To notify the taxpayer of the adjustment(s) so that such adjustment(s) will be properly reflected in subsequent year returns.

To notify the taxpayer of the applicability of restricted interest.

Section I of Form 2285 is generally completed by the TCS.

Section I shows various tax adjustments that would result if separate examinations were made for the general adjustment and for each of the carryback adjustments. The columns and lines on Section I of Form 2285 are arranged to facilitate the application of adjustments in a predetermined order prescribed for concurrent determinations of tax liability. APS computes a running module working from the left to the right side of the form in column order.

Form 2285 is divided into eight columns (a through h) and eleven lines. The general adjustment amount shown in column (a) reflects tax determined without carrybacks. Columns (c), (d), (e), (f), and (g) show the year(s) involving a carryback from the subsequent years. Column (b) is generally used if there are six carryback years, or other unusual situations such as the suspended research credit.

Line 11 in each column, shows the amount of deficiency and/or overassessment subject to interest. Column (h) shows the net deficiency to assess or net overassessment to abate.

Section II of Form 2285 can be used to enter other notations or comments, such as the information shown below in paragraph (4).

The information in the lower right hand corner (870 date, 23C date, LCU date, etc) may be entered by APS if applicable. The TCS is not required to enter any of this information.

Generally, compute additions to tax and penalties before applying carrybacks.

Additions to tax and penalties already assessed are generally not decreased because a carryback is applied (with the possible exception of failure to pay when it accrues beyond the effective date of the carryback).

Additions to tax and penalties are due even when all the tax is eliminated as a result of the carryback.

It is not necessary to include information regarding the additions to the tax or penalties on Form 2285.

The taxpayer must be a "C" Corporation.

A "threshold underpayment" of over $100,000 in tax must exist.

A notice of underpayment or proposed deficiency (or the assessment of the proposed underpayment/deficiency) is greater than $100,000 (determined without regard to interest, penalties, or additions to the tax).

The amount shown on a proposed deficiency of tax by either a 30/90 Day Letter is not paid within 30 days from the notice date OR the amount shown in a notice and demand (if deficiency procedures do not apply) is not paid within 30 days of the date of notice and demand (whichever is earlier).

The "Notice Date" is the date of the letter/notice that activates the LCU rate.

Any penalty imposed under IRC 6651.

Any interest, penalty, addition to tax, or additional amount for any of the following:

The due date of the return, if filed on or before the return due date, or

The filing date of the return, if filed timely under a valid extension.

To determine which notification period applies if the notice was provided on or after November 25, 2007, 18 months is added to the return due date (or timely return filed date). See whether this date falls before or after November 25, 2007. If the date falls on or before November 25, 2007, the Service has 18 months to notify the taxpayer. But if the date falls after November 25, 2007, the Service has 36 months to notify the taxpayer.

No IRC 6404(g) suspension is allowable if the IRC 6404(g) notice date is PRIOR TO 18/36 months from the later of the original return due date, the date the return was filed (if filed under a valid extension) or a signed taxpayer document asserting an increase in tax liability.

If the IRC 6404(g) notice date is AFTER the 18/36 month date, interest is suspended beginning on the day after the close of the 18/36 month period. If the close of the 18/36 month period falls on a weekend or holiday, the next business day becomes the close of the 18/36 month period. Interest accrues from the due date of the return to the beginning of the suspension period for IRC 6404(g) purposes.

The suspension period ends on the 21st day after the notice is sent to the taxpayer. Interest resumes on the 22nd day after the IRC 6404(g) notice date.

Math error notices

Underreporter Program (URP) notices such as the CP 2000

Revenue agent reports (RAR's)

30-day letters with accompanying RAR's

Statutory notices of deficiency with accompanying explanations of adjustments.

Amended returns and any other signed written documents with additional taxes.

For example, Compliance may issue more than one report for a tax return during the course of an examination. If a subsequent report contains no new items or adjustments and the proposed deficiency is equal to or less than the earliest report, there is one IRC 6404(g) notice date. The IRC 6404(g) notice date is the date of the earliest report.

There are separate IRC 6404(g) notice dates for the following subsequent reports issued by Compliance:

See IRM 20.2.7.6.5.1, Multiple Section 6404(g) Notices, for examples of multiple notice dates.

When requesting that TCS prepare computations, the requestor (AO or Counsel) must provide all the notices and attached explanatory schedules for the TCS to be able to determine whether multiple notice dates apply.

The settlement computation must contain an explanation of adjustment for each new issue or it is not considered a notice.

When requesting that TCS prepare computations, the requestor (AO or Counsel) must provide the TCS with all the applicable amended returns.

Annotate IRC 6404(g) applies on the Form 5403 Worksheet.

If Form 3610 is prepared, include a statement on Form 3610 in both docketed and non-docketed cases. For Rule 155 cases include a statement on the Rule 155 face sheet. Use language from the following table for the statement:

The applicable language from the above table may be shown on the tax computation form (Form 5278 , Form 4549, Form 4549-A , etc.) instead of on Form 3610. The "schedule" referred to in the table can be the IRC 6404(g) Worksheet, or another computational schedule.

Any computations used to determine the portion of deficiency attributable to gross misstatements, and undisclosed reportable or listed transactions must be attached to the IRC 6404(g) Worksheet as a separate schedule or exhibit.

The Appeals Officer is responsible for ensuring that the IRC 6404(g) Worksheet is attached to the Form 5403 Worksheet, and that both documents are attached to the inside left flap of the administrative file folder when the case is closed.

There must be an underpayment of tax,

There must have been a "credit elect" applied to the succeeding year which originated from the year having the underpayment, and

The filers of such returns are required to make estimated tax payments.

"Underpayment" - Generally, for purposes of Sequa, there is an underpayment of tax when the finally determined tax is greater than the tax on the original return, when considering only general adjustment tax, (i.e. tax liability determined before adjustments to tax due to carrybacks).

"Credit elect" - The taxpayer reported an overpayment of tax on the original return and elected to have it credited to the succeeding year's estimated tax.

See Exhibit 8.17.6-2 for a sample of a completed Sequa Worksheet.

Excel versions of the Sequa Worksheet are available on the Appeals Technical Support SharePoint site, which is reached by the "Spreadsheets Sharepoint" link on the TCS web site. Sequa worksheets for individuals are located in the "Individual" spreadsheets folder, and the Sequa Worksheets for corporations in the "Corporate Spreadsheets" folder

It is very important to use the correct worksheet for the year involved. Instructions for completing the Sequa Worksheets are contained within the Excel workbook.

• Individuals - The Sequa worksheet for individuals has an Input tab so that the year can be input correctly.
• Corporations - Use the worksheet corresponding to the subsequent year for the year of the underpayment of tax. For example, for a 2007 year tax underpayment, you will need to complete the Sequa worksheet for the 2008 year.

When tax became overpaid. (Sequa Worksheets assume tax became overpaid on the due date of the return and was available to apply to required estimated tax installments for the succeeding taxable year.)

The dates and amounts of estimated tax payments made, if any, for the succeeding taxable year.

Tax reported for the succeeding year.

Method used to determine the amount of required installments of estimated tax for purposes of IRC 6654 or IRC 6655.

This information is found on the taxpayer’s transcripts of account for the deficiency and succeeding year, and the taxpayer’s return for the succeeding year, including Form 2220, Underpayment of Estimated Tax by Corporations; Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts; or Form 2210-F, Underpayment of Estimated Tax by Farmers and Fisherman.

Subsequent Year Return Not Filed:
Sequa does not apply if the subsequent year tax return has not been filed. (See discussion in IRM 8.17.6.10.1.2.)

Timely Filed vs. Non Timely Filed Returns:
The return does not have to be timely filed for Sequa to apply. There is no requirement that the return be timely filed for a taxpayer to make an election to have their overpayment applied to the next year as a credit elect. Treas. Reg. 301.6402-3(a)(5) expressly authorizes that taxpayers may make an election to credit an overpayment on an amended return.

Prior Year Tax Liability - Individuals:
For individuals, if the taxpayer did not file a prior year tax return but was required to, a zero should be entered in the prior year tax liability.

Prior Year Tax Liability - Corporations:
For corporations, the prior year tax liability should be left blank if:
• A tax return was not filed for the prior year, or
• The tax for the prior year was zero, or
• It was a short year return.

Short Year Returns:
When there is a short year return, the number of required installment payments may be less than four, and you may need to manually adjust the installment due dates on your Sequa worksheet. If you have a short year return of less than four months, there are no installment payments required. Since the credit elect date cannot be greater than the Return Due Date (RDD), the RDD is used for your application of overpayment credit per Sequa. In addition, the taxpayer cannot use the preceding year tax if it was not a taxable year of 12 months and the prior year tax liability should be left blank in this situation.

52-53 Week Year End:
The installment due dates will not automatically be computed correctly on the Sequa worksheet when you enter your tax year beginning date for a 52/53 week tax period. Since the installment due dates will always be the 15th day of the 4th, 6th, 9th and 12th months, they will be the same as whatever month end was originally elected for the 52/53 week period.

Payments and Credits for Individuals:
Some payments and credits that post to the transcript as a TC 766 are treated as a refundable credit which reduces the tax liability for both YR 1 and YR 2. The Sequa worksheet for individuals found on the SharePoint site has been revised to include the new refundable credits on lines 4 through 11 for the YR 2 tax amount. The tax amount entered for YR 1 (on line D of the Input tab of the Excel spreadsheet) should also be reduced by the refundable credit amounts. (See IRM 8.17.6.10.1.2 for definition of "YR 1" and "YR 2" .) Backup withholding credits for individuals are included on the same line with the rest of their federal tax withholding.

Payments and Credits for Corporations:
Some payments and credits that post to the transcript as a TC 766 for corporations, such as fuel tax credits and backup withholding credits are treated as a refundable credit which reduces the tax liability for both YR 1 and YR 2. If you are unable to determine whether a TC 766 is a fuel tax credit vs. another type credit, you should insert a footnote on your Sequa worksheet to explain.

Telephone Excise Tax Credit (TETR):
TETR credits are also posted as a TC 766; however they are not considered a credit against tax for purposes of IRC 6654 and IRC 6655. (See Notice 2006-50, 2006-25 I.R.B. 1141, Section 5 paragraph (f) for more information.)

Refunds Issued Before the Succeeding Year’s Due Date for Corporations:
In some instances, use of money on credit elect that is not applied to an estimated tax installment for the succeeding year will cease prior to the due date of that tax return. If a refund is issued before the normal due date, use of money under Rev. Rul. 99-40 will cease on the date of the refund, up to the amount of the refund. The corporate Sequa worksheet has been modified accordingly.

Annualized Method of Accounting:
If you determine that the taxpayer used the annualized installment method, attempts should be made to secure the Form 2220/2210 for the subsequent year before preparing the Sequa worksheet. A Computer Condition Code (CCC) of 8 on a TXMODA for BMF returns could be an indicator that the annualized installment method was used. On TXMODA, it is listed as RCC<8 under the posted return information. (Note that IRM 3.11.16.8.1.29, CCC “8” – Waiver of Estimated Tax Penalty, lists other reasons why there might be a CCC 8 notated on a transcript, so a CCC 8 indicator could signify something other than the taxpayer using the annualized installment method.)

Merged and acquired corporations:
For merged and acquired corporations, further research may be needed to determine the correct due date and payment dates.

The research credit attributable to the period beginning on July 1, 1999 and ending on September 30, 2000 may not be taken into account before October 1, 2000.

The research credit attributable to the period beginning on October 1, 2000 and ending on September 30, 2001 may not be taken into account before October 1, 2001.

The current year tax may not include the suspended research credit.

The prior year tax liability may not include the suspended research credit.

The estimated tax payments may be adjusted after the suspension period where either the taxpayer files a claim for a credit elect with respect to the suspended research credit, or the taxpayer files an amended return and indicates that the suspended research credit is to be applied to its estimated tax for the succeeding taxable year.

The required estimated payment may be reduced after the suspension period for the suspended research credit that relates to the current year tax liability.