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Part 8. Appeals

Chapter 7. Technical and Procedural Guidelines

Section 8. Tax Exempt and Government Entities (TE/GE) Cases

8.7.8  Tax Exempt and Government Entities (TE/GE) Cases

8.7.8.1  (04-15-2008)
Introduction to Appeals TE/GE Cases

  1. This section outlines procedures for Appeals offices to handle appeals from adverse actions proposed by Tax Exempt and Government Entities (TE/GE). See Exhibit 8.7.8-1. This exhibit contains a listing of TE/GE areas and their jurisdiction.

  2. Because of the specialized nature of TE/GE issues, route all TE/GE cases to the following address for assignment to Appeals Officers (AO) with expertise in these cases:

    Dallas Appeals Office
    Attn: Appeals Processing Services
    4050 Alpha Road, Suite 517
    Mail Code 8000 NDAL
    Dallas, TX 75244–4203

  3. Cases containing TE/GE issues may also originate from income tax examinations under the jurisdiction of Small Business/Self Employed (SB/SE) and Large and Mid Size Business (LMSB) Divisions.

    For example, a pension plan deduction on Form 1120 is disallowed due to the employers' use of incorrect actuarial assumptions. The procedures contained in this section do not apply to these cases. Refer to IRM 8.20.6, Interim Actions - Remittances, Partials, Transfer and Returns, to determine whether to transfer this case to the Baltimore Appeals Office for assignment to Appeals Officers who have expertise in Employee Plan and Exempt Organization (EP/EO) matters.

    Note:

    Pre-conference and post-conference procedures for examinations of large cases (under LMSB's jurisdiction) apply to all TE/GE Coordinated Examination Program (CEP) cases in which TE/GE requests a conference. Any references in those sections to examination personnel apply to TE/GE personnel. See IRM 8.7.11, Appeals Team Cases

  4. Refer to IRM 4.71, IRM 4.75 and IRM 4.76 for additional guidance when working cases involving issues relating to EP/EO matters.

  5. Compute Private Foundation changes in tax liability on Form 4883, Private Foundation Audit Changes.

8.7.8.1.1  (10-26-2007)
Explanation of TE/GE Operating Division

  1. TE/GE Division is an operating division with three (3) units:

    • EP - Employee Plans

    • EO - Exempt Organizations

    • GE - Government Entities

  2. EP and EO cases break down into three (3) categories:

    • Determinations

    • Revocations

    • Examinations (taxable returns)

  3. GE cases involve:

    • Federal, State and Local Governments

    • Indian Tribal Governments

    • Tax Exempt Bonds

  4. In EP and EO determination cases, taxpayers generally submit applications for two reasons:

    1. To obtain exempt organization status and determine their private foundation classification.

    2. To ensure their employee retirement plan meets the Internal Revenue Code requirements and their trust is tax exempt.

  5. After receiving the application, IRS makes a determination whether to grant the taxpayer's request.

  6. Appeals does not accept cases after certified/registered adverse determination (application denied) letters are issued. Appeals also does not accept docketed cases under Declaratory Judgment procedures, which are identified by the letter "X" for EO cases and "R" for EP cases after the docket number. These cases are under Counsel jurisdiction.

8.7.8.1.2  (10-26-2007)
Taxable Returns Related to EP/ EO Examination Cases

  1. Both EP and EO examinations involve imposing various taxes due to the plan (EP) or organization (EO) engage in financial transactions.

    1. Examination cases are generally non-docketed, but it is possible to have excise tax and unrelated business income tax issues in docketed status.

    2. Examination cases are on AIMS; however, some accounts are Master File (MF) and others are Non-Master File (NMF). NMF is used for inventory control purposes. If assessments need to be made, MF accounts are established when the case is closed.

8.7.8.2  (10-26-2007)
Obtaining Tax Exempt and Government Entities Administrative Files

  1. Request employee plan files or exempt organization rulings or technical advice using Form 8057, (TE/GE Microfiche Request). Forward the request to the Communications and Records Unit, Office of the TE/GE Division Commissioner.

  2. TE/GE Area offices maintain files on TE/GE issued determination letters. Also request these files using a Form 8057 forwarded through the appropriate area office.

8.7.8.3  (10-26-2007)
Appeals Responsibility for Employee Plans (EP) Cases

  1. The Director, EP is responsible for the examination of employee plan returns and is also responsible for reviewing plan and trust applications for qualified status and exemption from Federal income tax.

  2. EP examiners final decision may result in the proposal of an adverse action, such as -

    • unrelated business income tax.

    • Chapter 43 excise taxes for failure to meet minimum funding standards or for prohibited transactions.

    • revocation of determination letters concerning continued plan qualification.

    • a plan no longer qualifies under IRC 401, the trust loses its exempt status and becomes a taxable entity required to file Form 1041.

  3. Appeals is responsible for administrative appeals on cases proposing adverse actions with the exception of adverse actions resulting from a Technical Advice Memorandum issued with respect to a plan's qualified status, which do not have administrative appeal rights.

  4. Sources for handling EP cases in Appeals include:

    1. Delegation Orders No. 60 (as revised), No. 66 (as revised), and No. 112 (as revised) which set forth Appeals' authority in employee plan cases.

    2. Issues docketed under the declaratory judgment provisions of IRC 7476 are under Counsel's exclusive jurisdiction whether TE/GE or an Appeals office issues the final adverse letter being petitioned.

    3. 26 CFR 601.201(o)(6) discusses the appeal of employee plan qualification issues. Appeals general procedures are covered in 26 CFR 601.106.

    4. Rev. Proc. 2006-5, 2006-1 IRB 174, (revised annually), sets forth the procedures for requesting technical advice.

    5. Rev. Proc. 2006-6, 2006-1 IRB 204, (revised annually), provides guidance to Appeals on adverse determinations.

8.7.8.3.1  (10-26-2007)
Appeals Processing Services (APS) Receipt of EP Cases

  1. As stated above there are three categories of EP cases - determination, revocation, and examinations. When acknowledging receipt of an EP case, use the same procedures used when acknowledging receipt of general cases. There are only a few procedures that differ.

  2. Employee plan cases are transmitted to Appeals using Form 3210, Document Transmittal. Once it is determined all items listed on Form 3210 are received, sign the acknowledgment copy of Form 3210 and return it to the originator. Keep a copy of the Form 3210 in the case file.

  3. The technical staff in the appropriate EP Area office or the EP Centralized Review function (relating to determination matters) screen cases transmitted to Appeals to verify completeness of the protest and the case file, and to resolve factual discrepancies between the protest and the employee plan specialist's findings.

  4. For information on statutes for EP cases, see IRM 8.21, Appeals Statute Responsibility.

  5. See Exhibit 8.7.8-4. This exhibit contains due dates of EP and related cases.

8.7.8.3.1.1  (10-26-2007)
APS Card-In of EP Determination Cases

  1. EP determination cases contain an application prepared on Form 4461, Form 6406 or Form 5300 series (5300, 5303, 5306, etc.). Follow normal card-in procedures using the following:

    1. TYPE = EPD

    2. MFT = 74 for Forms 6406 and the 5300 series (MFT = 35 for Form 4461)

    3. SOURCE = EP

    4. KEYPER = Form number with 20 in front of it (For example, the key period for application Form 5300=205300.

    5. Determination cases are not on AIMS and no return information is entered.

8.7.8.3.1.2  (10-26-2007)
APS Card-In of EP Revocation Cases

  1. EP revocations involve revoking (canceling) the plan. Revocation cases can be identified by checking the letter sent to the taxpayer offering the appeal.

  2. To establish an EP revocation case on ACDS, follow normal card-in procedures using the following:

    1. TIN - TIN with P modifier

    2. MFT - return MFT

    3. TYPE - EPR

    4. KEYPER - earliest tax period

      Note:

      On the return information screen in (2) and (3), input the AIMS indicator, tax periods and statute. There is no proposed tax or penalty.

8.7.8.3.1.3  (10-26-2007)
APS Card-In of EP Examination Cases (Taxable Returns)

  1. EP examination cases (taxable returns) have non-taxable reference returns ( Form 5500 for EP) and taxable returns with an RAR for proposed tax/penalty. Establish the taxable returns ( Form 5330, Form 1120, Form 1041, Form 940 , Form 941, etc.) on ACDS following normal card-in procedures, using the following:

    • TYPE = EOE

    • STATDATE = statute of non-taxable return (Form 5500)

  2. Establish the non-taxable returns as a related reference case:

    • TYPE = REF

    • STATDATE = normal or extended statute

  3. The non-taxable reference return controls the statute on the taxable returns.

  4. If present, attach Form 5650, EP Closing Record, to the inside of the administrative folder.

  5. Include the plan number when requesting AIMS prints or transcripts for EP cases.

8.7.8.3.2  (10-26-2007)
Withdrawal of the EP Application

  1. An applicant's request for a determination letter may be withdrawn at any time prior to the issuance of a final adverse determination letter.

  2. If an applicant files an appeal to an adverse determination letter, the determination letter request may be withdrawn at any time prior to forwarding the proposed adverse action to Appeals, however it cannot be withdrawn at the Appeals level. See 26 CFR 601.201(o)(3)(xiii).

8.7.8.3.3  (10-26-2007)
APS Sends New Card-in for Assignment by ATM

  1. After carding-in the case, follow normal procedures for transmitting the case to the ATM for assignment.

  2. The Appeals Team Manager (ATM) of the receiving Appeals office determines whether or not the case belongs in that particular office. If it is determined the case belongs in another office, follow the procedures for transferring cases found in IRM 8.20.6, Interim Actions - Remittances, Partials, Transfer and Returns.

  3. The ATM assigns the case to an AO with specialized knowledge or experience in employee plan issues.

8.7.8.3.4  (10-26-2007)
Preliminary Review of EP Case by Appeals Officer

  1. When the AO receives a new case assignment, he/she does a preliminary review of the information contained in the administrative file. The requirement for an original return does not apply in employee plan determination or termination cases. The following information must be included (as applicable):

    1. Letter from EP Area Manager providing adequate development of primary and alternative issue(s) including facts, law and argument.

    2. Copies of Form 5346, Examination Information Report, or Form 5666, TE/GE Information Report, indicating the date(s) the original(s) were referred to the Chief, Employee Plans Examination Programs and Review (EP-PPR). This includes referral of the following issues: Form 1120 deduction issues, Form 1040 additional income issues, and possible conversion of Form 5500 series to Form 1041 (initial qualification of revocation).

    3. Mandatory written comment concerning the taxpayer's protest.

    4. On all potential declaratory judgment cases, the administrative record and index prepared in accordance with 26 CFR 601.201(o)(8) and any locally developed procedures. Appeals updates the administrative record and the index if a final adverse letter is issued.

    5. Where needed, an explanation concerning the statute of limitations on each tax and information return forwarded to Appeals. When the six-year statute of limitations period under IRC 6501(e) is imposed for failure to adequately disclose a prohibited transaction, the Form 5500 is included in the file. Without Form 5500, it is not possible to determine whether the three (3) year or the six (6) year statute applies.

  2. As part of the preliminary review, the AO determines whether or not the case includes a mandatory technical advice issue.

  3. Within five (5) workdays from receipt of the case, the AO verifies that Letter 4141(cg), Uniform Acknowledgment Letter (UAL), was issued to the taxpayer (and a copy to the power of attorney, if applicable). See IRM 8.2.1 and IRM 1.4.28 for procedures used to verify and document information about the UAL.

  4. When required by the IRS/DOL Agreement, the AO prepares the DOL notification letter normally within 15 workdays of the receipt of the case. See Exhibit 8.7.8-2.

8.7.8.3.5  (10-26-2007)
Technical Advice on EP Cases

  1. Appeals may request technical advice from the Headquarters Office on any technical or procedural question that develops while considering the employee plan case.

  2. Technical advice is required in cases concerning any of the following:

    1. proposed revocation of letters on collectively-bargained plans,

    2. plans where the IRS proposes to issue a revocation letter because of certain fiduciary actions that violate the exclusive benefit rule of IRC 401(a) and are subject to Part 4, subtitle B of Title I of ERISA, Pub. L. No. 93–406, 1974–3 C.B. 43, or

    3. amendments to defined contribution plans pursuant to Rev. Proc. 2004-15, 2004–7 I.R.B. 490, in connection with a waiver of the minimum funding standards and a request for a determination letter. Generally, a case is returned to the TE/GE Area office if technical advice should have been requested but was not.

  3. The employer or sponsor may request the issue be referred to the Headquarters Office for technical advice on the grounds that a lack of uniformity exists on disposition of the issue, or the issue is so unusual or complex it warrants consideration by the Headquarters Office. This request must be made at the earliest possible stage of the proceedings, preferably in writing. See 26 CFR 601.201(n)(9)(iii)(a) and Rev. Proc. 2006-5, Rev. Proc. 2006-1 IRB 174, for the procedures to follow when the organization's request should be denied.

  4. Refer requests for discretionary relief under IRC 7805(b) from the retroactive effect of an adverse action to the Headquarters Office. The procedures in this section generally apply to those requests. Specific guidelines are set forth in Rev. Proc. 2006-4, Rev. Proc. 2006-1 IRB 132.

  5. Use Form 5565, Request for Technical Advice -TE/GE, to request technical advice on all employee plan issues. See 26 CFR 601.201(n)(9)(iii), Rev. Proc. 2006-4, Rev. Proc. 2006-1 IRB 132, Rev. Proc. 2006-5, Rev. Proc. 2006-1 IRB 174, and Rev. Proc. 2006-6, Rev. Proc. 2006-1IRB 204 for procedures to request technical advice. Send requests for technical advice, through the Chief Appeals, ATTN: AP, 1099 14th Street NW, Washington, DC 20005, to the TE/GE Technical Manager, Attn: T:EP:RA. The TE/GE Technical Manager routes the technical advice back through the Chief Appeals.

  6. The conclusions reached in a technical advice memorandum concerning an employee plan's qualified status are final and must be followed by Appeals. On other issues, Appeals follows the conclusion of the technical advice memorandum when it is favorable to the taxpayer. If unfavorable to the taxpayer, Appeals may settle the issues under existing authority.

  7. If the proposed Appeals disposition of a case is contrary to the Headquarters Office technical advice or ruling concerning plan qualification issued before development of the current case, submit the proposed disposition as a request for technical advice through the Appeals Area Director to the TE/GE Division Commissioner. The decision of the TE/GE Division Commissioner must be followed by Appeals. An example of this type of situation is illustrated here.

    Example:

    A plan's qualification under IRC 401(a) is denied in 1998 as a result of the Headquarters Office technical advice. The employee plan reapplies in 2001 with essentially the same facts, and the director proposes to deny plan qualification for the same reasons. Appeals considers the case and proposes to grant qualified status. This proposed disposition must be submitted to the Headquarters Office through the Appeals Area Director as a request for technical advice.

8.7.8.3.6  (10-26-2007)
Responsibilities of Headquarters Analyst with Employee Plan Program

  1. Appeals Tax Policy and Procedure (Exam) has designated an analyst to coordinate employee plan matters.

  2. The responsibilities of the analyst are as follows:

    1. provides guidance to AOs working employee plans and actuarial cases.

    2. keeps the area offices informed of developments and provides field perspective on issues.

    3. if needed, meets with representatives from EP, Area Counsel and Examination to discuss procedural issues of mutual concern.

    4. consults with AOs working unusual employee plans issues.

    5. disseminates procedural and technical material to the area offices.

    6. maintains regular contacts with TE/GE Headquarters Office functions responsible for EP litigation, oversight of EP field operations and issuance of EP technical advice and regulations.

    7. insures issues are settled uniformly around the country.

8.7.8.3.7  (10-26-2007)
AO Procedures for EP Conferences

  1. Follow processing procedures contained in IRM 8.2.1, Pre-90-Day and 90-Day Cases, Agreed Income Tax Cases, and the general guidelines and requirements for conducting conferences and preparing Form 5402, Appeals Transmittal and Appeals Case Memo (ACM), contained in IRM 8.6, Conference and Settlement Practices, unless modified by a specific procedure in this chapter.

  2. Schedule the conference as quickly as possible after considering workload and travel commitments. Hold conferences at a mutually convenient IRS office. Conferences by telephone are permitted when agreeable to both parties and feasible in terms of the complexity of the case. If both parties agree no useful purpose is served by holding a conference, settle the disputed issues in the case based upon the protest and the rest of the administrative record.

  3. When working cases subject to the declaratory judgment provisions of IRC 7476, closely scrutinize any written submissions or representations from the employer or sponsor for statements that do not, in the Service's view, represent the facts accurately or that do not adequately assert conclusions. Ensure such statements do not go into the administrative record without rebuttal and/or qualification. Remember only written communications between the parties are part of the administrative record for declaratory judgment cases. See 26 CFR 601.201(o)(8).

  4. After considering the administrative record, conference discussion, and any technical advice memorandums, prepare an Appeals Case Memo (ACM) to reflect Appeals decision on the issues.

  5. Prepare the appropriate determination letter.

  6. Prepare Form 5402 as a cover sheet for the ACM.

8.7.8.3.8  (10-26-2007)
Department of Labor (DOL) and Pension Benefit Guaranty Corporation (PBGC) Coordination

  1. Some TE/GE matters require coordination with the Department of Labor (DOL) or the Pension Benefit Guaranty Corporation (PBGC). Before discussing Appeals' decision with the taxpayer or signing a closing agreement, determine whether coordination with DOL or PBGC is required. Section 301.6103(l)(2)–3 of the Income Tax Regulations provides rules for disclosure of information to DOL and PBGC.

  2. Coordinate with DOL or PBGC on any case where the case file indicates the other agency also has a case involving the same plan or the same taxpayer.

  3. The following details the IRS/DOL Agreement concerning Appeals consideration of such cases:

    1. Upon receipt of an appeal of any employee benefit plan examination case, the Appeals office sends the appropriate letter chapter to the appropriate DOL Pension and Welfare Benefits Administration (PWBA) office. See Exhibit 8.7.8-3. This exhibit lists the DOL Pension and Welfare Benefits Administration (PWBA) offices.

    2. DOL has 60 calendar days from the date of the Appeals notification to determine whether any action pending in DOL requires further coordination of the case by Appeals. If DOL indicates an action is pending, Appeals suspends final disposition of the case until appropriate coordination activities are completed.

    3. Prior to the earlier of the date the Appeals office receives a response from DOL or 30 days after the date of the Appeals letter to DOL , Appeals takes no final action to settle the case; issue a notice of deficiency with respect to taxpayers under IRC 4971 or IRC 4975 that are not in jeopardy; or proceed with action to revoke the favorable determination or qualification letter of any plan.

    4. If the Appeals office, the Appeals Area Director and the DOL office are unable to reach agreement regarding disposition of the case, forward the matter to the IRS Headquarters Office, Chief Appeals, to coordinate final resolution with the Assistant Administrator for Enforcement, PBA.

  4. If coordination with the PBGC is required contact:

    General Counsel, Pension Benefit Guaranty Corporation
    Suite 240, 1200 K St., N.W.
    Washington, D.C. 20005-4026

    Note:

    Contact can be made by going to their web site at www.pbgc.gov.

    .

8.7.8.3.9  (10-26-2007)
Actuarial Funding and Deduction Issues

  1. Pension plans must comply with minimum funding standards under IRC 412 and contributions to these plans must meet the deduction limits of IRC 404. Guidance on actuarial issues, e.g., analyzing the actuarial funding methods and assumptions of defined benefit plans, is found in IRM 4.72, Employee Plans Technical Guidelines.

  2. Appeals Officers may informally contact an actuary for assistance when actuarial funding or deduction questions arise. Actuaries are under the Director, EP Rulings and Agreements, and are located in TE/GE Headquarters and in each TE/GE Area office. This assistance is not intended to replace existing technical advice or technical information procedures. Views exchanged pursuant to this procedure may not be cited to taxpayers as authority for resolving any specific case.

8.7.8.4  (10-26-2007)
Explanation of the Office of Exempt Organization (EO)

  1. The Office of EO, Rulings and Agreements reviews applications for recognition of exemption from Federal income tax and the Office of EO Examinations conducts examinations of exempt organizations and of returns of some taxable organizations (e.g. Form 5227, Return of Non-exempt Charitable or Split-interest Trust Treated as a Private Foundation under IRC 4947(a), and Form 1120, U.S. Corporation Income Tax Return, when filed by private foundations whose exempt status has been revoked).

  2. EO examiners final decisions may result in proposal of an adverse action, such as -

    • unrelated business income tax.

    • Chapter 41 or Chapter 42 taxes.

    • denial of exempt status.

    • classification as a private foundation.

    • revocation or modification of determination letters concerning exemption or foundation classification.

  3. Appeals is responsible for administrative appeals on cases proposing adverse actions with the exception of adverse actions resulting from a Technical Advice Memorandum issued with respect to an organization's exempt status or foundation classification which do not have administrative appeal rights.

  4. Sources for handling EP cases in Appeals include:

    1. Delegation Orders No. 60 (as revised), No. 66 (as revised), and No. 113 (as revised) which set forth Appeals' authority in exempt organization cases.

  5. If the Office of EO, Rulings and Agreements refers an exemption application or request for foundation status to their Headquarters Office for a ruling, the ruling is final, and the organization may not request Appeals consideration.

  6. Counsel has exclusive jurisdiction over issues docketed under the declaratory judgment provisions of IRC 7428 whether TE/GE, an Appeals office or the Headquarters office issues the final adverse letter being petitioned.

  7. Sections 601.201(n)(5) and (6) of the Statement of Procedural Rules discuss the appeals of adverse exemption and foundation classification issues. Appeal of exempt organization tax issues are covered in section 601.106 of the Statement of Procedural Rules.

  8. Rev. Proc. 2006-4, Rev. Proc. 2006-1 IRB 132, and Rev. Proc. 2006-6, Rev. Proc. 2006-1 IRB 204, detail the general appeal procedures for adverse determination letters and for revocation and modification of rulings and determination letters relating to exemption from Federal income taxes for organizations under IRC 501(a) and IRC 521.

8.7.8.5  (10-26-2007)
Receipt of EO Cases

  1. Procedures for acknowledging receipt of EO cases are the same as those for EP cases with the exception the requirement for an original return does not apply in exempt organization determination cases or in examination cases where the organization is not required to file a return.

    1. IRC 6033(a)(2) explains the types of organizations that do not have to file an annual return.

    2. Under the discretionary authority allowed by IRC section 6033, the IRS has also determined that, for tax years ending on or after December 31, 1982, organizations (other than private foundations) do not need to file if their gross receipts are normally not more than $5,000 per taxable year.

  2. The area or EO Mandatory Review function of the Technical Staff of TE/GE, screens cases for completeness of the protest and case file and for resolution of any factual discrepancies between the protest and the exempt organization specialist's findings.

  3. The Appeals Team Manager (ATM) assigns the case to an Appeals Officer (AO) specialized or experienced in exempt organization issues.

  4. Within five (5) workdays from receipt of the case, the AO verifies Letter 4141(cg), Uniform Acknowledgment Letter (UAL) was issued to the taxpayer (and a copy to the power of attorney, if applicable). See IRM 8.2.1 and IRM 1.4.28 for procedures on verifying and documenting the UAL issued to the taxpayer.

  5. Form 5548, Exempt Organization Record (EACS), or Form 4646, Employee Plans Determination Record (EDS), is used to control determination cases on EP/EO's Application Control System (EACS). When the forms are in the administrative file leave them there in case the staff of the TE/GE office needs them when processing the final determination for the case.

8.7.8.5.1  (10-26-2007)
APS Card-In of EO Determination Cases

  1. EO determination cases contain application forms - Form 1023, Form 1024 or Form 1028. Establish an EO determination case on ACDS using -

    1. TYPE = EOD

    2. MFT = 67 for Forms 1023 and 1024 (MFT = 33 for Form 1028)

    3. Source = EO

    4. KEYPER = Form number with 20 in front of it (For example, the key period for application Form 1023 = 201023)

    5. Determination cases are not on AIMS and no return information is entered.

8.7.8.5.2  (10-26-2007)
APS Card-In of EO Revocation Cases

  1. EO revocations involve revoking (cancelling) the tax exempt status previously granted. The letter sent by TE/GE to the taxpayer offering the appeal indicates if the issue is a revocation.

  2. To establish an EO revocation case on ACDS:

    1. MFT= return MFT

    2. TYPE = EOR

    3. KEYPER = earliest tax period

  3. If present, attach Form 5599, EO Closing Record, to the inside of the administrative folder. Form 5599 is an AIMS document and is used in completing additional EO closing information required on Appeals Form 5403.

8.7.8.5.3  (10-26-2007)
When Organization Can Withdraw an EO Application

  1. An application for recognition of exempt status under IRC 501 or IRC 521 may only be withdrawn prior to the issuance of a ruling or determination letter. Therefore, since an adverse determination letter has been issued prior to receipt in Appeals, an application may not be withdrawn at the Appeals level.

8.7.8.5.4  (10-26-2007)
Considering Organization's Status Under Another Paragraph

  1. Occasionally, an organization qualifies for exemption under a paragraph of IRC 501 other than the one that was applied for and denied. If the application form used is applicable to more than IRC 501 paragraph (e.g., Form 1024), the organization agrees to have its qualification considered under more than one paragraph. If there is sufficient information, make that determination. Otherwise, issue a denial letter and close the case under the appropriate procedures. If the organization wants to reapply for the other status, they must send the appropriate exemption application to the Office of EO, Rulings and Agreements.

  2. In the case of an organization requesting a determination under IRC 501(c)(3), issue a final adverse letter, even though the organization may appear to qualify under another paragraph.

  3. If an organization applies under the paragraph of IRC 509(a) but does not qualify, or applies under the subdivision of IRC 170(b)(1)(A) ((i) through (vi) only) but does qualify, or appears to qualify under another paragraph or subdivision and sufficient information exists to support it, make the determination if the organization submits a written request. The determination letter issued is a final adverse determination letter with respect to the classification applied for, and also recognizes the organization's classification under the appropriate paragraph or subdivision.

8.7.8.5.5  (10-26-2007)
Technical Advice Available on EO Cases

  1. An Appeals office may request technical advice from the Appeals Headquarters office on any technical or procedural question that develops during the processing and consideration of an exempt organization case. See IRM 8.6.3, Appeals Rulings.

  2. An Appeals office must request technical advice if a case concerns qualification for exemption or foundation status and the issues are not covered by published precedent or are handled inconsistently between offices. Generally, this situation only occurs in Appeals when the lack of precedent or uniformity first becomes apparent to the IRS while the case is in Appeals. Otherwise, the TE/GE office should have requested technical advice or referred the case to the Headquarters office for a ruling.

  3. The organization or its representative may request an issue be referred to the Headquarters Office for technical advice on the grounds that a lack of uniformity exists on the disposition of the issue, or the issue is so unusual or complex it warrants consideration by the Headquarters Office. This request must be made at the earliest possible stage of the proceedings, preferably in writing. See 26 CFR 601.201(n)(9)(iv) and Rev. Proc. 2006–5, 2006–1, IRB 174, for procedures to follow when the Appeals Officer believes the organization's request should be denied.

  4. Requests for discretionary relief under IRC 7805(b) from the retroactive effect of an adverse action and requests for extensions of time for making elections under Reg. 1.9100–1 must be referred to the Appeals Headquarters office. The procedures in this section are generally applicable to those requests.

  5. Technical advice requests for all exempt organization matters, except those relating to farmers' cooperatives, are submitted to the TE/GE Division Commissioner through the Chief Appeals, using Form 5565, Request for Technical Advice—TE/GE. The Associate Chief Counsel (Technical) has jurisdiction of exempt (IRC 521) and taxable farmers' cooperatives issues. Submit technical advice requests on these issues using Form 4463, Request for Technical Advice from Associate Chief Counsel (Technical and International), to the Associate Chief Counsel (Domestic) through the Chief Appeals. In all cases, mail an original and one copy to -

    Internal Revenue Service
    Attn: AP
    1099 14th St. N.W.
    Washington, DC 20005

  6. The TE/GE Division Commissioner or the Associate Chief Counsel (Domestic) issues the technical advice through the Chief, Appeals to the appropriate Appeals office. See 26 CFR 601.201(n)(9)(iii) and Rev. Proc. 2006-5, Rev. Proc. 2006-1 , IRB 174 for procedures to use when requesting technical advice.

  7. The conclusions expressed in a technical advice memorandum concerning an organization's exemption and foundation status are final and will be followed by an Appeals office. On other issues, the Appeals office will follow the conclusion of the technical advice memorandum where it is favorable to the taxpayer; if the technical advice is unfavorable to the taxpayer, Appeals settles the issues using existing authority.

  8. If the proposed Appeals disposition on a case is contrary to a Headquarters office technical advice or ruling concerning exemption issued before development of the current case, submit the proposed disposition as a request for technical advice through the Appeals Area Director to the TE/GE Division Commissioner or, in a IRC 521 , to the Associate Chief Counsel (Domestic). The decision of the TE/GE Division, Commissioner, or the Associate Chief Counsel is followed by the Appeals office. An example of this type of situation is illustrated here.

    Example:

    An exemption under IRC 501(c)(3) was denied in 1998 as a result of a TEGE Headquarters Office ruling which stated that an organization's activities were not educational. The organization reapplied in 2001 with essentially similar facts, and TE/GE proposed to deny exemption for the same reason. Appeals has considered the case and proposes to recognize exemption. This proposed disposition must be submitted to the Appeals Headquarters Office through the Appeals Area Director as a request for technical advice.

8.7.8.5.6  (10-26-2007)
AO Conference Procedures for EO Cases

  1. When conducting conferences on issues related to EO cases, follow the same conferencing procedures as shown in the section entitled AO Procedures for EP Conferences. See IRM 8.7.8.3.7.

8.7.8.5.7  (10-26-2007)
Failure to File, IRC Section 6652(c) for EO Cases

  1. Penalties are imposed on exempt organizations and certain trusts for failure to file appropriate returns unless the failure is due to reasonable cause. In some circumstances, the people responsible for failing to comply with the filing requirements may also be subject to a penalty. See IRM 20.1.8, Employee Plans and Exempt Organizations Penalties, for details.

8.7.8.5.8  (10-26-2007)
Processing Cases with Certain Chapter 42 Excise Tax Adjustments

  1. IRC 4941(a) and (b) impose taxes on acts of self-dealing between disqualified persons and a private foundation. IRC 4944(a)(2) and (b)(2) impose taxes on the foundation and foundation managers for investments that jeopardize the carrying out of a private foundation’s exempt purposes. IRC 4945(a)(2) and (b)(2) impose taxes on foundations and foundation managers for the taxable expenditures of a private foundation. IRC 4951(a) and (b) impose taxes on acts of self-dealing between disqualified persons and a black lung benefit trust. IRC 4952(a)(2) and (b)(2) impose taxes on the trust and trustees for taxable expenditures made by a black lung benefit trust. These taxes are referred to as Chapter 42 excise taxes for the rest of this text.

    1. If more than one person or organization is liable for any of these taxes, all are jointly and severally liable for the amount due. Thus, the total liability is assessed against each one individually, although payment of the total amount may be made by any one person or organization or combination of persons or organizations to satisfy the liability for all.

    2. All assessments must remain in effect for the period during which those who paid the tax are entitled to file claims for refund. This practice ensures that the Government is protected if the ones who paid the tax subsequently establish no liability for it and receive a refund. The Government can then collect from the others.

    3. Thus, Appeals procedures for closing these cases with additional liability must be consistent with procedures in Examination Support and Processing, campuses, and collection to ensure that all appropriate assessments and collections are made.

  2. These procedures apply to the Chapter 42 excise taxes asserted against individuals and organizations who are disqualified persons or foundation managers in relation to a private foundation or who are disqualified persons or trustees in relation to a black lung benefit trust. These procedures do not apply to such taxes asserted against a private foundation or a black lung benefit trust.

    1. The Appeals officer will prepare appeals case memoranda (ACM) and will see that the appropriate audit statements are prepared. Generally, a consolidated ACM would be appropriate with the private foundation or black lung benefit trust as the key case and the other parties as related cases.

    2. Assessments of these Chapter 42 taxes are Non-Master File (NMF) and are manually processed. For use as an assessment document, Appeals should provide a separate Form 4881, Chapter 42 Taxes-Disqualified Person/Foundation Manager, for each person or organization for each tax period for which Chapter 42 taxes are being assessed. Form 4881 may already be in the file as prepared by TE/GE. Appeals should review these forms for accuracy and completeness and make any needed corrections or omitted entries. Forms 4881, in conjunction with a Form 5403, Appeals Closing Record, for the private foundation or the black lung benefit trust, are necessary to close the case from Appeals to Examination Support and Processing. The Form 5403 is used only to gather statistics on these cases. These forms must be completed even if advance payment has been made on the liability.

  3. Prepare Form 4881 as follows:

    1. NAME/ADDRESS/ZIP CODE OF TAXPAYER: If available, attach an address label from the temporary TIN account established on AIMS. If no label is available, enter the complete name and address of the person or organization being assessed Chapter 42 taxes. When more than one person or organization is being assessed taxes, complete a separate Form 4881 for each one involved.

    2. FORM NO.: Enter 4720 where the taxes arise from a relationship to a private foundation. Enter 990–BL where the taxes arise from a relationship to a black lung benefit trust.

    3. MFT: Enter 50 where the taxes arise from a relationship to a private foundation. Enter 56 where the taxes arise from a relationship to a black lung benefit trust.

    4. TAX PERIOD: Enter the tax period (in YYMM format) for which Chapter 42 taxes are being assessed. Prepare a separate Form 4881 for each tax period in which Chapter 42 taxes are being assessed.

    5. DOCUMENT LOCATOR NO. This item will be completed by Centralized Services or the campus.

    6. TAXPAYER IDENTIFICATION NO. (TIN): Enter the taxpayer’s Social Security Number or Employer Identification Number, as appropriate. Do not enter the temporary TIN assigned at the terminal when the account was established on AIMS.

    7. ASSESSMENT DATE: This item will be completed by Examination Support and Processing or the service center.

    8. INTEREST COMPUTATION DATE: This item will be completed by Centralized Services.

  4. Enter adjustments on Form 4881 if applicable. Use a separate column for each type of tax being assessed.

    1. IRC SECTION: Enter the appropriate four-digit section number. For self-dealing with a private foundation, enter 4941. For investments of a private foundation which jeopardize charitable purposes, enter 4944. For taxable expenditures of a private foundation, enter 4945. For self-dealing with a black lung benefit trust, enter 4951. For taxable expenditures of a black lung benefit trust, enter 4952.

    2. ABSTRACT CODE: Enter the appropriate three-digit code. For IRC 4941, enter 150. For IRC 4944, enter 152. For IRC 4945, enter 154. For IRC 4951, enter 185. For IRC 4952, enter 186.

    3. INITIAL TAX: Enter the appropriate tax. The amount should not exceed any limit set by the Code section involved.

    4. ADDITIONAL TAX: If applicable, enter the appropriate tax. If no additional tax is to be assessed, leave blank. Any amount should not exceed any limit set by the Code section involved.

    5. TOTAL TAX: This item will be completed as the total of initial and additional tax.

    6. INTEREST: This item will be completed by Examination Support and Processing.

    7. PENALTY TYPE: Enter the applicable type of penalty (6651 or 6684). If no penalty is being imposed, leave blank.

    8. PENALTY AMOUNT: If a penalty is being imposed, enter the amount.

    9. TOTALS: This item will be completed by Examination Support and Processing.

    10. DLN ON AIMS CLOSING FORM: This item will be completed by Examination Support and Processing.

  5. For related private foundation/organization enter the following information:

    1. NAME/ADDRESS/ZIP CODE OF TAXPAYER: Enter the complete name and address of the private foundation/organization or black lung benefit trust to which the person or organization being assessed Chapter 42 taxes is related.