4.1.3  Sources of Returns-Priority Programs-DIF and Ordering

Manual Transmittal

August 10, 2012

Purpose

(1) This transmits a revision of IRM 4.1.3, Planning and Special Programs, Sources of Returns-Priority Programs-DIF and Ordering.

Material Changes

(1) The following changes were made:

Reference Description
All Minor editorial changes have been made throughout this IRM. Also, website addresses and IRM references were reviewed and updated as necessary.
IRM 4.1.3.1.2 Moved coordinator duties to IRM 4.1.1.7.1 and deleted Offshore Credit Card Project.
IRM 4.1.3.1.4 Changed Memphis Campus to Brookhaven Campus and removed paragraphs 4 and 5.
IRM 4.1.3.2.2 Clarified who can order correspondence cases.
IRM 4.1.3.2.3 Changed Activity Code 225 to 232 and clarified how to order "Corp Specials."
IRM 4.1.3.2.4 Clarified how to order "S Specials."
IRM 4.1.3.3 Updated table numbers and definition.
IRM 4.1.3.4 Clarified guidelines for ordering returns.
IRM 4.1.3.4.1 Clarified when individual returns can be ordered and the definition of POD Exclusion Order.
IRM 4.1.3.4.2 Updated report numbers and the definition of POD Exclusion Order.
IRM 4.1.3.4.3 Updated report numbers.
IRM 4.1.3.5.1 Clarified procedures for surveying returns.
IRM 4.1.3.6.1 Incorporated Interim Guidance SBSE-04-0311-016, Interim Guidance on Survey of Returns by Examination, requirements regarding the disposition of surveyed returns in Disposal Code 31 and 32.
IRM 4.1.3.6.2 Incorporated Interim Guidance SBSE-04-0311-016, Interim Guidance on Survey of Returns by Examination, procedures for surveying excess inventory in PSP.
IRM Exhibits Updated all exhibits.

Effect on Other Documents

IRM 4.1.3, dated 10-24-2006, is superseded. This IRM incorporates SBSE-04-0311-016, Interim Guidance on Survey of Returns by Examination.

Audience

Planning and Special Programs (PSP)

Effective Date

(08-10-2012)

Karen Schiller
Director, Examination Planning & Delivery
Small Business/Self-Employed

4.1.3.1  (08-10-2012)
Priority Program Overview

  1. Changes have been made to the way we select and direct our examination inventory and resources. Several income tax initiatives have been identified and priority programs developed to secure a portion of our workload. Specific criteria and methodology is used to identify and surface the work in each program. The criteria used is continuously evolving.

  2. A Headquarters Program Manager and Program Analyst is assigned to each priority program. Please check the related web sites or contact the Program Analysts for current trends and updated information. See the Exam Planning and Delivery web site at: http://mysbse.web.irs.gov/AboutSBSE/Exam/epd/default.aspx

  3. Headquarters determines a list of source codes, project codes, and tracking codes that are applicable to each priority program. These codes are used to measure our accomplishments against the examination plan and the operational priorities. See the AIMS web site at: http://mysbse.web.irs.gov/exam/mis/data/default.aspx

  4. Priority work is identified annually in the Exam program letter which can be found at http://mysbse.web.irs.gov/AboutSBSE/Exam/programletter/default.aspx. Priority programs include programs such as:

    • National Research Program (NRP)

    • Abusive Transaction Technical Issues (ATTI) Promoters and Participants

    • High Income/High Wealth Taxpayers (HIHW)

    • High Income Non-Filers (HINF)

  5. To ensure workload delivery meets Examination priorities, all work must be obtained through the PSP office except for related return pickups, multi-year pickups, or PSP approved locally generated work. The field will not generate their own work.

  6. Case building will be completed for the priority workload at various Campuses and in some cases, the Area PSP. Case building refers to the process whereby research is performed using various computer systems. This research is printed or electronically included in the case files with the tax return that is under consideration for examination. See IRM 4.1.5, Classification and Case Building.

4.1.3.1.1  (08-10-2012)
National Research Program

  1. The National Research Program (NRP), one of the top workload priorities, is a comprehensive effort by the IRS to measure compliance for different types of taxes and various sets of taxpayers. The NRP approach to measuring reporting compliance balances research quality, efficiency, and the reduction of taxpayer burden. It establishes a tax return sample that is representative of the taxpayer population. NRP uses case building data to determine if the return should be considered accurate as filed. The NRP cases are selected and distributed to the Area PSP offices as directed by the NRP Headquarters office. See IRM 4.22, National Research Program (NRP), and the NRP web site at http://nrp.web.irs.gov/.

  2. Each Area PSP will have an NRP Coordinator to administer this program for the Area. The coordinator duties can be found in IRM 4.1.1.7.7, National Research Program (NRP) Coordinator.

4.1.3.1.2  (08-10-2012)
Abusive Transactions and Technical Issues (ATTI)

  1. The promoter workload for the Area is developed and perfected by the Lead Development Center (LDC) from leads surfaced by the field or other sources. The LDC reviews and approves promoter investigations and assigns a tracking code to each investigation. The participant lists of approved promoter investigations are reviewed and filtered by the Abusive Transaction Listkeeper. All participant lists are reviewed and discussed monthly on case building team (CBT) calls with the LDC, ATTI, Campus Compliance, Exam Return and Selection, and Fraud Functional Analysts and/or program management. Refer to IRM 4.32.2.5, Case Control/Case Assignment Procedures.

  2. The participant workload will generally be developed, perfected, and classified at the Campus. Cases are then sent to the Area PSP. Please refer to the ATTI IRM 4.32.2, The Abusive Transactions (AT) Process, for additional information.

4.1.3.1.3  (08-10-2012)
High Income/High Wealth Taxpayers (HIHW)

  1. The high income high wealth taxpayers workload is pre-identified at a national level from several specific selection models. These cases are shipped to the Area PSP for assignment to the field examination groups.

4.1.3.1.4  (08-10-2012)
High Income Non-Filers (HINF)

  1. The high income non-filer (HINF) workload originates from various sources. Criteria has been established for:

    1. High risk schedule C cases

    2. Cases with fraud indicators

    3. Cases referred from Area offices

    4. Cases with flow-through K-1 income

  2. Any leads received in the Area during the year that meet the HINF criteria will be forwarded to the Brookhaven Campus for filtering and case building.

  3. See IRM 4.1.4.3.6, Non-Filer Leads, for the HINF screening criteria for leads sent to the Area PSP. Cases meeting the criteria for examination in the Area office will be classified, AIMS controls secured, and the substitute for return (SFR) posted. These cases will be forwarded to the Area PSP for assignment to the examination groups.

4.1.3.2  (08-10-2012)
Discriminant Index Function (DIF) Overview

  1. This chapter discusses sources of discriminant index function (DIF) returns.

  2. DIF as referenced in IRM 4.19.11.1.4, Sources of Returns for Classification, is a mathematical technique used to score income tax returns for examination potential. These formulas were developed based on available NRP data. Each return measured under DIF receives a DIF score. Generally, the higher the score, the greater the audit potential. The highest scored returns are made available to Examination upon request.

  3. DIF mathematical formulas are confidential and for official use only. The DIF score assigned to a return should not be disclosed.

4.1.3.2.1  (08-10-2012)
Types of DIF Returns

  1. The following types of returns are computer scored under the DIF System:

    1. Individual

    2. Corporation

    3. S Corporation

    4. Partnership

    5. Fiduciary

4.1.3.2.2  (08-10-2012)
Individual Returns

  1. All individual returns are computer scored under the DIF system. DIF returns are generally ordered in bulk, but some returns are delivered to Examination as automatics for manual screening without a return order being placed. These returns are identified as automatics by the use of audit codes. Audit codes can be found on Form 5546, Examination Return Charge-Out Sheet, and on page 2 of the AMDISA print. These audit codes are listed in IRM 4.19.11.1.6, Form 1040 Individual Returns Scored by DIF System (Audit Code Definitions).

  2. Correspondence (CORR) returns are certain individual low and medium non-business returns that are conducive to correspondence examinations. Returns identified as "CORR" can not be ordered by Area offices. They can only be ordered at a National level.

4.1.3.2.3  (08-10-2012)
Corporation Returns

  1. Corporation returns having no balance sheet or assets under $10,000,000 are computer scored under the DIF system. Formula numbers are used to identify the asset classes when ordering corporate returns on Form 6897, Corporation Returns Orders. High asset returns, Activity Codes 219 through 230, are not DIF scored and are delivered automatically to Classification at the Ogden Large Business & International (LB&I)Campus. The corporation DIF system includes:

    Activity Code Assets Formula
    203 No Balance Sheet 1
    209 Under $250,000 2
    213 $250,000 under $1,000,000 3
    215 $1,000,000 under $5,000,000 4
    217 $5,000,000 under $10,000,000 5

  2. Miscellaneous corporate returns are also not DIF scored. These returns may be sample ordered. These returns could be classified by screening them in the Statistics of Income (SOI) Division located at the receiving Campus before shipment to SOI at the Ogden Campus. Miscellaneous corporate returns include:

    Form or Schedule Description
    1120 PHC—LA Personal Holding Company—Low Asset
    Form 1120-L Form 1120-L U.S. Life Insurance Company Income Tax Return
    Form 1120-PC U.S. Property and Casualty Insurance Company Income Tax Return
    1120 INAC—LA Inactive—Low Asset
    Form 1120-H U.S. Income Tax Return for Homeowners Associations
    Form 1120-SF Form 1120-SF U.S. Income Tax Return for Settlement Funds (Under Section 468B)
    Form 1120-REIT U.S. Income Tax Return for Real Estate Investment Trusts
    Form 1120-RIC Form 1120-RIC U.S. Income Tax Return for Regulated Investment Companies
    Form 1120-ND Return for Nuclear Decommissioning Funds and Certain Related Persons

  3. Certain corporation returns are identified as Specials. These returns can be identified and ordered by specific audit codes. These audit codes are listed in IRM 4.19.11.1.7, Form 1120, U.S Corporation Income Tax Return.

4.1.3.2.4  (08-10-2012)
S Corporation Returns

  1. S Corporation returns having assets under $10,000,000 are computer scored under the DIF system. The S Corporation system includes:

    Activity Code Assets
    234 No Balance Sheet
    288 Under $200,000
    289 $200,000 under $10,000,000
    290 $10,000,000 and over (automatic, not DIF scored)

  2. Certain S corporation returns are identified as Specials. These returns can be identified and ordered by specific audit codes. These audit codes are listed in IRM 4.19.11.1.8, Form 1120S, U.S. Small Business Corporation Income Tax Return.

4.1.3.3  (08-10-2012)
Inventory and Delivery Reports

  1. A list of inventory and delivery reports that are available and the exhibits where they can be found are shown in the table below:

    Report Exhibit
    1040–1, AO Individual Inventory and Delivery Report Exhibit 4.1.3-1
    1040–2, AO Individual Inventory and Delivery Analysis Exhibit 4.1.3-2
    1040–3, Individual Inventory and Delivery Report (Unallowable, Tax, Preference and Self-Employment Tax) Exhibit 4.1.3-3
    1040–5, Individual Amended Returns Inventory and Delivery Report Exhibit 4.1.3-4
    1040–6, AO/SC Individual Inventory and Delivery Report (DIFF CORR) Exhibit 4.1.3-5
    1120–4, Corporate DIF Inventory and Delivery Report Exhibit 4.1.3-6
    1120–5, Corporate Inventory and Delivery Analysis Report Exhibit 4.1.3-7
    1120–6, AO 1120S and 1120F Inventory and Delivery Report Exhibit 4.1.3-8
    1065–3, Partnership Inventory and Delivery Report Exhibit 4.1.3-9
    1065–4, Partnership Inventory and Delivery Analysis Report Exhibit 4.1.3-10
    1041, Inventory and Delivery Report for Fiduciary Income Tax Returns Exhibit 4.1.3-11
    1066–1, Real Estate Mortgage Investment Conduit Inventory and Delivery Report Exhibit 4.1.3-12

  2. The top section of the Inventory and Delivery Reports (1040–1, 1065–3, 1120–4, 1120–6) indicates the number of returns available for Martinsburg Computing Center (MCC) ordering. The bottom of the reports indicates the number of returns delivered for screening by examination class and DIF score range for each file year. These reports are cumulative for all returns received, processed, and delivered to Examination during a file year, however available inventory is reduced as returns are delivered through processes other than DIF, (Compliance Development Environment (CDE), Compliance Initiative Projects (CIPS), return preparer, etc.). Inventory and Delivery Reports cover two different file years. Please ensure the correct file year report is used to place the order.

4.1.3.4  (08-10-2012)
Guidelines for Ordering Returns

  1. The PSP Territory Manager is responsible for submitting orders so returns are received ratably during the fiscal year. Ratable is defined as a manner of ordering so all returns with similar DIF scores, regardless of the filing date, have an equal chance of being delivered to Classification.

  2. Current file year individual DIF returns (Activity Codes 270 through 281) will be ordered so that deliveries for total individual returns, when measured as a percent of the total DIF individual examination plan adjusted for select rate and delivery, will not exceed the following:

    1. No more than 30 percent in any one quarter.

    2. No more than 55 percent in any two consecutive quarters.

    3. No more than 108% in any four consecutive quarters.

    Example:

    The classification plan for fiscal year 12 (10/1/11 thru 9/30/12) reflects needs of 75,000 returns. No more than 22,500 should be ordered in the first quarter, no more than 41,250 (which includes what has been previously ordered) before the end of the second quarter, and no more than 81,000 (which includes what has been previously ordered) may be ordered before the end of the third quarter (Cycle 26).

  3. There is an exception to the guidelines set in (2). Any orders in excess of these guidelines must be approved by the PSP Territory Manager. The orders may be increased by the PSP TM if any of the following conditions are met:

    1. The Area has a high dependence on DIF work for general program expectations;

    2. The Area has low select rates which makes it impossible to maintain an appropriate tax compliance officer workload;

    3. The Area has a specific need for certain post of duties (POD)

  4. Due to numerous fiscal year corporate and other Business Master File (BMF) filings, high potential BMF returns are added to inventory throughout the entire file year. To ensure equal treatment of BMF taxpayers, BMF returns must be ordered in a ratable manner.

  5. As a guideline, DIF BMF returns, when measured as a percent of the examination plan, should not exceed 200 percent of the total DIF examination plan adjusted for select rate and delivery rate for any DIF formula. This limitation applies separately to each BMF category.

  6. Each Campus will provide a schedule for ordering and classifying to the PSP Territory Manager.

  7. All return orders will be submitted to the designated Exam Planning and Delivery (EPD) Head Quarters (HQ) Analyst for review and approval. The HQ Analyst will forward the Martinsburg Computing Center (MCC) orders to the Campus and will return the CDE orders to the Area PSP for input into CDE.

4.1.3.4.1  (08-10-2012)
Ordering MCC Individual DIF Returns

  1. Form 6356, Individual DIF Returns Order , will be used to order MCC individual DIF returns. Instructions for completing Form 6356 are found on the back of the form. Returns may be ordered from any cycle for regular DIF inventory.

  2. Areas are expected to order returns for the entire Area. However, the capability for ordering or excluding returns for a specific post-of-duty is also available. These orders should be kept to a minimum since it deviates from working the highest DIF returns first. These types of orders are:

    1. POD Exclusion Order — Where there is an excess workload at one or more posts-of-duty, the POD(s) may be excluded from any order cycle. A maximum of 11 PODs may be excluded each cycle. If an Area wide (general) order is placed subsequent to a POD exclusion order, returns previously excluded may fall out.

    2. POD Supplement Order — Where there is a workload shortage at a specific POD, a supplemental order may be submitted.

    3. POD Inclusion Order — This order includes all PODs marked and is for CDE use only.

  3. Exhibit 4.1.3-1, Inventory and Delivery Report 1040–1 , shows the number of MCC DIF returns available for ordering and the number of returns delivered for screening by examination class and DIF score range for each file year. This report provides the number of Minimum Tax and Alternative Minimum Tax returns (combined under TXPREFRET). This is a cumulative report which is generated every even cycle for prior and current file years.

  4. Exhibit 4.1.3-2, Inventory and Delivery Analysis Report 1040–2 , provides statistical data on individual returns processed and on returns delivered, including specials. This report is generated every cycle for the first 40 cycles and even cycles thereafter.

  5. Individual returns should not be ordered from the current file year until cycle 13. For current file year orders prior to cycle 26, Override Code "1" will be entered in Column 87 of Form 6356, Individual DIF Returns Order, to override the computer block.

    Caution:

    Any 1040 DIF returns ordered or received prior to March 31 that are electronically filed (e-filed) will not generate a TRPRT return to classification (CF and S). If these e-filed returns are to be classified from paper, they will need to be generated and printed through IDRS Command Code TRPRT after March 31.

  6. Although it is not intended to be the standard practice for filling DIF return orders, previous file year returns can still be ordered after cycle 9 using the current ordering process. Previous file year individual returns cannot be ordered after cycle 26 of the current file year. Override Code "9" will be entered in Column 87 of Form 6356 to override the computer block. Approval is needed from the PSP Territory Manager to utilize this override code.

  7. Alternative Minimum Tax returns may be ordered using Form 6356 with Indicator Code "W" entered on the order form.

  8. Exhibit 4.1.3-5, Inventory and Delivery Report 1040–6 , reflects DIF CORR inventory by score range and deliveries to the Campus or Area. Orders must be made in odd cycles and can only be ordered at the national level.

  9. The Amended Returns inventory contains Category B (paid) claims. Form 8199, Amended Returns Order, is used to place orders. Exhibit 4.1.3-4, Table 1040–5. is the Inventory and Delivery Report for amended returns. These claims are ordered by the year in which the claims were filed, not by the tax year of the returns for which the claim applies. The highest dollar claims will be delivered first. The following categories of amended returns may be ordered:

    1. Adjustments to Income

    2. Filing Status and Exemptions

    3. Tax Computations

    4. Credits

    5. Itemized Deductions

    6. Schedule C or F

    7. Schedule D and Form 4797, Sales of Business Property

    8. Schedule E

    9. Other Taxes

    10. Multiples (any combination of the above categories)

    11. Other (reasons not covered in above categories)

4.1.3.4.2  (08-10-2012)
Ordering MCC Corporation Returns

  1. Form 6897, Corporation Returns Order , will be used to order MCC corporation returns. This form is separated into two sections, Corporation DIF Returns Order and Miscellaneous Corporation Returns Order. Instructions for completing Form 6897 are found on the back of the form. Returns may be ordered from odd numbered cycles only.

  2. Areas are expected to order returns for the entire Area. However, the capability for ordering or excluding returns for a specific post-of-duty is available. These orders should be kept to a minimum since it deviates from working the highest DIF returns first. These types of orders are:

    1. POD Exclusion Order — Where there is an excess workload at one or more posts-of-duty, the POD(s) may be excluded from any order cycle. A maximum of 8 PODs may be excluded each cycle.

    2. POD Supplemental Order — Where there is a workload shortage at a specific POD, a supplemental order may be submitted.

  3. Exhibit 4.1.3-6, Corporate DIF Inventory and Delivery Report 1120–4 , shows the number of DIF returns available to order for screening and the number of MCC DIF returns which have been delivered by DIF score range.

  4. Exhibit 4.1.3-7, Corporate DIF Inventory and Delivery Analysis Report 1120–5 , provides data on corporations processed and on returns in inventory or delivered, including specials and automatics. BMF returns can be ordered from the current file year inventory at cycle 5 as long as there are enough filed returns to cover the order.

  5. Exhibit 4.1.3-8, 1120S DIF and 1120F Inventory and Delivery Report 1120–6 , provides data on corporate returns processed and on returns in inventory or delivered, including specials and automatics.

  6. Indicator Codes for MCC Orders are entered on Form 6897 to designate the type of returns ordered as shown in the table below:

    Indicator Explanation
    0 The highest scored returns in inventory will be delivered. Valid for all types of DIF scored returns.
    1 Reserved.
    2 Taxable Inventory Returns. Valid for only the following returns:
     a. 1120L
     b. 1120PC
     c. 1120 PHC (low asset)
    3 Non Taxable Income Inventory Returns. Valid for only the following returns:
     a. 1120L
     b. 1120PC
     c. Inactive (low asset)
     d. 1120 PHC (low asset)
    5 To be used to order corporation returns of the current file year prior to Cycle 27 and is entered in Column 12

  7. Orders of miscellaneous returns in the taxable income category are filled from the top of the "file" (highest income to zero).

  8. Orders of miscellaneous returns in the non taxable income category are filled from the top of the "file" (greatest loss to zero).

  9. Only one indicator code may be used for returns in each examination class in the same cycle. However, different indicator codes may be used for different examination classes in the same cycle.

4.1.3.4.3  (08-10-2012)
Ordering MCC Partnership Returns

  1. Form 6162, Partnership Returns Order , will be used to order DIF partnership returns. Instructions for completing Form 6162 are found on the back of the form. Returns may be ordered monthly in cycles 05, 09, 13, 18, 22, 26, 31, 35, 39, 44, 48, and 52.

  2. Exhibit 4.1.3-9, Inventory and Delivery Report 1065–3 , shows the number of partnership returns available for ordering and the number of partnership returns delivered for classification, by DIF score range, Examination Class and file year.

  3. Exhibit 4.1.3-10, Inventory and Delivery Report 1065–4 , provides analytical data on partnership returns processed, inventoried and delivered for classification, including Automatics and Specials.

  4. Indicator Codes are entered on Form 6162 to designate the type of returns ordered as follows:

    Indicator Code Explanation
    0 Should be entered on all orders for Form 1065, U.S. Return of Partnership Income
    5 To be used to order partnership returns of the current file year prior to Cycle 27.

  5. According to IRC 761(a), Partnership Returns , Investment groups that are not required to file partnership returns, selected for examination by the Campus will be forwarded to their respective Areas.

4.1.3.4.4  (08-10-2012)
Ordering MCC Fiduciary Returns

  1. Form 5337, Fiduciary Returns Order , will be used to order fiduciary returns. Instructions for completing Form 5337 are found on the back of the form. Returns may be ordered monthly.

  2. Exhibit 4.1.3-11, Inventory and Delivery Report 1041 , shows the number of fiduciary returns available for ordering and the number of fiduciary returns delivered for classification during the file year. This report provides the following information:

    1. Table 1 - Nonautomatic Fiduciary Returns. The total number of fiduciary returns available, the total number of returns delivered for the current cycle, and delivered (cumulative) during the file year.

    2. Table 2 - Automatic Fiduciary Returns. The total number of fiduciary returns delivered for the current cycle and delivered (cumulative) during the file year.

  3. Indicator Codes are entered on Form 5337 to designate the type of returns ordered as follows:

    Indicator Code Explanation
    0 Should be entered on all orders for Form 1041, U.S. Income Tax Return for Estates and Trusts
    5 To be used to order Fiduciary returns of the current file year prior to Cycle 27.

4.1.3.4.5  (08-10-2012)
Ordering MCC U.S. Real Estate Mortgage Investment Conduit (REMIC) Returns

  1. U.S. Real Estate Mortgage Investment Conduit (REMIC) returns can be ordered using Form 8757, U.S. Real Estate Mortgage Investment Conduit Income Tax. Returns may be ordered monthly.

  2. Exhibit 4.1.3-12, Inventory and Delivery Report 1066–1 , shows the number of REMIC returns available for ordering and the number of REMIC returns delivered for classification by examination class for the file year.

4.1.3.5  (08-10-2012)
Ordering Returns Using Compliance Data Environment (CDE) System

  1. The CDE system can be used to order 1040, 1041, 1065, 1120, and 1120S returns. It has the capability to include or exclude specific PODs, if necessary. The system will look back 12 months from the date of input and identify the highest DIF scored returns. When placing orders take into account the data update cycles for CDE.

  2. CDE orders are placed using the CDE order form. See Exhibit 4.1.3-13 for the individual order form and Exhibit 4.1.3-14 for the business order form.

  3. CDE orders require the approval of the PSP Territory manager and the Headquarters analyst for return orders.

4.1.3.6  (08-10-2012)
Survey of Examination Cases

  1. While cases should be selected and started in accordance with exam priorities, in a limited number of circumstances there may be returns that appear in the judgment of the examiner and manager to warrant survey without taxpayer contact.

  2. Cases delivered to the Areas will generally fall into one of three categories: mandatory work, priority program work, and non-priority work.

    1. Mandatory work includes nationally-coordinated research projects such as the priority programs: NRP and employee audits (excludes "new" employee audits). In addition to any specific program requirements, the Group Manager will review the explanation for survey action provided on Form 1900, Income Tax Survey After Assignment, that is initiated by the examiner and signed by the manager. These returns require concurrence from the Headquarters program owner before disposal without an examination is permitted.

    2. Priority work is identified annually in the Exam Program Letter which can be found at http://mysbse.web.irs.gov/AboutSBSE/ProgramLetters/default.aspx. The procedures to survey priority work and referrals from other business units, "new" employee audits, and cases with previous taxpayer contact require an explanation for the rationale for the survey. Explanations provided on the Form 1900 should be specific, so it may be used to refine return selection, monitor program delivery, or complete studies. Such surveys are subject to post survey review by the Planning and Special Programs Territory Manager. Cases which should not have been surveyed will be returned to the group for examination through the respective Examination Territory Manager.

    3. Cases that are not mandatory work, priority work, a referral from another business unit, or are not part of an employee examination or research study may be surveyed based upon the professional judgment of the examiner. The examiner should complete Form 1900 and the immediate manager must approve.

  3. Here are some factors to consider when determining whether to survey priority work:

    1. Taxpayer is in bankruptcy

    2. Taxpayer has suffered an extreme hardship or illness

    3. Taxpayer is deceased

    4. Examiner has additional information that was not available during classification

4.1.3.6.1  (08-10-2012)
Procedures for Surveying Priority Returns

  1. Survey of priority work must be routed through PSP for their approval. In order to survey ANY of these returns, the examiner and manager must complete Form 1900, Income Tax Survey After Assignment, and provide a complete explanation of the reasons for the recommended survey action. This form should be used for any cases that are Surveyed Before Assignment (Disposal Code 31) or Surveyed After Assignment (Disposal Code 32).

  2. Once the Form 1900 is signed by both the examiner and the manager, the group will close the case to Status 41 on ERCS and forward the case to PSP using Form 3210, Document Transmittal. The assigned PSP Coordinator will acknowledge receipt of the return, review the reasons for the recommended survey, and provide either the acceptance or rejection of the survey.

  3. If the survey is accepted, the PSP Coordinator will:

    1. Initial and date the Form 1900 in the explanation block to show their concurrence with the action.

    2. Make a copy of Form 1900 for their records. See Exhibit IRM 1.15.23-1, Records Control Schedule for Tax Administration – Examination for more information.

    3. Close the return on ERCS using Status 51

    4. Send the tax return and Form 1900 via Form 3210 to Centralized Case Processing.

  4. If applicable, the PSP Coordinator will also attach to their copy of Form 1900 any related case material that may be needed for trend analysis and provide this information to the PSP Territory Manager in order to improve workload selection and classification results.

  5. If the survey is not approved, the PSP Coordinator and/or PSP Section Chief will provide an explanation to the group with the reasons for rejection. Reasons for rejection will be based upon a cumulative knowledge of the particular work in the Area.

4.1.3.6.2  (08-10-2012)
Procedures for Surveying Excess Inventory in PSP

  1. When a PSP Functional Coordinator must survey inventory located in PSP deemed to be excess inventory (Disposal Code 35), they must stamp the front of the original return with a stamp marked “Excess Survey by PSP.”

  2. If the return is "virtual" (stored in CDE) no stamp is needed. The Virtual Inventory Administrator is designated as having authority to excess survey these returns.

  3. A Form 1900, Income Tax Survey After Assignment, is not required for surveying excess inventory.

Exhibit 4.1.3-1 
AO Individual Inventory and Delivery Report 1040–1

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Exhibit 4.1.3-2 
AO Individual Inventory and Delivery Analysis 1040–2

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Exhibit 4.1.3-3 
Individual Inventory and Delivery Report (Unallowable, Tax Preference and Self Employment Tax) 1040-3

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Exhibit 4.1.3-4 
Individual Amended Returns Inventory and Delivery Report 1040–5

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Exhibit 4.1.3-5 
AO/SC Individual Inventory and Delivery Report (DIFF CORR) 1040–6

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Exhibit 4.1.3-6 
Corporate DIF Inventory and Delivery Report 1120–4

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Exhibit 4.1.3-7 
Corporate Inventory and Delivery Analysis Report 1120–5

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Exhibit 4.1.3-8 
AO1120S DIF and 1120F Inventory and Delivery Report 1120–6

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Exhibit 4.1.3-9 
Partnership Inventory and Delivery Report 1065–3

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Exhibit 4.1.3-10 
Partnership Inventory and Delivery Analysis Report 1065–4

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Exhibit 4.1.3-11 
Inventory and Delivery Report for Fiduciary Income Tax Returns 1041

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Exhibit 4.1.3-12 
Real Estate Mortgage Investment Conduit Inventory and Delivery Report 1066–1

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Exhibit 4.1.3-13 
CDE Individual Return Order Form

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Exhibit 4.1.3-14 
CDE Business Return Order Form

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