Part 4. Examining Process

Chapter 19. Liability Determination

Section 18. Quality Review Program

4.19.18  Quality Review Program

Manual Transmittal

December 11, 2012

Purpose

(1) This transmits revised IRM 4.19.18 Liability Determination, Quality Review Program.

Scope

This section contains information on Examination general procedures for administrative matters and provides a reference for common issues and related items that might be found on tax returns. Throughout this revision are references to other IRMs which may contain related information needed when working cases.

Material Changes

(1) Editorial changes have been made throughout this IRM.

(2) IPU 12U0877 issued 04-13-2012 IRM 4.19.18.7, Classification Review, Delete Entire Subsection.

(3) IRM 4.19.18.1 Burden of Proof, Minor grammatical changes

(4) IRM 4.19.18.2 Policy Statement 21-3 Review, Update to title and IRM in para (1)

(5) IRM 4.19.18.3 Reviewer Reports and Responsibilities, Update to IRM name in para (2) and Procedural updates in para (3), (4), (5) and (6)

(6) IRM 4.19.18.4 Quality Review Procedures, Minor grammatical changes

(7) IRM 4.19.18.5 Sample Selection Process, Minor grammatical changes

(8) IRM 4.19.18.6 Closed Case Review, Minor grammatical changes

(9) IRM 4.19.18.6.2 Mandatory Review, Updating procedures in para (2), (3) and (4)

(10) IRM 4.19.18.6.3 Notice of Deficiency Review, Update to procedure in para (2) and IRM reference number in para (3)

(11) IRM 4.19.18.6.4 Disposal Code 20 Review, Update to grammar in para (2) and IRM reference number in para (3)

(12) IRM 4.19.18.8 Flow Through Entities Case Review, Update to procedures in para (3)

(13) IRM 4.19.18.10 Telephone Reviews, Update to procedures in para (1) and (2)

(14) IRM 4.19.18.11 Management Identified Review, Minor updates throughout

Effect on Other Documents

IRM 4.19.18 dated December 13, 2011 (effective January 1, 2012) is superseded. IRM Procedural Update (IPU) 12U0877, issued on April 13, 2012, has been incorporated into this IRM.

Audience

This IRM is intended for the use of the Small Business/Self-Employed (SB/SE) and Wage and Investment (W&I) Campus Examination Operations.

Effective Date

(01-01-2013)

Steven C. Klingel
Director, Reporting Compliance
Wage and Investment Division

4.19.18.1  (01-01-2013)
Burden of Proof

  1. Restructuring and Reform Act of 1998 (RRA 98), Section 3001, produced significant changes to the Burden of Proof in tax litigation. To support the IRS’s position, it is mandated that during any type of review performed, the case is reviewed to ensure that the work papers are fully and accurately documented for each action taken during the examination process.

    1. Review case file to determine what actions were taken, such as letters/reports sent, correspondence or telephone calls received or returned, and determine if there is a corresponding annotation on history sheet including all required information (date, time, explanation of actions taken).

    2. Correspondence Examination Automation Support (CEAS) notes are sufficient for work paper documentation requirements when the case is not assigned to the examiner adding the case note.

4.19.18.2  (01-01-2013)
Policy Statement 21–3 Review

  1. Policy Statement P-21-3 criteria will be considered in all case reviews when taxpayer correspondence is in the case file. See IRM 21.3.3.1.1, Policy Statement P-21-3, for details.

4.19.18.3  (01-01-2013)
Reviewer Reports and Responsibilities

  1. Reviewers will apply the applicable IRM program procedures in conjunction with the Seven Auditing Standards to determine whether a quality examination has been performed and if any further examination action is necessary.

  2. Reviewers are responsible for the Quality Review procedures outlined in IRM 21.10.1, Embedded Quality (EQ) Program for Accounts Management, Compliance Services, Field Assistance and TE/GE, in conjunction with Examination procedures outlined in IRM 4.19.10, Examination General Overview, through IRM 4.19.21, Liability Determination - Clerical. This IRM describes different types of case reviews and how they are to be treated on Embedded Quality Review System (EQRS)/National Quality Review System (NQRS).

  3. The Embedded Quality Review System (http://eq.web.irs.gov) is comprised of NQRS, the non-evaluative quality review portion, and EQRS, the evaluative quality review. EQRS is performed by managers and leads to monitor an employee’s action on a work product. NQRS reviews are performed by specialized teams, and these reviews take into account the entire process.

  4. Reviewers will input all completed national and local reviews in NQRS, selecting the applicable SPRG (Specialized Product Review Group). The case type is based on the applicable examination program. When a case does not fit under any of the examination programs, "Other" will be used as the case type.

  5. The Quality Staff will ensure that the Examination Operations Manager receives a copy of the NQRS accuracy report and reports for the top 5 defects with supporting analysis on a monthly/quarterly basis. The analysis will breakdown the NQRS attribute to identify the root cause of the defect.

    Example:

    Paper: The NQRS attribute is Case Administration and the root cause identified is an incorrect technique code on the Form 5344, Examination Closing Record.

  6. The monthly analysis of the top 5 defects on the Examination Cases will assist in identifying error trends. When an error trend is identified, the Quality Staff will issue a Quality Alert to all Exam Team Managers for implementation of corrective action and/or dissemination of information to employees. The Quality Alert will identify the error trend and outline the correct procedures to follow.

4.19.18.4  (01-01-2013)
Quality Review Procedures

  1. Examination cases should be assigned and reviewed within 10 work days of receipt in the Quality function.

  2. When the normal review process is interrupted because of special assignments, work will be promptly reassigned to other reviewers.

  3. If errors are found upon review of an examination case, the case will be returned to the Operation for correction.

  4. The following types of cases are examples which will receive priority handling if they are selected for quality review during the sample selection process:

    1. Short statute expiration cases. If the statute is 120 days or less, the Form 895, Notice of Statute Expiration, should be attached. It is recommended that these cases be hand carried to the Quality Review Manager for expedite handling.

    2. Agreed unpaid deficiencies of $10,000 or more.

    3. Cases that have been identified for an Appeals conference per taxpayer request.

    4. Other special feature cases as designated by the Examination Operations Manager.

4.19.18.5  (01-01-2013)
Sample Selection Process

  1. All types of closed cases are included in the sample selection process for quality review. This includes: agreed cases; 90 day defaults; no change cases and transaction code (TC) 29X inputs for audit reconsiderations. All Appeals transfer cases will be considered "closed" for purposes of quality review and subject to the sample selection process. All exam programs are to be included in the sample selection process.

    1. A "case" is defined as any group of related returns and/or multiple years that are closed together as a case. A case can also be one return. In any case containing related returns, the "key" return must be clearly identified. The "key" return is the one that brought about the examination.

  2. All incoming calls will be included in the selection process.

  3. Each quarter, SOI (Statistics of Income) will reevaluate the sampling plan and issue a memo outlining the sample size for each campus. For additional information refer to IRM 21.10.1.3.1, Quality Review Sampling Guidelines.

4.19.18.6  (01-01-2013)
Closed Case Review

  1. Cases will be categorized by SPRGs.

  2. After closing, the Operation will ensure that all closures are available for the sample selection process.

  3. A designated employee will pull the sample and release the remaining cases.

  4. For Appeals closures, the reviewer must also:

    1. Review the case file to determine if the examiner attempted phone contact to secure an agreement or resolve any factual tax differences through the correspondence examination process. Ensure the history sheet/work papers are documented with the date, time, and a brief explanation outlining the conversation. If no contact was made, the history sheet/work papers must be documented with the reason no contact was made.

    2. Ensure the Team Manager signed the history sheet/work paper, or document CEAS with approving the transfer of the case to the Area Office as an Appeals transfer.

  5. Reviews will be entered on NQRS as a National review.

4.19.18.6.1  (01-01-2012)
Manually Computed Interest

  1. If normal or restricted interest was manually computed, consider the computation in the closed case review. These cases will be flagged with Form 3198, Special Handling Notice for Examination Case Processing.

4.19.18.6.2  (01-01-2013)
Mandatory Review

  1. Mandatory reviews take first priority in the sampling selection process. Mandatory reviews are further separated by Management-Identified and Transfer cases. The balance of cases should be released to the next processing function.

  2. All cases closed with deficiencies of more than $50,000 must be reviewed for Discretionary cases and $20,000 for Earned Income Tax Credit (EITC) cases. This review may be conducted prior to the final input on Tax Equity and Fiscal Responsibility Act (TEFRA) cases only. Local management can decide to require mandatory reviews on closures of a lesser tax deficiency.

  3. Case files subject to mandatory review will be identified by the Examination function on Form 3198, Special Handling Notice for Examination Case Processing. Form 3198, should include taxpayer name, social security number (SSN)/employer identification number (EIN), year(s), and cite the reason(s) for the mandatory review.

  4. IRM 4.19.18.12, Quality Review Sampling Plan, may be used in lieu of the entire volume of cases when review volumes exceed the required number in the chart. The review will be entered on NQRS as part of the local review. In the data collection instrument (DCI) Local Use field, specify the type of review, i.e. 50K, 20K review.

4.19.18.6.3  (01-01-2013)
Notice of Deficiency Review

  1. All Notices of Deficiency will be subject to a sample selection for quality review. Manually prepared Notices of Deficiency will be subject to a 5% review rate. Appropriate skip intervals should be determined and used when selecting cases for review.

  2. Review the Notice of Deficiency to ensure the entity, deficiency, and penalty amounts have been transferred from the report correctly. The tax and penalty amounts will not be recalculated but will be reviewed to ensure they appear in-line with the adjusted items on the report. If an apparent error is found, use the Seven Auditing Standards in conjunction with the IRM procedures for the applicable program.

  3. This review will be entered on NQRS as a Local review. On the data collection instrument (DCI) in the Local Use field, specify the type of review, i.e., 90D.

  4. IRM 4.19.18.12, Quality Review Sampling Plan, may be used in lieu of the entire volume of cases when review volumes exceed the required number in the chart.

4.19.18.6.4  (01-01-2013)
Disposal Code 20 Review

  1. All Disposal Code (DC) 20 cases are subject to a 5% review.

  2. This review will be entered on NQRS as part of the Local review. In the DCI Local Use field, specify the type of review, i.e., DC 20 Review.

  3. IRM 4.19.18.12, Quality Review Sampling Plan, may be used in lieu of the entire volume of cases when review volumes exceed the required number in the chart.

4.19.18.7  (01-01-2007)
Area Office Support Case Review

  1. Managerial reviews may be completed to capture the quality of the work provided to the area offices.

  2. These cases do not constitute a closed case and are not subject to the national closed case review.

  3. This work will include all products built for the field, including Differential Scoring (DIF), and other high strategy work being built by the campus.

  4. The accuracy of this work does not have a direct impact on the taxpayer. However, the customer accuracy for this work will be measured through the DCI Attribute 718, "Met Internal Customer Requirements" .

  5. If the identification of the taxpayer is part of the overall case building process for the type of work being reviewed, include these steps in the review in addition to reviewing for a complete package.

  6. The case types applicable to this review can be found in the Quality Job Aid posted on the EQ website.

4.19.18.8  (01-01-2013)
Flow Through Entities Case Review

  1. All TEFRA/Non-TEFRA investor cases that are full closings on Audit Information Management System (AIMS) are subject to the closed case sample selection process.

  2. In addition, all TEFRA Key Case mail outs and TEFRA/Non-TEFRA Key Case closing packages processed will be subject to a 5% review of completed packages.

  3. This review will be entered on NQRS as a Local review. In the DCI Local Use field, specify the type of package, i.e., NOL, AMT.

4.19.18.9  (01-01-2012)
Clerical Review

  1. This includes, but is not limited to: unpostables, 90-day letter preparation and Form 5600, Statutory Notice Worksheet, claim openings, estate letters, AIMS terminal work (long and short closing), updates, hash totals completed by AIMS Tax Examiners, etc.

4.19.18.10  (01-01-2013)
Telephone Reviews

  1. Reviewers will input all completed National and Local reviews on the NQRS. Examination phones are reviewed under the SPRG. Exam Phones Cold Calls, are input into NQRS. A second SPRG, Exam Phones Outgoing Calls, is used by managers and leads and are entered on EQRS.

  2. The case type used for this review should be taken from the examination programs based on the applicable SPRG and can be found in the Quality Job Aid posted on the EQ website http://eq.web.irs.gov.

  3. Based on the statistically valid sample plan from SOI, the Review Staff will utilize Contact Recording to randomly select calls. The Review Staff will select the correct SPRG for the type call, complete the review using Contact Recording, and input the DCI on the NQRS.

  4. This review will be entered on NQRS as a National review.

4.19.18.11  (01-01-2013)
Management Identified Review

  1. The Examination Operations Manager may request reviews for a specific case category, issue, clerical, disposal code, or call category to identify problems or trends.

  2. Management will ensure that the appropriate paper case files are identified and transmitted to the Quality Review function.

  3. The Quality Review function will perform the analysis with recommendations to the Examination Operations Manager for corrective action.

  4. This review will be entered on NQRS as a Local review. In the DCI Local Use field, specify the type of review, i.e., MIR.

4.19.18.12  (01-01-2012)
Quality Review Sampling Plan

  1. Follow the sampling plan below when performing quality review:

    If the cases subject to review are: Then sample:
    greater than 7,501 270
    between 2,001 and 7,500 261
    between 1,001 and 2,000 238
    between 501 and 1,000 213
    between 301 and 500 176
    between 201 and 300 142
    between 151 and 200 115
    between 115 and 150 96
    between 1 and 114 100% or 96, whichever is less


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