4.8.10. Notice of Employment Tax Determination Under IRC 7436

(1) Some employment tax cases include both IRC 7436 issues and non-IRC 7436 issues. Therefore, basic information concerning the 30 day letter process is included to distinguish between the two types of cases. Many of the procedures for Letter 3523 are identical or similar to those used to prepare statutory notices of deficiency contained in IRM 4.8.9, Statutory Notices of Deficiency.

(2) IRM 4.23.10, Report Writing Guide for Employment Tax Examinations, and IRM 4.23.22, Unagreed Employment Tax Case Procedures, provides guidance for writing employment tax examination reports and unagreed case procedures and must be consulted when specific questions arise concerning cases involving IRC 7436 issues.

(3) The Letter 3523 gives taxpayers the opportunity and instructions to seek Tax Court review. It also includes a schedule listing the workers the Service has determined must be classified as employees and employees who received additional wages determined to be IRC 7436 wage issues. The Letter 3523 shows each kind of tax with its proposed employment tax adjustment by taxable period.

(1) The Commissioner is authorized to issue a Letter 3523 pursuant to IRC 7436(a).

(2) See Servicewide Delegation Order 4-26 in IRM 1.2.43.24, Delegation Order 4-26 (formerly DO-251), for the officials delegated by the Commissioner to sign and issue a Letter 3523.

(3) As it relates to Technical Services, the Technical Services Territory Manager (TSTM) is delegated to sign and issue a Letter 3523. The TSTM may further delegate this authority by memorandum to specific individuals within his/her functional area.

(4) IRC 7436(a) requires that the determination(s) involve an actual controversy and that the determination(s) be made as part of an examination.

(1) The Service will issue a Letter 3523 only after the Service has determined either:

• That the taxpayer is not entitled to relief under section 530 of the Revenue Act of 1978 or

• That one or more individuals performing services for the taxpayer are employees for purposes of any tax imposed by Subtitle C.

(2) For assistance in the preparation of Tables 1 and 2 of Letter 3523 (whichever is applicable), the examiners will prepare a list of workers as defined in IRM 4.23.22.11.1(5), General Overview of Section 7436 Procedures and IRM 4.23.22.1.1(6). In addition, examiners must prepare a work copy draft of Tables 3 and 4 to assist Technical Services in the preparation of Letter 3523. See IRM 4.23.22.1.1(6).

(3) Reviewers will review the case file, prepare the final Letter 3523 and attachments, and sign the notice. Tax examiners issue the Letter 3523 with attachments.

(1) The table lists commonly used acronyms and their definitions:

(1) IRC 7436(a) provides that for purposes of Subtitle C, the Tax Court has jurisdiction to:

1. Review the Service's determination that one or more individuals performing services for the taxpayer are employees.

2. Review the Service's determination that the taxpayer is not entitled to treatment under section 530(a) of the Revenue Act of 1978 with respect to those individuals.

3. Determine the proper amount of employment tax under the above determinations.

(2) The employment taxes imposed by Subtitle C are:

1. Federal Insurance Contributions Act (FICA) taxes (IRC 3101 through IRC 3128),

2. Railroad Retirement Tax Act (RRTA) taxes (IRC 3201 through IRC 3232),

3. Federal Unemployment Tax Act (FUTA) taxes (IRC 3301 through IRC 3311),

4. The collection of income tax at source on wages (IRC 3401 through IRC 3406).

(3) "Employment tax" under the statutory language includes the additions to tax and penalties provided by Chapter 68 Subchapter A (but not B) of IRC 6651 through IRC 6665. Thus, the Tax Court has jurisdiction to calculate the proper amount of additions to tax and penalties that relate to the employment tax imposed by Subtitle C with respect to determinations of worker classification and relief under section 530 of the Revenue Act of 1978.

(1) IRC 7436(a) does not provide the Tax Court with jurisdiction to review any employment tax determinations other than those listed in the statute as noted in IRM 4.8.10.2.1(1) above.

(2) IRC 7436 also does not apply to employment status issues not arising under Subtitle C, such as the classification of individuals for purposes of pension plan coverage or the proper treatment of individual income tax deductions.

(3) Since IRC 7436(a) only confers jurisdiction on the Tax Court to review determinations that are made as part of an examination, other Service determinations of employment status (including those that are made in the context of private letter rulings, technical advice memoranda, or Form SS-8, Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding) that are not made as part of an examination, are not subject to review by the Tax Court.

(1) When the case is received, the contents of the case file should be reviewed to ensure:

• All returns are controlled on Audit Information Management System (AIMS) and Examination Records Control System (ERCS).

• The returns reflected on ERCS are included in the case file and no other returns are included.

• The case is in Status Code 25, Review Type 38, and Suspense Code 544.

• The 30 day letter was sent to the taxpayer, if sufficient time remained on the ASED.

• The period of limitation is correctly reflected on AIMS/ERCS.

• Form 895, Notice of Statute Expiration, is properly completed, if required.

  Note: Reviewers must check the ASED on Form 895 against the information data retrieval system (IDRS), the stamped received date, and mailing envelope. Do not rely on the statements on Form 895 or IDRS. Reviewers must check these items personally, to ensure the information is correctly reflected.
  
  
  If Form 895 is correct, the reviewer will initial it. If Form 895 is not correct, the reviewer will update the information, initial the change, prepare Form 5348, AIMS/ERCS Update, and submit Form 5348 with the case to the manager for approval.

(1) Obtain current IDRS prints to verify the following information about the case:

• AMDISA to verify the applicable years are on AIMS;

• INOLES to verify the taxpayer's name(s) and address(es);

• CFINK to determine if a valid power of attorney is on file;

• BMFOLT to verify the amount of tax per return (or as previously adjusted), as well as to verify any possible duplicate return postings and pertinent freeze codes;

  Note: If returns were filed, the reviewer will check the TC 150 and all TC 30X/29X amounts to ensure that all applicable amounts are considered, not just the original tax as filed.

• BMFOLA to identify any previous adjustments that may have been made to the return and to verify the amount and source of the adjustments;

• BMFOLR to verify the amount of taxable wages per return;

• BMFOLU to compare the totals per Form 941, Employer's Quarterly Federal Tax Return, and/or Form 944, Employer's ANNUAL Federal Tax Return, and Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees, to Forms W-2 filed;

• PMFOL and/or IRPTRI to verify whether Forms 1099-MISC, Miscellaneous Income, and Form W-2 were filed; and

• Information Return Processing (IRP) Transcript, if available, for the TIN of the key taxpayer (individual, corporate, etc.) to verify address information.

(1) Technical review of the issues will be made to determine whether the applicable law, regulations, and rulings have been correctly applied.

(2) The review of the case will include the determination that:

1. The the issues are IRC 7436 issues (either worker classification issues or IRC 7436 wage issues).

2. For worker classification issues, the taxpayer is not entitled to relief under section 530(a) of the Revenue Act of 1978 with respect to individuals being reclassified as employees and the reasons the taxpayer does not qualify for relief (IRM 4.23.5.2, Section 530 of the Revenue Act of 1978).

3. For IRC 7436 wage issues, section 530 is not applicable to the issue and, in the alternative, that the taxpayer is not entitled to relief in the event it is determined that section 530 is applicable to the IRC 7436 wage issues.

4. The proper amount of employment tax under the above determinations, including the proper use of IRC 3509 rates (IRM 4.23.8, Determining Employment Tax Liability).

(3) For worker classification issues, reviewers will review the case file to ensure the position presented is supported in the workpapers. The case file must include facts, supported by documentary evidence where possible, of:

1. The categories of workers.

2. Their basic job duties, identifying the behavioral and financial control factors present in the case. Any available agreements between the parties, such as work contracts, should also be included in the case file, if available.

3. An analysis of the behavioral control, financial control, and the relationship of the worker and the firm. (See IRM 4.23.5, Technical Guidelines for Employment Tax Issues).

(4) Documents that must routinely be part of the case file include:

1. A copy of information returns (e.g., Form 1099-MISC, Form 1096, Annual Summary and Transmittal of U.S. Information Returns, Form W-2, Form W-3, Transmittal of Wage and Tax Statements) issued by the taxpayer to workers at issue (at a minimum, transcripts must be in the case file reflecting whether Form 1099-MISC and Form W-2 were filed).

2. A copy of prior period Forms W-2 issued to categories of reclassified workers (or to named reclassified workers), if available.

3. A copy of filed employment tax returns

4. A copy of income tax returns (especially where the employment tax examination was a result of an income tax examination).

   Note: This is not applicable to Large Business and International (LB&I) examination case files.

5. A copy of relevant materials from the income tax examination file if the case resulted from an income tax referral.

   Note: This is not applicable to LB&I examination case files.

6. A copy of applicable pages of the general ledgers.

7. A copy of service agreements (e.g., "independent contractor agreements").

8. A copy of lease agreements with workers.

9. A copy of any evidence of payments to the workers.

10. A copy of interview notes.

11. A copy of relevant client contracts.

(5) Since income tax case files often are separated from employment tax cases, it is imperative that all documents and information in any related income tax file that are relevant to the employment tax case be duplicated and placed in the employment tax file.

(1) All appropriate penalties must be asserted and computed correctly.

(2) The penalty lead sheet must comment on the assertion or non-assertion of applicable penalties, including reasonable cause situations.

(3) The case file must include a copy of the group manager's written approval for the assertion of any penalty other than failure to file (FTF) and failure to pay (FTP). If the case file does not contain the written approval, the reviewer will secure such written approval prior to issuing the Letter 3523.

(4) A complete discussion regarding penalties for employment tax cases can be found in IRM 4.23.9, Employment Tax Penalty and Fraud Procedures.

(1) Employment tax examiners have specialized software to prepare the reports for employment tax examinations. If errors are found in the employment tax reports, the reviewer may need to coordinate with the examiner to secure revised reports.

(2) If the reviewer needs to secure revised reports from the examiner, the reviewer may want to request the electronic files (Excel, Word, Adobe, etc.) used by the examiner to generate the reports. However, a disk with the examiner's workpapers and report must be included with the case file. This will allow the reviewer to make any minor corrections, such as minimal rounding corrections, that may be necessary to ensure all reports reconcile.

(3) The reviewer must ensure the report reflects the correct amount of adjustments, which agree with the lead sheet and supporting workpapers. For more details on determining the correct amount of employment tax liability, refer to IRM 4.23.8.

(4) IRC 3509 rates apply only to worker classification adjustments that would be set forth in Tables 1 and 3 of the Letter 3523. IRC 3509 rates are not applicable in IRC 7436 wage adjustments cases and the rates must not be used to determine the adjustments set forth in Tables 2 and 4. See IRM 4.23.5.2.1, Classification of Employment Tax Issues, for guidance on when employment tax issues are considered wage or worker classification issues. Also, see IRM 4.23.5.2, IRC 7436 Issues, for guidance on when issues are considered IRC 7436 issues.

(1) Reviewers must ensure procedural items are properly completed by the examiner:

1. Form 5344, Examination Closing Record, must be properly completed and attached to the appropriate returns. See IRM 4.8.10.4.6.1 below for additional details on Form 5344.

2. Form 3198, Special Handling Notice for Examination Case Processing, is properly attached to the case folder and appropriately marked as an employment tax case.

3. Form 9984, Examining Officer's Activity Record, is properly completed and documents all activity, including actions taken by the reviewer.

4. A 30 day letter was issued and suspended at the group level to allow the taxpayer time to file an adequate protest, if sufficient time remained on the period of limitations.

   Note: Letter 5153 must be used by examiners to transmit the report to the taxpayer for unagreed cases that do not have sufficient time on the ASED to go to Appeals.

5. For non-filer cases, the file includes Form 13496-A, IRC Section 6020(b) Certifications for Employment Tax Returns, and appropriate attachments for each substitute for return (SFR) period. If the reviewer makes any changes to the proposed adjustments report, the reviewer must complete a new IRC 6020(b) package and sign a new Form 13496. See IRM 4.23.12.3.3(3), IRC 6020(b) Procedures for SFR Employment Tax Cases.

6. For cases involving both IRC 7436 and non-IRC 7436 issues in which the taxpayer did not file a protest or is not eligible for Appeals for the non-IRC 7436 issues, a partial assessment was processed by the examiner prior to forwarding the case to Technical Services for issuance of the Letter 3523 for the IRC 7436 issues.

(2) Ensure classification settlement program (IRM 4.23.6, Classification Settlement Program (CSP)), was offered, if applicable. CSP is only available in certain worker classification cases, and is not available in IRC 7436 wage adjustment cases. CSP offers must be made in all worker classification cases where timely Forms 1099 were filed, unless one of the exclusions in IRM 4.23.6.8, Cases Excluded from CSP, is applicable. All worker classification cases must:

• Comment on CSP (including a statement in the workpapers that CSP was considered)

• Comment on whether or not an offer was made

• Comment on what type of offer was made, if any, and why

(3) If a taxpayer is eligible, CSP offers must be made prior to issuing a Letter 3523. If a CSP was not offered, the reviewer must contact the examiner to determine the reason why. If appropriate, the examiner must be requested to contact the taxpayer and offer the CSP.

(1) Reviewers must ensure the taxpayer's rights have been protected by considering:

1. Power of attorney (POA) requirements,

2. Confidential privileges - Accountant/client privilege,

3. Notification of Appeal rights,

4. Consideration of collectibility,

5. Confidentiality of taxpayer information/privacy requirements,

6. Unauthorized access (UNAX) requirements, and

7. Third-party contact requirements.

8. Taxpayer Bill of Rights

(2) Reviewers must also ensure that the case is transferred to Appeals if a protest was received. If a taxpayer files a timely protest, the case must be sent to Appeals before a Letter 3523 is issued unless the taxpayer is not eligible for Appeals.

(1) The taxpayer's name and address appear on the first page of the Letter 3523. It is extremely important that the taxpayer is correctly identified.

(2) For corporations, use the name of the corporation as shown on the corporate seal. If unavailable, use the name shown on the tax return. In corporate reorganizations, include both the current and the former name. Similarly, if the corporation changed its name since filing the return, identify the corporation on the letter, schedules and attachments as "ABC Corporation, formerly known as XYZ Corporation."

(3) For sole proprietorships, use the "doing business as" name, if applicable, as well as the individual's name.

(4) For disregarded entities (e.g., single member LLC filing on Schedule C), use the business name.

(5) When in doubt, use the IDRS command code BMFOLE and/or NAMEE(S) for the business TIN for verification.

(1) The mailing address for the Letter 3523 must be the taxpayer's last known address.

(1) Letter 3523 is the notice used in employment tax cases involving IRC 7436 issues. The most current version of the letter must be used.

(2) IRM 4.23.22.11.1 requires the group examiner to prepare and include a list of workers for use in Table 1 and/or Table 2 of Letter 3523. Table 1 of the Letter 3523 lists reclassified workers by job description or category. Table 2 lists workers who were treated as employees by the employer/taxpayer for whom additional wages was paid. Additionally, the examiner will prepare a draft copy of Table 3 and/or Table 4 to assist the reviewer in preparation of Letter 3523. Tables 3 and 4 contain the adjustments and the penalties related to the workers listed in Tables 1 and 2, respectively. The reviewer will prepare the final Letter 3523 based on the information for the tables included by the examiner.

(3) The reviewer must not date the Letter 3523 letter. The date will be added when the Letter 3523 is issued.

(4) The Letter 3523 must include the name, telephone number, and the unique identifying number of the person to contact.

(5) The "Last Date to Petition Tax Court" date must not be inserted by the reviewer. This date will be added when the Letter 3523 is issued.

(6) The Letter 3523 must advise taxpayers of their right to contact the local office of the Taxpayer Advocate and must provide the location and telephone number of the appropriate office. Section 11 of Pub 3953, Questions and Answers About Tax Court and the Notice of Employment Tax Determination Under IRC Section 7436, fulfills this purpose.

(1) Form 2504-T, Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment (Employment Tax Adjustments Subject to IRC 7436), must be included as an attachment to Letter 3523 to provide taxpayers with an opportunity to agree to the proposed employment tax adjustment administratively.

(2) Form 2504-T contains the statement that allows taxpayers to waive restrictions on assessments under IRC 7436(d) and IRC 6213(a).

(3) Form 2504-T must contain the following:

• Name, address, and EIN of the taxpayer exactly as they appear on the Letter 3523.

• Summary of the employment tax liability carried over from Form 4666.

• Entries for Form 940, Form 941, Form 943, and Form 944 are placed on separate lines. Only entries for additional tax and penalties are shown.

(4) The "Kind of Tax" and "Internal Revenue Code Section" are completed as follows:

1. Form 940 - FUTA IRC 3301

2. Form 941 - FICA and Federal Income Tax Withholding (FITW)IRC 3101, IRC 3111, and IRC 3402

3. Form 943

4. Form 944

(1) The amount of wages paid to reclassified employees and/or IRC 7436 wage issue adjustments and the corresponding employment taxes must be clearly and consistently stated.

(2) The Letter 3523 includes three computation statements (i.e., reports):

1. Form 4666, Summary of Employment Tax Examination,

2. Form 4667, Examination Changes - Federal Unemployment Tax, and

3. Form 4668, Employment Tax Examination Changes Report.

(3) Generally, all three reports will be included with the Letter 3523. These reports are prepared by the examiner and included in the case file before the case closes from the group. If no changes are needed, it is not necessary to prepare new reports.

(1) As noted previously, the Tax Court has jurisdiction to:

1. Review the Service's determination that one or more individuals performing services for the taxpayer are employees,

2. Review the Service's determination that the taxpayer is not entitled to relief under section 530(a) of the Revenue Act of 1978 with respect to those individuals, and

3. Determine the proper amount of employment tax under the above determinations.

(2) The 30 day letter must contain an explanation of the IRC 7436 issues and the consideration of section 530(a) relief. The Form 886-A (or equivalent) used for the explanation with the 30 day letter must not be included with Letter 3523.

(1) "Duplicate original" Letter 3523, a term used through this text, means an originally signed Letter 3523, that is sent by certified or registered mail. The "duplicate" Letter 3523 may reflect a different address for the taxpayer than the original Letter 3523.

(2) The Letter 3523 and Form 2504-T (waiver) must show the same name and address and thus, both of these will be originally prepared for each duplicate original. All other forms and attachments may be copies.

(1) The cases subject to mandatory Counsel review are as follows:

1. Burden of proof - Where the Service will have the burden of proof regarding any issue contained in Letter 3523, such as asserting the civil fraud penalty under IRC 6663 or the fraudulent failure to file penalty under IRC 6651(f).

2. 530 reasonable basis - Where the taxpayer has met the substantive and reporting consistency requirements of section 530 of the Revenue Act of 1978 ("section 530"), and the disagreement revolves around whether the taxpayer has a reasonable basis.

3. Predecessor/successor - Where the case involves treatment of workers as employees by a predecessor organization and that treatment is being imputed to the current taxpayer as its successor for section 530 purposes.

4. $1,000,000 - Where the proposed amount of employment taxes plus penalties total $1,000,000 or more for all periods combined.

5. Three party arrangements - Where the case involves a three party arrangement in which workers provide services to one party but are paid by another, regardless of which entity is receiving the notice. Temporary employment agencies and professional employer organizations (PEOs) are common examples of this arrangement. While these cases may be difficult to identify upon review of draft notice, often the taxpayer's name (or the third party's name in the case where the notice is being sent to the client but the file indicates a third party arrangement was involved) will include the word "leasing," "staffing," "personnel," or "temporary."

6. Partnerships - Where the case involves reclassifying workers the taxpayer treated as partners in a partnership, including a limited liability company (LLC).

7. Criminal - Where the civil case is related to a criminal case.

8. International - Where the case involves workers performing services outside of the United States or where Letter 3523 is issued to a taxpayer not located in the United States.

9. Governments - Where Letter 3523 will be issued to a taxpayer that is a government entity, including an indian tribal government.

10. Projects - Where Letter 3523 is issued as part of a project, including any project with an Issue Management Team (IMT) or Emerging Issue Team project. For example, notices issued as part of the Offshore Employee Leasing (OEL) IMT project.

(1) As it relates to Technical Services, the Technical Services Territory Manager (TSTM) is delegated to sign and issue a Letter 3523. The TSTM may further delegate this authority to specific individuals within his/her functional area. This is accomplished by way of memorandum, which must be updated periodically for changes in staffing.

(2) Delegation Order 4–26 in IRM 1.2.43.24, Delegation Order 4-26 (formerly DO-251), delegates authority to sign Letter 3523 to other Service officials.

(3) Delegated individuals may sign Letter 3523 in any of the following ways:

1. Manually sign the name of the specified official followed by the initials of the delegated signing official.

2. Imprint the specified official's signature using a signature stamp followed by the initials of the delegated signing official.

3. Add the initials of the delegated signing official to the machine-imprinted, specified official's signature.

4. The specified official may personally sign or imprint his/her signature and title using a signature stamp.

5. For Letters 3523 produced at correspondence production services print sites, imprint the specified official's signature and title using a machine-imprinting process.

   Note: "Signing official" must always be a delegated official pursuant to Delegation Order 4-26. "Specified official" must always be a delegated official pursuant to Delegation Order 4-26 but may, and generally would be, above the organizational level of the "signing official". The "specified official's signature" is the signature of the individual designated by the particular function (e.g., TSTM), which is issuing Letter 3523, by having his/her signature reflected on Letter 3523 as the issuing official.

(4) Signature stamps are locally procured with only the delegated officials having access. Proper security procedures must be used to prevent unauthorized use.

(1) Two dates are included on the Letter 3523:

1. The date the letter is issued - This is the same date the letter is mailed to the taxpayer. See IRM 4.8.10.8.2, Records of Mailing, below.

2. The last date to petition Tax Court - This date is 90 days after the notice is issued (150 days if the taxpayer is located outside the United States). See Exhibit 4.8.10-1 for details of how to compute this date.

(2) The reviewer preparing Letter 3523 does not complete either of these dates. Both are completed by the person who mails Letter 3523.

(1) If a Form 2848, Power of Attorney and Declaration of Representative, is received by Technical Services, the reviewer must check the representative's status as described in IRM 4.11.55.1.2.2, POA Not Authorized to Practice Before the IRS.

(2) If a taxpayer is represented by a duly authorized power of attorney, a copy of Letter 3523 mailed to the taxpayer will be sent to the representative by regular mail. Letter 937, Transmittal for Power of Attorney, is used as the cover letter to transmit the copy of Letter 3523. The enclosure section of the letter must indicate Letter 3523.

(3) If the power of attorney does not cover all periods in Letter 3523, Letter 3523 must not be sent to the representative. Instead, Letter 4368-A, Statutory Notice Not Sent to Representative - Tax Periods Not Specified - Employment Tax, must be included with the taxpayer's Letter 3523. Letter 4368-A advises the taxpayer why a copy of Letter 3523 was not sent to the representative identified on Form 2848. If Form 2848 does not include all periods and a subsequent Form 2848 is submitted by the representative, the subsequent form must be signed by the taxpayer.

(4) Document the case activity record (Form 9984 or equivalent) for any actions taken regarding the power of attorney that may appear to be in conflict with the Form 2848 instructions, including but not limited to:

• If a copy of Letter 3523 is not sent to the representative because the Form 2848 does not cover all years included in the notice.

• If a copy (not the original) of Letter 3523 is sent to the representative but the Form 2848 (pre-March 2004 revision) specifies the original is to be sent to the representative.

(1) Each Technical Services Territory Manager must maintain a record of the dates the notices were mailed since:

• The validity of Letter 3523 could be challenged by the taxpayer.

• If the Letter 3523 is sent by certified or registered mail, the Tax Court does not have jurisdiction over a case in which the taxpayer files a petition after the 90th day (150th day, if the Letter 3523 is addressed to a taxpayer outside the United States) or, if later, the date shown on Letter 3523 as the last day to file the petition.

• The Commissioner has the burden of proof in establishing the date of mailing of the Letter 3523.

(2) The record of certified and registered mailing is maintained on PS Form 3877, Firm Mailing Book for Accountable Mail, together with the certified/registered mail numbers, which are supplied by the United States Postal Service.

1. Across the first line of each form, type the following or use a stamp to imprint: "Letter 3523, for the tax periods indicated, have been sent to the following taxpayers:"

2. The certified/registered mail number is entered along with the name and address of the addressee. Multiple addresses are entered separately.

3. In the "Remarks" column, enter the tax periods to which the notice is applicable.

4. The designated employee will stamp the front of the notice envelope with:
   Certified Mail No.
   Or
   Registered Mail No.
   

5. The certified/registered number will be entered next to the stamp on the envelope.

6. The notices and the PS Form 3877 are taken to the Post Office. The Post Office employee will compare the count and numbers used with the envelope notices.

7. The Service employee will indicate delivery to the Post Office by signing and dating PS Form 3877 as part of the permanent record of mailing. The Post Office employee will insert the postmark on the PS Form 3877.

8. The receipted forms will be numbered consecutively and retained in separate folders for a period of 10 years. These receipted forms are kept with the receipted forms for statutory notices of deficiency but must never be commingled with any other mailing records.

(1) If Letter 3523 is incorrectly addressed and/or mailed:

1. The taxpayer may raise a challenge that Letter 3523 does not conform with statutory requirements.

2. Letter 3523 may be held to be invalid if not mailed to the last known address or if it is not mailed by certified or registered mail, as required. Furthermore, Letter 3523 that is mailed outside the United States by certified mail rather than registered mail may also be held to be invalid.

3. If Letter 3523 is invalid and the ASED has expired so that no valid Letter 3523 can be issued, any assessment based on Letter 3523 cannot be made and, if made, must be abated.

(1) Upon issuance of Letter 3523, a case is updated to Status Code 24 and the period of limitations is recomputed to reflect the maximum tack on time permitted by law for assessment (i.e., as if the notice defaults - 90 or 150 days, plus 60 days for processing). Generally, Exhibit 4.8.10-2, Defaulted 90 Day Letter Without Form 872-A or SS-10 Consent, should be used as a guide to recompute the assessment period of limitations. Form 5348 should be prepared to update the recomputed ASED.

(2) If an agreement is received before the end of the 90 Day (150 Day) period, the ASED should be recomputed a second time. Agreed cases should be a high priority item and closed as soon as possible to avoid having a barred ASED. Exhibit 4.8.10-2, Agreement Cases with/without Form 872 or SS-10 Consent, (whichever is applicable) should be used as guidance to recompute the final ASED. Form 5348 should be prepared to update the recomputed ASED.

(3) If a case is petitioned, the ASED should remain as the updated ASED noted in paragraph 1 above. Under no circumstances will the ASED for a petitioned case be updated back to the original ASED.

(1) The Statute Expiration Reports in ERCS allows the user to print statute expiration notices and create reports to check for pending statutes. Two reports included within the Statute Expiration Reports are:

1. Pending Statute Report - Returns are included on this report if the ASED expires within the user entered number of days.

2. 895 Report - Returns are included on this report if the ASED expires within the specific number of days set by SB/SE or LB&I. For Technical Services users, the number of days must be in the range 180 to 400. The same number is used in determining if a Form 895 should be generated.

(2) The Pending Statute Report lists returns with numeric ASED expiration date falling within a variable number of days as entered by the user. This report is useful in calling attention to returns with short ASEDs and determining if a Form 895 should be issued. The report also has a section containing a summary of employees with returns with short statutes.

(3) The 895 Report generates a listing of returns in review statuses which meet any of the following criteria:

• The ASED date expires within the number of days determined by the area office or by LB&I,

• The ASED date is an alpha date (e.g. 04CC2009),

• The ASED date is a Form 872-A, Special Consent to Extend the Time to Assess Tax,

• The ASED date has already expired, or

• A Form 895 has been issued for the return.

(4) Technical Services should review the Pending Statute Report on a weekly basis during peak times (January through April) and bi-weekly during the rest of the year. Suspense personnel should ensure that all cases with Letters 3523 are properly in Status Code 24 and have updated ASEDs, as previously discussed.

(5) Identify and monitor as a "Statute Case" as follows:

(1) While the case is in suspense, the taxpayer may:

1. Make telephone contact

2. Send in correspondence

3. Submit additional information

4. Request reconsideration

5. Appear in person for further discussion

(2) Any communication with the taxpayer regarding Letter 3523 must clearly state that reconsideration of the case will in no way serve to suspend or extend the 90 day or 150 day period in which a petition may be filed with the United States Tax Court.

(3) If the taxpayer's representative calls or comes in to discuss the taxpayer's account, a valid Power of Attorney (POA) or Tax Information Authorization must be in the file or no information may be furnished. A request may be made to the taxpayer to obtain a completed POA. Without a POA on file, a general explanation of Letter 3523 procedures may be provided.

(4) It is imperative that all contacts with the taxpayer or power of attorney be documented on the reviewer's activity record.

(1) Review the AIMS Weekly Update Report for possible address changes. Codes 18 and 19 show new addresses updated to Master File.

(2) Request CFOL and IDRS research on both the business TIN and the individual SSN (for unincorporated businesses) using command codes INOLES, SPARQ, IRPTRO, BMFOLE/IMFOLE, ENMODA, and TELER (taxpayer's telephone number) to call the taxpayer to obtain a corrected address.

(3) Contact Collection (Insolvency function) if the taxpayer is in bankruptcy.

(1) If a new address is obtained that was changed on IDRS prior to the issuance of the original Letter 3523 and there is sufficient time remaining on the regular ASED, Letter 3523 must be reissued by certified or registered mail. The period in which the taxpayer may petition the Tax Court starts with the date the new Letter 3523 is mailed.

(2) If a new address is obtained that was changed on IDRS subsequent to the issuance of the original Letter 3523, Letter 3523 must be re-mailed.

1. The envelope in which the letter was originally mailed and Letter 3523 itself must be closed with the case file.

2. The envelope, letter, and research performed will be part of Letter 3523. This documentation will establish that the Service complied with the law and mailed the notice by certified or registered mail to the taxpayer's last known address.

(1) The address on Master File will be considered the taxpayer's last known address if the taxpayer cannot be located or a new address is not provided or verified by the taxpayer. If research shows no later address, the envelope in which Letter 3523 was originally mailed and Letter 3523 will be securely stapled in the taxpayer's file as evidence that the Letter 3523 was sent by certified or registered mail to the taxpayer's last known address. However, the case must not be defaulted until the 105 day or 165 day suspense period has ended.

(1) If the taxpayer in a non-filer case provides a completed tax return after Letter 3523 is issued, treat the return as "substantial documentation" and follow normal examination reconsideration procedures. This applies whether or not an assessment has been made (TC 290 or 300), unless a petition has been filed with the Tax Court.

(2) If a petition has been filed with the Tax Court, the delinquent return will be transmitted to the appropriate Appeals Office that serves the Area making the determination of the tax liability.

(3) The period of limitations must be updated to correctly reflect the receipt of the delinquent return.

(1) Occasionally, the taxpayer or representative mails a petition to the IRS, specifically to the office that issued Letter 3523 (e.g., Technical Services), rather than to the U.S. Tax Court.

(2) If the petition is received before the expiration of the 90 day (150 day) period, the petition must be mailed by Technical Services to the Tax Court using regular mail that is postmarked on or before the 90 day period expires. The petition must be sent under cover of transmittal Letter 4370-A, Petition Transmittal to the US Tax Court, to the Tax Court. The taxpayer must be sent Letter 4371-A, Petition Forwarded to the Tax Court, to inform him/her the petition was forwarded.

(3) If Technical Services receives the petition past the 90 day (150 day) period (even if the petitioner's envelope is postmarked before the 90th or 150th day) or it cannot be postmarked by the IRS prior to the expiration of the 90 day (150 day) period, Technical Services will return the petition to the taxpayer indicating that the document was mistakenly mailed to the wrong address. Letter 4372-A, Petition Returned to the Taxpayer, is used for this purpose.

(4) Technical Services must not forward a petition to the Tax Court if the 90 day (150 day) period has already expired.

(1) The United States Tax Court requires the filing of an "answer" by the Commissioner of Internal Revenue in response to petitions in all docketed cases.

(2) Employees responsible for monitoring the docket list must be aware of and take all necessary actions to ensure Counsel receives docketed case files with sufficient time remaining to meet the due date established by the U.S. Tax Court to answer the petition.

(3) The "answer due date", or the time within which the petition must be answered, is set by the Tax Court at sixty (60) days from the date the petition is served on the IRS. The answer due date for small tax case petitions is the same as it is for regular tax case petitions.

(4) Counsel needs time to prepare its answer, therefore Appeals must ensure the cases are received in Counsel no later than twenty (20) days prior to the answer due date.

(5) In order to meet these time frames, it is imperative that Technical Services employees timely identify, locate and process petitioned cases to the appropriate Appeals office.

(1) The docket list is a list of cases docketed by the U.S. Tax Court.

(2) Once a petition is received by the Tax Court, it is given a number, processed and then served on the IRS.

(1) Technical Services Notice Suspense Unit personnel are expected to use the DIMS generated docket list to pull up docketed case lists in numerical (and consequently, chronological) order. DIMS is the preferred method because users can sort the list so that it contains only the cases they control or need to locate. This, in turn, reduces the overall time needed to identify petitioned taxpayers.

1. While the use of DIMS is required, Technical Services personnel may also use the hardcopy docket list and/or the Tax Court website.

2. Using multiple methods to identify petitioned taxpayers increases Technical Services' ability to identify all petitioned cases. This helps prevent the need to re-establish prematurely closed cases where Technical Services was notified of the petitions after the cases defaulted.

(2) Upon retrieval, the docket list will be date stamped.

(3) Determine the taxpayer(s) who have filed petitions. Perform research on all taxpayers containing the unique office code, as well as those with "unknown" office codes.

(4) The "unknown" cases are taxpayers without a pre-determined Area office code. Research should be conducted to determine which office these taxpayers are assigned to.

(5) Within ten (10) calendar days of receiving the docket list, the cases must be located, processed for closing and transmitted through Technical Services to the Office of Appeals.

1. Notice Suspense Unit personnel will locate the case file, close out all controls, and forward the case file to the appropriate office. The docket list will be annotated to indicate the specific action taken on the case and the date.

2. If a case has been transferred to another area, notify that area or the transfer, and give them the date the petition was filed, the name of the petitioner, and the year(s) involved. A copy of the docket list page identifying the taxpayer and the tax year(s) should be forwarded to the area where the case was transferred.

3. If it is determined that the case is physically located in another area or campus, telephone the office having physical possession of the case to inform them that the taxpayer has petitioned the Tax Court. The docket list number and petition date must be provided.

(6) After closing the case, it must be forwarded immediately to Appeals (hand carried whenever possible) to obtain immediate acknowledgement of the transmittal, via Form 3210.

(7) At the end of each month, the Form 3210 tickler file will be reviewed and follow-up actions must be taken on any Form 3210 for which Part 4 has been outstanding for 30 days or more. This is done to determine whether the cases were received by Appeals and/or to determine why Part 4s were not returned.

(8) When the Appeals acknowledgment copy is received, destroy the tickler file copy and replace it with the Appeals acknowledgment copy. The Appeals acknowledgment copy will be kept for one year from the date of receipt.

(1) If the case cannot be physically located within three days of receipt of the docket list, prepare Form 5348, AIMS/ERCS Update (Examination Update), to input Freeze Code "Q" on AIMS. Any area attempting to update the status of the "Q" freeze coded case will forward the case to Technical Services' suspense file area upon notification of the freeze code. When the case is located, reverse the "Q" freeze code via a Form 5348.

(1) Occasionally, a case appearing on the docket list has already been defaulted, tax assessed and closed out to the Campus file area. AIMS research will indicate Status Code 90. If this occurs, Technical Services is responsible for preparing Form 3177, Notice of Action for Entry on Master File, to input CC STAUP (15 cycles) to prevent the issuance of balance due notices to the taxpayer.

(2) When a docketed case that is in AIMS Status Code 90 is identified, a current printout of a full AMDISA or TXMOD must be secured. This printout will be attached to a copy of the appropriate page of the docket list and will be forwarded to Appeals via Form 3210. Appeals will also be notified that the STAUP has been input to stop the notices. APPEALS WILL BE RESPONSIBLE FOR MONITORING THE STAUP TO INCREASE/DECREASE THE NOTICE SUPPRESSION TIME FRAME AND FOR RETRIEVAL OF THE CASE FILE FROM CAMPUS.

(3) Examination must build a file that will include:

1. Full AMDISA and TXMOD prints of all docketed tax periods;

2. A copy of the page in the docket list identifying the taxpayer, tax periods, docket number and Appeals Office;

3. Photocopy of the closed control card showing the date Letter 3523 was issued; and

4. Form 5348 requesting CC AMSTUR, Status Code 24.

(4) If no data is available, the file will include:

1. TXMOD and/or MFTRA print of the docketed tax periods which verify the TIN and reflects an examination closure,

2. Record of CC AM 424 request to create an AIMS database, and

3. A copy of the page on the docket list identifying the taxpayer, tax periods, docket number, and Appeals Office.

(5) The file will be sent to the closing function for suspense until 40 days before the Status Code 90 date.

(6) At the end of the 40-day period, the closing function will:

1. Re-establish the case using Form 5348, CC AMSTUR,

2. Prepare Form 5344, Examination Closing Record, to close the return to Appeals. Since the examination results contain the now unagreed to assessment, an amount of $1 must be entered in Item 18 to prevent a duplication of examination results.

3. Route the AIMS print, verifying Appeals status, to Appeals for association with the file.

4. APPEALS WILL REQUEST ABATEMENT OF THE ASSESSMENT.