IRS Audits - Part 4 Examining Process

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IRS Audits

4.2.1  General Examination Information

4.2.1.1  (10-01-2003)
Identification and Control Number

  1. The similarity of taxpayers' names and the voluminous flows of documents require the use of permanent identifying numbers coupled with taxpayers' names. These numbers are necessary for ADP purposes to ensure positive control of each tax account and all related transactions. Standard titles and abbreviations used are as follows:

    1. Social Security Number (SSN)—means the number which is assigned to an individual for social security purposes, tax account purposes, or both.

    2. Employer Identification Number (EIN)—means the number which is assigned for any tax purpose to a person other than an individual. It also means the identification number which is assigned to an individual who is required to file a return with respect to his/her liability for any tax other than income, estate, or gift taxes.

    3. Document Locator Number (DLN)—means the number assigned to each return or other document introduced into processing, for control and file reference purposes.

    4. Temporary Number—means the number assigned for processing purposes when the identifying number has not been shown by the taxpayer.

     

  2. The spacing of the digits in identifying numbers is an integral part of the number. The proper spacing must be observed in all instances. The spaces may be indicated by using hyphens, blank spaces, etc. For example, EIN as 00-0000000; and, SSN as 000-00-0000.

  3. In ADP operations:

    1. Identifying numbers (EIN, SSN) are the link to a taxpayer's record in the master file; no entry or reference to the master file can be made without this number.

    2. The Document Locator Number provides a permanent link with each return, document, etc., of the taxpayer. See Document 6209, ADP and IDRS Information for DLN composition.

     

  4. In non-ADP operations:

    1. The titles "Employer Identification Number" and "Social Security Number" will be used as necessary in accordance with applicable provisions of the regulations and the Internal Revenue Manual.

    2. The title "Document Locator Number" is the reference to the number assigned to returns or related documents.

     

  5. The foregoing identification and control numbers do not preclude the use of reference or control numbers such as Tax Court docket numbers, Criminal Investigation Division case numbers, reference numbers used in connection with the collection of delinquent accounts, or other numbers or codes used for control or reference purposes within an organizational unit, such as a division, area, etc.

4.2.1.2  (10-01-2003)
Request for Armed Escort

  1. The Criminal Investigation function is authorized to provide armed escorts for Service personnel who in the course of their official duties have been threatened with bodily harm indicating the need for such protection. (See IRM 9.6.7.2)

  2. When an examiner needs an armed escort, he/she will immediately report the facts to his/her group manager.

  3. If the group manager determines that an armed escort is necessary, he/she will request such protection from the Criminal Investigation function. The request must be in writing at least three business days prior to the date the armed escort is needed. This is to ensure that special agents have time to prepare a plan of action to ensure the safety of all individuals involved. The request should contain the following information:

    1. Taxpayer's name.

    2. Taxpayer's social security number.

    3. Taxpayer's date of birth.

    4. Taxpayer's home address and business address.

    5. Type of tax and years under examination.

    6. Balance due accounts and collection activity, if any.

    7. Reason for armed escort.

    8. Name of revenue agent and phone number.

    9. Name of supervisor and phone number.

     

  4. When an actual threat or assault has been made, Treasury Inspector General for Tax Administration (TIGTA) has primary jurisdiction and must be contacted.

4.2.1.3  (10-01-2003)
Litigation Affecting the Service

  1. The legal work of the Internal Revenue Service is performed by the Office of Chief Counsel. Referrals to the Associate Area Counsel Office should be considered in unrelated tax issue matters.

4.2.1.3.1  (10-01-2003)
Notification to Area Counsel in State Court Suits

  1. The Service ordinarily will not intervene in litigation in State courts between private litigants even though the purpose of the parties is to obtain a decree or judgment affecting Federal tax liability of one or the other of the parties to the litigation. In those cases arising in State courts between private litigants, to which officials of the Service have not been made a party but which may have a direct bearing on the Government's title or right to possession to property which has been seized, the Service may intervene or take other appropriate steps in connection with the proceeding. (See Policy Statement P–4–10 and IRM 34.7.9.)

  2. When pending proceedings come to the attention of Exam personnel, a memorandum report of the proceeding should be made to the Associate Area Counsel Office. Area Counsel will determine whether the Service should intervene or take any other steps in connection with the proceeding.

4.2.1.3.2  (10-01-2003)
Suits for Recovery of Erroneous Refunds

  1. Exam personnel may determine a taxpayer erroneously recovered a payment of money in the form of a tax refund. IRC § 7405 provides that any portion of tax which has been erroneously refunded may be recovered by civil action. IRC § 6532(b) provides that suit under IRC § 7405 may be brought within two years after the refund check was delivered, or if it appears that any part of the refund was induced by fraud or misrepresentation of a material fact, suit may be brought at any time within five years from the date the refund check was delivered. (See IRM 21.4.5.)

  2. Assessable erroneous refunds may also be recovered by administrative action within the applicable period of limitation upon assessment and collection. The type of tax involved is determinative of the type of administrative action available. Ordinarily, recovery by suit is utilized because administrative recovery is barred by the statute of limitations on assessment. Any contemplated collection activity based on administrative recovery should be coordinated with Counsel.

  3. The erroneous refund suit is limited to erroneously refunded amounts that exceed the litigating threshold established by the Department of Justice.

  4. A recommendation to the Associate Area Counsel should be accompanied by the administrative file, a copy of any request made to the taxpayer for voluntary payment, a copy of the taxpayer's refusal to make voluntary payment, transcript of account, and a narrative report containing the following information:

    1. The type of tax involved and the amount of money expected to be recovered.

    2. The date the period of limitations on collection will expire.

    3. A brief statement that administrative remedies are impractical or have been exhausted, including the reasons that administrative actions have not been effective.

    4. Facts, evidence, and other matters necessary for development of the case.

    5. Brief personal history of the taxpayer or other facts which might have a bearing on the suit.

    6. If a corporation, location of the principal executive office, date of incorporation, state of incorporation, and the name and address of the statutory agent for service.

    7. A statement of the exact legal premise for recovery of the erroneous refund.

     

  5. After the narrative report and other related documents are prepared, the examiner will submit the entire case file to his/her group manager for initial review. If the manager agrees, the case will be referred to Area Counsel by using locally established procedures. For example, he/she may request the Area Technical Services (Exam) to conduct a further technical review and to prepare the advisory request or an Area may have an agreement with Area Counsel and TS to send requests for technical assistance directly to Area Counsel (TS should receive a copy of the request if bypassed).

4.2.1.3.3  (10-01-2003)
Chief Counsel or U.S. Attorney Requests for Civil Suit Data

  1. In suits initiated by or against the Service, the Disclosure Office or Technical Services (Collection) receives and processes requests from U.S. Attorneys or Chief Counsel for data or documents. (Basic data in refund suits, other than suits involving 100-percent penalty assessments, is requested directly from the campus.)

  2. If a request from Counsel requires an additional examination by a revenue agent, the Compliance Technical Services Group Manager will have a copy of the request handcarried (or overnight mailed) to the Compliance Territory Manager and request that the examination be given preferential treatment. The information should be furnished as soon as possible.

4.2.1.4  (10-01-2003)
Reports on Cases Involving Expiration of the Statutory Period for Assessment

  1. Form 3999 will be prepared for each taxpayer (except those shown in (2) below) involved in returns assigned for examination and/or controlled on AIMS when the statutory period expires prior to the appropriate assessment or overassessment.

  2. The Form 3999 is not required, although the statute expired for the following:

    1. No-change and survey returns where such action was taken before the statute expiration and it is properly documented in the case file with supervisory or Technical Services approval noted on the report.

    2. Returns used solely for references or information purposes in determining the liability of taxpayer or related taxpayers.

    3. Returns loaned to another agency that have not been assigned for examination or that are held in suspense.

    4. Return Preparer Penalty cases for penalties assessed under IRC section 6694 and IRC section 6695.

    5. On returns involving an overassessment if a claim can be filed or a credit or refund allowed after timely waiver and within six months after the extended assessment period. See IRC section 6511(c)(2).

    6. Any return received in Examination after the normal three-year statutory period expired either because of a joint fraud investigation or because of the six-year statute when the investigation did not support either of such findings.

    7. If the three-year statute expires and the examination continues under the six-year or fraud statute; however, if these statutes are not sustained, a report is required.

    8. Any investor return where a Form 3999-T was written for the key case return. A copy of the Form 3999-T should be attached to the investor return.

     

  3. Form 3999-T will be prepared for each partnership or S corporation (hereafter, key case) return (except those shown in (4) below) assigned for examination and/or controlled on AIMS when the IRC section 6229(a) statutory period expires at the key case level prior to the appropriate assessment or overassessment for the returns of the investors in the key case.

  4. The Form 3999-T is not required, although the statute expired, for the following:

    1. Key case returns used solely for reference or information purposes in determining the liability of an investor.

    2. Key case returns loaned to another agency that have not been assigned for examination or that are held in suspense.

    3. Any key case return received in Examination after the IRC section 6229(a) statutory period expired either because of a joint fraud investigation or because of the six-year statute when the investigation did not support either finding.

    4. Any key case where the normal IRC section 6229(a) three-year statutory period expires, but the examination continues under the six-year or fraud statutes (IRC section 6229(c)(2) and IRC section 6229(c)(1)(B), respectively); however, if these statutes are not sustained, a report is required.

     

  5. The preliminary report is to be prepared and submitted to the next level manager within 3 business days of the date of discovery of a potentially expired statute. This 3 day timeline includes the time required to secure Area Counsel or Technical Services' advice, if necessary, as to whether or not the statute has, in fact, expired. The final report is to be prepared and submitted to the next-level manager no later than 10 business days from discovery of the expired assessment statute. The final report is prepared by the immediate manager of the party responsible for the statute expiration and forwarded through channels to the Director, Compliance.

4.2.1.5  (10-01-2003)
Taxpayer Notification of Statute Expiration and Acceptance of Voluntary Payments on Barred Statutes.

  1. Policy Statement P-4-65 provides that the Service shall not make any effort, real or implied, to solicit voluntary payments of a deficiency or taxpayer delinquent account barred by statute. However, payments made by the taxpayer completely of his/her free will shall be accepted. (See IRM 1.2.1.4.18)

4.2.1.5.1  (10-01-2003)
Guidelines for Deficiency Cases

  1. If the examination of the return has progressed to the point where the deficiency can be determined, an explanation to the taxpayer may be necessary. A verbal explanation to the taxpayer is not necessary in each case. In situations where an explanation to the taxpayer is necessary, the taxpayer should be advised that the processing of any deficiency resulting from the examination of his/he return has been discontinued because the statutory period that the Service can legally assess and enforce collection of any amount due, has expired.

  2. Written notification of the taxpayer will be a personal letter similar to Pattern Letter P-427 (Exhibit 4.2.1-1) and an examination report.

    1. The report is a copy of a report previously furnished to the taxpayer, a revision of that report or an initial report prepared after statute expiration.

    2. The report should reflect a deficiency resulting from issues that have been developed to a point where the Service's position is reasonably sound. The taxpayer does not need to agree to the adjustments because in Pattern Letter P-427 the taxpayer is advised that "the report reflects our determination" . Adjustments that give the taxpayer a beneficial "double deduction" are prohibited as discussed in Treas. Reg. 1.161, e. g., capitalizing an item previously expensed and allowing a depreciation deduction in subsequent years. IRC § 6401(a) provides that the term "overpayment" includes: Any payment of any Internal Revenue tax which is assessed or collected after the expiration of the period of limitation applicable. It will generally be possible for the taxpayer to file a timely claim within two years and have any payment refunded. This permits a double deduction if any report includes any issues that involve subsequent returns.

    3. The purpose of the report is the help the taxpayer in filing subsequent returns and to furnish the amount of the deficiency if the taxpayer elects to make voluntary payment.

    4. The report will clearly show that the statute has expired and the taxpayer is under no legal obligation to pay the deficiency shown.

     

  3. If the taxpayer inquires about making voluntary payments, he/she should be informed that the payment will be accepted and can be mailed to the office contacted. The subject of voluntary payments should not be discussed unless the taxpayer inquires about voluntary payments.

    1. If payment is received, prepare Form 3244-A, Payment Posting Voucher, treating the payment as an advance payment. Notate on Form 3198, Special Handling Notice, that payment from the taxpayer was voluntarily received after statute expiration. Submit the case for normal processing.

    2. If the taxpayer does make payment, a personal letter similar to Pattern Letter P-429 (Exhibit 4.2.1-3) should be written acknowledging receipt of the payment and expressing appreciation. Since the taxpayer will not receive any bill identifying the payment, this letter should contain enough detail to identify the payment and the return involved in the barred deficiency.

     

  4. If the examination has not reached the point where the deficiency can be determined, a letter similar to Pattern Letter P-428 (Exhibit 4.2.1-2) should be given to the taxpayer. Pattern Letter P-428 explains that the examination has been discontinued because the statutory period the Service can legally issue a refund or assess and enforce collection of amounts due has expired.

  5. In multi-year and related examinations, it is not necessary to separately process the year in which the statute expired. The return can follow the case file through the normal examination process. However, a copy of the final approved Form 3999 report is required to be placed in the case file.

  6. The responsibility to prepare the notification letter, mailing of it and routing are outlined as follows:

    1. The undated notification letter is prepared and signed by the immediate manager of the party responsible for the statute expiration.

    2. The Area Director (or comparable level of management) signs the final Form 3999 and the letter is date-stamped and mailed by his/her secretary/staff assistant. The date of taxpayer notification is entered in Box 7 of Form 3999.

    3. A copy of the notification letter and copy of Form 3999 are forwarded back to the manager via second-level management.

    4. The Area Director (or comparable level of management) retains a copy for the "Read File" and forwards through channels to the Director, Compliance.

     

4.2.1.6  (10-01-2003)
New Issues Raised by Appeals

  1. A new issue is one which was not in contest when the case was received by Appeals in a nondocketed status; and is put into contest by either the Government or the taxpayer while the case is under Appeals jurisdiction. An issue previously included as an adjustment in a 30-day letter or in the taxpayer's protest is not considered to be a new issue. However, an issue previously discussed or otherwise identified but not made the subject of an adjustment in the Revenue Agent's Report (RAR), is construed to be a new issue provided it is put into contest.

  2. An affirmative issue is one raised in a docketed case by either Appeals, Area Counsel or the taxpayer, but is not included in the statutory notice.

  3. An alternative position constitutes a new or affirmative issue, even though it is not reflected in the determination made, if it otherwise qualifies under the definitions in (1) or (2) above.

  4. An automatic adjustment that is required to be made because it flows from some other change, is not a new or affirmative issue. Typical of adjustments in this area are changes in deductions for contributions or medical expenses because of the effect of some other adjustment or certain provisions of law.

  5. Reporting of any new or affirmative issues raised by Appeals will be included in Appeals determinations and feedbacks. Also, in special circumstances, when a new or affirmative issue is raised in a LMSB case, for example, Appeals may communicate such circumstance in a memorandum to the Director of Field Operations.

4.2.1.7  (10-01-2003)
Awards of Attorney's Fees in Tax Cases

  1. IRC § 7430 provides for the award of costs, attorney's fees and other expenses to "prevailing parties" in any civil tax action in the U.S. Tax Court, U. S. district courts or the Court of Federal Claims where the taxpayer has met the requirements of IRC § 7430(b) and the Internal Revenue Service is unable to prove that its position was "substantially justified." The position of the Service will be "substantially justified" if it had a reasonable basis both in law and in fact. This is not applicable to litigation in State courts.

  2. The law also applies to taxpayer suits for refunds as well as a wide variety of litigation such as suits to reduce a tax claim to judgment, to enforce a levy, to foreclose a tax lien, recover an erroneous refund, establish transferee liability and to summons enforcements.

  3. The law provides that an award may be made only if the taxpayer has exhausted all available administrative remedies within the Service, establishes in the civil proceeding that the position of the United States was unreasonable, and has substantially prevailed with respect to the amount in controversy or has substantially prevailed with respect to the most significant issue or set of issues presented.

  4. All employees need to keep in mind several important aspects of RRA '98. The provisions include:

    1. Section 1105 (conducting and terminating tax audits),

    2. Section 1203 (mandatory termination of employment for certain acts or omissions),

    3. Section 3421 (expansion of procedures of liens, levies, and seizures),

    4. Section 3466 (communications with taxpayers), and

    5. Section 3706 (pseudonyms).


    The Act did not change the Service's long-standing commitment to the fair and equitable treatment of all taxpayers set forth in Rev. Proc. 64-22, 1964-1 C.B. 689. The pertinent part of Rev. Proc. 64-22 states the law will be administered in a reasonable, practical manner. Issues should be raised by examiners when they have merit and never arbitrarily or for trading purposes.

4.2.1.8  (10-01-2003)
Processing Returns and Accounts of the President and Vice President

  1. All tax returns of the President and Vice President will receive normal campus processing. However, in the case of individual income tax returns of the President and Vice President, the location of the returns will be monitored at all times during processing. After processing, the income tax returns will be forwarded (in double sealed envelopes) to the Deputy Commissioner Operations OP. (See IRM 3.28.3.2.1)

  2. Account Data will be carried on the appropriate master file and the accounts will not be subjected to restricted access procedures.

  3. Individual income tax returns for the President and Vice President will be subject to mandatory examinations. The Area responsible for the examination will be determined by the Director, Compliance after consultation with the Director, Accounts Management. After a determination is made as to the Area having jurisdiction, copies of returns will be transmitted for the necessary examinations. The transmittal memorandum will point out that:

    1. regardless of Discriminant Function (DIF) score, the return will be examined.

    2. personnel, including specialists, should be assigned to the examination as necessary.

    3. the Area Director, or his/her designee should arrange for contact with the authorized representative of the President and/or Vice President at the beginning of the examination.

    4. all current prescribed Internal Revenue Manual procedures i.e., requesting technical assistance, information from other agencies, etc., will apply in these as in all other cases.

    5. the return copies and any related returns examined concurrently, as well as the relevant workpapers and examination reports, will be subject to regular filing and retention procedures.

    6. Estate and Gift tax returns will be handled in accordance with procedures relating to all taxpayers.

     

4.2.1.9  (10-01-2003)
Income Tax Bonds under IRC § 332(b) and IRC §905(c)

  1. The Commissioner may require the filing of a surety bond on Form 1117, Income Tax Surety Bond, or the signing of a waiver on Form 952, Consent to Fix Period of Limitation on Assessment of Income Taxes.

    1. Under a three year corporate liquidation plan, the recipient corporation files a waiver of the statute of limitations on assessment for each year that falls wholly or partly in the liquidation period using Form 952. The recipient corporation may also be required to file a bond in case nonrecognition treatment is later lost. (See Treas. Reg. 1.322-4)

    2. In the case of a credit sought for a foreign tax accrued but not paid, the Area Director or Director of Field Operations, as a condition precedent to the allowance of a credit, may require a bond from the taxpayer. Form 1117 shall be used by an individual or by a corporation if such bond is required. The Service may prescribe a payment of tax due for a potential deficiency should the credit be disallowed. The form will be executed by the taxpayer or his representative and approved on behalf of the Commissioner.

    3. No period of limitations is established under either IRC § 905(c) or IRC § 6501(a) for the furnishing of a bond requested pursuant to IRC§ 905(c) for a foreign tax credit based on an accrual of a foreign tax. Such bond may be required from a taxpayer at any time and the foreign tax credit may be disallowed without regard to any period of limitations if a taxpayer refuses to furnish the bond. (See Rev. Rul. 73-573)

    4. A return assigned for examination may have an income tax bond and/or waiver attached. If a return is acceptable except for the bond requirements, the revenue agent will only determine whether the bond is in order or required.

    5. Any required bond should be secured before the case is closed.

     

4.2.1.10  (10-01-2003)
Examination of Blind Trust Income Tax Returns Filed by Presidential Appointees

  1. Taxpayers, who are presidential appointees, are permitted to file their individual income tax returns through a trustee of a blind trust.

  2. Extreme caution should be exercised not to violate a " blind trust" . All correspondence, inquiries, etc. should be directed to the authorized trustee unless the power of attorney indicates otherwise. No information regarding the source or nature of a blind trust can be disclosed. (See IRM 3.28.3.3)

4.2.1.11  (10-01-2003)
Discounting of Income Tax Refunds

  1. Examiners should be alert to the practice of discounting income tax refund checks. Unscrupulous return preparers have the refund checks mailed to their office, exact an exorbitant fee, forge the endorsement, and negotiate the check without the client's knowledge. See IRM 9.5.4.1.2. When evidence of such practices are discovered, an explanatory memorandum will be prepared for the signature of the Territory Manager to the Special Agent in Charge (SAC).

4.2.1.12  (10-01-2003)
Cases Involving Property Blocked by Foreign Funds Control or Vested by Office of Foreign Assets Control

  1. The Office of Foreign Assets Control (OFAC) of the Department of Treasury administers and enforces economic and trade sanctions against targeted foreign countries, terrorism sponsoring organizations and international narcotics traffickers based on U.S. foreign policy and national security goals. OFAC acts under Presidential wartime and national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and freeze foreign assets under U.S. jurisdiction.

  2. On September 24, 2001, President George W. Bush issued an executive order that immediately froze U.S. financial assets of and prohibited U.S. transactions with 27 different entities. They include terrorist organizations, individual terrorist leaders, a corporation that serves as a front for terrorism, and several nonprofit organizations.

  3. Information regarding blocked property of aliens and foreign corporations may be obtained from records located in OFAC. When such information is requested by Area Offices, a request detailing the desired information will be forwarded to the SB/SE Compliance Area Director. Requests should contain clear instructions on what is requested and why.

4.2.1.12.1  (10-01-2003)
Examiner's Source of Information

  1. Information obtained from the records of OFAC in respect to blocked accounts will be considered to be of a confidential nature and the source thereof will not be disclosed to taxpayers or their representatives, nor will such information be used in any legal proceeding without written authorization from Headquarters.

  2. OFAC will pay all taxes legally assessed against a former owner whose property has been vested by that office if the tax is attributable to taxable income accruing prior to the date of vesting. This is conditional upon a proper determination of the taxes, where there is no nonvested property from which the taxes may be realized, and there are vested funds available for payment of the taxes.

4.2.1.12.2  (10-01-2003)
Investigation and Disposition

  1. Investigation of returns will be made under the general procedure prescribed for investigation of income tax returns. If the owner has property vested by OFAC, any deficiency in tax liability arising from income realized prior to vesting or from income earned on nonvested property, will be asserted under the general prescribed procedures. Preliminary or statutory notices of deficiency in cases where communication cannot be had with the owner, or his/her representative, should be addressed in care of the party or agency having custody of the property. Under war conditions, such address may be treated as the taxpayer's last known address.

  2. If all the property of the owner has been vested, the preliminary as well as the statutory notice of deficiency should be addressed to the owner, in care of Justice Dept., Civil Division, Office of Foreign Assets Control. Check OFAC website at http://www.ustreas.gov/offices/enforcement/ofac.html for additional information.

  3. If the owner of the property or the party having custody of the property (in situations in which the property has not been vested by OFAC) does not agree to any proposed deficiencies, the parties will have the right to a protest. Any reasonable request for an extension to the 30 day letter should be given favorable consideration, provided the interests of the Government are adequately protected.

  4. If Appeals consideration is not requested, the case file will be forwarded to the Area 15 PSP Chief. The file will include the audit report and a statement of reasons why an agreement was not reached. In cases where agreements were concluded in vested cases, the file will be noted to assess in the name of the Office of Foreign Assets Control, for the former owner. Likewise, agreed assessments in nonvested cases will be made in the name of the owner in care of the person, party, or agency having custody of the property.

4.2.1.12.3  (10-01-2003)
Cases in Which Payor Has Failed to Withhold Tax at Source

  1. In cases of blocked or vested property, where it is determined the payor failed to withhold tax at the source on income, the amount required by statute to be withheld will be asserted against the payor agent. In cases where it is determined that income arising, but not paid, prior to blocking or vesting was turned over to OFAC without withholding, the liability of the payor agent for withholding will be promptly reported to the Area 15 PSP Chief for adjustment.

4.2.1.13  (10-01-2003)
Witness Security Program

  1. Federal agencies have always recognized a duty to protect informants and witnesses from threats or possible danger resulting from their assistance to the government by furnishing information or by testifying on behalf of the government in the prosecution of individuals. (See IRM 9.6.7.6)

  2. The IRS has the authority to temporarily protect an informant/witness until a determination by the Department of Justice (DOJ) that the person qualifies for protection under its Witness Security Program.

  3. The IRS has the authority to approve all confidential expenditures for other protective arrangements undertaken by the Service for an informant/witness who does not qualify for or is refused protection under DOJ's Witness Security Program, in an investigation which is not under jurisdiction of the U.S. Attorney's Office.

  4. Examination personnel who become aware of or have indications that the taxpayer assigned may be a person in the Program will immediately suspend the examination. No subsequent attempts by Examination employees will be made to contact a protected witness ofthe U.S. Marshal Service. Any necessary contact will be coordinated through the Special Agent in Charge (SAC) to the Deputy Chief, CI, Attn: Witness Security Coordinator (WSC). A memorandum will be prepared for signature of the Area Director containing the following:

    1. Any Examination action taken to date,

    2. Facts indicating that the taxpayer is enrolled in the Witness Security Program,

    3. Relevant facts involved in the tax matter, i.e., year under examination, information needed, etc.

     

  5. Upon receipt by a Service employee of information alleging a threat or possible danger to a past or present government informant or witness or his or her families, as a result of his/her furnishing information or otherwise cooperating with the government, the employee will forward the information immediately to the SAC.

4.2.1.14  (10-01-2003)
Taxpayer Advocate Program

  1. Taxpayer Advocate case criteria is described in IRM 13. The program is designed to alleviate taxpayer hardships that arise from systemic problems or the application of the Internal Revenue Code.

  2. All inquiries meeting Taxpayer Advocate Service (TAS) criteria should be documented on Form 911, Application for Taxpayer Assistance Order (ATAO), and forwarded to the Advocate's office by the most expeditious method available. Note: If the taxpayer specifically requests TAS assistance, the case should be automatically referred to the Local Taxpayer Advocate (LTA).

  3. Problems that meet TAS criteria do not necessarily need to be sent to the Taxpayer Advocate if they can be immediately resolved by the function. All IRS employees should handle potential TAS cases with the taxpayer's best interest in mind.

  4. If TAS accepts an ATAO, it will be forwarded to Compliance (Exam) for review by the responsible group. The group Manager will refer to the Service Level Agreement between the National Taxpayer Advocate and the Commissioner of his/her respective division for procedural guidance.

    1. Examiners will charge time expended on TAS activities to transaction code 671 per IRM 4.9, Examination Technical Time Reporting. Time charged to this code should only include actual time spent on TAS activities. Examination time should be charged to the case in the usual manner if the return is presently open.

    2. The statute of limitations on assessment may be extended by IRC § 7811(d) and should be confirmed in writing with TAS.

     

4.2.1.15  (10-01-2003)
Cases Suspended Pending Court Decision

  1. Form 1254 suspense holds cases in Technical Services (Exam) pending a court decision or Headquarters action. See IRM 4.8.2.10, Suspense Cases. Cases may be held in suspense under the following circumstances:

    1. The only issue in dispute is the same or similar to an issue pending in a federal court.

    2. The issue is similar to one under consideration in District Court in another jurisdiction, but only if a Form 906 has been secured, usually by Appeals.

    3. Headquarters or Chief Counsel has identified the issue as a suspense issue.

     

  2. The facts in the case to be suspended must be so similar to those in the pending case that a decision in one will ultimately decide the other. Information on most pending cases is available from the abstracts in the Chief Counsel's report. The following is required before the case is forwarded to Technical Services (Exam) for suspense:

    1. The key case is identified.

    2. The case is fully developed.

    3. The statute is properly protected (24 months for Form 1254 cases).

    4. A partial agreement, if applicable, has been assessed. All other issues must be resolved.

    5. An RAR is in the case file.

     

4.2.1.16  (10-01-2003)
Procedures for Reporting Allegations of Tax Violations on the Part of Senior Treasury Officials

  1. Allegations of income tax evasion or allegations concerning the willful failure to file any tax return by a senior official where prosecution is recommended, or where the 75 percent fraud penalty is asserted when prosecution is not recommended, will be reported to the Commissioner. The Commissioner will immediately report the allegations to the Deputy Secretary of Treasury or to the Secretary of Treasury. (See IRM 6.751.1.11)

4.2.1.16.1  (10-01-2003)
Definitions

  1. The following individuals are included within the definition of "senior Treasury official" for purposes of these procedures:

    1. All individuals within the Treasury Department serving in Executive Levels I through V;

    2. All individuals within the Treasury Department serving in the Senior Executive Service or grades GS-16 and above;

    3. All individuals within the IRS in grade GS-15 serving in positions centralized in the IRS Executive Resources Board; and

    4. All individuals within the Treasury Department (other than IRS) in grade GS-15 which the Deputy Secretary may designate.

     

  2. The term "Treasury Department" means the Office of the Secretary and all agencies, bureaus, and other organizational elements within the Department of the Treasury.

4.2.1.16.2  (10-01-2003)
General Procedures

  1. All information received concerning misconduct of IRS employees or officials will be reported to TIGTA via the local TIGTA office or the TIGTA hotline at 1-800-366-4484 or e-mail through the website – www.hq.irs.gov/IRSHOTLINE/hotline.htm.

4.2.1.16.3  (10-01-2003)
Compliance Examination Procedures

  1. Upon recommending the assertion of the 75 percent Civil Fraud Penalty (for a "Senior Treasury Official" ) where prosecution has not been recommended by the Criminal Investigation function, the Territory Manager will provide the Area Director with a memorandum, for forwarding through channels, to the Commissioner. The memorandum will contain the following information:

    1. Taxpayer's name, residence address, and Social Security number;

    2. Taxpayer's position now held which qualifies him/her as a " Senior Treasury Official" ;

    3. Brief summary of the findings and the tax years involved; and

    4. Additional civil taxes and penalties.

     

Exhibit 4.2.1-1  (10-01-2003)
Pattern Letter P-427

Internal Revenue Service Department of the Treasury
  Address any reply to:
  Person to Contact:
  Telephone Number:
  Employee Identification Number:
  Refer Reply to:
  Date:

 Dear [insert taxpayer's name]

We have discontinued action concerning the deficiency disclosed by our examination of your [state year] Federal income tax return because the statutory period in which we could legally have assessed any deficiency has expired.

 

The enclosed examination report for that year shows the tax we believe would have been due had the statute not expired. You have no legal obligation to pay the deficiency shown.

 

Sincerely yours,
[Signature]
[Title]

 

Enclosure:
Examination Report

 

Exhibit 4.2.1-2  (10-01-2003)
Pattern Letter P-428

Internal Revenue Service Department of the Treasury
  Address any reply to:
  Person to Contact:
  Telephone Number:
  Employee Identification Number:
  Refer Reply to:
  Date:

 Dear [insert taxpayer's name]

We have discontinued our examination of your [state year] Federal income tax return, because the statutory period in which we could have scheduled any refund or assessed any deficiency has expired.

 

Sincerely yours,
[Signature]
[Title]

 

Exhibit 4.2.1-3  (10-01-2003)
Pattern Letter P-429

Internal Revenue Service Department of the Treasury
  Address any reply to:
  Person to Contact:
  Telephone Number:
  Employee Identification Number:
  Refer Reply to:
  Date:

 Dear [insert taxpayer's name]

We have received your check dated [insert date], for $[amount], which will be applied as payment against the deficiency disclosed by our examination of your [state year] Federal income tax return.

 

Thank you for your cooperation.

 

Sincerely yours,
[Signature]
[Title]

 
 

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