Part 4. Examining Process

Chapter 86. Indian Tribal Governments (ITG) Procedures

Section 5. Conducting Indian Tribal Government Examinations

4.86.5 Conducting Indian Tribal Government Examinations

Manual Transmittal

December 15, 2020

Purpose

(1) This transmits revised IRM 4.86.5, Indian Tribal Governments (ITG) Procedures, Conducting Indian Tribal Government Examinations.

Material Changes

(1) Added new text and edited for plain language (Public Law 111-274, the Plain Writing Act of 2010). Corrected web addresses, IRM and legal resources. The table below lists significant changes to this IRM:

IRM Reference Description of Change
Throughout IRM Updated position titles in the ITG function due to the 2019 TE/GE reorganization. Director, Indian Tribal Governments is now Program Manager, Indian Tribal Governments (ITG). Manager, ITG/TEB Technical is now Manager, ITG Technical. ITG/TEB Technical is now ITG Technical (or TEB Technical if referring to TEB.)
Throughout IRM Updated links to policy and delegation orders in the IRM to the new IRM 1.2.1, Servicewide Policy Statements and IRM 1.2.2, Servicewide Delegation Orders.
Throughout IRM Updated manual to incorporate the policy changes in Interim Guidance Memo TEGE-04-0720-0011, Interim Guidance for ITG and GECU on Fully Electronic (100% Paperless) Cases.
4.86.5.1.1, Background Added new text.
4.86.5.1.3, Responsibilities Added new text.
4.86.5.1.4, Disaster Assistance and Emergency Relief Added new section.
4.86.5.1.5, Program Controls Added new text.
4.86.5.1.6, Acronyms Compiled a list of frequently used acronyms and their definitions.
4.86.5.3, Case Assignment Revised text.
4.86.5.4, Scope of the Examination Revised text.
4.86.5.5, Planning the Examination Added new text.
4.86.5.5.1, Statute of Limitations (SOL) Revised text.
4.86.5.6, Opening the Examination Revised text.
IRM 4.86.5.9, Initial Taxpayer Contact by Letter Added new section.
4.86.5.9.1, Initial Telephone Conversations Text added.
4.86.5.10.1, Securing Records Revised text.
4.86.5.10.2, Third-Party Contacts Revised text.
4.86.5.11.1.1, Bypass Procedures Added new section.
4.86.5.12, Interviews Added new section.
4.86.5.15, Required Filing Checks Revised text.
4.86.5.16, Evaluating the Facts Added new section.
4.86.5.17, Special Case Development Procedures Added new section.
4.86.5.17.1, Requesting Technical Assistance Added new section.
4.86.5.17.1.1, Assistance from the K-Net Added new section.
4.86.5.17.1.2, Assistance from ITG Technical Added new section.
4.86.5.17.1.3, Assistance from TE/GE Division Counsel Added new section.
4.86.5.17.2, Technical Advice Overview Changed title. Added new section.
4.86.5.17.2.1, Technical Advice Procedures Overview Changed title. Added new section.
4.86.5.17.2.2., Initiating a Request for Technical Advice Added new section.
4.86.5.17.2.3, Taxpayer Initiated Request for Technical Advice Added new section.
4.86.5.17.2.4, Pre-Submission Conference Added new section.
4.86.5.17.2.5, Preparation of the Technical Advice Package Added new section.
4.86.5.17.2.6, Form 4463, Request for Technical Advice Added new section.
4.86.5.17.2.7, Memorandum of Facts, Law, and Arguments Added new section.
4.86.5.17.2.8, Deletion Statement Added new section.
4.86.5.17.2.9, Submitting the TAM Request Package Added new section.
4.86.5.17.2.10, Electronic Submissions Added new section.
4.86.5.17.2.11, Responsibilities of the Specialist While Technical Advice is Pending Added new section.
4.86.5.17.2.12, Obtaining Status Updates of the TAM Added new section.
4.86.5.17.2.13, Review of the TAM by Associate Chief Counsel Added new section.
4.86.5.17.2.14, Final TAM Added new section.
4.86.5.17.2.15, Responsibilities of the Specialist Upon Receipt of the TAM Added new section.
4.86.5.17.2.16, Notice 438, Notice of Intention to Disclose Added new section.
4.86.5.17.2.17, Withdrawal of Requests for Technical Advice Added new section.
4.86.5.17.3, Conclusion of the Case When Technical Advice is Received Added new section.
4.86.5.17.5, Specialist Referral System - Online Added new section.
4.86.5.19, Communicating Identified Issues Revised text.
4.86.5.21.1.2, Form 4318, Examination Workpapers Index Revised text.
4.86.5.21.3, Multiple Returns Added new section.
4.86.5.21.4, ITG RCCMS Naming Convention Revised text.
4.86.5.22, Concluding the Examination Revised text.
4.86.5.27, Delinquent and Substitute for Returns (SFR) Revised text.
4.86.5.31, Report Writing Revised text.
4.86.5.32, Surveying Cases - Before and After Assignment Added new section.
4.86.5.34, Cases Subject to Mandatory Review Revised text.
4.86.5.34.1, Time Frames for Submitting Cases for Mandatory Review Revised text.
4.86.5.36, Case Closing Procedures for Specialists Revised text.
4.86.5.42, Cases Returned from ITG Mandatory Review, Actions by the Specialist Changed title. Revised text.
4.86.5.45.1, Case Review Procedures for Cases Subject to Mandatory Review Changed title. Added new section.
4.86.5.45.2.3, Rescinding A Notice of Deficiency Changed IRM number.
4.86.5.45.4, Case Return Procedures For plain language clarity, copied portions of IRM 4.75.17.2.2, Preparing a Memorandum.
4.86.5.45.5, Form 5456, Reviewer’s Memorandum For plain language clarity, copied portions of IRM 4.75.17.2.2, Preparing a Memorandum.

Effect on Other Documents

This revision supersedes IRM 4.86.5 dated March 28, 2019.
This IRM incorporates:
• Interim Guidance Memorandum TE/GE-04-0819-0015, Consideration of policy statements and delegation orders into two new IRM sections, dated August 23, 2019.
• Interim Guidance Memorandum NHQ-01-1019-0001, Clarification of Policy for Use of Fax in Taxpayer Submissions, dated October 29, 2019.
• Interim Guidance Memorandum TE/GE-04-0720-0011, Interim Guidance for ITG and GECU on Fully Electronic (100% Paperless) Cases, dated July 2, 2020.
• Interim Guidance Memorandum TEGE-04-0720-0018, Elimination of requirement to use paper Form 895/895-EP , dated July 31, 2020.

Audience

Tax Exempt and Government Entities
Indian Tribal Governments

Effective Date

(12-15-2020)

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

4.86.5.1 (03-28-2019)

Program Scope and Objectives

  1. Purpose: This section gives information about Indian Tribal Governments (ITG) compliance program and contains general examination guidelines and procedures. This guidance applies to ITG compliance activities including, but not limited to:

    • Employment Tax Examinations

    • Information Return Examinations

    • Wagering Excise Tax

    • Income Tax Examinations

    • Voluntary Tip Agreements

    • Tip Compliance Reviews

  2. Audience: These procedures apply to all ITG specialists, managers, tax law specialists, and support staff.

  3. Policy Owner: Tax Exempt and Government Entities (TE/GE).

  4. Program Owner: The Program Manager, Indian Tribal Governments (ITG), under TE/GE is responsible for overseeing federal tax administration as it applies to Indian tribal governments.

4.86.5.1.1 (12-15-2020)

Background

  1. The IRS established the Indian Tribal Governments’ function in 2000 under the TE/GE Division to serve as the primary contact in the IRS for federally recognized Indian tribes. In May 2017, the TE/GE Division reorganized and combined the Indian Tribal Governments (ITG) and Tax Exempt Bond (TEB) functions. In November 2019, the TE/GE Division reorganized creating a separate function for the Office of Indian Tribal Governments. The scope and mission of ITG remains the same, to assist Indian tribes address their federal tax matters.

  2. This is the third revision to IRM 4.86.5, Conducting Indian Tribal Government Examinations.

4.86.5.1.2 (03-28-2019)

Authority

  1. ITG’s examination authority to resolve issues is derived from its authority to make determinations of tax liability under IRC 6201.

  2. IRC 7602 gives specialists the authority to:

    1. Examine any books, papers, records or other data necessary to complete an examination.

    2. Take testimony under oath to secure additional information.

    3. Issue summons for information necessary to complete an examination.

    4. Inquire into any offense connected with the administration or enforcement of the Internal Revenue laws.

4.86.5.1.3 (12-15-2020)

Responsibilities

  1. In accordance with Policy Statement 4-117, Examination Authority to Resolve Issues, ITG specialists and managers:

    1. Have been given broad authority to consider and weigh conflicting information, data, and opinions.

    2. Use professional judgment in accordance with auditing standards to make findings of fact and apply the Service’s position on issues of law to determine the correct tax liability.

    3. Exercise this authority to obtain the greatest possible number of agreements to tax determinations without sacrificing the quality or integrity of those determinations, and to dispose of tax differences at the lowest level.

      Note:

      See IRM 1.2.1.5.34, Policy Statement 4-117, Examination Authority to Resolve Issues.

  2. ITG employees must be familiar with and act according to the Taxpayer Bill of Rights. Every employee must consider these rights in carrying out their duties. See IRC 7803(a)(3).

  3. IRS employees working tax related matters must identify themselves (The Restructuring and Reform Act of 1998 (RRA 98) Section 3705(a)).

    1. IRS employees are required to give their name and unique identification number during taxpayer telephone, face-to-face, and written contact.

    2. IRS employees must put a telephone number on all taxpayer correspondence. This gives taxpayers enough information to identify an employee who has previously assisted with a tax related matter.

      Note:

      ITG Specialists must provide this information to each individual they have contact with during an examination or other work. It must be documented in Form 9984, Activity Record. See IRM 3.11.25.2.2

      .

  4. Conduct all examinations in accordance with Policy Statement 1-236, Fairness and Integrity in Enforcement Selection. See IRM 1.2.1.2.36, Policy Statement 1-236, Fairness and Integrity in Enforcement Selection.

4.86.5.1.4 (12-15-2020)

Disaster Assistance and Emergency Relief

  1. Specialist(s) and group managers are the point of contact for a tribal government that has had a natural disaster. The specialist(s) coordinates efforts with the Disaster Assistance Program Office.

  2. See IRM 25.16.1, Disaster Assistance and Emergency Relief, Program Guidelines, for administrative and policy procedures for the Disaster Assistance and Emergency Relief Program. See IRM 25.16.1.4, Tribal Nation Authority Under the Sandy Recovery Improvement Act, which explains legislation authorizing federally recognized Indian tribal governments the option to make their own request, independently of a state, for a federal emergency or major disaster declaration, or to seek assistance under a declaration for a state.

    Note:

    If a tribe or entity you have been assigned to examine has had a natural disaster or the tribe has declared a state of emergency, talk to your manager about whether or not to suspend or survey the examination.

4.86.5.1.5 (03-28-2019)

Program Controls

  1. If there are technical questions, consult the Knowledge Management Network (K-Net) to verify proper issue development and consistent application of tax law.

4.86.5.1.6 (03-28-2019)

Acronyms

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

    Acronym Definition
    AIMS Audit Information Management System
    ASED Assessment Statute Expiration Date
    BOD Business Operating Division
    C&CA Classification and Case Assignment
    CA Case Assignment
    CAF Centralized Authorization File
    CCDM Chief Counsel Directives Manual
    CI Criminal Investigation
    CP&C Compliance Planning and Classification
    CSP Classification Settlement Program
    DC Disposal Code
    Division Counsel TE/GE Division Counsel
    DPC Designated Payment Code
    EIN Employer Identification Number
    EOG Examining Officer’s Guide
    ETER Employment Tax Examiner’s Report
    FAC Functional Assignment Coordinator
    FIP Financial Institutions & Products
    FO Field Operations
    FOIA Freedom of Information Act
    FTA First Time Abatement
    FTS Fast Track Settlement
    GWE General Welfare Exception
    GWE Act Tribal General Welfare Exclusion Act of 2014
    ICN Inventory Control Number
    IDR Information Document Request
    IDRS Integrated Data Retrieval System
    IMF Individual Master File
    IRAS Information Return Analysis System
    IRC Internal Revenue Code
    IRE Information Return Examination
    IRM Internal Revenue Manual
    IRN Inadequate Records Notice
    IRP Information Return Penalty
    IRS Internal Revenue Service
    ITG Indian Tribal Governments
    K-Net Knowledge Network
    LUQ Large, Unusual or Questionable
    MF Master File
    MFT Master File Tax
    OPR Office of Professional Responsibility
    POA Power of Attorney
    PLR Private Letter Ruling
    RAR Revenue Agent Report
    RCCMS Reporting Compliance Case Management System
    RGS Report Generation Software
    RICS Return Integrity and Compliance Services
    RRA Revenue Restructuring Act
    SAA Survey After Assignment
    SBA Survey Before Assignment
    SB/SE Small Business Self Employed
    SFR Substitute for Return
    SOL Statute of Limitations
    SRS Specialist Referral System
    SNOD Statutory Notice of Deficiency
    SRC Survey Reason Code
    SSN Social Security Number
    TAM Technical Advice Memorandum
    TE/GE Tax Exempt and Government Entities
    TC Transaction Code
    TIN Taxpayer Identification Number
    WB Whistleblower

4.86.5.2 (03-28-2019)

Examination Control and Processing

  1. ITG uses the following inventory control systems to manage and close examined return case files.

    • Reporting Compliance Case Management System (RCCMS)

    • Audit Inventory Management System (AIMS)

  2. ITG generally follows the exam case file control and processing procedures in IRM 4.5, TE/GE AIMS Manual.

  3. See IRM 4.5.1.6, TE/GE AIMS Forms, for other procedures for establishing, updating, correcting and deleting AIMS information.

  4. See IRM 4.23, Employment Tax, IRM 4.10, Examination of Returns, and IRM 4.24, Excise Tax, for general TE/GE examination procedures, including Package Examination, Survey of Returns, Suspense Procedures, and Basic Report Writing.

  5. See IRM 4.88.1, Indian Tribal Governments Examination Issues and Procedures, Examination Issues Pertaining to ITG Cases, for taxation issues and examination procedures with a specific impact on Indian tribal governments/enterprises.

  6. See IRM 25, Special Topics, for procedures that apply to more than one IRS process, including the exam process.

4.86.5.3 (12-15-2020)

Case Assignment

  1. The ITG groups conduct ITG examinations based on:

    • approved compliance strategies

    • referrals

    • claims

    Note:

    Claims are considered priority work.

  2. Generally, Compliance, Planning and Classification (CP&C) develops issues and classifies cases based on issue criteria. CP&C maintains a virtual shelf in RCCMS of cases awaiting assignment. Although the information CP&C includes varies based on the type of recommended compliance activity, case files may include:

    • Case building documents

    • Copy of electronic return

    • Returns Information and Classification System (RICS) data

    • Background information

    • Tribe and related entity information

    • Integrated Data Retrieval System (IDRS)/Audit Information Management System (AIMS) data

    • Referral information

  3. To receive new cases for assignment, group managers submit a request detailing the number of cases needed to the Functional Assignment Coordinator (FAC).

    1. Upon receipt, the FAC determines the cases to be assigned based on a priority listing and case availability.

    2. The FAC sends an e-mail to the Case Assignment (CA) manager requesting assignment of the selected cases to the requesting group.

    3. The Case Assignment Group generally initiates the assignment in RCCMS within five business days of the request.

    4. The group manager receives a notification in RCCMS that the requested cases are pending acceptance.

    5. Once the group manager accepts the cases, they’re transferred in RCCMS to the group’s unassigned inventory folder in Status 10, Assigned, No Taxpayer Contact.

  4. To assign a case, a group manager transfers the RCCMS case file to the specialist’s inventory in Status 10.

4.86.5.4 (12-15-2020)

Scope of the Examination

  1. Determine an examination’s scope when selecting issues warranting exam. Determine the scope of the examination by looking through the case building documents and by doing your pre-examination analysis. However, don’t limit the scope of an examination to the classified issues if you discover other significant issues during the examination.

  2. Many tribal governments are complex entities with multiple subdivisions including various governmental functions and tribal commercial enterprises.

    1. In some instances, different subdivisions have separate employer identification numbers (EIN) and separate, well-defined books and records.

    2. In other instances, many subdivisions are operated under one EIN and combined on the tax returns.

  3. If you determine that the scope and depth of the examination needs to be changed, discuss it with your manager and get approval before expanding or contracting the scope.

    1. Conduct the examination to a point where you determine the reported employment tax liability is substantially correct.

    2. Determine whether the entity correctly filed information returns and wage statements.

    3. Determine whether the entity met all applicable federal return requirements.

    4. Always consider and explain any large, unusual or questionable (LUQ) items appearing on the return or in the records, which if left unexplained, might raise compliance concerns.

    5. Consult with your group manager, ITG Program Manager and Tax Law Specialists when issues involving the General Welfare Exclusion (GWE) Act of 2014 are present.

      Note:

      The Tribal General Welfare Exclusion Act of 2014, which enacted IRC 139E, suspended all examinations of Indian tribal governments and tribal members to the extent the examination relates to a general welfare payment or benefit until IRS field staff and tribal financial officers receive further training. Currently, the suspension is in effect. Until the suspension is lifted, you should consult with your group manager and the National Office on all issues with general welfare implications.

  4. If you expand the examination scope to include another tax period(s):

    1. Notify the taxpayer in writing. Include the tribal leader in this notification.

    2. Give the taxpayer time to secure a Power of Attorney (POA) for the other tax period(s) (if the taxpayer has a power of attorney and it doesn’t cover the tax period(s) you pick up for examination).

    3. Allow the taxpayer time to submit records for the added year(s).

    4. Use the correct appointment confirmation letters.

  5. Document in the workpapers the factors you considered to determine whether to expand/contract the examination scope and your manager’s involvement.

  6. If you/your manager decide to survey the return, follow the survey procedures in IRM 4.86.5.32, Surveying Cases - Before and After Assignment.

4.86.5.5 (12-15-2020)

Planning the Examination

  1. Complete a pre-contact analysis including a thorough review of the case file to identify large, unusual, or questionable items (LUQs) . It should include a review of all related returns, Integrated Data Retrieval System (IDRS) research, Information Return Analysis System (IRAS) data, Internet research, and examination of available public records.

  2. Use the Form 4318, Examination Workpaper Index, or an equivalent document, to prepare an examination plan based on the pre-examination analysis. Prepare and complete to the extent possible the administrative lead sheets including, but not limited to the following:

    • Audit Planning Worksheet

    • Internal Research Work Sheet

    • Required Filing Checks, Multi-Year and Related Returns

    • Audit Plan

    • Statute Controls

    • RRA ‘98 Check Sheet

    Note:

    You may solicit input from your group manager in developing the plan. Document on the Form 9984 any managerial involvement.

  3. Prepare your examination before contacting tribal representatives to enhance the quality of our service and form mutual respect and cooperation.

  4. Examples of pre-contact analysis:

    1. Review the case building materials.

    2. Review the complete tax return including line items, credits, elections and schedules, and any other items attached to the return.

    3. Review (RICS) returns for the quarters under examination, when available.

    4. Analyze Integrated Data Retrieval System (IDRS) data. These command codes can provide and verify the following information:

      • INOLES: What are their filing requirements? Does the address match the address in the case file? What is their Business Operating Division (BOD) Code, BOD Client Code, Employment Code? What year was the entity established?

      • AMDIS: Are the correct controls in place for all periods under examination? Are the status codes correct? Is the statute date correct?

      • CFINK: Is there a current Power of Attorney (POA) or Tax Information Authorization (TIA) on file? Which periods?

      • SUMRY: Are there balances owed? Are they currently assigned to collection? Are any balances in an uncollectible status? Are there any unfiled returns? If so, do they have credit balances?

      • BMFOLI: Review their filing history. Are there missing returns? Are there balances owed that are not showing up on SUMRY? Any lien indicators? Any unfiled returns? If so, with credit balances, or without credit balances? Have civil penalties been assessed in the past?

      • BMFOLT: Review each module under exam and every module up to the current quarter and answer the following: Return timely filed? Timely deposits? Penalties? Adjustments? Amended returns? Any other information?

      • BMFOLZ: Have there been any prior examinations?

      • BMFOLK: What type of depositor were they during the examined periods? What type of depositor are they now? Are they depositing according to their schedule?

      • BMFOLU: This command code compares the entity’s Form 941 filings for the year to the Forms W-2 and W-3 for the year. Do all the numbers match? If not, which ones don’t? How large is the difference? Are the numbers higher on Forms 941 or on the Forms W-2? How many Forms W-2 were filed?

      • PMFOLS: Summarizes the information returns by type, number filed and total dollars reported; were penalties proposed?

    5. Research the ITG Tribal Database.

    6. Review Internet websites for economic and historical information about the tribe.

    7. Discuss the specific tribe or issue with your manager.

    8. Identify the recognized tribal leadership and the location of tribal offices. The Bureau of Indian Affairs (BIA) maintains a list of federally recognized tribes and a Tribal Leader's Directory on their website at www.bia.gov.

    9. Review tribal protocol documents. If a tribe has a particular protocol they have designated for IRS contact, you must follow that protocol. This may mean that the initial letter is mailed to someone other than the tribal leader. You must verify whether tribe/entity has a protocol document.

    10. Determine if you should use the IRAS to analyze information on Forms 1099 and Forms W-2. Complete the analysis during pre-examination phase.

    11. Research using the CDW Knowledge Graph Environment (CKGE) Program, if necessary. If you don’t have access to this program, contact your manager.

    12. Verify the statute of limitations.

    13. Request, if needed, Reference Returns or Information Returns (Source Code 45).

    14. Consider collectibility.

    15. Consider whether to consult a specialist on an issue.

  5. Document the steps you took in your pre-examination analysis in the workpapers.

  6. If another federal agency is currently working with the tribe on matters that closely relate to tax administration, determine immediately the scope of the other agency's involvement and elevate that information to your manager . Interagency cooperation may resolve conflicts and avoid misunderstandings.

    Note:

    Confidential taxpayer information cannot be disclosed to any federal agency.

  7. Closely coordinate your activities with the tribal official(s) or designee (when multiple IRS employees participate in a work assignment).

  8. Continue examination planning throughout the exam. As the exam progresses the actions and examination steps may change. Specialists are responsible for ensuring that comments and explanations are documented when applicable.

  9. Develop an Information Document Request (IDR) that is tailored to your examination plan and the scope of the examination. We follow TE/GE IDR process requirements and timelines found at IRM 4.86.5.10.1, Securing Records.

4.86.5.5.1 (12-15-2020)

Statute of Limitations (SOL)

  1. The Internal Revenue Code requires that the IRS assess, refund, credit, and collect taxes within specific time limits. These limits are known as "Statutes of Limitations" . When they expire, the IRS can no longer assess additional tax, allow a claim for refund by the taxpayer or take collection action.

  2. Use statute controls for all tax returns and/or information returns (filed and non-filed) under examination. Effective statute control procedures are a result of a collaborative effort. Any individual handling a return has the responsibility for identifying and protecting statutes of limitations for return(s) in their custody. Statute controls ensure the following:

    1. Statute expiration dates for tax returns are properly determined and the records are annotated to reflect the correct assessment statute expiration date (ASED).

    2. Miscellaneous civil penalties that have statute expiration dates, and are controlled on RCCMS and not AIMS, are properly determined and monitored.

    3. Cases are closely monitored to prevent unintended expiration of the assessment statute of limitations.

    Caution:

    Failing to protect the statute of limitations can result in disciplinary action.

  3. See IRM 25.6.1, Statute of Limitations Processes and Procedures, and IRM 25.6.23, Examination Process - Assessment Statute of Limitations Controls, for Servicewide guidance on identifying, monitoring, controlling, and updating statute of limitations dates.

  4. Group managers are responsible for the overall supervision of statute controls for assigned and unassigned returns in the group. Group managers: when you receive cases in the group:

    1. Ensure you have policies to verify the statute of expiration is accurate, including proper determination of assessment statute expiration date (ASED) or any alpha codes used or to be used.

    2. Properly identify statute expiration dates on tax returns and/or information returns (filed and non-filed).

    3. Closely monitor and protect all statutes of limitations to prevent their expiration.

  5. Group managers are responsible for completion of Form 895, Notice of Statute Expiration, for any cases in the group’s unassigned inventory with less than 270 days on the statute.

    Note:

    In RCCMS there is a red (!) next to cases that have statutes that expire within 270 days.

    Note:

    Examiners are no longer required to prepare a paper Form 895 for all returns whether or not controlled on AIMS as part of the procedural statute control requirements. Refer to RCCMS Change Document for Release 3.5.0/3.5.1 for a detailed description of the new RCCMS feature for statute validation.

  6. Specialists are responsible for:

    1. Identifying and protecting the statute of limitations for returns in their inventory, including all primary and related returns covered by the scope and depth of exams being conducted.

    2. Verifying the correctness of the statute of limitations date shown on RCCMS/AIMS for each return in their inventory.

    3. Initiating and completing the Statute Validation process in RCCMS. Specialists are no longer required to fill out a paper Form 895, Notice of Statute Expiration, for all returns whether or not controlled on AIMS as part of the procedural statute control requirements. For any case (AIMS and non-AIMS) with less than 270 days left on the statute of limitations, or otherwise meeting control criteria, follow the instructions in the RCCMS Change Document for Release 3.5.0/3.5.1 to validate the statute through your manager. Cases coming to ITG Technical with less than 270 days on the statute require the validation process to have been completed before submission.

    4. Place a red folder around the case file to the front of the paper case file (if any).

  7. If a decision is made to allow a statute to expire, there must be a memo in the case file approved by the ITG Program Manager before allowing the assessment statute expiration date (ASED) to expire.

  8. If you determine that the statute date is incorrect: See IRM Exhibit 25.6.23-3, Instructions for Updating the Statute on AIMS, for proper alpha coding of the assessment statute expiration date (ASED).

  9. After you determine the correct statute date and update it, if necessary, continue to monitor the statute date to protect the government's interest.

    1. The statute date doesn’t change unless you update it to reflect an executed statute extension or to an alpha statute code.

    2. The group manager and specialist must continue to monitor the statute.

    3. Use ITG Inventory Validation guidelines, monthly reconciliation of AIMS Table 4.0, Returns with Statute Date Pending, and RCCMS, to ensure you start statute control procedures within 270 days of its expiration.

  10. A statute of limitations to assess tax can be extended with the taxpayer's consent.

    1. Clearly identify the need for a consent before you solicit it.

    2. Obtain your group manager's approval before you request a taxpayer to execute a consent and document the approval in the case file.

    3. See IRM 25.6.22, Extension of Assessment Statute of Limitations by Consent, for instructions on obtaining consents, and see IRM 25.6.22.2.1(3), Assessment, for a list of some conditions that allow a statute extension.

      Note:

      A specialist cannot begin an examination on any return or requisition any return for examination if fewer than twelve months remain on the statutory period for assessment, without prior approval from the ITG Program Manager.

      Note:

      IRC 6501(c)(4)(B) requires that the IRS provide notice to taxpayers of their rights to decline to extend the assessment statute of limitations or to request that any extension be limited to a specific period of time or specific issues. IRS employees must provide the taxpayer with Letter 907, Request to Extend Assessment Statute, or Letter 967, Letter Transmitting Consent Extending Period of Limitation. Included with these letters should be the actual consent forms to be signed as well as Pub 1035, Extending the Tax Assessment Period, which includes a more detailed explanation of the taxpayer’s rights and consequences of the taxpayer’s choices.

    4. Once a statute extension is secured and properly executed, update RCCMS for the updated statute date.

    5. Attach the original consent form to the back of the first page of the return. For case files where there is no tax return (i.e., penalty case), the executed consent form should be placed in a visible location within the case file. Remove red folder from the case file if the statute will no longer expire within 270 days.

  11. When sending a case with a short statute to ITG Technical, your group manager should contact ITG Technical manager before sending the case. A short statute case is defined as a statute case with less than 270 days remaining on an unagreed case without a protest to Appeals when they are received in ITG Technical. These cases must include documentation of the approval of the ITG Program Manager before closure to ITG Technical.

  12. All actions with respect to the statute of limitations, steps to protect the statute of limitations, RCCMS Statute Validation Process, Form 895 (RCCMS Change Document for Release 3.5.0/3.5.1) completion date(s) and consents to extend should be notated in the Form 9984, Examining Officer’s Activity Record.

  13. Unagreed cases closing to Appeals must have 425 days remaining on the statute of limitations for assessment on the date the TE/GE Closing Group receives the case (330 days for cases that Appeals previously returned to the group). See IRM 4.86.5.40, Deadlines For Closing Cases From The Group.

4.86.5.5.1.1 (03-28-2019)
Fax Signatures

  1. On November 19, 2015, the Deputy Commissioner for Services and Enforcement announced a revision to the IRS’s fax policy. This revision allows for the acceptance of taxpayer and/or taxpayer representative’s signatures by fax on consents to extend the time to assess tax under the following conditions:

    • Contact with the taxpayer(s) is made by phone or in-person,

    • The case activity record documents the date and method of contact, and

    • The taxpayer’s case activity record notes that the taxpayer wishes to send the consent by fax.

  2. If all the conditions listed above are met, the receipt of a signed consent to extend the time to assess tax via fax will be considered an "original" consent form with "original" signature(s) for the purposes of IRM 25.6.22, Statute of Limitations - Extension of Assessment Statute of Limitations by Consent.

    Note:

    This guidance does not extend to the use of faxed, or other electronically generated, signatures by Service personnel.

4.86.5.5.2 (09-15-2015)

Consideration of Collectibility

  1. Consider collectibility during the pre-contact examination phase as a factor in determining scope and depth. If there is indication that collectibility may be an issue, discuss with your group manager and document the case file. See IRM 4.10.2.4.1, Collectibility.

4.86.5.5.3 (03-28-2019)

Reference Returns or Information Returns

  1. When a return is needed for reference or information purposes, it must be requisitioned using Source Code 45. Source Code 45 is used to order reference returns (e.g., a tax return secured for information only). Upon receipt of the original reference return, a specialist must determine within 30 days of receipt, whether the return will be examined or closed on AIMS.

4.86.5.6 (12-15-2020)

Opening the Examination

  1. The examination is considered opened when the IRS first contacts the taxpayer.

  2. Once you begin charging time to the case during the pre-examination phase, update the case status on RCCMS/AIMS as follows:

    1. For examinations, update the AIMS status via RCCMS to Status Code 12 (examination opened).

    2. For non-return compliance activities not on AIMS, update RCCMS to Status Code 12.

  3. Add the case to WebETS.

  4. Confirm that the source code, activity code, project and tracking codes are accurate in both RCCMS and WebETS. They should match.

4.86.5.7 (03-28-2019)

Return Documents for Examination

  1. All examinations must be closed with a return document.

  2. If there is an original return, then it is the return document. The specialist must document in RCCMS that the case is closed with an original return. Select the tab "Closing General" , then select the "Closing With" screen, then select #1, "Original Return." Original returns must be scanned into the RCCMS file and then be mailed to the FAST – Field Agents Support Team with a cover sheet stating "Refile Original Return" before closing the case fully electronically. "Original Return" means the original return the taxpayer filed with the Service Center for an examined tax year. It doesn’t mean a delinquent return the examiner secured (see IRM 4.5.3.15 and IRM 4.23.12 for delinquent return procedures).

  3. If there is no original return, then a BRTVU or TRDBV print, if available, should be used to close an examination. If neither BRTVU nor TRDBV are available, (e.g. closing an examination based upon a substitute for return) you must prepare Form 2275, Records Request, Charge and Recharge, (Parts A and B only) with "In Lieu of Return" written or typed across the top. Attach a BMFOLR. Form 3198-A, TE/GE Special Handling Notice, should identify the case file as being closed on the basis of an electronic print. The specialist must document in RCCMS that the case is closed on an electronic print by selecting the tab "Closing General," selecting the "Closing with" screen, then selecting #3 "Electronic print" or #4 "Paperless Examined." #4 should be used when the case is fully electronic.

  4. The specialist should verify tax payments and credits claimed on the return. An IDRS transcript should be secured when necessary to determine the true liability.

4.86.5.8 (09-15-2015)

Establishment of Related, Prior and Subsequent Period Returns

  1. Specialists should expand any employment tax examination to include prior and subsequent years if the issue(s) under development are material and recurring, or if there appear to be other LUQ items, unless there are reasons for not doing so (e.g., statute concerns). All reasons must be fully documented.

  2. When you identify an issue that requires you to establish other periods or related returns, ask your manager before you establish either in RCCMS. Use:

    • Source Code 05 (Related Pick-up) for all related returns.

    • Source Code 40 (Multi-Year Examination) for all prior and subsequent period returns.

  3. Normally, there is only one period with a primary source code on RCCMS and AIMS.

  4. In most cases, carry the project/tracking codes of the primary return to all related returns.

    Note:

    ITG uses exam data to capture business results, develop the work plan, and answer questions from internal and external stakeholders about resource application and results. Therefore, it’s important to use consistent and accurate coding for application of time and case data.

4.86.5.9 (12-15-2020)

Initial Taxpayer Contact By Letter

  1. The "initial contact" is the first contact with the taxpayer after the pre-examination analysis. The initial contact notifies the taxpayer of the examination. You must make ALL INITIAL contact with a taxpayer by mail, using the proper initial contact letter. Specialists must use approved form letters to schedule and confirm examination appointments.

    Note:

    Don’t make initial contact by telephone.

  2. Before issuing the initial contact letter, specialists must check BMFOLT or TXMODA to determine if a valid power of attorney is on file for the tax periods and type of tax under examination. If a TC 960 is posted, you must secure a CC CFINK and retain a copy in the file. If CC CFINK indicates a valid power of attorney is on file, mail the proper initial contact letter to the taxpayer and a copy of the letter to the representative with Letter 3597, Transmittal Letter for Power of Attorney.

  3. Specialists should identify the tribal leader (Chairman, President, Chief) for the tribe or tribal entity and mail the initial contact letter to the tribal leader at the taxpayer’s last known address. The Service is required to exercise due diligence to find and use the taxpayer’s last known address. Generally, the last known address is the address on Master File unless the taxpayer has provided clear and concise notification. Clear and concise notification may be written, electronic, or oral. In all cases, clear and concise written notifications must be specific as to a change of address. Thus, a new address reflected in the letterhead of taxpayer correspondence will not by itself serve to change a taxpayer’s address of record.

    Note:

    If a tribe has a particular protocol they have designated for IRS contact, you must follow that protocol. This may mean that the initial letter will be mailed to someone other than the tribal leader.

  4. Once you mail the letter and IDR, you must wait 14 calendar days or 10 business days, whichever is longer, before calling the taxpayer. If no response is received, you may call the taxpayer or their representative to confirm that the taxpayer received the letter and IDR.

  5. As a best practice, mail your initial Information Document Request (IDR) with the initial contact letter requesting specific documents, files, or information you need:

    1. Request documents, files and information necessary and proper for the examination based on the examination plan and other factors considered during exam planning.

    2. Be specific, understandable, and specify a response due date.

    3. Do not request documents that are already in IRS possession.

  6. Mail the following documents with the initial contact letter, as required by RRA 98:

    • Pub 1, Your Rights as a Taxpayer

    • Notice 609, Privacy Act Notice

    • Pub 3498, The Examination Process, or if an employment tax examination, use Pub 5146, Employment Tax Returns: Examinations and Appeal Rights.

      Note:

      Pub 5146, is a new publication and replaces Pub 3498, The Examination Process, for employment tax examinations.

  7. Confirm receipt of Publication 1 and Notice 609 at the first in-person meeting with the taxpayer. Document the workpapers and the case activity record when and how these documents were provided to the taxpayer.

  8. If the taxpayer does not respond to the initial contact letter after 14 calendar days, follow the procedures in IRM 4.10.2.8.3, No Response/No Show.

  9. If the initial contact letter is returned undeliverable, follow the procedures in IRM 4.10.2.8.4, Undeliverable Initial Letters.

  10. Document any contact or efforts to contact the taxpayer in the case activity record.

4.86.5.9.1 (12-15-2020)

Initial Telephone Conversation

  1. During the initial telephone call:

    1. Immediately identify yourself and give your unique employee identification number.

    2. Inform the tribal official(s) or representative of the return(s) you’re examining and tax period(s) involved.

    3. Briefly explain the examination process and answer the taxpayer or representative’s questions or concerns.

    4. Determine the tribal official designated by the tribe to work with the IRS concerning federal tax issues.

    5. Discuss the issues to be examined and inform the taxpayer or representative that the examination may be expanded to other issues.

    6. Discuss the contents of the IDR and revise it based on the responses received.

    7. Explain what records should be available for the examination.

    8. Determine the type of business records maintained, as well as the location of the records.

    9. Ask the taxpayer about electronic records.

    10. If required, schedule the initial appointment at a time and date that is agreeable to the taxpayer and reduces the number of rescheduled appointments, generally within 45 days of the first contact.

    11. Identify the person(s) to be present at the initial interview.

    12. Establish a communication agreement with the tribe. It may be in writing, but doesn’t have to be. Each tribe has different protocols for handling examinations and correspondence. Document this information in the file. Recognize the government-to-government relationship of federally recognized Indian tribes with the Federal Government. If you don’t establish a communication agreement, confirm with the tribal leader who should receive original correspondence and who should receive copies.

    13. Ask the taxpayer if they plan to secure a representative. If yes, explain that a Form 2848, Power or Attorney and Declaration of Representative will be required. If the taxpayer will be permitting someone to obtain their information from the IRS without representing them, then a Form 8821, Tax Information Authorization, or a similar privately designated form, is needed.

      Caution:

      If the taxpayer(s) states they will secure a representative, allow the taxpayer a minimum of 10 business days to secure a representative before taking any follow-up action to schedule the appointment (extensions can be granted on a case by case basis). The specialist should not ask questions during this initial conversation because this may give the impression of attempting to by-pass the representative. For more information, see IRM 4.10.3.3.7.2, Request for Representation - Suspension of Interview.

    14. Inform the taxpayer or representative that a letter confirming the scheduled appointment will be mailed to them.

      Note:

      Specialists should inform the taxpayer or representative that a detailed Form 4564, Information Document Request, will be included with the confirmation letter, if necessary.

    15. During the initial conversation by telephone or in person, explain and discuss the taxpayer’s rights as outlined in Pub 1, and answer any questions the taxpayer may have concerning their rights. See IRM 4.10.1.6, Taxpayer Rights, for more guidance. Provide Pub 1976, Do you Qualify for Relief under Section 530?, if the examination deals with worker reclassification issues.

  2. Once they agree to the appointment, conduct the examination on the confirmed appointment date, unless there are extenuating circumstances.

  3. You should call the taxpayer (or POA) two to three business days before the appointment (i.e., the date the information requested on the IDR is due).

    Note:

    Calling the taxpayer makes sure that the taxpayer is prepared for the appointment (i.e., understands what is requested and will have the information available at the appointment).

4.86.5.9.2 (03-28-2019)

Employee Contact - Restructuring and Reform Act (RRA) of 1998 Section 3705

  1. IRS employees working tax related inquiries must give taxpayers information to identify the proper employee who can answer any further questions (RRA section 3705). Therefore, provide the following information:

    1. During a telephone or personal contact - name, title, and employee identification number.

    2. On all correspondence - same as above and a telephone number for the taxpayer's questions.

  2. You don’t have to repeat your employee identification number on subsequent contacts with the "same" tribal official(s) or designated tribal official.

  3. However, you must repeat your name and employee identification number to each new subsequent contact you make during the work assignment. Document the person’s name, title and the date when you gave them your contact information in the case activity record. Also, complete Workpaper 5.105, RRA 98 Check Sheet, and include it in your RCCMS case file. This workpaper has check boxes and a space to document the name(s), title(s) and dates of any subsequent new contacts.

4.86.5.10 (03-28-2019)

Authority to Request Books, Records, and Accountant’s Workpapers

  1. You’re authorized to request and receive books, records, etc., necessary to properly examine an entity's tax return (IRC 7602, Examination of Books and Witnesses, and 26 CFR 301.7602-1(a), Examination of Books and Witnesses.)

  2. Insist courteously for the records, even when a taxpayer is reluctant to provide them. Follow these guidelines to handle this situation:

    1. Apprise the taxpayer of the requirements to produce books and records. Explain that denying access to the records only prolongs the examination/investigation because we’ll initiate third party inquiries and this further lengthens the process.

    2. Don’t attempt to mislead or misrepresent the examination/investigation scope to secure records.

    3. Don’t assert your authority in a manner that could be interpreted as a threat.

    4. Don’t summons the records unless you obtain your manager’s approval.

  3. Accountant's workpapers used to examination tax records or prepare a tax return aren’t the taxpayer’s property or privileged information. Therefore, you can summon the workpapers.

  4. See IRM 4.10.20, Requesting Audit, Tax Accrual, or Tax Reconciliation Workpapers.

4.86.5.10.1 (12-15-2020)

Securing Records

  1. Use Form 4564, Information Document Request (IDR), to request information from the taxpayer.

    1. Conduct initial research applicable to the taxpayer.

    2. Identify potential issues to identify the information that you need.

    3. Consider alternate sources for the information.

    4. Identify alternate means to obtain needed records.

  2. When preparing an IDR:

    1. Be specific, clear and concise.

    2. Group the information being requested by issue.

    3. Number or letter the items requested.

    4. Include a response date, such as a specific date or specific time frame, and the way they should submit data (by mail; made available on next field visit).

    Note:

    Organizing your IDR in this manner will make it easy for the taxpayer to respond to the requested information.

  3. Initial Contact:

    1. Include the initial IDR with the initial contact letter. Send the letter and IDR to the tribal leader with a carbon copy (cc) to the contact, if known. If the contact is not known, send these to the tribal leader and he or she will appoint someone to contact you.

      Note:

      The response date for the initial IDR should be 30 days from the date of mailing. In addition, note on the IDR that you will review the information within 10 days of receipt.

    2. Call the taxpayer no earlier than 14 calendar days or 10 business days, whichever is longer, from the mailing of the letter to confirm that the taxpayer received the letter and IDR if the taxpayer has not contacted you before that.

    3. Discuss the issues under exam and the items requested on the IDR. If after the discussions, you believe that you need to clarify the IDR, modify the request and reissue it to the taxpayer. Agree on an updated response date, which may also be an appointment date.

      Note:

      An updated response date from this initial call is not treated as the first extension, but as a modification to the IDR.

  4. For all subsequent IDRs:

    1. Clearly state the agreed-on response date.

    2. List the specific records, information and documents that the taxpayer should have available on the response date.

    3. Be specific and avoid requesting more information than is necessary to resolve the identified issues.

    4. Include an adequate description of the requested data.

    5. Include an adequate description of why the information is being requested (the facts and circumstances will dictate how much you need to describe each item).

    6. State the time period of the necessary records.

    7. State how and where the information will be delivered. If the taxpayer or representative will provide the information at either the examination site or the POA’s office during a subsequent appointment, then state that the information is to be available at the next appointment date.

    8. Determine the date that you plan to review the IDR response for completeness and note the acknowledgement date on the IDR.

  5. Discuss the response date of the IDR with the taxpayer and agree on a date.

    Note:

    Select a response date that is reasonable to enable you to promptly complete the examination.

  6. When you mail the IDR to the taxpayer, send a copy to the POA (if applicable) with cover Letter 937, Transmittal Letter for Power of Attorney.

  7. Paper records received must be maintained until you determine that the case has no criminal fraud potential. After uploading the documents into RCCMS, you should keep the following paper records for any matter involving potential criminal fraud:

    • Records which contain color (such as blue ink, color letterhead).

    • Records in which the taxpayer used white-out or any other alterations or markings that would render the scanned document not identical to the original document.

  8. Keep the paper records with the case file until either:

    1. (1) CI accepts the referral and you transfer the record for inclusion in their investigation file; or

    2. (2) You/your manager/FTA/CI determine that the case has no criminal fraud potential.

  9. When you determine there’s no criminal fraud potential, you don’t need to keep these records in the case file. However, you must keep these records per normal record retention requirements before proper disposal.

    Note:

    These instructions also apply to Mandatory Reviewers who are managing fraud suspense cases.

4.86.5.10.1.1 (03-28-2019)
IDR Follow-up

  1. Follow-up with the taxpayer two to three business days before the IDR response due date.

  2. When the taxpayer responds to your IDR, make your best efforts to review the response by the agreed upon date noted on the IDR.

  3. If the response is complete:

    1. Call the taxpayer to tell them that the response was complete.

    2. Notate this action in the case activity record.

  4. If the response was incomplete or they fail to respond:

    1. Determine, within five (5) business days, if you’ll grant an extension

    2. Discuss missing or incomplete items with the taxpayer to determine if an extension is warranted.

    3. If an extension is warranted, you may grant a first extension.

    4. You may grant up to 15 business days for the taxpayer to provide the incomplete or missing information.

    5. You must send an extension approval letter, Letter 5798, TE/GE Information Document Request Extension Notice, reflecting a new response date and attach an IDR listing the incomplete or missing items.

  5. If the taxpayer fails to respond to the extension in IRM 4.86.5.10.1.1 (4) or if the response is still incomplete you may:

    1. Determine, within five (5) business days, whether to grant a second extension.

    2. Discuss the missing or incomplete items with your group manager to determine if you will grant a second extension.

    3. If an extension is warranted, you may grant a second extension, but only with your manager’s approval.

    4. You may grant up to 15 business days for the taxpayer to provide the incomplete or missing information.

    5. Send a second extension approval letter, Letter 5798, TE/GE Information Document Request Extension Notice, reflecting a new response date and attach an IDR listing the incomplete or missing items.

  6. Make every effort to review the IDR within 10 business days of receipt of the documents.

  7. Notify the taxpayer of your review.

  8. If for some reason the review will be delayed, notate the delay in the activity record.

  9. If the requested information isn’t received after the second extension, begin the Enforcement Process.

4.86.5.10.1.2 (03-28-2019)
IDR Enforcement Process: Delinquency Notice

  1. If after the second extension, the request is not complete, prepare a delinquency notice.

    1. Notify your group manager

    2. Prepare a Delinquency Notice:

      • Letter 5077-B, TE/GE IDR Delinquency Notice, for items that can’t be summonsed.

      • Letter 5077-D, TE/GE IDR Delinquency Notice - Pre-Summons for items that can be summonsed.

    3. Call the taxpayer to discuss a due date.

    4. Sign and mail the delinquency notice, with a revised due date.

    5. Obtain manager’s approval if more than 10 business days are needed for the taxpayer to respond.

  2. If the taxpayer responds to the IDR Delinquency Notice, review the response within 10 business days.

  3. If the taxpayer gives a complete response:

    1. Inform the taxpayer their response is complete.

    2. Notate in the case activity record.

    3. The enforcement process is ended.

  4. If the taxpayer doesn’t respond or if the response is incomplete:

    1. Discuss with your group manager and TE/GE Division Counsel within 10 business days.

    2. Determine whether a summons will be needed.

    3. Inform the taxpayer of the next action:

      • Proposal of adjustment

      • Summons

4.86.5.10.1.3 (03-28-2019)
IDR Enforcement Process: Pre-Summons and Summons Warranted

  1. If the taxpayer has failed to respond to the IDR Delinquency Notice(s) and the requested items can be summonsed:

    1. Prepare Pre-Summons Notice (Letter 5077-A) within 10 business days of the taxpayer not responding to the Delinquency Notice.

    2. Notify the taxpayer and determine a response date.

    3. Seek group manager’s approval, if response date is more than 10 business days.

    4. Have group manager sign Pre-Summons Notice and issue to the taxpayer.

  2. If the taxpayer responds to the Pre-Summons Notice, review the response within 10 business days.

  3. If a complete response is provided by the taxpayer:

    1. Inform the taxpayer, their response is complete.

    2. Notate the case activity record.

    3. The enforcement process is ended.

  4. If the taxpayer doesn’t respond or the response is incomplete:

    1. Discuss with your group manager and TE/GE Division Counsel, within 10 business days.

    2. Coordinate the issuance of the summons with TE/GE Division Counsel.

    3. Notate the case activity record.

    4. Follow summons procedures in IRM 25.5, Summons.

4.86.5.10.1.3.1 (09-15-2015)
Coordinating Summonses with Other Divisions

  1. Due to the unique laws affecting Indian tribes, IRS employees issuing summonses to a tribal entity must ensure that the information being sought is legally obtainable, and that the summons can be enforced, if necessary. For that reason, employees should strongly consider having TE/GE Division Counsel review their summons. This includes any IRS summons, except those initiated by Criminal Investigation, served to a tribal government/enterprise, regardless of its source.

  2. Other business units (except Criminal Investigation) must notify ITG before they serve a summons to a tribal entity. This includes summonses originating in other IRS operating divisions (LB&I, SB/SE, etc.) or in another TE/GE office.

4.86.5.10.1.4 (03-28-2019)
IDR Log

  1. As a best practice, you may use an IDR Log to help you track the IDRs you issued to taxpayers.

  2. Using an IDR Log is optional and may not be helpful on all cases; however, use it if it helps. See Form 5699, Information Document Request Log.

4.86.5.10.2 (12-15-2020)

Third-Party Contacts

  1. See IRC 7602(c), Notice of contact of third parties, and related regulations for all third-party contacts. IRS policy requires us to obtain information relating to a liability or collectibility determination directly from the taxpayer whenever possible. See IRM 10.5.6.5.4, Collecting Information Relating to Individuals from Third Party Sources.

  2. Generally, we make contacts with third parties when unable to obtain the information from the taxpayer or to verify information provided by the taxpayer. However, make every effort to first obtain information from the taxpayer. See IRC 6103(k)(6) and corresponding regulations which apply to all third-party contacts.

  3. ITG specialists are required to follow IRC 7602(c)(1) as amended by Section 1206 of the Taxpayer First Act. Effective August 15, 2019, Publication 1 will no longer satisfy the advance notice requirement of IRC Section 7602(c)(1). In all cases involving third-party contact notices, a notice meeting the new requirement must be provided.

  4. For third-party contacts made for determining or collecting a tax liability, the new procedures are as follows:

    1. Issue advanced notice to the taxpayer that third-party contacts may be made.

    2. Intend, at the time such notice is issued, to contact third parties (the notice must state this intent).

    3. Specify in the notice the time period, not to exceed one year, within which IRS intends to make the third-party contact(s).

    4. Send the notice at least 45 days before contact with a third party. Employees must not contact a third party until the 46th day following the date of the notice.

    5. The notice must include the tax period(s) at issue. Employees may reissue notices yearly, if necessary.

      Note:

      The current notices will be updated to add reference to the applicable tax period(s) and effective contact period. Until that time, the notices must be manually updated to reflect this information. Current notices are Letter 3164 series.

    6. Provide a list of third-party contacts to the taxpayer upon request.

    7. If needed, prepare Form 12175 , Third Party Contact Report Form.

      Note:

      IRC 7602(c) doesn’t require IRS employees to obtain taxpayer authorization to contact a third party. A taxpayer may not prevent an IRS employee from contacting a third party by refusing to provide authorization. Obtaining authorization only means that IRS employees aren’t required to give reasonable notice in advance that they may make a third-party contact. Authorization is made with Form 12180, Third Party Contact Authorization Form.

  5. Third-party contact procedures don’t apply to whistleblower claims for awards. Case files involving whistleblowers shouldn’t contain any reference to the whistleblower in the primary case documentation. Even referring to Form 11369, Confidential Evaluation Report on Claim for Reward, or to the whistleblower in the activity record is prohibited because the administrative case file is subject to Freedom of Information Act (FOIA) and could lead to disclosure. See IRM 25.2.2.9, Confidentiality of the Whistleblower.

4.86.5.11 (03-28-2019)

Power of Attorney (Form 2848) and Tax Information Authorization (Form 8821)

  1. Attorneys, certified public accountants, enrolled agents or other representatives may submit a Form 2848, Power of Attorney and Declaration of Representative (POA), or Form 8821, Tax Information Authorization (TIA), on behalf of an Indian tribal government/entity.

  2. The Centralized Authorization File (CAF) function doesn’t process Forms 2848 submitted using a version older than the October 2011. So, if a POA submits an obsolete form, ask them to resubmit using the most current revision.

  3. Secure a valid Form 2848 and/or Form 8821 containing the following information if the taxpayer wants a POA or third-party representative:

    1. Taxpayer name (i.e., Indian tribal entity), address, employer identification number or social security number, and telephone number.

    2. Employee Plan Number, if applicable.

    3. Representative(s) or appointee(s) full name(s), address, telephone and fax numbers, and the representative's CAF number, if known. The taxpayer should check the appropriate boxes if the IRS should send the representative/appointee notices and communications.

    4. Type of specific tax involved (e.g., employment, excise, etc.) and/or the federal tax form number.

    5. The years covered must be specifically listed. It’s unacceptable to list "all years" .

    6. The taxpayer's signature is required (e.g., authorized tribal government official) and date of signature.

    7. For Form 2848, the representative must sign and date the declaration (Part II) and enter the designation under which he/she is authorized to practice before the IRS.

      Note:

      Don’t accept the Form 2848 if the appointed representative isn’t qualified to sign Part II, or the form is incomplete or inaccurate. Don’t accept the Form 8821 if it’s incomplete or inaccurate. Return invalid forms to the taxpayer.

      Note:

      Original documents, photocopies, or documents submitted by facsimile transmission (FAX) are acceptable for processing.

  4. Process the completed form to the CAF unit within five business days of receipt.

    1. Mark your name, telephone number, function, and date on the form.

    2. Fax or mail completed Forms 2848 and Forms 8821 to the CAF unit.

    3. Document the date you sent the form to the CAF unit on Form 9984, Examining Officer's Activity Record. Also document any delays in processing on Form 9984.

    4. Follow-up by researching CFINK to ensure the CAF unit processed the POA/TIA.

    5. Attach a copy of Form 2848 or Form 8821 to each return. Mark on the form the date you faxed it to the CAF unit.

  5. Specific use authorizations generally are not recorded on the CAF database. These authorizations must be provided by the representatives with each contact with the IRS. Don’t detach the POA/TlAs filed for specific issues from its related document or send it to the CAF function, unless the POA/TIA authorizes a return in addition to the specific issue. If so, send a copy of the POA/TIA to the CAF unit to input the return portion on the CAF system. Examples of specific issues include, but are not limited to the following:

    • Form SS-4, Application for Employer Identification Number

    • Form W-2 Series

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

    • Form W-4, Employee's Withholding Allowance Certificate

    • Form 843, Claim for Refund and Request for Abatement

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

    • Form 1099 Series

    • Form 1128, Application to Adopt, Change, or Retain a Tax Year

    • Form 5308, Request for Change in Plan/Trust Year

    • "General" or "Durable" POA. Even if these instruments contain sufficient information to function as IRS power of attorneys, they usually lack information sufficient to process on CAF. If the taxpayer submits a general or durable POA, attach a completed Form 2848 (a transmittal POA) and send both forms to the CAF unit for processing.

  6. See IRM 4.23.3.6.6, Third Party Authorization/Power of Attorney, and IRM 21.3.7, Processing Third Party Authorization onto the Centralized Authorization File (CAF) for more information about third-party authorization/power of attorney.

  7. Blank forms, notices and publications available on IRS.gov should not be sent to the taxpayer’s representative or appointee, including, but not limited to:

    • Form 9465, Installment Agreement Request

    • Form 12203, Request for Appeals Review

    • Notice 609, Privacy Act Notice

    • Pub 1, Your Rights as a Taxpayer

    • Pub 1035, Extending the Tax Assessment Period

4.86.5.11.1 (03-28-2019)

Bypassing a Taxpayer’s Representative

  1. There may be occasions when it becomes necessary to bypass the taxpayer’s representative and communicate directly with the taxpayer. The procedures to by-pass the power of attorney (POA) permit you to contact the taxpayer directly and to request any information necessary to complete the exam.

4.86.5.11.1.1 (12-15-2020)
Bypass Procedures

  1. Document the Form 9984, Examining Officer’s Activity Record if any of the following issues occur:

    1. The representative impedes or delays an exam by failing to submit the records or information you requested.

    2. The representative impedes or delays an exam by failing to keep scheduled appointments.

    3. The representative impedes or delays an exam by failing to return telephone calls and written correspondence.

  2. If you note a trend and the exam is being hindered because of the representative, notify your manager of the representative's actions.

  3. The manager:

    1. Ensures you took reasonable efforts to deal directly with the representative and your case file sufficiently details the facts supporting how the examination has been delayed or hindered.

    2. Tells the ITG Program Manager of the issue.

  4. Send all correspondence you sent to the representative to the taxpayer, including IDRs (if you haven’t done so already). In many cases, the taxpayer may not be aware that the representative is procrastinating and may correct the situation when they become aware of the problem.

    Note:

    In this case you will send the correspondence to the tribal contact as well as the tribal leader.

  5. Prepare for your manager to issue Letter 4020-A, Warning Letter for Bypass Procedures for Preparers, covered under Circular 230, advising the representatives of their responsibilities in the conduct of examinations. Inform the representatives that if his or her limited representation is a hindrance to the IRS’ examination or investigation of the taxpayer, the limits of the representation can be communicated to the taxpayer.

    1. Attach a brief chronology of events to the letter. If a reason for the bypass is the failure to submit records or information you requested, include copies of prior document requests and a list of outstanding items.

    2. Do not send a copy of the Letter 4020-A to the taxpayer.

    3. Forward a copy of the Letter 4020-A, with attachments, to the ITG Program Manager.

  6. If the representative continues to delay or refuses to provide the information requested, notify the ITG Program Manager. The ITG Program Manager issues Letter 4020-C, Final Bypass Letter, to the representative and a copy to the taxpayer. The ITG Program Manager sends a copy of the Letter 4020-C to you and your manager as authority to bypass the representative on the exam.

  7. The bypass permits you to contact the taxpayer directly. The representative can continue to represent the taxpayer, if accompanied by the taxpayer. As a courtesy, we inform the representative of the time and place for future appointments with the taxpayer. Continue to send copies of all correspondence you send to the taxpayer to the bypassed representative.

  8. Use a summons to secure information if the taxpayer and the representative are intentionally uncooperative.

  9. Prepare a referral to the Office of Professional Responsibility per the IRM whenever a Letter 4020-C is issued. Send that referral to the ITG Program Manager via your manager.

4.86.5.12 (12-15-2020)

Interviews

  1. Interviews should be scheduled to obtain information needed to make informed judgments. Interviews provide information that might not be available from other documents and are used to gain information.

  2. Prepare interview questions that are tailored to the taxpayer and issues.

  3. Interview the person who has sufficient knowledge and ability to answer questions in a factual context for the area(s) of interest. Conduct interviews with the tribal leader, person(s) designated by the tribe to work with the IRS concerning federal tax issues, or an authorized tribal representative. When you set up the interview, make sure they know that someone knowledgeable about the procedures, entity and books/records needs to be in the interview. Ask who it will be and then follow up if needed to make sure the right person is there.

  4. If not already covered during the pre-contact phase of the examination, you must take the following actions during the initial interview:

    1. Give everyone in the interview your name, contact information and employee ID number. If anyone new comes into the interview, you must provide it to them. This can be easily done by giving them your business card.

    2. Verify the taxpayer's receipt of Publication 1, Your Rights as a Taxpayer, and Notice 609, Privacy Act Notice, with the examination notification letter.

      Note:

      Publication 1 fulfills your requirement to inform the taxpayer of the examination process and their rights during this process at or before the initial interview. (IRC 7521(b))

    3. Briefly describe the rights discussed in Pub 1 and Notice 609 and respond to any questions.

    4. Briefly describe the examination process and inform the taxpayer and/or representative of the resolution options available for unagreed cases (for example, managerial conference, Fast Track Settlement, formal appeal, right to petition the United States Tax Court, etc.).

    5. Document the confirmation of receipt of Pub 1, Your Rights as a Taxpayer, and Notice 609, Privacy Act Notice, and the discussion held with the taxpayer and/or representative on Form 9984, Examining Officer’s Activity Record.

    6. See IRC 7521, Procedures involving taxpayer’s interviews, and IRM 4.23.3.6.5, Taxpayer Rights, for other provisions that affect taxpayer interviews.

  5. Ask about available books and records during the interview. Use interviews to understand the taxpayer’s operations and help to reach informed judgments about the scope and depth of the exam.

  6. Use interviews to get information on unusual or questionable items. Ask follow-up questions to clarify questionable areas.

  7. Types of Interviews include:

    Type of Interviews Description of Interview
    Initial Interview Hold the initial interview as soon as possible after you open a case. Prepare for the interview by conducting a pre-contact analysis, which should include a thorough review of the case file, review of internal and external data, and preliminary research.
    Subsequent Interview Hold subsequent interviews if:

    • The taxpayer doesn’t provide all the information requested.

    • You need more detailed explanations.

    • You need to review the examination progress. Your review should discuss information provided to date as well as outstanding information needed to complete the examination.
    Third-Party Interview You may need to interview third-parties when the taxpayer doesn’t or can’t provide documentation about a transaction, deduction, or income item. Prepare Form 12175 and Form 12180, if needed.
    Closing Conference You must hold a closing conference at the examination’s conclusion:

    1. Discuss final conclusions with the taxpayer.

    2. Solicit agreement to any proposed adjustments.

    Note:

    Inform the taxpayer and/or representative of all appeal rights, including the option of Fast Track Settlement, if available. (See IRM 4.86.5.23.2, Fast Track Settlement, for more details.)

  8. Document taxpayer’s responses and summarize in the workpapers. If you limit the examination scope, still conduct the interview. Document, in the workpapers, who you interviewed and what you discussed. Interviews may be documented in several ways:

    • Informal notes

    • Memorandum of interview

    • Affidavit

    • Question and answer

    • Deposition

  9. See IRM 4.10.3.3, Interviews: Authority and Purpose, for detailed procedures when preparing, conducting and documenting interviews.

4.86.5.13 (03-28-2019)

Touring Facilities

  1. An on-site visit is often an important part of a quality exam. Viewing the taxpayer’s facilities and observing business activities is an opportunity to:

    1. Acquire an overview of the business operation.

    2. Clarify information obtained previously through interviews.

    3. Establish that the books and records accurately reflect actual business operations.

    4. Observe and test internal controls.

    5. Identify potential examination issues.

  2. Conduct tours with knowledgeable individuals. Taxpayers, or their representatives, can often explain business practices that appear unusual to you.

  3. Document a completed tour or inspection and summarize in the workpapers. Indicate:

    • Those present during the tour.

    • The facilities inspected and the result.

    • Observations

    • Answers to questions.

  4. If a tour of the taxpayer’s business facilities is not conducted, the reason(s) should be documented in the workpapers.

  5. For more information, see IRM 4.10.3.4.3, Audit Techniques for Tours of Business Sites.

4.86.5.14 (03-28-2019)

Evaluating Internal Controls

  1. Internal controls are the policies and procedures a taxpayer has in place to identify, measure, and protect business operations.

  2. Evaluate the existence and effectiveness of the internal controls. Based on this evaluation, expand or contract the scope accordingly.

  3. In evaluating internal controls, you might use the following techniques:

    1. Evaluate taxpayer’s overall business operations and method of accounting.

    2. Evaluate records of accounting system(s) maintained by the taxpayer (do books and records clearly reflect business operations).

    3. Evaluate separation of duties/financial responsibilities.

    4. Evaluate taxpayer’s procedures to safeguard business operations and assets.

    5. Assess level of control risk (risk that a material misstatement could occur and it will not be prevented or detected by the taxpayer).

    6. Interview key personnel.

    7. Review relevant written internal control procedures manual.

    8. Review Forms W-4s and Forms W-9s.

    9. Review identification verification procedures.

    10. Review any examinations conducted by compliance officer, internal and external auditors.

    11. Walk-through and document internal control procedures for:

      • Slot hand pays

      • Tournaments, prizes, and promotions

      • Complementary items

      • Disbursements for subcontractors, i.e., services, entertainers, per capitas, etc.

      Note:

      The techniques described above are not intended to be all-inclusive nor are they mandatory steps to be followed. Use judgment in selecting the techniques that apply to each taxpayer.

  4. For more information, see IRM 4.10.3.5, Evaluating the Taxpayer’s Internal Controls.

4.86.5.15 (12-15-2020)

Required Filing Checks

  1. Perform required filing checks and related case analysis on all exams. Determine that taxpayers have complied with all federal tax return filing requirements and have timely filed all returns with the substantially correct tax.

  2. Return filing checks include income, employment tax, excise tax and information returns. Taxpayers are required to report various types of payments to both the IRS and payees. These payments include wages and payments that the entity makes in the course of a trade or business to another person (i.e., Form 1099s).

  3. Make sure that the Tribe’s entities are properly coded as tribal entities. Check INOLES for BOD Code, BOD Client Code, Employment Code and make sure they have the correct filing requirements listed. If anything is incorrect, request correction.

  4. For more information, see IRM 4.10.5, Required Filing Checks; IRM 4.23.3.6.2, Procedures for Required Filing Checks and Scope of Employment Tax Examinations; and IRM 4.23.3.6.1, Required Filing Checks for Non-Employment Tax Cases, for procedures for verifying the filing of required returns by the taxpayer and assessing the examination potential of these returns.

4.86.5.16 (12-15-2020)

Evaluating the Facts

  1. Gather facts to correctly determine a taxpayer’s tax liability. This determination must be made based on of all available facts, including facts supporting the taxpayer’s position. For this reason, you should analyze all the facts supporting both sides of an issue.

  2. Pursue an exam to the point where a reasonable determination of the correct tax liability can be made. In the daily application of this responsibility, you must deal with problems of substantiation and its evaluation.

  3. As part of the exam, you document the facts necessary to reach conclusions during the exam. Documentation of the facts may take several forms, including observations, documents, and oral testimony.

  4. There are many types of methods available for a specialist to consider in gathering facts, including observations, documentation of books and records, and oral testimony.

    • Observations. An observation is the act of recognizing and noting a fact or occurrence. Observations are generally obtained in an exam during a facility tour or an interview.

      Example:

      Visual confirmation of assets and functional processes are common observations. Body language, tone, openness, and other nonverbal clues are important observations you can make as well. It’s extremely important to document the observations to allow them to be used to support a conclusion. Remember that your workpapers may be seen by many individuals, including the taxpayer, so keep your comments professional, especially when describing an individual’s demeanor.

    • Documentation. A taxpayer’s books and records, or records of third parties, are forms of documentation. Writings made contemporaneously with the happening of an event are more likely to reflect the facts and demonstrate the parties' intent. Likewise, original documents are generally given greater weight than copies or summaries. While documentation has great value, don’t solely rely on it so you exclude other facts and oral testimony.

    • Oral Testimony. Oral testimony can also establish facts and there are instances in which courts have given greater weight to it than to documentation. Oral testimony is the verbal testimony provided in support of a fact. Do not use oral testimony in lieu of available documentation when: The issue involves specific recordkeeping required by law or regulations, oral testimony alone cannot substitute for necessary written documentation. Oral testimony need not be accepted without further inquiry. If in doubt, attempt to establish other sources of documentation to support the facts.

  5. For more information, see IRM 4.10.7.3, Evaluating Evidence.

4.86.5.17 (12-15-2020)

Special Case Development Procedures

  1. You may need to apply special case development procedures to determine a tax liability. Special case development procedures include the following and are discussed below:

    • Informal Technical Assistance

    • Formal Technical Advice

    • Private Letter Rulings (PLR)

    • Specialist Referral System - Online

    • Closing Agreements

4.86.5.17.1 (12-15-2020)

Requesting Technical Assistance

  1. ITG specialists may request technical assistance when needed . Before requesting assistance, attempt to resolve technical questions via research, analysis, your group manager and peers. If further assistance is needed, you can receive help from:

    • The K-Nets: (i) ITG K-Net, (ii) Employment Tax Knowledge Network (ET K-Net) and other K-Nets as needed.

    • An assigned ITG Technical reviewer.

    • TEGE Division Counsel (Division Counsel).

  2. If there are still unresolved issues after taking these steps, you may also request technical advice on ITG exams from the TE/GE Office of Associate Chief Counsel (Associate Chief Counsel). See IRM 4.86.5.17.2.1, Technical Advice Procedures Overview; IRM 4.86.5.17.2.2, Requesting Technical Advice; and Rev. Proc. 2020-2 (updated annually).

4.86.5.17.1.1 (12-15-2020)
Assistance from the K-Net

  1. Specialists and managers may seek help from the applicable ITG, ET or other K-Net. K- Net is available to provide technical assistance on general issues or questions, including issues under consideration in an exam. However, it’s not intended to provide case specific guidance. You may:

    1. Call a K-Net Team Member for quick and informal technical input on basic questions that will help you independently resolve an issue.

    2. Post questions/comments on a discussion forum to begin a peer-to-peer conversation. K-Net team members participate in discussion forum conversations, and other ITG specialists may also participate.

    3. Use Ask A Question to ask for technical guidance or resources that will help you independently resolve an issue. The assigned K-Net Team Member will contact you to discuss your question.

    4. Attend a K-Net event to hear technical information and ask questions. See the K-Net calendar for the dates and times of events.

      Note:

      Caution: Don’t include any PII when contacting the K-Nets.

4.86.5.17.1.2 (12-15-2020)
Assistance from ITG Technical

  1. Specialists are responsible for processing their cases and getting approval to request technical assistance from ITG Technical. Contact your group manager who will coordinate with ITG Technical Manager.

  2. Specialist: If your manager agrees that the case is likely to close unagreed or as a claim denial, and determines that technical assistance is warranted (with ITG Program Manager approval), prepare and send a memo to the ITG Technical group manager requesting a TLS for technical assistance. Your request should:

    1. Identify the taxpayer under examination, and you and your manager’s names.

    2. Describe the identified area of noncompliance.

    3. Include any taxpayer correspondence with a position on the matter.

  3. ITG Program Manager: Approve the group manager’s request for technical assistance, if warranted.

  4. Technical Group Manager:

    1. Notify the group manager and ITG Program Manager of the TLS or Technical reviewer assigned to handle the request.

    2. Discuss the assignment’s priority with the TLS.

  5. TLS or Technical reviewer:

    1. Review the draft document(s) and prepare a memorandum (the "reviewer’s memorandum" ) to the group manager and specialist with comments on any areas requiring further development or any required revisions.

    2. Coordinate with the specialist if more information is needed.

    3. Update the Technical Group Manager on case progress.

  6. Specialist:

    1. Provide any other information the TLS or Technical reviewer requires.

    2. Incorporate all revisions into the necessary documents.

  7. All: Share and discuss pertinent case-related communication during the technical review process.

  8. Group manager: Send the following to the ITG Program Manager after the TLS reviews/revises Form 886-A:

    • Form 5701-B, Notice of Proposed Issue

    • Form 886-A, Explanation of Items

    • Reviewer’s memorandum

    • Any other relevant documents

  9. ITG Program Manager: Discuss any concerns with the TLS before deciding whether to approve the Form 886-A.

  10. Specialist: After the technical review, prepare the relevant 30-day letter, as follows:

    • Form 1040, ITG cases, use Letter 950 or Letter 950-B.

    • Forms 940, 941, 945 ITG Employment Tax cases, use Letter 950-C if the case does have IRC Section 7346 Issues.

    • Forms 940, 941, 945 ITG Employment Tax Cases, use Letter 950-D if the case doesn’t have IRC section 7346 issues.

4.86.5.17.1.3 (12-15-2020)
Assistance from TE/GE Division Counsel

  1. Make informal, and if needed, written requests for assistance to TE/GE Division Counsel for:

    • Legal interpretations.

    • Case development for "unagreed" issues.

  2. Obtain approval from your group manager before you contact TE/GE Division Counsel.

  3. You may ask a Technical reviewer to help you prepare a request for TE/GE Division Counsel assistance.

  4. Generally, an opinion from TE/GE Division Counsel is confined to the specific facts and circumstances of a case. You should not apply the opinion to other cases without contacting TE/GE Division Counsel.

4.86.5.17.2 (12-15-2020)

Technical Advice Overview

  1. The specialist performs all actions in this section and subsections unless otherwise specified. All sentences directed to "you" are directed to specialists.

  2. If informal assistance and research have not resolved the issue or answered the technical question(s), you may also get technical advice on ITG exams in the form of a Technical Advice Memorandum (TAM) from the TE/GE Office of Associate Chief Counsel (Associate Chief Counsel). See IRM 4.86.5.17.2.1, Technical Advice Procedures Overview, and Rev. Proc. 2020-2 (or current version). You may also refer to IRM 4.75.36, Exempt Organizations Examination Procedures, Procedures for Processing Technical Advice Cases.

  3. TAMs are submitted under Rev. Proc. 2020-2, 2020-1 IRB 107 (or its successor). The IRS updates this revenue procedure annually as the second revenue procedure of the year, and may modify or amplify the revenue procedure during the year.

  4. To the extent that a provision of this IRM is inconsistent with Rev. Proc. 2020-2 (or its successor), the provision(s) of Rev. Proc. 2020-2 (or its successor) must be followed.

  5. Rev. Proc. 2020-2 (or its successor), defines a TAM as: "advice furnished by an Associate office in a memorandum that responds to any request, submitted under (Rev. Proc. 2020-2, or its successor), for assistance on any technical or procedural question that develops during any proceeding before the IRS. The question must be on the interpretation and proper application of any legal authority, including legislation, tax treaties, court decisions, regulations, notices, revenue rulings, revenue procedures, or announcements to a specific set of facts that concerns the treatment of an item in a tax period under examination or in Appeals."

  6. Proceedings before the IRS include:

    1. The examination of a taxpayer’s return.

    2. The consideration of a taxpayer’s claim for credit or refund.

    3. Any other matter involving a specific taxpayer under the jurisdiction of a Director.

  7. Request technical advice in cases in which any of the following conditions exist (as generally discussed in Chief Counsel Directives Manual (CCDM) 33.2.1.9, Standards for Requesting Advice and Legal Effect of Advice):

    1. Legal interpretations of tax law, tax treaties, regulations, revenue rulings, notices or other published precedents and application to the facts in your examination with no published precedent for determining the proper treatment of the issue.

    2. There is reason to believe that a lack of uniformity in the treatment of the issue exists.

    3. A doubtful or contentious issue is involved in multiple cases.

    4. The issue is very unusual or complex and warrants associate office consideration.

    5. The field group believes that securing technical advice would be in the best interest of the IRS.

  8. Technical advice doesn’t include any oral legal advice or any written legal advice furnished to the field group that is not submitted and processed under Rev. Proc. 2020-2 (or its successor).

  9. You may raise an issue in any tax period, even if a TAM was furnished for the same or similar issue for another tax period.

  10. You may also request a TAM on an issue even if Appeals disposed of the same or similar issue for another tax period of the same taxpayer.

  11. Discuss requesting formal technical advice with your group manager. Request a TAM (to the extent possible) at the earliest stage of the examination, as discussed in CCDM 33.2.1.9. If your group manager agrees that technical advice is warranted, the ITG Program Manager will be contacted for approval before the group manager reaches out to TEGE Division Counsel to discuss the issue. You must receive a recommendation from TEGE Division Counsel before proceeding with a TAM.

  12. Taxpayer participation is preferred, but not required, to process a request for technical advice.

4.86.5.17.2.1 (12-15-2020)
Technical Advice Procedures Overview

  1. The ITG exam group determines whether to request a TAM.

  2. The ITG exam group manager ensures that questions ITG employees submit via a TAM:

    1. Interpret and properly apply the law or other legal authority.

    2. Apply to a specific set of facts on the treatment of an item in a tax period under exam or in Appeals.

  3. Technical advice procedures:

    1. Follow Rev. Proc. 2020-2 (or its successor) guidelines.

    2. Offer specialists guidance when they request a TAM and cover their responsibilities throughout the TAM process.

  4. After consulting with your manager and contacting the ITG Program Manager, contact TE/GE Division Counsel before requesting a TAM. See IRM 4.86.5.17.1.3 Assistance from TE/GE Division Counsel.

    Note:

    You must receive TE/GE Division Counsel’s support before proceeding with a TAM. As discussed below, TE/GE Division Counsel will help you with the TAM request submission.

  5. After you have Counsel’s approval, prepare technical advice requests on Form 4463, Request for Technical Advice Memorandum. Submit all TAM requests regarding ITG exams to TE/GE Office of Associate Chief Counsel.

4.86.5.17.2.2 (12-15-2020)
Initiating a Request for Technical Advice

  1. Initiate a request for TAM (to the extent possible) at the earliest stage of the examination.

    Note:

    If you have not already done so, consider asking the K-Net or the ITG Technical Group for assistance to determine if the issue can be resolved without requesting a TAM. See IRM 4.86.5.17.1.1, Assistance from the K-Net, and IRM 4.86.5.17.1.2 , Assistance from ITG Technical

    .

  2. If you decide that technical advice is warranted, discuss the issue with your group manager.

  3. If your group manager agrees that technical advice may be warranted, he/she contacts the ITG Program Manager to discuss the issue.

  4. After obtaining concurrence from the ITG Program Manager, the group manager contacts TE/GE Division Counsel to discuss the issue.

  5. Group Manager: After consulting with TE/GE Division Counsel and getting their agreement to request a TAM, you must get the GE Director’s written approval before requesting a TAM.

  6. ITG Program Manager: If the GE Director agrees that a TAM should be pursued, request a Technical reviewer to be assigned and schedule a Pre-Submission Conference with Associate Chief Counsel per IRM 4.86.5.17.2.4, Pre-submission Conference.

  7. Specialist and group manager: If Associate Chief Counsel agrees during the Pre- Submission Conference that a TAM should be requested, prepare Form 4463, Request for Technical Advice or Technical Expedited Advice, IRM 4.86.5.17.2.6, with attachments discussing the:

    1. Facts and the issues for which a TAM is requested.

    2. Applicable law and arguments in support of the position(s) of the IRS on the issue or issues.

    3. Applicable law and arguments in support of the position(s) of the taxpayer or issuer on the issue(s).

      Note:

      Generally, for each issue there should be separate sections for the facts, law, government’s position, taxpayer’s position and conclusion. Always work with the taxpayer/representative and attempt to reach agreement on the wording of the sections covering the issue(s).

      Note:

      The Technical reviewer and TE/GE Division Counsel attorney will help the field group prepare the TAM. See sections 7.01 and 7.06 of Rev. Proc. 2020-2 (or its successor).

  8. Specialist and group manager:

    1. Send the Form 4463, Request for Technical Advice or Technical Expedited Advice, to the ITG Program Manager for review.

    2. When the ITG Program Manager agrees, send the Form 4463 to the Technical reviewer for review.

  9. ITG Program Manager: After you and your group manager deal with any comments from the Technical reviewer, send the Form 4463 to the GE Director for signature, as the approving official on Form 4463.

  10. Specialist: Notify the taxpayer of the TAM request in writing (Technical Advice Notification).

  11. The taxpayer has no authority to bar an internal decision to seek technical advice. However, specialists, group managers and the ITG Program Manager may consider and document any objections received from the taxpayer.

  12. The taxpayer has five calendar days to respond to the Technical Advice Notification. If the taxpayer requests more time:

    1. The taxpayer must: Request in writing, to extend before the five calendar days expire; include the specific reasons justifying the extended time requested; include a written signature of a duly authorized individual on behalf of the taxpayer.

    2. Specialist: When you receive the written request to extend the five-day period, immediately review it and send it to your group manager with a recommendation.

    3. Group manager: You are authorized to approve the written request to extend the five day period. You may prescribe the manner and the extent of documentation needed for this approval.

  13. If the taxpayer agrees with the issues and facts stated in the Technical Advice Notification, he/she should acknowledge agreement in writing.

    Note:

    Include the taxpayer's letter in the TAM request package.

  14. If the taxpayer disagrees with your statement of issues and facts in the Technical Advice Notification, the taxpayer must:

    1. Identify each point of disagreement and state the reasons for disagreement in writing.

    2. Respond completely to the Technical Advice Notification.

    3. Include a written signature of a duly authorized individual on behalf of the taxpayer.

    Note:

    You and taxpayer have 10 calendar days to resolve disagreements. See section 7.06 of Rev. Proc. 2020-2 (or its successor).

  15. Specialist:

    1. If you don’t receive a taxpayer’s written statement or it’s incomplete, you may tell the taxpayer that the formal request for technical advice will go forward with the information available.

    2. If you disagree with the issues and facts presented in the taxpayer’s written statement, make every effort to resolve any disagreement over the issues and facts with the taxpayer.

      Note:

      You may seek assistance from the Technical reviewer in resolving any disagreements with the taxpayer

    3. If you and the taxpayer don’t agree on the issues and facts, submit a written notice of disagreement to the taxpayer.

  16. The taxpayer has 10 calendar days from the date of mailing or fax transmission to respond to the written notice of disagreement according to section 7.06 of Rev. Proc 2020-2 (or its successor).

    Note:

    The group manager has the authority to grant an extension of the 10-day period.

  17. The taxpayer’s statement of facts and issues must be accompanied by the following declaration: "Under penalties of perjury, I declare that I have examined this information, including accompanying documents, and, to the best of my knowledge and belief, the information contains all the relevant facts relating to the request for technical advice, and such facts are true, correct, and complete."

  18. All statements and correspondence between you and the taxpayer in connection with disagreement over the issues or facts will be included in the formal TAM request.

    Note:

    The Technical reviewer and the TE/GE Division Counsel attorney will help you prepare the memo for Associate Chief Counsel, highlighting the material factual differences.

4.86.5.17.2.3 (12-15-2020)
Taxpayer Initiated Requests for Technical Advice

  1. The taxpayer may initiate a request for a TAM orally or by submitting a written statement to you that includes their reasons for requesting the TAM (under section 5.02 of Rev. Proc. 2020-2, or current version).

  2. If you receive a taxpayer’s written statement and disagree with their statements of issues and facts, respond in writing explaining your disagreement. This response is required even if you determine that a request for technical advice is not warranted.

  3. After you evaluate all documents and determine whether a TAM is warranted, prepare a written summary of the issues, specifically for the group manager and the ITG Program Manager, explaining why the taxpayer’s request for a TAM should be approved or denied.

  4. Immediately fax or secure e-mail the summary and a copy of the taxpayer’s written statement to your group manager.

  5. Upon receipt, the group manager will immediately forward your summary and a copy of the taxpayer’s written statement with his/her recommendation to the ITG Program Manager.

  6. The ITG Program Manager may:

    1. Direct the manner and the extent of other documentation needed for approval.

    2. Deny a taxpayer initiated request for a TAM on the basis of material disagreement over issues and/or facts.

  7. If the ITG Program Manager and the GE Director both approve of the TAM, they will both inform the group manager in writing.

  8. The formal TAM request includes the taxpayer’s written statement and all other statements and correspondence between you and the taxpayer in connection with any disagreement over issues and facts.

  9. If the ITG Program Manager denies the taxpayer’s request for a TAM, inform the taxpayer in writing.

  10. The taxpayer may appeal the decision to deny the taxpayer’s TAM request by submitting to you, within 30 calendar days after being notified the request was denied, a written statement of the reasons why the matter should be referred to Associate Chief Counsel. The statement should include:

    • A description of all pertinent facts (including any facts in dispute).

    • A statement of the issue that the taxpayer would like to address.

    • A discussion of any relevant statutory, regulatory, or administrative provisions, tax treaties, case law, or other authority.

    • An explanation of the taxpayer’s position and the need for technical advice.

      Note:

      Any extensions of the 30-day period must be requested in writing and must be approved by the ITG Program Manager.

  11. Upon receipt of the written request from the taxpayer to appeal the decision to deny the TAM request, the group manager sends the taxpayer’s written statement, along with your/your group manager’s statement of why the issue should not be referred to Associate Chief Counsel for technical advice, to the ITG Program Manager. The ITG Program Manager sends the package with his/her recommendations to the GE Director.

  12. If the GE Director agrees with the taxpayer that a TAM should be requested, he/she will inform the ITG Program Manager and group manager of the decision in writing and request the assignment of a Technical reviewer. You are to inform the taxpayer of the decision and will submit the TAM request per IRM 4.86.5.17.2.2, Initiating A Request For Technical Advice.

  13. If the GE Director determines that a TAM is not warranted, he/she will inform the ITG Program Manager in writing. You are to inform the taxpayer in writing of the denial of the request and the reasons for the denial.

    Note:

    The GE Director has 45 days to deliver a final decision per section 5.04 of Rev. Proc. 2020-2 (or its successor).

4.86.5.17.2.4 (12-15-2020)
Pre-Submission Conference

  1. After TAM approval is secured from TE/GE Division Counsel, the ITG Program Manager and the GE Director will schedule a pre-submission conference. A pre-submission conference is:

    1. Required for all TAM requests.

    2. Conducted with an Associate Chief Counsel attorney, the TE/GE Division Counsel attorney, the specialist, the group manager, the Technical reviewer and the taxpayer.

  2. The purpose of the conference is to help facilitate agreement on the statement of the issue.

  3. Before the scheduled pre-submission conference, the specialist must:

    1. Prepare his/her own statement of pertinent facts and issues.

    2. Solicit the taxpayer’s statement of pertinent facts and issues.

    3. Secure Form 2848, Power of Attorney and Declaration of Representative, for the representative involved with the TAM and verify it covers all applicable periods.

      Note:

      The legal analysis provided in the parties’ statements should be sufficient to reasonably inform Counsel on the subject matter.

  4. You and the taxpayer must exchange proposed statements of the pertinent facts and issues. The proposed statements should include any facts in dispute, the issues that the parties intend to discuss, any legal analysis and supporting authorities, and any other background information that the parties believe would facilitate Associate Chief Counsel’s understanding of the issues to be discussed during the conference.

    Note:

    The taxpayer’s failure to provide a statement of pertinent issues and facts mustn’t unduly delay the scheduling of the pre-submission conference. If they don’t provide it within a reasonable time, the conference may be scheduled without the statements.

  5. Email the following items to the TE/GE Division Counsel attorney:

    1. A statement of issues that the parties would like to discuss.

    2. A statement of pertinent facts.

    3. A statement of the facts in dispute, if any.

    4. Any legal analysis, authorities or background documents that could facilitate the understanding of the issues to be discussed. (This doesn’t need to be fully developed as there will be an analysis that will ultimately go with the formal request for a TAM).

    5. The taxpayer's statement of pertinent facts and issues.

    6. A copy of Form 2848, Power of Attorney and Declaration of Representative.

  6. TE/GE Division Counsel will review the information and email the information received from you to the Associate Chief Counsel TSS Assignments mailbox, requesting a pre- submission conference. TE/GE Division Counsel will also include the following in the request for pre-submission conference:

    • A cover memo, including contact information, requesting a technical advice pre-submission conference.

    • The name of the office expected to have jurisdiction over the request for a TAM (For example, the ITG Exam Group and ITG Program Manager).

    • A list of representatives from each IRS function that you expect to attend the pre-submission conference.

    • A brief explanation of the primary issue.

      Note:

      The factual information should cover all collateral issues for which ITG is seeking technical advice from Associate Chief Counsel.

      Note:

      The assigned branch of the Associate Chief Counsel office must receive the pre-submission materials at least 10 business days before the conference date.

  7. TE/GE Division Counsel will fax or send the package, by express mail or private delivery service, any part of the information in IRM 4.86.5.17.2.5 that can’t be e-mailed.

  8. Associate Chief Counsel will contact the taxpayer, you, and the TE/GE Division Counsel attorney within five business days of receipt of the request to schedule a pre- submission conference.

  9. The pre-submission conference (which will most likely be by telephone) should be held within 30 calendar days after you are contacted.

  10. Associate Chief Counsel will arrange the pre-submission conference call and notify all parties involved of the date, time and conference call number.

  11. If everyone agrees during the pre-submission conference that technical advice:

    1. Is not warranted, then continue to process the case to completion under normal procedures.

    2. Is warranted, then continue to prepare and submit the formal technical advice package.

  12. During the pre-submission conference, Associate Chief Counsel may raise new issues in addition to those submitted by the field group and the taxpayer.

4.86.5.17.2.5 (12-15-2020)
Preparation of the Technical Advice Package

  1. Prepare the technical advice package with the assistance of the Technical reviewer and the TE/GE Division Counsel attorney.

  2. The technical advice package generally contains the following:

    1. Form 4463, Request for Technical Advice, approved by the GE Director

    2. Memorandum of Issue(s), Facts, Law and Arguments

    3. Form 2848, Power of Attorney and Declaration of Representative

    4. Taxpayer’s Deletion Statement (taxpayer’s request for sanitizing of taxpayer information)

    5. Penalties of Perjury Statement signed by the taxpayer, if applicable. See 4.75.36.6.1(11)

    6. IRC 7805(b), Relief Request

    7. Other information for Associate Office Consideration, including all supporting documents

    8. Documentation supporting TAM approval by the GE Director

    9. Any other supporting documentation

      Note:

      Whenever possible, all documents should contain the case number and name of the Associate Chief Counsel attorney assigned to the pre- submission conference for the TAM request.

      Note:

      Make sure Form 4463 reflects the GE Director as the approving official and his/her address. Associate Chief Counsel will mail the TAM to this address.

4.86.5.17.2.6 (12-15-2020)
Form 4463, Request for Technical Advice

  1. The request for technical advice must include Form 4463, Request for Technical Advice Memorandum.

  2. Complete Form 4463. Include the mailing address of the GE Director.

  3. Form 4463 has an "Employee Checklist" in Part 5. Review the checklist as you prepare the TAM request package to make sure you’ve included all required items.

  4. Route the completed Form 4463 through your manager to the ITG Program Manager for approval.

  5. Once approved, the ITG Program Manager returns the approved Form 4463 to the GE Director for approval and signature to include in the TAM request package.

4.86.5.17.2.7 (12-15-2020)
Memorandum of Facts, Law, and Arguments

  1. Every request for technical advice must include a memorandum of facts, law, and arguments. TE/GE Division Counsel will help you prepare the memorandum.

  2. The memorandum must fully describe the:

    • Facts

    • Issues

    • Applicable law, and

    • Supporting arguments for both you the IRS and the taxpayer.

  3. Include a discussion of:

    • Relevant statutory provisions

    • Tax treaties

    • Court decisions

    • Regulations

    • Revenue rulings

    • Revenue procedures

    • Notices

    • Other authorities

  4. Include an explanation of disagreement on any facts between you and the taxpayer.

  5. Both the IRS and the taxpayer should comment on any existing or pending legislation, tax treaties, regulations, revenue rulings, revenue procedures, or court decisions contrary to their respective positions.

  6. If either party determines that there are no authorities contrary to its position, that statement should be noted in the memo.

  7. Once prepared, send a draft of the memorandum of facts, law, and arguments to the taxpayer by mail or fax for comment and review.

  8. The taxpayer has 10 calendar days to provide a written statement identifying any disagreement on the facts and issues.

  9. If the taxpayer needs more than 10 calendar days to respond, he/she must submit a written request for extension to you. If an extension is warranted, secure group manager approval and notify the taxpayer as soon as possible. The extension request is considered denied unless you inform the taxpayer otherwise. Your decision is final and can’t be appealed.

  10. After you receive the taxpayer’s response, the parties have 10 calendar days to resolve remaining disagreements.

  11. If all disagreements are resolved, prepare a single statement of the agreed facts and issues.

  12. If disagreements continue, prepare a statement that highlights the material factual differences and provide a copy of the statement to the taxpayer for review.

  13. The taxpayer’s statement of facts and issues must be accompanied by the following penalties of perjury statement: "Under penalties of perjury, I declare that I have examined this information, including accompanying documents, and, to the best of my knowledge and belief, the information contains all the relevant facts relating to the request for technical advice, and such facts are true, correct, and complete. " This declaration must be signed by the taxpayer, not the representative. See Rev. Proc. 2020-2 section 7.01(16)(a) & (b), or its successor for requirements.

4.86.5.17.2.8 (12-15-2020)
Deletion Statement

  1. The text of TAMs and background file documents are open to public inspection under IRC 6110(a).

  2. To help the IRS make the necessary deletions, the taxpayer or authorized representative must provide a statement indicating the deletions desired.

  3. The deletion statement must be:

    1. A separate document from the memorandum of facts, law, and arguments described in IRM 4.86.5.17.2.7, Memorandum of Facts, Law, and Arguments.

    2. Signed and dated by the taxpayer or the taxpayer’s authorized representative. A stamped signature or faxed signature isn’t permitted.

  4. If the taxpayer wants only names, addresses, and identifying numbers deleted, they should state this in the deletion statement.

  5. If the taxpayer wants more information deleted they must provide both a:

    1. Copy of the TAM request and supporting documents on which they have placed brackets around the material to be deleted.

    2. Statement giving the statutory basis under IRC 6110(c) for each proposed deletion.

  6. Notify the taxpayer the deletion statement is required.

  7. If the taxpayer doesn’t provide the deletion statement within 10 calendar days of the notice, inform Associate Chief Counsel. tell Chief Associate Counsel of any information in addition to names, addresses, and identifying numbers that should be deleted.

  8. The deletion statement requirements don’t apply if the TAM is open to public inspection under IRC 6104.

4.86.5.17.2.9 (12-15-2020)
Submitting the TAM Request Package

  1. When possible, list the case number and name of the Associate Chief Counsel attorney assigned to the pre-submission conference on all documents.

  2. Unless specifically requested, the exam case file isn’t sent to Associate Chief Counsel with the TAM request.

  3. Keep original documents in the exam case file; copies of these documents are used for the technical advice package.

  4. Include only relevant information, documents, correspondence etc. related to the issue(s) in the request.

  5. Remember that Associate Chief Counsel will base their decision on the information provided with the technical advice package, so you must include all relevant information and clearly articulate the issue(s).

  6. Keep a copy of the technical advice package for reference if Associate Chief Counsel has any questions.

  7. Make sure that a minimum of one year remains on the statute of limitations for all returns before submitting the request. This includes returns for all subsequent tax periods even if the subsequent tax periods weren’t included in the examination.

  8. Send a courtesy copy of Form 4463 , Request for Technical Advice to the Technical reviewer and your group manager. The group manager will forward to the ITG Program Manager.

  9. Once the technical advice package is assembled, tabbed and indexed, route the package through your group manager to the TE/GE Division Counsel attorney who will submit the technical advice package to the Associate Chief Counsel attorney assigned to the case.

    Note:

    TE/GE Division Counsel will review the technical package before submitting it to Associate Chief Counsel.

  10. TE/GE Division Counsel will submit Form 4463 and the rest of the technical advice package to the TSS Assignments e-mail address within 10 business days of receipt from you. To the extent feasible, they should also submit the documents to the TSS Assignments e-mail address, followed by any hard copy documents if requested by Associate Chief Counsel.

  11. Fax to TSS Assignments at 855-592-8976​, or send via express mail or private delivery service to (unless an updated address is provided) any part of the technical advice package that can’t be e-mailed:


    Internal Revenue Service
    ATTN: CC:PA:LPD:TSS, Room 5336
    1111 Constitution Ave, NW
    Washington, DC 20224

4.86.5.17.2.10 (12-15-2020)
Electronic Submissions

  1. Instead of submitting your technical advice package in hard copy form, except as noted in IRM 4.86.5.17.2.11, Responsibilities of the Specialist While Technical Advice is Pending, you may electronically submit the technical advice package if you wish, but you’re not required to. Below are the options you have if you choose to submit electronically:

    1. Scan all documents and submit the entire TAM electronically.

    2. Transmit documents already in electronic format electronically and send the remaining items in hard copy.

  2. Executed legal documents and penalty of perjury statements should be transmitted in hard copy, and not sent electronically, even if all other documents are electronic.

  3. E-mail the electronic submission material related to the TAM to TE/GE Division Counsel.

4.86.5.17.2.11 (12-15-2020)
Responsibilities of the Specialist While Technical Advice is Pending

  1. During the technical advice process, you "own" the case and keep possession of all exam case files involved in the technical advice and all related exam files.

  2. You:

    1. Keep all original documents secured during the examination.

    2. Are always responsible for ensuring that the statute of limitations is protected on the lead exam and any related case while Associate Chief Counsel considers the technical advice request.

    3. Must issue a letter to the taxpayer to formally notify them of the technical advice and the corresponding delay in the examination.

    4. Charge time to the case on the electronic WebETS Form 6490, TE/GE Technical Time Report.

  3. Update the inventory control systems upon receipt of the approved Form 4463 from the ITG Program Manager.

    1. Update the Audit Information Management System (AIMS) and Reporting Compliance Case Management System (RCCMS) to reflect the case in status 38, Suspense, All Other.

    2. Keep AIMS and RCCMS case control at the group level.

  4. If you receive any more information for an issue pending technical advice, route the information to Associate Chief Counsel through the TE/GE Division Counsel attorney.

4.86.5.17.2.12 (12-15-2020)
Obtaining Status Updates of the TAM

  1. The taxpayer or the taxpayer's representative may obtain information on the status of the request for a TAM by contacting the specialist who requested the TAM.

    • See section 10.02 of Rev. Proc. 2020-2 (or its successor) on the time for discussing the tentative conclusion with the taxpayer's representative.

    • See section 10.098 of Rev. Proc. 2020-2 (or its successor) for discussing the TAM contents with the taxpayer or the taxpayer's representative.

  2. Associate Chief Counsel will update the TE/GE Division Counsel attorney monthly with the TAM’s status, who in turn will e-mail the specialist of the status.

  3. When the TAM is complete, Associate Chief Counsel will mail or e-mail the TAM to the GE Director and send a copy of the TAM to the specialist and the Associate Counsel attorney.

4.86.5.17.2.13 (12-15-2020)
Review of the TAM by Associate Chief Counsel

  1. If Associate Chief Counsel determines that the TAM request package is deficient, you, the Technical reviewer, the TE/GE Division Counsel attorney and the Associate Chief Counsel attorney will work together to obtain the necessary information. If the issue can’t be resolved within seven days, Associate Chief Counsel may return the TAM request and a new TAM request may have to be submitted.

  2. Within 21 days after receipt, Associate Chief Counsel will contact you and/or TE/GE Division Counsel to discuss any procedural and substantive issues in the case and to notify you whether any matters have been referred to another Associate Chief Counsel attorney for assistance.

  3. When Associate Chief Counsel is ready to issue the TAM, it will communicate its conclusions and reasoning to TE/GE Division Counsel. TE/GE Division Counsel may informally discuss any disagreements.

  4. If Associate Chief Counsel proposes an adverse TAM to the taxpayer, and taxpayer has not waived its right to a conference, Associate Chief Counsel will inform them of the time and place of the conference.

    1. You and your group manager will be given the opportunity to participate in that conference.

    2. Although the taxpayer is entitled to only one conference of right, Associate Chief Counsel may choose to offer more conferences.

  5. If the taxpayer submits more information after the conference, you must either provide comments on the more information to Associate Chief Counsel or notify them that they have no comments. The specialist should consult with his/her group manager and the Technical reviewer in deciding whether to provide comments and preparing the comments.

  6. Before issuing the final TAM, Associate Chief Counsel will issue a preliminary TAM to you and to TE/GE Division Counsel. The specialist must:

    1. Share the preliminary TAM with his/her group manager and the Technical reviewer and consult with them in identifying any disagreement.

    2. Refrain from discussing the TAM issues with the taxpayer while Associate Chief Counsel processes the TAM request and issues the final TAM.

  7. When the TAM is complete, Associate Chief Counsel will mail or email the TAM to the GE Director and a copy to you and the TE/GE Division Counsel attorney. Send a copy to your group manager, the ITG Program Manager, and the Technical reviewer.

4.86.5.17.2.14 (12-15-2020)
Receipt of the Final TAM

  1. Associate Chief Counsel's reply to a TAM request is in two parts. Each part identifies the taxpayer by name, address, identification number and year or years involved.

  2. The first part of the reply is a transmittal memorandum.

    1. The transmittal memorandum, which is sent with the technical advice memorandum, should never be released to the taxpayer.

    2. Coordinate any request, by any party, for a copy of the transmittal memorandum with your Disclosure Officer.

    3. In unusual cases, the transmittal memorandum gives the ITG office other information that under the nondisclosure statutes or for other reasons may not be discussed with the taxpayer.

  3. The second part is the TAM, which contains:

    1. A statement of the issues.

    2. A statement of the facts pertinent to the issues.

    3. A statement of the pertinent law, tax treaties, regulations, revenue rulings, other precedents published in the Internal Revenue Bulletin and court decisions.

    4. A discussion of the rationale underlying conclusions reached by Associate Chief Counsel.

    5. The conclusions of Associate Chief Counsel.

  4. If a TAM is subject to IRC 6110, a notice under IRC 6110(f)(1) of intention to disclose the TAM (including a copy of the version proposed to be open to public inspection and notations of third party communications under IRC 6110(d)) will be enclosed.

  5. A TAM involving criminal or civil fraud investigations or a jeopardy or termination assessment is not furnished to the taxpayer.

  6. The specialist must process the taxpayer's case on the basis of the conclusions in the TAM.

  7. A TAM applies only to the taxpayer for which technical advice was requested.

  8. A taxpayer may not rely on a TAM issued by the IRS for another taxpayer.

4.86.5.17.2.15 (12-15-2020)
Responsibilities of the Specialist Upon Receipt of the TAM

  1. Upon receipt of the TAM, update AIMS and RCCMS to status 12, Assigned with Taxpayer Contact.

  2. If the ITG Program Manager and group manager concur with Associate Chief Counsel’s recommendations, and don't request reconsideration, send a copy of the TAM by certified mail to the taxpayer and its designated representatives within 30 days after the exam group receives the TAM.

  3. Send the taxpayer:

    1. A cover letter describing the enclosed attachments. The cover letter should emphasize the 20-day response period for more IRC 6110 deletions.

    2. An exact copy of the TAM as received from Associate Chief Counsel.

    3. A copy of the TAM with proposed deletions under IRC 6110.

    4. Notice 438, Notice of Intention to Disclose.

  4. The TAM takes effect when received by the taxpayer.

4.86.5.17.2.16 (12-15-2020)
Notice 438, Notice of Intention to Disclose

  1. Notice 438 must be included with TAM notices subject to IRC 6110. The notice states the IRS intends to disclose the TAM (including a copy of the version proposed to be open to public inspection and notations of third party communications under IRC 6110(d). See IRC 6110(f)(1).

  2. If Notice 438 is required, Associate Chief Counsel will send it to you with the TAM and list the information you must complete, before sending it to the taxpayer.

  3. Notice 438 informs taxpayers of their right to request more deletions from the sanitized TAM.

  4. Per Notice 438, the Office of Chief Counsel for Disclosure is the primary contact for the taxpayer for this matter.

  5. The specialist isn't involved in the IRC 6110 deletion process after mailing Notice 438 except to give the taxpayer directions, as needed.

  6. Before you mail the TAM Package, complete Notice 438 by filling in the taxpayer's name and the required dates. Input the dates:

    1. "Mailing date of this notice" : Enter the certified mailing date.

    2. "Last date to request IRS review" : Enter the 20th day after the notice mailing date. If the 20th day falls on a weekend or holiday, then enter the next business day.

    3. "Last Date to petition Tax Court" : Enter the 60th day after the notice mailing date. If the 60th day falls on a weekend or holiday, then enter the next business day.

    4. "Date open to public inspection" : Enter the Friday preceding the 90th day. Enter the date after the notice mailing date. If that Friday falls on a holiday, then enter the previous business day.

4.86.5.17.2.17 (12-15-2020)
Withdrawal of Requests for Technical Advice

  1. Once the request for a TAM has been sent to Associate Chief Counsel, only the GE Director may withdraw the request, and it may only be done before the responding transmittal memorandum for the TAM is signed.

  2. The GE Director sends a memorandum to Associate Chief Counsel to request the withdrawal.

    Note:

    The taxpayer may not withdraw a request for a TAM, but if you receive a withdrawal request, consider and document it. If warranted, the withdrawal request should be elevated to the GE Director’s office through the ITG Program Manager.

  3. Associate Chief Counsel must receive the withdrawal request before the transmittal memorandum for the TAM is signed.

  4. Notify the taxpayer of the intent to withdraw in writing by issuing a letter stating that fact. (See Exhibit 4.75.36-2 ), unless the:

    1. Period of limitation on assessment is about to expire and the taxpayer has declined to give written consent to extend the period; or

    2. Notification would be prejudicial to the best interests of the Government.

  5. If the taxpayer doesn’t agree with the decision to withdraw the TAM request, they may request review of the GE Director’s decision. See procedures in Rev. Proc. 2020-2, section 5.04 (or current version).

4.86.5.17.2.18 (12-15-2020)
Conclusion of the Case When Technical Advice is Received

  1. After you mail the TAM to the taxpayer, complete the case based on the TAM’s conclusions.

  2. Follow the normal "agreed" or "unagreed" closing procedures, as applicable.

  3. If the issue covered by the TAM is still in disagreement, include the TAM in the RCCMS Workpapers.

  4. Technical advice cases aren't subject to mandatory review unless they meet one of the other criteria for mandatory review.

  5. The holdings in a TAM are applied retroactively, unless the TAM grants section 7805(b) relief.

  6. Notate on Form 3198-A that the case had been in suspense, status code 38, and attach Form 3198-A to the front of the case file before it is closed.

  7. Note in the RCCMS comment box that this case was previously in status 38, and there is a Form 3198-A. This alerts the Closing Function Tax Examiner to change the case to status 55, Cases Previously Held in Suspense.

  8. If the case is closed "agreed" , the GE closing unit will update the case from status 51 to status 55 first and then to status 90, Closed, when it closes.

    Note:

    The closing unit puts the case in status code 55 immediately before placing the case in status 90. This notifies AIMS that the return shouldn't be counted against the official table upon which cycle time is measured.

4.86.5.17.3 (03-28-2019)

Private Letter Rulings (PLR)

  1. A "letter ruling" , also known as a "private letter ruling" (PLR), is a written determination issued to a taxpayer by an associate chief counsel office in response to the taxpayer’s written inquiry, filed before the filing of returns or reports that are required by the tax laws, about its status for tax purposes or the tax effects of its acts or transactions.

  2. PLRs are submitted under Rev. Proc. 2020-1 (or its successor). The IRS updates this revenue procedure annually as the first revenue procedure of the year, and may modify or amplify the revenue procedure during the year. It sets forth the issues on which taxpayers may request PLRs and the circumstances under which the IRS does not issue PLRs. It also gives instructions on what documents and information are to be provided as well as the procedural requirements.

  3. A letter ruling interprets the tax law and applies them to the taxpayer’s specific set of facts. Specialists are cautioned not to cite a PLR in reports since the ruling only applies to the taxpayer requesting the ruling.

  4. Once issued, a letter ruling may be revoked or modified for multiple reasons, as outlined in the first revenue procedure issued each year.

  5. When a taxpayer is not under examination but discusses an issue with a specialist, you may consult with TE/GE Division Counsel in providing information to the taxpayer. The specialist may also suggest to the taxpayer making a PLR request to receive further consideration of the issue from Chief Counsel.

  6. When a taxpayer decides to proceed with a PLR, you may work with the taxpayer to facilitate the submission of the request. The specialist may provide the revenue procedure and may assist in processing the PLR request if approved by your group manager or the ITG Program Manager.

4.86.5.17.4 (12-15-2020)

Specialist Referral System - Online

  1. The identification of issues outside ITG jurisdiction and request for assistance should be made as early in the examination as possible. Make requests for outside specialist assistance, including questions and informal requests, through the Specialist Referral System. Find it on the IRS Intranet at https://srs.web.irs.gov.

  2. Use the SRS for referrals to the following specialist groups:

    • Computer Audit Specialists (IRM 4.47)

    • Economists (IRM 14.25.12.5)

    • Employee Plans Agents (IRM 4.71.6)

    • Employment Tax Specialists (IRM 4.23)

    • Engineers (IRM 4.48)

    • Excise Tax (IRM 4.24)

    • Exempt Organizations Agents (IRM 4.75)

    • Federal, State, and Local Government Specialists (IRM 4.75.7)

    • Financial Products and Transactions Specialists (IRM 4.37.1)

    • International Specialist (IRM 4.60.6)

    • Tax Exempt Bonds Agents (IRM 4.81)

    • Art Appraisal Services (IRM 4.48.2)

4.86.5.17.5 (03-28-2019)

Closing Agreements

  1. Treas. Reg. 301.7121-1(a) provides that a closing agreement may be entered into in any case in which there appears to be an advantage in having the case permanently and conclusively closed, or if good and sufficient reasons are shown by the taxpayer for desiring a closing agreement and the Commissioner determines that the United States will sustain no disadvantage through consummation of an agreement.

  2. IRM 8.13.1, Closing Agreements, gives instructions and prescribes procedures for Service personnel handling closing agreements entered under IRC 7121.

4.86.5.18 (03-28-2019)

Arriving at Conclusions

  1. After all the facts have been gathered through taxpayer interviews; examination of the books, records and supporting documents; interviews with third parties (if needed); and, having researched questionable items, you have all the information to be considered in resolving the issues. At this point use your professional judgement in considering all the information to arrive at a conclusion.

  2. Specialists are expected to arrive at a definite conclusion by a balanced and impartial evaluation of all the evidence. Specialists are given the authority to recommend the proper disposition of all identified issues, as well as any issues raised by the taxpayer.

  3. Once you reach a conclusion for an issue, communicate your decision to the taxpayer and/or representative. You may provide copies of your workpapers to the taxpayer and/or their representative. Attempt to resolve issues as the examination progresses.

  4. Use independent and objective judgment in reaching conclusions on issues being examined and in all aspects of your duties and decide all matters on their merits, free from bias and conflicts of interest. Fairness will be demonstrated by:

    1. Making decisions impartially and objectively based on consistent application of procedural and the applicable tax law,

    2. Treating individuals equitably,

    3. Being open-minded and willing to seek out and consider all relevant information, including opposing perspectives,

    4. Voluntarily correcting mistakes and improprieties made by yourself or someone else in the Service

    5. Refusing to take unfair advantage of mistakes or ignorance of citizens, and

    6. Employing open, equitable, and impartial processes for gathering and evaluating information necessary to make decisions.

  5. Use your professional judgment in evaluating all evidence to reach a conclusion. You seldom have all the information you would like to have to definitively resolve an issue. You, therefore, must decide when you have enough, or substantially enough, information to make a proper determination for all issues under consideration. The sooner this point is reached, the timelier you can complete the case and less burden will be placed on the taxpayer.

  6. To determine if the taxpayer has "substantially complied," consider the following factors:

    1. Number and type of expenditures involved

    2. Elements of documentation missing

    3. Reason(s) why deduction was not properly substantiated

    4. Availability of other information to substantiate the expenditure

    5. Materiality of unsubstantiated items

    6. Relative tax significance of the items.

4.86.5.19 (12-15-2020)

Communicating Identified Issues

  1. A critical part of the examination process is continually communicating with the taxpayer or the taxpayer’s representative. When you identify a potential issue(s), discuss it with the taxpayer and/or the taxpayer's representative as soon as possible. Discussing the potential issue(s) can lead to an early resolution of the case.

  2. If expansion of the examination issues is required, you must talk to your manager before adding the issue and document in the Form 9984.

  3. Keep the tribal leader and responsible tribal official(s) informed of your major steps and decisions during the assignment, and be prepared to answer any questions or concerns.

  4. If at any time the taxpayer requests technical advice on an identified issue, follow Rev. Proc. 2020-2, (or its successor). The IRS updates this revenue procedure annually as the second revenue procedure of the year, and may modify or amplify the revenue procedure during the year. See IRM 4.86.5.17, Special Case Development Procedures, for more procedures.

4.86.5.20 (12-15-2020)

Reporting Compliance Case Management System (RCCMS)

  1. RCCMS is an inventory control and case management system. RCCMS supports the current examination process by replacing manual with electronic processes. The system stores documentation and research supporting the conclusions in the case and automatically backs up all stored data files when synchronized with the central database server. The system is used to create, control and assign compliance activities.

  2. Cases in RCCMS will have an electronic copy of the return and/or related research material regarding the case.

  3. Users prepare, develop and store workpapers within the system. Users may make use of the Microsoft Office software and Adobe pdf files, along with the forms, letters and templates in the RCCMS repository.

  4. Users maintain in-process and completed workpapers in RCCMS and synchronize with the central database regularly. The synchronization works as an automatic backup of stored data files in the central database server.

  5. An RCCMS electronic case file should closely resemble a paper case file’s content. This includes all workpapers and pertinent source documents you use to determine whether there are any issues or changes that you’ll discuss or resolve before you close the case.

  6. Close all cases, with rare exception, 100% electronically. You must:

    • Close all cases fully electronically to increase efficiency and reduce the need to mail paper case files.

    • Consult with your manager on cases with unique circumstances that might justify closing with a paper case file. Note that cases to appeals are to be closed electronically.

4.86.5.21 (09-15-2015)

Workpapers

  1. This subsection gives guidelines to develop lead sheet and workpaper content and to organize your workpapers and case file. Refer to IRM 4.23.4.2, Workpapers - Employment Tax Examinations, and IRM 4.10.9, Workpaper System and Case File Assembly, for details on preparing, formatting and the volume of workpapers.

    Note:

    Apply all guidance listed and referred to in this subsection to examination workpapers. However, you should apply these same general theories and principles equally to all case files you generate.

  2. Lead sheets and workpapers are key in supporting all IRS positions taken when making adjustments. They must include all the information necessary to support the examination results. Lead sheets and workpapers serve the following purposes:

    1. Provide a framework to plan the examination, including analyzing internal documents and setting the examination scope.

    2. Document the evidence gathered, examination steps and techniques applied, tests performed, analyses conducted during the examination process.

    3. Provide support for factual and technical conclusions.

    4. Provide a basis for review by: management, technical review, specialists (for subsequent examinations), and/or preparation of technical advice requests.

    5. Support the IRS position for any appealed or litigated case.

4.86.5.21.1 (09-15-2015)

Workpaper Preparation

  1. Use the Employment Tax (ET) lead sheets and the ET Examination report program available in RCCMS.

  2. Prepare workpapers for every work assignment.

  3. Properly prepared workpapers must provide adequate documentation to support conclusions. Without sufficient documentation, your manager or reviewer can’t evaluate your work scope or the basis of the actions you took. Always cite legal authority, such as the Internal Revenue Code, applicable regulations and/or court cases to support conclusions.

  4. Make sure workpapers are:

    1. Neat, legible, and clearly state the issue, facts, examination steps, law, taxpayer’s position, and conclusion for each issue examinationed.

    2. Legible - an important aspect of the overall quality of the work assignment and improves a reviewer/taxpayer’s understanding.

    3. Include a heading that clearly shows the name of the taxpayer, tax year examinationed (or discussed in the case of a non-examination case), date workpapers were prepared, your name or initials, and the issues/items being examinationed or discussed.

    4. Completed electronically, and loaded into RCCMS, if needed.

    5. Prepared contemporaneously.

    6. Indexed, numbered, and uploaded into RCCMS and synchronized. Case synchronization ensures that all uploaded work is saved to the RCCMS server in cases of computer failure.

  5. Save copies of all workpapers, forms and letters you generate in the RCCMS Office Documents folder using the RCCMS Naming Convention. Every document in the file should have some relevance. If not, omit it.

4.86.5.21.1.1 (03-28-2019)
Workpaper System

  1. The workpaper system is designed to facilitate consistent organization of case files and eliminate duplication. The workpaper system includes:

    1. Form 4318, Examination Workpapers Index,

    2. Form 9984, Examining Officer’s Activity Record, and

    3. Lead Sheets and Supporting workpapers.

4.86.5.21.1.2 (12-15-2020)
Form 4318, Examination Workpapers Index

  1. Form 4318, Examination Workpapers Index, is the cover sheet that indexes the administrative and issue lead sheets and supporting documents (e.g. information document requests, correspondence, case building materials). It pertains to one taxpayer and includes all tax years under examination. The conclusions on this document should correspond to the conclusions on the lead sheets, workpapers and reports.

4.86.5.21.1.3 (03-28-2019)
Form 9984, Examining Officer’s Activity Record

  1. Use Form 9984, Examining Officer’s Activity Record, (case activity record) to document each action you take on the work assignment. Documentation includes the date, location, time charged, and an explanation of each activity or contact. The activity record should be prepared contemporaneously and provide a complete and concise case history. Write all entries factually and professionally and omit personal opinions. Other employees responsible for activity on the case must also document their actions using the same criteria listed above (for example, group manager, Technical staff, clerical staff).

    Note:

    Don’t write brief, vague entries on Form 9984 such as "worked on case."

  2. Record information on Form 9984 such as, but not limited to:

    • All substantive actions taken on the issues. Meaningful action should occur at least every 45 days.

    • Reason for all delays and time gaps.

    • Significant case work before taxpayer contact.

    • Examination start date. This should be the same date as your RCCMS/AIMS Status 12 date.

    • Date you mailed the appointment letter.

    • Date you gave the taxpayer Pub 1, Your Rights as a Taxpayer; Notice 609, Privacy Act Notice; Pub 3948, The Exam Process; or Pub 5146, Employment Tax Returns, Examination & Appeal Rights. This should be upon initial contact. Also document any discussions with the taxpayer regarding their rights.

    • RRA 98 notifications.

    • Work performed before, during, and after taxpayer contact.

    • All research activities conducted.

    • Significant travel time to and from the work assignment location.

    • Brief summaries of telephone conversations.

    • All contacts with taxpayers, representatives, and third parties.

    • Causes for any delays by the IRS (training, details, etc.), the taxpayer and/or representative, and whether delays were communicated to any of the affected parties.

    • All actions with respect to the statute of limitations (e.g., verification, steps to protect the statute of limitations, Form 895 (RCCMS) completion date(s), and consents to extend).

    • Follow-up dates for IDRs or other key dates.

    • Dates and explanation of manager involvement.

    • Dates and explanation of Counsel involvement, including the name of the attorney, and the attorney’s telephone number.

    • Date you issued the report and the date you received the signed report. Note that the Pub 3498, The Examination Process, or Pub 5146, Employment Tax Returns Examination & Appeal Rights, was issued (if required) to close the case.

    • Date you notified the taxpayer of your recommendation to close the case.

    • Date you closed the examination to your manager.

  3. Group manager documentation: note your involvement such as, but not limited to:

    • Formal and informal discussions

    • In-process case reviews

    • On-the-job visitations and workload reviews

    • Plan to close meetings

    • Fraud awareness meetings

    • Approval regarding penalty assessments, abatements, etc.

    • Date you closed case

4.86.5.21.1.4 (09-15-2015)
Lead Sheets and Supporting Workpapers

  1. Use lead sheets to plan and prompt activities to comply with administrative, procedural, and technical requirements. Lead sheets also serve as a workpaper index for specific issues. Number, index and refer all workpapers to the issue lead sheet.

  2. Administrative lead sheets list the administrative items that require your comment (taxpayer rights, RRA 98 notifications, statute controls, initial interview, required filing checks, payment solicitation, etc.). You can also use them as guides to properly complete the examination.

  3. Issue lead sheets identify the issue and steps or actions taken to develop the facts, determine the applicable law, conclusions made, and the taxpayer’s position for issues examined.

  4. If an administrative or issue lead sheet contains check boxes, use them to note an applicable action was taken. Include supporting documentation to explain the action taken. Generally, check boxes by themselves are not adequate supporting documentation.

  5. In addition to the Issue Lead Sheets, include other relevant supporting workpapers and documents in the case file.

    1. File workpapers or documents behind the Issue Lead Sheet,

    2. Include workpapers and documents that support the procedures and testing described on the Issue Lead Sheets, or otherwise referenced.

    3. Index the workpapers to the corresponding Form 4318 section and cross reference them to the Issue Lead Sheets or other workpapers.

  6. Examples of workpapers include your generated workpapers and documents from the taxpayer:

    • Photocopies of relevant documents secured from the taxpayer during the examination.

      Note:

      Original documents obtained from the taxpayer or third parties should not be marked, indexed, hole punched, or in any way altered by the specialist.

    • A workpaper documenting samples taken, verifications made and conclusions reached.

    • Relevant correspondence from the taxpayer and/or representative.

    • Lists of questions or items raised during the examination and conclusions reached.

    • Tax law research supporting legal authority for conclusions reached.

4.86.5.21.1.5 (12-15-2020)
Workpapers: Disclosure

  1. Safeguard confidential information related to the case file from unauthorized disclosure. If a specialist determines that information contained in the file is sensitive, it should be placed in a confidential envelope inside the case file. If a Freedom of Information Act (FOIA) request is received on a case that contains sensitive information, a Disclosure Officer will determine if any information should be redacted. See IRM 11.3.13.7 for more information.

  2. When a case file contains sensitive or confidential information, it will normally be in a paper format. If the documents are received electronically, they should not be placed into RCCMS or kept in the same folders in your hard drive. Examples of these types of documents are Whistleblower Claims and Fraud Referrals. These documents should be protected from disclosure. Place Document TD-F-15.11 on the outside of the case jacket. This will alert users that the file contains sensitive information requiring protection.

4.86.5.21.2 (03-28-2019)

Multiple Returns

  1. Each RCCMS case should have only one type of activity.

    Example:

    If you have various quarters of Form 941 and a Form 945 under examination for the same taxpayer, all quarters of Forms 941 (subject to the 12 activities maximum limitation) can be in one case, while the Form 945 should be in a separate case.

  2. Information Return Examination (IRE) activities that morph into tax return examinations remain as separate cases in RCCMS; they must not be included in a RCCMS case with any other activities. Workpapers become part of the tax return examination. IRE cases must have their own Form 4318 and Closing Letter.

  3. Information Return Penalty (IRP) activities must be in separate case files from all other activities within RCCMS. IRP cases must have their own Form 4318 and Closing Letter.

  4. Multiple tax periods may be included in one RCCMS case file, to a maximum of 12. If a case contains more than 12 activities, the excess must be separated into additional RCCMS case files. Note in the "Remarks and Comments" field of the Closing Record General tab which other RCCMS partial cases are included in the overall case file.

    Example:

    If a user is working a Form 941 and expands to 4 years, there will be 16 activities. Consequently, there will be two case files in RCCMS; one with no more than 12 activities, and another with the remaining activities (the second will contain 4 if the first contains 12).

  5. All forms and documents loaded to RCCMS must follow the ITG RCCMS Naming Convention.

4.86.5.21.3 (12-15-2020)

ITG RCCMS Naming Convention

  1. Follow the procedures for naming electronic documents within, or imported into, RCCMS. By doing so, anyone viewing the RCCMS case can easily identify and locate case file documents.

  2. The naming convention ensures that documents in RCCMS case files are arranged within RCCMS in the order they’d be arranged in a paper file. Therefore, following the naming convention ensures that documents are sorted properly within RCCMS.

4.86.5.22 (12-15-2020)

Concluding the Examination

  1. Meet with the tribal official(s) to inform them of any findings, recommendations or proposed tax adjustments when you finish your examination.

    1. Provide your employee information again when you issue the report. Refer to IRM 4.10.1.6.9, Providing Taxpayers with Employee Contact Information.

    2. Issue the examination report and attach Pub 3498, The Examination Process, or Pub 5146, Employment Tax Returns Examination & Appeal Rights.

    3. Discuss proposed adjustments with the taxpayer and/or taxpayer’s representative including the law, regulations, rulings and court decisions supporting your conclusions.

    4. Solicit agreement

    5. Provide workpapers, if requested.

    6. On agreed cases, request full payment of tax, penalties and interest.

      • If taxpayer indicates an inability to pay the tax due at closing or within 120 days of the first notice, alternative payment methods should be discussed. An installment agreement should be offered if the taxpayer meets the requirements. See IRM 4.86.5.44, Installment Agreements.

      • If the taxpayer and/or representative do not wish to pay the deficiency immediately, explain that a statement for the deficiency plus interest will be mailed. Their cancelled check will be their receipt. Encourage them to pay using EFTPS. If they must send a check instruct them to put the entity name, EIN, tax form number and tax period on the face of the check itself. Secure waivers as needed and close the case.

    7. On unagreed cases:

      1. Offer the taxpayer a managerial conference.

      2. Determine if the case is wholly or partially agreed.

      3. Solicit the taxpayer’s position on unagreed issues.

      4. Tell the taxpayer about Fast Track Settlement (FTS), if eligible.

      5. Tell the taxpayer of the appellate process and their appeal rights.

  2. If the tribal leader isn’t in the closing meeting, explain your examination results in a letter. Thank the tribal official(s) for their cooperation.

  3. Issue all letters, publications and reports per the communication agreement. Send any examination correspondence you send to the designated tribal official also to the tribal leader.

    Example:

    Send all correspondence to both the designated tribal official and the tribal leader for: an examination, examination expansion, or notification to the tribal leader that someone else from the IRS will be working on their reservation.

4.86.5.23 (03-28-2019)

Appeals Alternative Dispute Resolution Programs

  1. When taxpayers disagree with proposed adjustments, it is beneficial to all parties to resolve disputes at the lowest level possible. IRC 7123 provides for alternative dispute resolution techniques by Appeals. This code section was added by section 3465 of the IRS Reform and Restructuring Act of 1998. Two processes that may expedite dispute resolution are:

    • Early referral to Appeals

    • Fast Track Settlement

4.86.5.23.1 (03-28-2019)

Early Referral to Appeals

  1. Taxpayers may request, under Rev. Proc. 99-28, 1999-2 C.B. 109, Early Referral of Issues to Appeals, an early referral of one or more unresolved examination or collection issues to the Appeals office. Proper issues for early referral are limited to those that:

    1. Are fully developed.

    2. If resolved, can reasonably be expected to result in a quicker resolution of the entire case.

    3. Both the taxpayer and the ITG Program Manager agree.

    4. Are part of a case where the remaining issues are not expected to be completed before Appeals could resolve the early referral issue.

4.86.5.23.2 (03-28-2019)

Fast Track Settlement Program (FTS)

  1. TE/GE and Appeals jointly administer FTS, an alternative dispute resolution program designed to assist taxpayers settle disputes at the examination group level. An appeals officer trained in mediation serves as an impartial third party to resolve unagreed TE/GE issues by:

    1. Facilitating settlement negotiations.

    2. Using mediation techniques and sometimes settlement authority.

  2. The goal of TE/GE FTS is to resolve the issue within 60 days. The benefits of TE/GE FTS include less time, expense, and burden on both the taxpayer and the government.

  3. You or the taxpayer may consider the Fast Track Settlement (FTS) process after you fully develop a disputed issue, but before you issue a 30-day letter.

  4. Announcement 2008-105 originally announced FTS for TE/GE cases. Announcement 2012–34 makes the program permanent. This Announcement contains procedures as well as the types of issues that are eligible for FTS.

  5. Follow the procedures in IRM 8.26.7, Fast Track Settlement (FTS) for Tax-Exempt/Government Entities (TE/GE) Taxpayers, when considering the use of FTS. The group manager should contact the ITG Program Manager to discuss the case/issues. When the group manager considers it appropriate, and if requested, such discussions may include the taxpayer. With the concurrence of the Appeals FTS Team manager and the ITG Program Manager, an issue may be accepted when adequately developed to facilitate resolution.

  6. Find more information regarding this program in Pub 5092, Fast Track Settlement A Process Resolution of Tax Exempt and Government Entities (TE/GE) Tax Issues, and at http://appeals.web.irs.gov/tech_services/adr/fasttrack.htm.

4.86.5.24 (03-28-2019)

Claims for Refund or Abatement, Adjusted Returns and Audit Reconsiderations

  1. Claims are a source of work and considered priority work. Generally, CP&C receives claims with issues from tribal entities that can’t be dealt with at the campus level. CP&C classifies and assigns them within 30 days of receipt. Claims can also be received on a case already under exam, and it should be considered during such exam.

  2. It is important to know the difference between a claim for refund and a request for abatement due to the examination procedures involved. The key is determining whether the assessed tax is paid.

    1. Requests for abatement occur when the taxpayer requests an abatement of tax, penalties and interest which have been assessed, but not paid. Requests for abatement, audit reconsiderations, and amended returns increasing tax are not considered claims.

    2. A claim is a request by the taxpayer for a refund of assessed tax that has been paid (tax, penalties and interest).

  3. An amended return is any subsequent return which changes information submitted on the original filed return. The taxpayer will send the amended return to the Campus Center where the original return was filed. A Transaction Code (TC) 976/977 will generally be posted to the taxpayers account to indicate an amended/duplicate return has been filed. These TCs will generate an –A freeze code. The specialist needs to determine whether the TC 976/977 indicates the filing of a claim.

  4. Request for Adjustment, Refund or Abatement – An adjusted return, claim for refund or abatement, tentative allowance or other request submitted by or for a taxpayer to reduce liabilities previously assessed. Such requests for adjustments, refunds or abatements include:

    • Form 843, Claim for Refund and Request for Abatement

    • Form 8849, Claim for Refund of Excise Taxes

    • Form 941-X, Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund

    • Form 945-X, Adjusted ANNUAL Return of Withheld Federal Income Tax or Claim for Refund

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

    • Form 1120X, Amended U.S. Corporate Income Tax Return

    • Form 1139, Corporation Application for Tentative Refund

    • Informal claims filed after the due date and showing a decrease in liability.

    • A letter or other document (informal claim) which contains all the facts necessary to decide that a reduction in tax liability is involved.

  5. An amended return that shows an increase in tax over the originally reported tax isn’t a claim. Protect the statute of limitations, and assess the additional tax as soon as possible.

  6. A claim for abatement of an excise tax or employment tax that was assessed as the result of a prior examination is considered an Audit Reconsideration.

  7. The specialist must determine what type of request the taxpayer has made to properly examine, close and process the case. The following are the types of requests:

    • Claims for refund (Form 941-X, Box 2 checked or appropriate box on amended return)

    • Claims for abatement (Form 941-X, Box 2 checked or appropriate box on amended return)

    • Adjusted returns (Form 941-X, Box 1 checked or appropriate box on amended return)

    • Audit reconsideration requests

  8. The new "X" forms allow taxpayers to file either an "adjusted" (Box 1 for Form 941-X) or "claim" (Box 2 for Form 941-X) employment tax return. While the taxpayer’s selection between the two boxes does not affect how you work the case, it does affect the final processing of the case. Returns with the "adjusted" box marked cannot result in a refund issued to the taxpayer. Any credit balance resulting from the exam or processing of the return MUST be moved to the quarter in which the "X" adjusted return was filed. Any credit balance transfer will be completed using a Form 3870 after the examination. See IRM Exhibit 4.23.13-2, Instructions for Completion of Form 3870 by the Examiner.

  9. Formal claims have a Source Code of 30, and informal claims have a Source Code of 73, if established on AIMS.

  10. Research IRM 4.23.13, Employment Tax, Adjusted Returns, Abatements and Claims, when working claims that involve any employment tax.

  11. See IRM 4.24.8, Excise Tax, Examination Guidance for Excise Claims for Refund or Abatement, for excise tax claims.

  12. All claim cases need a completed Form 5599, TE/GE Examined Closing Record. Prepare the Form 5599 and include it in RCCMS Office Documents folder in addition to completing the RCCMS closing tabs. See IRM 4.5.2.3, Processing TE/GE Examined Closing Record, Form 5599, for instructions on completing Form 5599.

4.86.5.24.1 (03-28-2019)

Statute of Limitations (IRC 6511)

  1. A taxpayer must file a claim for credit or refund by the later of:

    • Three years from the filing of the original tax return.

    • Two years from the payment of tax.

      Note:

      See IRM 25.6.1.6.15, When a Document is Treated as Filed Under the IRC, for the rules for determining when a return is filed.

4.86.5.25 (03-28-2019)

Surveyed Claims

  1. You may survey claims for refund, including amended returns and informal claims, after assignment, if you determine that the claim issue is clearly allowable in full and the return doesn’t warrant examination. See IRM 4.86.5.32 for details on surveying cases before and after assignment.

  2. Claims may also be allowed without establishing them on AIMS when you receive an amended return from the taxpayer.

  3. The closing tabs in RCCMS must be completed as well.

  4. If you decide to survey an exam case, you must obtain approval from your group manager and the ITG Program Manager must be notified. Specialists must document the activity record that approval for the survey was obtained from the group manager and notification was given to the ITG Program Manager. The group manager must document their review and approval of the survey on the case activity record.

    1. All surveyed cases must contain a clear explanation of the circumstances and rationale for closing the case as a survey. Although a lengthy explanation is not required, the activity record must document the clear rationale for the survey; a reviewer must be able to validate the decision-making process.

    2. Specialists will continue to generate a closing record in RCCMS and complete the fields identified as mandatory for a surveyed closure. On the closing record, select the appropriate survey reason code from the drop-down list provided in completion of the field entitled "Survey Reason Code" and provide a narrative explanation supporting the decision to survey the case in RCCMS in the "Remarks and Comments" field located on the Closing Record "General" tab.

    3. If the General Welfare Exception Moratorium is one of the reasons for the survey, the document must also include a statement that the ITG Program Manager has approved the survey due to the GWE Moratorium.

4.86.5.26 (03-28-2019)

Claim Disallowance

  1. Disallowed claims (in whole or in part): send, a notification letter to the taxpayer. Prepare the following forms to notify the taxpayer of a full or partial disallowance of the claim:

    1. Form 2297, Waiver of Statutory Notification of Claim Disallowance

    2. Form 3363, Acceptance of Proposed Disallowance of Claim for Refund or Credit

    3. Letter 569, Full/Partial Preliminary Claim Disallowance Letter
      Use with the above forms to notify the taxpayer of the partial or full disallowance of the claim. Prepare the appropriate reports, unless the claim is disallowed in full, and there are no other adjustments.

      Note:

      Use Letter 5376, Full or Partial Claim Disallowance - Employment Tax, when disallowing employment tax claims in full or in part.

  2. Prepare other report forms for claims involving employment taxes. Refer to IRM 4.23.10.10.2, Employment Tax Claim Report, and IRM 4.23.13, Employment Tax, Adjusted Returns, Abatements and Claims.

  3. If the taxpayer doesn’t sign Form 2297, Waiver of Statutory Notification of Claim Disallowance, a certified notice of claim disallowance must be issued. Prepare the appropriate letter to notify the taxpayer of the full or partial disallowance of their claim:

    1. Letter 905, Final Partial Claim Disallowance

    2. Letter 906, Final Full Claim Disallowance

      Note:

      Include the reason for the disallowance in the letter.

  4. Complete Form 5599, TE/GE Examined Closing Record, and include it in RCCMS Office Documents folder in addition to completing the RCCMS closing tabs.

4.86.5.27 (12-15-2020)

Delinquent and Substitute for Returns (SFR)

  1. Deal with non-filers using either Delinquent Return or Substitute for Return (SFR) procedures. Specialists should generally use SFR procedures when conducting examinations and making assessments of non-filed tax returns, but may use Delinquent Return procedures when appropriate. However, once SFR procedures have been started, they can’t be changed. The return controlled with an SFR must be processed to final closure.

  2. When you discover that an employer hasn’t filed required federal tax returns:

    1. Determine the taxable periods for which the employer was required to file returns.

    2. Find out the reasons the employer didn’t file the required returns.

    3. Determine whether any indications of fraud exist.

    4. Secure the non-filed return if the employer is under exam.

  3. Before processing a delinquent return, review an account transcript. Procedures for processing a delinquent return depend upon whether or not a TC 150 has posted.

  4. Use these IRMs to process delinquent returns:

    • IRM 4.5.3.19, Processing Delinquent and Substitute Returns

    • IRM 4.23.12, Delinquent Return Procedures

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

    • IRM 4.4.9, Delinquent and Substitute for Returns Processing

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

  5. Use these IRMs to process SFRs:

    • IRM 4.4.9.6, Substitute for Return

    • IRM 4.5.3.19.6, Substitute for Return Processing

    • IRM 4.23.12.4, Controlling and Processing Delinquent or SFR Procedures

    • IRM 4.23.12.4.3, IRC 6020(b) Procedures for SFR Employment Tax Cases

    • IRM 20.1.2.3.10, Substitute for Return- IRC 6651(g)

    • IRC 3402(d); IRC 6020(b); IRC 6651(a)(1); IRC 6651(a)(2); IRC 6651(g)

  6. Delinquent returns and substitutes for returns require special procedures. See IRM 4.12.1, Nonfiled Returns, and IRM 4.4.9, Delinquent and Substitute for Return Processing.

  7. SFR cases may now be closed electronically in RCCMS. Upload all assembled SFR Packages (per IRM 4.5.3.15.6 and 4.23.12.3) to the RCCMS case file.

4.86.5.28 (03-28-2019)

ITG Classification Settlement Program (CSP)

  1. The Classification Settlement Program (CSP) establishes procedures that will enable Indian tribal governments and specialists to resolve worker classification cases as early in the administrative process as possible, thereby reducing taxpayer burden. The procedures also ensure that the taxpayer relief provisions under section 530 of the Revenue Act of 1978 are properly applied. Under the CSP, specialists can offer an Indian tribal government entity under examination a worker classification settlement using a standard closing agreement.

  2. CSP agreements are closing agreements that bind the Service and the taxpayer to prospective tax treatment for future tax periods. Therefore, all CSP agreements must be reviewed and approved.

  3. Except as otherwise provided in situations listed in IRM 4.23.6.6, Eligible CSP Employment Tax Cases, and IRM 4.23.6.7, Cases Included in the CSP, if you must present a CSP offer to a taxpayer. The taxpayer has the option of either accepting or rejecting the offer.

4.86.5.28.1 (03-28-2019)

CSP Offer Case Closing Procedures

  1. Generally, regular examination case closing procedures apply with a few more requirements. Those other requirements are outlined in IRM 4.23.6.14, Procedures for CSP. In part, the other instructions provide for preparation of a CSP Settlement Memorandum; preparation of Form 906, Closing Agreement; use of standard CSP language; and changes to the examination report.

  2. Per IRM Exhibit 4.23.2-1, Employee Plans (EP) Referral Checksheet, when workers are re-classified during an exam, including the classification from independent contractor to employee, unreported compensation and taxable fringe benefits you must make a referral to Employee Plans (EP). See IRM 4.23.2.2.3.1, Referrals to Employee Plans and Exempt Organizations, for instructions about how to make the referral.

4.86.5.29 (03-28-2019)

Form 1040 Individual Income Tax Returns

  1. On occasion, specialists may examine Form 1040 taxpayer cases because of information received from a related examination of an Indian tribal entity. Procedures for examining Form 1040 cases can be found in IRM Part 4, Examining Process.

  2. An individual return may also contain the following: A Schedule C, a sole proprietorship or Schedule F, farm and a Form K-1. The financial activities of the business entity and the individuals are usually examinationed simultaneously as one taxpayer.

  3. There are nine minimum income probes to be considered during an income tax examination of an individual or an individual business return. See IRM 4.10.4.3.3. The probes are designed as a set of analytical tests intended to determine whether the taxpayer accurately reported income.

    • Financial Status Analysis

    • Interview

    • Tour of Business

    • Internal Control

    • Reconciliation of Income

    • Gross Receipts Test

    • Bank Analysis

    • Business Ratios

    • E-Commerce and/or Internet Use

  4. Follow established case examination procedures in IRM 4.10 and use RGS to generate reports on any adjustment made during an examination. In ITG, we use a stand-alone version of RGS. Once the RGS file is complete, you must put the RGS file into a Word document for inclusion into RCCMS.

4.86.5.29.1 (03-28-2019)

Innocent Spouse Relief from Joint and Several Liability

  1. IRM 25.15, Relief from Joint and Several Liability, contains detailed guidance for examining and processing innocent spouse cases.

  2. If the taxpayer inquires about IRC 6015 relief (innocent spouse relief), include documentation on Form 9984 that IRC 6015 relief was discussed. Note the taxpayer’s response, if any, regarding pursuit of this relief.

  3. If the taxpayer requests IRC 6015 innocent spouse relief, the issue is worked by the specialist while the case is opened.

  4. On jointly filed returns, taxpayers may request relief from joint and several liability under IRC 6015. Taxpayer may use Form 8857, Request for Innocent Spouse Relief, or a similar statement containing the same information signed under penalties of perjury.

  5. If the taxpayer submits Form 8857, Request for Innocent Spouse Relief, (or a statement that contains substantially the same information signed under penalty of perjury), and the case is closed, date stamp the receipt date on the request and send the IRC 6015 relief request within 10 business days to:

    Internal Revenue Service
    Cincinnati Submission Processing Center (CSPC)
    Stop 840 F
    201 West Rivercenter Blvd.
    Covington, KY 41012

  6. Don’t solicit tax payments from the requesting spouse while a request for spousal relief is pending. You may however solicit tax payments from the non-requesting spouse. Refer the taxpayer to Pub 971, Innocent Spouse Relief.

  7. Check the "Innocent Spouse" block in the Mandatory Review section of Form 3198-A.

4.86.5.29.2 (03-28-2019)

IRC 6404(g) - Suspension of Interest

  1. IRC 6404(g) provides for the suspension of interest when the Service fails to provide timely and adequate notice of a tax liability. Examination report Form 4549 is sufficient notice if it contains an explanation of each item of adjustment. See IRM 4.10.8.15.13, which covers the requirements and delivery of the notice to the taxpayer.

  2. Every notice IRS sends to an individual that includes an amount of interest due must also include both, a:

    • Detailed computation of the interest charged.

    • Code section citation under which the interest is imposed.

4.86.5.30 (03-28-2019)

Penalty Overview

  1. Abating or not asserting civil penalties based on reasonable cause or other relief provisions must:

    1. Be made in a consistent manner.

    2. Conform with the IRC, Treasury Regulations, Policy Statements, and IRM 20.1, Penalty Handbook.

  2. In accordance with Policy Statement 20-1, penalties are used to enhance voluntary compliance. The IRS administers a penalty system that is designed to:

    1. Ensure consistency,

    2. Ensure accuracy of results considering the facts and the law,

    3. Provide methods for the taxpayers to have their concerns heard and considered,

    4. Require impartiality and a commitment to achieving the correct decision,

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

    6. Ensure that penalties are used for their proper purpose and not as bargaining points in developing or processing cases.
      See IRM 1.2.1.12, Policy Statements for Penalties and Interest Activities.

  3. If the taxpayers provide a valid reasonable cause argument, document their position and do not proceed with assessment of the penalty.

  4. If upon review of the taxpayer's argument you determine that reasonable cause does not exist, then recommend assessment of the applicable penalties and seek managerial approval.

  5. The identification of appropriate penalties, the determination whether to assert penalties and the accurate calculation of penalties is primarily your responsibility. IRM 20.1.1, Penalty Handbook, contains a list of common civil tax penalties. This list includes the applicable IRC sections, penalty amounts and description, penalty reference numbers, and computation methods.

    • Return-related penalties for delinquency, negligence, or fraud can apply to examinations resulting in additional tax on Form 945 (for example, back-up withholding, withholding on per capita payments, or withholding on gambling winnings); Form 940/941 (for example, supplemental wages); or Form 1042 (withholding on certain payments to non-resident aliens), as well as on miscellaneous other types of tax returns that may be worked by specialists (e.g., income and excise tax returns).

    • These penalties appear on the examination report Forms 2504, 4666, 4667, 4668 and 4549 (for Form 1042 and income tax returns) and are subject to deficiency and reasonable cause provisions.

    • Return-related penalties are not applicable to Information Return Examinations (Forms 1042-S, 1099, W-2, W-2G, etc.) and are not considered in the applications of Failure to File and Failure to Furnish Information Return penalties (IRC 6721, IRC 6722, IRC 6723).

  6. The penalties covered in this section should not be considered all-inclusive and research should be done on a case-by-case basis to ensure correct penalty assessment. Refer to the various subsections of IRM 20.1, Penalty Handbook, for a list of common civil tax penalties and detailed criteria, guidelines and procedures for both assessing and abating penalties.

    Exception:

    Refer to IRM 9.1.3, Criminal Statutory Provisions and Common Law, for criminal penalty provisions.

  7. See IRM 4.23.9, Employment Tax Penalty and Fraud Procedures, for discussion on the penalties most frequently asserted in employment tax examinations.

4.86.5.30.1 (03-28-2019)

Assessment of Penalties

  1. Consider the applicability and non-applicability of penalties in every case whenever an examination adjustment results in a deficiency.

    Note:

    The identification of appropriate penalties, the determinations whether to assert penalties and the accurate calculation of penalties is primarily the specialist’s responsibility.

  2. Reasonable cause must be considered when issues arise during the examination concerning the assertion of penalties. Reasonable cause is discussed in IRM 20.1.1.3.2, Reasonable Cause.

  3. The specialist:

    1. Must document their position and should not proceed with asserting the penalty if the taxpayer gives a valid reasonable cause argument.

    2. Should assert all applicable penalties if he or she determines reasonable cause does not exist.

    3. Should focus on educating the taxpayer about the errors to foster future compliance.

4.86.5.30.2 (03-28-2019)

Reasonable Cause

  1. Reasonable cause is based on all the facts and circumstances in each situation and allows the IRS to provide relief from a penalty that would otherwise be assessed. Reasonable cause relief is generally granted when the taxpayer exercised ordinary business care and prudence in determining their tax obligations, but failed to comply with those obligations.

    Note:

    See IRM 20.1.1.3.2, Reasonable Cause, and Policy Statement 3-2, formerly P-2-7, Reasonable cause for late filing of return or failure to deposit or pay tax when due. See IRM 1.2.1.4.2, Policy Statements for Submission Processing Activities.

  2. If you find that the failure to act was due to reasonable cause, a written statement setting forth the reason should be obtained from the taxpayer. Document the decision and the basis for providing relief according to functional guidelines. Attach a copy of the information to the original return (if available) or other transaction (input) document. See IRM 20.1.1.3.5.2, Taxpayer Entitled to Relief, for more information.

  3. For a further discussion of reasonable cause and the review of information to determine if ordinary business care and prudence were exercised, see IRM 20.1.1.3, Criteria for Relief from Penalties.

  4. Specialists must consider granting the first time abate (FTA) waiver or abatement before dealing with reasonable cause in cases involving:

    • Failure to File (IRC 6651(a)(1), IRC 6698(a)(1), and IRC 6699(a)(1),

    • Failure to Pay (IRC 6651(a)(2) and IRC 6651(a)(3), and/or

    • Failure to Deposit IRC 6656 penalties.

      Note:

      The FTA waiver does not apply to Information Return Penalties.

  5. Deal with the FTA waiver when any of the above penalties are applicable or have been previously assessed. See IRM 4.23.9.12, First Time Abate (FTA), and IRM 20.1.1.3.6.1, First Time Abate (FTA), for procedures.

4.86.5.30.3 (12-15-2020)

Managerial Approval of Penalties

  1. The group manager must perform a meaningful review of penalty determinations and must approve certain penalties in writing. The ITG Penalty Approval Form contains a penalty approval section for the group manager’s signature. The specialist should also document all management involvement regarding penalties in the Form 9984, Examining Officer’s Activity Record.

  2. Exceptions to these procedural requirements are found in IRC 6751(b)(2) that include the following:

    1. Any addition to tax under IRC 6651 failure to file or to pay tax, (with the exception to subpart (f)), IRC 6654, or IRC 6655, or

    2. Any other penalty automatically calculated through electronic means.

    See IRM 20.1.1.2.3, Managerial Approval for Penalty Assessments.

    Caution:

    Section 6751(b)(1) provides that no penalty under this title shall be assessed unless the initial determination of such assessment is personally approved in writing by the immediate supervisor of the individual making such determination or such higher-level official as the Secretary may designate.

  3. Even though IRC 6651 penalties are exempted by statute from managerial approval requirement, the fraudulent failure to file penalty (FFTF) under IRC 6651(f) requires approval from both Counsel and your manager. See IRM 20.1.2.3.7.5.1, FFTF Penalty Assessment -- Procedural Requirements, paragraphs (2) and (8).

  4. The Service also requires managerial approval of the non-assertion of penalties when there is a substantial understatement of tax under IRC 6662(d), Substantial Understatement of Income Tax.

4.86.5.30.4 (03-28-2019)

Assertion of Penalties Involving IRC 3509

  1. IRC 3509 provides reduced rates for computing the withholding tax under IRC 3402 and the employee’s share of FICA tax under IRC 3101, (including Additional Medicare Tax under IRC 3101(b)(2)). When IRC 3509 applies, the Service cannot compute the applicable penalties based on the higher liability that would have resulted under IRC 3402 and IRC 3101.

  2. See IRM 4.23.9.8, Assertion of Penalties Involving IRC 3509, for a complete discussion.

4.86.5.30.5 (03-28-2019)

Tax Return Preparer Penalties

  1. The Small Business and Work Opportunity Tax Act of 2007 amended IRC 6694 and IRC 6695 to include any tax return preparer.

  2. Preparer penalties became applicable to employment tax returns filed on or after May 25, 2007.

  3. For guidance, see:

    • IRM 4.23.17, Preparer Penalty Procedures for SB/SE Employment Tax

    • IRM 20.1.6, Preparer, Promoter, Material Advisor Penalties

4.86.5.30.5.1 (03-28-2019)
Coordination with Office of Professional Responsibility (OPR)

  1. All issues regarding the performance of professional tax practitioners representing a tribe are to be referred to the IRS Office of Professional Responsibility (OPR). The OPR supports the IRS’s strategy to enhance enforcement of the tax law by ensuring that tax practitioners adhere to professional standards and follow the law. OPR is the governing body authorized to interpret and apply Circular 230 and is generally responsible for matters related to practitioner conduct and exclusive responsibility for discipline.

  2. See IRM 20.1.6.12, Office of Professional Responsibility (OPR), for more information and procedures to follow when the decision has been made to refer a matter to the OPR.

4.86.5.31 (12-15-2020)

Report Writing

  1. Your report should contain all information necessary to ensure a clear understanding of the adjustments and show how you computed the tax liability.

  2. Exam reports (unlike workpapers) are legally binding documents and, when executed, serve as the basis for assessment and collection action. Also, exam reports may become the evidence on which the Government relies in a court case. Make sure the reports are accurate.

  3. See IRM 4.23.10, Report Writing Guide for Employment Tax Examinations, for instructions on the preparing exam reports covering employment tax returns. See IRM 4.24.20, Excise Tax Report Writing Guide, and IRM 4.10.8, Examination of Returns, Report Writing, for guidance on excise and individual exam reports, respectively.

  4. Report Generation Software (RGS) is required for generation of all income tax examination reports. See IRM 4.10.8.18, Reports Generation Software (RGS).

  5. No Change employment tax cases: prepare and furnish the taxpayer a no-change examination report on Form 4666, Summary of Employment Tax Examination, at the examination’s conclusion. Include appropriate Section 530 language and include the statement "No Change Subject to Approval by the ITG Program Manager" .

  6. Agreed employment tax cases: prepare and furnish the taxpayer a copy of the report at the examination’s conclusion. If the taxpayer doesn’t pay the additional tax, indicate the last day for an interest-free adjustment on the report.

    Note:

    Notate on the Form 3198-A, TE/GE Special Handling Notice, if the taxpayer is entitled to an interest-free period per IRC 6205. Also, on the closing document (Form 5599, Examination Closing Record), show TC 308 using the agreement date as the interest computation date if the taxpayer is entitled to an interest-free period. See IRM 20.2.10.5.1, Underpayment Adjustments on Employment Taxes.

  7. Unagreed cases: With your group manager, examine and confirm the statute date to determine whether a 30-Day Letter, Statutory Notice of Deficiency (90-Day Letter), or Notice of Employment Tax Determination Under IRC 7436 should be issued. Primary guidance and procedures for unagreed cases including the 30-Day letter process can be found at:

    • IRM 4.23.22, Employment Tax Unagreed Employment Tax Case Procedures

    • IRM 4.10.8.12, Unagreed Case Procedures

    Complete unagreed case write-up. See IRM 4.23.10.16.1, Preparing Explanation of Adjustments.

  8. Separate reports MUST BE prepared for IRC 7436 and non-section 7436 issues. See IRM 4.23.10.10, Preparation of the Employment Tax Report, and IRM 4.23.10.10.4, Employment Tax Change Report.

  9. Unagreed IRC 7436 issue, specialist must complete TABLE 1 and TABLE 2 to be included with Letter 3523, Notice of Employment Tax Determination Under IRC 7436. To assist in the preparation of Tables 1 and 2 of Letter 3523, prepare a list of reclassified workers as defined in IRM 4.23.22.11.1, General Overview of Section 7436 Procedures, (5) and (6). In addition, specialists should prepare a work copy draft of Tables 3 and 4 to assist ITG Technical in the preparation of Letter 3523. Both the list of workers and the table of taxes should be included with the Employment Tax Examiner's Report (ETER) package in the front of the case file for use by Technical Group II in preparation of the Letter 3523.

    Note:

    To assist ITG Technical on preparing Letter 3523, specialists should include the ETER spreadsheet and associated workpapers in electronic format and include in the file when closing.

    See IRM 4.23.22.11, Special Procedures for Letter 3523 under IRC 7436.

  10. Any report that is given to the taxpayer must include a statement that the report is subject to the approval of the ITG Program Manager.

4.86.5.31.1 (03-28-2019)

Publications to Include with Examination Reports

  1. The Internal Revenue Service Restructuring Act of 1998 (RRA 98) requires the IRS to include an explanation of the examination and collection process, as well as information about assistance from the Taxpayer Advocate with any first examination report and with any formal 30-Day letter. Pub 3498, The Examination Process, or Pub 5146 Employment Tax Returns, Examinations & Appeal Rights, will be used for this purpose. These publications incorporate Pub 1, Your Appeal Rights as a Taxpayer; Pub 5, Your Appeal Rights and How to Prepare a Protest If You Don’t Agree; and Pub 594, The IRS Collection Process, into one document.

  2. The following procedures will be followed:

    • Although Pub 3498 or Pub 5146 were provided with the initial opening letter these publications must also be provided to the taxpayer with the first report that is given to the taxpayer and with all 30-Day letters.

    • Pub 3498 is not required to be provided again to the same taxpayer for reports issued after the first report (in other words, corrected and supplemental reports) unless they are issued with a formal 30-Day letter.

    • Publications sent to the taxpayer should always agree with the enclosures listed on the cover letter to avoid confusion.

    • Publications are not required to be included with no-change reports but must be included with no-change with adjustment reports.

4.86.5.31.1.1 (03-28-2019)
Reports Sent to the Taxpayer’s Representative

  1. If Form 2848, Power of Attorney and Declaration of Representative (POA), is on file for a taxpayer, it will be reviewed before the issuance of a report to determine who should receive a copy of the report. Centralized Authorization File (CAF), research on IDRS should be conducted because the POA may have been changed by the taxpayer submitting a new POA through channels other than the specialist. Refer to IRM 21.3.7, Processing Third Party Authorizations onto CAF, for more information regarding duties and responsibilities when dealing with a taxpayer’s representative.

  2. Per 26 CFR § 601.506 (Statement of Procedural Rules), the specialist should forward any correspondence (or copies), discussions, reports and/or other materials to the taxpayer at the same time they are sent to the representative. Refer to IRM 4.11.55, Examining Officer’s Guide (EOG), Power of Attorney, Rights, and Responsibilities, for more detailed information about how to mail correspondence when a POA is involved.

  3. Blank forms, notices and publications available on IRS.gov should not be sent to the taxpayer’s representative or appointee, including, but not limited to:

    • Form 9465, Installment Agreement Request

    • Form 12203, Request for Appeals Review

    • Notice 609, Privacy Act Notice

    • Pub 1, Your Rights as a Taxpayer

    • Pub 1035, Extending the Tax Assessment Period

4.86.5.31.2 (03-28-2019)

Execution of Examination Reports and Payments

  1. Agreement forms are considered executed when the taxpayer(s) signs the form. The executed agreement form should indicate the date IRS received it. For this reason, the agreement form should be date-stamped upon receipt. Alternatively the specialists may, on the face of the agreement form, write the date it was received and authenticate the document with their initials.

  2. A taxpayer, upon receipt of a report, may wish to pay the deficiency immediately. Form 3244-A, Payment Posting Voucher, should be processed with the funds, if payment is received. A copy of the completed Form 3244-A should be attached to the face of the return. See IRM 4.86.5.43, Remittance Processing Procedures.

4.86.5.31.2.1 (03-28-2019)
Fax Signatures

  1. In May 2003, the Tax Administration Council approved the use of faxes for receiving information and documents from taxpayers and practitioners when contact with the taxpayer has been made and documented on Form 9984, Examining Officer’s Activity Record (case activity record).

  2. On November 19, 2015, a revision to the IRS’s fax policy was announced by the Deputy Commissioner for Services and Enforcement, which eliminated the dollar ceiling for acceptance of consents to assess additional tax and taxpayer closing agreements received by fax.

  3. Specifically, consents to assess additional tax (Forms 2504, 2504-T, 2504-S, 870 and others) can be accepted by fax if taxpayer contact has been made and the case activity record documents:

    • The date of contact, and

    • The desire of the taxpayer to submit the consent by fax.

  4. The term "faxed signatures" should be construed to include electronic images of scanned original signatures transmitted by Enterprise Electronic Facsimile (EEFAX) or e-mail.

4.86.5.31.3 (03-28-2019)

Corrected Reports

  1. A corrected report should be prepared as follows:

    1. Across the top of the corrected report write "Corrected Report."

    2. In the other information or remarks section write, "This report supersedes report dated (date)."

    3. The taxpayer’s signature is only required on the corrected report if the change is in the government’s favor, i.e., more tax or less refund. If the taxpayer disagrees with the corrected report, unagreed procedures are applicable. Consider each year separately with no netting of tax periods. New waivers may need to be solicited even though the net effect of the corrections may be in favor of the taxpayer.

  2. The original report will be noted across the top, "This report superseded by report dated (date)."

  3. Both the original and corrected reports are included in the case file.

  4. Note on Form 3198-A"Corrected Report."

4.86.5.32 (12-15-2020)

Surveying Cases - Before and After Assignment

  1. Under rare circumstances, an ITG group may make the determination to not examine a return selected for examination and close it by survey. Employees will carry out this duty per Policy Statement 1-236, "Fairness and Integrity in Enforcement Selection" . See IRM 1.2.1.2.36. Surveys are not subject to mandatory review. These cases will be closed fully electronically as 100 percent paperless closings .

  2. If you decide to survey an exam case, you must obtain approval from your group manager and the ITG Program Manager must be notified. Specialists must document the Form 9984, Examining Officer’s Activity Record, (case activity record) that approval for the survey was obtained from the group manager and notification was given to the ITG Program Manager. The group manager must document their review and approval of the survey in the case activity record.

    1. All surveyed cases must contain a clear explanation of the circumstances and rationale for closing the case as a survey. Although a lengthy explanation is not required, the activity record must document the clear rationale for the survey; a reviewer must be able to validate the decision-making process.

    2. Specialists will continue to generate a closing record in RCCMS and complete the fields identified as mandatory for a surveyed closure. On the closing record, select the appropriate survey reason code from the drop-down list provided in completion of the field entitled "Survey Reason Code" and provide a narrative explanation supporting the decision to survey the case in RCCMS in the "Remarks and Comments" field located on the Closing Record "General" tab.

    3. If the General Welfare Exception (GWE) Moratorium is one of the reasons for the survey, the document must also include a statement that the ITG Program Manager has approved the survey due to the GWE Moratorium.

  3. Before deciding to survey, examiners and managers must consider all case facts. Analyze the following factors (not all-inclusive) to help you strategically decide whether to survey the return. While the group manager approves the decision to survey a return and must document it in the RCCMS case file, both managers and examiners must document the case file with all case actions:

    • Consideration of existence &/or non-existence of classified issues and Large, Unusual, or Questionable (LUQs) items.

    • Completion of return and related return reconciliation.

    • Completion of required filing checks.

    • Evaluation of examination potential, whether an examination would likely result in a material change.

    • Repetitive examination or compliance activity – prior examination or compliance activity resulted in no change or minimal adjustments for same issue.

    • Consider surveying returns with less than 18 months until the ASED, and whether the same issue is present in subsequent years. If so, consider establishing the subsequent year for examination.

    • Consider whether the case should be reassigned to another group/area if your group lacks the resources.

    • Consider whether an organization/entity has already taken steps to correct an identified issue, as reflected in subsequent years’ return.

  4. When you decide to survey a case, use the appropriate disposal codes:

    Type of Survey Closing Disposal Code AIMS/RCCMS Use When
    Survey Before Assignment (SBA 31/910 Manager: you analyze the return before assigning it or contacting the taxpayer/representative (rep), and determine an exam isn’t warranted.
    Survey After Assignment (SAA) 32/908 Examiner: you analyze the return and without contacting the taxpayer/rep. or reviewing any books and records, and you believe that examining the return wouldn’t result in material change in tax liability.
    Surveyed After Initial Contact 36/909 Examiner: you determine, after contacting the taxpayer/rep, but before inspecting records that: examining the return wouldn’t result in a material change in tax liability. The taxpayer is deceased, has a terminal illness, is in a disaster area, or other extraordinary circumstances exist.
    Claims Allowed in Full (Surveyed) 34/103 Examiner: you determine the claim issue is clearly allowable in full and the return doesn’t otherwise warrant examination.

  5. You are no longer required to complete a Form 1900/2503, Form 5596, Form 5599, or Form 3198/3198-A nor post the forms as separate documents to the RCCMS Office Documents folder when surveying a case or claims allowed in full. Instead, capture the information about the survey on the RCCMS closing record:

    • Complete the designated mandatory fields for a surveyed closure.

    • Select the appropriate Survey Reason Code from the drop-down and when appropriate, provide a narrative explanation supporting your decision to survey in the General tab, Remarks and Comments field.

    • Managers will document their review and approval of the survey closure on the RCCMS Case Chronology Record. Manager’s comments will include any applicable Special Handling instructions as required. For example, instructions regarding Restricted Interest cases or Amended Return Freezes. To add a manual chronology entry, click on the Chronology tab and select the new Chronology Button. The Untitled – Chronology Box opens and allows you to input various entries. Complete the required red asterisk fields. Click Save and Close to save your entry.

  6. Use the following survey reason codes on the RCCMS Closing Record, General tab, Survey Reason Code field for all surveys.

    SRC Description Use When
    A No Large, Unusual or Questionable (LUQ) Items The main reason for the survey is:
    1. classified issues don’t exist, and
    2. the return contains no LUQ items
    B No Change in Prior Year The main reason for the survey is that the same issues identified on the current year return were just as significant in any of the four preceding years and were no-changed or had a small tax change.
    C Beyond Cycle (includes statute issue) The main reason for the survey is based upon currency and/or statute considerations.
    D Lack of Resources The main reason for the survey is due to a lack of resources. Managers should exercise due diligence, with the ITG Program Manager’s agreement, to assess whether they can reassign the return to another group/area before surveying it.
    E Other The main reason for the survey is other than A through D. Justification is critical as to the reasons why, therefore detailed statement is required.

  7. SRC A – No Large, Unusual or Questionable (LUQ) Items:

    • Narrative statements are optional for Survey Reason Codes A – D but explain details if you think it’s appropriate. For example, for Survey Reason Code A, include specific details as to why you have determined the classified issue(s) doesn’t exist. This will help in refining the workload selection process.

  8. SRC E – Other:

    • Include a clear and concise narrative statement on the RCCMS Closing Record, General Tab, Remarks and Comments (field is limited to 250 characters).

    • Explain why we aren’t examining the return. The justification is critical, so we can monitor and analyze trends as to why cases are being surveyed to improve our processes. A generic entry such as "survey " is not acceptable.

  9. Examples of "Other" category:

    • Claim Allowed in Full.

    • During pre-examination research it was determined that the taxpayer has self-corrected the issue as reflected in subsequent years.

    • Classification Settlement Program (CSP) in place for the tax period assigned and case assigned for reclassification of same class of workers.

    • Prior examination for reclassification and IRC section 530 applies.

    • Case assigned for potential Back-up withholding liability, but review of Form(s) 1099-MISC show no missing TINS.

    • Information Return Exam (IRE) case assigned for unreported or underreported Income Tax withholding on per capita payments. Further analysis showed per capita payments are under the IRC section 3402(r) withholding requirements.

4.86.5.33 (03-28-2019)

Standard Time Frames for Closing Cases from the Group

  1. Generally, cases should be closed from the group within the following time frames:

    Calendar Days Measured From Required Action
    10 Date the agreement is secured or the no-change determination was made – from the first date that the report is received or from the date that the no-change status is communicated to the taxpayer. Close agreed or no-change examinations.
    20 The earlier of the protest date or the 30-Day letter default date – from the date the 30-Day letter defaults or from the date that the request for Appeals conference is received from the taxpayer. Close unagreed examinations.
    4

    Exception:

    4 days -


    for case closures for agreed high dollar unpaid deficiency or overassessment cases - See IRM 4.4.18, AIMS Procedures and Processing Instructions - Large Dollar Cases.    		 Date the agreement is secured – from the first date that the waiver is received. Expedite processing - Close agreed high dollar unpaid deficiency or overassessment cases.

  2. Specialists and managers: document any delays in processing and the dates of closing actions in the case activity record.

4.86.5.34 (12-15-2020)

Cases Subject to Mandatory Review

  1. Cases subject to Mandatory Review are as follows:

    1. Unagreed exam closures without protest to Appeals requiring issuance of:

      • A Statutory Notice of Deficiency, or

      • Letter 3523, Notice of Employment Tax Determination Under IRC 7436

    2. Claim disallowances, (full or partial) unagreed without protest to Appeals requiring the issuance of one of the following:

      • Letter 905, Final Partial Claim Disallowance

      • Letter 906, Final Full Claim Disallowance

    3. Managerial request (requires TE/GE senior manager approval)

4.86.5.34.1 (12-15-2020)

Time Frames for Submitting Cases for Mandatory Review

  1. Close unagreed cases for statutory notice or Letter 3523, Notice of Employment Tax Determination Under IRC 7436 to ITG Technical :

    If ... Then ...
    Unagreed cases (without a valid protest to Appeals) for statutory notice or Letter 3523, Notice of Employment Tax Determination Under IRC 7436 and claim disallowances The case must have 270 days (9 months) remaining on the statute for assessment on the date the "ITG Technical receives the case" .

  2. When sending a case with a short statute to ITG Technical, your group manager contacts the Manager, ITG Technical, before sending the case. A short statute case is a case with less than 270 days remaining on an unagreed case when received in ITG Technical. These cases must include documentation of the approval of the ITG Program Manager before closure to ITG Technical.

4.86.5.34.2 (03-28-2019)

Case Identification

  1. Specialists identify case files subject to mandatory review on Form 3198-A, TE/GE Special Handling Notice. Identify the applicable mandatory review category.

4.86.5.35 (03-28-2019)

Cases Not Subject to Mandatory Review

  1. Cases not listed in IRM 4.86.5.34, Cases Subject to Mandatory Review, including any protested Appeals case.

4.86.5.35.1 (03-28-2019)

Unagreed Exam with Protest to Appeals

  1. The TE/GE Closing Group will not accept any protested case with less than 425 days remaining on the statutory period of limitations for assessment (330 days for cases previously returned to the examination group by Appeals).

  2. Complete the following before you close a case file or transfer it to Appeals:

    1. Scan all paper documents you exchanged with the taxpayer including envelopes or anything the taxpayer or representative marked.

    2. Upload all exchanged documents and relevant documents you prepared during the examination into RCCMS per ITG Case Procedures Desk Guide.

    3. Keep all records you upload into RCCMS or determine are no longer relevant to the case file per normal record retention requirements.

  3. Confirm that the case file contains a signed, dated 30-Day letter with the manager’s signature, a valid protest, and a rebuttal to the protest, if prepared. If not prepared, the Form 9984, Examining Officer’s Activity Record, should explain why a rebuttal was not prepared.

  4. For all cases with a formal protest to Appeals (no longer subject to mandatory review), make sure the protest:

    • Includes the taxpayer's name, address, and employer identification number.

    • Includes a statement that the taxpayer wants to appeal the IRS findings to the Appeals Office.

    • Includes a copy of the 30-Day letter.

    • Identifies the tax periods or years involved.

    • Lists the adjustments with which the taxpayer does not agree.

    • Includes a statement of facts supporting the taxpayer's position in any contested factual issue.

    • Includes a statement outlining the law or other authority the taxpayer is relying on.

    • Includes a signed jurat statement.

    • Includes a copy of the rebuttal letter you issued to the taxpayer.

  5. The officer, director, or trustee's jurat statement must read "Under penalties of perjury, I declare that I have examined the statement of facts presented in this protest including any accompanying documents and, to the best of my knowledge and belief, they are true, correct, and complete."

  6. A designated representative submitting the protest on behalf of the taxpayer must submit their own substitute statement. They must state that they prepared the protest and attached documents, and whether they know personally that the statements of fact contained in the protest including any accompanying documents are true and correct.

  7. Include a Form 3198-A, TE/GE Special Handling Notice, and mark the check box - Forward to Appeals.

  8. You don’t need to complete Form 5599, TE/GE Examination Closing Record. Complete the closing tabs on RCCMS compliance activity. In addition, for unagreed cases with a protest to Appeals, must complete the Appeals Office Code (Item 16), EO/GE Appeals Issue Code (Item 17), and Unagreed Amount (Item 18) on the closing tabs in the RCCMS compliance activity, as follows:

    • Item 16 - General Tab, Appeals Office Code 121 or 221

    • Item 17 - Indiv/Bus (1 of 3) tab, EO/GE Appeals Issue Code 7-8-5

    • Item 18 - Indiv/Bus (1 of 3) tab, Unagreed Amount

  9. Request the case closure on RCCMS. Front-line managers approve the request for closure and close the RCCMS compliance activity to the TE/GE Closing Group (400-20011-7204) in status 51 with RCCMS disposal code 601/AIMS disposal code 07.

4.86.5.36 (12-15-2020)

Case Closing Procedures for Specialists

  1. When you complete the examination, make sure the conclusion is technically correct and follow closing procedures.

  2. Access IDRS (AIMS and INOLES command codes) to ensure:

    • Each return is fully established on AIMS

    • Each return being closed is in status 12 or higher

    • There are no freeze codes on any of the modules

    • Name and name control in RCCMS match IDRS

  3. For agreed and no-change cases, prepare the appropriate closing letter below and include it in the case file at closing. The manager signs, dates, and mails the letters upon final closure. Scan and store in RCCMS all signed examination reports.

    • Letter 3382, Notification Letter - Agreed Employment Tax Change Cases

    • Letter 987, Agreed Income Tax Change

    • Letter 3381, No-Change Letter for Employment Taxes

  4. In RCCMS, the group manager closes:

    • Agreed and no-change cases to the TE/GE Closing Group.

    • Unagreed cases with a valid protest letter to Appeals to the TE/GE Closing Group.

    • Unagreed cases without valid protests requiring mandatory review to ITG Technical under Status Code 21, In-Transit.

      Note:

      ITG Technical prepares and issues the applicable 90-day letter.

    • Unagreed cases without valid protests not requiring mandatory review using AIMS Disposal Code 10 and RCCMS Disposal Code 604.

  5. All unagreed cases should include the following:

    1. Copies of the appropriate unagreed examination report form and 30-Day letter for the type of return, i.e., Form 940, 941, 945, 1042 or 1040. Copies of reports created electronically should be stored in RCCMS.

      • Letter 950-C, Employment Tax 30-Day Letter - Tax Court (TC) IRC 7436, for IRC Section 7436 issues (worker reclassification)

      • Letter 950-D, Employment Tax 30-Day Letter, for Non-IRC 7346 employment tax issues

      • Letter 950, 30-Day Letter - Straight Deficiency, used for various types of tax

        Note:

        Create the Letter 950 using Report Generating Software (RGS).

        Note:

        If using RGS, backup the RGS data file and include the RGS data file in the RCCMS folder for later use by ITG Technical reviewers.

    2. For both agreed/unagreed issues, partial agreement procedures properly addressed.

    3. Form 886-A, Explanation of Items, completed for each examination adjustment and penalty asserted.

    4. Separate explanations of each worker classification and discussions of Section 530 applicability for each worker class on the Form 886-A.

    5. Taxpayer’s protest letter

    6. Specialist’s rebuttal to the taxpayer protest letter

  6. You are ready to close the case when you resolve all substantive issues with an adjustment or an explanation, within the scope set by the examination. Check the following items before closing and shipping your case:

    • Check that you resolved and documented all identified issues.

    • Verify that you appropriately considered fraud.

    • Check that you appropriately considered penalties.

    • Verify that AIMS and RCCMS list the correct statute date or alpha ASED code. See IRM 25.6.23, Assessment Statute of Limitations Controls.

    • Complete the Form 895 (RCCMS) if not already done, and statute controls are required.

    • Purge unnecessary documents, including duplicate letters, envelopes, routing slips, etc.

    • Check that your workpapers support the conclusion reached and properly index them to the Form 4318, Examination Workpaper Index. If files are too large for RCCMS, record them on an encrypted CD-ROM labeled only with the taxpayer’s Inventory Control Number (ICN).

    • Verify your conclusions are consistent with examination reports and closing letters.

    • Check that you properly assembled the case file. See IRM 4.86.5.21, Workpapers; IRM 4.23.4.2, Workpapers (Employment Tax Examinations); and IRM 4.10.9, Workpaper System and Case File Assembly.

    • Complete Form 3198-A, TE/GE Special Handling Notice, to note special instructions or case features.

    • Complete Form 5666, TE/GE Referral or Information Report, if necessary. See IRM 4.86.5.37, Form 5666, Referral or Information Reports, for more information.

    • Consider issuing an Inadequate Records Notice (IRN), if you determine during the examination that the taxpayer was not keeping adequate records to render a substantially correct return. See IRM 4.86.5.38, Inadequate Records Notices, for more information.

    • Correctly complete closing tabs on the RCCMS compliance activity.

      Note:

      In addition, for unagreed cases with a protest to Appeals, complete the Appeals Office Code (Item 16), EO/GE Appeals Issue Code (Item 17), and Unagreed Amount (Item 18) on the closing tabs in the RCCMS compliance activity, as follows:

      1. Item 16 - General Tab, Appeals Office Code 121 or 221

      2. Item 17 - Indiv/Bus (1 of 3) tab, EO/GE Appeals Issue Code 7-8-5

      3. Item 18 - Indiv/Bus (1 of 3) tab, Unagreed Amount

  7. Send all cases through the group manager for closing. Group managers note their approval of the examined case closure on the case activity record.

    1. Check the "All Electronic" box in RCCMS, and state "All Electronic" in the "Remarks and Comments" field. Do not use a Form 3210, Document Transmittal,

  8. See IRM 4.5, TE/GE AIMS Manual, for AIMS Special Processing procedures for TE/GE employees for case control and closing procedures.

4.86.5.37 (03-28-2019)

Form 5666, Referral or Information Report

  1. Group managers and specialists may submit leads by submitting a Form 5666, TE/GE Referral or Information Report, with any supporting documents that provide details about potential noncompliance. Securely email the Form 5666 to your manager to review and forward to the CP&C Referral group at EOClass@irs.gov, if applicable. See IRM 4.5.1.6.9.2, TE/GE Referral or Information Report, and IRM Exhibit 4.5.1-12, Instructions for Preparing Form 5666, TE/GE Referral/Information Report.

4.86.5.38 (09-15-2015)

Inadequate Records Notices

  1. By law and regulations, every taxpayer must maintain records with sufficient detail to prepare a proper tax return. See 26 CFR 1.6001-1.

  2. If, during the examination, you determine that the taxpayer was not keeping adequate records to render a substantially correct return, consider issuing an Inadequate Records Notice (IRN) at the examination’s conclusion.

  3. Inadequate Records Notices notify taxpayers that their recordkeeping practices are deficient and must be improved. The issuance of an IRN may result in a follow-up examination and is a tool to enforce taxpayer compliance with legal requirements to keep adequate records and properly report tax liabilities. See IRM 4.10.8.16, Inadequate Records Notices, for procedural guidance.

4.86.5.39 (03-28-2019)

Closing Procedures for Group Managers

  1. All completed case files come to the group manager for closing.

  2. Managers should:

    1. Review the case timely on RCCMS and/or paper.

    2. Make sure the conclusion reached is technically correct.

    3. Make sure case processing procedures were followed.

    4. Approve any penalties requiring manager approval. See IRM 4.86.5.30.3, Managerial Approval of Penalties. IRC 6751 requires written documentation of your involvement in any decision to assess most penalties. Document your interaction on Form 9984. The following penalties do not require your approval:

      • IRC 6651, Failure to File or Failure to Pay - except where fraud is involved

      • IRC 6654, Failure to Pay Estimated Tax for Individuals

      • IRC 6655, Failure to Pay Estimated Tax for Corporations

      • Any other penalties automatically calculated through electronic means.

    5. Approve the case for closing in RCCMS. Note your approval of the case on Form 9984 .

    6. Date and mail the closing letter.

      Note:

      The group manager may determine whether the specialist or the group manager is the individual to mail the letter.

    7. Return the case to the specialist, as needed.

  3. Check the All Electronic box in RCCMS, and state All Electronic in the Remarks and Comments field. Do not use a Form 3210, Document Transmittal, when closing 100 percent electronic cases.

4.86.5.39.1 (03-28-2019)

Closing from the Group

  1. The group manager closes all cases in RCCMS and routes them as shown below:

    • Close agreed and no-change cases directly to the TE/GE Closing Group.

    • Close unagreed cases with a valid protest letter to Appeals to the TE/GE Closing Group (400-20011-7204) in Status 51.

    • Close unagreed cases without a protest requiring Mandatory Review to ITG Technical. Update AIMS to Status Code 20 (Mandatory Review) and Disposal Code 10/RCCMS Disposal Code 604.

4.86.5.40 (03-28-2019)

Deadlines For Closing Cases From The Group

  1. The group manager does the final review of cases before closing to Appeals, ITG Technical or to the TE/GE Closing Group. Each recipient needs sufficient time for processing. See the table below for actions to take when a case meets certain deadlines.

    Scenario Days left on statute at closing Actions to take
    Closing a valid unagreed protest to Appeals 425 or more Close to the TE/GE Closing Group, who sends the case to Appeals
    Closing a valid unagreed protest to Appeals 424 days or less Secure a statute extension. If none secured, close as unagreed without protest.
    Appeals returns a case for more work and it stays unagreed. 330 days or more Return the case to Appeals.
    Appeals returns a case for more work and it stays unagreed. 329 days or less Secure a statute extension. If unable to do so, close as unagreed without protest. If secured, return the case to Appeals.
    Closing an unagreed excise tax /income tax/worker classification case without protest 270 days or more Close to ITG Technical for preparation and issuance of the 90-day letter.
    Closing an unagreed excise tax /income tax/worker classification case without protest 269 days or less Email the TE/GE Closing Group manager before you forward them to the TE/GE Closing Group. See IRM 4.86.5.41, Advance Written Notification When Closing Short Statute Cases.
    Closing an unagreed non-worker classification employment tax case without protest 180 days or more Close to the TE/GE Closing Group.
    Closing an unagreed non-worker classification employment tax case without protest 179 days or less Email the TE/GE Closing Group manager before you forward them to the TE/GE Closing Group. See IRM 4.86.5.41, Advance Written Notification When Closing Short Statute Cases.
    Appeals returns a case for more work and you secure agreement. 180 days or more Close to the TE/GE Closing Group
    Closing an agreed case 180 days or more Close to TE/GE Closing Group
    Closing any case 179 days or less Email the TE/GE Closing Group manager before you forward them to the TE/GE Closing Group. See IRM 4.86.5.41, Advance Written Notification When Closing Short Statute Cases.

4.86.5.41 (03-28-2019)

Advance Written Notification When Closing Short Statute Cases

  1. Group managers must notify the receiving manager of the TE/GE Closing Group or ITG Technical, via secure email, that a short statute return is forthcoming. Advance written notification includes:

    • The returns and years being closed

    • Actual statute expiration date for each return

    • The reason for the short statute condition

    • The dates a statute extension was solicited

    • The amount of tax and penalty for the short statute returns

    • An explanation why a statute extension wasn’t needed or wasn’t executed after extension requests.

4.86.5.42 (12-15-2020)

Cases Returned from ITG Mandatory Review, Actions by the Specialist

  1. When you receive a case file with Form 5456, Reviewer’s Memorandum - TE/GE (Inquiry or Correction Memo):

    1. Discuss the case with your manager and agree on a course of action.

    2. Reactivate the case on Form 6490, TE/GE Technical Time Reporting System WebETS.

    3. Make every attempt to respond to the inquiry within 60 days. If the response takes more than 60 days, submit a short memo providing a status report at 60 days to ITG Technical. Explain in the memo the case name, tax years, ICN(s), earliest statute of limitations, status explanation/reason for delay, and expected completion date.

    4. If you need to reach the taxpayer, contact them within 15 days of case receipt. Your group manager may choose to be present when you inform the taxpayer of a change in the government’s position.

    5. Keep all voided portions of the exam report and workpapers in the case file. If the report doesn’t contain math changes or additions, comment that the report is accurate in your response to the issues listed in Item 12 of the Form 5456.

    6. Respond to the issues listed in Item 12, using Form 886-A, Explanation of Items, if you need more space.

    7. Match your responses to the issues listed in Item 12, to the order of the Technical reviewer’s comments on the Form 5456.

    8. Sign and date Form 886-A or include your signature and date in Item 12, if space is available.

    9. Return the case back to ITG Technical using the appropriate closing procedures.

  2. Retain Form 5456 and Form 886-A as follows:

    1. Keep originals in the administrative case file, if applicable.

    2. Include a copy of each form on the inside left of the case file.

    3. Save electronic versions of Form 5456 and Form 886-A in the RCCMS Office Documents folder using the RCCMS Naming Convention.

4.86.5.43 (03-28-2019)

Payment Processing Procedures

  1. Follow these procedures to process payments.

4.86.5.43.1 (03-28-2019)

Advance Payments - General

  1. Taxpayers may prepay their deficiency or proposed deficiency by making an advance payment. Taxpayers can use checks, money orders or electronic funds transfers.

  2. There are two types of advance payments:

    • IRC 6603 deposit, and

    • A payment of tax deficiency.

      Note:

      Make sure to properly identify the type of taxpayer payment

  3. Do not solicit a payment from a taxpayer until you finish the exam and secure an agreement. If the taxpayer offers to pay before you finish the exam to stop accruing interest, accept the payment. This stops the interest accruing on the amount paid as of the date of payment.

4.86.5.43.2 (03-28-2019)

IRC 6603 Deposits

  1. IRC 6603 permits a taxpayer to make a deposit in lieu of a payment to stop the accrual of interest on a potential deficiency. It also allows for the accrual of interest on a deposit returned to the taxpayer to the extent that the deposit is attributable to a disputable tax. Rev. Proc. 2005-18 gives all the requirements for to treat a payment as a 6603 deposit. Taxpayers must include a written statement designating the payment as a deposit, including:

    • Type(s) of tax

    • Tax year(s)/tax period(s)

    • Amount(s) in dispute (enclosing the 30-Day letter is sufficient)

  2. Without the written statement, the you can treat it as a tax payment and the taxpayer can’t contest the determination in Tax Court. The taxpayer can only sue for a refund in federal district court or the Court of Federal Claims. (If the taxpayer pays the full deficiency, there is no deficiency and the Tax Court doesn’t have jurisdiction.)

  3. For more information, see IRM 4.4.24.6, IRC Section 6603 Deposits (formerly known as Cash Bond), IRM 4.23.11.4(4)(a), Advance Payments - IRC 6603 Deposits, and IRM 20.2.4.8.2, IRC 6603 Deposits.

4.86.5.43.3 (03-28-2019)

Completing Form 3244-A for IRC 6603 Deposits

  1. Form 3244-A, Payment Posting Voucher — Examination, contains a check box on the form to mark a payment as an IRC 6603 deposit. If you fill out the form electronically and check the 6603 Box, it adds a Designated Payment Code (DPC) 12. If you fill out the form by hand, enter DPC 12.

  2. Apply as a Transaction Code (TC) 640, Advance Payment on Deficiency, and enter the amount of payment.

  3. Submit the payment and Form(s) 3244-A using the same procedures discussed in IRM 4.86.5.43.4, Processing Check Payments.

4.86.5.43.4 (03-28-2019)

Processing Check Payments

  1. Specialists: Upon receipt of a payment, prepare Form 3244-A, Payment Posting Voucher — Examination. Complete a separate Form 3244-A for each tax period and type of tax involved. See IRM Exhibit 4.4.24-1, Preparation of Form 3244-A, for detailed instructions, and IRM 4.23.11.5, Form 3244-A, Payment Posting Voucher — Examination, for payments received during employment tax exams.

    Note:

    Indicate on each Form 3244-A the amount of payment to be applied to that tax period.

  2. Post payments received during your exams as a TC 640, Advance Payment on Deficiency.

  3. If a taxpayer designates any part of an advance payment for penalty or interest, apply the payment as directed by the taxpayer.

  4. Ask that checks be made payable to the "United States Treasury" . If the payee section is blank or illegible or has the initials "IRS" , stamp over it with the words "United States Treasury" .

  5. Send all payments via overnight traceable mail within 24 hours. The payment package consists of:

    1. The payment

    2. Form(s) 3244-A, Payment Posting Voucher — Examination

    3. Form 3210, Document Transmittal

  6. Double wrap all packages. Put the payment package in a security envelope inside the overnight mail envelope. Affix a mailing label to both the inside envelope and the outside envelope. Send the payment package to the correct Ogden address.

    Payment Amount Mailing Address
    Less than $100,000 Internal Revenue Service
    1973 North Rulon White Blvd., Mail Stop 1999
    Ogden, UT 84404
    Attention: Teller Unit
    $100,000 or more Internal Revenue Service
    1973 North Rulon White Blvd., Mail Stop 2003
    Ogden, UT 84404
    Attention: Teller Unit

  7. If you must hold the payment overnight, store it securely in a locked container.

  8. Prepare Form 3210 in triplicate. Send two copies with the payment to the campus. If the payment applies to more than one tax period, list the breakdown on Form 3210. Attach the payment to the front of Form 3244-A and send it with the Forms 3210.

  9. Include the mail service tracking number on the Form 3210. Also include the taxpayer’s name, Taxpayer Identification Number (TIN), MFT, check amount and check number. Keep copies of all forms in the case file. Scan paper copies into RCCMS.

  10. Send copies of the Form 3210, Form(s) 3244-A and the check(s) to your group manager to store in a log kept at the group level. Maintain a separate log of Form(s) 3210.

  11. The campus should send back the Form 3210 within 10 business days. A signed Form 3210 confirms the receipt of each mailing. If you don’t receive the signed copy of Form 3210 within 10 business days, follow-up with the teller unit.

4.86.5.43.5 (03-28-2019)

Payments of $100,000 or More

  1. If the payment is $100,000 or more, email your manager and the teller unit at: &CTR ODN Ogden Tellers. Include the following in your email:

    • Date payment was mailed

    • Amount of the payment

    • Name and address/post of duty of the submitter

    • UPS tracking number, if payment is $1 million or more

  2. Use secured email with the teller unit, their managers and the liaison. If secured email is unavailable, contact the Ogden Remittance Liaison at 801-620-3972​.

  3. Write "ITG over $100,000" in the upper left-hand corner on the inside envelope.

4.86.5.43.6 (03-28-2019)

EFTPS Option

  1. Taxpayers may post an IRC 6603 deposit and pay deficiencies using Electronic Federal Tax Payment System (EFTPS). Although not required, EFTPS streamlines payment processing.

  2. Payments post to IDRS within days if the taxpayer uses EFTPS. Verify the payments posted to the proper periods on IDRS and attach a TXMOD printout to the front of the return showing the payment posted before you close the case from the group. If the case is all electronic, upload a copy of the TXMOD into the "Office Documents" folder in RCCMS and note in Form 9984, Examining Officer’s Activity Record, that the EFTPS payment posted properly.

4.86.5.44 (03-28-2019)

Installment Agreement

  1. If you can’t secure payment of an agreed unpaid tax case and the taxpayer can’t pay immediately or upon receipt of the first notice, consider an installment agreement. Coordinate with SB/SE Collection, per IRM 4.20.1.3, Examination Collectibility, Issue Resolution - Solicit Payment.

    Note:

    The taxpayer owes interest if the tax is not fully paid by the assessment date, even if the interest-free provisions otherwise apply.

  2. If the taxpayer asks for an installment agreement beyond your installment agreement criteria or the agreed unpaid deficiency is over $100,000, coordinate contact between the taxpayer and a revenue officer through your manager. See IRM 4.20.1.4, Examination Collectibility, Installment Agreements, for more information.

4.86.5.45 (03-28-2019)

ITG Mandatory Review

  1. This section gives guidelines for the evaluation of cases needing review.

4.86.5.45.1 (12-15-2020)

Case Review Procedures for Cases Subject to Mandatory Review

  1. Reviewers:

    • Conduct mandatory reviews of cases.

    • Perform post-examination processing of certain special feature cases.

    • Prepare Statutory Notices of Deficiency and Notice of Employment Tax Determination Under IRC 7436.

  2. Field groups update closed cases to Status Code 20 and send them directly to ITG Technical, if the case:

    • Is subject to mandatory review.

    • Has special features requiring post-examination processing.

  3. Reviewers review the case in sufficient depth to make sure:

    1. Correct technical conclusions.

    2. Accurate computations.

    3. Proper completions of all procedural requirements.

    4. Proper managerial involvement.

    5. Proper protection of taxpayer rights.

  4. ITG Field Groups may forward a case for review at the ITG Program Manager’s discretion. When reviewing the case, focus on technical and procedural accuracy, and complete exam processing requirements. Technical may review both in-process and closed cases.

  5. Case review actions:

    1. Determine the scope of the exam.

    2. Evaluate case documents to support the specialist's conclusions.

    3. Determine if technical conclusions are correct.

    4. Make sure proper completion of internal procedures and forms.

    5. Verify statute(s) of limitations.

    6. Complete exam processing requirements.

    7. Prepare, issue and monitor Statutory Notices of Deficiency (SNOD) and Notice of Employment Tax Determination Under IRC 7436, if needed. See IRM 4.8.9 , Statutory Notice of Deficiency, and IRM 4.8.10, Notice of Employment Tax Determination Under IRC 7436, for procedures.

      Note:

      ITG Technical sends these to TE/GE Division Counsel for review. TE/GE Division Counsel must review all ITG prepared Statutory Notices of Deficiency and Notices of Employment Tax Determination Under IRC 7436.

    8. Document ITG Technical Review actions in the case activity record.

    9. Provide feedback to both specialists and management, if needed.

  6. Reviewers return cases to the group in Status Code 12 on RCCMS, with the ITG Technical group manager’s concurrence, when any of the following conditions exist:

    1. Major technical deficiencies.

    2. Significant computation errors.

    3. Seriously underdeveloped issues.

    4. Clear evidence of an incorrect determination made or a seriously underdeveloped case.

    5. "Clearly defined substantial" errors based on an established IRS position during the exam. "Clearly defined" means the error is plain and not vague or uncertain. "Substantial" refers to the dollar amount of tax that we wouldn’t assess if we don’t return the case.

      Note:

      Normally we regard any proposed change to a case involving net additional tax of $10,000 or more, regardless of the years involved, as substantial. Don’t consider penalties and interest when making this determination.

    6. Any evidence of fraud, malfeasance, collusion, concealment or misrepresentation by the taxpayer or representative.

    7. Administrative or procedural errors that prevent case processing.

    8. Favorable adjustments to the taxpayer and Review can’t readily correct the report.

    9. Other circumstances indicating that not returning the case would be a serious administrative omission.

  7. Prepare Form 5456, Reviewer's Memorandum - TE/GE, before returning a case for further development. The reviewer’s report is an official communication between ITG Technical and field groups for technical/procedural errors found in cases or for commendatory feedback.

  8. Send the Form 5456 to the ITG Technical group manager for approval. The ITG Technical group manager forwards the Form 5456 to the group manager.

  9. You can make informal contacts with specialists (call or email) when a defect can be fixed without returning the case to the group. Reviewers note the informal contact in the case activity record.

  10. Return to the group any mathematical, technical, managerial or procedural errors or omissions that need more consideration or development when you can’t perfect them.

4.86.5.45.2 (03-28-2019)

ITG Statutory Notices of Deficiency

  1. ITG Technical prepares and issues all Statutory Notices of Deficiency and Notice of Employment Tax Determination Under IRC 7436, and suspends the case in ITG Technical during the 90-day period.

  2. IRC 6212(a) and 26 CFR 301.6212-1 authorize the IRS to send this notice.

4.86.5.45.2.1 (03-28-2019)
Preparation and Issuance

  1. The notice of deficiency is a legal determination that is presumptively correct. The notice of deficiency consists of:

    • A letter explaining the purpose of the notice, the amount of the deficiency, and the taxpayer's options.

    • A copy of that same letter.

    • A waiver: Form 4089-B, Notice of Deficiency - Waiver.

    • Appropriate tax computation: Form 4549-A, Income Tax Discrepancy Adjustments.

    • A written explanation of all the adjustments: Form 886-A, Explanation of Items.

    • Information about the Taxpayer Advocate Service (TAS) services, along with the closest TAS office address.

  2. When you write the explanation of the adjustments, provide a short synopsis of the facts and law.

    Caution:

    Never include the complete ITG specialist report in the Statutory Notice of Deficiency.

  3. Reviewers should use Letter 531 for income tax assessments.

  4. Refer to IRM 4.8.9, Statutory Notices of Deficiency for directions on preparing notices. Focus on IRM 4.8.9.8, Preparing Notices of Deficiency, IRM 4.8.9.10, Signing and Dating the Notice of Deficiency, IRM 4.8.9.11, Disposition of Copies, IRM 4.8.9.15, Overassessments and Claims, IRM 4.8.9.16, Special Issues and IRM 4.8.9.17, Special Cases.

    Note:

    When reviewing directions in IRM 4.8.9, keep in mind that Area Counsel (TE/GE Division Counsel) reviews all TE/GE issued Statutory Notices of Deficiency before they’re issued, and that TE/GE Closing Group handles the notices in lieu of Small Business/Self Employed's (SB/SE) Centralized Case Processing (CCP) units.

  5. TE/GE Division Counsel requires a PS Form 3811, Return Receipt, (green card) be used to provide proof of delivery in addition to the record of certified and registered mailing kept on PS Form 3877. See IRM 4.8.9.11.3, Records of Mailings.

  6. After issuing the notice, update to Status Code 24 and add 150 days (210 if sent to a foreign address) to the statute of limitations for each tax year in the notice. Update AIMS using RCCMS.

  7. Monitor the case during the 90-Day suspense period to determine if the taxpayer petitioned the U.S. Tax Court by researching www.ustaxcourt.gov, and completing a "Docket Inquiry" .

  8. The issuance of a Statutory Notice of Deficiency begins the litigation process. Once you issue the 90-Day Letter, place the case in a suspense drawer for the earlier of:

    • 105 days (90 days plus 15 days).

    • The date the taxpayer petitions tax court.

    • The date the taxpayer files the appropriate waiver.

4.86.5.45.2.2 (03-28-2019)
Procedures Following the 90-Day Period

  1. If the taxpayer doesn’t respond to the Statutory Notice of Deficiency within 90 days and the case isn’t docketed, hold the case for an another 15 days and then close to TE/GE Closing Group.

  2. Close case to the TEGE Closing Group on RCCMS:

    • PBC: 400

    • SBC: 20011

    • EGC: 7204

    • Status Code: 51

  3. Attach Form 3198-A, TE/GE Special Handling Notice, with the following instructions "STATUTORY NOTICE OF DEFICIENCY DEFAULTED - ASSESS TAX IMMEDIATELY."

  4. Before closing, verify that the case has not been docketed. If docketed for Tax Court, update and forward to the closing unit to transfer to Appeals.

    Note:

    For information on petitions, see IRM 4.8.9.25, United States Tax Court Petition Filed.

    Note:

    The Mandatory Reviewer prints and assembles a physical case for all cases sent to TEGE Division Counsel if a taxpayer filed a petition to Tax Court.

    .

4.86.5.45.2.3 (12-15-2020)
Rescinding A Notice of Deficiency

  1. Reviewers can rescind a notice of deficiency mailed to a taxpayer, but only with the consent of the taxpayer. See Delegation Order 4-8, see IRM 1.2.2.5.8.

4.86.5.45.2.4 (03-28-2019)
Protests, Correspondence and Waivers Received After Issuance

  1. See IRM 4.8.9.23, Protests, Correspondence and Waivers Received After Issuance of Notice of Deficiency, for general procedures when the taxpayer sends in something other than a signed Form 4089.

  2. Reviewer: If during the 90-day period the taxpayer submits a signed Form 4089-B, send the case to the closing unit to assess the deficiency.

4.86.5.45.3 (12-15-2020)

Notice of Employment Tax Determination Under IRC 7436

  1. Refer to the table below for the final report for employment tax issues:

    Employment tax issue Final report
    IRC 7436 worker classification Letter 3523, Notice of Employment Tax Determination Under IRC 7436
    Any other issues 30-day letter

  2. SB/SE has jurisdiction over employment taxes. TE/GE Division Counsel serves as the legal advisor. When preparing a Notice of Determination of Worker Classification, refer to IRM 4.8.10, Notice of Employment Tax Determination Under IRC 7436, and IRM 4.23.10, Report Writing Guide for Employment Tax Examinations.

  3. Mandatory Reviewer: When following the procedures in IRM 4.8.10, keep in mind that:

    • You have the authority to sign and issue the notice. See IRM 1.2.2.5.22 , Delegation Order 4-26 (Rev. 1) (formerly DO-251).

    • TE/GE Division Counsel (formally "Tax Exempt and Government Entities Division Counsel" ), reviews all TE/GE notices of determination of worker classification before issuance.

    • TE/GE Closing Group works the case upon closure, not SB/SE's Centralized Case Processing (CCP).

4.86.5.45.4 (12-15-2020)

Case Return Procedures

  1. Return case files to the group manager of the specialist who worked the case.

  2. Complete Form 5456, Reviewer’s Memorandum - TE/GE, per its instructions. Identify the following:

    1. Check advisory, correction, or inquiry.

    2. Box 1: Insert the group number after the group manager salutation.

    3. Box 2: Identify the last specialist to work the case.

    4. Box 3: Enter the date of completion of the memo.

    5. Box 4: Indicate whether the case has a short statute.

    6. Box 5: List the name, TIN, and tax modules.

    7. Box 6: Enter the year, using hyphens if multiple periods.

    8. Box 7: Check examination.

    9. Box 8: Check mandatory review.

    10. Box 9: Check the applicable box.

    11. Box 10: Enter a date and initials if indicating an error in the agent's computations.

    12. Box 11: List the pages of the specialist's report that have computational errors.

    13. Box 12: Write the text of the memo, indicating a continuation on Form 886-A, Explanation of Items, if necessary. Give the reason for review (e.g., mandatory, notice of deficiency, IRC 7436) and reason for case return and any corrective action needed, if applicable.

    14. Box 13: Electronically sign (e-sign) the memo (3 times) after completing the remaining boxes.

    15. Box 14: Leave blank.

    16. Box 15: Check the type of error(s).

    17. Box 16: Check the specific error, if applicable List statutes of any return in the case file being returned expires within 180 days (6 months) in the Other box.

  3. Email Form 5456 to the ITG Technical group manager for approval, and forward the paper case file, if applicable and if requested.

  4. If approved, prepare the case for closure:

    1. Inquiry or Correction Memos: The ITG Technical group manager secure emails the Form 5456 to the appropriate group manager and has the reviewer return the case file to the group manager with the original and a copy of Form 5456.

    2. Advisory or Commendatory Memos: The ITG Technical group manager secure emails the Form 5456 (without the case file) to the appropriate group manager when the case is closed.

    3. The ITG Technical reviewer and the ITG Technical group each retains one copy of the Form 5456.

4.86.5.45.5 (12-15-2020)

Form 5456, Reviewer’s Memorandum

  1. Reviewers: In preparing Form 5456, Reviewer’s Memorandum - TE/GE, determine the type of feedback to provide:

    1. Advisory: Errors that don’t require specialist action(s).

    2. Inquiry: Errors that require specialist action(s), based on your initial review of a case.

    3. Correction: Errors that still require specialist action(s), based on your subsequent review of a case you previously returned to the group.

  2. Advisory memoranda may also be commendatory. You may prepare a commendatory advisory memo if you believe the specialist has performed exceptionally well on a case. Group managers may place these memos in the specialist's employee personnel folder.

  3. Before determining which memo to prepare, determine whether the error involves an agreed issue. In general, don’t instruct the specialist to reopen an agreed issue, or create a new issue, unless your grounds are substantial and/or the potential effect upon the tax liability is material.

  4. Complete items 1 through 16 on the Form 5456 as shown in IRM 4.86.5.45.4 above. If you need more space for item 12 of the Form 5456, attach and use Form 886-A, Explanation of Items.

  5. When writing an inquiry or correction memo:

    1. Use plain language.

    2. Provide a brief history of why Mandatory Review has the case.

    3. Outline the errors identified in the case file.

    4. Outline a course of action for the agent to complete.

    5. Provide corrected computations, if applicable.

    6. Give directions on how to prepare Form 5457, Response to Reviewer's Memorandum - TE/GE. Specialists must respond within 60 days.

    7. List your mailing address.

    Note:

    Reviewers would reference an attachment on Form 5456 and write all additional comments on a Word file which can be converted to a PDF file if necessary.

4.86.5.45.6 (03-28-2019)

ITG Technical Forwarding Cases to Appeals

  1. Unless your manager asks, the ITG Technical Group no longer reviews unagreed protests to Appeals. Your manager sends unagreed protested cases to the TEGE Closing Group. Cases must have 425 days remaining on the statute of limitations when Appeals receives the case.

  2. Unagreed cases without a protest letter may be subject to Mandatory Review. ITG reviewers also handle cases where taxpayers petition the Tax Court in response to Statutory Notices of Deficiency.

  3. For unagreed protests to Appeals:

    1. Confirm that the case file contains a signed, dated 30-day letter with the manager’s signature, a valid protest letter, and a rebuttal to the protest, if prepared.

      Note:

      If not preparing a rebuttal, explain in Form 9984, Examining Officer’s Activity Record, why you didn’t prepare one.

    2. Attach a Form 3198-A, TE/GE Special Handling Notice, and mark the check box - Forward to Appeals.

    3. Correctly complete closing tabs on the RCCMS compliance activity.

       

      • Item 16 - General Tab, Appeals Office Code 121 or 221

      • Item 17 - Indiv/Bus (1 of 3) tab, EO/GE Appeals Issue Code 7-8-5

      • Item 18 - Indiv/Bus (1 of 3) tab, Unagreed Amount

  4. Request the case closure on RCCMS.

  5. Add a note to the RCCMS Comment box:

    Note:

    "Docketed Case"

4.86.5.45.7 (03-28-2019)

Cases Returned from Appeals

  1. Sometimes Appeals may return cases to ITG for more work.

  2. If you and your manager don’t agree with Appeals’ recommendation, prepare a responding or clarifying memo and return the case file to Appeals. Send a copy to the taxpayer. See IRM 4.2.7.4.1 and IRM 4.2.7.5.

  3. If you and your manager agree with Appeals recommendations, complete the required actions.

  4. Criteria for Appeals to return cases to you include:

    1. If the matter is factual.

    2. If the case requires further development or verification of new information or evidence.

    3. If faster and easier for you to complete the work.

    4. If you hadn’t fully developed your position.

      Note:

      Appeals may return the case to ITG for further development or concede the government’s position and close the case.

    5. If Appeals receives a new argument from the taxpayer/issuer while working the case.

      Note:

      Appeals may return the case to ITG requesting its response to the taxpayer’s argument. Appeals may or may not release jurisdiction.

  5. If Appeals releases jurisdiction of the case, you may re-engage in resolution actions or concede your position and close the case as agreed. Update AIMS to Status 12. When all other actions are complete, close the case.

  6. If Appeals doesn’t release jurisdiction, respond as requested. Don’t update AIMS. When you complete the other actions, close the case and return it to Appeals by the set time frames.