Whenever a remittance is received from a taxpayer, it is important to determine whether it is intended as a "deposit" or a "payment of tax" . Both types of remittances will be posted to a taxpayer’s account as of the date of receipt and both will stop the running of interest on a deficiency from the date the remittance is received. Deposits are payments towards potential underpayments. Rev. Proc. 2005-18 refers to these as either "designated" or "undesignated" remittances. A taxpayer may request the return of all or part of a deposit at any time before the Service has applied the deposit as a payment of tax. The deposit will be returned to the taxpayer upon receipt of a written request unless collection of the tax is determined to be in jeopardy. A taxpayer cannot receive a refund of a "payment of tax" without following the claim for refund procedures.

Under IRC section 6603 of the Internal Revenue Code and Rev. Proc. 2005-18, a remittance made in response to a proposed liability, or after the issuance of a notice of deficiency, will be posted as a payment of tax, unless specifically designated as a deposit by the taxpayer. Post-statutory notice of deficiency remittances will not deprive the Tax Court of jurisdiction. Remittances made prior to the notice, may deprive the Tax Court of jurisdiction. (See section 4.02 of Rev. Proc. 2005-18). In order to preserve the right to petition the Tax Court a pre-notice remittance must be posted as an "advance payment" . Interest will continue to accrue on accrued interest. In order to stop the running of any further interest, a taxpayer must make a remittance sufficient to cover all accrued interest as of the date of remittance as well as the entire amount of the underlying tax.

The appeals officer will encourage the taxpayer to pay the total tax, penalty and interest due on agreed deficiency cases. This will reduce the taxpayer's collection costs. Because Appeals does not have a teller function, cash payments cannot be accepted. Taxpayers who want to pay in cash need to convert the cash into a postal money order, bank cashier’s check, money order or some other negotiable instrument. If the taxpayer is unable to pay the deficiency in full, the appeals officer will discuss alternatives such as installment agreements or offers-in-compromise. At local option, referrals may be made to a collection liaison in Compliance.

Except on criminal investigation or prosecution cases described in (3) below, do not hold remittances longer than the first workday following receipt. Depending upon local procedures, forward payment for credit or deposit to the address provided. Advise the taxpayer of the action taken.

A successful criminal investigation or prosecution may be imperiled by the receipt and disposition of advance payments on a case with criminal fraud implications. Prior to processing the payment, consult with Counsel on an expedited basis. Appeals will not notify the taxpayer of the receipt or disposition of the remittances. When processing, note "Fraud Case" in the "Remarks" section of Form 3244-A .

If a taxpayer proposes to make an advance payment of the entire deficiency in a pre-90 day income, certain excise tax, estate or gift tax case after the Service proposes a liability, advise the taxpayer that assessment prior to issuance of a notice of deficiency precludes the notice and Tax Court jurisdiction. If the Service receives a full payment remittance and has not provided an explanation of the foregoing, promptly contact the taxpayer to explain the impact upon the statutory notice. When an advance payment is received after agreement is tentatively reached, but before review and approval of the determination, a new agreement form reflecting receipt of the payment is not necessary. If Form 5402 , Appeals Transmittal and Settlement Memorandum, is prepared before receipt of the payment, revise it to reflect the receipt and process the remittance.

In 90-day cases, do not assess liability for advance payments made after the issuance of the notice of deficiency unless specifically requested. An assessment will not deprive the taxpayer who files a petition of Tax Court jurisdiction. The assessment is usually not made until the case is closed, unless there is a large deficiency.

The procedure in docketed cases is the same as in nondocketed cases. Assessment may be made at any time upon a specific request from Counsel or from the taxpayer.

If it is determined that a remittance was made to a Compliance office or Campus on an Appeals case, whether before or during Appeals consideration, and no evidence of the remittance is contained in the file, contact the office who received the remittance to determine its disposition.

Form 3244-A , Payment Posting Voucher is prepared and transmitted with remittances on all cases. Detailed instructions for preparing Form 3244-A are contained in IRM 8.20.6 , Processing Form 3244-A . Follow these steps when preparing Form 3244-A :

On post assessment penalty appeal cases, enter the payment amount in the block opposite "transaction code 670 subsequent payment" on Form 3244-A . The duplicate copy of the form is retained in the case file, and the original, along with the payment, is sent to the teller function in Collection.

If payment is received on a civil penalty appeal case, prior to assessment, the amount should be entered on Form 3244-A in the block opposite "transaction code (TC) 640 advance payment on deficiency" . The duplicate copy of Form 3244-A is retained in the case file, and the original, along with the payment, is sent to the teller function in Collection.

Advance payments made on processed returns are treated as credits and additional steps must be taken to have the tax assessed. Ordinarily, if a nondocketed case is closed promptly and the advance payment is equal to or less than the proposed deficiency and interest, the liability will be assessed after the Appeals office closes the case. However, in all docketed cases and in nondocketed cases where closing will be delayed, or where the payment might exceed the tax due, the liability will be assessed promptly. In such cases, the appeals officer will prepare instructions on the Form 5402 directing the assessment of the liability for the advance payment.

Section 4 of Rev. Proc. 2005-18 provides procedures for processing remittances treated as section 6603 deposits. Section 7 of Rev. Proc. 2005-18 explains that interest on a IRC section 6603 3 deposit is allowed only to the extent the deposit is attributable to a disputable tax. The amount and nature of the disputable tax must be identified at the time the amount is remitted to the Service, in order to avoid limitations on the taxpayer's right to interest. See Section 7.04 of Rev. Proc. 2005-18 and paragraph (3) below.. When the taxpayer identifies a remittance, for which the taxpayer has a reasonable basis for the treatment of the item on its return, and for which the taxpayer reasonably believes that the Service also has a reasonable basis for disallowing the taxpayer's treatment of the item, and the basis for the taxpayer's belief that it has a reasonable basis for the treatment of the item and that the Secretary also has a reasonable basis for disallowing the taxpayer's treatment of such item, submitted after October 22, 2004, as an IRC 6603 deposit, it is processed and posted in the same manner as the Service previously processed cash bond remittances. Deposits are identified by a transaction code 640 (advanced payment on deficiency), blocking series 999 and designated payment code (DPC) 12.

The taxpayer can make a deposit by sending a check or money order accompanied by a copy of the 30-day letter or a written statement designating the remittance as a deposit. The written statement must include the following three elements:

If a taxpayer does not identify the amount and nature of the disputable tax in writing or provide a copy of the 30-day letter at the time of the deposit, interest will not be allowed if the deposit is later withdrawn by the taxpayer. If the taxpayer later provides the Service with the required information in writing, interest on the deposit is allowed as of the date the amount and the nature of the disputable tax is identified.

A pre-statutory notice remittance is a deposit when the taxpayer is subsequently issued a notice of deficiency on the amount of liability for which the deposit was remitted. The deposit is posted to the taxpayer’s account as a payment of tax (to the extent that the deposit does not exceed the amount of the notice of deficiency, plus any interest that has accrued on the deficiency) unless the taxpayer requests in writing, before the 90-day or 150-day period expires, that the deposit continue to be treated as a deposit after the mailing of the notice of deficiency. If the taxpayer does not petition the Tax Court, the taxpayer has no right to continue the deposit as a deposit.

Once the examination ends and the taxpayer, who made a deposit, agrees to the full amount of the deficiency, the tax, penalty and interest is assessed. The deposit is applied against the assessed liability as a payment of tax as of the assessment date. If the deposit satisfies the assessed liability, no notice of deficiency is mailed and the taxpayer does not have the right to petition the Tax Court for a redetermination of the deficiency.

A taxpayer can have the deposit that exceeds the amount of tax liability applied against another assessed or unassessed liability. For example, the taxpayer under examination can request that a deposit made for one type of tax in one year be applied to another type of tax in another year. The request must be in writing and must be directed to the same office where the original deposit was made.

If an undesignated remittance is made for the full amount of a proposed liability, such as the amount proposed in the RAR, it is treated as a payment of tax and a notice of deficiency is not mailed to the taxpayer. The taxpayer does not have the right to petition the Tax Court. Undesignated remittances (those not designated as a deposit) are treated as payments and are applied by the Service against any outstanding liabilities . They are applied to the liability of the earliest taxable year in the order - tax, penalty and interest. This undesignated remittance is posted to the account as a payment when received and can be assessed, provided the assessment will not imperil a criminal investigation or prosecution. The undesignated remittance treated as a payment is considered when determining the existence of a deficiency and whether a notice of deficiency is required to be issued. Exceptions to the above treatment are when the taxpayer has no outstanding liabilities when the taxpayer is under examination but before a liability is proposed to the taxpayer in writing. The appeals officer will notify the taxpayer concerning the status as a deposit. The taxpayer can elect to have it returned prior to issuance of an RAR. If an undesignated remittance made after the date that the Tax Court files its decision is greater than the amount of the deficiency plus interest, the excess is treated as a deposit until information is obtained by the Service to apply the remittance to an outstanding liability or to determine the amount should be returned to the taxpayer.

Any portion of a deposit that was previously designated as a cash bond pursuant to Rev. Proc. 84-58 , does not earn interest under IRC Section 6603(d) unless the taxpayer sends a written statement to the Service identifying the amount as a deposit under IRC Section 6603 . The date the Service receives the written statement is treated as the date on which the amount is deposited for purposes of IRC Section 6603(d) . Transition rules for the time between October 22, 2004 and March 28, 2005, are explained in section 10 of Rev. Proc. 2005-18 . The date the Service receives the written statement is treated as the date the "converted" IRC Section 6603 deposit can begin to bear credit interest if it is returned to the taxpayer. Taxpayers requesting conversion of a cash bond to a IRC Section 6603 deposit should send the written request to the IRS Campus or examining office where the deposit was originally submitted. If the deposit to be returned relates to a tax year under examination, the statement should be submitted to that office. The statement must include:

Form 5402, Appeals Transmittal and Case Memorandum, is used to identify information pertaining to remittances on cases in Appeals. The following lists situations that should be annotated on Form 5402:

Section 8 of Rev. Proc. 2005-18 provides procedures for the treatment of interest when a remittance is made. Since interest continues to accrue on accrued interest, a taxpayer must remit enough to cover all accrued interest as of the date of remittance, as well as the entire amount of the underlying tax in order to stop the running of any additional interest.

Interest is suspended on the date the remittance (whether it is a payment of tax or a deposit) is received by the Service regardless of when the liability is assessed or the remittance is applied against the taxpayer’s account as a deposit. If the Service holds the remittance as a deposit and then returns it to the taxpayer at their written request, interest is not suspended for the period the remittance was held as a deposit if a deficiency is later assessed for that period and type of tax.

IRC Section 6603 provides for interest at the Federal short-term rate determined under IRC Section 6621(b) , compounded daily. Credit interest allowed on a deposit returned at a taxpayer’s request must be manually computed and input with transaction code 770.

When a remittance is received after the case is closed, send it to the Campus using Form 3244-A prepared in accordance with the instructions in See IRM 8.20.6.3., Advanced Payments and Other Remittances Received in Appeals. Forward any bills or other information furnished by the taxpayer with the payment to ensure credit to the proper account and acknowledge receipt. If the remittance represents a partial payment, inform the taxpayer where to make future payments. The transmittal letter to the taxpayer must include their name, social security or employer identification number, type of tax and tax period.

All employees who receive remittances must follow IRM procedures to ensure prompt deposit of funds. See IRM 8.20.6.3.1, Delivering Advance Payments and other Remittances to the Remittance Function. Send the remittance to the Campus Remittance Function designated for your area.

The remittance function should be called to alert them when there is a large remittance.

Remittances of $100,000 receive extraordinary handling to ensure delivery to the teller by the day after receipt.

The benefit derived from the expeditious handling of deposits warrants using the most effective delivery service available. The expeditious handling measures include, but are not limited to, the following:

All remittances should be sent to the campus remittance function within24 hours of when the remittance is received.

If the remittance is large, contact the remittance function to alert them of the delivery.

When a remittance is received, determine whether it is intended as a IRC Section 6603 deposit or a payment of tax. See Rev. Proc. 2005-18,Rev. Proc. 2005-13 , I.R.B. 798, for detailed procedures on the treatment of remittances, including IRC Section 6603 deposits.

Generally, a written statement from the taxpayer designating the type of remittance will determine whether the remittance is treated as an IRC Section 6603 deposit or a payment of tax. In cases where the taxpayer does not provide a written statement designating the type of remittance, the remittance generally will be treated as a payment of tax subject to certain exceptions. See Rev. Proc. 2005-18 , section 4.01(2).

A payment of tax and satisfying the taxpayer's full liabilities:

An IRC Section 6603 deposit:

An IRC Section 6603 deposit will be applied as a payment of tax at the expiration of the 90-day (or 150-day) period unless the taxpayer files a petition with the Tax Court and provides another written request that the deposit continue to be treated as an IRC Section 6603 deposit after the mailing of the notice of deficiency. The request must be made by the taxpayer before the 90-day (or 150-day) period expires. Any amount that exceeds the deficiency and accrued interest will continue to be treated as an IRC Section 6603 section deposit and may be returned to the taxpayer with interest, if the requirements of IRC Section 6603(d) are met.

Both IRC Section 6603 deposits and payments of tax stop accrual of underpayment interest as of the date of the remittance. However, underpayment interest will continue to accrue on accrued underpayment interest. In order to stop additional interest from accruing on accrued interest, the remittance must be in an amount that covers all accrued underpayment interest as of the date of the remittance as well as the entire amount of the underlying tax.

Rev. Proc. 82-51 , 1982–2 C.B. 839, provides detailed procedures for the treatment of payments made after 1982. Rev. Proc. 82-51 updates and clarifies the advance payment procedures in Rev. Proc. 64-13 , 1964-1 (Part 1) C.B. 674, for payments made after 1982. Rev. Proc. 84-58 , 1984-2, C.B. 501, supersedes Rev. Proc. 82-51 with respect to remittances made on or after October 1, 1984. Rev. Proc. 2005-18 supersedes Rev. Proc. 84-58 for remittances received on or after March 28, 2005.

Prepare and transmit Form 3244-A , Payment Posting Voucher-Examination. Prepare a separate Form 3244-A for each tax period and/or type of tax.

If the payment is hand carried to the remittance processing function, they will date stamp Part 2 or a photocopy of Form 3244–A Form .

Complete these entries on Form 3244-A :

Following is the procedure for entering the payment amount.

Prepare Form 3244-A, Payment Posting Voucher, on NMF cases the same as above except:

Prepare separate Form 3244–A for each taxpayer, each taxable year, and each type of tax involved (i.e. income, employment, estate, etc.).

If the payment is intended as a "cash bond" note the Form 3244–A to alert the campus remittance processing function that special handling is required.

Appeals will keep a receipted copy of Form 3244–A or signed copy of Form 3210 on all payments sent to the remittance processing function.

There are several instances that require Counsel concurrence before APS can complete the requested interim action. Specific guidance is provided in this section for the various situations which require Counsel concurrence.

When a settled non-docketed case is received which involves the removal of a fraud penalty it requires Counsel’s concurrence.

Send Counsel the administrative file which contains all returns and documents that were in the case file when it was received by Appeals. Also include copies of all correspondence received or sent while the case was in Appeals.

Retain any remaining copies of Form 5402 in APS for distribution or mailing when Counsel returns the file.

Also retain copies of the prepared closing letter with sufficient copies addressed to the taxpayer or the taxpayer’s representative. DO NOT date or mail this letter until Counsel concurs.

Update ACDS by entering action code DCOTHER and the date case sent to Counsel on the update case screen.

Some notices of deficiency, as well as Employee Plans (EP) and Exempt Organizations (EO) final adverse determination letters, will go to Counsel for concurrence before the letter is issued. The AO will indicate when this situation occurs. The administrative file sent to Counsel will contain the following:

Retain any remaining copies of Form 5402 in APS for distribution or mailing when Counsel returns the file.

Enter action code SNDC and the current date (date case sent to Counsel) on the update case screen.

On a monthly basis, run the SNDC follow-up list to determine whether Counsel has returned the administrative file.

When the administrative file is returned with Counsel’s approval:

Occasionally, a case referred to Counsel for consideration of the issuance of a notice of deficiency, EP or EO adverse determination letter, or for concurrence in the removal of a fraud penalty, is returned to Appeals with a memorandum stating the reason for withholding concurrence. When receiving such a case:

Generally, you may retain the administrative file and tax return in these instances, depending upon local arrangements with APS. If a restricted interest computation is necessary, include a copy of page 1 of the return and restricted interest worksheets along with Form 5403 . (A second Form 5403 will be processed when the return is finally closed.)

Form 5403:

After processing an interim assessment, the terminal will not accept a second Form 5403 until computer verification of the partial or interim assessment, which normally is about 2 weeks from the date of the interim assessment.

If a quick assessment is requested, do not follow the instructions in 2(b) above. In Item A of Form 5403, request the following: "Interim Quick Assessment—do not process through terminal."

Occasionally a notice of deficiency (90-day letter) is issued against a proposed joint deficiency and only one spouse petitions the United States Tax Court. The other spouse agrees or does not take any action. These cases are considered "non-petitioning spouse" cases.

If only one spouse petitions (confirm with Counsel), take action to assess the deficiency against the non-petitioning spouse.

Form 3177 will be prepared with TC 971, Action Code 103, XREF TIN = non-petitioning spouse TIN. This will create an MFT 31 account for the non-petitioning spouse only.

Prepare Form 5403 :

The IRS Restructuring and Reform Act of 1998 (RRA 98) gives the Tax Court jurisdiction to order a refund of amounts collected from the taxpayer when the Service was barred from doing so. For example, assume the Service issues a notice of deficiency and collects a portion of the deficiency during the time that the taxpayer could petition the Tax Court. If the taxpayer files a timely petition with the Tax Court, the court can order a refund of the amount collected during the prohibited period. In this case, the refund should be issued manually, and the litigation freeze code should be retained on the taxpayer's account.

The taxpayer may also initiate a judicial proceeding in Tax Court, District Court, or the United States Court of Federal Claims to recover amounts collected when the Service was barred from doing so.

All work units over $1 million on which a partial agreement was received and an interim assessment was processed will be split on ACDS to capture Appeals results. This will result in one closed agreed unit and one unagreed unit open in the appeals officer’s inventory.

If one tax year was agreed in a multiple-year unit, rather than part of the issues within one tax year, only the unagreed tax years will be included in the new work unit.

This procedure applies only to assessable partial agreements. Both a Form 870 and a stipulation of agreed issues, entered by the Tax Court, must be secured on docketed cases.

This procedure may also be used when Appeals settles some issues in a case and then returns the balance of the case to Examination as a premature referral.

Close ACDS for the original work unit with partial assessment results.

Create a new work unit on ACDS to reflect the unagreed issues/years which remain open in the appeals officer’s inventory:

If assessment verification is requested and received, attach the verification to the face of the return.

After processing the interim assessment, return the file and all documents associated with the adjustment to the appeals officer, tax computation specialist, or Counsel, as appropriate.

The documents should include interest computations, assessment verification, etc.

A taxpayer may file a claim for refund or abatement with an Appeals officer. The claim may be filed on amended return forms, such as Form 1120X or Form 1040X , or in the case of taxes other than income taxes, on a claim form (such as Form 843 , Claim for Refund and Request for Abatement). If filed, the claim must be processed as follows, except that IRM 21.5.3, General Claims Procedures, and IRM 25.6.6, Claims, Abatements and Refunds, and other IRM sections cited in those two provisions, will apply in the case of a defective claim:

Frequently, a taxpayer files a claim or amended return with the Appeals office while his/her case is under consideration by Appeals. It is important to ensure the master file reflects the receipt of an amended return or claim. Follow instructions for having the return/claim processed by the campus and posted to the master file.

A taxpayer may file an amended return with an Appeals officer for an amount due. The most common returns are Form 1040X, Amended U.S. Individual Income Tax Return and Form 1120X, Amended U.S. Corporation Tax Return. The amended return is processed as follows:

The following sections explain how to processing delinquent returns received in appeals.

Military personnel have APO or FPO addresses.

Send letters with an APO address for Alaska (zip code 99502) or Hawaii (zip code 96860) by certified mail.

Use registered mail for all other APO addresses, because they are considered to be outside the U.S.

FPO addresses are always considered outside the U.S. Use registered mail for all FPO addresses.

Work units which are part of a Coordinated Industry Program (CIP) case as defined in IRM 4.45, should be transferred to the Appeals Office that serves the primary territory or area for the case.

Where partnerships are not covered by the TEFRA provisions of IRC 6221 – IRC 6234, the key case concept still applies. Where no taxable partner files a protest to the partnership adjustments in the area where the partnership return is held, Appeals will transfer the first protesting partner’s return from some other area to the Appeals Office with jurisdiction over the related partnership return. See IRM 8.2.1, Agreed Pre-90-Day Income Tax Cases.

Cases appealed from the Employee Plans and Exempt Organizations business units under Tax Exempt and Government Entities (TEGE) Operating Division should be sent to the designated Appeals Offices where Appeals Officers are located with expertise in these issues. See Exhibit 8.7.8–1, Jurisdiction of Appeals Offices for TEGE Cases.

Transfers of nondocketed cases that do not conflict with the provisions of IRM 8.20.6.9.1. are authorized under the following circumstances:

Transfers of nondocketed cases under any other circumstances may only be made as follows:

Docketed cases under Appeals jurisdiction should be transferred to the Appeals Office (except Baltimore, Maryland) serving the locality designated by the United States Tax Court for a hearing.

Cases set for a Tax Court hearing in Washington, D.C., should be transferred to the Baltimore, Maryland Appeals Office only if the taxpayer lives in the area and the books and records are available there. Otherwise, the case should be sent to the Appeals Office serving the area of the taxpayer's residence or place of business.

The above principles are modified in the following circumstances:

Transfers of docketed cases under any other circumstances may only be made as follows:

All transfers of docketed cases should be coordinated with Area Counsel.

A case file may be forwarded to another locality on a loan basis if requested by Area Counsel.

Use Form 3210, Document Transmittal, to transfer cases between Appeals Offices. Addresses may be obtained from Document 6209, ADP and IDRS Information, or refer to the addresses listed under routing on the Appeals Processing Services page of the Appeals web site http://appeals.web.irs.gov/APS/caserouting.htm.

Form 3210 is used to send the case file to the receiving Appeals Office. Two copies of Form 3210 will be attached to the case file. A third copy of Form 3210 will be held in suspense by the transferring office. Any necessary approvals of the Appeals Area Directors or the Chief, Appeals will be obtained and documented in the file before transferring a case.

To indicate acceptance of the case, the receiving office will acknowledge receipt by signing and dating the appropriate boxes on the form and returning a copy of the signed Form 3210 to the transferring Appeals Office. If some reason exists for not accepting a transfer, the receiving office will return the case with an explanation. Contact by telephone or E-mail is suggested before returning the case.

The receiving office should notify the taxpayer of the transfer after accepting jurisdiction of the case.

Conferences are held on dates and in locations reasonably convenient to taxpayers and representatives. Generally, they are held at appeals offices, suboffices, or other IRS-staffed posts of duty that are not temporary or part-time locations. However, managers may approve the holding of conferences at other sites when feasible and necessary to provide a convenient conference opportunity. Ordinarily, the amount in dispute is not an important factor in approving another conference site.

The number of conferences should be held to a minimum. A frank discussion of the facts and law ordinarily brings a case to a prompt conclusion.

If a taxpayer indicates, during a conference, that he or she wishes to consult with a qualified representative or otherwise seek advice, the conference should be suspended and rescheduled. See IRC section 7521.

If circumstances indicate that an otherwise allowable case transfer would be undesirable or disadvantageous to the Service, the transfer may be denied as follows:

A memorandum that sets forth the reasons for denying a transfer and that requests approval of the denial should be routed to the appropriate official(s) for action.