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IRS Audits

Chapter 4. AIMS Processing

Section 12. Examined Closings, Surveyed Claims, and Partial Assessments (Cont. 1)

4.4.12  Examined Closings, Surveyed Claims, and Partial Assessments (Cont. 1)

4.4.12.4 
Examined Closings/Surveyed Claims

4.4.12.4.18 
Item 08: Agreement Date

4.4.12.4.18.3 
Payment in lieu

4.4.12.4.18.3.2  (08-01-2003)
90-Day Cases

  1. Payments in lieu of an agreement, are not valid for 90-day cases. See IRM 4.14.1, Statutory Notice of Deficiency for more information.

4.4.12.4.18.3.3  (06-01-2002)
Agreement Received After Payment

  1. Use received date of the agreement. Master File will use the TC 640 date and the "870 Date" to compute interest correctly.

4.4.12.4.18.3.4  (06-01-2002)
Multiple Signed Agreements

  1. If a second signed agreement is obtained, enter the most recent agreement date.

4.4.12.4.18.3.5  (06-01-2002)
Employment Tax Cases

  1. Do not enter a date since there is no interest free periods for employment tax cases.

4.4.12.4.18.3.6  (06-01-2002)
Overassessment Cases

  1. Do not make an entry for overassessment cases.

4.4.12.4.18.3.7  (06-01-2002)
Surveyed Claims

  1. Do not make an entry for surveyed claims.

4.4.12.4.18.3.8  (06-01-2002)
No signed agreement

  1. Do not make an entry where there is no signed agreement.

4.4.12.4.19  (06-01-2002)
Item 09: Priority Code

  1. Used to allow an adjustment to post by bypassing certain unpostable conditions. Priority codes which are 1, 2, 3, 4, 5, 8, or 9 must be used with extreme care.

4.4.12.4.19.1  (06-01-2002)
Amended/Dupl Return

  1. Priority Code 1 will allow a TC 30X to be input when an amended or duplicate return freeze condition exists on AIMS and Master File. Be sure the adjustment will not create a duplicate refund or assessment. The amended return should be in the case fiIe.

4.4.12.4.19.2  (06-01-2002)
Settlement Amount

  1. Priority Code 2 is used when it is desired to override the unpostable condition that normally occurs when the settlement amount entered in Item 10 of Form 5344/5403, does not match the total corrected tax on Master File. See Item 10 for more information on the settlement amount.
     —Priority Code 2 is valid only with the copy blocking series of 790–799 or 900–999.
     —Priority Code 2 is valid with any disposal code but it is required with Disposal Code 01 or 02.

4.4.12.4.19.3  (06-01-2002)
Amended/Dupl Return & Settlement Amount

  1. Priority Code 3 is used to permit a TC 30X to post by bypassing an unpostable condition caused by an amended return freeze and settlement amount. This priority code would be used when both Priority Code "1" and Priority Code "2" are required to post the Examination adjustment.
     —Priority Code 3 is valid only with the copy blocking series of 900–999 or 790–799.
     —Priority Code 3 is valid with any disposal code but it is required with Disposal Code 01 or 02.

4.4.12.4.19.4  (06-01-2002)
Partial Assessments/Amended Return/Closure to Appeals

  1. Priority Code 4 is used to allow a partial assessment to post to Master File without releasing the amended return freeze.

  2. Only valid with the partial assessment blocking of 1XX.

  3. To prevent unpostables, from occurring, when closing cases to Appeals, always enter a priority code 4 on all closures to Appeals.

4.4.12.4.19.5  (06-01-2002)
Failure to Pay Penalty

  1. Priority Code 5 with a TC 300 forces the assessment of failure to pay penalty accruals to the posting date of the adjustment and issue a notice to the taxpayer, when the closing action will not otherwise result in the recomputation and assessment of accruals and the issuance of a balance due notice.

4.4.12.4.19.6  (06-01-2002)
FTP for SFR's

  1. Priority Code 9 is used to compute FTP from return due date if module contains an SFR.

  2. See IRM 20.1 Penalty, for all procedures pertaining to penalties.

4.4.12.4.19.6.1  (06-01-2002)
Substitute for Return (SFR) Document Code 47 Closures - Failure to Pay Penalty

  1. On Substitute for Return (SFR) closures input using AMCLSE (Doc. Code 47), the use of Priority Code 9 eliminates the need to manually compute and input TC 270 for the failure to pay penalty. When input with a TC 300 assessment, Priority Code 9 provides for computer generation of the failure to pay penalty as if the tax assessment posted as a TC 150. Priority Code 9 can be used in two situations to allow Master File generation of the failure to pay penalty, allowing the module to remain unrestricted for accruals of any additional FTP penalty that may be due. The two conditions for using Priority Code 9 are:

    1. On defaulted SFR modules with return due dates after July 30, 1996;

    2. On SFR modules when a taxpayer subsequently submits a delinquent return or an agreed examination report processed by the Examination function.

     

4.4.12.4.19.6.2  (06-01-2002)
Processing Instructions

  1. When using Priority Code 9, the following instructions must be used to prevent rejects and unpostables. Special instructions are provided when processing these adjustments as partial closures or as a result of audit reconsiderations. PLEASE REPORT ANY PROCEDURAL OR SYSTEMIC PROBLEM RELATED TO THESE INSTRUCTIONS THROUGH YOUR AREA ANALYST FOR RELAY TO THE NATIONAL HEADQUARTERS.

    1. Verify that the TC 150 posted on the module represents an SFR posting.

    2. Consider whether the current assessment is by default, delinquent return, or agreed examination report.

     

4.4.12.4.19.6.2.1  (06-01-2002)
Adjustment due to Default

  1. If the adjustment being made is due to default, if

    1. If the due date of the taxable period is prior to July 30, 1996, the FTP penalty is not applicable at the time of assessment. As appropriate the Failure to File (FTF) penalty can be assessed up to its full percentage, which is 25%. Do not enter a TC 270 for a zero or any amount. Enter only the applicable TC 160 (FTF penalty) amount along with any other appropriate closing entry.

    2. If the due date of the taxable period is after July 30, 1996, the FTP penalty is applicable and can be generated by input of the Priority Code 9 (PC 9). The FTF penalty must be recomputed since the rate is reduced to 22.5 percent. Enter the correct TC 160 amount and PC 9 on the closing document with other entries as appropriate.

     

4.4.12.4.19.6.2.2  (06-01-2002)
Adjustment Due to Delinquent Return or Agreed Report

  1. If the adjustment is by delinquent return or agreed examination report, regardless of the due date, of the tax period being adjusted, the FTP and FTF penalties are applicable. Compute the FTF penalty using the 22.5 percent rate. Enter the correct TC 160 amount and PC 9 on the closing document with other entries as appropriate.

4.4.12.4.19.6.2.3  (06-01-2002)
Additional Forms

  1. In addition to the Form 5344 or 5403, the following documents must also be prepared. Code and edit procedures for these documents are located at the end of these instructions:

    1. Form 3177 — used to post a TC 971 action code 13 and received date.

    2. Form 8485 — used to post the Return Processible Date (RPD).

     

4.4.12.4.19.6.2.4  (06-01-2002)
Input of Forms

  1. Input all three documents (Form 5344/5403, 3177 and 8485) in the same cycle. Enter a Posting Delay Code of " one" on Form 8485 to allow it to post one cycle later than Form 5344/5403 and Form 3177.

  2. It is important that the forms be input in the above manner so that the processing sequence will prevent unpostables. Master File will post the transactions in numerical order, automatically release freezes and produce timely results. For example, any TC 160, 300 or 806 will post before a TC 971 (input via Form 3177) if input within the same cycle. This allows the TC 300 to post without a PC 1 since the TC 971 is recognized after the TC 160, 300 or 806. The –A freeze set by the TC 971 is released one cycle later by the TC 290 which posts the return processible date.

  3. If instructions from the examining officer indicate that the FTP and FTF penalties are waived due to reasonable cause, do not enter PC 9 or a TC 270 with a zero amount. However, the FTF penalty must be addressed with a TC 160 for a zero amount to allow the closing through AIMS.

    Caution:

    If a refund or offset is due the taxpayer because of excess withholding, EIC or payments, ensure that the return processible date (per Form 8485) posts prior to the issuance of the refund. The return processible date allows Master File to compute credit interest from the correct starting date. Enter Hold Code 1 on the Form 5344/5403, which will freeze any overpayment until the Form 8485 has posted with the return processible date. The TC 290 for the zero amount will release the overpayment for refund or offset.

     

4.4.12.4.19.6.2.5  (06-01-2002)
Partial Closing Procedures

  1. The procedures for partial adjustments are handled the same manner except that Priority Code 5 must be input on Form 8485. This is necessary because the FTP penalty generated by the PC 9 may sometimes accrue instead of post to the module. The evidence of the accrual action may not be apparent until a few cycles after input of PC 9. An example of this condition was shown on a module that included a TC 640 advance payment that fully paid the tax and interest, but not the FTP penalty. Input of PC 5 will cause the accruals to post and ensure they are included in the debit balance in the same manner as any other FTP penalty generated on a delinquent return.

4.4.12.4.19.6.2.6  (06-01-2002)
Audit Reconsiderations

  1. Sometimes after a defaulted SFR assessment is made, the taxpayer files a delinquent return or requests an audit reconsideration and subsequently agrees to an examination report. Since the delinquent return or agreed examination report constitutes the taxpayer’s actual return filing, Master File must be updated to post the corrected tax data. The due date of the taxable period being examined will determine how to handle the subsequent action to the taxpayer’s module.

4.4.12.4.19.6.2.7  (06-01-2002)
For Taxable Periods Due Prior to July 30, l996:

  1. For these periods, the FTP penalty should not have been asserted on the SFR assessment. A tax increase or decrease will be input depending on whether the corrected tax is greater or less than the amount previously assessed. In both cases, take the following steps:

    1. Compute the FTP penalty on the total tax that is UNPAID after the return due date. This amount may include both the prior and current assessment. Use TC 270 to assess the penalty. Do not use PC 9. If all of the corrected tax is paid by the return due date, do not input TC 270 for any amount.

    2. Recompute the FTF penalty using the reduced rate of 22.5 percent and compare the corrected amount against the previously assessed FTF penalty. Manually post the difference with input of TC 16X.

    3. Input Forms 3177 and 8485 to post the TC 971 and return processible date. If an overpayment or barred credits exist, use Hold Code 1 on Form 5344/5403.

     

4.4.12.4.19.6.2.8  (06-01-2002)
For Taxable Periods Due After July 30, l996:

  1. For these periods, the FTP penalty should have been asserted on the SFR assessment.

    1. If the tax is an increase and the previously assessed FTP penalty was computer generated (TC 276), use PC 9 on Form 5344/5403. If the tax is decreased, and the previously assessed FTP penalty was computer generated, Master File will automatically adjust the FTP penalty to the correct amount without the PC 9. If the previously assessed FTP penalty was restricted with TC 270, recompute the FTP penalty and input a TC 270 or TC 271 as appropriate.

    2. Recompute the FTF penalty using the reduced rate of 22.5 percent and compare the corrected amount against the previously assessed FTF penalty. Manually post the difference with a TC 16X.

    3. Input Forms 3177 and 8485 to post the TC 971 and return processible date. If an overpayment or barred credits exist, use Hold Code 1 on Form 5344/5403.

     

4.4.12.4.19.6.3  (06-01-2002)
FORM 3177 CODE AND EDIT

  1. Form 3177 is used to post:

    1. TC 971 with an action code 13, indicating a "return" was secured;

    2. the received date of the delinquent return or agreement.

     

  2. Enter the appropriate information under Initiator, Date, Taxpayer Name, and ElN/SSN.

  3. In the block designated "Other" , enter TC 971. In the space to the right, enter AC 13 and the IRS received date of the return or agreement.

  4. In the designated area, enter the MFT Code and Taxable Period.

4.4.12.4.19.6.4  (06-01-2002)
Form 8485 Code and Edit

  1. This form is primarily used to post the Return Processible Date (RPD). The TC 290 for a zero amount will also release the –A freeze generated by the TC 971. If processing a partial closure, use Priority Code 5 on Form 8485 to force post any accruals (see Partials). If a Hold Code 1 was used on Form 5344, it will release the refund/offset freeze.

  2. Code and edit the Form 8485 as required, using a TC 290 for a zero amount and a posting delay code of "one " . Do not use a hold code on this document unless the overpayment requires suspension, such as in the case of a barred overpayment.

  3. In the block designated "RPD" , enter the IRS received date of either the delinquent return or agreed examination report, whichever is applicable.

4.4.12.4.19.6.5  (06-01-2002)
Restricted Modules

  1. Recomputation and assessment of failure to pay penalty accruals will not occur if the tax module is restricted from computer computation of the failure to pay penalty.

4.4.12.4.19.6.6  (06-01-2002)
Notice Suppression

  1. The notice may be suppressed by input of an appropriate hold code with the adjustment. Accruals will be assessed whether or not a notice is issued.

  2. Unrestricted interest due will also be assessed.

4.4.12.4.19.7  (08-01-2003)
Bypass a Previous Adjustment Unpostable

  1. Priority Code 8 is used to bypass the unpostable conditions that occur when the adjustment:
     - is within $10.00 of a previously posted adjustment (UPC 158 or 328),
     - contains Credit Reference Number 764 (Earned Income Credit) and there's a 764 in the module (UPC 180),
     - contains Credit Reference Number 764 (Earned Income Credit) and there's a 290 in the module (UPC 180), or
     - contains Credit Reference Number 806 or 807 and no TC 17X when the module contains a significant net TC 17X (UPC 158).

4.4.12.4.19.8  (08-01-2003)
Closures to Appeals

  1. If there is a TC 976/977 indicator present a Priority Code 1 or 3 is required. If the TC 976/977 indicator is not present, use Priority Code 4 to bypass TC 97X unpostable if TC 97X posts to Master File before the TC 300 for zero posts.

4.4.12.4.19.9  (06-01-2002)
Master File Priority Codes

  1. The priority codes used by AIMS (Doc Code 47) and not always the same as the priority codes for Doc Code 54 adjustments. For information on priority codes to be used for DP adjustments, refer to Document 6209, ADP and IDRS lnformation.

4.4.12.4.20  (06-01-2002)
Item 10: Settlement Amount

  1. The settlement amount check is necessary when closing on a copy of a return, to ensure that the examining officer used the correct "Total Tax Shown on Return or as Previously Adjusted " amount on the examination report.

  2. The amount entered in Item 10 must be within $10.00 of the original tax liability plus any subsequent adjustments posted at Master File, or an unpostable condition will occur.

4.4.12.4.20.1  (06-01-2002)
Tax per Return = $0

  1. Enter $1 if tax per return equals zero.

4.4.12.4.20.2  (06-01-2002)
Closing on a Copy

  1. This entry is required for all examinations closed using a copy of the return.

4.4.12.4.20.3  (06-01-2002)
Prior Manual Assessment

  1. There are times in which you are uncertain as to what the amount per Master File will be when the assessment posts. An example of this is when a manual assessment has been requested right before final closure. Since you are not certain whether the manual assessment will post before or after the final closure, it is necessary to enter a Priority Code of 2 or 3 (whichever is applicable) to bypass the unpostable condition.

  2. After verifying that the "Total Tax Shown on Return or as Previously Adjusted" amount from the examination report is correct, enter this amount in Item 10 and a Priority Code of 2 or 3.

4.4.12.4.20.4  (06-01-2002)
Closures to Appeals

  1. Not required

4.4.12.4.20.5  (06-01-2002)
No Change Cases

  1. For Disposal Codes 01 or 02, a Priority Code 2 or 3 (whichever is applicable) is required, and DO NOT enter an amount in Item 10.

4.4.12.4.21  (06-01-2002)
Item 11: Int Comp Date

  1. For cases closed with a TC 304, 305, 308, or 309, enter the date the interest begins.

4.4.12.4.22  (06-01-2002)
Item 12: Tax Liability Penalty and Interest Adjustments

  1. This field is used to enter the examination adjustments. This entry is dependent on the disposal code.

    IF the disposal code is: THEN:
    01 — Item 12 may be blank. The computer will generate a TC 300 for zero.
      — if Item 12 is entered, the net result of all Item 12 entries must equal zero.
    02 — Item 12 must be left blank. The computer will automatically generate a TC 300 for $0.00.
    03, 04, 08, 09, 10, 12 or 13 — Item 12 mayor may not be entered. A terminal reject will occur if no Exam Results are generated at closing.
    07 or 11 — Item 12 must be left blank. The computer will automatically generate a TC 300 for $0.00.
    34 — A non-zero amount must be entered in Item 12 and/or 15, and the net amount must be negative. For example, Item 12 may contain a tax increase if Item 15 contains an increase in a refundable credit in an amount greater than the tax increase in Item 12.

     

4.4.12.4.22.1  (06-01-2002)
Item 12 Entries

  1. Enter the tax, penalty, and interest transaction codes under "Trans Cd" in the first column of Item 12, as appropriate.

  2. Enter the amount in the second column, if negative, enter a "-" after the amount.

  3. In the lower portion of Item 12, two lines contain boxes in the right-most positions in which plus (+) or minus (-) may be entered to increase or decrease penalties. These lines may be used to adjust penalties without the necessity of processing two separate adjustment documents.

  4. Enter interest transactions codes and amounts on the interest line.

  5. If more than one deficiency is determined, Form 5344 should reflect the total tax change and or penalty. Interest must be computed manually, using the separate agreement dates and combined interest amount entered with TC 340.

4.4.12.4.22.2  (06-01-2002)
Tax Adjustments

  1. The following transaction codes are used when making adjustment to tax.

4.4.12.4.22.2.1  (06-01-2002)
TC 300

  1. Assesses an Examination tax deficiency on a tax module containing TC 150.

4.4.12.4.22.2.1.1  (06-01-2002)
Affect on Master File

  1. Following is a chart on what affect the posting of the TC 300 has on Master File.

    IF there is: THEN the TC 300 will:
    Amended Return Freeze Post only if a priority code is used. PC 1&3 releases the freeze, PC 4 does not
    Interest due generate TC 336 (assessment of interest)
    –L Freeze Generate TC 421 (unless CC is AMCLSF) to release –L freeze if the Disposal Code is 1–4, 8–10, 12, 13 or 34.
    TC 470 Releases TC 470 (claim pending)
    TC 570 Releases TC 570 freeze (additional liability pending) and refund hold
    TC 640 Releases TC 640, advance payment of determined deficiency freeze
    TC 680 (IMF Only) Releases TC 680, interest payment, invalid SSN and account reactivation freezes
    TC 720 Releases TC 720, refund payment freeze
    TC 840 Releases TC 840, refund prior to final settlement
    TC 841 Releases TC 841, canceled refund check freeze
    TC 842 (BMF) Releases TC 842, refund deletion and Joint Committee only freezes