4.4.16 Inventory Control188.8.131.52 Introduction184.108.40.206 Preparation and Use of Form 5345-B or Form 5345-D220.127.116.11 Inventory Validation Listing (IVL)18.104.22.168.1 Requesting an IVL22.214.171.124.2 Conducting the Validation126.96.36.199.2.1 Elements to be Validated188.8.131.52 Error Rates and Revalidation Requirements184.108.40.206.1 Computing the Error Rate220.127.116.11.2 Acceptable Error Rates18.104.22.168.3 Revalidation Requirements22.214.171.124.3.1 100 Percent Annual IVL126.96.36.199.4 Quarterly Time Frame Validation188.8.131.52 Statistical Sampling Inventory Validation Listing (SSIVL)184.108.40.206.1 Selection of the SSIVL220.127.116.11.2 Conducting the SSIVL18.104.22.168 Reporting the IVL Results22.214.171.124.1 100 Percent Validation and Time Frame Validation Reports126.96.36.199.2 Statistical Sampling SSIVL Report188.8.131.52.3 Disposition of Validation Listings184.108.40.206 Other Inventory Monitoring Tools Part 4. Examining ProcessChapter 4. AIMS Procedures and Processing InstructionsSection 16. Inventory Control 4.4.16 Inventory Control Manual Transmittal December 20, 2011 Purpose (1) This transmits revised IRM 4.4.16, AIMS Procedures and Processing Instructions, Inventory Control. Material Changes (1) Minor editorial changes have been made throughout this IRM. Website addresses and IRM references were reviewed and updated as necessary. Also, throughout this IRM references to "AIMS Coordinator" have been changed to include "AIMS/ERCS Analyst or AIMS Coordinators." (2) This IRM has been revised throughout to provide clarifications and more in-depth discussions in several areas. Significant changes to this IRM are reflected in the table below: SECTION DESCRIPTION IRM 220.127.116.11 Changed references to Group Control Cards to Examination Requests. IRM 18.104.22.168 Changed section title to Preparation and Use of Form 5345-B, Examination Request Non-ERCS Users or Form 5345-D, Examination Request ERCS (Examination Returns Control System) Users. IRM 22.214.171.124 (2) Revised to remove requirement to prepare control card for each case received in group. Added language to follow locally established procedures for pending requisition suspense files. IRM 126.96.36.199 (3) Updated to include references to utilizing Weekly TC 424 Reject Register and TC 424 Overage Report. Instructions for preparing a pending requisition suspense file have been removed. IRM 188.8.131.52 (4) Revised to add the requirement for ERCS (Examination Returns Control System) users to work the ERCS Overage Requisition Report monthly. Instructions for preparing a closed case suspense file have been removed. IRM 184.108.40.206 Changed section title to Inventory Validation Listing. Added requirement to include virtual inventory in the IVL process. IRM 220.127.116.11 (2) Updated to include all group statuses (09 through 19). IRM 18.104.22.168 (3) Added to include the requirement for groups to validate inventory in statuses 21, 41, and 51, at least once each calendar year. IRM 22.214.171.124 (4) Updated table to add additional statuses and revise Days Overage time frames. IRM 126.96.36.199.2 Added list of items to be included in the validation package. IRM 188.8.131.52.2 (3) Updated to add the IVL requirement to verify the physical possession of all returns listed on the validation listing. IRM 184.108.40.206.2 (4) Added paragraph to add additional requirement in offices where ERCS is used to compare the Audit Information Management System (AIMS) IVL with an Examination Return Control System (ERCS) inventory listing. IRM 220.127.116.11.2 (5) Note Added recommendation for ERCS users to validate collateral, penalty, and non-AIMS records in their inventory. IRM 18.104.22.168.2 (6) (b) Updated to revise the description of Form 8721, AIMS Inventory Validation Discrepancy List #1 - Case Files in Your Inventory - Not on Your AIMS and/or ERCS IVL. Updated to include requirement to list date of action in "Comments" section of IVL for items (c) and (d). Added requirement to list whether return was physically located in "Comments" section of IVL - item (e). IRM 22.214.171.124.2.1 (1) Updated to emphasize the data elements must be verified for accuracy and added additional data elements. IRM 126.96.36.199.3.1 Added statement that local procedures may be used when determining the sample size. IRM 188.8.131.52.2.1 (2) Added paragraph to clarify that operating divisions may have differing guidelines for determining errors and questions should be referred to local AIMS/ERCS staff or AIMS Coordinator. IRM 184.108.40.206 Updated to clarify that IVL error rate is computed by line items, not by data elements. IRM 220.127.116.11.1 Revised to clarify how to compute IVL error rate. IRM 18.104.22.168.3 Updated the retention period to the current year plus one year per IRM 1.15.23 (48). IRM 22.214.171.124.2 Changed 2 "days" to 2 "workdays." IRM 126.96.36.199 Added 15 day time frame for the AIMS/ERCS Analyst or AIMS Coordinator to review and reconcile the validated IVL packages. Also added 15 day time frame for the AIMS/ERCS manager to prepare the validation reports. IRM 188.8.131.52 (1) Revised to add requirement to send copy of LB&I groups' Validation Report to the LB&I Headquarters Analyst. IRM 184.108.40.206 (3) Revised to exclude CCP and TS from the requirement to forward results of validation to Area PSP offices. IRM 220.127.116.11 (1) Updated to clarify that various programs are used in conjunction with AIMS to validate and analyze inventory. IRM 18.104.22.168 (5) Updated to include Issue Management System (IMS) used by LB&I. IRM 22.214.171.124 (6) Updated to include Issue Based Management Information System (IBMIS) as system used by LB&I. Effect on Other DocumentsThis material supersedes IRM 4.4.16, dated August 1, 2003. AudienceLarge Business and International (LB&I), Small Business/Self-Employed (SB/SE) and Wage and Investment (W&I) Effective Date(12-20-2011)Signed by Karen M. SchillerDirector, Examination Planning and Delivery Small Business/Self-Employed 126.96.36.199 (12-20-2011) Introduction The procedures shown in this IRM are for field groups, Planning and Special Programs (PSP) and Centralized Case Processing (CCP). This chapter covers inventory control: Examination requests Inventory validations Other inventory monitoring and analysis tools 188.8.131.52 (12-20-2011) Preparation and Use of Form 5345-B or Form 5345-D Form 5345-B, Examination Request Non-ERCS Users, and Form 5345-D, Examination Request ERCS (Examination Returns Control System) Users, are the most commonly used forms to request examination controls on Audit Information Management System (AIMS) and Examination Returns Control System (ERCS). Note: It is not necessary to control a BRTVU/RTVUE print or other electronic return print on AIMS or ERCS unless it has been determined that an examination will take place. When an automated control system (such as ERCS) is used to maintain inventory control, locally established procedures should be followed to determine whether a pending requisition suspense file is required. Per IRM 1.15.23-1 (49) the control cards will be destroyed: For field examination cases: three years after the case has closed for field examination cases, or For office examination cases: after the validation of inventory from AIMS Validation List or one year after the case closes, whichever is sooner. AIMS and ERCS users should utilize the weekly TC 424 Reject Register and TC 424 Overage Report to assist in the identification and resolution of skeletal records that have not fully established or have dropped from AIMS. See IRM 184.108.40.206.11, TC 424 Reject Register. Additionally, ERCS users should utilize the "Check AIMS Results" menu option located on the ERCS Examination Main Menu, to promptly review and resolve any rejected requisitions for their AIMS Assignee Code (AAC). See IRM 220.127.116.11.2 (5), Role and Responsibilities of the Secretary/Group Clerk. ERCS users must reconcile the ERCS Overage Requisition Report, at least monthly, to verify that ERCS-AIMS upload and reject problems are resolved. See IRM 18.104.22.168.2 (5)(f), Role and Responsibilities of the Secretary/Group Clerk. Job aids to assist in the correct preparation of Form 5345-B and Form 5345-D are frequently available through local AIMS/ERCS Analysts or AIMS Coordinators. 22.214.171.124 (12-20-2011) Inventory Validation Listing (IVL) An inventory validation means each validating organization performs a physical review of each case held in its possession (or shown on its inventory lists) with the purpose of determining the physical presence of the returns and the accuracy of certain data elements with respect to the returns. The purpose of this review is to ensure the accuracy and integrity of the AIMS and ERCS databases. Note: Inventory established using Compliance Data Environment (CDE) is not exempt from the IVL. There can be inconsistencies between what is in CDE and what is on AIMS if there were errors when establishing, updating, or delivering a return. A return may no longer be in virtual inventory but maybe on AIMS/ERCS or vice versa. There may be inconsistencies between the data elements in CDE and those shown on AIMS. For group Status Code 09 through 19 a validation of 100 percent of the inventory must be conducted at least once each calendar year. For in-transit Status Codes 21 - Technical Services (TS); 41 - Planning and Special Programs (PSP); and 51 - Centralized Case Processing (CCP); a validation of 100 percent of the inventory must be conducted at least once each calendar year by the closing group. Inventory in the in-transit Status Code 21, 41, and/or 51, remain the responsibility of the closing group or function until the case is physically received in TS, PSP, or CCP. This responsibility shifts to TS, PSP, or CCP, respectively, when the Form 3210, Document Transmittal, is acknowledged or AIMS and ERCS are updated to another status within these functions. Note: TS, PSP, and CCP must also perform a 100 percent IVL of these statuses at least once yearly. However, they have the option to conduct quarterly validations of inventory in these statuses that exceed 21 days. For ALL other status codes, a validation of inventory that exceeds normal time frames, must be conducted quarterly, or a 100 percent IVL may be conducted at least once a year. If choosing the quarterly time frame validation, validate all records that exceed the following time frames: Status Code Days Overage 00 – 07 – over 90 days 08 – over 180 days 20 – over 60 days for field cases 20 – over 30 days for office cases 22 – over 75 days 23 – over 60 days 23 – over 30 days for field cases 24 – over 135 days (210 days if addressed to person outside of the United States) 25 – over 60 days 27 – over 60 days 28 – over 165 days 29 – over 1 year 30 – 34 – over 1 year 36 – over 1 year 38 – 39 – over 1 year 42 – 44 – over 180 days 52 – over 45 days 53 – over 60 days 54 – over 10 days 55 – over 45 days 56 – over 60 days 57 – over 45 days 58 – 59 – over 60 days The statistical sampling IVL feature of the statistical sampling inventory validation listing (SSIVL) program may be used as an alternative to the annual 100 percent inventory validation or the time frame validation. See IRM 126.96.36.199. 188.8.131.52.1 (12-20-2011) Requesting an IVL IVLs are generated by the AIMS/ERCS Analyst or AIMS Coordinator using the SSIVL Program. The AIMS/ERCS Analyst or AIMS Coordinator should refer to the SSIVL chapter in the ERCS Technical Reference Manual. For additional information seehttp://mysbse.web.irs.gov/exam/mis/manuals/13299.aspx To request an IVL for cases in PBC 19X or 29X or cases in a field PBC but physically located at a campus, for example Employee Group Code (EGC) 1000 or 2000, contact the Campus AIMS Coordinator. A listing of Campus AIMS Coordinators can be found at the following website: http://mysbse.web.irs.gov/exam/mis/contacts/default.aspx To request an IVL for field cases, contact your local Small Business/Self-Employed (SB/SE) Area AIMS/ERCS Analyst. A listing of Area AIMS/ERCS Analysts can be found at the following website: http://mysbse.web.irs.gov/exam/mis/contacts/default.aspx 184.108.40.206.2 (12-20-2011) Conducting the Validation The 100 percent validation package distributed to the groups/functions should include the following items (this list is not all-inclusive): IVL instructions AIMS IVL Form 8721,AIMS Inventory Validation Discrepancy List #1 - Case Files in Your Inventory - Not on Your AIMS and/or ERCS IVL Form 8722, AIMS Inventory Validation Discrepancy List #2 - Databases on Your AIMS IVL - Case File Not Located The manager charged with the returns should start the validation within 2 working days of receipt of the list and it must be completed no later than 25 calendar days from receipt of the listing. Verify the physical possession of all returns (case files should be located for non-filed returns) listed on the validation listing. This may include an original or copy of return or any other electronic facsimile of the return (TRDBV/TRPRT, RTVUE/BRTVU, MeF, etc.). In offices where ERCS is used in conjunction with AIMS to maintain inventory control, the AIMS IVL must be compared to an ERCS inventory listing. Discrepancies must be annotated and corrected. Review each element on the validation list to verify its accuracy. See IRM 220.127.116.11.2.1. Note: It is recommended that ERCS users also validate these elements for all collateral, penalty, and non-AIMS records in their inventory. Any variances found are not counted when computing the error rate. Line through any incorrect information and enter the correction above the line item. Additional information or comments should be written in red ink under the "Comments" section of the validation list. Enter a "C" and date of action in the "Comments" section on the validation list if the case has been closed. Closed means from the group to Planning and Special Programs (PSP), Technical Services (TS), Centralized Case Processing (CCP), or Status Code 90. Enter a "T" and the date of the action in the "Comments" section if the case has been transferred. Transferred means updated to another AIMS Assignee Code (AAC) or Primary Business Code (PBC). Enter a "R" in the "Comments" section if the return or electronic facsimile of the return is located. Timely update the appropriate database to correct identified errors. Corrections may require managerial approval. Use Form 8721 to list the original returns not presently charged to the organization but actually in its possession. If a skeletal record exists on AIMS for a return or case file listed on Form 8721, conduct further research to determine if the skeletal condition is due to an error upon establishing. If so, and the record/case file has been in the possession of the validating group or function greater than 30 days, then the record is counted as an error. If no skeletal record exists on AIMS and the return has been in the possession of the group/function greater than 30 days, then the record is counted as an error. Locate returns charged to the validating group or function not found in the physical inventory. After a complete search in the group or function, list these returns on the Form 8722. Conduct IDRS and/or ERCS research to determine other potential locations of the return or case file.. See IRM 4.4.20, Missing Returns and Error Accounts for more information on locating missing returns. Completed IVLs (with supporting documentation), Form 8721, and Form 8722 should be given to the manager for review and approval before forwarding to the Area AIMS/ERCS Analyst or AIMS Coordinator. 18.104.22.168.2.1 (12-20-2011) Elements to be Validated The data elements listed below must be verified for accuracy: Returns charged to group or function, but not present in inventory Returns present in inventory, but not charged to group or function MFT Tax Period Status Code Statute Date Primary Business Code (PBC), Secondary Business Code (SBC) and Employee Group Code (EGC) Aging Reason Code Activity Code Note: Activity codes are generally systemically generated and should only be changed for the following exceptions:SFRactivity code must be updated based on the figures on the RAR, before the case leaves the groupRecords brought back from the Retention RegisterActivity Code 203 (no balance sheet or zero assets)Activity Code 231 Tracking Code Source Code Project Code Claim Amount Coordinated Industry Case (CIC) Indicator (Large Business and International (LB&I) only) TEFRA (Tax Equity and Fiscal Responsibility Act of 1982) Indicator (in conjunction with PICF (Partnership Investor Control File) Indicator) should be validated for partnership returns (MFT 06 or 35), in Status Code 12 over 60 days Operating divisions may have differing guidelines for determining errors within each element. These guidelines should be considered when determining whether an error situation exists. Questions should be referred to your local AIMS/ERCS staff or AIMS Coordinator for resolution. 22.214.171.124 (12-20-2011) Error Rates and Revalidation Requirements The AIMS/ERCS Analyst or AIMS Coordinator computes an error rate for each validated IVL package returned by the groups and determines whether revalidation is necessary. The error rate is computed by line items (or returns), not data elements. Although each line item (or return) may have multiple data element errors present, the maximum error charged per line is one. 126.96.36.199.1 (12-20-2011) Computing the Error Rate If using the 100 percent validation, divide the total number of returns with errors by the total number of returns on the IVL plus returns in inventory but not on the IVL. Multiply this number by 100 to determine the error rate percentage. If using the Quarterly Time Frame Validation, divide the number of returns with errors by the total number of returns exceeding the time frames specified in IRM 188.8.131.52. Multiply this number by 100 to determine the error rate percentage. 184.108.40.206.2 (08-01-2003) Acceptable Error Rates Error rates of 5 percent or lower are acceptable. 220.127.116.11.3 (08-01-2003) Revalidation Requirements Revalidation requirements depend on whether a 100 percent annual validation or the quarterly time frame validation was performed. 18.104.22.168.3.1 (12-20-2011) 100 Percent Annual IVL If the initial error rate for any validating organization was more than 5 percent and all errors have been resolved within 3 months, revalidation must be made within 6 months from original IVL. The first revalidation will be a sampling of returns selected by the AIMS/ERCS Analyst or AIMS Coordinator for the organization. The method of return selection can be done using local procedures. However, the minimum sample size as discussed in IRM 22.214.171.124.3.1 (4) must be met. The size of the sample is determined using the sample size table below. The sample of returns selected must represent a mix of the class of returns present in the inventory of the validating organization. If this can be accomplished by selecting returns alphabetically from the inventory validation list or by selecting every nth return (for example every 5th return), this method of selection is acceptable. If this method of selection does not meet this objective, the AIMS/ERCS Analyst or AIMS Coordinator will enlarge the number of returns in the sample until each class of returns in an originator's inventory is represented in the sample. If the error rate is within the acceptable number of returns with errors, no further sample or validation is due until the next scheduled validation period. If it is not, a complete validation is required every 3 months until the error rate is reduced to the acceptable level. Inventory Size of Sample Acceptable Number of Returns with Errors 1 - 30 All 0 31 - 50 30 0 51 - 100 37 0 101 - 200 40 0 201 - 300 95 2 301 - 400 145 4 401 - 500 150 4 501 - 600 175 5 601 - 800 200 6 801 - 1,000 225 7 1,001 - 2,000 280 9 2,001 - 3,000 370 13 3,001 - 4,000 420 15 4,001 - 5,000 440 16 5,001 - 7,000 490 18 7,001 - 10,000 535 20 10,001 - 20,000 610 23 20,001 - 50,000 700 27 126.96.36.199.4 (12-20-2011) Quarterly Time Frame Validation If the initial error rate for any validating organization was more than 5 percent, but all errors have been resolved by the next quarterly IVL, no revalidation is required. For offices that have a greater than 5 percent error rate for 2 consecutive quarters, a 100 percent validation of the status codes with the high error rate is required during the subsequent quarterly time frame validation until the error rate is reduced to the acceptable level. 188.8.131.52 (08-01-2003) Statistical Sampling Inventory Validation Listing (SSIVL) The statistical sampling application of the SSIVL may be used as an alternative to the annual 100 percent inventory validation. To ensure validation of returns which are not controlled on AIMS, a physical search of all returns related to the sampled return will be performed to ensure the appropriate controls are in place. 184.108.40.206.1 (12-20-2011) Selection of the SSIVL If using the statistical sampling application of the SSIVL as an alternative to the annual 100 percent IVL, each Area must validate a minimum of 100 returns every other week. Exceptions to the minimum sample size and frequency must be approved by the Area PSP. 220.127.116.11.2 (12-20-2011) Conducting the SSIVL The AIMS/ERCS Analyst or AIMS Coordinator will distribute the listings to the groups/functions within two workdays of generating the sample. The validation will follow the procedures as outlined in IRM 18.104.22.168.2. The manager charged with the sample returns will be responsible for ensuring the sample is accurately completed and returning the listing to the AIMS/ERCS Analyst or AIMS Coordinator within four workdays of receipt. The AIMS/ERCS Analyst or AIMS Coordinator will compute an error rate on the completed listing. 22.214.171.124 (12-20-2011) Reporting the IVL Results Within 15 days of receipt of the completed IVL packages, the AIMS/ERCS Analyst or AIMS Coordinator will review and reconcile the packages and forward to the responsible manager. Within 15 days of receipt of these packages, the AIMS/ERCS manager or the responsible PSP manager will prepare the validation report and send to the manager of the validating group or function. Note: These time frames can be adjusted by the Areas due to workload (such as the business organizations performing the IVLs concurrently). For LB&I groups, a copy will be sent to the responsible manager, as well as the LB&I Headquarters Analyst responsible for AIMS. The IVL results should be sent to the Area PSP annually for 100 percent validation and quarterly for Time Frame validation or the Stat Sampling SSIVL. CCP and TS are excluded from this requirement. CCP IVL results should be sent to the CCP Headquarters Analysts. TS IVL results are maintained by TS AIMS/ERCS Analyst. 126.96.36.199.1 (12-20-2011) 100 Percent Validation and Time Frame Validation Reports The report will contain the following information for each organization. Number of returns in validating function Number of returns in error Error rate by function/group Error trends Number of returns reported to the AIMS/ERCS Analyst or AIMS Coordinator as missing 188.8.131.52.2 (12-20-2011) Statistical Sampling SSIVL Report The report will contain the following information. Number of completed SSIVL’s for the period Number of returns validated for the quarter Number of returns in error Error rate by function/group Error trends Number of returns reported to the AIMS/ERCS Analyst or AIMS Coordinator as missing 184.108.40.206.3 (08-01-2003) Disposition of Validation Listings The validation lists and reports of the IVL results (including revalidation documents) should be destroyed after one year plus the current year. Example: If the group has completed the IVL for fiscal year 2011, they should retain their 2010 and 2011 documents. See IRM Exhibit 1.15-23 (48) for more information. 220.127.116.11 (12-20-2011) Other Inventory Monitoring Tools Prior to the performance of the IVL, groups can use various programs in conjunction with AIMS to monitor and analyze inventory. Listed below is a brief description of some of the programs. SSIVL - The SSIVL program allows for the review and analysis of inventory. This information is updated weekly and should be worked on a consistent basis by the AIMS/ERCS Analyst or AIMS Coordinator. Examples of things to look for on the SSIVL are: BAD_AAC list - identifies cases in your PBC with an invalid AAC Source Code 62/49, no project code PSP group errors—status greater than 09 Exam group errors—status less than 09 Source Code 45 with status greater than 10 Potential 424 rejects—skeletal records pending Statute reports Overage case listing—overage criteria can be established by user Database reports based on an AIMS field ERCS - See IRM 4.7, ERCS. AIMS Computer Information System (A-CIS) - The A-CIS database program provides monthly AIMS data on both open and closed cases. Issue Management System (IMS) - The IMS is used by most Large Business and International (LB&I) groups and SB/SE Specialty groups. An IMS inventory and data validation is conducted annually. See the IMS Inventory and Data Validation Home page at http://lmsb.irs.gov/hq/bsp/IMS/ims_ivl_home.asp for more information. Issue Based Management Information System (IBIMS) - The IBIMS is the reporting component that is used to deliver the information collected and managed by IMS. In addition, IBMIS can be used to analyze monthly AIMS data files, as well as, data from the Specialist Referral System (SRS). See the IBMIS Home page at http://lmsb.irs.gov/hq/bsp/IBMIS/IBMIS_User.asp for additional information.