This IRM provides an overview of the responsibilities that examiners should understand and apply in the performance of their duties in conducting examinations of employment tax claims, abatements, and audit reconsiderations.

The examiner must determine what type of request the taxpayer has made to properly examine, close, and process the case. The following are the types of requests addressed in this IRM:

"X" forms must be used for adjusted returns, claims for refund, requests for abatement and audit reconsideration requests. These forms correspond and relate line-by-line to the employment tax return they are correcting and to the tax period in which the error occurred. The "X" forms affect:

There is no "X" form for the Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return. An employer amending a Form 940 for a previous year, will use that previous year's Form 940 marking the amended box.

Classification of most Forms 94x-X for examination is conducted at the Campus. However, while conducting an open examination, an examiner may receive a Form 94x-X from the taxpayer.

Forms 94x-X allow the taxpayer to file either an "adjusted employment tax return" (box 1) or "claim" (box 2). While the taxpayer’s selection between the two blocks does not affect how the case is worked by the examiner, it does affect the final processing of the case. Returns with the "adjusted employment tax return" block marked generally will not result in a refund issued to the taxpayer. Any credit balance resulting from the exam or processing of the return must be moved to the period in which the "X" adjusted return was filed. Any credit balance transfer will be completed using a Form 3870, Request for Adjustment, when preparing the examination closing documents.

Taxpayers will use Form 843, Claim For Refund and Request for Abatement, for requesting abatement of assessed penalties and interest.

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 IRS personnel regardless of operating division. The Policy Statements found in IRM 1.2.1, Servicewide Policies and Authorities, 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 https://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 their behalf by either of the deputy commissioners. Delegation Orders pertaining to each IRS business process can be found in IRM 1.2.2, 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 IRS 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.

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 and for Employment Tax Policy, found in IRM 1.1.16.5.5.2.2, Employment Tax Policy.

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

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

The following table lists commonly used acronyms and their definitions:

General terms and definitions:

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 IRC, putting them in simple language and grouping them into 10 fundamental rights. Employees are responsible for being familiar with and acting in accordance with taxpayer rights. For additional information about the TBOR see IRC 7803(a)(3), https://www.irs.gov/taxpayer-bill-of-rights or https://irssource.web.irs.gov/SitePages/TaxpayerBillOfRights.aspx.

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS, led by the National Taxpayer Advocate, that helps taxpayers and protects taxpayer rights. TAS offers free help to taxpayers when a tax problem is causing a financial difficulty, when they’ve tried and been unable to resolve their issue with the IRS, or when they believe an IRS system, process, or procedure just isn't working as it should. TAS strives to ensure that every taxpayer is treated fairly and knows and understands their rights under the TBOR. TAS has at least one taxpayer advocate office located in every state, the District of Columbia, and Puerto Rico.

Employment tax examiners should consider the disclosure and privacy provisions when preparing agreed and unagreed case reports. For further information, see the Privacy, Government Liaison and Disclosure (PGLD) knowledge base at Disclosure and Privacy Knowledge Base Homepage (https://irsgov.sharepoint.com/sites/ETD-KMT-KB003).

Overall responsibility for civil penalty programs is assigned to the Office of Servicewide Penalties (OSP). OSP is charged with coordinating policy and procedures concerning the civil penalty program administration, ensuring consistency with the penalty policy statement, reviewing and analyzing penalty information, researching penalty effectiveness on compliance trends, and determining appropriate action necessary to promote voluntary compliance. For further understanding of the civil penalty program and penalty relief, refer to the Penalties Knowledge Base Homepage (https://irsgov.sharepoint.com/sites/ETD-KMT-KB015).

TE/GE employees must refer to IRM 4.70.13, Executing the Examination, IRM 4.70.14, Resolving the Examination, and IRM 4.70.17, Claims and Abatements, for guidance and procedures for TE/GE employment tax examinations.

All information management systems have safeguard measures in place that address key components of Information Technology (IT) security requirements to restrict access to sensitive data.

The Employment Tax program has established a separation of duties of users’ roles-

The Issue Management System (IMS) is required to be used during employment tax examinations by examiners assigned to Specialty – Employment Tax Operations.

Unless instructed otherwise, examiners will use the Employment Tax Lead Sheets (ETLS) developed specifically for employment tax cases.

SB/SE ET examiners working ET Large Cases will use Large Case Lead Sheets (LCLS). LCLS are developed specifically for large case employment tax cases. Examiners working ET Large Cases will follow workpaper preparation, specific audit techniques, and case closing procedures unique to these types of audits.

Generally, the employer has a duty to first "adjust" the employee portion of FICA and RRTA taxes as a condition of receiving a refund for the employer and employee portions of FICA. See Atlantic Department Stores, Inc. v. United States, 557 F.2d 957 (2d Cir. 1977). See also Rev. Proc. 81-69, 1981-2 C.B. 726 and Rev. Rul. 81-310, 1981-2 C.B. 241.

An employer may receive a refund of the employee portion of FICA taxes collected in a year prior to the year in which the refund claim is made only if the taxpayer obtains employee consents or repays/reimburses the employee. Examiners must:

An employer may correct federal income tax withholding (FITW), backup withholding (BUWH), and Additional Medicare Tax (AdMT) withholding only if the error is discovered in the same calendar year the employer paid wages and repaid or reimbursed the employee the amount of withholding. FITW, BUWH, and AdMT cannot be corrected after the close of the calendar year unless the issue constitutes an administrative error. This is true even if FITW, BUWH, or AdMT was erroneously withheld. The claim process can be used for refunds of FITW, BUWH, and AdMT for the prior calendar year only to the extent the amount of the FITW, BUWH, and AdMT overpayment was not actually deducted and withheld from a payee (which would be an administrative error). If a prior year error was a non-administrative error, the employer may correct only the wages and tips subject to FITW or AdMT withholding.

An employee can claim a refund of any FITW or AdMT that the employer overwithheld on Form 1040, U.S. Individual Income Tax Return (or Form 1040-X, Amended U.S. Individual Income Tax Return, if the employee already filed Form 1040).

A Form 94x-X for an overpayment of tax, must be filed by the taxpayer within the Refund Statute Expiration Date (RSED). The RSED expires three years from the time the original return was filed or two years from the time the tax was paid, whichever period expires later.

Filing a Form 941x-X does not extend the statute of limitations.

If a taxpayer files an adjusted employment tax return (marked box 1 of the Form 94x-X) within 90 days of the expiration of the period of limitations on credit or refund (RSED), the adjustment request must be converted to a claim for refund. See Treas. Reg. 31.6413(a)-2(d)(2), Rev. Rul. 2009-39, 2009-52, I.R.B. 951, and IRM 21.7.2.4.6.5, 90 Day — Claim.

If the Form 94x-X is an abatement, the RSED does not apply.

If the Form 94x-X is not filed within the RSED it is not timely filed, see IRM 4.23.13.3.1.1, Full Disallowance of Claim for Refund without Audit Development for disposition.

If Form 941x-X was not filed within the three-year period, the amount of the credit or refund shall not exceed the portion of the tax paid during the two years immediately preceding the filing of the claim. See IRC 6511(b)(2)(B).

A Form 94x-X for an underpayment of tax, follow the Assessment Statute Expiration Date (ASED) of the original filed 94X return.

Examiners are to document the case file that they determined whether the Form 94x-X was timely filed.

If protecting the statute, use normal audit statute procedures to secure SS-10, Consent to Extend the Time to Assess Employment Taxes. See IRM 4.23.14, Statute Control and Extension. If not protecting the statute for assessment, written approval must be obtained from the group manager and kept in the case file.

Appeals will not accept claims with additional or offsetting adjustments unless there is at least 365 days on the ASED when the case is received in Appeals. For purposes of Employment Tax case processing examiners must allow at least 365 days plus:

Examiners disallowing a claim for refund either in full or in part with an additional adjustment and less than 425 days remaining on the ASED, examiners will follow IRM 4.23.22.7, Unagreed Case Procedures – Insufficient Time Remaining on Statute of Limitations, and IRM 4.8.10.4.6, Proper Completion of Procedure Requirements.

Examinations frequently involve claims for refund or adjusted returns where the examiner attempts to prevent the erroneous refund of money to a taxpayer or transfer of credit. It is important to capture examiner time spent on claim activities and similar revenue protection situations on the case activity record, Issue Management System (IMS), and Form 5344, Examination Closing Record. This examination activity is "Revenue Base Protection" (RBP).

The definition of "claim" is a request made by taxpayer that alleges an overassessment, an overpayment, or both. A claim that alleges an overpayment is a claim for refund, whether the taxpayer also alleges an overassessment. A claim that alleges an overassessment and that does not allege any overpayment, for example, in an underpayment situation, is a claim for abatement. These definitions apply regardless of whether the assessment was made from a filed return or as a result of an examination. Examiners use Source Code "30" for a claim for refund or an adjusted return where some amount of the tax previously assessed and paid would be refunded to the taxpayer or the credit would be transferred to the period in which the "X" adjusted return was filed. These returns require RBP procedures.

If the assessed liability was not paid in full and the taxpayer does not allege an overpayment, then the claim would be a claim for abatement or an audit reconsideration case. RBP procedures do not apply in these situations. Examiners use Source Code "73" for claims for abatement and audit reconsiderations. RBP Procedures also do not apply if the amounts reflected on the Form 94x-X have already been paid to the taxpayer, since there is no longer a claim.

When a Form 94x-X is received during an in-process examination and is for the same tax period that is already open, it is up to the examiner to determine if the issues on the Form 94x-X are significant in comparison to the other audit issues being addressed, because the proper allocation of time spent on the case must be allocated between RBP and non-RBP time. IRM 4.4.12.5.34, Revenue Base Protection Section (Claim for Refund Disallowed), provides further clarification when making the determination on whether the Form 94x-X should be considered as RBP.

Cases containing claims for refund that are disallowed in full are processed in three different ways:

The explanation and reason for disallowance must include enough information to enable the taxpayer to challenge the determination.

Cases containing claims for refund that are disallowed in part are processed in two different ways:

The explanation and reason for disallowance must include enough information to enable the taxpayer to challenge the determination.

Full allowance of a claim for refund may be:

Form 2297 is used when claims for refund or adjusted returns are disallowed in part or whole. Securing this waiver means the IRS is not required to issue a Statutory Notice of Claim Disallowance (Letter 905, Final Partial Claim Disallowance Letter, or Letter 906, Final Full Claim Disallowance Letter). A signed Form 2297 starts the two-year period for the taxpayer to file suit as allowed in IRC 6532.

Form 2297 is not applicable for unagreed, fully or partially disallowed requests for abatement, or audit reconsiderations.

If the Form 2297 is not secured when a claim for refund is proposed for disallowance in whole or in part, and no appeals request was received, close the case to Technical Services for preparation and issuance of a statutory notice of claim disallowance, Letter 905 or 906, by Technical Services. On the Form 3198 under Forward to Technical Services the examiner will check the box "Statutory Notice of Claim Disallowance – Letters 905 and 906."

If a Form 2297 is not secured and the case is appealed, the statutory notice of claim disallowance will be issued after all other administrative action has been concluded. Examiner does not indicate on the Form 3198 under Forward to Technical Services that the Statutory Notice of Claim Disallowance – Letters 905 and 906 is to be issued. The examiner is to check the box on Form 3198 Unagreed to Appeals.

For instructions to complete Form 2297 refer to Exhibit 4.23.13-3, Instructions for Completing Form 2297.

TE/GE examiners are to refer to IRM 4.70.17.6.8, Completing Form 2297, for guidance.

Form 3363 is requested at the same time as Form 2297. Form 3363 is to be used in "agreed cases" when claims for refund or adjusted returns are disallowed in full or part. By signing Form 3363, the taxpayer accepts the proposal of the IRS to disallow the claim(s) in full or in part.

In an agreed case where the claim is being disallowed in full or part "with additional adjustments" to the tax liability, both Form 3363 and an examination report should be secured to indicate agreement. See IRM 4.23.13.3.1.3, Full Disallowance with Additional Tax Adjustments, and IRM 4.23.13.3.2.2, Partially Disallowed with Additional Tax Adjustments. Also see IRM 4.23.13.3.6, Form 4666, for information to be included in the remarks section of the report.

Form 3363 does not waive the taxpayer’s right to file suit on the disallowance.

For instructions to complete Form 3363 refer to Exhibit 4.23.13-4, Instructions for Completing Form 3363.

TE/GE examiners are to refer to IRM 4.70.17.6.9, Completing Form 3363, for guidance.

Form 4666 must be completed for all examined Form 94x-X claim for refund cases.

The Form 4666 will include the following statement (Form 941-X used as example): "On (date stamped on 941-X) you filed claim Form 941-X, Adjusted Employer's QUARTERLY Federal Tax Return or Claim for Refund, or an informal claim for a refund of $(amount) for (period/year)."

In addition, one of the following statements must be included:

In addition, include any other required language. See IRM 4.23.10.10.7, Form 4666, and IRM 4.23.10-1, Form 4666, Summary of Employment Tax Examination.

Audit reconsiderations and requests for abatement are administrative procedures available to the taxpayer to reduce taxpayer burden. The IRS does not want to require the taxpayer to pay the assessment and file a claim if there is additional information to be considered.

The purpose of the audit reconsideration or request for abatement process is to examine information that was not previously considered:

Where the taxpayer has responded and provided additional information, consideration by Appeals will be afforded if the taxpayer does not agree with the examiner's determination. A 30-Day Letter (Letter 5182 or Letter 5183) and report will be issued to the taxpayer to start the Appeal process.

Where the taxpayer has not responded or has not provided additional information, consideration by Appeals will not be afforded. A Letter 5154 is issued to the taxpayer. Letter 5154 is also used when an adjustment was made to the prior assessment for both a request for abatement and audit reconsideration. The taxpayer is not afforded consideration by Appeals.

For information regarding employer’s requests under: