4.1.8 Special Examination Features and Programs

Manual Transmittal

November 21, 2019

Purpose

(1) This transmits revised IRM 4.1.8, Planning and Special Programs, Special Examination Features and Programs.

Material Changes

(1) IRM 4.1.8.1 was retitled Program Scope and Objectives and rewritten to add internal control information per IRM 1.11.2.2.5, Address Management and Internal Controls.

(2) Added new subsections under IRM 4.1.8.1 to describe background, authority, responsibilities, program management, program controls, and acronyms.

(3) Removed references to stamps in IRM 4.1.8.2.1, General Information.

(4) Deleted the following subsections:

Former IRM Citation Title
4.1.8.2.2 Procedures for Processing Form 1120-F Returns During Classification
4.1.8.2.4 Classifying or Screening Foreign Corporate Returns (Form 1120-F)
4.1.8.2.5 Identification of Issue on Form 1120-F Returns

Effect on Other Documents

IRM 4.1.8 dated June 18, 2014 is superseded.

Audience

Planning and Special Programs (PSP)

Effective Date

(11-21-2019)

John V. Cardone
Director, Withholding and International Individual Compliance Practice Area
Large Business and International Division

Program Scope and Objectives

  1. Purpose: This IRM section provides guidance and instruction on the classification and assignment of returns with international issues.

  2. Audience: The primary users of this IRM are Planning and Specialty Program (PSP) employees.

  3. Policy Owner: Director, Withholding and International Individual Compliance (WIIC)

  4. Program Owner: WIIC is responsible for administering this program.

  5. Program Goals: The goals of the PSP area align with the LB&I Strategic Goal to apply the tax laws with integrity and fairness through a highly skilled and satisfied workforce, in an environment of inclusion where each employee can make a maximum contribution to the mission of the team.

Background

  1. PSP is responsible for classification and assignment of cases of U.S. citizens living and, or, working abroad or in a U.S. Territory, U.S. citizens or resident aliens who hold income producing assets in a foreign country or claim the foreign earned income exclusion or foreign tax credit, and permanent residents and non-resident aliens who have a U.S. filing requirement. This includes reporting and payment requirements under Chapter 3 (Withholding of Tax on Nonresident Aliens and Foreign Corporations) and Chapter 4 (Taxes to Enforce Reporting on Certain Foreign Accounts) of the Internal Revenue Code.

  2. PSP area comprised of three program areas, each with different goals and responsibilities, as follows:

    1. WIIC Support

    2. WIIC Classification

    3. WIIC Identification

Authority

  1. The development, implementation and oversight of PSP procedures are the prerogative of the WIIC director.

Responsibilities

  1. PSP employees and managers should be familiar with and use the examination procedures and information contained in this IRM and be aware of the applicable procedures in other examination IRM chapters, as cited or linked.

Program Management and Review

  1. Program Reports: The WIIC director prepares periodic briefing reports for the LB&I commissioner focusing on:

    1. Significant accomplishments and opportunities for improvement

    2. Changes in procedures that have been implemented

    3. Operational, technical, and staffing updates

    4. Any other key information

  2. Program Effectiveness: The efficiency of the case procedures is measured through combined business results of the teams that make up the WIIC Practice Area.

Program Controls

  1. WIIC PSP analyzes audit results, performs program reviews, and monitors rule-based applications used to select inventory. The results are used to make data-based decisions to improve program quality, improve case selection, and to ensure the integrity of the selection methods.

  2. The WIIC PSP program manager reports to LB&I executive management on a continuous basis via the director’s briefings.

  3. The WIIC director identifies goals and objectives to be achieved by the organization based on annual commitments of LB&I priorities.

Acronyms

  1. The following is a list of frequently used acronyms in this program:

    Acronym Term
    LB&I Large Business and International
    PSP Planning and Specialty Programs
    RA Revenue Agent
    TCO Tax Compliance Officer
    TE Tax Examiner
    WIIC Withholding and International Individual Compliance

Standards for Classification

  1. In selecting returns for examination, consider the objectives of the international enforcement program. Select returns that contain significant international issues that are as follow:

    1. Likely to result in tax.

    2. Require examination to achieve voluntary compliance by an identifiable group.

General Information

  1. Generally, returns received for classification for international potential will have already been classified for domestic issues. The international issue team generally will not screen returns for domestic issues.

  2. Returns accepted as filed for international features during centralized classification that have not been previously classified for domestic issues will be routed through regular classification at the campus.

  3. Returns selected for international features will be routed to the PSP territory manager in the area office. These returns will be filed in central files, priority suspense files, or assigned to groups following area procedures.

  4. Returns identified as part of an LB&I large corporate compliance examination during classification are transferred by the classifier to the appropriate LB&I practice area.

  5. International classifiers separate returns into six categories:

    1. Domestic issues not classified—selected for international

    2. Domestic issues not classified—accepted for international

    3. Accepted on classification for domestic issues—selected for international

    4. Accepted on classification for domestic issues—accepted for international

    5. Open in an area

    6. Transfers (show transferee area)

  6. IRM 4.4.1, AIMS Procedures and Processing Instructions, highlights areas of the Form 5546, Examination Returns Charge-Out, used for classification.

    1. It contains a detailed explanation of all items on the Form 5546.

    2. Form 5546 should be reviewed because it contains information that may be beneficial when deciding whether to select or accept a return.

Procedures for Processing Form 1040 Returns With Form 2555 During Classification

  1. Returns claiming the foreign earned income exclusion on Form 2555, Foreign Earned Income, are filed at the Austin Campus and are under the jurisdiction of WIIC. Refer to IRM 4.1.9.7.5, Classification of Returns, and IRM 4.19.11.1.17, Form 1040 Returns With Form 2555.

  2. The following factors must be considered when classifying these returns:

    1. Is the income from all foreign sources reported on the U.S. income tax return?

    2. Has the taxpayer used the proper exchange rate for converting the foreign income?

    3. Is the taxpayer an employee or contractor of the U.S. government?

    4. Is there a Form 1116, Foreign Tax Credit, attached to the return?

    5. If Form 1116 is attached to the return, determine if the credit claimed is at the treaty rate or at the foreign country’s statutory rate. A citizen or resident claiming the treaty benefit from a foreign country is limited to the treaty rate as a foreign tax credit or deduction on the tax return. Rev. Rul. 57–116, 1957–1, C.B. 245 states in part, the allowance of a credit for taxes paid to a foreign country is limited to the tax that is a legal and actual liability. Tax withheld at the source is merely an advance collection of what may or may not be an actual tax liability.