The closing of a case is possibly the most difficult part of an examination. The examiner should use tact when explaining proposed adjustments to the taxpayer and/or when it becomes necessary to point out errors in the books or records of the organization.

The examiner must be patient in explaining the provisions of the law, bearing in mind that what is clear to the examiner is not readily understandable by one who does not deal with exempt organizations in his/her occupation.

The responsibilities of the examiner are not fulfilled when the examination of the books and records is completed. The examiner must conclude the examination in a manner that protects not only the interests of the Service, but also assures the taxpayer a fair and factually supported finding.

The examiner must carefully protect the taxpayer's rights while following the intent of the law. The conduct of the examiner during the closing conference will have a lasting impact on the resolution of a particular case and the image of the Service.

The closing conference is a good forum for addressing differences between the taxpayer and the examiner. Once the examiner reaches a conclusion with regard to potential issues, he/she must communicate the findings to the taxpayer and/or authorized representatives.

Overassessment and no-change cases are generally not controversial and, in most instances, do not require a formal closing conference. Deficiency cases and claim disallowances, however, are more likely to be disputed.

Closing conferences vary widely in the degree of formality, but generally follow the same format. The examiner will:

Just as the opening conference sets the stage for the rest of the examination, the closing conference draws to a conclusion all the examination activities the examiner has employed in making determinations about such crucial matters as whether an organization should retain its exempt status, and whether it owes any unrelated business income (UBI) or other federal taxes.

The examiner's ability to control, conduct, and complete this conference will determine to a large extent whether the examination was effective.

The steps in conducting a closing conference should include:

In the examination of complex tax returns, numerous issues will likely be proposed. Adjustments need to be fully developed before they are presented to taxpayers for review. If adjustments are not adequately developed, the review process may take longer. Records of proposed adjustments should be maintained, and every effort should be taken to secure taxpayers’ responses in a timely manner.

In all change cases the examiner should provide the taxpayer with a written explanation of all changes as soon as issues have been fully developed. Accordingly, the examiner will prepare a summary of issues or " draft" RAR.

The suggested format for preparation of any issue proposal is as follows:

The examiner may issue an adverse ruling resulting in the revocation of the organization's exempt status. In those cases, the EO examiner must solicit and attempt to secure the taxable forms which are due for the tax year and all open years as a result of the revocation. If the return cannot be secured, the examiner should prepare Form 5666, TE/GE Referral Information Report, and include it in the closed casefile per IRM 4.75.16, Case Closing Procedures. The Form 5666 will be forwarded to EO Classification in Dallas for processing.

If the return is secured and accepted as filed by the EO examiner, he/she should insert across the top margin of the Form 1120 or 1041 in red ink "Form 990 converted to Form 1120 by TEGE Operating Division," or "Form 990 converted to Form 1041 by TEGE Operating Division," and submit it to the appropriate Campus.

If the EO examiner secures the return under the procedures in this section, and believes that there are issues which should be addressed for the converted return, he/she should prepare Form 5666 and attach all relevant information, including a copy of the return and forward it to Classification for consideration. The information report should indicate that the original return was secured by the TEGE Operating Division.

In situations where the TEGE Operating Division has requested the LMSB or SBSE Operating Divisions to secure a return, it is their responsibility to communicate the results to the appropriate EO Area Manager. The form of this communication will be established locally.

Additional procedures for revocation of exemption and the use of Form 5666 are contained in IRM 4.75.15, Closing Letters and Reports of Examination.

The LMSB Operating Division has primary examination responsibility for all farmers' cooperatives filing Form 990–C.

The TEGE Operating Division has primary responsibility for employment tax returns of employee plans and exempt organizations (Forms 940, 941, 942, 943, CT-1 and CT-2, 945.). See IRM 4.75.12, Required Filing Checks, on the filing requirements for employment tax returns.

When an examination is completed, examiners will explain the basis of the proposed adjustments to taxpayers and/or their representatives and attempt to secure agreement to the proposed tax liability. Examiners should be prepared to cite the law, regulations, rulings, and court decisions on which their conclusions are based.

It is of extreme importance that these conclusions are documented as contemporaneously as possible. This documentation can be in the form of a workpaper attached to Form 5773 or a note to the file. This is important in the event that the taxpayer should seek litigation because of an unfavorable outcome.

It should be noted that relatively few audits result in litigation and the outcome of tax litigation is rarely based on which party has the burden of proof. Those cases where the taxpayer refuses to provide documents or refuses to cooperate are not affected at all by IRC § 7491(a). However, this does not mean the examiner should not follow sound audit practices at all times. The new burden of proof provisions are discussed in further detail in IRM 4.75.13, Issue Development.

If the case ultimately reaches litigation, and it becomes necessary to determine whether examiner requests for information were made and were reasonable, the determination will depend upon the facts and circumstances of each case as documented in the case file. The successful outcome of most cases litigated is dependent upon counsel's opinion as to how closely they can rely on the workpaper documentation. Often counsel will have a strong position when deciding upon litigation, yet end up not litigating based solely on the fact that documentation is weak or otherwise incomplete.

If the amounts shown on the signed Form 870-E are incorrect due to an error in computation, the report must be rewritten to reflect the corrected amount and reissued to the taxpayer. In agreed and partially agreed cases, enter an explanation on the applicable Form 4549-A, Income Tax Examination Changes (Other Information), or Form 4621, Report of Examination-Exempt Organizations (Proposed Tax Change) (Remarks).

If more space is needed, use Form 886-A, Explanation of Items, to explain the correction and provide a statement in the "Other Information " section of Form 4549-A, Form 5438, or "Remarks" section of Form 4621, referring to the page on which the correction is explained.

In agreed cases, the reissued report will be labeled, " Corrected Report --Supersedes Report Dated MM/DD/YYYY" in the top margin. If the original report of examination has been provided to the taxpayer, a copy must be retained in the workpapers shown as "Superseded by Report Dated MM/DD/YYYY."

Procedures for processing payments received by TEGE personnel and multifunctional installment agreements are contained in IRM Part 5, Collecting Process. (This information was formerly in IRM 105.1, Collecting Contact Handbook). These procedures have been updated to include the applicable provisions enacted under the IRS Restructuring and Reform Act of 1998 (RRA).

In accordance with the Service’s continuing effort to reduce the Accounts Receivable Dollar Inventory (ARDI) and Currently Not Collectible (CNC) accounts, TEGE must strive for quality assessments and promote an increased emphasis on early collections. It is the general practice of the TEGE Operating Division to invite advance payments on agreed adjustments to EO returns, delinquent returns secured, and discrepancy adjustments. TEGE will also provide information and assistance on the collection process in all deficiency cases.

When the taxpayer is bankrupt (B code on Form 5546) or is currently working with LMSB or SBSE Compliance Division on payment of taxes previously assessed (C code on Form 5546 or LMSB or SBSE compliance status 26), LMSB or SBSE Compliance Division will be consulted before TEGE proposes additional deficiencies.

At the time a tax deficiency is proposed or a delinquent return is solicited, the examiner will furnish a calculation of the tax, projected interest, any penalties due, the current interest rate on underpayments, and an explanation of the advantages of making an advance payment; i.e., accrual of the interest on the deficiency will stop as of the date of payment rather than 30 days from the date of the agreement.

An examiner can accept payment by check or money order, but not in cash (currency or coin). If a taxpayer desires to make payment in cash, a request for assistance from LMSB or SBSE Compliance Division in accepting the payment will be made through the group manager.

If the taxpayer is unable to pay, the examiner will review with the taxpayer his plans for payment. The examiner will explain that interest and the failure-to-pay penalty will accrue if the tax is not paid within 10 days from the date of the first notice (bill) from the Campus.

If taxpayers state they cannot pay, the examiner should interview the taxpayer to determine the ability to pay. The interview should include the following dialogue:

If the taxpayer will be able to pay the amount due within 120 days from the date of the first notice, no other action should be taken by the examiner.

If the taxpayer will not be able to fully pay within 120 days of the first notice and the return is a 990-T, 1041, 1120, 1120-POL, or 1120-PC, consideration should be given to an installment agreement or coordination with LMSB or SBSE Compliance Division, as set forth in IRM Part 5, Collecting Process. IRM 5.14.6 provides the authority to grant multifunctional installment agreements with aggregate unpaid balances of assessment less than or equal to $100,000. See IRM 5.2 for streamlined installment agreement authority for accounts with an aggregate balance of assessments less than or equal to $25,000.

Examiners must document case files to reflect taxpayers’ responses and actions taken to verify the taxpayers’ statements, if appropriate.

These procedures should be used in conjunction with procedures set forth in IRM Part 5, Collecting Process.

Managers are responsible for ensuring timely remittance processing by employees under their supervision.

Examiners should follow local payment processing procedures to ensure that a payment to be applied to a Master File account is received within the remittance processing function within 24 hours.

All employees must alert their manager on receipt of a remittance of $100,000 or more. The manager will ensure that the remittance is transmitted to the LMSB or SBSE Compliance Division within 24 hours of receipt.

For processing payments received with delinquent returns, see IRM 4.75.22, EO Delinquent and Substitute Returns.

For processing closing agreements with payments, see IRM 4.75.25, Closing Agreements.

Form 870-E

Form 3363

Form 4549

"Agreed" claims (Form 843 or an amended return) that are disallowed in full or in part and no other adjustments to the tax liability are necessary.

"Excepted agreed" claims (Form 843 or an amended return) that are disallowed in full or in part and adjustments to the tax liability are also proposed. Agreement to the adjustments should be solicited on Form 870-E.