4.70.15. Discrepancy Adjustments

(1) This IRM provides an overview of the responsibilities that examiners should understand and apply in the performance of their duties in executing discrepancy adjustment compliance activities.

(2) TE/GE established the discrepancy adjustment program to reduce the number of income tax referrals to LB&I and SB/SE for minor adjustments to income.

(3) Discrepancy adjustments applied using these procedures aren’t an examination or inspection of the taxpayer’s books and records per IRC 7605(b).

(4) The discrepancy adjustment program allows TE/GE examiners to adjust certain line items on related income tax returns for issues they find in TE/GE examinations. Discrepancy adjustments are prepared for income tax adjustments to:

1. Form 1040, U.S. Individual Income Tax Return.

2. Form 1040A, U.S. Individual Income Tax Return.

3. Form 1040EZ, Income Tax Return for Single and Joint Filers With No Dependents.

4. Form 1120, U.S. Corporation Income Tax Return.

(5) Discrepancy adjustments fall within the scope of Rev. Proc. 2005-32, IRB 2005-23 1206.

(1) Discrepancy adjustments fall within the scope of Rev. Proc. 2005-32. Discrepancy adjustments do not constitute examinations, inspections, or re- openings under IRC 7605(b). See Policy Statement 4-3, IRM 1.21.5.1(4) and IRM 1.21.5.1(5), Policy Statement 4-3, Cases closed by District Directors or Service Center Directors will not be reopened except under certain circumstances.

(2) Examinations are conducted according to Policy Statement 1-236 (IRM 1.21.2.36), Fairness and Integrity in Enforcement Selection, and the Taxpayer Bill of Rights per IRC 7803(a)(3). The Taxpayer Bill of Rights (TBOR) lists rights that already existed in the tax code, putting them in simple language and grouping them into 10 fundamental rights. Employees are responsible for being familiar with and acting in accord with taxpayer rights. See IRC 7803(a)(3), Execution of Duties in Accord with Taxpayer Rights. For additional information about the TBOR, see Taxpayer Bill of Rights.

(3) Under Policy Statement 4-117 (IRM 1.2.1.5.34), examiners and managers:

1. Have broad authority to consider and weigh conflicting information, data, and opinions.

2. Use professional judgement when applying examination standards for findings of fact and application of tax law to determine the correct tax liability.

3. Exercise authority to get the greatest number of agreements to tax determinations without sacrificing the quality or integrity of those determinations.

4. Resolve tax differences at the lowest level.

(4) IRC 6201 Assessment Authority, which falls under Chapter 63 - Assessment.

(1) The Directors, EO/GE and EP, are the executives responsible for providing policy and guidance for field employees and ensuring consistent application of policy, procedures and tax law to effect tax administration while protecting taxpayers’ rights. See IRM 1.1.23, Tax Exempt and Government Entities Division, for additional information.

(2) The Directors, EO Examinations, GE, and EP Examinations report to the Directors, EO/GE and EP respectively, and are responsible for the delivery of policy and guidance that impacts the field examination process. See IRM 1.1.23, Tax Exempt and Government Entities Division, for additional information.

(3) All examiners must perform their professional responsibilities in a way that supports the IRS Mission. This requires examiners to provide top quality service and to apply the law with integrity and fairness to all.

(4) Examiners and their managers should thoroughly acquaint themselves with the examination procedures and information contained in this IRM, as well as other resources.

(1) Two review groups make sure examiners conduct compliance activities per technical, procedural, and administrative requirements:

1. Mandatory Review / Technical.

2. Special Review, see IRM 4.70.7, Special Review (SR) and Tax Exempt Quality Measurement Systems (TEQMS) Procedures.

(2) In order to ensure consistent level of managerial engagement in the process of making key strategic decisions during an exam, the examiner submits requests for approval by their manager through RCCMS.

(3) The IRS is fully committed to protecting the privacy rights of taxpayers and employees.

1. For information on privacy laws, see the IRC, the Privacy Act of 1974, the Freedom of Information Act, and IRS policies and practices.

2. For more information about these laws, visit the Freedom of Information Act.

3. For questions about privacy, email *Privacy.

4. For question about disclosure, email *Disclosure.

(1) This manual uses the following acronyms and references the following forms.

(1) TE/GE established the discrepancy adjustment program to reduce the number of income tax referrals to LB&I and SB/SE for minor adjustments to income.

(2) ) Discrepancy adjustments applied using these procedures aren’t an examination or inspection of the taxpayer’s books and records per IRC 7605(b).

(3) The discrepancy adjustment program allows TE/GE examiners to adjust certain line items on related income tax returns for issues they find in TE/GE examinations. Discrepancy adjustments are prepared for income tax adjustments to

1. Form 1040, U.S. Individual Income Tax Return.

2. Form 1040A, U.S. Individual Income Tax Return.

3. Form 1040EZ, Income Tax Return for Single and Joint Filers With No Dependents.

4. Form 1120, U.S. Corporation Income Tax Return.

(4) Discrepancy adjustments fall within the scope of Rev. Proc. 2005-32, IRB 2005-23 1206.

(1) The following are examples (not considered all inclusive) of TE/GE issues that can result in discrepancy adjustments:

• When there’s a discrepancy between information reported on an income tax return and facts developed during a TE/GE examination, or any other information TE/GE has access to, such as determination letter applications or compliance projects.

• Compensation to employees not included on Form W-2 or Form 1099.

• Payments to an independent contractor, for services rendered, which were not reported on a Form 1099.

• Payments to others classified incorrectly as debt payments (or loan proceeds), where there is no bona-fide debt.

(2) The following are examples of EP issues that can result in discrepancy adjustments:

• A Plan is not qualified under IRC 401(a), and plan distributions were rolled into an IRA (traditional or Roth IRA.) The entire amount of rollovers from the non-qualified plan to either type of IRA are subject to IRC 4973 excise tax.

• An IRA-based plan does not comply with IRC 408. For each year the plan is non-compliant contributions made on behalf of each participant in excess of the "traditional IRA deduction" limit under IRC 219(b) are excess contributions subject to IRC 5973 excise tax.

  Note: See IRM 4.70.14.2.3.2, Procedures for IRA-based Plans Found to Be in Non-compliance and Not Resolved Through a Closing Agreement.

• A participant or beneficiary didn't receive the required minimum distributions under IRC 401(a)(9). The amounts required to be distributed are subject to IRC 4974 excise tax.

• Unreported income due to unreported or incorrectly reported distributions from plans.

• Taxable allocations to participant accounts in defined contribution plans due to the revocation of the tax-exempt status of the plan's trust.

• Taxable distributions to participants resulting from violations of IRC 72(p) loan limits.

• Adjustment to taxpayer deductions for contributions to a plan due to non-payment, late payment, excess contributions, plan disqualification, etc.

• Unreported income from reversion of excess plan assets after a plan termination.

• IRC 72(t), 10% additional tax on early plan distributions.

(3) The following are examples of EO issues that can result in discrepancy adjustments:

• Distributions for certain grants, scholarships and prizes that are not excludable from gross income.

• Disallowance of the exclusion from gross income of a housing allowance or a parsonage allowance.

• Capital gains or interest to a seller when an exempt organization purchases real property. Consider if the tax on capital gains can be computed with the information you have from the EO Exam. If not, make a referral to SB/SE.

• EO Payments of interest on private parties’ loans to the EO not reported on Form(s) 1099.

• Adjustments to the return of a taxable subsidiary of an exempt organization.

• Payments made on behalf of officers of the organization, including, and not limited to non-accountable items (personal use of the organization’s vehicle or other assets), and other taxable payments for their personal benefit (inurement), and which were not reported on a Form W-2 or Form 1099. Consider also issuing a SFR for Form 4720, Return of Certain Excise Taxes on Charities and Other Persons Under Chapters 41 and 42 of the IRC to report either IRC 4958 or IRC 4941 excise tax liability on any applicable transactions.

• Denial of charitable deductions taken under IRC 170(c).

• Denial of business deductions under IRC 162(e) for contributions (or dues paid) for lobbying or political purposes. You may consider issuing an SFR for Form 990-T, Exempt Organization Business Income Tax Return, to report IRC 6033(e)(2) (proxy tax on non-deductible lobbying) for failing to disclose the non-deductible portion of membership dues used for lobbying or political purposes.

(1) When you determine a possible discrepancy adjustment exists, research IDRS.

(2) Get an AMDISA print to determine if an EFU established a Form 1040 or 1120 return on AIMS.

(3) Get and review BMFOLT (Form 1120) or IMFOLT (Form 1040) transcripts for each affected income tax return to determine whether the:

1. Statute of limitations needs to be extended.

2. Return was previously examined.

3. Return was amended since it was initially filed.

Note: Transaction code (TC) 977 or TC 976 indicate that the taxpayer filed an amended return. TC 300 or TC 290 indicate an additional assessment has been made.

4. Service Campus has already assessed tax related to the discrepancy adjustment under current consideration.

Note: TC 922 means the Service Campus has selected the taxpayer’s Form 1040 for a possible adjustment. TC 925 means the Service Campus has selected the taxpayer’s Form 1120 for a possible adjustment. If TC 922/925 is followed by TC 300 or TC 290, the Service Campus has made a tax assessment.

5. Service Campus has made any other adjustments to the taxpayer filed return.

Note: Refer to Document 6209 IRS Processing Codes and Information, Chapter 8 for an explanation of transaction codes (TC) and action codes.

(4) Get and review the following IDRS prints to analyze the return:

• BMFOLT or IMFOLT print with TC 300 or TC 290 adjustments - secure and review applicable BMFOLA (Form 1120) or IMFOLA (Form 1040) transcripts to help you determine if a tax assessment has already been made for the same issue you’re considering pursuing.

  Note: Contact Mandatory Review for help in determining this.

• INOLES print to determine the last known address of the taxpayer.

• IRPTRL print for the taxpayer (and taxpayer’s spouse if the applicable return is a joint return) to determine total income and total tax withheld.

• RTVUE (Form 1040) or a BRTVU (Form 1120) print to determine amounts taken into income, deductions amounts reported as income, deductions taken, credits taken and tax withheld.

  Note: A RTVUE or BRTVU print is the equivalent of a taxpayer filed tax return if it provides sufficient detail to determine if there is a discrepancy, or if it gives sufficient line-item detail to compute income tax due.

(5) Save all IDRS research in the RCCMS Office Documents folder using the TE/GE RCCMS Naming Convention.

(1) Get your manager’s approval before starting a discrepancy adjustment and document concurrence on the case chronology.

(2) If a discrepancy adjustment is warranted, establish the tax return on AIMS through RCCMS by following the steps of IRM 4.70.15.4.2.1, Establishing Form 1040 or IRM 4.70.15.4.2.2, Establishing Form 1120.

(1) You must ensure the statute of limitations date on any Form 1040 or 1120 is correct and protected as necessary. Secure consents to extend the statute as needed.

(2) Verify that the correct statute of limitations date is shown on RCCMS and AIMS.

(3) The filing of Form 1040 starts the income tax statute for IRC 72(t), 10 percent additional tax on early distributions (Form 5329, Part I and Part II), but not the excise tax imposed under IRC 4973 and IRC 4974. The filing of Form 5329 either attached to the Form 1040 or filed separately, starts the excise tax statute for the tax line item for which an entry has been made. The filing of Form 5329 for a specified period on which an entry has been made with respect to IRC 4973 or IRC 4974 (including a return on which an entry has been made showing no liability for such tax for such period) shall constitute the filing of a return for all tax amounts required to be reported for the tax period.

(4) When the statute of limitations is 270 days or less, as indicated by a red exclamation point (!) in RCCMS, complete the RCCMS Statute Validation Process:

1. Check the "Statute Valid" check box in the RCCMS Compliance Activity, General tab (1 of 2).

2. Select "Actions", "Request Statute Validation", complete the "Comment" box and submit the request for your manager’s approval.

   Note: You must use the RCCMS validation feature before you transfer or close a case with 270 days or less.

(5) You may propose adjustments on returns with short statutes if the adjustments are significant.

1. Get your manager’s approval before you issue a 30-day letter for a return with less than 12 months left on the statute.

2. Include Form 872 with Letter 907-A and Pub 1035 when you mail the 30-day letter to the taxpayer.

(6) You may accept Form 872 by efax or email if you have contacted the taxpayer by phone or in-person and the case chronology:

• documents the prior contact, and

• the taxpayer’s wish to send the executed Form 872 by efax or email.

  Note: IRS accepts faxed signatures on Form 872 including electronic images of scanned original signatures transmitted by Enterprise Electronic Facsimile (EEFAX) or e-mail. To document the origin of an email or efax, it is necessary to preserve as correspondence the incoming email or efax that identifies the origin. Save the email or efax cover page as correspondence in the RCCMS Office Documents folder using the TE/GE RCCMS Naming Convention

(7) Document the case chronology for all the actions you took to verify and update the statute.

(1) Add discrepancy adjustment returns on WebETS when you establish the returns on RCCMS and AIMS.

(2) Charge any nominal time spent on the discrepancy issue before you establish the related return on RCCMS and AIMS.

(3) Use the appropriate activity code, which depends on the type of return to which the adjustment applies. See Document 6476 (EP) or Document 6379 (EO), or Document 11308 (GE) for the list of Activity Codes.

(4) Verify the AIMS generated activity code within RCCMS and ensure it agrees with the activity code used on WebETS before you close the case.

(5) Use the same project code as that on the related examination. If no other code is warranted, use "0000".

(6) For EP, don’t use a plan indicator on WebETS for the discrepancy adjustment case.

(1) IRM 4.70.11.3.1, Case Suspension for Federally Declared Disaster, or Terrorist or Military Action, should be considered before issuing a discrepancy adjustment package.

(2) When possible, mask the first five digits of a taxpayer's SSN on letters, forms, notices, workpapers and emails.

(3) Use Form 4549-E to communicate the discrepancy adjustment to the taxpayer and to request taxpayer agreement with the proposed discrepancy adjustment. Type in the Form 4549-E (ITG) "Other Information" section on page two the following comments:

• "This discrepancy adjustment doesn’t constitute an examination of your tax return".

• "See the attached Revenue Agent Report for an explanation of the issue(s)".

• EP: If IRC 4973 or IRC 4974 excise taxes are being adjusted, the "other information" section should explain the type of "other taxes".

(4) The discrepancy adjustment package includes:

1. Letter 3605, TE/GE Initial 30-day letter for Discrepancy Adjustment

2. Pub 1, Your Rights as a Taxpayer

3. Pub 5, Your Appeal Rights and How to Prepare a Protest if You Disagree

4. Pub 504, Divorced or Separated Individuals (if the subject return is a Form 1040 series return and the taxpayer was married)

5. Pub 594, The IRS Collection Process

6. Two copies of Form 4549-E, Income Tax Discrepancy Adjustments, (ITG) or Form 4549-T (TEB) with applicable interest and penalty calculations and explanations

7. Form 886-A, Explanation of Items

8. Form 9465, Installment Agreement Request (optional)

9. Return envelope

(5) Prepare Form 4549-E as the basic report form for discrepancy adjustments. Include the following comments in the “Other Information” section on page two:

1. "This discrepancy adjustment does not constitute an examination of your tax return".

2. "See the attached Form 886-A for an explanation of the issues".

3. "IRC 6404(g) does not apply" or "IRC 6404(g) does apply". See IRM 4.70.15.4.7, Interest.

(6) Use Form 886-A for your write-up of the issues. Organize the report as follows:

1. Issue – Clearly state the issues.

2. Facts– Provide pertinent details surrounding the issue.

3. Law– Provide a summary of Code sections, Revenue Rulings, court cases, etc., that relate to the issue(s) raised.

4. Government’s Position– Discuss each issue separately and apply the law and the facts relevant to each specific issue. List a summary of taxes due and the applicability of penalties.

5. Taxpayer’s Position– State the taxpayer’s position including any rebuttals the taxpayer has made on the Government’s position. If the taxpayer hasn’t provided a position on the Issue(s), a simple statement to that effect is sufficient.

6. Conclusion– Restate the Government’s position as a conclusion. If the taxpayer provides a position on the issue(s), list the Government’s rebuttal to it.

(7) Address penalties and interest in both the work papers and the Form 886-A. See IRM 4.70.15.4.6 Penalties and IRM 4.70.15.4.7 Interest.

(8) Mail the discrepancy adjustment package to the taxpayer by Certified Mail at the "last known address".

1. Get an INOLES print to obtain the taxpayer’s last known address.

2. Use a subsequent address if other sources confirm that the taxpayer’s address has changed from the one on INOLES.

   Note: If you’re unsure of the validity of the subsequent address, send the certified letter to both addresses. Use "last known address" is defined in 26 CFR 301.6212 - Definition of last known address. See IRM 4.70.11.8.3.1, Returned or Undeliverable Mail for guidance on locating the taxpayer.

(9) If the discrepancy adjustment is for a joint return:

1. Verify the last known address for each spouse.

2. Send a copy of the discrepancy adjustment report to each spouse, even if they live at the same address (required by RRA 98 Section 3201(d)).

   Note: Prepare and address each letter individually. Use the primary social security number on both letters. Letter should include POA information for each spouse.

(10) If a Form 5500 unagreed revocation has corresponding discrepancy adjustments, you issue the 30-day letters for both the discrepancy adjustment and the proposed revocation at the same time.

(11) Update AIMS and RCCMS to status code 13 after you issue Letter 3605.

(1) Determine whether to propose the assessment of penalties on the discrepancy adjustments. Include a brief discussion in the work papers on which penalties apply, whether you are proposing them, a computation of the penalty, as well as a statement as to whether reasonable cause or First Time Abate (FTA) applies or was considered. See IRM 20.1, Penalty Handbook for a discussion of penalties.

(2) Managerial approval is required (in writing) before certain penalties can be assessed. See IRC 6751(b)(1).

(3) When you impose penalties on a Form 1040 or Form 1120 discrepancy adjustment:

1. Get your manager’s approval on the CCR for the appropriate penalties before you mail the discrepancy adjustment package to the taxpayer.

2. Notify the taxpayer in writing that penalties are being assessed. Provide the penalty name, code section and a computation of the penalty.

   Exception: The RGS program automatically lists the penalty name, code section, and computations as part of the Form 4549-E (ITG) or Form 4549-T (TEB) report if selected through the penalty menu.

(1) Every notice IRS sends to an individual that includes an amount of interest due must also include both, a:

• Detailed computation of the interest charged.

• Code section citation under which the interest is imposed.

(2) If the IRS doesn’t provide a notice to the taxpayer who has timely filed their tax return, specifically stating the taxpayer’s liability within a "specified period of time", the IRS must suspend the interest. (See IRC 6404(g)). The "specified period of time" is 36 months for notices provided after November 25, 2007. (See 26 CFR 301.6404-4(a)).

(3) Suspension of interest under IRC 6404(g):

• Applies only to individuals, not to corporations.

• Applies only to timely filed returns (returns filed by the original due date or by the extended due date if a valid extension was filed).

• Has an impact on discrepancy adjustments only regarding the assessment of interest.

(4) IRC 6404(g) does not apply to:

• Any penalty imposed by IRC 6651

• Any case involving fraud

• Most listed transactions

• Any criminal penalty

• Certain other situations noted in IRC 6404(g)(2)

(5) For timely filed Forms 1040 covered by the 36-month notification deadline, interest will be suspended beginning on the day after the close of the 36-month period and ends 21 days after the notice is provided. “Notice” is considered to be made when the 30-Day letter package is mailed. The suspension period begins 36 months after the later of (1) the date on which the return is timely filed, or (2) the due date of the return without regard to extensions.

(6) IRC 6404(g) applies only if the “30-day letter” package (or similar notice) is mailed to the taxpayer after the specified period has expired.

(7) If IRC 6404(g) applies, interest should be calculated on Form 4549-E (ITG) or Form 4549-T (TEB) from the original due date of the Form 1040 return through the 36 month period.

(8) If IRC 6404(g) does apply and interest is being suspended:

1. Include the following in the "Other Instructions" section of the RCCMS 3198-A checksheet, and in the "Other Information" section of Form 4549-E (ITG) or Form 4549-T (TEB): "IRC 6404(g) applies, and notice was provided on (insert the date Form 4549-E was mailed to the taxpayer)".

2. On the file copy of Form 4549-E, add "Interest should be suspended beginning (insert the date the suspension period begins) through (insert the date the suspension period ends)".

3. Prepare Form 3177 and save it in the RCCMS Office Documents folder using the TE/GE RCCMS Naming Convention.

4. The Exam group manager must email the TE/GE Closing group manager when the case is closed to let them know interest is suspended and Form 3177 is in the RCCMS Office Documents folder.

(9) If IRC 6404(g) does not apply, interest should be calculated on Form 4549-E (ITG) or Form 4549-T (TEB) from the original due date of the return through 30 days after issuing the 30-day letter. In the "Other Instructions" section of the RCCMS 3198-A checksheet and in the "Other Information" section of Form 4549-E (ITG) or Form 4549-T (TEB), include the following: "IRC 6404(g) does not apply".

(1) If the taxpayer submits information that changes the discrepancy amount or penalties (but doesn’t eliminate it):

EO	EP
Letter 3619, EO 30-day letter for Discrepancy Adjustment Revised Proposed Adjustment, with a revised report to the taxpayer via certified mail.	Letter 2657 with a revised report to the taxpayer. See Employee Plans Examination Exhibits for an example of Letter 2657.

(2) If the taxpayer submits information that doesn’t change the original report:

(3) If you and your manager determine that IRS needs to inspect the books and records in more detail to resolve an income tax issue, refer the case to the appropriate EFU. See IRM 4.70.15.2, Referrals to an Examination Functional Unit (EFU).

(4) If the 30-day Letter is returned as undeliverable, try to get the correct address.

1. If you find the taxpayer’s correct address, re-mail the 30-day letter to the new address.

   Note: Use the date of the re-mailed letter to measure the 30 days for the taxpayer’s response. See IRM 4.70.11.8.3.1, Returned or Undeliverable Mail.

2. If you can’t find the taxpayer’s correct address, process the case per IRM 4.70.15.7.3, Failure of the Taxpayer to Properly Respond.

(1) If the taxpayer disagrees with the proposed adjustments, inform the taxpayer of their:

1. Right to discuss the proposed adjustment with a supervisor

2. Appeal rights

(2) Encourage a taxpayer who doesn’t agree with the proposed adjustment to file a valid written protest for the case to go to Appeals.

(3) If there’s less than one year on the statute of limitations, request a statute extension on Form 872. See IRM 4.70.12.3.8.10, Securing Consents for Form 1040 and Form 1120, for special instructions.

• Appeals won’t accept cases with less than one year remaining on the statute of limitations.

• If the taxpayer refuses to extend the statute of limitations, or you can’t find the taxpayer, close the case to Mandatory Review to issue a 90-Day letter instead of sending the case to Appeals.

  Note: Before closing the case to Mandatory Review, the group manager must call the Manager of Mandatory Review to discuss the case, noting the statute expiration date.

1. Appeals won’t accept cases with less than one year remaining on the statute of limitations.

2. If the taxpayer refuses to extend the statute of limitations, or you can’t find the taxpayer, close the case to Mandatory Review to issue a 90-day letter instead of sending the case to Appeals.

   Note: Before closing the case to Mandatory Review, the group manager must call the Manager of Mandatory Review to discuss the case, noting the statute expiration date.

(4) If the taxpayer files a protest to Appeals, see IRM 4.70.15.7.1.1, Protest to Appeals.

(5) If the formal written protest doesn’t comply with the requirements in Pub 5, you may, with managerial approval return the protest to the taxpayer and grant them additional time to perfect the protest.

(6) If the taxpayer doesn’t submit a valid protest, close the case to Mandatory Review to issue a 90-day letter.

(7) If the protest is valid and changes the report, but doesn’t eliminate the income tax adjustment, mail a revised report to the taxpayer. For EP, examiner will issue the revised report and create an individually designed cover letter giving the taxpayer an additional 15 days. For EO, mail the revised report (e.g. Form 4549-E) with Letter 3619, EO 30-Day Letter for Discrepancy Adjustment - Revised Proposed Adjustments.

• If the taxpayer agrees, close the case as an agreed case.

• If the taxpayer doesn’t agree, see IRM 4.70.15.7.1.1, Protest to Appeals, and close the case to Appeals with AIMS disposal code 07 (601 on RCCMS) Unagreed – Protest to Appeals.

(8) When closing a discrepancy adjustment to Appeals, save the final RAR and all supporting documentation for the discrepancy adjustment (e.g., loan documents and taxpayer generated documents) in the RCCMS Office Documents folder using the TE/GE RCCMS Naming Convention. Use RCCMS subfolders to organize document groupings when warranted.

(9) Follow these steps to save RGS file and upload to the RCCMS Office Documents folder:

1. Open the RGS program, highlight the case from "Case Management Window", which usually opens automatically, and hit "Select". If the "Case Management Window" doesn’t automatically (or you’ve been working in RGS on another case, select "File", "Open" and "Case" from the "Report Generation Software" window.

2. From the "Report Generation Software" window, select "Copy Case" from the "File" drop down menu.

   Note: Selecting "Move Case" removes the case from RGS once case is copied to your hard drive.

3. From the "Copy Case(s)" window, use "Select Location" in the "Copy Case(s) To" box to navigate to the desired location on your hard drive.

4. Select "Copy". A folder containing a file "NFORWARDI1.ZIP" (or similar name) is created.

5. Upload this file to the RCCMS Office Documents folder.

(10) To extract RGS information in an email (the NFORWARDI1.ZIP file):

1. Save the file to your hard drive.

2. Open RGS.

3. At the "Case Management" window, select "Merge".

(11) If interest is being suspended per IRC 6404(g), follow steps in IRM 4.70.15.4.7, Interest.

(12) Prepare Workpaper Summary Sheet (i.e., Form 5773, 5773-A, 4318, etc.) along with any supplemental workpapers and all other relevant documents. Ensure the workpapers:

• Are limited to the discrepancy adjustment issue(s).

• Discuss IRC 72(t) when the issue involves pension distributions.

• Briefly discuss the applicability of penalties and whether or not penalties are assessed.

(13) Save all IDRS research in the RCCMS Office Documents folder, following the RCCMS Naming Convention.

(14) Get a current AMDISA print and save in the RCCMS Office Documents folder before you close the case.

(15) Secure a current IMFOLT print (Form 1040) or BMFOLT print (Form 1120) immediately before you close the case to Appeals or Mandatory Review to ensure that the Service Campus has not already made the assessment for the discrepancy adjustment. Review the IMFOLT/BMFOLT print to identify if payment was made to determine which ARDI code to use in the RCCMS closing record. Save these in the Office Documents folder in RCCMS, using the TE/GE RCCMS Naming Convention.

(16) Complete the RCCMS closing tabs per IRM 4.70.15.13.1, Completion of RCCMS Tabs.

(17) Prepare the RCCMS 3198-A checksheet, identifying the case as "Forward to Appeals" or "Mandatory Review", and notate: "Unagreed Discrepancy Adjustment", and save it in the RCCMS Office Documents folder.

(18) If there’s less than one year on the statute of limitations, see IRM 4.70.12.3.7, Statute of Limitations and Statute Control Procedures and IRM 4.70.12.3.8, EP Statute Control Procedures, for special instructions.

(19) Close the case fully electronically.

(20) If the taxpayer or POA submits a valid protest to Appeals, see IRM 4.70.15.7.1.1, Protest to Appeals.

(21) If the taxpayer or POA doesn’t submit a valid protest to Appeals, close the case to Mandatory Review on RCCMS.

(22) Update the case to status code 20 on AIMS and RCCMS if the case is closed to Mandatory Review.

(1) Close the case to Mandatory Review for issuance of a statutory notice of deficiency in these situations:

• It appears reasonable that the taxpayer or authorized representative received the 30-day letter, and the taxpayer neither agrees (e.g., signs Form 4549-E) nor protests within the 30-day period.

• The taxpayer didn’t receive the 30-day letter, but the IRS exercised due diligence in determining the taxpayer’s last known address.

• The taxpayer is temporarily away and not expected to return within a reasonable amount of time or has not returned after a reasonable extension has been granted.

• You followed-up without success.

(2) Update the Revenue Agent Report (RAR) to state that the taxpayer failed to respond. Save a copy of the RAR in the Office Documents folder in RCCMS.

(3) A failure to reply to a 30-day letter is considered an unagreed case for processing purposes. Notate: "Unagreed Discrepancy Adjustment" in the "Mandatory Review" section of the RCCMS 3198-A Checksheet, item SH-M 4.0 Mandatory Review: Other (Specify).

(4) Copy the RGS information to an email to include or associate with your case. Ensure any passwords you used to encrypt the file is noted on the CCR.

(5) Follow these steps to save the RGS file and upload to the RCCMS Office Documents folder:

1. Open the RGS program, highlight the case from "Case Management Window", which usually opens automatically, and hit "Select". If the "Case Management Window" doesn’t automatically (or you’ve been working in RGS on another case, select "File", "Open" and "Case" from the "Report Generation Software" window.

2. From the "Report Generation Software" window, select "Copy Case" from the "File" drop down menu.

   Note: Selecting "Move Case" will remove case from RGS once case is copied to your hard drive.

3. From the "Copy Case(s)" window, use "Select Location" in the "Copy Case(s) To" box to navigate to the desired location on your hard drive.

4. Select "Copy". A folder containing a file "NFORWARDI1.ZIP" (or similar name) is created.

5. Upload this file to the RCCMS Office Documents folder.

(6) If interest is being suspended per IRC 6404(g) as described in IRM 4.70.15.4.7, Interest.

(7) Prepare Form 5773 or Form 5773-A, Form 4318 etc. (or equivalent) along with any supplemental workpapers and all other relevant documents. The workpapers should:

• Be limited to the discrepancy adjustment issue(s).

• Include a discussion on IRC 72(t) when the issue involves pension distributions.

• Include a brief discussion on the applicability of penalties and whether or not penalties are being assessed.

(8) Save all IDRS research discussed in IRM 4.70.15.4.1, IDRS Research, in the RCCMS Office Documents folder, following the TE/GE RCCMS Naming Convention.

(9) Get a current AMDISA print and save it in the RCCMS Office Documents folder before the case is closed.

(10) Secure a current IMFOLT print (Form 1040) or BMFOLT print (Form 1120) immediately before you close the case to Mandatory Review to ensure that the Service Campus has not already made the assessment for the discrepancy adjustment. Save these in the Office Documents folder in RCCMS, following the TE/GE RCCMS Naming Convention.

(11) Save a copy of Form 5773 / Form 5773-A, Form 4318, etc (or equivalent), supplemental workpapers, and all other forms and letters prepared by the examiner within RCCMS, following the RCCMS Naming Convention.

(12) Complete the RCCMS closing tabs. Use disposal code 604 Unagreed - Without Protest, on RCCMS.

(13) If there’s less than one year on the statute of limitations, request a statute extension on Form 872.

1. Appeals won’t accept cases with less than one year remaining on the statute of limitations.

2. If the taxpayer refuses to extend the statute of limitations, or you can’t find the taxpayer, close the case to Mandatory Review to issue a 90-day letter instead of sending the case to Appeals.

3. The group manager must contact the Manager of Mandatory Review if a case is closed to Review with less than one year on the statute of limitations.

(14) Complete the following before you transfer a case to Mandatory Review:

1. Scan all paper documents you exchanged with the taxpayer including envelopes or anything the taxpayer or representative marked.

2. Upload all exchanged documents and relevant documents you prepared during the examination into RCCMS.

3. Keep all records you upload into RCCMS or determine are no longer relevant to the case file per normal record retention requirements outlined in IRM 1.15.2, Types of Records and Their Life Cycles.

(15) Close the case fully electronically.

(16) The group manager will update the case to status code 20 and close the case to Mandatory Review.

(1) The TE/GE Closing Group makes tax assessments, penalty assessments, and adjustments for prepayment credits related to discrepancy adjustments from the amounts that are listed by the examiner on the Individual/Business (1 of 3) Tab of the RCCMS closing record. Therefore, be careful to input the correct amounts.

(2) If the case is partially agreed, indicate that the file is a partial agreement on top left corner of the General Tab of the RCCMS Closing record. Close the file to Mandatory Review with the words "discrepancy adjustment — partial agreement" typed in the remarks section of the RCCMS 3198-A checksheet.

(3) Validate cases for closure in the RCCMS closing record using the table below.

(1) Use Letter 2656 (for EP) or Letter 5332 (for EO) as the closing letter when you drop the discrepancy adjustment issue because of the taxpayer’s response to the 30-day letter. See Employee Plans Examination Exhibits for an example of Letter 2656.

(2) The 30-day letter is the final letter for agreed cases.

(1) Complete the following before you close a case:

• Scan all paper documents you exchanged with the taxpayer including envelopes or anything the taxpayer or representative marked.

• Save all exchanged documents, letters and forms you prepared during the examination into the RCCMS Office Documents folder using the TE/GE RCCMS Naming Convention. Ensure all documentation supporting the discrepancy adjustment issue is uploaded.

• Keep all records you upload into RCCMS or determine they’re no longer needed per normal record retention requirements in IRM 1.15.2, Types of Records and Their Life Cycles.

(2) Close all cases fully electronically to increase efficiency and reduce the need to mail paper case files. Consult with your manager on cases with unique circumstances that might justify closing with a paper case file.