4.22.10  Employment Tax Study - NRP Examination Guidelines

Manual Transmittal

October 17, 2012

Purpose

(1) This transmits the final updates for IRM 4.22.10, National Research Program (NRP), Employment Tax Study - NRP Examination Guidelines.

Material Changes

(1) The IRM was updated with TY2010 guidelines for the Employment Tax Study.

Effect on Other Documents

None

Audience

SB/SE Examiners, LB&I Revenue Agents, TE/GE, Group Managers and Territory Managers assigned NRP returns.

Effective Date

(10-17-2012)

Director, Research
Janice Hedemann

4.22.10.1  (10-01-2011)
Assigning NRP Cases

  1. NRP cases must only be assigned to examiners that have completed all applicable training modules. New examiners must complete the following modules:

    • Module 1 - NRP Overview

    • Module 2 - Examination Guidelines

    • Module 3 - Reporting Generation Software (RGS) and Data Capture Instruments (DCI-1 and DCI-2) for Examiners.

  2. Examiners who have completed the above modules for prior NRP tax years (TY2008 or TY2009), must complete Refresher Training Module #32983 on ELMS.

    Note:

    NRP cases must only be assigned to trained examiners.

4.22.10.1.1  (10-01-2011)
NRP Pre-Audit Analysis/Case Building

  1. Guidelines for examining NRP returns include:

    1. All NRP key case returns must be examined unless exclusion criteria, discussed later, are met.

    2. NRP key case returns may not be surveyed before or after assignment unless the return is approved for exclusion.

    3. A NRP key case return consists of all four quarters (Forms 941) of the tax year for forms 941. Any quarters that were filed by the taxpayer will be established on AIMS by the NRP office. Any Non-Filed tax year quarters must be established on AIMS if there was determined to be a filing requirement. If there were no filing requirement, clear and concise comments must be made in the electronic case file.

  2. Guidelines on Issues: All NRP key cases include mandatory, required and examiner-identified issues that must be addressed through the pre-loaded lead sheets in the Data Capture Instrument (DCI). There are two DCI’s; DCI-1-Workpapers and DCI-2-NRP ET Report.

4.22.10.1.2  (10-01-2011)
NRP Case Building Process

  1. The tax return, Examination Return Charge-Out (Form 5546), Currency and Banking Retrieval System (CBRS), ChoicePoint, IDRS information, and other case building items are packaged into either a paper NRP case file or are included in the NRP RGS/RCCMS case file. The built case files are forwarded to the designated Business Operating Division (BOD) NRP case assigners for assignment to the groups and NRP trained examiners for audit.

  2. NRP is moving toward a fully electronic case file, the only paper case building documents included in the case files will be the Case Building Inventory Sheet (a form the Campus uses to document the items in the paper case file), the Examination Return Charge-Out and any CP2100/2100A notice, if applicable. All other case building material will be provided electronically in either the NRP RGS or RCCMS case file.

  3. Case building tools help the NRP examiners by providing valuable return and financial information that may lead to or support any adjustments to the tax return.

4.22.10.1.2.1  (10-01-2011)
NRP Case Building Elements

  1. With the number of NRP case files undergoing examination, it is important that the information under review be presented in a consistent and consolidated format. Case building information is organized in a uniform manner to increase efficiency and effectiveness during the examination. Following are the contents of a NRP case built return and a brief statement as to the information they provide. The paper case file will include:

    1. NRP Case Building Inventory Sheet - This provides a list of case building items contained in either the paper case file or the NRP RGS/RCCMS case file.

    2. Examination Return Charge-Out (Form 5546) - This verifies that the tax return has been established on AIMS and provides other information such as audit history, CAF indicator for power of attorney, etc.

    3. CP2100 ("B" Notice) – This provides information on improperly filed 1099’s with an invalid TIN, no TIN, or mismatched TIN. This notice is also provided electronically.

  2. In addition to the paper case file, the electronic case file will include, at a minimum, the following items located in the RGS/RCCMS Office Documents folder:

    1. DCI-1 Workpapers – This file contains all NRP and examination lead sheets to be completed during your audit.

    2. DCI-2 ET Reports – This file contains all NRP examination reports to be completed during your audit. The DCI-2 for TY2010 contains updated report forms (March 2011). It is important to use the proper DCI-2 for each tax year. Despite using older report forms, the DCI-2 for both TY2008 and TY2009 are still valid for NRP purposes.

    3. Information Return Analysis System (IRAS) – Electronic versions of forms W-2 and 1099 will be provided. You will use an Access program called IRAS to analyze the W-2’s and 1099‘s for potential issues. Certain reports, discussed later in this module, are required on all NRP cases.

    4. Examiner Case Closing Checksheet – This document acts as a guide for Examiners to ensure that all NRP-specific elements of a case are completed. This is required to be completed on all NRP cases.

    5. Manager Case Closing Checksheet - This document acts as a guide for Managers to ensure that all NRP-specific elements of a case are completed. For TY2010 NRP cases this checksheet is required to be accessed and completed on-line for all NRP cases.

    6. NRP Contact Letters, Notices and Publications – These documents are provided for use during your NRP examination. They provide NRP-specific information that is required to be shared with the taxpayer.

    7. IDRS prints - Specific command codes provide taxpayer return and financial data. These include:

    AMDISA - This command requests information on current audits.
    BMFOL E - Displays entity information.
    BMFOL I - Displays an summary of business master file tax modules.
    BMFOL R - Displays return information (DLN, cycle posted, income, FICA) etc.
    BMFOL T - Displays a list of posted transactions to a specific period.
    BMFOL U - Displays a reconciliation of the filed 941/945/Sch.H wages and tax to the W-2’s filed with Social Security and 1099-R’s that show taxes withheld.
    BMFOL Z - Displays audit history information.
    PMFOL S - Displays Payer Master File information such as whether the entity filed W-2s and/or 1099s.
    PMFOL B - Displays an explanation of CP2100 notices used in back-up withholding tax cases.
    BRTVU - Displays online Business Master File tax return information.
    INOLE S - Displays entity information (names, address, cross reference TIN’s, filing requirements, and exempt status, etc).
    INOLE X - Displays cross reference for additional TIN’s or name controls.
    SUMRY - Displays a summary screen showing all modules on IDRS. Useful for determining if Collection, the Campus, or Criminal Investigation is actively working a case.

  3. In addition, the following items may be provided in the electronic case file:

    1. Return Facsimile - of the NRP Employment key case.

    2. Related Return - This includes the related income return and or the Exempt Organization returns – (Form 1040, Form 1041 and Form 1042 Form 1120, Form 1120-S, Form 1065, Form 990, Form 990-PF and Form 990-T).

    3. Capital IQ – For LB&I cases - this provides corporate entity information which includes SEC reports, executive reports and news articles about the company.

    4. CP2100/ 2100A– This provides information on improperly filed 1099’s with an invalid TIN, no TIN, or mismatched TIN.

    5. CBRS provides financial information related to reported large cash transactions. A summary sheet will be provided.

    6. ChoicePoint documents provide taxpayer locator and asset information. This information is only available for individual taxpayers.

    7. IDRS prints for the related/parent entity. Certain command codes may be provided for the taxpayer’s related return.

4.22.10.2  (10-01-2011)
Guidelines for Conducting an NRP Examination

  1. Guidelines for conducting an NRP examination are no different than any other operational examination and include:

    1. The examination process can be completed in a professional and timely manner when the IRS and taxpayer/representative work cooperatively. Time is a valuable resource for both taxpayers and examiners.

    2. Throughout the audit process, examiners should be available to meet with taxpayers or representatives to resolve issues or address any concerns about the audit. Group/Team Managers should also be available to assist examiners and taxpayers/representatives as needed.

    3. Examiner responsiveness to taxpayer inquiries consistently resulted in higher taxpayer satisfaction ratings during the prior NRP studies.

  2. Mutual responsibilities include:

    1. Identifying and discussing potential areas of examination (including adjustments in the taxpayer’s favor) on the tax return.

    2. Requesting and providing pertinent information necessary to determine the proper employment tax treatment of an issue.

    3. Applying relevant tax authority, including the Internal Revenue Code (IRC), the Treasury Regulations (Regs.), court cases, etc., required to make a correct determination.

    4. Keeping all parties advised of any unavoidable delays.

    5. Addressing all parties’ questions and concerns expressed during the examination.

    6. Keeping all parties fully informed about the information needed, the adjustments being proposed, and the progress of the examination throughout the audit process.

    7. Performing the above responsibilities in a timely manner.

4.22.10.2.1  (10-01-2011)
Contacting a Taxpayer for a NRP Examination

  1. Guidelines for contacting a taxpayer for a NRP examination include:

    1. Initiate taxpayer contact as quickly as possible after the case is assigned.

    2. Revenue Agents or Revenue Officer Examiners can either initiate contact using Letter 3851-B or by telephone.

    3. Letter 3851-B is a call back letter which affords the taxpayer and the examiner an opportunity to discuss the NRP examination process. Examiners can also gain a better understanding of the types of records that the taxpayer maintains.

    4. If there is no response to the initial contact letter(s), then contact by telephone should be attempted.

    5. IRM 4.23.3.7 states that for field examinations, a telephone call or letter will be used in all instances to schedule an appointment in the field for an employment tax interview. If the initial contact is by telephone, it is important that the revenue agent ensures that the taxpayer knows that this is a NRP examination. During the initial telephone call, the agent will also gain a better understanding of the taxpayer’s business and should set-up the initial appointment. A follow-up letter (L3850-B) will be mailed to the taxpayer confirming the time/place of the examination along with the initial Information Document Request (IDR). These procedures must be documented in the case activity record/chronology. Also see IRM 4.10.2.7.4.1 and IRM 4.10.2.7.4.2.

    6. Notice 1332 , Pub 609 , and Pub 1 must be used as enclosures with initial call-back letters (L3851-B) or confirmation letters (L3850-B). Notice 1332 explains to the taxpayer how and why their return was selected for a NRP examination.

      Note:

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

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

    • IRM 4.10.2.7.2 - Locating the Taxpayer

    • IRM 4.10.2.7.2.1 - Undeliverable Initial Contact Letters

    • IRM 4.10.2.7.2.2 - Unlocatable Taxpayers-Mandatory Steps to Locate

    • IRM 4.10.2.7.2.3 - Additional Resources for Locating Taxpayers

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

    • IRM 4.10.2.7.2.5 - Using Credit Bureau Information to Locate a Taxpayer

    • IRM 4.10.2.7.2.6 - Third Party Contacts

    • IRM 4.23.3.8.6 - Third Party Power of Attorney

  3. As noted above, third party contacts are appropriate means to help locate a taxpayer. Disclosure rules allow for this type of third party contact as long as specific tax return information is not disclosed. Examples of acceptable third party contacts include contacting the preparer of the NRP Employment tax returns, IRP information, or contacts identified on Accurint, Capital IQ, Westlaw, or other web research.

4.22.10.2.2  (10-01-2011)
Scheduling the Appointment

  1. In arranging for a convenient time and place to start an examination, it is advisable to telephone the taxpayer or the representative. If the initial appointment is scheduled by telephone, mail an appointment Letter 3850-B to confirm the appointment and summarize the list of records to be made available during the examination.

  2. At all times endeavor to make appointments at a time and place that will meet the convenience of the taxpayer and be consistent with Federal Administrative and Procedural Regulations § 301.7605–1 on time and place of examination.

  3. Examinations should be conducted at the place where the taxpayer maintains the business operations. However, the examination may be conducted at a place other than the location of the business operation if agreed to by the examiner and the taxpayer or the authorized representative. Once the appointment is made, try to avoid cancelling it. Also see IRM 4.10.2- Examination of Returns, Pre-contact Responsibilities, (Sub-section 4.10.2.7.6 - Place of Examination.

  4. Notice 1332 - should be used as an enclosure to the NRP initial contact letter. This notice explains to the taxpayer how and why their return was selected for a NRP examination.

4.22.10.2.3  (10-01-2011)
NRP Examination Location

  1. Section 4.10.2.7.6 in this IRM provides guidance on where examinations should take place. Examiners should follow standard examination procedures when determining the examination location.

    1. The location of the taxpayer’s representative will generally not be a consideration in determining the place of the examination.

    2. Field examination cases should generally be conducted at the location where the original books, records, and source documents are maintained.

    3. If the business is so small that a field examination would essentially require the taxpayer to close the business or would unduly disrupt business operations, the examiner will conduct the examination in the IRS office closest to the taxpayer’s business or at the representative’s office.

    4. If the examination cannot be performed at the taxpayer’s place of business, a tour of the business is to be made and documented in the workpapers.

    Note:

    If you should need further help, Treasury Regulation 301.7605 1(e), Time and Place of Examination, provides guidance for establishing the time and place of examination.

4.22.10.2.4  (10-01-2011)
NRP Examinations and Customer Perceptions

  1. NRP examinations will often generate additional questions and concerns for both the taxpayer and representative. The examiner should be thorough in response to taxpayers’ questions. Some of the more likely questions will be:

    • Why me (us)?

    • What did I (we) do wrong?

    • How long will this take?

    • How much cost and lost time?



  2. Notice 1332 provides explanations to taxpayers about NRP examinations. Examiners should be familiar with this notice to help in addressing taxpayer concerns and questions.

    The answers to the questions listed above relate to the research nature of these examinations. Ensuring the fair administration of our tax system involves performing a certain amount of random audits each year. While an NRP audit is still an audit, there were no indications of non-compliance that resulted in the selection of the return for examination.

  3. Examiners should strive to create a cooperative atmosphere. In some situations, difficulties will be encountered. Examiners should confer with their Group/Team Manager in dealing with problem situations.

4.22.10.3  (10-01-2011)
NRP Examinations and Customer Burden (Specific IDR Guidelines)

  1. The initial IDR(s) should list the specific records, information, and documents that the taxpayer should have available at the initial interview. Examiners should always carefully consider what is necessary and avoid requesting more information than is essential to resolve the issues. Examiners should prepare the initial IDR(s) after discussing the examination process, issues selected for examination, and types of books and records available with the taxpayer or their representative. Follow your standard examination procedures.

  2. Examiners should refer to IRM 4.10.2 - Examination of Returns, Pre-contact Responsibilities, (Section 4.10.2.9.2 -Requesting Information or Documents from the Taxpayer), for specific guidance when preparing IDRs throughout the examination process. Although examiners must request information that is relevant and necessary to resolve the issues and areas under consideration, they should also be cognizant of the burden each IDR places on the taxpayer and/or the representative.

4.22.10.3.1  (10-01-2011)
Background of the NRP Program

  1. During audits of the NRP Tax Year (TY) 2001 Individual study and TY 2003 and 2004 S Corporation study, the Treasury Inspector General Tax Administration (TIGTA) concluded that some taxpayers were asked for unnecessary information. Similar findings were also noted by NRP Area Quality Review Teams. The TIGTA reports noted that in over 35% of the NRP cases reviewed that IDR(s) were overly general or used technical jargon or requested unnecessary items or requested items that the IRS already had access to. TIGTA cited an example of an IDR requesting data related to interest and dividend income although the taxpayer’s return and all of the IRS’ information sources clearly indicated the taxpayer received no dividend or interest income. TIGTA stated that "clear and concise information requests are critical to minimizing taxpayer confusion and speeding the examination process." TIGTA also stated that, "IDRs that request unnecessary items are counterproductive to the IRS efforts to reduce taxpayer burden resulting from NRP studies."

  2. To reduce the burden on future NRP taxpayers, TIGTA recommended that the Service strive to improve the clarity of written information requests provided to taxpayers. In an effort to lessen the burden of future research studies on taxpayers and to improve on the quality of requests for information, the Service agreed to address initial IDR preparation in subsequent NRP training, as well as publish additional guidance on effective IDR preparation. An article on effective IDR preparation appeared in the February 2007 edition in the Technical Digest.

4.22.10.3.2  (10-01-2011)
IDR Preparation – Points

  1. Examiners should remember the following points when preparing IDR(s) in NRP cases:

    1. An IDR should not be sent with Letter 3851-B, the NRP initial contact letter. Letter 3851-B is a callback letter that allows the examiner an opportunity to discuss the examination process, issues, types of books and records maintained by the taxpayer.

    2. Examiners should be familiar with the taxpayer's accounting and record keeping systems before issuing the initial IDR. When the taxpayer or representative calls to discuss the initial appointment, the examiner should learn more about the availability, location and types of books and records maintained by the taxpayer. When auditing business returns, do not ask for journals, subsidiary ledgers, etc. that the taxpayer does not maintain

    3. The initial IDR(s) should list specific records, information, and documents that taxpayer should have available at the first appointment. The IDR should use terminology familiar to the taxpayer. The IDR should be specific and should avoid requesting more information than is essential to resolve the issues identified.

    4. Facts in each case will determine what is considered an adequate description of the requested data. An IDR must sufficiently specify the books, papers, records, or other data. The request should also include the particular activity and time period.

    5. Examiners may have access to pro-forma type IDR(s) that include a list of items which are commonly requested in examinations. Use of pro-forma IDR(s) or focused text is acceptable; however, the IDR must be modified or tailored to the particular return being examined. Items not applicable or duplicated should be deleted. Examiners must be careful not to use a "shot-gun" approach and request everything on the list if some of the items may not be relevant to the return under examination.

  2. To decrease taxpayer burden, examiners should use internal sources of information, e.g., CFOL and BRTVUs to complete required filing checks. Following are two links for helpful IDRS/CFOL guides.

    IDRS Command Codes Job Aid http://serp.enterprise.irs.gov/databases/irm-sup.dr/job_aid.dr/command-code.dr/idrs_command_codes_job_aid.html
    CFOL Express, An CFOL/IDRS Reference Guide, A user guide for field personnel. http://mysbse.web.irs.gov/exam/idrs/code/default.aspx

  3. If after analysis of the internal sources of information it is determined that additional return information is needed, the returns should be requested from internal sources or the taxpayer for inspection. It is advisable to include a statement on the initial IDR(s) indicating that the examiner will probably request additional records as the examination progresses. The IDR(s) must include a date for taxpayer submission of the requested documents or information.

  4. If it is necessary to make a second request for the same information or documents, the date(s) of previous request(s) will be entered in the appropriate space.

  5. For LB&I Examiners Only – The LB&I mandatory tax shelter IDR will need to be issued for all cases where there is no income tax team coordinator assigned. Always get the latest IDR from the following link: http://lmsb.irs.gov/hq/pftg/otsa/CollateralPrograms/Mandatory_IDR.asp

4.22.10.3.3  (10-01-2011)
NRP Examination Scope

  1. Some inquiry or inspection of records or documents must be made on all NRP Employment Tax Returns.

  2. Examiners must address all Mandatory, Required and potential employment tax issues. Potential employment tax issues include any necessary and relevant General, Tier 1, Tier 2 and Worker Classification issues.

4.22.10.3.4  (10-01-2011)
NRP Change of Scope and Examination of Related Returns - Guidelines

  1. Due to the nature of Employment Taxes, issues for examination must be established at the Examiner level. An "issue list" will be provided as part of the Data Capture Instrument (DCI-1) and any issues that affect the entity will define the minimum scope of the examination. If examiners are aware of other issues, regardless of materiality, the scope must be expanded to include these issues. In determining whether to examine a related return (entity), the same judgment should be used as is used in performing all operational examinations. The related entity examination is not a NRP key case return so the scope of the examination is determined by the examiner. Examiners need to use source code 91, project code 0087, and the tracking code for the key NRP year (6279 for TY2010, 6278 for TY2009 and 9508 for TY2008). NRP key cases and all related employment tax returns examined need to be included on the Report Generation Software (RGS) or Reporting Compliance Case Management System (RCCMS) file server.

  2. According to IRM 4.23.3 - Classification, Selection and Assignment of Employment Tax Cases, (Section 4.23.3.7(3) - Initial Contact With Taxpayers. IRM 4.23.3.8.3 - Scope of the Examination, it is recognized that examinations, whether change or no-change, vary in the scope of the examination. Normally, the examiner is expected to:

    1. Conduct the examination to a point where the reported employment tax liability is determined to be substantially correct,

    2. Determine whether information returns and wage statements have been correctly filed, and

    3. Determine whether all applicable Federal return requirements have been met.

  3. For NRP key cases, the employment tax examination is different. The scope includes all identified tax issues on all 4 quarters of the tax year. Any and all issues must be included in the DCI-1 - Workpapers file.

  4. The following summarizes the IRM requirements:

    1. Due to the research nature of NRP audits, examiners should be aware of all issues that impact the NRP Employment Tax year. Examiners must expand the scope of the NRP year examination to other issues, regardless of materiality.

    2. All filed tax year quarters will be initially established on AIMS. Any additional quarters must be added if there was a filing requirement. If there was no filing requirement, clear and concise comments must be made in the lead sheets.

    3. In certain circumstances related entities may need to be examined. When this occurs the examiner needs to document and discuss the reason(s) why.

    4. Copies of the prior and subsequent year returns will be inspected. Expand the audit to include open periods where the issue is recurring or where there appears to be other large, unusual or questionable items.

    5. Related return examinations are not NRP sample returns. The examination of any related entities, including any 940 and 945 returns, are not subject to the requirements of an NRP examination. The scope is determined by the examiner. Related returns are not subject to the NRP guidelines.

    6. When establishing AIMS control for the examination of prior and subsequent year returns or related entities, source code 91, project code 0087, and tracking code 9508 will be used.

    7. Prior/subsequent and related employment tax returns under examination need to be on the RGS/RCCMS file server. This will also be discussed during the NRP RGS/RCCMS training.

4.22.10.3.5  (10-01-2011)
Employment Tax Return Related Questions

  1. Following are possible related return questions examiners should consider in determining if a related entity should be examined:

    1. Does the taxpayer own an interest in any:

      ▸ S-Corporations

      ▸ C-Corporations

      ▸ Partnerships

      ▸ Trusts

      ▸ Schedule C

      ▸ Non-Profit Entities

    2. Does the taxpayer have to file Form 8027?

    3. Does the taxpayer have household employees?

    4. Does the taxpayer have withholding on pensions or gambling winnings?

    5. Are the executives being paid out of a different payroll entity?

    6. Are there contracts between related parties?

4.22.10.3.5.1  (10-01-2011)
Related Returns Decision Points

  1. It may not be possible to determine an entity’s level of compliance without full consideration of the entity’s financial interests in, and relationships with, related entities and individuals. This is especially true of entities where the owners:

    1. Are actively involved in the business operations.

    2. Have significant influence over business decisions.

    3. Have access to business assets (including cash).

    4. Lack competing interests with other owners.

    5. Can divert business assets (including cash) without detection.

    6. Show ownership of a foreign entity, offshore relationship, or foreign bank account.

    7. Are involved in complex transactions.

    8. Have IRC Section 482 issues (allocation of income, deductions, etc.).

  2. Examiners should consider alternative positions see IRM 4.23.10 - Report Writing Guide for Employment Tax Examinations, (Section 4.23.10.17.3 - Alternative and Whipsaw Positions in Unagreed Cases) and Whipsaw issues see IRM 4.10.7 - Issue Resolution, (Section 4.10.7.4.9) - Whipsaw (a/k/a Correlative Adjustments).

4.22.10.3.5.2  (10-01-2011)
Non-Specialty Tax Related Returns

  1. During the course of your examination, you may encounter issues outside of the scope of employment taxes that require examination. In these instances a referral should be made to appropriate business unit division.

  2. All referrals should be made according to existing operational guidelines. When making a referral, it is important to remember to use the appropriate NRP codes: source code - 91, project code - 0087 and tracking code for the key NRP year (6279 for TY2010, 6278 for TY2009 and 9508 for TY2008).

  3. If a referral is made using form 5346, NRP requires that an electronic copy of completed form is saved in the Office Documents folder of RGS/RCCMS.

4.22.10.3.6  (10-01-2011)
NRP Required Filing Checks

  1. Examiners should complete all required filing checks on NRP Employment Tax Returns as in any other examination. In order to reduce taxpayer burden, examiners should utilize case building materials to the extent possible to meet these requirements.

    "Required Filing Checks (RFCs) are necessary to ensure voluntary compliance. Examiners should determine that taxpayers are in compliance with all Federal tax return filing requirements and that all returns reflect the substantially correct tax (Reference IRM 4.10.5.1 - Examination of Returns, Required Filing Checks, (Sub-section IRM 4.10.5.1 - Overview)"

    Note:

    Required Filing Checks are necessary on NRP examinations. They are the same as operational examination procedures.

4.22.10.3.6.1  (10-01-2011)
Required Filing Checks

  1. If the related entity is deemed worthy of examination, the examiner needs to timely request controls on the related return and open an examination on that entity. If the related entity is outside the group control, the examiner will follow the procedures outlined in the IRM for collateral examinations.

  2. Refer to Exhibit 4.22.10-2, Pro Forma Employment Tax Check Sheet, which summarizes compliance checks and minimum requirements.

  3. For LB&I Cases where there is no Income Tax Team Coordinator, an additional required filing check is needed for corporate officers’ return. See IRM reference 4.46.3 - Planning the Examination (Section 4.46.3.6.7 – Corporate Officers’ Return.

    1. LB&I’s Executive Compensation Strategy - This strategy requires the assessment of compliance risk of corporate officers and other key executives as part of any LB&I examination.

    2. Inspection of Officer and Key Executive Returns - The team manager, at a minimum, will secure and inspect the individual returns of the top officers of the corporation and other key executives or highly compensated employees. The team should include the top officers of the largest subsidiaries in meeting the minimum requirement for inspection purposes if the taxpayer filed a consolidated return. The inspection generally will be limited to the officer/shareholder returns for IC taxpayers.

4.22.10.4  (10-01-2011)
NRP Examination Depth Guidelines

  1. Examiner’s professional judgment determines the depth of the examination for each examined issue. The depth of the examination on a NRP examination is the same as standard examination guidelines. Therefore, NRP taxpayers are not held to a higher standard or more in-depth audit procedures. A photo copy of documents reviewed should only be included in the case file when necessary. Issues should only be pursued to the depth necessary to reach a supportable conclusion.

    1. Because NRP results are to be used for updating Tax Gap information it is essential that examinations be thorough.

    2. Adjustments must reflect the actual error patterns found on the returns regardless of the amount and must be free of any bias resulting from judgmental errors on the part of the examiner.

    3. You must record "All" adjustments, however small, in the DCI-1. However, if the adjustments are de minimus (see IRM 4.10.2 - Pre-contact Responsibilities (Section 4.10.2.3.1- Large Unusual Questionable Items (LUQs) Defined) you do not have to record these adjustments in the DCI-2. A no change report (Form 4666) can be generated in the DCI-2.

    4. Regardless of the report issued to the taxpayer, it is important to remember that DCI-1 must reflect ALL adjustments. Materiality is never a consideration for the completion of DCI-1.

    5. Disposal Code 02 (DC-02) will be used at closing for de minimus audit results where no report of additional tax due was issued to the taxpayer. These examinations do not necessitate the issuance of a report (other than the no-change report subject to area director's approval) because there were no adjustments or changes in tax liability.

    6. Disposal Code 01 (DC-01) is used when there are offsetting adjustments to tax base data and/or credits that result in no change in tax liability in the same quarter that is being closed. An audit report must be prepared in DC-01 cases. An example of using DC-01 would be a case where a 25% Classification Settlement Program (CSP) offer was made and accepted. In these cases the entire assessment is reported in the 4th quarter and closed agreed (DC-03). DC-01 will be used for any remaining periods that have been examined but accepted as filed as a result of the CSP offer (IRM 4.23.6 - Classification Settlement Program (CSP)) assuming no other adjustments are made that affect the other quarter.

4.22.10.4.1  (10-01-2011)
Evaluation of Books and Records

  1. Reference IRM 4.22.4 - Examination of NRP Cases - Area Office (Section 4.22.4.4.2 - Evaluation of Books and Records), discusses the evaluation of books and records and consideration of various types of evidence.

4.22.10.5  (10-01-2011)
NRP Examination Lead Sheets

  1. Electronic Lead Sheets must be prepared and included in the RGS/RCCMS case file. This requirement exists so reviewers of the case files such as GAO can determine facts, procedures and conclusions when the physical case file is not available. In addition, we are moving toward a paperless case file. Audit procedures and conclusions for each item audited must be supported by written comments in the workpapers.

    1. All Lead Sheets must be prepared electronically and included in the RGS/RCCMS case file.

    2. The Data Capture Instruments include the specific Lead Sheets (DCI-1) for the employment tax return NRP case and the NRP ET Report (DCI-2). These DCIs will be discussed in the RGS/RCCMS and Data Capture Instruments classroom training. You will know the mandatory Lead Sheets because they will be coded, ETM_ _, for example ETM02. Each business unit may have different mandatory Lead Sheets.

    3. Additional issue lead sheets must also be completed electronically for NRP cases. In addition, all electronically prepared workpapers (spreadsheets, etc.) should be included in the electronic RGS/RCCMS Office Documents folder.

  2. Examination Lead Sheets and workpapers must include the following:

    1. Audit procedures and conclusions for each issue audited must be supported by written comments in the workpapers. This is necessary to ensure that the statistical data gathered for NRP is accurate and complete.

    2. Examiners must describe what inquiry or inspection of records or documents was made to verify reported or possible unreported wages, fringe benefits, and other employment tax issues.

    3. The workpapers must describe the steps the examiner took to determine what was looked at, for example, oral testimony, third party contact, etc., to determine the resolution to each specific employment tax issue.

4.22.10.5.1  (10-01-2011)
NRP Examination Required Issues and Analysis

  1. The scope of the NRP employment tax examination will consist of all issues that are identified through the examination. There are a few required issues that MUST be addressed on every case. These are 1099 Filing Checks, Back-up Withholding and Fringe Benefits.

  2. Form 1099 Filing Checks ask the following questions:

    1. Were payments made to employees in the Accounts Payable system that should have been included in compensation?

    2. Were there payments to vendors for which a F1009 should have been issued?

    3. If a B-Notice (CP2100) was issued, did the taxpayer take appropriate action? Determine whether the Service Center issued any B-notices by reviewing IDRS command code PMFOL B.

    4. Did the taxpayer make B-notice corrections?

    5. Review Forms 1099 issued to individuals for EE/IC issues:

      a. Did any employees receive both Forms 1099 and W-2?

      b. Are any of the payments reported on a Form 1099 actually wages?

      c. Were any contractors/vendors reclassified as employees?

    6. Does the taxpayer qualify for Section 530?

    7. Does the worker Classification Settlement Program apply?

    8. Are the exercises of stock options correctly reported on Form 1099?


    This is a vehicle to examine 1099 compliance and also identify whether a worker classification issue exists and any other related issues.

  3. The second required issue relates to Back-up Withholding. It addresses the following questions:

    1. Were there payments subject to back-up withholding that were not reported on Forms 1099?

    2. Was there a difference between PMFOL and the taxpayer’s Forms 1099?

    3. Did the taxpayer have the payee TIN on file at the time the reportable payments were made?

    4. Did the Service notify the payor that the TIN furnished by the payee is incorrect?

      1. How many B-Notices were corrected by the taxpayer?

      2. How many B-Notices were there back-up withholding on?

      3. How many B-Notices were not resolved?

  4. The third required issue is Fringe Benefits. There are two lead sheets for fringe benefits. They are executive and non-executive. Both must be addressed on each case.

  5. Below are the specific fringe benefits that must be addressed for each type. If benefits are identified you must include them. For any fringe benefits identified by the examiner a corresponding lead sheet must be prepared. Any benefits identified, but not listed should be included and identified as Other Taxable Fringe Benefits.

    Fringe Benefits - (Executive) Fringe Benefits - (Non-Executive)
    Aircraft Personal use  
    Bonus Payments (Executive) Accountable Plans
    Covenants Not to Compete Auto Personal Use
    Golden Parachute Payments Back Pay
    Loans as Compensation and Discharge of Indebtedness (Executive) Bonus Payments
    Million Dollar Cap - IRC 162(m) Cafeteria Plans
    Nonqualified Deferred Compensation Cell Phones
    Split-Dollar Life Insurance DeMinimus Fringe
      Educational Assistance Plans
  6. Other Taxable Fringe Benefits

    Other Fringe Benefits - (Executive) Fringe Benefits - (Non-Executive) Continued
    Accountable Plans Moving Expenses
    Auto Personal Use No Additional Cost Services
    Back Pay Other Taxable Fringe Benefits
    Cafeteria Plans Per Diem Allowances
    Cell Phones Prizes, Awards, Gifts, Vacations
    De Minimus Fringe Qualified Employee Discounts
    Educational Assistance Plans Rental Value of Property Furnished
    Lawsuit Settlement Severance Pay
    Legal and Financial Planning Spousal Travel
    Meals or Lodging for the Convenience of the Employer  
    Moving Expenses Tax Preparation
    No Additional Cost Services Tips and Gratuities
    Other Taxable Fringe Benefits Tool Reimbursement Plans
    Per Diem Allowances Working Condition Fringe
    Prizes, Awards, Gifts, Vacations Gift Cards
    Qualified Employee Discounts Health Benefits - 2% Shareholder
    Rental Value of Property Furnished Health Benefits - Other
    Severance Pay Stock Based Compensation - Employee Stock Purchase Plans
    Spousal Travel Stock Based Compensation - Incentive Stock Options
      Educational Assistance Plans
    Stock Based Compensation- Employee Stock Purchase Plans Legal and Financial Planning
    Stock Based Compensation- Incentive Stock Options Lawsuit Settlements
    Stock Based Compensation- Non-statutory Options Group Term Life Insurance
    Stock Based Compensation- Restricted Stock Loans as Compensation and Discharge of Indebtedness
    Stock Based Compensation- SARS, Phantom Stock, Other Meals or Lodging for the Convenience of the Employer
      Stock Based Compensation - Non-statutory Options
    Tax Preparation Stock Based Compensation - Restricted Stock
    Working Condition Fringe Stock Based Compensation - SARS Phantom Stock (Other)
    Gift Cards Wage Dispute Settlements
    Health Benefits - 2% Shareholder Nonqualified Deferred Compensation
    Health Benefits - Other  
    Wage Dispute Settlements  
    Group Term Life Insurance  
  7. Aside from the NRP Required issues, there are certain reports and analysis that must be completed for ALL NRP cases using the IRAS program.

  8. While your professional judgment should determine the scope of the final analysis, at a minimum the following IRAS reports are required for each taxpayer according to your BOD:

    Report: SB/SE LB&I EO FSLG
    No Gross Wages
    Test for no FICA Wages
    Test for no Medicare Wages
    Test for invalid SSNs
    Test for invalid TINs
    Test for Workers getting W-2 and 1099
    Test for no or low income tax withholding
    Test for Excess Deferred Compensation
    Test for Box 12, Code V Stock Options  
    Test for Box 12, Code Z 409A amounts  
    Test for Box 12, Code Y for nonqualified deferred compensation  
    Test for variances in Box 1 wages versus Box 5 Medicare Wages
    Forms W-2s FICA WH not equal to rate
    Forms W-2s WH Medicare not equal to rate
    No Retirement Compensation      
  9. The appropriate analysis for each BOD can be found on the Mandatory Lead Sheet ETM14 – Payroll Reconciliation. Additionally, the reports for each BOD are included as part of the "NRP Easy Button" on the NRP IRAS program. All required reports must be saved electronically in the RGS/RCCMS Office Documents folder even if no matches or data were identified.

4.22.10.6  (10-01-2011)
NRP Preparing Effective Lead Sheets

  1. NRP Employment Tax lead sheets include additional research elements as well as existing examination elements. NRP lead sheets are designed so that information entered by the examiner can be extracted and provided to the stakeholder requesting the information.

  2. All lead sheets are presented in an Excel format and included in the NRP DCI-1-Workpapers file. Information on how to access and complete the lead sheets will be provided in the new training Module RGS/RCCMS and Data Capture Instruments (DCI).

    1. ETM – Mandatory Lead Sheets - These lead sheets are designed for each BOD and are required to be completed for all cases.

    2. ETG – Lead Sheets - These are the first issue related Lead Sheets and include additional questions to ask and audit techniques. Aside from the back-up withholding issue that is required for each case, all other issues are mandatory only if they are applicable to the taxpayer.

    3. ET218 – 218 Agreement Lead Sheet - This lead sheet applies for only TE/GE FSLG audits.

    4. ETEC00 – Fringe Benefits (Corporate Officer/Executive) Lead Sheets - This summary lead sheet is required for all NRP employment tax cases. Separate electronic lead sheets are required for any and all benefits identified during the examination. There will be links to the specific fringe benefits from the summary sheets.

    5. ETFB00 – Fringe Benefits (Non-Executive) - This summary lead sheet is required for all NRP employment tax cases. Separate electronic lead sheets are required for any and all benefits identified during the examination. There will be links to the specific fringe benefits from the summary sheets.

    6. ETT – Tier 1 Issues – Currently, in the DCI-1, there is only one Tier 1 lead sheet and this is offshore employee leasing. This is not required unless this issue is identified on the return.

    7. ETBS – Tier 1 Monitoring Issues (Back-dated Stock Options) – LB&I or SB/SE issue. Could apply to publicly traded or private companies.

    8. ETWC – Worker Classification Issues - Working through the Form 1099 filing check issue, the examiner will identify worker classification issues.

    9. ETG14 – Other Issues – Use this lead sheet for any other identified issues.

  3. Lead sheets should adequately document the facts, audit steps and conclusions reached for each issue examined so that someone looking at the electronic case file can determine exactly what the examiner did, found, and concluded based on the examination of the issue. In other words, Document Your Steps (DYS).

  4. A lead sheet entry such as "See Attached" is not acceptable unless you have attached the related electronic workpaper file in the RGS/RCCMS case file.

  5. If the related file(s) are not attached to the applicable issue, the file should be named in a manner to associate the workpaper with the issue.

  6. On the Lead Sheet ETM07-NRP Multi-Year and Related Return Lead Sheet, if there is a related return it is recommended that additional information about the related return (ownership, type of business, etc.) be included on the Lead Sheet if the return is not opened for examination. For LB&I examiners where there is no income tax coordinator, executive filing reporting compliance will be addressed on ETM07.

  7. IRM 4.10.9.2.4 - Examination of Returns, Workpapers (Section 4.10.9.2.4 - Supporting Workpapers), discusses issue lead sheets. Items listed include a header, dollar per return/as adjusted, pre exam analysis and a brief conclusion of the examiner’s decision.

    Note:

    Include only relevant workpapers for issues and not voluminous copies of taxpayer documents that do not reconcile to the Lead Sheet.

4.22.10.7  (10-01-2011)
NRP Examination Workpaper Documentation

  1. Audit procedures and conclusions for each audited issue must be supported by written comments in the workpapers.

    1. Examiners are required to use the DCI -1 electronic lead sheets for all issues examined. Lead sheets must contain the adjustment amount, facts, audit procedures and conclusion.

    2. The examiner must use issue-specific lead sheets. However, in some instances, the use of the ETG-14-Other ET Lead Sheet is appropriate. In either case, the examiner is required to tailor the auditing steps to their specific taxpayers.

    3. All applicable lead sheets need to be completed for the key case. The examiner is expected to complete the lead sheets and workpapers contemporaneously.

    4. All workpapers must be prepared electronically and included in the RGS/RCCMS case file. This includes the NRP 941 Examiner Case Closing Checksheets discussed in section 4.22.10.16 - NRP Quality Review Procedures.

    5. Significant emphasis is placed on examiner professional judgment when completing Lead Sheets. When a box is checked on a Lead Sheet, the examiner is indicating that they have completed the task. Often the facts and circumstances change, and the examiner should remember to revisit the items previously checked and make any corrections.

    6. Checking the box does not alleviate the examiner from creating workpapers or to make comments when appropriate. Checking a box is not a short cut for doing an audit step. The work performed to reach a decision must be shown, typically on subsidiary workpapers.

  2. The following are workpaper reminders:

    1. The examiner lead sheets are required to be used in each entity case file, according to existing examination guidelines.

    2. For all SB/SE GS-11/12 examiners, the group manager Concurrence Meeting Check Sheet, ETM03, is mandatory (follow local procedure). If a thorough examination of a related entity is warranted, the concurrence meeting should be held within 14 business days of the initial appointment. If a thorough examination of the related entity is not warranted, the concurrence meeting for the related entity becomes more of a formality.

    3. Risk analysis tools to limit the scope of the audit are not applicable when an examiner is expanding the scope on the NRP key case return. The research nature of the examination and the resulting correct tax liability is the overriding factor. Therefore, the risk analysis Lead Sheet is not required for expanding the scope on the key case return. The risk analysis lead sheet should be included in the key case file whenever a prior or subsequent year or related return is picked up for examination.

      Note:

      LB&I agents will follow examination and IMS guidelines for preparing an initial risk analysis, and if needed, a mid-cycle risk analysis. However, the mid-cycle risk analysis will not be used to limit the scope of the NRP year.

4.22.10.8  (10-01-2011)
NRP De Minimis Adjustments

  1. Due to the research nature of NRP employment tax examinations, de minimis adjustments must be recorded in the DCI-1 Workpaper file on all NRP employment tax returns for research purposes. To simplify de minimis adjustment procedures, examiners must make all adjustments, even small ones, and include them in the DCI-1 Workpapers file.

  2. Completion of the Employment Tax Report (DCI-2) is independent of any adjustments recorded on the DCI-1 Workpapers file. The DCI-2 Report file for the NRP year should be prepared according to existing examination guidelines.

4.22.10.9  (10-01-2011)
NRP Use of Specialists

  1. Examiners should follow examination guidelines when determining if specialists are needed on NRP returns. The following are guidelines for using specialists on NRP returns:

    1. Specialist Referral System (SRS) is used to request computer audit specialists and international agents if needed on your case. Other types of specialists may be engineers, economists and evaluation specialists. These specialists should be viewed as assets for completion of the NRP cases. This link https://srs.web.irs.gov/, provides you with the ability to request formal or informal assistance. Indicate Employment Tax National Research Program (use abbreviations "ET NRP" ) in the narrative when requesting a specialist through SRS.

    2. http://lmsb.irs.gov//TAHome.asp This web site provides you with a list of LB&I technical advisors and industry specialists. If specialists are assigned to a case, the examiner to whom the NRP return is assigned will be relieved of responsibility for certain issues assumed by specialists but will NOT be relieved of the responsibility for the timely completion of the examination.

  2. The Exam Specialization Program has been developed to:

    1. Increase the level of expertise of examiners;

    2. Obtain knowledge useful for developing examination guidelines specific to the business environment; and

    3. Develop for each market segment compliance strategies that will be easier to understand and apply.

  3. Examination specialists, subject matter experts, and technical advisers have a working knowledge of the market segments they have studied. Audit Technique Guides (ATG) are available to assist examiners in the most efficient approach to audit each issue on the NRP case.

    Note:

    ATG link:http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Audit-Techniques-Guides-(ATGs)

4.22.10.10  (10-01-2011)
NRP Returns and Penalty Usage

  1. Examiners are required to consider the application of appropriate penalties before the conclusion of every audit. The following are the guidelines for penalty usage in NRP returns:

    1. Examiners are required to consider the application of appropriate penalties before the conclusion of every audit, including all NRP examinations. This does not mean that because it is a NRP return, it generates penalties. Examiners should follow the same considerations as used in any normal employment tax examination.

    2. All employees who administer penalties should use the Penalty Handbook (IRM 20.1) for guidance to applying penalties. Another source is section IRM 4.22.10.6 - NRP Preparing Effective Lead Sheets in this IRM.

    3. The Penalty Approval Lead Sheet should be completed for all NRP tax cases to document penalty assertion or non-assertion.

  2. The Service maintains an ongoing effort to develop, monitor, and revise programs designed to help taxpayers comply with legal requirements and avoid penalties. As indicated in Policy Statement P-1-18, the Service uses penalties to encourage voluntary compliance by:

    1. Helping taxpayers understand that compliant conduct is appropriate and that noncompliant conduct is not.

    2. Deterring noncompliance by imposing costs on it.

    3. Establishing the fairness of the tax system by justly penalizing the noncompliant taxpayer.

  3. Policy Statement P-1-18 also states that the IRS administers a penalty system that is designed to:

    1. Ensure consistency.

    2. Ensure accuracy of results in light of the facts and the law.

    3. Provide methods for taxpayers to have their interests heard and considered.

    4. Require impartiality and commitment to achieve the correct decisions.

    5. Allow for prompt reversal of initial determinations when sufficient information has been presented to indicate that the penalty is not appropriate.

    6. Ensure that penalties are used for their proper purpose and not as bargaining points in the development or processing of cases.

4.22.10.11  (10-01-2011)
NRP Unagreed and Partially Agreed Examinations Guidelines

  1. Do not compromise adjustments to secure an agreement in NRP examinations. The following are guidelines for unagreed and partially agreed NRP examinations:

    1. Examiners should follow local procedures for all unagreed and partially agreed examinations. All adjustments need to be recorded in the DCI-1 - Workpaper file for NRP purposes.

    2. Reports are prepared using DCI-2 for the NRP year.

    3. Adjustments should not be compromised to secure an agreement in NRP examinations.

4.22.10.12  (10-01-2011)
NRP Collectibality Considerations Guidelines

  1. Collectibility of deficiencies will not be a consideration in conducting NRP examinations. Since collecting quality data is paramount, collectibility of any deficiencies will not be a consideration in conducting NRP examinations.

  2. The data collected from NRP examinations will be used to measure the tax gap associated with employment taxes, improve workload selection models, increase taxpayer assistance efforts and allow the IRS to focus its limited resources.

4.22.10.13  (10-01-2011)
NRP Examination Information Resources

  1. There are many information resources available for NRP:

    • Printed IRS materials

    • IRS Internet and intranet sites

    • Other research materials

  2. Printed IRS materials & Intranet Sites include:

    • NRP course material

    • Publications, forms, and instructions

    • IRMs, including NRP IRMs

    • Audit Technique Guides (ATGs)

    • Exam Specialization and Technical Guidance http://mysbse.web.irs.gov/About SBSE/commish/ExecutiveMessages/5426.aspx

    • SB/SE Employment Tax http://mysbse.web.irs.gov/Specialty/et/default.aspx

    • LB&I Employment Tax http://lmsb.irs.gov/hq/fs/employment_tax/index.asp

    • NRP Web Site http://nrp.web.irs.gov/default.aspx

  3. Other Research Materials include:

    • Accurint research results

    • State and local tax data (communication and liaison)

    • Department of Motor Vehicles (DMV)

    • Online county assessor’s offices

    • CCH, Lexis-Nexis, Westlaw

    • Internet searches including stock price and historic dividend web sites

    • Google and various other search engines

    • Capital IQ (Publicly traded)

4.22.10.14  (10-01-2011)
NRP Exclusions and Transfers Excluding a NRP Return

  1. If there are concerns about the ability of a NRP examiner to collect quality data, the return may be considered for exclusion. The following are guidelines for excluding a NRP return:

    1. Under certain circumstances, NRP returns may be excluded (removed) from the sample. All requests for exclusion must be approved by both the BOD NRP Coordinator and National NRP Coordinator. Be aware that approval of a request will be contingent upon clear and convincing evidence that the return qualifies for exclusion.

  2. An exclusion should be requested if the following conditions apply:

    KITA Exclude return filed by any taxpayer killed as a result of a terrorist action, as outlined under the KITA provisions.
    Stationed in combat zone Exclude return filed by taxpayer stationed in a combat zone.
    Disaster Relief Exclude return filed by taxpayer who suffered from disaster and is unable to provide adequate documentation requested by examiner. The ability to provide documentation must be directly related to the disaster.
    Illness Exclude return filed by taxpayer whose illness will not allow sufficient time to complete the NRP study audit.
    Incompetence Exclude return filed by taxpayer who has been adjudicated incompetent and guardian cannot be located.
    Death Exclude return filed by deceased taxpayer if an executor cannot be located.
    Outside the United States Exclude return filed by taxpayer who is outside the United States and is unable to provide adequate documentation requested by the examiner in sufficient time to complete the audit within the NRP study time frame.
    Unlocatable Taxpayer Exclude return filed by taxpayer who cannot be located.
    Identify Theft Exclude any return filed by a taxpayer who was determined to be a victim of identity theft.

4.22.10.14.1  (10-01-2011)
Requesting a NRP Return Exclusion

  1. The group manager approves the examiner determination that an Employment tax exclusion request can be submitted. To request the exclusion of a key case return, submit a completed Form 4981 (see Exhibit 4.22.10-1), NRP Exclusion Request If additional information is needed to complete Form 4981 attach a memorandum to the form.

  2. NRP IRM 4.22.4 - Examination of NRP Cases - Area Office (Section 4.22.4.4.6 - Exclusions). For cases that meet exclusion criteria, the examiner completes Items 1, 2, 3, 4, and 6 of Form 4981, NRP Exclusion Request. Type or print in Item 1 the Document Locator Number (DLN), Taxpayer Identification Number (TIN), taxpayer’s name, and NRP sample code. List in Item 6 (Reason for Exclusion) sufficient information for Headquarters to properly evaluate the request.

  3. For example, if a request is made because the taxpayer could not be located, list the steps taken to locate the taxpayer. The Form 4981 is forwarded to the BOD NRP Coordinator along with any supporting documentation. Form 4981 entries shall include:

    1. For Box 1 – TIN, Name, and NRP Sample Code (Case Number) needs to be completed.

    2. For Box 2 – Enter the applicable BOD - TE/GE-EO, TE/GE-FSLG, LB&I, SB/SE-East, SB/SE-West and SB/SE-Mid-States.

    3. For Box 3 - An entry is not required.

    4. For Box 4 – Write Employment Tax year for the NRP study.

    5. For Box 6 – Document reason for exclusion. Sufficient information for Headquarters to properly evaluate the request.

  4. If the return is recommended to be excluded -The BOD NRP Coordinator will review the facts and circumstances to determine if the criteria for exclusion have been met. If the BOD NRP Coordinator determines the criteria are met, the information will be sent forward for a decision. The employment tax return remains part of the study until the examiner is notified by the BOD NRP Coordinator that a permanent exclusion has been approved. (In all cases, the final approval will be made by the National NRP Program Manager.)

  5. If a permanent exclusion is approved, the examiner will delete all reference to NRP in the case file and on the return. The return is then processed under normal examination procedures.

4.22.10.15  (10-01-2011)
Transferring a NRP Examination

  1. NRP Employment tax returns may occasionally need to be transferred. These returns should be identified as early as possible to ensure that the examination is timely completed. Occasionally, NRP returns must be transferred out of the group. This will occur if:

    1. A taxpayer moved after the return was filed;

    2. The books and records are located in another area;

    3. The place of business is located in another area;

    4. The Service finds it necessary for its convenience;

    5. Taxpayer belongs under the jurisdiction of a different business operating division.

  2. Transfers should be completed early as a convenience to the receiving group, to the taxpayer, and to other stakeholders.

4.22.10.15.1  (10-01-2011)
How to Complete a Transfer

  1. The transfer must be routed through the BOD NRP Coordinator for review and update of control records. The BOD NRP Coordinator should establish local procedures, with appropriate management approval, for expediting transfers both into and out of the area, territory, or group. The transfer must be recorded on AIMS/ERCS and RGS/RCCMS.

4.22.10.16  (10-01-2011)
NRP Quality Review Procedures Guidelines

  1. The quality review of NRP will be an ongoing process. This strategy is designed to ensure complete and accurate case development. Quality starts with the examiner. The group manager also plays a key role in the quality review process.

  2. Examiners must meet the quality attributes established for each BOD. In addition, they are required to complete NRP 941 Examiner Case Closing Checksheet to ensure the additional NRP requirements are met. This check sheet will be included in the RGS/RCCMS case file.

  3. Group managers play a pivotal role in all aspects of case development. The group manager must ensure that the NRP Employment tax returns and related returns are completed in a quality manner. All evaluative reviews of an examiner’s work will be completed in accordance with existing examination procedures. These reviews should also ensure that the examiner is following the NRP examination guidelines set forth in the IRM.

  4. Group managers are responsible for the NRP cases within their groups, including timely and priority assignment of NRP returns and counseling examiners on the scope and requirements of these examinations. Group managers are also responsible for maintaining a work flow throughout the entire examination cycle that will ensure timely completion to minimize the number of submissions based on estimated information.

4.22.10.16.1  (10-01-2011)
Group Manager Case Reviews

  1. In-process reviews are critical in guaranteeing the highest quality of NRP cases. At a minimum an evaluative in-process review is required on the first case assigned to each NRP examiner. The in-process review should take place within 60 days of the first appointment. For GS-11/12 SB/SE examiners, the 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. As previously mentioned, the purpose of the review is to provide meaningful timely feedback. Any trends identified by the group manager should be shared with BOD Management.

  2. Group managers will complete a 100% non-evaluative closed case review on all NRP examinations. These reviews will be completed electronically by the manager and documented on the NRP 941 Group Manager Closed Case Review Checksheet (Non-Evaluative). The objective of the reviews is to ensure the overall quality of NRP examinations. Remember by checking "yes," the manager is indicating that the issue was properly completed by the examiner. If a "no" is checked, the case should be returned to the examiner for clarification or corrections. NRP 100% closed case review will focus on the following:

    1. Technical correctness of the examination.

    2. Adherence to NRP examination guidelines including whether all required and applicable issues were properly examined and documented, procedural requirements, and case closing/data accuracy requirements.

    3. Proper use and completion of the Data Capture Instruments for both the examination workpapers and subsequent report generation.

4.22.10.16.2  (10-01-2011)
NRP Area Quality Review Team

  1. Each BOD will establish a NRP Quality Review Team. This NRP Review Team will consist of the BOD Management, Group managers, and other members deemed appropriate. The purpose of the Review Team is to identify overall quality issues and determine if technical issues were examined in sufficient scope or depth and ensure correct technical conclusions were reached. The reviews will serve to identify trends to be communicated with management and examiners involved in the study. NRP Review Team reviews are non-evaluative.

  2. The BOD Review Teams will complete a sample of in-process and closed case reviews. The NRP BOD Management will be responsible for ensuring that the results of the reviews are communicated to upper management. At a minimum, a total of 5% of closed cases per Area will be reviewed.

  3. The reviews will generally start six months after the initial delivery of the cases to the groups. The NRP BOD Management will be responsible for developing the sample methodology for the cases to be reviewed. Any sample methodology is acceptable as long as a representative number of territories, groups and sample/activity codes are considered.

  4. The in-process reviews and closed case reviews will cover the QMS attributes for each BOD. The closed case reviews will also cover the accuracy of data captured.

4.22.10.16.3  (10-01-2011)
National NQRS, LQMS, EQMS Quality Review

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

Exhibit 4.22.10-1 
NRP Exclusion Request - Form 4981

The form is on the Publishing website at: http://publish.no.irs.gov/catlg.html

Exhibit 4.22.10-2 
Pro Forma Employment Tax Checksheet

The Pro Forma Employment Tax checksheet summarizes compliance checks and minimum requirements.

Answer yes or no to each question.

  1. Are employment tax returns (Forms 940, 941, 943, 945, and/or 945) filed?

  2. Have employment tax returns been reconciled to deductions per the tax return where applicable?

  3. Are W-2s and 1099s issued where applicable?

  4. Are 1120-S corporate officers paid wages?

  5. Are deductions taken for payments to "Outside Labor" , "Commissions" , "Consultants" . "Sub-Contractors" or "Casual Labor" ?

  6. Are bonuses, prizes, or awards given?

  7. Are fringe benefits given to employees?

  8. Are employees provided with company vehicles and/or monthly allowances with no requirement to submit a travel voucher?

  9. Are recurring payments made to individuals not considered employees?

  10. Are any individuals rendering personal services considered non-employees?

  11. Were any audits conducted by the State Workforce Agencies?

  12. Are non-cash payments made? (e.g. an apartment manager living in an apartment, in exchange for services).

  13. Are corporate officers performing services for more than one corporation?

  14. Are there employee reimburse/accountable plan issues?

    If any of the questions from 1–3 are answered "no," or

    If any of the questions from 4–13 are answered "yes,"

    An employment tax issue may be present and the examiner should gather additional information to determine if an examination is warranted.


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