4.75.17  EO Examinations Review Responsibilities and Procedures

4.75.17.1  (07-07-2010)
Introduction

  1. The TE/GE EO examination review groups, centrally located in Dallas, Texas, is part of the Exam Programs & Review (EP & R) function. Two groups, Mandatory Review and Special Review share the responsibilities of reviewing Examination cases. Although the managers for both groups are located in Dallas, other reviewers/members of the review staffs are located in various posts of duties throughout the United States.

  2. Review staff is responsible for reviewing the complete work of compliance enforcement activities and providing management with information to aid in evaluating the technical and procedural effectiveness and efficiency of personnel.

  3. The review staffs also provides coordination for various examination programs and functions. The review manager may, as necessary assign a reviewer to act as a coordinator for a particular program. See Exhibit 4.75.17-1 for a list of the programs and the groups charged with the responsibility for the accomplishment of that program.

4.75.17.2  (03-01-2003)
Background

  1. The principle objective of the TE/GE Examination Review Staffs (referred to as "Review" is the fair, impartial, courteous and professional administration of revenue laws. Their role is to advise management of areas requiring their attention and to make corrections wherever necessary. To accomplish these objectives, reviewers will review the managerial, technical and procedural aspects of examination cases. To this end, the Review Staffs must continually strive for:

    1. Just, uniform, and impartial treatment of exempt organizations' interests while protecting the Government's interest;

    2. High quality standards;

    3. Constant awareness of unfavorable patterns or trends;

    4. Identification of problem areas, unique issues raised, and for new or novel techniques developed by agents; and

    5. Timely dissemination of information for use by others in evaluating assignment and examination procedures.

4.75.17.2.1  (03-01-2003)
Mandatory Review

  1. Mandatory Review is primarily responsible for performing technical reviews of examination cases specified by the IRM as being subject to mandatory review.

  2. Mandatory Review is also responsible for assisting management and agents in the preparation and approval of closing agreements. This would include ensuring any subsequent follow-ups are made and all payments required by the closing agreement are timely received and processed appropriately.

  3. For additional information on closing agreement procedures, refer to IRM 4.75.25.

4.75.17.2.2  (03-01-2003)
Special Review

  1. Special Review is primarily responsible for performing a quality sample review of closed examination cases through the Tax Exempt Quality Measurement System (TEQMS).

  2. The manager of Special Review is responsible for publishing the quarterly newsletter for the EP & R function.

  3. Reviewers will be responsible for submitting articles on various topics of interest to the field.

  4. Articles will be solicited from the other groups within EP & R including Planning, Classification, and Closing.

4.75.17.3  (07-07-2010)
Staffing

  1. Reviewers should be experienced and highly competent personnel who:

    1. Possess a comprehensive knowledge of generally accepted accounting and auditing principles;

    2. Possess superior skill in interpreting and applying tax laws, regulations, and court decisions;

    3. Are knowledgeable in Service policies and procedures;

    4. Are capable of performing a managerial review of cases;

    5. Have a fair and impartial attitude;

    6. Merit the highest respect and cooperation of EO and other IRS personnel;

    7. Have demonstrated an ability to assume responsibility and take positive action when warranted;

    8. Communicate ideas and opinions clearly, tactfully and objectively; and

    9. Apply good judgment; and exercise individual initiative;

    10. Exercise individual initiative.

4.75.17.4  (07-07-2010)
Cases Subject To Review

  1. There are two types of cases which require review. They are:

    1. Cases involving certain identified issues that are subject to mandatory review. A list of these types of cases and issues requiring mandatory review for EO examinations can be found in IRM 4.75.17.4.1; and

    2. Tax Exempt Quality Measurement System (TEQMS) cases. These are processed by Special Review and consist of a statistically valid sample of cases

      Note:

      Form 3198-A, TE/GE Special Handling Notice, must be completed and attached to the front of all cases identified for mandatory review

4.75.17.4.1  (07-07-2010)
Mandatory Review

  1. The following cases are subject to Mandatory Review:

    1. Cases involving a proposed revocation of qualification as an organization described in IRC §501(c)(3) or IRC §170(c)(2);

    2. Cases involving proposed modification or revocation of foundation classification of an organization where the issue is subject to IRC §7428 (a)(1)(B). This includes IRC 4942(j)(3) private operating foundation classifications and reclassifications from one public charity status to another, e.g., from IRC§ 509 (a)(1)/170(b)(1)(A)(vi) to IRC §509(a)(2) or from IRC §170(b)(1)(A)(ii) to§ 170(b)(1)(A)(vi);

    3. Cases involving final modification or revocation of qualification for exempt status under sections other than IRC §501(c)(3);

    4. Termination of exempt status

    5. Cases involving a proposed penalty under IRC §§6661, 6700, 6701, or 6702 and 6707A

    6. Private foundation examination cases for which a determination letter under IRC§ 4945 (g )is to be issued

    7. Health care organizations that are integrated delivery systems, preferred provider organizations, or physician hospital organizations

    8. Hospitals where physician practices or physician facilities (e.g., MRI, ambulatory surgery center) are purchased, or compensation is based on net profits or earnings;

    9. Hospital management service organizations;

    10. Health maintenance organizations and managed care purchasing organizations (i.e. established by hospitals, employers ,insurance companies, physician groups, community representatives, to fix health care rates and enroll participating employers);

    11. Church cases; however, refer to (2) below for specific criteria;

    12. Unagreed discrepancy adjustment cases;

    13. Cases involving credit counseling organizations;

    14. Unagreed tax change cases;

    15. Installment agreement cases;

    16. Critical Initiative Cases (1) Political Activity Compliance Initiative Cases (PACI) (2) Executive Compensation Cases, excluding no-change and survey cases

    17. All status 36 cases

    18. Cases involving inadequate records notices

    Note:

    Closing agreement cases are not subject to mandatory review; however, they must be coordinated with Closing Agreement Coordinator, mandatory Review, per the procedures set forth in IRM 4.75.25, EO Examinations Closing Agreements.

  2. The following cases involving churches are subject to mandatory review:

    1. Private school cases in which the information obtained under the pre-examination procedures constitutes the sole basis for determining that the school appears to comply with Rev.Rul.75-231 and Rev.Proc.75-50;

    2. Determinations that an organization is not a church exempt from tax by reason of IRC §501(a);

    3. Determinations that an organization is not a church described in IRC §170(b)(1)(A)(i);

    4. Notices of deficiency in any tax or failure to file penalties involved in a church tax examination that an organization is not a church exempt from tax by reason of IRC §501(a);

    5. Under payments of tax involved in a church tax examination when subchapter B of Chapter 63 (relating to deficiency procedures) does not apply

    6. Notices of deficiency in any IRC §4948 tax arising from transactions between a disqualified person and a church; and

    7. All Church tax inquiries and examinations including those that result in no change.

4.75.17.4.2  (03-01-2003)
Special Review: Tax Exempt Quality Measurement System(TEQMS)

  1. TEQMS cases are selected based upon A statistically valid sample for each area based on the number of cases projected to be closed during the fiscal year .

  2. The population of cases subject to TEQMS review consists of all cases, including Mandatory Review cases, that contain a Form 990, 990-PF, 990EZ, or 1120-POL.

    Caution:

    Surveyed cases are not part of the population. However, to be properly excluded, a non-examined disposal code must be used when closing the case

    Note:

    Team Examination Program(TEP) cases are not subject to their own TEQMS program.

  3. All returns of a taxpayer (related returns and prior/subsequent year returns) will be counted as one unit for sample population purposes

4.75.17.5  (07-07-2010)
Statute Control

  1. IRM 25.6, Statute of Limitations, provides statute control concepts applicable to exempt organizations.

  2. Each reviewer is responsible for complying with the provisions of IRM section 25.6 for the return (s)assigned to him/her.

  3. Cases being transferred to Review require the following:

    • Current (no more than 30 days old) AMDISA, BRTVUE, and INOLES prints;

    • Proper update to status 20 on RCCMS;

    • Proper statute controls, including completed and signed Form(s) 895 and red folders as applicable;

    • A Form 3198-A, TE/GE Special Handling Notice,should be completed and placed on the outside of the case folder indicting the nature of the Mandatory Review.

  4. Unagreed cases with less than 270 but at least 180 days remaining on the statute of limitations:

    • Prior written notification from the Group Manager to the Manager, EO Mandatory Review regarding the pending submission of the case and proof of timely solicitation of a consent to extend the statute of limitations;

    • A memo or other documentation with the signature and concurrence of the Area Manager attesting to knowledge of the facts that occurred during the examination that brought about the short statute situation.

  5. All other cases closed to Mandatory Review or ESS/ESP including deletion requests (Form 10904) with less that 180 days remaining on the statute of limitations will require prior written notification from the Group Manager to the Manager, EO Mandatory Review or Manager, ESS/ESP regarding the pending submission.

  6. Cases are subject to being returned utilizing Form 5456, Reviewer's Memorandum-EP/EO,to the Area Manager, through Manager, EO EPR, if it is determined timely solicitation of a consent to extend the statute of limitations was not made and/or there was unnecessary delay in case processing. Retention of the case in the closing functions will be considered based on information contained in the file. Prior written notification will be a positive but non-determinative factor.

  7. All examination cases in which revocation is proposed will be considered unagreed.

  8. All cases, as well as any related cases, submitted for technical advice, must have one year remaining on the statute of limitations before being sent to EO Mandatory Review for processing.

4.75.17.6  (07-07-2010)
Processing Reviewed Cases

  1. Review staff is responsible for processing the following :

    • Referrals Cases

    • Unagreed Cases

    • Cases with nationwide ramification,

    • Suspension action, and

    • Revocation cases

  2. Examination cases in the groups that are subject to mandatory review will be sent to the centralized EO Mandatory Review in Dallas, TX.

  3. All cases must be accompanied by Form 3210,Document Transmittal, and for those cases forwarded to Mandatory Review, cases on RCCMS must be updated to status "20." All cases not meeting these minimum requirements will be returned to the Group for correction.

  4. All cases received in Mandatory Review should have a minimum of 270 days on the statute for unagreed cases and 180 days for agreed cases. This will include "No-Change" cases.

  5. Once received in Mandatory or Special Review, the manager will review the case and assign it to a reviewer. The cases will be distributed to the reviewers based on current workload and not on geographical location of the organization. This will provide flexibility in meeting workload demands and facilitate interaction between reviewers, the Area Managers and their employees. Every effort will be made by the review staff to complete their duties within 60 days.

  6. Once assigned, the Mandatory or Special Reviewer will review the case. If there are no errors or questions regarding the case, the case file will be closed to one of the closing units, which will close and forward the case to the appropriate Campus.

  7. If there is a need to return a case to the group, the reviewer will first forward the case file to the appropriate Review Manager for his/her review, agreement and approval. If the appropriate Review Manager agrees with the reviewer, the case file, along with the Form 5456, Reviewer's Memorandum-EP/EO, will be sent back to the originating group's manager for consideration of the reviewer's concerns. The group should reply within 60 days of receipt.

  8. For additional information on the preparation and processing of Reviewer's Memorandums, refer to IRM 4.75.17.10, Reviewer's Memorandums.

4.75.17.7  (07-07-2010)
Reviewing Cases

  1. The reviewer should adequately document his/her review of a case to insure that all items noted are properly addressed before the case is closed. If errors are noted but a decision is made not to take any action, this would also be included in the case notes.

  2. The reviewer must insure that relevant facts have been developed, and findings are adequately supported by law, regulations, published rulings and court cases.

  3. The reviewer should be satisfied that the examiner has:

    1. Correctly determined the statute of limitations;

    2. Obtained all pertinent facts regarding technical issues, both favorable and unfavorable;

    3. Explained clearly and concisely the position of the Service when proposed changes were anticipated;

    4. Reviewed the entity for compliance with the package audit requirements;

    5. Computed any tax changes correctly;

    6. Secured and attached to the return any line items or attachments that were not completed by the organization; and

    7. Observed the standard time frames with regard to examination cycles.

  4. It is the aim of the Service to resolve unagreed cases at the lowest possible level. The reviewer should ascertain that the examiner has made a reasonable effort to effect an agreement. The following questions may be pursued:

    1. Is the position of the organization and the examiner presented in a manner that leaves no doubt as to why there is a difference of opinion; and

    2. To what extent was the group manager involved?

  5. The reviewer will:

    1. Observe examination cycles (i.e., do not consider examining a prior year return unless there are compelling reasons to the contrary)

    2. Observe application processing cycle

    3. Observe independent pickup practices

    4. Evaluate time on cases

    5. Insure work papers are fully documented, (i.e., identify issues which appear to be questionable) ; well organized, indexed and cross-referenced to the pre-examination plan; and brief and concise, yet cover all questionable features of the case and reflect the examiner's actions taken to support the conclusions reached.

    6. Insure adequacy of reports (i.e., agreed and unagreed issues properly developed and both the government's position and the taxpayer's position clearly stated with proper references and citations).

    7. Consider unique issues (i.e., the examiner raised new or unusual issues and used the appropriate examination techniques).

    8. Identify group manager involvement (i.e., in situations which reflect poor case control on the examiner's part, the group manager should become involved and participate to direct and influence the prompt closing of the case; in unagreed cases, the group manager must include a statement in the report that he/she agrees with the examiner's position).

    9. Adhere to Service policies and procedures.

  6. When evaluating time on cases, the following factors should be considered:

    1. Complexity of the return and related issues

    2. Grade of case vs. grade of examiner

    3. Scope of examination - the depth and scope of examination should be commensurate with the anticipated potential of the return. When a limited scope examination is performed, the reason should be stated in the work papers.

    4. Time span of examination - The case should be worked in an expeditious manner. There should not be long periods of time between contacts with the organization or its representative(s). Consider reasonableness of explanation in the work papers.

  7. The reviewers will insure that the case file contains, but is not limited to, the following:

    1. All necessary returns;

    2. Properly executed Forms 872, 872A, or 872C (consents to extend statute) when appropriate;

    3. Properly assembled work papers and report(s);

    4. Properly signed and completed Form(s) 870 or 870E Waiver of Restriction on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment, where applicable;

    5. Form 3198-A, TE/GE Special Handling Notice,containing special processing instructions, where applicable;

    6. Pertinent and complete EO AIMS documents; and

    7. Properly completed Form 5666,TE/GE Referral Information Report, Form 5346, Examination Information Report,if applicable.

4.75.17.8  (07-07-2010)
Mandatory Reviewer Case Responsibility

  1. The Mandatory Review Staff is charged with the responsibility for reviewing the completed work of examination activities and to provide management with sufficient information to aid in evaluating the technical and procedural effectiveness and efficiency of Service personnel.

  2. Case reviews will be performed on all Mandatory Review cases. For a complete listing of cases subject to mandatory review, refer to IRM 4.75.17.4.1. above.

4.75.17.9  (07-07-2010)
Mandatory Reviewer Case Return Criteria

  1. If errors are found in an examiner's report, it should generally be returned for correction to the group manager with appropriate instructions. However, group managers may be advised of minor errors by advisory memorandum without returning the case for correction. The reviewer will make the needed corrections if the case is not returned to the group.

  2. An agreed issue should not be reopened and neither should a new issue be raised by the reviewer unless the grounds for such action is a substantial one or the potential effect upon the tax liability is material. The prohibition against raising issues for trading purposes should be clearly understood, as well as the prohibition against nuisance-value settlements.

  3. Agreed cases involving deficiencies of $10,000 or more will be given priority with special priority to those cases containing deficiencies of $50,000 or more. However, in some instances it may not be possible to close certain cases to the Campus within the specified period; e.g., cases returned by the Technical/Review Staff for correction, or cases requiring specialized review because of complex or controversial issues. Nevertheless, such cases must be expedited so that they will be closed to the Campus at the earliest possible date.

  4. At the end of each month, the total number of cases on hand must be carefully appraised and appropriate action taken to avert continuing backlogs. Review Staff inventories should not exceed a 15-day average workload of cases. Cases in suspense or in 90 day status will not be included in computing such workload.

4.75.17.10  (07-07-2010)
Special Reviewer Case Responsibilities

  1. Special Review is charged primarily with the responsibility for reviewing examination cases selected for the TEQMS sample.

  2. These cases are closed on AIMS and RCCMS and the closing letter has been mailed.

  3. The training text for TEQMS is Catalog Number 86727A. This publication should be used to provide guidance for reviewers in applying the quality standards.

  4. Reviewers must complete a case review input form for each case reviewed. For Fiscal Year 2001, and subsequent years, the TEQMS input form has been converted to electronic format (UFILL disks).

  5. New forms are made available at the beginning of each fiscal year. It is important that the correct input form is used. The group closing date determines in which fiscal year sample the case should be included.

  6. The group closing date is also a very important item in the UFILL disk record. This field is used to generate TEQMS management reports.

  7. TEQMS measures the quality of group closures; therefore, the date the case is reviewed is not the key date:

    1. The date the group closes the case to Examination Support Section (ESS) is the one that should be used; and

    2. The case chronology and AMDISA prints should not be used to determine the group closing date.

  8. Completed cases should be returned to Dallas, via Form 3210, Document Transmittal, where the disks will be uploaded. If there are rejects or errors when the upload is attempted, the reviewer will be asked to make the necessary corrections. For this purpose, it is helpful to maintain a copy of the files until the case has been uploaded.

    Note:

    The file can be saved to the hard drive of the reviewer rather than on a disk.

  9. The TEQMS program requires consistency reviews to be conducted on a periodic basis. One case will be selected and reviewed by each reviewer. The results will be tabulated and discussed at a group meeting or by teleconference. Group managers and revenue agents will be invited to attend. The goal is to achieve greater consistency in the way reviewers apply the standards.

4.75.17.10.1  (07-07-2010)
Special Reviewer Case Return Criteria

  1. When errors are noted during TEQMS reviews, the cases will generally not be returned to the group. However, cases meeting the criteria below will be returned to the group via a reviewer's memorandum:

    1. There is clear evidence an incorrect determination has been reached with regard to the exemption of an organization. An underdeveloped case will not be returned unless it is evident in the case file that the organization is not qualified;

    2. There is a clearly defined substantial error based on an established Service position existing at the time of the examination. Any proposed change must involve net additional tax of $10,000 to be considered substantial. "Substantial" refers to the dollar amount of tax that would not be assessed if the case were not returned (regardless of the number of years involved). Penalties and interest are not a factor in making this determination."Clearly defined" means the error is clearly apparent as opposed to being vague or uncertain;

    3. There is evidence of fraud, malfeasance, collusion, concealment, or misrepresentation by the taxpayer or representative;

    4. The case cannot be processed, e.g., case requires new agreements, AIMS establishment, a mandatory examination checksheet to be completed, etc.;

    5. The adjustment is favorable to the taxpayer and the Review staff cannot readily correct the report; and

    6. Other circumstances exist that indicate failure to return the case would be a serious administrative omission.

      Example:

      The action would: (1) result in serious criticism of the Service's administration of the tax laws; (2) establish precedent that would seriously hamper subsequent attempts by the Service to take corrective action; or (3) result in inconsistent treatment of similarly situated taxpayers.

  2. Inaccuracies that have been corrected by the Examination Support Section (ESS) for the applicable standard (i.e., report writing, closing letters, etc.) will be considered as errors during a TEQMS review if the file contains clear evidence of correction.

4.75.17.11  (07-07-2010)
Open Case Reviews

  1. As part of an ongoing effort to improve the quality of Exempt Organization (EO) examinations, an EO Tax Exempt Quality Measurement System (TEQMS) Open Case Review process that allows in-process reviews of open general program cases is available to EO Exam examiners.

  2. The Open Case Review process allows individual examiners to receive direct feedback from a TEQMS reviewer without the involvement or knowledge of their manager. Management initiates the Open Case Review process, subject to funding and resource availability, but does not participate in the review process.

  3. The results of conversations between reviewers and examiners during the Open Case Review process, is not used for evaluative purposes. This process does not adversely impact any employees or result in changes to Critical Job Elements or Performance Standards. There is no adverse impact on employees who choose not to participate in the open case reviews.

  4. EO management determines annually the number of reviews that are to be conducted for the upcoming fiscal year and apprises the Area Managers.

4.75.17.11.1  (07-07-2010)
Open Case Review Procedures

  1. Area managers, in cooperation with the group manager(s), will initiate the open case review process. In order to initiate an Open Case Review:

    1. The area manager contacts the manager of Special Review and based on available resources makes arrangements for reviews to be conducted;

    2. The group manager then issues an invitation to all examiners in the group to participate in the program;

    3. Examiners who respond and request reviews decide which open cases will be reviewed;

    4. The location of the reviews are determined by management;

    5. The date and time are coordinated by the Special Review manager, with the group manager and the examiner;

    6. The reviewer confirms the date and time with the examiner prior to the on-site review.

      Note:

      Participation in the program is voluntary. All reviews will occur only at the examiner’s request. There will be no adverse impact on employees who choose not to participate in the program

  2. The examiner and the assigned TEQMS reviewer are to be physically located for the duration of the review and meet on a one-on-one basis. The duration of the review is primarily dictated by the size and complexity of the case.

  3. The reviews are subject to management’s right to assign work and direct employees and may be affected by the availability of funding and resources.

  4. The reviews are conducted using a checksheet based on the TEQMS Case Review Input Form. A copy of the form can be found in Chapter 2 of the TEQMS – EO Examinations FY 2003 Booklet., Training 4320-002 (Rev.2003).

  5. The reviewer holds an opening conference with the examiner to briefly discuss the case and go over the checksheet. Following the opening conference, it is at the discretion of the reviewer and the examiner how to proceed with the review. The reviewer can review the case, prepare the checksheet and then meet with the examiner to discuss the results. Alternatively, the reviewer can go through the case in the presence of the examiner and complete the checksheet items.

  6. In either case, the reviewer provides a copy of the completed checksheet to the examiner. The reviewer does not retain a copy of the checksheet or provide a copy to management.

  7. The examiner records on his/her monthly WebETS 6490 report, the hours spent preparing and meeting with the reviewer. The time is charged to the case being reviewed. If more than one case is reviewed, the hours charged are allocated on a reasonable basis between the cases.

  8. The results of any conversations between the reviewers and examiners will not be used for evaluative purposes. There is no adverse impact on any employees, or changes to Critical Job Elements, or performance Standards because of participation in this program, nor are any employees to be reassigned involuntarily or to suffer job loss.

  9. Reviewers do not retain a copy of the checksheet and do not provide a copy to the group manager, area manager or the manager of Special Review. General information necessary to evaluate the program and the reviewer may be requested by management, but will not include any information that would identify the taxpayer or the examiner.

  10. Examiners can share results of the reviews with their managers, but are not expected or required to do so.

  11. he examiner must discuss any actions recommended by the reviewer which would require group manager approval, e.g. expanding the scope of the examination, with the group manager prior to initiation.

  12. The manager of Special Review compiles on a quarterly basis the number of open case reviews conducted in each area and provides the information to NTEU National. No other information will be maintained concerning the results of the reviews.

4.75.17.12  (07-07-2010)
Closed Case Reviews

  1. Due to numerous requests from managers and agents for “real-time” feedback, EO Examinations has implemented a TEQMS reviewer to examiner direct feedback process. The reviewer to examiner feedback process is used as an educational tool for providing technical and procedural guidance directly from the reviewer to the examiner and is expected to improve the quality of examination cases.

  2. As part of the direct feedback process, reviewers provide confidential feedback to examiners via secured email. If an examiner wishes to rebut any feedback received, they may either return the email with their comments or questions directly to the reviewer, or request a one on one discussion with the reviewer.

  3. Management is not included in the feedback process, with the exception of commendatory feedback.

  4. In the case of commendatory feedback on cases of exceptional quality, the examiner’s Group Manager also receives a copy of the feedback email sent to the examiner.

  5. Not every case selected for TEQMS review will result in direct reviewer to examiner interaction. Therefore, it is important to emphasize that non-receipt of feedback memorandum is not indicative of an examiner’s level of compliance within the TEQMS framework.

  6. Not every case is selected for TEQMS review or errors within a selected case are not of sufficient magnitude to justify the need for feedback.

4.75.17.12.1  (07-07-2010)
Closed Case Review Procedures

  1. In determining whether to prepare a feedback memorandum, the reviewer adheres to the quality guidelines set forth in the TEQMS standards as documented in the Purple Book and every standard is subject to the feedback criteria. By adhering to the quality guidelines within the TEQMS standards, both reviewers and examiners have a pre-determined expectation as to what constitutes a quality examination.

  2. Reviewers critique a case in the context of its overall quality and only provide commentary on substantive items.

  3. Reviewers use their expertise, experience and good judgment to determine whether or not an item is deemed significant enough to warrant preparation of a feedback memorandum.

  4. The actual TEQMS input form and score are not part of any feedback.

  5. Examples of items that may warrant direct feedback include items such as:

    • The use of an incorrect disposal code;

    • The reviewer detects a trend in any one standard or a combination of standards;

    • The Power of Attorney form is completed incorrectly;

    • the scope of the examination was not appropriate; or

    • the examiner’s computation is incorrect.

      Note:

      An incorrect computation can include calculation of the public support test incorrectly but not resulting in the case having to be reopened or tax calculated incorrectly resulting in an insubstantial additional tax amount.

  6. The feedback memorandum will identify the name of the organization, its EIN, and the date the case was closed from the group. The memorandum will describe the substantive items, the TEQMS standard(s) involved, and guidance on how to improve the quality of future cases. If the memorandum is commendatory in nature, it will fully describe the commendatory item(s). See IRM Exhibit 4.75.17-2 for a sample memorandum.

  7. Special Review has instituted the following procedures to assure the intended recipient is the only person with access to the feedback memorandum.

    1. After the reviewer prepares the memorandum, it is sent to the Manager, Special Review, for approval via secured e-mail. This step ensures memoranda are only issued for items that are pertinent to enhancing case quality and creating improvement opportunities (including commendatory feedback). The name of the examiner is not included; however, the specific EO Exam area is indicated so the Manager, Special Review, can prepare a quarterly Area summary of the results as described in IRM 4.75.17.12.1(8).

    2. Once the memorandum is approved by the Manager, Special Review, it is sent back to the reviewer via secured e-mail.

    3. The reviewer sends the memorandum to the examiner via secured e-mail.

    4. The Group Manager and Area Manager do not receive a copy of the memorandum from Special Review, unless it is commendatory in nature. In commendatory situations, the reviewer sends the memorandum via secured e-mail to the examiner as well as to the examiner’s manager.

  8. On a quarterly basis, Special Review prepares a summary report for each Area, detailing the content of all feedback provided to the Area’s examiners during that quarter. The report does not provide identifying information of examiner(s) who received feedback.

  9. The report is shared with the affected Area Manager. The Area Manager then shares the Area’s summary with their Group Managers and the Group Managers in turn hold group discussions to highlight future group improvement opportunities.

4.75.17.13  (07-07-2010)
Special Reviewer Case Return Criteria

  1. When errors are noted during TEQMS reviews, the cases will generally not be returned to the group. However, cases meeting the criteria below will be returned to the group via a reviewer’s memorandum:

    1. There is clear evidence an incorrect determination has been reached with regard to the exemption of an organization. An underdeveloped case will not be returned unless it is evident in the case file that the organization is not qualified;

    2. There is a clearly defined substantial error based on an established Service position existing at the time of the examination. Any proposed change must involve net additional tax of $10,000 to be considered substantial. "Substantial" refers to the dollar amount of tax that would not be assessed if the case were not returned (regardless of the number of years involved). Penalties and interest are not a factor in making this determination. “Clearly defined” means the error is clearly apparent as opposed to being vague or uncertain;

    3. There is evidence of fraud, malfeasance, collusion, concealment, or misrepresentation by the taxpayer or representative;

    4. The case cannot be processed, e.g., case requires new agreements, AIMS establishment, a mandatory examination check sheet to be completed, etc.;

    5. The adjustment is favorable to the taxpayer and the Review staff cannot readily correct the report; and

    6. Other circumstances exist that indicate failure to return the case would be a serious administrative omission.

      Example:

      The action would: (1) result in serious criticism of the Service’s administration of the tax laws; (2) establish precedent that would seriously hamper subsequent attempts by the Service to take corrective action; or (3) result in inconsistent treatment of similarly situated taxpayers.

  2. Inaccuracies that have been corrected by the Examination Support Section (ESS) for the applicable standard (i.e., report writing, closing letters, etc.) will be considered as errors during a TEQMS review if the file contains clear evidence of correction.

4.75.17.14  (07-07-2010)
Reviewer's Memorandum

  1. Communications between the Review Staffs and agents are generally in the form of Reviewer's inquiry or advisory memorandums. Such memorandums are addressed to the examiner's group manager and are initially considered at that point.

4.75.17.15  (07-07-2010)
Types of Memorandum and Usage

  1. An Advisory Memorandum is prepared in cases where it is necessary to apprise the group manager and the agent of errors of omission or commission that have been accepted or corrected with no change in qualification, exempt status or tax liability. Advisory Memorandums do not require the case to be returned to the Group. Examples include:

    • Errors on the Form(s) 5599;

    • Errors on the Form 2848, Power of Attorney (POA) Authorization that can be easily corrected by the review staff;

    Note:

    If the Reviewer makes a correction to a POA, he/she must send a copy to the taxpayer and representative acknowledging the change.

    • Minor errors in closing letters such as typographical mistakes;

      Note:

      A copy of the corrected and original letters should be maintained in the case file.

    • Minor math errors in an agreed case that are in the government's favor and a corrected report of examination is not issued. Minor is considered to be an amount which is less than $100.

  2. An Inquiry Memorandum is prepared when it is necessary to return the case file to a group manager for additional development or action by the agent.

  3. A Correction Memorandum is initially prepared as an Inquiry Memorandum where the examiner's revised recommendations resulting in a change in tax liability, exempt status, or private foundation status, or in an amendment to the enabling document. Resolution of the problem presented in an Inquiry Memorandum will produce one of four results:

    1. No revision since the inquiry involves a judgement area ultimately resolved on the basis of information in the original report without additional development of the case;

    2. No revision since the technical or procedural errors noted do not warrant the additional staff expenditure of time for correction based on potential results;

    3. Revised to reflect a change in the tax liability, foundation status or exempt status; or

    4. Revised to reflect an amendment to the enabling document, or to correct an inadequate report pertinent to the qualification or exemption

      IF THEN
      upon completion of review, the results produce the situation indicated in "a" It remains as an Inquiry Memorandum
      upon completion of review the results produce the situation indicated in "b" Redesignate it as an advisory memorandum
      upon completion of review, the result produces the situation indicated in "c" or "d" Redesignate it as a correction memorandum.

  4. A Commendatory memorandum is prepared when the reviewer believes the agent has performed exceptionally well on a case. A memorandum may be prepared and signed by the appropriate Review Manager, to advise the examiner's group manager.

  5. If the group manager concurs, a copy of this commendation is placed in the examiner's personnel folder.

  6. An agreed issue should not be reopened, nor should a new issue be raised by the reviewer unless the ground for such action is substantial and/or the potential effect upon the tax liability is material.

  7. Reviewer's memorandums are generally not prepared for TEQMS cases. These cases are closed prior to being selected for TEQMS and therefore must meet the reopening criteria to be returned to the group. Further, because TEQMS limits the feedback to the agent and manager, advisory memorandums would generally not be appropriate. Refer to IRM 4.75.26.10 for TEQMS case return criteria.

4.75.17.16  (07-07-2010)
Preparing and Processing Forms 5456 and 5457

  1. Two forms, prepared in triplicate are used to assist reviewers and agents when responding to concerns addressed on reviewed cases,

    1. Form 5456, "Reviewer's Memorandum - EP/EO," and

    2. Form 5457,"Response to Reviewer's Memorandum - EP/EO."

4.75.17.16.1  (07-07-2010)
Form 5456

  1. The Form 5456 should be completed as follows:

    1. Check" Inquiry" or "Advisory" as appropriate

    2. Complete Items 1, 2, 4 through 9, 12 and 13.

    3. If mathematical errors are found, record these errors by completing items 10 and 11.

  2. The Reviewer should save the completed Form 5456 to PDF, sign it electronically and send it, via secure E-mail, to the Review Manager. Upon approval by the Manager, the reviewer will send the paper case file (if applicable) to the examining Group Manager. The electronic case file will be returned to the Review Manager, via RCCMS, who will in turn will forward it to the examiner's Group Manager.

    Note:

    Cases involving an Advisory or Commendatory Memorandum do not require the return of the case file. For types of memorandums issued, see IRM 4.75.17.10.1

  3. The Review Manager, upon approval of the Form 5456, will forward it via secure E-mail to the examining group manager and the respective Area Manager.

    Note:

    The Review manager, will advise the Group Manager by telephone of any examination cases being forwarded to his/her group with less than 180 days before the expiration of the assessment period.

  4. The Reviewer should save the completed Form 5456 to PDF, sign it electronically and send it, via secure E-mail, to the Review Manager. Upon approval by the Manager, the reviewer will send the paper case file (if applicable) to the examining Group Manager. The electronic case file will be returned to the Review Manager, via RCCMS, who will in turn will forward it to the examiner's Group Manager.

    Note:

    Cases involving an Advisory or Commendatory Memorandum do not require the return of the case file. For types of memorandums issued, see IRM 4.75.17.10.1

  5. The Review Manager, upon approval of the Form 5456, will forward it via secure E-mail to the examining group manager and the respective Area Manager.

    Note:

    The Review manager, will advise the Group Manager by telephone of any examination cases being forwarded to his/her group with less than 180 days before the expiration of the assessment period.

4.75.17.16.1.1  (07-07-2010)
Form 5456: Group Procedures

  1. The group manager will initially consider the reviewer's memorandum. The group should reply within 60 days of receipt.

    1. If the group manager considers the memorandum inappropriate, such view should be presented, in writing, to the appropriate Review Staff Manager for resolution.

    2. Otherwise, the group manager should complete item 3 of Form 5456. The form is then forwarded via secure E-mail to the agent. The Group Manager will return the case to the agent via RCCMS, and will maintain appropriate AIMS controls.

  2. The agent will reactivate the case on TE/GE Technical Time Report (WebETS).

4.75.17.16.2  (07-07-2010)
Form 5457

  1. The examining agent will prepare the Form 5457 (available as a PDF file) as follows:

    1. Complete items 1-6 on Form 5457. If additional space is required, use Form 886-A.

    2. In completing item 5 of Form 5457, key the responses to the order of the reviewer's comments on Form 5456.

    3. If an item cited by the reviewer results in an adjustment that is explained in the examination report, another explanation on Form 5457 is not necessary. A notation as to the page of the report in which the item is adjusted will be sufficient.

    4. If an item cited by the reviewer does not result in an adjustment, include an explanation on Form 5457.

    5. If no mathematical adjustments are made, Form 5457 will be so annotated. This will facilitate processing of the case by the EO Closing Unit.

  2. The agent will send the completed Form 5457, via secure E-mail to the Group Manager, who will in turn electronically sign and approve the action taken by the agent by completing item 7 of Form 5457.

  3. After approval, the case file and all copies of Forms 5456, 5457 and 886-A will be returned directly ( by secure E-mail and overnight mail, if applicable) to the specific reviewer who initially reviewed the case. Any cases returned via RCCMS will be rerouted by the Review Manager to the reviewer.

  4. If that particular reviewer is no longer in Review, the case will be returned to the appropriate Review Manager for assignment to a current reviewer.

  5. Upon review and approval of the action taken by the agent, the reviewer will complete items 8-10 of Form 5457 and, if necessary, redesignate Form 5456 as either a Correction or Advisory Memorandum by entering "X" in the appropriate block. If the Inquiry Memorandum is redesignated, items 15 and 16 should be completed.

  6. In those cases where additional questions and /or issues remain unexplained, a second reviewer's memorandum should be prepared and the Form 5456 noted across the top "2nd" reviewer's memorandum.

  7. Copies of the Forms 5456, 5457, and 886-A will be included in the administrative file, after the final review and acceptance of the case by the Review Staff.

  8. The Review staff and the Examining examiner's Group Manager will also maintain a copy.

4.75.17.17  (07-07-2010)
Resolution of Disputes

  1. In cases where the agent feels the Review Staff's position is inappropriate, he/she should specify the reasons on Form 5457 and return it to the appropriate Review Manager via his/her group manager.

    1. If after considering both positions, the group manager believes the Review Staff's position is appropriate, the agent will adopt the Review Staff's position in further dealings with the organization.

    2. If the group manager concurs with the examiner's dissent or has serious doubts regarding the reviewers position, the group manager will, either through discussion or by approving Form 5457, advise the appropriate Review Staff Manager.

      Caution:

      Under no circumstances should the agent advise the organization, authorized representatives, or other interested parties of any internal disagreement with changes in the Service's position.

  2. In the event of any significant disagreement between Review and the groups regarding a Form 5456, a conference will be held between the affected group manager, his or her Area Manager, the appropriate Review Manager and the Manager, EPR, to resolve the issues. Ultimately, the decision of the Area Manager and the Manager, EPR is final.

4.75.17.18  (07-07-2010)
Reviewing Employment Tax Reports

  1. An employment tax case with a defaulted 30-day letter is not subject to Mandatory Review if it does not involve questions of worker classification. These cases close directly to ESS for assessment. However, defaulted 30-day letter cases with unagreed worker classification issues, as well as protested employment tax cases. are subject to statutory notice procedures and must close through Mandatory review.

  2. The Reviewer should refer to IRM section 4.23.10,.9 for guidance in preparing the Notice of Determination of Worker Classification (NDWC).

  3. Employment reports prepared as part of a case file including other designated mandatory review issues, i.e. revocation or modification of exempt status, will be reviewed to determine whether applicable law and regulations have been correctly applied, as well as insuring that the report writing procedures have been followed.

  4. It is important that correct and clear entries are made on Form 4668, Employment Tax Examination Changes Report, since the form is used in transmitting wage information by the Campus to the Social Security Administration.

  5. Where Federal Unemployment Tax Administration (FUTA) adjustments have been agreed to by the taxpayer, a credit for State taxes will be allowed only if the tax was paid to the State.

  6. In income tax withholding cases, taxpayers should be advised of the relief of payment provisions under IRC§ 3402 (d). The examiner should also furnish Forms 4669, Statement of Payments Received, and 4670, Request For Relief From Payment of Income Tax Withholding to the taxpayer and inform him/her to wait until receipt of a notice of assessment before submitting Forms 4669 and 4670. The examiner is authorized to accept the Forms 4669/4670 for withholding tax abatement before the examination is closed.

  7. Where the examiner has recommended assertion of penalties (IRC§§ 6651(a)(1) or (a)(2), 6653(b), 6656), determine that the penalty is correctly computed. Use Form 2769,Computation of Deposit Penalty to compute the depository receipt penalty.

  8. The 100% penalty provided by IRC § 6672 is to be used only as a collection device when asserted against collecting agencies or responsible officers or employees of collecting agencies.

  9. Employment tax examinations involving delinquent returns, whether agreed or unagreed, should specify, in red ink, "Delinquent Return Prepared By TE/GE," not just "Delinquent Return."

  10. Where a claim for refund of employer and employee FICA tax is being allowed, ensure that the employer has paid the employee's portion of the tax to the employee, or the employer has received permission from the employee to file a claim on his/her behalf.

  11. Determine that the proper rates and wage base are applied in FICA and FUTA cases in view of the changes being made from year to year.

4.75.17.19  (03-01-2003)
Requesting Area Counsel Assistance

  1. Cases requiring Area Counsel approval, (i.e. proposed adverse letters, proposed unagreed revocation letters, and proposed deficiency notices) should be sent to the Area Counsel office where the case would be tried should it go to trial. This generally would be the Area Counsel office where the taxpayer/organization or their representative resides.

  2. The proper Counsel offices to receive these cases are as follows:

    Great Lakes Area CC:TEGE:GLGC:CHI Area Counsel, Chicago
    Gulf Coast Area CC:TEGE:GLGC:DAL Area Counsel, Dallas
    Central Mountain Area CC:TEGE:PCCM:SF Area Counsel, San Francisco
    Pacific Coast Area CC:TEGE:PCCM:LA Area Counsel, Los Angeles
    Mid-Atlantic Area CC:TEGE:NEMA:BAL Area Counsel, Baltimore
    Northeast Area CC:TEGE:NEMA:LI Area Counsel, Long Island

  3. Reviewers may contact Area Counsel at anytime for advice. A directory of the Area Counsel attorneys with their area of expertise is compiled and distributed annually.

4.75.17.20  (07-07-2010)
Referral Procedures

  1. Any referral received in Review will be updated on Automated Information Management System (AIMS) to status 60 to Classification via RCCMS. The Reviewer should identify any referral case and flag it appropriately to ensure the case is properly forwarded to Classification.

4.75.17.21  (07-07-2010)
Suspense Procedures

  1. Technical advise cases requiring suspension of action will normally be held at the group level using suspense code 38. The group will send a copy of the technical advice case to EO Mandatory Review for follow up..

  2. Prior to forwarding a copy of the suspense case to Review, it will be the group's responsibility to insure that the statute is protected for at least one year. It will also be the groups responsibility to secure any necessary statute extensions on subsequent years if there is a continuing issue.

  3. Technical Advice cases will be maintained in the groups with a copy of the Technical Advice Memorandum kept in Review for information and follow-up purposes.

  4. Cases involving issues(s) having nation wide ramifications or those within a particular judicial jurisdiction are at times suspended to insure uniform and consistent treatment of the issue(s). This included cases in which the issue is the same or similar to an issue(s) in a case awaiting final action by Rulings and Agreements or the Office of the Chief Counsel (Tax Exempt and Government Entities).

4.75.17.21.1  (07-07-2010)
Suspense Procedures: Form 1254

  1. Cases that have been identified as Form 1254 suspense cases should be sent to Mandatory Review in Dallas. The examining agent should have completed the examination with regard to all other issues prior to forwarding the case to Mandatory Review.

  2. Review will verify the statute expiration date, the taxpayer's name and address, the accounting period and the issues. The Mandatory Review manager will be advised of any statutes that expired prior to receipt of returns being suspended.

  3. The Form 1254 will be prepared with references to Examination changed to TE/GE.

    Note:

    For a group of cases with an identical issue, a Form 1254 should be prepared for each of the cases. The Form 1254-A has been declared obsolete (12-19-2008) and should not be used.

  4. The AIMS status will be updated to the appropriate suspense code.

  5. A Letter 1014 will be prepared and mailed to inform the taxpayer of the status of the case.

  6. The Forms 1254 will be placed in a special suspense file maintained and controlled in Mandatory Review. Until advice is received no action should be taken to close the case. The Form 1254 suspense file should be arranged according to the expiration date of the statute of limitations.

  7. When a final decision is made on any issue in suspense, the case files will be returned to the originating Area with a synopsis of the decision. Any other guidelines available at the time will also be included with the file.

  8. When cases are received in EO mandatory Review, the Control Clerk will verify the statute and update the case on AIMS. The case will then be assigned to a mandatory reviewer.

Exhibit 4.75.17-1 
Table of Collateral Duties of Review Staff

DUTIES SPECIAL MANDATORY
Fraud   X
Technical Advice   X
Technical Assistance to Groups and Managers   X
Newsletter X  
Church Cases   X
Review and Develop Operating Procedures X X
CPE and Group Presentations X X
Statute of Limitations   X
Internal Revenue Manual   X
Closing Agreements   X
Worker Classification Program   X
PACI Cases   X

Exhibit 4.75.17-2 
TEQMS Closed Case Review Memorandum

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