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Part 8. Appeals

Chapter 19. Appeals Pass-Through Entity Handbook

Section 2. Managers/TEFRA Coordinators

8.19.2  Managers/TEFRA Coordinators

8.19.2.1  (02-01-2008)
Purpose

  1. This section provides guidelines for managers and TEFRA coordinators on TEFRA cases.

    1. Use this section of the Handbook to clarify the responsibilities of managers and TEFRA coordinators.

    2. Be alert to problems that may have national implications and bring them to the attention of the Appeals Technical Guidance Coordinator(s) for TEFRA.

  2. TEFRA coordinators serve as the resource persons for managers and all other Appeals employees. They should know and understand the responsibilities for all TEFRA duties within the Appeals office, including the procedures in this section relating only to the manager.

  3. The guidelines in this Handbook are specifically for pass-through entity cases and especially for TEFRA cases. They supplement the general information in other parts of the Appeals IRM.

    Caution:

    Users are cautioned to seek guidance from the Appeals Technical Guidance Coordinator(s) for TEFRA if questions of authority arise.

  4. All guidance in this section concerning the Campus TEFRA Functions (CTFs) is for cases controlled on the Partnership Control System (PCS). The CTFs only work with key cases and investors controlled on the PCS.

8.19.2.2  (12-01-2006)
Jurisdiction of TEFRA Cases

  1. TEFRA cases are worked at the key case level. The Appeals office has jurisdiction over settlement of the partnership issues and the penalties and other affected items.

  2. The investor returns which are not Coordinated Industry Case (CIC) corporations, Joint Committee or corporate specialty cases will remain in the Campus TEFRA Function (CTF). The CTF is responsible for statute control, processing settlements and notices, and making assessments for the PCS-linked investor cases which are not Coordinated Industry Case (CIC) corporations, Joint Committee or corporate specialty cases. The CTF will generally handle questions about computations for PCS-linked investor cases which are not Coordinated Industry Case (CIC) corporations, Joint Committee or corporate specialty cases.

  3. CIC corporation investor cases will be suspended and controlled in the area/territory where the returns were examined unless Appeals has jurisdiction of the return.

    1. The tax computations and assessments are the responsibility of the investor’s area/territory or the Appeals office, whichever has jurisdiction of the CIC investor case.

  4. Joint Committee cases and other corporate specialty investor cases will be handled in the same manner as the CIC corporation investor cases. Other corporate specialty cases are the following:

    1. Forms 1120 with letters after the 1120 other than A, S, or X (e.g., 1120L for Life Insurance companies)

    2. Cases with an Examination activity code of 219 or higher.

8.19.2.3  (02-01-2008)
Penalty and Other Affected Item Issues

  1. Penalties and other affected item issues should generally be considered with the key case. Under the key case concept, the focus at the key Appeals office should be the partnership issues and related penalties and other affected items.

    Caution:

    Prior to the Taxpayer Relief Act of 1997, penalties related to a TEFRA entity were considered at the investor level. Penalties were imposed in a separate deficiency proceeding after the completion of the unified entity proceeding. The Taxpayer Relief Act of 1997 provides that the applicability of any penalty that relates to an adjustment to a partnership item will be determined in the partnership level proceeding. Whether or not penalties are applicable will be determined in the partnership level proceeding for partnership tax years ending after August 5, 1997 (see IRM 8.19.3.9.1).

  2. Penalties (for partnership tax years ending before August 6, 1997) and other affected items (for all tax years) may be considered after the partnership adjustments conclude. The TEFRA program cannot be effectively administered unless the penalty issues and other affected items are considered when the key case is evaluated. In addition, investors should be given an opportunity to settle the penalty and other affected item issues as early as possible. The appeals officer must evaluate all penalty issues and other affected item issues at the partnership level and attempt to resolve them at that time.

  3. If the penalty (for partnership tax years ending before August 6, 1997) or other affected item issues (for all tax years) are unagreed when the partnership proceeding concludes, and a partner protests or petitions the penalty or other affected item issues, Appeals will consider each investor case separately. This eliminates the benefits of a unified proceeding. While some investors will require a separate determination at the investor level, the key appeals officer should always evaluate the overall merits of the penalty or other affected item issues at the partnership level.

  4. For partnership tax years ending after August 5, 1997, if the penalty is unagreed when the partnership proceeding concludes, Appeals will issue a Notice of Final Partnership Administrative Proceeding (FPAA) to address the penalty at the partnership level.

    1. Investors who wish to contest penalties on the basis of partnership level defenses must contest penalties as a part of the partnership proceeding.

    2. Investors who wish to contest penalties on the basis of partner level defenses, such as good faith and reasonable cause, must contest the penalties by filing a refund claim after the penalties are assessed. See IRC 6230(c)(4).

  5. When an appeals officer evaluating penalty issues on a key case (e.g., overvaluation) becomes aware that an IRC 6700 penalty for promoting an abusive tax shelter was asserted, the appeals officer should contact the examiner to advise of the proposed key case penalty settlement, particularly if the proposal is a full concession by the Government.

8.19.2.4  (12-01-2006)
TEFRA Coordinator and Appeals Team Manager Duties

  1. Each appeals area director will appoint a TEFRA coordinator for each area who will review cases for technical and procedural accuracy and serve as a resource person. The TEFRA web site on the Appeals home page of the IRS Intranet has the list of area TEFRA coordinators. The specific duties of each area TEFRA coordinator may vary depending upon the needs of that specific area.

  2. These are the duties and responsibilities of an area TEFRA coordinator.

    1. Understand the statute and the Internal Revenue Manual on TEFRA cases (both key cases and investor returns).

    2. Understand the interrelationship among the local Appeals offices, the CTFs, the SB/SE teams and the LMSB teams in the area, and the movement of key cases and investor returns between these groups.

    3. Understand the TEFRA responsibilities for all TEFRA duties within the local offices in the area, including the procedures relating to the appeals team manager.

    4. Identify and report problems with the TEFRA program to management and/or the Appeals Technical Guidance Coordinator(s) for TEFRA.

    5. Review cases for technical and procedural accuracy.

    6. Serve as an area resource for TEFRA concerns.

    7. Ensure that settlements can be administered by the CTFs.

    8. Train area employees in TEFRA procedures, as needed.

    9. Be up-to-date in TEFRA-related tax law changes and court decisions.

    10. Notify local offices in the area of significant tax law changes for TEFRA cases and significant court decisions.

  3. These are the duties and responsibilities of an appeals team manager

    1. Identify and resolve TEFRA problems.

    2. Assign dollar value and appropriate grade to key case.

    3. Assign new TEFRA workunits to the appropriate appeals officer.

    4. Understand the statute and the Internal Revenue Manual on TEFRA cases (both key cases and investor returns).

    5. Review cases for technical and procedural accuracy.

    6. Ensure TEFRA settlements meet the guidelines for settling cases.

    7. Execute settlement agreement forms.

    8. Sign FPAA letters.

    9. Ensure office files are adequately maintained.

      Note:

      The responsibility for some of these duties can be assigned to the area TEFRA coordinator; however, the responsibility for executing agreement forms and signing FPAA letters cannot be assigned to the area TEFRA coordinator.

8.19.2.5  (12-01-2006)
Case Assignment

  1. Review work units prior to assignment to ensure the case is assigned to the appropriate appeals officer. Because of the procedural difficulties and length of time required to close a TEFRA case, exercise care when assigning TEFRA cases.

8.19.2.5.1  (02-01-2008)
Uniform Acknowledgement Letter

  1. An acknowledgement letter will be sent to the Tax Matters Partner and investors who have filed protests or petitions. The appeals team manager or his/her designee will generate and issue the acknowledgment letter. The acknowledgment letter procedures in IRM 8.2.1.2.3 apply to these cases.

8.19.2.6  (02-01-2008)
Assigning Dollar Value to Key Case

  1. Although TEFRA cases have adjustments, not deficiencies, these cases make up a large part of the Appeals inventory and typically involve large dollar amounts.

  2. Since the investor cases are not available to the Appeals office, use the formula shown in the exhibit to compute the estimated TEFRA " deficiency." See Exhibit 8.19.2-1. Also compute estimated revised dollars at closing using the formula in Exhibit 8.19.2-1. However, at closing use line 2, Form 4605-A prepared by Appeals for line 1 of the formula. Use the highest individual tax rate for joint filers as shown in Exhibit 8.19.2-1 for both proposed and revised dollars regardless of who the specific investors may be.

  3. Depending upon local procedures, either Appeals Processing Services or Tax Computation Specialists will:

    1. Compute the estimated proposed deficiency and enter it on ACDS when the case is assigned.

    2. Compute the estimated revised deficiency.

      Note:

      Revised dollars are entered on ACDS only when the TEFRA key case is closed.

8.19.2.7  (02-01-2008)
Case Grading

  1. The appeals team manager will need to determine the correct grade of each case using the case grading guidelines in IRM 1.4.28.8 and IRM Exhibit 1.4.28-1, IRM 1.4.28-2, and IRM 1.4.28-3 . Generally, grade the cases based upon the complexity of the issues.

  2. Since the key case will include the estimated proposed tax deficiency for all investors, ACDS will automatically record the case at a grade 13 or 14. The appeals team manager must then determine the correct grade and promptly advise the Processing Services section.

8.19.2.8  (02-01-2008)
Statute of Limitations for TEFRA Cases

  1. The statute of limitations must be protected for both key cases and investor cases.

  2. For a complete discussion on the statutory period of limitation, see IRM 8.19.1.6.6.

8.19.2.8.1  (06-09-2008)
Key Case

  1. The statute of limitations for assessment is generally three years from the unextended due date of the partnership return or the date filed, whichever is later.

  2. This statute may be extended by mutual agreement. However, Chief Counsel's office does not recommend allowing a representative to sign any legally significant documents (consents) on behalf of the TMP. It is therefore recommended that all consents be signed by the TMP unless the requirements of Treas. Reg. 301.6229(b)-1 are met for a non-TMP authorized by the partnership. See IRM 8.19.1.6.6.8.1.2, When a Non-TMP Executes Consents.

  3. Copies of consents secured from either a TEFRA entity or an investor in a TEFRA key case (where the one-year TEFRA statute date is being extended) should be faxed to both the Ogden and Brookhaven CTFs. The contact persons and their telephone and fax numbers follow:

    Sending Consents on TEFRA Cases to the Campuses
    Ogden CTF: Brookhaven CTF:
    Susan Ellis Ken McIntyre
    Telephone No: 801-620-2029
    Fax No: 801-620-2322     		Telephone No: 631-654-6155 x5967
    Fax Number: 631-447-4763

    Note:

    A TEFRA key case should not be accepted in Appeals unless there are at least180 days remaining on the statute.

8.19.2.8.2  (02-01-2008)
Investor Case

  1. The statute on the investor's return is controlled by the statute on the TEFRA partnership until the partnership items are resolved. At that time, the investor statute becomes the one-year assessment period provided by IRC 6229(d) or IRC 6229(f).

  2. For a discussion of ACDS guidelines for CIC corporation, Joint Committee, or other corporate specialty investor cases, see IRM 8.19.6.17.1.

  3. Copies of TEFRA investor consents extending a TEFRA statute should be faxed to both CTFs by the appeals officer. See IRM 8.19.2.8.1.

    Note:

    A TEFRA investor case should not be accepted in Appeals unless there are at least 180 days remaining on all one-year assessment dates for the investor if the investor is a CIC corporation, a Joint Committee case or an other corporate specialty case. Examination is responsible for computing and assessing the tax from all TEFRA linkages which have a live one-year assessment date before the case reaches Appeals for CIC corporation, Joint Committee and corporate specialty cases. The appeals team manager has discretion whether to accept an investor case with a live one-year assessment date or to return the case to Examination for computation and assessment of the live one-year assessment date before returning the case to Appeals for consideration of the non-TEFRA issues. See IRM 8.19.6.17 for an explanation of other corporate specialty cases.

8.19.2.9  (12-01-2006)
Procedural Review

  1. Review all cases to identify systemic or procedural problems that need to be considered for corrective action. Make corrections timely at the local level if possible.

  2. Timely apprise the area office and/or Appeals Technical Guidance Coordinator(s) for TEFRA of the facts and circumstances when the situation requires their involvement.

8.19.2.9.1  (12-01-2006)
Review of Settlements

  1. The manager must review and approve all settlements before they are mailed directly to the investors or to the Campus TEFRA Function (CTF) for subsequent mailing to the investors. This is especially important because of the consistent agreement provisions of the unified proceedings. If just one investor agreement is erroneously executed, the Service may be bound to the same settlement for all unagreed investors.

  2. CTF processing is an integral part of any partnership settlement. Therefore, the manager should ensure that processing instructions to the CTF are complete and accurate and that the CTF has the capability to process the settlement.

8.19.2.10  (12-01-2006)
Settlement Methods

  1. Due to the unique statutory requirements of TEFRA, consider certain problem areas when settling partnership and S corporation cases.

    1. Confidential information unique to one investor must not be disclosed to another investor or to the TMP.

    2. Particular care is required when penalty or other affected item issues are being considered.

8.19.2.10.1  (12-01-2006)
Cash Out-of-Pocket Settlements

  1. Cash out-of-pocket settlements based on a partner's cash investment are generally not compatible with the concept of a unified proceeding because of the verification problem. A settlement agreement based on cash would require the verification of the specific dollar amount of cash paid by every partner.

  2. If an investor's cash contribution percentage does not equal his/her profit and loss percentage, a cash out-of-pocket settlement may create consistency problems.

  3. Avoid this problem by offering all investors their pro-rata share of a specific dollar amount for settlement purposes.

8.19.2.10.2  (02-01-2008)
Allocation Agreements

  1. Consider settlements regarding the correct allocation of distributions only if all investors agree to the allocation. The allocation of key case level items of all investors must be fully disclosed on the schedule of adjustments included with all investors’ agreement forms.

    Note:

    Disclose an investors' investor level item adjustments only to the specific investor.

  2. This is a whipsaw issue requiring agreement by all parties. If the reallocation has an effect on basis, reflect the corrected basis amounts on the Form 886-Z(C) (Partners’ or S Corporation Shareholders’ Shares of Income) sent to the CTF for computations.

  3. Refer to IRM 8.19.3.6.4 for more information on allocation issues and IRM Exhibit 8.19.4-19 and IRM 8.19.4-20 for samples of the schedule of adjustments for allocation issues.

8.19.2.10.3  (02-01-2008)
Settlement of Penalty and Other Affected Item Issues

  1. Make every effort to include any proposed penalties or other affected items in the settlement agreement for the partnership items. Offers to settle penalties or other affected items are not covered by the consistent agreement provisions of IRC 6224 except for partnership level determinations of penalties for partnership tax years ending after August 5, 1997. Do not consider penalties or other affected items as part of any split issue or mutual concession settlement.

  2. For purposes of the affected item appeals case memo, discuss settlement positions on penalty issues or other affected items in terms of the average investor. Each investor has a right to appeal unagreed penalty (for partnership tax years ending before August 6, 1997) or other affected item (for all tax years) adjustments once the partnership items are resolved. Thus for all tax years, key cases should include separate workpapers and conference notes for all proposed penalties or other affected items. For more information, see IRM 8.19.3.6.6.1, IRM 8.19.3.7.1, and IRM Exhibit 8.19.3-1 .

  3. For partnership tax years ending before August 6, 1997, penalties are affected items subject to deficiency procedures. For partnership tax years ending after August 5, 1997, penalties are no longer subject to deficiency procedures. However, partners may still appeal penalties for partnership tax years ending after August 5, 1997, by filing a claim within six months after the Secretary mails the notice of computational adjustment. The investor’s penalty case will be a consideration of the aspects of the penalty not determined at the partnership level. For example, an investor may appeal a penalty and present an independent appraisal secured by the investor.

    Note:

    Reasonable cause is determined at the partner level.

  4. When Appeals did not consider a key case (for example, the key case was fully agreed or defaulted for the partnership adjustments at the Examination level) and penalties or other affected item issues have been proposed, and it is anticipated that the penalty or other affected item issues will be protested or petitioned by individual investors, apply the following procedures:

    1. The Compliance function will prepare a copy of all documents and workpapers from the key case pertaining to the penalty issues.

    2. The Compliance function will generally retain the key case file. The Appeals office nearest the Compliance office which examined the key case will be the key case Appeals office for the penalty issues. Local practices will dictate whether the case file is forwarded to the Appeals office for consideration or whether an appeals officer goes to the Compliance office to review the file. The Appeals office will not establish ACDS controls on the case if the appeals officer goes to the Compliance office to review the file. Appeals will establish ACDS controls on the case if the case is forwarded to Appeals for consideration.

    3. The key case Appeals office will evaluate the penalty or other affected item issues and recommend a settlement position relative to the partnership activities. An affected item appeals case memo will be prepared evaluating each penalty or other affected item. See IRM 8.19.3-1 .

    4. Appeals offices receiving individual investor cases with the penalty or other affected item issues will secure a copy of the key case affected item appeals case memo. The appeals officer will consider the recommendation made by the key case appeals officer. If additional facts are presented by the investor in the protest (such as an independent appraisal secured by the investor) they should be considered in evaluating the penalties for that investor. If no additional facts are presented, follow the recommended settlement position.

8.19.2.10.4  (02-01-2008)
Use of Closing Agreements

  1. Avoid closing agreements in settlements on TEFRA key cases whenever possible. On the date they are executed by the Service these agreements convert partnership items to non-partnership items for the future years involved, triggering a one-year assessment period under IRC 6229(f) for those years.

  2. In the event that closing agreements are determined to be necessary on a given case, consider the following provisions:

    1. A closing agreement for a TEFRA partnership is made under the authority of IRC 6224(c) and IRC 7121. Both sections should be cited in the initial paragraph of the closing agreement as follows:


      "Under sections 6224(c) and 7121 of the Internal Revenue Code [Taxpayer’s name, address and taxpayer identification number] (the taxpayer(s)) and the Commissioner of Internal Revenue make the following closing agreement:"

    2. The closing agreement should identify both the partner and the partnership by name, address, and taxpayer identification number.

    3. For all cases – Include waiver language allowing any tax resulting from the changed treatment of the partnership item to be assessed. See Form 870-P(AD) and Form 870-PT(AD) for an example of this language.

    4. For all cases including affected items – Include waiver language which allows any amount resulting from any change to affected items to be assessed. See Form 870-L(AD) and Form 870-LT(AD) for an example of this language. The Taxpayer Relief Act of 1997 changed the procedure for assessing penalties for partnership tax years ending after August 5, 1997. The waiver language in Forms 870-PT(AD) and 870-LT(AD) reflect the new law.

    5. For closing agreements that finalize all partnership level adjustments – Include language to clarify that the minimum one-year assessment period under IRC 6229(f) will not begin to run until the closing agreement is executed for the Commissioner. The following language may be used.

      "This agreement will not become effective or final until this agreement form is returned to the Commissioner of Internal Revenue and is signed on his or her behalf. The minimum one year extension of the period of limitations on assessment under Internal Revenue Code Section 6229(f) will not begin to run until the date the Commissioner’s representative signs this form on the Commissioner’s behalf."

    6. For closing agreements that do not include all partnership level adjustments, (a partial agreement) – Include the following language to show it is a partial agreement:

      "This partial agreement becomes effective upon execution by the Commissioner of Internal Revenue or his delegate. It does not settle all of the partnership items. The remaining unsettled partnership items as well as any unsettled penalty, addition to tax, or additional amount that relates to an adjustment to a partnership item will remain subject to determination under the partnership-level administrative and judicial procedures. The period of limitations for assessing any tax attributable to the settled items shall be determined as if such agreement had not been entered into. To the extent this paragraph conflicts with any other paragraph in this agreement, this paragraph controls."

      Note:

      Penalties are not "partnership items."

      Caution:

      If a closing agreement refers to the reporting of any item in a subsequent year, use a partial agreement format as shown in item f (above). Refer any closing agreement that has terms affecting subsequent years to associate area counsel for review.

      Note:

      If the issues in a partial agreement become complex or involve extraordinarily large amounts, consider using a closing agreement.

      A closing agreement with terms affecting subsequent years is an effective settlement agreement pursuant to IRC 6231(b)(1)(C) which removes that partner and those partnership items immediately from the TEFRA partnership provisions, even before the future year commences at least as to the settled items.

  3. Refer to IRM 8.13.1.2.6 for more information when using closing agreements in TEFRA cases.

8.19.2.11  (02-01-2008)
Processing Considerations

  1. The unified partnership proceedings involve logistics problems in securing and processing settlement agreements for every partner. Even in those situations where the TMP may bind non-notice partners or where a pass-thru partner may bind indirect partners, every partner's return must be controlled by the Campus TEFRA Function in order to make the computational adjustments so that assessments or refunds can be made. This is a cumbersome and time-consuming procedure, particularly where the key case has partnerships as investors.

  2. While the only criteria on which a settlement may be based are the facts, law, and hazards of litigation, the settlement should be structured to simplify its application to the investors' returns to the extent possible.

  3. Settlements that require follow-up action in future years may inadvertently prejudice an examination of the subsequent years. To avoid this situation, the appeals officer should determine whether the later affected years are currently under examination. If so, the appeals officer should discuss the settlement of the current years with the examiner.

  4. If the later years are not under examination, the appeals officer should secure copies of the returns for the affected years and ascertain that the settlement will not prejudice an examination of subsequent years. The appeals officer should also notify Compliance of any follow-up action required as a result of the settlement by using Form 5402.

  5. For tax years ending after July 22, 1998, interest is suspended for a timely filed individual return if the Service fails to provide notice of the liability and the reason for the liability within an 18-month period beginning with the due date of the return (without extensions) or the filing date of the return, whichever is later. See IRC 6404(g). The interest suspension period ends 21 days after notice of the liability is given. For TEFRA partnerships, notice is deemed given to all partners when notice is given to the TMP. The earliest of the following provide IRC 6404(g) notice if the reason for the liability is given:

    1. Form 5701

    2. Summary Report

    3. 60-day Letter

    4. Appeals Settlement Letter

    5. FPAA

      Note:

      Even though notice of the liability is not given to the partner, the partner can compute the liability from the adjustments to the partnership in each of the notices named above.

      Note:

      The appeals officer will note on the Form 5402 for the TEFRA key case the date of the IRC 6404(g) notice and the form of the notice (Form 5701, summary report, 60-day letter, Appeals Settlement Letter or FPAA).

      Caution:

      The appeals officer will note on the Form 5402 in remarks that IRC 6404(g) applies and refer APS to the IRC 6404(g) worksheet attached. See IRM 8.19.6.9(4) for the information needed for the IRC 6404(g) worksheet. If multiple TEFRA partnership linkages will be assessed on a timely filed individual taxpayer with tax year ending after July 22, 1998, an IRC 6404(g) worksheet must be included for each partnership.

  6. For partnership tax years beginning after August 5, 1997, in the case of a partner's settlement under IRC 6224(c), interest is suspended under IRC 6601(c) starting 30 days after the settlement agreement is executed by the Commissioner's delegate and ending with notice and demand. In the case of a CIC corporation, Joint Committee or other corporate specialty case, when the taxpayer enters into a TEFRA settlement, the appeals officer assigned the partner return will secure a computation and assessment of the deficiency as quickly as possible in order to minimize the loss of interest. If the appeals team case leader or appeals team manager deems it necessary to extend the one-year assessment date to avoid the expense of time consuming computations while the investor case is in Appeals for non-TEFRA consideration, the appeals officer will encourage an advance payment of tax. See IRM 8.19.6.9(3).

8.19.2.12  (02-01-2008)
Settlement Agreement Forms

  1. Appeals developed agreement forms to use for the settlement of TEFRA partnership/S corporation cases. In addition, Compliance uses separate agreement forms that do not use the term "settlement." Refer to IRM 8.19.1.6.10 for a listing of forms to be used by Appeals, LMSB and SBSE.

  2. Settlement letters have also been developed. For samples of the letters, see the following exhibits:

    1. IRM Exhibit 8.19.1-24 (Letter 3394)

    2. IRM Exhibit 8.19.1-25 (Letter 3395)

    3. IRM Exhibit 8.19.1-26 (Letter 2344)

    4. IRM Exhibit 8.19.1-27 (Letter 2606)

    5. IRM Exhibit 8.19.1-28 (Letter 2607)

    6. IRM Exhibit 8.19.1-29 (Letter 2608)

    7. IRM Exhibit 8.19.1-30 (Letter 2609)

  3. Forward the agreement forms to the notice investors using one of two methods:

    1. The campus may mail the agreement forms using the Partnership Control System (PCS).

    2. The Appeals office may mail the agreement forms directly.

      Note:

      If the TEFRA key case is not linked on PCS, the Appeals office cannot rely on the campus to mail the agreement forms using PCS. The Appeals office must mail the agreement forms directly to the notice investors.

  4. See IRM 8.19.3.8.4 and IRM 8.19.3.9.3 for a discussion on the recommended option depending upon the circumstances. If using method (3)b, above, be aware that the mailing addresses shown in the case file may not be current. Therefore, the appeals officer should verify them with the TMP before an Appeals office directly mails the agreements.

    Caution:

    Do not disclose to the TMP addresses of investors, spouse’s names or if the investor filed a joint return. Check with your local Disclosure Officer for specific problems.

8.19.2.13  (12-01-2006)
Settlement Authority

  1. Delegation Order No. 4-19 authorizes appropriate officials to sign notices such as FPAAs/FSAAs and settlement agreements. This authority for executing settlement agreements has been extended to appeals officers in the CTFs but not as to their respective cases.

  2. The full authority within Appeals to sign FPAAs/FSAAs and settlement agreements as well as to designate a TMP has been delegated to appeals team managers, and to appeals team case leaders as to their respective cases.

  3. Refer to Delegation Order Number 4-19 for settlement authority for your case.

8.19.2.14  (12-01-2006)
Campus TEFRA Function (CTF) Capabilities and Coordination

  1. The CTFs have the ability to mail computer generated NBAPs, 60-day letters, and FPAAs/FSAAs to the notice investors using the PCS. They also can generate settlement letters for mailing to all investors who have not already settled.

  2. In large project cases, advise the CTFs as early as possible of the support required to process the settlement. Coordination between the CTFs may also be necessary in order to establish specific procedures for a particular project. In order to minimize procedural problems, Appeals offices should always avoid complex settlements that may be difficult to administer.

8.19.2.15  (02-01-2008)
Accepting Agreements

  1. When accepted for the Commissioner, the agreement forms discussed in IRM 8.19.1.6.10 represent final settlements; therefore, exercise extreme care when executing the agreement forms.

  2. Compare the schedule of adjustments with the office copy to ensure that the amounts are correct.

  3. If the settlement is contingent upon all investors accepting it, do not execute any agreements until they are all received.

  4. If the TMP agrees to bind all non-notice partners, the statement shown at IRM Exhibit 8.19.3-4 must be shown on the agreement form.

  5. A pass-thru partner’s agreement binds all indirect partners unless the indirect partner is identified as provided in IRC 6223(c)(3). See IRC 6224(c)(1). No additional statement is needed on the agreement form for the pass-thru partner to bind the indirect partners.

8.19.2.15.1  (12-01-2006)
Sending Agreements to the Campus TEFRA Function (CTF)

  1. CTFs are responsible for statute protection for investor returns except for CIC corporations, Joint Committee, and other corporate specialty investors. Therefore, Appeals offices must carefully adhere to the established procedures for sending agreement forms to the CTFs.

  2. If the signed agreements are received in an Appeals office, batch them every 30 days and send through the area TEFRA coordinator to the appeals team manager/appeals team case leader for execution. Execute the forms within 5 workdays and send to the key case CTF within 5 workdays after execution. All mailing should be done by controlled correspondence.

  3. If the CTF receives the signed agreements, the appeals officer assigned to the CTF will execute the agreement forms. If no appeals officer is assigned to the CTF, the appeals team manager nearest to the CTF will go to the CTF and execute the agreement forms. Appeals settlements will be executed by authorized Appeals employees only.

    Note:

    Due to short time constraints imposed by the Tax Court in Tax Court Rule 248(c), use care in coordinating docketed cases with the CTFs. Consider having the settlement agreements executed only in the Appeals office.

  4. Appeals team managers who go to the CTF to execute agreements will schedule visits in advance with the CTF. Depending upon the volume of agreements received at the CTF, the appeals team manager may wish to ask a case processor or tax computation specialist to assist in the review of the agreement forms.

  5. At the CTF the appeals team manager/appeals officers assigned to the CTF will take the following action:

    1. Compare the schedule of adjustments with the file copy in the administrative file. Check to ensure that the amounts are unaltered.

    2. If the file is marked "docketed case" , contact the key case appeals officer to verify if the agreements should be executed.

    3. Verify that the appropriate signatures are included---if a joint return was filed, both spouses should sign to ensure that the partnership items of both spouses convert. If only one spouse agrees, then the unagreed spouse may or may not still be a party to the TEFRA proceeding, depending on whether that spouse is deemed to own a separate interest. The campus will assess the agreeing spouse through nonmaster file and continue controls on the unagreed spouse who owns a separate interest.

    4. If Form 870-L(AD) or Form 870-LT(AD) are used and taxpayers agree to both partnership and penalty or other affected item adjustments, ensure that both waiver paragraphs are executed.

    5. After executing, the CTF will make the appropriate distribution and enter the one-year assessment date on PCS.

8.19.2.15.2  (02-01-2008)
Distributing Copies of Agreements

  1. Retain a copy of the signed agreement form in the Appeals key case administrative file.

  2. Mail the original agreement form and one copy to the CTF as shown in See IRM 8.19.2.15.1.

  3. The CTF will mail a copy of the agreement to the investor and/or an authorized power of attorney. The CTF mails the agreement to the investor and/or an authorized power of attorney whether the settlement agreement is executed at the CTF or the Appeals office for PCS linked investors. If a key case isn't linked on PCS, the Appeals office is responsible for mailing the investor and/or authorized power of attorney a copy of the executed agreement.

    Caution:

    Treasury Reg. 301.6223(c)-1(e) sets out specific requirements for a power of attorney from a TEFRA entity investor. The power of attorney must state that the representative is authorized to handle partnership items and Form 1065. The authorization may use the following language, "The acts authorized by this power of attorney include representation for the purposes of subchapter C of Chapter 63 of the Internal Revenue Code. " If the partnership items and Form 1065 or the authorization language "the acts authorized by this power of attorney include representation for the purposes of subchapter C of Chapter 63 of the Internal Revenue Code" are not included on the power of attorney, the representative may not be authorized to discuss partnership items, penalties, and other affected item issues.

8.19.2.15.3  (12-01-2006)
Notifying TMP of Settlement

  1. If the key case is linked on PCS, the key case CTF will notify the TMP of settlement agreements for both nondocketed and docketed key cases regardless of whether the settlement agreement is executed in the CTF or the Appeals office. However, the CTF will not provide the Tax Court Rule 248(c) notification. If a key case is not linked on PCS, the Appeals office is responsible for notifying the TMP of all settlement agreements.

  2. For docketed key cases which require Rule 248(c) notification, Appeals and associate area counsel will prepare and mail the Rule 248(c) notification, depending on local procedures. See IRM 8.19.3.14.6 for TMP notification requirements under Tax Court Rule 248(c) with respect to docketed cases.

  3. In the rare instance when Appeals must notify the TMP of a settlement not requiring Rule 248(c) notification (such as for cases not controlled on PCS) follow these guidelines:

    1. Do not give the TMP copies of executed settlement agreements since it may be a disclosure problem to provide the TMP with the new address of an investor, the name of the investor’s spouse, or whether the investor filed a joint return, without a court order.

    2. Provide the TMP a list of the names of the agreed partners and a copy of the schedule of adjustments.

    3. If the settlement agreement is a Form 870-L(AD) or Form 870-LT(AD), notify the TMP by providing a list of the names of the agreed partners and a copy of the schedule of adjustments. Do not disclose if the partner settled the penalty or affected item adjustments. Do not give the TMP a copy of the Form 870-L(AD) or Form 870-LT(AD) because of the potential disclosure problem.

    4. If the appeals officer is responsible for notifying the TMP of a settlement, which is not a Rule 248(c) notification, then the appeals officer is also responsible for mailing the specific partner a copy of his own executed settlement agreement.

8.19.2.16  (02-01-2008)
Office Files

  1. Because of the time span required for the CTFs to make final tax assessments resulting from adjustments to partnership items and affected items, and the likelihood of inquiries regarding settlements from other Appeals offices or the CTFs, office files on TEFRA key cases and affected item cases should be maintained in accordance with IRM 8.19.5.11(7).

    Note:

    These TEFRA key case office files are purged and destroyed 6 years after the end of the fiscal year in which the case is closed or when determined to be no longer needed. This is a longer retention period than the common period used in Processing Services. TEFRA key case office files should be maintained at least 6 years.

Exhibit 8.19.2-1  (06-09-2008)
Formula for Assigning Dollar Value to Key Case for ACDS

Formula*   Tax Year 1994
1. Ordinary Income (Loss) Adjustment (Revenue Agent's Report Form 4605-A, Line 2   $1,000,000
2. Separately Stated Item Adjustments (RAR Form 4605-A, Line 5)**    
Net short term capital gain (loss)   (4,500)
Charitable contributions   12,000
Subtotal   $1,007,500
3. Multiply by highest individual tax rate***   39.6%
4. Result   398,970
5. Add amount of disputed credit
(Proposed adjustment to basis for credit multiplied by rate of credit) 		   
Energy Credit
(Proposed adjustment to basis of Energy Property by 10%: $300,000 X 10%) 		30,000  
Rehabilitation Investment Credit
(Proposed adjustment to the basis of qualified rehabilitated building costs by 10%: $50,000 X 10%) 		5,000  
6. Total Credit   35,000
7. Add (4 and 6) - PROPOSED DOLLARS   $433,970
*COMPUTATION OF REVISED DOLLARS AT TIME OF CASE CLOSING - ACDS ONLY:
To compute the "revised dollars" when the case is closed, the formula is used with the exception that the amounts are taken from the Form 4605-A prepared by Appeals, usually by the tax computation specialist. Do not use the Form 4605-A prepared as part of the Revenue Agents Report.
** The separately stated items that are included in the computation of dollar value are the items that would appear on the Schedule K in the categories of Income (Loss) and Deductions.
***
For tax years 1982-1986 use 50%
For tax year 1987 use 38.5%
For tax years 1988-1990 use 33%
For tax years 1991-1993 use 31%
For tax years 1994-2000 use 39.6%
For tax year 2001 use 39.1%
For tax year 2002 use 38.6%
For tax years 2003-2006 use