4.71.1  Overview of Form 5500 Examination Procedures (Cont. 1)

4.71.1.14 
Package Audit Requirements

4.71.1.14.1  (03-28-2014)
Prior Year, Subsequent Year and Related Returns

  1. During the course of the examination, the agent should inspect both the prior and subsequent year Form 5500 series returns of the plan being examined for potential examination issues, such as recurring issues or transactions that may adversely affect the plan’s qualified status or the trust's exemption for the year assigned for examination or tax liability of the plan sponsor.

  2. If the taxpayer is unable to provide retained copies of these returns, the agent should:

    1. Request a transcript (use command code EMFOLT on IDRS) to determine if the returns were filed and

    2. Request a transcript (use command code ERTVU on IDRS) to view the Form 5500 line items for a particular tax period or obtain a Returns Inventory and Classification System (RICS) return from EP Classification or

    3. Obtain a copy of the return through FreeERISA or

    4. Obtain a copy of the return through Form 5500/5500-SF Filing Search sponsored by DOL at www.efast.dol.gov/portal/app/.

  3. The agent should document in the workpapers that prior and subsequent returns were inspected and a comment should be made as to whether or not any potential issues were found.

  4. Prior and subsequent year(s) returns should not be examined unless there are compelling reasons to do so. If an examination is warranted, the supporting reasons should be included in the workpapers. An examination of prior or subsequent year returns may be warranted if:

    1. A potential substantive compliance issue is identified or

    2. An issue is developed during the examination of an originally assigned return that carries back or over to the prior and/or subsequent year.

  5. If a qualification issue exists (the revocation of the plan's exempt status is being proposed) in the year under examination, all subsequent year returns, due and filed, will normally be included in the examination.

    Note:

    If the plan is being disqualified and subsequent year returns are not included in the examination, the group manager will prepare a written statement either in the case chronology, in the form of a memo or in an E-mail for inclusion in the workpapers, giving the reasons the subsequent years are not included.

  6. Obtain group manager approval to extend an examination into either the prior and/or subsequent years.

    1. The agent will document the group manager’s approval to extend the examination to subsequent years in the workpapers or in the case chronology record.

    2. If the examination is extended to a prior year, the group managers concurrence to examine prior years must be documented either through a confirmation E-mail (which should be included as part of the examination workpapers) or by the manager's signature in the case chronology.

  7. If plan or trust records are solicited for a given plan year, that year is considered to be under examination and it must be established on AIMS and RCCMS even if the Form 5500/1041 statute has expired.

    1. This occurs when the IRS has determined that an operational issue has occurred that retroactively disqualifies the plan and plan/trust records are solicited.

    2. The IRS's ability to pursue a qualification issue in any year is not impacted by the Form 1041 statute of limitations. The expiration of the statute of limitations for Form 1041 for any given year does not prevent the IRS from pursuing a qualification issue in that year (see Yarish Consulting, Inc. v. Commissioner, T.C. Memo. 2010-74).

    3. If the statute of limitations has already expired, the statute should be updated to alpha code "PP" in accordance with IRM 4.71.9.3(5).

  8. When the decision is made to examine prior or subsequent year return(s), the examination should be conducted concurrently with the assigned return.

  9. The agent should ensure that the statute of limitations is properly protected for open years. See IRM 4.71.9, Statute Control Procedures, for information on statute of limitations.

  10. The taxpayer must be informed in writing of the decision to examine a prior or subsequent return.

  11. Likewise, the agent may find it expedient to examine a related Form 5500 of the plan sponsor.

    1. A related return is defined as a Form 5500 filed by the plan sponsor or an affiliated employer (e.g., member of a controlled group or affiliated service group) for another plan.

    2. Group manager approval must be obtained and documented in the case chronology of the related return.

    3. If possible, the examination should be conducted concurrently with the initially assigned return.

    4. The taxpayer must be informed in writing of the decision to examine the related return.

  12. The following procedures should be followed when an agent decides to examine a related or subsequent year Form 5500 series return that has posted on EPMF:

    1. The agent should do the appropriate research on IDRS to verify that the Form 5500 series return has posted on the EPMF.

      Note:

      If the return has not posted on the EPMF, the agent should follow the appropriate procedures in IRM 4.71.1.21, Amended, Substitute and Secured Forms 5500.

    2. The agent will prepare the Related and Subsequent Year Form 5500 Request form and forward it to his/her manager for approval. See IRM 4.71.1 Exhibit 1 at IRM 4.71 - Employee Plans Examination Exhibits.

    3. It is important that all the information (e.g., special project code, condition code, group number, etc.) is correctly completed on the form or it will be returned to the group. The agent should note in his/her request that the return has posted to the EPMF.

    4. The group manager or designee will E-mail the approved form to EP Classification's group mailbox at *TE/GE-EP-Classification (or tege.ep.classification@irs.gov) and to the agent.

    5. The agent will save a copy of the approved form (Related and Subsequent Year Form 5500 Request) in the RCCMS Office Documents folder using the RCCMS Naming Convention. See IRM 4.71.1 Exhibit 2 at IRM 4.71 - Employee Plans Examination Exhibits.

    6. EP Classification will acknowledge receipt of the request for the return to be established (normally within 5 business days).

    7. EP Classification will mark the return on RICS, establish the return on AIMS and RCCMS and update these systems to the group.

      Note:

      Since EP Classification establishes the return, the group should not attempt to establish the return on AIMS or RCCMS.

    8. EP Classification will inform the agent and group manager (normally within 10 business days) that the record has been assigned to the group on AIMS and RCCMS.

      Note:

      AIMS will be in status 10 when there is a full AIMS account.

  13. The following procedures should be followed when an agent decides to examine a related or subsequent year Form 5500 series return that has not posted on EPMF but was filed by the taxpayer:

    1. The agent should do the appropriate research on IDRS to verify that the Form 5500 series return has not posted on the EPMF.

    2. The agent should verify that the return is signed and dated. If not signed, the agent should have the taxpayer sign the return with the current date.

    3. The agent should verify that the EIN, Plan # and Plan Name are correct.

    4. The agent should verify that there is an entity record on EPMF for the EIN and plan number.

    5. In the bottom margin of the Form 5500 series return, the agent should write: "Taxpayer previously filed but return not posted."

    6. If penalties are to be waived, the agent should complete Form 3177, Notice of Action for Entry on Master File, in accordance with Exhibit 3 and send it to the EP Classification mailbox at tege.ep.classification@irs.gov. See IRM 4.71.1 Exhibit 3 at IRM 4.71 - Employee Plans Examination Exhibits for assistance in completing Form 3177.

      Note:

      Form 3177 should be E-mailed to EP Classification two weeks prior to the time the delinquent Form 5500 series return is filed to give sufficient time for processing so that penalties will not be assessed when the Form 5500 series return is filed. EP Classification will notify the agent once the Form 3177 has been processed and the TC 971 (with action code 632) has posted so that the Form 5500 series return can be submitted for processing and the penalties will not be assessed.

    7. The agent should forward the Form 5500 series return to EP Classification at the following address:
      IRS –TE/GE EP Classification
      9350 Flair Drive, 4th Floor
      El Monte, CA 91731

  14. If, during the examination of the assigned return, the agent obtains information that indicates potential substantive noncompliance in subsequent year returns that have not yet been filed (or have been filed but not yet been processed through the EFAST system), Form 5666, TE/GE Referral Information Report, should be prepared and forwarded to EP Classification. See IRM 4.71.6.5Making Referrals Within EP.

4.71.1.14.2  (03-28-2014)
Employment Taxes

  1. During the course of an EP examination, verify that Forms 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return and Forms 941, Employer’s Quarterly Federal Tax Return, were filed by the plan sponsor for the same period of the 5500 exam.

  2. This should be done during the pre-audit analysis phase of the examination through the use of IDRS command code BMFOL. See paragraph 6 of IRM 4.71.1.6(7).

  3. During an audit of a plan, be alert to possible employment tax issues involving the plan sponsor (e.g., the employer). For example, when determining whether the eligibility and coverage requirements of IRC 410 are met, an agent must verify that all eligible employees are being covered by the plan. Therefore, during the interview, inquire whether the employer uses contractors, subcontractors, commissioned employees or casual labor. Additionally, review the Forms 1099-MISC filed by the employer to identify any potential eligibility or coverage issues related to misclassification of employment tax status with respect to employees and independent contractors. See IRM 4.23.5, Technical Guidelines for Employment Tax Issues, for helpful information on determining whether an individual is an employee or independent contractor.

  4. If it is determined that a possible classification issue exists, contact an Employment Tax Specialist through the Specialist Referral System. See IRM 4.71.6.11, Specialist Referral System (SRS), for more information.

4.71.1.14.3  (03-28-2014)
Form W-4 Compliance

  1. Employers must comply with the Form W-4 requirements in accordance with Reg. 31.3402(f)(2)-1(g). Under IRC 6001 and Reg. 31.6001-5(a), employers are required to keep records of all remuneration paid to employees and make them available for inspection by authorized IRS personnel. Whether they file Forms 940/941 payroll information electronically or by paper, employers are required to send the IRS quarterly copies of all Forms W-4 received during the quarter from employees still employed at the end of the quarter who claim more than 10 withholding allowances or who claim exempt status and are expected to earn more than $200 per week.

  2. The agent should be alert to possible withholding issues.

    1. During an audit of a plan, Forms W-2 are reviewed to verify certain items relating to plan qualification, such as compensation and deferrals. While reviewing the Forms W-2 the agent may discover a Form W-4 withholding issue, such as employees who have little or no income tax withholding.

    2. It may be necessary to request copies of the questionable Forms W-4 to verify whether the employer properly sent the forms to the Service Center as required.

    3. In certain instances, it might be advisable for the agent to obtain RTVUE prints for questionable employees.

  3. If the agent determines that the taxpayer submitted questionable Forms W-4 to the Service Center or failed to submit them as required, make copies of the Forms W-4 for those employees who are still employed by the taxpayer and forward them to the W-4 Coordinator at the appropriate Service Center. The following information must be contained on each Form W-4:

    1. Employee name, address and SSN

    2. Employer name, address and EIN

    3. Marital status and number of allowances claimed by the employee

    4. Date of the W-4

    5. Items pertaining to exempt status (complete when applicable)

  4. Forms W-4 submitted by the agent to the Service Center's W-4 Coordinator must be legible and complete.

    1. Submit Forms W-4 to the Service Center, where the taxpayer files Forms 941, at the earliest date possible. The instructions to the Form 941 list the appropriate Service Centers. Use Form 3210 to transmit the Forms W-4 to the Service Center's W-4 Coordinator.

    2. Provide the employer’s name, address, EIN and the number of forms attached in the body of the Form 3210. In the event an employer has not filed any Forms W-4 with the IRS and the Forms W-4 are questionable, notate the Form 3210 with a note indicating multiple questionable Forms W-4 are attached.

    3. Specify in the workpapers that the Forms W-4 were sent to the Service Center.

4.71.1.14.4  (03-28-2014)
Information Returns

  1. IRC 6041 through IRC 6053 provide the reporting requirements for certain information returns that should be inspected.

    1. Generally, the regulations require the reporting of items such as payments made in the course of trade or business to another person, payments of dividends, payments of interest, payments of wages, cash receipts in excess of $10,000, etc.

    2. It is most important that taxpayers timely file these returns as required.

    3. See the specific return and instructions to the applicable return for more information on filing requirements.

      Note:

      The package audit requirements for focused examinations can be limited as provided in IRM 4.71.1.14(4).

  2. Examples of information returns that should be inspected include:

    • Other Forms 5500 filed by the employer

    • Forms 1099-R and Forms 1096, which are related to plan distributions

    • Forms W-2, Wage and Tax Statement

    • Form 8300, Report of Cash Payments over $10,000 Received in a Trade or Business involving plan assets

    • Form 945, Annual Return of Withheld Federal Income Tax related to distributions from the plan

    • Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons.

  3. The adequacy of taxpayer’s records is a critical factor in determining the scope of the examination. Normally, continue the examination to a point where it is reasonably certain that the information return requirements have been fulfilled. Generally, a detailed examination (including any penalty consideration) is warranted if:

    1. Available information indicates that information returns were not filed,

    2. Available information indicates that the income amounts were materially incorrect as reported or

    3. The resulting improvement of voluntary compliance (payor or payees) will justify the expenditure of time required to make the necessary verifications and/or to secure copies of the incorrect or delinquent information returns.

  4. If it is discovered that the entity has not filed returns or forms which are within the audit jurisdiction of EO, GE or one of the Exam Functional Units (LB&I, SB/SE or W&I), prepare Form 5666 and forward it to EP Classification in accordance with IRM 4.71.6, Employee Plans Referrals.

  5. There are three specific areas where an invalid SSN may be identified:

    1. The SSN cannot be attributed to any specific person (e.g., the SSN is not a valid SSN).

    2. The SSN belongs to someone who is deceased.

    3. The SSN belongs to a living person other than the person using it for the plan under audit.

    Note:

    EP agents finding participants using invalid SSNs should, after manager consultation, forward a Form 5666 to the Referral Specialist in EP Classification. Classification will then forward this information to one of the SB/SE Identity Theft Coordinators at: http://mysbse.web.irs.gov/exam/tip/identitytheft/contacts/22520.aspx .

  6. To satisfy the examination's package audit requirements, the workpapers should include sufficient information and/or documentation to explain the audit steps taken and conclusions reached regarding filed returns.

4.71.1.15  (03-28-2014)
Workpapers

  1. Following is a discussion of the importance of the agent's workpapers in developing an examination, including use of the accountants’ workpapers. Also included in this segment is the material involving burden of proof as enacted under RRA section 3001.

4.71.1.15.1  (03-28-2014)
EP Workpapers

  1. The agent’s workpapers are the connecting link between the return and the examination report. Workpapers should document the audit trail and include the following:

    1. Source documents reviewed

    2. Evidence or information gathered

    3. Procedures and techniques applied

    4. Tests performed

    5. Oral testimony received

    6. Documentation of actions taken

    7. Conclusions

  2. Workpapers should be clear, concise, legible, organized, labeled, dated and indexed. The workpapers should be indexed in a manner consistent with the indexing scheme used in Form 5772 (discussed below).

    1. Workpaper headings should list the name of the plan, the year(s) under audit, the initials of the agent and the date the workpapers were prepared.

    2. Workpapers should be saved electronically within RCCMS , following the RCCMS Naming Convention. See IRM 4.71.1 Exhibit 2 at IRM 4.71 - Employee Plans Examination Exhibits.

  3. Supporting workpapers should document the audit trail and support conclusions. The accuracy of the workpapers should be verified and should come from only reliable sources. Figures should be clear and accurate and all material facts should be detailed. Examples of supporting workpapers and related exhibits include:

    • Photocopies of relevant documents secured from the taxpayer during the examination.

    • A workpaper documenting the samples taken, verifications made and conclusions reached.

    • Relevant correspondence from the taxpayer and/or Power of Attorney.

    • Lists of questions or items raised during the examination and conclusions reached.

  4. Workpapers are used to:

    1. Demonstrate the measures in planning the audit including the analysis of internal documents and the substantiation for the examination’s scope.

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

    3. Provide support for technical conclusions and preparation of the Revenue Agent Report (RAR).

  5. Workpapers also provide a basis for review, for purposes such as:

    • Managerial and technical review

    • Agent review in subsequent audits of the plan

    • Submitting cases to Appeals

    • Preparing technical advice requests

    • Possible use in a court of law

    • Potential reviews by the Taxpayer Advocate Service, Internal Audit or the Government Accounting Office.

  6. Workpapers demonstrate the quality of the audit. To insure that the issues were properly addressed and that the appropriate provisions of the law were applied to support the conclusions reached in the examination, workpapers should include references, where applicable, to:

    1. Applicable portions of the IRM.

    2. Legal authority such as the Internal Revenue Code, Treasury Regulations, Revenue Rulings, Revenue Procedures or court decisions.

  7. ) If the closing letter is not Letter 992, the agent must include a statement in the case file indicating whether or not there were any indicators of fraud.

    1. The statement may appear on any workpaper that documents noncompliance with the Internal Revenue Code or another workpaper that cites the issue(s) of noncompliance, references the applicable workpaper(s) and includes a statement regarding indicators of fraud.

    2. If indicators of fraud are present and fraud is not pursued, a detailed explanation supporting non-pursuit must be included on the applicable workpaper.

  8. During the Appeals process, conferences are usually held without the agent being present to explain and substantiate the findings. The workpapers are the proper place for recording all that the agent knows about the issue(s).

4.71.1.15.2  (03-28-2014)
Basic Workpapers

  1. The basic workpapers for preparing EP examination cases are listed below. These forms are part of the examination case file. These forms are available within the RCCMS templates.

    • Form 5772

    • Form 5773 (optional, if the conditions of paragraph 6 of IRM 4.71.1.15.4, Form 5773, are met)

  2. Forms 5772 and 5773 are intended to simplify and standardize examination workpapers. These forms are designed as working tools for pre-examination planning and use during the examination. Their purpose is to provide an orderly presentation of workpaper material, using an indexing system. Their use makes it unnecessary to repeat workpaper information elsewhere in the file. See below for instructions on completing these forms.

4.71.1.15.3  (03-28-2014)
Form 5772

  1. Form 5772 is used for most EP examinations. It may be used for pre-examination planning and as the first page of the workpapers. Form 5772 contains a list of procedural and technical reminders. Review the list as part of the planning process and check the appropriate boxes to indicate those items considered during the examination.

  2. On a full-scope audit, all applicable items must be addressed. Remember that full-scope examinations will be conducted only on certain special projects, training cases or with the group manager's written approval.

  3. If the agent is performing a focused examination or an OCEP, the issues being addressed will be annotated by the agent on the Form 5772.

  4. Examination steps and information reviewed for each examined issue will be clearly documented on Form 5773 (or equivalent) along with the conclusion reached.

  5. When multiple year examinations result in both change and no change years, enter the appropriate disposal code number for each year examined.

4.71.1.15.4  (03-28-2014)
Form 5773

  1. Form 5773 (or equivalent as described in paragraph 6) is used for the following purposes:

    1. To summarize the findings of the examination

    2. As an index to other workpapers

    3. To document the agent’s review of issues, materials and records relevant to the examination issues listed on the Return Classification Record

    4. As supporting worksheets for Form 5772

  2. "Pre-audit Comments" section. During pre-examination planning, enter the items that should be verified, together with applicable comments in the "Pre-audit Comments" section.

  3. Examination issues listed on the Return Classification Record should be verified. If the issue was raised in error, based on the facts found during the audit, the workpapers should be so noted. For example, if a focused issue was selected based on how the Form 5500 was completed and it was completed in error, this should be noted in the workpapers.

    1. If the condition code was related to a significant issue in the case, use the appropriate issue code when closing the case.

    2. During the examination, add other items discovered requiring attention. Use a separate block for each item.

      Note:

      Use of these forms as working tools for pre-examination planning cannot be over emphasized. Lack of preparation seriously detracts from professional performance.

  4. "Workpapers Index" section. Index items by capital letters, which correspond to Form 5772.

    1. Index workpapers as you prepare them. Workpapers attached within RCCMS should follow the naming convention.

    2. When additional workpapers for explanations, analyses, schedules, etc., are required, prepare and index them under the index letter and subheading assigned to the specific item of discussion. For example, the vesting issue is Workpaper Index C, so any separate workpapers for the issue would be labeled C-1, C-2, etc.

    3. All workpapers must be saved in the RCCMS Office Documents folder using the RCCMS Naming Convention. See IRM 4.71.1 Exhibit 2 at IRM 4.71 - Employee Plans Examination Exhibits.

  5. "Examination Procedures and Conclusions" section. Enter the audit steps taken (or why no audit testing was done) and the conclusions reached in the "Examination Procedures and Conclusions" section.

    1. Explain any large, unusual or questionable items appearing on the return which might raise doubt in the mind of a reviewing official as to the adequacy of the examination. If you initially conclude that plan qualification or tax return adjustments are required and information subsequently supplied changes your conclusions, you must provide an explanation in the workpapers.

    2. Where changes are necessary, record the details to substantiate such changes and actions taken. Also, include an explanation where a change would result, but no action is taken.

    3. Workpapers should contain the facts gathered as well as the conclusions reached. In completing the forms, give a brief explanation of the items checked on Form 5772 and the extent of the verification, such as how the sample size was determined, what records were reviewed and what type of tests were performed. Simply stating that an item is "okay" is not sufficient.

  6. Often, the information contained in the Form 5773 is duplicative of the content already present in the supporting examination workpapers. For this reason, the use of Form 5773 is optional, provided that the following conditions set forth are satisfied. Essentially, the examination workpapers should contain the same content as required on the Form 5773, as follows:

    1. Examination workpapers should contain a "Pre-audit Comments" section, per paragraph 2 of this section.

    2. Examination workpapers should document the validity of the applicable Examination Issues listed on the Return Classification Record, as described in paragraph 3 of this section. This documentation should be reflected in a separate workpaper (e.g., workpaper "A-2 - Classification Sheet Review" ).

    3. To the extent that the examination workpapers reflect the indexing scheme established by the Form 5772 and paragraph 4 of this section, a separate index to the workpapers is not required.

    4. Examination workpapers should contain an "Examination Procedures and Conclusion" section as described in paragraph 5 of this section.

    5. A separate workpaper should contain documentation related to the package audit requirements, as set out in paragraph 10 of IRM 4.71.1.14, Package Audit Requirements.

4.71.1.15.5  (03-28-2014)
Accountant's Audit Workpapers

  1. ERISA section 103(a)(3)(A) and 29 CFR 2520.103-1(b) require certain plans to have an independent qualified public accountant issue an opinion on the plan’s financial statements. These financial statements and the opinion should be reviewed during the audit.

  2. In addition to the plan workpapers, the agent, when verifying the IRC 404 deduction, may request the Tax Reconciliation Workpapers prepared for the employer’s income tax return, to verify or substantiate the deductions taken (e.g., whether deductions for plan contributions are taken on the pension line or cost of goods sold, etc.).

    Note:

    The term "Tax Reconciliation Workpapers" means workpapers used in preparing, assembling and compiling financial data for reporting plan deductions on an income tax return. Typically, these workpapers will include a final trial balance for each entity and a schedule of consolidating and adjusting entries. They include information used to trace financial information to the return.

  3. Tax Reconciliation Workpapers, unlike Audit Workpapers, may be requested at the beginning of an examination. These workpapers include information reconciling the Form 5500 information with the plan’s financial statements and analysis, which are used in the preparation of the return. Ordinarily, tax reconciliation workpapers are prepared and provided by the taxpayer. However, if these workpapers are unavailable from the taxpayer, access may be sought from the accountant.

    Note:

    The term "Audit Workpapers" means workpapers retained by the independent accountant documenting the procedures followed, the tests performed, the information obtained and the conclusions reached pertinent to his/her examination. Workpapers may include work programs, analyses, memorandums, letters of confirmation and representation, abstracts of organization/plan documents and schedules or commentaries prepared or obtained by the auditor. These workpapers provide an important support for the independent certified public accountant’s opinion as to the fairness of the presentation of the financial statements, in conformity with generally accepted accounting principles and demonstrate compliance with the generally accepted auditing standards. (See Sections 338.02 and .03 of the Codification of Statements on Auditing Standards, as issued by the American Institute of Certified Public Accountants).

  4. In unusual circumstances, you may obtain access to the Audit Workpapers. However, keep in mind that the taxpayer’s records are the primary source of factual data to support the return. Accountant’s Audit Workpapers should normally be used only when such factual data cannot be obtained from the taxpayer’s records and then only as a collateral source for factual data, access to which should be requested with discretion and not as a matter of standard examining procedure.

    Note:

    After the agent has examined the taxpayer’s records for an item on the return the agent may request the audit workpapers relating to the item if those workpapers are determined to be necessary. Make such a request first to the taxpayer.

  5. The unusual circumstances discussed above exist under the following conditions:

    1. A specific issue has been identified for which there exists a need for additional facts;

    2. The agent has sought from the taxpayer all facts known to the taxpayer relating to the identified issue; and

    3. The agent has sought from the taxpayer’s accountant a supplementary analysis (not necessarily contained in the workpapers) of facts relating to the identified issue.

  6. In any case where the unusual circumstances in (5) exist, furnish a basis for requesting Audit Workpapers, limit the request only to the portion of the workpapers believed to be material and relevant to the examination. Whether an item is considered to be "material" is based on the agent's judgment and an evaluation of the facts and circumstances in the case. However, materiality does not depend entirely on amount. The concept involves qualitative as well as quantitative judgments.
    For Example: The significance of an item or its impact on tax liability could be one of the factors to be considered in making a judgment regarding materiality.

    Note:

    The above provisions do not apply in cases referred to the Criminal Investigation Division.

    Exception:

    With respect to an Employee Plans matter involving a case under VCP or Audit CAP, see IRM 7.2.2, Employee Plans Compliance Resolution System, for special rules. Under this procedure, agents should not request copies of a plan sponsor’s compliance audit report.

  7. Alternatively, it may be more productive to raise potentially significant issues based on the information provided to date and request any additional clarifying information. The agent may want to consider using language such as, "Based on the information provided to date, it appears the following issue(s) may exist..., please provide any additional relevant information that may help to clarify this matter within xx days." If adequate clarifying information is not provided, then consider proceeding with the issue as identified.

  8. Any questions about access to records should be directed to Area Counsel.

4.71.1.16  (03-28-2014)
Use of Fax and Signature Stamps

  1. In 2003, the Tax Administration Council (TAC) approved a new policy for expanded use of faxes and signature stamps when receiving documentation from taxpayers and practitioners.

  2. The following guidelines are applicable for faxes received from plan sponsors and trustees:

    1. Filing of original tax returns via fax will only be allowed as part of a return perfection process (e.g., securing missing schedule or missing signature) initiated by the IRS or in the post-filing/non-filing activities. Tax returns can be received via fax as part of return perfection even if a taxpayer’s signature is required since Chief Counsel has advised that in circumstances where contact with the taxpayer has been made and documented, faxed signatures are legally sufficient.

    2. Submission of documentation, forms, letters and returns related to post-filing/non-filing inquiries and interactions can be allowed via fax based on taxpayer or IRS request unless there is a specific prohibition. This allowance is related to post-submission inquiries and interactions conducted by Employee Plans in connection with an application for a determination or a request for a ruling. Documentation, forms, letters and returns can be received via fax in these circumstances even if a taxpayer signature is required since Chief Counsel has advised that in circumstances where contact with the taxpayer has been made and documented, faxed signatures are legally sufficient.

  3. For EP purposes the following specific documents/forms/letters will continue to be accepted by fax in routine operations:

    1. Form 2848

    2. Form 8821

    3. Appeals Conference Requests

    4. Responses/documentation needed to resolve filing or post-filing questions or correspondence

  4. The following specific documents/forms/letters can be accepted by fax if contact has been made with the taxpayer by phone or in-person and the case chronology record is documented with the date of contact and notation is made that the taxpayer wishes to send the document/form/letter by fax:

    1. Installment Agreements

    2. Offers in Compromise

    3. Letter to request non-assertion of penalty

    4. Early Referral Requests

    5. Letter to provide reasonable cause

    6. Letter to designate a payment

  5. Consents to assess additional tax (Form 4549, Form 870 and others) of $250,000 or less can be accepted by fax if taxpayer contact has been made and the case chronology record documents the date of contact and the desire of the taxpayer to submit the consent by fax. Consents to assess tax in excess of $250,000 should be secured with original signatures that are delivered in person or by mail.

  6. Taxpayer closing agreements involving tax amounts of $250,000 or less can be accepted by fax if taxpayer contact has been made and the case chronology record documents the date of contact and the desire of the taxpayer to submit the consent by fax. Closing agreements for tax amounts in excess of $250,000 should be secured with original signatures that are delivered in person or by mail.

  7. Employee Plan determination letter applications will not be accepted via fax.

  8. Consents to extend the statute of limitations for assessing tax (Form 872, Form SS-10 and other consent forms) will not be accepted via fax in normal operations.

  9. Return Preparers may sign original returns, amended returns or requests for filing extensions using a signature stamp to facilitate signing large numbers of returns. Taxpayers, however, must continue to sign their returns with an original signature or other authorized alternative (e.g., PIN).

  10. Preparer/taxpayer signature stamps will not be permitted when signing other documents such as elections, applications for change in accounting method, powers-of-attorney, consent forms, revenue agent reports and other case inquiry/resolution related documents requiring signature.

4.71.1.17  (03-28-2014)
Burden of Proof

  1. IRC 7491 provides that the burden of proof in a court proceeding will shift from the taxpayer to the IRS in the following areas:

    1. Income, estate, gift and generation skipping taxes, if the taxpayer meets certain requirements described below.

    2. Cases where any item of income is based solely on statistical information from unrelated taxpayers.

    3. Shift burden of production only with respect to penalties.

  2. The provisions are effective for court cases arising out of examinations started after July 22, 1998. The term "examination" includes:

    1. An audit,

    2. The matching of amounts from information returns and

    3. The review of a claim for refund prior to the issuance of the refund.

  3. Congress reasoned that individual and business taxpayers were at a disadvantage in court against the IRS and that there was fundamental unfairness in the process. With the burden of proof on the taxpayer, there was a presumption of guilt, until proven innocent. Congress believed that if a taxpayer is generally law abiding, then the IRS should prove that the position taken by the taxpayer is wrong.

  4. IRC 7491 applies specifically to:

    1. Income (for this purpose, self-employment taxes are treated as income taxes),

    2. Estate,

    3. Gift and

    4. Generation-skipping transfer taxes.

4.71.1.17.1  (03-28-2014)
General Burden of Proof

  1. IRC 7491(a)(1) shifts the burden of proof in a court proceeding from the taxpayer to the IRS if the taxpayer produces credible evidence regarding the factual issues relevant to determining tax liability and also satisfies the criteria in paragraph (2).

  2. For the shift to apply, the taxpayer has the burden of proving that it:

    1. Met all substantiation requirements of the Code and regulations.

    2. Maintained all records required by the Code and regulations.

    3. Cooperated with any reasonable request for information, documents and witnesses by the IRS.

    4. Exhausted all its administrative remedies, including appeal rights and

    5. Met certain net worth qualifications but only if the taxpayer is a partnership, corporation or trust. Special rules apply to Qualified Revocable Trusts (see IRC 7491(a)). There is no net worth qualification for individuals.

4.71.1.17.2  (03-28-2014)
Relationship with IRC Section 6201(d)

  1. IRC 6201(d) became effective in 1996 and applies without regard to IRC 7491. If the taxpayer meets the conditions of IRC 6201(d), the IRS has the burden of producing information to support income items reported on the information return.

  2. IRC 6201(d) requires that the IRS produce reasonable and probative information in any court proceeding regarding a deficiency based on an information return if the taxpayer:

    1. Raises a reasonable dispute and

    2. Has fully cooperated with the IRS.

  3. Full cooperation includes timely compliance with requests for information including access to witnesses and documents within the control of the taxpayer. If the taxpayer does not raise a "reasonable dispute" , the IRS will not be required to produce any information beyond the information return.

  4. The agent should take the following actions when a taxpayer disputes receipt of income reported on an information return or disputes the accuracy of the information return:

    1. Contact the third party payer and request in writing verification of the accuracy of the information document;

    2. Document the case chronology record (Form 5464) to show the date the verification letter was sent to the third party;

    3. Retain a copy of the letter and taxpayer’s response in the case file; and

    4. If the third party payer does not respond to the verification letter or responds that the records no longer exist, the issuance of a summons should be considered to obtain the information.

4.71.1.17.3  (03-28-2014)
Case File Documentation

  1. Agents should be cognizant of the shifting of the burden of proof to the IRS pursuant to IRC 7491. However, even before these burden of proof provisions were enacted, a well developed case was expected to contain:

    1. Technical positions that were well thought out.

    2. A fully developed description of the facts.

    3. Audit conclusions that were well supported.

    4. A case file that was well documented.

  2. If the examination ultimately reaches litigation and it becomes necessary to determine whether the agent's requests for information were made and were reasonable, the determination will depend upon the facts and circumstances as documented in the case file.

  3. Agents will provide clear and complete documentation on the case chronology. Documentation will include:

    1. When information was requested from the taxpayer.

    2. When information was received from the taxpayer.

    3. Whether the taxpayer responded fully and reasonably.

    4. Reasons given for delays in the taxpayers responses.

    5. Reasons why taxpayers could not or would not provide the information.

    6. The precise documents or other information provided by the taxpayer.

  4. Since the administrative record in declaratory judgment cases (which includes proposed revocation/non-qualification) consists only of the documentation that was submitted in writing and exchanged between the parties, all discussions and conferences must be formally recorded. If the agent wants pertinent portions of the Case Chronology Record (Form 5464) or similar documentation included in the administrative record, it must be sent to the taxpayer/POA in letter format. The pertinent portions should include, but are not limited to, any discussions with the taxpayer or representative that are relevant to the audit scope, affirmation of tax liability or the qualified status of the plan.

4.71.1.17.4  (03-28-2014)
Workpapers and Reports in Burden of Proof Cases

  1. agents should utilize workpapers and reports to support adjustments and document the extent of taxpayer cooperation. This includes making complete copies of documents submitted by the taxpayer in appropriate cases.

  2. These documents should be used to:

    1. Explore and document all requirements of the law with respect to the qualification of the plan and tax-exempt status of the trust.

    2. Fully describe in the workpapers all documents reviewed or inspected that support conclusions and proposed adjustments.

    3. Fully describe the steps taken by the agent and the analysis that supports the conclusions reached.

4.71.1.17.5  (03-28-2014)
Use of Statistical Information

  1. IRC 7491(b) places the burden of proof on the IRS in any court proceeding when the IRS reconstructs any item of the taxpayer's income using solely statistical information on unrelated taxpayers. This is true whether the taxpayer does or does not cooperate and provides evidence or otherwise meets the requirements of IRC 7491(a).

4.71.1.17.6  (03-28-2014)
Assessment of Penalties and Definitions

  1. IRC 7491(c) states that the IRS now has the burden of production in a court proceeding when the issue is a(n):

    1. "Penalty"

    2. "Addition to Tax" or

    3. "Additional Amount" imposed by the Code.

    Note:

    IRC 7491(c) applies only to individuals.

  2. In any court proceeding, the IRS must first present evidence that imposition of the amount is appropriate. Only then must the taxpayer assume the burden of persuasion to raise appropriate defenses, such as reasonable cause, to the imposition of the penalty.

  3. "Penalties" include all penalties assessed under the Code.

    Example:

    IRC 6662 imposes the accuracy-related penalty.

  4. "Addition to Tax" is any amount computed by reference to the amount of tax.

    Example:

    An addition to tax is imposed by IRC 6654 for failure by an individual to pay estimated income tax.

  5. "Additional Amount" refers to an amount that can be assessed by the IRS that is not an addition to tax or penalty.

    Example:

    The amount imposed under IRC 6673 for the sanctions and costs awarded by a court when a taxpayer's position is frivolous.

    Note:

    The definition of additional amounts under IRC 7491(c) does not include excise taxes imposed by IRC Chapters 42 and 43 nor does it include interest under IRC 6601.

4.71.1.17.7  (03-28-2014)
Explanation & Example

  1. The IRS must first present evidence that a penalty, addition to tax or additional amount is appropriately applied to the taxpayer. It is then the taxpayer’s responsibility to present evidence of reasonable cause, substantial authority or other similar defense in showing that the amount should not be asserted. See IRM 4.71.18, EP Penalties.

    Example:

    If a delinquency penalty is asserted under IRC 6651, the IRS would meet its burden of production by showing that the filing date was after the due date for the tax return and that there was no evidence the taxpayer filed for an extension.

  2. Agents should treat a penalty issue as any other issue by including the following information in the case file:

    1. The facts surrounding the issue

    2. Applicable law

    3. Application of the facts to the law

    4. Audit conclusion and

    5. Taxpayer’s position.

4.71.1.18  (03-28-2014)
Failure to Maintain Proper Records

  1. Every taxpayer, whether an employee plan, exempt organization, individual, corporation or otherwise, is required by law and regulations to maintain accounting records sufficiently detailed to enable the preparation of a proper return. This requires the maintenance of such permanent books of account and records, sufficient to establish the amounts of income, deductions, credit or other matters to be shown on the taxpayer’s return.

  2. Taxpayers who maintain records in a machine sensible form can request a "record limitation retention agreement" . This agreement would identify the machine sensible records to be retained or eliminated in accordance with provisions of Rev. Proc. 98–25, 1998–11 IRB 7.

  3. In any case where alternative methods are used to reconstruct the financial activities, workpapers must indicate that inadequate records notice provisions were considered.

  4. If the taxpayer has failed to comply substantially with the law and regulations for maintaining adequate books and records or with record retention limitation agreements, discuss the inadequacies with your group manager to determine whether an inadequate records notice should be recommended. See IRM 4.10.8.16, Inadequate Records Notice, for procedural guidance.

    Note:

    If the determination involves a record retention limitation agreement, the computer audit specialist manager must be contacted. See IRM 4.47.2.3.1.1.1, Record Retention & Evaluation Guidelines, for procedural guidance.

  5. The determination of whether any particular taxpayer has maintained adequate records or has complied with a record retention limitation agreement is a matter of judgment based on the facts and circumstances of the particular case. Factors to be considered in reaching each decision include, but are not limited to:

    1. Prior history and present degree of noncompliance.

    2. Indications of willful intent.

    3. Evidence of refusal to keep records.

    4. Other evidence of harm to the government.

    5. Probability that poor record keeping will result in significant changes to the return.

    6. Likelihood that compliance can be enforced if the taxpayer fails or refuses to correct the inadequacies.

    7. Anticipated revenue in relation to the time and effort required to obtain compliance.

  6. If a decision is made that follow-up actions are necessary, the agent (or Criminal Investigator, in joint investigations) will inform the taxpayer that the books and records are deemed insufficient for the preparation of a proper return or that the taxpayer has not complied with a record retention limitation agreement. Avoid criticizing the taxpayer's records or the work of employees, accountants or attorneys.

  7. When it is determined that an examination should be conducted of a return that is not yet due, the agent should prepare Form 5666, TE/GE Referral Information Report and send it to EP Classification in accordance with IRM 4.71.6.5, Making Referrals Within EP.

4.71.1.18.1  (03-28-2014)
Summons Procedures

  1. The authorized purposes for a summons (IRC 7602) are to:

    1. Examine a return.

    2. Prepare a return for a non-filer.

    3. Determine the tax liability of any person or any transferee or fiduciary.

    4. Inquire into any matter related to the administration or enforcement of the internal revenue laws.

  2. For general summons information, procedures and examples, refer to IRM 25.5, Summons.

4.71.1.19  (03-28-2014)
Suspense Procedures

  1. Sometimes it is necessary to suspend cases involving certain issues.

    1. Cases will be placed in suspense per managerial direction.

    2. Suspended cases will be maintained at the group level.

    3. The front line agent and manager will continue to monitor all inventory controls to protect the government's interest and interface with the taxpayer as needed to communicate case status and secure statute extensions.

    4. RCCMS and AIMS should be updated to the applicable status code to reflect that the case has been suspensed.

  2. Cases involving issues, which have been identified as suspense cases, must be placed in suspense. This includes cases in which the issue is the same or similar to an issue(s) in a case awaiting final action by EP Rulings & Agreements or the Office of Chief Counsel .

  3. The agent should complete the examination with regard to all other issues for cases placed in suspense.

  4. Form 1254, Examination Suspense Report, may be used at the discretion of the group manager or Area Manager to locally track cases that have been placed in suspense.

    Note:

    Use of Form 1254 is optional.

  5. Use Letter 1014-A, Taxpayer Notification of Examination Delay, to maintain an appropriate level of contact with the taxpayer regarding case status.

  6. When a final decision is made on any issue in suspense, the impacted Area(s) will be advised with appropriate guidance regarding the issue(s) and case processing.

4.71.1.20  (03-28-2014)
Correcting Form 5500 Returns on the Master File

  1. Occasionally, it is discovered during the course of an examination that the Master File information for a Form 5500 return is incorrect.

  2. Prior to closing a Form 5500 examination, the agent will verify that the return information on the Master File is correct.

  3. The agent will initiate correction of any information that is incorrect in accordance with the instructions provided below.

4.71.1.20.1  (03-28-2014)
Correcting the EIN, Plan Number or Tax Period

  1. If the Form 5500 was processed using an incorrect EIN, plan number or tax period, first delete the AIMS account that was established using incorrect information.

    1. To delete the incorrect AIMS account, prepare Form 10904, Request for Record Deletion from AIMS, in accordance with the following table.

      Name of Taxpayer: Input the plan name.
      Name Control: Input the four digit name control.
      Taxpayer Identification Number: Input the EIN for the record being deleted.
      Plan Num.: Input the plan number for the record being deleted.
      Tax Period: Input the plan year for the record being deleted.
      Disposal Code: Select disposal code "33" .
      Other: Select "Error Account" ; Select "AIMS" .
      Reason for Request: Input a brief explanation of the requested correction.

    2. Secure group manager and Area Manager approval on an electronic Form 10904. Attach the approved form in the Office Documents Folder within RCCMS.

    3. Close the Form 5500 examination on RCCMS (disposal code 901) and AIMS (disposal code 33) to Examinations Special Support and Processing (ESSP), requesting status "51" . The error account will be deleted on AIMS and closed as an error on RCCMS by the EP AIMS Coordinator.

    4. If a paper file, send it and the approved Form 10904 to the EP AIMS Coordinator for processing at:

      IRS
      EP AIMS Coordinator
      Examinations Special Support and Processing
      31 Hopkins Plaza - Room 1542
      Baltimore, MD 21201

    Note:

    The purpose of Form 10904 is to delete the incorrect record from AIMS. The incorrect record must be deleted before Form 4442, Inquiry Referral, can be input to establish the return with the correct information.

  2. Prepare Form 4442 to correct the incorrect EIN, plan number or plan year in the entity record.

    1. Prepare Form 4442 in accordance with the table below. The corrected information should be entered on Form 4442.

      Item 1 - Recipient's Name: Input your name.
      Item 2 - ID Number: Input TE/GE:EP and your group number.
      Item 4 - Location: Input your POD city.
      Item 5 - Referring To: Input "Lead Tax agent" .
      Item 6 - Date: Input the date.
      Item 8 - Taxpayer's Name: Input the name of the plan.
      Item 9 - TIN: Input the correct Form 5500 EIN number.
      Item 15 - Form(s): Input "5500" .
      Item 16 - Tax Period: Input the correct plan year.
      Item 17 - Processing Campus: Input "Ogden" .
      Item 21 - Caller: Input your name.
      Section B: Input a description of the correction that is needed to be made.

    2. Fax Form 4442 to the EP Entity Team in the Ogden Service Campus at 801-620-6900.

    3. The Lead Tax agent will process the Form 4442 within five workdays, but it may take up to 30 days for the correction(s) to post in the entity module.

    4. Secure an EMFOLT print for the applicable return to verify that the change(s) have been made. Look for TC 150 and TC 446.

  3. When the corrections have been made to the entity module, use the Related and Subsequent Year Form 5500 Requests document to request establishment of the corrected Form 5500 from EP Classification on RCCMS and AIMS. See IRM 4.71.1 Exhibit 1 at IRM 4.71 - Employee Plans Examination Exhibits.

  4. Secure an AMDISA print for the case file to verify that the corrected Form 5500 is established on AIMS.

4.71.1.20.2  (03-28-2014)
Correcting the Plan Name or Address

  1. Form 2363, Master File Entity Change, should be completed to correct the plan name or address.

  2. Fax the completed Form 2363 to the Brooklyn Processing Unit at (718) 834-6521.

4.71.1.21  (03-28-2014)
Amended, Substitute and Secured Forms 5500

  1. The following procedures should be followed by an agent to have a related, amended, substitute or secured Form 5500 series return posted to the EPMF:

    1. The agent should conduct the appropriate research on IDRS to determine if the Form 5500 series return has posted on the EPMF.

      Note:

      If the Form 5500 series return has posted on the EPMF, the agent should follow the procedures in IRM 4.71.1.14.1(12)

      .

    2. When the agent determines that a Form 5500 return should have been filed but was not filed or that a filed return should be amended, the delinquent or amended Form 5500 should be filed by the taxpayer through the EFAST2 System. This can be accomplished by the taxpayer using EFAST2 approved third party software or IFILE on the Department of Labor (DOL) web site www.efast.dol.gov.

      Note:

      Until October 15, 2010, a taxpayer had the option to file a timely original or amended 2008 plan year filing (plan years ending 12/31/2008 through 11/30/2009) under the EFAST system, EFAST/DOL vendor in Lawrence, KS.

    3. The agent must ensure that the taxpayer filed the required Form 5500 series return by researching the EFAST2 data base on the DOL web site www.efast.dol.gov to verify that a return was correctly filed by the taxpayer (returns should be on the system within a few days of filing) unless the return was filed under the EFAST system in Lawrence, KS.

    4. All amended and secured Form 5500-EZ returns picked up during an examination should be forwarded to the following address for posting to the EPMF:
      IRS –TE/GE EP Classification
      9350 Flair Drive, 4th Floor
      El Monte, CA 91731

      Note:

      Form 5500-EZ returns are no longer processed by DOL.

    5. IRC 6652(e) penalties will automatically be assessed on late filed returns. If there is reasonable cause not to assess penalties, Form 3177 should be completed and submitted to EP Classification in El Monte at the address listed in paragraph "d" . See IRM 4.71.1 Exhibit 3 at IRM 4.71 - Employee Plans Examination Exhibits for assistance in completing Form 3177.

      Note:

      Form 3177 should be E-mailed to EP Classification (tege.ep.classification@irs.gov.) two weeks prior to the time the delinquent Form 5500 series return is filed to give sufficient time for processing so that penalties will not be assessed when the Form 5500 series return is filed. EP Classification will notify you once the Form 3177 has been processed and the TC 971 (with action code 632) has posted so that the Form 5500 series return can be submitted for processing and the penalties will not be assessed.

      Note:

      If penalties are improperly assessed, see IRM 4.71.1.21.1, Abatement of Late Filing Penalties.

    6. Schedule SSA, Separated Vested Participant Information, is no longer part of the Form 5500 series return. Participant information is now reported to Social Security on Form 8955-SSA, Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits. If during the examination, a Schedule SSA (plan years ending prior to 12/31/2009) or Form 8955-SSA is secured, forward it along with a Form 3210 to:
      Social Security Administration
      Wilkes-Barre Data Operations Center
      Attn: ERISA
      1150 East Mountain Dr.
      Room 264
      Wilkes-Barre, PA 18707-7797

  2. If a hard copy delinquent Form 5500 series return is secured, the return should be processed as follows:

    1. Make sure the plan sponsor's name, address and EIN are properly completed.

    2. Make sure the plan name, plan number and plan year are properly listed.

    3. Make sure all required schedules are attached.

    4. Make sure the return is signed and dated by the taxpayer.

    5. Make sure the return is properly stamped with the date received.

    6. Write in red on the top margin of the original return, "Delinquent return secured by TE/GE Employee Plans" .

    7. Write in red on the bottom margin of the secured return "TC 599 CC97" .

    8. The agent will prepare Form 3198-A, TE/GE Special Handling Notice, indicating the return is to be processed by EP Classification.

    9. Mail the return with Form 3210 to EP Classification at the following address:
      IRS –TE/GE EP Classification
      9350 Flair Drive, 4th Floor
      El Monte, CA 91731

  3. If a hard copy amended Form 5500 series return is secured, the return should be processed as follows:

    1. Research EMFOLI to verify an original return was filed and shows a TC150 posting.

    2. Verify the "amended return/report" box is checked in Part I of the return.

    3. Make sure the return is signed, dated and properly completed.

    4. Write in red across the top margin, "Amended Return Secured by TE/GE Employee Plans"

    5. Make sure the return is properly stamped with the date received.

    6. The agent will prepare Form 3198-A. Notate in the "Other Instructions" section: "Amended return for processing by EP Classification" .

    7. Mail the amended return with Form 3210 to EP Classification at the following address:
      IRS –TE/GE EP Classification
      9350 Flair Drive, 4th Floor
      El Monte, CA 91731

  4. If a taxpayer refuses to file a Form 5500 series return, then a substitute for return must be prepared by the agent by completing the information below on the Form 5500, Form 5500-SF or Form 5500-EZ (hard copies of the 5500 forms can be printed from the DOL web site www.efast.dol.gov) and mailed to EP Classification for posting to the EPMF. The agent should take the following steps:

    1. Complete the following information on a hard copy Form 5500 series return: Plan Sponsor Name, Sponsor Address, Sponsor EIN, Plan Year Ending, Plan Number and Plan Name.

    2. The agent will prepare Form 3198-A indicating the return is to be processed by EP Classification.

    3. Only the Form 5500, Form 5500-SF or Form 5500-EZ should be attached to the Form 3198-A and forwarded to EP Classification. All other case file information (IDRS research, audit work papers, etc.) should remain with the agent.

    4. The agent must write in red ink across the top of the Form 5500 series return: "Substitute for Return Prepared by IRS Revenue Agent" .

    5. The substitute for return will be forwarded to the following address for posting to the EPMF:
      IRS –TE/GE EP Classification
      9350 Flair Drive, 4th Floor
      El Monte, CA 91731

  5. The following procedures should be followed when an agent decides to examine the related, amended, substitute or secured Form 5500 series return:

    1. The agent should research IDRS to verify that the Form 5500 series return has posted on the EPMF.

    2. The agent will prepare the Related and Subsequent Year Form 5500 Request form and forward it to their manager for approval. See IRM 4.71.1 Exhibit 1 at IRM 4.71 - Employee Plans Examination Exhibits.

    3. It is important that all the information is correctly completed (e.g. special project code, condition code, group number, etc.) on the form or it will be returned to the group. The agent should note in his/her request that the return has posted to the EPMF and the date the return was filed by the taxpayer or sent to EP Classification.

    4. The group manager or designee will E-mail the approved form to EP Classification's group mailbox: tege.ep.classification@irs.gov.

    5. EP Classification will acknowledge receipt of the request for the return (normally within 5 business days).

    6. EP Classification will mark the return on RICS, establish the return on AIMS and RCCMS and update these systems to the group when the return posts to the EPMF.

      Note:

      Since the return is established by EP Classification, the group should not attempt to establish the return on AIMS or RCCMS.

    7. EP Classification will inform the agent and group manager (normally within 10 business days) that the record has been assigned to the group on AIMS and RCCMS.

      Note:

      AIMS will be in status 10 when there is a full AIMS account.

    8. The agent will update the status of the case to status 12 through RCCMS.

    9. The agent must inform the taxpayer in writing that the return is under examination.

4.71.1.21.1  (03-28-2014)
Abatement of Late Filing Penalties

  1. If the agent discovers that late filing penalties were incorrectly assessed on Forms 5500 and need to be abated, he or she should:

    1. Secure an EMFOLT print for the applicable return,

    2. E-mail the EMFOLT print to the EP Classification mailbox at tege.ep.classification@irs.gov with an explanation of the problem.

  2. EP Classification will review the EMFOLT print and determine if penalties should be abated.

  3. If is determined that penalties should be abated, EP Classification will complete Form 3870, Request for Adjustment and E-mail it to the designated person in the Ogden Service Center to abate the penalties.

    Note:

    The agent should not contact the Service Center directly, but should instead go through EP Classification.

  4. The agent should inform the taxpayer that they will have the penalties removed from their account.

4.71.1.22  (03-28-2014)
Report Writing and Closing Procedures

  1. Instructions are provided herein for preparing the various types of examination reports involving agreed Forms 5500.

  2. An agreed Form 5500 examination is one for which:

    1. There is either no qualification issue raised by the agent or

    2. A qualification issue is raised but is resolved under the Employee Plans Compliance Resolution System (EPCRS) or through a Delegation Order 8-3 (DO 8-3) closing agreement. See IRM 7.2.2, EPCRS, for procedural guidance

  3. Instructions for processing an unagreed Form 5500 examination are found in IRM 4.71.3, Unagreed Form 5500 Examination Procedures. An unagreed Form 5500 examination is one that involves a qualification issue that cannot be resolved through EPCRS or a DO 8-3 closing agreement.

4.71.1.22.1  (03-28-2014)
Closing Procedures for Agreed Form 5500 Examinations

  1. Prior to closing any Form 5500 examination, the agent must conduct a closing conference with the taxpayer or taxpayer's representative (POA) either in person or by telephone. The agent will:

    1. Inform the taxpayer and/or POA that the audit has been completed.

    2. Inform the taxpayer and/or POA that a closing letter will be issued.

    3. Inform the taxpayer and/or POA of the years and returns covered by the letter.

    4. Discuss the issues found during the exam with the taxpayer and/or POA.

    5. Discuss the actions taken to resolve those issues and prevent future occurrences with the taxpayer and/or POA.

    6. Document the case chronology record (CCR) that the closing conference occurred and the content of the conversation.

  2. Prepare Form 5772 and Form 5773 (or its equivalent) to document audit procedures and findings and save them in the RCCMS Office Documents folder.

  3. Generate a closing letter addressed to the taxpayer and POA (if applicable) covering all Form 5500 years examined.

  4. Use a 992 series letter when the examination is closed no change (disposal code 02) and there are no advisory comments that need to be provided to the taxpayer regarding examination results. The current 992 series letters are as follows:

    1. Letter 992-A, No Change Form 5500 Closing Letter

    2. Letter 992-B, SARSEP and SIMPLE Plan No Change Closing Letter

    3. Letter 992-C, Church Plan No Change Closing Letter

    4. Letter 992-D, 403(b)/457 No Change Closing Letter

    5. Letter 992-E, IRC 412(i) Non-Return Unit No Change Closing Letter

    6. Letter 992-F, Governmental Plan No Change Closing Letter

  5. Use Letter 1204, No Change Form 5500 Exam Letter-Amendment, when the examination resulted in securing an executed amendment.

  6. Use Letter 1744 series letters for all other agreed closings. All issues that were addressed during the examination should be detailed on the second page of the letter. The current 1744 series letters are as follows:

    1. Letter 1744, No Change Form 5500 Closing with Adjustment Letter

    2. Letter 1744-A, SARSEP and SIMPLE Plan No Change with Comments Closing Letter

    3. Letter 1744-B, 403(b)/457 No Change with Adjustment Closing Letter

    4. Letter 1744-C, IRC 457(b) No Change with Correction Closing Letter

    5. Letter 1744-D, Church Plan No Change with Adjustment Closing Letter

    6. Letter 1744-E, Form 5500 Examination Closing Agreement Closing Letter

    7. Letter 1744-F, Form 5500 Examination Closing Agreement Closing Letter With Comments

    8. Letter 1744-G, SEP or SIMPLE Examination Closing Agreement Closing Letter

    9. Letter 1744-H, SEP & SIMPLE Examination Closing Agreement Closing Letter With Comments

    10. Letter 1744-I, IRC 412(i) Non-Return Unit No Change with Comments Closing Letter

    11. Letter 1744-J, Governmental Plan No Change With Adjustment Closing Letter

  7. Use 1745 series letters to close exams resolved through a DO 8-3 closing agreement where the plan is determined to be disqualified from inception.

    1. Letter 1745, DO 8-3 - Plan Disqualified from Inception - No SBSE Involvement.

    2. Letter 1745-A, DO 8-3 - Plan Disqualified from Inception - SBSE Involvement.

  8. The closing letter will be mailed out by the group after the group manager approves the case for closing and saved in the Office Documents folder within the RCCMS activity.

  9. Always prepare Form 6212-B, Examination Referral Checksheet B, on all examined cases.

    1. If a referral to DOL is warranted, send the original Form 6212-B to EP Classification in El Monte, California in accordance with IRM 4.71.6.8, EP Referrals - Making Referrals to DOL and save the referral in the Office Documents folder within the RCCMS activity.

    2. If a referral is not warranted, save the referral in the Office Documents folder within the RCCMS activity.

  10. Prepare Form 6533 for all EP examinations of plans that are subject to PBGC.

    1. If a referral to PBGC is warranted, send the original Form 6533 to PBGC (with a courtesy copy to EP Classification) in accordance with IRM 4.71.6.9, EP Referrals - Making Referrals to PBGC and save the referral in the Office Documents folder within the RCCMS activity.

    2. If a referral is not warranted, keep the original in the Office Documents folder within the RCCMS activity.

  11. Make sure other types of referrals are prepared as needed.

    1. Prepare Form 5666 if there are income tax issues that need to be referred to an Exam Functional Unit (e.g., SBSE). See IRM 4.71.6.7, Making Referrals to Exam Functional Units.

    2. EP has created an Emerging Issue Compliance Planning Group (CPG) to evaluate leads involving potential emerging issues where a qualified plan is involved. These issues may involve abusive transactions or other non-compliance. See IRM 4.71.6.5.1, Emerging Issue Referrals.

    3. When agents or managers become aware of a practitioner who may be promoting an abusive transaction, they should make a referral on the LDC Referral Form to the Lead Development Center (LDC). See IRM 4.71.6.6, Promoter Referrals.

  12. If required, prepare Form 5650, EP Examined Closing Record, in accordance with IRM 4.71.1.22.2, Completion of Form 5650, for Form 5500 exams and IRM 4.71.17.7, Closing an NRU Case, for Non-Return Unit (NRU) exams.

  13. In many instances all examination records will be saved only in the RCCMS Office Documents folder and there will be no paper case file; however, if applicable, the following paper documents must be inside a manila folder with Form 10329, Transmittal Sheet-Related Cases, stapled on the outside of the folder:

    1. Form 5650, if there are any hard copies of documents in the folder

      Note:

      If the exam is completely paperless, then a paper copy of Form 5650 is not necessary.

      Note:

      If there are paper files, the EP Closing Unit is required to mail those files to the Federal Records Center which requires that a Form 5650 be present to identify the information.

    2. Form 872-H, Consent to Extend the Time to Assess Tax on a Trust, (if applicable)

    3. Form 895-EP, Notice of Statute Expiration, (if applicable)

    4. An original copy of Form 906, Closing Agreement on Final Determination Covering Specific Matters, if the exam was resolved through a closing agreement

    5. Form 2848 or Form 8821 ((if secured and not scanned and saved in the RCCMS Office Documents folder)

    6. Form 5500 series return, if a copy of the Form 5500 is not saved in the RCCMS record

    7. Any other document deemed relevant by the group manager that is not saved in the RCCMS Office Documents Folder.

  14. If there are multiple years and the related years have any of the documents listed in paragraph 11, each related year must be in a separate folder with a completed Form 10329 stapled on front.

  15. When the case is ready to close, all required fields should be completed in RCCMS.

    1. The information in RCCMS must accurately reflect the examination results.

    2. Make sure the agent's time in RCCMS agrees with the time listed on Forms 5650 (if required) and 5772.

    3. Make sure the information recorded in RCCMS accurately reflects what is reported on Form 5650 (if required).

  16. Copies of all workpapers, forms and letters generated by the agent must be saved in the RCCMS Office Documents folder using the RCCMS Naming Convention.

  17. The agent should request closure on RCCMS, making sure the Update AIMS box is:

    1. Checked if the return is on AIMS and

    2. Unchecked if the return is not on AIMS .

    Note:

    Once approved, this will move the case on RCCMS from the agent's inventory to the unassigned inventory of the group for managerial review and group closure.

  18. If the employer, plan sponsor or plan administrator desires a determination letter on amendments secured during an examination, establish an application through the Cincinnati Centralized EP Determination Site and a determination letter will be issued simultaneously with the examination report/letter.

  19. Groups located in Great Lakes, Gulf Coast and Pacific Coast Areas close all agreed Forms 5500 on RCCMS and AIMS to:

    IRS
    TE/GE EP Special Support Processing
    31 Hopkins Plaza
    Room 1550
    Baltimore, MD 21201

  20. Groups located in Northeast and Mid-Atlantic Areas close all agreed Forms 5500 on RCCMS and AIMS to:

    IRS
    TE/GE EP ESS Group 7697
    2 Metrotech Center
    100 Myrtle Avenue, 6th Floor
    Brooklyn, NY 11201

4.71.1.22.2  (03-28-2014)
Completion of Form 5650

  1. Form 5650 is not required to be completed if the case is agreed and 180 days or more remain on the statute of limitations.

  2. Form 5650 is required to be completed if

    1. The case is unagreed or

    2. Less than 180 days remain on the statute of limitations.

  3. The Form 5650, EP Examined Closing Record, is available within the RCCMS templates. The following line items on Form 5650 should be completed as noted:

    1. P7-18: Enter the taxpayer’s EIN followed by a "P" .

    2. P21-22: Enter the MFT code.

    3. P24-29: Enter the tax period.

    4. P31-34: Enter the name control.

    5. P58-60: Enter the plan number.

    6. C: Enter the name of the taxpayer.

    7. Item 13: Enter the applicable disposal code. See IRM 4.71.1.22.3, Disposal Codes .

    8. Item 14: Enter the current statute expiration date (without alpha codes) whether or not the statute has been extended with Form 872.

      Note:

      Do not use alpha codes in the blocks for item 14. If the statute has been updated to an alpha code (e.g., 12/PP/2010), write the alpha code statute to the right of the blocks; enter the actual numerical statute in the blocks (e.g., 12/31/2010).

    9. Item 28: Enter the agent’s time on the case.

    10. Item 30: Enter the Examination Technique Code. Enter 2 for an OCEP and 4 for a field examination.

    11. Item 31: Enter the agent’s grade.

    12. Item 32: Enter the grade of the case.

    13. Item 33: Enter the agent’s last name, leave a space and then first initial.

    14. Item 40: Enter the current fiscal year project code. If there is none, enter 0000.

    15. Item 42: If the disposal code is 03, 06 or 15, enter the appropriate ARDI code.

    16. Item 50: Enter the agent’s group number.

    17. Item 600: Enter 512 (Revenue Agent) or 987 (Tax Law Specialist).

    18. Item 602: Enter excise tax picked up during the exam that is not reflected on Form 5599 of a related Form 5330 exam. Also insert the sanction amount of any closing agreement entered into (if a closing agreement involves more than one year, enter the amount in the earliest year only and $1 in the other years).

    19. Item 603: Enter any penalties picked up during the exam that is not reflected on Form 5599 of a related Form 5330 exam.

    20. Item 604: Enter totals from line 603.

    21. Item 605: An entry is required when disposal code 13 is used. Enter the amount of proposed adjustments referred to an Examination Functional Unit (e.g., SB/SE).

    22. Item 606: Enter deductions claimed for contributions to the plan. Must be at least $1.

    23. Item 607: Enter total trust assets as of the end of the plan year. Must be at least $1.

    24. Item 608: Enter the number of participants that were directly affected by the exam (e.g., a change in account balance or vesting percentage). Must enter 0 if none are directly affected (cannot be left blank).

      Note:

      A participant is not considered directly affected merely because the plan could have been disqualified.

    25. Item 609: Enter plan type (1) for a defined benefit plan or (2) for a defined contribution plan.

    26. Item 610: Enter the applicable Issue Code(s) that relate to the Disposal Code. Only one Issue Code for Disposal Code 02 (issue code 37Z) should be entered. Issue Codes should relate to the issues found during the examination. If a Disposal Code other than 02 is used then up to four Issue Codes can be entered. Any remaining spaces should be filled in with zeros. See Document 6476 for a list of Issue Codes.

    27. Item 612: Enter the applicable NAICS Code (see Document 6476).

4.71.1.22.3  (03-28-2014)
Disposal Codes

  1. The disposal code indicates the examination's outcome. Refer to Document 6476 for a list of disposal codes and for the disposal code reporting priority.

  2. Carefully select the correct disposal code to ensure that—

    1. The accomplishments of the examination program are accurately reported for monitoring and reporting purposes and

    2. Returns with examination potential are identified for examination.

  3. If more than one disposal code may apply, use the priority order specified in Document 6476 under the heading "Disposal Code Priority" .

    Note:

    The priority order has been developed with field input and gives priority to examination actions that foster voluntary compliance with the qualification requirements reflecting our regulatory responsibilities to plan beneficiaries.

4.71.1.22.3.1  (03-28-2014)
Examples of Disposal Codes

  1. Following are examples which illustrate the appropriate disposal code to use under certain circumstances:

    1. Example One : This example illustrates the priority order. Assume an examination of Form 5500 results in both an agreed revocation and in securing a delinquent Form 5330. Because a revocation is priority number 1 and securing a related delinquent return is priority number 7, the appropriate disposal code is 09 (Revocation - disposal code 211 on RCCMS) and not 05 (Delinquent Related Return Secured - disposal code 207 on RCCMS) for the Form 5500 examination.

    2. Example Two : Disposal code 03 (Agreed Tax or Penalty Change - disposal code 102 on RCCMS) is used for Form 5500 if the examination results in securing a delinquent Schedule SB and a penalty is assessed for late filing. Schedule SB is not established on AIMS because all required attachments to Form 5500 (e.g., Schedules A, SB, C, E, SSA), are considered part of one return. A penalty is assessed for late filing of Schedule SB and is shown in item 603 of Form 5650 and the total of all penalties is shown in item 604. For code 03 (Agreed Tax Change - disposal code 102 on RCCMS) to apply, an entry must appear in either item 602 (Tax) or item 604 (Penalty Total) of Form 5650.

    3. Example Three : Disposal code 04 (Change to related return - disposal code 205 on RCCMS) is used to close the primary return if an adjustment was proposed or made to a related return including discrepancy adjustments. This code is used only for the primary return examined and not for the related return. Disposal code 04 is used for Form 5500 if adjustments are made to a related Form 1040/1120 return. In such cases, Form 1040/1120 is closed using Form 5599 and the appropriate disposal code from the following listing: Closing code 03, 07, 10 or 11 (disposal codes 102, 601, 604 or 603 on RCCMS).

    4. Example Four : Disposal code 05 (Delinquent Related Return Secured - disposal code 207 on RCCMS) is used to close the primary return where a delinquent related return was secured. This code is used for Form 5500 if the examination resulted in securing a delinquent Form 5330. If established on AIMS, Form 5330 is closed using disposal code 06 (delinquent return secured - disposal code 207 on RCCMS). The tax for the delinquent return is entered in item 414 on Form 5599 for the Form 5330 file to which it relates (and not on Form 5650 for Form 5500). If the Form 5330 is not established on AIMS, then the tax and/or penalties are entered in items 602 and 603, respectively, on Form 5650 for the Form 5500.

      Caution:

      On the Form 5650 for the Form 5500, when tax and/or penalties are reflected, enter in the remarks section: " Do not assess tax and/or penalties." Failure to make this entry may result in the taxpayer being billed twice for the same assessment, as the original assessment was made when the delinquent return was posted at the Service Center.

    5. Example Five: Disposal Code 08 (Correction of Operational Practice -Future Impact - disposal code 206 on RCCMS) is used to close a return when the examination discloses an operational or administrative practice that, if continued or enlarged, would have an adverse impact upon the plan in the future.

    6. Example Six: Disposal Code 13 (Referrals to LB&I, SB/SE, W&I, DOL or PBGC - disposal code 501 on RCCMS) is used to close an examination in which a referral (including a proposed adjustment or delinquent return) is made to LB&I, SB/SE, DOL, W&I or PBGC.

4.71.1.22.3.2  (03-28-2014)
Disposal Code 08

  1. For Disposal Code 08 (RCCMS Disposal Code 206) closings, the issues should be discussed with the taxpayer and summarized in individually designed paragraphs. This is important to reinforce the proper operational and/or administrative practice(s) for future years.

  2. Proper uses of Disposal Code 08 are as follows:

    1. The plan did not provide for adequate bonding as required by ERISA Act section 412.

    2. The ADP and/or ACP test were not properly performed due to misapplication of the required rules or systemic errors when performing of the test; however, when all errors were corrected and the test(s) re-run, the test(s) still passed for the year under examination.

    3. Misclassification of HCEs and non-HCEs in the ADP and/or ACP test; however, when all errors were corrected and the test(s) redone, the test(s) still passed for the year under examination.

    4. Failure to include several eligible participants who did not elect to make deferrals in the ADP and/or ACP test; however, when all errors were corrected and the test(s) redone, the test(s) still passed for the year under examination.

    5. Failure to follow plan terms with respect to using prior year or current year testing for the ADP/ACP test; however, when all errors were corrected and the test(s) redone, the test(s) still passed for the year under examination.

    6. Improper compensation used for testing purposes in the ADP and/or ACP test; however, when all errors were corrected and the test(s) re-run, the test(s) still passed for the year under examination.

    7. The top heavy calculations were performed improperly; however, after the agent re-ran the top heavy test, the plan was still not top heavy, although it could potentially be top-heavy in future years.

    8. Errors were made by the taxpayer when performing Nondiscrimination in Amounts Testing; however, after the agent re-ran the nondiscrimination test (Demo 6), the plan satisfied the nondiscrimination tests.

    9. The plan improperly recorded and reported several participants’ vesting percentages for the year under audit, but there were no distributions or forfeitures.

    10. The plan sponsor failed to deposit elective deferrals timely as prescribed by DOL Regulation section 2510.3-102(b)(1). However, as the lost interest per participant was deminimus, with group manager concurrence, it was decided to neither require correction nor solicit delinquent Forms 5330.

    11. A defined benefit pension plan invested in a couple of parcels of real estate that were purchased five years earlier, which were reported as representing approximately three percent (3%) of plan asset value. The property was carried at cost with no attempt by the plan fiduciary to verify the fair market value (FMV) of the properties. The agent raised this issue and requested that the fiduciary supply documentation as to the actual FMV of the property. It was determined that the value had remained substantially the same through the year of audit, so there was no current effect on the actuarial calculations related to either the maximum permitted deductions or the minimum funding standards.

  3. Improper uses of Disposal Code 08 are as follows:

    1. The agent determined that certain assets had not been properly reported on the Schedule H of Form 5500 and the Form 5500, line 8, did not reflect Plan Characteristic Code 2A (even though the plan utilized an age-weighted allocation formula). The correct Disposal Code for incomplete or inaccurate return information is 02 (assuming there are no other issues).

    2. The pension plan deduction was improperly reported on Form 1120, line 24 (Employee benefit program), in lieu of line 23 (Pension, profit-sharing, etc., plans). However, there was no issue with respect to an improper deduction, merely improper completion of the Form 1120. The correct Disposal Code for incomplete or inaccurate return information is 02 (assuming there are no other issues).

    3. The agent had difficulty in performing the examination due to problems securing requested records in a timely fashion. It was necessary to issue multiple IDRs for requested records before the examination could be completed. Even though the agent experienced difficulty in securing necessary records, eventually, requested documents were received and all potential issues were resolved to the agent’s satisfaction. In general, the taxpayer substantially complied with the law and regulations related to maintaining adequate books and records. This exam would be closed using Disposal Code 02 (RCCMS Disposal Code 107).

    4. The agent determined that the allowable deduction for the plan under examination was exceeded by a deminimus amount. As a result, a decision was made, with group manager concurrence, to neither pursue an adjustment using discrepancy adjustment procedures, nor make a referral to SB/SE. The over-deduction was an isolated error and not the result of any systemic error. This exam would be closed using Disposal Code 02.

4.71.1.22.4  (03-28-2014)
Issue Codes

  1. Select an issue code that best relates to the RCCMS and AIMS disposal code. Issue codes are listed in Document 6476.

  2. The three digit issue code must be carefully selected because it is used in conjunction with the AIMS disposal code to validate the accuracy of our system for selecting returns having examination potential and in reporting the accomplishments of the examination program. The issue code must be entered in the first three positions of Item 610 of Form 5650. It must also be entered in the respective field on RCCMS. If the case is closed no-change, issue code 37Z (no issues) should be used. Up to four issue codes may be entered. However, multiple issue codes may be entered only if each subsequent issue code relates to a disposal code other than disposal code 02. If only one issue code is entered, the other positions must be zero-filled.

    Example:

    Assume that the examination of Form 5500 results in securing a delinquent Form 5330 for a prohibited transaction. A vesting defect involving an error in applying the vesting schedule was also corrected by a closing agreement. Finally, a coverage issue was pursued and dropped, after determining compliance with the coverage requirements. The AIMS disposal code having the highest priority for the Form 5500 is disposal code 15 (disposal code 106 on RCCMS), "Closing Agreement" . The issue code that relates to this AIMS disposal code is issue code 06A. This code is used in the first three positions of item 610 of Form 5650 for the Form 5500. Issue code 02, "Prohibited Transactions" , with the appropriate alpha value, is entered in the next three positions of item 610 after issue code 06A for the Form 5500. With respect to the Form 5599 for the Form 5330 examination, as the prohibited transaction was not the subject of the closing agreement, the AIMS disposal code having the highest priority for the Form 5330 is disposal code (06), "Delinquent Return Secured" . No issue codes should be entered on the Form 5599 or RCCMS, as they are not required for Form 5330 examinations.

4.71.1.22.5  (03-28-2014)
Checksheet for Employee Plans Compliance Activities (CECA Checksheets)

  1. The CECA checksheet is required for EP examinations when a Form 5500 series or an NRU exam results in a "change" closure (all disposal codes except 02).

    1. Tax amounts, from a Form 5330 or Form 990-T that is picked up in relation to a Form 5500 or an NRU exam, should be reflected on the checksheet that is completed for the Form 5500 or an NRU exam.

    2. A separate CECA checksheet should not be completed for a Form 5330 or Form 990-T exam.

    3. Results from a Form 5330 or Form 990-T exam that has no related Form 5500 exam will not be reported on any CECA checksheet.

    4. Income tax amounts from a Form 1040/1120 discrepancy adjustment that is picked up in relation to a Form 5500 or an NRU exam should be reflected on the checksheet that is completed for the Form 5500 or an NRU exam.

    5. A separate CECA checksheet should not be completed for a Form 1040/1120 discrepancy adjustment.

    6. Results from a Form 1040/1120 discrepancy adjustment that has no related Form 5500 exam will not be reported on any CECA checksheet.

  2. One checksheet is required to be completed for each plan under examination.

    1. When multiple years for the same plan are under exam, only one checksheet that incorporates all years should be completed.

    2. Example : You are assigned a Form 5500 examination for a profit sharing plan for the plan year ending 12/31/2009. You discover several operational errors and pick up examinations of the plan years ending 12/31/2010 and 12/31/2011. Assume that all three returns are closed as "change" cases. In this instance, you should prepare one CECA checksheet with 12/31/2009 as the primary year and ensure that the operational impact and restoration explanation pertaining to all three years is rolled into the single checksheet.

  3. A separate checksheet should be completed for each distinct plan examined.

    1. If examinations are opened for two different plans maintained by an employer, one checksheet is required for each plan.

    2. Example : You are assigned a Form 5500 examination for a profit sharing plan (#001) for the plan year ending 12/31/2009. Due to a systemic vesting violation, you not only open up an examination of the plan year ending 12/31/2010 for plan #001, but you also pick up the related returns for the money purchase plan (#002) for the plan years ending 12/31/2009 and 12/31/2010. Assume that all four returns are closed as "change" cases. In this example, you should prepare two CECA checksheets, one for the profit sharing plan #001 (covering both years) and one for the money purchase plan #002 (covering both years).

  4. A CECA checksheet is required to be completed (if the case is a "change" case) for special project cases that have their own special checksheet for the project. In those instances two checksheets are required: a CECA checksheet and the special project checksheet.

  5. The current version of the CECA Checksheet can be downloaded from the EP Examination web site using this link: Checksheet for EP Compliance Activities (CECA).

  6. When completing the CECA checksheet:

    1. Always set the Adobe View Percentage to “100%”. The use of this setting will resolve any difficulties that may arise when attempting to answer "No" to Questions 12B, 12C and 12D.

    2. Turn-off the Auto-Complete feature in Adobe. To turn-off the Auto-Complete feature, open an Adobe document; select Edit, then Preferences; within the Categories column, select Forms; set Auto-Complete to "Off" .

      Note:

      Error messages regarding punctuation may be received when answering "zero" to a question (for example, Questions 14A-14K). These error messages can be eliminated by turning-off the Auto-Complete feature in Adobe.

    3. Always provide an answer to every CECA question, even if the answer is "zero" . Leaving a question "blank" gives the impression that the questions were skipped.

      Note:

      Checksheets bearing unanswered questions (for example, Questions 14A–14K) will be returned to the originating group for proper completion by EP Examinations, Programs & Review.

  7. It is important that compliance results are accurately reported at the time of case closure.

    1. Complete and precise reporting is essential to the mission of EP in order to ensure that our efforts and results are correctly captured.

    2. Even though the effect behind the scenes may not be visibly seen, this information is vitally important for reporting purposes as well as for determining future compliance initiatives.

  8. After completing the CECA checksheet the EP agent should:

    1. Save the CECA checksheet in the RCCMS Office Documents folder using the RCCMS Naming Convention.

    2. Annotate the Case Chronology Record (Form 5464) that the CECA checksheet has been completed and save the Form 5464 in the RCCMS Office Documents folder using the RCCMS Naming Convention.

      Note:

      An electronic copy of the CECA checksheet is no longer required to be E-mailed by the agent to his/her group manager.

      Note:

      A paper copy of the CECA checksheet is no longer required to be placed in the case file.

    3. Close the case to the group manager.

  9. When the group manager receives the closed case from the agent, the following actions related to the CECA checksheet will be taken:

    1. The group manager will access the CECA checksheet in the RCCMS Office Documents folder.

    2. The group manager will review the completed CECA checksheet, ensuring that all questions have been answered and that the entered data is within the statistical norms for the type and size of the taxpayer plan reviewed and the type of change issue(s) documented.

    3. If the case is "agreed" , after completing his/her review of the CECA checksheet, the group manager shall securely E-mail an “electronic copy” of the checksheet to the CECA mailbox (*TE/GE-EP-CECA).

      Note:

      When E-mailing a completed CECA checksheet, do not include the plan name or the taxpayer name in the subject line of the E-mail since it is not secure.

    4. If the case is "unagreed" , the group manager shall not mail an "electronic copy" of the checksheet to the CECA mailbox.

      Note:

      EP Mandatory Review will E-mail the CECA checksheet to the CECA mailbox for all unagreed cases.

    5. Whether the case is "agreed" or "unagreed" , a copy of the CECA checksheet will be saved in the RCCMS Office Documents folder.

    6. If the case is "agreed" , the Case Chronology Record which was saved in RCCMS by the agent) shall be annotated by the group manager that the CECA checksheet was completed by the agent, reviewed by the manager and forwarded to the CECA mailbox.

    7. If the case is "unagreed" , the Case Chronology Record (which was saved in RCCMS by the agent) shall be annotated by the group manager that the CECA checksheet was completed by the agent, reviewed by the manager and left within RCCMS for processing by Mandatory Review.

  10. Voluntary Compliance (VC) personnel should not complete the CECA checksheet for VC cases because the results of these cases are already captured by the EPCRS Research & Inventory Management (ERIM) database.

  11. The following procedures apply to Mandatory Review regarding CECA checksheets related to "unagreed" cases:

    1. After completing his/her review of the "unagreed" case (and prior to case closure), the reviewer shall make changes to the CECA checksheet, if applicable.

    2. The reviewer shall securely E-mail an “electronic copy” of the checksheet to the CECA mailbox (*TE/GE-EP-CECA).

    3. A copy of the CECA checksheet will be saved in the RCCMS Office Documents folder.

    4. The Case Chronology Record within RCCMS shall be annotated by the reviewer that he or she reviewed the CECA checksheet, comments will be made about any revisions to the checksheet and a notation will be made that the checksheet was forwarded to the CECA mailbox.

  12. On occasion, a case may be transferred, back and forth, between the group and Mandatory Review. Under such circumstances, the entity in possession of the case file prior to updating the status code to "51" bears the responsibility for the forwarding of the CECA checksheet to the CECA mailbox.

  13. For additional information, please contact the Manager, EP Examinations Planning & Programs.

4.71.1.22.6  (03-28-2014)
Case File Assembly

  1. Copies of all workpapers, forms and letters generated by the agent must be saved in the RCCMS Office Documents folder using the RCCMS Naming Convention. See IRM 4.71.1 Exhibit 2 at IRM 4.71 - Employee Plans Examination Exhibits for the RCCMS Naming Convention.

  2. For "agreed" Form 5500 exams, the following paper documents must be in individual folders for each year (red folder if less than 180 days remain on the statute of limitations) with a completed Form 10329 stapled on front:

    1. Form 895-EP (if applicable),

    2. Form 5500 (if less than 180 days are remaining on the statute of limitations)

      Note:

      A hard copy of Form 5500 must be also be included if a copy of the return is not in RCCMS.

    3. Form(s) 872-H (if applicable),

    4. Form 2848 or Form 8821 (if applicable and if a copy is not in RCCMS),

    5. Form 5650 (if less than 180 days are remaining on the statute of limitations or if any other paper files are present),

    6. Closing letter (if less than 180 days are remaining on the statute of limitations),

    7. Form 906 (if disposal code is 15 and a copy is not in RCCMS) and

    8. Form 5772 (if less than 180 days are remaining on the statute of limitations).

  3. All "unagreed" Forms 5500 must be assembled in accordance with IRM 4.71.12, Case File Assembly Guidelines.

4.71.1.23  (03-28-2014)
Overview of Transfer of Form 5500 Exams to Another Group or Area

  1. Generally, the examination of any return is the responsibility of the Area in which the taxpayer resides, conducts its business or maintains its principal office. The examination will generally be assigned to an agent at the post-of-duty nearest to the taxpayer’s residence or place of business.

  2. It may become necessary to transfer a return to an office within the Area or to another Area after the examination has begun. The convenience of the taxpayer will be balanced with the requirements of sound and efficient tax administration in honoring a request for transfer by the taxpayer or power of attorney.

  3. Generally, the place where the records of the taxpayer are located, where the principal investigative work will be performed, or where the major issues can most conveniently be disposed of, will control the decision as to where the examination will be conducted.

  4. It is the agent's responsibility (with concurrence from the group manager) to determine if the request for case transfer meets the criteria for transfer and to prepare the case for transfer if the criteria are met.

4.71.1.23.1  (03-28-2014)
Circumstances Which Permit a Transfer of a Form 5500 Examination

  1. Treas. Reg. 301.7605-1(e)(2)(i) provides that a request by a taxpayer to transfer an office examination to a different location will generally be granted under the following circumstances:

    1. If the taxpayer’s books, records and source documents of an individual, a sole proprietorship (Schedule C) or a business (Form 1120, 1065, etc.) return is closer to a different IRS office in the same Area as the office where the examination has been scheduled, the IRS normally will agree to transfer the examination to the closer IRS office.

    2. If the taxpayer’s books, records and source documents of an individual, a sole proprietorship (Schedule C) or a business (Form 1120, 1065, etc.) return is closer to a different IRS office in an Area other than the Area where the examination has been scheduled, the IRS normally will agree to transfer the examination to the closest IRS office in the other Area.

  2. Treas. Reg. 301.7605-1(e)(2)(ii) states that a request by a taxpayer to transfer the place of examination for field examinations will generally be granted under the following circumstances:

    1. If a taxpayer does not reside at the residence where an examination has been scheduled, the IRS will agree to transfer the examination to the taxpayer’s current residence.

    2. If the taxpayer’s books, records and source documents of an individual sole proprietorship (Schedule C) or a business (Form 1120, 1065, etc.) return are maintained at a location other than the location where the examination has been scheduled, the IRS will agree to transfer the examination to the location where the taxpayer’s books and records are maintained.

  3. Treas. Reg. 301.7605-1(e) provides that the agent will consider written requests by representatives to change the place the IRS has set for an examination. For case transfer purposes, "representative" means a person that the taxpayer has properly designated by executing Form 2848. The written statement must include the following:

    1. The reason for the transfer

    2. The taxpayer’s current address and current phone number

    3. The address/location of the taxpayer’s current principal place of business

    4. The address/location at which the taxpayer’s books, records and source documents are maintained

    5. Sufficient information to establish that the transfer will result in an examination where the books, records and source documents are maintained

    6. Why the requested location is more efficient for the examination of the taxpayer

    7. Other factors which indicate that conducting the examination at a particular location could pose undue inconvenience to the taxpayer

      Note:

      Transfers will not be approved for requests from individuals authorized to receive tax return information through the use of Form 8821 requests.

  4. The location of the place of business of a taxpayer’s representative will generally not be considered in determining the place for an examination. However, if the factors outlined in Treas. Reg. 301.7605-1(e)(2) are met, the agent (with group manager concurrence) has the discretion to transfer the place of examination to the representative’s office.

  5. To change the location of the examination, the representative must indicate that he/she is in possession of the records to be examined and will make them available in an expedient manner.

  6. In addition to a written request by the taxpayer or representative (as specified above), the following requirements must be present:

    1. There must be resources available at the location to which the taxpayer has requested a transfer.

    2. At the time of the taxpayer’s request to transfer the return from one Area to another there must be at least 13 months remaining on the statute of limitations on assessment. Consistent with Treas. Reg. 301.7605-1(e)(4), an extension of the statute of limitations will be required as a condition for an otherwise permissible transfer if the 13 month period is not met.

4.71.1.23.2  (03-28-2014)
Area Processing Guidelines

  1. When the taxpayer/representative requests a transfer, the agent (with concurrence from the group manager) will determine if the request is allowable based on the criteria listed in IRM 4.71.1.23.1, Circumstances Which Permit a Transfer of a Form 5500 Examination.

  2. The group manager in possession of the case will call the group manager who will be receiving the case to discuss the transfer request.

  3. If the case is to be transferred, the case will immediately be prepared for transfer on RCCMS and AIMS, as well as for any partial paper file.

    1. Cases will be transferred within 30 days from the date the request is granted.

    2. A detailed explanation of the reason for transfer will be included in either the case chronology or in an attached memo from the sending group manager to the receiving group manager.

  4. If the case is being transferred to another Area:

    1. Prepare Form 3185, Transfer of Return and attach it to the outside of the case folder and save within the Office Documents folder of the RCCMS activity. Ensure all information is shown on the transfer form, including a legible signature of the responsible employee, current telephone number and address. The comments section will indicate the factors that were considered for the transfer. Document the date of taxpayer’s request and the statute expiration date in the remarks section or in Item 6.

    2. Forward any paper case file to the receiving group with a Form 3210.

    3. Transfer the RCCMS account to the receiving group. Make sure the "Update AIMS" box in RCCMS is not checked. The RCCMS transfer should also involve an update to AIMS, which will be handled by EP Classification.

    4. Contact EP Classification through their group mailbox at: tege.ep.classification@irs.gov to transfer the case on AIMS. Provide the EIN, plan name, plan number and year along with the group number of the receiving group.

      Note:

      Since the transfer is being done from one Area to another, the IDRS operator selected for the transfer to occur on AIMS will need to have the command code AMSOC in their IDRS profile. The IDRS operator needed for this type of transfer would be in the EP Classification unit.

  5. If the case is being transferred to another group within the same Area:

    1. Prepare the case for transfer on RCCMS and AIMS.

      Note:

      This type of transfer, within the same Area, requires an IDRS operator on RCCMS with the command code AMSTU in their IDRS profile. Most group secretaries have this command code in their profile. There is no need to involve a tax agent from EP Classification for this type of transfer.

    2. Make sure the "Update AIMS" box in RCCMS is checked.

    3. Mail any paper file directly to the group to which the case is being transferred.

  6. The group manager receiving the case will determine whether the case will be examined or surveyed.

  7. The receiving group will contact the taxpayer (or taxpayer's representative) within 30 days of receipt of the case.

4.71.1.24  (03-28-2014)
Requests for Assistance

  1. Assistance in answering technical or procedural questions pertaining to open examinations can be obtained through Special Review's "Ask the Reviewer" program. The "Ask the Reviewer" link can be found on TE/GE Connect-My Resources-Research-EP Retirement Plans-Ask the Reviewer-EP Examinations. Submitted questions are normally answered within two business days.

  2. Special assistance on EP examinations can be obtained from other business units or specialty groups within the IRS through the Specialist Referral System (SRS).

    1. Agents can generate a consultation or make a referral request for assistance on-line through SRS. A consultation will provide assistance on any questions and will help determine if there is merit to making a referral to another business unit. This system will automatically notify the appropriate Specialist Manager (in LB&I, SB/SE, W&I, CAS, EO or GE) of the request. The manager may then accept or reject that request. If accepted, the manager will assign a Specialist to assist the agent on the case.

    2. Through SRS, a referral for assistance can be made to any of the following specialist groups: Computer Audit Specialist (CAS), Economist, Employee Plans, Employment Tax (LB&I), Employment Tax (SB/SE), Employment Tax (TE/GE), Engineering, Excise, Exempt Organizations, Federal, State & Local Government, Financial Products, Fraud Specialist, Indian Tribal Government, International, Joint Committee, LB&I Actuary and Tax-Exempt Bonds.

      Note:

      IRC 6405 provides that Joint Committee Review covers refunds over $2,000,000. See IRM 4.36, Joint Committee Procedures.

    3. The intranet address for the SRS home page is: https://srs.web.irs.gov.


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