4.75.10  EO Pre-Examination Guidelines and Procedures (Cont. 1)

4.75.10.23 
Initial Taxpayer Contact

4.75.10.23.1  (05-01-2004)
Initial Contact by Telephone

  1. When initial contact is made by telephone, the examiner will immediately state the purpose of the call and identify him/herself by name, employee identification number and telephone number.

  2. During the conversation the examiner should:

    1. Briefly explain the examination process.

    2. Identify the returns being examined and the tax period(s) involved.

    3. Ask if the organization will be represented by a power of attorney and request Form 2848, if applicable.

      Note:

      If organization will be represented, take care not to begin the examination through questioning during the initial contact since this may give the impression of attempting to bypass the representative. If representation must be secured and the contact person does not want to schedule an appointment until after a representative is confirmed, allow a minimum of ten business days to secure representation before taking any follow-up action to schedule the appointment. Extensions can be granted on a case-by-case basis.

    4. Ask whether the organization has been examined in prior years.

    5. Discuss the issues identified during the pre-examination.

      Note:

      There may be extenuating circumstances, such as an informant report, that preclude the discussion of the issues prior to the examination. If the preplanned issues are not discussed prior to the examination, the specific reasons should be documented in the workpapers.

    6. Explain that additional issues may be examined depending on the information obtained during the examination.

    7. Determine the type and location of the books and records.

    8. Establish the location where the examination will take place.

      Note:

      Field examinations are normally conducted at the organization's place of business and/or where the books and records are maintained.

    9. Ask for clear directions to the audit site.

    10. Explain that a letter confirming the scheduled appointment, along with a detailed Information Document Request, will be mailed.

  3. Before ending the conversation, the examiner will ask whether there are any questions.

  4. The appointment will be confirmed in writing using Letter 3613.

  5. The examiner will document all actions in the workpapers.

4.75.10.23.2  (05-01-2004)
Initial Contact By Letter

  1. If unable to reach the taxpayer by telephone, send the organization an appointment letter using Letter 3611. Set the date for a reasonable length of time to include mail handling and forwarding.

    Note:

    The Information Document Request sent with the letter must ask the taxpayer to confirm the availability and format of the books and records and identify the preplanned issues.

  2. If a response is received and a telephone number provided, the examiner should call the taxpayer to determine the availability of all records requested and discuss the preplanned issues.

  3. If there is no response, a follow-up letter with a copy of the initial letter 3611 and Information Document Request enclosed, should be sent by certified mail.

4.75.10.24  (05-01-2004)
Powers of Attorney and Tax Information Authorizations

  1. The information in this subsection relates to exempt organizations organized as corporations, associations, or trusts. It provides guidelines for situations encountered during the ordinary course of the examination of an exempt organization. If the examination involves other entities or individuals, unusual situations, or issues that are not addressed here or for additional information, the examiner should refer to:

    1. IRC § 6103 and the regulations thereunder,

    2. Statement of Procedural Rules, 26 CFR Part 601, SubpartE (Treas. Reg. §§ 601.501 through 601.509), republished as Publication 216, Conference and Practice Requirements,

    3. IRM 11.3, Disclosure of Official Information,

    4. Publication 947, Practice Before the IRS and Power of Attorney, and/or

    5. Form 2848 Instructions.

4.75.10.24.1  (05-01-2004)
When to Secure a Power of Attorney or Tax Information Authorization

  1. If the contact person requests the examination be conducted with a person who does not have the authority to receive confidential tax information, the examiner should request that proper authorization be provided prior to or on the date of the first appointment. If the request is made during the examination, the proper authorization should be obtained before discussing any confidential tax information with the designated individual. Please note:

    1. A Power of attorney authorizes the designated individual to represent the taxpayer in certain circumstances,

    2. A written or verbal tax information authorization authorizes the designated individual to file the taxpayer's tax information, but it does not authorize the designated individual to represent the taxpayer before the IRS.

4.75.10.24.2  (05-01-2004)
Comparison of Powers of Attorney and Tax Information Authorizations

  1. The following table shows the primary acts that can be or cannot be performed by an individual holding a valid power of attorney (POA) or a written or verbal tax information authorization (TIA) during the examination process.

    ACT POA TIA
    Act as a contact point for the organization during the examination YES YES
    Receive and inspect returns and return information YES YES
    Receive tax notices, correspondence and other communications YES YES
      Will receive copies, unless specifically excluded, and may receive originals, if specifically included Can received copies if specifically authorized
    Discuss Issues With the Examiner YES NO
    Represent the Organization at Conferences YES NO
    Sign Agreements YES1 NO
    Sign a Closing Agreement YES1 NO
    File a Protest in Response to a 30-Day Letter YES1 NO
    Record Interviews YES NO
    Sign a Tax Return GENERALLY NO2 NO
    1 An unenrolled preparer designated on a power of attorney cannot sign any document for the organization. See Rev. Proc. 81-38, 1981-2 C.B. 592. An unenrolled preparer's representation is limited to practice before examining officers of TEGE, LMSB, SBSE, and W&I operating divisions and in the Office of International Operations, and may only encompass matters concerning the tax liability for returns the unenrolled preparer prepared for the taxpayer. An unenrolled return preparer may not represent the taxpayer before Appeals or collection or any other IRS function other than the examination function.2The return is an income tax return received within 60 days before the ASED in which case the assessment period is extended to 60 days after the receipt of the amended return. See IRC § 2

  2. A power of attorney may only sign a tax return on behalf of the taxpayer in very limited circumstances. A recognized representative may sign the return on behalf of a taxpayer if it is specifically authorized in the power of attorney (form 2848), and the taxpayer:

    1. Is unable to sign the return due to disease or injury;

    2. Is unable to sign the return by reason of continuous absence from the United States for a period of at least 60 days before the return is due; or

    3. Requests permission, in writing, from the area director and the director determines that there is good cause for permission to be granted.

  3. Only individuals who are recognized to practice before the Service and are not under suspension or disbarment from practice can be designated as a recognized representative. Corporations, associations, partnerships and other persons who are not individuals cannot be appointed as a recognized representative. See IRM 4.75.10.23.3 below.

  4. Any individual, trust, corporation, association, partnership, and Federal, State, local and foreign government agency or subunits of such agency can be appointed to receive confidential tax information under a tax information authorization.

4.75.10.24.3  (05-01-2004)
Power of Attorney and Declaration of Representative

  1. If a non-IRS attorney is used, the power of attorney must have a written declaration attached, signed by the representative, that contains the statements found in Part II of the Form 2828. A Form 2848 may be used for this purpose. Examples of specific issues included but are not limited to the following:

    • Requests for a private letter ruling or technical advice,

    • Applications for an EIN,

    • Claims filed on Form 843, Claim for Refund and Request for Abatement,

    • Corporate dissolutions, and

    • Requests to change accounting methods or periods.

  2. If a specific use power of attorney is received, a copy should be attached to the document to which it relates. The representative retains the original power of attorney. Specific use powers of attorney are not recorded on the CAF system and therefore, do not have to be forwarded to a CAF unit. A specific-use power of attorney does not revoke any prior powers of attorney. The guidelines and instructions for powers of attorney other than this and the preceding paragraph apply to general powers of attorney only.

  3. The persons who can be designated as a power of attorney for tax matters under the jurisdiction of the Service are:

    • Attorneys who are members in good standing of the bar of the highest court of any state, possession, territory, commonwealth, or the District of Columbia;

    • Certified public accountants duly qualified to practice as a certified public accountant in any state, possession, territory, commonwealth, or the District of Columbia;

    • Enrolled Agents,

    • Officers of the Organization,

    • Full-Time Employees of the Organization, and

    • Unenrolled Return Preparers

    Note:

    The acts an unenrolled return preparer can perform are limited as shown above.

  4. The organization can use Form 2848 or a non-IRS power of attorney to designate an individual as a power of attorney for the organization. The Form 2848 or the non-IRS power of attorney must include the following information:

    • Organization's name and address

    • Employer identification number

    • The appointed representative's name and address

    • Type of tax involved, e.g., individual, unrelated business income, excise, employment, etc.

    • Tax form number

    • Specific tax period(s) involved

    • Officer's signature and date of signature

    • Declaration of Representative signed and dated by the appointed representative(s)

      Note:

      If a non-IRS power of attorney is used the declaration of representative section must contain the statements included in Part II of Form 2848.

  5. A non-IRS power of attorney must also contain a clear expression concerning the scope of authority granted to the representative.

  6. Taxpayers and representatives may not use signature stamps when signing powers of attorney. Original signatures are required.

  7. A faxed power of attorney is acceptable and generally should be recognized by the IRS. If there is some indication of forgery, the representative can be required to produce the original.

  8. Non-IRS powers of attorney are not entered on the CAF system. If the power of attorney wishes to have the non-IRS power of attorney recorded in the CAF system, he or she must attach a completed Form 2848. See Treas. Reg. 601.503(b)(2) for additional information.

  9. A valid power of attorney submitted by a taxpayer is always required to be honored unless the criteria for bypassing the power of attorney have been met.

4.75.10.24.3.1  (05-01-2004)
Processing Power of Attorney

  1. Check to see if the representative has a current, active license. Some resources for making this check are listed below.

    1. A Certified Public Accountant's license can be checked using the "State News and Information" section of the American Institute of Certified Public Accountants' web site at http://www.aicpa.org/states/index.htm or by calling the appropriate state CPA board.

    2. An attorney's license may be checked by contacting the appropriate state bar association. This information may also be available on the state bar association's website.

    3. The enrollment status of an enrolled agent can be checked by calling or emailing the Office of Practitioner Enrollment.

      Note:

      If the search shows that the representative has lost his or her license (or had it suspended, revoked, or classified as inactive, the examiner should forward the POA to the Area Return Preparer Coordinator.

  2. Review the form for completeness and validity.

  3. If the power of attorney received does not contain all of the items listed in IRM 4.75.10.23.3(4)above, it is invalid. If the power of attorney does not include all of the types of tax, form numbers, and years or periods under examination, the power of attorney will not be valid for the missing types of tax, forms and/or tax years or periods. If the examiner determines that there is missing information, he/she should contact the organization or representative by face-to-face contact, telephone, or correspondence and discuss the missing information. If the missing information pertains to information:

    1. Requested in Part 1 of Form 2848, the examiner should contact the organization.

    2. Requested in Part 2 of Form 2848, the examiner should contact the representative.

  4. If the power of attorney is incomplete the examiner will return it to the organization or representative. The organization or representative, as applicable, may submit a corrected power of attorney or enter the missing information on the returned power of attorney and resubmit it.

  5. If the power of attorney does not include all of the types of tax, form numbers, and years or periods under examination and the organization wishes to include them, the organization may submit a corrected power of attorney.

    Caution:

    The examiner should not make any changes or add any information to the power of attorney other than completing the information requested in the box labeled, "For IRS Use Only" on Form 2848 or date stamping the front of a non-IRS power of attorney.

  6. If a non-IRS power of attorney is complete and valid the examiner will:

    1. Date stamp the front of the power of attorney.

    2. Record the date the power of attorney was received and verified on the Case Chronology Record.

  7. If a power or attorney on Form 2848, is complete and valid the examiner will:

    1. Complete the block labeled "For IRS Use Only" with the examiner's name, telephone number, function, and date the form was received.

    2. Fax a copy of Form 2848 to the CAF unit of the appropriate Campus (Memphis, Ogden or Philadelphia) within 10 workdays of the date it was received.

      Note:

      Forms 2848 are filed with the appropriate campus based on the taxpayer's location rather than on the type of return being examined. The appropriate campuses are listed in the instructions to Form 2848. The fax numbers are also included in the instructions to Form 2848.

    3. Record the date the power of attorney was received and verified and the date it was forwarded to the appropriate campus on the Case Chronology Record.

  8. Attach the original power of attorney to the back of the first page of the return. If the form covers more than one tax period, make copies and attach one to each return covered.

  9. The power of attorney should be readable without removing staples.

  10. Any subsequent powers of attorney received should be stapled to the top of the prior Powers of Attorney in the same manner.

  11. In accordance with Treas. Reg. § 601.506(a), correspondence and notices should be sent to the taxpayer and the authorized representative(s) as requested in Item 7, Notices and Communications, of Form 2848.

  12. Letter 3597 should be used to transmit the correspondence to the representative.

  13. If the taxpayer designates more than one representative with different mailing addresses, provide copies to two, but no more than two, of the representatives listed. If the taxpayer does not designate which representatives are to receive the correspondence, send it to the first and second named representatives on the most recent Form 2848.

4.75.10.24.3.2  (05-01-2004)
Subsequent Power of Attorney and Declaration of Representative

  1. The filing of a subsequent power of attorney for the same periods as a previous power of attorney will automatically replace and revoke the previous power of attorney unless specified otherwise by the organization in the subsequent power of attorney. If the power of attorney was submitted on Form 2848 and the organization does not wish to revoke the prior power of attorney, a copy of the prior Form 2848 must be attached to the subsequent Form 2848 before it is sent to the appropriate Campus.

    Note:

    If the organization wishes to revoke an existing power of attorney and does not want to name a new representative, follow the instructions in Treas. Reg. 601.505(a).

4.75.10.24.4  (05-01-2004)
Written Tax Information Authorization

  1. Treas. Reg. § 301.6103(c)-1T(b) authorizes the IRS to accept written consents authorizing the disclosure of return information to a designee of the taxpayer.

  2. Generally, the tax information authorizations received during the course of an examination are general-purpose tax information authorizations and are recorded on the CAF system. However, a limited/specific tax information authorization for a specific issue may be received. Examples of specific issues include but are not limited to the following:

    • Civil penalty issues

    • Trust fund recovery penalty issues

    • Claims filed on Form 843, Claim for Refund and Request for Abatement

  3. If a specific use tax information authorization is received, a copy should be attached to the document to which it relates. The appointee retains the original tax information authorization. Specific use tax information authorization are not recorded on the CAF system and therefore, do not have to be forwarded to a CAF unit. Specific use tax information authorization does not revoke any prior tax information authorizations. The guidelines and instructions for tax information authorization in IRM 4.75.10 other than this and the preceding paragraph apply to general tax information authorizations only.

  4. Any individual, trust, corporation, association, partnership, and Federal, State, local, and foreign government agency or sub-units of such agency can be appointed to receive confidential tax information under a tax information authorization.

  5. The organization can use Form 8821 or any separate written document meeting the requirements of Treas. Reg. § 301.6103(c)-1T(b) and containing the following information to appoint an individual to receive confidential tax information:

    • Organization's name and address

    • Employer identification number

    • The identity of the person or persons to whom the disclosures may be made

    • Type of return, specific portion of the return, or return information that may be disclosed

    • Type of tax involved, e.g., individual, unrelated business income tax, excise, employment, etc.

    • Specific tax period or periods

    • Officer's signature and date of signature

  6. The regulation also permits disclosures to third parties assisting the taxpayer in resolving Federal tax related matters pursuant to the taxpayer's written request for assistance. Treas. Reg. § 301.6103(c)-1T(c)(1). The requirements for a written request for assistance are somewhat less stringent than the requirements for a general-purpose written consent. This part of the regulation is generally used to respond to members of Congress in connection with constituent inquiries, or, for example, if there is an examination plan that will be signed by the taxpayer and the taxpayer wants to designate the contact points for the examination as part of the plan. Consult your Disclosure Officer if you have a situation where you believe this part of the regulation may be of use.

4.75.10.24.4.1  (05-01-2004)
Processing Tax Information Authorizations

  1. Review the form for completeness and validity.

  2. If the Form 8821 received does not contain all of the items listed in IRM 4.75.10.23.4(5) above, it is invalid. If it does not include all of the types of tax, form numbers, and years or periods under examination, the tax information authorization will not be valid for the missing types of tax, forms and/or tax years or periods. The examiner should contact the organization by face-to-face contact, telephone or correspondence and discuss the missing information. If the tax information authorization is incomplete it should be returned to the organization. The organization may submit a corrected tax information authorization or enter the missing information on the returned tax information authorization and resubmit it. If the tax information authorization does not include all of the types of tax, form numbers, and years or periods under examination and the organization wishes to include them, the organization may submit a tax information authorization.

    Caution:

    The examiner should not make any changes or add any information to the tax information authorization other than the information requested in the box labeled, "For IRS Use Only" on Form 8821.

  3. If the tax information authorization is complete and valid the examiner will:

    1. Complete the block labeled "For IRS Use Only" on the Form 8821 with the examiner's name, telephone number, function, and date the form was received.

    2. Fax a copy of the tax information authorization to the CAF unit of the appropriate Campus (Memphis, Ogden or Philadelphia) within 10 workdays of the date it was received.

      Note:

      tax information authorizations are filed with the appropriate campus based on the taxpayer's location rather than on the type of return being examined. The appropriate campuses are listed in the instructions to Form 8821. Instructions for securing the fax numbers are also found in the instructions to Form 8821.

    3. Record the date the tax information authorization was received and the date it was forwarded to the appropriate campus on the Case Chronology Record.

    Exception:

    If the tax information authorization is not on Form 8821, enter the examiner's name, telephone number, function, and date the form was received on the fax cover sheet when sending the information to the CAF unit.

  4. Attach the original Form 8821 or other document to the back of the first page of the return. If the form covers more than one tax period, make copies and attach one to each return covered.

  5. The tax information authorization should be readable without removing staples.

  6. A copy of subsequent Forms 8821 should be stapled to the top of the prior tax information authorization in the same manner.

  7. Copies of correspondence and other written communications should be sent to the authorized appointee if item 5a of Form 8821, " If you want copies of tax information, notices, and other written communications sent to the appointee on an ongoing basis check this box," is checked or if the tax information authorization is submitted in a document other than Form 8821, the document specifically requests copies be sent to the appointee(s).

  8. Letter 3597 should be used to transmit the correspondence to the appointee(s).

  9. A faxed tax information authorization is acceptable and generally should be recognized by the IRS. If there is some indication of forgery, the appointee could be required to produce the original.

4.75.10.24.5  (05-01-2004)
Verbal Tax Information Authorization

  1. Treas. Reg. § 301.6103(c)-1T(c) authorizes the IRS to accept non-written requests or consents authorizing the disclosure of return information to third parties assisting taxpayers in resolving Federal tax related matters.

  2. It remains the examiner's responsibility to ascertain what the taxpayer is consenting to disclose and to whom. Oral consents to disclose must be made between the taxpayer and the examiner directly. The examiner must have heard the consent or seen the recordation of the oral consent if he/she is making the release based on an oral consent or request to disclose. An examiner cannot take a third party's word that an oral consent has been given.

  3. An oral consent or request to disclose must contain the same information that would be required in a written consent. The examiner must obtain sufficient facts concerning the request to determine the nature and extent of the information to be disclosed.

  4. The details of the oral consent should be recorded in the Case Chronology Record or a separate workpaper as soon as possible. The following information should be recorded:

    • The date the authorization was made,

    • The identity and authority of the individual making the authorization,

    • The identity of the person or persons to whom the disclosures may be made, and

    • The specific return and/or return information to be disclosed including the Form number, type of tax, and years or period(s) covered by the authorization.

      Note:

      While the regulation permits less specificity, it is recommended that the same information be collected as is collected with a general-purpose consent.

4.75.10.24.6  (05-01-2004)
Examples

  1. The following examples illustrate situations that may arise during an examination when an examiner should secure a power of attorney or tax information authorization.

    Example:

    1. The president of the organization advises the examiner that Mr. Monroe, the accountant who prepared the organization's tax returns, will be the contact point for receiving tax information and correspondence relating to the examination and providing information to and discussing issues with the examiner. Mr. Monroe is an unenrolled return preparer. The examiner should secure a power of attorney for Mr. Monroe.

    Example:

    2. The president of the organization advises the examiner that Mr. Carroll, the bookkeeper, will be the contact point for receiving tax information and correspondence relating to the examination and providing information to the examiner. The organization does not wish to authorize Mr. Carroll to sign agreements, consents, or represent the organization under as a power of attorney. The examiner should secure a written or verbal tax information authorization for Mr. Carroll.

    Example:

    3. The president of the organization brings a number of employees to a meeting with the examiner. The employees are not authorized to receive confidential tax information just because the president brought them to the meeting. In this situation, the examiner usually should secure a verbal tax information authorization for each of the employees attending the meeting. The examiner should record the pertinent information concerning the verbal tax information authorization in the Case Chronology Record or a separate workpaper as soon as possible.

    Example:

    4. The organization's attorney has a valid power of attorney to represent the organization. He has his secretary call the examiner to determine the status of the examination. The secretary does not have the right to receive confidential tax information concerning the organization. The examiner should not discuss the status of the examination with the secretary unless he/she secures a verbal or written tax information authorization.

4.75.10.25  (05-01-2004)
Privileged Communications

  1. Confidentiality protection for certain communication between a taxpayer and an attorney (privileged communications) has been expanded to apply to similar communications between a taxpayer and any federally authorized practitioner, e.g., a CPA. See IRC § 7525.

  2. Tax advice is matters within the scope of the practitioner's authority to practice. Privileged communications are those communications related to noncriminal tax matters that come before the IRS or a federal court by or against the United States.

  3. The protection of this privilege applies only to tax advice given to the taxpayer by a person who is authorized to practice before the Service under the provisions of Circular 230.

4.75.10.26  (05-01-2004)
Locating the Taxpayer

  1. If unable to locate the taxpayer and/or the initial contact letter is returned by the Post Office as undeliverable, take the following steps to obtain the taxpayer's current address:

    1. Inspect any correspondence in the case file for any change of address noted by the U.S. Postal Service.

    2. Review the case file for possible sources of information that may lead to the taxpayer's whereabouts.

    3. Use ChoicePoint™ to find the organization's or an officer's, director's, or trustee's current address and telephone number.

    4. Check telephone and/or city directories for names and addresses of officers, directors, or trustees as well as the organization.

    5. Check the current address by submitting Form 6882, IDRS/Master File Information Request. The information returned will be from the latest return module posted to master file and will include entity and address data.

    6. Contact the Post Office for a current address using Form 4759, Address Information Request.

    7. Check Internet resources for possible leads.

    8. If the organization is a corporation, check the state annual corporate registration for the name of the current corporate agent.

    9. Contact third parties such as current or former employees or return preparers.

      Caution:

      Be sure to follow all third-party procedures in Treasury Regulation 301.7602-2.

      Note:

      See IRM 75.4.13, Issue Development, for the procedures to follow if the taxpayer can not be located.

4.75.10.27  (05-01-2004)
Scheduling the Appointment

  1. Regardless of the method of contact, try to schedule the initial appointment and any follow-up appointments at a time agreeable to the taxpayer and/or representative. This helps reduce the number of rescheduled appointments and avoid case delays. Schedule the examination during normal business hours and without regard to seasonal fluctuations of the taxpayer's business hours. It is customary to accommodate the taxpayer in the case of religious or secular holidays.

  2. The taxpayer and/or representative may request to postpone the suggested initial appointment date. Allow up to an additional 45 days after the first action on the case. If the taxpayer or representative attempts to further postpone the appointment, discuss the situation with the group manager.

  3. Usually the initial appointment is scheduled with the taxpayer, but the taxpayer is not required to be present at the initial interview per IRC § 7521(c). The interview can be conducted with anyone who is authorized by the taxpayer. However, that person must have firsthand knowledge of the information requested and confirm that the information obtained can be relied upon.

4.75.10.28  (05-01-2004)
Request for Transfer

  1. In setting the initial appointment, a request for a transfer to another location may be received from the taxpayer. IRC § 7602 gives the Secretary authority to reasonably set the time and place of an examination. Usually, the examination is conducted in the area where the taxpayer is physically located, has its principal office, carries out business transactions, and maintains its books and records.

  2. Treas. Reg. § 301.76051(c)(2) gives guidance on requests by a taxpayer and/or representative to transfer the place of examination. Generally, the Service grants such a request under the following circumstances:

    • The taxpayer's address is no longer where an examination has been scheduled,

    • The taxpayer's books, records, and source documents are maintained at a location other than where the examination has been scheduled.

  3. A request for transfer should be evaluated on a case-by-case basis. Factors that must be considered are:

    • Organization's current address

    • Location of the organization's business

    • Location of the organization's books and records, including vouchers, invoices, cancelled checks, and other documents usually maintained at the business site

    • Location where the Service can perform the examination most efficiently

    • Availability of the Service's resources at the location to which the organization requests a transfer

    • Other circumstances that indicate conducting the examination at a particular location would create undue inconvenience to the organization

4.75.10.28.1  (05-01-2004)
Representative's Request for Transfer

  1. Treas. Reg. § 301.7605-1(e)(3) provides that generally the Service will not transfer the location of an examination for the convenience of a taxpayer's representative, nor will the representative's place of business determine the place of the examination. However, the Service may consider the request by the organization or its representative to transfer the place of examination to the representative's office after weighing all factors.

  2. The representative must submit a valid Form 2848 with the request for transfer. Such requests will not be approved for Form 8821.

    Note:

    For the purpose of case transfers, "representative" means an attorney, certified public accountant, enrolled agent, officer, full-time employee, or actuary of the organization. It does not include an unenrolled tax return preparer.

4.75.10.28.2  (05-01-2004)
Written Requests

  1. Treas. Reg. § 301.7605-1(e) requires the request to transfer the place of examination to be in writing. It must include the following information:

    • Reason why the requested location is more efficient for the examination

    • Taxpayer's current address, phone number, and current principal place of business

    • Address/location of taxpayer's books, records, and source documents

    • Information as to who possesses the required records and will be available to expediently resolve issues

    • Available resources in the area to which the taxpayer requests transfer, if known

    • Other factors that show how conducting the examination at a particular location poses undue inconvenience to the taxpayer

4.75.10.28.3  (05-01-2004)
Transfer of Examination Initiated By the Service

  1. The examiner may initiate a transfer of an examination if it promotes effective and efficient conduct of the examination. If the taxpayer requests that a transfer not be made, consider the request according to the required factors. See IRM 4.75.10.27.

4.75.10.28.4  (05-01-2004)
Requirements To Transfer Examination Out of Area

  1. In addition to the written request, other requirements must be met in order to transfer an examination from one area to another.

  2. According to Treas. Reg. § 301.7605-1(e)(4), a minimum of 13-months must remain on the statute of limitations at the time of the transfer request. If all other considerations are satisfied but the 13-month period is not met, the taxpayer's written agreement must be obtained to secure a one-year extension of the statute of limitations.

  3. A transfer request will not be granted if a statutory notice of deficiency, 90-day letter, has been issued.

4.75.10.28.5  (05-01-2004)
Procedures for Transfer of Examination

  1. If the examiner decides to honor the transfer request, the group manager should be contacted so that he/she can call the receiving group manager for intra-area transfers or area manager for out-of-area transfers to discuss the transfer.

  2. Upon agreement for transfer:

    • Secure a statute of limitations extension, as necessary.

    • Prepare Form 5595 to update the case to the new group.

    • Complete Form 2363-A if a transfer is due to a permanent change of address.

    • Complete Form 3185, Transfer of Return, if a transfer is from one area office to another.

    • Complete Form 10030, Intra-District Transfer of Return, if a transfer of examination is within the same area.

    • Notify EO Examinations Planning and Programs if the case is a part of a project.

    • Notify EO Examinations Classification if the case is the result of a referral.

4.75.10.29  (05-01-2004)
Initial Form 4564, Information Document Request

  1. Examiners must prepare an Information Document Request, to send with the initial appointment letter. The Information Document Request should address items pertinent to the particular case. Tailor the request to the type of organization and the issues that have been identified in the pre-examination analysis. Do not ask for more information than is essential to resolve the issues.

  2. The more detailed the information requested; the more likely it is the taxpayer will have the correct information available at the first appointment. This can reduce scheduling follow-up appointments.

  3. When preparing the Information Document Request, keep in mind that no more than what is specifically requested will be obtained. In general, the request should contain a list of items that has already been discussed with the officer or director in the initial telephone conversation.

  4. Submit two copies of the Information Document Request with the initial appointment letter to the organization and retain one copy in the case file.

    Note:

    See Exhibit 4.75.10-4 for a sample Information Document Request.

4.75.10.29.1  (05-01-2004)
Content

  1. The initial Information Document Request must identify the books, records, papers, or other data with the particular activity and time period to which they relate. Phrase the request in terms understandable to the taxpayer.

  2. The examiner may use a template initial Information Document Request as a starting point but it must be modified to suit the organization and the issues being examined.

  3. If the list of records requested includes copies, specify whether

    • The organization's copies are being requested for review during the on site examination or

    • The organization is being asked to make copies the examiner can keep.

  4. It is advisable to include a statement on the initial Information Document Request indicating additional records will probably be requested as the examination progresses.

  5. The form must always include a date for submission of the requested information or documents. For the initial Information Document Request the date generally will be the date of the initial appointment.

4.75.10.30  (05-01-2004)
Accountants' Workpapers

  1. The examiner should consider requesting the following types of accountant's workpapers or reports:

    1. Tax Reconciliation Workpapers - Workpapers used in assembling and compiling financial data in preparation for placing it on a return. Typically, these will include a final trial balance and/or a schedule of adjusting entries. They include information used to trace financial information to the return.

    2. Audit Workpapers - Documentation retained by an independent accountant as to the procedures followed, tests performed, information obtained, and conclusions he/she reached. They support the accountant's opinion as to the fairness of the presentation of the financial statements, conformity and compliance with generally accepted accounting principles.

    3. Representation Letter - The 1998 Statement on Auditing Standards (SAS) No. 85 issued by the American Institute of Certified Public Accountants requires a CPA auditor to obtain client management's written representations for all financial statements and periods covered by the auditor's report. The statements include information concerning fraud, material errors, and the belief that the financial statements are fairly presented in conformity with Generally Accepted Accounting Principles (GAAP).

      Note:

      The representation letter may be a privileged communication under IRC § 7525.

  2. Tax reconciliation workpapers, unlike audit workpapers, should be requested at the beginning of an examination. These workpapers will be needed since they include the final amounts that should tie the filed return to the general ledger.

4.75.10.31  (05-01-2004)
Planning the Initial Interview

  1. IRC § 7602 gives the examiner the authority to take testimony as may be relevant to ascertain the correctness of any return, make a return where none has been made, and determine the liability for any internal revenue tax.

  2. As part of the pre-examination planning, questions should be formulated to ask in the initial interview. The primary reason for an initial interview is to help confirm the reliability of the books and records. It also provides knowledge about the organization's history, its activities, the type and source of income generated, the extent of its internal control, and types of books and records maintained.

  3. Planning and organizing questions to ask in the initial interview, is as important as the initial Information Document Request. Preparation will give the examiner freedom to listen more carefully and proceed efficiently with the examination.

4.75.10.31.1  (05-01-2004)
Formulating the Questions

  1. Base the questions on observations during the pre-examination analysis and issues that will be developed. Write them down or outline them. Leave enough space to jot down brief notes during the interview. Keep in mind that this does not limit the ability to ask additional questions. Be ready to ask for clarification or to follow up on responses.

  2. Some main areas to be covered are:

    • Whether or not a power of attorney will be executed?

    • Did the organization receive Publication 1?

    • The results of any prior IRS or state audits?

    • The organization's history?

    • Who its members are?

    • What are its exempt purposes?

    • What are its activities?

    • Does it distribute publications?

    • Who it treats as employee(s)?

    • Who serves on its Board of Directors?

    • How often are board meetings held?

    • What are the main sources of income?

    • Who can/must sign disbursement checks?

    • Who prepares the return?

    • What type of books and records are maintained?

    • Who records transactions?

    • Who prepares the return?

    • Are there loans to or from officers and/or employees?

    • Are loans recorded?

    • What are its assets?

    • Where are the assets located?

    • How are assets utilized?

    • What are its liabilities?

    • What other federal tax forms does the organization understand it is required to file?

    Caution:

    Pro forma interviews can be utilized, but they should be customized to fit the taxpayer under examination and open to follow-up questions.

Exhibit 4.75.10-1  (05-01-2004)
Survey After Assignment Stamp

CLOSED SURVEY AFTER ASSIGNMENT
     
Examiner's Signature   Date
     
Approved - Group Manager Signature   Date
     

The stamp should be approximately 3 by 1 inches.

Exhibit 4.75.10-2  (05-01-2004)
Cross Reference IRC of 1939 to IRC of 1986

Section of 1939 Code Section of 1986 Code Description of Organization
101(1) 501(c)(5) Labor, Agricultural, and Horticultural Organizations
101(2) N/A Repealed by Section 313(a) of 1951 Revenue Act
101(3) 501(c)(8) Fraternal Beneficiary Societies and Associations
101(4) 501(c) (14) State Chartered Credit Unions
101(5) 501(c) (13) Cemetery Companies
101(6) 501(c)(3) Religious, Educational, Charitable, Scientific, Literary, Testing for Public Safety, or Prevention of Cruelty to Children or Animals Organizations or to Foster National or International Amateur Sports Competition
101(7) 501(c)(6) Business Leagues, Chambers of Commerce, Real Estate Boards, Etc.
101(8) 501(c)(4) Civic Leagues, Social Welfare Organizations and Local Associations of Employees
101(9) 501(c)(7) Social and Recreational Clubs
101(10) 501(c)(12) Benevolent Life Insurance Associations, Mutual ditch or Irrigation Companies, Mutual or Cooperative Telephone Companies, Etc.
101(11) 501(c)(15) Mutual Insurance Companies or Associations
101(12) 521 Farmer's Cooperatives
101(13) 501(c) (16) Cooperative Organizations to Finance Crop Operations
101(14) 501(c)(2) Title Holding Corporation for Exempt Organization
101(15) 501(c)(1) Corporations Organized Under Act of Congress (including Federal Credit Unions)
101(16) and 101(19) 501(c)(9) Voluntary Employees' Beneficiary Associations (including Federal Employees' Voluntary Beneficiary Associations formerly covered by IRC § 501(c)(10)
101(17) 501(c) (11) Teachers' Retirement Fund Associations
101(18) 501(d) Religious and Apostolic Associations

Exhibit 4.75.10-3  (05-01-2004)
Basic IDRS Information for the EO Examiner

(1) Some of the most commonly used forms to request research from IRS's internal sources are listed below.
  Form 6882, IDRS/Master File Information
  Form 5644, TE/GE Inquiry Request
  OA Form 9302, IDRS/Data Request
  Form 11377, Taxpayer Data Access Form
(2) Information Document Retrieval System (IDRS) is the Service's system that enables employees to have access to taxpayer accounts and information. Some of its capabilities are:
  Researching account information
  Requesting returns
  Entering transactions
  Entering collection information
  Generating notices and documents
(3) Different files comprise the IDRS database. Two of the most familiar files utilized by all IRS operating divisions are:
  a. Audit Information Management System (AIMS) - This file manages IRS's inventory of open returns (and closed returns for a limited time). For example, the examiner can check the status of a return on AIMS by requesting command code AMDISA.
  b. Corporate Files On Line (CFOL) - This file provides Master File information on line immediately and is used for research only. No data can be entered on the account. For example, the examiner can request account and return information through command codes BMFOLT and BRTVU.
(4) The examiner must use the forms listed above to access information for various pre-examination planning purposes, such as verification of establishment on AIMS, statute of limitations date, penalties assessed (or not), power of attorney on file, amount of tax paid, filing status and statute dates of related returns, exempt status of an organization and more.
(5) Command codes and their descriptions are listed in Document 6209 (ADP and IDRS Information). This book also contains exhibits and keys to the information displayed from research results, which will help the examiner interpret the data obtained.
(6) Although IRS examiners have a wide variety of information available to them and should utilize it when needed, the confidentiality of tax return information and the taxpayer's privacy are of utmost importance. Unauthorized access to taxpayer account information, browsing, is illegal, and offenders will be prosecuted under the provisions of RRA 1998. See IRM 25.10.5, Basic UNIX Security Requirements (BUSR) Handbook.
(7) It is important to document case files regarding the account and related account information accessed during the examination.
Note: See IRM Part 2, Information Technology, for further information.

Exhibit 4.75.10-4  (05-01-2004)
Sample Initial Information Document Request

This exhibit illustrates a properly prepared initial Information Document Request.
    Caution: This is not intended to be nor should it be used as a pro forma initial Information Document Request for an IRC § 501(c)(7) or any other type of organization.
The background information for preparing the initial Information Document Request is shown in the sample pre-examination and the initial contact workpapers. These workpapers are NOT all inclusive as to the information that should be reviewed during the pre-examination analysis or the topics to be discussed during the initial contact with the taxpayer.
The sample Information Document Request is designed to meet TEQMS standards and to provide the taxpayer with the information necessary to comply with the request. Specific points to be noted are:
  The return and the year under examination are identified in the first paragraph.
  The preplanned issues and the " required filing checks" are listed on the Information Document Request.
  The date the records are to be available is provided in the second paragraph.
  The specific periods the records are being requested for are clearly set forth.
  The information developed during the pre-examination analysis and the initial contact was used to tailor the Information Document Request specifically to this taxpayer. It was not necessary to condition the records requested with phrases such as, "if available" or "if applicable." The description of the records requested was tailored to the description provided by the taxpayer during the initial contact.
    Example 1:
      The examiner did not request Forms 990-T or pension plan returns and documents because she determined during the pre-examination analysis and the initial telephone contact that the Club had not filed Forms 990-T and did not have a pension plan.
    Example 2:
      The examiner did not request accounting records, e.g., ledgers, journals, adjusting entries, etc. because she established during the initial contact that the only financial records maintained were bank records and monthly worksheets.
  Only records necessary to examine the preplanned issues were requested.
  The last paragraph notifies the taxpayer that additional records may be needed.
    Note: It was not necessary for the examiner to request the employment tax returns because the information was secured through IDRS.
ORGANIZATION: Country Club, Inc.
FORM/YEAR: 990/200212
EXAMINER: S. Oldham
DATE: 10/27/2003 Index: A.1
TITLE: Pre-examination Analysis
 
Assigned Return:
Received on 10/20/2003. Original Form 990 for year 200212 for Country Club, Inc., a 501(c)(7) organization.
Form 5546, Examination Return Charge Out:
No prior examination indicated. The Club is a Form 1099 filer. Project Code 202.
Classification Sheet:
The Classification Sheet shows this is a limited scope examination, Project Code 202. The specific issue listed on the classification sheet is, " Social Clubs with Public Use > 15%."
Review of IDRS information:
  INOLES/BMFOLO (Dated 10/16/2003)
    Name: Name agrees with the name on the return.
    Address: Current. Verified during initial contact.
    Filing Requirements: Forms 990, 940, 941
    EO Status: 01 Unconditional
  BMFOLT (Dated 10/16/2003)
    Statute Date: 05/15/2006
    CAF Indicator: 0
  BMFOLI (Dated 10/16/2003)
    Returns Filed: Forms 941, 940, 990
  AMDISA (Dated 9/22/2003)
    Received Date: 05/03/2003
    Status Code: 10 Date: 08/29/2003
    Source Code: 92 RICS General
    Statute Date: 05/15/2006
    Activity Code: 358, IRC § 501(c)(7)
    Project Code: 202
  BMFOLI
    The Club filed Forms 940 and 941 as required for the year 200212.
  BRTVU (Forms 941 for 200203, 200206, 200209, 200212)
    The total wages paid agrees with the amount of salaries on Form 990.
Form 990: No large, unusual, and/or questionable items were noted in receipts or disbursements. A review of the balance sheet showed the Club has $500,000 in an interest bearing account but there is no interest income reported in receipts on the return. Question 78 on Form 990 reports the organization does not have any unrelated business income and no Form 990-T was filed. Question 86b reports the Club received 16% of its income from the non-members. No other large, unusual, and/or questionable items were noted on the return. Person to contact: Henry Bell, treasurer.
Telephone Book:
Reviewed the local telephone books. The Club is listed in the business white pages. It is listed in the yellow pages under golf courses as a "members only club."
Required Filing Checks:
  Forms 940, 941, 1099: The Club filed Forms 940 and 941 per IDRS. The Club is a Form 1099 filer per return charge out.
  Prior and Subsequent Year Returns:
The Form 990 for 200112 was timely filed per IDRS research. The subsequent year return is not due or filed.
  Form 990-T
Per Form 990 and IDRS information, the Club did not file Form 990-T the year ended 12/31/2002. IDRS shows the Club did not file Forms 990-T for any prior or subsequent year.
Statute Date:
  The envelope attached to the original return was postmarked on May 3, 2003. The Service Center stamped the return receipt date on May 6, 2003. The correct statute date was determined to be May 15, 2006. The correct statute date is shown on Form 5546, Examination Return Charge Out Sheet, and AIMS and IDRS printouts in the file.
Issues Identified During the Pre-Examinaiton Analysis:
  Unrelated Business Income:
  1. Income from Non-Members: The Club may have unrelated business income from nonmember use of their facilities.
  2. Potential unrelated business income from investments (saving account interest.)
  Exempt Status
  3. It appears the income from nonmember use of the facilities may exceed 15%.
No other large, unusual, or questionable items were noted during the pre-contact analysis.
ORGANIZATION: Country Club, Inc.
FORM/YEAR: 990/200212
EXAMINER: S. Oldham
DATE: 10/27/2003 Index: A.6.1
TITLE: Initial Contact, Publication 1
 
Contact: Henry Bell, Treasurer, Country Club, Inc.
Telephone Number: (000) 000-0000
  Called organization and talked to Mr. Henry Bell. I provided my name, employee identification number and telephone number to Mr. Bell. Verified that he is still an officer of the Club.
  Mr. Bell has been a member of the Club for 20 years and the treasurer for 7 years. He is a member of the Board of Directors.
  Confirmed the Club's address and verified driving instructions.
Issues/Items Discussed
"Taxpayer's Rights and Publication 1"
  Discussed Publication 1. Explained the examination process and taxpayer's rights. Advised Mr. Bell I would mail a copy of Publication 1 with an appointment confirmation letter. Mr. Bell did not have any questions.
General Discussion:
  Does the Club receive interest income? Only time the Club received interest was from March through December of 2002. The Club borrowed funds to expand the clubhouse. The proceeds of the loan were deposited in a savings account until it was used. The final payment on the expansion was made on January 3, 2003. The Club considered the interest received as a reduction of the interest paid on the loan and used it to offset the interest expense on its financial statements.
  Does the Club receive rental income from renting out their facilities, and if so, are the facilities rented out to members of the general public? Yes, the Club, Inc. receives income from renting out their private party rooms to both club members and community organizations and clubs.
  Does the Club allow members of the general public to use their golf course, swimming pool, and other recreational facilities? No, the Club, does not allow members of the general public to utilize any of their recreational facilities.
  Did the Club file a Form 990-T? Mr. Bell confirmed that the Club did not file a Form 990-T for year ended 12/31/2002, and as far as he knows, they have never filed a Form 990-T.
  Does the Club have an outside audit? "No"
  Does the Club have a pension plan? "No"
Issues:
  The issues listed on the pre-contact workpaper (A-1) and "package audit requirements" were explained to and discussed with Mr. Bell.
  Mr. Bell asked why I was interested in the Club's income from nonmembers. I explained that an IRC § 501(c)(7) organization could, based on all the facts and circumstances, lose their exempt status if its gross receipts from nonmember use of the facilities exceed 15% or the total receipts from nonmembers and investment income exceed 35%. I also explained unrelated business income tax in general terms. Told him I would provide him with additional information during the examination.
Books and Records:
  All books and records are located in the office in the main clubhouse.
  The Club only utilizes a checking account and savings account and has no other formal accounting procedures. Mr. Bell writes all checks, but cannot sign checks. Checks must be signed by three officers. Mr. Bell balances the checking account when received from bank and prepares a monthly worksheet for the organization. All the Club's activities are computerized including the Club's activity calendar and reservation book.
  The reservation book includes information concerning the number of people in the party and their names; billing information; the type of function, and any extra costs such as additional servers or entertainment. Groups of more than 12 are encouraged to select menu items in advance. The Club's activity calendar and reservation book are computerized.
Appointment:
  An appointment was scheduled for November 7, 2003 at the Club's office. Mr. Bell and the bookkeeper will be available.
  I told Mr. Bell I would mail a letter confirming the appointment and an Information Document Request requesting the records necessary to conduct the examination to the Club's address tomorrow.
This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.

Exhibit 4.75.10-5  (05-01-2004)
Sample Form 5772, EO Workpaper Summary

This image is too large to be displayed in the current screen. Please click the link to view the image.

Exhibit 4.75.10-6  (05-01-2004)
Form 5773, EO Workpaper Summary Continuation Sheet, Instructions

This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.

Exhibit 4.75.10-7  (05-01-2004)
Sample Form 5773, EO Workpaper Summary Continuation Sheet

This image is too large to be displayed in the current screen. Please click the link to view the image.

Exhibit 4.75.10-8  (05-01-2004)
Sample Form 5464, Case Chronology Record

This image is too large to be displayed in the current screen. Please click the link to view the image.

More Internal Revenue Manual