IRC 7602 gives examiners the authority to:

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.

Delegation Order 5-2 (Rev. 2) provides that Internal Revenue Agents and Tax Compliance Officers 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 1.2.2.6.2.

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 1.2.1.6.18.

Policy Statement 4-63 describes the IRS’ policy on no unwarranted adjustments in statutory notices. The policy states the deficiency asserted in a statutory notice of deficiency should be based on meritorious adjustments. No adjustments should be included for punitive, bargaining, or similar purposes. Estimated amounts to protect the Government's interest may be used only when it is impossible to establish exact amounts.

The authority for EO to enforce income taxes is rooted in:

During an examination, examiners are responsible for determining if the organization:

Taxpayer Bill of Rights (TBOR): In June of 2014 the IRS adopted the TBOR therefore, examiners are also responsible for:

Along with their managers, examiners are responsible for controlling and monitoring statutes on their assigned cases.

General definitions are as follows:

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

EO Examinations IRMs mentioned in this manual include:

TE/GE IRMs mentioned in this manual include:

Servicewide and other BOD IRMs mentioned in this manual include:

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

Publications and Documents:

AIMS forms:

Tax and information return forms:

Waiver and acceptance forms:

Basic report forms:

Delinquent return forms, SFR forms, filing requirement forms:

Case closing forms:

Workpaper forms:

A proposed adverse status change prepared in accordance with IRM 4.75.15 is agreed when the organization signs Form 6018. Filing a converted tax return or paying the tax does not constitute an agreement.

Solicit converted tax returns for all affected tax years not barred for assessment. Affected tax years are the years the adverse status change is effective.

, you can also solicit or prepare SFRs for Form 4720 or 4720-A for IRC 4941 - 4945 taxes if they are required.

Bring the organization current on its tax and filing obligations for the affected tax years as stated in IRM 4.75.31.2 (5).

Prepare the following closing documents for the primary return case file:

Don’t solicit converted tax returns for unagreed adverse status changes.

If the organization files a converted tax return with you, follow the same procedures for agreed revocations in IRM 4.75.31.2.1.

Take the steps necessary to protect the assessment of the tax resulting from the adverse status change for the affected tax years. See IRM 4.75.31.2 (5). If you decide to enforce the tax, you can:

Prepare the following closing documents for the primary return case file:

For agreed adverse status changes, you can use either one of the following disposal codes, unless a higher priority disposal applies:

For unagreed adverse status changes, you can use either one of the following disposal codes, unless a higher priority disposal applies:

Refer to IRM 4.75.16.4.4 for more Form 5599 closing record instructions.

Prepare Form 2363-A for every adverse status change case file (primary return case file).

Follow the instructions in Exhibit 4.75.31-1, Exhibit 4.75.31-2 and Exhibit 4.75.31-3.

You can also refer to IRM Exhibit 4.75.16-.5, IRM Exhibit 4.75.16-6 and IRM 25.7.1 for more information.

Prepare Form 3198-A for every adverse status change case file (primary return case file).

Enter one or more of the following notations if applicable in "Other Instructions" or under the "Mandatory Review" check box before transferring the case file to Mandatory Review:

Place Form 3198-A on the outside cover of the primary return case file folder on top of Form 5599.

This course of action follows your evaluation in IRM 4.75.31.2 (5), where you decide to prepare a Form 5666. See instructions at IRM Exhibit 4.5.1-14 and IRM Exhibit 4.75.16-8.

Use Form 5666 to recommend an examination of the organization that loses its exempt status for the affected tax years, and subsequent years if needed. Include the following information on Form 5666:

Attach the following documents to Form 5666:

For additional instructions on preparing Form 5666, see IRM 4.75.16.4.8. You can also use Form 5346 if you prefer that form.

Place the Form 5666 package on the inside-left of the primary return case file folder.

This course of action follows your evaluation in IRM 4.75.31.3 (6), where you determine enforcement is needed by adjusting a secured converted tax return.

If you know the return is substantially incorrect or incomplete, give the organization an opportunity to submit a correct return if time permits for purposes of the ASED.

See IRM 4.75.35.

Establish the secured converted tax return for adjustment on:

The NMF case file will:

You can obtain NMF transcripts as follows:

If the underlying adverse status change is sustained by Mandatory Review or Appeals:

If the underlying adverse status change is not sustained by Mandatory Review or Appeals:

After initiating deficiency procedures in subparagraph (6)c, close the converted tax return case file as follows:

With respect to an adjustment to a Form 990-PF converted tax return in subparagraph (6)c, the adjustment need not be limited to IRC 4940 tax, which is subject to deficiency procedures. You can also adjust non-tax items, such as the reported distributable amount, qualifying distributions, or undistributed income. If adjusting non-tax items is the only adjustment, the adjustment is subject to a nonstandard 30-day letter, with protest to Appeals, but not subject to issuance of a final 90-day letter by Mandatory Review. Consult with *TEGE EO Review Staff on a nonstandard 30-day letter. Any IRC 4942 tax resulting from non-tax adjustments is reported separately on Form 4720, which is subject to full deficiency procedures.

Prepare Form 3198-A for every Converted Tax Return case file. Enter one or more of the following notations if applicable in "Other Instructions" or under the "Mandatory Review" check box on Form 3198-A before transferring the case file to Mandatory Review:

Place this Form 3198-A on the outside cover of the converted tax return case file folder on top of Form 5599.

The FAST envelopes will contain the secured converted tax return package to be processed by the FAST if the underlying proposed adverse status change is sustained by Mandatory Review or Appeals.

For security reasons, prepare two envelopes:

Do NOT seal the envelopes. Both envelopes should be addressed to the FAST:

The secured converted tax return package and the FAST envelopes ride with EO primary return case file folder until the underlying adverse status change is determined.

For additional instructions on secure shipping procedures and use of Form 3210, see IRM 4.75.16.9.

Prepare Form 3198-A for every SFCR case file. Enter one or more of the following notations if applicable in "Other Instructions" or under the "Mandatory Review" check box before closing the case to either Mandatory Review or the EO Closing Unit:

Place this Form 3198-A on the outside cover of the SFCR case file folder on top of Form 5599.

Apply IRC 7701. Identify the entity’s legal status as a corporation, association, trust, cooperative or partnership. This determines what type of return needs to be filed. Unincorporated associations are generally treated as corporations liable for Form 1120 returns.

Don’t make income tax elections on behalf of taxpayers.

All income is taxable and included in gross income unless excluded by statute. IRC 61.

Regarding certain dues collected for others, escrow funds, similar trust funds, and amounts received on behalf of others, such amounts are not included in the organization’s gross income until the organization asserts dominion over it as its own. See guidance on an income determination with respect to deposits in Commissioner v. Indianapolis Power & Light Co., 110 S. Ct. 589; See Rev. Rul. 71-189, 1971-1 C.B. 32 (inactive deposits are not income until bank asserts dominion over the accounts). See also Fidelity-Philadelphia Trust Co. v. Commissioner, 23 T. C. 527 (1954).

Contributions and donations received may or may not be taxable. See IRC 102.

Deductibility of Expenses.

Substantiation of Expenses.

Depreciation.

Dividend Received Deduction.

IRC 277, Deductions Incurred by Certain Membership Organizations in Transactions with Members.

Other Income tax provisions.

IRC 2501 imposes a gift tax on donors who give to taxable entities, knowing it’s a taxable entity or after public notice of the revocation. A donor is not subject to gift tax and has advance assurance of charitable deductibility under IRC 170 for amounts contributed to a revoked IRC 501(c)(3) entity prior to public notice of the revocation (such as in the Internal Revenue Bulletin, however, notice may occur in other ways, see Estate of Clopton v. Commissioner, 93 T.C. No. 275 (8-29-89)).

Consult with Gift Tax Specialist (attorney). Enforcement of this tax requires a referral to Estate and Gift using SRS online.

The revocation of an organization’s IRC 501(c)(3) status may adversely impact deferred compensation programs sponsored by the organization. Consult with an Employee Plans IRC 403(b) or IRC 457 Coordinator for your area if the organization maintains a deferred compensation plan. Deferred compensation plans are those described under IRC 401(a), IRC 403(b) or IRC 457.

Revocation of an organization’s IRC 501(c)(3) status will result in the loss of the exclusion from gross income under IRC 103 for interest payments on tax-exempt obligations issued under IRC 145 as “qualified 501(c)(3) bonds.” The loss of such exclusion is effective back to the date of issuance of the IRC 501(c)(3) obligations.

Determine whether the organization is the beneficiary of outstanding tax-exempt obligations under IRC 145 at the time of revocation.