It is important that taxpayers be treated equitably and that decisions regarding liability for penalties be based on sound analyses of the reasons advanced by the taxpayer for failing to act.

In accordance with Policy Statement 20-1, "Penalties are used to enhance voluntary compliance," the IRS administers a penalty system that is designed to:

To ensure consistency, the Service uses a single set of guidelines for all operational and processing functions contained in the IRM subsections of IRM 20.1, Penalty Handbook. The Office of Servicewide Penalties website is an excellent supplemental resource for guidance on all penalties - see https://portal.ds.irsnet.gov/sites/VL015/Pages/default.aspx.

IRM 25.1.1, Fraud Handbook, Overview/Definitions, and IRM 25.1.2, Fraud Handbook, Recognizing and Developing Fraud, provide specific guidance on fraud indicators and the development of fraud cases.

Employment tax provisions are found at Internal Revenue Code Subtitle C:

The Employment Tax Program is governed by Policy Statements and other internal guidance that apply to all Service personnel regardless of operating division. The Policy Statements found in IRM 1.2.1, Servicewide Policies and Authorities, Servicewide Policy Statements, apply to all employment tax issues and examinations. Examiners should review these Policy Statements to properly perform their examination duties.

A website, Search Servicewide Delegation Orders, located at http://irm.web.irs.gov/imd/del/search.aspx provides a searchable list of Servicewide Delegation Orders issued by the Commissioner of the Internal Revenue, or on his or her behalf by either of the deputy commissioners. Delegation Orders pertaining to each IRS business process can be found in IRM 1.2.2, Servicewide Policies and Authorities, Servicewide Delegations of Authority.

IRM 4.23 provides Servicewide instructions for all operating divisions with employees involved with the correct filing, reporting, and payment of employment taxes. IRM 4.23 serves as the foundation for consistent administration of employment taxes by various IRS operating divisions. By providing one source of authority for all operating divisions, the Service greatly reduces philosophical and procedural inconsistencies.

Director, Specialty Examination Policy is responsible for the procedures and updates addressed in this IRM.

Director, Specialty Examination is the executive responsible for examination operational compliance.

Chief, Employment Tax Examination, is responsible for ensuring examiners follow the guidance included in this IRM.

Program Goals: The processes and procedures provided in this IRM are consistent with the objectives or goals for Employment Tax - Examination that are addressed in IRM 1.1.16.5.3.3, Employment Tax Examination, found in IRM 1.1.16.5.5.2.2, Employment Tax Policy.

Program Effectiveness: Program goals are measured with Employment Tax National Quality (NQ) and Embedded Quality (EQ) Performance Reports that monitor whether quality attributes are applied uniformly and consistently.

Annual Review: Program Manager - Employment Tax Policy is responsible for reviewing the information in this IRM annually to ensure accuracy and promote consistent tax administration.

Program Reports: Information regarding the reporting of program objectives are included on, but not limited to, the following reports submitted to the Director, Examination - Specialty:

The Quarterly Business Performance Review (BPR) provides updates on the status of Whistleblower claims in Operating Division SME status.

Below are common acronyms used in this IRM section. Acronyms not listed below may be found in the Acronyms Database.

The following table lists the primary sources of guidance:

Other helpful information sources include:

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 www.irs.gov/taxpayer-bill-of-rights.

The Taxpayer Advocate Service (TAS) is an independent organization within the Internal Revenue Service (IRS), led by the National Taxpayer Advocate. Its job is to protect taxpayers’ rights by striving to ensure that every taxpayer is treated fairly and knows and understands their rights under the TBOR. TAS offers free help to taxpayers, including when taxpayers face financial difficulties due to an IRS problem, when they are unable to resolve tax problems they haven’t been able to resolve on their own, or when they need assistance to address an IRS system, process, or procedure that is not functioning as it should. TAS has at least one taxpayer advocate office located in every state, the District of Columbia, and Puerto Rico.

Examiners should consider the disclosure provisions when preparing agreed and unagreed case reports. For further information, see the Privacy, Government Liaison and Disclosure (PGLD) maintained knowledge base at https://portal.ds.irsnet.gov/sites/vl003/pages/default.aspx.

IRC 6751(a) requires that each penalty notice include the name of the penalty, the Code section imposing the penalty, and a computation of the penalty. The computation must include:

The penalties shown on the separate explanation sheet must agree with the penalty amounts shown on all employment tax reports issued to the taxpayer. Examples include:

A notice of penalty for purposes of IRC 6751(a) is any notice on which the Service asserts a penalty. Examples include:

First indications of fraud serve as a sign that a taxpayer may have taken actions for the purpose(s) of deceit, subterfuge, camouflage, concealment, attempting to color or obscure events, or to make things seem other than they are. First indications alone do not establish fraud.

First indications of fraud, also known as "badges of fraud," are mere suspicions of fraud. When discrepancies are identified, examiners must ask the taxpayer, the preparer, the representative, or any other involved party for explanations to resolve them. Questions should also be asked to determine the taxpayer’s intent. Examples of fraud indicators can be found in IRM 25.1.2.3, Indicators of Fraud.

At the first indication of possible fraud, the examiner should review IRM 25.1.1, Fraud Handbook, Overview/Definitions. Investigative techniques can be found in IRM 25.1.2.4, Investigative Techniques.

The examiner will use their judgment to determine audit techniques necessary to help resolve the badges of fraud. To be effective, examination techniques should be designed to disclose not only errors in accounting and application of law, but also irregularities, such as backdated or forged documents. It is not suggested that fraud exists in every assigned return or case, but examiners must be cognizant of the badges of fraud and address them in cases where they do exist.

The examiner will document the first indications of fraud in the workpapers and discuss the case with their manager. If the manager concurs that there is a possibility of fraud, a conference (either in person or over the phone) will be held between the examiner, the group manager, and the Fraud Enforcement Advisor (FEA).

The FEA serves as a resource person for compliance employees to assist in fraud investigations and offer advice on matters concerning tax fraud in all the business organizations.

When the examiner, the examiner’s manager, and the FEA agree that there is a potential for fraud, the case controls must be updated to Status Code (SC) "17" (fraud development). This decision must be documented in the case file. Form 11661, Fraud Development Recommendation - Examination, is used to document FEA involvement as well as the decision to update the case to Status Code "17" . See IRM 20.1.5.16.3, Penalty Referral.

A plan of action should be developed to establish and document the affirmative acts or firm indications of fraud. Refer to IRM 25.1.2.2, Fraud Development Procedures, for information on the minimum plan for case development. The examiner should continue the audit being alert for other badges of fraud and follow up on initial suspicions of fraud. For a list of common badges of fraud refer to IRM 20.1.5.16.1, Indications of Fraud.

Firm indications of fraud, or affirmative acts, establish that a taxpayer deliberately took actions with the purpose of deceit, subterfuge, camouflage, concealment, attempting to color or obscure events, or to make things seem other than what they are.

Fraud may exist where a taxpayer willfully attempts to underreport taxes, or does not pay taxes. For a taxpayer to be guilty of a crime in which willfulness is an element, that individual must have acted deliberately, knowingly, and with the specific intent to violate the law.

A "firm indication" of fraud must be distinguished from a "first indication" of fraud. A firm indication of fraud is a factual determination that can only be made on a case-by-case basis. Discussions with the group manager and the FEA will help the examiner determine when they have firm indications of fraud warranting development for a civil fraud penalty or a referral to Criminal Investigation (CI) for criminal fraud development. However, under no circumstances shall examiners or managers obtain advice and/or direction from CI for a specific case that is under examination. In addition, if a referral is being considered, an examiner must not solicit an agreement or solicit and receive delinquent returns prior to the submission of a fraud referral.

When the group manager, FEA, and examiner agree firm indications of fraud are present, a decision must be made regarding whether the case will be referred for criminal prosecution or will be developed for the assertion of the civil fraud penalty. Until this decision is made, the examination should immediately be suspended without disclosing to the taxpayer the reason for such suspension. Examiners are cautioned not to carry the investigation beyond the point where a valid indication of fraud is adequately supported by the workpapers.

If the case does not meet the guidelines for a criminal referral, the examiner will document the reasons in the case file and proceed with development of the case and the civil fraud penalty. The examiner will continue to work with the FEA to ensure complete development of the facts to support assertion of the civil fraud penalty. Refer to IRM 4.23.9.6.4, Civil Fraud Procedures.

If the case warrants a criminal referral, the examiner will prepare Form 2797, Referral Report of Potential Criminal Fraud Cases. Refer to IRM 4.23.9.6.3.1, Criminal Fraud Referrals.

Information about the source or details of evidence relating to a potential criminal case must be safeguarded and withheld to the extent necessary to avoid prejudice to a case. This general rule is applicable not only during the investigation of a case, but also in any action taken with respect to the civil portions of a case having open criminal aspects. When appropriate, examiners are expected to coordinate proposed disclosure of information through established channels.

The following code sections are the most common used by examiners when developing criminal fraud cases:

Full cooperation among all levels of operations in the IRS must be maintained to ensure that there is neither duplication in investigations nor unnecessary inconvenience to the public. The examiner will review IDRS to determine if any "-Z" freeze (Transaction Code (TC) 914) conditions exist and if other functions are assigned to the taxpayer case. Criminal Investigation (CI) or the FEA should be contacted prior to beginning case action whenever an un-reversed TC 914 (or other CI code) is present in any module.

If an examiner learns that an assigned case involves a taxpayer who is the subject of a criminal investigation, all activity on the case will be immediately suspended. The examiner’s manager will consult with the Supervisory Special Agent in CI relative to the continuance of employment tax activity on the case. If agreement to either continue the suspension or to resume the employment tax activity on the case cannot be reached at the group or territory level, the issue will be decided at the area level. Where more than one area is involved, the Director of Field Operations having jurisdiction over the criminal investigation will resolve the question.

In income, estate, and gift tax cases in which criminal prosecution has been recommended (except potential jeopardy cases), the Service generally does not authorize assessment of additional taxes and penalties during the time the recommendation for criminal prosecution is under consideration or during the period such cases may be awaiting trial or pending an appeal. The same procedure will be followed with respect to employment tax cases in which criminal prosecution has been recommended.

Threat of criminal prosecution shall never be made in any case. If a question concerning civil action arises in a case with open criminal aspects, it will be resolved on the basis of whether the criminal case will be prejudiced by the proposed civil action. IRM 1.2.1.5.11, Policy Statement 4-26 (Formerly P-4-84), Criminal and civil aspects in enforcement, provides that the consequences of civil enforcement actions on criminal investigations for the same taxable periods and same types of taxes must be carefully weighed. Any discussion or negotiation regarding settlement of civil enforcement actions must be guided by this policy and input from the FEA.

An assertion of the civil fraud penalty may be made on the development of facts and circumstances of a civil examination or result from a completed criminal prosecution (case returned for civil resolution). See IRM 4.23.9.6.4.2 for additional procedures.

Assertion of the civil fraud penalty on a case does not require a referral to CI. Determination of the civil fraud penalty is the shared responsibility of the examiner, the group manager, and the FEA. See IRM 25.1.6.3, Procedures. Area Counsel’s approval is required for all fraud penalty assertions. If the case involves issues requiring the issuance of a Letter 3523, Notice of Employment Tax Determination Under IRC Section 7436, Area Counsel must approve the civil fraud penalties prior to issuance. The examiner should coordinate with Counsel to ensure their concurrence prior to submitting the case to Technical Services for the issuance of the Letter 3523. If the case involves assessment of employment taxes not subject to IRC 7436, Area Counsel must approve the civil fraud penalties prior to assessment.

Recommendations for imposing the civil fraud penalty must receive careful scrutiny to make certain that such penalties are asserted only in appropriate cases. The Service bears the burden of proving civil fraud by clear and convincing evidence in Tax Court. See IRC 7454, Burden of proof in fraud, foundation manager, and transferee cases.

The following code sections are the most common used by examiners when developing civil fraud cases:

IRM 25.1.1, Fraud Handbook, Overview/Definitions, notes several elements that may be indicative of fraud. Examiners should remain continually alert for these and other "badges of fraud."

When the group manager, FEA, and examiner agree to pursue the civil fraud penalty on a civil examination, the case will remain in Status Code "17" . If a decision is made that civil fraud is no longer applicable, the examiner will document this decision in the case file, update the case to Status Code "12" , and complete the examination.

The final examination report will reflect the civil fraud penalties applied to the appropriate adjustments. See IRM 4.23.9.6.4.1, Civil Fraud Penalty Rates.

Cases returned from CI after criminal prosecution or discontinuance of the criminal investigation will be completed as a civil resolution by the referring examiner. See IRM 4.23.9.6.4.2. However, if the examiner participated in the grand jury investigation and had access to grand jury information, the case cannot be assigned to the cooperating examiner. See IRM 25.1.5.6, Civil Case Resolution.

Update the case to Status Code "17" after the determination is made that the case will be developed for either the civil fraud penalty or for potential criminal referral to CI. If the civil fraud penalty is not pursued, the case will be returned to Status Code "12" for the completion of the examination.

Update the case to Status Code "18" when a case is accepted by CI after a criminal fraud referral is made. The accepted criminal referral case will remain in Status Code "18" until the criminal investigation is concluded or until the case is referred to DOJ.

While in Status Code "17" or Status Code "18" , cycle time will be excluded from monthly "aging" reports to management. As AIMS and ERCS, Exam Return Control System, include data from all cases, a manual reconciliation to the aging reports will exclude Status Code "17" and "18" cases from both the overage category and the overage percentage.

When closing a civil fraud case, the examiner will enter:

An administrative waiver of the FTD penalty is available in certain circumstances where the FTD penalty is asserted on a $100,000 next-day deposit obligation of employment taxes arising from the exercise of a non-qualified stock option (NQSO) within a deposit period.

The waiver allows the next-day deposit requirement to be applied using a settlement date three days from the exercise date or the actual settlement date if earlier than three days.

Refer to IRM 20.1.4.26.2, Administrative Waivers, for detailed instructions on implementing administrative waiver of the FTD in specific circumstances.

IRC 6041, Information at Source, and IRC 6041A, Returns Regarding Payments of Remuneration for Services and Direct Sales, provides that all persons engaged in a trade or business and making payment in the course of such trade or business to another person of remuneration for services of $600 or more must make and furnish a return to payee on or before January 31st of the year following the calendar year for which the return was made. A copy of Form 1099-MISC, Miscellaneous Income, or Form 1099-NEC, Nonemployee Compensation, may be used for this purpose, as appropriate.

Generally, the time for furnishing Form 1099-MISC or Form 1099-NEC is set forth in IRC 6041(d) , “The written statement required under the preceding sentence shall be furnished to the person on or before January 31 of the year following the calendar year for which the return under subsection (a) was required to be made.”

Treas. Reg. 1.6041– 6 provides that a payor must file all informational returns made under IRC 6041 (Form 1099-MISC or Form 1099-NEC) with a completed Form 1096, Annual Summary and Transmittal of U.S. Information Return, with the Service. Generally, the time for furnishing and filing Form 1099-MISC or Form 1099-NEC depends on the calendar year for which they were made:

IRC 6051(a), Receipts for Employees, and Treas. Reg. 31.6051–1, Statements for Employees, provides that an employer must make and furnish a Form W-2 to employees for remuneration paid during the calendar year. The Form W-2 must show, among other information, the total amount of wages paid subject to withholding of income tax, the total amount of wages paid subject to FICA tax (including Additional Medicare Tax), and the total amounts of income tax and FICA tax (including Additional Medicare Tax) withheld from wages for each employee in a calendar year.

Generally, the time for furnishing Form(s) W-2 to the employee is set forth in Treas. Reg. 31.6051–1(d), Each statement required by this section for a calendar year and each corrected statement required for the year shall be furnished to the employee on or before January 31 of the year succeeding such calendar year.

Treas. Reg. 31.6051–1 provides that an employer must file a copy of all Form(s) W-2 made and furnished to employees, along with a completed Form W-3, Transmittal of Wage and Tax Statements, with the Social Security Administration. Generally, the time for filing Form W-2 depends on the calendar year for which they were made:

Treas. Reg. 31.6051–1(c) further provides that Form W-2 c, Corrected Wage and Tax Statement, must be furnished to employees whenever the originally issued Form W-2 was incorrect. Treas. Reg. 31.6051–2(b) further provides Form W-2 c along with a completed Form W-3 c, Transmittal of Corrected Wage and Tax Statements, must be submitted to the Social Security Administration on or before the date the information returns for the period that correction is made would be due under Treas. Reg. 31.6071(a)–1(a)(3)(ii).

IRC 6721 imposes a penalty for failure to file correct (on paper or magnetic media) information returns (including Form W-2 and Form 1099) on the date prescribed under IRC 6041(a) or IRC 6051(a). The provisions for a reduction in these penalty amounts are based on the number of days late. See IRM 4.23.9.13.5, Information Penalty Rates.

If the failure to timely file correct information returns is due to intentional disregard of the filing requirements, there is no maximum limit on the amount of penalties. See IRM 4.23.9.13.5.

Exception for de minimis failures: In general, IRC 6721(c) provides that if:

IRC 6721(d) provides lower limitations for persons with gross receipts of not more than $5 million. See IRM 4.23.9.13.5.

IRC 6722 imposes a penalty for failure to furnish correct payee statements on the date prescribed to a payee when required under IRC 6041(a) or IRC 6051(a). The provisions for a reduction in these penalty amounts are based on the number of days late. See IRM 4.23.9.13.5.

If the failure to furnish correct information returns is due to intentional disregard of the requirements, there is no maximum limit on the amount of penalties. See IRM 4.23.9.13.5.

Exception for de minimis failures: In general, IRC 6722(c) provides that if:

IRC 6722(d) provides lower limitations for persons with gross receipts of not more than $5 million. See IRM 4.23.9.13.5.

Effective for returns due on or after January 1, 2016, the Trade Preferences Extension Act (TPEA) of 2015, section 806, increased the IRC 6721 and IRC 6722 penalties and maximum rates as follows:

De minimis error safe harbor. In addition to providing a safe harbor for inaccurate information return and payee statement, IRC 6721(c)(3)(A) and IRC 6722(c)(3)(A) provides that the issuer of an inaccurate information return that is within safe harbor parameters is not required to file a corrected return when an error between the actual amount and reported amount is not greater than $100 for payments or $25 for withholding.

IRC 6721(b) and IRC 6722(b) penalty rates are reflected in the following exhibits:

Each information return "stands alone" for the determination of penalties and the appropriate statute date. Examiners must determine which information documents have been filed and which have not in order to establish the correct statute date for the penalty assessment case file.

If the information return(s) subject to the proposed penalties have been timely filed, the statute date will be three years from the due date or, if late filed, three years from the actual date filed. IRM 20.1.7.12.2.8, Civil Penalties Statute of Limitations, discusses how to extend the statute of limitations on the assessment of information return penalties. If the information return(s) subject to the proposed penalties have not been filed, Alpha Statute "EE" , non-filed return, will be used for case file controls. If delinquent information returns are secured prior to closing the information return penalty case file, the examiner must update the statute date on Examination Return Control System (ERCS) using Form 5348, AIMS/ERCS Update (Examination Update),as outlined in IRM 4.7.3.5, Updating the ERCS ASED.

In situations where examiners have both filed and non-filed documents subject to proposed penalties, the examiner must determine if the statute date on the filed documents is still open. If so, they must use and protect that date when establishing the penalty case file controls. ERCS will allow only one information return penalty case to be established for each taxpayer/year. If the statute date for the filed returns has expired, the examiner may pursue penalties only on the non- filed documents. In this situation Alpha Statute "EE" may be used to establish controls.

The examiner should date stamp the transmittal of secured informational returns prior to sending them for processing. Examiners must follow the procedures on IRS received date stamping and postmark date stamping outlined in IRM 3.10.72.6, IRS Received Date.

The Payer Master File On-Line (PMFOL) IDRS Command Code PMFOLD can be used to help with the Assessment Statute Expiration Date (ASED) determination. PMFOLD will reflect a "DTE RECD" under each Form 1096, Annual Summary and Transmittal of U.S. Information Returns, transmittal record. This date is the actual date the Form(s) 1099 were processed and not necessarily the date they were filed. The PMFOLD will show how many Form(s) W-2 were filed; however, it does not reflect a received date for the Form(s) W-2 transmittal since this form is filed with the Social Security Administration. Examiners should consider information returns as being timely filed unless there is evidence of a late filing date when determining the appropriate statute for filed Form(s) 1099 and W-2.

The following questions and answers provide guidance for the assertion of penalties for failure to file certain information returns or to furnish certain statements.

IRC 6723 provides a penalty for the failure to include all required information or correct information on either the information return or payee statement. A penalty of $50 is imposed for each incorrect information return or statement with a maximum penalty of $100,000 per year.

The information reporting requirements specified for this purpose include any requirement to include a correct taxpayer identification number on a return or statement and any requirement to furnish a correct taxpayer identification to another person. See IRM 20.1.7.10, Failure to Comply with Other Information Reporting Requirements IRC 6723, and Publication 1586, Reasonable Cause Regulations and Requirements for Missing and Incorrect Name/TINs (including instructions for reading CD/DVDs), for more detailed information.

No penalty shall be imposed under IRC 6723 if a penalty is imposed under IRC 6721 or IRC 6722.

Requests for Collection determinations for the assertion or non-assertion of the TFRP will be sent to the Collection Advisory group in the geographic area in which the taxpayer is located. They will have an investigation initiated per IRM 5.7.3.4.1, Referral from Examination, by a revenue officer to make the determination. See Pub 4235, Collection Advisory Group Numbers and Addresses, for location of Collection Advisory groups. See IRM 5.7.4, Trust Fund Compliance, Investigation and Recommendation of the Trust Fund Recovery.

Form 6238, Referral Report for Potential 100 Percent Penalty Cases, will be completed according to the instructions provided in IRM 4.23.9.14.2 below and the original and one copy forwarded to Collection Advisory through the SB/SE field territory manager, the LB&I team manager, or the TE/GE manager.

For all cases where there is an indication that the TFRP applies, examiners will include appropriate remarks in their workpapers and include a copy of the completed Form 6238 in the case file. If possible, the examiner will secure Form 2750, Waiver Extending Statutory Period for Assessment of Trust Fund Recovery Penalty, from every responsible party for all tax periods when the TFRP assessment statute will expire within two years for unagreed cases; one year for agreed cases. See IRM 4.23.14.7, Form 2750, Waiver Extending Statutory Period for Assessment of the Trust Fund Recovery Penalty, for procedures regarding the Form 2750.

For those cases where Form 6238 was not prepared, examiners will comment in the workpapers that referral to Collection Advisory was considered but not made and include the reason(s) for not making a referral to Collection Advisory.

Items 1 through 6 of Form 6238 will be completed by the examiner. Item 7, although on the form, should be left blank. The examiner will include the examiner’s name, phone number, and the date the form was prepared. Forward the original and one copy of the form to the Collection Advisory through the SB/SE Field Territory Manager, the LB&I team manager, or the TE/GE manager.

Item completion instructions are as follows:

If the case is going to Appeals, the examiner will provide the location of the Collection Advisory Group and include the following statement on the Form 4665, Report Transmittal: "If case is upheld in Appeals, please forward enclosed Form 6238 to the Collection Advisory group in the geographic area in which the taxpayer is located." See Pub 4235, Collection Advisory Group Numbers and Addresses, for location of Collection Advisory groups.

If the research conducted by the examiner reveals that the EIN under examination is a fabricated EIN, as defined in IRM 25.23.9.8.1, Fabricated or Inactive Employer Identification Number (EIN) Procedures, there are several account actions that must be completed prior to case disposition.

The examiner will complete Form 14566, BMF Identity Theft Referral, for all required actions. See IRM 25.23.9.8.1(5) for a listing of required account actions. Form 14566 should include all appropriate research and explain all BMF and IMF implications.

Submit Form 14566 through your manager to the liaison assigned to the Employment Tax function listed in the Identity Theft - BMF - Liaison Contacts listing. If the information for all the required account actions are not included in the "Actions requested" section, the referral will be returned to the originator.

The Employment Tax ID Theft Liaison will forward completed Form 14566 to the appropriate functions and will monitor responses. The examiner must hold the case pending input or rejection of Form 14566 and associated account actions.

ID Theft cases open on AIMS/Exam Return Control System (ERCS) are monitored using Input Aging Reason Code (ARC) "14" , (Identity Theft). Examiners must update AIMS/ERCS with ARC "14" for each impacted open tax year when ID theft is suspected. ARC "14" has priority and will overlay all other ARCs.

If the Form 14566 is accepted and all actions are taken, examiners will follow specific closing actions depending on whether there was an employment tax return filed. See IRM 4.23.9.16.3, Confirmed BMF Identity Theft Procedures on Non-filed Returns, and IRM 4.23.9.16.4, Confirmed BMF Identity Theft Procedures for Filed Returns.

If the research conducted by the examiner reveals BMF ID Theft does exist and it does not involve a fabricated EIN, the examiner will complete Form 4844, Request for Terminal Action, to request input of a Transaction Code (TC) 971, Action Code (AC) 522, IDTCLM (IDTCLM is the Tax Administration Code). On Form 4844, enter the date the potential ID theft was identified by the taxpayer or the employee in the "Secondary Date" field. Form 4844 will be submitted through your manager to the liaison assigned to the Employment Tax function listed in the Identity Theft - BMF Liaison Contacts listing (http://serp.enterprise.irs.gov/content/irm-supplements/identity-theft-bmf.html).

Employment Tax ID Theft Liaison will submit the Form 4844 to the Designated Identity Theft Adjustment (DITA) for input. The examiner must hold the case pending input or rejection of the Form 4844.

ID Theft cases open on AIMS/Exam Return Control System (ERCS) are monitored using Input Aging Reason Code (ARC) "14" , (Identity Theft). Examiners must update AIMS/ERCS with ARC "14" for each impacted open tax year when ID theft is suspected. ARC "14" has priority and will overlay all other ARCs.

If the examiner receives new information that shows ID Theft does not exist, the examiner must take steps to reverse the indicators previously input. See IRM Exhibit 25.23.9-5, Reversing Business Master File (BMF) Identity Theft Indicators - Transaction Code (TC) 972 Action Code (AC) 522.

If the Form 4844 is input, examiners will follow specific closing actions depending on whether there was an employment tax return filed or not. See IRM 4.23.9.16.3 and IRM 4.23.9.16.4.

For fabricated EIN cases, upon posting of TC 971, AC 524 and confirmation from the Employment Tax ID Theft Liaison that all required parties have responded, the examiner can close the case.

For ID Theft cases other than fabricated EIN cases, Form 4844 will be submitted through their manager to the ID Theft analyst to close the ID Theft controls. The Form 4844 will request input of TC 971. AC 522, CLSIDT (CLSIDT is the Tax Administration Code). Upon posting, the examiner can close the case.

To prevent an invalid assessment, the examiner will close the case using Disposal Code (DC) "39" via Form 10904, Request for Record Deletion from AIMS/ERCS. Form 10904 and the appropriate documentation will be submitted to the local AIMS/ERCS analyst for final closure.

If an employment tax return was filed and it is determined the return was not filed by the owner of the EIN, the examiner must take steps to correct the module. See IRM 4.10.27.10, Victim Account Corrections—Processing Steps, and IRM 4.10.27.11, Suspension of Collection Activity for Identity Theft Cases.

For fabricated EIN cases, after completing the action described above, and upon posting of TC 971, AC 524 and confirmation from the liaison assigned to the Employment Tax function that all required parties have responded, the examiner can close the case.

For ID Theft cases other than fabricated EIN cases, when the case is ready for final closure, the examiner will submit Form 4844 to the ID Theft analyst to close the ID Theft controls. The Form 4844 will request input of TC 971, AC 522, CLSIDT. Upon posting, the examiner can close the case.

If the examiner has contact with the true owner of the EIN, the examiner must: