4.75.26  Tax Exempt Quality Measurement System (TEQMS)

Manual Transmittal

September 25, 2014

Purpose

(1) This transmits revised IRM 4.75.26, Exempt Organizations Examination Procedures, Tax Exempt Quality Measurement System (TEQMS).

Material Changes

(1) This manual underwent a complete rewrite to reflect the procedures currently in place regarding TEQMS.

Effect on Other Documents

This manual supersedes IRM 4.75.26, Tax Exempt Quality Measurement System (TEQMS) dated January 1, 2003.

Audience

Tax Exempt and Government Entities
Exempt Organizations
Examinations

Effective Date

(09-25-2014)

Tamera L. Ripperda
Director, Exempt Organizations
Tax Exempt and Government Entities

4.75.26.1  (09-25-2014)
Introduction

  1. This IRM describes the Tax Exempt Quality Measurement System (TEQMS) for management and employees in the Tax Exempt and Government Entities (TEGE) Division, Exempt Organizations Examinations.

  2. The IRS Restructuring and Reform Act of 1998 (RRA98) required the IRS to change its performance measures to balance customer service with overall tax administration responsibilities.

  3. Treas. Reg. Part 801, Balanced System for Measuring Organizational and Employee Performance, implemented the IRS Balanced Measurement System. This system supports the Service’s overall mission by assessing organizational performance through a few key output measures and provides a numerical scoring system for quality.

  4. TEQMS is the system designed to measure the quality of exempt organization examinations. It is an organizational measure that helps the IRS assess its progress in achieving high-level strategic goals and as such is not evaluative at the group or employee levels.

4.75.26.2  (09-25-2014)
TEQMS Case Selection Process

  1. Examination cases are identified for the TEQMS sample through the Reporting Compliance Case Management System (RCCMS). The sample may be a national or an area sample as determined on a yearly basis by the Director, EO Examinations.

  2. TEQMS cases are selected by statistical sample. The population is based on the number of cases closed. The sample size will vary each fiscal year as the population changes with the work plan.

  3. The current population of EO Examinations’ cases subject to TEQMS review consists of all cases, including mandatory review cases that contain a Form 990, 990-PF, 990-EZ, 990-N or 1120-POL. Surveyed cases are not part of the population. All returns of a taxpayer, related returns and prior/subsequent year returns, are counted as one unit for sample population purposes.

  4. The TEQMS sample generally consists of closed cases, however, cases subject to mandatory review may still be open on AIMS. Closed cases selected for the TEQMS sample have been closed off the IRS inventory systems and the final letter mailed to the taxpayer prior to the TEQMS review.

4.75.26.3  (09-25-2014)
Review Process

  1. Cases selected for TEQMS are reviewed and rated by an EO Examinations Special Reviewer.

  2. The TEQMS electronic data collection instrument is embedded in RCCMS as a database in question form. The database questions are answered on each sampled case as well as general administrative information concerning the reviewed case, the reviewer, and the quality attributes.

  3. For more information on the responsibilities and procedures for EO Examinations Special Review function refer to IRM 4.75.18, Special Review Procedures.

4.75.26.4  (09-25-2014)
TEQMS Attributes

  1. Beginning with cases closed during FY 2011, EO Examinations began using a newly designed TEQMS. The new system is a customer-focused quality measurement tool developed to evaluate whether EO Examinations work products provide top quality customer service and enforce the law through identification and resolution of material issues. Top quality service means resolving the material issues in an accurate, timely, and professional manner.

  2. The new TEQMS has been broadly designed to allow measuring quality of EO Examinations’ various work products (in other words, general program, team examination and compliance checks).

  3. The new TEQMS consists of 15 customer attributes that directly impact customer service (for example, closing letters, time span and taxpayer rights). These replace the eight standards and related questions presented as elements and aspects rated under the previous system.

  4. Each attribute’s rating is independent of the other attributes’ ratings and has been assigned a weight that reflects the level of impact on customer service. The table below lists the 15 customer attributes and the weight assigned to each.

    CUSTOMER ATTRIBUTES
    ISSUE IDENTIFICATION
    1. Were material issues (other than ET/UBI) properly identified? 10%
    2. Were material issues affecting income tax properly identified? 5%
    3. Were material issues affecting employment tax properly identified? 5%
    ISSUE RESOLUTION
    4. Were the identified material issues (other than ET/UBI) appropriately resolved? 10%
    5. Were the identified material issues affecting income tax appropriately resolved? 5%
    6. Were the identified material issues affecting employment tax appropriately resolved? 5%
    CUSTOMER COMMUNICATION AND TIMELINESS
    7. Were requests for information clear, concise and appropriate? 10%
    8. Were the reports/letters to the customer properly prepared? 10%
    9. Was the time span of the examination reasonable? 10%
    10. Was the Taxpayer/Representative regularly kept informed throughout the examination? 10%
    OTHER CONSIDERATIONS
    11. Were statute issues addressed and procedures correctly followed to protect the statute of limitations? 5%
    12. Were all taxpayer rights observed and no improper disclosures apparent? 5%
    13. Were all required checksheets properly completed and other special project procedures followed? 4%
    14. Was fraud appropriately considered? 3%
    15. Were penalties appropriately considered? 3%

    Note:

    For a detailed discussion of the quality attributes for EO Examinations cases refer to the Tax Exempt Quality Measurement System (TEQMS) training guide which can be obtained by e-mailing the EO Special Review manager.

4.75.26.5  (09-25-2014)
Reason Codes and Process Measures

  1. TEQMS includes reason codes that provide an explanation as to why a particular attribute is not met and are required any time a reviewer rates an attribute "No" . Reason codes are intended to be used as a management tool to more objectively identify the root cause(s) of failing attributes.

  2. The system also includes process measures for attributes #9, time span of examination and #10, taxpayer/representative kept informed. When either of these attributes is rated "No" , the reviewer must select a process measure which indicates the length of time it took to complete the examination or in the case of attribute #10, the length of time in which there was no regular contact with the taxpayer or representative.

  3. Refer to Exhibit 4.75.26-1 for a complete list of customer attributes, reason codes and process measures.

4.75.26.6  (09-25-2014)
Organizational Score

  1. The Balanced Performance Measurement System, specifically the business results segment, requires organizational case quality to be numerically scored. Organizational measures serve as an indicator of the progress the Service is making in achieving high-level strategic goals. The quality measure is a numeric indicator of the extent to which completed work meets quality standards. TEQMS is the rating system used to determine this score.

  2. The organizational score is based on the number of "Yes" answers for each customer attribute. Each customer attribute is assigned a weight based on its level of impact on providing top quality customer service. For example, customer attribute #1, identification of EO issues is weighted at 10%, whereas identification of employment tax issues is only 5%. This is because failing to identify an issue that could adversely affect exempt status is considered to have a greater impact than one affecting non-EO issues, such as an employment tax issue.

  3. Each customer attribute is rated independently of the ratings for all other customer attributes. Generally, percentages associated with any attributes that are not applicable to a case are excluded from the calculation and the assigned percentages are proportionally reallocated to the remaining applicable attributes. However, in the case of attributes associated within issue identification and resolution, any non-applicable attribute is reassigned to the other applicable attributes, respectively, so that the overall total assigned weight remains the same. This is to ensure the importance of these two areas of quality, issue development and issue resolution, is not diluted

    Example:

    If attribute #1 is rated "Yes" , attribute #2 is rated "No" and attribute #3 is determined to be not applicable, the total weight for issue identification would still be 20%. Rather than reallocating attribute #3’s 5% to all other rated attributes, it is assigned exclusively to attribute #1 and #2 on a proportional basis.

4.75.26.7  (09-25-2014)
Quality Results

  1. Management uses the results from TEQMS reviews to identify improvement opportunities. These TEQMS reviews provide the following benefits:

    • Provide feedback to management

    • Serve as a tool to help identify improvement opportunities in case quality

    • Improve customer service and satisfaction

    • Identify possible training/CPE needs

    • Increase consistency in examinations

  2. Quality results may be reported in a number of high level documents. Examples include the following

    • IRS Congressional Justification of TEGE Strategy and Program Tool

    • TEGE Business Performance Review Process

    • IRS Annual Performance Plan

    • Commissioner’s Monthly Report

    • IRS Management Board Report

    • Executive Management Support System

4.75.26.8  (09-25-2014)
TEQMS Reports

  1. The data uploaded to the TEQMS database for EO examinations is summarized in the form of various reports that are generated each quarter.

  2. These reports provide an indicator of the extent to which completed work meets quality standards. The reports:

    1. Provide measures of overall performance on attributes, but do not provide evaluative information for individual employees.

    2. Reflect the percentage of "Yes" answers for each attribute as well as the organizational score.

    3. Provide a list of uniform reason codes as well as narrative comments entered by reviewers explaining the "Yes" and "No" answers.

4.75.26.9  (09-25-2014)
Report Analysis

  1. The database generated reports are analyzed and trend reports are prepared. The trend reports discuss:

    • The overall trend in the quality of cases (increased or decreased)

    • The trend for each attribute (improved or diminished scores)

    • The specific goals for the period (met or not met)

    • Suggestions for improvement

4.75.26.10  (09-25-2014)
Tools to Ensure Data Reliability

  1. Consistency reviews are used to encourage greater consistency between reviewers in applying TEQMS attributes to cases. A consistency review is an independent review of a selected TEQMS case by each Special Reviewer, followed by a discussion of any differences in the way attributes were rated.

4.75.26.11  (09-25-2014)
Case Return Criteria

  1. Generally TEQMS cases are not returned to the group for further development.

  2. Cases will be returned to the group when any of the following conditions exist:

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

    2. There is a "clearly defined substantial" error based on an established Service position existing at the time of the examination.

      Note:

      "Clearly defined substantial" means the error is clearly apparent as opposed to being vague or uncertain. "Substantial" refers to the dollar amount of the tax. Any proposed tax change should involve the net additional tax dollar threshold of IRM 4.75.31.5 (2) to be considered "substantial."

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

    4. The case cannot be processed due to administrative or procedural errors.

    5. The adjustment is favorable to the taxpayer and the report cannot be readily corrected by Special Review staff.

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

    7. Mandatory review cases will be returned for correction following current procedures.

Exhibit 4.75.26-1 
Complete List of Customer Attributes, Reason Codes and Process Measures

ISSUE IDENTIFICATION AND RESOLUTION
 
ISSUE IDENTIFICATION
1. Were material issues (other than ET/UBI) properly identified? – 10%
  Yes, No, N/A
Reason Codes
A. Foundation classification status – not identified
B. International issues – not identified
C. Inurement/private benefit – not identified
D. Lack of filing appropriate Form 990 series return
E. Loans – not identified
F. Modification of subsection – not identified
G. Non-exempt activity – not identified
H. Non-member income – not identified
I. Organizational test – not identified
J. Political activities – not identified
K. Other
2. Were material issues affecting income tax properly identified? – 5%
  Yes, No, N/A
Reason Codes
A. Advertising income
B. College/University income derived from activities not substantially related to exercising or performing any purpose or function described in section IRC 501(c)(3)
C. Gaming
D. Income from debt-financed property
E. IRC 501(c)(7), (9), or (17) non-member income
F. Operation of trade/business not related to exempt purposes
G. Sale of donor list
H. Other
3. Were material issues affecting employment tax properly identified? – 5%
  Yes, No, N/A
Reason Codes
A. Backup withholding - not identified.
B. Conversion from I/C to employee - not identified
C. Excessive compensation - not identified
D. Failure to file all required Forms 1099
E. Form 940 - not identified
F. Form 941/944 - not identified
G. Form W-2 issues - not identified
H. Form W-2G issues - not identified
I. IDRS shows potential issue – not identified
J. Non-accountable plan - not identified
K. Officers not being treated properly - not identified
L. Payments to insiders – not being properly reported - not identified
M. Personal use of vehicle - not identified
N. Tip income - not identified
O. Other
ISSUE RESOLUTION
4. Were the identified material issues (other than ET/UBI) appropriately resolved? - 10%
  Yes, No, N/A
Reason Codes
A. Audit techniques – not utilized
B. Incorrect conclusion reached
C. Issue dropped – no resolution reached
D. Issue underdeveloped
E. Referral allegations not considered
F. Reviewer unable to determine how issue was resolved
G. Subsequent open years not secured
H. Other
5. Were the identified material issues affecting income tax appropriately resolved? - 5%
  Yes, No, N/A
Reason Codes
A. Audit techniques – not utilized
B. Conversion to Form 1120 – not completed properly
C. Incorrect conclusion reached
D. Issue dropped – no resolution reached
E. Issue underdeveloped
F. Referral allegations not considered
G. Referral not made to appropriate division
H. Reviewer unable to determine how issue was resolved
I. Subsequent open years not secured
J. Tax computation materially incorrect
K. Other
6. Were the identified material issues affecting employment tax appropriately resolved? – 5%
  Yes, No, N/A
Reason Codes
A. Audit techniques not utilized
B. Delinquent/SFR returns not secured
C. Employees payments – not properly reported
D. Form 1099 not secured
E. Form W-2 not secured
F. Incorrect conclusion reached
G. Issue dropped – no resolution reached
H. Issue underdeveloped
I. Referral allegations not considered
J. Referral not made to appropriate division
K. Reviewer unable to determine how issue was resolved
L. Section 530 relief not considered
M. Secured return for a 501(c)(3)
N. Subsequent open years not secured
O. Tax adjustment – not proposed
P. Tax computation materially incorrect
Q. Other
CUSTOMER COMMUNICATION AND TIMELINESS
7. Were requests for information clear, concise and appropriate? - 10%
  Yes, No, N/A
Reason Codes
A. Grammatical, punctuation, or spelling errors
B. IDR not uploaded to RCCMS or included in paper file
C. IDR too voluminous
D. IDR was not pertinent to issues selected during the pre-plan analysis of the return or items identified during initial telephone contact with the taxpayer
E. IDR was not phrased in terms understandable to the taxpayer
F. IDR was not specific as to the time period(s) in question
G. IDR was not tailored to the type of EO being examined
H. Taxpayer was not provided a due date for submission for the information requested
I. Other
8. Were the reports/letters to the customer properly prepared? – 10%
  Yes, No
Reason Codes
A. Advisory not well written
B. Closing letter/addendum not posted to RCCMS
C. Customer advised incorrectly as to filing requirements
D. Customer advised incorrectly as to law
E. Date missing
F. Grammatical, punctuation, or spelling errors
G. Incorrect form
H. Incorrect signature (e.g. wrong person, wrong title, no title or signature contained typographical errors)
I. Incorrect standard letter used
J. Incorrect taxpayer information, wrong tax year, EIN, returns (only typographical errors rated here – those involving disclosure issues should be rated under taxpayer rights)
K. Letter not in case file or posted to RCCMS
L. Material identified issues not addressed
M. Missing or incorrect contact information
N. No explanation of adjustments
O. Not mailed certified
P. RAR not in case file or on RCCMS
Q. Other
9. Was the time span of the examination reasonable? - 10%
  Yes, No
Reason Codes
A. Case reassigned
B. Inactivity on case – agent
C. Inactivity on case – manager
D. Inefficient use of IDR versus utilizing interview techniques
E. Minimal hours charged periodically
F. Preplan span too long
G. Other
Process Measures: (Only select if time span is unreasonable)
Exam time span
  No change case>
  3 months<=6 months
  >6 months<=9 months
  >9 months<=12 months
  >12 months<=15 months
  >15 months <=18 months
  >18 months<=24 months
  >24 months<=30 months
  >30 months<=36 months
  >36 months<=48 months
  >48 months<=60 months
  >60 months
  No change advisory
  >3 months<= 6 months
  >6 months<=9 months
  >9 months<=12 months
  >12 months<=15 months
  >15 months <=18 months
  >18 months<=24 months
  >24 months<=30 months
  >30 months
  Agreed Income/Excise/Employment tax change
  >3 months<= 6 months
  >6 months<=9 months
  >9 months<=12 months
  >12 months<=15 months
  >15 months <=18 months
  >18 months<=24 months
  >24 months<=30 months
  >30 months
  Agreed Income/Excise/Employment tax change
  >3 months<= 6 months
  >6 months<=9 months
  >9 months<=12 months
  >12 months<=15 months
  >15 months <=18 months
  >18 months<=24 months
  >24 months<=30 months
  >30 months<=36 months
  >36 months<=48 months
  >48 months
  Agreed modification/revocation
  >3 months<= 6 months
  >6 months<=9 months
  >9 months<=12 months
  >12 months<=15 months
  >15 months <=18 months
  >18 months<=24 months
  >24 months<=30 months
  >30 months<=36 months
  >36 months<=48 months
  >48 months
  Unagreed modification/revocation
  >3 months<= 6 months
  >6 months<=9 months
  >9 months<=12 months
  >12 months<=15 months
  >15 months <=18 months
  >18 months<=24 months
  >24 months<=30 months
  >30 months<=36 months
  >36 months<=48 months
  >48 months
  Other
  >3 months<= 6 months
  >6 months<=9 months
  >9 months<=12 months
  >12 months<=15 months
  >15 months <=18 months
  >18 months<=24 months
  >24 months<=30 months
  >30 months<=36 months
  >36 months<=48 months
  >48 months
10. Was the Taxpayer/Representative regularly kept informed throughout the examination? - 10%
  Yes, No
Reason Codes
A. Case reassigned
B. Findings not discussed
C. Long time span without TP contact - agent
D. Long time span without TP contact - manager
E. Other
  Process Measures
  Length of time in which no contact was made with TP/POA
  >30 days<=45 days
  >45 days<=60 days
  >60 days<=90 days
  >90 days<=120 days
  >120 days<=150 days
  >150 days<=180 days
  >6 months<=9 months
  >9 months<=12 months
  >12 months<=18 months
  >18 months<=24 months
  >24 months
OTHER CONSIDERATIONS
11. Were statute issues addressed and procedures correctly followed to protect the statute of limitations? - 5%
  Yes, No, N/A
Reason Codes
A. Delays in working case caused examiner to request statute extension
B. Examiner did not close case in red folder, when appropriate
C. Examiner should have requested extension sooner
D. Examiner waited until case was ready to close to request extension
E. Missing/wrong information on statute extension
F. Statute expired while case is still open
G. Other
12. Were all TP rights observed and no improper disclosures apparent? - 5%
  Yes, No
Reason Codes
A. Appeal rights were not discussed when adjustments proposed
B. Form 2848 was not forwarded to Service Center
C. Power of Attorney procedures were not followed
D. Pub 1 /Notice 609 was not provided
E. Reviewer unable to determine – missing workpapers
F. Third party contact procedures were not followed
G. Unauthorized disclosures were made
H. Other
13. Were all required checksheets properly completed and other special project procedures followed? - 4%
  Yes, No, N/A
Reason Codes
A. Checksheet was not in file or on RCCMS
B. Information on checksheet was inaccurate or inconsistent
C. Other
14. Was fraud appropriately considered? - 3%
  Yes, No, N/A
Reason Codes
A. Did not discuss with fraud technical advisor
B. Did not discuss with manager
C. Did not discuss with TEGE fraud specialist
D. Failed to consider the badges of fraud
E. Other
15. Were penalties appropriately considered? - 3%
  Yes, No, N/A
Reason Codes
A. Did not consider and assert applicable penalties
B. Did not make specific statements to support assertion/non-assertion
C. Penalty not approved by manager when required
D. Penalty was incorrectly computed
E. Reviewer unable to determine if penalties were assessed where applicable
F. Statement made by TP does not justify the abatement of the penalties – reasonable cause not established
G. Other

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