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4.81.14  Unagreed Issues

Manual Transmittal

January 07, 2016


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

Material Changes

(1) This is a new IRM section that provides the procedures TEB exam agents should follow when there is an indication that a case is unagreed.

Effect on Other Documents



Tax Exempt and Government Entities
Government Entities and Shared Services
Tax Exempt Bonds

Effective Date


Rebecca L. Harrigal
Director, Tax Exempt Bonds
Government Entities and Shared Services
Tax Exempt and Government Entities  (01-07-2016)
Communicating Identified Issues

  1. When an examiner finds that a bond issue under examination may not comply with the Code, he/she should informally communicate this finding to the issuer and/or authorized representative. In doing so, the examiner should verify the accuracy of the relevant facts upon which the examiner's preliminary determination is based and obtain the issuer's position regarding the potential noncompliance. This informal communication may occur orally or through the issuance of an IDR.

  2. If after verifying the relevant facts and ascertaining the issuer's position, the examiner concludes the bonds fail to comply with one or more requirements, the examiner will discuss the noncompliance and potential resolution with the manager. The examiner should propose to his/her manager resolution parameters for the case, including possible resolution via a closing agreement, that considers amounts due or otherwise required as a term of any settlement, a requirement to redeem bonds, or other resolution requirements the examiner deems appropriate in the case.

  3. Following the manager's approval of general resolution parameters, the examiner will discuss the proposed resolution with the issuer. If the matter is to be resolved with a closing agreement, the issuer might seek to negotiate the resolution. If so, see IRM 4.81.6 for closing agreement procedures. If the bond issuance under examination is a direct pay bond, the examiner should discuss resolution techniques with his/her group manager.

  4. If the issuer does not concur with the examiner's determination of noncompliance and the examination cannot be resolved following informal communication, the examiner should notify the group manager. The manager will provide guidance to the examiner on how to address the noncompliance, including potentially directing the examiner to prepare a Form 5701-TEB, Notice of Proposed Adjustment, and Form 886-AExplanation of Items. The Form 886-A should include a description of the identified noncompliance, relevant facts, applicable law and analysis, and a conclusion. The examiner will issue the Form 5701-TEB to the issuer following managerial review and approval.

  5. The examiner should consider whether the legal issue warrants technical advice. The issuer may also request technical advice on an identified area of noncompliance. The examiner should follow the procedures identified in the most recent revenue procedure on technical advice (updated annually) and IRM 4.81.9, Technical Advice Requests.

  6. If the issuer’s response to the Form 5701-TEB indicates an agreement cannot be reached, the examiner should request technical assistance from CPM. See IRM for procedures on requesting this assistance.  (01-07-2016)
Technical Assistance from CPM

  1. When the group manager and examiner determine that a case is likely to result in an adverse determination and close unagreed, they will inform the Field Operations Technical Advisor (FOTA) on the status of the case and of the need for the required Subject Matter Expert (SME) technical review.

  2. If the FOTA concurs that the case is likely to close unagreed, he/she will prepare Form 14501, TEB CPM Technical Assistance Request, requesting the Manager, CPM to assign a SME to provide technical review. He/she will send the request to the CPM senior manager and staff assistant and include:

    • Identification of the bond issue under examination, the examiner and the group manager.

    • A description of the identified area of noncompliance.

    • The Form 5701-TEB (if any) and draft Form 886-A,.

    • Any correspondence from the issuer containing a position on the matter.

  3. The Manager, CPM will notify the FOTA and FO group manager of the SME assignment, and discuss the priority of the assignment with the SME and the SME’s group manager. The FO group manager will notify the examiner of the assignment. If the Manager, CPM is uncertain whether the current status of the case warrants SME technical review, the FOTA will provide any additional information necessary to confirm that SME technical review is warranted at that time. If a SME was previously assigned to provide technical assistance on the case, the Manager, CPM may assign the same SME for technical review.

  4. The SME will review the draft document(s) and prepare a memorandum (the "reviewer’s memorandum" ) to the FOTA, group manager, and examiner containing comments about any areas requiring further development or any required revisions to the Form 886-A. The examiner will incorporate all revisions into the necessary documents. During the technical review process, all pertinent case-related communication will include the SME, the examiner, the group manager, and the FOTA. The SME will also provide his/her manager with status updates on the assignment.

  5. If during the course of the technical review, the SME determines that it is necessary to review case file documents, the FO group manager and examiner will coordinate the review of those documents by the SME.

  6. Following completion of SME’s review and any revisions to the Form 886-A, the group manager will forward the Form 5701-TEB, Form 886-A, the reviewer’s memorandum and any other relevant documents to the Manager, Field Operations for review and approval. The Manager, Field Operations may discuss any concerns with the SME before deciding whether or not to approve the Form 886-A.

  7. Once the technical review is complete, the examiner will prepare the Letter 4413, Notice of Proposed Adverse Determination Letter.  (01-07-2016)
Proposed Adverse Determination

  1. All identified areas of noncompliance will be addressed in the Letter 4413, Notice of Proposed Adverse Determination Letter and attachments. The examiner’s group manager will review and approve the Letter 4413. The Letter 4413 along with Pub 5, Your Appeal Rights and How to Prepare a Protest if You Don’t Agree, should be mailed to the issuer and/or authorized representative via certified mail with a request for return receipt. A copy of Letter 4413 and attachments along with the certified mail receipt will be retained in the case file.

  2. Upon issuance of Letter 4413, the examiner will follow the bondholder referral procedures in IRM 4.81.7

  3. Upon receipt of the Letter 4413, the issuer may request an administrative appeal of the case to the Office of Appeals. If the issuer does not timely request an appeal in writing, the examiner will follow the final adverse determination procedures in IRM If the issuer requests an extension of time to prepare a protest, the examiner may grant an additional 30 days. Further requests for extensions may only be approved by the examiner’s group manager with the Manager, Field Operations’ concurrence.

  4. If the issuer timely requests an appeal, the examiner should ensure the request conforms to the requirements of Rev. Proc. 2006-40, 2006-42 I.R.B. 694 and Pub 5.

  5. If the request does not conform to those requirements, the examiner will contact the issuer and/or authorized representative and allow 30 days to perfect the request.

  6. Once the request is perfected, the examiner will review the request and prepare a rebuttal to the arguments raised by the issuer. The rebuttal should address only those statements, facts, or arguments made by the issuer that were not completely addressed in Letter 4413. New arguments or facts raised by the issuer must be addressed in the rebuttal. However, if all statements, facts, and arguments discussed in the protest were completely addressed in Letter 4413, then the examiner should prepare a letter to the issuer and/or the authorized representative stating that the examiner reviewed the protest and no additional comments are required. It is strongly suggested that the examiner consult with the SME as well as Division Counsel in preparing the rebuttal. Any rebuttal must be shared with the issuer but the issuer is not given an opportunity to respond to the rebuttal. The examiner will then prepare the case for closure in accordance with IRM and forward to the group manager.

  7. The group manager will review the case for accuracy and completeness. If the group manager concurs, the group manager will notify the Manager, CPM of the need for mandatory review. The Manager, CPM will provide the reviewer’s name and address for the examiner to mail the paper case file. The group manager will update the AIMS status to 20, review and transfer the case to the appropriate CPM group code..  (01-07-2016)
Mandatory Review

  1. Unagreed cases are subject to mandatory review prior to forwarding to the Office of Appeals. The Manager, CPM, may assign the case for mandatory review to the same SME who previously provided any technical review of the case in accordance with the procedures under IRM The mandatory review will include a review of additional case documentation not generally available as part of the prior technical review, such as the issuer’s protest to the Form 886-A and the examiner’s rebuttal.

  2. If the SME determines that the examiner’s rebuttal does not sufficiently address the issuer's protest or that the examiner’s position requires further development, the SME will coordinate these matters with the FOTA, FO group manager, and examiner. Once all matters are resolved, the SME will notify his/her manager, the examiner, the examiner’s group manager and the CPM analyst charged with responsibility for closure to Appeals.

  3. If the examiner's manager determines the case should be transferred to Appeals prior to a determination by the SME that the rebuttal sufficiently addresses the issuer's protest, the SME will brief his/her group manager on the case. The Manager CPM and Manager Field Operations will then conference to determine whether any additional actions are required prior to closing the case to Appeals.

  4. Any subsequent revisions to the rebuttal must be provided to the issuer and/or the representative before transferring the case to the Office of Appeals  (01-07-2016)
Final Adverse Determination

  1. If the issuer or authorized representative fails to request an administrative appeal of a proposed adverse determination to the Office of Appeals, the examiner will issue the final adverse determination letter.

  2. The examiner will issue Letter 4409, Notice of Final Adverse Determination, by certified mail with a request for return receipt. The group manager will forward a copy of this letter to the TEB Bondholder Referral Coordinator in accordance with IRM 4.81.7.

  3. In the case of a conduit financing resulting in a final adverse determination, the examiner should determine whether the conduit borrower is under examination by another operating division or another TE/GE function.

    1. If the conduit borrower is under examination, the examiner should inform the appropriate operating division of the final adverse determination and coordinate as needed for consideration of any impact on the borrower's tax matters.

    2. If the conduit borrower is not under examination, the examiner should make a referral to the appropriate operating division or other TE/GE function for consideration of any impact on the borrower's tax matters.  (01-07-2016)
Possible Actions Taken By Appeals

  1. If Appeals is able to settle the case, Appeals will negotiate the terms of the closing agreement, secure any payment required, issue a closing letter, and close the case on AIMS. Appeals will provide the Manager, CPM with Form 5402, Appeals Transmittal and Case Memo, the Appeals Case Memo, and a copy of the closing letter when the case has been closed.

  2. If Appeals is unable to settle the case, Appeals will provide written notification to the issuer that TEB's Proposed Adverse Determination has become final. Appeals will then close the case, and update the AIMS status to 90. Form 5402, the Appeals Case Memo, and a copy of the closing letter will be placed into the TEB case file. Although Appeals will then return the paper case file to TEB to contact the bondholders, jurisdiction over the Form 8038 is not released back to TEB. Accordingly, TEB may not continue any examination activities on the case, nor may it reengage in settlement negotiations without reopening the case.

  3. If Appeals determines that TEB has not fully developed its position, it may return the case to TEB for further development or Appeals could concede the government’s position and close the case.

  4. If during Appeals’ consideration of the case, the issuer brings up a new argument, Appeals may return the case to TEB requesting its response to the issuer’s argument. It may or may not release jurisdiction. If jurisdiction is released, TEB is free to re-engage in settlement negotiations or concede its position and close the case as agreed. If jurisdiction is not released (retained by Appeals), TEB should provide the response requested and return it to Appeals within the established timeframe. TEB should not engage in correspondence or conversations with the issuer and/or the authorized representative.

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