4.90.5  Case Selection Procedures

Manual Transmittal

November 20, 2013

Purpose

(1) This transmits a Table of Contents and text for IRM Part 4, Examining Process, Chapter 90, Federal State and Local Governments, Section 5, Case Selection Procedures.

Material Changes

(1) IRM 4.90.5.6.1 General Case Selection was changed to IRM 4.90.5.7 Classification Tools. The term "classification tools" more accurately reflects what is utilized to identify potential tax employment issues and generate compliance activities.

(2) IRM 4.90.5.6.3 Form 1099 Databases (Unmatchable Information Return Report (UIR)/Payer Master File/Backup Withholding Tapes) was removed since no longer applicable.

(3) IRM 4.90.5.6.7 Claims was moved to 4.90.5.6.10.

(4) IRM 4.90.5.6.8 218 Initiative Follow-up was removed since determined to be a project rather than a classification tool.

(5) IRM 4.90.5.6.9 Closing Agreement/Letter/Memorandum of Interest was removed since determined to be a project rather than a classification tool.

(6) IRM 4.90.5.7.6 Information Report Analysis System (IRAS) was added since this is a classification tool currently used by CPM.

(7) IRM 4.90.5.7.7 W2/W2G/1099/AP Analysis (W2/1099 Program) was added since this is a classification tool currently used by CPM.

(8) IRM 4.90.5.9 TE/GE Strategies was added. Although this is not a classification tool or a case selection criteria, they are strategies that FSLG will support and identify during compliance activities.

(9) Material from Interim Memo 04-1212-10 (FSLG Interim Memo #51) is incorporated.

(10) Editorial changes throughout.

Effect on Other Documents

This section supersedes IRM 4.90.5, Case Selection Procedures, dated May 1, 2010. Interim Memo 04-1212, dated December 10, 2012, is superseded.

Audience

This section contains instructions and guidance for FSLG Field Managers and CPM employees who are responsible for ordering and selecting cases and establishing case inventory controls and assembling case files for FSLG Compliance employees.

Effective Date

(11-20-2013)

Paul A. Marmolejo
Director, Federal State and Local Governments

4.90.5.1  (02-01-2013)
Overview

  1. This section discusses procedures for ordering casework, case selection criteria, and the preparation and establishment of case files for FSLG Specialists.

  2. Compliance and Program Management (CPM) will gather employment tax return information on government entities through the Return Information and Classification System (RICS) . This information, as well as other classification tools, will be used to identify entities for compliance checks and examinations.

  3. Other classification tools are discussed in IRM 4.90.5.7.

4.90.5.2  (07-31-2007)
General Classification Guidelines

  1. Classification is the process of determining whether a return should be selected for compliance activities, what issues should be the primary focus of the compliance activity, and the type of compliance activity that should be conducted.

  2. Compliance activities related to government entities can be politically sensitive. Therefore, the process for selection of cases for compliance activities will be structured to avoid the appearance of bias. To the greatest extent possible, the classification process should provide an internal control structure that includes:

    • Checks and balances to ensure that no one person has the authority and ability to initiate compliance activities, and

    • Objective case selection criteria that will be used by CPM when classifying cases for compliance activities.

  3. Compliance activity casework is defined as one-on-one contact with customers. Customer assistance, compliance checks, information return examinations, and employment tax return examinations are all considered compliance activity casework.

  4. All cases should be classified by CPM to ensure that adequate internal controls are maintained; the classification procedures that follow provide checks and balances to minimize the potential personal influence of any one employee over the initiation of compliance activities. An exception applies to customer assistance cases, which may be generated either within the group or may be recommended by CPM based on case selection criteria.

  5. CPM will provide various services to the Field Managers. These include:

    • Filling orders for cases

    • Recommending types of compliance action (customer assistance, compliance check, information return examination, or employment tax return examination)

    • Reviewing and classifying returns

    • Establishing cases on the Audit Information Management System (AIMS)

    • Establishing cases on the TE/GE Reporting Compliance Case Management System (RCCMS)

    • Processing claims

4.90.5.3  (07-31-2007)
Ordering Cases

  1. Field Managers should submit orders for compliance cases using the FSLG Workload Order Request (work order). The work order should provide the grade level, location by state, and any other specifications that the Field Manager wants CPM to consider when selecting case work, such as the number of each type of case (compliance check or examination). The work order will be sent directly to the Field Operations Manager for approval. Once approved, the work order will be forwarded to the CPM Group Manager.

  2. Turnaround time from the date of the work order to the date of delivery is projected to be 120 days plus mail time. The turnaround times are based on RICS and RCCMS. If CPM is unable to fill the order within the agreed time, CPM will notify the Field Manager and make alternative arrangements.

4.90.5.4  (05-31-2006)
Establishing Cases by Type

  1. The way a case is established by CPM will vary depending upon the type of compliance activity that is recommended.

4.90.5.4.1  (07-31-2007)
Customer Assistance Cases

  1. Customer assistance cases are established on RCCMS with an Activity Code 108 for the period(s) involved. Specialists will charge time on WebETS to activity code 108. Customer assistance cases are discussed in IRM 4.90.2.

4.90.5.4.2  (07-31-2007)
Compliance Check Cases

  1. Compliance checks are established on RCCMS using activity code 587 for the year to be checked. Specialists will charge time on WebETS to activity code 587. Compliance check cases are discussed in IRM 4.90.3.

4.90.5.4.3  (05-31-2006)
General Examinations

  1. For examinations, CPM will establish all appropriate returns on AIMS and RCCMS. For most cases, this will include all quarters of Forms 941 for the most current year, but it may vary for claims and referrals.

4.90.5.5  (12-01-2013)
Case Files

  1. CPM will prepare case files before cases are sent to the field. These case files will include information that is helpful to the Field Manager and Specialist. Although the information CPM provides will vary based on the type of compliance activity that is recommended, case files will generally include the following:

    1. RICS returns for the quarters under audit. This applies only to general examinations.

    2. Background information used to determine that a compliance activity is necessary.

    3. Information that CPM possesses relating to Form SS-8 Determinations, customer assistance case files, compliance check case files, closing agreements, referrals, etc.

    4. Integrated Data Retrieval System (IDRS) files, including AMDISA (to verify that there is no current examination), INOLES (entity information), and any other IDRS prints that CPM believes will assist the Specialist based on the type of compliance activity recommended.

    5. The Information Returns Processing Transcript Requests (IRPTR) for the tax year(s) under examination.

    6. CPM will import documents from a prior RCCMS compliance activity into the new compliance activity. When the prior activity was a customer assistance case or a compliance check case, CPM will generally import all case file documents. When a prior examination case is identified, the documents imported will be limited due to the number and size of documents. Documents imported from prior examination activities will normally include the Revenue Agent Reports (i.e. Forms 2504, 2504-WC, 4666, 4668, 886A(s), etc.), Form(s) 5701, Form 4318, Form 9984, opening interview notes if easily identifiable, FSLG Case Selection Data Form, and other work papers that the classifiers identify as relevant. Additional documents from prior examinations can be requested by the Specialist if necessary.

4.90.5.6  (12-01-2013)
Workload Selection Process

  1. The FSLG Workload Selection Process is designed to use a data driven approach to identify the best compliance check and examination case work for our field staff by combining information from multiple sources. (2) These sources include but are not limited to; compiled analysis of compliance activity results, employee feedback captured on the FSLG Case Data Form, local and national issue trends, special projects identified and referrals.

4.90.5.7  (12-01-2013)
Classification Tools

  1. Classification tools assist in identifying entities for compliance activities that meet any one of the various case selection criteria.

  2. Classification tools consists of databases, reports, referrals, etc. The following are examples of classification tools used by CPM staff:

    1. RICS

    2. CAWR

    3. Form SS-8 Determinations

    4. Internal/External Leads and Referrals

    5. Information Report Analysis System (IRAS)

    6. W2/W2G/1099/AP Analysis Program (W2/1099 Program)

    7. Federal Agency Delinquent Reports

    8. Internal/External Databases

    9. IDRS Research

4.90.5.7.1  (12-01-2013)
RICS

  1. RICS is a system that provides:

    1. Users access to return and filer information related to the filing and processing of Employee Plan (EP), Exempt Organization (EO), and Government Entity (GE) forms;

    2. Functions that support the FSLG examination and research program; and

    3. Facilitates the selection of FSLG examination by generating information through queries that suggest a potential for noncompliance.

  2. RICS provides access to:

    • Return information

    • Entity information

    • Filer information

    • Other administrative and supportive information, such as the return received date, the statute date, and return selection information

4.90.5.7.2  (12-01-2013)
CAWR

  1. CAWR is a BMF program matching the totals from Forms W-3, Forms W-2 and Forms 941, 943, or 944. BMF generates a listing of out-of-balance cases . Notification of the out-of-balance condition (mismatch) is sent to the taxpayer.

  2. Cases selected using this data will consist primarily of compliance checks. Customer assistance and information return examinations may also apply in certain circumstances.

4.90.5.7.3  (12-01-2013)
Form SS-8 Determinations

  1. CPM will receive Form SS-8 determination case files for government entities. Cases received will only include cases where an SS-8 Unit at the Campus determined that an individual or class of workers are employees and not independent contractors.

4.90.5.7.4  (12-01-2013)
Internal/External Leads and Referrals

  1. Field Managers may submit leads to CPM by submitting Form 5666, TEGE Referral Information Report. The leads may be newspaper articles or third-party information on a government entity. Referrals may be received from other operating divisions and functions (i.e. Governmental Liaison and Disclosure, Taxpayer Advocate Service, Wage and Investment, Small Business/Small Entities, TEGE Counsel, Whistleblower Office, etc.). The leads and referrals will be reviewed by a Referral Classification Panel in FSLG consisting of one Field Manager and two members of CPM to determine if a compliance activity is warranted. For more information, see IRM 4.90.6, Referrals.

4.90.5.7.5  (12-01-2013)
Information Report Analysis System (IRAS)

  1. The program is a user-friendly menu driven Access database that imports and analyze many types of information returns including Form(s) 1042-S, 1099-DIV, 1099-INT, 1099-MISC, 1099-OID, 8805 and W-2. CPM uses the program to identify employment tax issues related to information return data.

4.90.5.7.6  (12-01-2013)
W2/W2G/1099/AP Analysis Program (W2/1099 Program)

  1. This is a menu driven Access database that automates the analysis of Forms W2, W2G, 1099-MISC, and Accounts Payable data. CPM uses the program to identify employment tax issues related to information return data.

4.90.5.7.7  (12-01-2013)
Federal Agency Reports

  1. CPM receives a monthly collection status report from the Chief Financial Office entitled "Delinquent Federal Agency Report" . It provides a listing of Federal agencies with Tax Delinquent Accounts or Taxpayer Delinquent Investigation accounts which reflect delinquent returns and unpaid balances. All entities listed are in the initial phase of the collection process. This report is used to identify entities that may have potential compliance issues.

4.90.5.7.8  (12-01-2013)
Internal/External Databases/Systems

  1. CPM may use internal and external databases to assist in classifying work or generating work for the field groups.

  2. Internal databases include, but are not limited to the following:

    • RICS

    • IDRS

    • Currency Banking and Retrieval System (CBRS)

  3. External databases are databases available from outside sources. Examples of external databases include, but are not limited, to the following:

    • Federal Audit Clearing House – Image Management System (IMS)

    • Public Access to Court Electronic Records (PACER)

    • LexisNexis/Accurint

4.90.5.8  (12-01-2013)
Compliance Project Guidelines and Procedures

  1. FSLG will deploy the strategic planning process to select unique projects for inclusion in each year's work plan. Projects are distinguishable from general casework by their targeted purpose. Projects serve several purposes:

    • Address areas of known non-compliance through enforcement, guidance, or education

    • Gather information about an emerging issue to develop a strategy to address the issue

    • Measure the overall compliance level of the segment or customer group

    • Answer specific questions about a market segment

4.90.5.8.1  (12-01-2013)
Compliance Projects

  1. A compliance project is designed to address an identified issue, which may or may not be associated with a particular market segment. This type of project is intended to correct a known area of non-compliance through examinations, compliance checks, or educational programs. Those that involve examinations typically include returns screened for the presence of the targeted issue.

  2. The nature of the issue and information available on the issue will frame how the project is designed. The issue may be one that is directly identifiable in an inspection of a return. RICS or other internal databases will be used for all compliance projects that base selection on return information or generic population criteria. Other sources and methods will be utilized when they are appropriate. Outside sources may include other operating divisions, other governmental agencies, the Internet, and external stakeholders.

4.90.5.8.2  (12-01-2013)
Market Segment Studies

  1. A market segment study is intended to establish an accurate profile of the FSLG population. This profile will include a risk assessment of non-compliance, identification of educational and outreach needs, and assist planning for future compliance. These studies are typically used to determine a compliance baseline and to develop recommendations to address identified areas of non-compliance. The baseline compliance information will be used to consider how best to address the issue (outreach, compliance check, or examination). The entities selected for the study are generally chosen using statistical sampling techniques. Success is measured by completion of the project and by arriving at an accurate determination of the compliance level, rather than traditional audit result measurements.

4.90.5.8.3  (12-01-2013)
Procedures

  1. There are three phases for Compliance Projects or Market Segment Studies:

    1. Development Phase

    2. Implementation Phase

    3. Analysis and Closure Phase

4.90.5.8.3.1  (12-01-2013)
Development Phase

  1. The development phase begins the date the project is assigned. It ends when the project is ready for implementation (e.g. when examination cases are sent to the field, compliance check letters are mailed, the project is abandoned, etc.) As part of this phase, CPM will prepare a project proposal for approval of the Director. For this proposal, CPM should consider all of the following actions:

    1. Prepare a preliminary action plan. The plan represents an outline of the project. It lists all of the generic steps to develop and implement the project.

    2. Gather information from available sources, including operating division databases, TE/GE management reports, IRS Statistics of Income, publications and trade journals, other government agencies, the IRS intranet site, the Internet, advisory and oversight groups, and external stakeholders. The development of the methodology can include examinations, compliance checks, educational initiatives, developing training material, or drafting technical guidance to both the field and the public. This information should be used to develop and modify the project methodology.

    3. Estimate resource needs, including hours to be expended by employee type.

    4. If necessary, request technical assistance from other operating divisions. The request should include the type of expertise needed , the length of the assignment, and estimated hours needed.

    5. Develop the RICS queries necessary to identify the entities subject to potential selection in the project. Samples should be taken from the largest possible population, preferably nationwide. CPM may also determine that a stratified sample may be more appropriate. Prior to pulling project returns and assigning them to the groups, CPM should pull a small sample of the returns in order to validate the developed criteria. TE/GE Research and Analysis may be consulted for assistance with RICS in questions including defining the population, sample size, drawing random samples, and related issues.

    6. Create an action plan. At a minimum, the following steps should be included:

        • A projected start date for each phase (development, implementation, analysis)
       • A projected completion date for each phase
        • A short description of each necessary action; each action should include the responsible person along with estimated starting/completion dates for each action

    7. Prepare the project proposal and obtain the FSLG Director's approval.

    8. Identify the type of data to be collected and determine how project data will be analyzed. CPM will consider methods for collecting compliance and demographic data, based on available data sources, resource limitations, and external stakeholder input. For market segment studies, the team should collect as much information as necessary to provide a complete profile of the market segment.

    9. Development of check sheet questions or questionnaires.

    10. Survey non-examined closures. Non-examined closures have great impact on a statistical sample. Generally, the FSLG Director should approve all non-examined closures.

4.90.5.8.3.2  (12-01-2013)
Implementation Phase

  1. The implementation phase begins on the date the project activities commence and ends when the core activities conclude. CPM should take the following actions, as necessary:

    1. Establish controls, build case files, and assign cases to groups.

    2. Prepare a project guidance memorandum on working the project cases.

    3. Arrange for qualified individuals to provide any needed specialized training.

    4. Maintain contact with Field Managers throughout the project.

    5. Provide full technical and procedural support to Specialists for the life of the project.

    6. Involve Field Managers in monitoring project inventory. The Field Managers must be involved in issue development and case processing to ensure timely case closure.

    7. Input data as received and conduct an initial analysis. Preliminary results could indicate that a project needs to be expanded, modified, or discontinued. Project modification or termination requires the FSLG Director's approval.

    8. Maintain the following historical project records:

       • Project proposal (original and amended)
        • The original RICS query describing the population/sample
        • Listing of project cases (examinations or compliance checks)
       • Project log, including actions taken, meeting minutes, action plans
        • Check sheets and instructions provided to Specialists
        • Internal correspondence to Field Managers and Specialists (including E-mail and memoranda)
       • Monitoring reports
        • Final approved executive summary, final report, and communication plan

4.90.5.8.3.3  (12-01-2013)
Analysis and Closure Phase

  1. This phase begins when all data has been collected. The beginning date may vary depending on the project type: when all of the check sheets are received, when all examinations are closed, when subsequent returns are pulled to begin compliance analysis, or when the response to requested actions are completed. CPM should take the following actions, as necessary:

    1. Analyze results and make recommendations.

    2. Develop the project closure strategy. The strategy is dependent on the facts, circumstances, and project analysis. CPM will decide whether to continue, discontinue, or make the project part of the annual work plan as regularly occurring casework.

    3. Analyze the results, prepare the report and submit when substantially all cases have been closed, but no later than six months after the project completion date. If necessary, an interim report may be issued. The report should address the objectives, data gathering methods, data analysis, limitations, deviations, findings, impact on resources, project critique, and recommendations. The report should not include any taxpayer information, law enforcement criteria and examination tolerances. Recommendations may call for a variety of activities such as:

        • Issuing guidance
        • Educational letters
        • Follow-up examinations in future years
       • Follow-up studies to measure compliance
       • Proposing legislative changes
       • Training
        • Converting the project to regular casework
        • Recommending no future action if issues were not found

    4. Submit the final report to the FSLG Director for approval.

4.90.5.9  (12-01-2013)
TE/GE Strategies

  1. FSLG supports major TE/GE strategies through compliance activities. During the classification process, CPM will consider the following TE/GE Strategies for case selection criteria or special projects:

    1. Federal Agency Initiative

    2. Large Case Initiative

    3. Abusive Tax Avoidance Transactions (ATAT)

    4. Fraud

    5. International

4.90.5.10  (12-01-2013)
Claims

  1. Claims are a source of work and are considered priority work. They are processed within 30 days of receipt in CPM. Generally, CPM receives claims from the Campuses that cannot be addressed at the Campus level.

  2. CPM will screen the claim to determine whether it can be accepted as filed or will be forwarded to the field for disallowance or further development. For additional information, see IRM 4.90.7, Claims.


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