part4-349

4.75.4 
Planning, Classifying, and Selecting Returns and Processing Claims

4.75.4.1 
(02-01-2003)
Introduction

  1. This IRM contains Exempt Organization procedures
    and instructions for researching, classifying and selecting returns and claims.

  2. These instructions are provided for EO Classification
    and field group personnel.

4.75.4.2 
(02-01–2003)
Background Information

  1. This section provides an overview of the EO examination
    planning, classification, and selection process, including:

    1. Returns Inventory & Classification System (EO
      RICS), which is used to identify and select EO returns which relate to specific
      types of compliance activities set out in the approved work plan.

4.75.4.3 
(02-01-2003)
Glossary of terms

  1. RICS Returns Inventory and Classification System
    – an automated system that provides users access to return and files information
    related to filing and processing of returns to the Tax Exempt/Government Entities
    (TE/GE) operating division.

  2. RICS Condition Code – Codes that identify specific
    data that is needed to select the returns that fit a project issue.

  3. Non-Master File (NMF)- collection of revenue accounting
    transactions on taxpayer accounts which provides a means for the assessment
    of taxes and the collection of revenue. An Automated NMF System has replaced
    the manual NMF accounting system.

  4. Examination – A review of books, records, and
    other data to develop all significant issues, to insure a proper determination
    of exempt status, qualification, or tax liability where appropriate, and to
    determine that applicable statutory requirements are satisfied.

4.75.4.4 
(02-01-2003)
EO Implementing Guidelines

  1. The implementing Guidelines direct how the Exempt
    Organization segment will apply resources to programs that support our major
    strategies and operational priorities. The Guidelines identify projected staff
    resources and describe the work in the following areas:

    • Activities within the Office of the Director, Exempt
      Organizations

    • Customer Education and Outreach program emphasis
      areas and activities

    • Rulings and Agreements emphasis areas, including
      tax law interpretation and published guidance

    • Examination emphasis areas and planned compliance
      activities

4.75.4.5 
(02-01-2003)
Office of Director, Exempt Organizations Examinations

  1. The Office of Director, Exempt Organizations Examinations
    plans, manages, directs and executes nationwide activities; supervises the
    activities of EO Examination Programs and Review (EPR) and the six EO Area
    Offices.

  2. EO Examinations is comprised of EO examination
    specialists, supervised by EO Group Managers who are supervised by the EO
    Area Manager within a given geographic area.

  3. The Director is responsible for:

    1. Developing overall EO enforcement strategy and goals
      to enhance compliance consistent with overall TE/GE strategy, and implementing
      and evaluating EO examination policies and procedures;

    2. Regulating and monitoring exempt organizations through
      examination of returns, with emphasis on assuring that exempt organizations
      continue to meet the statutory requirements for exemption and their other
      federal tax responsibilities, including employment taxes;

    3. Coordinating tax administration and enforcement
      activities with other federal and state agencies;

    4. Developing and implementing measures for the EO
      examination program that balance customer satisfaction, employee satisfaction
      and business results;

    5. Monitoring and evaluating the quality and effectiveness
      of the EO Examination programs;

    6. Developing and implementing the EO returns classification
      and selection process, and the case review and closing processes.

4.75.4.6 
(02-01-2003)
Examination Process

  1. The selection of returns to be examined is determined
    by the Examination Planning and Programs (EPP) unit. EPP conducts a market
    segment analysis throughout the nation and develops potential compliance issues.
    Once these issues are identified, condition codes are developed to identify
    the returns that meet the issues in question.

  2. Once the project and condition codes are produced,
    the data is given to the Classification unit for return retrieval. The Classification
    unit utilizes the RICS system to pull the necessary returns to satisfy the
    project needs. All returns must have a minimum of 18 months remaining on the
    statute.

  3. As these returns are received by the Classification
    unit, and a full account is accomplished on the Automated Information Management
    System (AIMS), the returns are transferred to the examination group that covers
    the geographic area where the organization is located.

  4. The examination group conducts the audit on the
    organizations for which the returns were pulled.

4.75.4.7 
(02-01-2003)
Claims Processing

  1. Claims are received and processed by the Ogden
    Service Center (OSC). If a claim is received by any other unit of TE/GE, the
    claim will be sent to the OSC for processing.

  2. All claims that cannot be processed in the OSC
    are forwarded to EO Classification. All claims should have
    an AIMS Account on Integrated Data Retrieval System (IDRS) when received in
    EO Classification.

  3. If the claim is without an AIMS account, the classification
    group will establish one on IDRS.

  4. If there is an AIMS account on IDRS, EO Classification
    will:

    1. Record the claim on the claims database and establish
      on Exempt Organization Inventory Control (EOIC) system;

    2. Check for an original return. If not present, attach
      a Business Return Transaction Files On-Line (BRTVU) print.

4.75.4.7.1 
(02-01-2003)
Claims-Statute of Limitations

  1. Verify the statute of limitation date. The taxpayer
    must file a claim for refund within 3 years from the date the original return
    was filed or 2 years from the date the tax was paid, whichever is later (IRC
    Section 6511).

  2. If no return was filed, a claim may be allowed
    if filed within 2 years from the date of payment.

  3. The following procedure should be used to verify
    the statute of limitation date;

    1. Check the Assessment Statute Expiration Date (ASED)
      on IDRS print TXMODA;

    2. Compare the OSC received date with the ASED. If
      the received date is earlier than the ASED then there are no statute concerns.
      If it is not, check the postmark on the envelope. If this date is earlier
      than the ASED then there are no statute concerns. If neither date is earlier
      than the ASED, the case will be returned to the Statute Control unit in the
      OSC, because Classification does not have disapproval authority;

    3. The Claims Examiner will check to see if the claim
      has been signed by the taxpayer. If not, a request will be sent to the taxpayer
      requesting a signed copy of the claim;

    4. Print IDRS research, (TXMODA, AMDISA, BMFOLA, BMFOLI,
      BMFOLR, BMFOLZ, and BMFOLO);

    5. Check to see if a transaction code (TC) 976 has
      been posted to the return module in question. This TC (transaction code) appears
      on the IDRS print TXMODA.This TC, when added to the module that has a TC 150
      posted, creates an
      “-A”
      freeze preventing a refund or offset
      from the module until an adjustment is made. If no TC 976 is posted to the
      module, make a copy of the claim and send the copy to OSC for posting;

    6. Assign the claim to a Return Classification Specialist
      (RCS) for processing.

4.75.4.7.2 
(02-01-2003)
Surveyed Claims

  1. Claims which are clearly allowable may be surveyed.
    Surveys must include Form 1900 and the return must be stamped
    ”
    surveyed before assignment”
    and approved by the EO Classification Manager.

  2. If the claim cannot be surveyed, the Claims Examiner
    will:

    1. Prepare a statement explaining why it was not surveyed
      on Form 5464 (Case Chronology Record);

    2. Order the original return if it is not in the package,
      update AIMS (using Form 5595), and EOIC, and send the case to the appropriate
      group for examination;

    3. Record
      “Action”
      taken on the
      claims database;

    4. Forward the original return, when it is received,
      to the group for association with the claim.

  3. If there is not an AIMS Account on IDRS, EO Classification
    will:

    1. Create an AIMS account using Form 5597 and establish
      on EOIC. Follow the processing procedures in IRM 4.75.4.
      See Section 4.7.1.

    2. In situations where expedite processing is required,
      such as a Taxpayers Advocate case, EO Classification may process the claim
      without establishing it on AIMS, with management approval. Form 3870 may be
      used to process these claims. Form 3870 will be controlled on the claims database.

    :

4.75.4.7.3 
(02-01-2003)
Claims subject to section 4962

  1. If the claim is on an assessment of 1st tier tax
    only, use the procedure for claims shown in IRM 4.7.4.
    Section 4.7.1.

  2. The 2nd tier assessment must be established on
    IDRS non-master file by the classification unit, using the individuals social
    security number (SSN) or the organizations tax identification number (TIN)
    if the organization is the entity being assessed. This process allows the
    2nd tier assessment to be processed through the closing unit with closing
    document 5599.

  3. If Form 4720 reflects assessment of both 1st and
    2nd tier tax:

    1. There must be a Manual Accounting Replacement System
      (MARS) transcript with the claim, showing the assessment of excise tax against
      an organization or an individual with a social security number attached. The
      2nd tier assessment is processed using Form 3870

    2. If the claim has a 2nd tier tax assessment and no
      automated non-master file transcript is attached, the claim must be sent back
      to OSC for processing on the automated non-master file system. Once the transcript
      is received, process the 2nd tier tax assessment. .

4.75.4.7.4 
(02-01-2003)
Net Operating Loss (NOL) or Capital Loss carrybacks.

  1. A Net Operating Loss is created when the taxpayer’s
    deductions exceed income. A NOL lowers taxes in an earlier year, allowing
    a refund for taxes already paid. These deductions must relate to a trade or
    business. Any loss remaining after applying the NOL to preceding years lowers
    taxes in a succeeding year. The taxpayer must use the NOL before applying
    unused credits.

  2. A NOL arising in taxable years beginning after
    August 5, 1997 can take a NOL back 2 years and forward 20 years. Prior to
    this change a taxpayer could take a NOL back 3 years and forward 15 years.

  3. Verify statute of limitation. Carryback claims
    differ from other claims for years beginning after November 10, 1978. An extension
    of time to file which has been granted does not terminate on the date the
    return is filed. The claim is valid if filed on or before the extended due
    date, regardless of the filing date of the original tax return.

  4. The procedure to verify the statute is the same
    as other claims except for the extension issue.The statute should reflect
    alpha code BB which represents a Carryback Update.

  5. A Form 2285 is needed where there are two loss
    years being carried back to one year and when there is a carryback and a general
    adjustment to the receiving year. See the instructions for Form 2285 in IRM
    7.2.1.

  6. Prepare Form 5599 (EO/GE Examined Closing Record)
    to show the needed adjustment(s). Form 5599 will be used for all claims that
    have an AIMS account. See IRM 7.2.1 for completion of Form 5599.

4.75.4.7.5 
(02-01-2003)
Protective Claims

  1. Protective Claims are formal claims or amended
    returns for credit or refund normally based on expected changes in a:

    • Current IRC section

    • Current Regulation

    • Pending legislation

    • Current litigation

  2. The following should be considered
    ”
    Protective Claims”
    :

    • Claims identified as a pending court case or decision

    • Claims recomputing the Foreign Tax Credit based
      on the foreign taxes
      ” deemed paid”
      per IRC Section 902

    • Medical/Dental Resident FICA/Medicare tax claims

    • IRC 403(b) claims

  3. A claim that has been identified as a protective
    claim should be updated to status 38 on IDRS and EOIC, then placed in suspense
    in EO Classification.

4.75.4.7.6 
(02-01-2003)
EO Penalties

  1. All EO Penalty abatement requests are worked
    at OSC. See IRM 21.7.

4.75.4.7.7 
(02-01-2003)
Joint Committee Claim Cases (Ref IRC 6405)

  1. A case that involves a request for the return
    of overpayment of $2,000,000.00 or more will be processed and sent to the
    appropriate EO examination group. Once the examination group completes its
    examination and prepares its report, the case file will be sent to the Joint
    Committee representative for review.

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