The implementation of the LB&I Examination Process as described in Pub 5125, LB&I Examination Process, changed the way LB&I conducts examinations. Examinations are divided into three phases: planning, execution and resolution. The resolution phase is discussed in this IRM.

This IRM revision is based on internal and external feedback.

See IRM 4.46.1.1.2, Authority.

In addition to the authorities cited in IRM 4.46.1.1.2, the following IRC sections relate to dispute resolution:

Rev. Proc. 2003-40 formally established the Fast Track Settlement program.

See IRM 4.46.1.1.3, Roles and Responsibilities.

See IRM 4.46.1.1.4, Program Management and Review.

Refer to IRM Exhibit 4.46.1-1, Glossary of LB&I Terms, in IRM 4.46.1, General Information and Definitions.

The LB&I intranet sites https://irsgov.sharepoint.com/sites/LBI/ and https://irsgov.sharepoint.com/sites/ETD-KMT-KB051 are resources for learning more about the concepts and procedures in this section. You can review information by selecting topics in the LB&I Exam Procedures KB or type in key words in the “Search the Virtual Library” search box at the top of the page.

Also see:

During the examination, the issue team will:

It is the taxpayer’s responsibility to ensure all relevant facts have been identified and presented to support the tax position taken on the return. It is imperative that the issue team discuss the facts gathered with the taxpayer to understand the taxpayer’s position.

IRS Independent Office of Appeals (Appeals) usually must return the case to exam if new information is presented during the Appeals process. See IRM 8.7.11.6.3, Returning a Case to LB&I.

An acknowledgment of the facts (AOF) must be documented in the case file for all potential unagreed issue(s). Any disputed facts must be noted. The issue team should work collaboratively with the taxpayer to develop and reach a common understanding of the relevant facts. To ensure the effective application of the law, the facts and circumstances should be clear and accepted by both parties. (See IRM 4.46.4.11, Written Acknowledgement of the Facts (AOF), for the process of obtaining the acknowledgment of facts).

The issue team will:

The issue team must:

Refer to IRM 4.10.7, Examination of Returns, Issue Resolution.

Taxpayer-specific pre-filing resolution tools include: Pre-Filing Agreements (PFA), Advance Pricing Agreements (APA), Compliance Assurance Process (CAP) and Private Letter Rulings.

Taxpayer-specific issue resolution tools include: Technical Advice Memorandums, Delegation Orders, Accelerated Issue Resolution, Early Referral to Appeals and Fast Track Settlement. Once a case is under Appeals’ jurisdiction the Rapid Appeals Process is available. The examination team will participate when invited.

Generic issue resolution tools include: Industry Issue Resolution (IIR), LB&I Administrative Guidance and LB&I Published Guidance Recommendations.

The examination issue team, with Division Counsel’s assistance, is responsible for preparing the closing agreement. However, closing agreements involving any Joint Committee jurisdictional years must not be signed by or on behalf of the IRS until the examination team is notified by the Joint Committee Specialist that the Joint Committee on Taxation’s (JCT) views have been received and considered. IRM 4.36.3.6.4.1, Closing Agreements, provides guidance for requesting Joint Committee review of closing agreements. These procedures should also be referred to where issues are resolved early in the examination process, such as through Fast Track Settlement or Early Referral to Appeals.

Closing agreements on Joint Committee cases, including those based on Competent Authority determinations, must not be executed on behalf of the Government until reviewed and cleared by the JCT. See IRM 4.36.3.6.4.2, Competent Authority.

If a resolution is reached on an issue near the completion of the LB&I examination, the closing agreement must be submitted with the revenue agent’s report (RAR) to Joint Committee Review for preparation of the Joint Committee Report.

If a resolution is reached on an issue near the beginning of the LB&I examination, there could be substantial delay in executing the closing agreement if the closing agreement is not reviewed by JCT until the examination is completed. In this situation:

Due to the complexities in attempting to resolve TEFRA/BBA partnership issues and the technical administrative procedural requirements involved, closing agreements for partnership issues subject to TEFRA/BBA audit rules must be thoroughly vetted through senior management and Division Counsel.

Refer to IRM 4.10.8, Report Writing, for guidelines for the preparation of audit reports and IRM 4.46.6, Workpapers and Reports Resources, for LB&I workpaper and report guidelines. See also Types of Reports Overview in Exam Procedures Knowledge Base at: https://irsgov.sharepoint.com/sites/ETD-KMT-KB051/. The following are the different types of reports that are issued to close a case from Examination:

Report Clarity and Logic - review to ensure the following:

Report Elements - review to ensure the following:

Statute of Limitations: Before a 30-day letter is issued there must be sufficient time remaining on the statute to allow the taxpayer to respond, the protest to be addressed and sufficient processing time to ensure that the statute will have at least 365 days remaining when the case is received in Appeals. See IRM 25.6.23.7.1, Minimum Time Remaining on ASED.

The case manager has responsibility for the preparation and delivery of the 30-day letter to the taxpayer. See IRM 4.10.8.12.1, 30-Day Letters, for guidance on the required form letters. The 30-day letters will be expeditiously prepared and mailed in accordance with existing procedures. The case will be included in the 30-day letter suspense files at the group level and updated timely to status 13 on ERCS after the mailing of the 30-day letter to the taxpayer.

The case manager will monitor cases in status 13 to ensure timely closure of cases to Appeals. Large Corporate Compliance (LCC) cases often have complex issues with a lengthy protest that must be fully addressed. LCC cases should close to Appeals within 240 days of the issuance of the 30-day letter. For all other workstreams, the case should be closed to Appeals within 120 days from the issuance of the 30-day letter.

The taxpayer may request an extension of time in which to file a protest. Before an extension is granted, the examination team must determine if a statute extension should be solicited to ensure adequate time to address the protest and still meet the remaining time on the statute requirements set by Appeals. The case manager, in collaboration with the issue manager(s), may approve the request based on the facts and circumstances in each case. Letter 686 may be used for this purpose.

Taxpayer's Protest: See IRM 4.10.8.12.9, Response to 30-Day Letter, for the procedures to follow in reviewing a taxpayer’s response to the 30-day letter.

Rebuttal to the Taxpayer’s Protest – review to ensure the following:

TEFRA/BBA:

Other Issues:

If resolution of the issue(s) is reached and the case is now agreed, payment will be solicited and the case will be processed as agreed.

If the issue(s) on the case remain unagreed, the taxpayer will submit a timely protest letter. The following actions will be completed timely by the examination team when a protest is received from the taxpayer:

The LB&I issue team(s) will prepare a timely rebuttal to the protest. The rebuttal is not intended to restate positions taken in the RAR. The protest may include new information not previously introduced. The new information will be appropriately considered to ensure complete development prior to Appeals consideration. Division Counsel and subject matter experts are available to assist in analyzing and responding to new information or issues raised in the protest. The rebuttal must fully address all the taxpayer’s arguments and positions.

The LB&I issue team(s) will share the rebuttal with the taxpayer prior to forwarding the case to Technical Services. Such information could help in resolving the case. A copy of the rebuttal will also be included in the administrative file with the protest.

In closing the case to Appeals, the examination team must note in the Form 4665, Report Transmittal, that the Form 886-A and the rebuttal fully address the taxpayer’s arguments and includes the examination team’s response to each argument. The examination team must also indicate in the Form 4665 where the AOF documentation is located in the case file. Keep in mind that a copy of the Transmittal Letter must be shared with the taxpayer if it includes statements or comments intended to influence Appeals’ decision-making process. See Rev. Proc. 2012-18 Section 2.03(4).

If a protest is not received, a Statutory Notice of Deficiency (90-day letter) will be timely issued. Refer to IRM 4.10.8.12.10, No Response to 30-Day Letter. See IRM 4.46.5.11.2.5, General Procedures for Paperless Case Closing to Technical Services, for procedures to close cases to Technical Services electronically.

The case manager will simultaneously forward the entire group of related entities in the case to Appeals. Also see paragraph (4) of IRM 4.31.5.12.2.4, When to Link the ILSC Key Case on PCS.

The Appeals office serving the taxpayer is responsible for consolidating all cases in the group. Appeals may request the following from the examination team:

Refer to IRM 4.46.5.11.2.5 and IRM 4.46.5.11.2.5 for electronic closing procedures to Appeals through Technical Services.

The team coordinator and case manager must be aware of circumstances in which Appeals will not accept a case from LB&I. Refer to IRM 8.2.1.5, Returning a Case to Examination - ATE, for list of possible circumstances.

Examiner must request a current transcript, BMFOLT, BMFOLM (for 965(h) elections), IMFOLT, IMFOLM, INTSTD, TXMODA to reconcile return.

Exam adjustments that deny/conclude that a taxpayer’s elections, such as 965(h) or 965(i), are invalid will cause those tax balances to become currently due and must be addressed in a NOPA and noted on the RAR in order to ensure CCP can identify the change.

Application of Payments for Exam Deficiencies - Special Treatment of IRC 965(h) Balances - When closing an exam, the examiner must review how payments/balances in the module were applied to the portion of income tax related to IRC 965 and to the portion unrelated to IRC 965. The status of the payments on the module will determine how a deficiency payment should be solicited, how the payment will be applied and the updated transaction codes to be included with case closing.

Refer to Job Aid https://irsgov.sharepoint.com/:w:/r/sites/ETD-KMT-KB008/ for further details and examples.

If an exam results in a change to the deferral amount under IRC 965(h), the examiner must prepare a separate NOPA to show the total adjustment to the IRC 965(h) net tax liability and the impact on future installments (sometimes referred to as the deferral amount). Examiner must manually compute them and attach to the NOPA.

Audit adjustments changing the deferral amount under IRC 965(h) require a re-computation of the IRC 965(h) installment amounts. The revised deferral amount under IRC 965(h) will generally be spread over the 8-year installment period and underpayments of past due installments are due currently, along with any changes to the non-IRC 965 tax at the time of the RAR. If a deficiency or additional liability is due to negligence, intentional disregard of rules and regulations, or fraud with intent to evade tax, the proration rule described above will not apply, and payment of the deficiency or additional liability (as well as any applicable interest and penalties) will be required upon notice and demand by the IRS or, in the case of an additional liability reported on a return increasing the amount of the deferral amount under IRC 965(h) after payment of the first installment or on an amended return, with the filing of the return. See Treas Regs 1.965-7(b)(1)(ii)(C).

Use the 965 Deferral Adjustment Calculator Job Aid to compute the revised 965(h) installments and future installments (deferral amounts). The job aid is located here: https://irsgov.sharepoint.com/:x:/r/sites/ETD-KMT-KB008/

Instruct taxpayers to make two separate payments:

When closing an agreed examination to CCP, audit adjustments must be posted to the module prior to application of payments to ensure that the taxpayer’s audit payments for non-IRC 965 tax are applied to the audit balance and not treated as an excess payment used to pay future installments of the deferral amounts under IRC 965(h).

On Form 4549, Report of Income Tax Examination Changes, Page 2 Other Information should include:

The Form 4549 will report the changes to total tax, which include:

Form 3198 - Special Handling Notice for Examination Case Processing Procedures:

Form 3870 – Request for Adjustment:

Form 5344 - Examination Closing Records Procedures, include the following:

Case closing documents needed by CCP to close cases with IRC 965 transition tax include:

To close the case to Ogden CCP, send an encrypted email with a subject line of “Section 965 Tax - Agreed” or “Section 965 Tax - No Change” or “Section 965 Tax - No Change with Adjustments”. Include the TIN, MFT, and tax years. Follow the procedures below based on closing method:

LB&I Quality Measurement System (LQMS) case reviews are completed by Quality Review and Analysis (QRA) reviewers. Cases for review are randomly selected according to a statistically valid sample that is determined on an annual basis.

The integrity, independence and objectivity of the reviewer must be preserved. Reviewers must not vary from regular procedures by orally confirming a quality standard.

A case-specific advisory memorandum (Feedback Memo) will be issued to all examiners and specialists whose work product has been reviewed. Case quality scores will not be included. An advisory memorandum will be distributed electronically to examiners or specialists and their manager. Examiners or specialists who have questions concerning the contents of a memorandum may submit inquiries electronically to the address the advisory memorandum transmitted and a reply will be provided by QRA. If there is a serious disagreement with the results of the review between the reviewer or review team and examiner or examination team, the examiner or exam team will have the right to elevate the disagreed issues.

LQMS results are not to be used to evaluate the performance of an individual employee or team. Upon receipt of the advisory memorandum, the manager will discuss, as appropriate, its contents with the employee. Unless employees provide their manager with a written or email request that a copy of the memorandum be retained in his/her Employee Performance File, all copies of the memorandum will be disposed of by the manager no later than (45) days after the issuance date.

The case manager is responsible for reviewing the case for compliance with LB&I auditing standards prior to closing the case.

See LB&I’s Quality Review and Analysis Knowledge Base page at https://irsgov.sharepoint.com/sites/ETD-KMT-KB115/ for more information and job aids.

A Form 906, Closing Agreement on Final Determination Covering Specific Matters, must be signed and filed in triplicate. All copies must have the original signatures. DFO approval signature is required for a closing agreement.

Upon approval of the closing agreement, the original copies are processed in the following manner:

A recurring issue is an issue that has been raised in the current cycle and continues into subsequent filed returns and/or returns that have not yet been filed. For optimizing resource utilization, the issue team should plan on how that issue could be addressed in any filed returns and when possible reach agreement that the taxpayer will report the issue properly going forward.

To minimize burden to the taxpayer and LB&I, discussions to resolve recurring issues are encouraged. The following will be addressed for all recurring issues:

For complex tax computations that are recurring in nature, a reasonable estimate of the future period amounts may be used for the RAR with the understanding that exact amounts will be computed and used in all subsequently filed tax returns when possible.

Accounting method issues may be delayed until a subsequent examination cycle, when time does not permit the completion of the issue in the current examination cycle. In addition, accounting method issues that require an extensive amount of factual development may be developed over two examination cycles. The taxpayer should be provided written notification that the issue is under consideration, but is being delayed until a subsequent examination cycle. The taxpayer and the examination team will discuss which facts would be necessary to determine a proper amount. The taxpayer should start to gather these facts and have them available when the IDR is issued in the subsequent examination cycle.

The IRS and the taxpayer should review reports from prior cycles noting areas of agreement. If the facts and circumstances haven’t changed significantly, similar agreements may be reached in the current cycle. If this is done, the IRS and the taxpayer could substantially reduce the amount of examination time required to resolve these issues. They should also look at areas of prior disagreement (including previous Appeals decisions) to see if they can jointly arrive at a solution that will satisfy both parties.

The return of a related entity may be closed out in advance of the primary case. This is generally done at the request of the taxpayer or when agreement forms are received and must be processed.

Care should be exercised to provide reasonable assurance that the partial closing is in the best interest of the IRS. The examination report must indicate that the entity is part of a LB&I case and must document the reason(s) for the separate closing.

Time spent must be closed out using Form 5344, Examination Closing Record, in IMS. The case manager must keep copies of all closing documents to capture the results subsequent to closing.

All returns associated with the LB&I examination should be closed in coordination with the primary examination team. This could include both examined and surveyed returns. When the taxpayer’s copy of a return is inspected but not examined, appropriate comments will be made in the examination plan, planning file and in the transmittal letter to the examination report.

Employment tax returns are generally controlled by the employment tax specialist and closed by the employment tax team member assigned to the case.

Excise tax returns are generally controlled by the excise tax specialist and closed by the excise tax issue team member assigned to the case, except for excise tax on Form 5330, Return of Excise Taxes Related to Employee Benefit Plans, controlled by Tax Exempt and Government Entities (TE/GE).

Tax exempt and pension returns are generally controlled and closed by the TE/GE issue team assigned to the case.

Other types of returns may be controlled by other specialists and closed separately from the income tax files.

RRA 98 Sec. 1001(a)(4) established that ex parte communications between Appeals Officers and other IRS employees are prohibited to the extent that such communications appear to compromise the independence of Appeals. See IRM 8.1.10.4.1, Permissible Communications. The following pertains to the ex parte rules:

LB&I will determine the appropriate pre-conference participants.

The Appeals team will usually consist of the appeals team case leader (ATCL) or team leader and the Appeals Officer assigned to the case. Appeals specialists or other personnel may also attend where appropriate.

LB&I believes that participation in certain Appeals conference discussions aid the ATCL in understanding the dispute and the merits of both parties’ positions, thereby fostering effective tax administration. In addition, LB&I recognizes the importance to tax administration of an independent administrative forum by which taxpayers may resolve issues with the IRS and Appeals’ role as that forum. Having a complete understanding of the law and application of the particular facts to the law, which in complex cases can be aided by a joint discussion, assists Appeals’ mission to resolve controversies on a basis which is fair and impartial to both the Government and the taxpayer.

Although our participation in these conferences is not guaranteed, LB&I employees should continue to request to be invited where LB&I participation would help improve understanding of factual and legal differences in the case. Appeals will continue to operate under long-standing Appeals’ policy that permits, but does not require, the ATCL to invite LB&I to the non-settlement portion of the Appeals conference. ATCLs will use their discretion whether to invite LB&I and will solicit the views of the taxpayer to help inform that discretion. If LB&I participation is denied, and upon LB&I’s request, Appeals will explain why they concluded Compliance participation is not necessary. Also, as in the past, settlement discussions should be held only between Appeals and the taxpayer, without LB&I presence, and ex parte communication rules must be followed. Employees should consider the following factors before making a request to attend an Appeals conference:

LB&I examiners should ensure that such requests are clearly indicated in rebuttals to the taxpayer’s formal written protest or in a separate document shared with the taxpayer if a rebuttal is not prepared.

It is important that LB&I and Appeals maintain an open dialogue. The ex parte rules under Rev. Proc. 2012-18 must be followed. The restrictions on raising a new issue or reopening a closed case do not apply to new issues raised by the taxpayer. See Policy Statements 8-2 and 8-3 in IRM 1.2.1, Servicewide Policies and Authorities. However, Appeals will release jurisdiction and return the case to LB&I when a taxpayer presents new information that was not previously reviewed by the examination team. See IRM 8.7.11.6.3, Returning a Case to LB&I. New taxpayer arguments (excluding new information) or information provided by the taxpayer in response to an inquiry from Appeals to clarify or corroborate information contained or referenced in the RAR, protest or rebuttal will be referred to LB&I for review and comment within a specific time frame that is at least 45 days. Every effort should be made to handle these requests expeditiously and on a priority basis.

The LB&I issue team may have to make additional contacts with the taxpayer to perform a complete review of any new information provided by the taxpayer. The taxpayer will be notified when Appeals sends the new information to the examination team for consideration. Remember that all communications, oral and written, must be shared with the taxpayer, unless the communications fall within one of the exceptions to the ex parte rules; for example, comments involving ministerial, administrative, or procedural matters. See Rev. Proc. 2012-18 Section 2.03(2). The issue team’s evaluation of the information will also be shared with the taxpayer.

The examination team is not expected to review and comment on the taxpayer’s petition before receipt of the case by Appeals. However, Appeals will provide the examination team with a copy of the petition for review and comment in docketed cases.

LB&I will provide a review of the petition to the extent it has knowledge of the facts and issues in dispute.

A key part of the meeting will be planning the timetables and resources needed to respond to new information that may be presented by the taxpayer. Recognition will be given to time frames established by the rules of the Tax Court in establishing priorities for the examination of new information and response to the taxpayer’s positions.

When Appeals releases jurisdiction of cases to LB&I, Appeals will update the case in IMS. The update will generate an e-mail to the case manager and team coordinator informing them that the case is being returned to the group. The Appeals Officer will complete Form 5402, Appeals Transmittal and Case Memo, and state that the taxpayer has provided Appeals with new information and the case is being returned to LB&I. The actual hardcopy case will be returned through Technical Services.

Appeals will notify the taxpayer that the case will be returned to LB&I.

As a reminder, Appeals may have secured a partial agreement for some issues prior to releasing jurisdiction to LB&I via Technical Services. Examiners will secure transcripts to see whether changes have been made to "tax as previously adjusted."

Electronically closed cases: If the taxpayer provides paper records to the Appeals Officer (AO) that were not uploaded to the Appeals Centralized Database System (ACDS), the Appeals record-keeping system, the AO will include a note in the Remarks section of Form 5402 instructing the LB&I examiner to contact the AO by encrypted email with the shipping address so that the paper records can be forwarded directly to the LB&I examiner. Upon receipt of these paper records, the LB&I examiner will review and digitize the relevant documents, and upload the documents to the IMS TWS. For more information on digitization of records, refer to IRM 1.15.6.15.1, Digitizing Temporary Records and the Disclosure and Privacy Managing Federal Records Knowledge base at:https://irsgov.sharepoint.com/sites/ETD-KMT-KB003/.

If there are changes to the proposed tax and the taxpayer still does not agree, the examination team will take the following actions:

If there is no change to the previous determination and the taxpayer still does not agree:

If the taxpayer now agrees, obtain the taxpayer’s signature on the RAR (revised for changes to government’s position, if necessary) and close the case to CCP as usual.

The team members will use Activity Code 598, Pre/Post- Appeals Conferences, to charge time for these meetings.

A case or issue manager should provide feedback on any team member that is part of their issue team, even if the team member is not their employee. The issue manager or the case manager’s assessment is not intended to substitute for the overall performance assessment. It is one of the factors that can be considered in the total evaluation prepared by the employee’s manager.

Written feedback should reflect not only how well the team member performed, but what he or she contributed to the examination.

Case and/or issue managers may ask for feedback from team coordinators about the work performed by issue team members.

In a post-examination critique, LB&I will seek opportunities to improve the quality and efficiency of the examination process. This can be accomplished by:

Depending on the type of examination plan used, the critique details should be addressed in the communication section.

The transfer of knowledge can be facilitated if each issue team member maintains summaries of topics and related background material to be used in preparation for the post-examination critique. Contemporaneous updating of this information throughout the examination should be helpful in improving the efficiency and effectiveness such as:

If a new cycle is to be opened on the same taxpayer, combining the post-examination critique meeting with the next cycle’s opening conference may be a useful technique. The similarities in the objectives of the two meetings make the critique an important source of information for the next cycle’s issue team members. Where applicable, consideration should be given to combining the two meetings or portions of the meetings, whether or not the same case manager is assigned to the subsequent examination.

The case manager, issue manager(s) and issue team members should keep in mind that the primary objective for conducting the critique is to evaluate opportunities to improve future examinations. The recent examination must be thoroughly evaluated with emphasis on how subsequent examinations, if warranted, can be improved. Some of the more important topics to be discussed during the critique are listed below:

Potential offset issues should be considered, critiqued and documented by examiners in the event that claims are subsequently filed by the taxpayer.

A joint critique of the exam process may provide a valuable opportunity to improve future case processes, collaboration and cooperation with the taxpayer.

The post examination critique with the taxpayer can be held separately from the critique with the examination team.

A list of items to discuss during the critique with the taxpayer is contained in Exhibit 4.46.5-1, Sample Agenda for Post-Examination Critique. Items to be discussed in the critique should be given to the taxpayer at the opening conference. The taxpayer should be encouraged to maintain critique notes during the examination.

The taxpayer should be advised that the case will be part of an examination survey conducted by an outside contractor for LB&I. All responses are confidential and intended to assist LB&I in improving customer satisfaction.

A written electronic report is required for each case and will be prepared by the case manager after the post-examination critique. The report will, at a minimum, include:

The case manager will retain the critique report in the planning files for use by the subsequent case manager unless other specific guidance on the disposition of critiques has been issued.