4.71.1  Overview of Form 5500 Examination Procedures

Manual Transmittal

March 31, 2015

Purpose

(1) This transmits revised IRM 4.71.1, Employee Plans Examination of Returns, Overview of Form 5500 Examination Procedures.

Material Changes

(1) IRM 4.71.1.4.1, Examinations of Individually Designed Plans under Post-EGTRRA Provisions, and IRM 4.71.1.4.2, Examinations of Adopters of Master and Prototype (M&P) and Volume Submitter (VS) Plans under Post-EGTRRA Provisions, have been updated to reflect the current Remedial Amendment Cycle (RAC).

(2) IRM 4.71.1.5, Scope of Examination, has been revised to add additional information on focused examinations.

(3) IRM 4.71.1.7.2, Employee Contact - RRA Section 3705, makes it clear that all correspondence generated through an EP examination or compliance check will include the name, telephone number and unique identifying number of an employee who can be contacted with respect to the correspondence.

(4) IRM 4.71.1.9, Power of Attorney (Form 2848) and Tax Information Authorization (Form 8821), was updated to incorporate instructions corresponding to the new July of 2014 version of Form 2848, Power of Attorney and Declaration of Representative.

(5) Exhibits 4 through 10 were added within IRM 4.71.1.9, Power of Attorney (Form 2848) and Tax Information Authorization (Form 8821), to provide examples for the proper completion of Form 2848 for different situations.

(6) IRM 4.71.1.10, Third Party Contacts, and the subsections thereunder were revised to comply with IRM 25.27.1, Third Party Contacts – Third Party Contact Program.

(7) IRM 4.71.1.15, Workpapers, and its subsections were revised to clarify EP workpaper standards.

(8) IRM 4.71.1.22.2, Completion of Form 5650, has been revised to reflect changes made to Form 5650, EP Examined Closing Record and to provide additional information on proper completion of the form.

(9) IRM 4.71.1.25, Requests for File and Workpapers, was added.

(10) Other minor editorial changes, including revisions to reflect plain language requirements, were made throughout the document.

Effect on Other Documents

This supersedes IRM 4.71.1, Employee Plans Examination of Returns, Overview of Form 5500 Examination Procedures, dated March 28, 2014.

Audience

Tax Exempt and Government Entities
Employee Plans

Effective Date

(03-31-2015)


Robert S. Choi
Director, Employee Plans
Tax Exempt and Government Entities

4.71.1.1  (03-31-2015)
Overview of Form 5500 Examination Procedures

  1. This IRM section incorporates the basic examination techniques that will enable Employee Plans (EP) agents to apply uniform techniques and procedures when examining Form 5500 series returns (Form 5500, Annual Return/Report of Employee Benefit Plan; Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan; and Form 5500-EZ, Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan).

  2. The procedures in this IRM apply to all Form 5500 series returns, so the term "Form 5500" applies to all Form 5500 series returns.

4.71.1.1.1  (03-31-2015)
Reporting Compliance Case Management System (RCCMS) Use Policy

  1. The TE/GE RCCMS use policy requires agents to use RCCMS when processing their examination/compliance cases.

    1. RCCMS is both an inventory control system and a case management system.

    2. RCCMS data supports the conclusions reached in the case.

  2. RCCMS supports the current examination process via electronic components that replace manual processes.

  3. RCCMS automatically backs up all stored data files when you synchronize with the central database server.

  4. RCCMS is used to create, control and assign compliance activities.

    1. Each RCCMS case will have an electronic copy of the return and/or related research material for the case.

    2. Agents will prepare, develop and store workpapers within the system.

    3. Agents are required to use the Microsoft Office software and Adobe pdf files, and the forms, letters and templates in the RCCMS repository.

  5. Case review and closing activities will continue using the electronic components within RCCMS.

    1. Reviewers will receive their case files electronically and use the system to review the electronic case file.

    2. Reviewers will use RCCMS to capture their Quality Measurement System (QMS) results and update the QMS Survey.

  6. EP Special Support Processing (Closing Unit) personnel will also receive cases electronically. Users will be able to review the case file, related documents and files, and the closing documents and process case closings.

  7. To ensure that data is as accurate and up to date as possible, all users should add workpapers to their case file and should make an effort to sync to the central server on a regular basis.

    1. To ensure case files are all up to date and case processing continues uninterrupted, users need to maintain an electronic case file that closely resembles the content paper case file content prior to migrating to the electronic case file.

    2. This includes all workpapers and pertinent source documents you used in determining whether there are any issues or proposed changes that you will discuss/resolve prior to closing the case.

4.71.1.2  (03-31-2015)
Examination Techniques

  1. EP agents conduct two basic types of examinations: Field examinations and Office/Correspondence Examinations Program (OCEP) examinations.

  2. Field examinations are:

    1. Examinations assigned by EP Classification to be worked at the taxpayer’s place of business. See IRM 4.71.1.7.1 for the place of an audit.

    2. In extenuating circumstances, you and your group manager may decide that it is not in the government's best interest to make a field visitation (due to complexity, geographical location, etc.).

    3. If you and your manager decide to conduct the audit at a place other than the taxpayer's place of business, document this decision in the case file (either with a note from the group manager on Form 5464, Case Chronology Record, (CCR) and/or an email from the manager).

    4. Even if you conduct the examination at a place other than the taxpayer’s place of business, you must perform the same examination procedures for all field exams.

  3. OCEP examinations are conducted through correspondence with the taxpayer or taxpayer's representative.

    1. OCEPs are specifically designated as such by EP Classification.

    2. OCEP examination procedures are found in IRM 4.71.11, Office/Correspondence Examination Program (OCEP).

4.71.1.3  (03-31-2015)
Examination Jurisdiction

  1. The EP examination program was established to ensure compliance with the qualification provisions of Internal Revenue Code (IRC or Code) sections 401(a) and 501(a). Under this program, the returns within EP’s jurisdiction include, but are not limited to—

    • Form 5500 series returns,

    • Form 5330, Return of Excise Taxes Related to Employee Benefit Plans (see IRM 4.71.5, Form 5330 Examinations),

    • Form 990-T, Exempt Organization Business Income Tax Return, for unrelated business income as related to qualified plans (see IRM 4.71.10, Form 990-T Examination Procedures) and

    • Non-Return Units (NRU) such as SIMPLE plans, SEP plans, SARSEP plans, IRC 457 plans and IRC 403(b) plans. See IRM 4.71.17, Non-Return Unit Examinations.

  2. The Wage and Investment (W&I), Small Business/Self–Employed (SB/SE) and Large Business & International (LB&I) Operating Divisions have examination responsibility for other federal tax returns. However, you are required to perform a package audit and inspect federal returns to ensure they have been properly filed. See IRM 4.71.1.14, Package Audit Requirements.

  3. During an examination of a Form 5500 (or other related EP return), an EP agent may identify certain issues that may affect other line items on a related income tax return such as Form 1040, U.S. Individual Income Tax Return or Form 1120, U.S. Corporation Income Tax Return.

    1. The Discrepancy Adjustment Program was established to reduce the number of referrals to W&I, SB/SE or LB&I. This program allows you to make certain line item adjustments to Forms 1040 and 1120 for issues connected to a Form 5500 (or other EP return).

    2. The Discrepancy Adjustment Program does not entirely preclude EP exams from being referred to W&I, SB/SE or LB&I. If the adjustment does not fall within the guidelines of the Discrepancy Adjustment Program, refer it to W&I, SB/SE or LB&I (whichever is applicable).

    3. See IRM 4.71.4, Discrepancy Adjustments, for procedural guidance.

  4. During an examination of a Form 1040 or a Form 1120 return, a W&I, SB/SE or LB&I agent may identify issues that involve a Form 5500 series return or other return that falls within EP’s jurisdiction and vice versa. For this reason, we have procedures for referring cases between W&I, SB/SE or LB&I and EP. See IRM 4.71.6, EP Referrals, and IRM 4.71.20, Employee Plans Large Case Support Examinations Procedures.

4.71.1.4  (03-31-2015)
Examination Objectives and Development of Issues

  1. The primary objective of the examination is to determine if the plan is operating in accordance with the qualification provisions of the Internal Revenue Code and with the terms of the plan document.

    1. A second objective is to protect the government's interest for income and excise tax liabilities related to the plan.

    2. Most qualification provisions and tax issues will fall into the following categories and you should address them, as applicable.

  2. Compliance in Form - Plan and Entity Background. Include a brief write-up on the plan’s history, including the most recent favorable determination, opinion and advisory letters and required amendments.

    1. If a favorable determination letter has not been issued for the plan and trust or if the plan sponsor adopted amendments after the last favorable determination letter, determine if the amendments are correct and whether the plan needs any additional amendments to remain qualified.

    2. If the plan was required to be amended in conjunction with its request for a favorable determination letter and the plan sponsor submitted proposed amendments, verify that the plan sponsor adopted the amendments by the required due date.

    3. Verify that the plan sponsor made the appropriate amendments to comply with subsequent statutory and administrative changes.

    4. It is also strongly recommended that you use the Cumulative Lists, published annually around November of each year, to help determine the applicable laws, regulations or other published guidance effective for the year under examination.

    5. See IRM 4.71.1.4.1, Examinations of Individually Designed Plans under Post-EGTRRA Provisions and IRM 4.71.1.4.2, Examinations of Adopters of Master and Prototype and Volume Submitter Plans under Post-EGTRRA Provisions, for additional guidance.

  3. Package Audit. Determine whether the package audit requirements as specified in IRM 4.71.1.14are satisfied. Package audit requirements vary depending on whether the examination is focused or full scope.

  4. Eligibility/Participation/Coverage. Determine whether all eligible employees are participating in the plan (IRC 410).

  5. Vesting. Determine whether the minimum vesting standards of IRC 411 and, if applicable, IRC 416 are met.

  6. Allocations/Accruals.

    1. Determine whether the contributions, accruals and forfeitures are calculated correctly, in accordance with the plan provisions and IRC 411.

    2. Verify that the plan's definition of compensation is being followed in operation.

    3. Verify that the allocations and/or accruals are not discriminatory under IRC 401(a)(4).

    4. Determine if IRC 436 benefit limits are applicable.

  7. Top-Heavy. Determine whether the plan is top-heavy and if so, that it is operating in accordance with the plan provisions and IRC 416. See IRM 4.72.5, Top Heavy Plans.

  8. Discrimination.

    1. Verify whether compensation, as defined in the plan, is used for computing plan benefits.

    2. Verify that compensation is properly limited by IRC 401(a)(17) in operation.

    3. Determine whether the plan’s definition of compensation results in prohibited discrimination.

    4. Verify the plan's definition of compensation does not violate IRC 415 and is the compensation used to compute plan benefits. Compare compensation as defined in the plan to total compensation paid to the participants.

    5. Review and compare compensation reported on Forms 941, Employer’s Quarterly Federal Tax Return, Forms W-2, Wage & Tax Statement, Forms 1120 and payroll records.

    6. If family members are participants in the plan, ensure that they actually work for the employer and verify that they did not receive favored eligibility, benefits, vesting upon separation, etc., as compared to other participants.

      Note:

      As noted in paragraph (6) above, the allocation and/or accrual methods should meet the nondiscrimination rules under IRC 401(a)(4).

  9. IRC 401(k)/401(m).

    1. Determine whether the plan passes the Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) tests.

    2. If the plan is intended to be a safe harbor 401(k) plan, make sure the plan satisfies IRC 401(k)(12) and IRC 401(k)(13).

    3. See IRM 4.72.2, Cash or Deferred Arrangements and IRM 4.72.3, Employee Contributions and Matching Contributions, for technical guidance on auditing plans with IRC 401(k) and/or 401(m) provisions.

  10. Deduction Limitation.

    1. Determine whether the total amount of employer contributions are within the IRC 404 limits and that all contributions were paid by the IRC 404 due date.

    2. Verify, in applicable defined benefit plans, that all gains or losses (such as cash surrender values, dividends, refund of premiums, etc.) are used to reduce the cost to the taxpayer in the current or next succeeding year or are properly amortized.

    3. See IRC 404 and IRC 412.

    4. See IRM 4.72.15, IRC 404 Examination Guidelines, for technical guidance related to IRC 404.

  11. Minimum Funding. Determine if the minimum funding standards of IRC 412, IRC 430 and IRC 436 are met and if not, determine tax due under IRC 4971.

    Note:

    Until the provisions of the Internal Revenue Code are revised, IRC 4971 cannot be applied to defined contribution plans for 2008 and subsequent tax years.

  12. Review of the Trust.

    1. Inspect the trust fund, balance sheet, the income and expense statement and asset source documents to verify that plan assets are held in the name of the trust. Secure information to see if the trust has engaged in any of the following: prohibited transactions under IRC 4975(c), (see IRM 4.72.11, Prohibited Transactions, for technical guidance); transactions that produce unrelated debt financed income under IRC 514 or an unrelated trade or business as defined in IRC 513.

    2. Verify, in profit-sharing, stock bonus and money purchase plans that assets were valued annually at fair market value; that participants’ accounts were debited or credited for the change in market value; and that participants were notified of the change in value.

      Note:

      Fair market value must be used to value depreciable assets. Cost less depreciation cannot be used to determine fair market value. See Rev. Rul. 80–155. Also see IRM 4.72.8, Valuation of Assets.

    3. Examine trust assets to determine whether the trust has invested in the employer's stock and securities.. If so, find out whether there were prohibited transactions and/or violations of the exclusive benefit rule.

    4. Examine the income and expense schedules and records in detail to find out whether funds have reverted to the sponsor or have been used for purposes other than the exclusive benefit of employees or their beneficiaries.

    5. Closely inspect non-cash contributions by the employer (e.g., stocks, notes or other securities including employer stock and securities) before allowing a deduction.. For defined benefit plans, money purchase plans and certain defined contribution plans, determine whether the non-cash contributions constituted prohibited transactions. Refer to the U.S. Supreme Court decision in Commissioner v. Keystone Consolidated Industries, Inc., 508 U.S. 152 (1993) and issued DOL Interpretive Bulletin 94-3 dated 12/28/94.

    6. Consider fraud if you have determined that trust assets have been mishandled or misappropriated. See IRM 4.71.25, EP Exam Fraud Procedures, for instructions on contacting the EP Fraud Coordinator.

  13. IRC 415 Limits. Determine whether or not any participants have exceeded the maximum benefit and/or contribution limits under IRC 415. The plan should contain language, when necessary, that coordinates with other plans of the employer (or related employer) to assure that participant benefits and/or contributions do not exceed the annual limits. See IRM 4.72.6, Section 415(b) and IRM 4.72.7, Examination Guidelines for IRC 415(c).

  14. Distributions.

    1. Verify that distributions to participants (terminated or otherwise) have been made in accordance with the plan provisions for the distribution form (lump sum, annuity, etc.) and the timing (paid immediately, after a break-in-service, etc.) of distributions and that the amount distributed was correct.

    2. Verify that spousal consent was secured when required by the plan and the Code.

    3. Verify that any hardship distributions were in accordance with plan terms.

    4. Verify that the minimum distribution requirement of IRC 401(a)(9), if applicable, are satisfied.

    5. Verify that the eligible rollover requirements and mandatory distribution requirements of IRC 401(a)(31)(A) and IRC 401(a)(31)(B), respectively, are met.

    6. Verify that the employer or trustee met the required reporting requirements, including filing Forms 1099-R, for those individuals who received a distribution and that they withheld the correct tax under IRC 3405.

      Note:

      See IRM 4.72.9, Qualified Joint & Survivor Annuity Requirements and IRM 4.72.10, Single-Sum Distributions, for technical guidance on forms of benefits and distributions.

    7. Verify that participant loans comply with IRC 72(p) (i.e., should loans be treated as distributions?).

  15. ESOP Plans. Verify that the ESOP requirements under IRC 409 and IRC 4975 have been met. See IRM 4.72.4, ESOPs.

  16. IRC section 403(b) Plans. Follow established procedures as reflected in IRM 4.72.13, IRC Section 403(b) Plans.

  17. Multiemployer Plans. Follow established procedures in IRM 4.72.14, Multiemployer Plan Examination Guidelines.

  18. SEP Plans. Determine whether the plan operates in accordance with IRC 408(k). Follow procedures in IRM 4.72.17, Simplified Employee Pensions (SEPs) and Salary Reduction SEPs (SARSEPs).

  19. SIMPLE IRAs. Determine whether the plan operates in accordance with IRC 408(p).

  20. International Issues. Determine if the plan is involved in international operations. See the International Portal on TE/GE Connect for helpful information.

4.71.1.4.1  (03-31-2015)
Examinations of Individually Designed Plans under Post-EGTRRA Provisions

  1. Confirm and document that the plan's language is in compliance with all applicable qualification requirements and that all amendments have been made within the required deadlines.

    1. Secure and retain in the case file the plan document and any amendments adopted since the issuance of the last favorable determination letter.

    2. Verify that the plan document was amended by the end of its initial Remedial Amendment Cycle (RAC) and by the end of its second RAC, if applicable. For example, for calendar 2012 plan years, the plan document should have been restated for the required amendments from the 2010 Cumulative List (CL), as well as those from the 2006, 2007, 2008 and 2009 CL.

      Note:

      If a plan sponsor is within its second RAC you are not required to verify that the document was amended for legislation effective before the applicable CL was released. Obtain your manager's approval to verify laws enacted prior to plan's applicable CL.

  2. Your responsibilities also include:

    1. Confirming a plan’s RAC.

    2. Identifying whether a determination letter application is pending or whether a current Economic Growth and Tax Relief Reconciliation Act (EGTRRA) or second cycle RAC favorable determination letter (Letter 2002) has been issued.

      Note:

      If the plan has a pending determination letter application, coordinate your examination with the determination specialist.

    3. Confirming that plan amendments were adopted by their required deadlines to comply with all applicable form requirements, laws, regulatory guidance or other published guidance. This includes timely "good faith" EGTRRA, interim and discretionary amendments effective through the last day of the plan year under examination.

      Note:

      The one exception to this rule is plan termination.

  3. Confirm whether the EGTRRA Remedial Amendment Period (RAP) has expired:

    1. If the plan received an EGTRRA letter, you are only required to verify that the plan sponsor adopted any required amendments by their deadlines of subsequent CLs issued through the year of examination.

    2. If the initial EGTRRA RAC has expired and the plan does not have an EGTRRA letter, then you must verify more than just timely "good faith" EGTRRA, interim and discretionary amendments.

    3. All amendments applicable through the last day of the plan year under examination must be in full compliance with the applicable qualification requirements. The plan sponsor should have perfected any defects or omissions related to such amendments before expiration of their EGTRRA RAC.

    4. If the initial EGTRRA RAC has not expired, then you only need to identify and confirm timely "good faith" EGTRRA, interim and discretionary amendments effective through the year of examination as specified under the CL issued immediately prior to the plan year under examination.

      Note:

      An employer who has requested but not received an EGTRRA determination letter should be able to provide copies of all interim and discretionary amendments, because these amendments would have been required as part of their determination letter application.

  4. If the plan does not have a favorable determination letter, confirm that the plan sponsor adopted the applicable GUST amendments by their due date. Confirm that the plan sponsor also timely adopted amendments for all applicable laws, regulatory guidance or other published guidance after GUST, including "good faith" EGTRRA, interim and discretionary amendments effective through the year of examination, as specified under the applicable CL.

  5. A plan’s EGTRRA RAP is contingent on the adoption of timely "good faith" EGTRRA amendments within the GUST RAP.

    1. Timely adoption of "good faith" amendments allows the plan’s EGTRRA RAP to be extended to the end of the plan’s initial five-year RAC.

    2. If "good faith" EGTRRA amendments were timely adopted, then the RAC remains intact and the plan sponsor can correct any defective provisions of EGTRRA, interim and discretionary amendments by the end of the plan’s RAC.

    3. If "good faith" EGTRRA amendments were not timely adopted, then the RAC is no longer applicable and the plan sponsor may not correct any defective EGTRRA provisions, required or discretionary amendments. In this case Audit CAP will be necessary to restore the plan’s RAC and preserve the plan’s qualification.

  6. A Letter 2002 issued under Cycle A will contain the following caveat: "This letter may not be relied on after the end of the plan’s first five year remedial amendment cycle that ends more than twelve months after the application is received. This letter expires on January 31, 2012. This letter considers the 2005 Cumulative List of Plan Qualification requirements." Confirm the plan sponsor adopted interim and discretionary amendments effective after the 2005 CL through the year of examination by their required deadlines.

  7. A Letter 2002 issued under Cycle B will contain the following caveat: "This letter may not be relied on after the end of the plan’s first five year remedial amendment cycle that ends more than twelve months after the application is received. This letter expires on January 31, 2013. This letter considers the 2006 Cumulative List of Plan Qualification requirements." Confirm the plan sponsor adopted interim and discretionary amendments effective after the 2006 CL through the year of examination by their required deadlines.

  8. A Letter 2002 issued under Cycle C will contain the following caveat: "This letter may not be relied on after the end of the plan’s first five year remedial amendment cycle that ends more than twelve months after the application is received. This letter expires on January 31, 2014. This letter considers the 2007 Cumulative List of Plan Qualification requirements." Confirm the plan sponsor adopted interim and discretionary amendments effective after the 2007 CL through the year of examination by their required deadlines.

  9. A Letter 2002 issued under Cycle D will contain the following caveat. "This letter may not be relied on after the end of the plan’s first five year remedial amendment cycle that ends more than twelve months after the application is received. This letter expires on January 31, 2015. This letter considers the 2008 Cumulative List of Plan Qualification requirements." Confirm the plan sponsor adopted interim and discretionary amendments effective after to the 2008 CL through the year of examination by their required deadlines.

  10. A Letter 2002 issued under Cycle E will contain the following caveat. "This letter may not be relied on after the end of the plan’s first five year remedial amendment cycle that ends more than twelve months after the application is received. This letter expires on January 31, 2016. This letter considers the 2009 Cumulative List of Plan Qualification requirements." Confirm the plan sponsor adopted interim and discretionary amendments effective after the 2009 CL through the plan year audited by their required deadlines.

  11. A Letter 2002 issued under second Cycle A will contain the following caveat. "This letter may not be relied on after the end of the plan’s second five-year remedial amendment cycle that ends more than twelve months after the application was received. This letter expires on January 31, 2017. This letter considered the 2010 Cumulative List of Changes in Plan Qualification Requirements." This caveat shows a plan complies in form with the requirements from EGTRRA to the Small Business Jobs Act of 2010 (SBJA). However, you should confirm that the plan sponsor adopted later interim and discretionary amendments effective through the year of examination as specified under the applicable Cumulative List

  12. Under section 1107 of the Pension Protection Act of 2006 (PPA), a plan sponsor is permitted to delay adopting interim and discretionary amendments pursuant to statutory provisions under PPA or pursuant to any regulation issued under PPA until the last day of the first plan year beginning on or after January 1, 2009 (January 1, 2011, in the case of governmental plans).

  13. You are only required to confirm compliance with qualification requirements effective through the year of the examination.

    1. Generally, you are not required to identify and confirm the plans compliance with law which is effective after the plan year under examination.

    2. However, if you become aware that the plan sponsor did not adopt required or discretionary amendments after the plan year under examination by their required deadlines , then expand the audit scope to include the subsequent year(s) Form 5500. Once you confirm correction, a closing agreement may be offered.

  14. Example 1: You are examining an individually designed defined contribution plan for the plan year ending December 31, 2012. The plan sponsor’s EIN ends in a "5." You have determined that the plan’s initial EGTRRA RAC (i.e., Cycle E) ends on January 31, 2011. You wish to know what your responsibilities are to determine whether the plan document complies with IRC 401(a).

    1. Your responsibility is to determine that the plan was timely amended to comply with all laws that were effective through the last day of the plan year under examination or as of December 31, 2012. However, since the end of EGTRRA RAC has passed (January 31, 2011), you will need to verify full compliance and not just "good faith" compliance, with all applicable form qualification requirements through the 2010 CL.

    2. If the plan sponsor timely submitted a determination letter request and IRS is processing it, coordinate with the EP determination specialist assigned to review the application to ensure that all applicable amendments were timely adopted. The EP determination specialist should make certain that the plan sponsor perfected all amendments before the close of the second RAC. In other words, the plan sponsor should have timely adopted "good faith" EGTRRA, interim and discretionary amendments and perfected any defects applicable to these "good faith" amendments (including omissions) by amending on or before the end of the EGTRRA RAC or as part of receiving a favorable determination letter.

    3. If no determination letter request is pending, then you are responsible for confirming that the plan sponsor adopted all applicable laws by their required deadlines through the last day of the plan year under examination or as of December 31, 2012. This includes confirming the plan sponsor adopted "good faith" EGTRRA, interim and discretionary amendments applicable for all plan years up through and including December 31, 2011 by their required deadlines. To ensure that the plan has complied with prior law, you are required to confirm that the plan sponsor amended its plan for GUST by the required deadline or the plan received a determination letter for GUST.

  15. Example 2: You are examining an individually designed defined contribution plan for the plan year ending December 31, 2012. The plan sponsor’s EIN ends in a "1." You have determined that the plan’s initial EGTRRA RAC (i.e., Cycle A) ended on January 31, 2007 and the second RAC (i.e., Cycle A) ended on January 31, 2012. You wish to know what your responsibilities are to determine whether the plan document complies with IRC 401(a).

    1. Your responsibility is to determine that the plan sponsor amended the plan to comply with all laws that were effective through the last day of the plan year under examination or as of December 31, 2012. However, since the end of EGTRRA RAC has passed, you will now need to confirm full compliance and not just "good faith" compliance, with all applicable form qualification requirements from the 2010 CL.

      Note:

      The 2010 CL includes interim and discretionary amendments from the 2006, 2007, 2008 and 2009 CLs. You have to verify that the plan sponsor adopted the amendments from the 2006, 2007, 2008 and 2009 within their respective Remedial Amendment Periods, (i.e., RAPs).

    2. Because you will close your examination after the second cycle A RAC ends, confirm whether the plan has a second RAC favorable determination letter. If so, the determination letter should contain this caveat: "This letter may not be relied on after the end of the plan’s first five year remedial amendment cycle that ends more than twelve months after the application is received. This letter expires on January 31, 2017. This letter considers the 2010 Cumulative List of Plan Qualification requirements." Confirm that the plan sponsor adopted subsequent interim and discretionary amendments under the CLs for Cycles B through D effective through the year of examination by their required deadlines.

    3. If the plan does not have an EGTRRA favorable determination letter, confirm that the plan sponsor adopted "good faith" EGTRRA and interim and discretionary amendments and that they comply with the 2005 CL. Also, confirm that the plan sponsor adopted all subsequent interim and discretionary amendments required to be adopted through December 31, 2012, by their required deadlines and that they meet the "good faith" requirement. You are required to confirm that the plan sponsor amended for GUST by its required deadline only if there is no evidence that the sponsor adopted EGTRRA or the second cycle RAC amendments.

4.71.1.4.2  (03-31-2015)
Examinations of Adopters of Master and Prototype (M&P) and Volume Submitter (VS) Plans under Post-EGTRRA Provisions

  1. M&P sponsors and VS practitioners are permitted to adopt required amendments from subsequent Cumulative Lists (subsequent to the 2004 Cumulative List for defined contribution plans or the 2006 Cumulative List for defined benefit plans) on behalf of adopting employers.

  2. Confirm and document that either the employer (or the M&P sponsor or VS practitioner, on behalf of the employer) has adopted all required amendments by their deadline to satisfy IRC qualification provisions.

  3. Verify that the plan sponsor adopted the M&P or VS plan document by the end of the initial Remedial Amendment Cycle (RAC).

    Note:

    If a plan is within its second RAC, you do not have to verify that the document was amended for legislation effective prior to the release of the 2004 Cumulative List (CL). Obtain your manager’s approval to verify laws enacted prior to the 2004 CL.

  4. Your responsibilities also include:

    1. Identifying whether the plan has a pending determination application or whether a current favorable determination, opinion or advisory letter has been issued for the 2004 or 2006 CLs or any later CLs.

      Note:

      If the plan has a pending determination letter application, coordinate your exam with the determination specialist.

    2. Confirming that the plan sponsor executed all amendments to the plan to comply with all applicable form requirements, laws, regulatory guidance or other published guidance, including interim and discretionary amendments effective through the last day of the plan year under examination by their required deadlines.

      Note:

      An exception to this rule would be plan termination.

  5. Confirm whether the EGTRRA Remedial Amendment Period (RAP) has expired. The end of the initial EGTRRA RAC for plan qualification requirements for pre-approved defined contribution plans expired on April 30, 2010.

  6. If an employer adopted an EGTRRA-approved defined contribution plan by April 30, 2010, then verify that the employer adopted interim and discretionary amendments for provisions on post- 2004 CLs by their deadlines.

  7. If the employer did not adopt an EGTRRA-approved document by April 30, 2010, then verify that the employer adopted "good faith" required and discretionary EGTRRA amendments by their deadlines.

    1. Compare the "good faith" interim and discretionary amendments and the final EGTRRA plan document to determine if there are any deviations from the 2004 CL. If the plan lacks provisions or contains incorrect provisions, consider Audit CAP.

    2. Because the EGTRRA RAC has expired, it is not sufficient to merely confirm timely "good faith" EGTRRA, interim and discretionary amendments through the 2004 CL.

    3. The plan sponsor must have adopted all required amendments after the 2004 CL, through the last day of the plan year under examination and they must have satisfied the "good faith" requirement. The plan sponsor must have perfected any defects or omissions related to the 2004 CL before the initial EGTRRA RAC expired.

    4. Generally, if the employer adopted a pre-approved plan by April 30, 2010, this perfected any defects in the "good faith" interim and discretionary amendments included on the 2004 CL.

    5. The IRS issued opinion and advisory letters dated March 31, 2014. The two year remedial amendment period for employers to restate their plan document for the second remedial amendment cycle is May 1, 2014 through April 30, 2016.

  8. The end of the EGTRRA RAP for plan qualification requirements for pre-approved defined benefit plans expired on April 30, 2012.

    1. Because the EGTRRA RAC has expired, it is not sufficient to merely confirm timely "good faith" EGTRRA, interim and discretionary amendments.

    2. If the employer adopted an EGTRRA-approved DB plan, verify that the plan complied with 2007 and later years’ CLs.

  9. If the plan does not have a favorable determination, opinion or advisory letter, confirm that the plan sponsor adopted GUST amendments by their deadlines or that a GUST determination letter was issued. In either situation, confirm that the plan sponsor adopted all applicable laws, regulatory guidance or other published guidance subsequent to GUST, including timely "good faith" EGTRRA, interim and discretionary amendments effective through the year of examination, under the applicable CL, by their deadlines.

  10. A plan’s EGTRRA RAP is contingent on the plan sponsor adopting "good faith" EGTRRA amendments within the GUST RAP.

    1. If the plan sponsor adopted "good faith" amendments within the GUST RAP, the plan’s EGTRRA RAP is extended to the end of the plan’s initial six-year RAC.

    2. If the plan sponsor adopted "good faith" amendments within the GUST RAP, then the RAC remains intact and the plan sponsor may correct any defective EGTRRA, interim and discretionary amendments by the end of the plan’s RAC.

    3. If the plan sponsor did not adopt "good faith" EGTRRA amendments within the GUST RAP, then the plan sponsor may not correct any defective EGTRRA, required or discretionary amendments because the RAC is no longer available. The plan sponsor must use Audit CAP to restore the plan’s RAC and preserve the plan’s qualification.

  11. If a pre-approved defined contribution plan has an EGTRRA favorable opinion letter (Letter 4333 or Letter 4334) or EGTRRA favorable advisory letter (Letter 4335), confirm that an adopting employer has executed the underlying plan within the EGTRRA RAC. Also, confirm that the plan sponsor adopted interim and discretionary amendments effective after the 2004 CL through the year of examination by their required deadlines.

  12. If a pre-approved defined benefit plan has a Letter 4333, 4334 or 4335, confirm that an adopting employer has executed the underlying plan within the EGTRRA RAC. Also, confirm that the plan sponsor adopted interim and discretionary amendments effective after the 2006 CL through the year of examination by their required deadlines.

  13. Under PPA Section 1107, a plan sponsor is permitted to delay adopting any PPA statutory or regulatory interim and discretionary amendments until the last day of their 2009 plan year (2011 for governmental plans).

  14. You are only required to confirm that the plan complies with qualification requirements effective through the year of the examination.

    1. Generally, you are not required to identify and confirm a plan’s form compliance effective after the plan year under examination.

    2. However, if you become aware that the plan sponsor did not adopt required or discretionary amendments subsequent to the plan year under examination, expand the audit scope to include the subsequent year(s) Form 5500. Once you confirm correction, you may offer a closing agreement.

  15. Example 1: On November 30, 2014, you are examining a pre-approved defined contribution plan for the plan year ending December 31, 2012. You wish to know what your responsibilities are to determine whether the plan document complies with IRC 401(a).

    • Your responsibility is to determine that the plan was timely amended to comply with all laws that were effective through the last day of the plan year under examination or as of December 31, 2012. Since the end of EGTRRA RAC has passed, as of the time you are doing the exam, you will now need to confirm full compliance and not just "good faith" compliance, with all applicable form qualification requirements through the 2004 CL.

    • Because you will close the examination after the end of the EGTRRA RAC, you should confirm whether the pre-approved plan received an EGTRRA favorable opinion or advisory letter. Also, confirm that the adopting employer timely executed the underlying plan within the EGTRRA RAC. If the employer adopted a pre-approved plan by April 30, 2010, according to Announcement 2008-23, verify that the employer adopted later interim and discretionary amendments effective through the year of examination under the CLs for Cycles A through E. There may be exceptions to the April 30, 2010 adoption requirement. If the employer adopted a restated plan after April 30, 2014, it would be for a plan for which the pre-approved plan sponsor received an opinion or advisory letter dated April 30,2014.

  16. Example 2: On October 30, 2014, you are examining a pre-approved defined benefit plan for the plan year ending December 31, 2012. You wish to know what your responsibilities are to determine whether the plan document is in compliance with IRC 401(a).

    • Your responsibility is to determine that the plan was timely amended to comply with all laws that were effective through the last day of the plan year under examination or as of December 31, 2012.

    • If the employer adopted a pre-approved plan according to Announcement 2010-20, then you would need to confirm that the employer adopted later interim and discretionary amendments by their required deadlines effective through the plan year being audited under the CLs for Cycles C, D, and E.

  17. Example 3: An employer maintains an individually designed plan but wants to adopt a pre-approved plan. The employer is a Cycle D filer having a five-year RAC that end on January 31, 2015. What is this employer to do?

    • If the employer was a new adopter of the pre-approved plan, then the employer should have adopted an existing pre-approved plan or interim pre-approved defined contribution plan on or before January 31, 2015. The employer was required to adopt any applicable amendments included on the 2012 CL.

    • If the employer was an intended adopter of a pre-approved plan, then the employer should have executed Form 8905 on or before January 31, 2015. The employer was required to adopt any applicable amendments included on the 2012 CL.

4.71.1.5  (03-31-2015)
Scope of the Examination

  1. The focused examination method is the standard approach for examinations.

    1. This method requires you to review the Form 5500 return and all supporting information to determine the scope of the exam and which specific issues you will examine.

    2. Under focused examinations, EP Classification will normally identify three issues that the agent must address in the examination. Based on the pre-audit review, you will normally determine if any additional issues need to be addressed. You may address up to two additional issues without managerial approval but must seek your manager’s approval if the total issues exceed five (Classification’s three issues plus any issues you have identified).

    3. If you determine that a pre-determined issue does not apply or is not appropriate to the return, include your analysis that supports that conclusion in the file.

    4. You are not considered to have "opened" another issue if when verifying one of the focused issues requires you to examine certain aspects of a related issue and you include the related issue as a component of the original focused issue.

    5. If you determine that the related issue does not comply with the Internal Revenue Code (e.g., the issue causes a qualification issue), then you are considered to have "opened" a new issue.

  2. Examples of the focused examination method are shown below. In all scenarios, assume you are assigned a 401(k) plan focused examination with the classified issues of ADP/ACP compliance, participation and coverage.

    1. Scenario A: A highly compensated employee's (HCE) compensation used in the ADP and ACP tests exceeded the IRC 401(a)(17) limit. You recalculated the ADP and ACP tests using the 401(a)(17) compensation limits. You determined that the tests actually passed when the HCE’s compensation was properly limited. You closed the case with an 08 AIMS and 206 RCCMS disposal code. Compensation is not considered a separate examination issue because it is a related component of the ADP/ACP tests.

    2. Scenario B: Testing reveals an HCE’s compensation was not limited to IRC 401(a)(17). You determine that the ADP and ACP tests failed when IRC 401(a)(17) compensation was used. IRC 401(a)(17) will be considered a separate examination issue, because the case will be closed using Employee Plans Compliance Resolution System (EPCRS). If the case is closed under an Audit CAP, the IRC 401(a)(17) issue will be specifically mentioned in the closing agreement. If it is closed using self-correction, the error must be cited in the closing letter.

    3. Scenario C: You determine that employer contributions were not allocated to participants and were also improperly excluded from the ACP test. Regardless of whether or not the plan passes the ACP test, the plan must correct allocations and include the employer contributions in the test. The contribution requirement will be considered a separate examination issue because it will be closed using EPCRS. The contribution requirement failures will be discussed in the closing agreement.

      Note:

      If the additional issues identified in Scenarios B and C result in more than 5 examination issues, obtain your group manager’s approval to expand the audit scope.

  3. Conduct full scope examinations only on training cases, certain designated special project cases or with your group manager's written approval.

  4. Your group manager will determine the scope of an examination for a related return picked up after the initiation of the initial exam.

    Note:

    When you determine that the scope of the examination needs to be expanded to other years or other returns, obtain your group manager’s approval to expand the examination.

  5. Obtain your manager’s approval to survey a case. See IRM 4.71.7, Survey Returns.

  6. Group managers will establish a process to allow you to expand the scope of focused examinations and will require written approval if you select more than two additional issues.

  7. The scope and depth of the examination will depend on a number of factors:

    1. Issues identified

    2. Adequacy of the books and records

    3. Existence of effective internal controls

    4. Size of the entity

  8. Examine and provide a proper conclusion for each identified issue.

    1. When deciding the extent to which you will pursue an issue, consider the amount of time necessary to develop the issue in light of all the facts and circumstances.

    2. Extend the examination to include any large, unusual or questionable items. Obtain your group manager's written approval if you expand the audit to more than five issues.

    3. Indicate in the workpapers the scope and depth of each issue and the reason for termination or extension of its review.

    4. Pursue any issues you find that impact the qualified status of the plan until the plan sponsor corrects the issue using either EPCRS or a Delegation Order 8-3 closing agreement; or, if the plan sponsor will not correct the issue, you close the case "unagreed" to Mandatory Review. See IRM 7.2.2, Employee Plans Compliance Resolution System (EPCRS) and IRM 4.71.3, Unagreed Form 5500 Examination Procedures and Delegation Order 8-3 (DO 8-3) Closing Agreements.

    5. In the end, the plan's qualification and the trust's exempt status (and tax liability where appropriate) will be determined.

  9. The scope of the examination may depend on the adequacy of the taxpayer’s records.

    1. Continue the examination to a point where it is reasonably certain that the plan sponsor and plan have satisfied the information return requirements and qualification requirements.

    2. If the records are inadequate, consider issuing an inadequate record notice under IRM 4.71.1.18, Failure to Maintain Proper Records.

  10. Take into account all necessary action to protect the government’s interest when the statutory period for assessment of any additional or potential tax is about to expire. This responsibility extends not only to the liability of the entity, but also to the liabilities of the related taxpayers, whether or not these returns are currently under exam. In these instances you are responsible for protecting the statute of limitations for:

    1. Forms 1041 and 990-T for the trust for the plan under examination.

    2. Forms 5330 for excise tax involving the plan under examination.

    3. Forms 1040 of highly compensated employees who are participants in the plan when there are taxable events involving the plan under examination unless these returns are currently under examination by W&I, SB/SE or LB&I.

    4. Forms 1120 filed by the plan sponsor when there are income tax adjustments related to the plan under examination, unless these returns are currently under examination by SB/SE or LB&I.

    Note:

    See IRM 4.71.9, Statute Control Procedures and IRM 25.6, Statute of Limitations, for procedures on statute control.

4.71.1.6  (03-31-2015)
Pre-audit Analysis

  1. Perform a pre-audit analysis for both focused examinations and full scope examinations.

  2. Record the pre-audit steps taken and the conclusions reached during the pre-audit analysis in your workpapers.

  3. Verify the case grade prior to contacting the plan sponsor using EP Examination Case Grading Criteria per IRM 7.11.2, EP Case Assignment Guide.

  4. Use Form 5464 for all examinations to document all actions taken and all persons contacted.

  5. Analyze the return before you send the appointment letter and consider the focused issues and the items on the Examination Program Guide section of Form 5772, EP/EO Workpaper Summary.

  6. Obtain information about the taxpayer through ACCURINT, Department of State sites or Internet web sites (some businesses have their own business websites).

  7. Coordinate all EP examinations with any examination of the related income tax returns.

    1. Research Integrated Data Retrieval System (IDRS). You can request a transcript of the taxable return using Form 6882, IDRS/Master File Information Request, Form 5644, EP/EO Inquiry Request, or through other established group procedures. A BMFOLT (for Form 1120) or IMFOLT (for Form 1040) transcript of the taxable entity will indicate whether the taxable return is under examination in W&I, SB/SE or LB&I. Transaction code (TC) 420 indicates that the return is under examination and TC 421 indicates that the examination has been completed. Secure an AMDIS print to determine the current status and group number.

      Note:

      Contact EP Classification for the telephone number of the W&I, SB/SE or LB&I group that has the income tax return. EP Classification can be contacted through their group mailbox at: tege.ep.classification@irs.gov.

    2. If a related income tax return is under examination, coordinate your EP examination with W&I, SB/SE or LB&I Operating Divisions.

    3. If no related income tax return is under examination, proceed with the EP exam.

  8. Use IDRS research to obtain additional information about the employer (including whether or not they filed related returns such as Forms 940, Employer’s Annual Federal Unemployment Tax Return and 941), the plan under examination and other plans maintained by the employer. Use IDRS research to verify return filings and also to view line items for a particular tax period for a specific return. Some of the more useful IDRS command codes are listed below. See IRM 4.71.2, Overview of IDRS, for more information.

    1. INOLES gives the most current name, address and filing requirements for the entity. It may also indicate the Employer Identification Numbers (EINs) of subsidiaries.

    2. INOLEX produces cross referenced EINs that may lead to related entities.

    3. INOLEP provides a list of all plans maintained by the employer.

    4. INOLET provides both Business Master File (BMF) and Employee Plans Master File (EPMF) information of a particular EIN.

    5. EMFOLI also provides a list of plans maintained by the employer along with the years for which a transcript can be requested.

    6. EMFOLD shows the plan administrator information from Form 5500.

    7. EMFOLL shows information about the plan sponsor such as business code and telephone number. It also includes information on the plan’s determination letter, the plan effective date and termination date.

    8. EMFOLT is a transcript of the Form 5500 filing for a particular tax period. The TC 150 posting date shows when the return was filed and you can use it to determine the statute date. A TC 154 posting indicates that a Form 5330 was filed for that period. The TC 154 posting will also show the IRC section and amount of the tax assessed on the Form 5330.

    9. ERTVU shows the Form 5500 line items for a particular plan and tax period. You can review the Form 5500 series returns for the prior and/or subsequent year or for other plans maintained by the employer.

    10. PMFOLS shows the number of W-2s filed by the taxpayer and related entities for each year.

    11. IRPTR gives details of W-2s (wages and salary deferrals), 1099-R (distributions) and 5498 (FMV and rollover contributions of IRA) information reports issued to a recipient.

    12. BMFOLI will list the business returns filed by the taxpayer (e.g., Forms 940, 941, 1120 and 5330), the years for which you can request a transcript and the years for which you can view the return through IDRS using command code BRTVU.

    13. BMFOLT (for Forms 5330, 990-T, 1120 and 1065) or IMFOLT (for Form 1040) shows the date that the employer’s taxable return was filed and whether any extensions of time to file were granted. It also reflects assessments of tax, penalties and interest.

    14. BRTVU (for Forms 990-T, 5330, 1120 and 1065) or RTVUE (for Form 1040) shows line items on a specific return including the pension deduction claimed for a specific tax period.

    15. AMDISA using a "P" after the EIN lists all Forms 5500 under examination. If you do not use a file source code after the EIN, it will list other returns (e.g., Forms 5330 and 1120) under examination.

    Note:

    Case files received on Reporting Compliance Case Management System (RCCMS) from EP Classification will typically contain the following IDRS prints: INOLES, INOLES with a P after the EIN, AMDISA, AMDISA with a P after the EIN, BMFOLI, BMFOLT, EMFOLI, EMFOLL and EMFOLT.

  9. As part of the pre-audit analysis:

    1. Request from the taxpayer a copy of the plan document and amendments in effect for the year(s) under examination.

      Note:

      Verify that the plan is qualified in form for all years under examination. Therefore, review the plan document and all amendments in effect for the year(s) under exam. See IRM 4.71.1.4.1, Examinations of Individually Designed Plans under Post-EGTRRA Provisions.

    2. If the taxpayer has adopted a pre-approved plan (e.g., volume submitter plan), request the plan adoption agreement (if any), the basic plan document and the opinion letter or advisory letter for the pre-approved plan. See IRM 4.71.1.4.2, Examinations of Adopters of Master and Prototype (M&P) and Volume Submitter (VS) Plans under Post-EGTRRA Provisions.

    3. Review the return to determine if all required line items and attachments have been properly completed.

    4. Determine that information on the return is consistent with the EPMF data. If not, prepare appropriate input documents when you complete the exam. See IRM 4.71.1.20, Correcting Form 5500 Returns on the Master File.

    5. Review the return for items that would cause you to add other issues beyond the focused issues.

    6. Review the financial information on the return for any unusual items.

    7. Review income items on the return for indications of unrelated business income (UBI). See IRM 4.71.10.2, Unrelated Business Income, for help in determining if UBI exists.

    8. Verify the statute of limitations date by securing an EMFOLT print or EP Classification Sheet and reconcile the date with an AMDISA print. Any errors should be corrected. A comment should be made in the workpapers stating that the statute date was confirmed. See IRM 4.71.9, Statute Control Procedures.

    9. Review any prior examination reports, workpapers, technical advice or technical assistance memoranda and correspondence regarding the entity.

    10. Check the EP/EO Determination System (EDS) for information on the status of pending determination letter requests or determination letter caveats. If you discover that the plan has a pending determination letter request, coordinate with Determinations. Do not close the examination without first ensuring that the determination request will receive favorable treatment. However, the group manager may approve closing the examination without waiting by indicating such approval on Form 5464. The determination file may be requested and worked concurrently with the examination, only with group manager approval.

    11. Secure IDRS prints to verify that related returns were filed in accordance with the package audit requirements discussed in IRM 4.71.1.14.

4.71.1.7  (03-31-2015)
Contacting the Taxpayer

  1. Your initial contact with the taxpayer must be in writing using a 1346 series letter.

  2. After you mail the letter, call the taxpayer to discuss the availability of books and records, the scope of the audit and to schedule the audit appointment.

  3. The phone call by the agent should be:

    1. No earlier than five days after the 1346 series letter is mailed, and

    2. No later than ten days after the letter is mailed.

    Note:

    The taxpayer must be given ample time to receive the letter before the agent calls to schedule the audit appointment.

  4. Schedule the initial examination appointment at a time and date convenient to the taxpayer, generally within 45 days of first contacting them.

  5. Solicit and review the plan document, including applicable amendments, prior to the field audit.

    1. You may request the plan document either during the initial phone call to the taxpayer or in the initial Information Document Request (IDR) attached to the appointment letter.

    2. If the plan sponsor does not provide the plan document in advance, in spite of your best efforts to secure it, do not postpone the initial appointment date.

  6. Once an appointment is agreed to, the examination should be conducted on the confirmed appointment date, unless there are extenuating circumstances.

  7. Send Letter 1346, Form 5500 Field Examination Initial Appointment Letter, to the taxpayer (and POA, if applicable) to initiate all field examinations. See IRM 4.71.11, Office/Correspondence Examination Program (OCEP), for the initial contact letter for OCEPs.

  8. Include Pub 1-EP, Understanding the Employee Plans Examination Process, Pub 4324, Employee Plans Examination Flowchart, Pub 4325, EP Examination Bookmark and the IDR with the initial appointment letter.

    Note:

    Pub 1-EP fulfills the requirement in IRC 7521(b)(1)(A) that taxpayers be informed of the examination process and their rights under such process at or before the initial interview.

  9. Send an IDR with the initial appointment letter.

    1. Prepare the IDR after your pre-audit analysis.

    2. Limit your IDR solely to soliciting information specific to the items identified as having issue potential.

    3. In a focused examination, include an IDR for the pre-selected audit issues and any additional issues determined to have audit potential (limited to five total issues unless you obtain your manager’s approval).

      Note:

      Use IDRs, available in the RCCMS Letters Folder, to request items needed for the examination.

  10. Address the letter to the taxpayer at the last known address. Unless another reliable source is available, secure an INOLES print to determine the taxpayer's last known address.

  11. Agents are not authorized to assure taxpayers that their books and records will be used solely for civil purposes.

    1. If a taxpayer insists on an assurance or provides a statement that their books and records are only being made available for limited purposes, find out the taxpayer’s reasons for refusing to furnish the records without restriction.

    2. Document the taxpayer's response in the case chronology.

    3. If a taxpayer or authorized representative asks if fraud is being considered, the IRS has a duty to respond if not answering the inquiry would be intentionally misleading.

    4. Your response must include a statement that fraud is considered in every case and we must fully develop every issue to ensure that any proposed tax and penalty adjustments are justified.

    5. Your response must also include a statement that we share information between civil and criminal authorities when indications of fraud are identified.

      Note:

      If you deceive or mislead a taxpayer, the criminal fraud case may be jeopardized. See IRM 4.71.25, EP Exam Fraud Procedures.

  12. If there is, in view of all known factors including the taxpayers refusal to furnish records, an indication that fraud may exist, consider whether to refer the case to Criminal Investigation (Cl).

    1. Discuss the fraud indicators and a possible fraud referral with your group manager.

    2. Do not propose any type of civil settlement prior to discussing the issue(s) with your manager. A civil proposal jeopardizes criminal prosecution.

    3. If your manager concurs, contact the EP Fraud Coordinator in EP Special Review.

    4. See IRM 4.71.25, EP Exam Fraud Procedures, for procedural guidance.

4.71.1.7.1  (03-31-2015)
Place of Examination

  1. Unless facts and circumstances dictate otherwise, conduct the examination at the plan sponsor’s place of business as provided in Treas. Reg. 301.7605-1(d).

  2. Reasons for holding the examination at the plan sponsor’s place of business include:

    1. It helps ensure your time is used efficiently by having access to source documents where they are stored.

    2. It is an opportunity for you to familiarize yourselves with the business operations by inspecting the premises.

    3. It enables you to better evaluate the internal controls in the operation of the plan.

  3. If holding the examination at the plan sponsor’s place of business is not a viable option, (e.g., if your presence would disrupt the business operations), request an opportunity to conduct a walk-through of the business premises and have an opportunity to direct questions to the plan sponsor or an employee, if the POA does not have the knowledge to provide an adequate answer. You could schedule your visit prior to the start time of the business (e.g., before office hours at a doctor’s office).

4.71.1.7.2  (03-31-2015)
Employee Contact - RRA Section 3705

  1. Employees working tax related inquiries must give taxpayers information to identify the appropriate employee who can address any further questions (RRA section 3705). Therefore, all IRS employees will provide the following contact information:

    1. During a telephone or personal contact - name and identification number.

    2. On all correspondence - telephone number where the taxpayer’s questions can be answered.

  2. Consequently, you must include your name, telephone number and unique identifying number on all correspondence generated through an EP examination or compliance check.

4.71.1.7.3  (03-31-2015)
Concluding the Initial Audit Appointment and Additional Requests for Information

  1. If possible, conduct an interview with the taxpayer or taxpayer's representative at the conclusion of the initial audit appointment to discuss unresolved issues and additional documents you need.

    1. You may discover that the necessary documents to resolve an issue are readily available, avoiding unnecessary delays.

    2. Furthermore, the taxpayer or its representative may be able to offer other ways to resolve the issue that may not be initially apparent to you.

  2. If the documents or records are not available during the initial office visit, issue a follow-up Form 4564, Information Document Request (IDR).

    Note:

    Form 4564 is generally prepared to request additional information after the initial appointment letter.

  3. If you do not have a printer at the audit site, you may use a handwritten IDR and:

    1. Discuss the document request with the taxpayer or its representative so that penmanship issues do not impede the examination process.

    2. Make a photocopy so you and the taxpayer have the same document.

    3. Print and send the IDR when you return to the office and place a copy in the file.

  4. For all subsequent IDR’s:

    1. Clearly state the agreed on response date.

    2. List the specific records, information and documents that the taxpayer should have available on the response date.

    3. Be specific and avoid requesting more information than is necessary to resolve the identified issues.

    4. Include an adequate description of the requested data.

    5. Include an adequate description of why the information is being requested (the facts and circumstances will dictate how much you need to describe each item).

    6. State the time period of the necessary records (e.g., if the agent is examining the 2014 plan year, but only needs records for July through August of 2014, then you should state on the IDR the specific periods you need).

    7. State how and where the information will be delivered. If the taxpayer or representative will provide the information at their office during a subsequent appointment, then state that the information will be available at the next appointment date.

  5. Select a response date that is reasonable to enable you to promptly complete the examination within the shortest possible cycle time.

    1. Ideally, the response dates should be within 14 calendar days.

    2. However, if your response date extends beyond the longest acceptable time period between significant activities (see the National Time Frame Standards in IRM 4.71.1.7.4, Time Frames for Conducting an Examination), document your CCR to explain why the extended time is necessary.

  6. Paragraphs (1) through (5) apply whenever you conduct an on-site examination.

  7. When you mail the IDR to the taxpayer, send a copy to the POA (if applicable) with cover Letter 937, Transmittal Letter For Power of Attorney.

4.71.1.7.4  (03-31-2015)
Time Frames for Conducting an Examination

  1. Taking timely actions on a case is an essential element of managing the examination cycle time and is key to taxpayer satisfaction. National mandated time frames dictate when you should initiate, follow up on or complete certain actions.

  2. It is important that you note your CCR to explain delays in processing your examination process that exceed the time frames.

    1. Generally, there are reasonable explanations for delays such as details to training, illness and management-directed higher priority work.

    2. Regardless of the reason, note and clearly explain your delays.

  3. If you don’t meet a time frame because you must complete other work, explain the reason for the delay on the CCR.

    1. Citing "higher priority work" without an explanation is not acceptable.

    2. This exception may justify a delay of up to seven calendar days.

  4. It is important for EP to track trends to properly respond to stakeholders such as Congress or taxpayer advocacy groups. Employee Plans’ Tax Exempt Quality Measurement System (TEQMS) uses the recommended national standard of time measurement.

    1. These standards are considered maximum allowable time frames and TEQMS ratings may be adversely affected when you do not document the reasons for a delay or extended periods of inactivity.

    2. All time frames are measured by calendar days, except for the time frame to respond to telephone calls, which is measured by business days.

  5. Any other IRM requirements or managerial directed requirements for expedited processing will take precedence over the standard time frames indicated below.

  6. The normal time frames are:

    1. Forty five days to start a field examination measured from the first contact to the initial appointment.

    2. Thirty days to start an OCEP examination measured from the date you mail the initial OCEP examination letter to the date you first review the records.

    3. Forty five days between significant activities (field exam).

    4. Thirty days between significant activities (OCEP exam).

    5. Ten days to close agreed or no-change examinations measured from the date you resolve all issues or you make a no change determination.

    6. Twenty days to close unagreed examinations measured from the date of your final closing conference, or if the plan sponsor declined a closing conference from the date it was declined.

    7. Ten days for the group manager to initial, date and close the case file after receiving the case from the agent.

    8. Three business days to respond to telephone calls.

    9. Fourteen days to respond to correspondence.

  7. If your manager directs you to do "higher priority work," you may be granted an addition seven days. Document your CCR with the specific reason for the delay. It’s not acceptable to just state "higher priority work."

4.71.1.7.5  (03-31-2015)
Returned Mail

  1. If the initial contact letter is returned to the IRS by the Post Office as undeliverable, obtain the taxpayer’s current address:

    1. Check all possible sources on the EP/EO Determination System (EDS).

    2. Research ACCURINT or the internet for names and addresses of officers, directors, trustees or plan officials, as well as of the taxpayer.

    3. Request the current address by submitting Form 6882, using IDRS Command Code INOLES. The information provided will be from the latest return module that posted to the Master File and will include entity and address data. Instructions to complete Form 6882 are on the back of the form.

    4. Contact the postmaster of the most recent address obtained under steps a through c. Do not take Step d unless you have first completed steps a through c. The postmaster requires the following certification statement. Stamp or type at the bottom of the request: "Change of address is required for official use. We have searched other known sources of information for the address."

      Note:

      Use Form 4759, Address Information Request-Postal Tracer, to secure information from the Post Office.

    5. Use other sources such as Department of State sites or internet web sites.

  2. Use Form 5464 to document the steps you have taken to locate the taxpayer. If you find the taxpayer’s correct address, re-mail the correspondence.

4.71.1.8  (03-31-2015)
RCCMS and AIMS Updates

  1. Update RCCMS and Audit Information Management System (AIMS) anytime a case’s status changes

    1. For example, update RCCMS and AIMS to status code 12 when you first contact the taxpayer.

    2. See Document 6476, Employee Plans Computer System Codes, for other status codes.

  2. Update RCCMS and AIMS whenever the statute of limitations is updated.

  3. Secure and include an AIMS print in the RCCMS Office Documents folder for all AIMS updates.

4.71.1.9  (03-31-2015)
Power of Attorney (Form 2848) and Tax Information Authorization (Form 8821)

  1. Form 2848, Power of Attorney and Declaration of Representative, is used to authorize an attorney, certified public accountant, enrolled agent, enrolled actuary, enrolled retirement plan agent or other qualified person to represent a taxpayer before the IRS. See IRM 1.25.1, Rules Governing Practice Before the Service. See IRM 4.71.1 Exhibit 4, Form 2848 Instructions, at IRM 4.71 - Employee Plans Examination Exhibits.

  2. Only one taxpayer can be listed per Form 2848. If both the plan and trust are authorizing the same representative, obtain separate Forms 2848.

    1. Two or more taxpayers (as evidenced by separate Taxpayer Identification Numbers) may not be included on the same Form 2848. For a joint return, each spouse (or former spouse) must submit a separate Form 2848 when the taxpayer desires someone to represent him or her.

    2. If a Form 5500 is being examined, the initial Form 2848 would normally only cover the Form 5500 returns for the years(s) under examination.

    3. Soliciting information from the plan sponsor for information reported on a Form 5500 or related Schedule (e.g., Schedule H or Schedule I) does not, in itself, place the trust under exam and does not mean you must obtain two Forms 2848 (one for the plan and one for the trust).

    4. You must get a separate Form 2848 for the trust when you and your manager decide to place the trust under examination (e.g., Form 990-T is picked up for exam), or when you are requesting a statute extension for the trust and the representative is signing Form 872-H.

      Note:

      The term "under examination" in this context generally means that you have reached a point in your examination of the plan where you are looking at the trust records with the intent of possibly assessing tax on the trust (e.g., Form 1041 or 990-T). It doesn’t include the request for general trust information and the initial Letter 1346 sent to the plan sponsor as required by current standards.

  3. If the officers of the company sponsoring the plan want an employee of the company to represent the taxpayer during the exam, obtain Form 2848 for that employee.

    1. If the corporation wants a specific employee (irrespective of title) to advocate, negotiate, or dispute issues with the IRS on behalf of the corporation, obtain a Form 2848 from the corporation authorizing that representation.

    2. The Form 2848 must be signed by a duly elected officer or director of the corporation as identified in the corporate articles or by-laws (typically, the same officer who signs the corporation's tax returns and consents to extend the time for assessment of tax).

    3. The designation in Part II of Form 2848 will be "e" , Full-Time Employee—a full-time employee of the taxpayer.

    4. Request the Form 2848 from the appropriate corporate official when the employee is about to or has begun to represent the plan.

    Note:

    Representation under Circular 230 means, advocate, negotiate, or dispute issue. Form 2848 is not required if the role of the designated individual is limited to providing or receiving information or to offer general explanations.

  4. Any person allowed to perform "limited practice" per section 10.7(c)(1) of Circular 230 must be designated on a Form 2848.

  5. A valid Form 2848 must contain the following information in the Taxpayer Information section::

    1. If a Form 5500 is being examined, the plan sponsor’s name, address and EIN, and the three digit plan number must be listed. See IRM 4.71.1 Exhibit 5, Form 2848 for Plan Sponsor Example, at IRM 4.71 - Employee Plans Examination Exhibits.

      Note:

      The name of the plan may also be listed on line 3 with the plan number.

    2. If a trust is being examined, the name, title and address of the trustee, and the name and EIN of the trust (if the trust has an EIN) must be listed. See IRM 4.71.1 Exhibit 6, Form 2848 for the Trust Example, at IRM 4.71 - Employee Plans Examination Exhibits.

    3. If Form 5330 for an individual is being examined, the name, address and Social Security Number (SSN) of the individual must be listed. See IRM 4.71.1 Exhibit 7, Form 2848 for Excise Tax Individual Example, at IRM 4.71 - Employee Plans Examination Exhibits

    4. If Form 5330 for a corporation, partnership or association is being examined, the name, address and EIN of the entity owing the excise tax must be listed. See IRM 4.71.1 Exhibit 8, Form 2848 for Excise Tax Corporation Example, at IRM 4.71 - Employee Plans Examination Exhibits

      Note:

      The same Form 2848 could also be used to cover Form 1120 if "income" is added on "Description of Matters" line and "1120" is added on the "Tax Form Number" line.

    5. If the Form 2848 relates to a Form 1040 discrepancy adjustment, the name, address and SSN of the individual must be listed. See IRM 4.71.1 Exhibit 9, Form 2848 for Income Individual Primary SSN Example, at IRM 4.71 - Employee Plans Examination Exhibits and see IRM 4.71.1 Exhibit 10, Form 2848 for Income Individual Secondary SSN Example, at IRM 4.71 - Employee Plans Examination Exhibits.

      Note:

      For a joint return, each spouse (or former spouse) must submit a separate Form 2848, even if using the same representative.

    6. If the examination involves a Non-Return Unit (NRU), the name, address and EIN of the entity being examined must be listed.

    7. Name, address, phone number and Centralized Authorization File (CAF) number (if applicable) of the designated representative (POA) must be included in the Representative(s) section.

      Note:

      Only the individual or individuals named on the Form 2848 can represent the taxpayer. Permission is not automatically extended to other personnel of the firm employing the representative(s). In order to provide a substitution, without the submission of a new Form 2848, the requirements of Treas. Reg. 601.505(b)(2) must be followed.

    8. The type of tax (income, UBI, excise, employment, etc.) and the tax form number(s) must be listed in the Matters section.

      Note:

      "Description of Matter" for Form 5500 should include the plan number and the description of the matter.

      Note:

      Only the type of tax that can be paid by that taxpayer can be entered.

      Note:

      "Description of Matter" for SEPs, SARSEPs and SIMPLEs should be "SEP IRA" , "SARSEP IRA" or "SIMPLE IRA" as applicable.

    9. For SEPs, SARSEPs and SIMPLEs, the "Tax Form Number" should be Not Applicable.

      Note:

      If doing a discrepancy adjustments on a related Form 1040, a separate Form 2848 would need to be secured.

    10. The year(s) or period(s) covered must be listed in the Matters section.

      Note:

      Years covered must be specifically listed. It is not acceptable to list "all years" .

      Note:

      If the examination is expanded into years not covered by the current Form 2848, then another Form 2848 must be secured listing all years covered by the examination if that representative is to continue to represent the taxpayer for those years.

    11. In order to be valid, the Taxpayer listed in box 1 must sign and date the Form 2848.

    12. If the applicable return is a Form 5500, the title of the individual (e.g., president) signing for the plan sponsor must be included next to the signature line.

    13. If the applicable return is a Form 990-T or Form 1041, the trustee must sign and date the Form 2848 as the taxpayer and his/her title (trustee) must be included next to the signature line. Form 56, Notice Concerning Fiduciary Relationship, must also be secured with the trustee's signature.

    14. The representative(s) must sign and date the declaration (Part II) and enter his/her proper designation(s) (a through r) under which he or she is authorized to practice before the IRS.

    15. Special attention should be given to Item 5a and 5b of Form 2848 to see if the taxpayer makes any restrictions or additions to acts automatically authorized by the Form 2848.

  6. A valid Form 2848 must also contain the following information:

    1. In the Representative(s) section – the designated representative’s (POA) name, address, phone number and Centralized Authorization File (CAF) number.

      Note:

      Only the individual or individuals named on the Form 2848 can represent the taxpayer. Permission is not automatically extended to other personnel of the firm employing the representative(s). In order to provide a substitution, without the submission of a new Form 2848, the requirements of Treas. Reg. 601.505(b)(2) must be followed.

    2. In the Matters section - the type of tax (income, UBI, excise, employment, etc.) and the tax form number(s).

      Note:

      "Description of Matter" for Form 5500 should include the plan number and the description of the matter.

      Note:

      Only the type of tax that can be paid by that taxpayer can be entered.

      Note:

      "Description of Matter" for SEPs, SARSEPs and SIMPLEs should be "SEP IRA" , "SARSEP IRA" or "SIMPLE IRA" as applicable.

    3. For SEPs, SARSEPs and SIMPLEs, the "Tax Form Number" should be "Not Applicable" .

      Note:

      If doing a discrepancy adjustments on a related Form 1040, a separate Form 2848 would need to be secured.

    4. In the Matters section - the year(s) or period(s) covered must be listed.

      Note:

      Years covered must be specifically listed. It is not acceptable to list "all years."

      Note:

      If the examination is expanded into years not covered by the current Form 2848, secure another Form 2848 listing all years covered by the examination if that representative will represent the taxpayer for those years.

    5. In order to be valid, the Taxpayer listed in box 1 must sign and date the Form 2848.

    6. For Form 5500, the title of the individual (e.g., president) signing for the plan sponsor must be included next to the signature line.

    7. For Form 990-T or Form 1041, the trustee must sign and date the Form 2848 as the taxpayer and his/her title (trustee) must be included next to the signature line. Secure Form 56, Notice Concerning Fiduciary Relationship, with the trustee's signature.

    8. The representative(s) must sign and date the declaration (Part II) and enter his/her proper designation(s) (a through r) under which he or she is authorized to practice before the IRS.

    9. Pay special attention to Item 5a and 5b of Form 2848 to see if the taxpayer makes any restrictions or additions to acts automatically authorized by the Form 2848.

  7. In Part II, Declaration of Representative of Form 2848, the representative(s) must list the following information in the Designation column:

    1. Attorney—the two letter abbreviation for the state in which admitted to practice.

    2. Certified Public Accountant—the two letter abbreviation for the state in which licensed to practice.

    3. Enrolled Agent—the enrollment card number issued by the Office of Professional Responsibility.

    4. Officer—the title of the officer (e.g., President, Vice President or Secretary).

    5. Full-Time Employee—the title or position (e.g., Comptroller or Accountant).

    6. Family Member—the relationship to taxpayer (must be a spouse, parent, child, brother, sister, grandparent, grandchild, step-parent, step-child, step-brother or step-sister).

    7. Enrolled Actuary—the enrollment card number issued by the Joint Board for the Enrollment of Actuaries.

    8. Unenrolled Return Preparer—the two letter abbreviation for the state in which the return was prepared and the year(s) or period(s) of the return(s) they prepared.

    9. Registered Tax Return Preparer—registered as a tax return preparer under the requirements of section 10.4 of Circular 230. Their Preparer Tax Identification Number (PTIN) number must be included.

    10. Student Attorney or CPA (designation "k" on Form 2848) —receives permission to practice before the IRS by virtue of his/her status as a law, business or accounting student working in a Low Income Taxpayer Clinic (LITC) or a Student Tax Clinic Program (STCP) under section 10.7(d) of Circular 230.

    11. Enrolled Retirement Plan Agent (designation "r" on Form 2848) — The enrollment card number issued by the "Office of Professional Responsibility" must be entered.

      Note:

      This is an individual who is enrolled as a retirement plan agent under the requirements of Circular 230 (their authority to practice before the IRS is limited by section 10.3(e)).

  8. If a representative, who is appointed by the taxpayer, is not qualified to sign Part II of Form 2848, return the form to the taxpayer. You should not treat an invalid Form 2848 as authority for the individual to receive tax information.

  9. In a situation where the taxpayer appoints an individual as a representative during an examination and the person appointed is not qualified to sign Form 2848, advise the taxpayer to complete Form 8821, Tax Information Authorization. The Form 8821 will authorize the individual to receive or inspect tax return information, but will not authorize the individual or organization to represent the taxpayer before the IRS.

  10. An unenrolled return preparer (URP) may only represent the taxpayer for the return that he/she prepared and signed.

    1. For that reason a URP may not represent a taxpayer for a Form 5500 examination for years in which the Form 5500 doesn’t provide either a line for the return preparer to sign or an area for information identifying the return preparer.

    2. A URP may still represent a taxpayer for other types of tax returns (e.g., Forms 1040, 1120, 990-T or 1041) that he or she prepared and can sign or provide the necessary information, but Section 5 of Revenue Procedure 81-38 does limit this authority.

      Note:

      See also Pub 470, Limited Practice without Enrollment and Circular 230.

    3. Beginning with the 2012 plan year, the Form 5500 will again provide an area in which the URP can enter the necessary information. For that reason, beginning with the 2012 plan year, an URP can begin to represent a plan sponsor during an EP examination subject to the above mentioned limitations for plan years 2012 and later.

  11. A URP may not represent a taxpayer before Appeals or Collection, execute closing agreements, extend the statute of limitations, execute waivers, execute claims for refund, receive refund checks or sign any documents for a taxpayer. Additionally, unless they check the appropriate box(es) below on Line 5, the representative(s) is (are) not authorized to execute a request for disclosure of tax returns or return information to a third party, substitute another representative or add additional representatives or sign certain tax returns.

  12. Forward a copy of Form 2848 or Form 8821 you secure during an examination to the appropriate Service Center as soon as possible.

    1. See Form 2848 instructions page 1 for the list of locations of where to fax or mail Form 2848.

    2. Mark the top of the file copy of Form 2848 (or Form 8821) with the date you sent the form and to which Service Center you sent it.

    3. Note in the case chronology record that you forwarded the form (Form 2848 or Form 8821) to the Service Center.

  13. The filing of a Form 2848 automatically revokes all previously submitted Forms 2848 for the same tax matters and years or periods covered unless the box in item 6 of the Form 2848 is checked.

  14. If the taxpayer wants to retain previously designated representatives, he must check the box in Item 6 and attach copies of the applicable Forms 2848 for those representatives to the new Form 2848 being submitted.

  15. If the taxpayer wants the representative to receive correspondence from the IRS, he must check the box in Part I, Item 2 (below the representative's name and address). Only two representatives will receive correspondence.

  16. If the taxpayer chooses to revoke an existing power of attorney and not name a new representative, he must send a copy of the previously executed power of attorney to the IRS along with a cover letter. He must:

    1. Write "REVOKE" across the top of Form 2848.

    2. Include in the cover letter: a written statement that the authority of the power of attorney is revoked and list the name and address of each recognized representative whose authority is being revoked along with the applicable return(s), tax matter(s) and year(s) (or if the taxpayer is completely revoking a representative he/she may state: "remove all years/periods" ).

    3. Sign and date the cover letter.

  17. If a representative wants to withdraw from representation, he must send a copy of the previously executed power of attorney to the IRS along with a cover letter. He must:

    1. Write "WITHDRAW" across the top of Form 2848.

    2. Include in the cover letter: a written statement that he/she is withdrawing from representing the taxpayer and the taxpayer’s name, TIN and address with the applicable return(s), tax matter(s) and year(s) (or the representative may indicate that they are withdrawing from "all years/periods" ).

    3. Sign and date the cover letter.

  18. The taxpayer/representative must send the statement of revocation/withdrawal to the EP group responsible for the case.

  19. The EP agent or manager will forward the revocation/withdrawal request to the applicable Service Center. See paragraph (12).

  20. Maintain copies of all secured Forms 2848 in the paper case file or scan and save them in the RCCMS Office Documents folder when you close the case.

  21. "Pen and ink" changes to Form 2848 are not acceptable. If you discover imperfections on the Form 2848, then request that the taxpayer submit a new form.

  22. For other helpful information on Power of Attorney, see the IRS web site at: Power of Attorney Guidance. See also the Form 2848 instructions.

4.71.1.9.1  (03-31-2015)
Overview of Power of Attorney By-Pass Procedures

  1. IRC 7521(c) states that an agent, with the approval of the group manager, "may notify the taxpayer directly that such officer or employee believes such representative is responsible for unreasonable delay or hindrance of an IRS examination or investigation of the taxpayer."

  2. The procedures to by-pass the power of attorney (POA) permit the agent to contact the taxpayer directly and to request any information necessary to complete the examination. See IRM 4.11.55.3, Examining Officers Guide, Power of Attorney Rights & Responsibilities, By-Pass of a Representative.

  3. Under the "By-Pass Procedures" the POA continues to represent the taxpayer, and you are required to send all correspondence issued to the taxpayer to the representative. The taxpayer may at his/her discretion forward the requested information/documentation to you through the representative.

4.71.1.9.1.1  (03-31-2015)
By-Pass Procedures

  1. If any of the following issues occur, document the case chronology accordingly:

    1. The representative impedes or delays an examination by failing to submit the taxpayer’s records or information requested by the IRS.

    2. The representative impedes or delays an examination by failing to keep scheduled appointments.

    3. The representative impedes or delays an examination by failing to return telephone calls and written correspondence.

  2. If you note a trend and the examination is being hindered because of the representative, notify your group manager will be notified of the representative’s actions. The manager will ensure that all reasonable efforts have been taken to deal directly with the representative and that the case file sufficiently details the facts that support how the examination has been delayed or hindered.

  3. If you have not done so already, send all correspondence that you sent to the representative to the taxpayer. This includes all IDR’s.

    Note:

    In many cases, the taxpayer may not be aware that the representative is procrastinating and may correct the situation once he/she is made aware of the problem.

  4. The group manager will send Letter 4020-A, Warning Letter for By-Pass Procedures for Preparers Covered under Circular 230, to advise the representative of his/her responsibilities under Circular 230 and conveying advance notice of a possible "by-pass" because the representative is violating Circular 230.

    1. Attach copies of prior document requests, a list of outstanding items and a brief chronology of events to the letter.

    2. Send a copy of the Letter 4020-A to the taxpayer.

  5. If the representative continues to delay or refuses to provide the information requested, obtain the Area Manager's written approval to "by-pass" the representative.

  6. The "by-pass" permits the IRS to contact the taxpayer directly. The practitioner can continue to represent the taxpayer, if accompanied by the taxpayer. The representative will be afforded the courtesy of being advised of the time and place for future appointments with the taxpayer.

  7. Use a summons to secure information if both the taxpayer and the representative are both intentionally uncooperative.

4.71.1.10  (03-31-2015)
Third Party Contacts

  1. The provisions of IRC 6103 and the regulations thereunder apply to all third party contacts. See IRM 25.27.1, Third Party Contacts – Third Party Contact Program.

  2. IRC 6103(k)(6) provides that IRS employees may disclose return information to the extent that such disclosure is necessary in obtaining information, which is not otherwise reasonably available, with respect to the correct determination of tax, liability for tax, or the amount to be collected.

  3. IRC 7602(c) stipulates that IRS personnel may not contact third parties with respect to the determination or collection of the tax liability without providing reasonable notice in advance to the taxpayer that contacts with persons other than the taxpayer may be made. Section 3417 of RRA 98 further amended IRC 7602(c) to require IRS personnel to maintain a record of such contacts and provide taxpayers with this record upon request.

  4. Generally, third party contacts are made whenever the IRS is unable to obtain or to verify the accuracy of the information received from the taxpayer/representative. However, employees should make every effort to first obtain information from the taxpayer/representative.

  5. IRC 7602(c) requires the IRS to:

    1. Provide advance notice to the taxpayer that third party contacts may be made.

    2. Periodically provide a list of all third party contacts to the taxpayer.

    3. Send a list of third party contacts to the taxpayer upon request.

      Note:

      Any tax period under investigation by Criminal Investigation (CI) is not subject to the requirements of IRC 7602(c). Third party contacts to develop a referral to CI are contacts under IRC 7602(c). See IRM 4.71.1.10.4, Exceptions to IRC Section 7602(c) Requirements. for other exceptions to the notification requirements.

  6. The term "taxpayer" means the person or entity for whom a return is filed or for an NRU, the entity responsible for the arrangement.

    1. With regard to Form 5500 examinations, the "taxpayer" is the plan sponsor responsible for all records covered by an EP examination except for the assets held on behalf of the participants.

    2. In some Form 5500 examinations, the "taxpayer" is the trustee when assets held on behalf of the plan participants becomes the concern.

    3. For an NRU, the "taxpayer" is typically the plan sponsor.

4.71.1.10.1  (03-31-2015)
Third Party Contact Defined

  1. For purposes of IRC 7602(c), except for the situations in paragraph (2) below, a third-party contact has been made when an IRS employee initiates contact with a person other than the taxpayer and asks questions about a specific taxpayer with respect to that taxpayer’s federal tax liability, including the issuance of a levy or summons to someone other than the taxpayer.

  2. The following are not third party contacts:

    1. Searches made on computer databases that do not require any personal involvement on the other end (for example, searches on LexisNexis ACCURINT)

    2. Contacts made with any office of any local, state, federal, or foreign government entity

      Note:

      Referrals to the Employee Benefits Security Administration (EBSA) on Form 6212-B, Examination Referral Checksheet B, referrals to Pension Benefit Guarantee Corporation (PBGC) on Form 6533, Examination Referral Worksheet or referrals/contacts to any other governmental entity are not considered third party contacts under IRC 7602 (c).

    3. Unsolicited information received from a third party where the third party initiated the contact

    4. Information that the IRS receives from, or provides to the government of a foreign country or U.S. possession pursuant to information exchange programs under treaties or agreements with such governments or as authorized by domestic or foreign statutes, including programs concerning specific, routine, spontaneous and simultaneous exchanges of information

    5. Contacts made by the IRS to respond to a request from a government of a foreign country or U.S. possession concerning a foreign or possession tax liability

    6. Contacts made with third parties to collect taxes for another country as part of a Mutual Collection Assistance Agreement

    7. Exchanges of information via tape programs (for example, the State Income Tax Levy Program and the Federal Payment Levy Program)

    8. Contacts with individuals who have a valid power of attorney for the taxpayer

    9. Contacts made to obtain information regarding an industry or market segment where specific taxpayers have not been identified

    10. Contacts made by IRS employees during litigation if the contact relates to a matter and issue being litigated, including, but not limited to, service of Tax Court subpoenas on third parties by employees

    11. Contacts made with other IRS employees in the scope of an employee's official duties, including employees of the Office of Chief Counsel

    12. Contacts made as the result of unsolicited requests for a payoff of a Notice of Federal Tax Lien or to respond to requests for information regarding the priority of a lien (for example, contact with a lending institution)

    13. When the taxpayer under examination is a business, contacts made with employees who are acting within the scope of their employment

  3. The following are generally third party contacts:

    1. Solicitation by an IRS employee for additional information as a result of a follow up to a third party-initiated call

    2. Contacts made with employees of the taxpayer who are questioned outside the scope of their normal employment when the taxpayer under examination is a business

  4. Returning an unsolicited call is not considered a third party contact; however a call made after the return call to gather additional information is considered a third party contact. Therefore, it is important to remember to make a reprisal determination during an initial conversation with an informant. See IRM 4.71.1.10.4.3, Reprisal, for specific requirements regarding reprisal determinations.

  5. When employees contact taxpayers who are represented by an authorized power of attorney (POA), be aware that in any situation involving any written contact (including a fax) between the IRS and a taxpayer, the taxpayer must receive the original copy of the correspondence and the authorized representative must be sent a copy of such correspondence, unless otherwise indicated on the Form 2848.

4.71.1.10.2  (03-31-2015)
Notification Requirements

  1. It is the practice of the IRS to obtain information relating to a liability or collectibility determination directly from the taxpayer whenever possible. Situations will arise when the IRS must contact third parties to complete an investigation.

  2. Advance notification of potential third party contact is incorporated into Pub 1, Your Rights as a Taxpayer.

  3. Use Letter 3164, Third Party Notice, to provide notification and include the:

    1. Date

    2. Taxpayer’s name, address and TIN

    3. Person to contact, telephone number and ID number

  4. The agent will issue the notice to the taxpayer when it is determined that there is a reasonable likelihood that a third party contact will be made.

  5. Issue a new Letter 3164 if the examination is expected to cover a new tax period and information is solicited for that period..

  6. The following versions of Letter 3164 are available for use:

    1. Letter 3164 E (DO) is used for general exams.

    2. Letter 3164 F (DO) is used when a third party contact will be made to verify taxpayer information involving examination issues, e.g., large case (CEP).

    3. Letter 3164 G (DO) is used when a third party contact will be made to obtain taxpayer information involving examination issues, e.g., large case (CEP).

    4. Letter 3164 K (DO) is used when a third party contact will be made in a ruling or determination matter (including compliance statements, closing agreements, etc.).

4.71.1.10.2.1  (03-31-2015)
Notification Procedures

  1. When you determine that a third party contact is necessary, review the case file to determine if the taxpayer has received the required notification. Another employee or function may have issued the required notice. Look for a copy of Letter 3164 in the case file.

  2. If the taxpayer has not received prior notification and a third party contact is necessary, the agent should prepare and provide Letter 3164 to the taxpayer in accordance with the following instructions:

    1. Prepare the appropriate Letter 3164. On a jointly filed return, issue a separate Letter 3164 to each spouse.

    2. Include the taxpayer’s name, address and TIN, as well as your telephone number and ID number.

    3. Hand carry or mail the letter to the taxpayer’s current address.

    4. Document the case file with the date of the letter and the method of delivery.

    5. Retain a copy of the letter in the case file.

    6. Provide a copy of the letter to the POA.

  3. If Letter 3164 was mailed, do not make any third party contact until 10 days from the date the letter was mailed, unless you verify that either the taxpayer or POA (if applicable) has received Letter 3164. Once you verify that they have received the letter you can make third party contact immediately. If you can verify that the plan sponsor or the POA has received the Letter 3164, then you do not have to wait 10 days.

  4. If Letter 3164 was hand delivered, you can contact the third party immediately, as long as the taxpayer was given the opportunity to provide the information before you contact third parties.

4.71.1.10.3  (03-31-2015)
Providing Taxpayers with Notice

  1. The IRS is required to provide a taxpayer with a list of third party contacts when they request it (IRC 7602(c)(2)).

4.71.1.10.3.1  (03-31-2015)
Recording and Reporting Third Party Contacts

  1. When you make a third party contact, complete Form 12175, Third Party Contact Report Form.

    1. The employee who makes a third party contact is responsible for complying with these procedures regardless of which function has control of the case. See IRM 4.71.1.10.4.3, Reprisal, for specific requirements regarding reprisal determinations.

    2. If you have multiple contacts with the same third party on different dates, you must complete a separate Form 12175 for each contact.

    3. If the same employee makes more than one contact with the same third party on the same day, only complete one Form 12175.

  2. Include this information on Form 12175:

    1. Taxpayer Identification Number (TIN).

    2. Name Control.

    3. Telephone number, mail stop number and ID number of the employee making the contact.

    4. Indicate on Line 5 if the recorded contact is for the primary TIN, secondary TIN (spouse on a joint account) or both (joint accounts only)

    5. Date of contact.

    6. Check the Reprisal Determination box if fear of reprisal is a concern. See IRM 4.71.1.10.4.3, Reprisal.

    7. Name of the third party contacted, if known. If the name of the third party is not known, please refer to the instructions to Form 12175 for the type of information to enter. DO NOT include the address or telephone number of the third party.

    8. Plan number or application form number and control date for certain EP accounts.

    9. Master File Tax (MFT) code and tax period relating to the primary TIN.

  3. When Form 12175 is completed:

    1. Send it to the Third Party Contact Coordinator in EP Special Review as soon as possible after you complete it.

    2. Place a copy with the case file.

    3. Document the case history to show the action you took.

4.71.1.10.3.2  (03-31-2015)
Third Party Contact Coordinator’s Duties

  1. The Third Party Contact Coordinator’s duties include:

    1. Ensuring that the contact is added to the Third Party Contact database.

    2. Maintaining Forms 12175.

    3. Providing a contact list when requested by the taxpayer.

4.71.1.10.3.3  (03-31-2015)
Providing Taxpayers the Contact List Upon Request

  1. A taxpayer may request a record of contacts in any manner that the Commissioner permits (Treas. Reg. 301.7602-2(e)(1)).

    1. A taxpayer can request a list of third party contacts at any time.

    2. The request can be oral or written.

  2. If you receive a request for a list of third party contacts either in person or by telephone:

    1. Obtain the taxpayer's name, address, and TIN (taxpayer identification number).

    2. Advise the taxpayer that he or she should receive the third party contacts list by mail within ten days.

    3. Immediately forward the taxpayer's name, address, and TIN to the Third Party Contact Coordinator.

  3. If you receive the request by mail, immediately forward the taxpayer's request to the Third Party Contact Coordinator.

  4. Taxpayers must submit a separate request for each list of contacts. Do not accept a blanket request for a list of future contacts.

    Note:

    The Commissioner may set reasonable limits on how frequently taxpayer requests need to be honored.

  5. The Third Party Contact Coordinator will research the request, prepare and mail Letter 3173, Third Party Contacts.

  6. Letter 3173 will list all third party contacts made since the taxpayer received the latest periodic report of third party contacts.

  7. Letter 3173 can be hand delivered or mailed to the taxpayer. If mailed, it should be sent to the address provided by the taxpayer or the Master File address (address on INOLES).

4.71.1.10.4  (03-31-2015)
Exceptions to IRC Section 7602(c) Requirements

  1. The IRS is not required to give the taxpayer advance general notice or include a particular third party contact on the list of third party contacts provided to the taxpayer in these four situations (IRC 7602(c)(3)):

    1. Taxpayer authorizes the third party contact

    2. Jeopardy

    3. Reprisal

    4. Pending criminal investigation

4.71.1.10.4.1  (03-31-2015)
Taxpayer Authorized Third Party Contacts

  1. When a taxpayer authorizes a third party contact,

    1. Prepare Form 12180, Third Party Contact Authorization Form. List each third party the taxpayer authorizes the IRS to contact. More than one contact can be listed per form.

      Note:

      A blanket authorization covering all third party contacts is not acceptable.

    2. Secure the taxpayer’s signature and date on Form 12180 (for joint returns, both spouses must authorize the contact).

    3. Document the case history with the date the taxpayer provided the authorization.

    4. Keep Form 12180 (or other written authorization) in the case file.

    5. Continue documenting routine case actions, but you do not need to update Form 12175 and/or the database with the third party contact information.

  2. Taxpayer authorization can be expressed orally or in writing. Document the case file to reflect the date and method the taxpayer used to authorize the contact. If oral authorization is given, you do not need to complete Form 12180, but it would be the best practice. A complete Form 12180, signed by the taxpayer, would avoid any subsequent disputes as to whether the taxpayer authorized a specific contact.

    Note:

    IRC 7602(c) does not require an IRS employee to obtain authorization from the taxpayer in order to contact a third party. A taxpayer may not prevent an IRS employee from contacting a third party by refusing to provide authorization. Obtaining authorization only means that the employee is not required to provide the advance general notice to the taxpayer (if not already provided) or make a record of the contact that was authorized.

4.71.1.10.4.2  (03-31-2015)
Jeopardy

  1. The employee making the contact may determine that providing the taxpayer with the advance general notice or including the name of the third party contact on the list provided to the taxpayer would jeopardize the collection of any tax liability.

  2. If a jeopardy situation exists:

    1. Document the case file with specific information about the third party contact.

    2. Document the case file with the circumstances surrounding the jeopardy determination.

    3. Complete Form 12175, but do not forward it to the Third Party Contact Coordinator.

  3. When the jeopardy situation no longer exists, forward Form 12175 to the Third Party Contact Coordinator.

  4. Jeopardy may apply to any type of tax.

4.71.1.10.4.3  (03-31-2015)
Reprisal

  1. If you determine that providing the advance notice or a record of a specific contact to a taxpayer may result in reprisal ( i.e., an act of retaliation or revenge) against any person, prepare a separate Form 12175 to report the reprisal situation. Include only the following information:

    1. TIN

    2. Taxpayer’s name control

    3. Employee ID number, telephone number and mail stop

    4. Date of contact

    5. Place a check in the "REPRISAL" box.

  2. Send the Form 12175 to the Third Party Contact Coordinator to input in the database. The information will be retained in the database, but will not be included in the list of third parties contacted (Letter 3173) that is provided to the taxpayer.

    Caution:

    DO NOT INCLUDE THIRD PARTY INFORMATION ON THE FORM 12175.

  3. The employee making the contact must complete a reprisal determination for all third party contacts. The reprisal determination is made on a case by case basis with no blanket determinations for different types of contact.

  4. A reprisal determination may be based on any information available to the employee.

  5. Document the case chronology record with the facts surrounding the reprisal determination.

4.71.1.10.4.3.1  (03-31-2015)
Reprisal Determination

  1. In some situations the agent can make a determination based on the case history that a person could be subject to reprisal if the taxpayer received the advance notice or notice of a particular third party contact. In these situations, sending the advance notice or notice of a particular contact is not required if doing so may result in reprisal against any person.

4.71.1.10.4.3.2  (03-31-2015)
Reprisal Notification Procedures

  1. If the reprisal determination cannot be made based upon the facts already known, advise the third party that by law the IRS is required to provide his/her name to the taxpayer as a third party contact and ask if there is a fear of reprisal.

  2. Make sure the third party understands that his or her name will be provided to the taxpayer on a list of third parties contacted, but do not make the reprisal inquiry in a way that would influence the third party. The following suggested language may be used as part of direct third party contact: "By law I am required to include your name on a list of parties we have contacted. This list will be sent to (taxpayer's name). If you believe that including your name on the list may result in reprisal against any person, we can exclude you from the list. Do you have any reason to believe that reprisal against any person may occur?"

  3. If the third party indicates no reprisal concerns, complete Form 12175 and forward it to the Third Party Contact Coordinator.

  4. If the third party does indicate fear of reprisal:

    1. Document the case file and

    2. Prepare Form 12175 as outlined above.

  5. Any concern raised by the third party with respect to reprisal will be taken at face value.

  6. If you send a letter to an individual third party, include the first part of the suggested language above and add the following: "If you have any reason to believe that reprisal against any person may occur, you should call me at the telephone number listed above by (insert a date that is ten calendar days from the day the letter is mailed)."

    Note:

    Consider including the reprisal script on a case by case basis when a form letter is mailed to a business entity.

  7. Complete Form 12175 manually and hold for ten calendar days. If no fear of reprisal is communicated, then forward the Form 12175 to the Third Party Contact Coordinator.

  8. If the third party does claim fear of reprisal:

    1. Document the case file.

    2. Replace Form 12175 with a new form to reflect the reprisal determination.

    3. Forward the new form to the Third Party Contact Coordinator.

  9. If the third party initially indicates no fear of reprisal and later advises there is fear of reprisal:

    1. Immediately contact the Third Party Contact Coordinator and advise him or her of the situation.

    2. Prepare a new Form 12175, as outlined above, and submit it to the coordinator.

    3. Place a copy of the new Form 12175 at the top of the inside right of the case file. Do not remove the previously completed Form 12175 from the case file.

    4. Attach the copy of the previously completed Form 12175 to the copy of the new Form 12175.

  10. Do not provide information to any persons that may result in the taxpayer learning the identity of a third party who has indicated a fear of reprisal. This information may be provided to IRS employees acting within the scope of their duties, including employees of the Office of Chief Counsel.

4.71.1.10.5  (03-31-2015)
Disclosure Rules - Obtaining Taxpayer Information from Internet Sites

  1. This is a list of the applicable law for disclosure and internet research:

    1. IRC 6103(a)(1) provides that return or return information will be confidential.

    2. IRC 6103(b)(2) provides, in part, that return information means a taxpayer's identity, the nature, source or amount of income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax withheld, deficiencies, over assessments or tax payments, whether the return was, is being or will be examined or subject to other investigation.

    3. IRC 6103(b)(6) defines taxpayer identity information as: the name of a person who files the return, his/her mailing address, his/her taxpayer identifying number (as described in section 6109) or a combination thereof.

    4. IRC 6103(k)(6) provides that investigative disclosures of return information may be made to the extent that such disclosure is necessary in obtaining information which is not readily available to determine tax liability or the current amount of tax due. Such disclosures will be made only in such situations and under such conditions as the Secretary may prescribe by regulations.

    5. Treas. Reg. 301.6103(k)(6)-1(a)(1) provides that an employee of the IRS may disclose return information, of any taxpayer, to the extent necessary to obtain information relating to such official duties or to accomplish properly any activity connected with such official duties.

    6. Treas. Reg. 301.6103(k)(6)-1(a)(2) provides in part, that the disclosure of return information is authorized only if the IRS employee reasonably believes the information is not otherwise reasonably available or if the activity connected with the official duties cannot occur properly without the disclosure.

  2. In light of these provisions of the law, follow this guidance:

    1. When searching the internet in the performance of official duties in compliance with IRC 6103(k)(6) and Treas. Reg. 301.6103(k)(6)-1, the fact that an identifying "cookie" trail is left behind on the internet site does not result in an unauthorized disclosure.

    2. When performing an investigative disclosure under IRC 6103(k)(6), only disclose return information that is necessary to obtain information relating to such official duties or to accomplish properly any activity connected with such official duties. See Treas. Reg. 301.6103(k)(6)-1.

    3. Generally, disclosure of a taxpayer’s name and/or address in the pursuit of information posted on the internet for an official purpose will meet the necessity test. However, return information should not be disclosed if the information can be secured without a disclosure.

    4. The necessity to disclose return information beyond a taxpayer’s name and/or address in the pursuit of information posted on the internet for an official purpose should be considered on a case-by-case basis.

    5. Disclosing a social security number is particularly sensitive. Be careful and do this only when necessary.

    6. Based on the narrow interpretations in court cases under IRC 6103(k)(6) and related regulations, we have been advised by Area Counsel and the Disclosure office that any disclosure of return information beyond the taxpayer name and address during an internet search should be carefully analyzed on a case-by-case basis. Be alert to the "Necessity Test" as provided by IRC 6103(k)(6) and Treas. Reg. 301.6103(k)(6)-1 and that any disclosure of return information should be weighed against this criteria.

    7. Treas. Reg. 301.7602-2(c)(2)(i)(B) clarifies that accessing information from a computer database or an internet web site does not represent a third party contact under IRC 7602.

4.71.1.11  (03-31-2015)
Taxpayer Confidentiality Privilege

  1. IRC 7525 extends the attorney–client privilege in noncriminal cases to communications between taxpayers and other federally authorized tax practitioners. Before this provision, there was no equivalent confidentiality privilege for communications between taxpayers and other federally authorized tax practitioners.

  2. The statute applies to any noncriminal tax matter before the IRS or any noncriminal tax proceeding in a Federal court. It does not apply to written communications between a federally authorized tax practitioner and certain representatives of an entity in connection with the promotion of direct or indirect participation in a tax shelter. This privilege is not automatic, but it must be asserted by the taxpayer. The privilege may be asserted orally or in writing.

  3. This provision is effective for privileged communications made on or after the date of enactment of RRA 3411. This means that certain communications (oral or written) between federally authorized tax practitioners and taxpayers made on or after July 22, 1998, may now be privileged communications within the meaning of the statute and may be withheld from the IRS.

4.71.1.11.1  (03-31-2015)
Federally Authorized Practitioners

  1. Federally authorized practitioners are individuals authorized to practice under 31 U.S.C. 330. Generally, this means attorneys, CPAs, enrolled agents, enrolled actuaries and enrolled retirement plan agents as set forth in Circular 230.

  2. Refer questions as to whether the privilege applies to communications made to other individuals to Area Counsel.

4.71.1.11.2  (03-31-2015)
Privileged Tax Advice

  1. The statute is not clear as to what does or does not constitute privileged tax advice.

  2. Information disclosed for the purpose of preparing a tax return would not be privileged.

  3. This provision was not intended to provide tax practitioners a greater privilege than currently exists between attorneys and their clients.

4.71.1.11.3  (03-31-2015)
Asserting Privilege

  1. When a taxpayer or federally authorized tax practitioner declines to provide testimony or documents citing IRC 7525 confidentiality privileges as the reason:

    1. Request that the federally authorized practitioner provide a written statement regarding the reason why it is being asserted.

    2. Contact Area Counsel for guidance.

  2. A case will cease to be a noncriminal tax matter before the IRS only after it is referred to the Criminal Investigation for the assignment of the special agent. Once the matter becomes a criminal matter, the taxpayer may no longer assert the IRC 7525 privilege.

4.71.1.12  (03-31-2015)
Initial Interview

  1. The initial interview is an important part of the examination process. Interviews provide information not available from other documents. A properly planned and executed interview will provide an understanding of the taxpayer’s financial history, business operations and accounting records.

  2. An in-depth interview is required for both focused and full scope examinations.

  3. Plan your in-depth interview in advance to address items specific to the taxpayer under examination. Consider the type of return, potential issues and relevant facts and circumstances in you planned interview.

  4. Unless facts and circumstances dictate otherwise, conduct the initial interview at the plan sponsor's place of business. Treas. Reg. 301.7605-1(d) states, in part, "A field examination will generally take place at the location where the taxpayer’s original books, records and source documents pertinent to the examination are maintained. In the case of a sole proprietorship or taxpayer entity, this will usually be the taxpayer’s principal place of business."

  5. Reasons for holding the initial interview at the plan sponsor's place of business include because it enables you to better:

    1. Use your time by having access to source documents where they are stored.

    2. Familiarize yourself with the business operations by inspecting the premises.

    3. Evaluate the internal controls in the operation of the plan.

  6. If holding the initial interview at the plan sponsor's place of business is not a viable option (e.g., if the agent’s presence would disrupt the business operations), request an opportunity to conduct a walk-through of the business premises and to have an opportunity to ask the plan sponsor or an employee questions that the POA could not readily answer. You can schedule these visits prior to the start time of the business (e.g., before office hours at a doctor’s office).

  7. If you do not conduct the interview with the plan sponsor, conduct it with a person having sufficient knowledge about the plan’s financial status and operations.

  8. These provisions also affect taxpayer interviews (IRC 7521, enacted as part of the Taxpayer Bill of Rights):

    1. IRC 7521(b)(2) requires an agent to suspend an interview if the taxpayer states that he/she wishes to consult with a representative or otherwise seek advice. You must strictly observe the taxpayer’s right of consultation throughout the examination process and suspend and reschedule interviews.

      Note:

      This provision does not apply to an interview initiated by administrative summons and will not be used to repeatedly delay or hinder the examination process. Pub 1-EP advises the taxpayer of this right.

    2. IRC 7521(c) states that an agent cannot require a taxpayer to accompany an authorized representative to an examination interview in the absence of an administrative summons. However, the taxpayer’s voluntary presence at the interview can be requested through the representative as a means to expedite the examination process. This does not affect your right to conduct an on-site inspection of the taxpayer’s facility.

  9. During the initial interview, include an explanation of the examination process and appeal rights, as set forth in Pub 1-EP, Understanding The Employee Plans Examination Process. Document in your CCR that the examination process and appeal rights were explained to the taxpayer.

  10. Document in your workpapers who you interviewed and the extent of the issues discussed in sufficient depth to give a clear understanding of the taxpayer and the plan operations.

  11. If pertinent information is disclosed in the interview that you find necessary for the administrative record, put it in writing and mail it to the taxpayer and POA.

4.71.1.13  (03-31-2015)
Verbatim Recordings

  1. Requests by taxpayers or their representative to tape or make stenographic or other verbatim recordings of examination proceedings will ordinarily be allowed, except where the taxpayer’s or representative’s behavior is clearly disruptive of the normal examination process or investigative proceeding. Requests to videotape or otherwise film examination proceedings will not be granted.

  2. In situations where a taxpayer or his/her representative requests to tape or make stenographic or other verbatim recordings of examination proceedings, you will generally concur subject to the following provisions:

    1. Secure your group manager's approval prior to the recording.

    2. The taxpayer and/or representative should furnish his/her own recording equipment.

    3. The agent or group manager may also record the proceeding.

    4. The recording should take place in a suitable location, ordinarily in IRS offices.

  3. Immediately refer any request to make a tape, stenographic or other verbatim recording to the group manager for approval. If granted, the manager will arrange an appropriate time and suitable location in an IRS office where equipment is available to make the IRS's recording.

  4. If a taxpayer, legal representative or witness appears in an examination proceeding and requests to make a verbatim recording without the IRS’s prior knowledge of this intent, the agent, with approval of the group manager, may attempt to make arrangements for space and recording equipment in order for the proceedings to continue.

  5. At the outset of the recording, you must identify yourself, the date, time, place and purpose of the proceeding. Each participant in the proceeding also must identify himself/herself, his/her role in the proceeding and acknowledge and consent to the making of a verbatim recording. If an additional participant arrives or a participant leaves the proceeding, note these facts on the recording.

  6. Describe written records presented during the proceeding in sufficient detail to make the verbatim recording a meaningful record when matched with the other documentation contained in the case file.

  7. At the conclusion of the proceeding, state that the proceeding has been completed and the recording is ended.

  8. Immediately review the recording produced by the IRS for clarity and substance and, if needed, immediately prepare a complete written report of the conference.


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