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Part 4. Examining Process

Chapter 75. Exempt Organizations Examination Procedures

Section 4. Planning, Classifying, and Selecting Returns and Processing Claims

4.75.4  Planning, Classifying, and Selecting Returns and Processing Claims

4.75.4.1  (02-01-2003)
Introduction

  1. This IRM contains Exempt Organization procedures and instructions for researching, classifying and selecting returns and claims.

  2. These instructions are provided for EO Classification and field group personnel.

4.75.4.2  (02-01–2003)
Background Information

  1. This section provides an overview of the EO examination planning, classification, and selection process, including:

    1. Returns Inventory & Classification System (EO RICS), which is used to identify and select EO returns which relate to specific types of compliance activities set out in the approved work plan.

4.75.4.3  (02-01-2003)
Glossary of terms

  1. RICS Returns Inventory and Classification System - an automated system that provides users access to return and files information related to filing and processing of returns to the Tax Exempt/Government Entities (TE/GE) operating division.

  2. RICS Condition Code - Codes that identify specific data that is needed to select the returns that fit a project issue.

  3. Non-Master File (NMF)- collection of revenue accounting transactions on taxpayer accounts which provides a means for the assessment of taxes and the collection of revenue. An Automated NMF System has replaced the manual NMF accounting system.

  4. Examination - A review of books, records, and other data to develop all significant issues, to insure a proper determination of exempt status, qualification, or tax liability where appropriate, and to determine that applicable statutory requirements are satisfied.

4.75.4.4  (02-01-2003)
EO Implementing Guidelines

  1. The implementing Guidelines direct how the Exempt Organization segment will apply resources to programs that support our major strategies and operational priorities. The Guidelines identify projected staff resources and describe the work in the following areas:

    • Activities within the Office of the Director, Exempt Organizations

    • Customer Education and Outreach program emphasis areas and activities

    • Rulings and Agreements emphasis areas, including tax law interpretation and published guidance

    • Examination emphasis areas and planned compliance activities

4.75.4.5  (02-01-2003)
Office of Director, Exempt Organizations Examinations

  1. The Office of Director, Exempt Organizations Examinations plans, manages, directs and executes nationwide activities; supervises the activities of EO Examination Programs and Review (EPR) and the six EO Area Offices.

  2. EO Examinations is comprised of EO examination specialists, supervised by EO Group Managers who are supervised by the EO Area Manager within a given geographic area.

  3. The Director is responsible for:

    1. Developing overall EO enforcement strategy and goals to enhance compliance consistent with overall TE/GE strategy, and implementing and evaluating EO examination policies and procedures;

    2. Regulating and monitoring exempt organizations through examination of returns, with emphasis on assuring that exempt organizations continue to meet the statutory requirements for exemption and their other federal tax responsibilities, including employment taxes;

    3. Coordinating tax administration and enforcement activities with other federal and state agencies;

    4. Developing and implementing measures for the EO examination program that balance customer satisfaction, employee satisfaction and business results;

    5. Monitoring and evaluating the quality and effectiveness of the EO Examination programs;

    6. Developing and implementing the EO returns classification and selection process, and the case review and closing processes.

4.75.4.6  (02-01-2003)
Examination Process

  1. The selection of returns to be examined is determined by the Examination Planning and Programs (EPP) unit. EPP conducts a market segment analysis throughout the nation and develops potential compliance issues. Once these issues are identified, condition codes are developed to identify the returns that meet the issues in question.

  2. Once the project and condition codes are produced, the data is given to the Classification unit for return retrieval. The Classification unit utilizes the RICS system to pull the necessary returns to satisfy the project needs. All returns must have a minimum of 18 months remaining on the statute.

  3. As these returns are received by the Classification unit, and a full account is accomplished on the Automated Information Management System (AIMS), the returns are transferred to the examination group that covers the geographic area where the organization is located.

  4. The examination group conducts the audit on the organizations for which the returns were pulled.

4.75.4.7  (02-01-2003)
Claims Processing

  1. Claims are received and processed by the Ogden Service Center (OSC). If a claim is received by any other unit of TE/GE, the claim will be sent to the OSC for processing.

  2. All claims that cannot be processed in the OSC are forwarded to EO Classification. All claims should have an AIMS Account on Integrated Data Retrieval System (IDRS) when received in EO Classification.

  3. If the claim is without an AIMS account, the classification group will establish one on IDRS.

  4. If there is an AIMS account on IDRS, EO Classification will:

    1. Record the claim on the claims database and establish on Exempt Organization Inventory Control (EOIC) system;

    2. Check for an original return. If not present, attach a Business Return Transaction Files On-Line (BRTVU) print.

4.75.4.7.1  (02-01-2003)
Claims-Statute of Limitations

  1. Verify the statute of limitation date. The taxpayer must file a claim for refund within 3 years from the date the original return was filed or 2 years from the date the tax was paid, whichever is later (IRC Section 6511).

  2. If no return was filed, a claim may be allowed if filed within 2 years from the date of payment.

  3. The following procedure should be used to verify the statute of limitation date;

    1. Check the Assessment Statute Expiration Date (ASED) on IDRS print TXMODA;

    2. Compare the OSC received date with the ASED. If the received date is earlier than the ASED then there are no statute concerns. If it is not, check the postmark on the envelope. If this date is earlier than the ASED then there are no statute concerns. If neither date is earlier than the ASED, the case will be returned to the Statute Control unit in the OSC, because Classification does not have disapproval authority;

    3. The Claims Examiner will check to see if the claim has been signed by the taxpayer. If not, a request will be sent to the taxpayer requesting a signed copy of the claim;

    4. Print IDRS research, (TXMODA, AMDISA, BMFOLA, BMFOLI, BMFOLR, BMFOLZ, and BMFOLO);

    5. Check to see if a transaction code (TC) 976 has been posted to the return module in question. This TC (transaction code) appears on the IDRS print TXMODA.This TC, when added to the module that has a TC 150 posted, creates an "-A" freeze preventing a refund or offset from the module until an adjustment is made. If no TC 976 is posted to the module, make a copy of the claim and send the copy to OSC for posting;

    6. Assign the claim to a Return Classification Specialist (RCS) for processing.

4.75.4.7.2  (02-01-2003)
Surveyed Claims

  1. Claims which are clearly allowable may be surveyed. Surveys must include Form 1900 and the return must be stamped " surveyed before assignment" and approved by the EO Classification Manager.

  2. If the claim cannot be surveyed, the Claims Examiner will:

    1. Prepare a statement explaining why it was not surveyed on Form 5464 (Case Chronology Record);

    2. Order the original return if it is not in the package, update AIMS (using Form 5595), and EOIC, and send the case to the appropriate group for examination;

    3. Record "Action" taken on the claims database;

    4. Forward the original return, when it is received, to the group for association with the claim.

  3. If there is not an AIMS Account on IDRS, EO Classification will:

    1. Create an AIMS account using Form 5597 and establish on EOIC. Follow the processing procedures in IRM 4.75.4. See Section 4.7.1.

    2. In situations where expedite processing is required, such as a Taxpayers Advocate case, EO Classification may process the claim without establishing it on AIMS, with management approval. Form 3870 may be used to process these claims. Form 3870 will be controlled on the claims database.

    :

4.75.4.7.3  (02-01-2003)
Claims subject to section 4962

  1. If the claim is on an assessment of 1st tier tax only, use the procedure for claims shown in IRM 4.7.4. Section 4.7.1.

  2. The 2nd tier assessment must be established on IDRS non-master file by the classification unit, using the individuals social security number (SSN) or the organization's tax identification number (TIN) if the organization is the entity being assessed. This process allows the 2nd tier assessment to be processed through the closing unit with closing document 5599.

  3. If Form 4720 reflects assessment of both 1st and 2nd tier tax:

    1. There must be a Manual Accounting Replacement System (MARS) transcript with the claim, showing the assessment of excise tax against an organization or an individual with a social security number attached. The 2nd tier assessment is processed using Form 3870

    2. If the claim has a 2nd tier tax assessment and no automated non-master file transcript is attached, the claim must be sent back to OSC for processing on the automated non-master file system. Once the transcript is received, process the 2nd tier tax assessment. .

4.75.4.7.4  (02-01-2003)
Net Operating Loss (NOL) or Capital Loss carrybacks.

  1. A Net Operating Loss is created when the taxpayer’s deductions exceed income. A NOL lowers taxes in an earlier year, allowing a refund for taxes already paid. These deductions must relate to a trade or business. Any loss remaining after applying the NOL to preceding years lowers taxes in a succeeding year. The taxpayer must use the NOL before applying unused credits.

  2. A NOL arising in taxable years beginning after August 5, 1997 can take a NOL back 2 years and forward 20 years. Prior to this change a taxpayer could take a NOL back 3 years and forward 15 years.

  3. Verify statute of limitation. Carryback claims differ from other claims for years beginning after November 10, 1978. An extension of time to file which has been granted does not terminate on the date the return is filed. The claim is valid if filed on or before the extended due date, regardless of the filing date of the original tax return.

  4. The procedure to verify the statute is the same as other claims except for the extension issue.The statute should reflect alpha code BB which represents a Carryback Update.

  5. A Form 2285 is needed where there are two loss years being carried back to one year and when there is a carryback and a general adjustment to the receiving year. See the instructions for Form 2285 in IRM 7.2.1.

  6. Prepare Form 5599 (EO/GE Examined Closing Record) to show the needed adjustment(s). Form 5599 will be used for all claims that have an AIMS account. See IRM 7.2.1 for completion of Form 5599.

4.75.4.7.5  (02-01-2003)
Protective Claims

  1. Protective Claims are formal claims or amended returns for credit or refund normally based on expected changes in a:

    • Current IRC section

    • Current Regulation

    • Pending legislation

    • Current litigation

  2. The following should be considered " Protective Claims" :

    • Claims identified as a pending court case or decision

    • Claims recomputing the Foreign Tax Credit based on the foreign taxes " deemed paid" per IRC Section 902

    • Medical/Dental Resident FICA/Medicare tax claims

    • IRC 403(b) claims

  3. A claim that has been identified as a protective claim should be updated to status 38 on IDRS and EOIC, then placed in suspense in EO Classification.

4.75.4.7.6  (02-01-2003)
EO Penalties

  1. All EO Penalty abatement requests are worked at OSC. See IRM 21.7.

4.75.4.7.7  (02-01-2003)
Joint Committee Claim Cases (Ref IRC 6405)

  1. A case that involves a request for the return of overpayment of $2,000,000.00 or more will be processed and sent to the appropriate EO examination group. Once the examination group completes its examination and prepares its report, the case file will be sent to the Joint Committee representative for review.


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