4.8.5. Post Examination Case Processing Requirements

(1) When a claim is received prior to the assessment of the proposed deficiency, the claim is a "pre-assessment claim." This usually occurs when an examiner receives a claim from the RS during the course of an open examination. If the claim is received directly from the taxpayer (RS), the examiner is responsible for faxing the qualified (i.e., processable or complete) Form 8857 to the area PSP IS Coordinator and ensuring the TC 971 AC 065 (a cross reference SSN is required when the RS is the secondary spouse) is present for each year affected. The innocent spouse reviewer is responsible for ensuring the case is on ISTS and that the proper TC 971/065 is present on each year. The innocent spouse claim then becomes another examination issue and is added to the Form 4318, Examination Workpapers Index, or Form 4318 OA, Examination Workpapers Index - Office Audit, as applicable.

(2) The examiner contacts the RS via Letter 3659, Requesting Spouse Initial Contact Letter, and the non-requesting spouse (NRS) via Letter 3284, Letter to Non-requesting Spouse, and gathers information and facts via questionnaires and / or interviews of both spouses.

(3) The examiner determines whether or not relief will be granted, in full / in part / denied, and under the appropriate code sections.

(4) If only one or neither taxpayer responds to requests for additional information, the examiner must make a determination based on all available information in the case file. Once a determination is made, the examiner issues a revenue agent report (RAR) that includes the innocent spouse claim determination in the "Other Information" section. See IRM 25.15.6.11, Communicate the Determination, for proper language to be used. The RAR will be issued with a 30 Day letter (i.e., Letter 950, 30 Day Letter - Straight Deficiency) so that both taxpayers are afforded their appeal rights. If neither spouse has the opportunity to appeal the relief determination (e.g., the ASED is about to expire and one or both of the spouses will not extend the statute), then a statutory notice is issued using the procedures found at IRM 4.8.9.16.11.6, Short Statute Procedures, and the innocent spouse claim is handled per the table found at IRM 4.8.9.16.11.6(3).

(5) The case is closed through Technical Services for mandatory innocent spouse review regardless of disposition (i.e., agreed, unagreed for notice of deficiency, or protested unagreed going to Appeals).

(6) Technical Services is responsible for performing a technical review, updating ISTS, and preparing closing instructions as noted in this section.

(1) Final processing of post-assessment claims is the responsibility of the area Technical Services innocent spouse reviewer(s) and staff. A post-assessment claim is one that is received by the examiner for consideration of a tax liability that has already been assessed. The assessment can be on a return filed with tax due, an examination assessment, or both, and it may appear on either the MFT 30 or MFT 31 of either or both spouses. MFT 31 most often occurs when an innocent spouse request, offer in compromise (OIC), bankruptcy, or fraud criminal restitution assessment is involved. An MFT 31 can also occur when only one spouse agrees to proposed adjustment, requests appeals, or petitions Tax Court.

(2) The case is normally set up on AIMS and ISTS prior to being assigned to an examiner. The examiner contacts the NRS via Letter 3284 and the RS via Letter 3659 which allows 30 days from the date of the letter for the taxpayers to respond.

(3) The examiner makes a determination on the claim. The determination is written up on the innocent spouse lead sheet or Form 886-A, Explanation of Items, and the case is closed to Technical Services for mandatory review and issuance of determination letters.

(4) Technical Services is responsible for ISTS updates while the case is in Technical Services. Upon receipt of the claim in Technical Services, ISTS will be updated to Stage 08 TOREVU.

(5) The claim case will be assigned to an innocent spouse reviewer for review and processing procedures. If the case is a referral from Taxpayer Advocate Service (TAS), Collection, or a case returned from the field after rework, it is treated as a priority case.

1. The reviewer must review the determination of the innocent spouse relief request to determine if the technical provisions were correctly applied. Refer to IRM 25.15.3 for technical provisions of relief under IRC 6015. Review the lead sheet determination (or Form 886-A) for consideration of all applicable code sections and to ensure all applicable code sections are fully developed and support the relief determination.

Note: Careful review is required for cases involving spouses that are still married and living together, as well as cases involving fraud.

2. The reviewer must make sure the NRS was notified of the claim and given the chance to participate. This is the purpose of the Letter 3284 issued by the examiner.

(6) Technical Services will not return a case unless there is an obvious error or there is an account problem that needs to be resolved by the group prior to closure.

(7) Once the technical review is complete, the innocent spouse reviewer will complete the following actions:

1. Prepare and mail the preliminary determination letters to the RS and the NRS.

2. Suspend the case once the preliminary determination letters (30 Day letters) have been issued. The reviewer will update the case on ERCS to Status Code 22, Suspense Type 531 and set the action date for 45 days from the date of issuance.

3. If a valid protest is received, review the protest to determine if additional facts are presented that would affect the original determination.

If Valid Protest Received	Then these actions will be taken
Determination does not change	Close the case to the Appeals office in the taxpayer's area. Update ISTS to Stage 07 using APPLXXX where the first digit represents primary (P) or secondary (S) or both (B) and the last two digits represents the Appeals office where the case will be assigned. Refer to IRM 25.15.14.4.1.7, Stage 07 - Transferred, for more information on updates to Stage 07. Correct the Form 5344 to reflect an appeals closure with Disposal Code (DC) 07.
Additional facts presented that change the current determination	Change the workpapers to reflect the current determination based on the additional information received. The reviewer can also return the case to the group for consideration of the additional information if it is cost effective to do so. Update ISTS to Stage 10 REWORK. Before issuing the second preliminary determination letters, update first to Stage 25 and then to Stage 11. Stage 25 will be the day before Stage 11. Refer to IRM 25.15.14.4.1.25, Stage 25 Reconsideration of Previously Issued Determination, for valid activity codes to use with Stage 25. Prepare and mail the second preliminary determination letters using the letters appropriate for the revised determination (i.e., allowed, partially allowed, fully denied. etc.) to both spouses. Update ERCS with a new action date to suspend the case for another 45 days based on the new determination letters issue date. Complete processing based on the determination made per the procedures contained in this IRM section.

4. If no protest is received within 45 days, prepare and mail the final determination letters which are applicable to the determination made to each spouse, per the sections below for Full Denial, Partially Allowed / Denied, and Fully Allowed. Update ISTS to Stage 12 using the date of issuance of the final determination letters as the stage date.

5. Write closing instructions for CCP and mark the Form 3198 for "Manual Closure Required" and "Innocent Spouse". See Exhibit 4.8.5-1 for closing instructions for post-assessment claims. When the post assessment claim is made on a previous examination assessment, ensure the Form 3198 is marked as a "Final closure - partial assessment previously completed."

6. The Form 5344 prepared by the examiner will show Disposal Code 01 and show no adjustments in Item 12 and no reference codes in Item 15. The "No Change" issue code in Item 41 will be "999999".

7. In cases of partial or full relief, a Form 3870, Request for Adjustment, is prepared to instruct Cincinnati Centralized Innocent Spouse Operations (CCISO) of how much to transfer from the joint MFT 30 account to the MFT 31 of the NRS, including tax, penalty and any payments that may need to be refunded to the RS or moved to the MFT 31. The Form 3870 will be marked "FOR CCISO USE ONLY" and inserted in the case file.

8. If no petition is filed with the Tax Court and served on the Service during the 90 day petition period, then the case is closed to CCP for processing.

9. For fully denied claims, prepare the closing instructions to CCP as shown in Exhibit 4.8.5-1 and CCP will complete all of the processing.

10. For partially or fully allowed claims, the case will close to CCP first and then it will be routed to CCISO for the MFT 31 transfer. All items must be completed or the case will be rejected to the originator. Instruct CCP to complete the following actions:
    Close AIMS controls. Do NOT input TC 290 when closing AIMS controls - CCISO will input the TC 290.
    Prepare Form 2275, Records Request, Charge and Recharge, to charge the case to CCISO, Internal Revenue Service, Attn: Processing Unit Stop 840F, Covington, KY 41012.
    Input TC 971 AC 103 to generate the MFT 31 account for NRS name and SSN for tax year(s) XXXX.
    Update ISTS to Stage 23 for tax year(s) xxxx.
    Prepare Form 3210, Document Transmittal, listing case by name and SSN and forward the administrative file to the address shown above. (If applicable, indicate "refund due" next to listed case if RS is due a refund.)
    Please note that the Form 3870 was prepared for use by CCISO for MFT 31 transfer.

    Note: Examples of closing instructions are found at Exhibit 4.8.5-1.

(8) SB/SE Delegation Order 4.57, Authority to Issue Innocent Spouse Final Determination Notices, delegates the authority to sign and issue final determination notices for innocent spouse claims to Technical Services territory managers. The authority may be re-delegated by memorandum to select individuals within the area of the territory manager's jurisdiction. Preliminary determination letters are considered 30 Day letters and therefore are covered under SB/SE Delegation Order 4.55, Authority to Sign Thirty Day Letters, which delegates authority to sign and issue the letters to revenue agent reviewers grade general schedule (GS) 11 or higher.

(1) Collection: If the case is a Collection referral, complete Form 3449, Referral Report, Part B. Place a copy in the case file and return the original Form 3449 to the revenue officer with a copy of the determination letter(s). If there is a tax lien and the requesting spouse is granted FULL RELIEF, provide a copy of the determination letter to the lien release unit and request a partial lien release with regard to the requesting spouse ONLY. Provide the lien release unit with all SSNs and the years to which the partial tax lien release applies.

(2) Taxpayer Advocate: If the case is a Taxpayer Advocate Service (TAS) case, call the advocate handling the case to advise the case is being closed. Generally, TAS will request copies of documents from the file for their case file (e.g., the determination letter, Appeals request, etc.). Do not close a TAS case without contacting the advocate first.

(3) Returning Cases to Examiners: The most common error that causes a case to be returned to an examiner is failure to issue the 30 day letter to the taxpayer(s) with the RAR indicating the innocent spouse determination (pre-assessment case) when sufficient time remains on the statute of limitations. In such a situation, return the case on a Form 3990, Reviewer's Report, and refer the examiner to the procedures in IRM 25.15.6.4(h), Examiner’s Responsibilities, and IRM 4.10.8, Report Writing. Update ISTS Stage 8 with the appropriate activity. Refer to IRM 25.15.14.4.1.8, Stage 08 — Local Review, and IRM 25.15.14.4.1.8, Stage 10 — Rework.

(4) Claim Filed After a Statutory Notice of Deficiency Issued: In general, if an innocent spouse claim is filed after the issuance of a statutory notice of deficiency on a joint account, the claim needs to be screened to determine whether or not it is processable (i.e., all required information provided, signature present, etc.).

1. If the claim is valid, it will be set up on ISTS and TC 971 AC 065 will be input on the account. This is accomplished by contacting the innocent spouse coordinator or an innocent spouse reviewer. Once the statutory notice of deficiency defaults, the deficiency (plus related penalties) will be assessed on the MFT 30 joint account using partial assessment procedures and the case will be returned to the group on a Form 3990 (in Status Code 12) for consideration of the innocent spouse claim. This procedure reduces taxpayer burden by getting the claim worked as quickly as possible. It also allows the examiner to work the claim using the original administrative file without reopening the case.

2. If a petition is filed in response to the statutory notice of deficiency, the consideration of the innocent spouse claim must be coordinated with area counsel.

(5) MFT 31 Assessments Present: the guidance in this IRM section is premised on the fact that joint liabilities will be present on MFT 30 joint accounts. There are circumstances in which liabilities originating from joint returns may be present on MFT 31 accounts for one or both spouses. In those cases, special instructions are sometimes required to adjust the MFT 31 accounts for the amount of relief allowed. If in doubt, contact the applicable innocent spouse reviewer or the CCP-FORT for assistance.

(6) Both Spouses File Claims: When both spouses file claims, claim procedures must be followed for both claims simultaneously. It is possible to end up with some liability on the MFT 30 joint account as well as the MFT 31 account of each spouse depending on the determinations made.

(7) Non-Qualifying (No Consideration) Claims and Claim Withdrawals: For these claims the following actions will be taken:

1. If for any reason the claim is not considered (e.g., there is no deficiency at the end of the examination, or the liability is fully paid by the NRS while the claim is being considered), issue Letter 3657, Non-qualifying Innocent Spouse Claim Letter, or Letter 3657-A, Non-qualifying innocent Spouse Claim Letter, to the RS. Refer to IRM 25.15.1.2, Joint and Several Liability, for other situations that may disqualify a claim.

2. If the RS withdraws the claim, either verbally or in writing, issue Letter 3388, Closing Letter for Withdrawal of Relief from Liability Request, to the RS.

3. For both non-qualifying claims and claim withdrawal cases, after the appropriate letters are issued, update ISTS through Stages 29 and 30 prior to closing. Refer to IRM 25.15.14.4.1.29, Stage 29 - Nonqualifying, for valid activity codes to be used with Stage 29.

4. Request the TC 971 AC 065 present on the MFT 30 account be reversed either by submitting Form 3177, Notice of Action for Entry on Master File, to CCP or by including the request on the Form 3198.

5. Once the above actions are complete, no other special closing instructions for CCP will be required for the claim.