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4.10.2  Pre-Contact Responsibilities

Manual Transmittal

November 04, 2016


(1) This transmits revised IRM 4.10.2, Examination of Returns, Pre-Contact Responsibilities.


This text includes guidance for completing required responsibilities and analyses before an examination is initiated, pre-contact planning of the examination, and instructions for contacting taxpayers.

Material Changes

(1) Minor editorial changes have been made throughout this IRM. Website addresses, legal references, and IRM references were reviewed and updated as necessary.

(2) IRM subsections through, and through, have been updated to incorporate the provisions of Interim Guidance Memorandum SBSE-04-0916-0023, Initial Taxpayer Contact on Examination Cases, dated September 8, 2016, and Interim Guidance Memorandum NHQ-04-0516-0001, Change in Policy on Initial Taxpayer Contact in Examination Cases, dated May 20, 2016.

Effect on Other Documents

This IRM supersedes IRM 4.10.2 dated February 11, 2016, and incorporates Interim Guidance Memorandum SBSE-04-0916-0023, Initial Taxpayer Contact on Examination Cases, dated September 8, 2016, and Interim Guidance Memorandum NHQ-04-0516-0001, Change in Policy on Initial Taxpayer Contact in Examination Cases, dated May 20, 2016.


SB/SE Field Examination Employees

Effective Date


John Caggiano
Acting Director, Examination Field & Campus Policy SE:S:E:HQ:EFCP
Small Business/Self-Employed  (02-11-2016)

  1. The purpose of this section is to provide examiners with guidance for:

    • Analyzing tax returns before contacting the taxpayer to determine if the return should be examined;

    • Surveying returns;

    • Determining the examination scope and depth;

    • Contacting the taxpayer; and

    • Scheduling the initial appointment.

  2. This section also provides guidance for office examiners on the use of:

    • The Microsoft Outlook® calendar for planning and scheduling; and

    • ERCS action codes related to planning and scheduling, as defined in IRM Exhibit 4.7.5-1, Action Codes.

    .  (02-11-2016)
Initial Return Screening

  1. Before beginning the actual analysis of a return for examination issues, consideration should be given to factors which may prevent examiners from initiating an examination. Listed below are some of the factors that must be considered before an in-depth pre-contact analysis is performed:

    1. Statute of limitations (SOL) - see IRM

    2. Examination cycles - see IRM

    3. Conflict of interest - see IRM

    4. Repeat audits by the same examiner - see IRM

    5. Other IRS Business Units are working with the taxpayer - see IRM

    6. Repetitive audits - see IRM for additional guidance.

  2. If a prior or subsequent tax year is assigned because the primary tax year is currently under examination in the group, and the examination of the primary return is expected to result in little or no tax due, examiners may survey the return after assignment without completing the in-depth pre-contact analysis referenced in IRM, if no large, unusual or questionable (LUQ) items are identified after screening the prior or subsequent return. See IRM for additional information about LUQ items. Examiners must document their reason for the survey on Form 9984, Examining Officer’s Activity Record, or Form 1900, Income Tax Survey After Assignment, and include the documentation with the surveyed tax year. Examiners should follow the survey after assignment procedures in IRM  (01-17-2012)
Statute of Limitations (SOL)

  1. The Internal Revenue Code limits the time in which the government may make an assessment of tax. Examiners have the primary responsibility for identifying and protecting the statutes of limitations for returns in their custody. IRM 25.6.23, Examination Process - Assessment Statute of Limitations Controls, provides guidance for verifying statute dates. Failure to protect the statute of limitations can result in disciplinary action.

  2. If the statute of limitations is imminent, or if it has already expired on the assigned return, the return should be immediately brought to the group manager's attention to determine the appropriate disposal of the return.

  3. A statute of limitations to assess tax can be extended with the taxpayer’s consent. Examiners must obtain the approval of the group manager before requesting a taxpayer to execute a consent. The need for a consent should be clearly identified before it is solicited and the group manager’s approval documented in the case file. See IRM, Assessment, for a listing of some of the conditions that allow for a statute extension.


    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.  (02-11-2016)
Examination Cycles

  1. The examination and disposition of income tax returns is to be completed within 26 months for individual returns and within 27 months for business returns (Forms 1120, 1041, 1065, etc.) after the due date of the return or the date filed, whichever is later. Strict adherence to these guidelines is needed to ensure that the examination and all other processing can be completed within the statute of limitation.

  2. The following types of returns are exempted from the requirement to complete the examination and other processing within the exam cycle. These guidelines are not applicable to Forms 706 and 709.

    Cases Exempted From 26/27 Month Examination Cycle
    Source Code Description
    17 Tax Shelter Program
    39 Tax Shelter Program Related Pick-Up
    64 Pick-Up Related to Forms 1065, 1041 and 1120S other than Tax Shelter
    Project Codes Description
    0015 Tax Shelter Program - Other TEFRA/AMENDED
    0074 Related to Appeals not listed
    0310, 0311, 0154, 0156, 0165, 0437, 0458, 0669, 0112, 0016, 0034, 0149, 0150, 0265, 0266, 0449 Frivolous Filers/Nonfilers
    0101-0118 Tax Shelter Program -- Specific
    Push Code Description
    020 Delinquent Return
    021 Substitute for Return (Use if a TC 150 is not needed.)
    036 Substitute for Return
    037 Potential CI Referral/Nonfiler
    Status Code Description
    17 Fraud Development Status
    18 Acceptance by Criminal Investigation
    29 Other TEFRA Suspense
    30 Form 1254, Examination Suspense Report
    32 General Fraud Suspense
    36 Grand Jury Suspense
    38 Suspense-Other
    44 PSP Suspense
    Returns with AIMS creation dates 270 days old or less with the following source codes: Description
    11 Studies, Tests, and Research
    23 TEFRA Related
    24, 25 Nonfiler
    30 Claims for Refund/Abatement
    32 Carryback Refund
    60 Information Report
    77 State Information
    85 IRP Information Document Match
    88 Special Enforcement
    90 Fraud Regular
  3. IRC 6404(g) suspends interest for timely filed individual returns for taxable years ending after July 22, 1998, if the Service fails to notify the taxpayer of a liability within 18 months after the due date of the return (including extensions). P.L. 110-28, section 8242(a), amended IRC 6404(g) by requiring interest suspension if the IRS does not give written notice to the taxpayer of his liability and the basis thereof within 36 months of the later of:

    1. The date the return is filed, or

    2. The due date for the return without regard to extensions

    The amendment applies to notices provided to the taxpayer after November 25, 2007. See IRM, Notice Under IRC Section 6404(g) - Suspension of Interest, and IRC 6404(g).

  4. Circumstances may warrant exceeding the exam cycle if failure to conduct the examination would:

    1. Result in a serious criticism of the Service’s administration of tax laws,

    2. Establish a precedent that would seriously hamper subsequent attempts by the Service to take corrective action,

    3. Result in inconsistent treatment of similarly situated taxpayers, or

    4. Be contrary to an established Service position (the Service position must be clear at the time the approval, to initiate the examination, is granted and not in the developmental stages).

  5. If the initial return screening indicates the examination cycle cannot be met, or circumstances warrant exceeding the exam cycle, the matter should be discussed with the group manager.

    1. If the group manager and examiner agree that an examination should be initiated, approval for deviation from the examination cycle requirements should be documented in the workpapers.

    2. If the group manager and examiner agree that an examination should not be initiated, the examiner should document their reason for the survey on Form 9984 or Form 1900 and follow the survey after assignment closing procedures in IRM  (02-11-2016)
Conflict of Interest

  1. IRM, Policy Statement 4-6, prohibits examiners from examining or surveying a tax return if a relationship impairs impartiality. A conflict of interest exists if an examiner’s personal relationship(s) or private interest (usually of a financial or economic nature) conflict, or raise a reasonable question of conflict, with the examiner’s public duties and responsibilities.

    1. Personal relationships can include family members, friends and associates.

    2. A financial interest may be one involving the examiner’s spouse, minor child, partner, or organization in which the examiner is serving as an officer, director, trustee, partner or employee, or any person or organization with whom the examiner is negotiating or has any arrangement concerning prospective employment.

  2. Examiners must avoid any situation which creates a conflict of interest or creates a reasonable question of a conflict of interest with their official duties. Penalties prescribed by statute for established violations include both a fine and/or imprisonment.

  3. An examiner assigned a return which might create a real or apparent conflict of interest must immediately bring this matter to the attention of the group manager.

  4. Examiners should never initiate, terminate, or in any way modify audit actions based on requests from certain Executive Branch employees (specifically the President, Vice President, employees of the executive offices of the President or Vice President, or any other cabinet level official with the exception of the Attorney General). Any requests received by an examiner that violate this prohibition should be reported to the Treasury Inspector General for Tax Administration (TIGTA). Examiners should always consult with the group manager if anyone, other than the group manager, requests actions related to ongoing or potential examinations.

  5. If an examiner is assigned a return described in this section, the tax return should be returned to the group manager for reassignment.  (01-17-2012)
Repeat Audits by the Same Examiner

  1. IRM, Policy Statement 4–5, (P-4-5), prohibits an examiner or specialist from surveying or examining a tax return of a taxpayer for more than five consecutive years (60 months) from date of assignment. If the examination is in process at the five consecutive year point, the examiner or specialist is allowed to complete the examination provided the current cycle or audit has less than 12 months remaining from the five consecutive year point. An examiner or specialist will not be reassigned to the same taxpayer for at least one intervening examination or two intervening surveys.

  2. If an examiner is assigned a return described in paragraph (1) above, the tax return should be returned to the group manager for reassignment.  (02-11-2016)
Other IRS Business Units Working with Taxpayer

  1. Review IDRS and CFOL information to determine if another IRS function is working with the taxpayer. See CFOL Express to identify IDRS command codes that can be used to determine if another IRS function is working with the taxpayer. If another function is working with the taxpayer, the examiner should contact the employee assigned the case and determine the extent of their involvement. Facts and circumstances of the involvement may affect the examination of the return. The examiner should discuss the case with the group manager before proceeding with the examination.  (02-11-2016)
In-Depth Pre-Contact Analysis

  1. After the factors in IRM have been considered, the examiner is responsible for determining the scope of the audit, beginning with the issues identified by the classifier on the classification check sheet. The examiner must perform a pre-contact analysis including a thorough review of the case file to identify large, unusual, or questionable items (LUQs) beyond those selected on the classification check sheet. The examiner should take the following actions:

    1. Review the complete tax return including line items, credits, the balance sheet, elections and schedules, and any other items attached to the return.

    2. Review internal and external data from the sources reflected in the table below:

      Internal/External Data Sources
      IDRS - Integrated Data Retrieval System
      CFOL - Computer Files On Line
      CDE - Compliance Data Environment
      MeF - Modernized E-File System
      IRP - Information Reporting Program Transcripts
      Asset Locator / People Locator Service
      Internet Research
      yK1 (if applicable)
    3. Perform preliminary research, including reviewing code sections, regulations, court cases, revenue rulings and procedures, Coordinated Issue Papers (ISP), Audit Technique Guides (ATG), and/or business units' web pages as necessary to become familiar with the issues.

    4. Office examination: Document all actions taken and findings during the pre-contact stage on Lead Sheet 110, TCO Audit Plan, Form 9984, or supporting workpapers. If additional issues are identified as a result of the pre-contact analysis or if classified issues do not warrant examination, document the reasons for revising the scope and obtain approval from the group manager.


      Managerial approval is required when pre-contact time exceeds 1 hour on a non-business return and 1.5 hours on a business return.

    5. Field examination: Perform additional pre-contact audit steps appropriate to the taxpayer and document the actions taken and findings on Lead Sheet 110, Revenue Agent Audit Plan, Form 9984, or supporting workpapers. Preplan time charged to a case will vary with the complexity of the case. Group managers should monitor pre-contact time to ensure that the time charged is commensurate with the work accomplished. This can be accomplished using the Embedded Quality tool.  (02-11-2016)
Large Unusual or Questionable (LUQ) Items Defined

  1. The definition of an LUQ item will depend on the examiner’s perception of the return as a whole and the separate items that comprise the return. Some factors to be considered when identifying LUQs are:

    1. Comparative size of the item — an expense item of $6,000.00 with total expenses of $30,000.00 would be a large item; however, if total expenses are $300,000.00, the item would not be generally considered a large item.

    2. Absolute size of the item — despite the comparability factor, size by itself may be significant. For example, a $50,000 item may be significant even though it represents a small percentage of taxable income.

    3. Inherent character of the item — although the amount of an item may be insignificant, the nature of the item may be significant; e.g., airplane expenses claimed on a plumber’s Schedule C.

    4. Evidence of intent to mislead — this may include missing schedules, incomplete schedules, misclassified entries, or obviously incorrect items on the return.

    5. Beneficial effect of the manner in which an item is reported — expenses claimed on a business schedule rather than claimed as an itemized deduction.

    6. Relationship to other items — incomplete transactions identified on the tax return. For example, the taxpayer reported sales of stock but no dividend income.

    7. Whipsaw issues — when there is a transaction between two parties and characteristics of the transaction will benefit one party and harm the other. Examples include alimony vs. child support, sale vs. rental/royalty, employee vs. independent contractor, gift vs. income.

    8. Missing items — consideration should be given to items which are not shown on the return but would normally appear on the returns of similar taxpayers. This applies not only to the examination of income, but also to expenses, deductions, etc., that would result in tax changes favorable to the taxpayer.

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  2. Examiners are expected to examine all large, unusual and questionable items (LUQ). However, it is not intended that examiners should consider every possible issue. For instance, it is not proper for examiners to make a detailed analysis of a specific account unless the potential adjustment will materially affect the tax liability or will be important from a compliance viewpoint. In addition, examiners are expected to adequately explain the items which are examined and the large, unusual, and questionable items which are accepted without examination.  (02-11-2016)
Examination of Income

  1. Complete the required pre-contact minimum income probes for the examination of income as outlined in the table below. See IRM, Minimum Requirement for Examination of Income, for additional guidance.

    Type of Tax Return Pre-Contact Minimum Income Probes Pre-Contact Actions Required
    Non-business returns IRP reconciliation Perform IRP reconciliation
      Preliminary Financial Status Analysis Complete Preliminary T-Account if taxpayer does not have sufficient funds for even the most minimal personal living expenses, including those reflected on Schedule A
        Complete Preliminary T-Account for office examination returns with a Schedule C or F
    Individual Business Returns Preliminary Financial Status Analysis Complete Preliminary T-Account
        Perform IRP reconciliation
        Review case building materials in case file, including Accurint
      Business Ratios Perform horizontal and vertical analyses, as appropriate
      E-commerce and/or Internet Use Search internet for e-commerce activities
        Search internet for taxpayer and business name(s)
    Corporations and Other Business Returns Balance Sheet Perform balance sheet analysis
      Shareholder and Partners Evaluate individual returns of stockholders or partners with greater than 20% ownership
        Analyze yK1 data
      Ratio Analysis Perform horizontal and vertical analyses, as appropriate
      E-commerce and/or Internet Use Search internet for e-commerce activities
        Search internet for taxpayer and business name(s)


    The pre-contact minimum income probes may be revised as noted in:
    IRM, Exception to the Minimum Requirements,
    IRM, Deviation on Nonbusiness Minimum Income Probes,
    IRM, Deviation on Individual Business Returns Minimum Income Probes, or
    IRM, Deviation on Corporations and Other Business Returns Minimum Income Probes.  (02-11-2016)
Required Filing Checks

  1. Required filing checks will be completed as outlined in IRM 4.10.5, Required Filing Checks. However, when the scope of the examination is limited to a flow-through adjustment, the required filing checks may be limited to consideration of the taxpayer's prior and subsequent year returns.

  2. During the pre-contact phase the examiner should review internal information including IDRS and CFOL to determine whether the prior and subsequent year returns have been filed.

  3. The examiner should review the three year comparative analysis provided by CDE, if available, or prepare a comparative analysis to assist in determining the audit potential of the prior or subsequent year. The examiner should use their professional judgment to determine if a more detailed analysis is required. All analyses should be retained in the case file.

  4. The examiner should similarly determine whether known related tax returns, information returns, employment tax returns, etc. have been filed.

  5. The examiner must document their findings on Lead Sheet 130, Multi-Year and Related Returns Lead Sheet. Any documents used in this determination should be included in the case file.  (02-11-2016)
Evaluation of Audit Potential

  1. After completing the in-depth pre-contact analysis, examiners must evaluate the audit potential to determine whether the return warrants examination. To assist in evaluating the audit potential, examiners must consider the identified LUQs, pre-contact minimum income probes, including the materiality of any preliminary T-Account imbalances, and the results of the initial required filing checks. Examiners must compare the potential benefits to be derived from examining a return to the resources required to perform the examination.

  2. If the decision is made that the return warrants examination, follow the procedures in IRM

  3. If the decision is made that the return does not warrant examination, follow the procedures in IRM  (02-11-2016)

  1. To decrease the Account Receivable Dollar Inventory (ARDI) and increase the quality of assessments, examiners should consider collectibility when evaluating audit potential and setting the scope of an examination. Collectibility will be based on the taxpayer's current financial condition and not the tax return (which reflects the taxpayer’s past financial condition.)

  2. Form 5546, Examination Return Charge-Out Sheet, may provide alerts to potential collectibility issues. Examiners should review this form for collectibility indicators. See IRM, General Collectibility Considerations, for a listing and definition of collectibility indicators and steps to take when evaluating collectibility potential during the pre-contact phase.

  3. If Form 5546 is not in the file, the examiner must pull an AMDISA print to determine if there are any collectibility indicators. See IRM

  4. Not all taxpayers lacking the means to satisfy additional tax liabilities will be identified. Examiners should be alert for indications in the file that collectibility may be a factor to consider; i.e., the taxpayer is deceased or the taxpayer is a defunct corporation and the issue of transferee liability is not present. Form 9439, Collectibility Evaluation Form, may be used to help document collectibility.

  5. If collectibility is an issue in an assigned case, the group manager should be alerted as soon as the issue is discovered. Managers will make the final determination whether to survey the return or to limit the scope/depth of an examination. If a determination is made:

    1. To survey the return due to an absolutely uncollectible assessment, examiners should follow the procedures in IRM

    2. To conduct a limited scope examination, examiners should follow the procedures in IRM


      Returns should not be surveyed based solely on collectibility where a limited examination has the potential for developing leads to other non-compliant taxpayers.

  6. Examiners are required to document their evaluation of collectibility and the decision to survey or examine the return on Lead Sheet 110, a supporting workpaper indexed to Lead Sheet 110, or Form 9984.  (02-11-2016)
Decision to Survey a Return

  1. After completing and documenting the pre-contact analysis and evaluation of audit potential, but before examining any books and records, examiners should decide whether an examination will result in a material change to the taxpayer’s tax liability. If the examiner concludes that an examination is not warranted, the examiner should survey the return after assignment if the conditions listed in IRM are met.

  2. A return closed using survey after assignment procedures cannot be closed using the paperless process. In most circumstances examiners are required to complete the in-depth pre-contact analysis and document their findings. The documentation must be included when the case is closed in order to support the decision to survey the return. Even in those rare instances when the in-depth pre-contact analysis is not required (see IRM, examiners are still required to document their decision and their manager's approval to survey the return.  (02-11-2016)
Conditions Allowing Survey of Returns After Assignment

  1. A return will be surveyed after assignment if, after conducting the in-depth analysis and evaluating the audit potential the following conditions are met:

    1. The taxpayer (or representative) has not been contacted,

    2. Taxpayer records have not been inspected, and

    3. The examiner determined an examination will most likely not result in a material change in the taxpayer's tax liability.


      This authority extends to returns identified for examination on Form 3949, Information Report Referral, or Form 3949-A, Information Referral. For whistleblower claims see IRM, Form 11369 for Surveyed Claims, for additional information.

  2. When a return is closed survey after assignment, disposal code 32 must be used.

  3. In accordance with IRC 7508, examiners must not conduct examinations on taxpayers on active duty to a combat zone, plus during any period hospitalized thereafter, plus 180 days. Also, ongoing examinations involving any individual identified as a combat zone taxpayer should be closed immediately, unless criteria under "Compelling Reasons" are determined. See IRM, Special Situations: Combat Zones, for guidance.

  4. Under certain conditions, a return may be surveyed after the taxpayer has been contacted, but before records have been inspected. Also, instances where the taxpayer is deceased, has a terminal illness, or other extraordinary circumstances exist, may warrant the survey of the return. Examiners must document the reason for survey on Form 1900 or Form 9984 , issue Letter 1024, Return Accepted as Filed, and follow the closing procedures in IRM  (02-11-2016)
Documentation Supporting Survey of Returns After Assignment

  1. Examiners must ensure they document the case file with all actions taken to support the decision to survey the return after assignment. For example, this includes but is not limited to the following:

    • Consideration of LUQs

    • Completion of applicable minimum income probes

    • Completion of required filing checks

    • Consideration of collectibility

    • Evaluation of audit potential

    • Repetitive audit

    • Other reasons such as taxpayer illness or death, etc.  (02-11-2016)
Procedures for Surveying Returns After Assignment

  1. Procedures for surveying returns after assignment are as follows:

    1. Stamp the return or electronic print with the following imprint:

      Examiner’s Signature (and Date)
      Approved — Group Manager’s Signature (and date)


      The stamp should be approximately 3” X 1” and procured locally by the area.

    2. Examiners are required to sign and date the imprint made on the return or electronic print.

    3. Group managers are required to indicate concurrence with the examiner’s decision to survey the return by signing and dating the imprint.

  2. An electronic print, IMFOL, BMFOL, or TXMOD can be used instead of the original return. Electronic prints include but are not limited to the following:



      TRDBV prints should not be given to the taxpayer. If a print is to be given to the taxpayer, use command RTFTP.

    2. CDE.

    3. TRPRT- This command is used to request a graphical (form image) of an electronically filed tax return. The print contains original taxpayer submitted data only. There are no corrections or processing codes. In essence, it creates a tax form out of electronically filed data.

    4. Modernized E-File System (MeF) - MeF is a web-based system that allows electronic filing of returns through the Internet. The MeF system provides the examiner original transmitted tax return data in various formats, including a Form View, which resembles a tax return.


    If you are working from a copy of the tax return, the copy cannot be surveyed. To close this case without requesting the original return, you must secure an electronic print and survey the print. Staple the print to the face of the copy of the return. Ensure the copy is clearly labeled in red "Copy Secured by Examination."

  3. Generally, examiners should charge time devoted to survey of returns after assignment to Activity Code 615, Survey.  (02-11-2016)
Form 1900, Income Tax Survey After Assignment

  1. The completion of Form 1900, is mandatory in some cases. For example, NRP, Joint Committee, Employee Audit, etc., cannot be surveyed without a Form 1900. See IRM, Survey of Examination Cases, for more information.  (02-11-2016)
Surveying Claims

  1. Claims for refund (including amended returns and informal claims) of income, estate, and gift taxes may be surveyed after assignment if it is determined that the claim issue is clearly allowable in full and the return does not otherwise warrant examination.

  2. Examiners must complete a Form 1900 to explain why the claim is being surveyed. Instructions for completing the Tax liability reported, Claim allowable, and Tentative allowance approved sections of Form 1900 are listed below. Also see IRM, for additional guidance regarding required documentation.

    1. If a claim reducing the tax liability shown on the original return was filed after the due date of the return, the amended return is considered to be a claim and the tax shown on the original return should be entered under "Tax Liability Reported." The difference between the tax liability reported on the original return and the amended return is entered under "Claim Allowable."

    2. If an amended return, increasing the tax liability shown on the original return was filed after the due date of the return, and the additional tax was assessed, then the tax as shown on the amended tax return should be entered under "Tax Liability Reported."

    3. Where tentative carrybacks have been filed Form 1045, Application for Tentative Refund, or Form 1139, Corporation Application for Tentative Refund, and the refunds have been made to the taxpayer, the tax as shown on the return before administrative adjustment is entered under "Tax Liability Reported." The amount refunded as a result of the filing of the tentative carryback is shown under "Tentative Allowance Approved."

    4. Where claims for refund (including amended and informal claims) have been filed, enter the tax liability as reported on the last processed return under "Tax Liability Reported" and enter the amount of the claim under "Claim Allowable."

  3. Claims should be stamped with the "survey after assignment" imprint and signed/dated by both the examiner and the group manager.

  4. Examiners must prepare Form 5344, Examination Closing Record, for claims closed as a survey after assignment. See IRM, Surveyed Claims, Disposal Code 34, for instructions on completing the Form 5344.

  5. Any claim which, if allowed, would produce an overassessment/overpayment, requiring reporting to the Joint Committee on Taxation ($2,000,000 refund; $5,000,000 for C corporations) may be allowed without examination (surveyed). However, the claim can be surveyed only after notification is received from the Joint Committee that the Service may proceed with disposition of the claim, as proposed in the report submitted to the Joint Committee, under the provisions of IRC 6405(a). See IRM, Survey After Assignment, for instructions on how to survey a Joint Committee case.

  6. For surveyed estate or gift tax claims see IRM, Surveying Returns Selected for Examination.  (04-02-2010)
Surveying Returns Transferred From Another Area

  1. If a return is received from another area and the other area only made the initial contact with the taxpayer, without beginning the examination and/or inspecting the taxpayer’s books and records, the receiving area can apply the survey after assignment procedures if the return does not warrant examination. Letter 1024 (DO), Return Accepted as Filed, can be used to notify the taxpayer.  (01-17-2012)
Surveying International Feature Returns

  1. International feature returns that meet the mandatory referral criteria of IRM, Mandatory Referral Criteria, may be surveyed only after the international referral is rejected.

  2. An international referral is made using the Specialist Referral System (SRS).  (02-11-2016)
Office Examination Scheduling and Use of Microsoft Outlook® Calendar

  1. Office examiners must maintain a Microsoft Outlook® calendar with examination activities firmly planned and scheduled for a three to four week period. Examination activities include first appointments, rescheduled appointments, pre-contacts, and follow up actions required for specific cases.

  2. Planned non-examination activities should be recorded on the Microsoft Outlook® calendar for a minimum of eight weeks in advance. This will allow the group manager to determine the examiner's availability for return ordering purposes.

  3. The Microsoft Outlook® calendar is a planning tool and should be updated as planned activities change. The calendar should not be updated after the fact.

  4. Based on an optimal work week, a full-time office examiner's Microsoft Outlook® calendar should generally reflect 8 hours of pre-contact activities, 24 hours of appointments, and 8 hours of follow-up activities each week. Taxpayer appointments, both initial and subsequent, should be recorded on the Microsoft Outlook® calendar using the taxpayer's name control and the last two digits of the tax year. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡


    Part-time office examiners should allocate the examination activities referenced in this paragraph in proportion to the total hours worked.

  5. The 24 hours of appointments referenced in paragraph (4) above includes time to complete prior and subsequent year examinations. Prior and subsequent year initial appointments should be placed on the Microsoft Outlook® calendar on a weekly basis to fill current time slots not scheduled with new taxpayer appointments. Action code 01, First Appointment - Initial Interview, is used to designate a new appointment or prior and subsequent year initial appointment on the ERCS Tax Auditor Daily Time Report.


    Generally, pre-contact time should not be applied to a prior, subsequent or related return if it is picked up for examination subsequent to the pre-contact phase of the primary year.

  6. Based on the complexity of the issues and the volume of information requested, a second appointment may be scheduled for primary, prior and subsequent year returns. Time scheduled for second appointments is included in the 24-hour allocation. The Microsoft Outlook® calendar entry should appear as "Taxpayer name control (2nd Appt.)" . Action code 02, Subsequent Appointment, is used to designate a subsequent interview appointment on the ERCS Tax Auditor Daily Time Report.

  7. Pre-contact time should be designated on the Microsoft Outlook® calendar by the term Pre-Contact or Pre-Audit with the planned number of hours. Specific taxpayer names do not need to be on the Microsoft Outlook® calendar for pre-contact scheduling. Action code 06 is used to designate a pre-contact case on the ERCS Tax Auditor Daily Time Report. See IRM for guidance on pre-contact time charges.


    Within two days of receipt of a case, the TCO or TE should review the Microsoft Outlook calendar, and schedule the case for pre-contact using Action Code 06, Schedule Pre-audit, on the ERCS Tax Auditor Daily Time Report.

  8. When an initial appointment is rescheduled, the Microsoft Outlook® calendar should be updated so the appointment appears on the new date and time and reflect R-1 for the first reschedule and R-2 for the second reschedule. The taxpayer will be advised that no further reschedules will be permitted after a second reschedule.


    Generally, in the event of a second reschedule, if income is not an issue, the examiner will prepare and send an appointment confirmation letter to the taxpayer, along with a report disallowing all classified issues and a 30-day letter. If income is an issue, examiners must follow the requirements of IRM, Minimum Requirements For Examination of Income, with respect to minimum income probes and the scope and proper development of income issues and consult with the group manager before preparing a report.

  9. If the taxpayer reschedules an appointment and the original time slot is not filled with another appointment, the examiner should utilize the time slot to:

    • Work priority cases including Strategic Priority Returns

    • Follow up on existing inventory

    • Conduct pre-contacts on new cases

  10. Planned follow-up time or case write up time will be designated on the Microsoft Outlook® calendar with the planned number of hours. Action Code 08, Follow-up Action, is used to designate follow-up time. The taxpayer name control is not required on the Microsoft Outlook® calendar for follow up activities.

  11. Group managers and support staff will be provided access to the office examiners' Microsoft Outlook® calendars and will make entries as needed. Territory managers will be provided reviewer access.  (02-11-2016)
Pre-Contact Planning of Examination Activities

  1. If the in-depth analysis and evaluation of audit potential indicate that a return should be examined, then examiners should begin planning the examination.

  2. The planning process begins with the accomplishment of the steps and audit techniques listed on the mandatory lead sheets that are applicable at this stage of the examination. See IRM , Administrative Lead Sheets, for a listing of the mandatory lead sheets. Actions taken by examiners include, but are not limited to:

    1. If the case is on the LAN, Local Area Network, examiners should verify tax return information on RGS, Report Generation Software, matches IDRS, and conduct variance analysis, and enter all issues (classified and new issues added during pre-contact).

    2. If the case is not on the LAN, examiners should input and verify tax return information on RGS, conduct variance analysis, and enter all issues (classified and new issues added during pre-contact).

    3. Prepare lead sheets. See IRM, Issue Lead Sheets, for additional guidance.

  3. Office examiners must prepare an initial contact letter and focused information document request (IDR). See IRM

  4. Examiners are expected to complete the activity record and workpapers contemporaneously. Examiners should prepare to the extent possible, the mandatory lead sheets and issue specific lead sheets as they progress through the examination. See IRM 4.10.9, Workpaper System and Case File Assembly, for additional guidance.

  5. Check boxes are found on some of the mandatory lead sheets used in the examination process and are intended to serve as a reminder of the actions the examiners should take. Checking a box does not necessarily mean comments and workpapers are not required; it depends on the audit procedure and/or examination technique. In all cases, professional judgment must be used, the examiner must ensure that the applicable tasks have been performed before checking the box(es).

  6. As the audit progresses the actions and audit steps may change. Examiners are responsible for ensuring that comments and explanations are documented when applicable.  (02-11-2016)
Scope of Examination

  1. Examiners must use their professional judgment to set the scope of the examination. Examiners should only work issues of merit and conclude the examination when the issues no longer warrant examination. Additional guidance is provided in the following sections:

    1. Risk analysis - see IRM,

    2. Determining the scope of an examination- current, prior and subsequent years - see IRM,

    3. Limiting the scope - see IRM,

    4. Limiting the scope when issues were examined and no-changed in either of the two preceding years - see IRM, and

    5. Expanding the scope to related returns - see IRM  (02-11-2016)
Risk Analysis

  1. Once the decision is made to audit the return, priorities can be established. Examiners are expected to effectively manage their workload by prioritizing the issues so that the issues with higher audit potential are examined over those with lower potential. Issues with little or no audit potential should not be selected for examination. See IRM, Limiting the Scope When Issues Were Examined and No-Changed in Either of the Two Preceding Years.

  2. The goal of an examination is to determine the "substantially correct" tax liability. The 80/20 concept is "value-added" decision making that weighs the impact of our decisions (potential results) with the investment of additional case time (cost).

  3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  5. The 80/20 concept is applicable throughout the audit to determine the scope of the examination. In addition, the Mid-Audit Decision Point (50% Rule) is a tool designed to assist the examiner at the mid-point of an examination in making a judgment regarding whether it is in the Government’s best interest to continue the examination. See IRM, Mid-Audit Decision Point (50% Rule).  (02-11-2016)
Determining the Scope of an Examination- Current, Prior and Subsequent Years

  1. Determining the scope of an examination is the process by which an examiner selects issues warranting examination. Examiners should select issues so that, with reasonable certainty, all items necessary for a substantially proper determination of the tax liability have been considered.

  2. Examiners must assess the facts and apply judgment in determining the scope of the examination.

    1. Office examination: The scope of the examination of a return is documented on a classification check sheet during the classification process. However, the scope of an examination should not be limited to the classified issues if other significant issues are revealed during the examination. Examiners must consult with and secure approval from their group manager before declassifying issues or raising new issues.

    2. Field examination: The scope of the examination will be determined by the examiner.


      If the scope is modified, revenue agents and tax compliance officers must document the decision, including how and when the taxpayer was notified, on Lead Sheet 110, a supporting workpaper indexed to Lead Sheet 110, or Form 9984.

  3. Examiners are expected to continually exercise judgment throughout the examination process to expand or contract the scope as needed.

  4. If during the course of the examination, the scope of the examination is expanded to include another tax period(s), the taxpayer must be notified orally or in writing of the expansion. The examiner should:

    1. Give the taxpayer time to secure a power-of-attorney for the additional tax period(s) if they have a power of attorney and it does not cover the tax period(s) being picked up for examination.

    2. Request and allow the taxpayer time to submit records for the new tax period(s).

    3. Office examination: Use the appropriate appointment confirmation letter. See IRM for office letters.  (02-11-2016)
Limiting the Scope

  1. The scope of an examination may be limited under the conditions described below:

    1. If no other items appear worthy of examination, the scope may be limited to one or two issues. For example, it may be necessary to examine a claim because the issue is highly technical and requires factual development. If there are no other issues meriting development, then the exam should be limited to the claim issue.

    2. If a taxpayer is contacted with regard to an information return program (IRP) item, the scope of the examination is generally limited to resolving differences between items reported by the taxpayer and items reported on the information returns. Emphasis should be placed on determining why the income was omitted and whether the omission occurred in more than one year. When it appears that a material amount of income may not have been reported, and there has not been a prior audit, an examination should be initiated.

    3. If a return is selected due to an issue arising from an agency-investor relationship, and no other issues on the return appear worthy of examination, the scope of the examination may be limited to the identified issues.

    4. If collectibility is an issue, the scope of the examination may be limited. A collectibility determination should be made when the taxpayer has no ability to pay or expectation of a future ability to pay. See IRM and IRM 4.20.1, General Collectibility Procedures, for additional guidance.

    5. If issues were examined and no-changed in either of the two preceding years see IRM

  2. When a Schedule K–1 is inspected to determine that the flow through items have been reported correctly, the taxpayer and/or representative should be advised that the inspection does not constitute an examination and the taxpayer’s distributions from the related entity may be adjusted later if the related entity is examined.

  3. Generally, short-term timing issues should not be examined. Timing issues with long term, indefinite or permanent deferral features should be examined. Unplanned timing issues which arise as correlative adjustments during an examination of non-timing issues should be made if it is cost effective to do so.

  4. Any limitations placed upon the scope of the examination and the reasons for the decision to limit the scope must be documented on Lead Sheet 110, a supporting workpaper indexed to Lead Sheet 110, or Form 9984.  (02-11-2016)
Limiting the Scope When Issues Were Examined and No-Changed in Either of the Two Preceding Years (IMF Returns)

  1. Limiting the scope is appropriate when an examination of the same issue(s) in either of the two preceding years resulted in a no-change. All individual returns closed as a no-change require entry of an IMF no change issue code to allow AIMS to record the issues considered during the examination and no-changed. The information is sent to Master file and captured by EOAD. You can review this information using command codes I/BMFOLZ. If a subsequent return is open on AIMS, the Form 5546 will display the IMF issue codes. Also, the examination return charge-out sheet can be referred to for indications of prior examinations. The charge-out sheet generally provides:

    1. The year of the prior audit;

    2. The disposal code;

    3. The deficiency or overassessment amount; and

    4. No-change issue codes.

  2. If issue(s) being considered in the current examination were no-changed in either of the two preceding years or had a small tax change, the issue(s) should be eliminated from the audit plan unless some other information in the case file indicates that the issue(s) is worth examining.

  3. If all issues are found to be repetitive the case may qualify for repetitive audit procedures. See IRM  (02-11-2016)
Expanding the Scope to Related Returns

  1. Expanding the scope of the examination to a related return is based on the examiner’s judgment. If, while completing the required filing checks, an examiner discovers that a taxpayer has not complied with a filing requirement or that an audit potential exists, they should expand the examination scope to the related return if warranted. See IRM 4.10.5, Required Filing Checks, for guidance.

  2. Office examination: If it appears that a related return warrants examination and the examiner feels they cannot conduct the examination, the examiner should discuss the possible reassignment of the case with their group manager. The examiner should secure a copy of the related return and prepare the case file for transfer. If the group manager agrees that the case warrants transfer to another examiner, the manager should:

    1. Reassign the related return to a more experienced examiner in office examination.

    2. If the related return is outside the examination scope of office examination, the manager should contact a field examination group manager to assess the related return’s audit potential.

    If the group manager determines the related return does not warrant examination, this decision should be documented in the case file by either the examiner or the manager.

  3. Field examination: If a related partnership return should be examined and:

    Partners are individuals within the area. Proceed with the examination.
    Partners are individuals, not within the area. Prepare Form 5346 and forward to the PSP Support Manager.
    Partners are non-individuals not within the area. Prepare Form 5346 and forward to the PSP Support Manager.
    Partners are non-individuals located within the area. May obtain group manager’s approval to examine.
  4. Examiners should refer to IRM 4.31.2, TEFRA Examinations - Field Office Procedures, and IRM 4.31.5, NonTEFRA Examinations - Field Office Procedures, for more detail information on flow-through entities.  (02-11-2016)
Inventory Checks

  1. If inventory is classified as an issue, examiners will verify that inventories are reported correctly. If inventories are not examined but classified, examiners must document why inventories do not warrant examination on Lead Sheet 110, or a supporting workpaper indexed to Lead Sheet 110. See IRM, Inventories, for additional guidance.  (04-02-2010)
Depth of an Examination

  1. Depth is the extent to which an issue is developed. It demonstrates the degree of intensity and thoroughness applied in order to make a determination as to the correctness of an item.

  2. Examiners must exercise judgment in determining the depth required for the examination. Determining the depth of the examination for different issues will help to estimate the time needed to complete the examination. The following factors should be considered:

    1. Type of evidence available or expected for the issue,

    2. Complexity of the issue,

    3. Materiality of issue, and

    4. Internal controls.  (02-11-2016)
Preliminary Research

  1. Preliminary research of the applicable IRC sections, treasury regulations, rulings, and court cases, concerning the proper tax treatment of a particular issue, should be performed on the issues identified in the pre-contact analysis. This will assist in the development of specific interview questions, determine possible audit procedures, and help determine what information should be included on the IDR. It is critical that examiners become familiar with the issues on the return. Extensive research, however, should not be conducted until the facts of the issues are established. See IRM 4.10.7, Issue Resolution.

  2. Secure the prior audit file(s), including report(s), from the Correspondence Examination Automation Support (CEAS) database to determine the issues previously proposed and any problems encountered during the examination. If the prior audit file is not available in CEAS, ask the taxpayer for a copy of the report or request the administrative file from the Campus.  (04-02-2010)
Referrals for Specialists

  1. Specialists are available to provide assistance with developing and resolving significant complex tax issues. During the pre-contact phase, examiners should determine if their case requires a referral for specialist assistance.

  2. Mandatory referrals should be made as soon as possible; but, no later than 30 days of the initial appointment. For field examination cases the referral must be made no later than 30 days of the initial appointment or the group manager's concurrence meeting whichever occurs first.

  3. Non-mandatory referrals should be requested as early in the examination as the need is identified.  (04-02-2010)
Referral Criteria

  1. Generally, referrals must be considered for all entities with gross assets exceeding $10 million and for cases with a single object of art and/or cultural property valued at $20,000 or more.

    1. Visit for the mandatory referral criteria for specialist referrals through the specialist referral system (SRS).

    2. See IRM for detailed information on mandatory referrals to the Art Advisory Service.

  2. Time required to work the issue by the specialist (including travel time) is included in the case. It is important to determine the projected tax from the specialist issue versus the time required to develop the issue. Cases which would result in minimal change to the taxpayer’s tax liability should not be referred.

  3. Once it is determined that a referral is warranted, or is mandatory, the referral must be made early in the examination to ensure the specialist is assigned to complete the work timely.

  4. Questions regarding referrals should be directed to the specialized program group manager through either the group manager or the area program coordinator.

  5. Informal advice may be solicited on issues that do not appear to warrant a referral, but some assistance is required. For those specialist groups available through SRS, informal questions should be submitted using this system.  (08-01-2007)
Referral Forms

  1. Request for specialist assistance must be made through the SRS. This includes questions and informal requests for assistance. Exception to this rule is for those specialist groups that cannot be accessed through this system. See Manual Referrals below.  (01-17-2012)
Specialist Referral System (SRS) - Online Referrals

  1. The SRS is an online automated system that allows for all submissions and approvals for specialist assistance. It automates the referral request process for LB&I, SB/SE, W&I and TEGE field specialists. It is accessed from the Intranet at

  2. The SRS must be used for referrals (includes questions and informal requests for assistance) to the following specialist groups:

    1. Computer Audit Specialists (CAS) - see IRM 4.47, Computer Audit Specialists;

    2. Economists - see IRM 4.49.1, Overview - Economist Program;

    3. Employee Plan Specialists - see IRM 4.71, Employee Plans Examination of Returns, handbooks for additional information;

    4. Employment Tax Specialists (LB&I, SB/SE, and TEGE) - see IRM 4.23, Employment Tax, handbooks for additional information;

    5. Engineers - see IRM 4.48, Engineering Specialty, handbooks for additional information;

    6. Excise Tax Specialists - see IRM 4.24, Excise Tax, handbooks for additional information;

    7. Exempt Organizations Specialists - see IRM 4.75, Exempt Organizations Examination Procedures, handbooks for additional information;

    8. Federal, State, and Local Government - see IRM 4.90.6, Referrals, for additional information;

    9. Financial Products and Transactions Specialists - see IRM 4.37.1, Financial Products Specialty, for additional information;

    10. Indian Tribal Government see IRM 4.88.1 , Examination Issues Pertaining to ITG Cases, for additional information;

    11. International Examiners - see IRM 4.60.6, International Referral Criteria and Procedures;

    12. Joint Committee- see IRM 4.36.4, Joint Committee Specialist Procedures;

    13. LB&I Actuary; or

    14. Tax Exempt Bonds - see IRM 4.81, Tax Exempt Bonds (TEB) Examination Program and Procedures, handbooks for additional information.

  3. When examiners submit an online request, SRS automatically notifies the appropriate Specialist Manager of the request. The system is totally electronic and web-enabled, providing management necessary information reports.

  4. Examiners will use a manual request only when the specialist groups cannot be accessed through SRS (i.e. art appraisal, Counsel assistance, etc.)

  5. The SRS maintains an archive of all referrals.

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