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Part 25. Special Topics

Chapter 6. Statute Of Limitations

Section 1. Introduction (Cont. 4)

25.6.1  Introduction (Cont. 4)

25.6.1.11 
Statute Transcripts

25.6.1.11.1 
Statute Transcript Research

25.6.1.11.1.4 
Statute Transcript Procedures

25.6.1.11.1.4.2 
Resolving STAT Transcripts

25.6.1.11.1.4.2.14  (04-01-2007)
ST-21 (Account Reactivation Freeze)

  1. An ST-21 is caused by the input of TC 370 with Doc Code 52. The TC 370 establishes a module and includes all transactions which were formerly posted to the respective master file and recorded on the retention register. Upon the posting of TC 370, the credit is frozen from refund/offset out, as well as Tax Delinquent Account (TDA) issuance.

  2. Close your case if subsequent action has resulted in the freeze release or a pending action will release the freeze.

    If And Then
    The module is in a debit/credit balance There is no open control Request the source document file (TC 370 DLN) to determine why the module was reinstated and coordinate properly.
    It cannot be determined who reinstated the module and why the module was reinstated The module is in credit status Transfer the credits to the XSF or URF file as applicable. See IRM 25.6.1.7.3(3), Excess Collection File (XSF) And Unidentified Remittance (URF), information before transferring any credit or payment.
    The module is in debit status The CSED has not expired Input TC 290–0 to release the freeze.

25.6.1.11.1.4.2.15  (04-01-2007)
ST-22 (Original—No Amended Return)

  1. An ST-22 is caused by a return processed through the Remittance Processing System (RPS) and posts to a tax module that reflects multiple TC 610s or a TC 610 with a DLN which does not match the TC 150 DLN.

  2. If IDRS reflects a pending adjustment or the freeze was released by an adjustment action, close your case. No further action is required.

  3. Request research documents, returns, TC 610 documents, etc., as appropriate.

  4. Analyze documents to determine correct posting.

    IF THEN
    Multiple TC 610 belongs on another module Transfer the credit.
    The return belongs on another module or account Make the necessary adjustment to correct the accounts.
    you are unable to determine the correct disposition of the credit(s) Request the block of returns corresponding with the multiple TC 610s.

  5. If after all research is completed and files are searched, it cannot be determined if the TC 610 is posted correctly and no return with a corresponding DLN can be located, transfer the credit(s) to XSF. See IRM 25.6.1.7.3(3), Excess Collection File (XSF) And Unidentified Remittance (URF), information before transferring any credit or payment.

25.6.1.11.1.4.2.16  (04-01-2007)
ST-26 (TC 59X/Credit Balance)

  1. An ST-26 is caused by a module that includes TC 610, a credit balance, and certain Collection closing codes. The Statute function will work the cases as follows:

    IF AND THEN
    CC 14 Credit was present when the module was in either Tax Delinquent Investigation (TDI) or notice status when TC 590 CC14 was input Route to CSCO.
    CC 17 and 18   Process according to instructions for 12-Y Transcripts in IRM 21.2.4.3.41. Do not transfer to Compliance Services Collection Operation (CSCO).
    CC 20 and 21 After ensuring the filing requirements are correct Follow 12-Y Transcript Procedures to resolve the credit.

25.6.1.11.1.4.2.17  (04-01-2007)
Resolving RSED–STAT Transcripts

  1. An RSED-STAT is caused by the following:

    1. An IMF/BMF Adjustment (TC 29X/30X) posts to MF.

    2. The received date of claim/amended return Refund Statute Control Date (RFSCDT) is more than 3 years after RDD or 2 years after the payment of tax, whichever is later.

    3. The tax module is in credit status.

  2. Statute employees must review all transcripts within 10 workdays. Returns/documents should be requested on as needed basis.

  3. The Statute manager must review the listing each day for "open" RSED conditions (credit balances over ( See LEM 25.6.1.11.4.2.17 )). If the manager identifies a transcript assigned to an employee who has not updated/closed the control by the 10th day; the case must be brought to the attention of that employee or reassigned to an employee who is in duty status that day.

  4. Review the transcript for type of tax period. Compute the RSED based on 1 above or any documented exceptions that may extend the RSED as stated in See IRM 25.6.1.10, Claims, Abatements, and Refunds.

  5. If a determination is made that the credit(s) have expired, the expired credits must be applied to the XSF to resolve the transcript freeze issue. This is a barred case if the ASED has expired and the decrease in tax was input due to a redetermination of the tax liability. A Form 9355, Barred Statute Report is required. You must send the taxpayer a disallowance letter (105C), and input a TC 290-0 with Blocking Series 98 or 99 to refile the case. If the overpayment credit is partially refundable, you must send a refund for the amount that can be refunded, send non-refundable credit to XSF, and send the taxpayer a partial disallowance letter (106C). Also, if you input a tax decrease for more than amount that is partially refundable, a barred statute report is required on this type of case. If the refund claim is timely and all of the overpayment credit is fully refundable, input 290–0 with PC 4. See IRM 25.6.1.7.3(3), Excess Collection File (XSF) And Unidentified Remittance (URF), information before transferring any credit or payment.

25.6.1.11.1.4.2.18  (10-01-2001)
ST-29 (RSED–STAT Follow-Up)

  1. An ST-29 is a Follow-up to the RSED-STAT.

  2. See the instructions above for processing RSED-STAT Transcripts Refer for resolution.

25.6.1.11.1.4.2.19  (11-15-2007)
STEX Transcripts

  1. A STEX transcript is generated because:

    1. An original delinquent return is received more than 3 years after the RDD or extended RDD.

    2. See IRM 25.6.1.10.2.9.6 , Combat Zone, when a return is filed by a Combat Zone taxpayer who is entitled to a suspension of filing requirements and return is coded appropriately for the various Combat Zone areas.

    3. Pre-paid/non pre-paid credits are being claimed for overpayment.

    4. An overpayment is claimed on Form 8752, Required Payment or Refund under Section 7519.

      Note:

      A payment submitted with Form 8752 is treated like an employment tax for assessment and collection purposes; however, a claim for refund submitted on that form is a request for an over deposit of a non-tax amount, and not a claim for refund subject to the procedures in the Internal Revenue Code for obtaining a refund. See IRM 25.6.1.10.2.12.8, Claim for Section 7519 Payment Made in Connection with a Section 444 Election.

  2. You must review the transcript and determine the:

    • Tax period and type of tax,

    • Due date of the return, and

    • RSED.

      Caution:

      Postmark dates do apply for timeliness of Return Received Dates for refunds or offsets of pre-paid credits on Original Delinquent Filed Returns. See IRM 25.6.1.8.5, Processing Original Delinquent Returns Claiming An Overpayment.

  3. Determine if any credits are available for refund or offset.

    1. If they are not, transfer the credits to XSF, and

    2. Send a disallowance letter to the taxpayer. See IRM 25.6.1.7.3(3), Excess Collection File (XSF) And Unidentified Remittance (URF) information before transferring any credit or payment.

    3. Input a TC 290 for zero using Blocking Series 98/99.

  4. The entity is required to file Form 8752 each year adjusting the amount on deposit up or down depending on the amount required to be kept in the account. The entity will either make an additional required payment or get a refund from its existing account when it filed its Form 8752. The balance remains on deposit as a transfer credit to the subsequent year. Generally, for election years beginning in 1990 Form 8752 replaced Form 720 for this purpose. The required payments are intended to represent the value of tax deferral by the owners of the entity through the use of a taxable year different from the required taxable year for the entity.

  5. The Service may not be able to process a claim for an overpayment for any year until the entity has filed the required Forms 8752 for all prior applicable election years. Nevertheless, the Service in its discretion may process claims without delinquent Forms 8752 if it otherwise has sufficient information to determine whether any refund is due, or whether interest and penalties for the prior years are due and owing.

  6. Use the following instructions for TC 766 credits for MFT 03 & 15 for Form 8752:

    IF AND THEN
    A credit balance transcript is received on a statute year. If the entity has terminated the election or liquidated, check that the Form 8752 is timely – See IRM 25.6.1.10.2.12.8, for timeliness. The entity has filed a Form 8752 for each preceding year that the entity's § 444 election was in effect. The entity is entitled to a refund of the excessive amount. The remaining credit balance can then be transferred to the next year, or if the entity has terminated the election or liquidated, the deposit can be returned.
    Same as above The entity has not filed a Form 8752 for each preceding year that the entity's § 444 election was in effect Do not allow the claim for refund of credit. You must send a letter to the entity informing it of the requirement to file Form 8752 for each such year unless you determined that you have sufficient information to determine whether any refund is due, or whether interest and penalties for the prior years are due and owing.
    No reply is received from your request for Form 8752 filing.   The credit should remain on the account until the entity files the required Form 8752. Do not send payment to XSF.
    The entity sends in the requested Form 8752 as required. The Forms 8752 for the prior years confirm that the required amount currently held on deposit exceeds the proper account balance as of the end of the tax year for which the current Form 8752 has been filed. The entity is entitled to a refund of the excessive amount. The remaining credit balance can then be transferred to the next year, or if the entity has terminated the election or liquidated, the deposit can be returned.

  7. Check transcripts for transaction codes of non-prepaid credits. The amount allowable for refund or offset of non pre-paid credits are limited to tax paid within the later of 3 years from the time the return was filed or two years from the time the tax was paid (see Section 6511(a)). If the return is filed within 3 years of non pre-paid credits, release the freeze with TC 820 and 700 for zero. Also, you must correct the ASED to the timely post mark date using Command Code REQ 77 with DLN Code 990 thru 999.

  8. If have both prepaid credits and non-prepaid credits on the account and only non-prepaid credits are refundable, you must send the prepaid credits to XSF first before you refund the non-prepaid credits as stated in the previous paragraph. In addition, input a TC 29X for zero amount with posting delay code of 1, and use Blocking Series 00 or 18 to associate document with original return. This will allow the taxpayer's refund to go out without unposting. Then, send the taxpayer a 106C partial disallowance letter with appeal rights.

  9. If a STEX transcript is generated and the TC 150 is an SFR return for zero amount but the module is in credit balance, treat the transcript as "classified waste." .

    1. If an AM14–O transcript (follow-up to the STEX transcript six months later) generates and research indicates the TC 150 for zero amount is an SFR tax module and SFR has not input a TC 290 for the tax, reassign the AM14–O transcript to SFR in CSCO. A case is not considered closed in SFR until the TC 290 is input.

    2. It is the SFR employee's responsibility to apply any non-refundable credits to XSF and to notify the taxpayer that the refund is being disallowed due to the return being filed after the later of 3 years from the time the return was filed or two years from the time the tax was paid (see Section 6511(a)).

25.6.1.11.1.4.2.20  (04-01-2007)
STEX-XSF (Credits Systemically Applied To XSF)

  1. A STEX-XSF transcript is caused by:

    • An original delinquent return posted to a tax module more than three years after the return due date or extended due date.

    • Credits posted to the account are withholding and/or earned income credit

    • The entire credit balance is comprised of non-refundable withholding and/or earned income credit

  2. You must pull the return to check the postmark date if the IRS received date on the account is within 7 days of the Refund Statute Expiration Date. If the tax return is timely received per the postmark date, then you must bring the money back from the Excess Collection File (if already sent) and issue a refund to the taxpayer. You must also correct the ASED by inputting of a TC 560 with DLN Code 990 thru 999 via REQ 77. If the tax return is not timely received, you must continue to resolve per the procedures in paragraph 3 below.

  3. Check the transcript tax module to ensure all non-refundable credits have been systemically applied to XSF. Systemic reversal of the credit usually occurs within 4 weeks after the date the transcript generated.

    Note:

    Due to timing uncertainties between systemic application of credits to XSF and generation of the transcript, the credit may not have been reversed at the time of generation of the transcript.

    1. If the credits have not been applied to XSF within four weeks from the time the transcript was generated, or there is no AP or PN TC 820, then transfer the credits to XSF. See IRM 25.6.1.7.3(3), Excess Collection File (XSF) And Unidentified Remittance (URF) information before transferring any credit or payment.

    2. Send disallowance letter (105C) to the taxpayer.

    3. Input TC 290 for zero to refile case.

25.6.1.12  (01-01-2003)
Collection Statute Expiration Date (CSED)

  1. This chapter provides guidance in determining the CSED and extension of the CSED.

  2. The CSED is the expiration of the time period established by law to collect taxes. The CSED is normally ten years from the date of the Summary Record of Assessment (Form 23C, RACS 006) of:

    • Transaction Code (TC) 150, Tax Assessed

    • TC 160, Manually Computed Delinquency Penalty

    • TC 166, Delinquency Penalty

    • TC 170, Estimated Tax Penalty

    • TC 176, Estimated Tax Penalty

    • TC 180, Deposit Penalty

    • TC 186, FTD Penalty

    • TC 234, Daily Delinquency Penalty (if it is the only CSED in the module)

    • TC 238, Daily Delinquency Penalty

    • TC 240, Miscellaneous Penalty (all except for Reference Codes 697 and 699)

    • TC 246, 8752 or 1065 Penalty

    • TC 290, Additional Tax Assessment

    • TC 294, Additional Tax Assessment with Interest Computation Date

    • TC 298, Additional Tax Assessment with Interest Computation Date

    • TC 300, Additional Tax or Deficiency Assessment by Examination or Collection

    • TC 304, Additional Tax or Deficiency Assessment by Examination or Collection

    • TC 308, Additional Tax or Deficiency Assessment by Examination with Interest Computation Date

    • TC 320, Fraud Penalty

    • TC 350, Negligence Penalty

    • TC 340 Restricted Interest (Doc Code 47 and 51 only)

  3. If the CSED expired prior to 11/5/1990, the CSED was 6 years. If the CSED had not expired as of 11/5/1990, it was extended to 10 years.

  4. Each additional assessment of tax carries it's own CSED of 10 years.

    Example:

    If the taxpayer filed a timely original return that contained a TC 150 assessment for the 2003 tax year, the CSED would be April 15, 2014. If the taxpayer files an amended tax return on June 26, 2006 to increase tax, the CSED for that additional assessment would be June 26, 2016.

  5. The reversal of any refundable credit (i.e., Earned Income Credit) carries the CSED of the TC 29X or TC 30X adjustment.

  6. The Service and the taxpayer may agree to extend the collection period in only two situations:

    1. Where the extension is agreed to at the same time as an installment agreement is entered into between the taxpayer and the Service, or

    2. Where the extension is agreed to prior to a release of levy under IRC § 6343 which occurs after the expiration of the ten-year collection period.

      Note:

      Prior to the IRS Restructuring and Reform Act of 1998 (RRA of 1998), the Service and the taxpayer had been allowed to agree to extend the collection period in any situation; under the RRA of 1998 such extensions generally expired by December 31, 2002.

25.6.1.12.1  (04-01-2007)
CSED Research

  1. To determine the CSED and extension of the CSED, you may need to refer to the following Internal Revenue Manual Sections and/or Internal Revenue Codes Sections including:

    • IRM 5.1.19, Collection Statute Expiration

    • IRM 5.8, Offer In Compromise Handbook

    • IRM 5.14, Collection Installment Agreement Handbook

    • IRM 5.19.1, Liability Collection

    • IRM 25.6, Statute Of Limitations

    • IRM 25.6.1.6.18, Legal Holidays

    • IRC Section 6502, Statute For Collection

    • IRC Section 6503, Suspension Of Collection

25.6.1.12.2  (01-01-2003)
CSED Procedures

  1. The following subsections provide procedures for handling the CSED and extension of the CSED.

25.6.1.12.2.1  (10-01-2007)
Conditions Postponing Collection or Suspending the 10 Year Collection Period

  1. The period for collection may be postponed or the running of the collection period may be suspended by the events listed below. A TC 550 is input to extend the CSED in accordance with the event causing postponement or suspension.

    • Military Postponement. This event is indicated by a TC 500. IRC § 7508 postpones the time for collection, by the Secretary, by levy or otherwise, of the amount of any liability in respect of any tax assessed against an individual serving in a combat zone or certain other areas of military service. See IRM 25.6.1.10.2.9.6.7, Combat Zones and Qualified Hazardous Duty Areas, for a description of combat zones and other areas of military service.

      Note:

      A taxpayer may have requested and obtained relief from collection under the Soldiers and Sailors Relief Act (the"SSRA" ), 50 USC Appendix 573. This event is indicated by a TC 500. The SSRA applies to a person in the military. The SSRA defers collection of current or back income taxes (for up to six months after termination of military service) if such person's ability to pay is materially impaired by reason of military service. Rev. Proc. 57-25, 1957-2 C.B. 1092, prescribes the policy and procedure for the deferment of the collection under the SSRA. See also, Pub. 3, Armed Forces’ Tax Guide. The period of limitations for collection of the deferred taxes is suspended for the period of military service plus nine months. This event is indicated by a TC 500.

    • Disaster Areas or Terroristic Action Postponement. This event is indicated by a TC 971. IRC § 7508A postpones the time for collection, by the Secretary, by levy or otherwise, of the amount of any liability in respect of any tax assessed against certain persons affected by a Presidentially declared disaster or a terroristic or military action. See IRM 25.6.1.10.2.9.2, Presidentially Declared Disaster Area, for more information postponement of time to take collection action. See IRM 25.6.1.10.2.9.4, Presidentially Declared Terroristic or Military Action, for a description of areas or actions declared by the President.

    • Taxpayer Assistance Order. This event is indicated by a TC 971. If the taxpayer applies to the Taxpayer Advocate for a taxpayer assistance order, the statute is suspended while the application is pending and for any period thereafter as stated in the order. See IRC § 7811(d).

    • Collection Due Process Cases and Tax Court Litigation. This event is indicated by a TC 520. The period for collection is extended for the period that the Service is barred from collecting because the matter is before the Tax Court. See IRC § 6503(a)(1).

    • District Court Litigation. This event is indicated by a TC 520. The period is effectively extended by the Service timely filing a suit in United States District Court to reduce a Tax Court deficiency judgment to personal judgment. The period on collection by levy likewise is extended by the government's obtaining a judgment against the taxpayer. See IRC § 6502(a). While all or substantially all of the taxpayer's assets are in the control or custody of a court, and for six months thereafter, the collection statute similarly is extended. See IRC § 6503(b).

    • Bankruptcy. This event is indicated by a TC 520. While the IRS is prohibited from collection by reason of the taxpayer's bankruptcy case, i.e, while the automatic stay is in effect, the collection period is suspended for the period of time the automatic stay is in effect, plus six months. See IRC § 6503(h)(2). The Revenue Officer should seek advice of local Area Counsel if such issues arise. (Of course, a taxpayer in bankruptcy may have his tax liabilities discharged, which would make the statute of limitations issue irrelevant.)

    • Summons Enforcement. This event is indicated by a TC 520. For most summonses, if a taxpayer files suit to quash the summons, then the statute of limitations on collection will be suspended until the proceeding is finally resolved. See IRC § 7609(e)(1).

    • Third-party summons. If the summons has not been resolved within six months and the cause of the lack of resolution is other than the taxpayer filing a suit to quash the summons, then the statute of limitations will be suspended beginning on the date which is six months after the service of the summons and ending on the date of the final resolution of such response (the typical case here is when a third party—not the taxpayer--either ignores the summons or files a suit to quash). See IRC § 7609(e)(2). Assistance should be sought from local Area Counsel in cases involving extensions of the CSED due to summons enforcement.

    • Offer-In-Compromise. This event is indicated by a TC 480. The collection statute is automatically suspended (1) for the time an offer-in-compromise is pending, and (2) for 30 days after the rejection of an offer plus any time during which a timely appeal is pending. See IRC § 6331(k)(3)(B) referencing IRC § 6331(i)(5).

    • Installment Payment Agreement. This event is indicated by a TC 971. The collection statute is automatically suspended (1) for the time an offer for an installment agreement is pending, (2) for 30 days after the rejection of an offer plus any time during which a timely appeal is pending, and (3) for 30 days after the termination of an installment agreement plus any time during which a timely appeal is pending. See IRC § 6331(k)(3)(B) referencing IRC § 6331(i)(5).

    • Innocent Spouse. This event is indicated by TC 971 Action Code 065. The statute of limitations on collection of assessments for taxpayers who requested relief under sections 6015(b), (c) or (f ) is suspended during the pendency of the taxpayer's claim for the time that the Service is prohibited from engaging in certain collection activity plus 60 days. See IRC section 6015(e)(2). Section 6015(b) or (c): The Service is prohibited from engaging in certain collection activity with respect to the year for which a claim is made for relief under section 6015(b) or (c) from the date the claim is filed until: (1) a waiver (Form 870-IS) is filed; (2) the expiration of the 90-day period for petitioning the Tax court; or (3) if a petition is filed, the date that the decision becomes final. See Treas. Reg. 1.6015-7(c)(1). Section 6015(f): The Service is prohibited from pursuing certain collection activities against taxpayers who request relief under section 6015(f) in the same manner as discussed above for cases under section 6015(b) or (c), and the collection statute is suspended accordingly, only with respect to liability for taxes arising or remaining unpaid on or after December 20, 2006.

      Note:

      For section 6015(f) only claims that remained unpaid as of December 20, 2006, the statute of limitations on collection will be suspended beginning December 20, 2006, and not on the date the claim was originally filed with the Service. For section 6015(f) only claims that were full paid before December 20, 2006, the collection statute is not suspended. Refer to Form 8857, "Request for Innocent Spouse Relief," to determine the type of relief the taxpayer elected. The Form 8857 governs the type of relief that the taxpayer requested, regardless of the relief for which the taxpayer is actually eligible. For example, if a taxpayer elected relief under section 6015(b) and (c) but actually is only eligible for relief under section 6015(f) because there is no deficiency, then the collection statute will be suspended as described above in the discussion under section 6015(b) or (c).

      Note:

      If the taxpayer is living abroad and have a section 6503(c) suspension, see IRM 5.1.19.6.7, Taxpayer Living Outside the U.S., for more information on this subject.

  2. See IRM 25.6.1.12.1 , CSED Research, reference sections, refer to Document 6209, and IRS Processing Codes and Information, (Section 8 Part 1) for more information on Transaction Codes, Closing Codes and Definer Codes associated with TC 550.

25.6.1.12.2.2  (04-01-2007)
Assess Failure To Pay Penalty and Interest (P&I)

  1. Interest may be assessed and collected as long as the underlying tax can be collected. IRC § 6601(g). The Service is not required to make a separate assessment of interest on an assessed tax liability in order to collect that interest. The Service allows interest to accrue unassessed because the computer systems do not have the capacity to continually assess all interest accruals.

  2. Penalties generally may be collected within ten years from the date of assessment of the penalty.

    Note:

    The Service is not required to make a separate assessment of the accruals on the IRC § 6651(a)(2) and § 6651(a)(3) additions to tax to collect the accruals. See United States v. Krasnow, 548 F. Supp. 686 (S.D.N.Y. 1982) (involving collection action to collect accruals for the addition to tax under IRC § 6651(a)(3)). The additions could not be given full effect if the Service was required to assess the addition within three years from the filing of the tax return because the addition can accrue over a fifty-month period, which is longer than three years.

  3. Determine if the CSED will expire within 6 months;

    1. If the CSED is more than 60 days and the module is in a credit balance, assess the failure to pay penalty and interest on IDRS.

    2. If the CSED is less than 60 days and the module is in a credit balance, use the manual assessment processing procedures (Form 2859).

    3. If the CSED is more than 60 days and the module is in a debit balance or the action taken results in a debit balance, assess using the manual assessment procedures and notify the Compliance Service Collection Operation (CSCO) using Form 1725 with all pertinent information.

  4. Forward all cases that require P&I assessments to CSCO if the CSED is more than 6 months and the module is in a debit balance.

  5. Do not assess P&I if Federal tax entities are coded "F" .

25.6.1.13  (10-01-2001)
Barred Assessments/Barred Statute Cases

  1. This section provides guidance in:

    • Identifying barred statute cases

    • Preparing barred statute reports

    • Controlling and monitoring barred statute cases

  2. When a legal tax assessment is not made timely within the prescribed period for assessment (Assessment Statute Expiration Date) (ASED), it is considered a "Barred Assessment." Barred Assessments lead to a loss of revenue to the IRS, even though any credits on the "barred " module may be placed in the Excess Collection Fund.

  3. A Barred Statute Report must be prepared if the legal assessment cannot be made before the ASED expires on a tax increase received prior to the ASED passing.

25.6.1.13.1  (04-03-2006)
Barred Assessment Reports

  1. To process barred statute reports, refer to the following:

    • Form 9355, Barred Statute Report (Used by all functions except W & I Campus Examination )

    • Form 3999, and Form 3999-T, Statute Expiration Report is used by Campus W & I Examination Functions area (For SB/SE, and LMSB personnel see IRM sections below for more information)

    • Integrated Data Retrieval System (IDRS)

    • Master File (MF)

25.6.1.13.2  (04-03-2006)
Barred Assessment Procedures for Wage and Investment Campuses

  1. The following subsections provide procedures for preparing and monitoring barred statute cases.

25.6.1.13.2.1  (11-01-2007)
Barred Statute Report (Form 9355/3999)

  1. The Barred Statute Report, Form 9355 or Form 3999, will be prepared and assembled by the organizational activity responsible for the loss of the assessment or the function /organization responsible for the lack of appropriate action, that allowed the tax assessment period to expire without a valid tax assessment being made.

  2. The area responsible for the barred assessment will prepare the Form 9355 or 3999, as appropriate, for their function, and forward to Accounts Management (AM) Statute Function.

  3. If a barred assessment is discovered by a W & I campus employee, but it is determined that the responsible employee is assigned to another Business Operating Division (BOD), the Statute function will prepare a memorandum and forward it to the appropriate BOD Headquarter Office for routing to the responsible area. The responsible BOD will prepare the Statute Report. The AM Statute Function will:

    1. Send a memorandum with the case file to appropriate BOD (LMSB, SBSE, TEGE) or appropriate Campus Director within 30 calendar days from date of discovery, including the date of discovery and amount of loss in the memorandum

    2. Close the case on the Statute Control System Log.

    3. Close the IDRS control base to responsible organization assignment number.

  4. If a barred assessment is discovered by a W & I campus employee, but it is determined that the responsible employee is another W & I employee assigned to another W & I campus, the discovered campus Statute function will do the following:

    1. Send a memorandum with the case file to the appropriate Campus Director within 30 calendar days of discovery, including the date of discovery and amount of loss in the memorandum.

    2. Close the case off of the sending Campus Statute Control System Log.

    3. Recontrol the case to the generic number of the Statute function at the campus in which you are sending the case to.

    4. The receiving campus will report the barred case on their Quarterly Barred Statute Report, which is sent to the Headquarter Statute Analyst.

  5. The Barred Statute Report serves varied and useful purposes as it:

    1. Is used for monitoring purposes.

    2. Identifies the total number of cases with barred assessments for the year.

    3. Identifies total tax, penalty and interest lost on barred assessments.

    4. Provides documentation as to disposition of credits and unassessed tax, penalty and/or interest for further research and application.

  6. When a barred assessment is identified, and it can be determined that a "STAT, AM–X, or DIAG" transcript did not generate due to a systemic problem, then identify the cause for the barred assessment on Form 9355, item 11 as a "Procedural Deficiency, " (Item 10, responsible area, should reflect "N/A" ).

25.6.1.13.2.2  (04-03-2006)
Managerial Responsibilities For Barred Statute Cases

  1. All W & I Campus Directors must ensure that employees are trained to properly identify potentially barred assessments and actions necessary to protect the statute. Failure to protect an assessment statute can result in disciplinary action against the responsible employee.

  2. See IRM 25.6.1.6.5, Chart of Expedited Statute Processing, to help identify statute imminent and/or expired barred statute cases.

25.6.1.13.2.3  (04-03-2006)
Routing of Barred Cases within AM Campuses

  1. The functional area that identifies a " barred or potential barred assessment" must expeditiously route the return or case to the local Campus AM Statute function for research and final determination.

  2. When it is determined a tax period for assessment has expired, the Statute function will control the case and update IDRS using category "BARD" .

  3. Assign the case a control number.

  4. The Statute function will stamp "No Statute Issue" on any case determined not to be barred and return it to the initiator or process it according to existing instructions.

25.6.1.13.2.4  (10-01-2007)
Identifying Barred Statute Cases

  1. The following are examples of cases that require a Barred Statute Report:

    1. An original return with amount due of (See LEM 25.6.1.13.2.4) (or more) of tax, penalty and interest (or combination) and the ASED has passed

    2. An original return posts to the wrong account. A second return (the correct return for this account) posted to MF account as a duplicate. After the ASED, the incorrect return was not reprocessed to the correct tax module timely after the account was backed out.

    3. Original Return posted as an amended return (no transaction code (TC) 150 on the module) and it was not discovered until after the ASED had passed.

    4. Original Return filed timely but failed to pass the validity checks on MF for more than 3 years.

    5. TC 610 posted without TC 150 and the return is located (unprocessed) more than 3 years after the TC 610 received date.

    6. Taxpayer no longer qualifies for Sub-S status and tax not assessed prior to ASED passing.

  2. The following are examples of cases that requires a barred statute report when there are additional assessments of (See LEM 25.6.1.13.2.4)or more of tax, penalty and interest (or combination) and the ASED has passed:

    1. An amended return posts to MF reporting an increase to the tax liability, but the increase was never assessed.

    2. Additional assessments identified by unapplied/unassessed Advance Payments on proposed Examination or Underreporter deficiencies.

    3. Increases to tax, penalty or interest liability on paper Form 8485, Assessment Adjustment Case Record, (which never posted to MF) on (Non Master File (NMF).

    4. Barred assessments resulting from Unpostable Code (UPC) 150/350/750 or any other UPC including barred Exam and Appeals assessments.

    5. Amended returns which have barred additional assessments with offsetting or excess additional credits (e.g., amended return with (See LEM 25.6.1.13.2.4) tax increase and (See LEM 25.6.1.13.2.4) increase in credits).

    6. Correspondence indicating there should be an adjustment to increase tax on a taxpayer's account but was never assessed.

    7. Form 3870 incorrectly requesting an abatement and the tax decrease processed but the error was not discovered until after the ASED.

    8. Amended income tax returns discovered after the 60-day administrative processing extension reflecting an increase to tax.

    9. Amended return showed both an increase to tax and an overpayment and it was treated as a claim. The claim for refund was allowed but the tax was not assessed.

    10. 100% penalty assessment was requested but not completed within the prescribed statute period against all partners.

  3. An erroneous abatement of (See LEM 25.6.1.13.2.4) which cannot be legally reversed by Examination Operation because the ASED has passed requires the preparation of Form 9355 Barred Statute Report.

  4. The following are EXEMPT from having a barred report prepared:

    1. The case was barred when received by the IRS.

    2. There was insufficient time to secure the original return and there is no way to determine a liability that could be assessed.

25.6.1.13.2.5  (04-03-2006)
Identifying the Responsible Area

  1. The responsible area is identified as the area that first had the case, when the case was within 90 days of the ASED and either took no action to protect the statute or allowed the statute to expire.

    Note:

    This does not relieve the area that may receive a case within the 90 day period of any responsibility for protecting the statute. All areas must have the best possible statute control system to protect the statute. All functional areas must perform search activities at regular intervals to ensure all statute imminent cases are identified.

  2. The area taking the first processing action or routing action will be responsible for completing the Barred Statute Report. See Exhibit 25.6.1-3 thru 25.6.1-3 (cont.), Form 9355 Barred Statute Report, for information on completing this report.

  3. A processing action is described as an action directly related to the barred assessment. An action which caused the loss of the assessment, or the absence of an appropriate action which could have precluded the period from expiring.

  4. A routing action is used to identify the area who first routed a case to an area other than the Statute function when the expiration period is less than 90 days.

25.6.1.13.2.6  (10-01-2007)
Routing and Controlling Form 9355

  1. This section provides uniform and consistent procedures for all AM Statute functions for controlling, preparing, and routing documents on barred assessments. The AM Statute function must establish and maintain a "Statute Control System" to track barred assessment cases.

  2. When it is determined that a tax period for assessment has expired, the Statute function will control the case and update IDRS using category "BARD" .

  3. Assign the case a control number.

  4. The Statute Function will:

    1. Prepare original and two copies of Form 9355.

    2. Enter the control number in the upper left block of Form 9355 (below the title "Barred Statute Report." )

    3. Complete items 1 through 9.

    4. Enter in item 10 the area (function) responsible for the barred case.

    5. Prepare in chronological order, (attach to Form 9355) the sequence of events that resulted in the barred case.

    6. Prepare a transmittal and route the case file to the area responsible for the barred assessment.

    7. Include the control number on the accompanying transmittal.

    Note:

    The control number will remain the same regardless of who prepares the report. The Statute function will maintain an open control on IDRS until the signed copy of report is returned from the appropriate Director’s office (local management may decide which Director's signature is required on Barred Statute Reports within W & I Campuses).

  5. Local procedures must be established to ensure that statute controls are updated to expeditiously reflect the location of the case each time it is moved to a different area.

  6. The Statute function will follow-up to ensure that Form 9355 is completed and signed by the appropriate Campus Director within 60 calendar days from the date the case is released by the Statute function.

  7. After the appropriate Campus Director has approved and signed Form 9355, the Statute function will close the IDRS control and the control used to track barred cases.

  8. The Responsible area/function will, upon receipt of Form 9355:

    1. Check the appropriate box in item 11.

    2. Give a description of what caused the barred statute case.

    3. Sign and date items 12 and 13.

    4. Complete item 14.

    5. Complete items 15 through 20.

    6. The appropriate Director will complete items 21 and 22.

25.6.1.13.2.7  (04-03-2006)
Functional Responsibilities for Processing and Clearance of Form 9355 Reports and Potential Statute Cases

  1. The following outlines AM Statute function responsibilities for processing Form 9355 reports and clearing potential statute cases.

25.6.1.13.2.7.1  (04-03-2006)
Statute Function Responsibility

  1. The Statute Function will:

    1. Review all cases identified as potential statute cases.

    2. Determine if the statute for the tax period is imminent or barred.

    3. Stamp "No Statute Issue" on cases which are determined not to be barred and return to initiator.

    4. If the Statute is barred, record all discovered barred assessments on the Statute Control System.

    5. Develop a written chronological sequence of events that led to the barred statute case (attach to Form 9355).

    6. Prepare and route the "Barred Statute Transmittal" through management, on cases determined to be barred to the responsible area.

    7. Place a copy of the barred statute case in a locked cabinet (keep for 2 years ) after the case is received and signed by the Director. After the two -year suspense period is up, destroy the copy.

  2. The Statute Control System will be updated and the approved Form 9355 will be distributed as follows:

    • Original to the responsible Campus Director.

    • Copy to retain in Statute.

    • Copy to Examination Field Director, Compliance (if statute case originated in Exam).

25.6.1.13.2.7.2  (04-03-2006)
Responsibilities of W & I Examination and Centralized Case Processing Operations at Campuses

  1. Examination Operation will:

    1. See IRM 25.6.1.13.2.1 , Barred Statute Report (Form 9355/3999), for following instructions on cases where the Statute function discovered a barred case and a Form 3999 is being requested.

    2. Prepare a chronology of events that lists actions on barred Exam cases discovered by the Statute function. Attach to Form 3999.

    3. Obtain a control log number from the appropriate AM Statute function and Enter the Control Number on Form 3999.

    4. Forward cases through management channels to the Compliance Campus Director for signature.

    5. Forward completed cases to the AM Statute function at the appropriate campus through the appropriate AM Operations Manager.

25.6.1.13.2.7.3  (04-03-2006)
Barred Assessment Account Closing Actions

  1. The AM Campus Statute function will close out Form 9355 as follows:

    1. Move any non-refundable credit(s) on the module to the Excess Collection File (XSF).

    2. Prepare and clear a "DUMMY" return with zero tax using the received date of the barred return. Send the return to Submission Processing for normal processing after all credits have been moved to XSF.

    3. Refile the original document with TC 290–00 using blocking series 300–309. Photo copy entire case for the two-year suspense file.

  2. On original delinquent returns with refundable credits, place non-refundable credits in excess collection. Allow refundable credits to refund before closing the case.

25.6.1.13.2.8  (04-03-2006)
Statute Expiration Reporting Responsibilities and Procedures for SB/SE Area Office and Campus Organizational Components Involved Directly with or Providing Support for Tax Return Examinations

  1. This subsection contains procedures for the submission of Statute Expiration Reports, Forms 3999, or Form 3999-T, Barred Statute Report, to the appropriate SB/SE Director of Campus Compliance Services, Examination or Specialty Programs by field and campus operations of SB/SE which are involved, either directly or through support activities (including Specialty Program support activities conducted at campuses), with the examination of tax returns. The procedures do not apply to activities (including trust fund recovery penalty investigation activities) conducted by SB/SE Collection nor do these procedures apply to return examination activities conducted by LMSB, TEGE or W &I, as these organizational components have separate statute expiration reporting procedures.

25.6.1.13.2.8.1  (04-01-2007)
Procedures for the Submission of SB/SE Statute Expiration Reports

  1. Statute expiration reports are required on all tax periods/returns (except for those shown in (2) below) under examination and/or controlled on AIMS upon which the normal three-year period for assessment or the assessment period which has been extended by consent expires while the return is in an AIMS status below 80 or is being examined but is not controlled on AIMS. These procedures in this subsection control when a statute expiration report is required to be submitted by SB/SE managers/employees not withstanding any provision contained in IRM 4.2.1, General Examination Information, or other sections of the IRM.

  2. A statute expiration report is not required, although the period for assessment expired while the return was in an AIMS status of less than 80 or is being examined but not controlled on AIMS, for the following returns:

    1. Any return involving a net overassessment if a claim has been or can be filed or a credit or refund allowed after timely waiver and within six months after the extended assessment period. See IRC Section 6511(c)(2).

    2. Any return for which the assessment can be made because of a statutory exception, including the tolling exceptions, to the normal three-year period for assessment or the assessment period which has been extended by consent.

    3. Any return that is a non-TEFRA, nontaxable, flow-thru entity which is associated with an examined, taxable return.

    4. Any investor return where a Form 3999–T was written for the key case return. A copy of the Form 3999-T should be attached to the investor return.

    5. Any return where the date of approval to establish the return on AIMS or date of automatic establishment on AIMS (systemically generated establishment of returns) and the date the examination commences is after the date the assessment statute expired.

  3. The Form 3999 is used to report expired statutes on all cases other than TEFRA key entities. TEFRA key entities require the preparation of a Form 3999-T.

  4. When an SB/SE employee discovers a potentially expired assessment statute, the employee should consult with his or her manager immediately to determine the assessment statute of limitations has in fact expired and on what date it expired (considering all relevant IRC provisions that impact the calculation of the date by which any tax liabilities must be assessed). Advice of Area Counsel and/or Technical Services staff should be sought by the manager if there are any doubts as to whether or not the assessment statute has expired.

  5. The preliminary report is to be prepared and submitted within 3 business days of the date of discovery of the expired statute (including securing Counsel or Technical Services' advice on whether or not the statute has expired). The preliminary Form 3999/3999-T is prepared by the manager of the person who discovers the potentially expired statute. This requirement is not to be construed or in any manner should it be read to imply that the preparer of the preliminary report is the person responsible for the expired statute.

  6. The final report is to be prepared and submitted to the next-level manager no later than 10 business days from discovery of the expired assessment statute. The final report is prepared by the immediate manager of the party responsible for the statute expiration and is to be forwarded through channels to the applicable Director, Campus Compliance Services, Examination or Specialty Programs. If there is no responsible party, because prescribed procedures were followed in controlling and protecting the assessment statute of limitations, then the final statute expiration report is prepared by the manager of the unit to which the return was assigned on AIMS or which was examining the tax period in question when the assessment statute expired, irrespective of whether or not the tax period was controlled on AIMS. See Exhibit 25.6.1-4, SB/SE Statute Expiration Reporting Timetable, for further information on the timetable for submission of statute expiration reports by SB/SE field and campus examination-related activities/organizations, including Specialty Programs and the field and campus organizations which support the examination process.

  7. Copies of all the attachments referenced in the Form 3999 or Form 3999-T or referenced in other attachments to the forms must be included as part of the statute expiration report forwarded to the applicable SB/SE Director, Campus Compliance Services, Examination or Specialty Programs.

  8. The relevant SB/SE executives reporting directly to the Director, Campus Compliance Services or Director, Examination have authority to approve these statute expiration reports for ultimate submission, for information, to the appropriate Director, Campus Compliance Services or Examination. In the case of Specialty Programs, the relevant Program Manager has authority to approve the statute expiration Report for submission to the Director, Speciality Programs.

  9. The relevant executive or Program Manager who approves the statute expiration report is to ensure that other organizational components who in some way contributed to the statute expiration receive copies of the report. The fact that copies of the report were provided to other organizational components and to which organizational components copies of the report were provided is to be included in the block (Blocks 15 or 13) of the respective Form 3999 or Form 3999-T pertaining to "Corrective Action taken or Recommended to Prevent Recurrence of Statute Expiration."

  10. If Block 15 or Block 13, Corrective Action Taken or Recommended to prevent Recurrence of Statute Expiration, of Form 3999 or 3999-T, respectively, includes a recommendation for discipline, then reflect that fact and the recommended disciplinary action even though the final disciplinary action may not be known at the time the final statute expiration report is forwarded to the respective Director, Campus Compliance Services or Examination or Specialty Programs.

  11. Management is to review completed reports to identify trends and causes of expired statutes with an objective of correcting any identified systemic weaknesses in statute control procedures.

25.6.1.13.2.8.2  (04-03-2006)
Taxpayer Notification of Assessment Statute Expiration and Acceptance of Voluntary Payments on Expired Statute returns When Taxpayer Has Been Contacted for Return Examination

  1. See IRM 4.2.1.5, Taxpayer Notification of Statute Expiration and Acceptance of Voluntary Payments on Barred Statutes, for procedures for notifying taxpayers of assessment statute expiration after taxpayer contact has been made and either a deficiency can or can not be determined.

25.6.1.13.2.8.3  (10-01-2007)
Closing Cases Involving Expired Statute Returns

  1. Place copy of Form 3999/3999-T, in case file as well as a copy of any notice to the taxpayer concerning assessment statute expiration. The copy of the Form 3999/3999-T, placed in case file should not contain disciplinary-related information. See IRM 4.2.1.5.1, Guidelines for Deficiency Cases, for preparation of Form 3244-A, Payment Posting Voucher, and flagging of the case file via of Form 3198, Special Handling Notice, if a voluntary payment is received after the assessment statute expires. The case file should also be flagged with a Form 3198, with the notation:" Payments/Credits are to be Transferred to Excess Collection File" , whenever payments or credits need to be transferred to Excess Collections File as a result of barred assessment. Centralized Case Processing will prepare the Form 8758, Excess Collection File Addition, for transferring payments to the Excess Collection File.

  2. See IRM 25.6.1.7.3, Excess Collection File (XSF) And Unidentified Remittance (URF), if payments of tax are made or credits are available prior to assessment statute expiration but the assessment is barred, and IRM 3.17.220, Excess Collection File, for procedures for transferring the payment amounts/credits to the Excess Collection File. See IRM 25.6.1.10.2.5.6.1, Claim for an Amount Paid before ASED, and Rev. Rul. 85–67, 1985–1 C.B. 364, for payments made before the ASED passes.

  3. See IRM 25.6.1.10.2.5.6.2, Claim for an Amount Paid After the ASED, and Rev. Rul. 74–580, 1974-2 C.B. 400, if payments of tax are made after the assessment statute expires, then the payment amounts/credits should also be transferred to Excess Collection File, but a credit or refund can be obtained by the taxpayer provided that a claim is filed within 2 years from the date of payment.

  4. Use AIMS Disposal Code 12 with an entry of $1 in item 35 of the Form 5344, Examination Closing Record, if the AIMS closing is an examined return closing (return examination started and either a tax deficiency can be determined or determination made that no tax changes are warranted or adjustments to tax can not be determined). For surveyed returns, use the applicable disposal code specified in IRM 4.4.21 , Non-Examined Closings/Deleting AIMS Records, and defined in more detail in Exhibit 4.4.1-16, Disposal Codes, for the type of survey being made to close the AIMS base to AIMS status 90 after the assessment statute expires.

25.6.1.13.2.9  (04-03-2006)
Statute Expiration Reporting Responsibilities and Procedures for LMSB Field Operations and LMSB Campus Employees

  1. This subsection contains procedures for the submission of a Statute Expiration Report (Form 3999 or Form 3999-T) to the appropriate LMSB executive which are involved, either directly or through support activities, with the processing, classification, or examination of LMSB tax returns. The procedures do not apply to activities conducted by SB/SE, TEGE, or W & I, with respect to LMSB tax returns, as these organizational components have separate statute expiration reporting procedures.

25.6.1.13.2.9.1  (07-29-2008)
Procedures for the Submission of LMSB Statute Expiration Reports

  1. Statute expiration reports are required on all tax periods/returns (except for those shown in (2) below) under examination and/or controlled on AIMS for which the normal three-year period for assessment or the assessment period which has been extended by consent expires while the return is in an AIMS status below 80 or is being examined but not controlled on AIMS. In addition, a statute expiration report is required for LMSB cases when the statutory period for overassessments has expired and the period for timely filing of a refund suit has also expired. The procedures in this subsection control when a statute expiration report is required to be submitted by LMSB managers/employees not withstanding any provisions contained in IRM 4.2.1 , General Examination Information, or other sections of the IRM.

  2. A statute expiration report is not required, although the normal period for assessment expired while the return was in an AIMS status of less than 80 or is being examined but not controlled on AIMS, for the following returns:

    1. Any return involving a net overassessment if a claim has been or can be filed or a credit or refund allowed after timely waiver and within six months after the extended assessment period. See IRC section 6511(c)(2).

    2. Any return for which the assessment can be made because of a statutory exception, including the tolling exceptions, to the normal three-year period for assessment or the assessment period which has been extended by consent.

    3. Any return that is a non-TEFRA, nontaxable, flow-thru entity which is associated with an examined, taxable return.

    4. Any investor return where a Form 3999-T was written for the key case return. A copy of the Form 3999-T should be attached to the investor return.

    5. Any return where the date of approval to establish the return on AIMS or date of automatic establishment on AIMS (systemically generated establishment of returns) and the date the examination commences is after the date the assessment statute expired.

    6. Any return surveyed timely before the assessment statute date.

    7. Any "no change" examination when a no change decision is documented in advance of the statute expiration.

  3. Form 3999 is used to report expired statutes on all cases other than TEFRA key entities. TEFRA key entities require the preparation of a Form 3999-T.

  4. When a LMSB employee discovers a potentially expired assessment statute, the employee should consult with his/her manager immediately to determine whether the assessment statute of limitations has in fact expired and on what date it expired (considering all relevant IRC provisions that impact the calculation of the date by which any tax liabilities must be assessed). Advice of Field Counsel and/or Technical Service staff should be sought by the manager if there are any doubts as to whether or not the assessment statute expired. There may be instances where not all of the proposed tax is barred from assessment. Only the barred assessment (or overassessment) amount should be reported on Form-3999/3999-T

  5. The preliminary report is to be prepared and submitted within 10 business days of the date of discovery of the expired statute (including securing Counsel or Technical Services' advice on whether or not the statute has expired). The preliminary Form 3999/3999-T is prepared by the person who discovered the expired statute. This requirement is not to imply that the preparer of the preliminary report is the person responsible for the expired statute. The preliminary report for barred statutes in field operations should be submitted through the respective Director of Field Operations and forwarded to the respective Industry Director or Director Field Specialists for transmittal to LMSB headquarters. For campus operations the preliminary report should be submitted through the Director, Planning, Quality, Analysis & Support (PQAS).

  6. The final report is prepared by the party responsible for the statute expiration and will be forwarded through channels to the applicable Industry Director, Director Field Specialists, or Director, PQAS no later than 60 calendar days from preparation of the preliminary report. The respective Industry Director, Director Field Specialists, or PQAS Manager will forward the document to the Director, PQAS with a report of proposed disciplinary action. Proposed disciplinary actions should not be addressed on Form 3999/3999-T but rather in a separate memorandum. If there is no responsible party because prescribed procedures were followed in controlling and protecting the assessment statute of limitations, the final statute expiration report is prepared by the manager of the unit to which the return was assigned on AIMS or which was examining the tax period in question when the assessment statute expired, irrespective of whether or not the tax period was controlled on AIMS. The list below contains further information on the timetable (all days are business days) for submission of statute expiration reports by LMSB field and campus organizations which support the LMSB examination process.

    1. Initial report is submitted by preparer 10 business days from discovery (10 days)

    2. Initial report is reviewed and approved by First Level of Management (5 days)

    3. Initial report is reviewed and approved by Territory Manager (5 days)

    4. Initial report is reviewed and final approval by DFO (5 days)

    5. Report is forwarded to Industry Director, Director Field Specialists, or Director PQAS (2 days)

    6. Industry Director or Director Field Specialists forwards to Director, PQAS (5 days)

      Note:

      The total number of business days thus far is 32 days.

    7. Final report is submitted by preparer (10 days from date preliminary report approved by DFO)

    8. Final report is reviewed and signed by First Level management (10 days)

    9. Final report is reviewed and signed by Territory Manager (20 days)

    10. Final report is approved by DFO (20 days)

    11. Report is transmitted to Industry Director, Director Field Specialists, or Director, PQAS (5 days)

    12. Final Report and recommended disciplinary action is forwarded to Director, PQAS (10 days)

    13. Director, PQAS reports its findings to LMSB Commissioner semiannually

      Note:

      Total number business days to process the Final Form 3999/3999-T Report is 75 days.

  7. Management will review completed reports to identify trends and causes of expired statutes with an objective of correcting any identified systemic weaknesses in statute control procedures.

25.6.1.13.2.9.2  (04-03-2006)
Taxpayer Notification of Assessment Statute Expiration and Acceptance of Voluntary Payments on Expired Statute Returns When Taxpayer Has Been Contacted for Return Examination

  1. See IRM 4.2.1.5, for procedures for notifying taxpayers of assessment statute expiration after taxpayer contact has been made and either a deficiency can or can not be determined.

25.6.1.13.2.9.3  (04-03-2006)
Closing Cases Involving Expired Statute Returns

  1. Place a copy of Form 3999/3999–T in the case file as well as a copy of any notice to the taxpayer concerning a statute expiration. The copy of Form 3999/3999–T placed in the case file should not contain disciplinary-related information. See IRM 4.2.1.5.1, for preparation of Form 3244–A, Payment Posting Voucher, and flagging of the case file via Form 3198, Special Handling Notice, if a voluntary payment is received after the assessment statute expires. The case file should also be flagged with a Form 3198 with the notation: "Payments/credits are to be Transferred to Excess Collections File " , whenever payments or credits need to be transferred to the Excess Collections File as a result of a barred assessment, or barred overassessment. Centralized Case Processing will prepare the Form 8758 , Excess Collection File Addition, for transferring payments to the Excess Collections File.

  2. See IRM 25.6.1.7.3(3), Excess Collection File (XSF) And Unidentified Remittance (URF), if payments of tax are made or credits are available prior to assessment statute expiration but the assessment is barred, and IRM 3.17.220, Excess Collection File for procedures for transferring the payment amounts/credits to the Excess Collections File. See IRM 25.6.1.10.2.5.6.1 , Claim for an Amount Paid before ASED, and Rev. Rul. 85–67, 1985–1 C.B. 364, for payments made before the ASED passes.

  3. See IRM 25.6.1.10.2.5.6.2, Claim for an Amount Paid After the ASED, and Rev. Rul. 74–580, 1974-2 C.B. 400, if payments of tax are made after the assessment statute expires, then the payment amounts/credits should also be transferred to Excess Collections File but a credit or refund can be obtained by the taxpayer provided that a claim for refund is filed within 2 years from the date of payment.

  4. Use AIMS Disposal Code 12 with an entry of $1 in item 35 of the Form 5344 if the AIMS closing is an examined return closing (return examination started and either a tax deficiency can be determined or a determination was made that no tax changes are warranted or adjustments to tax can not be determined). For surveyed returns, use the applicable disposal code in IRM 4.4.21, and defined in more detail in IRM Exhibit 4.4.1-16, for the type of survey being made to close the AIMS base to AIMS status 90 after the assessment statute expires.

25.6.1.14  (04-01-2007)
Estate and Gift Tax (Form 706/709)

  1. This section provides guidelines in identifying and processing Estate (Form 706) and Gift (Form 709) Tax returns.

  2. Estate Tax Returns must be filed by for the estate of every citizen or resident of the United States whose gross estate at date of death exceeds the amount defined by law. The estate of a non-citizen, non-resident must also file an estate tax return, if the gross estate includes property situated in the U.S.

  3. A gift tax return must be filed yearly, by April 15. If a taxpayer is granted an extension of time for filing his or her income tax return, he or she shall be deemed to have been granted an extension of time for filing the gift tax return for the same amount of time. Beginning January 1, 2006, the gifts tax return amount was increased to gifts made in excess of $12,000.

25.6.1.14.1  (10-01-2001)
Estate and Gift Tax Research

  1. To handle Estate and Gift Tax returns, you may need to reference other Internal Revenue Manuals (IRMs) and Internal Revenue Code (IRC) Sections such as:

    • IRM 21.5.1, (General Adjustments)

    • IRM 4.25.2, Campus Procedures for Estate Tax

    • IRM 21.7.1, (Business Tax Returns and Non Master File Accounts)

    • IRM 21.7.5, (Estate and Gift Tax Returns)

    • IRM 3.17.46, Automated Non-Master file Accounting

    • IRC Section 2011, Credit for State Death Taxes

    • IRC Section 2011(c), Period of Limitation on Credit

    • IRC Section 2014, Credit for Foreign Death Taxes

25.6.1.14.2  (10-01-2001)
Estate and Gift Tax Procedures

  1. The following subsections describe procedures for handling Estate and Gift Tax returns.

25.6.1.14.2.1  (04-01-2007)
Form 706 U.S. Estate Tax Return

  1. Due to the complex nature of Form 706, the Statute function will not attempt to resolve issues on statute imminent periods unless it is returned to the Statute function for further processing by the Examination Operations.

  2. All Forms 706 are Category A criteria. Route the case to the Examination Branch per IRM 21.5.1, General Adjustments. Route cases to Accounting if a tax module is currently or has been, in Master File or Service Center Status 14.

    Note:

    The Statute function will not close or disallow Form 706 cases before considering (2) above. All cases must be identified as "STATUTE IMMINENT" when routing to the Examination Operations.

  3. The return and tax are due within 9 months after the date of the decedent’s death unless an extension (Form 4768) of time for filing and/or payment has been granted.

25.6.1.14.2.1.1  (10-01-2007)
Credit Of Foreign Taxes or State Death Tax Credit

  1. IRC § 2011(a) allows the estate of citizens or residents of the United States, to claim as a credit against their federal estate tax an amount equal to any state estate, inheritance, legacy or succession taxes owed and paid to any State or the District of Columbia.

  2. IRC § 2014(a) provides a similar credit for such taxes paid to a foreign country with respect to property situated therein and included in the gross estate. IRC § 2014(d) states that the credit shall include only those taxes actually paid and for which a claim has been filed. IRC § 2014(e) provides that the claim must be filed within 4 years after the estate tax return was filed; except if a petition for Tax Court was filed, then within the 4-year period or within 60 days after the decision of the Tax Court becomes final; or if an extension of time was granted for paying the tax, then within the 4-year period or before the extension ends.

  3. IRC § 2011(c) provides that the credit shall include only those taxes that were actually paid and for which a claim has been filed within 4 years after the filing of the return required by section 6018, except that if the claim for credit was filed within the time prescribed in IRC § 6511, then the period of limitations is within the 4–year period or within 60 days after the mailing of a certified or registered notice of disallowance of any part of the claim, or within 60 days after a court decision becomes final with respect to a timely suit based on the claim, whichever is later.

  4. IRC §§ 2011(c) and 2014(e) provide that refunds of overpayment based on credits for State and Foreign Death Taxes may be made (despite the provisions IRC §§ 6511 and 6512) if the claim is filed within the period prescribed in (3) above. No interest is allowable on these refunds.

  5. IRC § 2011(f) provides that IRC § 2011 does not apply to estates of Decedents dying after December 31, 2004. IRC § 2058 allows a deduction for State death taxes paid to any State or the District of Columbia. IRC 2058 applies to estates of decedents dying after December 31, 2004. IRC § 2058(b) provides rules for the period of limitations.

  6. IRC § 2016 provides that if any tax claimed as a credit under IRC § 2014 is removed (from a State or Foreign Government) by the executor, notice shall be given to the Secretary. The estate tax will be redetermined; and, without regard to the statute of limitations provided in IRC § 6501, the amount of any estate tax due upon redetermination shall be paid upon notice and demand. No interest will be assessed or collected on the tax due on a redetermination resulting from a refund of the foreign tax claimed as a credit prior to the date of receipt of the refund, except to the extent interest was paid on the refund.

25.6.1.14.2.1.2  (04-01-2007)
Form 706NA (Nonresident Alien Estate)

  1. Form 706NA is filed where Form 706 is not applicable. These returns are processed by the Cincinnati Campus only.

  2. Route claims or amended returns to the Cincinnati Campus.

25.6.1.14.2.1.3  (10-01-2001)
Form 706A

  1. Beneficiaries of an estate file Form 706A when special use valuation property belonging to a decedent has been sold and a recapture tax is due. It is filed under the beneficiary(ies) SSN, processed to NMF and is due within 6 months after the date of sale (e.g., date of sale 02241999, return due 08/24/1999).

  2. The Statute Control Date (SCD) begins with the filing of Form 706A regardless of when the Form 706 was filed. The commencement date on the Form 706A is the date the land is sold.

  3. IRM 21.7.5, Estate and Gift Tax Returns, for additional information.

25.6.1.14.2.1.4  (10-01-2001)
Form 706–Qualified Domestic Trusts (QDT)

  1. The tax class for this form is 85 and Master File Tax (MFT) Code is 53. A tax decrease of (See LEM 25.6.1.14.2.1.4 ) or more is CAT-A criteria. See IRM 21.7.5, Estate & Gift Tax Returns.

25.6.1.14.2.1.5  (10-01-2007)
Form 706GS(D) and Form 706GS(T)

  1. The Tax Reform Act of 1986 and the Technical and Miscellaneous Revenue Act of 1988, provided for a tax to be imposed on distributions and certain trust terminations which are subject to the generation-skipping transfer (GST) tax.

  2. The skip-person distributee uses Form 706GS(D) to calculate and report the tax due on taxable trust distributions. The MFT is 78, document code 59 and processed under tax class 5. If the skip-person distributee is an individual, the return is filed under the distributee’s SSN; if the skip-person distributee is a trust, the return is filed under the distributee’s EIN. The return is due April 15 of the year following the calendar year when the distribution was made. Trustees are required to report taxable distributions to skip-person distributees on Form 706(GS (D–1)), Notification of Distribution From A Generation-Skipping Trust.

  3. Form 706GS(T) is used by the trustee to calculate and report the tax due on taxable trust terminations. The MFT is 77, document code 29 and processed under tax class 5 and filed under an EIN only. The return is due April 15 of the year following the year in which the termination occurred.

  4. Forms 706GS(D) and 706GS(T) reflecting a tax decrease of (See LEM 25.6.1.14.2.1.5) or more meet category A criteria. Process cases the same as Forms 706 above.

25.6.1.14.3  (04-01-2007)
Form 709 United States Gift (and Generation-Skipping Transfer) Tax Return

  1. Effective January 1, 1992, Form 709, should be used to file gift tax returns yearly, by April 15. If a taxpayer is granted an extension of time for filing his or her income tax return, he or she shall be deemed to have been granted an extension of time for filing the gift tax return for the same amount of time. Beginning January 1, 2006, the Form 709, gift tax return amount was increased to gifts made in excess of $12,000.

  2. Forms 709 claims and amended returns on statute imminent periods which contain statute related issues are Category A criteria and will be routed to the Examination Branch.

  3. The Statute Function will only resolve cases that are returned from Examination Branch.

25.6.1.14.3.1  (04-01-2007)
Form 709–A (United States Short Form Gift Tax Return)

  1. Form 709–A is obsolete as of 10/2003. All gift tax returns are now filed using Form 709.

25.6.1.15  (10-01-2007)
Employee Plan Master File (EPMF)

  1. This section provides guidelines for identifying and resolving Employee Plan Master File (EPMF) cases.

  2. EPMF are Form 5500 series returns, associated schedules and attachments developed by the Internal Revenue Service (IRS), Department Of Labor (DOL), and the Pension Benefit Guaranty Corporation. They are filed by Employers and Plan Administrators of Pension or Welfare Benefit Plans.

  3. EPMF returns are processed by the DOL vendor Vangent Inc., in Lawrence, KS using the Employee Retirement Income Security Act (ERISA), ERISA Filing Acceptance System (EFAS).

  4. All Form 5500 EZ and electronically filed 5500 series returns are processed by Vangent Inc., in Lawrence, KS.

  5. Forms 5500 series returns post with Transaction Code (TC) 150 and 977 (amended return) or TC 154 for Form 5330.

25.6.1.15.1  (04-01-2007)
EPMF Research

  1. To handle EPMF, you need to reference other Internal Revenue Manual (IRM) and Internal Revenue Code (IRC) Sections such as:

    • IRM 3.11.22, Employee Plan Master File

    • IRM 25.6, Statute Of Limitations

    • IRC Section 4971, Taxes on failure to meet minimum funding standards

    • IRC Section 4975, Tax on prohibited transactions

    • IRC Section 4977, Tax on certain fringe benefits provided by an employer

    • IRC Section 4979, Tax on certain excess contributions

    • IRC Section 4980, Tax on reversion of qualified plan assets to employer

25.6.1.15.2  (10-01-2007)
EPMF Procedures

  1. All Form 5500 series returns must be filed on or before the last day of the seventh month following the close of the plan year unless extensions have been granted.

  2. Part I line 3a and 3b/Schedule C of Form 5330 Tax on Prohibited Transactions (Section 4975)—the statute period begins when the prohibited transaction is reported on Form 5500 series. The statute is 3 years from the due date or filing date of the Form 5500 series return, whichever is later. If there is no disclosure of the prohibited transaction on the Form 5500 series, the statute is 6 years rather than the normal 3 years. Also, in the case of a continuing transaction (e.g., a loan) the prohibited transaction is deemed to recur on the first day of each subsequent taxable year in which the transaction continues.

  3. The filing of the Form 5500 series starts the statute running for transactions occurring in that year only.

25.6.1.15.2.1  (04-01-2007)
Employee Plan/Exempt Organization (EP/EO) Returns

  1. Campus employees will not generate overassessment transactions on EP/EO returns unless directed or requested by local EP/EO Area offices except for math errors or campus processing errors.

  2. EP/EO returns subject to EP/EO claims are:

    • Form 990 Business Master File (BMF), Return of Organization Exempt From Income Tax

    • Form 990-PF (BMF), Return of Private Foundation

    • Form 990-T (BMF), Exempt Organization Business Income Tax Return

    • Forms 4720 Non Master File (NMF), Return of Certain Excise Taxes on Charities and Other Persons Under Chapter 41 and 42 of the IRC

    • Form 5227 (BMF), Split-Interest Trust Information Return

    • Form 5330 (BMF), Return of Excise Taxes Related to Employee Benefit Plans

    • Forms 5500 (EPMF), Annual Return/Report of Employee Benefit Plan and Return/Report of Employee Benefit Plan

      Note:

      Penalty process is posted to BMF MFT 74.

    • Form 5500-EZ (EPMF), Annual Return of One-Participant Pension Retirement Plan

      Note:

      Penalty process is posted to BMF MFT 74.

    • Form 8038 (BMF), Information Return for Tax-Exempt Private Activity Bond Issues

25.6.1.15.2.2  (10-01-2007)
Forms 5330, Return of Excise Taxes Related To Employee Benefit Plans

  1. Form 5330 is processed and posted to Business Master File (BMF) for assessment and billing purposes.

  2. All Forms 5330 must have an Employer Identification Number (EIN) or Social Security Number (SSN) shown based on the box checked. If missing, search attachments for a valid TIN. Research EPMF for Employer Identification Number (EIN). If Social Security Number (SSN) box is checked and SSN is not shown, research using suffix of "V," the SSN will be established like a 706 filer. If a Taxpayer Identification Number (TIN) is not located after research, correspond with the taxpayer.

  3. Plan Year Ending must contain an entry if an EIN is present. If blank, use the tax year ending as the plan year ending.

  4. A 3 digit Plan Number must be present other than 000, if an EIN is present. (Forms with an SSN can show a 000 Plan Number). If blank and a Plan Name is present, research EPMF for the Plan Number. If there is no record after research, use "001" . If the period is statute imminent use Protective Manual Assessment (PMA) processing procedures while waiting for reply. Allow taxpayers 30 days for a reply.

  5. Process the following miscellaneous returns as follows:

    • Pre-Master File (Pre–Automated Data Processing). These returns are filed for periods prior to the first period subject to master file processing, but are of the type which are presently entered on a Master File.

  6. Make quick, prompt or jeopardy assessments on taxpayer prepared original non-master and/or master file returns

  7. For further information, refer to IRM 3.11.22, EPMF.

25.6.1.15.2.2.1  (10-01-2004)
Statute Cases (Form 5330)

  1. The IRC places statutory limitations on the allowance of refunds or credits or for the assessment of additional tax. An additional tax assessment must be made not later than 3 years from the date the return was filed. A claim for refund must be filed not later than 3 years from the date the return was filed, or 2 years from the date the tax was paid, whichever is later. See IRM 25.6.1.10.2.7.2.1, Three-year Rule for refund claims. See IRM 25.6.1.10.2.7.2.2 , Two-year Rule, for refund claims. Although the tax cannot be assessed after statute expiration, payments can be applied to Excess Collection File (XSF).

  2. The Statute function must take the following actions on all cases forwarded for clearance:

    1. Check CC AMDIS and if open, route to Examination.

    2. Route the case to the Document Perfection Operations for expedited processing if statute is within 30 days.

    3. Report as barred assessment if statute expired and filed timely.

    4. Input TC 290 in the amount of zero and issue letter to the taxpayer if the statute has expired and filed after statute period.

  3. Examine Form 5330 for completeness. It can show one or several different tax liabilities if the return due date is the same. Multiple tax liabilities can not be filed on the same return if the due dates are different. If any questions arise, reject case to the Code and Edit function, since no statute is involved until a return is complete.

  4. Refer to IRM 3.11.22, EPMF, for due dates and received dates.

25.6.1.15.3  (10-01-2007)
Amended Returns

  1. Statute-related amended returns (including "Revised" , "Supplemental" , " Corrected" , etc.) must be associated with the original for reconciliation and adjustments. The Customer Service/Adjustments function is responsible for reconciliation of returns reflecting a tax decrease.

  2. See IRM 3.11.22, EPMF, for reference to amended returns.

  3. See IRM 21.7.7.4.19.6, Amended Statute Period EO Returns, concerning Statute involvement in the processing of these amended returns.

Exhibit 25.6.1-1  (10-01-2007)
Form 8749 Unpostable Action & Routing Slip

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Exhibit 25.6.1-2  (11-13-2007)
Form 1040 Extended RSED

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Form 1040 (1996) U.S. Individual Income Tax Return

Exhibit 25.6.1-3  (10-01-2007)
Form 9355 Barred Statute Report

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Exhibit 25.6.1-4  (10-01-2007)
SB/SE Statute Expiration Reporting Timetable (for examination-related activities)

TIMETABLE FOR SUBMISSION OF STATUTE EXPIRATION REPORTS BY SB/SE FIELD AND CAMPUS EXAMINATION-RELATED ACTIVITIES/ORGANIZATIONS (including Specialty Programs and supporting activities located in the field or at the campuses)
(all days are business days)

Preliminary Form 3999/3999-T Number of days
Preliminary report submitted by manager of unit which discovered assessment statute expiration including securing advice, if needed, from Counsel or Technical Services staff, 3 days is days from date of discovery 3 days
Preliminary report reviewed by field Territory Manager (or counterpart Campus manager) and submitted to the applicable next-level manager 3 days
Preliminary report logged in by Examination Area Director or Director, Campus Compliance Operations or Director, Technical Services (Examination) or Director, Case Processing or relevant Specialty Programs Manager for control and necessary follow-up to ensure that the final report is prepared and submitted timely 2 days

Final Form 3999/3999-T Number of days
Final report submitted by manager of party responsible for statute expiration or, if procedures for controlling and protecting statutes were followed, then final report is submitted by manager of the unit to which return was assigned on AIMS or which was examining the tax period (even if not controlled on AIMS) when the assessment statute expired, 13 days is days from date of discovery 13 days
Final report reviewed, approved and submitted by field Territory Manager (or counterpart Campus manager) to the applicable next-level manager (including preparation of any disciplinary action recommendation) 10 days
Final report reviewed, approved and forwarded for information by Examination Area Director or Director, Campus Compliance Operations or Director, Technical Services (Examination) or Director, Case Processing or relevant Specialty Programs Manager as appropriate, to applicable Director, Campus Compliance Services or Examination or Specialty Programs 7 days
Total maximum business days from discovery of assessment statute expiration until final statute expiration report submitted to applicable Director 30 days

Note:

Pen and ink changes may be made to appropriate blocks of the online Form 3999 or 3999-T, in order to ensure that the forms conform to our current organizational structure and position titles. For preparation of the final statute expiration report, Block 1, To:, of the forms should indicate the applicable Director (Campus Compliance Services, Examination or Specialty Programs), as appropriate. Block 2, From:, of the forms should indicate the title of the applicable Director or Specialty Program Manager who approved and is submitting the final statute expiration report.


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