4.75.21 EO Special Examination Procedures 4.75.21.1 Program Scope and Objectives 4.75.21.1.1 Authority 4.75.21.1.2 Responsibilities 4.75.21.1.3 Acronyms 4.75.21.1.4 Related Sources 4.75.21.2 Incomplete Returns 4.75.21.3 Non-Return Units 4.75.21.4 Awards of Attorney Fees In Tax Cases 4.75.21.5 Federal Grand Juries 4.75.21.6 Collateral Examination 4.75.21.6.1 Collateral Examination Procedures: Initiating Area 4.75.21.6.2 Collateral Examination Procedures: Receiving Area 4.75.21.7 Information Referrals 4.75.21.8 Guidance for Exempt Organizations Examinations Related to Indian Tribal Government Entities 4.75.21.9 General Guidance Related to Federal Government Entities 4.75.21.10 General Guidance Related to State and Local Government Entities 4.75.21.11 Contacting SSA Regional Office on Section 218 Coverage Issues 4.75.21.12 IRS-Department of Labor (DOL) Coordinated Compliance Agreement 4.75.21.13 State Notification of Examination Results 4.75.21.13.1 IRC 6103(d) Disclosures 4.75.21.13.1.1 IRC 6103(d) Information 4.75.21.13.1.2 IRC 6103(d) Disclosure Procedure - Examiners 4.75.21.13.2 IRC 6104(c) Disclosures: Proposed and Final Revocations 4.75.21.13.2.1 IRC 6104(c) Disclosures: Proposed and Final Revocations: Field Examiners 4.75.21.13.2.2 IRC 6104(c) Disclosures: Proposed and Final Revocations: EO Examinations FSL/ET Mandatory Review & EO Fed-State Liaison 4.75.21.13.3 IRC 6104(c) Disclosures: Chapters 41 and 42 Assessments 4.75.21.13.3.1 IRC 6104(c) Disclosures: Chapters 41 and 42 Assessments: Field Examiners 4.75.21.13.3.2 IRC 6104(c) Disclosures: Chapters 41 and 42 Assessments: EO Examinations FSL/ET Mandatory Review & EO Fed-State Liaison 4.75.21.14 Whistleblower Cases Assigned to Field 4.75.21.14.1 Examination Procedures 4.75.21.14.1.1 Form 11369, Confidential Evaluation Report on Claim for Reward 4.75.21.14.2 Category "A" WB Claim Procedures 4.75.21.14.3 Category "B" WB Claim Procedures 4.75.21.15 CSP Program 4.75.21.15.1 CSP Roles and Responsibilities 4.75.21.15.2 CSP Procedures Exhibit 4.75.21-1 Board of Directors Analysis Flowchart Exhibit 4.75.21-2 List of States Eligible for IRC 6104(c) Disclosure Part 4. Examining Process Chapter 75. Exempt Organizations Examination Procedures Section 21. EO Special Examination Procedures 4.75.21 EO Special Examination Procedures Manual Transmittal November 05, 2019 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 March 15, 2017. Material Changes (1) Incorporated the relevant information from Interim Guidance Memorandum TEGE-04-0618-0016, Form 10904, Deletion Requests dated June 22, 2018. (2) Incorporated the relevant information from Interim Guidance Memorandum TEGE-04-0517-0019, Procedures Following the TE/GE Reorganization. (3) Revised IRM 4.75.21.1.4 to correct the Acronyms List. (4) Revised IRM 4.75.21.3(11) to include procedures to prepare Form 10904 Deletion Request Package. (5) Revised IRM 4.75.21.4(3) - (5) to clarify legal requirements for the awarding of attorney fees, as outlined in IRC 7430. (6) Added IRM 4.75.21.4(6) providing guidance regarding qualified offers, as outlined in IRC 7430. (7) Revised IRM 4.75.21.6.1 to update names of business and/or operating units. (8) Revised IRM 4.75.21.8(2) to include correct link to Indian Tribal Government Specialists by area. (9) Added IRM 4.75.21.9, General Guidance Related to Federal Government Entities, previously located in IRM 4.90.1.5.1. (10) Added IRM 4.75.21.10, General Guidance Related to State Local Government Entities, previously located in IRM 4.90.1.5.2. (11) Added IRM 4.75.21.11, Contacting SSA Regional Offices on Section 218 Coverage Issues, previously located in IRM 4.90.1.6. (12) Revised IRM 4.75.21.9(4) to update names of business and/or operating units. (13) Revised IRM 4.75.21.10.2.2 to update names of business and/or operating units. (14) Revised IRM 4.75.21.10.3.1 to update names of business and/or operating units. (15) Revised IRM 4.75.21.10.3.2 to update names of business and/or operating units. (16) Incorporated the relevant information from Interim Guidance Memorandum TEGE-04-1117-0024, Whislteblower (WB) Claims, dated November 15, 2017. (17) Revised IRM 4.75.21.11.1 to incorporate relevant information regarding new Whistleblower procedures. (18) Revised Exhibit 4.75.21-1 to clarify IRC 501q statutory language. (19) Revised IRM 4.75.21.11.1.1 to provide guidance for the completion of Form 11369, Confidential Evaluation Report on Claim for Reward. Effect on Other Documents This material supersedes IRM 4.75.21, EO Special Examination Procedures, dated March 15, 2017. This manual supersedes the Interim Guidance Memorandum TEGE-04-0618-0016, Form 10904 Deletion Requests. This manual supersedes the Interim Guidance Memorandum TEGE-04-1117-0024, Whistleblower (WB) Claims. This manual supersedes the Interim Guidance Memorandum TEGE-04-0517-0019, Procedures Following the TE/GE Reorganization. Audience Tax Exempt and Government Entities Exempt Organizations Examinations Effective Date (11-05-2019) Margaret Von Lienen Director, Exempt Organizations Tax Exempt and Government Entities 4.75.21.1 (03-15-2017) Program Scope and Objectives Purpose: This manual focuses on EO procedures for issues not covered in other sections of the IRM. Topics addressed include: Incomplete returns Non-Return units (NRU) modules Awards of attorney fees in tax cases Federal grand juries Collateral Examnation Information referrals Examinations related to Indian Tribal Government (ITG) entities IRS-Department of Labor (DOL) coordinated compliance agreement State notification of examination results Whistleblower (WB) cases Audience: The procedures in this IRM apply to Exempt Organizations Examination employees in the following series: EO examiners. FSL/ET examiners. Tax Law specialist and reviewers. Tax examiners. Front-line examination group managers. Policy Owner: Director, Exempt Organizations Program Owner: Exempt Organizations 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@irs.gov. 4.75.21.1.1 (11-05-2019) Authority The authorities for these procedures are: Policy Statement 4-119 (formerly P-7-20). See IRM 1.2.1.5.36. IRC 6033(a)(1) IRC 6652(c) Rev. Rul. 59-95 C.B. 627 Equal Access to Justice Act (P.L. 96-481) IRC 7430 Policy Statement P-4-26 (formerly P-4-84). Pension Protection Act of 2006 Bipartisan Budget Act of 2018 (BBA 2018) IRC 7623 4.75.21.1.2 (03-15-2017) Responsibilities During an examination, examiners are responsible for: Establishing incomplete returns on IRS data systems. 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. Utilizing collateral examinations when obtaining essential information to resolve a material issue. Preparing appropriate forms when recommending future year examinations. Complying with current protocols when working with ITG Entities. DOL Coordinated Compliance Agreement. Disclosing certain examination results as required by IRC 6103(d). Properly developing and processing WB cases. 4.75.21.1.3 (11-05-2019) Acronyms The table lists commonly used acronyms and their definitions. Acronym Definition AIMS Audit Information Management System CI Criminal Investigation C&CA Classification and Case Assignment CP&C Compliance, Planning and Classification DC Disposal Code DOL Department of Labor DOJ Department of Justice EO Exempt Organizations FIU Forensic Investigation Unit FSL/ET Federal State and Local/Employment Tax GL Government Liaison IRI Incomplete Return Item ICE Informant Claims Examination IDRS Integrated Data Retrieval System IRC Internal Revenue Code IGM Interim Guidance Memoranda IRM Internal Revenue Manual IRS Internal Revenue Service ITG Indian Tribal Government MF Master File MFT Master File Tax MR Mandatory Review NMF Non-Master File NRU Non-Return Units OSC Ogden Service Campus PDF Portable Document Format PPA Pension Protection Act of 2006 RAR Revenue Agent Report RCCMS Reporting Compliance Case Management System RICS Return Information and Classification System 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 TEGE Tax Exempt Government Entities WB Whistle blower 4.75.21.1.4 (03-15-2017) Related Sources 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 4.75.21.2 (03-15-2017) Incomplete Returns 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... " 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. 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 (OSC) 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. 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. If you can close the case without the information, consider issuing an advisory using Letter 3609. If the information is essential to complete the examination, 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. See IRM 21.7.7.4.23.1.3.1, Business Tax Returns and Non-Master File (NMF) Accounts, Exempt Organizations and Tax Exempt Bonds: Incomplete Return Items (IRI) Codes for IRIs. 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 returns. If Schedule O isn’t completed and attached to Form 990, consider the return incomplete. 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. At a minimum, Schedule O must be used to explain certain answers on Form 990, Part VI. 4.75.21.3 (11-05-2019) Non-Return Units When examining taxpayers, an examination record (or module) is required for control on Audit Information Management System (AIMS) and Reporting Compliance Case Management (RCCMS). The examination record identifies a Specific return. Tax period. Taxpayer. Note: This record is commonly referred to as a "return module." However, Form 990 (MFT 67) has unique characteristics, which pose procedural challenges when a MFT 67 examination 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. Refer MFT 67 examination records as 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. 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. 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. An MFT 67 module loses its designation as a NRU module, becoming a "return module" if the examiner: 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). Every NRU AIMS record under examination is physically represented in the case file, by a dummy return. 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." 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 --- MF (a 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 IRM 4.75.16.7, Case File Assembly. No Form 990, 990-EZ or 990-N was filed Organization is required to file Form 990-N NMF (a 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 990-N (e.g., church), NMF (a 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 MF 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 MF Copy of Delinquent Return (See IRM 4.75.22.4) If an organization voluntarily files a Form 990, 990-EZ or 990-N for the examination 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 MF establishment unless the closing function (or review function) either: Rejects the case for other reasons or Determines with reasonable certainty, the organization was indeed required to file Form 990 or 990-EZ for the examination years in the first place (requiring delinquent return procedure). If you establish an NRU examination record (MF or NMF), but you didn’t conduct the examination, follow the instructions in IRM 4.75.16.3, Non-Examined Closures. Delete MF and NMF accounts by preparing an electronic Form 10904, Request for Record Deletion from AIMS package: Use Disposal Code (DC) 33 (901), Error Accounts with No Returns. Complete first page ONLY, signed by you and your GM. Note: Area Manager must sign DC 33 requests. AMDISA print for module being deleted. AMDISA print for corresponding module established on MF. TXMODA. Supporting documentation (1) Upload the Form 10904 package into RCCMS. (2) Close to your TEGE Closing Unit in status code 56. (3) The Closing Unit accepts the case using current practice. 4.75.21.4 (11-05-2019) Awards of Attorney Fees In Tax Cases The purpose of this section is to: Advise EO examiners of the provisions of IRC 7430. Emphasize the principles they must uphold when performing their duties. 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: 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. The IRS is unable to prove that its position was "substantially justified." IRC 7430 provides that a taxpayer who prevails may be awarded reasonable administrative and litigation costs, including attorney fees in these proceedings for civil tax litigation begun on the Federal courts, including the United States Tax Court, after February 28, 1983. Such an award is generally limited to matters where the position of the United States isn’t substantially justified. Although effective tax administration sometimes results in judicial proceedings in which taxpayers prevail, strictly following existing IRM provisions should safeguard against a court's finding that the position of the United States was not substantially justified. As long as our position is found to have a reasonable basis both in law and fact, no award is usually authorized under IRC 7430 even though we lost the case. Therefore, the law doesn’t limit 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. The exception to the substantial justification defense is if the taxpayer submits a qualified offer under IRC 7430. A qualified offer is just a settlement offer that contains certain specified language. A qualified offer will be recognizable by either referring to qualified offers, IRC 7430(c)(4)(E) or 7430(g). Taxpayers may submit qualified offers once they have received their first opportunity for review by the Office of Appeals. Taxpayers who receive a 30-day letter that gives them the option of continuing to work with Exam or seeking review in Appeals, may submit a qualified offer to Exam. For more information on qualified offers, see IRM 4.8.8.20. 4.75.21.5 (03-15-2017) Federal Grand Juries 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. Refer to federal grand jury procedures in IRM 4.75.35, Fraud and Abusive Transaction Procedures. 4.75.21.6 (03-15-2017) Collateral Examination To properly develop examination issues sometimes you may need to request: Information from another IRS office. The concurrent examination of another taxpayer in another IRS office. Use collateral examinations when: The need to exchange information between areas is essential to resolve an issue of material consequence. 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 examination. A Collateral examination is justified when: An interview is required to obtain sworn testimony or affidavits. A document is to be obtained. A transcript of an account or a listing of invoices is needed. A summons needs to be served. Research IDRS before you request a collateral examination to see if the taxpayer located in another office’s jurisdiction is currently under examination (AIMS status 12 through 18). If so, contact the examiner to exchange information. Treat collateral requests as priority. If the collateral examination results in finding issues of national interest, inform the Director, EO Examinations. Other divisions generate reports for their respective directors. Collateral examinations aren’t intended to replace the Specialist Referral System (SRS), in which you request a specialist, such as an International examiner, Engineer, or EP specialist, to participate in your examination. See IRM 4.10.2.7.5.2.1, Specialist Referral System (Online Referrals). Don’t request an ET specialist, as all EO exam groups are employment tax trained. 4.75.21.6.1 (11-05-2019) Collateral Examination Procedures: Initiating Area The area office uses Form 6229, Collateral Examination to request a collateral examination. List the name and telephone number of the person in the requesting area office to call to discuss the request. 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: 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. Your name and telephone number so the receiving area may contact you, if needed. Secure email the completed Form 6229 to your group manager for review. Group manager: Approve and secure email Form 6229 to the appropriate office and cc the examiner. If the collateral examination involves: Then send the Form 6229 to: EP the area office for the exam group where the taxpayer is located EO the area office for the exam group where the taxpayer is located FSL/ET the area office for the exam group where the taxpayer is located ITG ITG/TEB Compliance Unit LB&I LB&I Territory Manager for the taxpayer’s industry TEB ITG/TEB Compliance Unit Note: You can download exempt organization returns from On-line SEIN) and find employee plans return information from RICS and IDRS.You don't need to send the Form 6229 through the respective classification units to get a copy of the return. 4.75.21.6.2 (03-15-2017) Collateral Examination Procedures: Receiving Area 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 examination: Include your name, address, telephone number, and date received. If the case is reassigned, the new examiner must notify the initiating area of the change. Use secure email, fax, and phone calls to further discuss case with the requesting examiner. If a formal response is required, complete the Form 6229 and secure e-mail it to the requesting area office. Give a clear, concise response to each question raised. The receiving office must: 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. Consider staffing when they decide whether to accept the collateral examination request. A requester for a collateral examination 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. If the receiving office believes the anticipated results of a collateral examination wouldn’t justify the time and other costs of conducting the examinations, 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. Both offices’ area managers should resolve any disagreement between the requesting and receiving offices concerning the need for a collateral examination. If the area managers disagree, they should consult the Director, EO Examinations. 4.75.21.7 (03-15-2017) Information Referrals Use Form 5666, TE/GE Referral Information Report, an information notice and for recommending a future year examination from TEGE to other functional examination areas. See: Form 5666 for instructions on completing it. IRM 4.75.16.4.8, Case Closing Procedures, Form 5666 Information Report. Use the SRS to submit referrals to TEB or FSL/ET. Referrals to TEB are mandatory if an IRC 501(c)(3) organization is proposed for revocation and has issued tax-exempt bonds. 4.75.21.8 (11-05-2019) Guidance for Exempt Organizations Examinations Related to Indian Tribal Government Entities ITG is the central point for all IRS contacts with federally recognized Indian tribes. 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. The ITG staff is specially trained in the unique areas of tax law and protocol that apply to Indian tribes. You must contact the local area ITG specialist before making initial contact on EO examinations 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. Example: Contact your local ITG specialist if you receive an examination for an EO located on tribal land or an EO established and controlled by members of a tribal council. 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. 4.75.21.9 (11-05-2019) General Guidance Related to Federal Government Entities The critical concerns with federal entities are employment tax issues and information return reporting. While the number of federal entities are few, they have significant revenue impact due to their: High volume of expenditures, both payroll and non-payroll. Involvement with public sector employers and employees. Section 530 of the Revenue Act of 1978 and Section 218 of the Social Security Act do not apply to federal entities. Federal entities are excluded from penalty and interest provisions under Policy Statement 20-2 (formerly P-2-4), Penalties are used to Enhance Voluntary Compliance, IRM 1.2.1.12.2. There are unique protocols for working with federal entities, including the military. 4.75.21.10 (11-05-2019) General Guidance Related to State and Local Government Entities State and local government employees are covered for Social Security and Medicare (FICA) in one of two ways: Section 218 Agreements. Mandatory 1991 Social Security provisions for those who aren’t members of a public retirement system. Mandatory Medicare State and local governments make up a majority of FSL’s customers. Section 218 is one of the primary issues FSL addresses. 4.75.21.11 (11-05-2019) Contacting SSA Regional Office on Section 218 Coverage Issues The MOU between the SSA and IRS provides that SSA is the arbiter of coverage issues relating to Section 218 Agreements. Under the Social Security Act, Sections 210 and 218, the SSA is responsible for determining coverage of state and local government employees under a state's Section 218 Agreement and modifications. The SSA is solely responsible for interpreting Section 218 Agreements and modifications. Contact the SSA for input or a determination when there is a dispute or question as to whether a position or positions are covered under an entity’s Section 218 agreement/modification. 4.75.21.12 (11-05-2019) IRS-Department of Labor (DOL) Coordinated Compliance Agreement 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 examinations and litigations. The agreement permits exchanging information on plans under examination and/or identified for examination at regular intervals. It thereby reduces the likelihood of duplicate examination efforts. For EO, the agreement covers all field or office examinations 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. 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 examination referral checklists. CP&C Classification receives DOL referrals and sends them to EO on formal memos. CP&C EO Referrals review the referral for examination potential. 4.75.21.13 (03-15-2017) State Notification of Examination Results The IRS is required to disclose certain examination 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 examiners, the type of information subject to lawful disclosure, and the recipient of the lawfully disclosable return information. Also refer to IRM 7.28.2, Information Disclosure to State Officials under IRC 6104(c). 4.75.21.13.1 (03-15-2017) IRC 6103(d) Disclosures 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; see 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. IRS disclosure may be made only: In response to a written request by the head of the agency, body or commission. For the purpose of, and extent necessary, in the administration of such tax laws. The EO Fed-State Liaison is responsible for updating the state list and sharing the updated list with examiners. 4.75.21.13.1.1 (03-15-2017) IRC 6103(d) Information "IRC 6103(d) information" includes completed examination 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 IRM and in IGM. 4.75.21.13.1.2 (03-15-2017) IRC 6103(d) Disclosure Procedure - Examiners Use the procedures below for an organization located in one of the approved states. 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. 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." 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 TEGE Closing Unit makes that determination after it receives the case. The TEGE Closing Unit is responsible for printing, suspense, and proper disposition of IRC 6103(d) information to the proper state authority through the proper channels. 4.75.21.13.2 (03-15-2017) IRC 6104(c) Disclosures: Proposed and Final Revocations Refer to IRM 7.28.2, Information Disclosure to State Officials Under IRC 6104(c), for detailed guidance. 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 examination process. PPA Section 1224 amended IRC 6104(c) which governs disclosures about IRC 501(c)(3) organizations to state tax or charity agencies. 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). 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. Agencies must now meet certain requirements to be eligible to receive disclosures under IRC 6104(c), They must submit a Safeguard Procedures Report (SPR) and be approved to receive the information. 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. Any 501(c)(3) organization (both public charities and private foundations) or disqualified persons located in these states fall under these provisions. Examiners in other states need to know these procedures for assigned cases not in the taxpayer’s geographic area. 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. 4.75.21.13.2.1 (03-15-2017) IRC 6104(c) Disclosures: Proposed and Final Revocations: Field Examiners Use the procedures below for an IRC 501(c)(3) organization located in one of the approved states. Send the 30-day proposed revocation letter and RAR to the taxpayer per current group closing letter procedures. Hold the case for 30 days. 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. RAR. Form 990 for all applicable tax periods. Note: See address at Exhibit 4.75.21-2. Note on the case chronology "IRC 6104(c) package for [state(s)] was sent to the EO Fed-State Liaison on MM/DD/YYYY)" . 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 EO Examinations FSL/ET Mandatory Review ( EO FSL/ET MR) know that this is a case subject to these special disclosure provisions. 4.75.21.13.2.2 (11-05-2019) IRC 6104(c) Disclosures: Proposed and Final Revocations: EO Examinations FSL/ET Mandatory Review & EO Fed-State Liaison The EO Fed-State Liaison: Sends the proposed revocation package to the appropriate state agency. Keeps the appropriate records and notifies the Disclosure Office to account for the disclosures under IRC 6103(p)(3). Coordinates with EO FSL/ET MR and tracks the progress of the proposed revocation case (i.e., agreed or unagreed). If the issue is agreed or unagreed without protest: EO FSL/ET MR prepares a 90-day letter (final adverse determination letter) and sends it to the taxpayer. The EO Fed-State Liaison secures a copy of the 90-day letter from EO FSL/ET MR and sends it to the appropriate state agency. If the issue is unagreed with protest: EO FSL/ET MR sends it to the Appeals Office. The EO Fed-State Liaison tracks the case progress and coordinates with the Appeals Office. 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). The EO Fed-State Liaison notifies the appropriate state agency whether or not the proposed revocation is upheld. 4.75.21.13.3 (06-25-2010) IRC 6104(c) Disclosures: Chapters 41 and 42 Assessments 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 IRC 6104(c)(1)(B) and Treas. Reg. 301.6104(c)-1(c)(2). 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 advice to have sponsoring organizations make distributions resulting in more than incidental benefits. 4.75.21.13.3.1 (11-05-2019) IRC 6104(c) Disclosures: Chapters 41 and 42 Assessments: Field Examiners If the case is located in one of the approved states in Exhibit 4.75.21-2, follow the procedures outlined in IRM 4.75.21.13.3.1 (2) - IRM 4.75.21.13.3.1 (4), below. 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. RAR. Note on the case chronology "IRC 6104(c) package for [state(s)] was sent to the EO Fed-State Liaison on (MM/DD/YYYY)." Notify the EO Fed-State Liaison either that: Issue is agreed. Issue is unagreed and being forwarded to EO FSL/ET MR. Attach a Form 3198-A to the case file to alert EO FSL/ET MR that this case is subject to the disclosure provisions of IRC 6104(c). 4.75.21.13.3.2 (11-05-2019) IRC 6104(c) Disclosures: Chapters 41 and 42 Assessments: EO Examinations FSL/ET Mandatory Review & EO Fed-State Liaison 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). If the Chapter 41/42 issue goes unagreed, the EO Fed-State Liaison coordinates with EO FSL/ET MR and Appeals and tracks the progress of the case. 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). The EO Fed-State Liaison ensures the appropriate state agency is notified as to whether the proposed assessment is upheld. 4.75.21.14 (03-15-2017) Whistleblower Cases Assigned to Field An informant submits Whistleblower (WB) claims on Form 211, Application for Award for Original Information. WB claims are either "A" or "B" claims. These two letters refer to the applicable sub-sections of IRC 7623. See IRM 4.75.4, Exempt Organizations Examination Procedures, Case Selection and Delivery, for definitions and information about these claims prior to field assignment. 4.75.21.14.1 (11-05-2019) Examination Procedures After the debriefing, taint review and the case has been selected for examination, CP&C, Classification and Case Assignment (C&CA) assigns the case to an examination group. When the examination group receives a WB examination case, the group manager must contact the appropriate C&CA manager to request the WB electronic file be sent to the group. You will receive two files: The examination case file. The WB case file which contains the Form 211 and the documentation submitted by the WB. Note: There may be multiple Form 211s included in one case file. 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. Except as detailed below, follow all normal examination procedures. See IRM 4.75.21.14.2 for specific procedures for "A" claims. See IRM 4.75.21.14.3 for specific procedures for "B" claims. The WB case file instructions should be in the WB case file. This document gives the examination group basic procedures and guidance for the WB aspects of the examination. 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. Keep all WB information separate from the examination case file. If there is a hard copy WB case file, keep it locked up when not in use. Reminder: DO NOT, under any circumstances, take the WB case file to the examination site. . DO NOT mention the WB in either the examination case file in RCCMS or in the hard copy examination 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. The examiner shouldn’t make any contact with the WB. If the examiner 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. 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. 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. The WB Office uses information on Form 11369, as well as any relevant workpaper information to determine if an award is paid. DO NOT leave WB information or reference to a WB in the closed examination case file; even if you close it unagreed. If the examination case file is going to Appeals, DO NOT include any WB information or the Form 11369 in the examination case file sent to Appeals. 4.75.21.14.1.1 (11-05-2019) Form 11369, Confidential Evaluation Report on Claim for Reward WB Awards must take into account proceeds, which may include penalties, fines and forfeitures. See IRC 7623(c). If the WB claim has any actions outside of U.S. Code Title 26, like Title 18 or Title 31, attach additional information to Form 11369 that documents What actions were taken outside of Title 26. How WB information was used to identify and develop issues, facts or evidence and Any other agencies that were involved. Refer to the Whistleblower Office website for additional guidance. Form 11369. 4.75.21.14.2 (03-15-2017) Category "A" WB Claim Procedures A Category "A" case is any WB Claim that isn’t a category "B" case. See IRM 4.75.21.14.3 (1). 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. If at any time, the amount of potential proceeds (e.g. taxes, interest and penalties) is $2 million or more, contact the EO WB B Coordinator. After you prepare Form 11369 send this information to the ICE unit: Completed Form 11369. WB case file. Copy of the RAR, if applicable. Form 5464, Case Chronology Record or Form 9984, Examining Officer’s Activity Record. Form 5773, EO Workpaper Summary or Form 4318, Examination Workpaper’s Index. 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. 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. 4.75.21.14.3 (03-15-2017) Category "B" WB Claim Procedures A Category "B" case is where the proceeds 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. 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. After Form 11369 is prepared and the examiner has ensured that no WB materials remain in the examination case file, the following information is sent to the EO Examinations WB B Coordinator: Completed Form 11369. WB case file. Copy of RAR, if applicable. Form 5464, Case Chronology Record or Form 9984, Examining Officer’s Activity Record. Form 5773, EO Workpaper Summary or Form 4318, Examination Workpaper’s Index. 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. The EO Examinations WB "B" Coordinator reviews the information, makes sure it’s complete, then sends it to the WB Analyst. 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. 4.75.21.15 (11-05-2019) CSP Program This subsection provides instructions on processing Classification Settlement Program (CSP) cases. 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. 4.75.21.15.1 (11-05-2019) CSP Roles and Responsibilities Examiner should complete the final CSP package to be submitted to the CSP Coordinator. The package 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 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 GM and the Area CSP Reviewer. Copy of any workpapers to support the worker classification and Section 530 issues. Taxpayer contact information. : The Group Manager will: Ensure examiners 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. Review and submit the final CSP package to the Area CSP Reviewer for accuracy and consistency. The Area CSP Reviewer (one per area) (For EO Exam Only): Reviews proposed CSP agreements within two weeks of receipt of the CSP packages from group managers. Consults with the CSP Coordinator as necessary. Returns a signed memo to the group manager concurring with the offer. Find a list of CSP Reviewers on the EO Employment Tax SharePoint site. The CSP Coordinator is also the employment tax analyst on behalf of EO. The CSP Coordinator: Oversees EO and FSL/ET examinations’ CSP program. Acts as a consultant to the group managers and Area CSP Reviewers on all CSP cases. Responds to managers’ and examiners’ technical and procedure questions over the CSP. Participates in calls, as needed, with group managers and examiners or Area CSP Reviewers on CSP procedural problems, technical matters, emerging issues, and on the conduct of the overall program. Conducts annual reviews of executed CSP agreements from closed files. Drafts and coordinates alerts or other feedback on technical or procedural issues as needed. Group Manager will: Sign the CSP agreement (in triplicate) after the Area CSP Reviewer concurs with, and the taxpayer signs, the agreement. Send the final CSP package to the CSP Coordinator. 4.75.21.15.2 (03-15-2017) CSP Procedures The closing DCs on Form 5599 (and on RCCMS) are: DC 03 (102), Agreed Tax Change, for the offer quarters. DC 12 (104), Closing Agreement (FSL/ET cases). 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 DC 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. 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. 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. 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. 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. Exhibit 4.75.21-1 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 persons who are employed by the organization or who will benefit financially, directly or indirectly, from the organization’s activities (other than through the receipt of reasonable director’s fees or the repayment of consumer debt to creditors other that the credit counseling organization or its affiliates)? Proceed to the next question. 501(q) violation Does 49% or less of the voting power of the board belong to persons who are employed by the organization or who will benefit financially, directly or indirectly, from the organization’s activities (other than through the receipt of reasonable director’s fees? Pass the board of director analysis. 501(q) violation Exhibit 4.75.21-2 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) EO Fed-State Liaison IRS 1616 Capitol Ave. Stop 4730 Omaha, NE 68102 You can refer to IRM 7.28.2, Information Disclosure to State Officials Under IRC 6104(c), for guidance. More Internal Revenue Manual