1.4.40  SB/SE Field and Office Examination Group Manager

Manual Transmittal

February 03, 2015


(1) This transmits a limited revision of IRM 1.4.40, Resource Guide for Managers, SB/SE Field and Office Examination Group Manager.

Material Changes

(1) This IRM has only been updated to reflect changes as identified in the subsections below. Content outside the subsections listed below was not reviewed for currency or accuracy.

(2) Minor editorial changes have been made throughout this IRM and website addresses were reviewed.

(3) Significant changes to this IRM are listed in the table below.

Prior IRM Reference New IRM Reference Description of Change
IRM IRM Updated the definition for RA overage.
IRM IRM Clarified instructions for group manager documentation in the case file.
IRM IRM Revised to provide additional guidance to group managers when monitoring 30-day letters.
IRM IRM Added guidance for group managers when assigning project work to new examiners and reminder regarding the statute of limitations.
N/A IRM Added new section to provide guidance for transferring tax returns from office to field examination.
IRM IRM Updated guidance for case closing procedures.
IRM IRM Updated guidance for the Group Manager Concurrence Meeting.
IRM IRM Updated information to clarify the role of Appeals and Counsel.

Effect on Other Documents

IRM 1.4.40, dated May 19, 2010, is superseded. This IRM incorporates Interim Guidance Memorandum SBSE-04-0115-0004, Reissuance Guidance for Group Manager Concurrence Meeting (GMCM) dated 01-20-2015, Interim Guidance Memorandum SBSE-04-1213-0098, Reissuance Guidance for Group Manager Concurrence Meeting (GMCM) dated 12-18-2013, Interim Guidance Memorandum SBSE-04-0312-023, Group Managers Concurrence Meeting (GMCM) dated 03-16-2012, and Interim Guidance Memorandum SBSE-04-0714-0024, Interim Guidance Memorandum Regarding Changes to Statute of Limitations Period for Appealed Cases dated 07-09-2014.


SB/SE Field Examination

Effective Date


Joseph L. Wilson
Director, Field, Campus Exam and AUR Policy, SE:S:E:HQ:EP
Small Business/Self-Employed Division  (05-19-2010)

  1. This section is a supplement to the general guidelines for all group managers contained in IRM 1.4, Resource Guide for Managers.

  2. This section is intended for a first level manager in an Area examination group. This IRM applies to both field and office examination group managers unless specifically directed to "Field " or "Office" Examination.

  3. General guidelines are also found at these links:

    1. Managers' iManage resource center located at https://portal.ds.irsnet.gov/sites/iManage/SitePages/Home.aspx.

    2. Performance Management website located at http://hco.web.irs.gov/perfmgmt/index.html.

    3. Human Capital Office website located at http://hco.web.irs.gov/.

    4. National Agreement Resource Center located at http://hco.web.irs.gov/lrer/negotiations/natagree/index.html.  (05-19-2010)
Operating Divisions

  1. Compliance activities are divided into categories. A general distinction is those activities that require face-to-face interaction and those that can be accomplished without face-to-face interaction. The Service has four operating divisions, each serving a group of taxpayers with similar needs:

    1. Wage and Investment (W & I), serves individual taxpayers, including those who file jointly, with wage and investment income. Compliance issues are found on a limited range of issues such as dependent exemptions, credits, filing status and deductions.

    2. Small Business and Self-Employed (SB/SE), serves approximately 57 million taxpayers comprised of self-employed persons, supplemental income earners, small business corporations and partnerships with assets of less than $10 million, and filers of employment, excise, estate, gift and fiduciary returns.

    3. Large and Mid-Size Businesses (LMSB), serves corporations, subchapter S corporations, and partnerships with assets greater than $10 million. These entities typically have large numbers of employees, deal with complicated issues involving tax law and accounting principles, and conduct their operations in an expanding global environment.

    4. Tax-Exempt and Government Entities (TE/GE), serves employee plans, exempt organizations and governmental entities.  (05-19-2010)
SB/SE Organizational Structure

  1. SB/SE compliance functions are aligned along program lines: Examination, Collection, Specialty Programs, Fraud/BSA and Campus Compliance Services.

  2. The organizational framework for the compliance structure is:

    1. Examination provides SB/SE taxpayers service by helping them understand and meet tax responsibilities and by applying the tax law with integrity and fairness. See IRM, SB/SE Examination Structure, below for Examination field structure.

    2. Collection secures delinquent taxes and returns. See IRM, Collection.

    3. Specialty Programs provide leadership and direction in the design, development, and delivery of excise taxes, employment taxes, estate and gift taxes and support the comprehensive tax administration program designed to enhance taxpayer compliance. See IRM, Specialty Programs.

    4. Fraud/ BSA has two program areas:
      (1) The Fraud program provides leadership and support for the administration of the service-wide fraud program by assisting in both criminal and civil enforcement in a manner that fosters public confidence in the tax system while providing quality and timely service to our stakeholders. See IRM, Fraud.
      (2) The BSA (Bank Secrecy Act) program is responsible for conducting examinations to ensure businesses meet all of their reporting and record keeping requirements; analyzing examination results and other data sources; and working with SB/SE Stakeholder Liaison to identify those areas where education and outreach efforts can be most productive. See IRM , Bank Secrecy Act.

    5. Campus Compliance Services provide post-filing services to SB/SE taxpayers by effectively managing the remote collection program, remote examination program, the Insolvency program, and Centralized Case Processing (CCP). See IRM, Compliance Managers Overview paragraph (4) and IRM, Campus Compliance Services.  (05-19-2010)
SB/SE Examination Structure

  1. The SB/SE Examination structure is comprised of the following:

    1. Examination Field Areas - See IRM,

    2. Examination Operations Support - See IRM,

    3. Examination Policy - See IRM,

    4. Examination Planning and Delivery - See IRM,

    5. Abusive Transactions and Technical Issues - See IRM, and

    6. Technical Services - See IRM  (05-19-2010)

  1. This section describes the role of a field and office examination group manager.  (05-19-2010)
Role of a Group Manager

  1. A group manager is responsible for the actions of a group of employees and instilling organizational values by providing direction and leadership. In addition to providing written and verbal directions, a group manager must lead by example.

  2. A group manager serves as a role model for subordinates, is responsible for encouraging change, and providing suggestions to implement programs.

  3. A group manager is also responsible for developing employees and for inventory management. Listed below are some areas requiring managerial involvement:

    • Communicating the mission of the Service

    • Ensuring the actions of the workgroup are aligned with the mission of the Service

    • Transferring skills, knowledge, and experience

    • Empowering employees with additional responsibilities

    • Providing training and developmental experiences  (05-19-2010)
Balanced Measures

  1. The mission statement for the Service sets forth the overall purpose and direction of our operations. The mission focuses on three strategic goals:

    • Service to each taxpayer

    • Service to all taxpayers

    • Productivity through a quality work environment

  2. In order to assess progress in meeting these goals, the IRS developed a set of balanced measures in three major areas:

    • Customer Satisfaction

    • Employee Satisfaction

    • Business Results

  3. Customer Satisfaction – is defined as providing accurate and professional services to internal and external customers in a courteous and professional manner. Examples include:

    • Communicating effectively

    • Providing timely service

    • Empathizing with customers

    • Discussing how the IRS is using customer surveys with employees

  4. Employee Satisfaction – is defined as the measure made up of employee perceptions of the management practices, organizational barriers, and the overall work environment that affects their efforts to do a good job. Examples include:

    • Having a dialogue with employees

    • Identifying employees' training needs

    • Ensuring employees receive the training they need to perform job task

    • Elevating employee workplace issues

  5. Business Results – is defined as generating a productive quantity of work in a quality manner and providing meaningful outreach to all customers. Examples include:

    • Identifying resources required for employees to adequately perform their jobs

    • Developing work processes to achieve the Service's goals in the most efficient and effective manner

    • Engaging employees and embracing ideas that provide best practices for work processes

    • Interacting regularly with employees to identify opportunities for improving work processes

    • Recognizing that the group's work is part of the delivery of a servicewide goal  (05-19-2010)

  1. A group manager's accomplishments will be measured by leadership competencies that are linked with the Balanced Measurement System. The leadership competencies are grouped by primary core responsibility areas:

    • Leadership

    • Employee Satisfaction

    • Customer Satisfaction

    • Business Results

    • EEO  (05-19-2010)
Managing Statistics

  1. Refer to IRM 1.5.1, The IRS Balanced Measurement System: A New Approach to Measuring Organizational Performance Handbook, for additional information.

  2. No goals or targets will be set for Records of Tax Enforcement Results (ROTERS). See 26 CFR 801.1 through 801.8.  (05-19-2010)
Annual Examination Goals

  1. An examination business plan is developed annually at the headquarters level. The plan is then subdivided into smaller components to set goals at the operating unit level, Area level, and territory level. Work plans are developed for each level.  (02-03-2015)
Definition of Terms

  1. In order to properly understand the business plan goals that are set, a group manager must know the definition of key terms. These include:

    Base Inventory Inventory Necessary to Deliver the Workplan
    Cycle Time Length of Time a Return is in process (status 12 to 80-90)
    DCT Direct Compliance Time (See IRM, Direct Compliance Activities-SBSE
    DESY Direct Exam Staff Year
    DET Direct Exam Time (See IRM, Direct Examination Activity- LMSB
    FTE Full Time Equivalent
    Overage When a case is in process in excess of 180 days for Office Examination and 270 days for Field Examination. See IRM, Ensure Timely Actions.
    Rate Hours Per Return
    Staff Year Approximately 2000 Hours per year  (05-19-2010)
Performance Feedback

  1. The primary responsibility for case quality is at the group level. A group manager conducts both technical, procedural and administrative reviews. These reviews are generally workload reviews, closed case reviews, in-process reviews, on the job visits, and technical time report reviews (Exam Technical Time Report (field examination) and Tax Auditor Daily Report (office examination)). Reviews may be either informal or formal. Informal reviews may not require written documentation. See IRM, Guiding and Evaluating Employees, for specific guidance. All documented reviews must be conducted on the Embedded Quality Review System (EQRS).


    The requirement to conduct all reviews on EQRS does not include reviews on Critical Job Element 1 - Employee Satisfaction.

  2. EQRS is used to conduct all managerial reviews of examiners. EQRS automatically links the quality attributes to an employee's critical job elements and provides a group manager with reports on the performance of employees. The reports provide information on performance relative to the attributes and the critical job elements. The National Quality Review System (NQRS) is a parallel system to EQRS that uses quality attributes to provide an assessment of organizational quality results. The EQRS and NQRS quality attributes are found in the Attribute Job Aid, Document 12354, Field Compliance Embedded Quality, Field & Office Examination Job Aid. IRM, NQRS and EQRS Reports, for additional information regarding the NQRS system.

  3. All group managers must complete the Embedded Quality (EQ) training available on ELMS at https://elms.web.irs.gov/ prior to conducting reviews on EQRS. The course numbers are #22339 for Field Exam and #26807 for Office Exam.

  4. Contact your Area EQ Coordinator if you have specific EQRS related questions. Area EQ Coordinator contacts can be located at http://mysbse.web.irs.gov/examination/examinationeq/contacts/default.aspx.

  5. Listed below are additional resources that provide guidance to assist in conducting reviews on EQRS:

    1. Examination page located at http://mysbse.web.irs.gov/examination/examinationeq/default.aspx on the Embedded Quality website;

    2. Exam Guide to Applying Attributes in Case Reviews located under Manager Case Reviews on the Examination Page at http://mysbse.web.irs.gov/examination/examinationeq/mgrcasereview/attributes/guide/default.aspx;

    3. Multi-Review Case Guidance located under Manager Case Reviews Examination page at http://mysbse.web.irs.gov/examination/examinationeq/mgrcasereview/ettr/default.aspx . This document will provide helpful guidance for conducting Workload and Examination Technical Time Reviews

  6. See IRM, ERCS Reports, for ERCS reports that may be useful in conducting a case review.  (05-19-2010)
Dealing with Taxpayers and External Customers

  1. All contacts must be conducted in a professional and competent manner. IRM, Ensure Quality Taxpayer Communication, provides information regarding the importance of quality communications.

  2. All contacts must be conducted in a fair and impartial manner.

  3. A group manager must ensure employee contacts are conducted in a manner that is conducive to promoting a positive image of the Service.

  4. When appropriate standardized forms and letters are available, they must be used. The specific wording in these documents has been approved.

  5. Examiners must receive approval from their group manager prior to preparing original correspondence. A group manager must approve the content prior to its use and such approval must be documented in the case file. See IRM, Making Initial Contact, for additional guidance.

  6. See IRM, Taxpayer Rights, for additional information concerning taxpayer rights and employee responsibilities when contact is made with taxpayers.

  7. A group manager must have an in-depth working knowledge of the content of Circular 230, Regulations Governing the Practice of Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries, and Appraisers.  (05-19-2010)
Taxpayer Concerns or Complaints

  1. Ensuring good customer relations with taxpayers is important. A group manager must listen to a taxpayer's concerns or complaints. Complex tax laws and procedures are often the source of many concerns or complaints. A simple explanation or clarification is generally sufficient to resolve most concerns.

  2. One of a group manager's responsibilities is to facilitate discussions between employees and taxpayers. Let the taxpayer fully explain their position. Neither agree nor disagree with the taxpayer until the employee has responded to the taxpayer's concerns. A group manager should avoid quick answers until they are in a position to make a fair and objective decision based on the facts presented by all parties to the examination. After all the facts are determined, a group manager or their employee should promptly respond to the taxpayer's complaint.  (05-19-2010)
Management Responsibility Regarding Right of Consultation

  1. Taxpayers have the right to representation at any time during the examination process. If a taxpayer requests time to secure representation, a group manager must ensure examiners allow a reasonable amount of time to do so.

  2. Group managers must take steps to ensure that examiners are complying with IRC 7521, Procedures Involving Taxpayer Interviews. Specifically, examiners are required to:

    1. Stop the interview with a taxpayer (unless the interview was initiated by an administrative summons issued to the taxpayer under subchapter A of Chapter 78 of the IRC) whenever a taxpayer requests to consult with a representative who is permitted to represent taxpayers before the IRS (for example, certified public accountant, attorney or enrolled agent).

    2. Observe the right of the taxpayer to not accompany the representative during an interview in the absence of an administrative summons issued to the taxpayer under Chapter 78, Discovery of Liability and Enforcement of Title, subchapter A, Examination and Inspection, of the IRC.

    3. Obtain appropriate managerial approval to notify the taxpayer, if the employee believes the representative is responsible for unreasonably delaying or hindering the examination of the taxpayer.

  3. Opportunities to reinforce and ensure compliance with IRC 7521 by examiners are:

    • Group meetings

    • Case reviews

    • Workload reviews

    • Field visitations

    • Office visitations

    • Taxpayer/representative inquiries

  4. See IRC 7521(b)(2), and IRC 7521(c), as well as IRM, Request for Representation-Suspension of Interview, and IRM, By-pass of a Representative, for more detailed information pertaining to complying with IRC 7521.  (05-19-2010)
Procrastinating Taxpayers and Representatives

  1. Group managers must effectively interact with taxpayers and representatives. Group managers must maintain control over in-process examinations and not permit taxpayers and/or representatives to attempt to stall progress. See IRM 4.11.55, Issues Involving a Taxpayer's Representative, and IRM 4.11.51, Return Preparer Program, for guidance.  (05-19-2010)
Bypass of a Representative

  1. If a representative fails to timely respond to an examiner and is creating a hindrance, procrastination, or unreasonable delay, a group manager should review the facts and circumstances to determine if a bypass is warranted.

  2. The authority for bypass procedures are found in Treas. Reg. § 601.506(b). A bypass permits an examiner to contact a taxpayer directly to request information necessary to complete an examination. The representative still continues to represent the taxpayer and is provided copies of all correspondence provided to the taxpayer. IRM , Bypass of a Representative, details the procedures for bypass of a representative.  (05-19-2010)
Time Accounting Responsibilities

  1. Time and attendance is documented in the Single-Entry Time Recording (SETR) portion of the Totally Automated Personnel System (TAPS).

  2. A group manager is responsible for the following:

    • Ensuring that the time and attendance records are correct for each reporting period

    • Administering the leave rules, regulations, and procedures in accordance with established IRS policies, while balancing the needs of both the Service and employees

    • Complying with all requirements for scheduling and documenting leave, including securing any required signatures

    • Establishing leave schedules early in the year to provide for adequate coverage at all times, to afford employees the opportunity to use their annual leave, and to avoid forfeiture of leave and compensatory time

    • Ensuring leave charges are properly recorded to the appropriate leave category

    • Counseling employees on policies, regulations, and procedures related to leave and absence

    • Identifying and correcting, by appropriate methods, abuse of leave

    • Timely requesting and receiving authorization for overtime and for compensatory time from the appropriate management level. This is done using Form 2787, Authorization and Report of Overtime Worked

    • Reporting pay and leave issues to the servicing Transactional Processing Center (TPC) and working with them to resolve problems

  3. The group manager is also responsible for checking Document 11678, National Agreement II - Internal Revenue Service (IRS) and National Treasury Employees Union (NTEU), hereinafter referenced as Document 11678, National Agreement II for leave policies and procedures. The following Agreement Articles may be of interest:

    • 22 - Work Schedules

    • 23 - Hours of Work

    • 24 - Overtime

    • 31 - Leave Sharing Program

    • 32 - Annual Leave

    • 33 - Family Leave

    • 34 - Sick Leave

    • 35 - Leaves of Absence

    • 36 - Administrative Leave  (05-19-2010)
Workload Planning

  1. This subsection provides specific guidance on workload processes and tools available to a group manager to effectively and efficiently manage a group. Included is information relative to the various automated systems that a group manager has responsibility for ensuring are updated and safeguarded.

  2. A group manager must maintain effective controls to:

    • Physically protect returns and return information

    • Maintain an adequate inventory of tax returns

    • Ensure prompt completion and closure of examinations

    • Protect statutes of limitations  (05-19-2010)
Importance of Accuracy of Case Databases

  1. The management of a group’s inventory and the accuracy of the case inventory database are critical to the success of a group. Accurate inventory controls will assist in:

    • Maintaining appropriate statute controls

    • Responding to both internal and external customers

    • Ensuring priority case work is readily identified and promptly worked

    • Ensuring adequate examiner inventory

  2. The primary automated tool used to manage inventory at a group level is the Examination Returns Control System (ERCS). Data entered through ERCS updates the Audit Information Management System (AIMS).  (05-19-2010)
Access to Inventory Control Systems

  1. A group manager is responsible for ensuring that information is protected commensurate with its level of sensitivity. See IRM 1.4.6 , Managers Security Handbook.

  2. A group manager must ensure that employee access to the Integrated Data Retrieval System (IDRS) and ERCS is properly safeguarded.  (05-19-2010)
Integrated Data Retrieval System (IDRS)

  1. The support staff at the group level may be assigned primary responsibility for conducting IDRS research. Their level of access to IDRS command codes will be greater than that of managers and examiners. Generally, managers and examiners at the group level should only have IDRS research capability.

  2. A group manager is required to review IDRS usage reports to ensure employee access levels are appropriate [(IDRS Online Reports Services (IORS)].

  3. A group manager's security responsibilities include but are not limited to the following:

    • Controlling employees' access to IDRS by using the Online 5081 application to initiate or change user access to automated information systems

    • Annual Online 5081 certification

    • Ensuring employees have only those command codes necessary to accomplish their official duties and sensitive command code usage is closely monitored

    • Ensuring profile changes due to separation, work assignments, termination or non-work status, are completed in a timely manner

  4. If an employee has a case in their inventory, they can perform appropriate IDRS research without securing specific managerial approval. This includes research on employee audit cases in their inventory.

  5. Employees are prohibited from accessing their own account using IDRS. However, an employee can submit a request for their personal tax information through the Wage and Investment Division (W&I).

  6. See IRM, Taxpayer Browsing Protection Act of 1997 (UNAX), and IRM, Taxpayer Browsing Protection Act, for Unauthorized Access (UNAX) rules.

  7. See IRM 10.8.34, Integrated Data Retrieval System (IDRS) Handbook, for IORS procedures, annual Online 5081 certification process, and the use of Form 11377, Taxpayer Data Access.  (05-19-2010)
Access to Group Inventory and Case Controls

  1. To ensure the integrity of the system, a group manager must limit opportunities for access to the group inventory records. Generally, only the group manager and support staff should have access. With any group inventory and case control system the following rules must be enforced.

    1. The systems must be password protected.

    2. Users must always log off when leaving their computer.

    3. Persons without a "need to know" should not be allowed to view information on the computer or in hardcopy.  (05-19-2010)
Taxpayer Browsing Protection Act/UNAX

  1. The Taxpayer Browsing Protection Act, IRC 7213A provides a criminal misdemeanor penalty for the willful, unauthorized inspection of tax returns or return information. See IRM, Taxpayer Browsing Protection Act of 1997 (UNAX), and IRM, Taxpayer Browsing Protection Act.

  2. A group manager must ensure employees complete their annual UNAX Awareness certification. See IRM, Mandatory Briefings, for information on annual certification.  (05-19-2010)
Control Systems for Cases

  1. IDRS is the system the Service uses to access taxpayer account file information on Master File (MF) and Non-Master File (NMF). This system is the parent to all enforcement division management systems of the Service. Within the IDRS system are AIMS and Partnership Control System (PCS).

    1. AIMS is a system used by Examination to control returns, input assessment/adjustments to Master File, and provide management reports. While a tax return or an open account is charged to Examination, the AIMS data base tracks its location, age, and status. Information on the management reports can be found in IRM 4.4.27, Reports.

    2. The accuracy and integrity of AIMS information is a group manager's responsibility although primary responsibility for the verification of the data should be assigned to a member of the support staff. A group manager must have a working knowledge of AIMS procedures and reports to provide effective management oversight of a group.

    3. PCS is a system that contains information regarding the examinations of flow-through entities (Partnerships, S Corporations, Trusts) and the related investors. PCS controls both TEFRA and Non-TEFRA entities. PCS controls for entities are established with information submitted at the group level. The system establishes a linkage between the key entity and the related returns. It ensures that all investor returns are established on AIMS. Also, it ensures returns are charged to the Campus TEFRA/non-TEFRA function or to Area examination personnel so that statutes are protected and necessary adjustments may be made. A group manager is responsible for the accuracy and integrity of the information input into the system.

  2. ERCS is an automated inventory management system. It is used for controlling tax returns, penalty investigations, open accounts, and recording technical time charges. Through the use of an interactive menu-driven database, records can be requested, assigned/reassigned, updated, and closed. A group manager must use various ERCS reports to effectively and efficiently manage group operations.

  3. Updating ERCS will update the Summary Examination Time Transmission System (SETTS) monthly and AIMS daily. On a weekly basis, an AIMS file is run against the ERCS database, and any differences are updated or a difference report is printed that must be reconciled (primarily by the group support staff). Refer to the ERCS IRM 4.7.5, Group, and the AIMS/ERCS website at http://mysbse.web.irs.gov/exam/mis/default.aspx .

  4. The Summary Examination Time Transmission System (SETTS) consolidates examiners’ time entries for electronic summarization. An examiner's time charges are input primarily by the support staff using the ERCS Exam Technical Time Report (ETTR), formerly Form 4502, Exam Technical Time Report (field examination) or ERCS Tax Auditor Daily Report (Daily), formerly Form 4606, Daily Activity Record, (office examination). See IRM 4.9.1, Outline of System.  (05-19-2010)
Case Control Procedures

  1. This subsection describes various case control procedures used to manage the group's inventory.  (05-19-2010)
Requisition of Returns

  1. When an examination is initiated, controls are requested using Form 5345-D, Examination Request - ERCS (Examination Returns Control System) Users.

  2. A group manager must ensure there is a valid reason for the request and the entries on the form are correct prior to approval. Refer to the AIMS/Processing Handbook, IRM 4.4.23, Openings.


    When completing Form 5345-D, Examination Request-ERCS (Examination Returns Control System) Users , an examiner can establish controls with or without ordering the original tax return. See IRM, Return Request Indicator


  3. Source Code 45 is used to order reference returns (e.g., a tax return secured for information only). The reason for the request must be annotated on Form 5345-D. A copy of the approved Form 5345-D must be attached to the back of the referenced return as a permanent record. Upon receipt of the original reference return, an examiner must determine within 30 days of receipt, whether the return will be examined or closed on AIMS.


    If the original reference return must be retained for greater than 30 days, an examiner must initiate an update to an appropriate source code other than 45 that reflects the reason for retaining the return at the group level.

  4. It takes approximately two weeks for full AIMS controls to be established. When an original tax return document is required, it will generally take between six to eight weeks to receive the original document.

  5. The group support staff must maintain Form 5345-D in a pending requisition file until AIMS controls are established and, when applicable, the original tax return is received in the group. A group manager must ensure that appropriate follow-ups are conducted by the group's support staff, when necessary, to secure AIMS controls and, when applicable, receipt of an original tax return.

  6. For additional information on completion of Form 5345-D, refer to IRM 4.4.23, Openings, and the ERCS Group Handbook at http://mysbse.web.irs.gov/examination/mis/manuals/13131.aspx.  (05-19-2010)
Nonfiler Case Procedures

  1. Delinquent returns and substitutes for returns require special procedures. See IRM 4.12.1, Nonfiled Returns, and IRM 4.4.9, Delinquent and Substitute for Return Processing.  (05-19-2010)
Updating Case Databases

  1. It is a group manager's responsibility to ensure that case databases (ERCS/AIMS) are timely and properly updated to reflect the correct status code, source code, statute date, organization code, claim amount, project code, SFR activity code, and aging reason code. A group manager will be actively involved in the progress of each employee’s work and ensure that updates are made timely by employees.  (05-19-2010)
Use of AIMS Codes

  1. Source codes, status codes and project codes are important because they allow for a compilation of data regarding inventory levels and composition, resource utilization, and program accomplishments. Data entered into AIMS is relied upon throughout the Service when assessing program accomplishments and setting goals. Additional information can be found in IRM 4.4.1, Introduction, at:

    • IRM Exhibit 4.4.1-19 - Source Codes

    • IRM 4.4.1-22 - Status Codes

    • Project Codes can be located on the AIMS/ERCS website at http://mysbse.web.irs.gov/exam/mis/data/default.aspx

  2. Push codes are used to allow controls to be established when no record of a return filing is present on master file. See IRM Exhibit 4.4.1-14, Push Codes.  (05-19-2010)
Closing of Returns

  1. Cases are closed from the group on ERCS and RGS (Report Generation Software). Refer to IRM 4.7.5, Group, IRM 4.4.12, Examined Closings, Surveyed Claims, and Partial Assessments, and Chapter 5, Case Closing, of the Managers and Secretaries Student Guide located on the RGS website at http://mysbse.web.irs.gov/examination/rgs/training/default.aspx.  (05-19-2010)
Shipment of Returns

  1. Shipment of returns requires the use of Form 3210, Document Transmittal, to provide a method for tracking receipt at the shipment destination. Form 3210 can be manually prepared or computer generated by ERCS.

  2. Form 3210 must identify the taxpayer’s name, tax period(s), to whom it is being sent, the originator, and date sent. The sender must sign and date the form and keep the Part 4 copy for group control.

  3. Upon receipt of the package, the recipient must verify the contents, sign Form 3210, and return the acknowledgment portion to the sender. See IRM, Multi-Year Examination Cases with At Least One Agreed/No-Change Year and One Unagreed Year, for shipment of multi-year examination cases with at least one agreed/no-change year and one unagreed year.  (02-03-2015)
Statute Controls

  1. A group manager should refer to IRM 25.6.23, Examination Process - Assessment Statute of Limitations Controls, for comprehensive instructions regarding statute controls and responsibilities for protecting the period of time for assessment of tax. Should there appear to be a conflict between the provisions of IRM 1.4.40 and IRM 25.6.23, with respect to the limitations on the period of time for making tax assessments, IRM 25.6.23 controls.

  2. For all tax returns which are filed (whether timely or late filed), statute controls are required to be established not later than 180 days prior to the actual assessment statute expiration date (based on the later of the date the return was filed or due, without regard to extensions). Statute expiration dates may be determined by referring to IRM, Statute Of Limitations Chart for Tax Returns.

  3. As tax returns or ERCS/AIMS data are received in or charged to the group, it is extremely important to screen the return and/or ERCS/AIMS data to determine the accuracy of the assessment statute information and to identify the need for establishing statute controls. The statute information reflected on ERCS/AIMS is not to be accepted as accurate but must be confirmed by reviewing case file information and conducting appropriate IDRS research.

  4. If a tax return has not been filed, statute controls are established at 180 days before the normal assessment statute expiration date had the return been timely filed, or at the time the substitute for return is input, whichever is earlier. If alpha code EE is used in the ASED field for the nonfiler, then ERCS will automatically generate the Form 895 when the forms are generated for the group by the support staff. See alpha code EE instructions in IRM Exhibit 25.6.23-3, Instructions for Updating the Statute on AIMS.

  5. ERCS must be updated to reflect the accurate Assessment Statute Expiration Date (ASED) on the entire inventory of the group. ERCS will then update AIMS.

  6. A group manager has the authority and responsibility to allow the normal assessment statute of limitations to expire if certain special conditions are present, as described in detail in IRM Exhibit 25.6.23-3. In addition, see IRM, Reliance on IRC Provisions Which Extend Normal Assessment Statute, for those instances when Territory Manager concurrence is required to allow the period for assessment to expire based on a special statute condition.

  7. Certain conditions warrant soliciting a consent to extend the statute of limitations. See IRM, Assessment. The list in IRM is not all inclusive and in certain circumstances consents can be solicited before the 180–day time frame specified, but for situations other than those listed, the case file must be documented by the Group Manager with the reasons approval to extend the statute was granted.


    Group managers do not need to document the case file to allow an examiner to solicit a consent if the consent is needed so the case can go to Appeals. See IRM (1), 30-Day Letters, for additional guidance.


    An examiner cannot initiate an examination on any return with less than 12 months remaining on the statute of limitations for assessment, without prior managerial approval.

  8. The IRS Restructuring and Reform Act of 1998 (RRA 98) requires the Service to notify the taxpayer of certain rights in each instance when a request to extend the assessment period is solicited. See IRM, Notification of Taxpayer’s Rights, for detailed instructions for notifying taxpayers of their rights.  (05-19-2010)
Statute Control File

  1. A group manager must maintain statute controls on all returns in a group manager’s custody to ensure that accurate statute information is entered on ERCS/AIMS. Statute expiration information entered on ERCS is automatically sent to AIMS but it's possible the update can reject. The manager must monitor reject reports to ensure the AIMS database is correct. This includes returns:

    1. Controlled on AIMS; and

    2. Investigations/Examinations controlled on ERCS, but not AIMS, e.g., penalty cases. See IRM, Area Office Group Statute Controls, for detailed instructions.

  2. The statute control system must monitor the following returns:

    • Returns with statute expiring within 180 days (at a minimum)

    • All alpha statute returns except for ZZ alpha statutes)

  3. Group statute controls must be contemporaneously maintained, monitored, and reconciled with AIMS Table 4.1, Returns with Statute Date Pending. See IRM, Verification of ERCS/EPIC/EOIC and AIMS Table 4.1 and 4.0 Data, for detailed information on verification of ERCS and AIMS Table 4.1 data.  (05-19-2010)
Generating, Printing and Processing Forms 895

  1. ERCS generates a Form 895, Notice of Statute Expiration, for each return in the group whose statute expires within a specified number of days (usually 210, but at a minimum 180). The Form 895 must be issued to the employee charged with the return.

    1. It is the responsibility of the examiner to reconcile the information on Form 895 with information in the case file and taxpayer account data to verify the accuracy of the assessment statute expiration date and return the Form 895 to the group manager within 10 days of receipt.

    2. If the examiner or specialist does not return the completed Form 895 to the manager within 10 days of the date the Form 895 is generated, the manager will follow up with the examiner or specialist to secure the Form 895.

    3. The group manager must secure the Form 895 from the examiner and approve the accuracy of the completed Form 895 information within 20 days of the date the Form 895 is generated.

    4. The support staff must update ERCS within 3 days of the date that the manager approves the accuracy of the information reflected on the Form 895.

    See IRM, Form 895 Completion Requirements for Managers.

  2. Any return with alpha codes in the statute date for which a Form 895 has not been issued will generate a Form 895 (except for ZZ alpha statutes).

  3. When a case is transferred from one work group to another, the receiving group manager assumes the responsibility for statute control upon receipt of the case. Accordingly, the accuracy of the assessment statute information must be verified by the receiving organization and a Form 895 prepared if warranted. If the ERCS/AIMS shows that the control is charged to the group but receipt of the case file in the group is delayed, the group charged with the return must take action to locate the return if the ASED is imminent.

  4. The support staff will generally identify the relevant returns, print Form 895 and forward those forms to examiners. A group manager must emphasize the support staff's and examiner's responsibilities for timely and accurately processing Forms 895.

  5. See IRM Exhibit 25.6.23-2 , ERCS Form 895 Instructions, for line by line instructions for ERCS generated Form 895

  6. See IRM Exhibit 25.6.23-1, Form 895 Instructions, for line by line instructions for manually prepared Form 895.  (05-19-2010)
Imminent Statute Returns

  1. Imminent assessment statute cases require special handling and it is imperative that examiners and managers allow adequate time from case closing until the statute expiration date for the necessary case review, case processing and deficiency assessment.

  2. When an unagreed case includes a tax period that has less than 90 days remaining on the assessment statute of limitations at the time of closing from the group, the group manager must contact the Technical Services Group Manager concerning the issuance of a Statutory Notice of Deficiency (SNOD). CCP is to be contacted in agreed case situations when the statute has less than 90 days remaining at the time of closing from the group. See IRM, Non-TEFRA Cases With Less Than 90 Days to ASED. TEFRA cases should be closed from the group prior to 240 days of the ASED. See IRM, TEFRA Cases With Less Than 240 Days to ASED.  (05-19-2010)
Expired Statutes

  1. IRM, Statute Expiration Reporting Responsibilities and Procedures for SB/SE Area Office and Campus Organizational Components Involved Directly with or Providing Support for Tax Return Examinations, discusses preparation and submission of Form 3999, Statute Expiration Report , and Form 3999-T, Statute Expiration Report for a TEFRA key case.

  2. A preliminary Form 3999 is required to be submitted to the Territory Manager within 3 days of discovery of a potentially expired statute. See IRM Exhibit 25.6.1-4, SB/SE Statute Expiration Reporting Timetable (for examination-related activities).  (02-03-2015)
Monitoring 30-Day Letters

  1. Group managers are responsible for maintaining a control system to monitor cases when a 30-day letter has been issued. ERCS reports may be used for this purpose.

  2. Revenue agent groups: When a 30-day letter is issued the returns must be updated to status code 13. Group managers can use the ERCS Status Report to monitor cases in status 13 in order to determine appropriate follow up actions.

  3. Tax compliance officer groups: When a 30-day letter is issued the returns must be updated to action code 03 and purged for 30 calendar days. Group managers can use the ERCS Action Code Report to monitor cases in action code 03 in order to determine appropriate follow up actions.

  4. For additional information and guidance regarding 30-day letters see IRM, 30-Day Letters.  (05-19-2010)
Inventory Management

  1. A group manager must plan, monitor, and direct input of work to accomplish program priorities and effectively utilize resources.

  2. A group manager must maintain within the group:

    • Sufficient inventory levels (started and unstarted)

    • Appropriate categories of returns (as established in the Examination Plan)

  3. To do so, a group manager must:

    • Consider experience and training level of examiners

    • Anticipate and factor current and future priority work

    • Consider historical rates of related pickups

    • Anticipate details and other assignments of examiners

  4. Area procedures will provide guidance regarding the assignment of status 10 inventory to examiners.  (05-19-2010)
Prior Year Considerations

  1. The examination and disposition of income tax returns generally should be completed within 26 months for individual returns and within 27 months for business returns. See IRM, Examination Cycle, for guidance.  (05-19-2010)
Inventory Types

  1. A group’s work can be divided into three categories.

    1. Mandatory — Neither a group manager nor an examiner has the authority or discretion to survey; these returns must be worked.

    2. Priority — Both a group manager and an examiner are empowered to survey if the case justifies such action. However, once the commitment is made to examine, it should be handled expeditiously.

    3. Discretionary — Both a group manager and an examiner are expected to evaluate the degree of noncompliance before initiating the examination.

  2. See IRM, Work Categories, for a list of priority cases.  (05-19-2010)
Securing Returns

  1. If priority returns are in process and the group's status 10 inventory is inadequate, a group manager may need to order returns.

  2. Requests for new work should be submitted to Planning and Special Programs (PSP) through the territory manager. Requests should include an explanation of the work required based on the grade level of the agents needing the work. PSP monitors priorities, program requirements, and local directives and will provide coordination to furnish the proper type of work.

  3. A group manager should always be alert to the potential for areas of noncompliance and prepare project recommendations where appropriate.

  4. While there are a number of factors that affect the time it takes to receive returns, a group manager should be aware of the general time frames involved and plan accordingly.  (02-03-2015)
Assigning Returns

  1. Many factors influence the actions a group manager may take when assigning work. Some examples include:

    • Volume, complexity, specialization, and diversity of work flowing into the group

    • Structure, experience, and training level of the examiners

    • Geographic location of examiners and status 10 inventory

    • Area priorities

    • Status of in-process work

  2. Program/project cases, including National Research Program (NRP), may be assigned to newly-trained examiners, when appropriate, to enhance their career development. When making case assignment decisions, group managers should consider the complexity of the case plus the experience and training level of the examiner.

  3. In accordance with IRM (2), Assessment, group managers should ensure examiners do not initiate an examination on any return with less than 12 months remaining on the statute of limitations for assessment, without prior managerial approval. Therefore, cases with less than one year on the statute of limitations should generally not be assigned to an examiner unless significant issues are present on the return.  (05-19-2010)
Grade Level of Work for Field Examination Cases

  1. Every employee must perform work consistent with the grade of their position.

  2. See IRM, Guidelines for Determining the Grade Levels of Field Examination Cases, which provides guidelines for the grading of all field individual, corporate, and partnership returns. The IRM provides case assignment guides for other types of work.

  3. During case assignment the group manager will review the case and, based on the grading criteria, determine the grade level for assignment. A final grade is determined at case closing and entered on the electronic Form 5344, Examination Closing Record, within RGS, if available, based on issues developed in the case.

  4. Employees may perform some work above or below their grade level.

  5. A group manager may provide an employee with the opportunity to perform a limited quantity of higher graded work, when appropriate, to enhance their career development.


    A group manager must ensure, prior to the assignment of higher-graded work, that such work will not require more than 25 percent of the examiner’s direct examination time (DET). Review Document 11678 , National Agreement II, Article 16, for details. Retroactive pay is required when it is determined that the time spent on higher-graded work exceeds 25 percent in any four-month period. A group manager should either assign the work at the appropriate grade level or secure permission for a temporary promotion in advance. The National Agreement also provides for opportunities for developmental work in LMSB without a temporary promotion.

  6. Once a case is placed in process it is difficult for a group manager to control the time applied to the case. It is also difficult to control DET versus total time. Adequate managerial involvement is critical to ensure the 25 percent DET is not inadvertently exceeded when higher graded work is assigned to an examiner for developmental purposes.  (05-19-2010)
Guidelines for Determining the Grade Levels of Field Examination Cases

  1. This text provides guidance to a group manager for assigning and determining the final grade levels of regular field examination income tax cases.

  2. The objectives of this guide are to establish a uniform system for evaluating income tax cases selected for assignment to revenue agents under the "one case, one agent" concept; to provide a better basis for determining workloads for financial planning; to provide valuable information in making position classification determinations; and to improve the utilization of a revenue agent's time and talents.

  3. This guide will also aid in reviewing internal revenue agent positions for grade structure change purposes. It does not evaluate a revenue agent’s performance. In addition, it cannot be considered as the sole predictor of the appropriate overall grade level for individual positions. Variables such as extent of supervision or the impact of other duties are not given consideration in the guide.

  4. It is emphasized this is primarily a guide and not a substitute for supervisory judgment.  (05-19-2010)
Characteristics of Field Examination Cases

  1. These guidelines apply to all individual returns (non-business and business), fiduciary returns, all types of corporation and partnership returns.

  2. For the purpose of this guidance, a case is defined as the primary return for one year plus other returns, if any, involving interrelated interests and/or transactions that require concurrent examination. The primary return is the return around which related entities and other types of returns revolve, regardless of how and when selected or assigned. Other returns are defined to include returns subsequent and/or prior to the primary return of the taxpayer, as well as returns for related taxpayers for the primary year and subsequent and/or prior years. When the primary return and related returns are examined by the same agent, the related returns will usually (for Management Information System purposes) carry the same grade as the primary return. If related entities are examined by other agents, each group of entities examined by a separate agent will be graded as a separate case under this guide.

  3. This guidance has four parts as follows:

    • PART I: Chart of Case Grading Factors (based on GS–512 Classification Standards)

    • PART II: NAICS Codes

    • PART III: Probable Grade Levels of Cases Based on Type of Industry/Occupation, and Size

    • PART IV: Matrix of Issues that may change determination made in Part I

  4. The case grading guidelines discussed in this IRM are not intended to cover all possible factors that may influence a final case grade. New projects or programs, and other unusual situations that were not present in the sample at the time this guide was developed, will require a group manager to use judgment in grading a case. More reliance must be placed on the case grading factors in Part I for these situations.  (05-19-2010)
Part I — Chart of Case Grading Factors

  1. Part I consists of the position classification standard for the GS–512 revenue agent occupation which forms the basis for determining the grade of a case. The standards have been adapted to evaluate cases rather than positions, therefore, factors such as supervision/guidance have not been included.

  2. The case grading factors listed in the table below should be used for the final grading of cases.

    Part I — Chart of Case Grading Factors
    In arriving at a final grade, all factors do not have to be met, however, normally, more than one of the most important factors is necessary. These are: Accounting Systems and Methods, Issues and Knowledge, Guidelines and Tax Laws, and Scope and Effect.
    GS–11 GS–12 GS–13
    1. Accounting Systems 1. Accounting Systems 1. Accounting Systems
    Independently examines systems which require a basic knowledge of principles/ methods of accounting and auditing as found in a variety of individuals, relatively small businesses, exempt organizations, and simple employee plans. Systems involve a variety of financial operations and accounting methods or specialized accounting practices unique to a particular industry. Use of basic investigative procedures to elicit information and establish facts. In addition to GS–11 characteristics, the following concepts should be involved: Comprehensive knowledge of the principles/ methods of accounting and auditing to plan and conduct independently the complete range of examination and related investigations of a broad range of sizable business operations. Systems involve a variety of complex financial operations and unusual accounting methods or specialized accounting practices unique to a particular industry. Uses investigative skills to analyze incomplete records and reconstruct transactions from third party records. Develop information relative to complex fraud. In addition to GS–12 characteristics, the following concepts should be involved: Mastery of the principles/ methods of accounting, auditing and corporate financial management to plan, coordinate, and conduct examinations of large, complex businesses, including those with substantial subsidiaries, diversified activities multiple partners, and national and international scope and operations. Accounting systems of size and complexity may warrant planning and coordinating the work of others.
    GS–11 GS–12 GS–13
    2. Issues/Knowledge 2. Issues/Knowledge 2. Issues/Knowledge
    Fundamental knowledge of business and trade practices, procedures and conditions to analyze tax returns and related records to determine the reasonableness of deductible items, the reliability of reported income and expenses, including probable earnings in a wide variety of small businesses/industries and similar questions extending beyond the area covered by specific accounting or legal guides. In addition to GS–11 characteristics, the following concepts should be considered: Knowledge of business financial management principles and practices concerning a variety of kinds and sizes of businesses, or specialized knowledge in a particular industry to (1) determine sources of income and verify expenses, (2) judge the propriety of such matters as intercompany transactions, accumulation of surplus, or compensation of officers, (3) examine trust activities and transactions in order to determine unrelated business income or prohibited transactions, or (4) determine items related to pension plans and appropriate deductions. In addition to GS–12 characteristics, the following concepts should be involved: Specialized knowledge of major industries may be required so that expert judgements can be applied to business transactions. Business transactions may include mergers, acquisitions, leverage buyouts, and similar transactions
    GS–11 GS–12 GS–13
    3. Guidelines/Tax Law 3. Guidelines/Tax Law 3. Guidelines/Tax Law
    Guidelines include basic tax laws, agency policies, rules and regulations to determine the taxpayer’s correct tax liability. Guidelines normally are specific to issues, but because of number/variety of issues, research is required to locate precedents. In addition to GS–11 characteristics, cases require research and analysis of the Internal Revenue Code, rulings, court decisions, and agency policies to examine returns where tax law or precedent cases do not directly apply including consideration of judicial decisions and legislative intent in cases involving the adoption of precedents. In addition to GS–12 characteristics, cases require the use of the Internal Revenue Code, rulings, court decisions to resolve problems where there is little or no previous interpretation of statutory provisions. Laws are highly subjective, precedents are non existent, obscure or conflicting and significant tax change or precedent setting issues are involved.
    GS–11 GS–12 GS–13
    4. Scope and Effect 4. Scope and Effect 4. Scope and Effect
    Results of audits affect the taxpayer by requiring corrective action for prior and current tax years and having a deterrent effect for future tax years. The impact may extend to other related taxpayers and/or unrelated taxpayers throughout whole industries. In addition to GS–11 characteristics results of the audit affect the tax liability and, therefore profitability of major business entities and in some instances the treatment of accounting methods and techniques for tax purposes as they are employed throughout whole industries. In addition to GS–12 characteristics, tax results are of major significance which affects the financial condition of many categories of taxpayers involving very large tax responsibilities. Important principles are developed resulting in new precedents.
    GS–11 GS–12 GS–13
    5. Contacts 5. Contacts 5. Contacts
    Generally involve individual proprietor, corporate official, self-professional, most represented by local practitioners. The purpose of contacts is to influence and persuade the taxpayer or representative to comply with requirements, to provide information to resolve outstanding problems and issues or to pay tax liability. Contacts hold strong opposing views. They may be hostile, skeptical or uncooperative requiring the agent to use tact, persuasiveness, and diplomacy to obtain the desired results. In addition to GS–11 characteristics, the following concepts should be involved: Officials of corporations of significant size, public officials, or practitioners of considerable attainment. Prominence of taxpayer presents problem of publicity or attitudes in locality. In addition to GS–12 characteristics, cases involve contacts with persons who are prominent because of their reputation in their field, especially the accounting and tax fields; officials of large businesses with national reputations.  (05-19-2010)
Part II - North American Industry Classification System (NAICS) Listing

  1. The North American Industry Classification System (NAICS) replaced the Principle Industry Activity (PIA) and the Principle Business Activity (PBA) PIA/PBA codes for tax periods 199812 and subsequent for individual returns. These codes appeared on some corporate and partnership returns starting in 1997 due to fiscal year overlaps.

  2. Reference will be made to the appropriate NAICS to determine the class of the case. The primary return NAICS will be the determinant factor for placement in the appropriate class. If no NAICS appears on a return, group managers will determine the proper class based upon a review of the case file. Once a class has been determined, Parts I, III and IV should be used to determine the final grade.

    1. See IRM Exhibit 1.13.4-1, for Form 1040 NAICS classification codes.

    2. See IRM Exhibit 1.13.7-1, for Form 1120 NAICS classification codes.

    3. See IRM Exhibit 3.12.15-4 for Form 1065 NAICS classification codes.

  3. The listing below reflects the respective Class Number for individual, business and fiduciary returns:

    •Class 1 – Manufacturing, Construction, Mining

    •Class 2 – Retail, Wholesale, Transportation

    •Class 3 – Services, Farming

    •Class 4 – Financial and Utilities

    •Class 5 – Nonbusiness Individual and Fiduciary  (05-19-2010)
Part III—Probable Grade Levels of Cases Based on Type of Industry/Occupation and Size

  1. The type of business or occupation and its relative size as measured by total assets and/or gross receipts and the dollar criteria for each business type is indicative of the issues encountered, tax law knowledge and accounting complexities normally encountered by revenue agents at the GS–12 and GS–13 levels. Part III is most applicable to the assignment of cases to revenue agents; whereas all four parts of the guide must be used when the case closes and a final grade is assigned.

  2. The following criteria may be used for both case assignment and final grading. Size criteria alone must not be relied upon in arriving at a final grade; more weight should be placed on the case grading factors in Part I. If a case is graded at GS–11 based on industry class and size, and an upgradable issue is identified on the return, the case may be upgraded. See Part IV for the listing of upgradable issues.

  3. The dollar criteria for each industry type was derived from a review of various cases in each class and is indicative of the issues, tax law knowledge and accounting complexities normally encountered by revenue agents at the GS–12 and GS–13 levels.

  4. Determination of industry class for business returns will be made by reference to NAICS codes. Individual and fiduciary returns will be placed in Class 5 (Nonbusiness) unless their primary source of income is from a business. The classes are listed in the table below:

    CLASS 1

    (Manufacturing, Construction and Mining)
    Criteria Probable
    Total Assets $250K to $12M Over $12M
    Gross Receipts $1M to $15M Over $15M
    CLASS 2
    Criteria Probable
    Total Assets $1M to $12M Over $12M
    Gross Receipts $2M to $33M Over $33M
    CLASS 3
    Criteria Probable
    Gross Receipts $3M to $33M Over $33M
    CLASS 4

    (Banking, Insurance and Utilities)
    Criteria Probable
    Total Assets $0M – $115M Over $115M
    CLASS 5
    Cases under this class are graded as GS–11 unless possessing an upgradable issue as listed in Part IV of this Exhibit. If the primary source of income is from wages/salaries, the case will fall under this class even if a Schedule C or F is attached. If the primary source of income is from a business, the case will fall under one of the other classes.  (05-19-2010)
Part IV—List of Upgradable Issues that May Result in an Upgrade for Field Examination Cases

  1. If a case is graded at a GS–11 level based upon Parts I, II and III, and an upgradable issue appears on the return, the case may be upgraded to a GS–12 after consideration of the facts in the case. These same 13 upgradable issues may cause a case to be upgraded from GS–12 to GS–13. However, the decision to upgrade a case to GS–13 is most often a determination that is based on case size and case complexity. Additionally, a 14th upgradable issue called "Unusual Complexity" is included to allow group managers to upgrade a case based upon features, facts and circumstances encountered during a particular examination.

  2. The following table presents 13 upgradable issues which may cause a case to be upgraded from GS–11 to GS–12 and a 14th category "Unusual Complexity."

    Part IV—List of Upgradable Issues that May Result in an Upgrade
     I. Controlled Group
     2. Complex Like Kind Exchange
     3. Liquidation/Reorganization
     4. Foreign controlled (Exclusive of Significant Specialist Involvement)
     5. Valuation issues (Exclusive of Significant Engineering Support)
     6. Financial Products. e.g., commodities, straddles, etc.
     7. LIFO
     8. IRC 263A — Capitalization of Inventory Costs
     9. IRC 482 — Allocation of Income/Deductions among two or more trades/business
     10. IRC sections 741/742/743, Recognition/Character of Gain/Loss & Basis on Sale of a partnership.
     11. Key Case TEFRA
     12. Complex Fraud Development
     13. Sensitive, High-Profile Taxpayer
     14. Unusual Complexity  (05-19-2010)
Procedures for Field Examination Cases

  1. The first step in applying this guide is to relate the return being assigned or graded to the five classes listed in Part III of these guidelines. All income tax cases will be graded. Classification of business returns in Classes 1 through 4 will be determined by reference to the NAICS code listings. If no NAICS code appears on a return, group managers will determine the proper class based upon a review of the case file. Individual and Fiduciary cases will be placed in Class 5 (Nonbusiness), unless it is more appropriate to place the case in another class. Primary source of income for cases in Class 5 is salaries/wages even though a Schedule C or F may be attached to the return.

  2. During case assignment, a group manager will relate all facts known about a case to Parts I–IV. Part III may be most applicable, particularly the size criteria, such as total assets. Specific issues may not be known until the case is fully examined. However, during final case grading all four parts of the guide must be used, especially the case grading factors in Part I. Size criteria alone must not be relied upon for final case grading because normally other factors influence the difficulty of a case.

  3. When assigning a final grade to a case, a group manager will first make reference to Part I of the guide. A general assessment will be made as to how each factor grades out. Normally, more than one of the major factors is necessary to influence the final grade. Following this process, reference can then be made to Parts II, III, and IV of the guide to determine how the size criteria grades out and whether any upgradable issues are present that might influence the final case grade. The objective is to use these four parts of the guide to make a decision on the difficulty of the case.

  4. See IRM, which provides instructions for completing Item 32, grade of case, on Form 5344.  (05-19-2010)
Case Grading for Special Situations for Field Examination Cases

  1. A group manager may use their judgment to change the probable grade of a case before making an assignment. A group manager may suspect that special or complex issues or problems will be encountered in the examination and this is sufficient reason to justify upgrading the probable level of the case. On the other hand, a group manager, in view of the prior agent’s report, etc., may lower the probable grade level of a case on the basis that the scope of the examination will be limited or will only involve continuing and/or recurring issues such as travel and entertainment, repairs, depreciation, etc. These are sufficient reasons to justify assigning a lower grade level to the case.

  2. Special situations that will require judgment in determining case grade are:

    1. Package Examination—Give full credit for developing KEY CASE and all other cases in the package.

    2. Flow-Through/Information Reports (e.g. AIMS control of Related Returns Procedures)—Give full credit if normal range of knowledge and auditing techniques is required to apply a previously identified issue. Give less than full credit if issues have been previously identified and are applied in a mechanical manner with less than normal knowledge requirements.

    3. Subsequent Years—Refer to Flow-Through/Information Reports definition; full credit may be considered if additional issues evolve or are developed in subsequent years requiring a normal range of knowledge and auditing techniques.

    4. Limited Scope—Give less than full credit if examination is so restricted in scope that the normal range of knowledge and auditing techniques is not required. Give full credit for examination of limited scope where normal range of knowledge and auditing techniques is required. (In this situation, the revenue agent usually limits the scope.)

    5. Specialist Involvement—Complexity of the case will include specialist’s involvement; however, final grade will depend on knowledge and auditing techniques required of the revenue agent.

  3. The difficulty of a case cannot be finally determined until the examination is completed. The determinations made prior to examination are not controlling. A group manager’s final determination of the case grade will be made upon completion of the examination. A group manager should note the basis used to downgrade the case within the case file.

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