This section outlines procedures for the campus when partners subject to unified audit and litigation procedures under TEFRA raise the possibility of identity theft.

Purpose: This handbook describes:

Audience: Field examination Revenue Agents (RAs) and campus RAs, Tax Compliance Officers (TCOs), Tax Examiners (TEs) and Clerks working pass-through entities and/or their investors linked on the Pass-through Control System (PCS).

Policy Owner: Director, Small Business/Self-Employed (SB/SE), Headquarters, Examination Field and Campus Policy (SE:S:E:HQ:EFCP).

Program Owner: Program Manager, Campus Examination and Field Support (SE:S:E:HQ:EFCP:CEFS).

Primary Stakeholder: SB/SE, Large Business and International (LB&I), and Appeals.

Program Goals: Establish an electronic linkage between the partnership being examined and its underlying partners in order to generate notices required by statute, monitor and control statutes, and gather closing information.

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.

This section explains the campus TEFRA procedures necessary for working identity theft cases.

Refer to IRM 25.23.3.2.6, Identity Theft Assistance Request (ITAR) – General Information, for all information and guidance regarding documentation and actions required for processing Identity Theft (IDT) claims. This IRM provides service wide guidance on identity theft issues.

This IRM 4.31.8, TEFRA Identity Theft, will provide TEFRA specific functional guidance.

Victims are encouraged to report instances of known identity theft to appropriate federal agencies. See IRM 25.23.2.2.1, Taxpayer Interaction.

The Service implemented identity theft indicators to facilitate case identification and processing. It is important to understand these Identity Theft Indicators.

Initial Allegation/Suspicion of Identity Theft - The identity theft indicator alerts others that a claim of identity theft has been reported. Refer to IRM 25.23.3.2.6, Identity Theft Assistance Request (ITAR) – General Information.

Taxpayer Provided Identity Theft Documents - The identity theft indicator alerts others that a claim of identity theft has been received or is currently being worked or substantiated. Refer to IRM 25.23.2.3.7, Marking Taxpayer Accounts When Accepting Identity Theft Claims.

Identity theft can be initiated by the taxpayer, where by Form 14039, IDT Affidavit, was submitted by mail, e-mail or fax. See IRM 25.23.2.2.1, Taxpayer Interaction.

In many instances, identity theft incidents will be resolved prior to reaching TEFRA.

If a taxpayer alleges identity theft or an employee suspects identity theft, the case should be reviewed on the Integrated Data Retrieval System (IDRS) via command codes ENMOD or IMFOL with definer "E" to determine whether IDT has previously been identified and corrected or if there is an unresolved identity theft issue.

If the identity theft issue has been resolved for the same tax year you are working or assigned, there are no other actions needed on the identity theft issue, continue to process case following normal procedures.

If the identity theft issue is unresolved, refer to the TEFRA IDT Coordinator. The chart below can be used as a reference. See IRM 25.23, Identity Protection and Victim Assistance, for a complete list of IDT actions codes (AC) used with Transaction Code (TC) 971 and the table below to make a determination.

During the TEFRA examination, if any correspondence is received from the taxpayer indicating ID Theft, not previously identified on the taxpayer’s account, refer the case to the TEFRA IDT Coordinator for determination of next action.

If the taxpayer indicates ID theft during a phone call, technicians should route case(s) to the TEFRA IDT Coordinator for determination of next actions.

TEFRA cases with a "statute expiring within 120 days or less" (the period for assessment) require "Special Handling" in order to protect the legal assessment of tax. Any IDT follow up actions including but not limited to the following must be completed prior to the statute assessment date.

Expedite referrals to Identity Theft Victim Assistance – Exam Team, for any IDT account adjustments. See IRM 25.23.10.9.4, IDTVA Specialties Exam Identity Theft Case Processing.

IDT correspondence received in writing or telephonically, will be referred to the CPF TEFRA IDT for resolution.

The CPF TEFRA IDT coordinator will refer to IRM 25.23.10.9.4.1 , IDTVA Specialties Exam General Procedures., for all information and guidance regarding documentation and actions required for processing Identity Theft claims.

Taxpayers may ask where to find additional information to protect themselves from identity theft. Refer to IRM 25.23.2.2.1, Taxpayer Interaction.

All cases identified as Identity Theft (IDT) will be worked as priority without unreasonable delay by the IDT Coordinators.

Document all IDT actions on RGS workpapers and AMS in detail. Include all documents received, documents reviewed in the case file and considered in the IDT determination

See IRM 4.31.3.13.6, Preparation of Partner Examination Report.

It is important to make a distinction between a Mixed Entity and/or Scrambled SSN problem and an actual IDT case. Do not confuse the issue of taxpayers having no knowledge of income earned or a return filed with an assumption they are a victim of IDT. Any cases that are determined to be mixed entity or scrambled SSN cases are referred to Accounts Management for account resolution.

At any time during the account review, if there is evidence the taxpayer has a filing requirement but has not filed a return, solicit and encourage the taxpayer for a signed return. This applies to any years reviewed and impacted by the IDT incident.

Do not confuse fraud schemes and IDT. If a taxpayer authorized a preparer to file a return, but the preparer added or inflated deductions or credits to obtain a larger refund without the taxpayer's knowledge, this is not IDT. This is considered preparer misconduct. When situations like this are encountered, the examiner needs to consider all the facts and circumstances of the case and refer to IDTVA Specialties. IRM 25.24.1, Return Preparer Misconduct Victim Assistance - General Overview.

The campus that conducted the original examination will work the closed AIMS IDT cases. IDT claims for cases that were transferred to Appeals or Tax Court will be worked in Appeals. Transfer the IDT documents to the appropriate IDT Liaison; see ID Theft Liaisons located on SERP, http://serp.enterprise.irs.gov/databases/who-where.dr/functional_id_theft.htm

Powers of Attorney – Refer to IRM 4.19.13.8, Power of Attorney and Other Third Party Authorizations, IRM 21.3.7, Processing Third Party Authorizations onto the Centralized Authorization File (CAF), and IRM 4.11.55, Examining Officers Guide (EOG) - Power of Attorney Rights and Responsibilities, for additional information as well as the SERP IRM Supplement, Power of Attorney/Third Party Authorizations Toolkit. Add SERP link.

IRM 25.23.9, BMF Identity Theft Processing, provides service wide guidance on BMF identity theft issues, including documentation and actions required for general processing of BMF IDT claims. Consider a referral to BMF IDT SME's to confirm BMF IDT or Fabricated Entities. IRM 25.23.9.8, BMF Identity Theft Referals. There will be times when an employee identifies possible Fabricated Entities that need additional research and possible account locks that only the BMF IDT areas can submit

BMF accounts may include the following entity types: corporations, partnerships, estate, trust, exempt organization, or government entity.

Follow IRM 4.31.8.6, Procedures for IMF – Individual Master File Accounts, for functional guidance regarding controls, work paper documentation, acknowledgement, etc. unless noted otherwise below.

BMF IDT indicators are not applied until the IDT has been confirmed. Refer to IRM 25.23.9.4, BMF Identity Theft Research (Inquiry received via paper or phones), and IRM 25.23.9.6.1, Allegation or Suspicion of BMF Identity Theft - TC 971 AC 522 IDTCLM.

Follow normal controls until the IDT allegation has been verified. Once verified, open TXMOD controls using TPPI as the category code.

If IDT indicators were applied in error, reverse them. Refer to IRM 25.23.9-5, Reversing BMF Identity Theft Indicators - TC 972 AC 522. It is imperative that the BMF identity theft indicators are reversed when BMF identity theft did NOT occur or was not substantiated by the taxpayer.

Once all actions have been taken, remember to close the identity theft issue. Refer to IRM 25.23.9.6.3, Closing BMF Identity Theft Issues - TC 971 AC 522 CLSIDT.

A pending claim is when a taxpayer calls or corresponds with "I think I am a victim of IDT" or "I didn’t file this return" or similar statement, this may be considered an IDT allegation or pending claim. The IDT examiner is responsible for providing the taxpayer with the information necessary to file the IDT claim and for placing internal indicators to control the case for IDT.

Individuals not required to file a return may also be negatively impacted by IDT. For example, a caller may state the Social Security Administration (SSA) has reduced or stopped their Social Security benefits based on a tax return filed with the IRS. Advise the callers to obtain the acceptable IDT documentation and attach to the TEFRA notice or letter they received.

For all cases when an allegation is received, refer to IRM 4.31.8.6.1(3), Controls, for the actions required.

If the taxpayer account is in debit balance (BAL due) and in MF (Collection) status 20, 56, or 58, input TC 470 using the IAT REQ77 tool.

Once the allegation is received, the IDT examiner will ensure the AMS updates are completed. If unable to contact the taxpayer by telephone, issue a Letter 5064C, using the IAT Letters tool, informing the taxpayer of the IDT requirements and process if applicable. See IRM 4.31.8.8.2, Unsubstantiated or Incomplete Identity Theft Claims, for specific procedures.

Cases in AIMS status 24 are not updated to status 13 and the 45-day suspense will run concurrently with the 90-day suspense period. The status 24 suspense date is only adjusted if the 45 days ends after the 90-day suspense date.

If no reply after 45 days, the case is updated out of the applicable IDT EGC and returned to normal case processing. The AIMS Aging Reason Code (ARC) 14 will remain on the AIMS record.

There are times when the IRS will identify a taxpayer is a victim of IDT. Cases in this category will be processed following the guidance in IRM 25.23.4.5, IRS Identified Identity Theft (IDT).

An examiner may recognize IDT while researching a case, with or without a response from the taxpayer. When this occurs, the IDT determination may be made without contacting the taxpayer to provide Form 14039, Identity Theft Affidavit, and substantiation documentation.

The following are common indicators that may lead to an IRS-identified IDT determination. This is not an all-inclusive list:

When an indicator of potential IDT is found, follow the guidance provided in IRM 4.31.8.11, Complete Account Analysis, to make the determination.

If an IDT determination is made, place the required controls on all impacted tax years. The TC 971 AC 522 Tax Administration source code is IRSID.

Prepare Form 4442 according to IRM 25.23.2.3, Identity Theft Claims - General Guidelines. When preparing Form 4442, in section B, indicate that TC 971 AC 506 is needed upon account resolution and issue Letter 4310C.

Once it is determined the documentation provided is complete and legible per IRM 25.23.9.7.1, Complete and Legible Documents, issue Letter 5064C, ID Theft In-Process,to the taxpayer to acknowledge the receipt. Be sure to manually edit the address to the victim’s current information. See tool – Letter 5064C.

Perform case research and analysis to determine whether the IDT claim is valid or invalid. See IRM 4.31.8.11, Complete Account Analysis.

Perform research to determine the impact of the IDT on all tax years. At a minimum, if applicable, review the 3 prior years and all subsequent tax years when analyzing the taxpayer accounts. The determination made will include resolution for all impacted years to make the taxpayer whole.

Do not assume that the taxpayer filing the IDT documentation is the true owner of the SSN. The employee who reviews the case must consider all information received and available through research to determine the legitimate taxpayer and resolve the case thoroughly and accurately.

Use all available research tools to determine the validity of the IDT claim. The following is a list of the common research tools available, this list is not all inclusive:

If additional clarification or information is needed, attempt to contact the taxpayer by telephone. If unable to reach the taxpayer, issue Letter 5064C to request the additional information.

While researching accounts, if a case has an F- freeze, obtain the necessary documentation and refer the case to the Frivolous Return Program (FRP) at the address below. Make a case copy before sending the return. The FRP team will make the IDT determination on these accounts.

Based on the IDT determination, input TC 971 AC 522 for all impacted tax years per IRM 25.23.2.3.7, Marking Taxpayer Accounts When Accepting Identity Theft Supporting Documents.

The determination and action required to adjust the account(s) will be documented and a referral package prepared for post function adjustment work. All IDT post function adjustment work is referred to the DITA. Refer to IRM 4.31.8.15, Referrals to IDVTA Specialties, for specific guidance.

Do not reverse any posted TEFRA adjustments on the account(s).

If the case is in AIMS status 24 and the statutory notice of deficiency cannot be stopped, follow the guidelines in IRM 4.19.21.3, Statutory Notices.

If there is a TC 976 or original return from the legitimate taxpayer, see IRM 25.23.4.6.5.2.2, Unprocessed Returns - 40 Day Suspense Time Frame Expired, for screening procedures.

Once the valid IDT determination is made, update Master File to reflect the legitimate taxpayer's current address.

To protect the taxpayer from collection activity while their account is referred to IDTVA Specialties for resolution, screen CC TXMODA.

If there is a TC 582 (lien indicator) posted and the IDT adjustment will result in a zero tax liability, prepare Form 13794, Request for Release, Partial Release, of Notice of Federal Tax Lien. Take the following actions in completing Form 13794:

The Advisory Unit will review the Notices of Federal Lien (NFTL) filed against the taxpayer using the Automated Lien System (ALS). If all the modules on the NFTL are satisfied, Advisory will request the release of the NFTL as an erroneously filed NFTL per IRC 6326(b). The release of the NFTL will reverse the TC 582. The Advisory unit will abate the TC 360 associated with the NFTL filing and issue Letter 544, Letter of Apology - Erroneous Filing of Notice of Federal tax Lien, to the taxpayer.

If the taxpayer requests the NFTL be withdrawn, ask the taxpayer to complete Form 12277, Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien (as based on IRC 6323(j)), or they may submit a written request for the withdrawal to the Advisory unit.

Advise the taxpayer to include an explanation regarding the abatement situation and noting the release of the NFTL, if that has taken place.

Inform the taxpayer the determination to grant such request will be made on a case-by-case basis by the Collection Advisory contacts. See IRM 25.23.10.7.4, IDTVA Specialties Exam Identity Theft Case Processing. For all cases, issue Letter 5064C to inform the legitimate taxpayer of the IDT determination and the pending account resolution.

If a filed return meets the criteria defined in IRM Exhibit 25.23.4-2, IRPTR/IDRS Data Decision Tree, it is considered false and deemed a nullity return. Nullity returns can also fall into the categories found in IRM 25.23.10.8.1 , Refund Scheme Listing.

If the return posted to the account, the nullity return will be reversed from the account without moving it to an Internal Revenue Service Number (IRSN) account. Any refund issued is manually moved to the Accounting 1545 ledger by IDTVA Specialties.

Compare the TC 150 return and any unprocessed returns to the IRPTR/IDRS Data Decision Tree to determine if nullity treatment applies. Exception to IRM Exhibit 25.23.4-2: Compliance will apply nullity screening to Schedule C returns. In order to nullify a return with Schedule C income, the entire refund has to be lost. If any portion of the refund is not lost and/or offset, the return cannot be nullified.

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Once you’ve completed the nullity screening, continue completing the required IDT actions in the subsequent IRM sections.

Returns not processed as an original return have bypassed DIF scoring. These legitimate taxpayers’ unprocessed returns, whether numbered as TC 976/977 documents or received directly by TEFRA with correspondence, must be screened per IRM 21.5.2.4.23.6, DIF Score or CLASSIFICATION "Send Return(s) to Examination for Review" .

Unprocessed returns meeting the screening criteria in IRM 21.5.2.4.23.6, DIF Score or CLASSIFICATION "Send Return(s) to Examination for Review" , will be hand walked to the Tax Compliance Officers (TCOs) for priority classification. Local classifiers will expedite unprocessed returns received from TEFRA marked IDT. These returns will be classified within 3 business days.

If the unprocessed return is not selected for Examination, continue preparing the case for referral to IDTVA Specialties.

If an issue(s) on the return is selected for audit, the classifier will determine the portion of the refund attributable to the issue(s) and if it should be frozen. Issues normally worked pre-refund during normal pipeline processing (i.e. dependent, EITC, ACTC) will be frozen. The classifier will notate on the Form 6754, Examination Classification Check Sheet, the issue(s) and the frozen refund amount. The return will then be return to TEFRA to continue IDT processing.

For legitimate returns selected for examination, AIMS ARC, project code, and tracking code will be updated prior to the referral to IDTVA Specialties. The audit of the legitimate return will be conducted after the IDT return is removed from the account and legitimate return posted by IDTVA Specialties.

Include in the instruction to IDTVA Specialties on Form 4442 to:

If the unprocessed return meets the nullity criteria, that return is not processed. Annotate the work papers to document the criteria and determination for nullification. Continue preparing the case for referral to IDTVA Specialties to remove the TC 150 return.

If the unprocessed return meets the nullity criteria and the TC 150 return is the legitimate taxpayer's return:

All Large Business and International (LB&I) and Small Business/Self-Employed (SB/SE) Compliance IDT referrals will be routed to the IDTVA Specialties team located in Brookhaven.

IDTVA Specialties will accept cases as outlined below:

Upon receipt of the mail, do not update AIMS to a mail status or update the address on master file. The AIMS acknowledgement letter should not be issued to the address on Masterfile. This will prevent the AIMS acknowledgement from being issued to the perpetrator. IDTVA Specialties will acknowledge receipt of the IDT allegation upon receipt.4. Update open AIMS cases as follows:

Do not confuse fraud schemes and IDT. If a taxpayer authorized a preparer to file a return, but the preparer added or inflated deductions or credits to obtain a larger refund without the taxpayer's knowledge, this is not IDT. This is considered preparer misconduct. When situations like this are encountered, the examiner needs to consider all the facts and circumstances of the case and work them on a case by case basis.

For closed AIMS or archived CEAS records, retrieved the archived record, update to Status 7035. 7. For all referrals (open or closed AIMS) send the IDT documentation to the Brookhaven IDTVA Exam group for determination as follows:

IDTVA BSC, upon receipt of the IDT documentation, will update the IDRS controls to the employee number as follows:

IDTVA BSC will issue Letter 5064C to acknowledge receipt of the correspondence.

Once the case is reviewed and a determination is made, the case will be returned to the TEFRA unit. If the return is open on CEAS, action notes will be prepared. The case will be returned to the CPF with a Form 3210 and any necessary information needed to continue processing the case. Exam will close out AIMS if the case is deemed IDT and ITVA BSC will complete any necessary account adjustments. If the determination is not IDT, ITVA will respond to the taxpayer regarding the IDT issue. Exam will continue with the audit as appropriate.

IDT allegations and claims will continue to be referred from TAS when they meet TAS criteria 1-4. TAS also has the discretion to assign and refer any criteria 5-7 cases.

IDT OARs will be routed through the TEFRA TAS liaison and follow normal TAS procedures per IRM 4.19.13.23, Taxpayer Advocate Service (TAS) Procedures. IDT OARs will be worked in the Specialized Teams.

The TAS liaison will work with the IDT liaison to insure both TAS and IDT procedures are followed and dual controls maintained on the accounts.

The Accounts Management (AM) Identity Protection Specialized Unit (IPSU) was established to be the initial contact to assist taxpayers who are victims of IDT. IRM 25.23.3, IMF Identity Protection Specialized Unit- (IPSU) Paper, and IRM 25.23, Identity Protection and Victim Assistance, provide guidance on the actions completed by IPSU.

When IPSU determines the IDT claim or allegation is a tax-related incident, a referral is prepared and issued to the controlling function. There are two referral types prepared by AM that are routed to TEFRA to the IDT or Identity Theft Assistance Request (ITAR) Liaison, as applicable:

Dependents may file as victims of IDT. If the SSN was used to file a return, follow IDT procedures outlined in this IRM to resolve the account. If the SSN was used as a dependent on another return generally duplicate TIN program filtering is applied. Additional information on dependents as victims of IDT is available in IRM 25.23.2, Identity Protection and Victim Assistance.

Non-Filer IDT cases will be worked according to IRM 4.19.17, Non-Filer Program.

Refer to IRM 4.19.10.6, Return Preparer Scheme Identification, for procedures for preparer and ITIN preparer schemes.

Referrals from Automated Collection Systems Support (ACSS) or Collection (CSCO) operations will be screened and reviewed following TEFRA IDT procedures. ACSS or CSCO will forward IDT claims if there are current or prior TEFRA controls on the impacted account.

Misrouted referrals and referrals to other functions: Service wide procedures are being developed for IDT referrals between functions. When sending a referral to another function other than IDTVA Specialties, complete Form 4442 and forward to the Identity Theft Liaison. See IRM 25.23.2.6, Function Responsibility for Identity Theft Assistance Request (ITAR) Referrals to IPSU.

When schemed are identified within the IDT inventories and the perpetrator is known, referrals should be made to the Campus Fraud Coordinator for potential civil actions.

When schemes are identified while working the IDT inventories and the perpetrator is not known, referrals can be made to Criminal Investigation (CI). A scheme is define as two or more returns with the same pattern. See IRM 25.23.9.8.3, Referrals to Criminal Investigation (CI). Sufficient information must be provided that outline the scheme. Managerial approval is required prior to referring any scheme to CI.

Do not forward statute year referrals to IDTVA Specialties without completing the screening procedures outlined in this section.

IRM 25.6, Statute of Limitations, provides the service-wide procedures for identifying and processing statute returns. TEFRA will follow the guidelines set forth in IRM 25.6, Statute of Limitations, with the noted exceptions provided in this section.

Statute procedures apply to IDT referrals if the Assessment Statute Expiration Date (ASED) is within 180 days of expiring.

Generally, Form 872 will not be solicited from the legitimate taxpayer or the perpetrator on IDT cases.

Do not reverse or make any adjustments to the accounts. Credit transfers to excess funds can be completed after the ASED.

IDT referrals fall into 3 general categories: