Screen new BMF returns and claims to determine if frivolous within two business days of IRS received date.

Review receipts for:

Ensure all actions taken on each case are thoroughly documented on FRP Master and that all control bases are updated appropriately.

Audit deficiency procedures for Valid, Frivolous Returns should be used for frivolous filers for whom compliance check reveals income information is available to substantiate a significant income tax liability. Using Information Return Program (IRP) documents submitted by payers or other internally available information, compute tax, interest, and penalties for non-filed years. Cases will be processed by the Campus if IRP documents support tax assessments or by the area offices if they meet criteria for referral.

Once it has been determined that a case should be forwarded for Statutory Notice Of Deficiency (SNOD) issuance, the tax technician should ensure all necessary IDRS command codes are researched to verify and secure the taxpayer's last known address and any POA information. All cross-reference taxpayer accounts should also be researched.

The Tax Examiner should review the report to ensure all issues are included and correct tax/penalty computation amounts are indicated on the report including funds received resulting from a refund issued on a frivolous filing. Fraudulently claimed excessive credits received by the taxpayer constitute an accretion of wealth over which the taxpayer exercised control; hence, it is income under IRC section 61.

Ensure that an original statutory notice is provided to both spouses in the event of a divorce, including their separate POAs if applicable

Process as follows:

Substitute for Return Procedures for Frivolous Non-filers (SFR) should be used for frivolous non-filers for whom compliance check reveals income information is available to substantiate a significant income tax liability. Using IRP documents submitted by payers or other internally available information, compute tax, interest, and penalties for non-filed years. Cases will be processed by the campus if IRP documents support tax assessments or by the area offices if they meet criteria for referral.

Once it has been determined that a case should be forwarded for SNOD issuance, the tax technician should ensure all necessary IDRS command codes are researched to verify and secure the taxpayer's last known address and any POA information. All cross-reference taxpayer accounts should also be researched.

The Tax Examiner should review the report to ensure all issues are included and correct tax/penalty computation amounts are indicated on the report.

Ensure that an original statutory notice is provided to both spouses in the event of a divorce, including their separate POAs if applicable

Process as follows:

All Examination case file folders for in-process cases will be assembled in the following order:

All cases not going through Batch Processing and requiring manual closure will be assembled in the following order:

When applicable, Form 895, Notice of Statute Expiration, should be placed on the top of all other documents.

Remove extraneous material such as routing slips, excess prints, etc.

Indicate closing action code and time on outside of case folder. Ensure FRP Master Daily is updated appropriately for FRP cases.

90-day notices should never be voided. If the 90-day notice is no longer valid, attach a note to indicate "Void, Do Not Assess." If the 90-day notice is valid but the report has been revised, attach a note to the 90-day notice to indicate "Do Not Assess."

See also IRM 4.4.1.6, Case Assembly.

Refer to IRM 3.15.129.1.11, for additional information on unpostable conditions and procedures.

Acronyms for NOREF Processing are: CLC=Collection Location Code; ULC=Universal Location Code (first two digits of the Primary Location Code); FLC=File Location Code (first two digits of the DLN).

Process as follows:

Determine the W&I campus by the Collection location code or the universal location codes.

Determine the SB/SE campus by the Collection location code or the universal location codes.

If paper check is being issued, use the table above to determine appropriate campus to input CC:NOREF. Access appropriate campus using CC:CMODE and the corresponding campus' acronym as follows: Andover--AN, Atlanta--AT, Austin--AU, Brookhaven--BR, Cincinnati--CI, Fresno--FR, Kansas City--KC, Memphis--ME and Philadelphia PH. Input CC:NOREF as follows: (Paper Check).

CC:NOREF/NOREFE posts with all 5's in the DLN (blocking series, etc). This input creates a P freeze and a TC841 posts on the module. It does not post for up to four weeks after the input of the CC:NOREF. TC841 with all 9's in the DLN (blocking series, etc). means the check was re-deposited.

Input NOREF as follows:

For paper check, input TXMODA

For direct deposit refund, input TXMODA

There are three options available to intercept payments at financial institutions (bank indemnification process) or post offices (Recall of Mail) or through voluntary return with revenue officer (Coordination with Collections for RO Assignment).

Bank Indemnification Process - There are two situations in which an indemnification letter is appropriate: If a direct deposit refund is issued and CC NOREFE is unsuccessful or if the bank calls the Service and advises of a suspicious deposit being made to a client's account.

Recall of Mail - If unable to recover erroneous refund through bank indemnification process, attempt to recover refund by recall of mail. Per postal procedures, "Mail deposited in a collection box or at a post office may be recalled with proper identification by the sender or the sender's representative. [Postal] Form 1509 must be submitted to the postmaster at the office of mailing" . Therefore, after Notice Review and CC:NOREF cycle cutoffs or during accelerated cycles, the U.S. Post Office can be contacted (usually on Friday) to stop delivery of an erroneous refund check.

Coordination with Collections for RO Assignment - If all other options do not result in recovery of erroneous refund, coordinate with Territory Manager the assignment of a revenue officer to conduct a courtesy investigation.

Reverse transaction that caused the refund by inputting TC290 with appropriate reference code.

Send Letter 105C with appropriate paragraph informing taxpayer that refund was allowed in error.

Suspend case for 60 days to allow taxpayer to dispute.

If no response received within 60 days, close case and send to Files.

If response received disputing adjustment within 60 days, reinput the credit with Hold Code 2 and send Statutory Notice of Deficiency.

When recovering refunds by statutory notice of deficiency, return account to taxpayer's intended figures ensuring all actions are taken to eliminate the possibility of a second erroneous refund.

Issue statutory notice of deficiency.

Include amount of refund as income to the taxpayer in the year of receipt of the money. If necessary, initiate tax audit for the year of the receipt of the erroneous refund.

If taxpayer submits a subsequent claim after disallowance of previous claim, assess frivolous return penalty for each and every document and issue Letter 916C with paragraphs B, C, Q, and V. Paragraph Q fill-in: We previously advised you that the amount claimed was frivolous and therefore had no basis in law. It is not our policy to respond to future correspondence concerning this and other issues with no basis in law. Continued filing of returns of this type may result in a frivolous return penalty of $5000 under Internal Revenue Code section 6702.

The Service may ask the Department of Justice to bring legal action against the taxpayer to recover the erroneous refund. A refund suit must be filed within two years of when the return was made or five years if the taxpayer induced the issuance of the erroneous refund through fraud or misrepresentation of a material fact.

When it is appropriate to initiate an erroneous refund suit to recover refunds, the following information will need to be obtained:

Input TC844 via REQ77 to indicate an erroneous refund has been issued using date of erroneous refund in transaction date field.

Input TC520 via REQ77 with closing code 70 and ULC code 87 indicating refund litigation.

Make no adjustments to module to reverse credit that caused the refund.

Forward documents to designated coordinator for referral to Counsel.

The Lead Development Center (LDC) develops potential civil investigations on abusive promotions for referral to investigating offices.

All frivolous filings should be considered for potential civil investigation when promotions, promoters, or preparers are associated with them. Initial screening of returns, claims and correspondence may determine the need to consider further development of case referrals for civil investigations. When a filing is associated with four or more frivolous filings that are potentially attributed to a specific promotion, promoter, or preparer, FRP shall forward Referral Memo to LDC for determination of further processing.

When unable to determine identity of promoters/preparers on filings containing similar characteristics, e.g., scheme language/appearance, document fonts/colors, geographic information, entity identifiers, etc., consider contacting individual taxpayers using FRP Master database interview screen questions.

When promoter/preparer identity is obtained without TIN, attempt to secure TIN via IDRS. If unable to secure TIN, provide comments in Referral Memo.

When positive identification of a promoter/preparer is made, provide documentation if possible that indicates extent of activity and whether it is ongoing. This may include but is not limited to:

Research IDRS/RPVUE to determine if additional returns were submitted but not referred to FRP or otherwise not identified. If returns are identified that need to be ordered from RPVUE research, request approval from Campus Compliance Services Director.

If it appears that the preparers or promoters of frivolous arguments require income tax audits of their individual filings, refer the case the Area Office PSP. Order promoter/preparer’s personal returns to determine if they have participated in the scheme.

Upon initial identification of one filing by a promoter/preparer, prepare a case file including copies of pertinent documents and enter information to Project Status Listing.

When four or more filings from one promoter/preparer are identified, prepare three-section brown case file folder with label containing promoter/preparer identification and including:

Forward Referral Memo, ranking elements, participant list, and representative copies of returns to LDC via Form 3210.

All other information listed above should be kept to support investigation as warranted.

Suspense case file under "Pending 6700 Investigation" until response is received from LDC.

Annotate preparer/promoter account TXMOD history, "6700 Inves" .

Enter promotion/promoter/preparer information to FRP Master database to ensure accurate identification of all similar filings and ensure periodic updates as actions are taken.

LDC will consider all the factors involved in each case and determine if promoter/preparer should be investigated for injunctive action including a streamlined investigation conducted by FRP or returned to FRP to have penalties assessed only.

LDC will forward all approved Civil Investigation Recommendation Memos related to frivolous filings to FRP and the appropriate IMT technical advisor for review.

Ensure all related frivolous filer promoters/preparers (Including Anti-tax/Constitutional) are reflected on Project Status Listing.

Reviewers will determine if appropriate for FRP to conduct the section 6700 investigation and provide feedback to LDC to secure case. Criteria used includes but is not limited to promoter/preparer activity sufficiently developed to allow for streamlined referral, i.e., at least three filings signed by preparer or additional filings not signed by preparer but with identical characteristics, attachments or information from taxpayer indicating preparer involvement with return.

If reviewers do not select case for FRP section 6700 investigation, assistance will be provided to appropriate area office conducting investigation.

Streamlined section 6700 investigations conducted by Campus Examination allow for more efficient, cost effective investigations and result in shutting down abusive tax avoidance promotions before they proliferate. FRP will conduct all case research, document preparation and DOJ referral processes which limits revenue agent involvement to conducting a possible face-to-face interview and/or providing local knowledge of promotion.

Cases will be processed as follows:

Counsel will forward results of injunctive action including any rejected cases with appropriate penalty instructions.

Cases that do not result in LDC investigations should be considered for section 6694/6695 investigations if associated with a tax return preparer(s). To apply sanctions on non-compliant preparers, Penalty Policy Statement P-20-1 directs preparer penalties only after due deliberation on all facts and circumstances.

Individuals who knowingly aid and abet in the understatement of the tax liability for another person may be subject to certain penalties. See IRM 20.1.6, Preparer/Promoter Penalties, and IRM 20.1.6.2, Office of Professional Responsibility, for information on practitioners who file delinquent and/or frivolous returns.

For purposes of imposing a penalty under sections 6694 or 6695, an income tax return preparer is any person who prepares for compensation, or who employs or engages one or more persons to prepare for compensation (other than for the person) all or a substantial portion of any return or any claim for refund of tax. The preparation of a substantial portion of a return or claim for refund shall be treated as if it were the preparation of such return or claim for refund.

All preparer penalty cases prepared by FRP will be coordinated with Associate Area Counsel to determine if the case should be considered for civil injunction, penalty assessment, or no action.

Cases referred for section 6694 penalties are usually those with frivolous filings that are limited in number and in which the preparer has stopped preparing returns. They may be assessed under section 6694(a) ($250) and (b) ($750) together for a total of $1,000 or section 6694(b) ($1,000) alone. Paragraph (a) carries an ASED of two years from the due date of the taxpayer's return for which the penalty is being assessed and paragraph (b) carries no ASED requirement; however, paragraph (a) requires a less severe burden of proof. Therefore, whenever there are more than six months remaining on the assessment statutes, refer for assessment penalties under both (a) and (b) for any applicable tax periods and (b) alone for those with less than six months remaining on the assessment statute.

Input IDRS control to preparer TIN current TXMOD history, "Prep Inv" to ensure proper routing of subsequent correspondence or filings. Case file should contain:

Submit case to Salt Lake City Associate Area Counsel for approval.

Cases referred for 6695 penalties are not as common but should be considered when appropriate. Associate Area Counsel will provide guidance on the determination of when IRC section 6695 should be applied.

If case is approved for IRC section 6694 penalty assessment, forward to Ogden Compliance Services Area Director for approval on Form 8278 and follow Proposing Preparer Penalties below.

Prepare Letter 1125(DO), Transmittal of Exam Report, indicating:

Prepare Form 5816, Examination Report, indicating:

Prepare Form 5838, Waiver of Restrictions on Assessment and Collection of Tax Return Preparer Penalty, indicating:

Prepare Form 6459, Return Preparer's Checksheet, checking all applicable boxes and including team manager's approval.

Mail Letter 1125, Forms 5816, 5838, and Letter 3164, Third Party Notification, (if not previously sent) and Notice 609, Privacy Act Notice and Paperwork Reduction Act Notice, to preparer and suspend case for 45 days.

Annotate ENMOD with "LTR1125" to indicate letter has been sent.

Requests for conference - If response is received disagreeing with proposed assessment, contact preparer and attempt to resolve issue. If conference results in:

Requests for Appeals consideration - See IRM 8.1.1.2.3, No Appeals Conference or Concession on Certain Arguments. There are no administrative appeals provisions for requests based on frivolous positions. See also IRM 20.1.6.1.3, Appeal Rights. Treasury Regulation section 1.6694-4(a)(1) allows a pre-assessment appeals procedure. Valid requests for pre-assessment appeals consideration will be granted. IRM 4.4.5.4, Non-Docketed Cases, provides guidance.

Complete Form 8278, Computation and Assessment of Miscellaneous Penalties (see also IRM 20.1.6.1.9, Processing and Assessment Instructions).

Input TC290 for zero ($.00) with penalty reference number 645 for total amount of penalties (section 6694(a IRC section 6694(a) - $250 per return/claim) and penalty reference number 650 for total amount of penalties ( IRC section 6694(b) - $750 per return/claim, if IRC section 6694(a) and (b); or, if only IRC section 6694(b) - $1,000 per return/claim).

Establish civil penalty name line if necessary per IRM 20.1.6.1.9.2, Processing Guidelines.

Annotate TXMOD MFT 55 history, "6694 Pen" .

File case under TC240 DLN associated with Form 5147, IDRS Transaction Record.

Close IDRS control.

Ensure Electronic Filing Coordinator is notified of all penalties asserted on return preparers per IRM 20.1.6.1.10, Electronic Filing Program.

Requests for conference - If response,

Requests for Appeals Consideration - (See IRM 8.1.1.3.3, No Appeals Conference or Concession on Certain Arguments). There are no administrative appeals provisions for requests based on frivolous positions.

Requests for appeals that meet abatement criteria should be processed by FRP. See Claims below.

Claims - (See IRM 20.1.1.3, Relief from Penalties, and IRM 20.1.10.9.4, Penalty Relief). Review case for specific processing requirements. Refer to IRM 21.5.3 , General Claims Procedures, and IRM 4.19.16, Claims, for additional processing information. Claims are usually filed on Form 843 but may be made in an informal inquiry. Claims may be for abatement or refund and should be worked as follows:

Update Promoter Database via E-mail to LDC.

Update Project Status Listing on FRP Master.

Coordinate with Collections as appropriate to ensure appropriate collection of assessments.

Make referral to "Office of Professional Responsibility" per IRM 20.1.6 (see also IRM 4.19.10.1.11.2 ).

Consider referral to SB/SE Communications and Liaison through Team Manager.

Submit case for quality review.

Charge time spent to OFP 91859.

Monitor new receipts for continued filings and/or injunction violations and refer findings to Associate Area Counsel for consideration.

The Frivolous Return Program coordinates with Area Counsel to obtain legal and/or significant advice on:

All potential frivolous arguments must be coordinated with Counsel prior to processing under FRP guidelines. Requests for Counsel opinions should be coordinated with the Campus Area Office Counsel Liaison to prevent duplicate requests. Requests should outline the specific frivolous argument involved and provide examples to assist Counsel in rendering opinions.

As new frivolous arguments are identified, they should be coordinated with Chief Counsel for updating of Chief Counsel's web page, "The Truth About Frivolous Arguments" and creating new revenue rulings.

All new Chief Counsel opinions should be reviewed for potential coordination on SERP/CAS alerts, updating existing training materials for employee identification and processing, coordination with TEC/CI and/or any affected processing areas.

The FRP coordinates with Criminal Investigation in Headquarters for both Refund and Financial Crimes to:

Information referrals to and from Criminal Investigation should be coordinated with the FRP CI Liaison.

SERP/CAS electronic alerts should be issued whenever new frivolous arguments are identified or when existing arguments resurface in significant numbers. The alert process should be used to apprise CAS and all employees to watch for filings in order to prevent processing and erroneous refunds.

Forward information for alerts to the LDC and include all pertinent information related to the nature of the filing.

The LDC analyst will forward the approved alert form to the appropriate CAS analysts.

The CAS analysts will issue appropriate alert information and consider updates to CPE training materials.

The LDC analyst will coordinate the new argument issue with TEC if appropriate.

Consider systemic identification of new arguments if available.

Outreach education for internal stakeholders on frivolous arguments is critical and will be given priority. This training will be provided annually to Submission Processing and also made available for all Service offices. This endeavor is imperative to stop the proliferation of egregious promotions, ensure timely and accurate tax assessments, avoid erroneous refunds and provide fair and consistent treatment to all taxpayers.

SB/SE Compliance will coordinate with HQ CAS and SB/SE Learning and Education to schedule training and provide instructors during annual pipeline processing CPE.

SB/SE Compliance will provide updated training materials and IRM information to CAS HQ analysts.

Coordination will be undertaken for all affected areas and will encompass both IMF and BMF original returns, amended returns and claims processing.

Training materials and supplemental support will be available on the FRP Web page listed below.

The FRP web page is currently available at: http://sbse.web.irs.gov/cs/Programs/FRP/FRP.htm.

This web page is designed to provide internal customers information on pertinent issues and data associated with FRP such as current training materials, letters used, FRP Coordinators, trends in frivolous filings, etc.

All updates to the web page must be approved by HQ Exam Policy.

Updates from Ogden FRP should be routed through the FRP Technical Advisor.

The FRP Technical Advisor will sanitize any updates prior to referral to Exam Policy.

HQ Exam Policy will secure any necessary Disclosure clearance and route to: Webmaster assigned to SE:S:CCS:CRC:EP.