The following are Correspondence Examination Programs with corresponding Source Codes:

For a complete listing of all Source Codes available to Examination, please refer to IRM 4.4.1, AIMS/Processing Handbook – Introduction, Exhibit 4.4.1–19, Source Codes, and Document 6209, IRS Processing Codes and Information.

Purpose: This standard measures whether consideration is given to the Classified/Program as well as large, unusual or questionable (LUQ) items during the course of the examination.

Overview: Consideration of all significant tax issues during the examination is required.

The following table shows the key elements of Auditing Standard 1.

Purpose: This standard measures whether the examined issues are completed to the extent necessary to provide the examiner sufficient information to determine the substantially correct tax based on the correct application of tax law.

Overview: The depth of the examination is determined through inquiry, observation, and analysis of appropriate source documents, oral testimony, contacts etc., to ensure full development of relevant facts concerning significant issues. Conclusions are supported by applicable law, Regulations, court cases, Revenue Rulings, etc.

The following table shows the key elements of Auditing Standard 2.

Purpose: This standard measures documentation of the scope, depth, and conclusions reached in the examination.

Overview: The workpapers provide the principal support for the examiner’s report and document the procedures applied, information obtained, and conclusions reached in the examination.

The following table shows the key elements of Auditing Standard 3.

Purpose: This standard measures the presentation of the examination findings in terms of content, format, and accuracy.

Overview: This standard addresses the written presentation of examination findings in terms of content, format, and accuracy.

The following table shows the key elements of Auditing Standard 4.

Purpose: This standard measures whether applicable penalties are considered and applied correctly.

Overview: The application of appropriate penalties is required to be considered during all examinations.

The following table shows the key elements of Auditing Standard 5.

Purpose: This standard measures the utilization of time as it relates to the examination process.

Overview: Timeliness of actions during the examination process is an essential component of each examination. Actions are initiated and completed within established time frames.

The following table shows the key elements of Auditing Standard 6.

Purpose: This standard measures whether the administrative aspects of the case are addressed.

Overview: This standard encompasses correspondence, statute control, case assembly, Power-of-Attorney (POA) disclosure procedures and closing procedures.

The following table shows the key elements of Auditing Standard 7.

When research results show that a taxpayer has filed an amended return, the amended return must be requested to determine the impact on the examination. The amended return may contain information directly related to the examination or change other items on the return.

The following actions must be taken to request the amended return:

IRC Section 6404(g) suspends interest and certain penalties in cases where the Service fails to provide a notice of liability to the taxpayer within the specified time period.

In the case of an individual who files a timely return, the Service generally has 36 months (18 months for notices prior to November 26, 2007), beginning on the later of:

in which to provide notice to the taxpayer specifically stating the taxpayer’s liability and the basis for the liability. See IRM 20.2.7.6 , IRC 6404(g) Interest Suspension and Treas. Reg. 301–6404–4, for detailed rules on IRC 6404(g) and its notice deadlines for the Service.

If the notice is not provided to the taxpayer before the close of the 36 month period (18 months for notices prior to November 26, 2007), interest and certain penalties are suspended for the following period:

The notice must specifically state the liability and the basis for the liability.

The suspension applies to tax years ending after July 22, 1998.

IRM 20.2.7, Abatement and Suspension of Interest, contains information on when and how to input a TC 971 AC 064 on these cases.

For notices issued and penalties assessed after June 30, 2001, each notice of penalty must include the name of the penalty, the IRC section for the penalty, and a computation of the penalty. In the case of any notice of penalty issued after June 30, 2001, and before July 1, 2003, these requirements shall be met if such notice contains a telephone number at which the taxpayer can request a copy of the taxpayer’s assessment and payment history with respect to such penalty.

For penalties assessed after June 30, 2001, prior to assessment of any penalty, written supervisory approval is required by the immediate manager or higher-level official over the employee initially proposing the penalty.

Penalty Lead Sheet Documentation:

To ensure that the IRS applies accuracy related penalties in a consistent and impartial manner, Exam employees must complete penalty lead sheets on all cases worked through deficiency procedures.

The accuracy-related penalties most frequently asserted by examiners are:

Lead sheets must be prepared:

The Substantial Understatement Penalty must be considered and the substantial understatement lead sheet must be prepared on all cases with deficiencies greater than $5,000.00.

Lead sheets are not required on cases worked solely through automated means (for example, no-response cases worked through ACE or BLP).

Before completing the lead sheets, examiners must review:

Only one accuracy-related penalty may apply to an item at a time. When more than one penalty applies, assert the penalty with the strongest position and document the alternative position on a separate lead sheet.

On all cases requiring lead sheets, examiners must address the following issues;

Please see the "If And Then" Chart below on how to work the taxpayer responses. See IRM 4.19.10.1.6.1, Standard Suspense Periods for Correspondence Examination, for suspension periods applicable to the various statuses and time frames for issuing letters/notices.

Evaluate the taxpayer’s written correspondence and take the next action as soon as possible. If unable to do this in 30 days, initiate interim letter.

Judgment must be used based on the facts and circumstances in each case to make a proper substantially correct determination. Workpapers must contain all determinations, facts and circumstances, pertaining to the case obtained either by telephone or written correspondence. Caution must be used when leaving messages on taxpayer answering machines or using cell phones. See IRM 11.3.2.6.1, Leaving Information on Answering Machines/Voice Mail, and IRM 11.3.2.6.2, Use of Cell Phones and Cordless Devices, for more detailed information.

If the taxpayer’s telephone number is provided on ENMOD or in the correspondence received, and if the submitted documentation does not revise the exam report, then, if appropriate, call the taxpayer to request additional information instead of sending a request for additional information letter. However, if the attempt to reach the taxpayer by telephone is unsuccessful, send the request for additional information letter.

All telephone contacts must be recorded in the case workpapers when the case is currently assigned on CEAS to the examiner receiving or making the call. If the case is not assigned to the phone assistor, they will record the call in CEAS notes. This allows all employees access to the case information if the taxpayer writes or calls back. See IRM 4.19.19.3.3, CEAS Notes.

Telephone contacts should be made at appropriate times. If a case is being worked before 8:00 a.m. or after 9:00 p.m., local time at the taxpayer’s location, the case should be left for a day time telephone call.

See IRM 4.19.13.23, Taxpayer Advocate Service (TAS) Procedures, for additional information.

If a Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance order), is received from the taxpayer, expedite the form to the TAS Office in the Campus.

The Tax Administration Council (TAC) approved the expanded use of faxes for receiving information and documents from taxpayers and practitioners. The changes are aimed at reducing taxpayer/practitioner burden as well as reducing the time it takes to resolve taxpayer cases and inquiries. The receipt of faxes should not require any significant changes to how the IRS handles open cases with taxpayers. It was intended as another means to receive case information.

These general guidelines are applicable to all divisions and cover operations related to income tax, employment tax, excise tax, estate tax, gift tax, and generation skipping tax, as well as tax exempt and employee plans determinations.

Filing of original tax returns via fax will be allowed only as part of a return perfection process (e.g., securing missing schedule or missing signature) initiated by the IRS or in the post-filing/non-filing activities.

This allowance applies to inquiries and interactions conducted by Field Assistance, Accounts Management, Compliance Services, Field Examination, Field Collection, Determinations Units, Appeals, and the Taxpayer Advocate Service. Documentation, forms, letters, and returns can be received via fax in these circumstances even if a taxpayer signature is required since Chief Counsel has advised that in circumstances where contact with the taxpayer has been made and documented, faxed signatures are legally sufficient.

The IRS will not acknowledge faxes received from taxpayers in the course of tax administration activities by a return fax. Exceptions can be made in unusual circumstances as determined by IRS management.

Submission of documentation, forms, letters, and returns related to post filing/ non-filing inquiries and interactions can be allowed via fax based on taxpayer or IRS request unless there is a specific prohibition. Examples of documents that can be provided by fax in routine operations include:

The following documents/forms/letters can be accepted by fax if contact has been made with the taxpayer by phone or in-person, if the taxpayer history file is documented with the date of the contact, and if notation is made that the taxpayer wishes to send the documentation/form/letter by fax:

Consents to assess additional tax, Form 4549, Income Tax Examination Changes, Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment, and others) of $25,000 or less can be accepted by fax if taxpayer contact has been made and the case history documents the date of contact and the desire of the taxpayer to submit the consent by fax. Consents to assess tax in excess of $25,000 should be secured with original signatures that are delivered in person or by mail.

Taxpayer closing agreements involving tax amounts of $25,000 or less can be accepted by fax if taxpayer contact has been made and the case history documents the date of contact and the desire of the taxpayer to submit the consent by fax. Closing agreements for tax amounts in excess of $25,000 should be secured with original signatures that are delivered in person or by mail.

Employee Plan and Exempt Organization determination letter applications will not be accepted via fax.

Determination Letter Requests related to income tax, gift tax, estate tax, generation-skipping transfer tax, employment tax and excise tax matters will not be accepted via fax.

Consents to extend the limitations period for assessing tax will not be accepted via fax in normal operations.

Correspondence or returns received from taxpayers after the case is closed that does not meet audit reconsideration (see IRM 4.13.1.4, Criteria for Reconsideration, for replies that do meet audit reconsideration criteria) must be evaluated within 5 business days of receipt in the Operation. This correspondence consists of replies on:

Since the taxpayer is still waiting for a response, the reply must be evaluated and a determination made within 14 calendar days.

If the response cannot be worked within 14 calendar days, take the following actions:

If a taxpayer requests additional time to submit requested documentation, the time will be automatically granted up to 30 days on the first request. If subsequent time extensions are requested judgment should be used based on the facts and circumstances for the individual case.

If the request is made via a telephone call, an Action Note will be created on CEAS explaining what the taxpayer is requesting.

The case workpaper must be updated to reflect that the requested extension is being granted and for how long. The Aging Reason Code (Item Number 410) on the Form 5344, Examination Closing Record, must be updated to 08 and be saved. This Code will be used for tracking purposes.

The appropriate extension will be added to the end of the suspense period regardless of how much time remains on the original suspense period.

If the suspense period has expired and the case is being processed by the ACE (Automated Correspondence Exam) System, it must be backed down if possible.

If the suspense period has expired and the case was not processed through ACE, the extension period will begin with the date of the contact to the taxpayer (either by phone or in writing).

If it is not possible to back the case down (i.e., next letter has already been triggered to CPS)the taxpayer must be contacted to inform them that the extension cannot be granted and why. Every effort should be made to accommodate the taxpayer request.

Encourage the taxpayer to fax the documentation, if possible.