4.90.9  Procedures, Workpapers and Report Writing

Manual Transmittal

September 26, 2014

Purpose

(1) This transmits a table of contents and text for IRM 4.90.9, Federal, State and Local Governments, Procedures, Workpapers and Report Writing.

Material Changes

(1) Correction to activity code for survey after assignment.

(2) 4.90.9.6, Workpapers, was formerly 4.90.9.1

(3) 4.90.9.14, Report Writing, was formerly 4.90.9.2.

(4) 4.90.9.12, Penalties was formerly 4.90.9.3

(5) 4.90.9.9, Ad Hoc Closing Agreements, was formerly 4.90.9.4

(6) 4.90.9.11, Tip Compliance Agreements, was formerly 4.90.9.5

(7) Material added, 4.90.9.1 Return Documents for Examinations; formerly 4.90.12.6

(8) Material added, 4.90.9.2 Establishing Related, Prior and Subsequent Period Returns

(9) 4.90.9.3, Delinquent Returns and Substitute for Returns, was formerly 4.90.12.11

(10) Major revisions were made to 4.90.9.3.3.4, Delinquent Forms W-2/W-2c Secured by Specialist Post-Examination

(11) Material added, 4.90.9.4, Third-Party Authorization/Power of Attorney; formerly 4.90.12.13

(12) 4.90.9.5, Third-Party Contacts, was formerly 4.90.12.14

(13) 4.90.9.6, Workpapers, was formerly 4.90.9.1

(14) 4.90.9.7, Specialist Referral System, was formerly 4.90.12.15

(15) 4.90.9.8, Procedures for Processing Suspense Cases, was formerly 4.90.12.17

(16) 4.90.9.9, Ad Hoc Closing Agreements, was formerly 4.90.9.4

(17) 4.90.9.10, Classification Settlement Program, was formerly in 4.90.9.4

(18) 4.90.9.11, Tip Compliance Agreements, was formerly 4.90.9.5

(19) 4.90.9.12, Penalties, was formerly 4.90.9.3,

(20) 4.90.9.13, IRC 3402(d), was formerly 4.90.12.16

(21) 4.90.9.14, Report Writing, was formerly 4.90.9.2

(22) 4.90.9.15, Remittance Processing Procedures, was formerly 4.90.12.12

(23) 4.90.9.16 Procedures for Processing Related Returns, was formerly 4.90.12.5

Effect on Other Documents

This section supersedes 4.90.9, Workpapers and Report Writing, dated October 1, 2010. This section also supersedes Interim Memorandum TEGE-04-0714-0019, FSLG Examination Reports Involving Reclassification of Workers, dated July 7, 2014. This section also supersedes Interim Memo TEGE- 04-0313-03, Ad Hoc Closing Agreement (AHCA) Procedures, dated April 7, 2014.

Audience

This section contains instruction and guidance for all Federal, State and Local Governments compliance employees when dealing with workpaper and report writing matters, as well as for closing agreements and assessment of penalties.

Effective Date

(10-01-2014)

Paul A. Marmolejo
Director, Federal, State and Local Governments

4.90.9.1  (10-01-2014)
Return Documents for Examination

  1. All examinations must be closed with a return document.

  2. If there is an original return, then it is the return document. The Specialist must document in RCCMS that the case is closed with an original return. Select the tab "Closing General" , then select the "Closing With" screen, then select #1, "Original Return." Original returns must be closed in paper case files.

  3. If there is no original return, then a BRTVU or TRDBV print, if available, should be used to close an examination. If neither BRTVU nor TRDBV are available, (e.g. closing an examination based upon a substitute for return) the Specialist must prepare Form 2275, Records Request, Charge and Recharge, (Parts A and B only) with "In Lieu of Return" written or typed across the top. Attach a BMFOLR. Form 3198-A, TE/GE Special Handling Notice, should identify the case file as being closed on the basis of an electronic print. The Specialist must document in RCCMS that the case is closed on an electronic print by selecting the tab "Closing General," selecting the "Closing with" screen, then selecting #3 "Electronic print" or #4 "Paperless Examined." #4 should be used when the case is fully electronic.

  4. The Specialist should verify tax payments and credits claimed on the return. An IDRS transcript should be secured when necessary to determine the true liability.

4.90.9.2  (10-01-2014)
Establishing Related, Prior and Subsequent Period Returns

  1. When the specialist identifies an issue that requires establishment of additional periods or related returns managerial approval is required prior to establishment of the return or period in RCCMS.

    1. Source code 05 (Related Pick Up) is used for all related returns

    2. Source code 40 (Multi-Year exam) is used for all prior and subsequent period returns.

4.90.9.3  (10-01-2014)
Delinquent Returns and Substitute for Returns

  1. Employment tax non-filers can be addressed using either Delinquent Return or Substitute for Return (SFR) procedures. Specialists should generally use SFR procedures when conducting examinations and making assessments of non-filed employment tax returns, but may use Delinquent Return procedures when appropriate. However, once SFR procedures have been started, they cannot be changed. The return controlled with an SFR must be processed to final closure.

  2. Prior to establishing controls, ensure that the entity has a filing requirement for the type of return being established, e.g. if a Form 945, Annual Return of Withheld Federal Income Tax, is being secured or established, use ENMOD to determine there is a filing requirement. If there is none, submit Form 2363, Master File Entity Change, immediately to have the filing requirement added to the entity's account prior to establishing controls on RCCMS.

4.90.9.3.1  (10-01-2014)
Processing Delinquent Employment Tax Returns

  1. Before processing a delinquent return, the Specialist should review an account transcript. Procedures for processing a delinquent return depend upon whether or not a TC 150 has posted.

4.90.9.3.1.1  (10-01-2014)
Processing Delinquent Employment Tax Returns (No TC 150)

  1. If no TC 150 has posted, then the Specialist will date stamp the delinquent return. If a date stamp is not available, the Specialist will write in the upper left side margin of the return: "RECEIVED" , the date received, and the Specialist's name and title. Also, the Specialist will write "DELINQUENT RETURN SECURED BY TE/GE" in red on the top margin of the original return. Leave room in the upper right corner so the Campus will be able to enter the DLN. Write in red on the bottom margin of the original delinquent return "TC 599- CC 96" .

  2. Attach a separate Form 3198-A, TE/GE Special Handling Notice, to each return being submitted to indicate if the delinquency penalty should or should not be assessed. Also attach a separate Form 13133, Expedite Processing Cycle, to the front of each return being submitted, noting the following items:

    1. Delinquent Return: Check the box indicating that it is a delinquent return.

    2. Contact Person: This will be the Examining Officer.

    3. If penalties are to be assessed, no notations in the BMF or IMF Penalty boxes are required.

    4. If penalties are not to be assessed, enter an "X" in the BMF or IMF Penalty box for the appropriate penalties not assessed.

    5. If the normal ASED has expired or is within three months of expiration, enter an "X" in the box to the left of "W," Bypass Submissions Processing Statute List.

    6. To prevent tax deposits, withholding, or payments from refunding when the TC 150 posts, place an "X" in the BMF or IMF box to the left of "Hold Credits on Module-Generates TC 570" .

  3. The Specialist will prepare Form 4844, Request for Terminal Action, to close collection controls and suppress notices requesting the return.

    1. Write "TC 599 CC 96" in the "Remarks" section of the form. Explain why the action is requested.

    2. Digitally sign Form 4844 and forward to CPM for input.

  4. If a payment is secured, prepare a Form 3244-A, Payment Posting Voucher-Examination, for each delinquent return. Post the payment as TC 610, Remittance with Return. Attach the copy of Form 3244-A to the delinquent return. The original Form 3244-A is sent with the payment for processing.

  5. Submit original delinquent return packages to the Campus indicated below. The following forms are required:

    1. Form 13133, Expedite Processing Cycle

    2. A current BMFOLT or IMFOLT showing no return posted

    3. Form 4844, Request for Terminal Action

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

    5. Form 3244-A, Payment Posting Voucher, if necessary

    6. Form 3210, Document Transmittal

    Send returns secured without remittance to: Internal Revenue Service
    1973 North Rulon White Blvd.
    Mail Stop 6052
    Ogden, UT 84404
    Send returns secured with remittance to: Internal Revenue Service
    1973 North Rulon White Blvd.
    Mail Stop 1999
    Ogden, UT 84404
    Send excise tax returns to: Internal Revenue Service
    201 West Second Street
    Mail Stop 281
    Covington, KY 41019
    Send foreign tax returns to: Internal Revenue Service
    Ogden Service Center
    P.O. Box 409101
    Ogden, UT 84409
  6. If the delinquent return will be part of the examination, then the Specialist will make a copy of the return for the case file and establish the AIMS record via RCCMS by completing the following steps:

    1. In the "Validate for:" field, select "Establish" and make sure there is a check mark in the "Update AIMS" box.

    2. Update the following fields:
      --"Return Received" date under General tab
      --"Statute Date" under General tab
      --"Source Code" to "44 Delinquent Return" under Codes tab
      --"Push Code" to 020 Delinquent Return under Codes tab
      --"Reason for Request" enter "Delinquent Return Secured by FSLG"

    3. "Save and Close"

    4. Highlight the activity in the List View pane. From Actions menu, select "Request Establishment" and synchronize. The AIMS record will establish once the Field Manager approves the action.


  7. The examination may not be closed from the group until the TC 150 posts and a full AIMS record is established.

4.90.9.3.1.2  (10-01-2014)
Processing Delinquent Employment Tax Returns After TC 150 SFR Posts

  1. When delinquent returns are secured and the SFR TC 150 has already posted, the examiner will need to determine the accuracy of the submitted returns by auditing them. Follow the procedures in IRM 4.90.9.3.2 if AIMS records are not yet established.

  2. If the Specialist accepts the delinquent return without making additional adjustments, prepare Form 2504, Agreement to Assessment and Collection of Additional Tax Overassessment; Form 4666, Summary of Employment Tax Examination; and Form 4668, Employment Tax Examination Changes Report, to reflect the amounts shown on the delinquent return. Taxpayer signature is not necessary because the report matches the amounts reflected on the signed delinquent return. Note: On Form 3198-A indicate "Case is agreed based on taxpayer signature on delinquent return." Prepare Form 2275 with BMFOLR as the return document and attach a copy of the signed delinquent return. The examination will be closed using normal closing procedures.

  3. If the Specialist does not accept the delinquent return without making additional adjustments then the return must be processed as a partial assessment in RCCMS unless the return shows no tax due. If the return shows no tax due see paragraph (4) below since partial assessment procedures are not required. For returns showing a tax due amount the following partial assessment procedures are required.

    1. Prepare reports matching the submitted delinquent returns and send them along with copies of the delinquent returns, Form(s) 5599, , TE/GE Examined Closing Record, and Form(s) 3198-A to the Field Manager for processing of the partial assessment. The Field Manager will forward the partial assessment package through CPM to the GE Closing Unit.

    2. Complete partial assessment in RCCMS.

    3. Once the corrected figures are determined, prepare a report for any adjustments not reported on the delinquent returns. The case will then be processed using regular agreed and unagreed procedures depending on whether or not the taxpayer signs the report.

    4. Prepare Form 3198-A. In the Other Instructions section, enter "SFR TC 150 Posted - Process Delinquent Return(s) as Final Closures."

  4. If the taxpayer submits a delinquent return to the Specialist showing no tax due then the secured return will be incorporated into the final audit report. Also, even though the delinquent return is not being processed, the receipt of a valid return does start the running of the statute of limitations. Update the “Return Received” date to the date the delinquent return was received and update the “Statute Date” in RCCMS.

  5. Master File must be updated to show a delinquent return was secured after an SFR TC 150 was posted. Form 3177, Notice of Action for Entry on Master File, must be completed as follows:

    1. Enter an "X" in the box marked "Other" at the bottom of the form.

    2. Enter "TC 971 AC 013 Return Received Date MM/DD/YYYY" on the line next to the "Other" box.

    3. Forward Form 3177, Notice of Action for Entry on Master File, to the CPM IDRS Analyst via encrypted E-mail.

4.90.9.3.2  (10-01-2014)
Substitute for Employment Tax Returns

  1. FSLG Specialists generally use SFR procedures when conducting examinations and making assessments of non-filed employment tax returns.

  2. Before establishing an SFR, the Specialist should conduct IDRS research to ensure no return has posted to the Master File module. Research and print a current INOLES, AMDISA, and BMFOLI/IMFOLI for each non-filed return to determine if a TC 150 is present. If TC 150 is present, SFR procedures will not be used. Establish an AIMS record and complete the examination using regular examination procedures.

  3. If there is no TC 150 present, request establishment of the return period(s) for AIMS on RCCMS.

    1. Prepare Form 2275 with BMFOLR as the return document.

    2. In the "Validate for" field, select "Establish" and make sure to place a check mark in the "Update AIMS" box.

    3. Complete all fields in RED with an asterisk. The following is specific information for these fields:
      --"Source Code" to "25- Substitute for Return" under Codes tab
      --"Alpha Day" to "EE No Return Filed" under Codes tab
      --"Push Code" to "036 Substitute for Return (Computer Generated TC 150)" under Codes tab
      --"Reason for Request" enter "Exam-SFR"
      --"Save and Close"
      --Highlight the activity in the List View pane. From Actions menu, select "Request Establishment" and synchronize.

  4. Conduct the examination, determining the proper amount of wages, withholding, and taxes. Prepare the reports and complete the examination using normal closing procedures for either agreed or unagreed cases.

  5. A current AMDISA print should be included in the Office Documents folder to show the AIMS record is fully established.

  6. If the taxpayer submits a delinquent return, follow the procedures inIRM 4.90.9.3.1.2 to incorporate the delinquent return into the final audit report. Even though the delinquent return is not being processed, the receipt of a valid return does start the running of the statute of limitations.

  7. The Specialist should consider fraud potential, in consultation with the Field Manager and the FSLG Fraud Coordinator.

4.90.9.3.3  (10-01-2014)
Delinquent Information Return Procedures

  1. During employment tax examinations, Specialists frequently identify information returns that were not furnished or filed. This subsection provides various procedures to be followed .

4.90.9.3.3.1  (10-01-2014)
Delinquent Forms 1099 Identified in Examinations

  1. When conducting an examination, if the Specialist determines that the taxpayer failed to file required Forms 1099, the Specialist should secure the delinquent Forms 1099. The Specialist should require the payer to furnish the delinquent returns to payees and file them with the Specialist. In the alternative, the taxpayer should submit substantiation that the returns have been filed electronically through the Filing Information Returns Electronically (FIRE) system. If a payer refuses to file the delinquent returns, information return penalties should be considered using the rates for intentional disregard.

  2. The payer should be given a reasonable time, e.g. 30 days, to prepare the delinquent information returns, furnish them to the payees, and file the information returns with the Specialist or through the FIRE system.

  3. Specialists securing delinquent paper Forms 1099 should refer to IRM 4.23.8.10.4 for detailed processing instructions. The Form 1096, Annual Summary and Transmittal of U.S. Information Returns, should be date stamped and the delinquent Forms 1099 should be sent to the address identified in IRM 20.1.7.6 for "BMF" (other than Large Business and International):
    Internal Revenue Service-Stop 31
    201 W. Rivercenter Blvd.
    Covington, KY 41011

  4. If the taxpayer files the delinquent returns electronically through the FIRE system, the Specialist should secure substantiation of the transmission to include in the workpapers. The FIRE system sends an e-mail to the filer that contains the FILE STATUS and "Count of Payees" included in the file. A FILE STATUS of either "Good, Not Released" or "Good, Released" indicates that the file is, or will be, released for mainline processing. Files uploaded to FIRE are held for ten days to afford the taxpayer an opportunity to correct them, if necessary. A copy of this e-mail verification may serve as sufficient substantiation to be included in the workpapers.

  5. High dollar delinquent Forms 1099 should be considered by the Specialist for potential income tax underreporting. The Specialist should prepare Form 5666, TE/GE Referral Information Report, and attach a copy of the delinquent Form 1099 for referral to SB/SE.

  6. Copies of all delinquent Forms 1096 and 1099 are not needed in the examination case file however they are needed when information return penalties are being proposed. Scanned or electronic copies of Form(s) 1096 and 1099 secured should be named "CIVPEN.34.1005.1096&1099.DELINQ.YYYY" (where "YYYY " represents the year of the returns submitted).

4.90.9.3.3.2  (10-01-2014)
Delinquent Forms W-2/W-2c Secured by Specialist During Examination

  1. Specialists are expected to secure delinquent Forms W-2, Wage and Tax Statement, and W-3, Transmittal of Wage and Tax Statements, prior to closing an exam.

  2. Per Treasury Regulations, Forms W-2c, Corrected Wage and Tax Statement, and W-3c, Transmittal of Corrected Wage and Tax Statements, are not required to be filed until February 28th of the year following the year the examination is completed but the taxpayer should be encouraged to file them earlier.

  3. If the employer is expected to file 250 or more Forms W-2c during a calendar year, the employer is required to file them electronically. Taxpayers should be referred to the SSA website for the current versions of Specifications for Filing Forms W-2 Electronically (EFW2) and Specifications for Filing Forms W-2c Electronically (EFW2C).

  4. If the taxpayer files the delinquent Forms W-2, W-3, W-2c, or W-3c electronically through the SSA Electronic Wage Reporting (EWR) system, then the Specialist should secure documentation from the taxpayer verifying the transmission. After submitting the file, the taxpayer can print the "Confirmation Receipt-Your File was Received" page and submit this to the Specialist as documentation of the transmission. The confirmation receipt includes the Wage File Identifier (WFID) and should be included in the workpapers as sufficient filing substantiation.

4.90.9.3.3.3  (10-01-2014)
Delinquent Forms W-2/W-2c Not Secured by Specialist During Examination

  1. If Forms W-2, W-3, W-2c, or W-3c are not obtained from the employer prior to the exam being closed, the Specialist will notify the employer that the returns must be filed with the GE Closing Unit at the address on Form 4668 by the due date prescribed, or a civil penalty may apply. If the employer chooses to file the delinquent forms electronically through the EWR system, then they should send a copy of the Confirmation receipt to the GE Closing Unit at the address on Form 4668 to avoid any possible information return penalty.

  2. If the taxpayer refuses to file delinquent Forms W-2 and W-3 then the Specialist should consider whether or not the Failure to File and Failure to Furnish penalties should be recommended using the intentional disregard provisions under IRC 6721(e) and IRC 6722(e). The taxpayer's appeal rights are post-assessment; the taxpayer will not be able to appeal the civil penalties until Forms W-2 & W-3 have been filed.

  3. The Specialist should attach a list of employees who should receive Forms W-2 or W-2c to Form 4668. The list should provide :

    1. Worker's name

    2. Amount of adjustment to total compensation, social security wages, and Medicare wages

    3. Related employment tax adjustments

  4. If the case is fully electronic, the file should be named "31.F4668.EE LIST"

  5. The examiner will notate in the "Other Instructions" section of Form 3198-A "Maintain tickler file - Employer to forward Forms W-2 and/or Forms W-2c to GE Closing Unit."

  6. The GE Closing Unit will create a tickler file containing:

    1. Copy of Form 4668 for each year examined

    2. List of employees who did not receive Forms W-2 or W-2c

    3. Form 3198-A from the case file

    If an employer fails to file the required Forms W-2, W-2c, W-3, or W-3c with the GE Closing Unit by the required due date, the GE Closing Unit will return the tickler file flagged as a "Penalty Case Referral" to CPM.

  7. CPM will address the Civil Penalty case files associated with delinquent Forms W-2, W-2c, W-3, or W-3c not secured during FSLG examinations.

4.90.9.3.3.4  (10-01-2014)
Delinquent Forms W-2/W-2c Secured by Specialist Post-Examination

  1. If delinquent Forms W-2, W-2c, W-3, or W-3c are provided to the Specialist after the case is closed to CPM, it is the responsibility of the Specialist to date stamp the Form W-3 or W-3c and to forward copies of these items to SSA.

  2. The Specialist should also notify the GE Closing Unit that the returns have been filed so that the tickler file can be updated which will prevent information return penalties from being processed.

  3. The Specialist should send an email to the GE Closing Unit including the taxpayer name, EIN, and W-2 years. When validations of e-filing through the SSA Electronic Wage Reporting Electronic Wage Reporting (EWR) system are received, they should also be emailed to the GE Closing Unit.

4.90.9.3.3.5  (10-01-2014)
Procedures for Failure to File Form W-2 (Unagreed Case)

  1. When the Specialist recommends assessment of penalties for failure to file and failure to furnish Form W-2 involving reclassification of workers to employee status and the case is unagreed, the appropriate Information Return Penalty package will be prepared. When neither Form 1099 nor Form W-2 was filed, follow the procedures in IRM 4.23.8.10.3.

4.90.9.4  (10-01-2014)
Third-Party Authorization/Power of Attorney

  1. Accountants, attorneys, enrolled agents or other representatives from whom a taxpayer has requested assistance on tax problems, may submit inquiries to the Internal Revenue Service. The third parties expect a reply to these inquiries so the problem can be explained to the taxpayer. To authorize this third-party reply, the representative may submit a Form 2848, Power of Attorney and Declaration of Representative, or Form 8821, Tax Information Authorization .

  2. A Specialist should forward the completed form to the appropriate Centralized Authorization File (CAF) unit within five workdays of receipt.

    1. The Specialist should annotate the form with his/her name, telephone number, function, and date.

    2. Completed Forms 2848 and 8821 can be faxed or mailed to the CAF unit. The mailing addresses and fax numbers are provided in the instructions for either form.

    3. The case chronology record should be annotated to indicate that the form was forwarded to the CAF unit.

    4. A copy of Form 2848 or 8821 should be attached to each return, with a notation "faxed to CAF unit" and the date it was faxed.

  3. Additional information about third-party authorization/power of attorney can be found in IRM 4.23.3.7.8 and IRM 21.3.7.

4.90.9.5  (10-01-2014)
Third-Party Contacts

  1. In general, Specialists will receive information directly from the taxpayer under examination; contacts with third parties are made when the Specialist is unable to obtain the information from the taxpayer or when it is necessary to verify the information provided by the taxpayer. The provisions of IRC 6103(k)(6) and corresponding regulations apply to all third-party contacts.

  2. See IRM 25.27.1 for Servicewide procedures relating to third-party contacts.

  3. Third-party contact procedures do not apply to Whistleblower Claims. Case files involving Whistleblowers should not contain any reference to the Whistleblower in the primary case documentation. Even making reference to Form 11369, Confidential Evaluation Report on Claim for Reward, or to the Whistleblower in the activity record is prohibited because the administrative case file is subject to FOIA and could lead to disclosure. Refer to IRM 4.90.6.9 for more information on Whistleblower claims.

4.90.9.6  (10-01-2014)
Workpapers

  1. This subsection discusses different workpapers (hereafter referred to as the "workpapers)" and their functions as used in FSLG compliance contacts.

  2. Workpapers and reports provide the basis for the decision reached by the FSLG Specialist. Only on the basis of the material in the workpapers can a reviewer determine whether the customer assistance contact, compliance check, and/or examination was complete and correct. Workpapers should show explanations, analysis and conclusions that the Specialist developed and should be sufficient to show that, generally, no additional comments will be needed in the transmittal letter for any items covered. Workpapers should document that all forms are correctly filed and that potential employer/employee relationships were considered. All notes made before, during, and after the compliance contact should be included in the workpapers.

  3. All guidance provided in this section, and which is referenced in this section, should be applied to compliance contact workpapers. The same general theories and principles are to be applied equally to all case files that are generated by an FSLG Specialist.

4.90.9.6.1  (10-01-2014)
Purpose of Workpapers

  1. Workpapers are prepared by the FSLG Specialist so that information pertaining to each issue is centralized in the case file. The purpose of the activity record is to refer the reader or reviewer to the issue workpaper and should not be used as a substitute for the workpaper. Fully developed workpapers serve the following purposes:

    1. Documentation of action taken

    2. Preparation of necessary reports

    3. Managerial or technical review

    4. Use by other reviewers if technical advice is requested or results are appealed

    5. Authorized review by other governmental agencies

    6. Information to be used to determine the audit trail and scope of subsequent customer assistance contacts, compliance checks, or examinations

  2. The importance of workpapers in every case is critical, as they serve to effectively explain the areas covered during a compliance contact. Workpapers should include all the evidence gathered by the Specialist to show the work performed, methods and procedures followed and conclusions reached.

  3. Workpapers prepared by a Specialist may be used in the preparation and review of the report as a reference in cases where the determination is to be litigated, and also as a source of more detailed information about a case, which may be requested later in writing.

  4. Workpapers are the best evidence of the scope of the compliance contact and the diligence with which it was completed. Further, they constitute the background for the determination of the tax liability. Documentation of transactions or other significant events should be complete, accurate, and facilitate tracing the transaction or event and related information from the beginning through completion.

4.90.9.6.2  (10-01-2014)
Workpaper Preparation

  1. Properly prepared workpapers must provide adequate documentation to support conclusions. Without sufficient documentation, it is not possible for Field Managers or reviewers to evaluate either the scope of the Specialist’s work or the basis of the actions taken.

  2. Workpapers should be neat and legible. The legibility of all types of workpapers and reports is an important aspect of the overall quality of the customer assistance contact, compliance check, or examination. Legibility improves comprehension for the reviewer and the taxpayer.

  3. Workpapers should display a heading that clearly, shows the name of the taxpayer, the tax year examined or discussed in the case of non-examination cases, the date workpapers were prepared, the name or initials of the Specialist, and the issues or items being examined or discussed. The pages should be indexed, numbered, and securely fastened together.

  4. Workpapers should cite legal authority, such as the Internal Revenue Code, applicable regulations and/or court cases to support conclusions.

  5. The first step in a quality compliance contact is the development of a pre-examination/contact analysis and a work plan of action. The time and effort spent during this phase of the process will result in a high quality, efficient compliance contact.

  6. Specialists must use a workpaper cover sheet to organize the workpapers. They may use Form 4318-A, Continuation of Examination Workpapers. Refer to IRM 4.23.4 for a detailed discussion on the preparation, format, and volume of workpapers.

  7. See IRM 4.90.2 – Customer Assistance, for instruction on workpaper requirements related to customer assistance case files.

  8. See IRM 4.90.3– Compliance Checks, for instruction on workpaper requirements related to compliance check case files.

4.90.9.7  (10-01-2014)
Specialist Referral System

  1. For returns outside the Specialist's area of expertise, examiners should verify filing and consider managerial involvement to determine audit potential. If audit potential exists, examiners should ensure these issues are examined by a Specialist or with Specialist assistance. For support external to FSLG, the Specialist Referral System is required. It is found in the IRS intranet at www.https://srs.web.irs.gov/.

  2. The identification of issues outside FSLG jurisdiction and request for assistance should be made as early in the examination as possible. The Field Manager’s first contact with a support group to obtain a staffing commitment is through use of the Specialist Referral System. This request should be forwarded to the appropriate area at least 60 days prior to the start of the support examination. Support Areas will normally respond to the request directly to the primary group within 15 calendar days of receipt.

4.90.9.7.1  (10-01-2014)
Referrals to Employee Plans

  1. As part of a package audit, the Specialist must determine whether or not an organization has a 403(b), 457, or Social Security Alternative Plan with any potential compliance problem that warrants a referral to Employee Plans. Employee Plans developed Form 4632-C, Employee Plans Referral Checksheet - For FSLG - IRC 403(b)/457 and Social Security Alternative Plans, to assist in FSLG Specialists making this determination. If a referral is indicated or if the Specialist has a question about a pension issue, then the Specialist should contact the EP Area 403(b)/457 Coordinator to discuss the potential issue(s).

    1. If the EP Area 403(b)/457 Coordinator recommends a concurrent examination, the Specialist should complete a request for an EP Specialist using the Specialist Referral System and provide a copy of the Form 4632-C if requested. The case should not be closed until a response is received.

    2. If the EP Area 403(b)/457 Coordinator believes that a concurrent examination is not necessary but that future compliance action may be appropriate, then the Specialist should complete Form 5666 and attach Form 4632-C, which will be included in the closed examination case file. The 403(b)/457 Coordinator's recommendation should be documented in the case file and a copy of Form 4632-C may be used as a workpaper.

    3. If the EP Area 403(b)/457 Coordinator believes there is no, or a de minimis, compliance issue, then the Specialist should document the 403(b)/457 Coordinator's recommendation in the case file. Form 4632-C may be used as a workpaper.

  2. If a referral is not warranted, then completion of Form 4632-C is not mandatory. However, Form 4632-C asks the basic questions necessary to determine whether or not a referral is warranted. A completed Form 4632-C provides documentation that the Specialist asked the appropriate questions. Therefore, Form 4632-C can serve as an excellent workpaper related to this issue.

4.90.9.7.2  (10-01-2014)
PCORI Referrals to Excise Tax

  1. As part of the package audit process, the FSLG Specialist will determine whether the taxpayer is self-insured for employee health insurance and subject to excise taxes reportable and payable on a Form 720, Quarterly Federal Excise Tax Return. This excise tax is associated with the Patient-Centered Outcomes Research Institute (PCORI). Few FSLG entities are expected to be insurers with PCORI obligations. Next steps will be determined based on the number of lives covered by the self-insurance.

    1. If the taxpayer covers fewer than 5,000 lives and has not filed the required Forms 720, then the Specialist will provide the taxpayer with resources to assist in preparing and filing these returns.

    2. If the taxpayer covers 5,000 or more lives and has not filed the required Forms 720, then the Specialist will advise the taxpayer and refer the case to Excise Tax via the Specialist Referral System (SRS).

4.90.9.8  (10-01-2014)
Procedures for Processing Suspense Cases

  1. Case files requiring suspension of action will normally be held in the group until such time as action on the case can resume. Two examples include a request for technical advice, or a request to the SSA for a formal interpretation of a Section 218 Agreement.

  2. The case should remain in Status Code 12 until no further issue development can be completed. Once no further issue development occurs, the AIMS/RCCMS status should be updated to Status Code 38. At the time the response is received and further issue development proceeds, the case should be placed back in Status Code 12.

  3. Prior to suspending the case, the group has responsibility for ensuring that the statute of limitations is protected for at least one year. Refer to IRM 4.90.10 and IRM 4.23.14 for additional guidance.

  4. Upon closing the case, indicate on Form 3198-A a note to update to Status Code 55. Also include a comment to the same effect in the RCCMS closing dialog box.

4.90.9.9  (10-01-2014)
Ad Hoc Closing Agreements

  1. This section discusses the procedures and policy for ad hoc closing agreements used in voluntary case resolution and examinations.

4.90.9.9.1  (10-01-2014)
Closing Agreement Procedures and Policy

  1. Refer to IRM 8.13.1 . FSLG Specialists and Field Managers may consider ad hoc closing agreements to resolve reporting and payment issues for FSLG customers. Ad hoc closing agreements offered during or at the conclusion of an examination will also require involvement of the CPM Closing Agreement (CA) Coordinator, the Field Operations Manager, and the Director, FSLG. The Director, FSLG will sign all ad hoc closing agreements.

  2. FSLG closing agreements will generally require Forms W-2/W-2c to be furnished and filed as part of the agreement, unless a specific dollar amount per employee cannot be determined. Any deviation from such policy will be rare and will require the approval from both Chief Counsel and the Director of FSLG

  3. Closing agreement tax assessments will be made separately for each applicable tax year or period. However, closing agreement tax assessments for barred assessment statute years (i.e. Section 218 retroactive pay issues) will be made per current Chief Counsel guidance.

  4. FSLG will generally pursue the assessment of tax on all open years for the closing agreement issue. Facts and circumstances will govern any exceptions to this general policy. Where appropriate, worker classification issues can be resolved via the classification settlement program governed by IRC section 7121, see IRM sections 4.23.6 and 8.13.1, and Delegation Order 8-3 (formerly DO-97) in IRM section 1.2.47.4).

4.90.9.9.2  (10-01-2014)
AD Hoc Closing Agreement Procedures for Walk In Cases/Cases not Under Examination

  1. If a taxpayer, not under examination, approaches FSLG field personnel seeking a closing agreement to resolve a prior tax year compliance issue, the matter will be handled by CPM staff.

  2. If a taxpayer makes contact with a Field Specialist, the Specialist should refer the matter to the CPM Manager.

  3. If the Specialist received a written request from the taxpayer, he or she should forward the information, either by secure email or with Form 3210, Document Transmittal, to the CA Coordinator at:

      Internal Revenue Service
    SE:T:GE: FSLG:CPM
    NCA 534-10
    1111 Constitution Avenue NW
    Washington, D.C. 20224-0002
    ATTN: Closing Agreement Coordinator
  4. The CA Coordinator receives and reviews all written requests for ad hoc closing agreements from taxpayers or representatives who are not under examination.

  5. The CA Coordinator will request establishment of a customer assistance case via normal establishment procedures on RCCMS.

  6. The CA Coordinator will complete the “Ad Hoc Walk-In Closing Agreement Initial Memo” explaining the facts, taxpayer’s proposal and voluntary disclosure. The memo will be sent to the FSLG Director and CPM Manager. The Director will approve or disapprove whether or not the agreement process is the right solution. The Director will provide comments and direction, if necessary.

  7. If the Director has questions or needs additional information not provided in the memo, the Director will set up a conference call with the CA Coordinator and the CPM Manager to address steps necessary to complete the agreement.

  8. The CA Coordinator will include in the CPM Monthly Briefing updates on all ad hoc closing agreement entities in-process. The Director and CPM Manager will review the Briefing and contact the CA Coordinator if new circumstances arise.

  9. The CA Coordinator will contact the CPM Manager if a high profile/sensitive issue arises. The CPM Manager will coordinate with the Director as to the direction to take.

  10. If the Director approves the agreement then the CA Coordinator will work with taxpayer and/or representative to complete the closing agreement. All files will be uploaded in RCCMS and all case related activity will be recorded on Form 9984, Examining Officer's Activity Record. The Director will receive the closing agreement for approval and signature. The CA Coordinator will follow established procedures to close case, process payments, and monitor post assessment. The CPM Manager will approve final processing of the case in RCCMS.

  11. If the Director rejects the agreement then the CA Coordinator will close the case according to established procedures and upload all electronic files received from the taxpayer into the RCCMS case file. Hard-copy documents will be scanned and imported and the CA Coordinator will record all case-related activity on Form 9984. The CPM Manager will approve final processing of case in RCCMS and annotate Form 9984,

4.90.9.9.3  (10-01-2014)
Ad Hoc Closing Agreement Procedures for Cases under Examination

  1. FSLG Specialists and Field Managers may consider closing agreements to resolve reporting and payment issues for FSLG taxpayer under examination.

  2. Before any agreement is offered to a customer, the FSLG Specialist will discuss the issue with the Field Manager.

  3. If the assigned Specialist determines that a closing agreement is an appropriate resolution to the examination, the Specialist should prepare a memorandum and submit it to the Field Manager for concurrence.

  4. The memorandum should include the rationale for the closing agreement and include the proposed closing agreement payment amount. After the Field Manager concurs, the terms and provisions of the closing agreement can then be discussed with the taxpayer. At this point in the process, advise the taxpayer that the proposed terms of the closing agreement are subject to the Director's approval and could be subject to change.

  5. If the Specialist and taxpayer agree to the terms of the agreement, the Specialist should submit a draft closing agreement with the approved memorandum to the CA Coordinator for review with documented concurrence from the Field Manager.

  6. The CA Coordinator will review the agreement within 5 business days of receipt of and provide any comments to the Specialist, as necessary.

  7. When the agreement is complete it is sent to the Field Operations Manager for review and approval.

  8. If the agreement involves less than $250,000 in tax then 100% electronic exam case procedures may be followed. The taxpayer can sign and fax in the Closing Agreement. The signed copy will be forwarded to the Director for final execution.

  9. If the agreement involves more than $250,000 in tax then the paper agreement forms must be signed by the taxpayer in triplicate. All copies must be identical and have original signatures. Signed copies will be forwarded to the Director for final execution.

4.90.9.9.4  (10-01-2014)
Role of CPM Closing Agreement Coordinator

  1. The role of the CA Coordinator is to ensure the closing agreement process is consistent throughout FSLG and to provide a contact point for FSLG. The CA Coordinator has the following responsibilities:

    1. Reviewing all draft closing agreements in open exam cases and providing any necessary feedback. The CA Coordinator will also be responsible for obtaining initial concurrence from the FSLG Director.

    2. Working directly with the taxpayer and representative in cases where the taxpayer is not under examination. In these cases, the final closing agreement will be reviewed by the CPM manager and may be reviewed by Chief Counsel.

    3. Maintaining a database and hard copy file of closed closing agreements. The file will include an original Form 906, Closing Agreement, and all necessary supporting documentation.

4.90.9.9.5  (10-01-2014)
Case Closing Procedures for Ad Hoc Closing Agreements during Examination

  1. Upon receipt of approved closing agreement copies with the signature of the FSLG Director, the case will be closed using normal examination closing procedures per IRM 4.90.12, if all other exam issues are resolved. All closing agreement copies with original signatures will be retained in the case file closed to CPM. CPM will retain one copy with the case file, one copy for the Director's office and forward a copy to the taxpayer.

  2. Payments received with closing agreements will be posted to the account by completing Form 3244-A, Payment Posting Voucher, as instructed inIRM 4.90.9.15.1

4.90.9.9.6  (10-01-2014)
Case Closing Procedures for Ad Hoc Closing Agreements Walk Ins

  1. Taxpayers will be encouraged to pay through EFTPS but when the CA Coordinator receives a check payment with an executed closing agreement, a Form 3244-A, Payment Posting Voucher must be prepared and sent with a scanned copy of the check via email to the CPM Manager to review and sign.

  2. Once approved, the CA Coordinator can mail the payment to Ogden and then monitor the account to verify the funds have posted.

  3. Form 3870, Request for Adjustment, and Form 4668 will be prepared and sent to the CPM Manager for review and approval. The signed Form(s) 3870 are emailed to the CA Coordinator for import to the RCCMS Case file as well as to the FSLG AIMS Coordinator for processing.

  4. The CA Coordinator will monitor the pending adjustments and close the RCCMS case to the CPM Manager when the payments and adjustments have fully posted.

  5. The CPM Manager will review the case, annotate the Form 9984 and the case will be transferred to a CPM tax examiner for further monitoring.

  6. CPM will forward one signed copy of the agreement to the taxpayer, retain a copy of the closing agreement in the case file and retain a copy of the agreement for the FSLG Director's Office.

4.90.9.9.7  (10-01-2014)
Monitoring Closing Agreements Post Assessment

  1. The CPM Tax Examiner assigned will be responsible for monitoring the accounts in 30 and 60 day intervals after the posting of the assessment. The CPM Tax Examiner will verify that all assessments and transaction codes have posted properly and that no further claims or credits appear on the account. If the Tax Examiner identifies a problem, he or she will notify the CPM Manager for resolution. When 60 days have elapsed without any further activity on the account, the CPM Tax Examiner will make the appropriate documentation in the case history and process a request for closure of the RCCMS case to the CPM Manager for approval and final processing.

4.90.9.10  (10-01-2014)
Classification Settlement Program

  1. The Classification Settlement Program (CSP) establishes procedures that will enable taxpayers and the IRS to resolve worker classification cases as early in the administrative process as possible, thereby reducing taxpayer burden. The procedures also ensure that the taxpayer relief provisions under section 530 of the Revenue Act of 1978 are properly applied. By using the CSP, the FSLG Specialist can offer a government entity under examination a worker classification settlement using a standard closing agreement.

  2. All examinations that involve worker classification issues where the worker positions are not covered by a 218 Agreement must follow the CSP Procedures as explained in IRM 4.23.6.

  3. All examinations that involve worker classification issues where the worker positions are covered by a 218 Agreement must follow the Ad Hoc Closing Agreement procedures in 4.90.9.9.

4.90.9.10.1  (10-01-2014)
CSP Offer Case Closing Procedures

  1. Generally, regular examination case closing procedures apply with a few additional requirements. Those additional requirements are outlined in IRM 4.23.6.14. In part, the additional instructions provide for preparation of a CSP Settlement Memorandum; preparation of Form 906, Closing Agreement; use of standard CSP language; and changes to the audit report.

  2. CPM Review will forward one copy of Form 906, the CSP Settlement Memorandum, and the audit report to the designated FSLG CSP Coordinator at:

      Internal Revenue Service
    T:GE: FSLG:CPM
    1111 Constitution Avenue NW
    NCA 534-10
    Washington, D.C. 20224-0002
    ATTN: Closing Agreement Coordinator

4.90.9.10.2  (10-01-2014)
FSLG CSP Coordinator

  1. The role of the FSLG CSP Coordinator is to ensure the CSP is consistent throughout FSLG and provide a contact point for FSLG.

    1. The CSP Coordinator will maintain a file of closed CSP information. The file will include an original Form 906, Closing Agreement, settlement memorandum, and audit report.

    2. The CSP Coordinator will be responsible for maintaining the CSP database and providing summary information to the Director, FSLG.

4.90.9.11  (10-01-2014)
Tip Compliance Agreements

  1. IRM 4.23.7 provides information about employment taxes on tip income, tip agreements, employment tax tip examinations, etc. While tip income among government employees is not common, FSLG Specialists should consider, as a possible area of non-compliance, tips provided to employees of a food and beverage establishment that is operated by a government, such as a city-operated museum or convention center restaurant. Baggage handlers at a city-operated airport and employees at a city-operated golf course, recreation center, or tourist service, etc. may receive tip income as well.

  2. Developing a tip compliance agreement using the parameters outlined in IRM 4.23.7 may be appropriate.

4.90.9.12  (10-01-2014)
Penalties

  1. In the interest of equitable treatment of the taxpayer and effective tax administration, the non-assertion or abatement of civil penalties based on reasonable cause or other relief provisions provided in the IRM must be made in a consistent manner and should conform with the considerations specified in the Internal Revenue Code (IRC), Regulations (Treas. Regs.), Policy Statements, and IRM 20.1, Penalty Handbook.

  2. FSLG will only assess penalties during examinations. If delinquent returns are secured during a customer assistance contact or a compliance check, assist the customer by explaining reasonable cause criteria and help the taxpayer prepare an explanation for filing a late return.

  3. During examinations, you must consider and develop reasonable cause when issues arise for the assessment of penalties. Reasonable cause replaced due diligence as the standard for abatement of a penalty. Reasonable cause is discussed in depth in IRM 20.1.1 and in Policy Statement 3-2, formerly 2-7 (see IRM 1.2.12).

  4. If the taxpayer provides a valid reasonable cause argument, the Specialist must document his or her position and should not proceed with assessment of the penalty.

  5. If upon review of the taxpayer's argument the Specialist determines that reasonable cause does not exist, then he or she should recommend assessment of the applicable penalties and seek managerial approval.

  6. The Specialist should also focus on educating the entity about the errors and on gaining future compliance. FSLG maintains an ongoing effort to develop, monitor, and revise programs designed to assist taxpayers in complying with legal requirements, thus, avoiding penalties.

    Note:

    Federal agencies are not subject to penalties per Policy Statement 20-2, formerly P-2-4. (See IRM 1.2.20.1.2). However, backup withholding is a tax and not a penalty and should be considered when issues arise related to failure to file or furnish information returns.

  7. See IRM 4.90.4 for additional information about the penalties that FSLG Specialists will most frequently encounter, as well as direction on preparing an information return penalty package.

4.90.9.13  (10-01-2014)
IRC 3402(d) Tax Reduction Procedures

  1. To properly assess both income taxes under IRC 3402 or backup withholding under IRC 3406, together with any applicable penalties and interest, examiners will follow a modified Partial Assessment procedure when penalties are to be assessed. The procedures described below supplement IRM 4.23.10.16.2.

  2. IRC 3402(d) does not apply to the portion of federal income tax computed using IRC 3509 rates. If only IRC 3509 rates are used, line 12 of Form 4668 "Maximum tax available for abatement under IRC 3402(d)" should contain the word "NONE."

4.90.9.13.1  (10-01-2014)
IRC 3402(d) When No Penalties Are Proposed

  1. The Partial Assessment procedures are not used if penalties are not being proposed based on the amount of tax. The examiner will compute the tax due on Form 4668, or Form 4668-B, Report of Examination of Withheld Federal Income Tax for Withholding Reported on Forms 1099 and W-2G, based on the net adjustment using amounts from valid Forms 4669, Statement of Payments Received. The amount on line 12 of Form 4668 or line 20 of Form 4668-B will reflect the remaining amount of tax available for abatement after the IRC 3402(d) credit has been allowed during the examination. Forms 4666 and 2504 will also show this net figure. The assessment information and the credits and tax adjustments section of the RCCMS closing record will also reflect the net adjustments using amounts from the valid Forms 4669.

4.90.9.13.2  (10-01-2014)
IRC 3402(d) When Penalties are Proposed

  1. The modified Partial Assessment process must be used if penalties are to be assessed. This is a two-step process which ensures that the gross amount of tax, penalties, and interest are computed and assessed. The IRC 3402(d) credit is allowed only against this gross amount. The two-step process results in the generation of an initial billing notice for the gross amounts shown on Form 2504. The taxpayer will subsequently receive a second notice containing the abatements allowed in the examination upon final processing of Forms 4669 during the closing process. The examiner should discuss the two-step process with the taxpayer using the statement included on Form 4666. This should alleviate taxpayer concerns that Forms 4669 were not properly processed upon receipt of the first notice. See IRM 4.23.10.16.3.

    1. The first step is to create a partial closing record to assess full tax and penalties as reflected on Form 2504 (and/or Form 2504-WC if IRC 3509 rates are not used). In RCCMS, create a Closing Record for the Partial Assessment, following the procedures in the RCCMS Case Closing Guide. On the Closing Record for the Partial Assessment, make sure that the "Partial" box is checked. On the Closing Record, complete just the fields that are necessary for the Partial Assessment: ARDI code, disposal code, assessment information, and credit/tax adjustments. All examination adjustments, including any other employment tax issues other than the IRC 3402(d) items (fringe benefits, IRC 3509, penalties, etc.), are to be included on the Partial Assessment Closing Record. Enter "TC 308" (or "TC 300" if not interest free) for the gross tax amount. Enter the appropriate transaction code for the assessment of penalties based on the gross tax amount. Enter applicable reference fields for all adjustments of social security/Medicare wages and FICA/income tax/backup withholding taxes reflected on Forms 2504 and 2504-WC for the return.

    2. The second step is to create a "full" closing record. The IRC 3402(d) credit and all closing record items will be entered on this "full" closing record. The "Partial" box will not be checked. Enter ARDI, Disposal Code, Examiner's Time, Technique Code, and Specialist's Name. The adjustment on the "full" closing record will reflect only amounts related to the IRC 3402(d) credit-allowed portion. For the transaction code, enter the amount of tax credit allowed based on valid Forms 4669 as a "309" (or "301" if not interest free) and the corresponding reduction in the income tax withholding or backup withholding in the reference number fields. Other sections to complete include related return information, principal issue codes, and employment tax/GE (under additional data).

    3. Specialists should follow the instructions provided in IRM 4.23.10.16.3 to prepare Forms 4666, 4668, and 2504 when IRC 3402(d) applies.

4.90.9.14  (10-01-2014)
Report Writing

  1. This subsection discusses instructions for preparation of examination reports covering employment tax examinations. It also references certain related procedures which are not purely of a report writing nature but which are necessary both for an efficient report writing system and to reduce examination time.

  2. The Specialist’s report is the record of findings and recommendations regarding the investigation of a taxpayer’s liability for tax. It is the document from which reviewers may determine whether the Specialist has properly developed the case and has correctly applied the law, regulations, etc., to the facts in the particular case. Also, it may become the evidence on which the Government relies in a court case. Since the taxpayer ordinarily receives a copy of the report, it serves as a formal presentation to the taxpayer of the findings and recommendations of the Specialist.

  3. Preparation of an examination report is a very important part of the Specialist’s duties. The examination report should be clear, concise, and to the point. All adjustments must be properly explained and supported by appropriate references to the applicable laws, regulations, court decisions, rulings, etc., on which the Specialist based the findings.

4.90.9.14.1  (10-01-2014)
Employment Tax Examination Reports

  1. See IRM 4.23.10 – Report Writing Guide for Employment Tax Examinations, for instruction on the preparation of reports covering examination of employment tax returns.

  2. The Specialist prepares and provides the examination report to the taxpayer and solicits agreement. If necessary, a cover letter can be drafted by the Specialist when the report is issued by mail. The letter should remain undated until issued.

  3. Where possible, all correspondence with taxpayers should be prepared using standard forms and letters, since the specific language in these documents has been approved for general use. Examiners are never authorized to modify the context of National letters and forms except for short-term changes. (4.10.1.5.3.2) Written Communication.

  4. Specialists are not authorized to develop local letters that will be sent to more than 10 taxpayers. These letters must be approved by Headquarters. See IRM 1.17, Multimedia Publishing, for these requirements and procedures.

  5. The following table provides a list of the most commonly used closing letters and indicates who is responsible for preparing and mailing the letter.

    Letter Number Prepared by Mailed by
    L 5376 (Full or Partial Claim Disallowance - Employment Tax) Specialist Specialist
    L-570, (Claim Allowed In Full, Mandatory Review). Specialist (undated) CPM
    L-570 ((Claim Allowed in Full, Sample Review) Specialist Manager
    L-590 (No Change, Mandatory Review) Specialist (undated) CPM
    L-590 (No Change, Sample Review) Specialist Manager
    L-905 (Letter Notifying Taxpayer of Partial Refund Claim Disallowance) CPM CPM
    L-906 (Certified Claim Disallowance Letter) CPM CPM
    L-950-C or L-950-D Specialist Specialist
    L-1002 (Notification Letter-Agreed Audit Changes, Mandatory Review) CPM CPM
    L-1002 (Notification Letter-Agreed Audit Changes, Sample Review) Specialist Manager
    L-3523, (Notice of Determination of Worker Classification) CPM CPM
  6. Any executed Form 2504 or 2504-WC, Agreement to Assessment and Collection of Additional Employment Tax and Acceptance of Overassessment in Worker Classification Cases, received from a taxpayer must be date stamped on the day received.

    1. Original paper Forms must be date stamped in the upper right corner

    2. If the Form is received via EEFax then the file itself contains the date and time stamp it was sent to IRS and no further action is required to evidence receipt.

    3. If the Form is received via facsimile and the date and time stamped by the sender’s fax machine is correct no further action is required to evidence receipt. If the sender’s date and time stamp is not correct you must treat it as a paper form and use the procedures in (1) above.

  7. If required, Forms W-2/W-3 or W-2c/W-3c are not secured during the exam, then the Specialist should include the address of the TE/GE closing unit on Form 4668.

  8. Generally, the Specialist should attach to the Form 4668 a listing of each affected worker and, for each worker, the wage and employment tax adjustment. The list should provide: the worker's name, SSN, amount of adjustment to total compensation, FICA and Medicare wages, as well as related employment tax adjustments.

4.90.9.14.2  (10-01-2014)
Survey of Employment Tax Return Before Assignment

  1. See IRM 4.23.10.4, Survey of Employment Tax Return Before Assignment, for instructions on the required procedures to be completed.

  2. Close on RCCMS using disposal code 910.

  3. Surveys can generally be closed with a solely electronic case file.

4.90.9.14.3  (10-01-2014)
Survey of Employment Tax Return After Assignment

  1. IRM 4.23.10.5, Survey of Employment Tax Return After Assignment, provides general instructions on procedures to be used for surveys of employment tax returns after assignment.

    Note:

    Examinations cannot be surveyed and converted to a customer assistance contact.

  2. In addition, the Specialist should prepare Form 5596, TE/GE Non-Examined Closings, with a disposal code 32 and close the case on RCCMS using disposal code 908.

  3. Form 2503, Survey After Assignment-Excise or Employment Tax, must be completed on all FSLG cases surveyed after assignment to explain the reason for the survey action.

  4. Complete the FSLG Case Data (FCD) Form and check the applicable boxes indicating "Survey" in part II, under "SURVEY INFORMATION" .

  5. If the original return is not in the file, refer toIRM 4.90.9.1 for return document procedures. Surveys can generally be closed with a solely electronic file.

  6. Short statute procedures apply to surveys of employment tax examinations. Refer toIRM 4.90.9.10 for instructions related to use of red folders and Form 895, Notice of Statute Expiration.

  7. When a Specialist is establishing a subsequent period for the same taxpayer, he or she will complete the ESTABLISH steps to establish a new activity on RCCMS, using activity code 465 and the period. The specialist should use the same source code that was used by CPM to establish the original case. The Specialist will also save the same FCD into the new RCCMS file for this subsequent period.

  8. In rare circumstances, a return may be surveyed after the taxpayer has been contacted, but before records have been requested or inspected. Normal survey procedures should be followed and Letter 1024, Return Accepted as Filed, should be issued. See IRM 4.23.10.5.

4.90.9.14.4  (10-01-2014)
No-Change Cases

  1. In general, FSLG examines all quarters of a calendar year concurrently; books and records for the entire year are requested and examined. The taxpayer is entitled to a report that addresses all quarters examined.

  2. When an examination results in no changes to all quarters, all quarters will be closed "no- change."

  3. If the Specialist notifies a taxpayer that only one period is under audit and limits the examination to that period, then it is appropriate to issue a no-change report on only that quarter.

4.90.9.14.4.1  (10-01-2014)
No-Change Report

  1. The Specialist will provide the taxpayer a no-change report on Form 4666 indicating the year(s) and return form(s) examined and closed as no-change. The report should indicate that the findings are subject to managerial approval. The Specialist may draft a custom letter as a transmittal if the no change report is issued by mail. Letter 590 should be prepared and issued to the taxpayer with a copy of Form 4666, including the appropriate 530 limitation language.

4.90.9.14.5  (10-01-2014)
Examination Resulting in Both Change and No-Change Periods

  1. In general, when an agreed examination results in changes to some quarters and no change to others, treat the employment tax case as an agreed "change" case. One letter and one report will be issued that addresses the no-change periods, and the periods with the changes, following the procedures outlined in IRM 4.23.10.12.4(9). Specifically, the following guidance should be followed:

    1. Always use Form 4666 to summarize all examined periods.

    2. Report the no-changes in the summary section of Form 4666 by entering the period and return form number, writing "No-Change" in the tax column, and entering a dash in the page column.

    3. Do not complete Forms 4668 for the years no-changed. The changes will be reported as usual, including entering the examination results in the summary portion of Form 4666.

    4. Enter the adjustment information on Form 4668 for only the quarters being changed. On a multiple-year examination, if no quarter during the year is changed, then no Form 4668 is necessary.

4.90.9.14.6  (10-01-2014)
530 Limitation Language

  1. The examination of a taxpayer’s employment tax returns may or may not include the classification of the taxpayer’s workers as employees rather than independent contractors.

  2. Section 530 of the Revenue Act of 1978, as amended, provides that:

    Taxpayer may not rely on an audit begun after December 31, 1996, for purposes of subparagraph (B) [of subsection (a)(2), past IRS audit] thereof "unless such audit included an examination for employment tax purposes of whether the individual involved (or any individual holding a position substantially similar to the position held by the individual involved) should be treated as an employee of the taxpayer."

  3. Language must be included on information document requests and examination reports to address Section 530 issues including identification of or development of worker classification issues, the specific classes of workers examined, etc. The purpose of this language is to limit Section 530 exposure for subsequent periods to only classes of workers examined. Information on the location of worker classes is needed only when the examination was limited to worker classes within a particular agency, department, or school, in order to limit Section 530 prior audit exposure to the particular agency, department, or school examined.

4.90.9.14.6.1  (10-01-2014)
530 Limitation Language on IDRs

  1. Whenever worker classification issues are raised on an information document request (IDR), the IDR must specify the worker classification(s) (including location(s)) that are being examined. In addition, language should be used that limits Section 530 exposure to only classes of workers being examined and that are not reclassified. The following is an example of language that is appropriate when requesting information related to a specific class of workers:

    Please answer the following questions related to [CLASS OF WORKER(S)/LOCATION(S)]. The only class of worker that will be examined based upon information provided in response to this document request is [CLASS OF WORKER(S)/LOCATION(S)].

4.90.9.14.6.2  (10-01-2014)
530 Limitation Language on Form 4666

  1. Upon closing an examination, 530 limitation language must be inserted on all Form(s) 4666. This applies regardless of whether or not worker classification was an issue identified during the exam. The appropriate 530 limitation language to use will vary depending upon whether any worker issues were audited, and whether a worker classification examination resulted in a worker reclassification. The following scenarios capture the most common examination results.

    • Scenario #1: The results of the examination include an employment tax assessment, but the examination did not include either the identification of or the development of the worker classification issue, including requests for information or discussion regarding a reclassification issue. The following language will be inserted in the "other information" section of Form 4666. "The examination of your employment tax returns as reflected on this Agreement did not include an examination for employment tax purposes of whether any individuals should be treated as your employees for purposes of Section 530 of the Revenue Act of 1978 as amended by Section 1122 of the Small Business Job Protection Act of 1996."

    • Scenario #2: An examination assessment will be made, and includes identification of or the development of worker classification issues, including requests for information or discussion regarding a reclassification issue but there will be no change related to the worker classification issue. Language will be inserted in the "other information" section of Form 4666 that specifies the classes of workers examined and limits Section 530 exposure to those classes of workers examined. For example, the following language is appropriate: "The examination of your employment tax returns as reflected on this Agreement included an examination for employment tax purposes of whether [CLASS OF WORKER(S)/LOCATION(S)] should be treated as employees of the taxpayer. Section 530 of the Revenue Act of 1978 as amended by Section 1122 of the Small Business Job Protection Act of 1996 provides that taxpayers may rely on a prior audit commenced after December 31, 1996, when the audit included an examination for employment tax purposes of whether the individual involved (or any individual holding a position substantially similar to the position held by the individual involved) should be treated as an employee of the taxpayer. Based upon this examination, you may rely only on the audit of [CLASS OF WORKER(S)/LOCATION(S)] for purposes of the prior audit safe haven for satisfying the reasonable basis requirement of Section 530."

    • Scenario #3: An examination assessment will be made and the examination included identification of or the development of worker classification issues, including requests for information or discussion regarding a reclassification issue, and there will be some, but not all, classes of workers reclassified. Language will be inserted in the "other information" section of Form 4666 that specifies the classes of workers examined and limits Section 530 exposure to those classes of workers examined and not reclassified. For example, the following language is appropriate: "The examination of your employment tax returns as reflected on this Agreement included an examination for employment tax purposes of whether [CLASS OF WORKER(S)/LOCATION(S)] should be treated as employees of the taxpayer. Section 530 of the Revenue Act of 1978 as amended by Section 1122 of the Small Business Job Protection Act of 1996 provides that taxpayers may rely on a prior audit commenced after December 31, 1996, when the audit included an examination for employment tax purposes of whether the individual involved (or any individual holding a position substantially similar to the position held by the individual involved) should be treated as an employee of the taxpayer. Based upon this examination, you may rely only on the audit of [CLASS OF WORKER(S)/LOCATION(S)] that did not result in a reclassification for purposes of the prior audit safe haven for satisfying the reasonable basis requirement of Section 530."

    • Scenario #4: The results of the examination include reclassification of all workers examined. Language should be inserted in the "other information" section of Form 4666 that specifies the classes of workers examined and indicates that no worker classifications are covered under the Section 530 safe haven, because all workers audited were reclassified. For example, the following language is appropriate: "The examination of your employment tax returns as reflected in this report included an examination for employment tax purposes of whether [CLASS OF WORKER(S)/LOCATION(S)] should be treated as employees of the taxpayer. Section 530 of the Revenue Act of 1978 as amended by Section 1122 of the Small Business Job Protection Act of 1996 provides that taxpayers may rely on a prior audit commenced after December 31, 1996, when the audit included an examination for employment tax purposes of whether the individual involved (or any individual holding a position substantially similar to the position held by the individual involved) should be treated as an employee of the taxpayer. Based upon this examination, you may not rely on the audit of any classes of workers for purposes of the prior audit safe haven for satisfying the reasonable basis requirement of Section 530, because all workers audited were reclassified as employees."

    • Scenario #5: The examination results in no-change, and the examination did not include either the identification of or the development of the worker classification issue, including requests for information or discussion regarding a reclassification issue. The following language will be inserted in the "other information" section of Form 4666: "The examination of your employment tax returns did not include an examination for employment tax purposes of whether any individuals should be treated as your employees for purposes of Section 530 of the Revenue Act of 1978 as amended by Section 1122 of the Small Business Job Protection Act of 1996."

    • Scenario #6: The examination results in no-change, but the examination included identification of or the development of worker classification issues, including requests for information or discussion regarding a reclassification issue. Language should be inserted in the "other information" section of Form 4666 that specifies the classes of workers examined and limits Section 530 exposure to those classes of workers examined. For example, the following language is appropriate:"The examination of your employment tax returns included an examination for employment tax purposes of whether [CLASS OF WORKER(S)/LOCATION(S)] should be treated as employees of the taxpayer. Section 530 of the Revenue Act of 1978 as amended by Section 1122 of the Small Business Job Protection Act of 1996 provides that taxpayers may rely on a prior audit commenced after December 31, 1996, for Section 530 purposes when the audit included an examination for employment tax purposes of whether the individual involved (or any individual holding a position substantially similar to the position held by the individual involved) should be treated as an employee of the taxpayer. Based upon this examination, you may rely only on the audit of [CLASS OF WORKER(S)/LOCATION(S)] for purposes of the prior audit safe haven for satisfying the reasonable basis requirement of Section 530."

4.90.9.15  (10-01-2014)
Remittance Processing Procedures

  1. The following procedures should be followed for processing payments.

4.90.9.15.1  (10-01-2014)
Processing Check Payments

  1. Upon receipt of a payment, the Specialist should prepare Form 3244-A. Complete a separate Form 3244-A for each tax year and class of tax involved. See Exhibit 4.4.24-1 Preparation of Form 3244-A for detailed instructions.

  2. Checks should be made payable to "United States Treasury" . If the payee section is blank or illegible, it must be over-stamped "United States Treasury" .

  3. The Specialist will transmit the payment(s) and related Form(s) 3244-A to Ogden via Form 3210 within 24 hours. All payments must be double-wrapped (with the payment placed in a security envelope inside of the overnight mail envelope) and marked or delivered via overnight traceable method. (A receipted copy of Form 3244-A may be used in lieu of Form 3210 only for payments which are hand-carried to a local remittance processor. This occurrence is not common.)

  4. If a remittance must be held overnight, it must be stored securely in a locked container.

  5. Form 3210 should be prepared in triplicate. Two copies should accompany a payment being sent to the processing center. If the payment applies to more than one tax period, the breakdown should be on Form 3210. The payment should be stapled to the front of Form 3244-A, and sent with Form 3210 by overnight mail.

  6. The mail service tracking number should be included on Form 3210. Form 3210 should also include taxpayer name, TIN, tax return form number, payment amount, and check number. Copies of all forms should be retained in the case file. Electronic copies may be imported to RCCMS.

  7. To comply with the concept "segregation of duties" copies of Form 3210, 3244-A, and the checks should be faxed (or scanned/e-mail) to the employee's manager. The manager will approve the copies and alert the employee to transmit the originals to Ogden. Maintain a log at the managerial level. The Specialist should maintain a separate log of Forms 3210.

  8. The remittance package will consist of the payment(s), Form(s) 3244-A, and Form 3210. Send the package to the Ogden address shown in 4.90.9.15.2.

  9. The sender must establish a control to ensure delivery of tax receipts. The control must include amounts of taxpayer receipts by TIN, correlated to the package tracer information.

  10. Copies of Form 3244-A are not required to be attached to the return document in a paper case file as long as electronic copies are in the RCCMS file. However, if a paper case is going to Appeals, attach Form 3244-A to the return document.

  11. Submission processing centers must return acknowledgement copies of transmittals to originators within five workdays. The Specialist must follow up with the processing center within ten workdays if payment packages have not been acknowledged.

4.90.9.15.2  (10-01-2014)
Advanced Payments

  1. Payments of less than $100,000 secured as "Advance Payment on Deficiency" (TC 640) - secured as part of an audit should be sent (overnight delivery) with Form 3244-A via Form 3210 to:

      Internal Revenue Service
    1973 North Rulon White Blvd.
    Receipt & Control Operations Manager
    Mail Stop: 1999
    Ogden UT 84404
  2. Payments of $100,000 and more secured as "Advance Payment on Deficiency" (TC 640) - secured as part of an audit require additional steps. E-mail a copy of Form 3210 to &CTR ODN Ogden Tellers. The payment should be sent overnight with Form 3244-A via Form 3210 to:

      Internal Revenue Service
    1973 North Rulon White Blvd.
    Receipt & Control Operations Manager
    Mail Stop: 2003
    Ogden, UT 84404

4.90.9.15.3  (10-01-2014)
EFTPS Option

  1. Taxpayers have the option to pay deficiencies using EFTPS (Electronic Federal Tax Payment System). Although not required, EFTPS streamlines payment processing.

  2. Payments will post to IDRS within days if the taxpayer uses EFTPS. Verify the payments have posted to the proper periods on IDRS before closing the case from the group and document Form 9984 that EFTPS payments posted properly.

4.90.9.16  (10-01-2014)
Procedures for Processing Related Returns

  1. Related cases generally should be closed simultaneously with the primary return.

  2. The Specialist may consider closing related cases separately, where issues are not interrelated, and separate closing(s) would avoid unnecessarily long delays in processing no-change or agreed cases. (3) The Specialist should include copies of all materials necessary to document any adjustment proposed in related case file(s) in the primary case file.

  3. The Specialist should include copies of all materials necessary to document any adjustment proposed in related case file(s) in the primary case file.


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