Service's Litigating Position for Returns Prepared under Section 6020(b), CC-2004-009-IRS

Legislative History of 26 U.S.C. §6020(b):  The statute that allegedly authorizes Substitute for Returns.  The history of that legislation shows that assessment authority only exists for taxes that have a liability statute, which Subtitle A taxes DO NOT.

Tax Deposition Questions, Section 13: 26 U.S.C. §6020(b) Substitute for Return:  Copious evidence of IRS' lack of authority to assess you with a Subtitle A income tax liability.

"assessment" defined:  Authority of IRS to make an assessment on you for Subtitle A income taxes.  In most cases, they have NO authority!

Government Accounting Offices (GAO) Report # GAO/GGD-00-60R IRS' Substitute for Return (SFR) Program-very revealing!

IRS Letter on Substitute for Returns- Hot!

Internal Revenue Manual, Section 11.3.6.4.1

Note:

Substitutes for returns are not "returns," but rather constitute return information. The certification of an SFR should state something to the effect that it is "A Substitute For Return package prepared by IRS." The substitute for return may not be a traditional tax return, but may consist of one or more documents that together support the assessment of tax. In these cases, it will be especially important to appropriately identify on the Form 2866 the document(s) being certified. See (5) and (6) below.

Internal Revenue Manual section 4.13.5: Automated Substitute for Return

Internal Revenue Manual section 5.1.11.6.8: IRC 6020(b) Authority (03-01-2007):

1. The following returns may be prepared, signed and assessed under the authority of IRC 6020(b):

A. Form 940, Employer’s Annual Federal Unemployment Tax Return

B. Form 941, Employer’s Quarterly Federal Tax Return

C. Form 943, Employer’s Annual Tax Return for Agricultural Employees

D. Form 720, Quarterly Federal Excise Tax Return

E. Form 2290, Heavy Vehicle Use Tax Return

F. Form CT–1, Employer’s Annual Railroad Retirement Tax Return

G. Form 1065, U.S. Return of Partnership Income.

2.  Pursuant to IRM 1.2.44.5, Delegations of Authority, Order Number 182 (rev. 7), dated 5/5/1997, revenue officers GS-09 and above, and Collection Support Function managers GS-09 and above, have the authority to prepare and execute returns under IRC 6020(b).

NOTE:  Do you see any of the following forms in the list above:  1040, 1040EZ, 1040A, 1040NR?

Internal Revenue Manual section 5.1.11.6.8.2: Preparation and Approval of 6020(b) Returns:

5.1.11.6.8.2  (05-27-1999)
Preparation and Approval of 6020(b) Returns

1. ICS now provides revenue officers the ability to prepare returns and letters on their ICS laptop. Compliance Territory Managers are encouraged to fully utilize the ICS 6020(b) program. However at local management option, and with the concurrence of the Compliance Services, Case Processing, Territory Manager, the Field Support Function may perform all phases of the IRC 6020(b) clerical and review process. This includes signing of returns and submitting them for routine processing.
2. Use Form 5604, Section 6020(b) Action Sheet, to prepare returns under the authority of IRC 6020(b). The revenue officer should fully document their ICS history with a complete explanation of the basis for the assessment(s). The explanation should include information such as wages paid, income tax withheld, FTD's or payments, and any calculations or other information they used to establish the correct liability for each tax period. This information is important because it could be utilized later should the taxpayer request an appeal, file suit, or file Form 911 with the Taxpayer Advocate office.
3. Attach a copy of the ICS history documentation that explains the basis for the assessment(s) to Form 5604. This will eliminate the need for the revenue officer to complete the "basis for assessment" section on Form 5604.
4. Use the taxpayer’s records or other reliable sources to determine the amount of wages paid, the amount of income tax and FICA tax withheld, and other necessary information. Use the following to prepare Forms 940, 941, 942 and 943:
   1. Compute daily wage information times 91 days.
   2. Compute weekly wage information times 13 weeks.
   3. Compute monthly wage information times 3 months.
   4. Compute annual wage information by multiplying appropriate days, weeks and months times amount(s) provided.
5. Use the following method of tax computation for preparing returns when actual wage amounts are not available.
   1. Withholding is 20% of the wage amount when the actual amount is not provided by the taxpayer.
   2. FICA should reflect the correct rate for the applicable period.
   3. Use the wage amount from the last period satisfied (LPS) adjusted by the inflation factor to compute wages for IRC 6020(b) returns. The inflation factor is a percentage (2.5%) applied against the wage amount from the LPS. To compute the inflation factor for a delinquent period, multiply 2.5% times the number of quarters between the Del Ret period and the last period satisfied (LPS). Then, add the inflation factor to the wage amount from the LPS. This total is the wages to be used on the IRC 6020(b) return.
   4. If a "final" return is prepared under IRC 6020(b), be sure to indicate it as "final" under " date last wages paid" .
   5. The inflation factor is not applicable if the Del Ret module is BEFORE the LPS module data.

   Example:

   Do not calculate the inflation factor if the LPS is 200206 and the delinquent period is 199912.

6. Use the following procedure for preparing Partnership returns:

   Note:

   Do not prepare a Partnership return under the provisions of IRC 6020(b) if Revenue Procedure 84–35 applies to a small partnership (10 or less partners) that meets "reasonable cause" provisions for failure to file and you have verified that each partner has individually and fully reported his share of partnership income (see section 11.7.1 for Del Ret closing actions).

   1. For Form 1065, complete the name, address, and EIN portion of the form along with the number of schedule K-1s that will be attached. If you know the gross receipts, then also complete lines 1a, 1c, and 8. These lines should all contain the same amount. This is all that is completed on Form 1065.
   2. Schedule K-1 should also be completed and attached to Form 1065. A Schedule K-1 is completed for each known partner. Partners can be individuals, other partnerships, trusts, S-Corporations, or Corporations. On all cases, complete the Partners identifying number, name, address, and zip code, as well as the Partnership's identifying number, name, address, and zip code.
   3. If the revenue officer does not know what the Partnership's income was for the tax year, then do not complete any thing else on the Schedule K-1.
   4. If the revenue officer knows what the Partnership's income was for the tax year (line 8 on Form 1065), then complete line 1 on Schedule K-1. If the revenue officer knows what each partner's distribution of income percentage is, then prepare each K-1 appropriately. If the distribution of income percentage is unknown, then divide the distribution of income equally among the partners, and reflect that amount on the K-1. Example: $100,000 total distributive income (Line 8 from the Form 1065) and four partners. Then $25,000 will be reported on each partner's K-1.
   5. Partnerships don't pay tax, but instead pass through income and deductions to their partners, who then report it on their income tax returns. Therefore, it is important to know that the main objective of ensuring the Form 1065 and Schedule K-1 is filed, either voluntarily by the Partnership or under IRC 6020(b) authority, is to ensure that the partners have accurately reported their share of the Partnership income. It is important for the revenue officer to appropriately follow up on each partner's filing requirements for the delinquent tax year. If appropriate, revenue officers should consider a referral to Exam, Form 3449, if partners failed to report Partnership income. If potential fraud exists, then the revenue officer should follow 6.2 of this section, Referrals to Criminal Investigation.
7. Prepare a return for the current tax period if that period becomes delinquent during the IRC 6020(b) process.
8. Prepare the tax returns in sets. A completed set includes an original and one copy of each return for each tax period.
9. Mail Letter 1085 or 1616 along with the original returns and all applicable enclosures, to the taxpayer. ICS macros should contain Letters 1085, and L1616 (used for Partnership returns). Retain a copy of the letter and tax returns in the case file.
10. Should a taxpayer file bankruptcy after a letter 1085 or 1616 has been mailed, immediately inform Insolvency and provide them with copies of the proposed returns. Unless instructed otherwise, continue 6020(b) processing.

Internal Revenue Manual section 5.1.11.6.3.1: Referral to ASFR (03-01-2007):

5.1.11.6.3.1  (03-01-2007)
Referral to ASFR

1. The Automated Substitute for Return (ASFR) process prepares a Substitute for Return for individuals who fail to file after notification. ASFR uses Information Return Program (IRP) information posted to the Information Returns Master-file (IRMF) to calculate potential tax due and issue a Notice of Deficiency. If no return is secured 90-120 days after the Notice of Deficiency is issued, ASFR assesses the tax due based on the calculation.

   Note:

   If the taxpayer is overseas then the Service cannot assess until after 150 days.

    

2. ASFR is authorized to prepare an individual’s income tax return under Section 6020(b) of the IRC and the regulations thereunder. The automated process is located in the campuses.
3. Refer Del Rets to ASFR processing if the case meets ASFR criteria. The referral must meet a minimum, "net tax due" amount, (see LEM 5.1.11.6.3.1) and all of the following criteria:
   1. The Del Ret Module is in Status 03;
   2. There are less than 60 IRP documents for the tax year referred (if not, see section 6.3.2 below);
   3. IRP exists on Master-file CC Supol for the module (if not, see section 6.3.3 below);
   4. There is no current or pending TC 530 on the account (see sections 6.1 or 6.3.2);
   5. There are no unresolved (status 22, 24, 26) Bal Due modules (see section 6.1 or 6.3.2 below);
   6. There are no -V, -W, -L, or -Z freezes on the module or account (see section 6.1);
   7. The Select Code is not a CI or IRS employee selection code.

      Note:

      If Del Ret module(s) is not in status 03, take action to either accelerate, (i.e.; status 02 modules) or reverse the satisfying transaction (i.e.;status 06 modules)

4. Document ICS history with the ASFR referral decision and use "Option J; Transfer to ASFR (IMF only)" to close the ICS Del Ret module and systemically refer the case to ASFR processing
5. If contact is made with a taxpayer whose return is being prepared by ASFR, attempt to secure the return(s), however, do not issue a summons if the taxpayer refuses to file.
6. If a return is secured for a period previously referred to ASFR, that has not been assessed (no TC290 or TC300), scan the return as an attachment and send to the Brookhaven Campus using secure E-mail. Use the following E-mail address for the Campus: *SBSE ASFR CFf referrals. Use the following address for ASFR if e-mail cannot be used:

   IRS ASFR

   1040 Waverly Avenue

   P.O.Box 9013

   Holtsville, New York 11742-9013

7. If a return is secured for a period that has been assessed, process the return as a Request for Reconsideration. See Interim Guidance memorandum SBSE-05-0906-035; dated September 1,2006 and IRM 5.1.20 for detailed instructions.
8. E-mail contact may be made directly with the ASFR unit in various other situations after a nonfiler has been referred to ASFR. The most common reasons for contact include:
   • Assign/re-assign case
   • Prioritize a case with substantial net tax due (See LEM 5.1.11.6.3.1)
   • Prioritize a case with pending collection activity (i.e.; pending Levy/Seizure)
   • Retrieve a case erroneously referred to ASFR, (i.e.; Fraud investigation pending)

     Note:

     Secure group manager approval for ASFR contact by sending the secure E-mail through your manager

   Use the following E-mail address to contact the Campus ASFR unit: *SBSE ASFR CFf referrals. Use secure E-mail for all correspondence with the ASFR mailbox.

Internal Revenue Manual section 25.6.5.4.8.19: Substitute For Return (SFR):

1.  When a taxpayer fails to file a return as prescribed by law, they are sent a series of notices advising them of the delinquency condition. If the taxpayer does not respond to the notices, a final notice is sent informing them that the Service is authorized to prepare a substitute return unless they file a correct signed return within the period allowed by the notice. The ASED is based on the receipt of the taxpayers return and not the SFR assessment

Internal Revenue Manual Section 25.6.22: Extension of Assessment Statute of Limitations By Consent

Internal Revenue Manual section 25.6.5.4.8.19.1: SFR and ASFR:

1. The SFR program and its automated version (ASFR) were developed to deal with taxpayers who have not filed personal income tax returns voluntarily and for whom income information is available to substantiate a significant income tax liability without costly field investigation. The purpose of the program is to assess the correct tax liability by either:
   1. Securing a voluntary income tax return from the taxpayer.
   2. Computing tax, interest, and penalties based upon the IRP documents submitted by payers or other internally available information.
2. A TC 290 accompanied by a DLN with a blocking series of 540-549 or 640-649, indicates an SFR assessment. Also, a TC 150 which shows tax class 2, document code 10 and blocking series 00-299 in the DLN is an SFR assessment.

IRM 3.42.5.16.8:  Missing Taxpayer Signature(s)

3.42.5.16.8.1  (10-01-2007)
Missing Taxpayer Signature(s)

1. Refer to signature requirements contained in IRM 3.11.3, Individual Income Tax Returns. These procedures also apply to Forms 8453/8453-OL and the Letter 2939 jurat. The taxpayer's signature(s) is acceptable anywhere below the jurat.
2. If a properly signed Form 1040/A/EZ is attached to Form 8453/8453-OL, it is acceptable for the signature.

   Note:

   To avoid the possibility of the attached Form 1040 being processed through the pipeline, mark Form 1040 with a large "X" . If the taxpayer's signature appears in an area of the Form 8453/8453-OL other than the signature line, arrow it to the signature line and continue to process.

3. If no signature is found, follow procedures in IRM 3.42.5.16.8.3, Processing Procedures for Incomplete Forms 8453/8453-OL.

26 C.F.R. 301.6020-1(b): Returns prepared or executed by district directors or other internal revenue officers.

TITLE 26--INTERNAL REVENUE
CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY-- (Continued)
PART 301--PROCEDURE AND ADMINISTRATION

(b) Execution of returns -

(1) In general. If any person required by any internal revenue law or by the regulations prescribed thereunder to make a return (other than a declaration of estimated tax required under section 6015 or 6016) fails to make such return at the time prescribed therefor, or makes, willfully or otherwise, a false or fraudulent return, the district director or other authorized internal revenue officer or employee shall make such return from his own knowledge and from such information as he can obtain through testimony or otherwise.

(2) Status of returns. Any return made in accordance with subparagraph (1) of this paragraph and subscribed by the district director or other authorized internal revenue officer or employee shall be prima facie good and sufficient for all legal purposes.

(3) Deficiency procedures. For deficiency procedures in the case of income, estate, and gift taxes, see sections 6211 to 6216, inclusive, and Sec. 01.6211-1 to 301.6215-1, inclusive.

Internal Revenue Manual Section 4.4.9: Delinquent Returns Processing

26 C.F.R. §301.7701-9:  Secretary or his delegate

TITLE 26--INTERNAL REVENUE
CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY-- (Continued) Discovery of Liability and Enforcement of Title
Sec. 301.7701-9 Secretary or his delegate.

(a) The term 'Secretary or his delegate' means the Secretary of the Treasury, or any officer, employee, or agency of the Treasury Department duly authorized by the Secretary (directly, or indirectly by one or more redelegations of authority) to perform the function mentioned or described in the context, and the term 'or his delegate' when used in connection with any other official of the United States shall be similarly construed.

(b) In any case in which a function is vested by the Internal Revenue Code of 1954 or any other statute in the Secretary or his delegate, and Treasury regulations or Treasury decisions approved by the Secretary or his delegate provide that such function may be performed by the Commissioner, assistant commissioner, regional commissioner, assistant regional commissioner, district director, director of a regional service center, or by a designated officer or employee in the office of any such officer, such provision in the regulations or Treasury decision shall constitute a delegation by the Secretary of the authority to perform such function to the designated officer or employee. If such authority is delegated to any officer or employee performing services under the supervision and control of the Commissioner, such provision in the regulations or Treasury decision shall constitute a delegation by the Secretary to the Commissioner of the authority to perform such function and a redelegation thereof by the Commissioner to the designated officer or employee.

(c) An officer or employee, including the Commissioner, authorized by regulations or Treasury decision to perform a function shall have authority to redelegate the performance of such function to any officer or employee performing services under his supervision and control, unless such power to so redelegate is prohibited or restricted by proper order or directive. The Commissioner may also redelegate authority to perform such function to other officers or employees under his supervision and control and, to the extent he deems proper, may authorize further redelegation of such authority.

(d) The Commissioner may prescribe such limitations as he deems proper on the extent to which any officer or employee under his supervision and control shall perform any such function, but, in the case of an officer or employee designated in regulations or Treasury decision as authorized to perform such function, such limitations shall not render invalid any performance by such officer or employee of the function which, except for such limitations, such officer or employee is authorized to perform by such regulations or Treasury decision in effect at the time the function is performed.