4.23.3  Classification, Selection and Assignment of Employment Tax Cases

Manual Transmittal

July 19, 2013


(1) This transmits a revision to the Table of Contents and text for IRM 4.23.3, Employment Tax, Classification, Selection, and Assignment of Employment Tax Cases.


Updates are made to this chapter for procedural and technical changes and to incorporate Interim Guidance Memo SBSE-04-0712-066, Interim Guidance - Suspicious Activity Reports in Title 26 Cases.

Material Changes

(1) Editorial and technical changes have been made throughout this Section.

(2) IRM Link to mandatory referral criteria in the SRS system provided.

(3) IRM Clarification on case-building and classification.

(4) IRM Changed to "If the income tax audit is in status 10 - 18, the case should be non-selected."

(5) IRM Classification instructions revised.

(6) IRM Removed reference to advanced earned income credit due to repeal effective 12/31/2010.

(7) IRM Deleted.

(8) IRM Clarified by deleting that examiners will be applying criteria.

(9) IRM LB&I will no longer monitor their own CSP agreements.

(10) IRM Added information on VCSP monitoring.

(11) IRM Deleted Mandatory Compliance Follow-Up Reviews on Voluntary Tip Agreements. This discussion is now in IRM, Mandatory Compliance Follow-Up Reviews on Voluntary Tip Agreements.

(12) IRM Former IRM Expanded on CIP definition.

(13) IRM Deleted, as these are described in IRM

(14) IRM Former IRM Deleted (4), as referrals are not handled at the group level.

(15) IRM New section, Currency Banking Retrieval System (CBRS) information (Currency Transaction Reports and Suspicious Activity Reports). Incorporates IGM SBSE-04-0712-066.

(16) IRM New section, Unreported Tip Income.

(17) IRM Title changed to Planning and Selection Criteria for Large Cases, to reflect the new employment tax organizational structure.

(18) IRM Deleted as duplicate.

(19) IRM Updated information on the CAP program.

(20) IRM Clarified (1).

(21) IRM Added caution on compliance checks: "However, care must be exercised to prevent examining the taxpayer under the guise of a compliance check to avoid infringing on taxpayer rights and to also avoid establishing a Section 530 safe haven."

(22) IRM Note. Added reference to IRM, Mandatory Compliance Follow up Reviews on Voluntary Tip Agreements.

(23) IRM Added additional detail on compliance checks from former IRM

(24) IRM Added language regarding disclosure during taxpayer contact.

(25) IRM Moved old IRM, Initial Contact With Taxpayers, to new IRM New chapter entitled Employment Tax Examination Procedures, formerly IRM

(26) IRM Deleted. New IRM All subsequent sections from IRM renumbered.

(27) IRM Formerly IRM Title changed to Required Filing Checks For Non-Employment Tax Cases. This section is for non-employment tax groups.

(28) IRM Additional guidance on SRS and for referrals to SET-CWSD.

(29) IRM Formerly IRM

(30) IRM Formerly IRM (3) and (4) revised to incorporate the LB&I transition and return control procedures.

(31) IRM Project and tracking code guidance.

(32) IRM Former IRM

(33) IRM New paragraph on TCO case classification.

(34) IRM New paragraph on required return procedures.

(35) IRM Formerly IRM Expanded (1) to introduce both appointment letters, L3850 and L3850-T.

(36) IRM Formerly IRM, Initial Contact With Taxpayers. Moved (1) to IRM

(37) IRM Added language regarding disclosure during taxpayer contact.

(38) IRM New paragraph expanding on the initial interview.

(39) IRM Formerly IRM

(40) IRM Added note that taxpayers have no right to make a video recording, and it is IRS policy to not allow video recordings.

(41) IRM Definition of TAS refined.

(42) IRM Clarification on "same day" definition.

(43) IRM Formerly IRM (3) Clarification on POA/TIA submission.

(44) IRM Clarification on the revocation and withdrawal of representation.

(45) IRM Formerly IRM

(46) IRM Formerly IRM

(47) IRM Formerly IRM Changed title to Examination Control Updates. Detailed instructions on inputting examination updates.

(48) IRM Formerly IRM

(49) IRM Formerly IRM

(50) IRM through IRM 4.23.811. Deleted and moved to various new sections of IRM All subsequent sections from IRM renumbered.

Effect on Other Documents

This material supersedes IRM 4.23.3, dated January 25, 2011. This section also incorporates Interim Guidance Memo SBSE-04-0712-066, Interim Guidance - Suspicious Activity Reports in Title 26 Cases, issued July 13, 2012.


This section contains instructions and guidelines for all LB&I, TE/GE, and SB/SE employees when dealing with employment tax issues.

Effective Date


John H. Imhoff, Jr.
Director, Specialty Programs
Small Business/ Self-Employed Division  (01-25-2011)

  1. This section provides the guidelines for the classification, selection, and assignment of employment tax returns for examination.

  2. Employment tax returns generally do not contain information that would provide a basis for classifying returns for examination potential. Selection of returns is based on known or probable areas of non-compliance. Therefore, alternative classification techniques and criteria are used to identify those issues or returns that have the greatest potential.

  3. The Employment Tax Examination Program is a lead-driven program. Examinations can originate from a variety of sources, some of which are listed in this section.  (07-19-2013)
Identifying SB/SE Employment Tax Examinations

  1. SB/SE Employment Tax Headquarters has primary responsibility for workload identification. However, field examiners must be continuously aware of new developments, rulings, and decisions affecting industries within their jurisdictions. Field Exam is responsible for forwarding suggestions for Preparer Projects, Compliance Initiative Projects (CIPs) and partnering opportunities.

  2. There are various sources that assist in detecting those taxpayers who are not complying with the employment tax laws. These sources include:

    1. Internal Revenue Service employees who are in constant contact with taxpayers and are aware of possible non-compliance. (Employment tax managers and examiners should solicit referrals from Collection, Taxpayer Assistance Centers, Criminal Investigation, Examination, ACS call sites, and Campuses.)

    2. Other federal and state government agencies (Social Security Administration, Department of Labor, State Departments of Unemployment, etc.)

    3. Locally developed lead sources, market segment studies and compliance initiatives.

  3. Strong emphasis is placed on the required filing check program. Thus, during an examination of an income tax, excise tax, or exempt organization return, the examiner will inspect retained copies of employment tax returns (verifying filing through IDRS where appropriate) and, based on available information, will decide if an examination of employment tax returns is warranted. If warranted, the employment tax examination will be conducted concurrently.

  4. Related return information must be considered when determining examination potential for employment tax returns. This will include a review of the related income tax returns and in the case of large corporations or publicly traded companies, a complete review of their financial statements will be necessary. Information may also be gained from news articles, company publications, and internet searches, such as Securities and Exchange Commission (SEC) filings and company web-sites.

  5. All income tax cases selected for examination under the LB&I Program should include consideration of employment tax potential. Refer to this site for a listing of mandatory referrals in the Specialist Referral System: https://srs.web.irs.gov/help/MandatoryInfo.aspx. Where employment tax issues or returns are identified as warranting examination, an employment tax specialist will prepare the employment tax portion of the examination plan.

  6. The request for a specialist is made using the Specialist Referral System located at: https://srs.web.irs.gov/. This system can be used by any employee, regardless of operating division. In addition to requesting referrals, the system may be used to submit informal questions.

  7. The assistance of employment tax specialists may be sought whether or not the team audit concept is being employed in the particular case.

  8. The employment tax program may receive referrals from Criminal Investigation. These lead cases should be worked with continual awareness of fraud potential. If indications of fraud are developed in the course of case lead development or during the examination, the case should be submitted to the Criminal Investigation Division for consideration.  (07-19-2013)
Planning and Selection Criteria for SB/SE

  1. In SB/SE, classification and selection of employment tax returns for examination is the responsibility of the Specialty Employment Tax Centralized Workload Selection and Delivery (SET-CWSD) Unit. Specialty classification and selection will be accomplished by Specialty employment tax Campus classification personnel supplemented by classification details using field staff.

  2. Classification is responsible for the initial review of leads to determine employment tax audit potential. Generally leads to be classified have been identified as part of a project, identified workstream or referral. In most situations, the case file will be pre-built with IDRS research, a classification sheet, and any other data deemed appropriate. Generally, the minimum IDRS that should be checked is:

    1. INOLES,

    2. BMFOLU,

    3. BMFOLZ,

    4. BMFOLI,

    5. PMFOLS, and

    6. AMDISA.

    Additional research specific to an individual project also may be needed. This may include additional IDRS codes, Accurint, CBRS, etc.

  3. All employment tax projects and workstreams are designed to identify cases with high potential for audit. This identification is generally done via automation, including the sorting and filtering of data in a database. Classifiers should understand that in many instances, they are the first person to manually review the selected files. The classifiers’ primary function is to use their expertise to eliminate cases for reasons as explained below:

    1. Out of business: Review BMFOLI. If returns have recently posted or deposits recently made, this may indicate an ongoing business. The classifier also may check Internet resources such as Google for company website or sites such as Yellowpages.com for current phone listings. If information from the internet indicates the taxpayer is still in business, a print of the website information should be included in the file. If the taxpayer appears to be out of business, the case should be rejected.

    2. CID activity: A "Z" freeze on the account indicates CID is involved in the case and it should be rejected.

    3. Bankruptcy: A "V" freeze on the account indicates the taxpayer is in bankruptcy and the case should be rejected.

    4. Examination: An "L" freeze on the account indicates there may be an open audit. The classifier should check the status of the exam by securing a current AMDISA. If there is an income tax audit with status 06 or 08, the case can be selected. If the income tax audit is in status 10 through 18, the case should be non-selected.

    5. Collection: If the case is generated from a project designed to identify non-filers (i.e. CAWR) and the case is currently assigned to a Collection employee, the case should not be selected. If the case is in the queue but not assigned to a particular person, it may be selected.

  4. Classifiers will review every lead for audit potential. Those selected will be controlled on ERCS in status 08 and will differentiate between cases selected for Field vs. Office exam based on Exam Group Code (EGC) assignment (i.e. 1XXX EGC is Field; 2XXX EGC is Office). Issues identified during classification will be noted in the case file along with instructions to the Campus for establishing controls. Those selected for Office exam will be assigned to Tax Compliance Officer (TCO) groups located in Employment Tax. These cases will generally have a limited amount of identified issues and will be conducive to remote audit procedures rather than face to face examinations.

  5. The following subsections are examples of the types of work classified and selected by the Specialty Employment Tax Centralized Workload Selection and Delivery (SET-CWSD) Unit.  (07-19-2013)
Combined Annual Wage Report (CAWR)

  1. The purpose of the IRS CAWR program is to ensure that employers paid the proper amount of taxes by comparing the Forms W–3/W–2/W–3c/W–2c totals and the Form 1099–R and Form W–2G withholding amounts to the amounts reported on the employment tax returns.

  2. Employers filing Form W–2 but no Form 941 may be non-filers. Employers consistently out of balance between Form W–2 and Form 941, coupled with other employment tax audit potential indicators, may have increased audit potential.

  3. See IRM 4.19.4, Liability Determination - CAWR Reconciliation Balancing, for additional information on CAWR notices.  (01-25-2011)
CP2100 Backup Withholding (BWH) "B" Notice Report

  1. The BWH program provides "B" notices to payers who file information returns with incorrect Taxpayer Identification Numbers (TINs). The "B" notice (CP2100) advises payers that backup withholding could become necessary if payees fail to certify their TIN. The CP2100 Notice also lists accounts with missing TINs, on which the payer should have been backup withholding under IRC 3406(a)(1)(A). Payers with missing or obviously incorrect TIN accounts should not wait to receive a CP2100 to begin backup withholding. The BWH program includes Forms 1099-B, 1099–DIV, 1099–INT, 1099–MISC, 1099–OID, and 1099–PATR information returns.

  2. Payers with payees receiving Form 1099–MISC with missing or obviously incorrect TINs have the highest audit potential. Backup withholding should have been taken upon payment of qualifying amounts.

  3. See IRM 5.19.3, Backup Withholding Program, and IRM, Special Notice Review Procedures for Notice 972CG, for additional information on CP2100 notices.  (07-19-2013)
Employer Tax Employee Project (ETEP)

  1. This project is an extract of employers issuing Form 1099–MISC to workers.

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  2. A worker receiving Form 1099–MISC from only one payer with no other income may be an employee and not an independent contractor. If the report indicates that the employer has other workers that are employees, this may indicate inconsistent treatment of workers performing the same job and indicate a worker classification issue.  (01-25-2011)
SS-8 Worker Classification Follow-up

  1. Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, is the form used by a business or worker to request a determination or ruling letter regarding a worker's federal employment tax status.

  2. Referrals from the SS-8 Unit are made to Specialty Employment Tax CWSD (SET-CWSD) for classification and follow-up.  (07-19-2013)
Classification Settlement Program (CSP) Follow-up

  1. The Classification Settlement Program (CSP) establishes procedures that allow businesses and tax examiners to resolve worker classification cases as early in the administrative process as possible, thereby reducing taxpayer burden. The procedures also ensure that the taxpayer relief provisions under section 530 of the Revenue Act of 1978 are properly applied. Under the CSP, Internal Revenue Service (IRS) examiners are able to offer businesses under examination a worker classification settlement using a standard closing agreement.

  2. CSP monitoring and follow-up activities will be centralized in the Specialty Employment Tax Centralized Workload Selection and Delivery Unit (SET-CWSD) for agreements secured in SB/SE and Appeals. TE/GE will monitor its own agreements. Since the CSP closing agreement includes a provision that the taxpayer complies prospectively, CFOL command codes will be researched to ensure that taxpayers are in compliance with the CSP closing agreements. See IRM, Monitoring CSP Agreements.

  3. Taxpayers not in compliance may have high worker classification audit potential. See IRM 4.23.6, Employment Tax - Classification Settlement Program (CSP), for additional information.

  4. Voluntary Classification Settlement Program (VCSP) monitoring and follow-up activities for SBSE and LB&I will be centralized in the Specialty Employment Tax Centralized Workload Selection and Delivery Unit (SET-CWSD). TE/GE will monitor its own agreements. Because the VCSP closing agreement includes a provision that requires the taxpayer to comply prospectively, CFOL command codes will be researched to ensure that taxpayers are in compliance with the VCSP closing agreements.  (07-19-2013)
Compliance Initiative Projects (CIP)

  1. Some lead-driven initiatives require an approved Compliance Initiative Project (CIP) in order to proceed. CIPs involve groups of taxpayers that have unique employment tax compliance issues needing to be addressed. All employment tax specialists are encouraged to identify areas where CIP procedures can assist in identifying employment tax non-compliance. When found, contact Employment Tax Policy to discuss the issues and determine if development of a CIP is appropriate

  2. CIP procedures are not required in the case of "routine business operations," as defined in IRM, Activities Not Subject to CIP Procedures.

  3. The criteria mentioned in IRM, Compliance Initiative Projects (CIP), must be used to determine when CIP procedures apply for Employment Tax projects.  (07-19-2013)
Employment Tax Leads

  1. Group managers responsible for the employment tax program will receive all Specialist Referral System (SRS) referrals for their areas of coverage. The group managers will ensure that the referrals are given appropriate consideration, consistent with available staffing and resources. Compliance efforts and follow-up actions will be determined in accordance with resource availability. If the receiving group manager cannot work the case due to resource issues, consideration must be given to transferring the case to a different employment tax group to work. Tax non-compliance levels and geographic area should be considered when determining if a transfer is warranted.

  2. Specialty Employment Tax CWSD (SET-CWSD) will establish a consistent process for evaluating all other leads for examination potential and priority. To ensure there is consistency in lead evaluation, available internal information will be considered. Several Corporate Files On Line (CFOL) command codes should be utilized to determine lead potential and priority. These include the following:

    1. AMDIS — Lists current examination status. If an examination is in process in another group, forward the information to the group controlling the examination.

    2. BRTVU/RTVUE — Provides transcribed views of original BMF and IMF tax returns and schedules. These can frequently be used in place of an original return. However, original returns may be requested for inspection, when needed.

    3. PMFOL — Provides summary of Forms 1099/1096 data.

    4. BMFOL/IMFOL — Provides on-line research of nationwide entity and tax data information. When used with Definer Code "Z," it shows prior audit history information. When used with Definer Code "U," consolidated annual Forms 941 and W-2 information is displayed. When used with Definer Code "I" , it shows a complete filing history, freeze codes, and any outstanding liabilities owed by the taxpayer.

  3. In determining the priority of a lead, the following factors should be considered, including, but not limited to:

    1. The CFOL information described above,

    2. The size of the entity,

    3. The number of employees on payroll,

    4. The potential number of reclassified employees,

    5. The taxpayer’s current compliance level,

    6. The industry involved,

    7. The materiality of potential adjustments, and

    8. The complexity of the issues.

  4. If it becomes apparent that a lead will not be assigned for examination because of its low priority or other business reasons, it will be closed (rejected).

  5. Exhibit 4.23.3–1, Guidelines for Evaluation of Referrals, contains further guidance for evaluation of referrals.  (07-19-2013)
Currency Banking Retrieval System (CBRS) information (Currency Transaction Reports and Suspicious Activity Reports)

  1. This guidance is specific to SB/SE Employment Tax (ET) employees authorized to electronically access SAR information or receive SAR data in connection with active and assigned cases, including those assigned to case-building functions.

  2. Authorized Employment Tax employees include selected Employment Tax Specialists, Senior Policy Analysts, Managers, and Classifiers.

  3. Use of the SARS information will be limited to examiners with prior experience working CBRS cases. These examiners will serve as resources to other ET examiners throughout the country who may encounter a need for SARS information to develop their cases.

  4. SAR information must be treated with the same security as information received from a confidential informant, and is subject to both Title 31 restrictions and Title 26 restrictions (IRC 6103). No SAR information, including the existence of a SAR, can be disclosed in the course of any compliance activity to the filer of the SAR, the subject of the SAR, or to any party outside the IRS without prior consultation with the Bank Secrecy Act (BSA) Liaison to the Financial Crimes Enforcement Network (FinCEN). FinCEN may allow sharing of SAR information only in special circumstances.

  5. Requesting SAR information – The following procedures must be followed when requesting SAR information:

    1. The examiner must complete Form 10509-A, Suspicious Activity Report (SAR) Document Request, electronically and forward the form via encrypted email to his/her manager. The request may contain multiple taxpayers.

    2. The manager should indicate approval of the request only after confirming association with an active, assigned case, and forward the approved request by encrypted email to the ET SAR Gatekeeper.

    3. The gatekeeper will access Web-CBRS:
      - If no SARs are found, the examiner will be notified via encrypted email.
      - If SARs are found, the gatekeeper will send the SAR information to the requester using encrypted email - after verifying that the examiner has completed the required training noted above.

    4. The ET SAR Gatekeeper(s) will maintain the electronic requests for a period of one year or until an audit trail review covering the time-frame for those requests is completed, whichever occurs later. For more information, see IRM, Access to SARS for Tax Purposes.


      Examiners should also contact a Fraud Technical Advisor if potential fraud indicators are identified.  (07-19-2013)
Unreported Tip Income

  1. Cases are classified when a return has been identified to have low or zero tip wages reported on its Form 941 and tipping is customary for this particular employer.

  2. A tip examination is warranted on tipped entities, including food and beverage establishments, if an analysis of tip reporting by the entity indicates a significant amount of unreported tips. The analysis for a tip examination may include, but is not limited to, the type and size of the business, the historical tip reporting by the entity, and the Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips, data available.  (07-19-2013)
Planning and Selection Criteria for Large Cases

  1. Generally, the selection of an LB&I employment tax return for examination is initiated from a referral generated at the start of a related income tax examination. The referral may be a result of a mandatory function or based on a specific or identified concern made by the agent or manager making the referral. Once the referral is made, it is the responsibility of the employment tax manager and agent to make an evaluation of the examination potential. The following information should be considered when evaluating the examination potential of the examination.

  2. During the pre-planning phase, the employment tax specialist should perform a study of available information. A pre-examination analysis should include consideration of related tax and information returns. The examiner should utilize CFOL (Corporate Files On-Line), which includes:

    1. BMFOL

    2. BRTVU

    3. IMFOL

    4. INOLE

    5. IRPTR and

    6. PMFOL

    to obtain information to determine whether employment and information returns have been timely filed. A review of the financial statements, disclosure statements, and current news articles involving the taxpayer should be reviewed in order to properly identify examination potential. Internet searches of the taxpayer’s website and SEC filings of publicly traded companies can provide information about wages and benefits.  (07-19-2013)
Compliance Assurance Process (CAP)

  1. The Internal Revenue Service announced on March 31, 2011, that the six-year-old Compliance Assurance Process (CAP) pilot program for large corporate taxpayers would become permanent, effective immediately. The CAP is a method of identifying and resolving tax issues through open, cooperative, and transparent interaction between the Internal Revenue Service (IRS) and Large Business and International (LB&I) taxpayers prior to the filing of a return. Through the CAP program, the taxpayer should achieve tax certainty sooner and with less administrative burden than conventional examinations. See IRM 4.51.8, Compliance Assurance Process (CAP) Examinations. During the pre-filing stage of CAP, the IRS works with taxpayers using a variety of sources to identify and resolve issues of controversy in "real time."

  2. The review is an integral component of the CAP process. The employment tax agent is responsible for identifying and resolving compliance concerns and employment tax issues during this "real time" process. At the conclusion of the pre-filing stage of CAP, the employment tax agent is required to make a recommendation to the income tax team addressing issues identified, raised and resolved during this examination period. For a complete description of CAP processes and the role of specialists, refer to the CAP website at:

    http://lmsb.irs.gov/hq/pftg/CAP/index.asp  (07-19-2013)
Compliance Checks

  1. In certain situations, employment tax leads may be assigned directly to the examiner to determine if a compliance check should be conducted rather than an examination.

  2. A compliance check is a review conducted under Title 26 of the IRC to determine whether a business owner or individual is adhering to record keeping and information reporting requirements. It does not directly relate to the determination of a tax liability for any particular period.

  3. A compliance check should be considered as an opportunity to educate the taxpayer and encourage compliance. Pub 3114, Compliance Checks, contains additional information on compliance checks and is used as a taxpayer handout.

  4. Compliance checks can be useful tools in certain situations. However, care must be exercised to prevent examining the taxpayer under the guise of a compliance check to avoid infringing on taxpayer rights and to also avoid establishing a Section 530 safe haven.


    Generally, SB/SE Employment Tax does not conduct compliance checks, but uses examinations as the tool to determine adherence to information and reporting requirements. Managerial approval must be secured by an SB/SE examiner to conduct a compliance check. However, see IRM, Mandatory Compliance Follow up Reviews on Voluntary Tip Agreements.  (07-19-2013)
Guidelines for Compliance Checks

  1. A letter or phone call will be used to schedule a compliance check. Examiners must explain to the taxpayer that the appointment is merely a compliance check and does not qualify as an inspection under IRC 7605(b) or as an audit for purposes of Section 530 of the Revenue Act of 1978. This should be followed up by providing the taxpayer with a written notice of the same information. In addition to the Pub 3114, Pub 1, Your Rights as a Taxpayer, and Notice 609, Privacy Act Notice, must be shared with the taxpayer as an enclosure to the compliance check appointment or at the initial review.

  2. Any time we interact with a customer and disclose tax information, we need to be sure we are speaking to the taxpayer in question. For purposes of identification and to prevent unauthorized disclosures of tax information, you must know and document with whom you are speaking including the complete name, title, and the purpose of the call/contact. For further information, see IRM, Required Taxpayer Authentication.

  3. Limit the scope of the check only to IRS documents that have already been voluntarily supplied to the Service. This includes forms that are not actually in our possession (e.g., Form W-4). The taxpayer's books and records should not be requested or examined.

  4. Do not ask how the taxpayer made determinations that a Form W-2 or Form 1099 should be filed. If no form was filed, however, it would be reasonable to ask how much was paid and whether the recipient was incorporated or other questions designed to determine whether or not filing was appropriate.

  5. If the examiner is able to determine the taxpayer is in compliance or is able to bring the taxpayer into compliance at the initial interview without reviewing the books or records or asking common law questions, the examiner may recommend that no examination be conducted. If delinquent returns are submitted to the examiner by the taxpayer, the examiner will follow delinquent return procedures as described in IRM 4.23.12, Employment Tax - Delinquent Return Procedures.

  6. If the examiner cannot determine taxpayer compliance at the initial compliance interview, they will inform the taxpayer that the compliance check is completed and they will be opening a full employment tax exam. At that time, the examiner must follow all established examination procedures.  (07-19-2013)
Employment Tax Examination Procedures

  1. The following procedures are provided to assist examiners in the examination of employment tax returns.  (07-19-2013)
Required Filing Checks For Non-Employment Tax Cases

  1. The group manager should be alert for possible employment tax issues in assigning non-employment tax cases and should, when appropriate, call this to the attention of the examiner for consideration under the required filing checks procedures. See IRM 4.10.5, Required Filing Checks.

  2. The related employment tax returns are not usually associated with the income tax returns or tax-exempt returns classified for examination. Examination of the related returns will ordinarily be made from the taxpayer’s retained copies of such returns or a BRTVU. If an employment tax examination is warranted but the examiner cannot secure needed copies of the returns, the examiner will requisition the originals of those returns for association with the case file.

  3. Collection employees share full compliance check responsibilities. When making a field visit, the revenue officer should determine whether all required employment tax returns were filed and paid. If the revenue officer encounters a situation where it appears that the firm is treating employees as independent contractors or where there are questionable fringe benefits, they will make a referral for LB&I or SB/SE taxpayers to the Specialty Employment Tax Centralized Workload Selection and Delivery Unit (SET-CWSD) in Covington, KY. Referrals for TE/GE should be sent to their respective Classification Area. Refer to the Collection Handbook for further guidance.

  4. When an employment tax specialist is needed to assist the income tax examiner with their employment tax issues on open income tax cases, a referral must be made by the income tax examiner through the Specialist Referral System (SRS). However, if an examiner finds a potential employment tax issue that does not require immediate assistance, a referral should be made to the Specialty Employment Tax Centralized Workload Selection and Delivery Unit (SET-CWSD) in Covington, KY. Referrals will be evaluated for employment tax non-compliance and selected for future exam, if warranted.  (01-25-2011)
Referrals to Employee Plans

  1. The relief provisions under section 530 apply only to the relief of federal employment taxes for the employer. Therefore the worker should be treated as an employee for all other purposes. If an examiner encounters an employer entitled to the relief provisions of Section 530, there is potential that an Employee Plans issue exists and a referral determination should be considered. Exhibit 4.23.3–2, Employee Plans (EP) Referral Checksheet, contains an employee plans referral checksheet.

  2. If a referral to TE/GE – Employee Plans is required as a result of a compliance check or an examination, the examiner will report the findings on Form 3449, Referral Report, and mail to:

    IRS - EP Classification
    McCaslin Industrial Park
    2 Cupania Circle
    Monterey Park, CA 91755–7631  (07-19-2013)
Examination Request Master File, Form 5345-D

  1. As soon as it is determined that an examination will be conducted, the examiner will complete Form 5345-D, Examination Request-ERCS (Examination Returns Control System) Users. A maximum of five tax periods for the same taxpayer may be requested on each Form 5345-D. TE/GE examiners may continue to use Form 5597, TE/GE IMF/BMF/EPMF Request. (Areas with automated inventory controls systems, such as RGS, IMS, and ERCS, should follow locally established procedures for requesting or updating controls.)

  2. Examinations of LB&I coordinated industry cases (CIC) must be annotated on Form 5345-D by placing a "P" in the field that asks if this is an LB&I/CIC case.

  3. Cases originating in classification will have the project and tracking code on the controls prior to receipt in the group. Employment Tax project codes will be determined by the main issue identified during classification. Tracking codes indicate the source of the case. All related tax periods must have the same tracking code as the key case. For cases received directly in the group, such as through the SRS system, project and tracking codes must be determined by using the most current listing available. The most current listing can be found on the Employment Tax Website under PSP Alerts: http://mysbse.web.irs.gov/Specialty/et/guideres/psp/default.aspx.

  4. After obtaining group manager approval, forward the Form 5345-D for terminal input. Retain a copy of each Form 5345-D in the case file.  (07-19-2013)
Scope of Employment Tax Examination

  1. It is recognized that examinations, whether change or no-change, vary in scope. Normally, the examiner is expected:

    1. To conduct the examination to a point where the reported employment tax liability is determined to be substantially correct,

    2. To determine whether information returns and wage statements have been correctly filed, and

    3. To determine whether all applicable Federal returns requirements have been met.

  2. In some cases, the examination will be extensive to properly determine the taxpayer’s employment tax liability and information return compliance. In other cases, examiners will be able to complete the examination after inquiry into only a few items because, in their judgment, to proceed any further with the examination would result in no material change in tax liability.

  3. For Tax Compliance Officers (TCOs) assigned to the employment tax program, the initial scope of the exam will be identified on the classification sheet included in each case assigned. Since TCOs work the majority of their cases via remote audit process, the cases selected for TCO assignment will generally be limited to one or two issues, requiring limited documentation be submitted. Officer Compensation and Non-Filer CAWR cases are the most common issues initially identified for TCO assignment, although certain fringe benefits, back-up withholding, or penalty case file issues may also be conducive to the remote audit process. When possible, the TCO will discuss any proposed changes to the identified issues/scope with their manager before expanding or limiting the audit. When necessary, the case will be referred to a field group to complete the exam.

  4. Employment Tax Specialists are required to control all 4 quarters of Form 941 when an examination covers the entire year. This applies even if the case results in a no-change, as it will more accurately reflect the audit work conducted. Additionally any subsidiary and related employment tax returns must be established if taxpayer records relating to wage payments have been requested from these entities.

  5. In some cases, the examiner may determine that it is appropriate to control less than all four quarters of a year. Examples include claims filed for a certain period or bonuses paid in a certain quarter. Managerial approval should be secured if the examination is to be for less than four quarters.

  6. The examination report will not include any calendar quarters for the current year, unless the taxpayer is no longer in business. Inform the taxpayer to correct any errors for these quarters in accordance with IRC 6205 and the applicable Administrative and Procedural Regulations. For example, if the examination was concluded on November 1, 2010, prepare an examination report for 2008 and 2009 and advise the taxpayer, assuming the same issue existed for 2010, to correct the error for the first three quarters of 2010 in accordance with IRC 6205. This procedure is consistent with Policy Statements 4-4 and 5-133.

  7. Generally, an employment tax examination should not be started for a calendar year until after the last filing date for all employment tax returns of that year. Normally, this is January 31st following the end of the calendar year. If the employment tax is to be computed under IRC 3509, it will be necessary to wait until after the filing date for information returns in order to determine whether the applicable employment tax rate is IRC 3509(a) or IRC 3509(b). These returns are due the last day of February following the end of the calendar year.

  8. Examiners must ensure all required returns, including non-employment tax returns, have been properly filed. If non-filed returns are found (CFOL command BMFOLI will show a complete filing history of the taxpayer) they must be addressed. If the non-filed returns are employment tax, the audit will generally be expanded to include those years as part of the current examination. Other non-filed returns (i.e., income, excise, etc.) will generally be solicited as part of the package audit. If received, the examiner should date stamp the return, review for any LUQ items, and submit the return to the address the taxpayer would normally mail the return if it had been timely filed. If the return is not received, there are badges of fraud that prevent the examiner from making the solicitation, or LUQ items are noticed on the review of a submitted return, then a referral must be completed and forwarded to the SET-CWSD in Covington. SET- CWSD will forward the referrals appropriately. All actions and decisions relating to non-filed returns MUST be fully documented in the case file.

  9. Examiners will expand any employment tax audit to prior and subsequent years where the issue being developed in the exam is recurring or where there appears to be other large, unusual or questionable items (LUQ).

  10. Document any factors used to limit the scope of the examination and the managerial approval of such action.  (07-19-2013)
Scheduling the Appointment

  1. A telephone call or Letter 3850, Employment Tax Appointment Letter, will be used in all instances to schedule an appointment in the field or office for an employment tax interview or compliance check. If the initial appointment is scheduled by telephone, mail an appointment letter to confirm the appointment and summarize the list of records to be made available during the examination. Letter 3850-T , Employment Tax TCO Appointment, will be mailed to the taxpayer to schedule a remote audit, when appropriate.

  2. TCOs in employment tax generally conduct audits using remote audit procedures. Letter 3850-T, Employment Tax TCO Appointment, will be used to schedule this type of audit. This letter may be used by any examiner following the remote audit process.

  3. At all times endeavor to make appointments at a time and/or place that will meet the convenience of the taxpayer and be consistent with Treasury Regulation 301.7605–1 on time and place of examination. For exams not following the remote audit process, efforts should be made to conduct the exam at the taxpayer’s place of business. Field examinations will normally be conducted at the taxpayer’s place of business. Enter a taxpayer’s private premises only when invited in by the rightful occupant. If fraud is a feature or if the interests of the Government may be jeopardized, the convenience of the taxpayer should be considered but need not be regarded as paramount.

  4. Examinations should be conducted at the place where the taxpayer maintains the business operations. However, the examination may be conducted at a place other than the location of the business operation if agreed to by the examiner and the taxpayer or the authorized representative. Once the appointment is made, try to avoid cancelling it.

  5. If the case file indicates that a power of attorney is on file or if a taxpayer or duly authorized representative requests, orally or in writing, that Service notification be made through the representative, the examiner will determine if there is a valid power of attorney on file with the Service and if any restrictions are contained therein.

  6. Publication 1, Your Rights as a Taxpayer, and Notice 609, Privacy Act Notice, must be included with all initial contact letters. If it has not been mailed to the taxpayer in advance of the interview, it will be provided at the initial meeting. Workpapers and the Activity Record should be documented to confirm that Publication 1 was provided to the taxpayer.

  7. Examiners are not authorized to assure taxpayers that their books and records will be used solely for civil purposes. (See the Criminal Investigations Handbook). If a taxpayer insists upon such assurances or gives the examiner a statement that the books and records are only being made available for limited purposes, the examiner shall find out the taxpayer’s reasons for refusing to furnish the records without restriction and then discontinue the examination and report this information to the group manager. The group manager and the examiner should then discuss the matter with the Criminal Investigation function. That office will study any available information on the taxpayer and will advise on further steps to be taken. It may decide that in view of all known factors, including the taxpayer’s refusal to furnish records unconditionally, that there is a possible indication that fraud exists. When appropriate, a referral to the Criminal Investigation function will be made in accordance with procedures in IRM, Referrals to the Criminal Investigation Division. Advice should be sought from Area Counsel when necessary.  (07-19-2013)
Initial Contact With Taxpayers

  1. Any time we interact with a customer and disclose tax information, we need to be sure we are speaking to the taxpayer in question. For purposes of identification and to prevent unauthorized disclosures of tax information, you must know and document with whom you are speaking including the complete name, title, and the purpose of the call/contact. For further information, see IRM, Required Taxpayer Authentication.

  2. The taxpayer will be provided Pub 1, Your Rights as a Taxpayer, and Notice 609, Privacy Act Notice, at the initial appointment contact, either as enclosures to the appointment letter or at the first interview. If the examination is to address worker reclassification issues, Publication 1976, Do you Qualify for Relief under Section 530?, must be furnished. See IRM, Making Initial Contact, and subsequent sections for more information.

  3. The initial interview is an important part of the examination and/or compliance process. There are no exceptions to the requirement for interviews to be conducted except in special circumstances such as undeliverable (See IRM, unlocatable (See IRM or uncooperative taxpayers (See IRM When an interview cannot be conducted, the reasons must be fully documented in the case file. In situations where the taxpayers are being uncooperative, examiners must discuss the use of a summons with their manager before making the decision to issue a report based on the available information. Appropriate steps must be taken by all examiners to ensure a full interview is conducted. Questions must allow the examiner to reach a comfort level that the taxpayer is in substantial compliance with all employment tax laws and filing requirements and should not be limited to the classified items if facts learned during pre-contact or initial contact indicate other issues may be present.

  4. In the initial interview:

    1. The first few minutes should be spent explaining the process and the taxpayer’s rights. The taxpayer’s receipt of Publication 1, Your Rights as a Taxpayer, will be confirmed and specifically noted in the workpapers. Publication 1 fulfills the requirement in IRC 7521(b) that taxpayers be informed of the process and their rights under such process at or before the initial interview.

    2. If the taxpayer has not received Publication 1, furnish the publication before proceeding with the initial interview.

    3. Several other provisions in IRC 7521, Procedures involving taxpayer interviews, affect taxpayer interviews. See IRM, Taxpayer Rights, below.

  5. Do not settle tax due, or agree not to examine a taxpayer where noncompliance is known, in exchange for prospective compliance. Where settlement of tax appears to be advantageous to Service objectives, the Area Office of Chief Counsel should be contacted for assistance. On LB&I coordinated industry cases, the attorney assigned to the case should be contacted for advice. In situations where execution of a closing agreement is warranted to resolve an issue, Counsel will assist in providing the appropriate language.  (07-19-2013)
Taxpayer Rights

  1. IRC 7521, Procedures Involving Taxpayer Interviews, was enacted by the Technical and Miscellaneous Revenue Act of 1988 (TAMRA) as part of the Omnibus Taxpayer Bill of Rights. Under the Taxpayer Bill of Rights, the taxpayer has a right to:

    1. Receive, in non-technical language, an explanation of the many rights available at each step of the examination process. This explanation must be furnished before an initial interview. Publication 1, Your Rights as a Taxpayer, was developed to meet this requirement. Routine telephone calls initiated by the taxpayer or the Service are not considered initial interviews. Publication 1 explains the procedures covering examination of tax returns and appeal rights and should be furnished to all taxpayers. Examiners must ensure the taxpayer has a full understanding of the exam process.

      1. At the beginning of an examination, ask the taxpayer whether they have any questions regarding the audit process, regular selection procedures and appeal rights.
      2. If the taxpayer does have questions, give a clear and concise explanation.
      3. Advise the taxpayer of the various court remedies available for employment tax issues: There is no 90-Day Deficiency Notice. Employment tax cases are not normally heard in the U.S. Tax Court, but they are heard in District Court. However, the Tax Relief Act of 1997 specifies that cases involving employee classification and Section 530 relief are under the jurisdiction of the Tax Court.

    2. Consult with a representative who is currently authorized to represent taxpayers under rules provided in Treasury Department Circular 230, Regulations Governing the Practice of Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries, Enrolled Retirement Plan Agents and Appraisers before the Internal Revenue Service. If taxpayers clearly state, during an interview, that they wish to consult with a representative, the interview must be suspended. In cases where this process is abused (i.e., repeated suspension of interviews to contact a representative) an administrative summons may be issued. A taxpayer cannot be required to accompany an authorized representative to an examination interview in the absence of an administrative summons. However, the taxpayer’s voluntary presence at the interview can be requested through the representative as a means to expedite the process.

    3. Upon prior notice to the Service, the taxpayer may make an audio recording of an in-person interview. Upon prior notice to the taxpayer, the Service is entitled to make a recording or transcript of an interview provided the taxpayer receives a copy upon request and pays the cost of reproduction. For more information, see IRM, Requests to Tape Record Interviews.


      Taxpayers have no right to make a video recording, and it is IRS policy to not allow video recordings.

  2. The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees help taxpayers whose problems with the IRS are causing financial difficulties; who have tried but have not been able to resolve their problems with the IRS; and those who believe an IRS system or procedure is not working as it should. Publication 1546, Taxpayer Advocate Service - Your Voice at the IRS, provides contact and additional information.

  3. Refer taxpayers to TAS when the contact meets TAS criteria (see IRM 13.1.7, Taxpayer Advocate Case Processing - TAS Case Criteria) and you can't resolve the taxpayer's issue the same day. "Same day" cases include cases you can completely resolve in 24 hours, as well as cases in which you have taken steps within 24 hours to resolve. Do not refer same day cases to TAS unless the taxpayer asks to be transferred to TAS and the case meets TAS criteria. Refer to IRM, Same Day Resolution by Operations for additional requirements before referring a same day case to TAS.

  4. All inquiries being referred to TAS should be documented on Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order), or Form e-911, and forwarded to the Advocate's office by the most expeditious method available.  (07-19-2013)
Third Party Authorization/Power of Attorney

  1. Accountants, attorneys, enrolled agents or other representatives, from whom a taxpayer has requested assistance on tax problems, may submit inquiries to the Internal Revenue Service. The third party expects a reply to the inquiries so the problem can be explained to the taxpayer. To authorize this third party reply, the representative may submit a Form 2848, Power of Attorney and Declaration of Representative, (POA), or Form 8821, Tax Information Authorization, (TIA).

  2. The Form 2848 and Form 8821 should contain the following information:

    1. Taxpayer(s) full name(s), address, EIN or SSN, and telephone number,

    2. Representative(s) full name(s), CAF (Centralized Authorization File) number(s) (if one has already been assigned), address (the box under New Address should be checked if address changed since being assigned a CAF number) and telephone number,

    3. Type of tax (must be specific); if it is specifically for Form SS–8, it must indicate the form specifically,

    4. Tax year(s) or period(s) (if form indicates "for all years" or "for all periods" , insert the earliest year or period under examination as the beginning year or period),

    5. Name and address where correspondence and/or notices are to be sent (optional), and

    6. The taxpayer’s signature and date of signature.

  3. Upon receipt of a POA/TIA, the examiner must submit a copy of the form to one of the three centralized CAF Units at the Campuses within 5 workdays of receipt. See IRM, Processing Sites (CAF Function), to determine where to send the POA/TIA. The original or a copy of the POA/TIA should also be retained with the case file.


    Original documents, photocopies, or documents submitted by facsimile transmission (FAX) are acceptable for processing.

  4. Forwarding the POA/TIA to the Campus will trigger required actions to ensure input of a POA code to the entity on the appropriate master file or non-master file and will result in subsequent mailings of copies of computer communications to the authorized representative. POAs/TIAs are maintained on an automated system known as the Centralized Authorization File (CAF).

  5. POAs/TIAs filed for specific issues are not to be detached from the related document and sent to the Campus unless the document authorizes recognition for a return in addition to the specific issue. In this case, a copy of the POA/TIA should be sent to the CAF unit at the Campus to input the return portion on the CAF system. Examples of specific issues include, but are not limited to, the following:

    • Form 843, Claim for Refund and Request for Abatement,

    • Form 966, Corporate Dissolution or Liquidation,

    • Form W–4, Employee’s Withholding Allowance Certificate,

    • Form 4361, Application for Exemption from Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners,

    • Form SS–4, Application for Employer Identification Number, and

    • General Power of Attorney or Durable Power of Attorney. These powers of attorney usually do not contain sufficient information to process on CAF. If a general or durable power of attorney is submitted, attach a completed Form 2848 (POA), and send both forms to the CAF function for processing.

  6. Occasionally, the POA of record states he or she is no longer representing the taxpayer, or the taxpayer indicates they wish to cancel the existing POA. If the POA withdraws from the representation, or the taxpayer revokes the POA’s authority, the CAF will need to be corrected to delete the existing POA. All revocations or withdrawals must be in writing. The taxpayer’s signature and date are required to process a revocation. The representative’s signature and date are required to process a withdrawal. Such signed statements will generally be sent to the CAF unit in the Campus. (Note: if the power of attorney is for a specific matter, the revocation or withdrawal is sent to the IRS office handling that matter). See the instructions to Form 2848 for additional details about how to properly revoke or withdraw. Revocations and withdrawals will be sent to the CAF unit in the Campus.

  7. The Form 8821 does not authorize a representative to sign documents on behalf of the taxpayer or represent the taxpayer before Appeals.  (07-19-2013)
Bypassing a Taxpayer’s Representative

  1. There may be occasions when it becomes necessary to bypass the taxpayer’s representative and communicate directly with the taxpayer. IRM, By-Pass of a Representative, provides detailed examination information on bypass procedures.  (07-19-2013)
Trustee in Bankruptcy Acting as Employer

  1. In accordance with IRC 3401(d)(1) and the holding of the Supreme Court in Otte v. U.S., 419 U.S. 43 (1974), 1975-1 C.B. 329, a trustee in bankruptcy is an employer for purposes of income tax withholding and withholding the employee’s share of FICA. This is because the trustee in bankruptcy has control of the payment of wages. The payor is obligated to prepare and file Form 941 and to prepare, file, and distribute the related Form W–2 for each wage claimant. Furthermore, Otte has been extended to provide that the person having control of the payment is also an employer for purposes of the employer’s share of FICA and FUTA. See Lane Processing Trust v. United States, 25 F.3d 662 (8th Cir. 1994), and re Armadillo Corp., 410 F. Supp. 407 (D. Col. 1976), aff’d, 561 F.2d 1382 (10th Cir. 1977). Withholding and employment taxes incurred by the bankruptcy estate are entitled to be paid as administrative expenses under BC 503(b)(1)(B).

  2. The Otte doctrine may be applied in cases involving payers other than bankruptcy trustees.  (07-19-2013)
Examination Control Updates

  1. Form 5348, AIMS/ERCS Update, (or Form 5595, TE/GE Update) is used with examination audit labels to:

    • Update status code,

    • Update statute date,

    • Update project code, and

    • Update amount of claim.

    These updates are input on ERCS by the Group Secretary or Clerk.

  2. Form 5348, AIMS/ERCS Update, (or Form 5595, TE/GE Update) is used with examination audit labels to:

    • Re-establish closed returns,

    • Update the AAC on AIMS (this would only be completed if the AAC is correct on ERCS and the AAC on AIMS is incorrect),

    • Generate a follow-up request for a missing return, and

    • Request additional audit or address labels.

    Forward the Form 5348 to your local AIMS/ERCS Analyst for input.

  3. Instructions on the use of Form 5348 can be found in IRM, Items that can be Updated/Corrected and Form to Use. Form 5348 will be submitted to the group secretary for input on ERCS.  (07-19-2013)
Request For Terminal Action, Form 4844

  1. Form 4844, Request for Terminal Action, will be completed where the results of a compliance check or examination reveal that the taxpayer has filing requirements that are not currently on IDRS. Document 6209, IRS Processing Codes and Information, lists the correct codes for BMF Filing Requirements.  (07-19-2013)
Time Reporting

  1. Accurate time and activity reporting is essential to effective planning, budgeting, and evaluating the Employment Tax Program. Currently, each division has separate reporting procedures.

  2. For those employees working mixed inventories, time, as it relates to the specific tasks, will be charged to the appropriate codes. Activity codes can be found in Chapter 12 of Document 6209. See IRM Handbook 4.9.1, Examination Technical Time Reporting System and Procedures, Outline of System, and the Exhibits 4.9.1-1, 4.9.1-2, and 4.9.1-3 for complete explanations.

Exhibit 4.23.3-1 
Guidelines for Evaluation of Referrals

(1) Information from an income tax return can reveal mis-classified wages in a number of areas:

 a. Compensation of corporate officers can be shown as "0" but a review of the Form 1120 may reveal that the officers have taken draws, dividends, professional fees, administrative fees, etc., to avoid taxable wages.

 b. Compensation of corporate officers can be shown as "0" but a review of the Form 1120 may reveal that the officers have spent 100% of their time in the operation of the business.

 c. Schedules for "other deductions" often disclose bonuses to officers and employees. Payments to consultants are often listed on these schedules.

 d. The reconciliation of accounts often shows loans and advances to corporate officers which may be salary in disguise.

 e. Cost of goods sold often reveals labor and wage costs which may not appear on Forms W–2/1099/ 941.

 f. A service organization reporting cost of labor in cost of goods sold is suspect.

 g. Schedule C, Form 1040, often shows cost of labor and/or commissions in the cost of goods sold - but no Forms 941 have been filed.

(2) Reconciliation of the Forms 941/940/W–2 and the income tax return often highlights a discrepancy.

(3) Taxpayers may file Form 940 but no Forms 941. Tying this information into the tax return may show a discrepancy.

(4) Reconcile labor deducted on the income tax return less the FICA wages and total of amounts reported on Forms 1099 issued. Any discrepancy may mean an excessive deduction for wages and an adjustment. If the accrual method of accounting is used, an adjustment to the FICA wages reported will have to be made to make the income tax return information comparable to the Forms 941 and 1099.

(5) Large changes in the gross profit percentage [(SaIes - Cost of Good Sold) divided by Sales)] from one year to another may indicate hidden labor costs.

(6) The Payor Master File General Transcript (CC PMFOL) provides the following information:

 a. No Record of filing or filing late can eliminate the safe haven provided by Section 530 if this becomes an issue.

 b. The summary of transcript contains information concerning the number of Forms 1099 filed and the dollar amount of these forms. This figure can be compared to the miscellaneous wage figures reported on the tax return for possible underreporting.

(7) Researching the particular industry of the workers will indicate the pros and cons of issues presented in previous rulings - or indicate a category on which to base an evaluation. The research will provide a basis for evaluating the likelihood of successfully challenging an issue.

(8) Interviews of third party contacts (particularly the individual supplying the lead information) can provide additional information to ensure the correct entity has been identified, provide the number and types of workers, the possible amount of wages misclassified, and other information which will assist the evaluator in assigning a priority to the lead. However, before contacting third parties, ensure that the provisions of IRC 7602, Examination of Books and Witnesses, are followed.

(9) If no internal information can be obtained, the initial lead evaluation process is restricted to the information contained on the lead, interviews of third parties, general industry research, and past experience in the industry. If the lead warrants additional consideration after the above steps have been taken, the lead may, at the manager's discretion, be assigned to an examiner for personal contact with the taxpayer.

Exhibit 4.23.3-2 
Employee Plans (EP) Referral Checksheet

1. Were any non-employees reclassified as employees? Y N
 If yes, please attach a list of those employees.

2. Were any plan participants’ compensation adjusted? Y N
 If yes, please attach a list of the participants, their compensation, and the adjustment amount.

3. Does the employer offer plan participation of individuals other than common law employees or self-employed individuals treated as employees pursuant to IRC section 401(c)(1)?
 Y N

4. Are there any employees who are covered by the Section 530 safe haven who have been excluded from participation in the plan? Y N
 If yes, please attach a list of the names of those employees.

INSTRUCTIONS: Any yes answer warrants a referral to TE/GE —Employee Plans (EP).

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