4.75.22 EO Delinquent, Amended and Substitute for Return Procedures

Manual Transmittal

August 25, 2017

Purpose

(1) This transmits revised IRM 4.75.22, Exempt Organizations Examination Procedures, EO Delinquent, Amended, and Substitute for Return Procedures.

Material Changes

(1) This revision incorporates editorial and procedural corrections from the previous version. Editorial corrections include not italicizing source names and titles as required by the IRS Style Guide, as of January 3, 2017.

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

(3) All references to "Examination Special Support (ESS)" are changed to the "EO Closing Unit" due reorganization in TE/GE.

(4) All references to the "EO Classification Unit" are changed to "EO Referrals Group."

(5) Added three-digit RCCMS closing codes in parenthesis after each mention of an AIMS disposal code.

(6) Substituted the term, "review function" in place of "Mandatory Review" where appropriate, which includes Special Review.

(7) Added new procedures:

  • IRM 4.75.22.3 (1) – Transcripts are no longer attached to returns; include in the Miscellaneous Documents part of the workpapers

  • IRM 4.75.22.4.1.1 – Payment process using EFTPS.

  • IRM 4.75.22.7.5 – Correcting erroneous push code 021 SFR establishments.

  • IRM 4.75.22.8 – Establishing audit controls for Forms 4720-A.

  • IRM 4.75.22.12 – Constructing and maintaining an information return penalty case file.

  • IRM 4.75.22.6, IRM 4.75.22.5 and IRM 4.75.22.5.1 – Considering claims under IRC 45R.

(8) IRM 4.75.22.1 – Replaced content with new Program Scope and Objectives as required by IRM 1.11.2.2.5.

  • IRM 4.75.22.1.1, Background - Added the policy framework behind this manual.

  • IRM 4.75.22.1.2, Authority - Added the legal authorities for securing delinquent returns and processing SFRs

  • IRM 4.75.22.1.3, Responsibilities - Added the key responsibilities of the targeted employees for this manual.

  • IRM 4.75.22.1.4, Terms - Added a list of frequently used terms in the delinquent and SFR process.

  • IRM 4.75.22.1.5, Acronyms - Added a list of frequently used abbreviations and their terms in the delinquent and SFR process.

  • IRM 4.75.22.1.6, Related Resources - IRMs - Added by centralizing IRM references with titles formerly in the body-text and in the MT, into this subsection.

  • IRM 4.75.22.1.7, Related Resources - Forms and Pubs - Added by centralizing forms and pubs references with titles formerly in the body-text and in the MT, into this subsection.

(9) IRM 4.75.22.2 – Changed title from "Determining Liability for Returns" to "Identifying Filing Requirements."

(10) IRM 4.75.22.3 – Added new paragraph as central reference for IDRS and NMF research.

(11) .IRM 4.75.22.3.2 – Added new paragraph stating that penalties generally require managerial approval.

(12) IRM 4.75.22.3.3 – Redesignated as IRM 4.75.22.3.5. Inserted new "When Not to Solicit EO Returns."

(13) IRM 4.75.22.3.4 – Inserted new IRM 4.75.22.3.4, Soliciting Returns, and incorporated IRM 4.75.22.3 (5).

(14) IRM 4.75.22.3.5 – Redesignated as IRM 4.75.22.3.6.

(15) IRM 4.75.22.3.6 – Redesignated as IRM 4.75.22.3.7.

(16) IRM 4.75.22.3.7 – Redesignated as IRM 4.75.22.3.8.

(17) IRM 4.75.22.3.7 (2) – Redesignated as IRM 4.75.22.3.8 (3) and corrected for bankrupt organizations

(18) IRM 4.75.22.4 – Revised the title to "Delinquent Return Secured."

(19) IRM 4.75.22.4 – Added references to converted returns wherever delinquent returns are mentioned - procedures are similar.

(20) IRM 4.75.22.4 – Simplified annotations on margins of returns. Only non-assertion of penalty notations are needed.

(21) IRM 4.75.22.4 and IRM 4.75.22.5 – Rearranged paragraphs for consistency purposes.

(22) IRM 4.75.22.4.1 (8) – Revised to reflect all payments and remittance documents are to Campus addresses, no longer the FAST.

(23) IRM 4.75.22.4.1 (13) – Deleted reference to the RCCMS Naming Convention.

(24) IRM 4.75.22.4.1.1 – Added new subsection titled "Electronic Federal Tax Payment System (EFTPS)."

(25) IRM 4.75.22.4.2.2 – Revised to default to asserting delinquency penalties if a non-assertion notation on Form 3198-A is absent.

(26) IRM 4.75.22.5 – Clarified amended return procedures. Added consideration for claims under IRC 45R.

(27) IRM 4.75.22.5.1 – Revised the title and clarified procedural steps. Included consideration for IRC 45R claims.

(28) IRM 4.75.22.6 – Added policy of fairness and integrity for auditing picked-up returns. Agents must inform taxpayers of audit.

(29) IRM 4.75.22.6 – Added instruction on using tracking codes in RCCMS for delinquent return pick-ups.

(30) IRM 4.75.22.6 – Added issuing Letter 566-N when opening secured return solely for IRC 45R claim purposes.

(31) IRM 4.75.22.7 – Clarified instructions on SFRs. The "dummy SFR" is a working return not part of the "SFR package."

(32) IRM 4.75.22.7 – Added link to rules for using ASED Alpha Code "PP" for Form 990-N.

(33) IRM 4.75.22.7 – Substitute for returns are for tax returns only; not applicable to non-taxable Form 990 and similar primary returns.

(34) IRM 4.75.22.7 – Added instructions for using tracking codes in RCCMS for SFR return pick-ups.

(35) IRM 4.75.22.7.1 – Clarified instructions regarding Form 13496 - the form doesn't go to the taxpayer.

(36) IRM 4.75.22.7.4 – Clarified instructions for receiving original returns after SFR establishments.

(37) IRM 4.75.22.7.4 – A TC 971 AC 282 (or AC 013) will allow a delinquent return to use DC 06 if secured after posting a SFR.

(38) IRM 4.75.22.8 – Redesignated as IRM 4.75.22.9. Clarified converted return procedures.

(39) IRM 4.75.22.8 – Inserted new IRM 4.75.22.8, Delinquent and SFR Form 4720 Series.

(40) IRM 4.75.22.9 – Redesignated as IRM 4.75.22.10.

(41) IRM 4.75.22.10 – Redesignated as IRM 4.75.22.11 – Changed title to "Payee Information Returns."

(42) IRM 4.75.22.11 – Redesignated as IRM 4.75.22.12.

(43) IRM 4.75.22.11 – Deleted requirement to submit Form 3198-A to the FAST for payee returns. Incorporated IG Memo SBSE-04-0117-0006.

(44) IRM 4.75.22.11.1 – Included instructions on submitting wage statements.

(45) New IRM 4.75.22.11.2 – Included new instructions on submitting wage statements. Taxpayers must send them directly to the Social Security Administration after the audit closes. Agents must prepare a Tickler File and send the file to the EO Closing Unit if the wage statements are not collected and secured by the agent per IRM 4.5.3.22.

(46) New IRM 4.75.22.11.3 – Included instructions on Forms 1096 and 1099 series.

(47) New IRM 4.75.22.12 – Revised to reflect edits to table required by Interim Guidance Memorandum TEGE-04-0313-0004.

(48) New IRM 4.75.22.12 – Added instruction to use Letter 5005-P to inform taxpayers of imposition of information return penalties.

(49) New IRM 4.75.22.12.3 – Revised paragraph (3)c to reflect that either Form 5666 or a another Division’s referral form.

(50) New IRM 4.75.22.12.4 – Added subsection for RCCMS purposes and tracking time.

(51) New IRM 4.75.22.13 – Added new subsection, "Shipping from the Group." New mailing address for the FAST.

(52) Exhibit 4.75.22-1 – Moved definitions to IRM 4.75.22.1.4. Deleted exhibit and renumbered succeeding exhibits.

(53) New Exhibit 4.75.22-1 – Removed restriction designation on reasonable cause criteria.

(54) Exhibit 4.75.22-6 – Deleted content due to obsolescence. Payments are no longer remitted to the FAST. Moved and revised contents from Exhibit 4.75.22-9. Revised to state the conditions for issuing a 90-day notice and demand letter. Clarified that a notice and demand letter can apply to other primary returns and must be sent by certified mail, under the signature block of the Director, EO Examinations.

(55) New Exhibit 4.75.22-7 – Deleted contents due to redundancy. Added instructions on establishing Form 4720-A on RCCMS.

(56) Exhibit 4.75.22-8 – Deleted exhibit. See Letter 854-C, Penalty Waiver or Abatement Disallowed/Appeals Procedure Explained, online.

(57) Exhibit 4.75.22-9 – Moved revised contents to Exhibit 4.75.22-6. Deleted exhibit.

Effect on Other Documents

This supersedes IRM 4.75.22, dated November 6, 2012
This obsoletes and Revokes Memorandum TEGE-04-0213-0002, Establishing Forms 4720-A on AIMS and RCCMS
This incorporates and supersedes Memorandum TEGE-04-0313-0004, Information Return Penalty Case File.
This incorporates in part Memorandum SBSE-04-0117-0006, Updated Instructions for Employers Filing Forms W-2 or W-2c After an Agreed Employment Tax Examination and Procedures for Tickler Files, dated January 26, 2017, for IRM 4.23.8, Determining Employment Tax Liability, which targets TE/GE as well.
This supersedes Mandatory Review Alert January 2, 2013, Forms 4720-A to Post to AIMS Master File Effective January 1, 2013
This supersedes Mandatory Review Alert April 2, 2013, Forms 4720-A – Conversion to AIMS Master File Required
This incorporates and supersedes Mandatory Review Alert April 8, 2013, Substitute for Return – Updating Statute Date.
This incorporates and supersedes Mandatory Review Alert July 15, 2013, Reverting All Form 4720-A Controls Back to NMF
This incorporates and supersedes Mandatory Review Alert August 14, 2013, Reverting All Form 4720-A Controls Back to NMF – Part 2

Audience

Tax Exempt and Government Entities
Exempt Organizations
Examinations

Effective Date

(08-25-2017)

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

Program Scope and Objectives

  1. Purpose. This IRM section describes the delinquent and substitute for return process in EO Examinations. This manual provides the procedures and guidance agents need to process these returns. This manual also includes procedures for processing secured amended returns, converted returns, payments received and imposition of delinquency penalties. For detail procedures, guidelines and criteria for establishing and enforcing converted returns, see IRM 4.75.31.

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

    • Revenue agents, GS-0512

    • Tax compliance officers, GS-0526

    • Tax law specialists and reviewers, GS-0987

    • Tax examiners, GS-0592

    • Front-line examination group managers

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

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

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

Background

  1. The mission of Exempt Organizations is to provide Exempt Organizations customers top quality service by helping them understand and comply with applicable tax laws, and to protect the public interest by applying the tax law with integrity and fairness to all.

  2. IRM 1.1.23.1 provides that the TE/GE Division Mission is to provide TE/GE customers top quality service by helping them understand and comply with applicable tax laws and to protect the public interest by applying the tax law with integrity and fairness to all.

Authority

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

  2. IRC 7602 provides that for the purpose of ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax, the Secretary is authorized to:

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

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

    • Take testimony under oath to secure additional information needed.

    • Inquire into any offense connected with the administration or enforcement of the internal revenue laws.

  3. 26 CFR 301.6020-1 provides guidance to authorized employees for preparing substitute for returns under IRC 6020(b). See Treasury Decision (TD) 9380, 2008-1 C.B. 718.

  4. Delegation Order 5-2 (formerly DO-182, Rev. 7) provides that Internal Revenue Agents have the authority to prepare and execute returns required by law when the person required to file such returns fails to do so. See IRM 1.2.44.3.

  5. Policy Statement 5-133, "Delinquent returns—enforcement of filing requirements," describes the IRS’ policy on delinquent returns and the enforcement of filing requirements. See IRM 1.2.14.1.18.

  6. Policy Statement 20-1 (formerly P-1-18), "Penalties are used to enhance voluntary compliance," describes the IRS’ policy on administering a penalty system that is designed to:

    • Ensure consistency

    • Ensure accuracy of results in light of the facts and the law

    • Provide methods for the taxpayer to have his or her concerns heard and considered

    • Require impartiality and a commitment to achieving the correct decision

    • Allow for prompt reversal of initial determinations when sufficient information has been presented to indicate that the penalty is not appropriate

    • Ensure that penalties are used for their proper purpose and not as bargaining points in developing or processing cases

Responsibilities

  1. Agents are responsible for conducting a quality audit with fairness and integrity.

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

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

    • Meets the requirements for exemption

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

    • Has filed all required tax and information returns

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

  4. Agents and group managers are responsible for controlling and monitoring statutes on their assigned cases.

Terms

  1. General definitions are as follows:

    1. Agent – For purposes of these instructions, any EO employee authorized to audit returns (GS-0512, GS-0526, GS-0592, or GS-0987 series).

    2. Amended return – A return that corrects a previously filed return.

    3. Audit Controls – An audit establishment of a return or non-return unit in the AIMS and RCCMS database for control purposes.

    4. Campus – Formerly referred to as an IRS service center.

    5. Case file – Synonymously used with the "administrative file."

    6. Closing record – The RCCMS Closing Records tab, and in the case of paper closures, Form 5599.

    7. Conversion – For purposes of this manual, the delinquent or substitute for return process used to convert an annual EO information return to a tax return. A conversion is intended to bring an organization current on its tax and filing obligations for the affected tax years not barred for assessment. See also IRM 4.5.3.14, Conversions.

    8. Converted return – For purposes of this manual, a tax return converted from an annual EO information return.

    9. Delinquent return – A return not voluntarily filed with the IRS on or before the due date, including extensions.

    10. Disqualification – A loss of tax-exempt status for specified tax years for the following types of organizations:

      • Organizations that self-declared their tax-exempt status by filing a an EO annual information return

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

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

    11. EO Closing Unit – Formerly the Examination Special Support unit (ESS) in EO Examinations. The EO Closing Unit is under the jurisdiction of Government Entities Compliance Services (GECS), a function of the Government Entities Shared Services (GE/SS) in TE/GE.

    12. Group Return – A Form 990 filed by a central organization on behalf of two or more subordinate organizations in a group exemption ruling. See IRM 4.75.24.3.1, Group Returns.

    13. The Group – Unless otherwise specified or suggested by context, the front line examination group or audit group.

    14. Imminent statute return – A return with 90 days or less remaining until the statute expiration date.

    15. Incomplete return – A filed return of which material information is omitted and the omission would hinder or preclude the IRS from being able to perform the duties and responsibilities placed upon it by Congress. This type of return is generally treated in the same manner as if no return had been filed when considering penalties. Refer to IRM 21.7.7.4.23.1.3.1 for incomplete return items (IRIs) of Forms 990, 990-EZ, 990-PF. See also IRM 4.75.21.2, Incomplete Returns.

    16. Information Return – Any statement, form, or return as described in Treas. Reg. 301.7621-1(g) and IRC 6724(d)(1).

    17. Primary Return – The annual information return under EO jurisdiction, such as Form 990. This is the return around which other returns revolve. The primary return also serves as the return of record for statute purposes for certain related tax returns, such as Form 990-T.

      Note:

      Form 990-N, not a return, is treated as a primary return for DC and PIC purposes.

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

    19. Remittance Documents - Form 3244-A and Form 3210, transmitting a payment to the Ogden Campus.

    20. Review function – A general term describing the EO Examinations Mandatory Review group and Special Review group.

    21. Secondary return – Any return other than a primary return.

    22. Short statute return – A return with less than 270 days remaining on the ASED.

    23. Statute - Unless stated otherwise in this manual, the term denotes the assessment statute expiration date (ASED).

    24. Subordinate return – A return of a subordinate organization in a group exemption ruling, usually a subordinate’s primary return.

    25. Substitute for return – A required return substituting for a return a taxpayer refuses or is unable to file. Use Push Code 036 for AIMS establishments.

    26. Tax Module – A taxpayer’s account represented by a specific return and tax period.

    27. Transcripts – BMFOLT, IMFOLT, or TXMODA printouts using IDRS. A transcript lists transactions in a tax module represented by transaction codes, actions taken, and the balance due.

    28. Working return – For purposes of case file assembly, the physical or electronic representation of a filed return, SFR, or non-return unit under audit. See also IRM 4.75.22.7.4.

  2. For additional AIMS terminologies, see IRM Exhibit 4.4.1-1, Reference Guide.

Acronyms

  1. The table below lists the commonly used acronyms and their definitions:

    Acronym Definition
    AIMS Audit Information Management System
    ASED Assessment Statute Expiration Date
    BMF Business Master File
    BOD Business Operating Division
    CCC Computer Condition Code
    CFOL Corporate Files On-Line
    CSP Classification Settlement Program
    D.O. Delegation Order
    DC Disposal Code
    DDP Daily Delinquency Penalty
    DLN Document Locator Number
    EGC Employee Group Code
    EIN Employer Identification Number
    EO Exempt Organizations
    EOBMF Exempt Organizations Business Master File
    EP Employee Plans
    ES Estimated Tax Penalty
    ETP Estimated Tax Penalty
    FADL Final Adverse Determination Letter
    FAST Field Assistance Support Team
    FTD Failure to Deposit Penalty
    FTF Failure to File Penalty
    IDRS Integrated Data Retrieval System
    FTP Failure to Pay Penalty
    IDR Information Document Request
    IRC Internal Revenue Code
    IRI Incomplete Return Item
    LB&I Large Business and International Business Operating Division
    MF Master File
    MFT Master file tax code
    MT Manual Transmittal
    NMF Non-Master File
    NRU Non-return unit (See IRM 4.75.21.3)
    PBC Primary Business Code
    PIC Principal Issue Code
    PII Personally Identifiable Information
    RAR Revenue Agent’s Report
    RCCMS Reporting Compliance Case Management System
    SB/SE Small Business/Self Employed Business Operating Division
    SEIN Statistics of Income Exempt Organizations Return Image Net
    SBC Secondary Business Code
    SFR Substitute for Return
    SND Statutory Notice of Deficiency
    SRS Specialist Referral System
    SSN Social Security Number
    TC Transaction Code
    TE/GE Tax Exempt and Government Entities Business Operating Division
    TEB Tax-Exempt Bonds
    TDI Tax Delinquency Investigation
    TIN Taxpayer Identification Number
    UBIT Unrelated Business Income Tax
    W&I Wage & Investment Business Operating Division

Related Resources - IRMs

  1. EO Examinations IRMs mentioned in this manual include:

    • IRM 4.75.5, Information Items

    • IRM 4.75.10, Exempt Organization Pre-Audit Procedures

    • IRM 4.75.12, Required Filing Checks and Package Audit Procedures

    • IRM 4.75.15, Closing Letters and Reports of Examination

    • IRM 4.75.16, Case Closing Procedures

    • IRM 4.75.21, EO Special Examination Procedures

    • IRM 4.75.31, Conversion of Returns Upon Revocation of Exempt Status

    • IRM 4.75.35, Fraud and Abusive Transaction Procedures

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

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

    • IRM 3.11.12, Exempt Organization Returns

    • IRM 4.5.1, TE/GE AIMS Processing

    • IRM 4.5.2, TE/GE Examined and Non-Examined Closures

    • IRM 4.5.3, TE/GE AIMS Special Processing Procedures

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

  3. Servicewide and other BOD IRMs mentioned in this manual include:

    • IRM 1.1.23, Organization and Staffing, Tax Exempt and Government Entities Division

    • IRM 1.2.12, Policy Statements for Submission Processing Activities

    • IRM 1.2.13, Policy Statements for the Examining Process

    • IRM 4.19.13, Liability Determination, General Case Development and Resolution

    • IRM 4.23.1, Employment Tax, Introduction

    • IRM 4.23.6, Employment Tax, Classification Settlement Program (CSP)

    • IRM 4.23.8, Employment Tax, Determining Employment Tax Liability

    • IRM 4.23.9, Employment Tax Penalty and Fraud Procedures

    • IRM 10.2.13, Shipping Personally Identifiable Information.

    • IRM 20.1.1, Penalty Handbook, Introduction to Penalty Relief

    • IRM 20.1.2, Penalty Handbook, Failure to File/Failure to Pay Penalties

    • IRM 20.1.7, Information Return Penalties

    • IRM 21.3.8, Tax Exempt/Government Entities (TE/GE) Customer Account Services (CAS) Telephone Operations

    • IRM 21.7.1, Business Tax Returns and Non-Master File Accounts, BMF/NMF Miscellaneous Information

    • IRM 25.6.23, Examination Process-Assessment Statute of Limitations Controls

Related Resources - Forms and Pubs

  1. The following paragraphs list the forms and publications referenced in this manual. For a comprehensive list of forms relevant to EO agents, see IRM 4.75.16.1.6.

  2. Publications and Documents:

    • Document 6379, Information Systems Codes FY 201X Quick Reference for EO Employees

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

  3. AIMS forms:

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

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

    • Form 5598, TE/GE Correction Request

    • Form 5599, TE/GE Examined Closing Record

  4. Statute forms:

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

    • Form 895, Notice of Statute Expiration

  5. Tax and information return forms:

    • Form 11-C, Occupational Tax and Registration Return for Wagering

    • Form 730, Monthly Tax Return for Wagers

    • Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return

    • Form 941, Employer's Quarterly Federal Tax Return

    • Form 943, Employer's Annual Tax Return for Agricultural Employees

    • Form 944, Employer's ANNUAL Federal Tax Return

    • Form 945, Annual Return of Withheld Federal Income Tax

    • Form 990, Return of Organization Exempt From Income Tax

    • Form 990-BL, Information and Initial Excise Tax Return for Black Lung Benefit Trusts and Certain Related Person

    • Form 990-EZ, Short Form Return of Organization Exempt From Income Tax

    • Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or Form 990-EZ

    • Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation

    • Form 990-T, Exempt Organization Business Income Tax Return

    • Form 4720, (MFT 50), Return of Certain Excise Taxes on Charities and Other Persons Under Chapters 41 and 42 of the IRC

    • Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons

    • Form 1065, U.S. Return of Partnership Income

    • Form 1096, Annual Summary and Transmittal of U.S. Information Returns

    • Form 1099-MISC, Miscellaneous Income

    • Form 1120, U.S. Corporation Income Tax Return

    • Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations

    • Form 1041, U.S. Income Tax Return for Estates and Trusts

    • Form 5227, Split-Interest Trust Information Return

    • Form W-2, Wage and Tax Statement

    • Form W-2c, Corrected Wage and Tax Statement

    • Form W-3, Transmittal of Wage and Tax Statements

    • Form W-3c, Transmittal of Corrected Wage and Tax Statements

    Note:

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

  6. Waiver and acceptance forms:

    • Form 870, Waiver of Restrictions on Assessment & Collection of Deficiency in Tax & Acceptance of Overassessment

    • Form 870-E, Waiver of Restriction on Assessments and Collection of Deficiency and Acceptance of Overassessment

    • Form 2504, Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment

    • Form 2504-E, Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment

    • Form 2504-WC, Agreement to Assessment and Collection of Additional Employment Tax and Acceptance of Overassessment in Worker Classification Cases

    • Form 4549, Income Tax Examination Changes

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

  7. Basic report forms:

    • Form 886-A, Explanation of Items

    • Form 4621, Report of Examination - Exempt Organization - Proposed Tax Changes

    • Form 4549, Income Tax Examination Changes

    • Form 4549-A, Income Tax Discrepancy Adjustments

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

    • Form 5385, Excise Tax Examination Changes

    • Form 4666, Summary of Employment Tax Examination.

    • Form 4667, Examination Changes - Federal Unemployment Tax

    • Form 4668, Employment Tax Examination Changes Report

    • Form 4883, Exempt Organizations Excise Tax Audit Changes

  8. Delinquent return forms, SFR forms, filing requirement forms:

    • Form 2363, Master File Entity Change

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

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

    • Form 3210, Document Transmittal

    • Form 3244-A, Payment Posting Voucher - Examination

    • Form 4844, Request for Terminal Action

    • Form 10321, Fax Transmission Cover Sheet

    • Form 13133, Expedite Processing Cycle

    • Form 13496, IRC Section 6020(b) Certification

  9. Case closing forms:

    • Form 895, Notice of Statute Expiration

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

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

    • Form 3210, Document Transmittal

    • Form 3645, Computation of Information Return Penalty

    • Form 5346, Examination Information Report

    • Form 5599, TE/GE Examined Closing Record

    • Form 5666, TE/GE Referral Information Report

    • Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties

    • Form 10904, Request for Record Deletion from AIMS

  10. Workpaper forms:

    • Form 5464, Case Chronology Record

    • Form 5772, EO Workpaper Summary

    • Form 5773, EO Workpaper Summary Continuation Sheet

Identifying Filing Requirements

  1. With respect to returns of exempt organizations or their related persons, agents must determine:

    • Whether an organization is liable for a particular return (IRM 4.75.22.2, IRM 4.75.22.3)

    • Whether to solicit a delinquent return (IRM 4.75.22.3, IRM 4.75.22.4)

    • Whether to solicit an amended return (IRM 4.75.22.5)

    • What to do if a delinquent or amended return is secured (IRM 4.75.22.4, IRM 4.75.22.5, IRM 4.75.22.8, IRM 4.75.22.9, IRM 4.75.22.11)

    • Whether to audit a secured delinquent or amended return (IRM 4.75.22.6)

    • Whether to pursue substitute for return procedures (IRM 4.75.22.7, IRM 4.75.22.8)

  2. During the pre-audit, determine existing and potential filing requirements. Refer to the following manuals for guidance:

    • IRM 4.75.12, Required Filing Checks and Package Audit Procedures

    • IRM Exhibit 4.75.12-1, Returns Within the Jurisdiction of TE/GE Exempt Organizations

    • IRM 4.5.3.1.2, Exempt Organizations Returns

    • IRM Exhibit 21.3.8-7, Tax Exempt/Government Entities (TE/GE) Forms

    • IRM Exhibit 21.3.8-8, Tax Exempt/Government Entities (TE/GE) Return Due Dates

    • IRM 21.7.7.2(5), Exempt Organizations Overview

    • IRM 21.7.7.3.12, List of EO and GE Forms

    • IRM 25.7.1.5(5), Form 2363-A Preparation Instructions, Filing Requirements

    • IRM Exhibit 25.7.1-5, BMF Filing Requirements

  3. Research the EOBMF on IDRS using command codes INOLES or BMFOLO. See Section 15 of Document 6209 for guidance on command codes.

  4. Identify potential tax liabilities applicable to exempt organizations or their related persons, such as:

    • Unrelated business income taxes, imposed under IRC 511

    • Proxy tax, under IRC 6033(e)(2)

    • Political expenditures tax of IRC 501(c) organizations, imposed under IRC 527(f)(1)

    • Political organizations income tax, imposed under IRC 527(b)

    • Employment and withholding taxes, imposed under IRC Subtitle C

    • Income tax withholding on foreign persons, reported on Form 1042

    • Exempt organizations excise taxes, imposed under IRC Chapter 41 and 42

    • Gaming excise taxes, imposed under IRC 4401 and IRC 4411

  5. If an organization isn't required to file certain returns for future periods you must both update the filing requirement in the EOBMF and prevent the generation of automated notices:

    • Prepare Form 2363-A in order to update a filing requirement to the EOBMF.

    • Prepare Form 4844. In the remarks write, Input TC 590 CC 75 to prevent automated notices.

    • Send Forms 4844 and 2363-A to the FAST by fax, email or ground mail. See IRM 4.75.22.13 for the address.

  6. Research IDRS two weeks later to verify a new filing requirement. The FAST will also send you a notification email.

Determine Delinquency

  1. A delinquent return is a required return that was not filed by the due date, including extensions.

  2. Before soliciting what is believed to be a delinquent return or preparing SFRs:

    • Identify the filing requirement as stated in IRM 4.75.22.2.

    • Obtain BMFOLI, IMFOLI, or SUMRY prints in IDRS to identify filed and non-filed returns.

    • See IRM 4.75.12.6, Filing Verification.

  3. Tax modules not displayed in BMFOLI or IMFOLI are either:

    • Not yet due.

    • For returns not required to be filed.

    • Stored on a retention register; e.g., filed or full paid modules more than 7 years old.

    Note:

    TDIs will reflect status codes 01 through 04.

  4. Obtain transcripts on IDRS for each tax module relevant to the audit. Transcripts can't be more than 30 days old.

  5. For NMF returns, obtain NMF transcripts as follows:

    1. Fax your request to the Accounting Operations Department in Covington, KY, at 859-669-2959.

    2. Use Form 10321, Fax Transmission Cover Sheet.

    3. State on the cover sheet, "Please provide a NMF transcript for XYZ Corporation; EIN 12-3456789; MFT 66; Tax period 201111."

    4. Call 859-669-5498 to follow-up on your request.

  6. A transcript also informs agents whether:

    • A TDI has been initiated

    • A TDI has been resolved

    • A return has been filed

    • A SFR has posted TC 150

  7. If a transcript reflects one of the TC’s below, there is no delinquency for that return:

    • TC 150

    • TC 590

    • TC 591

    • TC 593

    • TC 594

    • TC 596

    • TC 597

    • TC 599

    Note:

    When TC 590, 591 and 593 are posted for a Form 990, solicit the return unless a TC 590 CC 14 is present in the transcript.

  8. Make a determination of a filing requirement after you have considered any combination of the following:

    • The taxpayer’s stated reasons for not filing

    • IDRS research

    • Interviews in general

    • Facts developed from auditing books and records

    • Touring facilities

    • Public records and websites

    • Non-responses to your inquiries

  9. A delinquency determination itself generally isn't subject to appeal. The resulting penalties or SFR adjustment deriving from a taxpayer’s disagreement over a delinquency determination can be appealed. Some penalties can only be appealed after assessment of the penalty. See IRM 20.1.1.4.

  10. See Exhibit 4.75.22-5, Delinquent Return Checksheet.

Retroactivity of Soliciting Delinquent Returns or Enforcing SFRs

  1. Retroactive solicitation or enforcement should not exceed six years. See IRM 1.2.14.1.18, Policy Statement P-5-133.

  2. Apply shorter or longer periods as needed in the best interest of tax administration subject to managerial approval.

  3. When determining the extent of soliciting or enforcing returns, consider:

    • Statutes for certain related EO returns to a primary return of record

    • The taxpayer's prior history of noncompliance

    • The extent of the delinquency

    • The effect upon voluntary compliance

    • Whether the delinquency involves diverted trust funds

    • Whether the circumstances are peculiar to a specific entity

    • The estimated tax in relation to the time and effort to enforce it

  4. If the audit involves a plan or trust that has been granted a conditional waiver of the minimum funding deficiency, retroactive enforcement may exceed six years.

Managerial Approval

  1. The group manager approves the number of periods for which delinquent returns are solicited. Document the case file to:

    • Outline the facts of the case.

    • Detail the reasons for recommending a longer or shorter number of years than six years.

  2. Managerial approval is also required for most penalties. IRC 6751(b)(1).

When Not to Solicit Delinquent Returns

  1. Don't solicit a return under the following conditions:

    • Fraud is indicated. Consult with the TE/GE Fraud Specialist. See IRM 4.75.35 and IRM Chapter 25.1, Fraud Handbook.

    • The organization is exempt from filing a return by law.

    • The return was filed under another EIN.

    • In the case of primary returns, the organization is a subordinate in a group ruling and is included on a group return. See IRM 4.75.22.3.7.

    • In the case of converted returns: The underlying revocation or adverse status change is neither agreed nor final.

Soliciting Delinquent Returns

  1. When soliciting a return after considering fraud, ask for an explanation why the return wasn't filed.

    1. If the taxpayer files a delinquent return with you, see IRM 4.75.22.4, Delinquent Returns.

    2. If the taxpayer can't or refuses to file a delinquent return, see IRM 4.75.22.7, Substitute for Returns.

    3. If the delinquent return is under the jurisdiction of another BOD or TE/GE function, see IRM 4.75.22.9.

    4. If the delinquent return is a payee-type information return, such as Form W-2, see IRM 4.75.22.11.

  2. A reasonable cause determination doesn’t relieve a taxpayer from filing a required return.

Out of Business, Terminated or Dissolved

  1. If an organization is out of business, ceased to operate, terminated, or filed for dissolution, obtain all of the following:

    • A final return. Ensure the check box for final return is marked. See IRM 4.75.16.5.10.1.

    • A written statement of disposition of assets. See IRM 4.75.16.5.10.2.

    • A dissolution document. See IRM 4.75.16.5.10.3.

    Note:

    Don’t terminate the organization’s exempt status if either one of these three evidentiary items is missing.

Inactive Organizations

  1. Inactive organizations are organizations that continue to exist, but are not operational.

  2. Refer to IRM 4.75.15.8.9, Inactive Organizations, for guidance on reports, letters and closure instructions. See also IRM Exhibit 4.75.16-15, Unable-to-Locate Scenario Guidance Table.

  3. An EO that fails to file a required Form 990 series return or notice for three consecutive tax years, will be auto-revoked.

  4. If an inactive organization contends it is exempt from filing Form 990 or an e-Postcard:

    1. Review the facts and the taxpayer's explanations and make a determination.

    2. If an organization is required to file a return, solicit the return after considering fraud.

    3. You may issue a 90-day notice and demand letter after two or more attempts to secure a Form 990. See sample at Exhibit 4.75.22-6.

  5. If an organization was inactive during the period under audit, and it has an open TDI for any taxable return (other than Form 990-PF), close the TDI if no taxable return is required as follows:

    1. Prepare Form 4844. In the remarks write:

      • "Input TC 590 cc 50" for closing a TDI only for the period under audit (tax-exempt status continues)

      • "Input TC 591 cc 50" for closing a TDI for the period under audit and all succeeding tax periods - no longer liable for the tax (tax-exempt status continues)

      • "Input TC 598 cc 057" for closing a TDI for a return of an organization whose tax-exempt status has been or will be revoked.

    2. Send Form 4844 to the FAST by FAX, secure e-mail, or mail.

    3. If records were inspected, close the tax return audit with DC 02 (107), No Change, unless a higher priority disposal code applies.

    4. If no records were inspected, close the tax return with DC 32 (908), Survey After Assignment.

    Note:

    Identify an open TDI by researching Command Code TXMOD. Go to the TDI Module Indicator field for BMF accounts and for IMF accounts. The opened and closed TDI field indicators are provided in Section 11 of Document 6209.

  6. Inform the organization on the consequences of not filing Form 990 (or Form 990-N if eligible) in an advisory for the related primary return under audit. Answers to frequently asked questions are found at https://www.irs.gov/charities-non-profits/automatic-exemption-revocation-for-non-filing-frequently-asked-questions-2.

Subordinate Organizations Included In Group Return

  1. If an organization isn't liable for filing Form 990 because it filed a group return with a parent organization:

    1. Prepare Form 4844 to satisfy the module for the tax period.

    2. In the remarks write, "Input TC 590 CC 14."

    3. Send the completed Form 4844 to the FAST by FAX, secure e-mail, or mail.

  2. You may solicit other delinquent returns from subordinate organizations, such as Form 990-T.

  3. Pursue enforcement if additional liabilities are found.

Bankruptcy

  1. If a taxpayer has filed for bankruptcy protection, don't solicit payments. Bankruptcy protection prevents the collection of tax.

  2. Immediately contact an Examination Bankruptcy Coordinator (SB/SE). The Coordinator determines if the bankruptcy is still pending and provides you with further instructions. For a list of Coordinators, see http://mysbse.web.irs.gov/exam/tip/bankruptcy/contacts/12268.aspx.

  3. Indications of a bankruptcy include:

    • -V Freeze on TXMOD

    • -U Freeze on AIMS for bankruptcy petitions filed prior to October 22, 1994

    • -X Freeze on AIMS for bankruptcy petitions filed on or after October 22, 1994

    • TC 520

    • The organization, through an officer, trustee, director, or representative indicates verbally or in writing that it is in bankruptcy

  4. Bankruptcy also prevents the assessment of tax. However, bankruptcy doesn't prevent the issuance of an audit report, a FADL or SND.

    • An -X Freeze will prevent an audit tax assessment (TC 300), unless you use an agreed disposal code.

    • A -U Freeze will prevent an audit tax assessment (TC 300).

    • If you audit a taxpayer under bankruptcy protection, see IRM 4.19.13.19, IRM 4.27.1, and IRM 4.27.2.

  5. Consult with a bankruptcy coordinator before:

    • Soliciting delinquent or converted returns

    • Issuing a report

    • Imposing penalties

Delinquent Return Secured

  1. Send all secured delinquent return packages to the FAST address indicated at IRM 4.75.22.13 (2).

  2. If the delinquency involves:

    • A return not under the audit jurisdiction of EO Exams, see IRM 4.75.22.9.

    • Payee information returns, see IRM 4.75.22.11.

  3. Securing a Delinquent Return by Fax. You may secure a delinquent (or converted) return by fax. Refer to IRM 3.12.279.32, Facsimile (FAX) Guidelines.

    • The IRS only accepts a faxed original return in order to verify the taxpayer’s claim that they filed the original return.

    • See IRM 4.19.4.3.23, Faxed Signatures - Replies.

    Caution:

    Taxpayers may never file an original return by fax.

  4. Check the secured return:

    • For a list of items to check on a secured delinquent return, see table at IRM 4.5.3.15.1.1(1).

    • If there is incorrect or missing information on the return, give the taxpayer an opportunity to submit a correct return.

      Note:

      Incomplete returns are not acceptable.

      Note:

      If the taxpayer insists on filing a tax return with information you disagree with, collect the return subject to audit adjustment.

      Note:

      If you believe a return to be fraudulent, consult with the Fraud Technical Advisor. See IRM 4.75.35.

  5. Prepare the original delinquent return package as follows:

    1. Date stamp the return when received.

    2. Don't cover a taxpayer entry. Avoid areas reserved for the Campus' Computer Condition Codes. See Exhibit 4.75.22-3.

    3. If no date stamp is available, annotate in the middle of the return over the wording, but not over the numbers, "Received," the date received, your name and title.

    4. Leave sufficient space on the upper right margin of the return for the Campus to stamp the DLN.

    5. Write across the top margin of the return in red, "Delinquent Return Secured by TE/GE."

    6. Converted returns only: Write across the top margin of the return in red, "Form 990 Converted to Form [1120 or 1041 or 990-PF]."

    7. Process any payments received within 24 hours. See IRM 4.75.22.4.1.

    8. Determine the application of penalties. See IRM 4.75.22.4.2.

    9. Prepare Form 13133 for each return.

    10. Prepare Form 3198-A for each return.

  6. Assemble the original return package in the following order front to back; then scan or photocopy the package:

    • Form 13133

    • Form 3198-A

    • A copy of the payment instrument (check, cashiers check, etc.)

    • A copy ofForm 3244-A

    • A copy of the taxpayer's written penalty relief request

    • The original delinquent return.

    • Mark "Copy - Do Not Process" at the top margin of copies of returns to avoid inadvertent duplicate processing.

    • If scanned, upload the copies of the returns to RCCMS. These copies will serve as working returns if you audit them.

    Note:

    If you waive a penalty under oral statement authority, include Form 886-A stating the cause provided by the taxpayer and your determination of reasonable cause. See IRM 4.75.22.4.2 for reasonable cause guidance and oral statement authority.

  7. Make a photocopy of the secured delinquent return for retention in the audit case file.

  8. Prepare Form 13133, as follows, one for each original return to be processed:

    • Your name

    • Your phone number

    • Your address, including mail stop

    • Check the delinquent return box

    • For a list of valid computer condition codes, see Exhibit 4.75.22-2

      Note:

      If penalties are to be assessed, don't make notations in the penalty area of Form 13133.

  9. Prepare Form 3198–A, as follows, one for each original return to be processed:

    • Complete the heading of Form 3198–A.

    • Enter the correct ASED, listed in the earliest statute date field.

    • If there is a power of attorney (POA) for the return, check box for "Send All Communications Per POA."

    • Check the delinquent return box.

    • For annual EO information returns, notate in the "Other Instructions" section, "Assess Delinquency Penalty," or "Do Not Assess Delinquency Penalty-Reasonable Cause Established."

    • For tax returns if appropriate, notate in "Other Instructions" section, "Assess Delinquency Penalty," or "Do Not Assess Delinquency Penalty-Reasonable Cause Established."

    • Converted returns only: Indicate "Converted Return 1120 [1041 or 990-PF] Secured by TE/GE - HOLD Pending Outcome of Revocation [Disqualification or Reclassification to PF]."

  10. Prepare Form 3210 and double envelopes addressed to the FAST.

    • Send the delinquent return package to the FAST. Follow the shipping instructions in IRM 4.75.22.9

    • Converted returns only: Don’t send a converted return package to the FAST. Mandatory Review will send it to the FAST when the underlying adverse status change (e.g., revocation) is sustained.

  11. Adjusting a Secured Delinquent Return. If you must adjust a secured delinquent tax return that reports amounts you disagree with, refer to IRM 4.75.22.6 for instructions. If you establish audit controls for a secured delinquent tax return:

    • You can't close the return until after a TC 150 posts.

    • Monitor IDRS for the posting of the delinquent return.

  12. Securing a Delinquent Return After a TC 150 Posted. If you secure a delinquent return after a TC 150 posted, such as a posted SFR or posted Form 990-N, treat the original delinquent return as an amended return. Refer to IRM 4.75.22.7.4 for instructions.

  13. If a primary return is open for audit and the exemption continues:

    • Address the delinquent return and issue in a written advisory.

    • State in the advisory that you will prepare a separate report for the tax change if you further adjust the secured delinquent tax return.

Payment Processing

  1. Send all payments and original remittance documents directly to the Ogden Campus addresses indicated at IRM 4.75.22.13 (3).

  2. The IRS campus cashier must process payments within 24 hours of you receiving the payment.

  3. If you are unavailable to process a check within 24 hours, inform the group secretary or other designee:

    • To complete Forms 3244-A and Form 3210.

    • How to apply the check against any liability.

  4. If a payment is received with a return, verify the following:

    • The certified check, cashier's check, or similar instrument is payable to the "United States Treasury."

    • If the payee line is blank or made out to the IRS, overstamp the check with the "United States Treasury."

    • Enter the date of the check, check number, amount, payer, IRS recipient’s name and the date received into the group logbook.

  5. If a payment instrument must be held overnight, store it a secured locked container.

    Caution:

    Hanging credenzas aren't secure for storing payments.

  6. There should be a segregation of duties when performing a payment processing function.

  7. Prepare Form 3244-A for each tax period and class of tax involved for which payment is received:

    • Enter the employer identification number. If there is no EIN on file, see IRM 4.75.22.4.3.

    • Enter the form number and MFT. See Document 6379 for MFT codes.

    • Enter the tax period in YYYYMM format.

    • Enter the date the payment was received.

    • Enter the name and address of the taxpayer.

    • Enter the check number and the amount in the remarks field.

    • Enter the amount of the payment in the TC 610 field.

    • Enter the same amount in the total payment field.

    • Enter your name and office symbols.

      Note:

      If a check applies to more than one tax return, type "Split Remittance" in the remarks field, along with a breakdown of how the check amount is to be allocated. Also, prepare a separate Form 3244-A for each tax period.

      Note:

      See Exhibit 4.75.22-4 for a sample of a completed Forms 3244-A for a payment made with a delinquent return. For more detailed instructions for Forms 3244-A, such as for advance payments on deficiencies, see IRM 4.4.24, Payments and Remittances.

  8. Photocopy the payment and original Forms 3244-A. Scan the paper copy of the check and Forms 3244-A:

    • Save the scanned documents as PDF files and upload to RCCMS.

    • Attach the paper copy of the check and Forms 3244-A to the front of the original delinquent return.

  9. Paper-clip the payment to the original Form 3244-A. Don't staple or mutilate. If there is a split remittance, paper clip the check to Form 3244-A for the earliest tax period.

  10. For payments hand-carried to a remittance processor, use a receipted copy of Form 3244-A in lieu of Form 3210.

  11. Prepare Form 3210 as follows:

    • Prepare in triplicate.

    • Address Form 3210 to the appropriate Ogden Submission Processing Center address. See IRM 4.75.22.13 (3).

    • Indicate the return address to the attention of the group secretary or designee.

    • List each check or other payment instrument.

    • List the Forms 3244-A to which it applies.

  12. Place the following items in opaque double envelopes addressed to the appropriate Ogden Submission Processing Center address.

    • Payment instrument, paper-clipped to the original Forms 3244-A

    • The recipient and acknowledgment copies of Form 3210

  13. The group manager on-site or his/her delegate must:

    • Review Form 3210.

    • Compare the information on Form 3210 to Forms 3244-A.

    • Ensure the person who prepares Form 3244-A is not the same person who signs Form 3210.

    • Sign Form 3210 concurring with the package.

    The group will mail the package overnight using a traceable method.

  14. The group secretary or designee will monitor for the acknowledgement copy of Form 3210. If the acknowledgement copy isn't received within 3 business days:

    • The group secretary or designee will follow-up with the appropriate Ogden Submission Processing Center for overnight shipments.

    • Associate follow-up letters with Part 4 of the original Form 3210.

    • Document these actions in the group logbook.

      Note:

      If the acknowledgment copy isn’t received within 10 days, the group secretary or designee will issue a follow-up letter to the campus.

  15. If you don’t receive the acknowledgment copy of Form 3210 after issuing a follow-up letter:

    • Use IDRS to ensure the remittance was properly posted to the taxpayer’s account.

    • Check other tax modules for the taxpayer in case of misapplication of payments.

    • If not found, request a payment tracer by sending an email to the FAST at *TEGE FAST.

  16. If Ogden Campus acknowledges receipt of the payment package, follow group procedures for filing the acknowledgment copy of Form 3210.

Electronic Federal Tax Payment System (EFTPS)
  1. EFTPS is a secure, easy to use, and convenient way to pay all federal taxes. All business and individual taxpayers are eligible to use the system.

  2. Enrollment is easy, and can be completed in minutes. The taxpayer first needs to locate the following information:

    • Taxpayer Identification Number (TIN).

    • Financial institution account and routing numbers.

    • The exact spelling of the taxpayer's name and address as reported on the latest income tax return.

  3. If an organization has used a coupon in the last two years to make a payment, or has received its EIN in the first year of operation, the organization is pre-enrolled. The organization must call 1-800-555-3453 to complete the enrollment, using a PIN that was previously mailed to the organization. If the organization can't find its PIN, the organization calls 1-888-434-7338 to obtain the PIN.

  4. The following instructions are for individuals and organizations that opt not to call in. Using the electronic registration creates a delay of five to seven days before the taxpayer can make their first EFTPS payment. The taxpayer goes to www.eftps.gov. The taxpayer then performs the following steps:

    1. Click on the "Enroll" button or the "Enrollment" button in the top menu line.

    2. Read the Privacy Act and Paperwork Reduction Act notice.

    3. Click on the Privacy Act and Paperwork Reduction Act acceptance box.

    4. Select "Business" or "Individual."

    5. The taxpayer completes the fields provided.

    6. Click on the "Review" button.

    7. Review the information presented on the next screen.

    8. Click "Submit."

  5. Once the taxpayer receives their PIN after enrollment, they must return to the EFTPS site and generate a password.

    1. On the site, click on "Log In" on the far right of the menu.

    2. Click on "Need a Password."

    3. Enter the TIN and PIN.

    4. Verify the information provided.

    5. Click "Next."

    6. Create a password.

  6. When the taxpayer is ready to make their first payment, they do the following:

    1. On the site, click on "Make a Payment" on the right side of the home page.

    2. Click on "Log In."

    3. Enter the TIN, PIN, and password.

    4. Enter the payment information in the step by step screens.

    5. When finished, save a copy of the payment confirmation screen.

Reasonable Cause Determination

  1. Refer to the following guidelines for reasonable cause determinations:

    • For Servicewide reasonable cause criteria, refer to IRM 20.1.1.3.2.

    • For EO reasonable cause criteria, refer to Exhibit 4.75.22-1, IRM Exhibit 20.1.8-3 and IRM 21.7.7.4.24.

  2. Review the taxpayer's filing history with command codes BMFOLI and BMFOLT. Determine if the taxpayer has filed returns timely for prior and subsequent tax years.

  3. In addition to the "reasonable cause" category for penalty relief, refer to IRM 20.1.1.3 for in-depth discussions of other categories of relief, such as:

    • Statutory and regulatory exceptions (see IRM 20.1.1.3.3.1)

    • Administrative waivers (see IRM 20.1.1.3.3.2)

    • Corrections of Service errors (see IRM 20.1.1.3.4)

  4. Taxpayers who seek relief from penalties generally must submit a written statement requesting a waiver of penalties. Include in the statement:

    • Taxpayer's name

    • Taxpayer's address

    • Taxpayer's identification number

    • Type of tax

    • Tax periods

    • Explanation of failure to file, pay or make deposits

    • The statement: "Under penalties of perjury, I declare that the above statement, to the best of my knowledge and belief, is true, complete, and correct"

    • An original signature

    • Date signed

  5. You can only consider oral or written but unsigned requests for penalty relief for certain penalties or situations. See IRM 20.1.1.3.1 for guidance.

  6. A penalty relief statement is acceptable if it:

    • Appears to a person of ordinary prudence and intelligence there is reasonable cause for delay in filing a return.

    • Clearly indicates no willful intent to disobey the taxing statutes.

  7. Don't presume reasonable cause in cases where the taxpayer claims:

    • Ignorance of the law. See IRM 20.1.1.3.2.2.6.

    • Reliance on a professional agent, such as an attorney or accountant. See U.S. v Boyle, 469 U.S. 241 (1985).

    Determine each case on its own merit.

  8. Determine whether the taxpayer's explanation establishes reasonable cause.

    1. If the relief criteria aren't clearly established, go to IRM 4.75.22.4.2.1.

    2. If the relief criteria are clearly established, go to IRM 4.75.22.4.2.2.

Penalties To Be Assessed
  1. For general information on penalties, refer to:

    • IRM 20.1.1, Introduction and Penalty Relief.

    • IRM 20.1.8, Employee Plans and Exempt Organizations Miscellaneous Civil Penalties IRM 21.7.7.4.23.1.

  2. Delinquency penalties and other civil penalties applicable to EO are discussed in the following manuals:

    • IRM 20.1.2, Failure to File and Failure to Pay Penalties (see also IRM 20.1.8.1.2.)

    • IRM 20.1.3, Estimated Tax Penalties

    • IRM 20.1.4, Failure to Deposit Penalty

    • IRM 20.1.5, Return-Related Penalties

    • IRM 20.1.6, Preparer/Promoter/Material Advisor Penalties

    • IRM 20.1.7, Information Return Penalties (see also IRM 4.75.22.12)

    • IRM 20.1.8.2, Exempt Organizations and Certain Trusts (includes daily delinquency penalties)

    • IRM 20.1.10, Miscellaneous Penalties

    • IRM 4.23.9, Employment Tax Penalty and Fraud Procedures

  3. The following table summarizes the penalty scheme for EO returns:

    Applicable EO Penalties

    Form MFT 23X
    DDP
    16X
    FTF
    17X
    ES
    27X
    FTP
    18X
    FTD
    Form 990 or Form 990-EZ 67 YES NO NO NO NO
    Form 990-T 34 NO YES YES YES YES
    Form 990-PF 44 YES YES YES YES YES
    Form 1041-A 36 YES NO NO NO NO
    Form 5227 37 YES YES NO NO NO
    Form 1120-POL 02 NO YES YES YES YES
    Form 4720 50 NO YES NO YES NO

     

  4. Delinquency penalties will be imposed on a delinquent return you secure unless you explicitly waive them on the Forms 3198-A that are part of the delinquent return package destined to the FAST.

  5. All other penalties require managerial approval. See IRC 6751(b)(1). See IRM 20.1.1.2.3.

  6. Leave the computer condition code boxes on Form 13133 blank.

Penalties To Be Waived
  1. On each Form 3198-A indicate in the Other Instructions field to not assess the failure to file and/or failure to pay penalties.

  2. On Form 13133, check the appropriate computer condition code boxes.

  3. The FAST will edit the applicable computer condition code(s) in the appropriate location on the tax return(s).

    • Exhibit 4.75.22-2 provides a list of valid computer condition codes.

    • Exhibit 4.75.22-3 identifies where the FAST will mark the computer condition code on each type of return.

  4. Refer to Document 6209 for Penalty Reason Codes. See also IRM Exhibit 20.1.1-2.

Employer Identification Number Issues

  1. In certain situations, there may be no EIN on a secured delinquent return.

    Example:

    A Form 11-C is filed for a bartender of a veterans' organization that sells pull tabs to the public.

  2. Any payments received can't be processed until an EIN is associated with the return.

  3. Contact the person who signed the return to request an EIN.

  4. If the return signer doesn't have an EIN, have them obtain an EIN via the www.irs.gov site, or directly at https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online.

  5. Taxpayers who complete the online application receive their new identification numbers immediately.

  6. If the taxpayer doesn't have internet access, the taxpayer can complete Form SS-4, Application for Employer Identification Number, and fax or mail the form. They can also call 1-800-829-4933.

  7. To avoid delays in processing returns and payments, have the taxpayer obtain the EIN prior to submitting a signed return.

  8. If the return is received without an EIN, and the taxpayer subsequently obtains an EIN, write the EIN on the tax return.

Amended Returns

  1. An amended return is a second return filed, after the due date, which changes information submitted on the original return.

  2. Taxpayers can file amended returns (or missing return information) by fax under the guidelines in IRM 3.12.279.32. See also IRM 4.19.4.3.23, Faxed Signatures - Replies.

  3. Solicit amended annual EO information returns if the original return omitted material information or isn't substantially correct.

    1. Refer to IRM 21.7.7.4.23.1.3 or IRM 3.11.12.2.12.3, to identify incomplete return items (IRIs).

      Note:

      For incomplete returns received at the Service Center, find IRI codes on TXMODA as "IRI-CD> #."

    2. Instead of amending a return, you can solicit the missing information or schedule to complete the original return.

    3. Date stamp the missing information upon receipt. Include it in the workpapers. Don't place other markings on the secured document.

    4. State on Form 5773 whether the secured information completes the return, and determine whether reasonable cause exists.

    5. If the taxpayer doesn't file an amended return as requested (or furnish the missing information as requested), do one of the following:

      • Obtain written managerial approval to impose daily delinquency penalties to allow sanctions to secure compliance. Complete Form 5666 for future audit. Issue a written advisory on Letter 3609. Close the return using DC 08 (213) (unless a higher priority disposal code applies). If you don't impose a penalty, document the basis for this decision in the workpapers. Ensure your manager approves of this action.

      • Issue a 90-day notice and demand letter (see Exhibit 4.75.22-6). Ensure your manager approves of this action.

      • Consult with your manager and Area Counsel about proposing a revocation. See Rev. Rul. 59-95, 1959-1 C.B. 627 (failure or inability of exempt organization to comply with requirements of IRC 6033 may result in termination of exempt status).

    6. Consider the daily penalty under IRC 6652(c)(1)(A)(ii) for the number of days the original return is incomplete or substantially incorrect, subject to a maximum penalty provided by that section.

    7. Refer to IRM 4.75.21.2 for more information on incomplete returns.

  4. Don't solicit amended tax returns. However, if you receive an amended tax return for a return under audit, inform the taxpayer that the corrections on the amended tax return will be incorporated in the audit report. The amended tax return itself will serve only as a reference document.

    Note:

    If a tax-exempt employer appears to be eligible for the IRC 45R refundable credit, inform the employer of its potential eligibility. If the employer wants to claim the credit it must file with the agent an initial or amended Form 990-T, and attach Form 8941. See IRM 4.75.38 for IRC 45R refundable credit procedures.

    Note:

    If you identify an inaccurate tax return of a related person (such as Form 1040) you may (1) solicit an amended Form 1040, (2) make a referral to SB/SE or to W&I, or (3) initiate a discrepancy adjustment.

  5. If a taxpayer voluntarily files an amended return for a tax year not under audit and no audit is required (or in the case of an original tax return that is under audit, and you agree with the amended return):

    1. Verify through IDRS research that an original return was actually filed, posting a TC 150. See IRM 4.75.22.3.

    2. Verify the amended return has an original authorized signature and date.

    3. Verify the amended return box is checked.

    4. Verify the return includes the correct name, address, TIN, and tax period.

    5. Verify all required schedules and forms are present.

    6. Date stamp the return when it is received. Refer to Exhibit 4.75.22-3 to identify the part of the return reserved for the Campus' Computer Condition Codes. Don't cover a taxpayer entry.

    7. If no date stamp is available, annotate in the middle of the return over the wording, but not over the numbers, "Received," the date received, your name and title.

    8. Write across the top margin of the return in red, "Amended Return Secured by TE/GE." Leave sufficient space on the upper right margin of the return for the Campus to stamp the DLN.

    9. Process any payments received within 24 hours. Follow instructions in IRM 4.75.22.4.1. Replace references to TC 610 with TC 670.

    10. Determine the application of penalties. See IRM 4.75.22.4.2.

    11. Prepare Form 3198-A, for each amended return. See IRM 4.75.22.5 (7).

    12. Assemble the amended return package. See IRM 4.75.22.5 (6).

    13. Scan or copy the amended return package.

    14. Mark on the top margin of the copy of the amended return, "Copy, Do Not Process."

    15. If scanned, upload the copy of the amended return to RCCMS. Include the copy in the workpapers of the audited return.

    16. Submit the amended return to the FAST for processing and posting. See IRM 4.75.22.13 for shipping instructions

    17. If a primary return is under audit, address the amended return and issue an advisory on Letter 3609 if tax-exempt status continues.

  6. Assemble the amended return package in the following order:

    • Form 3198-A, one for each return. See IRM 4.75.22.5 (7).

    • Copy of the check or payment instrument (cashiers check, etc.).

    • Copy ofForm 3244-A.

    • The taxpayer's written penalty relief request, if any.

      Note:

      If a penalty is waived under oral statement or written but unsigned authority, attach Form 886-A explaining the taxpayer's cause and your penalty determination. For a discussion of reasonable cause and oral statement authority, see IRM 4.75.22.4.2.

    • The secured amended return.

  7. Prepare a separate Form 3198–A, for each amended return. Enter the following on the form:

    • Complete the heading of the form.

    • Enter the correct ASED, in the earliest statute date field.

    • If there is a POA for the return, check box for "Send all communications per POA."

    • Notate in the Other Instructions section: "Amended Return for processing by EO FAST."

    • For annual EO information returns, notate at "Other Instructions" section, "Do Not Assess Inaccurate Return Penalty Under IRC 6652(c)(1)(A)(ii) - Reasonable Cause Established."

    • For tax returns, notate at "Other Instructions" section, "Assess Delinquency Penalty" or "Do Not Assess Delinquency Penalty-Reasonable Cause Established."

  8. An amended return doesn't extend the ASED unless it is an income tax return that meets the requirements of IRC 6501(c)(7). See IRM 25.6.1.9.4.2, Amended Return.

Amended Return Under Audit

  1. If a taxpayer files with you an amended return for a return you are auditing, or you determine an audit is warranted, or the amended tax return reports a tax change you don't agree with:

    1. Date stamp the return when it is received. Refer to Exhibit 4.75.22-3 to identify the part of the return reserved for the Campus' Computer Condition Codes. Don't cover a taxpayer entry.

    2. If no date stamp is available, annotate in the middle of the return over the wording, but not over the numbers, "Received," the date received, your name and title.

    3. Write across the top margin of the return in red, "Amended Return Secured by TE/GE EO."

    4. If the amended return is a claim, see also IRM 4.75.22.5.1 (2).

    5. Process any payments received within 24 hours. Follow instructions in IRM 4.75.22.4.1. Replace references to TC 610 with TC 670.

    6. Don't submit the original amended return to the FAST for processing.

    7. Scan or copy the amended return, payments, and Form 3244-A.

    8. Mark on the top margin of the copy of the amended return, "Copy, Do Not Process."

    9. Submit the copy of the amended return to the FAST. See IRM 4.75.22.7.4 (2).

    10. Keep the amended return in the case file. For tax returns, the amended return is a supporting document for tax adjustments incorporated in the audit report.

    11. If the return is not under audit and an audit is warranted, establish audit controls on RCCMS and AIMS using Source Code 50 (Source Code 30 for claims).

    12. Proceed to conduct your audit. Refer to IRM 4.75.15 for preparing an audit report.

    13. For tax returns, incorporate the adjustments from the amended return (such as adjustments to gross income) in the adjustments line of the basic report form (such as on line 1a of Form 4549, Income Tax Examination Changes for income tax).

    14. If you agree with the amended tax return and there are no other adjustments, close the tax return with DC 03 (102), unless a higher priority disposal code applies.

    15. If you disagree with the amended tax return, reverse the adjustment you incorporated in the basic report form and incorporate your audit adjustments, or both. All adjustments are subject to the taxpayer's agreement. For amended returns that reported a decrease in tax, your disagreement is treated as a disallowance of a claim or abatement request, subject to the taxpayer's agreement. See IRM Exhibit 4.75.15-2 for various reports involving claims and abatement requests.

    16. Complete the closing record on RCCMS, and on Form 5599 for other than 100 percent paperless cases. For instructions on completing Form 5599, see IRM 4.5.2.3.

  2. If an amended tax return reduces the tax reported on an original return (or claims a IRC 45R refundable credit with Form 8941), treat it as a request for abatement or a claim:

    1. Update the source code to 30 on RCCMS (manually on Form 5598).

    2. For claims, input the claim amount on RCCMS (manually on Form 5598). For determining a claim amount, see IRM 4.5.2.3.1.40.

    3. For audit reports required for requests for abatement and claims, see IRM Exhibit 4.75.15-2. Follow the procedures in IRM 4.75.38 regarding IRC 45R refundable credits.

  3. An amended return doesn't extend the ASED unless it is an income tax return that meets the requirements of IRC 6501(c)(7). See IRM 25.6.1.9.4.2, Amended Return.

  4. To verify whether a return is under audit, check BMFOLI or BMFOLT to verify whether an -L freeze is present (TC 420 / TC 424). Any tax module with an -L freeze requires an audit report that either:

    • Adjusts the tax module to reflect the amended return

    • Adjusts the tax module per the agent's computations

    • Reflects no changes to the tax reported (disallowance of the amended return)

      Note:

      See IRM 4.75.15 for more information on reports of examination ("audit reports" ).

Examination Determination

  1. The primary objective in selecting returns for examination is to promote the highest degree of voluntary compliance on the part of taxpayers. This requires the exercise of professional judgment in selecting sufficient returns of all classes of returns in order to assure all taxpayers of equitable consideration, in utilizing available experience and statistics indicating the probability of substantial error, and in making the most efficient use of examination staffing and other resources. See IRM 1.2.13.1.10 (Policy Statement 4-21).

  2. These procedures are designed to ensure that EO operates in an unbiased and appropriate manner, and to protect against impropriety and undue influence in its compliance programs.

  3. Reasons for initiating or expanding an audit include:

    • A secured delinquent (or amended) return requires an audit under a specific project or program.

    • An issue giving rise to additional tax on a previously filed return is also present on a delinquent or amended return.

    • A taxpayer is liable for a return but fails to file when requested.

    • A taxpayer files an incomplete delinquent return.

    • A taxpayer files a return reasonably believed to be incorrect or false.

    • A claim appears to be inappropriate, including an IRC 45R claim on Form 990-T and Form 8941.

  4. If you expand the audit to include a secured delinquent or amended return, or to include a tax delinquency for which no return was filed, establish audit controls for the return on RCCMS and AIMS. This is commonly known as a "pick-up." Managerial approval is required for all establishments. SFRs always requires audit controls.

    Note:

    An audit is time applied inspecting books and records in order to ascertain the correctness of a return or to determine if a return is required where none has been filed. If you don't audit a delinquent or amended return, no report or closing letter is required for that return. However, you must address a secured delinquent or amended return in your written advisory Letter 3609 if the tax-exempt status continues.

    Note:

    Refer to IRM 4.75.22.12 for rules on establishing payee information returns on RCCMS for penalty case file purposes.

  5. If you pick-up a delinquent or amended return, notify the taxpayer of this decision. Your decision can be confirmed in an IDR.

    1. Establish audit controls on AIMS MF.

    2. Use push code 020 for AIMS MF establishments.

    3. Use the amounts from the secured delinquent (or converted) return as starting figures on line 3 of Form 4549 or Form 4549-A.

    4. Converted returns and NMF returns: Establish audit controls on AIMS NMF.

    5. See IRM 4.75.22.6 (6).

  6. For SFRs, use push code 036. There is no push code for amended returns.

    Note:

    For organizations not required to file Form 990, establish the return on AIMS NMF, unless the organization voluntarily filed a return which is established on AIMS MF.

    Note:

    Form 4720-A (MFT 66) and Form 990-BL (MFT 56) are NMF returns. See IRM 4.75.22.8.2 and Exhibit 4.75.22-7for instructions on establishing Form 4720-A (MFT 66).

    Reminder:

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

  7. If you pick-up returns for audit, use the tracking code in RCCMS for the originally assigned return. The tracking code will be shown on the cover sheet included with the audit case file. Don’t change an assigned tracking code. Returns in audit inventory in calendar year 2014 and prior will not have a tracking code, so their related pick-ups will also not have one. Tracking codes are:

    • 1000 – Exemption

    • 1001 – Protection of Assets

    • 1002 – Tax Gap

    • 1003 – International

    • 1004 – Emerging Issues

  8. Upload the scanned return to RCCMS for the respective tax module.

  9. If a secured delinquent return is a claim for an IRC 45R refundable credit on Form 990-T and Form 8941:

    1. Update the source code to 30 on RCCMS (manually on Form 5598).

    2. Input the claim amount on RCCMS (manually on Form 5598). The IRC 45R credit claimed will be the claim amount, unless the assessed tax is greater than the credit and there are no payments, thereby constituting a request for abatement. For determining a claim amount, see IRM 4.5.2.3.1.37 and IRM Exhibit 4.5.2-7. See also IRM 4.75.37.

    3. Consider issuing Letter 566-N, a notice of audit of Form 990-Tsolely for purposes of the IRC 45R credit.

    4. For audit reports on claims and requests for abatement, see IRM Exhibits 4.75.15-1, 4.75.15-2 and 4.75.15-3.

  10. If you are closing the audit of a delinquent return you secured,

    • Prepare and issue a written advisory on Letter 3609 assuming the exempt status continues.

    • Use DC 06 (208) on the closing record of the delinquent return unless a higher priority disposal code applies.

    • See also IRM 4.5.3.15.5 for further guidance on preparing Form 5599.

    Note:

    You can't close a delinquent return module on RCCMS until the TC 150 has posted.

  11. If you propose a tax change to a secured delinquent tax return, use DC 03 (102), DC 07 (601), or DC 10 (604), for the closing record of the delinquent tax return, unless a higher priority disposal code applies.

Refusal To File Required Annual EO Information Return

  1. An organization that fails to file a required annual EO information return for three consecutive years will automatically be revoked.

  2. Ascertain the reason the organization has not filed a required annual EO information return.

  3. If the organization files a complete and substantially correct primary return after you request it, take the following actions:

    1. If a TC 150 posted because of a previously filed Form 990-N, see IRM 4.75.22.7.4.

    2. Otherwise, follow delinquent return procedures in IRM 4.75.22.4.

    3. If AIMS NMF audit controls were previously established for the primary return that was not filed, delete the NMF audit record after you have fully established a counterpart AIMS Master File audit record for the return. A full AIMS Master File establishment means a TC 150 posted.

    4. Prepare a written advisory for the tax years that include the secured delinquent primary return. See IRM 4.75.15.6.

    5. Complete Form 5666 for a future audit if a Form 990 is not filed.

    6. Close the return using DC 08 (213) on Form 5599, unless a higher priority disposal code applies.

  4. If the organization is actually not required to file a Form 990:

    1. Prepare and issue a no change letter or a written advisory, whichever applies. See IRM 4.75.15.5 or IRM 4.75.15.6.

    2. Prepare Form 2363-A to remove the filing requirement. See instructions in Exhibit 4.75.16-5 and Exhibit 4.75.16-6, or IRM 25.7.1.

    3. Close the Form 990 using DC 02 (107) or DC 52 (214), whichever applies, unless a higher priority disposal code applies.

      Reminder:

      If an organization claims to be a church exempt from filing Form 990, suspend the audit and refer to IRC 7611 procedures.

  5. If an EO is recognized as exempt from filing Form 990 by ruling or determination letter (as indicated a the heading of the letter), but no longer qualifies for a filing exemption, issue a report proposing to remove the exemption from a Form 990 filing requirement, subject to appeal.

    1. Issue a 30-day letter and report to the organization, affording the organization the right to appeal your determination.

    2. Request assistance from the Mandatory Review mailbox at "*TEGE EO Review Staff" for preparing a 30-day letter.

    3. The report will consist of Form 4621-A, Form 886-A and Form 6018 (line 10 checked).

    4. The organization will have 30 days to agree or protest your proposal.

    5. Issue a rebuttal Letter 5326 if a written protest doesn’t change your position.

    6. A filing requirement exemption issue is not subject to declaratory judgment. The 30-day letter becomes final as to the filing exemption issue if the organization fails to reply.

    7. Before closing the case, prepare Form 2363-A to reflect a Form 990 filing requirement.

    8. Submit Form 2363-A to the FAST for processing if the organization either agrees or fails to reply.

    9. If the organization agrees or fails to reply, solicit Form 990.

    10. If the organization files a Form 990 as requested, go to IRM 4.75.22.6.1 (3) above.

    11. If the organization refuses or can’t file a return (no valid protest received), go to Paragraph (6) below for your next course of action.

    12. If the organization protests your proposal for Appeals consideration, place Form 2363-A and Form 5666 in the case file for future processing. Form 5666 is for follow-up audit in case the organization doesn’t file the return as required.

    13. Close the protested case to Mandatory Review using DC 07 (601) for forwarding to Appeals.

    14. If Appeals sends the case back to you to secure Form 990 returns, follow the instructions in IRM 4.75.22.6.1 (3) or IRM 4.75.22.6.1 (6), whichever applies.

  6. If the organization refuses or can’t file a required return, do one of the following:

    • Obtain written managerial approval to impose daily delinquency penalties to allow sanctions to secure compliance. Complete Form 5666 for future audit. Issue a written advisory on Letter 3609. Close the return using DC 08 (213) (unless a higher priority disposal code applies). If you don't impose a penalty, document the basis for this decision in the workpapers. Ensure your manager approves of this action. If you previously issued a report in IRM 4.75.22.6.1 (5) include an advisory item referring to that separate report, and the outcome.

    • Issue a 90-day notice and demand letter (see Exhibit 4.75.22-6). Ensure your manager approves of this action.

    • Consult with your manager and Area Counsel about proposing a revocation. See Rev. Rul. 59-95, 1959-1 C.B. 627 (failure or inability of exempt organization to comply with requirements of IRC 6033 may result in termination of exempt status).

    1. Consider a penalty on the organization under IRC 6652(c)(1)(A), IRC 6652(c)(2)(A) or IRC 6652(c)(2)(C).

    2. Consider a penalty on the organization managers under IRC 6652(c)(1)(B) or IRC 6652(c)(2)(B) for each day the failure continues after the expiration of the 90 day period in the second bullet above.

  7. Organizations are also required to file a final return if they have terminated their existence, unless they are excepted from filing a Form 990. See IRM 4.75.22.3.4.

Refusal To File Required EO Tax Return

  1. If you solicit a tax return; e.g., Form 990-PF, 990-T, 1120-POL, 4720, 940, 941 or 945 and the organization refuses or is unable to file the return, prepare an SFR. See IRM 4.75.22.7.

  2. In the case of Forms 4720, prepare the SFR in the name of the organization on AIMS MF (MFT 50).

  3. In the case of Forms 4720-A, prepare the SFR for the manager, disqualified person, self-dealer, donor or donor advisor. Form 4720-A is established on NMF (MFT 66), with activity code 334 for EINs, or activity code 400 for SSNs.

    Reminder:

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

  4. If the organization is not required to file the tax return, see IRM 4.75.22.2 (5) for processing of Form 4844 with the FAST.

Substitute For Returns

  1. A substitute for return (SFR) is prepared by the Agent and is used to establish an account for a taxpayer who refuses to file, or is unable to file, a required tax return.

  2. If a taxpayer refuses or is unable to file a required tax return, establish audit controls for the required return, if not already established when you were assigned the case.

    1. Establish NMF returns, such as Form 4720-A (MFT 66) on AIMS NMF and RCCMS (leaving the AIMS block unchecked in RCCMS).

    2. Establish Master File returns on AIMS Master File and RCCMS.

    3. If AIMS NMF audit controls were previously established for a non-filed Master File return, delete the NMF audit record after you have fully established the AIMS Master File audit record for the same return. A full AIMS Master File establishment means a TC 150 posted.

    4. Use Push Code 036 for AIMS Master File establishments, which establishes a TC 150 within two cycles of input or within 10 days

    5. Use Source Code 44

    6. Use ASED Alpha Code "EE" .

    Note:

    Initially, use ASED Alpha Code "EE," No Return Filed, when establishing audit controls for a SFR, even if you are establishing a related EO tax return with an actual statute date based on the filing of a primary return of record. In the case of such related tax returns, be sure to then update the ASED in RCCMS (Form 5595 manually) to reflect the correct statute date. Such related tax returns include Forms 990-T, 1120-POL, 4720, 4720-A, 1120, and 1041.

    Note:

    You can’t prepare an SFR if Criminal Investigation (CI) controls are present. See IRM 4.75.22.3

  3. The DLN for an SFR will be shown as XX-999-999-999-XX-X.

  4. In RCCMS, enter one of the following tracking codes shown on the cover sheet for the assigned return's case file. Don’t change an assigned tracking code:

    • 1000 – Exemption

    • 1001 – Protection of Assets

    • 1002 – Tax Gap

    • 1003 – International

    • 1004 – Emerging Issues

    Note:

    Returns in audit inventory in calendar year 2014 and prior will not have a tracking code, hence their related pick-ups also will not have one.

  5. Create the dummy/SFR. Complete the first page of a blank tax return for the appropriate year. Do not attach additional schedules. SFRs should contain entity information only as follows:

    • Taxpayer's name

    • Address

    • Taxpayer identification number

    • Taxable period

    • Annotate in red on the top margin of the SFR "Substitute for Return Prepared by TE/GE."

      Note:

      Do not include dollar amounts or other tax information on the SFR. The EO Closing Unit will return the SFR case file to the originator for correction.

  6. The SFR serves as a working return. Make a "working return assembly" as follows, top to bottom:

    • Current AMDISA print

    • Copy of Form 3244-A, if any

    • Copy of the check or payment document.

    • Taxpayer's written penalty relief request, folded so as not to block the SFR entirely.

    • The SFR

    • Form 2848, Power of Attorney and Declaration of Representative

    • Any other documents stapled to the last page facing the rear in accordance with IRM 4.75.16.7.4(3)

  7. Prepare Form 3198-A for the outside cover of the SFR case file for the EO Closing Unit.

    • Complete the heading of Form 3198-A.

    • If there is a POA for the return, check the box for "Send All Communications Per POA"

    • Include the date a Form 2363 or 2363-A was submitted if the filing requirement or address was updated.

    • Include the correct ASED, listed in the earliest statute date field.

    • Check the "SFR - Substitute for Return to be Processed" box.

    Caution:

    To ensure the FTP penalty is waived for reasonable cause, enter a TC 270 for .00 in box 12 on the Form 5599, and type a TC 270 for .00 in the transaction code field on the Individual/Bus. (1 of 3) tab in RCCMS. Secure the taxpayer's written penalty relief request on the basis of reasonable cause or prepare your explanation of reasonable cause on Form 886-A.

    Note:

    If you recommend an FTP penalty, you must include the FTP in the proposed notice of deficiency (RAR).

  8. Prepare the audit report. See IRM Exhibit 4.75.15-3 for audit reports. Include your determination of FTP penalties in the audit report. After you issue your audit report, construct a "Valid Return - SFR Package."

A Valid Return - The SFR Package

  1. A "Valid Return" for purposes of IRC 6020(b) is a file copy of the revenue agent's report with Form 13496 as a cover. Assemble the package in the following order:

    • Forms 13496, IRC Section 6020(b) Certification, one for each tax year (Don’t send this form to the taxpayer)

    • The original signed waiver and acceptance form for agreed cases

    • File copy of Form 4549 (or equivalent basic report form for taxes other than income tax)

    • File copy ofForm 886-A

    • File copy of supporting schedules, spreadsheets, or exhibits, if any

    • Current transcripts no more than 30 days old

    Note:

    If there is a tax deficiency and you recommend an FTP penalty, include the FTP in the proposed notice of deficiency.

  2. Form 13496:

    • Is for internal use only (don’t send it to the taxpayer).

    • Establishes that IRC 6020(b) criteria are met in order that the failure to pay penalty under IRC 6651(a)(2) will be sustained in court.

    • Is prepared, one for each substitute tax return, if you will propose an FTP penalty.

    • May not have a signature that precedes the date affixed to the 30-day letter.

    • May not be prepared or dated after the date of the 90-day letter.

  3. If you revise a report that increases the total tax liability, prepare a re-certification on another Form 13496 dated on or after the same day as the revised report.

  4. Include the following transcripts in the workpapers. The transcripts can't be more than thirty days old:

    • INOLES

    • IMFOLT/TXMODA (IMF) or BMFOLT/TXMODA (BMF)

  5. Apply the following audit results depending on how the taxpayer responds to your proposed tax change:

    • For agreed SFR tax cases, see IRM 4.75.22.7.2.

    • For unagreed SFR tax cases, see IRM 4.75.22.7.3.

    • If the taxpayer filed a delinquent or converted return and you accept the return as filed, follow the procedure in IRM 4.75.22.7.2. See also IRM 4.75.22.7.4 (1).

    • If the taxpayer filed a delinquent or converted return that you further adjust, and the taxpayer doesn't agree, follow the procedure in IRM 4.75.22.7.3.

Agreed SFR Tax Cases

  1. If you issued your report of examination (30-day letter and RAR), and the taxpayer replies by signing the appropriate agreement form:

    • Stamp or write the received date on the signed waiver form.

    • Scan or copy the signed waiver form and upload the form to RCCMS.

    • Associate the signed waiver form with the SFR package in IRM 4.75.22.7.1.

    Note:

    In the case of two-tier Chapter 42 excise taxes, the audit change is not agreed until the taxpayer makes full correction and signs Form 870-E.

  2. If you receive a payment, follow the remittance instructions in IRM 4.75.22.4.1; however, on Form 3244-A use:

    • TC 640, Advance Payment of Deficiency, in lieu of TC 610, Remittance with Return, for payments received with a signed agreement form.

    • TC 670, Subsequent Payment, in lieu of TC 610 for payments received after the TC 150 posting that aren't connected with a signed agreement form.

  3. Issue an agreed tax change closing letter to the taxpayer:

    • Letter 3607, for agreed change to any type of income tax, including UBIT

    • Letter 3607, for agreed change to Chapter 42 excise tax or miscellaneous excise tax

    • Letter 3382, for agreed change to employment tax

    Note:

    For specific letters and reports for agreed tax changes, see IRM Exhibit 4.75.15-3

    .

  4. Close the agreed tax change to the EO Closing Unit using DC 03 (102) on the RCCMS closing record and Form 5599, unless a higher priority disposal code applies. See IRM 4.75.16.4.4, Form 5599 and the RCCMS Closing Record.

    Caution:

    To ensure the failure to pay is waived due to reasonable cause, enter a TC 270 for .00 in box 12 on Form 5599, and type a TC 270 for .00 in the transaction code field on the "Individual/Bus. (1 of 3)" tab in RCCMS. Secure the taxpayer's written penalty relief request for a reasonable cause determination, or prepare your explanation of reasonable cause on Form 886-A.

Unagreed SFR Tax Cases

  1. If you issued your report of examination (30-day letter and RAR), and the taxpayer disagrees, close the case to Mandatory Review, except for:

    • Unagreed without protest employment tax cases (other than worker classification). The 30-day letter becomes final. Close to the EO Closing Unit for assessment.

    • Unagreed without protest gaming excise tax cases. The 30-day letter becomes final. Close to the EO Closing Unit for assessment.

  2. Close the case using DC 07 (601) or DC 10 (604).

  3. Mandatory Review or Appeals will issue a 90-day statutory notice of deficiency.

Original Return Received After TC 150 Posts

  1. If you secure a delinquent return after a TC 150 has posted, process the secured return like an amended return under audit at IRM 4.75.22.5.1.

    Note:

    This situation occurs after you’ve established an SFR (or the organization filed a Form 990-N) posting a TC 150 to the module, yet the taxpayer nevertheless voluntarily files a delinquent return with you. In the case of tax returns, you will treat the tax reported on the original delinquent return as an audited tax change (TC 300), similar to amended returns. You would close the delinquent tax return with DC 03 (102) if the tax is agreed, or DC 07 (601) or 10 (604) if the tax is unagreed.

  2. If you secure a delinquent return after a TC 150 has posted for an SFR (or a Form 990-N) do the following:

    1. Stamp the received date on the return when received. Don't cover a taxpayer entry. Refer to Exhibit 4.75.22-3 to identify the part of the return reserved for the Campus' computer condition codes.

    2. If no date stamp is available, annotate in the middle of the return over the wording, but not over the numbers, "Received," the date received, your name and title.

    3. Annotate across the top margin of the return in red, "Delinquent Return Secured by TE/GE." Leave sufficient space on the right half of the top margin to allow the Campus to stamp a document locator number (DLN).

    4. Secured Converted Returns Only: Annotate across the top margin of the return in red, "Form 990 Converted to Form [1120 or 1041 or 990-PF]."

    5. If you receive a payment, follow payment processing instructions in IRM 4.75.22.4.1. Replace references to TC 610 with TC 670.

    6. Don't submit the original return to the FAST for processing.

    7. Prepare separate Forms 13133 and 3198-A for each return in accordance with IRM 4.75.22.4, and include these forms with a copy of the delinquent return you will be sending to the FAST.

    8. If you don't want to impose a delinquency penalty, indicate so on Forms 13133 and 3198-A in accordance with IRM 4.75.22.4 (8) and IRM 4.75.22.4 (9).

    9. Scan or copy the original return package, which includes the original return, copy of payments, Forms 3244-A, Form 13133 and Form 3198-A.

    10. Mark on the top margin of the copy, "Copy."

    11. Upload the scanned package to RCCMS.

    12. Update the statute in RCCMS to reflect the received date of the return (unless the return has an ASED that depends on the filing of a primary return).

    13. Submit the copy of the secured delinquent return package to the FAST.

    14. Secured Converted Returns Only: Place the copy of converted return package envelope (unsealed) in or with the Form 990 case file folder. The reviewer will submit the envelope to the FAST if the underlying adverse status change is sustained.

    15. Keep the original delinquent (or converted) return in their respective case file as a supporting document for the adjustments incorporated in the audit report.

  3. If the TC 150 was based on an SFR, the FAST will post a TC 971 AC 282 upon receipt of the return copy from the agent. Posting of the TC 971 AC 282 on Master File does the following:

    • Updates Master File to show that Examination secured a delinquent return

    • Causes a TC 976 to post to Master File

    • Sets the Assessment Statute Expiration Date (ASED)

    • Avoids setting the duplicate return freeze on Master File

    • Avoids generating an AIMS weekly update

    • Allows a DC 06 (208) for the secured delinquent Form 990

  4. If the TC 150 was based on a filed Form 990-N, FAST will post a TC 971 AC 013 upon receipt of the delinquent return copy from the agent. Posting of the TC 971 AC 013 on Master File does the following:

    • Updates Master File to show that Examination secured a delinquent return

    • Cause a TC 976 to post to Master File

    • Sets the duplicate return freeze (-A) on Master File

    • Allows a DC 06 (208) for the secured delinquent Form 990

    Note:

    The EO Closing Unit will remove the duplicate return freeze when the case is closed by the EO Closing Unit.

  5. The FAST will image all Forms 990, 990-EZ, 990-PF, 990-BL, 990-T, and 4720 for inclusion in the Online SEIN database. The FAST will not make any adjustments to what is already on file on IDRS.

  6. Proceed to conduct your audit. Refer to IRM 4.75.15 for preparing the appropriate audit report for tax deficiencies:

    1. Make reference to the secured delinquent tax return in the narrative of the report.

    2. Incorporate the taxable amount per delinquent tax return as an audit adjustment, includible on any row of line 1 of Form 4549 in the case of income taxes.

    3. If you don't agree with the taxable amount reported on the delinquent tax return, add adjustments, or reverse the portion of the taxable amount you don't agree with, or do a combination of both, on any row of line 1 of Form 4549 in the case of income taxes.

    4. Enter zero in the rows corresponding to "taxable amount per return or as previously adjusted" (e.g., line 3 of Form 4549) and "total tax per return or as previously adjusted" (e.g. line 12 of Form 4549).

    5. Issue this report with a 30-day letter to the taxpayer. Follow the reporting process in IRM 4.75.15 for the appropriate tax.

  7. Complete the closing record on RCCMS and Form 5599, but don't complete the delinquent return indicator or delinquent return amount fields. For instructions on completing Form 5599, see IRM 4.5.2.3.

Correcting Erroneous Push Code 021 Establishments

  1. When generating an SFR on AIMS, you must use push code 036. Don't use push code 021.

  2. If you accidentally use push code 021, wait 30 days from the creation date of the AIMS skeletal record on the AMDISA to perform the steps in the table below. Don’t delete the skeletal record and don't prepare Form 10904.

    Steps for Correcting the Push Code

    Step Instruction
    1. Complete Form 5597. Use the same primary business code (PBC), secondary business code (SBC), employee group code (EGC), and status code shown on the skeletal AIMS record.
    2. Sign Form 5597. E-signatures are acceptable.
    4. Your manager must sign Form 5597. E-signatures are acceptable.
    6. The IDRS clerk or secretary will input AM424. The SFR will post to the BMF one to two weeks after input.
    7. On RCCMS, uncheck the "Update AIMS" check box; update the push code to 036; and select "Validate for Update." Save and close the activity.
    8. Right-click the activity and select "Request Update."
    9. Send / Receive on RCCMS

     

  3. Once the AIMS record is fully established with a TC 150 you can use RCCMS to update AIMS.

Delinquent and SFR Forms 4720 and 4720-A

  1. Taxpayers who act or fail to act in a manner that subjects them to tax under Internal Revenue Code Chapters 41 and 42 are required to file Form 4720. For example, if a taxpayer is a self-dealer, disqualified person, organization manager, donor or donor advisor, or related person, the taxpayer completes Part II of Form 4720. When Part II is processed, Form 4720 is designated Form 4720-A (MFT 66).

    Reminder:

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

  2. Form 4720 (MFT 50) is an AIMS MF return, while Form 4720-A (MFT 66) is an NMF return.

  3. Verify that a return is in fact delinquent through IDRS research.

    Note:

    Obtain NMF transcripts. See IRM 4.75.22.3.

  4. If you secure a delinquent Form 4720 or 4720-A:

    1. Follow delinquent return procedures in IRM 4.75.22.4.

    2. Follow payment processing instructions in IRM 4.75.22.4.1. For Form 4720-A, use TC 640 instead of TC 610 or TC 670 on Form 3244-A.

    3. Payments must be processed within 24 hours.

    4. If you must establish audit controls, refer to IRM 4.75.22.8.1.

  5. If the taxpayer participates in a taxable event, follow SFR procedures in IRM 4.75.22.7 assuming no Form 4720 returns are filed. Establish audit controls using procedures in IRM 4.75.22.8.1. For purposes of Form 4720-A, see Exhibit 4.75.22-7, Establishing Form 4720-A on RCCMS.

  6. After issuing the taxpayer an audit report, prepare the SFR package as instructed in IRM 4.75.22.7.1.

Establishing Examination Controls for Forms 4720 and 4720-A

  1. For instructions on establishing a secured delinquent Form 4720-A on AIMS Non-Master File and RCCMS, go to IRM 4.75.22.8.2, and to Exhibit 4.75.22-7.

  2. For instructions on establishing an SFR Form 4720-A on AIMS and RCCMS, go to IRM 4.75.22.8.3.

  3. For instructions on establishing a delinquent and SFR Form 4720 (private foundations and public charities), go to IRM 4.75.22.8.4.

    Reminder:

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

Establishing Secured Delinquent Form 4720-A

  1. Because Form 4720-A is an NMF form, you must submit a secured delinquent Form 4720-A immediately for processing. If you receive a payment and you process the payment within 24 hours of receipt, it will not post until the delinquent NMF return and assessment posts.

  2. Establish audit controls using RCCMS, and then manually on NMF using Form 5588. See Exhibit 4.75.22-7, Establishing Form 4720-A on RCCMS.

    1. When establishing Form 4720-A on RCCMS, leave the "Update AIMS" box unchecked.

    2. For both RCCMS and Form 5588, use Source Code 13.

    3. The entries on Form 5588 should mirror the RCCMS module.

    4. The statute date is based on a filed Form 990, Form 990-EZ, or Form 990-PF. See IRM 4.75.16.4.2(1) for determining statute dates.

    5. Submit completed Form 5588 via secure e-mail to your group manager for signature. The group manager then e-signs the form and forwards it to their IDRS clerk/secretary for input.

  3. Form 5588 instructions are as follows:

    Field: Enter:
    Line 2 (P1-35) Taxpayer’s name
    Line 3 (P1-35) Taxpayer’s street address
    Line 4 (P1-25) Taxpayer’s city
    Line 5 (P1-2) Taxpayer’s state
    Line 5 (P4-15) Taxpayer’s ZIP code
    Line 5 (P17-28) Taxpayer Identification Number, followed by "N"
    Line 6 (P1-6) The tax period under audit
    Line 6 (P8-13) "4720-A"
    Line 7 (P1-8) The statute date, using the date of the controlling Form 990 or 990-PF. In determining a statute date for Form 4720-A, see IRM 4.75.10.7.1. For IRC 4958 excess benefit transactions, see also IRM 7.27.30.11.
    Line 8 (P1-2) "13" for secured delinquent returns, "44" for SFRs
    Line 8 (P4-6) "400" for individuals; "334" for all other persons
    Line 9 (P1-2) "66"
    Line 9 (P4) "3" (return not requested)
    Line 10 (P1-2) The applicable status code ("10" , "12" , "20" , "24" , etc.)
    Line 11 (P1-3) The primary business code for your area
    Line 11 (P11-14) The group number for your group
    Line 12 (P1-4) The four character name control
    Line 12 (P6-9) The special project code, if applicable
    Reason for Request "Establish NMF AIMS"
    Requester/Date Your name and the current date
    Approved By/Date The approving manager’s name and current date

    Reminder:

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

Establishing SFR Form 4720-A

  1. Because Form 4720-A is a NMF return, you must establish the SFR Form 4720-A immediately. If you receive a payment and you process the payment within 24 hours of receipt, it will not post until the SFR and assessment posts on NMF.

  2. Establish audit controls using RCCMS and then manually on AIMS NMF using Form 5588:

    1. See Exhibit 4.75.22-7, Establishing Form 4720-A on RCCMS. Leave the "Update AIMS" box unchecked.

    2. For both RCCMS and Form 5588, use Source Code 44.

    3. The entries on Form 5588 should mirror the RCCMS module.

    4. The statute date is based on a filed Form 990, Form 990-EZ, or Form 990-PF. See IRM 4.75.16.4.2(1) for determining statute dates.

    5. Submit completed Form 5588 via secure e-mail to your group manager for signature. The group manager then e-signs the form and forwards it to their IDRS clerk/secretary for input. See IRM 4.75.22.8.2 (2) for establishments on AIMS NMF.

Establishing Delinquent and SFR Form 4720

  1. If you secure a delinquent Form 4720 from a public charity or a private foundation, follow delinquent return procedures in IRM 4.75.22.4.

  2. If you pick-up a secured delinquent Form 4720 for audit, establish the module on AIMS Master File via RCCMS:

    • Use MFT 50

    • Use source code 13

    • Use push code 020

    • Use activity code 334

  3. Delinquent Forms 4720 take 8 to 10 weeks to post to IDRS.

  4. For SFR Forms 4720, establish the audit module on AIMS Master File via RCCMS:

    • Use MFT 50

    • Use source code 44

    • Use push code 036

    • Use activity code 334

  5. SFR Forms 4720 take 2 weeks to post to IDRS.

  6. ASED Alpha Code "EE" may not be applicable as the statute is based on a filed Form 990 or Form 990-PF. See IRM 4.75.16.4.2(1) for determining statute dates.

Returns Under Other Operating Division Jurisdiction

  1. You can solicit delinquent returns not under EO jurisdiction if you know they are delinquent. These returns can include:

    • Form 1040, U.S. Individual Income Tax Return

    • Form 5500, Annual Return/Report of Employee Benefit Plan

    • Form 5330, Return of Excise Taxes Related to Employee Benefit Plans

    • Form 8038, Information Return for Tax-Exempt Private Activity Bond Issues

  2. If you secure delinquent returns not under EO jurisdiction:

    1. Scan (or copy, if a scanner isn't available) the delinquent or amended return.

    2. Forward the return for processing in accordance with the return’s instructions.

    3. Prepare Form 5666 if:

      • The taxpayer refuses to file the return

      • You reasonably believe the return is due, but you are unable to make a determination of the delinquency

      • You aren't technically qualified to determine whether the information reported on the delinquent return is substantially complete or correct.

    4. Forward the referral to your manager via secure e-mail for a digital signature.

    5. Send the referral and scanned copy of the return via secure e-mail to *Manager EO Classification. See IRM 4.75.16.4.8 for instructions on the disposition of Form 5666.

    Note:

    Converted Returns Only: Keep secured converted returns package in double unsealed envelopes pre-addressed to the FAST. The converted return package rides with the primary case file to the review function. The review function will process the secured converted returns only after the underlying adverse status change (e.g., revocation) is final. See IRM 4.75.31.4.1 for converted return procedures.

  3. If a primary return is under audit and if tax-exempt status continues, address the delinquent return and issue in an advisory on Letter 3609, whether or not the information returns were secured. See IRM 4.75.15.6, Written Advisory.

Treatment of Timely but Unsigned Returns

  1. Per Policy Statement P-3-5 (IRM 1.2.12.1.5), the IRS doesn't assert a delinquency penalty if an unsigned tax return is timely filed on the prescribed form and if applicable, accompanied by proper payment, provided that:

    • The taxpayer, upon request, subsequently files a valid (signed and dated) return.

    • The facts surrounding the failure to sign the return clearly indicate there was no willful intent to violate the statute.

    • Gross negligence isn't involved.

Information Returns

  1. IRC 6041 through IRC 6053 provide the reporting requirements for certain information returns subject to filing checks. Generally, the regulations require the reporting of items such as payments made in the course of a trade or business to another person, of dividends, interest, wages, cash receipts in excess of $10,000, etc.

    • See IRM 20.1.7.1.2, for a comprehensive list of information returns.

    • See IRM 20.1.7.1.3, for a list of transmittal forms for certain information returns.

    • Refer to the specific returns and their instructions for more information on filing requirements.

  2. Identify and verify the filing requirements for information returns. For detailed technical and procedural information not covered in this manual refer to:

    • See IRM 4.75.12, Required Filing Checks and Package Audit Procedures.

    • See IRM 20.1.7.1.4, Information Return Penalties - Common Features, for IDRS research.

    • See IRM 20.1.7.1.4.2, Filing Requirements for Information Returns.

    • See IRM 20.1.7.6, Regulations Requiring Returns on Magnetic Media IRC 6011(e).

    • See IRM 4.23.8.10, Delinquent Forms W-2/W-2c.

    • See IRM 4.23.9.13.1, Information Returns Regarding Payments of Remuneration for Services.

    • See IRM 4.23.9.13.2, Wage and Tax Statements.

    • See IRM 4.23.9.13.6, Information Return Statute of Limitations.

  3. Consider penalties when the available information indicates that:

    • Information returns were not filed or furnished

    • Reported amounts were materially incorrect

    • The time required to process penalties justifies the expected improvement to voluntary compliance for payers or payees.

    Note:

    Refer to IRM 4.75.22.12 for instructions on information return penalties.

  4. Penalty relief for information returns can only be granted if the organization requests relief in writing under penalties of perjury. See IRM 4.75.22.4.2 (4).

  5. For non-filed information returns in general:

    1. Document the reasons the returns were not filed (or furnished) in your workpapers.

    2. Determine and document whether reasonable cause has been established.

    3. Secure a copy of the written penalty relief request.

    4. If penalty relief is granted, document the non-assessment of the penalty on Form 5773 for the case under audit.

    5. If reasonable cause is not established, prepare a penalty case file. See IRM 4.75.22.12.

    Note:

    Charge your time determining compliance with information return filing requirements to the key case. Once you determine penalties apply, charge your time to the penalty case file. See IRM 4.75.22.12.4.

    Note:

    For reasonable cause criteria for failing to file or furnish information returns, see IRM 20.1.7.8.1.

  6. For non-filed information returns within the jurisdiction of EP, TEB, LB&I, SB/SE or W&I:

    • Prepare and forward Form 5666 to the EO Referrals Group.

    • See Form 5666 instructions at IRM Exhibit 4.5.1-14 and IRM Exhibit 4.75.16-8.

  7. For filed information returns:

    1. Compare the amounts per books and records to IRPTR transcripts for various payees.

    2. Identify any discrepancies that are not inconsequential. See IRM 20.1.7.1.4.6 for a definition of "inconsequential."

    3. Explain discrepancies to the organization.

    4. Determine whether the organization is liable for amended information returns.

  8. Solicit delinquent or amended information returns. See paragraph (12) below.

    • Give the organization a reasonable deadline; e.g., up to 30 days.

    • In the case of wage adjustments, solicit Forms W–2 or W-2c, and Forms W–3 or W-3c, from the employer after the organization agrees with the adjustment.

    Exception:

    Don’t solicit Forms W–2 for CSP accepted offers. See IRM 4.23.6.14.11.

  9. An organization must electronically file information returns when filing more than 250 returns of the same type. See IRM 20.1.7.6.

    Note:

    The organization can request a waiver from electronic filing, by filing Form 8508, Request for Waiver From Filing Information Returns Electronically (Forms W-2, W-2G, 1042-S, 1097-BTC, 1098 Series, 1099 Series, 3921, 3922, 5498 Series, and 8027)

    .

  10. If the names and SSNs of reclassified workers are unknown, the total compensation paid to these workers are reported on one Form W–2.

  11. If the organization withheld no income taxes from compensation, the organization must not report income taxes withheld on the delinquent payee information returns (Forms W-2, W-2c, 1099-MISC, 1042-S, etc.).

  12. For payee-type information returns, solicit and secure the appropriate forms as follows:

    If requesting: Then secure:
    Delinquent Form(s) W–2 One Form W–3 with all of the delinquent Forms W–2
    Delinquent Form(s) 1099-MISC One Form 1096 with all of the delinquent Forms 1099-MISC.
    Amended Form(s) W–2 One Form W-3c and a Form W-2c for each correction to be made
    Amended Form(s) 1099-MISC One Form 1096 and a Form 1099-MISC for each correction to be made. The taxpayer checks the Corrected box at the top of the Form 1099-MISC.

Processing Secured Wage Statements

  1. Forms W-2 and W-2c wage statements:

    1. After an agreed employment tax change, provide the employer a reasonable time; i.e., 30 days, to prepare the wage statements.

    2. In some circumstances, you may give the employer additional time to submit these returns, for example, where it is determined that reasonable cause exists. Don’t delay closure of the employment tax examination without reasonable cause.

    3. If the employer can’t file the wage statements with you, advise the employer to file the required Forms W-2 or W-2c directly with the Social Security Administration (SSA). See www.socialsecurity.gov/employer

    4. Advise the employer to File the wage statements electronically with the SSA if the employer is required to file 250 or more returns.

    5. Go to IRM 4.75.22.11.1.1 if the wage statements are not secured.

  2. If the employer files Forms W-2 and W-2c electronically with the SSA during the 30-day period plus extension while your employment tax case is open, secure proof that the wage statements were filed, such as a confirmation from the SSA.

  3. If the employer files Forms W-2 and W-2c with you in paper form during the 30-day period plus extension while your employment tax case is open, process the paper documents as follows:

    1. Reconcile FICA wages on Form W–3 and W–3c to FICA wages on Form 4668.

    2. Resolve any discrepancies with the organization.

    3. Stamp or write the received date in the space above "Official Use Only" on the original transmittal form.

    4. Across the bottom of the original Form W–3 or W–3c, annotate in red, "Delinquent Wage Statements Secured by TE/GE - Penalty Considered."

    5. Make a copy of the original Form W–3 or W–3c and wage statements for the workpapers of the penalty case file.

    6. Don’t make any markings in the top margin of transmittal forms. This will interfere with the processing of these documents.

    7. If there’s no penalty case file, include the copies of the transmittal and secured wage statements in the workpapers for the employment tax case file.

    8. Submit the original wage statements and transmittal to the Social Security Administration in accordance with the instructions to Form W-3:

      Social Security Administration
      Direct Operations Center
      Wilkes-Barre, PA 18769-0001

      Note:

      If you use "Certified Mail" to file, change the ZIP code to "18769-0002." If you use an IRS-approved private delivery service, add "ATTN: W-2 Process, 1150 E. Mountain Dr." to the address and change the ZIP code to "18702-7997."

    9. Annotate in "Other Instructions" of Form 3198-A for the employment tax case file and at the bottom of Form 4668, "Wage Statements Secured By Examiner."

  4. If you secured Forms W-2 by reason of converting independent contractors to employees:

    1. Annotate in the "Other Instructions" section of Form 3198-A, and on the top of Form 4668, "Reclassification - Self-Employed/Employee Status" .

    2. Advise the organization to take prompt action in notifying their employees so that the workers will have the opportunity to file a claim for refund if they did pay self-employment tax on the same wages.

    3. Provide the organization with an example of a letter they would issue to their workers explaining why they are receiving a wage statement and Notice 989.

    4. See a sample of the letter for use only by the employer in IRM Exhibit 4.23.10-9, Filing Instructions for Reclassified Workers.

  5. If you discover:

    • A SSN can’t be attributed to any specific person (e.g., the SSN is not a valid SSN),

    • A SSN belongs to someone who is deceased, or

    • A SSN belongs to a living person other than the person identified among the participants,

    then consult your manager, and prepare and forward Form 5666 to the EO Referrals Group. The EO Referrals Group will then forward the information report to one of the SB/SE Identity Theft Coordinators. See IRM 4.23.9.16, Business Master File (BMF) Identity Theft Procedures - Overview.

Delinquent Wage Statements Not Secured – Agreed Employment Tax Change

  1. If you can’t secure the required wage statements within the time allowed in IRM 4.75.22.11.1 (1) while your employment tax case is open:

    • Inform the employer to file all returns directly with the SSA.

    • Instruct the employer to file the original or corrected returns in the manner that they are required to file under Treas. Reg. § 301.6011-2, i.e., the employer must file the information returns electronically if required to file 250 or more returns.

  2. Until the Form 4668 is updated,

    Insert the following instructions on the bottom of the Form 4668:
    "Furnish Form W-2 (Wage and Tax Statement) or Form W-2c (Corrected Wage and Tax Statement) on or before January 31, ____[Insert year] to each of the _____[Insert number] employees whose wages are adjusted by this report."
    "File Forms W-2 with Form W-3 (Transmittal of Wage and Tax Statements) or Forms W-2c with Form W-3c (Transmittal of Corrected Wage and Tax Statements) on or before January 31, ____[ Insert year] with the Social Security Administration (SSA)."
    "IRC 6721 and 6722 provide penalties for failure to file and failure to furnish information returns. You must file the information returns electronically if you are required to file 250 or more returns. To obtain specifications for e-filing your returns, visit the SSA’s website at www.socialsecurity.gov/employer. If filing paper returns, file with the SSA at the appropriate address in the General Instructions for Forms W-2 and W-3 (Including W-2c, and W-3c)."
  3. Prepare a tickler file. See contents of a tickler file in IRM 4.75.22.11.2 (4):

    • Prepare a tickler file for monitoring the receipt of Forms W-2 and W-3 or Forms W-2c and W-3c.

    • Send the tickler file to the EO Closing Unit. See IRM 4.5.3.22 (3) and (4).

  4. The "Tickler File" will include a copy of:

    • Form 2504, signed by the organization if agreed.

    • Form 4668 for each year examined.

    • The Employment Tax Examination Report with a full explanation of the issues.

    • List of employees whose wages are to be reported on Forms W-2 or W-2c.

  5. If Failure to File and Failure to Furnish Penalties have already been assessed and the organization still refuses to file information returns, recommend consideration of the penalty under IRC 7203, Willful Failure to File, in the tickler file. The organization’s appeal rights are post-assessment.

Processing Secured Non-Employee Information Returns

  1. Forms 1096/1099. When you secure information returns transmitted by Form 1096:

    1. Ensure the organization prepared a separate transmittal Form 1096 for each type of information return.

    2. If Form 1096 is not filed with you, prepare a Form 1096.

    3. Resolve any discrepancies with the organization.

    4. Stamp or write the earliest IRS received date in the space above "Official Use Only" on the original transmittal form.

    5. Enter "E" (Exam) in the first box under "Official Use Only."

    6. Don't make any markings in the top margin of transmittal forms. This will interfere with the processing of these documents.

    7. Across the bottom of the original Form 1096, annotate in red, "Delinquent Returns Secured by TE/GE - Penalty Considered."

    8. Make a copy of the original Form 1096 and information returns for the workpapers of the penalty case file.

    9. If there’s no penalty case file, include copies of Form 1096 and secured information returns in the workpapers for the primary return case file.

    10. Submit the original information returns and transmittal to the FAST via USPS or UPS. See IRM 4.75.16.9 for shipping procedures.

    11. Annotate in Other Instructions of Form 3198-A for the penalty case file, "Information Returns Secured By Examiner."

    Note:

    Don’t send secured information returns directly to Campus addresses stated in IRM 20.1.7 and in IRM 4.23.8.10.1. Original returns secured by EO agents must be routed through the FAST.

  2. If you discover:

    • A SSN can’t be attributed to any specific person (e.g., the SSN is not a valid SSN),

    • A SSN belongs to someone who is deceased, or

    • A SSN belongs to a living person other than the person identified among the participants,

    then consult your manager, and prepare and forward Form 5666 to the EO Referrals Group. The EO Referrals Group will then forward the information report to one of the SB/SE Identity Theft Coordinators. See IRM 4.23.9.16, Business Master File (BMF) Identity Theft Procedures - Overview.

Information Return Penalties

  1. These penalty procedures apply to EO agents. For detailed technical and procedural information not covered in this manual refer to:

    • IRM 20.1.1, Introduction to Penalty Relief

    • IRM 20.1.7.2, Powers of Attorney for Civil Penalties.

    • IRM 20.1.7.3, Failure to File Correct Information Returns IRC 6721.

    • IRM 20.1.7.4, Failure to Furnish Correct Payee Statements IRC 6722.

    • IRM 20.1.7.5, Failure to Comply with Other Information Reporting Requirements IRC 6723.

    • IRM 20.1.7.1.4, Common Features, for information return penalties.

    • IRM 20.1.7.1.5, Penalty Dollar Amounts and Limitations.

    • IRM 20.1.7.8.1, Waivers, Definitions and Special Rules IRC 6724 – Reasonable Cause.

    • IRM Exhibit 20.1.7-1, IRC 6721 Penalty for Large Businesses with Gross Receipts Over $5 Million.

    • IRM Exhibit 20.1.7-2, IRC 6721 Penalty for Small Businesses with Gross Receipts Less than or Equal to $5 Million

    • IRM Exhibit 20.1.7-3, IRC 6722 Penalty for Large Businesses with Gross Receipts Over $5 Million

    • IRM Exhibit 20.1.7-4, IRC 6722 Penalty for Small Businesses with Gross Receipts Less than or Equal to $ Million

    • IRM Exhibit 20.1.7-5, PMF Civil Penalty Transcript.

    • IRM 4.23.8.11, Information Return Penalty Case File.

    • IRM 4.23.9.13, Penalties for Failure to File Certain Information Returns or Furnish Certain Statements.

    • IRM Exhibit 4.23.9-1, Instructions for Determining Civil Penalty Statute of Limitations.

  2. Secure a written penalty relief request.

  3. If penalties apply, prepare an information return penalty case file, which is separate from audited case file.

  4. If penalty relief is granted, document the non-assessment of the penalty on Form 5773 for the penalty case file.

  5. Create a paper case file to accompany the electronic case file. In RCCMS, underneath the main activity, select "File," "New," "Compliance Activity."

    On the General (1 of 2) tab, enter the following:
    Step: Action/Entry:
    1. In the "Validate for:" drop down box, select "Establish" .
    2. Deselect the "Update AIMS" check box.
    Enter TIN
    Enter T/P Name
    3. Select "Non-Return" in the "Type:" drop down box.
    4. In the "Activity code:" drop down box, select "507 – Form 8278" .
    5. In the "Tax period:" field, enter the calendar year, i.e., 200912, 201012, etc.
    6. In the "Return due:" field, use 2/28/xxxx (even though there are different due dates for filing versus furnishing the forms).
    7. In the "Return received:" field, use the same date as the return due date, or, if applicable, use the delinquent return secured date.
    8. In the "Statute:" field, use the date input in "Return Received" field plus three years.
    9. If no return was filed, select "EE" in the "Alpha day" drop down box.
    10. The penalty case should be a separate case file
    Establish the penalty case file by highlighting the activity. From the top line menu, select Action->Request Establishment.
    On the "Codes" tab, complete the normal required entries. In addition, enter the following:
    Step: Action/Entry:
    11. In the "MFT:" is "99" .
    12. In the "Return requisition code:" field, select "3 – Return, Chargeout & Labels Not Requested" .
    13. In the "Project code:" field, use the same code as the primary return, However, if the case is NRP, use 8253
    14. In the "Source code:" field, select "45 – Reference and Information Returns" .
    15. In the "Status Code:" field, select "12-Assigned for Evaluation" .
    To complete the process, do the following:
    Step: Action/Entry:
    16. "Save and Close" . The Save in screen appears.
    17. The penalty case is placed in a separate case file. Mark the New Case button. Enter a case name that easily identifies taxpayer and type of case. Click "OK" .
    18. Establish the penalty case file by highlighting the activity. From the top line menu, select "Action" , then "Request Establishment" .
  6. Prepare Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties.

    • Prepare a Form 8278 for each tax year.

    • Instructions for preparation of Form 8278 are found on page 2 of the form.

    • Follow additional Form 8278 instructions in IRM 4.23.8.11(8).

    • If you are not assessing a penalty that is otherwise applicable, enter the appropriate Penalty Reason Code (PRC) to identify why the penalty is being suppressed. See IRM Exhibit 20.1.1-2 for a list of appropriate PRCs and explanations.

    • Don't send a copy of Form 8278 to the taxpayer.

    • Form 8278 stays in the penalty case file.

  7. Prepare Form 3645, Computation of Information Return Penalty.

    • Prepare a Form 3645 for each tax year.

    • Show the applicable code section and penalty rate for each form number.

    • State the reason for the penalty on the bottom of the form.

    • State whether the filer agreed with the penalty.

    • State whether reasonable cause was considered.

    • Don't send a copy of Form 3645 to the taxpayer.

    • Form 3645 stays in the penalty case file.

  8. Prepare Form 886-A.

    • Include the issues, facts, law, taxpayer’s position, and conclusion.

    • Make a copy, and attach one copy of Form 886-A to Form 3645.

  9. Propose penalties to the organization as follows:

    1. Attach the second copy of Form 886-A to Letter 5005 or Letter 5005-P.

    2. Issue Letter 5005, Information Return Penalty Notice (Form W-2).

    3. Issue Letter 5005-P, Information Return Penalty Notice (Form 1099).

      Note:

      Propose Form W-2 penalties at the same time as the employment tax audit.

      Note:

      If you granted an extension to file Form W-2c, penalties don't become assessable until March 1st of the year following the year you close your audit.

  10. If the taxpayer agrees with the penalty in the manner stated in Letters 5005 or 5005-P, request payment. Follow remittance procedures in IRM 4.75.22.4.1.

    Note:

    Don't secure an agreement on Form 2504 or Form 4549.

  11. Consider the applicability of backup withholding under IRC 3406. See IRM 4.23.8.13.

  12. Under IRC 6674, an employer who willfully furnishes a false or fraudulent statement, or who willfully fails to furnish a statement in the manner, at the time, and showing the information required under IRC 6051 or IRC 6053(b) may be subject to a penalty of $50 for each failure, which shall be assessed and collected in the same manner as the tax on employers imposed under IRC 3111. There is no maximum limit on the amount of penalties under IRC 6674. See IRM 20.1.10.7, IRC 6674 Fraudulent Statement or Failure to Furnish Statement to Employee.

Special Procedures For – Unagreed Worker Classification

  1. If a worker classification case is unagreed, and neither Form 1099-MISC nor Form W–2 were filed, follow these special procedures:

    1. Prepare two Forms 8278 to reflect penalty assessments. Don't provide to the taxpayer.

    2. Prepare two Forms 3645 to reflect penalty assessments. Don't provide to the taxpayer.

    3. The first set (pair) of Forms 8278 and 3645 will reflect Form W-2 penalty assessments.

    4. The second set of Forms 8278 and 3645 will reflect Form 1099-MISC penalty assessments.

    5. Staple the first set (Form W-2 penalty) to the inside front cover of the penalty case file folder.

    6. Staple the second set (Form 1099-MISC penalty) to the inside back cover of the penalty case file folder.

    7. Attach a post-It note to the first set (Form W-2 penalty) indicating "Primary Examiner Position."

    8. Attach a post-It note to the second set (Form 1099-MISC) indicating "Alternate Examiner Position."

    9. Prepare two explanations on Form 5773 at Section I, Penalties, Subsection 6, Other.

      • Title the first explanation, "Primary Examiner Position."

      • Title the second explanation, "Alternate Examiner Position."

    10. Enter in the "Other" section of Form 3198-A, "Suspend assessment of information return penalties until the taxpayer's request for appeal period has expired."

    11. Associate the penalty case file with the employment tax case file under audit.

    Note:

    If the organization doesn’t request an Appeals conference for the worker reclassification issue, the civil penalty recommendation shown in the penalty package as the "Primary Examiner Position" will be processed. If an Appeals Conference is requested, the civil penalty package with the worker classification case file under audit will be closed to Appeals by the review function, where a final penalty determination will be made.

Penalty Case File - Outside Of Folder

  1. On Form 3198-A:

    • Check the "Other" block.

    • Add "Assess Civil Penalty as Indicated on Form 8278 & Form 3645" if penalty is applicable.

Penalty Case File - Inside Of Folder

  1. Complete and place the following forms inside the penalty case file folder:

    • Copy of the organization’s correspondence in reply, if any

    • Copy of Letter 5005, Letter 5005-P or similar penalty correspondence

    • Copy of the organization’s request to waive penalties

    • Forms 8278

    • Forms 3645

    • Form 886-A

    • Form 5773

    • Form 5464

    • Supporting workpapers if any

  2. The "supporting workpapers" include:

    • Copies of secured transmittal forms and information returns.

    • Copy of the transcripts for Forms 941 for the same year as the secured Forms W-2 or W-2c.

    • Copy of Form 5666 if any submitted to the EO Referrals Group for payees with high income tax potential.

      Note:

      Discrepancy adjustments may be warranted in lieu of preparing Form 5666. See IRM 4.75.28.

Closing the Penalty Case File

  1. If possible, close the penalty case with the related employment tax case or primary return case.

  2. Close the penalty case file on RCCMS as follows:

    1. In the "List View" screen, double click the period to close, to open the penalty case file being closed.

    2. In the "Validate for" drop down box, select Close.

    3. Verify that the "Update AIMS" box is unchecked.

    4. On the "Closing Tab" , click on "New Compliance" , to create the closing record. Change "Validate for" to close.

    5. On the "General" tab, "ARDI" code is no entry.

    6. In the "Disposal Code" field, select 802.

    7. In the "Closing With" field, no entry required.

    8. On the "Detail" tab, fill in agent's time, technique code, and agent's name.

    9. On the "Individual / Bus. (2 of 3)" tab, complete the "Principal issue codes" fields.

    10. Select "Save and Close" on top left of the screen.

    11. Repeat all steps for each year.

    12. In the "List View" screen, select the case you want to close.

    13. Select "Action, Request Closure," then click OK.

    14. Add any appropriate comments.

    15. Select "Send/Receive."

    Note:

    Don’t prepare Form 5599 for a penalty case file.

  3. Reflect on the RCCMS closing tab any time charged to the penalty case file.

    • Charge the time determining if taxpayers are in compliance with various filing requirements to the key case.

    • Charge time to the activity code for miscellaneous penalties after you determine penalties apply.

    • The table below is an example of recording time.

    Example:

    You have charged the Form 990 50 hours and you spent 5 hours on the penalty matter after you determined that the penalty case file has five (5) hours:

    Location Form 990 File Penalty Case File
    RCCMS 50 hours 5 hours
    WebETS 50 hours 5 hours
    Case Chronology Record 50 hours 5 hours
    Form 5599 50 hours Not Required
  4. In this example, the

Shipping from the Group

  1. When shipping original delinquent returns to the FAST:

    1. Prepare Form 3210, Document Transmittal, addressed to the FAST. List each delinquent return.

    2. Print Form 3210 in triplicate. Sign and date each copy of Form 3210.

    3. Prepare dual envelopes addressed to the FAST.

    4. Place the recipient and acknowledgment copies of Form 3210 with the original returns in the envelope.

    5. Follow local office procedures for the retention of the originator's copy of Form 3210.

    6. Submit the delinquent return package to the FAST for processing.

    7. Converted returns only. Don’t seal the envelopes.

    8. Converted returns only. Don’t send a converted return package to the FAST. Mandatory Review submits the converted return package to the FAST after the underlying adverse status change (e.g., revocation) is sustained.

  2. Ship delinquent or amended returns to the FAST as follows (Don’t include payments):

    FAST U.S. Postal Service Address and UPS Address
    Tax Exempt & Government Entities - FAST
    Attention: FAST M/S 1112
    1973 N. Rulon White Blvd
    Ogden, UT 84404
    FAST Contact Numbers and E-mail Address
    FAST General Phone Number 801-620-3343
    FAST Fax Number 801-626-0751
    FAST e-Fax Number 877-814-2236
    FAST e-mail address *TEGE FAST
  3. Send all payments and remittance documents separately to the Ogden Campus as follows:

    Remittances less than $100,000 Single Remittances $100,000 or more
    Internal Revenue Service
    Mail Stop 1999
    1973 N. Rulon White Blvd.
    Ogden, UT 84404
    Internal Revenue Service
    Mail Stop 2003
    1973 N. Rulon White Blvd.
    Ogden, UT 84404

    E-mail notification of your upcoming remittance to &CTR ODN Ogden Tellers.

    Note:

    The above mailing addresses are not FAST addresses. Do not mail payments to the FAST. The contacts and phone numbers for the teller unit are provided at the TE/GE - Field Office Payment Processing intranet website, followed by clicking Ogden mailing address.

  4. Refer to IRM 4.75.16.9 for instructions for shipping, and preparing and following up on Form 3210.

  5. For additional information on shipping procedures and PII, refer to Document 13056 and IRM 10.2.13

Reasonable Cause Criteria

Reasonable Cause Criteria
Reasonable cause is based on all of the facts and circumstances in each situation and allows the IRS to provide relief from a penalty that would otherwise be assessed. Reasonable cause relief is generally granted when the taxpayer exercises ordinary business care and prudence in determining their tax obligations but is unable to comply with those obligations. When determining whether there was reasonable cause for the delinquent filing, the agent should carefully consider the factors described in IRM 20.1.8-3.
In accordance with Policy Statement 32 (Formerly P-2-7), if clearly established by the taxpayer, the following six specific causes for failure to file a return within the prescribed time will be accepted as reasonable cause. However, based on the facts and circumstances, the agent isn't limited to these criteria in determining reasonable cause.
  1. Death or serious illness of the taxpayer or a death or serious illness in his/her immediate family. In the case of a corporation, estate, trust, etc., the death or serious illness must have been of an individual having sole authority to execute the return or make the deposit or payment or of a member of such individual’s immediate family.

  2. Unavoidable absence of the taxpayer. In the case of a corporation, estate, trust, etc., the absence must have been of an individual having sole authority to execute the return or make the deposit or payment.

  3. Destruction by fire or other casualty of the taxpayer’s place of business or business records.

  4. Taxpayer was unable to determine amount of deposit or tax due for reasons beyond the taxpayer’s control. However, this cause will be acceptable for taxpayers required to make deposits or payments of trust fund taxes only when the taxpayer was unable to have access to his/her own records.

  5. The facts indicate that the taxpayer’s ability to make deposits or payments has been materially impaired by civil disturbances.

  6. Lack of funds is an acceptable reasonable cause for failure to pay any tax or make a deposit under the Federal Tax Deposit System only when a taxpayer can demonstrate the lack of funds occurred despite the exercise of ordinary business care and prudence.

In accordance with Policy Statement 3-3 (Formerly P-2-9), if clearly established by the taxpayer, returns mailed by taxpayers in foreign countries will be accepted as timely if postmarked on or before midnight of the last date prescribed for filing, including any extension of time for such filing. If the last day for filing falls on a Saturday or Sunday, returns will be considered timely if postmarked on or before midnight of the next day.
Additional criteria to be considered include:
  1. The return was timely mailed. A return is considered mailed in time if the date of the postmark stamped on the envelope falls on or before the due date. If the due date falls on Sunday or a legal holiday, the following business day is within the legal period.

  2. The return was timely filed but to an inappropriate Internal Revenue Service office.

  3. The delay or failure to file was due to erroneous information given the taxpayer by an Internal Revenue Service office or employee.

  4. The return was filed late because the Internal Revenue Service failed to provide the proper returns, timely requested by the taxpayer, in sufficient time to permit the executed return to be filed on or before its due date.

  5. The delay was caused because of the inability of the taxpayer, through no fault of its own, to meet with a representative of the IRS, because a representative wasn't available, at an Internal Revenue Service office, for the purpose of securing information or assistance to properly complete its return.

Three additional circumstances constitute reasonable cause for failure to file a return by certain kinds of exempt organizations. An organization must meet all of the following criteria:
  1. It isn't a private foundation, 990-PF filer, or other taxable exempt organization, such as those receiving income from business unrelated to the business for which the exemption was granted, 990–T filer.

  2. It is a membership organization.

  3. It has no full time employee responsible for administering the organization’s finances.

A private foundation has reasonable cause if it meets the requirements of Rev. Proc. 79–8, 1979–1 C.B. 487. This revenue procedure states that a private foundation has reasonable cause for failure to file and failure to pay for 90 days after it received a determination letter from the IRS, stating that the organization is a private foundation or that it can't reasonably be expected to be a public charity. This relief applies for a taxable year only if all of the following exist:
  1. The organization filed Form 1023, Application for Recognition of Exemption, before the due date for filing the Form 990–PF in question.

  2. The organization claimed it was a public charity and not a private foundation as described in IRC 509(a).

This relief doesn't apply to returns or schedules that would otherwise have been due, for example Form 990–T.
A private foundation meets the requirements of Rev. Proc. 79–8 if all of the following exist:
  1. The foundation files all returns due no later than ninety days after the date of the determination letter.

  2. The foundation pays all taxes and interest due on those returns within 90 days after the date of the determination letter.

  3. The foundation attaches a statement to the returns explaining the basis for reasonable cause.

Computer Condition Codes

CCC MEANING USE IF FOR FORM(s)
A No Estimated Tax Penalty Form 2220, Underpayment of Estimated Tax by Corporations, or acceptable substitute statement is attached which shows no liability for the Estimated Tax Penalty on Line 43, (or Line 17 if Page 2 is missing). 990-PF
990-T
B Termination of Installment Sale Form 6252, Installment Sale Income, is attached and there is an indication the organization is terminating its installment plan. 990-T
D Reasonable Cause for Failure to Pay Taxes Timely Untimely paid return and reasonable cause is established. If prepaid penalty is included, Don't use Condition Code 0. See Figure 3.11.12-6. 990-PF
990-T
4720
F Final Return Note such as "Final" , "Out of Business," etc. is on the return or attachments. See IRM 12.1.31. 990
990-EZ
990-PF
990-T
Form 1041-A
4720
5227
I Futures, Contracts, & Tax Straddles Form 6781, Gains and Losses from Section 1256 Contracts and Straddles, is attached Identifying income or loss from futures, contracts, and tax straddles. 990-T
L   Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), is attached and/or Section 6114 Election on face of return. 990
990-EZ
990-T
O Module Freeze Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax is attached. 990-PF
990-T
R Reasonable Cause for Failure to File Return Timely The filer has attached reasonable cause for failure to file timely or FTP not applicable. See Figure 3.11.1 990
990-EZ
990-PF
990-T
1041-A
4720
5227
T Tax Shelter Registration Form 8271, Investor Reporting of Tax Shelter is attached. 990
990-EZ
990-PF
990-T
U Unprocessable You can't perfect a numbered document from Information present. 990-PF
990-T
1041-A
4720
5227
5578
5768
V Suppress Daily Delinquency Penalty The return is delinquent and the filer has attached reasonable cause. See Figure 3.11.12-6 990
990-EZ
990-PF
1041-A
W Cleared by Statute Statute has cleared the return and it is a true statute return. See IRM 12.1.44. 990
990-EZ
990-PF
990-T
1041-A
4720
5227
X Module Credit Freeze The filer wants the over payment to be applied to another account (i.e., Information for two tax years on the same return. 990-PF
990-T
4720
Y   Short Period for Change of Accounting Period The return had a short year because of a change in accounting period but not on an initial or final return. See IRM 12.1.41 990
990-EZ
990-PF
990-T
1041-A
4720
5227
7 Reasonable Cause Was Considered and Denied The Reasonable Cause statement wasn't acceptable. See IRM 3.11.12 Figure 3.11.12-6. 990
990-EZ
990-PF
990-T
8 Estimated Tax Penalty Exception The filer meets the exception by annualizing income. (May be claimed in a letter with an attached worksheet or Form 2220 with Part 1 Box 1 checked.) Also used when Form 990-T, Line 37, Proxy Tax, contains an amount 990-PF
990-T
9 Low Income Housing The following Form(s) are attached: Form 8611, Form 8693, Form 8609 /Schedule A, Form 8586 with a credit on line 4. (Exception: If credit Is shown only on Line 5 of Form 8586 Don't enter CCC 9.) See IRM 3.11.12 Figures 3.11.12-15 or 16. 990-T

Computer Condition Code Locations

If Form is The FAST will edit the computer condition code (CCC)
11-C Middle of the page, to the right of the address
730 To the right of the EIN
940 In the middle of the bottom of the page
941 Near the bottom of the form to the right of "You must complete both pages of Form 941 and SIGN it"
943 /945 In the middle of the bottom of the page (below the privacy act statement)
944 On the bottom of the return at the end of "You must fill out both pages of the form 944 and sign it" line
990
(2007 and Prior)
In Part I on the dotted line on line 1a
990
(2008 Revision)
In Part 1 on the dotted line on line 4
990-EZ In Part 1 on the dotted line on line 1
990-PF In Part I on the dotted line on line 9
990-T In Part I on the dotted line on line 3
1041 In the middle of the dotted line on line 2a
1041-A In the Entity section above the Employer identification number and below the OMB No.
1065 In the middle of the dotted line on line 1b
1120 In the middle of the dotted line on line 3
1120-C In the middle of the dotted line on line 9
1120-POL In the middle of the dotted line on line 2
1120-S In the middle of the dotted line on line 3
4720 To the right of the tax year
5227 Part 1 on the dotted line on line 2a
8038 Part II, in the middle of the dotted line on Line 11a
8038-CG Part II, in the middle of the dotted line on line 9a
8038-G Part II, in the middle of the dotted line on Line 12
8038-T Part II, on the dotted line on line 12
8872 On line B, to the right of "final report"

Form 3244-A, Payment Posting Voucher - Examination

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Please click here for the text description of the image.

Delinquent Return Checksheet

(1) This Delinquent Return Checksheet applies to both MF and NMF delinquent returns.

Delinquent Return Checksheet
Liable For Return Present on the delinquent return:
□ Filing Requirement □ Name of taxpayer
□ Already on INOLES/BMFOLO □ Address of taxpayer
□ Not present on INOLES/BMFOLO □ Taxpayer Identification Number
□Form 2363-A completed □ Taxable period
□ Sent Form 2363-A to the FAST □ Original dated signature
Payment received: □ Received date stamp
□ One Form 3244-A for each tax period Written on the top margin of delinquent return:
□ Copies of check remittance "Delinquent Return Secured by TE/GE"
□ Sent originals to the Ogden Campus Cashier in 24 hours (for MF and NMF accounts). Do not send to the FAST. See IRM 4.75.22.13 (3). Copy of return package retained for case file
□ Overnight delivery □ Scanned and uploaded to RCCMS
Form 3244-A: □ Established on RCCMS (if examining)
□ EIN / SSN Form 13133:
□ MFT / Form number □ Agent name/Address/Phone number
□ Tax period □ CCC Code D (if applicable)
□ Received date (remittance) □ CCC Code J (if applicable)
□ Taxpayer name and address □ CCC Code R (if applicable)
□ TC 610 / TC 670 □ CCC Code X (if applicable)
□ TC 570 for .00 Form 3198-A:
□ Total payment □ Agent name / ID # / Phone # / PBC # / Group #
□ Prepared by agent name, group info, and phone number □ TIN / MFT / Period(s) ended
□ Remarks: Split Remittance (if applicable) □ Earliest ASED (of all modules)
□ Remarks: Check # and amount □ Taxpayer name / Name control
Stapled to the front of each delinquent return: □ Form 2363-A date sent to the FAST
□ Form 13133 □ Delinquent return (if applicable)
□ Form 3198-A □ Other instructions:
Indicate "Assess Delinquency Penalty," or "Do Not Assess Delinquency Penalty - Reasonable Cause Established"
□ Copy of Form 3244-A & remittance (assuming payment was processed before submitting delinquent return)  
Delinquent Return Package sent to FAST

90-Day Notice and Demand Letter for Form 990, 990-PF or 5227

The referencing subsection for this exhibit is IRM 4.75.22.6.1.

This letter is a written demand to officers, directors, or trustees responsible for acting on behalf of the organization to file Form 990, Form 990-PF or Form 5227.

The notice and demand letter places responsible individuals on notice they are personally subject to liability for penalties if the return remains unfiled after the expiration of the 90 day period.

Issue a 90-day notice and demand letter after you have considered all responses (or non-response) to previous requests for the return by the IRS, and you have determined that a Form 990, Form 990-PF or Form 5227 is due.

The 90-day notice and demand letter is issued under the authority of IRC 6652(c)(1)(B) and IRC 6652(c)(2)(B), and is sent by CERTIFIED MAIL with the signature block of the Director, EO Examinations. Organizations required to file an annual information return under IRC 6033(a) or IRC 6034(a) include:

  • IRC 501(c) and IRC 4947(a)(1) organizations, other than those exempted from filing an annual information return such as a church (see instructions to Form 990)

  • Private foundations including taxable private foundations

  • IRC 4947(a)(2) split-interest trusts

  • Political organizations, other than those not required to file an annual information return (see instructions to Form 990.)

You may accept a Form 990-EZ in lieu of Form 990 if the organization is eligible to file that return.

Until an official letter has been approved and included in the IRS products catalog, guidance for suggested paragraphs include the following:

During our examination we determined that you are required to file Form 990, Return of Organization Exempt from Income Tax [or Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation] [or Form 5227, Split-Interest Trust Information Return]. This letter is a request for your organization [or trust] to file its [Form 990 or 990-PF or 5227 ], for the period[s] ending [insert tax period(s)]. You have 90 days from the date of this letter to file your [Form 990 or 990-PF or 5227] return.
This letter serves as a notice and demand as required by Internal Revenue Code ("the Code" ) Section 6652(c)(1)(B) [or 6652(c)(2)(B)]. This letter doesn't close your examination.
Section 6652(c)(1)(B) [or 6652(c)(2)(B)] provides for a penalty against the responsible persons, which may include any officer, director, trustee, employee, or other individual under a duty to file the Form 990 [or 990-PF] [or 5227]. Any responsible person that fails to comply with such demand to file the Form 990 [or 990-PF] [or 5227] shall pay $10 for each day after the expiration of the time specified in such demand not to exceed $5,000.
[For recognized IRC 501(c) organizations] If you fail to file the Form 990 [or 990-PF] without reasonable cause, you have also failed to comply with the conditions required for your continued exempt status under Code Section 501(c)(_). If we don't receive a return from you, we may propose to revoke your tax-exempt status effective [date].
[For all other organizations, except split-interest trusts] Internal Revenue Code section 6652(c)(1)(A) also provides for a daily delinquency penalty of $20 a day ($100 per day for organizations having gross receipts exceeding $1 million for the tax year) for each day a return is late without reasonable cause, subject to a maximum of the lesser of 5 percent of gross receipts for the year or $10,000 ($50,000 for organizations having gross receipts exceeding $1 million).
[For split-interest trusts] Internal Revenue Code section 6652(c)(2)(C) provides for a daily delinquency penalty of $20 a day ($100 per day for organizations having gross income exceeding $250,000 for the tax year) for each day a return is late without reasonable cause, subject to a maximum of $10,000 ($50,000 for organizations having gross income exceeding $250,000).
Along with each return, submit a separate written statement explaining the reason for filing the return late. The statement must be declared true under penalties of perjury. This may be done by adding to the statement the following signed declaration: "Under penalties of perjury, I declare that the above statement, to the best of my knowledge and belief, is true, complete, and correct."
If you have any questions, please contact the person listed above. Send all requested information and related correspondence to:
Internal Revenue Service
TE/GE Exempt Organizations Examinations
[Insert Examiner's Street Address]
[Insert Examiner's City, State and Zip Code]

Establishing Form 4720-A on RCCMS

If a secured delinquent Form 4720-A requires an audit, or If you are preparing an SFR, establish audit controls on RCCMS and on the NMF (manually).

In preparing a delinquent return, the organization manager, disqualified person, self-dealer, donor or donor advisor, completes Part II-A of Form 4720. When processed, the Form 4720 will be designated a Form 4720-A, MFT 66.

Step 1: Establish Controls on RCCMS

On RCCMS, select Action, New Compliance Activity.

On the General (1 of 2) tab:
Field: Entry:
Validate for Select Establish.
Update AIMS Do NOT check the box.
TIN Enter the SSN or EIN. Don't add a V or a P
Name Input the taxpayer’s name.
Type Select 4720-A Return.
Activity code Select 400 for individuals; 334 for all other entities.
Tax period Enter the tax year, using the taxpayer’s fiscal year, not that of the charity or foundation.
Return due The return is due 4½ months after the end of the taxpayer’s tax year.
Return received date Complete this for secured delinquent returns.
Statute Enter the appropriate statute date based on the filing of the related Form 990, Form 990-EZ, or Form 990-PF.
Alpha day Select EE if the following applies: The Form 4720-A is an SFR, and the Form 990, Form 990-EZ, or Form 990-PF is unfiled. (Reminder: Form 990-N doesn't start the running of the statute of limitations.)
On the Codes tab:
Field: Entry:
Name control  
Master file type Select NMF
MFT code Select 66.
Project code Use the code of the Form 990/EZ/PF case.
Source code Select 44 for substitutes for return, 13 for a secured delinquent return.
Status code Select the appropriate code.
Class Select 1 for private foundation related cases, 2 for public charity related cases.
Activity grade Use the grade of the foundation/charity case.
Estate return Select the appropriate code, typically 1.
Push code For secured delinquent returns, select 020. For substitutes for return, select 036. If a return has already posted, leave this blank.
Return requisition code Select 3.

Save the activity and perform a send/receive.

Step 2: Establish the Form 4720-A on Non-Master File (NMF)

Complete Form 5588, TE/GE NMF Request. Refer to the instructions to Form 5588 in IRM Exhibit 4.5.1-10 and IRM 4.5.1.3.8.4. See also IRM 4.75.22.8.2.

Submit completed Form 5588 via secure e-mail to your group manager for signature. The manager then e-signs the form and forwards it to their IDRS clerk/secretary for input.