The docket list and the taxpayers' correspondence should be monitored by the CTF to determine if an investor has filed a petition in the United States Tax Court. The CTF should also be sensitive to other indications that a petition has been filed, e.g., an AIMS update to a status 8X.

When an investor has filed a petition, the key case CTF will notify the TS or Appeals (whichever organization initiated the FPAA) that a petition was filed. If the CTF receives a copy of the investor's filing from other than the TS or Appeals, it will be forwarded to the TS or Appeals to be associated with the key case administrative file. A copy will be retained for the campus key case administrative file. If less than 15 days remain on what would be the default date for the FPAA, a copy of the petition (without any attachments, if any) will be faxed to the TS or Appeals.

When the CTF receives notice that a petition was filed, either by an investor or by the TMP, the key case file will be noted to reflect the docketed case status. The docket number will be input on the PCS using CC TSCHG, item number 28. The campus key case administrative file is refiled pending the outcome of the court case.

When the CTF is notified of a petition filed with a district court of the United States, or the United States Court of Federal Claims, the key case is treated and processed as if the FPAA had defaulted. The key case is updated to status code 90 so the investor assessments may be billed and collected. In order for AIMS to be closed, the " H" freeze must be removed. These procedures are similar to the refund litigation procedures applicable to claims.

Assessments are made for all investors based on the corrected amounts for adjusted items shown on the FPAA for the key case entity.

The key case CTF will prepare a closing package for each investor file. The closing package will include:

See IRM 4.31.4 of this Handbook for the procedures for petitioned AAR's.

The key case is updated to status 90, but the 18-month period for filing the key case administrative file in the closed key case files does not begin until the litigation is final.

The key case CTF will note the key case administrative file to reflect the docket status and input the docket number on the PCS using CC TSCHG, item number 28.

The key case CTF will receive notification from Appeals (or in rare instances from Area Counsel) that a decision was entered with respect to a docketed case.

The court settlement (stipulated decision) or court decision package will include:

When the package is received it will be reviewed by the key case CTF who will acknowledge the Form 3210 within three days of receipt. If the individual who would normally acknowledge the Form 3210 is unavailable, the manager will ensure the Form 3210 will be acknowledged by another employee (or himself/herself) within that three-day period. The individual signing the Form 3210 is only acknowledging that a package was received. It does not mean that the package was complete or that everything listed on the Form 3210 was actually received.

The one-year assessment statute date will immediately be input on the key case investors and all related tiers using CC MSCHG.

The key case CTF will forward a court decision package to the investor CTF, if different from the key case CTF, within 30 days from the date the decision package is received from Appeals or Area Counsel.

The package will include:

If less than three months remain on the one-year assessment statute date and the investor CTF is different than the key case CTF, the Team Leader of the key case CTF will contact the Team Leader of the investor CTF to notify them that a package with a short statute will be sent. The TEFRA Coordinators between the two locations may make the contacts instead of the two Team Leaders. If the package is not too voluminous, a copy should be sent by fax to the investor CTF.

If the investor is a CIC corporation, other corporate specialty or Joint Committee case in Appeals jurisdiction, the Team Leader of the key case CTF will contact the Appeals Technical Guidance Coordinator - TEFRA to notify them that a package with a short statute will be sent. The TEFRA Coordinator of the key case CTF may make the contact instead of the Team Leader. The Team Leader of the key case CTF will fax a copy of the package to the Appeals Technical Guidance Coordinator - TEFRA, or if too bulky, mail by overnight mail.

After forwarding the packages to the investor CTF, the court decision package received from Area Counsel (through Appeals generally) is associated with the campus key case administrative file, which is so noted.

Upon assignment, the report writer should check the case file to determine if it includes the following items:

The Report Writer should review the Closing Package by verifying the investor’s percentage on Form 4605-A to the percentage identified on the related partnership Schedule K-1. Math verify the adjustment amount, which is the difference between "as reported " and the "corrected figure" on Form 4605-A and compare to the amount on Form 886-Z. In addition, a complete review should be done of the entire Closing Package for any other information that would need to be included in the report of adjustments being issued to the taxpayer i.e. basis, at-risk, penalties, special allocations, etc. This information is not necessarily on Form 886-Z, but could be found anywhere in the closing package.

Verify 100% reconciliation of Schedules K-1 for all investors in the Key Case. The percentages for all investors listed on Form 886-Z should add up to 100%. Cross-reference this information from Form 886-Z with the investor's Schedule K-1 for discrepancies. Add the percentages in their entirety. Example: 37.2% + 42.8% + 10.1% + 9.9% = 100%

Both Form 886-Z and Form 4605-A should have the same corrected amounts. Take the "corrected" amount from the "Totals" line on either Form 886-Z or Form 4605-A, Schedule of Adjustments, and multiply it with each investor’s "Percentage of Profit" from Form 886-Z, to arrive at the adjustment amount for that investor. Compare this verified adjustment amount to the amount identified on Form 4605-A for that investor.

The report writer also needs to ensure that the IRC section 6404(g) date is notated on the Form 886-Z. The date is the earlier of the date the 60-day letter or FPAA was sent to the TMP. Generally, this is the same date that the letters were sent to the investors. If the field sends out a TMP letter, the dates will differ. In that case, the field will have to provide the letter date with the closing package.

Agreed packages with Forms 870 included need to have a notation as to how the agreement Form 870 was received. This information is necessary to ensure the report writer has the information needed to determine the correct disposal code. Without that information, the report writer has no way of knowing whether the agreement form was secured via a 60-day letter or an FPAA.

If any of these items are not present in the investor case file, the report writer must secure the information necessary for the preparation of the examination report. Depending on the statute, this may require returning the case file to another unit to secure the necessary information.

The report writer must verify that the one-year assessment statute date is correct, and determine whether the IRC 6501 statute of limitations is still open.

For agreed packages, the one-year assessment statute date is one year from the date the Form(s) 870-PT, 870-LT, 870-S, 870-PT (AD), 870-LT (AD) or 870-S(AD) (Forms 870-P, 870-L, 870-P (AD), or 870-L (AD) for tax years beginning before August 6, 1997) was executed;

For defaulted FPAA packages, the one-year assessment statute date is one year plus 150 days from the date the FPAA was mailed to the TMP.

For court decisions, the one-year assessment statute date is no less than one year from the date the decision document is entered plus the waiting period as mentioned in IRM 4.31.3.9(b) ( See IRM 4.31.3.9.) or no more than one year from the date the decision becomes final.

If the IRC 6229(a) statute is barred, a IRC 3999-T should be in the key case CTF administrative file. A copy of the Pattern Letter(s) P-430 and/or P-431 (pro-forma) should be in the barred statute package received from the key case area.

An investor barred statute package will be prepared for the investor CTF, if any. The package will include a legible copy of Pattern Letter(s) P-430 and P-431, if applicable.

The report writer must determine whether penalties and/or affected items were recommended for the key case.

Penalties and affected items that are agreed to on one of the above reports must be assessed via a computational adjustment. If affected items, or penalties for tax years ending before August 6, 1997, are not agreed to (default package, etc) then they must be assessed using deficiency procedures with Letter 3219, Notice of Deficiency. A computational adjustment can be made for disputed penalties not agreed to for tax years ending after August 5, 1997 after a defaulted FPAA or court decision.

The report writer will reconcile the Schedule K-1 to the return.

If the taxpayer has not reported income or loss consistent with the Schedule K-1, and has not responded with information, which explains the difference, the file will be referred to a revenue agent for consideration of the IRC 6662 penalty.

If, due to the complexity of the case, an employee believes that they cannot adequately prepare an investor audit report, the employee should consult with the campus TEFRA Coordinator. The campus TEFRA coordinator will provide the employee with assistance, or work with the appropriate field TEFRA coordinator in order to have the case worked in the field. Campus personnel should make every effort to work all campus controlled investors at the campus. However, there are times when the complexity of the case will require assistance from the field. It is the complexity of the issues, and not the size of the case, that will dictate whether a case gets sent back to the field.

The investor return will normally be adjusted to reflect the corrected amount shown on the Form 886-S , Form 886-W, Form 886-X, or Form 886-Z(C), unless the adjustment document reflects an allowable loss and the investor did not report any activity from this flow-through return on the original return.

TEFRA report writing is unique in that a separate report will be issued for each linkage if they close at different times. This is done so as not to jeopardize the one-year assessment statute date. Each report is prepared based on the income as adjusted on the prior report.

The Form 4549-A should list each issue and the EIN of the partnership from where the adjustment came. The EIN provides a unique identifier to help the taxpayer understand where the changes came from. It also provides clarity when there are multiple partnership adjustments with similar names.

Assessments must be made as soon as possible after the completion of the Form 4549-A. If there are penalties or other linkages that prevent a full closure from being made at this time, a partial assessment will be made.

Form 8339, PCS Change, is used to update the one-year assessment statute date on PCS and to enter the amount of any partial assessment that is being made. A separate Form 8339 will be prepared for each linkage. In addition, more than one Form 8339 may need to be prepared if the investor's assessment is attributable to adjustments from more than one key case.

In reference to Accounts Receivable Dollar Inventory (ARDI), the procedures in IRM 4.20, Examination Collectibility Handbook, must be followed, subject to the provisions of the LEM.

Each time a report is written, the report writer will determine whether a partial or complete closure should be made.

All reports sent to taxpayers must be sent with an appropriate letter.

The report writer will generate a Form 4549-A, Income Tax Examination Changes, for tax and penalties, if the taxpayer has signed Form 870-PT, Form 870-P(AD). ( Form 870-L or Form 870-L(AD) for tax years ending before August 6, 1997). The 4549-A must include the name, telephone number and the unique identifying number of the person to contact.

If any other document has caused the report to be issued ( Form 870-P or Form 870-P(AD) (for tax years ending before August 6, 1997) or a default package), the Form 4549-A will be prepared only for the tax. A separate examination report, Form 4549, will be prepared to address any penalties applicable to investors in TEFRA partnerships.

Affected Items are handled similarly. Affected items must be agreed to via Form 870-LT or Form 870-LT(AD) ( Form 870-L for tax years ending before August 6, 1997).

The following table will help explain how penalties or affected items are agreed to by the taxpayer.

Each agreement needs to be reviewed carefully to determine the procedures to use. An FPAA is only issued with a Form 870-PT ( Form 870-P for tax years ending before August 6, 1997). Any affected items (and/or penalties for tax years ending before August 6, 1997) must be agreed to separately using deficiency procedures with Letter 3219, Notice of Deficiency.

All reports sent to taxpayers must be sent with an appropriate letter.

In the case of an individual who files a return on or before the due date for the return (including extensions), the Service has 36-months (18 months effective on or before November 25, 2007, and one year for tax years beginning before January 1, 2004.) beginning on the later of

in which to provide notice to the taxpayer specifically stating the taxpayer's liability.

If notice is not provided to the taxpayer before the close of the 36-month period, (18 months for notices issued on or before November 25, 2007, and one year for tax years beginning before January 1, 2004.) then the imposition of any interest, penalty, additions to tax or additional amounts that are calculated by reference to the period during which any failure relating to the return is suspended.

The term suspension periods means the period:

The exceptions to the 36-month notice (18 months effective on or before November 25, 2007, and one year for tax years beginning before January 1, 2004.) requirement are:

The notice date must be annotated on the Form 886-Z(C) of the investor closing package prepared by the CTF, and also annotated on the partner's Examination Report in the "Other Information " area with the following statement: " IRC 6404(g) does apply and notice was provided on (mail out date). "

The earlier of the date the 60-day letter was sent to the TMP or the date the FPAA was sent to the TMP will be the IRC 6404(g) date. That date will apply to all notice or non-notice partners directly or indirectly invested in the partnership.

TC 971 with Action Code 64 will be input on Master File for the identified cases to record the notice date. Master File will automatically compute the interest with only one notice date. Cases with additional notice dates will require manually computed restricted interest (TC 340).

If IRC 6404(g) applies, a TC 971 with reason code 064 must be input on the tax module using the notification date.

All IRC 6404(g) cases where a second assessment is being made will require special instructions on Form 3198. If a second assessment is necessary, it must be stated whether IRC 6404(g) applies, and if it does, the notice date for the second assessment must be entered in the "Special/Restricted Interest Features" section.

The report writer will complete Form 4700-T, Examination Workpapers, on all cases (see IRM 4.10.9, Examination of Returns, Workpapers) to reflect the investor's applicable adjustment from the flow-through return. The report writer will attach Form 886-S, Form 886-W, Form 886-X, or Form 886-Z(C), and other documents received from the key case CTF, to the Form 4700-T as part of the workpapers.

Innocent spouse requests for relief from TEFRA proceedings will be considered only after there is a final determination concerning the treatment of partnership items (e.g., a settlement is entered into, or the decision of the court becomes final). In addition, an innocent spouse request for relief will be considered for each assessment made, rather than limiting requests to one for each tax year.

Examiners need to ensure that all applicable forms are completed when computing the PAL adjustments. The Form 8582 worksheets do not need to be completed for all cases, but should be completed when needed. For example, they should be completed to communicate changes to the taxpayer in the case of dispositions or PAL carryovers.

Case files for carryback and carryover years need to have copies of the workpapers from the source year supporting the adjustments. Adjustments such as Schedule A (contributions), NOL, possibly credits and PAL Credits would also require the closing documentation from the source year and computations for any carryback or carryover.

When there are PAL carryovers, for example, the case files for those years need to have all of the necessary work papers to support the PAL adjustment. The carryover case file should have the closing documents from the source year as well as the Form 8582 reflecting the PAL carryover changes. Without the source documentation, there is nothing in the carryover year file to support the changes. This information is necessary in the event a subsequent taxpayer inquiry is made.

After completion of the required reports, Form 4549-A or Form 1902-B and closing documents, Form 5344 and Form 8339 (if return is linked on PCS), the report writer should prepare the case for processing by clerical personnel. The case file should contain the following documents:

The report writer will indicate on the history sheet what letters should be issued or any additional actions that may be required. The history sheet will also indicate the appropriate closing action. The report writer is responsible for instructing clerical and closing operators of the appropriate actions required based on the type of closure.

If the TEFRA partnership examination is completed prior to Examination or Appeals completing action on the nonTEFRA issues, the investor CTF will make a partial assessment based on the copy of the return.

A copy of the examination report, any other workpapers relating to the flow-through adjustment, and Form 5344 will be forwarded to the function working the nonTEFRA issues. If there are no unresolved TEFRA links, see (5) below.

All investors being worked in the field that are not in a 3XX PBC will have a report prepared by the campus as explained above. The agent in the field should be contacted about the TEFRA closure to determine the status of the case. The agent may want to incorporate the TEFRA adjustments into the RAR, or wait for the campus to make their adjustments.

When other TEFRA linkages exist, the investor file will be returned to suspense after the partial assessment. The investor CTF will retain copies of Form 5344 and Form 4549-A each time an assessment is made until the nonTEFRA examination is closed. This is necessary so that each deficiency is computed on the revised taxable income.

When no other TEFRA linkages are open, but another function has control of the investor return, the CTF will forward the complete file to the function that has control of the investor return. The file will be clearly flagged with a Form 3198, Special Handling Notice, showing the special instructions: "TEFRA linkage has been closed by the Campus TEFRA Function. Report enclosed reflects those adjustments and has been provided to the taxpayer. When other issues are resolved, please list PCS linkage on reverse of Form 5344. The TEFRA assessment(s) has (have) been made" .

Corporate TEFRA investors that are in LMSB and are open in field exam will be worked by the field when TEFRA issues are complete before closure of the case. Due to the complexity of the returns, all LMSB agents working corporate investors for nonTEFRA issues will prepare their own TEFRA adjustments. LMSB agents need to be made aware of the TEFRA one-year assessment date and the need to make the adjustments promptly when TEFRA issues are complete before closure of the case.

A corporate investor in LMSB is any corporate investor being worked in field exam that is in a 3XX PBC. The fact that an investor is linked to an LMSB key case does not make it an LMSB investor.

Team Managers should be contacted before a package is sent to the field. The reason for contact is that even if AIMS shows they have control, they may have already sent the case for closing. If the case was closed, contact the local TEFRA Coordinator to locate the case.

Once the package is sent to the field and the campus receives an acknowledgment from the field on a Form 3210, the field will assume the responsibility for monitoring of the one-year date.

Each CTF will use PCS reports to monitor linked returns. Specific information is provided on PCS reports in IRM 4.29 Partnership Control System (PCS) Handbook. The CTF personnel should use the PCS Handbook if they have questions about PCS generated reports.

Cases in status code 34, Employee Group Code 58XX, or with a "T" indicator will be included on the CTF PCS reports. These three criteria, although not all three for every report, are also used to determine CTF staffing levels and for specific measurements.

Accomplishments for CTF closures where the report writing was done in the campus will be closed in employee group code 58XX according to the designated breakouts.

The results for returns are found on AIMS Table 38 using Special Project Codes 013, 015, 101, 102, 103, 104, 106, 107, 109, 114, 118, 121, and 122; the following codes are no longer used: 105, 108, 110-113, 115-117, and 119-120.