4.75.10  EO Pre-Examination Guidelines and Procedures

4.75.10.1  (05-01-2004)
Introduction

  1. IRM 4.75.10 provides Exempt Organization (EO) examiners with guidelines and procedures for:

    1. Analyzing general program returns assigned for examination,

    2. Determining whether the returns should be examined, and

    3. Preparing an examination plan or surveying the returns.

  2. These guidelines do not apply to the examination of returns included in the EO Team Examination Program, returns filed by Internal Revenue Code (IRC) § 527 political organizations or employment tax returns.

    1. The guidelines and procedures for EO Team Examination Program examinations are contained in IRM 4.75.29, Exempt Organizations Team Examination Program Procedures.

    2. The guidelines and procedures for the examination of employment tax returns are contained in IRM 4.23, Employment Tax.

    3. The guidelines and procedures for the Forms 1120-POL, U.S. Income Tax Return for Certain Political Organizations, are contained in IRM 4.76.30, Political Organizations - IRC § 527.

    4. The guidelines and procedures for excise tax returns other than exempt organization excise taxes are contained in IRM 4.24, Excise Tax.

  3. Performing the pre-examination procedures detailed in this IRM will ensure the examiner:

    1. Identifies all potential issues disclosed on the return,

    2. Sets the proper scope for the examination,

    3. Asks appropriate questions during the initial taxpayer contact, and

    4. Prepares a clear, concise, and appropriate initial Form 4564, Information Document Request.

  4. Following the guidelines and procedures detailed in this IRM will ensure an examination meets the standards constituting a quality pre-examination as outlined in the TEQMS, Tax Exempt Quality Measurement System, EO Examinations Training Guide.

4.75.10.2  (05-01-2004)
Definitions

  1. "Administrative File" refers to the file folder(s) containing the return(s); Form 5772, EO Workpaper Summary; Form(s) 5773, TEGE Workpaper Summary Continuation Sheet; Form(s) 5464, Case Chronology Record, supplemental workpapers, report(s) of examination, closing letters, etc.

  2. "Administrative Record File" refers to the file folder(s) prepared for Counsel in declaratory judgment cases. See IRM 4.75.32, Declaratory Judgment Cases and the Administrative Record.

  3. "Determination File" refers to the microfiche maintained by Rulings and Agreements, EO Determinations, Cincinnati, Ohio containing the exemption application and attachments, the initial determination letter, amendments to organizing documents and other historical information.

  4. "Annual Return" refers to the Form 990, Return of Organization Exempt From Income Tax; Form 990-EZ, Short Form Return of Organization Exempt From Income Tax; Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation, or Form 5227, Split-Interest Trust Information Return, filed by an exempt organization, private foundation, non-exempt charitable trust, or a split interest trust annually.

  5. "Exempt Organization" for the purposes of this IRM includes organizations exempt from Federal income tax under IRC § 501, non-exempt charitable trusts described in IRC § 4947(a)(1), and split interest trusts described in IRC § 4947(a)(2).

4.75.10.3  (05-01-2004)
Forms

  1. The forms used in this IRM are from the EO Report Generation Software (RGS) version 4.00.00 SP:1 or the Multimedia Publishing Division Catalog at http://publish.no.irs.gov/catlg.html. The forms are current as of June 2003.

4.75.10.4  (05-01-2004)
General Examination Objectives

  1. The primary objectives for examination of an exempt organization are to determine if:

    1. The organization is organized and operated in accordance with its exempt purpose(s) and should continue to be recognized as exempt from Federal income taxes.

    2. The Form 990, Form 990-EZ, Form 990-PF, or Form 5227 is complete, correct, and contains all public information required by IRC § 6033.

    3. The exempt organization has properly filed all returns and forms for which it is liable, e.g., Form 990-T, Exempt Organization Business Income Tax Return and proxy tax under section 6033(e); Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return; Form 941, Employer’s Quarterly Federal Tax Return; Form W-2, Wage and Tax Statement; Form 1096, Annual Summary and Transmittal of U.S. Information Returns; Form 1099-MISC, Miscellaneous Income; Form 730, Monthly Tax on Wagering; Form 11-C, Occupational Tax and Registration Return for Wagering; and Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations.

    4. The exempt organization is liable for other taxes and if so, the correct amount of tax under:

    IRC Section(s) Type of Tax
    511-514 Unrelated business taxable income
    3111 and 3101 Federal Insurance Contribution Act (FICA)
    3301 Federal Unemployment Tax (FUTA)
    4940-4953 Transactions by private foundations and Black lung Benefit Trusts
    4911-4912 Lobbying activities
    527(f) and 4955 Political/legislative activities
    4958 Excess benefit transactions
    4401 Gaming activities
    4976 Disqualified benefits from funded welfare benefit plans
    6033(e)(2) Special rules relating to lobbying activities (Proxy Tax)

4.75.10.5  (05-01-2004)
Assignment of Returns

  1. The examination process begins with the assignment of the case/return(s) to the examiner.

  2. Upon receipt, the examiner will review the entire case file, including the return, schedules, elections, extensions, or any other documents attached to the return, in order to determine whether to survey the return or conduct an examination. Some of the factors to consider are:

    • Examination potential

    • Statute of limitations

    • Examination cycle

    • Conflict of interest

    • Consecutive examinations

    • Repetitive examinations

    • Prior examination record

4.75.10.6  (05-01-2004)
Group Manager Involvement

  1. The group manager's involvement in the examination may be appropriate at any time, from the pre-examination stage to the final steps of resolving unagreed issues.

  2. Examiners should not wait for the examination to become a problem before they ask for managerial assistance.

  3. Group managers should be proactive in dealing with their employees' examination cases to avoid problems.

  4. Some instances when the group manager should become involved in an examination include:

    1. The case is assigned or reassigned,

    2. The taxpayer requests the transfer of an examination to a location outside the group's normal travel area and/or the examiner determines the examination should be transferred to another location,

    3. Survey of a return after assignment,

    4. Initiation of an examination of a return with less than 12 months remaining on the statute of limitations or that cannot be expected to be completed within the current examination cycle,

    5. The scope of the examination is limited or expanded,

    6. Prior or subsequent year returns are picked up for examination,

    7. Related returns are picked up for examination,

    8. Taxpayer procrastination is delaying examination actions,

    9. The time span is unusually lengthy,

    10. An unusual amount of time has been charged to the examination,

    11. Taxpayer complaints are received, and

    12. A closing conference on a potentially unagreed case is held.

      Reminder:

      If the manager is not involved in the initial closing conference, the taxpayer must be offered a managerial conference before the case is closed unagreed.

  5. Group managers must document their actions on a case. These actions include, but are not limited, to:

    • Workload reviews

    • Case reviews

    • On the job visits

    • Discussions with the examiner

    • Discussions or conferences with the taxpayer or his/her representative

    Note:

    The group manager may prepare the documentation himself or herself or have the examiner prepare it. In either case, the group manager must initial and date the documentation. If all of the documentation is included in the Case Chronology Record, the group manager can approve by initialing and dating the last page when the case is closed.

4.75.10.7  (05-01-2004)
Statute of Limitations

  1. The protection of the statute of limitations is a high priority for all employees. The examiner is primarily responsible for properly identifying the statute of limitation period in order to protect the government's interests. The examiner is responsible for protecting the statute of limitations on:

    1. Any assigned returns;

    2. Any prior or subsequent year returns if the adjustments to the examination year create adjustments for the prior or subsequent year and an examination of the prior or subsequent year is justified;

    3. Any income, employment, or excise tax returns filed or required to be filed by the organization if the examination of an annual return may result in an adjustment to the tax liability on such returns; and/or

    4. Any income or excise tax returns filed or required to be filed by related individuals or entities, if the examination of an annual return may result in an adjustment to the tax liability on such returns.

    Caution:

    The examiner must be familiar with situations where the filing of an annual return by an exempt organization, a private foundation or a non-exempt charitable trust can start the running of the statute of limitations for other returns and protect the statute of limitations on these returns, as necessary. See IRM 4.75.10.7.1(4).

  2. When a case is assigned the examiner will verify the statute of limitations date and ensure there is sufficient time to conduct a quality audit. The statute of limitations date must be verified even if the physical return is not present in the case file. In order to verify the correct statute of limitations, the examiner should review the following sources, as appropriate, and document the case file:

    • Form 5546, Examination Return Charge Out

    • Integrated Data Retrieval System (IDRS)

    • Audit Information Management System (AIMS)

    • Received date stamped by the campus on the face of the original return

    • Postmark date on the envelope in which the return was mailed, if attached

    Reminder:

    If the statute date on AIMS is erroneous, it should be corrected. This is done using Form 5595, EO Update.

  3. The examiner will not initiate an examination of a return with less than 12 months remaining on the statute of limitations or that cannot be expected to be completed within the current examination cycle unless the failure to conduct an examination will result in:

    1. Serious criticism of the Service's administration of the tax law,

    2. Inconsistent treatment of similarly situated taxpayers,

    3. The establishment of a precedent that will seriously hamper subsequent attempts by the Service to take corrective action, or

    4. The loss of a substantial amount of tax revenues.

      Caution:

      In these circumstances, if the examiner determines an examination should be initiated, the group manager's approval must be secured. The approval and the basis for the decision must be documented in the Case Chronology Record, the Form 5773, or a separate workpaper.

  4. The examiner is responsible for controlling the statute of limitations on each return assigned. A return with a statute date that may expire within 240 days is subject to the statute control procedures described in IRM 25.6.23; Examination, TE/GE, and Service Center Examination Statute Controls. These procedures must be initiated no later than 240 days prior to the statute expiration date. They include:

    1. Verifying the statute date;

    2. Flagging the case;

    3. Completing Forms 895, Notice of Statute Expiration;

    4. Notifying the group manager and taxpayer, as necessary;

    5. Securing a consent to extend the statute when appropriate; and

    6. Updating AIMS.

    Caution:

    If a consent to extend the statute is requested, the examiner must advise the taxpayer of their right to decline to extend statute date or to request that any extension be limited to a specific period of time and/or to specific audit issues. The examiner should also provide the taxpayer with a copy of Publication 1035, Extending the Tax Assessment Period. These actions must be documented in the case file.

  5. If a potentially expired statute of limitations is discovered, Form 3999, Statute Expiration Report, must be completed. If a statute expires after the case is assigned to an examiner, he/she must complete Form 3999 explaining the facts and circumstances. If the statute expired before the examiner received the return, he/she will prepare a preliminary Form 3999 and give it to his/her group manager. The group manager will forward the preliminary Form 3999 to the group/area that had possession of the return when the statute expired.

  6. Exception: Form 3999 does not have to be completed in the following instances :

    • The total lost revenue, including tax, interest, and penalty is less than $1,000

    • A case is no change

    • A case is opened on AIMS after the statute has expired

4.75.10.7.1  (05-01-2004)
Determining the Statute of Limitations Expiration Date

  1. Exempt organizations required to file an annual return must file the return by the 15th day of the 5th month after the close of their business year. See IRC § 6033 to identify exempt organizations required to file annual returns.

  2. The general rule for the statute of limitations expiration date is three years from the due date of the return or the date filed, whichever is later.

  3. The statute of limitations expiration date is extended from three years to six years in the following circumstances.

    1. Income Taxes: If the taxpayer omits from gross income an amount properly includible therein that is in excess of 25 percent of the amount of gross income stated in the return, the tax may be assessed without obtaining an extension, at any time within six years after the return was filed. See IRC § 6501(e)(1) and Treas. Reg. § 301.6501(e)-1(a).

    2. IRC § 4940 Tax: If a private foundation omits from its annual return with respect to the tax imposed by IRC § 4940 an amount of tax properly includible therein which is in excess of 25 percent of the amount of tax imposed by IRC § 4940 which is reported on the return, the tax may be assessed at any time within six years after the return was filed. If a private foundation discloses in its return (or in a schedule or statement attached thereto) the nature, source, and amount of any income giving rise to any omitted tax, the tax arising from such income shall be counted as reported on the return in computing whether the foundation has omitted more than 25 percent of the tax reported on its return. See Treas. Reg. § 301.6501(e)-1(c)(3)(i).

    3. IRC Chapter 41 and 42 Excise Taxes (Other than IRC § 4940):If a public charity or a private foundation, trust, or other organization, as the case may be, fails to disclose an item subject to tax under IRC §§ 4911, 4912, 4941(a), 4942(a), 4943(a), 4944(a), 4945(a), 4951(a), 4952(a), 4953, and/or 4958 in its annual return (or a schedule or statement attached thereto), the tax arising from any transaction not disclosed may be assessed at any time within six years after the return was filed. See IRC § 6501(e)(3), Treas. Reg. § 301.6501(e)-1(c)(2) and Treas. Reg. § 301.6501(e)-1(c)(3)(ii).

    Caution:

    Never rely on the existence of a six-year statute without the concurrence of Area Counsel.

  4. As a general rule if no return is filed, the statute of limitations does not start to run. Annual returns filed by a public charity, private foundation, or non-exempt charitable trusts are an exception to the general rule as the filing of an annual return by these entities will start the running of the statute of limitations for some income and excise tax returns in the circumstances described below.

    1. The filing of an annual return which discloses sufficient facts to apprise the Service of the potential existence of unrelated business taxable income commences the running of the period of limitations on assessment of tax on Form 990-T even though Form 990-T was not filed. See Rev. Rul. 69-247, 1969-1 C.B. 303.

    2. The filing of an annual return which discloses sufficient facts to apprise the Service of the potential existence of tax on political expenditures may commence the running of the period of limitations on assessment of tax on Form 1120-POL even though Form 1120-POL was not filed based on the rationale applied to unrelated business income in Rev. Rul. 69-247.

    3. An annual return filed by a public charity, a private foundation, or a non-exempt charitable trust starts the running of the period of limitations on the assessment of excise tax on a Form 4720 filed or required to be filed by the organization, private foundation or trust AND on Forms 4720 filed or required to be filed by foundation managers and/or disqualified persons. The filing of the annual return starts the running of the period of limitations on assessment of excise tax on Form 4720 even if the transaction, act, or failure to act that gives rise to the excise tax on Form 4720 is not disclosed on the annual return. The filing of a Form 4720 by the organization, foundation manager or disqualified person does not start the running of the statute of limitations. See IRC § 6501(l)(1) and Treas. Reg. § 301.6501(n)-1.

    4. The filing of a return by an exempt organization under IRC §501(c)(3) in good faith starts the running of the statute of limitations, if the organization is later held to be a taxable organization. See IRC § 6501(g)(2) and Treas. Reg. § 301.6501(g)-1(b).

  5. An "amended return" does not extend the statute expiration date unless the 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 §6501(c)7).

  6. A "substitute for return" prepared by the Internal Revenue Service (Service) is treated as if no return has been filed. If a taxpayer signs a return prepared by the Service, it becomes a regular return, and the statute of limitations begins at the signature date.

  7. An "incomplete" return may not start the running of the statute of limitations. Under the present case law, the following factors must exist in order for the return to be "valid" .

    1. There must be sufficient data to calculate the tax liability;

    2. The document must purport to be a return;

    3. There must be an honest and reasonable attempt to satisfy the requirements of the tax law; and

    4. The taxpayer must execute the return under penalties of perjury.

  8. These factors do not take into account the processing concerns that an incomplete return presents for the Service. Therefore, any question concerning the validity of a return missing a form or schedule should be approached with the presumption that there is sufficient data to calculate the tax liability.

4.75.10.8  (05-01-2004)
Examination Cycle

  1. The Service's policy governing examinations dictates that the examination of a taxpayer must be started and closed in the examination cycle. The examination cycle is 26 months for an individual return, 27 months for a corporate return, and 24 months for a claim.

  2. The examination cycle for a return begins when it was filed or due, whichever is later. The examination cycle for a claim or amended return that constitutes a claim begins with the date the claim or amended return is filed. Claims are priority work and must be initiated within 30 days of receipt.

  3. If the examination cycle objectives cannot be met when an examination is assigned, the examiner should discuss the matter with the group manager before making initial contact with the taxpayer. If the group manager agrees that an examination should be initiated anyway, the group manager's approval for deviation from the examination cycle requirements should be documented in the workpapers.

  4. Maximum adherence to these guidelines is necessary to ensure the examination and all other processing can be completed before the statute of limitation expiration date.

4.75.10.9  (05-01-2004)
Conflict of Interest

  1. It is a crime for an examiner to knowingly "act" as an examiner on, or to otherwise participate personally and substantially in, the examination of an organization in which he/she holds a financial interest. Under the controlling statute (18 U.S.C. 208), financial interests include not only interests held personally, but also those of:

    • A spouse

    • A minor child

    • A general partner

    • An organization with which the examiner is an officer, director, trustee, general partner, or employee; and

    • A person or organization with whom the examiner is negotiating for or have an arrangement concerning prospective employment.

  2. Under Governmentwide regulations, an examiner should not act as an examiner on, or otherwise participate personally and substantially in, the examination of an organization, if he/she knows that the examination is likely to have a direct and predictable effect on the financial interests of a member of his/her household.

  3. Similarly, an examiner should not examine or otherwise participate personally and substantially in, the examination of an organization;

    • If the examination involves a person with whom the examiner has a "covered relationship" , or

    • If a person with whom the examiner has a "covered relationship " represents the organization in the examination.

  4. A covered relationship exists when:

    • Someone with whom the examiner has or is seeking to have a business, contractual or financial relationship that involves other than a routine consumer transaction

    • A relative with whom the examiner has a close personal relationship or member of the examiners household

    • An organization for which the examiner's spouse, parent, or dependent child is to the examiners knowledge, working or seeking to work.

    • An organization for which the examiner worked in the past year

    • Certain organizations in which the examiner is an active participant

  5. Policy Statement P-4-6 states "Examiners will not examine or survey the returns of taxpayers with whom they have had a business or social relationship of a nature that might impair their impartiality and independence. "

  6. If an examiner is assigned a return that might create a conflict of interest or an appearance of lack of impartiality, he/she must immediately bring it to the attention of the group manager.

4.75.10.10  (05-01-2004)
Prohibition on Executive Influence Over Audits

  1. An examiner should not initiate, terminate, or in any way modify audit actions in response to direct or indirect requests from the following Executive Branch officials:

    • The President

    • The Vice President

    • Employees of the executive officers of the President or Vice President

    • Individuals serving in the President's cabinet, and other positions covered by 5 U.S.C. 5312 (the United States Trade Representative, the Director of OMB, the Commissioner of the Social Security of SSA, the Director of National Drug Control Policy), but excluding the Attorney General

      Note:

      Employees may receive information from and interact with the employees of other Executive Branch agencies as necessary in conducting their tax administration responsibilities.

  2. There are exceptions to the prohibition. The prohibition does not apply to:

    • A written request made by or on behalf of a taxpayer to one of the listed Executive Branch officials that is then forwarded by that official or employee to the IRS.

    • A written request for disclosure of returns or return information under IRC § 6103 if the request is made in accordance with the requirements of IRC § 6103

    • A written request made by the Secretary of the Treasury as a consequence of the implementation of a change in tax policy.

  3. The group manager should always be consulted if anyone other than the group manager requests action related to an ongoing or contemplated examination.

  4. Examiners who receive a prohibited request (directly or indirectly) to initiate, terminate, or in any way modify audit actions with respect to a taxpayer from an Executive Branch official or employee identified in (1) above must report the request to the local Treasury Inspector General for Tax Administration (TIGTA) office as soon as possible. The controlling statute, IRC § 7217, makes it a crime for IRS employees to fail to report prohibited requests.

4.75.10.11  (05-01-2004)
Consecutive Examinations

  1. Policy Statement P-4-5 prohibits examiners from surveying or examining a tax return if they have examined a return for the same taxpayer for any of the three preceding tax periods unless there has been an intervening survey or examination by a different examiner.

  2. If an assigned return is described in paragraph (1) above, it should be given back to the group manager for reassignment.

  3. Policy statement P-4-6 states "Examiners will not examine or survey the returns of taxpayers with whom they have had a business or social relationship of a nature that might impair their impartiality and independence. "

4.75.10.12  (05-01-2004)
Repetitive Examinations and Prior Examination Record

  1. The repetitive examination concept applies when an examination of the same issue(s) in either of the two preceding years resulted in a no change. Refer to Form 5546 for indications of prior examinations. The charge out sheet generally provides:

    • The year of the prior audit

    • The disposal code

    • The deficiency or over-assessment amount

    • No change issue codes

  2. If the Form 5546 reflects a no change issue code for an issue(s) under consideration in the current examination, eliminate the issue(s) from the audit plan unless the case file contains information indicating otherwise.

  3. If all issues are found to be repetitive, obtain group manager approval to survey the return after assignment.

  4. If the exam has been initiated and it is determined that all issues are repetitive, resulting in little or no change to the organization's status or tax liability, obtain the group manager's approval, and conclude the examination immediately.

  5. If the prior examination was closed with one of the following disposal codes, the examiner must conduct further research to determine the final disposition of the issue(s).

    Disposal Code Description
    07 Unagreed - Protest to Appeals
    11 Unagreed - Petition to Tax Court
    15 Church Examination - Unagreed

    Caution:

    If the issues raised in a prior examination have not been resolved and the resolution will affect the current examination, the examiner and group manager must decide whether to examine the subsequent year(s) currently or suspense the examination until the issues in the prior examination are resolved. If the subsequent years are suspensed, the statute of limitations on these returns must be protected if the resolution of the issues may result in a tax deficiency in the subsequent years. This includes tax deficiencies that may be due on converted returns if revocation has been proposed in the prior years.

  6. If the prior examination was closed with an agreed change code or a no change advisory, consideration should be given to the possibility of recurring issues and whether or not the organization has taken any corrective action determined in the prior examination.

4.75.10.13  (05-01-2004)
Survey After Assignment

  1. The examiner may survey returns or claims after assignment unless survey is prohibited by other manual requirements or special project procedures.

4.75.10.13.1  (05-01-2004)
Approvals Required

  1. Group managers must review and approve all surveys after assignment.

  2. Approval of the Manager, EPP is required for all surveys of returns selected for Market Segment studies or Compliance project.

  3. Approval of the Area Manager is required for the survey of returns with international features.

4.75.10.13.2  (05-01-2004)
Survey After Taxpayer Contact

  1. Under certain circumstances, the Service can survey a return after taxpayer contact. However, "taxpayer contact" cannot include an inspection or actual review of a taxpayer's books of account. See Rev. Proc. 94-68 1994-2 C.B. 803 to determine whether an inspection or review of a taxpayer's accounts has been made. If the return is a tax return, Letter 3616 will be used to notify the taxpayer that an examination will not be conducted. If the return is an information return or an AIMS account for a non-filer examination, a drafted letter will be issued.

  2. Circumstances when returns may be surveyed after initial contact has been made include, but are not limited to:

    1. Cases involving repetitive audits,

    2. The case was assigned to an examiner who moved or left the Service and the examiner assigned made initial contact with the taxpayer but did not examine or inspect the books and records, and

    3. The only contact with the taxpayer was to secure a Form 872, Consent to Extend the Time to Assess Tax, and it is later determined the return does not warrant examination

4.75.10.13.3  (05-01-2004)
Survey Procedures for Returns

  1. A return will be surveyed after assignment if, after conducting the in-depth analysis and evaluating the audit potential, an examiner determines an examination would result in no change in exempt or foundation status and/or no material change in tax liability.

  2. After the examiner determines a return should be surveyed, the examiner will:

    1. Enter the appropriate survey disposal code from Document 6379, Exempt Organizations Management Information Systems Codes, on Form 5546, if available. If a Form 5546 was not included in the case file, Prepare a Form 5596, EO Examination Non-examined Closings, and enter the survey disposal code on the Form 5596.

    2. Stamp the front of the return showing it as "surveyed after assignment." Sign and date the stamped area, and obtain the group manager's signature. See Exhibit 4.75.10-1.

    3. Prepare a Form 1900, Survey After Assignment, or Form 2503, Survey After Assignment - Excise or Employment Tax, if it is necessary to explain why the return was surveyed after assignment.

    4. Prepare Form 3198 with the name of the entity, EIN, MFT, and tax year. Enter "Survey After Assignment" under the block marked "Other."

    5. Place the Form 3198 on the front of the file folder containing the return.

4.75.10.13.4  (05-01-2004)
Survey Procedures for Claims

  1. The examiner may survey claims for refund (including amended returns and informal claims) of income or exempt organization excise taxes after assignment if the claim issue is clearly allowable in full and the return does not otherwise warrant examination.

    Exception:

    Claims requiring Appeals consideration cannot be surveyed.

    Caution:

    Any claim which, if allowed, would produce an over-assessment/over-payment, requiring reporting to the Joint Committee of Taxation may be surveyed. However the procedures in IRM 4.36.1, Joint Committee Procedures Overview, and IRM 4.36.3, Examiners Responsibilities, must be followed.

  2. After the examiner determines the claim(s) should be surveyed, the examiner will:

    1. Enter the appropriate survey disposal code from Document 6379, Exempt Organizations Management Information Systems Codes, on Form 5546, if available. If a Form 5546 was not included in the case file, Prepare a Form 5596, EO Examination Non-examined Closings, and enter the survey disposal code on the Form 5596.

    2. Stamp the front of the claim showing it as "surveyed after assignment." , sign and date the stamped area, and obtain the group manager's signature. See Exhibit 4.75.10-1.

    3. Prepare a Form 1900, Survey After Assignment, or Form 2503, Survey After Assignment - Excise or Employment Tax.

      Note:

      A Form 1900 or Form 2503 is always required when surveying a claim.

    4. Prepare a Form 3198, Special Handling Notice. Complete the form with the name of the entity, EIN, MFT, and tax year. Enter "Survey After Assignment" under the block marked "Other."

    5. Place the Form 3198 on the front of the file folder containing the claim documents.

4.75.10.13.5  (05-01-2004)
Completing Form 1900, Income Tax Survey After Assignment

  1. Returns: Check or enter the applicable form number of the return(s) being surveyed.

  2. Name and address on latest return or claim: Enter the last known name and address.

  3. SSN/EIN: Enter applicable numbers from the returns being surveyed.

  4. Documents surveyed: Identify the types of document(s) included with Form 1900.

  5. Recommended action: Complete this block to indicate recommended action.

    1. Accepted As Filed: If surveying original returns on which no action has been taken, original returns on which tentative carryback allowances have been made, and amended returns filed after the due date and reporting additional tax liability.

    2. Allow in full or Allow as corrected: Where claims or amended returns filed as claims are surveyed, whichever is appropriate.

  6. Related Cases: Cases listed here would be those cases requiring adjustments of items of income or deductions reported on another taxpayer's return to secure consistent treatment of the issue (whipsaw issues).

  7. Taxable year or period: List each year's return being surveyed on a separate line.

    1. Calendar year: Show ending date (12-31-2003).

    2. Fiscal year: Show ending date (6-30-2003).

    3. Short period: Show both beginning and ending date (1-1-2003 and -9-30-2003)

    4. 52/53 week year: Show last day of year (6-29-2003).

  8. Adjusted gross or taxable income reported: Enter the last income figure computed by the taxpayer on the last processed return for the year being surveyed.

  9. Tax liability reported, Claim allowable, Tentative allowance approved: Generally, there will be just one return being surveyed and no administrative adjustments will have been made to the tax liability reported. As needed, the following procedures are applicable:

    1. If more than one return was filed for the same year prior to the due date of the return, the last return filed constitutes the original return and the tax liability shown on this last return should be entered.

    2. If a claim reducing the tax liability shown on the original return was filed after the due date of the return, the amended return is considered to be a claim and the tax shown on the original return should be entered under Tax Liability Reported. The difference between the tax liability reported on the original return and the amended return is entered under Claim Allowable.

    3. If an amended return, increasing the tax liability shown on the original return was filed after the due date of the return, and the additional tax was assessed, then the tax as shown on the amended tax return should be entered under Tax Liability Reported.

    4. Where tentative carrybacks have been filed (Form 1045 or Form 1139) and the refunds have been made to the taxpayer, the tax as shown on the return before administrative adjustment is entered under Tax Liability Reported. The amount refunded as a result of the filing of the tentative carryback is shown under Tentative Allowance Approved.

    5. Where claims for refund (including amended and informal claims) have been filed, enter the tax liability as reported on the last processed return under Tax Liability Reported and enter the amount of the claim under Claim Allowable.

  10. Explanation: Explain why the return is being surveyed. If necessary, include computations.

  11. Enclosures: List returns, claims, and other documents enclosed in the case file.

  12. Examining Officer/Date: Signature of the surveying examiner and the date the form was completed.

  13. Approved By/Date: The signature and the title of approving management official, usually the examiner's manager, and the date of concurrence.

4.75.10.13.6  (05-01-2004)
Preparing Form 2503, Survey After Assignment - Excise or Employment Tax

  1. Excise Tax and Employment Tax: For exempt organization or private foundation excise taxes, check the box for excise tax.

  2. Name and present address of taxpayer: Enter the last known name and address and EIN/SSN for the taxpayer.

  3. Type of survey: Check the box for office examination, if the return or claim was assigned as an OCEP examination, otherwise, check the box for field examination

  4. Place of Survey: Enter the group number and symbols.

  5. Date of Survey: Enter the date the form was completed.

  6. Return Form Number: Enter the form number of the return to which the documents included with the Form 2503 apply.

  7. District Director of Internal Revenue: Enter "N/A" in this block.

  8. Time Spent: Enter the time spent reviewing the return or claim.

  9. Returns and Claims Surveyed: Check the appropriate box(s).

  10. Related Cases: If the return or claim is filed by an individual; foundation manager, manager or disqualified person; list the name of the related organization.

  11. Recommended Action: Complete appropriate block to indicate recommended action.

    1. Accept as Filed: Check this box if surveying original returns on which no action has been taken or amended returns that do not show a decrease in tax liability.

    2. Allow in Full: Check this box when amended returns filed as claims reporting a decrease in tax liability or claims are surveyed and the claim is allowed in full.

  12. Type of Tax and Code Section: Enter " excise" and the IRC section.

  13. Taxable year or period: List each year's return being surveyed on a separate line.

    1. Calendar year: Show ending date (12-31-2003).

    2. Fiscal year: Show ending date (6-30-2003).

  14. Tax liability assessed and claim allowable: Generally, there will be just one return being surveyed and no administrative adjustments will have been made to the tax liability reported. As needed, the following procedures are applicable:

    1. If more than one return was filed for the same year prior to the due date of the return, the last return filed constitutes the original return and the tax liability shown on the last return should be entered.

    2. If a claim reducing the tax liability shown on the original return was filed after the due date of the return, the amended return is considered to be a claim and the tax shown on the original return should be entered under Tax Liability Reported. The difference between the tax liability reported on the original return and the amended return is entered under Claim Allowable.

    3. If an amended return, increasing the tax liability shown on the original return was filed after the due date of the return, and the additional tax was assessed, then the tax as shown on the amended tax return should be entered under Tax Liability Reported.

    4. Where claims for refund (including amended and informal claims) have been filed, enter the tax liability as reported on the last processed return under Tax Liability Reported and enter the amount of the claim under Claim Allowable.

  15. Explanation: Explain why the return is being surveyed. If necessary, include computations.

  16. Enclosures: List returns, claims, and other documents enclosed in the case file.

  17. Examiner Enter the examiner's name.

  18. Approved By: The signature and the title of approving management official (usually the examiner's manager).

4.75.10.14  (05-01-2004)
Overview of Pre-Examination Procedures

  1. If, after considering the statute of limitations, examination cycle, conflict of interest possibilities, consecutive examinations, repetitive or prior examinations, a decision is made to examine the return, the following pre-examination procedures should be followed:

    • Review the return

    • Review any documents attached to the return

    • Request and analyze pertinent IDRS information such as filing requirements

    • Review any applicable project guidelines or objectives

    and the following pre-examination procedures should be considered:

    • Securing and reviewing the organization's determination file

    • Requesting assistance from specialists

    • Researching identified issues

  2. A good pre-examination analysis saves time during the on-site examination by helping to organize the work, recognize and concentrate on significant issues, prepare for the initial appointment, and document the examination's course. It will also ensure the application of quality examination standards.

  3. The pre-examination will help identify the facts that need to be developed during the examination to resolve the identified issues. This is called the scope of the examination.

  4. After contacting the taxpayer regarding the start of an examination, Form 5595 should be prepared to place the case in status 12, Assigned Taxpayer Contact. The Case Chronology Record should be properly annotated showing the date the return(s) were put in status 12.

  5. Time expended on pre-examination analysis must be commensurate with actions taken. The explanation and need for each step should be clear. Workpapers and conclusions relative to issues discovered during the pre-examination analysis will become part of the case file.

  6. An important thing to remember is there is a difference between a preplan and planning. Planning continues throughout the examination even though pre-examination analysis has been performed and a preplan completed. The initial plan may be amended and supplemented several times during the conduct of a typical examination

4.75.10.15  (05-01-2004)
Review of the Return

  1. The return should be reviewed for completeness to determine if all required line items and attachments are present. If information is missing, make a note to question the organization and organization's representative and obtain it.

  2. Review schedules, statements, extensions and return attachments for questions and possible issues:

    • Do the yes/no questions under Other Information raise any issues?

    • If the organization is a public charity, is the public support schedule complete?

    • Was the return filed on a timely basis? If not, was an approved extension obtained?

  3. Review the organization's statement of accomplishing its program services.

  4. Analyze the income sources such as "other revenue."

  5. If it is an IRC § 501(c)(3) organization, review Schedule A for the five highest paid employees and independent contractors.

  6. Consider any large, unusual and questionable items. The definition of large, unusual or questionable items will depend on the perception of the return as a whole and the separate items that make up the return. These include, income, disbursements, assets, liabilities and fund balance. Document the reason why any large, unusual, or questionable items were not considered an issue. Large, unusual, or questionable items fall into at least four categories:

    1. Dollar Amount - The item may be a specific dollar amount or relative, unusual, or disproportionate to the income or disbursements shown on the return. It might be a large or unusual expense for the type of organization.

      Example:

      If the return shows total disbursements of $30,000, $6,000 paid in legal fees might be significant.

    2. Description on the Return - It may not be possible to determine the validity of the item based on the way it is described on the return.

      Example:

      The return shows $30,000 of disbursements classified as "miscellaneous. "

    3. Presence on the Return - Some items shown on the return invite close scrutiny simply because they are there.

      Example:

      The balance sheet for liabilities lists $50,000 under "Loans from Officers" .

    4. Absence from the Return - An item may be unusual because it does not appear on the return.

      Example:

      The balance sheet for assets of an IRC § 501(c)(7) organization lists $75,000 in cash but shows no interest or dividend income.

  7. Review the return for missing items. Are there items that one would expect to find on such a return that are not there? Check the arithmetic. What appears to be an error may actually indicate a missing item.

  8. Determine whether tax liability, where applicable, has been accurately computed.

  9. Look for indications of activities that may affect exempt status or tax liability.

    Example:

    If the return reports substantial expenses for "publications," look for advertising income.

4.75.10.16  (05-01-2004)
Review of Documents Accompanying the Return

  1. Review other documents that accompany the return, including:

    1. Form 5546 - Determine if it shows any prior examination, no change issue codes, and special messages.

    2. Classification Sheets - Examine the identified item(s) or document the case file if not examined.

    3. Other Information - If the examination is a referral, consider what information must be obtained to address the issue(s) raised and document the case file as to the viability of the referral. Consider a third-party contact of the informant if it appears warranted.

4.75.10.17  (05-01-2004)
Request and Review of Determination File

  1. When an organization applies for exempt status, the application, related paperwork, and the disposition of the application are microfilmed. The microfiche is referred to as the "determination file." In the pre-examination planning stage, secure and request a microfiche copy of the organization's determination file, if necessary. This will assist in determining whether the organization is operating in the manner for which it was originally given exemption.

    Note:

    Securing the microfiche copy may

    be necessary in revocation or unagreed cases.

  2. Submit the request on Form 8057, EP/EO Microfiche Request, to the address listed below:

    Internal Revenue Service - TEGE Records Unit
    550 Main St., Room 4010
    Cincinnati, OH 45202

  3. If the file is not available, reconstruct it during examination. A reconstructed file should include a copy of the organization's charter, bylaws, application for exemption, and the most current determination letter. Submit to the address above with a cover memo requesting that the documents be added to the organization's determination file.

  4. Review of the determination file should cover the following items:

    • Application for exemption, Form 1023 or 1024,

    • Organization Document, e.g., Articles of Incorporation, Articles of Association, Charter, or Trust Document

    • Bylaws

    • Publications

    • Exemption letter

    • Filing requirements

  5. Check for any caveats, change in address, accounting periods, activities, and income sources.

  6. Verify that the subsection shown in the exemption letter is the same as the subsection shown on IDRS, AIMS and the return. If the organization was granted exemption under the Internal Revenue Code of 1939, see Exhibit 4.75.10-2for cross-references to the Internal Revenue Code of 1986.

  7. Also review any technical advice memoranda and correspondence received from the organization.

4.75.10.18  (05-01-2004)
Request and Review of IDRS Information

  1. For basic information regarding EO examinations and researching the IDRS account information, see Exhibit 4.75.10-3. During the pre-examination planning phase, use the form(s) listed in the exhibit to request basic information from the Service's internal database.

    Caution:

    Become familiar with restrictions regarding access of taxpayer information and the applicable penalties for misuse. See Exhibit 4.75.10-3 for a summary.

  2. It is important to document the case file regarding the account and related account information accessed during the examination. The case file should contain:

    • A print of the data researched or if no print was generated, a copy of Form 6882, IDRS/Master File Information Request, or other form used.

    • Document the command code requested, date of the request, the reason for access, tax period, and taxpayer identification number (if not the organization's) in the Case Chronology Record or a separate workpaper.

  3. At a minimum internal research requests should include:

    1. An AMDISA to verify the establishment of the case on AIMS, the name, address, return received date, status code, source code, activity code, project code and statute date.

    2. A BMFOLI to determine the related returns filed, e.g., Forms 941, 940, 990-T, 1120-POL, and 4720;

      Note:

      If the organization filed related returns, secure and review BRTVU printouts of the related returns if available on-line.

    3. A BMFOLT to verify the return received date and the amount of tax paid and determine if there is an amended return available, whether penalties have been assessed, and whether there is a power of attorney and declaration of representative (power of attorney) or tax information authorization on file in the Central Authorization File (CAF); and

      Note:

      If there is a CAF indicator, the examiner should request the detailed information.

    4. An INOLES to verify the current name, address, exemption subsection, current exempt status, foundation status, GEN number, lobbying election, and filing requirements of the organization.

  4. The examiner should document the pertinent information reviewed and conclusions reached. This information may be documented in a pre-examination workpaper(s) prepared by the examiner, on the IDRS/AIMS printouts, or in the appropriate sections of Form 5773.

4.75.10.19  (05-01-2004)
Research and Review Filing Requirements

  1. Verification must be obtained to show all returns for which the taxpayer is liable have been filed, including prior and subsequent year returns. Research IDRS by requesting command code INOLES to check the filing requirements and BMFOLI to check what returns have actually been filed.

  2. Consider all returns filed by the taxpayer. Some may not necessarily appear under filing requirements. These include related entity returns, employment tax returns, information returns, excise tax returns, pension plan returns, and political returns. This is important when drafting the initial Information Document Request.

  3. Request and analyze IDRS information.

4.75.10.20  (05-01-2004)
Requesting Assistance from Specialists

  1. If it is determined during the pre-examination phase the assistance of a field specialist in TEGE or another operating division will be needed, submit a request as soon as possible to avoid unnecessary delay in resolving the issue(s). These may include:

    Specialist IRM Reference Referral Form
    Computer Audit Specialist IRM 4.3.13 Form 10455
    Economist IRM 4.49 Form 9276
    Engineer IRM 4.3.16 Form 5202
    International IRM 4.60.5 Form 2962
    Employee Plans IRM 4.72 Form 4632
    Tax Exempt Bonds Reserved Reserved

  2. Examiners and group managers may now use the online Specialist Referral System at "http://lmsb.irs.gov/hq/fs/referrals.htm" to request assistance from a field specialist. The online system speeds up the referral process by eliminating the need to send paper requests to multiple locations.

4.75.10.21  (05-01-2004)
Research

  1. All issues that appear likely to arise based on the review of the return and determination file should be researched to the extent necessary to develop the pre-examination plan. Although it is important to become familiar with identified issues especially issues that have not been previously examined, it is equally important not to expend a large amount of time researching an issue that may become a non-issue once the examination is in process.

    Note:

    See IRM 4.75.13, Issue Development, for a detailed discussion of researching and citing the tax law.

  2. In addition to the hardcopy research materials available in the examiner's post of duty, he/she has access to a number of electronic research resources. The following is an overview of some of the electronic research tools currently available:

    1. LEXIS™ service which provides access to resources for performing tax law research, for example, the Internal Revenue Code, the IRM, Legal Decisions, News, etc.

    2. ChoicePoint™ Discovery and Probe services which provide resources for finding people and businesses and their assets. Through automated searches of a variety of databases, e.g., Real Property, Motor Vehicle, Social Security, Coast Guard, etc., the system generates reports giving information regarding addresses and property owned.

    3. Commercial Clearing House's U.S. Master Tax Guide Plus: IRS Edition, a Windows CD product, for use by employees on laptop computers. It contains the Internal Revenue Code, IRS regulations and publications, Letter Rulings, Revenue Rulings and Procedures, the IRM, and Tax Treaties. The CD ROM is specifically intended for employees who need to perform tax research from off-site locations. Updates are distributed quarterly.

    4. Commercial Clearing House's U.S. Master Tax Guide Plus: IRS Edition, on-line Intranet product, which contains all of the above information in addition to court cases, information on exempt organizations, human resources, and pension and welfare benefits.

    5. The Service's internal electronic network, Intranet, provides many useful research tools.

    6. The Service's Internet site, "www.irs.gov" not only provides current tax information, tax forms and publications but it also has other information including an on-line searchable version of Publication 78, Cumulative List of Organizations, and "Tax Stats." "Tax Stats" is an area that gathers all exempt organization information from the Martinsburg master file by district office, state and region and is updated monthly.

    7. The GuideStar™ Internet site, "www.guidestar.org, " provides a searchable database of IRC § 501(c)(3) charitable organizations, including online copies of their Forms 990, Forms 990-EZ or Forms 990-PF and other information.

  3. State Agencies - In certain examinations, it is prudent to check state, county and local departments that have jurisdiction over exempt organizations, particularly those recognized as exempt under IRC § 501(c)(3). Many state agencies maintain Internet web sites that provide access to public records such as corporations and property. Also, an increasing number of states and/or counties have departments with which exempt organizations must register if they solicit charitable donations or engage third-party fund-raisers to solicit for them.

  4. Many organizations maintain their own Internet web sites. These web sites can provide useful information concerning an organization.

4.75.10.22  (05-01-2004)
Forms and Workpapers

  1. A well-prepared case file contributes to a professional and quality finished product. It expedites review, closing procedures, ensures processing accuracy, and provides an audit trail that shows how the examiner reached his/her conclusions.

  2. Place each case in a separate folder. A case constitutes all examined returns of the same type and related workpapers for the same taxpayer.

  3. See IRM 4.75.11 for discussion of workpaper preparation.

4.75.10.22.1  (05-01-2004)
Form 5464, Case Chronology Record

  1. Form 5464, Case Chronology Record, should be used to record actions taken on the case, contacts made, follow-up dates and time expended. The form is a historical record and a quick reference to TEQMS elements/aspects. Since it becomes part of the audit trail, it could be disclosed to the taxpayer under the Freedom of Information Act. Therefore, entries should be professional, accurate, and concise.

    Caution:

    The case chronology should not include lengthy details concerning telephone calls, meetings, or other actions. If the action requires a lengthy explanation, the explanation should be recorded on a separate workpaper and the entry on the case chronology should include a reference to the workpaper.

  2. Include on the Case Chronology Record all direct examination time charged to the case. The time must agree with the direct examination time as reported on Form 6490, Examination Technical Time Report. When the case is ready to close, the total time on the Case Chronology Record and Form 6490 must reconcile to the total time recorded on Form 5599, EO Examined Closing Record.

  3. The Case Chronology Record should indicate the date that the case was received and the dates of subsequent pre-examination planning activities.

  4. Group manager involvement may be included on the Case Chronology Record. See IRM 4.75.10.6.

  5. The Case Chronology Record should include, but not be limited to, the following entries:

    • Date the case was put in status 12 on AIMS

    • The dates IDRS and AIMS research was requested, received, and reviewed

    • Date the appointment letter, initial Information Document Request, and other enclosures were mailed

    • Appointments scheduled including the date, place, time and contact(s)

    • Dates of telephone conversations with the organization's contact person(s) and their telephone number

    • Date of receipt and processing of Form 2848, Power of Attorney and Declaration of Representative, or Form 8821, Tax Information Authorization

    • Dates other correspondence is received from or sent to the taxpayer and/or representative

    • Form 872, Consent to Extend Time to Assess Tax, issued and obtained

    • Subsequent Information Document Requests issued and follow-up date

    • Dates research is performed

    • Delays or lack of cooperation by the taxpayer and/or representative

    • Explanation for delay of significant action on the case by examiner

    • Collateral requests

    • Date case closed to group manager

4.75.10.22.2  (05-01-2004)
Form 5772, EO Workpaper Summary

  1. Form 5772, EO Workpaper Summary, is used for pre-examination planning and as the first page of the workpapers. It contains a list of procedural and technical reminders. Review the list as part of the planning process and check the boxes appropriately to indicate those items to be considered during the examination. The consideration of an item checked on Form 5772 must be included on the Form 5773.

  2. During the pre-examination, the following items should be completed on Form 5772:

    • Organization's name, address, and EIN

    • Return form number

    • Year(s) under examination

    • Specialist's name

    • Items to be considered

  3. Additional items may be added during the on-site examination and case closing.

  4. See Exhibit 4.75.10-5.

4.75.10.22.3  (05-01-2004)
Form 5774, Private Foundation Workpapers

  1. Form 5774, Private Foundation Workpapers, is required for the examination of all private foundations. It is prepared in the same way as Form 5772 and placed immediately behind Form 5772 in the administrative file.

4.75.10.22.4  (05-01-2004)
Form 5773, Workpaper Summary Continuation Sheet

  1. The Form 5773, Workpaper Summary Continuation Sheet, as a working tool for pre-examination planning cannot be overemphasized. Lack of preparation detracts greatly from a professional performance. Form 5773 is used for the following purposes:

    1. To continue Form 5772 and Form 5774;

    2. To cross reference and index the workpapers;

    3. To document the review and analysis of books, records, and materials relating to issues identified for examination; and

    4. To summarize the audit steps, findings and conclusions of the examination.

  2. During the pre-examination phase, enter the items checked on the Forms 5772 and 5774 and any other issues identified during the pre-examination on the Form 5773. Use a separate block for each item or issue. The pre-examination comments should include the steps that will be taken during the examination to develop each item or issue.

    Caution:

    When using a pro forma pre-examination plan that has been developed for organizations exempt under a specific IRC section, the pre-examination must be customized for the organization and return under examination. For example, the pre-examination comments should not include a general statement, i.e., "Review all large, unusual, or questionable disbursements." It should list the specific disbursement items shown on the return that were identified as large, unusual, or questionable during the pre-examination. The Form 5773 should also include a comment stating the dollar amount of the disbursement and the reason why it is large, unusual or questionable. If additional large, unusual, or questionable disbursements are identified during the examination they should be added at that time.

  3. During the examination, additional issues may be raised. These issues should be added to the Form 5773 when identified.

  4. If there are examination issues by condition code listed on the Return Classification Record, there must be a comment on them in the workpapers unless a classifier or group manager deleted the code. If it is determined that the condition code was raised in error, it should be explained on Form 5773.

  5. Index workpapers behind Forms 5772 and 5773 using capital letters. The letters do not have to correspond to the index reference on Form 5772, but it is easier to follow the case file if they do. If there are more than 26 items, use double letters.

  6. Record on the Form 5773 the documents reviewed relating to issues in the pre-examination plan.

    Example:

    If one of the preplanned issues is "miscellaneous" disbursements and the review of the general ledger reveals payees for an obviously exempt related expense, state exactly which books and records were analyzed. Simply noting " OK" is inadequate.

  7. The examination procedures and conclusions column lists the audit steps taken to support the conclusion reached. The list of examination procedures should be meaningful to support the stated conclusion.

4.75.10.23  (05-01-2004)
Initial Taxpayer Contact

  1. The term "initial contact" is defined as the first contact with the taxpayer after the pre-examination analysis and before the initial interview. Generally, the initial contact is for the purpose of arranging the initial interview.

    Caution:

    The examiner must complete a detailed pre-examination analysis of the information available from internal sources and the returns, as detailed above, BEFORE initial contact with the taxpayer.

  2. IRC § 7605(a) gives the Service the authority to set the time and place of the examination under reasonable circumstances. Field examinations are normally conducted at the taxpayer's place of business and/or where the books and records are maintained. The goal of the initial contact is to set the examination, to maximize convenience for the taxpayer, as well as efficiently administer the tax laws.

  3. The taxpayer may be contacted by telephone or in writing to schedule the initial appointment. Whenever possible, the initial contact should be made by phone.

    Reminder:

    The Restructuring and Reform Act of 1998, section 3705, requires examiners working tax-related matters to provide the taxpayer upon contact by telephone, personal contact or mail his/her title or first name, last name, employee identification number, and telephone number.

  4. Before the examiner contacts the organization by telephone to discuss the examination, he/she should determine the appropriate individual to contact. The individual contacted should have the authority to receive confidential tax information concerning the organization. The individuals who have the authority to receive confidential tax information are:

    1. An officer of a corporation (including a parent, subsidiary, or other affiliated corporation), association, or organized group who has authority under the applicable State law to legally bind the entity;

    2. A fiduciary, e.g., a trustee or receiver;

      Note:

      If it is not attached to the assigned return, the examiner should secure a Form 56, Notice Concerning Fiduciary Relationship.

    3. An individual, usually a director, an officer, or an employee of the entity, specifically authorized to bind the entity in accordance with the entity's organizing documents, a resolution of the governing board, or other legally binding document; and

    4. An individual who has a valid power of attorney or tax information authorization on file with the Service for the type of return and year(s) included in the examination. See IRM 4.75.10.23.

    Caution:

    To avoid making an unauthorized disclosure subject to the sanctions of IRC § 7213, the examiner must verify the identity of the individual contacted and determine whether he/she has an ongoing relationship with the organization entitling him/her to receive confidential tax information before discussing the examination. In the case of a corporation, if the corporate officer contacted is not an officer designated by state law to bind the corporation, the examiner must ask the officer if he or she can legally bind the corporation before discussing the examination. If the examiner determines the person contacted does not have the proper authority to receive confidential tax information, the examiner should limit the conversation to determining the name and telephone number of an individual who does have the authority to receive confidential information. The questions asked and responses received must be documented in the workpapers.

    Note:

    If there is a question as to whether the individual contacted has the authority to receive confidential information, generally a written statement by the individual, on stationary bearing the entity's letterhead, stating he or she has the authority to legally bind the corporation is sufficient to permit disclosure.


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