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Part 8. Appeals

Chapter 7. Technical and Procedural Guidelines

Section 13.  e-file Cases

8.7.13  e-file Cases

8.7.13.1  (10-30-2007)
e-fileCases

  1. This IRM section describes the process for working Authorized IRS e-file Provider sanction cases in Appeals. IRS e-file is a process by which tax returns are submitted to the IRS by way of data communications and processed electronically. Filing a tax return through IRS e-file can be accomplished by using an Electronic Return Originator (ERO). An ERO is the first point of contact for most taxpayers in filing a tax return and it is the Authorized IRS e-file Provider that originates the electronic submission of an income tax return to the IRS.

  2. Several sources of information are available to assist you in working e-file sanction cases. IRM 3.42.10.1, Authorized IRS e-file Providers, provides a complete list of publications to be used in working e-file sanction cases. In addition, the following Revenue Procedures and Internal Revenue Manuals will also assist you:

    • Rev. Proc. 2007-40 2007-26 I. R. B. 1488 (June 25, 2007)

    • IRM 3.42.1, Overview of Electronic Tax Administration (ETA) Program, provides a complete overview of the Electronic Tax Administration Program

    • Publication 1345, IRS e-file Handbook for Authorized IRS e-fileProviders of Individual Income Tax Returns

    • Publication 3112, IRS e-file Application and Participation

    • In addition to the above Revenue Procedures and Internal Revenue Manual, there are updates to the IRS e-file program, which are posted to the Electronic Filing System Bulletin Board (EFS Bulletin Board) and the IRS web site at http://www.irs.gov.

  3. There are several court cases that will assist you in working e-file cases. Refer to:

    • Michael v. United States, 36 Fed. Appx. 821,89 AFTR 2d 2002-3066 (6th Cir. 2002)

    • Brenner Income Tax Centers, Inc. v. Director of Practice of the Internal Revenue Service, 87 F.Supp.2d 252, 2000-1, USTC P 50, 308 (S.D.N.Y. 2000)

    • Ekanem v. United States, 98-2 USTC P 50, 257 (D. Md. 1998)

    • Forehand v. United States, 877 F. Supp. 592, 75 AFTR 2d 95-1186 (M.D. Al. 1995)

    • Sabat v. United States, 2000-1 USTC P 50, 328 (W.D .Pa. 2000)

8.7.13.2  (10-30-2007)
The IRSe-file Program

  1. An Authorized IRS e-file Provider is a business authorized by the IRS to participate in IRS e-file. The business may be a:

    • sole proprietorship

    • partnership

    • corporation or

    • organization

    The Provider:

    1. Submits an application

    2. Is accepted or denied participating in IRS e-file

    3. If accepted, is assigned an Electronic Filing Identification Number (EFIN) and

    4. Receives credentials, i.e., an acceptance letter or a security letter that allows continued participation in IRS e-file.

  2. The Internal Revenue Service reviews each firm, organization, Principal, and Responsible Official on the application. Suitability is used by the IRS to determine if the firm or individuals listed on the applications are "suitable" to participate in the IRS e-file program. A suitability check is performed on every application and an applicant can be denied participation in the IRS e-file Program for a variety of reasons. For a complete discussion on suitability, refer to IRM 3.42, Electronic Tax Administration, Publication 3112, and Rev. Proc. 2007-40.

  3. Once the Provider is accepted to participate in e-file, the Provider must adhere to specific requirements in order to continue participation in IRS e-file. The IRS monitors Authorized IRS e-file Providers for compliance with the Revenue Procedures and IRS e-file requirements.

  4. The Internal Revenue Service may sanction an Authorized IRS e-file Provider for violating any provisions of the Revenue Procedure as well as any publications or notices governing IRS e-file Program. Sanctions that the IRS may impose range from a written reprimand to expulsion, depending on the seriousness of the infraction. There are different categories of infractions:

    1. Level One – violations of the rules governing IRS e-file Program that have little or no adverse impact on the quality of electronically filed returns or IRS e-file. A Provider may receive a letter of reprimand for a Level One infraction.

    2. Level Two- violations of the rules governing IRS e-file that have an adverse impact upon the quality of electronically filed returns or on IRS e-file. Depending on the infractions, the IRS may either restrict participation in IRS e-file or suspend the Authorized IRS e-file Provider from participation in IRS e-file for one year and the remainder of the current year.

    3. Level Three – violations of the rules governing IRS e-file that have a significant adverse impact on the quality of electronically filed returns or on IRS e-file. Depending on the infractions, the IRS may suspend the Provider from participation in IRS e-file for two years and the remainder of the current year, or depending on the severity of the infraction, i.e., fraud or criminal conduct, could result in expulsion of the Provider from participating in IRS e-file without the opportunity for future participation.

8.7.13.3  (10-30-2007)
Origin of e-file Cases

  1. Appeals receives cases from the Field Director, Andover Submission Processing Center. All e-file cases in Appeals will be worked at:

    Office of Appeals

    50 Clinton Street, 3rd floor

    Hempstead, NY 11550

  2. Each case received by Appeals from the Andover Submission Processing Director will have the following information in it

    1. Copy of Form 8633, Application for Participation in the IRS e-file program, when available

    2. A copy of the application screen from TPDS which will contain the most current information for the Provider

    3. Copies of the most recent IDRS prints, when applicable

    4. Copy of all correspondence related to that particular sanction or any non-compliance history whether it is related to Form 8453 non-compliance (Tax Year 2006 and prior) or suitability

    5. First appeal suitability recommendation worksheet and appeal rights suitability recommendation worksheet

    6. Any compliance memoranda issued with regard to the Provider (i.e., Criminal Investigation (CI) and Criminal Investigation Branch (CIB) memorandum and documentation)

    7. Copies of all tax returns secured by Andover e-Help

  3. For SB/SE Compliance cases only, include a copy of the SB/SE visitation worksheets and rebuttals.

8.7.13.4  (10-30-2007)
The Administrative Review Process

  1. An applicant and/or participant has a right to an Administrative Review when:

    1. The applicant is denied participation into IRS e-file and files a timely appeal or

    2. The Provider is sanctioned while participating in IRS e-file and files a timely appeal

  2. For a complete lists of IRS e-file Provider letters, refer to IRM 3.42.10, exhibit 13. For a complete list of suitability review letters, refer to IRM 3.42.10, exhibit 12.

8.7.13.4.1  (10-30-2007)
Denial of Participation in IRS e-file Program

  1. All Authorized IRS e-file Providers, except those that function solely as Software Developers, pass a suitability check on the firm as well as on all Principals and Responsible Officials of the firm prior to acceptance in IRS e-file. The IRS reviews each firm or organization, Principal, and Responsible Official listed on the IRS e-fileApplication. An Applicant may be denied participating in IRS e-file for a variety of reasons that include, but are not limited to:

    1. An indictment or conviction of any criminal offense under the laws of the United States or of a state or other political subdivision, or an active IRS criminal investigation

    2. Failure to file timely and accurate Federal, state or local tax returns

    3. Failure to timely pay any Federal, state, or local tax liability

    4. Assessment of penalties

    5. Suspension/disbarment from practice before the IRS or before a state or local tax agency

    6. Disreputable conduct or other facts that may adversely impact IRS e-file

    7. Misrepresentation on an IRS e-file Application

    8. Unethical practices in return preparation

    9. Assessment against the applicant of a penalty under Section 6695(g) of the Internal Revenue Code

    10. Stockpiling returns prior to official acceptance to participate in IRS e-file

    11. Knowingly and directly or indirectly employing or accepting assistance from any firm, organization, or individual denied participating in IRS e-file, or suspended or expelled from participating in IRS e-file. This includes any individual whose actions resulted in the denial, suspension, or expulsion of a firm from IRS e-file

    12. Knowingly and directly or indirectly accepting employment as an associate, correspondent, or as a subagent from, or sharing fees with, any firm, organization, or individual denied participating in IRS e-file, or suspended or expelled from participating in IRS e-file. This includes any individual whose actions resulted in denial, suspension, or expulsion of a firm from IRS e-file

  2. An applicant who is denied participation in IRS e-file has the right to an administrative review. Within 30 calendar days of the date of the denial letter from the Director of Submission Processing, the applicant may mail a written response to the address shown on the denial letter. Upon receipt of the applicant’s written response, the IRS will reconsider the denial of the applicant’s participation in IRS e-file . That denial may either be

    1. Withdrawn and the applicant accepted to participate in IRS e-file; or

    2. Sustained, and a second denial letter, providing the applicant with the right to an appeal to the Office of Appeals.

  3. An applicant who receives a second denial letter from the Director of Submission Processing, is entitled to an Appeal. The Appeal must be mailed to the address shown in the second denial letter within 30 calendar days of the date of the second denial letter. The Provider’s written appeal must contain detailed reasons, with supporting documentation, showing why the recommended sanctioning should not be imposed. Failure to respond within 30 calendar days beginning with the date of either the proposed sanctioning letter or the recommended sanctioning letter described above, terminates an Authorized IRS e-file Provider’s right to an Administrative Review or an Appeal.

8.7.13.4.1.1  (10-30-2007)
Sanctions of Providers

  1. Any Authorized IRS e-file Provider that has been advised of a proposed sanction has the right to an administrative review. If a Provider receives a letter proposing a sanction from the Director of Submission Processing, the Provider may mail a detailed written explanation with supporting documentation as to why the proposed sanction should be withdrawn within 30 calendar days of the date of the letter proposing the sanction. Upon receipt of the Provider’s written response, the Internal Revenue Service will reconsider the proposed sanction and may either withdraw its proposed sanction or affirm it by issuing a recommended sanctioning letter depending on the severity of the infraction.

  2. If a Provider receives a recommended sanction letter affirming the sanctioning, the Provider may appeal to the Office of Appeals at the address on the letter. The appeal must be in writing and mailed to the Internal Revenue Service office that issued the recommended sanctioning letter within 30 calendar days of the date of the letter recommending a sanction.

    Note:

    A sanction is a measure that restricts or revokes the privileges of an Authorized IRS e-file provider from participating in IRS e-file. Sanctioning may be a written reprimand, suspension or expulsion from the IRS e-file Program, depending on the seriousness of the infraction. Sanctions may be appealed through the administrative review process to include an initial review from the office proposing the sanctions and a subsequent review by the Office of Appeals.

  3. The Provider’s written appeal must contain detailed reasons, with supporting documentation, showing why the recommended sanctioning should not be imposed. Failure to respond within 30 calendar days beginning with the date of either the proposed sanctioning letter or the recommended sanctioning letter described above, terminates an Authorized IRS e-file Provider’s right to an administrative review or an appeal.

8.7.13.4.1.1.1  (10-30-2007)
Administrative Review – Non compliant with filing Form 8453

  1. A Provider that is not compliant in submitting Form 8453, U. S. Individual Income Tax Declarations for IRS e-file Program, will be suspended for two years. Providers that are suspended have a right to an administrative review. Letter 2752, Suspension from an e-file Program, requires that the provider file an appeal within 30 days from the date of the letter. The Provider may Appeal, in writing, to the applicable e-Help Office, and then to the Office of Appeals, if applicable. The Provider is required to send:

    1. A written request for appeal, containing detailed explanation; and

    2. Supporting documentation of why the Submission Processing Center suspension should be reversed.

  2. The Submission Processing Center, whose decision for suspension is being appealed, must forward to the Office of Appeals a copy of its complete file on the Provider, including the appeal and attachments, within 15 calendar days of receipt of the request for appeal.

    Note:

    Beginning with the 2008 filing season, tax practitioners can e-fileindividual income tax returns only if the returns are signed electronically with a Self-Select Personal Identification Number (PIN) or a Practitioner PIN. Electronic Return Originators (EROs) will no longer submit a paper signature Form 8453, U. S. Individual Income Tax Declaration for an IRSe-fileReturn. Instead, a newly designed Form 8453 will be used to transmit supporting paper documents that are requested to be submitted to the IRS with e-filed returns.

8.7.13.5  (10-30-2007)
Appeals Processing Service Procedures - Carding in e-file cases

  1. The Appeals Processing Service (APS) provides technical assistance and support for controlling cases in Appeals. The APS case processor and/or tax examiner perform the following duties:

    • Processes receipts

    • Verifies the contents of the administrative file

    • Inputs, controls, and updates corrections for cases on ACDS

    • Issues case letters to taxpayers and/or Powers of Attorney (POA); and

    • Prepares closed office files

  2. Upon receipt of the case in Appeals, APS will card the case in by reviewing the case file for e-file application information, for the name, address, EFIN number(s).

    Note:

    The EFIN number(s) will always be 00 followed by a six-digit number

    Tp Name  
    Tp Address  
    Representative  
    WUNO Note: For each EFIN the taxpayer has, there will be a separate WUNO created
    Type Code DOP
    Source Code FE
    District Office  
    Category Other
    Subcategory DOP
    Appeal Officer  
    Date Assigned  
    Date Received  
    Date Created  
    ReqAppl date  
    Key Period 2099

    Note:

    There will be no return level information entered, i.e., AIMS indicator, tax period, and statute code.

8.7.13.6  (10-30-2007)
Working e-file Cases in Appeals

  1. Ex parte communications - The legislative history of the ex parte provision in RRA-98 indicates that it is intended to apply to communications between Appeals and other IRS employees relating to specific taxpayers or tax determinations. IRS e-file Program does not address either specific taxpayers or tax determinations. Instead, with respect to the Providers, it is akin to determinations as to whether a particular individual's authorization to practice before the IRS should be suspended or revoked for cause.

  2. The transfer of responsibility from the Office of the Professional Responsibility to Appeals for the administrative review of proposed denial of entry into the e-file program or sanctions imposed on current Providers does not change prior advice relating to the application of the ex parte provision. Communications with other IRS employees relating to these cases are not subject to ex parte restrictions.

8.7.13.6.1  (10-30-2007)
Cases referred to Appeals without Criminal Investigation (CI) indicators

  1. Appeals Officers may receive the following types of e-file cases:

    1. Applicants denied from participation in IRS e-file

    2. Providers sanctioned while participating in IRS e-file or

    3. Providers asking for a reconsideration of a prior Appeals’ decision in an e-file case.

  2. The Appeals Team Manager or designee should issue the e-file acknowledgement letter from APGolf. The purpose of the e-file acknowledgement letter is to provide a contact person’s name and phone number and inform the Provider what can be expected from Appeals in the resolution of the case.

  3. The Appeals Officer assigned to work the case will review the case file prior to issuing a conference letter. The conference letter will:

    1. Schedule a telephone, correspondence, or face to face conference

    2. Ask for any additional information, if applicable, with respect to the appeal of the case and

    3. Explain consequences of the Applicant or Provider's failure to respond or participate in the conference

  4. At the conclusion of the conference, the Appeals Officer may prepare a Decision on the Appeal in each case. The Decision may be:

    1. A sustained sanction, including a lesser sanction

    2. A reconsideration of a former Decision made in Appeals or

    3. A Denial of participating in IRS e-file

  5. Each Decision on Appeal should contain:

    1. The Revenue Procedure(s) prescribing the eligibility requirements to participate in the program

    2. The standard of conduct

    3. The scope of authority, circumstances and conditions under which a Provider may participate in IRSe-file to exercise the privilege of electronic filing Federal income tax returns

    4. A brief synopsis explaining the information provided by the Andover e-Help in each case and

    5. Considerations Appeals made in the case

    Note:

    If Appeals makes a decision to overturn a suspension to a reprimand, a Decision on Appeal is not required. A detailed Decision in this case may not be appropriate and a closing letter will suffice.

8.7.13.6.2  (10-30-2007)
Closing Letters and Closing the Case

  1. In each case, the Appeals Officer will document the case activity record on the outcome of the conference, prepare the appropriate closing letter on APGolf, and prepare a copy of the Decision entered on Appeal. e-file cases should be closed using closing code:

    Closing Code Definition
    14 Rejection/Reprimand Sustained
    15 Rejection/Reprimand Not Sustained
    16 Partially Sustained
    20 Premature Referral

  2. Prepare the e-file transmittal document.

    Note:

    e-files are not returned to the Director of Submission Processing, Andover Service Center.

8.7.13.6.3  (10-30-2007)
Premature Referral - Cases with Criminal Investigation (CI) Indicator(s)

  1. An e-file case may be received in Appeals with a CI indicator, a transaction code (TC) 914, 916 or 918. These modules will have a freeze code on the Integrated Data Retrieval System (IDRS).

    Transaction Code Freeze Indicator Definition
    914 -Z Active Criminal Investigation
    916 Z- A specific tax module may be part of a Refund Scheme
    918 Z- Establishes a Refund scheme freeze on all modules

  2. Any cases with a CI indicator will not be worked in Appeals as Appeals does not have jurisdiction over the case. The case will be returned to the Andover e-Help as a Premature Referral. Appeals Officers will:

    1. Review the case file and determine if there is an active CI indicator on the IDRS prints.

    2. Document the case activity record

    3. Use case closing code 20, premature referral

    4. Prepare the appropriate closing letter advising the case is being returned to Andover e-Help; and

    5. Prepare transmittal document

8.7.13.6.4  (10-30-2007)
Premature Referral – Appeal not timely

  1. Occasionally Appeals receives cases where the taxpayer’s appeal was untimely. If the Appeals Officer determines the taxpayer’s appeal is untimely, the Appeals Officer will:

    1. Document the case activity record and

    2. Prepare the appropriate premature referral letter on APGolf

    3. Use case closing code 20, premature referral

    4. Prepare transmittal document

8.7.13.6.5  (10-30-2007)
Premature Referral – Withdrawal of the Request for an Appeal

  1. When a Provider or an Applicant withdraws the request for an Appeal, the Provider's or Applicant's appeal is now moot. If a Provider or an Applicant withdraws the request for an Appeal, the Appeals Officer will:

    1. Document the case activity record and

    2. Prepare the appropriate premature referral letter on APGolf

    3. Use case closing code 20, premature referral

    4. Prepare transmittal document

8.7.13.7  (10-30-2007)
Closing Procedures for APS

  1. The following guidelines are provided for closing e-file cases off of the Appeals Centralized Database System (ACDS). The file must contain the ACDS e-file transmittal document , an APGolf generated letter to the Provider/Applicant, the POA, and in most cases, a Decision document.

    1. Mail the original and one copy of the letter and Decision (if applicable) to the Provider/Applicant and/or power of attorney

    2. If there is no power of attorney, mail the original letter and Decision document to the Applicant/Provider. Place one copy of the letter, Decision document, and the e-file transmittal form in the file

    3. Forward a copy of the Decision to the applicable e-Help Office or the appropriate SB/SE e-file monitoring Coordinator

  2. When closing the case off of ACDS, the employee will select each case to be closed by the WUNO. Update the following fields:

    1. Closing cd--

      Closing Code Definition
      14 Rejection/Reprimand Sustained
      15 Rejection/Reprimand Not Sustained
      16 Partially Sustained
      20 Premature Referral

    2. DATECLSD – Date case is closed must be in the current month

    3. ACAPDATE – The Appeals Team Manager enters the ACAPDATE prior to submitting the case to APS

    4. ACTION – ACKCLS

    5. TODate – Date case is closed

  3. APS is responsible for maintaining the closed office file. The purpose of the office file is to keep all correspondence and documents, relating to each case closed. The closing office file will be maintained in Appeals for the current year plus 3 years from the date of closing. Generally, office files are maintained in alphabetical order. The exterior of the file will include:

    • The Applicant/Provider's name

    • The EFIN number and

    • The date closed

  4. The files must be stored in secured cabinets. Closed e-file office files are purged and destroyed after the file retention period described above.


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