Change the tax year and click Add Case.

  3. Split the time among related returns, if working those returns.

    Example:

    If working a Form 990 and a Form 990-T, split the time based on which issue is being worked.

  4. At closing, record the total hours for each type of return on the Form 5772. Prepare one Form 5772 for each type of return worked.

    Example:

    You are auditing the 201012 and 201112 Forms 990 and 990-T. Prepare a Form 5772 for the Forms 990, and a Form 5772 for the Forms 990-T.

  5. Record the agent's time on item 28 of Form 5599 and on the RCCMS Closing Records Details Tab to the nearest tenths of an hour (one decimal place), in 15 minute increments. A zero, "0," is required if the tenths field is zero. Report the 15-minute increment as follows:

    • 00 minutes = .0

    • 15 minutes = .3

    • 30 minutes = .5

    • 45 minutes = .7

  6. Use the Form 6490, TE/GE Technical Time Report, created by WebETS to complete the closing record. Form 5464 tracks the total time spent, while WebETS tracks the time per return.

  7. Verify that the time on Forms 5599 and Form 5464 match, and that they reconcile to Form 5772 and Form 6490 (WebETS). For time tracked on a penalty case file, see IRM 4.75.22.11.3.

Special Situations

  1. Certain situations may arise during an audit. This section covers in depth closing procedures for:

    • Declaratory judgment cases (IRM 4.75.16.5.1, IRM 4.75.32)

    • Automatically revoked organizations under IRC 6033(j) (IRM 4.75.16.5.2)

    • Employment tax CSP agreements (IRM 4.75.16.5.3.1 and IRM 4.23.6)

    • Closing agreements (IRM 4.75.16.5.4 and IRM 4.75.25)

    • Form 990-N closures (IRM 4.75.16.5.5)

    • Inadequate records (IRM 4.75.16.5.6)

    • Installment agreements (IRM 4.75.16.5.7 and IRM 4.75.28.4.4)

    • Organization not required to file returns (IRM 4.75.16.5.8)

    • Status 36 cases (IRM 4.75.16.5.9)

    • Terminations (IRM 4.75.16.5.10)

    • Unable-to-locate cases (IRM 4.75.16.5.11)

  2. Refer also to instructions for the following types of cases:

    • Short statute returns, see IRM 4.75.16.4.2

    • Claims and requests for abatement, see IRM 4.75.37

    • Joint Committee cases, see IRM 4.75.37 and IRM 4.75.16.6 (2)

    • Revocations, conversions, reclassification to private foundations, see IRM 4.75.31

    • Group rulings, see IRM 4.75.24

    • Penalty cases, see IRM 4.75.22.11.3

    • OCEP cases, see IRM 4.75.27

    • Restricted interest cases, see IRM 4.75.13.8.12 and IRM Exhibit 4.75.13-1.

  3. Refer to IRM 4.75.21 for cases with the following characteristics and conditions:

    • Incomplete returns

    • Non-Return Units

    • Awards in Attorney Fees in Tax Cases

    • Federal Grand Juries, see also IRM 4.75.35

    • Collateral Audits

    • State Notification of Audit Results

    • Information Referrals, see also IRM 4.75.16.4.8 and Exhibit 4.75.16-8

    • Audits Related to Indian Tribal Government Entities

    • IRS-Department of Labor (DOL) Coordinated Compliance Agreement

    • Whistleblower Cases

Declaratory Judgment Cases

  1. With respect to the initial or continuing qualification of an organization as exempt from federal income tax, Section 406 of the PATH Act expanded declaratory judgment rights under IRC 7428 to all IRC 501(c) organizations regardless of paragraph, and to IRC 501(d) organizations.

    1. As a result of these expanded rights, agents may not modify a tax-exempt status (such as modifying a recognized IRC 501(c)(4) exemption to an IRC 501(c)(7)).

    2. Rather, the revocation procedures in place for IRC 501(c)(3) organizations have been expanded to all IRC 501(c) and (d) organizations.

    3. Thus, the IRS must revoke (or treat as a revocation for declaratory judgment purposes) any organization that no longer qualifies under the IRC code section for which tax-exemption was granted or self-declared.

    4. A revoked organization is free to apply or reapply for recognition of exemption under a different IRC section.

  2. Revocations or disqualifications of organizations exempt under other thanIRC 501(c)(3), IRC 501(c)(9) and IRC 501(c)(17), will not have an effective date. These organizations will be revoked (or treated as revoked in the case of disqualifications) for the specified tax years they failed to qualify.

  3. Declaratory judgment rights also applies to disqualifications of organizations described under IRC 501(c)(12) or IRC 501(c)(15) that fail their respective 85 percent member income test or gross receipts test for specified tax years. These cases will be treated as a revocation for declaratory judgment purposes for the failed tax years only. For closing purposes continue to follow IRM 4.75.16.4.4.1.

  4. IRC 7428 continues to apply to IRC 501(c)(3) organizations the same way it did prior to the PATH Act when proposing:

    • A loss of tax-exempt status.

    • Adverse reclassification of an organization’s foundation status for IRC 501(c)(3) organizations.

  5. Before closing a declaratory judgment case, refer to IRM 4.75.32, Declaratory Judgment and the Administrative Record.

    1. All declaratory judgment cases require an administrative record.

    2. Unagreed declaratory judgment cases also require a completed index to the administrative record.

    3. The review function or Appeals will issue 90-day final adverse determination letters (FADL) for these cases, which are subject to review by the U.S. Tax Court.

Automatically Revoked Organizations

  1. This subsection provides instructions for closing audits where the organization was automatically revoked under IRC 6033(j).

  2. An automatic revocation is reflected in the status code field of the EOBMF as "97."

  3. Automatic revocation is effective for tax periods beginning after 2006.

    1. Generally, a status 97 can take one to six months to post after the passage of the third non-filed due date.

    2. Ogden Campus will post a status 97 in the EO BMF even if an organization is under audit.

    3. You can research EO Select Check for automatically revoked organizations.

    4. Organizations in status 97 receive their CP120A notice from Campus within two weeks after the IRS sends the notice. See also Understanding your CP120A Notice.

    5. Generally, the date of the CP120A notice is the same date as the "Revocation Posting Date" in EO Select Check.

    6. If you secure a delinquent annual information return by the third due date, expeditiously follow delinquent return procedures.

    7. Wait until either the delinquent return posts or status 97 posts, whichever comes first in order to determine your next step.

    8. If the secured return posts a TC 150, continue the audit under normal audit procedures.

    9. If the secured return fails to post, and status 97 posts instead, survey the case as stated in the next paragraph.

  4. If a status 97 posts, survey the case. Prepare Form 1900 in accordance to Exhibit 4.75.16-9 for auto-revoked organizations. Use either:

    • DC 32 (908), Survey After Assignment

    • DC 36 (909), Survey After Initial Contact

    Note:

    Use Project Definer Codes (PDC) 1160, Assign to the Initial Primary Return, or 1161, Assign to Additional Return Pick-ups.

    Note:

    See IRM 4.75.16.3.2.2, Survey Procedures for all other survey procedures.

  5. If there is a compelling reason to continue the audit after a status 97 has posted, submit a request to the Director, EO Examinations (or their delegate). Examples of reasons to continue an audit include:

    • An earlier effective date of revocation needs to be proposed based on the facts and circumstances.

    • A survey might jeopardize a fraud case.

    • The audit is for a claim not yet resolved.

  6. For IRC 501(c)(12) and 501(c)(15) organizations, the posting of a Form 1120 series tax return in lieu of Form 990, is considered a filed return satisfying the filing requirement for automatic revocation purposes.

  7. A substitute for return (SFR) with a TC 150 is not a filed return for automatic revocation purposes.

  8. Employment tax returns and Chapter 42 tax returns are not subject to these procedures.

  9. Surveys of auto-revoked organizations are not subject to mandatory review.

Employment Tax Cases

  1. IRM Chapter 4.23 provides Servicewide instructions for all operating divisions with employees involved with the correct filing, reporting, and payment of employment taxes. IRM 4.23 serves as the foundation for consistent administration of employment taxes by various IRS operating divisions.

  2. However, for purposes of closing EO employment tax cases after issuing your report, follow the closing instructions in this manual unless directed otherwise.

Classification Settlement Program (CSP) Cases
  1. Refer to IRM 4.75.21.12, EO Special Examination Procedures, for instructions, roles and responsibilities for the EO CSP process. For general instructions, refer to IRM 4.23.6, Employment Tax, Classification Settlement Program. For a description of the type of CSP Settlement Offers, see IRM 4.23.6.14.1.

  2. CSP agreements close with DC 03 (102) for the agreed tax periods in a CSP, and DC 01 (210) for the no-change periods.

IRC 3402(d) and IRC 3102(f)(3) Relief Cases
  1. In general, continue to follow the overall instructions in IRM 4.23.10.17, Partially Agreed Cases, except for IRM 4.23.10.17.2, Examination Procedures for IRC 3402(d) and IRC 3402(f)(3) Relief.

  2. For purposes of closing employment tax cases stated in IRM 4.23.10.7.2, follow instead the guidance provided for the modified two-step abatement in IRM 4.90.9.13.2, IRC 3402(d) When Penalties are Proposed.

  3. The modified two-step abatement process allows for the assessment of a gross tax, and then relief of some portion of the tax. This relief doesn’t apply to reduce penalties and interest based on the gross tax. It only applies to the gross tax such as:

    • Income taxes under IRC 3402

    • Backup withholding tax under IRC 3406

    • Additional Medicare tax under IRC 3101(b)(2) (including RRTA)

    Reminder:

    Do not use these partial assessment procedures if penalties are not being proposed based on the gross tax.

Closing Agreements

  1. Closing agreements are used to resolve matters that cannot be resolved through normal compliance procedures. Closing agreements encourage future voluntary compliance.

  2. Taxpayers must meet certain requirements to qualify for a closing agreement. See procedures for closing agreements in IRM 4.75.25

  3. Taxpayers may request closing agreements, either during the audit, or by voluntarily contacting the Area Office outside the context of an audit (normally referred to as "walk-in" closing agreements). Walk-in requests must be forwarded to the EO Examinations Closing Agreement Coordinator (Attn: EOCAC) in Mandatory Review.

  4. Examined closing agreements are closed with DC 12 (104) unless a higher priority disposal code applies.

Form 990-N Filers

  1. Follow normal audit closing procedures.

  2. To recognize a Form 990-N filing on BMFOLT, refer to the 4th and 5th digits of the DLN containing "8" and "9" respectively, or by checking online at the select check site, http://www.irs.gov/app/ePostcard.

    Note:

    Form 990-N is not a "return" even if it creates a TC 150. It doesn’t start the period of limitations for assessment. See Treas. Regs. 1.6033-6(c)(3) and (4).

  3. If you determine that an organization was in fact required to file an annual information return, follow delinquent return procedures in IRM 4.75.22.

  4. A dummy Form 990 must be in the case file. See Exhibit 4.75.16-19. Refer to IRM 4.75.21.3(8) for details on "dummy" Form 990.

Inadequate Records

  1. Refer to Inadequate Records Notices reporting in IRM 4.75.15.8.10.

  2. Close the case using DC 08 (213), Written Advisory - Form 5666 Required, to the EO Closing Unit.

Installment Agreements

  1. If the taxpayer makes a request for an installment agreement. For procedures Refer to IRM 4.75.28.4.4, Installment Agreement Procedures.

Not Required to File Form 990

  1. If you determine a non-filer was in fact not required to file a Form 990, or files Form 990-N:

    • Prepare Form 2363-A to change the Form 990 filing requirement. This prevents an accidental auto-revocation.

    • You can close the audit as an NMF account. Use a dummy return or a filed Form 990-N in IRM Exhibit 4.75.16-19. See IRM 4.75.16.7.4

  2. Organizations not required to file a Form 990 include:

    • Subordinate organizations under a group ruling included in a group return.

    • Churches, their integrated auxiliaries, and conventions or associations of churches. Rev. Proc. 96-10.

    • Certain IRC 527 political organizations. Rev. Rul. 2003-49.

    • Governmental units and affiliates of governmental units. Treas. Reg. 1.6033-2(g)(1) as supplemented by Rev. Proc. 95-48.

    • Any domestic, foreign and U.S. possession organization with annual gross receipts normally not more than $50,000 ($25,000 for tax years beginning prior to 2010). Such organizations must file Form 990-N if it chooses not to file Form 990 or 990-EZ. Rev. Proc. 2011-15.

    Exception:

    IRC 509(a)(3) supporting organizations are required to file Form 990 or 990-EZ, unless gross receipts are normally not more than $5,000 supporting an IRC 501(c)(3) religious organization. Such an organization must file Form 990-N.

  3. In all other circumstances, establish Form 990 returns on AIMS Master File before closing the case to the EO Closing Unit.

  4. If you determine a non-filer exempt from filing Form 990 in the EOBMF was in fact required to file a Form 990, issue a 30-day letter and a report of examination explaining the filing requirement. Solicit the organization’s agreement on Form 6018, at Line 10. This type of status change is not subject to declaratory judgement rights. The organization can protest the proposed change to Appeals if it disagrees. If the taxpayer fails to respond to your proposal, your 30-day letter becomes final and the organization must file Form 990.

Status 36 Organizations

  1. Status 36 in the EOBMF describes the following types of organizations that have not received a ruling or determination letter granting tax-exempt status, and are not covered under a group exemption ruling:

    • Organizations other than IRC 501(c)(3), (9), or (17) that have filed a Form 990-N, Form 990 or 990-EZ, self-declaring their tax-exempt status, not covered under a group exemption ruling.

    • IRC 501(c)(4) entities that have registered under IRC 506 (even if no Form 990 series return was filed).

    • Organizations claiming exemption under IRC 501(c)(29) even though these organizations are required to apply for exemption because the application process is anticipated to take longer than the 180 days prescribed under the status 40 program.

  2. A status 36 organization:

    • Can be disqualified from tax-exempt status for the specified self-declared tax years if it fails to qualify.

    • Is subject to filing Form 990-T, and other EO returns if it qualifies for tax-exempt status for the self-declared tax year.

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

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

    1. Use Letter 4102 for no-change advisories. Include an addendum to list additional advisory items if any.

    2. Inform the organization of the application for exemption process, including user fee.

  5. If a status 36 organization fails to qualify for tax-exemption for any tax year, request a sample 30-day letter from Mandatory Review’s mailbox at *TEGE EO Review Staff until Letter 3618 is revised to accommodate status 36 organizations. Letter 3618 is under revision as of the publication of this manual. Prepare Forms 4621-A, 886-A, and 6018.

    1. Prepare Form 2363-A (don’t submit for processing). See Exhibit 4.75.16-12.

    2. Prepare Form 5666 or (Form 5346) for SB/SE or LB&I. Alternatively, you can enforce the income tax for the examined tax years. See IRM 4.75.31.

  6. Refer to the six status 36 scenarios at Exhibit 4.75.16-10.

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

    Reminder:

    Status 36 organizations are not required to apply for tax-exemption, but must apply to receive recognition for tax-exempt status. Only IRC 501(c)(3), (9), (17) and (29) organizations are required to apply for tax-exemption.

  8. For agreed disqualifications:

    1. Close the primary return with DC 13 (501) unless a higher priority disposal code applies.

    2. Form 5666 (or Form 5346) is required if you use DC 13 (501).

    3. If you enforce the income tax for the disqualified tax years, close the primary return with DC 04 (205) or 05 (207).

    Note:

    Refer to Exhibit 4.75.16-11 for instructions in preparing Form 6018.

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

Termination of Exempt Status

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

    • A corporate EO files articles of dissolution with the State

    • A corporate EO files articles of merger with the State

    • An association adopts a board resolution terminating the association

    • Beneficiary interests (such as charitable interests) terminate in the case of a trust

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

  2. While organizations voluntarily terminate their existence in accordance with State law, EO Examinations terminates the tax-exempt status by issuing a termination letter after reviewing the following evidentiary documents:

    • Files a Final Return. See IRM 4.75.16.5.10.1.

    • Submits a Written Statement of Disposition of Assets. See IRM 4.75.16.5.10.2.

    • Submits a Dissolution Document. See IRM 4.75.16.5.10.3.

    Note:

    Organizations excepted by law from filing a return or a notice under IRC 6033 need not file a final return.

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

  4. Verify whether a termination claimed by an EO actually occurred.

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

  6. If you are unable to locate the EO, follow unable-to-locate procedures. See Exhibit 4.75.16-15.

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

    • If the audit results in a change in tax or status, issue a report of examination to the last known authorized officer like any other case

    • If there are no changes to tax or status, issue a written advisory that the organization must file a final return by the 15th day of the 5th month after termination

    • If there are no changes to tax or status, and the organization manages to provide the three evidentiary documents in paragraph (2) before you close the case, you may issue a termination letter.

  8. If the EO properly terminated:

    1. Issue the termination letter in Exhibit 4.75.16-13 or Exhibit 4.75.16-14. For central organizations in a group ruling, see the termination letter at Exhibit 4.75.24-3 .

      Note:

      Corporations "administratively dissolved" by the state where reinstatement is possible are not terminated.

    2. Prepare Form 2363-A, to update the EOBMF to Status 20, Termination.

    3. Prepare Form 3198-A. Enter "Termination" in "Other Instructions" at the bottom of the form. On the blank line to the right of "Other Instructions" in the "Special Features" section, enter "IRC 6104(c) Notification Requirements" for IRC 501(c)(3) cases.

    4. Prepare Form 5599. Use DC 14 (212), Termination, unless a higher priority disposal code applies.

  9. Close the case to the EO Closing Unit.

    Reminder:

    Make sure you secured the three evidentiary documents in paragraph (2). Termination cases without these documents will be returned to the groups.

  10. 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.

Termination - Final Returns
  1. Organization managers are responsible for filing final returns, subject to penalty under IRC 6652(c)(2)(B) for failing to file a final return upon written demand. See 90-day demand letter at Exhibit 4.75.22-9. You can’t recognize a termination of an exempt organization until you review the final return if the organization is required to file one.

    Exception:

    Under IRC 6043(b)(1), a church, integrated auxiliary of a church, or a convention or association of churches, are not required to file a final return. Also, organizations described in Treas. Reg. 1.6033-2(g)(1) as supplemented by Rev. Proc. 95-48, Rev. Proc. 96-10, and Rev. Proc. 2011-15, are excepted from filing annual information returns.

  2. In those cases where a final return has not been filed, you must secure the final return. A private foundation must file a final return on Form 990-PF.

  3. The final return will cover the period from the beginning of the EO’s fiscal year through the date of termination. In order to have the return processed prior to the end of the EO’s fiscal year, prepare Form 2363-A to update the EO’s fiscal year-end to the month of termination.

  4. Final returns are due the 15th day of the 5th month after the dissolution or termination is completed.

    Exception:

    An EO can’t file a final Form 990-N before the close of the tax year during which it terminated. You can remind the organization in a written advisory it must file a final return or Form 990-N if so eligible.

  5. An IRC 509(a)(3) organization must file a final Form 990 or 990-EZ, even if it is described in Rev. Proc. 95-48 and Rev. Proc. 96-10.

    Exception:

    IRC 509(a)(3) supporting organizations, the gross receipts of which are normally not more than $5,000, that supports an IRC 501(c)(3) religious organization are not required to file an annual information return, but must file Form 990-N.

  6. A secured final return must be complete and substantively correct before recognizing a termination.

    1. A final return is not correct if the organization files a return that it is not eligible to file, such as Form 990-EZ

    2. A Schedule N is required for a final Form 990 or 990-EZ.

    3. A terminating organization that files a substantively incorrect or incomplete final return without reasonable cause can be subject to penalties or revocation

Termination - Disposition of Assets
  1. A principal officer of an exempt organization may submit a written statement of disposition of assets to the agent or in a final return. You can’t recognize a termination of an exempt organization until you review the written statement of disposition of assets.

  2. Refer to the Instructions to Schedule N, Form 990 or 990-EZ for guidance on the type of information needed.

  3. For the following IRC sections, verify that the assets were distributed as required by the specific subsection:

    • IRC 501(c)(3)

    • IRC 501(c)(9)

    • IRC 501(c)(12)

    • IRC 501(c)(16)

    • IRC 501(c)(19)

    • IRC 501(c)(22)

    • IRC 501(c)(27)

    • IRC 501(e)

    • IRC 501(f)

  4. Valid distributions for IRC 501(c)(3) include distributions:

    1. For exempt purposes within the meaning of IRC 501(c)(3).

    2. To a state or local government for public purposes.

    3. To the federal government.

    4. To an organization or organizations exempt under IRC 501(c)(3).

      Note:

      Consider the special distribution considerations for private foundations. See IRM 4.75.16.5.10.2.1 and IRM 7.26.7.

  5. If any final distributions are improper, solicit correction. If no correction is made, consider revocation of tax-exempt status. For example, if the assets weren't distributed properly, tell the EO to recover the assets. Ask the EO to redistribute them properly.

    If the EO You are to
    Recovers and redistributes the assets Secure documentation of the redistributions
    Refuses to attempt to recover the assets Propose revocation for the year (or years) in which the distributions were made
    Tries to but cannot recover the assets Secure a written, signed statement by an officer of the actions taken by the EO. Confer with your manager as to proposing revocation or accepting the termination.
  6. Improper distributions may be taxable income to recipients. If taxable, verify if they were reported on Forms 1099. If not reported, secure the delinquent information returns. Prepare a penalty file if you decide to impose penalties.

  7. Verify if the income was reported on the recipient's tax return. If not, propose a discrepancy adjustment. See IRM 4.75.28. For those recipients who are not yet required to report the income, prepare a referral (Form 5666) to SB/SE for a current year audit.

    Note:

    If you use Form 5346 for this purpose, it will not be declined.

    Note:

    If the organization was exempt under IRC 501(c)(3) or 501(c)(4), you can pursue intermediate sanctions.

Termination - Disposition of Assets Involving Private Foundations
  1. A private foundation may submit a written statement on the disposition of assets to the agent or in a final return. You can’t recognize a termination of a private foundation until you review a written statement of disposition of assets. Remaining assets of a private foundation may be distributed in the following ways:

    • Making what would be a qualifying distribution under IRC 4942(g)(1)(A).

    • Transferring them to certain public charities in accordance with IRC 507(b)(1)(A).

    • Paying a termination tax under IRC 507(c) to the government.

    • Transferring all remaining assets to another private foundation within the meaning of IRC 507(b)(2).

      Note:

      Certain tax attributes and characteristics carryover to the transferee foundation. See Treas. Reg. 1.507-3(a)(1).

  2. Refer to the General Instruction T in the Instructions to Form 990-PF for guidance on the type of information needed.

  3. A transfer to another private foundation must satisfy the requirements of all pertinent provisions of Chapter 42 of the Code. For example, if the transfer constitutes a taxable expenditure as defined in IRC 4945, the transferor is liable for the Chapter 42 tax that is incurred. See Treas. Regs. 1.507–3(d). Consequently no termination letter can be issued until the taxable expenditure is fully corrected, and the initial tax deficiency has been fully processed and assessed (or abated under IRC 4962).

  4. A termination of existence can’t be recognized until all Chapter 42 taxes against the foundation are assessed (or abated under IRC 4962) for acts or failures to act that occurred during the years of audit or as a result of the transfer, and such acts are corrected.

  5. If a transfer described in IRC 507(b)(2) constitutes a willful and flagrant violation of Chapter 42, as described in IRC 507(a)(2)(A), then the provisions of IRC 507(a)(2) dealing with involuntary terminations are applicable, rather than the provisions of IRC 507(b)(2). In that event, the transferor foundation would be subject to IRC 507(c) tax. See Treas. Regs. 1.507–3(d) and 1.507–4(b).

  6. For IRC 507(b)(2) transfers, the group may expand the audit or prepare Form 5666 for a future year audit of the transferee private foundation to ensure that the transferee properly assumed the Chapter 42 attributes of the transferred assets.

Termination - Dissolution Document
  1. The organization may submit a dissolution document either to the agent or in a final return. You can also obtain dissolution documents from certain state websites. You can’t recognize termination of an exempt organization until you review the dissolution documents.

  2. Appropriate dissolution documents for terminations vary based on the type of entity.

    If the EO is... Then secure...
    A corporation,
    that has filed Articles of Dissolution with the State
    A complete copy of the articles of dissolution, and proof of filing with the state, such as a "date-filed" stamp. If incorporated in multiple states, obtain the documents for each state.

    Note:

    Some states require all taxes be paid before dissolution. Check the state's requirements.

    An association A resolution signed by at least two officers of the entity. The resolution must state the date of dissolution.
    A trust A copy of the court order dissolving the trust. If there is no court order, a resolution signed by at least two trustees. The resolution must state the date of dissolution.
    An organization chartered by a parent organization in a group exemption ruling See IRM 4.75.24.4
Termination - IRC 501(c)(3) Organizations
  1. A termination can only be recognized if all three documents in IRM 4.75.16.5.10 (2) are secured.

  2. For public charities, ensure there are no changes to exemption or reclassification to private foundation, and that the annual information return(s) under examination is accepted as filed before you recognize a termination.

  3. For public charities, verify the correct foundation status. If an organization is described under IRC 170(b)(1)(A)(vi) or 509(a)(2) and it:

    • Has been in existence for more than five years

    • Fails the public support test for any two consecutive tax years beginning with its fifth year of existence, and

    • Doesn’t otherwise qualify for another exclusion from private foundation status (such as IRC 509(a)(3).

    propose a reclassification to a private foundation effective the first day of the second consecutive taxable year the organization failed the public support test.

  4. Don’t recognize a termination if there are Chapter 42 tax deficiencies or corrections that must be proposed against the organization or private foundation.

  5. Determine whether bonds were outstanding at the time of the termination. If so, prepare Form 5666, addressed to TEB, identifying the year of termination.

  6. To the extent terminations apply to IRC 501(c)(3) organizations they are subject to the rules on state notification under IRC 6104(c). See IRM Exhibit 4.75.21-2.

Unable to Locate

  1. Before closing a case as unable to locate, follow the procedures outlined below for locating the taxpayer.

  2. If you can’t make contact, research public records about the dissolution of the organization.

  3. If you are unable to locate the taxpayer, or the initial contact letter is returned by the Post Office as undeliverable:

    1. Inspect any correspondence in the case file for any change of address noted by the U.S. Postal Service.

    2. Review the case file for possible sources of information that may lead to the taxpayer's whereabouts.

    3. Check to see if the organization has a website.

    4. Check the current address via IDRS research. Extract the latest address from the most recent return posted to master file.

    5. Use Accurint™ to find the current address and telephone number for the organization, officer, director, or trustee.

    6. Check telephone and city directories for names and addresses of officers, directors, or trustees and the organization.

    7. Check Internet resources for possible leads.

    8. Request the most recently filed return to identify the current officers or power of attorney (POA).

  4. Follow these additional steps if the preceding steps are unsuccessful:

    1. Contact third parties such as current or former employees or return preparers.

      Caution:

      Be sure to follow all third-party procedures in Treasury Regulation 301.7602-2. See IRM 4.75.21.14, Third Party Contacts.

    2. If the organization is a subordinate of a group ruling, contact the parent of the group ruling for the names and addresses of officers and trustees, and review the reported financial data.

    3. Contact the state agency that processes the records of incorporation. Obtain the names and addresses of the statutory agent or officers listed on the Articles of Incorporation.

    4. Contact the state agency that processes charitable registration or charitable solicitation information sheets and applications for liquor or gaming licenses. Obtain the names and addresses of the statutory agent or officers listed on these information sheets, liquor or gaming licensees.

    5. Request the determination file containing the original application for exemption Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, or Form 1024 from the EO Determinations Record Unit in Cincinnati. Provide the name, address and EIN for the organization in the request. See IRM 4.75.10 for requesting the Determination File.

    6. Contact the Post Office for a current address using Form 4759, Address Information Request - Postal Tracer.

  5. Although not required in TE/GE, you can use Form 1900-B, Unlocatable Taxpayer Checksheet, as a worksheet.

  6. If you can’t locate an authorized contact after following the applicable procedures above, send initial contact letters by certified mail to the organization’s last known address and the last known address of officers, as reported to the state or to the Service, whichever was most recently reported.

  7. Put a due date on the letters, such as 30 days after the date of the letter.

  8. Refer to Exhibit 4.75.16-15 for closing procedures depending on the outcome of your attempts to locate.

Cases Subject to Mandatory Review

  1. Cases subject to Mandatory Review are as follows:

    1. Revocations, agreed and unagreed without protest, not including auto-revoked organizations

    2. Disqualifications, agreed and unagreed without protest

    3. Reclassifications of foundation status, agreed and unagreed without protest

    4. Tax changes, unagreed without protest

      Exception:

      Unagreed without protest for (1) employment tax non-worker classification issues, (2) gaming excise taxes

    5. Claim disallowances, unagreed without protest, any tax (full or partial).

    6. Claim disallowances, agreed, any tax (full or partial) where the taxpayer did not sign Form 2297

    7. Church tax inquiries and examinations

    8. School below college level affiliated with a church or operated by a religious order

    9. Proposed IRC 4958 tax arising from transactions between a disqualified person and a church

    10. Joint Committee cases

    11. Managerial request (requires TE/GE senior manager approval)

  2. Joint Committee Cases:

    1. All cases subjected to Joint Committee review close to Mandatory Review.

    2. Instructions for working joint committee cases are provided in IRM 4.75.37.7.5 and in IRM Chapter 4.36.

    3. Notate on Form Form 3198-A, "JC Case cleared and Letter 1574P issued to taxpayer." Check the restricted interest box if applicable.

    4. Attach a copy of Letter 1574(P) and the JCT clearance letter to Form 3198-A.

    5. Notate on Form 3210 that you are closing a Joint Committee case.

    6. TE/GE closing instructions for Joint Committee cases are provided in IRM 4.5.3.12.

  3. Statute Considerations: Mandatory review will not accept imminent statute returns. Refer to IRM 4.75.16.4.2.4 for instructions.

Protests to Appeals

  1. For all cases with a formal protest to Appeals (no longer subject to mandatory review), ensure the protest:

    • Will be received by the review function with no less than 455 days (15 months) remaining until the ASED (270 days for cases previously returned to the audit group by Appeals).

    • Includes the organization's name, address, and employer identification number.

    • Includes a statement that the organization wants to appeal the IRS findings to the Appeals Office.

    • Includes a copy of the 30-day letter.

    • Identifies the tax periods or years involved.

    • Lists the adjustments with which the organization does not agree.

    • Includes a statement of facts supporting the organization's position in any contested factual issue.

    • Includes a statement outlining the law or other authority the organization is relying on.

    • Includes a statement as to whether a hearing is desired.

    • Includes a signed jurat statement.

    • Includes a copy of the rebuttal letter you issued to the taxpayer.

  2. The officer, director, or trustee's jurat statement must read "Under penalties of perjury, I declare that I have examined the statement of facts presented in this appeal and in any accompanying schedules and statements and, to the best of my knowledge and belief, they are true, correct, and complete."

  3. A designated representative submitting the protest on behalf of the taxpayer must submit their own substitute statement. They must state that they prepared the appeal and accompanying documents, and whether they know personally that the statements of fact contained in the appeal and accompanying documents are true and correct. See Pub 892.

  4. Close all cases protested to Appeals to the EO Closing Unit.

    1. Complete items 16, 17 and 18 of Form 5599.

    2. Indicate Forward to Appeals on the bottom of Form 3198-A.

    3. Close the case to the EO Closing Unit.

    4. The EO Closing Unit will not accept any protested case with less than 455 days (15 months) remaining on the statutory period of limitations for assessment (270 days for cases previously returned to the audit group by Appeals).

Cases NOT Subject to Mandatory Review

  1. The following cases are not submitted to the Mandatory Review group:

    1. Cases not listed in IRM 4.75.16.6 (1).

    2. Any case protested to Appeals

    3. Requests for abatement (cases that are not "claims" )

    4. Organizations automatically revoked by IRC 6033(j).

    5. All reopened cases. Closed reopened cases go to Special Review. The AIMS Status codes for Mandatory Review (e.g. AIMS Status 20) are the same for Special Review.

  2. Mandatory review will not accept imminent statute returns. Refer to IRM 4.75.16.4.2.4.

Case File Assembly

  1. The term "case file" is a synonymous with the term "examination administrative file," or "administrative file." See also IRM 4.75.16.1.3.

  2. Paper Case File: Except as indicated, use a brown or manila folder for a hard copy examination case file.

    1. Use red folders for short statute cases

    2. Use pink folders for claims.

    3. For program cases, use the folder color designated by the program coordinator.

    4. Use a separate case file folder for each type of MFT. You can place multiple years of the same MFT for one taxpayer in one folder.

    5. For declaratory judgment cases, maintain a separate Administrative Record file folder. See IRM 4.75.32.

  3. Electronic Case File on RCCMS: See Exhibit 4.75.16-16, Guidelines for EO Sub-Folders in RCCMS:

    1. Refer online to the RCCMS collection of publications including training materials, automation guides and tips.

    2. If you make the electronic case file a 100 percent paperless case file, refer to IRM 4.75.16.7.6.

    3. If necessary, maintain a correlating paper file to store legal documents with original signatures.

    4. For declaratory judgment cases, maintain an Administrative Record file folder either in hard-copy form, electronic form in Folder 3 of RCCMS, or both. See IRM 4.75.32.

  4. Index all supplemental workpapers in the case file. Upload the workpapers to the appropriate electronic folders that correspond with the indexing on Form 5772.

  5. Place whistleblower and other confidential information in a "To be Opened by Addressee Only" envelope with a TD F 15-05.11, Sensitive But Unclassified (SBU) Cover Sheet (Catalog Number 56033J). Place the envelope in a separate folder with the same cover sheet.

Outside of Case File Folder

  1. Attach the following forms and documents to the outside-front of the examination case file folder, top to bottom, as follows:

    1. Form 895

    2. Form 3198-A

    3. Copy of Letter 1574(P) and JCT’s Clearance Letter (Joint Committee cases only)

    4. EO Church Approvals Coversheet (IRM Exhibit 4.76.7-1)

    5. Suspense Case Coversheet (IRM Exhibit 4.75.36-3)

    6. Form 5456

    7. Form 5457

    8. Form 5599

    9. Form 4881

    Note:

    See list of closing documents at IRM 4.75.16.1.6 (7).

  2. In RCCMS, place these documents in the "Office Documents Folder."

Inside-Left of Case File Folder

  1. Attach the following forms and discs to the inside left of the case file folder, top to bottom, as follows:

    1. Form 5666 or 5346 to be processed

    2. Copy of Form 5666 or 5346 already processed, marked "Copy - Do Not Process" on the top margin

    3. Form 2363-A to be processed

    4. Form 5595 to be processed.

    5. Flash drive, if the case is protested to Appeals

      Note:

      Enclose the flash drive in an envelope or securely wrapped sleeve. Write the password in the sleeve. Staple the flash drive sleeve to the inside-left of the case file folder.

  2. The flash drive must contain the following 9 items:

    • Proposed adverse letter (for example, Letter 3618)

    • Form 886-A

    • Form 5772

    • Form 5773

    • Form 5464

    • Administrative record index

    • Computational spreadsheets

    • Taxpayer’s protest and attachments (not required if submitted on paper)

    • Rebuttal to protest

  3. In RCCMS, place these documents in the "1 - Non-Disclosure" sub-folder in RCCMS

Inside-Right of Case File Folder

  1. Arrange the documents, top to bottom:

    1. Checksheets

    2. Final closing letter

    3. Closing agreement

    4. Rebuttal letter

    5. Written protest to 30-day letter

    6. 30-day letter

    7. Signed waiver and acceptance forms

    8. Audit report (RAR or Report of Examination)

    9. Working return assembly, oldest tax period on top

    10. Form 5772

    11. Form 5773

    12. Form 5774

    13. Form 5774-A

    14. Form 5464 (with group manager’s initial for concurrence on the bottom of the last page)

    15. Supplemental workpapers

    16. Correspondence

    17. Miscellaneous documents

    Note:

    See list of workpaper forms at IRM 4.75.16.1.6 (7).

  2. Final closing letters issued by the audit group include the following unless otherwise subject to mandatory review:

    • No-change letters

    • No-change advisory letters

    • Agreed tax change letters (other than agreed IRC 4958 cases involving churches)

  3. Final closing letters issued by the review function include:

    • 90-day Final Adverse Determination Letters (FADL)

    • 90-day Statutory Notices of Deficiency

    • 90-day Notices of Determination of Worker Classification (NDWC), Letter 3523.

    • Statutory Notice of Claim Disallowances, Letters 905 and 906.

    Exception:

    Letters for cases where a statute is imminent must be issued by the Area office. A FADL must be signed in accordance with Delegation Order 7-2 (IRM 1.2.46.3).

Working Return Assembly

  1. For purposes of case file assembly, a working return is the return under audit.

  2. The working return assembly denotes the working return and all its required attachments in the case file.

  3. Returns under EO jurisdiction are listed in IRM 4.75.16.1.6 (4).

  4. The working return itself can take the following forms in addition to the actual originally-filed paper return:

    • Copy of the original return

    • Online SEIN return

    • RICS return

    • Substitute for return

    • A taxpayer’s copy

    • Dummy return (see next paragraph)

    • Graphic print of Form 990-N available on the Employee User Portal (EUP). See sample at Exhibit 4.75.16-19.

    • A print of Form 990-N available on EO Select Check. See sample at Exhibit 4.75.16-19.

      Note:

      See IRM 4.75.16.4.4.3 for entering "Closing with" codes in RCCMS.

    Note:

    If a case is assigned with a RICS return and the original is received before the case is closed, place the RICS return in the supplemental workpapers as it may be needed for a TEQMS review.

  5. A dummy return is a skeletal first page of Form 990 serving as a physical placeholder in the MFT 67 non-return unit case file. Allowable entries on a dummy return include the organization’s:

    • Name

    • Address

    • TIN

    • Tax period

    • For a non-filer organization required to file Form 990-N, enter "-N" in bold print after "990" on top of form.

    • For filers of Form 990-N, see the previous paragraph and the samples at Exhibit 4.75.16-19.

    • The annotation on the top margin in red, "DUMMY RETURN" or "DUMMY RETURN-CHURCH" or "DUMMY RETURN-NON-FILER UNDER $50,000."

    Note:

    See IRM 4.75.21.3, Non-Return Units.

  6. For purposes of a working return assembly, staple to the first page of the paper form of the working return, top to bottom:

    • A current AMDISA print no more than 30-days old

    • Form 3244-A, Payment Posting Voucher - Examination

    • A copy of any check(s) paid with the return

    • Written explanation for filing late or paying the tax late, or other written request for penalty relief

  7. Staple Form 2848 behind the first page of the paper form of the working return facing forward.

  8. Staple to the back of the last page of the paper form of the working return, top to bottom, facing out:

    • Form 872-T.

    • Executed statute consent forms, e.g., Form 872, 872-A, or SS-10

    • Form 56, Notice Concerning Fiduciary Relationship

    • Form 8821

    • Form 5546

    • Form 843

    • Amended returns (only processed posted amended returns)

    • Form 1045, Application for Tentative Refund

    • Form 1139, Corporation Application for Tentative Refund

      Note:

      If a taxpayer filed the amended return directly with you during the audit, note this on Form 3198-A.

Multiple Folders

  1. Use a separate case file folder for each type of MFT. You can place multiple years of the same MFT for one taxpayer in one folder.

  2. For unagreed IRC 7428 cases, place the administrative record in a separate folder. The electronic case file must have an Administrative Record sub-folder for paperless administrative records.

  3. Place information reports received, referrals, whistleblower information, and other confidential information in a separate folder. Staple Form TD F 15-05.11, Sensitive But Unclassified (SBU) Cover Sheet (Catalog Number 56033J), to the outside-front of the folder.

  4. For large case files use expanding folders if a manila folder is inadequate. Label all folders with the organization's name, EIN, type of return, and year. Number multiple folders in consecutive order.

  5. Ensure all case file folders remain together. Attach a Form 3198-A to each case folder. Write on the bottom of the form in large red letters: "Multiple Returns/Case Folders Involved - DO NOT SEPARATE" .

    Exception:

    See examples of permissible separation of case file folders at IRM 4.75.16.8.2.

  6. Indicate the number of case file folders on Form 3210 for transit purposes.

  7. See also IRM 4.75.32.6.4, Declaratory Judgment Cases and the Administrative Record, Shipping and Logistics.

100 Percent Paperless Closure

  1. Certain returns can be closed 100 percent paperless. To qualify, the case must:

    • Be established with RCCMS Requisition Code 3.

    • Close with an eligible disposal code.

    • Be without an original return.

    • Be an AIMS Master File case.

    Note:

    Electronically filed returns (Filing Location Code 93) can close 100 percent paperless. However, note that the "return requisition indicator" used by AMDISA will be incorrect and line 9 of page 2 will show "ELECTRONIC RETURN REQUESTED." Even with this incorrect indicator, the electronically filed return can close paperless as long as the case meets the paperless criteria

    .

    Note:

    Form 990-N can close 100 percent paperless as long as the case meets the paperless criteria

    Note:

    Penalty cases controlled only in RCCMS can also close 100 percent paperless.

  2. Eligible disposal codes for 100 percent paperless closure are as follows:

    AIMS Disposal Codes RCCMS Disposal Codes
    No Change
    • 02 - No Change

    • 53 - No Change to Related return

    • 107

    • 302

    Regulatory/Revenue Protection Change
    • 01 - Regulatory/Revenue Protection (other than claims disallowed in full with source Code 30, 31, and 32)

    • 19 - Amendment Secured

    • 210

    • 201

    Tax or Status Change
    • 03 - Agreed Tax or Penalty Change

    • 04 - Change to Related Return

    • 05 - Delinquent Related Return Secured

    • 06 - Delinquent Return Secured

    • 08 - Written Advisory - Form 5666 Required

    • 13 - Referrals to Other Operating Divisions

    • 52 - Written Advisory - No Form 5666 Required

    • 102

    • 205

    • 207

    • 208

    • 213

    • 501

    • 214

    Surveys
    • 31 - Surveyed Before Assignment

    • 32 - Surveyed After Assignment

    • 34 - Surveyed Claim

    • 36 - Surveyed After Initial Contact

    • 910

    • 908

    • 103

    • 909

  3. The following cases are not eligible for 100 percent paperless closure even if all 100 percent paperless criteria are otherwise met:

    • AIMS NMF cases

    • Cases closed to Mandatory Review.

    • Original returns ordered from the Service Center

    • Any case controlled on AIMS but not controlled on RCCMS

    • Claims disallowed in full as DC 01 (210), Source Code 30, 31 and 32

  4. Check the second page of an AMDISA print for the following indicators to determine if AIMS will allow a paperless closure:

    Indicators Acceptable for Paperless Closure Indicators Not Acceptable for Paperless Closure
    RET-NOT-REQ RET-REQUESTED
    RET/5546/LABELS NOT REQ
    ELECTRONIC RETURN REQUESTED
  5. For information on assembling an electronic case file in RCCMS, see Exhibit 4.75.16-16. For general RCCMS instructions, see IRM 4.75.16.2.2.

  6. Scan any critical paper document into the paperless case file, including substantiating documents or evidence. Scan informant letters and referrals notes into Folder 1, Non-Disclosure Folder, of the RCCMS electronic case file. Don’t scan irrelevant or unnecessary papers into the case file.

  7. Legal documents with original signatures must be maintained in a "correlating paper file," such as:

    • Form 2848

    • Form 8821

    • Form 56

    • Any executed consent forms to extend a statute of limitations

    • Any correspondence the taxpayer signed under penalties of perjury

  8. A case closing 100 percent paperless will generally not have an administrative record file since declaratory judgment cases are paper case files subject to Mandatory Review. If the case eventually closes no-change or other non-declaratory judgment closure, place the residual administrative record documents in the "correlating paper file." . Ultimately the correlating paper file contains only administrative record documents.

  9. Upload to RCCMS all workpapers, forms, reports, letters, and other documents that would normally be included in a paper case file.

  10. Check the "All Electronic" case file indicator in the Compliance Activity screen on RCCMS. This is acceptable even if there is correlating paper file.

  11. Include in the RCCMS comments section either "100% Paperless Case" or "100% Paperless Case, Forms 2848, 8821 and/or Form 872 sent by UPS."

  12. Close the case with the following codes when closing a case to the EO Closing Unit on RCCMS:

    • PBC - 400

    • SBC - 11115

    • EGC - 7997

    • AIMS Status 51

  13. Notify the EO Closing Unit of the paperless closure on Form 3210 by entering "RCCMS Totally Electronic No Change [or Tax Change] Case." Print Form 3210 on the EO Closing Unit Manager’s printer identified below, with a disposal code prominently indicated for each return (or non-return unit) you are closing:

    • IP Address 10.42.9.226

    • HP Laser Jet P 4515 printer

    • Model Number J 800 3E

    • Host Name DLS 005 PA 4022425.printers.irs.gov (contact your local IT support for proper printer connections)

      Note:

      Submit an OS Get Services ticket to get proper printer connections.

      Note:

      See also the 100 percent paperless subprocess for surveys at IRM 4.75.16.3.2.4 (5).

  14. Additional considerations for Form 3210:

    • Don’t use emails and messages generated by RCCMS to serve as notification in lieu of Form 3210.

    • Don’t submit paper and paperless cases together on the same Form 3210.

    • Identify paperless cases with "paperless case" in the "Remarks" block of Form 3210.

    • Notate "RCCMS Totally Electronic No Change Cases" if applicable.

    • Notate the disposal code(s) of paperless return or MFT 67 non-return units on Form 3210.

    • If applicable, make a paper copy of the Form 3210 for the correlating paper file.

  15. Send the correlating paper file to the EO Closing unit with a copy of the Form 3210 used in the notice to the EO Closing Unit.

    • The EO Closing Unit will then forward to the Ogden Service Center for filing.

    • State in the remarks section of the paper copy of the RCCMS electronic Form 3210, "100 Percent RCCMS, Form 2848, 8821, 56 and/or Statute Extensions Mailed."

    • See IRM 4.75.16.9 for general shipping instructions.

Closing the Case

  1. You are ready to close the case when all substantive issues have been satisfactorily addressed with an adjustment or an explanation, within the scope set by the audit.

  2. Input the closing data on RCCMS. Complete Form 5599 unless the case is a 100 percent paperless closure. See instructions at IRM 4.5.2. For disposal codes and principal issue codes, see IRM 4.75.16.4.4.1 and IRM 4.75.16.4.4.2.

  3. Ensure the correct statute date or alpha ASED code is reflected on AIMS and RCCMS. See IRM 25.6.23.

  4. Complete Form 3198-A.

  5. Complete Form 895 if not already on the outside cover of the case file and statute controls are required.

  6. Send all cases through the group manager for closing. See IRM 4.75.16.8.1.

  7. See the chart below for closing status codes:

    When closing, if the case is... Update RCCMS/AIMS to status code
    Subject to Mandatory Review 20 (Mandatory Review)
    Subject to Special Review 20 (Special Review)
    Not closing to a review function 51 (EO Closing Unit)

Closing to the Group Manager

  1. Verify that the following is correct on the EOBMF. If not correct, prepare and submit Form 2363-A immediately to the FAST:

    • Taxpayer's name, in accordance with the articles of organization, as amended.

    • Taxpayer's mailing address

    • Taxpayer's filing requirements

    Exception:

    For changes in filing requirement resulting from a change in exemption or foundation status, do not send Form 2363-A to the FAST.

  2. If subject to Mandatory Review, print out all workpapers and correspondence.

  3. Verify that the time on Forms 5599 and Form 5464 match, and that they reconcile to Forms 5772 and 6490 (WebETS).

  4. Prepare and print out closing letters. Place the letters in the file.

    Exception:

    Do not print final closing letters that must be issued by Mandatory Review. Instead, indicate the letter number or the IRM exhibit number of the letter at the heading of Form 5772 and in the Mandatory Review section of Form 3198-A.

Group Manager: Closing from the Group

  1. Review the case on RCCMS and/or paper.

  2. Verify the final case grade is accurate.

  3. Approve the case for closing. Note your approval of the case on both the RCCMS version of the Form 5464 and the printed version.

  4. IRC 6751 requires written documentation of your involvement in any decision to assess most penalties. Document your interaction on Form 5464. The following penalties do not require your approval:

    • IRC 6651, Failure to File or Failure to Pay - except where fraud is involved

    • IRC 6654, Failure to Pay Estimated Tax for Individuals

    • IRC 6655, Failure to Pay Estimated Tax for Corporations

    • Any other penalties automatically calculated through electronic means

  5. Return the case to the agent as needed.

  6. Contact the Manager, Mandatory Review if required. See IRM 4.75.16.4.2.

  7. Close to the appropriate function. See IRM 4.75.16.8 (7).

    Example:

    Close certain excepted-agreed cases directly to Mandatory Review. For example, Agent proposes a revocation to ABC Charity while conducting an audit of Form 990. The proposed revocation is unagreed without protest, but ABC agreed to additional unrelated business income tax by signing Form 4549 in the event its exemption is sustained. Because the agreed issue can’t be finalized due to the pending revocation issue, the Form 990-T audit is excepted-agreed. Therefore, the Form 990-T case file will ride with the Form 990 file to Mandatory Review. Note that an openForm 990-T audit must be addressed as an alternative issue in a revocation RAR, whether agreed or unagreed.

Authority to Use Status 39, Suspense in Group

  1. AIMS Status 39, Suspense in Group, removes an audited return from cycle time pending an administrative or judicial action beyond the control of the group. AIMS Status 39 ensures the group isn't penalized for certain aged returns.

  2. The use of AIMS Status 39 is only authorized for use under the following conditions:

    • You submitted a request for a TAM

    • The audit is interrupted by a federally declared disaster impacting the organization. See IRM 25.16.1.

    • You obtained approval to use Status 39 from the Manager, EPR, in response to a written request from the area manager

      Note:

      Include in the written request a listing of all related returns to be placed in Status 39, the reason the audit is being delayed, and an estimated closure date.

  3. The group charged with a return in Status 39 is responsible for protecting the statute of limitations for assessment.

  4. If Status 39 is approved, attach the Suspense Case Cover Sheet in IRM Exhibit 4.75.36-2 to outside-left of the case file folder. Circle the row corresponding to Status 39 on the cover sheet and follow the closing instructions on the cover sheet.

Shipping From the Group

  1. Group Manager: Generate Forms 3210 in triplicate for any paper case files, addressed to the appropriate unit. Sign the forms and include your phone number. Include two copies of the Form 3210 with the closed case and maintain one copy in the group. When the acknowledgment copy of the Form 3210 is received in the group, staple it to the originator's copy. The addresses for the three functions are:

    EO Closing Unit EO Mandatory Review EO Special Review
    Internal Revenue Service
    TE/GE EO Closing Unit
    MC: 4980 DAL
    1100 Commerce St.
    Dallas, Texas 75242
    Internal Revenue Service
    TE/GE EO Mandatory Review
    MC: 4920 DAL
    1100 Commerce St.
    Dallas, Texas 75242
    Internal Revenue Service
    TE/GE EO Special Review
    MC: 4970 DAL
    1100 Commerce St.
    Dallas, Texas 75242
  2. Double package the returns and related workpapers. See the chart below for shipping guidance:

    The ASED expires... The case is... Ship the case via...
    Over 270 days from now Agreed or a no change UPS ground
    Over 270 days from now Unagreed with or without a protest to Appeals UPS ground
    Between 180 and 270 days from now Not subject to Mandatory Review UPS ground
    Between 180 and 270 days from now Subject to Mandatory Review or Special Review UPS next day air
    Between 30 and 180 days from now Not subject to Mandatory Review or Special Review UPS second day air
    Between 30 and 180 days Subject to Mandatory Review or Special review UPS next day air
    Less than 30 days Any type of closure UPS next day air
  3. Completing Form 3210.

    • Make sure you use the current version of Form 3244-A.

    • Don’t submit paper and paperless cases together on the same Form 3210.

    • Abbreviate SSN’s, showing the last four digits of the SSN.

    • List taxpayers with complete name identical to RCCMS controls.

    • Include complete IRS addresses in the "To" and "From" blocks. Include the group number, group manager, mail stop and any special mailing instructions.

    • The "Release Date" block will be the actual date a case or multiple cases is sent.

    • Include in the "Remarks" block any specialized details pertaining to a case or cases.

    • Include in the "Quantity" box the total number of tax periods per MFT.

    • Include in the "Document Identification" rows at the widest description column the EIN or Last 4 of the SSN, MFT, tax period, and name control. Include special instructions if any with respect to the item listed, such as "Short Statute Return(s)."

    • The "Releasing Official" must include the manager or secretary’s signature and title.

  4. Respond to the closing unit within two business days of receiving an email that alerts you to any errors on Form 3210.

  5. You can email or fax a corrected Form 3210 to the EO Closing Unit.

  6. If an organization voluntarily files Form 990, 990-EZ or 990-N after the audit group has shipped a non-filer NMF case for closure, the EO Closing Unit (or review function) generally will not send the case back to the group for an AIMS Master File establishment unless the closing function (or review function) either:

    • Rejects the case for other reasons

    • Determines the agent erred in concluding the organization was not required to file a Form 990 (or 990-EZ).

  7. For more information on shipping procedures, refer to Document 13056, Employee Toolkit - Shipping Procedures for Personally Identifiable Information (PII) and IRM 10.2.13, Shipping Personally Identifiable Information. Follow-up with Form 3210 in three business days for overnight shipments and ten business days for ground shipments.

  8. Follow-up with Form 3210 in 3 business days for overnight shipments and ten business days for ground shipments.

Form 1900 Instructions

Instructions for Preparing Form 1900

Field: Instruction:
Returns: Check or enter the applicable form number of the return(s) being surveyed.
Name and address on latest return or claim: Enter the last known name and address.
SSN/EIN: Enter applicable numbers from the returns being surveyed.
Documents surveyed: Identify the types of document(s) included with Form 1900.
Recommended action: Complete this block to indicate recommended action.
a) Accepted As Filed: If surveying original returns on which no action has been taken, original returns on which tentative carryback allowances have been made, and amended returns filed after the due date and reporting additional tax liability.
b) Allow in full or Allow as corrected: Where claims or amended returns filed as claims are surveyed, whichever is appropriate.
Related Cases: Cases listed here would be those cases requiring adjustments of items of income or deductions reported on another taxpayer's return to secure consistent treatment of the issue (whipsaw issues).
Taxable year or period: List each year's return being surveyed on a separate line.
a) Calendar year: Show ending date (12-31-2010).
b) Fiscal year: Show ending date (6-30-2010).
c) Short period: Show both beginning and ending date (1-1-2010 and -9-30-2010)
d) 52/53 week year: Show last day of year (6-29-2010).
Adjusted gross or taxable income reported: Enter the last income figure computed by the taxpayer on the last processed return for the year being surveyed.
Tax liability reported, Claim allowable, Tentative allowance approved: Generally, there will be just one return being surveyed and no administrative adjustments will have been made to the tax liability reported. As needed, the following procedures are applicable:
a) If more than one return was filed for the same year prior to the due date of the return, the last return filed constitutes the original return and the tax liability shown on this last return should be entered.
b) If a claim reducing the tax liability shown on the original return was filed after the due date of the return, the amended return is considered to be a claim and the tax shown on the original return should be entered under Tax Liability Reported. The difference between the tax liability reported on the original return and the amended return is entered under Claim Allowable.
c) If an amended return, increasing the tax liability shown on the original return was filed after the due date of the return, and the additional tax was assessed, then the tax as shown on the amended tax return should be entered under Tax Liability Reported.
d) Where tentative carrybacks have been filed (Form 1045 or Form 1139) and the refunds have been made to the taxpayer, the tax as shown on the return before administrative adjustment is entered under Tax Liability Reported. The amount refunded as a result of the filing of the tentative carryback is shown under Tentative Allowance Approved.
e) Where claims for refund (including amended and informal claims) have been filed, enter the tax liability as reported on the last processed return under Tax Liability Reported and enter the amount of the claim under Claim Allowable.
Explanation: Explain why the return is being surveyed. If necessary, include computations.
Enclosures: List returns, claims, and other documents enclosed in the case file.
Examining Officer/Date: Signature of the surveying agent and the date the form was completed.
Approved By/Date: The signature and the title of approving management official, usually the agent's manager, and the date of concurrence.

Form 2503 Instructions

Instructions for Preparing Form 2503

Field: Instruction:
Excise Tax and Employment Tax: For exempt organization or private foundation excise taxes, check the box for excise tax.
Name and present address of taxpayer: Enter the last known name and address and EIN/SSN for the taxpayer.
Type of Survey: Check the box for office examination, if the return or claim was assigned as an OCEP examination, otherwise, check the box for field examination
Place of Survey: Enter the group number and symbols.
Date of Survey: Enter the date the form was completed.
Return(s) Form Number: Enter the form number of the return to which the documents included with the Form 2503 apply.
Director, Specialty Tax: Enter "N/A" in this block.
Time Spent: Enter the time spent reviewing the return or claim.
Returns and Claims Surveyed: Check the appropriate box(s).
Related Cases: If the return or claim is filed by an individual: organization manager, foundation manager or disqualified person, list the name of the related organization.
Recommended Action: Complete appropriate block to indicate recommended action.
a) Accept as Filed: Check this box if surveying original returns on which no action has been taken or amended returns that do not show a decrease in tax liability.
b) Allow in Full: Check this box when amended returns filed as claims reporting a decrease in tax liability or claims are surveyed and the claim is allowed in full.
Type of Tax and Code Section: Enter "excise" and the IRC section.
Period: List each year's return being surveyed on a separate line.
a) Calendar year: Show ending date (12-31-2010).
b) Fiscal year: Show ending date (6-30-2010).
Tax liability assessed and Claim allowable: Generally, there will be just one return being surveyed and no administrative adjustments will have been made to the tax liability reported. As needed, the following procedures are applicable:
a) If more than one return was filed for the same year prior to the due date of the return, the last return filed constitutes the original return and the tax liability shown on the last return should be entered.
b) If a claim reducing the tax liability shown on the original return was filed after the due date of the return, the amended return is considered to be a claim and the tax shown on the original return should be entered under Tax Liability Reported. The difference between the tax liability reported on the original return and the amended return is entered under Claim Allowable.
c) If an amended return, increasing the tax liability shown on the original return was filed after the due date of the return, and the additional tax was assessed, then the tax as shown on the amended tax return should be entered under Tax Liability Reported.
d) Where claims for refund (including amended and informal claims) have been filed, enter the tax liability as reported on the last processed return under Tax Liability Reported and enter the amount of the claim under Claim Allowable.
Explanation: Explain why the return is being surveyed. If necessary, include computations.
Enclosures: List returns, claims, and other documents enclosed in the case file.
Examiner: Enter the agent's name.
Approved By: The signature and the title of approving management official (usually the agent's manager).

Principal Issue Code Selection in Advisory Cases

* The term, "Any PIC" means to select the PIC within the issue category that best fits your advisory issue.

Selecting Principal Issue Codes in Advisory Cases
If you have an advisory issue in category: ...then select this PIC for your advisory issue:
01 Filing Requirement *Any PIC other than 01A
02 Organizational Requirements 02B
03 Operational Requirements 03B
04 Revocation/Discontinued Operations 04A
05 Foundation Status/Modification 05B
06 Reserved ---
07 Legislative Activities 07B
08 Political Activities 08B
09 Governance *Any PIC other than 09A
10 Unrelated Business Income 10B
11 Unreported Compensation 11A
12 Taxable Fringe Benefits 12A
13 Accountable Plans *Any PIC other than 13A
14 TIPs – Unreported TIPS 14A
15 EE Classification – Worker Classification 15A
16 FUTA-Noncompliance 16A
17 FICA 17A
18 Federal Withholding – Noncompliance 18A
19 Backup Withholding – F945 Noncompliance 19A
20 Non Resident Alien – Withholding Noncompliance 20A
21 International Activities Issues 21A
22 EO – Healthcare Issues 22A
23 Employee Benefit Plans – Referral to Other Functions *Any PIC
24 Discrepancy Adjustments 24A
25 Taxable Subsidiaries & Related Entities *Any PIC
26 EO – Chapter 42 Taxes 26A
27 EO – Miscellaneous Excise Taxes 27A
28 Abatement of Chapter 42 Taxes 28A
29 Fraudulent Failure to File Penalty (6651(f)) 29A
30 Public Inspection Penalty (6652(c)(1)) 30A
31 EO – Disclosure Penalty (6652(c)(3)) 31A
32 EO – Accuracy Related Penalties (6662(c)) 32A
33 Accuracy Related Penalties (6662(d)) 33A
34 Fraud Penalty-IRC 6663 34A
35 Penalty-Willful Failure to Furnish Statement to EE 35A
36 EO – Penalties – IRC 6684 36A
37 EO – Pnlty – Public Inspection Requirements. IRC 6685 37A
38 Return Preparer Penalties (6694 and 6695) – All Forms 38A
39 Aiding & Abetting Penalty IRC 6701 39A
40 Pnlty-Fail. to Disclose Non-Deduct. Contrib. IRC 6710 40A
41 Pnlty-Fail. to Disclose Info Avail. From Govt. IRC 6711 41A
42 Penalty – Failure to Meet Disclosure Req. IRC 6714 42A
43 Penalty – Failure to File Correct Info Returns. (6721(a)) 43A
44 Intentional Disregard Penalty (6721(e)) 44A
48 Inurement 48B
49 Private Benefit 49B

Principal Issue Code Examples

Example 1 - No Change Case
The agent is auditing a Form 990 for an organization exempt under IRC 501 (c)(8). During the audit the agent pursues advertising income, bar income, and rental income listed on the Form 990 as potential unrelated business income. No Form 990-T was previously filed by the organization.

The agent spent time determining there is no unrelated business income. The advertising income meets the volunteer labor exclusion. The agent also determines there is no non-member bar income. The agent determines there are no services involved with the rental income and the property is not debt-financed.

The Form 990 could be closed with DC 02 (107), No Change if no advisories are issued, or "52 (214), Written Advisory" if the agent has advisories to issue.

If the Form 990 is closed with a no change to the UBI issue and an advisory is not issued, select "10A, UBI Issues - No Change." If an advisory is issued, select the PIC(s) which best applies. (i.e., select 10B, UBI Issues-Advisory.).
Example 2 - No Change Advisory Case
The agent is auditing Form 990 for an organization exempt under IRC 501(c)(3). During the audit, the agent spent time pursuing unrelated business income on advertising income listed on Form 990 and lack of adequate records as potential issues. No Form 990-T has been filed by the organization.

As a result of the audit, the agent determines the advertising income is not taxable due to the volunteer labor exclusion. The agent determines the lack of adequate records is not severe enough to propose revocation, but does recommend to the group manager an inadequate records notice be issued. The manager concurs with the agent. An inadequate records notice will be issued.

The Form 990 is closed with DC 08 (213), Written Advisory – Form 5666 Required.

The first PIC on the RCCMS closing record should be "01N, Filing Req.- Inadequate Records to Substantiate Rtrn" because the inadequate records notice could result in the organization losing its tax-exempt status in the future if they do not comply - an exemption issue. The second PIC should be "10A, UBI Issues-No Change."
Example 3 - No Change Case
The agent is auditing Form 990 for an organization exempt under IRC 501(c)(3). The audit is a focused audit on executive compensation. The purpose of the exam is to determine whether or not the compensation paid to the officer is excessive and whether or not there are fringe benefits paid to the officer that are not included as compensation but should be and are therefore excess benefit transactions.

After spending time reviewing the compensation and seeing if there are any other payments made to the officer, the agent concludes the salary is reasonable and does not find any other payments made to the officer that should have been included in compensation. There are no other issues the agent pursued in this case.

The Form 990 is closed with DC 02 (107), No-Change.

The agent should use PICs "48A, Inurement - No Change" and "12A, TFB - No Change" on the closing record for Form 990.
Example 4 - Delinquent Related Return Secured
The agent is auditing a Form 990 for an organization exempt under IRC 501(c)(8). During the audit, the agent pursues advertising income, bar income, and rental income listed on the Form 990 as potential unrelated business income. No Form 990-T was previously filed by the organization.

The agent determines there is tax due on the Form 990-T for the advertising income and the non-member bar income. The agent also determines there are no services and no personal property involved with the rental income, and the property is not debt-financed. The agent finds the rental income is not unrelated business income.

The largest source of unrelated business income tax results from the non-member bar income. The agent secures and audits the delinquent Form 990-T.

The Form 990 is closed with DC 05 (207), Delinquent Related Return Secured.

Based only on the facts provided, both the 990 and 990-T will close using PICs "01D, Filing Req. - Secured Del. 990-T Rtrms" , "10I, UBI - Non Member Inc." and "10L, UBI - Advertising" . Regarding the rental income issue on the Form 990, the agent will not record the PIC.
Example 5 - Change to Related Return
The agent is auditing a Form 990 for an organization exempt under IRC 501(c)(6). Form 990-T, Form(s) 941, and Form 940 were previously filed by the organization.

As a result of the audit, the agent determines the expenses taken on the advertising calculation on Form 990-T were not allocated properly, the workers were treated as independent contractors when they were in fact employees, and the organization was paying out a set monthly car allowance under a non-accountable plan.

The agent makes the adjustment to the Form 990-T, Form(s) 941 and Form 940 for the year under audit and the organization agrees. Within the employment tax adjustments, the larger adjustment is the reclassification issue and the smaller adjustment is the fringe benefits.

The Form 990 is closed with DC 04 (205), Change to Related Return. Based only on the facts provided, the Form 990 will close using PICs "10C, UBI Income/Exp Allocation" , "15B, EE Class.- Conv of Indep. Contr. to EE" and "12J, TFB-Non-Accountable Exp. Plan" .

The Form 990-T is closed with PIC "10C, UBI Income/Exp Allocation" . The Forms 941 and 940 are closed with PICs "15B, EE Class.- Conv of Indep. Contr. to EE" and "12J, TFB-Non-Accountable Exp. Plan" .
Example 6 - Delinquent Related Return Secured
The agent is auditing a Form 990 for an organization exempt under IRC 501(c)(3). The audit is a focused audit on executive compensation. The purpose of the audit is to determine whether or not the compensation paid to the officer is excessive and whether or not there are fringe benefits paid to the officer that are not included as compensation but should be and are therefore excess benefit transactions.

The agent concludes the salary is unreasonable and proposes excess benefit tax on the officer. The agent did not find any fringe benefits being paid to the officer that should have been included in compensation.

No Form 4720-A was previously filed by the officer. The officer agrees with the agents conclusions and makes correction.

The Form 990 is closed with DC 05 (207), Delinquent Related Return Secured. Based on the facts provided, the Form 990 will use PICs "01G, Filing Req. Sec. Del 4720 Rtrns" and "06B, IRC 4958 Sanctions - Excise Tax Assessment." Also use "12A, TFB - No Change" for the fringe benefits issue.

The Form 4720-A on the officer is closed with PICs "01G" and "06B" only.

Note:

Form 4720-A isn’t a standard form in the Electronic Publishing Products Catalog. A Form 4720 is designated as Form 4720-A (MFT 66) if a taxpayer completes Part II-A.

Example 7 - Revocation and Delinquent Returns
The agent proposes a revocation of an IRC 501(c)(3) organization due to inurement, political activities and substantially operating a commercial business. Among the exemption issues, the commercial business issue is the most significant issue. The agent also secured a delinquent Form 4720-A from the disqualified person for payments by the organization.

With regard to the Form 990, there are four codes that can be used just relating to the revocation: "04B, Revocation - Not Operating for Exempt Purposes" , "04C, Revocation-Inurement/Private Benefit" , "04D, Revocation -Political Activity." Also use "01G, Filing Req.-Secured Del. 4720 Rtrns" because the secured delinquent return is also considered an "exemption issue" within a "change issue." (See paragraph (4) of IRM 4.75.16.4.4.2 where a secured delinquent returns are regarded as "change issues" for PIC purposes). Note that Form 4720-A filed by a disqualified person is treated as a related return for PIC purposes.

Form 2363-A Required Input Chart

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Please click here for the text description of the image.

Form 2363-A Instructions

Form 2363-A, Exempt Organization BMF-EO Entity Change, is used to establish or change accounts on the EOBMF. An agent is required to complete the form to record changes to the organization's account resulting from the audit.

The table below shows the required fields that must be completed when preparing a Form 2363-A. To use the table, find the "type of change" being made (e.g. address, name, etc.) in column 1 and then follow across the row to determine which items must be completed on the Form 2363-A. The numbers in the column headings correspond to the item numbers on the form. Those required for a particular change are marked with an "X." The Transaction and/or Definer Codes that must be input are also shown.

Note:

The table provides the required input for changes relating to a single organization. For mass changes to subordinates covered under a group ruling, Document Code 81 should be used.

Form 2363-A Line Item Instructions 1
ITEM: ENTER:
Item 1, Employer ID Number The 9 digit employer identification number.
Item 2, Name Control The four digit name control. The name control for an exempt organization is derived from the first four significant characters of the name. The first position must be an alpha or numeric character. The remaining positions must be alpha or numeric, blank, ampersand or hyphen. Blanks in the Name Control are permissible only at the end of the Name Control to make it a four-position Name control. When the word "the" begins the organization's name, it should not be used to form the name control. Also, for "trusts" select a Name Control from the surname.
Item 3, Document Codes 80 "X" to update one account on the BMF or may also be used to update one subordinate of a group ruling.
81 "X" for mass establishments, additions or changes for organizations covered under a group ruling.
Item 4 Transaction Codes "X" in the appropriate box. Only one transaction code (TC) is allowed per form. The transaction codes determine the consistency and validity checks that will be performed.
Item 5, Definer Codes Definer code(s) "A" "B" and/or "C" , as appropriate. These codes are used with TC 012 and TC 016. Up to three definer codes may be entered with TC 016. Definer code "A" is the only code that can be used with TC 012.
Item 6, Posting Delay Code Use this code when multiple Forms 2363-A need to be prepared. Values are 1 through 6.
Item 7, New Name Control The new name control when the organization's name is being changed.
Item 8, Primary Name The legal name of the organization.
Item 9, Continuation of Primary Name The continuation of the legal name of the organization.
Item 10, Sort Name The name the organization is doing business under. It may be different from the Primary Name. The Sort Name can be deleted by entering two dollar signs ($$) in Item 10.
Item 11, "In care of" name The "in care of" name if specified by the organization. The "In care of" Name can be deleted by entering two dollar signs ($$) in Item 11.
Item 12 Foreign Street The street address for an organization located in a foreign country.
Item 13, Mailing Street or foreign city/ZIP The street address where the organization receives its mail. For foreign organizations enter the city/ZIP in this field.
Item 14, Mailing city/state/ZIP or foreign country The city/state/ZIP where the organization receives its mail. For foreign organization enter the country.
Item 15, Location street address The street address where the organization is physically located.
Item 16, Location city/state/ZIP The city/state/ZIP where the organization is physically located.
Item 17, Subsection The subsection code from Document 6379.
Item 18, Foundation Code The foundation code must be input if subsection code is 03. Valid foundation codes are:
02 Exempt operating foundation
03 Private operating foundation
04 Private non-operating foundation
09 Suspense
10 Church - IRC 170(b)(1)(A)(i)
11 School - IRC 170(b)(1)(A)(ii)
12 Hospital IRC 170(b)(1)(A)(iii)
13 Organizations operated for the benefit of a college or university - IRC 170(b)(1)(A)(iv)
14 Federal, State or local government unit - IRC 170(b)(1)(A)(v)
15 Organization receiving support form governmental unit or general public - IRC 170(b)(1)(A)(vi)
16 General, public charity - IRC 509(a)(2)
17 Public charity supporting organization - IRC 509(a)(3)
18 Public Safety - IRC 509(a)(4)
Item 19, Classification Code Appropriate classification code from Document 6379 if the TC is 000, 012 or 016.
Item 20 Affiliation Code The affiliation code. Valid affiliation codes are:
1 Central Organization (Individual ruling)
2 Intermediate organization (Individual ruling)
3 Independent organization (Individual ruling)
6 Parent of a group ruling (not a church)
7 Intermediate parent (subordinate by state)
8 Parent of a church
9 Subordinate of a group ruling (also, group return)
Item 21 Type of Organization The type of organization code. Valid type of organization codes are:
1 Corporation
2 Trust
3 Cooperative
4 Partnership
5 Association
6 NECT (Subsection must equal 91 or 92)
Item 22 Status Code and Date The status (SS) of the organization and the date (YYYYMM) the status became effective (SSYYYYMM). Valid status codes are:
00 EO section established without status
01 Unconditional exemption-Active
02 Conditional exemption-Active
06 State operated university or college filing Form 990-T
07 Church filed a Form 990-T Active
10 Pre-examination of church-Active
11 School certification-Active
12 A formal exemption not granted - filing an EO Return - (Form 990 Under IRC 4947(a)(1); Form 990-PF Under IRC 4947(a)(1); Form 5227
18 Temporary revocation of private foundation (Trust). Required to file Form 990-PF and Form 1041 - Active
19 Revocation of private foundation. Required to File Form 990-PF and Form 1120 - Active
20 Termination-Inactive (Out of Business, etc.)
21 Unable to locate-Inactive/Active New address needed
22 Revocation-Inactive
23 507(a) Termination-Inactive
24 507(b)(1)(A) Termination-Inactive
25 507(b)(1)(B) Termination-Inactive
26 Termination merger - Inactive
28 No longer a member of group ruling.
29 A group ruling has been dissolved.
30 Churches voluntarily file Form 990 (2001)
31 Small Organizations other than Private Foundations (2001)
32 Non Responders to CP 140 (2001)
33 Foreign Private Foundations described in IRC 4948(b) (2001)
34 IRC 527 Political Organization (2001)
35 Canadian Charities without Foundation Classification
36 Non IRC 501 (c)(3), (9) or (17) Filers - no official exemption
40 Application pending-Inactive-No exemption
41 No reply to solicitation - Inactive - No exemption
42 Extension of time to file
70 Denied - Inactive - No exemption
71 Incomplete application - No exemption granted
72 Refusal to rule - Inactive - No Exemption
97 Exemption Revoked (Failure to file Form 990-N or a 990 for 3-consecutive years). Form 1120 Filing Requirement will replace all Return FRC.
98 Terrorist Organizations
99 Returns that could not be posted in prior EO status codes 20, 22, 41, 70-72; used by EO Compliance
Item 23, Ruling Date Date the determination or ruling letter was issued.
Item 24, Activity Codes Leave Blank. These codes were obsolete after 1/1/2002.
Item 25, Deductibility Code The deductibility code (CC) and year (YYYY) in CCYYYY format. Valid deductibility codes are:
1 Contributions are deductible
2 Contributions are not deductible
4 Contributions are deductible under treaty provisions.
Item 26, From GEN The group exemption number (GEN) when changing a GEN or updating a group exemption.
Item 27, New GEN The new GEN to change an individual determination/ruling to a group determination/ruling.
Item 28, Wages Paid Date Use this when establishing Form 945 filing requirements. Enter month and year wages were first paid.
Item 29, District Location The two digit universal location code from IRM 25.7.2, Exhibit 25.7.2-3 to reflect where the principal place of business is located.
Item 30, Pension Plan Enter the applicable pension plan code, as follows:
1 Yes
2 No or not known
Item 31, Adv. Ruling Date The date when advance ruling period is due to expire.
Item 32, Large Case Code The appropriate large case code if the case is or has previously been included in the Team Examination Program (TEP), previously known as the Coordinated Examination Program (CEP). Valid large case codes are:
1 When a case is to be included in Team Examination Program.
2 Was previously a Team Examination Program. case.
9 To remove a case from the Team Examination Program.
Item 33, Cumulative List Indicator The Cumulative List Indicator code to identify an organization that is to be included in the Cumulative List (Pub. 78) Supplement. Valid Cumulative List Indicator codes are:
3 to include EO in next quarterly supplement of Publication 78
9 to delete a Cumulative List Indicator
Item 34, Employment Code A "W" for a IRC 501(c)(3) organization (other than an instrumentality of a state, municipality or other local governmental unit) not subject to FUTA tax.

Exception:

Do not enter a "W" for churches that have timely filed Form 8274, Certification by Churches and Qualified Church-Controlled Organizations Electing Exemption from Employer Social Security and Medicare Taxes. The Service Center establishes the employment code for these entities.

Item 35, Fiscal Year/Month Month in which the exempt organization's fiscal year ends
Item 36, NTEE National Taxonomy of Exempt Entities Code. This code is assigned by and normally changed by Cincinnati. NTEE codes may still be present on accounts, however, they are no longer assigned or actively used. See IRM 3.13.12.5.2 (2) j.
Item 37, NAICS Code North Atlantic Industry Classification System Code from IRM 25.7.2Exhibit 25.7.2-6.
Item 38, Filing Requirements Filing requirement codes from Document 6379.

Note:

When changing from one filing requirement to another, be certain to enter a zero (0) or two zeros (00) in the filing requirement box to be deleted.

Example:

If changing from a public charity to a private foundation enter "1" in the 990-PF box and "00" in the 990 box.

Item 39, Remarks A description of change to leave a history for future reference, e.g., Foundation Code follow-up. Remarks must consist of 10-35 characters with no consecutive blanks.
Item 40, Prepared by The agent's name and the current date.
Item 41, Organization Symbols Enter the preparer's organization symbols as indicated in pages 2-11 of Document 6379.
Item 42, Preparers Group or IDRS Number Enter the preparer's 4-digit group number or 10-digit IDRS number.
Item 43, Preparers phone number Enter phone number of preparer.

1 Detailed instructions, explanations, and allowable codes for each item can be found in IRM 25.7.2, EO/BMF Processing Procedures.

Form 4881 Instructions

The following items should be completed by the agent unless otherwise noted.

Item Description Definition
Form No. Enter the appropriate Form Number (either 4720 or 990-BL).
MFT For Form 4720, enter MFT 50. For Form 990-BL, enter MFT 56.
Tax Period Enter the Tax Period (in YYYYMM format) for which Chapter 42 taxes are being assessed.

Reminder:

Prepare a separate Form 4881 for each Tax Period in which Chapter 42 taxes are being assessed.

Name/
Address/Zip Code of Taxpayer
If available, attach an address label from the temporary EIN account established on AIMS. If a label is not available, enter the complete name and address of the person or organization being assessed Chapter 42 taxes.

Reminder:

When more than one person or organization is being assessed taxes, complete a separate Form 4881 for each one involved.

Taxpayer Identification No. (TIN) Enter the SSN of the person (or the EIN of the organization) being assessed Chapter 42 taxes.
Adjustments Enter the following information as applicable. Use a separate column for each type of tax being assessed.
IRC Section Enter the appropriate 4-digit IRC section number.
4941 For self-dealing
4944 For investments which jeopardize charitable purposes.
4945 For taxable expenditures
4958 For excess benefit transactions
Abstract Code Enter the appropriate 3-digit code:
150 For IRC 4941
153 For IRC 4944
154 For IRC 4945
Blank For IRC 4958

Note:

As of 3/2003 an abstract code had not been programed for IRC 4958. This item should be left blank until an abstract code is programed and published.

Initial Tax Enter the amount of the initial tax.
Additional Tax If applicable, enter the additional tax. If additional tax is not to be assessed, leave this item blank.
Total Tax Enter the sum of the Initial and Additional Taxes.
Penalty Type Enter the applicable type of penalty (6651 or 6684). If a penalty is not being imposed, leave blank.
Penalty Amount If a penalty is being imposed, enter the amount. In all other instances, leave blank.
Related Private Foundation/Organization
Item Description Definition
Name/
Address/Zip Code of Taxpayer
Enter the complete name and address of the private foundation or organization to which the person or organization being assessed Chapter 42 taxes is related.
Taxpayer Identification No. Enter the EIN of the private foundation or organization to which the person or organization being assessed Chapter 42 taxes is related.
Form No. Enter the Form Number of the primary return filed by the private foundation/organization related to the person or organization being assessed Chapter 42 taxes.
Tax Period Enter the Tax Period (in YYYYMM format) of the return filed by the private foundation/organization related to the person or organization being assessed Chapter 42 taxes.
Prepared By Enter the name of the person preparing this.
Area Office Enter the Area Office in which the audit was conducted.
Date Enter the date of the.
Other Information Use this item to record any additional information pertinent to the case.

Note:

Review staff must enter the annotation "REVIEWED" along with the Reviewer’s initials and the date.

Form 5666 Instructions

Form 5666 is prepared whenever an information notice is required or a referral for a future year audit is recommended. A review of the data from CC BRTVU should be used in making the determination to examine returns filed in the two prior years, as well as the current year. Form 5666 will also act as a MF requisition. Prepare Form 5666 as follows:
Position Number Description Definition
Line 1
1–5 CC AM424 Self-explanatory.
6 Definer Code Enter a "P" for EPMF only
Referral or Information Report "X" the applicable box to indicate whether it is a referral or an information request.
A Organization / Taxpayer / Plan Name Enter the complete name of the organization, taxpayer or plan name.
B Street Address Enter the organization’s, taxpayer’s or plan name’s complete street address.
C City, State and Zip Code Enter the city, state and zip code.
7–8 Source Code Enter the appropriate 2-digit source code. Refer to the following for a listing of valid source codes:
  • Document 6476 (EP)

  • Document 6379 (EO)

  • Document 11308 (GE)

10–12 Primary Business Code (PBC) Enter the 3-digit business segment code established for the TE/GE Technical Time Reporting System (WebETS).
14–18 Secondary Business Code (SBC) Enter 5 zeros (00000) - the secondary business code is currently not being used for TE/GE.
20–23 Employee Group Code (EGC) Enter the appropriate 4-digit employee group code established for the TE/GE Technical Time Reporting System (ETS). The Employee Group Code must be in the range of:
  • 7600-7699 (EP)

  • 7900-7999 (EO); and effective 1/2004: 77XX

  • 7200-7299 (GE).

25–26 MFT Enter the appropriate two-digit Master File Tax account code (MFT). Refer to the following for a listing of valid MFTs:
  • Document 6476 (EP)

  • Document 6379 (EO)

  • Document 11308 (GE)

28–29 Status Code Status code "06" is preprinted on the form. Do not make any changes to this entry.
31 Return Not Requested When only an examination assembly is required, enter an "X" in the box. When both the return and an examination assembly are required, leave this item blank.
33–36 Project Code Enter the appropriate 4-digit project code. If a project code does not apply, leave this item blank. Refer to the following for a listing of valid project codes:
  • Document 6476 (EP)

  • Document 6379 (EO)

  • Document 11308 (GE)


38 EP Plan Type For EPMF Returns Only Enter the 1-digit type of plan. Valid plan types are:
  • 1 - Defined Benefit

  • 2 - Defined Contribution


39–40 Aging Reason Code Leave blank not used by TE/GE
41–43 Push Code When establishing an account for which the return has not yet posted (delinquent return, substitute for return, current or future year pick-up, etc.), enter the appropriate 3-digit Push Code:
  • EP Push Code 081

  • EO/GE Push Code 022, 023, 024 or 025.

  • If push code does not apply, leave this item blank.


Reminder:

If the Push Code is for a "Future" year return, the tax period cannot be greater than one year from the input month and year. Effective 01/2006, EP/EO/GE Push Code 036 for Substitute For Return

45–46 Alpha Day Enter a 2-character alpha statute code, if needed. The 2-character alpha code will overlay the "DD" (day) portion of the statute date that comes from MF.
48 Flowthru Indicator Enter a "1" if this is a discrepancy adjustment referral/request, or a referral/request for Form 1040, 1041, 1065, 945 & 1120.
Line 2
1–12 TIN/File Source Beginning in the left-most position, enter the organization/taxpayer/plan name 9-digit EIN/SSN (including the dashes).

Example:

EIN is 12-1234567 or 12-3456789P. SSN is 123-45-6789.


14–17 Name Control/Check Digit Enter the 2-digit check digit. If the check digit is not available, enter the four-character name control.
19–24 Tax Period Enter the tax period being requested in YYYYMM format.

Example:

If a 1999 return is being requested, enter 199912.


26–28 Activity Code If the activity code is not known, it should be estimated. When the record comes down from IMF or BMF, the correct activity code will be entered automatically.

Exception:

If the request is for substitutes for return and returns manually re-established from the retention register. On substitutes for return, enter an estimated activity code because this activity code will override the BMF activity code of 000.


29–38 Amount Claimed (Dollars Only) If a claim is involved, enter the amount (in dollars only). Right-justify the entry and do not enter leading zeros, commas, a decimal point, or a dollar sign. If a claim is not involved, leave this item blank.

Example:

A claim for $11,233.35 would be entered 11233.


40–42 Plan Number (MFT 74) /Report Number (MFT 46) Enter the 3-digit plan or number as reflected on the annual return.
D Forward to: (Name/Date/Organization/Telephone) For a referral/information notice enter the name, date, organization and telephone number which the notice is to be sent. For a future year audit, enter "ADMINISTRATIVE FILE."
E Source of Information For an information notice, indicate the source of the information by entering an "X" in the applicable box. Leave blank for a future year audit.
F Tax Period Enter the tax period in YYYYMM format.
G MFT/Plan/Report Number Enter the 2-digit MFT or 3-digit Plan/Report Number.
H Future Year (EP/EO/GE) For an information notice, leave this item blank. For a future year audit, enter the tax year for which the future audit is being recommended.
I Future Year Code (EP/EO/GE) For an information notice, leave this item blank. For a future year audit, enter the Push Code that was used on Form 5597, prepared to establish the future year request on IMF/BMF. The Push Codes are:
  • 022 - Follow-up: Exemption Granted (EO/GE Only)

  • 023 - Follow-up: UBI (EO/GE Only)

  • 024 - Follow-up: Payment Provisions (EO Only)

  • 025 - Follow-up: Other (EO Only)

  • 081 - Future Year Returns (EP Only)

J Name/EIN of Related Cases Enter the name and EIN of any related cases.
K Statute Date Enter the statute of limitations date in MMDDYYYY format.
L Prepared By Enter the preparer’s name.
M Approved by/Date Requests for returns or AIMS controls initiated by an agent must be signed by the manager, or their designee, of the preparer and include their title and the date.
N Record on File These items are completed by the Terminal Operator and are completed whenever an account being established is already on AIMS. The following information (reading columns from left to right) is recorded when applicable:
  • Tax Period

  • Source Code

  • Area Office Code

  • Employee Group Code or Appeals Office Code

  • Status Code

  • Serial Number

  • Date

  • Transferee's PBC

  • Comments

O Information Obtained Provide the information needed by the receiving function to handle the referral. If an audit is being recommended, include a brief description of the circumstances involved, the appropriate Code section, dollar amount and statute date.
P Action Taken Leave this item blank. To be completed by the function receiving the referral.
Q Examination Classification Action Leave this item blank. To be completed by the function receiving the referral.

Form 1900 Sample for Automatic Revocation Under IRC 6033(j)

The table below contains boilerplate entries for completing Form 1900 for cases involving automatic revocation under IRC 6033(j). Replace the name, address, Employer Identification Number, tax year, and other entries as appropriate.

Return(s) Name and address on latest return or claim
Income Tax □ 1040 □ 1120 XYZ Charity, Inc.
Survey After □ 1065 □ 1041 1220 Street
Assignment Form 990 City, State 99999
SSN/EIN
99-9999999
Documents Surveyed Recommended Action
□ Returns □ Amended
Returns
□ Claims □ Accept as
filed
□ Allow in full □ Allow as
corrected
Related cases
Taxable year
or period
Adjustable gross or taxable
income reported
Tax liability
reported
Claim allowable Tentative allowance
approved
201112
Explanation (if necessary use other side)
ORGANIZATION AUTO-REVOKED BY OGDEN CAMPUS WHILE OPEN FOR EXAMINATION
By reason of IRC section 6033(j), the exempt status of the organization has been auto-revoked by the Ogden Service Center for failing to file annual EO information returns or Form 990-N for three consecutive tax years ending [20YYMM, 20YYMM and 20YYMM]. EO BMF Status 97 posted on [date] while the EO returns were open for examination. The Ogden Service Center issued Notice CP120A to the taxpayer on [ date** ]. The effective date of auto-revocation is [due date of return for 3rd tax year].

Because the organization is no longer tax-exempt this examination has been terminated and the returns for the years indicated must be surveyed.
Enclosures Examining officer
U.R, Agent, RA
Date
8/1/2011
Approved by/Title
Maria Manager, Group Manager
Date
8/1/2011

** The date the Ogden Service Center issued Notice CP120A to the taxpayer is regarded as the organization's posting date on the auto-revocation list in EO Select Check.

Status 36 Case Scenarios

Scenario 1
Status 36 Organization Qualifies — No Change Advisory
Facts and Instructions

Organization A has never applied for exemption with the IRS. A has filed Forms 990 for 2014 and 2015 self-declaring its exempt status under IRC 501(c)(7). The BMFOLO shows a current status code of "36" and subsection of 07.

During the audit of 2014 and 2015 Forms 990, you determine that Adoes qualify for exemption under IRC 501(c)(7) for the tax years of audit. No other issues or defects were discovered in the audit.

Prepare Letter 4102, Status 36 Case - No Change. This letter is a closing letter issued by the examination group. This letter serves as an advisory. Mail Letter 4102 to the taxpayer following group procedures.

How do you proceed?
Complete the RCCMS Closing Record and Form 5599. Use DC 52 (214), Written Advisory - No Form 5666 RequiredForms 990. You can’t use DC 02 (107), No Change, for Status 36 cases because every Status 36 no change letter advises the organization of the availability of the application for tax-exempt status on Form 1024.

Close the case to the EO Closing Unit.

For scenarios 2 through 6, there will reflect a disqualification. In each disqualification scenario, when completing your audit report on Form 4621-A, do not check any box in Item 12 until the Form is revised after publication of this manual to reflect the PATH Act. Instead, complete Item 13, Remarks, explaining the disqualification: "The nature of the proposed status change is denial of tax-exempt status effective for the tax periods under examination."

Scenario 2
Agreed Disqualification — Converted Return Form 1120 Secured
Facts and Instructions
Organization B has never applied for exemption with the IRS. B has filed Forms 990 for 2014 and 2015 self-declaring its exempt status under IRC 501(c)(6). The BMFOLO shows a current status code of "36" and subsection of 06.

During the audit of 2014 and 2015 Forms 990, you determine that B does not qualify for tax-exempt status under IRC 501(c)(6) for the years of audit.

Prepare Form 4621-A. Prepare Form 886-A if additional space is needed for facts, law and argument. Issue your audit report to B with a 30-day letter. You can request a sample 30-day letter from Mandatory Review’s mailbox *TEGE EO Review Staff until Letter 3618 is revised. B has declaratory judgment rights.

After reviewing your audit report on Form 4621-AB signs Form 6018 agreeing that it does not qualify for tax-exemption. B also files delinquent Forms 1120 with you for the affected tax years.

How to proceed after the taxpayer agrees with your report:
Follow the converted tax return procedures in IRM 4.75.31.3 for the secured Form(s) 1120. Prepare a secured converted return package. Don’t submit the Form 1120 package to the FAST.

Prepare Form 2363-A. See Exhibit 4.75.16-12. Don’t submit Form 2363-A to the FAST. Agreed disqualifications in Status 36 cases are subject Mandatory Review. Keep Form 2363-A in the case file for both Mandatory Review.

Complete referral Form 5666 (or Form 5346) only if you are unsure the secured Forms 1120 are technically accurate, the return is too complex or it appears to be prepared incorrectly.

Complete the RCCMS Closing Record and Form 5599. Use DC 05 (207), Delinquent Related Return Secured for Forms 990. You can’t use DC 13 (207), Referrals to Other Operating Divisions because DC 05 (207) is a higher priority disposal code.

Close the case to Mandatory Review. Include the administrative record.
Scenario 3
Agreed Disqualification — Form 5666 Prepared
Facts and Instructions
Organization C has never applied for exemption with the IRS. C has filed Forms 990 for 2014 and 2015 self-declaring its exempt status under IRC 501(c)(7). The BMFOLO shows a current status code of "36" and subsection of 07.

During the audit of 2014 and 2015 Forms 990, you determine that C does not qualify for tax-exempt status under IRC 501(c)(7) for the years of audit.

Prepare Form 4621-A. Prepare Form 886-A if additional space is needed for facts, law and argument. Issue your audit report to C with a 30-day letter. You can request a sample 30-day letter from Mandatory Review’s mailbox *TEGE EO Review Staff until Letter 3618 is revised. C has declaratory judgment rights.

After reviewing your audit report on Form 4621-AC signs Form 6018 agreeing that it does not qualify for tax-exemption. C is not ready to file Forms 1120 for the affected tax years in time before you close your audit.

How to proceed after the taxpayer agreed to your report:
Prepare Form 2363-A. See Exhibit 4.75.16-12. Don’t submit Form 2363-A to the FAST. Agreed disqualifications in Status 36 cases are subject Mandatory Review. Keep Form 2363-A in the case file for both Mandatory Review.

Since you are not enforcing income tax on converted returns as described in IRM 4.75.31, prepare a referral on Form 5666 (or Form 5346) to inform SB/SE or LB&I that C is a taxable organization and has not filed its required tax returns on Form 1120

Complete the RCCMS Closing Record and Form 5599. Use DC 13 (207), Referrals to Other Operating Divisions for Forms 990.

Close the case to Mandatory Review. Include the administrative record.
Scenario 4
Agreed Disqualification — Income Tax Enforced
Facts and Instructions
Organization D has never applied for exemption with the IRS. D has filed Forms 990 for 2014 and 2015 self-declaring its exempt status under IRC 501(c)(4). The BMFOLO shows a current status code of "36" and subsection of 04.

During the audit of 2014 and 2015 Forms 990, you determine that D does not qualify for tax-exempt status under IRC 501(c)(4) for the years of audit.

Prepare Form 4621-A. Prepare Form 886-A if additional space is needed for facts, law and argument. Issue your audit report to D with a 30-day letter. You can request a sample 30-day letter from Mandatory Review’s mailbox *TEGE EO Review Staff until Letter 3618 is revised. D has declaratory judgment rights.

After reviewing your audit report on Form 4621-AD signs Form 6018 agreeing that it does not qualify for tax-exemption. D is not ready to file Forms 1120 for the affected tax years in time before you close your audit. You decide to enforce the income tax on converted returns as described in IRM 4.75.31.

How to proceed after the taxpayer agreed to your report:
Prepare Form 2363-A. See Exhibit 4.75.16-12. Don’t submit Form 2363-A to the FAST. Agreed disqualifications in Status 36 cases are subject Mandatory Review. Keep Form 2363-A in the case file for both Mandatory Review.

Since you are enforcing income tax on converted returns as described in IRM 4.75.31, there is no need to prepare a referral on Form 5666 (or Form 5346). After Form 2363-A posts, follow substitute for return procedures for Form 1120 like any other tax return.

Complete the RCCMS Closing Record and Form 5599. Use DC 04 (205), Change to Related Return for Forms 990. You can’t use DC 13 (207), Referrals to Other Operating Divisions because DC 04 (205) is a higher priority disposal code.

Close the case to Mandatory Review. Include the administrative record.
Scenario 5
Unagreed Disqualification With Protest — Organization Requests Modification if Disqualification is Sustained — Form 5666 Prepared
Facts and Instructions
Organization E has never applied for exemption with the IRS. E has filed Forms 990 for 2014 and 2015 self-declaring its exempt status under IRC 501(c)(6). The BMFOLO shows a current status code of "36" and subsection of 06.

During the audit of 2014 and 2015 Forms 990, you determine that E does not qualify for tax-exempt status under IRC 501(c)(6) for the years of audit. However, E appears to qualify for exemption under IRC 501(c)(5) instead.

Prepare Form 4621-A. Prepare Form 886-A to present your facts, law and argument. Issue your audit report to E with a 30-day letter. You can request a sample 30-day letter from Mandatory Review’s mailbox *TEGE EO Review Staff until Letter 3618 is revised. E has declaratory judgment rights.

After reviewing your audit report on Form 4621-A, E does not agree to the proposed disqualification of tax-exempt status. E submits a written protest to you, and also requests IRC 501(c)(5) status if the disqualification under IRC 501(c)(6) is sustained. You issue a rebuttal Letter 5326 to E, and you explain that E cannot modify a tax-exempt status citing IRC 7428(a).

How to proceed after the taxpayer responds to your report:
Prepare Form 2363-A. See Exhibit 4.75.16-12. Don’t submit Form 2363-A to the FAST. Keep Form 2363-A in the case file for both Mandatory Review and Appeals.

Since you are not enforcing income tax on converted returns as described in IRM 4.75.31, prepare a referral on Form 5666 (or Form 5346) to inform SB/SE or LB&I that C is a taxable organization and has not filed its required tax returns on Form 1120

Complete the RCCMS Closing Record and Form 5599. Use DC 07 (601), Unagreed-Protest to Appeals for the Forms 990.

Close the case to Mandatory Review. Include the administrative record and the administrative record index.
Scenario 6
Unagreed Disqualification Without Protest — Income Tax Enforced
Facts and Instructions
Organization F has never applied for exemption with the IRS. F has filed Forms 990 for 2014 and 2015 self-declaring its exempt status under IRC 501(c)(6). The BMFOLO shows a current status code of 36 and subsection of 06.

During the audit of 2014 and 2015 Forms 990, you determine that F does not qualify for tax-exempt status under IRC 501(c)(6) for the years of audit.

Prepare Form 4621-A. Prepare Form 886-A to present your facts, law and argument. Issue your audit report to F with a 30-day letter. You can request a sample 30-day letter from Mandatory Review’s mailbox *TEGE EO Review Staff until Letter 3618 is revised. F has declaratory judgment rights.

F defaults on the 30-day letter.

How to proceed after the taxpayer responds to your report:
Prepare Form 2363-A. See Exhibit 4.75.16-12. Because the proposed disqualification is deemed unagreed, keep Form 2363-A in the case file for Mandatory Review.

Since you are enforcing income tax on converted returns as described in IRM 4.75.31, there is no need to prepare a referral on Form 5666 (or Form 5346). You can’t enforce income tax until Form 2363-A posts. Form 2363-A won’t post until Mandatory Review agrees with the disqualification and issues a 90-day Final Adverse Determination Letter, which may be 3 weeks to 3 months later. Consequently, you establish Form 1120 NMF controls to protect the revenue.

Complete the RCCMS Closing Record and Form 5599. Use DC 10 (604), Unagreed - Without Protest for the Forms 990.

Close the Form 990 case to Mandatory Review. Include the administrative record and the administrative record index. Also, transfer the Form 1120 NMF case file to Mandatory Review for AIMS Status 38 suspense pending Mandatory Review’s decision to sustain the disqualification.

If the disqualification is sustained and Form 2363-A has posted, follow substitute for return procedures for Forms 1120 on AIMS Master File like any other tax return unless F files delinquent Forms 1120 voluntarily with you. Delete the Form 1120 NMF duplicate record.

Status 36 Case: Form 6018 Instructions

Step Form 6018 Instructions
1 Enter the name and address of the organization.
2 Enter the employer identification number.
3 Enter the date of the 30-day letter as the date of proposed action letter.
4 Check Box 3, and enter the type of organization, and the disqualified tax years.

Status 36 Case: Form 2363-A Instructions

Step Form 2363-A Instructions
1 In box 1, enter the EIN
2 In box 2, enter the four letter Name Control
3 In box 3, check Document Code 80
4 In box 4, check Transaction Code 16
5 In box 5, enter Definer Code AB
6 In box 8, enter the name of the organization
7 In box 17, enter the current subsection code
8 In box 18, enter the foundation code as 00 if anything other than 00 presently
9 In box 19, enter the current classification code
10 In box 22, enter 22 followed by the first month of the first year under audit in the YYYYMM format
11 In box 35, enter the fiscal year ending month
12 In the filing requirement boxes, enter a 01 under 1120 [or 1 under 1041 ], and 00 under 990 and 990-T
13 Add 01 and 1 requirements for Forms 941 and 940, as applicable
14 In the comments field, state "Updating filing requirement to 1120 [or 1041 ]"

Draft Examination Termination Letter IRC 501(c)(3)

Internal Revenue Service Department of the Treasury
TE/GE Exempt Organizations Examinations
1100 Commerce Street MC 4900 DAL
Dallas, TX 75242
Date: [Insert date]
Taxpayer Identification Number:
[Insert TIN]
Form:
[Insert form number]
Tax Period Ended:
[Insert tax period]
Person to Contact:
[Insert name of agent]
Employee Identification Number:
[Insert ID number]
[Insert name of entity]
[Insert street address]
[Insert city, state, and zip code]
Employee Telephone Number:
[Insert phone number] (Phone)
[Insert fax number] (Fax)
Dear Sir or Madam,
We have concluded our examination of your Form[s] [990/990-EZ/990-N/990-PF], [Return of Organization Exempt from Income Tax/Short Form Return of Organization Exempt From Income Tax/Electronic Postcard/Return of Private Foundation] for the year[s] ended [insert tax year(s)]. We have accepted your return[s] as filed.
On [insert date] you dissolved your organizational document and have discontinued operations. You have distributed your residual assets to another organization recognized as tax exempt under section 501(c)(3) of the Internal Revenue Code.
As a result of the dissolution, your exempt status under section 501(a) of the Internal Revenue Code as an organization described in section 501(c)(3) is terminated and no longer effective after [insert date of dissolution].
Contributions to you are not deductible after [insert date of dissolution].
If you have any questions, please contact the person whose name and telephone number are shown in the heading of this letter.
Thank you for your cooperation.
Sincerely,
[Insert name]
Director, EO Examinations
Addendum [for any advisory items such as related return reports of examination or delinquent returns secured]

Draft Examination Termination Letter IRC 501(c)(other)

Internal Revenue Service Department of the Treasury
TE/GE Exempt Organizations Examinations
1100 Commerce Street MC 4900 DAL
Dallas, TX 75242
Date: [Insert date]
Taxpayer Identification Number:
[Insert TIN]
Form:
[Insert form number]
Tax Period Ended:
[Insert tax period]
Person to Contact:
[Insert name of agent]
Employee Identification Number:
[Insert ID number]
[Insert name of entity]
[Insert street address]
[Insert city, state, and zip code]
Employee Telephone Number:
[Insert phone number] (Phone)
[Insert fax number] (Fax)
Dear Sir or Madam,
We have concluded our examination of your Form[s] [990/990-EZ/990-N], [Return of Organization Exempt from Income Tax/Short Form Return of Organization Exempt From Income Tax/( electronic postcard)] for the year[s] ended [insert tax year(s)]. We have accepted your return[s] as filed.
On [insert date] you dissolved your organizational document and have discontinued operations. You have distributed your residual assets to another organization recognized as tax exempt under section 501(c)(_) of the Internal Revenue Code.
As a result of the dissolution, your exempt status under section 501(a) of the Internal Revenue Code as an organization described in section 501(c)(_) is terminated and no longer effective after [insert date].
If you have any questions, please contact the person whose name and telephone number are shown in the heading of this letter.
Thank you for your cooperation.
Sincerely,
[Insert name]
Director, EO Examinations
Addendum [for any advisory items such as related return reports of examination or delinquent returns secured]

Unable-to-Locate Scenario Guidance Table

Example 1 Example 2 Example 3
Facts
The organization is a: Corporation Corporation Corporation
Certified letters were: Undeliverable Undeliverable Undeliverable
There is reliable 3rd party information that the organization has engaged in non-exempt activities No No No
Dissolution Articles of Dissolution filed with State Administratively dissolved by the State but CAN be reactivated currently.
See footnote 2
Administratively dissolved by the State but CAN NOT be reactivated.
See footnote 3.
Development and Closing
Update the EO/BMF status 20 - Termination
See footnote 4
See footnote 5 20 - Termination
See footnote 4
AIMS closing
Return filed - BMF account established 14 - Termination 32 - Survey After Assignment 14 - Termination
No return filed 14 - Termination (Establish on BMF) 99 - Miscellaneous Form 10904
See footnote 6
14 - Termination (Establish on BMF)
Closing letter or required Termination letter
See footnote 7
None Termination letter
See footnote 7
Is 90-day letter required in declaratory judgment cases? No No No
Is the case subject to Mandatory Review? Yes No Yes
Example 4 Example 5 Example 6
Facts
The organization is a: Corporation, Unincorporated Association, or Trust Corporation, Unincorporated Association, or Trust Corporation, Unincorporated Association, or Trust
Certified letters were: Delivered but no response was received Undeliverable or delivered and no response received Undeliverable
There is reliable 3rd party information that the organization has engaged in non-exempt activities No Yes
See footnote 1
No
Dissolution No information available No information available No information available
Development and Closing
Update the EO/BMF status 22 - Revocation
See footnote 4
22 - Revocation
See footnote 4

See footnote 5
AIMS closing
Return filed - BMF account established 10 - Unagreed without protest 10 - Unagreed Without Protest 32 - Survey After Assignment
No return filed 10 - Unagreed without Protest (Establish on BMF) 10 - Unagreed Without Protest (Establish on BMF) 99 - Miscellaneous Form 10904
See footnote 6
Closing letter or required Letter 3618 and RAR
See footnote 8
Letter 3618 and RAR
See footnotes 9, 10
None
Is 90-day letter required in declaratory judgment cases? Yes
See footnote 11
Yes
See footnote 11
No
Is the case subject to Mandatory Review? Yes Yes No
# Applies to Examples: Footnote:
1 5 There is reliable 3rd party information that supports a proposed revocation on the basis that the organization has engaged in non-exempt activities and Area Counsel agrees that this information supports a proposed revocation. Such cases should be rare.
2 2 The organization has been administratively terminated by the State for failure to file annual reports or pay required filing fees. The state allows a corporation to be reactivated or the state allows reactivation during a proscribed period of time and the period during which reactivation is permitted has not expired.
If the State allows reactivation during a prescribed period of time only, the agent will prepare a Form 5666 recommending the year in which the corporation can no longer be reactivated for termination.
3 3 The organization has been administratively terminated by the State for failure to file annual reports or pay required filing fees. The state does not allow a corporation to be reactivated or the State allows reactivation during a proscribed period of time but the period in during which reactivation is permitted has expired.
4 1, 3, 4, and 5 Agents prepare Form 2363-A to update the EO/BMF to the correct status code. Mandatory Review will sign as reviewer and process Form 2363-A with the FAST once it concurs by issuing the final letter. A marked copy of Form 2363-A will be retained in the case file indicating the date Mandatory Review submitted the form for processing.
5 2 and 6 The agent should update the organization’s status to "unable to locate" by preparing Form 4844, Request for Terminal Action. The transaction code should be 593 and the closing code(CC) should be 82. (TC 593-CC 82). See Exhibit 4.75.16-17.

Note:

Form 3198-A should state, in the other instructions section, "Please process Form 4844."

6 2 and 6 Close with Closing Code 99, Information Report and Miscellaneous. Prepare Form 10904. The reason for the request should be "Unable to locate taxpayer and examination is not to take place" .
7 1 and 3 See Exhibit 4.75.16-13 and Exhibit 4.75.16-14 for sample termination letters. The termination letters will be mailed by Mandatory Review.
8 4 Revocation is proposed because of the organization's failure to provide information verifying its continued qualification for exempt status. See IRC 6033, Treas. Reg. 1.6001-1 and Rev. Rul. 59-95. The agent will prepare the Revenue Agent’s Report (RAR), 30-day letter and mail it to the taxpayer. Mandatory Review will prepare and mail the final letter.
9 5 Agents, through the group manager, must secure Area Counsel’s written agreement that the 3rd party facts support revocation. If Area Counsel agrees with the revocation, the agent will prepare the Revenue Agent’s Report (RAR), 30-day letter and mail it to the taxpayer. Mandatory Review will prepare and mail the final revocation letters.
10 5 If the letters were undeliverable in example 5, the basis for revocation is the 3rd party information. If the letters were delivered but there was no response, the basis for revocation will include both issues, failure to provide records and the 3rd party information.
11 4 and 5 Area Counsel must review and approve all 90-day letters involving IRC 501(c)(3) organizations.

The Electronic Case File - EO Sub-Folders in RCCMS

Construct the case file electronically in RCCMS as follows:

  1. The first level of electronic folders in RCCMS is based on Form 5772.

  2. There are also four additional folders to organize the electronic case file. Available folders are:

  • 1 – Non-Disclosure

  • 2 – RAR and Related Documents

  • 3 – Administrative Record

  • 4 – Correspondence

  • "A – Preaudit" through "L – Audit Considerations," are based on Form 5772.

The tables below provide general guidelines on the placement of forms, letters, and other documents within the Office Documents Folder (using the pre-defined EO sub-folders) and the Research Folder (using the "Returns" and "Queries" Sub-Folders).

Folder Description
Office Documents Folder (no sub-folder) Form 895, Form 3198-A, Form 5599.
These forms are traditionally placed on the outside of the paper folder. See IRM 4.75.16.7.1. Forms attached to Outside of Folder.

In RCCMS, when the Office Documents Folder is selected, all documents will be displayed. If the documents are sorted by Folder (click on Folder column) the documents not in a sub-folder will be displayed at the top of the list view.
1- Non-Disclosure This folder should be used for Confidential Information (See IRM 4.75.16.7.3 (2)). Related Return Sheet, Form 5666, Form 2363-A, etc. Traditionally known as the 'left hand side of the folder'.
2- RAR and Related Documents This folder should be used for the 30-day letter, response to 30-day letters, rebuttal letter and closing letter, RAR, Project Checksheet, Form 5772, 5773, 5774, 5464, etc. The documents in this folder would be those that go on top of the workpapers.
3- Administrative Record See IRM 4.75.32
4- Correspondence All other correspondence sent to or received from the taxpayer.
A – Preaudit
B – Organizational Documentation
C - Operational
…..Through…..
L – Audit considerations
Folders A through L are based on main categories from Form 5772. Only create the folders that apply to the specific case. You should only add the applicable folders for the case.
Research Folder
Folder Description
Returns Subfolder The RICS return will be placed in this folder. BRTVU or RTVUE prints. Scanned copies of returns received from the taxpayer.
Queries Subfolder Used to hold results of manual queries (i.e. IDRS). I.e. AMDISA, BMFOLT, etc

Note:

No documents can be posted directly in the Research folder. Documents should be posted to one of the sub-folders described above.

If you want to close a case file 100 percent paperless, see IRM 4.75.16.7.6.

Form 4844 Sample

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Alpha Code PP - Examples of the Proper Use

Example 1, Private Foundation that Mistakenly Filed a Form 990: Agent A is auditing a private foundation that mistakenly filed a Form 990. Agent A properly followed all statute procedures. Because the organization is a private foundation, Agent A cannot use alpha code "PP" for Form 990.

Example 2: No Revocation Possible: Agent E is auditing V’s Form 990 for 2011. V is an IRC 501(c)(7) social club. Agent E properly followed all statute procedures. The audit revealed that V qualifies for tax-exempt status. Because there is certainty there will be no converted income tax return in 2011, Agent E may update the statute date to alpha code "PP" , so long as the Form 990 meets all the other conditions for approval, including the requirement that there be a valid reason not to close the case by the established ASED date.

Example 3: Revocable Organization: Assume the same facts in example 2 except that the audit revealed that V’s club facilities were open to the public and V did not maintain records detailing member receipts from nonmember receipts. Agent E also determined that the V’s estimated income tax on a converted return for 2011 would exceed the threshold amount in IRM 25.6.1.13.2.4(1)a if Agent E revoked V’s tax-exempt status. Because a converted income tax return is possible, and there would be an income tax on the converted return that exceeded the threshold amount in IRM 25.6.1.13.2.4(1)a, Agent E cannot use alpha code "PP" for the 2011 Form 990.

Example 4: Revocable Organization, But No Income Tax: Assume the same facts in Example 3, except that the V’s estimated income tax in 2011 would be $0 if Agent E converted Form 990 to a taxable return. Because there is certainty there will be no income tax on a converted return, Agent E can use alpha code "PP" on V’s 2011 Form 990 so long as the Form 990 meets all the other conditions for approval. This is true even if the audit results in a revocation.

Example 5: Revocable Organization, But No Income Tax: Agent B is auditing Y’s Form 990-EZ for 2011. Agent B properly followed all statute procedures. The audit revealed Y was ineligible to file Form 990-EZ. A revocation is possible because Y has yet to file a Form 990. The estimated income tax on a converted return would be $0 if Agent B converted Form 990-EZ to an income tax return. Because there is certainty there will be no income tax on a converted return, Agent B can use alpha code "PP" on Y’s 2011 Form 990-EZ, so long as the Form 990-EZ meets all the other conditions for approval, including the requirement that there be a valid reason not to close the case by the established ASED date.

Example 6: Revocable Organization, Possible Income Tax: Assume the same facts in Example 5 except that the estimated income tax on a converted return for 2011 would exceed the threshold amount in IRM 25.6.1.13.2.4(1)a. Because a converted income tax return is possible, and there would be an income tax on the converted return that exceeded the threshold amount in IRM 25.6.1.13.2.4(1)a, Agent B cannot use alpha code "PP" for the 2011 Form 990-EZ.

Example 7: Revocable Organization, Possible Income Tax within Tolerance: Assume the same facts in Example 5 except that the estimated income tax on a converted return for 2011 would be below the threshold amount in IRM 25.6.1.13.2.4(1)a, the group manager may exercise discretion in deciding to request approval for using alpha code "PP" based on the facts and circumstances of the case.

Example 8: Nonqualifying Status 36 Organization, Estimated Tax Unknown: Agent C is auditing X, an organization that declared IRC 501(c)(4) status on the 2012 Form 990. X is therefore a "Status 36" organization in the EO Business Master File (EO BMF). Agent C properly followed all statute procedures. The audit revealed that X did not qualify for tax-exempt status in 2012. Agent C cannot determine the estimated income tax for X in 2012. Because a converted income tax return is possible, and there could be an income tax on the converted return (because it is unknown), Agent C cannot use alpha code "PP" for the 2012 Form 990. Because the ASED date is to be maintained, Agent C must collect further information to determine X’s 2012 estimated income tax. If X declines to extend the statute date, then Agent C should follow the short statute procedures of IRM 4.75.16.4.2.4.

Example 9: Qualifying Status 36 Organization: Assume the same facts in Example 8, except the audit revealed that X qualifies for tax-exempt status in 2012. Because X qualifies for tax-exempt status in 2012, there is certainty there will be no converted income tax return. Agent C may update the statute date to alpha code "PP" , so long as the Form 990 meets all the other conditions for approval, including the requirement that there be a valid reason not to close the case by the established ASED date.

Example 10: No Revocation Possible for 501(c)(3) Public Charity, but Reclassifiable as a Private Foundation: Agent A is conducting an audit of T’s 2011 Form 990. T is an IRC 501(c)(3) organization described as publicly supported under IRC 509(a)(1) and 170(b)(1)(A)(vi). Agent A properly followed all statute procedures. The audit revealed that T qualifies for tax-exempt status, but Agent A must reclassify T as a private foundation. Because T is determined to be a private foundation, T’s Form 990 is not eligible for alpha code "PP" , even if the estimated tax on the converted Form 990-PF is zero.

Example 11: No Revocation Possible for 501(c)(3) Public Charity, Private Foundation Status Uncertain: Assume the same facts in Example 10, except that Agent A is unsure whether he should reclassify T as a private foundation. Because there is uncertainty over the private foundation status, T is not eligible for alpha code "PP" .

Example 12: No Valid Reason for Alpha Code "PP" : Agent G is auditing M’s Form 990 for 2012. M is an IRC 501(c)(3) organization. Agent G properly followed all statute procedures. Agent G concludes that M qualifies for tax-exempt status. Agent G certifies there will be no converted income tax return. In light of these conclusions, Agent G provides no explanation for the delay in closing the case. Because Agent G has no valid reason to keep the Form 990 audit open, Agent G has not met all the conditions for approval, and therefore cannot use alpha code "PP" for the 2012 Form 990, even if there is certainty there will be no converted income tax return.

Example 13: Valid Reason Established for Alpha Code "PP" : Assume the same facts in Example 12, except that Agent G has an explanation to keep the Form 990 audit open. Agent G explains that he is also auditing a transaction occurring in 2012 between M and D, a disqualified person with respect to M. Agent G developed the facts enough to determine initially that M should retain its exempt status. Agent G applied the five factors in Treas. Reg. 1.501(c)(3)-1(f) in order to make this preliminary determination. However, Agent G explains that he must keep the Form 990 audit open in order to develop the facts relating to the transaction between M and D for purposes of a potential section 4958 excise tax on D. Agent G explains that further development of the facts on the transaction is better conducted within the context of M’s audit, since M has all the records. The IRC 4958 issue ultimately impacts Agent G’s determination of M’s tax-exempt status and the contents of Agent G’s written advisory (or audit report) to M. Because Agent G has a valid reason to keep the Form 990 audit open (facts need further development to close both D’s and M’s audit), Agent G can use alpha code "PP" , so long as the Form 990 meets all the other conditions for approval.

Example 14: Valid Reason Established for Alpha Code "PP" : Agent is conducting an audit of Y’s Form 990 for 2012. Y is an IRC 501(c)(3) organization. The principal issue in the audit is whether Y operates for the private interests of individuals. Agent thoroughly analyzed all of Y’s finances, including determining with certainty that if Y were to be revoked it would have no income tax liabilities. Whether Y actually furthers the private interests of the private individuals more than insubstantially is not fully clear and Agent consults with her manager and local Area Counsel. A consensus emerges that a determination on Y’s exempt status cannot be made until Agent interviews four of the particular private individuals. Because arranging and conducting these necessary interviews will extend beyond the ASED date, Agent may use alpha code "PP" , so long as all the other conditions for approval are met.

Form 990-N - Acceptable Representations for a "Working Return"

This exhibit shows two examples of acceptable representations for filed Form 990-N for purposes of assembling a working return in the audit case file. These replacements are a type of dummy return showing proof of voluntarily filing Form 990-N.

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