4.90.8  Examination Quality Measurement Standards

Manual Transmittal

June 15, 2015


(1) This transmits revised IRM 4.90.8, Federal State and Local Governments, Examination Quality Measurement Standards.

Material Changes

(1) Made minor editorial changes and corrections from December 13, 2013 revision.

(2) Deleted Standard 1, Element D. Letters and Memoranda of Understanding are no longer considered critical to planning.

(3) Adjusted Standard 1, Element J. Eliminated list of methods.

(4) Adjusted Standard 6, Element C, Removed restriction on offering CSP to 218 covered entities and removed federal employers from CSP eligibility.

(5) Adjusted Standard 8, Element B. Eliminated CSP references. Standard 6, Element C fully considers CSP.

(6) Revised the manual to comply with the Plain Writing Act of 2010. For additional information, see http://www.plainlanguage.gov. Replaced examinations with audits.

(7) Revised the manual to comply with Document 12835, IRM Style Guide. This includes adding titles to citations, adding verbal descriptive narratives to tables, and proper use of capitalization.

Effect on Other Documents

This supersedes IRM 4.90.8, Federal State and Local Governments, Examination Quality Measurement Standards, dated December 13, 2013.


Tax Exempt and Government Entities
Federal, State and Local Governments

Effective Date


Paul A. Marmolejo
Director, Federal State and Local Governments
Tax Exempt and Government Entities  (03-01-2011)

  1. This section discusses the quality measurement standards for audits. These standards identify specific opportunities for improvement in quality and target root causes of deficiencies. They address each of the three Balanced Measures and were designed in conjunction with the existing Employment Tax Standards.  (06-15-2015)

  1. Standard #1: Audit Planning Purpose: This standard measures whether specialists took all needed steps to set the groundwork for a complete audit. Did the specialist:

    • Review internal documents?

    • Identify significant potential issues in the pre-plan ?

    • Prepare initial interview questions?

    • Consider Section 530 of the Revenue Act of 1978 and collectability?

    • Make contact with the taxpayer regarding appointments and the availability of records?

    # Key Element Definition
    A. Queries appropriate internal information sources This quality element measures whether internal information sources were adequately queried. To meet the element:
        Query and evaluate all relevant internal sources of information to obtain needed taxpayer background information.
    Use a pre-audit workpaper to document these actions and set the initial scope of the audit.
    If no return has been filed or is available, pre-audit activities are still applicable.
    B. Considers Section 530 This quality element measures whether Section 530 was considered in the audit plan. Section 1122 of the Small Business Job Protection Act of 1996 (HR 3448) clarifies that the first step in any case involving whether the entity has employment tax obligations as an employer is to determine whether the entity meets the requirements of Section 530. To meet the element:
        Address whether Section 530 is applicable.
    Give Pub 1976, Do you Qualify for Relief under Section 530?, to the taxpayer.


    Section 530 doesn't apply to Federal agencies.

    C. Considers collectability, if applicable This quality element measures whether collectability was considered. To meet the element:
        Consider financial activities because not all taxpayers lacking the means to satisfy additional tax liabilities will be identified.
    Be alert for indications that collectability may be a factor to consider.
    Transcripts of accounts may also indicate collectability issues.
    If collectability is an issue in an assigned case, alert the field manager as soon as possible.
        Field managers make the final determination as to whether to survey the case or to limit the scope/depth of an audit.
    You may survey a tax return may due to an absolutely uncollectable assessment or subject it to a limited scope audit where there is lack of collectability.
    However, don't survey returns based solely on collectability if a limited audit has the potential for developing a lead to other noncompliant taxpayers.
    D. Reserved Reserved
    E. Plans audit based on available data This quality element measures whether the audit plan was based on all available data. To meet the element:
        During the initial planning stages of an audit, improve the overall quality of the audit by considering data from all available sources.
    Fully review Information from any referrals contained in the file.
    Plan the appropriate audit steps to determine the validity of that information.
    If any market segment data is available, obtain and review the data and plan the audit accordingly.
    Take into consideration guidance given regarding issues, techniques, etc.
    F. Follows Power of Attorney processing requirements This quality element measures whether the Power of Attorney requirements were followed. To meet the element:
        When a Power of Attorney is representing the taxpayer, ensure the proper execution of Form 2848 or Form 8821.


    Service personnel are prohibited from disclosing tax information of a confidential nature to any unauthorized person.

    G. Furnishes and explains initial required letters and publications This quality element measures whether all required letters and publications were furnished and adequately explained to the taxpayer.
    RRA 98 requires that the following information be present in the initial appointment/confirmation letter mailed to taxpayers:
    • Correspondence showing Specialist’s name, telephone number, and employee ID number

    • Pub 1Your Rights as a Taxpayer and Notice 609 Privacy Act

    To meet the element:
        Consider the optional use of Letter 3850-X, Initial Examination Appointment-Prior Telephone Contact, or Letter 3850-Y, Examination Appointment - Failed Telephone Contact.
    The initial interview is an important part of the audit process. Spend the first few minutes explaining the process and the taxpayer’s rights.
    Confirm the taxpayer’s receipt of Pub 1 and note this specifically in the workpapers.


    Pub 1 fulfills the requirement in IRC 7521(b) that taxpayers be informed of the process and their rights under such process at or before the initial interview.

    If the taxpayer hasn't received Pub 1, furnish the publication before proceeding with the initial interview.
    Several other provisions in IRC 7521 affect taxpayer interviews. RRA 98, Section 3417 added IRC 7602(c), which affects the audit planning.
    If you determine that there may be a need to contact any third parties to complete the audit, provide the taxpayer with a copy of Pub 1 before making any third-party contact.
    Document use of Form 12180, Third Party Contact Authorization Form and/or use of Form 12175, Third Party Contact Report Form, in the case file (or retain a copy in the file). Forms 12180 and 12175 apply to contacting third parties, including those contacts made through summons procedures.
    H. Issues initial request for information that is clear and concise This quality element measures whether the initial Information Document Request (IDR) was clear and concise. To meet the element:
    During the initial contact, request the information and/or documents needed to perform the audit.
    Prepare the IDR and mail it to the taxpayer with the initial contact letter.
    You may discuss the IDR with the taxpayer during the initial telephone call.
    Include in your IDR requests for documents needed to support issues determined during the pre-contact analysis (pre-plan) of the audit, as well as items identified during the initial telephone contact with the taxpayer.
    List in your IDR the specific records, information, and documents the taxpayer should have available at the initial appointment.
    Phrase your IDR in terms that are understandable to the taxpayer and specify the time period applicable to the requested records.
    Always include in the IDR the date the taxpayer is to submit the requested information or indicate that the taxpayer make the records available at the initial appointment.
    You may have access to pro forma requests that include a list of items commonly requested for audits. Use of pro forma requests is acceptable, however, modify/tailor the pro forma IDR to the particular returns being audited.
    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 returns under audit.
    I. Shares audit plan with the customer/ representative This quality element measures whether the audit plan was shared with the taxpayer/representative. To meet the element:
        When you make initial contact with the taxpayer, by telephone or by mail, tell the taxpayer which returns you are auditing and the tax period(s) involved.
    Generally discuss the issues that were selected in the pre-plan.
    Make the taxpayer aware that additional issues may arise depending on the information obtained during the audit.
    As soon as you identify additional issues, notify the taxpayer/representative to avoid any unneeded delays in the time span of the audit process. Sharing issues with the taxpayer will decrease audit time and let the taxpayer know the purpose of the audit.
    J. Determines correct statute expiration date This quality element measures whether proper steps were taken to determine the correct statute expiration date. To meet the element:
        Before initial contact with the taxpayer, verify the correct statute expiration date.
  2. Standard #2: Audit Scope Purpose: This standard measures whether the specialist conducted the audit within the appropriate audit scope. This standard also measures whether the specialist considered and included in the audit:

    • Worker classification

    • All filing/compliance requirements

    • All related returns

    • Large, unusual and questionable (LUQ) items

    • All multi-period returns

    # Key Element Definition
    A. Considers all "large, unusual, and questionable (LUQ)" items This quality element measures whether all LUQ items were considered. To meet the element:
      Consider all LUQ income, deduction or credit items --


    Accounts with unusual titles.


    Accounts with unusual amounts.


    Accounts with large unexplained differences between beginning and ending balances.

    Determine which LUQs need to be addressed.
    Provide explanations in the workpapers for any LUQ items appearing which you didn't audit.
    If needing assistance, discuss the matter with your field manager.
    B. Maintains appropriate scope This quality element measures whether the specialist limited or expanded the scope of the audit to the point that all significant items were properly considered for determining the correct tax liability. The scope of an audit may be affected by requirements for specific types of cases such as non-filers, bankruptcy, or other specific criteria.
    Field manager approval is needed and should be documented in the case file for all limited scope audits. See IRM, Scope of Employment Tax Examination.
    C. Considers/ includes multi-period returns in the audit, where warranted This quality element measures whether multi-period employment tax returns were considered and included in the audit. To meet this element:
      Document in the case file whether you considered prior and subsequent period returns for audit potential.
    Consider and pursue prior and subsequent period returns which contain the same or correlative issues as in the year(s) audited when appropriate.
    In addition, consider any adjustments in favor of the taxpayer.
    D. Considers all filing/ compliance requirements This quality element measures whether all filing and compliance requirements were considered. Limited scope audits don't eliminate the need to rate this standard. There are still certain filing checks to conduct. To meet this element:
        Include verification in required filing checks of the required filings and compliance on the following returns:
    1. Employment tax

    2. Excise tax

    3. Withholding at the source

    4. Pension plans

    5. Bonds

    6. International issues

    An INOLES will list all of the taxpayer’s known filing requirements.
    Verify whether the taxpayer filed and issued information returns, such as Forms 1099 and 1042-S, when appropriate.
    Solicit all delinquent returns (including information returns).
    This element also considers analyzing return information and, when warranted, the pick-up of related, prior, and subsequent year returns. These audits, including limited scope audits, should include checks for the filings of required information returns.
    E. Considers classification of workers This element measures whether worker classification was considered. For federal tax purposes, there are two worker classifications. A worker is either :
    • An employee of the service recipient, or

    • An independent contractor.

    To meet this element:
        In employment tax audits, always consider worker classification. This is an important issue and has the potential to change the tax responsibilities for the entity and the workers.
  3. Standard #3: Probes For Unreported Employment Compensation, Withholding, And Taxable Fringe Benefit Issues Purpose: This standard measures whether the specialist applied and completed appropriate probes to establish that the taxpayer reported substantially all taxable compensation items. In addition, this standard measures whether the specialist properly considered fringe benefits.

    # Key Element Definition
    A. Uses appropriate probes for the type of Government Entity under audit This quality element measures whether the specialist considered employment tax returns and related returns as a balanced unit in determining whether or not the taxpayer reported all wages, employment taxes, and withholding. To meet this element:
    • The type of records maintained by the taxpayer,

    • The information gathered during the interview, and

    • Internal controls.

    Investigate the existence of cash and non-cash payments for services.
    Evaluate internal control systems to assist in establishing the accuracy and reliability of the taxpayer's books and records. Additionally, evaluating internal controls should be part of the decision-making process when selecting the appropriate audit techniques.
    Document whether you evaluated internal controls.
    B. Completes probes appropriately Techniques used to complete this element will vary with the nature and complexity of the books and records. The analysis may include reviewing journals, ledgers and unusual adjusting entries. Compensation probes may include in-depth analysis of information return documents reconciled to cash disbursements. A limited analysis might include inspecting prior year returns, and reviewing required filing checks and specific item methods to develop and resolve questionable unreported compensation issues. Probing for these payments should also include a thorough initial interview and follow up interview if needed.
    There is no "magic list" to adequately analyze the taxpayer's level of compensation. However, there are basic aspects of compensation to consider.
    • The taxpayer’s market segment practices -- Has the reported activity been subject to market segment compensation issues?

    • The taxpayer’s financial history -- Information regarding asset acquisitions and dispositions, expansions and contractions of operations, and three-year comparisons can help to identify patterns, trends, or long term compensation issues.

    • The taxpayer’s economic environment -- The unique characteristics of the taxpayer’s market segment should be considered. The taxpayer’s compensation or labor expense may not be consistent with comparable government entities in the area. It is important that the Specialist understand operations, technical issues, and typical patterns of non-compliance specific to the market segment.

    • The taxpayer’s potential for unreported compensation payments (i.e. non-qualified deferred compensation, mis-classified costs, etc.).

    The key steps in the analysis of a taxpayer’s level of compensation activity are built upon a universe of financial information about the taxpayer. What is significant in one analysis may not be valuable in another. Compensation inquiry is dependent upon the specific facts and circumstances of each audit.
    C. Completes probes for taxable fringe benefit issues This element measures whether probes were completed in order to identify any taxable fringe benefit issues. The definition of wages, in addition to salary, includes other benefits, or "perks" , offered to employees in exchange for services rendered. These benefits or items, paid in addition to the employees’ regular salaries, may cause the greatest audit challenge during an employment tax audit. Fringe benefits may be a significant form of compensation. To meet this element:
        In each audit, include a review of the taxpayer’s policies and procedures regarding fringe benefits. See IRM, Fringe Benefits.
  4. Standard #4: Audit Techniques Purpose: This standard measures whether the specialist completed the issues audited to the extent needed to provide sufficient information to determine the correct tax liability. The depth of an audit is determined through inspection, inquiry, interviews, observation, and analysis of appropriate documents, ledgers, journals, oral testimony, etc. This is to ensure full development of the relevant facts concerning issues of merit. Interviews provide information not available from other documents. A properly planned and executed interview will provide an understanding of the taxpayer’s financial history, operations, and accounting records. Consult specialists from outside FSLG when needing expertise to ensure proper development of unique or complex issues.

    # Key Element Definition
    A. Conducts appropriate interviews This quality element measures whether appropriate interviews were conducted. To meet this element:
      Your case file should reflect in-depth and planned interviews throughout the audit.
    Your questions should be sufficient to give a clear understanding of the taxpayer’s operations.
    Secure information on large, unusual or questionable (LUQ) items.
    Ask follow-up questions to clarify questionable areas.
    The person interviewed should have sufficient knowledge and be able to answer questions in a factual context for the area(s) of interest.
    Develop information to the fullest extent needed in light of the type of entity/return and facts and circumstances involved.
    Use interviews to obtain information needed to make informed judgments about the scope and depth of the audit and correctly resolve issues.
    Use interviews to develop information and establish evidence.
    Your case file should record that you conducted an appropriate interview.


    Limiting the scope of an audit doesn't generally eliminate the need to conduct an interview.

    B. Requests only needed information This quality element measures whether only needed information was requested. To meet this element:
        To decrease the taxpayer’s burden, request only the relevant and needed information to resolve the issue(s) or areas under consideration. Requests for information should bear a close relationship to your audit plan.
    Don't ask for documents, and don't ask questions, unless there is a direct need for the information.
    C. Issues follow-up Information Document Requests that are clear and concise This quality element measures whether follow-up requests were effectively and properly used. To meet this element:
      To decrease the taxpayer’s burden, write the IDR in a clear, concise, and legible manner.
    Include the method, due date and place for receiving information.
    D. Uses appropriate audit techniques This quality element measures whether the specialist:
    • Applied appropriate audit techniques based on the taxpayer’s responses to the interview questions and the analysis of the taxpayer’s books and records.

    • Used proper sampling techniques.

    • Requested proper source documents.

    • Used alternative methods to obtain information when appropriate.

    To meet this element:
        If you determine that the assistance of a Computer Audit Specialist (CAS) is needed, request CAS assistance early in the audit process.
    During an audit, you may need to obtain information that isn't readily available from the taxpayer. Therefore, consider third-party contacts as an appropriate audit technique.
    Consider using summons procedures to obtain information that the taxpayer isn't willing to provide.
    Discuss this action with and obtain the Field Manager's approval.
    E. Develops identified issues properly This quality element measures whether issues were properly developed. The case file should indicate that the specialist gathered pertinent facts and data. The following key aspects of developed issues include:
    • Gathering only relevant information for identified issues

    • Not over or under developing issues

    • Considering taxpayer’s oral testimony as appropriate

    • Fully documenting steps taken to reach conclusions. Determining whether an issue is fully developed is difficult without complete documentation.

    F. Recognizes and properly develops fraud indicators This quality element measures whether fraud indicators were recognized and properly developed. This key quality element addresses all aspects of fraud. However, computation of the fraud penalty is considered separately under element 5E (computes tax, penalties and interest correctly) The "badges of fraud" can be divided into two categories: affirmative indicators and affirmative acts. Further development of these badges assists the specialist to establish firm indications of fraud. To meet this element:
        When you uncover initial badges of fraud, initiate a discussion with the field manager and develop an action plan as soon as possible to document firm indications of fraud.
    The plan should be a joint effort of the specialist, field manager, and when needed, the Fraud Coordinator. Common employment tax fraud cases result from:
    • Willful failure to file a return (IRC 7203),

    • Willful failure to pay tax owed (IRC 7203),

    • Fraud and false statements (IRC 7206), or

    • Failure to collect and deposit taxes into a trust fund account (IRC 7512& IRC 7215).

    IRM 4.90.15, FSLG Fraud Procedures, provides additional guidance on fraud.
  5. Standard #5: Workpapers And Reports Of Findings Purpose: This standard measures the documentation of the audit trail, audit techniques used, procedures applied, and overall case activity. The documentation should include, but not be limited to, the procedures applied, audit tests performed, information obtained, and conclusions reached during the audit. Workpapers provide support for preparing a concise, accurate, and professional report. IRM 4.90.9, Procedures, Workpapers and Report Writing, provides additional information about workpaper preparation. Reports summarize the written presentation of audit findings in terms of content, format and accuracy. The report contains all necessary information so that there is a clear understanding of the reason for each audit adjustment.

    # Key Element Definition
    A. Prepares workpapers that are legible, concise and organized This quality element measures whether workpapers were correctly prepared. The workpapers should be clear, concise, and legible. To meet this element:
      Appropriately label every workpaper, including those received from the taxpayer.
    Include the date, tax year, and your name/initials.
    Name electronic files according to the FSLG Naming Convention. See IRM Exhibit 4.90.12-3, FSLG Naming Convention for RCCMS.
    Organize and index the workpapers so they easily tie into Form 4318-A, Continuation Sheet for Form 4318, Examination Workpapers Index.
    Workpapers may include correspondence with the taxpayer, supporting documents, and IDRs. Workpapers are very important. Workpapers serve to effectively explain the areas covered by the audit. Numerous internal customers may be accessing the file long after you close the case.
    Organize, number and label the workpapers to easily find information.
    We consider the workpapers to be organized and legible if review of the case isn't hindered due to the quality of the presentation.
    B. Documents Activity Record This quality element measures whether the activity record was appropriately documented. The activity record should summarize the case history, including audit activities and delays encountered during the audit. To meet this element:
        Use the activity record to reflect any action taken on the case, regardless of who is taking the action (e.g. specialist, field manager, management assistants, reviewers, etc.).
    Include the date, time charged and a brief explanation of each activity or contact.
    Accurately record activity as well as inactivity on cases (e.g., details, training, extended leave, etc.). Information recorded includes, but isn't limited, to:
    • Work performed before, during, and after taxpayer contact

    • Research activities

    • Date, time, and place of appointments

    • Date that a tour of the site occurred

    • Brief summaries of telephone conversations

    • Contacts with taxpayers, representatives and third parties

    • Causes for any delays in completing the audit

    • Collateral requests and referrals

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

    • Field manager involvement (informal discussions about case development and quality, in-process case reviews, on-the-job-visitations, workload reviews, discussions with the representative or taxpayer, closed case reviews)

    • Report writing activity

    • Actions with respect to statute dates

    • Date case closed to field manager

    • Subsequent actions (management assistants, reviewers, etc.)

    C. Adequately documents workpapers to show the audit trail, research conducted, techniques applied, and conclusions reached This quality element measures whether the audit trail, research results, techniques and conclusions in the workpapers were adequately documented. To meet this element:
      Show the facts, procedures applied, audit techniques used, management involvement, applicable law, conclusions, and proposed adjustments in your workpapers.
    Logically present your workpapers so that anyone can easily determine what audit steps you took. They are the written records that provide the support for your conclusions and/or report. Workpapers document the tests performed, procedures applied, and conclusions reached in the audit. They reflect the information gathered during the audit and support the results.
    Include only relevant information that adds value to the case and makes it easy to follow the audit trail. If including superseded workpapers in the file, clearly mark them as such.
    Don't include taxpayer documents in the file unless they add material value. Workpaper adjustments must agree with Form 4318-A and audit reports.
    D. Prepares report/ closing letter that appropriately reflects conclusions in workpapers This quality element measures whether applicable report writing procedures were followed. The definition of "audit report" includes all documents representing audit results including closing letters. To meet this element:
        Present in the report all information needed to ensure clear understanding of the adjustments and demonstrate how you computed the tax liability.
    If you write the report in a form that distracts from the content, creates ambiguities as to the meaning, or raises credibility issues, then you hinder its quality or usefulness. Use correct grammar.
    All aspects of the no-change procedures, including issuance of a no-change report to a representative when the taxpayer isn't present, are part of this key quality element.
    Properly prepare, sign, and date all audit reports.
    Date stamp executed agreement forms when received by the IRS.
    All penalty notices must include the name, IRC section, computation and schedule attached to the report as required by IRC 6751. The audit report is the record of findings and recommendations regarding the investigation of a taxpayer’s tax liability. It is the document that reviewers use to determine whether you properly developed a case and correctly applied the law to the facts in the particular case. Also, it may become the evidence that the Government will rely on if the case goes to litigation. Since the taxpayer ordinarily receives a copy of the report, it serves as a formal presentation to the taxpayer of your findings and recommendations.
    Preparing an audit report is a key element in your duties and responsibilities. The audit report should be clear, concise, and to the point. Properly explain and support all adjustments by appropriately referencing applicable laws, regulations, court decisions, and rulings on which you base your findings. The definition of audit report includes all documents that present the audit results. Reviewers will evaluate unagreed reports, no-change procedures, Classification Settlement Program (CSP) closing agreements, transmittal letters, informant claims, and agreed reports.
    Prepare reports in accordance with report writing procedures found in IRM 4.90.9.
    E. Computes tax, penalties and interest correctly This element concentrates on mathematical computations. The tax, penalty, and interest computations in the audit report and workpapers should be correct. Consider materiality.
    F. Follows appropriate case closing procedures This quality element measures whether appropriate case closing procedures were followed. See IRM 4.90.12.
  6. Standard #6: Application Of Law And Policy Purpose: This standard measures whether the specialist reached the conclusions based on a correct application of the tax law and policy. It includes consideration of applicable law, regulations, court cases, revenue rulings, etc. to support technical/factual conclusions, including penalties. The standard measures whether the specialist:

    • Performed adequate research to make accurate audit determinations.

    • Considered Section 530 and the Classification Settlement Program (CSP) in evaluating any potential issues.

    # Key Element Definition
    A. Conducts appropriate research This quality element measures whether research was conducted appropriately. Federal tax law is constantly changing. To meet this element:
        Conduct appropriate research to resolve an unfamiliar issue. Time spent on research should be commensurate with the complexity of the issue. Research includes, but isn't limited to, the Internal Revenue Code (IRC), Income Tax Regulations (Regs), Internal Revenue Manual (IRM), court cases, and Revenue Procedures and Rulings.
    B. Applies provisions of Section 530 of the Revenue Act of 1978 correctly This element considers whether the case file reflects a thorough consideration of Section 530 with regard to worker classification issues. If Section 530 is applicable, then only the employer’s employment tax liability is eliminated, not the worker’s. Section 530 is a relief provision considered as a first step in any worker classification issue. The legislative history indicates that Section 530 is to be "construed liberally in favor of taxpayers." Also, the taxpayer doesn't have to claim Section 530 relief for it to apply; the specialist should explore its applicability.


    Section 530 doesn't apply to federal agencies.

    C. Considers CSP This element measures whether the case file reflects a justifiable explanation of why the specialist did or didn't offer the CSP. To meet this element:
        If the taxpayer doesn't meet the relief provisions of Section 530, determine whether the workers in question are independent contractors or employees.
    Resolve the issue of worker classification with reference to the three areas of control:
    1. Behavioral control

    2. Financial control

    3. Relationship of the parties

    These facts are used to determine whether the entity has a right to direct and control the details of the performance of its workers.
    If you determine that no worker classification issue exists, the CSP procedures don't apply.
    However, if a reclassification issue exists, determine whether CSP applies (IRM 4.23.6). When CSP applies—
    • Limit the audit to a single year.

    • Make the assessment for the latest audit year.

    If an adjustment is warranted due to the worker reclassification and the taxpayer filed all required Forms 1099, determine the appropriate CSP offer.
    Obtain field manager approval of the Settlement Memorandum (IRM then advise the taxpayer of CSP policy and make a CSP offer.
    CSP is available to all state and local government employers.


    CSP isn't available to federal agencies.

    D. Reserved Reserved
    E. Interprets and applies law properly This quality element measures whether the case file reflects a correct interpretation, application and explanation of the law based on the facts and circumstances of the audit. This quality element evaluates the correctness of technical and factual conclusions. To meet this element:
        Evaluate the law based on the facts of the case.
    This key quality element includes the evaluation of primary and alternative positions. In employment tax audits, there are a number of different tax rates that may be used depending on the facts and circumstances of the case.
    Select and apply the correct tax rate for the given situation.
    F. Considers and applies penalties as warranted This element measures whether all applicable penalties were properly considered and applied. To meet this element:
        Include in the case file an explanation that supports the decision as to whether you asserted all applicable penalties.
    Consider penalties whenever you asses or abate additional tax. The IRM outlines general expectations for the development of penalty issues including:
    • Interviewing taxpayers to solicit explanations for audit adjustments

    • Making third-party contacts

    • Making referrals

    • Involving management

    IRC 6751 requires written managerial approval for all penalties except those imposed by IRC 6651, failure to file tax return or to pay tax, or other penalties automatically calculated through electronic means.
    Reviewers consider the approval requirement of IRC 6751 in the evaluation of this quality element.


    All aspects of fraud penalties are addressed separately under key quality element 4F – Were indications of fraud properly pursued and developed?

        Fully document in the workpapers the consideration, development and assertion or non-assertion of all applicable penalties.
  7. Standard #7: Timeliness Purpose: This standard measures time usage and timeliness of actions throughout the audit process. This standard also measures the specialist’s timely response to taxpayer communications, timely managerial involvement, and overall effectiveness of use of time relative to issue complexity. Timeliness is an essential element of a quality audit. This standard breaks down the audit process into its components and provides time-frames to initiate, follow-up on, and/or complete each part/action. Tracking delays in the audit process is important. Sometimes there are reasonable explanations such as training. Regardless of the reason, specialists should note delays. Compliance and Program Management tracks trends to properly respond to stakeholders such as Congress or taxpayer advocacy groups. Federal State and Local Governments (FSLG) Quality Measurement System uses a recommended national standard of time measurement. These standards are considered maximum allowable time-frames when the case doesn't document reasons for a delay or extended periods of inactivity. All days are calendar days, except for responding to telephone calls. In this instance, use business days.


    Any requirements for expedited processing will take precedence over the standard time-frames indicated below. See IRM 4.8.3, Examination Quality Measurement Staff (EQMS).

    Limit: Applicable time frame:
    45 days Starting the audit (first action to first appointment)
    45 days Between significant activities
    10 days Closing the agreed case, counted from the date of receiving the agreed report to the date the case closes from the group
    10 days Closing the no-change case, counted from the date the specialist communicates the no change determination to the taxpayer to the date the case closes from the group
    20 days Closing the unagreed case, counting from the date the 30-day letter defaults or the date of receiving the request for Appeals conference to the date the case closes from the group
    1 day (next business day) Returning telephone calls to the taxpayer/representative
    14 days Responding to correspondence from the taxpayer/representative
    # Key Element Definition
    A. Starts the audit within a reasonable time-frame This quality element measures whether the audit started within 45 calendar days from the date that the specialist first contacted the taxpayer or exercised significant activity on the case. To meet this element:
        Generally initiate audits within 45 days after first contact. The "first contact" isn't necessarily the first occasion you can charge time to the case. "First contact" occurs when you make initial audit contact with the taxpayer or you do substantial work on the case.
    If you initiated the case as a compliance check that you convert into an audit, the starting point of this time-frame is the point of audit notification. This time-frame doesn't include time charged to a compliance check.
    The initial taxpayer contact can be either a written or oral communication. If the case involves a pre-contact analysis, then the time-frame starts from that date. You, the taxpayer, representative, or your field manager may cause delays.
    Bring extended or repeated delays in initiating the audit to the attention of your manager to determine whether other action should be taken.
        In cases where a specialist will be on an extended detail, leave, etc. the field manager should consider reassignment to reduce the burden on the taxpayer. The 45 days doesn't start over If a case is reassigned.
    B. Takes significant actions timely You are expected to take significant "action" to move cases towards completion at least once every 45 days. Make every effort to promptly process and close cases and resolve each audit case in a manner that promotes voluntary compliance. The term "significant activity" includes any activity in which you perform substantial work that moves the case towards closure. This doesn't include phone calls to cancel or change appointments. It does, however, include phone calls if you discuss issues that help move the case towards closure.
    C. Acts timely to protect statute of limitations This quality element measures whether appropriate actions were taken timely to protect the statute of limitations on all key and related returns. To meet this element:
        Correctly prepare and timely secure consents to extend the statute of limitations.
    The appropriate parties must execute all extensions.
    Follow Form 895 procedures.
    Update statute dates on AIMS.
    Place the case file in a red folder if the statute is short as defined in IRM
    This key element evaluates four separate components associated with statute of limitations protection. These are:
    1. Preparation, solicitation, and processing consents timely

    2. Preparation of contents properly

    3. Adherence to Form 895 procedures

    4. Case closure in accordance with statute control procedures

    D. Closes case timely This quality element measures whether the case was closed timely by the specialist and field manager. To meet this element:
        Close the case within specific recommended time-frames for agreed, no-change, and unagreed case closures. The activity record is the main source of information for determining closure dates.
    Close agreed cases within ten calendar days from the date the of receiving the report.
    Close no-change cases within ten calendar days of communicating with the taxpayer.
    Close unagreed cases within twenty calendar days from the date of receiving the request for Appeals conference or thirty day default period, whichever is earlier.
    E. Spends time on the audit that is commensurate with the complexity of the issues This quality element measures whether the time spent on the audit was commensurate with the complexity of the issues. Audit activity should be commensurate with the time charged to the case. Factors to consider in determining appropriate use of time are:
    • Issue complexity and potential of adjustment

    • Condition of the books and records

    • Taxpayer and/or representative cooperation

    • Documentation in the case file to support time charged

    • Other problems that affect time applied on the case

    F. Time span of audit is reasonable This quality element measures whether the time span of the audit was reasonable. Time span refers to months in process. To meet this element:
        Document the case file to substantiate the time span. Factors to be considered in determining the appropriate time span of the audit include:
    • Complexity and potential of the issue

    • Use of specialists and submission of referrals

    • Delays and postponements

    • Documentation in the case file to support the span of the audit and any problems

    The time span for evaluation is from your first action on the case until the case closes from the group. Reviewers make a determination as to whether the time span is appropriate for the actions taken.
  8. Standard #8: Customer Relations/Professionalism Purpose: This standard measures whether the specialist promptly addressed the taxpayer’s needs, used professional communications, and respected taxpayer’s rights. To promote quality customer relations with the taxpayer, the IRS pledges to provide service that will make filing easier, provide assistance with filing their returns, and to provide prompt, professional, and helpful treatment in cases where additional taxes may be due. Quality customer service means adopting business practices that make compliance easier and ensuring tax laws are applied fairly while observing the rights of each taxpayer. Truthful, helpful, and timely communication is critical to establishing an honest and effective 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 informed throughout the process. Field managers become involved when 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 with the IRS This element measures the specialist’s effective interaction with the taxpayer/representative in resolving overall questions concerning the IRS. To meet this element:
        Exhibit diligence in the resolution of all taxpayer requests for service, whether expressed or implied.
    Recognize and fulfill any implied or expressed needs of the taxpayer.
    Take appropriate steps, including follow-up actions necessary to reach a satisfactory conclusion to the audit.
    A taxpayer’s implied need is a problem you note during the audit.
    Communicate this problem to the taxpayer and suggest possible solutions.


    Transcripts of the taxpayer’s account indicate a tentative deposit credit on a prior quarter’s account. Notify the taxpayer of the situation and offer additional procedural support.

    An expressed need is a direct question from the taxpayer.


    A taxpayer’s expressed need would be a question regarding the post-audit process. Note in the case file any explanations or discussions with the taxpayer and the conclusion reached regarding the question.

    B. Considers closing agreement This element measures whether the procedures for closing agreements were followed. IRC 7121 authorizes closing agreements. See IRM 8.13.1, Processing Closing Agreements in Appeals, for procedures.
    C. Considers partial agreement This element measures whether partial agreement was solicited in all unagreed cases. To meet this element:
      Explain to the taxpayer the advantages of resolving issues at the lowest possible level, versus waiting until the entire case is settled in Appeals.
    Document any discussions with the taxpayer regarding partial agreements.
    D. Solicits payment and/or discusses alternative payment methods This element measures whether full payment was solicited. To meet this element:
      In the event full payment isn't possible, document this and indicate whether you discussed alternative payment options available.
    E. Interacts and corresponds with the taxpayer/ representative in a courteous and professional manner This element measures whether all communications with the taxpayer not only addressed issues raised during the audit process, but also were professional and courteous. Any case file documentation, such as the activity record, correspondence, IDRs, interview notes, and workpapers should reflect a courteous and professional tone and appearance. The workpapers contain facts gathered, evidence considered, and pertinent conclusions reached. To meet this element:
        Avoid inflammatory comments and assumptions at all times.
    Your correspondence should communicate your message in a clear and concise manner using correct grammar, spelling, and punctuation.
    Use terms that are specific, clear and easily understandable by the taxpayer.
    Include your name, phone number, and ID number in all correspondence and IDRs.


    The Restructuring and Reform Act of 1998 (RRA 98) set forth requirements for providing employee identification.

    F. Discusses findings and recommendations with taxpayer/ representative This quality element measures whether audit findings were discussed with the taxpayer or the representative. To meet this element:
        Work with the taxpayer and representative, when authorized to do so.
    Keep them informed throughout the audit process.
    Upon reaching conclusions on the issues addressed, communicate the findings to the taxpayer and/or the authorized representative.
    An over-assessment or a no-change case is generally not controversial and, in most instances, won't require a formal closing conference.
    For agreed cases, with no documentation in the file indicating that a closing conference was held, reviewers presume you adequately explained the results to the taxpayer and/or representative.
    On unagreed cases, consider any additional facts provided by the taxpayer before closing the case from the group.
    Deficiency and claim disallowance cases are more likely to be disputed and a closing conference is a good forum for addressing any unresolved differences.
    Note in the file whether you kept the taxpayer and/or representative informed on the findings throughout the audit.
    Adequate case documentation is important in all of these circumstances. In addition, reviewers look to the case file to see whether you responded to oral or written issues and concerns in an appropriate and timely manner.
    G. Keeps taxpayer/ representative apprised of the status of the case throughout the audit This element measures whether the taxpayer and/or representative were apprised of the status of the audit. To meet this element:
      Keep the taxpayer/representative informed on the progress of the case.
    Document oral communications in the activity record.
    Keep copies of written correspondence sent to the taxpayer/representative.
    Although obligated to observe the authorized power of attorney, keep taxpayers informed of all stages of the audit. Simultaneous communication to the taxpayer and representative satisfies this requirement.
    Send a copy of any correspondence, discussion briefs, reports and/or other material to the taxpayer at the same time you send it to the representative.


    This is appropriate only for written communications. You needn't inform the taxpayer of any oral communications held with the representative.

    H. 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. To meet this element:
      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.
    I. Maintains appropriate managerial involvement This element measures whether there was appropriate managerial involvement throughout the audit process. Managerial involvement in the audit may be necessary at any time, from the planning stage to the final steps of resolving unagreed issues. To meet this element:
        Don't wait for the audit to become a problem before requesting managerial assistance.
    Field managers should become involved when necessary (or when asked to do so) to avoid delays or problems. Management assistance serves to promote good customer relations.
    Be proactive to avoid problems.
    Always document management involvement.
    J. Advises the taxpayer/ representative of all rights This element measures whether the taxpayer and/or representative were advised of all their rights. To meet this element:
        Provide and briefly explain the taxpayer’s rights as outlined in Pub 1 and Notice 609.
    Answer any questions the taxpayer or the authorized representative may have regarding these items.
    Document in the activity record your discussion with the taxpayer or representative when making the initial contact.
    If the audit is the result of a compliance check, provide written notification that the compliance check is complete or is expanding into an employment tax audit within 30 days of the initial visit.
    Include the publications and notices above with the written audit notification.
    Provide Pub 1976, before initiating any worker classification audits.
    Each time you issue a report (including a 30 day letter), advise the taxpayer/representative of appeal rights and provide Pub 1 and Pub 3498, The Examination Process.
    Document in the activity record that you advised the taxpayer or representative of their appeal rights and any responses received.
    If you solicit a consent to extend the statute of limitations, document that you provided the taxpayer Pub 1035, Extending the Tax Assessment Period, and Letter 907, Request to Extend Assessment Statute.
    Document explanations of interest-free provisions, federal income tax withholding abatement procedures (if applicable), and Appeals procedures.
    K. 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. Find the Privacy Principles in IRM 11.3.14, Privacy Act General Provisions.
    L. Follows third-party notification procedures This quality element measures whether the specialist followed the procedures described in IRM, Third-Party Contacts. IRS employees make a third-party contact when they contact a person other than the taxpayer and ask questions about a specific taxpayer with the respect to the determination or collection of that taxpayer’s tax liability. The reviewer considers the specialist’s use of Pub 1, Form 12175, and Form 12180.
    M. Follows Supplemental Worker Notification (Notice 989) procedures This quality element measures whether the guidelines contained in IRM, Supplemental Procedures When Contacting Workers were considered in all audit cases in which the taxpayer erroneously treated workers as independent contractors. To meet this element:
        Assist the employer in advising the employees of the change in their employment status and the effect on their tax obligations.
    N. Validates and identifies all related entities with TIN and filing requirements and compares to IDRS; corrects any inconsistencies To meet this element:
      During the audit, identify all the government entity’s related entities, the TINs and the filing requirements.
    Compare this information to IDRS to validate the filing requirements.
    Correct inconsistencies on the Master File.
    If the filing requirements are current on IDRS, the customer receives a benefit because erroneous notices are prevented.  (03-01-2011)
Direct Feedback Process

  1. EQMS reviewers use the direct feedback process as an educational tool for providing technical and procedural guidance directly to the specialist. The goal is to improve the overall quality of audit cases by providing direct feedback on an individual case basis. The EQMS reviewer provides confidential feedback to specialists via secured email. If specialists wish to rebut any feedback received, they may either return the email with their comments directly to the reviewer or request a one on one discussion with the EQMS reviewer. Management won't be included in the feedback process.


    In the case of commendatory feedback on cases exhibiting exceptional quality, the specialist's field manager also receives a copy of the feedback email sent to the specialist.

  2. Not every case selected for EQMS review results in direct feedback. A case would first have to be part of the EQMS sample. Errors within a selected case may not be of sufficient magnitude to justify the need for feedback. If the specialist desires direct feedback, enter the following statement in the activity record: "I would like direct feedback if this case is selected for EQMS review."

  3. In determining whether or not to prepare a feedback memorandum, the EQMS reviewer adheres to the Examination Quality Measurement standards in this section. By adhering to these standards, all parties have a pre-determined expectation as to what constitutes a quality audit. EQMS reviewers critique a case in the context of its overall quality and only provide commentary on substantive items. EQMS reviewers use their expertise, experience, and good judgment to determine whether or not items are deemed significant enough to warrant preparation of a feedback memo. The actual EQMS input form and scores won't be a part of any feedback.

  4. Examples of items that may warrant direct feedback include:

    • All available data wasn't used to prepare the audit plan (e.g. referrals, RICS queries, 218 Agreements)

    • Documentation that worker classification issue was considered

    • Compensation probes weren't completed appropriately

    • Issues were underdeveloped or overdeveloped

    • Computations in the workpapers or report weren't correct

    • Consideration of the Classification Settlement Program

    • Taxpayer wasn't advised of all rights

    • Case closing wasn't within recommended time frames

  5. The feedback memo identifies the entity's name, its EIN, the tax periods, and the date the case closed from the group. It describes the substantive items, the EQMS standard(s) involved, and guidance on how to improve the quality of future cases. If the memo is completely commendatory in nature, it fully describes the commendatory item(s).

  6. CPM follows these procedures to assure the intended recipient is the only person with access to the feedback memorandum:

    • After the EQMS reviewer prepares the memo, the reviewer sends it to the CPM manager for approval via secured email. This step ensures that a memo is issued for items pertinent to enhancing case quality and creating improvement opportunities (including commendatory feedback). The specialist's name isn't included.

    • Once the CPM manager approves the memo, he/she secure emails it to the EQMS reviewer.

    • The EQMS reviewer secure emails the memo to the specialist.

    • The field manager won't receive a copy of the memorandum unless it is commendatory in nature. In commendatory situations, the EQMS reviewer secure emails the memo to the specialist and carbon copies the specialist's field manager.

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