4.19.11 Examination Classification of Work

Manual Transmittal

December 15, 2021


(1) This transmits revised IRM 4.19.11, Liability Determination, Examination Classification of Work.

Material Changes

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

Reference Change Details
IRM through Added Internal control section. Authority, Responsibilities, Program Reports, Acronyms, Terms, and Related Sources into new section titled Program Scope and Objectives. Moved Audit Recon from to
Old IRM Included para into Purpose in
Old IRM Moved Audit Recon from to
Old IRM Renumbered to and all subsequent sections renumbered due to adding internal controls.
IRM (11) through (17) Updated tables to remove blank space/columns.
IRM Clarified text to reflect routing of BMF Recons through AM to exam. Deleted prior table.
IRM Incorporated IPU 18UO828 dated May 17, 2018 to remove Form 926 transfer criteria to PSC.
IRM Removed references of routing returns to exam, returns no longer sent to exam.
IRM Changed Form 5346 transfer site from BSC to OSC & CSC teams.
IRM Incorporated IPU 18UO828 dated May 17, 2018.
IRM Changed transfer criteria to/from State Agency to electronic transmission versus downloading information to a CD.
IRM Incorporated IPU 18UO828 dated May 17, 2018.
IRM Changed Form 3949/A processing site from FSC to OSC.
IRM Removed reference to Garment and Farm Labor Industry no longer sent to exam.
IRM & (4) Removed reference to Garment and Farm Labor Industry no longer sent to exam.
IRM Removed reference to Garment and Farm Labor Industry no longer sent to exam.
IRM Removed outdated guidance for case delivery. Updated to reflect electronic delivery for DLSE cases.
IRM Made editorial changes to note to clarify text.
IRM and (4) Made editorial changes to notes to clarify text.
IRM Removed references to stuffers and tracking codes no longer used in the Form 8282 program.
IRM Updated text to hold non-selected Form 8282 that can not be associated for 90 days before destroying.
IRM New section for AUR cases sent to CATA to address allowable expenses within 15 days.

(2) Website addresses, legal references, and IRM references were reviewed and updated as necessary.

Effect on Other Documents

This material supersedes IRM 4.19.11 dated October 11, 2017, and IPU 18UO828 dated May 17, 2018.


Small Business/Self Employed and W&I Campus Examination Operations.

Effective Date


Lori L. Caskey,
Director, Examination Field and Campus Policy
Small Business/Self-Employed

Program Scope and Objectives

  1. Purpose: This section provides information on the classification and screening processes. It contains guidelines and procedures to assist classifiers/screeners in the identification and selection of exam workload.

  2. Audience: These guidelines and procedures apply to SB/SE and W&I exam employees who are responsible for return identification, selection, and delivery in campus examination classification.

  3. Policy Owner: The Small Business/Self-Employed Division (SB/SE) Director of Examination Campus and Field Policy.

  4. Program Owner: Program Manager Campus Examination and Field Support.

  5. Primary Stakeholders: Small Business/Self-Employed Division (SB/SE) and Wage and Investment (W&I).

  6. Program Goals: The program goals are to ensure uniform identification and classification of tax returns for examination to promote voluntary compliance.


  1. Campus classification is responsible for identifying, selecting, and delivering returns to campus Correspondence Exam (CE), SB/SE, Large Business & International (LB&I), Federal, State, & Local Governments (FSLG), and Employment Tax (ET) field exam. The returns can come from a variety of sources. This IRM addresses case identification, classification, and delivery of the returns for examination.


  1. IRM, Campus Exam and Field Support.

  2. IRM, Policy Statement 4-21, Selection of returns for examination.

  3. IRM, Policy Statement 4-9, Highest Integrity Expected.

  4. IRM, Policy Statement 1-236, Fairness and Integrity in Enforcement Selection.

  5. IRM, Policy Statement 4-76, Disallowed claims may be reconsidered on the merits.

  6. IRM, Policy Statement 4-77, Claims may be allowed without examination.

  7. IRM, Policy Statement 4-103, Abatement claims considered only in exceptional circumstances.


  1. Director, Examination Field and Campus Policy is responsible for leading the development and delivery of policy and guidance that impacts SB/SE taxpayers and SB/SE Campus and Field examination processes.

  2. Campus Exam and Field Support, which is under the Director, Exam - Field and Campus Policy, is the group responsible for providing Servicewide policy guidance on compliance processes that relate to campus examination classification operations and support Field Exam and Specialty programs.

  3. The IRS formally adopted a Taxpayer Bill of Rights in June 2014, which provides the nation’s taxpayers with a better understanding of their rights and helps reinforce the fairness of the tax system. In 2015, Congress charged the Commissioner with ensuring IRS employees are familiar with and act in accord with the taxpayer rights as afforded by the IRC 7803(a)(3), Execution of Duties in Accord with Taxpayer Rights.

Program Management and Review

  1. Program Reports: The following reports may be used to monitor classification assigned inventory.

    • Correspondence Imaging System (CIS) Category A (CAT-A) Claim referrals

    • Case Control Activity System 4243 (CCA)

    • Headquarter (HQ) Classification SharePoint Report


  1. The following table lists commonly used acronyms and their definitions used throughout this IRM.

    Acronym Definition
    AAR Administrative Adjustment Request
    ACTC Additional Child Tax Credit
    AIMS Audit Information Management System
    AM424 Command Code AM424 is used to request records for AIMS from IMF (Individual Master File), BMF (Business Master File), or EPMF (Employee Plans Master File). Refer to IRM, Master File Request, Command Code AM424.
    AM Accounts Management
    AOTC American Opportunity Tax Credit
    ASFR Automated Substitute For Return
    AMSOC Command Code AMSOC is used to close cases that are non-examined, short closures or to transfer a case with disposal code 30. Refer to IRM, Command Code AMSOC.
    AUR Automated Under Reporter
    BMF Business Master File
    BMFOL Command Code BMFOL is used for on-line system read only access to accounts on the Business Master File. Refer to IRM, Command Code BMFOL.
    BMFOLI Command Code BMFOL with definer “I” is used to view status of entity and tax modules, merge information, sign of module balance, posted return indicator, and IDRS service centers. Refer to IRM
    BOD Business Operating Division
    BRTVU Command Code BRTVU is used for read only access to tax return data submitted by owners/tax payers to display associated returns/schedules/forms. Refer to IRM 2.3.57-1, Command Code BRTVU.
    CAT-A Category A claim criteria
    CAU Caution
    CCA Case Control Activity System
    CDE Compliance Data Environment
    CF&S Centralized Files and Scheduling
    Corr Correspondence Exam
    CWA Contemporaneous written acknowledgment
    CIS Correspondence Imaging System
    DBA Doing Business As
    DDB Dependent Data Base
    DDBOL Command Code (CC) DDBOL allows a user to display any Dependent Database issues that exist for the taxpayer. Refer to IRM, Command Code DDBOL.
    DEBR Discretionary Exam Business Rules
    DIF Discriminant Function
    DLN Document Locator Number
    DLSE California Department of Labor and Standards Enforcement
    EBE Employee Business Expense
    EFTPS Electronic Federal Tax Payment System
    EIN Employer Identification Number
    EITC Earned Income Tax Credit
    ELF Electronic Return Filing
    EUP Employee User Portal
    EQ&TS Exam Quality and Technical Support
    ET Employment Tax
    FRM49 Command Code FRM49 is used to research or input data related to Delinquency Investigations. Refer to IRM, Command Code FRM49.
    FRP Frivolous Return Program
    FSLG Federal, State, & Local Governments
    GII Generalized IDRS Interface
    HQ Headquarters
    IAC Interest Abatement Coordinator
    IDRS Integrated Data Retrieval System
    INOLES Command Code INOLE displays specific data for the account addressed. Refer to IRM 2.3.47-1, Command Code INOLE Input Screen.
    INOLEX Command Code INOLE with definer “X” is a IMF response screen when an SSN is input to CC INOLES and no tax returns have been filed. Refer to IRM
    IRA Individual Retirement Account
    IRDM Information Reporting Document Matching
    IRP Information Reporting Program
    IRMF Information Return Master File
    ITIN Individual Taxpayer Identification Number
    LB&I Large Business and International
    LIHC Low Income Housing Credit
    LIN Large Income and International Image Network
    MeF Modernized E-File
    MF Master File
    MFT Master File Tax (Code)
    MOU Memo of Understanding
    NAMEE Command Code NAMEE is used to query national files of name and address data. Refer to IRM 2.3.60, Command Codes NAMES/NAMEE, FINDS/FINDE, and TPIIP General.
    OFP Organization Function Program
    OIC Offer in Compromise
    PBC Primary Business Code
    PDT Potentially Dangerous Taxpayer
    POA Power of Attorney
    PSP Planning and Special Programs
    PTC Premium Tax Credit
    QRDT Questionable Refund Detection Team
    RA Revenue Agent
    RGS Report Generating Software
    RTVUE Command code RTVUE is used to requests the transcribed line-by-line tax return information, posted to the IMF masterfile. See IRM, Command Code (CC) RTVUE.
    SARP State Audit Report Program
    SB/SE Small Business Self-Employed
    SEP Simplified Employee Pension
    SFR Substitute for Return
    SP Submission Processing
    SRA System Research and Applications
    SSN Social Security Number
    TC Transaction Code
    TCO Tax Compliance Officer
    TE Tax Examiner
    TIN Taxpayer Identification Number
    TRDBV Command Code TRDB is used to retrieve a summary of the available tax information on Tax Return Data Base (TRDB). Refer to IRM, Command Code (CC) TRDBV.
    TXMOD Command Code TXMOD is used to request a display of tax information for a specific IMF or BMF module on masterfile. Refer to IRM, Command Code TXMOD for more information.
    W&I Wage and Investment

Related Resources

  1. National Office Tax Compliance Officer (TCO) and Revenue Agent (RA) Classification Guidelines http://mysbse.web.irs.gov/exam/tip/classification/default.aspx.

  2. IRM 21.5.3-2, Examination Criteria (CAT A)- General.

  3. IRM 21.5.3-3, Examination Criteria (CAT A)- Credits.

  4. IRM 21.5.3-4, First-Time Homebuyer Credit-Additional CAT A Criteria.

  5. IRM, Examination Criteria CAT-A International.

  6. IRM, Examination Criteria.

  7. IRM, Discriminant Index Function (DIF) SCORE or Classification Send Return(s) to Examination for Review.

  8. IRM 4.19.15 ,Discretionary Programs.

  9. IRM 4.19.14, Liability Determination, Refundable Credits Strategy.

  10. IRM 25.23, Identity Protection and Victim Assistance.

  11. IRM, Form 1065 and 1065X, Amended Return, Administrative Adjustment Request (AAR) and Bipartisan Budget Act (BBA).

Examination Classification of Work

  1. Classification is the process of determining:

    1. whether a return should be selected for examination,

    2. what issues should be examined, and

    3. where the examination should be conducted.

  2. According to Policy Statement P-4-21, the primary objective in identifying tax returns for examination is to promote the highest degree of voluntary compliance. See IRM, Policy Statement 4-21.

  3. Due to limited resources, the IRS can examine only a small percentage of the returns filed. The classifier’s role is to ensure that these resources are used effectively.

  4. The classifier must decide which returns are most in need of examination. Thorough examination promotes the highest degree of voluntary compliance.

  5. Classification should be conducted by the most technically proficient experienced examiners, who have received appropriate tax law training.

  6. The Examination Operation ensures that each employee assigned to classification is able to recognize and identify a tax return that has an early statute expiration and is aware of the statute control procedures.

  7. The classifier should be familiar with the National Office Tax Compliance Officer (TCO) and Revenue Agent (RA) Classification Guidelines. The guidance promotes classification consistency nationwide and to select returns for examination with issues that are material in scope. The classification guidelines can be found at: http://mysbse.web.irs.gov/exam/tip/classification/default.aspx.

Procedures for Screening Individual Returns

  1. Once you determine that the return will be selected, decide if the examination should be conducted by a:

    1. Revenue Agent,

    2. Tax Auditor, or

    3. by correspondence.

  2. This determination is based upon:

    1. the complexity of issues involved,

    2. the degree of accounting and auditing skills required to perform the examination, and

    3. whether it can be effectively completed by correspondence.

  3. Do not exclude substantial issues to convert what would be a Revenue Agent examination to a Tax Auditor examination.

  4. Do not exclude substantial items from the checksheet to convert what might be an interview examination to a correspondence examination.

  5. The number of issues, standing alone, do not determine whether or not the return is to be examined by a Revenue Agent or a Tax Auditor.

  6. Examples of items which generally cause the return to be excluded from correspondence examination:

    1. Returns which require an in-depth knowledge of accounting principles.

    2. Issues which require on-site inspection of the taxpayer books, records or assets and/or visitation of the taxpayer place of business.

    3. Complex Schedule D transactions.

    4. Returns with unusually complex rental income and expenses.

    5. Tax shelter returns.

    6. Donations of real property which would involve an engineering specialist.

    7. Alimony - if it appears there is a property settlement involving business property (accounts receivable, etc.).

    8. Returns which would most likely have voluminous records.

    9. Extensive time frame could be required to complete the examination.

    10. Returns where inventories are substantial and material.

    11. Termination of business before the end of the taxable year.

    12. Unusual issues that appear to be complex and time consuming to develop (Complex oil or mineral explorations, unstated interest (IRC Sec. 483), nontaxable transfers, etc.).

    13. Size of a business (high gross receipts, etc.).

    14. Businesses not adaptable to office examination, such as manufacturers, auto dealers, and funeral parlors.

    15. Individual returns requiring the full accounting skills of a Revenue Agent,

    16. If a Tax Compliance Officer is not available in the geographical location of the taxpayer.

  7. Training Returns—Selected returns meeting training criteria are identified during each classification detail.

  8. Single issues should generally not be examined. Experience has shown that when other questionable items are not present on the return, these examinations frequently result in insignificant or no tax change. Corporate returns with Activity Code 219 or higher may be classified for single issues for LB&I Remote Examinations.

  9. Considerations which should cause a return to be selected for Correspondence Examination:

    Appropriate for Correspondence (Corr) Exam Not Appropriate for Correspondence Exam
    All the questioned items are verifiable by records that could be easily submitted by mail. Simple Travel and entertainment, Employee Business Expenses (EBE), Schedule C, E, F, Form 2106 can be selected for Corr Exam.
    • Complex books and records for deduction for travel and entertainment and EBE.

    • Complex books and records for Sch. C, E, F and Form 2106.

    Inspection of the previous or subsequent year returns is not necessary.
    • Returns in which the classifier feels an office interview is needed.

  10. The following are examples of issues for the specified program areas.


    Some program objectives may overlap between:
    • Correspondence work and field work, and
    • Cases transferred between W&I, SB/SE Field Exam and SB/SE Correspondence Exam. If BOD is not listed, then type of work is not applicable.

  11. The table below describes which classification area works Filing Status and/or Exemption issues.

    Wage and Investment (W&I) Correspondence Exam Small Business/Self Employed (SB/SE) Correspondence Exam
    • Dependent exemptions when refundable credits are claimed (EITC, ACTC, AOTC, PTC, refundable adoption credit).


      See Credits below

    Issues that are conducive to W&I are also conductive to SB/SE with the following.
    • Adoption credit (non-refundable)

    • Child Care Credit


      See Credits

  12. The table below describes which classification area works Income Issues.

    Wage and Investment (W&I) Correspondence Exam Small Business/Self Employed (SB/SE) Field Exam Small Business/Self Employed (SB/SE) Correspondence Exam
    • Wages

    • Interest

    • Dividends

    • Unemployment Compensation

    • Social Security Income Received

    Any income issue that is beyond the scope of a correspondence examination, should be selected for Field Examination, such as:
    • Forgiveness of debt,

    • Deferred compensation

    • Schedule D issues that require Examination of capital gains/losses Form 4797.

    • Schedule C - income/expense issues

    • Schedule F - Farm income/loss,

    • Other Income received and needs to be characterized as Self Employment income.

    • Taxable Refunds

    • Alimony

    • Income exclusions such as personal injury, sick pay, disability pay

    • IRA/Pension distributions

  13. Adjustment to Income issues are only worked by Small Business/Self Employed (SB/SE) Correspondence Exam. Issues include one half of the self-employment tax and health insurance deduction, Self-employed SEP, SIMPLE, IRA Deductions, Moving expenses, and Alimony paid.

  14. The table below describes which classification area works Itemized Deductions versus Standard Deductions Issues.

    Small Business/Self Employed (SB/SE) Field Exam Small Business/Self Employed (SB/SE) Correspondence Exam
    Items that should be selected for Field Examination:
    • Investment Interest Expense

    • Non-cash charitable contributions such as:
      donation of property such as art work, or
      item that requires appraisal or engineering

    • Contribution payments that are carried over from prior year

    • Complex casualty theft/loss that require research and verification of records

    • Miscellaneous deductions such as:
      investment expenses,
      attorney fees,
      transportation expenses

    • Employee Business Expenses - Form 2106

    • Office in Home deductions

    • Casualty theft/loss that does not require field work

    • Medical and Dental Expenses

    • Real Estate Taxes

    • State Taxes Paid

    • Home Mortgage Interest

    • Points paid

    • Charitable contributions such as cash contributions. Can consider working cases with Non-cash, contributions, such as:
      car, etc.,

    • Donated properties that do not require appraisal or engineering referral

    • Casualty or theft loss that are verifiable through correspondence audit

    • Miscellaneous Deductions such as:
      union dues,
      job education
      work clothes,

  15. The table below describes which classification area works Tax Issues.

    Small Business/Self Employed (SB/SE) Field Exam Small Business/Self Employed (SB/SE) Correspondence Exam
    • Alternative Minimum Tax

    • Alternative Minimum Tax

    • Self-Employment tax

    • Household employment tax

    • 10% Tax on IRA early withdrawal

  16. The table below describes which classification area works Refundable Credits (Pre-Refund) issues.

    Wage and Investment (W&I) Correspondence Exam Small Business/Self Employed (SB/SE) Correspondence Exam
    • American Opportunity Tax Credit

    • Child Tax Credit and Additional Child Tax Credit

    • Earned Income Tax Credit

    • Fuel Tax Credit

    • Health Coverage Tax Credit

    • Premium Tax Credit

    • Issues that are conducive to W&I are also conducive to SB/SE.

  17. The table below describes which classification area works Refundable Credits (Post-Refund) issues.

    Wage and Investment (W&I) Correspondence Exam Small Business/Self Employed (SB/SE) Correspondence Exam
    • Earned Income Tax Credit

    • Additional Child Tax Credit-ITIN Returns

    • Additional Child Tax Credit Non-ITIN Returns

    • Adoption Credit

    • Alternative Minimum Tax Credit (Form 8801).

    • Premium Tax Credit

  18. The table below describes which classification area works Other Credit issues.

    Wage and Investment (W&I) Correspondence Exam Small Business/Self Employed (SB/SE) Correspondence Exam
    • Mortgage Interest Credit Pre-Refund

    • Mortgage Interest Credit Post-Refund

Non-Business Issue Conducive to Correspondence Examination
  1. Following are suggested guidelines to assist classifiers in identifying issues on the classification checksheet.

  2. Unique issues will arise. Classifiers selected should have broad experience and current knowledge of tax laws/regulations and IRS procedures.

  3. The classifier should consider all issues reflected on the return and use judgment in selecting the return with the highest potential for audit. IRM, Review of the Entire DIF Return and IRM, What are Significant Items, for additional information.

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

  5. Classifiers will not classify the same returns they examine. If they receive returns to classify they may be assigned to examine, they will return them to the manager for reassignment.

  6. Itemized Deductions: Consider overall potential based on the amount by which the itemized deductions exceed the standard deduction.

    1. Do not choose this issue if the potential for change is minimal because the taxpayer is entitled to standard deduction.

    2. Verify that the itemized deductions are not claimed elsewhere on the return when standard deduction has been elected.

    3. A taxpayer reporting married filing separate on the return, may not have made the same election for itemized deductions versus the standard deduction as the other spouse.

    4. See below for other specific itemized deduction item expenses.

  7. Medical Expenses: Classifier must consider overall medical, dental etc., expense in relation to the AGI.

    • Issues relating to medical expenditures for a capital asset that are not workable in correspondence examination can be selected for field Exam to work.

    • High medical expenses for large families, deceased taxpayers, or older taxpayers are usually not productive. See IRM 4.19.15, Discretionary Programs.

  8. Taxes: For real estate taxes, consider changes in address (i.e., W-2, 1040). See IRM, Taxes Paid, for items that are not allowable.

  9. Interest Expenses:

    1. Productive issues could come from payments to individuals, and closing costs on real estate transactions.

    2. Home mortgage interest usually is unproductive unless the payments were made to an individual or if interest is a result of a mortgage greater than the indebtedness limit. See IRC 163(h)(3)(B), Acquisition Indebtedness.

    3. Check for payments deducted as personal interest.

    4. Compare amounts reported on the IRP document, if applicable.

    5. See IRM, Home Mortgage Interest Deduction, for additional information.

  10. Charitable Contributions:

    1. Check for large donations made to any charitable organization.

    2. Check for payments that may represent tuition.

    3. Check for large donations of property other than cash.

    4. Limit the scope of the correspondence examination to cash contributions issue.

    5. Contributions in the form of donated clothing articles, furniture or a car can be worked by correspondence exam. However, if the issue selected involves obtaining appraisals or engineering reports or are complex in nature, it should be classified for field exam to work.

    6. Consider the ratio of the contribution to the taxpayer’s total positive income. See IRM, Charitable Contribution Rules-Project Code 0391, Project Code 0392, and Project Code 0629, for more information.

  11. Casualty or Theft Loss:

    1. Select cases that show no insurance reimbursement.

    2. Watch for business assets, valuation methods and statutory limitations.

    3. See IRM, Casualty and Theft Losses, for additional information on what documentation is acceptable.

    4. If the casualty/theft loss selected is not conducive for correspondence examination, it can be selected for field exam to work.

  12. Miscellaneous Deductions - IRC 67:

    1. Scrutinize large, unusual or questionable items that do not correspond to the taxpayer’s occupation or income level.

    2. Select issues that are verifiable in a correspondence audit, such as union dues paid, work clothes etc.

    3. See IRM, Miscellaneous Deductions, for a list of items that are not allowed under this category.

    4. Select for field exam issues that will require a face-to-face interview.

  13. Pension and/or Annuity:

    1. Check whether the taxpayer received a premature distribution from a pension/profit sharing plan.

    2. Check to ensure that the amounts are not reported elsewhere on the return.

    3. Check whether the distribution qualified as a lump sum distribution.

    4. See IRM, 10 Percent Additional Tax on Early Distribution-IRC 72(t), for additional information.

  14. Unreported Income:

    1. Consider if the income reported on the return is sufficient to support the exemptions and deductions claimed.

    2. Consider the sources of income and any omission of income.

    3. Compare income on return to the IRP documents, if available.

    4. If the taxpayer lists his/her occupation as waiter, cab driver, porter, beautician, etc., unreported tip income is a productive issue.

    5. Consider excluded amounts from income such as injury or sick pay, forgiveness of debt, and disability pay.

    6. If the issues appear complex, it should be selected for field examination.

  15. Moving Expenses:

    1. Check to see if the taxpayer actually moved via IDRS research on addresses.

    2. Check for employer reimbursement.

    3. Also consider sale of the residence.

  16. Alimony Deductions:

    1. Check to see if the social security number is a valid number.

    2. Check to see if the recipient has included this income.

  17. Credits: Consider the various credits found on the return jointly with other issues selected on the return. Credits include:

    • EITC

    • Child Tax Credit

    • Child and Dependent Care Credit

    • Education Tax Credits - Hope and Lifetime Learning

    • Premium Tax Credits

    • Qualified Adoption Credits


What are Significant Items?
  1. Invariably, the definition of significant will depend on your perception of the return as a whole and the separate items that comprise the return. However, there are several factors to consider when determining whether an item is significant:

    1. Comparative size of the item—A questionable expense item of $6,000 with total expenses of $30,000 would be significant; however, if total expenses are $300,000, ordinarily the item would not be significant.

    2. Inherent character of the item—Although the amount of an item may be insignificant, the nature of the item may be significant; for example, airplane expenses claimed on a plumbers Schedule C.

    3. Evidence of intent to mislead—This may include missing, misleading, or incomplete schedules or incorrectly showing an item on the return.

    4. Beneficial effect of the manner in which an item is reported—Expenses claimed on a business schedule rather than claimed as an itemized deduction may be significant.

    5. Relationship to/with other item(s) on a return—Business expenses with corresponding income.

    6. Similarly, the lack of dividends reported when Schedule D shows sales of stocks.

Sources of Returns for Classification

  1. Discriminate Function (DIF) and Non-DIF tax returns are selected for examination:

    • By computer

    • By manual identification

  2. Lower activity code IMF DIF returns are usually classified by the area offices through the Compliance Data Environment (CDE). The table below describes differences between DIF and Non-DIF tax returns.

    DIF Returns Non-DIF Returns
    DIF returns are scored and selected for examination by computer
    • Returns with the highest scores are delivered for screening by classifiers.

    • Generally, the higher the score, the greater the probability of significant tax change.

    • Scores for returns of different examination classes are not comparable.

    • DIF scores indicate examination potential of the return as a whole including unreported income.


    It is necessary to manually screen most returns received to identify the issues in need of examination and to eliminate those returns not warranting examination.

    Non-DIF returns are manually classified to select returns that:
    • Contain significant issues likely to result in tax changes, or

    • Requires examination to achieve voluntary compliance by an identifiable group of taxpayers.

  3. Some returns are identified as Specials via audit codes placed on the return during processing based on special features on the return. They are normally delivered automatically to the campus Centralized Scheduling & Files (CF&S) teams for field exam. These returns are already established on AIMS at the time they are delivered to exam. See IRM 3.12.2-5, Audit Codes, for audit codes and definitions.

  4. The Discretionary Exam Business Rules (DEBR) contains issue specific filters which automatically select returns with certain compliance issues. Returns are scored by applying a set of business rules in a post refund environment and stores the results in a DB2 relational database for future workload selection.

  5. Returns that bypass the automatic DIF scoring are referred to campus classification when exam criteria is met. See IRM, Discriminant Index Function (DIF) SCORE or CLASSIFICATION Send Return(s) to Examination for Review.

  6. Account Management refers claims meeting "Category A" (CAT A) criteria. See IRM 21.5.3-2, Examination Criteria (CAT A)- General, IRM 21.5.3-3, Examination Criteria (CAT A) Credits, and IRM 21.5.3-4, First-Time Homebuyer Credit - Additional CAT A Criteria.

  7. Automated Substitute for Returns (ASFR) from Collection. ASFR returns and ASFR Reconsiderations meeting SFR Screening Matrix Criteria are referred to classification after the return has been processed and the adjustments posted to IDRS.

  8. The Dependent Database (DDb) is a 'Rules Based' system that examines EITC tax returns and applies a set of rules and SRA Model to determine residency and relationship issues. When inconsistencies are found the return is selected for audit.


    The above list is not all inclusive.

Audit Reconsideration Program

  1. For procedures for working IMF audit reconsiderations see IRM 4.13, Audit Reconsideration.

  2. Audit Reconsiderations for BMF are routed through Accounts Management (AM) to BMF Classification at the Cincinnati and Ogden campus for determination

DIF Scored Returns

  1. The DIF system is used to evaluate the examination potential of:

    • All individual returns

    • All Form 1120 returns for those corporations with assets of less than $10 million

    • S Corporations

    • Partnership returns

  2. Some returns are identified as Specials.

    • These are determined via audit codes placed on the return during processing because of special features on the return.

    • DIF returns are generally ordered in bulk by field exam, but some returns are delivered to Centralized Files & Scheduling (CF&S) teams in campus examination as automatics for manual screening without a return order being placed. These returns are identified as automatics by the use of audit codes.

  3. When working DIF returns for the following forms, refer to the applicable Audit Code and Classification IRMs as follows:

    • Form 1040:IRM Exhibit 3.12.2-5, Audit Codes, IRM, Individual Returns and IRM, Identifying Issues on Individual Returns.

    • Form 1120:IRM, Audit Codes, IRM, Corporation Returns, and IRM, Corporation Classification-General.

    • Form 1120S:IRM, Audit Codes, IRM, Corporation Returns, and IRM, Potentially Productive Issues on a S Corporation Return and Shareholder Return.

    • Form 1065: IRM, Audit Codes, IRM, Potentially Productive Issues on a Partnership.

    • Form 1041:IRM, Audit Codes, IRM, Fiduciary Returns.

Review of the Entire DIF Return
  1. Regardless of the type or class of return being classified/screened, you must first review the return in its entirety. This is important in that it:

    1. Quickly gives a complete overview of the total return.

    2. Establishes the interrelationship of the various income, expense, and credit items on the return.

    3. Puts you in a position to evaluate each item as to its significance.

    4. Provides an opportunity to quickly eliminate items or areas of the return with minimum or no examination potential.

  2. Remember that the DIF score indicates the overall tax change potential of the return as a whole.

    • Do not assume any single item on a return caused the return to receive a high DIF score.

    • The absence of any item(s) may have been equally important in the scoring process.

    • In other words, the significant items that the classifier identifies may or may not have been scored.

  3. Give equal consideration to items that would result in potential over assessments.

  4. Classifiers need to be aware of the following:

    You identify a relationship with the taxpayer which may create a potential conflict of interest Immediately bring it to the attention of your manager.
    The type of return, or industry, or potential issues are unfamiliar to you Bring it to the attention of your manager.
    Frivolous filings are identified (See IRM 25.25.10, Frivolous Return Program)
    • Refer to Ogden, Attn: FRP M/S 4450 (MAIN), 1973 N Rulon White Blvd., Ogden, UT 84404, or

    • Coordinate with the campus Frivolous Return Preparer (FRP) Coordinator.

    Questionable returns which indicate fraudulent refund schemes are identified Report them to:
    • QRDT (Questionable Refund Detection Team) at the Campus.


      See IRM, Questionable Refunds, for additional information.

    A return preparer scheme may be identified if a pattern of non-compliant issues appear on 3 or more original or amended returns. See IRM, Return Preparer Scheme Identification, for additional information.
    The return has international issues . See IRM, Examination Criteria for International criteria. Refer to an International Examiner.

  5. All returns are identified for assignment to:

    • A Revenue Agent (RA),

    • A Tax Compliance Officer (TCO), or

    • A Correspondence Tax Examiner (TE).

  6. Assignment is based upon:

    • The complexity of the issues involved,

    • The degree of accounting and auditing skills required to conduct a quality examination,

    • The degree of tax law knowledge required, and

    • Whether the issue can effectively be examined by correspondence.

  7. Give priority treatment to early expiration returns.

    • These are returns with 13 months or less remaining on the assessment statute that are received in Classification. See IRM 4.4.34, AIMS Procedures and Processing Instructions, Updating/Correcting AIMS Data Base, for transfer-out time frames and conditions for updating to an alpha code.

    • The returns are immediately classified.

    • If a return is selected for examination, it must be enclosed in a red file folder and Form 895, Notice of Statute Expiration, prepared.

  8. During the classification process:

    • The scope of the examination is determined for all TCO and TE returns , and

    • For designated RA returns.


    The scope can be changed by TCOs and RAs.

Non-DIF Scored Returns

  1. The following are returns that do not receive a DIF score.

    • Returns not processed as an original return.

    • Claims

    • High asset 1120S ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • Miscellaneous Corporate Returns. See IRM, Miscellaneous Corporation Returns.

International Returns

  1. Identify all returns with international characteristics. See IRM, International Forms Processing.

  2. SB/SE campus Classification no longer receives original filed International returns to classify.

  3. Campus Classification provides back-end support by reviewing International claims and returns with Exam and Category A criteria. See IRM, Examination Criteria.

Form 1120-F, U.S. Income Tax Return of a Foreign Corporation

  1. Every foreign corporation that is engaged in trade or business in the United States or is subject to tax under Subtitle A of the Internal Revenue Code must file a Form 1120-F, U.S. Income Tax Return of a Foreign Corporation. However, a foreign corporation which at no time during the taxable year is engaged in a trade or business in the United States:

    • Is not required to file a return for the taxable year if its tax liability for the taxable year is fully satisfied by the withholding taxed at the source under chapter 3 of the Code.

  2. If required to file a return, a foreign corporation that has no gross income for the taxable year is not required to complete the return schedules but:

    • Must attach a statement to the return indicating the nature of any exclusions claimed, and

    • The amount of such exclusions to the extent such amounts are readily determinable.

  3. Form 1120-F returns are filed at the Ogden Campus.

  4. See IRM, Examination Criteria, for claims and examination referral issues. Amendments to Form 1120-F are forwarded to Ogden and Cincinnati campuses for classification.

Form 1120 IC-DISC, Interest Charge Domestic International Sales Corporation

  1. Form 1120-IC-DISC, Interest Charge Domestic International Sales Corporation Return, is an informational return and is filed by a domestic corporation that has elected to be treated as an IC–DISC and has satisfied the requirements under IRC 992. It is also filed by a domestic corporation that is a former DISC or former IC-DISC. Generally, an IC-DISC is not taxed on its income. Shareholders of an IC-DISC are taxed on its income when the income is actually (or deemed) distributed. See IRM, Form 1120-IC-DISC, Interest Charge Domestic International Sales Corporation Return for additional information.

  2. An 1120-IC-DISC is required to make an election using Form 4876-A, Election To Be Treated as an Interest Charge DISC in order for it to be treated as an IC-DISC. Form 4876-A must be filed within 90 days after the beginning of the tax year if it is the taxpayer’s first tax year. For any tax year other than the taxpayer’s first tax year, the election must be made during the 90 days preceding the first day of that tax year. If the election is not timely filed, then the corporation must file the appropriate corporate (or other) return and pay income tax.

  3. The Form 4876-A election determination is made by Cincinnati Submission Processing (SP). A data file is kept by Code and Edit during the processing of these forms. For additional information see IRM, Form 4876-A and Form 1120-IC-DISC Data File.

  4. Generally 1120-IC-DISC are not subject to tax.

  5. However, the shareholders of an IC-DISC are:

    • Taxed on distributions from the IC-DISC, and

    • Pay an interest charge with respect to any such tax that is deferred.

  6. If a corporation files as an IC-DISC but does not qualify as an IC-DISC:

    • Cincinnati SP initiates correspondence to notify and explain to the corporation why it does not qualify as an IC-DISC. See IRM, Ineligible Filers.

Form 926, Return by a U.S. Transferrer of Property to a Foreign Corporation

  1. Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation, is filed for transfers made after August 4,1997:

    • Are considered information returns, and

    • Must be filed with the U.S. Transferor’s annual tax return for the tax year that includes the date of transfer.

    • Returns processed by Submission Processing with Form 926 attached are identified with audit codes. See IRM Exhibit 3.12.2-5, Audit Codes and IRM Exhibit 3.11.3-3, Audit Codes.

  2. Claims filed with a Form 926 are considered Examination International Category A (CAT-A) criteria and are classified by an LB&I International Examiner. See IRM, Examination Criteria CAT-A International.

Section 761(a) Partnership Returns

  1. A Section 761(a) partnership return is an unincorporated organization which qualifies under IRC 761(a) as:

    • an investing partnership, or

    • is participating in the joint production, extraction, or use of property under an operating agreement.

    A qualifying partnership may elect under IRC 761(a) to be excluded from treatment as a partnership. (See Regulation 1.761-2.)

  2. Additional processing information and Exam criteria can be found in the following:

    • IRM, IRC 761(a) Return/Election

    • IRM, IRC 761(a) Returns

    • IRM, IRC 761 Partnerships

  3. For the first year for which it wants the exclusion, the unincorporated organization should make the election in a statement attached to the Form 1065, U.S. Partnership Return of Income.

  4. Submission Processing (SP) suspends processing 761(a) elections until a review is made by the classification department.

  5. The classification department will review returns that are identified as potential IRC 761(a) elections. Classification is responsible for making classifiers available to Code and Edit in SP to determine if IRC 761(a) elections will be accepted or rejected before processing is completed.

  6. If the classifier determines missing information needs to be obtained to validate the IRC 761(a) election:

    • The classifier instructs Code & Edit to send Letter 1355C, Partnership Return Incomplete for Processing Form 1065 providing the applicable paragraphs, and

    • Suspends the return for 45 days. If a response is not received timely the election will be rejected.

  7. Phone inquires and technical responses by taxpayers on the aforementioned letters are also directed to the classification department.

  8. Classifiers of IRC Sec. 761(a) elections should have experience in tax shelters.

  9. Classifiers reject elections that are determined to be invalid. Valid elections are accepted as filed.

  10. After a determination is made on an IRC 761(a) election, SP processes the return as follows:

    1. Elections accepted are handled as a short return.

    2. Elections rejected are processed as regular returns.

    3. Elections selected for Examination will be processed with an Audit Code 1.

  11. Returns selected for examination are forwarded to their respective area offices.

Returns to Be Transferred

  1. The inventory of individual returns for area offices is based on the Zip Code of the address shown on the return. When transferring returns check http://mysbse.web.irs.gov/examination/mis/default.aspx for the Audit Information Management System (AIMS) listing, which is updated monthly, to determine the proper area office.

  2. The inventory of corporation, partnership and fiduciary returns for an area office is based on the area office in which a return is filed and not the area office location indicated by the address shown on the return.

  3. When a return is to be transferred to another area office, prepare Form 3185, Transfer of Return, in accordance with IRM 4.4.33, Transfers.

Abatement of Interest

  1. The taxpayer may request abatement of interest due to an error or delay in the performance of a ministerial/managerial act.

    • The IRS has the authority to abate interest in cases where the additional interest was caused by IRS errors or delays, per 6404(e). See IRM, Unreasonable Error or Delay in Performing a Ministerial or Managerial Act- IRC 6404(e)(1).

    • However, the IRS may act only if there was an error or delay in performing either a ministerial act or a managerial act (including loss of records by the IRS, transfers of IRS personnel, extended illness, extended personnel training or extended leave) and only if the abatement relates to a tax of the type for which a notice of deficiency is required.

    • Such taxes would be those relating to income, generation-skipping transfers, estate, gift and certain excise taxes, but not abatement of interest for employment taxes or other excise taxes.

  2. The Accounts Management Operation at each campus generally receives requests for abatements of interest and determines which functional area is the source of the claimed error or delay. See IRM, Ministerial/Managerial Interest Abatement. Accounts Management will:

    • Obtain the administrative file,

    • Current transcripts and

    • Route the file to the Interest Abatement Coordinator (IAC) in that functional area.

  3. Accounts Management will forward claims originating in Customer Account Services (CAS) to examination as technical advice requests. Examination will review and return them with a recommendation whether to allow or disallow the claims.

  4. Interest abatement claims may also be received directly in examination either in the processing of an examination program, or in a prior examination reconsideration request.

    1. If the interest abatement claim/request is received during the examination process, it should be forwarded to the IAC before the issuance of the statutory notice of deficiency and/or closing of the case.

    2. Correspondence examiners should initially screen the interest abatement claim for validity.


      The Internal Revenue Service does not have the authority to abate interest charges due to reasonable cause, on the part of the taxpayer, for underpayment of taxes.

    3. If there is any question regarding the validity of the interest abatement claim, it should be forwarded to the IAC in the campus examination operation.

  5. See IRM, IRC 6404(e)(1), Unreasonable Error or Delay in Performing a Ministerial or Managerial Act, for additional information.

Administrative Adjustment Request (AAR) - Form 8082

  1. Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR), is used to provide notification of inconsistencies between the tax treatment of an item and the way the pass-through entity treated and reported the same item in it’s return. It is also used as an administrative adjustment request with amended returns. See IRM 4.31.4, TEFRA Administrative Adjustment Requests (AAR), for information concerning these returns.

  2. Additional references with exam referral criteria:

    • IRM, Form 1065 and Form 1065X, Amended Return, Administrative Adjustment Request (AAR) and Bipartisan Budget Act (BBA).

    • IRM 21.5.3-2, Examination Criteria (CAT A)-General.

Form 5346, Examination Information Report

  1. When Examination receives information of sufficient compliance value to warrant enforcement follow-up concerning a return filed or to be filed by a taxpayer:

    • Field Exam prepares Form 5346, Examination Information Report, and

    • Submits to their immediate manager for approval.

  2. Forms 5346, once approved by the PSP Territory Manager, are sent to the Ogden and Cincinnati campus Case Building teams.

Form 8697, Look Back Method

  1. Form 8697, Interest Computation Under the Look-Back Method for Completed Long-Term Contracts, is required for each year after February 28, 1986 when a taxpayer completes a long-term contract that was accounted for using either the percentage of completion method or the percentage of completion - capitalized cost method for Federal income tax purposes.

  2. Form 8697 is required for any tax year in which the contract price or contract costs are adjusted for one or more of these long-term contracts from a prior year. See IRM, Look-Back Interest, and IRM, Form 8697, Interest Computation Under the Look-Back Method for Completed Long-Term Contracts, for additional information.

Form 8697 General Procedures
  1. Accounts Management forwards Form 8697 to examination that meets referral criteria. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡. See IRM, Form 8697 Interest Computation Under the Look-Back Method for Completed Long-Term Contracts, for Accounts Management procedures and exam referral criteria. Examination reviews the Form 8897 for completeness and accuracy and, if errors are found, mails a photocopy to the taxpayer explaining the information required to correct the form. The letter should direct the taxpayer to return the completed form to the reviewing agent.

  2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ If the correct amount is more than the amount claimed by the taxpayer, the reviewing agent allows the additional amount and prepares Form 3198, Special Handling Notice, with processing instructions.

  3. If the correct amount is less than the amount requested by the taxpayer, issue a partial refund and Letter 106-C, Claim Partially Disallowed.

Prompt Assessments

  1. Examination is responsible for processing prompt assessment requests under IRC 6501(d) as follows:

    • The original return(s) must be filed prior to submitting the request.

    • The statute of limitations is limited on all referenced returns to 18 months from received date of the request or 3 years from the date the original return is filed, whichever is earlier.

    • The request must be made by the executor, administrator, or other fiduciary representing the estate of the decedent, or by the corporation (or fiduciary representing the dissolved corporation) and must be in relation to a decedent Form 1040 return during the period of administration, a gift tax return, Form 709, or a fiduciary income tax return, Form 1041, for a decedent’s estate, or a Form 1120, Form 940, Form 941, Form 990-T, or other forms for any tax for which a return is required, for a corporation contemplating dissolution, a corporation in the process of dissolving, or corporation that has dissolved.

    • Requests for a prompt assessment generally are received from taxpayers on Form 4810, Request for Prompt Assessment Under IR Code Section 6501(d).

  2. Classification will determine if the request is complete and valid, the person making the request is authorized to do so, and all returns referenced have been filed. Refer to Treasury Regulation 301.6501(d)-1 for reference in making these determinations. The request must clearly show:

    • It is a request for prompt assessment under IRC 6501(d).

    • The kind of tax and the tax periods involved.

    • The name and social security number (SSN) or employer identification number (EIN) shown on the return.

    • The date and location of the IRS office where the returns were filed.

    • Verification of authority to act for the taxpayer.

  3. If the request is incomplete or invalid for any reason and could not be determined by research, contact and advise the requestor accordingly. If unable to obtain the information by telephone, Letter 621-C, Prompt Assessment Request; Acknowledgment/Reply/Additional Information Requested, can be used.

  4. Classification will input TC 560 using REQ77 on all cases selected for examination (this allows the input of a date that is earlier than the original date thus identifying the correct assessment statute expiration date and primary and/or secondary TIN for each return considered).


    You must use a unique blocking series with the TC 560 or it will unpost if the ASED input is earlier than the MF ASED. Bypass TC 560 with DLN blocking series 70X, 775, or 99X.

  5. If the returns referenced in the request are accepted as filed, classification will send Letter 621-C to the requestor.

  6. If the returns referenced in the request are selected for examination, they will be controlled on AIMS to the appropriate area office. Send Letter 621-C to notify the requestor that the request has been transferred to the area office for consideration.

  7. If it is determined upon review of the case that Information Reporting Document Matching (IRDM) has an open control on a related period, examination will contact the area to determine the status of their case.

    • If there are more than six months remaining on the statute for assessment, IRDM will determine if they wish to proceed with their case.

    • If IRDM processes their case, do not reference the year on Letter 621-C.

Unlawful Returns-Joint Filed Returns

  1. Claims contending the taxpayer’s signature was forged or they were not legally married may be referred to campus classification by Accounts Management. See IRM, Married Filing Joint or Married Filing Separate is Invalid or Filed with Incorrect Status, for exam referral criteria.

  2. Allow claims based on unlawful filings where the marriage was not valid if the following is present:

    1. Verification, such as court documents, showing the marriage was not valid for the tax period involved, and

    2. Proper allocation of all return income, credits, and payments is provided.

  3. In accordance with IRC 6064 , the taxpayer must prove that he/she did not intend to file jointly and that the signature was forged. If the claim cannot be allowed, follow selection criteria for field and campus exam for audit referrals. Classifiers should be alert if it appears there are indictions of identity theft on BMF accounts. Suspected Identity Theft Category A claim referrals should be returned back to Accounts Management for research and processing as outlined in IRM 25.23, Identity Protection Program. The following subsection contains procedures on identity theft for BMF accounts. IRM, Multiple Filers, provides guidance for Correspondence exam to process the claim.

Identity Theft-BMF Accounts

  1. IRM 25.23.9, BMF Identity Theft Processing, provides servicewide guidance on BMF identity theft issues, including documentation and actions required for general processing of BMF Identity Theft (IDT) claims.

  2. See IRM Exhibit, Business Master File (BMF) Identity Theft - Overview, for a definition of BMF identity theft and examples.

  3. BMF accounts include the following entity types; corporations, partnerships, estate trust, exempt organization, employment tax, or government entity.

  4. BMF IDT indicators are not applied until required research has been completed to rule out a possible mixed entity issue. Never assume identity theft prior to completion of the preliminary research. Refer to IRM Exhibit 25.23.9-7, BMF Identity Theft Research Requirement, and IRM Exhibit 25.23.9-2, BMF ID Theft Indicators-TC 971 AC 522 IDTCLM Initial Allegation or Suspicion of BMF Identity Theft.

Low-Income Housing Credit (LIHC)

  1. The Low-Income Housing Credit under IRC 42 provides an incentive for taxpayers to invest in affordable housing. The taxpayer receives tax credits for ten years (credit period). To keep the credit, the taxpayer must provide affordable housing for fifteen years (compliance period). After IRS jurisdiction ends, the taxpayer must continue to provide affordable housing under the terms of the extended use agreement, which is at least another fifteen years. Altogether, the taxpayer is obligated to provide affordable housing for at least thirty years.

  2. The LIHC credit is co-administered by the IRS and state agencies. The state agencies receive a specific amount of credit each year (based on population) and are responsible for determining which housing projects will receive credits, and how much credit. They are also responsible for monitoring the housing projects to ensure that taxpayers remain compliant throughout the 15-year compliance period and reporting any identified noncompliance to the IRS.

  3. A centralized LIHC Unit is located at the Philadelphia Campus, and is responsible for the following:

    1. Receiving, processing and storing files consisting of forms and documentation submitted by state agencies and taxpayers as required under IRC 42,

    2. Maintaining the LIHC database; including transcribing data from submitted forms, correcting errors, and preparing analyses,

    3. Providing customer service to state agencies and taxpayers,

    4. Supporting examination's classification of tax returns for audit, and

    5. Providing technical support to IRS personnel.

Form 8610, Annual Low-Income Housing Credit Agencies Report
  1. State agencies file Form 8610, Annual Low-Income Housing Credit Agencies Report, to

    1. transmit Form 8609, Low-Income Housing Credit Allocation and Certification, and Forms 8610, Schedule A,

    2. report the dollar amount of credit allocated during the year under IRC 42(h)(1) , or credit allowed under IRC 42(h)(4) for projects financed by tax-exempt bonds subject to the volume caps under IRC 146, (see IRC 142(d) also),

    3. provide reconciliation of the state agency's credit ceiling and allocations, and

    4. report compliance with compliance monitoring requirements under Treas. Reg. 1.42.5.

  2. Form 8610 Schedule A, Carryover Allocation of Low-Income Housing Credit, is used by state agencies to report carryover allocation of LIHC. It is reviewed for accuracy, completeness and timeliness.

  3. Form 8609, Low-Income Housing Credit Allocation and Certification, Part I, Allocation of Credit is completed by the state agency to document allocations of credit. It is reviewed for accuracy, completeness, and timeliness.

  4. Form 8610 is reviewed to:

    1. ensure the summary in Part I reconciles with the attached Forms 8609 and 8610 Schedule A,

    2. ensure the unused LIHC carryover from the prior year and credit allocated from the national pool is accurately reported, and

    3. ensure the state agency has not allocated more credit than it is authorized to allocate during the year. Failure to comply with the compliance monitoring requirements is reported to the SB/SE program analyst assigned to the LIHC program.

  5. The state agency must file Form 8610 and attachments by February 28th of the year following the end of the calendar year for which the form is filed.

  6. Forms 8610 are to be made available to Statistics of Income and IRS Chief Counsel upon request.

  7. Information from Form 8610, 8610 Schedule A, and Form 8609 Part I is maintained in a database.

Form 8609, Part II (Taxpayers)
  1. Form 8609, Low-Income Housing Credit Allocation and Certification, Part II, First-Year Certification, is completed by taxpayers and filed with the LIHC Compliance Unit to comply with the one-time certification requirement under IRC 42(I).

  2. Form 8609 is reviewed to ensure:

    1. Part I has been completed and signed by a state agency official,

    2. All line items in Part II have been completed, and

    3. The taxpayer signed the form and the signature date is annotated.

  3. If Part II is incomplete or otherwise flawed, the form should be returned to the taxpayer for correction.

  4. If the taxpayer has submitted a Form 8609 without Part I completed or signed by the state agency, the forms should be reviewed for audit potential.

  5. Information from Form 8609, Part II is maintained in a database.

Form 8823, Low-Income Housing Credit Agencies Report of Noncompliance or Building Disposition
  1. State agencies file Form 8823, Low-Income Housing Credit Agencies Report of Noncompliance or Building Disposition, to notify the IRS of noncompliance with IRC 42 or to report a low-income building disposition. The forms are analyzed upon receipt.

    1. If the form was filed solely to report previously reported noncompliance has been corrected, no further action is required.

    2. If the form reports noncompliance or a building disposition, the taxpayer receives notification Letter 3464, Taxpayer Correspondence for Low Income Housing Credit Program, or Letter 3467, Taxpayer Correspondence for Low Income Housing Credit Program - Disposition of Buildings, specific to the type of noncompliance (or building disposition) that explains noncompliance may result in the loss and/or recapture of the tax credit. The taxpayer is advised to contact the state agency to resolve the noncompliance issue.

  2. Follow-up communication with state agencies or taxpayers (or their representatives) may occur.

  3. Forms 8823 are evaluated for audit potential. See IRM, Evaluations for Audit Potential.

  4. Form 8823 information is maintained in a database.

Form 8693, Low-Income Housing Credit Disposition Bonds
  1. For dispositions before July 31, 2008, taxpayers could file Form 8693, Low-Income Housing Credit Disposition Bond, to place surety bonds or Treasury Direct accounts upon disposition of a low-income building (or interest therein) to avoid the credit recapture provisions under IRC 42(j). The taxpayer qualified for a disposition bond if it was reasonably expected the building would continue to be operated as a qualified low income building for the remainder of the 15-year compliance period.

  2. For dispositions after July 30, 2008, taxpayers are not required to recapture the accelerated portion of the credit if it is reasonably expected that the building will continue to be operated as a qualified low-income building for the remaining compliance period and therefore, are not required to place a bond or pledge collateral at the time of the disposition.

  3. Form 8693 bonds or Treasury Direct Accounts timely posted for dispositions before July 31, 2008 are maintained until:

    1. The bond period expires. The bond will then be cancelled and returned to the taxpayer or the funds in the Treasury Direct will be returned to the taxpayer, or

    2. The taxpayer elects to be treated as if the disposition took place after July 30, 2008, which results in the cancellation of the bond or return of the funds held in a Treasury Direct Account. Instructions for making the election are included in Rev. Proc. 2008-60. The taxpayer can make the election at any time.

Evaluations for Audit Potential
  1. The LIHC Unit supports the classification of returns for audit by evaluating the information submitted on forms and documents submitted to the unit by state agencies and taxpayers.

  2. The evaluation will include consideration of:

    1. Large, unusual, or questionable items.

    2. Predetermined criteria intended to identify specific noncompliance issues. Criteria may be established based on current trends or known noncompliance strategies. These criteria may be documented by internal memoranda.

    3. Fact patterns requiring evaluation.

  3. Large, unusual and questionable items are defined as:

    1. Comparative nature of the issue: two of a hundred of a building's rental units out-of-compliance for a month is not as important as a project failing the 40/60 minimum set-aside.

    2. Absolute nature of the issue: violations of the physical conditions standards should be evaluated based on the severity of the noncompliance, as well as the number of units impacted. Consideration must also be given to the documentation provided by the state agency.

    3. Inherent nature of the issue: a permanent decrease in the eligible basis of the property is more significant than two units that are not available for rent for two months.

    4. Evidence of intent to mislead; which includes missing, misleading or incomplete documentation.

    5. Extenuating circumstances: the issue cited is very temporary or quickly remedied once identified.

  4. The following instances always require evaluation of audit potential:

    1. Form 8609 , Low-Income Housing Credit Allocation and Certification, Part II, if Part I of the form is not completed and signed by a state agency.

    2. Form 8823, Low-Income Housing Credit Agencies Report of Noncompliance or Building Disposition, if a state agency determines the building (or project) is no longer in compliance and is no longer participating in the program or reports a disposition of a building (or interest therein).

  5. Once it is determined further consideration of audit potential is needed, a classification package will be prepared. The file will include

    1. Classification checksheet,

    2. Master file research,

    3. Copies of Form 8609, Parts I and II,

    4. Copies of Form 8823, and

    5. Other relevant information.

  6. The information in the classification package is reviewed for audit potential.

  7. IRS personnel may contact the LIHC Compliance Unit for database research by calling 215-941-4496, faxing request to 215-516-1293, or writing to:
    Internal Revenue Service
    Attn: LIHC Compliance Unit, Mail Stop 4-E08.142
    2970 Market St.
    Philadelphia, PA 19104

  8. Files selected for audit potential will be forwarded to SB/SE’s IRC 42 Program Analyst and Technical Advisor for classification.

Contact Information
  1. Information about the LIHC program is also available on the Examination Knowledge Management page for IRC 42: http://mysbse.web.irs.gov/examination/tip/lihc/default.aspx

  2. Technicians within the LIHC Compliance Unit are assigned specific states; the agencies are provided contact information.

  3. Taxpayers and other external customers are provided contact information on correspondence as needed.

Federal/State Exchange Agreements

  1. Under Federal/State Exchange Agreements, classification in the campuses and area offices may receive information which applies to returns beyond the 26/27 month examination cycle.

  2. If the information is substantial, the return will not be rejected or surveyed solely because old years are involved.

  3. The selected old year returns are not included in the prior year percentiles for 270 days from establishment on AIMS.

  4. Under the State Audit Report Program (SARP) state agencies submit electronic referrals to the campus for filtering process. The electronic files are then delivered to the SARP Shared Drive for PSP Fed-State Coordinators to manually classify or are given to a campus headquarters analyst to be filtered for selection in campus correspondence examination and if selected then controlled on the Audit Information Management System (AIMS) in a batch process. If selected by the PSP Fed-State Coordinator, the cases will be controlled on AIMS and put into available inventory for TCO or RA groups.

Potentially Dangerous Taxpayers (PDT) - Caution Indicator (CAU)

  1. Refer to IRM 25.4, Employee Protection, for the guidelines and criteria established to identify caution upon contact taxpayers- Caution Indicator taxpayers.

Employee Returns

  1. Employee returns will not be worked in Campus Correspondence Examination.

  2. Cases worked in Campus Correspondence Examination are stored on the Correspondence Examination Automated Support (CEAS) server that allows for universal view in all campuses.

  3. In order to ensure impartiality, independence, and privacy, the classification and examination of employee returns will not be performed by subordinates, associates or co-workers of the affected employee.

  4. All identified employee returns selected for examination will be sent to the appropriate area office PSP Employee Audit Coordinator and screened by the PSP section chief.

  5. The appropriate PSP area office is the office closest to where the employee lives.

  6. The return will be forwarded to an office examination or field group where an objective examination will be conducted. This includes:

    1. All employee returns filtered out in the Case Creation Process of RGS/Batch Processing, or

    2. An Employee Return identified during any phase of the correspondence examination process.

  7. The original return will be secured from Files and the return and case file will be shipped in a "confidential" envelope to the area office PSP Employee Audit Coordinator closest to where the employee lives.

    1. If the original return cannot be secured from Files, a current RTVUE, TXMOD and DDBOL (if the case was selected for EITC), will be included in the case file.

    2. The Form 4251, Return Charge Out, will also be included in the case file to identify that the return could not be secured.

    3. Attach Form 3198, Special Handling Notice for Examination Case Processing, to the case file with "EMPLOYEE RETURN" notated on the Other Instructions line in the Special Features box. Also include on this line the examination program for which the case was selected.


    For additional information: See IRM 4.2.6, Examination of Employee Returns.

State Business Licensing Compliance Program

  1. The instructions in this subsection are used to process the state business license compliance initiative known as the California Department of Labor and Standards Enforcement (DLSE) Program. The DLSE Program provides taxpayers with certifications of compliance for Federal employment tax return filing and payment in order for them to obtain certain industry business licenses in their states. Currently, the only participant is the state of California.

  2. The DLSE Program is centralized at the Ogden Compliance Services Campus. The process is co-administered by the IRS and the respective state Division of Labor Standards. Guidance for the program must be a mutually agreed upon process with SB/SE Campus Compliance, the appropriate IRS State Governmental Liaison, and the State Division of Labor Standards Enforcement staff.

  3. IRS and the California State Department of Industrial Relations, Division of Labor Standards Enforcement (DLSE) have a mutual interest in accurate wage reporting by those parties who are licensed by DLSE. The DLSE is concerned with the success of these businesses and that they pay the proper wage and withhold and transmit fiduciary funds. IRS is concerned about licensees becoming delinquent in the payment of federal taxes and the resulting burden on the government.

State Business Licensing Compliance Process
  1. The State of California requires yearly renewal of business licenses. As a condition of granting the licenses, the State must receive proof of compliance from IRS that the applicant has filed all required Federal tax returns, and resolved all outstanding Federal tax balances, through full payment or appeal.

  2. The DLSE Program is processed as follows:

    1. DLSE will require the applicant to furnish the IRS with a valid Form 8821, "Tax Information Authorization" , naming DLSE as the appointee to receive tax information and a copy of their State business license application. The current state industry application is Car Washing and Polishing Registration Application.

    2. IRS shall supply DLSE with a weekly summary of Forms 8821 received and the status of the account compliance in a mutually agreeable format.

    3. DLSE will supply IRS with a monthly summary of licenses denied or revoked in a mutually agreeable format.


      This information is not currently available but is provided for in the current MOU.

    4. The IRS will review the Business Master File (BMF) to ascertain whether statutory provisions for tax return filing and payment requirements are complied with by the applicant.

    5. License applicants who fail to meet statutory filing and payment requirements will be notified by IRS of these conditions, via Letter 4267-C, State Department of Labor Standards Enforcement (DLSE) Letter of Certification, along with instructions on how they can be resolved. Applicants who have met all requirements will be similarly notified. All applicants will receive educational materials from IRS on how to comply with future filing and payment requirements via referral to Pub 15, (Circular E) Employer’s Tax Guide, located at http://www.irs.gov/pub/irs-pdf/p15.pdf.

    6. IRS will provide DLSE and the applicant with a statement that all filing and payment requirements have been met or information on the type and years of returns not filed and/or the year(s), type(s), and amount(s) of balances outstanding.

    7. DLSE's review board will assess the applicant's character and competency in light of the tax information to determine if the license should be denied based on failure to meet employment tax currency conditions.

    8. DLSE shall take precautions to ensure information provided by the IRS under this agreement is used solely for the purpose of license determinations and the enforcement of license and labor standards. The information shall be safeguarded to prevent improper disclosure.

    9. In cases where the denial of license is based, at least in part, on the applicant's failure to resolve outstanding Federal tax problems by filing required returns or paying balances due, the IRS will honor DLSE's requests and provide employees to testify in civil court or administrative hearings. Testimony will be provided pursuant to subpoena by DLSE and upon the approval of the IRS Area Director per provisions of the Code of Federal Regulations Section 301.9000-1.

    10. DLSE will provide three weeks notice to IRS of the scheduled date for administrative or judicial hearings where an IRS witness is requested.

    11. IRS will support DLSE in its compliance efforts to address the underground economy relative to the licensing programs.

    12. To enhance customer service, joint education and outreach seminars will be conducted in each IRS area on an as-needed basis. The need will be determined by the respective agencies.

DLSE Database
  1. The DLSE database is a local Access database application used to track inventory.

  2. Permission to access the DLSE database is controlled by group membership on the Domain. Access to the folder on the server, where the data is stored, is granted through the BEARS system by modifying the LAN application and being added to the appropriate group. Access is granted by the Systems Administrator after manager approval. The database does not interface with Master File.

  3. All records or documents to determine access control should be documented and disseminated to appropriate elements within the organization. They should also be periodically reviewed by responsible parties within the organization.

  4. The organization should establish, activate, modify, review, disable, and remove information system accounts in accordance with documented account management procedures.

Initial Screening of Applications
  1. General Research:

    1. Ensure Form 8821, Tax Information Authorization Form, Line 2, indicates Appointee as “DLSE.” If Form 8821 does not indicate appointee as DLSE, route to M/S 6737 POA Unit unless it appears taxpayer is requesting DLSE clearance.

    2. Research IDRS, if the base is open, route to assigned employee.

    3. If record exists, check whether application was recently cleared. If recently cleared and application is a duplicate, destroy the duplicate. If unable to determine if application is a duplicate, contact taxpayer on why application is being submitted.

    4. If application was not recently cleared, continue processing.

Inputting in the DLSE Database
  1. Enter the Employer Identification Number (EIN) and/or Social Security Number (SSN) of the primary business owner (over 50% ownership) per Form 8821, Tax Information Authorization and/or application into the Access database.

  2. Research the case to see if it has been worked previously.

    1. If the case is open on the database, pull from the suspense file.

    2. If it was already worked and it was made compliant within the last 60 days, mark "file & paid" with the compliant date on the top and give to the tax examiner (TE) working the case.

    3. If it has not been worked, or if over 120 days of being compliant then reopen case.

    4. If the case was worked and was "non-compliant" , pull the case from Non-compliant suspense and reopen case.

    5. If the Form 8821 was closed "insufficient data" , due to No Signature, No Date, Old Signature Date or No Application, and the taxpayer submitted with the "signature, current date, or application" , pull it from "Insufficient Data" suspense and reopen it.

  3. If the case already exists in the DLSE database:

    1. Click on "Add New Record" . Research to see if any changes need to be made to the following;

    Database Input Field Data Located On
    EIN if required Form 8821
    SSN if required Form 8821
    Current Year Enter current year
    License Number State application
    Taxpayer Telephone Number Form 8821 or State application
    Name line 1, DBA/Legal Entity/Owner State application
    Name line 2, Legal Entity/Owner State application
    Address Form 8821 if available, otherwise use State application


    If no address is on Form 8821, input the address from the State Applications: Car Washing and Polishing, Line 3.

    Received date Automatically generated
    Business/Industry as appropriate State application
    Input Emp Input your IDRS Employee number
    TE Number Input the IDRS Employee number of TE case is assigned to
    Contacts - List owners and POA information State application, Form 8821, and Form 2848

  4. If the case does not exist in the DLSE Database, enter the following:

    Database Input Field Data Located On
    Current Year Enter current year
    EIN if required Form 8821
    SSN if required Form 8821
    Name line 1, DBA/Legal Entity/Owner State application
    Name line 2, Legal Entity/Owner State application
    Received Date Automatically generated
    Click on Business/Industry State application
    Status Received
    Input Emp Input your IDRS Employee number
    TE Number Input the IDRS Employee number of the TE assigned the case

  5. Click on "Done" and "Yes" .

Case Building
  1. Print database case sheet and labels and assemble case as follows:

    • In database, go to "Reports" .

    • Click on "Generate Case Labels and History Sheets" .

    • "Input date" is usually generated with current date.

    • Click "OK" .

    • Click "Print all case sheets" .

    • Click "Print" .

    • Ensure printer has correct paper and click "OK" .

    • Click "No" to question "Did case sheets print correctly?" .

    • Click "Print all case sheets" again to uncheck.

    • Click "Print all case labels" .

    • Click "Print" .

    • Ensure correct labels are in printer and click "OK" .

    • Click "Yes" to question "Did case labels print correctly?" .

  2. Assembling cases for Clerks:

    1. Staple corresponding Case Sheet on top of DLSE paper work.

    2. On Forms 8821 that were determined to be non-compliant and/or insufficient, staple the Case Sheet to the inside left of the folder and the Case Label on the outside left lip of the folder.

  3. Assembling cases for Tax Examiner (TE),


    TEs have a 14 day turn around to work cases.

    1. Select the appropriate color folder for the industry;

  4. Assemble Form 8821, state applications and any associated correspondence into the case folder.

  5. Staple the "Case Sheet" to the inside left of the folder. Place the "Case Label" on the outside lip of the folder.

Application Verification
  1. Applications must be verified for completeness and accuracy. Verify the following information on Form 8821, Tax Information Authorization:

    1. Form 8821 and all pages for state license application are included.


      If the required application(s) are not included with the Form 8821, return Form 8821 to the taxpayer via Letter 4267-C, State Department of Labor standards Enforcement (DLSE) Letter of Certification.

    2. Name line for application and Form 8821 agree and match IDRS.

    3. EIN is present and accurate. If no EIN, research INOLEX on the related SSN to find any cross-referenced EINs. Verify the SSN only to ensure information on the Form 8821 and application matches IDRS. Check NAMEE for business name and/or zip code. If EIN is found, enter into database.


      If any outstanding liabilities are found on the SSN, issue a clearance letter for the EIN if appropriate.


      If a sole proprietor has no employees or leases their employees, they are not required to provide an EIN.

    4. SSN if no EIN is required.

    5. Appointee is "DLSE" .

    6. Section 3 reflects tax matters.

    7. Signature.

    8. Signature date. The signature date must be within 60 days of the IRS received date.


      A dated DLSE application may be accepted in lieu of a Form 8821 date.

Employment Tax Compliance Checks
  1. Observing tolerances, perform compliance checks for filing and paying employment taxes.

  2. Verify INOLES name matches exactly to Legal Entity on Form 8821.

  3. Research INOLES for business established date and filing requirements to record in case sheet work papers.

  4. Research BMFOLI and SUMRY for employment tax MFT filing requirements. See Document 6209 , IRS Processing Codes and Information, for Filing Requirement Codes or online at Document 6209. Review appropriate MFTs for filing status codes to verify all returns have been filed for the last six years as applicable and for any outstanding balances due. See Document 6209, MF and IDRS Collection Status Codes section for current filing requirement and status codes. Work the case using the status code list below.

    • 02 - returns not filed - code as N for non-compliant

    • 03 - IDRS in delinquency status - code as N

    • 06 - Requires further TXMOD research for pending transactions .

    • 10, 12 - paid in full - code C for compliant

    • 21, 22 - balance due - code as N

    • 23 - balance due but may be below tolerance - review total assessed for tolerance - if above tolerance, review TXMOD


      Include all modules in balance due to determine tolerance


    • 24- Undeliverable

    • 26 - revenue officer - Contact RO to determine compliance

    • 60 - payment plan - code as P for payment plan clearance


      If status codes are 02 or 03, taxpayer contact may be needed to determine whether filing requirements are truly appropriate and/or delinquent. Although IDRS shows filing requirements are delinquent, circumstances may have changed since filing of the Form SS-4 . If it is determined that filing requirements are not appropriate for this tax period and MFT, input FRM49 to delete open status. Note also that filing requirements are not considered delinquent until 60 days after the return due date.

    • 71 - OIC pending - Review TXMOD for TC480/481 (OIC pending/rejected) or 780 (OIC accepted). If pending/rejected, work as Non-compliant. If 780, work as Compliant.

    • 72- Bankruptcy

  5. Status 06 guidance: Account will have pending 59X which will determine compliance status. If pending TC150 or 599, verify return balance due matches credit posted to tax period. If other 59X, review TDI Closing Codes in Document 6209, Section 11, for appropriate action.

  6. When reviewing for compliance, account should be looked at in its entirety to determine if balances due are above tolerance. Pending payments or offsets may affect the balance due.

Responding to Taxpayer Applications and Closing Cases
  1. After reviewing taxpayer application and conducting the compliance check, follow the IF and Then table below to respond to the taxpayer as follows:

    Any form information is missing or incomplete or taxpayer has open filing requirements or balance(s) due, Return Form 8821 to taxpayer via Letter 4267-C, State Department of Labor standards Enforcement (DLSE) Letter of Certification, using the appropriate paragraph(s).
    The taxpayer does not provide requested form information but has met all filing and paying requirements, Issue Letter 4267-C using the appropriate paragraph(s) to request needed information.
    Proof of payment is not valid as on-line EFTPS, copy of money order or cashier's check paid at local IRS office, Apprise taxpayer that payment must be posted to IRS system or be EFTPS or local IRS office money order or cashier's check. Issue non-compliant letter.
    The taxpayer provides requested signed form(s) and/or valid proof of payment(s), Issue clearance letter.

  2. Send taxpayer appropriate 4267-C Letter paragraphs and close cases on the Access database. Closure will be based on the reason the letter was sent then selecting the applicable reason as shown in the table below .

    For Select
    For "Insufficient Data" : Select "Insufficient Data" case status.
    For "Non-compliant" :
    1. Select "Non-compliant" case status.

    2. Table option as appropriate - Forms Not Filed, Balance Due, or both.

    For "Compliant" : Select "Compliant" case status.
    For "Payment Plan" :
    1. First select "Payment Plan" case status.

    2. then select "Generate Payment Plan" letter and print letter.

    3. then select save option.

Responding to Taxpayer Hotline Telephone Calls
  1. A taxpayer hotline telephone is available for taxpayer messages. Respond to taxpayer messages within 24 hours following appropriate disclosure procedures. See IRM, Required Taxpayer Authentication. Follow the following procedures when responding to the taxpayer.

    1. Review taxpayer account information from the DLSE database and/or IDRS prior to returning taxpayer calls.

    2. Apprise taxpayer of status of clearance including what is required for clearance if appropriate.

    3. If balance(s) due and taxpayer has supporting documentation of payment, request faxed proof of receipt. Verify receipt indicates proof of payment and not merely that a check was received.


      Money orders and bank/cashier's checks are considered same as cash.

    4. If return delinquency(ies), advise taxpayer of forms required to file returns and, where to send completed returns for processing.


      Tax examiners are not required to secure delinquent returns. However, should the taxpayer send delinquent returns to the DLSE function, prepare the returns for processing, route to appropriate function and capture return type, delinquent year and tax owed (TC 150 amount to post) on the Access database. Include this information in the weekly report to HQ.

    5. Enter remarks in the database that the taxpayer called, the date, whether any information was faxed to or from the taxpayer, what the status is as a result of the call, taxpayer remarks, and TE IDRS employee number.

State Data Delivery
  1. On a weekly basis, encrypt and send new open case program data to California Department of Labor Standards Enforcement (DLSE) as follows:

    1. From the DLSE main menu select "Reports" .

    2. From the "Report" menu, select DLSE and District Downloads (the system will take a minute to create a file). A message bar appears stating that a file has been saved to the hard drive of the computer. Press "OK" .

    3. Access the C: drive of the computer. Select the "Program Files" folder, then the "Databases" folder, then the "DLSE" folder. Right click on the file name "State.asc" and rename the file with today’s date (MMDDYYYY).

    4. Send the file to DLSE in California via Electronic Facsimile at 210-286-1366.

    5. Follow guidelines in IRM 11.3.1, Introduction to Disclosure, to transmit the file electronically via E-FAX to DLSE; E-FAX is the only approved method of transmission.

Point of Count and Data Reports
  1. Enter the Daily number of cases worked, number of faxes sent, and number of telephone calls received.

  2. Track weekly and provide report to HQ DLSE Analyst with the following information:

    • open and closed cases

    • incoming and outgoing telephone calls

Disclosure Authentication
  1. Ensure all appropriate caller authentication is conducted per IRM, General Disclosure Guidelines.

Form 8282, Donee Information Return, Form 8283, Non-cash Charitable Contribution, Match Program

  1. The instructions in this subsection are used to process Form 8282, Donee Information Return, as part of the Form 8282/Form 8283 , Noncash Charitable Contribution match program.

  2. Ogden Campus Compliance Examination Field Support Operation conducts the Form 8282/8283 Match Program under direction from Exam Quality and Technical Support (EQ&TS). The Exam Policy headquarters analyst with oversight for the program will coordinate technical issues with EQ&TS. The program screens Forms 8282 for potential selection for audit. Cases are selected when non-cash contribution deductions do not meet the criteria established for substantiation. Cases may be selected for Area Office or Campus examination.

  3. IRC 170, Charitable Contributions and Gifts, IRC 6050(L), Returns Relating to Certain Donated Property; and Treasury Regulation 1.170A-13, Recordkeeping and Return Requirements for Deductions for Charitable Contributions, provide authority for processing non-cash charitable contributions.

  4. Process cases under OFP 91717, Form 8282 Cases.

  5. Non-cash contributions larger than $5,000 made to an organization eligible to receive tax deductible contributions are not tax deductible unless:

    1. The donee organization supplied the donor with a contemporaneous written acknowledgment (CWA) the contribution. Acknowledgements must include a description (but not value) of any property other than cash contributed, a statement as to whether the donee organization provided any goods or services in consideration, in whole or in part, for any property, a description and good faith estimate of the value of any goods or services, or, if such goods or services consist solely of intangible religious benefits, a statement to that effect. An acknowledgment shall be considered to be contemporaneous if the taxpayer obtains the acknowledgment on or before the earlier of the date on which the taxpayer files a return for the taxable year in which the contribution was made, or the due date (including extensions) for filing such return.


      Form 8282 or Form 8283 is often supplied as the acknowledgment but is not a substitute for a CWA.

    2. The donor obtained a qualified written appraisal of the property, and

    3. The donor provides a complete Form 8283. The donee organization signed the Form 8283, Noncash Charitable Contribution Part IV, Donee Acknowledgement, acknowledging receipt of the property and awareness of the subsequent filing requirement, in the event they dispose of the asset within three years or the donor submits a detailed explanation of why it was impossible to get the donee’s signature.

General Information
  1. Original and successor donee organizations are required to file Form 8282, Donee Information Return, to the Ogden IRS Campus about dispositions of certain charitable deduction property if the donee sells, exchanges, consumes, or otherwise disposes of the contribution within three years after the date the original donee received the property.

  2. Form 8283, Non-Cash Charitable Contribution, is filed by individuals, partnerships, and corporations. Individual taxpayers are required to file Form 8283 when non-cash charitable contributions reported on Form 1040 Schedule A exceed $500. C corporations, other than personal service corporations and closely held corporations, must file Form 8283 only if the amount claimed as a deduction is more than $5,000. Partnerships and S corporations that claim deductions for non-cash gifts of more than $500 must file Form 8283 with Form 1065, Form 1065-B, or Form 1120S.


    The partnership or S corporation must give a completed copy of Form 8283 to each partner or shareholder receiving an allocation of the contribution deduction. The partnership or S corporation Form 8283 should be attached to the partner’s or shareholder’s tax return.

  3. The Form 8282/8283 Match Program compares information from both Forms 8282 and 8283 to ensure that appropriate deductions are being allowed on both IMF and BMF filings.


    Items valued at $500 or less and items consumed or distributed for charitable purpose without consideration do not require completion of the Form 8282. See Instructions to Form 8282 for additional information.

  4. Donees are instructed to file Form 8282 within 125 days after the date donated property is disposed.


    Form 1098-C , Contributions of Motor Vehicles, Boats, and Airplanes, is used to report charitable contributions of motor vehicles, boats, and airplanes after December 31, 2004 as required by Section 884 of the American Jobs Creation Act of 2004 (Public Law 108-357) which added new IRC 170(f)(12) . A donee organization may use Form 1098-C to provide a contemporaneous written acknowledgment to the donor and must use it when reporting the same information to the IRS. Forms 1098-C are filed in accordance with the instructions for Form 1096 which is a transmittal document. The Form 8282 are sent to Internal Revenue Service, Ogden, UT 84201-0027 CCP at M/S 4140(SCOW).

Form 8282 Processing
  1. Process new receipts of Form 8282, Donee Information Return, as follows:

    1. Remove staple and envelopes from Form 8282 ensuring any correspondence remains with the form.

    2. Stamp Form 8282 at bottom with current date.

    3. Separate Forms 8282 by years (all years will be worked separately).

    4. Perfect forms missing any required information (see paragraph 3 below for required information).

    5. Enter perfected Forms 8282 into the centralized database. See IRM, 8282 Database, for data items.

    6. Research IDRS for open AIMS base. If there is an open AIMS, route the Form 8282 case file to the area office per the AIMS data.

    7. File all Forms 8282 entered for each date in folder with the input date on the right-hand corner of the folder.

  2. Perfect forms as follows:

    • For missing TINs, research IDRS command codes NAMES(I) for IMF or NAMEE(B) for BMF.

    • If unable to identify TIN, use Accurint to secure.

    • If unable to identify with Accurint, send letter for cases meeting tolerance criteria to donee or donor as appropriate to secure information.

    • Suspend case for 30 days.

    • If no response to letter, make a second request.

  3. In accordance with IRC 6050L(a), if a charitable organization sells, exchanges, or otherwise disposes of charitable deduction property within 3 years after its receipt, the organization must file an information return Form 8282, Donee Information Return, which contains the following information:

    • The name, address, and Employer Identification Number (EIN) of the donee making the return.

    • The name, address, and Taxpayer Identification Number (TIN) of the donor

    • A description of the property

    • The date of the contribution

    • The amount received on the disposition

    • The date of such disposition

    • A description of the donee’s use of the property

    • A statement indicating whether the use of the property was related to the purpose or function constituting the basis for the donee’s exemption under IRC 501.

  4. After classification is complete, selected cases will be processed as follows:

    • Research IDRS to verify the AIMS base is open.

    • If the AIMS is open, route Form 8282 case file to the open area office.

    • If not open on AIMS, use Command Code (CC) AM424 to open the AIMS base.

  5. Returns selected for area office referral should be processed as follows:

    1. Folder case using manila folder.

    2. Complete Form 6754, Examination Classification Checksheet.

    3. Enter PC 0075 and SC 85 at top of checksheet.

    4. Cases selected for office audit should have Box 3 checked in Section B.

    5. Cases selected for field audit should have Box 4 checked in Section B.

    6. Check Box 18, Contributions.

    7. Write in Remarks, "See 8282 and stuffer."

    8. Enclose Stuffer 0075, Non-Cash Contributions, with Form 8282 Filed by Donee, on all cases.

    9. Prepare Form 3210, Document Transmittal.

  6. Destroy Forms 8282 not selected for examination if corresponding tax returns are not available to associate with after 90 days.

Form 8282 Database
  1. The Form 8282 centralized database is a local Access database and includes the following information:

    • TIN

    • Primary Name

    • Secondary Name

    • Charity TIN

    • Property Donated

    • Year Received

    • Date Disposed

    • Disposition Amount

  2. The 8282 database is maintained by the Ogden Campus. Approval is needed for access to the Form 8282 database. Approval may be requested by submitting a request through the BEARS system.

Database Matching with Tax Return Information
  1. Database information is periodically matched against taxpayer return data using a Masterfile interface as follows:

    1. Form 1040, Schedule A, Line 17, Gifts to Charity - Other than by cash or check, are compared to corresponding Form 8282 data.

    2. A comparison of the amounts received by the charity for the sale of the donated item(s) is made to the amount claimed by the taxpayer on Schedule A.

    3. The difference in amounts is calculated for potential tax increase based on criteria.

    4. Returns meeting the tolerance are systemically requested from Files for classification.

Additional Information
  1. The following publications provide additional information for the Forms 8282/8283 Match Program:

    • Form 8282 Donee Information Return and Instructions.

    • Form 8283 Noncash Charitable Contribution and Instructions.

    • IRM, Lines 11, 12, 13, and 14 - Gifts to Charity.

    • IRM, Cash and Non-Cash Contributions.

    • IRM, Acceptable Documentation for Charitable Contributions.

    • Pub 526, Charitable Contributions.

Form 3949-A, Informant Referrals

  1. The Informant Referrals are taxpayer-generated. Taxpayers submit Form 3949-A, Informant Referral or informant letters to the IRS to report suspected/perceived tax law violations by other taxpayers. These referrals are mailed to Ogden Campus, Entity Mail Stop 6273 where they are screened and routed to various stakeholders per the established routing guide. See IRM, Form 3949-A Information Referral Routing Guide.

  2. W&I TCOs and SB/SE Tax Analysts classify, select, and introduce into the work stream those referrals which meet their respective selection criteria in order to satisfy the volumes in their work plans. A record of the volumes and dispositions of the referrals will be maintained by each area.

  3. In order to provide feedback on the screening process, W&I and SB/SE will return to Ogden Entity those referrals which were received but did not meet the established routing guidelines for their area. Ogden will re-route the referrals to the appropriate area.

  4. W&I and SB/SE will retain rejected referrals for 90 days after classification and selected referrals for three years after the examination closing date.

  5. W&I and SB/SE management will conduct periodic reviews of the rejected referrals using appropriate start and skip intervals to ensure the fairness and integrity of the classification process.

AUR Technical Advice and CAT A Referrals

  1. Exam will monitor for incoming AUR technical advice and CAT A referrals daily. Referrals will be received physically from co-located sites and via e-Fax inbox from non-co-located sites. Incoming referrals will contain: a fax cover sheet (if applicable), an AUR/Examination CAT A Referral Form, AUR case contents (including a copy of the last CP 2000 or CP 2501 Notice), and the document the taxpayer submitted.

  2. Exam Classification will review the referral to determine if the expenses are allowable or if the case meets audit criteria within 15 days of receipt.

  3. Exam classification will work AUR referrals from the aligned SBSE Exam site(s) as outlined below.

    If case originates in referral will be delivered to Exam Classification in
    Ogden (co-located) Local procedures to hand-deliver or e-fax Ogden
    Fresno e-Fax 855-244-3572 Ogden
    Brookhaven (co-located) local procedures to hand-deliver or e-Fax Brookhaven
    Andover e-Fax 855-241-0446 Brookhaven
    Atlanta & Austin e-Fax 855-887-7739 Cincinnati
    Philadelphia (co-located) local procedures to hand deliver or e-Fax Memphis/Philadelphia
  4. If Classification determines the referral should be selected for audit:

    1. Classification will send the AUR coordinator an e-mail stating Exam is selecting the case and AUR can close their controls (e-mail title “Selected - Close AUR Controls”).

    2. Exam Case Building will open AIMS prior to routing to the correspondence Exam area and/or Field PSP.

    3. Utilize project code 1504, AUR Amended Returns/A-CIS Priority - Miscellaneous Referrals Discretionary.

  5. If Classification determines the referral should be accepted as filed:

    1. Classification will send the AUR coordinator an e-mail stating the Form 1040X can be accepted as filed (e-mail title “Accepted as Filed”).

  6. If Classification determines the additional expense is not allowable by law:

    1. Exam will send the AUR coordinator an e-mail stating the expense is not allowable and provide a standard paragraph that can be sent to the taxpayer explaining why it is not allowable (e-mail title "Not Allowable").