Internal Revenue Manual - 4.75.15 Closing Letters and Reports of Examination

Part 4. Examining Process
Chapter 75. Exempt Organizations Examination Procedures
Section 15. Closing Letters and Reports of Examination

4.75.15.1 (01-01-2006)
Introduction

These procedures are for the use of EO examiners in the examination of returns under the jurisdiction of the EO Area Offices. They provide guidance for EO examiners:
- Preparing reports
- Ensuring the use of the correct forms
- Promoting uniformity
Examination reports should contain all information necessary to ensure a clear understanding of the examination conclusions and the applicable law upon which they were based. Examination reports, unlike work papers, are legally binding documents and when executed, serve as the basis for tax law enforcement action. Therefore, EO examiners should take all necessary steps to ensure examination reports are prepared accurately and completely..
This IRM provides report writing instructions for the examination of issues such as revocation, modification, unrelated business income, private foundations, and non exempt charitable trust.

Report writing instructions for certain other returns examined by EO examiners, but not covered in IRM 4.75.15, are found in the following Internal Revenue Manuals:

Type of Report	IRM
Discrepancy Adjustments	IRM 4.75.28, Discrepancy Adjustments
Employment Taxes	IRM 4.23.9, Report Writing Guide for Employment Tax Examinations
Gaming Excise Taxes	IRM 4.24.5, Preparation Guidelines for Excise Tax Examination Reports

4.75.15.2 (01-01-2006)
Closing Definitions

There are a number of situations in which a case will be closed, depending upon the issue and resolution as determined by the examiner and the taxpayer. The following is a list of how cases are generally closed.
No Change - Cases in which the examination results in no change to exempt status, foundation status, or tax liability, and where there are no other issues for which a written advisory is appropriate.
No Change With Written Advisory - Cases in which the examination results in no change to exempt status, to foundation status, and to tax liability, but where there are other issues for which a written advisory is appropriate. Generally, a no change with written advisory is appropriate where:
1. Some aspect of an organization's activities or operations, if enlarged or ongoing, may jeopardize the organization's exempt status, or
2. There are other compliance issues (not including status or tax change issues) which are appropriate to call to the attention of the organization.
Agreed - Cases in which the taxpayer signs the appropriate waiver and acceptance forms for examination changes to exempt status, foundation status, and tax liability, as applicable. If the case involves Chapter 42 tax violations under IRC § 4941, 4942, 4943, 4944, 4945, 4951, 4952, 4955, or 4958, correction of all acts or failures to act that gave rise to such taxes must have been completed to be an agreed case.

Note:

All cases subject to declaratory judgment under IRC § 7428 are treated as unagreed cases.
Partially Agreed - A partially agreed case contains more than one issue, of which at least one is agreed to by the taxpayer and at least one is not agreed to by the taxpayer. For any agreed issues the taxpayer has signed the appropriate waiver and acceptance forms for examination changes to exempt status and tax liability, as applicable. Additionally, if the case involves Chapter 42 tax violations under IRC §'s 4941, 4942, 4943, 4944, 4945, 4951, 4952, 4955, or 4958, correction of the acts or failures to act that gave rise to the taxes have been completed for the agreed issues.
Excepted Agreed - Cases in which the taxpayer agrees to proposed adjustments, but the examination results are subject to review, additional processing, or some other condition, e.g. revocation or modification of IRC § 501(c)-other exempt status. The taxpayer may waive the statutory restrictions upon assessment and collection of the deficiency of tax by signing a waiver such as Form 4549 or Form 870- E. The signing of such a waiver:
1. Does not preclude assertion of a further deficiency by the Commissioner or a request for further consideration of the issues by the taxpayer. Thus, the case is excepted from application of the case reopening criteria;
2. Waives the taxpayer's right to contest the issue in United States Tax Court; and
3. Stops the running of interest 30 days from the date of receipt of the signed waiver by the Service.
Unagreed- Cases in which the taxpayer has either not signed the appropriate waiver and acceptance forms, or has not corrected all acts or failures to act that gave rise to a tax under IRC §'s 4941, 4942, 4943, 4944, 4945, 4951, 4952, 4955, or 4958.

4.75.15.3 (01-01-2006)
Basic Report Forms

The basic report forms for EO examinations are listed below:

Form Number	Title
870-E	Waiver of Restrictions on Assessment and Collection of Deficiency and Acceptance of Overassessment See IRM 4.75.14, exhibit 14-4 for an explanation of and instructions for completion of Form 870-E.
886-A	Explanations of Items.
2297	Waiver of Statutory Notification of Claim Disallowance See IRM 4.75.14, Exhibits 5 and 6 for an explanation of and instructions for the completion of Form 2297.
3363	Acceptance of Proposed Disallowance of Claim for Refund or Credit. See IRM 4.75.14, Exhibit 7 and 8, for an explanation of and instructions for the completion of Form 3363.
4549	Income Tax Examination Changes (Report and Agreement Form) See IRM 4.75.14, Exhibits 9 and 10 for an explanation of and instructions for the completion of Forms 4549.
4549-A	Income Tax Examination Changes (Report Form Only) See IRM 4.75.14, Exhibits 9 and 10 for an explanation of and instructions for the completion of Forms 4549-A.
4549-B	Income Tax Examination Changes (Adjustment Continuation Sheet for Form 4549 or Form 4549-A. See IRM 4.75.14, Exhibits 9 and 10 for an explanation of and instructions for the completion of Forms 4549-B.
4620	Transmittal Letter - Exempt Organizations. See Exhibits 4.75.15-4 and 4.75.15-5 for an explanation of and instructions for the completion of Form 4620.
4621	Exempt Organizations - Report of Examination (Proposed Tax Changes). See Exhibits 4.75.15-6 and 4.75.15-7 for an explanation of and instructions for the completion of Form 4621.
4621-A	Exempt Organizations - Report of Examination (Proposed Status Change). See Exhibits 4.75.15-8 and 4.75.15-9 for an explanation of and instructions for the completion of Form 4621-A.
4883	Exempt Organizations Excise Tax Audit Changes (Chapter 41, Chapter 42, and § 170(f)(10)(F) Excise Taxes). See Exhibit 4.75.15-10 for instructions for completion of Form 4883.
6018	Consent to Proposed Action - IRC § 7428 See IRM 4.75.14, Exhibit 13 for instruction on the completion of this form.
6018-A	Consent to Proposed Action See IRM 4.75.14, Exhibit 12 for instruction on the completion of this form.

4.75.15.4 (01-01-2006)
No Change Examinations

As a result of the examination of an organization, the examiner may conclude that there is no change necessary to their exempt status. When closing the case Form 5772 and Form 5773, along with any additional workpapers should substantiate the examiners conclusions. The examiner will mail the closing letter prior to submitting the case to Examination Support Staff (ESS) for processing. No report of examination (RAR) is needed.
If an examination is for multiple years no change letters should not be used unless all years are being no changed.
The result of a Form 990-PF examination is no change only when there is no change in exempt status, foundation status, and Chapter 42 tax liability.
When a foundation manager, self dealer, or other disqualified person signs a Form 4720 for their Chapter 42 tax liability, each such foundation manager, self dealer, or disqualified person, should be sent their own separate letter.
See table of letters for No Change Cases included in Exhibit 4.75.15-1.

4.75.15.5 (01-01-2006)
No Change With Written Advisory Examinations

During the examination of Form 990, 990-EZ, 990-PF, or 990-BL the examiner may encounter minor issues which, if enlarged, could jeopardize the exempt status of the organization. The examination is considered a no change, but the examiner will issue a no change with advisory letter. This letter will include the appropriate narrative addressing the issues revealed by the examination.
No change with written advisory letters are appropriate for, but not limited to, the following situations:
- Failure to timely file annual information return - Form 990 or 990-PF
- Failure to timely file required Federal tax returns
- Failure to file or failure to furnish required payer information returns (Forms 1099, W-2, W-2G, etc.)
- Where reasonable cause is not shown, notification that the Campus will assess penalties for failure to file Forms 1099
- Failure to file Forms 1099 or W-2G for certain gambling winnings
- Failure to withhold applicable federal income tax at the rate of 28 percent for certain gambling winnings over $5000
- Failure to secure taxpayer identification numbers of payees prior to making payments, and resulting backup withholding requirements
- Filing an incomplete or inaccurate Form 990 or 990-PF
- Failure to comply with IRC § 6113 requirements regarding notification of nondeductibility of contributions
- Failure to identify special fund-raising activities
- Improperly combining income from different sources instead of reporting each source on appropriate lines
- Improper netting of income and expenses on Form 990 or 990-PF
- Failure to report required officer/trustee compensation and other data
- Failure to notify the IRS of changes in purpose, character, or method of operation
- Engaging in activities which, if enlarged, or ongoing could jeopardize exempt status
- Failure to maintain adequate books and records
- Failure by IRC § 501(c)(7) organizations to comply with the nonmember recordkeeping requirements of Rev. Proc. 71-17
- Advisory to IRC § 501(c)(7) organizations to monitor compliance with the 15 percent nonmember income and 35 percent combined investment income/nonmember income guidelines of Public Law 94-568
- Where tax changes are made to related returns, or delinquent related returns are secured (e.g. Forms 990-T, 4720, 940, 941, etc.) an advisory statement should be included in the letter for the primary return, noting the issue on the related return, and that a separate letter or report will be provided for such related examination
- Changes to income, deduction, or balance sheet items on a Form 990 or 990-PF where there is no change to an organization's tax liability
- Other compliance issues not listed above are present which warrant the issuance of a written advisory to the organization
No change with written advisory letters are not appropriate in situations where:
1. Modification or revocation of exempt status is warranted;
2. Modification of foundation status is warranted;
3. Imposition of, or adjustment to unrelated business income tax is warranted; or
4. Imposition of, or adjustment to Chapter 41 or 42 tax liability is warranted.
Letter 3609 should be prepared using RGS software and the pattern paragraphs within the program. When the pattern paragraphs are not appropriate for the issues of a particular examination the EO examiner should select the option to write custom paragraphs.
See table of letters for use in"No Change With Written Advisory Cases" included in Exhibit 4.75.15-1.
See IRM 4.75.16 for the proper disposal code for no change cases and the preparation of Form 5599.

4.75.15.6 (01-01-2006)
Draft Reports in Change Cases

In all change cases the examiner should provide the taxpayer with a written explanation of changes as soon as they are fully developed. Accordingly, examiners will prepare a summary of issues or "draft" Revenue Agents Report, typically known as (RAR).

4.75.15.7 (01-01-2006)
Reports of Examination

The RAR should include only status change or tax change issues. If compliance issues warranting a written advisory are encountered such as those issues described in IRM 4.75.15.5, in addition to tax change and/or status change issues, such compliance issues should be addressed in a separate written advisory letter.
The use of Form 886-A is optional for agreed examination reports since the explanation of changes for agreed reports is generally brief. Form 886-A is necessary in agreed reports, only when the explanation of changes exceeds the space provided on Forms 4549, 4621, or 4621-A .
The use of Form 886-A is mandatory for unagreed examination reports. See Exhibit 4.75.15-3 for the format and explanation of the information that should be included in Form 886-A.

Exception:

Form 886-A is mandatory for agreed and unagreed revocation cases.

4.75.15.8 (01-01-2006)
General Guidelines for Presentation of Issues in Reports of Examination

In examination cases resulting in proposed changes in organization status and/or tax liability, the proposed changes are presented in a report of examination which includes:
- Form 4620, Transmittal Letter - Exempt Organizations (for unagreed cases only)
- Form 4621, Exempt Organizations - Report of Examination (Proposed Tax Changes)
- Form 4621-A, Exempt Organizations - Report of Examination (Proposed Status Changes)
- Form 4549/4549-A, Income Tax Examination Changes
- Form 4883 - EO Excise Tax Audit Changes (Chapter 41, Chapter 42, and § 170(f)(10)(F) Excise Taxes)
- Form 886-A, Explanation of Items

4.75.15.9 (01-01-2006)
Revocation

On the basis of an examination of a return or information from other sources, an EO examiner may conclude that a determination or ruling letter recognizing exemption should be revoked. Accordingly, the Service withdraws its recognition of exemption for a taxable year or years.
When an EO examiner determines that revocation of an organization's exempt status is appropriate, whether agreed or unagreed, a report of examination proposing revocation will be prepared by the examiner. For an example of the proper preparation of a RAR, see the example as presented on the TEGE web site at the following address: http://tege.web.irs.gov. Follow the links in the web site in the following order:
1. Tax Exempt And Government Entities
2. Exempt Organizations
3. Library
4. Sample Revenue Agents Reports
1. The report should also contain a statement that an examination closing conference was offered, and held (include the date of the conference). If a closing conference was not held, include a statement that a closing conference was offered, but declined by the taxpayer.
If an IRC § 501(c)(3) organization agrees to the revocation, they may execute a Form 6018 to memorialize their present intent not to protest the proposed revocation or seek a declaratory judgment regarding it. However, such execution of a Form 6018 is not legally binding, and it does not waive the taxpayer's right to protest the proposed revocation or to seek a declaratory judgment regarding it. If the organization does execute a Form 6018, it should be included in the case file with the Forms 4620 and 4621-A, and 886-A.

Note:

All revocations subject to declaratory judgment under IRC § 7428 are treated as unagreed cases
If an EO other than an IRC § 501(c)(3) organization agrees with the proposed revocation of its exemption, the EO examiner will secure a Form 6018-A Consent to Proposed Actionand prepare a report of examination as outlined in IRM 4.75.15.8.
A copy of the report of examination should be made and included in the case file for inclusion in the organization's administrative file when the case is closed.
The report of examination in all cases, agreed or unagreed, will be mailed to the taxpayer by the examiner with the appropriate 30 day letter.
The final closing letters in all revocation cases are prepared and issued by EO Review staff.

The following examination closing letters and report forms are used for agreed and unagreed revocation of tax exempt status.

Type of Return	Closing Letters/Report Forms	Agreement Form
Form 990 501(c)-Other (Agreed)	Letter 3610 (30 day letter issued by the examiner) Form 4621-A Form 886-A Final Letter (Issued by the Reviewer)	Form 6018-A
Form 990 501(c)-Other (Unagreed)	Letter 3610 (30 day letter issued by the examiner) Form 4621-A Form 886-A Final letter (Issued by the Reviewer)	Form 6018-A Although it is not required in an unagreed case, the examiner should attempt to solicit the form.
Form 990 501(c)(3) Agreed	Letter 3620 (30 day letter mailed by examiner) Form 4621 Form 4620 Form 886-A Final letter issued by the reviewer.	6018 Note: Form 6018 is not binding on a 501(c)(3) organization.
Form 990 501(c)(3) Unagreed	Letter 3620 (30 day letter mailed by examiner) Form 4621 Form 4620 Form 886-A Final letter issued by the reviewer.	6018 Note: Form 6018 is not binding on a 501(c)(3) organization.

See IRM 4.75.16 for the preparation of Form 5599.
When closing a revocation case, the disposal code should not be entered on Form 5599. This will be done by Mandatory Review staff.

4.75.15.10 (01-01-2006)
Modification of Exempt Status - General

On the basis of an examination of a return or information from other sources, an EO examiner may conclude that a determination or ruling letter recognizing exemption of a 501(c)(3) other organization should be modified.

Note:

The tax exempt status of an IRC § 501(c)(3) organization cannot be modified. If the organization no longer qualifies for tax exempt status under IRC § 501(c)(3), its tax exempt status must be revoked.
Determination letters are "modified" in cases where the Service determines that an organization is described in a paragraph of IRC § 501(c) other than the paragraph for which it originally qualified.
When the EO examiner determines that modification of an organization's determination or ruling letter is appropriate, a proposed modification report will be prepared by the EO examiner. The report of examination will be mailed to the taxpayer by the examiner along with Letter 3610.
See IRM 4.75.16 for the proper disposal code and preparation of Form 5599.

4.75.15.10.1 (01-01-2006)
Agreed Modification of Exempt Status 501(c)(3) Other

If modification of exemption is recommended and the examination is agreed, the EO examiner will secure Form 6018-A Consent to Proposed Action,and prepare a report of examination setting forth issue, facts, law, governments position, and conclusions.. See Exhibit 4.75.15-12.

The following examination closing letters and report forms are used for agreed modification of tax exempt status.:

Type of Return	Closing Letter/Report Forms	Agreement Form
Form 990 501(c)-Other Agreed	Letter 3610 (Prepared and mailed by examiner.) Form 4621-A Form 886-A Final Modification letter (mailed by the reviewer.)	Form 6018-A

See IRM 4.75.16 for the proper disposal code and preparation of Form 5599.

4.75.15.10.2 (01-01-2006)
Unagreed Modification of Exempt Status, 501(c) Other

When the examination of an organization results in an unagreed proposed modification of tax exempt status, the EO examiner will prepare a report of examination using Forms 4620, 4621-A, and 886-A.
The EO examiner should also prepare and include with the report of examination, a Form 6018-A. If the taxpayer decides to agree with the proposed modification after receipt of the exam report, they could execute the Form 6018-A at that time and EO Mandatory Review would issue the final modification letter.

The following examination closing letters and report forms are used for unagreed cases involving modification of tax exempt status:

Type of Return	Closing Letter/Report Forms	Agreement Form
Form 990 501(c) Other Unagreed	Letter 3610 (Prepared and mailed by examiner.) Form 4620 Form 4621-A Form 886-A Final Modification letter (mailed by the reviewer.)	Form 6018-A

See IRM 4.75.16 for the preparation of Form 5599.

4.75.15.11 (01-01-2006)
Reclassification of Foundation Status

On the basis of an examination of a return or information from other sources, an EO examiner may conclude that the foundation status of an IRC § 501(c)(3) organization should be reclassified.
Foundation status reclassification occurs when a 501(c)(3) organizations status is changed among any of the following categories:
- An organization described in IRC § 509(a)(1), (2), (3), or (4);
- A private non-operating foundation described in IRC § 509(a);
- A private operating foundation described in IRC § 4942(j)(3).
When an EO examiner determines that reclassification of an organization’s foundation status is appropriate, the examiner will prepare a report of examination proposing such reclassification. See exhibit 4.75.15-12 for an example of a RAR for a foundation status reclassification.

The following examination closing letters and report forms are used for cases involving foundation status reclassifications.

Type of Return	Closing Letter/Report Forms	Agreement Form
Form 990 or 990-PF - 501(c)(3)	Letter 3620 (30-day letter) (Prepared and mailed by the examiner.) Form 4620 Form 4621-A Form 886-A	Form 6018

An IRC § 501(c)(3) organization may execute a Form 6018 to memorialize its present intent not to protest the proposed foundation status reclassification or seek a declaratory judgment regarding it. However, such execution of a Form 6018 is not legally binding, and it does not waive the taxpayer's right to protest the proposed reclassification or to seek a declaratory judgment regarding it. However, such execution of a Form 6018 is not legally binding, and it does not waive the taxpayer's right to protest the proposed reclassification or to seek a declaratory judgment regarding it. If the organization does execute a Form 6018, it should be included in the case file with the Forms 4620 and 4621-A.
All foundation status reclassification cases are treated as unagreed because such cases are subject to declaratory judgment under IRC § 7428, and because they are subject to appeal, even if a Form 6018 was executed. Accordingly, a full preparation of an "unagreed" report is required.
Forms 4621-A, and 886-A shall include all information necessary for a clear understanding of the issues, relevant facts, law, governments position, taxpayer's position, and conclusions reached.
Form 4620 shall include significant information to assist reviewers and subsequent EO examiners. See Exhibits 4.75.15-4 and 4.75.15-5 for an explanation of the use of Form 4620 and instructions for information to include and not Include.
Form 886-A is prepared as an attachment to Form 4621. Accordingly, the EO examiner should include a statement in the remarks section of Form 4621, referring to Forms 886-A for the explanation of examination findings. . Form 886-A will be prepared in accordance with the instructions for unagreed cases contained in Exhibit 4.75.15-3 which explain more fully, how to document the issues. It will explain in detail the basis for the proposed revocation in sufficient depth so that the organization can clearly understand the conclusions reached.
Copies of Forms 4620, 4621, and 886-A should be made for inclusion in the organization's administrative file when the case is closed.
See 4.75.15.7 and 4.75.8 for the proper preparation of a report of examination for a proposed foundation status reclassification issue. It should contain:
1. Issues- A statement of issues upon which the proposed reclassification is based;
2. Facts- Statement of material facts relevant to the issues; In the case of reclassifications based at least in part on the support tests of IRC §s 170(b)(1)(A)(vi) or 509(a)(2), the facts should include schedules setting forth applicable support test computations;
3. Law- Statement of the applicable law, regulations, and other governing precedent;
4. Taxpayer's Position- A statement of the taxpayer's position on the issues;
5. Government's Position- Statement of the Government's position, including a clear explanation of the underlying reasoning regarding the foundation status reclassification;
6. ; Conclusion- A brief statement of the Government's proposed conclusion reached regarding the foundation status reclassification;
7. The proposed effective date of the reclassification;
8. A statement affirming continuing qualification for IRC § 501(c)(3) status.
See IRM 4.75.16 for the proper disposal code and preparation of Form 5599.

4.75.15.12 (01-01-2006)
Modification of Operating Foundation Status

"Private operating foundations," or simply "operating foundations," are essentially private foundations that are treated like public charities. Operating foundations engage in the active conduct of charitable activities, as opposed to mainly making grants to other organizations to actively conduct charitable activities. However, operating foundations are subject to most of the regulations governing private foundations.
If an examination discloses that an operating foundation fails to meet the required tests for operating foundation status under IRC § 4942(j)(3), the EO examiner should propose modifying the organization's foundation status to that of a private non-operating foundation under IRC § 509(a).

If an EO examiner proposes to modify the operating foundation status of an organization, the following examination closing letters and report forms will be prepared:

Case Result	Closing Letter/Report Form	Agreement Form
All cases are treated as "unagreed "	Letter 3620 (30-day letter) Prepared and mailed by the examiner. Form 4620 Form 4621-A Form 886-A	Form 6018

An IRC § 501(c)(3) organization may execute a Form 6018 to memorialize its present intent not to protest the proposed foundation status reclassification or seek a declaratory judgment regarding it. However, such execution of a Form 6018 is not legally binding, and it does not waive the taxpayer's right to protest the proposed reclassification or to seek a declaratory judgment regarding it. However, such execution of a Form 6018 is not legally binding, and it does not waive the taxpayer's right to protest the proposed reclassification or to seek a declaratory judgment regarding it. If the organization does execute a Form 6018, it should be included in the case file with Forms 4620 and 4621-A.
All foundation status reclassification cases are treated as unagreed because such cases are subject to declaratory judgment under IRC § 7428, and because they are subject to appeal, even if a Form 6018 was executed. Accordingly, a full "unagreed" report is required.
When the examination of an EO return results in a proposed modification of foundation status, the EO examiner will prepare a report of examination using Forms 4620, 4621-A, and 886-A, and Letter 3620.
Form 4620 shall include significant information to assist reviewers and subsequent EO examiners. See Exhibits 4.75.15-4 and 4.75.15-5 for an explanation of the use of Form 4620 and instructions for information to include and not Include.

Note:

This form is not shared with the taxpayer.
Forms 4621-A, and 886-A shall include all information necessary for a clear understanding of the issues, relevant facts, law, governments position, taxpayer's position, and conclusions reached.
Form 886-A is prepared as an attachment to Form 4621. The EO examiner should include a statement in the remarks section of Form 4621-A referring to Forms 886-A for an explanation of the examination findings. Form 886-A will be prepared in accordance with the instructions contained in Exhibit 4.75.15-6. It will explain the basis for the proposed modification in sufficient depth so that the organization can clearly understand the conclusions reached
A copy of Forms 4620, 4621-A, and 886-A and Letter 3620 should be included in the casefile so that it can be added to the organization's administrative file when the case is closed.
The examiner should mail Letter 3620, Form 886-A, and Form 4621, along with the applicable publications and relevant information as stated in Letter 3620.
The EO examiner will prepare a proposed modification report on Forms 4620, 4621 and 886-A setting forth the proposal. The report should contain at a minimum the following:
1. Issues- A statement of issues upon which the proposed reclassification is based;
2. Facts- Statement of material facts relevant to the issues; The statement of facts should include applicable computations for the assets test, endowment test, and income test under IRC 4942(j)(3);
3. Law- Statement of the applicable law, regulations, and other governing precedent;
4. Taxpayer's Position- A statement of the taxpayer's position on the operating foundation status reclassification issue;
5. Government's Position- Statement of the Government's position, including a clear explanation of the underlying reasoning;
6. Conclusion- A brief statement of the Government's proposed conclusion reached regarding the foundation status reclassification;
7. The proposed effective date of the reclassification.
8. A statement to reaffirm the organization's exempt status under IRC 501(c)(3).
See IRM 4.75.16 for the proper disposal code and preparation of Form 5599.

4.75.15.13 (01-01-2006)
Unrelated Business Taxable Income

Although recognized as tax exempt, an exempt organization still may be liable for tax on its unrelated business taxable income which is reportable on Form 990-T.
Since Form 990-T is a taxable return, an examination may result in an adjustment to unrelated business income tax liability. Such adjustments will result in the case being agreed, unagreed, or partially agreed. Additionally, if there is a proposed change in exempt status, an unrelated business income tax adjustment may become an alternative issue.
If a case is partially agreed, the taxpayer should be encouraged to enter into an agreement for the agreed issues or years by executing a Form 4549, Income Tax Examination Changes covering the agreed issues or years.
In addition to the closing letter issued for the Form 990-T, separate transmittal letters are issued for related primary returns examined (Form 990 or 990-PF).

The forms and letters used to close Form 990-T examinations are:

Case Result	Closing Letter/Report Form	Agreement Form
Agreed	Letter 3607 Form 4549 Forms 886-A	Form 4549 (Signed by the taxpayer prior to case closure by the EO examiner)
unagreed	Letter 3621 (30-day letter prepared and issued by the EO examiner) Form 4620 Form 4621 Form 4549-A Forms 886-A	Form 4549

4.75.15.13.1 (01-01-2006)
Agreed UBI Tax Changes

Form 4549 is primarily designed for cases in which examination adjustments result in agreed income tax changes. However, Form 4549 is also appropriate in cases where adjustments to income or deduction items do not affect or warrant a change in tax liability or refundable credits on the return examined. In such cases, it is important to notify the taxpayer of, or secure his agreement to the examination changes where those adjustments affect subsequent year returns of the taxpayer.

Example:

An examination results in the an adjustment to a net operating loss that does not cause an additional tax liability, but may affect subsequent years returns. The disposal code for closing the examination would be (01).
When multiple year examinations result in tax changes for some years, and no tax change for other years, Form 4549 is used for all years examined. A separate column is used for each no-change year and "None " is entered on the lines 2, 14 and 15.
Form 4549 will be furnished to the taxpayer upon completion of the examination. The EO examiner should prepare a written explanation of the adjustments on Forms 886-A and incorporate it with the Form 4549. The EO examiner should place a statement in the "Other Information" section of Form 4549, to see attached Forms 886-A for an explanation of the adjustments.
The explanation of adjustments should include a statement of the issues, pertinent facts, applicable law or precedent, and conclusions. This explanation in agreed cases can usually be brief, but it must be sufficient to provide a clear understanding of the issues, conclusions reached, and the law on which it is based and should contain the following:
1. Issues- A statement of issues upon which the proposed UBI adjustments are based;
2. Facts- Statement of material facts relevant to the issues; The statement of facts should include by reference attached supporting schedules, computations, and exhibits, as appropriate;
3. Law- Statement of the applicable law, regulations, and other governing precedent;
4. Taxpayer's Position- A statement of the taxpayer's position on the proposed adjustments;
5. Government's Position- Statement of the Government's position, including a clear explanation of the underlying reasoning for the adjustments;
6. Conclusion- A brief statement of the Government's conclusion reached regarding the proposed adjustments;
Form 4549 is designed to cover three years. Regardless of the number of years examined, one set of explanations is prepared. When reasons for an adjustment vary from year to year, they are detailed in one explanation. If more than three years were examined, use additional Form 4549-A
The EO examiner will provide the taxpayer with computations involving adjustments affecting subsequent year income tax liability, depreciation, or any other schedules involving detailed computations.
The EO examiner should also include a schedule showing the tax computation with Form 4549.
Correction of Erroneous Reports -- If a report furnished to a taxpayer is later found to be in error, the EO examiner should prepare a corrected report and write "Corrected Report" at the top of Form 4549. In the "Other Information" section of Form 4549 of the corrected report, insert the comment: " This report supersedes report dated (enter applicable date)." If the adjustment is in favor of the Government, the taxpayer's signature is required on the Corrected Report. If the adjustment is in favor of the taxpayer, the taxpayer's signature is not required on the corrected report. Furnish the original and corrected report to the taxpayer and include copies of both reports in the case file. If taxpayer disagrees with the corrected report, unagreed case procedures will apply.

4.75.15.13.2 (01-01-2006)
Unagreed UBI Tax Changes

Unagreed cases are those examinations which the taxpayer does not agree with the proposed changes.
Form 4620 will be prepared in all unagreed tax changes. Form 4620 will include significant information to assist reviewers and subsequent EO examiners. See Exhibits 4.75.15-4 and 4.75.15-5 for an explanation of the use of Form 4620 and instructions for information to include and not include.
The EO examiner will prepare a report of examination setting forth the proposed UBI adjustments on Forms 4549-A, 886-A and supporting schedules. The EO examiner should put a statement in the "Other Information " section of Form 4549-A, to see attached Forms 886-A for an explanation of the adjustments.
The report, at a minimum, should contain the following:
1. Issues- A statement of issues upon which the proposed UBI adjustments are based;
2. Facts- Statement of material facts relevant to the issues; The statement of facts should include by reference attached supporting schedules, computations, and exhibits, as appropriate;
3. Law- Statement of the applicable law, regulations, and other governing precedent;
4. Taxpayer's Position- A statement of the taxpayer's position on the proposed adjustments;
5. Government's Position- Statement of the Governments's position, including a clear explanation of the underlying reasoning for the adjustments;
6. Conclusion- A brief statement of the Government's conclusion reached regarding the proposed adjustments;
See IRM 4.75.15.7 and 4.75.8 for further guidance on preparation of unagreed issues in reports of examination.
Form 4549-A is designed to cover three years. Regardless of the number of years examined, one set of explanations is prepared. When reasons for an adjustment vary from year to year, they are detailed in one explanation. If more than three years were examined, use additional Form 4549-A.

4.75.15.14 (01-01-2006)
Private Foundation Excise Taxes

This subsection covers report writing for examinations involving the following private foundation excise taxes imposed by Chapter 42, Subchapter A of the IRC:
- IRC § 4940 Tax on Net Investment Income;
- IRC § 4941 Self Dealing
- IRC § 4942 Distribution of Income
- IRC § 4943 Excess Business Holdings
- IRC § 4944 Jeopardizing Investments
- IRC § 4945 Taxable Expenditures
These private foundation excise taxes are imposed on the following types of entities:
- Exempt private foundations
- Taxable private foundations
- Foundation managers, disqualified persons, and self-dealers with respect to private foundations
- Nonexempt charitable trusts described in IRC § 4947(a)(1) and treated like private foundations.
All of the above private foundation excise taxes are reportable on Form 4720 except for IRC § 4940 tax which is reportable on Form 990-PF. Form 990-PF is usually the primary return of a Form 4720 examination.
The examination of Forms 990-PF and 4720 may result in adjustments to excise tax liability of a private foundation, foundation manager, disqualified person, or a self-dealer. Such adjustments will result in a case being agreed, unagreed, or partially agreed. With respect to the excise taxes imposed by IRC section's 4941, 4942, 4943, 4944, and 4945, the act, or failure to act, that caused the tax liability must be corrected.

The following forms and letters will be used to close Form 990-PF and 4720 examinations involving adjustments to private foundation excise taxes:

Case Result	Closing Letter/Report Form	Agreement Form
Agreed	Letter 3607 Form 4621 Form 4883 Forms 886-A	Form 870-E
Unagreed	Letter 3614 Form 4620 Form 4621 Form 4883 Forms 886-A	Form 870-E

4.75.15.14.1 (01-01-2006)
Agreed Private Foundation Excise Tax Change

Agreed IRC § 4940 Cases- Unlike other private foundation excise taxes under IRC section's 4941 through 4945, correction is not applicable to IRC § 4940 tax on net investment income. Since there is no correction, the examiner need only solicit a signed Form 870-E to substantiate the taxpayer's agreement for such tax change.

Example:

If, during the examination of a private foundation, the examiner discovers that an organization did not distribute the required amount per IRC § 4940 and the organization agrees with the adjustment, the examiner need only solicit a signature on Form 870-E to establish agreement.

Agreed IRC section's 4941 Through 4945 Cases- Cases involving violations under IRC section's 4941 through 4945 are considered to be "agreed" only if:
1. The acts, or failures to act giving rise to tax liability under those sections have been corrected, and;
2. A Form 870-E consent has been executed for such tax deficiencies. In situations where Form 4720 had not been filed, the securing of delinquent Form 4720 reporting the correct IRC section's 4941 through 4945 tax liability would satisfy this requirement.
The EO examiner will solicit Form 870-E for the amount of the initial tax under IRC section's 4941 through 4945 only after each act or failure to act which gave rise to such tax has been corrected. A partial agreement may be solicited in a particular case when correction has been completed and verified with respect to an act or failure to act, but not completed with respect to another act or failure to act.

Example:

An agreed case is one in which a Private foundation which agrees to the assessment of excise taxes for violations of IRC section's 4942 and 4945, executes Form 870-E, corrects the violations, and submits delinquent Forms 4720.

Example:

If the facts were the same as in the previous example, except the organization only corrected one of the IRC chapter 42 violations, the case would be closed partially agreed.
The examination report will at a minimum include a statement of the issues, pertinent facts, applicable law or precedent, and conclusions. This explanation in agreed cases can usually be brief, but it must be sufficient to provide a clear understanding of the issues, conclusions reached, and the law on which it is based. Specific items which should be included in the examination report follow.
The EO examiner will include statements in the "Remarks " section of Form 4621:
1. That the organization continues to qualify for exemption; and in the case of a no-change to the related Form 990-PF, a separate report concerning the exempt status of the foundation will not be provided;
2. That, in the case of IRC § 4941 through 4945 tax changes, copies of the report are being sent to appropriate state officials in accordance with IRC § 6104(c);
3. To see Forms 886-A attached for further explanation of the results of the examination.
A comment is required in the "Remarks" section of Form 4621 or in Form 886-A to describe the correction of each act or failure to act for which the initial tax is being asserted under IRC section's 4941 through 4945. If an affidavit regarding correction was secured, a comment is required noting its receipt as well.
Situations may arise where Chapter 42 tax liability extends beyond the taxable years covered by the examination report and into a taxable year for which a return is not yet due. In these cases, the EO examiner will make a statement on Form 4621, or Form 886-A informing the taxpayer of its requirement to file a return, Form 4720, for the following taxable year and to pay any tax owing with respect to the act or failure to act remaining uncorrected into that following taxable year. The examiner should consider preparing a referral on Form 5666 if there is an indication that the taxpayer is not willing to make future corrections.
Schedules detailing computations of adjustments should be included in the examination report. Computations of tax on the adjustments will be made using Form 4883.
Copies of all report forms will be furnished to the taxpayer upon completion of any applicable review action.

4.75.15.14.2 (01-01-2006)
Unagreed Private Foundation Excise Tax Change

IRC section's 4941 to 4945 Cases Where Correction Has Been Completed – This type of case involves disputes only over the amount of initial tax liability under IRC §'s 4941 through 4945 when the EO examiner has verified correction of the acts giving rise to the recommended tax change. In this situation, the examination report must fully describe the act or failure to act, and steps taken to correct it.
IRC section's 4941 to 4945 Cases Where Correction Has Not Been Completed and Initial Tax Liability Is unagreed – When the taxpayer or organization does not agree (or is unable) to correct prior to closing the examination, the EO examiner will recommend in the examination report, imposition of the initial tax and, also, in the same report, will propose the second-level tax in the event the act or failure to act giving rise to the initial tax is not corrected within the taxable period. Recommending imposition of both taxes in this manner is essential for the issuance of a proper notice of deficiency. It brings together all of the issues and alerts the taxpayer to the full consequences of the failure to correct.
IRC section's 4941 to 4945 Cases Where Correction Has Not Been Completed and the Initial Tax Liability Is Agreed – When the taxpayer or organization has paid the initial tax liability or reported it on Form 4720 but does not agree (or is unable) to correct prior to closing the examination, the EO examiner will recommend in the examination report, imposition of the second-level tax liability.
The basic report forms for agreed excise tax changes are also applicable to unagreed excise tax changes except for the addition of Form 4620. Form 4620 shall include significant information to assist reviewers and subsequent EO examiners. See Exhibits 4.75.15-4 and 4.75.15-5 for an explanation of the use of Form 4620 and instructions for information to include and not Include.
The EO examiner will prepare written explanations of adjustments in all unagreed cases. Form 886-A is normally used. However, if an adjustment involves a detailed computation, the EO examiner may reproduce his/her worksheet and include the worksheet in the examination report to support the IRC 4940 to 4945 adjustments. The adjustments will be entered into Form 4883 which will show the computations of resulting tax thereon.
The report of examination, at a minimum, should contain the following:
1. Issues- A statement of issues upon which the proposed Chapter 42 tax adjustments are based;
2. Facts- Statement of material facts relevant to the issues; The statement of facts should include by reference, attached supporting schedules and computations as appropriate;
3. Law- Statement of the applicable law, regulations, and other governing precedent;
4. Taxpayer's Position- A statement of the taxpayer's position on the proposed adjustments;
5. Government's Position- Statement of the Government's position, including a clear explanation of the underlying reasoning for the adjustments;
6. Conclusion- A brief statement of the Government's conclusion reached regarding the proposed adjustments.
See IRM's 4.75.15 .7 and 4.75.8 for further guidance on preparation of unagreed issues in reports of examination.
In all unagreed cases where correction has not been completed, consideration shall be given to IRC § 6684 or 507(c) penalty and tax. The EO examiner must include on Form 4620, a comment regarding whether or not such penalties are applicable.

4.75.15.15 (01-01-2006)
Non-Private Foundation EO Excise Taxes

This section covers report writing for examinations involving EO excise taxes on organizations other than private foundations, and related disqualified persons or organization managers.
Background- IRC Chapters 1, 41 and 42 provide for several excise taxes on exempt organizations other than private foundations, and on disqualified persons or organization managers with respect to such organizations. Some of the violations which give rise to these taxes require correction, and others do not. Likewise, some of these violations are reportable to state officials under IRC § 6104(c), and others are not. A brief summary of these excise taxes, including information as to the applicability or non-applicability of correction, and reporting under IRC § 6104(c) follows:
- IRC 170(f)(10)(F) Tax on Premiums Paid on Personal Benefit Contracts- IRC § 170(f)(10)(F), effective 02-09-1999, provides for a 100 percent excise tax on premiums paid by any IRC § 170(c) organization for a "personal benefit contract. " "Personal benefit contracts" are certain life insurance, annuity, or endowment contracts where any beneficiary under such contract, or certain person(s) related thereto, are the transferor(s) to the exempt organization of such contract. The tax under IRC § 170(f)(10)(F) is imposed on the exempt organization. No correction is required for this type of violation, and it is not reportable to state officials under IRC § 6104(c). This tax is reportable on Form 4720.
- IRC 4911 Tax on Excess Lobbying Expenditures- IRC § 4911 imposes a 25 percent tax on public charities which make an IRC § 501(h) election and which exceed certain lobbying ceiling amounts thereunder. No correction is required for this type of violation, but it is reportable to applicable state officials under IRC § 6104(c). This tax is reportable on Form 4720.
- IRC 4912 Tax on Disqualifying Lobbying Expenditures- IRC § 4912 imposes a 5 percent tax on organizations which are not described in IRC § 501(c)(3) for any taxable year by reason of excessive lobbying expenditures. IRC § 4912 also provides for a 25 percent tax on certain organization managers who agreed to such expenditures knowing that they likely would disqualify the organization from IRC § 501(c)(3) status. IRC § 4912 applies only to organizations which did not make an election under IRC § 501(h). No correction is required for this type of violation, but it is reportable to applicable state officials under IRC § 6104(c). This tax is reportable on Form 4720.
- IRC 4951 Tax on Self Dealing (Black Lung Trusts)- IRC § 4951 imposes on self dealers a 10 percent initial tax with respect to acts of self dealing with a black lung trust. IRC § 4951 also provides for a 2.5 percent initial tax on trustees who participate in such an act knowing it is an act of self dealing. Correction is required for this type of violation. Additional taxes are imposed on self dealers, and on trustees of 100 percent and 50 percent respectively, for failure to correct the acts of self dealing within the taxable period. Such acts of self dealing are not reportable to state officials under IRC § 6104(c). This tax is reportable on Form 990-BL.
- IRC 4952 Tax on Taxable Expenditures (Black Lung Trusts)- IRC § 4952 imposes on the black lung trust fund a 10 percent initial tax with respect to taxable expenditures of the fund. IRC § 4952 also provides for a 2.5 percent initial tax on trustees who participate in such an act knowing it is a taxable expenditure. Correction for this type of violation is required. Additional taxes are imposed on the fund, and on trustees of 100 percent and 50 percent respectively, for failure to correct the taxable expenditures within the taxable period. Such taxable expenditure violations are not reportable to state officials under IRC § 6104(c). This tax is reportable on Form 990-BL.
- IRC 4953 Tax on Excess Contributions to Black Lung Trusts- IRC § 4953 imposes, on the contributor, a 2.5 percent tax on the excess contributions over the deductibility limits of IRC § 192. There is no correction requirement for this type of violation and it is not reportable to state officials under IRC § 6104(c). This tax is reportable on Form 6069.
- IRC 4955 Tax on Political Expenditures of § 501(c)(3) Organizations- IRC § 4955 imposes a 10 percent initial tax on the organization with respect to political expenditures. IRC § 4955 also imposes a 2.5 percent initial tax on organization managers who agreed to the expenditures knowing they were political expenditures. Correction of this type of violation is required. Additional taxes are imposed on the organization, and on organization managers of 100 percent and 50 percent respectively, for failure to correct the political expenditures within the taxable period. IRC § 4955 violations are reportable to state officials under IRC § 6104(c). This tax is reportable on Form 4720.
- IRC 4958 Tax on Excess Benefit Transactions- IRC § 4958 imposes on disqualified persons, a 25 percent initial tax on the excess benefit portion of a transaction with IRC § 501(c)(3) or 501(c)(4) organizations. IRC § 4958 also imposes a 10 percent initial tax on the participation of any organization manager in the excess benefit transaction, knowing it is such a transaction. Correction for this type of violation is required. A 200 percent additional tax is imposed on disqualified persons for failure to correct the excess benefit transaction within the taxable period. IRC § 4958 violations with respect to excess benefit transactions with an IRC § 501(c)(3) organization are reportable to state officials under IRC § 6104(c). IRC § 4958 violations with respect to IRC § 501(c)(4) organizations are not reportable to state officials under IRC § 6104(c). This tax is reportable on Form 4720.

Examination Report Forms and Letters- The forms and letters in the table below will be used to close examinations of Forms 990, 990-BL, 4720, and 6069 involving adjustments to the non-private foundation EO excise taxes referred to above:

Case Result	Closing Letter/Report Form	Agreement Form/Comments
Agreed § 170(f)(10)(F) 4911 4912 4953	Letter 3607 Form 4621 Form 4883 Forms 886-A	Form 870-E Note: Correction is not applicable and thus not required for case to be agreed.
Agreed IRC §s 4951 4952 4955 4958	Letter 3607 Form 4621 Form 4883 Forms 886-A	Form 870-E Note: Correction is required for case to be agreed.
Unagreed IRC §s 4955 4958 (for 501(c)(3))	Letter 3614 Form 4620 Form 4621 Form 4883 Forms 886-A	Form 870-E Note: Correction required to avoid second level tax and 6104(c) notice applies
Unagreed §s 4911 4912	Drafted letter Form 4620 Form 4621 Form 4883 Forms 886-A	Form 870-E Note: No correction required but 6104(c) notice applies
Unagreed §s : 4951 4952 4958 (for 501(c)(4))	Drafted letter Form 4620 Form 4621 Form 4883 Forms 886-A	Form 870-E Note: Correction required to avoid second level tax but 6104(c) notice is not applicable.
Unagreed §s 170(f)(10)(F) 4953	Drafted letter Form 4620 Form 4621 Form 4883 Forms 886-A	Form 870-E Note: No correction is required, and 6104(c) notice is not applicable.

4.75.15.15.1 (01-01-2006)
Agreed Non-Private Foundation EO Excise Tax Change

Agreed Cases - In general- A non-private foundation EO excise tax change is considered to be " agreed," only if any required correction for the type of violation involved is completed, and a waiver form 870-E is signed agreeing to the tax adjustment.
Agreed IRC § 170(f)(10)(F), 4911, 4912, and 4953 Cases- Unlike the private foundation excise taxes under IRC § s 4941 through 4945, there is no second level tax under IRC §'s 170(f)(10)(F), 4911, 4912, and 4953, and there is no correction requirement for these types of transactions. Accordingly, a case in which the only change is to tax liability under these sections, is considered "agreed " when a Form 870-E is executed for such tax changes.
Agreed IRC § 4951, 4952, 4955, and 4958 Cases- Cases involving violations under IRC §'s 4951, 4952, 4955, and 4958 are considered to be "agreed" only if:
1. The acts, or failures to act giving rise to tax liability under those § s have been corrected, and
2. A Form 870-E consent has been executed for such tax deficiencies. In situations where Forms 4720 had not been filed, the securing of delinquent Forms 4720 reporting the correct tax liability under IRC § s 4951, 4952, 4955, and 4958 would satisfy this requirement.
Partial Agreements- In the case of any Chapter 42 violation to which correction requirements apply, the EO examiner will solicit Form 870-E only after each act or failure to act which gave rise to such tax has been corrected. However, a partial agreement may be solicited in a particular case when correction has been completed and verified with respect to an act or failure to act, but not completed with respect to another act or failure to act.
Examination Report Content- The examination report will at a minimum include a statement of the issues, pertinent facts, applicable law or precedent, and conclusions. This explanation in agreed cases can usually be brief, but it must be sufficient to provide a clear understanding of the issues, conclusions reached, and the law on which it is based. Specific items which should be included in the examination report follow.
Form 4621 Content- The EO examiner will include statements in the "Remarks" § of Form 4621:
1. That the organization continues to qualify for exemption; and in the case of a no-change to the related Form 990 or 990-BL, that a separate report concerning the exempt status of the organization will not be provided;
2. That, in the case of tax changes under IRC § s 4911, 4912, 4955, and 4958 (if for a 501(c)(3) organization), copies of the report are being sent to appropriate state officials in accordance with IRC § 6104(c);
3. To see attached Forms 886-A, if applicable, for further explanation of the results of the examination.
Comments Regarding Correction- A comment is required in the "Remarks" § of Form 4621, or in Forms 886-A to describe the correction of each act or failure to act for which the initial tax is being asserted under IRC § s 4951, 4952, 4955, and 4958. If an affidavit regarding correction was secured, a comment is required noting its receipt as well.
Liability Extending to Years Beyond Examination- Situations may arise where EO excise tax liability extends beyond the taxable years covered by the examination report and into a taxable year for which a return is not yet due. In those cases, the EO examiner will make a statement on Form 4621, or Form 886-A briefly describing the item, and informing the taxpayer of the requirement to file a return, Form 4720, for the following taxable year and to pay any tax owing with respect to the act or failure to act remaining uncorrected into that following taxable year.
Schedules detailing computations of adjustments should be included in the examination report. Computations of tax on EO excise tax adjustments will be made using Form 4883.
Copies of all report forms will be furnished to the taxpayer upon completion of any applicable review action.

4.75.15.15.2 (01-01-2006)
Unagreed Non-Private Foundation EO Excise Tax Change

Unagreed Cases - In General- A non-private foundation EO excise tax change is considered to be " unagreed," if any required correction for the type of violation involved is not completed, or a waiver form 870-E is not signed agreeing to the tax adjustment.
Partial Agreements- In the case of any Chapter 42 violation to which correction requirements apply, the EO examiner will solicit Form 870-E only after each act or failure to act which gave rise to such tax has been corrected. However, a partial agreement may be solicited in a particular case when correction has been completed and verified with respect to an act or failure to act, but not completed with respect to another act or failure to act.
Unagreed IRC § 170(f)(10)(F), 4911, 4912, and 4953 Cases- Unlike the private foundation excise taxes under IRC § s 4941 through 4945, there is no second level tax under IRC §s 170(f)(10)(F), 4911, 4912, and 4953, and there is no correction requirement for these types of transactions. Accordingly, lack of correction does not make a case of this type "unagreed." A § 170(f)(10)(F), 4911, 4912, or 4953 case is considered "unagreed" when a Form 870-E has not been executed for the proposed tax changes under such sections.
Unagreed IRC § 4951, 4952, 4955, and 4958 Cases Where Required Correction Has Been Completed – This type of case involves disputes only over the amount of initial tax liability under IRC § s 4951, 4952, 4955, and 4958 where the EO examiner has verified correction of the acts giving rise to the proposed tax change. Because correction has been made within the taxable period, no second level tax liability is triggered. In this situation, the examination report must fully describe the act or failure to act which gave rise to the tax liability, and steps taken to correct it.
Unagreed IRC § 4951, 4952, 4955, and 4958 Cases Where Required Correction Has Not Been Completed and Initial Tax Liability Is unagreed – When the taxpayer or organization does not agree (or is unable) to correct prior to closing the examination, the EO examiner will recommend in the examination report, imposition of the initial tax and, also, in the same report, will propose the second-level tax in the event that the act or failure to act giving rise to the initial tax is not corrected within the taxable period. Recommending imposition of both taxes in this manner is essential for the issuance of a proper notice of deficiency. It brings together all of the issues and alerts the taxpayer to the full consequences of the failure to correct. The examination report should fully describe the act or failure to act which gave rise to the tax liability.
Unagreed IRC § 4951, 4952, 4955, and 4958 Cases Where Required Correction Has Not Been Completed and the Initial Tax Liability Is Agreed – When the taxpayer or organization has paid the initial tax liability or reported it on Form 4720 but does not agree (or is unable) to correct prior to closing the examination, the EO examiner will recommend in the examination report, imposition of the second-level tax liability.
Basic Report Forms- The basic report forms for unagreed EO excise tax changes are Forms 4620, 4621, 4883, 886-A, and 870-E waiver. Form 4620 shall include significant information to assist reviewers and subsequent EO examiners. See Exhibits 4.75.15-4 and 4.75.15-5 for an explanation of the use of Form 4620 and instructions for information to include, and not Include.
Form 4621 Content- The EO examiner will include, to the extent applicable, statements in the " Remarks" section of Form 4621:
- That the organization continues to qualify for exemption; and in the case of a no-change to the related Form 990 or 990-BL, that a separate report concerning the exempt status of the organization will not be provided;
- That, in the case of tax changes under IRC § s 4911, 4912, 4955, and 4958 (if for a 501(c)(3) organization), copies of the report are being sent to appropriate state officials in accordance with IRC § 6104(c);
- To see attached Forms 886-A, if applicable, for further explanation of the results of the examination.
Explanation of Adjustments- The EO examiner will prepare written explanations of adjustments in all unagreed cases. Form 886-A is normally used. However, if an adjustment involves a detailed computation, the EO examiner may reproduce his/her worksheet and include the worksheet in the examination report to support the non-private foundation EO excise tax adjustments. The adjustments will be entered into Form 4883 which will show the computations of resulting tax thereon.
Examination Report Content- See IRM 4.75.15.7, and Exhibit 4.75.15-3 - Instructions for Use and Completion of Forms 886-A, for guidelines applicable to report writing and issue presentation in unagreed cases. The report of examination, at a minimum, should contain the following:
1. Issues- A statement of issues upon which the proposed non-private foundation EO excise tax adjustments are based;
2. Facts- Statement of material facts relevant to the issues; The statement of facts should include by reference, attached supporting schedules and computations as appropriate;
3. Law- Statement of the applicable law, regulations, and other governing precedent;
4. Taxpayer's Position- A statement of the taxpayer's position on the proposed adjustments;
5. Government's Position- Statement of the Governments position, including a clear explanation of the underlying reasoning for the adjustments;
6. Conclusion- A brief statement of the Governments conclusion reached regarding the proposed adjustments;
Applicability of IRC § 6684 Penalty- In all unagreed cases under IRC § s 4951, 4952, 4955, or 4958, where correction is required, but has not been completed, consideration shall be given to the applicability of the IRC § 6684 penalty which applies to repeated or willful and flagrant Chapter 42 tax violations. The EO examiner must include on Form 4620, a comment regarding whether or not such penalties are applicable. If the EO examiner determines the IRC § 6684 penalty is applicable, the statement of facts included in the RAR to the taxpayer should include the facts which demonstrate the repeated, or willful and flagrant nature of the Chapter 42 violations which justify assertion of the penalty.
Liability Extending to Years Beyond Examination- Situations may arise where EO excise tax liability extends beyond the taxable years covered by the examination report and into a taxable year for which a return is not yet due. In those cases, the EO examiner will make a statement on Form 4621, or Form 886-A briefly describing the item, and informing the taxpayer of the requirement to file a return, Form 4720, for the following taxable year and to pay any tax owing with respect to the act or failure to act remaining uncorrected into that following taxable year.

4.75.15.16 (01-01-2006)
Nonexempt Charitable Trusts Examinations

Nonexempt charitable trusts file annual information returns on Form 5227, Split-Interest Trust Information Return. Fiduciaries and trustees of such trusts are required to file Form 1041, U.S. Tax Return for Estates and Trusts, and Form 1041-A, U.S. Information Return for Trust Accumulation of Charitable Amounts.
When the examination of a Form 1041 results in no change to the income tax reported, the EO specialist will prepare an individually drafted no-change letter which will include a statement to the effect that the examination of the trust's tax return resulted in no-change in the tax liability reported on the return and accordingly, the return is accepted as filed.
A no-change with written advisory letter should be issued in any case in which it is determined, as a result of an otherwise no-change examination that the trust has:
1. Failed to provide the information required by IRC § 6033;
2. Filed an incomplete return;
3. Failed to fully disclose its various income sources, such as by combining dissimilar types of income, and reporting the aggregate as a single amount;
4. Some other compliance problem which does not cause a tax change but should be called to their attention.
A no-change with written advisory letters will indicate that there is no change to the trust's tax liability and that the return is accepted as filed. In addition, such letters will specifically identify the problem areas and possible future effects, if any.

4.75.15.17 (01-01-2006)
Claims

A claim relates to any item of income, loss, deduction, or credit involving a refund of tax. An EO claim may be filed by one of three methods:
- Form 843, Claim for Refund and Request for Abatement
- An amended return (Form 990-T, 990-PF, 4720, or 1041)
- An informal claim
Any written request, other than Form 843 or an amended return, from a taxpayer for a refund of tax is considered an " informal claim." An oral request either by telephone or interview is not considered an informal claim.
Form 1139, Corporate Application for Tentative Refund from Net Carryover Operating Loss, is not considered as a claim.
There are three possible results when a claim is examined. The claim may be:
1. Allowed in full,
2. Disallowed in full, or
3. Disallowed in part (or offset by other adjustments).

4.75.15.17.1 (01-01-2006)
Claims Allowed in Full

When a claim is allowed in full for income tax reported on Form 990-T or 1041, or for Chapter 41 or Chapter 42 excise tax reported on Form 4720 or 990-PF, the EO examiner will prepare the following examination closing letters and report forms:

Type of Tax	Result	Closing Letter/ Report Forms	Agreement Form
Income- 990-T 1041 1120-POL	Agreed- Allowed in full	Letter 3601 Form 4549 Form 4621 Form 886-A	Form 4549
Chapter 41 or Chapter 42 Excise- 4720 990-PF	Agreed- Allowed in full	Letter 3601 Form 4621 Form 4883 Forms 886-A	Form 870-E

For income tax cases using Form 4549:
1. A statement giving the date, amount, and tax years of the claim should be provided in the "Other Information" section of Form 4549. It should be specified that the claim has been allowed in full. A brief explanation of the reasons for the claim should also be provided. Form 886-A should be used if more space is needed;
2. An attempt should be made to secure the taxpayer's signature on Form 4549. However, the taxpayer's signature is not necessary to close the case.
For excise tax cases where Form 4621 is used:
1. A statement giving the date, amount, and tax years of the claim should be provided in the "Remarks" § of Form 4621. It should specify the claim has been allowed in full. A brief explanation of the reasons for the claim should also be provided. Form 886-A should be used if more space is needed;
2. An agreement should be solicited on Form 870-E. However, the taxpayer's signature is not necessary to close the case.

4.75.15.17.2 (01-01-2006)
Claims Disallowed in Full or Part

When a claim is disallowed in full or in part for income tax or for Chapter 41 or Chapter 42 excise tax, the EO examiner should prepare the following examination closing letters and report forms:

Type of Tax	Case Result	Closing Letter/Report Form	Agreement Form
Income	Agreed	Letter 3602 Form 4549 Form 886-A	Form 2297 Form 3363 Form 4549
Income	Unagreed	Letter 3602 Form 4620 Form 4621 Form 4549 Form 886-A	Form 2297 Form 3363 Form 4549
Chapter 41 or Chapter 42 Excise	Agreed	Drafted letter Form 4621 Form 4883 Form 886-A	Form 870-E Form 2297 Form 3363
Chapter 41 or Chapter 42 Excise	Unagreed	Drafted letter Form 4620 Form 4621 Form 4883 Form 886-A	Form 870-E Form 2297 Form 3363

For income tax cases using Form 4549:
1. A statement giving the date, amount, and tax years of the claim should be provided in the "Other Information" section of Form 4549;
2. The statement should specify whether the claim has been disallowed in full or in part.
For Chapter 41 or Chapter 42 excise taxes using Form 4621.
1. A statement giving the date, amount, and tax years of the claim should be provided in the "Remarks" section of Form 4621;
2. It should be specified that the claim has been either disallowed in full or in part.
In the case of a full or partial claim disallowance, the reasons for the disallowance must be clearly explained. In addition to the information noted above, the report of examination must include:
1. Issues- A statement of issues upon which the claim for refund is based;
2. Facts- Statement of material facts relevant to the issues; The statement of facts should include by reference, attached supporting schedules and computations as appropriate;
3. Law- Statement of the applicable law, regulations, and other governing precedent;
4. Taxpayer's Position- A statement of the taxpayer's position on the items proposed for disallowance;
5. Government's Position- Statement of the Government's position for the portion of the claim disallowed, including a clear explanation of the underlying reasoning for such disallowance;
6. Conclusion- A brief statement of the Government's conclusion reached regarding the claim for refund, noting the portion allowed, and the portion disallowed;
See IRM 4.75.15.7, and Exhibit 4.75.15-3 - Instructions for Use and Completion of Forms 886-A, for additional guidelines applicable to report writing and issue presentation in unagreed cases.
Even if the taxpayer will not execute Form 2297, if agreement is secured on Form 4549 for income tax cases, or Form 870-E for excise tax cases, in a partially agreed case, the case is considered "agreed."

4.75.15.17.3 (01-01-2006)
Transcript of Account

Before preparing a report on a case involving a claim, EO examiners must have a current transcript of the taxpayer’s account to determine if there have been any changes to assessed tax amounts after the return was filed, and to determine if the Campus has already allowed the claim.
If the claim is the result of a prior audit or assessment, a TC 300 or TC 290 with an additional tax assessment amount will be posted. The"as adjusted" figures shown on the original examination report will be used as the starting point.
If the claim has already been allowed by a Campus, a TC 291 with a dollar amount will be posted as an abatement of a prior tax assessment. In this case, the claim should be closed as a regular no change case.

4.75.15.18 (01-01-2006)
Citation Forms for Report Writing

See IRM 4.75.13, Issue Development, for guidance on what is a citable authority, and for specific citation forms to be used in report writing. A citation is any reference to an authority (whether appearing in a sentence or by itself) such as:
1. Section of the Internal Revenue Code;
2. Section of the Income Tax Regulations;
3. Revenue Ruling or Revenue Procedure; or
4. Court decision.

Exhibit 4.75.15-1 (01-01-2006)
Closing Letters and Report Forms by Type of Case

30 day letters should be stamped or signed with the title and name of the Director, EO Examinations.


Type of Case	Forms and Letters	Reference and Notes
Form 990 or 990-EZ	Letter 3594
Form 990 and 990-T	Letter 3594.	Both Forms 990 and 990-T must be no change.
Form 990 not required - Gross receipts under $25,000	Letter 3591.	No change to exempt status where no return was required or filed.
Form 990-PF	Letter 3593	No change to exempt status and Chapter 42 PF excise tax.
Form 990-PF and 990-T	Letter 3593	Both Forms 990-PF and 990-T must be no change.
Form 990-BL	Letter 3594
Form 990-T only	Letter 3622
Form 1041	Drafted letter
Form 1041-A	Drafted letter
Form 1120-POL	Letter 3623
Form 4720	Letter 3592	For no change to Chapter 41 or 42 excise tax.
Form 5227	Drafted letter


Type of Case	Forms and Letters	Reference and Notes
Forms 990, 990-EZ, or 990-PF	Letter 3609	Include narrative in addendum addressing deficiencies for which written advisory is appropriate.
Forms 990 and 990-T.	Letter 3609	Include narrative in addendum addressing deficiencies for which written advisory is appropriate.
Forms 990-PF and Form 990-T.	Letter 3609	Include narrative in addendum addressing deficiencies for which written advisory is appropriate.
Form 990-T Only	Drafted letter
Form 1041	Drafted letter
Form 1120-POL	Drafted letter
Form 4720	Drafted letter

REVOCATION OF EXEMPT STATUS IRC § 501(c)(3)
	Type of Case	Forms and Letters	Reference and Notes
	Agreed and unagreed	Letter 3618. Form 4620. Form 4621-A. Forms 886-A. Form 6018.	Examiner will prepare and mail the 30 day letter, . Letter 3618 with a copy of the RAR, to the taxpayer.

RECLASSIFICATION OF FOUNDATION STATUS
	Type of Case	Forms and Letters	Reference and Notes
	Agreed and unagreed.	Letter 3620. Form 4620. Form 4621-A. Forms 886-A. Form 6018.	The examiner will prepare Letter 3620 (30-day letter), and mail it to the taxpayer with a copy of the RAR. Applies to both"Favorable" and "Unfavorable" reclassifications.


Type of Case	Forms and Letters	Reference and Notes
Agreed	Letter 3610 Form 6018-A Form 4621-A Forms 886-A	The examiner will prepare and mail Letter 3610. (30-day letter), to the taxpayer with a copy of the RAR.
Unagreed	Letter 3610 Form 6018-A Form 4620 Form 4621-A Forms 886-A	The examiner will prepare Letter 3610 (30-day letter) and mail it to the taxpayer with a copy of the RAR.


Type of Case	Forms and Letters	Reference and Notes
Agreed	Drafted letter Form 6018-A Form 4621-A Forms 886-A	The examiner will draft a 30-day letter and mail it to the taxpayer with a copy of the RAR.
Unagreed	Drafted letter Form 6018 Form 4620 Form 4621 Forms 886-A	The examiner will draft a 30-day letter and mail it to the taxpayer with a copy of the RAR.


Type of Case	Forms and Letters	Reference and Notes
Agreed	Letter 3607 Form 4549 Form 4549-B Forms 886-A
Unagreed	Letter 3621 Form 4620 Form 4621 Form 4549-A Form 4549-B Forms 886-A	Letter 3621 (30-day letter) is prepared by the examiner, who will mail it with a copy of the RAR to the taxpayer.


Type of Case	Forms and Letters	Reference and Notes
Agreed.	Letter 3607 Form 870-E Form 4621 Form 4883 Forms 886-A	Letter 3607 is issued by the examiner in agreed tax change cases when the RAR was not provided to the taxpayer at the conclusion of the examination.
Unagreed	Letter 3614 Form 870-E Form 4620 Form 4621 Form 4883 Forms 886-A	Letter 3614 (30-day letter) is prepared and issued by the examiner.


Type of Case	Forms and Letters	Reference and Notes
Agreed §'s 4911 4912 4951 4952. 4953 4955 4958	Letter 3607 Form 870-E Form 4621 Form 4883 Forms 886-A	Letter 3607 is prepared and issued by the examiner in agreed tax change cases when the RAR was not provided to the taxpayer at the conclusion of the examination.
Unagreed §s 4911 4912	Drafted letter Form 870-E Form 4620 Form 4621 Form 4883 Forms 886-A	Drafted 30-day letter issued by the examiner. Note: No correction is required by these §s, but § 6104(c) notice to state officials is applicable.
Unagreed §s 4951 4952	Drafted letter Form 870-E Form 4620 Form 4621 Form 4883 Forms 886-A	Drafted letter (30-day letter) is prepared and issued by the examiner. Note: Correction of act or failure to act required but § 6104(c) notice to state officials is not applicable.
Unagreed 4953	Drafted letter Form 870-E Form 4620 Form 4621 Form 4883 Forms 886-A	Drafted 30-day letter is prepared and issued by the examiner. Note: Correction is not required by 4953 and § 6104(c) notice to state officials also is not applicable.
Unagreed §s 4955 4958 violation or a 501(c)(3)	Letter 3614 Form 870-E Form 4620 Form 4621 Form 4883 Forms 886-A	Letter 3614 (30-day letter) is prepared and issued by the examiner.
Unagreed § 4958 for a § 501(c)(4) organization	Drafted letter Form 870-E Form 4620 Form 4621 Form 4883 Forms 886-A	Drafted 30-day letter is prepared and issued by the examiner. Note: Correction is required, but 6104(c) notice to state officials is not applicable since organization is not a 501(c)(3).

Exhibit 4.75.15-2 (01-01-2006)
Form 886-A, Explanation of Items

Form 886-A is used to explain examination changes. Forms 886-A are prepared as attachments to the following report forms:

Form 4620
Form 4621
Form 4549/4549-A
Form 4883

Exhibit 4.75.15-3 (01-01-2006)
Form 886-A, Instructions for Completion

The use of Form 886-A is optional for agreed examination reports since the explanation of changes for agreed reports is generally brief. For agreed cases, Form 886-A is necessary only when the explanation of changes exceeds the space provided for on Forms 4549, 4621, or 4621-A, as applicable, for such explanations.

The use of Form 886-A is mandatory for unagreed examination reports. The explanation of changes should be written in the following format for each examination change or issue:

Issues -This section of Form 886-A should state the issues or changes proposed by the EO examiner as a result of the examination conducted. The issues or changes should be clearly and precisely stated. All examination issues, including alternative issues, should be listed. Alternative issues should be identified as such, and worded so it is clear that the alternative issues will apply only if the primary issue is not upheld.
Facts – This section of Form 886-A should provide a detailed explanation of the facts upon which each examination issue or change is based. The facts must be relevant to the issues or changes and should be stated accurately and objectively. The facts should not be opinionated or biased, and should include facts relevant to both the Government's position and the taxpayer's position.
Law – This section of Form 886-A should set forth in a clear and concise manner the pertinent law, regulations, published ruling of the Service, case law or other precedent. All pertinent law should be cited whether it supports or opposes the governments position. Care should be exercised to insure that cited law is current.
The following items should not be cited as precedents in the disposition of cases:
- Private Letter rulings
- Decisions issued to a taxpayer
- General Counsel Memorandums
- Technical Advice Memorandums
Taxpayer’s Position - This section of Form 886-A should state the taxpayer’s position in narrative form if known, including the legal authority, if any, that the taxpayer is using as the basis for their position. If the taxpayer has provided a written statement of position, include the entire statement in this section if the written statement is brief. Otherwise, summarize the statement and include the entire document in the examination report as an exhibit.
Government's Position - This section of Form 886-A should relate the facts to the cited law through a narrative discussion to support the Service’s position. Also, include the Service’s rebuttal of the taxpayer’s position.
Conclusion - Briefly state the conclusion of the Service’s position.

Exhibit 4.75.15-4 (01-01-2006)
Form 4620, Transmittal Letter - Exempt Organizations

Form 4620, Transmittal Letter - Exempt Organizations is prepared by EO examiners to transmit reports within the Service.

Circumstances requiring the use of Form 4620 include, but are not limited to:

Unagreed and partially agreed cases
Criminal investigation cases
Transmittal of Engineer’s report

Information on Form 4620 should complement the examination workpapers. This form should not be used to replace or repeat work-paper information. Form 4620 should include significant information to assist managers, reviewers, and subsequent examiners.

Form 4620 and attachments are not normally furnished to the taxpayer. Not withstanding this, EO examiners should avoid comments based on hearsay, rumor or gossip; comments of a derogatory nature; or identification of an informant (or other source of confidential information) by name, occupation, or relationship.

Caution:

Form 4620 should not be shared with the taxpayer. It is for internal use only. However, do not include information in Form 4620 that was never shared with the taxpayer, since this form may be seen by Appeals, it would create an ex-parte communication.

Exhibit 4.75.15-5 (01-01-2006)
Form 4620, Instructions for Completion

Taxpayer Name & Address	Enter legal name of taxpayer and address. If a different name was shown on the return, after the legal name enter (Shown on return as Name on Return)
EIN (SSN)	Enter the EIN of the exempt organization, or if the taxpayer is an individual, enter the social security number.
Exam Time	Enter the number of hours charged to the case through the date closed by the EO examiner.
Exemption Section	Enter the exemption section of the organization, e.g. 501(c)(3).
Area Office	Enter the applicable EO Area Office.
Returns Form No	Enter the form numbers of the returns examined.
Years Ended	List each tax year examined in the following format:
		Calendar Year - Show ending date (12/31/2003).
		Fiscal Year - Show ending date (6/30/2004).
		Short Period - Show beginning and ending date (1/1/2003 - 9/30/2003)
		52-53 Week year - Show last day of taxable year (5/25/2003).
Related Cases	Enter the names of related cases covered by examination.
Last exam	Enter the examiner, date of report, and years covered by the last prior examination, if any. If there were no prior examinations, enter N/A in the "Examiner, " "Date of Report," and "Years Covered " fields.
Recommen-ded Action	"X" the appropriate box which reflects the recommended change based on the examination. If one of the six pre-defined actions do not reflect the recommended action in this case, " X" the"Other" box and briefly describe the recommended action in the field beneath it.
Issue letter	Review staff will complete.
Date Mailed	Review staff will complete.
Findings Discussed With	Enter the name and title of the officer, representative or other authorized person with whom the results were discussed.
Representative's Name	Enter the name of representative authorized by a power of attorney.
Agreement Secured?	"X" the appropriate box to indicate whether an agreement was secured.
Other Information	The following information should be provided for unagreed cases:
	a.	A brief summary of the unagreed issues or changes, the taxpayer's position, and any offers made by the taxpayer to resolve the unagreed issues or changes.
	b.	A statement regarding managerial involvement.
	c.	Other important information deemed necessary.
	*Note:* The statement of managerial involvement should:
	•	Describe the managerial involvement.
	•	Indicate the manager's agreement with the validity of the issues or changes.
	•	State whether or not a closing conference was held with the group manager. If a closing conference was not held, a reason should be provided. For example if a closing conference was offered but declined, that fact should be so noted.
Examiner Signature	Self explanatory.
Date of Report	Self explanatory.
Reviewer Signature	Self explanatory.
Date Approved	Self explanatory.

Exhibit 4.75.15-6 (01-01-2006)
Form 4621, Exempt Organizations - Report of Examination (Proposed Tax Changes)

Form 4621, Exempt Organizations - Report of Examination (Proposed Tax Changes), is the basic report form for the following types of examination cases:

Agreed and unagreed EO excise tax changes under Chapter 41, and Chapter 42 of the IRC as well as IRC § 170(f)(10)(F).
unagreed unrelated business income tax changes

Exhibit 4.75.15-7 (01-01-2006)
Form 4621, Instructions for Completion

1. Form No	Enter the form number(s) of the returns covered by the examination.
2. Area Office	Enter the applicable EO Area Office.
3. Date of Report	The EO examiner should enter the date of the report.
4. Taxpayer Name and Address	Enter the taxpayer's legal name and current address. If the name on the return is different from the legal name, enter both names as follows:
		Legal Name (Shown on the return as Name on the Return)
5. Name and Address of Private Foundation or Other Exempt Org	For EO excise tax cases where the taxpayer is a disqualified person, self dealer, foundation manager, or organization manager with respect to an exempt organization, enter the legal name and address of the related exempt organization.
6. SSN or EIN (of taxpayer)	Enter the EIN of the taxpayer, or if the taxpayer is an individual, enter the social security number.
7. Tax Periods Ended (of taxpayer)	List each tax year examined in the following format:
		Calendar Year - Show ending date (12/31/2003).
		Fiscal Year - Show ending date (6/30/2004)
		Short period - Show beginning and ending date (1/1/2003 - 9/30/2003).
		52 53 Week Year - Show last day of year (5/25/2003).
8. PF or Other EO's EIN	If the tax change is on a disqualified person with respect to an exempt organization, enter the EIN of such related exempt organization. If the tax is on the exempt organization, leave blank. Example - If the tax was on a self dealer, foundation manager, or organization manager arising out of an act with the exempt organization, you would enter the EIN of the EO.
9. Tax Periods Ended	If the taxpayer is a disqualified person with respect to an exempt organization, then enter the examined tax years of such related exempt organization in the format described in item (7) above. If the taxpayer is the exempt organization, leave this item blank.
10. Report Preparer's Name	Enter the EO examiner's name.
11. Agreement Secured	"X" the appropriate item to indicate whether a full agreement, no agreement, or a partial agreement was secured to the proposed tax changes.
12. Findings Discussed With	Enter the name and title of the individual with whom the proposed tax adjustments were discussed.
13. Agreement Date	Enter the date a valid waiver or agreement form was received by the Service for the proposed adjustments.
14. Summary of Proposed Adjustment	Adjustments for different types of tax should be entered on separate lines so that the summary of proposed adjustments will reflect the specific IRC provision applicable to each adjustment. For this purpose, different taxes imposed by separate provisions within one IRC section (such as Chapter 42 initial taxes, and additional taxes) should be entered on separate lines, as well as taxes imposed by different IRC sections. For example, adjustments under the following provisions should each be entered on a separate line in columns (3) or (4) of item 14a: 4942(a). 4945(a)(1). 4945(b)(1). 511(a)(1).
	1	Internal Revenue Code Section: Enter the specific IRC provision which describes the tax adjustment proposed, with different types of adjustments each entered on separate lines.
	2	Period Covered by Examination: Enter the tax year for the adjustment in the format described for item (7) above.
	3	Amount of Tax: Enter the amount of the proposed adjustment. For Chapter 42 excise tax adjustments, the adjustment to initialtax goes in column 3.
	4	Additional Tax: This column only applies to second level taxes such as the additional taxes of Chapter 42 of the IRC. Enter the amount of proposed adjustment to second level Chapter 42 taxes in column (4).
14b Penalty
	1	Internal Revenue Code Section: Enter the specific IRC provision which describes the penalty proposed, with different types of penalty adjustments each entered on separate lines. Examples: 6684. 6651(a)(1).
	2	Amount: Enter the amount of the proposed penalty.
15. Remarks	No Change to Exempt Status: If no change to tax exempt status is being proposed, the "remarks" section of the tax change report to the exempt organization should state that there is no change to the organizations tax exempt status, and that a separate report regarding tax exempt status will not be issued. Agreed Tax Change: If the case is an agreed tax change, and if there is sufficient space, the agreed adjustments may be explained in the remarks section. If more space is required, the proposed adjustments should be explained on Forms 886-A and the remarks section should include a statement to see attached Forms 886-A for an explanation of the adjustments. unagreed Tax Changes: In unagreed tax change cases, the proposed adjustments are explained in Forms 886-A. Therefore the remarks section of Form 4621 should contain a statement to see attached Forms 886-A for an explanation of the proposed adjustments.
16. Attachments	List the attachments which are included as part of the RAR to the taxpayer. These could include but are not limited to: Form 4883. Forms 4549, 4549-A, 4549-B. Forms 886-A. Schedules. Exhibits.

Exhibit 4.75.15-8 (01-01-2006)
Form 4621-A, Report of Examination - Exempt Organizations (Proposed Status Changes)

Form 4621-A, Report of Examination - Exempt Organizations (Proposed Status Changes), is the basic report form for the following types of examination cases:

Agreed and unagreed IRC § 501(c)(3) revocations
Agreed and unagreed foundation status changes
unagreed IRC § 501(c) Other revocations
unagreed IRC § 501(c) Other modifications

Exhibit 4.75.15-9 (01-01-2006)
Form 4621-A, Instructions for Completion

1. Form No	Enter the form number of the examined returns (990, 990-PF, etc.).
2. Area Office	Enter the applicable EO Area Office
3. Date of Report	The examiner should enter the date of the report.
4. Name and Address of Taxpayer	Enter the taxpayer's legal name and current address. If the name on the return is different from the legal name, enter both names as follows:
		Legal Name (Shown on the return as Name on the Return).
5. EIN	Enter the exempt organization's employer identification number.
6. Tax Periods Ending	List each tax year examined in the following format:
		Calendar Year - Show ending date (12/31/2003).
		Fiscal Year - Show ending date (6/30/2003).
		Short Period - Show beginning and ending date (1/1/2003- 9/30/2003).
		52-53 Week Year - Show last day of taxable year (5/25/2003).
7. Report Preparer's Name	Enter the EO examiner's name.
8. Agreement Secured	"X" Yes or No to indicate whether a signed Form 6018 or Form 6018-A was secured. Caution - Form 6018 - Consent to Proposed Action - § 7428 applies only to § 7428 declaratory judgment cases. Execution of a Form 6018 serves only to memorialize the intent of the taxpayer at the time of signing the Form 6018, not to protest the proposed action or seek a declaratory judgment. However, that memorialization of intent to agree is not legally binding and declaratory judgment rights are not waived. All proposed status changes on cases subject to declaratory judgment must be written up as "unagreed," even if a Form 6018 has been executed. If Form 6018-A, which applies only to status changes for non-declaratory judgment cases, has been executed, then such non-section 501(c)(3) case may be treated as "agreed."
9. Findings Discussed With	Enter the name and title of the individual with whom the examination findings were discussed.
10. Agreement Date	Enter the date a signed Form 6018 or 6018-A was received by the Service.
11. Current Foundation Status Classification	The purpose of this item is to identify the foundation status classification of the organization prior to any change in such classification which is proposed as a result of the examination. Enter a narrative description and IRC references which describe the organization's current (not proposed) foundation status classification. If the organization is a non-section 501(c)(3) to which foundation status classification does not apply, enter Not Applicable. Examples include but are not limited to:
		Publicly supported organization under IRC § s 509(a)(1) and 170(b)(1)(A)(vi).
		An educational organization under IRC § s 509(a)(1) and 170(b)(1)(A)(ii).
		Publicly supported organization under IRC § 509(a)(2).
		Supporting organization under IRC § 509(a)(3).
		Private non-operating foundation under IRC § 509(a).
		Private operating foundation under IRC § 4942(j)(3)
12. Nature of Proposed Status Change	In all proposed status change cases, "X" the applicable line which describes the change being proposed in the organization's exempt status or foundation status, and enter the effective date of the proposed status change at the end of that line. Additionally, if the organization's:
		Exemption is being revoked, enter on the applicable line, the paragraph number of § 501(c) under which the organization was exempt.
		Exemption is being modified, enter on the applicable line, the paragraph number of § 501(c) under which the organization was exempt, and the paragraph number of section 501(c) to which the change is proposed.
		Foundation status is being modified to an organization described under IRC § 509(a)(2), (3), or (4), enter the applicable paragraph number of section 509(a) to which the organization's status is being changed, on the applicable line.
		Foundation status of an organization not previously classified under IRC § 509(a)(1) is being modified to an organization described in IRC § 509(a)(1), enter the sentence number of IRC § 170(b)(1)(A) under which it is proposed the organization be classified. e.g. 170(b)(1)(A)(iii), 170(b)(1)(A)(vi), etc.).
		Foundation status of an organization described in IRC § 509(a)(1) is being modified to a different classification under IRC § 170(b)(1)(A), enter the sentence number of IRC § 170(b)(1)(A) for the proposed new classification (e.g. 170(b)(1)(A)(iii ), 170(b)(1)(A)(vi), etc.).
13. Remarks	If the case is an agreed status change, and if there is sufficient space, the agreed status change may be explained in the remarks section. If more space is required, the proposed adjustments should be explained on Forms 886-A and the remarks section should include a statement to see attached Forms 886-A for an explanation of the proposed changes. If the case is unagreed, or treated as unagreed because it is subject to declaratory judgment under IRC § 7428, the results of the examination will be explained on Forms 886-A. Accordingly, in such cases the remarks section should contain a statement to see forms 886-A for an explanation of the proposed status change.
14. Attachments	List the attachments which are included as part of the RAR to the taxpayer. These could include but are not limited to: Forms 886-A. Schedules. Exhibits.

Exhibit 4.75.15-10 (01-01-2006)
Form 4883, Exempt Organizations Excise Tax Audit Changes

Form 4883,Exempt Organizations Excise Tax Audit Changes is used to set forth adjustments and the calculation of the resulting tax thereon, for agreed and unagreed EO excise tax changes under Chapters 41 and 42 of the IRC, and certain other EO excise tax provisions.

Form 4883 is used both for such excise taxes imposed on the private foundation or other exempt organization, as well as the excise taxes on disqualified persons, self dealers, organization managers, and foundation managers with respect to such exempt organizations.

Form 4883 can be used for adjustments under IRC sections including, but not limited to:
Chapter 41 taxes under § s 4911 and 4912 reportable on Form 4720;
4940 tax reportable on Form 990-PF;
4941 to 4945 private foundation excise tax reportable on Form 4720;
4951 and 4952 taxes related to black lung trusts reportable on Forms 990-BL;
4955 tax on political expenditures of § 501(c)(3) organizations reportable on Form 4720;
4958 tax on excess benefit transactions reportable on Form 4720;
170(f)(10)(F) tax on premiums paid for personal benefit contracts reportable on Form 4720.

Form 4883 is not used for gaming excise taxes. See IRM 4.24.5 for report writing procedures in gaming excise tax cases.

Exhibit 4.75.15-11 (01-01-2006)
Form 4883, Instructions for Completion

Sections of the forms not discussed are self-explanatory.

Name of Taxpayer	Enter the taxpayer's legal name. If the name on the return is different from the legal name, enter both names as follows:
		Legal Name (Shown on the return as Name on the Return)
EIN / SSN	Enter the Employer Identification Number of the taxpayer, or SSN if the taxpayer is an individual.
Schedule or Exhibit	Assign an Exhibit number to the Form 4883 and enter in this field. Because the Form 4883 would normally be the first item under the Form 4621 in the RAR, Form 4883 usually would be Exhibit 1. If there is more than one Form 4883, assign consecutive exhibit numbers to them.
Name of Exempt Org. (if different from taxpayer)	If the taxpayer is a disqualified person, self dealer, foundation manager, or organization manager, enter the name of the related exempt organization. If the taxpayer is the exempt organization, enter "Not applicable."
Taxable Years Ended	Enter the appropriate taxable year ending date in one of the three columns in the following format:
	•	Calendar Year – Show ending date (12/31/2003).
	•	Fiscal Year – Show ending date (6/30/2003).
	•	Short Period – Show ending date 9/30/2004.
	•	52-53 Week Year -- Show last day of year (5/25/2003).
IRC Section for Proposed Adjustment	Only one type of adjustment can be entered in a column for a particular tax year. If there is more than one type of adjustment for one year, separate columns must be used for each adjustment. More than one Form 4883 may be used if necessary. Enter in the applicable adjustment column (immediately below the tax year ending date) the IRC section reference for the proposed excise tax adjustment. Example: 4945. 170(f)(10)(F). 4958.
1. Adjustments	Enter a description of the adjustment. Examples: Underdistribution of income. Taxable expenditure. Excess lobbying expenditure. Self dealing. Excess benefit transaction.
2. Total adjustments	Enter the total of adjustments for each tax year.
3. Amount reported on return or as previously adjusted	Enter the final taxable amount computed by the taxpayer on the last processed return (Form 4720, 990-PF, or 990-BL) or as computed on a prior processed examiner’s report if applicable.
4. Total amount as corrected	Add the total adjustments per line (2) to the taxable amount per return or as previously adjusted per line 3. Enter the total on line 4.
5. Applicable tax rate percent	Enter the applicable tax rate percent for the type of excise tax being adjusted. Where the type of tax is an excise tax for which there are two tiers, the initial tax rate is entered in this field. (Second level taxes are entered on line 9)
6. Initial tax liability as corrected	Enter corrected initial tax liability. (Line 4 x Line 5)
7. Initial tax liability reported	Enter initial tax as previously reported on return (Form 4720, 990-PF, or 990-BL) or as previously adjusted.
8. Increase or (decrease) in tax	Enter increase or (decrease) in tax (Line 6 - Line 7).
9. Additional tax (minimum)	In cases where required correction of acts giving rise to initial tax liability has not been completed, enter the amount of second level excise tax liability to be proposed. In situations where the amount of second level tax liability will continue to accrue, enter the amount of second level tax computed up to the date of the report of examination. A schedule setting forth the computation of the second level tax should be included as part of the report of examination.
10. Penalties Code Section	In the area to the left of the columns for dollar amounts, enter the IRC section for any applicable penalties. Examples - 6651(a)(1), 6684, etc. However, if more than one type of penalty applies, in the code section field enter "See below" and describe the penalty in the "Explanation of Adjustments" section.
	Enter the dollar amount of the penalties in the column for the applicable tax year.
	Include a statement in the "Explanation of Adjustments" setting forth the computation and code section for each penalty amount included on line 10.
Explanation of Adjustments	In agreed cases where the explanation of excise tax adjustments is brief, it can be entered in this area. If the case is unagreed or if the explanation is too lengthy for the available space on the form, the explanation should be entered on Forms 886-A.

Exhibit 4.75.15-12 (01-01-2006)
Report of Examination for Modification of a § 501(c)(3) Organization

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Part 4. Examining Process

Chapter 75. Exempt Organizations Examination Procedures

Section 15. Closing Letters and Reports of Examination

4.75.15 Closing Letters and Reports of Examination

4.75.15.1 (01-01-2006)Introduction

4.75.15.2 (01-01-2006)Closing Definitions

Note:

4.75.15.3 (01-01-2006)Basic Report Forms

4.75.15.4 (01-01-2006)No Change Examinations

4.75.15.5 (01-01-2006)No Change With Written Advisory Examinations

4.75.15.6 (01-01-2006)Draft Reports in Change Cases

4.75.15.7 (01-01-2006)Reports of Examination

Exception:

4.75.15.8 (01-01-2006)General Guidelines for Presentation of Issues in Reports of Examination

4.75.15.9 (01-01-2006)Revocation

Note:

4.75.15.10 (01-01-2006)Modification of Exempt Status - General

Note:

4.75.15.10.1 (01-01-2006)Agreed Modification of Exempt Status 501(c)(3) Other

4.75.15.10.2 (01-01-2006)Unagreed Modification of Exempt Status, 501(c) Other

4.75.15.11 (01-01-2006)Reclassification of Foundation Status

4.75.15.12 (01-01-2006)Modification of Operating Foundation Status

Note:

4.75.15.13 (01-01-2006)Unrelated Business Taxable Income

4.75.15.13.1 (01-01-2006)Agreed UBI Tax Changes

Example:

4.75.15.13.2 (01-01-2006)Unagreed UBI Tax Changes

4.75.15.14 (01-01-2006)Private Foundation Excise Taxes

4.75.15.14.1 (01-01-2006)Agreed Private Foundation Excise Tax Change

Example:

Example:

Example:

4.75.15.14.2 (01-01-2006)Unagreed Private Foundation Excise Tax Change

4.75.15.15 (01-01-2006)Non-Private Foundation EO Excise Taxes

4.75.15.15.1 (01-01-2006)Agreed Non-Private Foundation EO Excise Tax Change

4.75.15.15.2 (01-01-2006)Unagreed Non-Private Foundation EO Excise Tax Change

4.75.15.16 (01-01-2006)Nonexempt Charitable Trusts Examinations

4.75.15.17 (01-01-2006)Claims

4.75.15.17.1 (01-01-2006)Claims Allowed in Full

4.75.15.17.2 (01-01-2006)Claims Disallowed in Full or Part

4.75.15.17.3 (01-01-2006)Transcript of Account

4.75.15.18 (01-01-2006)Citation Forms for Report Writing

Exhibit 4.75.15-1 (01-01-2006)Closing Letters and Report Forms by Type of Case

Exhibit 4.75.15-2 (01-01-2006)Form 886-A, Explanation of Items

Exhibit 4.75.15-3 (01-01-2006)Form 886-A, Instructions for Completion

Exhibit 4.75.15-4 (01-01-2006)Form 4620, Transmittal Letter - Exempt Organizations

Caution:

Exhibit 4.75.15-5 (01-01-2006)Form 4620, Instructions for Completion

Exhibit 4.75.15-6 (01-01-2006)Form 4621, Exempt Organizations - Report of Examination (Proposed Tax Changes)

Exhibit 4.75.15-7 (01-01-2006)Form 4621, Instructions for Completion

Exhibit 4.75.15-8 (01-01-2006)Form 4621-A, Report of Examination - Exempt Organizations (Proposed Status Changes)

Exhibit 4.75.15-9 (01-01-2006)Form 4621-A, Instructions for Completion

Exhibit 4.75.15-10 (01-01-2006)Form 4883, Exempt Organizations Excise Tax Audit Changes

Exhibit 4.75.15-11 (01-01-2006)Form 4883, Instructions for Completion

Exhibit 4.75.15-12 (01-01-2006)Report of Examination for Modification of a § 501(c)(3) Organization

4.75.15.1 (01-01-2006)
Introduction

4.75.15.2 (01-01-2006)
Closing Definitions

4.75.15.3 (01-01-2006)
Basic Report Forms

4.75.15.4 (01-01-2006)
No Change Examinations

4.75.15.5 (01-01-2006)
No Change With Written Advisory Examinations

4.75.15.6 (01-01-2006)
Draft Reports in Change Cases

4.75.15.7 (01-01-2006)
Reports of Examination

4.75.15.8 (01-01-2006)
General Guidelines for Presentation of Issues in Reports of Examination

4.75.15.9 (01-01-2006)
Revocation

4.75.15.10 (01-01-2006)
Modification of Exempt Status - General

4.75.15.10.1 (01-01-2006)
Agreed Modification of Exempt Status 501(c)(3) Other

4.75.15.10.2 (01-01-2006)
Unagreed Modification of Exempt Status, 501(c) Other

4.75.15.11 (01-01-2006)
Reclassification of Foundation Status

4.75.15.12 (01-01-2006)
Modification of Operating Foundation Status

4.75.15.13 (01-01-2006)
Unrelated Business Taxable Income

4.75.15.13.1 (01-01-2006)
Agreed UBI Tax Changes

4.75.15.13.2 (01-01-2006)
Unagreed UBI Tax Changes

4.75.15.14 (01-01-2006)
Private Foundation Excise Taxes

4.75.15.14.1 (01-01-2006)
Agreed Private Foundation Excise Tax Change

4.75.15.14.2 (01-01-2006)
Unagreed Private Foundation Excise Tax Change

4.75.15.15 (01-01-2006)
Non-Private Foundation EO Excise Taxes

4.75.15.15.1 (01-01-2006)
Agreed Non-Private Foundation EO Excise Tax Change

4.75.15.15.2 (01-01-2006)
Unagreed Non-Private Foundation EO Excise Tax Change

4.75.15.16 (01-01-2006)
Nonexempt Charitable Trusts Examinations

4.75.15.17 (01-01-2006)
Claims

4.75.15.17.1 (01-01-2006)
Claims Allowed in Full

4.75.15.17.2 (01-01-2006)
Claims Disallowed in Full or Part

4.75.15.17.3 (01-01-2006)
Transcript of Account

4.75.15.18 (01-01-2006)
Citation Forms for Report Writing

Exhibit 4.75.15-1 (01-01-2006)
Closing Letters and Report Forms by Type of Case

Exhibit 4.75.15-2 (01-01-2006)
Form 886-A, Explanation of Items

Exhibit 4.75.15-3 (01-01-2006)
Form 886-A, Instructions for Completion

Exhibit 4.75.15-4 (01-01-2006)
Form 4620, Transmittal Letter - Exempt Organizations

Exhibit 4.75.15-5 (01-01-2006)
Form 4620, Instructions for Completion

Exhibit 4.75.15-6 (01-01-2006)
Form 4621, Exempt Organizations - Report of Examination (Proposed Tax Changes)

Exhibit 4.75.15-7 (01-01-2006)
Form 4621, Instructions for Completion

Exhibit 4.75.15-8 (01-01-2006)
Form 4621-A, Report of Examination - Exempt Organizations (Proposed Status Changes)

Exhibit 4.75.15-9 (01-01-2006)
Form 4621-A, Instructions for Completion

Exhibit 4.75.15-10 (01-01-2006)
Form 4883, Exempt Organizations Excise Tax Audit Changes

Exhibit 4.75.15-11 (01-01-2006)
Form 4883, Instructions for Completion

Exhibit 4.75.15-12 (01-01-2006)
Report of Examination for Modification of a § 501(c)(3) Organization