4.22.6  Area Office - Examination of Individual Returns

Manual Transmittal

January 8, 2013

Purpose

(1) To update the National Research Program (NRP) Quality Review sections.

Material Changes

(1) IRM 4.22.6.5.4 is updated to reflect the new evaluative review requirements.

Effect on Other Documents

None.

Audience

SB/SE Examiners, LB&I Foreign Residence Compliance Examiners, Group Managers, and Territory Managers assigned NRP returns.

Effective Date

(01-08-2013)


Director, Office of Research
Janice Hedemann

4.22.6.1  (11-15-2012)
Case Building For Individual Returns

  1. The NRP approach maximizes use of data available to the IRS and, to the extent possible, minimizes intrusiveness and taxpayer burden.

  2. Case building is the process of adding information to the case file, from both IRS and non-IRS sources, prior to classification. For the Individual Form 1040 Study, case building will be conducted at the Cincinnati Campus. Case building information is used during the classification process to identify or eliminate potential issues prior to contacting the taxpayer.

  3. NRP is moving toward a fully electronic case file. Therefore, the only paper case building documents included in the file are the Case Building Inventory sheet that the Campus uses to check off and ensure documents are in the file, the tax return (paper or TRPRT), the IRPs if married filing jointly, and the EIC Stuffer. All other case building material discussed in this IRM will be available electronically.

  4. Examiners should supplement the case building material included in the file as necessary.

4.22.6.1.1  (11-15-2012)
Case Building Tools for Individual Returns

  1. The following describe the case building items that will be included in the Individual NRP case files. These items will be used as investigative tools to facilitate improved analysis and enhanced decision making by NRP classifiers and examiners.

    1. The NRP Case Building Inventory Sheet is stapled to the inside left of the Case folder (hardcopy in case file). It contains a list of all case building information included in the case file. The NRP Case Building Inventory Sheet provides a quick overview of the case building tools provided in the case file.

    2. Form 5546 Examination Charge Out is associated with the top of the original return or return facsimile. It verifies that the return has been established on AIMS and will show the NRP Source Code, Project Code, and Tracking Code. It provides an audit history, information for any Power of Attorney, and a myriad of codes (AIMS, BOD, etc.) giving information about the selected tax return. Form 5546 provides the classifier and the examiner an audit history. It lets the classifier and examiner know the results of the last two returns the Service either classified or examined. Care should be taken in using this information to draw conclusions. The classifier and examiner need to look at the current overall picture of the taxpayer based on the case building and other known data.

    3. The original NRP Individual key case tax return will be included in the case file (hardcopy in casefile). This includes either an original paper filed return or a return facsimile if e-filed. An imaged copy of the NRP key case return will be included in the NRP RGS Case File Documents.

    4. Compliance Data Environment (CDE). The CDE system contains a combination of all transcribed lines from returns and selected entity information for all individual and some business returns. CDE does not include all the line items of the return. It is limited to what is transcribed for RTVUE. CDE generates three years of tax return data in a side-by-side tax return format so multiple returns are easy to compare. This enables examiners to readily see changes from year to year. Additionally, CDE prints include several helpful and informative specially calculated fields. Variances and trends (in income, deductions, other information, etc.) can be detected through correlation of CDE with other case building data. For example, CDE data could indicate unusually low Schedule C or F gross profit year after year or consistent losses with low net profit and no other apparent sources of income to support expenditures.

    5. Choice Point information is provided on the primary and secondary SSN and is a general combination report with data from multiple sources. Various consumer reporting agencies are scanned and the information is utilized to search public records. The Choice Point print included in the file will show that the information search was performed even if no data was found. A single report of search results (including both the primary and secondary SSN's, if applicable) is generated and may include:

    1. Taxpayer name

    2. Possible "Also Known As" (or AKA's) for the taxpayer

    3. Addresses associated with the taxpayer. This section includes current and prior addresses and possible phone numbers.

    4. Real property ownership and deed transfers.

    5. Vehicles registered at the taxpayer's addresses. Vehicles (including possible leased vehicles) appear regardless of the name on the vehicle registration.

    6. Watercraft ownership including state registrations and boating accidents.

    7. Aircraft registrations

    8. Professional licenses

    9. Business affiliations

  2. IDRS prints for specific command codes provide taxpayer return and financial data. These include:

    • INOLE - Displays filing requirements such as current name and address.

      DDBKD - Displays the person who may be entitled to claim the child indicated on the return, who actually claimed the child, the number of returns on which the child was claimed, and if the child filed a return and claimed their own exemption.

      DDBOL - Displays the possible erroneous claim of a person receiving public assistance.

      RTVUE - Displays return items from Form 1040 (as filed and as changed during processing).

      IRPTR - Displays IRP (income) information such as W-2’s, K-1’s, 1099’s, etc.

      IMFOLI - Displays filing history and module balances (if any).

      IMFOLT - Displays a list of posted transactions to a specific period.

      PMFOL - Displays Payer Master File information such as whether the entity filed W-2s and/or 1099s.

4.22.6.2  (11-15-2012)
Initiating Examinations

  1. All possible efforts should be made to contact taxpayers whose cases are to be examined.

  2. The initial contact Letters 2205-B for revenue agents and 3572-B for tax compliance officers were developed for NRP Individual key case examinations. These letters will be used to arrange the appointment for all NRP Individual key case examinations. These letters request a taxpayer to call the examiner to schedule an appointment.

  3. Field examination cases should be scheduled using telephone contact. During the initial telephone contact it is important that the revenue agent ensures that the taxpayer knows that this is an NRP examination and covers the items discussed in Letter 2205-B. This should be documented in the case file. When the initial appointment is made by telephone, a follow-up letter will be mailed to the taxpayer confirming the time/place of the examination.

  4. Any other letters or correspondence to taxpayers or their representatives should utilize standard examination letters (correspondences). This would include but not be limited to confirmation letters, appointment letters for related returns, no-change letter, and no change with adjustment letter.

  5. Notice 1332 (1-2007), Notice 609 (12-2004), Publication 4134 (3-2010) and Publication 1 (5-2005) will be used as enclosures to the initial contact letters or the confirmation letter if the revenue agent makes the initial contact with the telephone. Notice 1332 explains to the taxpayer how and why their return was selected for an NRP examination.

  6. If no contact is made see the following IRM sections for guidance:

    1. IRM 4.10.2.7.2 - Locating the Taxpayer

    2. IRM 4.10.2.7.2.1 - Undeliverable Initial Contact Letters

    3. IRM 4.10.2.7.2.2 - Unlocatable Taxpayers-Mandatory Steps to Locate

    4. IRM 4.10.2.7.2.3 - Additional Resources for Locating Taxpayers

    5. IRM 4.10.2.7.2.4 - IDRS/CFOL Command Codes Useful in Locating the Taxpayer

    6. IRM 4.10.2.7.2.5 - Using Credit Bureau Information to Locate a Taxpayer

    7. IRM 4.10.2.7.2.6 - Third Party Contacts

4.22.6.3  (11-15-2012)
Individual Examination Guidelines

  1. NRP research and accurate data gathering require that the following issues be captured in accordance to guidance provided in NRP training courses. The training courses provide specific information on various items including:

    1. Internal Revenue Code Section 183 (not for profit activities)

    2. Passive Activity Losses

    3. Ministers/Self Employment Deductions

    4. Change in Accounting Method

    5. At Risk limitations

4.22.6.4  (11-15-2012)
Earned Income Credit (EIC) Examinations

  1. Special programs conducted by the Service during the 1990s provided detailed information about EIC compliance. Detailed information more current than available from these earlier studies is needed. Rather than establishing a separate program to obtain this data, the Service is taking advantage of efficiencies of a combined program by incorporating the EIC objectives into the existing Individual NRP. Examiners assigned EIC returns are required to complete EIC information in the technical topic course of the NRP training. See IRM 4.22.8 for EIC examination guidelines.

4.22.6.5  (11-15-2012)
Case Management and NRP Monitoring

  1. This section contains information about Case Management and NRP Monitoring.

4.22.6.5.1  (11-15-2012)
Case Assignment

  1. NRP cases should only be assigned to examiners that have completed all applicable training courses.

  2. Training courses and applicable lessons that must be completed for each year of the study include:

    1. Course 1 - SB-EX-NRP: Conducting NRP 1040 Examinations

    2. Course 2 - SB-EX-NRP: Closing NRP 1040 Cases

    3. Course 3 - SB-EX-NRP: NRP 1040 Technical Topics

    4. Course 4 - SB-EX-NRP: NRP 1040 Manager Case Review

  3. It is recommended that cases with a Schedule C or F be assigned to revenue agents. Exceptions to this can be made by Area Management on a case by case basis. The primary reasons for establishing these guidelines include the need to tour the business and the potential for e-business activities.

4.22.6.5.2  (11-15-2012)
NRP Program Office and Operating Division Program Monitoring

  1. The NRP Office, Small Business/Self Employed Examination, and International functions will analyze the data gathered from sample reviews and take appropriate action to ensure the quality of NRP examinations.

4.22.6.5.3  (11-15-2012)
Area NRP Program Monitoring

  1. Various processes will be utilized to ensure quality NRP cases. These include group manager evaluative in-process and closed case reviews, mandatory non-evaluative closed case reviews and closed case reviews completed by the Area Quality Review Teams. In addition, NRP cases will be subject to the same national sample NQRS reviews as any operational examination.

4.22.6.5.4  (11-15-2012)
Group Manager Responsibilities

  1. Evaluative case reviews are critical in guaranteeing the highest quality of NRP cases. The requirements to complete the evaluative case reviews is different for new or returning NRP examiners.

    New NRP Examiners

    1. A new NRP examiner is defined as one who has not participated in any NRP examination within any of the past three tax years. For example, if an examiner is assigned a tax year (TY) 2011 return for examination and did not participate in the TY 2010, 2009 or 2008 studies, they would be considered a new NRP examiner. If the examiner is assigned a TY 2011 return for examination and participated in the 2008 study, they would be considered a returning examiner (see Returning NRP Examiners below).

    1. For new NRP examiners, two separate reviews (one in-process and one closed) on different taxpayers/returns would be required for an examiner assigned two or more TY 2011 returns. If the examiner is assigned two or more returns for TY 2011, two separate reviews on different taxpayers/returns would need to be completed.

    2. The first evaluative in-process review should take place within 60 days of the first appointment on one of the earliest started cases for TY 2011. For revenue agents, the in-process evaluative review should take place after the concurrence-meeting, if applicable, and when enough audit work has been completed or meaningful feedback on the quality of the examination. If the tax compliance officer was able to complete the examination after the first appointment, the case can still be reviewed as in-process.

    3. An evaluative closed case review is required on an additional return for the same tax year. This review should be on any subsequent NRP return assigned and generally be completed within 180 days of case assignment. At a minimum, EQRS attributes evaluated on the reviews should include 114 (Information Document Requests), 112 (Required Filing Checks), 300 (Income Determination), 440 (Interview), 433 (Tax Law Knowledge), 408 (Civil Penalty), 509 (Time Charged), 617 (Taxpayer Rights), 707 (Workpapers) and 719 (Report Writing). The purpose of the reviews is to provide meaningful timely feedback.

      Returning NRP Examiners

      1. A returning NRP examiner is defined as one who has participated in NRP examinations within any of the past three tax years. For example, if an examiner is assigned a tax year TY 2011 return for examination and did participate in either a TY 2010, 2009 or 2008 study, they would be considered a returning NRP examiner. If the examiner is assigned a TY 2011 return for examination and only participated in the 2007 study, they would be considered a new examiner.

        a) For returning NRP examiners, only one in-process review is required. The evaluative in-process review should take place within 90 days of the first appointment on one of the earliest started cases for TY 2011. For revenue agents, the in-process evaluative review should take place after the concurrence meeting, if applicable, and when enough audit work has been completed for meaningful feedback on the quality of the examination. If the tax compliance officer was able to complete the examination after the first appointment, the case can still be reviewed as in-process. The same attributes considered in 4.22.6.5.4 (1) A., 1(c) should be considered.

  2. Group managers will complete a 100% non-evaluative closed case review on all NRP examinations. NRP 100% non-evaluative closed case reviews will focus on the overall case quality and:

    1. Technical correctness of the examination.

    2. Adherence to NRP examination guidelines (all classified issues completed), procedural requirements, and case closing/data accuracy requirements.

  3. The non-evaluative closed case reviews will be completed electronically by the manager and documented on the NRP Group Manager Closed Case Review Checksheet (Non-Evaluative). This form is included in the NRP RGS case file. Once completed and saved in the electronic RGS case file, a printed copy of the form is included behind the Form 9984 (Case Activity Record) or in Section 615 of the workpapers. By checking "yes" on the review checksheet the manager is indicating that the item (Income Probe, IDR, etc.) was properly completed by the examiner. If a "no" is checked, the case should be returned to the examiner for clarification/corrections.

4.22.6.5.5  (11-15-2012)
Area Quality Reviews

  1. For each new NRP tax year, the Area will complete NRP Quality Reviews using the following processes. Area participation in the review process is required. The NRP Area Territory Manager, Group Managers or Area Technical Analyst will consider the same EQRS evaluative reviews for the quality of the feedback. The preference would be to do this jointly with the SB/SE Headquarters Analyst(s).

    1. The quality process will involve (1) testing to see if managers (10 revenue agent and 10 tax compliance officer) are completing the required evaluative case reviews as specified in IRM 4.22.6.5.4 and (2) reviewing the actual quality of the feedback provided in these reviews.

    2. In the second quarter of the fiscal year, an ERCS listing that shows NRP Status 12 cases for each group in the Area will be generated. This ERCS listing is generated in the second quarter of the fiscal year since this should allow a sufficient amount of returns where managers were required to complete the first evaluative review.

    3. There are two ways to obtain the completed EQRS reviews.

    1. The SB/SE Headquarters EQRS Analyst could extract the EQRS NRP case reviews for each of the Areas/managers/groups in the sample. This would be the preferred method as it minimizes Area burden.

    2. An ERCS listing can be provided to each Area with the managers selected for review. The Group Managers can send copies of their evaluative case reviews to the Area NRP Territory Manager. The Area Territory Manager can send copies of the completed EQRS reviews to SB/SE Headquarters NRP Analysts.

  2. Area case reviews will be completed remotely using the electronic RGS case files. SB/SE Exam Headquarters Analysts will work with the Area NRP Coordinators and select 10 revenue agent and 10 tax compliance officer closed cases for review. Prior to the case review process, the Area NRP Coordinator will transmit the EOAD closed case data to Detroit on these cases but they will not make any corrections to the closed cases.

    1. SB/SE Exam Headquarters Analysts will complete the closed case reviews jointly with Area managers. The reviews will focus on the following four NQRS attributes:

      1. Attribute 112 - Required Filing Checks
      2. Attribute 300 - Minimum Income Probes
      3. Attribute 400 - Audit/Compliance Interview
      4. Attribute 509 - Time Charged

    2. To the extent possible, RGS data reviews will also be completed by NRP Analysts, and if possible the Area NRP Coordinator and an Area RGS Coordinator on the same closed cases. These reviews will also be done remotely.

    3. On site Area visitations by Headquarters will be considered if the managerial reviews are not being completed in a quality manner and/or the cases reviewed consistently show low attribute scores.

    4. Feedback from the completed reviews will be provided to Area examiners and managers by the Area NRP Territory Manager. The preferred way to provide feedback is through conference calls with Area managers.

4.22.6.5.6  (11-15-2012)
National Quality Review System (NQRS)

  1. NRP Individual cases and related returns will be subject to the same operational national review sample guidelines as other examinations.


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