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Part 4. Examining Process

Chapter 13. Audit Reconsideration

Section 3. Central Reconsideration Unit

4.13.3  Central Reconsideration Unit

4.13.3.1  (10-01-2006)
General Information

  1. This chapter discusses the role of the Central Reconsideration Unit (CRU). The CRU works reconsideration cases for individual income tax returns previously worked by the Area Office or Campus Examination function.

4.13.3.1.1  (10-01-2006)
Requests Not to be Worked

  1. The following requests are not considered audit reconsideration cases for our purposes and should be routed to the proper functions.

    1. The audit was for any tax form other than Form 1040.

    2. If training has not been provided to Campus Correspondence/CRU examiners for the reconsideration issue. These cases will be sent to the AO.

    3. The request is for a fully paid prior audit. This is a Formal Claim for refund. See IRM 4.19.1.

    4. The request is a math error protest. See IRM 21.5.4.1.

    5. ASFR, AUR or Appeals assessments. Follow routing procedures under 4.13.2.2. for Contact Employees.

    6. Request for explanation of account balance.

    7. Refund inquiries.

4.13.3.1.2  (10-01-2006)
Taxpayer Operations Assistant (OAR) Cases

  1. TAS uses the Operations Assistance Request (OAR) process to refer cases that they lack either the statutory or delegated authority to resolve. The TAS utilizes Form 12412, Operations Assistance Request, to initiate the OAR process. The Exam TAS liaison will assign and monitor the case through its conclusion.

  2. When you receive an OAR you must:

    1. Contact the Taxpayer Advocate employee as listed on the OAR, within 1 working day of receipt for TAS cases involving an economic hardship (Criteria 1-4) or within 3 days for a procedural hardship (Criteria 5-7). The OAR will list the Taxpayer Advocate worker, and the TAS Criteria. Note: All TAS cases should be worked as a priority. For specific timeframes for case completion, see SLA at the following website: http://tasnew.web.irs.gov/index.asp?pid=865.

    2. OAR’s for examinations conducted in the AO will be worked in the SB/SE campus that is aligned to the AO that did the initial examination. If the campus examiners have not received training for the audit recon issue, the OAR will be forwarded by TAS to the appropriate AO.

  3. The onlySupporting Documents (if available) that must be attached to Form 12412 when TAS forwards a case are as follows:

    1. All pertinent information received from the Taxpayer

    2. Information not considered during the original audit.

    3. Copies of letters and reports received by the taxpayer.

    4. Copies of document already submitted by the taxpayer.

    5. Amended return if applicable.

    Note:

    The administrative file should not be requested. If you need the administrative file, contact TAS to secure the file.

  4. Do not contact the taxpayer. TAS will make any and all contacts with the taxpayer. Every effort must be made to expedite completion of OAR cases.

  5. When TAS receives a hardship request they follow all the procedures necessary to verify the taxpayer meets hardship requirements, therefore the CRU should not revalidate the hardship.

  6. Review the TAS recommendations and accompanying documentation, and:

    1. If you agree with the recommendations, contact TAS and inform TAS of your determination, complete the OAR and return to TAS. Work the case to completion.

    2. If you do not agree with the recommendations, contact TAS and discuss your position, and attempt to reach a mutual determination. If you are unable to come to an agreement with TAS, then the case must be elevated to your manager. TAS and Examination managers are responsible to negotiate the final resolution. Suspend the case, and provide management with all pertinent information necessary to make a determination. A determination will be reached within three business days, at that time; the examiner will be informed on how to close the case.

    All TAS cases must be worked in adherence with the Service Level Agreement (SLA) and addendum between W & I, SB/SE, and TAS. See the TAS web site for SLA

4.13.3.1.3  (10-01-2006)
Referrals to TAS

  1. TAS criteria might exist at any point in the Audit Reconsideration Process. If you think the taxpayer meets TAS criteria, has a hardship, and has submitted documentation to reverse or partially reverse the prior assessment, complete Form 911 and forward to TAS. If TAS determines that the case meets TAS criteria, they will return case on Form 12412, (Operations Assistance Requests). If TAS determines that the Taxpayer has a hardship and instructs that a manual refund be issued, refer to 21.4.4. for instructions.

  2. If you think the taxpayer meets TAS criteria, has a hardship, and has not submitted documentation to reverse the prior assessment, call the taxpayer to request that they fax the specific documentation needed. When received complete Form 911 and forward TAS.

  3. If the Taxpayer does not have the documentation needed, disallow in full, and send appropriate disallowance letter.

4.13.3.1.4  (10-01-2006)
Cases Closed in Appeals

  1. TXMOD will show a three-digit Office code, 1XX (non-docketed cases) or 2XX (docketed cases) when Appeals closes a case. The examiner in CRU must know the Appeals closing code to determine if the case will be forwarded to Appeals or worked in the CRU. The appeals closing code can be determined by contacting the Appeals Account Resolution Specialist (AARS) in Fresno at (559) 456-5931. When a case must be forwarded to Appeals, follow the guidelines for case building in 4.13.3.16.

  2. An audit reconsideration received for an ASFR case that was closed in Appeals, should be routed to Exam Classification for correct disposition.

  3. On all Exam cases previously worked in Appeals, if the Taxpayer submits new documentation that supports reversal in full of the prior audit, then exam will process the adjustment, and not forward to Appeals. Cases that would be a denial or partial acceptance will be forwarded to Appeals, after contacting the AARS.

  4. Do not issue a letter 916C unless letter 105/106c has been previously issued.

    If the taxpayer requests an Appeals hearing and, you have followed instructions in paragraphs 2 through 4 above, and...

    The Appeals Closing Code is Description Action
    03 Agreed Nondocketed (no Form 906 or Form 870-AD) Send to Appeals
    04 Agreed Notice of Deficiency or Non-filer where Agreement Constitutes Original Return Send to Appeals
    05 Defaulted Notice of Deficiency Send to Appeals
    08 Agreed Appeals, Docketed or Dismissed from Tax Court with Appeals time Do not send to Appeals. If Dismissed for LOJ work as Audit Reconsideration. If Appeals Settled, issue 916C
    10 Counsel Settled with no Appeals time Do not send to Appeals, issue 916C
    11 Dismissed from Tax Court for Lack of Jurisdiction (LOJ), Appeals issued Notice Do not send to Appeals. If dismissed for LOJ work as an Audit Reconsideration.
    12 Dismissed from Tax Court for Lack of Prosecution (LOP), Appeals issued Notice Do not send to Appeals, issue 916C
    17 Tried Tax Court Case Do not send to Appeals, issue 916C
    18 TEFRA Key Case closed to DOJ/Claims Court Do not send to Appeals, issue 916C
    19 TEFRA Key Case closed to DOJ/District Court or Bankruptcy Do not send to Appeals, issue 916C
    21 Dismissed, Tried or Counsel Settled with no Appeals time Do not send to Appeals. If Dismissed for LOJ work as Audit Reconsideration. If Tried or Counsel Settled, issue 916C

4.13.3.1.5  (10-01-2006)
Timeliness

  1. Action 61 guidelines apply to Audit Reconsideration cases. Letter 2645 must be sent within 30 days, advising the taxpayer that we received his/her request, and that we will be responding within 60 days.

  2. If subsequent letters are required, use Letter 2644C to advise the taxpayer that he/she will be hearing from us within 30 days.

  3. Action 61 guidelines do not apply to non-filer returns. Acknowledgement and interim letters do not need to be sent.

4.13.3.1.6  (10-01-2006)
Time Code

  1. The CRU will charge their time to the OFP Codes as per the OFP manual.

4.13.3.1.7  (10-01-2006)
Point of Count

  1. Only those cases that are accepted into the audit recon inventory will be taken as a count for receipts and closings. Misroutes and unstarted transfers from first read will not be counted. WP & C will be used to record receipts and closures.

4.13.3.1.8  (10-01-2006)
Controlling the Case

  1. Audit Reconsideration cases must be controlled on IDRS and CEAS within 14 days of receipt. CEAS is used to retrieve the original audit workpapers/reports/letters, record the reconsideration audit results on a new "reconsideration workpaper" , and use status codes to capture the results on CEAS reports.

4.13.3.1.9  (10-01-2006)
IDRS Adjustments

  1. Audit Reconsideration cases are adjusted on IDRS to facilitate resolution. See Exhibits 4.13.7-7 through 4.13.7-10. for job aids to help in adjusting the account on IDRS.

4.13.3.1.10  (10-01-2006)
CEAS/RGS

  1. Audit Reconsiderations must be worked on CEAS/RGS. For detailed instructions on inputting, working and closing a case on CEAS please see the Job AID "Working Audit Recon Requests through CEAS" on SERP.

4.13.3.1.11  (10-01-2006)
Workpapers

  1. All cases must be worked on CEAS and results of the audit reconsideration recorded on a newly created workpaper titled "MMDDYY4700Recon " . When recording the results of the audit reconsideration, the examiner will create a new issue called "Reconsideration" and will record all the facts and circumstances of the case, as well as documenting their conclusion and the reasons for the conclusion in the " Reconsideration" section of the workpaper. The other issues will automatically populate the workpapers; however it will not be necessary to address each issue individually as all reconsideration information will be contained in this section.

4.13.3.1.12  (10-01-2006)
Management and Quality Review

  1. All reconsideration requests will be subject to the sample selection process for Quality Review and local management review.

4.13.3.2  (10-01-2006)
First Read Procedures

  1. Reconsideration requests must be verified to insure they should be worked in CRU. Invalid referrals should be returned to referring area. No count will be taken for misroutes and they will not be entered on CEAS.

  2. TAS criteria might exist at any point in the Audit Reconsideration Process. If you think the taxpayer meets TAS criteria, has a hardship, and has submitted documentation to reverse or partially reverse the prior assessment, forward a Form 911 to TAS and control to an examiner.

  3. The account should be reviewed to determine what function made the original assessment generating the reconsideration. Only Campus or Area Office Examinations will be worked. Follow Routing procedures under 4.13.2.2 for ASFR, AUR or Appeal assessments. Close the case on CEAS/RGS using the Status code 73.

  4. If first read case is mail that was received in the Exam function before the case closed (allow one week after the status 90 date for mailing), and it was not addressed, review to determine if there is any documentation attached that would change the previous audit determination. If the correspondence would change the previous determination, route the mail back to the Exam Correspondence unit. These cases will not be counted as reconsideration receipts or closings. If the correspondence would not change the determination, then the Audit Reconsideration unit will send letter 916C to inform the Taxpayer and input a TC290 to file the case (count as a receipt and closing).

  5. If the first read case is mail that was received in Exam after the case closed, and the documentation attached would have made a difference in the examination results, the case will be adjusted in the Audit Reconsideration unit. If the documentation attached would not have changed the examination results, the Audit Reconsideration unit will send a 916C letter to inform the taxpayer that the audit has been previously closed, and the information received does not change the determination reached at the conclusion of the audit.

  6. If the reconsideration is generated from an Area Office assessment verify that the issue is conducive to examination by correspondence before accepting into inventory. If the audit reconsideration is accepted in the SBSE Campus audit reconsideration inventory, project code 0001 will be assigned to the case on CEAS.

  7. If the issue is not conducive to examination by correspondence or if the taxpayer requests a face to face interview:

    1. Annotate RGS workpaper with the reason for the transfer.

    2. Print RGS/CEAS workpapers and Report (Form 4549) and include in file.

    3. Have return selected and stamped by the classifier.

    4. Close in CEAS/RGS with status code 73.

    5. Close the IDRS control base, with notation"To AOXXX" . Give the case to the clerical function for transfer. The clerical unit will follow guidelines in 4.13.3.5 (1) - Transfer to Area PSP Office.

  8. For cases received without documentation, Letter 3338C will be sent. The case will be recorded and closed on CEAS with Status Code 72, and a TC 290 entered on IDRS with "3338C" in the history item. They will be counted as receipts and closings.

    Note:

    When accepting cases for examiners to work, the first read examiner should indicate when the clerical function needs to order the administrative file. Exhibit 12, First Read Checksheet, may be used for this purpose. If the original examination was worked on CEAS, do not order the administrative file. Other instances where the file should not be ordered may include defaulted cases, cases where you have the exam report, and cases where IDRS, research and taxpayer correspondence are sufficient to make a determination. The administrative file may have to be ordered when a SFR case is not on CEAS, IRP transcripts can not be secured, and the taxpayer has not supplied sufficient information to make a determination.

  9. Requests for an audit reconsideration submitted by IRS employees will not be worked in the CRU. The CRU will screen the requests but will not assign or work the employee audit reconsideration cases. A centralized section has been established within SB/SE Central Examination Area to assign and control employee audit reconsideration cases.

    The CRU employees will follow the guidelines in IRM Section 4.13.3.2 ((6) a thru f) in establishing and preparing the case. All employee audit reconsideration cases will be shipped from the Campus to the address below, which is part of the PSP office within the Central Examination Area.

    Internal Revenue Service
    Attn: PSP
    550 Main Street Room 7-403
    Cincinnati, OH 45202

    To ensure expeditious handling, use a delivery service that provides tracking capability when sending information to the Area office.

    Central Examination Area will send the employee audit reconsideration cases to the appropriated Area PSP office for assignment and control. The case should be returned to the group and examiner who originally worked the case.

4.13.3.3  (10-01-2006)
Clerical Procedures

  1. When a reconsideration request is received in CRU:

    1. Open TXMOD control and assign to Examiner/Unit Control.

    2. Check TXMOD/CEAS for a CRU control on the same, subsequent or prior year(s). If found, open control on IDRS and CEAS (if prior or subsequent year), or associate and assign mail (same year) to Examiner/Unit as controlled on TXMOD/CEAS.

    3. If case is archived pull back and open as an audit recon. (do not open AIMS) Update case information with any changed/new items.

    4. If case is not archived, create case, archive and then retrieve case to enable the transfer of data to the CEAS database. Update the case information with the Taxpayer(s) address, telephone number, return type, received date, and POA information. (do not open AIMS)

    5. Input a STAUP on TXMOD if the collection status is below 22 and a TC 470 if in status 22 or 24. If the collection status is 26 coordinate with the Area Office Collection Officer. A collection hold is not input if the account is in status 60 (Installment Agreement) or there is less than one year remaining on the collection Statute (CSED).

    6. Complete actions as directed by first read examiner on first read check sheet.

    7. Send Interim Letter(s) to acknowledge receipt of correspondence, as needed.

    8. Folder correspondence and assign case to Examiner/Unit Control.

4.13.3.4  (10-01-2006)
Routing Guidelines for CRU Units for Cases Transferred From One CRU to Another CRU

  1. When routing a reconsideration case from one CRU to another, follow the following procedures:

    1. To determine the audit reconsideration unit responsible for working the case, refer to 4.13.2.2.(4) for guidance. Complete Audit Reconsideration First Read Check sheet. Indicate site the where the audit reconsideration was sent.

    2. Form 3210 will be completed for cases being transferred.

    3. The SSN and Tax Period will be listed on Form 3210 for each case being sent.

    4. The total count will be listed on Form 3210 for all cases being sent, and the date sent.

    5. The 3210 must include the name of the team lead or manager, the routing coordinator, and their phone numbers.

    6. A copy of Form 3210 will be retained at both the shipping and receiving centers.

    7. Cases will be sent weekly via overnight mail.

4.13.3.5  (10-01-2006)
Transfer to Area PSP Office

  1. If the determination is made that the reconsideration team is not trained to work the reconsideration issue or the taxpayer requests a face to face interview, the examiner will return the case to the clerical function for transfer to the Area PSP Office. The following actions must be completed:

    1. Establish case on AIMS using source code 73, applicable original project code and aging reason code 53.

    2. Input TC 470 on TXMOD, if not already on account. .

    3. Close the IDRS control base with message "ToAreaOff."

    4. Close the CEAS/RGS control base with Status Code 73 for campus examinations.

    5. Prepare Form 3210, transmittal record.

    6. Perform an ESTAB request for the AO Administrative File.
      • Make two attempts, three weeks apart. If the administrative file is not received from Files three weeks after the second request, forward the audit recon to the AO PSP without the file. Do not perform a Special Search.
      • Include prints of the two ESTAB requests and the Files chargeout, if received.
      • If the administrative file is received by the campus after the audit recon was sent to the AO, forward and re-charge the admin file to the AO PSP office where the reconsideration was sent.

    7. The case file for prior Campus examinations should include all taxpayer correspondence, printed workpapers & Form 4549 from CEAS/RGS, and administration file with original return.

    8. The case file for prior AO examinations should include all taxpayer correspondence, copies of letters sent to the taxpayer by the campus (interim and/or transfer letters), and the administration file.

    9. Send Letter 86C to advise the taxpayer of the transfer. Use an open paragraph to advise the Taxpayer that a copy of the return, audit report and documentation should be available when the area office contacts them. Send case to the appropriate Area PSP office.

    Note:

    Area office will not allow a transfer of AIMS if the statute is expired or imminent. Before transferring a case to Area Office Support, change the statute code to AA. The statute must have at least 6 months left on it before it is transferred.

4.13.3.6  (10-01-2006)
Examiner Procedures - Aspect/VMS Phones

  1. Examiners are responsible to return messages left by the taxpayer on the Aspect/VMS extension within three business days.

    1. The examiner will follow the procedures for Contact Employees in screening, routing and responding to the taxpayer.

4.13.3.7  (10-01-2006)
Examiner Procedures

  1. If case is on CEAS, establish the audit recon record by retrieving the case. If the case is not archived on CEAS, it will be necessary to manually create, archive and retrieve the case. The case should also be controlled on IDRS. Check to make sure the case is assigned and the collection hold has been input, if needed.

  2. Open the CEAS Audit Reconsideration Information Screen and check to ensure that the Original TC "300" reflects the deficiency amount of the audit report. If incorrect, correct to the deficiency amount.

  3. Verify/Input the correct tax period, and IRS and Exam received dates on the Audit Reconsideration Information Screen. Verify to insure the "TC 300 or TC 290 (SFR)" dollar amount correctly reflects the deficiency amount of the report issued resulting from the audit that taxpayer is requesting reconsideration for. If SE tax and or credits are involved the assessment amount may be the credits or a net amount of the tax and credits reversed. If the TC 300 or TC 290 amount is not correct, change to reflect the deficiency amount.

  4. Create a separate Audit Reconsideration workpaper in RGS. Save it as MMDDYYYY 4700RECON. If this is subsequent recon request a new 4700 will not have to be prepared for each subsequent recon.

  5. Managerial approval must be obtained before ordering the administrative file. Workpapers must be documented as to managerial approval.

  6. When fully allowing the Reconsideration request, a new audit report is not needed. Adjust the taxpayer’s account to tax liability prior to the correspondence audit. Document workpapers with your decision and make the appropriate adjustment.

  7. When partially allowing the Reconsideration request, a new audit report must be generated and sent to the taxpayer. The Audit reconsideration report can be saved as "MMDDYYYYRECON4549" . The examiner must check IDRS to ensure the starting point of the report reflects the taxpayer’s account including all prior adjustments.

  8. Examiners should seek technical assistance from the workgroup assigned to work specific discretionary programs, because special procedures have been developed to work the programs. (Example: PC133, CI Referrals, PC360/364-Tippped Employees, PC402/405/406- Education Credits).

  9. The CEAS/RGS workpaper must be documented as to information requested on the original audit, documentation received, documentation still needed, and conclusion reached. Save as "RECON4700" . See "Working Audit Reconsiderations through CEAS" on SERP.

  10. When suspending/closing the case on CEAS/RGS the examiner must enter the new CEAS/RGS status to reflect the various stages and results of the reconsideration request. (Do not check the "Update AIMS" box).

  11. On the Audit Recon Information Screen, record and validate the abatement amount to ensure population of the CEAS Reports. If no adjustment was made to the account input "0" in the Abatement Amount Field. If there was an adjustment to the account input the total adjustment to tax and credits.

  12. Close cases on both CEAS/RGS and IDRS. Ensure the case is re-archived. Review applicable program procedures in IRM 4.19.1 when making determinations on Campus Exam cases.

  13. Both CEAS/RGS and IDRS controls must be closed. Close the CEAS/RGS control using the following Status Codes.:

    Status 70 - Retrieve

    Status 71 - Open Case

    Status 72 - Letter 3338C sent – case closed

    Status 73 - No Reply – case closed (use also when transferring a case or for a case opened in error )

    Status 74 - Full Disallowance – case closed

    Status 75 - Partial Disallowance – case closed

    Status 76 - Full Allowance – case closed

    Status 77 - Case is in suspense

  14. Close the IDRS controls using the following Reason Codes.

    RC 064 Reconsideration - No Response

    RC 066 Reconsideration - Disallowed in Full

    RC 067 Reconsideration - Disallowed in Part

    RC 068 Reconsideration - Allowed in Full


    Examiner will also use other reason code(s) as appropriate for issues allowed or disallowed.

4.13.3.7.1  (10-01-2006)
No Documentation

  1. If a reconsideration request is received without any supporting documentation:

    1. Issue Letter 3338C. Do not transfer case. Select appropriate paragraphs based on disputed issues. See Exhibit 4.13.7-14 through 4.13.26 for paragraphs.

    2. Close TXMOD control with message "3338C sent" . Input a TC 290 to file correspondence. Do not suspend.

    3. Close CEAS/RGS control with Status code 72- Letter 3338C sent

4.13.3.7.2  (10-01-2006)
Insufficient Documentation

  1. A reconsideration request is received with some, but not all supporting documentation and a determination can be made using judgment based on the documentation received and available research (CEAS Archives, DUPOL DDBOL, DDBKD, AIMS, TXMOD, IMFOL, RTVUE & INOLET, & MFTRA U), the reconsideration may be:

    1. Allowed in full – If documentation/research substantiates the issues and there is no conflicting evidence present, or after researching and considering all the facts and the preponderance of evidence indicates that the taxpayer is entitled to the adjustment being requested, allow the reconsideration. Document your workpapers with qualifying information. Record the facts and circumstances that support your decision.

    2. Disallowed in full - If documentation/research does not support allowance of the disputed issue, or the taxpayer does not meet the criteria that is set for that issue, disallow the request in full. Send Letter 3340C (105C for full paid accounts) advising the taxpayer of the disallowance. Use an open paragraph in the appropriate letter to inform the taxpayer of the specific non-qualifying/missing information. Do not suspend. Document the workpapers with non-qualifying/missing information. Record the facts and circumstances that support your decision.

    3. Disallowed in part – If documentation/research supports the allowance of only part of the issues and there is no conflicting evidence present that the taxpayer is entitled to the issues contested, allow the portion of the request that the taxpayer is entitled to. Prepare Form 4549 and send with a cover letter. In the cover letter tell the taxpayer that they will be receiving a partial denial letter under separate cover.

      Send Letter 3340C (106C for full paid accounts) advising the taxpayer of partial disallowance. Advise the taxpayer of how you arrived at your decision. If the partial disallowance was because the taxpayer did not qualify for a specific issue, make sure that you give a full explanation. If the disallowance was because of missing information, advise of the specific missing information. Document the Audit Reconsideration workpapers with non-qualifying/missing information. Record the facts and circumstances that support your decision.

    4. Close TXMOD control with reason code(s) and appropriate message(s). Input a TC 29X to file correspondence.

    5. Close CEAS/RGS control with appropriate Status code(s).

  2. A determination can not be made based on the documentation received and available research (CEAS Archives, DUPOL DDBOL, DDBKD, AIMS, TXMOD, IMFOL, RTVUE & INOLET, & MFTRA U):

    1. If the Taxpayer’s phone number is in the case file one phone call must be made in an effort to obtain missing documentation. Use judgment and professional decision making to come to a conclusion after speaking to the taxpayer. The facts and circumstances combined with oral testimony may document entitlement to the issues being contested. Update CEAS/RGS workpapers with phone number, date and time called. If the taxpayer can be reached and they indicate they have the documents to send or fax, allow 10 days for a reply. Purge the case after 15 days. Document the workpapers with qualifying/non qualifying or missing information, your decision, and the facts and circumstances that support your decision.

    2. If taxpayer can not be reached by phone issue Letter 3339C requesting the missing information. Allow a 45 day purge. If no reply, issue Letter 105C for full paid accounts or Letter 3340C if there is an unpaid balance. Use an open paragraph in the appropriate letter to inform the taxpayer what specific information was missing and the information that is critical to make a determination. Do not use canned language or standard paragraphs. Input TC 290 to close case, blocking series 98, Reason Code 066 - Disallowed in full, and any other appropriate reason codes. Document the workpapers with non-qualifying or missing information, your decision and the facts and circumstances that support your decision.

    3. Close TXMOD control base with verbiage "3340C or 105C sent " . Close CEAS/RGS control with status 74-full disallowance.

4.13.3.7.3  (10-01-2006)
Full Documentation

  1. A reconsideration request is received with supporting documentation for all disputed issues. Review taxpayer documentation to determine if it is sufficient to allow the Service to adjust the previous assessment. The Examiner can:

    1. Accept request in full.

    2. Deny the request in full.

    3. Deny the request in part.

      Note:

      Follow Procedures in "a Decision can be Made" to Accept, Deny in part or Deny in full.

4.13.3.8  (10-01-2006)
Closing Procedures

  1. After the determination is made, follow the applicable processing procedures below:

4.13.3.8.1  (10-01-2006)
Closing Procedures Full Allowance

  1. If the abatement is accepted in full:

    1. Input TC 29X with Reason Code 068 on IDRS (Full Allowance) and the appropriate Item Reference number/Credit Reference Number for issues allowed/disallowed. Release Collection hold by reducing STAUP to three weeks.

    2. Close CEAS/RGS with Status Code 076- (Full Allowance).

    3. Update abatement information in the CEAS audit recon information screen.

  2. When EITC is allowed in full the following IDRS actions are also needed:

    1. If TC 810 is present input TC 811 to reverse

    2. Research universal AIMS for open year(s). If subsequent year(s) are open for related programs, leave a CEAS action note for cases both in batch and assigned to a specific examiner to inform them of the issues and resolution of reconsideration cases(s). This action will reduce taxpayer burden and ensure consistent taxpayer treatment.

    3. If a prior year was closed No Change, all available research should be utilized (e.g., RGS work papers, copies of documentation as in b above) to determine if the issue(s) and substantiation that the taxpayer supplied for the prior year is applicable to the present year.

4.13.3.8.2  (10-01-2006)
Closing Procedures - Partial Disallowance

  1. If the request for abatement is denied in part:

    1. Send a Letter 3340C if there is a balance due, or a 106C if the account is full paid to the taxpayer specifying the reason for disallowance.

    2. Prepare examination report (Form 4549) and enclose with a cover letter. Advise the taxpayer that Letter 3340C/106C will be sent under separate cover.

    3. To ensure the taxpayer does not receive conflicting notices, reduce IDRS STAUP to 4 cycles.

    4. If only one of two qualifying children are being allowed for EITC, input a TC 971 with Action Code 135 and list the SSN of the qualifying child being allowed.

    5. If EITC is reduced for adjustments to income or expenses, the taxpayer will be required to recertify on the next return filed claiming EITC. Input a TC 971 with Action Code 156 to set the recertification indicator with a value of "9" .

    6. Input TC 29X with Reason Code 067 - Reconsideration Disallowed in Part, and the appropriate Item Reference number/Credit Reference Number for Issues allowed/disallowed. If Letter 3339C was issued and the taxpayer did not respond, also use Reason Code 064 – Reconsideration No Response. Also include other appropriate reason code(s) for the issues involved. Close IDRS Control. Release any collection hold.

    7. Close CEAS/RGS case with Status Code 75- Partial Disallowance.

    8. Update abatement information in the CEAS audit recon record.

4.13.3.8.3  (10-01-2006)
Closing Procedures - Full Disallowance

  1. If the request for abatement is denied in full:

    1. Send a Letter 3340C or 916C if there is a balance due. Send Letter 105C if account is full paid. Specify in the appropriate letter the reason for disallowance.

    2. To ensure the taxpayer does not receive conflicting notices, reduce IDRS STAUP to 4 cycles.

    3. Input TC 29X with Reason Code 66 - Reconsideration Disallowed in Full. If Letter 3339C was issued and the taxpayer did not respond, also use Reason Code 064 – Reconsideration No Response and the appropriate Item Reference number/Credit Reference Number for Issues allowed/disallowed. Also include other appropriate reason code(s) for the issues involved. Close IDRS Control.

    4. Close CEAS/RGS case with Status Code 74- Full Disallowance

4.13.3.9  (10-01-2006)
Telephone Contact

  1. If the Taxpayer provides a phone number, at least one phone call must be made in an effort to secure missing information or clarify an unresolved issue relative to the reconsideration request before disallowing in full or in part due to lack of information. Before calling the taxpayer review the case file and advise the taxpayer what documentation is needed. Workpapers must be documented with the taxpayers’ phone number, date and time of contact.

4.13.3.10  (10-01-2006)
Open AIMS Control on Succeeding Year

  1. If there is an open AIMS control for a specific examiner on the succeeding year, leave a CEAS action note for the Correspondence examiner to inform them of the issues and resolution of the reconsideration case(s).

  2. If there is an open AIMS control and the case is in batch , leave an action note on disposition of prior year reconsideration.

4.13.3.11  (10-01-2006)
Replies to Letter 3340C

  1. If the taxpayer provides further documentation to in response to Letter 3340C:

    1. The new documentation received must be evaluated. Adjust account if the documentation supports a full abatement of tax or reversal of credits previously disallowed. If documentation supports only a partial abatement of tax or reversal of credit, adjust account accordingly and formally disallow with Letter 106C if account is full paid, send Letter 916C if the account is in balance due status for the issues that were not substantiated. Use an open paragraph to advise the taxpayer that the documentation does not permit any further adjustment to their account. Use paragraph advising of Appeal Rights and Claim Procedures. Also inform the taxpayer to refer to the enclosed Publication 1.

    2. If the documentation received is the same documentation as previously submitted or partial documentation that does not change the original determination formally disallow with Letter 105C/106C if account is fully paid or Letter 916C if the account is in balance due status. Use open selective paragraph to advise the taxpayer that the additional information submitted does not allow you to reverse the audit adjustment of the year they are contesting. Also inform the taxpayer to refer to the enclosed Publication 1 which explains the Appeals process and Claim Procedures for further consideration of their abatement request.

    3. Use blocking series 98 or 99 as appropriate when sending Letters 105C/106C.

    4. If the taxpayer indicates an inability to pay in full, the examiner will follow existing procedures for installment agreement. See IRM 5.14.6 for further guidance.

4.13.3.12  (10-01-2006)
Replies to Disallowance Letters, (105, 106, & 916C)

  1. If the Taxpayer submits additional information that would result in a decrease to the Exam assessment after a disallowance letter has been issued, review CEAS to determine if the information sent is valid, and adjust accordingly. If a partial abatement, follow partial abatement procedures, and send Letter 916C. Advise the taxpayer of how you arrived at your decision. If the partial disallowance was because the taxpayer did not qualify for a specific issue, make sure that you give a full explanation. If the disallowance was because of missing information, advise the taxpayer of the specific missing information. Document workpapers with non-qualifying/missing information. Record the facts and circumstances that support your decision. Use an open paragraph to advise the taxpayer that the documentation does not permit any further adjustment to their account. Use paragraph advising of Appeal Rights and Claim Procedures. Also inform the taxpayer to refer to the enclosed Publication 1.

  2. If the taxpayer submits additional/same information that would not change the former audit results, notate CEAS and send Letter 916C. Use open selective paragraph to advise the taxpayer that the additional information submitted does not allow you to reverse the audit adjustment of the year they are contesting. Also inform the taxpayer to refer to the enclosed Publication 1 which explains the Appeals process and Claim Procedures for further consideration of their abatement request. Record the facts and circumstances that support your decision.

4.13.3.13  (10-01-2006)
Statute of Limitations

  1. The Internal Revenue Code provides that the IRS will assess tax, refund credit, and collect taxes within specific time limits. These limits are known as the Statute of Limitations. Examiners must be aware of these limitations and the necessary steps required to be taken when these limitations are encountered.

    1. Since, in most instances, the reconsideration request is for a tax decrease the examiner may be making adjustments that may result in an overpayment and will have to determine if the taxpayer is entitled to receive a refund of that overpayment. The statute of limitations that applies to overpayments is known as the Refund Statute Expiration Date (RSED). Generally a claim for refund must be filed within three years from the time the original return was filed or two years from the time the tax was paid. There may be multiple RSED’s that apply to a taxpayer’s particular situation.

    2. In the case of a delinquent return the refund statute is the later of three years from the date the return was filed or extended due date or two years from the date of the payment(s). Prepaid credits such as the Federal Income tax withholding, Earned Income Credit or the refundable Child Tax Credit are considered paid on the due date of the tax return.

    3. If the examiner determines that any portion of an overpayment may be barred from refunding the examiner is required to have that excess credit applied to the Excess Collections File (XSF).

  2. If an adjustment is made to a taxpayer’s account and the result is an overpayment that can not be refunded due to the RSED the examiner is required to take the following actions:

    1. The taxpayer will be notified that an adjustment was made to the account however due to the Refund Statute Expiration Date (RSED) the overpayment that is being requested will not be refunded. Use Letter 105C or 106C with the appropriate explanation.

    2. The excess credit will be applied to the Excess Collections File (XSF) via form 8758. (See Exhibit 4.13.7-11 for instructions for Form 8758)

    3. All actions will be annotated in the workpapers and the case will be closed using the applicable CEAS status codes.

4.13.3.14  (10-01-2006)
RSED on Original Return

  1. Original returns claiming a refund filed by a taxpayer are valid claims. If a notice of claim disallowance is not sent by registered or certified mail to the taxpayer and the refund claim on the original return is not properly disallowed in accordance with IRC 6532, then the statute of limitations for filing a refund suit has not expired under IRC 6532(a)(1). Until a notice of claim disallowance is sent, the two-year period of limitations for filing a refund suit does not begin to run. The notice of deficiency does not stop the refund statute from expiring, and is not a formal notice of claim disallowance.

  2. The above requirements apply only when the taxpayer supplies additional information to substantiate the original return as filed. It does not apply if any of the items as stated on the original return are amended.

  3. If a taxpayer submits a reconsideration request for reversal of an audit assessment or reversal of credits disallowed on the original return and we have not sent a formal disallowance letter, then the RSED is still open. See 25.6.6.4.4 for additional information and instructions on how to input the adjustment when the RSED is expired.

4.13.3.15  (10-01-2006)
Statute for Refund after Certified Letter of Claim Disallowance

  1. The Service may reconsider a disallowance during the 2-year period in which the Taxpayer may file a refund suit. The 2-year period begins with the date on the certified letter of claim disallowance. The taxpayer is not entitled to a refund after that date. A TC 290 on IDRS with blocking series 98/99, and Reason Code 066, identifies the issuance of certified claim Letters 105C/106C. The letter date will be 14 days prior to the posting of TC 290.

  2. If the examiner knows that the RSED has expired, and there is a credit balance, document workpapers and prepare Form 8758 indicating the money amount to be transferred to Excess Collections. The form needs to contain the TIN, MFT, and Period, and the DLN of the 29X or 30X transaction that created the overpayment.

  3. If there is a credit balance and the Taxpayer is reporting an increase to the tax, assess the corrected tax, and transfer the excess credit to the Excess Collections using Form 8758. The form needs to contain the TIN, MFT, and Period, and the DLN of the 29X or 30X transaction that created the overpayment.

    If the assessment includes a tax increase for Self-Employment tax, IRS electronically transmits the change to Social Security Administration for 3 years after the due date of the return. After the 3- year period, instruct the taxpayer to contact SSA to have their records corrected.

  4. Documentation must also be noted on or attached to each Form 8758 indicating the research performed prior to the transfer request. The Form must contain the posted DLN transaction that generated. The DLN will not be available until the 2-week posting cycle has been completed for the adjustment generating the overpayment.

4.13.3.16  (10-01-2006)
Request for Appeal

  1. If the taxpayer indicates they want their case to be reviewed by the Appeals Function the taxpayer must show they have made an attempt to document his entitlement through the reconsideration process, and their request has been denied. For these cases and any case previously worked by Appeals case build as below before sending to Appeals.

    1. If TXMOD control is still open, close with message "ToAppeals " . Do not reverse TC 470.

    2. Close CEAS/RGS control with Status Code 73.

    3. If TXMOD controls are closed, input TC 470 and put history item on TXMOD "ToAppeals" .

    4. Send Letter 86C to the taxpayer advising the case is being transferred to Appeals.

    5. Forward the case to the appropriate Appeals Office per the Appeals Routing guidelines below.

    6. Open AIMS is not required for transfer.

    7. Complete Form 3210 including sender’s full name, stop number, mailing address and phone number along with a full description of items being sent. The Form 3210 should also include the taxpayer’s name, SSN and the tax period of cases being sent.

  2. Appeals Case Building Guidelines

    1. The documents below may have to be requisitioned from files or printed from CEAS. When building the case include the following:

    1. Taxpayer’s original return

    2. Original audit adjustment

    3. Audit Report(s) (example - F 4549)

    4. Audit Reconsideration Adjustment (if reply to audit recon disallowance)

    5. Workpapers

    6. Taxpayer Correspondence

    7. Initial and subsequent letters to the taxpayer (example – 30 day letter).

    8. Statutory Notice of Deficiency

    9. IDRS research

  3. Appeals Routing Guidelines

    1. Ensure cases are routed to the correct Appeals office as identified by the three digit Appeals Office code. Consult Appeals web site at http://appeals.web.irs.gov/APS/caserouting.htm for case routing addresses. See Exhibit 13.7-5.

4.13.3.17  (10-01-2006)
Reconsiderations of Original Delinquent Returns

  1. Audit Reconsideration occurs when the Service processes a Substitute for Return (SFR) and the taxpayer subsequently files an original return.

  2. Apply the tolerance which is outlined in LEM Part 4 before submitting the case for classification. If the tolerance is not met, follow the "Accepted" instructions below.

  3. If the SFR Audit Recons meets or exceeds the tolerance as shown on LEM Part 4, the case must be classified prior to being assigned to the Centralized Audit Recon Unit (CRU).

  4. If Classification determines that the case should be:

    Accepted Assign to CRU. Do not establish on AIMS. Make the appropriate changes to the account per the return filed.
    Selected for Campus and the only issue is income... Do not establish on AIMS. Work the case following audit recon procedures.
    Selected for Campus or Area Office And the issues are additional income and expenses, and the expenses are being questioned If expenses are disallowed, establish case on AIMS. Follow Statutory Notice Procedures to assess the income and disallow the expenses.
    Selected for Campus or Area Office and issues are selected other than income Establish case on AIMS. If the issues can be worked by the Campus, assign the case to Correspondence Examination. If the case contains complex issues that need to be worked in SBSE, assign the case to the appropriate Area Office or SBSE Campus.

  5. The CEAS Audit Recon record will be updated accordingly.

    1. If the case is Accepted by Classification, the CEAS record should be updated with Status 76 - Full Allowance. Also update the abatement field in the CEAS record. It is not necessary to send a revised report or acknowledgment letter on SFR returns that are accepted in full. The taxpayer will receive a computer generated notice notifying them of the tax adjustment based on the acceptance of their delinquent filed return.

    2. If the case is Selected by Classification and the only issue, income, is allowed after Audit Reconsideration, update the CEAS record with Status 76 – Full Allowance. Also update the Abatement field in the CEAS record.

    3. If the case is Selected by Classification and the only issue, income, is disallowed after Audit Reconsideration, update the CEAS record with Status 74 – Full Disallowance.

  6. If an unsigned return is submitted in response to an SFR notice, whether it is a claim for a refund or reports additional tax due, do not accept or process. The return is invalid. Send Letter 143C, and include paragraphs E, H, N, P, W, & 1.

    Use open paragraph (N), to advise the taxpayer to sign and return the first and last page of the letter, and give him your fax number. Suspend the case for 30 days, allowing an additional 15 days for purging. If no response to Letter 143C, treat as a full disallowance. Document the workpapers with your decision.

4.13.3.18  (10-01-2006)
Audit Reconsiderations EITC 2/10 Year Ban

  1. Overview

    When the 2/10 Year Ban is applied to a tax year, the taxpayer is notified that the Ban is being asserted during the Statutory Notice process. The 90-day letter must advise the taxpayer of the Ban and describe the taxpayer’s conduct giving rise to the Ban in the determination year. ENMOD will carry an EITC-Recertification Indictor "2" (2-year Ban) or "4" (10-year Ban) along with the year the Ban originated. For further information see IRM 20.1.5.3.1, IRC 6662(c) and IRC 32(k)(1)(B)(ii).

  2. Evaluating 2/10 Year Ban Audit Reconsiderations

    Audit Recon Examiner must request the administrative file or secure the CEAS work paper and statutory notice if available, to ascertain the taxpayer’s conduct giving rise to the assertion of the Ban. If a 10-year Ban was imposed, refer reconsideration to the applicable Area Office.

    The request for the Ban reconsideration must address the conduct. The examiner may allow or disallow the Ban reconsideration based on the information provided by the taxpayer and the fact and circumstances documented in the administrative file.

  3. No Documentation - 2-Year Ban

    If a request for reconsideration of the Ban is received without any documentation, send Letter 3339C, and advise the taxpayer that they must provide documentation to show they were not reckless or intentionally disregarded the EITC rules for the year the Ban was imposed. Site the taxpayer conduct as documented in the administrative file or the CEAS work paper. Close the control. Input a TC 290 to file the request. Close CEAS control with status code 72.

  4. No Documentation - 10-Year Ban

    If a request for reconsideration of the Ban is received without any documentation, send Letter 3339C, and advise the taxpayer that they must provide documentation to show their EITC claim was not fraudulent for the year the Ban was imposed. Close the control. Input a TC 290 to file the request. Close CEAS control with status code 72. Subsequent documentation received will be referred to Area Office. Follow normal procedures for case building, establishing on AIMS, and routing.

  5. Allow Audit Reconsideration

    Note:

    It is possible to remove the Ban and not reverse the previously disallowed EITC or to remove the Ban and reverse EITC depending on the information provided by the taxpayer.

    Remove 2-year Ban & Allow EITC


    If the taxpayer provided information on the Ban to substantiate allowance of EITC, removal of the Ban and Accuracy Penalty, the examiner will:

    1. Reverse the Ban with a TC 971 Action Code 56 to remove the recertification indicator and reverse the penalty with reference code 680 with the negative dollar amount of the penalty.

    2. Allow the EITC with TC 764.

    3. Check TXMOD/IMFOLT for TC 420 in subsequent tax years; Notify the Examination office that has the open audit via Form 1725 that the Ban and EITC was allowed.

    4. If TXMOD/IMFOLT research indicates there are no open subsequent tax period(s) however, the taxpayer was disallowed EITC through Math Error or Exam, and the children were the same children claimed on the ban year, the examiner must allow EITC in the subsequent year. Notate CEAS and IDRS with appropriate reason and status codes.

    5. If TXMOD/IMFOLT research indicates there are no open subsequent tax period(s) however, the taxpayer was disallowed EITC through Math Error or Exam and the children were NOT the same children claimed on the ban year, and the taxpayer is not the custodial parent, the examiner will advise the taxpayer with Letter 3338C of the documentation needed to request a reconsideration of EITC for the applicable years. Notate CEAS and IDRS with appropriate reason and status codes. If research (DDBKD/DUPOL) shows taxpayer is the custodial parent allow the EITC claimed in the subsequent year.

  6. Remove 2-year Ban and Deny EITC Reversal

    If the determination is made that the Ban was imposed in error, or other facts and circumstance dictate that the Ban should not be enforced, and the taxpayer did not provide information to support the reversal of the EITC disallowance:

    1. Reverse the Ban with a TC 971 Action Code 56 and TC 241 if applicable

      Note:

      If ban is reversed Recertification indicator will not reset to one (1).

      # # official use only # #

    2. Check TXMOD/IMFOLT for TC 420 in subsequent tax years. Notify the Examination office via F1725 that Ban was removed, and EITC reversal was denied.

    3. Send taxpayer Letter 3338C and advise the taxpayer that the Ban has been removed. Advise the taxpayer in the Letter 3338C of the documentation needed to request a reconsideration for the applicable years. Notate CEAS and IDRS with appropriate reason and status codes.

  7. Disallow Audit Reconsideration

    If the taxpayer failed to substantiate EITC entitlement for the year that triggered the ban, the audit reconsideration will be disallowed. Follow instructions outlined in IRM 4.13.3 when disallowing reconsideration. Notate CEAS and IDRS with appropriate reason and status codes.


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