4.90.3  Compliance Checks

Manual Transmittal

February 21, 2013

Purpose

(1) This transmits a revision to IRM Part 4, Examining Process, Chapter 90, Federal State and Local Governments, Section 3, Compliance Checks.

Material Changes

(1) This transmittal corrects minor typographical and clerical errors in 4.90.3.6, 4.90.3.12.1, and 4.90.3.13. In 4.90.3.12.1, the discussion of converting a compliance check into an examination, to indicate the correct source code of "95" .

Effect on Other Documents

This section supersedes IRM 4.90.3, Compliance Checks, dated January 10, 2013.

Audience

This section contains instructions and guidance for all FSLG Compliance employees when dealing with compliance checks.

Effective Date

(02-21-2013)

Paul A . Marmolejo
Director, Federal State and Local Governments

4.90.3.1  (12-16-2011)
Overview

  1. This section provides general guidance for FSLG Specialists conducting compliance checks.

  2. The office of Compliance and Program Management (CPM) will assign FSLG compliance check cases.

4.90.3.2  (02-01-2008)
Compliance Check Defined

  1. A compliance check is a contact with the customer that involves a review of filed information and tax returns of the entity. A compliance check is NOT an examination and the customer may legally choose not to participate. A compliance check does not directly relate to determining a tax liability for any particular period. The check is a tool to help educate government entities about their reporting requirements and increase voluntary compliance.

  2. The compliance check shall not include an examination, inspection, or discussion of books and records, nor shall it include a review of employee/independent contractor classification questions.

4.90.3.3  (12-16-2011)
Compliance Check Inventory Control Process

  1. CPM will establish compliance checks on the Reporting Compliance Case Management System (RCCMS) using activity code 587. Compliance checks selected via the Return Inventory Control System (RICS) or using general classification procedures (i.e. non-referrals) will be sent to Field Managers electronically via RCCMS, based upon an order for work placed by the Field Manager. CPM will provide managers with a listing of the selected compliance checks via secured e-mail.

  2. The Specialist will enter each compliance check case name separately on WebETS. If more than one tax year is being reviewed, then list each case name and tax year separately. Time is charged to activity code 587.

4.90.3.4  (12-16-2011)
Opening a Compliance Check

  1. The Specialist will open compliance checks in a manner similar to that for examinations. Letter 3575, FSLG Compliance Check Opening Letter, will be issued to the taxpayer along with Publication 1 (Your Rights as a Taxpayer), Notice 609 (Privacy Act Notice), and Publication 3114 (Compliance Checks).

  2. When the taxpayer is notified that a compliance check will be initiated, then the Specialist should update RCCMS status to 12 and submit to the Field Manager for approval.

4.90.3.5  (12-16-2011)
Conducting a Compliance check

  1. A compliance check should include the review of the following filed tax returns and information returns:

    • Form 941 (or Form 944) and associated amendments (Forms 941-X, 843)

    • Form 945

    • Forms W-2, W-3, and correction Forms W-2c and W-3c

    • Forms W-4

    • Form W-9 or equivalent

    • Forms 1099 and 1096

    • Forms 1042

    • Form 1042-S

    • Other forms as applicable

  2. The following actions should be taken:

    • Verify that all appropriate returns were filed timely. If not, discuss filing deadlines and associated penalties with the taxpayer. Secure delinquent returns, if appropriate, and submit for processing. See IRM 4.90.3.10.

    • Verify that all deposits were made timely. If they were not, discuss deposit requirements and failure to deposit penalties.

  3. During a compliance check, do not:

    • Inspect books and records

    • Discuss books and records

    • Question whether a worker is an employee or independent contractor

    • Ask how the taxpayer determined that a Form W-2 or 1099 should be filed

      Note:

      If no form was filed, it is reasonable to ask how much was paid and whether the recipient was incorporated, or other questions designed to determine whether or not filing was required.

  4. During a compliance check, do discuss internal controls and evaluation procedures the taxpayer used for:

    1. Determining whether a vendor is an individual or corporation

    2. Tracking vendors' TINs

    3. Tracking payments to vendors

    4. Determining whether or not to file information returns.

    This will help determine whether or not the taxpayer has a process in place to file all of the required Forms 1099.

  5. During a compliance check, do inspect filed information returns for indications that the amounts and information reported are complete and correct. This includes analysis of the following:

    • Forms W-2 to see whether withholding appears appropriate

    • Forms W-2 for missing information, TIN, name, address, etc.

    • Duplicate filings (Forms 1099 & W-2 to same payee) that may indicate fringe benefits are reported on 1099, or that a part of the wages is incorrectly characterized as non-employee compensation or rent

    • Whether the total number of Forms 1099 and amount paid is in line with the size and type of the entity (payer), i.e. should there be more or less?

  6. During a compliance check, do provide employee/independent contractor information. However, do not ask questions related to this issue.

4.90.3.5.1  (12-16-2011)
Compliance Check Tools

  1. Specialists should use the electronic compliance check versions of Forms 4318, 9984, and 3198-A.

  2. The Specialist may use the Form W-2/1099 Analysis Program. This program will generate IDRs to request Forms W-2/1099 data from the taxpayer. Once the data is received, the Specialist can use the program to analyze information on Forms 1099 and W-2. This program can provide the following checks:

    1. Insufficient or no Federal income tax withholding

    2. Incorrect or no social security tax withholding

    3. Incorrect or no Medicare tax withholding

    4. Federal wages in excess of social security wages (within wage base)

    5. Federal wages in excess of Medicare wages

    6. Forms W-2 and 1099 issued to same worker in same year

    7. Form 1099 discrepancies

  3. The Specialist may use the Information Return Analysis System (IRAS), a menu-driven Access database which allows examiners to import and analyze many types of information returns. These include Form(s) 1042S, 1099-DIV, 1099-INT, 1099-MISC, 1099-OID, 8805, W-2 and more. The examination tools in IRAS compliment, but do not replace, those within the W-2/1099 Analysis program. There are many pre-programmed data tests and reports, such as Forms W-2 with no FICA wages, Forms W-2 with Box 12 deferred compensation, and Form 1099-MISC / W-2 match.

4.90.3.6  (12-16-2011)
FSLG Compliance Check Case Documentation

  1. The minimum documentation that should be included in a compliance check case file is as follows:

    1. Form 3198-A, TE/GE Special Handling Notice

    2. FSLG Case Data (FCD) form

    3. Letter 3575, FSLG Compliance Check Opening Letter.

    4. Letter 3576, FSLG Compliance Check Closing Letter.

    5. Form 4318 (electronic compliance check version)

    6. Form 9984, Examining Officer’s Activity Record

4.90.3.7  (12-16-2011)
Case File Closing Procedures

  1. If no examination is warranted, the Specialist will prepare and issue Letter 3576, FSLG Compliance Check Closing Letter. (If an examination is warranted, IRM 4.90.3.12

    Note:

    The compliance check closing letter allows the Specialist to outline the findings and make corrective recommendations. The recommendations are to encourage future compliance and to provide documentation that certain issues were discussed. If the Specialist recommends follow-up action, then the Specialist should prepare Form 5666 indicating that a future period examination is warranted. A copy of the closing letter that outlines findings and corrective recommendations should be attached to Form 5666 and included in the closed compliance check case file.

  2. After completing the compliance check and issuing the closing letter, the Specialist will close the case. The Specialist will complete Part I, Sections B and C, as well as Parts II, III, and IV of the FSLG Case Data Form. Post the form to the RCCMS case file. The entire case will then be transmitted via RCCMS to the Field Manager for review using disposal code 801. The Field Manager (or MA) will close the case on RCCMS to CPM.

  3. The TE/GE Case Closing Unit and the Ogden Campus do not process these cases.

4.90.3.8  (12-16-2011)
Survey of Compliance Checks

  1. Generally, the survey of a compliance check will be rare. A survey will always be completed with the approval of the Field Manager. The following are circumstances in which a survey may be appropriate:

    1. The Specialist and the Field Manager decide to open the case as an examination instead of as a compliance check, and the appropriate period for examination should be established. IRM 4.90.3.12. for procedures.

    2. A more current period has been filed and a decision is reached to do a compliance check on the more current period. Survey is completed on the older period and the current period is established.

    3. Due to higher priority work, a compliance check cannot be worked for at least one "audit" cycle.

    4. Based upon a review of the taxpayer's compliance history, the Specialist believes (and the Field Manager concurs) that the organization appears to be filing all information and tax returns timely and accurately, therefore no compliance check is warranted.

    5. Based upon cost/benefit analysis, the Specialist decides with concurrence of the Field Manager that completion of the compliance check is not cost effective.

      Note:

      In some circumstances, conducting a compliance check via telephone or correspondence might be used.

  2. In situation (a), the Specialist should follow procedures outlined in IRM 4.90.3.12. In situations (b), (c), (d) and (e), the Specialist will survey the case by taking the following steps:

    1. Contact the Field Manager to get approval to survey the case.

    2. Complete Form 2503, Survey after Assignment–Excise or Employment Tax, to explain the reason for the survey.

    3. Close on RCCMS using disposal code 908 (910 if survey before assignment) and complete Form 5596, TE/GE Non-Examined Closings and document managerial approval.

    4. Complete the FSLG Case Data Form, check the box indicating survey in Part II, Section D, and select the appropriate reason for the survey.

    5. To establish a compliance check for a subsequent period, the Specialist will complete the ESTABLISH steps to create a new activity on RCCMS using activity code 587 and source code 40, and submit to manager for approval. Specialist will post the FSLG Case Data Form into the RCCMS case for the survey periods as well as post it to the RCCMS case for the newly established subsequent period.

    6. Send surveyed case file via RCCMS to the Field Manager for approval. Be sure to include all applicable office documents in the RCCMS record; i.e. FSLG Case Data Form, etc.

  3. The Field Manager will approve the survey action by signing (or initialing) the forms as indicated. The group will close the case to CPM on RCCMS and establish the subsequent year on RCCMS (if subsequent year will be worked). The Field Manager will approve the establishment of the subsequent year on RCCMS.

  4. CPM will "final close" the RCCMS record to the Case Library.

4.90.3.9  (12-16-2011)
Preparation of Form 3870

  1. Adjustments to accounts generally will not occur during compliance checks. However, if an adjustment is necessary to resolve an account-related problem that is discovered during a compliance check, the Specialist should prepare Form 3870, Request for Adjustment. The Form 3870 will be closed with the compliance check case file. Flag Form 3198-A to alert CPM that Form 3870 needs processing. Additional information about processing Form 3870 can be found in IRM 4.90.2.

    Note:

    A Specialist should not review books and records during a compliance check. If the Specialist must review books and records or determine a tax liability related to an adjustment, the case must be converted into an examination. IRM 4.90.3.12.1

4.90.3.10  (02-01-2008)
Delinquent Returns Secured During Compliance Check

  1. If delinquent returns are secured during a compliance check, then a decision must be made whether or not to examine the returns.

    1. If the delinquent returns will be examined, then the compliance check will be closed and converted into an examination and examination delinquent return procedures will be followed. See IRM 4.90.3.12 for instructions on converting the examination and IRM 4.90.12.11 for delinquent return procedures.

    2. If no examination will be conducted on the delinquent return, then it should be sent directly to the appropriate location for processing. See IRM 4.90.12.11.1 for the appropriate addresses. The Specialist may assist the customer by explaining reasonable cause criteria and assisting with the preparation of an explanation for filing a late return. Indicate in the compliance check workpapers that delinquent returns were secured and complete the "Delinquent Returns Secured" section under Part III of the FSLG Case Data Form.

4.90.3.11  (05-31-2006)
Closing Agreements

  1. Formal closing agreements do not generally fit the definition of a compliance check because consideration of the issues may involve some level of review of books and records or determination of a tax liability. However, in rare circumstances where a taxpayer requests a closing agreement, then the Specialist will follow procedures outlined in IRM sections 4.90.9 and 8.13.1.

4.90.3.12  (02-01-2008)
Changing Case Types

  1. Compliance checks may be worked, surveyed or converted into an examination upon approval of the Field Manager. Compliance checks cannot be converted into a customer assistance contact; any educational/technical assistance needed can be provided as part of the compliance check. A conversion may be done either prior to taxpayer contact or during a compliance check if, based upon the judgment of the Specialist with concurrence of the Field Manager, a determination is made that an examination is needed to achieve compliance.

4.90.3.12.1  (02-21-2013)
Steps for Converting a Compliance Check Into an Examination

  1. The Specialist must contact the Field Manager to get approval to expand the case into an examination. Approval may be obtained by E-mail. The Specialist will document conversion from compliance check to examination on Form 9984.

    Note:

    Field Managers should consider the case grading implications of converting a compliance check into an examination. For example, a grade 12 compliance check may be a grade 13 examination due to the taxpayer's employment tax liability and the complexity of its structure.

  2. The Specialist must complete the required steps on RCCMS to close out the compliance check. Form 3198-A and the FSLG Case Data Form should be completed and uploaded into the Office Documents folder on RCCMS for the compliance activity. RCCMS disposal code 303 should be used if taxpayer contact was made, or disposal code 908 if taxpayer contact was not made.

    1. The Specialist completes the ESTABLISH steps for the Exam activity on RCCMS, using source code 95, MFT 01, and activity code 465, including all quarters of the calendar year to be examined. If more than one year is opened related to a conversion, the Specialist uses source code 95 for all quarters of one year, and source code 40 for all quarters of the next year.

    2. The Specialist will post the FSLG Case Data Form into the RCCMS case for the survey periods as well as post it to the RCCMS case for the newly established exam periods.

  3. The Specialist must notify the taxpayer that the entity is currently under audit, document in the file that this has been done, and inform the taxpayer of the rights provided under audit. (Issue Letter 3850X or 3850Y as appropriate, Pub 1, Notice 609, Form 4564, Pub 3498, Pub 1946, etc.)

  4. The Field Manager receives the RCCMS message and approves the compliance case closure and Examination case establishment.

  5. Once AIMS controls are updated by the group and additional periods established, a RCCMS message will be received by the Specialist. The Specialist should verify that IDRS controls are correct.

  6. The RCCMS process tracks case movement and maintains a library (archive of closures) utility.

  7. All compliance will be closed to CPM in Status 90 on RCCMS.

4.90.3.12.2  (12-16-2011)
Closing Converted Compliance Checks

  1. A compliance check that is converted to an examination may be considered a completed compliance check if the following criteria are met:

    • The Specialist completed the compliance check of an entity using the appropriate documents and forms provided by FSLG.

    • As a result of the compliance check, the Specialist and the Field Manager agree that significant noncompliance exists with regard to the entity's employment tax obligations.

    • The Specialist prepared a closing letter that describes the noncompliance. The closing letter also states that an examination will be opened.

    • The closing letter is reviewed by the Field Manager and approved by the Manager, Field Operations.

    • The Specialist completed all closing documents to close the compliance check.

    • The Field Manager forwarded the closed compliance check file to CPM.

    • The compliance check is closed using disposal code 801 on RCCMS.

4.90.3.13  (12-16-2011)
Compliance Check Quality Measurement Standards

  1. Standard #1: PLANNING Purpose: This standard measures whether all necessary steps were taken to set the groundwork for a complete compliance check.

    • Did the pre-plan identify material issues?

    • Were initial requests for information clear, concise, and appropriate?

    • Did the initial request for information address potential issues to be checked?

      Key Element Definition
    A. Queries internal information sources This quality element measures whether internal information sources were adequately queried. Any and all relevant and necessary sources of information should be queried and evaluated during the pre-plan process. Specialists must consider all available and relevant internal sources prior to beginning the compliance check. These sources should be checked and documented when warranted.
    B. Considers collectibility of prior open balances This quality element measures whether collectibility was considered. Specialists should consider the taxpayer’s financial activities because not all taxpayers lacking the means to satisfy additional tax liabilities will be identified. Specialists should be alert for indications that collectibility may be a factor to consider. Transcripts of accounts may also indicate collectibility issues. If collectibility is an issue in an assigned case, the Field Manager should be alerted as soon as the issue is discovered. The Field Manager will make the final determination whether to survey the case or to limit the scope/depth of a compliance check. A compliance check may be surveyed due to an absolutely uncollectible assessment or subject to a limited scope compliance check where there is lack of collectibility. However, it should be emphasized that compliance checks should not be surveyed based solely on collectibility if a limited compliance check has the potential for developing a lead to other non-compliant taxpayers.
    C. Considers Letters and Memoranda of Understanding This quality element measures whether there was proper consideration of existing Letters and/or Memorandums of Understanding. During the initial planning stages of a compliance check, the Specialist can improve the overall quality of the compliance check and future compliance by ensuring proper consideration of existing Letters and/or Memorandums of Understanding.
    D. Plans compliance check based on available data This quality element measures whether the compliance check plan was based on all available data. During the initial planning stages of a compliance check, the Specialist can improve the overall quality of the compliance check by considering data from all available sources. Information from any referrals contained in the file should be fully reviewed and the appropriate compliance steps planned to determine the validity of that information. If any market segment study data is available, the Specialist should obtain and review the data and plan the compliance check accordingly, taking into consideration guidance that has been given regarding issues, techniques, etc.
    E. Furnishes and explains initial required letters and publications This quality element measures whether all required letters and publications were furnished to the taxpayer and adequately explained.
    • Correspondence, showing the Specialist’s name, telephone number, and employee ID number

    • Publication 1, Your Rights as a Taxpayer

    • Notice 609, Privacy Act Notice

    • Publication 3114, Compliance Check, Audit, Examination, or Review

    At the initial contact with the taxpayer, the Specialist will: confirm his/her proper identification to the taxpayer; verify or update taxpayer’s current address and telephone number; explain the taxpayer’s rights and the compliance check process; and verify and annotate in the case file that the taxpayer received Publication 1, Notice 609, and Publication 3114.
    F. Issues clear and concise initial request for information This quality element measures whether the initial IDR was clear and concise. During the initial contact, the Specialist will request information and/or documents from the taxpayer that are needed to perform the compliance check. The Specialist will prepare the IDR and mail to the taxpayer with the initial contact letter. The IDR may be discussed with the taxpayer during the initial telephone call. The IDR will include requests for documents needed to support issues determined during the pre-contact analysis (pre-plan) of the compliance check, as well as items identified during the initial telephone contact with the taxpayer. The IDR should list the specific information and documents the taxpayer should have available at the initial appointment. The IDR should be phrased in terms that are understandable to the taxpayer and specify the time period applicable to the requested documents. The IDR must always include the date the requested information is to be submitted, or indicate that the documents be made available at the initial appointment. Specialists may have access to pro-forma IDRs that include a list of items commonly requested for compliance checks. Use of pro-forma IDRs is acceptable; however, the pro-forma IDR should be modified/tailored to the particular returns being checked for compliance. The Specialist should be careful not to use a "shotgun" approach and request everything on the list if some of the items may not be relevant to the period(s) covered in the compliance check.
    G. Shares compliance issues with the taxpayer/ representative This quality element measures whether the plan was shared with the taxpayer/representative. When initial contact is made with the taxpayer, by telephone or by mail, the Specialist must tell the taxpayer which returns are being checked for compliance and the tax period(s) involved. The Specialist should generally discuss the issues that were selected in the pre-plan. The taxpayer must also be made aware that additional issues may arise depending on the information obtained during the compliance check. As soon as additional issues are identified, the taxpayer/representative should be notified to avoid any unnecessary delays in the compliance check process. Sharing issues with the taxpayer will decrease time and let the taxpayer know the purpose of the compliance check.

  2. Standard #2 COMPLIANCE SCOPE Purpose: This standard measures whether the compliance check was conducted within the appropriate compliance scope. This standard also measures whether the Specialist considered all filing/compliance requirements, public audit reports, and multi-period returns, as warranted.

      Key Element Definition
    A. Maintains appropriate scope as necessary This quality element measures whether the scope of the compliance check should be limited or expanded to the point that all significant items were properly considered for determining compliance. The scope of a compliance check may be affected by requirements for specific types of cases such as non-filer cases, bankruptcy cases, or other specific criteria. The Field Manager must approve all limited scope compliance checks.
    B. Considers all filing/ compliance requirements This quality element measures whether all filing and compliance requirements were considered. Limited scope compliance checks do not eliminate the need to rate this standard. There are still certain filing checks that should be made. Required filing checks should include verification of the required filings and compliance on the following returns:
    1. Employment tax

    2. Excise tax

    3. Withholding at the source

    4. Pension

    5. Bonds

    A BMFOL will list all of the taxpayer’s known filing requirements. Specialists should verify whether Forms 1099 were filed and issued when appropriate. All delinquent returns should be solicited (including information returns). This element also considers analyzing return information and, when warranted, the pick-up of related, prior, and subsequent year returns. These compliance checks should include checks for the filings of required information returns. Specialists are responsible for determining whether the taxpayer is subject to filing requirements and whether the forms were filed timely and accurately.
    C. Considers/ includes multi-period returns when appropriate This quality element measures whether multi-period employment tax returns were considered and included in the compliance check. The case file should document whether prior and subsequent year returns were considered for compliance check potential. Prior and subsequent period returns -- which contain the same or correlative issues as in the year(s) being checked for compliance -- should be considered and pursued when appropriate, and should lead the consideration of expanding the compliance check into an examination.

  3. Standard #3 COMPLIANCE CHECK TECHNIQUES Purpose: This standard measures whether the issues were checked for compliance to the extent necessary to substantially determine the filing/reporting compliance. The intensity of a compliance check is determined through interviews, and inspection and analysis of filed and information returns. This results in fully developing the facts and circumstances of a particular case so that relevant issues can be properly developed. A well-prepared interview, that is appropriately planned and executed, will provide the Specialist with an understanding of the government entity’s operations, filing requirements, and reporting compliance.

      Key Element Definition
    A. Asks questions that are appropriate for the compliance check This quality element measures whether adequate interviews were conducted. The following should be documented in the case file:
    • A detailed and pre-planned interview.

    • Interview notes regarding the operation of the taxpayer’s entity.

    • Information regarding documents filed with the Service.

    This quality element should consider all interviews conducted during the course of the compliance check.
    B. Uses subsequent Information Document Requests (IDR) properly This quality element measures whether subsequent IDRs were effectively and properly used. Only information necessary to perform the compliance check should be requested. All information requested from the taxpayer should be submitted on Form 4564, Information Document Request. The Specialist should use language that is clear and concise, include a response date, and issue follow-up IDRs, when necessary.
    C. Uses appropriate compliance check techniques This quality element measures whether appropriate compliance check techniques were employed. The Specialist should query all internal/external sources of information that could be used to verify the taxpayer’s compliance is at a satisfactory level.

  4. Standard #4 WORKPAPERS AND REPORTS OF FINDINGS Purpose: This standard measures the documentation of the compliance check trail, techniques used, procedures applied, and overall case activity. The documentation should include, but not be limited to, the procedures applied, compliance tests performed, information obtained and inspected, and conclusions reached during the compliance check. IRM 4.90.9 provides additional information about workpaper preparation. Discrepancy Reports are needed to summarize the written presentation of compliance check findings in terms of content, format and accuracy. All necessary information is contained in the closing letter so that there is a clear understanding of the basis for each compliance check discrepancy identified.

      Key Element Definition
    A. Prepares workpapers correctly This quality element measures whether workpapers were prepared correctly. The workpapers should be clear, concise, legible, initialed, labeled, dated, organized and indexed. They should document the legal authority, pre-compliance check analysis, and compliance check plan. Workpapers are very important. Workpapers serve to effectively explain the areas covered by the compliance check. Numerous internal customers may be accessing the file long after the Specialist has closed the case. The workpapers are considered to be organized and legible if review of the case is not hindered due to presentation.
    B. Documents the activity record adequately This quality element measures whether the activity record was adequately documented. The activity record (Form 9984 or similar form) should summarize the case history, including compliance check activities and delays encountered during the compliance check. The activity record must be used to reflect any action taken on the case, regardless of who is taking the action (e.g. Specialist, Field Manager, MAs, Reviewers, etc.). Documentation should include the date, time charged and a brief explanation of each activity or contact. It is important to accurately record activity as well as inactivity on cases (e.g., details, training, extended leave, etc.). Information recorded on Form 9984 includes, but is not limited, to:
    • Work performed prior to, during, and subsequent to taxpayer contact

    • Research activities

    • Date, time, and place of appointments, including time to travel to the appointments

    • Brief summaries of telephone conversations

    • Contacts with taxpayers and representatives

    • Causes for any delays in completing the compliance check

    • Collateral requests and referrals

    • Dates of requests for internal source information (i.e.: CFOL)

    • Field Manager involvement (informal discussions about case development and quality, on-the-job-visitations, workload reviews where the case was discussed, discussions with the representative or taxpayer, closed case reviews)

    • Report writing activity

    • Actions with respect to the statute of limitations dates

    • Date case closed to Field Manager

    • Closed case reviews by Field Manager

    • Subsequent actions (MAs, Reviewers, etc.)

    C. Adequately documents workpapers to show the steps completed, techniques applied, and conclusions reached This quality element measures whether workpapers adequately document the trail of action, techniques and conclusions. The workpapers should show:
    • The facts and procedures applied,

    • The compliance check techniques used,

    • Management involvement,

    • Applicable law, conclusions, and discrepancy noted.

    The workpapers should be logically presented so that anyone can easily determine what steps were taken. They are the written records that provide the principal support for the Specialist’s conclusions. Workpapers document the tests performed, procedures applied, and conclusions reached in the compliance check. They reflect the information gathered during the compliance check and support the results. Workpapers are to include only relevant information that add value to the case and make it easy to follow the trail of action. If superseded workpapers are included in the file, they must be clearly marked as such. Photocopies of taxpayer documents should not be included in the file unless they add material value.
    D. Completes internal forms properly This element measures whether internal forms were properly completed. These forms may be necessary for proper case processing:
    • Form 3198-A

    • Form 2363 (to change name, address, employment codes, etc.)

    • Form 3870 (to abate tax/penalties)

    • Form 2503 to be processed,

    • Forms 5596, 5666

    • Additional closing forms, if necessary

  5. Standard #5 TIMELINESS Purpose: This standard measures time usage and timeliness of actions throughout the compliance check process. This standard also measures the Specialist’s timely response to taxpayer communications, managerial involvement, and overall effectiveness of use of time relative to issue complexity. Timeliness is an essential element of a quality compliance check. This standard breaks down the compliance check process into its components and provides time frames in which each action should be initiated, followed up on, and/or completed. It is important to track delays in the compliance check process. In some cases, there are reasonable explanations, such as details to taxpayer service or training, causing a delay in the compliance check process. However, this is still a delay. It is important for trends to be tracked to properly respond to stakeholders such as Congress or taxpayer advocacy groups. The FSLG Quality Measurement System (QMS) uses a recommended national standard of time measurement. These standards are considered maximum allowable time frames when the case does not document reasons for a delay or extended periods of inactivity. All days are calendar days, except for responding to telephone calls, where business days are used.

    • 45 days to start the compliance check

    • 45 days between significant activities

    • 10 days for closures

    • 10 days for Field Manager to initial/date the case file after receipt from Specialist

    • 3 days to respond to telephone calls

    • 14 days to respond to correspondence

      Key Element Definition
    A. Completes compliance check within two contacts with taxpayer This quality element measures whether the compliance check was completed within two contacts with the taxpayer. A "contact" is defined as substantial communication with the taxpayer that addresses compliance issues. This contact could occur via correspondence, on-site visits, or telephone conversations.
    B. Starts the compliance check within 45 calendar days from first action This quality element measures whether the compliance check started within 45 calendar days from the date that the Specialist first took action to open the case. If the case involves a pre-contact analysis, then the time frame will start from that date. The Taxpayer, Representative, Specialist or Field Manager may cause delays. Extended or repeated delays in initiating the compliance check should be brought to the attention of the Field Manager to determine whether other action should be taken. To reduce burden on taxpayers, the Field Manager should consider actions such as reassignment when a Specialist will be on an extended detail, leave, etc. If the Field Manager does decide to reassign the case, the 45 days does not start over at the time the case is reassigned to the second Specialist.
    C. Takes a significant action taken within each 45 calendar day segment Specialists are expected to take significant "action" to move cases towards completion at least once every 45 days. All employees should make every effort to promptly process and close each taxpayer’s case and resolve each compliance check case in a manner that promotes voluntary compliance. The term "significant activity" includes any activity where the Specialist performed substantial work that moved the case towards closure. This does not include phone calls to cancel or change appointments. It does, however, include phone calls if issues were discussed that helped move the case towards closure.
    D. Closes the case timely This quality element measures whether the case was closed timely. The Specialist should submit the closed compliance check case to the Field Manager within 10 calendar days from the date the closing letter was issued. The Field Manager should submit the closed compliance check case to CPM within 10 calendar days of receipt from Specialist.
    E. Spends time on the compliance check that is commensurate with the complexity of the issues This quality element measures whether the time spent on the compliance check was commensurate with the complexity of the issues. Activity should be commensurate with the time charged to the case. Factors to consider in determining appropriate use of time are:
    • Issue complexity,

    • Taxpayer and/or representative cooperation,

    • Documentation in the case file to support time charged, and

    • Other problems that affect time applied on the case.

    F. Responds to or follows-up with taxpayer timely This quality element measures whether the Specialist responded timely to the taxpayer. Any actions taken (appointments, contacts, and other activities) should continually move the case towards closure. Follow-up on taxpayer correspondence and telephone calls from the taxpayer and/or representative, including information received in response to IDRs, should be promptly addressed. Follow-up on any taxpayer and/or representative correspondence should occur within 14 calendar days. Telephone calls should be returned within three business days.

  6. Standard #6 CUSTOMER RELATIONS/PROFESSIONALISM Purpose: This standard measures whether the Specialist promptly addressed the taxpayer’s needs, if all communications with the taxpayer were of a professional nature, and whether the taxpayer’s rights were fully respected. Establishing a good relationship with taxpayers is a priority for the Internal Revenue Service. The IRS has therefore made a pledge to provide service to each customer that will make filing easier, provide service to all customers who need help with returns or accounts, and provide prompt, professional, and helpful treatment to customers in cases where additional taxes may be due. Customer service means adopting business practices that make compliance easier and ensuring that tax laws are applied fairly, always keeping in mind the rights of the taxpayer. Truthful, helpful, and timely communication is critical to establishing an honest working relationship with the taxpayer. In our interactions with the taxpayer, we should ensure that our communications are both professional and courteous. The Specialist should work with the taxpayer’s representative when authorized to do so, and keep the taxpayer and/or representative informed throughout the process. Field Managers will become involved as it becomes necessary (or when asked to do so) to avoid any unnecessary delays or problems. The Specialist should always maintain the taxpayer’s rights as the top priority and ensure privacy and disclosure requirements are properly followed.

      Key Element Definition
    A. Addresses all taxpayer/ representative concerns regarding IRS issues This element measures the Specialist’s effective interaction with the taxpayer/representative in resolving overall questions concerning the IRS. One of the underlying principles of "One Stop Service" is that the Specialist will exhibit diligence in the resolution of all taxpayer requests for service, expressed or implied. The Specialist should recognize and fulfill any implied or expressed needs of the taxpayer. A taxpayer’s implied need is a problem noted by the Specialist during the compliance check. The Specialist should communicate this problem to the taxpayer and suggest possible solutions. For example, transcripts of the taxpayer’s account indicate a tentative deposit credit on a prior quarter’s account. The Specialist should notify the taxpayer of the situation and offer additional procedural support if necessary. An expressed need is a direct question from the taxpayer. An example of a taxpayer’s expressed need would be a question regarding the post-compliance check process. The case file should indicate any explanations or discussions between the taxpayer and the Specialist and the conclusion reached regarding the question.
    B. Maintains professional interactions, correspondence, reports, and workpapers This element measures whether all communications with the taxpayer were courteous and professional. Any written case file documentation, such as the Specialist’s activity record, correspondence, Information Document Request(s), interview notes, and workpapers should reflect a courteous and professional tone and appearance. The workpapers should only contain facts gathered, evidence considered, and pertinent conclusions reached. Inflammatory comments and assumptions must be avoided at all times. The correspondence in the case file should communicate the Specialist’s message in a clear and concise manner, using correct grammar, spelling, and punctuation. Machine-generated forms are preferred to handwritten or photocopied forms and documents. Terms used are specific, clear and easily understandable by the taxpayer. All correspondence and IDRs should include the required employee identification per RRA 98. "Required employee identification" is defined as Specialist’s name, telephone number and employee ID number.
    C. Discusses findings and recommendations with taxpayer/ representative This quality element measures whether the compliance check’s findings were discussed with the taxpayer or the representative. The Specialist should work with the taxpayer and, when authorized to do so, a representative, and keep them informed throughout the compliance check process. Once a Specialist has reached a conclusion on the issues addressed, the findings must be communicated to the taxpayers and/or the authorized representative. The file should also indicate whether the Specialist kept the taxpayer and/or representative informed of the findings throughout the compliance check as needed. Adequate case documentation is important in all of these circumstances. In addition, the case file should indicate whether oral or written issues and concerns were responded to in an appropriate and timely manner.
    D. Keeps taxpayer/ representative apprised of the status of the case throughout the compliance check This element measures whether the taxpayer or the representative was kept apprised of the status of the compliance check. The taxpayer/representative should be kept informed on the progress of the case. This can be accomplished by oral communication documented in the activity record and/or written correspondence sent to the taxpayer/representative. Although the Specialist is obligated to observe the authorized power of attorney, the taxpayer should be kept informed of all stages of the compliance check. Simultaneous communication with the taxpayer and representative will satisfy this requirement. The Specialist should send a copy of any correspondence, discussion briefs, reports and/or other material to the taxpayer at the same time it is sent to the representative. It should be noted that this is appropriate only for written communications. It is not necessary for the Specialist to inform the taxpayer of any oral communications held with the representative.
    E. Provides adequate consideration to the taxpayer's/ representative's scheduling/ time needs This quality element measures whether the taxpayer/representative’s scheduling/time needs were adequately considered. Specialists should attempt to schedule the initial appointment and any follow-up appointments at a time that is agreeable to the taxpayer and/or representative. This helps to reduce the number of rescheduled appointments and avoid case delays.
    F. Maintains appropriate managerial involvement This element measures whether there was appropriate managerial involvement throughout the compliance check process. Managerial involvement in the compliance check may be necessary at any time, from the planning stage to the final steps of closing cases. Field Managers should be involved when it becomes necessary (or when asked to do so) to avoid delays or problems. The Field Manager’s assistance will serve to promote good customer relations. Specialists should not wait for the compliance check to become a problem before requesting managerial assistance. Field Managers should anticipate and avoid problems. The Field Manager’s involvement should always be documented.
    G. Advises the taxpayer/ representative of all rights This element measures whether the taxpayer/representative were advised of all their rights. The Specialist must provide and briefly explain the taxpayer’s rights as outlined in Publication 1 (Your Rights as a Taxpayer), Notice 609 (Privacy Act), Publication 3114 (Compliance Check, Audit, Examination, or Review), and answer any questions the taxpayer or the authorized representative have regarding the notices or the Taxpayer Bill of Rights I and II. The activity record should document the Specialist’s discussion with the taxpayer or representative when the initial contact is made. If a compliance check is completed or is being expanded into an employment tax examination, the Specialist must provide the taxpayer/representative with written notification of this within 30 days of the initial visit. The publications and notices cited above are to be included with the written examination notification.
    H. Observes Privacy Act and disclosure laws This quality element measures whether all Privacy Act and disclosure laws were observed. The Declaration of Privacy Principles serves as an important guide to protect taxpayer privacy and safeguard confidential taxpayer information. The Privacy Principles can be found in IRM 11.3.14.7. The principles that are most applicable to the compliance check process are:
    • Personal information will only be collected if it is necessary for tax administration or other legally authorized purposes

    • Information will be collected, to the greatest extent practicable, directly from the customer to whom it relates. Information that is collected from third parties will be verified for accuracy with the subject, whenever possible, before final action is taken.

    .
    I. Validates and identifies all related entities with TIN and filing requirements and compares to IDRS; corrects any inconsistencies During the compliance check, the Specialist should identify all the Government Entity’s related entities, the TINs and the filing requirements. The Specialist should then compare this information to IDRS to validate the filing requirements on IDRS. The Specialist will ensure that inconsistencies are corrected on the Master File. If the filing requirements are current on IDRS, the customer will receive a benefit because erroneous notices will be prevented.


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