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

Audience: The procedures in this IRM apply to Exempt Organizations Examination employees in the following series:

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.

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:

An incomplete return is a return that:

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.

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.

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

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:

An MFT 67 NRU module is a module of:

An MFT 67 NRU module is not:

An MFT 67 module loses its designation as a NRU module, becoming a "return module" if the examiner:

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:

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

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:

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:

The purpose of this section is to:

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:

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.

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.

To properly develop examination issues sometimes you may need to request:

Use collateral examinations when:

A Collateral examination is justified when:

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.

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:

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.

ITG is the central point for all IRS contacts with federally recognized 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.

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.

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:

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.

State and local government employees are covered for Social Security and Medicare (FICA) in one of two ways:

State and local governments make up a majority of FSL’s customers.

Section 218 is one of the primary issues FSL addresses.

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.

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:

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.

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).

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.

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: