IRS Audits - Part 4 Examining Process

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IRS Audits

Chapter 5. TE/GE AIMS Manual

Section 2. TE/GE Examined and Non-Examined Closures (Cont. 2)

4.5.2  TE/GE Examined and Non-Examined Closures (Cont. 2)

4.5.2.3 
Processing TE/GE Examined Closing Record, Form 5599

4.5.2.3.1 
Completion, Edit and Review of Form 5599, TE/GE Examined Closing

4.5.2.3.1.55  (06-01-2003)
ARDI Code (Item 42)

  1. The ARDI Code is to be entered by the Examiner.

  2. Enter a one-digit code in this item for an agreed deficiency under the Accounts Receivable Dollar inventory (ARDI) project.

  3. When closing multiple years and an overassessment from one year will be used to offset an assessment from another year, consider the overassessment as payment secured. Full Paid or Partially Paid depends on the amount of the overassessment.

  4. The ARDI Code is valid for all IMF and BMF MFT Codes. Valid DCs are:

    • EP - 03, 06 and 09.

    • EO/GE - 03, 06, 09 and 12.

     

    Reminder:

    DC 05 must contain an ARDI Code if an entry is present in Item 414. If DC 06 is used, $1.00 must be present in Item 35.

     

  5. Valid ARDI Codes are as follows:

    Code: Definition:
    1 Fully Paid
    2 No Payment (i.e., changed cases where a payment was not received; no change cases and cases referred to Appeals)
    3 Partial Payment
    4 Installment Agreement With Payment
    5 Installment Agreement Without Payment
    7 Appeals - Returned
    0, 6, 8 and 9 ARDI Codes reserved for future use

     

4.5.2.3.1.56  (06-01-2003)
Delay Posting Code (Item 43)

  1. The Delay Posting Code is to be entered by ESS.

  2. This item is not applicable for TEB returns.

  3. A one position field with values of 1-6. Values indicate the number of cycles (weeks) delayed between posting transactions.

4.5.2.3.1.57  (06-01-2003)
NOL CF Disallowed (Item 44)

  1. NOL CF Disallowed is to be entered by the Examiner.

  2. Not a valid item for EP BMF Form 5330's or TEB returns.

  3. This item should be completed if all or part of an NOL Carry Forward year return is not picked-up. If Item 44 is entered, item 45 NOL Indicator is required. If Item 44 is input, DC 02 cannot be entered in Item 13 on Form 5599. NOL CF Disallowed is 1-11 characters. May not be negative or zero. This item is to be included in Item 36, Hash Total.

4.5.2.3.1.58  (06-01-2003)
NOL Indicator (Item 45)

  1. NOL Indicator is to be entered by the Examiner.

  2. Not a valid item for EP BMF Form 5330's or TEB returns.

  3. Values are 1, 2, or 3. This item is only used to identify the three types of NOL/Carry Forward Returns.

    1. NOL’s Examined: Enter a "1" in Item 45 for tax periods in which the taxable income line on the Form 1040 or 1120 is less than zero, (i.e., 199712, Form 1120 Line 30).

    2. Carry Back and/or Carry Forward Tax Periods Related to the NOL: Enter a "2" in Item 45 for all carry back and/or carry forward tax periods related to the case in which you entered a "1" in Item 45, even if the NOL was examined and the final result was a no change.

    3. Non-NOL Years Offset by Carry Over: Enter a " 3" in Item 45 for tax periods in which adjustments on the return were offset either in part or full by a carry over if the carry forward year return is not picked-up.

     

  4. NOL/Related Return Examples:

    1. You made no adjustment to the 199812 NOL, therefore you did not pick up the related years.

      199812 Form 5599, Item 44 = leave blank
      199812 Form 5599, Item 45 = "1" (NOL year)

    2. You made a $10,000 adjustment to the 199912 NOL that was carried back to 199712.

      199912 Form 5599, Item 44 = leave blank (there was no carry over)
      199912 Form 5599, Item 45 = "1" (NOL year)
      199712 Form 5599, Item 44 = leave blank
      199712 Form 5599, Item 45 = " 2" (Related year)
      199712 Form 5599, Item 12 = amount of tax assessed on the $10,000 adjustment

    3. You made a $140,000 adjustment to the 199712 NOL. You picked-up the carry back years and applied $20,000 to 199412, $30,000 to 199512, $40,000 to 199612 but the $50,000 for the carry over year could not be applied since the 199812 return was not yet filed.

      199712 Form 5599, Item 44 = $50,000 (captures the carry forward amount disallowed)
      199712 Form 5599, Item 45 = "1" (NOL year)
      199412 Form 5599, Item 44 = leave blank
      199412,199512,199612 Form 5599, ltem 45 = "2" (Related years)
      199412, 199512,199612 Form 5599, Item 12 = amount of tax assessed on the $20,000, $30,000 and $40,000 adjustments

    4. You made a $140,000 adjustment to the 199612 NOL. You picked-up the carry back years and carry forward years and applied $20,000 to 199312, $30,000 to 199412, $40,000 to 199512 and $50,000 to 199712.

      199612 Form 5599, Item 44 = leave blank
      199612 Form 5599, Item 45 = "1" (NOL year)
      199312, 199412, 199512,199712 Form 5599, Item 44 = leave blank
      199312,199412,199512, 199712 Form 5599, Item 45 = "2"
      (Related years)
      199312,199412, 199512, 199712 Form 5599, Item 12 = amount of tax assessed on the $20,000, $30,000, $40,000 and $50,000 adjustments.

     

  5. Offset Examples:

    1. The 199712 return showed taxable income of $75,000 (taxable income before NOLD = $125,000, NOLD = $200,000). You made adjustments to 199712 changing taxable income before NOLD to $175,000. Your $50,000 adjustment will be totally offset by the NOLD carry over of $200,000. The 199812 return has not be filed, therefore cannot be picked-up to adjust the carry over. The 199612 return was examined but no changed.

      199712 Form 5599, Item 44 = $50,000 (Amount of adjustment offset by carry over)
      199712 Form 5599, Item 45 = " 3" (Offset year)
      199612 Form 5599, Item 44 = leave blank
      199612 Form 5599, Item 45 = "2" (Related years)

    2. The 199712 return showed taxable income of $75,000 (taxable income before NOLD = $25,000, NOLD = $50,000). You made a $100,000 adjustment to 199712 changing taxable income before NOLD to $75,000 that is partially offset by the $50,000 carry over from 199612. The 199812 cannot be adjusted since it has not been filed.

      199712 Form 5599, Item 44 = $25,000 (NOL C/F amount disallowed) + $50,000 (offset)
      199712 Form 5599, Item 45 = " 1" (Both "1" and "3" apply, but "1" always takes precedence).
      199712 Form 5599, Item 12 = amount of tax assessed on the $25,000 adjustment.

    3. The 199612 return showed taxable income of $75,000 (taxable income before NOLD = $125,000, NOLD from 199512 NOL carry over = $200,000). You made a $50,000 adjustment to 199612 changing taxable income before NOLD to $175,000. Your $50,000 adjustment will be totally offset by the 199512 NOL carry over disallowed. Since the 199712 return was adjusted, no entries in the NOL fields are warranted unless the 199512 NOL was examined and the 199612 and 199712 were related to the NOL. Then Item 45 would be "2."

     

4.5.2.3.1.59  (06-01-2003)
Credit CF Disallowed (Item 46)

  1. Credit CF Disallowed is to be entered by the Examiner.

  2. Not a valid item for EP BMF Form 5330's or TEB returns.

  3. This item is used if you made adjustments to a credit that was carried forward but did not pick-up the carry forward year return. Enter the amount of the carry forward that was disallowed. Credit CF Disallowed is 1-11 characters. May not be negative or zero.

    1. You examined the 199712 return and disallowed the foreign tax credit for $5,000, $2,000 of which was carried forward to 199812. You did not pick up 199812, since it had not been filed.

      199712 Form 5599, Item 46 = $2,000
      199712 Form 5599, Item 12 = $3000

     

4.5.2.3.1.60  (06-01-2003)
CF Credit Type (Item 47)

  1. CF Credit Type is to be entered by the Examiner.

  2. Not a valid item for EP BMF Form 5330's or TEB returns.

  3. Enter the type of credit that was disallowed in Item 46. If more than one type of credit was disallowed, enter "M" for multiple. Values are A through Z and their definitions are as follows:

    • B = Business Energy Credit
    • D = Development Credit; Research and
    • E = Experimental Credit; Research and
    • F = Foreign Tax Credit
    • H = Historical Restoration Credit
    • I = Investment Tax Credit
    • L = Low Income Housing Credit
    • M = Multiple
    • O = Other
    • T = Tight Formation Gas Credit
    • V = Vehicle Credit; Qualified Electric

     

    Note:

    The following CF Credit Type Codes are reserved for future use: A, C, G, J, K, N, P, Q, R, S, U, W, X, Y and Z.

     

4.5.2.3.1.61  (06-01-2003)
Secondary Business Code (Item 49)

  1. The Secondary Business Code (SBC) is reserved for future use by TE/GE. Must be blank or have an entry of five zeros (i.e., 00000).

4.5.2.3.1.62  (06-01-2003)
Employee Group Code (Item 50)

  1. The Employee Group Code is to be entered by the Examiner.

  2. The Employee Group Code (EGC) is a four-digit code designating a specific group. An EGC is a required entry on all Examined full closures with the exception of DC 34, Surveyed Claims. The following list identifies the EGCs used by TE/GE:

    EP Examinations 7601-7699
    EO Examinations 7901-7999; and, effective 1/2004 7720-7729
    GE Examinations 7221-7229, 7250-7257 or 7280-7284

     

4.5.2.3.1.63  (06-01-2003)
Check Box (Page 1)

  1. The Check Box is to be completed by the Examiner when additional entries are entered on Page 2 of the Form 5999.

  2. The Check Box alerts the Tax Examiner and Terminal Operators of the completion of the additional items on Page 2.

4.5.2.3.1.64  (06-01-2003)
Reviewer/Date (Item I)

  1. Reviewer/Date is to be entered by the Reviewer.

  2. The Reviewer’s signature and date must be entered, if the return was reviewed.

4.5.2.3.1.65  (06-01-2003)
Tax Examiner (Item K)

  1. Tax Examiner/Date is to be entered by the Tax Examiner in ESS.

  2. The Tax Examiner closing the case who codes, edits, verifies, assembles and sends the case for input through the computer will complete Item K. Item K will include the first initial, last name and may include the unit employee number. The date that the case was completed and sent for input must also be entered.

4.5.2.3.1.66  (06-01-2003)
Net Rate MFT/Tax Period (Item 51)

  1. The Net Rate MFT/Tax Period is to be entered by the Examiner.

  2. Not a valid item for EP BMF Form 5330's or TEB returns.

  3. The Net Rate MFT provides the MF Tax Code for the BMF return to which the net rate is applied and the return that caused the net rate adjustment.

  4. The Net Rate Tax Period provides the tax period for the return to which the net rate adjustment was made and the tax period of the return that caused the net rate adjustment.

4.5.2.3.1.67  (06-01-2003)
Net Rate Amount (Item 52)

  1. The Net Rate Amount is to be entered by the Examiner.

  2. Not a valid item for EP BMF Form 5330's or TEB returns.

  3. The Net Rate Amount provides the amount of overpayment or underpayment that the net rate was applied to.

4.5.2.3.1.68  (06-01-2003)
Beginning Overlapping Period (Item 53)

  1. The Beginning Overlapping Period is to be entered by the Examiner.

  2. Not a valid item for EP BMF Form 5330's or TEB returns.

  3. Provides the beginning date of the overlapping interest period used in the net rate computation: Valid for returns 01/01/1987 and greater.

4.5.2.3.1.69  (06-01-2003)
Ending Overlapping Period (Item 54)

  1. The Ending Overlapping Period is to be entered by the Examiner.

  2. Not a valid item for EP BMF Form 5330's or TEB returns.

  3. Provides the ending date of the overlapping interest period used in the next rate computation. The entry cannot be a future date.

4.5.2.3.1.70  (06-01-2003)
CEP Case (Item 400)

  1. The CEP Case is to be entered by the GE Examiner.

  2. Effective 1/2004, this is no longer a valid item for EO.

  3. Not a valid item for EP BMF Form 5330's.

  4. For TEB, FSLG and ITG - If the examination is a large case examination, a "L" should be entered. This entry is valid only in the area having primary responsibility for a large case examination.

4.5.2.3.1.71  (06-01-2003)
Whipsaw Indicator (Item 401) (GE Only)

  1. The Whipsaw Indicator is to be entered by the Examiner.

  2. This item is not applicable for TEB returns.

  3. Where the Government's interest is being protected by making the same adjustment against the same taxpayer for different tax periods, or against two or more taxpayers, an alpha indicator (K = Key Case, R = Related Case) must be entered to identify the case as a Whipsaw case.

  4. If there are additional issues on the return that have been adjusted, the indicator should be used only if the majority of the adjustments were due to the whipsaw.

4.5.2.3.1.72  (06-01-2003)
International Examiner's Time (Item 402) (GE Only)

  1. The International Examiner's Time is to be entered by the Examiner.

  2. This item is not applicable for TEB returns.

  3. Enter the percentage of the total time (reported in Item 28) that represents the International Examiner's time.

    Example:

    The total time spent on the case (including the international examiner's time) is 125 hours. The international examiner spent 15 hours on the case, therefore the entry in this field should be 12 (15/125=12).

     

  4. Do not include the international examiner's time spent on Revenue Base Protection issues in this calculation.

4.5.2.3.1.73  (06-01-2003)
International Exam Results (Item 403) (GE Only)

  1. The International Exam Results is to be entered by the Examiner.

  2. This item is not applicable for TEB returns.

  3. Enter the percentage of the exam results (agreed and unagreed) that is due to the international examiner's involvement.

    Example:

    Exam results is $10,000. The portion attributable to the international examiner is $1,500, therefore the entry in this field should be 15 (1,500/10,000=15).

     

  4. Do not include Revenue Base Protection results due to the international examiner.

4.5.2.3.1.74  (06-01-2003)
Abstract Information (Item 404) (GE Only)

  1. Abstract Information is to be entered by the GE Examiner.

  2. This item is not applicable for TEB returns.

  3. When a Form 720 is established on AIMS, the database contains only one abstract code which is located in the activity code field. All activity codes that were examined must be entered in Item 404.

  4. Entries for the total time spent on the case and all assessments are made on the front of the Form 5599.

  5. Entries for AIMS statistical reporting purposes are made in Item 404a-404d on the back of the form.

4.5.2.3.1.74.1  (06-01-2003)
Abstract Code (Item 404a) (GE Only)

  1. Abstract Code is to be entered by the GE Examiner.

  2. This item is not applicable for TEB returns.

  3. Enter the abstract code for each abstract that was examined.

  4. Never enter an abstract code that was "no changed" as the first abstract code unless it is the only code examined. If entered incorrectly, the case will appear on the DCC accomplishment error register.

4.5.2.3.1.74.2  (06-01-2003)
Disposal Code (Item 404b) (GE Only)

  1. Disposal Code is to be entered by the GE Examiner.

  2. This item is not applicable for TEB returns.

  3. Enter the appropriate disposal code for each abstract code examined.

  4. Never enter a "no change" disposal on the first line unless it is the only abstract examined.

4.5.2.3.1.74.3  (06-01-2003)
Abstract Time (Item 404c) (GE Only)

  1. Abstract Time is to be entered by the GE Examiner.

  2. This item is not applicable for TEB returns.

  3. Enter the time charged to the examination for each abstract code examined.

  4. The total of all Item 404c entries must total the amount entered in Item 28.

4.5.2.3.1.74.4  (06-01-2003)
Abstract Examination Results (Item 404d) (GE Only)

  1. Abstract Examination Results is to be entered by the GE Examiner.

  2. This item is not applicable for TEB returns.

  3. Enter the tax adjustment amount for each abstract code entered.

  4. The total of all Item 404d entries must equal the total of the computer generated Examination results.

4.5.2.3.1.74.5  (06-01-2003)
Flip-Flop Issue (Items 404a-d) (GE Only)

  1. This item is not applicable for TEB returns.

  2. When a taxpayer has reported an excise tax under an incorrect abstract number, TE/GE will adjust the excise tax to report it under the proper abstract. In such cases, there will be no additional tax that is assessed. These offsetting adjustments are closed with DC 01. Item 15 will reflect the decrease (-) to the incorrect abstract number and the corresponding increase (+) to the correct abstract, Item 404a-c will reflect the abstract codes, disposal code and abstract time for each abstract reflected in Item 15. However, the exam results entered in Item 404d is zero. Zero abstract results are entered because the Item 404 results must equal the Exam Results which in flip-flop cases are zero.

4.5.2.3.1.74.6  (06-01-2003)
Multiple Abstracts Examined (GE Only)

  1. This item is not applicable for TEB returns.

  2. Below are procedures for processing returns with multiple abstract codes:

    1. No Change Abstract - If multiple abstract codes are examined and one is a "no change" , do not list the "no change" code first. If the disposal code entered in Item 13 is greater than 02, the case will appear on the accomplishment error Register.

    2. More Than 9 Abstracts - If more than 9 abstract codes are examines, attach additional Forms 5599 necessary.

    3. Revenue Base Protection - If the examination include RBP, the RBP time and dollars protected must be entered on the front of the Form 5599. This figure must represent the total RBP time and RBP dollars protected for all abstract Codes. The Item 404 entries must NOT include RBP figures.

    4. Secured Delinquent Return - Effective January 1, 1999, Item 404 must not include the amount of the delinquent return. The entire amount of the delinquent return secured by GE and forwarded to the Campus Center for processing must be entered in Item 414.

     

4.5.2.3.1.75  (06-01-2003)
Related Return Information Section (GE Only)

  1. This item is not applicable for TEB returns.

  2. The Related Return Information Section is to be completed by the GE Examiner.

  3. Required entry for all examined returns worked by Examiners in a 72XX Organization Code. The information entered must be from the primary return which is the initial return that started the examination.

  4. If several returns were assigned initially, the Examiner will designate one return as primary.

  5. An audit label may be used, but the name control must be lined out and Item 408 entered separately.

  6. Missing or conflicting information will cause a terminal reject.

4.5.2.3.1.75.1  (06-01-2003)
Primary Return Entries (GE Only)

  1. Only Item 408 needs to be completed.

  2. This item is not applicable for TEB returns.

  3. Enter "P" in Item 408. The computer will generate the primary return information from the front of the Form 5599.

4.5.2.3.1.75.2  (06-01-2003)
Related Return Entries (GE Only)

  1. This item is not applicable for TEB returns.

  2. Item 405 is for TIN of primary return.

  3. Item 406 is for MFT of primary return.

  4. Item 407 is for Tax Period of primary return.

  5. Item 408 is for Related Return Alpha Code of "S" .

4.5.2.3.1.76  (06-01-2003)
Aging Reason Code (Item 410) (GE Only)

  1. The Aging Reason Code is to be entered by the GE Examiner.

  2. This item is not applicable for TEB returns.

  3. The Aging Reason Code is used for coordinated examinations within the area offices.

  4. Valid two-digit Aging Reason Codes are:

    Code: Definition:
    04 Coordinated Examination
    50 CATP Indicator
    53 Return disposed of due to collectibility
    99 AES Control

     

4.5.2.3.1.77  (06-01-2003)
Installment Agreement Code (Item 412) (GE Only)

  1. If there is an installment agreement, this code should be entered by the GE Examiner.

  2. This code is not applicable for MFT 46 cases.

  3. Select the code based on whether an installment agreement was secured.

    "I" Installment agreement received
    "C" Coordinated with Collection
    "N" No installment agreement received

     

4.5.2.3.1.78  (06-01-2003)
Delinquent Return Amount (Item 414)

  1. Delinquent Return Amount is to be entered by the Examiner.

  2. In order to capture accurate results when TE/GE secures delinquent returns, a separate field has been initiated. Previously this amount was entered in the dual-purpose field, Item 34, Adjustment Amount. Effective January 1999, Item 34 will be used to reflect adjustments to non-taxable returns only. Item 414 will be used for delinquent returns secured by TE/GE.

  3. For taxable returns, the amount entered in Item 414 must reflect the balance due or refund amount per the return that was forwarded to the Campus Center for posting of the TC 150. If this amount is zero, enter a $1 in this field.

  4. For EP taxable returns, i.e., Form 5330's, the amount entered in Item 414 must reflect the tax and penalties that were assessed after the return was forwarded to the Campus Center. If prepayment credits were input, subtract this amount from the tax that was assessed, if the net result is zero enter a $1 in Item 414. Zero is an invalid entry.

  5. For non-taxable returns, enter the amount in Item 414 of the ordinary net income/loss or special allocation items per return forwarded to the Campus Center for posting of the TC 150. If this amount is zero, enter a $1 in this field.

  6. If Item 414 is entered, Item 37-Delinquent Return Code must also be entered and vice versa.

  7. If Item 414 is entered, Item 13-Disposal Code must not be 02 (No Change) or 34 (Surveyed Claim).

  8. Item 414 can be corrected by using CC AMAXUO.

  9. If there is no balance due/refund due or no change to income/loss, enter a $1 in Item 414.

  10. If a case was input before 1/1/1999, and unposts and needs to be reinput after 12/31/1998, and if Item 34 and Item 37 are present, the information in Item 34 must be re-entered in Item 414.

  11. The delinquent return amount will no longer be included in " Exam Results." It will appear in a separate column of the AIMS reports.

4.5.2.3.1.79  (06-01-2003)
Amended Return Amount (Item 415)

  1. Amended Return Amount is to be entered by the Examiner.

  2. In the past, if a taxpayer filed an amended return with the Service Center, even if it was due to an ongoing examination, TE/GE could not take credit for the adjustment. To accurately capture the Examiners’ efforts, a new Item 415 has been initiated. This entry is only valid if MF shows that the examination was started before the taxpayer filed the amended return or an original return, if the TC 150 is a Substitute for Return (SFR). Enter the amount of the TC 29X that has posted to MF, if the return was filed as a result of an ongoing examination. A current transcript must be included in the case file supporting the amount entered in Item 415. The TC 42X date must be prior to the TC 29X date.

  3. For taxable returns, enter the amount of the TC 29X, less any credits posted. In most cases this is the balance/refund due.

  4. For non-taxable returns, enter the adjustment amount to income/loss.

  5. Item 415 can be corrected by CC AMAXUO.

4.5.2.3.1.80  (06-01-2003)
Fax Agreement Indicator (Item 416)

  1. Fax Agreement Indicator is to be entered by the Examiner.

  2. This item is not applicable for TEB returns.

  3. If the taxpayer faxed the agreement to the Examiner, enter a " 1" . Otherwise, leave this item blank.

4.5.2.3.1.81  (06-01-2003)
RAR Retained (Item 700) (EO Only)

  1. RAR Retained is no longer a required entry. This item will be eliminated in the next revision of Form 5599.

4.5.2.3.1.82  (06-01-2003)
Principal Issue Codes (Item 701)

  1. Principal Issue Codes are to be entered by the Examiner.

  2. Not a valid item for EP BMF Form 5330's or TEB returns.

  3. For EO - The valid range of codes is 01 through 34, 49 and 53 through 75. Refer to Document 6379, Exempt Organizations Management Information Systems Codes for the definitions.

  4. For GE - The valid range of codes is 01 through 75. Valid codes are 04, 05, 08, 12, 13, 18, 25, 27, 34, 54-66, 68 and 69. All other codes are currently reserved. Refer to Document 11308, Government Entities Computer Systems Codes for the definitions.

4.5.2.3.1.83  (06-01-2003)
IRC Subsection (Item 702) (EO Only)

  1. The IRC Subsection is to be entered by the EO Examiner.

  2. Not a valid item for EP BMF Form 5330's or GE returns.

  3. Enter the appropriate two-digit code. If an IRC Subsection does not apply, leave this item blank. Refer to Document 6379, Exempt Organizations Management Information Systems Codes when Item 702 is a required entry.

4.5.2.3.1.84  (06-01-2003)
Asset Code (Item 703) (EO Only)

  1. The Asset Code is to be entered by the EO Examiner.

  2. Not a valid item for EP BMF Form 5330's or GE returns.

  3. Entry is valid for 990PF’s (MFT 44) only, in all other instances, leave this item blank. Refer to Document 6379, Exempt Organizations Management Information Systems Codes for the appropriate asset amount codes.

4.5.2.3.1.85  (06-01-2003)
Related Return (Item 704) (EO Only)

  1. Related Return is to be entered by the EO Examiner.

  2. Not a valid item for EP BMF Form 5330's or GE returns.

  3. When closing a 990T account related to a 990 examination, enter a "1." When closing a 990T account related to a 990PF examination, enter a "2." In all other instances leave blank.

    Reminder:

    Item 704 is required if the MFT is 34.

     

4.5.2.3.1.86  (06-01-2003)
Additional EO/GE Examined Closing Information

  1. The Additional EO/GE Examined Closing Information is to be entered by the EO or GE Examiner.

  2. Not valid for EP BMF Form 5330's.

  3.  

  4. Complete for the primary return only.

    Caution:

    It is imperative that the Examiner enters this additional closing information. The information is extracted from BMF for quarterly, semi-annual and annual TE/GE Summary of Changes in Tax Liability and Penalty Assessment reports. Failure to enter this information will result in incorrect statistics reported to Headquarters.

     

4.5.2.3.1.86.1  (06-01-2003)
Liability Related (Item 706)

  1. Enter the tax liability from delinquent return(s) secured during the examination, i.e., Item 414, per the delinquent return closing document. If delinquent return(s) were not secured, or if liability is not reported, leave blank.

  2. Do not include the deficiency from previously filed return(s).

4.5.2.3.1.86.2  (06-01-2003)
Liability Converted (Item 707)

  1. Enter the tax liability determined from the conversion of Form(s) 990 or 990PF to Form(s) 1041 or 1120. If:

    1. Form(s) were not converted.

    2. If the informant necessary to make the determination was not available.

    3. Liability was not determined, leave blank.

     

  2. When EO Forms are converted to Form 1041 or Form 1120, SB/SE, W&I or LMSB Division should be notified. Use Form 5666, TE/GE Information Report, for this purpose.

4.5.2.3.1.87  (06-01-2003)
Analysis of Change in Tax Liability (Items 708-739)

  1. The Analysis of Change in Tax Liability items are to be entered by the EO or GE Examiner.

  2. Not valid for EP BMF Form 5330's.

  3. Complete for the Primary Return ONLY.

  4. GE - In Items 721-724, enter the change in tax liability resulting from the examination. For a non-tax issue or a " No Change" closing, leave these items blank.

  5. EO - On the appropriate line(s), enter the change in tax liability resulting from the examination. For a non-tax issue or a "No Change" closing, leave Items 708 through 721 and 728 through 731 blank.

  6. For Form 4720 complete the following, if applicable:

    1. Item 708, IRC Section 4911/Section 4912 - enter the deficiency or overassessment.

    2. Item 710, IRC Section 4941/Section 4951 - enter the initial deficiency or overassessment.

    3. Item 711, IRC Section 4941/Section 4951 Additional - enter the additional deficiency.

    4. Item 712, IRC Section 4942 - enter the initial deficiency or overassessment.

    5. Item 713, IRC Section 4942 Additional - enter the additional deficiency.

    6. Item 714, IRC Section 4943 - enter the initial deficiency or overassessment.

    7. Item 715, IRC Section 4943 Additional - enter the additional deficiency.

    8. Item 716, IRC Section 4944 - enter the initial deficiency or overassessment.

    9. Item 717, IRC Section 4944 Additional - enter the additional deficiency.

    10. Item 718, IRC Section 4945/Section 4952 - enter the initial deficiency or overassessment.

    11. Item 719, IRC Section 4945/Section 4952 Additional - enter the additional deficiency.

    12. Item 728, IRC Section 4958 - enter the initial deficiency or overassessment.

    13. Item 729, IRC Section 4958 Additional - enter the additional deficiency.

    14. Item 730, IRC Section 4955 - enter the deficiency or overassessment.

    15. Item 731, IRC Section 4955 Additional - enter the additional deficiency.

     

  7. For Form 990PF complete the following, if applicable:

    1. Item 709, IRC 4940 - enter the deficiency or overassessment.

     

  8. For Form 990BL complete the following, if applicable:

    1. Item 710, IRC 4941/IRC 4951 - enter the initial deficiency or overassessment.

    2. Item 711, IRC 4941/IRC 4951 Additional - enter the additional deficiency.

    3. Item 718, IRC 4945/IRC 4952 - enter the initial deficiency or overassessment.

    4. Item 719, IRC 4945/IRC 4952 Additional - enter the additional deficiency.

     

  9. For Form 990T complete the following, if applicable:

    1. Item 720, enter the deficiency or overassessment.

     

  10. For Form 940, Form 941, Form 942, Form 943, Form 945, Form CT-1, Form CT-2 or Form 1042, complete the following, if applicable:

    1. Item 722, enter the deficiency or overassessment.

     

  11. For IRC Section 507, Termination Tax, complete the following, if applicable:

    1. Item 723, enter the amount of tax imposed.

     

  12. For IRC Section 527, Political Activity, complete the following if applicable:

    1. Item 724, enter the tax imposed (Form 1120-POL Tax).

     

  13. For IRC Section 6684, Penalty, complete the following, if applicable:

    1. Item 725, enter the penalty imposed here and on Form 4881.

     

  14. For Penalty (Other), complete the following, if applicable:

    1. Item 726, enter the penalty imposed by any other code section.

     

  15. For Fair Market Value Property (Result of Corrections) complete the following, if applicable:

    1. Item 727, enter the fair market value of any property recovered by the private foundation as a result of the correction of any Chapter 42 violations.

     

  16. For IRC Section 6652(c)(1)(A)(i), Failure to File Return

    1. Item 732, enter the amount of the penalty imposed.

     

  17. For IRC Section 6652(c)(1)(a)(ii), Failure to include required information on return.

    1. Item 733, enter the amount of the penalty imposed.

     

  18. For IRC 6652(c)(1)(B), Penalty on Manager for failure to file return/failure to include required information.

    1. Item 734, enter the amount of the penalty imposed.

     

  19. For IRC 6652(c)(1)(C), Failure to disclose annual return for public inspection.

    1. Item 7356, enter the amount of the penalty imposed.

     

  20. For IRC Section 6652(c)(1)(D), Failure to disclose application for exemption for public inspection.

    1. Item 737, enter the amount of the penalty imposed.

     

  21. For IRC Section 6685, Penalties

    1. Item 737, enter the amount of the penalty imposed.

     

  22. For IRC Section 170(f)(10), Excise Tax

    1. Item 738, enter the amount of the tax imposed.

     

  23. For IRC Section 6033(e)(2), Income Tax

    1. Item 739, enter the amount of the tax imposed.

     

4.5.2.3.1.88  (06-01-2003)
Comments Section

  1. The Comments Section will be completed by the EP, EO or GE Examiner.

  2. Cases having related returns will be identified by the EP, EO or GE Examiner by writing "Related Case" in the " Comments" area. In addition, the name, EIN, and the return form number of the related case will be shown. Other pertinent information related to the case maybe entered in the "Comments" area, space permitting.

4.5.2.4  (06-01-2003)
Reinputting Form 5599, CC TERUP/QRANC

  1. Reinputting the long closing (CC AMCLSO) - Since the case is in Status Code 90, the following steps are required in order to reinput a long closing, CC AMCLSO, that was deleted by a CC TERUP/QRANC.

    1. The TC 300 Indicator must be reset to a "5" using CC AMAXUO.

    2. CC AMCLSU must be input with the correct amounts. CC AMCLSU will subtract the "LAST AMT PUT IN CUM" amount from the results and add to results the new amount input.

     

  2. Reinputting the partial assessment (CC AMCLSF) - The following steps are required to reinput a partial assessment that was deleted by a CC TERUP/QRANC.

    1. Enter another CC AMCLSF with amounts necessary to reverse the deleted AMCLSF IMMEDIATELY FOLLOWED BY CC TERUP. This is necessary to correct the "LAST AMT PUT IN CUM FIELD."

    2. Enter another CC AMCLSF with the correct amounts. This will correct AIMS and update MF.

     

4.5.2.5  (06-01-2003)
Assembly of Case Files for Terminal Input

  1. This section provides instructions for assembly of TE/GE Examined and Non-Examined case files before being routed to the terminal area for input.

4.5.2.5.1  (06-01-2003)
Preparation of the Examined Case Package

  1. Once the required information has been entered on Form 5599, the case file must be assembled and routed to the terminal area for input. Arrange the case as follows:

    1. Form 5599 on top - If a prior audit or adjustment occurred, staple the Form 5599 to the back of the current Form 5599.

    2. Original return or a CC BRTVU (BMF), CC RTVUE (IMF), CC ERTVU (EPMF) (if case is a EP BMF Form 5330 or a flow-through discrepancy adjustment) or CC TRDBV (EP/EO/GE) print.

    3. If an amended or duplicate return is included in the case file, staple the amended or duplicate to the back of the original return or the CC BRTVU, RTVUE, or ERTVU print.

    4. Attach payment vouchers to the applicable original return or the CC BRTVU, RTVUE, or ERTVU print.

    5. Attach Form 2848, Power of Attorney and Declaration of Representative (POA), or Form 8821, Tax Information Authorization (TIA), to the backside of the first page of the applicable original return or the CC BRTVU, RTVUE, or ERTVU print.

    6. Form 5546, Examination Return Charge Out, if present. If Form 5546 is not available, a CC AMDIS print should be attached.

    7. Closing Examination Report showing signature or payment. In multiple year examinations, a copy of the closing examination report is to be included in each case file for every year examined. Multi-year Statutory Notices of Deficiency should also be included in each case file for every year examined. If a prior audit or adjustment occurred, the most current report should be on top. All workpapers are to face the opposite way of the return and should be placed last in the assembly unless a Form 3198 or Form 12317 is present.

    8. Correspondence in date order with most current date on top.

    9. No Change Letter - Case copy, if applicable.

    10. Transcripts.

     

  2. Remove unnecessary fasteners, rubber bands, paper clips, staples, duplicate of any documents, or correspondence and excess printouts, labels or transmittals. Any item containing taxpayer information that must be disposed of must be treated as classified waste.

4.5.2.5.2  (06-01-2003)
Preparation of the Non-Examined Case Package

  1. The return is to be face up.

  2. All workpapers are to face the opposite way of the return.

  3. Form 5596, Form 5570 or Form 5546 is to be on top of the workpapers of Form 1900, Income Tax Survey After Assignment.

  4. Unless it is a RICS return, do not close copies of surveyed returns; they cannot be closed as a non-examined closing because they must be returned to the originator’s function.

  5. Form 5546, Examination Return Charge-Out document (if present) or an AMDIS print, must be verified for accuracy against the information on the original return as follows:

    • EIN/SSN

    • MFT

    • Year

    • Plan Number

    • DLN

    • Name of Taxpayer

     

  6. After all verification is completed, and Form 5546 and the original return are consistent, line through the DLN on the original return. When the case file is closed off of AIMS a Form 5147 will be generated at the Campus Center with a renumbered DLN.

  7. The bottom of Form 5596, Form 5570 or Form 5546 is to be initialed and dated by the Tax Examiner before closing off the AIMS data base.

4.5.2.6  (06-01-2003)
Special Handling Procedures for TE/GE Returns

  1. Several special handling procedures require the use of Form 3198, Form 12317, Special Handling Notice and/or Form 13133, Expedite Processing Cycle. Form 3198 and Form 13133 are used on various kinds of cases when they are closed. When a case is received in ESS with a special handling notice attached, it is reviewed separately to determine what special action must be taken on the closing (i.e., Delinquent Return, etc.). Refer to IRM 4.5.1.3.10 for special handling procedures.

4.5.2.7  (06-01-2003)
Error Accounts with No Return

  1. DC 33 should be used to close AIMS accounts established in error, including RICS selections, where the filed return has not been secured. Supervisory approval, along with the Area Manager (or their designee) signature is required before a TE/GE account may be closed with DC 33 - Error Account With No Return. This approval will be indicated by the Supervisor’s and Area Manager's (or their designee) signature and date entered on TE/GE Form 5596 or Form 5546. The signature and date must be entered in the bottom margin of the form. When the account is received in ESS, the AIMS Coordinator must also approve closing AIMS accounts using DC 33, prior to terminal input.

  2. Form 10904, Request for Record Deletion from AIMS/ERCS, may also be used to close an account with a DC 33. Supervisory approval, along with the Area Manager (or their designee), signature is required before a TE/GE account may be closed with DC 33. This approval will be indicated by the Supervisor's and Area Manager's (or their designee) signature and date enter in the applicable items on Form 10904. When the account is received in ESS, the AIMS Coordinator must also approve closing AIMS accounts using DC 33, prior to terminal input.

  3. Closings initiated at the Group level require the approval of the Group Manager. Closings initiated in the Classification Function require the approval of the Manager or designee. Closings initiated in ESS requires managerial approval.

  4. Unless instructions provide otherwise, these forms will be retained in ESS. Forms will be retained in a searchable manner for one year following terminal input and will be disposed of in accordance with IRM 1.15.2, Records Disposition Handbook. At the option of the TE/GE Director of the Business Unit, arrangements may be made to have the forms numbered and closed to the Campus Center for retention. Either Appeals or ESS will close Form 5570, Appeals Short Closing.

Exhibit 4.5.2-1  (06-01-2003)
MF Sorting and Blocking for Document Code 47
(Reference: IRM 4.5.2.1.4.1.10)

Adjustment Form Number Disposal Codes Original or Copy of Return Non-TEFRA Block Number TEFRA Block Number
5599,
5650		 01-06, 08-10, 12-19, 34, 50-51 Original
& Copy
BRTVU/ERTVU/RTVUE		 000-079
900-979
200-249		 080-099
980-999
200-249
  07, 11 with AOC Either 100-179 180-199
  Partial Assessment No Return 100-179 180-199
5596,
5546,
5881		 20-22, 26, 30-32, 35, 36, 45, 99 Original 600-679 680-699
  29, 33 No Return 100-179 180-199
  @ All non-examined DC’s BRTVU/ERTVU/RTVUE 250–299 250-299
5403 01, 03
01, 03
Partial Assessment		 Original
& Copy
No Return		 700-749
790-799
780-789		 750-759
760-769
5570 30-45 Either 700-799 780-789
* Use an original return blocking series for electronically filed returns, and cases in which the TC 150 is an SFR/Dummy TC 150. The original return blocking series is necessary since there is not a paper original return for either of these type cases. If the copy blocking series is used, a CP notice will be generated instructing Files to pull the original return and associate it with the examined closing which is inapplicable.
@ Refer to Documents 6379, 6476 and 11308 for a list of non-examined disposal codes.
& The copy blocking series will generate a CP notice instructing Files to pull the original return and associate it with the examined copy.
+ This blocking series will not generate a refile DLN therefore the original return will remain filed under the DLN that contains the "X."
$ This blocking series will generate a refile DLN but will NOT generate a CP notice to pull original return and associate it with the examined copy. In most cases, the original return will remain filed under the TC 150 DLN.
Note: (1) Non-examined closings with returns (DC’s other than 01-19, 34 or 50 or 51(GE) ) are numbered in the 650–699 series. Non-examined closing without returns, i.e., DC’s 29 or 33 will be numbered in the 1NN series (it is not necessary to send closings without returns to Accounting for NMF indexing.)
  (2) For Forms 5570, Appeals Short Closings, assign a block number in the 700-799 series manually.
  (3) Long closings to Appeals will be numbered in the 100-199 blocking series.
  (4) NMFT = * - there is no specific MFT Code relating to these form numbers.

See IRM 3.15.129 for DOC Code 54 Blocking Series.

Exhibit 4.5.2-2  (06-01-2003)
TE/GE Penalty Reason Codes
(Reference: IRM 4.5.2.1.4.1.14 and IRM 4.5.2.2.1.3.10)

Reason Code Definition
21 Penalty abated due to LEM Tolerance.
22 Taxpayer exercised ordinary business care and prudence/first time filer noncompliance. Automatic abatement of penalties due to a decrease in tax as in failure to file penalty.
23 Relied on practitioners erroneous tax advice or relied on third party who failed to meet the requirement to file/pay/deposit.
24 Death or illness in immediate family or party responsible for filing/paying/depositing.
25 Records inaccessible, damaged, destroyed, or lost.
26 Unavoidable absence of party responsible for filing return.
27 Post office did not deliver timely or mailed to other taxing agency with extenuating circumstances/relied on erroneous data for other federal/state agency (SSA W-2s).
28 Disaster area.
29 Undue economic hardship/inability to pay.
30 Other reasonable cause.
31 Erroneous oral advice from the Service.
32 – 39 Reserved, but valid.
40 Abatement by Appeals (Hazard)
41 Penalty Sustained by Appeals
42 Partial Penalty Sustained by Appeals
43 Administrative Waiver
44 Legislative Waiver
45 Other
50 User Fee Reversal

Exhibit 4.5.2-3  (06-01-2003)
Priority Codes (Item 09, Form 5599)
(Reference: IRM 4.5.2.1.4.1.22)

Priority Code Definition
1 Use Priority Code 1 to allow TC 30X to post when an amended or duplicate return freeze condition exists at MF. Be sure the adjustment will not create a duplicate refund or assessment. Terminals will not accept closings when an amended or duplicate return freeze exists unless Priority Code 1 is present. The amended return should be in the case file.
2 Use Priority Code 2 to override the unpostable condition that normally occurs when the settlement amount does not match the tax liability amount. (For examination documents blocked in the 900–999 series.)
3 Use Priority Code 3 to bypass an unpostable condition caused by an amended return freeze and settlement amount. (Used when both PC 1 and PC 2 are required to post the examination adjustment.)
4 Use Priority Code 4 to allow an examination partial assessment to post when an amended return freeze exists at MF. (For examination documents blocked in the 1XX, 10X, or 18X series.
5 Causes IMF or BMF MCC posting process to generate and post assessments (or abatements) of accrued unrestricted FTP penalty and/or interest. May be used with TC 290/300 for any amount and in combination with other Transaction Codes.
8 Use Priority Code 8 to bypass the unpostable conditions that occur when the adjustment is within $10 of a previously posted adjustment (UPC 158 or 328.) Also, use PC 8 if there is a TC 295 on the module that is being recaptured with a TC 300.
  Use Priority Code 8 when the adjustment contains Credit Reference Number 764 (Earned Income Credit) and there is a TC 290 in the module (UPC 180).
  Use Priority Code 8 when the adjustment contains Credit Reference Number 806 or 807 and no TC 17X, when the module contains a significant TC 170/171 (UPC 158). Use Priority Code 1 if both PC 1 and PC 8 are required to adjust an account.
* The computer will automatically compute the estimated tax if the only TC 17X on the module is a TC 176/177. Priority Code 8 is not required.

Exhibit 4.5.2-4  (06-01-2003)
Transaction Codes (TC) for Form 5599
(Reference: IRM 4.5.2.1.4.1.25)

Penalty TC DB/CR IRC Description
160
161		 Debit
Credit		 6651(a)(1) Delinquency Penalty/Abatement of TC 160 or 166 (computer generated but can be reversed on Form 5599) penalty in whole or part.
162 —   Removes restriction on computation of Failure To File (FTF) Penalty on previously posted TC 160 and 161. Causes recomputation and allows normal computation of FTF.
170 Debit 6654(a) Failure to Pay (FTP) estimated tax, applicable to Form 1040.
170 Debit 6655(a) Failure to Pay (FTP) estimated tax, applicable to Form 1041, Form 990T, Form 990PF, and Form 1120.
171 Credit   Abatement of TC 170 or 176 (TC 176 is computer generated but can be reversed on Form 5599) estimated tax.
180 Debit 6656(a) Deposit penalty, applicable to Form 720, Form 940, Form 941, Form 943, Form 945, Form 1042, and Form CT-1.
181 Credit   Abatement of TC 180 or 186 (186 is computer generated but can be reversed on Form 5599) penalty in whole or part.
200 Debit   Taxpayer Identification Number (TIN) penalty for IMF and IRAF returns.
201 Credit   Abatement of TIN penalty.
234 Debit 6652(c) Delinquency penalty, $10 a day, not to exceed $5,000 for Form 990 and Form 990PF.
235 Credit   Abatement of TC 234 or 238 (TC 238 is computer generated, but can be reversed on Form 5599) in whole or part.
240 Debit 6651(f) Fraudulent Failure to File (FTF). 15% of the amount of tax required to be shown on the return per month or fraction thereof that return is late. Replaces 6651(a)(1), if applicable, and would normally require referral to CI. Use Reference Code 686 in ltem 15, Form 5599.
240 Debit 6662(d) Substantial understatement of tax. Use Reference Code 681 in item 15, Form 5599.
240 Debit 6662 Accuracy penalty. Use Reference Code 680 (20%), 681 (greater of 10% or $5,000 for individual, or $10,000 for corporations), 682 (40%).
240 Debit 6712 Failure to comply with IRC 6114, $1,000 for individual, $10,000 for corporations. Use Reference Code 685.
241 Credit   Abates in whole or part TC 240.
270 Debit 6651(a)(2) Failure to Pay (FTP) tax.
271 Credit   Abates TC 270 or 276 (TC 276 is computer generated, but