4.75.21 EO Special Examination Procedures

Manual Transmittal

March 15, 2017

Purpose

(1) This transmits revised IRM 4.75.21, Exempt Organizations Examination Procedures, EO Special Examination Procedures.

Background

This IRM corrects errors and includes updates to IRM 4.75.21, EO Special Examination Procedures, dated May 22, 2012.

Material Changes

(1) Removed several IRM sections on Forensic Investigation Unit (FIU) from IRM 4.75.21 and incorporated into the new IRM 4.75.35, EO Examinations Fraud and Abusive Transaction Procedures. See table below.

(2) This manual incorporated the relevant information from the Interim Guidance Memorandum dated February 2, 2016, Establishing and Controlling MFT 67 Non-Return Units.

(3) All references to Examination Special Support (ESS) function are changed to “EO Closing Unit” due restructure in TE/GE.

(4) Revised IRM 4.75.21.3 based on Interim Guidance Memo TEGE-04-0216-0001.

(5) Renamed IRM 4.75.21.3, from "Dummy Returns" to "Non-Return Units."

(6) Renumbered all IRM sections after IRM 4.75.21.5 due to IRM section removals and revisions.

(7) Renumbered IRM 4.75.21.13.1, IRC 6103(d) Disclosures, to IRM 4.75.21.10.1.

(8) Removed IRM 4.75.21.14, Third Party. IRM 25.27.1, Third Party Contacts is now the primary reference on this subject. See IRM 25.5.6 for Summonses on Third-Party Witnesses.

(9) Removed IRM 4.75.21.15, Procedures for Resolution of Credit Counseling Cases.

(10) Added new IRM 4.75.21.11, Whistleblower Cases Assigned to Field.

(11) Added new IRM 4.75.21.12, EO CSP Program, Section 530

(12) Removed Exhibit 4.75.21-1, Credit Counseling Core Analysis Tool (CAT).

(13) Added Exhibit 4.75.21-1, Board of Directors Analysis Flowchart.

(14) Updated Exhibit 4.75.21-2, List of States Eligible for IRC 6104(c) Disclosure. Incorporated relevant information from the Alert dated, July 22, 2016, Update to List of States Eligible to Receive Information under IRC 6104(c) (Rev. 7/2016).

(15) Updated to meet the requirements of P.L. 111-274 (H.R. 946), the Plain Writing Act of 2010. The Act states writing must be clear, concise, well-organized, and follow other best practices appropriate to the subject or field and intended audience.

Previous Manual Section Current Manual Section
4.75.21.3, Dummy Returns 4.75.21.3, Non-Return Units
4.75.21.5, Federal Grand Juries 4.75.35.10, Federal Grand Juries
4.75.21.6, EO Fraud Referral Procedures 4.75.35.3, Financial Investigations Unit
4.75.21.7, Cooperating Agent and Summary Witness Request Procedures 4.75.35.7, Cooperating Agent and Summary Witness Request Procedures
4.75.21.8, Forensic Investigation Unit 4.75.35.3, Financial Investigations Unit
4.75.21.9, Collateral Examination 4.75.21.6, Collateral Audit
4.75.21.10, Information Referrals 4.75.21.7, Information Referrals
4.75.21.11, Guidance for Exempt Organization Audits Related to Indian Tribal Government Entities 4.75.21.8, Guidance for Exempt Organization Audits Related to Indian Tribal Government Entities
4.75.21.12, IRS-DOL Coordinated Compliance Agreement 4.75.21.9, IRS-DOL Coordinated Compliance Agreement
4.75.21.13, State Notification of Examination Results 4.75.21.10, State Notification of Audit Results
4.75.21.14, Third Party Contacts 25.27.1, Third Party Contacts
4.75.21.14.10, Third Party Summons 25.5.6, Summonses on Third-Party Witnesses
4.75.21.15, Procedures for Resolution of Credit Counseling Cases Removed
NEW 4.75.21.12, EO CSP Program, Section 530
NEW Exhibit 4.75.21-1, Board of Directors Analysis Flowchart

Effect on Other Documents

This material supersedes IRM 4.75.21, EO Special Examination Procedures, dated May 22, 2012.
Incorporated Interim Guidance Memo (IGM) TEGE-04-1016-0025, EO Classification Settlement Program - Case Processing, dated October 31, 2016, which is superseded.
Incorporated SB/SE’s IGM SBSE-04-0916-0050, Emergency Interim Guidance – Contact TEGEDC When Taxpayers Raise Worker Classification or Section 530 Matters Concerning Wage Adjustment Issues, dated September 8, 2016.
Incorporated IGM TEGE-04-0816-0010, IRC 6103(d) Disclosure Procedures to State Agencies, dated August 17, 2016
Incorporated IGM TEGE-04-0216-0001, Establishing and Controlling MFT 67 Non-Return Units, dated February 2, 2016

Audience

Tax Exempt and Government Entities
Exempt Organizations
Examinations

Effective Date

(03-15-2017)

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

Program Scope and Objectives

  1. Purpose: This manual focuses on EO procedures for issues not covered in other sections of the IRM. Topics addressed include:

    1. Incomplete Returns

    2. Non-Return Units Modules

    3. Awards of Attorney Fees in Tax Cases

    4. Federal Grand Juries

    5. Collateral Audit

    6. Information Referrals

    7. Audits Related to Indian Tribal Government Entities

    8. IRS-Department of Labor (DOL) Coordinated Compliance Agreement

    9. State Notification of Audit Results

    10. Whistleblower Cases

  2. Audience: The procedures in this manual apply to Exempt Organizations Examination employees in the following series:

    • GS-512

    • GS-526

    • GS-987

  3. Policy Owner: Director, Exempt Organizations

  4. Program Owner: Exempt Organizations

Authority

  1. The authorities for these procedures are:

    1. Policy Statement 4-119

    2. P.L. 96-481

    3. P.L. 97-248

    4. IRC 6033(a)(1)

    5. IRC 6652(c)

    6. Rev. Rul. 59-95 C.B. 627

    7. Equal Access to Justice Act (P.L. 96-481)

    8. Tax Equity and Fiscal Responsibility Act of 1982 (P.L. 97-248), section 292(a)

    9. Policy Statement P-4-26 (formerly P-4-84)

    10. Pension Protection Act of 2006

    11. IRC 7623

Responsibilities

  1. During an audit, agents are responsible for:

    1. Establishing incomplete returns on IRS data systems.

    2. Substantiating a reasonable basis in both law and fact, to guard against the awarding of attorney fees, in any civil tax action in the U.S. District Courts or the Court of Claims.

    3. Utilizing collateral audits when obtaining essential information to resolve a material issue.

    4. Preparing appropriate forms when recommending future year audits.

    5. Complying with current protocols when working with Indian Tribal Government Entities.

    6. Complying with Department of Labor (DOL) Coordinated Compliance Agreement.

    7. Disclosing certain audit results as required by IRC 6103(d) and IRC 6106(c).

    8. Properly developing and processing Whistleblower cases.

Program Controls

  1. Agents should consult the Related Sources listed in IRM 4.75.21.1.5 to ensure proper case processing and consistent application of the law.

Acronyms

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

    Acronym Definition
    AIMS Audit Information Management System
    CI Criminal Investigation
    CS&D Case Selection & Delivery
    DC Disposal Code
    DOL Department of Labor
    DOJ Department of Justice
    EO Exempt Organizations
    FIU Forensic Investigation Unit
    FSLG Federal State & Local Government
    GL Government Liaison
    ICE Informant Claims Examination
    IDRS Integrated Data Retrieval System
    IRC Internal Revenue Code
    IRM Internal Revenue Manual
    IRS Internal Revenue Service
    ITG Indian Tribal Government
    MF Master File
    MFT Master File Tax
    NMF Non-Master File
    NRU Non-Return Units
    PDF Portable Document Format
    PPA Pension Protection Act of 2006
    RAR Revenue Agent Report
    RCCMS Reporting Compliance Case Management System
    RICS Return Integrity and Compliance Services
    SEIN Statistics of Income of Exempt Organizations Return Image Net
    SOL Statute of Limitations
    SPR Safeguard Procedures Report
    SRS Specialist Referral System
    TEB Tax Exempt Bonds
    TEFRA Tax Equity and Fiscal Responsibility Act of 1982
    TEGE Tax Exempt Government Entities
    WB Whistle blower

Related Sources

  1. The following lists the related sources of guidance on the procedures outlined in this IRM section.

    • IRM 4.10.2, Examination of Returns, Pre-Contact Responsibilities

    • IRM 4.75.4, Exempt Organizations Examination Procedures, Case Selection and Delivery

    • IRM 4.75.13, Issue Development

    • IRM 4.75.16, Case Closing Procedures

    • IRM 4.75.22, EO Delinquent, Amended and Substitute for Return Procedures

    • IRM 7.28.2, Exempt Organizations Disclosure Procedures, Information Disclosure to State Officials Under IRC 6104(c)

    • IRM 21.7.7, Business Tax Returns and Non-Master File Accounts, Exempt Organizations and Tax Exempt Bonds

Incomplete Returns

  1. IRC 6033(a)(1) states, in part, "every organization exempt from taxation under section 501(a) shall file an annual return, stating specifically the items of gross income, receipts, and disbursements, and such other information for the purpose of carrying out the internal revenue laws as the Secretary may by forms or regulations prescribe, and shall keep such records, render under oath such statements, make such other returns, and comply with such rules and regulations as the Secretary may from time to time prescribe... "

  2. IRC 6652(c)(1) imposes penalties on the exempt organization and the responsible person for failure to:

    • File a return required under IRC 6033(a)(1) or 6012(a)(6)

    • Include any such information required to be shown on the return or

    • Show the correct information.

  3. An incomplete return is a return that:

    • The entity omitted material information and

    • The omission would hinder the IRS from being able to perform its duties.

      Note:

      Incomplete returns are treated the same as if the entity didn’t file a return when considering whether to impose penalties.

    Note:

    The Ogden Service Campus usually resolves this issue by contacting the taxpayer and obtaining the necessary information. The Service Center may also assess penalties if unable to obtain the missing information.

  4. If additional information is needed from the organization, send an Information Document Request (IDR) to the taxpayer to request the missing information. If the taxpayer doesn't supply the specific information, determine if the information is essential to complete the case.

    1. If you can close the case without the information, consider issuing an advisory using Letter 3609.

    2. If the information is essential to complete the audit, with your manager’s agreement, send a letter to the taxpayer advising of the possible loss of exemption for failure to supply the information. See Rev. Rul. 59-95 C.B. 627.

  5. See IRM 21.7.7.4.23.1.3.1, Business Tax Returns and Non-Master File Accounts, Exempt Organizations and Tax Exempt Bonds: Incomplete Return Items (IRI) Codes for incomplete return items (IRIs).

  6. Effective January 1, 2011, all Forms 990, Return of Organizations Exempt From Income Tax, secured for tax years beginning in 2008 and later must have a completed Schedule O, Supplemental Information to Form 990 or 990-EZ, attached to the return(s). If Schedule O isn’t completed and attached to Form 990, consider the return incomplete.

    1. Schedule O is a schedule with blank lines, similar to Form 886-A, Explanation of Items. Schedule O is used by organizations to provide supplemental information to describe or explain the organization’s responses to questions contained in the core form and schedules.

    2. At a minimum, Schedule O must be used to explain certain answers on Form 990, Part VI.

Non-Return Units

  1. When auditing taxpayers, an audit record (or module) is required for control on AIMS and RCCMS. The audit record identifies a

    • Specific return

    • Tax period

    • Taxpayer

    Note:

    This record is commonly referred to as a "return module."

  2. However, Form 990 (MFT 67) has unique characteristics, which pose procedural challenges when a MFT 67 audit control module has no filing requirement or a Form 990-N is filed (not a return). So, the term return module can be somewhat misleading.

  3. Refer MFT 67 audit records as Non-Return Units (NRU) when:

    • No Form 990 return is required and no Form 990 (or 990-EZ) is filed.

    • No Form 990 return is due (including extensions), and no Form 990 (or 990-EZ) is filed.

    • Form 990-N is filed instead, properly or improperly.

  4. An MFT 67 NRU module is a module of:

    • Any posted Form 990-N, assuming no actual MFT 67 return is subsequently filed.

    • A MFT 67 AIMS record of a non-filer organization required to file Form 990-N.

    • A MFT 67 AIMS record of a non-filer church (i.e., a church that hasn’t filed a Form 990 series return).

    • A MFT 67 AIMS record where the return for the tax year isn’t yet due.

  5. An MFT 67 NRU module is not:

    • The AIMS record of a church that actually filed a Form 990.

    • The AIMS record of a non-filer required to file Form 990.

  6. An MFT 67 module loses its designation as a NRU module, becoming a return module if the agent:

    • Receives a filed Form 990 (or 990-EZ), whether or not the return was required,

    • Prepares a Substitute for Return (SFR) Form 990 (signifying a requirement to file Form 990).

  7. Every NRU AIMS record under audit is physically represented in the case file, by a dummy return.

  8. A "dummy return" is a skeletal first page of Form 990 serving as a placeholder in the MFT 67 NRU case file. Allowable entries on a dummy return include the organization’s:

    • Name

    • Address

    • TIN

    • Tax period

    • The annotation, on the top margin, in red, "DUMMY RETURN" or "DUMMY RETURN-CHURCH" or "DUMMY RETURN-NON-FILER UNDER $50,000."

  9. Follow these AIMS establishment and case file instructions for various types of NRUs. SFRs are also included in this table for comparison purposes:

    If And... Then Establish Module on AIMS: In lieu of "return," in the case file, use:
    Form 990-N was filed --- Master File
    (an NRU Module)
    Graphic Print of 990-N Postcard, available via Employee User Portal (EUP) database
    or
    EO Select Check print for Filed Form 990-N
    See TEGE-04-1015-0024, Form 990-N, Case File Preparation (when archived, see IRM 4.75.16)
    No Form 990, 990-EZ or 990-N was filed Organization is required to file Form 990-N Non-Master File
    (an NRU Module)
    Dummy Form 990. Insert "-N" after "990" in bold print
    See IRM 4.75.21.3 (8).
    No Form 990, 990-EZ or 990-N was filed Organization is not required to file either Form 990 or Form 990-N (e.g., church), Non-Master File
    (an NRU Module)
    Dummy Form 990
    See IRM 4.75.21.3 (8).
    or
    the return or notice isn’t due (the due date or extended due date hasn’t passed)
    No Form 990, 990-EZ or 990-N was filed Organization is required to file Form 990 and organization refuses to file the Form 990 Master File Substitute for Return
    (See IRM 4.75.22.7)
    No Form 990, 990-EZ or 990-N was filed Organization is required to file Form 990 and Delinquent Form 990 is secured Master File Copy of Delinquent Return
    (See IRM 4.75.22.4)
  10. If an organization voluntarily files a Form 990, 990-EZ or 990-N for the audit years after the group shipped the NRU case for closure, the closing function (or review function) generally doesn’t send the case back to the group for an AIMS Master File establishment unless the closing function (or review function) either:

    1. Rejects the case for other reasons or

    2. Determines with reasonable certainty, the organization was indeed required to file Form 990 or Form 990-EZ for the audit years in the first place (requiring delinquent return procedure).

  11. If you establish an NRU audit record (MF or NMF), but you didn’t conduct the audit, follow the instructions in IRM 4.75.16.3, Non-Examined Closures. Delete MF and NMF accounts using Form 10904, Request for Record from AIMS. Use disposal code 33 (901), Error Accounts with No Returns.

Awards of Attorney Fees In Tax Cases

  1. The purpose of this section is to:

    • Advise EO agents of the provisions of the Equal Access to Justice Act (P.L. 96-481) and section 292(a) of the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 (P. L. 97-248).

    • Emphasize the principles they must uphold when performing their duties.

  2. The Equal Access to Justice Act, P.L. 96-481, 94 Stat. 2328, amended Title 28, the Judicial Code, to award costs, attorney fees and other expenses to "prevailing parties" in any civil tax action in the U.S. District Courts or the Court of Claims when:

    1. The Government has acted in "bad faith."

      Note:

      Bad faith includes vexatious, wanton, or oppressive behavior. The Act doesn’t:

      • Apply to United States Tax Court or State courts’ litigation.

      • Award for fees and costs a taxpayer incurs in IRS administrative proceedings.

    2. The IRS is unable to prove that its position was "substantially justified."

  3. TEFRA Section 292(a) added IRC 7430. It states that a taxpayer who prevails may be awarded reasonable litigation costs, including attorney fees in these proceedings for civil tax litigation begun in the Federal courts, including the United States Tax Court, after February 28, 1983.

  4. Although effective tax administration sometimes results in judicial proceedings in which taxpayers prevail, strictly follow existing IRM provisions to safeguard against a court's finding that you acted in bad faith or that we have taken an unreasonable position.

  5. As long as our position is found to have a reasonable basis both in law and fact, no award is authorized under P.L. 96-481 or P.L. 97-248 even though we lost the case. Therefore, neither Act limits our statutory duty to effectively enforce the Internal Revenue laws. See Rev. Proc. 64-22, 1964-1 C.B. 689 for the principles we must follow to carry out our duties.

Federal Grand Juries

  1. Federal grand juries are convened to inquire into alleged criminal violations of federal statutes. In federal tax investigations, a Grand Jury Request may be made where the administrative process (the IRS investigation) can't develop the relevant facts within a reasonable period of time.

  2. Refer to federal grand jury procedures in IRM 4.75.35, Fraud and Abusive Transaction Procedures

Collateral Audit

  1. To properly develop audit issues sometimes you may need to request:

    1. Information from another IRS office.

    2. The concurrent audit of another taxpayer in another IRS office

  2. Use collateral audits when:

    1. The need to exchange information between areas is essential to resolve an issue of material consequence

    2. You can't obtain the information from the taxpayer, the taxpayer’s representative, or third parties

      Note:

      Attempt to secure the information rather than routinely requesting a collateral audit.

  3. A Collateral audit is justified when:

    1. An interview is required to obtain sworn testimony or affidavit(s).

    2. A document is to be obtained.

    3. A transcript of an account or a listing of invoices is needed.

    4. A summons needs to be served.

  4. Research IDRS before you request a collateral audit to see if the taxpayer located in another office’s jurisdiction is currently under audit (AIMS status 12 through 18). If so, contact the agent to exchange information.

  5. Treat collateral requests as priority.

  6. If the collateral audit results in finding issues of national interest, inform the Director, EO Examinations. Other divisions generate reports for their respective directors.

  7. Collateral audits aren’t intended to replace the Specialist Referral System (SRS), in which you request a specialist, such as an International examiner, Engineer, or Employee Plan specialist, to participate in your audit. See IRM 4.10.2.7.5.2.1, Specialist Referral System (Online Referrals). Don’t request an Employment Tax specialist, as all EO exam groups are employment tax trained.

Collateral Audit Procedures: Initiating Area

  1. The area office uses Form 6229, Collateral Examination to request a collateral audit. List the name and telephone number of the person in the requesting area office to call to discuss the request.

  2. Prepare the original Form 6229 in PDF. The PDF file contains five copies of the same page. Load one page into RCCMS, after your group manager approves it. Include:

    1. Sufficient background information to clearly state the problem on Form 6229 narrative section and additional schedules and attachments as needed. Include a copy of the out-of-area return, if available.

    2. Your name and telephone number so the receiving area may contact you, if needed.

  3. Secure email the completed Form 6229 to your group manager for review.

  4. Group manager: Approve and secure email Form 6229 to the appropriate office and cc the agent.

    If the collateral audit involves: Then send the Form 6229 to:
    Employee Plans the area office for the exam group where the taxpayer is located
    Exempt Organizations the area office for the exam group where the taxpayer is located
    Federal/State/Local Governments FSLG Compliance and Program Management
    Indian Tribal Governments ITG Classification Unit (under Compliance and Program Management)
    Large and Mid-Size Business LB&I Territory Manager for the taxpayer’s industry
    Tax Exempt Bonds TEB Outreach Planning and Review

    Note:

    You can download exempt organization returns from On-line SEIN (http://sein.osc.irs.gov) and find employee plans return information from http://freeerisa.com, RICS, and IDRS, you don't need to send the Form 6229 through the respective classification units to get a copy of the return.

Collateral Audit Procedures: Receiving Area

  1. The receiving area acknowledges receipt of the request by completing the Form 6229 and secure emailing it back to the initiating area or informally calling the requester. When you receive a request for a collateral audit:

    1. Include your name, address, telephone number, and date received. If the case is reassigned, the new agent must notify the initiating area of the change.

    2. Use secure email, fax, and phone calls to further discuss case with the requesting agent. If a formal response is required, complete the Form 6229 and secure e-mail it to the requesting area office.

    3. Give a clear, concise response to each question raised.

  2. The receiving office must:

    1. Act promptly and report the results to the requesting area office within 20 days from receipt of the Form 6229 with their decision about working the collateral request.

    2. Consider staffing when they decide whether to accept the collateral audit request.

  3. A requester for a collateral audit is responsible for promptly completing the necessary action and reporting the results to the requesting area office within 20 days from receipt of the Form 6229 for a decision to work the collateral request. Staffing concerns would be addressed by the area/territory/group manager receiving the request.

  4. If the receiving office believes the anticipated results of a collateral audit wouldn’t justify the time and other costs of conducting the audit(s), it sends a memo stating so to the requesting area office. The area manager approves the memo and sends a copy to the respective Classification (or Planning and Special Programs) units.

  5. Both offices’ area managers should resolve any disagreement between the requesting and receiving offices concerning the need for a collateral audit. If the area managers disagree, they should consult the Director, EO Examinations.

Information Referrals

  1. Use Form 5666, TE/GE Referral Information Report, an information notice and for recommending a future year audit from TEGE to other functional audit areas. See:

    1. Form 5666 for instructions on completing it.

    2. IRM 4.75.16.4.8, Case Closing Procedures, Form 5666 Information Report.

  2. Use the SRS to submit referrals to Tax Exempt Bonds (TEB) or Federal State & Local Governments (FSLG). Referrals to TEB are mandatory if an IRC 501(c)(3) organization is proposed for revocation and has issued tax-exempt bonds.

Guidance for Exempt Organizations Audits Related to Indian Tribal Government Entities

  1. TEGE Indian Tribal Governments Office (ITG) is the central point for all IRS contacts with federally recognized Indian tribes.

    1. ITG is also responsible for ensuring that the IRS is in compliance with relevant Presidential Executive Orders that outline the relationships and protocols required in working with tribes.

    2. The ITG staff is specially trained in the unique areas of tax law and protocol that apply to Indian tribes.

  2. You must contact the local area ITG specialist before making initial contact on EO audits related to ITG entities, or as soon as you’re aware of a relationship. For a current list of the local area contacts, see the ITG website on IRS.gov.

    Example:

    Contact your local ITG specialist if you receive an audit for an EO located on tribal land, or an EO established and controlled by members of a tribal council.

  3. When an EO/ITG relationship is apparent, Classification includes a copy of the ITG contact listing in the file. However, there are no defining codes for these entities, so it's your responsibility to determine whether or not to contact ITG. Area manager: Monitor these cases monthly as sensitive cases, once they are identified.

IRS-Department of Labor (DOL) Coordinated Compliance Agreement

  1. The IRS Commissioner and the DOL Deputy Assistant Secretary for Program Operations signed a formal agreement to help exchange information between the IRS and the DOL to coordinate audits and litigations.

  2. The agreement permits exchanging information on plans under audit and/or identified for audit at regular intervals. It thereby reduces the likelihood of duplicate audit efforts.

  3. For EO, the agreement covers all field or office audits of:

    • IRC 501(c)(4) employee welfare benefit plans,

    • IRC 501(c)(9) voluntary employment benefit associations,

    • Supplemental unemployment benefit trusts,

    • Group legal services plans.

  4. The Restructuring and Relief Act of 1998 changed the structure of EP and EO as well as the chain of communications between the entities, eliminating audit referral checklists. EP Classification receives DOL referrals and forwards them to EO on formal memorandums. The EO Referrals Group (Referrals) reviews the referral for audit potential.

    1. EP Classification receives DOL referrals and sends them to EO on formal memos.

    2. Referrals review the referral for audit potential.

State Notification of Audit Results

  1. The IRS is required to disclose certain audit results and in some cases, the proposed assessments or revocations of specific types of exempt organizations to state authorities under IRC 6103(d) and IRC 6104(c). This section provides the authority, the procedures for agents, the type of information subject to lawful disclosure, and the recipient of the lawfully disclosable return information.

  2. Also refer to IRM 7.28.2, Disclosure of Information About Exempt Organizations to Appropriate State Officials as Described in IRC 6104(c).

IRC 6103(d) Disclosures

  1. The IRS is permitted to disclose certain tax return information for taxes imposed by chapters 1, 2, 6, 11, 12, 21, 23, 24, 31, 32, 44, 51, 52, and subchapter D of chapter 36 IRC 6103(d)(1). Disclosure is limited to those entities charged under state laws with the responsibility to administer any state tax law:

    • The state agency

    • Body or commission

    • Its legal representative

  2. IRS disclosure may be made only:

    1. In response to a written request by the head of the agency, body or commission.

    2. For the purpose of, and extent necessary, in the administration of such tax laws.

  3. The EO Fed/State Liaison is responsible for updating the state list in and sharing the updated list with agents.

IRC 6103(d) Information
  1. "IRC 6103(d) information" includes completed audit report forms for income tax and employment tax changes, with schedules or other attachments.

    • Form 4549, Income Tax Examination Changes

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

    • 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 Form 1099 and Form W-2G

    Note:

    Do not include secured delinquent income tax or employment tax return as IRC 6103(d) information.

    Caution:

    No employee is authorized to disseminate or disclose returns or return information to another governmental unit, agency or other person, except as provided by law, according to the procedures in the Internal Revenue Manual (IRM) and in Interim Guidance Memoranda.

IRC 6103(d) Disclosure Procedure - Agents
  1. Use the procedures below for an organization located in one of the approved states.

    1. Identify potential IRC 6103(d) case file, which is a case file that contains IRC 6103(d) information whether or not it’s subject to mandatory or special review.

    2. Prepare Form 3198-A, TE/GE Special Handling Notice, and note in "Other Instructions" - "[990-T adjustment or Employment Tax adjustment] - potential 6103(d) disclosure to State."

    3. Complete Form 5599, TE/GE Examined Closing Record. The disposal codes for AIMS and RCCMS consistent with a potential IRC 6103(d) closing include:

    • DC 03 (102), Agreed Tax Change

    • DC 10 (604), Unagreed - Without Protest

    • DC 12 (104), Closing Agreement

    Note:

    You aren’t required to determine which states and designated state agencies should receive IRC 6103(d) information. The EO Closing Unit (formerly “ESS”) makes that determination after it receives the case. The EO Closing Unit is responsible for printing, suspense, and proper disposition of IRC 6103(d) information to the proper state authority through the proper channels.

IRC 6104(c) Disclosures: Proposed and Final Revocations

  1. Refer to IRM 7.28.2, Disclosure of Information About Exempt Organizations to Appropriate State Officials as Described in IRC 6104(c), for detailed guidance.

  2. The Pension Protection Act of 2006 (PPA) significantly expanded the scope of information available to these agencies and gave the IRS the ability to provide this information much earlier in the audit process. PPA Section 1224 amended IRC 6104(c) which governs disclosures about IRC 501(c)(3) organizations to state tax or charity agencies.

  3. The legislation included a provision requiring recipients of taxpayer information under IRC 6104(c) to meet comprehensive technical, procedural and administrative federal safeguard requirements under IRC 6103(p)(4).

  4. Prior to the PPA, EO Examinations provided IRC 501(c)(3) organizations final revocation notifications to both state tax or charity agencies in all fifty states. EO stopped automatic notifications on August 17, 2007.

  5. Agencies must now meet certain requirements to be eligible to receive disclosures under IRC 6104(c),

    1. They must submit a Safeguard Procedures Report (SPR) and be approved to receive the information.

    2. State agencies must enter into a memo of understanding with the IRS:

      • Outlining permitted disclosure and the use of information.

      • Committing to the statutory safeguard responsibilities.

  6. Any 501(c)(3) organization (both public charities and private foundations) or disqualified persons located in these states fall under these provisions. Agents in other states need to know these procedures for assigned cases not in the taxpayer’s geographic area.

  7. EO Fed/State Liaison is responsible for updating the state list in Exhibit 4.75.21-2 and giving the updated list to the field.

IRC 6104(c) Disclosures: Proposed and Final Revocations: Field Agents
  1. Use the procedures below for an IRC 501(c)(3) organization located in one of the approved states.

  2. Send the 30-day proposed revocation letter and revenue agent report (RAR) to the taxpayer per current group closing letter procedures. Hold the case for 30 days.

  3. Prepare and send a package to the EO Fed/State Liaison with copies of the following:

    • 30-day letter

    • Form 6018, Consent to Proposed Adverse Action

    • Revenue Agent Report (RAR)

    • Forms 990 for all applicable tax periods

    Note:

    See address at Exhibit 4.75.21-2.

  4. Note on the case chronology "IRC 6104(c) package for [state(s)] was sent to the EO Fed/State Liaison on MM/DD/YYYY)" .

  5. Attach a Form 3198-A, TE/GE Special Handling Notice, to the front of the return case file indicating the case involves a state agency authorized to receive disclosures under IRC 6104(c). The Form 3198-A lets Mandatory Review know that this is a case subject to these special disclosure provisions.

IRC 6104(c) Disclosures: Proposed and Final Revocations: Mandatory Review & EO Fed/State Liaison
  1. The EO Fed/State Liaison:

    1. Sends the proposed revocation package to the appropriate state agency.

    2. Keeps the appropriate records and notifies the Disclosure Office to account for the disclosures under IRC 6103(p)(3).

    3. Coordinates with Mandatory Review and tracks the progress of the proposed revocation case (i.e., agreed or unagreed).

  2. If the issue is agreed or unagreed without protest:

    1. Mandatory Review prepares a 90-day letter (final adverse determination letter) and sends it to the taxpayer.

    2. The EO Fed/State Liaison secures a copy of the 90-day letter from Mandatory Review and sends it to the appropriate state agency.

  3. If the issue is unagreed with protest:

    1. Mandatory Review sends it to the Appeals Office.

    2. The EO Fed/State Liaison tracks the case progress and coordinates with the Appeals Office.

  4. The Form 3198-A stays attached to the unagreed case file in order to alert the Appeals office the case involves an unagreed proposed revocation in a state which is eligible to receive disclosures under IRC 6104(c).

  5. The EO Fed/State Liaison notifies the appropriate state agency whether or not the proposed revocation is upheld.

IRC 6104(c) Disclosures: Chapters 41 and 42 Assessments

  1. In addition to disclosure of proposed and final revocations of IRC 501(c)(3) organizations, approved state tax and charity agencies are also eligible to receive notices of proposed and final deficiencies of tax imposed under IRC 507 or Chapter 41 or 42 against an organization, or its disqualified persons. See Prop. Treas. Reg. IRC 301.6104(c)-1. These assessments include:

    • Initial and second tier taxes on private foundations under IRC 4940 through IRC 4945 for net investment income, self-dealing, failure to distribute income, excess business holdings, investments that jeopardize charitable purpose, and taxable expenditures.

    • Initial tax on certain supporting organizations and donor advised funds for excess business holdings under IRC 4943.

    • IRC 4911 tax on excess lobbying expenditures by public charities that have elected to be subject to IRC 501(h) regarding expenditures to influence legislation.

    • IRC 4912 tax on excess lobbying expenditures that result in loss of IRC 501(c)(3) tax-exempt status.

    • IRC 4955 tax imposed on any amount paid or incurred by a IRC 501(c)(3) organization that participates or intervenes in any political campaign on behalf of, or in opposition to, any candidate for public office.

    • IRC 4958 initial taxes on disqualified persons and organization managers of IRC 501(c)(3) organizations that engage in excess benefit transactions.

    • IRC 4959 tax imposed on hospitals organizations for failing to meet the requirements of IRC 501(r)(3).

    • IRC 4965 taxes related to prohibited shelter transactions.

    • IRC 4966 taxes on taxable distributions by sponsoring organizations maintaining donor advised funds.

    • IRC 4967 taxes on distribution of prohibited benefits from donor advised funds.

IRC 6104(c) Disclosures: Chapters 41 and 42 Assessments: Field Agents
  1. If the case is located in one of the approved states in Exhibit 4.75.21-2, follow the procedures outlined in IRM 4.75.21.10.3.1 (2) - IRM 4.75.21.10.3.1 (4), below.

  2. Prepare and send a package to the EO Fed/State Liaison with copies of the following:

    • 30-day letter

    • Form 870-E, Waiver of Restrictions on Assessment and Collection of Deficiency and Acceptance of Overassessment

    • Revenue Agent Report (RAR)

  3. Note on the case chronology "IRC 6104(c) package for [state(s)] was sent to the EO Fed/State Liaison on (MM/DD/YYYY)."

  4. Notify the EO Fed/State Liaison either that:

    1. Issue is agreed

    2. Issue is unagreed and being forwarded to Mandatory Review. Attach a Form 3198-A to the case file to alert Mandatory Review that this case is subject to the disclosure provisions of IRC 6104(c).

IRC 6104(c) Disclosures: Chapters 41 and 42 Assessments: Mandatory Review & EO Fed/State Liaison
  1. The EO Fed/State Liaison sends the Chapter 41/42 deficiency package to the appropriate state agency. The EO Fed/State Liaison keeps the appropriate records and notifies the Disclosure Office to account for the disclosure under IRC 6103(p)(3).

  2. If the Chapter 41/42 issue goes unagreed, the EO Fed/State Liaison coordinates with Mandatory Review and Appeals and tracks the progress of the case.

  3. For cases sent to the Appeals office, keep the Form 3198-A attached to the case file to alert them that the case involves an unagreed issue in a state which is eligible to receive disclosures under IRC 6104(c).

  4. The EO Fed/State Liaison ensures the appropriate state agency is notified as to whether the proposed assessment is upheld.

Whistleblower Cases Assigned to Field

  1. An informant submits Whistleblower (WB) claims on Form 211, Application for Award for Original Information.

  2. WB claims are either "A" or "B" claims. These two letters refer to the applicable sub-sections of IRC 7623.

  3. See IRM 4.75.4, Exempt Organizations Examination Procedures, Case Selection and Delivery, for definitions and information about these claims prior to field assignment.

Audit Procedures

  1. After the debriefing, taint review and the case has been selected for audit, Case Selection & Delivery (CS&D) assigns the case to an audit group. You receive two files:

    1. The audit case file.

    2. The WB case file which contains the Form 211 and the documentation submitted by the WB.

    Note:

    There may be multiple WB claims for one case file.

  2. An ICE indicator code of "1" will be on the primary return. You need to release the freeze code before the case can be closed from AIMS.

  3. Except as detailed below, follow all normal audit procedures. See IRM 4.75.21.11.2 for specific procedures for "A" claims. See IRM 4.75.21.11.3 for specific procedures for "B" claims.

  4. The WB case instructions should be in the WB case file. This document gives the audit group basic procedures and guidance for the WB aspects of the audit.

  5. WB communications are confidential. Transmit all claims, reports, and information from office to office in a double sealed confidential envelope marked "To Be Opened by Addressee Only" and keep them locked in file cabinets. Use secure email for all electronic submissions.

  6. Keep all WB information separate from the audit case file. If there is a hard copy WB file, keep it locked up when not in use.

    Reminder:

    DO NOT, under any circumstances, take the WB case to the audit site

    .

  7. DO NOT mention the WB in either the audit case file in RCCMS or in the hard copy case file. This includes not mentioning the existence of a WB on the Form 5464, Case Chronology Record, Form 5773, EO Workpaper Summary Continuation Sheet or in any of the workpapers. The taxpayer can’t be informed there is a WB.

  8. The agent shouldn’t make any contact with the WB. If the agent wants to interview the WB, contact the EO WB Coordinator.

    Note:

    Counsel needs to be involved if the WB is interviewed. The WB Coordinator will coordinate this.

  9. Develop the issues by seeking independent corroboration and/or refutation of the WB provided information. This independently-developed information must form the basis for any proposed adjustments.

  10. Electronically prepare Form 11369, Confidential Evaluation Report on Claim for Award, when you’re done with the case. You and your manager must sign the form.

  11. The WB Office uses information on Form 11369, as well as any relevant workpaper information to determine if an award is paid.

  12. DO not leave WB information or reference to a WB in the closed audit case file; even if you close it unagreed.

  13. If the case is going to Appeals, do not include any WB information or the Form 11369 in the case file sent to Appeals.

Category "A" WB Claim Procedures

  1. A Category "A" case is any WB Claim that isn’t a category "B" case. See IRM 4.75.21.11.3 (1).

  2. If you open additional years or returns, contact the Informant Claims Examination (ICE) unit to add the ICE indicator for the additional years or returns. Find the contact information for the ICE unit in the instructions for Form 11369.

  3. If at any time, the amount of taxes, interest and penalties is $2 million or more, contact the EO WB B Coordinator.

  4. After you prepare Form 11369 send this information to the ICE unit:

    1. Completed Form 11369

    2. WB case file

    3. Copy of the audit report (RAR), if applicable

    4. Form 5464, Case Chronology Record

    5. Form 5773, EO Workpaper Summary Continuation Sheets

    6. All relevant workpapers which will help the WB Office to determine the award

      Note:

      If there’s a hard copy WB case file, mail it back to the ICE unit. Otherwise, send it electronically, using secure email.

  5. Once the ICE unit has all the necessary information, they change the ICE indicator to "2" . Close the case under normal case closing procedures in IRM 4.75.16, Case Closing Procedures.

Category "B" WB Claim Procedures

  1. A Category "B" case is where the tax, penalties, interest, additions to tax and additional amounts in dispute exceed $2,000,000.

    • A WB action against an individual is only a "B" case if the individual’s gross income exceeds $200,000 for any taxable year subject to the action.

  2. If you open additional years or returns, contact the EO Examinations WB B Coordinator. The Coordinator will contact the ICE unit to add the ICE indicator for those additional years or returns.

  3. After Form 11369 is prepared and the agent has ensured that no WB materials remain in the audit file, the following information is sent to the EO Examinations WB B Coordinator:

    1. Completed Form 11369

    2. WB case file

    3. Copy of audit report (RAR), if applicable

    4. Form 5464, Case Chronology Record

    5. Form 5773, EO Workpaper Summary Continuation Sheets

    6. All relevant workpapers which will help the WB Office to determine the award amount.

      Note:

      If there’s a hard copy WB case file, mail it to the EO Examinations WB “B” Coordinator. Otherwise, send electronically, using secure email.

  4. The EO Examinations WB "B" Coordinator reviews the information, makes sure it’s complete, then sends it to the WB Analyst.

  5. Once the WB Analyst has all the necessary information, they change the ICE indicator to "2." Close the case under normal case closing procedures in IRM 4.75.16, Case Closing Procedures.

EO CSP Program, Section 530

  1. This subsection provides instructions on processing Classification Settlement Program (CSP) cases and Section 530 of the Revenue Act of 1978 (Section 530).

  2. But for these procedures unique to EO, continue to follow instructions in the following manuals.

    • IRM 4.23.6, Classification Settlement Program (CSP)

    • IRM 4.23.10, Report Writing Guide for Employment Tax Examinations

    • IRM 4.75.16.5.3.1, Case Closing Procedures, Classification Settlement Program (CSP) Cases

  3. Whenever an organization raises a worker classification or Section 530 argument with respect to an employment tax issue that would ordinarily be treated as a wage issue, contact Area Counsel office of TE/GE Division Counsel at IGM.Wage.Adjustment.Guidance@irscounsel.treas.gov. The Tax Court’s opinions in SECC Corp. v. Commissioner, 142 T.C. 225 (2014), and American Airlines, Inc. v. Commissioner, 144 T.C. 24 (2015), essentially created a new category for employment taxes – wage determinations that nevertheless can’t be immediately assessed until after the taxpayer is given an opportunity for Tax Court review. State in the email:

    1. That you have a case that requires wage adjustment guidance under the IGM SBSE-04-0916-0050, Emergency Interim Guidance – Contact TEGEDC When Taxpayers Raise Worker Classification or Section 530 Matters Concerning Wage Adjustment Issues, dated September 8, 2016.

    2. Taxpayer is located in (City, State).

    3. I am located in (City, State) and generally can be reached at (phone number) at the following times (from 6:30 to 3).

    4. Brief descriptions of the facts and the taxpayer’s argument regarding why worker classification and/or section 530 applies to the proposed wage determination.

    If you have not heard from a TEGEDC attorney after five (5) business days, forward the original email to the same email address and state that you have not yet been contacted.

CSP Roles and Responsibilities

  1. The group manager:

    • Oversees the agent’s efforts on employment tax cases, including reviewing worker classification issues, considerations of CSP offers, and CSP agreements.

    • Ensures agents fully and properly develop issues and document workpapers.

    • Ensures agents use the most recent version of the CSP agreement template and the correct CSP agreement form, and ensures that the CSP agreement form is completed correctly.

    • Ensures agents use the most recent version of the CSP agreement template and the correct CSP agreement form, and ensures that the CSP agreement form is completed correctly.

    • Signs the CSP agreement (in triplicate) after the Area CSP Reviewer concurs with, and the taxpayer signs, the agreement.

    • Sends the final CSP package to the CSP Monitor.

  2. The final CSP package for the CSP Monitor includes the items listed in IRM 4.23.6.17 (2), Monitoring CSP Agreements, restated as follows:

    • CSP agreement form signed by both IRS and taxpayer

    • Complete copy of the Revenue Agent’s Report (RAR), including but not limited to Form 2504-WC, Form 2504, Form 4666, Form 4667, Form 4668, Form 886-A, and the schedule of workers reclassified

    • CSP memo signed by both the Group Manager and the Area CSP Reviewer

    • Copy of any workpapers to support the worker classification and Section 530 issues

    • Taxpayer contact information

  3. The CSP Monitor:

    • Monitors the CSP.

    • Receives the signed CSP agreement(s) from group managers for record retention purposes. The CSP Monitor’s address is:

      Internal Revenue Service
      Attn: CSP Monitor
      Room 6025 M/S 1112
      324 25th Street
      Ogden, UT 84401
      Fax: (888) 224-9146

  4. The Area CSP Reviewer (one per area):

    • Reviews proposed CSP agreements within two weeks of receipt of their respective CSP packages from group managers.

    • Consults with the CSP Coordinator as necessary.

    • Returns a signed memo to the group manager concurring with the offer.

    • Completes the CSP review reminder document for all CSP packages and submits the document to the ChavSP Coordinator upon approval of the CSP offer.

    • Uses the CSP tracking sheet to record the inventory of all CSP packages received.

    • Submits the CSP tracking sheet quarterly to the CSP Coordinator.

    Find a list of CSP Reviewers on the EO Employment Tax SharePoint site.

  5. The CSP Coordinator is also the employment tax analyst on behalf of EO. The CSP Coordinator:

    • Oversees EO Examinations’ CSP program.

    • Acts as a consultant to the group managers and Area CSP Reviewers on all CSP cases.

    • Responds to managers’ and agents’ technical and procedure questions over the CSP.

    • Participates in calls, as needed, with group managers and agents or Area CSP Reviewers on CSP procedural problems, technical matters, emerging issues, and on the conduct of the overall program.

    • Conducts periodic reviews of submitted CSP Reviewers’ reminder sheets and tracking sheets.

    • Conducts annual reviews of executed CSP agreements from closed files.

    • Drafts and coordinates alerts or other feedback on technical or procedural issues as needed.

CSP Procedures

  1. The closing disposal codes (DCs) on Form 5599 (and on RCCMS) are:

    • DC 03 (102), Agreed Tax Change, for the offer quarter(s).

    • DC 01 (210), Regulatory/Revenue Protection, for the no-change tax periods in a 25% CSP offer.

    • DC 01 (210), for the no-change tax periods in the non-CSP offer years for 100% CSP offers, unless a higher priority disposal code applies for changes in tax resulting from non-worker classification issues such as fringe benefit issues (e.g., DC 03 (102)).

    For a description of the type of CSP Settlement Offers, see IRM 4.23.6.14.1.

  2. Use Principal Issue Code (PIC) 15D, EE Class – Classification Settlement Program (CSP)-IC to EE, for all periods closed with a CSP offer (i.e., all quarters in the CSP agreement year, including the no-change quarters). See IRM 4.75.16.4.4.2.

  3. The project code for the employment tax examination is generally the same as the project code of the primary return. The Tracking Code is 1002, Tax Gap.

  4. Use the job aids listed below for reference. Find them on the EO SharePoint site at Exam, Exam Job Aids, Employment Taxes, CSP folder:

    • CSP Agreement Flowchart

    • CSP Guidelines Job Aid

    • Guidelines for CSP Offer Year Q&A

    • CSP Memorandum Template to GM (Group Manager)

    • CSP Agreement – 530 – Form 14490 (rev. 5-2013)

    • CSP Agreement – CC WC – Form 14491 (rev. 5-2013)

    • CSP Agreement – WC CC – Form 14492 (rev. 5-2013)

    • List of CSP Reviewers

Board of Directors Analysis Flowchart

Question: If Yes: If No:
Is the board controlled by persons who represent the broad interests of the public? Proceed to the next question. 501(q) violation
Does 20% or less of the voting power of the board belong to employees of the organization or those that will financially benefit from the organization’s activities? (excluding creditors other than the credit counseling organization or its affiliates) Proceed to the next question. 501(q) violation
Add in creditors. Does 49% or less of the voting power of the board belong to a combination of creditors, employees, and those who will financially benefit ? Pass the board of director analysis. 501(q) violation

List of States Eligible for IRC 6104(c) Disclosure

Disclosure Code Section Approved States Types of Adjustments Information to be Included Send Information to
IRC 6104(c) CA
DC
GA
KY
MN
NE
PA
SC
WI
WV
1. Proposed and final revocations and terminations of IRC 501(c)(3) organizations
2. Proposed and final notices of deficiency for Chapter 41 and 42 excise taxes imposed on IRC 501(c)(3) organizations and "Taxable Persons"
30-Day Letter, Form 6018,
RAR,
Form 4883 (Chap 41/42)
Final Adverse Determination Letter (FADL),
Statutory Notice of Deficiency (Chap 41/42)
Fed/State Liaison
IRS
1616 Capitol Ave.
Stop 4730
Omaha, NE 68102

You can refer to IRM 7.28.2, Disclosure of Information About Exempt Organizations to Appropriate State Officials as Described in IRC 6104(c), for guidance.