Under IRC 6431, Issuers of DPBs are allowed a refundable credit for each interest payment under the bonds.

The table lists the refundable credit for DPBs (see Acronyms, below, for details on DPBs type):

All DPBs must meet an information return filing requirement similar to the requirement for traditional tax-exempt bonds. Issuers of:

To receive payment of allowed credits, Issuers of DPBs must file Form 8038-CP, Return for Credit Payments to Issuers of Qualified Bonds. Form 8038-CP is:

The credit payment is made to the Issuer, or if so designated, any person who makes interest payments on behalf of the Issuer (IRC 6431).

The table below outlines the authorities for direct pay bonds.

The following roles are referred to in this IRM 4.82.3:

The table lists commonly used acronyms and their definitions.

For DPBs examinations:

An adverse determination on the qualification of DPBs directly impacts whether the credits claimed on all related Form 8038-CP returns are allowable. Accordingly, generally you open an exam of related Form 8038-CP returns when issuing Form 5701-B, Notice of Proposed Issue, for the DPBs. (See IRM 4.82.3.3.2)

You may open Form 8038-CP exams directly for examination without having an open exam on the related information return (but see IRM 4.82.3.7, Additional Procedures for Credits paid on Non-Issuer EIN Accounts, if the Payee is different from the Issuer). In addition, you must open related Form 8038-CP returns established on RCCMS for exam when you determine that the statutes of one or more returns need to be protected.

You may also start exams of an individual Form 8038-CP return for matters related to the credit amount allowable for any interest payment date that doesn’t involve qualification noncompliance (but see IRM 4.82.3.7, Additional Procedures for Credits paid on Non-Issuer EIN Accounts, if the Payee is different from the Issuer). Focus on the facts and circumstances requiring an adjustment of the credit requested on the affected Form 8038-CP return.

If you’ve made taxpayer contact and documented both the date and taxpayer’s desire to fax documents, you can accept by fax:

Penalties related to DPBs may be appropriate in certain instances, such as the penalty under IRC 6676 for submission of a claim in an excessive amount.

Refer to IRM 20.1, Penalty Handbook for guidance on developing applicable penalties.

Ensure the case file includes a copy of the group manager’s written approval for the assertion of any penalty other than the failure to file, failure to pay or estimated tax penalties. Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties is available for use to meet the proper managerial involvement requirement.

Complete the appropriate IRC 6676 penalty lead sheet and include it in the case file. Managerial involvement must also be documented on the penalty lead sheet and/or related workpapers.

As noted in IRM 4.82.3.9 (5), a suit for refund would not be applicable to penalties asserted as part of the deficiency. Accordingly, when penalties have been assessed, if the taxpayer files suit in district court or the U.S. Court of Claims (rather than Tax Court) to seek review of a claim denial, penalties will be assessed after the 90-day period has elapsed following the notice of claim denial.

When opening a DPBs examination, the examiner identifies all Form 8038-CP returns filed for the DPBs information return under examination having 180 days or more remaining on the period for assessment.

Examiner: Via secure e-mail to the DPBCRC, request a list of all Form 8038-CP returns for the bond issue and the Debt Service Schedule (DSS) on file. Include in the request the following:

DPBCRC: from the DPB Compliance Database, provide the DSS on file and, an Excel worksheet listing all Form 8038-CP returns the Issuer filed (EIN matched).

Examiner: Based on the information you receive from the DPBCRC, prepare Form 14711-B, TEB Evaluation of Statute Expiration for Related Form 8038-CP Returns, for the DPBs information return under exam. Follow these Form 14711-B requirements:

Examiner: When you identify potential noncompliance that may result in an "Identified Qualification Issue," establish case controls for all Form 8038-CP returns related to the DPBs information return under exam that have 180 days or more remaining on the period for assessment on RCCMS in status 10. (See also IRM 4.82.3.2.2 (3) of this section and IRM 4.82.3.4.2, Computing Statute Expiration Date for Direct Pay Bonds).

The establishment of case controls for related Form 8038-CP returns:

An Identified Qualification Issue:

You don’t have to prepare Form 5701-B, Notice of Proposed Issue, when you identify an Identified Qualification Issue, but you must document sufficient information for a Letter 531, Statutory Notice of Deficiency (“90-day Letter”) to inform the taxpayer of the IRS’ intention to assess a tax deficiency , if necessary (See also IRM 4.82.3.9).

Examiner: When you open the DPBs exam, consider within 30 days whether, based on the information available, an Identified Qualification Issue is present. If an Identified Qualification Issue doesn’t exist at that time, document it on Form 14711-B, TEB Evaluation of Statute Expiration for Related Form 8038-CP Returns, by:

Throughout the examination, consider whether sufficient information is present to constitute an Identified Qualification Issue.

Examiner: When you identify an Identified Qualification Issue during an exam of DPBs, note it on Form 14711-B and send the form to your group manager for concurrence that there is a reasonable basis to believe that a violation of the qualification requirements may exist in the case.

Group manager:

Examiner:

Related Form 8038-CP returns established on RCCMS in status 10 upon an Identified Qualification Issue aren’t generally opened for examination until the examiner either:

Examiner: Discuss opening related returns with your manager and, upon concurrence:

The DPBCRC:

Examiner:

Close a Form 8038-CP return as disposal code 908, Survey After Assignment if it’s:

Follow the Statute Control procedures in IRM 25.6.23, modified or clarified in this section, for procedures unique to DPBs to establish Form 8038-CP returns in RCCMS. Replace references to ERCS, EPIC, or EOIC with RCCMS for purposes of DPBs statute controls. See IRM 25.6.23.

Subject to the special rule in paragraph (2) below for calculating assessment statute expiration date, treat the period for assessment of tax on Form 8038-CP returns as three years from the date the return is received.

The period for assessment of tax is three years from the date the return is filed (mailed) when the filing (mailing) date is before the return due date, but the form is received after the return due date. The “return due date” for Form 8038-CP is effectively the Line 18 interest payment date.

The filing (mailing) date of any return received after the prescribed return due date is deemed to be the postmark date (IRC 7502). The postmark date isn’t available from electronic copies of the return or from the information data retrieval system (IDRS). If the postmark date isn’t available, absent satisfactory evidence of the actual date the return was filed, compute the statute expiration date for Form 8038-CP returns by treating the return as filed seven days before the IDRS return received date.

For unagreed cases closing from the group having an assessment statute period less than 450 days remaining and not extended by agreement, request the original return using the ESTAB IDRS command.

An adverse determination may affect the availability of the IRC 6431 credit for DPBs. Therefore, you may need to protect the statute for the period of limitation to assess tax for affected Forms 8038-CP.

Upon your manager’s approval of the establishment of related returns (see also IRM 4.82.3.3.1, Establishment of Case Controls for Related Form 8038-CP Returns), for each related Form 8038-CP return identified on Form 14711-B with less than one year remaining on the statute either:

Generally, follow the procedures in IRM 25.6.22, as clarified or modified in this section, when requesting an extension of the period to assess tax on Form 8038-CP returns.

Use Letter 907-A, TE/GE Request to Extend Statute, when consents are requested through the mail. In completing the Letter 907-A, enter a Response due date of no earlier than 10 calendar days, from the mailing of the letter. Enclose copies of Form 872-A. Provide a copy of the correspondence to the authorized representative.

Send Pub 1035, Extending the Tax Assessment Period, to the taxpayer whenever a consent is requested by mail.

Include any enclosure required.

If there is no response to the Letter 907-A by the response due date, prepare and send Letter 928, TE/GE Request to Extend Statute – Follow-up Letter. Enter a Response due date of no earlier than 14 calendar days or 10 business days, whichever is longer, from the mailing of the letter.

When a face-to-face request for a consent is made to the taxpayer or authorized representative, give the consent, Letter 907-A and Pub 1035 to the taxpayer or authorized representative.

Examiners will generally use Form 872-A to request an extension for the assessment period(s). The use of Form 872-A minimizes the administrative burden of statute controls with respect to Form 8038-CP returns during the remaining exam process and any potential action by Appeals.

Form 872 with a specific statute extension date may be used as an alternative to Form 872-A if requested by the Issuer. If a Form 872 is requested, the examiner will advise the Issuer of the differences and advantages of each of these statute extension forms.

Form 10949, Statute Extension Checksheet, is available as a guide when extending the time to assess tax and when updating the statue controls.

The Issuer of the DPBs is the only party permitted to extend the period for assessment for Form 8038-CP returns, regardless of any payee the Issuer may have designated on Form 8038-CP. Accordingly, enter on Form 872-A, the Issuer’s:

Enter "Income" for the type of tax on the extension form.

Generally, the assessment period extended for the DPBs exam is restricted to those credits attributable to one or more specific DPBs issue(s) under exam. Because there may be insufficient space on Form 872-A to specify both the periods covered by the consent and the matters to which the consent applies, enter "See Attachment I for periods covered by this consent and the bond issues to which this consent applies" on the line following "for the period(s) ended" on the form.

Prepare and attach a schedule titled "Attachment I to Form 872-A" when requesting an extension. Include the following:

Generally, an initial statute extension:

The 450-day period is to allow:

If more than one Form 8038-CP return was filed for a single interest payment date, but relate to the same information return (for example, BABs and RZEDBs in the same bond issue, fixed rate bonds and variable rate bonds in the same bond issue, or multiple maturity specified tax credit bonds) you only need to enter the interest payment date once on Attachment I. The period for assessment of each Form 8038-CP return with the same interest payment date is extended accordingly.

Form 872-T is used to terminate the extension of the period for assessment and may be used by the Issuer or the IRS to terminate the Form 872-A agreement. For Issuer initiated terminations, Form 872-T must be delivered to the address specified by the IRS using Letter 1344, Transmittal Letter - Form 872-T. For IRS initiated terminations, examiners must use the Transmittal Letter - IRS, Termination of Form 872-T. For taxpayer initiated terminations:

If the address for delivery changes during the exam, the examiner must notify the Issuer by issuing Form 872-U. The change of delivery address may change due to the transfer of a case to another group or change in manager.

For cases sent to Appeals, the assigned Appeals Officer issues Form 872-U. The examiner must indicate on Form 3198-A that Form 872-A is in the case file and that Form 872-U must be sent to the Issuer to update the Form 872-T address. If an examiner receives Form 872-T after a case has been transferred to another group or to Appeals, the examiner immediately notifies the group or Appeals, as applicable.

Delegation Order 25-2 delegates Field Group Managers (see IRM 1.2.2.14.2(3) g) authority to extend the period of limitations on assessment on behalf of the Commissioner of Internal Revenue Service. Thus, the signature authority for Form 872-A or 872 to be signed by managers of TEB Exam groups or the TEB Technical Manager is under the Commissioner’s Delegation Order 25-2 (Rev. 3) (formerly DO-25-2 and DO-42, Rev 28), dated March 28, 2019.

Examiners must prepare a Form 872-T terminating the Form 872-A extensions for DPBs exams resulting in no change in the qualifications of the bond issue when they’ve extended assessment periods for related Form 8038-CP returns using Form 872-A:

See IRM 4.82.3.4.12 if :

The agreement to extend the period for assessment on Form 872-A is terminated when:

The termination in paragraph (1) above is only for the period for which the assessment, over assessment, or statutory notice relates. Attachment I for Form 872-T must only identify those periods for which an assessment, over assessment, or statutory notice of deficiency is not required. If the Form 872-A covers periods with no changes, or periods that were not opened for exam, then you must issue a separate Form 872-T.

If an Issuer refuses to extend the period for assessment of tax on Form 8038-CP return(s) in order to allow the completion of the examination with more than one year remaining for the period of assessment, discuss with the Issuer the:

If the Issuer still refuses to extend the assessment period, follow the Notice of Deficiency procedures in IRM 4.82.3.9.

Attach completed original Form 872, Form 872-A, and Form 872-T to the back of each Form 8038-CP return to which the statute extension applies. Include copies with the return in the electronic work paper file.

Generally, qualification noncompliance for DPBs is addressed during the examination of the information return for the bond issue. As such, usually we discuss with the Issuer potential noncompliance and resolution procedures before opening the Form 8038-CP examination. However, the case will start as an examination of the Form 8038-CP when the compliance issue is not qualification of the bonds for payment of a credit but is related to other matters, for example, the computation or timing of the credit amount. In either instance, you may use Form 4549-T to present the proposed tax adjustment for changes in the credit amount paid on Form 8038-CP.

If you determine the bonds are not qualified or payment of the credit claimed was not appropriate for other reasons, discuss the issues with the Issuer. If the Issuer agrees the bonds are not qualified bonds under IRC 6431 and requests a closing agreement to resolve the matter, follow standard closing agreement procedures. If the Issuer agrees that payment of the credit claimed was not appropriate for reasons not related to qualification of the bonds, the Issuer may resolve the matter by signing the Form 4549-T consenting to the assessment and collection of the amounts improperly paid.

Closing agreements resolving examinations of DPBs:

The disposal code for closing agreements is used in RCCMS for the DPBs information return case and all related Form 8038-CP cases opened.

If the resolved matter involves a compliance issue reasonably expected to affect any future Form 8038-CP filings, notify the DPBCRC. Include in the notice the dates of all future filings expected to be affected.

DPBCRC: update the DPB Compliance Database based on the information received from the examiner.

If the Issuer doesn’t agree with the adjustments, IRS policy requires you to follow deficiency procedures for claims made on an original return.

Follow the normal TEB procedures (including those in IRM 4.81.14) for proposing issues and proposed adverse determinations for the information return exam. Then:

Potential noncompliance related to the qualification of DPBs is presented on Form 5701-B for the exam of the information return reporting the DPBs transaction. If you’ve determined that the DPBs weren’t qualified:

Compute adjustments to the credit amounts claimed on Form 8038-CP on Form 4549-T. You can use this form to adjust all Form 8038-CP accounts related to a specific DPBs information return.

For adjustments of credit amounts claimed on Form 8038-CP returns related only to the computation or timing of the credit amount (that is, not related to qualification of the bonds), don’t prepare Form 5701-B and a Proposed Adverse Determination Letter for the DPBs exam case file. However, you must attach an Explanation of Items (Form 886-A) including the facts, law, and arguments to Form 4549-T to support the adjustments included in the report.

Agreed Adjustments: If the Issuer agrees to the proposed adjustments listed on Form 4549-T by signing, dating and returning Form 4549-T with full payment:

Unagreed Adjustments:

Review instructions to complete Form 4549-T in Exhibit 4.82.3-1.

The resolution amount reflected in a closing agreement or Issuer-signed Form 4549-T must be paid via Electronic Federal Tax Payment System (EFTPS). Verify the payment was made using the IDRS EFTPS command. If needed, request a copy of the EFTPS confirmation from the Issuer.

Notify the Closing Unit that a payment has been made and request transfer of the payment to the information return (Forms 8038-G, 8038-B, or 8038-TC) period module.

If the Issuer doesn’t agree:

If the Form 8038-CP returns are examined without conducting an exam of the related information return, prepare an explanation of items to describe the facts, law, and arguments supporting the proposed adjustments (Form 886-A).

Attach to Letter 5871-A: Form 4549-T, an explanation of the items (when a Proposed Adverse Determination is not issued), and Pub 1 and Pub 5.

Follow these procedures to notify the DPBCRC:

When future credit amounts are modified from those originally expected based on the terms of the bonds (such as, under terms of a closing agreement):

If the 30-Day Letter has been protested, complete Form 14711-C to indicate that the case is currently in Appeals and notify the DPBCRC of any subsequent claim activity.

Form 14711-C isn’t required for DPBs information return exam cases with no change to the qualification of bonds.

For agreed assessments without a closing agreement, complete Form 14711-C and attach the signed Form 4549-T

Put Form 14711-C and all required attachments in a single PDF file and secure e-mail to the DPBCRC as soon as you determine the exam resolution, but no later than when you close the case.

DPBCRC: when you receive Form 14711-C:

If IRS receives and processes a new Form 8038-CP on a case indicated in the DPB Compliance Database as pending in Appeals (IRM 4.82.3.8.1), FAST establishes an RCCMS Compliance Activity case. The RCCMS case is transferred to the DPBCRC, who:

examiner: Follow these procedures if you receive subsequent Forms 8038-CP:

Because you may receive the referral before the Form 8038-CP return is processed, you may have to wait to establish case controls on AIMS. Confirm the master file account has been established on IDRS before establishing AIMS controls through RCCMS.

Prepare Letter 5871, Proposed Adjustment to Credits under Section 6431 Associated with an Appealed Bond Determination, for review and signature. Letter 5871:

If the Issuer returns the attachment to Letter 5871, requesting immediate Appeals consideration:

The group manager:

If the Issuer does not elect the expedited Appeals consideration option, follow the normal 30-Day Letter procedures. (See IRM 4.82.3.5.6).

For all cases that require a Statutory Notice of Deficiency, Letter 531, TEB Technical reviews the unagreed issues.

TE/GE Division Counsel must review all cases closed for issuance of a notice of deficiency. Accordingly, the assigned TEB Technical specialist must submit a request to their manager for the assignment of a TEGE Division Counsel attorney to the case as soon as possible after the specialist confirms that a notice of deficiency is required.

The assigned TEB Technical specialist prepares and forwards to group manager a Notice of Deficiency Package consisting of the following:

The TEB Technical group manager reviews the Notice of Deficiency Package for completeness and sends it to the TEGE Division Counsel Attorney assigned for review.

TE/GE Division Counsel may request information to review the case and coordinate with TEB on any additional case development.

TE/GE Division Counsel notifies the TEB Technical group manager that the notice of deficiency is approved/disapproved. If disapproved, the reviewing attorney describes the reasons.

If the notice of deficiency is approved for issuance, the TEB Technical group manager instructs the assigned TEB Technical specialist to document TEGE Division Counsel’s approval, issue the notice of deficiency and update status code to 24.

If the Issuer petitions tax court, send a paper copy of the electronic file to Appeals or TEGE Division Counsel. Print all electronic documents in the RCCMS case file to prepare a hard copy case file.

If the notice of deficiency is not approved for issuance, the TEGE Division Counsel attorney discusses their position with the TEB Technical group manager. The assigned TEB Technical specialist and the TEB Technical group manager discuss the case and decide if the case requires further development or normal closure.

TEGE Division Counsel reviews and approves notices of deficiency before they are issued. However, for cases having less than two weeks remaining on the statutory period for assessment, notices of deficiency are issued regardless of whether the TEGE Division Counsel has reviewed them to protect the government’s interest.

When the examiner has identified one or more items of potential noncompliance that may result in an adverse determination (see also IRM 4.82.3.5.1 and IRM 4.82.3.5.2) and the Issuer has either refused to extend or terminated an extension and the period(s) will expire in less than one year, TEB will protect the government’s interests by issuing a notice of deficiency.

Examiner: First discuss with the Issuer the examination/appeals/notice of deficiency process noting the following:

Examiner: Document in the case chronology record that the Issuer has been informed of the process described in the preceding paragraph and doesn’t wish to extend the statutory period for assessment.

Examiner: Determine whether any material areas of potential noncompliance affecting qualification of the bonds and affecting returns not subject to statues that will expire in less than one year have not been fully developed. If so, discuss the remaining areas of potential noncompliance with your group manager and determine if you must :

Examiner: If you determine that no material potential noncompliance remains undeveloped in the exam:

Examiner: If you determine that one or more material areas of potential noncompliance remain undeveloped in the exam:

Group manager: For cases in which case development continues:

Examiner: Prepare an electronic RCCMS exam case file for each Form 8038-CP return. Include the following:

If Form 4549-T includes more than one Form 8038-CP return:

Examiner: Close the RCCMS case file(s) to group manager using disposal code 604 (Unagreed Without Protest).

Examiner’s group manager: Update the case to status 20 and transfer the RCCMS case file(s) from group to TEB Technical (PBC/SBC/EGC = 400/25116/7214) for preparation of the Notice of Deficiency.

Examiner: Include a copy of the file from the related information return exam and a copy of the Final Adverse Determination Letter issued for the DPBs in the case file of the Form 8038-CP return with the earliest interest payment date in exam cases in which:

Include Form 3198-A indicating DPBs Related Return – No 30-Day Letter Protest – Statutory Notice in the case file

If the Issuer timely protests the Proposed Adverse Determination Letter, but fails to timely protest the Letter 5871-A (30-Day Letter) for the related Form 8038-CP returns, determine whether the failure was intended, or due to a mistaken understanding of the requirement to protest both the Proposed Adverse Determination Letter and Letter 5871-A (30-Day Letter). If unintended:

If you don’t receive a protest to the Letter 5871-A (30-Day Letter), close the RCCMS case files to your group manager who transfers to TEB Technical to issue a notice of deficiency. Use RCCMS closing code 604 (Unagreed –Without Protest). Manager will update the status code on RCCMS from 12 to 20 - Review and transfer the case to TEB Technical for preparation of the Notice of Deficiency.

For cases transferring from an examiner’s group for issuance of a notice of deficiency where a final adverse determination is issued, examiners must follow the notification requirements in IRM 4.82.3.8.

For cases transferring from an examiner’s group for issuance of a notice of deficiency where the exam of the information return remains open, the notification to DPBCRC is not required.

Examiner: Use the general procedures in IRM 4.8.9, Statutory Notices of Deficiency, to prepare, issue, suspense, and monitor a notice of deficiency as modified in this IRM.

TEB Technical: Prepare the notice of deficiency including the explanatory paragraph described in IRM 4.8.9.8.6.

TEB Technical: Coordinate with TEGE Division Counsel to request assignment of an attorney for the review and approval of the Notice of Deficiency.

TEB Technical: Assemble a package (Notice of Deficiency Package) to include:

TEB Technical: Perfect the Notice of Deficiency Package as described in written advice from TEGE Division Counsel.

TEB Technical: Prepare the following items:

TEB Technical: Send the items in IRM 4.82.3.9.8 (4) above, and a copy of TEGE Division Counsel’s written approval to the TEB Program Manager or designee, using next day air mail service.

TEB Program Manager or designee:

TEB Technical: Update the status of each RCCMS case included in the notice of deficiency to status 24, 90-Day Letter.

The explanation of tax changes will generally consist of a short paragraph explaining the adjustments proposed on Form 4549-T. This paragraph doesn’t require the statement of facts, law, and arguments generally included with Form 5701-B or a Proposed Adverse Determination Letter, but merely an explanation of the reason for the adjustment.

Examples of IRC 6431 specific explanations:

Example of an IRC 6676 specific explanation:

TEB Technical: For adjustments resulting from noncompliance not described in the examples above, including penalties under IRC 6662 or IRC 6663, provide an explanation which conforms to the:

Include the following paragraphs in the notice of deficiency in cases where deficiency involves a credit under IRC 6431 that has not been paid by the IRS:

After issuance of the notice of deficiency, Issuers have 90 days to petition U.S. Tax Court. The IRS is barred from making an assessment before the expiration of this 90-day period, unless a waiver is received.

TEB Technical: follow these procedures:

TEB Technical: If you receive a Form 870 waiver authorizing the immediate assessment and collection of tax, review the waiver. Close any case for which a valid waiver was received using disposal code 102 (Agreed Tax or Penalty Changes).

Refer to IRM 4.8.9.23 for procedures used to respond to protests, correspondence, or other requests for reconsideration after the notice of deficiency has been issued.

Sometimes a notice of deficiency may need to be withdrawn.

IRS can’t rescind a notice of deficiency until after a petition is filed to the U.S. Tax Court or the 90-day suspense period expires and may only do so if the Issuer and the IRS agree. A rescission requires you to consider a number of factors listed in IRM 4.8.9.28.

To rescind a notice of deficiency issued for TEB cases:

Per IRM 4.81.12.3.1, the FAST DPB Compliance Review Function may establish a case on RCCMS ("Referral Case" ) to refer a Form 8038-CP to the DPBCRC.

The DPBCRC reviews Form 8038-CP referrals from FAST to determine if a referral for examination of the Issuer’s books and records should be made. If the DPBCRC determines an examination referral:

Prior to case closure or request for transfer, the DPBCRC updates the case file to reflect the basis for the determination made.

The following referrals are priority:

DPBCRC and Examiner: Expedite case closing for cases for which both:

Examiner: Survey or close the RCCMS/AIMS case to the group manager to issue any closing letter within one business day of either:

Examiner: Alert the group manager by separate mail that you closed a case with expedite handling requirements on RCCMS. Indicate the date on which credit interest is to begin accruing on the return module.

Group manager: Process the closed RCCMS/AIMS case within two business days of receipt.

Group manager: E-mail the FAST mailbox and group manager identifying the case(s) closed on RCCMS with expedite handling requirements. Include the credit interest date (the date the IRS will begin computing credit interest) in the e-mail to help the FAST prioritize the case closing.

Expedited closing procedures are not required for cases in which the originally claimed refund has been paid or the claim is being totally disallowed.

FAST refers Form 8038-CP returns to the DPBCRC (a “compliance activity referral”) for certain compliance activities as described in IRM 4.81.12.

FAST keeps a record of each Form 8038-CP return processed, which also assigns a unique report number and helps identify potential duplicate returns. This database also contains records of each bond issue evaluated for requirements of qualified bonds, and FAST refers to those records during the compliance review process.

The IRS’ policy is to follow deficiency procedures for disallowed claims if the claim to be disallowed was made on an original return. For a claim made on an originally filed Form 8038-CP return that is determined to be unallowable before the claim, or any portion thereof, has been paid, the IRS follows deficiency procedures in IRM 4.82.3.9.

Referral cases are generally established on RCCMS while the Form 8038-CP is in processing. The examiner must:

Examiner: Prepare Form 4549-T reflecting the proposed adjustment to the credit amount processed on the tax module for the Form 8038-CP return per the instructions in IRM 4.82.3.5.2 as modified below.

Follow deficiency procedures in IRM 4.82.3.9 for unagreed cases. The statutory notice of deficiency, Letter 531 also serves as the statutory notice of claim disallowance. Issuers can file a petition in Tax Court, U.S. district court, or the U.S. Court of Claims to protest the disallowance of the credit. However, they must petition any penalties associated with the proposed reduction in credit in Tax Court or pay the penalty, file a claim for refund, and receive a claim disallowance in order to file a petition in U.S. district court or the U.S. Court of Claims.

Don’t notify the Issuer of any full or partial claim disallowance unless the claim is barred by statute (IRM 4.82.3.10.1.2) or was filed on an amended Form 8038-CP return (see IRM 4.82.3.10.6).

Amended returns for Form 8038-CP are generally allowed only to correct information in Parts I and II or to adjust a prior return filed as a final return.

Prior to review by the FAST DPB Compliance Review Function all Form 8038-CP returns received with the amended return box checked are routed to Accounts Management in the Ogden Campus.

Accounts Management may:

DPBCRC procedures:

Examiner: If the claim case is assigned to you, open the exam and develop the facts necessary to support a determination that the claim should be allowed, partially allowed, or disallowed.

Examiner: For cases in which the additional amount claimed on the amended return is not allowed, prepare Letter 105-A to notify the Issuer of any full or partial claim disallowance. In addition:

Examiner: Consider whether penalties apply (See IRM 4.82.3.11).

Examiner: If you assess a penalty under IRC 6676, follow procedures in IRM 20.1.5.18, IRC 6676, Erroneous Claim for Refund or Credit Penalty, to establish a civil penalty case and prepare Letter 4143-C, 30-day Letter for IRC Section 6676 Penalty, with Form 5838-EC, Agreement to Assessment and Collection of IRC section 6676 Erroneous Claim for Refund or Credit Penalty.

Examiner: Send Letter 105-A and all necessary attachments, Pub 5, Pub 1, Form 3363, Form 2297, Letter 937, and Letter 4143-C, as applicable, to your group manager to review and issue.

The group manager mails Letter 105-A and attachments via certified mail and gives the examiner a dated and signed copy of letters issued for the case file.

Examiner: Gather information to assist with determining the collectibility for assessments made under IRM 4.82.3.5.3 or IRM 4.82.3.9.1.

At the initial exam appointment, advise Issuers that we’ll discuss payment options and solicit payment during the closing conference if we recommend any deficiency.

When you complete the exam and recommend an assessment, request payment of agreed deficiencies resulting from the exam.

If the Issuer is unable to make full payment, explain payment options: installment agreements and Offers-in-Compromise (doubt as to collectibility). You may use Pub 594, The IRS Collection Process.

Employees in TEB Exam Groups have the authority to accept streamlined installment agreements (See IRM 4.20.1.4.3, Streamlined Installment Agreements). If the taxpayer requests an installment agreement that does not meet TEB’s authority, refer to Collection for consideration. Collection has jurisdiction for Offers-in-Compromise, including doubt as to collectibility and currently not collectible determinations. See IRM 4.18.1 through 7 for examination procedures on processing doubt as to liability offers.

Document the case file and workpapers, when applicable, on the collectibility discussion (tiered interview) as outlined in IRM 4.20.1.3.3, Form 9440, Taxpayer Levy Source and Contact Information.

Complete Form 9440, Taxpayer Levy Source and Contact Information, and include in the case file in all unpaid cases (agreed and unagreed). See IRM 4.20.1.3.3 for details.

If you don’t secure full payment or an installment agreement from the Issuer (see IRM 4.20.1.4, Installment Agreements), referral to the Collection Territory Manager with jurisdiction over the Issuer is mandatory for assessments made on MFT 46 accounts.

The referral consists of a memo from the group manager to the Collection Territory Manager including:

Include in all unpaid cases (agreed and unagreed), financial data about the taxpayer and record on Form 9440, Taxpayer Levy Source and Contact Information, to help future collection efforts. Use the facts developed during the exam to complete the form. See IRM 4.20.1.3.3, Form 9440, Taxpayer Levy Source and Contact Information, for more information on completing Form 9440.

Attach the completed Form 9440 to the referral to Collection required for all unpaid assessments on MFT 46 accounts.