4.46.6  Workpapers and Reports Resources

Manual Transmittal

April 16, 2014

Purpose

(1) This transmits revised IRM 4.46.6, LB&I Guide for Quality Examinations, Workpapers and Reports Resources.

Background

This revision incorporates modifications to no-change procedures resulting from the work of the LB&I Industry Case (IC) Examination Process Re-Engineering team.

Material Changes

(1) Added new subsection 4.46.6.5.1 for the new no-change procedures for certain IC cases.

(2) Added new paragraph (2) to IRM 4.46.6.5, referencing the new no-change procedures.

(3) Added new paragraph (2) to IRM 4.46.6.7 regarding managerial approval of no-change letters.

(4) Added new paragraph (8) to IRM 4.46.6.8.1 referencing the new no-change procedures.

Effect on Other Documents

IRM 4.46.6 dated May 14, 2013 is superseded.

Audience

LB&I Team Managers, Specialist Managers, Specialists, and Revenue Agents.

Effective Date

(04-16-2014)


Christopher Larsen for Tina Meaux
Director, Pre-Filing and Technical Guidance (Acting)
Large Business and International Division

4.46.6.1  (03-01-2006)
Overview

  1. This section provides guidelines for the development of workpaper content and organization, as well as preparation of audit findings for a completed report. These guidelines promote quality and consistency in examiner workpapers and reports.

4.46.6.2  (12-29-2009)
Definition of Workpapers

  1. Examiners prepare workpapers, written records, to show the audit trail and to provide support for the conclusions reached in the examiner’s report.

  2. Workpapers document the:

    • Procedures applied,

    • Tests performed,

    • Information obtained, and

    • Conclusions reached in the examination.

  3. Electronic files are workpapers.

4.46.6.3  (03-01-2006)
Purpose of Workpapers

  1. Workpapers serve four basic purposes:

    1. Assistance in planning the audit and setting the scope of the exam

    2. Record of the evidence gathered, procedures completed, tests performed, and analyses conducted during the examination process.

    3. Support for technical conclusions.

    4. Basis for review by management.

  2. Many internal functions review LB&I case files after they leave the group, including:

    • Technical advisors,

    • SB/SE Technical Services reviewers,

    • Joint Committee reviewers,

    • Appeals Officers,

    • LB&I Quality Measurement System (LQMS) reviewers,

    • Tax examining technicians,

    • TIGTA and GAO auditors and,

    • LB&I and Chief Counsel attorneys, and

    • Taxpayer Advocate Case Advocates.

  3. Well-prepared workpapers quickly communicate what you want these customers to do with regards to your taxpayer’s liability. Poorly prepared and disorganized workpapers leave customers wondering what they should do about your issues.

  4. Accordingly, your workpapers reflect on the quality of your examination.

4.46.6.4  (09-30-2011)
Workpaper Considerations

  1. Workpapers must be legible and organized. The workpapers are required to be identified by the appropriate SAIN number, (See Exhibit 4.46.6-1), and there must be logical order within each section so that others such as a reviewer or Appeals Officer, can easily follow your work product. The "Audit Tools" website provides pro-forma lead sheets for many SAIN numbers with standardized audit procedures that can be tailored to each examination.

  2. Workpapers should appropriately document techniques used and conclusions reached. For additional information regarding workpapers, refer to IRM 4.10.9.

  3. Relevant workpapers should be separated from extraneous documents. Extraneous documents should be properly disposed of or returned to the taxpayer or, if the taxpayer does not want them, shred them.

  4. Workpapers must properly document examination activities. Form 9984, Examining Officer’s Activity Record, is used to record this information.

    Note:

    See Exhibit 4.46.6-1., Exhibit 4.46.6-2., and Exhibit 4.46.6-3. for SAIN tables used in corporate, Life insurance and Property & Casualty insurance examinations, respectively.

    Note:

    Use SAIN (formerly GAIN, General Audit Index Number) tables used in Form 1120S and 1065 examinations. Use IMF codes for Form 1040 examinations. See IRM 4.10.16. SB/SE maintains and controls these tables.

  5. IMS 3.0 offers team members the option of using pro forma lead sheets for many issues based on SAIN input. Team members should tailor these standardized audit procedures to each examination.

4.46.6.4.1  (12-29-2009)
Standard Audit Index Number (SAIN)

  1. The primary purpose of Standard Audit Index Number (SAIN) is to provide a consistent numbering system for examination workpapers. SAIN is also used for time tracking.

  2. SAIN codes have at least 3 digits with no Alpha characters. The first digit identifies the code’s location in the following table.

    First 3 Digits: Items is:
    000-099 Administrative
    100-199 Balance Sheet - Assets
    200-299 Balance Sheet - Liabilities
    300-399 Balance Sheet - Equity
    400-499 Profit & Loss - Income
    500-599 Profit & Loss - Expenses
    600-699 Income Tax Computations & Credits
    700-799 Miscellaneous items
    800-899 Specialists
    900-999 Other Income and Expense Items
    1. Sometimes the second and third digits of a Primary SAIN represent the line number of an item on Form 1120, for example, 517 "Taxes and licenses" ; however, these numbers will not change when the underlying tax return line number changes. SAIN numbers will remain constant to facilitate information sharing via the Examination Operational Automation Database (EOAD) and to track trends within LB&I and other IRS functions.

    2. Form 1120 has many instances where multiple items might apply to a single line item. In these cases, the three-digit primary code is extended by a hyphen and two additional numeric digits. An example is:

      Primary SAIN SAIN Description
      Three Digit SAIN 322 Capital stock
      Five Digit SAIN 322-01 Preferred
      Five Digit SAIN 322-02 Common

    Five Digit SAIN codes also occur when a primary activity has more than one significant aspect; for example, Mandatory compliance checks, SAIN codes 713 through 713-07.

  3. Second tier (second segment) SAIN codes do not apply to SB/SE returns. The second tier SAIN is added on the Issue Screen. Team Managers use these codes to plan and track activity on specific cases. Teams may use second tier codes 00-99 (nn) to identify issues, examiners, divisions, or activities on their examinations. There are no restrictions on available captions.

  4. For example, SAIN 514, Repairs and Maintenance might apply to a parent and three subsidiaries. In that case, the Team Coordinator could break down the issue using SAIN codes 514.01 (Parent), 514.02 (domestic Sub A), 514.03 (domestic Sub B), and 514.04 (foreign Sub A.)

  5. In another instance, a team could assign two Revenue Agents to work on the Repairs and Maintenance accounts. The first might reconcile books to return. These workpapers could be referenced as 514.05. A second might coordinate with an engineer on capitalization of property, plant, and equipment. These workpapers could be referenced as 514.06.

    Note:

    IMS gives Team Managers flexibility to track activity by particular subsidiaries, divisions, agents or specialties - whether using a horizontal or vertical approach. These options should be considered before assigning second tier SAINs for this purpose Examiners also use second tier SAINs codes to identify issues having the same primary SAIN code.

  6. A second tier SAIN code appears as a separate field in IMS, but not in RGS or BNA. EOAD does not capture second tier SAIN codes.

4.46.6.4.2  (03-01-2006)
Second Tier SAIN Issue Tracking

  1. Neither SAIN nor second tier SAIN is designed to track results of issues. Under IRM 4.51.5, Industry Focus and Control of LB&I Compliance Issues, an Issue Champion could, however, designate second tier SAIN codes to an issue in an issue paper.

4.46.6.4.3  (09-30-2011)
Issue Tracking Attribute

  1. IMS 3.0 designated a new Issue Tracking Attribute to accomplish the issue tracking functions assigned to the second tier SAIN in IRM 4.51.5, Industry Focus and Control of LB&I Compliance Issues, April 2007.

  2. This attribute code also applies to Specialists’ issues, tax shelters, listed transactions, or items of interest, not assigned a Tier I or II designation.

  3. This attribute will also show when a Specialist works a primary SAIN issue.

  4. Issue papers will designate Issue Tracking Attribute codes for the issue.

  5. PFTG Examination Policies and Procedures section will ensure that these issue lists are available through IMS.

  6. Normally there will be one Issue Tracking Attribute code for an issue paper or specialist issue. For example, "Son of Boss" issues would be assigned one Issue Tracking Attribute code. These should not be an Issue Tracking Code to correspond to each applicable UIL or SAIN where the issue could appear.

  7. To identify the Issue Tracking Attribute code for an existing issue paper, add the alpha code for the responsible Issue Champion from the Alpha list in IRM 4.46-4.

4.46.6.4.4  (03-01-2006)
Relationship between SAIN, UIL, and Issue Tracking Attributes

  1. SAIN identifies an issue location on a tax return or in an audit plan; i.e., where it is;

  2. Uniform Issue Locator (UIL) codes identify the Internal Revenue code sections that govern a potential adjustment; i.e., why it is; and

  3. Issue Tracking Attribute codes identify the owner and name of an issue, transaction, or other item of interest; i.e., what it is and who owns it .

  4. Tracking all three of these components will enhance LB&I's issue management strategy.

    Note:

    The Office of Chief Counsel maintains UIL codes.

4.46.6.4.5  (03-01-2006)
Managerial Involvement

  1. The team manager will ensure that workpapers include all required team manager comments and document managerial involvement during the development of the case.

  2. Documentation includes:

    • Signatures,

    • Notations in the activity records, and

    • Workpapers summarizing discussions of issues.

4.46.6.5  (04-16-2014)
Examination Reports

  1. Examination reports should contain all the information necessary to ensure a clear understanding of the adjustments and tax computation. Examination reports serve as the basis for assessment and collection action. Examiners should take all necessary steps to ensure the accuracy of examination reports. Note: Unless stated otherwise in this chapter, the provisions of IRM 4.10.8, Report Writing, applies to reports prepared by LB&I teams.

  2. A "no-change" report is not required for most LB&I IC examinations that result in a no-change with no adjustments (disposal code 02). See IRM 4.46.6.5.1, No-Change Examination (Disposal Code 02) Procedures.

  3. Instructions – Team members should refer to the examination plan for specific instructions on the preparation of the examination report.

  4. Consistency - The team coordinator should specify workpaper style and composition preferences before the report is prepared. The team coordinator may make editorial changes to other team members' submissions. The team coordinator will limit these changes to those needed to ensure that the report is uniform in composition and style of presentation; however, the team coordinator will not change a team member’s transmittal letter.

  5. LB&I provides tax computation and report preparation software to examiners. Examiners will use approved software to generate examination reports and for entry of all data required for the Examination Operational Automation Database (EOAD):

    1. Use BNA Software to generate Form 1120, income tax examination reports.

    2. Use Report Generation Software (RGS) to generate individual, partnership, S Corps and noncorporate income tax examination reports. The RGS User Guide details procedures for use of RGS.

    3. See IRM 4.10.16 for procedures related to EOAD.

  6. Revenue Agents use Form 4549, Income Tax Examination Changes, to prepare the Report for most LB&I examinations.

    1. Use Form 4549-A, Income Tax Examination Changes, in partially agreed cases and unagreed cases. The size and nature of LB&I cases make it practical to prepare reports using Form 4549-A with Form 870, Waiver of Restrictions on Assessment & Collection of Deficiency in Tax & Acceptance of Overassessment, even for agreed cases.

    2. Use Form 4549-B, Income Tax Examination Changes, on most LB&I cases.

    • Any case with more than seven adjustments will include the Form 4549-B for each adjustment.

    • Use The Form 4549-B to detail adjustments by entity for reports on consolidated returns.

    • Then carry total adjustments detailed on Form 4549-B to Form 4549, line 1a.

    Note:

    Reference the source year or other tax period for all NOL or credit carryback adjustments in the issue caption as well as any BNA or RGS entry

  7. Prepare Form 4605, Examination Changes Partnerships, Fiduciaries, and S Corporations, for reports for partnerships and Subchapter S corporations.

    Note:

    Use TEFRA examination procedures and report forms for applicable returns. See IRM 4.31.2, TEFRA Examinations / Field Office Procedures.

  8. Use Form 4666, Summary of Employment Tax Examination to summarize the employment tax examination results. Also use Form 4667, Examination Changes – Federal Unemployment Tax, and Form 4668, Employment Tax Examination Changes Report. Refer to IRM 4.23.10, Report Writing Guide for Employment Tax Examinations.

  9. Report adjustments and explanations are to reconcile to the workpaper conclusions, thus ending the audit trail of the examination. It is recommended that Forms 886-A be attached to all final agreed and unagreed reports issued to the taxpayer, if written explanations have not been issued to the taxpayer prior to issuing the final examination report. If written explanations have been issued to the taxpayer prior to issuance of the final report, then a brief explanation in the report should be provided stating that the report reflects the adjustments as provided in the written explanation previously provided and agreed to by the IRS and the taxpayer on MM/DD/YY.

4.46.6.5.1  (04-16-2014)
No-Change Examination (Disposal Code 02) Procedures

  1. The requirement for issuing a No-Change Revenue Agent Report (RAR) for disposal code 02 IC examination closures has been eliminated. However, this process does not eliminate the requirement to submit an SRS referral for a Tax Computation Specialist (TCS) when an examination is initiated.

  2. This process does not apply to the following:

    • returns closed using disposal code 01,

    • no change examinations with adjustments,

    • examination with adjustments in one or more years which net to zero,

    • returns subject to Joint Committee review,

    • OVDI cases,

    • TEFRA examinations,

    • Non-TEFRA returns which are linked.

  3. Instead of requesting a No-Change RAR from the TCS, revenue agents and team coordinators will contact the assigned TCS and request that the return be input, verified for accuracy and to check in all lMS files.

  4. Once the TCS verifies the accuracy of the per return tax computation and all IMS files are checked in, the revenue agent or team coordinator will prepare the appropriate No-Change Letter (Letter 590, for example), leaving the date field blank, and obtain the manager's signature on the letter in accordance with IRM 4.10.8.2.3.

  5. The revenue agent or team coordinator will also check the applicable No-Change Letter box on page 2 of Form 3198 before forwarding the case to the Centralized Case Processing (CCP) function following existing case closing procedures.

  6. CCP will date and issue the No-Change Letter to the taxpayer, and any applicable representatives, when the examination is officially closed.

4.46.6.6  (12-29-2009)
Report Standards

  1. Examination reports must meet the following standards:

    1. Examiners will adequately address Issues, facts, law, arguments, and conclusions for all agreed and unagreed issues.

    2. Examiners should tie (or foot) detail on reports to workpapers and tax return data and a current transcript.

    3. Legal citations support application of law on unagreed and agreed issues. Internal Revenue Manual references, law or accounting journal articles, IRS training material, and other internal communications do not qualify as legal citations.

    4. Examiners will respond to the Taxpayer’s position on agreed and unagreed issues.

    5. The examiner’s report will address pertinent legal arguments on unagreed issues.

    6. The examiner’s report will include any Specialists’ adjustment. Their reports become a part of the case transmittal letter.

    7. Joint Committee spreadsheet that traces the appropriate carrybacks and carryforwards must be included if the case meets Joint Committee criteria. See IRM 4.36.2, Identification of Joint Committee Cases.

    8. MAP (Mutual Agreement Procedure) report is required if the audit proposes adjustments that affect the taxpayer’s income in a treaty country.

4.46.6.7  (04-16-2014)
Approval

  1. Secure the team manager’s documented approval of the audit report prior to issuing it to the taxpayer.

  2. Team manager approval of the audit report is not required for most LB&I IC examinations that result in a no-change report with no adjustments, disposal code 02. When a no-change audit report is not required, the team manager’s approval will be evidenced by the manager’s signature on the no-change letter before closing the case to CCP. (See IRM 4.46.6.5.1).

4.46.6.8  (05-14-2013)
Tax Computations

  1. LB&I Revenue Agents will utilize a Tax Computation Specialist (TCS) for all LB&I Cases with the exception of International, Employment, and Excise Tax Cases.

  2. Requests for TCS services are made by the Team Coordinator (TC) or Lead Revenue Agent (RA).

  3. Requests for TCS service are done through the Specialist Referral System (SRS) and should include all attributes of the cases. This is the same process that is used for requesting assistance from CAS, Engineering, Economist, etc. Instead of submitting up to three separate referrals for the TCS services (input, what-if, and RAR computation) a single referral is to be made.

  4. As the TCS are very different from any of the other SRS specialists, it is important that the requesting Revenue Agent (RA) select the correct Industry/DFO for the request to go to. This will direct the request for TCS services to the correct Industry/TCS group.

  5. It is important to know that there is only ONE SRS request to be made for TCS services. Making multiple referrals will only confuse those who receive the SRS requests automatically and defeats the purpose for the single referral system.

  6. Once a referral has been made and assigned to the TCS, the RA will communicate directly with the assigned TCS to provide documents needed for the return input, any what-if scenarios, and to have RARs prepared.

  7. Once the request has been assigned by the TCS Manager, the TC or RA will assign the TCS "Team Coordinator" privileges on IMS so the TCS may complete the request for Input, RAR Computation, or Tentative Calculations.

  8. For carryback cases, examiners are to provide the TCS with the 1120X, 1139, or 1040X that are the source years for NOL and credit carryback to the TCS.

    Note:

    If warranted: It is the responsibility of the TC/RA to obtain the Restricted Interest amount from CCP Ogden. Once this amount is received, the information along with the calculation form is to be sent to the TCS for inclusion in the RAR.

  9. The Team Coordinator will verify the accuracy of the RAR prior to issuing to the taxpayer.

4.46.6.8.1  (04-16-2014)
TCS Procedures

  1. The TCS will utilize RGS and BNA software to generate electronic files to compute tax changes and prepare reports.

  2. TCS are required to reconcile amounts on the report to a current transcript. Current transcripts are to be pulled at various times of the referral process for TCS services.

  3. For cases where superseded returns are filed, the TCS will prepare two audit reports. One report will be available to send to Ogden Centralized Case Processing for administrative purposes. The other report will be available to provide to the taxpayer with the audit adjustments.

  4. TCS should prepare BNA tax reports inside IMS or import an external *ct file as a workpaper into IMS after completing them. RGS tax reports should be imported into IMS as a workpaper after completion.

  5. For Joint Committee Cases the TCS will prepare the Joint Committee Spreadsheets and Forms 2285, as required.

  6. The TCS will copy electronic workpaper files directly related to the tax computation, Joint Committee Spreadsheet and Forms 2285 into the IMS Workpaper section

  7. Electronic workpapers related to the report, computation of tax, penalty, or interest are saved under SAIN #007, Report Preparation. The exception to SAIN #007 is if the case is a TEFRA case than the SAIN will be SAIN #724.

    Note:

    TCS will place their electronic workpapers, RGS and BNA files under SAIN #007/SAIN #724 and apply their time to this SAIN.

  8. For LB&I IC no-change examinations with no adjustments, disposal code 02, the TCS will complete the initial input of all returns to verify the accuracy of the per return tax computations. Once accuracy of the return is verified, the TCS will check in all IMS files instead of preparing a No-Change RAR. (See IRM 4.46.6.5.1(2) for exceptions).

4.46.6.9  (12-29-2009)
Taxpayer Agreement and Payment

  1. Secure taxpayer agreement to an examination report on Form 4549, 4605, 2504 or on Form 870, Waiver of Restrictions on Assessment & Collection of Deficiency in Tax & Acceptance of Over assessment. See IRM 4.10.8.4.3 Instructions for Completing Waivers on Form 870.

  2. Agreement forms are considered executed after the taxpayer has signed the form. Executed agreement forms should be date stamped upon receipt. In the event, the taxpayer does not sign Form 870, the issue will follow the unagreed procedures and will require a written protest response to a 30-Day Letter (see IRM 4.10.8.5 and IRM 4.10.8.11).

  3. The Team Coordinator and Team Manager will ensure that cases are processed promptly following receipt of signed agreement forms.

  4. Solicitation of Deficiency - Examiners must solicit payment of tax deficiency and interest. Examiners will document this action on Form 9984, Examining Officers Activity Record.

    Note:

    Examiners will obtain payoff information from Centralized Case Processing staff according to instructions at the Complex Interest Procedures web site. Examiners will also inform taxpayers that interest is an estimated amount and the final bill may be different.

  5. Cash Bonds or Payments - Taxpayers may pay a deficiency or proposed deficiency by either posting a bond, making an advanced payment by check or electronic funds transfer. For payments received by check, prepare and process Form 3244-A, Payment Posting Voucher -- Examination, with the funds received, according to LB&I guidelines. If the taxpayer wishes to post a bond, the taxpayer must submit a written statement to the examining agent. This statement is to be made part of the administrative file. The written statement also must include:

    • The date(s) and amount(s) of the original deposit(s) in the nature of a cash bond;

    • The type(s) of tax to which the deposit in the nature of a cash bond was applied;

    • The tax year(s) to which the deposit in the nature of a cash bond was applied; and

    • The statement described in section 7.02 identifying the amount of and basis for the disputable tax.

    The taxpayer may also make advance payments or cash bond payments using Same Day Wire Transfer via the EFTPS systems. Instructions can be downloaded from the following web site: https://www.eftps.com/eftps/direct/DownloadDocuments.page

  6. Processing Checks Received – Procedures for processing remittance checks received from taxpayers are found at the Remittance Processing web site.

4.46.6.10  (12-29-2009)
Unagreed Report

  1. Report forms for an unagreed case are similar to those used for agreed cases. The instructions to complete agreed case reports generally apply; however, unagreed report forms do not include a signature line for the taxpayer.

  2. Prepare Form 4549-A or 4605-A to summarize all adjustments. Form 886-A, Explanation of Items, provides a detailed discussion of each unagreed issue. Explain each issue on a Form 886-A, Explanation of Items, detailing the facts, law and argument, taxpayer’s position, and a conclusion.

  3. Inform taxpayers of their rights to discuss proposed adjustments with the examiner’s team manager.

  4. Also inform taxpayers of their formal appeal rights.

  5. Examiners will solicit payment for tax deficiency and interest on all agreed issues, unless the agreed adjustments would generate a net refund.

  6. The examiner must review the taxpayer’s position and prepare a rebuttal to share with the taxpayer. The rebuttal will address factual and legal differences if the taxpayer submits a protest.

  7. Encourage taxpayers to enter into a partial agreement by executing a waiver such as Form 870, if agreement can be reached on one or more, but not all issues or years, unless the agreed adjustments would generate a net refund.

4.46.6.11  (12-29-2009)
Explanation of Items: Form 886-A

  1. Prepare Form 886-A and attach it to the report form to explain the adjusted items. Use a separate Form 886-A for each adjustment. If the adjustment applies to more than one year, show the adjustments on one combined Form 886-A. Prepare Form 886-A by attaching a Form 5701, Notice of Proposed Adjustment.

  2. The following format should be used for LB&I cases:

    1. Title -- Number and title each explanation to correspond with the adjustment on the audit report. Include a reference to SAIN to facilitate tracing back to workpaper detail of the adjustment. For clarity, include the amount per return, the amount per audit, and the resulting adjustment

    2. Facts -- Include a narrative statement of the facts upon which the adjustment is based. Indicate the relevance of the facts to the to the issue. State the facts accurately and objectively. Include all relevant facts whether favorable to the Service's or taxpayer's position.

    3. Applicable Law -- Cite and explain the applicable authority correctly. Clearly state the rulings and opinions relied upon in the explanation. Citations are not required when the adjustment is predicated entirely on facts, or when they serve no useful purpose. However, reports should fully inform the taxpayer of the legal basis for your proposed adjustments.

    4. Taxpayer's Position -- State the taxpayer’s position in narrative form. Include any legal authority the taxpayer mentions as the basis for the argument. If the taxpayer provides a written position statement, include the entire statement in this section or summarize the statement and include the entire document in the report as an exhibit. If an agreed issue, document the discussion of the adjustment with the taxpayer including the date and taxpayer’s understanding of the adjustment and any supporting comments.

    5. Argument – Prepare a narrative with related facts, as previously discussed in b), and cite the authority to support the Service's position and the Service's rebuttal of the taxpayer's position.

    6. Conclusion -- Briefly state a conclusion of the Service's position.

4.46.6.12  (12-29-2009)
Cases with Unagreed Issues – Minimum Refund

  1. A taxpayer could be due a net refund upon completion of an examination even if none of the unagreed issues are resolved in the taxpayer’s favor. This is referred to as a "minimum refund" case. This is more likely in situations where the taxpayer has filed a claim for refund for one or more of the years in the cycle.

  2. The examination team MUST solicit a partial agreement relating to the agreed issues. See IRM 4.10.8.5.6 for instructions on the preparation of partially agreed Revenue Agents Reports.

    1. Where the taxpayer agrees to the partial refund Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment, will signify that agreement.

    2. Other instructions in the Report Writing Guide (IRM 4.10.8) for the preparation of reports and the processing of partial agreements remain in effect.

    3. If the taxpayer declines to execute the Form 870, the case is considered unagreed with respect to all issues.

    4. In all minimum refund cases the examiner’s activity record and Form 4665, Report Transmittal, will document the efforts to solicit a partial agreement from the taxpayer and the taxpayer’s response. After processing of the partial agreement, unagreed issues are forwarded to Appeals in the regular manner.

  3. In the event the minimum refund amount exceeds $2,000,000, and the taxpayer has demonstrated agreement with the examiner’s findings by executing the Form 870, the refund must be reported to the Joint Committee on Taxation before the unagreed issues are forwarded to Appeals. For instructions on the preparation of case files for review and preparation of the report to the Joint Committee on Taxation see IRM 4.36.3, Examiner’s Responsibilities.

4.46.6.13  (12-29-2009)
Computer Data Backup at Audit Sites

  1. The loss of computerized records related to examinations can have catastrophic consequences to the tax administration process and potentially result in the loss of large sums of current and future revenue. Proper backup and off-site storage procedures facilitate data recovery if a data loss occurs. Contact the Service’s Records Officer in AWSS for additional guidance.

  2. These procedures define the LB&I minimum standards and expectations for backing up vital computer files at audit sites and provide direction to managers and other employees on minimum acceptable procedures to protect data. The requirements apply to any LB&I audit site where a government desktop or file server containing taxpayer data is left overnight at the site. This does not apply to smaller audit sites where government computers are not left overnight at the taxpayer’s location.

  3. This policy outlines the minimum requirements for data backup. Additional or more frequent backups may be necessary depending on the audit site and should be determined by team coordinator.

  4. The requirement to ship backup media and store it at off-site locations has been temporarily suspended. Additional procedures pertaining to data encryption must be developed before media can be shipped to and stored at off-site locations. Team Coordinators should still create the required backups but hold the backup files at the case site until further instructions are issued.

4.46.6.13.1  (12-29-2009)
Storage of Backup Files

  1. Utilizing existing tape devices, CD equipment and/or DVD equipment as available, all audit site computer data files will be backed up at a minimum on the last working Thursday of every month and stored at the job site. This includes all IRS-owned taxpayer and case related data. It is not necessary to back-up application or computer software.

  2. The information must be stored in a file cabinet, desk drawer, overhead storage bin, credenza or similar locked compartment under the control of the responsible Service employee. This container must be either a security container furnished by the Service, or if using a taxpayer furnished container, the Service must be assured that the taxpayer does not have unauthorized access to the contents.

  3. When a taxpayer’s container is used, there are two options:

    1. The taxpayer supplied container may be modified by the Service, e.g. with its own padlocks and bars, so that the Service is assured that the taxpayer cannot access the contents, or,

    2. The taxpayer container may be used without modification if the taxpayer provides Service employees with the only keys for that container. Such requests for taxpayer locking containers, e.g. file cabinets, may be made in the audit plan which is subsequently signed by the taxpayer.

4.46.6.13.2  (12-29-2009)
Labeling Backup Media

  1. Each backup media will be properly labeled. A label will be attached to the outside of each backup media (tape, CD or DVD) with at least the following information:

    1. Team coordinator's name

    2. Audit site

    3. Backup date

4.46.6.13.3  (12-29-2009)
Audit Site Laptop and Desktop Computers

  1. Team coordinators will ensure that all team members back up computer files at a minimum of once a month to the file server. The coordinator will determine the specific date and time for each team member to back up files. However, the goal is to ensure the file-server contains regular and timely backups from all laptop and desktop workstations.

4.46.6.13.4  (12-29-2009)
Fileservers/Shared Desktops

  1. Team coordinators or their designee will back up the fileserver/desktop to tape, CD or DVD when made available, at a minimum on the last working Thursday of every month. The team has the option of retaining an additional backup copy at the audit site.

  2. The policy establishes a minimum backup period of monthly. Sites may backup daily or weekly, as appropriate for case site.

4.46.6.13.5  (12-29-2009)
Equipment and Media Supplies

  1. MITS is responsible for all computer equipment and operates with the same need to back up files.

  2. If the audit site equipment necessary to effect back up is not operating or no longer available at the site, the team coordinator will request repair of the equipment or upgrade of the equipment through MITS, sufficient to accomplish the back up.

  3. Media supplies are ordered through the management supply order process. If a site does not have sufficient media supplies they should request them through their management and through local MITS.

4.46.6.13.6  (12-29-2009)
Training and Assistance

  1. If the employees at the audit site need instruction or training to operate the backup equipment or media, they may obtain the instruction or a short demonstration from MITS.

Exhibit 4.46.6-1 
LB&I Corporate SAIN Codes

SAIN Code Description
000 Issue Does Not Exist
001 Precontact Analysis
002 Pre - Exam Conference
003 Preliminary Examination Time
004 Preparing Examination Plan
005 Coordination
006 Travel Time
007 Report Preparation
008 Examination Critique
009 Meetings
010 Review Protest / Prepare Rebuttal
010-01 Fast Track
011 Penalty Consideration
012 Form 5699 (Information Document Request Log)
013 Issue Control Sheet - Form 5701 (Notice of Proposed Adjustments)
014 Referrals to Specialists
015 Financial Interest
016 Correspondence
017 POA / Form 8821 (Tax Information Authorization)
018 Statute of Limitations
020 Prior Revenue Agent Report
021 Prior Appeals Report
022 Joint Committee Reports
024 Risk Analysis
030 Administrative Lead Sheet
032 LB&I Joint Audit Planning Process Tool

Note:

This has been eliminated as of June 1, 2010.

033 Pre-audit Interview History Lead Sheet
034 Examiner's RRA 98 Compliance Guide
036 Quality Examination Process (QEP)
060 Claims
061 Self-Audit Adjustments (Affirmative Adjustments)
080 Planning File
100 Balance sheet (no balance sheet attached)
101 Cash
102 Trade notes & accounts receivable
102-01 Allowance for bad debts
103 Inventories
104 U.S. government obligations
105 Tax-exempt securities
106 Other current assets
107 Loans to stockholders
108 Mortgage & real estate loans
109 Other investments
110 Buildings & other depreciable assets
110-01 Accumulated depreciation
111 Depletable assets
111-01 Accumulated depletion
112 Land
113 Intangible assets
113-01 Accumulated amortization
114 Other assets
216 Accounts payable
217 Mortgages, notes, bonds payable in less than 1 year
218 Other current liabilities
218-01 Related party accruals
219 Loans from stockholders
220 Mortgages, notes, bonds payable in 1 year or more
221 Other liabilities
322 Capital stock
322-01 Preferred
322-02 Common
323 Additional paid-in capital
324 Retained earnings - appropriated
325 Retained earnings - unappropriated
325-01 Reconciliation of retained earnings
326 Cost of treasury stock
327 Adjustments to shareholders equity
328 Distribution of property
329 Distributions, bargain sale
SAIN Code Description
401 Gross receipts or sales
401-01 Sales to related entities
402 Returns & allowances
404 Dividend
405 Interest income
406 Gross rents
407 Gross royalties
408 Capital gain net income Schedule D
409 Net gain (loss) - Form 4797, Part II
410 Other income
411 Merchant card and third-party payments
420 Extraterritorial income
430 Income (Expenses) Flow-through from Other Entities
502 Cost of goods sold (No Sch. A or F1125-A Detail)
502-01 Inventory (beginning)
502-02 Purchases
502-03 Cost of labor
502-04 Additional Section 263A costs
502-05 Other costs
502-10 Inventory (ending)
512 Compensation of officers
513 Salaries and wages
514 Repairs and maintenance
515 Bad debts
516 Rents
517 Taxes and licenses
518 Interest expense
519 Charitable contributions
520 Depreciation
521 Depreciation (other than page 1 - Form 1120)
522 Depletion
523 Advertising
524 Pension, profit sharing plans
525 Employee benefit programs
SAIN Code Description
526 Other deductions (not listed)
526-01 Administrative fees
526-02 Amortization
526-03 Auto & truck expenses
526-04 Bonus expense
526-05 Consulting fees
526-06 Contract labor
526-07 Commissions
526-08 Computer expense
526-09 Dues & subscriptions
526-10 Education expenses
526-11 Equipment rental
526-12 Fringe benefits
526-13 Fuel expense
526-14 Gifts & awards expenses
526-15 Insurance expenses
526-16 Janitorial services
526-17 Leasing expense
526-18 Legal and professional fees
526-19 License and permit expenses
526-20 Maintenance and cleaning
526-21 Management and director fees
526-22 Meals and entertainment
526-23 Meetings, seminars, conventions
526-24 Miscellaneous expenses
526-25 Other expenses
526-26 Outside services
526-27 Postage & courier expense
526-28 Proposal or bidding expense
526-29 Public relations expense
526-30 Publication expense
526-31 Recruiting & training
526-32 Research & development
526-33 Royalty expense
526-34 Security expense
526-35 Shipping, freight & handling
526-36 Supplies - office
526-37 Supplies - tools & factory
526-38 Telephone expense
526-39 Travel expense
526-40 Utility expense
SAIN Code Description
527 Domestic production activities
528 Reconcile Schedule M-1 (Reconcile 1120A Part IV)
529-01 Net operating loss deduction (NOLD)
529-02 Special deductions
601 Income tax computation
601-01 Member of controlled group
601-02 Tax brackets and additional tax allocations
601-03 Qualified personal service corporation
601-04 Additions to regular income tax
604 Credits
604-01 Foreign tax credit
604-02 Possessions tax credit
604-03 Orphan drug credit
604-04 Nonconventional source fuel credit
604-05 Qualified electric vehicle credit
604-06 General business credits
604-07 Credit for prior year minimum tax
604-08 Prepayment credits
604-09 Bond credits
604-11 Section 45R credit for health care
604-12 Recapture of investment credit
604-13 Recapture of low-income housing credit
605 Research credit
606 Other nonrefundable credits
607 Personal holding company tax
608 Recapture taxes
608-01 Other recapture taxes
609 Alternative minimum tax
609-01 AMT Adjustments and Preferences
609-02 Pre-Adjustment AMTI
609-03 Adjusted Current Earnings
609-04 AMT Net Operating Loss Deduction
609-05 Alternative Minimum Taxable Income
609-06 Alternative Minimum Tax
609-07 AMT Foreign Tax Credit
609-08 Tentative Minimum Income Tax
609-09 Environmental tax
610-01 Accumulated earnings tax
610-02 Other taxes
610-03 Additions to "regular" total tax
610-04 Lookback interest
611 Enhanced Oil Recovery Credits
622-03 Additional LIFO Reserve LIFO tax
623-01 Payments
623-02 Tax deposits
623-06 Fuel tax credit
623-07 Telephone excise tax credit
624-01 Accuracy-Related Penalty - 6662
624-02 Fraud penalty - 6663
624-03 Delinquency penalty - 6651
624-04 Estimated Tax penalty (Individual) - 6654
624-05 Promoter penalties
624-10 Other penalties (includes FBAR)
624-11 Estimated Tax Penalty (Corporation) - 6655
630 Renewable Electricity Tax Credit
631 Refined Coal Tax Credit
632 Indian Coal Production Tax Credit
633 Interest due under the look-back method - completed long term contracts
634 Interest due under the look-back method - income forecast method
635 Alternative tax on qualifying shipping activities
636 Withholding
SAIN Code Description
701 Minutes & other records
702 Intercorporate allocations
703 Acquisitions, liquidations, reorganizations
703-01 Schedule M-2
703-02 S Corp. vs. C Corp. Issues
704 Corporate slush fund checks
705 Consolidations
706 Section 482 potential
706-01 Advance Pricing Agreement
707 Method of accounting
708 Initial return - IRC 195, 246, 1060
709 Final return - distributions
710 Related party transactions
711 Distributions of earnings & profits
712 Distributions in excess of basis
713 Mandatory compliance checks
713-01 Related returns
713-02 Prior & subsequent returns
713-03 Minimum inventory checks
713-04 Minimum income probe
713-05 Other filing checks
713-06 Officers’ returns
713-07 Partnership
722 NOL-Shareholder Basis
724 TEFRA
726 Potentially abusive schemes
726-01 Form 8275 disclosure statement
726-02 Form 8886 reportable transaction
726-03 Transaction lacks economic substance
732 Corporate level limits
750 M-3
750-01 M3 Part 1: Financial Statements
750-02 M3 Part 1: Includible & Non-includible entities
750-03 M3 Part 2: Income
750-04 M3 Part 3: Expenses & deductions
801 Statistical sampling procedures
802-01 Computer Audit Specialist (CAS) Non-Issue Data Preparation
802-03 International Examiner
802-05 Exempt Organization Examiner
802-06 Excise Tax Examiner
802-09 Actuary
802-10 Employee Plans
802-12 Exam Tech/Audit Aides
802-13 Contracting Officer's Technical Representative (COTR)
802-14 Tax Computation Specialist
803-01 Life Insurance Examiner
803-02 Property & Casualty Insurance Examiner
804 Other Classified Issue #1
805 Other Classified Issue #2
806 Other Classified Issue #3
807 Other Classified Issue #4
808 Other Classified Issue #5
809 Other Classified Issue #6

Note:

Use SAIN codes 804-809 only in return classification when no other appropriate line item applies.

Exhibit 4.46.6-2 
Life Insurance SAIN Codes

Use the SAIN codes on this list for Forms 1120-L only. All the primary corporate SAIN codes from IRM 4.46.6-1 will remain available for these returns.

SAIN Code Description
240 Increase in Policy Cash Value – IRC §264(f)
241 Assets
242 Earnings Rates
243 Average Interest Rate Assumed
244 Pension Plan Reserves
245 Adjusted Life Insurance Reserve
246 Interest Paid
247 Reserve Deduction and Reconciliation
340 Policyholders/Shareholders Surplus Account
341 Surplus
404-02 Dividend Income (Proratable)
404-03 Domestic < 20% Owned
404-04 Domestic > 20% Owned
404-05 Debt Financed Stock
404-06 Public Utility Stock < 20% Owned
404-07 Public Utility Stock > 20% Owned
404-08 Foreign < 20% Owned
404-09 Foreign > 20% Owned
404-10 Wholly-owned Foreign Corporations
404-11 Certain Affiliated Company Dividends
404-12 Dividend Income (Not Proratable)
404-13 Affiliated Company Dividends
404-14 Other Corporate Dividends
406-01 Leases and terminations
460 Non-Insurance Trade or Business Income
461 Tax Exempt Interest
462 Increase in Policy Cash Value – IRC §264(f)
463 Premiums
464 Separate Accounts
465 Reserve Weakening
540 Policyholder Dividends and Reconciliation
541 Policy Acquisition Expenses
542 Small Life Insurance Company Deduction
543 Limitation on Non-Insurance Losses
544 Death Benefits
545 Reserve Strengthening
546 Assumption of Liabilities by Others
547 Reimbursable Dividends
548 Other Life Insurance Deductions
760 Gross Investment Income Reconciliation
761 Life/Non-Life Reconciliation
762 Reinsurance

Exhibit 4.46.6-3 
Property & Casualty Insurance SAIN Codes

Use the SAIN codes on this list for Forms 1120-PC only. All the primary corporate SAIN codes from IRM 4.46.6-1 will remain available for these returns.

SAIN Code Description
222 Losses Unpaid
223 Reinsurance Payable
224 Loss Adjustment Expenses
225 Commissions payable
226 Taxes, Licenses Fees
227 Unearned Premium Reserves
228 Advance Premiums
229 Dividends Declared Unpaid
230 Ceded Reinsurance Premiums Payable
231 Funds held by company under reinsurance treaties
232 Amounts withheld or retained by company-account of others
233 Remittances and items not allocated
234 Provisions for reinsurance
235 Liability for amounts held under uninsured accident and health plans
236 Schedule P Part 2 Reserve Development - PC AS
236-01 Part 2B - Analysis Claims Unpaid - Health AS
325-02 Adjustments to shareholders' equity
325-03 Adjusted surplus for Section 833 organizations
401-02 Premiums earned
401-03 Net premiums written
401-04 Unearned premiums
401-05 Sec. 832(b)(7)(A) life insurance reserves included in unearned premiums
401-06 Unearned premiums attributable to insuring certain securities
401-07 Discounted unearned premiums attributable to title insurance
404-01 Div. Rec’d deducton subject to Sec. 832(b)(5)(B)
405-01 Amortization of Bond Premium
405-02 Amortization of Tax Exempt Bond Premium
405-03 Interest exempt under Sec. 103
440 Sec. 834, Electing Small Company
441-01 Limitation on deduction for investment expenses
441-02 Income from leases described in sections 834(b)(1)(B) and 834(b)(1)(C)
442 Certain mutual fire or flood ins. co. premiums Sec. 832(b)(1)(D)
443 Income on account of special income & deduction accounts
444 Income from protection against loss account
445 Mutual interinsurers or reciprocal underwriters – decrease in subscriber accounts
446 Income from a special loss discount amount, Sec. 847
515-01 Agency balances and bills receivable that become worthless during tax year
517-01 State and local insurance taxes
517-02 State premium taxes
517-03 Regulatory authority licenses and fees
517-04 Payroll taxes
531 Claim adjustment services
531-01 Direct
531-02 Reinsurance assumed
531-03 Reinsurance ceded
532 Commission and brokerage
532-01 Direct excluding contingent
532-02 Contingent - direct
533 Reimbursement by uninsured accident and health plans
534 Aggregate write in for miscellaneous expenses
535 Blue Cross Schedule H- Special Deduction
535-01 Claims and Expenses
535-02 Prior Year Surplus computations
536 Section 847 Special Deduction
610-05 Tax that reciprocal must include
623-03 Special estimated tax payments (Sec. 847)
623-04 Credit by reciprocal for tax by attorney-in-fact under sec. 835(d)
640 Surtax Exemptions
770 Elections
770-01 Elections - Sec. 953(c) & (d)

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