your testimony, on this process, you might look into those particular allegations and charges about how these sensitive cases have been handled differently and, of course, we would be very interested in what procedures, and rules, you are going to promulgate in the future dealing with this particular problem if you have the intention of returning

to it.

Mr. ALEXANDER. We will be glad to provide those rules for the future.

[The rules for processing of specal cases follow, together with material subsequently received by the subcommittee on suspension of the sensitive case program by the IRS:]

ACCOUNTS SERVICES CORRESPONDENCE

.44 PROCESSING OF SPECIAL CASES

(1) General

(a) District Offices and Service Centers receive a large volume of inquiries from the White House, the Congress, tax practitioners, and taxpayers regarding delayed refunds, erroneous notices, and misapplied credits. These delays and errors are caused for a number of reasons, including taxpayer errors, computer program errors, and processing errors by IRS personnel. These items cause a real inconvenience to taxpayers and tax practitioners and require prompt remedial action. Such items are referred to as "Special Cases," (previously referred to as "Sensitive"). The reason for this special emphasis is to make certain we act timely and appropriately on troublesome situations which adversely affect taxpayer service and damage relations with the public.

(2) Identification of Special Cases

(a) Except for the four types listed below, cases are to be classed more on the complexity of action required than on the tone of the inquiry. Cases which are to be designated as Special Cases are:

1. White House or Congressional inquiries.

2. Individual cases specifically designated by the National Office, a Regional Office, a District Director, or a Service Center Director. 3. Combat Zone Decedent Cases.

4. Cases involved with accounts identified on IDRS as "restricted access" accounts.

5. The Technical function will make all adjustments relating to or initiated by, an exchange of information with a foreign country. (Philadelphia Service Center only.)

(b) Follow-up inquiries regarding:

1. A previous adjustment of tax liability which did not correct the problem;

2. The movement of credits between various tax modules of the same or of different taxpayers, including computer offset actions;

3. A case involving both Master File and Non-Master File or Pre-ADP returns;

4. A case involving returns or other documents filed with more than one service center; (the center servicing the area in which the taxpayer resides should work the case);

5. A case previously handled by the Technical Section if it involves the same type tax is for the same period;

6. Cases involving multiple taxpayers, such as mixed identity, movement of credits, assessment against the wrong taxpayer, etc.

a. In order to determine whether follow-up inquiries meet the above criteria the Correspondence function will check them against the Adjustment Control Inventory Listing or IDRS. If open items are found listed the inquiry will be sent to the appropriate action unit where the file will be pulled and action expedited. For all items not found in open status, transcripts will be requested on an expedite basis and the inquiries held until the transcripts are received. Upon receipt of the transcripts they will be reviewed to determine if the

action requested by the taxpayer has taken place. If so, initiate an appropriate reply or forward the case file to the function designed to initiate such replies. If no action has taken place and the inquiry meets one of the criteria as prescribed in this procedure, the inquiry will be routed to Technical for "Special" handling. If the inquiry does not meet the criteria, the inquiry will be referred to the proper action function where the file will be pulled and action expedited. (c) The above criteria are not to be applied to original inquiries. Neither are they to be applied to multiple inquiries, each on a different subject. All such are to be processed under normal pipeline procedures.

(d) The Technical Section has the option of rejecting to its point of origin any case which, in their opinion, does not meet the above criteria. Cases closed by Technical will be transferred to "other" status and held in inventory until the results of their action has been verified.

(e) Process as Special Cases, those cases involved with accounts identified on IDRS as restricted access accounts. These accounts carry a control base entity under generated categories RACS. (See ADP Handbook 300-760.) (3) District Office Initiated Cases

(a) Special cases originating at DO level may be received by telephone. (b) Complete Form 4173. Record name and telephone number of caller. (c) If enough space is available, record the facts of the case in the lower right corner of Form 4173. If additional space is necessary use memo routing slip and staple to part 3 of Form 4173.

(d) Forward 4173 (and slip) to the ADP Technical functon control clerk daily.

(e) Five day report-Within five working days from SC receipt of a telephoned special case, disposition of the case or a status report must be conveyed to the interested District Office function. Expected date of resolution is to be included in this report. If time allows this reply may be made by memo (or SC devised form). Otherwise it must be made by telephone. (4) Department of Defense Initiated Cases

(a) Copy of casualty report, date stamped to show when letter was mailed to next of kin, will be received by Service Center.

(b) Research the file to determine any outstanding income tax liability against the decedent, and abate all outstanding balance.

(c) Establish a file on each decedent for future reference.

(d) Early filed claims for the current year will be processed manually. (5) Initiation of SC Special Cases

(a) Employees who identify inquiries meeting special case criteria will prepare Form 4173, completing all items to the extent that the information is available.

(b) If the inquiry is received by mail, it will be attached to a Form 4173. (c) If a telephone referral is received from taxpayer service, the facts will be written (a memo or SC devised form may be used) and will include anything the taxpayer service representative believes will be helpful in completing the case, including the taxpayers telephone number if known. Also prepare a Form 4173.

(d) All special case referrals will be transmitted daily to the ADP Technical function control clerk.

(6) SC ADP Technical Section

(a) Assignment and Initial Processing

1. Refer to ADP Handbook 357-760 regarding terminal input sequence of IDRS research and IDRS control.

2. If the Special Case criteria are not met, reassign the case to the appropriate function. Make an ACTON entry to record assignment and change the status, if necessary.

3. If an inquiry is received directly from the taxpayer or District Office and meets Special Case criteria, establish control in IDRS with assignment to an examiner in "A" (Assigned) status (See ADP Handbook 357-760). If the case is not accepted, establish control with assignment to appropriate function. Forward all available information to the assignee.

4. If a case is received with a notation that another case for the same taxpayer is assigned to another functional area, contact the original case assignee to determine the proper dispostion of the first case. If, when establishing a control of a case, a SUMRY display indicates a case is already established, the same procedure will apply.

5. Cases received relative to established part pay agreements will be processed in accordance with collection related procedures provided in the appropriate references of Part V of the Internal Revenue Manual.

6. Restricted access accounts carry a control base in the entity under generated category RACS. Authorization to access these accounts rests in the Technical function. Attempts to address these accounts by unauthorized employees will result in the display on IDRS of the error message "SPECIAL AUTHORIZATION REQUIRED TO ACCESS”. When the operator receives that message, she will immediately notify her supervisor who will take necessary action to have the case hand carried to the Technical function. Establish case control on IDRS immediately upon receipt of the case in the Technical function.

(b) Process Special Cases to completion. Record significant actions with an ACTON entry using appropriate activity codes.

(c) If input of a Master File transaction resolves the case, do not change the status of the case in IDRS to "C" (closed). Route the case file to the control clerk. The control clerk will forward the case for follow-up suspense.

.40 REFUND INQUIRIES,UNDELIVERED AND RETURNED REFUND CHECKS

(1) Refund Inquiry Control and Processing

(a) Background-Prior to the issuance of the Refund Inquiry Control Procedure, refund inquiries were handled only as part of the mass of correspondence processed in each Service Center. The general lack of expeditious service caused many taxpayer complaints. This procedure requires that all refund inquiries receive priority handling and follow through to ensure prompt service to each taxpayer.

(b) Scope

1. These instructions do not apply to "Special" cases.

2. If no change of address or hardship is indicated and the taxpayer's letter is dated within ten weeks of the date he states a return was filed, promptly acknowledge the taxpayer's letter by stamping the incoming correspondence as follows: Internal Revenue Service; The processing of federal income tax returns has not been completed. If you do not receive your refund check or otherwise hear from us by (enter date), please return this letter to the address shown below. Thank you for your patience. (Enter Service Center and address). (c) General

1. This procedure presumes that a specialized processing area is established for handling this type of inquiry.

2. Each inquiry to be processed by these procedures will be handled expeditiously on a first-in, first-out basis. The taxpayer's inquiry must be resolved to the point that a reply can be made within 15 days. If for any reason Correspondence is unable to respond to the taxpayer within 15 days, the appropriate interim letter must be sent.

3. Research those inquiries received without a Social Security Number before requesting the taxpayer to furnish the number unless it appears the inquiry is in response to the annual newspaper listing of undelivered refund checks. In those cases immediately request the SSN from the taxpayer.

4. Refunds frozen due to an invalid SSN will not be released when this type of inquiry is received until the correct taxpayer is determined. 5. Replies to the taxpayer will utilize existing letters for every reply that is practical. Special dictated letters must be held to a minimum to ensure prompt replies to all taxpayers.

6. Refund inquiries for tax years where it appears that the Statute of Limitations may have expired will be researched for positive determination. Generally the Statute Limitation has expired if the refund claim is not filed within three years from the time the return was filed, or within two years from the time the return was filed, or within two years from the time the tax was paid, whichever expires the later. (See Reg. 301.6511). If the Statute of Limitation has expired, prepare an appropriate reply to taxpayer.

(d) Initial Processing

1. Initial classification of incoming correspondence recognizes and selects all "Where Is My Refund" type inquiries. Include any Forms

3911 (Taxpayers Statement Relative to Refund) received from the District Offices. These inquiries are delivered on an expedite basis to the Refund Inquiry Area for processing.

2. All inquiries are separated into groups, those with a SSN and those without.

3. Each of the above groups is separated into District Office segments based upon taxpayer's address to facilitate research operations.

4. Enter the taxpayer's name, address, taxable year, SSN (if available) and D.C. on the Form 4436. Enter the date in the upper right of the form.

5. Attach the taxpayer's inquiry to the Form 4436.

6. As volume warrants, but not less frequently than daily, route each group batched by district to Research, clearly identified as Refund Inquiries.

(e) Effect on Undelivered Refund Control and Processing

1. Established procedures for control and processing of undelivered Refund Checks will not be affected by this procedure. However, actions taken, or to be taken, must be noted as appropriate on the Refund Inquiry Check List. This form will then be routed to the Refund Inquiry Area for replying to the inquiry from the taxpayer. (f) Correspondence-Terminal Processing

1. This procedure is designed to assure that a reply is prepared for each refund inquiry. If any change to the taxpayer's entity is indicated, prepare an entity change request in accordance with ADP Handbook 335.139 or 335.439 as applicable, except when the Undelivered Refund activity has input a 1664 (IRS).

2. Refund Inquiry Check lists received from the Research and Undelivered Refund Control will be separated, based upon indicated findings, and processed as follows for each condition.

a. Amended Return posted with no original :

(1) Issue an expedite requisition for this return-retain the case in an examiner's suspense control file. If 26 weeks or more have elapsed since the due date of the return, search CP 29 correspondence suspense before issuing this requisition.

(2) If return is processable, initiate reprocessing as an original. Initiate appropriate reply to the taxpayer and process as in "1" above.

(3) If return cannot be reprocessed as an original, initiate letter to taxpayer to obtain copy of the original. The reply will be processed as specified for Computer Notice 29. The amended return will be attached to the request for the appropriate letter.

b. Invalid Social Security Number Freeze

(1) If there is a question concerning the name and SSN of the taxpayer, inform the taxpayer that the amount of any refund claimed cannot be verified until correct identifying information is furnished.

(2) If the correct taxpayer can be determined from the information available, initiate action to release the refund.

(a) Prepare an entity change request to correct entity information.

(b) Prepare a notice of action for entry on master file with TC 510 to release the refund.

(c) Cycle the input of these documents to assure that the correct name, address, and SSN will be reflected on the master file prior to release of the refund.

(d) Prepare appropriate reply to the taxpayer.

c. Duplicate Filing Freeze

(1) Screen Adjustment Control Index-If open case is listed, follow "special case" procedure.

(2) If case does not appear on Adjustment Control Index, prepare a request for adjustment to request expedite resolution of the condition by Adjustments.

(3) If condition has been resolved by previous action, prepare appropriate reply to taxpayer.

d. Overpayment Applied to Estimated Tax

(1) Prepare a request for adjustment requesting expedite adjustment action to relase this credit as a refund to the taxpayer. The original taxpayer's inquiry and the Accounts Register Transcript must be attached to this form to suport the necessary adjustment actions. The decision as to allowance of interest on the refund will remain an adjustments responsibility.

(2) Prepare appropriate reply to the taxpayer.

e. Return Processed, ES Credits on the master file less than those claimed on tax return. In this situation, an 'S' error code will be reflected on the Accounts Register.

(1) Prepare a request for expedite payment tracer action on the missing ES payment. This should be a follow-up action to one previously initiated by this 'S' code.

(2) Prepare appropriate reply to the taxpayer.

f. Return Settled With a Math Error-Error Code 'E' on the Accounts Register. These cases will be considered as request for an explanation of a previous notice.

(1) Requisition the taxpayer's return on an expedite basis. (2) If analysis of the return indicates a processing error, prepare a request for adjustment requesting correction of the taxpayer's account. Attach returns, Account Register Transcript, and taxpayer's letter to the adjustment request.

(3) If it was a taxpayer error and service processing was correct, prepare letter of explanation which will cause taxpayer to review his records and if necessary submit an amended return. A copy of the reply to the taxpayer and the incoming inquiry will be attached to the return before routing for refiling.

g. Account frozen pending application of overpayment to NMF account (TC 130).

(1) If TC 130 was input by a district within region:

(a) Request expedite action by Accounting to complete offset action or reverse the TC 130 freeze, as applicable. (b) Prepare appropriate reply to taxpayer.

(2) If TC 130 was input by an out-of-region district: The SC that received the refund inquiry should contact the SC responsible for maintaining the CP 44 file for the district inputting the TC 130. Request expedite action to offset frozen credit or reverse the TC 130 freeze if the CP is overaged.

(3) The second SC should advise the inquiring SC of any action taken.

(4) The SC that received the "Where is my refund" inquiry is responsible for control, acknowledgment and final disposition of the correspondence request.

h. If research shows that no undelivered refund check has been returned, but a refund check issued more than 12 days prior to the date of the taxpayer's letter, send taxpayer the appropriate letter. (The statute expires on a refund claim six years after the check is paid.)

(1) In the event a Form 3911 is received, it is not necessary to send a letter. The Form 3911 may be used in lieu of letter for routing to Regional Disbursing Center.

(2) If a correspondence inquiry contains sufficient information, including signature of the taxpayer (or signatures of joint account), prepare 'dummy' letter, attach taxpayer's letter and route to Regional Disbursing Center.

(3) Retention of a copy of any documents forwarded to the regional disbursing center is not necessary. Follow-up correspondence from the taxpayer generally refers to a previous inquiry.

(4) If correspondence is received after taxpayer's statement or initial correspondence (including Form 3911, if appropriate) has been forwarded to the Regional Disbursing Center, make certain that "stop check" action has been initiated. The taxpayer's letter should then be forwarded to Check Claims Divisions (RDO). Our reply to the taxpayer should state that a