Rev. Proc. 77-31

Section 1. Purpose

This Revenue Procedure restates and modifies the appeal procedures with regard to the imposition of certain taxes on organizations exempt from Federal income tax under section 501 or 521 of the Internal Revenue Code of 1954 and on certain individuals under Chapter 42. These procedures apply with regard to the following taxes:

1. Excise taxes imposed by Chapter 42

2. Unrelated business income tax imposed by section 511

3. Termination tax imposed by section 507(c)

4. Tax imposed by section 527(f) regarding political activities of organizations described in section 501(c)

5. Tax imposed by section 1383 on farmers' cooperatives exempt under section 521

6. Tax imposed by section 11 on taxable private foundations

7. Tax imposed by section 641 on section 4947 trusts

Appeals of these taxes are generally governed by the general instructions in the Statement of Procedural Rules, 26 CFR 601.105, except that the appeals are now handled by the Employee Plans and Exempt Organizations regional offices rather than the district conference staffs and the regional Appellate divisions.

Sec. 2. Background

The Employee Retirement Income Security Act of 1974 established within the Internal Revenue Service the Office of Assistant Commissioner (Employee Plans and Exempt Organizations) whose duty, among others, is to carry out the functions of the Service with respect to organizations exempt from income tax under section 501(a) of the Code. The Office of Assistant Regional Commissioner (Employee Plans and Exempt Organizations) has responsibility for, among other duties, establishing a program for selecting and examining returns filed in connection with organizations exempt under sections 501 and 521 and managing the appeals program, including holding conferences, with regard to the imposition of the taxes referred to in Section 1. These regional conferences were formerly held under the jurisdiction of the Assistant Regional Commissioner (Appellate). The examination of returns covered by this Revenue Procedure is done under the jurisdiction of one of the nineteen key District Directors listed in Rev. Proc. 76-33, 1976-2 C.B. 655.

Sec. 3. General

.01 Upon conclusion of an examination that results in a proposed tax deficiency, the taxpayer will be issued a 30-day letter including a report of examination that sets forth the proposed tax deficiency and the reasons therefor. The letter will also advise the taxpayer of the right to appeal the proposed action if the taxpayer does not agree with it.

.02 The taxpayer may, within 30 days of the date of the letter, request consideration by the Office of the Assistant Regional Commissioner (Employee Plans and Exempt Organizations) having jurisdiction over the case. See Sec. 4 for requirements and procedures with regard to the regional consideration, and Sec. 5 regarding claims for refund or credit. In situations where the expiration of the statute of limitations for assessment and collection of tax is imminent, extensions of time to file a 30-day protest will be granted only if the taxpayer executes a consent to extend the statute of limitations.

.03 If the taxpayer does not respond within 30 days, a statutory notice of deficiency as provided by section 6212 of the Code will be issued by the key District Director. As provided by section 6213(a), the taxpayer has 90 days (150 days if the notice is mailed to a person outside of the States of the Union and the District of Columbia) within which to file a petition with the United States Tax Court for a redetermination of the deficiency.

.04 If the taxpayer does not file a petition with the Tax Court, the tax will be assessed.

Sec. 4. Protest and Conference Procedures

.01 If, after receiving the 30-day letter, the taxpayer wishes to appeal, the taxpayer must submit a written protest to the key District Director within 30 days from the date of the letter. The protest must include a full and detailed statement of the facts, law, and argument in support of the taxpayer's position and, if desired, a request for a conference at the regional office. Deficient protests will be returned to the taxpayer with an explanation why the protest cannot be accepted. Additional time will be given to the taxpayer to perfect the protest.

.02 Upon receipt of a taxpayer's protest and request for regional office conference, the key District will review the protest and, if it maintains its position, forward the request and the case file to the Office of the Assistant Regional Commissioner (Employee Plans and Exempt Organizations) which will contact the taxpayer regarding conference rights. In appropriate cases the examining officer may attend the regional office conference to clarify the facts in the case. If additional issues are raised at the conference, the case will be returned to the key District Director for consideration of these issues.

.03 If after consideration of the case by the Assistant Regional Commissioner (Employee Plans and Exempt Organizations) a satisfactory settlement of the issues is reached with the taxpayer, the taxpayer will be provided a revised report of examination prepared at the regional office, if necessary, and will be asked to sign an appropriate agreement form.

.04 If agreement is not reached at this stage, a statutory notice of deficiency will be issued by the Assistant Regional Commissioner or Executive Assistant (Employee Plans and Exempt Organizations) after consideration by Regional Counsel. The taxpayer may then petition, within the statutory period, the United States Tax Court for redetermination of the deficiency.

.05 If the case under consideration in the Employee Plans and Exempt Organizations Regional Office is docketed in the Tax Court and agreement is reached with the taxpayer with respect to the issues involved, the case is disposed of by the filing of a stipulation of agreed deficiency or overpayment with the Tax Court, which will enter its order in conformity with the stipulation.

Sec. 5. Claims For Refund Or Credit

.01 After receiving a 30-day letter, the taxpayer may pay the tax and then contest the assessment (unless an agreement to the contrary is executed) by filing a claim for refund or credit for all or any part of the amount paid. As provided in section 6512 of the Code, however, this does not apply with respect to certain taxes determined by the Tax Court, the decision of which has become final. A claim for refund or credit is made by filing an appropriate amended return with the Internal Revenue Service Center to which the original return was sent.

.02 When claims for refund or credit are examined by the key District Director, substantially the same procedure within the Service is followed (including appeal steps) as when original exempt organizations returns are examined. The procedure for appealing rejected claims through the Court is outlined in section 601. 103(c)(3) of the Statement of Procedural Rules.

Sec. 6. Technical Advice

While the case is under the jurisdiction of the key District Director, the taxpayer may request the key District Director to seek technical advice from the National Office. If the decision in the technical advice is adverse to the taxpayer, it may then be appealed as outlined in this Revenue Procedure.

Sec. 7. Effective Date

This Revenue Procedure is effective October 17, 1977.