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Part 4. Examining Process

Chapter 75. Exempt Organizations Examination Procedures

Section 21. EO Special Examination Procedures

4.75.21  EO Special Examination Procedures

4.75.21.1  (03-01-2004)
Introduction

  1. This IRM provides procedures for issues not covered in other sections of the Manual. These procedures are only meant to assist the examiner in conducting an examination. The professional judgment of the examiner will still be necessary to establish the appropriate scope and depth of the examination.

  2. For specific guidelines on how to examine a particular type of exempt organization (e.g., an IRC § 501(c)(7) Social Club), the examiner should refer to the appropriate chapter of IRM 4.76, Exempt Organizations Examination Guidelines.

4.75.21.2  (03-01-2004)
Technical Advice

  1. Technical Advice is defined as a written advice or guidance memorandum furnished by Exempt Organizations (EO) Rulings and Agreements, (Washington POD) as to:

    1. The interpretation and proper application of Internal Revenue Laws, related statutes and regulations;

    2. A specific set of facts in connection with the examination of a taxpayer's return, determination letter, claim for refund or credit;

    3. Any other matter under the jurisdiction of the EO Area Manager.

  2. Administrative procedures for requesting Technical Advice on matters under the jurisdiction of the Tax Exempt Government Entities (TE/GE) Commissioner are found in Rev. Proc. 2004-5, I.R.B. 2004-1, updated annually during the month of January. Section 2 of the Procedure specifies the significant changes made every year.

  3. Requests for Technical Advice are encouraged on any technical or procedural questions, which cannot be resolved on the basis of law, regulations, rulings, or other published precedent.

  4. All technical advice requests must be routed through Mandatory Review prior to submission to Rulings & Agreements in Washington, D.C., to the following address:
    MC 4920DAL
    1100 Commerce Street
    Dallas, TX. 75242

    Note:

    Rev. Proc 2004-2, IRB 2004-1, provides the administrative procedures for requesting Technical Advice on matters concerning Employment Tax issues.

    Caution:

    Technical Advice Memoranda (TAM) should not be confused with Technical Expedited Advice Memoranda (TEAM). TEAM's cannot be used in lieu of a TAM. See Rev. Proc. 2004-2, IRB 2004-1.

4.75.21.2.1  (03-01-2004)
Mandatory Technical Advice Requests

  1. The examiner must request Technical Advice when considering the following issues:

    1. Relief pursuant to IRC § 7805(b);

    2. Private Schools with a racially discriminatory policy. Refer to IRM 7.1.4.2.2.1. for further details;

    3. Cases concerning qualifications for exemption or foundation status for which there is no published precedent or on which non-uniformity exists;

    4. Revocation or modification is being proposed to an organization that secured its exempt status from a ruling issued by EO Rulings and Agreements, (Washington POD);

    5. Abatement of Chapter 42 first tier taxes when the taxes exceed $200,000. See IRM 7.1.4.2.2.2 (concerning IRC § 4962 abatements);

    6. If the Area Manager, after applying the rationale of U.S. v. American College of Physicians, 106 S. Ct. 1591 (1986), determines that the conduct of advertising in an exempt organization’s journal, or other publication, is substantially related to the organization’s exempt purposes.

  2. The examiner must submit separate Technical Advice requests for a proposed revocation of an organization and a request by a disqualified person for abatement under IRC § 4962 of the 25 percent tax, if the total 25 percent taxes involving all related parties and transactions within the period of limitations exceeds $200,000. For further detailed instructions on these types of cases refer to IRM 7.27.30.

    Note:

    Delegation Order No. 237 (Rev. 2) IRM 1.2.2. 138, provides that EO Area Managers have the authority to abate chapter 42 taxes of $200,000 or less. For chapter 42 taxes of more than $200,000, only the Director, EO has the authority to abate. For more detailed instructions and procedures refer to IRM 7.27.30.14. Amounts for which several parties are jointly and severally liable are counted only once.

4.75.21.2.2  (03-01-2004)
Taxpayer Request For Technical Advice

  1. A taxpayer may request Technical Advice on any issue. If requested during the examination, the examiner will consider it and with the concurrence of the EO Area Manager, go forth or deny the request. The examiner will notify the taxpayer in writing of the action planned. The Area Manager's decision may be reviewed but not appealed. For further instructions in how to proceed, refer to Sections 7.02 and 12 of Rev. Proc. 2004-5.

  2. When the request is initiated by the taxpayer, he or she must submit the initial statement of facts, law, issues and arguments to the Area Office. Refer the taxpayer to Rev. Proc. 2004-5 Section 10 for procedures.

  3. The taxpayer will be offered a conference with EO Rulings and Agreements when the issuance of an adverse decision is anticipated. Refer the taxpayer to sections 13 and 14 of Rev. Proc. 2004-5, IRB 2004-1..

4.75.21.2.3  (03-01-2004)
What Must Be Included in The Request For Technical Advice?

  1. The following, at a minimum, should be included in a Technical Advice Memorandum (TAM) request:

    1. A statement of the facts, law, issues, and Area Office conclusions;

      Note:

      The taxpayer must be furnished with an opportunity to respond (10 days) to the aforementioned information. An extension of an additional 30 days can be granted by the examiner, if justified by the taxpayer in writing. If more than 30 days is requested, EO Area Office approval is needed before granting the request. The revised deadline must be confirmed in writing by the taxpayer. Every effort should be made to reach an agreement with all parties as to the issues and facts. If there is a disagreement as to the significance of the facts, a statement should be prepared explaining that there is no factual disagreement, only in their significance. This statement should be included in the attachments to Form 5565

      .

    2. A statement pertaining to verification of the statute of limitations. There must be at least one year remaining on the statute prior to the TAM submission. If there is not at least one year remaining on the statute when it is submitted to Mandatory Review, it will be returned to the group;

    3. A statement identifying information to be deleted from public inspection per IRC § 6110;

      Note:

      The text of a TAM is subject to IRC § 6110 of the Code and may be open to public inspection, therefore, the Service deletes certain information from the text before it is made available for inspection. To help the Service make the deletions required by § 6110(c), the taxpayer must provide a statement indicating the deletions desired. If the taxpayer does not submit the deletion statements, the Service will follow the procedures in section 11.05 of Rev. Proc. 2004-5.

    4. Form 5565, Request for Technical Advice-EP/EO;

    5. Valid Power of Attorney (Form 2848), if applicable;

    6. Case file, including all returns and workpapers for all years involved;

    7. Taxpayer statement of facts, if applicable.

4.75.21.2.4  (03-01-2004)
Pre-submission Conference

  1. A Pre-submission conference should be considered in order to facilitate agreement between all parties as to the scope of the request. The factual information should include any and all collateral issues in the request in order for EO Rulings & Agreements to provide the parties with an expeditious response. For detailed instructions on pre-submission conference procedures refer to section 9 of Rev. Proc. 2004-5, IRB 2004-1.

    Note:

    The manager, Mandatory Review should be consulted in writing prior to initiating a pre-submission conference with Rulings and Agreements.

4.75.21.2.5  (03-01-2004)
Assembling The Technical Advice Request

  1. Requests for Technical Advice are submitted to EO Rulings & Agreements on Form 5565 to the following address:
    Internal Revenue Service
    Attn: T:EO:RA
    1111 Constitution Ave. NW
    Washington, D.C. 20224

  2. The Technical Advice file is made up of an original and two copies. If an authorized representative is involved a copy of a filed Form 2848, Power of Attorney and Declaration of Representative must accompany the file.

  3. All attachments to the Form 5565 should be tabbed and an index prepared. The index should be the first page after the Form 5565, followed by the attachments. It is recommended that the examiner retain a copy so that he/she will have it available to refer to if EO Rulings & Agreements or EO Mandatory Review has any questions concerning the request.

  4. The advice case file should consist of all original returns and consent forms (872, 872-B, 872-E, SS-10, etc.). A minimum of one year must remain on the statute for all returns prior to submission of the request.

  5. Refer to IRM 7.1.4 and its exhibits for further guidance and procedures regarding submission of Technical Advice.

4.75.21.2.6  (03-01-2004)
Preparation Of Request For Technical Advice

  1. The current form for requesting Technical Advice is Form 5565. Although this form does not contain the correct titles for the appropriate approval signatures, it will be utilized until a revision is available.

  2. In completing the form 5565, the designation of the approving official, formerly the "Chief, EP/EO Division" , should be replaced with "Area Manager." Additionally, the named " District Contact" , should be replaced with "Area Contact " , who is the Manager of Mandatory Review. All other information boxes should be self explanatory.

4.75.21.2.7  (03-01-2004)
Processing The Request For Technical Advice To EO Rulings and Agreements

  1. If the examination of an organization is not complete and the Request for Technical Advice is being submitted under the early referral procedures, the Technical Advice file should include copies of all the workpapers relating to the issues.

  2. If the examination is complete the EO group will make sure that:

    1. All case files, return file(s), service center file(s) and Technical Advice file(s) are forwarded to EO Mandatory Review to the address listed in section 4.75.21.2.

    2. The case is closed off of the examiner’s Form 6490, EP/EO Technical Time Report.

    3. The return file for the oldest primary return contains copies of the documents necessary to verify the legal name of the organization and the individuals who have the authority to bind the organization. EO Mandatory Review will need these documents if it is necessary to secure consents extending the statute of limitations while the case is in EO Rulings & Agreements.

    4. All returns have at least one year remaining on the statute when the request is submitted. This includes returns for all subsequent tax periods even if the subsequent years were not included in the examination.

      Note:

      The only time the statute on subsequent years would not have to be protected is when the issue(s) involve the assessment of tax rather than revocation or modification and it is known that the issue is definitely not present in any subsequent year. If this exception applies, it should be noted on Form 5773.

    5. The case must be updated to REVM (Mandatory Review) on EOIC and to status 52, in transit on AIMS. Once the case is received in Mandatory Review, it will be updated to status 38, suspense on AIMS.

    6. When the case is returned to the group, it should be updated to status 12. Also, Form 3198 should be attached to the case when it is closed to ESS, with instructions to ESS to update the case to status 55 just before status 90. This is necessary so that the case will be excluded from the cycle time computations.

  3. EO Mandatory Review is responsible for securing statute updates, requesting quarterly status reports from EO Rulings & Agreements and communicating this information to the Area Office, while the request for Technical Advice is pending.

  4. Unless the taxpayer chooses otherwise, the examiner remains the primary contact for the organization

4.75.21.2.8  (03-01-2004)
Withdrawal Of A Technical Advice Request

  1. Once a request for a TAM has been sent to the Headquarters Office, Washington, POD, the taxpayer may not withdraw it. Only an EO Area Manager may withdraw the request at any time before the responding Transmittal Memorandum for the TAM is signed.

    Note:

    In cases where Appeals has jurisdiction of the case, only the Area Director, Appeals has the authority to withdraw the request.

  2. The Area Manager must notify the taxpayer in writing of an intent to withdraw the request for a TAM, except:

    1. when the period of limitations on assessment is about to expire and the taxpayer has declined to sign a consent to extend the period; or

    2. when the notification would be prejudicial to the best interests of the Government

  3. If the taxpayer does not agree with the decision to withdraw the request for a TAM, he/she cannot appeal to the EO Examinations Area Manager, but the decision not to seek Technical advice can be reviewed by the Commissioner of the Tax Exempt and Government Entities Division through the Director, Exempt Organizations.

  4. The taxpayer must submit to the examiner, within 10 calendar days after being told of the decision, a written statement of the facts, law, and arguments on the issue and the reasons why the taxpayer believes the matter should be referred to EO Technical for technical advice.

    Note:

    A taxpayer who needs more than 10 calendar days must justify in writing the request for an extension of time. The extension is subject to the approval of the EO Examinations Area manager.

  5. No conference will be held with the taxpayer or the taxpayer's representative.

  6. While the matter is being reviewed, the area office will suspend action on the issue (except when the delay would prejudice the Government's interest).

4.75.21.2.9  (03-01-2004)
The Effect Of The Technical Advice Memorandum

  1. Once a ruling has been made with regard to a TAM, it applies only to the taxpayer for which Technical Advice was requested. A favorable TAM to the taxpayer must be followed unless reconsideration by the Washington POD is requested from the Area Office or Appeals.

  2. The Appeals Director has settlement authority on issues other than exempt status and private foundation classification where an unfavorable TAM was given to the taxpayer.

  3. The taxpayer must first exhaust all administrative remedies before appealing with the Courts, where an unfavorable decision is issued by the Washington POD. This applies to cases not dealing with exempt status or private foundation classification. Refer the taxpayer to 26 CFR 601.201. for further instructions.

4.75.21.2.10  (03-01-2004)
Processing The Technical Advice Memorandum

  1. Upon receipt of the TAM, EO Mandatory Review will prepare a memorandum to the EO Group recommending whether acceptance or reconsideration should be requested, prior to shipping the case back to the EO Group.

  2. When received back in the EO group, the case should be updated on AIMS to status 12 and on EOIC to the group.

  3. The EO group will review the TAM and Reviewer's recommendations, then decides whether to accept the TAM or request reconsideration. If reconsideration is requested the examiner will prepare a new request and all the files will be returned to EO Mandatory Review.

  4. If reconsideration is not requested the examiner will send the taxpayer the following by certified mail within 15 days of receipt:

    1. A cover letter addressing the enclosed attachments. The letter should emphasize the 20 days response period for additional IRC § 6110 deletions;

    2. One un-sanitized copy of the TAM;

    3. One sanitized copy of the TAM;

    4. Notice 438, Notice of Intention to Disclose the TAM to the taxpayer's representative, if applicable.

  5. If applicable, the examiner will solicit an agreement to the issues covered by the TAM. The examiner should prepare a waiver on Form 4549, Income Tax Examination Changes and include it with the TAM mailings.

4.75.21.3  (03-01-2004)
Federal Grand Juries

  1. The provisions of IRM 9.5 relating to Federal grand jury information and activities will be followed by EO examiners. Any reference to the Examination function or to revenue agent will also apply to the EO Area and EO examiners.

4.75.21.4  (03-01-2004)
Incomplete Returns

  1. IRC § 6033(a)(1) states, in part, "every organization exempt from taxation under § 501(a) shall file an annual return, stating specifically the items of gross income, receipts, and disbursements, and such other information for the purpose of carrying out the internal revenue laws as the Secretary may by forms or regulations prescribe, and shall keep such records, render under oath such statements, make such other returns, and comply with such rules and regulations as the Secretary may from time to time prescribe... " .

  2. IRC § 6652(c)(1) imposes the penalties on the exempt organization and the responsible person for failure to:

    1. File a return required under § 6033; or

    2. Include any of the information required to be shown on the return, or

    3. Show the correct information.

  3. An incomplete return is a return in which the entity omitted material information and the omission would hinder the Service from being able to perform its duties. This type of return is treated in the same manner as if no return had been filed when considering whether to impose penalties.

  4. Although the Service Center will usually resolve this issue by contacting the taxpayer and obtaining the necessary information, there may be an occasion when the examiner receives a return which does not contain sufficient information to conduct a complete and efficient examination.

  5. If an examiner receives a return which cannot be examined without additional information being obtained from the organization, an Information Document Request (IDR) will be submitted to the taxpayer requesting the missing information.

  6. If the taxpayer does not supply the specific information, the examiner will determine if the information is essential to the completion of the case. If it is not, the examiner should consider issuing an advisory using letter 3609.

  7. If the information is essential to the completion of the examination, with the concurrence of the manager, a letter advising the taxpayer of the possible loss of exemption for failure to supply the information should be addressed to the taxpayer. See Rev. Rul. 59-95 C.B. 627.

4.75.21.5  (03-01-2004)
Awards of Attorney's Fees In Tax Cases

  1. The purpose of this section is to advise EO examiners of the provisions of the Equal Access to Justice Act (P.L. 96-481) and § 292(a) of the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 (P. L. 97-248) and to emphasize the principles that must be upheld when performing their duties.

  2. The Equal Access to Justice Act, P.L. 96-481, 94 Stat. 2328, amended title 28, the Judicial Code, to provide for the award of costs, attorney's fees and other expenses to "prevailing parties" in any civil tax action in the U.S. district courts or the Court of Claims where the Government has acted in "bad faith" or where the Service is unable to prove that its position was "substantially justified " . Bad faith is described in the legislative history as including vexatious, wanton, or oppressive behavior. The Act does not apply to litigation in the United States Tax Court or State courts. Also, no award would be allowable for fees and costs incurred by a taxpayer in IRS administrative proceedings.

  3. Section 292(a) of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) added § 7430 to the Code and provides that, with respect to civil tax litigation begun in the Federal courts, including the United States Tax Court, after February 28, 1983, a taxpayer who prevails may be awarded reasonable litigation costs, including attorneys' fees, in such proceeding.

  4. Although effective tax administration will sometimes result in judicial proceedings in which taxpayers prevail, strict adherence to existing Internal Revenue Manual provisions will safeguard against a court's finding that a Service employee acted in bad faith or that the Service has taken an unreasonable position.

  5. As long as the position of the Service is found to have a reasonable basis both in law and fact, no award is authorized under P.L. 96-481 or P.L. 97-248 even though the Service has lost the case. Thus, either Act should not curtail an examiner's statutory duty to effectively enforce the Internal revenue laws. The principles employees are to follow in carrying out their duties as set forth in Rev. Proc. 64-22, 1964-1 C.B., 689.

4.75.21.6  (03-01-2004)
Dummy Returns

  1. There may be instances where an examiner examines an organization which is not required to file Form 990, Return of Organization Exempt from Income Tax, because their gross receipts do not exceed $25,000. If this situation occurs, there are processing procedures that must be followed in order to avoid an unpostable situation.

  2. The examiner must establish a "dummy return" via Non Master-File (NMF). See IRM 4.5.3., TEGE/AIMS Special Processing Procedures, for instructions regarding establishing the dummy return.

4.75.21.7  (03-01-2004)
IRS-DOL Coordinated Compliance Agreement

  1. To facilitate the exchange of information between the IRS and the Department of Labor, a formal agreement was signed between the Commissioner of the Internal Revenue Service and the Deputy Assistant Secretary for Program Operations at the Department of Labor to coordinate their examination and litigation activities.

  2. The agreement provides for the exchange of information at regular intervals on plans under examination and/or identified for examination, thereby reducing the likelihood of duplicate examination efforts.

  3. For Exempt Organizations, the agreement covers all field or office examinations of employee welfare benefit plans for IRC § 501(c)(4) and (c)(9) - VEBA organizations, as well as Supplemental Unemployment Benefit Trusts and Group Legal Services Plans.

  4. The Restructuring and Relief Act of 1998 changed the structure of Employee Plans and Exempt Organizations as well as the chain of communications between the entities, eliminating the use of examination referral checklists. EP Classification will receive Department of Labor referrals and forward them to Exempt Organizations on a formal memorandum. The Exempt Organizations Classification Unit will then review the referral for examination potential.

4.75.21.8  (03-01-2004)
State Notification Of Examination Results

  1. IRC § 6104(c) of the Internal Revenue Codes states " In the case of any organization which is described in § 501(c)(3) and exempt from taxation under § 501(a), or has applied under § 508(a) for recognition as an organization described in IRC § 501(c)(3), the Secretary at such times and in such manner as he may by regulations prescribe shall:"

    1. Notify the appropriate State Officer of a refusal to recognize such organization as an organization described in § 501(c)(3), or of the operation of such organization in a manner which does not meet, or no longer meets, the requirements of its exemption;

    2. Notify the appropriate State Officer of the mailing of a Notice Of Deficiency of tax imposed under IRC § 507 or chapter 41 or 42; and

    3. At the request of such appropriate State Officer, make available for inspection and copying such returns, filed statements, records, reports, and other information, relating to a determination under subparagraph (A) or (B) as are relevant to any determination under State law.

  2. Reg.§ 301.6401-3 provides further information concerning which State officers are entitled to notification, the material which may be inspected, and the conditions for inspection.

  3. EO examiners will identify state notification cases by writing "State Notification Case" in the "other" block of the Mandatory Review/ Operations Planning & Review section of Form 3198A, TE/GE Special Handling Notice, attached to the front of the case file. The file will include a list of the states to be notified and which forms or letters to send. See IRM 7.28.2, Disclosure of Information About Exempt Organizations to Appropriate State Officials as Described in IRC §6104(c) for further details.


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