Appeals employees are responsible for protecting the Assessment Statute Expiration Date (ASED) by securing a valid consent to extend, issuing a statutory notice of deficiency, or ensuring that the assessments are timely made. When the ASED is not properly protected the result is a barred statute.

Form 3999, Statute Expiration Report, is used to report a barred deficiency or barred overassessment on any Appeals case that is not a TEFRA case.

If the barred statute is a TEFRA case, prepare a Form 3999-T, Statute Expiration Report (for TEFRA key cases). Substitute Form 3999-T for any reference to Form 3999 used in this section and follow these procedures. Notification of the barred statute is sent to the key case entity and each investor. The key case Campus TEFRA Function (CTF) must also be notified of the statute expiration.

A barred deficiency is one which cannot be assessed because the regular three-year or six-year statutory period of limitations has expired on one or more returns after being assigned for examination.

The term "barred deficiency" includes cases involving restricted interest even though, as a result of the application of net operating loss carrybacks, there is no deficiency or overassessment.

A statute expiration report is not required for a return assigned for examination after the three-year period has expired even though a deficiency was asserted under one of the exceptions to the regular period, e.g., fraud, IRC section 6501(c), and it is subsequently determined that such exception does not apply. Such reports are also not required for returns held solely for reference purposes.

If the deficiencies are recovered due to imposition of the fraud penalty, application of IRC section 6501(c), or for similar reasons, no report is required because deficiencies may be assessed. The report is not required at the time the case is received by an Appeals Office if the return is open under any of the exceptions to the regular period of limitations. However, in such a case if Appeals later determines that the regular statutory period of limitations applies but the tax cannot be assessed, the deficiency is considered barred at that time and a report may be required. See examples below. The report is prepared whether the case was closed in non-docketed status, docketed status, or by decision of the United States Tax Court.

In cases described in (4) above requiring a statute expiration report where reasons for allowing the period of limitations for assessments to expire do not appear in the administrative file, Appeals will request such information from the appropriate Compliance field official when preparing the report. A copy of the report is sent by the Area Director to the appropriate Compliance field official. The items on Form 3999 relating to corrective action taken or recommended and disciplinary action taken, if any, are not to be filled in by Appeals.

The following examples illustrate when barred deficiency reports are required.

Statute expiration reports in Appeals cases are prepared by Appeals even though the regular period of limitations was allowed to expire deliberately (criminal prosecution recommended) or erroneously by Appeals.

A statute expiration report is prepared by Appeals on Form 3999 for all joint investigation cases where there is a barred deficiency or barred overassessment. Submit the Form 3999 to the Area Director within ten (10) days following determination of civil liability, and after review, the Area Director transmits the Form 3999 to the appropriate Special Agent in Charge, Criminal Investigation Division, or the appropriate Compliance field official in areas or territories without a Special Agent in charge.

The Form 3999 will be prepared by Appeals Offices in non-joint investigation cases and submitted to the Area Director when the statutory period has expired without assessment or overassessment. In cases not involving factors of uncertainty as to probability of assessment, such as possible imposition of fraud penalty, the reports will be prepared immediately upon discovery that the statutory period expired without assessment. In cases where a determination cannot be made at time of discovery, for example, where the fraud penalty may be asserted, the reports are submitted when it is finally determined that the assessment will not be made because of the expiration of the statutory period.

Where the regular period of limitations expired during prior jurisdiction and the case was forwarded to Appeals to protest the six-year, fraud, or other statute provisions or issues affecting such and they were not sustained, the Area Director of Compliance will prepare Form 3999 from the information available on Form 5402, Appeals Transmittal and Case Memo, received from Appeals.

When analysis of a case reveals that the legal tax assessment may not have been processed by the ASED, a potentially barred statute occurs and a preliminary Form 3999 must be prepared.

It is important to timely prepare and submit the preliminary report so that all Appeals functions involved in statute control of that case are made aware of the potentially barred statute. The following sections detail the time frames that should be followed.

A statute is considered "potentially barred" until sufficient research of the facts allows a determination whether it is an actual barred statute or not.

The Law Enforcement Manual ( LEM 25.6.14.4.4, Identifying Barred Cases) outlines dollar tolerances in barred statute cases. See that section of the manual for details.

If a barred statute report is required, the team manager of the group that is responsible must immediately contact the Area Director or Area Manager. The Area Director will notify their respective Director, Field Operations (East or West) and the Area Manager will notify the Director, Appeals Processing Services, who will then notify the Director, Technical Services.

The team manager who discovered the potentially barred statute must prepare, sign and forward the original preliminary Form 3999 to the Area Director or Area Manager within ten (10) workdays of discovery. The team manager should ensure that the responsible employee(s) properly complete or provide input for completion of the preliminary Form 3999 in a timely manner. At the same time, a copy must be sent to the Program Analyst responsible for Statutes on the staff of the Director, Tax Policy and Procedure (Examination), and the Executive Assistant to the Chief, Appeals.

The Area Director or Area Manager will review and sign the preliminary Form 3999. The Area Director will forward it to their respective Director, Field Operations (East or West) and the Area Manager will forward to the Director, Appeals Processing Services within five (5) workdays of receipt.

The Preliminary Form 3999 should contain the following information:

Subsequently if it is determined that the potentially barred statute is not actually barred, an E-mail should be sent to everyone who received copies of the preliminary report explaining why the statute was determined not to be barred.

This should be noted on the preliminary report previously submitted. The preliminary report will be sent to the Program Analyst responsible for statutes on the staff of the Director, Tax Policy and Procedure (Examination), and the Executive Assistant to the Chief, Appeals, and no further action will need to be taken.

The Final Form 3999 must be prepared and submitted to the Area Director or Area Manager within 60 workdays from the preliminary report date. There are several items that must be accomplished before this can occur.

Serious consideration should be given to sending an expedited request to local Counsel to review and determine whether the revenue can be protected. This should be considered in every case where there is any remote possibility that extenuating circumstances might permit processing the assessment.

Time should be spent gathering the necessary facts to fully ascertain what transpired, who was involved and why it happened. This includes locating the following backup documents, if applicable, to accompany the final Form 3999:

Additionally, a current transcript should be analyzed for each tax year and entity that is determined to have a barred statute for the purpose of determining whether there is a credit balance on the account for that tax year. Any credit balance that exists should be moved to an "Excess Account" .

After obtaining Counsel’s opinion, review the Form 3999 for correctness and completeness and mark the form as "final" before signing in the Manager’s signature block below Block 15.

It is common that more than one Appeals employee may have contributed in some way to a barred statute. Each case requires independent review to determine all of the employees who may have contributed in any way to the barred statute.

The manager of the group who last handled the case will be responsible for contacting the managers of other responsible employees involved. All managers impacted should discuss how the back-up documentation will be gathered and who will prepare the final report.

After the final report is prepared, it will be electronically sent to all managers who had employees that contributed in any way to the barred statute. Each should be allowed an opportunity to review and concur with the report before it is forwarded for approval.

All managers who are given an opportunity to review the report should indicate their concurrence by email to the coordinating manager, who will note in the final report that all managers of groups that contributed were provided copies of the report for review and have concurred.

As a general rule, all employees who contributed in any way to a barred statute may be subject to some form of disciplinary action. However the discipline will not necessarily be the same for all involved employees.

When determining the level of disciplinary action, the following facts should be considered individually for each employee:

Because each case is different, the level of responsibility will be determined on a case-by-case basis.

In most barred statute cases, multiple employees contribute to the situations that result in a barred statute. Therefore, all factors must be considered when determining the degree of responsibility for each.