4.19.17  Non-Filer Program

Manual Transmittal

July 13, 2012

Purpose

(1) This transmits a complete revision of the procedures for Campus Examination Non-Filer program.

Material Changes

(1) IPU 101084 issued 07-15-2010 IRM 4.19.17.9 - add new subsection for Puerto Rican Non-Filed Self-Employment Returns 1040PR/SS

(2) All subsections have been renumbered from the 4.19.17 Revision November 10, 2006, Examination Non-Filer program into this IRM designated specifically for this one function of Campus Examination. This is a complete revision of the IRM, do not refer to previous editions.

(3) IPU 101717 issued 12-16-2010 IRM 4.19.17.3.5.1 change in tolerance to reflect IRM 4.19.18.6.2

(4) IPU 101717 issued 12-16-2010 IRM 4.19.17.3.4 changes made to IRM references

(5) IPU 101717 issued 12-16-2010 IRM 4.19.17.6.2 added note

(6) IPU 110176 issued 01-21-2011 Corrected IRM reference in 4.19.17.3.4 table and added DC 08 for partial assessments after SNOD

(7) Added instructions for assessments over $100 Million in IRM 4.19.17.3.6.

(8) Corrected reference in Taxpayer disagrees IRM 4.19.17.7.2.4

(9) IPU 110528 issued 03-09-2011 IRM 4.19.17.3.8 (5) and (6) added the Trans date field

(10) IPU 110584 issued 03-16-2011 IRM 4.19.17.3.8 (5) and (6) clarified wording

(11) IPU 110875 issued 04-27-2011 IRM 4.19.17.8.3 update to Fraud Referral citation

(12) IPU 110875 issued 04-27-2011 IRM 4.19.17.3.8 corrected to read Transaction Field Date

(13) IPU 110875 issued 04-27-2011 IRM 4.19.17.3.4 corrected DC 08 for partial agreement cases

(14) IPU 110875 issued 04-27-2011 IRM 4.19.17.7.2.4 changed to DC 08

(15) IPU 111133 issued 06-14-2011 IRM 4.19.17.8.2 Philadelphia Campus routing address changed for international returns

(16) IPU 111133 issued 06-14-2011 IRM 4.19.17.3.8 changed received date to Transaction Date

(17) Editorial changes made throughout this IRM

(18) Updated table summary for all tables

(19) Updated Batch to ACE throughout this IRM

(20) IRM 4.19.17.1.2 deleted statement requiring use of 10/2005 version of Form 13496 to create the 6020(b)

(21) IRM 4.19.17.3.4 corrected cross reference for Combat Zone and corrected DC 09 for partial agreement cases

(22) IRM 4.19.17.3.8 to clarify how to input a corrected ASED into IDRS

(23) IRM 4.19.17.6 to include TAS general IRM statement

(24) IRM 4.19.17.6.1, IRM 4.19.17.7.1.2, and IRM 4.19.17.8.8 added Identity Theft reference

(25) IRM 4.19.17.6.2.2 added instructions for posted returns with TC 976/977

(26) IRM 4.19.17.7.1.1 corrected to separate references to previously filed return and previously filed joint return with spouse

(27) IRM 4.19.7.7.1.5 updated Combat Zone procedures

(28) IRM 4.19.17.7.2.4 changed to DC 09

(29) IRM 4.19.17.7.7.1 added instructions to release the -A freeze, ensure the AIMS control is closed, then inputting another -A freeze to alert AM that a return has come in, on Non-Filer Reject cases with TC 976/977

(30) IRM 4.19.18.8.8 added section for Identity Theft procedures

(31) IRM 4.19.17.10 to specify that HQ will send filtered Control D reports to Exam Operations

(32) IRM 4.19.17.10.2 added note provided by Appeals to detailing communication protocols with Appeals

Effect on Other Documents

(1) This material supersedes IRM 4.19.17, dated 1/05/20010. (2) This section contains information on Campus Examination Non-Filer procedures for administrative matters and provides a reference for common issues and related items that might be found on tax returns. Throughout this revision there are references to other IRMs which may contain related information needed when working cases.

Audience

This IRM is intended for the use of the SB/SE and W&I Campus Examination Operations.

Effective Date

(07-13-2012)

Scott Prentky, Director,
Campus Reporting Compliance SB/SE

4.19.17.1  (01-05-2010)
Non-Filer Program

  1. The Substitute For Return (SFR) Program and its automated version, Automated Substitute For Return (ASFR) were developed to contact taxpayers who have not filed tax returns voluntarily and for whom income information is available to substantiate a significant income tax liability.

  2. Internal Revenue Code Section (IRC) 6212 authorizes the Service to send a notice of deficiency when a taxpayer appears to have a filing requirement but does not comply by voluntarily filing a tax return.

4.19.17.1.1  (01-05-2010)
IRC Section 6020(b) Certification

  1. The Service has the authority to prepare returns for any person who fails to submit a return required by Internal Revenue law or regulation at the time prescribed, or makes (willfully or otherwise), a false, or fraudulent return. The return is prepared from the personal knowledge of the Service's employee or from information which can be obtained through testimony or otherwise.

  2. IRC § 6020(b) provides that the return is prima facie good and sufficient for all legal purposes, however despite this language, for most purposes of the IRC, the section 6020(b) return is not treated as a return filed by the taxpayer. For example be aware of the following:

    1. The amount shown as due on an IRC § 6020(b) return must be assessed under the deficiency procedures.

    2. An IRC § 6020(b) return does not start the statute of limitations on assessment.

    3. An IRC § 6020(b) return does not stop the Failure to File (FTF) Penalty.

    4. An IRC § 6020(b) return prepared using the Married Filing Separate (MFS) filing status will not prevent taxpayers from electing a Joint filing status under IRC § 6013(b).

  3. IRC § 6020(b) pertains to individual income tax returns. Such returns may be automatically generated by the Campus or manually prepared with reports of proposed tax adjustments.

  4. When the taxpayer has not filed an individual income tax return, the Service needs to create a valid IRC § 6020(b) return to apply the Failure to Pay (FTP) Penalty.

  5. The Tax Court does not consider a mere assessment of tax or FTP penalty to constitute a "return" under the provisions of IRC § 6651(a) (2) and will not sustain the penalty. Therefore, to sustain a FTP penalty on a taxpayer who has not filed a return, the Service must, IN ALL CASES, properly process an IRC § 6020(b) return or have the taxpayer sign an appropriate return according to the following Form 13496 Certification procedures.

4.19.17.1.2  (01-05-2010)
Form 13496 Certification Procedures

  1. There are two different processes for certifying a valid IMF IRC § 6020(b) return. The first is the Report Generation Software (RGS)/Automated Correspondence Exam (ACE) procedure, the other is Form 13496, IRC Section 6020(b) Certification.

  2. Electronic Form 13496 - The RGS/ACE IRC § 6020(b) Certification and attached documents are generated systemically. Under Exam RGS/ACE procedures, the data that constitutes a valid return under IRC § 6020(b) includes computation of the taxpayer’s tax liability for the tax period in question and a completed Electronic Certification form with the electronic signature of the delegated IRS employee.

  3. Paper Form 13496 Procedures - Form 13496 MUST be completed with a live signature if not generated systemically through RGS/ACE and MUST be dated on or after the date the 30-day letter (or revised 30-day letter) is signed and dated such that the date of the certification is identical to, or later than, the 30-day letter. The completed Form 13496 MUST :

    1. Identify the taxpayer by name and taxpayer identification number.

    2. Contain sufficient information from which to compute the taxpayer’s tax liability, Form 4549, Income Tax Examination Changes (or the equivalent such as Form 4549-A) and Form 886-A, Explanation of Items or the equivalent.

    3. Purports to be a valid IRC § 6020(b) return.

    4. Be properly signed and dated.

  4. Form 13496 may not be prepared or dated after the date of the 90-day letter.

  5. Whenever the examiner revises a report of proposed adjustments that increases the total tax liability of the taxpayer (without regard to whether or not the revised report is reissued to the taxpayer), a re-certification is required on another Form 13496 dated on (or after) the same day as the revised report.

  6. When the report of proposed adjustments involves more than one tax year, create a separate Form 13496 for each year and attach each one to a photocopy of the report for each year.

    Note:

    Form 13496 is an internal use only form and should not be sent to the taxpayer(s).

4.19.17.2  (01-05-2010)
Non-Filer Strategy

  1. The National Non-Filer Strategy is directly aligned with the Service’s effort to identify non-compliant taxpayers and design methods to encourage their compliance.

  2. The Campus Examination Operations participate in the Non-Filer Strategy either:

    • Directly under the guidelines in the IRM or

    • By providing support for Area Offices (AO)in their Non-Filer Assistance Program efforts.

4.19.17.2.1  (01-05-2010)
Non-Filer Inventory & Responsibility

  1. Headquarters Examination establishes the priority of cases to be selected based on the availability of cases identified through the Collection Inventory and other Compliance Service initiatives for investigation by Examination.

  2. The Examination Operations Manager performs a periodic review of inventory selection and coordinates with Headquarters Examination to address inventory selection concerns to improve the selection criteria or suggest new initiatives.

4.19.17.3  (01-05-2010)
Non-Filer Processing

  1. The examination begins when a compliance check reveals filing delinquencies with potential for tax assessment.

  2. In most cases the Non-filer case is worked through ACE processing and will move systemically through the Correspondence Exam process without Correspondence Examination Technician intervention unless a return or reply is received from the taxpayer.

  3. There will be instances when a Non-filer case rejects from ACE processing. If these cases cannot be corrected and re-introduced into batch, then a manual report must be prepared.

4.19.17.3.1  (01-05-2010)
Audit Information Management System (AIMS) Controls

  1. Accounts selected for the Exam SFR program will be established on AIMS for each tax year as follows:

    1. Master File Tax (MFT) 30.

    2. Transaction Code (TC) 424.

    3. Status Code 08.

    4. Source Code, see IRM 4.19.17.3.3.

    5. Project Code (PC), see IRM 4.19.17.3.3.

    6. Employee Group Code (EGC) 5XXX.

    7. Primary Business Code (PBC) 2XXX or 1XXX.

    8. Push Code (PC) 036.

    9. Activity Code based on taxpayer Total Positive Income (TPI).

  2. The filing status will be Single or MFS.

4.19.17.3.2  (01-05-2010)
Non-Filer Letters

  1. The following letters are used most often in the Non-filer Programs and have the same suspense time frames as other Correspondence letters, i.e. 45 days for most letters except Statutory Notice Of Deficiency (SNOD), which is suspended for 105 days, or 165 days for a foreign address. A few letters, such as Disallowance letters, will not be suspended.

    1. Letter 105C – Claim Disallowance – Barred Refund.

    2. Letter 106C – Partial Disallowance.

    3. Letter 143C – Missing Signature.

    4. Letter 692 – Response to the taxpayer before SNOD.

    5. Letter 555 – Response to the taxpayer after SNOD.

    6. Letter 692 (SC) – Response to the taxpayer, Revised Report.

    7. Letter 1862 – Initial Contact Letter (ICL). This is considered a combo letter as the Form 4549 Examination Report will also be sent as part of the initial contact.

    8. Letter 2469C – ASFR Possible Refund.

    9. Letter 3219 – Statutory Notice of Deficiency (SNOD).

    10. Letter 4391 – Non-Examination closure.

    11. Letter 4392 – Combat Zone. Examined/Non Examined closure.

4.19.17.3.3  (01-05-2010)
Non-Filer Source & Project Codes

  1. The table below shows the most commonly used Source and Project Codes used in Correspondence Exam in the Non-filer program.

    Program Source Code Project Code
    Collection Referrals 65 0154
    FERDI/TDI Non-filers 24 0156
    Manual Selects 24 0275
    Select Code 38 25 0277
    Refund Hold 24 0655

4.19.17.3.4  (07-13-2012)
Non-Filer Disposal Codes

  1. The table below shows the most commonly used Disposal Codes (DC) in Correspondence Exam in the Non-filer program.

  2. If ... And ... Then ...
    A signed Tax Return is received and accepted as filed before SNOD is issued DC 04 Agreed - See IRM 4.19.17.7.2.1.2
    Update the ASED

    Note:

    The 30-Day Interest Free Period is only allowed after the filing of an original return.

    A signed Tax Return is received and accepted as filed after SNOD is issued DC 09 Agreed - See IRM 4.19.17.7.2.1.2
    Update the ASED

    Note:

    The 30-Day Interest Free Period is only allowed after the filing of an original return.

    A signed Form 4549, Income Tax changes, is received before SNOD is issued Use DC 04 Agreed - See IRM 4.19.17.7.2.1
    Use PC 09 to compute the FTP penalty, if there is an -A freeze use PC 03

    Note:

    A signed Form 4549 Examination Report or Form 5564 Waiver does NOT become a return filed by the Service under IRC 6020(a). See Rev. Rul. 2005-59. Do not make an entry in Item 06, " Interest to Date" or "Item 08, Agreement Date" . Entering an agreement date allows the taxpayer the interest free period 30 days from the agreement date which is only allowable on the additional assessment, not the original return.

    A signed Form 4549, Income Tax Changes, or a signed Form 5564-A, Notice of Deficiency Waiver, is received after SNOD is issued Use DC 09 Agreed - See IRM 4.19.17.7.2.1.1
    Use PC 09 to compute the FTP penalty, if there is an -A freeze use PC 03.
    A signed Form 4549, Income Tax Changes, is received before SNOD is issued and a partial assessment has been input Use DC 04 Agreed - See IRM 4.19.17.7.2.1.1
    A signed Form 4549, Income Tax Changes, or Form 5564-A Notice of Deficiency Waiver, is received after SNOD is issued and a Partial Assessment has been input Use DC 09 Agreed - See IRM 4.19.17.7.2.2

    Note:

    The 30-Day Interest Free Period is only allowed after the filing of an original return.

    Partial Assessment input per the return before SNOD   Use DC 04 Agreed - See IRM 4.19.17.7.2.2 After SNOD use DC 09.
    No Change after Partial Assessment   Use DC 08 Agreed - See IRM 4.19.17.7.2.2.1

    Note:

    AIMS will not allow the case to be closed DC 02 No Change after a previous TC 300 assessment.

    Default - No Response, Disagreed, or Unclaimed/Refused Mail   Use DC 10 Default - DO NOT close case until SNOD has expired.
    Undelivered   Use DC 13 Undelivered Mail - See IRM 4.19.17.5

    Note:

    This includes undelivered mail after Partial Assessments. DO NOT close case until SNOD has expired.

    Combat Zone before contact with the taxpayer. Use DC 31 Non Examined - See IRM 4.19.17.7.1.5
    Combat Zone after contact with the taxpayer. Use DC 32 Non Examined - See IRM 4.19.17.7.1.5 Send Letter 4392.
    Non-Filer Reject (NFR)– Return received prior to ICL being issued   Use DC 37 Non-Examined - See IRM 4.19.17.7.1.1
    • Will generate TC 594 CC 58.

    No Return Received Taxpayer Previously Filed Use DC 37 Non Examined - See IRM 4.19.17.7.1.1
    • Will generate TC 594 CC 58.

    • Send Letter 4391 if contact was made with the taxpayer.

    No Return Received Taxpayer Previously Filed as a spouse on a Joint Return Use DC 38 Non Examined - See IRM 4.19.17.7.1.1
    • Will generate TC 594 CC 59.

    • Send Letter 4391 if contact was made with the taxpayer.

    No Return Received Taxpayer provides verification that Income does not belong to them or the taxpayer is Deceased and the estate is closed Use DC 39 Non Examined - See IRM 4.19.17.7.1.2 and IRM 4.19.17.7.1.3
    • Will generate TC 591 CC 50.

    • Send Letter 4391 if contact was made with the taxpayer.

    No Return Received Taxpayer Due a Refund Use DC 41 Non Examined - See IRM 4.19.17.7.1.4
    • Will generate TC 590 CC 53.

    • Send Letter 2469C to the taxpayer regardless of whether contact was made with the taxpayer.

    Little or No Tax Due   Use DC 36 Non-Examined

4.19.17.3.4.1  (01-05-2010)
Non-Filer Technique Codes

  1. The following Technique Codes (TC) will be used when closing all SFR Correspondence Examinations:

    1. A "2" = Correspondence Received. The definition of TC 2 per IRM 4.4.12.4.40.4 is Correspondence Examination because Field and Office audit perform both face-to-face and correspondence examinations. For Correspondence Exam purposes we will apply TC 2 whenever correspondence is received since the Campus only performs correspondence examinations and we want to capture closure information where taxpayers have responded.
      Valid with DC 04, 08, 09, and 10.

    2. A "6" = No Response, Unclaimed, and Refused.
      Valid with DC 10.

    3. A "7" = Undelivered Mail.
      Valid with DC 13.

4.19.17.3.5  (01-05-2010)
Mandatory Review Prior to ICL

  1. Non-filer cases with deficiencies of $500,000 or more will be rejected from ACE processing for review by TCO or Revenue Agents in Classification to validate income sources are accurate.

    1. If research indicates income belongs to the taxpayer, then place the case back into ACE for ICL.

    2. If research indicates income previously reported on another return, close the case DC 37.

    3. If research indicates that the income does not belong to the taxpayer, close the case DC 39.

  2. Cases rejected from ACE for "manual" reports must be reviewed by lead or manager.

4.19.17.3.5.1  (12-16-2010)
Mandatory Review of Closed Cases

  1. Follow IRM 4.19.18.6.2 for mandatory review of cases closed with deficiencies of more than $50,000.

4.19.17.3.6  (02-04-2011)
Large Dollar Cases (Over 10 Million) or assessments over $100 Million

  1. Due to system restraints, the maximum amount of a single assessment is $99,999,999.99. Therefore, if the assessment is $100 Million dollars or more it needs to be input with two separate transactions, one for $99,999,999.99 and a separate one for the difference between the total assessment and $99,999,999.99, Whenever the assessment is over $100 million the case must:

    1. have managerial approval, and

    2. be manually monitored by both the manager and the employee who inputs the assessment to ensure both assessments post correctly.

  2. Each year the Government Accountability Office (GAO) examines the Service’s financial statements. As a part of this audit, GAO reviews documentation for taxpayers whose balance due (including interest and penalties) is over $10 million.

  3. The Office of Unpaid Assessments has access to Correspondence Examination Automation System (CEAS) and will review all reports over $10 million.

4.19.17.3.7  (01-05-2010)
Refund Statute Expiration Date (RSED)

  1. Time for Filing a Claim for Credit or Refund — Generally, a claim for a credit or refund must be filed within 3 years from the filing of the return or 2 years from the payment of tax, whichever is later.

  2. An original delinquent return claiming an overpayment is a claim for refund. A taxpayer is entitled to a credit/refund for any payment paid within three years from the received date of an original delinquent return, including extensions.

    Note:

    Taxes withheld from wages during the calendar year are deemed paid on the 15th day of the fourth month following the close of the tax year. In addition, estimated income tax is deemed paid on the due date for filing the return (not including any extension of time for filing).

  3. Expired credits are not to be used to offset liabilities for other tax periods.

  4. Certified notice of Claim Disallowed, Letter 105C must be issued when delinquent returns are received with refunds barred by the statute of limitations. If a notice of claim disallowance is not sent by registered or certified mail to the taxpayer, the refund claim on the original return is not properly disallowed in accordance with IRC § 6532, and the statute of limitations for filing a refund suit has not expired, IRC § 6532(a)(1).

  5. Resolve credit balance accounts where the RSED has expired by preparing Form 8758, Excess Collection Additions to transfer the expired credits to Excess Collection.

  6. DO NOT resolve credit balances on partial assessments until final closure.

  7. If the RSED has expired it is not necessary to cycle the balance due years first. When multiple years are received from the same taxpayer, process all years at the same time.

4.19.17.3.8  (06-14-2011)
Assessment Statute Expiration Date (ASED)

  1. The statutory period for making an assessment usually expires three years from the date the original return was filed or three years from the due date of the original return, whichever is later. This is known as the ASED

  2. The posting of a SFR TC 150 Dummy return does not set the ASED date.

  3. Use the earliest IRS received date to set the ASED. If the received date is missing or illegible, enter the postmark date (excluding metered mail) or the signature date, whichever is closer to the current date.

  4. Returns printed from Correspondence Imaging System (CIS) may not always reflect the actual IRS received date since the original return was scanned into CIS and destroyed. When the return is printed from CIS it may reflect a date later than the TC 976 posted date. If this is the case, use the TC 976 date as the earliest IRS received date in updating ASED.

  5. To set the ASED date input a TC 971 Action Code (AC) 282 using IDRS Command Code (CC) REQ77 Enter the received date in the Transaction Date Field.

  6. To correct an ASED date input a TC 560 using CC REQ77. Enter the actual ASED date (3 years from the received date of the return) in the Extension Date Field.

4.19.17.4  (01-05-2010)
Non-Filer Penalties

  1. A SFR IRC §6020(b) return must be prepared before penalties can be considered.

  2. Penalties to be considered if no return is filed and the case is closed through deficiency procedures are:

    1. Failure to File Penalty (FTF) IRC 6651(a)(1),

    2. Failure to Pay Penalty (FTP) IRC § 6651(a)(2), and

    3. Estimated Tax Penalty IRC § 6654 or IRC § 6655.

  3. Penalties to be considered on secured delinquent returns and IRC § 6020(a) returns are:

    1. Failure to File Penalty IRC § 6651(a)(1).

    2. Failure to Pay Penalty IRC § 6651(a)(2).

    3. Estimated Tax Penalty IRC § 6654 or IRC § 6655.

    4. Fraudulent Failure to File IRC § 6651(f). The burden of proof is on the Government to establish fraud. Refer to IRM 4.19.10.1.9 for examples of Fraud indicators and on how to refer returns to the Campus/Exam Fraud Coordinator.

    5. Accuracy Penalty IRC § 6662(a).

4.19.17.4.1  (01-05-2010)
Request for Penalty Relief

  1. The initial request for relief may occur either during or after an examination.

  2. When the tax liability has been resolved, the FTF and FTP penalties are applied unless the Non-filer has provided an explanation and documentation for Reasonable Cause (RC).

  3. Refer to IRM 20.1.1.3 as a resource guide for the non-assertion of penalties due to RC.

  4. If the taxpayer is entitled to penalty relief, document workpapers that RC was considered, and how RC was established.

  5. If the taxpayer is not entitled to penalty relief, document workpapers that RC was considered and why RC does not apply and what penalties are to be assessed when the case is forwarded to AIMS as both partial and final assessments. Also include the date to start the FTP penalty if the FTP penalty applies.

    Note:

    Compute the FTP penalty on both delinquent returns and IRC Sec. 6020(a) returns from the due date of the return.

4.19.17.5  (01-05-2010)
Undelivered Mail

  1. Follow IRM 4.19.13.13 in processing Undelivered Mail.

4.19.17.6  (01-05-2010)
Taxpayer Replies

  1. Taxpayer replies include telephone inquiries, filed returns, and written correspondence. The reply may be in response to a 30-Day Letter or SNOD. Follow IRM 4.19.13.9 when processing taxpayer replies.

  2. Update correspondence to the appropriate reply status per IRM 4.19.13.10.

  3. Even though a Non-filer return does not meet Policy Statement P-6-12 criteria for Interim Letter purposes, it is still considered correspondence and must be updated to Status 54, with the earliest IRS received date upon receipt of the return in Exam, unless the case is in Status 24.

  4. When correspondence is received and the case is in Status 24, update the Correspondence Date to reflect the earliest IRS received date.

  5. Returns printed from CIS may not always reflect the actual IRS received date since the original return was scanned into CIS and destroyed. When the return is printed from CIS it may have a received date that is later than the TC 976 posted date. If this is the case, use the TC 976 date as the earliest IRS received date in updating AIMS Status and ASED.

  6. Refer taxpayers to the Taxpayer Advocate Service (TAS) (see IRM 13) when the contact meets TAS criteria (see IRM 13.1.7.2) and you can't resolve the taxpayer's issue the same day, i.e.,within 24 hours. "Same day" cases include cases you can completely resolve in 24 hours, as well as those in which you take steps within 24 hours to being resolving the taxpayer's issue. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Refer to IRM 13.1.7.4, Same-Day Resolution by Operations. When referring cases to TAS, use Form 911, Request for Taxpayer Advocate Service Assistance (and Application for Taxpayer Assistance Order), and forward it to TAS in accordance with your local procedures.

4.19.17.6.1  (07-13-2012)
Correspondence and Telephone Inquiries – No Return

  1. Correspondence and telephone inquiries on Non-filer cases without a return will often ask general questions such as how to secure prior year forms, requests for extension, or explain why the taxpayer is not required to file. The table below provides a list of the most common taxpayer replies and guidelines on how to respond.

    IF THEN
    Taxpayer needs more time to file a return
    • Request for additional time to file prior to SNOD will be considered on a case by case basis dependent on the taxpayers need for the additional time. Extensions past 30 days should not be given.

    • If SNOD has been issued, DO NOT grant an extension. Explain the time remaining on the SNOD and that the account will be assessed per the Exam report if not received within this time. Also explain returns can be considered as reconsideration but, it is to the taxpayer’s benefit to file as soon as possible. See Exception below.

    Exception:

    Use professional judgment in holding a case when SNOD has expired. If the taxpayer indicates the return is in the mail or will be faxed/sent within a week to ten days, it makes better business sense to hold the return a few additional days than to make the default assessment and then have to process the return as a reconsideration.
    Taxpayer filed Jointly with spouse
    • Research IDRS for fact of filing. If Joint return was filed, close case per Non Examined procedures in IRM 4.19.17.7.1.1.

    • If return was not filed, request a signed copy be faxed or mailed to the appropriate address.

    Taxpayer states they are not required to file
    • Verify through research and/or additional contact with the taxpayer reason(s) why they are not required to file.
      Refer to Non Examined Closing procedures in IRM 4.19.17.6.1.

    Taxpayer is in a Combat Zone
    • If taxpayer or "related person" responds that the taxpayer is in a Combat Zone follow procedures in IRM 4.19.17.7.1.5.

    Taxpayer is in a Disaster Zone
    • Follow IRM 25.16 Disaster Assistance and Emergency Relief procedures in responding to taxpayers.

    Taxpayer states a refusal to file
    • Refer to IRM 4.10.12.3.3 Frivolous Filer for reasons taxpayers refuse to file.

    Taxpayer requests abatement of penalty and/or interest
    • Follow IRM 20.1 and IRM 20.2 in considering requests for abatement of penalties and/or interest.

    Taxpayer requests copy of Income information
    • Send IRP information including spousal IRP if authority has been granted by spouse.

    Taxpayer wants to know how to get blank prior year forms and tax tables
    • Refer taxpayer to IRS website http://www.irs.gov/formspubs /.

    Taxpayer states that he/she did not receive income reported on the IRP payer document
    • Attempt to verify IRP information through third party contacts.

    • If the third party cannot be located, has ceased to operate, has not retained records from which verification can be derived, or other circumstances suggest that the IRP payer information is not reliable or accurate, remove the income from the Non-filer proposal.

    • If removing income from the Non-filer proposal reduces the total income below the income level for filing a tax return, close the case DC 39. Refer to IRM 4.19.17.7.1.2.

    • If the payer information can be verified, notify taxpayer and proceed with Non-filer examination. Send letter 4391.

    If the taxpayer states they are a victim of Identity Theft
    • Refer to IRM 4.19.17.8.8.

  2. Document workpapers for telephone calls and correspondence to/from the taxpayer with actions taken and decisions made.

4.19.17.6.2  (12-16-2010)
Return Received

  1. Delinquent returns can be received directly in the Operation from the taxpayer or posted to Master File as a duplicate return, TC 976/977, or routed from Accounts Management (AM).

    Note:

    If the return has been adjusted by AM, per IRM 21.5.3.4.10(2), continue to follow all necessary actions as listed below before closing the examination. If all income is reported, there is no Large, Unusual or Questionable (LUQ) issues, and the return does not meet specialty criteria follow normal closing procedures and address the adjustment by following IRM 4.10.15.2.9.5

    .

  2. Professional judgment should be used in the review, acceptance, and selection of return(s) with LUQissues. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. A return is not considered filed for interest computation purposes until the return is received in processable form.

  4. A return is in processable form if it:

    1. Is filed on a permitted form;

    2. Contains the taxpayer's name, address, and identifying number;

    3. Has the required signature(s); and

    4. Contains sufficient information (whether on the return or on required attachments) to permit the mathematical verification of the tax liability shown on the return.

  5. If the requested information is received after the return due date, the return is processed with a "Return Processable Date (RPD) " reflecting the date the information was received. This date is also known as the "Correspondence Received Date (CRD)." The CRD is used to calculate interest the IRS owes on refunds.

  6. The "RPD" date should be input on all secured SFR returns even if a balance due. This is needed since the taxpayer may file at a later date an "Amended" tax return which at that time may contain a refund.

    Note:

    If the RPD date is not input the credit interest will revert to the "IRS received date." which is the date the SFR TC 150 was processed and this is the incorrect date for credit interest.

4.19.17.6.2.1  (01-05-2010)
Return Validation

  1. Review the entire return for missing signature(s), schedules, math errors, etc before contacting the taxpayer.

  2. At least one attempt should be made by telephone to contact the taxpayer for incomplete or missing information before corresponding with the taxpayer.

4.19.17.6.2.2  (01-05-2010)
Return Posted as TC 976/977

  1. If the case is in Status 08 or below, please refer to IRM 4.19.17.7.1.

  2. An "A" Freeze should be present on accounts with TC 976/977 and must be resolved before the case can be closed off AIMS.

  3. Returns should be updated to reply status upon receipt in the Operation.

  4. Every effort should be made to secure the TC 976/977 document as soon as possible. The Exam Operations can request a weekly AIMS listing of all open SFR accounts with a TC 976/977 present.

  5. Do not allow the case to sit in an open AIMS status until it moves to the next status and rejects before trying to secure the TC 976/977 document.

  6. Most TC 976/977 documents have been scanned into the Correspondence Imaging System (CIS) and should have an open IDRS control by AM.

  7. Each Exam Operation has designated individuals that have access to CIS. Try to secure a copy from CIS for expedite processing of the taxpayer’s return.

  8. If unable to secure the return from CIS, and return information is available on Tax Return Data Base (TRDB), print a copy of the TRDB return information as proof of filing a signed return.

  9. If the TC 976/977 document is not available on CIS or TRDB take the following steps:

    1. Make one attempt to ESTAB for the TC 976/977. If the return has not been received within 4 weeks contact the taxpayer for a signed copy.

    2. Inform the taxpayer by telephone or correspondence that the return they previously submitted is not readily available and that we need another "signed" copy. The copy of the return can be faxed or mailed. Suspend the case for 45 days.

    3. If the taxpayer provides a "signed" copy, the ASED date will be updated using the posted TC 976/977 date.

    4. If the taxpayer does not provide a "signed" copy of their return within 45 days proceed with the SFR case and default if no reply received after SNOD expires.

  10. If a return posted to TXMOD/IMFOL, either as the TC 150 or as an adjustment made by another department/Campus, complete the following:

    1. Verify the TXMOD/IMFOL amounts match the return.

    2. Correct or create issues for any adjustments needed.

    3. Prepare an "Info Only" report - Print report and write under signature area of page two "Closed Agreed per 1040 rec'd "MMDDYY." " Also, write your initials and current date, and

    4. Run the tax computation again as a "No change."

4.19.17.6.2.3  (01-05-2010)
Missing Signature

  1. A taxpayer is not considered to have filed a tax return which begins the period of limitations on assessment (ASED) until the taxpayer files a valid tax return. An unsigned return is not considered a valid tax return. A faxed signature is acceptable.

  2. Return information on TRDB is considered a signed return, See IRM 4.19.17.6.2.2.

  3. If contact by telephone is not successful, send Letter 143C, Request for Signature, and suspend the case.

  4. If No Reply is received after the appropriate suspense period, send the return back to the taxpayer stating the return is not acceptable because the signature is missing and that we will proceed with the Non-filer proposal. Make a copy of page 1 and 2 of the taxpayer’s return before returning and associate with the SFR in Files. Proceed with the Non-filer case putting the case back into ACE.

    Note:

    Do not accept an unsigned return even if full paid . If a signed return is not received by the time the case defaults, assess per the SFR proposal.

4.19.17.6.2.4  (01-05-2010)
Entity, Filing Status, and Dependent Verification

  1. The following Entity information on the taxpayer’s return must be verified:

    1. Name of the primary taxpayer is for the correct Non-filer tax period and matches the SSN.

    2. Spouse’s name matches the SSN shown on the return and the spouse has not already filed.

    3. Dependent(s) name(s) matches SSN shown on the return and dependent(s) is not being claimed on someone else’s return.

      Note:

      If the dependent’s SSN is not valid, then the following credits can not be allowed: Dependent exemptions, Child Tax Credit, Child Care Credit, and the Earned Income Credit.

    4. Verify the taxpayer’s correct address. If the address is different on the secured return from Master File verify the correct address with the taxpayer.

    5. Update Entity information as appropriate.

4.19.17.6.2.5  (01-05-2010)
Math Verification & Missing Schedules

  1. Before the taxpayer’s account can be adjusted all forms, schedules, and attachments must be manually math verified. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. Math verification includes:

    1. Schedules, Forms, and the Return.

    2. Transcription and transposition errors from schedules to the return.

    3. Exemption amount for the tax year.

    4. Standard deduction amount for the tax year.

    5. Credit amounts and computations for the tax year.

    6. Tax for the tax year, including SET, 10%, etc.

    7. Penalty computations.

  3. If there are Math/Clerical errors, follow Partial procedures in IRM 4.19.17.7.2.2 and provide a Form 886-A explanation of the math error.

  4. Contact the taxpayer for any missing schedules and forms needed to support entries on Form 1040 page 1 and 2.

    1. The first attempt should be made via telephone asking the taxpayer to fax the missing schedules/forms.

    2. If contact cannot be made via telephone, contact the taxpayer in writing.

    3. If no reply, send a corrected report disallowing expenses claimed on the missing schedule. Ex: Missing Schedule A – allow standard deduction based on return filing status. Schedule C – corrected report would reflect full NEC amount vs. amount claimed on Line 12 Business income or loss.

    4. DO NOT allow any Adjustments to Income or Tax Credits if the forms to support the entry on Form 1040 are missing, such as Form 3903 Moving Expense, Form 8917 Tuition and Fees deduction, and Form 2441 Child Care Credit.

4.19.17.6.2.6  (01-05-2010)
Underreported (UR) Income

  1. Verify all income shown on IRPTR is included on the return for the taxpayer and spouse. See Exhibit 4.19.17-1for the taxability of UR income. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. If the taxpayer’s return does not include all income for the taxpayer and/or spouse, send a corrected report including the UR income following Partial procedure in IRM 4.19.17.7.2.2. If the return reflects a Joint filing status the corrected report MUST reflect the Joint name.

  3. Ensure Form 4137, Social Security and Medicare Tax on Unreported Tip Income, is present if a taxpayer has unreported tip income. Notate on the Form 3198, Unreported Tip Income Case.

4.19.17.6.2.7  (01-05-2010)
SFR Referrals - Returns Meeting Referral Criteria

  1. Returns should be screened for LUQ, suspicious, and duplicate deduction/expenses.

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  2. Returns with LUQ issues that Correspondence Exam has been trained to work do not require referral to Classification or managerial approval. Correspondence Exam should only audit issues on secured delinquent returns that are consistent with the work selected.

  3. If LUQ issues will be audited by Correspondence Exam, follow Partial Assessment – Subsequent Contact procedures in IRM 4.19.17.7.2.2.1 before contacting the taxpayer.

  4. Returns with LUQ issues that meet AO criteria MUST be referred to Classification.

    Note:

    Returns should be screened for UR income prior to referring to Classification. If income reflected on IRPTR is not reported on the delinquent return attach a copy of the workpaper documenting the UR income so Classification does not accept a return which may not have any classification selection criteria but, still has UR income. The UR income issue would still be questioned.

  5. If the return is referred to Classification for AO criteria and is returned as "Accepted" as Filed, follow Agreed closing procedures.

  6. If the return is referred to Classification for AO criteria and is returned to Correspondence Exam as "Selected for AO" , input partial assessment and transfer AIMS base to the appropriate AO.

  7. Workpapers should be documented before and after referral to Classification stating the reason for referral, actions taken, and decisions made. Below are a few examples of workpaper documentation for SFR Referrals.

    Example #1: (Before) - Joint return referred to Classification for Schedule C LUQ issues, Spouse’s NEC income of $(amount) UR. (After) - Return received back from Classification "Selected for Correspondence Exam" for UR income. Input partial assessment and send corrected joint report to the taxpayer.

    Note:

    If No Reply, a joint SNOD must be issued before the additional tax for UR income can be assessed. Refer to IRM 4.19.17.6.2.6I, UR Income procedures.

    Example #2: (Before) - Return referred to Classification as taxpayerI meets referral criteria. (After) - Return received back from Classification " Selected for AO" . Close per partial procedures and transfer case to AO.

  8. In most cases Letter 692 will be sent as the subsequent contact letter for LUQ issues after the partial has posted. Like any other audit, a tax change cannot be made until the taxpayer has been provided their statutory rights to petition tax court. A report, starting with the taxpayer’s return figures will be prepared if no response is received or the taxpayer responds and the information/documentation is not accepted.

  9. If the subsequent contact after receipt of the taxpayer’s return is UR income only, a corrected report will be sent as the subsequent contact, starting with the taxpayer’s return figures. See IRM 4.19.17 UR Income procedures to determine when a new SNOD must be issued if the return is received after SNOD was issued on the initial SFR case.

4.19.17.6.2.8  (01-05-2010)
Classification of SFR Referrals

  1. All delinquent returns referred to Classification from Corr Exam, will be classified for potential examination of UR income and LUQ issues.

  2. Classification will classify the delinquent secured return as shown in the Determination Table below and return to the correspondence examiner upon classification.

    Return Accepted Stamp the return Accepted and route to Corr Exam.
    Selected for Corr issues Classify the return for issues to be audited by Corr Exam. Issues selected for Corr MUST be consistent with the issues Corr has been trained to work and workload selected by Workload Selection and Delivery (WSD) in SB/SE as shown in IRM 4.19.17.6.2.7 .
    Selected for AO issues Classify the return for issues to be audited by AO Exam.

  3. Classification should complete the Excel monthly SFR Corr Referral Report provided by Exam Policy in SB/SE for receipts and disposition from Corr Exam and route the report to HQ Exam Policy Analyst by the end of the first week for the preceding month.

4.19.17.7  (01-05-2010)
Closures - Non Examined

  1. This section provides instructions for closing SFR cases established on AIMS in any AIMS Status prior to or after contact with the taxpayer.

  2. Form 5351 is used as an input document to close non-examined cases off of AIMS.

4.19.17.7.1  (01-05-2010)
Non-Filer Reject (NFR) - Return Received Prior to ICL

  1. A NFR is a return that is received in the Service after the posting of the TC 150 Dummy/SFR but prior to the issuance of the Initial Contact Letter (ICL).

  2. NFR returns will be worked in the Individual Master File (IMF) AM site where the TC 976 document posted.

  3. The NFR can be identified by:

    1. AIMS Status 08 or less.

    2. A TC150 Substitute Return (SFR).

    3. A TC976/977. DO NOT REQUEST duplicate return.

    4. If the return is received in Exam and there is no TC 976 posted the Exam Correspondence Examination Technician will write "NFR" across the front of the return and forward to the AM site where the taxpayer would have filed had they filed a timely return.

  4. AM will adjust the account accordingly assessing any tax, inputting the appropriate income, exemption, and credit references.

  5. AM is also responsible for responding to any Taxpayer Advocate Service (TAS) inquiries on these cases. If the Operations Assistance Request (OAR) is received in Exam, reject back to TAS stating the case is a NFR worked by AM. Refer TAS to IRM 21.5.3.4.10.1.

  6. Exam must release the -A freeze prior to closing the case Non-Examined.

    1. Once the AIMS control has been closed, input a TC 971 (using CC REQ 77) with an Action Code of 010. Monitor the case to ensure the -A freeze posts.

      Note:

      The -A freeze needs to be on the module so AM is aware that an amended return has been received.

  7. For SB/SE Campuses, Headquarters will provide a monthly listing of all Non-Filer cases in Status 08 and EGC 5065 that reflects a TC 976/977 has posted to each Campus. These cases must be closed immediately. Review the TC976/977 date for imminent statutes. If less than 180 days remain on the statute, update the ASED date and expedite the routing to the appropriate AM function to ensure the governments interests are protected.

4.19.17.7.1.1  (07-13-2012)
No Return Received – Taxpayer Previously Filed or Filed With Spouse

  1. Telephone call or correspondence from taxpayer states they previously filed a return and research verifies their claim:

    1. Close the case DC 37.

    2. Send Letter 4391.

  2. Telephone call or correspondence from taxpayer states they filed as secondary on a joint return with spouse and research verifies their claim:

    1. Close the case DC 38.

    2. Send Letter 4391.


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