4.75.25 Exempt Organizations Examinations Closing Agreements

Manual Transmittal

May 01, 2017

Purpose

(1) This transmits revised IRM 4.75.25, Exempt Organizations Examination Procedures, Closing Agreements.

Material Changes

(1) All sections were written to comply with the Plain Writing Act of 2010, P.L. 111-274. For additional information on the Plain Writing Act, see http://www.plainlanguage.gov.

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

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

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

(3) Added IRM 4.75.25.1, Program Scope and Objectives.

(4) Added IRM 4.75.25.13.2, Referrals Responsibilities.

(5) Added Exhibit 4.75.25-11, NMF Closing Agreement Memorandum.

(6) Added Exhibit 4.75.25-17, Briefing Report.

(7) Added Exhibit 4.75.25-18, Employment Tax Closing Agreement Outline.

(8) Added Exhibit 4.75.25-19, Preparation of Form 5666.

(9) See table below for the old IRM 4.75.25 sections and the corresponding references to the updated IRM 4.75.25.

Old IRM 4.75.25 New IRM 4.75.25
4.75.25.1 Introduction IRM 4.75.25.2
4.75.25.1.1 Terminology IRM 4.75.25.1.5
4.75.25.2 Restrictions IRM 4.75.25.4
4.75.25.2.1 Recognition of Exempt Status IRM 4.75.25.4.1
4.75.25.3 Minimum Requirements IRM 4.75.25.5
4.75.25.4 Appropriate Situations IRM 4.75.25.3
4.75.25.5 Protect the Statue IRM 4.75.25.8
4.75.25.6 Exam Initiated Closing Agreements IRM 4.75.25.9
4.75.25.6.1 Obtaining Information to Determine if an Agreement is an Option IRM 4.75.25.9.1
4.75.25.6.2 through 4.75.25.6.3.3 Removed.
4.75.25.6.4 Preparing a Draft Agreement IRM 4.75.25.9.3.1
4.75.25.6.5 Approval of the Agreement(s) IRM 4.75.25.9.4
4.75.25.6.5.1 Final Approval Signatures - Taxpayer IRM 4.75.25.9.4.1
4.75.25.6.5.2 Examiner’s Responsibilities Upon Receipt of Signed Agreement from Taxpayer IRM 4.75.25.9.4.2
4.75.25.6.5.3 Approval and Execution of Closing Agreement IRM 4.75.25.9.4.3
4.75.25.6.6 Post Approval Actions IRM 4.75.25.9.5
4.75.25.6.6.1 Closing Agreement Package IRM 4.75.25.9.5.1
4.75.25.7 Walk In Initiated Closing Agreement IRM 4.75.25.10
4.75.25.7.1 through 4.75.25.7.3.3 Removed.
4.75.25.7.4 Preparing a Draft Agreement IRM 4.75.25.10.3.1
4.75.25.7.5 Approval of the Agreement(s) Retitled. IRM 4.75.25.10.4
4.75.25.7.5.1 Final Approval Signatures - Taxpayer IRM 4.75.25.10.4.1
4.75.25.7.5.2 EOCAC’s Responsibilities Upon Receipt of Signed Agreement from Taxpayer IRM 4.75.25.10.4.2
4.75.25.7.5.3 Approval and Execution of Closing Agreement IRM 4.75.25.10.4.3
4.75.25.7.6 Post Approval Actions IRM 4.75.25.10.5
4.75.25.7.6.1 Closing Agreement Package Retitled. IRM 4.75.25.9.5.1
4.75.25.8 Closing Agreement Document IRM 4.75.25.6
4.75.25.8.1 Closing Agreement Format IRM 4.75.25.6.1
4.75.25.8.2 Public Disclosure Requirements Removed.
4.75.25.8.3 Payment of Closing Agreement Liability Retitled. IRM 4.75.25.6.1.2
4.75.25.9 Tax Assessments IRM 4.75.25.12
4.75.25.9.1 Taxable Return Assessment - Master File Returns IRM 4.75.25.12.1
4.75.25.9.2 Taxable Return Assessment - Non-Master File Returns IRM 4.75.25.12.2
4.75.25.9.3 Non-Taxable (Information) Return Assessments IRM 4.75.25.12.3
4.75.25.9.4 Tax Assessment for a Return not on AIMS - Walk In Initiated IRM 4.75.25.12.4
4.75.25.10 Follow up Procedures IRM 4.75.25.13
4.75.25.10.1 EOCAC: Responsibilities IRM 4.75.25.13.1
4.75.25.10.2 ROO: Responsibilities Removed.
4.75.2510.3 EOCAC: Monitoring Reports IRM 4.75.25.13.3
Exhibit 4.75.25-7 Transmittal Letter to Taxpayer Removed.
Exhibit 4.75.25-8 Transmittal Letter to Taxpayer’s Representative Removed.
Exhibit 4.75.25-9 Closing Agreement Request Denial Letter Removed.
Exhibit 4.75.25-10 Information Document Request Cover Letter (Exams Only) Exhibit 4.75.25-7
Exhibit 4.75.25-11 Information Document Request Cover Letter (Walk Ins Only) Exhibit 4.75.25-8
Exhibit 4.75.25-12 Disclosure Statements Exhibit 4.75.25-9
Exhibit 4.75.25-13 Instructions for Completing Form 5734, Non-Master File Assessment Voucher Exhibit 4.75.25-10
Exhibit 4.75.25-14 Instructions for Completing Form 3244-A, Payment Posting Voucher - Examination Removed.
Exhibit 4.75.25-15 Follow-up Action Memo to Closing Agreement Coordinator Removed.
Exhibit 4.75.25-16 EO Closing Agreement Monthly Exam Group Report Removed.
Exhibit 4.75.25-17 EO Closing Agreement Area Office Quarterly Report Removed.
Exhibits 4.75.25-18 through 4.75.25.22 EO Closing Agreement Director’s Office Quarterly Report (Page 1-5) Exhibit 4.75.25-12Exhibit 4.75.25-13Exhibit 4.75.25-14Exhibit 4.75.25-15Exhibit 4.75.25-16

Effect on Other Documents

This manual supersedes IRM 4.75.25, Exempt Organization Examinations Closing Agreements dated February 13, 2013.

Audience

Tax Exempt and Government Entities
Exempt Organizations
Examinations

Effective Date

(05-01-2017)

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

Program Scope and Objectives

  1. Purpose: This manual describes situations when a closing agreement is appropriate and if so, procedures for how to:

    • Enter an agreement.

    • Facilitate an agreement.

    • Get an agreement approved.

    • Process a case after an agreement is approved.

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

    • GS-512

    • GS-526

    • GS-987

  3. Policy Owner: Director, EO

  4. Program Owner: EO

Background

  1. IRC 7121 gives the Commissioner the authority to enter into a written closing agreement with any person for their internal revenue tax liability for any taxable period ending before or after the agreement date. EO employees use closing agreements to resolve exemption and tax issues under EO jurisdiction and in voluntary taxpayer-initiated (walk-in) requests.

Authority

  1. See Exhibit 4.75.25-1 for authorities covering closing agreements.

Roles and Responsibilities

  1. The Director, EO is the executive responsible for closing agreements.

  2. See Exhibit 4.75.25-2 for the roles and responsibilities of the EOCAC.

Program Management and Review

  1. The EOCAC prepares a quarterly monitoring report detailing closing agreement activities. See IRM 4.75.25.13.3 for further detail.

Terms/Definitions/Acronyms

  1. Closing agreement: A legally binding document that exhibits some attributes of a contract, but is created by statute and subject to statutory requirements.

  2. Closing Agreement Coordinator: A designated member in EO Review staff. See Exhibit 4.75.25-2.

  3. Informal stage: The taxpayer/representative and the EOCAC (or agent) discuss the closing agreement process. Any information obtained is used to determine if a closing agreement is viable. The taxpayer is allowed to stay anonymous only with walk-in agreements.

  4. Formal stage: The taxpayer/representative makes a formal request to enter into a closing agreement under IRC 7121. The taxpayer is required to reveal its identity.

  5. We/our/us: Used in lieu of "the service" and "the government" .

    Acronyms

    Acronym Definition
    AIMS Audit Information Management System
    BMF Business master file
    CSP Classification Settlement Program
    EO Exempt Organizations
    EO Exam Exempt Organizations, Examinations
    EOCAC Exempt Organizations Closing Agreement Coordinator
    EO:E Exempt Organizations Examinations
    EO:RA:T Exempt Organizations Ruling and Agreements Technical
    EPR Examination Program and Review
    IDR Information document request
    JCT Joint Committee on Taxation
    MF Master file
    NMF Non-master file
    R&A Exempt Organization Rulings and Agreements
    RCCMS Reporting Compliance Case Management System
    TC Transaction code
    TEDS/EDS Tax Examination Determination System/Exempt Determination System
    TE/GE Tax Exempt/Government Entities


Introduction

  1. IRS uses closing agreements when satisfactory resolutions can’t be reached through normal audit procedures.

  2. A taxpayer may request a closing agreement during or outside of an audit.

  3. IRS isn’t required to grant a closing agreement in either situation.

  4. SeeExhibit 4.75.25-1 for an explanation of the authority to enter into a closing agreement. .

    Note:

    See IRM 4.23.6, Classification Settlement Program (CSP), for CSP agreements used to resolve worker classification issues.

Appropriate Situations

  1. Consider a closing agreement in "but for" situations. "But for" situations are when an organization would retain exemption "but for" the involvement of certain persons, actions, or transactions otherwise requiring revocation.

    Example:

    A public charity operates a food bank. The founder and his spouse, the primary officers, used the charity's funds for personal expenses. While their transactions could be dealt with through IRC 4958, their continued control of the organization as officers requires revocation. The charity would be exempt "but for" the actions and control of the officers.

    Example:

    A social club files Form 990-T annually and reports non-member income in excess of 20% from monthly pool parties open to the public. The remaining income stems from activities involving members only. The club would otherwise be exempt "but for" the existence of the pool parties.

    Example:

    A homeowners association for a gated-community posts signs prohibiting public entry to the community. The homeowners association would be exempt under IRC 501(c)(4)"but for" the signs prohibiting entry.

    Note:

    The taxpayer must remove the persons and completely correct the actions or transactions before executing the closing agreement.

  2. You should consider a walk-in closing agreement when a tax issue can't be resolved through regular procedures.

    Example:

    An IRC 501(c)(5) organization has been primarily operating substantial non-exempt activities for several years. The organization wants their exemption revoked retroactive to the year in which they no longer met the exemption requirements under IRC 501(c)(5).

    Example:

    An exempt organization failed to include as wages a taxable fringe benefit to its employees. The employer wants to pay all outstanding liability as a result of this under-reporting error.

  3. A closing agreement can be entered into on a case under audit.

Restrictions

  1. EO Exam doesn’t enter into closing agreements:

    • For prospective transactions.

    • To impose sanctions as a penalty for non-compliance.

    .

  2. Closing agreements shouldn’t be used if future compliance is in jeopardy.

    Example:

    A taxpayer continues to engage in flagrant acts that compel revocation.

  3. A closing agreement shouldn’t be used to:

    • Circumvent a tax liability, regardless of the type or amount of tax.

    • Infringe on the settlement authority of Appeals.

    • Simply allow a taxpayer to reduce the amount of a tax or penalty.

    • Skirt a normal audit procedure.

    • Bypass other existing procedures.

  4. Specific examples of when a closing agreement shouldn’t be used include:

    • Processing an application for exemption.

    • Processing delinquent returns.

    • Submitting Offers in Compromise.

    • Requesting a Technical Advice Memo.

    • Applying for a Private Letter Ruling.

    • Obtaining guidance from R&A.

    • Referring the taxpayer to Criminal Investigation.

    • Resolving a civil case after a criminal tax conviction.

Recognition of Exempt Status

  1. A closing agreement may not confer recognition of tax-exempt status; it may only state we recognize the taxpayer as exempt as of a given date.

  2. The Area Manager or the EOCAC coordinates with the Manager, EO Determinations (Cincinnati) to process an application for recognition of exemption filed with a closing agreement.

  3. EO Determinations establishes the application on TEDS/EDS and forwards it to R&A for expedited processing.

  4. R&A issues the determination letter.

Minimum Requirements

  1. Fully develop all facts before considering a closing agreement.

  2. Ensure the closing agreement brings taxpayers into full retroactive compliance:

    1. Secure all delinquent returns for the last six years, as applicable or required.

    2. Collect payment of 100% of the tax, interest, and penalties, if applicable.

    3. Verify correction of any transactions subject to Chapters 41, 42, and 44.

  3. Base assessments on the taxpayer's actual tax liability.

  4. The taxpayer may enter into an installment agreement if unable to pay in full when signing the agreement.

    Note:

    If the taxpayer uses an installment agreement, the closing agreement should reference it.

  5. If you’re considering a closing agreement in lieu of revocation, you must determine the potential tax liability as if the organization were revoked. See IRM 4.75.31, Conversion of Returns Upon Revocation of Exemption.

Closing Agreement Document

  1. When creating a closing agreement, you may opt to use Form 866, Agreement As to Final Determination of Tax Liability, or Form 906, Closing Agreement On Final Determination Covering Specific Matters. If not using Form 866 or Form 906, make sure the closing agreement contains the same information that is in the top of Form 906.

    Note:

    Form 866 is used strictly for determinations of tax liability. Use Form 906 for exemption and/or status issues.

  2. Consider using Form 4222, Closing Agreement Checklist, to:

    • Ensure accuracy when preparing the closing agreement.

    • Prevent procedural errors.

Closing Agreement Format

  1. While preparing a closing agreement refer to the format in Exhibit 4.75.25-4.

  2. The agreement begins with a standard caption at the top of the first page stating the nature of the document.

  3. The agreement should list:

    • Names of all parties to the agreement

    • Addresses

    • Taxpayer identification numbers (TIN)

  4. The next paragraph identifies the Internal Revenue Code section under which the agreement is made.

  5. The agreement should contain one or more "WHEREAS" clauses. The "WHEREAS" clauses:

    • Introduce the subject matter of the agreement.

    • State the premises upon which the agreement is based.

    • Explain the facts supporting the determinations that follow.

  6. The section of the agreement captioned" NOW, THEREFORE IT IS HEREBY DETERMINED AND AGREED BETWEEN TAXPAYER AND THE SERVICE AS FOLLOWS for federal tax purposes that:" lists:

    1. The items agreed upon by both parties.

    2. The actions taken by the taxpayer.

    3. The payments made by the taxpayer.

  7. Draft the "THEREFORE" clauses as a continuation of the preceding "HEREBY DETERMINED" statements. The "THEREFORE" clauses list the resolution of the "WHEREAS" clauses.

  8. The last section of the closing agreement is entitled "THIS CLOSING AGREEMENT IS FINAL AND CONCLUSIVE, EXCEPT" . See Exhibit 4.75.25-4.

  9. If the closing agreement (exclusive of attachments) consists of more than one page:

    1. Number each page at the bottom "Page ___ of ___" .

    2. On the top of each page following page 1, state the following: "Closing Agreement with (name of taxpayer)" .

  10. If several parties are involved in the agreement, follow the instructions in Rev. Proc. 68-16, section 6.04, paragraph four.

  11. If the taxpayer is unable to pay in full, consider an installment agreement request. Reference the installment agreement in the closing agreement, but leave out the terms. See IRM 4.75.25.6.1.2 and IRM 4.75.16.5.7.

  12. If organizational documents need to be amended, secure the amendment and describe the changes in the closing agreement.

    Reminder:

    The taxpayer must be compliant in both exemption and tax issues before the agreement is executed.

  13. Closing agreements must include:

    • The relevant facts, including our proposed adverse action.

    • Explicit conditions the taxpayer either has completed or must complete to achieve compliance. Keep concurrent actions to a minimum.

    • A statement addressing the treatment we will accord the taxpayer (for example, retention of exempt status).

    • The agreed-upon effect of the closing agreement on subsequent periods.

    • A statement that the agreement is limited to Internal Revenue Code matters and doesn’t extend to other federal or state law.

    • The specific amount of tax, penalties and interest owed. Don’t list other dollar amounts.

    • A statement instructing the taxpayer to remit the total amount due by certified check(s), cashier's check(s) or similar instrument payable to the United States Treasury when he/she signs and returns the agreement for approval.

    • A statement that the payment isn’t tax deductible.

Addressing Waiver of Taxpayer’s Rights
  1. Section 3468 of the Restructuring and Reform Act of 1998, prohibits officers or employees of the United States from requesting a taxpayer "to waive the taxpayer’s rights to bring a civil action against the United States, or any officer or employee of the United States, for any action taken in connection with the internal revenue laws." The law provides three exceptions:

    1. The taxpayer waives the right knowingly and voluntarily

    2. The request by the employee is made in person and the taxpayer’s attorney or other federally recognized tax practitioner is present, or

    3. The request is made in writing by the taxpayer’s attorney or other representative

    Note:

    The closing agreement shouldn’t contain a taxpayer release of any right of action against the IRS or its employees unless it meets one of the above exceptions.

  2. If you’re considering seeking a waiver of rights, discuss it first with the EOCAC.

  3. The EOCAC will discuss the matter with EO:RA:T.

  4. If it’s determined the waiver request is appropriate, the agent should include it in his/her case file:

    • Signed and dated documentation from the taxpayer or the taxpayer’s representative.

    • Complete notes on Form 5464, Case Chronology Record, describing the process you used to secure the waiver.

Addressing Payment of Closing Agreement Liability
  1. The taxpayer must pay the liability in full when signing the agreement. If the taxpayer is unable to fully pay, indicate on the closing agreement that before or simultaneously with the execution of the agreement, the taxpayer entered into an installment agreement providing for full payment of the liability.

  2. IRM 5.14.1.6(3) states that multi-functional installment agreement authority is limited to certain types of accounts with an aggregate unpaid balance of assessments less than or equal to the amount provided in IRM 5.14.1.6 (3).

  3. If the liability is greater than $25,000, consult with Area Counsel about using an installment agreement.

  4. See IRM 4.75.16.5.7 for more on installment agreements.

Explanation of Process

  1. Closing agreements involve a five-step process:

    1. Obtain necessary information

    2. Obtain approval to work on the draft

    3. Prepare and facilitate the draft

    4. Obtain approval of the agreement

    5. Process the approved agreement

  2. At any time before the agreement is executed, either the taxpayer/representative or IRS can decide not to enter into an agreement.

  3. If the taxpayer/representative or IRS decides not to enter into an agreement and the situation involves:

    • A taxpayer currently under audit, the agent continues to work the case using normal audit procedures.

    • A walk-in, the EOCAC closes the request for a closing agreement and issues a denial letter.

Timelines

  1. Follow the time frames below so the closing agreement process is completed expeditiously:

    Action Maximum Time frame after Receipt (working days)
    Return phone call 3 days
    Review request and consult with Counsel 10 days
    Preparation of request for additional information 10 days
    Due date for additional information 30 days
    Review of additional information 10 days
    Due date for preparation of draft agreement 90 days
    Review of draft agreement 10 days
    Counsel review of draft agreement 45 days
    TP review of draft agreement 15 days
    Subsequent revisions to draft agreement 15 days
    Group Manager, Area Manager, Counsel approval 5 days
    Schedule briefings 30 days
    EOCAC, EPR Manager, Director, EO:E approval 5 days
    Respond to questions raised during briefings 5 days
    Secure taxpayer signature and payment 30 days
    Director executes agreement 10 days
    Mail executed agreement to taxpayer 3 days
    Assessment made after payment posts 5 days
    Close case in RCCMS 45 days
  2. Consider reasonable requests to extend the above time frames.

  3. Secure any applicable statute extensions for requests for taxpayers currently under audit.

Exam-Initiated Closing Agreements

  1. A closing agreement is an option for resolving issues encountered in an audit.

  2. The agent or taxpayer may suggest a closing agreement. However, confer with your manager before you suggest a closing agreement.

  3. Complete the paperwork for a closing agreement and to process any payments. Counsel may help to draft the closing agreement, but the agent maintains the case file.

Informal Stage - Obtaining Necessary Information

  1. Before considering a closing agreement:

    1. Assess the legal aspects of the case.

    2. Establish our position on the issues.

    3. Establish the taxpayer's position.

    4. Discuss our position on the issues with the taxpayer.

    5. Determine the effect adverse action(s) would have on public interest.

    6. Clarify if organizational and/or operational deficiencies can be corrected.

    7. Decide if we’ll sustain disadvantage(s) by entering into the closing agreement.

  2. Discuss the possible closing agreement with your group manager and decide if it’s worth pursuing.

  3. Talk to the taxpayer to see if they’d consider a closing agreement. However, don't guarantee a closing agreement as it may not be approved.

  4. If the taxpayer agrees, consult your manager and Area Counsel. If both concur, submit a summary of the issues and the proposed solution to the EOCAC.

  5. If the EOCAC considers a closing agreement to be viable, the EOCAC sends the cover sheet in Exhibit 4.75.25-3 to the agent. The agent:

    1. Completes Part A.

    2. Secures the group manager’s electronic signature in Part B.

    3. Secures the area manager’s electronic signature in Part B.

    4. Returns the signed cover sheet to the EOCAC.

Formal Stage - Obtaining Approval to Prepare Draft

  1. The Director, EO:E must approve the request to begin working on a draft agreement.

  2. The agent shouldn’t start working on the terms of a closing agreement until after the approvals are obtained.

  3. Upon receipt of the signed cover sheet, the EOCAC:

    1. Prepares briefing notes per Exhibit 4.75.25-17.

    2. Briefs the Manager, EPR. Manager, EPR signs either the "approved" or "not approved" Part B section of the cover sheet and returns it to the EOCAC.

    3. Sends the briefing notes and approved cover sheet to the Director, EO:E.

    4. Briefs the Director, EO:E.

  4. The Director, EO:E signs either the "approved" or "not approved" Part B section of the cover sheet and returns it to the EOCAC.

  5. If the Director, EO:E concurs, the EOCAC returns the cover sheet to the group manager/agent.

  6. If approval isn't granted at any stage:

    1. The EOCAC returns the cover sheet to the group manager/agent and communicates the reasons for rejection.

    2. The agent must consider pursuing the original planned course of action (such as revocation, adverse action, etc.).

    3. The taxpayer may pursue a Fast Track Settlement (if applicable).

    4. The taxpayer may submit a formal protest to Appeals.

  7. If further evidence is found indicating a closing agreement would be beneficial, the EOCAC may continue to further develop the proposal with the group. The approval process starts all over again.

Formal Stage - Preparing and Facilitating the Draft

  1. Agent: before you prepare the closing agreement:

    • Determine the tax consequences.

    • Discuss the general terms of the agreement with the taxpayer and attempt to work out any disputes.

    • Make sure the taxpayer understands that either party has the option to discontinue at any point in the process if a resolution can't be reached. The taxpayer loses no appeal rights if an agreement isn’t reached.

    • If additional information is needed from the taxpayer, issue the cover letter in Exhibit 4.75.25-7 and Form 4564, Information Document Request.

    • Determine any required actions the taxpayer needs to complete.

      Example:

      The President and Vice President engaged in several excess benefit transactions, jeopardizing the organization's exempt status. Revoking the organization's exempt status would severely hurt the local community. In lieu of revocation, we want the President and Vice President to resign and the Board to create and maintain a conflict of interest policy to prevent future excess benefit transactions.

    • Consult the group manager and Counsel, as necessary.

Preparing a Draft Agreement
  1. Once the issues are resolved, the agent prepares the closing agreement. The taxpayer may also craft the closing agreement. Area Counsel reviews and revises the document as needed.

  2. The closing agreement should:

    • State each matter clearly allowing no room for misinterpretation.

    • Be objective.

    • Be easily enforceable.

    Note:

    Although the material in the case file clearly explains the intent of the agreement, the agreement must speak for itself and will be the primary basis of future action.

  3. Avoid using subjective terms such as:

    • "Substantial"

    • "Reasonable"

    • "Due diligence"

  4. See IRM 4.75.25.6 for instructions on format and structure of a closing agreement.

  5. See IRM 8.13.1 , Closing Agreements for further in-depth technical guidance on preparing closing agreements.

Formal Stage - Obtaining Approval of the Agreement(s)

  1. After the language is drafted and revisions are made, the agent secures verbal agreement of the draft language from the taxpayer.

  2. Before securing the taxpayer’s signature on the final version of the closing agreement, the draft must be approved by:

    1. Group Manager

    2. Area Manager

    3. Area Counsel

    4. EOCAC

    5. Manager, EPR

    6. Director, EO:E

  3. The agent secure emails the cover sheet to the field group manager with the draft closing agreement. If the group manager agrees with the closing agreement he/she electronically signs the cover sheet and secure emails the documents to the next person in line based on the following table.

    If the... Agrees, then electronically signs the approval on Part C of the cover sheet and sends the document to: Disagrees, then electronically signs the disapproval on Part C of the cover sheet and sends the document to:
    Field Group Manager Area Manager Agent and work with them to redo the closing agreement or to end the process.
    Area Manager Area Counsel Field group manager with an explanation for the denial.
    Area Counsel EOCAC Field group manager, and:
    • Writes a memo to the group listing the legal deficiencies, suggesting possible alternatives.

    • Sends a copy of the memo to the Area Manager.

    EOCAC Manager, EPR and briefs him/her Agent. Works with the field group manager and the agent to resolve any discrepancies. If necessary, briefs Manager, EPR and Director, EO:E.
    Manager, EPR EOCAC (sends briefing notes to the Director, EO:E) EOCAC, who:
    • Holds a briefing with the field group manager and the agent to discuss the Manager, EPR’s concerns.

    • Briefs Director, EO:E, if necessary.

    Director, EO:E EOCAC. The EOCAC returns the cover sheet and draft closing agreement to the field group manager. EOCAC, who:
    • Holds a conference call with the field group manager and the agent to discuss the denial.

    • Returns the documents to the field group manager.

    Note:

    Agent: If there is tax due, enclose a computation of the tax or an explanation as to how the tax liability was determined. Also explain if the agreement doesn't assess penalties and/or interest.

  4. If the EOCAC has any concerns about the terms of the closing agreement, the EOCAC:

    1. Contacts the agent and/or field group manager.

    2. Gives the reason(s).

    3. Suggests alternatives.

    4. Briefs the Director, EO:E as necessary.

  5. If approval isn’t granted at any stage, the agent/manager determines if the concerns can be resolved. If so, the agent starts the approval process again.

  6. If the concern can't be resolved:

    1. The EOCAC returns the cover sheet to the field group manager/agent.

    2. The agent considers pursuing the original planned course of action (revocation, adverse action, etc).

    3. The taxpayer may pursue a Fast Track Settlement (if applicable).

    4. The taxpayer may submit a formal protest to Appeals.

Final Approval Signatures - Taxpayer
  1. Agent responsibilities: When you receive the cover sheet approved by the Director, EO:E, prepare an Original, Duplicate, and Triplicate closing agreement.

  2. In the upper right-hand corner, type:

    On the: Type:
    Original ORIGINAL
    Duplicate DUPLICATE (Taxpayer's Copy)
    Triplicate TRIPLICATE (Administrative File Copy)
  3. Enter the organization's legal name and taxpayer identification number (TIN) on the signature page. Following this are the lines for the signature, title of an authorized officer or authorized representative and date signed.

  4. Send Letter 5469 and the closing agreements (Original, Duplicate, and Triplicate) to the taxpayer for signature. The taxpayer or the representative must sign the closing agreements before the Director, EO:E signs.

  5. If it is impracticable to obtain signatures from each party on all copies of the agreement, consult with Area Counsel.

    Example:

    This may apply for:

    • Large numbers of individuals/entities party to the agreement, such as a 40 member board of trustees of a university.

    • Substantial geographic separation of the parties, such as the officers being located in Alaska and Florida.

  6. The taxpayer must sign and date the Original, Duplicate and Triplicate copies of the closing agreement.

  7. If an authorized representative signs an agreement, attach the executed power of attorney to the Original of the agreement.

  8. An agreement tendered with the taxpayer's signature is the taxpayer's offer to enter into a closing agreement.

  9. Once the taxpayer signs the closing agreement, don't make changes or additions to the agreement.

  10. Be aware that the taxpayer or representative may try to make changes to the agreement. If they do, consult the EOCAC. Changes may be permitted, however:

    1. The taxpayer or representative should initial and date any additions or corrections made to the closing agreement.

    2. If a new page is substituted, the taxpayer or representative must initial and date the bottom of the page.

    3. If the taxpayer or representative makes any alterations or erasures to material provisions, determine whether the closing agreement is still appropriate.

    4. If, based on the changes, the agreement is no longer appropriate, proceed with proposed revocation and/or other adverse action.

    5. If a revised closing agreement is appropriate, redraft the closing agreement. Follow the procedures in IRM 4.75.25.9.4.

  11. Solicit payment of the closing agreement liability. If more than one taxpayer is involved, solicit separate checks. This is to ensure we post the payments properly and prevent erroneous refunds.

  12. The closing agreement isn’t in effect until the Director, EO:E approves and signs the agreement.

Agent's Responsibilities Upon Receipt of Signed Agreement from Taxpayer
  1. When you receive the signed agreement from the taxpayer, verify the taxpayer took all required actions described in the closing agreement. The taxpayer must be in full compliance before executing the closing agreement.

  2. Make sure the closing agreement is in proper order and follow these steps:

    1. Sign and date the reverse of the last page of the Original as the Receiving Officer. See Exhibit 4.75.25-5.

    2. Process the remittance and any delinquent returns received. See IRM 4.75.22 , EO Delinquent, Amended and Substitute for Return Procedures.

    3. Scan the Original and secure email it to the EOCAC.

    4. Send the signed Original, Duplicate and Triplicate copies of the closing agreement to the Manager, Mandatory Review.

Approval and Execution of Closing Agreement
  1. Upon receipt of the scanned copy of the closing agreement, the EOCAC:

    1. Makes sure the closing agreement is in proper order.

    2. Electronically signs and dates the reverse of the last page of the Original as "Reviewing Officer" . See Exhibit 4.75.25-5.

    3. Completes Part D and E of the cover sheet.

    4. Prepares a memo to the Director, EO:E. See Exhibit 4.75.25-6.

    5. Secure emails the memo, scanned copy of the agreement, cover sheet and briefing notes to the Manager, Mandatory Review.

  2. Once the Manager, Mandatory Review, receives three copies of the signed agreement, he/she prepares the package to send to the Director, EO:E.

  3. Upon receipt of the package, the Director, EO:E:

    1. Signs and dates the three copies.

    2. Initials and dates Part E of the cover sheet.

    3. Returns the package to the agent.

    Exception:

    The Director, EO:E won’t take the above actions if the case is a Joint Committee case.

  4. If the case is a Joint Committee case, the EOCAC first submits the agreement as part of the original Joint Committee letter. The report or transmittal must contain a statement indicating tentative approval of the closing agreement by the Director, EO:E. If the Joint Committee approves the proposed closing, then the Director, EO:E signs the closing agreement.

  5. If an issue is resolved early in the audit, such as Fast Track Settlement or Early Referral to Appeals, and the case is likely to require a report to the JCT, the agent must request an advanced review of the closing agreement by the JCT before the case closing. If the agent wishes to pursue this option, he/she prepares a cover memo and forwards a copy of the closing agreement and any relevant supporting documents to the EOCAC. The EOCAC coordinates with the JCT. After JCT review, the appropriate Service official signs the agreement.

Post-Approval Actions

  1. Agent: when you receive the executed closing agreement from the Director, EO:E:

    1. Scan the Original. Secure email a copy of the Original to the EOCAC. Attach the Original to the taxpayer's most recent return in the file covering the year to which the agreement pertains.

    2. Mail Letter 5463 and the Duplicate to the taxpayer and a copy to their representative (if authorized to receive notices).

    3. Attach a copy of Letter 5463 to the Triplicate.

    4. Place a copy of the executed Triplicate agreement, the report transmittal (or pertinent work papers if no transmittal,) and the report of audit in the Administrative File.

  2. List instructions on Form 3198-A, TE/GE Special Handling Notice, for disclosure on all returns in the case file subject to disclosure under IRC 6104(a) or IRC 6104(b) for the years to which the agreement pertains.

    If the closing agreement is ... Then attach to the front of the return a separate Form 3198-A, containing the statement in...
    Attached to a return that is subject to disclosure (such as, most recent Form 990) Exhibit 4.75.25-9 Item A
    Not attached to a return that is subject to disclosure (such as, older Form 990) Exhibit 4.75.25-9 Item B
    Attached to a return that isn't subject to disclosure (such as, most recent Form 4720) Exhibit 4.75.25-9 Item C
    Not attached to a return that isn't subject to disclosure (such as, older Form 4720) Exhibit 4.75.25-9 Item D
Closure of Case
  1. Close the case using normal case closing procedures found in IRM 4.75.16, Case Closing Procedures.

Walk-In Initiated Closing Agreements

  1. Any taxpayer may initiate the closing agreement process.

  2. Non-exam initiated closing agreement requests are called "walk-ins" .

  3. The EOCAC handles all walk-in requests and tracks the case on RCCMS, but doesn't establish the case on AIMS.

  4. The Manager, Mandatory Review may appoint additional staff to help process walk-in closing agreements.

  5. If a taxpayer contacts an agent or group manager to verbally discuss a walk-in closing agreement, refer the taxpayer or representative to the EOCAC.

  6. If a taxpayer submits a written walk-in closing agreement request to the field, send it using Form 3210, Document Transmittal, to the EOCAC at:

    Internal Revenue Service
    Attn: EOCAC
    1100 Commerce St. MC 4920 DAL
    Dallas, TX 75242

  7. If the field receives an electronic walk-in closing agreement request, secure email or e-fax it to the EOCAC.

  8. The taxpayer is allowed to remain anonymous during any informal discussions.

Informal Stage - Obtaining Necessary Information

  1. The taxpayer/power of attorney contacts the EOCAC to explain the situation and discuss possible remedies.

  2. The EOCAC:

    1. May request additional information during the informal discussion.

    2. Explains how the closing agreement program works and if applicable, recommends other avenues to pursue such as filing delinquent returns.

  3. If both parties agree that a closing agreement is viable, the taxpayer submits the following:

    1. Explanations why a closing agreement is appropriate.

    2. Description of the advantage(s) to us and how we will sustain no disadvantage(s) because of a closing agreement.

    3. A detailed description of the method proposed for correcting the non-compliant activities.

    4. Description of each step of the correction method. The description must include specific information to support the suggested correction method.

    5. Explanation of how it will achieve future compliance.

    6. Description of proposed method to calculate any tax, interest and penalty.

    7. Explanation of the facts, legal analysis, and proposed terms.

  4. When a written request is received, the EOCAC must:

    1. Establish the case on RCCMS, leaving "Update AIMS" unchecked.

    2. Generate Form 5464, Case Chronology Record, to track actions taken on the closing agreement.

    3. Request any additional documentation needed from the taxpayer to fully develop the taxpayer's proposal. If needed, issue a Form 4564, Information Document Request, using the cover letter at Exhibit 4.75.25-8.

    4. Review the information and have a Counsel attorney assigned. If the EOCAC and Counsel believe a closing agreement is viable, ask the taxpayer/representative to disclose the taxpayer's EIN and obtain Form 2848, Power of Attorney and Declaration of Representative, if applicable.

    5. Review the exempt organization’s module information on IDRS to verify compliance and that the organization isn’t currently under audit.

  5. If the request for a closing agreement isn’t viable, the EOCAC issues Letter 5465, Closing Agreement Case has been Closed - Exempt Organizations.

Formal Stage - Obtaining Approval to Prepare Draft

  1. The Director, EO:E must approve all requests to begin working on a draft agreement. The EOCAC doesn't work on the terms of a draft closing agreement until after approval is received.

  2. EOCAC:

    1. Complete Part A and B of the cover sheet (Exhibit 4.75.25-3). Electronically sign Part B.

    2. Send the cover sheet and briefing notes ( Exhibit 4.75.25-17) to the Manager, EPR.

    3. Brief the Manager, EPR.

  3. Manager, EPR signs either the "approved" or the "not approved" Part B section of the cover sheet and returns it to the EOCAC.

  4. If Manager, EPR approves the cover sheet, the EOCAC sends it and the briefing notes to the Director, EO:E and briefs the Director, EO:E.

  5. The Director, EO:E signs either the "approved" or "not approved" Part B section of the cover sheet and returns it to the EOCAC.

  6. If the Director, EO:E approves the request, the agreement moves to the next stage.

  7. If the Director, EO:E denies the request, the EOCAC notifies the taxpayer and issues Letter 5465.

Formal Stage - Preparing and Facilitating the Draft

  1. EOCAC: Before you prepare the draft closing agreement:

    • Determine the tax consequences.

    • Discuss the general terms of the agreement with the taxpayer and attempt to work out any disputes.

    • Make sure the taxpayer understands that either party has the option to discontinue the process at any point if a resolution can't be reached.

    • Issue an IDR with the cover letter in Exhibit 4.75.25-8 , if you need additional information.

    • Determine any required actions the taxpayer needs to complete.

      Example:

      The president and vice president engaged in several excess benefit transactions, jeopardizing the organization's exempt status. Revoking the organization's exempt status would severely hurt the local community. In lieu of revocation, we want the president and vice president to resign and the Board to create and maintain a conflict of interest policy to prevent future excess benefit transactions.

Preparing a Draft Agreement
  1. EOCAC: When the issues are resolved, instruct the taxpayer/representative to prepare the draft closing agreement.

  2. The agreement should:

    • State each matter clearly as to reasonably lead to only one interpretation.

    • Be objective.

    • Be easily enforceable.

  3. The agreement should not include subjective terms such as:

    • "Substantial"

    • "Reasonable"

    • "Due diligence"

  4. EOCAC: When you receive the draft from the taxpayer:

    • Review the draft agreement.

    • Make revisions.

    • Send the draft to Counsel for review.

    • Work with Counsel on any necessary items.

    • Send the draft to the taxpayer/rep for any further revisions.

  5. See IRM 4.75.25.6 for instructions on closing agreement format.

  6. See IRM 8.13.1 for further in depth technical guidance on preparing closing agreements.

Formal Stage - Obtaining Approval of the Agreement(s)

  1. The EOCAC secures the taxpayer’s/rep’s verbal approval of the draft closing agreement language before proceeding with the executive approval process.

  2. The draft agreement must be approved by the following before the taxpayer signs:

    1. Area Counsel

    2. EOCAC

    3. Manager, EPR

    4. Director, EO:E

  3. Secure email the draft agreement and cover sheet to Area Counsel. The documents may be electronically signed. Send theses documents to the next person as indicated per the table below:

    If the... Agrees... Then electronically sign approval on Part C of the cover sheet and send the documents to... Disagrees... Then electronically sign disapproval on Part C of the cover sheet and...
    Area Counsel EOCAC
    • Write a memo to the EOCAC explaining the legal deficiencies, suggesting possible alternatives.

    • Return the cover sheet and the memo to the EOCAC.

    • The EOCAC attempts to resolve the deficiencies or, if necessary, issues Letter 5465 to deny the request.

    EOCAC Manager, EPR and briefs Manager, EPR. Works to resolve any discrepancies. May brief Manager, EPR and Director EO:E. If unable to resolve, issues Letter 5465 to deny the request.
    Manager, EPR EOCAC. The EOCAC forwards cover sheet and briefing notes to the Director, EO:E. EOCAC briefs Director, EO:E. EOCAC. EOCAC works to resolve any discrepancies. EOCAC may brief Director EO:E. If unable to resolve, EOCAC issues Letter 5465 to deny the request.
    Director, EO:E EOCAC EOCAC. EOCAC works to resolve any discrepancies. If unable to resolve, the EOCAC issues Letter 5465 to deny the request.

    Note:

    The EOCAC should provide Counsel a tax computation or an explanation as to how the tax liability was determined and an explanation if the agreement doesn't assess penalties and/or interest.

Final Approval Signatures - Taxpayer
  1. After the EOCAC receives the approved cover sheet from the Director, EO:E, he/she prepares an Original, Duplicate, and Triplicate of the final closing agreement.

  2. In the upper right corner of the first page, type the following:

    On the: Type:
    Original (Original) ORIGINAL
    Duplicate (Duplicate) DUPLICATE (Taxpayer's Copy)
    Triplicate (Triplicate) TRIPLICATE (Administrative File Copy)
  3. The EOCAC:

    1. Enters the organization's legal name and TIN on the signature page. Following this are the lines for the signature, title of an authorized officer or representative and date.

    2. Sends Letter 5469 and the closing agreements to the taxpayer for signature. The taxpayer must sign and date the Original, Duplicate and Triplicate copies of the closing agreement. The taxpayer or the representative must sign the closing agreements before the Director, EO:E signs.

    3. Consults with Area Counsel if it’s impracticable to obtain signatures from each party on all copies of the agreement.

      Example:

      Large numbers of individuals/entities party to the agreement, (such as, a 40- member board of trustees) or substantial geographic separation of the parties (such as, officers located in Alaska and Florida).

    4. Solicits payment of the closing agreement liability. If more than one taxpayer is involved, solicit separate checks.

      Note:

      Separate checks ensure we post the payments properly and prevent erroneous refunds.

  4. The taxpayer signs and dates the Original, Duplicate and Triplicate copies of the closing agreement.

  5. When an authorized representative signs an agreement, attach the executed power of attorney to the Original of the agreement.

  6. An agreement tendered with the taxpayer's signature is the taxpayer's offer to enter into a closing agreement.

  7. Once the taxpayer signs the closing agreement, don’t make changes or additions to the agreement.

  8. Be aware that the taxpayer or representative may try to make changes to the agreement. If the taxpayer/representative makes any alterations or erasures to material provisions, the EOCAC must ensure:

    1. The closing agreement is still appropriate.

    2. The taxpayer/representative initials and dates any additions or corrections made to the closing agreement.

    3. The taxpayer/representative initials and dates the bottom of any substituted pages.

    4. The taxpayer is notified that the closing agreement is no longer appropriate, if as a result of the taxpayer’s/representative’s changes, the agreement is no longer acceptable.

  9. The EOCAC redrafts the closing agreement if a revised closing agreement is appropriate. See IRM 4.75.25.10.4 (approval section).

EOCAC's Responsibilities Upon Receipt of Signed Agreement from Taxpayer
  1. When you receive the signed closing agreement from the taxpayer:

    • Verify the taxpayer took all actions required by the closing agreement. The taxpayer has to be in compliance before the agreement is executed.

    • Ensure the closing agreement is in proper order.

    • Sign and date the reverse of the last page of the Original as the "Receiving Officer" . See Exhibit 4.75.25-5.

    • Scan the agreement and send it to Manager, Mandatory Review. Manager, Mandatory Review signs as the "Reviewing Officer" .

    • Process the remittance following IRM 4.75.22, EO Delinquent, Amended and Substitute for Return Procedures. If you receive a delinquent return, make a copy before processing original.

    • Complete Part D and E of the cover sheet.

    • Prepare and send a memo Exhibit 4.75.25-6 to the Director, EO:E with the three signed copies of the closing agreement, briefing notes, and cover sheet.

  2. The closing agreement isn’t in effect until the Director, EO:E approves and signs the agreement.

Approval and Execution of Closing Agreement
  1. When the Director EO:E receives the closing agreement package, he/she:

    1. Signs and dates the three copies.

    2. Initials and dates Part E of the cover sheet.

    3. Returns the package to the EOCAC.

    Exception:

    The Director, EO:E doesn’t take the above actions if the case is a Joint Committee case. The EOCAC must first submit the agreement as part of the original Joint Committee letter. The report or transmittal must contain a statement indicating the Director’s tentative approval of the closing agreement. If the Joint Committee approves the proposed closing, then the Director, EO:E signs the closing agreement.

Post-Approval Actions

  1. EOCAC: When you receive the executed closing agreement from the Director, EO:E:

    1. Scan a copy of the Original and upload it into RCCMS.

    2. Make a copy of the Duplicate and place it in the Administrative File.

    3. Mail Letter 5463 and the Duplicate to the taxpayer and a copy to their representative (if authorized to receive).

    4. Keep the executed Original and Triplicate agreements.

Closure of Case
  1. Cases requiring master file (MF) assessments should contain:

    1. Closing agreement

    2. Form 4549-A, Form 4883, or other report form

    3. Form 3198-A

    4. Form 3870

  2. EOCAC: secure e-mail the items in IRM 4.75.25.10.5.1 (1) above to your manager.

  3. Manager: electronically sign Form 3870 and send the items in IRM 4.75.25.10.5.1 (1) above to EO Closing Unit for assessment.

  4. EOCAC: monitor IDRS to verify the assessment is made correctly before closing the case on RCCMS.

  5. See IRM 4.75.25.12.4 for non-master file (NMF) assessments.

Employment Tax Agreements (Walk-ins)

  1. Employers enter into employment tax closing agreements to correct prior errors. These errors usually involve failure to report a payment as wages.

  2. To ensure no harm to the government, the employer agrees to pay all the applicable employment taxes. This might include:

    • Employer share of FICA

    • Employee share of FICA

    • Employer share of Medicare

    • Employee share of Medicare

    • Federal income tax

    • FUTA

  3. In general, the payment is subject to the interest-free provisions under IRC 6205(a)(1), 26 CFR 31.6205-1.

  4. Penalties are determined on a case by case basis.

  5. See Exhibit 4.75.25-18 for a sample employment tax closing agreement.

Determining Amount of Wages

  1. The types of liability an employer may pay on behalf of the employee includes:

    • Employee share of FICA

    • Employee share of Medicare

    • Federal income tax

    • State income tax

  2. When an employer pays the liability on behalf of an employee, the payment is considered additional wages to the employee in the year paid and subject to FICA, FUTA, and income tax withholding. This creates a pyramiding effect. The employer avoids this by paying taxes on the gross-up wage amount.

  3. The formula for determining the gross-up wage amount is W=S/(1-R) (see Rev. Proc. 81-48).

    W = Gross-up wage amount
    S = Additional wage amount
    R = Rate of employee tax
    The "Rate of employee tax" is the tax rate for all taxes the employer paid on behalf of the employee.

    Example:

    Employer didn’t include $20,000 year-end bonuses paid to its employees as wages. Employer wants to correct this by entering into a closing agreement. Using these percentages, the total rate of employee taxes is 32.65%:

    Federal income tax rate of 25%
    FICA rate of 6.2% (employee share)
    Medicare rate of 1.45% (employee share)
    The gross up amount of wages is $29,696 calculated as follows: $20,000/(1-32.65%).
    Multiply the gross up wage amount by the applicable employment tax rates to determine the amount of taxes owed.

Issuance of W-2c, Corrected Wage and Tax Statement

  1. The employer must report the increased social security/Medicare wages on Form W-2c, Corrected Wage and Tax Statement, boxes 3 and 5. Doing so, results in reporting the correct amount of wages for social security and Medicare benefit purposes, but doesn’t require employees to amend their Forms 1040, U.S. Individual Income Tax Return.

  2. The employer must also:

    1. Issue any necessary Forms W-2c to the Social Security Administration.

    2. Provide a copy of Form W-2c to the affected employee.

    Note:

    The employer can use the following language to send a copy of the Form W-2c to the employee:

    You are receiving a copy of Form W-2c, Corrected Wage and Tax Statement, that reflects a correction and increase in social security wages and Medicare wages reported to the Social Security Administration. The corrected wages are reported in Box 3 for social security wages and Box 5 for Medicare wages. The Form W-2c does not include any increase to your federal income tax wages reported in Box 1. The Form W-2c is for informational purposes only relating to social security and Medicare wages; it does not require any action by you. You are not required to file an amended Form 1040, U.S. Individual Income Tax Return, based on receipt of this Form W-2c.

Tax Assessments

  1. IRS must assess the liability stemming from a closing agreement when closing a case. We don’t delay assessment pending payment.

  2. If the taxpayer hasn't filed a required tax return, secure the return and any payment due from the taxpayer.

  3. If the taxpayer fails to file a delinquent tax return, but executes an agreement (i.e., signs Form 4549, Income Tax Examination Changes, Form 870, Waiver of Restrictions on Assessments and Collection of Deficiency in Tax and Acceptance of Overassessment, Form 2504, Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment, or other waiver/agreement form), the agreed report constitutes a return under IRC 6020(a).

  4. The EO closing unit makes the assessment from an executed closing agreement.

  5. Enter the amount of the closing agreement tax liability in the "Penalties" section of the Form 4549 or other report form.

Taxable Return Assessment - Master File Returns

  1. Agent: prepare Form 5599, TE/GE Examined Closing Record, as follows:

    1. Item 07, Hold Code - enter 2.

    2. Item 12, Tax Liability Adjustment - enter TC 300 and the agreed amount of tax.

    3. Item 12, Tax Liability Adjustment - enter the appropriate penalty transaction code and the agreed amount of penalties. See Document 6209Section 8A, Transaction Codes.

    4. Item 13, Disposal Code - enter 12.

      Note:

      If the statute expiration is imminent, enter TC 300 with a .00 amount. Enter the amount of tax and/or penalties to be assessed in Item 35 - Manual Assessment Amount.

  2. Enter the codes in IRM 4.75.25.12.1 (1) in the closing record in RCCMS.

  3. The EO Closing Unit uses Form 5599 to:

    1. Assess additional tax on BMF return(s) timely filed.

    2. Assess tax on BMF substitute for return(s) after the return(s) has (have) posted to MF as TC 150.

    3. Record additional tax on NMF return(s) for statistical purposes only. Prepare Form 2859, Request of Quick or Prompt Assessment, to assess the additional tax. (See IRM 4.4.25.)

    4. Close the case off AIMS.

  4. Agent: enter appropriate instructions on Form 3198-A as follows:

    If... Then enter "EO Closing Agreement" ...
    No assessment. "with No Tax Assessment - close off AIMS."
    An assessment is to be made on a taxable return and the statute isn't imminent. "with Tax Assessment. Assess tax using Form 5599."
    An assessment is to be made on a taxable return and the statute is imminent (60 days or less). "with Tax Assessment. Statute expires (insert date). Prepare Form 2859."
    An assessment is to be made on a non-taxable return and the statute isn't imminent. "with Assessment on Non-Taxable Return. Assess using Form 5599."
    An assessment is to be made on a non-taxable return and the statute is imminent (60 days or less). "with Assessment on Non-Taxable Return. Statute expires (insert date). Prepare Form 2859."
    An assessment is to be made on a NMF Return (i.e., Form 990-BL or Form 4720-A). "with Tax Assessment on NMF Return - Prepare Form 5734."

    Note: Include instructions to EO Closing Unit on Form 3198-A to not assess penalties and/or interest if the closing agreement provides for non-assessment.

Taxable Return Assessments - Non-Master File (NMF) Returns

  1. The EO closing unit uses Form 2859, Request for Quick or Prompt Assessment, to make manual assessments to NMF.

  2. The EO closing unit manually processes closing agreements involving:

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

    • Forms 4720-A

    Note:

    Refer to IRM 21.7.7.4.11.3 for directions on processing Forms 4720-A.

Non-Taxable (Information) Return Assessments

  1. A closing agreement can impose an assessment on an exempt organization information return (such as, Form 990) that is under audit and controlled on AIMS. In order to assess the liability and close the return off AIMS, the agent prepares Form 5599 as follows:

    1. Item 07, Hold Code - enter 2.

    2. Item 12, Tax Liability Adjustment - enter TC 300 and .00.

    3. Item 13, Disposal Code - enter 12.

    4. Item 15, Credit and Tax Computation Adjustment - enter Item Adjustment Number 689 and the amount.

      Note:

      Item Adjustment Number 689: EO Closing Agreement Penalty Assessment

  2. The same instructions apply to the closing record within RCCMS.

  3. The EO closing uses Form 2859 to:

    • Make a manual assessment when the statute is imminent.

    • Input TC 150 and .00 to allow the closing agreement assessment if there are problems with posting a return (TC 150 for .00).

NMF Tax Assessment on Walk-In Initiated

  1. A walk-in closing agreement assessment is usually made on BMF. There are times however, when that can’t be done, such as when the statute has expired or the closing agreement payment amount can’t be attributed to a particular tax return.

  2. EOCAC: if the assessment can’t be made on BMF:

    1. Prepare Form 5734, Non-Master File Assessment Voucher. See Exhibit 4.75.25-10

    2. Prepare a NMF Closing Agreement Memorandum. See Exhibit 4.75.25-11.

    3. Secure email Form 5734 and a copy of the executed agreement to Cincinnati Submission Processing.

    4. Follow up to ensure that the assessment and payments were made in NMF.

Follow-Up Procedures

  1. To ensure an organization stays compliant with the terms of the closing agreement, the EOCAC may monitor an organization’s actions. An organization’s failure to comply with the terms of an executed closing agreement could result in a follow-up audit.

EOCAC Responsibilities

  1. EOCAC:

    1. Identify cases for follow-up by electronically preparing and submitting Form 5666, TE/GE Referral Information Report. See Exhibit 4.75.25-19 for specific instructions.

    2. Insert a copy of the executed closing agreement into the Form 5666 pdf document so that only one document (the package) is submitted to the EO Referrals Group.

    3. Include in the package a suggested date for follow-up. Depending on the facts and circumstances, recommend a date two to three years in the future to give the organization time to:

      • Operate under the terms of the agreement.

      • File returns.

    4. Secure email the package to your group manager for approval and secure his/her electronic signature.

    5. Secure email the package to the EO Referrals Group after you receive it from your manager.

Referrals Responsibilities

  1. Manager, EO Referrals Group: holds the Form 5666 pdf package until the recommended audit date.

  2. Classifier: at the appropriate date, classifies the request under the high priority referral process.

  3. Classifier: sends the case to the TE/GE Classification function if the case is recommended for field assignment.

EOCAC: Monitoring Reports

  1. EOCAC: prepare a quarterly monitoring report detailing closing agreement activities. The monitoring report should include:

    1. A breakdown by type of issue.

    2. A description of how the closing agreement resolved the issues.

    3. The number of closing agreements in-process.

    4. The number of closing agreements closed for the quarter.

    5. The number of closing agreement closed year-to-date.

    6. A breakdown of total payment amounts finalized for all agreements in the quarter.

    7. A breakdown of total payment amounts finalized for all agreements year-to-date.

  2. Send the monitoring report to Manager, Mandatory Review. After approval, Manager, Mandatory Review sends the report to Manager, EPR. Manager, EPR approves the report and sends it to Director, EO:E. See Exhibit 4.75.25-12 through Exhibit 4.75.25-16.

  3. The due dates for the quarterly reports are:

    Quarter Due Date
    October 1st - December 31st January 15th
    January 1st - March 31st April 15th
    April 1st - June 30th July 15th
    July 1st - September 30th October 15th

Closing Agreement Authority and Finality

Authority
The Commissioner may enter into and approve a written closing agreement with any person relating to the liability of such person in respect of any internal revenue tax for any taxable period ending prior or subsequent to the date of such agreement. (IRC 7121)
We may enter in a closing agreement in any case in which:
  1. There appears to be an advantage in having the case permanently and conclusively closed.

  2. The taxpayer demonstrates good and sufficient reasons for desiring a closing agreement.

  3. The Commissioner determines the United States will sustain no disadvantage through consummation of such an agreement.

(26 CFR 301.7121-1(a))
The Director, EO is delegated the authority to enter into and approve a written agreement with any person relating to the internal revenue tax liability of such person (or of the person or estate for whom he or she acts) for a taxable period or periods ended prior to the date of agreement and related specific items affecting other taxable periods. This doesn't include the authority to set aside any closing agreement. (Delegation Order 8-3 (IRM 1.2.47.4))
The authority may be exercised by the Director, EO Examinations and the Director, EO Rulings and Agreements. (Commissioner, TEGE Delegation Order 11)
Any taxpayer having issues that might result in revocation or taxation, may voluntarily (walk-in) contact the Area Office to resolve outstanding issues by way of a closing agreement.
  1. A closing agreement may be accepted with respect to a taxpayer not under audit. However, we must be furnished sufficient facts and documentation (and may make sufficient audit or inquiry) to warrant acceptance of the agreement. (Section 8.01 of Rev. Proc. 68-16, 1968-1 C.B. 770)

  2. EO personnel may discuss a closing agreement with an anonymous taxpayer; however, discussions may not proceed beyond the draft closing agreement stage without identification of the taxpayer.

  3. The taxpayer will provide a description of the non-compliant activities and the items listed in IRM 4.75.25.10.1 .

  4. We may consider more favorably a taxpayer voluntarily approaching us to resolve outstanding issues and agreeing to future voluntary compliance.

Finality
Once the Director, EO:E approves an agreement, it's final and conclusive. We can't reopen the closing agreement as to the matters agreed upon or modified. We may not annul, modify, set aside, or disregard the closing agreement (or any legal action in accordance with it) in any suit, action, or proceeding unless there is a showing of fraud, malfeasance, or misrepresentation of material fact.
The Commissioner may set aside agreements made under IRC 7121(b) upon a showing of fraud or malfeasance, or misrepresentation of a material fact. The Commissioner's authority in this respect hasn't been delegated; therefore, the Commissioner must approve any such actions.

Note:

We don't treat simple unintentional errors as fraud, malfeasance, or misrepresentation that allow reopening of an agreement. (Policy Statement P-4-3 (IRM 1.2.13.1.1) )

The burden of proof in establishing the disqualifying factor falls upon the party seeking to set the agreement aside. (Holmes & Janes, Inc. 30 B.T.A. 74, and Thomas J. Ingram, 32 B.B.T. 1063)
  1. Where EO Examinations believes there is fraud, malfeasance, or misrepresentation, we must conduct an audit of the taxpayer to prove a disqualifying factor.

  2. The taxpayer must retain sufficient documentation to ensure compliance with the closing agreement requirements.

Existence of any disqualifying element is subject to review by a court.
We must base the term "fraud" , as applied under IRC 7121(b), upon evidence showing intent to evade the payment of tax, for which the taxpayer is believed to be liable, as distinguished from mistake, inadvertence, reliance on incorrect technical advice, honest difference of opinion, negligence, or carelessness. (IRM 25.1, Fraud Handbook.)

Note:

Evidence of fraud not related to the issues constituting the basis for the closing agreement will probably be insufficient to sustain setting aside a closing agreement, unless the fraud goes to the agreement itself as in John Kehoe, 34 B.T.A. 59.

The term "malfeasance" imports violation of a public trust or guilt with respect to some form of official act.
The term "misrepresentation" when used as a basis for setting aside a closing agreement connotes intentional deceit. It doesn't refer to a mere mistake of fact or law, whether unilateral or mutual, no matter how material. In the Ingram case, the then Board of Tax Appeals stated: "Obviously the use of the word misrepresentation denotes something more deliberate or more conscious than a mere error or mistake. Otherwise, the entire rationale of a closing agreement would be lost. Congress intended that innocent mistakes be buried in a closing agreement. This still leaves an ample field for protection against an agreement founded in trickery or deception."
Setting aside of a closing agreement, even though deemed justified, is not mandatory. If it's in our best interests to refrain from setting aside the agreement, we may do so.
Any request to set aside a closing agreement must be submitted to the Commissioner, TEGE. The request should include a recommendation and the reasons therefor.

Responsibilities of the Exempt Organizations Closing Agreement Coordinator

Exempt Organizations Closing Agreement Coordinator: EOCAC

The EOCAC is a senior employee in one of the Review staffs who is fully experienced in dealing with EO issues.

If EO designates more than one EOCAC, one is the primary contact for communications with other offices.

Duties

Support the fair, impartial, objective, and consistent use of closing agreements for the treatment of similar issues. Thus, the EOCAC retains a copy of all approved closing agreements.

Provide guidance regarding the closing agreement process to tax exempt organizations seeking a closing agreement.

Provide managers and/or agents advice whenever they are considering a closing agreement to ensure consistency of treatment for similar issues.

Review requests to begin the formal closing agreement process and draft closing agreements (walk-ins only) for accuracy, completeness and consistency before submitting them to the Director, EO:E.

Assist with determining the terms of the agreement.

Contact Area Counsel and/or EO:RA:T concerning legal or technical issues, or the possibility of litigation.

Consider any alterations or erasures to material provisions of the closing agreement throughout the approval process and coordinate with the Director, EO:E.

Review and track closing agreements through signature process.

Provide backup file and information as needed.

Assist with collecting, processing and forwarding payments received under the agreement. See IRM 4.75.25.9.4.1 and IRM 4.75.25.10.4.1.

Follow up to ensure the taxpayer completes all prospective actions including installment payments, if any, within the time frame(s) established in the installment agreement. See IRM 4.75.25.13.1.

Coordinate responses to requests for closing agreement information with Public Affairs and the Disclosure Officer.

Prepare quarterly closing agreement reports. See Exhibit 4.75.25-12 through Exhibit 4.75.25-16.

EO Closing Agreement Cover Sheet

EO Closing Agreement Cover Sheet - Part A
Type of closing agreement: Exam: Walk in:
Name of Organization:
EIN: Tax Years:
Statute Expiration Date(s):
Request for Approval to Prepare Draft - Part B(IRM 4.75.25.9.2 )
Approvals Initial: Concurrence Initial: Nonconcurrence Date
Group Manager*
Area Manager*
EOCAC
Manager, EPR
Director, EO Exam
Request for Approval of Draft Closing Agreement - Part C (IRM 4.75.25.9.4)
Approvals Initial: Approval Initial: Disapproval Date
Group Manager*
Area Manager*
Area Counsel
EOCAC
Manager, EPR
Director, EO Exam
* Group manager and area manager concurrences/approvals aren't required for walk-ins.
Payment of Tax Liability or Assessment in Lieu of Taxes - Part D
Check Applicable Box: No Payment Required ___
Paid in Full: ___ Installment Agreement ___
Attach explanation, if no payment is required or taxpayer hasn't paid in full or hasn't entered into an installment agreement.
Approval of Final Closing Agreement Signed by Taxpayer - Part E
Reviewed by EOCAC: Date reviewed:
Initials of Director, EO Examinations: Date approved:

Sample Closing Agreement as To Final Determination

Closing Agreement as to Final Determination
Covering Specific Matters Under Section 7121
of the Internal Revenue Code
[Taxpayer's name, address, and identifying number]
Under section 7121 of the Internal Revenue Code (Code) (Name of Organization) (Taxpayer) and the Commissioner of Internal Revenue (the Service) make the following Closing Agreement.
WHEREAS, [Taxpayer] has been recognized as an organization described in section 501(c) (_) of the Code since [Date].
WHEREAS, Commissioner conducted an audit of [Taxpayer] annual return(s), [Form(s) 990, 990-T, 990-PF, etc.] for the year(s) ending [Tax periods in month day, year format].
WHEREAS, on a preliminary basis Commissioner adopted a proposed adverse position that [Taxpayer's] [tax exempt status under section 501(c)(_) of the Code should be revoked] / [is liable for unrelated business income tax, employment tax, etc.].
This position is based on information indicating that [describe facts upon which the proposed adverse position is based in one or more whereas clauses].
WHEREAS, [Taxpayer] [describe corrective steps already taken].
NOW, THEREFORE, IT IS HEREBY FURTHER DETERMINED AND AGREED BETWEEN TAXPAYER AND THE SERVICE AS FOLLOWS for federal income tax purposes that:
1. [List payment made and/ or actions taken by taxpayer].
2. [List tax treatment agreed to by parties].
[Where determination letter is issued because of closing agreement, insert here: The letter recognizing tax-exempt status is attached to this agreement.]
This agreement is limited to the specific Internal Revenue Code matters discussed herein and does not extend to other federal law.
THIS AGREEMENT IS FINAL AND CONCLUSIVE, EXCEPT:
(a) the matter it relates to may be reopened in the event of fraud, malfeasance, or misrepresentation of material fact;
Page 1 of 2
Closing Agreement with [Name of organization and TIN]
(b) it is subject to the Internal Revenue Code sections that expressly provide that effect be given to their provisions (including any stated exception for Code section 7122) notwithstanding any other law or rule of law; and
(c) if it relates to a tax period ending after the date of this agreement, it is subject to any law, enacted after the agreement date, that applies to that tax period.
By signing below, the parties certify that they have read and agreed to the terms of this document.
[NAME OF TAXPAYER]
By Date signed:
(Title or authority of signer)
COMMISSIONER OF INTERNAL REVENUE
By Date signed:
Title
Page 2 of 2

Certification by Receiving And Reviewing Officials

(Insert on Reverse of Last Page of Original of Closing Agreement)

I have examined the specific matters involved and recommend the acceptance of the proposed agreement. I have reviewed the specific matters involved and recommend approval of the proposed agreement.
(Receiving Officer) (Date) (Receiving Officer) (Date)
(Title) (Title)

Transmittal Memo to Director, EO Examinations

Date:
To: DIRECTOR, EO EXAMINATIONS
From: EO Closing Agreement Coordinator
Subject: Closing Agreement with xxxxxx
Attached is the Original, Duplicate, and Triplicate final closing agreement signed by the taxpayer. I have reviewed the closing agreement before forwarding for your approval and signature. [Include any other applicable background material.]
Also attached is the EO Closing Agreement Cover Sheet. Please initial and date at the bottom of the page. Also attached is a copy of the briefing notes.
Please return the signed agreements and approval cover sheet to the EOCAC at:
[Insert address of Closing Agreement Coordinator]
Attachments [Enter number of attachments in parenthesis]

Information Document Request Cover Letter (Exams Only)

This letter replaces the Letter 3606 (Rev. 11-2003), historically used as a cover letter for Form 4564 during the conduct of the audit. This is not to be used as an initial contact letter.

Department of the Treasury Date:
Internal Revenue Service [Insert date]
TE/GE Exempt Organizations Examinations Taxpayer Identification Number:
[Insert street address] [Insert TIN]
[Insert city, state, and ZIP code] Form:
[Insert form]
[Insert name of entity] Filing periods ended:
[Insert street address] [Insert tax years]
[Insert city, state, and zip code] Person to Contact / ID Number:
[Insert name and ID number]
Contact Numbers:
Phone Number: [Insert phone number]
Fax Number: [Insert fax number]
Manager's Name / ID Number:
[Insert manager's name]
[Insert manager's ID number]
Response Due Date:
[Insert date]
Dear [insert name of entity]:
Why I Am Sending You This Letter
I am in need of additional information from you to help in completing my audit of your organization. I ask that you send me the items I am requesting by [insert date].
Information Document Request
Enclosed is a Form 4564, Information Document Request, listing the items I need. Please mail this information to me at the address shown above. Original documents aren't required, but please ensure all copies are legible.
Communication
Please call me to discuss any potential issues and keep me informed of unavoidable delays. I’ll do likewise. The audit will proceed faster if we address questions and concerns and provide information to each other in a timely manner. You may also speak to my manager at any time. My manager’s name and phone number are also shown in the heading of this letter.
Thank you for your cooperation in this matter.
Sincerely,
[Insert name]
Internal Revenue Agent
Enclosures:
Form 4564

Information Document Request Cover Letter (Walk-Ins Only)

This letter is not to be used as an initial contact letter for an audit

[TE/GE Logo DEPARTMENT OF THE TREASURY
(on green letterhead)] INTERNAL REVENUE SERVICE
WASHINGTON, D. C. 20224
Date
[Name of taxpayer] [Employer Identification Number]
[Street address]
[City, state, and ZIP code]
RE: Additional information regarding closing agreement request
Dear [Sir or Madam],
In order to determine if the IRS wants to begin the negotiation process for a closing agreement as requested on [date] [by your Power of Attorney], [name], we need additional information submitted to us.
Enclosed is an Information Document Request. This request lists the additional items we are requesting.
If you have any questions, please contact me at [number].
Sincerely,
[Insert name]
Internal Revenue Agent
Enclosure (1)
cc: [name] POA

Disclosure Statements

A. Disclosable Return to Which Closing Agreement is Attached
"Closing Agreement under IRC section 7121 [Insert Year(s) affected]. This return must be sanitized of any closing agreement information (including the fact of a closing agreement) before it's made available for public inspection. The closing agreement isn't subject to disclosure."
B. Disclosure Statement – Related Disclosable Return – Closing Agreement Not Attached
"Closing Agreement under IRC section 7121 [Insert Year(s) affected]. Closing agreement attached to return for [Insert taxable period ended]. This return must be sanitized of any closing agreement information (including the fact of a closing agreement) before it's made available for public inspection."
C. Disclosure Language – Related Non-Disclosable Return – Closing Agreement Attached
"Closing Agreement under section 7121, Internal Revenue Code of 1986, [Insert year(s) affected]. Closing agreement attached. The closing agreement isn't subject to disclosure."
D. Disclosure Language – Related Non-Disclosable Return – Closing Agreement Not Attached
"Closing Agreement under section 7121, Internal Revenue Code of 1986, [Insert year(s) affected]. Closing agreement attached to return for [Insert taxable period ended]. The closing agreement isn't subject to disclosure."

Instructions for Completing Form 5734, Non-Master File Assessment Voucher

Form 5734 fields: Enter the following:
Block 1 Name and address of taxpayer
Block 2 Leave blank
Block 3 Taxpayer Identification Number
Block 4 Closing Agreement
Block 5 Not applicable or N/A
Block 6 The date the agreement was executed by the Director, EO:E.
Block 7 28
Block 8 139
Block 9 Leave blank
Block 10
I.R.C. Section or Type of Penalty IRC 7121
Trans. Code 150
Amount The total amount of tax, penalty, and interest.
Block 11 Leave blank
Block 12 The total amount of tax, penalty, and interest.
Block 13 Closing Agreement - See attached
Block 14 The EOCAC's name and phone number
Block 15 Current date

NMF Closing Agreement Memorandum

Date:
MEMORANDUM FOR: Cincinnati Submission Processing Center
Accounting Operations, Accounting Control Department 1
ANMF Team 104
FROM: EO Examinations Closing Agreement Coordinator
SUBJECT: Closing Agreement on Final Determination
Attached is a closing agreement executed on xx/xx/xxxx as noted:
Payer’s Name:
Payer’s SSN/EIN:
Payer’s Address:
The closing agreement should be routed to the accounting branch for assessment and credit. The assessment should be made as a Non-Master File assessment, true tax class 6, utilizing abstract number 139 (Please refer to IRM 3(17) (243)8.4 for processing instructions). The payments that relate to the NMF assessment are currently sitting in the xxxx NMF fund.
There are to be no refunds of monies under this closing agreement.
If you have any questions, please contact xxxx at xxx-xxx-xxxx.
Thank you.
Attachment:

EO Closing Agreement Director's Office Quarterly Report (Page 1)

EXEMPT ORGANIZATIONS CLOSING AGREEMENTS
DIRECTOR, EO EXAMINATIONS QUARTERLY REPORT
AS OF (Last Day of Quarter)
NUMBER OF CASES ASSESSMENTS
Agreements Involving: In Process Closed This Quarter Closed Year to Date This Quarter Year to Date
Qualification Issues 0.00 0.00
Unrelated Business Income Tax 0.00 0.00
Private Foundation Status 0.00 0.00
Chapter 42 Taxes 0.00 0.00
IRC 4958, Excess Benefits 0.00 0.00
Employment Taxes 0.00 0.00
Other (Describe Below) 0.00 0.00
Total 0.00 0.00
Employment Tax Issues Resolution
PF Issues Resolution
Other Issues Resolution

EO Closing Agreement Director's Office Quarterly Report (Page 2)

EXEMPT ORGANIZATIONS CLOSING AGREEMENTS
DIRECTOR, EO EXAMINATIONS QUARTERLY REPORT
AS OF (Last Day of Quarter)
I. REQUEST TO FACILITATE CLOSING AGREEMENT APPROVED OR PENDING
1.
Name of organization:
EIN:
Tax Year:
Area Office:
Origination:
Issue:
Proposed Resolution:
Status:
2.
Name of organization:
EIN:
Tax Year:
Area Office:
Origination:
Issue:
Proposed Resolution:
Status:
3.
Name of organization:
EIN:
Tax Year:
Area Office:
Origination:
Issue:
Proposed Resolution:
Status:

EO Closing Agreement Director's Office Quarterly Report (Page 3)

EXEMPT ORGANIZATIONS CLOSING AGREEMENTS
DIRECTOR, EO EXAMINATIONS QUARTERLY REPORT
AS OF (Last Day of Quarter)
II. DRAFT CLOSING AGREEMENT APPROVED
1.
Name of organization:
EIN:
Tax Year:
Area Office:
Origination:
Issue:
Proposed Resolution:
Status:
2.
Name of organization:
EIN:
Tax Year:
Area Office:
Origination:
Issue:
Proposed Resolution:
Status:
3.
Name of organization:
EIN:
Tax Year:
Area Office:
Origination:
Issue:
Proposed Resolution:
Status:

EO Closing Agreement Director's Office Quarterly Report (Page 4)

EXEMPT ORGANIZATIONS CLOSING AGREEMENTS
DIRECTOR, EO EXAMINATIONS QUARTERLY REPORT
AS OF (Last Day of Quarter)
III. FINAL CLOSING AGREEMENT SIGNED BY DIRECTOR
1.
Name of organization:
EIN:
Tax Year:
Area Office:
Origination:
Issue:
Proposed Resolution:
Status:
Date Closing Agreement Sent to Taxpayer:
2.
Name of organization:
EIN:
Tax Year:
Area Office:
Origination:
Issue:
Proposed Resolution:
Status:
Date Closing Agreement Sent to Taxpayer:

EO Closing Agreement Director's Office Quarterly Report (Page 5)

EXEMPT ORGANIZATIONS CLOSING AGREEMENTS
DIRECTOR, EO EXAMINATIONS QUARTERLY REPORT
AS OF (Last Day of Quarter)
IV. REQUEST FOR CLOSING AGREEMENT NOT APPROVED
1.
Name of organization:
EIN:
Tax Year:
Area Office:
Origination:
Issue:
Proposed Resolution:
Status:

Briefing Report

Taxpayer Name
Type: (Walk-in or Examination)
Submission Date:
Status: (Stage of Agreement)
Counsel: (Counsel’s name)
Years:
Return: Form
Issue:
  • (List issues and resolution)

Employment Tax Closing Agreement Outline

CLOSING AGREEMENT AS TO FINAL DETERMINATION COVERING SPECIFIC MATTERS UNDER SECTION 7121 OF THE INTERNAL REVENUE CODE
Under section 7121 of the Internal Revenue Code of 1986, as amended (the "Code"), xxxxx ("Taxpayer"), (Address), EIN: xx-xxxxxxx, and the Commissioner of Internal Revenue (the "Commissioner") (collectively the "Parties") enter into a Closing Agreement as to final determination of tax liability and specific matters:
WHEREAS, the Taxpayer is exempt from federal income tax as an organization described in section 501(c)(xx) of the Code; and
WHEREAS, during the taxable periods (month, day, year) through (month, day, year) (the "Applicable Tax Periods"), the Taxpayer represents that it (describe situation) to certain employees (the "Affected Employees");
WHEREAS, during the Applicable Tax Periods, the Taxpayer did not treat the (describe situation) as "wages" to the Affected Employees for income and employment tax purposes by reporting the (describe situation) on Forms W-2 and 941 and appropriately withholding and depositing applicable taxes; and
WHEREAS, the Taxpayer has voluntarily disclosed to the Commissioner the income and employment tax withholding and reporting errors made during the Applicable Tax Periods; and
WHEREAS, Taxpayer represents that it has instituted procedures to ensure future compliance with the reporting and withholding requirement issues set forth in this Closing Agreement; and,
WHEREAS, Taxpayer is not under examination by the IRS for employment or income tax matters, and any tax years referenced have not been examined for employment or income tax purposes; and
WHEREAS, the Commissioner, through his authorized representative(s) and the Taxpayer, through its authorized representative(s) have determined that final resolution of the Taxpayer's income tax withholding obligations and employment tax liabilities according to the terms of this Closing Agreement as to final determination of tax liability and specific matters set forth herein is in their respective best interests.
NOW THEREFORE IT IS HEREBY DETERMINED AND AGREED BETWEEN TAXPAYER AND THE COMMISSIONER AS FOLLOWS for federal employment tax purposes that:
(1) Taxpayer is liable for and will pay $XXXX Dollars and No Cents, in full discharge of all income tax withholding, and employment tax liabilities due on the wages arising to the Affected Employees’ (explain situation) during the Applicable Tax Periods, as follows:
Year Federal Income Tax Withholding Social Security Tax Medicare Taxes Total Tax Due
xxxx $x,xxx $x,xxx $x,xxx $xx,xxx
xxxx $x,xxx $x,xxx $x,xxx $xx,xxx
xxxx $x,xxx $x,xxx $x,xxx $xx,xxx
2. Taxpayer will remit the total amounts set forth in paragraph (1) above by certified check, cashier’s check, or similar instrument payable to the United States Treasury prior to, or contemporaneously with, the execution of this agreement by the duly authorized representative of the Commissioner. Payment should be sent to the following address:
3. The Taxpayer agrees that the Service may assess the taxes contained in paragraph 1 above against the Taxpayer, as required by law, and waives all defenses against and restrictions on the assessment and collection of the liability, including any defense based on the expiration of the statute of limitations on assessment of tax with respect to the taxable periods for such amounts.
4. Any adjustment to the employment taxes paid by the Taxpayer pursuant to this Closing Agreement shall be made without interest pursuant to Code section 6205(a)(1) and Treasury Regulation section 31.6205-1.
5. No penalty shall be imposed on Taxpayer with respect to its failure to properly report and withhold employment taxes from the payments.
6. The Taxpayer will file a Form W-2c, Corrected Wage and Tax Statement, for each Affected Employee with the Social Security Administration, reporting the increased Medicare and social security wages in Box 3 and Box 5, respectively. Box 1 will not include the increased wages for federal income tax purposes.
7. The Taxpayer shall furnish a copy of the Form W-2c, Corrected Wage and Tax Statement, described in paragraph 6, to each Affected Employee.
8. Nothing in this Agreement shall be construed as a limitation on the Commissioner’s ability to adjust the tax liabilities of Taxpayer for any taxable period, except as expressly provided for in this Agreement. Further, this Agreement does not prevent the Commissioner from examining Taxpayer and determining adjustments for any tax periods covered by this Agreement for unrelated matters.
9. This Closing Agreement and resolution of issues herein does not qualify as an examination or inspection under Code sections 7602 or 7605(b), or as an audit for purposes of Section 530 of the Revenue Act of 1978.
10. The Taxpayer agrees not to file any future claims with respect to the specific items contained in this Closing Agreement.
11. This Closing Agreement constitutes a resolution under the Code of the specific matters discussed herein. No inference shall be made with respect to whether this resolution satisfies other federal or state law.
12. This Closing Agreement may not be cited or relied upon by any person or entity as precedent in the disposition of any other case.
This Closing Agreement is final and conclusive except:
  1. The matters to which it relates may be reopened in the event of fraud, malfeasance or misrepresentation of material fact;

  2. It is subject to the sections of the Internal Revenue Code that expressly provide that effect be given to their provisions (including any stated exception for Section 7122 of the Code) notwithstanding any other law or rule of law; and

  3. If it relates to a tax period ending after the date of this Closing Agreement, it is subject to any law, enacted after such date, which applies to the taxable period.

IN WITNESS WHEREOF, the above Parties to this Closing Agreement as to Final Determination of Tax Liability and Specific Matters have executed this Closing Agreement in triplicate on the dates indicated below. By signing this Closing Agreement, the Parties certify that they have read and agreed to its terms.
TP Name:
EIN:
By: ______________________________ Date signed:____________________
Name: _________________________________________
Title: ___________________________________________
COMMISSIONER OF INTERNAL REVENUE
Name: _________________________________________
Title: Director, EO Examinations

Preparation of Form 5666

Position Number Description Definition
N/A Referral or Information Report Check the Referral box
Line 1
A Organization/Taxpayer/Plan Name Self-explanatory
B Street Address Self-explanatory
C City, State and Zip Code Self-explanatory
D Forward Report to: (Name/ Date/ Org / Telephone) Manager, EO Referrals Group
E Source of Information Leave Blank
F Tax Period YYYYMM format for year of agreement
G MFT/Plan No. 2-digit MFT
H Future Year (EP/EO/GE) Two to three years from the date of the closing agreement
I Future Year Code (EP/EO/GE) Use the appropriate Follow-Up Push Code:
  • 022: Exemption Granted

  • 023: Unrelated Business Income

  • 024: Payout Provision

  • 025: Other

P7-8 Source Code 41: Closing Agreement
P25-26 MFT Use appropriate 2-digit code
P33-36 Project Code 8196: Closing Agreement Follow Up
Line 2
1-12 TIN/File Source Self-explanatory
14-17 Name Control or check Digit Enter four-character name control
L Name Control or check Digit Self-explanatory
M Approved by/Date Self-explanatory
O Information Obtained Provide summary of the items that need verification to determine if TP is in compliance with the agreement