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.

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

Workpapers document the:

Electronic files are workpapers.

Workpapers serve four basic purposes:

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

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.

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

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.

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

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.

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

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.

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.

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

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.

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):

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

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

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.

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.

Examination reports must meet the following standards:

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

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.

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

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.

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.

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.

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.

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.

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.

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

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.

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).

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

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

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 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

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

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.

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.

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

Also inform taxpayers of their formal appeal rights.

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

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.

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.

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.

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

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.

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.

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.

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.

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.

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.

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.