Purpose. This IRM section provides information on various topics as shown in the table of contents. References to other resources, such as related IRMs and websites are included when applicable and provide additional guidance as needed to ensure a thorough understanding of the topic.

Audience. These procedures apply to examiners in Small Business and Self-Employed (SB/SE) Field Examination, SB/SE Speciality Examination, Large Business and International (LB&I), and W&I.

Policy Owner. The Director, Examination - Field and Campus Policy, who is under the Director, Headquarters Examination, owns the policy in this IRM.

Contact Information. To recommend changes or make any other suggestions related to this IRM section, see IRM 1.11.6.6, Providing Feedback About an IRM Section - Outside of Clearance.

The similarity of taxpayers' names and the voluminous flow of documents require the use of permanent identifying numbers coupled with taxpayers' names. These numbers are necessary for automated data processing (ADP) purposes to ensure positive control of each tax account and all related transactions. Some standard titles and abbreviations used are as follows:

The spacing of the digits in identifying numbers is an integral part of the number. The proper spacing must be observed in all instances. The spaces may be indicated by using hyphens, blank spaces, etc. For example, EIN as 00-0000000; and, SSN as 000-00-0000.

The foregoing identification and control numbers do not preclude the use of reference or control numbers such as Tax Court docket numbers, Criminal Investigation (CI) case numbers, reference numbers used in connection with the collection of delinquent accounts, or other numbers or codes used for control or reference purposes.

The IRS takes security very seriously. The safety and welfare of every employee is very important. This section provides links to resources for guidance on employee safety in the workplace and in the field.

Potentially dangerous taxpayers - Employees must be alert to Potentially Dangerous Taxpayer (PDT) or Caution Upon Contact (CAU) designations on an IDRS transcript. If present, refer to:

Pseudonyms - Section 3706 of the IRS Restructuring and Reform Act of 1998 (RRA 98) from 26 USC 7804, dated July 22, 1998, provides that any employee of the IRS may use an IRS Pseudonym if adequate justification for the use of a pseudonym is provided by the employee, including protection of personal safety; and such use is approved by the employee's supervisor before the IRS pseudonym is used. Refer to:

Weapons - Employees in examination functions are prohibited from carrying a weapon in IRS facilities (see IRM 10.2.18.2, Prohibited Items) or the field. Even though some positions involve some potential for risk when contacting a taxpayer (or a third-party), Employees in examination functions are not authorized to carry and/or use a firearm in the performance of official duties. This restriction includes pepper spray, "Halt!" , dog repellent, or any "intermediate" weapon (see IRM 5.1.3.2.1, Weapons Restriction).

Armed escorts - When an employee feels they need an armed escort, they must immediately report the facts causing the need to their group manager. Armed escorts may be requested by IRS employees when they intend to meet with taxpayers who have been designated by the OEP as PDT or CAU, or in other circumstances where the employee and the group manager believe any interaction during the performance of duties may pose a risk of injury to the employee. For additional guidance, see:

Assaults and Threats - Occasionally, a taxpayer (or a third-party) will assault, threaten, or intimidate an IRS employee. Refer to the following for guidance:

Safety in the workplace - Violence in the workplace includes, but is not limited to, an actual or perceived threat of force, abuse, damage, physical battery, assault, bomb threat/event or terrorist attack. The workplace includes federal facilities, telework locations, alternate work sites and locations where IRS employees conduct official business. Refer to the following for guidance:

Safety in the field - Field employees face an inherent level of risk because of the nature of their work. There are important steps employees can take when planning field visits to minimize risk.

For additional safety information and guidance see:

Certain taxpayers in a combat zone are provided tax relief and require special processing. A combat zone is an area designated in an Executive Order by the President of the United States. For additional information on combat zones, refer to IRM 4.2.1.4.3, Combat Zone - Additional Resources.

IRC 7508, postpones the deadlines for certain acts performed by taxpayers and the IRS. The acts covered by IRC 7508 generally include:

The postponement primarily applies to individuals who serve in the Armed Forces in a combat zone or qualified hazardous duty area (and to persons performing qualifying services outside such area), or who participated in a contingency operation. Refer to IRM 25.6.1.10.2.9.6.3, Individuals Covered, for additional information on individuals covered.

Generally, the postponement period (also referred to as the "time to be disregarded" ) starts when a combat zone participant enters a combat zone and ends 180 days after their exit from the combat zone/qualified hazardous duty area (or the last day they have qualifying service outside of the Combat Zone/qualified hazardous duty area).

Examination Technical Services holds cases pending a court decision or business unit guidance. Cases may be held in 1254 suspense under the following circumstances:

For cases held in 1254 suspense pending a court decision, the facts in the case to be suspended must be so similar to those in the pending case that a decision in one will ultimately decide the other.

The examiner must discuss any case being considered for 1254 suspense with the group manager. The group manager must contact the area Examination Technical Services function to determine whether the case meets the criteria for 1254 suspense.

Prior to forwarding a case to Examination Technical Services for 1254 suspense, the examiner must:

See IRM 4.8.2.11, Suspense Cases, for additional guidance.

There may be times when an examiner should consider reopening a tax year that was previously examined and closed. IRC 7605(b), Restrictions on Examination of Taxpayer, provides that "No taxpayer shall be subjected to unnecessary examination or investigation, and only one inspection of a taxpayer's books of account shall be made for each taxable year unless the taxpayer requests otherwise or unless the Secretary, after investigation, notifies the taxpayer in writing that an additional inspection is necessary."

Rev. Proc. 2005-32 provides information on reopening closed cases. The following sections provide information the examiner must consider prior to the reopening of a closed case:

The IRS will not reopen any case closed after examination by an area office or campus to make an adjustment unfavorable to a taxpayer unless one criteria discussed below is met, see Rev. Proc. 2005-32, Section 5.01 and IRM 1.2.1.5.1, Policy Statement 4-3, Cases closed by District Directors or Service Center Directors will not be reopened except under certain circumstances, for additional guidance):

All IRS initiated reopenings to make adjustments unfavorable to a taxpayer must be approved by the territory manager. The examiner must prepare Form 4505, Reopening Memorandum, for approval by the group manager and territory manager prior to starting the examination. See IRM 1.2.2.5.7, Delegation Order 4-7, Notice of Additional Inspection of Books of Account.

When a reexamination of the taxpayer's books and records is necessary, Letter 939 (DO), Reopening Letter, must be prepared by the examiner and sent with Form 4505 to the territory manager for signature. The examiner must issue Letter 939 (DO) to the taxpayer at the time the reexamination is started.

Once the approval has been obtained to reopen a closed case and Letter 939 (DO) is issued (if required), the examiner should contact the taxpayer using the appropriate initial contact letter. See IRM 4.10.2.8.1, Making Initial Contact. For guidance on report writing procedures, see IRM 4.10.8.9, Reports For Cases Reopened By Examination.

A collateral referral is made when an exchange of information between business operating divisions (BOD) or areas within the same BOD, is essential to resolve an issue of material consequence. A collateral referral is not limited to a request for information but also includes a request for an examination of returns that cross area offices or BODs.

A collateral referral is only made when the information cannot be obtained from the taxpayer, the taxpayer’s representative or third parties. The examiner must make every reasonable effort to secure the information rather than to routinely make a collateral referral.

Examples of collateral referrals include:

Before making a collateral referral, the examiner must perform IDRS research to determine if the taxpayer located within the jurisdiction of the other office is currently under examination (ERCS/AIMS status 12 through 18). If the taxpayer is under examination, the examiner (with the approval of their group manager) should directly contact the examiner located in the other jurisdiction to exchange information pertinent to the issues.

SB/SE Planning and Special Programs (PSP) coordinates the routing of a collateral request, see IRM 4.1.1.7.5(6), Collateral Referrals.

This section provides general information related to how Appeals works an examination case and the formal procedures for Examination staff to voice concerns about a case settled by Appeals.

In general, Counsel will not raise new issues, unless the grounds are substantial and the potential effect on tax liability is material. See Chief Counsel Directives Manual (CCDM) 35.4.1.2, Raising New Issues in Tax Court Cases.

The legal work of the IRS is performed by the Office of Chief Counsel. Referrals to the Associate Area Counsel office should be considered in unrelated tax issue matters.

When examiners are needed to assist Area Counsel or the Office of the United States Attorney, the Area Director will honor requests and assign an examiner to provide the services needed in the litigation of cases.

Examiners will not discuss the merits of the case with the taxpayer or the taxpayer’s attorney when consulting with them or examining pertinent books and records.

Every effort will be made to comply with a request by the date specified. If is not possible to comply with the request for assistance, the party who initiated the request will be notified.

IRC 7430 provides for the award of costs, attorneys' fees and other expenses to a "prevailing party" in any civil tax action brought in a federal court of the United States, if the taxpayer has met the requirements of IRC 7430(b) and the IRS does not establish that its position was "substantially justified" . The position of the IRS will be "substantially justified" if it had a reasonable basis both in law and in fact. A party who meets the requirements of IRC 7430(b) may also qualify as a "prevailing party" if the liability of the taxpayer as determined by a judgment in the proceeding is equal to or less than the liability of the taxpayer which would have been determined if the United States had accepted a qualified offer of the party under IRC 7430(g) and none of the exceptions of IRC 7430(c)(4)(E)(ii) apply. If the qualified offer rule applies, a showing of substantial justification by the United States does not preclude the taxpayer from receiving an award under IRC 7430. This paragraph is not applicable to litigation in state courts.

The law also applies to taxpayer suits for refunds as well as a wide variety of litigation such as suits to reduce a tax claim to judgment, to enforce a levy, to foreclose a tax lien, to recover an erroneous refund, to establish transferee liability, or to enforce a summons.

The law provides that an award may be made only if the taxpayer has exhausted all available administrative remedies within the IRS, did not unreasonably protract the proceeding, has substantially prevailed with respect to the amount in controversy or has substantially prevailed with respect to the most significant issue or set of issues presented, and satisfies the net worth requirements. Even if the taxpayer satisfies all of the above requirements, the taxpayer will not be treated as the prevailing party if the United States establishes that the position of the United States in the proceeding was substantially justified, unless the qualified offer rule of IRC 7430(c)(4)(E) applies.

IRC 7430 also allows a taxpayer who prevails before the IRS in an administrative proceeding to request reimbursement of reasonable administrative costs incurred in defending the taxpayer's position.

There is no IRS form for requesting an IRC 7430 administrative cost award. Taxpayers and their representatives may file a request for an IRC 7430 administrative cost award by mailing a letter or Form 843, Claim for Refund and Request for Abatement, to the IRS. If the examiner is unsure if a Form 843 is requesting an IRC 7430 administrative cost award, they should consult with the lead or group manager.

A statute expiration report is required when the period for assessment or the assessment period that was extended by consent has expired. See IRM 25.6.1.13, Barred Assessments/Barred Statute Cases, for guidance and a list of exceptions to the reporting requirement.

SB/SE area office employees should refer to IRM 25.6.1.13.2.8, Statute Expiration Reporting Responsibilities and Procedures for SB/SE Area Office Involved Directly With or Providing Support for Tax Return Examinations, for guidance.

LB&I field operations and campus employees should refer to IRM 25.6.1.13.2.9, Statute Expiration Reporting Responsibilities and Procedures for LB&I Field Operations and LB&I Campus Employees, for guidance.

W&I campus examination employees should refer to IRM 25.6.1.13.2.7.2, Responsibilities of W&I Examination Operations at Campuses, for guidance.

IRM 1.2.1.5.20, Policy Statement 4-65, provides that the IRS shall not make any effort, real or implied, to solicit voluntary payments of a deficiency or taxpayer delinquent account barred by statute. However, payments made by the taxpayer completely of their free will shall be accepted.

Taxpayers must be notified in writing of assessment statute expiration if they were contacted for examination. The appropriate notification letter depends on whether a deficiency can be determined. See IRM 4.2.1.14.1 and IRM 4.2.1.14.2 for additional guidance. The responsibilities for preparing the notification letter, mailing and routing are the following:

In multi-year and related examinations, it is not necessary to separately process the year in which the statute expired. The return can follow the case file through the normal examination process. However, a copy of the final approved Form 3999 must be in the case file.

The individual income tax returns for the President and Vice President are subject to mandatory examinations and cannot be surveyed. See IRM 3.28.3.5.3, Mandatory Examination.

Copies of the returns to be examined will be transmitted by the Office of the Deputy Commissioner for Services and Enforcement to the SB/SE, Director, Examination.

The area responsible for the examination will be determined by the SB/SE, Director, Examination or their designee. After a determination is made as to the area having jurisdiction, copies of the returns will be transmitted to the area planning and special programs (PSP) territory manager for control and assignment to the appropriate field group. The transmittal memorandum will contain the following instructions:

Upon receipt, the group should ensure Project Code 0207, Treasury Mandates, and Source Code 46, have been input for the primary and any prior or subsequent year returns.

The returns must be assigned within 10 business days of receipt in the group. The returns require expeditious handling at all levels to ensure prompt completion of the examinations.

Related returns, including estate and gift tax returns, will be handled in accordance with procedures relating to all taxpayers.

The location of the returns of the President and Vice President will be monitored at all times throughout the examination process.

The returns should be processed similar to the examination of an employee return per IRM 4.2.6, Examination of Employee Returns, with the exception of the following:

Taxpayers who are presidential appointees are permitted to file their individual income tax returns through a trustee of a blind trust. IRM 4.11.55.1.6, Terms, defines a blind trust as a device used to give management of one's investments to an outside person over whom the beneficiary has no control.

Extreme caution should be exercised not to violate a blind trust. All correspondence, inquiries, etc., should be directed to the authorized trustee unless the power of attorney indicates otherwise. No information regarding the source or nature of a blind trust can be disclosed. See IRM 3.28.3.6.1, General Information and Instructions, and Rev. Proc. 2010-11, for additional information.

Allegations of income tax evasion or allegations concerning the willful failure to file any tax return by a senior Treasury official where prosecution is recommended, where the fraud penalty under IRC 6663 is asserted, or the fraudulent failure to file penalty under IRC 6651(f) is asserted when prosecution is not recommended, will be reported to the Commissioner of Internal Revenue. The Commissioner of Internal Revenue will immediately report the allegations to the Deputy Secretary of Treasury or to the Secretary of Treasury.

All information received concerning misconduct of IRS employees or officials will be reported to TIGTA via the local TIGTA office or by a report to the TIGTA hotline using one of the following methods:

A bond for the purpose of securing payment of internal revenue taxes is collateral security offered by the taxpayer, representative or a third party, which satisfies the provisions of IRC 7101 and 26 CFR 301.7101–1.

If an IRC 332(b) liquidation is not completed within a single year, the recipient corporation must sign a waiver of the statute of limitations on assessment and may be required to file a bond.

Under IRC 905(c), in the case of any credit sought for a foreign tax accrued but not paid, the Area Director or Director of Field Operations, as a condition precedent to the allowance of a credit, may require a bond from the taxpayer.

If IRC 332(b) or IRC 905(c) issues are present, examiners should contact their Area Counsel for help in determining whether to secure a bond and what the terms should be. Any bonds secured will be held by Collection Advisory. See IRM 5.6.1, Collateral Agreements and Security Type Collateral, and IRM 5.6.2, Maintenance, for additional information.

The Office of Foreign Assets Control (OFAC) of the Department of Treasury administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy, or economy of the United States. OFAC acts under Presidential national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and freeze foreign assets under U.S. jurisdiction.

On September 24, 2001, the President of the United States issued an executive order that immediately froze U.S. financial assets of and prohibited U.S. transactions with 27 different entities. These entities include terrorist organizations, individual terrorist leaders, a corporation that serves as a front for terrorism, and several nonprofit organizations.

Treasury Directive (TD) 15-43 (May 3, 2007, reaffirmed September 8, 2011) delegates to the Commissioner of Internal Revenue the authority of the OFAC to investigate and review for compliance with economic sanctions programs persons that the IRS has the authority to examine for compliance with the Bank Secrecy Act provisions in Title 31 (31 U.S.C. 5311 et seq.). The authority to investigate and review includes, but is not limited to, the authority to compel the production of documents and information and otherwise to examine a person’s compliance with OFAC-administered economic sanctions. IRM 1.2.2.5.36, Delegation Order 4-47 (New), addresses the Commissioner of Internal Revenue’s authorization under TD 15-43 with respect to conducting reviews for compliance with economic sanctions programs.

Information regarding blocked property of aliens and foreign corporations may be obtained from records located in OFAC. When such information is requested by area offices, a request detailing the desired information will be forwarded to the SB/SE Area Director.

Requests should contain clear instructions on what is requested and why. OFAC collects the information for bank regulatory purposes and needs to know who will be the end user of the information and how the information will be used; e.g., by a revenue agent to conduct an examination. Make the request in a letter sent to the address listed on the contacts page of the Office of Foreign Assets Control website and include the subject line "Records Request from Federal Agency" .

Federal agencies have always recognized a duty to protect informants and witnesses from threats or possible danger resulting from their assistance to the government by furnishing information or by testifying on behalf of the government in the prosecution of individuals. See IRM 9.5.11.11, Protection and Maintenance of Informants and Witnesses.

The IRS has the authority to temporarily protect an informant or witness until a determination is made by the DOJ that the person qualifies for protection under its Witness Security Program.

The IRS has the authority to approve all confidential expenditures for other protective arrangements undertaken by the IRS for an informant or witness who does not qualify for or is refused protection under the DOJ's Witness Security Program, in an investigation which is not under jurisdiction of the U.S. Attorney's Office.

Examination personnel who become aware of or have indications that the taxpayer assigned may be a person in the Witness Security Program will immediately suspend the examination. No subsequent attempts by examination employees will be made to contact a protected witness.

The examiner will prepare a memorandum addressed to the territory manager detailing the following facts and circumstances:

Upon receipt by an IRS employee of information alleging a threat or possible danger to a past or present government informant or witness or family member, as a result of furnishing information or otherwise cooperating with the government, the employee will email the information immediately to the WSC at *SBSE Witness Security Coordinator.

The Taxpayer Advocate Service (TAS) helps taxpayers resolve problems with the IRS and recommends changes to prevent problems through two types of advocacy—case-related and systemic. See IRM 13.1.1.2(5), Philosophy of Advocacy. TAS has identified criteria that qualify taxpayers for TAS assistance. TAS Criteria 1-9 reflect situations requiring acceptance of taxpayer cases to be worked by TAS.

TAS refers to Criteria 1-4 as "Economic Burden" cases, Criteria 5-7 as "Systemic Burden" cases, Criteria 8 as "Best Interest of the Taxpayer" cases, and Criteria 9 as "Public Policy" cases. See IRM 13.1.7.2, TAS Case Criteria.

All inquiries meeting TAS criteria should be documented on Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order), and forwarded to TAS by the most expeditious method available.

Problems that meet TAS criteria do not necessarily need to be sent to TAS if they can be immediately resolved by the function. All IRS employees should handle potential TAS cases with the taxpayer's best interest in mind. For other taxpayer problem resolutions, see IRM 4.10.1.4.6, Problem Solving.

If TAS accepts a Form 911 that is related to a taxpayer under examination, it will be forwarded to Examination for review by the responsible group. The group manager will refer to the Service Level Agreement between the National Taxpayer Advocate and the Commissioner of their respective division for procedural guidance.

The provisions of IRC 1033, Involuntary Conversions, allow for the deferral of gains realized on the disposition of compulsorily or involuntarily converted property when a taxpayer purchases similar property within the specified replacement period. When the taxpayer is unable to replace the property within the normal replacement period, they can request an extension of the replacement period by writing to the Area Director. The Area Director will forward the taxpayer's request for an extension of time to Technical Services (TS) for consideration. TS will take final action to approve or deny the request as delegated by IRM 1.2.65.4.11, Delegation Order SBSE 1-23-33, Authority to Grant Extensions of Time to Replace Involuntarily Converted Property Under Section 1033 of the Internal Revenue Code. See IRM 4.8.8.6, Involuntarily Converted Property, for additional information.

If the converted property is owned by several taxpayers under the jurisdiction of different Area Directors' offices, the TS national coordinator will conduct the investigation to determine whether reasonable cause exists for not replacing the converted property within the required time period.

During the preliminary review of IRP data, examiners may determine that information provided by the payer is incorrect.

Bad payer data is defined as any situation where the payer made an error on the information return of a type that could occur on other information returns. When errors have occurred on ten or more of these documents filed by one payer or transmitter, bad payer data exists. Examples of bad payer data include but are not limited to:

When examiners determine that bad payer data exists, they will briefly explain the identified error on a copy of the IRP and email it to the AUR HQ Payer Agent Coordinator, by selecting the coordinator from the AUR Coordinator Site - "Ogden" .

Informant awards for confidential services are often received from the Bureau of Customs, Federal Bureau of Investigation, Central Intelligence Agency, Secret Service, local Police Departments, Whistleblower program, and other similar sources. It is imperative that the source of income not be revealed in the examiner's report and that the identify of the informant be protected. See IRM 25.2.2.9, Confidentiality of the Whistleblower, for additional guidance on confidentiality.

If during the examination, unidentified income reported on the return or unreported income is discovered, the taxpayer may explain that the income was received for services of a confidential nature.

If the taxpayer states that the unidentified or unreported income was received for services of a confidential nature, the case will be processed in the usual manner without disclosing the source of the payment.