Internal Revenue Manual § 4.31.6 - Investor Level Statute Control (ilsc) Pass-through Examinations - Cpf Procedures
4.31.6 Investor Level Statute Control (ILSC) Pass-Through Examinations - CPF Procedures
Manual Transmittal
August 08, 2022
Purpose
(1) This transmits revised IRM 4.31.6, Pass-Through Entity Handbook, Investor Level Statute Control (ILSC) Pass-Through Examinations - CPF Procedures.
Material Changes
(1) IRM 4.31.6.1.1, Background. Added new paragraph regarding S corporations, made updates to (4).
(2) IRM 4.31.6.1.3, Roles and Responsibilities. Updated (5) to add Appeals Technical Advisors.
(3) IRM 4.31.6.1.6, Terms/Definitions/Acronyms, added and updated definitions.
(4) IRM 4.31.6.1.7.1, Contact with Potentially Dangerous Taxpayers (PDT) or Caution Upon Contact (CAU) Taxpayers. Moved from IRM 4.31.6.2.2.1.
(5) IRM 4.31.6.2, ILSC CPF Linkage. New section.
(6) IRM 4.31.6.2.1, ILSC Package Received. New section.
(7) IRM 4.31.6.2.1.1, Package Review. New section.
(8) IRM 4.31.6.2.1.2, Verification of BBA Election Out (BEO). New section.
(9) IRM 4.31.6.2.1.3, Schedule K-1 Investor Verification. New section.
(10) IRM 4.31.6.2.1.3.1, Non-Filer Identification. New section.
(11) IRM 4.31.6.2.1.3.2, Identification of Identity Theft Returns. New section.
(12) IRM 4.31.6.2.1.3.3, Determine Type of Trust Investors. New section.
(13) IRM 4.31.6.2.1.3.4, Parent/Sub. New section.
(14) IRM 4.31.6.2.1.3.5, Spousal SSN. New section.
(15) IRM 4.31.6.2.1.3.6, Parent/Minor. New section.
(16) IRM 4.31.6.2.1.3.7, TE/GE Investors. Moved from IRM 4.31.6.2.2.3. Added paragraphs 1 through 4.
(17) IRM 4.31.6.2.1.4, Statute Verification. New section.
(18) IRM 4.31.6.2.1.5, Build Out. New section.
(19) IRM 4.31.6.2.1.5.1, Check Materiality. New section.
(20) IRM 4.31.6.2.1.5.2, Intent Not to Pursue Investor - Statute Protection. New section.
(21) IRM 4.31.6.2.1.6, Identification of BBA Elect Out (BEO) Tiers. New section.
(22) IRM 4.31.6.2.2, Linkage. New section.
(23) IRM 4.31.6.2.2.1, Linking ILSC Investor. New section.
(24) IRM 4.31.6.2.2.2, Notification of Beginning of Pass-through Examinations. New section.
(25) IRM 4.31.6.2.2.3, AIMS Reject Reports. New section.
(26) IRM 4.31.6.2.2.4, Non-Filer Procedures. New section.
(27) IRM 4.31.6.2.2.5, Investor Returns Controlled Outside the Campus Pass-through Function (CPF). Moved from IRM 4.31.6.2.9.1 and updated.
(28) IRM 4.31.6.2.2.6, Form 5546, Examination Return Charge-Out. Moved from IRM 4.31.6.2.3 and updated.
(29) IRM 4.31.6.2.3, CPF Employee Group Codes. Moved from IRM 4.31.6.2.2.2 and updated to add new references regarding tiers.
(30) IRM 4.31.6.2.4, Case Building. New section.
(31) IRM 4.31.6.2.4.1, Key Case Administrative File. New section.
(32) IRM 4.31.6.2.4.2, Matching the Investor’s Schedule K-1 to the Investor’s Return. Moved from IRM 4.31.6.2.8, Verification of Schedule K-1 Income-Loss, and updated.
(33) IRM 4.31.6.2.4.2.1, Taxpayer Contact. New section.
(34) IRM 4.31.6.2.4.2.2, Communicating with Divorced/Separated Taxpayers. New section.
(35) IRM 4.31.6.2.4.3, Non-Pass-Through Issues on Investor Cases. New section.
(36) IRM 4.31.6.2.4.4, Investor Returns Controlled Outside CPF. New section.
(37) IRM 4.31.6.2.4.5, BBA Elect Out (BEO) Tiers. New section.
(38) IRM 4.31.6.2.4.5.1, ILSC Tier File Set Up. New section.
(39) IRM 4.31.6.2.4.5.2, ILSC Tier Information Request. New section.
(40) IRM 4.31.6.2.4.5.3, ILSC Tier Screening. New section.
(41) IRM 4.31.6.2.4.6, Review Adjustment Documents. New section.
(42) IRM 4.31.6.2.4.6.1, Secure Amended Returns. New section.
(43) IRM 4.31.6.2.4.7, Secure Investor Returns. New section.
(44) IRM 4.31.6.2.4.8, Securing Carryback / Carryover Returns. New section.
(45) IRM 4.31.6.2.4.9, Investor Return with ILCS and BBA Chapter 2/2A Linkages. New section.
(46) IRM 4.31.6.2.4.10, Returns with ILSC and TEFRA Linkages. New section.
(47) IRM 4.31.6.3, Power of Attorney. New section.
(48) IRM 4.31.6.4, Transferring Cases. New section.
(49) IRM 4.31.6.4.1, Transferring Cases into the CPF (EGC 5417). New section.
(50) IRM 4.31.6.4.2, Transferring Cases out of the CPF. New section.
(51) IRM 4.31.6.5, ILSC Investor Suspense. Moved from IRM 4.31.6.2.13, Related Return Suspense Files, and updated.
(52) IRM 4.31.6.5.1, Statute Control. Moved from IRM 4.31.6.2.11, Statute Control, and updated.
(53) IRM 4.31.6.5.1.1, Substantial Understatement of Income, Six-Year Statute. Moved from IRM 4.31.6.2.11.1.
(54) IRM 4.31.6.5.1.2, Alpha Code Statutes. New section.
(55) IRM 4.31.6.5.1.2.1, Non-Filer Statute Procedures. New section.
(56) IRM 4.31.6.5.1.3, Pass-through Entity Extensions. Moved from IRM 4.31.6.2.12.2, Entity Extensions.
(57) IRM 4.31.6.5.1.4, Investor Level Statute Extensions. Moved from IRM 4.31.6.2.12, Extension of Investor Statute, an updated.
(58) IRM 4.31.6.5.1.4.1, Splitting Accounts. New section.
(59) IRM 4.31.6.5.1.4.2, Restricted Consents. Moved from IRM 4.31.6.2.12.1 and updated.
(60) IRM 4.31.6.5.1.4.3, Proceed to Statutory Notice. New section.
(61) IRM 4.31.6.5.2, Technical Assistant Requests (TAR). New section.
(62) IRM 4.31.6.5.3, Receipt of Amended Returns and Claims. Moved from IRM 4.31.6.2.15 and updated.
(63) IRM 4.31.6.5.4, Appeals Suspense. New section.
(64) IRM 4.31.6.6, Review of Key Case Report Packages. New section.
(65) IRM 4.31.6.6.1, Type of Packages. New section.
(66) IRM 4.31.6.6.1.1, No Change. New section.
(67) IRM 4.31.6.6.1.2, Agreed. New section.
(68) IRM 4.31.6.6.1.3, Unagreed without a protesting Investor. New section.
(69) IRM 4.31.6.6.1.4, Unagreed and being forwarded to Appeals with a protesting investor controlled by the group. New section.
(70) IRM 4.31.6.6.1.5, Appeals Closure. New section.
(71) IRM 4.31.6.6.1.6, S Corporation Key Tier. New section.
(72) IRM 4.31.6.6.1.7, H Freeze Release. New section.
(73) IRM 4.31.6.6.2, Key Case Report Package Procedures. New section.
(74) IRM 4.31.6.6.2.1, Outside Taxable Investors. New section.
(75) IRM 4.31.6.7, Key Case Suspense. New section.
(76) IRM 4.31.6.8, Monitoring Key Case Report Package. New section.
(77) IRM 4.31.6.9, ILSC Tier Report Writing. New section.
(78) IRM 4.31.6.9.1, Tier Also a Key Case. New section.
(79) IRM 4.31.6.9.2, Writing the Tier Report. New section.
(80) IRM 4.31.6.9.3, Tier Report Written - Prepare Investors. New section.
(81) IRM 4.31.6.9.4, Post Tier Report Writing. New section.
(82) IRM 4.31.6.9.4.1, Tier Full Closure. New section.
(83) IRM 4.31.6.9.4.1.1, Tier Partial Closure. New section.
(84) IRM 4.31.6.9.4.2, Protesting Tier Investor. New section.
(85) IRM 4.31.6.10, ILSC Report Writing. New section.
(86) IRM 4.31.6.10.1, Introduction - Procedures for Processing Written Reports. New section.
(87) IRM 4.31.6.10.2, ILSC Report Writing Assessment Cases. Moved from IRM 4.31.6.3.2.
(88) IRM 4.31.6.10.3, ILSC Report Writing Refund Cases. Moved from IRM 4.31.6.3.3.
(89) IRM 4.31.6.10.4, Case File Requirements. New section.
(90) IRM 4.31.6.10.4.1, Penalty Considerations. New section.
(91) IRM 4.31.6.10.4.2, Referring Complex Issue to the Field. Moved from IRM 4.31.6.3.4.3.
(92) IRM 4.31.6.10.5, Investor Report Writing Procedures. Moved from IRM 4.31.6.3.5, Report Writing Procedures.
(93) IRM 4.31.6.10.6, Preparation of Examination Report. Moved from IRM 4.31.6.3.6. Added to paragraph (1) to explain additional report may be needed for POAs, and reports should reflect each adjustment and the EIN of the pass-through entity from which the adjustment came.
(94) IRM 4.31.6.10.6.1, Special Computation for Non-Oversheltered Returns (Munro Decision). Moved from IRM 4.31.6.3.6.1.
(95) IRM 4.31.6.10.6.2, Special Computations for Non-Filers. Moved from IRM 4.31.6.3.6.2. Added a new paragraph (1) to address SFR procedures.
(96) IRM 4.31.6.10.6.3, IRC Section 6404(g), Suspension of Interest and Certain Penalties. Moved from IRM 4.31.6.3.6.3. Removed Note in (4).
(97) IRM 4.31.6.10.6.4, Completion of Workpapers. Moved from IRM 4.31.6.3.6.4.
(98) IRM 4.31.6.10.6.4.1, Report Generation System (RGS). Moved from IRM 4.31.6.3.6.4.1. Added clarification to paragraph (4) regarding non-NRP cases.
(99) IRM 4.31.6.10.6.5, Passive Activity Losses (PAL). Moved from IRM 4.31.6.3.6.5.
(100) IRM 4.31.6.10.6.6, Carryover/Carryback Adjustments. Moved from IRM 4.31.6.3.6.6.
(101) IRM 4.31.6.10.6.7, Carryforward Adjustments. Moved from IRM 4.31.6.3.6.7. Made clarifying changes.
(102) IRM 4.31.6.10.6.8, Qualified Business Income Deduction (QBID). New section incorporates IGM.
(103) IRM 4.31.6.10.7, 30-Day Letter Procedures. Moved from IRM 4.31.6.3.7. Added paragraph (4) to address the timing of notices of deficiency.
(104) IRM 4.31.6.10.7.1, Agreement Received. Moved from IRM 4.31.6.3.7.1. Updated paragraph (1) for when payment is received without a signed report. Added note after (1)(b).
(105) IRM 4.31.6.10.7.2, Acceptance of Faxed Agreements. Moved from IRM 4.31.6.3.7.2. Updated to reflect current policy.
(106) IRM 4.31.6.10.7.3, Request for Appeals. Moved from IRM 4.31.6.3.7.3. Added clarification to address ILSC tiers.
(107) IRM 4.31.6.10.7.3.1, Protest Rebuttal. Moved from IRM 4.31.6.3.7.3.1. Added new paragraphs to instruct what to do if rebuttal not received and timeframes transfer to Appeals.
(108) IRM 4.31.6.10.7.3.2, CPF Appeals Suspense. New section.
(109) IRM 4.31.6.10.8, Statutory Notice of Deficiency. Moved from IRM 4.31.6.3.8. Updated the note after (1) and added a note after (2). Added instructions if there is BBA Chapter 2/2A linkages.
(110) IRM 4.31.6.10.8.1, Petition Filed. Moved from IRM 4.31.6.3.8.1. Updated this section.
(111) IRM 4.31.6.10.8.2, No Response. Moved from IRM 4.31.6.3.8.2.
(112) IRM 4.31.6.10.9, No Changes. New section.
(113) IRM 4.31.6.11, Investor Closing Procedures. Moved from IRM 4.31.6.4, Form 5344, Closing Procedures and retitled.
(114) IRM 4.31.6.11.1, Proper Completion of Form 5344. Moved from IRM 4.31.6.4.1. Updated throughout.
(115) IRM 4.31.6.11.2, Case File Assembly. Moved from IRM 4.31.6.4.1.1. Updated this section with instructions for paperless closings and electronic case files.
(116) IRM 4.31.6.11.3, Partial Closures. New section.
(117) IRM 4.31.6.11.4, Closing Employee Returns. New section.
(118) IRM 4.31.6.12, Key Case Closing Procedures. New section.
(119) IRM 4.31.6.12.1, Check Form 5344. New section.
(120) IRM 4.31.6.13, Reports and Accomplishments. Moved from IRM 4.31.6.4.2.
(121) IRM 4.31.6.13.1, Reports. Moved from IRM 4.31.6.4.2.1 and updated.
(122) IRM 4.31.6.13.2, Accomplishments and Inventory. Moved from IRM 4.31.6.4.2.2. Removed Paragraph (1)(b)
(123) Various editorial changes made throughout the IRM.
Effect on Other Documents
IRM 4.31.6, Pass-Through Entity Handbook, Investor Level Statute Control (ILSC) Pass-Through Examinations - CPF Procedures, dated 4-5-2019 is superseded.
Audience
Campus personnel working the investors in pass-through entities, S corporations, partnerships that have a valid election out of the centralized partnership audit regime or are not subject to TEFRA.
Effective Date
(08-08-2022)
Lori Caskey,
Director, Examination - Field and Campus Policy
Small Business/Self-Employed Division (SB/SE)
4.31.6.1 (04-05-2019)
Program Scope and Objectives
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This Internal Revenue Manual (IRM) section provides guidance on Campus Pass-through Function procedures related to field examinations of S corporations, partnerships that elect out of the Bipartisan Budget Act of 2015 (BBA) and partnerships not subject to provisions of the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982.
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Purpose: This handbook describes:
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Screening incoming mail;
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Campus key case procedures;
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Campus investor procedures;
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Key case report package procedures;
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Releasing an H freeze;
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Partial agreements;
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Protecting and monitoring investor statutes;
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Undeliverable correspondence;
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Report writing procedures; and
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Key case administrative file suspense.
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Audience: Campus examination Revenue Agents (RAs) and campus RAs, Tax Compliance Officers (TCOs), Tax Examiners (TEs) and Clerks working pass-through entities and/or their investors linked on the Pass-Through Control System (PCS).
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Policy Owner: Director, Small Business/ Self Employed (SB/SE), Headquarters Examination, Field and Campus Policy (SE:S:E:HQ:EFCP).
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Program Owner: Program Manager, Campus Examination and Field Support (SE:S:E:HQ:EFCP:CEFS).
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Primary Stakeholders: SB/SE, Large Business and International (LB&I), and Appeals.
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Program Goals: Establish an electronic linkage between the pass-through entities being examined and their underlying investors in order to generate notices required by statute, monitor and control statutes, and gather closing information.
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Contact Information: To recommend changes or make any other suggestions related to this IRM section, see IRM 1.11.6.5, Providing Feedback About an IRM Section - Outside of Clearance.
4.31.6.1.1 (08-08-2022)
Background
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Election of Subchapter S status allows a business the advantages of the corporate structure of organization without being subject to the potential tax disadvantages of C corporations. Examples of the advantages include: exclusion from double taxation on distributions and the ability for the shareholder to use corporate losses. IRC 1361(a)(1) defines an “S corporation”, with respect to any taxable year, as a small business corporation for which an election under IRC 1362(a) is in effect.
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TEFRA was passed in 1982 to allow examinations and statutes to be controlled at the partnership level. TEFRA was replaced by BBA for tax years beginning January 1, 2018. Certain small partnerships and S corporations are not subject to TEFRA. The period to assess investors of entities not subject to TEFRA or BBA is determined at the investor level.
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BBA applies to all partnerships for tax years beginning on or after January 1, 2018, but allows some eligible partnerships to elect out. Qualifying partnerships that elect out of BBA require investor level statute control. Partnership returns beginning after November 2, 2015 and before January 1, 2018 may elect into BBA. BBA does not impact S corporation entity examinations.
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There are four possible partnership regimes:
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BBA for partnerships whose tax year begins after December 31, 2017 or made a valid early election into BBA for years beginning after November 2, 2015 and before January 1, 2018.
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Partnerships that make a valid election out of BBA for tax years beginning after December 31, 2017.
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TEFRA for partnerships whose tax year begins prior to January 1, 2018 and which did not make an early election into BBA.
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NonTEFRA for those partnerships whose tax year begins prior to January 1, 2018 that are not statutorily TEFRA, did not elect into TEFRA .
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The Pass-Through Control System (PCS) was created to establish an electronic linkage between the pass-through entities and their underlying investors. This helps ensure that all investors are issued notices and adjusted in a timely manner. PCS linkage allows all Business Operation Divisions (BODs) to recognize when a taxpayer is subject to a pass-through examination. If an examiner chooses not to control the investors, it allows the campus to work those investors so the examiner can focus on pass-through examinations. PCS also allows the campus to systemically generate notices, control statutes, and gather closing information.
4.31.6.1.2 (04-05-2019)
Authority
- Investor level statute control (ILSC) policies and procedures were established in the campuses in response to the partnership provisions of TEFRA. Similar policies will continue to be needed for S corporations and partnerships that elect out of BBA.
4.31.6.1.3 (04-05-2019)
Roles and Responsibilities
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The Director, SB/SE, Headquarters Examination, Field and Campus Policy, Campus Exam and Field Support (SE:S:E:HQ:EFCP) is responsible for:
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Coordinating and implementing linked pass-through policy changes;
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Coordinating resolutions for linked pass-through related problems; and
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Updating this Handbook.
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The SB/SE, Program Manager, Examination Field and Campus Policy, Campus Exam & Field Support (SE:S:E:HQ:EFCP:CEFS) is responsible for:
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Ensuring that linked pass-through procedural changes and computer program changes are implemented and coordinated with area office and campus examination personnel; and
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Monitoring and evaluating area office and campus examination PCS quality control procedures.
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Field Territory Managers, Field Area Directors, Director over LB&I Ogden and Director, Examination - Brookhaven, are responsible for ensuring that linked pass-through policies and procedures are followed.
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Field Examination Managers and Campus Field Support Operations managers are responsible for:
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Maintaining an updated copy of IRM 4.29, Pass-Through Control System, in their respective functions;
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Ensuring the training of technical and clerical employees in linked pass-through procedures; and
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Establishing PCS records and acting on PCS reports in a timely manner to assure an accurate PCS database.
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The ILSC Coordinator works with:
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The other campus pass-through coordinator(s), Technical Services Pass-through Coordinators (TSPCs) and the Appeals TEFRA/BBA Team
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CPF employees and management
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Other campus functional areas to ensure timely processing of ILSC related returns
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The campus PCS Coordinator is charged with:
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Identifying and resolving technical problems
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Identifying and coordinating the resolution of PCS systemic problems
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Following are specific ILSC Coordinator responsibilities:
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Coordinate with campus and field pass-through coordinators on case processing issues;
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Coordinate with Headquarters on any legal issues that need to be addressed by Chief Counsel;
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Review key case linkage and report packages for completeness;
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Provide technical support to CPF employees.
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4.31.6.1.4 (04-05-2019)
Program Management and Review
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Program Reports: Each year a closure goal is established for the campus.
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Program Effectiveness: The closure goal is monitored monthly to ensure the objectives are met. The closure goal is monitored monthly to ensure the objectives are met and investor return closures are evaluated throughout the year and the goal is adjusted as needed.
4.31.6.1.5 (04-05-2019)
Program Controls
- The number of statute dates are monitored to estimate if the closure goal is attainable, or if it needs to be adjusted.
4.31.6.1.6 (08-08-2022)
Terms/Definitions/Acronyms
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There are several unique terms and acronyms used throughout this IRM:
Term Definition Affected Item Any item of a partner’s return that requires adjustment as a result of a TEFRA adjustment made to a partnership item. There are two types of affected items: computational and factual. Factual affected items are those that require a determination at the partner level. AIMS Audit Information Management System (AIMS) provides inventory and activity controls of active Examination cases. It uses linkage to Integrated Data Retrieval System (IDRS) to input status changes, adjustments, and case closing actions. BBA Bipartisan Budget Act of 2015 (BBA). Partnership taxable years beginning on or after January 1, 2018 are subject to BBA unless the partnership meets specific criteria, at which point the partnership may elect out. BEO BBA Elect Out (BEO). Partnership returns that elect out of BBA for partnership taxable years beginning on or after January 1, 2018. Build Out This is a diagram of the pass-through entity structure that show the investor names and TIN and how they should be linked on PCS. ILSC Coordinator Campus Pass-through Function (CPF) employee who acts as a liaison between the CPF and the field offices, Appeals and counsel for Investor level statute control (ILSC) cases. They also provide technical support for the CPF. Case File Return information that may be paper or electronic. Electronic files are upload and stored on RGS. CC Command Code (CC) Centralized Case Processing (CCP) This function processes assessments and abatements and closes or transfers cases from the area to the campus or to files. CPF (Formally CTF) Campus Pass-through Function (CPF) - The CPF is the suspense unit for investor returns located in the Brookhaven campus and Ogden Pass-Through Entities (PTE). The two CPFs will be maintained to obtain and control, through the AIMS and Pass-Through Control System (PCS), any partner, shareholder or investor returns related to key cases within their jurisdiction. For details see IRM 4.31.3 and IRM 4.31.6. EIN Employer Identification Number. (EIN) EUP The Employee User Portal (EUP) is a Web hosting infrastructure. It supports an Intranet portal that allows IRS employees to access business applications and data \
APPROVAL" .
- Be aware that packages from Appeals may state they are no changes, but in reality may be upholding the examination adjustments. While Appeals did not make a change to the adjustments, there are still adjustments to be processed.
4.31.6.6.1.2 (08-08-2022)
Agreed
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An agreed package is where the entity has indicated they agree with the adjustments the examiner proposed by signing Form 4605, Examination Changes - Partnerships, Fiduciaries, S Corps., & Interest Charge Domestic International Sales Corporations. The signature on Form 4605 does not bind any of the investors. Each investor must agree to the entity level findings by signing their individual Form 4549 , Report of Income Tax Examination Changes, which incorporates the pass-through entity’s adjustments..
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The entity return will not be sent to the CPF for suspense as the investors almost always agree when the key case indicates approval to the adjustments. The key case will be closed by CCP. The entity return will need to be secured if any of the investors protest.
4.31.6.6.1.3 (08-08-2022)
Unagreed without a protesting Investor
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The entity has not agreed and it is expected that one or more investors will not agree. The key case is sent to the campus for suspense. Sometimes the key case will include an entity level protest and rebuttal. The key case is not sent to Appeals until there is at least one protesting investor.
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Taxable S corporations may be sent directly to Appeals when the entity protests the taxable entity adjustments. This is not to be confused with normal pass-through adjustments which may only be protested by shareholders. If a taxable S corporation is received in the CPF, the CPF should verify that a partial assessment was made for the entity level tax before putting the return in suspense.
Note:
Remember a taxable S corporation has its own statute. The S corporation statute must be protected until the tax liability resulting from the S corporation’s activities is assessed. Once it is assessed, the statute may be updated to "GG" .
4.31.6.6.1.4 (08-08-2022)
Unagreed and being forwarded to Appeals with a protesting investor controlled by the group
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The entity has not agreed and one of the investors controlled in the field has protested. Technical Services will send the entity and the protesting field controlled investor to Appeals.
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Technical Services will submit a key case report package, Form 14729, Investor Level Statute Control (ILSC) Key Case Report Package Check Sheet, to the CPF so they can address preparing reports on the remaining investors.
4.31.6.6.1.5 (08-08-2022)
Appeals Closure
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A Form 4605 and Form 886-S/X will not be completed by Appeals if the case is no changed. This means appeals did not uphold any of the field’s proposed adjustments.
Note:
Review the Form 5402 to ensure that there is no change in tax. "No change" can be interpreted by some to mean the adjustments the field proposed are not changing. When field adjustments remain, the Form 4605 and Form 886-S/X must be included.
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On occasion Appeals will request that SNODs be issued to all investors so they can petition the courts. Appeals should note this request in the Comments section of the Form 14729. These should be sent to all investors even if they had not previously been issued a 30-day letter. The letters should be issued to the investors within 30 days.
4.31.6.6.1.6 (08-08-2022)
S Corporation Key Tier
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Partnerships electing out of BBA may have an S corporation as a partner. An S corporation may be subject to its own examination.
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When the examined S corporation is a tier in a BEO partnership the partnership adjustments should be included in the S corporation report prior to sending reports to the S corporation indirect partners.
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When the partnership and the S corporation close together, which will generally happen when they have the same examiner, the CPF will receive a Form 14729 for each entity. The ILSC Coordinator must ensure the partnership adjustments are included on the Form 4605 for the S corporation. If they are not included or both entities are not closing at the same time, contact should be made with the TSPC or examining agent to determine if a new report for the S corporation needs to be prepared. The entities will be closed or transferred to the CPF based on the following criteria:
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If both the partnership and S corporation are agreed or a no change, the entities can be full closed. Input Form 8339 to resolve the S corporation linkage to the partnership and mark the TSCLS box on the Form 5344.
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If both are unagreed, transfer the entities to the CPF.
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If the partnership is agreed or a no change and the S corporation is unagreed, full close the partnership and transfer the S corporation to the CPF as an unagreed key case. The S corporation linkage to the partnership will remain open until the S corporation audit is concluded. Associate a copy of the partnership key case report package to the S corporation key case admin file. The partnership adjustment will be included in the S corporation key case report package.
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If the partnership is unagreed and the S corporation is agreed or a no change, transfer both entities to the CPF.
-
-
When the partnership closes before the S corporation and the partnership report is a no change, input Form 8339 to resolve the S corporation linkage to the partnership. Associate a copy of the partnership key case report package to the S corporation key case admin file. For change cases, the partnership adjustments will be included with the S corporation report at the conclusion of the S corporation’s examination. The S corporation linkage to the partnership will remain open. If the examiners are not the same, e-mail a copy of the partnership report to the examining agent or Appeals Officer who has control of the S corporation. It should be communicated that the partnership adjustments need to be included in the S corporation report.
-
When the S corporation closes before the partnership the ILSC Coordinator will need to review the facts and circumstances and make processing determinations.
-
Instructions on how to proceed on the tier investors reports should be clearly communicated to the ILSC unit.
4.31.6.6.1.7 (08-08-2022)
H Freeze Release
-
The H freeze will be released from the key case within 14 days and documented on the Form 14729, when the CPF receives a complete package for the following:
-
An agreed package where the entity is in agreement with the changes and it is assumed the investors will agree,
-
A no change package,
-
A report from Appeals, or
-
A request from Appeals to issue SNODs to all investors.
-
-
The CPF will release the H freeze after receiving an unagreed package when all partners agree after receiving a 30 day letter or their SNOD defaults.
4.31.6.6.2 (08-08-2022)
Key Case Report Package Procedures
-
The ILSC group will receive an approved key case report package electronically from the ILSC Coordinator. A copy of the key case report package will be uploaded to RGS/CEAS. Update the Report Package Received Indicator on PCS to Y for all direct investors.
-
Pull all CPF controlled direct investors to prepare for report writing and associate a copy of the key case report package to each investor file. For taxable investors not in the CPF, see IRM 4.31.6.6.2.1, Outside Taxable Investors. For tier investors not in the CPF report writing guidance will be provided by the ILSC Coordinator, see IRM 4.31.6.6.1.6, S corporation Key Tier.
-
The investors must be assigned to the report writer within 30 days of the key case report package being received in the ILSC group.
-
Prior to the assignment of a taxable investor file to a report writer the following actions should be taken:
-
Verify the investor statute date. If the statute date was extended, verify all statute extensions are valid;
-
Associate any applicable documents with the investor file, and obtain IMFOLT (or BMFOLT) and TSUMYI prints, and;
-
Update the investor file to EGC 542X or 543X.
-
-
Prior to the assignment of a CPF tier investor file to a report writer the following actions should be taken:
-
Verify the investor has an Alpha Code "GG" statute. A trust tier would have a live statute and would be treated as a taxable BMF investor;
-
Associate any applicable documents with the tier investor file, and obtain BMFOLT and TSUMYI prints;
-
Update the tier investor on AIMS to EGC 5464, Tier Report Writing.
-
4.31.6.6.2.1 (08-08-2022)
Outside Taxable Investors
-
The CPF will send a copy of the key case or tier report package using Form 6657, Related ILSC Pass-through Examination, to:
-
the examining agent (Status 10 to 19) unless that agent is also examining the key case, or
-
Appeals.
-
-
If the investor is in status 06 or 08, the CPF should request AIMS control to make the changes.
-
Prepare Form 6657, Related ILSC Pass-Through Examination Information, and check the Pass-through report Form 4605 box and the Type of Examination.
-
The Form 6657 must be acknowledged by the recipient within 10 business days.
-
The report code must be updated to an "R" (for the field) or "A" (for Appeals) on PCS once the Form 6657 is acknowledged.
-
If the investor is in the other CPF, e-mail a copy of the key case or tier report package to the ILSC Coordinator. Ensure they acknowledge receiving it.
4.31.6.7 (08-08-2022)
Key Case Suspense
-
Key cases will be forwarded to the CPF when it is unlikely that all investors will agree. The CPF will need the key case return to send to Appeals along with a protesting investor.
-
Technical Services will forward the unagreed key case to the CPF in EGC 5417. When Technical Services receives a key case and a protesting investor, Technical Services will send both directly to Appeals. Technical Services will inform the CPF that the return was sent to Appeals on the Form 14729.
-
When the CPF receives the unagreed key case, the statute will be addressed per IRM 4.31.6.5.1.2, Alpha Code Statutes, and the AIMS will be updated to EGC 5490 - Key Case Suspense.
4.31.6.8 (08-08-2022)
Monitoring Key Case Report Package
-
The ILSC group will monitor the key case report package to determine when the linkage for all investors both direct and indirect (when applicable) has been resolved. The linkage is resolved when the investor has agreed, been no changed, SNOD defaulted or the investor has petitioned tax court.
-
When there are tiers, see IRM 4.31.6.9.4, Post Tier Report Writing.
-
When a protesting investor or investors are sent to appeals, the remaining taxable investors controlled in the CPF are updated on AIMS to EGC 5474 or 5475, Appeals Suspense, pending a new key case report package from Appeals. The original key case report package is complete and requires no further monitoring.
-
When the last investor linkage is resolved, notify the ILSC Coordinator that the key case report package is complete. If the key case AIMS is in EGC 5490, AIMS can be closed.
-
The key case admin file should be uploaded to RGS/CEAS. When all documents from the key case admin file are on RGS/CEAS there is no need to maintain a paper file.
4.31.6.9 (08-08-2022)
ILSC Tier Report Writing
-
The Technical Team will receive the CPF controlled tier partner and needs to complete the tier report as soon as possible. The report will be reviewed, linkages checked, all amended returns associated to the file and sent to Technical Team for report writing.
-
The CPF tier report consists of the Form 4605, Form 886-S and workpapers. Once the report is written it should be uploaded to RGS/CEAS.
-
The CPF tier file will remain open until investor actions are complete.
4.31.6.9.1 (08-08-2022)
Tier Also a Key Case
-
When the tier is also a key case, coordination may be needed with the field agent on preparation of the report.
-
Both the partnership and S corporation adjustments should be included on the S corporation’s Form 4605. If the S corporation report contains the partnership adjustments the tier investor reports can be written.
-
When an S corporation is also a key case the CPF will not prepare a tier report. The ILSC Coordinator will prepare report writing guidance per IRM 4.31.6.6.1.6, S corporation Key Tier.
4.31.6.9.2 (08-08-2022)
Writing the Tier Report
-
Investors below the tier waiting for the tier report will be held in suspense until the tier report is written.
-
Verify the investor linkages are complete per the build out.
-
The Technical Team report writer prepares the report and saves the tier report package in RGS/CEAS. The tier report package consists of:
-
Form 4605-A
-
Form 886-X
-
Form 886-A, if applicable
-
Workpapers
-
Copy of key case partnership report
-
-
The tier report is not sent to the entity and is only used to prepare the investor reports.
-
Complete Form 8339. When the S corporation tier is linked to an ILSC partnership that has an open linkage to a BBA partnership, the Form 8339 would include element 05-T, to remove the 2’s.
-
Prepare Form 5344 but do not add the disposal code because that will depend on the investor closure type. The Form 5344 should stay with the case file until the tier entity is ready to close after investor actions are determined.
-
The tier entity will remain open until investor actions are complete for this key case. Form 8339 and Form 5344 will be kept with the case file until closure.
-
Update AIMS to EGC 5467, Tier Report Written - Prepare Investors.
4.31.6.9.3 (08-08-2022)
Tier Report Written - Prepare Investors
-
The ILSC group will receive a tier report package from the Technical Team.
-
Verify the tier report package is uploaded to RGS/CEAS. For field controlled tiers, package information will be provided by the ILSC Coordinator.
-
Update the package received indicator on PCS to "Y" using CC TSCHG on the tier investors.
-
Pull all CPF controlled investors to prepare for report writing. Associate a copy of the tier report package to each investor file. For taxable investors not in the CPF, see IRM 4.31.6.6.2.1, Outside Taxable Investors.
-
Assign the investors to a report writer within 30 days of the ILSC group receiving the tier report package.
-
Prior to the assignment of a taxable investor file to a report writer the following actions should be taken:
-
Verify the investor statute date. If the statute date was extended verify all statute extensions are valid;
-
Associate any applicable documents with the investor file;
-
Update the investor file to EGC 542X or 543X.
-
-
Update the tier file to EGC 5468, Post Tier Report Writing Suspense.
-
For field controlled tiers, the ILSC group will receive report writing guidance from the ILSC Coordinator.
4.31.6.9.4 (08-08-2022)
Post Tier Report Writing
-
ILSC group will monitor the tier report package to determine when the linkage for all tier investors has been resolved. The linkage is resolved when the investor has agreed, been no changed, SNOD defaulted or the investor has petitioned tax court.
-
When the last tier investor linkage is resolved the tier can be closed. See IRM 4.31.6.9.4.1, Tier Full Closure. If the tier is linked to another open key case or the ILSC key case is linked to a BBA Chapter 2 key case, see IRM 4.31.6.9.4.1.1, Tier Partial Closure.
-
When a direct investor to the key case files a protest, update the CPF tier on AIMS to EGC 5469, Tier Appeals Suspense. Update the remaining tier investors on AIMS to EGC 5474 or 5475, Appeals Suspense, pending a new key case report package from Appeals.
-
When a tier investor protests, the tier is sent to Appeals with the protesting investor and the key case.
4.31.6.9.4.1 (08-08-2022)
Tier Full Closure
-
When the tier has no open ILSC or BBA Chapter 2/2A linkages and all tier investor linkages have been resolved, the tier can fully close.
Note:
When an investor SNOD cannot be issued due to another open linkage, the tier may be closed as long as the tier package is documented on RGS/CEAS and associated to the investor file.
-
Input Form 8339.
-
Determine the disposal code for the tier and update the Form 5344. The disposal code will depend on the type of investor closure.
-
DC 02 - Use when the examination results in no changes to the key case entity.
-
DC 04 - Use when an agreement is obtained from all tier investors.
-
DC 08 - Use when all tier investors did not sign a report. This includes when an investor SNOD defaults.
-
4.31.6.9.4.1.1 (08-08-2022)
Tier Partial Closure
-
If the tier has any open linkages remaining, input Form 8339 and determine the tier partial action:
-
When the tier has another open ILSC linkage, update AIMS to EGC 5460, Tier Suspense, even if a BBA Chapter 2/2A open linkage exists. The ILSC linkage takes priority.
-
When the ILSC key case has an open BBA Chapter 2/2A linkage the tier must remain open. The Form 8339 should have an 05-T. If there are no other open ILSC linkages the tier and the tier investors should be transferred to the BBA Chapter 2/2A Team.
-
When the tier is directly linked to an open BBA Chapter 2/2A case and there are no open ILSC linkages the tier and the relevant tier investors should be transferred to the BBA Chapter 2/2A Team. Investors not relevant to the BBA Chapter 2/2A examination should be closed.
-
Contact the BBA Chapter 2/2A Coordinator when transferring a Brookhaven ILSC case to Ogden for the BBA Chapter 2/2A linkage.
-
4.31.6.9.4.2 (08-08-2022)
Protesting Tier Investor
-
When a tier investor files a protest, the report writer will notify their ILSC Coordinator.
-
If the investor filing the protest is an indirect investor, the tier will be sent to Appeals along with the key case and a protesting investor. More than one protesting investor may be sent if they have different power of attorneys or they raise additional issues. IRM 4.31.6.10.7.3, Request for Appeals, provides additional processing information.
-
The remaining investors will be held in suspense, tier investors in EGC 5469 and taxable investors in EGC 5474 or 5475 until an Appeals decision is made.
4.31.6.10 (10-01-2010)
ILSC Report Writing
- The following subsections cover the ILSC taxable investor report writing procedures. Also refer to IRM 4.10.8, Examination of Returns - Report Writing, and Training Pub 28432-102 TEFRA Report Writing (Basic) (Student Guide) as needed.
4.31.6.10.1 (05-31-2004)
Introduction – Procedure for Processing Written Reports
-
In general, each linked investor return must have a report written disclosing the results of the examination of the pass-through return to which the investor is linked. The CPF must secure signed agreements from each investor. One or more of the investors may choose to dispute the proposed adjustments of the pass-through entity. The report provides the investor the opportunity to agree or appeal the adjustment.
-
Note the investor case file, and update AIMS to EGC 542X or 543X.
-
This subsection includes the procedures for processing the written reports.
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4.31.6.10.4 (08-08-2022)
Case File Requirements
-
Upon assignment, the report writer should check the case file (paper or electronic) to ensure it includes the following items:
-
The original tax return or copy, if they cannot be obtained, a CC TRDBV print may be used;
-
Any amended returns, TC 29x or TC 30x;
-
An Information Returns Processing (IRP) transcript (if available) if the investor is a non-filer;
-
The key case report package, or Appeals Case Memorandum and Form 5402, Appeals Transmittal and Case Memo, with Form 4605, for the key case;
-
Form 886-X, Form 886-S or Form 886-W showing the corrected ordinary income/loss and any other examined issues;
Note:
May be a pro forma report, or just worst case scenario figures instead of a key case report package when an investor report is needed for statute protection.
-
Any penalty information;
-
An IMFOLT (or TXMOD), TSUMY prints and Form 2848, if applicable;
-
Schedule K-1;
-
Form 895, statute control or statute database control notated on history sheet (IRM 25.6.23, Examination Process - Assessment Statute of Limitation Controls);
-
Examiners must perform IDRS research to check for validity of current AIMS and PCS data and to ensure that no activity has taken place on the taxpayer's account that may affect the case such as prior assessment information (a Form 1040X, partial assessments, or other changes to the investor's account). All research performed must be documented on Form 4700-T, CPF Pass-Through Investor Workpapers (IRM 4.19.10, Examination General Overview); and
-
Any related tax returns for a net operating loss, investment tax credit or foreign tax credit carryback and/or carryover, related tax returns for Passive loss, Alternative Minimum Tax Credit or Capital Loss carryover and any related tax returns for Tax for Children Under Age 14.
-
If penalties are applicable and recommended by the field, the field must provide manager approval of the penalties. See IRM 4.31.6.10.4.1, Penalty Considerations.
-
-
If any of these items are not present in the investor case file (virtual or paper), the report writer must secure the information necessary for the preparation of the examination report. Depending on the statute, this may require returning the case file to another unit to secure the necessary information.
4.31.6.10.4.1 (08-08-2022)
Penalty Considerations
-
IRC 6751(b)(1), Approval of Assessment, provides in general, that no penalty under the IRC shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate. If the field agent is asserting a penalty on pass-through adjustments, then their manager needs to approve that assertion. No additional approval is needed by the CPF as long as all applicable tax years are covered. The CPF should not approve a penalty on pass-through adjustments being asserted by the agent. The examining agent’s immediate supervisor must approve the penalty.
-
IRM 20.1.5.3.4, Carrybacks and Carryovers, explains that the application of a penalty in the exam year will apply to the carryback and carryover years. Supervisor approval must cover all tax years and penalties for compliance with IRC 6751(b). If a carryback or carryover year is not listed on the approval form, the CPF can approve the penalty based upon the examining agent’s approval in the exam year.
-
The CPF may assert penalties on an investor for items unrelated to the pass-through adjustments. For example, the investor failed to report a significant amount of income unrelated to the pass-through examination. Because the CPF is asserting the penalty, the supervisor of the CPF employee asserting the penalty must give the approval. See IRM 20.1.5.2.3, Supervisory Approval of Penalties - IRC 6751 Procedural Requirements. Approval is required before issuing any written communication of penalties to a taxpayer that offers the taxpayer an opportunity to sign an agreement or consent to assessment or proposal of the penalty. Manager approval is not needed for any penalties automatically calculated through electronic means. See IRM 20.1.1.2.3, Approval Prerequisite to Penalty Assessments.
4.31.6.10.4.2 (05-31-2004)
Referring Complex Issue to the Field
- If, due to the complexity of the case, an employee believes that he/she cannot adequately prepare an investor audit report, the employee should consult with the ILSC Coordinator. The ILSC Coordinator will provide the employee with assistance, or work with the appropriate Technical Services Pass-through Coordinator in order to have the case worked in the field. Campus personnel should make every effort to work all campus controlled investors at the campus. However, there are times when the complexity of the case will require assistance from the field. It is the complexity of the issues, not the size of the case, that will dictate whether a case gets sent back to the field.
4.31.6.10.5 (08-01-2006)
Investor Report Writing Procedures
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The investor's return file with the key case report package will be assigned to a report writer to prepare an adjustment report.
Note:
All investors in the same key case should be worked together to ensure that if they require a (SNOD), it is issued simultaneously. (See IRM 4.31.6.10.8, Statutory Notice of Deficiency.) Also refer to IRM 4.10.8, Examination Returns, Report Writing, and any other necessary IRM or Training Publications as needed.
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The report writer must verify the statute date (considering any statute extensions), and statute control using local procedures using Form 895 or statute database.
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The report writer must address penalties per IRM 4.31.6.10.4.1, Penalty Considerations.
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The report writer will complete Form 4700-T, CPF Pass-Through Investor Workpapers, on all cases to reflect the investor's applicable adjustment from the pass-through entity. The report writer will maintain Form 886-X, Form 886-S or Form 886-W, the key case report package and any other documents received from the key case examination with the Form 4700-T as part of the workpapers.
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The investor return will normally be adjusted to reflect the amount shown on the Form 886-X, Form 886-S or Form 886-W unless the adjustment document reflects an allowable loss and the investor did not report any activity from this pass-through return on the original return.
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In this situation, the report writer must consider the correspondence in the file, which explains the difference between the amounts shown on the Schedule K-1 and the return.
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If the investor did not respond to the inquiry or responded that the loss was not claimed because of a limited basis or previous execution of a Form 906, the examiner should allow no loss as a result of the examination of the pass-through return.
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If the key case examination resulted in a no change, the examiner will prepare Letter 5694, Investor No Adjustment, to issue to the taxpayer.
4.31.6.10.6 (08-08-2022)
Preparation of Examination Report
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The report writer will input and generate three copies of Form 4549, Report of Income Tax Examination Changes, for tax and any applicable penalties. (Only two copies needed if not married.) Additionally, there should be copies for each POA. The Form 4549 must include the name, telephone number and the unique identifying number of the person to contact.
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The Form 4549 should list each issue and the EIN of the pass-through entity that had the adjustment. The EIN provides a unique identifier to help the taxpayer understand where the changes came from. It also provides clarity when there are multiple pass-through adjustments with similar names. If adjustments are coming from more than one key case, the EINs and adjustment amounts should be stated separately.
4.31.6.10.6.1 (04-05-2019)
Special Computation for Non-Oversheltered Returns (Munro Decision)
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In "Munro v. Commissioner, 92 T.C. 71 (1989)" , the Tax Court held that the partnership items (whether income, loss, deduction or credits) included on a taxpayer's return should be completely ignored in determining whether a deficiency exists that is attributable to non-partnership items. Moreover, the court ruled that the Service may not assume the correctness of its proposed adjustments to partnership items for computational purposes in determining a deficiency, and that taxpayers may not offset net partnership losses against their taxable income for purposes of deficiency proceedings.
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Non-oversheltered returns (and oversheltered returns related to partnership returns with tax years ending before August 6, 1997) are returns that will have a tax deficiency after the proposed adjustments (for other than TEFRA partnership items).
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For non-oversheltered returns, Munro computations will continue to be used if there is an open, related TEFRA partnership proceeding.
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When adjusting a taxpayer’s return for ILSC pass-through issues and the Form 4549 results in a reduced deficiency because of large TEFRA partnership losses, the report writer will prepare a report without consideration of any TEFRA partnership income or losses.
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Prepare a report starting with the original return, or as amended, and remove all TEFRA issues from open TEFRA proceedings. Label this report as: "Information Only – Do Not Process" . Using this report as the starting point, prepare a report making the ILSC pass-through adjustment.
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When there is an open TEFRA proceeding, the following paragraph should be used on the SNOD:
- In computing the deficiency attributable to the adjustments in this notice, which adjustments are neither partnership items nor affected items, as defined by IRC 6231 (prior to amendment by the Bipartisan Budget Act of 2015 (BBA)), all TEFRA partnership items subject to an open TEFRA proceeding, whether income, loss, deduction or credits have been ignored exclusively for the purpose of computing the deficiency which is attributable to the adjustments set forth herein. All TEFRA partnership items subject to an open TEFRA proceeding have been ignored in this notice of deficiency for computational purposes only and this notice is not a substitute for any FPAA which may be issued in regard to the TEFRA partnerships. This computation is being made pursuant to the Tax Court decision in "Munro v. Commissioner, 92 T.C. 71 (1989)" .
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The following sample paragraph should be included in the explanation of items when there is an open TEFRA proceeding:
- The following TEFRA partnerships are subject to partnership level proceedings pursuant to the partnership audit and litigation procedures of IRC 6221 through IRC 6234 (prior to amendment by the Bipartisan Budget Act of 2015 (BBA)) with respect to the taxable year(s) and accordingly, all partnership items, whether income, loss, deductions or credits, have been disregarded for purposes of computing a deficiency attributable to the adjustments in this notice:
Entity Adjustments ABC Partnership $(30,000.00) XYZ Partnership (7,000.00) HIJ Partnership (27,700.00) Total $(64,700.00) -
A Munro computation may result in an inflated deficiency due to a change in tax bracket until treatment of the TEFRA items is finally determined.
4.31.6.10.6.2 (08-08-2022)
Special Computations for Non-Filers
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When an investor has not filed a return, the report writer will proceed with SFR procedures.
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Special computations exist for non-filer investors.
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Non-filer investors with an Information Returns Processing (IRP) transcript in the case file will have a substitute for return processed and the account will be controlled and adjusted on MF. The report writer should input a Form 4549 containing both the IRP adjustments and the ILSC pass-through adjustments. Continue processing per the ILSC procedures.
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Non-filer investors without an IRP transcript will be controlled and adjusted on NMF. The report writer will prepare a Form 4549 for the ILSC pass-through adjustment applying the highest tax bracket applicable for the tax period without the benefit of exemptions or deductions. Continue processing per the ILSC procedures.
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4.31.6.10.6.3 (10-01-2010)
IRC Section 6404(g), Suspension of Interest and Certain Penalties
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In general, the notice date for purposes of IRC 6404(g) is the date adequate notice is mailed or provided to the individual investor. For ILSC purposes it is the date a report is given to the investor. All other IRC 6404(g) rules apply.
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Notification for ILSC investors will be their initial audit report. Typically, this will be a 30-day letter.
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In the case of an individual who files a return on or before the due date for the return (including extensions), the Service has a 36-month period (18 months effective for tax years where the 18 month period ended on or before November 25, 2007) beginning on the later of:
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the date on which the return is filed; or
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the due date of the return without regard to extensions,
in which to provide notice to the taxpayer specifically stating the taxpayer's liability.
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If notice is not provided to the taxpayer before the close of the 36-month period, then any imposition of interest, penalty, additions to tax or additional amounts that are calculated in reference to the 36-month period (18 months effective for tax years where the 18 month period ended on or before November 25, 2007) are suspended.
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The term suspension period means the period:
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beginning on the day after the close of the 36-month period under (3) above and
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ending on the date which is 21 days after the date on which notice is provided to the taxpayer.
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The exceptions to the general rule for suspension of interest and certain penalties where the Service fails to contact the taxpayer are:
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any penalty imposed by IRC 6651, Failure to file tax return or to pay tax;
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any interest, penalty, addition to tax, or additional amount in a case involving fraud;
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any interest, penalty, addition to tax, or additional amount with respect to any tax liability shown on the return;
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any interest, penalty, addition to tax, or additional amount with respect to any gross misstatement;
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any interest, penalty, addition to tax, or additional amount with respect to any reportable transaction with respect to which the requirement of IRC 6664(d)(3)(A) is not met and any listed transaction (as defined in IRC 6707A(c)); or
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any criminal penalty.
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The notice date must be annotated by the TE on the history sheet in the case file, and also annotated on the case file copy of the Examination report in the "Remarks" area with the following statement: "IRC 6404(g) does apply and notice was provided on (mail out date)" .
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TC 971 with Action Code 064 will be input on MF for the identified cases to record the notice date. MF will automatically compute the interest with only one notice date. Cases with additional notice dates will require manually computed restricted interest (TC 340).
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All IRC 6404(g) cases where an assessment is being made will require special instructions on Form 3198. If another assessment is necessary, it must again be stated whether IRC 6404(g) applies, and if it does, the notice date for the subsequent assessment must be entered in the "Special/Restricted Interest Features" section of the Form 3198.
4.31.6.10.6.4 (04-21-2017)
Completion of Workpapers
- The report writer will complete Form 4700-T, CPF Pass-Through Investor Workpapers, on all cases (see IRM 4.10.9.8, Special Situations Requiring Documentary Evidence, and IRM 4.19.13, General Case Development and Resolution) to reflect the partner's applicable adjustment from the pass-through return. The report writer will maintain Form 886-S, Form 886-W, or Form 886-Z (or equivalent spreadsheet), and other documents received from the key case CPF, with the Form 4700-T as part of the workpapers.
4.31.6.10.6.4.1 (08-08-2022)
Report Generation System (RGS)
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In general, Report Generation System (RGS) is used in the CPF when preparing IMF or BMF reports. There are times when pass-through adjustments result in no change to the underlying investors. Since the pass-through adjustments are not an examination, capturing the EOAD data is not required if those adjustments will result in a no change and no report was prepared.
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Reason codes should be input on RGS for each item adjusted in order to capture Examination Operational Automation Database (EOAD) data per IRM 4.10.16, Examination Operational Automation Database (EOAD). The list of reason codes can be found in IRM 4.10.16-1, IMF Issue Codes.
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Most, if not all, ILSC adjustments will originate from a partnership or S corporation examination. Therefore, the reason codes from the pass-through section should be used. An exception would be an adjustment specific to the investor’s return. For example, if the investor filed an amended return where the issues are not related to the entity examination. Those amended return adjustments should use non pass-through related reason codes.
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The use of National Research Program (NRP) issue codes would only be applicable if the entity that was examined was part of an NRP sample. In such an instance, the case file will be clearly marked to identify it as an NRP related investor. Generally, ILSC cases will fall under non-NRP.
4.31.6.10.6.5 (02-22-2008)
Passive Activity Losses (PAL)
- Examiners need to ensure that all applicable forms are completed when computing the Passive Activity Losses (PAL) adjustments. The Form 8582, Passive Activity Loss Limitations worksheets do not need to be completed for all cases, but should be completed when needed. For example, they should be completed to communicate changes to the taxpayer in the case of dispositions or PAL carryovers.
4.31.6.10.6.6 (02-22-2008)
Carryover/Carryback Adjustments
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Case files for carryback and carryover years need to have copies of workpapers from the source year supporting the adjustments. Adjustments such as Schedule A (contributions), NOL, possibly credits and PAL credits would also require the closing documentation from the source year and computations for any carryback or carryover.
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When there are PAL carryovers, for example, the case files for those years need to have all of the necessary workpapers to support the PAL adjustment. The carryover case file should have the closing documents from the source year as well as the Form 8582 reflecting the PAL carryover changes. Without the source documentation, there is nothing in the carryover year file to support the changes. This information is necessary in the event a subsequent taxpayer inquiry is made.
4.31.6.10.6.7 (08-08-2022)
Carryforward Adjustments
- If a carryforward adjustment is possible, the investor's statute will need to be protected on all carryforward years. For example, a capital loss carryforward is governed by the investor's IRC 6501 statute for the carryforward year. IRC 6501(h) would extend the investor's statute based on the loss year only for carrybacks.
4.31.6.10.6.8 (08-08-2022)
Qualified Business Income Deduction (QBID)
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When making adjustments to tax year 2018 or later campus controlled Form 1040 investor returns linked to ILSC key case closures, the CPF will have to consider QBID.
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The CPF will review the investor return to determine if the investor claimed a QBID on their original or subsequently filed tax return, currently found on page one of the Form 1040. The same process will be followed for Form 1041 taxpayers who claim a QBID deduction on their originally filed return. For 2018, QBID was reported as an "other deduction" , but later years have a QBID line on page one.
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When applying these procedures, any adjustment to QBI items included on key case examination reports will be disregarded by CPF in lieu of the following procedures:
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If there was no QBID claimed on the taxpayer's filed return, skip the following steps and take no action relative to the QBID.
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If there was a QBID claimed on the taxpayer's filed Form 1040 return, add a Qualified Business Income Deduction issue in RGS using IMF Code 51040. Add an adjustment using the "Net qualified business income deduction" categorization in RGS. RGS is not used for Form 1041 adjustments.
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Input ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡.
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Add a Form 14997, Adjustment to the Qualified Business Income Deduction, to the report package sent to the taxpayer.
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When applying the procedures above, any adjustment to QBI items included on key-case examination report (Form 4605) by the examining agent will be ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡. Following the above procedures will ensure the QBID adjustments are computed consistently.
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If the taxpayer corresponds with Examination Field Support in response to the Form 14997, employees will review the information provided by the taxpayer and consider the proposed adjustment to QBID in light of the additional information received. If an adjustment to the QBID is warranted, the employee will make the adjustment in RGS using the issue established in paragraph (3), inputting the corrected value in the per exam field of the "Net qualified business income deduction" categorization.
4.31.6.10.7 (08-08-2022)
30-Day Letter Procedures
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The report writer will send a Letter 525-D, 30-Day Letter Related to Pass-through Entity Examination, and two copies of Form 4549 to the investor to secure agreement to the pass-through issue(s). Report writers should always consider IRC 6404(g) and input a TC 971 with Action Code 064 whenever applicable.
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The case file will be suspended for 45 days awaiting response from the taxpayer. If the taxpayer does not respond, issue a statutory notice within 30 days unless there are adjustments pending from another pass-through examination.
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Generally, the 30 day letter will act as notification for purposes of IRC 6404(g).
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When there is less than 60 days left on the investor’s statute, the CPF should immediately issue a statutory notice of deficiency.
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Note:
When issuing a stat notice, remember that it must include all other pass-through adjustments.
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4.31.6.10.7.1 (08-08-2022)
Agreement Received
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The assessments must be made as soon as possible after the agreement is received. Case may also be closed agreed without an executed agreement form if a full payment not specifically designated as a “6603 Deposit” is received in response to a proposed tax and penalties, and there is no evidence the taxpayer intends to file a protest. For additional agreed closing information see IRM 4.10.8.2.4.2, Execution and Receipt of Audit Reports and Waivers.
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Prepare and input Form 8339, PCS Change, to enter the amount of the assessment. Box 11, Change(s), will be completed with Item 5, (the investor one-year date field) with 22222222, assessment amount and time. The investor case will not be allowed to close without this entered on the investor linkage.
Note:
The PCS will not allow anything other than 22222222 to be entered in the one year date field. An attempt to enter a real date will result in an error message.
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If the case is to be full closed (no TEFRA, ILSC, or BBA Chapter 2/2A linkages), the case is prepared for final closure. If there are open linkages (either TEFRA, ILSC or BBA Chapter 2/2A), a partial assessment will be made and the case will be sent to suspense to await additional packages. (See the Form 5344 procedures at IRM 4.31.6.11, Investor Closing Procedures.)
Note:
Carryover/carryback assessment amounts and time should be included on the Form 8339 of the exam year return.
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4.31.6.10.7.2 (08-08-2022)
Acceptance of Faxed Agreements
- Consents to assess additional tax (Form 4549, Form 870, and others) can be accepted by fax if taxpayer contact has been made and the case history documents the date of contact and the desire of the taxpayer to submit the consent by fax.
4.31.6.10.7.3 (08-08-2022)
Request for Appeals
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If an investor does not agree to the proposed key case adjustments and files a protest, both the key case and the investor return will be sent to the Appeals office identified in the taxpayer’s protest. If the protest includes a tier return, that return will need to be sent to Appeals as well as the investor and key case. This will usually be the Appeals office that services the operation unit that examined the key case return. The protest should be reviewed to ensure the protest is complete and meets the requirements as shown in Publication 5. There must be at least 365 days remaining on the statute of limitations of any investor return received in Appeals. See Appeals IRM 8.21.2.4, Cases Not Accepted by Appeals.
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Only those investors that file a protest may be sent to Appeals. To conserve the Service’s overall resources, generally the key case and one protesting investor (and tier return when applicable) will be sent to Appeals for review of the protested issues. However, Appeals will accept protesting investors with different representatives, protesting investors without representation and protesting investors with unagreed non-pass-through issues. All other investor returns should be held in suspense pending an Appeals resolution, even if the investor does not respond to the 30-day letter provided there is sufficient time on the investor statute.
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Form 8339, PCS Change, will be input updating item 22, to the literal "A" on all investors sent to Appeals. This will identify that the investor is in Appeals and they will resolve the linkage. If there are no remaining open linkage the case will be closed by them.
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Issue a statutory notice of deficiency when none of the unagreed investors file a protest, or there is a short statute. It is difficult to successfully resolve disputed issues when some investors are non-docketed and others are docketed.
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If no investor protests were received, but there was a protest prepared at the key case level, the ILSC Coordinator should contact the POA to make sure they understand that an investor needs to file the protest.
4.31.6.10.7.3.1 (06-07-2013)
Protest Rebuttal
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When the taxpayer files a protest, update the investor going to Appeals to AIMS EGC 5477 and notify the ILSC Coordinator. The ILSC Coordinator should review the protest. If a rebuttal was not previously submitted by the examining agent the ILSC Coordinator will contact the agent, provide a copy of the protest and give the examining agent an opportunity to prepare a rebuttal.
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The examining agent should review the protest and provide a rebuttal within 30 days. The examining agent will mail the rebuttal to the taxpayer and/or their representative and provide the campus with a copy of the rebuttal letter to associate with the case going to Appeals. A copy of the rebuttal letter may be sent electronically to the campus. A copy of the letter should also be kept in the key case administrative file. The campus will include the protest and a rebuttal, if applicable, in the case file being sent to Appeals.
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If the examining agent does not provide the rebuttal within 30 days, inform the agent that the case is being forwarded to Appeals without the rebuttal. If the examining agent still wishes to provide a rebuttal they will need to forward the rebuttal directly to Appeals with a cc to the ILSC Coordinator. Notate the agent will forward the rebuttal in the case file going to Appeals. This should also be notated in the CPF key case administrative file.
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The CPF will forward the case files going to Appeals within 15 days of receiving a valid protest, unless a rebuttal or investor statute extension is being prepared. If either is requested the case will be forwarded within 15 days of receiving the rebuttal or extension. Delays are not in the best interest of the taxpayer and may require the CPF to extend the statute in order to meet Appeals time frame. Update AIMS to EGC 5476 on the investor, key case and tier (if applicable) when the files are ready to be transferred to Appeals (DC 07).
4.31.6.10.7.3.2 (08-08-2022)
CPF Appeals Suspense
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The CPF will usually send the key case and one protesting investor to Appeals. More than one investor may be sent if they have different POAs.
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The remaining investors will be held in suspense, tier investors in EGC 5469 and taxable investors in EGC 5474 or 5475 until an Appeals decision is made. Investors will remain in suspense as long as the statute allows. Investors who do not extend their statute will be issued a SNOD based upon the examination report.
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Only investor cases sent to Appeals should have the report code on PCS updated to A.
4.31.6.10.8 (08-08-2022)
Statutory Notice of Deficiency
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If there is no response to the 30-day letter the report writer will research for other open ILSC or BBA Chapter 2/2A linkages. Generally, "only one Statutory Notice of Deficiency (SNOD) may be issued" to a taxpayer for a given tax year. See IRC 6212(c). If no other linkages exist, issue Letter 531, Notice of Deficiency. (See IRM 4.8.9, Statutory Notice of Deficiency) If there are other ILSC or BBA Chapter 2/2A linkages the investor should remain in suspense, statute permitting. If the investor will not extend the statute, the ILSC Coordinator will need to reach out to the examiner/Appeals Officer controlling the ILSC entity with open linkage for a pro forma report/worst case scenario figures. For BBA Chapter 2/2A linkages contact the BBA Chapter 2/2A Coordinator.
Note:
If an agreement to the 30-day letter is date stamped prior to the date the 90-day letter (Letter 531) was issued, the agreed case can be processed and closed. No action will be taken to rescind the 90-day letter since an agreement was already received. If the agreement to the 30-day letter is received after the date the 90-day letter was issued, the agreed case can be closed as an agreement to the 90-day letter.
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Once the SNOD is issued, the case file will be suspended for 105 days awaiting a response from the taxpayer.
Note:
A SNOD will not be considered to be agreed without a signed agreement. A taxpayer making a payment that is equal to or greater than the balance due on the report will not be considered agreed. Without a signed agreement the SNOD will have to default before the case can be closed. The investor AIMS database is updated to status 24 and the statute expirations date must be recalculated to reflect the issuance of the SNOD.
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If an agreement to pass-through issues is received, assessments must be made as soon as possible after the agreement is received. The statute expiration date must be recalculated based on the Statutory Notice of Deficiency.
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Prepare and input Form 8339, PCS Change, to enter the amount of the assessment. Box 11, Change(s), will be completed with Item 5, (the investor one-year date field) with 22222222, assessment amount and time. The investor case will not be allowed to close without this.
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If the case is to be fully closed, meaning all ILSC and BBA Chapter 2/2A linkages were addressed, the case is prepared for final closure. If there is an open TEFRA linkage complete a partial adjustment and send the case to TEFRA suspense to await additional packages. (See Form 5344 procedures at IRM 4.31.6.11, Investor Closing Procedures.)
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In some instances, a statutory notice is sent because the taxpayer refused to sign a Form 872. If a Form 872 is received after the statutory notice is issued, and the taxpayer was given plenty of time to extend their statute or file a protest, then the statutory notice should not be rescinded. The taxpayers only option will be to file a petition. These determinations will be a judgement call made on a case by case review by the ILSC Coordinator or manager.
4.31.6.10.8.1 (08-08-2022)
Petition Filed
- If a petition is filed with the Tax Court, the petitioning investor will be sent to the requesting Appeals area. Update the petitioning investor on AIMS to EGC 5476 before transferring to Docketed Appeals (DC 11). Appeals will fully close the investor when the tax court decision is final.
4.31.6.10.8.2 (05-31-2005)
No Response
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If no response is received from the investor, and no petition to the Tax Court is filed, the SNOD will be defaulted and the tax assessed per the SNOD. The statute expiration date will need to be recalculated based on the defaulted SNOD.
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Prepare and input Form 8339, PCS Change, to enter the amount of the assessment. Box 11, Change(s), will be completed with Item 5, (the investor one-year date field) with 22222222, assessment amount and time. The investor case will not be allowed to close without this.
Note:
The PCS will not allow anything other than 22222222 to be entered in the one year date field. An attempt to enter a real date will result in an error message.
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If the case is to be fully closed (no other TEFRA, ILSC or BBA Chapter 2/2A linkages), the case is prepared for final closure. If there are open linkages (either TEFRA, ILSC or BBA Chapter 2/2A) a partial assessment will be made and the case will be sent to suspense to await additional packages. (See Form 5344 procedures at IRM 4.31.6.11, Investor Closing Procedures.)
4.31.6.10.9 (08-08-2022)
No Changes
- An Investor return who received Letter 3457 should receive a no change letter if the S corporation/partnership entity was closed no change.
4.31.6.11 (08-08-2022)
Investor Closing Procedures
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Form 5344, Examination Closing Record, is prepared by the investor CPF to process ILSC pass-through adjustments each time an agreement is received by the investor CPF.
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A copy of the Form 5344 will remain in the file until all pass-through issues have been resolved.
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The closing function will input the PCS CC TSCLS as part of the final AMCLSE procedure.
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4.31.6.11.1 (08-08-2022)
Proper Completion of Form 5344
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Special attention must be given to certain entry items on Form 5344.
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CC TSCLS - this block should be checked when an investor return is linked on PCS and the return will be fully closed.
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Item 8 - Agreement Date (partial or final closings). Enter the earliest received date as reflected on the signed Form 4549. The date the agreement was received is required to be entered on agreed deficiency cases if the disposal code is 03, 04, or 09 and Item 12 contains an increase in tax and the MFT is 02, 05, 30, 51 or 52. If no agreement is signed, but the taxpayer full pays the deficiency prior to the issuance of a Statutory Notice, the case will be considered agreed and closed DC 04 as of the date of payment. See IRM 4.19.13.29, Campus Exam Closing Actions.
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Item 13 - Disposal Code. Cases closed no change should use disposal code 01 or 02. The adjustment amount on the Form 5344, Examination Closing Record, should be blank. Cases closed agreed or unagreed will generally use disposal codes 03, 04, or 08. The adjustment amount on the Form 5344, Examination Closing Record, requires an entry other than zero. If you have a situation where the adjustments made to the entity net to zero, enter $1. After issuance of a 90-day letter, use disposal codes 09 or 10.
Disposal Code When to use the disposal code. 01 - No Change with Adjustments Applies to no change examined returns (even if a 30-day letter was issued) if there is an adjustment to the tax base data such as income or deduction items but no change in tax liability or refundable credits; or tax changes fell below the tolerance level. An audit report must accompany the case file. Applies to pass-through investor returns (BBA elect out tiers), unless the key case is a no change. For carryback/carryover returns, if the return was examined to determine if there were any adjustments and the determination results in no adjustments. 02- No Change Applies to investor returns when the key case is no changed. 03 - Agreed Prior to 30-Day Letter Applies only to returns if an agreement is received prior to the issuance of a 30-day letter. Should not be seen in the CPF. 04 - Agreed After the 30-Day Letter Applies only to returns if an agreement is received after the issuance of a 30-day. Applies if no agreement is signed, but the taxpayer full pays the deficiency prior to the issuance of a Statutory Notice. The payment must be a payment of tax to qualify, not a cash bond. See IRM 20.2.4.8.1, Cash Bonds. 07 - Non-docketed Appeals Disposal code 07 is used for returns closed to Appeals before issuance of a statutory notice of deficiency. 08 - Unagreed - Does not Agree or Requested an Appeal This disposal code is used for unagreed refund cases. 09 - Agreed - After Notice of Deficiency Disposal code 09 is used when a taxpayer agrees to the statutory notice of deficiency. 10 - Default - Notice of Deficiency Applies only to returns if the taxpayer fails to file a petition or sign an agreement after the issuance of a 90-day letter or the notice goes unclaimed by the taxpayer. 11- Petitioned Applies only to returns if the taxpayer petitions tax court after the issuance of a 90-day letter. 12 - Other Applies to any other manner of closing not identified above, such as direct transfers to Justice Department for settlement, interest only or penalty only cases; barred assessment cases. Audit Recons if a new AIMS base was opened and the exam resulted in no change from the original examination - See IRM 4.13.3.7.2, Insufficient/Partial Documentation. Identity theft cases when closing cases and forwarding case files to Accounts Management unit at the campus. 13 - Undeliverable - Notice of Deficiency Used when a Notice of Deficiency is returned as undeliverable. 32 - Survey Carryback/carryover years that were secured but were not examined to determine if any adjustments applied. -
Item 14 - Statute Extended to Date (partial or final closings). Because of extensions on ILSC cases, care should be used to ensure that the correct information is shown on AIMS. If the IRC 6501 statute date has sufficient time remaining to make the necessary adjustment, no entry will be required. If the IRC 6501 statute has insufficient time remaining to allow an adjustment to be made, or the IRC 6501 statute, without regard to any consents, has expired, the Statute Extended to Date should reflect the extended date.
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Item 28 - Examiner's Time (final closing only). Enter the technical time spent processing the return. This will include the report writing time. If prior partial closures were processed, the entry will be the total of all technical time spent on the case by the area and/or the CPF. Local procedures must be developed to record the cumulative time applied to each return by the CPF technical employees. Form 5344 will record all time applied (except the 631 or 632 "below the line" time) by technical employees, whether in the area or in the CPF.
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Item 30 - Examination Technique (final closing only). See IRM 4.4, Audit Information Management System (AIMS) - Validity and Consistency.
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Item 31 - Examiners Grade (final closing only). Enter the grade of the examiner that corresponds to the employee group code entered in item 29.
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Item 38-40 Block Number. If the case meets the requirements for electronic closure, use block number 40X.
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Item 408 - Related Return Alpha Code. Enter P. Items 405-407 should be blank unless using RGS, then only item 405 is entered. This applies to carryback and carryover years as well.
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Item 411 - Payment Code (final closing only). The payment code indicates if there is a payment or partial payment on the account. The codes are as follows (IRM 4.4.12.5.67.1, Valid Codes):
Payment Code Definition F Full Paid P Part Paid N No Payment O Total Offset -
Item 412 - Installment Agreement Code (final closing only). Indicates if the taxpayer has an installment agreement. IRM 4.4.12.5.68, Item 412: Installment Agreement Code.
Installment Agreement Code Definition I Installment Agreement Received C Installment Agreement requires coordination with Collection. N No Installment Agreement was received.
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4.31.6.11.2 (08-08-2022)
Case File Assembly
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After completion of the required reports, Form 4549 and closing documents, Form 5344 and Form 8339 (if return is linked on PCS), the report writer should prepare the case for processing by clerical personnel. The CPF will maintain a paper file or electronically on RGS/CEAS. The case file should contain the following documents:
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A Form 5344; (required)
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Original Return/EUP or RTVUE/TRDBV, 6020(b); (required)
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Amended Return; (required if applicable)
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AMDISA print; (required)
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Examination Report (Form 4549) or Letter 5694; (required)
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The closing document with the Agreement Date; (required if applicable)
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Correspondence and Telephone Communications (in date order with most current date first); (if present)
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Form 4700-T, Workpapers; (required)
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Key case or tier report package with current TSUMYI (TSUMYI and TSUMYP if a tier return); (required)
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Schedules K-1; (required)
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Misc. documents; (if present)
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Form 8339 for each key case adjustment impacting the assessment; or in lieu of the Form 8339, a TSCHG print notated with the name of the person who did the input; (required)
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Form 3198; (if present)
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History Sheet, Form 12616-T and/or RGS case history sheet (required). For example, paper case files may only have Form 12616-T, electronic case files returns may only have the RGS case history sheet and paper files converted to electronic files may have both.; and
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Form 895. (if present)
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The report writer will indicate on the history sheet or RGS case history what letters should be issued or any additional actions that may be required. The history sheet will also indicate the appropriate closing action. The report writer is responsible for instructing clerical and closing operators of the appropriate actions required based on the type of closure.
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If AIMS page 2, displays "RET-NOT-REQ" and there are no original documents that must be returned to files the investor case can be closed paperless, providing all required documents are stored in the RGS case file. Use blocking number 40X.
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If AIMS page 2, displays "RETURN REQUESTED" and all required documents are stored in the paper or RGS case file. Transmit Form 13181, Examination Report Generation Software (RGS) Closing Information Cover Sheet, to files in place of paper file documents and close with block number 08X or 38X. Any original documents that must be returned to files can be attached to the Form 13181. All other documents, that are copies of documents found in the RGS file, may be destroyed.
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For cases closed no change (DC 02) through the GII, cases will include the following:
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Form 5344 on top of the file, and in any order;
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Return or electronic copy;
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Original Schedules K-1; (if present)
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Amended return stapled to the back no DLN;
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History Sheet;
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AMDISA print;
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Form 8339 or TSCHG print;
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Key case report package, unless stored electronically on RGS/CEAS. If electronic, notate on the case history;
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TSUMYI Print (TSUMYP if a tier);
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Efforts should be made to discard any unneeded prints in the folder.
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Once the return is fully closed, it will be sent to Files.
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Returns can be sent to Files paperless using blocking series 40X when:
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All items required to be included in the case file (see paragraph (1) or (3)), are on RGS/CEAS,
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There are no original documents to return to Files, and
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There is a literal on AMDISA of "Ret-Not-Req" on the second page.
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If the literal "Return Requested" is on 2nd page of AMDISA, Blocking Series 18X/38X should be used and the Form 13181, Examination Report Generation Software (RGS) Closing Information Cover Sheet, can be sent to Files in place of printing all documents (see paragraph (1) or (3)). Any original paper returns should be returned to Files attached behind the Form 13181.
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All other paper documents that are copies of what is in RGS/CEAS may be destroyed.
4.31.6.11.3 (08-08-2022)
Partial Closures
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A partial adjustment will be made when there is another open linkage.
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If the open linkage is an ILSC linkage, the case will need to remain in ILSC suspense.
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If the open linkage is a BBA linkage, the case will need to be transferred to BBA Chapter 2/2A suspense. If the investor is in the CPF in Brookhaven, contact the Ogden BBA Chapter 2/2A Coordinator for transfer guidance.
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If the open linkage is a TEFRA linkage, the case will be updated to TEFRA suspense in EGC 5816. Correct the statute date on AIMS to an Alpha Code HH statute. If the ILSC key case is a TEFRA tier ensure the TEFRA indicator for the key case and investor is set on PCS.
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When there are multiple open linkages and one is an open ILSC linkage, the case must stay in ILSC suspense so the statute remains protected.
4.31.6.11.4 (08-08-2022)
Closing Employee Returns
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Employee Accounts are indicated by the flashing "E" Employee indicator on AIMS specifics.
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Prior to closing, the case will be forwarded to the PCS Coordinator.
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The PCS Coordinator needs to provide Exam Planning and Delivery/ Examination Return Selection (EPD/ERC) with the TIN, Tax Year and a brief explanation of the adjustment. A contact person can be found at http://mysbse.web.irs.gov/exam/tip/emplaudit/contacts/11076.aspx.
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EPD/ERC will give written permission to change the audit code. This will allow the case to be closed as normal.
4.31.6.12 (08-08-2022)
Key Case Closing Procedures
- The CPF will be forwarded the key case return when indications are that the investors will not agree. The key case return is needed in the event an investor files a protest. The key case will be closed by the CPF within 30 days after all investor’s agree or all investor’s SNODs default.
4.31.6.12.1 (08-08-2022)
Check Form 5344
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A completed Form 5344 must be in the file when the key case return is received in the CPF.
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When the key case is ready to close, the disposal code may need to be updated depending upon how the return is closed.
Disposal Code When to use the disposal code. 01 - No Change with Adjustments Applies to no change with adjustments cases when no changes are made to the entity's ordinary income or loss or separately stated items reflected on the return or Schedule K-1 and an investor's return is adjusted as a result of the pass-through examination. This would include: adjustments to basis, at-risk or passive activity rules: taxable loan repayments; adjusting the investor's return to match the Schedule K-1 pass-through amount(s). 04 - Agreed After the 30-Day Letter Applies to an agreed case if an agreement is obtained from all owners. If all signatures are received from the owners, you can close the case indicating on the entity report that agreement has been obtained from the owners. 07 - Non-docketed Appeals Applies to returns closed to Appeals before issuance of a 90-day letter. 08 - Unagreed - Does not Agree or Requested an Appeal Applies to Non-Taxable Income Tax Returns Forms 1041, 1065 or 1120S when the investors did not sign a report or request an Appeals conference. 11- Petitioned Applies only to returns an investor petitions tax court after the issuance of a 90-day letter.
4.31.6.13 (05-31-2004)
Reports and Accomplishment
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The PCS generates the administrative reports used to monitor the investor returns and the related key cases.
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The level to which unit and dollar accomplishments are distributed is now restricted to the National Headquarters and the Area.
4.31.6.13.1 (08-08-2022)
Reports
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Each CPF will use PCS and AIMS reports to monitor linked returns. Specific information is provided on PCS reports in IRM 4.29, Pass-Through Control System . The CPF personnel should use the Handbook if they have questions about PCS generated reports. Information on AIMS reports is provided in IRM 4.4.27, Reports.
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Cases in status code 33, Employee Group Code 54XX, will be included on the CPF PCS reports. These criteria, although not all will be used for every report, are also used to determine CPF staffing levels and for specific measurements.
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ILSC related partner or shareholder returns that are in area office possession for examination issues will not be in the CPF physical inventory.
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SSIVL. See IRM 4.4.16.7, Other Inventory Monitoring Tools.
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AIMS 4.0, Statute Control Report, is a monthly report with documentation requirements that is to be maintained for three years. See IRM 4.4.27.5.1.1, Procedures for Working Statute Control Report and IRM 25.6.23.5.6 Campus Statute Controls - Corr Exam and CPF.
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PCS 2-3(N), CPF ILSC Workload, Counts ILSC key cases and ILSC investors linkages by CPF Indicator.
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PCS 5-3, TEFRA CPF Investors with new ILSC Linkages. Lists returns in status code 34, employee group code 58XX to which a ILSC linkage has been added within the past three weeks. This report has a 3 month retention period.
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PCS 5-5(N), Incomplete ILSC Closures and PCS 5-5A(N), Incomplete Appeals ILSC Closures. Lists ILSC key cases in status 90 with investors linked to it with no report package received indicator code. These reports have a 2 year retention period.
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PCS 21-3(N), ILSC Key Case Action Report by CPF. Lists ILSC key cases which have moved into status codes 27, 28, 29, 8X or 90. This report has a 3 month retention period.
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PCS 22-3, National Directory Field/CPF,
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CCA 42-43 IDRS Overage Report (ORCAS) age listings.
ORCAS Reports This report contains all cases controlled to an IDRS employee number and can be used to: 1. Identify cases requiring action. 2. Identify specific cases for review. 3. Monitor the size of the employees' inventories. 4. Determine if employees are working inventory in the proper order. 5. Set closure expectations. 6. Identify potential management problem cases. 7. Monitor statutes. This report is available on the ORCAS delivery database and on Control-D every Monday morning, Report Name: "Overage Report" , Job Name: CCA 4243. The CCA report will be generated by the managers. Employees may also have access to generate their own reports for cases assigned to them (local option), Items on the Report - For each case shown, the following information is provided: 1. TIN - Taxpayer Identification Number 2. IRS Rcd Date - The date IRS received the case 3. Status - Case History Status Code (A - Active, B- Background, C - Closed, M - Other long term delay, and S - Suspense) 4. Category - Category of case 5. Freeze Codes - Freeze Codes on the IDRS account 6. MFT - Master File Tax 7. Mod Per - Tax Period on assigned account 8. Assigned Date - The date the case was assigned to a Tax Examiner 9. Activity Code - A 10 character field on IDRS the Tax Examiner uses to enter actions taken on the case 10. Name Ctrl - Name Control on taxpayer's account 11. Action Date - Date of last action input on the account 12. Age - Number of days case has aged on IDRS 13. MF Mod Balance - Module Balance on IDRS 14. Stat Age - Indicates statute conditions for current and previous years returns - over, expired, or days remaining on statute 15. STAUP Cycle - Stops notices from generating until cycle listed The Manager/Lead must review this report to ensure cases are being worked according to IRS receive dates. Annotate cases for follow-up actions by COB Monday. The reports should be maintained for two months. Highlight the cases on the report where: 1. The TE has failed to take timely actions such as follow-up on a case when the purge date has passed. 2. The case is in Nullified Unpostable (NLUN) category over 14 days old. 3. The Statute of Limitations will expire within 180 days. 4. The STAUP has expired or there is no STAUP on a balance due account. Manager/Lead will provide the Tax Examiner with the page(s) of the report where the cases are controlled to their IDRS number. Tax Examiner will notate the actions taken on each case worked and any updates on an added comment section. The report should be returned to the Manager/Lead by the end of the employee’s work week. Tax Examiners must work cases in the following priority order: 1. Cases controlled using Category Code NLUN. 2. Cases with an ASED expiring within 180 days. 3. Cases where the taxpayer was contacted and the suspense date has expired. 4. Cases with mismatched (erroneous) case controls, Category Codes, and/or Activity Codes. 5. Remaining cases in oldest IRS received date order. The Manager/Lead must also review the inventory on a weekly basis to ensure cases are being pulled and worked in statute date order. This review must include the following items: 1. Compare the previous week’s listing to the current week’s listing and determine if cases or batches are being pulled in statute date order. 2. Identify any TINs that were not pulled in statute date order. 3. Attempt to physically locate the case(s). If located, assign the case(s) to a TE to be worked. 4. Control the TINs of any missing cases to a TE to recreate the case file using electronic data or corresponding with the taxpayer. The Manager/Lead will provide an annotated aged/ORCAS listing to the Department Manager each week and provide a list of TINs that were identified as not being worked in EGC age order as well as statute priority. These reports should be maintained for two months. The employee will notate the actions taken on each case.
4.31.6.13.2 (08-08-2022)
Accomplishments and Inventory
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Accomplishments for CPF closures where the report writing was done in the campus will be closed in employee group code 54XX according to the designated breakouts.
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The results for returns are found on AIMS Table 38 which is used by Headquarters.
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PCS Report 8-3(N) reflects CPF ILSC results by links closed; it also reflects inventory as of the report period for report writing and suspense.
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Report 8-3(N) is a weekly report, and Table 38 is a monthly report.
Note:
Remember PCS reports deal with linkages; AIMS Tables deal with returns.
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