Report Writing

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Levy
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IRS Tax Liens - continued
IRS Tax Liens - continued 2
Levy - continued
Audit Techniques Guide
Congressional Contacts
Criminal Investigation
D.O.J Criminal Tax Manual
Tax Litigation
Penalty
Installment Agreements
Statute of Limitations
Frivolous Tax Argument
Interest Abatement
IRS Misconduct
IRS Abuses
Tax Fraud
Fraud Statutes
Bankruptcy
Tax Reform Legislation
Tax Shelters
Tax Court
Trust Fund Penalty
Legislation
Innocent Spouse Relief
Important Links

Overview & Responsibilities
Pre-Contact Responsibilities
Pre-Contact Resp. Cont.
Examination Techniques
Examination Techniques Cont.
Examination of Income
Examination of Income Cont.
Required Filing Checks
Penalty Consideration
Issue Resolution
Report Writing
Report Writing Cont.1
Report Writing Cont.2
Planning & Monitoring
Determining Return Need
Source of Returns
Classification
Classification cont.
Assignment
Partnership page 1
Partnership Page2
Executive Compensation
Golden Parachute Audit
Split Dollar Life Insurance
Straddles

 

Report Writing

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4.10.8  Report Writing

4.10.8.1  (05-14-1999)
Overview

  1. This section includes guidelines for the Overview preparation of audit findings, in terms of content and format and provides instructions for some critical case closing requirements.
    1. TEGE report writing requirements can be found in IRM 7.6, TEGE Examination Procedures.

     

  2. Audit reports should contain all the information necessary to ensure a clear understanding of the adjustments and demonstrate how the tax liability was computed. Examination reports (unlike workpapers) are legally binding documents and, when executed, serve as the basis for assessment and collection action. Based on this importance, examiners should take all necessary steps to ensure report accuracy.
  3. Report Generation Software (RGS) is required for generation of all income tax examination reports and for entry of all data required for the Examination Operational Automation Database (EOAD). (See 8.16.2 below for procedures related to EOAD). Procedures for use of RGS in report writing can be found in RGS User Guides and training materials.
  4. Agreement forms are considered "executed" when the taxpayer has signed the form. Executed agreement forms should also indicate the date received by the IRS (agreement forms should be date stamped upon receipt),
  5. Taxpayers, upon receipt of an audit report, may wish to pay the deficiency immediately. Form 3244A, Payment Posting Voucher—Examination, should be processed with the funds if payment is received.
  6. Cases may be processed without an executed agreement form if:
    1. the agreement form is signed by only one spouse and the proposed deficiency is $1,000 or less.
    2. a full paid remittance, not specifically designated as a cash bond, is received in response to a proposed liability. See Rev. Proc. 84–58.

     

  7. When signed agreement forms are received, cases should be processed promptly.

4.10.8.2  (05-14-1999)
No-Change/No Liability Cases

  1. This section contains procedures for closing a case when no changes or no additional liability is established as a result of an examination.

4.10.8.2.1  (05-14-1999)
Documenting Workpapers

  1. When an audit results in no adjustments to the taxpayer’s taxable income or tax liability, the examiner should complete the following steps:
    If Using Then
    Form 4700 Examination Workpapers Check the appropriate "no change" block.
    and
    Sign Form 4700.
    Form 4318 Examination Workpapers Place no-change stamp on the Procedural Workpaper Reminders side of Form 4318. The stamp should be placed sideways and midway in the right margin to avoid printed matter.
    and
    Enter the return form number and years examined, and initial the stamped impression.

     

4.10.8.2.2  (05-14-1999)
Multiple Year Exams Including No-Change Years

  1. When an examination results in both change and no-change years, the appropriate basic report should be prepared for all years. The column for the no-change years should have "None" on lines 2, 14 and 17 of Form 4549 or 4549–A, Income Tax Examination Changes, or line 2 of Form 4605 or 4605–A, Examination Changes.

4.10.8.2.3  (05-14-1999)
No Liability Special Procedures and Reports

  1. This section includes procedures for an examination which results in adjustments to taxable income but does not change the taxpayer’s liability.
  2. In cases where the years examined result in adjustments but no change to the tax liability, it is important to notify the taxpayer of, or secure agreement to, audit adjustments, so that such adjustments will be properly reflected in subsequent year returns. A report on Form 4549 or 4605 (with any necessary supporting schedules) should be prepared and given to the taxpayer at the conclusion of the examination.
  3. It is not necessary to secure the taxpayer’s agreement since there is no tax liability.

4.10.8.2.4  (05-14-1999)
No-Change Report Issued To Representatives

  1. When a taxpayer is represented by a power-of-attorney (POA), a no-change report will be issued to the POA at the end of the audit to provide documentation of the audit results.
  2. The representative will NOT be issued a report if the taxpayer is present when the no-change determination is made.
  3. The report forms used for agreed cases will be used and completed as follows:
    1. Complete the taxpayer identification information at the top,
    2. Write "NO-CHANGE" — subject to Area Director’s Approval" across the area used to list adjustments, and
    3. Delete "Consents to Assessment and Collection" .

     

  4. Existing procedures for issuing the formal no-change letter by Case Processing Support are not affected.

4.10.8.3  (05-14-1999)
Regular Agreed Cases

  1. This section contains instructions for the preparation of reports when the taxpayer agrees with the examiner’s proposed liability. See 8.4 for a listing of cases "excepted" from the procedures outlined in this section.
  2. The regular agreed report is designed to cover a three year period.
  3. Generally, regular agreed report forms require the taxpayer’s signature and include a statement that the report is subject to the acceptance of the Area Director.

4.10.8.3.1  (05-14-1999)
Field Examination: Individual and Corporate Cases

  1. Form 4549, Income Tax Examination Changes, is the basic report form for regular agreed individual and corporate cases. The computer generated version of this report is Form 4549–CG.
  2. Instructions for preparing Form 4549 are outlined below. Sections of the form not discussed are self-explanatory.
  3. Name and Address — enter the correct name and address of the taxpayer.
    1. In the case of a decedent, the name should include the name of the currently acting administrator or other proper representative to whom the report is to be mailed. If a fiduciary relationship exists, the case file must include letters testamentary and Form 56, Notice Concerning Fiduciary Relationship. 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.

     

    IF THEN
    Separate return filed Estate of S. Fir, Deceased Richard Oak, Executor
    Joint return Deceased, filed, one taxpayer deceased Estate of S. Fir,

    Richard Oak, Executor and Mrs. Mary Fir, surviving spouse

     

  4. Social Security or Employer Identification Number — use SSN if individual also has an EIN. On joint returns, check master file to determine which SSN was used as the primary number for the year(s) examined.
  5. Filing Status — complete for individual returns, enter a dash for all other cases.
  6. Person with Whom Examination Changes Were Discussed — enter individual with whom changes were discussed. If a power of attorney or corporate officer, also enter title.
  7. Year — enter the taxable year for which the column applies. For calendar, fiscal, and 52–53 week year, show the year ending date (mm/dd/yy). For a short period, show the beginning and ending date.
  8. Adjustments to Income — list adjustments. Place a bracket around the dollar amount if an adjustment is in the taxpayer’s favor. If there are more than seven adjustments write, "See page __" on line 1(a) and use Form 4549–B, Income Tax Examination Changes — Adjustment to Income, for listing the adjustments.
  9. Adjusted Gross or Taxable Income Shown on 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.
    1. If a math error is discovered at the time of processing and corrected at the service center, 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 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 1139) have been filed and refunds issued The amount shown on original return NOT THE TENTATIVE CARRYBACK FORM should be used.

     

  10. Corrected Tax/Additional Taxes — identify how the tax was computed (tax table, tax rate schedule, etc.) 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. Do not include alternative minimum tax on this line.
  11. 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.
  12. Other Taxes — include recapture taxes, self-employment tax, alternative minimum tax, etc. Attach the appropriate forms detailing the computations.
  13. Total Tax Shown on Return or as Previously Adjusted — include tax per return plus any additional tax assessed as reflected on a transcript.
  14. Adjustment to EIC/Fuels Credit — these credits should be shown here as originally calculated or as corrected based on the adjustments to income. The calculation of this credit should be attached to the agreed report.
  15. Adjustments to Prepayment Credits — Any changes to prepayment credits should be reflected on this line.
  16. Penalties — Identify penalties by IRC section and title. If the penalty cannot be currently computed, place an asterisk in the line amount field and describe the process of the calculation in "Other Information."

4.10.8.3.2  (05-14-1999)
Office Audit: Individual Cases

  1. Form 1902–B and Form 4549OA–CG are used by office auditors to secure agreements from taxpayers in deficiency or overassessment cases. These forms differ from Form 4549 and Form 4549–CG; they contain a statement that the report is final if the taxpayer is not notified by the Area Director of an exception within 45 days.
  2. Form 4549OA–CG is a computer generated report for use by tax auditors and is similar to the Form 4549–CG used by revenue agents. The instructions for preparing Form 4549OA–CG are the same as for Form 4549 outlined in 8.3.1 above.
  3. The instructions for preparing Form 1902–B are outlined below. Sections of the form not addressed are self-explanatory.
  4. Name of Taxpayer — enter the correct name and address of the taxpayer. In the case of a decedent, see 8.3.1 above for the proper titles.
  5. Filing Status — complete for individual returns (single, head of household, joint, etc.). Enter a dash for all other cases.
  6. In Reply Refer To — enter office symbol and auditor’s name.
  7. Social Security Number — on joint returns, enter primary SSN.
  8. Income and Deduction Amounts Adjusted — list adjustments. Place a bracket around the dollar amount when an adjustment is in the taxpayer’s favor.
  9. Line A — Adjustments in Income and Deductions — enter the total of adjustments.
  10. Line B — Total Gross or Taxable Income Reported or Previously Adjusted — enter the final income figure (adjusted gross or taxable income) on the last processed return or income as computed in the prior examiner’s report if the examination is a re-opened case. In the case of a claim refer to 8.8 below.
  11. Line D — Corrected Tax — attach any necessary schedules to explain tax calculations.
  12. Line H — Tax Shown on Return or as Previously Adjusted — use tax per return unless there has been a service center adjustment or an assessment based on a prior examination.
  13. Line K — Adjustment to prepayment credits — net the prepayment credits by adding credits such as excess FICA credit and withholding not claimed on the original return.
  14. Line M — Penalties — enter code section, title and amount of each penalty. Each penalty should be stated separately. Do not enter interest.

4.10.8.3.3  (05-14-1999)
Regular Agreed Report: Other Information

  1. Statements should be included in the "Other Information" section of the report as needed. Below are examples of statements which should be used to clarify the examination results:
    1. Statement on corrected reports such as "This report supersedes report dated ______."
    2. References to attachments.
    3. If there is an increase or decrease in minimum tax, tax preference items, 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.
    5. Statement regarding the application of any penalties or additions to tax. Include the IRC section, title of the penalty, of the dollar amount.
    6. Statements regarding innocent spouse determination.

     

4.10.8.3.4  (05-14-1999)
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. The computer generated version of this report is Form 4605–CG and is prepared using the RGS program.
  2. Form 886–S, Partner’s Share of Income, Deductions and Credits, and Form 886–X, Shareholder’s Share of Income, Deductions and Credits, are four-copy forms used to identify partner and shareholder level adjustments for each year in which a change is recommended.

4.10.8.3.4.1  (05-14-1999)
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 la 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 1.a. and use Form 4549–B, Income Tax Audit Changes, to list adjustments.
  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 Explanation of Items, Form 886–A or "Remarks" section.
  7. Remarks — Include any supplemental information which may be needed to clarify the adjustments and other items contained in the report.

4.10.8.3.4.2  (05-14-1999)
Special Situations: S Corporation Cases

  1. 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. Refer to 8.3.1 above for instructions to prepare Form 4549.
  3. In certain instances a deficiency, 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.

4.10.8.3.5  (05-14-1999)
Domestic International Sales Corporations

  1. Basic procedures for a "regular agreed" closing:
  2. Form 4605 is the basic report form for "regular agreed" Domestic International Sales Corporation (Form 1120–DISC) cases.
  3. 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.

4.10.8.3.6  (05-14-1999)
Fiduciary Cases

  1. This section addresses the type of reports used for this entity. Specific instructions for preparing the forms are addressed in other sections.
  2. Deficiency, Overassessment or Claim — results should be presented on a Form 4549.
  3. Distributions to Beneficiaries — changes should be reflected on Form 4605. A four-copy set of Form 886–W, Beneficiary’s Shares of Income, Deductions, Credits, should be prepared for each year in which a change is recommended. The Form 886–W is used to show the corrected distribution of beneficiaries share of fiduciary income and credits.
  4. When both of the above situations occur, the instructions described in both (1) and (2) should be followed.

4.10.8.4  (05-14-1999)
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. Signing the waiver:
    1. stops the running of interest 30 days from the date of receipt.
    2. 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.

     

4.10.8.4.1  (05-14-1999)
Cases Requiring Excepted Agreed Reports

  1. Partially agreed corporate and individual cases.
  2. Claims allowed in full or part in a partially agreed case if there are agreed adjustments in addition to the claim.
  3. 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).
  4. "Excepted agreed" fiduciary cases.
  5. Form 1120S, U.S. Income Tax Return, for an 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.)

     

  6. Cases involving Personal Holding Co. deficiency dividends.
  7. Cases requiring informal agreements under Reg. 1.936–6(c)(1) (iii).
  8. Joint Committee Cases
  9. Transferor—transferee cases
  10. Unagreed cases requiring a Preliminary (30-Day) Letter

4.10.8.4.2  (05-14-1999)
Waivers For Excepted Agreed Cases: Form 870 Series

  1. 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.
  2. FORM 870 — Generally used instead of Form 4549 or Form 1902–B.
  3. FORM 875 — Form 875 may be signed by any principal or general fiduciary or corporate officer authorized to sign binding agreements.
  4. FORM 870–P/S/L — Generally used instead of Form 4605, Examination Changes Partnerships, Fiduciaries, S Corporations, and Interest Charge Domestic International Sales Corporations.

4.10.8.4.3  (05-14-1999)
Instructions for Completing Waiver

  1. Instructions for agreement 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 52–52 Week Period — show last day of the period.
    5. Tax — enter the amount of additional tax, as agreed, on separate line by years.
    6. Penalties — enter separately by years and by Code sections the penalty or penalties as agreed.
    7. Signature of Taxpayer — see the instructions on the form.

     

4.10.8.5  (05-14-1999)
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 8.4. above.Instructions for reports reflecting the unagreed issues are included in 8.10.
  2. A partially agreed case contains more than one issue, of which at least one issue is agreed to by the taxpayer and at least one issue is not agreed to by the taxpayer.

4.10.8.5.1  (05-14-1999)
Individuals and Corporations

  1. The reports and forms required to close a partially agreed individual or corporate case are as follows:
  2. Form 4665 Report Transmittal. See 8.10.4 below, for instructions.
  3. Form 4549–A should be prepared using only the agreed adjustments. The additional tax computed will be reflected on Form 870. Indicate "Agreed Issues" on the top of the Form 4549–A report. The Form 4549–A reflecting the agreed issues should be included in the case file as a workpaper to document the calculation of the tax shown on Form 870.
  4. Form 870 is used to secure agreements where no S-corporations or TEFRA issues are involved.
  5. A second Form 4549–A should be prepared to show both agreed and unagreed adjustments.
    1. An asterisk should be placed in front of the letter for each agreed adjustment.
    2. The "Total Tax Per Return or as Previously Adjusted" line includes the tax on the agreed adjustments.
    3. The "Other Information" section should contain the following statement, "* These adjustment(s) have been agreed. The taxpayer is in agreement with the adjustment(s) indicated as agreed, and the applicable deficiency is being assessed and is included in Total Tax as Previously Adjusted."

     

  6. Form 886–A(s) should be prepared for all remaining unagreed issues and procedures for unagreed cases should be followed. See 8.10 below.
  7. Form 3198, Special Handling Notice, should be on the outside of the case file specifying "Partial Agreement." Form 870 must be processed prior to the issuance of the 30-day letter for the unagreed issues.

4.10.8.5.2  (05-14-1999)
Non-TEFRA Partnerships

  1. The procedures for processing a partially agreed Non-TEFRA partnership case are the same as the procedures for individual and corporation cases outlined in 8.5.1, with the following exceptions for different forms.
  2. Form 4605–A is the basic report for partially agreed partnership cases. See 8.3.4.1 above structions for Form 4605 which also apply to Form 4605–A.
  3. A single-page Form 886–S, Partner’s Shares of Income, Deductions, and Credits, is prepared for each change year.
  4. Form 875 is used for securing agreements in partially agreed Non-TEFRA cases.

4.10.8.5.3  (05-14-1999)
Non-TEFRA S Corporations and Fiduciary Cases

  1. The procedures for processing a partially agreed Non-TEFRA S Corporation case are the same as the procedures for individual and corporation cases outlined in 8.5.1, with the following exceptions for different forms.
  2. Form 4605–A is the basic report for partially agreed S corporation and fiduciary cases. See 8.3.4.1 above for instructions for Form 4605 which also apply to Form 4605–A.
  3. A single-page Form 886–X, Shareholder’s Shares of Income, Deductions, and Credits, or Form 886–W, Beneficiary’s Shares of Income, Deductions, Credits, are prepared for each change year.
  4. Form 4549–A is used in partially agreed S corporation or fiduciary cases when a deficiency or overassessment is recommended against the corporation or trust, or if a claim is involved. The tax computation should be shown in the "Other Information" section of Form 4549–A or on the Form 886–A.
  5. Forms 870 and 875 are used to secure agreements in partially agreed S corporation and Fiduciary cases that are not involved in TEFRA proceedings.

4.10.8.5.4  (05-14-1999)
Domestic International Sales Corporations

  1. This section includes a description of forms required to process partially agreed Domestic International Sales Corporation cases.
  2. Form 4605–A is the basic report form for partially agreed Domestic International Sales Corporation cases.
  3. A single page Form 886–Y, Examination Changes — Shareholder’s Share of Deemed and Actual Domestic International Sales Corporation’s Distributions, should be prepared.

4.10.8.6  (05-14-1999)
Supplemental Reports: Reduction of Previously Assessed But Unpaid Tax

  1. 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 unpaid. 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.
  2. When preparing a report for a reduction of assessed but unpaid tax, the entry for taxable income per return is the corrected taxable income amount shown on the original RAR as confirmed with a transcript. The entry for tax per return should correspond to the "total corrected tax liability" per the original RAR. The "Other Information" section on the report should state "Supplemental Report — Reduction in Previously Assessed Tax."
  3. 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)

     

    1. If more than one type of penalty is abated, a computation should be provided for each penalty.

     

  4. Since a taxpayer’s request for abatement of unpaid tax does not constitute a valid claim within the meaning of IRC 6511, Forms 3363 and 2297 and Letter 569 cannot be used since the taxpayer has no appeal rights. Instead, the following procedures should be used:
    1. Letter 693 (one for the case file and one to the taxpayer) should be used for no change, allowance in part and allowance in full determinations.
    2. The following paragraph may be added to provide further clarity for the taxpayer:
      "The Internal Revenue Code has no provision for filing tax abatement claims. If you do not agree with our determination, you may, after paying the additional tax due, file an amended return or claim for refund. If you file a claim or amended return, you should do so within 3 years from the time the tax was paid."

     

  5. Form 3198, Special Handling Notice, 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 that Letter 693 was issued. If the taxpayer did not sign any Form 4549 issued or if there is no change, Form 3198 should also indicate "defaulted" .

4.10.8.7  (05-14-1999)
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.
  2. Use the appropriate forms for the entity and type of closing. Once prepared, write "RE-EXAMINATION" in capital letters on the top of the report.
  3. Re-examination reports require special processing. Form 3198, Special Handling Notice, should be annotated "Re-examination Case" .
  4. A re-examination report should not be used for a closed deficiency assessment reconsidered at the taxpayer’s request. See 8.6 above.

4.10.8.8  (05-14-1999)
Claims

  1. Claims may relate to any item of income, loss, exclusion, deduction, or credit involving a refund of tax. Claims may be filed by use of the following forms:
    1. Claim Form 843,
    2. An amended return (specified on the tax return),
    3. Amended U.S. Individual Income Tax Return, Form 1040X,
    4. Amended U.S. Corporation Income Tax Return, Form 1120X, or

     

  2. There are three possible results when a claim is examined. The claim may be:
    1. allowed in full,
    2. disallowed in full, or
    3. partially allowed or offset by other adjustments.

     

4.10.8.8.1  (05-14-1999)
Transcript of Account

  1. Before preparing a report on a case involving a claim, examiners must have a current transcript of the taxpayer’s account.
  2. If the claim is the result of a prior audit or assessment, TC 300 or TC 290 with a dollar amount will be posted. The "as adjusted" figures shown on the original report will be used as the starting point.
  3. If the claim has already been allowed by the service center, TC 291 with a dollar amount will be posted.

4.10.8.8.2  (05-14-1999)
Claims Allowed in Full

  1. If the claim is allowed in full, Letter 570 (SC/DO/IO) will be prepared to notify the taxpayer of the findings. Since receipt of Letter 570 by the taxpayer constitutes a closed case (subject to the case reopening criteria), the letter generally should not be furnished to the taxpayer until the entire case is ready to close.
  2. If the amount claimed has already been refunded to the taxpayer by the service center, the examiner will close the case as a regular no change case.

4.10.8.8.3  (05-14-1999)
Claims Disallowed in Full or Part

  1. When a claim is disallowed in full or in part the examiner will prepare the following:
    1. Letter 569(SC/DO/IO), Combination 15 and 30 day letter
    2. Form 2297, Waiver of Statutory Notification of Claim Disallowance
    3. Form 3363, Acceptance of Proposed Disallowance of Claim for Refund or Credit

     

  2. An examination report, Form 1902–B or Form 4549 will be prepared if additional tax is due or if there is a partial disallowance.

4.10.8.8.3.1  (05-14-1999)
"No - Show" Claim Disallowance

  1. When a claim is disallowed because the taxpayer failed to appear for an interview or to provide substantiation, the following explanation will be shown on the back of Letter 569:
    "No basis for the allowance of the claim has been submitted."

4.10.8.8.4  (05-14-1999)
Form 2297, Waiver of Statutory Notice of Claim Disallowance

  1. Form 2297, Waiver of Statutory Notice of Claim Disallowance, is applicable in all cases where there is a complete or partial disallowance of a claim.
  2. IRC section 6532(a)(3) provides that a taxpayer may file a written waiver of the requirement that a notice of disallowance of a claim in whole or in part be sent by certified or registered mail. The effect of such waiver is to start the running of the two year period for filing suit on the claim from the date the waiver is filed. Thus, Form 2297 accomplishes the same purpose as a notice of the disallowance of a claim by certified mail, except that it does not affect the six month waiting period required by IRC 6532(a) before filing a refund suit (Reg. 301.6532–1(c)).
  3. Since Form 2297 constitutes a waiver of only the statutory notice being sent by certified or registered mail, a waiver form (Form 870, 1902–B, 4549, or 3363) is required in addition to Form 2297, if there is a partial overassessment or if additional tax is assessed.
  4. Form 2297 should be enclosed in the case folder in the same manner as other waiver and acceptance forms. Where claims for multiple years are disallowed, Form 2297 covering all years should be associated with the claim or amended return covering the most recent year.
  5. Since Form 1045, Individual Application for Tentative Refund and Form 1139, Corporate Application for Tentative Refund from Carryover Net Operating Loss, are not considered as claims, it is not necessary to use Form 2297 where the tax previously refunded is recouped. However, the taxpayer may contest adjustments to tentative refunds in Tax Court.
  6. Form 2297 should not be secured in cases which require review by the Joint Committee.

4.10.8.8.4.1  (05-14-1999)
Instructions for Completing Form 2297

  1. Name and Address — write or type the name and address of the taxpayer; include the SSN or EIN.
  2. Taxable period ended — list each year for which a claim has been filed and disallowed in part or in full on separate lines as follows:
    1. Calendar Year — Show ending date (12/31/95)
    2. Fiscal Year — Show ending date (6/30/95)
    3. Short period — Show beginning and ending date (1/1/95 – 9/30/95)
    4. 52–53 Week Year — Show last day of year (5/25/95)

     

  3. Kind of Tax — show the type of tax covered by the return under examination such as income, estate, or gift. It is not necessary to show the form number of the return under examination or to identify the type of income, such as individual income or corporate income.
  4. Amount of Claim —
    1. Where a Claim 843, 1040X, 1120X, or an informal claim states a definite dollar amount, enter the amount in the "amount of claim" space.
    2. Where an amended return shows the computation of the corrected tax, enter the difference between the corrected amount as computed by the taxpayer and the tax as shown on the original return in the "amount of claim" space.
    3. Where a claim is filed for "$1 or more" and no details are shown as to the amount of reduction in income, enter $1 as "amount of claim" . When details are shown as to the amount of reduction in income but computation of amount of tax refund is not shown on the claim, compute the amount of the claim based upon reduction of income shown by the taxpayer and enter this figure as "amount of claim."
    4. Where a claim is filed for "entire amount of tax paid" , enter the entire amount of tax shown on the return.
    5. Where a claim is filed for "such amount as may be due" and no details are shown and a computation cannot be made, enter "indeterminable" in the "amount of claim" space and explain in the "Other Information" section of Form 4549. When details are shown and a computation of the tax refund can be made, enter the computed figure.

     

  5. Amount of Claim Disallowed — self explanatory
  6. Signature — see instructions at the bottom of the form.

4.10.8.8.5  (05-14-1999)
Agreed Cases: Acceptance of Proposed Disallowance of Claim for Refund or Credit (Form 3363)

  1. Form 3363 is to be used in "agreed cases" where a Claim Form 843 or an amended return is disallowed in full or part and no other adjustments to the tax liability are necessary.
  2. In an agreed case where the claim is being disallowed in full or part with additional adjustments to the tax liability, both Form 3363 and an examination report should be secured. See 8.8.6.1 for information to be included in the remarks section of the report.
  3. Forms 1045 and 1139 are not considered claims. Form 3363 is not used to reflect any recoupment of the tax previously refunded. Form 870 is used to reflect the recoupment.

4.10.8.8.5.1  (05-14-1999)
Instructions for Completing Form 3363

  1. Name and Address — write or type the name or address of the taxpayer; include the SSN and EIN.
  2. Year or Period — List each year for which a claim has been filed on separate years as follows:
    1. Calendar Year — show ending date (12/31/95)
    2. Fiscal Year — show ending date (6/30/95)
    3. Short Period — show beginning and ending date (1/1/95 – 9/30/95)
    4. 52–53 Week Year — show last day of year (5/25/95)

     

  3. Date Claim Filed — enter date Form 843 or amended return was filed.
  4. Kind of Tax — enter the type of tax covered by the return under examination, such as income, estate, or gift. It is not necessary to show the form number of the return under examination or to identify the type of income, such as individual income or corporate income.
  5. Amount of Claim — enter the amount of refund requested in the claim (Form 843, 1040X, 1120X, amended return or informal claim) filed by the taxpayer.
  6. Amount of Claim Disallowed — enter the amount of claim disallowed per RAR.
  7. Amount of Claim Allowed — enter the amount of claim allowed per the RAR.
  8. Signature — see instructions on the form.

4.10.8.8.6  (05-14-1999)
Unagreed Cases: Reports

  1. When a claim is disallowed in full or in part in an "unagreed" case and there are no other adjustments, complete the top portion of the report for unagreed cases (See 8.10) . An appropriate statement regarding the disallowance of the claim is to be included in the "Other Information" section (see 8.8.6.1 below).
  2. When a claim is allowed in full or in part in a partially agreed case with other adjustments, complete Form 4549–A. A statement, regarding the disposition of the claim, is to be included in the "Other Information" section.
  3. When a claim is allowed in full in an unagreed case with proposed deficiencies, complete Form 4549–A. A statement, regarding the allowance of the claim, is to be included in the "Other Information" section.

4.10.8.8.6.1  (05-14-1999)
Form 4549–A "Other Information" Section: Statements Regarding Disposition of Claims

  1. Claim Allowed in Full:
    "On (date) you filed Claim Form 843, 1040X, 1120X, or an informal claim for a refund of $ (amount) for (year). As the result of our examination, we allowed your claim in full, as shown in this report."
  2. Claim Allowed In Full But Offset By Other Adjustments:
    "On (date) you filed Claim Form 843, 1040X, 1120X, or an informal claim for refund of $ (amount)for (year). As the result of our examination, we allowed your claim in full. The total amount of the refund is, however, increased or decreased by other adjustments shown in this report."
  3. Claim Allowed in Part:
    "On (date) you filed Claim Form 843, 1040X 1120X, or an informal claim for a refund of $ (amount)for (year). As the result of our examination, we allowed your claim in part, as shown in this report."
  4. Claim Rejection:
    "On (date) you filed Claim Form 843, 1040X, 1120X, or an informal claim for refund of $ (amount) for (year)."
    1. Each claim rejection statement should have a concise statement of the issue, and the authority for rejecting the claim. For example:
      "As the result of our examination, we have disallowed your claim. Expenses for education not needed in your present employment are considered personal and, therefore, are not deductible as a business expense. See Section 1.162–5 of the Internal Revenue Regulations."

     

4.10.8.8.7  (05-14-1999)
Inviting Claims in Overassessment Cases

  1. Taxpayers will be invited to file claims in the following types of cases if the proposed overassessments are not already covered by claims:
    1. Cases to be referred to Appeals in the "pre-90 Day" status when a period of less than 120 days remain to allow the overassessment. Appeals may accept such a case without a claim if the Chief of Appeals approves.
    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. Cases involving whipsaw issues. That is, if the adjustment of items of income or deductions reported on a return requires corresponding adjustments in determining the income tax liability of another related taxpayer(s) to obtain consistent treatment of said items of income or deductions and an overassessment in the related case results in whole or in part from the transfer of income or deductions. Form 1308, Notice to Delay Allowance of Overpayment, should be attached to the return.

     

  2. The number of cases requiring a claim invitation will be limited because the Service considers 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.
  3. When a taxpayer is invited to file a claim, a separate Letter 897(C/DO) should be sent for each taxable year needing protection.

4.10.8.9  (05-14-1999)
Deficiency Dividends

  1. The Internal Revenue Code 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.

4.10.8.9.1  (05-14-1999)
Informal Agreements Under IRC 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.
    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 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 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.

     

  2. 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.

     

  3. 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(DO) using registered certified or registered mail within 5 calendar days.

      Note:

      Regs. 1.547–2(b)(1)(v) provide 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. After accepting Form 2198, the case should be held in suspense (location determined by the district) 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.

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