- 4.22.13 Fuel Excise Tax Study - NRP Examination Guidelines
- 126.96.36.199 Overview
- 188.8.131.52.1 Assigning NRP Cases
- 184.108.40.206 NRP Pre-Audit Analysis/Case Building Guidelines
- 220.127.116.11.1 Guidelines on Issues
- 18.104.22.168 NRP Case Building Process
- 22.214.171.124 NRP Working With the Taxpayer During the Examination Guidelines
- 126.96.36.199.1 Examiner Responsibilities
- 188.8.131.52.2 NRP Taxpayer Contact
- 184.108.40.206.3 NRP How to Contact a Taxpayer
- 220.127.116.11.4 Required Actions for Inaccessible Taxpayers
- 18.104.22.168.5 Scheduling the Appointment
- 22.214.171.124 NRP Examination Location Guidelines
- 126.96.36.199 NRP Examination and Customer Perceptions
- 188.8.131.52 NRP Examinations and Customer Burden - Specific IDR Guidelines
- 184.108.40.206 NRP Change of Scope and Examination of Related Returns Guidelines
- 220.127.116.11.1 Excise Tax Return Related Consideration
- 18.104.22.168.2 Related Return Decision Points
- 22.214.171.124.3 Non-Specialty Tax Related Returns
- 126.96.36.199 NRP Required Filing Checks Guidelines
- 188.8.131.52.1 Required Filing Checks
- 184.108.40.206 NRP Examination Depth Guidelines
- 220.127.116.11.1 IRM 18.104.22.168.2 Evaluation of Books and Records
- 22.214.171.124 NRP Examination Lead Sheets Guidelines
- 126.96.36.199.1 NRP Preparing Effective Lead Sheets Guidelines
- 188.8.131.52 NRP Examination Workpaper Documentation
- 184.108.40.206 NRP De Minimis Adjustments Guidelines
- 220.127.116.11 NRP Use of Specialists Guidelines
- 18.104.22.168.1 Audit Technique Guides
- 22.214.171.124 NRP Returns and Penalty Usage Guidelines
- 126.96.36.199 NRP Unagreed and Partially Agreed Examination Guidelines
- 188.8.131.52 NRP Collectability Considerations Guidelines
- 184.108.40.206 NRP Examination Information Resources
- 220.127.116.11 Excluding an NRP Return Guidelines
- 18.104.22.168 Requesting an NRP Return Exclusion
- 22.214.171.124.1 If the Return Is Excluded
- 126.96.36.199 Transferring an NRP Examination
- 188.8.131.52.1 How to Complete a Transfer
- 184.108.40.206 NRP Quality Review Procedures Guidelines
Part 4. Examining Process
Chapter 22. National Research Program (NRP)
Section 13. Fuel Excise Tax Study - NRP Examination Guidelines
January 10, 2014
(1) This transmits an update to IRM 4.22.13 – Fuel Excise Tax Study – NRP Examination Guidelines to include the selection of Tax Year 2013 cases to the existing NRP reporting compliance study of fuel excise taxes.
(1) 220.127.116.11 - Revised paragraph
(2) 18.104.22.168.1 - To add training requirements for Revenue Agents and Fuel Compliance Officers
(3) 22.214.171.124.1 - To clarify minimum examination scope requirements related to Form 720 Schedule C claims
(4) 126.96.36.199 - To update case building information for TY2013 cases
(5) 188.8.131.52.3 - Revised number (2)
(6) 184.108.40.206.1 - Revised
(7) 220.127.116.11.2 - Revised paragraph
(8) 18.104.22.168 - To add NRP specific tracking codes for TY2013 key cases
(9) 22.214.171.124.3 - Project code changed
(10) 126.96.36.199.1 - Added the required filing check instructions
(11) 188.8.131.52 - Revised paragraph (3) the third bullet
(12) 184.108.40.206 - Added additional examples
(13) 220.127.116.11 -To clarify de minimis adjustment requirements for the DCI and IMS
(14) 18.104.22.168 - Revised number (1)
(15) 22.214.171.124.4 - Revised section.
Janice Hedemann, Director of Research
This is the IRM for the National Research Program (NRP) Fuel Excise Tax (FET) examination process. The IRM provides instructions for initiating an NRP examination, preparing an effective Information Document Request (IDR), conducting an NRP research examination, and other procedural items.
(1) NRP cases must only be assigned to Revenue Agents (RAs) that have completed both Education Learning Management System (ELMS) Course 37021 and Course 53272 – NRP Fuel Excise Tax Refresher Training for Examiners and Managers.NRP cases must only be assigned to Fuel Compliance Agents (FCAs) that have completed Education Learning Management System (ELMS) Course 37021.
NRP Fuel Excise tax returns must be examined unless exclusion criteria are met. Guidelines for examining NRP returns include:
NRP returns may not be surveyed before or after assignment unless the return is approved for exclusion.
An NRP exam consists of the primary quarter, designated by source code 80. Subsequent or prior periods are not subject to NRP guidelines.
The NRP office will establish the Audit Information Management System (AIMS) control for the initial primary quarter.
Form 5345-D, Examination Request- Examination Returns Control System (ERCS), will be used by the examiner to establish AIMS control of subsequent and prior periods.
NRP examinations address all fuel excise tax abstracts. They also address any fuel excise tax Credit Reference Numbers (CRNs) that were filed as non-zero amounts or that the examiner identified during the examination of the Form 720. Documentation for the examination must include case file lead sheets and an NRP Data Capture Instrument (DCI).
Case building material, to be used during pre-audit analysis and exam process, provides valuable return and financial information that may lead to or support tax return adjustments.
Case building material such as, Integrated Data Retrieval System (IDRS), ExSTARS data, etc., will be made available through the NRP Case Tracking System (CTS). Examiners must submit an OL5081 for access to the NRP CTS and download the applicable materials. All relevant case building materials must be imported into the electronic IMS case file.
NRP is moving toward a fully electronic case file. The only paper case building documents included in the initial case file will be the Case Building Inventory Sheet and Examination Return Charge-Out. All other case building material will be delivered electronically.
Guidelines for conducting an NRP examination are no different than any other examination and should be conducted in the same manner using the following guidelines:
A professional and efficient exam occurs when the IRS and taxpayer/representative work cooperatively.
Examiners should communicate findings, resolve issues, and address taxpayer concerns throughout the audit process.
Examiners GS-12 and under, must schedule group manager concurrence meetings. All examiners must request a managers assistance as necessary.
Taxpayer surveys of prior NRP studies indicate that prudent and effective communication and exam actions improve taxpayer satisfaction.
Examiner responsibilities include:
The identification, communication, and resolution of examination issues, including favorable taxpayer adjustments.
Requesting only applicable taxpayer information in the determination of excise tax liabilities.
Applying relevant tax authority, i.e., Internal Revenue Codes, Treasury Regulations, Notices, court cases, etc.
Advising all parties of unavoidable delays.
Addressing all exam related questions and concerns.
Properly communicating proposed adjustments and exam progress.
The timely performance of exam responsibilities.
NRP examination taxpayer contact guidelines require:
Prompt taxpayer contact soon after the case is assigned and the pre-audit analysis has been completed.
"Cold Call" communication with issuance of L3851-E, Excise Tax Call-in Appointment Letter if cold call is unsuccessful.
The examiner to advise taxpayer that this is an NRP examination.
The issuance of L3850-E, Excise Tax NRP Appointment Confirmation Letter to confirm time/place of the examination and Form 4564, Information Document Request (IDR).
Documentation of activities on Form 9984, Examining Officer's Activity Record.
The examiner must enclose the following documents with the contact or confirmation letter (L3850-E or L3851-E).
Notice 1332, Why Your Return is Being Examined
Notice 609, Privacy Act Notice
Publication 1, Your Rights as a Taxpayer
Notice 1332, the NRP examination selection explanation
Examiners should go to the Forms and Publishing website at :http://publish.no.irs.gov/catlg.html for current forms, notices, publications, and letters.
Examiners should make every effort to contact NRP examination taxpayers.
The following IRM sections provide guidance regarding an inaccessible taxpayer:
IRM 126.96.36.199.2 - Locating the Taxpayer
IRM 188.8.131.52.2.1 -Undeliverable Initial Contact Letters
IRM 184.108.40.206.2.2 - Unlocatable Taxpayers-Mandatory Steps to Locate
IRM 220.127.116.11.2.3 - Additional Resources for Locating Taxpayers
IRM 18.104.22.168.2.4 - IDRS/CFOL Command Codes Useful in Locating the Taxpayer
IRM 22.214.171.124.2.5 - Using Credit Bureau Information to Locate a Taxpayer
IRM 126.96.36.199.2.6 - Third Party Contacts
Taxpayers registered under IRC §4101, Registration and Bond, provide an application contact person. This information can be found in the Form 637 Registration case file. Taxpayers that file electronic ExSTARS reports list an excise tax contact person on the Letter of Application (LOA). Examiners can request LOA contact person information from the Excise Tax Joint Operation Center (JOC)
Third party contact procedures should be applied if direct taxpayer communication cannot be achieved. Examples of third party contact resources include:
NRP Excise tax return preparer
ExSTARS contact information
Westlaw, or other web research
Cold calls are made to arrange a convenient time and place to start an examination. Mail an appointment letter L3850-E, Excise Tax NRP Appointment Confirmation Letter to confirm the appointment. Issue an IDR to request the records to be made available during the examination.
In the event that a taxpayer cannot be reached by cold call, examiners will issue L3851-E, Excise Tax Call-in Appointment Letter to schedule an initial appointment.
Schedule appointments that are reasonable under the circumstances and consistent with Treasury Regulations §301.7605–1, Time and Place of Examination.
Examinations should be conducted at the taxpayer’s place of business, but in extenuating circumstances, may be conducted at another place mutually agreed upon by all parties. Refer to IRM 188.8.131.52.6-Place of Examination for additional information.
Examiners should make every attempt to keep a scheduled appointment. It is important to let the taxpayer know as quickly as possible if you must cancel or reschedule an appointment for any reason.
Examiners should follow regular examination procedures when determining examination location. IRM 184.108.40.206.6-Place of Examination provides guidance on where examinations should take place.
The location of the taxpayer’s representative will generally not be a consideration in determining the place of the examination.
Field examination cases should generally be conducted at the location where the original books, records, and source documents are maintained.
The examiner may conduct the examination in the IRS office closest to the taxpayer’s business or at the representative’s office, if the field examination would unduly disrupt business operations.
A tour of the taxpayer’s business is to be documented in the case file workpapers.
Treasury Regulation 301.7605-1(e), Requests by taxpayers to change place of examination provides time and place examination guidance.
Notice 1332, Why Your Return is Being Examined contains NRP examination information. Examiners should study the notice to respond to taxpayer questions, such as:
Why me (us)?
What did I (we) do wrong?
How long will this take?
How much cost and lost time?
Examiners should tailor a cooperative setting to reduce taxpayer anxiety and immediately request group manager engagement should difficulties surface.
The initial Form 4564, Information Document Request (IDR) should be specific to the records, information, and documents essential to conducting an excise tax exam. Examiners generally prepare a pre-IDR as part of the pre-audit analysis which is then reviewed and finalized during the initial contact "cold call."
IDRs that request unnecessary information or are vague can be counterproductive to both the taxpayer and the examiner and create unnecessary burden. Effective IDRs should be tailored to the taxpayer and request only the information that is necessary to complete a quality examination. IDRs should also be clear and concise and include the appropriate tax period. This will minimize taxpayer confusion and expedite the examination process.
The preparation of effective IDRs begins in the pre-planning phase of the examination as this is when the entire file is reviewed to determine what information is available or needs to be requested from internal sources such as IDRS. Copies of the same original returns that are in the case file should not be requested from the taxpayer. To decrease taxpayer burden, examiners should use internal sources of information, e.g., Corporate Files On Line (CFOL) and Compliance Data Environment (CDE), to complete required filing checks. If discrepancies are noted or other sources of internal information lack sufficient detail, then the examiner should request specific items or returns from the taxpayer or obtain them internally. An alternative procedure would be to ask the taxpayer questions when they respond to the call back letter (see below) or during the initial interview.
For field examinations that use a call back letter to set the initial appointment, an opportunity is provided to determine the type of books and records available when the taxpayer calls in response to the letter. Clarify what types of documentation/records the taxpayer uses to determine income and expenses, when discussing the issues and records available.
The initial and subsequent IDRs should request documentation in terms that the taxpayer readily understands. Once the IDR is prepared, take a second look at what is being requested. Is the request specific, tailored to the taxpayer, and written in clear understandable terms? Are items requested relevant and necessary to resolve the issues under audit?
The use of IDR templates by examiners is acceptable as long as items are deleted that do not apply to the taxpayer. When a taxpayer receives the initial IDR(s), it can be rather lengthy, and the taxpayer may naturally assume that is all the information they will have to provide. The statement "Additional records may be requested as the examination progresses" lets the taxpayer know that additional information may be needed. The examiner should also include a due date for the requested information. For additional information, see IRM 220.127.116.11.2-Requesting Information or Documents from the Taxpayer and IRM 18.104.22.168.4-Required Filing Checks.
The following points should be considered during the preparation of an NRP Form 4564, Information Document Request (IDR):
The initial IDR should be specific to records, information, and documents relevant to the exam process and potential issues.
Prepare a pre-IDR during pre-audit analysis exam activities.
IDR templates or text examples of commonly requested items are acceptable as a preparation tool; however, you should avoid requesting unnecessary items on the list. Adapt the IDR to your exam and delete extraneous items.
Utilize all available internal data sources.
During initial contact gain insight of the taxpayer’s accounting system and supporting documents prior to issuing the initial IDR.
Avoid requests for nonessential or nonexistent data, journals, subsidiary ledgers, etc.
Use terms and language familiar to the taxpayer.
IDR language must be specific to the taxpayer and should adequately itemize and describe requests for information.
An IDR should not be sent with Letter 3851-E, Excise Tax Call-in Appointment Letter. This is a callback letter which provides an opportunity for the examiner and taxpayer to discuss the examination process, issues, types of books and records available. The IDR is finalized and issued after this discussion.
To decrease taxpayer burden, examiners should use internal sources of information, e.g., CFOL and BRTVUs to complete required filing checks. The following two links provide helpful IDRS/CFOL information.
IDRS Command Codes Job Aid http://serp.enterprise.irs.gov/databases/irm-sup.dr/job_aid.dr/command-code.dr/idrs_command_codes_job_aid.htm
CFOL Express, A CFOL/IDRS Reference Guide, A user guide for field personnelhttp://lmsb.irs.gov/reference/audit_tools/Job_Aids/CFOL%20Express%20Vers11072010.pdf
Excise tax returns are generally included as an inspection item on the initial IDR. NRP cases should include a copy of the applicable Form 720; therefore, this IDR item may not be necessary.
An IDR should include the following disclaimer: The above list is not intended to be all-inclusive. Additional information may be requested if needed.
An IDR must be completed in full which includes:
Taxpayer information due date
Date(s) of previous requests, if applicable
Due to the nature of Fuel Excise Taxes, all fuel abstracts are components of an NRP examination. Classified issues are fuel abstracts reported on Form 720 by t he taxpayer with a liability or mark. These issues and any additional abstracts identified by the examiner during an exam will be established on the Issue Management System (IMS). All fuel abstracts are included in the Data Capture Instrument (DCI) and require examiner comment.
Classified issues also include any reported (non-zero) Schedule C-Credit Reference Numbers (CRNs). These issues and any additional claims identified by the examiner during an exam will be established on the Issue Management System (IMS) according to existing examination guidelines. All Schedule C, CRN issues that are classified or added by the examiner must be included in the Data Capture Instrument (DCI) and require examiner comment.
Related returns are not considered NRP key case sample returns. The decision to examine these returns is made using normal examination procedures. If a related return is examined, examiners will use source code 91, project code 1094, and tracking code 6441 for a TY2012 NRP key case or tracking code 6442 for a TY2013 NRP key case.
NRP key cases and all examined related excise tax return examinations must be established on IMS.
The excise tax exam objective is to determine if the liabilities reported on Form 720, Quarterly Federal Excise Tax Return, are substantially correct. Any fuel abstracts and claims which are classified, or identified and added during the examination, must be entered in both the DCI and IMS for the NRP key year. Abstracts that are not classified or added by the examiner during the examination of the NRP key case are required to be addressed (reason for non-selection input) only in the DCI. Any Schedule C claims which are not classified or added during the examination are not required to be addressed in the DCI or input into IMS. Additionally, tax adjustments in NRP key cases may result in exam expansion to other tax periods. Only key case fuel abstracts are included in the DCI.
Examiners should be aware of the research nature of an NRP study, which requires the examiner to address all fuel abstracts and reported or identified non-zero Schedule C claims, of the NRP key case, regardless of materiality.
The primary Form 720, Quarterly Federal Excise Tax Return, will be established on AIMS by the NRP group. This is designated as the NRP key case.
Exam expansion to subsequent or prior quarters, in the NRP study tax year, will be established by the examiner using Form 5345-D, Examination Request- Examination Returns Control System (ERCS).
The NRP key case file must include related entity examination information. The documentation should narrate the facts and analysis for the exam determination. Note: Related return examinations are not NRP sample returns, therefore not subject to NRP Guidelines. The exam scope of a related entity is determined through normal excise tax IRM procedures.
Copies of prior and subsequent periods in the NRP tax year will be inspected. Expand the exam to all periods of the NRP tax year for recurring issues or other large, unusual or questionable items.
Fuel Excise tax related returns can be in different forms:
Legal form (Corporation, LLC)
Transactional (Two-party exchanges, fuel credit claims)
Examiners should consider all relational aspects in the identification of related returns and corresponding examinations.
It may not be possible to determine an entity’s level of compliance without full consideration of the entity’s financial interests in, and relationships with, related entities and individuals. This is especially true of entities where the owners:
Are actively involved in the business operations
Have significant influence over business decisions
Have access to business assets (including cash)
Lack competing interests with other owners
Can divert business assets (including cash) without detection
Show ownership of a foreign entity, offshore relationship, or foreign bank account
Are involved in complex transactions
Have IRC Section 482 issues (allocation of income, deductions, etc.)
During the course of the examination, you may encounter issues outside of the Fuel Excise tax scope. In these instances a referral should be made to appropriate business unit division.
All referrals should be made according to existing examination guidelines. When making a referral notate Form 5346, Examination Information Report with t he following NRP code identifiers: source code 91, project code 1094 and tracking code 6441 for TY2012 NRP key cases or tracking code 6442 for TY2013 NRP key cases.
A electronic copy of Form 5346 must be placed in the Issue Management System (IMS) case file.
Required filing checks must be conducted on NRP examinations. Examiners will determine the level of required filing compliance during NRP exams. Examiners should analyze the filing history as part of the pre-audit analysis, and then determine the level of compliance during the audit phase. The analysis of the business operation and transactions will identify required returns. Compare returns required to be filed to the taxpayer’s filing history. Document your findings in the case file.
IRM, Section 22.214.171.124.3 -Required Filing Checks, Assessing Audit Potential: Area of Expertise, provides the following required filing check instructions:
Examiners are responsible for assessing the audit potential of all returns within their area of expertise. Area of expertise is the area of tax in which the examiner has been formally trained. If it is determined that additional returns require examination, the examiner is responsible for expanding the audit to include those returns, unless otherwise instructed by management. Examiners should verify that these returns are not currently under examination, before opening as part of their audit.
For returns outside the examiner's area of expertise, examiners should verify filing and consider managerial involvement to determine audit potential. If audit potential exists, examiners should ensure these issues are examined by a specialist or with specialist assistance. Returns may be referred to a specialist using the Specialist Referral System (SRS) or by preparing a manual referral. See IRM 126.96.36.199.5.2.1-Specialist Referral System (Online Referrals), and IRM 188.8.131.52.5.2.2-Manual Referrals for guidance on which process must be used. Additionally, see IRM 184.108.40.206-Examination Information Reports-Form 5346 for guidance regarding use of Form 5346 - Examination Information Report. The examiner needs to timely request controls on the related return and open an examination on that entity, if the related entity is deemed worthy of examination. The examiner will follow the procedures outlined in the IRM for collateral examinations, if the related entity is outside the group control.
Examiners must bear in mind the research nature of the NRP examination and use their professional judgment concerning the depth of examination required for any particular item on the tax return. However, the overall depth of the examination remains the same as a regular examination.
Examiner’s professional judgment determines the depth of the examination for each examined issue. The depth of an NRP examination is the same used in regular audits. Therefore, NRP taxpayers are not held to a higher standard or more in-depth audit procedures. Scanned copies of documents should only be included in the case file as necessary.
Issues should only be pursued to the depth necessary to reach a supportable conclusion.
NRP examination results are tax gap information components, therefore all adjustments, regardless of amount, must be reflected in the case file.
Adjustments should identify actual error patterns, stand on merit, and be free of any examiner bias or judgmental errors.
The DCI must reflect ALL adjustments regardless of the report issued to the taxpayer. Materiality is never a consideration for the completion of DCI.
The examination report should be prepared according to existing examination guidelines.
Disposal code 01 is used if there are any de minimis adjustments recorded on the DCI, but a no-change report is issued to the taxpayer.
Disposal code 02 is only used for valid no-change cases.
IRM 220.127.116.11.2-Evaluation of Books and Records underscores the following points:
Evidence proves facts. The research nature of an NRP study hinges on the care exercised by examiners in the identification, evaluation, and collection of evidence.
Documentary evidence strengthens an NRP examination. Contemporaneous records typically portray an event more accurately. The inspection of books of original entry, invoices, bank statements, cancelled checks, and other source documents verify financial reporting accuracy.
Absent contemporaneous books and records, secondary written records (e.g., third party copies of original documents) or other reconstructed records, if credible, are to be used.
Taxpayer verbal testimony is direct evidence and must be considered. The degree of taxpayer verbal testimony reliability is based on credibility and surrounding circumstantial evidence.
Verbal testimony by someone, other than the taxpayer, with first-hand knowledge of the facts and circumstances should be considered.
The steps employed to obtain and evaluate evidence should be documented in the case file.
IRM 18.104.22.168-Evaluating Evidence, should be followed in making NRP examination determinations.
Case file lead sheets must be prepared in IMS. This requirement exists so reviewers of the case files such as the Government Accountability Office (GAO), EQ/NQ, Research Analysis and Statistics - NRP Office, IRS Office of Appeals and Tax Inspector General for Tax Administration (TIGTA) can determine facts, procedures and conclusions when the physical case file is not available. Audit procedures and conclusions for each item audited must be supported by written comments in the workpapers.
All lead sheets must be prepared electronically and completed within IMS
The NRP Data Capture Instrument (DCI) is an exam workpaper. The DCI will be discussed in the IMS and Data Capture Instruments training
Mandatory excise tax case file lead sheets must be completed for NRP cases. In addition, prepared workpapers (e.g., spreadsheets, etc.) must be included in IMS
Examination lead sheets and workpapers must include the following:
Audit procedures and conclusions. Exam actions must be supported by workpaper written comments. This ensures accurate and complete NRP statistical data has been gathered
Examiners must fully describe audit techniques used to verify excise tax issues
Workpapers must accurately reflect the exam process and provide an audit trail in the determination and resolution of Fuel Excise tax issues
Document Activity Record
Notate all inspected reports, ledgers, source documents, etc.
Document verbal testimony and third party contacts
Present workpaper calculations in a clear, concise, manner
The NRP Fuel Excise Tax study uses the same lead sheets as provided in the IMS Notebook. Additional study information is captured on a Data Capture Instrument (DCI). The DCI is an Excel spreadsheet included in the case building material.
A lead sheet entry such as "See Attached" is not acceptable unless you have titled, indexed, and attached the workpaper file in IMS
Issue workpapers should be named in a manner that makes them easy to identify and provides clear association with the issue
IRM 4.10.9 provides pertinent information regarding issue lead sheets and supporting workpapers
Examiners are required to use the DCI. Lead sheets must contain the adjustment amount, facts, audit procedures and conclusion
Examiners must use Fuel Excise tax summary lead sheets for issues established on IMS. All other abstracts require a brief comment in the DCI
All applicable lead sheets must be completed. The examiner is expected to complete the lead sheets and workpapers contemporaneously
All workpapers must be prepared in IMS
Often additional information is received from the taxpayer and the examiner should remember to revisit the items previously checked and make any corrections.
Checking the box does not alleviate the examiner from creating workpapers or making comments when appropriate. Checking a box is not a short cut for doing an audit step. The work performed to reach a decision must be shown, typically on subsidiary workpapers.
The following are workpaper reminders applicable to NRP exams:
The examiner lead sheets are required to be used in each entity case file according to existing examination guidelines.
The Group Manager Concurrence Meeting Check Sheet is mandatory for GS-12 levels and below. The concurrence meeting should be held within 30 business days of the initial appointment.
Risk analysis tools are not used to limit the scope of the NRP key year. The research nature of the examination and the resulting correct tax liability is the overriding factor. The risk analysis lead sheet should be included in the key case file whenever a prior or subsequent year or related return is picked up for examination.
Due to the research nature of NRP Fuel Excise Tax examinations, de minimis adjustments must be recorded in the DCI on all NRP examinations.
To ensure complete data capture, examiners must record all adjustments in the DCI. IMS and Notebook adjustments are entered according to existing examination guidelines.
For NRP purposes, if adjustments are recorded on the DCI file, but the total tax due for the NRP year is below the tolerance, the correct examination disposal code is 01, no change with de minimus adjustment(s).
Disposal code 02 – No Change, is only applicable to valid no-change cases.
De minimis procedures apply only to the NRP key cases. Normal examination procedures should be followed when making adjustments to any prior/subsequent year return or related return.
Examiners should follow regular examination guidelines when determining if specialists are needed on NRP returns.
Specialist Referral System (SRS) is used to request computer audit specialists and international agents. Other types of specialists may be engineers, economists and evaluation specialists. These specialists should be viewed as assets for completion of NRP cases.
https://srs.web.irs.gov/ - This link provides you with the ability to request formal or informal assistance. Indicate "Fuel Excise NRP" in the narrative when requesting a specialist through SRS.
http://LB&I.irs.gov/TAHome.asp - This web site provides you with a list of LB&I technical advisors and industry specialists. The examiner to whom the NRP return is assigned will be relieved of responsibility for certain issues assumed by specialists but will NOT be relieved of the responsibility for the timely completion of the examination, if specialists are assigned to a case.
The Exam Specialization Program has been developed to:
Increase examiner level of expertise
Obtain required knowledge to develop examination guidelines specific to the business environment; and
Develop clear and efficient market segment compliance strategies
Examination specialists, subject matter experts, and technical advisers have a working knowledge of the market segments they have studied. Audit Technique Guides,http://www.irs.gov/businesses/small/article/0,,id=108149,00.html. are available to assist examiners in the most efficient approach to audit each issue on the NRP case.
Examiners are required to consider applicable penalties before concluding an audit. NRP examination penalty guidelines include:
Examiners are required to consider the application of appropriate penalties before the conclusion of every audit. Examiners should follow normal audit procedures
IRM 20.1-Penalty Handbook and IRM 4.10.6-Penalty Considerations are excellent penalty references
The Penalty Approval Lead Sheet (E500) must be completed for all NRP tax cases
Do not compromise adjustments to secure an agreement in NRP examinations. The following are guidelines for unagreed and partially agreed NRP examinations:
Examiners should follow local procedures for all unagreed and partially agreed examinations. All adjustments must be recorded in the DCI.
Reports are prepared in IMS using the Notebook calculation tool.
Collectability of deficiencies will not be a consideration in conducting NRP examinations.
Data is paramount.
The data collected from NRP examinations will be used to measure the tax gap associated with Fuel Excise taxes, improve workload selection models, increase taxpayer assistance efforts and allow the IRS to focus its limited resources.
There are many information resources available for NRP:
NRP course material
Publications, forms, and instructions
IRMs, including NRP IRM 4.22
Audit Technique Guides (ATGs)
Exam Specialization and Technical Guidance
SB/SE Excise Tax website: http://mysbse.web.irs.gov/Specialty/excise/default.aspx
Other research materials include:
Accurint research results
Department of Motor Vehicle (DMV)
Online county assessor’s offices
CCH, Lexis-Nexis, Westlaw
Google and various other search engines
NRP returns may be removed from the sample, under certain circumstances. All requests for exclusion must be approved by both the BOD NRP Coordinators and NRP Program Manager. Approval of a request will be contingent upon clear and convincing evidence that the return qualifies for exclusion.
For the qualifications for exclusions see IRM 22.214.171.124.6 - Exclusions. The IRM outlines the request procedures.
The group manager approves an examiner’s Fuel Excise tax exclusion request. To request the exclusion of a key case return, submit a completed Form 4981, NRP Exclusion Request. If additional information is needed to complete Form 4981, attach a memorandum to the form.
For cases that meet exclusion criteria, the examiner completes Items 1, 2, 3, 4, and 6 of Form 4981-NRP Exclusion Request.
For example, if a request is made because the taxpayer could not be located, list the steps taken to locate the taxpayer. The Form 4981 is forwarded to the Fuel Excise Tax NRP Coordinator along with any supporting documentation. A copy of Form 4981 is retained at the group level.
Form 4981 entries shall include:
For Box 1 – TIN, Name, and NRP Sample Code (Case Number) needs to be completed
For Box 2 – SBSE
For Box 3 – Group Number
For Box 4 – Write Fuel Excise Tax-20 _(applicable year)
For Box 6 – Document reason for exclusion. Provide sufficient information to ensure a timely determination
The Fuel Excise Tax NRP Coordinator will review the facts and circumstances to determine if the criteria for exclusion have been met. If the coordinator determines the criteria are met, the information will be sent to the NRP Program Manager for a decision. The excise tax return remains part of the study until the examiner is notified by the coordinator that a permanent exclusion has been approved. The final approval will be made by the NRP Program Manager.
If a permanent exclusion is approved, the examiner will delete all reference to NRP in the case file and on the return. The return is then processed under normal examination procedures.
NRP Fuel Excise tax returns may occasionally need to be transferred. These returns should be identified as early as possible to ensure that the examination is timely completed. This will occur if:
A taxpayer moved after the return was filed
The books and records are located in another area
The place of business is located in another area
The Service finds it necessary for its convenience
Transfers should be completed as quickly as possible to assist the receiving group, taxpayer, and other stakeholders.
The transfer must be coordinated through the Fuel Excise NRP Coordinator to monitor control record updates. The coordinator will establish local procedures, with appropriate management approval, for expediting transfers both into and out of the area, territory, or group. The transfer must be recorded on AIMS/ERCS and IMS.
The examiner and group manager play key roles in the quality review process. The NRP quality review process is designed to ensure exams are complete and accurate. Quality begins with the examiner.
Examiners must meet the quality audit standards described in IRM 126.96.36.199.1−Attributes. To ensure that the additional NRP requirements are met, NRP Fuel Excise Tax (FET) examinations require the completion of an examiner case closing check sheet. This check sheet is included in the NRP fuel excise tax exam case file building material.
Group managers ensure that examiners meet IRM auditing standards. Evaluative examination reviews are completed in accordance with general business unit operational guidelines, described in IRM 4.24.7−Excise Embedded Quality Review System (EQRS) and Excise National Quality Review System (NQRS). NRP specific examination procedures are not a component of the review evaluation; however, group managers ensure that examiners meet NRP IRM guidelines.
Group managers are responsible to prioritize and oversee the NRP examination case process to ensure accurate and timely completion of each NRP case.
To assure high quality NRP exams, the in-process review is critical. NRP audit guidelines require at least one in-process review per examiner within 60 days following assignment, preferably after the group manager concurrence meeting. The purpose of the review is to provide meaningful and timely feedback to the Revenue Agent or Fuel Compliance Agent conducting the exam. The group manager should share any trends, concerns, or material information identified during a case review with the NRP Coordinator.
Group managers complete a non-evaluative, NRP Fuel Excise Tax Group Manager Closed Case Review Checksheet for all NRP examinations. This on-line check sheet is completed after the examiner closes the case for group manager review to ensure that NRP examination standards and guidelines have been met. Upon completion, the group manager submits the form electronically by selecting the save button at the top of the check sheet.
By checking "yes" on the check sheet, the manager is indicating that the issue was properly completed by the examiner. If "yes" cannot be checked for any reason, the case should be returned to the examiner for clarification or correction.
The NRP Fuel Excise Tax Group Manager Closed Case Review Checksheet focuses on the following areas:
Adherence to NRP examination guidelines
Proper and timely exam actions
Complete case file workpapers in IMS and Notebook
Adequate inspection, documentation, and resolution of examination issues
Address all fuel abstracts and reported non-zero or identified Schedule C claims in the data capture instrument (DCI)
Accurate case closing data
Complete, accurate, and validated DCI
Completion of examiner case closing check sheet
Upon completing the case review and NRP Fuel Excise Tax (FET) Group Manager Closed Case Review Checksheet, the group manager updates the case status to 41 and notifies the NRP FET Case Coordinator that the case is available for review on IMS.
Excise Tax Program will monitor NRP exam quality standards and, if necessary, will implement supplemental targeted NRP case management reviews.
When the NRP FET Case Coordinator completes his or her review, they will update the case to the appropriate status, remove the NRP freeze code, and alert the group manager to transmit the physical case to complete the case processing.
The NRP Quality Review Team consists of headquarters analysts and other members having technical expertise essential for project management, case management, and exam case quality review. The review team objective is to identify case quality issues, benchmark exam scope levels, and determine technical issue accuracy. NRP Review Team reviews are non-evaluative.
The NRP Quality Review Team will complete a sample of not less than 5% closed case reviews. The results of these reviews are provided to upper management.
The reviews generally begin six months after the initial delivery of NRP cases. The NRP Quality Review Team will be responsible for developing the sample methodology. Any selection method providing a broad representation of cases is acceptable.
The closed case reviews will cover SB/SE Specialty Tax QMS attributes and data accuracy.