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.

ITG provides tribes a single point of contact for assistance with federal tax compliance.

Specialists are trained to address issues and provide guidance unique to Indian tribal governments. Issues may relate to tribal governments as employers, distributions to tribal members, and the establishment of governmental programs, trusts and businesses.

Since 2000, ITG has compliance responsibility for employment tax and all other aspects of federal tax administration as it applies to federally recognized Indian tribes. Federal tax administration includes exams. ITG conducts exams to determine federal tax liabilities and filing requirements. Although federally recognized tribes are not subject to income tax, they are subject to employment taxes, information reporting requirements and excise taxes in the same manner as all other government entities.

Tribes can reach out to ITG for assistance by calling (202) 317-8900 or by email at tege.ask.itg@irs.gov.

This is the seventh revision to IRM 4.88.1, Examination Issues Pertaining to ITG Cases.

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

IRC 7602 gives ITG specialists the authority to:

The ITG program manager:

Under IRM 1.2.1.5.34, Policy Statement 4-117, Examination Authority to Resolve Issues, specialists and managers:

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

IRS employees working tax related matters must identify themselves per The Restructuring and Reform Act of 1998 (RRA 98) Section 3705(a). They’re required to:

All examinations are done per IRM 1.2.1.2.36, Policy Statement 1-236, Fairness and Integrity in Enforcement Selection.

The Office of Indian Tribal Governments is the point of contact for a tribal government that has had a natural disaster. ITG coordinates efforts with the Disaster Assistance Program Office. See IRM 4.88.1.1.1 for contact information.

Program Reports: Information on reporting program objectives are included on, but not limited to, the following reports:

Program Effectiveness: Tax Exempt Quality Measurement System (TEQMS) is the quality control system used to oversee the entire examination program.

When you have technical questions, try to resolve the questions via research, analysis, your group manager and your peers. If you still need help, ask:

If you still have unresolved issues, you may also request technical advice (TAM) 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, Initiating a Request forTechnical Advice; and Rev. Proc. 2020-2 (updated annually).

Common acronyms and their definitions:

See ReferenceNet Acronym Database for additional acceptable acronyms and abbreviations.

The Department of Interior issued "Guidelines to Govern the Review and Approval of Per Capita Distribution Plans" (Guidelines), that give the procedures on the submission, review, and approval of tribal revenue allocation plans or ordinances for distributing net revenues from a gaming activity (Title 25, Chapter 1, Part 290). Under the guidelines:

The Guidelines define "per capita" payments as those payments made or distributed to all members of the tribe or to identifiable groups of members which are paid directly from the net revenues of any gaming activity.

Per capita payments don’t include benefits for special purposes or programs, such as social welfare, medical assistance, or education. Even if a tribe improperly designates any of these benefits as per capita payments, it doesn’t determine their tax status.

The IGRA mandates that the member includes the gaming revenue distributions in computing his/her income tax. See 25 U.S.C. section 2710(b)(3)(D). For those who receive distributions outright, they must include it in the year they receive it. See Rev. Rul. 67-284.

Tribes file Form 1099-MISC to report distributions, including cash and the fair market value of any property or benefit distributed to tribal members. They report income in Box 3 and the federal income tax withheld, if any, in Box 4.

Tribes report withholding on distributions to tribal members on Form 945, Annual Return of Withheld Federal Income Tax. IRM 20.1.4.8, Deposit Rules for Forms 941, 943, 944, 945, and CT-1, has information on Form 945, including deposit requirements. Pub 15, Circular E, is a good source on deposit requirements for the tribes.

Tribes must withhold from distributions of net gaming revenue if the yearly distributions are more than the threshold amount set in IRC 3402(r)(2), which is equal to the basic standard deduction for tax years 2018 - 2025. Pub 15-T, Federal Income Tax Withholding Methods, includes tables to determine the correct amount of withholding under IRC 3402(r). During outreach visits, compliance efforts and examinations, consider reviewing these tables and discussing them with the tribe.

Advise the tribe that, when they issue distributions subject to IRC 3402(r) at certain intervals and make an additional separate payment (for example, bonuses), they must aggregate this additional payment with the regular payment for withholding computation purposes.

The tribe is potentially liable for:

One of the IGRA requirements for gaming revenue distribution to tribal members requires protection of the minors’ interest. To satisfy this requirement, many tribes have established trusts for minors and legal incompetents. See Rev. Proc. 2011-56 for more information.

Rev. Proc. 2011-56 also clarifies that deposits into a trust:

Tribes considering establishing trusts for minors should consider the potential tax imposed on certain unearned income of minor children at the allocable parental tax rate. See IRC 1(g) and Temp. Treas. Reg. Section 1.1(i)-1T. Importantly, young adults and children who receive a distribution from their tribal trust account might be required to file their own return and could be subject to, for tax years:

See abatement procedures for IRC 3402(r) assessments under IRC 3402(d). These provisions are discussed under Information Reporting. See IRM 4.88.1.7.5, Information Return Reporting, IRM 4.88.1.7.6, Abatement Procedures, and IRM 4.23.8.4, IRC 3402(d) - Relief for Employer When Employees Have Paid Income Tax on Wages.

Refer to IRM Exhibit 4.23.13-2, Instructions for Completion of Form 3870 by the Examiner.

Restricted allotted land is land that is allotted to a tribal member but restricted as to alienation. Income directly derived from restricted allotted land includes the proceeds from sales of timber harvested from the land, grazing fees, and income from mineral rights.

The following businesses, even if conducted on restricted allotted land, are examples of income not directly derived from restricted allotted land:

Once a tribal member gets fee simple title to restricted allotted land, any income derived from the land, including the sale of the land, is subject to federal income tax.

The tribal member's tax basis in the allotted land is determined using the fair market value as of the date the tribal member receives fee simple title, unless that value is less than the tax basis computed under the rules in Rev. Rul. 58-341.

Refer to the Income Derived Directly from the Land book on the Natural Resources shelf of the ITG Knowledge Base.

A general rule states that per capita distributions the Secretary of the Interior makes from funds held in a tribal Trust Account are generally excluded from tribal members’ gross income receiving the per capita distributions (Notice 2015-67). The general rule applies to both per capita distributions from DOI and Indian tribes.

Any income derived by a member of an Indian tribe, either directly or through a "qualified Indian entity" , or by a "qualified Indian entity" from a fishing rights-related activity of that member’s or entity’s tribe is exempt from federal taxation (in other words, income, employment, and self-employment tax) under IRC 7873.

Wages aren’t exempt if paid:

A recognized fishing right must have been secured as of March 17, 1988, by a treaty between the tribe and the United States, by an Executive Order or an Act of Congress.

Income received from judgments of the Indian Claims Commission or the US Court of Federal Claims, including investment income on it, isn’t subject to income tax or reporting, per 25 U.S.C. 1401 et seq.

Income received from judgments from courts other than the Indian Claims Commission or the US Court of Federal Claims are subject to tax.

Notice 2012-60 lists 55 tribes that are exempt from tax on their settlement proceeds. Although these funds were never taken into trust, the proceeds aren’t subject to tax because the settlement proceeds are treated as if they were funds held in trust, and these funds would normally be exempt under the Per Capita Act discussed in Notice 2015-67.

Notice 2017-2 modified and superseded Notice 2012-60 Appendix. It lists 96 tribes with trust settlement agreements with the United States, but the list may be updated occasionally, as tribes continue settling their cases.

Gross income doesn’t include the value of any qualified Indian health care benefit.

A qualified health care benefit is:

The general welfare doctrine was codified in part as IRC 139E. Generally, it states that Indian general welfare benefits aren’t included in gross income.

The term "Indian general welfare benefit" includes:

A program is an Indian tribal government program even if it’s established by tribal custom or government practice.

Any items of cultural significance, reimbursement of costs, or cash honorarium for participation in cultural or ceremonial activities for the transmission of tribal culture isn’t treated as compensation for services.

Ambiguities in IRC 139E are resolved in favor of Indian tribal governments for the programs administered and authorized by the tribe to benefit the general welfare of the tribal community. Deference is given to tribes in administering their programs.

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 that any examination relates to a general welfare payment or benefit until IRS field staff and tribal financial officers receive further training.

Employment taxes represent the:

Qualifying employers whose total annual tax liability for Social Security, Medicare and withheld federal income taxes is $1,000 or less may qualify for annual filing and payment rather than making quarterly deposits. This only applies if the IRS has notified the taxpayer to use this form. See IRM 4.23.8.14, Form 944 Examinations and Filing Requirements, and the instructions for Form 944, Employer's Annual Federal Tax Return.

See Pub 15, Circular E, Employer’s Tax Guide, for deposit requirements for Employment Tax (Forms 941, 943, 944, 945, and CT-1). See Pub 15-T, Federal Income Tax Withholding Methods, for instructions for withholding on gaming profits distributed to tribal members.

Taxpayers use "X" forms to report corrections to employment taxes and to claim refunds of overpaid employment taxes. The "X" forms correspond and relate line-by-line to the employment tax return they’re correcting.

The Form 1042, Annual Withholding Tax Return for U.S. Source of Income of Foreign Persons, is used to report the withholding of tax on nonresident aliens under IRC 1441 and the withholding of tax on foreign corporations under IRC 1442. See Pub 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for additional information.

Consider referring technical questions in employment tax cases that involve interpreting and applying tax laws, regulations, or other IRS published precedents to a specific set of facts to an employment tax specialist through the Specialist Referral System (SRS). Also, see IRM 4.86.5.17.1, Requesting Technical Assistance.

When requests for Technical Assistance don’t resolve the question, you may request Technical Advice (a Taxpayer Advice Memo or TAM) from TE/GE Counsel after consulting with your manager. See IRM 4.86.5.17.2, Technical Advice Overview, for specific instructions.

An employer who has under-collected or underpaid employee taxes (FICA/RRTA) or income tax (withholding), may make interest-free payments of the tax due when certain conditions are met (IRC 6205). These provisions apply to per capita withholding assessments made under IRC 3402(r) and certain back-up withholding assessments under IRC 3406.

If an employer doesn’t deduct and withhold income tax or the employee's share of FICA tax because they erroneously treat an employee as a non-employee (for example, an independent contractor), the employer may be entitled to reduced rates to determine its employment tax liability. See IRM 4.23.8.5, IRC Section 3509.

After IRS assesses employment tax in an exam action, the employer is generally required to pay the assessment and file a claim for refund before we further consider the case. See IRM 1.2.1.5.31, Policy Statement 4-103. However, there may be other circumstances to consider for a claim for abatement on its merits.

It is important that the tribe and its wholly-owned entities correctly determine whether the individuals providing services for them are employees or independent contractors.

The Classification Settlement Program (CSP) establishes procedures under an optional classification settlement program that allows Indian tribal governments and specialists to resolve worker classification cases early in the administrative process. See IRM 4.23.6, Classification Settlement Program (CSP) and IRM 4.86.5.28, ITG Classification Settlement Program (CSP).

In determining whether a worker is an independent contractor or employee under common law rules, consider three main categories:

Consider all the facts as no single fact provides the answer. It is not a choice how an employer classifies a worker. For federal tax purposes, federal law determines whether a worker is an employee, independent contractor, or another category. Pub 1779, Independent Contractor or Employee, has basic information about the three categories of evidence used to determine whether workers are employees or independent contractors. See Pub 4268, Employment Tax for Indian Tribal Governments.

See IRM 4.23.5, Employment Tax, Technical Guidelines for Employment Tax Issues, for guidance on technical issues in employment taxes.

See IRM 4.86.5.28.1, CSP Offer Case Closing Procedures.

Generally, services that employees of tribal governments or tribal business enterprises perform constitutes employment and their wages are subject to federal employment taxes. Payments to tribal and non-tribal employees are to be reported on Form W-2, Wage and Tax Statement.

The IRC states that for purposes of FICA, FUTA, and federal income tax withholding, the term "wages" means all payments received for "employment" with certain specified exceptions. Therefore, unless payments to employees are excepted from the term "wages" or the services the employee performs are excepted from the term "employment," these payments are subject to FICA, FUTA (if applicable), and federal income tax withholding.

Employers must give employees the tax return copy and the employee’s copy of Form W-2, Wage and Tax Statement, to report wages, tips and other compensation paid to them during the calendar year. The Form W-2 must show, among other information, the total:

Employers are required to use e-file if they file 250 or more Forms W-2 or W-2c and failing to do so may incur a penalty.

Questions often come up on services that a tribal member who lives on the reservation performs for the tribe on tribal land. Individual tribal members are citizens of the United States and are subject to federal income tax, unless specifically exempted by a treaty or statute See Rev. Rul. 67-284, 1967-2 C.B. 55.

Beginning January 1, 2000, Indian tribes aren’t required to file Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, if they chose to participate in the State Unemployment Tax Act (SUTA). This is due to the Consolidated Appropriations Act, (CAA, 2001) signed into law on December 21, 2000. (Public Law 106-554 codified as IRC 3306(c)(7)).

Employees of a federally recognized Indian tribal government employer are exempt from FUTA, and no Form 940 is required for services rendered after December 20, 2000. This includes any:

The FUTA exemption applies to all enterprises wholly owned by an Indian tribe even if they compete with similar private businesses. The FUTA exemption doesn’t apply to entities that are jointly owned by an Indian tribe and another entity that is not tribally owned. In other words, the enterprise must be owned 100% by the tribe or tribes to be exempt from FUTA.

The tribe must participate in the state unemployment system via one of these methods:

States may enact safeguards (including requiring the tribe to post a payment bond) to ensure that tribes using the reimbursement method make the required payments to the state. To make sure that FUTA liability is properly determined, the State must advise IRS and the Department of Labor of any determination it has made about a tribe's failure to make required payments or post a required bond and whether the tribe has subsequently satisfied these liabilities.

If a tribe fails to make payments required (including assessments of interest and penalty) within 90 days of final notice of delinquency, the State immediately notifies both:

United States Department of Labor, and

The Internal Revenue Service at:

When ITG receives a delinquency report from a state, a request should be sent to CP&C to establish a case.

Present law imposes information reporting requirements that enable the IRS to verify the correctness of taxpayer’s returns. In general, every person engaged in a trade or business is required to file information returns for each calendar year for payments of $600 or more made in the course of the payor’s trade or business.

The term “information return” means any statement, return, form or schedules described in IRC 6724(d)(1). While the most common information return is Form 1099, other information returns may be required.

Indian tribes must file information returns for payments to various recipients. They must furnish the forms to the recipient and file them with the IRS. See IRM 4.88.1.7.1, Employment Tax Reporting, Deposit Requirements and Issues, for a discussion of reporting requirements.

Specialists assist tribal governments with tax-related information reporting requirements.

Be familiar with Form 1099 issuance and withholding requirements when you conduct outreach and exams of Indian tribes in these areas:

Under IRC 3402(d), IRS may abate the income tax portion of:

See the following IRM sections for help with abatements:

When you secure Form 4669, Statement of Payments Received, and Form 4670, Request for Relief of Payment of Certain Withholding Taxes, before you close the exam, follow IRM 4.23.8.4.3(5), which states: “At the close of the examination, the examiner should advise the taxpayer that although the FITW and/or Additional Medicare Tax may be abated under IRC 3402(d) and IRC 3102(f)(3), the taxpayer remains liable for any penalties or interest attributable to the original assessment.

The intent of IGRA:

Since IGRA's passage in 1988, tribes and states have successfully negotiated hundreds of tribal-state gaming compacts. Gaming provides significant revenues for many Indian tribes.

IGRA divided "gaming" into three classes:

All Indian tribal governments conducting, or sponsoring gaming activities need to be aware of the federal requirements for income tax, employment tax and excise tax. See Pub 3908, Gaming Tax Law and Bank Secrecy Act Issues for Indian Tribal Governments.

Tribal gaming operations have recordkeeping responsibilities for gaming income, payouts, and expenses.

Tribal governments conducting gaming operations generate a substantial amount of income, primarily in the form of cash. The cash passes through many hands, which could result in numerous abuses. One of Congress's concerns was the potential for criminal abuse. As a result, IGRA provides the framework to handle the necessary recordkeeping when a tribe is involved in either Class II or Class III gaming.

Whether the tribe has hired an operator to run its gaming operation, or handles the gaming operation itself, it must follow the NIGC regulations that cover the Minimum Internal Control Standards (MICS) for Indian gaming. These standards apply if they are more stringent than the standards included in a tribal-state compact. However, if the tribal-state compact is more stringent, then the compact standards apply.

Gaming operations must comply when the operations begin. The tribal entity must also have an independent certified public accountant (CPA) verify that the internal control systems that are in place comply with the MICS of the NIGC's regulation, or with the tribal-state compact (25 CFR 542.3).

Find the NIGC Regulations from the NIGC, or at the NIGC website at www.nigc.gov.

Find the memorandum of understanding between ITG and NIGC at: www.irs.gov/Government-Entities/Indian-Tribal-Governments/ITG-Memorandum-of-Understanding.

This subsection describes the common filing requirements for tribal gaming activities. Tribal entities conducting gaming activities generally handle and prepare the following forms:

Using a promoter or contractor to operate gaming for a tribal government doesn’t relieve the tribe of its responsibility to file the appropriate forms.

In 1970, Congress enacted the Bank Secrecy Act. As of August 1996, Indian tribal casinos were subject to the regulations of 31 CFR Chapter X.

Due to the cash intensive nature of gaming activity and the huge volume of wagering throughout the United States, casinos deal with large numbers of individuals and massive amounts of currency. The information in this section offers a basic understanding of the BSA and how to comply with its provisions.

Casinos and card rooms are designated as financial institutions subject to the requirements of the BSA if the property:

Casinos:

Reporting requirements depend on the type of entity, the type of transaction, and amount of the transaction. In some cases, the casino must:

Financial institutions have extensive recordkeeping requirements. See 31 CFR 1010.410. In addition to the general recordkeeping requirements, casinos have additional specific requirements found in 31 CFR 1021.410. See also IRM 4.26.9.3.3.2, Recordkeeping Requirements.

Casinos are required to develop and implement a reasonably designed, written program to monitor compliance with the BSA. See 31 CFR 1021.210 and IRM 4.26.9.3.3, AML Program Requirements. At a minimum, the plan must include:

Don’t make any oral or written statements on the quality or accuracy of a tribe's BSA program; see IRM 4.88.1.9 (3).

FinCEN mandated the use of the single reporting Form 112, Currency Transaction Report (CTR). The report replaced FinCEN Form 103, Currency Transaction Reports by Casinos. The CTR form did not create any new obligations or otherwise change existing statutory and regulatory expectations of casinos.

Casinos electronically file the CTR to report currency (cash or coin) transactions over $10,000 conducted by, or on behalf of, one person, as well as multiple currency transactions, which in aggregate, are over $10,000 in a single day. Casinos must follow these reporting rules:

The casino must have knowledge that multiple transactions exceeded $10,000 in a gaming day and are by, or on behalf of, one individual. The casino:

Before concluding any transaction when a CTR is required, the casino must verify and record the name and address of the individual conducting the transaction and record the identity, account number, and the social security or taxpayer identification number, if any, of any person or entity on whose behalf such transaction is affected. See 31 CFR 1010.312, Identification required.

Casinos should complete the CTR, as with any FinCEN report, for those items for which they have relevant information, regardless of whether or not individual items are deemed critical for technical filing purposes.

Casinos have a certain vulnerability to potential money laundering schemes caused by the cash intensive nature of the games. The BSA was designed to create an audit trail to help minimize illicit financial transactions. Suspicious activities often involve structuring to avoid recordkeeping and reporting thresholds.

Structuring is when a person, alone or in conjunction with, or on behalf of others, conducts or attempts to conduct one or more transactions in currency in any amount, at one or more financial institutions, on one or more days, in any manner, for the purpose of evading the reporting requirements of the BSA. See 31 CFR 1010.100.

A transaction requires reporting if it is conducted or attempted by, at, or through a casino, involves or aggregates funds or other assets of at least $5,000 and the casino knows, suspects, or has reason to suspect that the transaction (or pattern of transactions):

Casinos:

Currency transactions in a casino’s other operational aspects may be subject to other reporting requirements, such as:

The rules governing access to and disclosure of returns and return information under Title 26, Internal Revenue Code (IRC), are different from the rules governing access and disclosure of information collected under Title 31, Bank Secrecy Act (BSA).

IRS examiners are only allowed to access information that is necessary and relevant to a case. Access involves obtaining returns or return information.

IRS examiners must limit their access to information per the Taxpayer Browsing Protection Act of 1997 and the disclosure rules under Title 26 and Title 31.

See Bank Secrecy Act IRM 4.26.14, Disclosure, for additional disclosure information.

Tip compliance agreements provide several benefits to the employer:

Tip compliance agreements also provide many benefits to employees:

When employees increase their reported tip income, they also increase any benefits that are based on reported income, such as:

Tip compliance agreements provide benefits to the IRS, such as:

The Gaming Industry Tip Compliance Agreement (GITCA) is designed specifically to:

The new model GITCA agreement:

To participate in a GITCA the employer agrees to comply with certain requirements. Pub 4936, Your Guide to Maintaining and Complying with the GITCA, has information on:

The GITCA:

The authority to sign the GITCA is in IRM 4.88.1.10.14, Authority to Sign Tip Compliance Agreements.

Pub 4932, Gaming Industry Tip Compliance Agreement (GITCA), provides an overview of the GITCA program including employer and employee benefits of participation, eligibility requirements, and the responsibilities of non-participating employees.

Pub 4985, Gaming Industry Tip Compliance Agreement – for Tipped Employees, summarizes the eligibility requirements and benefits for tipped employees participating in a GITCA agreement.

A "participating employee" in a GITCA is a tipped employee who:

If an employee revokes the Model Gaming Employee Tip Reporting Agreement at any time during the taxable year, he/she is treated as a nonparticipating employee for the entire year and may not enter into a new Model Gaming Employee Tip Reporting Agreement until January 1 of the following taxable year.

If employee participation is below 75% of the eligible employees, ITG and the employer will meet to discuss the decline in participation and take appropriate measures to increase the participation rate.

Housekeeping employees may not be included in a GITCA and are not considered eligible employees for the agreement.

The employer agrees to encourage all eligible employees to participate in the program and to sign the Model Gaming Employee Tip Reporting Agreement. See Rev. Proc. 2007-32. The employer:

The employer furnishes an annual report to the senior tax analyst with specific information on each nonparticipating employee on or before March 31 of the year after the calendar year, or any portion thereof, during which the GITCA was in effect.

If the employer doesn’t use a certified Employer-Computed Tip Reporting Process (ECTRP), Appendix E of the GITCA, the employer must also furnish an annual report to the senior tax analyst with specific information on each participating employee on or before March 31 of the year after the calendar year, or any portion thereof, during which the GITCA was in effect. See IRM 4.88.1.10.6, GITCA Employer-Computed Tip Reporting Process, for information on ECTRP.

If the establishment qualifies as a large food and beverage establishment under IRC 6053, the employer must provide certain information annually to the senior tax analyst on or before March 31 for the preceding calendar year. The employer can use:

If the employer meets the requirements in paragraph G of the GITCA, the employer is deemed to satisfy the requirement to file Forms 8027 for all of their employees.

If the employer has a certified ECTRP, the employer provides:

If the employer has a certified ECTRP and all tipped occupations are on actual or actual/pool and split rates, the casino isn’t required to provide a time and attendance system or payroll processing system report. The employer must notify the senior tax analyst in writing of the mandatory or 100% participation in the tip compliance agreement on or before March 31 of the year after the calendar year, or any portion thereof, during which the GITCA was in effect.

The Employer-Computed Tip Reporting Process (ECTRP) is a process the employer establishes, maintains, and controls using time-and-attendance and payroll processing systems to compute, without employee input, the tips reportable by the employee per the GITCA rates for that employee's occupation and shift.

The tips determined under the ECTRP system are treated as tips the participating employee reported to the employer for reporting, withholding, and paying the applicable taxes.

The employer's process qualifies as an ECTRP upon its certification and IRS concurrence that the process satisfies the requirements for the ECTRP listed in the GITCA. The certification form is Appendix E of the GITCA.

For all types of agreements, including those with occupations using 100% actual rate method, calculated rates or a combination of both, you must complete the steps in IRM 4.23.7.10.6.16, Payroll Requests and Certification, before certifying Appendix E. You can also find these steps on the Certification lead sheet.

The IRS doesn’t examine a participating employee's tip income for any taxable year that begins after the effective date of the agreement if each of the following conditions are met:

The IRS doesn’t examine a participating employee's tip income for any taxable year that ends on or before the effective date of the agreement if during the prior period the employee met certain conditions clarified in the GITCA.

The senior tax analyst reviews any employer’s Non-Participant Reports and makes examination referrals of non-participant employees based on campus criteria. The National Tip Reporting Compliance (NTRC):

During any taxable year during which the GITCA is in effect, the IRS may not assert liability against the employer per IRC 3121(q), except liability based on:

The GITCA starts on a date agreeable to both parties and terminates no later than five years after the initial agreement date. See Rev. Proc. 2020-47 for an update to provide that the term of a GITCA is generally five years and the renewal term of a GITCA is extended from a term of three years up to five years. See also IRM 4.88.1.10.2(2).

The IRS and employer agree to start discussions on appropriate revisions to the agreement no later than six months before the termination date.

The IRS and employer by mutual agreement may extend the GITCA termination date by completing the GITCA Appendix D Extension Agreement to allow time to finalize and execute a renewal agreement.

The IRS may terminate the agreement by written notice if participation falls below 50% of the eligible employees.

The employer and IRS may terminate the agreement upon the joint agreement without any participating employee’s consent.

If either party doesn’t comply with any material provision of the agreement, the non-defaulting party may terminate the agreement by giving written notice of termination to the other party.

If the agreement is terminated per the GITCA's terms, the parties’ mutual obligations remain in effect through the effective date of termination.

To participate in a Tip Rate Determination Agreement (TRDA) the employer agrees to comply with certain requirements:

Depending on the occupational categories and the employer's business practices, casinos reported tip rates are reported on the agreement using the following types of measurements:

If the employer uses the tip rate measurement, they determine the rates based on available information from their own records, or provided by the specialist, and generally accepted accounting principles. The specialist may provide acceptable formulas used to determine tip rates in specific areas, such as McQuatters Formula used in the food and beverage industry. See McQuatters v. Commissioner, T.C. Memo, 1973-240.

The employer reviews every calendar year, the tip rates and occupational categories. The employer may also review its occupational categories to add new categories and delete eliminated categories. If the employer believes that a revision of rates or categories is appropriate, they must submit the proposed revisions to the specialist by September 30. For more details on this review process, refer to the TRDA.

The employer can terminate the agreement at any time with written notice. The termination will be effective the first day of the calendar quarter following the date of the notice.

The IRS may revoke the agreement with written notice effective on the first day of the calendar quarter following the date of the notice if certain conditions exist. See IRM 4.23.7.10.3.1, Revoking TRDA Agreements, for detailed instructions.

If any of the conditions listed in IRM 4.23.7.10.3.1 exist, the specialist emails the facts to the senior tax analyst to determine whether termination is warranted.

If a revocation is warranted, the senior tax analyst prepares the revocation letter and sends it for signature per IRM 1.2.2.5.28 - Delegation Order 4-34 (Rev.1) formerly DO-4-34), Gaming Tip Compliance Agreements.

The tip compliance agreement must be signed by the tribal representative who has been delegated this authority by the tribal government.

The ITG group manager has the authority to sign tip agreements on behalf of the IRS per Delegation Order 4-34 (Rev. 3), Gaming Tip Compliance Agreements. See IRM 1.2.2.5.28.

When you are assigned a Tip Compliance Agreement Solicitation, follow the procedures in IRM 4.23.7.10.2, Solicitation of Tip Compliance Agreements, to determine if the Employer meets the pre-qualifications to participate in a Tip Compliance Agreement.

ITG’s goal is to reduce the tip reporting tax gap and decrease taxpayer burden through employer and employee participation in the Tip Rate Determination/Education Program (TRD/EP), which includes participation in a GITCA or TRDA.

Tip rate reviews are renewals of expiring GITCAs or TRDAs that are approaching the three to five year mark. The GITCA requires us to contact the establishment for renewal at least six months prior to the expiration date.

The Traditional Method for rate reviews and the Streamline Method for rate reviews use the same process to arrive at tip rates, including calculation methods, objective factors, and subjective factors. The primary difference between the Traditional Method and the Streamline Method for conducting rate reviews is who completes the rate computations and templates. For the Traditional Method - the IRS completes the templates and for the Streamline Method - the property completes the templates.

Determine tip rates using financial and payroll data available. The templates request 12 months of data. If extenuating circumstances exist and the establishment doesn’t have 12 months of data, email the senior tax analyst and your manager. Tip rates can be either calculated or actual.

The TRDA and GITCA require the employer to keep all records of data used to determine the tip rates for each occupational category. The specialist should request and review these records.

Secure and review a copy of the written internal and accounting controls. The internal and accounting controls ensure that the tip income under any tip rate method is accurately and correctly reported. Sample and test check existing controls.

Actual tip rates require enforced strong internal controls that clearly track the tip from the moment the employee receives it to when payroll reports it. The internal controls should eliminate any opportunity for the tip to be diverted from the internal control procedures and thereby fail to be reported in payroll. Some examples of internal control procedures are:

Consider these factors when reviewing tip rates:

See Rev. Rul. 2012-18 for guidance on Tips vs. Service Charges.

To ensure consistent treatment of all tribal tipped enterprises, the ITG senior tax analyst performs a tip agreement consistency review prior to execution by the Taxpayer. The senior tax analyst reviews:

ITG specialist: Before you send the tip agreement to your group manager for review:

ITG manager:

Senior tax analyst:

Group manager: If no additional actions are required, notify the specialist that the tip agreement is approved for tribal signature.

Specialist: Send two original unsigned agreements to the tribe. The tribal representative signs and dates both agreements in blue ink and returns them to the specialist.

Group manager: Countersign and date both agreements in blue ink and sends both copies back to the specialist.

ITG specialist:

After the consistency review, when the final agreement is presented to the tribe for signature, specify a reasonable amount of time for tribal review and signature and communicate it to the tribe.

Specialist: When you get both the taxpayer and your manager’s signatures on the agreement:

Specialist: When you complete the above steps, make sure you’ve documented the above actions in Form 9984, Examining Officer’s Activity Record, including that the case is ready to close, and send the case on RCCMS to your group manager for approval and closure.

As part of Indian Tribal Governments (ITG) Tip Program responsibilities, we annually monitor tip agreements. We create a case file when we identify potential non-compliance typically containing:

The compliance review is assigned to an ITG specialist to conduct the review, which includes the following phases:

ITG follows the examiner’s responsibilities as outlined beginning in IRM 4.23.7.11(10).

Senior tax analyst: Send letters to the tribal entities with tip compliance agreements each January reminding them of the required annual reports and their due dates.

The taxpayer sends to the senior tax analyst electronically or by mail every year:

The senior tax analyst reviews the reports for completeness and for indications of tip reporting problems.

Specialists should inform the senior tax analyst of any changes in the tribe's business operations that would affect the tribe's tip compliance agreement for possible revisions.

Senior tax analyst:

The IRS Campus sends the nonparticipating employee exam results to the SB/SE senior program analyst when they complete the nonparticipating employee exams. The SB/SE senior program analyst records and forwards the exam results monthly to the senior tax analyst to use to prepare the monthly briefing report.

The NTRC senior program analyst uses the nonparticipating employee exam results as a basis for issuance of notice and demand letters under IRC 3121(q) to the tipped entities. The senior tax analyst monitors the entity accounts, as needed, to ensure that the additional tax is reported.

Not following the requirements of the tip compliance agreements may result in substantial unreported tip income and lost revenue to the federal government. Although the revocation of a tip compliance agreement should be the last resort, it may be needed in egregious situations.

Refer to IRM 1.2.2.5.28- Delegation Order 4-34 (Rev. 1) (formerly DO-4-34), Gaming Tip Compliance Agreements, for signing authority when a tip compliance agreement is revoked.

The intent of the MOU between ITG and SB/SE Examination - Excise Tax Program (formerly known as the Office of Excise Taxes or OET) is to clarify the responsibility for administering federal excise tax issues involving Indian Tribal Governments, and to enhance a “single point of contact” relationship between Indian tribal governments and the IRS.

Tribes that conduct gaming activities may be subject to excise tax on wagers accepted for certain games, such as wagers placed on sports events or contests, pull-tabs, raffles and tip boards. The facts and circumstances of the types of wagering conducted, as well as the benefits derived, may have a bearing on whether the wagers are subject to tax.

There are two types of wagering tax:

In general, the tax on wagering applies to:

The gross amount of the wager upon which tax is imposed is the amount risked by the bettor, including any charge or fee incident to placing the wager. The taxable amount, for purposes of the excise tax, doesn’t depend on the amount that a patron may win in the wager.

The law specifically exempts certain wagers from the wagering tax. Exemptions relevant to Indian tribal government gaming include wagers placed:

Tribal governments and political subdivisions of tribal governments are, for certain excise taxes, treated as states under IRC 7871(a) and (d) respectively.

The exemptions apply to excise taxes imposed by:

Functions that qualify as essential governmental functions (such as, tribal administration, housing authorities, health clinics, fire and police protection, etc.) generally include those that State and local governments with general taxing powers customarily perform.

To qualify for these exemptions, the tribe must be a federally recognized Indian tribe.

Below is a partial list of definitions related to this topic. For a complete list, see IRM Exhibit IRM 4.32.1-1, Glossary of Terms, in IRM 4.32.1, Process Guide for Combatting Abusive Tax Avoidance Transactions.

Find procedures to help you identify and investigate abusive transactions and promotions and where to submit referrals involving potentially abusive transactions in IRM 4.32, Abusive Transactions:

IRM 4.70.3, TE/GE Examinations, Promoter Investigations, provides guidance to TE/GE employees pursuing investigations of promoters.

IRS employees who receive information or uncover a suspected abusive scheme within Indian country should email a completed Form 5666, TE/GE Referral Information Report, to tege.itg.schemes@irs.gov.

External stakeholders can submit information on abusive schemes that surface within Indian country. See Reporting Abusive Schemes at http://www.irs.gov/Government-Entities/Indian-Tribal-Governments/Reporting-Abusive-Schemes-and-Their-Promoters/.

Compliance Planning & Classification (CP&C) thoroughly analyze and review all referrals.

Managers and specialists should not begin a compliance action on a promoter/preparer until the Lead Development Center (LDC) has authorized a promoter investigation. The TE/GE Fraud Subject Matter Expert (SME) and TE/GE fraud specialist coordinate promoter investigations and the examination of promoter client exams.

Referrals to ITG may come from various sources:

The specialist or manager contacts the ITG Fraud SME to inform and discuss the referral and sends:

Thoroughly review and document referrals involving practitioners on the performance of their actions.

These referrals:

Make all practitioner referrals through the website at http://www.irs.gov/Government-Entities/Indian-Tribal-Governments/Reporting-Abusive-Schemes-and-Their-Promoters.

Send practitioner referrals involving a promoter scheme to the LDC for review and assignment to ITG.

If you identify a "listed transaction" or emerging issue during an exam, or any contact with a tribe, tribal member or other source, email the information to CP&C at tege.itg.schemes@irs.gov.

Listed transactions involve potentially abusive tax avoidance transactions that taxpayers must disclose per 26 CFR 1.6011-4, Requirement of statement disclosing participation in certain transaction. Other rules apply to organizers and promoters of these transactions.

Emerging issues usually involve a promoter or practitioner’s abusive position on current tax law or published IRS guidance (such as PLR).

After the LDC assigns a case that involves Indian tribal government issues, the group manager coordinates with the ITG Fraud SME and the TE/GE fraud specialist, other appropriate IRS operating divisions and Counsel offices.

When you’re assigned the case, work closely with Counsel and other operating divisions to help, as needed to:

Counsel provides legal assistance to the specialist throughout the case.

Except as outlined above, ITG follows the investigative procedures in IRM 4.32.2, Abusive Transactions, The Abusive Transactions (AT) Process.

If there is an injunction referral, the specialist must complete The Examiner Injunction Referral (EIR) with the following information:

Penalties continue to be an important IRS tool to encourage voluntary compliance.

Refer to IRM 4.32.2, Abusive Transactions, The Abusive Transactions (AT) Process, and IRM 20.1.6, Penalty Handbook, Preparer, Promoter, Material Advisor Penalties, for an overview on asserting penalties.

IRS actions are required throughout the promoter investigation to ensure coordination to stop abusive tax promotions. Refer to IRM 4.32.2, Abusive Transactions, The Abusive Transactions (AT) Process.

Coordinate and work cases involving the clients of the promotion with SB/SE.

Federally recognized Indian tribes are not exempt from federal income taxes, rather they are "not subject to" federal income taxes at the entity level. Other federal taxes including excise, employment and backup withholding taxes apply to federally recognized Indian tribes.

Risk factors commonly found in ITG cases include, but aren’t limited to:

Abusive schemes commonly found in ITG cases include but are not limited to:

As soon as you discover indicators of fraud, discuss the issue with your group manager. Refer to IRM 25.1.2.3, Indicators of Fraud, and IRM 25.1.2.4, Investigative Techniques.

If your manager agrees that the indicators of fraud are present, contact the ITG Fraud SME to discuss the indications of fraud. After discussion with the ITG Fraud SME consult the TE/GE fraud specialist as needed.

If the ITG Fraud SME agrees there’s fraud potential, either the ITG Fraud SME or the ITG specialist may submit a request for FEA support through the Specialist Referral System (SRS). When a FEA is assigned, the ITG Fraud SME sets up a conference call or meeting with the specialist, group manager, FEA, and the TE/GE fraud specialist, as needed, to discuss the case. If all parties agree the indicators support development of the case for fraud, the specialist completes Form 11661, Fraud Development Recommendation -- Examination, with the support of the FEA and ITG Fraud SME. The TE/GE fraud specialist may also assist as needed.

The specialist, with the support of the group manager, FEA and ITG Fraud SME, prepares the plan of action as part of Form 11661. The group manager reviews the form, approves it and secure emails the form to the FEA for consideration with a courtesy copy to the ITG Fraud SME and the TE/GE fraud specialist.

Specialist: When you receive an approved Form 11661 signed by the FEA:

Specialist: Email a copy of the signed Form 11661 to the TE/GE fraud specialist and request a "WebETS naming convention code" to track WebETS time. The TE/GE fraud specialist maintains all approved Forms 11661 for TE/GE fraud inventory purposes.

Specialist: During the fraud development phase of the exam, work closely with the FEA and TE/GE Division Counsel to develop additional information/facts with the help of the ITG Fraud SME and TE/GE fraud specialist, as needed. The specialist, and the FEA jointly determine:

Specialist:

Always refer to IRM 25.1, Fraud Handbook, for additional procedures.

Advise the FEA and the ITG Fraud SME as new facts develop. The ITG Fraud SME will update the TE/GE fraud specialist monthly of the current case status including any significant developments, time frames, barriers, etc.

Specialist: Complete the case development, including your recommendation of assertion of the civil fraud penalty. The FEA, TE/GE Division Counsel, ITG Fraud SME and TE/GE fraud specialist are available to assist with the case write-up. Keep the case in Status 17 on AIMS during this process. Be sure you secure your manager’s signed approval of any proposed penalty before you inform the taxpayer or issue a Form 886-A.

Specialist: Send the case to TE/GE Division Counsel for review of the civil fraud penalty before a statutory notice of deficiency is issued or any penalty is assessed in an assessable case.

Always refer to IRM 25.1, Fraud Handbook, for additional procedures.

Advise the FEA and ITG Fraud SME as new facts develop. The ITG Fraud SME will update the TE/GE fraud specialist monthly of the current case status including any significant developments, time frames, barriers, etc.

Specialist: If you, your manager and the FEA agree that affirmative acts (actions taken by the taxpayer that establish criminal intent) have been established, and criminal criteria (criteria CI uses for selecting a case for criminal investigation) are present, suspend all examination activity and refer the case to CI. Make the referral via Form 2797, Referral Report of Potential Criminal Fraud Cases. The FEA and/or ITG Fraud SME are available to assist with preparation of Form 2797 as needed.

Specialist: Route the completed Form 2797 to your manager for approval. The group manager routes Form 2797 to the FEA, providing a courtesy copy to the ITG Fraud SME and the TE/GE fraud specialist. The FEA submits the approved Form 2797 to the appropriate CI field office for consideration.

The CI Special Agent assigned to evaluate the criminal fraud referral arranges an initial meeting to discuss the case merits within 10 working days of receipt of the referral. Meeting attendees include the specialist, group manager, ITG Fraud SME, TE/GE fraud specialist (as required), FEA and the Supervisory Special Agent.

CI conducts a disposition conference within 30 working days of receipt of the criminal fraud referral to discuss acceptance or denial of the referral. CI can request (and be granted) an extension of time. If the criminal fraud referral is accepted, CI may request a cooperating agent. If the referring specialist is assigned as the cooperating agent, this is documented on either Form 2797 or Form 6544, Request for Cooperating Agent. The group manager sends a copy of the Form 2797 or Form 6544 to the TE/GE fraud specialist to coordinate the assignment of the cooperating agent and issuance of the appropriate naming convention code, if necessary.

Specialist: Keep copies of the executed Form 11661 and Form 2797 in the case file. Send the TE/GE fraud specialist copies of both forms.

CI has jurisdiction over administrative investigations, which are criminal investigations for which a grand jury has not been approved. An administrative investigation involving cooperating agents from any compliance function, such as TE/GE, is an administrative joint investigation.

See IRM 25.1.4, Fraud Handbook – Administrative Joint Investigations, for a detailed discussion on administrative joint investigation procedures.

If CI hasn’t requested or received grand jury approval from the Department of Justice (DOJ), then the criminal investigation is an administrative investigation. When CI initiates an administrative criminal investigation, they send Form 14584, IRS - Criminal Investigation - Check for and Suspend Civil Activity Notification, to notify TE/GE that they have opened the investigation. If a specialist identifies a related, open examination that is not already part of the criminal investigation, then the group manager notifies the TE/GE fraud specialist so all involved can meet with CI to discuss the case.

The conference should include the specialist, their group manager, the CI special agent (SA) and the CI supervisory special agent (SSA). The ITG Fraud SME and FEA may also attend when necessary.

During this conference, a decision, based on the facts and circumstances, must be reached based on whether the specialist will:

Regardless of the decision reached, place the examination case in AIMS status code 18 and keep it in the group.

ITG Examination retains jurisdiction over the examinations in its inventory during an administrative investigation. The specialist who has worked any examinations related to the criminal investigation keeps the exam case files in the examination group but can’t contact the taxpayer or representative. Cases impacted by the CI investigation may be directly or peripherally related to the criminal investigation and can be identified by a -Z freeze (TC 914) on the module.

If CI needs a cooperating agent to help with the administrative criminal investigation, they may request it on the Form 2797 (if the investigation arose from an examination) or on a Form 6544 (see IRM 4.88.1.14.4(6) above). The administrative cooperating agent helps CI with the administrative investigation and receives a WebETS naming convention code from the TE/GE fraud specialist to track time spent assisting CI in that role.

CI notifies TE/GE that its case has been forwarded for prosecution. This information is shared between the ITG Fraud SME, TE/GE fraud specialist, specialist and group manager, and the FEA.

Once CI forwards its administrative case to the Department of Justice for its approval of prosecution, ITG Examination loses jurisdiction over the examination. The group must forward the examination cases previously held within the group to the ITG Fraud Suspense Unit to be placed into administrative fraud suspense. The specialist must suspend all civil actions and expeditiously close the exam case to the ITG Fraud Suspense Unit.

Refer to IRM 25.1.4.3.11 (2), Fraud Handbook, Administrative Joint Investigation, for detailed instructions of what to include in the case file when you close it. The TE/GE Fraud Suspense Coordinator has prepared check sheets you can use to ensure you’ve considered and included all required elements.

Specialist: Statute protection is your responsibility before you close the case to suspense. Ensure a minimum of one year remains on the statute of limitations before you close cases to suspense. You must send a Form 10498-B, Joint Investigations Intent to Solicit Consent to Extend Statute, to CI before soliciting any extensions of the assessment statute or closing the case for the issuance of a statutory notice of deficiency due to a short statute. Notify the ITG Fraud Suspense Coordinator if there is less than a year on the statute when the case is transferred to ITG Fraud Suspense. The TE/GE fraud specialist can also assist with addressing the short statute concerns.

ITG Fraud Suspense Coordinator: Review the case and determine its readiness for fraud suspense. When you review the case and accept it into TE/GE Fraud Suspense, update the case on AIMS through RCCMS to Status Code 32, Suspense-General Fraud, and update the organization code on AIMS.

ITG Fraud Suspense Coordinator: Review the case for compliance with IRM 25.1.4, Administrative Joint Investigation, or IRM 25.1.5, Grand Jury Suspense, and readiness for fraud suspense.

Specialist: Ensure that four-way quarterly conferences are held with CI before closing the case to suspense.

ITG Fraud Suspense Coordinator: Ensure that four-way quarterly conferences are held with CI while the case is in suspense. See IRM 25.1.4.3.3 (2), Administrative Joint Investigation, for more information about four-way conferences.

ITG Fraud Suspense Coordinator: Monitor the statute while the case is in suspense:

Once CI has concluded its investigation (prosecution, plea or discontinuance), they issue Form 13308, Criminal Investigation Closing Report (Tax and Tax Related Only). ITG Fraud Suspense Coordinator: When you receive Form 13308 (and not before), prepare the case to return to a group for civil settlement and closure.

ITG Fraud Suspense Coordinator: Determine what statutes exist when you receive Form 13308 and address any statute concerns before you return the case to the field or Appeals.

Group: Upon receipt, the group assigned the civil settlement of the case is also be responsible for the civil statutes.

ITG Fraud Suspense Coordinator: Update the case out of status code 32 and update the organization code.

CI has complete jurisdiction over grand jury cases.

See IRM 25.1.5, Fraud Handbook - Grand Jury Investigations, for a detailed discussion on grand jury procedures.

When CI initiates a grand jury investigation not referred by a civil compliance function or when the grand jury was initiated by the DOJ, the SA:

Specialist: Upon receipt of notification, immediately cease taxpayer contact for tax years currently under examination unless a parallel investigation is authorized.

If CI needs a cooperating agent to assist with the grand jury criminal investigation, the request may be made on the Form 2797 (if the investigation arose from an examination and the investigation is an ongoing grand jury investigation or on a Form 6544 (See IRM 4.88.1.14.5(8) above.) The grand jury cooperating agent assists CI with the grand jury investigation and receives a WebETS naming convention code from the TE/GE fraud specialist to track time spent assisting CI in that role.

When an existing administrative criminal investigation, either with or without an assigned cooperating agent, becomes an approved grand jury investigation, CI sends a Notice of Department of Justice Referral memorandum to TE/GE to initiate suspense action.

Refer to IRM 25.1.5, Fraud Handbook, Grand Jury Investigations, for detailed instructions of what to include in the case when you close it. The TE/GE Fraud Suspense Coordinator has prepared check sheets that you may use to ensure you’ve considered and included all required elements.

Specialist: Statute protection is your responsibility. Ensure a minimum of one year remains on the statute of limitations before you close cases to suspense. You must send a Form 10498-B, Joint Investigations Intent to Solicit Consent to Extend Statute, to CI before you solicit any extensions of the assessment statute or close the case for the issuance of a statutory notice of deficiency due to a short statute. Notify the ITG Fraud Suspense Coordinator if there is less than a year on the statute when the case is transferred to ITG Fraud Suspense. The TE/GE fraud specialist can also assist with addressing short statute concerns.

ITG Fraud Suspense Coordinator: Review the case and determine its readiness for fraud suspense. Once you’ve reviewed the case and accepted it into ITG Fraud Suspense, update the case on AIMS through RCCMS to Status Code 36, Suspense-Grand Jury, and update the organization code on AIMS.

ITG Fraud Suspense Coordinator: Review the case for compliance with IRM 25.1.5, Grand Jury Investigations and readiness for fraud suspense.

Specialist: Ensure that four-way quarterly conferences are held with CI before you close the case to suspense. ITG Fraud Suspense Coordinator: Ensure that four-way quarterly conferences are held with CI while the case is in fraud suspense. See IRM 25.1.5.3 for more information about four-way conferences.

ITG Fraud Suspense Coordinator: Monitor the statute while it is in suspense:

Once CI has concluded its investigation (prosecution, plea or discontinuance) it issues Form 13308, Criminal Investigation Closing Report (Tax and Tax Related Only). ITG Fraud Suspense Coordinator: When you receive Form 13308 (and not before), prepare the case to return to a group for civil settlement and closure.

ITG Fraud Suspense Coordinator: Determine what statutes exist when you receive Form 13308, Criminal Investigation Closing Report (Tax and Tax Related Only) and address any statute concerns before you return the case to the field or Appeals.

Exam Group: Upon receipt, the group assigned the civil settlement of the case is also responsible for the civil statutes. ITG Fraud Suspense Coordinator: Update the case out of Status Code 36 and update the organization code.

IRM 20.1, Penalty Handbook, provides detailed criteria, guidelines and procedures for both assessing and abating penalties.

Find procedures for abatement of interest in IRM 20.2.7, Abatement and Suspension of Debit Interest. Reasonable cause is not a basis for abating interest. Interest-free adjustments are discussed under Employment Taxes in this manual. See IRM 4.88.1.7.1, Employment Tax Reporting, Deposit Requirements and Related Issues, IRM 4.23.8.3, Interest-Free Adjustments - In General.

Sometimes IRS can’t collect an account receivable in full or there’s a dispute on what is owed. The authority to compromise tax is found in IRC 7122 and Regulation section 301.7122-1. See IRM 5.8.11, Effective Tax Administration.

Offers-in-Compromise (Offers) can be based on:

IRM 1.2.1.6.17, Policy Statement 5-100, Offers Will Be Accepted, presents the IRS’s position on using offers. In short, the IRS accepts an offer when it’s unlikely we’ll collect the liability in full and the amount offered reasonably reflects collection potential. The goal is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to the government. See IRM 5.8.1.1.3, Responsibilities.

The trust fund recovery penalty (TFRP) is a penalty per IRC 6672 against any person required to collect, account for, and pay over taxes held in trust who willfully fails to perform any of these activities, or willfully attempts to evade or defeat any such tax or its payment. The TFRP is used to:

The penalty equals the total amount of tax evaded, not collected, or not accounted for and paid.

IRC 6672, TFRP, applies to individuals or entities (representatives of a business with authority and responsibility) that did not pay any of these taxes to the government:

The TFRP may be assessed against anyone who is both:

The responsible person may be one or more of, but not limited to, the following:

Though TFRP may be assessed against several individuals, the total liability is collected (ultimately retained) only once from any of these:

TFRP assessments may be based on liabilities for the following tax forms with related Master file tax (MFT) codes:

The IRS’s policy on assertion of the trust fund recovery penalty is in IRM 1.2.1.6.3, Policy Statement 5-14 (formerly P-5-60), Trust Fund Recovery Penalty Assessments. See IRM 1.2.1.6, Policy Statements for the Collecting Process.

The statutory period for assessment of a Trust Fund Recovery Penalty, for any taxable period within a calendar year, is three years from the succeeding April 15 or from the date the return was filed, whichever is later. The statutory period for assessment for any unpaid trust fund tax arising from an adjustment made to a taxpayer filed return remains the original statute date based on the filed return.

IRC 6672 doesn’t prohibit the assertion of the Trust Fund Recovery Penalty against responsible persons where the addition to the tax for fraud is asserted against the employer.

IRM 5.7, Trust Fund Compliance, contains several sections on the Trust Fund Recovery Penalty (TFRP). The TFRP is based on IRC 6672.

Employment tax examinations in which full rates are used will necessitate a TFRP determination, with consideration to the dollar criterion. See IRM 5.7.3.4, Consideration for Employment Tax Examination (ETE) Assessment.

Also, a tribal entity may submit a claim for consideration of an abatement of a TFRP assessment. "Responsibility" and "willfulness" (defined below) are the key elements that need to be established in order to assess and sustain the TFRP.

As discussed below, the extent of SB/SE involvement in the TFRP process is determined on a case-by-case basis.