5.1.15. Abatements, Reconsiderations and Adjustments

(1) A taxpayer may request abatement of tax, penalty and interest providing certain criteria for each are met.

(2) A reconsideration is when a taxpayer submits information not previously considered after the issuance of a final determination. The information must be different than what was previously considered.

(3) An adjustment is an action taken on a tax module requested by a revenue officer to correct the tax module using IDRS.

(1) According to the Code and Regulations, the IRS has the authority to abate tax or any liability in respect thereof (which would include penalties and interest).

(2) Code - The IRS's general abatement authority is found in IRC 6404(a). It provides:

1. The Secretary is authorized to abate the unpaid portion of the assessment of any tax or any liability in respect thereof, which is excessive in amount, or is assessed after the expiration of the period of limitation properly applicable thereto, or is erroneously or illegally assessed.

(3) Regulations - Treasury Regulation 301.6404–1 provides (in part):

1. The district [area] director or the director of the regional service center [servicing campus] may abate any assessment, or unpaid portion thereof, if the assessment is in excess of the correct tax liability, if the assessment is made subsequent to the expiration of the period of limitations applicable thereto, or if the assessment has been erroneously or illegally made.

2. No claim for abatement may be filed with respect to income, estate, or gift tax.

3. Except in case of income, estate, or gift tax, if more than the correct amount of tax, interest, additional amount, addition to the tax, or assessable penalty is assessed but not paid to the district [area] director, the person against whom the assessment is made may file a claim for abatement of such over assessment. Each claim for abatement under this section shall be made on Form 843, Claim for Refund and Request for Abatement.

4. The Commissioner may issue uniform instructions to district [area] directors authorizing them, to the extent permitted in such instructions, to abate amounts the collection of which is not warranted because of the administration and collection costs.

(1) The Director, Collection Policy is responsible for providing guidance in routing requests for abatements, reconsiderations and adjustments.

(2) The Director, Field Collection is responsible for overseeing the proper application of the policies and procedures established.

(3) Field Collection employees are responsible for securing accurate and sufficient documentation to satisfy and support abatement, reconsideration and adjustment requests and for proper routing of their requested actions.

(4) The Internal Revenue Code provides taxpayers specific rights. The Taxpayer Bill of Rights (TBOR) groups these rights into ten (10) fundamental rights, which provide the nation’s taxpayers with a better understanding of their rights and helps reinforce the fairness of the tax system. In 2015, Congress charged the Commissioner with ensuring IRS employees are familiar with and act in accord with the taxpayer rights as afforded by the Code.  IRS employees must be informed about taxpayer rights and be conscientious in the performance of their duties to honor, respect and effectively communicate those rights which may aid in reducing taxpayer burden. For additional information, see IRM 1.2.1.2.36, Policy Statement 1-236, Fairness and Integrity in Enforcement Selection, Pub 1, Your Rights As A Taxpayer, IRC 7803(a)(3), or the TBOR found at: https://www.irs.gov/taxpayer-bill-of-rights.

(1) The table below lists common acronyms used in this section:

(1) For Audit, IMF/BMF-AUR, and SFR/ASFR reconsiderations, always :

1. Consider cross-compliance and, if necessary, bring any noncompliant taxpayer into compliance. If IMF and a joint assessment, check secondary SSN for compliance.

2. Secure levy sources for future collection.

3. Suspend collection only on the amount being considered for an adjustment.

4. Advise the taxpayer that failure to respond or cooperate with the examiner working the adjustment case will result in the case being returned to Collection to resume collection action. No further consideration will then be given to the reconsideration request until the tax is paid in full.

5. Document case history and proceed with appropriate collection actions.

6. If the adjustment results in Status 12, there is no open Del Ret and the collection investigation on the taxpayer entity is concluded, the RO is required to send case closing Letter 4222, Notice of Case Resolution, to the taxpayer and/or power of attorney. If there is a POA record in good standing on the module, a POA copy of the letter along with Letter 937 will print. Letter 4222 will generate systemically on ICS. When generated systemically, a systemic history will be written. If managerial approval is required, when the manager selects the approval button, the Print Manager will open which includes the option on ICS to allow the manager to print the case closing letter or e-mail it to the initiator of the request for them to print and mail.

7. Insert your group manager's e-mail address in Item 14 of Form 3870 to facilitate contact by campus employees. Managerial approval is not required unless requesting penalty abatement due to reasonable cause. An exception is audit reconsiderations that must be approved by Exam.

(2) Form 3870 criteria required for processing all reconsideration requests:

(3) Include the taxpayer's full address and daytime phone number in Item 2. Include your name, e-mail address, work telephone number, fax number, and date in Item 13, to facilitate contact by campus employees. Sign in Item 13 "Signature of Preparer."

(1) Taxpayers may request a reconsideration to provide correct or additional information to dispute assessments.

(1) Reconsideration procedures do not apply in the following situations:

1. The taxpayer paid the liability in full and submitted a claim for refund. Claims are submitted by the taxpayer on Form 843, Claim For Refund and Request for Abatement, and are worked by the appropriate campus. See instructions for Form 843 for appropriate use of claims.

2. Requests for abatement of interest for ministerial or managerial delay under IRC 6404(e)(1), Abatement of Interest Attributable to Unreasonable Errors and Delays by Internal Revenue Service, are processed according to procedures found in IRM 20.2.7, Interest, Abatement and Suspension of Debit Interest. See IRM 5.1.15.16.3, Interest Abatement, for additional information.

3. Restitution-based assessments (RBA) made on MFT 31 with AC 102, cannot be reduced or abated without a court order. This includes penalties and interest. Only certain Civil Enforcement Advice and Support Operations (CEASO) employees have the authority to reduce an assessment. See http://mysbse.web.irs.gov/collection/aiqorg/contacts/19176.aspx for CEASO contact information.

(1) Revenue officers have discretionary authority to reject a taxpayer's request for reconsideration.

(2) There are three basic reasons you can reject the taxpayer's request for reconsideration. Rejection is appropriate when the request includes returns that are:

1. Unsigned,

2. Frivolous, or

3. Filed after the assessment or refund statute expiration date.

Note: IRS can consider a reconsideration request that will result in an adjustment of the tax due, even after the ASED and RSED have expired. See IRM 25.6.1.9, Assessments and IRC 6501 for Assessment Statute Expiration Date (ASED). See IRM 25.6.1.10, Claims, Abatements, and Refunds, and IRC 6511 for Refund Statute Expiration Date (RSED).

Note: For taxpayers who are absent from the United States for a continuous period of at least six months, see IRC 6503(c). This may be applicable regarding the extension of the collection statute.

(3) The taxpayers' request for reconsideration can be rejected if they do not provide any new, pertinent information.

1. This reason does not apply to an original return filed to correct an SFR/ASFR assessment.

   Note: The IRS will accept a signed Form 1040-X, Amended U.S. Individual Tax Return, to amend the Form 1040, U.S. Individual Income Tax Return, filed by the IRS during SFR/ASFR processing as the taxpayer's original return if it is complete, with all required schedules attached.

2. The taxpayer must refute the rationale for a tax assessment based on an audit assessment or IMF/BMF AUR adjustment by providing new information for the examiner to consider. The amended return (or other written statement requesting reconsideration) must address the audit determination or the income/deduction issue(s) that generated the IMF/BMF AUR adjustment. If new information is not provided, you can reject the reconsideration request and proceed with collection action.

3. If it is unclear whether the return or other written statement provides new information for the examiner to consider, then annotate that fact on Form 3870 and forward for processing.

(4) Forward frivolous returns to the Frivolous Return Program (FRP). Frivolous filers are taxpayers that file non-processable returns based on arguments not supported by tax law. See IRM 5.1.11.5.3, Frivolous Non-filers.

(5) Check applicable assessment and refund statutes of limitations before accepting signed, non-frivolous returns. See IRM 25.6.1, Statute of Limitations Processes and Procedures, and IRC 6503(c), Suspension of running of period of limitation.

1. The filing of a SFR/ASFR return by the IRS does not start the running of the period of limitations for assessment or collection (ASED/CSED). The assessment based on such a return does start the running of the statute of limitations for collection purposes. See IRM 25.6.1.9.4.5, Substitute for Return (SFR), for the applicable period of limitations for assessment and collection.

2. If the IRS has prepared SFR/ASFRs for both spouses, the three-year time limit in IRC 6013(b)(2), Joint returns of income tax by husband and wife, is not applicable and the taxpayers can file a joint return at any time. If, however, one of the spouses filed a MFS return, the joint return must be filed within three years from the due date of the return for that year (excluding extensions).

Note: Married taxpayers who have filed previously and reported their income for any particular year on separate returns, can nonetheless file a joint return for that year so long as they do so within the time limits specified in IRC 6013(b)(2). Under 6013(b)(2)(A), taxpayers cannot switch from separate to joint more than three years after the due date of the return for that year (excluding extensions).

3. Accept an amended return (or other written statement requesting reconsideration) for Audit or IMF/BMF AUR reconsideration processing only if it provides new, pertinent information for the examiner to consider. Generally, to claim a refund, an amended return must be received within three years after the date the taxpayer filed the original return or within two years after the date the taxpayer paid the tax, whichever is later. See IRC 6511, Limitations on Credit or Refunds, for additional information.

(6) Notify the taxpayer of your decision to reject the request. The taxpayer has the right to raise an objection and provide additional documentation. If the taxpayer requested reconsideration orally, you can reply orally but should follow-up with a written communication. If the request was in writing, reply in writing. In either case, document the history.

(7) Document case history on ICS and proceed with normal collection actions to resolve any remaining balance.

(1) Audit reconsiderations are requests to reevaluate the results of an audit assessment when a taxpayer disagrees with the original audit determination and the additional tax has not been full paid. If the tax has been full paid, then it is a claim.

(2) An audit assessment is identified on IDRS command code (CC) TXMOD by Transaction Code (TC) 420, indicating an audit assignment, followed by a TC 300 assessment.

(3) If the assessment is a result of an audit of a previously filed return:

• Inform the taxpayer that he or she can only request a reconsideration when new information is now available that was absent in the original audit. If they have new information, inform the taxpayer to submit the information with a written request for audit reconsideration.

• Provide the taxpayer with Publication 3598, What You Should Know About the Audit Reconsideration Process.

• Advise the taxpayer that, if possible, the reconsideration will be worked by the function which previously performed the audit. If that is no longer possible, the audit reconsideration will be processed by the campus currently working the type of program on which the original audit was based.

(4) In addition to the steps in IRM 5.1.15.3.1, Reconsiderations - General Procedures - Audit, Automated Underreporter (IMF/BMF AUR), Substitute For Return (SFR) and Automated Substitute For Return (ASFR) and IRM 5.1.15.3.2, Criteria for Reconsideration Request, follow the steps in the table below for Form 3870 Audit Reconsideration requests:

(1) Automated Underreporter (AUR) is an automated analysis and processing of potential underreported (UR) and/or over-reported (O/R) discrepancies identified through information return (IR) matching. AUR matches information returns against individual income tax returns to verify that income is reported and deductions are taken correctly.

(2) The two primary sources of AUR cases are:

• Individual Master file (IMF) which contains the information reported to the IRS by taxpayers and

• Information Returns Master File (IRMF) which is information that is matched with the IMF information to verify all income is reported.

(3) An AUR reconsideration is identified on IDRS CC TXMOD by a TC 922, indicating an AUR adjustment, followed by a TC 29X assessment.

(4) If the assessment is the result of an AUR review of a previously filed return:

• Inform the taxpayer that he or she must either submit a written request for reconsideration and/or file an amended return which identifies the specific income/deduction issues that resulted in the AUR adjustment and the reason for the change, i.e., what new information is available that was absent during the AUR process.

• Advise the taxpayer the reconsideration will be processed by the campus currently working the AUR program where the assessment originated.

• Secure a copy of the AUR report CP 2000 from the taxpayer, if available.

• If AUR report is not provided by taxpayer, check the AMS Summary screen which shows what the taxpayer reported on Form 1040 and provides a complete copy of the CP 2000 that AUR sent to the taxpayer.

• If a copy of the CP 2000 is not available, you may contact an AUR Coordinator to provide a copy. AUR Coordinators should be able to obtain an electronic version of the CP 2000 Notice through the Accounts Maintenance System (AMS). A listing of AUR Coordinators is provided on Servicewide Electronic Research Program (SERP) under the "Who/Where" tab.

(5) In addition to the steps in IRM 5.1.15.3.1, Reconsiderations - General Procedures - Audit, Automated Underreporter (IMF/BMF AUR), Substitute For Return (SFR) and Automated Substitute For Return (ASFR) and IRM 5.1.15.3.2, Criteria for Reconsideration Request, follow the steps in the table below for Form 3870 AUR Reconsideration requests:

(1) The Business Underreporter (BMF-AUR) Program is the analysis and processing of potential underreported (U/R) issues identified through information return (IR) matching. BMF-AUR cases are built from two primary sources:

• The Business Master File (BMF) which contains information reported to the IRS by taxpayers

• The Information Return Master File (IRMF) which contains information submitted by payers

(2) BMF-AUR Reconsideration cases (RECON) are responses received after the assessment has been created under the BMF-AUR program. A RECON is a claim for a credit or refund not previously reported or allowed, or a request for abatement of tax, penalty, and/or interest.

(3) The IRMF information is matched with the BMF information to verify all income is reported. A BMF-AUR case results when computer analysis detects a discrepancy between the two data sources. Examples (not all inclusive) of the information in the IRMF are:

• Form 1099-MISC, Miscellaneous Income

• Form 1099-PATR, Taxable Distributions Received From Cooperatives

• Schedule K-1, Shareholder's Share of Income, Deduction, Credits, etc.

• Form 1099-DIV, Dividends and Distributions

• Form 1099-INT, Interest Income

(4) A BMF-AUR adjustment is identified on IDRS CC TXMOD by a TC 925. BMF-AUR tax assessments can be found on MFT 02 (Form 1120) or MFT 05 (Form 1041) accounts. A BMF AUR assessment can be identified by reviewing the blocking series of the TC 290 adjustment.

• Form 1120 the blocking series will be 550 thru 599

• Form 1041 the blocking series will be 640-649 or 890-899

(5) BMF-AUR evaluates third party income from information returns (IRs) against amounts reported on the income section of Form 1120, U.S. Corporation Income Tax Return, for the following areas of income to determine the underreported amount (U/R) for each income type:

• Gross Receipts or Sales, line 1a

• Dividends, line 4

• Interest, line 5

• Gross rents, line 6

• Gross royalties, line 7

• Capital Gain net income, line 8

• Net gain (or loss) from Form 4797, line 9

• Other Income, line 10

(6) BMF-AUR evaluates third party income from information returns (IRs) against amounts reported on the income section of Form 1041, U.S. Income Tax Return for Estates and Trusts, for the following areas of income to determine the underreported amount (U/R) for each income type:

• Interest income, line 1

• Total ordinary dividends, line 2a

• Business income or (loss), line 3

• Capital gain or (loss), line 4

• Rents, royalties, partnerships, other estates and trusts, line 5

• Farm income or (loss), line 6

• Ordinary gain or (loss), line 7

• Other income, line 8

(7) If the assessment is the result of a BMF-AUR previously filed return:

• The taxpayer should have received Letter 2030 explaining what income information doesn't match the information the taxpayer reported on their tax return.

• Inform the taxpayer that he or she must either submit a written request for reconsideration and/or file an amended return which identifies the specific income/deduction issues, as listed on Letter 2030, that resulted in the BMF-AUR adjustment and the reason for the change, i.e., what new information is available that was absent during the BMF AUR adjustment.

• Advise the taxpayer the reconsideration will be processed by the campus currently working the BMF-AUR program where the original assessment was based.

• The BMF-AUR Coordinator is located on SERP under the "Who/Where" tab then click on BMF-AUR Program or click on this link http://serp.enterprise.irs.gov/tabs/who-where/cplg/irs-cawr-and-ssa-cawr.html

(8) In addition to the steps in IRM 5.1.15.3.1, Reconsiderations - General Procedures - Audit, Automated Underreporter (IMF/BMF AUR), Substitute For Return (SFR) and Automated Substitute For Return (ASFR), and IRM 5.1.15.3.2, Criteria for Reconsideration Request, follow the steps in the table below for Form 3870 BMF-AUR Reconsideration requests:

(1) SFR Reconsiderations refer to reconsiderations of SFR assessments created by SFR (Examination) processing which includes but is not limited to High Income Non-Filer (HINF) processing.

(2) A taxpayer must request reconsideration of an SFR assessment by filing an original return.

(3) If the TXMOD shows a TC 599 cc 89, the taxpayer submitted an original return and it has already been processed as a reconsideration. SFR will not process these requests because it is not a reconsideration and the tax return should be forwarded to CCP for processing.

(4) An Exam SFR assessment is identified on IDRS CC TXMOD by the following:

1. A TC 150 followed by "0.00" and the literal "SFR" to the right of the TC 150 assessment Document Locator Number (DLN).

2. Tax class 2 with Document Code 10 and Julian date of 888 in the DLN.

3. The tax amount assessed will appear as a TC 300 (Examination SFR Assessment).

4. TC 300 with File Location Codes 17, 19, 28, 29 or 49 for SBSE or 07, 08, 09, 18 or 89 for W&I.

5. TC 420/421 will be present.

6. Primary Business Codes (PBC) 295 through 299 indicates SBSE campus assessments. PBC 201 through 207 indicate SBSE Area Office assessments. The PBC is located to the right of TC 420.

7. PBC 190 through 194 indicates W&I campus assessments.

(5) If IDRS CC TXMOD shows an assessment was originally created by SFR, ensure that there are not multiple TC 300s and/or a TC 971 AC 282 on the module. These indicate that an original taxpayer return was filed during the SFR examination. If it does, you will need to secure an amended return or other written request for reconsideration of disputed audit issues if it was an Examination assessment, instead of an SFR.

(6) If the IRS has prepared SFRs for both spouses, the three-year time limit in IRC 6013(b)(2), Joint returns of income tax by husband and wife, is not applicable and the taxpayers can file a joint return at any time. If, however, one of the spouses filed a Married Filing Separate (MFS) return, the joint return must be filed within three years from the due date of the return for that year (excluding extensions). See the Note in IRM 5.1.15.3.4(5)(b), Rejecting a Request for Reconsideration, for additional information. See IRM 25.6.1.9.4.4, Joint Return After Separate Return, for the applicable period of limitations for assessment and collection when taxpayers switch from separate to joint after the IRS has prepared an SFR for at least one of the spouses.

(7) Follow the criteria for SFR reconsideration requests in IRM 5.1.15.3.1, Reconsiderations - General Procedures - Audit, Automated Underreporter (IMF/BMF AUR), Substitute For Return (SFR) and Automated Substitute For Return (ASFR), and IRM 5.1.15.3.2, Criteria for Reconsideration Request, prior to the steps provided in the table below:

(8) Send the reconsideration request by e-mail, Efax or mail to the Brookhaven or Fresno campus for processing according to the procedures in the table below. Requests to BSC should be sent by e-mail unless it is not practical (e.g., the attachment is too large or a scanner is not available).

(9) Forward only SBSE returns listed below:

• IMF returns with TC 420 PBC 2XX

• IMF returns with TC 420 PBC 19X only if Schedule C,E,F,J, or Form 1116, 2106, or 2555 is attached

• IMF international returns (Form 1040-NR - even those with only wages)

(10) Forward IMF returns with TC 420 PBC 19X Schedules A and/or D only and returns with no schedules that are .

(1) ASFR Reconsiderations refer to reconsiderations of ASFR assessments created by ASFR (Compliance) processing which includes but is not limited to High Income Non-Filer (HINF) processing

(2) A taxpayer must request reconsideration of an ASFR assessment by filing an original return.

(3) If the TXMOD shows a TC 599 cc 89 (taxpayer signed return) or cc 13 (taxpayer signed waiver agreeing to assessment), the taxpayer filed a return or agreed to the ASFR assessment. ASFR will not process these requests because it is not a reconsideration. The tax return should be forwarded to CCP for processing as an amended return.

An ASFR assessment is identified on IDRS CC TXMOD by the following:

1. A TC 150 followed by "0.00" and the literal "SFR" to the right of the TC 150 assessment Document Locator Number (DLN),

2. Tax class 2 with Document Code 10 in the DLN and Julian date of 887 in the DLN,

3. Blocking Series 000-299,

4. The tax amount assessed will appear as a TC 290 (Collection ASFR Assessment) with blocking series 540-549,

5. Transaction Code (TC) 599 Closing Code (cc) 88, no response to ASFR notifications, and/or

6. TC 599 cc 89, taxpayer filed a return agreeing to the ASFR assessment,

7. TC 599 cc 13 - a signed ASFR waiver agreeing to the proposed assessment in lieu of a return secured.

(4) If the IRS prepared ASFRs for both spouses, the three-year time limit in IRC 6013(b)(2), Joint returns of income tax by husband and wife, is not applicable and the taxpayers can file a joint return at any time. If, however, one of the spouses filed a Married Filing Separate (MFS) return, the joint return must be filed within three years from the due date of the return for that year (excluding extensions). See the Note in IRM 5.1.15.3.4(5)(b), Rejecting a Request for Reconsideration, for additional information. See IRM 25.6.1.9.4.4, Joint Return After Separate Return, for the applicable period of limitations for assessment and collection when taxpayers switch from separate to joint after the IRS prepared an ASFR for at least one of the spouses.

(5) Follow the criteria for ASFR reconsideration requests in IRM 5.1.15.3.1, Reconsiderations - General Procedures - Audit, Automated Underreporter (IMF/BMF AUR), Substitute For Return (SFR) and Automated Substitute For Return (ASFR), and IRM 5.1.15.3.2, Criteria for Reconsideration Request, prior to the steps provided in the table below:

(6) Send the reconsideration request by e-mail, Efax or mail to the Brookhaven campus for processing according to the procedures in the table below. Requests to BSC should be sent by e-mail unless it is not practical (e.g., the attachment is too large or a scanner is not available).

(7) Forward only IMF Form 1040 returns and IMF international returns (Form 1040-NR - even those with only wages) to the Brookhaven campus as shown below.:

(1) This sub-section provides guidelines for processing returns secured in conjunction with a request for reconsideration.

(1) Check the income displayed on IDRS/CFOL and compare it to the income reported on the taxpayer's return. Verify that all income is included or accounted for on the return.

1. Example: If IDRS/CFOL reflects Non EE compensation as $145,233 but the taxpayers return reflects Non EE compensation as $118,227, there is a discrepancy of $27,006 ($145,233 - $118227 = $27,006). There is a significant income discrepancy ($27,006) on this return, which you need to resolve with the taxpayer prior to forwarding the request for reconsideration.

(2) Request CC IRPTR, IRPTRJ or other IDRS or CFOL command code to obtain information from documents such as Form W-2, Form 1099, Form 5498, if necessary.

(3) Proceed with processing the request for reconsideration if there are no significant income discrepancies.

(1) There are two types of Form 1040-X, Amended U.S. Individual Tax Return, processes.

1. A Form 1040-X adjustment that is amending an item on the original Form 1040. Use ICS template titled Form 3870 - 1040-X Adjustment to CCP for forwarding your adjustment to Philadelphia CCP.

2. A Form 1040-X that is being accepted as an original return for an SFR reconsideration. Use ICS template titled Form 3870 - ASFR Reconsideration to Brookhaven for an ASFR adjustment. Use ICS template titled Form 3870 - EXAM SFR (TC 300) Reconsideration to Brookhaven for an SFR adjustment.

(2) Check the validity of the amended return and determine whether or not the claimed adjustment will fully satisfy the tax. If it will, request input of TC 470 cc 90 to remove your account from collection status if applicable.

(3) If Form 1040-X pertains to a carry-back, the credit is available for debit interest purposes on the due date of the loss year return (determined without regard to any extension of time for filing). Carryback claims should be handled expeditiously to meet the 45-day interest free period. If the interest free period is missed, credit interest on the overpayment is computed from the later of the:

1. Due date of the loss year return,

2. Received date of the delinquent loss year return,

3. Date the loss year return was filed in processable form,

4. Claim received date, or

5. Claim processable date.

(4) Computer generated penalties will be automatically recomputed based on the adjustment of tax. Generally, there is no need to include them on Form 3870. The exception to this is TC 176, Failure to Make Estimated Tax Payment Penalty.

(5) Estimated tax penalty is computed on the original tax and is not increased or decreased with subsequent changes (after the due date including extensions) to the tax. The exceptions to this rule are:

• An amended return received before the due date (called a superseding return),

• Internal or processing error (such as misapplied credits),

• Withholding taxes allowable as a credit, and

• Separate filing status to joint filing status (the penalty must be recomputed on the joint liability).

(6) An estimated tax penalty cannot be adjusted because of the change in tax unless the amended return was filed before the due date of the original return or the original return was a result of a SFR assessment.

(7) Identify potential statute cases. Use prompt assessment procedures when within 4 months of the ASED. See IRM 25.6.1.9.9.1, Procedures for Expeditious Assessments, for procedures.

(1) When Accounts Management (AM) Campus Operations receives a Form 1040-X on a status 26 account that is assigned to a revenue officer, IRM 21.3.3.4.9.2, Campus Collection Function Correspondence/Inquiry/Notice, requires them to send the return to the revenue officer. Do not return these to the AM campus operation as misdirected mail. The return must be attached to a Form 3870 and state in Item 11 of Form 3870 "Please process" then forward to the appropriate location using ICS. For routing information and additional instruction, use the following link: http://mysbse.web.irs.gov/collection/toolsprocesses/CaseRes/adj/send/default.aspx, and select Adjustments, General Procedures and "Form 1040-X adjustments ", or refer to IRM 5.1.15.5.1, Form 1040X Adjustments.

(2) If you sent Form 1040-X to the campus for processing, and the campus rejects the adjustment for any reason, that information will be posted to TXMOD on that module, and the return sent back to the Revenue Officer. If the adjustment has not been processed within a reasonable amount of time (3 cycles) check CC TXMOD to see if your request has been rejected. If you are checking on the status of your case, do not contact AM directly, contact CCP Collection FORT at GCP Internal Line (For Internal Use Only) at 1-800-831-0284.

(1) Carryback applications/claims require expedite handling due to the 45-day interest free period. Carryback applications/claims can be IMF or BMF. Applications for carryback adjustment are filed using:

• Form 1045, Application for Tentative Refund

• Form 1139, Corporation Application for Tentative Refund

Claims for carryback adjustment are filed using:

• Form 1040X, Amended U.S. Individual Income Tax Return

• Form 1120X, Amended U.S. Corporation Income Tax Return

• Amended Form 1041, U.S. Income Tax Return for Estates and Trusts

• Form 1120–C, U.S. Income Tax Return for Cooperative Associations

• Form 990–T, Exempt Organization Business Income Tax Return

(2) When you receive an amended Form 1120 tax return with an attached Form 8827, Credit For Prior Year Minimum Tax - Corporations, you must complete Form 3870 ICS template titled "Other Adjustment Request to CCP (Philadelphia)" for processing. Route Forms 3870, 1120 and 8827 to CCP using your area electronic mailbox. Add the notation "Includes Form 8827" on the top of Form 3870. This will ensure that processing is completed during the required expedited handling of the 45-day interest free period. This is true for all of the following amended Form 1120 returns:

• Form 1120

• Form 1120-C

• Form 1120-F

• Form 1120-L

• Form 1120-PC

• Form 1120-REIT

• Form 1120-RIC

• Form 1120-X

(3) Scan and attach to Form 3870 the carryback claim and supporting documentation with date stamped and signed amended return. Write "NOL Carryback" in the Remarks section on Form 3870 and route to CCP for processing to Accounts Management (AM).

(4) Do not contact Accounts Management (AM) campus personnel on any issue in accordance with the Service Level Agreement (SLA). Inquiries should be directed to CCP Collection FORT for assistance at 1-800-831-0284.

(1) This section only applies to situations where the taxpayer had originally filed a valid employment tax return, but while working with the revenue officer it is determined the return was inaccurate and a corrected return is necessary. This section does not apply to situations where the taxpayer has been audited or the RO created the assessment under IRC 6020(b). See IRM 21.7.2.4.6, Adjusted Employer's Federal Tax Returns or Claim for Refund, for additional information.

(2) Scan and attach the appropriate "X" form (e.g. Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund) that corresponds to the return you are correcting, to Form 3870 before electronically transmitting to CCP in all cases where the account to be adjusted is assigned to a revenue officer. RO's should review IDRS to compare with the original filed return.

(3) When Accounts Management (AM) Campus Operations receives an amended BMF return on a status 26 account that is assigned to a Revenue Officer, IRM 21.3.3.4.9.2.1, Compliance Criteria for Amended Returns/Claims and/or Balance Due Correspondence, requires them to send the return to the revenue officer. Do not return these to the AM campus operation as misdirected mail. The return must be attached to Form 3870 and state in Item 11 of Form 3870 "Please process" then forward to CCP using ICS.

(4) If you send an "X" form to the campus for processing, and the campus rejects the adjustment for any reason, that information will be posted to IDRS CC TXMOD on that module, and you will be notified by e-mail of the rejection. If tax returns with original signatures were sent to CCP they will be returned to the originator. If the adjustment has not been processed within a reasonable amount of time (3 cycles) check CC TXMOD to see if your request has been rejected and contact CCP if necessary. Rejected adjustments received electronically by CCP will be destroyed and will need to be resubmitted with the complete information.

(5) There is no "X" form for Form 940, Employer's Annual Federal Unemployment (FUTA)Tax Return. Use Form 940 and check the box in the upper right hand corner of Form 940 marked "Amended" to correct a previously filed Form 940. Attach to Form 3870 and forward to CCP for processing.

(1) If the change involves a decrease in Federal Insurance Contributions Act (FICA) tax, a certification is required on the "X" form. The taxpayer must complete the certification area in Part 2 of the "X" form. Part 5 of the "X" form must be signed by the taxpayer or an authorized representative. Taxpayers are required to certify on the "X" form that they have filed or will file Form W-2, as required. If the taxpayer is unable to contact employees, or if the employees will not comply, the taxpayer can still receive a refund or credit of the employer share only, by certifying that an attempt was made to locate the employees but was unsuccessful or that the employees will not comply.

(2) Check to ensure all appropriate forms and schedules are included with the return and appear to be complete. Inform the taxpayer that he or she needs to submit any missing or incomplete forms or schedules. Verify line items on the tax return that require an attachment, (e.g., Form 1120 Schedules), and ensure that they are attached.

(3) Decrease to withheld income tax may only be allowed if the error is identified during the calendar year in which the error occurred and if the employer repays or reimburses the employee the amount of the overwithheld income tax before the end of the calendar year in which the wages were paid. Decreases identified after the end of the year may only be allowed to correct an administrative error or if section 3509 rates apply. The adjustment is made to each affected period.

(4) Indicate on Form 3870 the amount of the failure to deposit (FTD) penalty, if any, to be adjusted. If the reduction in tax is zero, a TC 181 is not necessary unless there's a TC 180 or 181 on the module. See IRM 20.1.4.23(11)(a), Manual Adjustments.

(5) If the taxpayer reports the correction is due to an administrative or typographical error, we accept the taxpayer’s figures without the certification.

(1) If tax was understated on the original return, the taxpayer can file an "X" form to correct the amount of tax specifically applicable to the tax quarter being adjusted. If the taxpayer files the "X" form by the due date of the return for the period in which the error was discovered and pays the tax increase in full with the "X" form, IDRS will create an interest free period from the due date of the period which reflected the error until the due date of the period in which the error was ascertained, reported, and paid. An interest computation date will be reflected on CC TXMOD or CC BMFOLT immediately following a TC 298. In this instance the taxpayer will not receive an FTD penalty increase.

(2) If the taxpayer does not file the "X" form by the due date of the return for the period in which the error was ascertained, the tax will be increased on the applicable period(s) and interest will be charged from the due dates of that period(s). The taxpayer must submit a new Record of Federal Tax Liability (ROFTL) to determine the increased FTD penalty on each period. If the taxpayer files the "X" form timely, but does not pay when the "X" form is filed, the FTD penalty is 10percent of the unpaid tax increase. See IRM 20.1.4.21.5, Adjusted Returns (Forms 941–X, 943–X, 944–X, 945–X, and CT-1X).

(1) When a disregarded entity Limited Liability Company (LLC) fails to file employment tax returns for tax periods ending before January 1, 2009, prepare an IRC 6020(b) return. Although the single member owner (SMO) may file employment tax returns for these tax periods in the name and EIN of the SMO or the name and EIN of the LLC, the IRC 6020(b) return must be prepared in the name and EIN of the liable party, the SMO. If the SMO has previously filed an employment tax return for another business under the SMO EIN for the same tax period, then the return prepared under IRC 6020(b) should not be submitted to submission processing as a secured return. The return prepared under IRC 6020(b) will be processed on Form 3870 as a supplemental tax assessment. Ensure that an additional assessment is not prohibited by an ASED. Consult with Area Counsel, if necessary.

1. Prepare Form 3870 using the name and Employer's Identification Number (EIN) of the SMO.

2. In the Reason for Adjustment section of Form 3870 include the following statement: "This liability resulted from the operation of (Name and EIN of LLC), for which (Name of Single Member Owner) was liable as the employer, it should be added to the original assessment as a supplemental assessment. When the adjustment is processed, CCP should note the name and EIN of the LLC in the IDRS history on the module."

3. Attach the entire 6020(b) package (Tax return, Form 5604, Section 6020(b) Action Sheet and any supporting documentation) to the Form 3870, and

4. Forward by secure e-mail to CCP.

(1) Social Security Administration-CAWR (SSA-CAWR) is a document matching process initiated by SSA to ensure that all employers are correctly reporting wages paid on Forms W-2 they provide to their employees and that employees receive proper credit from SSA for their earnings. They match all Forms W-2 received in a calendar year against information provided by IRS on wages reported on Form 941, Schedule H (attached to a Form 1040), 943, 944, and 945 returns. If the total of the Forms W-2 is less than the return amount, SSA sends the taxpayer up to two notices.

(2) SSA refers the case to IRS, which can propose and assess either a failure to file (FTF) penalty with intentional disregard (549 reference number) or a late filing penalty for late filed Forms W-2 (550 reference number).

(3) The employer will be assessed a FTF penalty (the greater of $500 per missing return or 10 percent of the total wages that were required to be reported for returns required to be filed after December 31, 2015) if the failure was due to intentional disregard. The penalty rate is $250, per form, for returns required to be filed on or after January 1, 2011. For forms required to be filed before January 1, 2011, the penalty rate is $100 per form. See IRC 6721(e). This will appear as a MFT 13, Reference Number 549, and a CP 215 is sent to the employer.

(4) The employer will be assessed a late filing penalty ($250 per form for returns required to be filed after December 31, 2015) applicable under IRC 6721(a), for failure to file or timely file a Form W-2, for failure to include all of the required information, or for including incorrect information. The penalty may not exceed $3 million for a calendar year. The penalty rate is $100 for returns required to be filed on or after January 1, 2011 with a maximum of $1.5 million. For forms required to be filed before January 1, 2011, the penalty rate was $50 per form, with a maximum penalty of $250,000. It will appear as a MFT 13, with Reference number 550, and a CP 215 is sent to the employer. A late filing penalty will be assessed for Forms W-2 secured by CAWR in response to the initial CAWR correspondence. This assessment is a penalty.

(5) The PRN 549 penalty cannot be abated after the 10 day time frame of the CP 215 unless proof of timely filing or reasonable cause can be established. All documentation MUST be attached to the Form 3870 in order for the penalty abatement to be considered.

(6) The RO must address whether there was reasonable cause for the delay in proper filing of the Forms W-2. The taxpayer must request relief of the intentional disregard penalty under Reasonable Cause provisions and provide appropriate documentation. The RO should secure the missing Forms W-2 and abate the FTF with intentional disregard penalty (549 Penalty) if reasonable cause criteria for information penalties is met. If reasonable cause is not met and the documentation is not attached, the campus will reject your request. The taxpayer would still be liable for the late filing penalty (550 Penalty). See IRM 20.1.7, Information Return Penalties. Reasonable cause for information return penalties exists when:

• The filer acted in a responsible manner, both before and after the failure occurred, and

• There were significant mitigating factors, or

• The failure was a result of circumstances beyond the filer's control.

(7) Prepare Form 3870 using ICS template titled SSA-CAWR Adjustment and state in Item 11 of Form 3870 the type of penalty involved (549 or 550) and whether the adjustment is based on missing or amended Forms W-2 or missing or amended payroll tax returns. If reasonable cause is established attach the taxpayer's documentation and forward to the group manager for approval. Scan and attach all necessary documents to Form 3870 and annotate in subject line of e-mail SSA-CAWR, Name Control, first three numbers of EIN and tax period e.g. (SMIT, XX–3, 01-201112). Forward to the appropriate campus for processing using the state mapping guide in Exhibit 5.1.15-3, State Mapping for IRS-CAWR and SSA-CAWR. See example below of suggested wording for Item 11 Form 3870.

• California/Oregon - route IRS CAWR 2013 and SSA CAWR 2012 and subsequent tax years to PSC CAWR.

• California/Oregon - route IRS CAWR 2012 and SSA CAWR 2011 and prior to MSC CAWR.

(1) IRS-CAWR compares Forms W-2, W-3, W-3c, W-2c, 1099-R and W-2G withholding amounts to the amounts reported on Forms 94X (Forms 941, 943, 945), and Schedule H (Forms 1040, 1041) employment tax returns.

(2) If the wages on the returns for a given year total less than the sum of the W-2 wages for that year and the taxpayer does not respond to notices, an increase in tax is made on the last available quarter of the year for that return. A TC 290 is assessed increasing the amount of tax due.

(3) If Forms W-2 were not filed, secure them. If Forms W-2 were filed with incorrect amounts, then secure corrected Forms W-2. If the employment tax returns were prepared incorrectly or not filed, then secure the corrected or original returns. Each quarter where the taxpayer is liable must be assessed prior to requesting the IRS-CAWR adjustment.

(4) Prepare Form 3870 using ICS template titled IRS-CAWR Adjustment and state what type of assessment (IRS-CAWR assessment) and what is attached (Amended W-2c, W-3c, or 94X-X attached) on the form. Scan and attach the secured documents, annotate in subject line of e-mail IRS-CAWR, Name Control, first three numbers of EIN and tax period e.g. (SMIT, XX–3, 01-201112). Forward to the appropriate campus for processing using the state mapping guide in Exhibit 5.1.15-3, State Mapping for IRS-CAWR and SSA-CAWR. See example below of suggested wording for Item 11 Form 3870.

CAWR has moved the states of California and Oregon from MSC CAWR to PSC CAWR. This change is permanent going forward. The new routing instructions are as follows:

• California/Oregon - route IRS CAWR 2013 and SSA CAWR 2012 and subsequent tax years to PSC CAWR.

• California/Oregon - route IRS CAWR 2012 and SSA CAWR 2011 and prior to MSC CAWR.

(1) IRS receives various Information Return Program (IRP) documents each year that are either incorrect (wrong TIN or name, not on magnetic medium, etc.) or late. These errors result in various penalty assessments.

(2) Use IDRS CC PMFOL to determine which of the various penalties were asserted on this type of case. See IRM Exhibit 20.1.1-4 Penalty Reference Numbers (500 series) and IRM Exhibit 20.1.1–5 Penalty Reference Numbers (600 Series) for a listing of the penalties by reference code number.

(3) Penalties may be imposed when information returns are filed:

1. After the due date,

2. Without all required or correct information, (including missing, incorrect and/or not currently issued TINs),

3. On paper when required to be filed on magnetic media,

4. When filed on magnetic media, in a manner that does not allow them to be processed or be read by machine (not processable) or,

5. In an improper format, (using the wrong year Form 1096).

(4) The penalty for information returns is $250 per return with a maximum of $3 million per calendar year, effective for returns required to be filed after December 31, 2015. Effective January 1, 2011 through December 31, 2015, the penalty amount is $100 per return with a maximum of $1.5 million. The penalty amounts were increased by the "Trade Preferences Extension Act of 2015 and the Creating Small Business Jobs Act of 2010." This amount is subject to reductions and limitations. These penalties can be either MFT 13 (BMF) or MFT 55 (IMF) with a DLN blocking of 500-514 (digits 9,10,11).

(5) IRC 6721 Civil Penalty references PRNs 500-514. A Civil Penalty reference code 502 assessment, more commonly known as a IRP Penalty, is a result of TIN errors on various informational documents such as Form 1099. The taxpayer/payer can request a penalty abatement by documenting that a solicitation was made to the payee for an accurate number within 30 days of notification from the campus. Additionally, the taxpayer may qualify for reasonable cause relief of this penalty, according to Pub 1586, Reasonable Cause Regulations and Requirements for Missing and Incorrect Name/TINs (including instructions for reading CD/DVDs and Magnetic Media). This penalty can be waived by showing that failure was due to reasonable cause and not willful neglect. The taxpayer must establish that they acted in a responsible manner both before and after the failure occurred, and that:

1. There were either significant mitigating factors (for example, an established history of filing information returns with correct TINS), or

2. The failure was due to events beyond the filer’s control (for example, a payee did not provide a correct name/TIN in response to a request for the corrected information).

(6) Reasonable cause for the information return penalties generally exists when:

1. The filer acted in a responsible manner, both before and after the failure occurred, and

2. There are significant mitigating factors, or

3. The failure was the result of circumstances beyond the filer's control.

• Requesting appropriate extensions of time to file when practical to avoid the failure,

• Attempting to prevent a failure if it was foreseeable,

• Taking steps to ensure future compliance,

• Acting to remove an impediment or the cause of the failure, and

• Correcting the failure as promptly as possible, generally within 30 days.

Note: Different standards apply to different forms. For example, the solicitation requirements for Forms 1098-T are different than those for Forms W-2, yet the same PRN may be used to assess a penalty against either. See IRM 20.1.7, Penalty Handbook, Information Return Penalties, for additional information.

• First time filer- prior to the failure, the filer had not previously been required to file this particular form or statement. First time filer procedures do not apply to the procedures for information return penalties, although it should be considered, penalties should not be waived or abated citing the first time filing criteria alone.

• The filer has a history of complying with the information return reporting requirements. The filer's history of compliance should be considered whether or not the filer specifically requests waiver on this basis.

• Significant consideration is given if the filer was previously penalized under IRC 6721, IRC 6722 or IRC 6723.

(7) Prepare Form 3870 using ICS template titled Form 3870 - IRP Penalty Adjustment to Philadelphia and state on the form the specific penalty in question (code 500-514) and whether the taxpayer has been advised of the proper submission in the future. Explain whether reasonable cause exists (if so, provide the appropriate RC codes). If reasonable cause exists explain the reason and whether or not corrected documents were secured. See example below of suggested wording to write in Item 11 of Form 3870.

(1) Use Form 4446, Payment Tracer Research Record, to request the campus to trace payments.

1. If the tracer will fully satisfy the amount owed, close the Bal Due module on ICS by selecting, "Payment Tracer" as closure type. This will upload TC 470 cc 93.

2. If the tracer will not fully satisfy the amount owed, process the Payment Tracer Request, but DO NOT request input of TC 470 cc 93.

3. If the payment tracer will not fully satisfy the amount owed and the remaining balance due is later full paid before the credit posts, then close the payment tracer BAL DUE module on ICS by selecting, "Payment Tracer "as closure type. This will upload TC 470 cc 93.

(2) Actions required on payment tracer requests based on the Collection Statute Expiration Date (CSED) are shown in the table below.

(3) When preparing a payment tracer, include the following information, as applicable:

1. Taxpayer’s name and address,

2. Taxpayer’s identification number,

3. Type of tax (MFT code),

4. Tax period,

5. Amount of payment,

6. Type of payment,

7. Endorsing IRS office,

8. Issue date of check, money order, etc.,

9. Date of receipt, receipt number, and type of receipt,

10. Date of IRS endorsement and information to identify the voucher or document used to process the payment, and

11. DLN from back of check.

(4) If possible, attach a clear photocopy of both sides of the canceled check or money order used to make the payment that needs to be traced.

(5) If the payment was made by cashier’s check or money order, and a copy of the canceled document is not readily available, get the serial number of the payment, the date it was bought, and the name and address of the business that issued it to the taxpayer.

(6) If the taxpayer cannot provide the cancelled check, you may be able to locate the missing payment from available information. Gather basic information from the taxpayer, including:

• Amount of the payment.

• Approximate date of the payment.

• Where the payment was mailed.

• Type of payment made, such as, cash, cashier's check, money order, levy, direct debit, Electronic Funds Tax Payment System (EFTPS), and payroll deduction.

• Whether the taxpayer received any refunds since the date of payment.

• Whether the taxpayer has multiple EINs for BMF cases.

(7) When preparing a request for a payment tracer, be sure the complete 14 digit DLN on the back of the check or money order is included rather than other numbers that are stamped on the payment.

(8) Beginning January 1, 2011, businesses must use electronic funds transfer (EFT) to make all federal tax deposits (such as deposits of employment tax, excise tax, and corporate tax). Prior to January 1, 2011, many employers were permitted to make their federal tax deposits at an authorized financial institution accompanied by an FTD coupon. The EFTPS is a system designed to use EFT to pay Federal taxes. The EFT number is shown on IDRS for the given module. Prior to submitting a payment tracer on a deposit made electronically, research the payment using CC EFTPS by:

• EIN, EFT amount, and payment date,

• Taxpayer supplied EFT number, or

• Taxpayer supplied reference number (confirmation number of credit card payments).

(9) If the payment tracer case involves numerous other actions, (e.g. claims, amended returns, offsets of overpayments, returns filed later, etc.), no initial research is needed. Instead, prepare Form 4446, Payment Tracer Research Record, with TC 470 cc 90 rather than 93, and close the Bal Due module on ICS after securing managerial approval.

(10) Attach supporting documents to the request for a payment tracer. Annotate in subject line of e-mail, Name Control, first three numbers of SSN or TIN and tax period e.g. (SMIT, XX–3, 01-201112). Requests should be sent by e-mail to CCP unless it is not practical (e.g. the attachment is too large or a scanner is not available). Attach Form 3210 if sent by mail.

(1) Internet research should be used in an attempt to locate a phone number or address for taxpayers with large dollar modules of $100,000 or more, if one cannot be obtained through IDRS or Directory Assistance. All research actions must be documented on Form 8758, Excess Collections File Additions. Whenever a taxpayer contact is unsuccessful, a TC 971 AC 296 must be requested on the module to indicate that the account has been thoroughly researched prior to transferring to excess collection. Request TC 971 AC 296 using Form 8758, Item 30.

(2) Funds are only to be moved to Excess Collection (XSF) after completing all research to establish that the funds could not be applied to a specific account or could not be refunded to the taxpayer. All large dollar credit modules of $100,000 or more, require managerial approval (originator's manager) on Form 8758 prior to the transfer of credit to XSF or URF. Any large dollar case sent to XSF not signed by the manager will be rejected back to the originator for a manager's signature. You must attach documentation providing existence of the credit (current TXMODA print or print of the transcript showing the credit) as well as the research performed prior to transferring to XSF. Prepare Form 8758 and transmit to CCP. Annotate in subject line of e-mail, Name Control, first three numbers of SSN or TIN and tax period e.g. (SMIT, XX–3, 01-201112). For guidance in preparation of Form 8758 refer to IRM 3.17.220.2.2.1, Preparation of Form 8758. Form 8758 can be transmitted electronically using the Area CCP mailbox. CCP will route Form 8758 to the appropriate accounting function for processing.

(1) Credits previously sent to XSF need to be returned to the taxpayer's account before the processing of a return is completed. This will prevent any balance due notices from being sent in error. Use Form 8765, IDRS Control File Credit Application, to transfer credits from XSF. Consult IRM 3.17.220.2.12, Applying Amounts From the XSF - General, for instructions on preparing the form. Further guidance on completing Form 8765 is contained in IRM 21.5.7.4.4.2, Form 8765, IDRS Control File Credit Application.

(2) CCP will forward Form 8765 to the statute unit for clearance, if necessary. If the request is not approved by the statute function, Form 8765 will be rejected back to the originator (RO). If the Statute Unit clears the request, CCP will forward Form 8765 to the appropriate accounting function for processing.

(1) ROs are required to use RCA when the taxpayer requests relief of certain penalties due to reasonable cause. All tax adjustments, credit transfers, etc. should be resolved prior to processing a penalty relief case using RCA. RCA must be used for the following penalties:

1. IMF Failure to File (FTF) and Failure to Pay (FTP)

   Note: RCA can be used for MFT 31 (but only Innocent Spouse/Mirrored Assessment Modules), and

2. BMF Failure to Deposit (FTD)

   Note: BMF FTD penalty relief using RCA is currently limited to MFTs 01, 10,11,14 and 16.

Additional resources include:

• IRM 20.1.1, Penalty Handbook - Introduction and Penalty Relief

• The RCA Desk Reference Guide for revenue officer, found at:http://core.publish.no.irs.gov/docs/pdf/d13139--2014-04-00.pdf

• The RCA Quick Reference Guide for field collection, found at:http://core.publish.no.irs.gov/docs/pdf/d12874--2014-07-00.pdf

(2) If the taxpayer has not previously been required to file a return or if no prior penalties (except the Estimated Tax Penalty, TC 17X) have been assessed on the same MFT in the prior 3 years, RCA provides an option for First Time Abate (FTA). See IRM 20.1.1.3.3.2.1, First Time Abate (FTA), for additional information. A penalty assessed and subsequently reversed in full will generally be considered to show compliance for that tax period. RCA considers fully reversed penalties in its FTA analysis. If any tax modules are on retention register, RCA will not read those. Each module on retention register must be manually reviewed by the RO. FTA is provided to the taxpayer under an Administrative Waiver and does not require managerial approval. If RCA reaches an FTA conclusion, RCA will create one of three letters after CCP inputs the adjustment. The RO has to print the letter and either hand it or mail it to the taxpayer. The letters below are not systemically generated to the taxpayer. The letters are as follows:

• Letter 4722, First Time Abate Letter (IMF), used to notify taxpayers that relief of certain penalties (FTF and FTP) on IMF was granted.

• Letter 4723, First Time Abate Deposit Frequency Letter (BMF), used to notify taxpayers that relief was granted for the FTD penalty.

• Letter 4724, First Time Abate FTD Penalty Letter (BMF), used to notify taxpayers that the FTD penalties were abated.

(3) The reasonable cause explanation provided by the taxpayer will be considered after RCA performs the First-time Abate/Clean Compliance History analysis. If FTA criteria does not apply then the taxpayer's explanation will be used to determine if reasonable cause penalty relief criteria is met. The taxpayer is required to provide documentation to support their claim before a penalty relief determination can be reached.

(4) Prior to processing a request for penalty relief using RCA, the RO must check TXMOD on IDRS and verify that the action was not previously taken on the module. Otherwise, an unpostable action will occur.

(5) The RO must input the date they received the correspondence from the taxpayer requesting penalty relief. Ensure that the “Received Date” is not older than one year. If the received date is older than one year, the abatement may be rejected by CCP. If the abatement request received date is more than one year old, manually prepare Form 3870 using ICS template titled Form 3870 - Penalty Adjustment to CCP (Philadelphia) and forward to CCP for processing.

(6) Reasonable cause penalty abatements must be approved by the group manager when RCA reaches the "Abate conclusion". A determination to override RCA’s conclusion must be justified. The reason(s) the RCA conclusion is being overridden is required and must clearly state why the RCA conclusion is incorrect and why, or why not, the facts and circumstances of the case support the action being taken. Managerial approval is required.

(7) Forward the approved penalty abatement to CCP using RCA and retain the taxpayer's letter and any other supporting documentation with the case file.

(8) The Reasonable Cause Assistant Expansion II Project team established a mailbox to provide continuous customer service to Field Collection Function RCA users. Revenue officers can send questions to the project team and a response will be provided within 24 to 48 hours. For assistance, send questions or comments to *SBSE RCA Help or e-mail RCA for assistance sbse.rca.help@irs.gov.

(1) Use ICS template Form 3870 - Penalty Adjustment to CCP for processing penalty abatements only when RCA cannot be used. Multiple tax periods for the same taxpayer, for penalty abatement only, can be included on a single Form 3870.

(2) Submit Form 3870 - Penalty Adjustment, including a complete explanation to justify the reason for the abatement to the group manager for approval. Group managers will review the taxpayer's letter with supporting documentation and IDRS prints verifying the amount of the proposed abatement when approving penalty abatements.

(3) If you are abating Failure to Pay (FTP) penalty now accrued and wish to have the penalty continue to be waived in the future, request input of TC 270 in the amount of ".00". This will remove and stop the accruals. See IRM 20.1.2.2.4.1, Penalty Abatement and Re-assessments, for information on restricting accrual of the FTP penalty.

(4) Adjust any manual assessment for Failure to File (FTF) penalty (TC 160) as it will not automatically recompute.

(5) Computer generated penalties will automatically recompute. The exception to this is TC 186, FTD penalty. Request adjustment of the FTD penalty as it will not automatically recompute regardless of whether it is a manual assessment or a computer generated assessment.

(6) When a manual computation is used for FTD computation, if there is a penalty code 11 on IDRS located below the Failure to Deposit (TC 186) amount, the penalty was imposed because the original return contained an incomplete or missing Record of Federal Tax Liability (ROFTL). Command Code FTDPN may be used for computing FTD Penalty. See IRM 20.1.4.23, Manual Adjustments, for additional information on using FTDPN. Attach a Failure to Deposit Penalty Computation, or an accurate Form 941 Schedule B with a completed liability section to support your adjustment.

(7) Revenue Procedure 84-35 may allow some partnership entities reasonable cause abatements if the individual partners have reported their shares of the partnership income on their timely filed income tax returns. See IRM 20.1.2.4.3, Penalty Relief.

(8) Penalties asserted by Examination (including SFR, IMF/BMF AUR or Field Audit) may not be abated by Collection and require a request for reconsideration. Forward the request for abatement to Examination for approval.

(9) Penalties or interest sustained by Appeals may only be abated by Appeals. A TXMOD will show a TC 290 for zero using Blocking Series 96, with a Penalty Reason Code (PRC) 062 (reasonable cause) in the first position and PRC 041 (sustained by Appeals) in the 4th position. This indicates that the penalty was appealed at one time and the penalty was sustained by Appeals. If Appeals partially abates a penalty using PRC 042 in the 4th position, that generally indicates they sustained the rest of the penalty and the case should be treated the same as those that Appeals sustained the entire penalty. The taxpayer should have received a letter from Appeals advising the next steps in the Appeals process. Forward to Appeals for the appropriate determination.

(10) See Exhibit 5.1.15-2, Identifying Reasonable Cause Categories.

(11) Forward the approved Form 3870 - Penalty Adjustment to CCP by e-mail and retain the taxpayer's letter and all other supporting documentation with the case file. Annotate in subject line of e-mail Penalty Abatement, Name Control, first three numbers of EIN/SSN and tax period e.g. (SMIT, XX–3, 01-201112). See example below for suggested wording in Item 11 of Form 3870 (use this only when RCA cannot be used):

(1) The IRS does not abate interest for reasonable cause. IRC 6404(e)(1), Abatement of interest attributable to unreasonable errors and delays by Internal Revenue Service, provides that the Commissioner may in his/her discretion abate interest on certain tax deficiencies, i.e. income, estate, gift, certain excise taxes (employment taxes are specifically excluded) assessed as a result of unreasonable errors or delays in the performance of a ministerial or managerial act by the IRS. These requests must be routed to the Interest Abatement Coordinator in the Area where the alleged error or delay occurred. The names and contact information of the Interest Abatement Coordinators are on the Servicewide Interest Virtual LIbrary, found at: https://portal.ds.irsnet.gov/sites/vl022/lists/interestabatement/landingview.aspx (internal use only.)

(2) An Interest Abatement referral to the IAC or CEASO should have the following critical items attached:

• A detailed description as to when, how and to what length of time the IRS caused a delay or how an unreasonable error caused increase interest.

• Supporting documentation letters, payoff letters and date specific information. This information is of the utmost importance, as it provides the IAC with the points in time in which the interest will be determined, should their request prevail.

• The Form 843 Claim for Refund and Request for Abatement requires the following words across the top of the form, "IRC 6404(e) Interest Abatement Request."

(3) CEASO works claims under IRC 6404(e)(1) ONLY. CEASO DOES NOT work:

• Interest Abatement Claims due to Exam/SFR assessments or Appeals requests.

• Penalty and Interest abatement claims.

• Form 1120 complex restricted interest cases.

• Frivolous Claims.

• Interest on employment tax.

(4) An extension of time to file does not extend the time to pay. Therefore, interest is due from the due date of the return without regard to any extension of time to file. However, the Commissioner in his/her discretion may abate the interest on any payment of tax to the extent that an officer’s or an employee’s erroneous or dilatory actions in performing a ministerial or managerial act in his/her official capacity caused an unreasonable error or delay in the payment of the tax. See IRC 6404(e)(1)(B).

(5) When calculating a payoff for interest that is systemically assessed, do not use ICS for calculating the payoff amount. Calculation of accruals must be verified with IDRS. The taxpayer will receive a notice for additional accruals if the payoff amount is not accurate. A request for abatement of the remaining interest "due to service error" is not appropriate. A manual calculation of the full pay amount and comparison with CC INTST calculated on IDRS should be completed.

(6) Interest may be limited to specific time periods or rates, or it may be statutorily prohibited, which gives rise to the term " restricted interest". Restricted interest is subject to the same variables (time, rate, amount) as normal interest calculated by the IRS. The primary difference between normal and restricted interest is that the IRS computer may not be able to identify all the conditions involved in a restricted interest situation. Transaction Codes 340 and 341 or a Master File -I freeze code will indicate restricted interest was computed on a tax module. See Document 6209, IRS Processing Codes and Information, Section 8A, Master File Codes, for a list of freeze codes and transaction codes that restrict interest from being systemically computed. Interest that is restricted from systemic calculation must be manually computed. Anytime debit interest is manually computed, it is necessary to recompute the entire tax module to ensure an accurate computation is made. When a tax module is recomputed, all prior manually computed interest transactions (e.g., TC 19X, TC 34X, TC 770, TC 772) must be verified. ROs should forward their request for restricted interest computations to the FORT unit at CCP. ROs should refer interest computations on Exam related assessments to the Exam FORT CCP. Contacts for Exam related interest computations can be located using this link http://mysbse.web.irs.gov/examination/cp/restrictedint/22184.aspx. See IRM 20.2.7, Interest, Abatement and Suspension of Debit Interest for additional information.

(1) The RO will inform the taxpayer of the determination to not abate a penalty for reasonable cause. The RO must provide written notification to the taxpayer of the denial and of the taxpayer’s appeal rights, regardless of whether the request was received in person, over the phone, or in writing. Use Pattern Letter 2413(P) available as an ICS template.

(2) If a request for penalty relief is denied after assessment, request TC 290 for zero amount, using Blocking Series 98/99 with Reason Code 062 and Hold Code 3 using Form 4844. Forward to CCP for input. Annotate in subject line of e-mail - Name Control, first three numbers of SSN or TIN and tax period e.g. (SMIT, XX–3, 01-201112). When RCA is used, RCA sends the adjustment information to CCP for input and Form 4844 is not required. For additional information see IRM 20.1.1.3.5.3, Taxpayer Not Entitled to Relief.

(3) If the taxpayer disagrees with the determination and maintains that the penalty should be abated, provide written notification to the taxpayer using Pattern Letter 2413(P), available as an ICS template.

(4) If the taxpayer submits a written appeal, the revenue officer who rejected the abatement request will review the appeal to determine if the taxpayer has raised new information. New information is information that was not previously discussed with or raised by the taxpayer, or not previously investigated and documented by the revenue officer. If the appeal contains new information that changes the abatement decision, the revenue officer will take the following actions:

• Document receipt of the appeal in the ICS case history, and include details of the new information and basis for penalty abatement.

• Secure managerial approval of the penalty appeal and follow abatement procedures.

(5) If the taxpayer submits a written appeal, the revenue officer who rejected the abatement request will review the appeal for additional information which may change the original determination to sustain the penalty. If there is no change in the penalty determination, document the receipt of the appeal request in the ICS case history with the statement that the taxpayer appeal was received on (date), did not contain new information and the case is being forwarded to the group manager for review prior to transmission to Appeals. Prepare the appeal request for transmittal to Appeals and attach the following:

1. The taxpayer’s written request for appeal and other pertinent documents,

2. A copy of the ICS history,

3. Penalty appeals check sheet,

4. A copy of the disallowance letter, Letter 2413(P), and

5. Prepare Form 3210, Document Transmittal.

(6) If the appeal contains new information that requires additional investigation or ICS documentation, the revenue officer will take the following actions:

• Document the receipt of the appeal request in ICS with a statement that the appeal was received on (date) and only the facts concerning the new information requiring additional investigation or consideration.

• Conduct any additional consideration or investigation of the new information as appropriate and document the results in the ICS history.

• Secure managerial concurrence of decision to sustain penalty abatement denial.

• Attempt to make telephone contact with the taxpayer to explain the results of the additional investigation. The revenue officer will document the ICS history, notating if contact was made with the taxpayer.

• If the revenue officer is unable to make contact with the taxpayer within a reasonable time period, the revenue officer will forward the case file to the group manager.

(7) The group manager will take the following actions:

• Prepare Letter 2413-M to the taxpayer that identifies the new information and a brief summary of the results of the additional investigation.

• Document issuance of the letter to the taxpayer in the ICS history and attach a copy of the letter to the taxpayer appeal.

• The manager must ensure that the ICS history is attached to the appeal request and that no prohibited ex parte communications are included before approving the transmittal of the case to Appeals.

(8) The revenue officer will then prepare the request for transmittal to Appeals and attach the following:

• The taxpayer’s written request for appeal and other pertinent documents

• Copy of the ICS history

• Penalty Appeals Checksheet (See Exhibit 5.1.15-4, Penalty Appeals Request Check Sheet.)

• Copy of the disallowance letter, Letter 2413(P)

• Copy of Letter 2413-M issued by the group manager

• Form 3210, Document Transmittal

(9) Encourage the taxpayer to full pay the liability prior to submitting an appeal to avoid further interest and penalties on the tax amount and interest on the penalty amount. If the taxpayer has submitted an appeal, continue collection activity on the unpaid tax and interest.

(10) Suspend collection activity only on the unpaid penalty portion of the assessment during the 15-day period granted to the taxpayer to file an appeal. Continue to suspend collection activity on the unpaid penalty portion during the period the penalty abatement is under consideration by Appeals unless collection of the tax liability is in jeopardy or the taxpayer is attempting to delay collection.

(11) A jeopardy situation may be characterized by the appearance that the taxpayer is placing assets beyond the reach of the IRS by concealment or transferring assets to other individuals or entities. See IRM 5.11.3, Jeopardy Levy without a Jeopardy Assessment.

(12) If it is determined that collection of the tax liability is in jeopardy or that the taxpayer has submitted an appeal solely to delay collection, secure group manager approval to pursue collection of the penalty while the penalty abatement is under consideration by Appeals. See IRM 5.1.9.4, Collection Appeals Program (CAP). Also see IRC 6330(f) Exceptions,

(13) Document the ICS case history with the factors used to conclude that the abatement appeal was submitted primarily to delay collection.

(14) If the remaining balance on the account is the penalty portion of the assessment, close the Bal Due module on ICS selecting "Abatement". This will upload TC 470 cc 90.