• 4.10.8  Report Writing
    • 4.10.8.1  Program Scope and Objectives
      • 4.10.8.1.1  Background
      • 4.10.8.1.2  Authority
      • 4.10.8.1.3  Responsibilities
      • 4.10.8.1.4  Program Reports
      • 4.10.8.1.5  Terms
      • 4.10.8.1.6  Acronyms
      • 4.10.8.1.7  Related Resources
    • 4.10.8.2  Audit Reports
      • 4.10.8.2.1  Overview of Audit Reports
      • 4.10.8.2.2  Preparation of Audit Reports
        • 4.10.8.2.2.1  Form 4549 / 4549-A: Other Information
      • 4.10.8.2.3  Issuance of Audit Reports
        • 4.10.8.2.3.1  Letters
        • 4.10.8.2.3.2  Publications
      • 4.10.8.2.4  Considerations After Report Issuance
        • 4.10.8.2.4.1  Soliciting Payment
        • 4.10.8.2.4.2  Execution and Receipt of Audit Reports and Waivers
        • 4.10.8.2.4.3  Time Frames for Closing Cases from the Group
    • 4.10.8.3  No-Change and No Liability Cases
      • 4.10.8.3.1  No-Change (No Adjustments)
      • 4.10.8.3.2  No-Change with Adjustments Report Not Impacting Other Tax Year(s)
      • 4.10.8.3.3  No-Change Report with Adjustments Impacting Other Tax Year(s) Filed, Delinquent or Not Due to be Filed
      • 4.10.8.3.4  Multiple Year Exams Including No-Change Years
      • 4.10.8.3.5  Letters Used in No-Change Cases
      • 4.10.8.3.6  No-Change Issue and Disposal Codes
      • 4.10.8.3.7  Special Situations: Combat Zones
        • 4.10.8.3.7.1  Substantiation of Combat Zone
        • 4.10.8.3.7.2  Examination Guidance for Combat Zone Personnel
        • 4.10.8.3.7.3  Compelling Reason Suspense Procedures
    • 4.10.8.4  Regular Agreed Cases
      • 4.10.8.4.1  Individual and Corporate Cases
        • 4.10.8.4.1.1  Deficiency Cases
        • 4.10.8.4.1.2  Overassessment Cases
      • 4.10.8.4.2  Partnership and S Corporation Cases
        • 4.10.8.4.2.1  Form 4605
        • 4.10.8.4.2.2  Special Situations: S Corporation Cases
        • 4.10.8.4.2.3  Special Situations: Change in Accounting Method
      • 4.10.8.4.3  Interest Charge Domestic International Sales Corporations
      • 4.10.8.4.4  Fiduciary Cases
      • 4.10.8.4.5  Closing Letters for Agreed Cases
    • 4.10.8.5  Excepted Agreed Cases
    • 4.10.8.6  Partially Agreed Cases
      • 4.10.8.6.1  Partial Overassessments
      • 4.10.8.6.2  Partially Agreed Deficiency Cases - Individuals and Corporations
        • 4.10.8.6.2.1  Partially Agreed Deficiency Cases - Individuals and Corporations – Prior to Request for Appeals Conference
        • 4.10.8.6.2.2  Partially Agreed Deficiency Cases - Individuals and Corporations – After Request for Appeals Conference Received
      • 4.10.8.6.3  Non-TEFRA Partnerships and Nontaxable S Corporation and Fiduciary Cases
      • 4.10.8.6.4  S Corporations and Fiduciary Cases
      • 4.10.8.6.5  Interest Charge Domestic International Sales Corporations
    • 4.10.8.7  Splitting Multi-Year Examination Cases
    • 4.10.8.8  Claims for Abatement, Audit Reconsiderations, and Supplemental Reports
      • 4.10.8.8.1  90-Day / Notice of Deficiency Reconsideration Cases
    • 4.10.8.9  Reports For Cases Reopened By Examination
    • 4.10.8.10  Claims for Refund and Overassessments
      • 4.10.8.10.1  Inviting Claims in Overassessment Cases
      • 4.10.8.10.2  Application of Revenue Ruling 99-40
    • 4.10.8.11  Deficiency Dividends
      • 4.10.8.11.1  Informal Agreements Under IRC Section 547(c)(3)
      • 4.10.8.11.2  Receipt of Claim: Form 976
      • 4.10.8.11.3  Appeals Cases: Area Compliance Responsibilities
      • 4.10.8.11.4  United States Tax Court Cases: Area Compliance Responsibilities
      • 4.10.8.11.5  Closing Procedures For All Dividend Deficiency Cases
    • 4.10.8.12  Unagreed Case Procedures
      • 4.10.8.12.1  30-Day Letters
      • 4.10.8.12.2  Unagreed Report Forms
      • 4.10.8.12.3  Separate Assessments on Joint Taxpayers
      • 4.10.8.12.4  Explanation of Items
      • 4.10.8.12.5  Alternative Positions
        • 4.10.8.12.5.1  Reports for Cases with Alternative Positions
      • 4.10.8.12.6  Form 4665, Report Transmittal
      • 4.10.8.12.7  Issuing 30-Day Letters
      • 4.10.8.12.8  Extension of Time to Respond
      • 4.10.8.12.9  Response to 30-Day Letter
        • 4.10.8.12.9.1  Additional Information Received
        • 4.10.8.12.9.2  Full or Partial Agreement or Remittance
        • 4.10.8.12.9.3  Request for Appeals Conference
          • 4.10.8.12.9.3.1  Timely Actions - Request for Appeals Conference
      • 4.10.8.12.10  No Response to 30-Day Letter
      • 4.10.8.12.11  Cases Returned from Appeals
      • 4.10.8.12.12  Time Reporting for 30-Day Letters for Revenue Agents
    • 4.10.8.13  Corrected Reports
    • 4.10.8.14  Issues Requiring Special Reports and Forms
      • 4.10.8.14.1  Depreciation
      • 4.10.8.14.2  Passive Activity Loss Limitations
      • 4.10.8.14.3  Adjustments to Net Operating Loss (NOL)
        • 4.10.8.14.3.1  Computation of the Net Operating Loss
        • 4.10.8.14.3.2  Computation of the Net Operating Loss Deduction
        • 4.10.8.14.3.3  Reports After a Tentative Refund or Credit
        • 4.10.8.14.3.4  Restricted Interest
      • 4.10.8.14.4  Form 2363
      • 4.10.8.14.5  Filing Status: Joint Return Converted to Separate Returns
        • 4.10.8.14.5.1  Closing the Return of the Primary Taxpayer if the Joint Election is Invalid
        • 4.10.8.14.5.2  Closing the Return of the Person Whose Name was Removed from the Joint Return
      • 4.10.8.14.6  Filing Status: Separate Returns Converted to Amended Joint Return
        • 4.10.8.14.6.1  Procedures for Delinquent and Substitute for Returns for Joint Return Filing Status
        • 4.10.8.14.6.2  Statute and Other Considerations
        • 4.10.8.14.6.3  Examination of Return
        • 4.10.8.14.6.4  Preparation of Reports
        • 4.10.8.14.6.5  Closing Procedures
      • 4.10.8.14.7  Adjustments to the Investment Credit
      • 4.10.8.14.8  Self-Employment Tax Adjustments
      • 4.10.8.14.9  Adjustment to FICA Tax on Tip Income Not Reported to Employer
      • 4.10.8.14.10  Adjustment For Employee FICA Tax
      • 4.10.8.14.11  Adjustment to Schedule H — Household Employment Taxes
      • 4.10.8.14.12  Specialists Report
      • 4.10.8.14.13  Notice Under IRC Section 6404(g) – Suspension of Interest
      • 4.10.8.14.14  Individual Retirement Arrangement (IRA) and Qualified Retirement Plan Adjustments
        • 4.10.8.14.14.1  Posting Advance Payments
        • 4.10.8.14.14.2  Form 5344 – Examination Closing Record
        • 4.10.8.14.14.3  Form 3198 – Special Handling Notice
    • 4.10.8.15  Inadequate Records Notices: Overview
      • 4.10.8.15.1  Determination of Taxpayer Compliance
      • 4.10.8.15.2  Examination Procedures
        • 4.10.8.15.2.1  Time Charges
        • 4.10.8.15.2.2  Factual Development
        • 4.10.8.15.2.3  Case File Documentation
        • 4.10.8.15.2.4  Group Manager Involvement
        • 4.10.8.15.2.5  Record Retention Agreements
      • 4.10.8.15.3  Required Forms and Exceptions
        • 4.10.8.15.3.1  Completion of Forms
        • 4.10.8.15.3.2  Group Manager Approval
      • 4.10.8.15.4  Delivery of Inadequate Records Notices
        • 4.10.8.15.4.1  Record of Service
        • 4.10.8.15.4.2  Notices for Joint Returns
        • 4.10.8.15.4.3  Notices for Corporate Returns
        • 4.10.8.15.4.4  Notices for Partnerships
        • 4.10.8.15.4.5  Field Exam
        • 4.10.8.15.4.6  Office Audit
        • 4.10.8.15.4.7  Joint Investigations
      • 4.10.8.15.5  Taxpayer Agreement
      • 4.10.8.15.6  Taxpayer's Appeal Rights
      • 4.10.8.15.7  Completing Form 5346
      • 4.10.8.15.8  Follow-Up Examinations
        • 4.10.8.15.8.1  Case File Documentation
        • 4.10.8.15.8.2  Substantial Compliance By the Taxpayer
        • 4.10.8.15.8.3  Continued Noncompliance By Taxpayer
    • 4.10.8.16  Examiner Case Closing Requirements
      • 4.10.8.16.1  Completion of Form 5344, Examination Closing Record
      • 4.10.8.16.2  Examination Operational Automation Database (EOAD)
      • 4.10.8.16.3  Case Folder Color
    • 4.10.8.17  Whistleblower Claims for Award
    • 4.10.8.18  Deceased Taxpayers
      • 4.10.8.18.1  Names and Addresses
      • 4.10.8.18.2  Signatures
      • 4.10.8.18.3  Consents
      • 4.10.8.18.4  Refunds
      • 4.10.8.18.5  Relief for Victims of Terrorist Attacks and with Respect to Astronauts
        • 4.10.8.18.5.1  Minimum Amount of Relief for Victims
        • 4.10.8.18.5.2  Necessary Documents
      • 4.10.8.18.6  Form 3198 for Deceased Taxpayers
    • Exhibit  4.10.8-1  Preparation of Form 4549 / Form 4549-A
    • Exhibit  4.10.8-2  Preparation of Form 870
    • Exhibit  4.10.8-3  Sample Form 4605–A — Change in Accounting Method
    • Exhibit  4.10.8-4  Sample Form 4549–A — Personal Holding Company
    • Exhibit  4.10.8-5  Sample Form 870 — Personal Holding Company
    • Exhibit  4.10.8-6  Sample Form 2198 — Determination of Liability for Personal Holding Company Tax Section 547(c)(3) of the Internal Revenue Code
    • Exhibit  4.10.8-7  Sample Form 4549-A — Personal Holding Company - Page 1
    • Exhibit  4.10.8-8  Sample Form 3189 — Deficiency Dividend Deduction Case Transmittal
    • Exhibit  4.10.8-9  Sample Form 4549-A - Full Allowance of Tentative NOLD
    • Exhibit  4.10.8-10  Sample Form 4549-A - Partial Allowance of Tentative NOLD
    • Exhibit  4.10.8-11  Sample Form 4549-A - Full Disallowance of Tentative NOLD
    • Exhibit  4.10.8-12  Restricted Interest Decision Chart (Non-Joint Committee Cases Only)

Part 4. Examining Process

Chapter 10. Examination of Returns

Section 8. Report Writing

4.10.8 Report Writing

Manual Transmittal

March 25, 2021

Purpose

(1) This transmits a revision of IRM 4.10.8, Examination of Returns, Report Writing.

Material Changes

(1) Significant changes to this IRM are listed in the table below.

IRM Reference Description of Change
4.10.8.1.5 Clarified the definition of Audit Report in the Terms.
4.10.8.1.6 Added BBA, DLN, IIC, ILSC, and RSED to the list of acronyms.
4.10.8.1.7 Updated IRM cites and websites in the Related Resources.
4.10.8.2.2 Moved content previously found in IRM 4.10.8.4.2, Form 4549 Prepared for Information Only, and IRM 4.10.8.4.1(18) regarding Form 9984. Moved content previously found in IRM 4.10.8.5.2, Waivers For Unagreed and Excepted Agreed Cases: Form 870 Series. Added note that Office Examiners may use Form 4549 instead of Form 870. Moved content previously in IRM 4.10.8.18 Report Generation Software (RGS), regarding standard explanations. Made other editorial changes.
4.10.8.2.2.1 Created new subsection and moved guidance for "Regular Agreed Report: Other Information" previously found in IRM 4.10.8.4.3, and deleted outdated content.
4.10.8.2.3 Updated to incorporate applicable content from Interim Guidance Memorandum SBSE-04-0920-0054, Timing of Supervisory Approval of Penalties Subject to IRC 6751(b), dated September 24, 2020.
4.10.8.2.3.1 Added guidance that a copy of letters issued must be kept in the case file. Added link to new Letter Chart job aid. Incorporated applicable content from IRM 4.4.7, Correspondence and Closing Letters, adding content regarding undeliverable closing letters.
4.10.8.2.4.2 Moved content previously found in IRM 4.10.8.4, Regular Agreed Cases, regarding accepting waivers with added writing.
4.10.8.3.1 Removed "(SB/SE Field and Office Examiners Only)" from the title; added IRM references for LB&I examiners.
4.10.8.3.3 Added guidance for issuing Letter 950-F for no-change with adjustment cases that impact other tax year(s). Removed reference to Letter 3402 and revised content for readability.
4.10.8.3.5 Revised title and revised content for readability.
4.10.8.4 Moved paragraphs (5) and (6) containing guidance for Field Examination and Office Examination from the introduction section to the following subsection for Individual and Corporate Cases.
4.10.8.4.1 Moved instructions for completing Form 4549 to IRM Exhibit 4.10.8-1, and moved paragraph (18) to IRM 4.10.8.2.2(9).
4.10.8.4.1.1 Added new subsection for deficiency cases, including content moved from IRM 4.10.8.4 paragraphs (5) and (6).
4.10.8.4.1.2 Added new subsection for overassessment cases.
4.10.8.4.2 Moved instructions for "Form 4549 Prepared for Information Only" to IRM 4.10.8.2.2. Renumbered Partnership and S Corporation Cases and added IRM and web links to BBA guidance.
4.10.8.4.3 Moved guidance for "Regular Agreed Report: Other Information" to IRM 4.10.8.2.2.1.
4.10.8.5 Moved content previously found in IRM 4.10.8.5.1, Cases Requiring Excepted Agreed Reports, and IRM 4.10.8.5.2, Waivers For Excepted Agreed Cases: Form 870 Series. Added Fast Track Settlement cases when Appeals settles the issues on hazards of litigation to the list of excepted agreed cases. Removed unagreed cases from the list of excepted agreed.
4.10.8.5.3 Deleted and moved content regarding the preparation of Form 870 to IRM Exhibit 4.10.8-2.
4.10.8.6 Added content regarding Form 870, and included Form 2285 (if required) to the partial agreement package. Moved content previously found in IRM 4.10.8.6.5, Cases Excluded from Partial Assessments.
4.10.8.6.1 Moved content previously found in IRM 4.10.8.6.6, Partial Overassessments.
4.10.8.6.2 Renumbered from IRM 4.10.8.6.1 and revised title to "Partially Agreed Deficiency Cases - Individuals and Corporations." Added content regarding partially agreed deficiency cases.
4.10.8.6.2.1 Created new subsection titled, "Partially Agreed Deficiency Cases - Individuals and Corporations - Prior to Request for Appeals Conference" and added guidance for preparing and issuing partially agreed report.
4.10.8.6.2.2 Created new subsection titled, "Partially Agreed Deficiency Cases - Individuals and Corporations - After Request for Appeals Conference Received" and added guidance for preparing and issuing partially agreed report.
4.10.8.7 Added scenarios requiring the splitting of multi-year examination cases, including an example.
4.10.8.8 Deleted content for abatement requests that is now in IRM 4.10.11, Claims for Refund and Requests for Abatement.
4.10.8.8.1 Updated and clarified instructions to examiners for 90-Day / Notice of Deficiency Reconsideration cases, removing guidance applicable to Technical Services and found in IRM 4.8.9.
4.10.8.10 Deleted content for claims for refund that is now in IRM 4.10.11, Claims for Refund and Requests for Abatement, and removed IRM Exhibit 4.10.8-4, Sample Form 2297 — Waiver of Statutory Notification of Claim Disallowance.
4.10.8.10.7 Revised instructions for inviting claims in overassessment cases and removed reference to obsolete Letter 897. Renumbered to IRM 4.10.8.10.1.
4.10.8.12 (all subsections) Merged content from IRM 4.10.8.13, Unagreed Case Procedures (LB&I Examiners Only) into IRM 4.10.8.12, Unagreed Case Procedures. Deleted "(SB/SE Field and Office Examiners only)" from the title of each subsection and revised the subsection dates. Added references to LB&I IRM cites when LB&I procedures differ. Other material changes for these subsections are noted below.
4.10.8.12 Added guidance that FTS may be offered on cases returned from Appeals. Added IRM references to FTS for SB/SE and LB&I examiners. Added guidance when an original return may be required. Moved content previously found in IRM 4.10.8.12.9.3 regarding cases where a notice of deficiency has been issued.
4.10.8.12.1 Added "agreed change" cases to the list of cases for which 30-day letters are generally issued in Office Examination. Added Letter 950-Z and Letter 2777 to the list of 30-day letters, and added guidance for Letter 950-F.
4.10.8.12.4 Clarified the Law section of the lead sheet includes the Service's argument and rebuttal to the taxpayer's position (if applicable).
4.10.8.12.5 Updated the example of backup withholding as an alterative position and added note regarding the need for a separate case file.
4.10.8.12.5.1 Deleted the note regarding the separate backup withholding case file, and moved revised guidance to IRM 4.10.8.12.5.
4.10.8.12.7 Clarified the use of TCO action code 04 includes cases when a subsequent IDR is issued.
4.10.8.12.9.1 Clarified content relating to additional information received.
4.10.8.12.9.2 Clarified content regarding partial agreements.
4.10.8.12.9.3 Deleted row (3)(l) from the table in paragraph (3). The guidance for examiners was moved to IRM 4.10.8.12 (6), and the guidance for Technical Services is in IRM 4.8.9.23.1.
4.10.8.12.10 Added no-change with adjustment cases and employment tax cases to No Response to 30-Day Letter procedures.
4.10.8.13 (prior) Deleted entire section for Unagreed Case Procedures: Preliminary (30-Day) Letters (LB&I Examiners only), and merged content into IRM 4.10.8.12, Unagreed Case Procedures.
4.10.8.14 (prior) Renumbered Corrected Reports to IRM 4.10.8.13; clarified and revised flow of corrected reports guidance.
4.10.8.15.5 (prior) Renumbered to IRM 4.10.8.14.5 and clarified content regarding separate returns after a joint return was filed.
4.10.8.18 (prior) Deleted RGS content that is outdated or contained in IRM 4.10.15.
4.10.8.19 (prior) Renumbered and retitled to IRM 4.10.8.17, "Whistleblower Claims for Award," and deleted outdated content. References added to current guidance found in IRM 25.2.2, Whistleblower Awards, and IRM 25.2.1, General Operating Division Guidance for Working Whistleblower Claims.
Exhibit 4.10.8-1 Removed links to TEFRA reports and incorporated them into IRM 4.10.8.1.7, Related Resources. Renamed exhibit as "Preparation of Form 4549 / Form 4549-A" and moved instructions for completing Form 4549 from IRM 4.10.8.4.1 to this exhibit and included Form 4549-A in the title.
Exhibit 4.10.8-2 Removed links to Non-TEFRA reports and incorporated them into IRM 4.10.8.1.7, Related Resources. Renamed exhibit to "Preparation of Form 870" , and incorporated content from IRM 4.10.8.5.3.

Effect on Other Documents

IRM 4.10.8, dated September 13, 2019, is superseded. This IRM incorporates applicable content from Interim Guidance Memorandum SBSE-04-0920-0054, Timing of Supervisory Approval of Penalties Subject to IRC 6751(b), dated September 24, 2020.

Audience

Small Business/Self-Employed (SB/SE) Examination-Field and Specialty Examination; Large Business & International (LB&I) and Tax-Exempt/Government Entities (TEGE) Examiners.

Effective Date

(03-25-2021)

Lori L. Caskey
Acting Director, Examination–Field and Campus Policy
Small Business/Self-Employed Division
SE:S:DCE:E:HQ:EFCP

4.10.8.1 (09-13-2019)

Program Scope and Objectives

  1. Purpose . This IRM section includes guidelines for the preparation of audit reports. In addition to basic report writing procedures, this IRM provides details regarding the preparation of corrected reports and discusses issues which require special reports and forms. It also provides instructions for some case closing requirements.

  2. Audience . These procedures apply to examiners in SB/SE Examination-Field and Specialty Examination, LB&I, and TE/GE.

  3. Policy Owner . The Director, Examination – Field and Campus Policy, who is under the Director, Headquarters Examination.

  4. Program Owner . Field Examination General Processes (FEGP), which is under the Director, Examination – Field and Campus Policy.

  5. Contact Information . To recommend changes or make any other suggestions related to this IRM section, see IRM 1.11.6.6, Providing Feedback About an IRM Section - Outside of Clearance.

4.10.8.1.1 (09-13-2019)

Background

  1. This IRM provides guidance for report writing that examiners should understand and apply in the performance of their duties.

4.10.8.1.2 (09-13-2019)

Authority

  1. By law, the Service has the authority to conduct examinations under Title 26, Internal Revenue Code, Subtitle F – Procedure and Administration, Chapter 78, Discovery of Liability and Enforcement of Title, Subchapter A, Examination and Inspection, which includes, but is not limited to, the following IRC sections:

    • IRC 7602, Examination of books and witnesses

    • IRC 7605, Time and place of examination

    Note:

    Procedures for exercising examination authority are contained in the 26 CFR 601.105, Statement of Procedural Regulations

    .

4.10.8.1.3 (09-13-2019)

Responsibilities

  1. The Director, Headquarters Examination, is the executive responsible for providing policy and guidance for SB/SE Examination employees and ensuring consistent application of policy, procedures and tax law to effect tax administration while protecting taxpayers' rights. See IRM 1.1.16.3.5, Headquarters Examination, for additional information.

  2. The Director, Examination – Field and Campus Policy, reports to the Director, Headquarters Examination, and is responsible for the delivery of policy and guidance that impacts the field and campus examination processes. See IRM 1.1.16.3.5.1, Field and Campus Policy, for additional information.

  3. Field Examination General Processes (FEGP), which is under the Director, Examination – Field and Campus Policy, is the group responsible for providing policy and procedural guidance on standard examination processes to field employees. See IRM 1.1.16.3.5.1.1, Field Exam General Processes, for additional information.

  4. Examiners are responsible for observing the Taxpayer Bill of Rights, including the taxpayer's right to be informed regarding IRS decisions about their tax accounts. Examiners should ensure taxpayers receive clear explanations of the outcomes by issuing examination reports and letters which identify the amounts (if any) of tax due, interest, additional amounts, additions to the tax and assessable penalties.

  5. Examiners and their managers should thoroughly acquaint themselves with the report writing procedures and information contained in this IRM, as well as other resources, such as those listed in IRM 4.10.8.1.7 , Related Resources, below.

4.10.8.1.4 (09-13-2019)

Program Reports

  1. Reports are derived from a variety of sources including the Audit Information Management System (AIMS, AIMS - Centralized Information System (A-CIS)), and Examination Returns Control System (ERCS) databases. These reports provide Headquarters and Field Examination with timely and reliable information. There are a variety of reports designed to meet the needs of the group or function. Additional information can be found in IRM 4.4.27, Reports; IRM 4.7.6, Reports; and IRM 1.4.40.5, Monitoring Reports Overview.

  2. Periodic program reviews are conducted to:

    • Assess the effectiveness of specific programs within Examination or across the organization,

    • Determine if procedures are being followed,

    • Validate policies and procedures, and

    • Identify and share best/proven practices.

4.10.8.1.5 (03-25-2021)

Terms

  1. The following table contains a list of terms used throughout this IRM and their definitions.

    Term Definition
    30-day letter (also known as a "preliminary letter" ) Letter used to transmit the examination report to the taxpayer and allow the taxpayer 30 days to request Appeals' consideration of their case, or take other actions as outlined in the specific letter.
    Agreed tax period An examined tax period resulting in changes to tax and/or penalty and the taxpayer agrees to the findings by signing a report.
    The following scenarios are considered agreed closures even without a signature on the agreement form:

    • prior to the issuance of a notice of deficiency an advance payment is received (other than a payment designated as an IRC 6603 deposit) which fully pays the deficiency

    • the net result of the audit is an overassessment (other than a claim for refund disallowed in full or part) that is not protested.
    Audit report (also known as examination report) A form and all attachments used to summarize and explain the findings of an examination, containing all the information necessary to ensure a clear understanding of the adjustments and demonstrating how the tax liability was computed. An audit report is a legally binding document, and serves as the basis for assessment and collection action.

    Example:

    Form 4549, Report of Income Tax Examination Changes, with an explanation of each item of adjustment, and a copy of the signed Civil Penalty Approval Form (if applicable).
    Closing letter (also known as a "final letter" ) Letter used to notify the taxpayer:

    • the examination report has been reviewed and accepted by the appropriate Director for the respective operating division, and/or

    • the examination proceeding is officially closed.
    No-Change tax period An examined tax period resulting in no adjustment(s) to the taxpayer's reported income, loss, deductions or credits.
    No-Change with adjustments tax period An examined tax period resulting in adjustment(s) to the taxpayer's reported income, loss, deductions or credits, but no net change to tax and/or penalty.
    Overassessment tax period An examined tax period resulting in adjustment(s) that reduce the taxpayer's liability in the year examined. An overassessment becomes an overpayment when a refund is indicated (subject to the time limits prescribed by law for making a refund or credit).
    Unagreed tax period An examined tax period that results in a deficiency, a disallowed claim for refund, or a no-change (but the adjustments impact the tax liability of another year), and the taxpayer does not agree to the findings and a report or waiver is not signed by the taxpayer.
    Waiver A form allowing taxpayers to waive certain restrictions or requirements.

    Example:

    Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment.

4.10.8.1.6 (03-25-2021)

Acronyms

  1. The following table lists acronyms used throughout this IRM and their definitions.

    Acronym Definition
    A-CIS AIMS - Centralized Information System
    AIMS Audit Information Management System
    AMT Alternative Minimum Tax
    ASED Assessment Statute Expiration Date
    AUR Automated Under Reporter
    BBA Bipartisan Budget Act of 2015
    BNA Bureau of National Affairs
    CAF Centralized Authorization File
    CCP Centralized Case Processing
    CEAS Correspondence Examination Automation System
    CFR Code of Federal Regulations
    CZ Combat Zone
    DET Direct Examination Time
    DIF Discriminant Index Function
    DISC Domestic International Sales Corporation
    DLN Document Locator Number
    DOD Department of Defense
    DPC Designated Payment Code
    EEFAX Enterprise Electronic Facsimile
    EGC Employee Group Code
    EIN Employer Identification Number
    EOAD Examination Operational Automated Database
    ERCS Examination Return Control System
    FFTF Fraudulent Failure to File
    FICA Federal Insurance Contribution Act
    FORT Field Office Resource Team
    FTS Fast Track Settlement
    IC-DISC Interest Charge Domestic International Sales Corporation
    ICE Informant's Claims Examiner
    IDRS Integrated Data Retrieval System
    IIC International Individual Compliance
    ILSC Investor Level Statute Control
    IMF Individual Master File
    IMS Issue Management System
    IPG Issue Practice Group
    IRA Individual Retirement Arrangement
    IRC Internal Revenue Code
    IRN Inadequate Records Notice
    LB&I Large Business and International
    LCU Large Corporate Underpayment
    LUQ Large Unusual and Questionable
    MACRS Modified Accelerated Cost Recovery System
    MFJ Married Filing Jointly
    MFT Master File Tax
    NMF Non-Master File
    NOLD Net Operating Loss Deduction
    NRP National Research Program
    POA Power of Attorney
    POD Post of Duty
    PSP Planning & Special Programs
    RA Revenue Agent
    RGS Report Generation Software
    RRA Restructuring and Reform Act of 1998
    RSED Refund Statute Expiration Date
    SB/SE Small Business and Self-Employed
    SBU Sensitive but Unclassified
    SECA Self-Employed Collection Act
    SFR Substitute for Return
    SSN Social Security number
    TC Transaction Code
    TCO Tax Compliance Officer
    TDF Treasury Department Form
    TEFRA Tax Equity and Fiscal Responsibility Act
    TEGE Tax Exempt Government Entities
    TIN Tax Identification Number
    USTC United States Tax Court

4.10.8.1.7 (03-25-2021)

Related Resources

  1. Following are the primary sources of procedures and guidelines examiners will use for report writing:

    • IRM 4.2.2, Disaster Assistance Relief

    • IRM 4.7.5, Examination Returns Control System (ERCS), Group and Territory

    • IRM 4.10.1, Overview of Examiner Responsibilities

    • IRM 4.10.6, Penalty Considerations

    • IRM 4.10.7, Issue Resolution

    • IRM 4.10.9, Workpaper System and Case File Assembly

    • IRM 4.10.10, Standard Paragraphs and Explanation of Adjustments

    • IRM 4.10.11, Claims for Refund and Requests for Abatement

    • IRM 4.13.4, Area Office (AO) Examination

    • IRM 4.23.10, Report Writing Guide for Employment Tax Examinations

    • IRM 4.23.22, Unagreed Employment Tax Case Procedures

    • IRM 4.24.20, Excise Tax Report Writing Guide

    • IRM 4.25.6, Report Writing Guide for Estate and Gift Tax Examinations

    • IRM 4.27.1, Bankruptcy, Examiner Responsibilities and Procedures

    • IRM 4.31.2, TEFRA Examinations - Field Office Procedures

    • IRM 4.31.5, Investor Level Statute Control (ILSC) Examinations - Field Office Procedures

    • IRM 4.31.9, Centralized Partnership Audit Regime (BBA) Field Examination Procedures

    • IRM 4.36, Joint Committee Procedures

    • IRM 4.46.6, Workpapers and Reports Resources

    • IRM 20.1, Penalty Handbook

    • IRM 20.2, Interest

    • IRM 25.6.1, Statute of Limitations Processes and Procedures

  2. Helpful information can be found on the following websites:

    • Letter Chart Job Aid

    • S Corporations Knowledge Base

    • Partnerships Knowledge Base

    • BBA (within the Partnerships Knowledge Base)

    • RGS

    • CCP Exam Efax Numbers

    • Quick/Prompt and Partial Assessments

    • Ex Parte Communications

    • Disclosure and Privacy Knowledge Base

    • Joint Committee

    • Penalties Knowledge Base

    • Backup Withholding Knowledge Base

    • Working a Whistleblower Claim - Knowledge Base

4.10.8.2 (09-13-2019)

Audit Reports

  1. Examiners have the responsibility to ensure audit reports are properly prepared and issued.

  2. The following sections give an overview of audit reports, discuss report preparation and issuance, and provide guidance regarding matters examiners must consider after reports are issued.

4.10.8.2.1 (09-13-2019)

Overview of Audit Reports

  1. Audit reports serve several important purposes. Therefore, examiners should take all necessary steps to ensure report accuracy. Audit reports:

    1. Protect the taxpayer's "Right to be Informed." Audit reports should contain all the information necessary to ensure a clear understanding of the adjustments and identify the amounts (if any) of tax due, interest, additions to the tax, and assessable penalties.

    2. Serve as the basis for assessment and collection action. Reports (unlike workpapers) are legally binding documents.

    3. Give notice of a tax liability for purposes of interest suspension. IRC 6404(g) provides for the suspension of interest when the Service fails to provide timely and adequate notice of a tax liability. For example, Form 4549 is sufficient notice if it contains an explanation of each item of adjustment. See Treas. Reg. 301.6404–4(a)(7)(i). See IRM 4.10.8.14.13 , which addresses notice requirements for IRC 6404(g).

  2. The type of audit report an examiner prepares depends on the outcome of the examination. For example, reports are prepared for the following types of cases:

    • No-Change and No Liability ( IRM 4.10.8.3 )

    • Regular Agreed ( IRM 4.10.8.4 )

    • Excepted Agreed ( IRM 4.10.8.5 )

    • Partially Agreed ( IRM 4.10.8.6 )

    • Unagreed ( IRM 4.10.8.12 )

4.10.8.2.2 (03-25-2021)

Preparation of Audit Reports

  1. This section contains general guidance for income tax report preparation. Other sections in this IRM contain specific guidance for reports for each type of outcome (e.g., no-change, agreed, etc.).

  2. Form 4549, is the basic report form for most individual and corporate income tax cases. Form 4549 reflects adjustments to taxable income and the corrected tax liability, and allows for a taxpayer signature, waiving restrictions on assessment and collection of a deficiency or acceptance of an overassessment. By signing, the taxpayer is indicating they do not wish to exercise appeal rights with regard to the adjustments reflected in the report. The report is subject to review and acceptance by the Area Director (or comparable level of management) as stated on the form. See Exhibit 4.10.8-1 , Preparation of Form 4549 / Form 4549-A, for instructions for preparing Form 4549.

  3. Form 4549-A, Report of Income Tax Examination Changes (Without Taxpayer Signature), does not have a place for the taxpayer(s) to sign, and is appropriate for no-change, unagreed (RA), excepted agreed, fully allowed claims for refund, and abatement cases. If Form 4549-A is issued in an unagreed or partially agreed case, examiners typically prepare and provide Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment, to the taxpayer to solicit a consent to assessment. See Exhibit 4.10.8-1 , Preparation of Form 4549 / Form 4549-A for instructions for preparing Form 4549-A. See Exhibit 4.10.8-2 for additional information and instructions for preparing Form 870.

  4. An Information Only report is a completed Form 4549 that does not propose a change in tax liability. It furnishes taxpayer information to the taxpayer or others who need this information. The report should be labeled "FOR INFORMATION ONLY." Information reports are usually submitted in connection with offers in compromise and requests for information from Headquarters and other Area offices.

  5. Forms in the 870 series are used to indicate that the taxpayer is waiving the statutory restriction upon assessment and collection of the deficiency of tax and are used in excepted agreed cases and unagreed cases requiring a Preliminary (30-day) letter. Signing the waiver stops the running of interest 30 days from the date of receipt if the assessment and notice for payment are not made within the 30-day period. Signing the waiver does not preclude assertion of a further deficiency by the Commissioner or a request for further consideration of the issues by the taxpayer. See Exhibit 4.10.8-2 , Preparation of Form 870, for instructions for preparing Form 870.

    Note:

    Office Examination can use Form 4549 in lieu of Form 4549-A and a waiver, for unagreed cases. If Form 4549 is used, a waiver is not required.

  6. Report Generation Software (RGS) is required for generation of all income tax examination reports (with the exception of LB&I agents utilizing BNA Software inside of IMS) and for entry of all data required for the Examination Operational Automation Database (EOAD). EOAD is designed to allow the tracking of examination adjustments by issue and related cause. This data helps identify specific areas of noncompliance based on examination reports. See IRM 4.10.16, Examination Operational Automation Database (EOAD). Procedures for using RGS in report writing can be found in RGS User Guides, training materials, and IRM 4.10.15, Report Generation Software (RGS).

  7. RGS contains the nationally approved standard explanations and automatically inserts standard explanations for statutory adjustments. The user also has an opportunity to customize standard explanations. The number of customized standard explanations should be limited as the National Standard Explanations are approved by Counsel. See IRM 4.10.8.12.4 , Explanation of Items, for additional information.

  8. Form 9984, Examining Officer's Activity Record, should properly document actions related to report delivery. When reports are issued be sure to include:

    • Date(s) of the notice(s),

    • Method of delivery of notice (i.e., personal delivery, regular mail, certified mail),

    • Person(s) to whom the notice(s) were delivered,

    • Items included in the delivery (i.e., letter, report form, publications, etc.)

4.10.8.2.2.1 (03-25-2021)

Form 4549 / 4549-A: Other Information

  1. Statements should be included in the "Other Information" section of the Form 4549 or Form 4549-A as needed. Below are examples of situations that require a statement to clarify the examination results:

    1. Statement on corrected or revised reports such as "This report supersedes report dated ______." (See IRM 4.10.8.13 ).

    2. References to attachments.

    3. If there is an increase or decrease in personal holding company tax or accumulated earnings tax write "Additional Tax Due" or "Net Overassessment" and the dollar amount under the appropriate column and explain the change in an attachment.

    4. Statements regarding the disposition of claims or amended returns as discussed in IRM 4.10.11, Claims for Refund and Requests for Abatement.

    5. Statement regarding the application of any penalties or additions to tax (or reference to attachments) not otherwise listed on the report. Include the IRC section, title of the penalty, and the dollar amount.

    6. Statements regarding innocent spouse determination (IRM 25.15.6.10.1, Pre-Assessment Determination and Report Writing).

    7. Statements regarding IRC 6404(g) (suspension of interest provisions) and the date on which the notice was provided, when it applies (see IRM 4.10.8.14.13 ).

    8. Statements regarding the applicability of IRC 6601(d) (interest on carrybacks) for restricted interest cases. See IRM 4.10.8.14.3.4 for examples.

    9. Statements regarding the applicability of IRC 6621(c) for large corporate underpayments. See IRM 20.2.5.8, Large Corporate Underpayment (LCU), for the rules and requirements in applying this rate.

      Reminder:

      IRC 6621(c) formerly pertained to interest on tax motivated transactions (TMT), and was repealed for returns with due dates (without regard to extensions) after December 31, 1989. See IRM 20.2.5.9, Tax Motivated Transaction (TMT) Interest, for the applicability of this 120% rate for returns with due dates before January 1, 1990.

4.10.8.2.3 (03-25-2021)

Issuance of Audit Reports

  1. The examiner should discuss the progress of the examination and potential issues with the taxpayer and/or representative at frequent intervals throughout the examination. To facilitate discussion of proposed adjustments to individual, corporate, or fiduciary income tax returns, the examiner may provide the taxpayer with a Form 5278, Statement - Income Tax Changes. See IRM 4.10.7.5, Proposing Adjustments to the Taxpayer and/or Representative, for guidance on the time and manner for issuing reports in both office and field examinations.

  2. Whenever possible, examiners should discuss proposed adjustments (including penalties) with the taxpayer and/or representative during a face-to-face appointment. If penalties requiring supervisory approval are proposed and the examiner has not yet obtained approval, Form 5278 or a written list of proposed adjustments (including penalties) can be shared to facilitate discussion during a face-to-face appointment. The activity record should be contemporaneously documented to indicate the date and circumstances under which the Form 5278 or written list was provided.

  3. When a report is mailed, the examiner must prepare and issue the appropriate letter to transmit the report and notify the taxpayer of the examination process and their rights (e.g., Letter 915, Letter 950, Letter 4121, Letter 5153, etc.). See IRM 4.10.8.2.3.1 below for additional guidance on preparing and issuing letters.

    Reminder:

    Generally, for deficiency cases, TCOs issue Letter 915 with the first report (in person or by mail).

    Caution:

    Written supervisory approval of penalties proposed subject to IRC 6751(b) must be obtained timely or the related penalties cannot be asserted.

  4. If the issuance of a 30-day letter is delayed while the examiner secures the manager's signature on the letter or the penalty approval form, TCOs must update the ERCS action code to 08, Follow-Up Action.

  5. For a joint return, follow IRM 4.10.1.2.2.1, Separate Notice Requirements, to determine if the report must be issued separately.

  6. Generally, a qualified representative is authorized to receive any notice or other written communication required or permitted to be given to the taxpayer in the matter concerning the taxpayer, as directed on Form 2848, Power of Attorney and Declaration of Representative, or Form 8821, Tax Information Authorization. Before issuing an audit report, the examiner should research the Centralized Authorization File (CAF) on IDRS to ensure the taxpayer did not submit a new Form 2848 or Form 8821 through channels other than the examiner. For more detailed information on how to mail correspondence when a POA is involved, see IRM 4.11.55.2.9, Notices and Communications. See IRM 4.10.1.3.3, Written Communication to the Taxpayer's Representative, for guidance including the preparation and issuance of Letter 937, Transmittal Letter for Power of Attorney.

4.10.8.2.3.1 (03-25-2021)

Letters

  1. Letters are sent to taxpayers (and their authorized representatives) to transmit reports, explain available appeal rights, and inform the taxpayer of the status of the examination. A copy of the letter must be maintained in the case file.

  2. Examiners must follow the guidance in IRM 4.10.1.3.2, Written Communication, when preparing letters. Employee contact information must be included on all correspondence sent to taxpayers. Refer to IRM 4.10.1.2.2.2, Employee Contact Information, for guidance.

  3. Examiners prepare most letters that are issued from the group or by CCP; the date and signature depends on the type of letter. For example, examiners prepare, but don't sign or date, letters sent by the group manager and closing letters sent by CCP on behalf of the appropriate Director (based on their operating division). For additional information, examiners may refer to the Letter Chart job aid for report writing and closing letters.

  4. The type of letter (e.g., initial contact, 30-day, closing, etc.) and required signature (e.g., examiner, group manager, area director, etc.) determines how the signature block is completed. For example:

    • Letter 2205, Initial Contact, is signed by the examiner and the signature block is completed with the examiner's name, title, and signature.

    • Letter 692, Request for Consideration of Additional Findings, is signed by the examiner therefore the signature block is completed with the examiner's name, title, and signature.

    • 30-day letters discussed in IRM 4.10.8.12.1 , must be signed by the group manager per Delegation Order SBSE 4.55, Authority to Sign Thirty Day Letters. Therefore, the signature block on 30-day letters must contain the group manager's name, title, and signature.

      Reminder:

      Office Examination Letter 1912, Follow-Up Letter Transmitting Examination Reports, is not a 30-day letter. It is signed by the examiner and the signature block is completed with the examiner's name, title, and signature.

    • Closing letters are mailed by CCP and indicate the examination has been closed after acceptance by the Area Director (or comparable level of management). For example, Letter 590, No-Change Final Letter, and Letter 987, Agreed Income Tax Change, notify the taxpayer the report has been reviewed and accepted. Therefore, the signature block is completed with the name and title of the Area Director (or comparable level of management) and signed by the group manager on behalf of the Area Director (or comparable level of management).

  5. Generally, letters issued at the group level can be signed digitally provided the procedures in IRM 4.10.1.4.4, Digital Signatures, are followed.

    Reminder:

    Digitally signed letters, forms and other documents issued to the taxpayer and/or representative should contain a graphical image of the signer's handwritten signature.

  6. Examiners provide instructions to CCP or Technical Services by notating Form 3198 by:

    • indicating the required letter, form, report or other material to enclose in correspondence to the taxpayer.

    • providing any special instructions for the handling or disposition of the correspondence.

    • identifying on the second page of Form 3198 under "Letter Instructions for CCP" if a copy of the letter is to be issued to a POA, by checking the box "Copy to POA - Letter 937."

  7. For closing letters, examiners must prepare an envelope to the taxpayer and, if applicable, to the POA. Envelopes must contain the examiner's return address, and should be included in the case file with the applicable letters.

  8. If mail is returned as undeliverable after a case is closed, determine if Master File reflects a new address by researching IDRS (e.g., command codes INOLES, IMFOLE, ENMOD, TRDBV, IRPTRO, etc.). If the U.S. Post Office returns undeliverable mail with a yellow address label affixed to the envelope, compare the information on the yellow label to the name and address shown in IDRS to verify it is the same taxpayer, determine which address is most current, and follow the steps below.

    • If a new address is determined, re-mail the letter in an envelope with the new address. The re-mailing of the letter to the new address must be documented in the closed case file by either: making a CEAS non-action note (as explained in IRM 4.10.15.8, CEAS Tools), or sending a copy of the re-mailed letter to Files to be associated with the closed case as explained in the Sending to Files job aid.

    • If no new address is determined, see Sending to Files job aid for information and instructions for forwarding the returned mail for association with the closed case.

4.10.8.2.3.2 (09-13-2019)

Publications

  1. Publications sent to the taxpayer should always agree with the enclosures listed on the letter to avoid confusion.

  2. Publications available on IRS.gov should not be sent to the taxpayer's representative or appointee. See IRM 4.10.1.3.3, Written Communication to the Taxpayer's Representative, for additional information.

  3. Section 3504 of P.L. 106-206 (RRA '98) requires the Service to include an explanation of the examination and collection process, as well as information about assistance from the Taxpayer Advocate with any first letter of proposed deficiency, which allows the taxpayer an opportunity for administrative review in the IRS Office of Appeals. Pub 3498, The Examination Process, is used for this purpose. The procedures below must be followed:

    1. Pub 3498 must be provided with the first examination report that is given to the taxpayer, and with all 30-day letters.

    2. Pub 3498 is not required to be provided again to the same taxpayer with reports for the same tax periods issued subsequent to the first report (i.e., corrected and supplemental reports) unless they are issued with a 30-day letter.

    3. Pub 3498 is not included with no-change reports, with the exception of no-change with adjustments reports when the adjustments impact other tax years.

4.10.8.2.4 (09-13-2019)

Considerations After Report Issuance

  1. This section provides general guidance for soliciting payment, receiving executed audit reports, and closing cases within established time frames based on taxpayer responses to issued reports.

4.10.8.2.4.1 (09-13-2019)

Soliciting Payment

  1. Examiners must follow IRM 4.20.1, Examination Collectibility Procedures, which provides guidelines for using a tiered interview for soliciting payment, securing levy source information, coordinating with Collection, and processing payments received on deficiency cases.

    Caution:

    When a taxpayer has filed or is preparing to file bankruptcy, examiners must refer to IRM 4.27.1, Bankruptcy, Examiner Responsibilities and Procedures, for guidance on soliciting payment.

  2. Taxpayers, upon receipt of an audit report, may pay the deficiency immediately. Examination employees prepare Form 3244-A, Payment Posting Voucher - Examination, and transmit the form along with the payment as instructed in IRM 4.20.1.3.2, Process Payment Received.

  3. Instead of a payment of tax, taxpayers may submit a "6603 deposit." For a detailed explanation of the enactment of IRC 6603 and its effect on interest see IRM 20.2.4.8.2, IRC 6603 Deposits.

  4. See IRM 4.4.24, AIMS Procedures and Processing Instructions, Payments and Remittances, for information and instructions on payments and remittances, including the preparation of Form 3244-A. For payments of $100,000 or more follow IRM 4.4.24.8, Payments of $100,000 or More, to ensure timely processing.

4.10.8.2.4.2 (03-25-2021)

Execution and Receipt of Audit Reports and Waivers

  1. Reports and waivers are considered "executed" when signed by the taxpayer(s). Executed forms must reflect the date received by the IRS. A signed agreement or waiver stops the running of interest 30 days from the date of receipt if the assessment and notice for payment are not made within the 30-day period. See IRM 20.2.7.9, IRC 6601(c), Suspension of Interest on Deficiencies, for additional information and examples. Examiners must date stamp the receipt date on agreements and waivers, with the following exception:

    Exception:

    Agreements and waivers received by IRS EEFax (vs. a traditional fax machine) do not require an additional date stamp if the agreement or waiver contains a generated date stamp that is legible and correct.

  2. The IRS can accept consents to assess additional tax (e.g., Form 4549 or Form 870) and taxpayer closing agreements involving any amount of tax by fax. For agreements received by fax, examiners must:

    1. Document Form 9984, Examining Officer's Activity Record, including contact with the taxpayer, the date of contact, and that the taxpayer is submitting the consent to assess additional tax by fax.

    2. Document the origin of an agreement received by EEFax by saving an electronic or hard copy of the incoming e-mail in the case file.

    3. Ensure Item 416 on Form 5344, Examination Closing Record, contains a "1" if a faxed agreement is received.

  3. Be very cautious in accepting agreements or waivers where taxpayers have added writing other than their signatures. If possible, a new agreement or waiver should be obtained with just the taxpayer's signature. If this is not possible, all facts will be obtained to determine the taxpayer's intent. Conditional statements will invalidate an agreement or waiver.

  4. To process as "agreed," reports and waivers for joint returns require the signature of both spouses (or authorized power-of-attorney(s), if applicable), unless the deficiency is paid in full as discussed in the following paragraph. When full payment is not received, and only one spouse signs the report or waiver, unagreed procedures apply to the non-signing spouse. Additionally, the account of the agreeing spouse must be assessed using MFT 31 procedures. See IRM 4.10.8.12.3 .

  5. Examiners may process a case as "agreed" without an executed agreement form if a full payment not specifically designated as a "6603 deposit" is received in response to a proposed deficiency (tax and penalties), and there is no evidence the taxpayer intends to file a protest. See IRM 4.4.12.5.18.3, Payment in Lieu, for completing the Form 5344 when payment is accepted in lieu of a signed agreement. Disposal Code 08 is used, and an agreement date is not entered; the suspension of interest described in paragraph (1) above does not apply to payments in lieu of agreements.

4.10.8.2.4.3 (08-11-2006)

Time Frames for Closing Cases from the Group

  1. Generally, cases should be closed from the group within the following time frames:

    1. 10 days for case closures for agreed or no-change examinations – from the first date the report is received or the no-change status is communicated to the taxpayer,

    2. 20 days for case closures for unagreed examinations – from the date the 30-day letter defaults or the request for Appeals conference is received from the taxpayer,

    3. 4 days for case closures for agreed high dollar unpaid deficiency or overassessment cases - see IRM 4.4.18, Large Dollar Cases, for more information.

4.10.8.3 (09-12-2014)

No-Change and No Liability Cases

  1. This section contains procedures for closing a case when the examination results in no adjustments, or there are adjustments that result in no additional liability.

  2. If the additional tax resulting from examination adjustments is less than tolerance, the return will be no-changed, providing a special situation does not exist. See IRM 4.10.2.3.1, Large Unusual or Questionable (LUQ) Items Defined.

4.10.8.3.1 (03-25-2021)

No-Change (No Adjustments)

  1. Upon completion of a field or office examination resulting in no adjustments (Disposal Code 02), the examiner will prepare and provide the appropriate no-change letter to the taxpayer(s) and, if applicable, to the taxpayer's representative.

    Note:

    LB&I examiners follow IRM 4.46.6.3.1, No-Change Examination (Disposal Code 02) Procedures. LB&I IIC examiners see IRM 4.63.4.11, Report Writing.

  2. The following no-change letters advise the taxpayer that a no-change is proposed but the determination is subject to review:

    1. Letter 3401, No-Change Report Transmittal Letter, or

    2. Letter 3401-S, Pass-Through Entity No-Change Transmittal Letter (ILSC)

      Note:

      Letter 3401-S is used to transmit a no-change report to non-TEFRA Partnerships, Partnerships electing out of BBA, Fiduciaries, S-Corporations and Interest Charge Domestic International Sales Corporations when there are no changes to any item on the entity's return (Disposal Code 01 or 02).

    Note:

    See IRM 4.31.2, TEFRA Examinations-Field Office Procedures, for additional report preparation guidance and letters to be issued by the examiner, the Field TEFRA Coordinator and/or the Campus TEFRA Function (CTF). The IRM also provides direction for completion of Form 3198, Special Handling Notice for Examination Case Processing, in TEFRA examinations.

  3. The examiner must generate a "no-change" report using RGS and provide it to the taxpayer and, if applicable, the taxpayer's representative, at the conclusion of the examination. The "Other Information" or "Remarks" section of the report must include the statement "No-Change Subject to Approval by Area Director, Area Manager, or Director of Field Operations."

  4. The examiner must prepare an undated Letter 590, No-Change Final Letter (or Letter 992, No-Change, for Form 1120-S, U.S. Income Tax Return for an S Corporation, Form 1065, U.S. Return of Partnership Income, or Form 5500, Annual Return/Report of Employee Benefit Plan), have it signed by the group manager, and place it in the case file when the case is closed from the group. Letter 590 (or Letter 992) is issued by CCP and notifies the taxpayer the report has been reviewed and accepted.

  5. On Form 3198, check the blocks for "No-Change Letters" and "Letter 590" or "Letter 992" in the "Letter Instructions for CCP" section.

  6. Re-opening procedures do not apply if subsequent changes are needed before issuance of Letter 590 or Letter 992.

  7. The "no-change" report may be acceptable documentation for repetitive audit verification in lieu of Letter 590 (or Letter 992) if the transaction code on the transcript corroborates the taxpayer's no-change report. The examiner should research IDRS using command code IMFOLZ or BMFOLZ which will display the results of the last two audits. This command code will show the "No-Change Issue Codes," also known as "IMF Issue Codes," disposal codes and any deficiency amount. The "No-Change Issue Codes" can be found using the link in the Form 5344 - Item 41, No-Change/IMF Issue Codes article on the MySB/SE website.

4.10.8.3.2 (09-12-2014)

No-Change with Adjustments Report Not Impacting Other Tax Year(s)

  1. This section contains procedures for an examination that results in adjustments that do not change the taxpayer's liability in the year examined and do not impact any other tax years.

  2. In cases where the examination results in adjustments but no change to the tax liability in the year examined and there is no impact to any other tax year(s), it is still important to notify the taxpayer of the adjustments so the taxpayer treats the issue(s) properly when filing subsequent year returns.

    Caution:

    For adjustments or items impacting a prior or subsequent tax year, follow the applicable procedures in IRM 4.10.8.3.3 .

  3. Upon completion of a field or office examination resulting in no-change with adjustments (Disposal Code 01), and there is no impact to other tax years, the examiner will prepare and provide Letter 3402-A, Change/No-Change Report Transmittal - Adjustments Do Not Impact Other Tax Years, to the taxpayer(s) and, if applicable, to the taxpayer's representative. Letter 3402-A advises the taxpayer that a no-change with adjustments is proposed but is subject to review. It is not necessary to secure the taxpayer's agreement since there is no tax liability.

    Note:

    No-change with adjustments report procedures do not apply to partnership or S corporation examinations.

  4. The examiner must generate an "agreed" report using RGS and provide it to the taxpayer and, if applicable, the taxpayer's representative, at the conclusion of the examination.

  5. The examiner must prepare an undated Letter 1156, Change, No-Change Final Letter, have it signed by the group manager, and place it in the case file when the case is closed from the group. Letter 1156 is issued by CCP and notifies the taxpayer the report has been reviewed and accepted.

  6. On Form 3198, check the blocks for "No-Change Letters" and "Letter 1156" in the "Letter Instructions for CCP" section.

  7. Re-opening procedures do not apply if subsequent changes are needed before issuance of Letter 1156.

4.10.8.3.3 (03-25-2021)

No-Change Report with Adjustments Impacting Other Tax Year(s) Filed, Delinquent or Not Due to be Filed

  1. This section contains procedures for an examination that results in adjustments that do not change the taxpayer's liability in the year examined but may impact other tax year(s). Generally, cases considered by Appeals involve a disputed tax liability. However, Appeals will consider cases that do not have an immediate tax consequence but may impact the tax liability of other tax year(s). See IRM 8.1.1.3.2, No Immediate Tax Consequence Cases.

    Example:

    Adjustments made to an NOL carryforward, or timing issues such as depreciation.

  2. When an examination results in adjustments that do not change the taxpayer's liability in the year examined, but impact other tax year(s):

    • If the other tax year(s) are filed or delinquent, the examination should be expanded to include the other tax year(s) in accordance with IRM 4.10.5.3, Prior and Subsequent Returns. If the tax liability of the other impacted tax year(s) result in a change to the tax liability, follow the procedures in IRM 4.10.8.3.4 .

    • If the other tax year(s) are not yet due to be filed, see IRM 4.10.5.14, Form 5346, Examination Information Report, for guidance on preparing Form 5346 when there is information of sufficient compliance value to warrant enforcement action.

  3. For an examination that results in a no-change with adjustments that impacts other tax year(s), examiners generate an "agreed" report and provide it to the taxpayer and, if applicable, to the taxpayer's representative, at the conclusion of the examination. The examiner should solicit the taxpayer's signature since there are proposed adjustments to the return and they impact other tax year(s).

    • Field Examination : Letter 4121, Agreed Examination Report Transmittal, can be used to mail taxpayers a report when they have indicated agreement to all adjustments. The response date added to Letter 4121 is determined by the examiner based on the facts and circumstances of the case. When a taxpayer does not respond within the requested time frame, the examiner should follow-up with the taxpayer to determine if unagreed case procedures should be initiated.

    • Office Examination : Letter 950-F, 30-Day Letter - No Deficiency, is used to transmit both agreed and unagreed no-change with adjustment reports. Update ERCS action code to 07 for closure in 30 calendar days.

  4. If an agreement is secured, close the case to CCP. The examiner will use the disposal code applicable to the closure for each tax year examined (e.g., disposal code 01 for the no-change with adjustments), and prepare the applicable closing letter (undated) to be issued by CCP (e.g., Letter 1156, Change, No-Change Final Letter, for the no-change with adjustments).

  5. When an agreement is not secured, examiners must follow unagreed procedures in IRM 4.10.8.12 and generally use Letter 950-F, to transmit the no-change with adjustments examination report and offer the taxpayer the opportunity to go to Appeals. See IRM 4.10.8.12.1 (4) when fewer than 240 days remain on the statute of limitations.

4.10.8.3.4 (04-05-2017)

Multiple Year Exams Including No-Change Years

  1. When a multi-year examination results in both change and no-change year(s), the examiner should prepare a separate report for the no-change year(s), depending on the type of no-change, i.e., no adjustments impacting other tax years, etc. See IRM 4.10.8.3.1 through IRM 4.10.8.3.3 .

  2. See IRM 4.10.8.7 for procedures for closing cases that contain at least one agreed/no-change year and one unagreed year.

4.10.8.3.5 (03-25-2021)

Letters Used in No-Change Cases

  1. The following form letters are no-change notification letters:

    1. Letter 3401, No Change Report Transmittal Letter

    2. Letter 3401-S, Pass-Through Entity No Change Transmittal (ILSC)

    3. Letter 3402-A, Change/No Change Report Transmittal - Adjustments Do Not Impact Other Tax Years

    4. Letter 3402, Change/No Change Report Transmittal - Adjustments Impact Other Tax Years

      Note:

      Letter 950-F, 30-Day Letter - No Deficiency, is the 30-day letter appropriate for unagreed cases with adjustments impacting the taxpayer's liability of other tax periods.

  2. The following form letters may be issued as final no-change letters:

    1. Letter 590, No Change Final Letter;

    2. Letter 992, No Change (for Non-TEFRA flow through entities); or

    3. Letter 1156, Change, No Change Final Letter.

  3. For TEFRA Partnership cases the following form letters are issued as no-change notification letters:

    1. Letter 1864, Notice of Beginning of Administrative Proceedings (NBAP) Withdrawal Letter;

    2. Letter 2064, Notice of Final Partnership Administrative Adjustment; or

    3. Letter 2621, No Adjustments to Pass Through Investor.

  4. For nonfiler cases closed without an examination report, the following form letters are issued as no-change notification letters:

    1. Letter 2769, No Change after Examination of Delinquent Income Tax Return(s); or

    2. Letter 2778, Non-filer No Change - Penalty Waived.

4.10.8.3.6 (09-12-2014)

No-Change Issue and Disposal Codes

  1. For no-change cases with no adjustments, RGS will populate the no-change issue codes on the Form 5344 from the issues created and no-changed.

  2. Enter the disposal code on the appropriate line of Form 5344 as:

    • 01 - No-Change with Adjustments

    • 02 - Regular No-Change

    • 07 - Appealed

4.10.8.3.7 (08-11-2006)

Special Situations: Combat Zones

  1. A Combat Zone (CZ) is an area designated in an Executive Order by the President of the United States. Certain taxpayers in a combat zone are provided tax relief and require special processing. Generally, once it is determined that an examination is being conducted on a taxpayer in a combat zone, the case should be no-changed.

  2. Combat Zone information can be found in various locations in the IRM as well as Publication 3, Armed Forces' Tax Guide. Examiners may refer to IRM 25.6.1.10.2.9.6, Combat Zone, and Exhibit 4.4.1-3, Combat Zone, for additional information.

4.10.8.3.7.1 (08-11-2006)

Substantiation of Combat Zone

  1. When it is common knowledge or apparent that a taxpayer is in a Combat Zone, oral testimony is acceptable to indicate that the taxpayer is entitled to the Combat Zone special tax treatment.

  2. When it is not common knowledge or apparent that the taxpayer is Combat Zone personnel, written substantiation, such as a copy of the military or civilian orders or a statement issued by the Department of Defense (DOD) attesting that the Combat Zone qualifications are met, is acceptable.

  3. A signed statement secured by the taxpayer or a contact, such as a spouse or attorney, may be acceptable as substantiation when a copy of the military or civilian orders or a DOD statement is not easily accessible.

  4. In addition, the IRS may have previously identified the taxpayer as Combat Zone personnel by entering a "C" freeze on Master File. For additional information on Master File identification, see also IRM 4.19.13.21, Combat Zone.

4.10.8.3.7.2 (08-11-2006)

Examination Guidance for Combat Zone Personnel

  1. In accordance with IRC 7508, field examiners are instructed not to conduct any examinations on taxpayers who have been deployed to a Combat Zone. Further, ongoing examinations involving any individual identified as Combat Zone personnel should be closed immediately, unless criteria under "Compelling Reasons" (discussed below) are determined to exist.

  2. Cases not started should be surveyed using Disposal Code 31 - survey before assignment. Open cases where the books and records have not been reviewed should be surveyed using Disposal Code 32 - survey after assignment. A letter should be sent to the taxpayer to withdraw the appointment letter/scheduled examination. Attach a copy of the letter to the tax return. The following verbiage will be appropriate:

    Internal Revenue Code Section 7508 requires us to suspend all activity on your examination. Your examination has been discontinued for the tax year _____.

  3. When books and records have been examined, close the case as a no-change using Disposal Code 02 unless the case has been put into status code 90. Cases should be closed as no-change even if a signed report has been received. Include appropriate workpaper documentation of the application of Combat Zone requirements.

  4. If the 30-day letter has been issued/signed, notify the taxpayer that the report is being withdrawn. Close the case using no-change procedures. Include appropriate workpaper documentation of the application of Combat Zone requirements of IRC 7508.

  5. For cases where a notice of deficiency has been issued, a supplemental report should be prepared to reduce the deficiency to zero and a no-change report issued to the taxpayer. Rescission procedures should not be used because that requires the consent of the taxpayer. If "Compelling Reasons" to continue the examination exist (discussed below), the notice must be suspended with the Area Director's or his designee's approval.

4.10.8.3.7.3 (08-11-2006)

Compelling Reason Suspense Procedures

  1. Examiners may use the following criteria to determine when to postpone an examination instead of applying the survey or no-change policy, in an examination involving Combat Zone personnel. This authority should not be delegated below the Territory Manager level.

  2. A compelling reason exists for continuing an examination when one of the following is present:

    • There is evidence of fraud, malfeasance, collusion, concealment or misrepresentation of fact;

    • No-changing/surveying the Combat Zone case would result in the serious criticism of the Service's administration of the tax law;

    • No-changing/surveying the Combat Zone case would establish a precedent that would seriously hamper subsequent attempts by the Service to take corrective action;

    • The "tax determined or determinable" results in an overpayment to the taxpayer in such a situation - issue the refund immediately.

  3. When compelling reasons exist, send a letter to the taxpayer informing them that the examination action will be suspended until after their return from the combat zone. Inform the taxpayer that the deadline for the Service to make an assessment of tax will be extended. Also, inform the taxpayer that his or her deadline for taking certain actions with the Service will also be extended (e.g., filing any return of income, estate, or gift tax; paying any income, estate, or gift tax; filing a claim for credit or refund of any tax).

  4. Generally, the periods are extended for 180 days after the taxpayer's last day in a combat zone/qualified hazardous duty area (or the last day that he or she has qualifying service outside of the combat zone/qualified hazardous duty area). In addition to the 180 days, a deadline is extended by the number of days that were left in any period for taking action when the taxpayer entered the combat zone/qualified hazardous duty area; e.g., the period to file an individual income tax return, which generally runs from January 1 to April 15. See Rev. Rul. 76-425, 1976-2 C.B. 447.

  5. You may refer the taxpayer to Publication 3, Armed Forces' Tax Guide, for details. For internal guidance, see IRM 25.6.1.10.2.9.6, Combat Zone.

  6. Request that the taxpayer notify the IRS when they return from combat duty.

  7. These cases should be suspended using AIMS Status Code 38. Refer to IRM 4.8.2.11, Suspense Cases, for suspense procedures.

4.10.8.4 (03-25-2021)

Regular Agreed Cases

  1. This section contains instructions for the preparation of reports when the taxpayer agrees with the examiner's proposed liability. Certain cases are "excepted" from the procedures outlined in this section. See IRM 4.10.8.5 .

  2. The regular agreed report is designed to cover a three-year period and should include an adequate explanation (e.g. standard paragraphs or lead sheet(s) as discussed in IRM 4.10.8.12.4 ) to support the proposed adjustment(s).

  3. Generally, regular agreed report forms require the taxpayer's signature and include a statement that the report is subject to acceptance by the Area Director (or comparable level of management).

4.10.8.4.1 (03-25-2021)

Individual and Corporate Cases

  1. Form 4549 is the basic report form for regular agreed individual and corporate cases.

  2. General guidance related to the issuance of audit reports is found in IRM 4.10.8.2.3 . The subsections below provide additional guidance depending on whether the individual or corporate tax periods result in a deficiency or an overassessment.

4.10.8.4.1.1 (03-25-2021)

Deficiency Cases

  1. Generally, when the examination of a tax period results in an agreed deficiency, examiners generate an "agreed" report and provide it to the taxpayer and, if applicable, to the taxpayer's representative, at the conclusion of the examination. The examiner should solicit the signature of the taxpayer(s).

  2. Field Examination : Letter 4121, Agreed Examination Report Transmittal, can be used to mail taxpayers a report when they have indicated agreement to all adjustments.

    Note:

    The response date added to Letter 4121 is determined by the examiner based on the facts and circumstances of the case. When a taxpayer does not respond to Letter 4121 within the requested time frame, the examiner should follow-up with the taxpayer to determine if unagreed case procedures should be initiated.

  3. Office Examination : If there are 240 or more days remaining on the statute of limitations, generally Letter 915, Examination Report Transmittal, is used to issue both agreed and unagreed reports. Update the ERCS action code to 04 for follow-up in 15 calendar days.

    1. If the taxpayer does not respond within 15 days, the examiner will prepare and issue Letter 1912, Follow-Up Letter Transmitting Examination Reports, and update the ERCS action code to 07 for follow-up in 15 calendar days.

    2. If there are fewer than 240 days remaining on the statute of limitations, follow the procedures in IRM 4.10.8.12.1 (4).

  4. If an agreement is secured, see IRM 4.10.8.4.5 , Closing Letters for Agreed Cases, and close the case to CCP. If an agreement is not secured, follow unagreed procedures in IRM 4.10.8.12 .

4.10.8.4.1.2 (03-25-2021)

Overassessment Cases

  1. Generally, when the examination of a tax period results in an agreed overassessment, examiners generate an "agreed" report and provide it to the taxpayer and, if applicable, to the taxpayer's representative, at the conclusion of the examination. The examiner should solicit the taxpayer's signature since there are proposed adjustments to the tax liability.

    Caution:

    If the taxpayer has filed a claim for refund or request for abatement for the tax period examined, the guidance in paragraphs (3) and (4) below do not apply. Instead examiners follow procedures in IRM 4.10.11, Claims for Refund and Requests for Abatement.

  2. In all examinations that result in an overassessment with a refund (as opposed to only an abatement), the examiner must determine if the Refund Statute Expiration Date (RSED) is open. See IRM 25.6.1.10.2.7, Claims for Credit or Refund – General Time Period for Submitting a Claim, for the time limits for making a refund. See IRM 4.10.11.4.2, Refund Statute Expiration Date (RSED) - Consideration and Examiner's Responsibilities, for additional information about the RSED. If the refund is barred, enter the following explanation for the barred refund in the "Other Information" section of Form 4549: "The overassessment shown on this report is barred from refunding by IRC 6511, Limitations on Credit or Refund." Additionally, when closing a tax period with a barred refund, examiners must:

    • Enter Hold Code 2 on Form 5344 to hold notices and the credit.

    • Notate the Special Features section of Form 3198 by checking the "Freeze from Refunding" box and noting the barred amount in the Other Instructions. For example, "The $5,400 overassessment shown on this report is barred by IRC 6511."

  3. Field Examination : Letter 4121, Agreed Examination Report Transmittal, can be used to mail taxpayers an overassessment report when they have indicated agreement to all adjustments.

    Note:

    The response date added to Letter 4121 is determined by the examiner based on the facts and circumstances of the case. When a taxpayer does not respond to Letter 4121 within the requested time frame, the examiner should follow-up with the taxpayer to determine if unagreed case procedures should be initiated (e.g., Letter 950-F).

  4. Office Examination : Generally, Letter 950-F is used for both agreed and unagreed overassessment reports. Update ERCS action code to 07 for closure in 30 calendar days.

    Exception:

    See IRM 4.10.8.12.1 (4) when fewer than 240 days remain on the statute of limitations.

  5. If an agreement is secured, see IRM 4.10.8.4.5 , Closing Letters for Agreed Cases, and close the case to CCP. If an agreement is not secured, follow unagreed procedures in IRM 4.10.8.12 . If the RSED is open, examiners should invite the taxpayer to file a claim by following the procedures in IRM 4.10.8.10.1 .

4.10.8.4.2 (03-25-2021)

Partnership and S Corporation Cases

  1. Form 4605, Examination Changes Partnerships, Fiduciaries, S Corporations and Interest Charge Domestic International Sales Corporations, is the basic report form for use in these cases.

  2. Form 886–S, Partners' Shares of Income, Deductions and Credits, and Form 886–X, Shareholders' Shares of Income, Deductions and Credits, are forms used to identify partner and shareholder level adjustments for each year in which a change is recommended in Non-TEFRA examinations.

  3. Form 886-Z, TEFRA Partners' Shares of Income, should be printed for the case file only. It reflects the percentages of ownership that are not on the Form 886-S or Form 886-X. See IRM 4.31.2, TEFRA Examinations - Field Office Procedures, and IRM 4.31.5, Investor Level Statute Control (ILSC) Examinations - Field Office Procedures, for procedures in working a TEFRA or non-TEFRA key case and related investors. See IRM 4.31.9, Centralized Partnership Audit Regime (BBA) Field Examination Procedures for procedures when working BBA cases.

    Note:

    TEFRA procedures do not apply to S corporations for tax years beginning after December 31, 1996. The Small Business Job Protection Act of 1996 removed S corporations from the special audit provisions of TEFRA for tax years beginning after December 31, 1996. All S corporation examinations with tax years beginning after that date must follow non-TEFRA procedures. See IRM 4.31.5.6, S Corporations. S corporations are not partnerships subject to TEFRA or BBA. S corporations that are partners in a partnership may be subject to those regimes as a partner.

  4. Form 886–S, Form 886–X, and Form 886–Z, should clearly reflect corrected items of income, separately stated items, and other items to be adjusted at the investor level.

  5. Letter 921, Report Transmittal For Non-TEFRA Partnership, Fiduciary, & S Corporation, is a report transmittal letter for Non-TEFRA partnership, fiduciary, and S corporation cases.

  6. See the Non-TEFRA Procedures, Statutes and Penalties Job Aid, Partnerships Knowledge Base, and Bipartisan Budget Act (BBA) page within the Partnership Knowledge Base, for report writing resources.

4.10.8.4.2.1 (09-13-2019)

Form 4605

  1. The following instructions are for preparing Form 4605. If a section of the form is not addressed, then it is self-explanatory. This section only applies to Non-TEFRA entity cases.

  2. Name and Address — show current address.

  3. Line 1 — Adjustments to Ordinary, Distributable Net, or Taxable Income — cross out words which do not apply. After "year" , enter the tax period to which the column applies.

  4. Line 1a through 1g — list adjustments. Place a bracket around dollar amount when an adjustment is in the taxpayer's favor. If there are more than seven adjustments, write "See page __" on line 1a and use Form 4549–B. This report should only reflect:

    1. separately stated items that have been adjusted in amount(s) and/or

    2. all separately stated items affected by a change in the allocation percentages to the investors.

  5. Line 2, 3, and 4 — cross out text which does not apply.

  6. Line 5, Other Adjustments — this section applies to adjustments which do not affect ordinary, distributable net, or taxable income. For example, a change to contributions or capital gains distributed to partners. Identify the items adjusted on lines 5a and 5b. When there are more than two such adjustments, use Form 886–A, Explanation of Items, or "Remarks" section.

  7. Remarks — Include any supplemental information which may be needed to clarify the adjustments and other items contained in the report.

4.10.8.4.2.2 (08-11-2006)

Special Situations: S Corporation Cases

  1. Under certain circumstances, an S Corporation pays tax on built-in gains or on excessive net passive income. IRC 1374 and IRC 1375 are taxes that are imposed at the S Corporation level and do not flow through to the shareholders. This section covers the forms used when a deficiency or overassessment is recommended directly against the S corporation or if a claim is involved.

  2. Deficiency, Overassessment or Claim — These results should be presented on a Form 4549. See Exhibit 4.10.8-1 for instructions to prepare Form 4549.

  3. In certain instances a deficiency (e.g., built-in gains tax), overassessment or claim directly against the S corporation and a change in distribution to shareholders may be present. In this situation both Form 4549 and Form 4605 should be prepared along with Form 886–X.

  4. If an S Corporation is converted to a taxable entity, two reports are required:

    1. A Form 4549 is required to show the taxable income of, and any tax due from the corporation.

    2. The Form 4605 and Form 886–X are required to remove items of income and separately stated items from the shareholders' returns.

  5. References for S Corporation Level Tax - Non-TEFRA are as follows:

    • IRM 4.10.1.2.1.5, Right to Appeal an IRS Decision in an Independent Forum

    • IRM 25.6.22.6.3, Subchapter S Corporations (Non-TEFRA)

    • S Corporations Knowledge Base

4.10.8.4.2.3 (06-10-2005)

Special Situations: Change in Accounting Method

  1. In the case of a change in method of accounting by a partnership or an S corporation, the adjustments required by IRC 481(a) shall be made on the partnership or S corporation return. However, the limitations on tax under IRC 481(b) shall apply at the partner/shareholder level. IRC 481(b) applies to a partner/shareholder whose income is increased by more than $3,000 as a result of an IRC 481(a) adjustment to the partnership or S corporation's ordinary income. See Exhibit 4.10.8-3 . Also, see IRM 4.11.6, Changes in Accounting Methods

4.10.8.4.3 (05-14-1999)

Interest Charge Domestic International Sales Corporations

  1. Form 4605 is the basic report form for "regular agreed" Interest Charge Domestic International Sales Corporation (Form 1120–IC DISC) cases.

  2. Form 886–Y, Examination Changes—Shareholder's Share of Deemed and Actual Domestic International Sales Corporation's Distributions, is prepared in conjunction with Form 4605 for each year in which a change is recommended to show the corrected Schedule of Distributions.

4.10.8.4.4 (08-11-2006)

Fiduciary Cases

  1. The basic reports used for fiduciary cases are as follows:

    1. Deficiency, Overassessment or Claim — results should be presented on a Form 4549.

    2. Distributions to Beneficiaries — changes should be reflected on Form 4605. Form 886-W, Distribution of Beneficiary's Shares of Income and Credits, should be prepared for each year in which a change is recommended. Form 886–W is used to show the corrected distribution of each beneficiary's share of fiduciary income and credits.

    3. When both of the situations described in paragraphs (a) and (b) occur, the instructions in both paragraphs should be followed.

4.10.8.4.5 (08-11-2006)

Closing Letters for Agreed Cases

  1. Inform taxpayers that the agreed case is subject to review and once it is accepted, they will receive Letter 987, Agreed Income Tax Change, stating the case is closed. Examiners will prepare Letter 987 which is signed by the group manager, and leave it undated and in the case file (with a copy for the file).

  2. Letter 987 contact information can be completed with either the examiner's name or the group manager's name.

  3. Annotate the "Letter Instructions for CCP" section of Form 3198"Agreed - Letter 987." CCP will be responsible for mailing the letter.

    Note:

    Letter 1002 is used instead of Letter 987 for agreed Non-TEFRA S Corporation and Partnership entity cases.

4.10.8.5 (03-25-2021)

Excepted Agreed Cases

  1. When the taxpayer agrees to proposed adjustments, but the examination results are subject to review or additional processing or some other condition, the taxpayer may waive the statutory restriction upon assessment and collection of the deficiency of tax. Generally Form 4549-A and Form 870 are used for excepted agreed cases. See Exhibit 4.10.8-2 , Preparation of Form 870, for instructions for preparing Form 870. Form 870–PT/LT — TEFRA agreement forms are used instead of Form 4605.

  2. Signing the waiver stops the running of interest 30 days from the date of receipt if the assessment and notice for payment are not made within the 30-day period.

  3. Signing the waiver does not preclude assertion of a further deficiency by the Commissioner or a request for further consideration of the issues by the taxpayer. That is, the case is "excepted" from application of the case reopening criteria.

  4. The following cases are excepted agreed:

    • Partially agreed corporate and individual cases;

    • Claims allowed in full or part in a partially agreed case if there are agreed adjustments in addition to the claim;

    • When an overassessment on one return and a deficiency proposed on a related return is the result of the shifting of income or expenses (whipsaw issues);

    • "Excepted agreed" fiduciary cases;

    • Form 1120S for a S corporation case where small business corporation provisions of the Internal Revenue Code (Subchapter S) are not applicable;

      Note:

      Agreed report forms are used in cases involving the conversion of a return from Form 1120S to Form 1120.

    • Cases involving personal holding company deficiency dividends;

    • Joint Committee Cases;

    • Transferor—transferee cases;

    • Fast Track Settlement cases when the Appeals official settles the issues based on hazards of litigation. See IRM 4.10.7.5.5.5(2), FTS Closing Procedures.

4.10.8.6 (03-25-2021)

Partially Agreed Cases

  1. This section includes general instructions for preparing reports for partially agreed cases. Partially agreed cases are excepted agreed cases as described in IRM 4.10.8.5 . Form 870 is used as a waiver in partially agreed cases (for both Office Examination and Field Examination). See IRM 4.10.8.2.2 . RGS users access "Waivers" for Form 870.

  2. A partially agreed case contains more than one issue of which at least one issue is agreed and at least one issue is unagreed. Unless the case is excluded from a partial assessment (see (3) below), after the partially agreed report is processed, unagreed case procedures apply to the remaining issues.

  3. Cases excluded from partial assessments include:

    1. Joint Committee cases and cases requiring Chief Counsel review.

    2. Cases for a specific year with both agreed tax-reducing issue(s) and unagreed tax-increasing issues, with an apparent net overall deficiency.

    3. Multiple year cases when a combined net overall deficiency is apparent, even though the agreed result for one or more years would be an overassessment.

    4. Cases docketed in the United States Tax Court.

    5. Delinquent returns secured after the posting of a TC 150 SFR when there is audit potential but tax per return is zero (before withholding and/ or refundable credits).

      Note:

      If a partial assessment was not processed because the tax was zero, the Per Return figures for the report will be the amounts shown on the return filed by the taxpayer. See IRM 4.4.9.7.5, Delinquent Return Secured by Examination After TC 150 SFR, With Audit Potential - Final Closing Package (Partial Assessment Processed), for additional information.

  4. Examiners should refer to IRM 4.4.12, Examined Closings, Surveyed Claims, and Partial Assessments, for partial assessment procedures including the preparation of Form 5344. The partially agreed package sent to CCP includes:

    1. Form 3198, annotated "Partial Assessment Requested" and in the Other Instructions section, "Return via fax when completed."

    2. Waiver and copy of the report.

    3. Form 5344 with the results of the partial agreement.

    4. Form 2285 (if required for restricted interest).

    5. Copy of the front page of the tax return with an IMFOLT or BMFOLT transcript.

  5. RGS users can refer to the Partial Agreements and RGS article for information on penalties and completing Form 5344.

4.10.8.6.1 (03-25-2021)

Partial Overassessments

  1. The allowance of partial overassessments should not be made routinely but only if the facts and circumstances warrant such action. Whether a partial overassessment should be allowed must be a matter of sound judgment and discretion. Group manager approval will be obtained prior to the allowance of a partial overassessment. Group manager concurrence will be documented on Form 9984.

  2. A partial overassessment will be made only if there has been an agreement on the issue(s) resulting in the partial overassessment. These cases generally fall into the following categories:

    1. Cases for a specific year involving two or more tax-reducing issues;

    2. Cases for a specific year involving several issues, both tax-reducing and tax-increasing, provided the overall result, after giving effect to the tax-increasing issues, is a net overassessment;

    3. Cases involving more than one year if the net result is an overassessment.

  3. The following are examples of partial overassessments that could be made for the situations listed above:

    1. Allowing an agreed tax-reducing issue results in an overassessment of $15,000 for the taxable year. A contested tax-reducing issue for the same year, if allowable, would result in an additional overassessment of $10,000. A partial allowance reflecting an overassessment not exceeding $15,000 could be made.

    2. A case for a specific year involves two tax-reducing issues, one of which is contested, and two tax-increasing issues which may or may not be contested. Allowing one of the agreed tax-reducing issues results in a net overassessment of $50,000, after considering the offsetting adjustments for the two tax-increasing issues. A partial overassessment not exceeding $50,000 could be made.

    3. There is an unagreed proposed deficiency of $40,000 for the year 2012, but a complete agreement to an overassessment of $70,000 for the year 2013. A partial overassessment not exceeding $30,000 ($70,000-$40,000) for 2013 could be made.

4.10.8.6.2 (03-25-2021)

Partially Agreed Deficiency Cases - Individuals and Corporations

  1. This subsection includes guidance for partially agreed individual and corporate deficiency cases. See IRM 4.10.8.6.1 for partial overassessment guidance.

  2. Generally, TCOs only consider a partial agreement after a request for an Appeals conference is received and the taxpayer indicates agreement to one or more issues in the request. RAs generally have opportunities to secure an agreement or partial agreement prior to issuing a 30-day letter.

    Reminder:

    Written supervisory approval of penalties proposed subject to IRC 6751(b) must be obtained timely or the related penalties cannot be asserted. Examiners must follow IRM 4.10.8.2.3 .

  3. The subsections below provide guidance for soliciting a partial agreement. If the taxpayer indicates agreement to one or more issues prior to the request for an Appeals conference, follow IRM 4.10.8.6.2.1 , Partially Agreed Deficiency Cases - Individuals and Corporations – Prior to Request for Appeals Conference. If the taxpayer indicates agreement as part of the request for an Appeals conference, follow IRM 4.10.8.6.2.2 , Partially Agreed Deficiency Cases - Individuals and Corporations – After Request for Appeals Conference.

    Note:

    Because TCOs generally issue Letter 915 (30-day letter) with the first report, they generally follow the procedures in IRM 4.10.8.6.2.2 , Partially Agreed Deficiency Cases – Individual and Corporations – Request for Appeals Conference Received.

4.10.8.6.2.1 (03-25-2021)

Partially Agreed Deficiency Cases - Individuals and Corporations – Prior to Request for Appeals Conference

  1. When the taxpayer indicates agreement to one or more issues prior to a request for an Appeals conference and a partial agreement is solicited, multiple examination reports are required as discussed in the table below.

    Report Type Report Forms Waiver Form Comments
    "Regular" report Form 4549 N/A (use Form 4549) Form 4549 reflects all proposed adjustments and the total deficiency, in the event the taxpayer chooses to agree. See (3) below.
    "Agreed" report Form 4549-A"Agreed" Form 870 Form 4549-A"Agreed" reflects only the agreed adjustments and agreed deficiency; Form 870 reflects only the agreed deficiency. See (2) and (3) below.
    "Total" report Form 4549-A"Total" N/A Form 4549-A"Total" reflects all the proposed adjustments, but only the unagreed deficiency. See (4) and (5) below.

  2. The Form 4549-A"Agreed" report reflects only the adjustments for which the taxpayer indicated agreement, and the agreed deficiency. Since partially agreed cases are "excepted agreed" cases, Form 870 must be used as a waiver. Indicate "Agreed" at the top of the Form 4549-A and include the following statement in the "Other Information" section of the Form 4549-A: "This report reflects only the agreed adjustments and deficiency; not the total proposed adjustments and deficiency."

    Reminder:

    For RGS users, the Form 4549-A "Agreed" report is generated in RGS. For 1040 cases, select "Partial Agreement" as the Agreement Status on the Tax Computation screen. For 1120 cases, the agreement status is determined by comparing the Adjustment and Agreed fields for each issue; any difference in the two amounts will generate the partial reports. RGS will create an "agreed" and "total" report. Do NOT include the Form 4549-A"Total" report generated by RGS with the solicitation for partial agreement; the "Total" report is only used AFTER a Form 870 is secured for the agreed amount AND the partial agreement is assessed. See (4) and (5) below.

  3. To solicit a partial agreement the "regular" report, and "agreed" report with Form 870, are provided to the taxpayer with a response due date (generally 15 days). Letter 1967, Partially Agreed, can be used to transmit and explain the examination reports with agreement options.

    Note:

    If the taxpayer was previously provided a report with all proposed adjustments and the total deficiency, another "regular" report does not need to be issued. If you are not issuing a "regular" report with the "agreed" partial report, do not use Letter 1967.

    1. If an agreement to all adjustments is secured, follow procedures in IRM 4.10.8.4 , Regular Agreed Cases.

    2. If an agreement is not secured, continue with unagreed case procedures for the full deficiency (e.g., issue a regular report with a 30-day letter if not already issued, or follow IRM 4.10.8.12.9 , Response to 30-Day Letter, if already issued.)

    3. If an executed Form 870 is secured, follow IRM 4.10.8.6 (4) above and ensure the amount(s) on the Form 870 are assessed. Continue with unagreed case procedures for the remaining deficiency, following procedures in (4) and (5) below.

  4. The Form 4549-A"Total" report must be created to reflect both agreed and unagreed adjustments, and only the remaining unagreed deficiency. For RGS users, this is the Form 4549-A"Total" report that is created when a partially agreed report is generated. The examiner must ensure the Form 4549-A"Total" report:

    1. Contains an asterisk (*) in front of the name of each agreed adjustment.

    2. Reflects the previously adjusted tax on the "Total Tax Per Return or as Previously Adjusted" line, which includes the tax on the agreed adjustments (previously assessed by the partial assessment procedures.)

    3. Reflects the following statement in the "Other Information" section: "*These adjustment(s) have been agreed, and the applicable deficiency has been assessed and is included in Total Tax as Previously Adjusted. The amount due in this report represents the remaining unagreed deficiency."

  5. Normal unagreed case procedures apply to the remaining deficiency, with the exceptions noted in the table below.

    If Then
    The Form 870 for the partial agreement was secured prior to the issuance of a 30-day letter Follow IRM 4.10.8.12 , Unagreed Case Procedures, including guidance for issuing 30-day letters. Exception : Use the following report and waiver forms:

    • Form 4549-A"Total" reflecting all the proposed adjustments, but only the unagreed deficiency.

    • Form 870 (which must be manually prepared) reflecting the unagreed deficiency shown on the Form 4549-A"Total."
    The Form 870 for the partial agreement was secured after the issuance of a 30-day letter but before a request for Appeals conference was received A new 30-day letter must be issued for the remaining unagreed deficiency. Follow IRM 4.10.8.12.1 , 30-Day Letters. Exception : Use the following report and waiver forms:

    • Form 4549-A"Total" reflecting all the proposed adjustments, but only the unagreed deficiency.

    • Form 870 (which must be manually prepared) reflecting the unagreed deficiency shown on the Form 4549-A"Total."

4.10.8.6.2.2 (03-25-2021)

Partially Agreed Deficiency Cases - Individuals and Corporations – After Request for Appeals Conference Received

  1. When the taxpayer indicates agreement as part of the request for an Appeals conference and a partial agreement is solicited, two additional examination reports are required as discussed in the table below.

    Report Type Report Forms Waiver Form Comments
    "Agreed" report Form 4549-A"Agreed" Form 870 Form 4549-A"Agreed" reflects only the agreed adjustments and agreed deficiency; Form 870 reflects only the agreed deficiency. See (2) and (3) below.
    "Total" report Form 4549-A"Total" N/A Form 4549-A"Total" reflects all the proposed adjustments, but only the unagreed deficiency. See (4) and (5) below.

  2. The Form 4549-A"Agreed" report reflects only the adjustments for which the taxpayer indicated agreement, and the agreed deficiency. Since partially agreed cases are "excepted agreed" cases, Form 870 must be used as a waiver. Indicate "Agreed" at the top of the Form 4549-A and include the following statement in the "Other Information" section of Form 4549-A: "This report reflects only the agreed adjustments and deficiency, not the total proposed adjustments and deficiency."

    Reminder:

    For RGS users, the Form 4549-A"Agreed" report is generated in RGS. For 1040 cases, select "Partial Agreement" as the Agreement Status on the Tax Computation screen. For 1120 cases, the agreement status is determined by comparing the Adjustment and Agreed fields for each issue; any difference in the two amounts will generate the partial reports. RGS will create an "agreed" and "total" report. Do NOT include the Form 4549-A"Total" report generated by RGS with the solicitation for partial agreement; the "Total" report is only used AFTER a Form 870 is secured for the agreed amount AND the partial agreement is assessed. See (4) and (5) below.

  3. To solicit a partial agreement, the "agreed" report and Form 870 are provided to the taxpayer with a response due date (generally 15 days). Letter 1967-A, Partial Agreement to Appealed Issues, can be used to transmit and explain the examination report. TCOs will update the ERCS action code to 07.

    1. If a partial agreement is not secured, continue with unagreed case procedures for the full deficiency, following IRM 4.10.8.12.9.3 , Request for Appeals Conference.

    2. If an executed Form 870 is secured, follow IRM 4.10.8.6 (4) above and ensure the amount(s) on the Form 870 are assessed. Then follow procedures in (4) and (5) below.

  4. The Form 4549-A"Total" report must be created to reflect both agreed and unagreed adjustments, and only the remaining unagreed deficiency. For RGS users, this is the Form 4549-A"Total" report that is created when a partially agreed report is generated. The examiner must ensure the Form 4549-A"Total" report:

    1. Contains an asterisk (*) in front of the name of each agreed adjustment.

    2. Reflects the previously adjusted tax on the "Total Tax Per Return or as Previously Adjusted" line, which includes the tax on the agreed adjustments (previously assessed by the partial assessment procedures.)

    3. Reflects the following statement in the "Other Information" section: "*These adjustment(s) have been agreed, and the applicable deficiency has been assessed and is included in Total Tax as Previously Adjusted. The amount due in this report represents the remaining unagreed deficiency."

  5. Follow IRM 4.10.8.12.9.3 , Request for Appeals Conference, to address the request for an Appeals conference for the unagreed issues. For cases transferred to Appeals, include a copy of the Form 4549-A"Total" report with the letter used to notify the taxpayer the case is being closed to Appeals (e.g., Letter 2280, Transfer to Appeals, or Letter 5072, Examiner's Rebuttal.)

    Reminder:

    Form 870 must be assessed prior to submitting the case for unagreed case procedures (e.g., closing to Appeals or Technical Services).

4.10.8.6.3 (09-13-2019)

Non-TEFRA Partnerships and Nontaxable S Corporation and Fiduciary Cases

  1. Letter 921 transmits Form 4605, for nontaxable pass-through entity returns when adjustments are made to the entity's return (both agreed and unagreed). Enclose Form 4605 to reflect the adjustments made to the entity's ordinary income/loss and separately stated items of income, loss, deduction and credit. A nontaxable pass-through entity indicates agreement by having an authorized person sign Form 4605; however, the signature at the entity level is not binding. Therefore, an agreement (or partial agreement) must be obtained at the investor level. Partial agreements are not processed on nontaxable pass-through entities.

  2. See IRM 4.31.5, Investor Level Statute Control (ILSC) Examinations-Field Office Procedures, for detailed information on pass-through entities.

4.10.8.6.4 (09-13-2019)

S Corporations and Fiduciary Cases

  1. The procedures for processing a partially agreed S corporation or fiduciary case that is subject to tax are the same as the procedures for individual and corporation cases outlined in IRM 4.10.8.6.2 .

4.10.8.6.5 (09-13-2019)

Interest Charge Domestic International Sales Corporations

  1. Letter 921-L, Report Transmittal For Non-TEFRA Partnership, Fiduciary, S Corporations & Interest Charge Domestic International Sales Corporation (DISC), is used to transmit the pass-through audit adjustments from Form 4605 to the investors. The agreement (or partial agreement) must be obtained at the investor level. Partial agreements are not processed on an Interest Charge Domestic International Sales Corporation.

4.10.8.7 (03-25-2021)

Splitting Multi-Year Examination Cases

  1. Generally multi-year cases are linked together in RGS and placed in the same folder as instructed in IRM 4.10.15.5, Creating Cases, and IRM 4.10.9.9, Case File Assembly for Closing. This section discusses situations which require splitting multi-year examination cases because at least one of the tax years requires different processing. Examples include:

    • One examined year and one surveyed year

    • One no-change (no adjustments) year and one unagreed deficiency year

    • Two unagreed years with Appeals requests, and one year is ineligible for Appeals because fewer than 365 days remain on the statute of limitations

  2. When closing a multi-year case containing at least one agreed/no-change year and one unagreed year, examiners should split the case into an agreed/no-change case file and an unagreed case file as instructed in the table below.

    Forms/Documents Unagreed Case File Agreed/No-Change Case File
    Examination report Examination report containing the unagreed adjustment(s) Original agreed examination report signed by the taxpayer(s)
    Returns Returns for the unagreed year(s) Returns for the agreed year(s)
    Form 5344 Completed Form(s) 5344 Completed Form(s) 5344
    Workpapers Original Workpapers and information None required
    Form 3198 Notate in the top margin: "Unagreed - Do Not Separate from Agreed Case File" Notate in the top margin:

    1. "Agreed - Do Not Separate from Unagreed Case File" and


    Notate in the Other Instructions blank:

    1. "The YYYYMM case file contains the original workpapers"

  3. When closing a multi-year unagreed case containing at least one appealed year(s) and one year that is not eligible for Appeals, examiners must split the case into two files. The issues reflected on Form 4318 and workpapers must be split and associated with the applicable year(s) to ensure each file contains the documents needed to support the audit findings.

    Example:

    Year 1, Year 2, and Year 3 are examined and have proposed deficiencies. Year 1 has less than 240 days remaining on the ASED; Letter 5153 was issued and a statute extension was solicited but not secured. A 30-day letter was issued for Years 2 and 3 and an Appeals request was received. When it is determined that Year 1 will close for a notice of deficiency and Years 2 and 3 will close to Appeals, the case must be split into two files.

  4. The split files should remain together and be sent to Technical Services in Status 21.

  5. If the case file is split, the electronic case in RGS must also be split. All years will be moved on RGS CEAS using two separate actions to the appropriate RGS group code. See CEAS and Splitting Case Files for how to split a case in RGS.

    Note:

    RGS group codes change periodically and changes are communicated to the field on the RGS web site.

    Note:

    Once a multi-year case is split, the split years can no longer be treated as one case within RGS.

4.10.8.8 (03-25-2021)

Claims for Abatement, Audit Reconsiderations, and Supplemental Reports

  1. Examiners should refer to IRM 4.10.11, Claims for Refund and Requests for Abatement, for guidance on claims for refund or request for abatements. Guidance specific to requests for abatement is located in IRM 4.10.11.3, Requests for Abatement.

  2. If an examiner is assigned a case in which the taxpayer has requested an audit reconsideration, the examiner should also refer to IRM 4.13.4, Area Office (AO) Examination, for report writing, letters and procedures to be followed.

  3. Supplemental Reports are prepared for abatements (reduction) of previously assessed (but unpaid) tax. These types of reports differ from reports prepared for claims in that the supplemental report reduces tax which has been assessed but not paid. In such cases any overassessment shown on the supplemental examination report will not be refunded to the taxpayer; instead the existing balance due will be reduced or eliminated. This point should be clearly explained to the taxpayer.

  4. When preparing a report for a claim for abatement due to an audit reconsideration, the "Per Return or as Previously Adjusted" amounts for both taxable income and tax are the amounts as shown in the previously assessed report as confirmed with a transcript. It is not necessary to repeat adjustments previously made. Include only adjustment(s) made to the previous report or notice of deficiency based on the additional information received. The "Other Information" section on the report should state "Supplemental Report — Reduction in Previously Assessed Tax."

  5. A reduction in previously assessed penalties should be clearly explained to minimize confusion. For example, if an accuracy related penalty of $500 was assessed, and the examiner later determines that the correct penalty is $200, the Supplemental Report should show a penalty amount of ($300). The "Other Information" section of the report should explain the reduction as follows:

    Accuracy Related Penalty as Corrected. . . . . . . . . . . $200
    Amount Previously Assessed. . . . . . . . . . . . . . . . . . . . $500
    Adjustment (reduction) in Accuracy Related Penalty .($300)

    Note:

    A computation should be provided for each penalty that is abated

    .

  6. Form 3198 should be annotated "Supplemental Report - Reduction of Previously Assessed Tax" if the informal claim is allowed in part or in full. In all cases an annotation should be made indicating the letter number and date it was issued.

4.10.8.8.1 (03-25-2021)

90-Day / Notice of Deficiency Reconsideration Cases

  1. A "90-Day / Notice of Deficiency Reconsideration" case is one in which the taxpayer receives a statutory notice of deficiency (determination) and requests reconsideration of the deficiency before the 90 days have expired. Technical Services has responsibility for issuing notices of deficiency for SB/SE Field Examination, LB&I, and Estate and Gift cases. The last day the taxpayer can file a petition with the United States Tax Court is 90 days after the notice is issued (150 days if either the taxpayer is outside the United States when the notice is mailed or the notice is mailed to an address outside the United States).

    Note:

    A 90-Day / Notice of Deficiency Reconsideration is not an "audit reconsideration" as described in IRM 4.13, Audit Reconsideration, because the proposed assessment has not been made, nor has the original examination and all processing been completed.

  2. If sufficient time remains to reconsider a case prior to the expiration of the 90 days (or 150 days), Technical Services may return the case to the examination group to consider the taxpayer's request for an interview and/or additional information. If sufficient time does not remain to reconsider the case prior to the expiration of the 90-day (or 150-day) time period, Technical Services will inform the taxpayer they should petition if they disagree, otherwise the tax will be assessed. 90-Day / Notice of Deficiency Reconsideration cases are a priority and must be closed back through Technical Services.

    Note:

    Reconsidering the case does not suspend or extend the 90-day (or 150-day) time period to petition Tax Court. All communication to the taxpayer should include the following statement: "The reconsideration of your case will in no way serve to suspend or extend the 90-day period in which a petition for a redetermination of the proposed deficiency may be filed with the Tax Court."

  3. Technical Services will use Form 3990, Reviewer's Report, to transmit a 90-Day / Notice of Deficiency Reconsideration case to the group, and provide instructions and a response date. Examiners must follow the instructions from Technical Services and if revisions to the report are needed the examiner must:

    • Prepare a supplemental report based upon the transcript taxable income and tax per return (or as previously adjusted) before the statutory notice of deficiency. The deficiency on the revised report cannot be larger than the amount on the original notice.

    • Label the top of the report as "Supplement to the Notice of Deficiency" and date the supplemental report with the current date.

    • Add the following comment in the "Other Information" section of the report: "This report is only a supplement to the notice of deficiency. It does not supersede the previous report, nor does it serve to extend the 90-day period for filing a petition to the United States Tax Court."

      Note:

      The examiner should not solicit an agreement to the supplemental report. Technical Services is responsible for reviewing the accuracy of the supplemental report and sending the appropriate letter to the taxpayer.

  4. Once the examination group has completed work on the case, it should be returned to Technical Services. The statutory notice reviewer is responsible for notifying the taxpayer of the final outcome of the reconsideration using Letter 555-T, Reconsideration After Statutory Notice, or Letter 645-T, No Change - After Statutory Notice Issued. Neither of these letters are issued by the examination group.

4.10.8.9 (06-10-2005)

Reports For Cases Reopened By Examination

  1. A report of re-examination is used when a taxpayer's books and records are re-examined as the result of the Service initiating the action using the case reopening criteria set forth in Policy Statement 4-3. See IRM 1.2.1.5.1, Policy Statement 4-3, and Rev. Proc. 2005–32.

  2. When a contact falls under reopening criteria, prior approval must be obtained using Form 4505, Reopening Memorandum, before starting the examination.

  3. Use the appropriate forms for the entity and type of closing. Once prepared, write "Reopening" in capital letters on the top of the report.

  4. Prepare the report as you would a supplemental report. In the "Other Information" section state "This report supplements the report dated mm/dd/yyyy."

  5. Re-examination reports require special processing. Form 3198 should be annotated "Reopening Case."

  6. A re-examination report should not be used for a closed deficiency assessment reconsidered at the taxpayer's request (audit reconsideration).

4.10.8.10 (03-25-2021)

Claims for Refund and Overassessments

  1. Examiners should refer to IRM 4.10.11, Claims for Refund and Requests for Abatement, for guidance on claims for refund or request for abatements. Guidance specific to claims for refund is located in IRM 4.10.11.2, Claims for Refund.

4.10.8.10.1 (03-25-2021)

Inviting Claims in Overassessment Cases

  1. If an unagreed case results in a proposed refund where a claim has not been filed, examiners should advise the taxpayer to file a valid claim for refund before the RSED expires if they want to protect their opportunity to recover the refund. See IRM 4.10.11.4.2, Refund Statute Expiration Date (RSED) - Consideration and Examiner's Responsibilities, for additional information about the RSED.

    Note:

    If during an examination, the taxpayer raises an affirmative issue that does not meet the criteria for a claim for refund, SB/SE examiners may consider the issue (LB&I examiners must refer to IRM 4.46.3.7.2.2, Claims Not Meeting the Standards of Treas. Reg. 301.6402-2). Examiners should advise the taxpayer to file a valid claim for refund (before the RSED expires) if they want to protect their opportunity to recover a refund related to the affirmative issue.

  2. A claim invitation is not needed in an agreed case because the Service considers an agreement (e.g., Form 4549 series) or a waiver in the Form 870 or Form 890 series to be a valid claim for refund when the taxpayer agrees to an overassessment determined by the Service as explained in IRM 25.6.1.10.2.6.2.2(3), Prescribed Forms for Amending an Original Tax Return or Abating a Penalty Already Paid.

  3. Taxpayers should be invited to file claims in the following types of unagreed cases if the proposed overassessments are not already covered by claims:

    1. Cases to be referred to Appeals in a "pre-90-day" status when a period of less than 180 days remain to allow the overassessment. See IRM 8.7.7.2, Receipt of Newly Assigned Case.

      Note:

      A pre-90-day case is a protested case on which a notice of deficiency or other final determination letter has not been issued.

    2. Cases involving proposed overassessments exceeding $100,000, regardless of the time remaining in the limitation period for scheduling overassessments.

    3. Cases forwarded to the Headquarters Office, regardless of the amount of overassessment involved, if 30 days or less remain in the statutory period for scheduling overassessments.

  4. To invite a taxpayer to file a claim, the following must be added to the "Other Information" section of the Form 4549 or Form 4549-A:

    • The processing of the examined case may not be completed before the expiration of the period allowed by law to file a refund claim (generally 3 years from the date the return was filed or 2 years from the time the tax was paid, whichever is later).

    • A claim should be filed prior to the expiration of the period allowed by law to file a refund claim.

    • The claim should be made on the appropriate amended income tax return (e.g., Form 1040X, Form 1120X) or Form 843 (for penalty and interest claims).

    • The amount shown on the report may be used as the claim amount.

4.10.8.10.2 (06-10-2005)

Application of Revenue Ruling 99-40

  1. There are certain periods of time when the Government retains the taxpayer's money without paying for its use as required by the following:

    1. IRC 6611(e)(1) prohibits the payment of interest on overpayments of tax to the taxpayer if an overpayment is refunded within 45 days of the receipt of an original return or a carryback claim. See IRM 20.2.4.7.5, 45–Day Rule.

    2. In regard to delinquent returns, IRC 6611(b)(3) provides that no credit interest shall be allowed or paid for any day before the date on which the return is filed. See IRM 20.2.4.3, Availability Dates for Overpayments.

    3. Treas. Reg. 301.6402-3(a)(5) provides that the allowance of interest is prohibited when an overpayment reported on a return or amended return is applied as a credit elect to estimated tax for the succeeding year.

  2. Examiners should insure proper calculation of interest when an original return had an overpayment and the taxpayer chose to elect to apply all or part of the overpayment shown by its return to its estimated tax for the succeeding tax year instead of taking a refund. Rev. Rul. 99-40, 1999-2 C.B. 441 held if an overpayment claimed on a return is credited to the succeeding year's estimated tax, interest will be assessed on that portion of a subsequently determined deficiency for the overpayment return year that is less than or equal to the overpayments as of: (1) the date on which the Service refunds the overpayment without interest; or (2) the date on which overpayment is applied to the succeeding year's estimated taxes. Any remaining portion of the deficiency will be assessed from the original due date of the tax for the overpayment return year. Potential Rev. Rul. 99-40 cases are those with a TC 830 or TC 836 on the module. CCP generally will not apply the provisions of Rev. Rul. 99-40 unless advised.

  3. The examiner should flag Form 3198 of the potential interest relief per Rev. Rul. 99-40. The examiner should include Form 2220, Underpayment of Estimated Tax by Corporations, or Form 2210, Underpayment of Estimated Tax by Individuals, Estates and Trusts, (subsequent year) in the case file which provides a schedule of the required estimated tax payments for the succeeding tax year and the related transcripts.

4.10.8.11 (06-10-2005)

Deficiency Dividends

  1. IRC 547, Deduction For Deficiency Dividends, provides a method under which a personal holding company may, under certain circumstances, be relieved from the payment of a liability of the tax imposed on personal holding companies.

  2. In any case in which a deficiency in personal holding company tax is disclosed to which the taxpayer agrees, the benefits afforded by IRC 547 will be explained to the taxpayer, if applicable.

4.10.8.11.1 (08-11-2006)

Informal Agreements Under IRC Section 547(c)(3)

  1. If the taxpayer decides to make a distribution of earnings for the purpose of securing a credit against the liability, the taxpayer will be advised that the liability may be established by executing an informal agreement under IRC 547(c)(3) on Form 2198, Determination of Liability for Personal Holding Company Tax, or by entering into a final closing agreement on Form 866, Agreement as to Final Determination of Tax Liability.

    Note:

    Use of Form 866 is usually limited to litigated cases.

    1. Form 2198 should not be accepted unless all items relating to the personal holding company tax liability and other income tax liabilities are agreed upon and a Form 870 is signed by the taxpayer.

    2. Unless sufficient time remains in which to make an assessment under IRC 6501, Form 2198 or Form 866 should not be approved (in addition to the 120-day period for filing a Form 976, Claim for Deficiency Dividends Deduction, or Credit or Refund by a Personal Holding Company, Regulated Investment Company, or Real Estate Investment Trust).

    3. Form 2198 may be approved if a consent is secured from the taxpayer under IRC 6501(c)(4) to extend the statute. One year should remain on the statute when the case is closed to Technical Services. See IRM 4.8.8.4.1, Scope of Review.

    4. Form 866 – This form is not routinely used in lieu of Form 2198 unless advised by Counsel for a unique situation. The examiner should consult with the group manager and local Counsel to determine if the use of a closing agreement is appropriate, and if so, which particular type should be used. If Form 866 is used as the agreement document, the examiner will prepare the agreement and secure the taxpayer's signature in accordance with the instructions in IRM 8.13.1, Closing Agreements. All closing agreements require local Counsel's approval and Technical Services review before obtaining the taxpayer's signature.

    5. Counsel Involvement - Coordination with local Counsel is required in the development of the closing agreement when a standard language or pattern agreement is not used and there are modifications to a pattern agreement. A review by Technical Services and the approval of local Counsel is required, relative to the language and form of the closing agreement, prior to securing the taxpayer's signature. There must be sufficient documentation in the taxpayer's administrative file to support Counsel's concurrence. To request a review, a formal or informal correspondence should be addressed to local Counsel stating the reasons for and intent of the agreement and requesting review of and concurrence with the draft closing agreement. The correspondence may be in the form of an email, fax, or memorandum. If needed, the Technical Services Closing Agreement Coordinator will assist in preparing the request to Counsel.

  2. Form 4549–A is prepared reflecting the Personal Holding Tax as "Other Taxes" with an attached explanation. See Exhibit 4.10.8-4 .

  3. Form 870, which is required to be submitted with Form 2198, should contain the following statements:

    1. The waiver of restrictions on assessment and collection contained herein is subject to the approval of Form 2198 relating to the taxpayer's liability for Income and Personal Holding Company Tax.

    2. This waiver will not take effect until after the expiration of the 120 day period to begin with the effective date of Form 2198.

    3. If the taxpayer complies with IRC 547, relating to the payment of deficiency dividends, by (1) paying the deficiency dividends within 90 days after the effective date of Form 2198, and (2) filing a proper claim on Form 976 subsequent to the payment of the deficiency dividends and within 120 days after the effective date of Form 2198, then the amount of the deficiency stated on this waiver shall be reduced by the amount necessary to give effect to the timely paid deficiency dividends, and the remainder, if any, will be assessed.

    4. If, at the expiration of the 120 day period beginning with the effective date of the Form 2198, a Form 976 has not been filed or timely deficiency dividend payments have not been made, the entire amount of the deficiency shown in this waiver will be assessed.

    5. See Exhibit 4.10.8-5 , Sample Form 870 — Personal Holding Company.

  4. Upon receipt of Form 2198:

    1. The original Form 2198 should be initialed by the examiner and group manager to indicate their acceptance of the form.

    2. The original Form 2198 should be attached to the return for the last taxable year covered by the agreement.

    3. A duplicate Form 2198 will be mailed to the taxpayer with Letter 1152, Agreement Transmittal for Signed Personal Holding Company/Determination of Liability for Personal Holding Company Tax, using certified or registered mail within five calendar days.

      Note:

      Treas. Reg. 1.547–2(b)(1)(v) provides that, with one exception, the date of determination is the date the signed agreement (Form 2198) is mailed to the taxpayer and not the date the agreement is signed by the authorized Service official.

    4. See Exhibit 4.10.8-6 for a sample Form 2198.

  5. After accepting Form 2198, the case should be held in suspense by Technical Services until Form 976 is filed or the expiration of the 120 day period, whichever is earlier. The case should then be returned to the examiner.

4.10.8.11.2 (06-10-2005)

Receipt of Claim: Form 976

  1. The date on which Form 976 is filed in accordance with applicable regulations will be the controlling date to determine whether the form has been timely filed. The effective date of an informal agreement on Form 2198 will be the date the signed agreement is mailed to the taxpayer.

    1. Form 976, Filed Timely — the examiner will verify the information on Form 976 to the extent deemed necessary and then prepare a report of the examination showing the general adjustments, the personal holding company income, the reduction due to the allowance of any deficiency dividend deduction, and whether the amount of the claim (Form 976) was allowed in full, allowed in part, or disallowed in full. See Exhibit 4.10.8-7 , Sample Form 4549-A — Personal Holding Company - Page 1.

    2. Form 976, Not Filed Timely — a letter will be sent to the taxpayer as notification that the claim was not timely filed. A certified notice of disallowance will be issued unless the taxpayer has signed Form 2297. See IRM 4.10.11.2.2.1, Claims for Refund - Forms, for a discussion of Form 2297.

4.10.8.11.3 (06-10-2005)

Appeals Cases: Area Compliance Responsibilities

  1. When Appeals accepts a Form 2198, the Appeals Officer solicits the taxpayer's claim (Form 976) and secures supporting evidence from the taxpayer. See IRM 8.7.1.2, Personal Holding Company Tax Alleviated by Deficiency Dividend.

    1. The Appeals Officer may prepare the report and close the case if there are no unusual circumstances and verification of payment of the deficiency dividends can be made easily.

    2. The Appeals Officer may return the case to the Examination field group. The case should be assigned to an examiner to verify payment of the deficiency dividends and prepare the report. The report should include adjustments made by Appeals. The report should be returned to Appeals for closing. If the examiner determines that the claim was not timely filed, the case should be returned to Appeals without contacting the taxpayer.

4.10.8.11.4 (08-11-2006)

United States Tax Court Cases: Area Compliance Responsibilities

  1. In cases where the liability for personal holding company tax has been established by a decision of the United States Tax Court, Appeals will assess the gross deficiency. The Appeals Officer will explain to the taxpayer the actions to be taken to assess the tax and how to secure the benefits of IRC 547. After the assessment has been made, the administrative file will be forwarded to the Area Compliance Examination. See IRM 8.20.7.24.6, Docketed Personal Holding Company Tax Cases.

  2. The case will be held in suspense (Technical Services) until a Form 976 is filed or until the expiration of the 120 day period for filing Form 976, whichever is earlier.

  3. If a Form 976 is not timely filed, the case will be transferred for collection action, consistent with the Court's decision.

  4. If a Form 976 is timely filed, the case will be assigned to an examiner.

    1. Upon receipt of a closing agreement from the taxpayer, Form 866 will be prepared and forwarded to Technical Services for processing. The date of the closing agreement on Form 866 will be the date upon which the closing agreement is signed by the Area Director. The closing agreement, together with the case file, will be transmitted to the Area Director for approval.

    2. Once approved, Technical Services will determine any need for follow-up action and transmit a copy of the closing agreement to the taxpayer.

4.10.8.11.5 (06-10-2005)

Closing Procedures For All Dividend Deficiency Cases

  1. For all cases where a deficiency dividend deduction is allowed, the examiner will prepare Form 3189, Deficiency Dividend Deduction Case Transmittal. See Exhibit 4.10.8-8 .

    1. The form will include a computation of the tax liability before the reduction for payment of deficiency dividends. This is necessary for computing the interest amount.

    2. The original Form 3189 will be placed on top (outside) of the case file.

    3. A duplicate Form 3189 will be attached to every corporation return for which a deficiency dividend was paid.

  2. If a return for which deficiency dividends were paid has not yet been filed, then the examiner should prepare Form 5346 and attach the duplicate Form 3189 so that it can be associated upon filing.

  3. Form 5346 should be completed to report dividends paid to shareholders in the current year.

  4. Form 3198 should identify the case as a restricted interest and claim for deficiency dividends paid case.

4.10.8.12 (03-25-2021)

Unagreed Case Procedures

  1. Managerial involvement is required in all unagreed cases. SB/SE examiners should be aware of the procedures in IRM 1.4.40.4.11.5, Unagreed Closing Procedures, and inform their group manager when they believe a case will have unagreed issues. The group manager's actions must be documented in the case file. Form 9984 may be used for this purpose. LB&I examiners should refer to IRM 4.46.5.7.2, Key Points to Consider and Verify in Preparing an Unagreed Issue Report, and IRM 4.46.6.8, Unagreed Report, for additional guidance.

  2. If the case is eligible for Fast Track Settlement (FTS) and there are unagreed issues remaining after the group manager has contacted the taxpayer or representative in an attempt to resolve all issues, the examiner or group manager will explain and offer FTS to the taxpayer. FTS should not be offered if the group manager has not spoken to the taxpayer or representative. FTS may be offered on cases returned from Appeals ( IRM 4.10.8.12.11 ). SB/SE examiners see IRM 4.10.7.5.5, SB/SE Fast Track Settlement, for additional information; LB&I examiners see IRM 4.46.5.4.2.5, Fast Track Settlement (FTS) and IRM 4.51.4, LB&I / Appeals Fast Track Settlement Program (FTS).

  3. Unless specifically excluded from Appeals consideration (see paragraph (5) below), all cases are eligible for an Appeals conference as long as the taxpayer submits an adequate protest (when a formal written protest is required), or a small case request, that includes the information required in Pub 5, Your Appeal Rights and How To Prepare a Protest If You Don't Agree. See IRM 4.10.8.12.9.3 (2) below for additional guidance regarding the adequacy of a formal written protest or small case request.

    Note:

    Generally, if the taxpayer submits new information or evidence to Appeals, or raises a new issue Examination has not considered, the case will be returned to Examination. See IRM 8.2.1.5, Returning a Case to Examination - ATE, and IRM 4.10.8.12.11 .

  4. Original returns are generally required in certain cases (e.g., fraud, delinquent returns and jeopardy assessments) closed to Appeals. See IRM 8.20.5.4.1.1, Non-Docketed Case Types Requiring an Original Return, for exceptions.

    Note:

    For electronically filed returns, a print of the return must be included in the file using one of the internal sources available (e.g., TRPRT, RTVUE, MeF, etc.). See IRM 8.20.5.3.1.1(3), Contents of the Administrative File.

  5. Following is a list of cases that are excluded from Appeals consideration:

    • Fewer than 365 days (270 days in the case of an estate tax return) remain on the statute of limitations when the case is received in Appeals. See IRM 4.10.8.12.1 (1) for additional information.

    • Request/claim for abatement of unpaid tax (IRM 4.10.11.3, Requests for Abatement) that is not an audit reconsideration (taxpayer has no judicial rights).

    • Taxpayer disagrees solely on moral, religious, political, constitutional, conscientious, or similar grounds (IRM 8.1.1.3.1, No Appeals Conference or Concession on Certain Arguments). See IRM Exhibit 25.25.10-1, Frivolous Arguments, for examples.

      Note:

      Examiners must use Letter 1963, Frivolous Filer Examination Report Transmittal, to transmit the report and explain why administrative appeal rights are not applicable. If additional information is subsequently received so the case is no longer excluded from Appeals consideration, follow the procedures in IRM 4.10.8.12.1 .

    • Fraud cases involving pending criminal prosecution (IRM 8.2.1.5(2), Returning a Case to Examination - ATE).

    • Cases with issues designated for litigation.

  6. The issuance of a notice of deficiency does not preclude transfer of protested cases to Appeals for:

    1. Other taxable periods of the same taxpayer,

    2. Other types of tax for the same taxable periods for the same taxpayer, or

    3. An offer in compromise covering the same type of tax and the same taxable periods of the taxpayer.

4.10.8.12.1 (03-25-2021)

30-Day Letters

  1. 30-day letters are used to transmit the examination report to the taxpayer and allow the taxpayer 30 days to request Appeals consideration of their case, or take other actions as outlined in the specific letter.

    Note:

    The statute of limitations must be considered before issuing a 30-day letter. When a case is initially received in Appeals, there must be at least 365 days remaining on the statute (270 days for estate tax cases or IRC 6206 excessive claim cases). If Appeals previously released jurisdiction of the case and returned it to Examination for additional work, there must be at least 180 days remaining on the statute of limitations when the case is received in Appeals. The group must allow a minimum of 30 days for shipping and processing a case through Technical Services. Therefore, a case should have a minimum of 395 days (or 210 if the case was returned) remaining on the statute when it is closed from the group. See IRM 8.2.1.4, Receipt of New Assignment by an Appeals Technical Employee (ATE).

  2. 30-day letters are generally issued for cases resulting in the following:

    1. Unagreed change (deficiency or overassessment),

    2. No-change with adjustments impacting other tax years,

    3. Formal claim disallowance, and

    4. Agreed change (deficiency or overassessment) (Office Examination).

  3. Generally, taxpayers with 240 or more days remaining on the statute of limitations will receive the appropriate 30-day letter. This allows 30 days for the taxpayer to respond to the letter (and extend the statute if needed) and if the taxpayer fails to respond, it also ensures adequate time to close the case from the group ( IRM 4.10.8.2.4.3 ) and provide Technical Services at least 180 days to issue the notice of deficiency. See IRM 25.6.23.7.1, Minimum Time Remaining on ASED.

  4. When fewer than 240 days remain on the statute of limitations, the examiner should prepare and issue an agreed examination report with Letter 5153, Examination Report Transmittal - Statute less than 240 Days (Straight Deficiency), Letter 5153-A, Examination Report Transmittal - Statute less than 240 Days (Claim), Letter 5153-B, Examination Report Transmittal - Statute less than 240 Days (No-Change with Adjustments), or Letter 5153-D, Examination Report Transmittal - Statute less than 240 Days (Bankruptcy), to transmit the report and notify the taxpayer additional time is needed on the statute of limitations for Appeals to consider their case if it is unagreed, and allow 10 days to respond. Examiners sign Letter 5153, which is not a 30-day letter. Office examiners will update the ERCS action code to 07. If a statute extension has not already been solicited, the examiner should follow the procedures in IRM 25.6.22, Extension of Assessment Statute of Limitations By Consent, and simultaneously solicit an extension (using a separate envelope), then proceed as follows:

    1. If the case is agreed, close using normal agreed procedures. See IRM 4.10.8.4.5 for deficiency and claim cases, or IRM 4.10.8.3.3 (1) for no-change with adjustment cases.

    2. If the case is unagreed and the taxpayer signs a consent to extend the statute of limitations that will allow sufficient time for the case to be considered by Appeals, prepare and issue a 30-day letter.

    3. If the case is unagreed and the taxpayer does not sign a consent, close the case to Technical Services for issuance of a notice of deficiency.

  5. 30-day letter procedures are applicable to income, estate, gift, excise, and employment tax cases. See IRM 4.23.22, Unagreed Employment Tax Case Procedures, IRM 4.24.10, Excise Tax, Appeals Referral Procedures, or IRM 4.25.6, Report Writing Guide for Estate and Gift Tax Examinations, for procedures related to employment tax, excise and estate and gift examinations.

  6. Examiners issue reports to Non-TEFRA pass-through entities with Letter 921, Letter 921-L, etc.; however, these letters are not 30-day letters. Thirty-day letter procedures are followed for the investors' reports reflecting their share of the adjustments made at the entity level. Only the investors will be able to request a hearing with Appeals because there is no "deficiency" at the entity level. See IRM 4.31.5.11.3, Key Cases With Adjustments and Investors Not Linked on PCS.

  7. If an examination of a return results in a deficiency or overassessment that is offset (no deficiency or overassessment results) by a net operating loss carryback, a manual computation of interest may be required. If the taxpayer disagrees with the examination results, they will be afforded an opportunity to request an Appeals hearing. Letter 950-F is used for this purpose.

  8. The following form letters, specific to the type of case, are 30-day letters used to transmit the examination report and allow the taxpayer 30 days to request Appeals consideration of their case, or take other actions as outlined in the specific letters:

    1. Letter 915 – for straight deficiency, or mixed deficiency and overassessment cases in Office Examination; update ERCS action code to 04 for follow-up in 15 calendar days.

      Note:

      If the taxpayer does not respond within 15 days, the examiner will prepare and issue Letter 1912 and update ERCS action code to 07 for follow-up in 15 calendar days.

    2. Letter 950 — for straight deficiency, or mixed deficiency and overassessment cases in Field Examination.

    3. Letter 950-F — for overassessments and no-change with adjustments cases.

    4. Letter 950-Z — for unagreed deficiency, overassessment or mixed deficiency and overassessment cases in LB&I Examination.

    5. Letter 569 — for claim disallowance cases.

    6. Letter 2777 — for fraudulent failure to file penalty on delinquent returns.

    7. Letter 3391 — for nonfiler cases.

    8. Letter 955 — for transferee/transferor cases.

  9. The following items must be included with the 30-day letter:

    1. Examination report (including lead sheets or standard explanations as required in IRM 4.10.8.12.4 ) and waiver (when required); and

    2. Pub 3498.

      Note:

      Pub 3498 must always be enclosed with a 30-day letter even if it was provided with a previous report or letter.

  10. 30-day letters should be prepared by the examiner, and include the examiner's or group manager's name in the contact area, depending on the type of letter.

    Note:

    The authority to sign and issue 30-day letters is delegated to group managers. SB/SE examiners must follow Delegation Order SBSE 4.55, Authority to Sign Thirty Day Letters.

  11. IRC 6651(f), Fraudulent Failure to File (FFTF) Cases — The portion of a FFTF penalty attributable to the amount of tax shown on a filed delinquent return is assessable immediately and is not subject to deficiency procedures. See IRM 25.1.7.7.1, Assessment Procedure for the Fraudulent Failure to File (FFTF) Penalty. To ensure the facts of a particular case support fraud, and because the assessment of a FFTF penalty attributable to the amount shown on a filed return will not be reviewed by the Tax Court, all 30-day letters proposing a FFTF penalty (e.g., Letter 2777 ) on a filed return must be reviewed and approved by Area Counsel prior to issuance. Furthermore, the period of limitations on assessment of such portion would not be suspended by the issuance of a notice for the other portion.

    Exception:

    When proposing the FFTF penalty on an income tax substitute for return (SFR), Counsel's review and approval is not required prior to the issuance of the 30-day letter. However, Counsel will review the case prior to the issuance of a notice of deficiency.

4.10.8.12.2 (03-25-2021)

Unagreed Report Forms

  1. The unagreed report forms listed below are generally used to present the audit findings for an unagreed case. They are similar to those used for agreed cases and the instructions for completing agreed case reports generally apply. However, unagreed report forms do not include a statement regarding the acceptance of the report by the Area Director. They also do not include a signature line for the taxpayer's consent to assessment and collection, so a waiver is required. See IRM 4.10.8.2.2 and Exhibit 4.10.8-2 for instructions for preparing waivers.

  2. Generally, the report forms shown in the table below are used for unagreed income tax cases.

    Exception:

    Office Examination can use Form 4549 in lieu of Form 4549-A and a waiver in unagreed cases.

    Type of Taxpayer Report Form Agreement or Waiver Form
    Individual (1040) 4549-A 870
    Corporation (1120) 4549-A 870
    Non-TEFRA Partnership (1065) 4605
    and
    886–S    		 N/A
    S Corporation 4605
    886–X    		 870 (entity tax)
    N/A (nontaxable entity)
    Fiduciary 4605
    886–W    		 870 (entity tax)
    N/A (nontaxable entity)
    Domestic International Sales Corporation 4605
    886–Y    		 N/A

4.10.8.12.3 (03-25-2021)

Separate Assessments on Joint Taxpayers

  1. In certain cases, it may be necessary to set up separate assessments for taxpayers who filed a joint return. For example, when only one spouse signs an agreement and the deficiency is not fully paid, an assessment may need to be made on the agreeing, or "obligated," spouse in order to protect the statute of limitations for that taxpayer while unagreed procedures are applied to the other spouse. Similarly, a separate assessment would need to be made when only one spouse does not petition Tax Court after receiving a 90-day letter. In these situations, separate assessments are made using MFT 31, as long as the SSN's are valid (no asterisks). If invalid, Non-Master File procedures found in IRM 21.7.12, Non-Master File (NMF) Adjustments, and IRM 3.17.46, Automated Non-Master File Accounting, will apply.

  2. Although an assessment will be made on the obligated spouse, no collection notices will be mailed until the case is ultimately resolved (and assessment adjusted if necessary). At that time, an MFT 31 assessment will be set up for the other spouse.

  3. If only one spouse signs an adequate protest requesting Appeals consideration and no response is received from the other spouse, the case will normally be sent to Appeals as long as there is sufficient time on the statute of limitations for both spouses. In other words, one signature on the protest may be adequate.

  4. However, if one spouse agrees and one protests, a separate assessment may be necessary on the obligated spouse especially if the statute of limitations for that spouse is imminent. In any event, note on the Form 3198 that one spouse has signed a waiver, so CCP can calculate interest accordingly.

  5. If one spouse agrees and the other does not respond to the 30-day letter, a separate assessment needs to be set up on the obligated spouse before the case is sent to Technical Services for 90-day letter procedures.

  6. Procedures for creating an MFT 31 account:

    1. Request the creation of the MFT 31 account for the obligated spouse by preparing Form 3177, Notice of Action for Entry on Master File. The top section of Form 3177 will be completed, using the primary SSN.

    2. In the "Other" section, put TC 971 as the transaction code in the empty box, and on the line state "Action Code 103." Also include the obligated (agreeing) spouse's SSN as "XREF SSN: XXX-XX-XXXX."

    3. On the "Other" line, MFT Code column reflect 30 and ensure the taxable period is listed in the correct column (a separate Form 3177 is needed for each year). The TC 971 and appropriate action code on the MFT 30 account will create an MFT 31 account for the XREF SSN listed.

  7. EEfax the Form 3177 to CCP and request a partial assessment be made on the obligated spouse:

    1. Form 3198, Form 5344 and the agreed report are needed in addition to the Form 3177.

    2. Note on Form 3198"input TC 971 per attached Form 3177" . Include your name and fax number so CCP can fax a copy of Form 5344 to you after the partial assessment has been made.

    3. Form 5344 must be manually edited and should reflect MFT 30 and the primary SSN. In the top left of the Form 5344 put an "S" in the blank following AMCLS. In Item 56 put either "P" or "S" depending on whether the assessment is being made on the primary or secondary spouse.

    4. EEfax these forms to CCP while you continue to hold the case.

    5. See the CCP website for the Exam EEfax numbers.

  8. Continue normal unagreed procedures for the disagreeing/petitioning spouse. Associate an IMFOLT or copy of the Form 5344 received from CCP showing that the partial assessment on the other spouse has been made on MFT 31. Close the case using normal RGS procedures and check the "MFT 31 Assessment" box on Form 3198.

  9. Examiners should refer to IRM 21.6.8, Split Spousal Assessments (MFT 31 / MFT 65), for additional information.

4.10.8.12.4 (03-25-2021)

Explanation of Items

  1. For most Office Examination reports, examiners will use the standard explanations in IRM 4.10.10, Standard Paragraphs and Explanation of Adjustments, and RGS. The explanations include enough information to enable the taxpayer to challenge the issue. As an option, lead sheets may be attached to the report to explain the issue(s) but examiners should follow the format in IRM 4.10.8.12.4 (2).

  2. For Field Examination, a copy of the examiner's lead sheet relating to each issue will be attached to the report to explain the items. A separate lead sheet must be used for each issue. If the issue is applicable to more than one year, the issue should be shown on one combined lead sheet. The copy of each issue lead sheet used as an attachment to the examination report must be modified to remove extraneous information that does not address the Conclusion, Facts, Law, and Taxpayer's Position (e.g. audit steps and workpaper references should generally be removed, depending on the facts and circumstances). The following format should be used:

    1. Title — Each lead sheet must be numbered and titled to correspond with the adjustment on the audit report. See IRM 4.10.9.7.2, Workpapers: Indexing. Lead sheets for issues with specific adjustment amounts must reflect the amount per return, the amount per audit, and the resulting adjustment.

    2. Conclusion — Briefly state a conclusion of the Service's position.

    3. Facts — Each lead sheet must include a statement of the facts upon which the adjustment is based. The statement should be in narrative form. The facts must be relevant to the issue and should be stated accurately and objectively. Facts favorable to both the Service's and taxpayer's position must be included.

    4. Law — The applicable authority must be correctly cited and explained (if necessary). Rulings, opinions, and decisions relied upon must be clearly stated and identified in the explanation. Citations are not required when the adjustment is predicated entirely on facts (e.g. identity theft issues). However, reports should be informative for the taxpayer. If the adjustment is supported by multiple code sections of tax law, they all must be reflected. For example, to support a disallowance of business expenses, IRC 162(a), ordinary and necessary business expenses, and IRC 6001, lack of substantiation, should be incorporated into the narrative. Include the argument to support the Service's position, by relating the facts, as previously stated, to the cited authority. See IRM 4.10.8.12.9.3 for information regarding preparing rebuttals in response to a protest.

    5. Taxpayer's Position — The taxpayer's position should be stated (in narrative form) if known. The legal authority, if any, that the taxpayer is using as the basis of their argument should also be cited. If the taxpayer has provided a written position statement, include the entire statement in this section or summarize the statement and include the entire document in the report as an exhibit.

    Exception:

    LB&I examiners refer to IRM 4.46.6.9, Explanation of Items: Form 886-A, for guidance on the format for explanations.

4.10.8.12.5 (03-25-2021)

Alternative Positions

  1. An alternative position is a secondary position the Service may ultimately rely on if the primary position is not upheld. The primary and alternative positions will usually address a different set of law and arguments. As a result, the tax computation for the alternative positions may be different from the primary position. The primary position should be the one resulting in the larger liability when two positions are considered. All alternative positions must be addressed or Appeals will not raise them in the event they do not sustain the primary position. Therefore, the examiner must thoroughly document the facts, law, taxpayer's position and conclusion for all alternative positions that may be applicable if the primary position is not sustained.

  2. Alternative positions must be discussed with the taxpayer, or their authorized representative prior to issuing the examination report.

  3. An alternative position is not required for an adjustment that is supported by multiple code sections of tax law for one position.

  4. An alternative position must be used for tax law that supports two totally separate positions. For example:

    1. When an adjustment is proposed to disallow a loss due to IRC 183, activities not engaged in for profit; any IRC 162 adjustments to business expenses should be included as an alternative position to IRC 183.

    2. When an adjustment is proposed in an income tax examination to disallow unsubstantiated expenses for services paid to individuals (in excess of $600), backup withholding is a strong alternative position when a payor did not file required Forms 1099 (and did not receive TINs from the payees); or filed Forms 1099 that did not include a valid TIN; or did not solicit and receive TINs from the payees.

      Note:

      For cases that are closed unagreed from the group, establish a separate backup withholding case for Form 945 on AIMS/ERCS, ensuring a TC 150 (or SFR TC 150) has posted to the IDRS module, and close with the key case.

    3. When the fraud penalty is asserted, the negligence/substantial understatement portion of the accuracy-related penalty should be addressed as an alternative position.

    4. When the fraudulent failure to file penalty (FFTF) is asserted, the failure to file penalty (FTF) should be addressed as an alternative position.

    5. When the accuracy-related penalty attributable to a substantial understatement of income tax is not asserted due to the assertion of negligence or disregard of the rules or regulations, include the substantial understatement penalty as an alternative position.

    6. When the substantial understatement penalty is asserted, the negligence or disregard of the rules or regulations portion of the accuracy-related penalty should be addressed as the alternative position in the event tax is decreased resulting in the substantial understatement penalty no longer being applicable.

  5. References for alternative positions in unagreed cases:

    • IRM 4.10.6.4, Finalizing Penalty Determinations

    • IRM 4.23.10.16.3, Alternative and Whipsaw Positions in Unagreed Cases

    • IRM 20.1.5.3.2, Common Features of Accuracy-Related and Civil Fraud Penalties

    • IRM 25.1.4.3.10, Preparation of the Pre-Prosecution Report

4.10.8.12.5.1 (03-25-2021)

Reports for Cases with Alternative Positions

  1. Include in the "Other Information" section of the examination report, This report includes alternative position(s) for which the tax computation has not been computed. Refer to the attachments labeled "Alternative Position" for the facts, law, taxpayer's position, and conclusion related to the alternative position(s).

    Note:

    If the taxpayer requests a report reflecting the tax computation resulting from the alternative position(s), the examiner may generate a report (e.g., Form 4549-A) and provide it to the taxpayer. The report should be clearly labeled "Alternative Position" at the top of the report.

  2. The facts, law, taxpayer's position, and conclusion for the alternative position on an issue will be presented on a separate lead sheet from the primary position. The top of each lead sheet for the alternative position will be marked "Alternative Position."

  3. The lead sheets for the alternative position(s) will be placed behind the unagreed report for the primary position.

4.10.8.12.6 (03-25-2021)

Form 4665, Report Transmittal

  1. Form 4665 can be used to transmit a case file to Appeals, but examiners must ensure the Form 4665 or any similar document does not contain statements or comments intended to influence Appeals' decision-making process. This includes recommendations concerning what Appeals should consider and how Appeals should resolve the case. It is permissible to include a neutral list of unagreed issues, without discussion, and indicate which ones, if any, are coordinated issues. Information related to the managerial conference should be documented on Form 9984, not on Form 4665.

  2. If Form 4665, or other similar document, includes statements or comments that may be construed as prohibited ex parte communications, or includes prohibited communications, regardless of whether such content is included as part of a document that is either placed on top of the case file as a transmittal or inserted into the case file in conjunction with preparing the case for transmission to Appeals, the Form 4665 or document must be shared by the examiner with the taxpayer and representative at the time the case file is sent to Appeals.

    Note:

    An "ex parte communication" is an oral or written communication that takes place between any Appeals employee and employees of other IRS functions, without the taxpayer/representative being given an opportunity to participate in the communication. See Rev. Proc. 2012-18, 2012-10 I.R.B. 455.

  3. See IRM 4.2.7, Ex Parte Communication Procedures, and the Ex Parte Communications website for additional information and guidance.

  4. Items that need safeguarding from unauthorized or inadvertent disclosure with Form TDF 15-05.11, Sensitive But Unclassified (SBU) Cover Sheet, should not be included or referenced on Form 4665. Examples include fraud referrals and identification of informants.

4.10.8.12.7 (03-25-2021)

Issuing 30-Day Letters

  1. Generally, 30-day letters should be issued to the taxpayer and representative in person. However, if circumstances necessitate mailing the 30-day letter, the examiner should follow the procedures in this section.

  2. 30-day letters will be sent by ordinary mail unless it is considered necessary to document the mailing and delivery. In such cases, certified or registered mail should be used and a return receipt requested.

  3. In the case of a joint return, follow the procedures in IRM 4.10.1.2.2.1, Separate Notice Requirements, to mail the 30-day letter.

  4. A copy of the 30-day letter should be sent to the taxpayer's representative. See IRM 4.10.8.2.3 for additional guidance regarding sending correspondence to the taxpayer's representative.

  5. A copy of the 30-day letter and report must be maintained in the case file. See IRM 4.10.9.9, Case File Assembly for Closing.

  6. Field Examination: After issuing the 30-day letter, the case must be updated to status code 13.

  7. Office Examination: Examiners should update the case for 15 days using ERCS action code 04 (even if a subsequent IDR is issued).

4.10.8.12.8 (03-25-2021)

Extension of Time to Respond

  1. In general, Statement of Procedural Rules 601.105(d)(1) does not provide for an extension of time to reply to a 30-day letter. However, as a matter of practice, extensions may be granted under reasonable circumstances.

  2. Reasonable circumstances include but are not limited to the following:

    1. The taxpayer retains a representative and demonstrates a need for more time to prepare a meaningful protest.

    2. The taxpayer retains a new representative.

    3. Sickness or injury of the taxpayer or representative.

    4. Issues are complex and require extensive research.

  3. Requests for extensions should be in writing and should state the reason(s) why additional time is needed. Since many requests are made by telephone, the extension may be granted verbally and confirmed in writing upon receipt of the written request.

  4. Extensions should not be granted if the statute of limitations will expire within 240 days and the granting of an extension will not leave sufficient time to process the case. Under such circumstances an extension to respond to a 30-day letter will be contingent upon securing an extension of the statute of limitations.

  5. Extensions are granted by the group manager or a designated management official. The taxpayer should be notified in writing of the extension and the specific extended response date. Letter 686, Extension of Time for Certain Actions, signed by the group manager, will be used for this purpose. Extensions are normally granted for no more than 30 days unless a specific reason supports additional time.

  6. If the taxpayer lives outside of the United States, the 30-day letter should be modified to allow for a reasonable period of time to respond.

4.10.8.12.9 (03-25-2021)

Response to 30-Day Letter

  1. The taxpayer may respond to the 30-day letter in a variety of ways. This section provides instructions depending on the type of response.

4.10.8.12.9.1 (03-25-2021)

Additional Information Received

  1. If additional information is available after a 30-day letter is issued, the examiner should evaluate the information, then follow the applicable procedures in the table below.

    Note:

    If the examination report changes as a result of the additional information, follow the corrected report procedures in IRM 4.10.8.13 .

    If... Then...

    • The taxpayer provides additional information that does not change the examination report, or

    • The corrected report reduces the previous report and no new issues are raised

    		 Solicit an agreement. The following letters may be used, as applicable:

    1. Letter 692, Request for Consideration of Additional Findings, or

    2. Letter 692-A, Request for Consideration of Additional Findings (Claim ), or

    3. Letter 692-B, Request for Consideration of Additional Findings (No-Change with Adjustments).

    4. Letter 692-K, Request for Consideration of Additional Findings (Bankruptcy)

    Allow the taxpayer 15 days to respond. A new 30-day letter is not needed.

    Office examiners will update the case using ERCS action code 07.

    • The corrected report raises new issue(s), or

    • The proposed deficiency is increased

    		 A new 30-day letter must be issued if sufficient time remains on the statute of limitations. If sufficient time does not remain on the statute of limitations, follow the instructions in IRM 4.10.8.12.1 (4).

4.10.8.12.9.2 (03-25-2021)

Full or Partial Agreement or Remittance

  1. If the taxpayer agrees or remits full or partial payment in response to the 30-day letter, examiners should follow the applicable procedures in the table below:

    If... Then...
    The taxpayer indicates agreement to part of the report Solicit a partial agreement (if not previously done). If a partial agreement is received, process according to the procedures in IRM 4.10.8.6 and issue a new 30-day letter for the remaining issues if sufficient time remains on the statute of limitations. If sufficient time does not remain on the statute of limitations, follow the instructions in IRM 4.10.8.12.1 (4).
    A signed agreement form (or full payment not designated as a "6603 deposit" ) is received Close the case within 10 days from the date the agreement or full payment is received using agreed case closing procedures.
    An agreement form is not signed, but a partial remittance is received (not specifically designated as a deposit in the nature of a "6603 deposit" )

    Note:

    If the taxpayer has not signed an agreement form but has submitted a payment without specifically addressing how to apply the payment, the examiner must still process the payment within 24 hours. See IRM 4.4.24.2, Form 3244-A. If necessary, the Designated Payment Code (DPC) can be changed at a later date by completing Form 2424, Account Adjustment Voucher, and faxing it to CCP. See IRM 5.1.15.15(6), Credit Transfers. For the application of partial payments, see Rev. Proc. 2002-26.

    		 Do not treat the payment as a partial payment of tax unless the taxpayer designates it as such.

    1. Contact the taxpayer by phone to ask whether the payment was intended to be a payment of tax or a "6603 deposit." Document the conversation in the case file. If the taxpayer cannot be reached, draft a follow-up letter. The letter will inform the taxpayer that:
      — We received the remittance.
      — We did not receive a protest or a signed agreement agreeing to adjustments.
      — We need to know whether they intended the remittance to be a payment of the tax deficiency or a "6603 deposit."
      — We need to receive a response within 15 days from the date of the letter or the case will be routed for issuance of a notice of deficiency.

    2. If the taxpayer is contacted and agrees with all adjustments but cannot pay the entire liability and intended the remittance to be a partial payment, have the taxpayer sign the agreement and determine if the taxpayer is eligible for an installment agreement. Process the payment as a partial payment. Do not hold the payment until the agreement is received.

    3. If the payment was intended to be a "6603 deposit," advise the taxpayer that if we don't receive a protest or signed waiver, a notice of deficiency will be issued.

4.10.8.12.9.3 (03-25-2021)

Request for Appeals Conference

  1. If the taxpayer responds to the 30-day letter by requesting an Appeals conference, examiners must follow the applicable procedures in this subsection. LB&I examiners must also follow IRM 4.46.5.7.3, 30-Day Letter Follow-up, for additional guidance regarding protests and rebuttals.

    Reminder:

    Unless specifically excluded from Appeals consideration, all cases are eligible for an Appeals conference if the taxpayer submits an adequate formal written protest (when required), or small case request.

  2. To be considered "adequate," a formal written protest and a small case request must contain all information required by Pub 5 (with exceptions noted in (3)(d) below). Adequacy of a protest is generally not determined based on its substantive content, such as whether the protest contains sufficient factual or legal support.

    Example:

    A taxpayer submits a formal written protest and cites Internal Revenue Code §162, but does not provide reasons for their disagreement and any factual information to support their position as required by Pub 5. Therefore, the protest is inadequate; the examiner must return the protest to the taxpayer and grant additional time for the taxpayer to perfect it. See (3)(d) below.

    Example:

    A taxpayer submits a small case request and indicates disagreement based solely on the inability to pay. The protest is inadequate; the examiner must return the protest to the taxpayer and grant additional time for the taxpayer to perfect it. See (3)(d) below.

    Example:

    A taxpayer submits a formal written protest with the information required by Pub 5, addressing the issues raised in the 30-day letter, reasons for disagreement, and factual information to support their position on the issues. The examiner disagrees with the taxpayer's facts and/or does not consider the taxpayer's position sufficiently supported; however, the protest is adequate because it contains all information required by Pub 5. The examiner should determine if a rebuttal is needed prior to forwarding the case for Appeals consideration. See (3)(f) below.

  3. When a taxpayer requests an Appeals conference, examiners must follow the applicable procedures in the table below:

    If... Then...
    (a) The total amount for any tax period is not more than $25,000

    Note:

    In computing the total amount, include a proposed increase or decrease in tax (including penalties), or claimed refund.

    		 The taxpayer may make a small case request instead of filing a formal written protest. The taxpayer may complete Form 12203, Request for Appeals Review.

    Note:

    Pub 5 contains instructions on preparing formal written protests and small case requests in unagreed cases.
    (b) The total amount for any tax period is more than $25,000

    Note:

    In computing the total amount, include a proposed increase or decrease in tax (including penalties), or claimed refund.

    		 The taxpayer must submit a formal written protest.

    Note:

    Pub 5 contains instructions on preparing formal written protests and small case requests in unagreed cases.
    (c) The taxpayer submits a formal written protest or small case request The protest must be reviewed at the group level, as designated by management, within seven days of receipt to determine whether the protest complies with the requirements as outlined in Pub 5. The protest review should include consideration of any new facts, law, or arguments presented to determine if:

    • The case requires further development by the examiner;

    • The examiner's report should be modified;

    • The examiner should write a rebuttal to refute arguments in the protest.
    (d) The formal written protest or small case request does not comply with the requirements as outlined in Pub 5 The protest should be returned to the taxpayer and additional time should be granted to perfect the protest.

    The examiner should use one of the following letters for this purpose:

    • Letter 1025, Letter of Protest, or

    • Letter 1025-A, Letter of Protest (Claims), or

    • Letter 1025-B, Letter of Protest (No-Change with Adjustments).

    Note:

    The signature of only one spouse on a protest regarding a joint return does not make the protest incomplete. Also, if the only item missing from the protest is a copy of the 30-day letter, the case can be closed using the copy in the file, therefore, there is no need to return the protest to the taxpayer for perfection.
    (e) The formal written protest or small case request contains information warranting consideration The case may require additional development because of additional facts raised and/or new information, issues, or legal arguments presented in the formal written protest or small case request. Cases requiring additional development are priority work and should be given expedited consideration. See IRM 4.10.8.12.9.3.1 .

    Reminder:

    Generally, Appeals does not return cases for further development unless the taxpayer provides new information or evidence to Appeals, or raises a new issue Examination has not considered.
    (f) The examiner or group manager feels there is something in the formal written protest or small case request that does not change the determination, but requires further comment or explanation A rebuttal should be prepared and included in the case file before it is sent to Appeals. See (4) below for additional guidance on preparing a rebuttal.
    (g) The formal written protest or small case request is complete and the examiner does not prepare a rebuttal The examiner must prepare Letter 2280, Transfer to Appeals, to notify the taxpayer the case is being closed to Appeals. The letter must be signed by the group manager, and mailed to the taxpayer.
    (h) There is not sufficient time remaining on the statute of limitations to send the case to Appeals, and a consent was not previously solicited The examiner should follow the procedures in IRM 25.6.22, Extension of Assessment Statute of Limitations By Consent, to solicit a consent.
    (i) There is not sufficient time remaining on the statute of limitations to send the case to Appeals and a consent was previously solicited The examiner should issue Letter 1025, Letter 1025-A, or Letter 1025-B, to remind the taxpayer a consent is needed to send the case to Appeals, and give the taxpayer 10 days to respond.
    (j) The taxpayer's representative submits the formal written protest or small case request for the taxpayer The representative must include a substitute for the taxpayer's declaration described in Pub 5. The declaration will state:

    • The representative prepared the protest and accompanying documents; and

    • Whether the representative knows personally that the facts contained in the protest and accompanying documents are true and correct.
    (k) The taxpayer verbally requests a transfer of jurisdiction for the appeal, and the formal written protest or small case request is complete The case file will be sent promptly to the local Appeals office serving the examiner's area. This procedure applies even if the taxpayer has requested a hearing in an Appeals office other than the one servicing the examiner's area.

  4. When a rebuttal is needed, it should be prepared using Form 886-A and address:

    • Statements, facts, and arguments that were not previously addressed in the examination report

    • New arguments or facts raised by the taxpayer

    • Factual differences between the examination report and the protest

    Note:

    A copy of the rebuttal must be provided to the taxpayer at the time the case is sent to Appeals. Examiners use Letter 5072, Examiner's Rebuttal, to transmit the rebuttal to the taxpayer. Letter 5072 with the attached rebuttal must be included with the taxpayer's protest in the case file as provided in IRM 4.10.9.9.3(1)(e).

4.10.8.12.9.3.1 (09-13-2019)

Timely Actions - Request for Appeals Conference

  1. In order to adhere to the general time frame for closing an unagreed case from the group, all actions (e.g., securing a consent, perfecting or rebutting a protest, holding a group manager conference, etc.,) should be completed within 20 days of receipt of a formal written protest or small case request, unless the case requires additional development. See IRM 4.10.8.2.4.3 .

  2. Field Examination: When a taxpayer requests an Appeals conference, revenue agent cases remain in status code 13 (see IRM 4.10.8.12.7 (6)), unless additional development is required (see IRM 4.10.8.12.9.3 (3)(e) above). If additional development is required, the case must be updated to status code 12.

  3. Office Examination: Upon receipt of a formal written protest or small case request, the case must be updated to ERCS action code 03, Request for Appeals Conference, which defaults to a purge date of 7 days. If additional development is required (see IRM 4.10.8.12.9.3 (3)(e) above), the case must be updated to the appropriate ERCS action code depending on the next required action. When the examiner has completed all actions and the case is ready to close, it must be updated to action code 11, Managerial Review and Protests, which defaults to a purge date of "Today," and submitted to the group manager.

    Note:

    Group managers use the ERCS Action Code Report and Overage Purge Report to monitor cases to ensure timely actions, including the transfer of cases to Appeals.

4.10.8.12.10 (03-25-2021)

No Response to 30-Day Letter

  1. If the taxpayer does not file a small case request or formal written protest within the time allowed, but indicated their intent to do so, examiners should issue:

    1. Letter 923, Letter Extending Time to File Protest, or

    2. Letter 923-C, Letter Extending Time to File Protest (Claim for Refund), or

    3. Letter 923-D, Letter Extending Time to File Protest (No-Change with Adjustments).

    Note:

    Letter 923 (or applicable letter) is sent to the taxpayer as a reminder to file a protest. Letter 923 should be issued no later than seven calendar days after expiration of the original 30-day letter.

    Reminder:

    Office examiners will update the case file using ERCS action code 07.

  2. If the 30-day letter is returned as undeliverable, an attempt must be made to obtain the correct address (see IRM 4.10.2.8.4, Undeliverable Initial Contact Letters).

    1. If the taxpayer's correct address is determined, the 30-day letter will be mailed to the new address. The period in which the taxpayer may reply starts with the date the letter is mailed to the new address.

    2. If the taxpayer's correct address cannot be determined and the case results in a deficiency, close the case to Technical Services for issuance of a notice of deficiency. If the case results in an overassessment, close to CCP for processing.

  3. If the taxpayer has not submitted a small case request or formal written protest in response to the 30-day letter, and the examiner has taken the actions in paragraphs (1) or (2), when applicable, close the case as follows:

    Reminder:

    Cases must be closed from the group within 20 days after the expiration of the time (including extensions) allowed to file a protest.

    If... Then...
    The case is a deficiency case Close the case to Technical Services for issuance of a notice of deficiency.
    The case is an overassessment case (adjustments that decrease the tax liability exceed the adjustments increasing the tax liability) or a no-change with adjustments No follow-up action should be taken and the case should be closed to CCP.
    The case is a claim disallowance Close the case to Technical Services for issuance of a statutory notice of claim disallowance. If there is no change to the tax liability (neither a deficiency or overassessment), or the claim is disallowed in part with a resulting overassessment, close the case and check the "Statutory Notice of Claim Disallowance – Letters 905 and 906" box in the "Forward to Technical Services" section on Form 3198.
    The case involves restricted interest The tax liability will be adjusted as proposed in the examination report.
    The case is an employment tax case Refer to IRM 4.23.22.8.6, No Response to 30-Day Letter.

4.10.8.12.11 (03-25-2021)

Cases Returned from Appeals

  1. LB&I examiners follow guidance in IRM 4.46.5.12, Appeals Case Return Procedures instead of the guidance in this section.

  2. If the taxpayer provides new information or evidence related to the issues in the unagreed report, Appeals will release jurisdiction and return the case to Examination so the examiner can evaluate the new information and make an audit determination. See IRM 8.6.1.7.5, Taxpayer Provides New Information. The examiner must document the issue lead sheet(s) and supporting workpapers to reflect the evaluation of the new information or evidence. In addition, the examiner must follow the table below to determine the appropriate actions required.

    Note:

    The procedures in this subsection are for non-docketed cases. For docketed cases see IRM 4.2.1.8.4, Docketed Case Examination Assistance.

    If... And... Then...
    The case is agreed If warranted The examiner will issue a corrected report and close the case using agreed case procedures.

    See IRM 4.10.8.4.5 for deficiency and claim cases.

    See IRM 4.10.8.3.3 for no-change with adjustment cases.
    The case remains unagreed There is a decrease in the tax liability A corrected report should be issued to the taxpayer and included in the case file when it is sent back to Appeals.

    The examiner will not issue a new 30-day letter.

    The taxpayer will not be required to submit another protest.
    The case remains unagreed There is no change to the report The examiner will not issue a new 30-day letter.

    The taxpayer will not be required to submit another protest.

    The examiner will close the case to Appeals.
    The case remains unagreed There is an increase in the tax liability A new 30-day letter and corrected report should be issued to the taxpayer and included in the case file.

    The taxpayer will be required to submit a new protest.

    If the taxpayer submits a new protest, the examiner will close the case to Appeals; otherwise close to Technical Services for issuance of a notice of deficiency.

  3. If the taxpayer raises a new issue to Appeals, Appeals will release jurisdiction and return the case to Examination so the examiner can evaluate the new issue and make an audit determination. See IRM 8.6.1.7.4, Taxpayer Raises New Issue. The examiner must create an issue lead sheet(s) and supporting workpapers to reflect the evaluation of the new issue. In addition, the examiner must follow the table below to determine the appropriate actions required:

    If... And... Then...
    The case is agreed If warranted The examiner will issue a corrected report and close the case using agreed case procedures.

    See IRM 4.10.8.4.5 for deficiency and claim cases.

    See IRM 4.10.8.3.3 for no-change with adjustment cases.
    The case remains unagreed The new issue is allowed in full The examiner will issue a corrected report.

    The examiner will not issue a new 30-day letter.

    The taxpayer will not be required to submit another protest.

    The examiner will close the case to Appeals.
    The case remains unagreed The issue is partially allowed or there is an increase in the tax liability A new 30-day letter and corrected report must be issued to the taxpayer and included in the case file.

    The taxpayer will be required to submit another protest.

    If the taxpayer submits a new protest, the examiner will close the case to Appeals; otherwise:

    • For deficiency cases, close the case to Technical Services for issuance of a notice of deficiency.

    • For claim cases, close the case to Technical Services for issuance of a notice of claim disallowance.

    • For no-change with adjustment cases, see IRM 4.10.8.3.3 .
    The case remains unagreed There is no change to the report The examiner will not issue a new 30-day letter. The results of the review of the new issue must be shared with the taxpayer/ representative.

    The taxpayer will not be required to submit another protest.

    The examiner will close the case to Appeals.

    Reminder:

    If Appeals previously released jurisdiction of the case and returned it to Examination for additional work, there must be at least 180 days remaining on the statute of limitations when the case is received in Appeals the second time. The group must allow a minimum of 30 days for shipping and processing a case through Technical Services. Therefore, 210 days must be remaining on the statute when the case is closed from the group.

4.10.8.12.12 (03-25-2021)

Time Reporting for 30-Day Letters for Revenue Agents

  1. Time spent by examiners to prepare the unagreed report and accompanying explanatory lead sheets or standard explanations is charged to the case under Direct Examination Time (DET).

  2. Time spent by examiners on 30-day letter activities (including protest reviews, and follow-up letter) will be reported using non-examination Activity Code 646. Preparation of the report (including explanatory lead sheets or standard explanations) is not reported under Activity Code 646.

4.10.8.13 (03-25-2021)

Corrected Reports

  1. This section includes instructions for correcting reports which include errors or otherwise require revision. Reports with revisions are considered "corrected reports" when changes are made after a 30-day letter was issued or the report or waiver was signed by the taxpayer. Reports which are revised due to additional information provided during the examination (before a 30-day letter or agreement) should be retained in the workpapers. If an examination was previously closed, reopening procedures must be followed before proposing changes unfavorable to the taxpayer. See IRM 4.10.8.9 , Reports For Cases Reopened By Examination, and IRM 4.2.1.6, Reopening of Closed Cases.

  2. If an error was made in computing a deficiency, overassessment, or penalty shown on a previously signed report or waiver, follow the guidance in the table below for determining whether a corrected report is needed.

    If the signed report or waiver has an error... Then
    In the taxpayer's favor, A corrected report must be prepared and issued to the taxpayer; however, no signature on the new report/waiver is required. Note on the copy of the corrected report, "Refer to the taxpayer's signature on the report dated (date)."
    Unfavorable to the taxpayer - and the appropriate delegated official approves to process the case based on the error tolerance levels of Delegation Order SBSE 4.41, Error Tolerance Levels, Process the case for the amount shown on the original executed report/waiver. The group or function discovering the error will prepare a memo to CCP signed by the appropriate delegated official. Place the memo on top of the report in the case file.
    Unfavorable to the taxpayer - and the error does not fall under the tolerance levels of Delegation Order SBSE 4.41, Error Tolerance Levels (or approval to process the case was not received from the delegated official), Prepare a corrected report and solicit a new report/waiver. If the taxpayer does not agree to the corrected report, follow partially agreed procedures.

  3. 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 of original report)."

    3. Across the top of the original report write, "This report superseded by report dated (date of corrected report)."

  4. Both the original and corrected reports are included in the case file.

  5. The letter used to transmit the corrected report is discussed in IRM 4.10.8.12.9.1 .

  6. The taxpayer's signature is only required on the corrected report or waiver if the change is unfavorable to the taxpayer (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 reports/waivers may need to be solicited even though the net effect of the corrections may be in favor of the taxpayer.

4.10.8.14 (05-14-1999)

Issues Requiring Special Reports and Forms

  1. This section includes examination issues which require computations on a standard form. When an adjustment is proposed in any of these areas, the applicable form should be completed and attached to the examination report to clarify how the adjustment was determined.

4.10.8.14.1 (08-11-2006)

Depreciation

  1. Use Form 1914, Computation of Allowable MACRS/ACRS/Depreciation Deduction, accessed via RGS (or equivalent schedule), to compute allowable depreciation expenses.

4.10.8.14.2 (06-10-2005)

Passive Activity Loss Limitations

  1. Worksheets should be provided to the taxpayer in cases in which the passive loss, the allowed loss and the disallowed (suspended, carryover) loss must be allocated among the various passive activities so the activities can be properly reported in subsequent years.

4.10.8.14.3 (08-11-2006)

Adjustments to Net Operating Loss (NOL)

  1. Any adjustment to a net operating loss deduction should be completely explained in the report. The adjustment on Form 4549 should be identified as a NOL carryback with source year identified or NOL carryforward with source year identified.

  2. Examiners should refer to IRM 4.11.11, Net Operating Loss Cases, when making adjustments to net operating losses.

  3. Examiners should be aware that Net Operating Loss deductions may result in Joint Committee jurisdiction. See IRM 4.36.2, Identification of Joint Committee Cases.

  4. Examiners should also note that Net Operating Loss deductions usually require restricted interest computations. For examination procedures on these cases, see IRM 4.10.8.14.3.4 .

4.10.8.14.3.1 (08-11-2006)

Computation of the Net Operating Loss

  1. A report which proposes an adjustment to a net operating loss deduction should include all computations necessary to fully explain the source year and amount of any net operating losses.

  2. The computation will include the modifications required by IRC 172(d).

  3. Form 3621, Net Operating Loss Computation - Individuals and Corporations, and Estates and Trusts, may be used for this computation.

  4. Corporate NOL and individual NOL worksheets may be found in the Special Applications section of the RGS website.

4.10.8.14.3.2 (08-11-2006)

Computation of the Net Operating Loss Deduction

  1. The report should include a computation of the amount of the net operating loss allowable in any year.

  2. The computation will include the loss modifications required by IRC 172(b)(2).

  3. Form 3621–A, Computation of a Net Operating Loss Deduction for Intervening Years Modifications, may be used for this computation.

4.10.8.14.3.3 (08-11-2006)

Reports After a Tentative Refund or Credit

  1. IRC 6411 allows the taxpayer to apply for refund or credit using Form 1045 (for individuals) or Form 1139 (for corporations); the adjustment to the tax is not a claim. Examiners should be aware that tentative allowances are special restricted interest cases. The Campus computes and pays restricted interest when the tentative refund is processed. See IRM 4.10.8.14.3.4 . The examination report reflecting a tentative allowance of a refund or credit is explained below.

  2. Adjustment of the net operating loss deduction (NOLD) — The report should show the correct NOLD amount. If the NOLD is allowed in full, the entire NOLD would be shown as an adjustment. If the NOLD is not allowed, the adjustment on the report would be zero.

  3. Taxable income as shown on the report — The taxable income per return (or as previously adjusted) is the amount prior to the processing of the tentative allowance.

    1. Taxpayer's examination report prepared per the instructions in this section, and

    2. An examination report with the following notated in the top margin "For Case Processing Use Only" — Prepare this examination report using RGS (this will ensure that Form 5344 is correct). The taxable income should reflect the taxable income as previously adjusted by incorporating the tentative carryback per the transcript.

  4. Tax previously adjusted — The tax as previously adjusted should include any tax decrease allowed in processing of the tentative allowance. The report should include a schedule showing the computation of the tax as previously adjusted.

  5. Examples of a report after a tentative allowance — Facts: Corporation X files its 1992 Form 1120 timely. The taxable income is $888,888 and the tax is $302,222. In 1995 there is a net operating loss of $30,000. On 4/30/96, a Form 1139 is filed and the corporation receives a refund of $10,200. The 1992 and 1995 returns are examined.

    1. Example 1: The examination results in no-change to 1995. Therefore, the NOLD is allowed in full in 1992. There is no change in tax because the corporation has already received the tentative refund. See Exhibit 4.10.8-9 .

    2. Example 2: The examination results in additional income in 1995 of $17,000. This reduces the NOLD to $13,000. There is a deficiency in 1992 of $5,780 because the corporation received a tentative refund based on a NOLD of $30,000. See Exhibit 4.10.8-10 .

    3. Example 3: The examination results in income in 1995 of $50,000. This eliminates the NOLD. There is a deficiency of $10,200 because the corporation received the tentative refund of $10,200. See Exhibit 4.10.8-11 .

4.10.8.14.3.4 (08-11-2006)

Restricted Interest

  1. In general, interest is charged on an underpayment of tax under IRC 6601 for the period of time the taxpayer had use of the government's money, or is paid on an overpayment of tax under IRC 6611 for the time the government has the taxpayer's money. In most instances, the period of time for which interest is charged or paid to the taxpayer begins on the due date of the return.

    1. Examination changes that follow this rule are called "General Adjustments" .

    2. Examples include adjustments to expenses, changes to income, increases or decreases in a current credit, and adjustments made to losses/credit carried forward from prior years.

  2. The interest accrual period is shorter, or "restricted" if certain deductions, credits, or items of income are present.

    1. Examination changes to these items are called "Restricted Adjustments" .

    2. Examples include net operating loss, capital loss, or credit carrybacks from a subsequent year. In these cases, the interest is computed from the due date of the source year of the carryback item. This is also called the effective date of the restricted adjustment.

    3. See IRM Exhibit 20.2.1-1, Provisions Restricting Interest, which lists the deductions, credits, or items of income and the provisions of the Code which "restrict" interest.

  3. Cases with restricted interest adjustments are complex and require special handling.

    1. Unagreed cases are sent to Appeals via Technical Services.

    2. Agreed cases with certain refunds over $2 million ($5 million for C Corporations) are coordinated with Joint Committee Review in LB&I. For more details on Joint Committee criteria, see IRM 4.36, Joint Committee Procedures.

    3. Agreed cases that do not meet Joint Committee criteria are sent to Technical Services if they require a Form 2285, Concurrent Determinations of Deficiencies, to be prepared.

    4. After section I of Form 2285 is completed for an LB&I Coordinated Industry Case, the SB/SE Technical Services or LB&I Joint Committee reviewer should send a copy of the form to the team coordinator for its inclusion in the case historical file. If reviewers or CCP personnel have any questions about the computations for any Form 2285, they should contact the examiner who prepared the report for clarification before sending it back to the group.

    5. Form 2285 is required when one or more of the following three criteria are present: both general adjustments and restricted adjustments; carryback adjustments from more than one tax period; or more than one restricted interest computation date.

    6. In these cases requiring Form 2285, the examiner's report should clearly reflect adjustments to carrybacks or recapture of NOLs or credits. The adjustment on the examination report should reflect the source year of the carryback, i.e., "NOL carryback from tax year YYYYMM." CCP will use the completed Form 2285 to compute the interest for the tax year(s) on the examination report.

      Note:

      For more instructions related to suspended interest see IRM 4.10.8.14.13 .

    7. In complex cases with multiple restricted adjustments, it is suggested that the examiner prepare a Joint Committee spreadsheet for the applicable period(s). See IRM 4.36.3.6.5, Joint Committee Spreadsheets.

    8. Agreed cases that do not meet Joint Committee jurisdictional amount and do not require a Form 2285 should be sent to CCP in status code 51.

    9. To aid CCP in computing the restricted interest adjustment, examiners should reflect the source year of the carryback in the adjustments section of the examination report and identify the tax periods containing the restricted adjustments on Form 3198.

  4. In applying these rules, examiners should disregard any restricted adjustment that represents a tentative allowance filed on Form 1045 or Form 1139 that has been accepted as filed. This is because when the tax is paid, the campus function automatically generates a restricted interest computation.

  5. For all cases with restricted interest, Form 4549, or other appropriate form, with all adjustments identified must include in "Other Information" the following or a similar statement; "This report involves restricted interest. In such cases, some or all of the interest is computed from a date other than the due date of the return." Additional language must be added to explain the computation period, for example:

    1. "Interest allocated to your NOL carryback from 2014, is computed from the due date of that return, 4/15/2015."

    2. "Under IRC 6404(g), interest is suspended from MM/DD/YYYY to MM/DD/YYYY."

    3. "Your tentative refund filed on Form (1045 or 1139) for YYYYMM has been (fully or partially) disallowed. The interest related to this adjustment is restricted to the due date of the source year return."

  6. For restricted interest cases that result in no change to tax liability, a statement should be added to the "Other Information" section of the report: "Even though there is no change in your tax liability, there may be interest payable or receivable as a result of this report. This is because one or more of the adjustments is a restricted adjustment. Tax related to this adjustment has an interest computation date different from the return." See IRM 4.10.8.3.3 . The examiner should solicit the taxpayer's agreement in such cases.

  7. Notate Form 3198 with "Restricted Interest applies to yr ___" by checking the applicable box and filling in the blank for the year. If Form 2285 is not required, check the box in the "Special Features" section. If Form 2285 is required, check the box in the "Forward to Technical Services" section.

  8. For a step-by-step decision model for handling restricted interest cases, see the Restricted Interest Decision Chart at Exhibit 4.10.8-12 .

4.10.8.14.4 (09-13-2019)

Form 2363

  1. Taxpayer name or address changes require the examiner to complete Form 2363, Master File Entity Change, as soon as clear and concise notification is received. See IRM 4.10.2.11, Taxpayer Change of Address, for additional information on "clear and concise notification" and completing Form 2363.

  2. Examiners must also complete Form 2363, when there is an allowable/agreed change to the taxpayer's filing status.

  3. The examiner must EEfax the Form 2363 to CCP as soon as possible. See the CCP website for the Exam CCP EEfax numbers.

  4. For additional information, see IRM 4.4.11, AIMS/Processing, Entity Changes.

4.10.8.14.5 (03-25-2021)

Filing Status: Joint Return Converted to Separate Returns

  1. After filing a joint return for a taxable year, spouses may not subsequently file separate returns for that same year, unless prior to the due date of the return (without regard to any extension of time to file) either spouse subsequently files a separate return. See CFR 1.6013-1(a)(1). The separate return is a superseding return.

  2. Separate return filed by an executor — Under certain circumstances, a surviving spouse may file a joint return for the year of death if an executor or administrator has not been appointed by certain times. IRC 6013(a)(3), and Treas. Reg. 1.6013–1(d)(3) & (4). An executor or administrator for a deceased person may disaffirm a joint return filed by the surviving spouse by filing a separate return for the deceased within the prescribed time. See IRC 6013(a)(3) and Treas. Reg. 1.6013–1(d)(5).

  3. "Invalid joint elections" — Sometimes, after a joint return is processed, it is determined that the joint election is not valid even though the return, itself, is valid for purposes of IRC 6011 and IRC 6012. Some reasons a joint election may not be valid include:

    • The taxpayers were not married,

    • The return is not signed by both parties,

    • The return was signed under duress (Treas. Reg. 1.6013–4(d)),

    • One spouse's signature was forged.

    Note:

    A return that is not signed may be corrected by obtaining a valid signature using Letter 2348, Declaration (2) letter. Also, the return may be treated as signed by establishing both spouses intent to file a joint return. See Federbush v. Commissioner, 34 T.C. 740, 757 (1960), aff'd per curiam, 325 F.2d 1 (2d Cir. 1963).

4.10.8.14.5.1 (09-13-2019)

Closing the Return of the Primary Taxpayer if the Joint Election is Invalid

  1. When closing the separate return of the person whose Social Security number is listed first (the primary taxpayer) on the "invalid joint return," the following actions should be taken:

    1. Prepare a report using the correct filing status and only the income, deductions and credits of the primary taxpayer.

    2. Solicit agreement from the taxpayer.

    3. Follow normal agreed/unagreed procedures.

    4. Show only one name on Form 5344.

    5. Prepare Form 2363 to correct the name line to reflect the primary taxpayer only and correct the filing status on the account. Check the following Transaction Code boxes on Form 2363: 013 and 016, and input the appropriate filing status code in the FSC box. See IRM 4.10.8.14.4 , Form 2363, for additional information.

    6. Check the box for Form 2363 in the "Forms Enclosed" section of Form 3198.

4.10.8.14.5.2 (06-10-2005)

Closing the Return of the Person Whose Name was Removed from the Joint Return

  1. If the file does not already contain the separate return for the person removed from the joint return, the return should be solicited (if a return is required). That return should be closed together with the "joint return" with instructions to the CCP function to process the return as an original return.

  2. If a return is required and is not filed, follow substitute for return procedures to make an assessment against the person whose name was removed from the "joint return."

4.10.8.14.6 (06-10-2005)

Filing Status: Separate Returns Converted to Amended Joint Return

  1. Spouses who originally filed returns on a separate basis may find it to their advantage to use a joint tax computation. To change from separate to joint return status taxpayers may file a joint return or an amended Form 1040X.

  2. For tax years beginning on or after July 31, 1996, (e.g., calendar year 1997), it is not necessary for taxpayers to pay the tax shown on the joint return in full as a condition to electing joint status.

4.10.8.14.6.1 (08-11-2006)

Procedures for Delinquent and Substitute for Returns for Joint Return Filing Status

  1. IRC 6020(a) authorizes the Secretary to prepare a return for a taxpayer who fails to make and file a return if the taxpayer discloses all information necessary for the preparation of the return. If the taxpayer signs the return prepared by the Secretary, the return may be received as the taxpayer's return.

    1. If a taxpayer fails to make a return, or makes a false or fraudulent return, IRC 6020(b) authorizes the Secretary to make a return from his own knowledge and from such information as he can obtain through testimony or otherwise.

    2. IRC 6065 requires that a return "shall contain or be verified by a written declaration that it is made under the penalties of perjury."

    3. Joint return filing status under IRC 6013(a) is predicated on the spouses making an election and intending to file a joint return. Accordingly, the Service may not elect joint filing status on behalf of taxpayers in a return it prepares and signs under the authority of IRC 6020(b). See Millsap v. Commissioner, 91 T.C. 926 (1988), acq. in result, 1991–2 C.B. 1 (filing status used by IRS in preparing return under IRC 6020(b) does not bind taxpayers in later deficiency proceeding).

    4. A Form 870 signed by the spouses is not a return under IRC 6020(a) and it is not an election to file a joint return under IRC 6013. This holding also applies to Form 1902, Report of Individual Income Tax Audit Changes (obsoleted 1988), and Form 4549, Report of Income Tax Examination Changes, and any successor forms to these forms, because these documents do not purport to be returns and do not contain a "jurat" with a penalties of perjury clause.

    5. If married taxpayers fail to execute a joint return, the examiner will have to close the case unagreed using a filing status other than married filing joint. Generally, these taxpayers' filing status will be married filing separate. Based on facts and circumstances, the examiner will need to determine if a return is needed for one or both taxpayers. See Rev. Rul. 2005-59.

4.10.8.14.6.2 (06-10-2005)

Statute and Other Considerations

  1. IRC 6013(b)(2)(A) requires that taxpayers make a joint return election within three years of the original due date of the tax return (without regard to an extension).

  2. IRC 6013(b)(2)(B) requires that taxpayers make a joint return election prior to the mailing of a notice of deficiency for that year to either spouse if the spouse files a timely petition with the Tax Court with respect to that year.

  3. IRC 6013(b)(2)(C) requires that taxpayers make a joint return election prior to commencing suit in any court for recovery of any part of the tax for such taxable year.

  4. IRC 6013(b)(2)(D) requires that taxpayers make a joint return election before either spouse has entered into a closing agreement with respect to such taxable year, or before any civil or criminal case arising against either spouse with respect to such taxable year has been compromised.

4.10.8.14.6.3 (06-10-2005)

Examination of Return

  1. If an amended return is received during an examination, examiners generally will examine the amended return to determine whether the tax reported is correct. The examination will be made as soon as possible after the return is received and to the extent deemed necessary. An amended return received from a taxpayer during an examination, with or without remittance, will remain with the case file.

  2. Separate files should be set up for each spouse as each file will be closed under its own Document Locator Number (DLN). Generally, the primary file will be the first SSN shown on the joint return and the secondary file will be the second SSN shown on the joint return.

    1. The primary file will include the original or copy of the joint amended return. The primary's original separate return and a copy of the secondary's separate return should be attached.

    2. The secondary file will include the secondary's original separate return. A copy of the first page of the joint amended return should be attached.

4.10.8.14.6.4 (06-10-2005)

Preparation of Reports

  1. Two reports will be prepared when separate returns are converted to a joint return.

  2. Primary file — prepare a report starting with the primary account and include as adjustments the items appearing on the secondary separate return. At the conclusion of the examination, the examiner will solicit an agreement covering the proposed changes. If a deficiency is unagreed, normal appeal procedures apply.

  3. Secondary file — prepare a second report to adjust all tax and penalties previously assessed on the secondary account to zero.

4.10.8.14.6.5 (06-10-2005)

Closing Procedures

  1. The primary and secondary files should be closed to CCP together as one case file.

  2. Prepare a Form 5344 for each file and include the name of the secondary taxpayer on the Form 5344 for the primary file.

  3. Prepare Form 3198, to be transmitted with the case file, and include the following comments:

    1. "Separate Return(s) Converted to Joint,"

    2. "Add secondary taxpayer to primary account,"

    3. Indicate any estimated tax payments to be transferred from the secondary account to the primary account, and

    4. Indicate whether or not the tax has been paid.

4.10.8.14.7 (06-10-2005)

Adjustments to the Investment Credit

  1. A report including adjustments to investment credits (including the recapture of investment credit) should include a computation showing the correct investment credit.

  2. IRC 46 defines the credits which are considered investment credits. Form 3468, Investment Credit, may be used to show the computation of the corrected investment credit.

  3. IRC 38 limits the amount of general business credits (including investment credit) which may be used in any year. Form 3800, General Business Credit, may be used to show the limitations of the investment credit when the taxpayer is eligible for more than one type of general business credit. The report should clearly show the amount and year of origin of any adjustments to investment credit carrybacks or carryforwards.

  4. IRC 50(a) requires the recapture of all or part of the investment credit in the case of an early disposition of the property which generated the credit. Form 4255, Recapture of Investment Credit, may be used to show the computation of the tax due to the recapture of the investment credit.

4.10.8.14.8 (06-10-2005)

Self-Employment Tax Adjustments

  1. When an audit results in an adjustment to self-employment tax, the information is forwarded electronically to the Social Security Administration via the Form 5344. See IRM 4.4.29.2, Self-Employment Income Adjustments.

  2. Include the following information as applicable on Form 5344: (See IRM 4.4.29.2.1.1, Reference Code Changes to Self-employment Income/Tax):

    1. Reference number 878: a net increase or decrease to the self-employment income of the primary taxpayer.

    2. Reference number 879: a net increase or decrease to the self-employment income of the secondary taxpayer.

    3. For 1990 and subsequent tax years, enter the self-employment income adjustments multiplied by .9235. The net increase or decrease to the self-employment tax reference number is 889. Changes to both primary and secondary self-employment tax should be combined for one adjustment to reference number 889.

      Note:

      The employer must "gross up" the employee's stated pay by taking into account the IRC 3101 tax rates; e.g., if the Social Security tax rate is 6.2% and the Medicare tax rate is 1.45% for a total of 7.65%, the computation uses .9235 (i.e., 1 − .0765).

    Note:

    Separate adjustments must be made for the Social Security portion and Medicare portion of the self-employment tax. For the maximum amount of combined wages and self-employment earnings subject to Social Security tax for a period, see Pub 334, Tax Guide for Small Business. There is no limit on wages and self-employment earnings subject to Medicare tax.

4.10.8.14.9 (08-11-2006)

Adjustment to FICA Tax on Tip Income Not Reported to Employer

  1. If it is discovered during an examination that tip income has been underreported by the employee to the employer, FICA tax may have to be adjusted. See IRM 4.4.29.3, Group Procedures for Adjustments to Tip Income, and IRM 4.23.10.18, Procedures for Employee Tax Adjustment on Tip Income Not Reported to Employer.

4.10.8.14.10 (09-13-2019)

Adjustment For Employee FICA Tax

  1. When an examination results in an adjustment to the employees share of FICA tax, examiners must follow IRM 4.23.10.17, General Procedures for Adjusting the Employee Share of FICA/RRTA Taxes including Additional Medicare Tax (AdMT).

4.10.8.14.11 (06-10-2005)

Adjustment to Schedule H — Household Employment Taxes

  1. An individual who employs domestic workers reports employment tax payments annually on Schedule H, Household Employment Taxes, which is attached to Form 1040, Form 1040-NR, or Form 1040-SS. If an individual is not required to file an income tax return (for example, because income is below the amount that requires the individual to file) Schedule H may be filed by itself.

  2. The use of Schedule H to report and collect these taxes does not change the nature of the tax.

    1. Changes are employment tax changes.

    2. Changes cannot be included in the income tax report.

    3. Changes must be made on an employment tax report (see (4) below).

    4. Changes are not subject to deficiency procedures and should not be included on a notice of deficiency.

    5. No portion of the employment tax reported on Schedule H is ever available for refund based on changes to a taxpayer's income tax liability.

  3. For purposes of Schedule H the employer is:

    1. The taxpayer who applied for the EIN, which is required.

    2. For joint returns, only one taxpayer can be the employer and this would be the spouse who obtained the EIN.

  4. Adjustments to Schedule H require the preparation of Form 4667, Examination Changes - Federal Unemployment Tax; Form 4668 Employment Tax Examination Changes Report; and Form 2504, Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment. The adjustments on Form 4668 should be made to the fourth quarter.

  5. When Schedule H adjustments are made, Form 3198 must be attached to the case file.

    1. The Other Instruction section should contain the following notation: "Schedule H Adjustment — Forms 4667, 4668 and 2504 enclosed for the primary or secondary (whichever applies) taxpayer."

    2. For joint filers, it is critical that the primary/secondary designation be made to allow for accurate completion of Form 5344.

  6. As with any other employment tax changes involving wages, corrected or delinquent W–2's should be secured as necessary.

  7. See IRM 4.23.10.10.5, Household Employment Taxes, for additional information.

4.10.8.14.12 (08-11-2006)

Specialists Report

  1. Engineer's Memorandum Report, Form 3213 — is used as the report transmittal for the engineer's report on non-LB&I cases. The Issue Management System (IMS) is used to transmit reports on LB&I cases.

    1. For more detail regarding the content of the engineer's report see IRM 4.48.1, Overview of Engineering Program.

    2. Form 4665 will note that an engineer was involved in the case and whether or not the engineer's findings are accepted. When accepted, the engineer's findings will be included in the examiner's report. Workpapers related to the engineering report on SB/SE cases should be placed in the case file.

  2. International Examiner's Report, Form 3963 — is used as the report transmittal for the international examiner's report on SB/SE and LB&I cases. Form 3963 provides administrative information, compliance check information, issues considered but not changed, and Form 886–A, etc.

    1. For more detail regarding the preparation of Form 3963 see IRM 4.60.9, International Examiner's Report.

    2. Form 4665 will be noted International was involved in the case and whether or not the international examiner's findings are accepted. When accepted, the international examiner's explanation of items will be included in the examiner's report. Workpapers related to the International Examiner's report should be placed in the case file.

4.10.8.14.13 (09-13-2019)

Notice Under IRC Section 6404(g) – Suspension of Interest

  1. IRC 6404(g) suspends interest if, as a result of an examination, the IRS fails to timely provide individual taxpayers adequate notice of liability and the basis for the liability. The IRS has 36 months (or 18 months in certain cases) from the return due date or return filed date (with regard to extensions), whichever is later, to notify the taxpayer of the additional liability without suspending interest. See IRM 20.2.7.8, IRC 6404(g) Interest Suspension, for additional information on the notification period, interest suspension period, and effect of amended returns.

  2. A notice provided within the prescribed time period prevents the suspension of interest if the notice adequately states the amount of the liability and the basis for the liability. See IRM 20.2.7.8.5, IRC 6404(g) Notice, for adequate notice requirements and the effect of multiple notices. See IRM 4.31.6.3.6.3, IRC Section 6404(g), Suspension of Interest and Certain Penalties, for notice requirements for individual investors of a pass-through entity.

  3. The IRC 6404(g) notice date must be noted on a copy of the notice retained in the case file.

  4. When 6404(g) interest suspension applies, the examiner must include a statement in the "Other Information" section of the examination report using language similar to the following:

    • If there is one IRC 6404(g) notice date, include the following - "IRC 6404(g) applies, and notice was provided on (date)."

    • If there is more than one IRC 6404(g) notice date, as defined by IRM 20.2.7.8.5.1, Multiple IRC 6404(g) Notices, each notice date and the portion of the liability attributable to each notice date will be recorded in the "Other Information" section of the examination report and should contain the following language -"IRC 6404(g) applies and there are XX different notice dates. The first notice was provided on (date) for $(amount of liability); the second notice was provided on (date), etc."

  5. On every individual case with a liability adjustment, examiners must indicate on page two of Form 3198, IRC 6404(g) is not applicable or enter the notice date(s) and the applicable liability amount.

  6. If there is more than one IRC 6404(g) notice date, note on Form 3198 that restricted interest applies due to IRC 6404(g), and to see the "Other Information" section of the examination report.

  7. See IRM 20.2.7, Abatement and Suspension of Debit Interest, for additional information.

4.10.8.14.14 (06-10-2005)

Individual Retirement Arrangement (IRA) and Qualified Retirement Plan Adjustments

  1. There are generally two types of changes that may be made as a result of transactions involving an Individual Retirement Arrangement (IRA) or qualified retirement plan during an examination: adjustments to income, and taxes resulting from not complying with IRA rules.

  2. Adjustments to income: adjustments to income, such as the taxpayer's deduction for an IRA contribution or inclusion of premature distributions in income, will be reflected on the "adjustments to income" line on Form 4549.

  3. Taxes Resulting from not Complying with IRA Rules:

    • Taxes, such as IRC 72(t), tax on early distributions and IRC 4973, IRC 4974, and IRC 4979, taxes for excess contributions, accumulations, and distributions, are reflected on the "Plus Other Taxes" line of Form 4549 as an addition to the corrected tax liability.

    • The type of tax will be identified in the "Other Information" section.

    • A lead sheet must be attached to show the computation of the tax. In joint return cases, the spouse to whom the tax pertains must be identified on the lead sheets. If it applies to both spouses, the amount of tax applicable to each spouse will be identified.

    • These taxes are normally reported on Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts.

  4. IRM 21.6.5.4.2, Individual Retirement Arrangement (IRA) Taxes, lists the taxes that may be assessed on IRAs and qualified retirement plans if the taxpayer does not conform to rules governing IRAs. Attention should be given as to whether the tax is an income or excise tax as this will affect the preparation of the reports and the statute of limitations.

    Note:

    If a consent to extend the statute of limitations is being prepared and an excise tax due to an IRA may be assessed, complete the "kind of tax" line on the consent form, by inserting "Income and Chapter 43 (Excise) Tax." The excise tax statute must also be extended in addition to the income tax statute if there is a possibility that an excise tax may be assessed.

4.10.8.14.14.1 (06-10-2005)

Posting Advance Payments

  1. Separate Forms 3244-A, Payment Posting Voucher, must be prepared for each type of tax, taxpayer, and tax period. Therefore, separate Forms 3244-A must be completed if an advance payment is received on a deficiency that:

    1. Includes both income and excise tax, or

    2. Is attributable to both spouses on a joint return for an IRA/qualified retirement plan adjustment.

  2. The MFT block will be noted "MFT 29" and the "Remarks" block noted "IRA-MFT 29" if the tax is an excise tax.

  3. One check may be accepted for payments that relate to both income and excise tax.

4.10.8.14.14.2 (06-10-2005)

Form 5344 – Examination Closing Record

  1. Separate Forms 5344 are required for processing:

    1. Each individual's IRA/qualified retirement plan adjustments, and

    2. The income tax adjustments.

    Note:

    If a joint return is under examination and both spouses' IRAs/qualified retirement plans are adjusted in addition to other income tax adjustments, three Forms 5344 will be required - one for the income tax adjustments and one for each spouse's IRA adjustments.

  2. Entries on Form 5344 for IRA/qualified retirement plan adjustments are generally the same as those for income tax adjustments, except no entries are required in items 18 through 40. Refer to IRM 4.4.14, Individual Retirement Account (IRA), Education Savings Accounts and Medical Savings Account Adjustments, for instructions in completing the entries on Form 5344.

4.10.8.14.14.3 (06-10-2005)

Form 3198 – Special Handling Notice

  1. Case files containing IRA/qualified retirement plan adjustments will be identified on Form 3198, by checking the Special Features "Other Instructions" block, followed by "IRA adjustment" , the type of tax (i.e., 6%, 50%, etc.), the amount of tax attributable to each type of tax and identifying the SSN of the account to be adjusted.

4.10.8.15 (05-14-1999)

Inadequate Records Notices: Overview

  1. Every taxpayer is required by law and regulations to maintain records with sufficient detail to prepare a proper return. This may require the maintenance of such permanent books of account and records sufficient to establish the amounts of gross income, deductions, credit, or other matters to be shown on the taxpayer's return. See Treas. Reg. 1.6001–1.

  2. Taxpayers who maintain automated records can enter into a record retention agreement with the Area Director. This agreement limits retained records to those specifically identified as needed to perform auditing procedures.

  3. Inadequate Records Notices place taxpayers on notice that their recordkeeping practices are deficient and must be improved to meet the requirements of the law. The issuance of an Inadequate Records Notice 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.

4.10.8.15.1 (05-14-1999)

Determination of Taxpayer Compliance

  1. The determination that a taxpayer has not maintained adequate books and records, or has not complied with a record retention agreement, is a matter of judgment and should be based on the facts of the individual case. Factors to be considered include, but are not limited to:

    1. An alternative or indirect method was used to establish the amounts of gross income, deductions, credits, or other matters shown on the taxpayer's return because the taxpayer's records were not sufficient,

    2. Prior history and present degree of noncompliance,

    3. Indications of willful intent or evidence of refusal to keep adequate books and records,

    4. Probability that the inadequacies in recordkeeping will result in significant underreporting of tax liabilities, or

    5. Other evidence of harm to the Government.

4.10.8.15.2 (05-14-1999)

Examination Procedures

  1. The following section addresses examination procedures for handling inadequate records issues.

4.10.8.15.2.1 (05-14-1999)

Time Charges

  1. All time for the development of inadequate records issues by examiners should be charged to the case.

4.10.8.15.2.2 (05-14-1999)

Factual Development

  1. Examiners should avoid criticizing the work of the taxpayer's employees, accountants, or attorneys in a way that would suggest wrongdoing or negligence. Examiners should focus on explaining how the taxpayer's books and records are inadequate and what steps need to be taken to bring them into compliance with applicable statutes.

4.10.8.15.2.3 (05-14-1999)

Case File Documentation

  1. Examiners should document:

    1. The nature of the inadequacies of the taxpayer's records,

    2. Examiner/group manager discussions, and

    3. Basis for the conclusion reached.

4.10.8.15.2.4 (05-14-1999)

Group Manager Involvement

  1. If an examiner determines that the taxpayer has not substantially complied with the law and regulations for maintaining adequate books and records or record retention agreements, the examiner should discuss the inadequacies with the group manager to determine if an inadequate records notice should be issued.

4.10.8.15.2.5 (05-14-1999)

Record Retention Agreements

  1. If the case includes a record retention agreement, the computer audit specialist must be contacted.

4.10.8.15.3 (05-14-1999)

Required Forms and Exceptions

  1. Generally, Letter 979, Inadequate Record Notice, requesting a follow-up statement of corrective action from the taxpayer within 6 months, will be used to notify the taxpayer.

  2. If the taxpayer is within the racketeer classification, engaged in illegal activities, or is willfully disregarding the law, the examiner will prepare Form 2807, Agreement to Maintain Adequate Books of Account and Records, and Letter 978, Notice of Inadequate Records, which includes a description of exact records required and penalties for failure to keep records.

4.10.8.15.3.1 (08-11-2006)

Completion of Forms

  1. The designated contact identified on Letter 978 or Letter 979 should be the individual in PSP responsible for monitoring the taxpayer's future compliance.

  2. The Form 2807, or Letter 979 narrative must include the following:

    1. The date the taxpayer was orally notified that the records were inadequate or not in compliance with a record retention agreement,

    2. The tax year(s) examined,

    3. A clear and concise statement specifying how the taxpayer's records were inadequate or not in compliance with a record retention agreement.

    Note:

    Form 2807 should specify the books and records which will be maintained.

4.10.8.15.3.2 (05-14-1999)

Group Manager Approval

  1. Form 2807 and Letter 978 (or Letter 979) are approved and signed by the group manager.

4.10.8.15.4 (05-14-1999)

Delivery of Inadequate Records Notices

  1. Inadequate Records Notices should be served personally by examiners or sent by certified mail.

4.10.8.15.4.1 (05-14-1999)

Record of Service

  1. The examiner will complete the record of service on Letter 978 and Letter 979 at the time of delivery or before it is sent certified mail. The record of service should also be completed on all retained copies.

  2. If sent by certified mail, the return receipt will constitute the record of service and will be attached to the copy of Letter 978 or Letter 979 retained in the case file.

  3. If Form 2807 is mailed, Letter 978 should be held 15 days to give the taxpayer an opportunity to execute Form 2807.

4.10.8.15.4.2 (06-10-2005)

Notices for Joint Returns

  1. Section 3201(d) of RRA 98 requires that whenever practicable, any notice relating to a joint return be sent separately to each individual filing a joint return. Congress believed that sending separate notices would result in mail being forwarded to a spouse who moved. See IRM 4.10.1.2.2.1, Separate Notice Requirements, for detailed procedures.

4.10.8.15.4.3 (05-14-1999)

Notices for Corporate Returns

  1. When a notice is addressed to a corporation, it should be delivered to an officer authorized to sign tax returns and preferably to the officer who signed the return under examination.

4.10.8.15.4.4 (06-10-2005)

Notices for Partnerships

  1. In the case of a ILSC partnership, the notice will be addressed to all the partners and will show the name in which the partnership is doing business. The original notice will be delivered to the partner who signed the return or, if this is not possible, to a partner who takes an active part in the business. A copy of the notice, including the record of personal service or the mailing receipt, will be sent by registered or certified mail to all the other partners. Receipts from these mailings will be associated with the copy of the notice retained in the case file.

4.10.8.15.4.5 (08-11-2006)

Field Exam

  1. Revenue agents should deliver the Letter 979 or Letter 978 and Form 2807, at the closing conference if possible. Otherwise, send by certified mail.

  2. In cases where Form 2807 is required, the taxpayer will be given the opportunity to execute the agreement, specifying the books and records which will be maintained.

4.10.8.15.4.6 (08-11-2006)

Office Audit

  1. Tax Compliance Officers/Tax Auditors should give the Letter 979 or Letter 978 and Form 2807 to the taxpayer at a subsequent appointment if possible. Otherwise, send by certified mail.

  2. In cases where Form 2807 is required, the taxpayer will be given the opportunity to execute the agreement, specifying the books and records which will be maintained.

4.10.8.15.4.7 (06-10-2005)

Joint Investigations

  1. In joint investigations, the criminal investigator will determine the appropriate time to inform the taxpayer of the inadequacies of the records and issue the notice letter. The criminal investigator is also responsible for delivering the Inadequate Records Notice.

4.10.8.15.5 (05-14-1999)

Taxpayer Agreement

  1. Letter 978 and Letter 979 serve as notification to taxpayers that their records are inadequate and execution of Form 2807 is not necessary to close the case. Whether or not the taxpayer signed Form 2807 will be noted on Letter 978.

4.10.8.15.6 (05-14-1999)

Taxpayer's Appeal Rights

  1. If the taxpayer does not execute Form 2807 and the case is unagreed, the taxpayer will be informed of the further opportunity to discuss the matter at an Appeals conference.

  2. An Appeals conference is not given to taxpayers who agree to proposed adjustments but do not execute Form 2807.

4.10.8.15.7 (05-14-1999)

Completing Form 5346

  1. Examiners will prepare a detailed Form 5346 following the instructions on the back of the form. The "other" section should state that the package is documentation for an Inadequate Records Notice. The package should include:

    1. Copies of pertinent workpapers,

    2. Copy of the audit report,

    3. Copy of Letter 978 or Letter 979,

    4. Original Form 2807, if applicable.

  2. A copy of the completed Form 5346 should be included in the workpapers with other documentation of the issue.

  3. The original Form 5346 and documentation should be forwarded to PSP for suspense and follow-up action.

4.10.8.15.8 (05-14-1999)

Follow-Up Examinations

  1. Follow-up examinations will be conducted when appropriate. These examinations should be started with sufficient time to be completed within established audit cycles.

4.10.8.15.8.1 (05-14-1999)

Case File Documentation

  1. The case file should document consideration of the inadequate recordkeeping issue and state whether the taxpayer has corrected the inadequacies in the recordkeeping practices.

4.10.8.15.8.2 (05-14-1999)

Substantial Compliance By the Taxpayer

  1. If the examiner concludes that the taxpayer is substantially complying with requirements to keep adequate records, the inadequate records notice information should be included in the case file when the examination is closed.

4.10.8.15.8.3 (05-14-1999)

Continued Noncompliance By Taxpayer

  1. If the examiner concludes that the taxpayer is not substantially complying with requirements to keep adequate records, then consideration of additional enforcement measures, such as the assertion of penalties, is warranted.

4.10.8.16 (05-14-1999)

Examiner Case Closing Requirements

  1. In addition to preparing all necessary reports to document audit findings and organizing the contents of the case file, examiners have other critical case closing requirements.

4.10.8.16.1 (06-10-2005)

Completion of Form 5344, Examination Closing Record

  1. Completion of Form 5344 is required prior to the closing of a case.

  2. Use of Form 5344 in RGS is required.

  3. Required entries for examiners are outlined in IRM 4.4.12, Examined Closings, Surveyed Claims, and Partial Assessments.

    Note:

    Since grading of cases is the responsibility of the group manager (but an entry in this field is required for an agent to forward a case), examiners should enter their own grade unless instructed to enter another grade by their group manager. Group managers are also required to review this entry on Form 5344 prior to case closing to ensure accuracy.

4.10.8.16.2 (06-10-2005)

Examination Operational Automation Database (EOAD)

  1. EOAD was designed to provide data that would allow the tracking of examination adjustments by issue. This data will be used to enhance the ability to identify specific areas of noncompliance based on examination results and track the effectiveness of the examination classification process.

  2. Capture of EOAD data is mandatory for all examinations of Individual, Corporate, S Corporation, and Partnership returns.

  3. EOAD data must be entered for all issues examined, both adjusted and non-adjusted items.

  4. Data capture for EOAD should be done just prior to closing the case (after completion of the examination report and automated 5344). See IRM 4.10.16, Examination Operational Automation Database (EOAD), for detailed instructions.

4.10.8.16.3 (08-11-2006)

Case Folder Color

  1. Effective March 1, 2006, CCP established uniform guidelines for file folder color. Examination groups must use the following file folder colors when closing paper cases to Case Processing:

    • Red – Case with a statute date expiring within 180 days.

    • Yellow – Headquarter approved usage only. Purpose of use will change periodically as interim guidance is issued and posted to the Interim Guidance website

    • Orange – IRS Employee audit

    • Lavender – NRP Form 1040

    • Plum – NRP Form 1120S

    • Light Blue – Claims (this includes innocent spouse; injured spouse; and any other type of claim). The type of claim should be notated on Form 3198.

4.10.8.17 (03-25-2021)

Whistleblower Claims for Award

  1. IRM 25.2.2, Whistleblower Awards, and IRM 25.2.1, General Operating Division Guidance for Working Whistleblower Claims, provide guidance regarding receiving, evaluating, and processing whistleblower claims for awards. These IRMs should be consulted for correct processing of whistleblower claims.

4.10.8.18 (08-11-2006)

Deceased Taxpayers

  1. This section provides procedures for deceased taxpayers. Deceased taxpayer procedures should be followed when a taxpayer has died, whether the death occurred before or after the filing of the return.

  2. References for deceased taxpayers:

    • IRM 4.4.3.7, Refunds to Other Taxpayers,

    • IRM 4.10.9.8, Special Situations Requiring Documentary Evidence,

    • Pub 3920, Tax Relief for Victims of Terrorist Attacks.

  3. If a fiduciary relationship exists, the case file must generally include letters testamentary and Form 56, Notice Concerning Fiduciary Relationship, which are to be attached to the return. See IRM 25.6.22.6.1.4(4), Decedents, for additional guidance.

4.10.8.18.1 (08-11-2006)

Names and Addresses

  1. In the case of a decedent, if a fiduciary relationship exists, reports and correspondence should include the name of the current administrator or other proper representative. The correspondence and reports will also be mailed to the fiduciary's address. Once legal evidence of death is obtained, correspondence and examination reports should be addressed as indicated below.

  2. For Joint Returns:

    If... Then address as:
    One spouse has died and a fiduciary relationship can be determined
    Estate of Simon Fir (Deceased)
    H. Bank, Executor, and
    Mary Fir, Surviving Spouse
    One spouse has died and a fiduciary relationship cannot be determined
    Estate of Simon Fir (Deceased)
    Mary Fir, Surviving Spouse

  3. For Single/Separate Returns:

    If... Then address as:
    A fiduciary relationship can be determined
    Estate of John Doe (Deceased)
    H. Bank, Executor
    A fiduciary relationship cannot be determined
    John Doe (Deceased)

4.10.8.18.2 (08-11-2006)

Signatures

  1. Joint Return Agreements - Must be signed by the surviving spouse and executor or administrator of the deceased taxpayer's estate. If no executor has been appointed, the surviving spouse signs for self and for the decedent (e.g., "John Doe, Deceased, by Mary Doe, Surviving Spouse." ) If both taxpayers are deceased, the executor for each estate must sign the agreement.

  2. If the surviving spouse does not receive all of the decedent's assets or sufficient assets to cover the tax liability, he/she cannot sign as the surviving spouse and correspondence should be sent to the decedent's last known address and to the surviving spouse at his/her current address.

  3. If the surviving spouse received all of the decedent's assets and the estate is closed, Form 2045, Transferee Agreement, and Form 870 with special language, will need to be solicited. See IRM 4.11.52, Transferee Liability Cases.

4.10.8.18.3 (08-11-2006)

Consents

  1. Refer to IRM 25.6.22.6.1.4, Decedents, when preparing a consent for a decedent.

  2. If a decedent dies intestate and no executor or administrator is appointed, generally no one may sign a consent for the decedent or the estate extending the period of assessment for income tax. See IRM 25.6.22.6.1.4(4), Decedents, for limited circumstances where the Service may accept a consent signed by the decedent's surviving spouse. Similarly, a consent cannot be executed after the executor or administrator has been discharged. See Rev. Rul. 83–41, 1983–1 C.B. 349, clarified and amplified by Rev. Rul. 84–165, 1984–2 C.B. 305.

    Note:

    An heir liable under IRC 6901 as a transferee may sign a consent for his or her own liability.

  3. A surviving spouse generally has no authority to sign a consent on behalf of the deceased spouse. See IRM 25.6.22.6.1.4(4), Decedents, for limited circumstances where the Service may accept a consent signed by the decedent's surviving spouse. Estates are generally considered successors in interest to the decedent under state law and as the decedent's successor in interest, the executor or administrator of the estate is the proper party to execute a consent.

  4. If necessary, a statutory notice of deficiency should be issued.

4.10.8.18.4 (08-11-2006)

Refunds

  1. When a refund is to be issued to someone other than the taxpayer in whose name the tax was paid, documentary evidence must be provided to permit refunds to be made. This includes (but is not limited to) deceased taxpayers, trustees, estates, guardians, minors, dissolved corporations, reorganizations, and bankruptcy cases. See IRM 4.4.3.7, Refunds to Other Taxpayers, and its subsequent sections for guidance in determining what evidence is necessary.

  2. In addition, Form 1310, Statement of Person Claiming Refund Due to a Deceased Taxpayer, should be secured if an overassessment is recommended on a joint return and one of the taxpayers has died since the return was filed.

4.10.8.18.5 (08-11-2006)

Relief for Victims of Terrorist Attacks and with Respect to Astronauts

  1. IRC 692(d) provides relief for federal income tax liabilities of decedents who died as a result of certain terrorist attacks. IRC 692(d) applies to victims of:

    • Oklahoma City Attack - For 1994 and later up to and including the year of death.

    • September 11th Attack - For 2000 and later.

    • Anthrax Attacks - For 2000 and later.

    • Any astronaut whose death occurs in the line of duty after 12/31/02.

    See IRM 21.7.4.4.1.13, Victims of Terrorism Tax Relief Act of 2001 - Tax Forgiveness, for additional information.

4.10.8.18.5.1 (08-11-2006)

Minimum Amount of Relief for Victims

  1. The minimum amount of relief is $10,000 per IRC 692(d)(2). The 2003 Act did not modify the minimum benefit.

  2. If the total tax forgiven for all eligible years is less than the minimum the difference is treated as a tax paid for the decedent's last tax year and will be refunded the same as if the amount had actually been paid.

  3. IRC 692(d)(3) stipulates what income is not subject to the terrorist relief provisions. For example, deferred compensation that would have been payable if the death had occurred because of an event other than the attacks.

  4. For more information see Rev. Proc. 2004–26, 2004–19 I.R.B. 890.

4.10.8.18.5.2 (08-11-2006)

Necessary Documents

  1. Proof of Death - Death certificate or Form 1300, Report of Casualty, issued by the Department of Defense.

  2. Form 1310 unless either of the following applies:

    1. Surviving spouse is filing an original or amended return with the decedent, or

    2. The personal representative filing an original Form 1040 or Form 1040NR for the decedent and a court certificate showing the appointment is attached to the return.

4.10.8.18.6 (08-11-2006)

Form 3198 for Deceased Taxpayers

  1. Note on Form 3198 that the case involves a decedent and any name or address change.

Exhibit 4.10.8-1

Preparation of Form 4549 / Form 4549-A

Instructions for preparing Form 4549 and Form 4549-A are outlined below. Sections of the form not discussed are self-explanatory.

Name and Address — enter the correct name and address of the taxpayer. When the case involves a deceased taxpayer, please ensure you have properly entered the name (see IRM 4.10.8.18.1 ).

Taxpayer Identification Number — use Social Security Number (SSN) even if the individual also has an Employer Identification Number (EIN). On joint returns, check Master File to determine which SSN was used as the primary number for the year(s) examined.

Person with Whom Examination Changes Were Discussed — enter the name of the individual with whom changes were discussed. If the individual was a power of attorney or corporate officer, also enter that individual's title.

Tax Period — enter the taxable year for which the column applies. For calendar, fiscal, and 52–53 week year, show the year ending date (mm/dd/yyyy). For a short period, show the beginning and ending date.

Adjustments to Income — list adjustments. The amounts and titles must match the lead sheets / workpapers. Place a bracket around the dollar amount if an adjustment is in the taxpayer's favor. If there are more than sixteen adjustments write, "See page __" on line 1(a) and use Form 4549–B, Report of Income Tax Examination Changes, for listing the adjustments.

Taxable Income Per Return or as Previously Adjusted — enter the final figure computed by the taxpayer on the last processed return or as computed on a prior processed examiner's report if applicable, and reflected on the transcript.

  1. If a math error is discovered at the time of processing and corrected at the campus, then the corrected figure should be input here. Cross-out or add words as needed to identify the figure which you are using.

If... Then...
More than one return is filed prior to the due date Last return filed constitutes the original return.
An amended return is filed after the due date and reduces the tax liability but has not been processed The amended return is considered a claim for refund (or abatement request) and the original return figures should be used.
An amended return filed after the due date which increases or decreases the tax liability and the return has been processed and additional tax assessed or a refund issued The amount shown on the amended return should be used.
Tentative carryback forms (Form 1045 or Form 1139) have been filed and refunds issued The amount shown on original return, not the tentative carryback form, should be used.

Corrected Tax Liability — identify how the tax was computed (tax table, tax rate schedule, etc.), the taxpayer's filing status (complete for individual returns only) and the amount of tax. If additional tax such as Parent's Election to Report Child's Interest and Dividends, Tax on Accumulation Distribution of Trusts, Tax on Lump-Sum Distributions, maximum tax, etc., applies, indicate on this line and attach schedule showing the computation of corrected tax figure. Likewise, if the alternative minimum tax (AMT) applies, attach a schedule showing the computation of the AMT.

Less Credits — this line should include only non-refundable credits. Do not include credits such as earned income credits or withholding tax and excess FICA credits.

Other Taxes — include recapture taxes, self-employment tax, etc. Attach the appropriate forms detailing the computations. Do not include alternative minimum tax on this line.

Total Tax Shown on Return or as Previously Adjusted — include tax per return plus any additional tax assessed/abated as reflected on a transcript.

Adjustments — any changes to special fuel or prepayment credits should be reflected on this line. The calculation of any changes should be attached to the agreed report.

Adjustments to prepayment credits — do not enter payments already posted to a taxpayer's account; only adjustments to prepayment credits.

Penalties — IRC 6751(a) requires that each penalty notice (e.g., report) include the name of the penalty, the IRC section under which the penalty is imposed, and a computation of the penalty. Standard explanations contained in RGS are required to be used by all SB/SE examiners. See IRM Exhibit 4.10.10-1, Index to Standard Explanations, and IRM Exhibit 4.10.10-2, Standard Explanations, for a listing of standard explanations. If the penalty cannot be currently computed, place an asterisk in the line amount field and describe the process of the calculation in the "Other Information Section" of Form 4549.

Note:

IRC 6751(b) requires written approval by the immediate supervisor of the individual making the initial determination of the assessment of most penalties. Refer to IRM 20.1.1, Introduction and Penalty Relief, for additional information on approval of penalties.

Interest — IRC 7522 states that notices (including the first letter of proposed deficiency which allows the taxpayer an opportunity for administrative review in the IRS Office of Appeals and statutory notices of deficiency) shall describe the basis for, and identify the amounts (if any) of, the tax due, interest, additional amounts, additions to the tax, and assessable penalties included in such notice. If an examiner is unable to compute interest, such as in the case of restricted interest, they must provide a comment in the "Other Information" section of the Form 4549. See IRM 4.10.8.14.3.4 for examples of comments for restricted interest cases.

Note:

In general, IRC 7522 is satisfied if the notice or report includes the following statement: "Interest, as provided by law, will be charged on the unpaid amount until it is paid in full."

Other Information Section — See IRM 4.10.8.2.2.1 for additional situations when comments in the "Other Information" section are applicable.

Examiner's Signature — an electronic or digital signature is acceptable. For digitally signed forms issued to the taxpayer and/or representative, follow the procedures in IRM 4.10.1.4.4, Digital Signatures. Forms should contain a graphical image of the signer's handwritten signature instead of the signer's SEID.

Exhibit 4.10.8-2

Preparation of Form 870

Instructions for forms in the 870 series:

  1. Date Received — enter the date received.

  2. Name and Address — enter the correct name and address of the taxpayer.

  3. Social Security or Employer Identification Number — use SSN if individual also has an EIN. On joint returns, show the number which corresponds to the first person listed on the return.

  4. Tax Year Ended (enter each on a separate line): Calendar Year — show ending date, Fiscal Year — show ending date, Short Period — show beginning and ending dates, and 52–53 Week Period — show last day of the period.

  5. Tax — enter the amount of additional tax, as agreed, on separate line by years. When prepayment credits are adjusted, the waiver will show the amount of the deficiency before the proposed change in prepayment credits. This is because changes to prepayment credits can be assessed without deficiency procedures. For clarity, an explanation or Form 4549–A should accompany the Form 870.

  6. Penalties — enter separately by year and by Code section the penalty or penalties as agreed.

  7. Signature of Taxpayer — see the instructions on the form.

Exhibit 4.10.8-3

Sample Form 4605–A — Change in Accounting Method

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Sample Form 4605-A - Examination Changes - Partnerships, Fiduciaries, S Corporations, and Interest Charge Domestic International Sales Corporations, Page 1The sample form is an example of a completed report for a partnership containing fields for the taxpayer name, TIN, proposed adjustments, and the resulting corrected ordinary income. The total adjustments equal $140,000 and are shown on Lines 1.a. through 1.c. as follows: 1.a. IRC Section 481(a) Adjustment $120,000. 1.b. IRC Section 446 Current Year Adjustment $10,000. 1.c. Miscellaneous expenses $10,000.

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Sample Form 886-S - Partners' Share of Income, Deductions and CreditsThe sample form is an example of Form 886-S, which is used as part of an examination report to show how various income and deduction items were distributable to the individual partners. The example displays a completed form reflecting the name and TIN of the partnership at the top of the form. In the following section, Column 1 is titled, Name and TIN of Each Partner, and displays the name of five general partners in rows (a) through (e). Column 2 is titled, Ordinary Income (loss) from trade or business, and contains a dollar amount for each row (a) through (e), with a grand total at the bottom. Column 3 is titled, Net earnings (loss) from self-employment, and contains a dollar amount for each row (a) through (e) with a grand total at the bottom. Column (4) is titled, Sec. 481(a) Adjustment for purposes of Sec. 481(b) Tax Comp., and contains a dollar amount for each row (a) through (e) with a grand total at the bottom.

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Sample Form 886-A - Explanations of ItemsThe sample form is an example of Form 886-A, which is used as a schedule or exhibit in examination reports. The sample form is an example of a completed form with the following narrative related to IRC 481(a): In the case of a change in method of accounting by a partnership, the adjustments required by IRC Section 481 shall be made with respect to the taxable income of the partnership but the limitations on tax shall apply to the individual partners. Each partner shall take into account his distributive share of the partnership items, as so adjusted, for the taxable year of the change. This applies to a partner whose taxable income is so increased by more than $3,000 as a result of such adjustments to the partnership taxable income. It is not necessary for the partner to have been a member of the partnership for the two taxable years immediately preceding the taxable year of the change of the partnership's accounting method in order to have the limitation apply. Reg.1.481-2(c)(5)(i).Additionally, there is a note to the examiner regarding RGS input. The IRC Section 481(a) Adjustment must be added twice as an issue:Ordinary income adjustment subject to self-employment tax.Separately stated item: a) In Form 1065 RGS return setup under Other tab add, Sec.481(a) Adjustment for purposes of Sec. 481(b) Tax Comp. and b) Under Issue, Adjustments, Categorization: select Sch. K - Other Items, Amounts to be reported separately, then Sec. 481(a) Adjustment for purposes of Sec. 481(b) Tax Comp.

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Exhibit 4.10.8-4

Sample Form 4549–A — Personal Holding Company

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Sample Form 4549-A - Income Tax Examination ChangesThe sample form is an example of Form 4549-A, which is the basic report form prepared by examiners for unagreed and excepted agreed individual and corporate income tax cases. The sample form is an example of a completed form reflecting the taxpayer name and TIN, tax period, no adjustments, the figures for AGI per return and as corrected display the same number, the figures for Taxable Income per return and as corrected display the same number. Line 10 (b) Plus Other Taxes displays a number of $17,388, representing the personal holding company tax. This same number is also shown on Line 14 as the Deficiency and on Line 16 as the Balance Due. Additionally there is a comment in the Other Information: See attachment for notices and other information.

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Sample Form 886-A - Explanations of ItemsThe sample form is an example of Form 886-A, which is used as a schedule or exhibit in examination reports. The sample form is an example of a completed form with a narrative related to personal holding company tax and states, It has been determined that the taxpayer for its taxable year ended 12/31/2002 is a Personal Holding Company as defined in IRC section 542 of the Internal Revenue Code. As such it is subject to the special tax of 38.6% on undistributed Personal Holding Company income.Additionally, there is a computation showing Taxable Income before special deductions of $53,395, less Federal Income Tax of $8,349, equalling Undistributed Personal Holding Co. income of $45,046. The amount of $45,046 is multiplied by the tax rate of .386 for a total of $17,388 (representing the personal holding company tax.)

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Exhibit 4.10.8-5

Sample Form 870 — Personal Holding Company

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Sample Form 870 - Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of OverassessmentThe sample form is an example of Form 870, which is used to secure a taxpayer's consent to the assessment of a deficiency or overassessment. The sample form is an example of a completed form reflecting the taxpayer name and TIN, tax period, and tax in the amount of $17,388.

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Exhibit 4.10.8-6

Sample Form 2198 — Determination of Liability for Personal Holding Company Tax Section 547(c)(3) of the Internal Revenue Code

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Sample Form 2198 - Determination of Liability for Personal Holding Company Tax Section 547(c)(3) of the Internal Revenue CodeThe sample form is an example of Form 2198, which is used to secure a taxpayer's agreement that they are liable for personal holding company tax. The sample form is an example of a completed form reflecting the taxpayer name and TIN, tax period, amount of Personal Holding Company tax liability of $17,388 and Total Income Tax Liability of $17,388.

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Exhibit 4.10.8-7

Sample Form 4549-A — Personal Holding Company - Page 1

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Sample Form 4549-A - Income Tax Examination Changes, Page 1The sample form is an example of Page 1 of Form 4549-A, which is the basic report form prepared by examiners for unagreed and excepted agreed individual and corporate income tax cases. Page 1 contains fields for the taxpayer name, TIN, proposed adjustments, and the resulting tax or overassessment. The sample form is an example of a completed form reflecting the taxpayer name, no adjustments, the figures for AGI per return and as corrected display the same number, the figures for Taxable Income per return and as corrected display the same number. Line 10 (a) Plus Other Taxes displays See Attached Schedule with a number of $17,388, representing the personal holding company tax. Line 13 titled, Adjustments to: displays PHC Deficiency Dividends Deduction with a number of ($17,388). Line 14, Deficiency, and Line 16, Balance Due, show zero.

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Sample Form 4549-A - Income Tax Examination Changes, Page 2The sample form is an example of Page 2 of Form 4549-A, which is the basic report form prepared by examiners for unagreed and excepted agreed individual and corporate income tax cases. The sample form is an example of a completed form reflecting the taxpayer name, TIN etc., including the following remarks in the Other Information: The dividends declared and paid with the claim filed on Form 976 have been allowed in full.

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Exhibit 4.10.8-8

Sample Form 3189 — Deficiency Dividend Deduction Case Transmittal

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Sample Form 3189 — Deficiency Dividend Deduction Case TransmittalThe sample form is an example of Form 3189, which is used to transmit Deficiency Dividend cases to the Campus. The sample form is an example of a completed form reflecting the name and address of the personal holding company, TIN and tax period ended 12/31/2002. The following section contains this sentence: The file contains a timely filed Form 976 claiming a deficiency dividend, which was paid during the taxable year ended (blank line). The blank line is completed with the phrase, December 31, 2004.In the Computation section, the three columns are completed as follows:Deficiency Before Deduction: $17,388.00Amount Attributable to Allowance of Deduction: $17,388.00Net Amount to be Assessed: $0.00The Remarks section contains the following statements:Interest should be computed from 03/15/2003 to 07/31/2004 on $17,388.Note: 03/15/2003 is the due date of the return.Note: 07/31/2004 is the date Form 976 was received by Technical Services.

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Exhibit 4.10.8-9

Sample Form 4549-A - Full Allowance of Tentative NOLD

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Sample Form 4549-A - Income Tax Examination ChangesThe sample form is an example of Form 4549-A, which is the basic report form prepared by examiners for unagreed and excepted agreed individual and corporate income tax cases. The sample form is an example of a completed form reflecting examination results for tax periods ending 12/31/1998 and 12/31/2000. In the column for tax year 1998, Line 1 displays a Net Operating Loss Deduction (NOLD) from 2000 as a proposed adjustment in the amount of ($30,000). The Corrected Taxable income displays $858,888. The Corrected Tax Liability displays $292,022. Line 12 Total Tax Shown on Return or as Previously Adjusted displays $292,022. The Deficiency and Balance Due are both zero.In the column for tax year 2000, no adjustments are shown and the Corrected Taxable Income displays ($30,000).The Deficiency and Balance Due are both zero.The Other information contains the following remarks regarding the previous tentative allowance: Line 12: Total Tax Shown on Return or as Previously AdjustedTax per original return $302,222Less refund per Form 1139 filed 5/30/01 $10,2001998 Tax - Form 4549 -Line 12 = $292,022

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Exhibit 4.10.8-10

Sample Form 4549-A - Partial Allowance of Tentative NOLD

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Sample Form 4549-A - Income Tax Examination ChangesThe sample form is an example of Form 4549-A, which is the basic report form prepared by examiners for unagreed and excepted agreed individual and corporate income tax cases. The sample form is an example of a completed form reflecting examination results for tax periods ending 12/31/1998 and 12/31/2000.In the column for tax year 1998, Line 1 displays a Net Operating Loss Deduction (NOLD) from 2000 as a proposed adjustment in the amount of ($13,000). The Corrected Taxable income displays $875,888. The Corrected Tax Liability displays $297,802. Line 12 Total Tax Shown on Return or as Previously Adjusted displays $292,022. The Deficiency and Balance Due both display $5,780.In the column for tax year 2000, one adjustment to Income is shown in the amount of $17,000, and the Corrected Taxable Income displays ($13,000).The Deficiency and Balance Due are both zero.The Other information contains the following remarks regarding the previous tentative allowance: Line 12: Total Tax Shown on Return or as Previously AdjustedTax per original return $302,222Less refund per Form 1139 filed 5/30/01 $10,2001998 Tax - Form 4549 -Line 12 = $292,022

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Exhibit 4.10.8-11

Sample Form 4549-A - Full Disallowance of Tentative NOLD

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Sample Form 4549-A - Income Tax Examination ChangesThe sample form is an example of Form 4549-A, which is the basic report form prepared by examiners for unagreed and excepted agreed individual and corporate income tax cases. The sample form is an example of a completed form reflecting examination results for tax periods ending 12/31/1998 and 12/31/2000.In the column for tax year 1998, Line 1 displays a Net Operating Loss Deduction (NOLD) from 2000 as a proposed adjustment in the amount of $0.00. The Corrected Taxable income displays $888,888, and the Corrected Tax Liability displays $302,222. Line 12 Total Tax Shown on Return or as Previously Adjusted displays $292,022. The Deficiency and Balance Due both display $10,200.In the column for tax year 2000, one adjustment to Income is shown in the amount of $50,000, the Corrected Taxable Income displays $20,000, and the Corrected Tax Liability displays $3,000. The Total Tax Shown on the Return is $0.00, and the Deficiency and Balance Due display $3,000.The Other information contains the following remarks regarding the previous tentative allowance: Line 12: Total Tax Shown on Return or as Previously AdjustedTax per original return $302,222Less refund per Form 1139 filed 5/30/01 $10,2001998 Tax - Form 4549 -Line 12 = $292,022

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Exhibit 4.10.8-12

Restricted Interest Decision Chart (Non-Joint Committee Cases Only)

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Attachment 1 - Restricted Interest Decision Chart (Non-Joint Committee Cases Only)Is the case agreed and does a tax period on the report contain a carryback adjustment or any of the restricted adjustments* listed in IRM 20.2.1.5 and Exhibit 20.2.1-1?If no, special handling for restricted cases does not apply. Follow normal closing procedures.If yes, restricted interest applies. Determine if Form 2285 should be completed. Does at least one tax period contain:Both general* and restricted* adjustments, orRestricted adjustments from more than one tax period?If yes, Notate Form 3198, Restricted Interest Applies to YYYYMM - Form 2285 Required - Route to Technical Services.If no, Notate Form 3198, Restricted Interest Applies to YYYYMM - Form 2285 NOT Required - Route to CCP.*General Adjustments - Current year adjustments for which interest is computed from the due date/filing date of the return to the date the account is paid in full or refunded (includes transfers to other periods or liabilities), i.e. disallowance of an expense, unreported income, etc. Adjustments made to losses/credits carried forward from prior years claimed on the return as filed, or allowed in an examination, are also general adjustments.*Restricted Adjustments - Carryback adjustments and adjustments listed in IRM Exhibit 20.2.1-1.

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