4.71.1  Overview of Form 5500 Examination Procedures

Manual Transmittal

March 28, 2014

Purpose

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

Material Changes

(1) This IRM has been revised to reflect proper documentation of fraud considerations.

(2) IRM 4.71.1.6, Pre-audit Analysis, has been updated to clarify procedures regarding the review of plan amendments during the pre-audit of the plan.

(3) IRM 4.71.1.7.3 entitled, Concluding the Initial Audit Appointment and Additional Requests for Information, was added.

(4) IRM 4.71.1.7.4 entitled, Time Frames for Conducting an Examination, was added.

(5) IRM 4.71.22.1 was revised to add closing conference procedures.

(6) IRM 4.71.1.1 was added to reflect the Reporting Compliance Case Management System (RCCMS) use policy.

(7) The links to the IRM Exhibits have been updated. The Exhibits are now posted on TE/GE Connect under the JOB tab at IRM 4.71 - Employee Plans Examination Exhibits.

Effect on Other Documents

This supersedes IRM 4.71.1 dated August 17, 2012.

Audience

TE/GE Employee Plans

Effective Date

(03-28-2014)


Robert Choi
Director, Employee Plans
Tax Exempt and Government Entities Division

4.71.1.1  (03-28-2014)
Overview of Form 5500 Examination Procedures

  1. This IRM section incorporates the basic examination techniques, which will enable Employee Plans (EP) agents to apply uniform techniques and procedures to the examination of 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. The term "Form 5500" as used in this IRM includes all Form 5500 series returns.

  3. The IRS Restructuring and Reform Act of 1998 (RRA) enacted provisions that impact EP examination program procedures. RRA provisions discussed herein include:

    • Section 3001 Burden of proof

    • Section 3411 Taxpayer confidentiality privilege

    • Section 3417 Notice of IRS third party contact

    • Section 3705 IRS employee contacts

4.71.1.1.1  (03-28-2014)
Reporting Compliance Case Management System (RCCMS) Use Policy

  1. Effective October 1, 2013, TE/GE implemented the RCCMS use policy. This policy was announced in the September 30, 2013, memorandum from the Acting Commissioner, TE/GE Division.

  2. The TE/GE RCCMS use policy requires the use of RCCMS to the "maximum extent possible" in processing all examination/compliance cases.

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

    2. Data within RCCMS supports the conclusions reached in arriving at the proposed disposal of the case.

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

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

  5. RCCMS automatically backs up all stored data files when synchronized with the central database server.

  6. 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 regarding the case.

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

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

  7. 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 and to create any workpapers required within the system.

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

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

  9. Appropriate ad-hoc or pre-formatted accomplishment reports should be created in RCCMS and used by management in evaluating in-process and accomplishment activities.

  10. 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 every attempt to sync to the central server daily.

    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 of the paper case file prior to the migration to the electronic case file.

    2. This includes all workpapers and pertinent source documents used in making a determination as to whether there are any issues or proposed changes that will be discussed/resolved prior to closing the case.

4.71.1.2  (03-28-2014)
Examination Techniques

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

  2. Field examinations are described as follows:

    1. A field examination is an examination assigned by EP Classification to be worked at the taxpayer’s place of business. See IRM 4.71.1.7.1 regarding the place of an audit.

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

    3. If such a decision is made, the case file must include documentation (such as a note from the group manager in Form 5464, Case Chronology Record, (CCR) and/or an E-mail from the manager) of the manager’s decision for the agent not to conduct a field visitation.

    4. The examination scope should not change even when there is no on-site visitation.

    5. A case designated as a field examination requires the same examination procedures whether or not an examination is conducted at the taxpayer’s place of business.

  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  (03-28-2014)
Examination Jurisdiction

  1. The EP examination program was established to ensure compliance with the qualification provisions of Internal Revenue Code (IRC) sections 401(a) and 501(a). Under this program, the returns within EP’s jurisdiction may 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, EP agents 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 an EP agent 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, a referral may be made 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, procedures have been established for referring cases between W&I, SB/SE or LB&I and EP. See IRM 4.71.6, EP Referrals, for procedural guidance.

4.71.1.4  (03-28-2014)
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 regarding income and excise tax liabilities related to the plan.

    2. Most qualification provisions and tax issues will fall into the following categories and should be addressed during the audit, 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 amendments have been adopted subsequent to the last issuance of a favorable determination letter, determine if the amendments are correct and whether any additional amendments are necessary to make the plan and trust qualified.

    2. If the plan was required to be amended in conjunction with a request for a favorable determination letter and proposed amendments were submitted, verify that the amendments were timely and appropriately adopted.

    3. Ascertain that the appropriate amendments have been made to comply with subsequent statutory and administrative changes.

    4. It is also strongly recommended that agents utilize the Cumulative Lists, published annually around November each year, to aid in your determination of the 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 4.71.1.14 are 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 in accordance with the standards of 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, for further technical guidance.

  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. For this purpose, 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 ACP and ADP 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 timely paid per IRC 404.

    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 corrected, 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 as to whether 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, for technical guidance.

    3. Examine trust fund assets in order to determine whether the trust has invested in the stock and securities of the employer. If so, ascertain 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 ascertain whether funds have reverted to the sponsor or have been used for purposes other than the exclusive benefit of employees or their beneficiaries.

    5. Non-cash contributions by the employer (e.g., stocks, notes or other securities including employer stock and securities) should receive special scrutiny before a deduction is allowed. In addition, with respect to defined benefit plans, money purchase plans and certain defined contribution plans, the agent should then determine whether such 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.

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

  14. Distributions.

    1. Verify that distributions to participants (terminated or otherwise) have been made in accordance with the plan provisions relating to the 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 have met the required reporting requirements, including filing Forms 1099-R, pertaining to those individuals and that the correct tax under IRC 3405 has been withheld.

      Note:

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

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

  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 as reflected in IRM 4.72.14, Multiemployer Plan Examination Guidelines.

  18. SEP Plans. Determine whether the plan operates in accordance with IRC 408(k). Follow established procedures as reflected 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  (03-28-2014)
Examinations of Individually Designed Plans under Post-EGTRRA Provisions

  1. An agent should confirm and document timely compliance with applicable form qualification requirements.

    1. The plan document and any amendments adopted since the issuance of the last favorable determination letter should be secured and retained with the case file.

    2. Agents are responsible for verifying that the plan document was amended by the end of the initial Remedial Amendment Cycle (RAC).

      Note:

      If a plan sponsor is within its second RAC there is no requirement to verify that the document was amended for legislation that was effective prior to the release of the applicable Cumulative List (CL). Managerial approval is required for verifying laws enacted prior to the issuance of the applicable CL.

  2. The agent’s responsibilities would 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) favorable determination letter (Letter 2002) has been issued.

      Note:

      If pending, the examination should be coordinated with the determination application.

    3. Confirming the timeliness of plan amendments adopted to comply with all applicable form requirements, laws, regulatory guidance or other published guidance, including 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 would be plan termination.

  3. The agent must also confirm whether the EGTRRA Remedial Amendment Period (RAP) has expired:

    1. If the plan has received an EGTRRA letter, the agent is only required to verify the validity and the timeliness of any required amendments, which are included on subsequent CLs issued through the year of examination.

    2. If the initial EGTRRA RAC has expired and the plan has not received an EGTRRA letter, then it is not sufficient to merely identify and confirm 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. Any defects or omissions related to such amendments should have been perfected before expiration of the EGTRRA RAC.

    4. If the initial EGTRRA RAC has not expired, then it is sufficient to merely 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, since these amendments would have been required as accompaniments to a determination letter application.

  4. In the absence of a favorable determination letter, the agent will need to confirm that the applicable GUST amendments were timely adopted or that a GUST determination letter was issued. In either situation, 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, as specified under the applicable CL, are required to be confirmed.

  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" EGTRAA amendments were timely adopted, then the RAC remains intact and any defective provisions of EGTRRA, interim and discretionary amendments can be corrected 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 any defective provisions of EGTRAA, required or discretionary amendments cannot be corrected. In this instance 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." Interim and discretionary amendments effective subsequent to the 2005 CL through the year of examination are required to be confirmed.

  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." Interim and discretionary amendments effective subsequent to the 2006 CL through the year of examination are required to be confirmed.

  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." Interim and discretionary amendments effective subsequent to the 2007 CL through the year of examination are required to be confirmed.

  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." Interim and discretionary amendments effective subsequent to the 2008 CL through the year of examination are required to be confirmed.

  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." Interim and discretionary amendments effective subsequent to the 2009 CL through the year of examination are required to be confirmed.

  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, subsequent interim and discretionary amendments effective through the year of examination as specified under the applicable Cumulative List are required to be confirmed.

  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. An agent is only required to confirm compliance with qualification requirements effective through the year of the examination.

    1. Generally, the agent is not required to identify and confirm the existence of form qualification compliance, which is effective subsequent to the plan year under examination.

    2. However, if the agent becomes aware that required or discretionary amendments subsequent to the plan year under examination were not timely adopted, then the audit scope should be expanded to include the subsequent year(s) Form 5500. Upon confirming 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, 2011. 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, 2011. However, as 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 2009 CL.

    2. If a determination letter request is in process and timely submitted within the RAC, you need to coordinate with the EP determination specialist assigned to review the application and ensure that all applicable amendments were timely adopted. The EP determination specialist should make certain that all such amendments, if not in full compliance with the applicable laws, were perfected before the close of the EGTRRA RAC. In other words, the "good faith" EGTRRA, interim and discretionary amendments should have been timely amended for the applicable plan years and then any defects applicable to these "good faith" amendments (including omissions) should have been perfected by amendment on or before the end of the EGTRRA RAC or in conjunction with receiving a favorable determination letter.

    3. If no determination letter request is pending, then you are responsible for confirming timely compliance with all applicable laws through the last day of the plan year under examination or as of December 31, 2011. This includes confirming the timely adoption of all "good faith" EGTRRA, interim and discretionary amendments applicable for all plan years up through and including December 31, 2011. In addition, with respect to prior qualification, you are required to confirm timely compliance with GUST.

  15. Example 2: You are examining an individually designed defined contribution plan for the plan year ending December 31, 2011. 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. 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, 2011. However, as 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 2005 CL.

    2. Since the examination will be closed subsequent to the end of the EGTRRA RAC, you should confirm whether an EGTRRA favorable determination letter was issued. If so, then the determination letter should contain the following caveat stating, "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." You need to confirm the timely adoption of subsequent interim and discretionary amendments effective through the year of examination as specified under the CLs for Cycles B through D.

    3. If an EGTRRA favorable determination letter has not been issued, then your responsibility includes confirming that "good faith" EGTRRA, interim and discretionary amendments are in full compliance with the 2005 CL and all subsequent interim and discretionary amendments required to be adopted through December 31, 2011, were timely executed and meet the "good faith" requirement. In addition, with respect to prior qualification, you are required to confirm timely compliance with GUST.

4.71.1.4.2  (03-28-2014)
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. Agents must confirm and document that all required amendments, whether adopted by the employer or on behalf of the employer by the M&P sponsor or VS practitioner, have been adopted in a timely manner to satisfy IRC qualification provisions.

  3. Agents are responsible for verifying that the M&P or VS plan document was adopted by the employer by the end of the initial Remedial Amendment Cycle (RAC).

    Note:

    If a plan is within the second RAC, there is no requirement to verify that the document was amended for legislation that was effective prior to the release of the 2004 Cumulative List (CL). Managerial approval is required for verifying laws enacted prior to the issuance of the 2004 CL.

  4. The agent’s responsibilities would also include:

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

      Note:

      If pending, the examination should be coordinated with the determination application.

    2. Confirming the timeliness of amendments made to the plan to comply with all applicable form requirements, laws, regulatory guidance or other published guidance, including timely interim and discretionary amendments effective through the last day of the plan year under examination.

      Note:

      An exception to this rule would be plan termination.

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

  6. If an employer adopts an EGTRRA-approved defined contribution plan by April 30, 2010, then the agent is required to verify that interim and discretionary amendments were timely adopted for provisions included on post 2004 CLs.

  7. If the employer did not adopt an EGTRRA-approved document by April 30, 2010, then the agent should verify the employer’s timely adoption of "good faith" required and discretionary EGTRRA amendments.

    1. A comparison between the "good faith" interim and discretionary amendments and the final EGTRRA plan document will determine if there are any defections from the 2004 CL, which will require Audit CAP.

    2. Since 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. All amendments that would have to be adopted subsequent to the 2004 CL, through the last day of the plan year under examination, must satisfy the "good faith" requirement. Any defects or omissions related to the 2004 CL must have been perfected before the expiration of the initial EGTRRA RAC.

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

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

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

    2. If the employer has adopted an EGTRRA-approved DB plan, verify 2007 and subsequent years’ CL compliance.

  9. In the absence of a favorable determination, opinion or advisory letter the agent will need to confirm that the applicable GUST amendments were timely adopted or that a GUST determination letter was issued. In either situation, 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, as specified under the applicable CL, are required to be confirmed.

  10. 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 six-year RAC.

    2. If "good faith" EGTRAA amendments were timely adopted, then the RAC remains intact and any defective EGTRRA, interim and discretionary amendments can be corrected 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 any defective EGTRAA, required or discretionary amendments cannot be corrected. In this instance, Audit CAP will be necessary to restore the plan’s RAC and preserve the plan’s qualification.

  11. If an EGTRRA favorable opinion letter (Letter 4333 or Letter 4334) or EGTRRA favorable advisory letter (Letter 4335) has been issued to the sponsor of a pre-approved defined contribution plan, then confirm that an adopting employer has executed the underlying plan within the EGTRRA RAC. In addition, interim and discretionary amendments effective subsequent to the 2004 CL through the year of examination are required to be confirmed.

  12. If a Letter 4333, 4334 or 4335 has been issued to the sponsor of a pre-approved defined benefit plan, then confirm that an adopting employer has executed the underlying plan within the EGTRRA RAC. In addition, interim and discretionary amendments effective subsequent to the 2006 CL through the year of examination are required to be confirmed.

  13. Under section 1107 of 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).

  14. An agent is only required to confirm compliance with qualification requirements effective through the year of the examination.

    1. Generally, the agent is not required to identify and confirm the existence of form qualification compliance, which is effective subsequent to the plan year under examination.

    2. However, if the agent becomes aware that required or discretionary amendments subsequent to the plan year under examination were not timely adopted, then the audit scope should be expanded to include the subsequent year(s) Form 5500. Upon confirming correction, a closing agreement may be offered.

  15. Example 1 : On October 30, 2013, you are examining a pre-approved defined contribution plan for the plan year ending December 31, 2011. 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, 2011. 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.

    • Since the examination will be closed subsequent to the end of the EGTRRA RAC, you should confirm whether an EGTRRA favorable opinion or advisory letter was issued for the pre-approved plan. In addition, you should 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, in accordance with Announcement 2008-23, then you would need to confirm timely adoption of subsequent interim and discretionary amendments effective through the year of examination as specified under the CLs for Cycles A through D. There may be exceptions to the April 30, 2010 adoption requirement.

  16. Example 2 : On October 30, 2013, you are examining a pre-approved defined benefit plan for the plan year ending December 31, 2011. 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, 2011.

    • If the employer adopted a pre-approved plan in accordance with Announcement 2010-20, then you would need to confirm timely adoption of subsequent interim and discretionary amendments effective through the year of examination as specified under the CLs for Cycles C and D.

  17. Example 3 : An employer maintains an individually designed plan but wants to adopt a pre-approved plan. The employer is a cycle B filer having a five-year RAC ending on January 31, 2008. What is this employer to do?

    • If the employer is a new adopter of the pre-approved plan, then the employer should adopt an existing pre-approved plan or interim pre-approved plan on or before January 31, 2008. The employer must re-adopt either the newly approved version of the same plan or a newly approved version of a different pre-approved plan between May 1, 2008 and April 30, 2010 (pre-approved DC plan) or May 1, 2010 and April 30, 2012 (pre-approved DB plan).

    • If the employer is an intended adopter of a pre-approved plan, then the employer should execute Form 8905 on or before January 31, 2008. Generally, all employers are responsible for ensuring that all required and discretionary amendments were timely adopted. Subsequently, the employer must adopt either the newly approved version of the same plan or a newly approved version of a different pre-approved plan between May 1, 2008 and April 30, 2010 (pre-approved DC plan) or May 1, 2010 and April 30, 2012 (pre-approved DB plan).

4.71.1.5  (03-28-2014)
Scope of the Examination

  1. The focused examination methodology is the standard approach to conduct examinations.

    1. This methodology requires the agent to utilize the review of the Form 5500 return and all supporting information to determine the scope of the examination and which specific issues will be examined.

    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, the agent will normally determine if any additional issues need to be addressed. The agent may address up to two additional issues without managerial approval. Managerial approval is required if the total number of issues (Classification’s three issues plus any agent-identified additional issues) exceeds five.

  2. Full scope examinations will only be conducted on training cases, certain designated special project cases and with the group manager's written approval.

  3. The scope of an examination for a related return picked up after the initiation of the initial exam will be determined by the group manager.

  4. Surveying a case also requires written approval by the group manager. See IRM 4.71.7, Survey Returns, for procedural guidance.

  5. Group managers will establish a process to allow expanding the scope of focused examinations and require written approval if more than two additional issues are selected.

  6. 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

  7. The agent will examine and provide a proper conclusion for each identified issue.

    1. In deciding the extent to which an issue will be pursued, 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 unusual and questionable items. Remember to get the group manager's written approval if the audit is expanded to include 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. Any issues found that impact the qualified status of the plan will be pursued until either the issue is corrected under Employee Plans Compliance Resolutions System (EPCRS) or a Delegation Order 8-3 closing agreement; or, if the taxpayer will not correct the issue, the case is closed unagreed to Mandatory Review. See IRM 7.2.2, Employee Plans Compliance Resolution System (EPCRS). See IRM 4.71.3, Unagreed Form 5500 Examination Procedures.

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

  8. The scope of the examination may depend on the adequacy of the taxpayer’s records. The agent is expected to continue the examination to a point where it is reasonably certain that the information return requirements and qualification requirements have been satisfied. If the records are inadequate, the examination should include consideration of the issuance of an inadequate record notice under IRM 4.71.1.18.14, Failure to Keep Records Necessary to Meet Reporting Requirements - IRC 6704 Penalties.

  9. All necessary action to protect the government’s interest must be taken in a case when expiration of the statutory period for assessment of any additional or potential tax is imminent. 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 the agent is responsible for protecting the statute of limitations for:

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

    2. Forms 5330 related to 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  (03-28-2014)
Pre-audit Analysis

  1. A pre-audit analysis is required for both focused examinations and full scope examinations.

  2. The pre-audit steps taken and the conclusions reached during the pre-audit analysis should be recorded in the workpapers.

  3. Prior to contacting the plan sponsor, the grade of the case should be verified in accordance with EP Examination Case Grading Criteria per IRM 7.11.2, EP Case Assignment Guide.

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

  5. Prior to sending the appointment letter, analyze the return taking into consideration the focused issues and the items listed in the Examination Program Guide section of Form 5772, EP/EO Workpaper Summary.

  6. Information about the taxpayer may be obtained through Accurint, Department of State sites or Internet web sites (some businesses have their own business web sites).

  7. All EP examinations must be coordinated with any examination of the related income tax returns.

    1. Integrated Data Retrieval System (IDRS) research should be conducted. A transcript of the taxable return can be requested using Form 6882, IDRS/Master File Information Request or Form 5644, EP/EO Inquiry Request. 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. An AMDIS print should be secured to determine the current status and group number.

      Note:

      EP Classification should be contacted to locate 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, the EP examination should be coordinated with W&I, SB/SE or LB&I Operating Divisions.

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

  8. To the extent possible, IDRS research should also be utilized to provide additional information about the employer (including whether or not related returns such as Forms 940, Employer’s Annual Federal Unemployment Tax Return and 941 were filed), the plan under examination and other plans maintained by the employer. Agents should use IDRS research to verify filing of certain returns and also to view line items for a particular tax period for a specific return. Form 6882 or Form 5644 can be used for the request. Some of the more useful IDRS command codes are listed below. See IRM 4.71.2, Overview of IDRS, for more information.

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

    2. INOLEX will produce 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 BMF and 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 and the years for which the return can be viewed through IDRS.

    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 regarding 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 reflects when the return was filed and can be used 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 provides the number of W-2s filed by the taxpayer and related entities for each year.

    11. IRPTR provides 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 provide a list of business returns filed by the taxpayer (e.g., Forms 940, 941, 1120 and 5330), the years for which a transcript can be requested and the years for which the return can be viewed 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.

      Note:

      In the future, BRTVU and RTVUE will be replaced by TRDBV.

    15. AMDISA using a "P" after the EIN provides a listing of all Forms 5500 under examination. Using no file source code after the EIN provides a listing of 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:

      The agent must verify that the plan is qualified in form for all years under examination. Therefore, the plan document and all amendments in effect for the year(s) under exam must be reviewed.

    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.

      Note:

      If the taxpayer has adopted a pre-approved defined contribution plan, then the agent should verify that all interim amendments subsequent to the 2004 Cumulative List were timely adopted.

      Note:

      If the taxpayer has adopted a pre-approved defined benefit plan, then the agent should verify that all interim amendments subsequent to the 2006 Cumulative List were timely adopted.

    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 Employee Plans Master File (EPMF) data. If not, prepare appropriate input documents when the examination is completed. See IRM 4.71.1.20, Correcting Form 5500 Returns on the Master File.

    5. Review the return for items that would cause the agent 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 regarding the status of pending requests for determination letters or caveats on determination letters that have been issued. If the agent discovers that a request for a determination letter is pending, the two cases should be coordinated. 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  (03-28-2014)
Contacting the Taxpayer

  1. Taxpayers may be contacted by telephone (with written confirmation) or in writing to schedule the initial appointment.

    Note:

    The preferred method of initial contact with the taxpayer is by telephone. The taxpayer should be initially contacted by mail only if the agent is unable to reach them telephonically.

  2. The initial examination appointment should be scheduled at a time and date convenient to the taxpayer, generally within 45 days of the first contact with the taxpayer.

  3. The agent is required to solicit and review the plan document, including applicable amendments, prior to the field audit.

    1. The agent 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 document is not provided in advance, in spite of the agent’s best efforts to secure it, the initial appointment date should not be postponed.

  4. Prior to the initial appointment, the agent should contact the taxpayer by telephone to discuss the availability of books and records and initial audit scope.

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

  6. The agent must 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.

  7. Pub 1-EP, Understanding the Employee Plans Examination Process, Pub 4324, Employee Plans Examination Flowchart, Pub 4325, EP Examination Bookmark and the IDR, must be included 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.

  8. An IDR must be sent along with the initial appointment letter.

    1. The IDR should be prepared subsequent to pre-audit analysis.

    2. The IDR should be limited solely to the solicitation of information specific to the items that have been identified as having issue potential.

      Note:

      DO NOT request information or documents that are not appropriate to resolve questions or those issues that were not identified during your pre-audit.

    3. In the case of a focused examination, include a request for documentation concerning the pre-selected audit issues and any additional issues (limited to five total issues unless prior managerial approval is obtained) determined to have audit potential.

      Note:

      IDRs, available in the RCCMS Letters Folder, should be used to request items needed for the examination.

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

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

    1. If a taxpayer insists upon such assurances or provides a statement that the 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 the inquiry left unanswered would be intentionally misleading.

    4. The agent's response must include a statement that fraud is considered in every case and every issue must be fully developed to ensure that any agent proposed tax and penalty adjustments are justified.

    5. The agent's response must also include a statement that information is shared between civil and criminal authorities when indications of fraud are identified.

      Note:

      If an agent deceives or misleads a taxpayer, the criminal fraud case may be jeopardized. Please refer to IRM 4.71.25, EP Exam Fraud Procedures.

  11. 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  (03-28-2014)
Place of Examination

  1. Unless facts and circumstances dictate otherwise, the examination should be conducted 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 insure the agent's time is efficiently used, by having access to source documents where they are stored.

    2. It provides an opportunity for the agent to familiarize themselves with the business operations by inspecting the premises.

    3. It enables the agent 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 the agent’s presence would disrupt the business operations), the agent should 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. These visits could be scheduled prior to the start time of the business (e.g., before office hours at a doctor’s office).

4.71.1.7.2  (03-28-2014)
Employee Contact - RRA Section 3705

  1. RRA section 3705 defines the contact information the IRS must provide and requires employees working tax related inquiries to provide taxpayers with the means to identify the appropriate employee who can address any further questions. Pursuant to RRA 3705, all IRS employees will provide the following information:

    1. During a telephone or personal contact, provide his/her name and identification number.

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

4.71.1.7.3  (03-28-2014)
Concluding the Initial Audit Appointment and Additional Requests for Information

  1. If possible, the agent should 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 needed.

    1. In an exit interview, the agent 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 alternative ways to resolve the issue that may not be initially apparent to the agent.

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

    Note:

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

  3. If the agent does not have access to a printer at the audit site, a handwritten IDR may be initially used, but the agent must:

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

    2. A photocopy must be made so both the agent and the taxpayer have the same document.

    3. When the agent returns to his/her office and has access to a printer, then a printed IDR must be prepared and sent to the taxpayer/POA with a copy placed in the exam file.

  4. All subsequent IDR’s will:

    1. Clearly state the agreed upon response date.

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

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

    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 of a description is needed).

    6. State the time period of the necessary records (e.g., if the agent is examining the 2011 plan year, but only needs records for July through August of 2011, then the IDR should state the specific periods needed).

    7. State how and where the information will be delivered to the agent. If the information will be provided at the taxpayer’s or representative’s office during a subsequent appointment, the IDR may state that the information will be available at the next appointment date.

  5. The response date should be a reasonable date to facilitate the prompt completion of the examination within the shortest possible cycle time.

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

    2. However, if the response date extends beyond the longest acceptable time period between significant activities per the National Time Frame Standards, as reflected in IRM 4.71.1.7.4, Time Frames for Conducting an Examination, the agent must include an entry in the CCR explaining why the departure from the time frame is necessary.

  6. Paragraphs (1) through (5) apply whenever the agent conducts an on-site examination.

4.71.1.7.4  (03-28-2014)
Time Frames for Conducting an Examination

  1. Timely actions are an essential element of managing the examination cycle time and are a key to taxpayer satisfaction. National mandated time frames dictate when certain actions should be initiated, followed up on or completed.

  2. It is important that the agent notates the CCR explaining delays in the 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, delays should be noted and clearly explained.

  3. If a time frame is not met due to an agent being obligated to complete other work, the CCR should explain the reason for the delay.

    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 trends to be tracked 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 the reasons for a delay or extended periods of inactivity are not documented.

    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. This is measured from the first contact to the initial appointment.

    2. Thirty days to start an OCEP examination. This is measured from the date the initial OCEP examination letter is mailed to the first review of records.

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

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

    5. Ten days for agents to close agreed or no-change examinations. This is measured from the date that all issues are resolved or the date that the no change determination is made.

    6. Twenty days for agents to close unagreed examinations. This is measured from the date of the final closing conference or if a closing conference was declined, from the date it was declined.

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

    8. Three business days to respond to telephone calls.

    9. Fourteen days to respond to correspondence.

  7. An additional seven days may be granted for management directed "higher priority work" . If this is the case, the CCR should state the specific reason for the delay. Merely stating "higher priority work" without further explanation is not an acceptable explanation to warrant an additional seven days.

4.71.1.7.5  (03-28-2014)
Returned Mail

  1. If the initial contact letter is returned to the IRS by the Post Office as undeliverable, take the following steps to 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 for completing Form 6882 are found on the back of the form.

    4. Contact the postmaster of the most recent address obtained under steps a through c above. Step d must not be taken unless steps a through c have first been taken. The following certification statement is required by the postmaster and must be stamped or typed 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:

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

    5. The taxpayer's address may also be obtained through other sources such as Accurint, Department of State sites or internet web sites.

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

4.71.1.8  (03-28-2014)
RCCMS and AIMS Updates

  1. RCCMS and Audit Information Management System (AIMS) should be updated anytime there is a change in the status of a case.

    1. For example, RCCMS and AIMS should be updated to status code 12 when contact is first made with the taxpayer.

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

  2. RCCMS and AIMS should also be updated whenever the statute of limitations is updated.

  3. An AIMS print should be secured and included in the RCCMS Office Documents folder for all AIMS updates.

4.71.1.9  (03-28-2014)
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.

  2. Only one taxpayer can be listed per Form 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 thus does not necessitate the solicitation of two Forms 2848 (one for the plan and one for the trust).

    4. It is necessary to get a separate Form 2848 for the trust when a decision is made to place the trust under examination (e.g., Form 990-T is picked up for exam).

      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 which is submitted to the plan sponsor as required by current standards.

  3. A valid Form 2848 must contain the following information:

    1. If a Form 5500 is being examined, the name, address and EIN of the plan sponsor and three digit plan number must be listed in the Taxpayer Information section.

      Note:

      The name of the plan may also be listed, but it is not required.

    2. If a trust is being examined, the name, title and address of the trustee, and the name and EIN of the trust must be listed in the Taxpayer Information section.

    3. If Form 5330 for an individual is being examined, the name, address and Social Security Number (SSN) of the individual must be listed in the Taxpayer Information section.

    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 in the Taxpayer Information section.

    5. If the Form 2848 relates to a Form 1040 discrepancy adjustment, the name, address and SSN of the individual must be listed in the Taxpayer Information section.

      Note:

      For a joint return, each spouse (or former spouse) must submit a separate Form 2848.

    6. If the examination involves an NRU, the name, address and EIN of the entity being examined must be listed in the Taxpayer Information section.

    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 Form 1040.

    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 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.

    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 5 of Form 2848 to see if the taxpayer makes any restrictions or additions to acts automatically authorized by the Form 2848.

  4. 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 Enrolled Actuary 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)).

  5. If a representative, who is appointed by the taxpayer, is not qualified to sign Part II of Form 2848, the form must be returned to the taxpayer. An invalid Form 2848 should not be treated as authority for the individual to receive tax information.

  6. 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, the taxpayer should be advised to complete Form 8821, Tax Information Authorization. The Form 8821 will authorize the individual to receive or inspect tax return information, but this will not authorize the individual or organization to represent the taxpayer before the IRS.

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

    1. For that reason an unenrolled return preparer 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. An unenrolled return preparer may still represent a taxpayer for other types of tax returns (e.g., Forms 1040, 1120, 990-T or 1041) that he or she has 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.

  8. An unenrolled return preparer 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 the appropriate box(es) below on Line 5 are checked, 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.

  9. A copy of Form 2848 or Form 8821 secured during an examination should be forwarded as soon as possible after receipt to the appropriate Service Center.

    1. If the taxpayer’s place of business is located in Pacific Coast Area, North Dakota, South Dakota, Minnesota, Iowa, Nebraska, Kansas, Missouri, Texas or Oklahoma, the forms should be faxed to the Ogden Accounts Management Center. The fax number is 801-620-4249.

    2. If the taxpayer’s place of business is anywhere else in the United States, the forms should be faxed to the Memphis Accounts Management Center. The fax number is 855-214-7519.

    3. The agent should annotate on the top of the file copy of Form 2848 (or Form 8821) the date the form was sent to the Service Center and the Service Center to which it was sent.

    4. The case chronology record should be annotated to indicate that the form (Form 2848 or Form 8821) was forwarded to the Service Center.

  10. 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.

  11. If the taxpayer wants the representative to receive correspondence from the IRS, the box in Part I, Item 2 (below the representative's name and address) must be checked.

  12. If the taxpayer wants to retain previously designated representatives, the box in Item 6 must be checked and copies of the applicable Forms 2848 for those representatives must be attached to the new Form 2848 being submitted.

  13. If the taxpayer chooses to revoke an existing power of attorney and not name a new representative, a copy of the previously executed power of attorney must be sent to the IRS along with a cover letter.

    1. "REVOKE" must be written across the top of Form 2848.

    2. The cover letter must include a written statement providing that the authority of the power of attorney is revoked and must 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" ). The cover letter must be signed and dated by the taxpayer.

  14. If a representative wants to withdraw from representation, a copy of the previously executed power of attorney must be sent to the IRS along with a cover letter.

    1. "REVOKE" must be written across the top of Form 2848.

    2. The cover letter must include a written statement providing that he/she is withdrawing from representing the taxpayer. The name, TIN and address of the taxpayer must be listed along with the applicable return(s), tax matter(s) and year(s) (or the representative may indicate that they are withdrawing from "all years/periods" ). The cover letter must be signed and dated by the representative.

  15. The statement of revocation/withdrawal must be sent to the EP group responsible for the case.

  16. The EP agent or manager will forward revocation/withdrawal request to the applicable Service Center. See paragraph (9).

  17. A copy of all secured Forms 2848 must be either maintained in the paper case file when the case is closed or scanned and saved in the RCCMS Office Documents folder.

  18. "Pen and ink" changes to Form 2848 are not acceptable. If the agent discovers imperfections with the preparation of the Form 2848, then a new Form must be submitted.

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

4.71.1.9.1  (03-28-2014)
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 copies of all correspondence issued to the taxpayer are required to be sent to the representative. The taxpayer may at his/her discretion forward the requested information/documentation through the representative to the agent.

4.71.1.9.1.1  (03-28-2014)
By-Pass Procedures

  1. If any of the following issues occur, the agent will 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 failure to return telephone calls and written correspondence.

  2. If a trend is noted and the examination is being hindered because of the representative, the 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 the agent has not done so already, correspondence sent to the representative will also be sent 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. Copies of prior document requests, a list of outstanding items and a brief chronology of events will be attached to the letter.

    2. A copy of the Letter 4020-A will be sent to the taxpayer.

  5. If the representative continues to delay or refuses to provide the information requested, the Area Manager's written approval should be received in order 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. A summons should be utilized to secure information if both the taxpayer and the representative are both intentionally uncooperative.

4.71.1.10  (03-28-2014)
Third Party Contacts

  1. The provisions of IRC 6103 and the regulations thereunder apply to all third party contacts. See IRM 11.3, Disclosure of Official Information.

  2. 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.

  3. 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. Provide 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). Other exceptions to the notification requirements are set forth in IRM 4.71.1.10.4, Exceptions to IRC Section 7602(c) Requirements.

  4. The term "taxpayer" means the person or entity for whom a return is filed or in the case of 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. With regard to an NRU, the "taxpayer" is typically the plan sponsor.

4.71.1.10.1  (03-28-2014)
Third Party Contact Defined

  1. For purposes of IRC 7602(c), a third party contact has been made when an IRS employee initiates contact with a person other than the taxpayer and asks questions about that taxpayer’s federal tax liability (including the issuance of a levy or summons to someone other than the taxpayer). The statute does not apply to contacts initiated by third parties.

  2. Treas. Reg. 301.7602-2(f)(5) provides that IRC 7602(c) does not apply to any contact with any office of any local, state, Federal or foreign governmental entity except for contacts concerning the taxpayer's business with the government office contacted, such as the taxpayer's contracts with or employment by the office.

    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. Generally, IRS employees should identify themselves when attempting to obtain information from third parties. However, in the limited situation where an IRS employee attempts to reach a taxpayer by telephone, but instead reaches the taxpayer’s employee, family member or another third party and the IRS employee does not seek any information from the person who answers the telephone, the IRS employee should not tell the third party that he works for the IRS unless expressly asked by the third party. Employees can only seek additional information from the person answering the telephone if:

    1. The appropriate Letter 3164, Third Party Notice, has been issued to the taxpayer,

    2. The employee identifies himself as an IRS employee and

    3. The employee treats the telephone conversation as a third party contact.

      Note:

      If Letter 3164 has not been issued to the taxpayer prior to the telephone call, employees should not seek additional information or identify themselves as IRS employees unless expressly asked. See IRM 4.71.1.10.2, Notification Requirements, for a description of the uses of the different versions of Letter 3164.

  4. The following are not third party contacts:

    1. Searches made on computer databases that do not require any personal involvement on the other end (e.g., Westlaw, LEXIS or Information America).

    2. Contacts made with government officials to obtain information that is available to the public (e.g., contacting the Postal Service to obtain a taxpayer’s current address).

    3. Information received where the third party initiates the contact.

    4. Contacts with individuals who have a valid Power of Attorney for the taxpayer.

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

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

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

    8. Contacts made as the result of unsolicited requests for payoff of a Notice of Federal Tax Lien or to respond to requests for information regarding the priority of a lien (disclosure laws do apply).

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

    10. Contacts made with third parties to collect taxes for another country as part of a special agreement often referred to as a Mutual Collection Assistance Agreement.

  5. 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.

  6. 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  (03-28-2014)
Notification Requirements

  1. IRS employees may not contact any third party without first providing reasonable notice to the taxpayer.

  2. IRS 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. A new Letter 3164 must be issued if the examination is expected to cover a new tax period, third party contacts will be made with respect to this period and the taxpayer has not received a Letter 3164 within the last 12 months.

  3. Letter 3164, Third Party Notice, is used to provide notification and includes the following information:

    1. Date

    2. Taxpayer’s name, address and TIN

    3. Person to contact, telephone number and ID number

  4. The following versions of Letter 3164 are available for use by Employee Plans Examination employees:

    1. Letter 3164 E (DO) is used for the Office Correspondence Examination Program (OCEP).

    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  (03-28-2014)
Notification Procedures

  1. When it is determined that a third party contact is necessary, employees should review the case file to determine if the taxpayer has received the required notification. Another employee or function may have issued the required notice. A copy of Letter 3164 should be 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, provide a separate Letter 3164 to each spouse.

    2. Each Letter 3164 should include the taxpayer’s name, address and TIN, as well as the employee’s 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 it is verified that either the taxpayer or POA (if applicable) has received Letter 3164. Once receipt of the letter is verified, third party contact can be made immediately. If it can be verified that the plan sponsor or the POA has received the Letter 3164, then is not necessary to wait 10 days.

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

4.71.1.10.3  (03-28-2014)
Providing Taxpayers with Notice

  1. Pursuant to IRC 7602(c)(2), the IRS is required to provide a taxpayer with a list of third party contacts when requested by the taxpayer.

4.71.1.10.3.1  (03-28-2014)
Recording Third Party Contacts

  1. When a third party contact is made, complete Form 12175, Third Party Contact Report Form.

    1. The employee who makes a third party contact is responsible for complying with these provisions 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. Multiple contacts with the same third party on different dates require 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 the following information on Form 12175:

    1. List the Taxpayer Identification Number (TIN).

    2. List the Name Control.

    3. List the 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. List the date of contact.

    6. Check the Reprisal Determination box if fear of reprisal is a concern.

    7. List 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. List the plan number or application form number and control date for certain EP accounts.

    9. List the 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 completion.

    2. Associate a copy with the case file.

    3. Document the case history to show the action taken.

4.71.1.10.3.2  (03-28-2014)
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  (03-28-2014)
Providing Taxpayers the Contact List Upon Request

  1. When a taxpayer requests a third party contact list, the employee receiving the request is responsible for:

    1. Recording the taxpayer’s name, TIN and mailing address (if different from Master File address).

    2. Referring the request to the Third Party Contact Coordinator.

  2. Taxpayers must submit a separate request for each list of contacts. A blanket request for a list of future third party contacts will not be accepted.

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

  4. Letter 3173 will list all third party contacts made after the date the taxpayer received the latest report of contacts.

  5. 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.

4.71.1.10.4  (03-28-2014)
Exceptions to IRC Section 7602(c) Requirements

  1. IRC 7602(c)(3) provides for four situations when the IRS is not required to provide the taxpayer with advance general notice or to include a particular third party contact on the list of third party contacts that we provide to the taxpayer. The exceptions are:

    1. Taxpayer authorizes the third party contact

    2. Jeopardy

    3. Reprisal

    4. Pending criminal investigation

4.71.1.10.4.1  (03-28-2014)
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 with documentation of routine case actions, but Form 12175 and/or the database need not be updated 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, completion of Form 12180 is not required, but 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  (03-28-2014)
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, take the following actions:

    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  (03-28-2014)
Reprisal

  1. If an IRS employee determines that providing the advance notice or a record of a specific contact to a taxpayer may result in reprisal (e.g., retaliation) 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 for input to 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. Employees must document the case file with the facts surrounding the reprisal determination.

4.71.1.10.4.3.1  (03-28-2014)
Employee Determination

  1. The employee making the third party contact completes the reprisal determination for all third party contacts (see Delegation Order 259). In some situations, a determination can be made, based on 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.

  2. If the determination can not be made based upon facts already known, advise the third party that by law, the IRS is required to provide its name to the taxpayer as a third party contact and ask if there is a fear of reprisal.

  3. A "Potentially Dangerous Taxpayer" (PDT) indicator may be a basis for determining that providing notice of a particular third party contact may result in reprisal. However, a PDT indicator alone is not a sufficient basis for determining that sending the advance notice may result in reprisal against any person. However, the employee may be aware of other facts in a particular case from which a determination can be made that sending the advance notice may result in reprisal.

    IF a reprisal determination THEN
    a. is made with respect to sending the advance notice to the taxpayer Do NOT send Letter 3164. Complete Form 12175 as outlined above and document the case file.
    b. is made with respect to providing notice of a specific third party contact Complete Form 12175 as outlined above and document the case file.
    c. cannot be made based upon information already known by the employee Advise the third party that by law the IRS is required to provide their name to the taxpayer as a third party contact and ask if there is a fear of reprisal.

  4. Make sure the third party understands that his/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 is sent at least once a year to (state 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? "

    IF the third party… THEN…
    a. does NOT indicate reprisal concerns Complete Form 12175 and forward it to the Third Party Contact Coordinator.
    b. indicates fear of reprisal Document the case file and prepare Form 12175 as outlined above. Do not question any third party claims to reprisal.
    c. initially indicates no fear of reprisal and later advises there is fear of reprisal Immediately contact the Third Party Contact Coordinator and advise them of the situation.
      Prepare a new Form 12175, as outlined above and submit it to the Third Party Contact Coordinator.
      Place a copy of the new Form 12175 at the front of the case file.
      Do not remove the previously completed Form 12175 from the case file.

  5. If a letter is sent to an individual (not a business) 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 10 calendar days from the day the letter is mailed). "

    Note:

    It is not necessary to include the reprisal script when a letter is mailed to a business entity, but it may be appropriate in some situations.

    1. Complete Form 12175, but do not forward it to the Third Party Contact Coordinator until after 10 calendar days have passed.

    2. If no fear of reprisal is communicated, then forward the Form 12175 to the Third Party Contact Coordinator.

  6. If the third party (described in paragraph (5)) does claim a fear of reprisal:

    1. Document the case file.

    2. Replace Form 12175 with a new form to reflect the reprisal determination (retain previously completed form).

    3. Forward the new Form 12175 to the Third Party Contact Coordinator.

  7. If the third party volunteers that the taxpayer has a potential for violence, then consider applying the reprisal exception to individuals who have been contacted previously concerning this taxpayer or who may be contacted later and who do not express fear of reprisal on their own.

  8. Do not provide information to any person 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).

  9. The best practice is to always document the case file in any situations involving third party contacts.

4.71.1.10.5  (03-28-2014)
Disclosure Rules - Obtaining Taxpayer Information from Internet Sites

  1. Applicable law that relates to disclosure and internet research is as follows:

    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, the following guidance is provided for EP employees:

    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), agents should 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 for the disclosure of 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. Disclosure of a social security number is particularly sensitive. Its use should be carefully considered and used 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. Agents should 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  (03-28-2014)
Taxpayer Confidentiality Privilege

  1. IRC 7525 extends the attorney–client privilege in noncriminal cases to communications between taxpayers and other federally authorized tax practitioners. No equivalent confidentiality privilege existed as to communications between taxpayers and other federally authorized tax practitioners prior to the enactment of this provision.

  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  (03-28-2014)
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. Questions as to whether the privilege applies to communications made to other individuals should be referred to Area Counsel.

4.71.1.11.2  (03-28-2014)
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  (03-28-2014)
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, the employee should:

    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 ceases to be a noncriminal matter, the taxpayer may no longer assert the IRC 7525 privilege.

4.71.1.12  (03-28-2014)
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. An in-depth interview should be planned in advance to address items specific to the taxpayer under examination. The type of return, potential issues and relevant facts and circumstances should be considered in the interview plan.

  4. Unless facts and circumstances dictate otherwise, the initial interview should be conducted 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:

    1. It helps insure the agent's time is efficiently used, by having access to source documents where they are stored.

    2. It provides an opportunity for the agent to become familiar with the business operations by inspecting the premises.

    3. It enables the agent to better 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), the agent should request an opportunity to conduct a walk-through of the business premises and to have an opportunity to direct questions the POA cannot adequately answer to the plan sponsor or an employee who can. These visits could be scheduled prior to the start time of the business (e.g., before office hours at a doctor’s office).

  7. If the interview is not conducted with the plan sponsor, it should be conducted with a person having sufficient knowledge concerning the plan’s financial status and operations.

  8. The following provisions under IRC 7521, enacted as part of the Taxpayer Bill of Rights, also affect taxpayer interviews:

    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. Agents will strictly observe the taxpayer’s right of consultation throughout the examination process and interviews will be suspended and rescheduled accordingly.

      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 the agent’s right to conduct an on-site inspection of the taxpayer’s facility.

  9. During the initial interview, the agent should include an explanation of the examination process and appeal rights, as set forth in Pub 1-EP, Your Rights as a Taxpayer. The case file should contain documentation that Pub 1-EP was issued to the taxpayer.

  10. The workpapers should document who was interviewed and the extent of the issues discussed. Interviews should be documented 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 the agent finds necessary for the administrative record, it should be put in writing and mailed to the taxpayer and POA.

4.71.1.13  (03-28-2014)
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, the agent will generally concur subject to the following provisions:

    1. Group manager approval is secured prior to the recording.

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

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

    4. The recording takes 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, the agent must identify himself/herself, 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. Written records that are presented during the proceeding must be described 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. The recording produced by the IRS should be immediately reviewed for clarity and substance and, if needed, a complete written report of the conference should immediately be prepared.

4.71.1.14  (03-28-2014)
Package Audit Requirements

  1. During the course of auditing the assigned return, the EP agent should determine whether the plan sponsor is filing or has filed other federal tax or information returns he/she is required to file. In the interest of conserving resources, increasing compliance and reducing multiple contacts with taxpayers, this responsibility also extends to various returns under the jurisdiction of LB&I, SB/SE or W&I (collectively referred to as Exam Functional Units). See Policy Statement P-4-4 in IRM 1.2.13.1.2, Policy Statements for the Examining Process.

  2. As discussed in paragraph 6 of IRM 4.71.1.6, Pre-audit Analysis, during the pre-audit analysis phase of the examination, EP agents should utilize internal sources of information such as the IDRS to verify the filing of prior and subsequent year Forms 5500 series returns, related returns and other returns the taxpayer is required to file. Utilizing internal sources will decrease taxpayer burden to provide copies of returns at the time of the actual examination. With respect to the required inspection of prior and subsequent Forms 5500 series returns, as provided in IRM 4.71.1.14.1(2), ERTVU can be used to view the Form 5500 line items for a particular tax period to determine audit potential.

  3. Examples of returns that fall under package audit requirements for a full scope examination include:

    • Related EP returns — Forms 5500 series, 5330, 990-T

    • Employment taxes — Forms 940, 941, W-2, 1099-MISC

    • Forms 1099-R

    • Plan sponsor returns — Forms 1065, 1120, 1040, 990, etc.

  4. For focused examinations the following guidelines apply:

    1. In all instances, the filing of Forms 5500 for the prior and subsequent year of the plan being examined should be verified. This can be verified by the review of an EMFOL print.

    2. In all instances, the filing of Forms 940, 941 and the plan sponsors tax return (e.g., Form 1120) for the periods corresponding to the plan year under exam should be verified. For example, if the plan year ending 6/30/2010 is being examined, the agent must verify that Forms 941 for the last two quarters of 2009 and the first two quarters of 2010 were filed and that Forms 940 for 2009 and 2010 were filed. Likewise, the filing of the Form 1120 for the 6/30/2010 tax year (or the tax year in which the plan year ends) should be verified. The filing of Forms 940, 941 and the plan sponsor's tax return can be verified by the review of a BMFOLI print.

    3. The filing of the other forms listed above should be verified if they relate directly to one of the issues being addressed in the examination. For example, the filing of Forms 1099-R should be verified if plan distributions are being addressed as an audit issue.

  5. If the taxpayer has not filed a required return, attempt to obtain the delinquent return (unless fraud or willful failure to file is indicated). See IRM 4.71.1.21, Amended, Substitute and Secured Forms 5500, for amended, substitute and secured Form 5500 procedures.

  6. If the taxpayer refuses to file a required return and the return is under the jurisdiction of EP, discuss the issue with your manager and determine whether an examination of that year should be initiated.

  7. If a return has not been filed that is not under the jurisdiction of EP, make a referral on Form 5666 as specified in IRM 4.71.6.7, Making Referrals to Exam Functional Units.

  8. If it is determined that an issue exists on a return that is not under the jurisdiction of EP, make a referral on Form 5666 as specified in IRM 4.71.6.7, Making Referrals to Exam Functional Units.

  9. If it is determined that an issue exists on the related income tax return (e.g., Forms 1120 or 1040), refer to IRM 4.71.4, Discrepancy Adjustments, to determine whether a discrepancy adjustment should be initiated or a referral should be made to the appropriate Exam Functional Unit.

  10. To satisfy the package audit requirements, the workpapers should include documentation to support the audit steps taken and the conclusions reached.

    1. Specify on Form 5773,EP Workpaper Summary Continuation Sheet, (or equivalent workpaper) that the package audit procedures were considered; list those returns/forms required to be filed and indicate whether they were filed by the taxpayer. See IRM 4.71.1.15.4(6)(e).

    2. State any further action warranted and indicate the specific action(s) taken.


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