Although relatively routine and simple questions may be addressed orally or by email, legal advice should generally be provided by memorandum.

When a written opinion is provided, a copy should be retained for association with any related matter, subsequently proposed deficiency notice, or docketed case.

A memorandum providing legal advice should be tailored to the needs of the recipient and the question posed. Legal advice prepared by Field Counsel should follow the format contained at CCDM 33.1.2.2.3.3, Preparation of Legal Advice.

When Field Counsel identifies an issue or matter that must be coordinated with an Associate office in the process of developing a case for litigation or in rendering legal advice to the Service, coordination should occur as early as practicable and should continue, as appropriate, through case development, litigation, and resolution.

Field Counsel may contact the Associate office initially either by telephone or email. The Chief Counsel Code and Subject Matter Directory listing attorney or branch contacts in the Associate Chief Counsel offices may be used as a starting point to determine who to contact. See CCDM 33.1.2.2.3, General Procedures for Legal Advice from Associate Chief Counsel. As part of the process, Field Counsel may provide documents to the Associate office attorneys to assist in understanding the facts, the transaction, or the issues, and the Associate office attorneys may request additional information as needed to determine how to handle the request. Such contacts will also clarify the nature and urgency of the advice being requested. Any informal advice given should be memorialized as described in CCDM 33.1.2.1, Informal Advice.

Counsel should strive to deliver the most appropriate advice in a given situation. During their informal contact, Field Counsel and the Associate office attorney or advisor should discuss whether Field Counsel will need to draft written advice or whether Field Counsel will need written advice from the Associate office. Field Counsel and the Associate office may also discuss whether a presubmission conference would be appropriate, the form that any legal advice should take, and whether the taxpayer should be involved in the process. When a written response is appropriate, it may be:

If the Associate office attorney, Field Counsel and their reviewers, as appropriate, agree that written advice is needed, Field Counsel shall submit a memorandum setting forth the issues upon which advice is being sought, together with a discussion of the facts, law, and conclusions or course of action proposed by Field Counsel. In general, requests should include the following information:

Where the written advice will be processed for release to the public, taxpayer-specific requests for advice must also include at the time they are submitted:

These procedures also apply to declaratory judgment cases. In these cases, the attorney should recognize the need for advice at the earliest possible time if such procedures are to be effective. It is theoretically possible for a declaratory judgment case to be submitted within four months of the date of issuance of the determination letter, assuming the petitioner files an early petition and reply. In view of that possibility, the submission of a prepetition advice request is encouraged, even though a response cannot be anticipated before the determination letter must be issued.

Advice that implicates the issues or matters within the subject matter of another Associate office should be coordinated with those offices as early in the advice process as possible. The coordination and reconciliation procedures are discussed in full in CCDM 31.1.4, Coordination and Reconciliation of Disputes.

Requests for legal advice from either Field Counsel or components of the Service should be addressed to the Associate office that has subject matter jurisdiction over the primary issue in the case.

Requests for written legal advice from Associate offices, other than the Division Counsel/Associate Chief Counsel (Criminal Tax) (CT) and the Associate Chief Counsel (General Legal Services) (GLS), should be submitted to the Associate offices through the Technical Services Support Branch, Associate Chief Counsel (Procedure and Administration) (P&A). Requests should be submitted by email using normal sensitivity and addressed to TSS4510. The email should include the names of any Associate office attorneys or reviewers with whom the request had been informally coordinated. It should also include the case number. Supporting documents should be sent by email or express mail to the Technical Services Support Branch, CC:PA:LPD:TSS, Room 5329, 1111 Constitution Avenue, NW, Washington, D.C. 20224.

The Technical Services Support Branch will send an email acknowledging the receipt of a request for Associate office assistance to the Field office that requested the assistance. The email will identify the Associate office to which the case is assigned and provide the Field office with the name of that Associate office’s contact person. A copy of this email will be sent to the Associate office’s contact person. If an Associate office does not receive an assignment within one business day from the date of the email, the Associate office should contact the Technical Services Support Branch to determine if the case file has been misdirected or misplaced.

The Technical Services Support Branch will send a copy of any request for advice relating to Service Campuses when appropriate to Wage and Investment (W&I) Division Counsel, the Customer Accounts Manager (Small Business/Self-Employed (SB/SE)), and the SB/SE and W&I analysts responsible for Service Campus operations with a request for such additional information or comment as these offices might wish to provide.

Upon receipt of a case, the Associate attorney should contact the attorney assigned in Field Counsel to inform them of their assignment to the case and to solicit the Field’s participation in the development of the Associate office’s response or review. Any requests for expedited treatment should be discussed, and, if an expedited response is necessary, a time for response should be established. Disputes regarding expedited responses should be promptly elevated and reconciled.

The Associate office assigned primary responsibility for preparing legal advice is responsible for coordinating the request for advice with the other Associate offices as needed. This coordination should occur shortly after the initial case assignment. The procedures governing coordination and reconciliation are discussed more fully in CCDM 31.1.4.2.3, Coordination among Associate Chief Counsel, and CCDM 31.1.4.2, Coordination within the Office of Chief Counsel.

The attorney assigned primary responsibility for preparing written legal advice should communicate with the requesting office when a tentative conclusion has been reached. Such communication enables the requesting office to raise informal concerns to the proposed advice product and to call attention to facts or arguments that may not have previously been raised, developed, or disclosed. Any Counsel office that receives advice or assistance must follow the advice or implement the assistance, unless the receiving office requests reconsideration of the advice or assistance and the advice or assistance is changed through the reconciliation procedure. Early communication is, thus, essential to a meaningful dialogue in the reconciliation process.

Requests for legal advice on issues arising under the jurisdiction of the Division Counsel/Associate Chief Counsel (CT) should be addressed to that office or the appropriate Area Counsel. Requests for legal advice on issues arising under the jurisdiction of the Associate Chief Counsel (GLS) should be directed to that office or the appropriate Area Counsel.

The term "program manager" in this section includes all IRS employees who are not considered Field or Service Center employees of the Service.

Requests for legal advice by program managers in the business units will generally be handled by the appropriate Division Counsel. To the extent these requests involve matters where the law is unclear or Service position is not established, Division Counsel must coordinate with the appropriate Associate offices.

Where a request for legal advice principally concerns the interpretation of the Internal Revenue Code, a recently enacted Code provision, or the application of published guidance to a program, program managers may seek advice directly from the appropriate Associate office. Associate offices may choose in appropriate cases to issue such advice under the signature of the Associate Chief Counsel. When that is done, the procedures in CCDM 33.1.2.2.3.5 for Generic Legal Advice should be followed. Such advice should in general be coordinated with the appropriate Division Counsel.

Consistent with the considerations set out in CCDM 33.1.2.2.2 and 33.1.2.2.3.1, legal advice to program managers may be provided orally or in writing, as appropriate.

Legal advice to a program manager by an Associate office will be provided to the National Taxpayer Advocate upon request. In rare instances, the advice can be withheld from the National Taxpayer Advocate by the Chief Counsel upon consultation with the Commissioner of Internal Revenue. When this occurs, the Chief Counsel will inform the National Taxpayer Advocate within 30 days from the date of the advice was issued or requested by the National Taxpayer Advocate.

Legal advice to a program manager by an Associate office will be released to the public when the advice is provided in a formal written memorandum.

In general, Associate office attorneys will provide legal advice requested by office heads who report to the Commissioner of Internal Revenue (including the National Taxpayer Advocate) or the Deputy Commissioners in a formal written memorandum. The Associate office with primary responsibility for providing the legal advice will simultaneously furnish a copy of the advice to the National Taxpayer Advocate. See CCDM 33.1.2.4.2 regarding additional procedures for providing legal advice to the National Taxpayer Advocate.

The standards for disseminating legal advice that has been released to the public are set out in CCDM 33.1.3.3. These standards also apply to the dissemination of legal advice issued to program managers described in this section.

Formal written memorandum provided this section should be in the format outlined in CCDM 33.1.2.2.3.3, Format of Legal Advice, and must be processed for release as Legal Advice to Program Managers following the directions in Exhibit 33.1.2-1.

After the advice is reviewed by an Associate office and issued by the Field, it will be made available for public inspection after appropriate deletions are made. To make the redaction and disclosure of these memoranda to the public easier, the same format used to prepare Chief Counsel advice may be used for this advice. See CCDM 33.1.2.2.3.3, Preparation of Legal Advice. The legal advice memorandum macro is available to facilitate the preparation of these memoranda using this format.

The name and signature of the person signing the advice, and any contact person named in the memorandum, generally will not be deleted from the document that is made available for public inspection unless it would establish the identity of the taxpayer.

Requests for Associate office review of legal advice prepared in the Field are to be submitted as an attachment to an email message, using normal sensitivity, to the TSS4510 mailbox. Also, any background material needed by the Associate office to review the advice that is not in electronic format should be sent by express mail to the Technical Services Support Branch, Office of the Chief Counsel, Internal Revenue Service, CC:PA:LPD:TSS, Room 5329, 1111 Constitution Avenue, N.W., Washington, D.C. 20224. The assigned attorney in Field Counsel should send copies of the request for Associate office review through their own reviewers consistent with Division Counsel procedures. The Associate office will review the advice and complete the documentation described below in 15 calendar days. The time period for the Associate office to respond may be extended after consultation with the Field, for a time period not to exceed an additional 14 calendar days. Once review is completed, the Associate office attorney shall prepare a Response Form reflecting its consideration. See Exhibit 33.1.1-1, Field Advice Reviewed by the Associate Office Response Form.

Depending on the nature of the response the following process will be followed:

TSS 4510 will close the existing assignment and open a new assignment with the correct category if the decision is made to issue legal advice. If the decision is made to issue published guidance, the Associate office will open an appropriate case.

Field Counsel will contact the Service field office requesting the advice and advise them of the decision. If supplemental information is needed by the Associate office attorney, the request for information from Field Counsel should be made as soon as practicable.

Field advice reviewed under these procedures will be made available to the public pursuant to procedures set out in CCDM 33.1.2.5, Processing Legal Advice for Public Inspection.

TAS’s procedures for requesting legal advice are found in IRM 13.1.10, Special Processes.

Chief Counsel is responsible for providing legal advice and support to TAS for the fulfillment of its mission, whether the support relates to the casework or the systemic advocacy function. In many cases, TAS often needs expedited legal advice regarding the applicable law, the rights of the taxpayer, and the responsibilities of the Service. TAS may also request advice about what assistance, if any, TAS legally may provide in a given situation. In cases involving advocacy issues, TAS may request guidance in understanding existing law and procedure or require advice regarding the legal and policy implications of alternatives TAS may propose.

Generally, the attorneys assigned to Division Counsel (SB/SE) will provide legal advice to TAS local offices. In every Field office, there is an SB/SE manager or senior attorney designated as the point of contact for providing advice to TAS. The list of SB/SE contacts can be found on the Division Counsel/Associate Chief Counsel (National Taxpayer Advocate Program) website. The local SB/SE contact will be responsible for providing advice for all legal issues that relate either to SB/SE or Wage & Investment (WI), formulating and referring matters for coordination with the Associate offices, and coordinating legal services with other offices. When TAS employees raise Large Business and International (LB&I) or Tax Exempt and Government Entities (TEGE) issues, the SB/SE contact must coordinate the response with the respective Area Counsel for LB&I or TEGE, or refer the case for assignment through the Area Counsel for LB&I or TEGE.

Advice on issues involving personnel, labor, and procurement should be requested from General Legal Services (GLS). Similarly, advice on criminal tax matters should be requested from Criminal Tax (CT). The lists of local GLS and CT contacts can be found on the CC:NTA website.

The Office of the CC:NTA primarily provides legal advice to the National Taxpayer Advocate and TAS headquarters employees. On occasion, the CC:NTA also provides legal advice to TAS local offices. When issues under the jurisdiction of the CC:NTA are referred to the SB/SE contact, the request must be handled pursuant to the provisions in CCDM 33.1.2.4.3.1, Coordination of TAS Advice with CC:NTA or Associate Offices. The following issues are under the exclusive jurisdiction of the CC:NTA:

The Office of Chief Counsel will respect the confidentiality of information provided by TAS. When TAS requests that particular information is to be kept confidential and confined to a specified Counsel attorney or office, that Counsel attorney or office will not disclose information to other Counsel attorneys or offices or to the IRS or other third parties. In rare instances, after consultation with the National Taxpayer Advocate, CC:NTA may inform the Chief Counsel or a Deputy Chief Counsel of that information if the NTA intends to take a public position adverse to the position of the Office of Chief Counsel.

In general, legal advice procedures for TAS will be the same as for other legal advice provided by Counsel. The SB/SE contact will determine whether advice can be given directly or whether consultation with the Associate offices is necessary.

When a taxpayer is involved in tax litigation with the Service or the United States (whether in the Tax Court, the U.S. Court of Federal Claims, a U.S. Court of Appeals, a U.S. district court, the U.S. Supreme Court, or a federal bankruptcy court), jurisdiction over the case rests with either the Office of Chief Counsel or the Department of Justice, and the litigation matter is assigned to an attorney in the appropriate office. Once a taxpayer becomes involved in this litigation, TAS employees have no jurisdiction over the issues involved in the litigation. Thus, if a TAS employee contacts a Counsel employee for assistance after litigation has commenced, the Counsel employee will remind the TAS employee that TAS does not participate in the litigation process and that the taxpayer (or the taxpayer’s representative) must be referred to the attorney assigned to the case. If the Counsel employee learns that the taxpayer is not represented in the litigation, the Counsel employee will remind the TAS employee that the taxpayer may be eligible for representation from a Low Income Taxpayer Clinic. See Publication 4134 for a list of organizations that receive a low income taxpayer clinic matching grant from the IRS. A Counsel employee may not direct the TAS employee to a specific clinic.

Except as indicated above, legal advice procedures for Service Campuses will be the same as for other legal advice provided by Counsel. Local Field Counsel will determine whether advice can be given directly or consultation with the Associate offices is necessary using the criteria in CCDM 33.1.1.2, Role of Field Counsel in Providing Legal Advice.

Advice provided by the Associate offices to Service Campuses will address the interpretation or application of the internal revenue laws generally and is not intended to assist in the resolution of a specific taxpayer’s case. Informal advice and coordination are encouraged.

In general, Service Campus advice

All advice provided to Service Campuses that has been coordinated with the Associate offices and related Service functions will be distributed to the appropriate Service personnel who are responsible for writing the procedures governing Service Campus operations. Counsel personnel who are responsible for providing advice to Service Campuses will assist in this process of implementing the advice and will have primary responsibility for dealing with the Service Campus.

Legal advice rendered by the Associate offices regarding Service Campuses is processed for public release as Chief Counsel advice, and this advice should be disseminated in the same fashion as Chief Counsel advice. See CCDM 33.1.3.3, Dissemination of Chief Counsel Advice.

Each Field Counsel office designated to serve a Service Campus should take the initiative to inform the appropriate Service Campus personnel of the availability of Counsel assistance and of the manner in which requests for advice should be submitted. Field Counsel managers and attorneys should meet regularly with the appropriate Service Campus personnel to establish a relationship with these Campuses.

The Field Counsel office receiving a request for advice from a Service Campus has the initial responsibility to determine whether the advice should be rendered informally or formally or whether the advice sought must be coordinated with the Associate offices. Campus personnel are not expected to make this determination, although the requester may be asked to provide factual information that will assist in the classification (e.g., How many cases in the Service are believed to raise the issue? Do other Service Campuses have similar cases? Is the issue related to the design of a program intended to deal with a significant number of cases?). When in doubt as to whether an issue must be coordinated with the Associate offices, Field Counsel should coordinate with the Associate offices.

Copies of any written advice that are provided to the Service Campuses directly by Field Counsel should be sent to the CAS Manager, Headquarters, SB/SE Counsel, Customer Accounts Manager (SB/SE), and Division Counsel (W&I). This will permit the identification of emerging issues or trends that might not be apparent to individual Counsel offices and will ensure that the advice was appropriate for field advice. Field advice to Service Campuses will not be digested, indexed, maintained, or cited as precedent for the resolution of future cases.

Field Counsel is responsible for providing specific advice to the Service Campus based on the Associate office’s response. If additional taxpayer specific advice would be helpful to the IRS Campus in handling the particular matter that gave rise to the request, Field Counsel should provide separate advice. A copy of any separate memorandum should be provided to W&I, LB&I, TEGE, and SB/SE Division Counsel, as appropriate.

Generally, all requests for advice regarding Service Campus issues from Division Commissioner functions, including all headquarters or program functions within the Division Commissioner’s office, are to be sent to Division Counsel, who will coordinate or provide legal advice as appropriate. Division Counsel will:

When a request for legal advice is coordinated with the Associate offices, Division Counsel will provide specific advice to the SB/SE & W&I executives responsible for the Service Campus or Computing Center operations and will work with the SB/SE and W&I executives responsible for Service Center operations to incorporate the advice, as appropriate, into Service procedures.

Service Campuses may request advice directly from the Associate offices. Any requests that could have been handled by local Field Counsel should be referred to local Field Counsel for response. If the request is one that these procedures require be referred to an Associate office, the Associate office will consult with the appropriate Division Counsel on how to handle the request. If it is decided that legal advice from the Associate offices is desirable, the request will be treated as a request for advice in accordance with the procedures set forth in CCDM 33.1.2.2.2, Coordination of Legal Advice with Associate Chief Counsel, and CCDM 33.1.2.2.3, General Procedures for Legal Advice from Associate Chief Counsel, and a response will be provided directly to the requestor. If not, the request will be returned to the Campus with an explanation of why advice is not being provided.

Ex parte communications are communications between any Appeals employee (e.g., Appeals Officers, Appeals Team Case Leaders, Appeals Tax Computation Specialists) and employees of other Service offices, without the participation of the taxpayer or the taxpayer’s representative. Ex parte communications may be oral or written, manually or computer-generated.

Ex parte communications are prohibited to the extent that the communications appear to compromise the independence of Appeals. Whether a communication appears to compromise the independence of Appeals depends upon the nature of the communication. Generally, Appeals may ask Service employees questions that involve ministerial, administrative, or procedural matters and do not address the substance of the issues or positions taken in the case.

The following inquiries by Appeals employees are not prohibited ex parte communications (see section 2.03(2)(a) of Rev. Proc. 2012-18 for additional examples):

Prohibited ex parte communications, unless the taxpayer is given the opportunity to participate, include:

The taxpayer/representative may waive the prohibition on ex parte communications. If the taxpayer/representative is given an opportunity to participate in a discussion, but decides not to participate, the prohibition is waived. Generally, a waiver will be granted on a communication-by-communication basis. Alternatively, the waiver could encompass all communications that might occur during the course of Appeals’ consideration of a specified case.

The limitations on ex parte communications do not apply to communications between Counsel and Appeals in connection with cases docketed in Tax Court, with the exception of remanded CDP cases discussed in CCDM 33.1.2.7.2.1, Communications Regarding Collection Matters, below. Docketed cases will be handled in accordance with Rev. Proc. 87-24, 1987-1 C.B. 151, including any successor procedures, and the Tax Court Rules.

Cases docketed in district court or the Court of Federal Claims do not fall within the docketed case exception. However, the ex parte communication rules do not apply to communications between the Department of Justice and Appeals.

Attorneys in the Office of Chief Counsel are expected to provide legal advice without bias in favor of either the Government or the taxpayer. Rev. Proc. 2012-18, § 2.02(1) (citing Rev. Proc. 64-22, 1964-1 C.B. 689). To balance Appeals employees’ need to obtain legal advice with the requirement that they avoid ex parte communications that would appear to compromise Appeals’ independence, the following limitations will apply to communications between Appeals employees and attorneys in the Office of Chief Counsel in cases not docketed in the United States Tax Court.

A field attorney should not communicate ex parte with Appeals employees regarding an issue in a case pending before Appeals if the field attorney personally provided legal advice regarding the same issue in the same case to the originating function (e.g., Exam) or personally served as an advocate for the originating function regarding the same issue in the same case. Section 2.06(1) of Rev. Proc. 2012-18.

If the restriction on ex parte communications applies, Counsel will assign a different attorney to provide assistance to Appeals.

The restriction on ex parte communications with Appeals only applies while Appeals is performing its duties of evaluating the strengths and weaknesses of the specific issues in specific cases and the overall hazards of litigation for those cases. If an Appeals employee is not functioning in that capacity, (e.g., preparing a statutory notice of deficiency), the restriction on ex parte communications does not apply. See CCDM 33.1.2.7.4, Review of Statutory Notices of Deficiency.

Appeals’ requests for legal advice will be handled as appropriate under the procedures in CCDM 33.1.2.2.2, Coordination of Legal Advice with Associate Chief Counsel.

A statutory notice of deficiency prepared by Appeals reflects Appeals’ determination that an administrative settlement will not be reached with the taxpayer and the case will close unagreed. A statutory notice of deficiency represents the IRS’s determination of a taxpayer’s liability, not just the determination of Appeals.

It is Counsel’s responsibility to ensure that the statutory notice reflects the legal theories and positions that are consistent with the current IRS position. This includes providing advice on issues for inclusion in a statutory notice of deficiency for a proper determination of the tax liability relating to the transactions involved, regardless of whether the issue, position, or theory was previously considered by the revenue agent or Appeals.

This advice does not violate the ex parte communications rules, regardless of whether the attorney who authors the advice to Appeals previously advised Exam about the issues or case in question.

If the field attorney who previously advised Exam on an issue recommends that a theory or adjustment be added to the statutory notice, the attorney’s manager should closely scrutinize the recommendation before approving the memorandum to Appeals setting forth that position.

If Appeals adopts Counsel’s recommendation, a meeting should be held between Appeals, Counsel, and the taxpayer or representative to explain any additional adjustments prior to issuing the notice of deficiency.

IRC § 6651(a)(2) authorizes the imposition of an addition to tax where, without reasonable cause, a taxpayer fails to pay the amount shown as tax on a return on or before the payment due date. Prior to the enactment of IRC § 6651(g), no comparable failure to pay penalty applied to taxpayers who did not file a return. Recognizing the inequity of imposing the failure to pay penalty on filers but not on nonfilers, Congress enacted IRC § 6651(g). IRC § 6651(g)(2) provides that, for returns due after July 30, 1996, an IRC § 6020(b) return will be treated as a return filed by the taxpayer for purposes of determining the IRC § 6651(a)(2) addition to tax.

If the IRC § 6651(a)(2) addition to tax is to be conceded because documents comprising a IRC § 6020(b) return do not exist, attorneys should plead the increase in the amount of IRC § 6651(a)(1) addition to tax that results from the inapplicability of the IRC § 6651(c)(1) limitation on the amount of the IRC § 6651(a)(1) penalty. This additional amount may be forgone in "S" Cases where the amount is sufficiently small. The decision to forgo the increased IRC § 6651(a)(1) addition to tax must be approved by the trial attorney’s manager.

For returns, the due date of which is after December 31, 1989 (without regard to extensions), the accuracy-related penalty pursuant to IRC § 6662 imposes a 20 percent penalty on underpayments attributable to, among other things, negligence or disregard of rules and regulations.

The accuracy-related penalty can be applied only to a return that has been filed by the taxpayer. See IRC § 6664(b).

Negligence includes any failure to make a reasonable attempt to comply with the provisions of the tax law, exercise ordinary and reasonable care in tax return preparation, keep adequate books and records, or substantiate items properly. See Treas. Reg. §1.6662-3(b).

Disregard of rules or regulations relates to the taxpayer’s failure to follow the appropriate law in completing the return, and reflects a disregard of the Internal Revenue Code, temporary or final regulations, notices, or revenue rulings (other than notices of proposed rule making). The term "disregard" includes careless, reckless, or intentional disregard. A taxpayer who takes a position contrary to a revenue ruling or notice has not disregarded the ruling or notice if the position has a realistic possibility of being sustained on its merits.

The accuracy-related penalty attributable to negligence will not be asserted solely for filing a return late or solely due to the taxpayer’s failure to appear for an audit or respond to an inquiry or notice. The facts and circumstances from the return and the case file, however, may warrant assertion of the accuracy-related penalty attributable to negligence.

Reasonable cause exception: The accuracy-related penalty does not apply if the taxpayer has reasonable cause and acted in good faith, i.e., if an error was due to an honest misunderstanding of the facts or the law and the taxpayer took reasonable steps to comply with the law.

For returns, the due date of which is after December 31, 1989 (without regard to extensions), the civil fraud penalty pursuant to IRC § 6663 imposes a 75 percent penalty on the portion of the underpayment attributable to fraud.

The civil fraud penalty will be asserted when there is clear and convincing evidence to prove that some part of the underpayment of tax was due to fraud. Such evidence must show the taxpayer’s intent to evade the payment of tax which the taxpayer believed to be owing. Intent is distinguished from inadvertence, reliance on incorrect technical advice, honest difference of opinion, negligence, or carelessness.

The civil fraud penalty can be applied only to a return filed by the taxpayer. Where the taxpayer has fraudulently failed to file returns, the fraudulent failure to file penalty pursuant to IRC § 6651(f) should be applied.

The fraud penalty and the accuracy-related penalty cannot both be imposed with respect to the same portion of an underpayment. If the case does not involve collateral estoppel, it may be prudent to consider raising the appropriate equivalent and lesser penalties in the notice of deficiency as alternative determinations. Likewise, with the assertion of the fraud delinquency penalty (IRC § 6651(f)), the alternative of the regular delinquency penalty should be considered.

If the proposed notice covers a year for which there has been a tentative allowance resulting from a net operating loss carryback, the issue of the loss year is before the court if the taxpayer petitions from the tentative allowance year. If the loss year has not been audited and the Service wishes to examine the loss year, it should be asked to do it promptly after the issuance of the statutory notice. If the Service chooses to survey the year, a letter to that effect should be obtained. Thereupon the issue may be ignored.

If the taxpayer has not received a tentative allowance for the loss year, the issue will not be before the court unless raised in the petition. Nevertheless, the Service should be asked whether it wants to conduct an examination of the loss year.

The proposed deficiency notice should be reviewed expeditiously. Immediately upon its receipt, the manager and the assigned attorney in Field Counsel should verify the statutory bar date for each return in the administrative file. In determining the last day for timely assessments, they should consider the status of any Form 872-A, Special Consent to Extend the Time to Assess Tax. The proposed address should be verified as the last known address of each of the taxpayers. If the taxpayer is a corporation, the continued existence of the entity to which the notice is addressed should be verified. If the notice is to be sent to a successor or the parent of a group of corporations filing a consolidated return, the prospective recipient’s status should be confirmed.

Unagreed Cases: If the Field Counsel does not agree to the issuance of a statutory notice, the case should be returned to the referring office with a memorandum stating the reasons for the disagreement. If the file reflects a settlement offer Counsel views as reasonable, that view should be noted. If the disagreement is based upon inadequate factual development, the areas of inadequacy should be stated and the required remedial investigation should be specified. The Service is not bound by Counsel’s opinion of the merits of the proposed notice. Counsel should state whether the issuance of the notice is not recommended, either definitively, i.e., not at all, or conditionally pending further action. If Counsel returns a proposed notice to Appeals with a memorandum recommending that the notice not be issued in whole or in part, the Appeals Team Manager and the Associate Area Counsel will resolve the disagreement. If they fail to resolve the disagreement, it will be resolved by the Area Counsel with the advice of the Area Director of Appeals.

Agreed Cases: A proposed statutory notice is considered agreed if it is correct on its face or Field Counsel concurs that more tax is due. Counsel need not adopt the rationale of the initiating office or approve the RAR or supporting statement. Counsel is not barred from requesting a supplemental investigation. If Counsel favors different or additional grounds for the proposed deficiency, a brief explanation should be included in the recommendation memorandum principally as background material for any ensuing litigation.

Copies of all writings prepared during notice considerations should be kept for inclusion in the legal file if litigation results.

At the time that a statutory notice of deficiency is issued it is unknown whether the case will be settled, tried or defaulted. Therefore, it is necessary to prepare such notices in accordance with Munro v. Commissioner , 92 T.C. 71 (1989), in all cases where nonpartnership items of the taxpayer are being adjusted but the taxpayer has also invested in an entity that is subject to the unified audit and litigation (TEFRA) provisions and that entity is the subject of an ongoing entity-level proceeding for the years at issue in the statutory notice of deficiency. Otherwise, if a case is defaulted and Munro computations were not used in preparing the statutory notice of deficiency, the Service will only be permitted to assess the amount of the deficiency and penalties that are reflected in the notice. IRC § 6213(c). Moreover, the Service may be precluded from assessing and collecting the differential deficiency at the completion of the TEFRA proceeding if the taxpayer subsequently challenges the assessment or collection of said differential deficiency on the ground that it is barred by the expiration of the statute of limitations. See CCDM Part 35, Tax Litigation, for additional guidance. The Munro computations apply for all years ending after the enactment of TEFRA on September 3, 1982.

Munro Computations and Oversheltered Returns. For years ending after August 5, 1997, the Munro computations continue to apply without change, except in the case of an oversheltered return. IRC § 6234 now permits a declaratory judgment action in Tax Court for nonpartnership items oversheltered by partnership deductions. Specifically, the procedure applies when a return shows no taxable income and a net loss from partnership items and, as a consequence, no deficiency in tax arises from an adjustment to nonpartnership items. Accordingly, the Service may issue a notice of adjustment, which adjusts nonpartnership items. If a TEFRA partnership proceeding subsequently causes the nonpartnership adjustments to result in tax, the tax attributable to the nonpartnership adjustments may be assessed as part of the computational adjustment of partnership items. The notice of adjustment is treated similarly to a notice of deficiency for purposes of the petition period, statute of limitations suspension, restrictions on issuing a second notice, etc. An adjustment notice that results in a deficiency in tax (as a result of a final determination of any partnership item for the taxable year) is automatically deemed to be a valid notice of deficiency. Similarly, a notice of deficiency that results in no deficiency in tax will automatically be deemed to be a proper notice of adjustment if the notice otherwise meets the criteria of IRC § 6234.

The procedure for reviewing proposed claim disallowances is the same as that for proposed deficiencies. See IRM 8.17.4, Notices of Deficiency .

The general principles applied in the review of notices of deficiency to determine the legal sufficiency of supporting information and documents also apply to Counsel review of notices of determination of worker classification under IRC § 7436, or any of the final adverse determination letters that taxpayers can petition under the declaratory judgment procedures of IRC §§ 7428, 7476, and 7478 that are within the subject matter responsibility of the Division Counsel/Associate Chief Counsel (TEGE).

If after review of the proposed notice, claim disallowance, or final adverse letter, Field Counsel believes it should not be issued either in whole or in part, Field Counsel will return the case to Appeals with a memorandum setting forth its reasons. Where the Appeals Team Manager and the Associate Area Counsel cannot resolve a disagreement regarding the notice, claim, or letter, the disagreement will be resolved by the Area Counsel with the advice and assistance of the Area Director of Appeals.

In relatively uncomplicated nondocketed cases, Appeals may request informal assistance from Field Counsel when advice is needed as to the hazards of litigation, interpretation of the law, and/or evaluation of the evidence. This assistance will be provided through informal arrangements between each Field Counsel and Appeals office. See IRM 8.1.10, Ex Parte Communications, regarding limitations on ex-parte communications with Appeals. This informal procedure is not intended to take the place of, or alter in any way, technical advice procedures.

In large dollar and/or complex nondocketed cases, Appeals may request that such cases be informally considered by Field Counsel. In addition, Field Counsel may be asked to attend settlement conferences in nondocketed matters, but serve only in advisory roles. Counsel will cooperate in providing this assistance as long as resources and workloads permit. See IRM 8.1.10, Ex Parte Communications, regarding limitations on ex-parte communications with Appeals.

IRC 6212(c) precludes the Service from determining additional deficiencies after the taxpayer has filed a timely petition for the same years with the Tax Court. An exception exists for fraud. Also, mathematical or clerical adjustments as well as termination and jeopardy assessments may be made. See IRC §§ 6213(b)(1), 6851, and 6861.

Additional deficiencies may be determined in the Tax Court under IRC § 6214(a), if by answer respondent raises new issues and requests increased deficiencies. If an increased deficiency is recommended after a deficiency notice has already been issued, no attempt should ordinarily be made to issue another notice during the period for filing a petition with the Tax Court. It is Service position that a statutory notice issued within 90 days after an earlier one becomes a nullity if the taxpayer files a timely petition from the first notice. If the taxpayer files a petition from the first notice, the additional issues can and should be raised in the answer with a request for an increased deficiency. If the taxpayer does not file a timely petition, a second statutory notice should then be issued for the additional deficiency. Care should be taken so that the period of limitations does not expire. See Treas. Reg. §301.6503(a)-1.

IRC § 6212(d) now provides for rescission (which operates to rescind the whole notice and not a part thereof) if the parties mutually agree to the rescission. A rescinded notice cannot form the basis of a petition in the Tax Court.

If the statutory notice is returned undelivered because the taxpayer’s address has changed, the issuer should attempt to ascertain if a new address exists. If found, a new notice should be sent to obviate the contention that the Service did not do all it should have to send the notice to the taxpayer’s last known address. A second notice can only be sent if the period of limitations for assessment remains open.

IRC § 7522, effective for mailings made after January 1, 1990, provides that any notice, including notices of deficiency and notices of tax due, must describe the basis for and identify the amounts of the tax due, interest, additional amounts, additions to tax, and assessable penalties included in such notice. An inadequate description will not invalidate the notice. IRC § 7522 applies to any tax due notice or notice of deficiency under IRC §§ 6155, 6212, or 6303. It also applies to any notice generated out of any information return matching program (e.g., CP-2000 Underreporter Program).

The stated purpose of IRC § 7522 is to improve the clarity of explanations sent to taxpayers. H.R. Conf. Rep. No. 1104, 100th Cong., 2d Sess., pt. 2, at 219, 1988-3 C.B. 473, 481. While the statutory requirement is limited to enumerated notices, the conference report notes the desire of Congress that the Service make every effort to improve the clarity of all explanations sent to taxpayers. No details are provided as to what may or may not be a sufficient explanation other than inclusion of the information in the original notice sent to taxpayers; later copies of a particular notice to the same taxpayer need not contain the explanatory information if the Service determines that including it would be confusing. In the case of interest, it is sufficient if the notice states that interest at the legal rate is owing on the amount due.

Issuing a statutory notice may have an impact on a pending criminal case as outlined, in part, below. Thus, in cases in which the criminal case is pending with Field Counsel, the contents of the proposed statutory notice should be coordinated and reviewed by both the appropriate field office of the Division Counsel/Associate Chief Counsel (CT) and the appropriate field office of Division Counsel (LB&I), Division Counsel (SB/SE), or Division Counsel/Associate Chief Counsel (TEGE).

If the criminal aspects of the case are pending with the Department of Justice and the Field office, and the appropriate CT field office and the appropriate LB&I, SB/SE, and TEGE field office agree that a statutory notice should be issued to protect the civil liability, Field Counsel has discretion to communicate directly with the Department of Justice. In the event higher level coordination is desirable, the reviewed proposed statutory notice and a proposed letter to the Department of Justice should be sent to Division Counsel/Associate Chief Counsel (Criminal Tax).

Clearance with the Department of Justice is not required prior to action to solicit consents or issue statutory notices as to taxable years having no relationship to years included in the prosecution recommendation made to the Department of Justice or as to related taxpayers not included in such recommendation unless there are transactions involved which have a bearing on the criminal case. For Service policies and procedures regarding solicitation of consents, and issuance of statutory notices in pending criminal cases, including cases with the Department of Justice, see IRM 9.4, Investigative Techniques, and CCDM Part 38, Criminal Tax. Clearance is required for issuing statutory notices in instances where prosecution has been recommended for willfully failing to file income tax returns and the taxpayer has filed delinquent, nonfraudulent returns only if the fraud penalty is not determined in the statutory notice.

If a copy of a proposed statutory notice is forwarded to the Division Counsel/Associate Chief Counsel (Criminal Tax) for transmittal to the Department of Justice, it should first be reviewed and agreed to as to form and content by both the appropriate CT field office and the appropriate LB&I, SB/SE, and TEGE field office, which agreement should be noted in the transmittal to the Division Counsel/Associate Chief Counsel (Criminal Tax). The statutory notice adjustments should be consistent with the items in the criminal case.

The transmittal should be addressed to the attention of the Associate Chief/Division Counsel offices. Appropriate coordination will be made between the Criminal Tax and Associate Chief/Division Counsel offices on the clearance for issuance of the statutory notice, and the Associate Chief/Division Counsel offices will be furnished with copies of all clearance documents and letters.

The issuance of the statutory notice must be made with the realization that respondent will have to comply with the rules of the court and will lose control over the extent to which facts involved in the tax determination and facts in support of the fraud penalty can be kept from the taxpayer.

The court, however, may be willing to suspend proceedings such as trial and discovery to the extent the proceedings would prematurely disclose facts and prejudice the criminal case. Field Counsel should consider whether a motion to stay proceedings would be appropriate.

Once the criminal aspects of a case have been concluded, the decision to issue a statutory notice should be made by the appropriate civil first-line manager, after coordinating with the Criminal Tax Area Counsel. In the event the civil first-line manager proposes to concede, after coordination with the Criminal Tax Area Counsel, either:

If a notice of deficiency is prepared for the same tax periods for which the federal district court orders restitution under 18 USC § 3556, field counsel must make sure that the notice of deficiency is not issued based on the amount ordered pursuant to a restitution order because an assessment of restitution is not subject to deficiency procedures. See IRC § 6213(b)(5). Taxpayers assessed an amount of restitution are precluded by IRC § 6201(a)(4)(C) from challenging the amount of restitution on the basis of the existence or the amount of the underlying tax liability. For those tax periods, a notice of deficiency should only be prepared with respect to the amount of tax liability and civil penalties determined by a subsequent civil examination. With respect to the penalties asserted, if any, a notice of deficiency must be issued only to the extent that the penalties are based on a deficiency. See CCDM 33.1.2.8(10).