This IRM provides information on Examination general procedures for administrative matters and references for common issues and related items that might be found on tax returns.

Wage and Investment (W&I) Refundable Credits Exam Operations (RCEO) and Small Business/Self Employed (SB/SE) Campus Examination support the mission of the Service by maintaining an enforcement presence and encouraging the correct reporting by taxpayers of income, deduction and credit, and estate, gift, employment, and certain excise taxes, so as to instill the highest degree of public confidence in the tax system's integrity, fairness, and efficiency. Both W&I and SB/SE Campus Examination are referred to as "Examination" , "Campus Examination" , or "Correspondence Examination" .

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. Taxpayers contact TAS for assistance in resolving problems, when they:

By law, the Internal Revenue Service has the authority to conduct examinations, make assessments and apply penalties under Title 26 of the Internal Revenue Code, Subtitle F, Procedure and Administration. Additional information relating to conducting examinations is contained in 26 CFR 601.105 - Examination of returns and claims for refund, credit or abatement; determination of correct tax liability. Examiners conduct correspondence examinations for multiple programs and utilize Internal Revenue Code, Regulations, Policy Statements, and Policies and Procedures relevant to Correspondence Exam. The authority for the assertion of the ten-year ban when there is a final determination that the taxpayer’s claim for credit is due to fraud are; IRC 32(k)(1) for EIC, IRC 24(g)(1) for CTC/ACTC/ODC and IRC 25A(b)(4) for AOTC.

Campus Examination employees:

Audits are conducted by W&I Refundable Credits Examination Operations (RCEO) and Small Business/Self Employed (SB/SE) Campus Operations employees.

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

W&I Program Management (PM) is responsible for providing oversight and monitoring the performance results of the EITC and Non-EITC programs for the Refundable Credits Examination Operations (RCEO) campuses.

SB/SE Examination Planning and Performance Analysis provides support and monitors the program results for the SB/SE campuses.

Case review is performed using the Embedded Quality Review System (EQRS). EQRS is an on-line database, accessed through the IRS intranet, used by Campus Compliance Services and Return Integrity and Compliance Services (RICS). EQRS is used by managers and the National Quality Review System (NQRS) is used by national quality reviewers to input a Data Collection Instrument (DCI) into the system, capturing results on case reviews performed. The EQ website contains an electronic Master Attribute Job Aid (MAJA) that provides information specific to Examination Paper and Phones. EQRS/NQRS report data is available through the EQRS/NQRS database as well as in the monthly Campus Operations Business Results (COBR) reports.

The following is a listing of definitions for the most common acronyms used in this IRM:

Acronyms may also be checked on the Acronym Database, http://rnet.web.irs.gov/resources/acronymdb.aspx.

Examination employees are responsible for researching and utilizing information contained in all reference materials. Other IRM chapters provide information on single topics that pertain to more than one function. Links to the most commonly used reference materials are listed below.

During an examination, information may be obtained which indicates the taxpayer has, or is attempting to, understate their tax liability through fraudulent means. Although only a small percentage of cases are fraudulent, it is necessary to detect and report any potentially fraudulent activities. The fraud may involve a promoter or return preparer.

Taxpayers who knowingly understate their tax liability often leave evidence in the form of identifying earmarks (or indicators). Indicators of fraud serve as a sign or symptom, or show that actions may have been taken for the purpose of deceit, concealment, or to make things seem other than what they are. Indicators of fraud, by themselves, do not prove fraud. Fraud indicators are the starting point to complete further inquiry and analysis to determine if affirmative acts of fraud exist. See IRM 25.1.1.4, Indicators of Fraud vs. Affirmative Acts of Fraud. Some examples of common indicators of campus fraud are:

If fraud is suspected, the case will be referred to the FFC, CFC, or the EFC, as applicable.

The case will be evaluated for fraud development by the CFC/EFC, working with the FEA, to determine if affirmative acts (e.g., deceit, subterfuge, camouflage, concealment) of fraud exist. The Internal Revenue Service (IRS) must prove that the taxpayer acted deliberately and knowingly with the specific intent to violate the law. If the CFC/EFC and the FEA determine the case has fraud potential, the case will be referred to Brookhaven for SB/SE or Austin for W&I.

If preparer or promoter involvement is identified, a referral should be made. See IRM 4.19.10.6, Return Preparer Scheme Identification for procedures.

Refer to IRM 25.1.2, Recognizing and Developing Fraud, IRM 25.1.2.3, Indicators of Fraud, and IRM 25.1.14, Fraud Handbook, Campus Examination Fraud Procedures, for additional information.

Correspondence Examination Technicians/Tax Examiners (CET/TE) must familiarize themselves with indicators of fraud. See IRM 4.19.10.4.1, Identifying Fraud in Correspondence Examination, and IRM 25.1.2, Recognizing and Developing Fraud, for more information.

Identify indicators of fraud during the examination process. This may occur:

Maintain an accurate case record reflecting all statuses/actions taken, documents received from and conversations with the taxpayer, representative, return preparer and third parties.

Follow the existing Auditing Standards and preparation of work papers as defined in IRM 4.19.13, General Case Development and Resolution.

Discuss the indicators of fraud with the team supervisor/lead. If the team supervisor/lead concurs, prepare the Form 13549, Campus Fraud Lead Sheet, detailing the indicators of fraud. For instructions, see Exhibit 4.19.10-1, Campus Fraud Lead Sheet.

Secure the team supervisor/lead's initials with the date and forward the Form 13549 to the FFC, the CFC or the EFC, as applicable.

Expedite the referral process for cases in ST 22 when the taxpayer’s response indicates fraud. Do not change the status code. The RGS suspense date may need to be updated to prevent automatic issuance of the 90-day letter, Statutory Notice of Deficiency. Be sure to document actions taken.

Expedite the referral process for cases in ST 24 when the taxpayer’s response indicates fraud. Do not change the status code. The RGS suspense date may need to be updated to ensure the prevention of the tax and penalty assessment as a result of the automatic default of the 90-day letter, Statutory Notice of Deficiency. Be sure to document actions taken.

Research identity theft indicators on AIMS and IDRS. Refer to IRM 25.23, Identity Protection and Victim Assistance, and IRM 4.19.13.27, Campus Exam Identity Theft.

Serve as point of contact for the tax examiner and team supervisor/lead, for assistance with potential fraud referrals in their function.

Ensure Form 13549 is properly completed by the CET/TE and approved by the team supervisor/lead. If:

Review the information, provided by the tax examiner and team supervisor/lead, on Form 13549. If:

Conduct preliminary IDRS research, on the tax year submitted, for fraud development:

Expedite the referral when the case is in the ST 24 suspense period and you concur with the fraud potential. Contact the CFC immediately and make a prompt decision regarding the case. The issuance of a Statutory Notice of Deficiency, Letter 3219, does not preclude subsequent fraud development; but it does create some additional considerations. Questionable documents that were received prior to the issuance of the statutory notice cannot be used to refer the case for fraud development once the statutory notice has been issued. Referring the case for fraud development, after the issuance of the statutory notice, must be based on taxpayer responses and document submissions received after the issuance of the statutory notice

Accept or decline the fraud referral within 10 business days; includes transfer of cases to a co-aligned campus:

Document all research and activities on Form 13549. See Exhibit 4.19.10-1, Campus Fraud Lead Sheet.

Update the taxpayer information and Functional Fraud Coordinator sections in the Centralized Campus Fraud Monitoring Workbook. SB/SE will follow the instructions included under separate tab in the workbook.

Place the most current Form 13549 in the case file and retain a copy of the form for 3 years.

Refer to IRM 25.1.14, Campus Examination Fraud Procedures, for additional information.

Ensure Form 13549 is properly completed and approved by the initiator's supervisor/lead.

Review Form 13549 received from the CET/TE to determine if sufficient indicators of fraud exist.

Conduct further research as needed and document the results on Form 13549, Section V, Fraud Indicators and Development Actions.

If identity theft is present, proceed only if the responsible party is identified.

Update referred cases to EGC 5024. Accept or decline the Form 13549 referral within 21 business days of receipt. This includes contacting the FEA within 10 business days to discuss the case.

The table below lists the actions that the EFC will take on referrals:

Update the Taxpayer Identification, Campus Fraud Coordinator and Fraud Enforcement Advisor Recommendation sections in the Centralized Campus Fraud Monitoring Workbook.

For additional information, see IRM 25.1.14, Campus Examination Fraud Procedures.

The Austin EFC will also follow the procedures under IRM 4.19.10.4.5.1, Responsibilities of the Brookhaven CFC (BCFC) and the Austin EFC, and IRM 4.19.10.4.7, Centralized Fraud Development Procedures.

Ensure Form 13549 is properly completed and approved by the initiator's supervisor/lead. The form must contain the required digital signatures and dates.

Update the Centralized Campus Fraud Monitoring Workbook. Follow the instructions included under separate tab in the Workbook. The referral tracking number on Form 13549 must match the entry on the Campus Fraud Spreadsheet.

If the case is not in status (ST) 24, update the case to ST 38. If the case is in ST 24, refer to IRM 4.19.10.4.6, Status 24 (90-Day) Referrals.

Update the referred cases to the appropriate employee group code (EGC); 5500 for Philadelphia & Memphis, 5335 for Cincinnati, 5195 for Ogden, and 5217 for Brookhaven.

Review the Form 13549 received from the CET/TE to determine if sufficient indicators of fraud exist.

Conduct further research as needed and document the results on Form 13549, Section V, Fraud Indicators and Development Actions.

Accept or decline the referred Form 13549 within 21 business days. This includes contacting the FEA within 10 business days to discuss the case and obtaining acceptance or denial from the Brookhaven CFC (BCFC).

If the CFC determines that the referral does not warrant fraud development (and the case will not be referred to the BCFC):

If the CFC and FEA determine the case should be referred to Criminal Investigation, the CFC will prepare Form 2797, Referral Report of Potential Criminal Fraud Cases, and refer the case to CI if affirmative acts of fraud are established and criminal criteria is met.

If the CFC and FEA determine that the referral does have the potential for fraud development in Brookhaven:

If the fraud referral is declined by the BCFC, the BCFC will return the completed form 13549 (dated, signed and noting reasons for declination) to the CFC. Since the CFC accepted the fraud referral from the TE/CET, the CFC will work the case through examination closure (including consideration of the negligence penalty and appropriate bans).

If the fraud referral is accepted by the BCFC, and the FEA concurs that the indicators of fraud warrant further development, the CFC will:

The BCFC/Austin EFC will coordinate with the FEA and Counsel to discuss the subsequent course of action when the case is in ST 24 and the taxpayer submits apparently false or altered documentation after the issuance of the Statutory Notice of Deficiency.

The BCFC/Austin EFC will expedite contact with Counsel if the case is in Status 24. They will inform them that the taxpayer is suspected of submitting false or altered documentation and ask whether the civil fraud penalty should be pursued. Counsel should be consulted on a case-by-case basis and IRM 4.8.9, Statutory Notices of Deficiency, guidelines must be followed to ensure that the notice accurately reflects the Service's position, should the case proceed to Tax Court.

If the taxpayer's actions are serious enough to warrant a criminal investigation referral, Counsel must be informed immediately.

The originating campus completes the Form 13549, including documenting the reasons for the potential fraud, and forwards the form to the Brookhaven CFC (for SB/SE) or the Austin EFC (for W&I) for fraud development consideration. W&I campuses will also transfer the case on AIMS/RGS to Austin. SB/SE campuses will not transfer the case until Brookhaven has approved the case for fraud development.

The following fraud development procedures apply only to the Brookhaven and Austin CFC/EFC/FEAs and the Brookhaven and Austin CFC/EFC managers.

Form 13549 is used to document the approval of the CFC/EFC/FEA and CFC/EFC’s group manager for placing a case in status 17, fraud development status. A case should not be placed into or taken out of Status 17, without consulting the FEA. If a disagreement exists for whether a case is placed into ST 17 or remains in ST 17, the ultimate decision rests with the CFC/EFC's group manager.

The CFC/EFC's group manager reviews Form 13549, indicates their approval by signing their name, dating, and electronically forwarding the completed form to the FEA for consideration.

If the FEA concurs with fraud development they will sign and date the Form 13549 and return it to the CFC/EFC and the CFC/EFC's group manager. A copy of the form is retained by the FEA and documented in the RGS workpapers.

For any case approved for fraud development, the FEA must prepare an agreed upon "plan of action" , under Section VII of the Form 13549. The plan will:

The CFC/EFC will update the case on AIMS/RGS to ST 17 and secure the original tax return(s), only if requested by the FEA or Counsel. Usually, the case can be developed using the existing tax return facsimile or document. The CFC/EFC will proceed with the plan until affirmative acts of fraud are established or a determination is made that the potential for fraud no longer exists. Cycle time is excluded from the monthly aging reports to management if the case is in fraud development status 17.

If affirmative acts of fraud are established:

A case will stay in Status 17 until a determination is made that the potential for fraud no longer exists or that the case will be transferred to the field or other BOD for fraud development. If the potential for fraud no longer exists:

For case transfer, see IRM 4.19.10.4.9 and IRM 4.19.10.4.9.1.

See IRM 25.1.14, Fraud Handbook, Campus Examination Fraud Procedures.

If the case is not open on AIMS and it has been accepted into the campus fraud program by the BCFC/EFC, the cases will be established on AIMS in the appropriate EGC

In W&I, if a case is open on AIMS, and accepted by the EFC/FEA, the case will be updated to EGC 5024 and transferred on RGS/AIMS to the Austin Campus. Refer to the W&I Fraud Transfers of Potential Fraud Cases to Austin job aid and the Transfer Checksheet on SERP.

In SB/SE, if the case is open on AIMS and accepted by the CFC/FEA, it will be updated to Status 38, within 21 business, days and remain in the originating campus EGC until acceptance by the BCFC/FEA for fraud development. Once the BCFC/FEA accepts a case, it will be transferred to Brookhaven and updated to ST 17. The BCFC becomes responsible for the examination, development of the fraud issue, issuance of the Report 4549 and Form 886A, etc.

When applicable, prior and subsequent year returns will be opened for exam. Current exam procedures will be followed.

Use the following organization function program (OFP) Code when working a fraud case:

Update the case(s), with FEA approval for fraud development, with the appropriate Project Code:

A case selected for field examination, on the joint recommendation of the FEA and CFC/EFC, will be transferred to the respective Area PSP Office, using Form 3185, Transfer of Return, and cover memo. See Exhibit 4.19.10-2, W&I PSP Fraud Memo, and Exhibit 4.19.10-3, SB/SE PSP Fraud Memo. The case will be transferred in Status 07, with an AIMS Aging Reason Code (ARC) of:

For additional information on transferring cases for field examination, see IRM 4.19.10.4.9.1, Transfer of Fraud Case for Area (Field) Examination.

For additional information on AIMS transfer procedures, contact your Campus AIMS Coordinators and refer to IRM 4.4.33, Transfers.

For cases transferred to another campus or other examination location (i.e., W&I cases transferred to Austin Exam and SB/SE cases transferred to Brookhaven), the originating campus will issue Letter 86C, Referring Taxpayer Inquiry/Forms to Another Office, to the taxpayer. If any prior contact has occurred with the taxpayer or correspondence was received from the taxpayer, the transfer notification procedures are required. (For W&I, refer to the W&I Transfers of Potential Fraud Cases to Austin and Transfer Check Sheet job aids on SERP.)

Interim Letters and Action 61 guidelines apply to fraud cases. See IRM 4.19.13.3.6, Standard 6 -Timely Actions, and IRM 4.19.3.22.1.5, Action 61/Policy Statement P-21-3.

When a case is accepted into the Fraud Program, the BCFC/EFC will issue the appropriate letters, following examination procedures in IRM 4.19.13, General Case Development and Resolution and observe suspense periods per IRM 4.19.10.1.7.2, Standard Suspense Periods for Correspondence Examination.

General assessment period - The normal assessment statute expiration date (ASED) is three years from the due date or three years from the date the original (valid) return was filed, whichever is later. See IRC 6501(a).

Special assessment periods:

See IRM 25.6, Statute of Limitations, for the procedures used to control the ASED.

Effective 8/15/19, Publication 1, Your Rights as a Taxpayer, will no longer satisfy the advance notice requirement of IRC Section 7602(c)(1).

Effective after 8/15/19, the Taxpayer First Act impacts third-party contact notice procedures. Section 1206 of the Taxpayer First Act amended IRC Section 7602(c)(1) (advance notice provision), now requires the IRS to:

For pre-notification of third party contact, campuses will send Letter 3164-E, (Exam 1) Third Party Contact. A copy of the Letter 3164-E must be saved to the RGS case file folder.

The Letter 3164-E notification takes effect in 45 days from the date of the letter and remains valid for one year, from the 46th day.

No contact with the third-party should be initiated before the 46th day after the date of the Letter 3164-E.

If additional third-party contact is needed after the expiration of the original contact period, a new Letter 3164-E must be issued.

Other provisions of IRC Section 7602(c) are unchanged and require the IRS to:

For procedures relating to third-party contact, refer to:

The Internal Revenue Code (IRC) provides that no EITC, and for tax years after 2015, CTC/ACTC or AOTC shall be allowed for a period of ten years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of the credit was due to fraud. The Credit for Other Dependents (ODC) is added for tax years 2018 - 2025. See:

The BCFC/Austin EFC will secure the FEA’s recommendation to impose the ten-year EITC, CTC/ACTC/ODC or AOTC Ban(s) on the Form 13549, Campus Fraud Lead Sheet. The BCFC/Austin EFC will complete the form and electronically send it to the FEA. The FEA will complete Section VII, Fraud Indicators and Developmental Actions, indicating "Assert CFP/FFTFP (Fraudulent Failure to File Penalty), impose Ten-Year EITC, CTC/ACTC/ODC or AOTC Ban(s)" and electronically return the form to the CFC/Austin EFC.

The case file must contain sufficient write-up and documentary evidence needed to document the affirmative acts of fraud.

When fraud is established, both CFP and ten-year bans normally apply. However there are instances when the CFP does not apply. Prior to assertion of the ten-year EITC, CTC/ACTC/ODC, or AOTC Ban(s) without the Civil Fraud Penalty, agreement must be secured from both the FEA and the applicable HQ Analyst.

If the FFC or BCFC/Austin EFC determine that the disallowance of the EITC, CTC/ACTC/ODC or AOTC was not due to fraud, but instead a result of the taxpayer’s reckless and intentional disregard of the rules and regulations, the two-year EITC, CTC/ACTC/ODC or AOTC ban(s) and negligence penalty should be considered. See IRM 4.19.14.7.1, 2/10 Year Ban - Correspondence Guidelines for Examination Technicians (CET), for information related to the two-year ban.

These sanctions are in addition to any other penalty imposed under present law.

Priority Code 6 must be input on Form 5344, Examination Closing Record, to impose the ten-year ban for EITC. If an "A" freeze is present on the account, the examiner must use a priority code 7.

Priority codes are not required to assert the ten-year ban for CTC/ACTC/ODC or AOTC. When the CTC/ACTC/ODC and/or AOTC issue is disallowed in RGS, a recertification code is systemically generated by RGS on the 5344. To assert the ten-year ban, the examiner must overwrite the recertification code with the appropriate reason code:

For more information on the two and ten year bans, refer to IRM 4.19.14.7.1, 2/10 Year Ban - Correspondence Guidelines for Examination Technicians (CET). Also, see the Penalty Handbook IRM 20.1.5.3.5, Two and Ten Year Bans on Claiming the Earned Income Tax Credit (EITC), Child Tax Credit (CTC), Additional Child Tax Credit (ACTC) and American Opportunity Tax Credit (AOTC).

If the CFC/EFC receives a case with fraud potential that was prepared by a return preparer, the case will be referred to the W&I or SB/SE HQ Analyst for scheme identification. The CFC/EFC should conduct the following return preparer research prior to referring the case:

Refer to IRM 4.19.10.6, Return Preparer Scheme Identification, to refer the case to the W&I or SB/SE HQ Analyst. The CFC/EFC/W&I Return Preparer Coordinator (RPC) must coordinate with the HQ analysts prior to referring the case to other functions for penalty consideration. The CFC/EFC should send the preparer cases identified to the Lead Development Center at *LDC and copy the HQ analysts on the referral. HQ may also recommend that the referral go to the Return Preparer Office (RPO).

Upon acceptance of the case by another function, the CFC/EFC will notate the disposition and the date of disposition of the referral in the Centralized Campus Fraud Monitoring Workbook and Form 13549, Campus Fraud Lead Sheet.

Generally, Campus Examination Operation personnel do not develop or assert penalties against tax return preparers. However, there may be instances where campus employees may be directed to do so. In that event, the following information and procedures will apply.

Refer to IRM 20.1, Penalty Handbook, for additional information.

A number of penalties apply to tax return preparers. Any person who prepares a tax return or claim for refund for compensation or who employs one or more persons to prepare for compensation, any return of tax, or claim for refund is considered to be a tax return preparer.

Absent reasonable cause and good faith, preparers incur a penalty if:

A penalty is charged for understating a taxpayer's tax liability when the understatement was due to willfulness or any reckless or intentional disregard of rules and regulations.

Examiners will flag cases where there are indications of possible income tax preparer violations by use of Form 3198, Special Handling Notice for Examination Case Processing, and forward to the Examination Return Preparer Coordinator (RPC) for review and forwarding to Area Office RPCs.

The Office of Professional Responsibility (OPR) establishes, communicates and enforces the rules of professional conduct applicable to tax professionals as defined by Treasury Department Circular 230. The OPR may propose disciplinary action against a practitioner for noncompliance issues associated with their personal or business tax returns.

Make a referral to the Office of Professional Responsibility if the non-filer is a tax practitioner (attorney, certified public accountant, enrolled agent, or enrolled actuary). Forward copies of delinquent returns of tax practitioners through supervisory channels to the:

Furnish the following information indicating:

Sanctions for failure to file will be administered by the Headquarters, Office of Professional Responsibility.