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Concurrent Consideration of Related Returns

  • Internal Revenue Manual 4.10.5 requires examiners to complete Required Filing Checks on every examination of a tax return.  Required Filing Checks include determining the timely filing and the audit potential of:
    • Prior and subsequent year returns
    • Related Returns
    • Information Returns
    • Forms W-4
    • All other returns required to be filed specific to the taxpayer under examination
  • Examiners are required to determine if:
    • The taxpayer under examination is related to any other entity that is required to file returns,
    • The related entity’s return was timely filed, and Examination of related returns is necessary.
    • The returns of the five top officers warrant examination.  Procedures for requesting executive returns are found in IRM 4.46.3.6.7 and 4.46.3.6.7.5
    • Prior to issuing letter 3996 requesting Offices’ returns, Revenue Agents are encouraged as a best practice to inform the appropriate tax department officials
    • The taxpayer should be questioned to identify all related returns and determine if they have been filed.
    • Delinquent return procedures are to be followed for any unfiled returns.  Return inspection determines whether: 
      • The examined taxpayer’s activities are correctly reflected on the related taxpayer’s return; and
      • If there is audit potential.
  • Related returns must also be considered to assure consistency of tax treatment.  Adjustments to one return in a “related return” situation may require adjustment to the other related return.  The most common types of related returns are:
    • Corporation and shareholder
    • Partnership and partner
    • Business (1040, 1120 0r 1065) and employment tax
    • Decedent and decedent’s estate
    • Entities over which the taxpayer has control and which can be manipulated to divert funds or camouflage financial transactions.

SUPPORT EXAMINATION OF AFFILIATE

The cases included in CIC frequently have subsidiaries, divisions, branches, and/or plants located in territories other than the primary territory.  One of the principles of the support territory examination concept is having the local examination work performed by agents in the local territory.
Since the primary territory team manager is responsible for the examination, his/her involvement at the support audit examination site is imperative to the conduct of a quality examination.  The team manager accomplishes this by making frequent on-site visits.

Page Last Reviewed or Updated: 29-Jan-2014