Rev. Proc. 57-26

SECTION 1. PURPOSE.

The purpose of this Revenue Procedure is to set forth revised procedures for protests and conferences before a Regional Appellate Division in unagreed excise and employment tax cases.

SEC. 2. SCOPE.

These revised procedures are applicable to all unagreed cases in the District Audit Division which involve excise taxes imposed under Chapters 31, 32, 33, 34, 36, 37, Subchapter F of Chapter 38 and Subchapters B, C, D, E and F of Chapter 39, and employment taxes under Chapters 21, 22, 23 and 24 of the Internal Revenue Code of 1954 and corresponding provisions of the Internal Revenue Code of 1939. Procedures are also prescribed herein with regard to unagreed cases involving the excise taxes imposed by Chapter 35 and Subchapter A of Chapter 39 of the 1954 Code, over which the Regional Appellate Division has no jurisdiction.

SEC. 3. BACKGROUND.

Under existing procedures, excise and employment taxpayers did not have the right to have their cases considered by a Regional Appellate Division prior to assessment of the unagreed tax and the filing of a claim for abatement or refund.

SEC. 4. PROCEDURE IN DISTRICT AUDIT DIVISIONS.

.01 Audit by Examination of Cases Within the Jurisdiction of the Regional Appellate Division. At the conclusion of the examination of an excise or employment tax case, the examiner will discuss the findings with the taxpayer, affording him an opportunity to execute an appropriate agreement form. If the taxpayer does not agree, the examiner will prepare and furnish the taxpayer a brief statement showing the proposed adjustments affecting tax liability and affording the taxpayer an opportunity to present objections thereto at an informal conference. If an agreement is not reached at the informal conference, the agent will prepare an investigation report and after review the taxpayer will be furnished with a notice of proposed adjustments granting him 30 days in which to file a protest and request a conference before the Regional Appellate Division. A copy of the internal revenue agent's report of examination will accompany the 30-day notice. Registered mail will be used for these 30-day notices if, in the judgment of the District Director of Internal Revenue, it is advisable.

.02 Audit by Correspondence of Cases Within the Jurisdiction of the Regional Appellate Division.

1. If a proposed change in excise or employment tax is determined by a survey of the return or by correspondence with the taxpayer, a 10-day letter will be furnished the taxpayer showing the proposed adjustments affecting his tax liability and affording the taxpayer an opportunity to sign an enclosed agreement form or to present objections to the proposed adjustments at an informal conference. If the taxpayer agrees without requesting a conference, any necessary adjustment to tax liability will be made without further communication with the taxpayer.

2. Where the taxpayer agrees after conference to the liability shown in the 10-day letter, any necessary adjustment to tax liability will be made and no further written advice will be given to the taxpayer in respect of the conference results. In all other unagreed correspondence audit cases, the taxpayers will be advised of all unagreed proposed adjustments to their tax liabilities by a appropriate 30-day notice. A copy of the office audit report of examination will accompany the 30-day notice.

.03 Procedure after Issuance of 30-day Notice. If an agreement is received in response to the 30-day notice specified in paragraphs .01 and .02 of this section, or if the taxpayer does not file a protest, any necessary adjustment to his tax liability will be made. Where a taxpayer submits a timely protest in response to the 30-day notice and requests that his case be referred to the Regional Appellate Division, the case will be reviewed in the District Director's office by such officer or officers as the District Director may designate to determine whether new or different facts are presented in the taxpayer's formal protest which might require verification, or provide the basis for further consideration and a possible revision of the position taken in the examination report. If there are additional facts presented which require verification or indicate that satisfactory adjustment of the nonagreed issues is possible, necessary action will be taken to complete such verification and, in appropriate cases, arrangements will be made for a further informal conference with the taxpayer. If such action results in closing the case on an agreed basis, it will be made the subject of a supplemental report. If no additional facts are presented in the taxpayer's protest or if the further consideration of such additional facts as may be presented is not productive of an agreement, the case will be forwarded to the Regional Appellate Division for necessary action.

.04 Procedure for Disposing of Cases Excluded from Appellate Jurisdiction.

1. A taxpayer, liable for any of the taxes imposed by Chapter 35 (relating to wagering) and Subchapter A of Chapter 39 (relating to narcotic drugs and marihuana) of the 1954 Code which are excluded from the jurisdiction of the Regional Appellate Division, who does not agree with the findings of the examining officer will be afforded an opportunity to present his objections to proposed adjustments to his tax liability at an informal conference. If an agreement is not reached at the informal conference, the examining officer will prepare the report and, after review, the taxpayer will be furnished with a copy and a notice of the proposed adjustment, granting him 30 days in which to file a protest.

2. If an agreement is received in response to the 30-day notice or if the taxpayer does not file a protest, any necessary adjustment to tax liability will be made. Where a taxpayer submits a timely protest in response to the 30-day notice the case will be reviewed in the District Director's office by such officer or officers as the District Director may designate to determine whether new or different facts are presented in the taxpayer's formal protest which might require verification, or provide the basis for further consideration and a possible revision of the position taken in the examination report. If here are additional facts presented which require verification or indicate that satisfactory adjustment of the nonagreed issues is possible, necessary action will be taken to complete such verification and, in appropriate cases, arrangements will be made for a further informal conference with the taxpayer. If such action results in closing the case on an agreed basis, it will be made the subject of a supplemental report. If no additional facts are presented in the taxpayer's protest or if the further consideration of such additional facts as may be presented is not productive of an agreement, any necessary adjustment to tax liability will be made after the taxpayer has been advised in an appropriate letter of the conclusions reached as a result of fully considering the protest.

3. The procedure prescribed in this section does not contemplate the filing of abatement claims and any such claims, if filed, will be disposed of by the Audit Division with a "no consideration" letter. Further consideration can be given only after the tax is paid and claim for refund filed. Unless the claim for refund is supported by new or additional facts which have not been considered previously in conjunction with the taxpayer's protest or at the informal conference, such claim will be rejected. Thereafter, the taxpayer's further recourse will be the filing of a suit in a district court or the United States Court of Claims.

SEC. 5. PROCEDURE IN REGIONAL APPELLATE DIVISION.

The procedure before a Regional Appellate Division is unagreed excise and employment tax cases involving proposed additional or delinquent taxes will be similar to that now prescribed for the handling of cases in section 601.106(b) and (c) of the Statement of Procedural Rules, C. B. 1955-2, 921.

SEC. 6. POLICY IN DISTRICT DIRECTOR'S OFFICES IN DISPOSING OF CERTAIN CASES.

Whenever tax has been assessed due to (1) jeopardy, (2) failure of the taxpayer to respond to a 30-day notice within the 30-day period, (3) failure of the taxpayer to execute an appropriate waiver of the statute of limitation on assessment, or (4) on the basis of the decision of the Regional Appellate Division, the tax so assessed will be required to be paid and a claim for refund filed prior to any further consideration of the case on its merits by either the office of the District Director or the Regional Appellate Division. In this type of case, it is the policy of the Internal Revenue Service not to recognize any claims for abatement which may be filed after the assessment of the tax. However, if a claim for abatement is filed, the taxpayer will be notified that no consideration will be given to such claim. Abatement claims filed for other reasons will be considered on their merits and disposed of in accordance with the procedure in effect prior to the issuance of this Revenue Procedure.

SEC. 7. PROCEDURE TO BE FOLLOWED FOR CASES IN PROCESS PRIOR TO EFFECTIVE DATE OF THIS REVENUE PROCEDURE.

Unagreed cases in process, except cases involving abatement claims, in the Audit Division of District Directors' offices on the effective date of this Revenue Procedure will be disposed of consistently with the procedure prescribed herein. Cases involving abatement claims in process on the effective date of this Procedure will be disposed of under the prior procedure.