4.81.14 Unagreed Issues

Manual Transmittal

August 28, 2018

Purpose

(1) This transmits revised IRM 4.81.14, Tax Exempt Bonds (TEB) Examination Program and Procedures, Unagreed Issues.

Material Changes

(1) Revised the manual to comply with the Plain Writing Act. For additional information on the Plain Writing Act, see http://www.plainlanguage.gov

(2) Revised IRM section 4.81.14.1, Introduction, to add the internal controls as required by IRM 1.11.2.2.5, Address Management and Internal Controls. Renamed the section to Program, Scope and Objectives. Added Program Controls and Acronyms.

(3) Revised the IRM to incorporate the interim guidance issued as TEGE-04-0618-0005, TEB Case Closing Procedures for Protested Unagreed Cases.

(4) Updated the manual to delete all references to Subject Matter Expert (SME) and FOTA (Field Operations Technical Advisor). Added the term TLS (Tax Law Specialist).

(5) Revised IRM section 4.81.14.3 (previously section 4.81.14.2) to include the TEB technical advisor.

(6) Revised the manual to include references to any unagreed denial of a claim for recovery of an asserted overpayment of an arbitrage payment under IRC Section 148 and unagreed disallowances to credit payments under IRC Section 6431 (claim denials).

(7) Revised the manual to include reference to IRM 4.81.9, Tax Exempt Bonds Examination Program and Procedures, Technical Assistance and Technical Advice Requests for details on technical assistance.

(8) Revised IRM section 4.81.14.4 to change the title from Proposed Adverse Determination to 30-Day Letter. Added instructions for preparation of the 30-day letter.

Effect on Other Documents

This supersedes IRM 4.81.14 dated January 7, 2016.

Audience

Indian Tribal Governments/Tax Exempt Bonds

Effective Date

(08-28-2018)

Christie J. Jacobs
Director
Indian Tribal Governments/Tax Exempt Bonds
Government Entities and Shared Services
Tax Exempt and Government Entities

Program Scope and Objectives

  1. Purpose: This IRM section contains examination guidelines for Tax Exempt Bonds, Unagreed Issues, including :

    1. Denials of claims for recovery of an asserted overpayment of an arbitrage payment under IRC 148.

    2. Unagreed disallowances to credit payments under IRC Section 6431 (claim denials).

  2. Audience: This manual lists procedures for:

    • ITG/TEB revenue agents (agents) conducting TEB examinations (including claims)

    • Group managers

    • Senior managers

    • Other employees in the ITG/TEB Technical groups

  3. Policy Owner: Director, Indian Tribal Governments/Tax Exempt Bonds

  4. Program Owner: Tax Exempt Government Entities/Shared Services

  5. Authority: ITG/TEB’s Examination authority to resolve issues comes from its authority determine tax liability under IRC 6201.

Program Controls

  1. The ITG/TEB Technical Groups conduct mandatory reviews of TEB exam cases before forwarding to the Office of Appeals.

  2. All TEB examinations are conducted in accordance with the Taxpayer Bill of Rights as listed in IRC 7803(a)(3).

Acronyms and Terms

  1. This manual uses the following acronyms and terms.

    Acronym Definition
    AIMS Audit Information Management System
    Agent ITG/TEB Revenue Agent
    Appeals Office of Appeals
    FO Field Operations
    FOM Field Operations Manager
    ITG Indian Tribal Governments
    Pub 5 This publication is enclosed with 30-day letter to provide taxpayers with detailed information on their rights of appeal.
    RCCMS Reporting Compliance Case Management System
    TEB Tax Exempt Bonds
    TLS Tax Law Specialist
    Technical Group Manager A group manager that oversees one of the ITG/TEB technical groups.
    30-day letter Letter informing the issuers of proposed changes and explaining how to dispute the changes if they do not agree.

Communicating Identified Issues

  1. If you conclude, after verifying the relevant facts and establishing the issuer's position, that the bonds fail to comply with one or more requirements, discuss the noncompliance with your manager.

  2. If your manager concurs with your determination of noncompliance, consider whether the legal issue warrants technical assistance or technical advice, see IRM 4.81.9, Technical Assistance and Technical Advice Requests, for procedures to request technical assistance and technical advice (tech advice). The issuer may also request tech advice on an identified area of noncompliance, see. Rev. Proc. 2018-2 (updated annually) and IRM 4.81.9.

    1. Follow your manager’s instructions on how to address the noncompliance. This may include preparing Form 5701-B, Notice of Proposed Issue, and Form 886-A, Explanation of Items.

    2. Include a description of the identified noncompliance, relevant facts, applicable law and analysis, and a conclusion on Form 886-A.

    3. Issue the Form 5701-B, Notice of Proposed Issue, if applicable, to the issuer after your manager reviews and approves it along with Letter 5943, Form 5701-B Cover Letter.

  3. If the issuer’s response to the Form 5701-B indicates that they’d like to enter into a closing agreement, discuss any proposed resolution with the group manager. If the manager concurs with your determination of noncompliance, discuss the proposed resolution with the issuer. If a closing agreement is warranted, see IRM 4.81.6, Closing Agreements, for closing agreement procedures.

  4. If the issuer’s response to the Form 5701-B indicates that they can’t expeditiously resolve the noncompliant issue(s), including via a closing agreement, discuss the need for technical assistance or tech advice with your group manager.

Technical Assistance

  1. When the group manager and agent determine a case is likely to result in an adverse determination and close unagreed, or result in a claim denial, they inform the field operations manager (FOM) of:

    1. The case status.

    2. Any need for help from a tax law specialist (TLS) or the TEB technical advisor.

  2. If the FOM determines help is warranted, the group manager, FOM, Technical group manager, TLS and agent should follow the procedures in IRM 4.81.9, Tax Exempt Bonds Examination Program and Procedures, Technical Assistance and Technical Advice Requests.

    Note:

    The FOM may contact the TEB technical advisor at any time for help.

    Note:

    Consider whether the legal issue warrants tech advice. The issuer may also request tech advice on an identified area of noncompliance. Follow the procedures in the most recent revenue procedures on tech advice, Rev. Proc. 2018-2 (updated annually) and IRM 4.81.9, Technical Advice Requests, if this type of request is warranted.

30-Day Letter

  1. The 30-day letter notifies the issuer of their right to appeal the changes proposed by the IRS.

  2. After any technical review is complete, the agent should prepare the relevant 30-day letter, as follows:

    • For Forms 8038, 8038-B, 8038-G, 8038-GC and 8038-TC, use Letter 4413, Notice of Proposed Adverse Determination Letter.

    • For Form 8038-R, use Letter 5684, TEB Arbitrage Claim Notification of Proposed Claim Disallowance.

    • For Form 8038-CP, use either Letter 5871, Proposed Adjustment to Credits under Section 6431 (Associated with an Appealed Bond Determination) or Letter 5871-A, TEB Proposed Adjustment to Credits under IRC 6431 (30-day letter).

    1. Address all identified areas of noncompliance in the letter and attachments. Your group manager reviews, signs and approves the letter.

    2. Mail the letter to the issuer and/or authorized representative via certified mail with a request for return receipt.

    3. Update the status of the case to 13 after you mail it.

    4. Keep a copy of the 30-day letter and attachments and the certified mail receipt in the case file.

    5. Follow the bondholder referral procedures in IRM 4.81.7, Tax Exempt Bonds Bondholder Referrals.

  3. When an issuer receives the 30-day letter, the issuer may request an administrative appeal of the case to Appeals. If the issuer:

    1. Doesn’t timely request an appeal in writing, follow the final adverse determination procedures in IRM 4.81.14.6, Final Adverse Determination.

    2. Requests an extension of time to prepare a protest, you may grant up to an additional 30 days. Issue Letter 686 (DO), Extension of Time for Certain Actions, to notify the issuer in writing of the date by which the protest must be submitted. Grant further extension requests only if your group manager approves and the FOM agrees.

    3. Timely requests an appeal, ensure the request meets the requirements of Rev. Proc. 2006-40, 2006-42 I.R.B. 694 and Pub 5.

    4. Submits a request that doesn’t meet the requirements, call the issuer and/or authorized representative and allow up to 30 days to perfect the request. Issue Letter 686 (DO), Extension of Time for Certain Actions, to notify the issuer in writing of the date by which the perfected request must be submitted.

  4. After the issuer perfects the appeal request, follow these steps:

    1. Review the request and prepare a rebuttal to the arguments the issuer raised. If no new arguments are raised, notate that in the rebuttal and affirm that our position hasn’t changed. In your rebuttal, address:

      • Only those statements, facts, or arguments the issuer made that weren’t completely addressed in the 30-day letter.

      • New arguments or facts the issuer raised.

    2. If the protest contains new information or analysis of the issuer's position, notify the issuer that the new information submitted may change the case's outcome and requires further review and possible discussions before you transfer the case file to Appeals.

    3. Since all unagreed protested cases are subject to ITG/TEB Technical mandatory review, request technical assistance before you issue the rebuttal.

    4. You must mail the rebuttal to the issuer, but the issuer is not given an opportunity to respond to the rebuttal.

    5. Completely address all statements, facts, and arguments discussed in the protest, then prepare Letter 5918, Protest Received Rebuttal/Transfer to Appeals, and mail to the issuer.

    6. Prepare the case for closing per IRM 4.81.5.18.1, Case Closing Procedures for Examiners, and forward to your group manager.

  5. Group manager:

    1. Review the case for accuracy and completeness: confirm that the case file contains a valid protest, adequate rebuttal, printed copies of electronic RCCMS documents, the relevant determination, tax exposure calculation if applicable, adjustment or disallowance letter and Letter 5918 Appeals transfer letter.

    2. Update the case to status 20 on RCCMS with disposal code 601 (add ARDI code 2 for claim denials) and transfer the case to the ITG/TEB Technical group responsible for mandatory review.

    3. Ship the paper case file via Form 3210 to the reviewer identified by the ITG/TEB Technical group manager responsible for mandatory reviews.

      Note:

      The TE/GE Closing Group won’t accept any protested case to Appeals with less than 425 days remaining on the statute (330 days for cases Appeals previously returned to the group). Therefore, ITG/TEB Technical requires ITG/TEB FO to send cases with at least 455 days remaining on the statute to allow time for mandatory review.

Mandatory Review

  1. Unagreed cases and claim denials are subject to mandatory review under Rev. Proc. 2006-40 before they’re sent to Appeals. The ITG/TEB Technical group manager may assign the case for mandatory review to the same TLS who initially reviewed the case per IRM 4.81.14.3.

  2. The mandatory review involves:

    1. Ensuring that the factual and legal matters documented in the case file support the issues raised in the proposed adverse or claim denial.

    2. Reviewing the issuer’s protest to the Form 886-A, Explanation of Items, and the agent’s rebuttal even if such documentation was previously reviewed in a prior technical review.

  3. If the TLS determines that the agent’s rebuttal does not sufficiently address the issuer's protest or that the agent’s position requires further development, the TLS coordinates with their manager, FO group manager, and the agent. Once all issues are resolved, the TLS notifies his/her manager, the agent, the agent’s group manager and transfers the case to Appeals.

  4. If the agent's group manager decides to transfer the case to Appeals before the TLS determines that the rebuttal sufficiently addresses the issuer's protest, the TLS will brief his/her group manager on the case. Then, the program manager, Technical and the FOM discuss whether additional case actions are required before transferring the case to Appeals.

  5. Agent: provide any subsequent revisions to the rebuttal to the issuer and/or the representative before transferring the case to Appeals.

  6. Agent: transfer case to Appeals:

    1. Attach a Form 3198-A, TE/GE Special Handling Notice, to the paper case file and mark the checkbox --Forward to Appeals.

    2. Confirm the paper case file sent to Appeals includes, copies of the following:

      1. The technical advice memorandum, if any:

      2. All information received by ITG/TEB from the issuer regarding the bond issue or Arbitrage Rebate Claim Denial.

      3. All workpapers related to ITG/TEB’s examination of the bond issue or Arbitrage Rebate Claim Denial.

      4. ITG/TEB’s written Proposed Adverse Determination or Arbitrage Rebate Claim Denial.

      5. The issuer’s written protest.

      6. ITG/TEB’s response to positions stated by the issuer in its protest.

    3. Ship the paper case file to Appeals via Form 3210, Document Transmittal, to:

      Internal Revenue Service
      ATTN: Ronda Pennington
      10 Causeway Street
      Appeals Office Room 493
      Boston, MA 02222-1083
      Phone: 617-788-0628
  7. Agent: Close the case on RCCMS in status 51 with disposal code 601 to the TE/GE Closing Group (400-20011-7204).

  8. Agent: Add a note to the RCCMS Comment box: "Appeals case, DC 07 (601). Paper case file sent directly to Appeals" .

Final Adverse Determination

  1. If the issuer or authorized representative doesn’t request an administrative appeal of a proposed adverse determination to Appeals, issue the appropriate final adverse determination letter: Letter 4409, Notice of Final Adverse Determination; Letter 905, Final Partial Claim Disallowance; Letter 906, Final Full Claim Disallowance; or Letter 5677, TEB Arbitrage Claim Notification of Final Adverse Determination, by certified mail with a request for return receipt.

  2. FO group manager forwards a copy of this letter to the Bondholder Referral Coordinator, if applicable.

  3. For a conduit financing resulting in a final adverse determination, determine whether the conduit borrower is under exam by another operating division or another TE/GE function. If the conduit borrower:

    1. Is under examination, inform the appropriate operating division of the final adverse determination and coordinate as needed to consider any impact on the conduit borrower's tax matters.

    2. Isn’t under examination, refer to the appropriate operating division or other TE/GE function to consider any impact on the borrower's tax matters.

Possible Actions Taken by Appeals

  1. If Appeals settles the case, upon case closing, Appeals sends Form 5402, Appeals Transmittal and Case Memo and a copy of the closing letter to the program manager, Technical.

  2. If Appeals is unable to settle the case, they:

    1. Issue the Final Adverse Determination Letter and close the case.

    2. Return the paper case file to ITG/TEB to contact the bondholders (if warranted).

      Note:

      However, Appeals doesn’t release Form 8038 jurisdiction back to ITG/TEB. Accordingly, ITG/TEB may not: i) continue any case exam activities, or ii) reengage in resolution actions without reopening the case.

  3. If Appeals:

    1. Determines that ITG/TEB has not fully developed its position, they: may return the case to ITG/TEB for further development or concede the government’s position and close the case.

    2. Receives, during their consideration of the case, a new argument from the issuer, they may return the case to ITG/TEB requesting its response to the issuer’s argument. Appeals may or may not release jurisdiction.

    3. Releases jurisdiction, ITG/TEB is free to re-engage in resolution actions or concede its position and close the case as agreed.

    4. Doesn’t release jurisdiction, ITG/TEB should provide the response requested and return the case to Appeals within the established timeframe.

    Note:

    ITG/TEB must not communicate with the issuer and/or authorized representative while Appeals has jurisdiction.