4.23.4 General Procedures, Pre-Contact Analysis, and Workpapers

Manual Transmittal

May 23, 2019


(1) This transmits a revision for IRM 4.23.4, renamed General Procedures, Pre-Contact Analysis, and Workpapers.


Updates are made to this section for procedural and technical changes. Subsections from IRM 4.23.3, previously Employment Tax - Classification, Selection and General Procedures for Employment Tax Cases, have been incorporated as part of the reorganization of IRM 4.23.

Material Changes

(1) IRM New subsection, Program Scope and Objectives. Rearranged existing IRM content to place information involving internal controls for a program IRM under this subsection to conform to the new rules to ensure that the program’s internal controls are adequately expressed in the IRM.

(2) IRM New subsection, Background. Formerly IRM 4.23.5(1), (2) and (3).

(3) IRM New subsection, Authority.

(4) IRM New subsection, Responsibilities.

(5) IRM New subsection, Program Objectives and Review.

(6) IRM New subsection, Program Reports.

(7) IRM New subsection, Acronyms. Compiled a list of frequently used abbreviations and their terms

(8) IRM New subsection, Related Resources.

(9) IRM numbering. All IRM subsections are renumbered to reflect the inclusion of new IRM

Former New
New Deleted

(10) IRM Formerly IRM Name change from Overview to Workpapers. Outlined the specific requirements for ET examiners, large case examiners and general program examiners.

(11) IRM New subsection, Employment Tax Examination Tools, Forms, and Letters, providing guidance and links.

(12) IRM Deleted Note on NRP cases as the NRP program has been completed. Replaced with Note that ET case files must contain the ETLS mandatory leadsheets or the RGS equivalent. Added 140: Mandatory Issues Check Sheet (Not required for ET TCOs).

(13) IRM Specified that all examiners trained in the use of the Issue Management System (IMS) are required to use IMS for all case management, regardless of the type of case being worked. Included two publications to be used for Fast Track Settlement, depending on the size of case.

(14) IRM Subsection Notebook deleted as obsolete.

(15) IRM Provided link to the Job Aid for IMS on the SharePoint site.

(16) Exhibit 4.23.1. Split into two tables, General Case Requirements and Unagreed Case Requirements.

(17) Editorial and technical changes have been made throughout this section. Links and cross-references updated.

Effect on Other Documents

This material supersedes IRM 4.23.4, dated March 23, 2017.


This section contains instructions and guidelines for all Large Business & International (LB&I), Tax Exempt/Governmental Entities (TE/GE), and Small Business/Self Employed (SB/SE) employees dealing with employment tax issues.

Effective Date


Daniel R. Lauer
Director, Examination - Specialty Policy
Small Business/Self-Employed Division

Program Scope and Objectives

  1. Purpose: This section:

    • Describes various employment tax initiatives,

    • Details general procedures for employment tax returns selected for examination, and

    • Covers workpapers generally used in employment tax examinations.


      Other functions and operating divisions may have additional or supplemental procedures.

  2. Audience: This section contains instructions and guidelines for all Large Business & International (LB&I), Tax Exempt/Government Entities (TE/GE), and Small Business/Self-Employed (SB/SE) employees dealing with employment tax issues.

  3. Policy Owner: Director, Examination - Specialty Policy of the Small Business/ Self-Employed Division.

  4. Program Owner: Program Manager - Employment Tax Policy. The mission of Employment Tax Policy is to establish effective policies and procedures, to support compliance with employment tax laws.

  5. Primary Stakeholders:

    • Employment Tax - Workload Selection and Delivery (SE:S:E:HQ:ECS:S:ETEGCS:EWSD)

    • Specialty Examination - Employment Tax (SE:S:E:SE:ET)

    • Examination - Specialty Policy, Employment Tax Policy (SE:S:E:HQ:SP:ET)

    • Other areas that are affected by these policies and procedures include Appeals, Counsel, SB/SE Examination, LB&I, and TE/GE.


  1. This IRM outlines an examiner’s responsibilities regarding employment tax workpapers and will assist the examiner in meeting quality standards and ensuring appropriate and consistent audit procedures.


  1. Employment tax provisions are found at Internal Revenue Code Subtitle C:

    • Chapter 21, Federal Insurance Contributions Act (FICA),

    • Chapter 22, Railroad Retirement Tax Act (RRTA),

    • Chapter 23, Federal Unemployment Tax Act (FUTA),

    • Chapter 24, Federal Income Tax Withholding (FITW), and

    • Chapter 25, General Provisions relating to employment taxes and collection of income taxes at source.

  2. The Employment Tax Program is governed by Policy Statements and other internal guidance that apply to all Service personnel regardless of operating division. The Policy Statements found in IRM 1.2.1, Servicewide Policies and Authorities, Policies of the Internal Revenue Service apply to all employment tax issues and examinations. Examiners should review these Policy Statements to properly perform their examination duties.

  3. A website, Delegation Orders by Process, located at https://www.irs.gov/uac/delegation-orders-by-process1 summarizes data contained in the applicable IRM sections under IRM 1.2, relating to Delegation Orders, in a single, electronic source.

  4. IRM 4.23 provides Servicewide instructions for all operating divisions with employees involved with the correct filing, reporting, and payment of employment taxes. IRM 4.23 serves as the foundation for consistent administration of employment taxes by various IRS operating divisions. By providing one source of authority for all operating divisions, the Service greatly reduces philosophical and procedural inconsistencies.


  1. Director, Examination - Specialty Policy is responsible for the procedures and updates addressed in this IRM.

  2. Director, Specialty Examination is the executive responsible for examination operational compliance.

Program Objectives and Reports

  1. Program Goals: The processes and procedures provided in this IRM are consistent with the objectives or goals for Employment Tax - Examination that are addressed in IRM, Employment Tax Examination and for Employment Tax Policy, found in IRM, Employment Tax Policy.

  2. Program Effectiveness: Program goals are measured with Employment Tax Embedded Quality Performance Reports that monitor whether quality attributes are applied uniformly and consistently.

  3. Annual Review: Employment Tax Policy - Program Manager, is responsible for reviewing the information in this IRM annually to ensure accuracy and promote consistent tax administration.


  1. The following table lists commonly used acronyms and their definitions:

    Acronym Definition
    DCI-1 Data Capture Instrument-1
    ECD Estimated Completion Date
    EmTRAC Employer Designed Tip Reporting Alternative Commitment
    ERCS Examination Returns Control System
    ET Employment Tax
    ETLS Employment Tax Lead Sheets
    ETER Employment Tax Examination Report
    FICA Federal Insurance Contributions Act
    FITW Federal Income Tax Withholding
    GITCA Gaming Industry Tip Compliance Agreement
    GMCM Group Manager Concurrence Meeting
    IC Industry Case
    IDR Information Document Request
    IMS Issue Management System
    IRM Internal Revenue Manual
    ITG Indian Tribal Governments
    LB&I Large Business & International
    LUQ Large, Unusual or Questionable
    MCD Mutual Commitment Date
    NOPA Notice of Proposed Adjustment
    NRP National Research Program
    RGS Report Generation Software
    SAIN Standard Audit Index Number
    SB/SE Small Business/Self-Employed
    SBU Sensitive But Unclassified
    SRS Specialist Referral System
    TCO Tax Compliance Officer
    TE Tax Examiner
    TE/GE Tax Exempt/Government Entities
    TRAC Tip Reporting Alternative Commitment
    TRDA Tip Rate Determination Agreement
    TWS TeamWebSite

Related Resources

  1. Other helpful information sources include:

    • The SB/SE Knowledge Management home page for Employment Taxes https://portal.ds.irsnet.gov/sites/VL014/Pages/default.aspx.

    • The Specialist Referral System (SRS) home page: https://srs.web.irs.gov/.

    • A list of SB/SE Employment Tax Policy Analysts, their contact information and program assignments, are found at: Policy Analysts.

    • The web site "Examining an Employment Tax Case" at: https://portal.ds.irsnet.gov/sites/vl014/pages/home.aspx?bookshelf=examining an employment tax case.

    • IRM 4.23: IRM sections owned by SB/SE Examination - Specialty Policy. Provides Servicewide instructions for employees of all operating divisions involved with the correct filing, reporting, and payment of employment taxes. IRM 4.23 serves as the foundation for consistent administration of employment taxes by various IRS operating divisions.

  2. The IRS adopted the Taxpayer Bill of Rights (TBOR) in June 2014. Employees are responsible for being familiar with and acting in accord with taxpayer rights. See IRC 7803(a)(3). For additional information about the Taxpayer Bill of Rights, see TBOR and IRM, Policy Statement 1-236,"Fairness and Integrity in Enforcement Selection."

  3. The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal procedures, or who believe that an IRS system or procedure is not working as it should. Pub 1546, Taxpayer Advocate Service - We Are Here to Help You, provides contact and additional information. The program is designed to alleviate taxpayer hardships that arise from systemic problems or the application of the Internal Revenue Code. In addition, see IRM 13.1.7, Taxpayer Advocate Service (TAS) Case Criteria, and IRM 13.1.19, TAS Operations Assistance Request (OAR) Process, for additional information.


  1. Unless instructed otherwise, examiners will use the ETLS - Employment Tax Lead Sheets described in IRM, Guide for Examiners Using ETLS - Employment Tax Lead Sheets, developed specifically for employment tax cases.


    ET case files must contain the ETLS mandatory leadsheets or the RGS equivalent.

  2. SB/SE examiners working on large case audits generally will follow workpaper preparation, specific audit techniques, and case closing procedures unique to these type of audits. See IRM, Procedures for Employment Tax Examiners Working on Large Case Audits - General.

  3. The Issue Management System (IMS) is required to be used during employment tax examinations by examiners assigned to Specialty – Employment Tax Operations. See IRM, Guide for Examiners Using Issue Management System (IMS) and subsequent subsections.

  4. The examination workpapers and reports provide the basis for the decisions reached by the examiner. Only on the basis of the material in the workpapers can a reviewer determine if the examination was complete and correct. The workpapers must provide explanations, analyses, and conclusions reached and should be sufficiently complete so, generally, no additional comments are needed in a transmittal letter.

  5. Workpapers must clearly and concisely state the issue, facts, audit steps, law, taxpayer's position, and conclusion for each issue examined. In addition, workpapers must document if the following actions and/or audit steps were taken:

    • Interviews of appropriate parties were conducted,

    • All required employment tax and information returns were accurately and timely filed,

    • The examiner reconciled Form(s) W-2 to payroll, and

    • All required Form(s) 1099 were correctly filed (e.g., no worker reclassification issue exists or backup withholding is not warranted).


      The examiner will document the reason for not addressing any of the above actions.

  6. IRM 4.10.9, Workpaper System and Case File Assembly, also provides further guidance on workpaper preparation.

Purpose of Workpapers

  1. Workpapers are key in the support of all IRS positions taken when making adjustments. Properly prepared workpapers:

    1. Support the IRS position for any appealed or litigated issue,

    2. Document action(s) taken,

    3. Form the basis of necessary reports,

    4. Facilitate managerial, technical, or other review,

    5. Facilitate authorized review by other governmental agencies, and

    6. Provide subsequent examiners a clear audit trail and scope of the prior examination.

  2. Workpapers are required in every examination case. Workpapers should include all evidence gathered by the examiner to show the work performed, audit techniques followed, tax law relied on, and conclusions reached. Supporting workpapers must be prepared when necessary to fully document all issues and conclusions. These supporting workpapers must be attached to the appropriate lead sheet.

  3. As workpapers are used in the preparation of the audit report, examiners must ensure that the information contained in the workpapers is consistent with and fully supports the final conclusions reached. The workpapers will be relied upon to support the issues in appealed or litigated cases. The workpapers can be provided to a subsequent reviewer or the taxpayer when requested under the Freedom of Information Act (FOIA) process.

Workpaper Preparation: General

  1. Use of the Employment Tax Lead Sheets (ETLS) will help the examiner meet all workpaper requirements. Use of stand-alone workpapers, while not prohibited, does not relieve the examiner from meeting workpaper requirements.

  2. Properly prepared workpapers must provide adequate documentation to support conclusions. Without sufficient documentation, it is not possible for reviewers to verify that the scope of the examination is appropriate, or the basis of an adjustment is accurate. Examiners should always cite legal authority to support the conclusions (e.g., Internal Revenue Code, applicable regulations, court cases, revenue rulings and/or revenue procedures).

  3. Workpapers must be neat, legible, clear, and concise. The legibility of examination workpapers and reports is an important aspect of the overall quality of the examination. The easier it is to read workpapers and reports, the easier it is to understand them.

  4. Workpapers must be clearly headed:

    • Taxpayer name,

    • Taxpayer identification number (TIN),

    • Tax period examined,

    • Date workpapers were prepared,

    • Name or initials of the examiner, and

    • Issues or items being examined.

  5. Workpapers must be indexed, numbered, and securely fastened together. Index workpapers as they are prepared. If an issue cannot be fully explained on the specific lead sheet, supporting workpapers must be prepared, indexed, and attached behind the appropriate lead sheet. Supporting workpapers may be required to provide detailed explanations, analysis, schedules, and/or computations. For example, supporting workpapers would be used to schedule out wage adjustments applicable to each employee.

  6. The volume of supporting workpapers prepared during examinations will vary depending on the size of the entity and the number and type of issues developed. While there is no fixed requirement to include specific schedules or analyses in the supporting workpapers, examiners must include enough information to support the conclusion documented on the lead sheet. Any notes taken during interviews conducted must be included in the case file as added support of the final case resolution.

  7. Workpapers should reflect what was actually accomplished during the examination. The workpapers should not include superfluous documentation, copies of irrelevant data, or the examiner's personal opinions relating to the taxpayer or the business. For example, copies of CPA workpapers or reports should not be included in the workpapers where they do not contribute to the development of an issue. In addition, examiners should never make personal comments about a taxpayer. Remember, taxpayers always have the right to request any and all workpapers included in the case file under the Freedom of Information Act (FOIA).

  8. The case file should include a well-documented, contemporaneous case history sheet. For SB/SE examiners using IMS, the Examining Office’s Activity Record in IMS should be used for this purpose. For non-IMS users, Form 9984, Examining Officer’s Activity Record, is used for this purpose and is numbered as Workpaper 100. The case history documents:

    • A summary of contacts made during the examination,

    • All actions taken by the examiner, taxpayers and/or reviewers (e.g., manager),

    • Time spent on the case, and

    • All discussions held with the manager and decisions reached.

    In addition, the case history will document:

    • The date and method for delivery of publications:


      Pub 1, Your Rights as a Taxpayer, Pub 5146, Employment Tax Returns: Examinations and Appeal Rights,Notice 609, Privacy Act Notice.

    • Other publications should be noted:


      Pub 1976, Do You Qualify for Relief Under Section 530?, Pub 5022, Fast Track Settlement - A Process for Prompt Resolution of Small Business Self Employed Tax Issues, and/or Pub 4539, Fast Track Settlement Brochure, for large case examinations.

    • Any extended period of inactivity, such as leave or extended details. For all SB/SE examiners, a comment is required if there is no activity on a case for a period of 45 days. The comment should fully explain the reasons for inactivity.


      See IRM, Scheduling the Appointment, and IRM, Contact with Taxpayers, for additional requirements.

  9. If the case was initiated by a referral, examiners must include a printed copy of the Specialist Referral System (SRS) Referral Form in the workpapers.

  10. Examiners have different workpapers available depending on the type of examination being worked and the type of training received:

    1. Examiners working non-large case employment tax examinations will use the ETLS. See IRM, Guide for Examiners Using ETLS - Employment Tax Lead Sheets, for specific information.

    2. Examiners working large case employment tax examinations will use the workpapers discussed in IRM, Procedures for Employment Tax Examiners Working on Large Case Audits - General, and its subsections.

Workpaper Preparation: Other Resources

  1. The LB&I web page Audit Tools contains links to many job aids that the ET specialist may find useful. They can be found at: https://irssource.web.irs.gov/LBI/SitePages/AuditTools.aspx.

Employment Tax Examination Tools, Forms, and Letters

  1. Examiners should access the latest versions of ETLS, ETER, and other miscellaneous workbooks via the Knowledge Management Employment Tax Base (within the Tools Book). Examiners can access the "Tools" book by clicking the following link and selecting the tool they wish to download: https://portal.ds.irsnet.gov/sites/vl014/lists/employmenttaxtools/landingview.aspx

  2. In order to access the most current Employment Tax letters and forms, examiners will need to go to the Forms Repository at http://publish.no.irs.gov/catlg.html. In Forms Repository, the examiner will:

    • Select appropriate Product Type, such as Form or Letter.

    • Type in the Product Number. (For example, for a Letter 3850, type "3850" ).

    • Type in the Product Suffix, if applicable. For example, for a Letter 4121-E, enter an "E" in this field. The field pre-populates with a "*" . If the suffix is unknown, leave this "*" in place and click submit. A new page will display a list of results with all suffixes. The examiner may then select the product.

    • The Product Catalog Information for the requested product will display. Select the most current product under "Availability" , "Get PDF" , and "Current" .

Guide for Examiners Using ETLS - Employment Tax Lead Sheets

  1. The ETLS - Employment Tax Lead Sheet templates are available at: https://portal.ds.irsnet.gov/sites/vl014/Lists/EmploymentTaxTools/LandingView.aspx.

  2. Form 4318 - ET, Employment Tax Examination Workpapers - Index, is the examination workpapers cover sheet used in all employment tax cases, except for those following LB&I team audit procedures. It is used for pre-planning the examination and serves as an index to the audit workpapers. When needed, Continuation Sheet for Form 4318-ET, will be used. TE/GE examiners may use Form 5773, EP/EO Workpaper Summary Continuation Sheet, in place of Form 4318 - ET.

  3. The sections of Form 4318-ET are arranged by specific purpose:

    1. Section 100 - 190, Administrative and Planning

    2. Section 200 - 205, Evaluation of Records and Fraud

    3. Section 300 - 305, Penalty Consideration

    4. Section 400 - 499, Identified/Classified Issues

    5. Section 500 - 599, Additional Issues

    6. Section 600 - 999, Miscellaneous

  4. Each section, 1XX through 3XX, has references and links to additional lead sheets.

  5. Enter all wage adjustments by year and amount for each rate used in the "Adjustments to Wages" columns in sections 4XX and 5XX. This provides source data for report preparation and highlights adjustments for a reviewer.

  6. The following list contains the mandatory lead sheets available in the ETLS - Employment Tax Lead Sheets package. Examiners must complete these mandatory workpapers in all employment tax cases, except where noted or if similar RGS lead sheets are prepared as part of the primary return examination and included in the employment tax case file:

    • 000: Form 4318 ET, Employment Tax Examination Workpapers - Index

    • 100: Activity Record, Form 9984, Examining Officer's Activity Record (To be completed in IMS. See Exhibit 4.23.4-1, Mandatory Items - IMS., Item 2.)

    • 105: Administrative Lead Sheet

    • 115: GM Concurrence Meeting Check Sheet (Optional for RA/ ROE Grades 13 and above; not required for ET Tax Compliance Officers (TCO) or limited scope exams)

    • 120: Initial Taxpayer Contact Check Sheet

    • 125-1: Initial Appointment Agenda

    • 125-2: Initial Interview Questions

    • 130-1: Multi-Year and Related Returns Lead Sheet

    • 130-2: 1099 Filing Requirement Checks

    • 135: Records Check List (not required on no-response (no show) cases or limited scope exams)

    • 140: Mandatory Issues Check Sheet (Not required for ET TCOs or limited scope exams)

    • 150: Risk Analysis Workpaper (Not required for ET TCOs or limited scope exams)

    • 200: Payroll Reconciliation & Evaluation

    • 203: Internal Controls - Tip Audits

    • 205-1: Fraud Awareness Lead Sheet

    • 300: Penalty Approval Form

    • 940: Closing Documents - Closing Conference Agenda (Not required on no-response (no show) cases)


    ET case files must contain the ETLS mandatory leadsheets or the RGS equivalent.

  7. Risk-based decision-making is critical to the effective allocation of limited examination resources. Workpaper #150, Risk Analysis Workpaper, has been changed from an issue-by-issue approach to one of a global or case focus; therefore, this workpaper is not required for each new issue added or for each issue declassified - it is only required for each taxpayer/entity. This design supports the Value-Added Decision Making (80/20) concept and the Mid-Audit Decision Point (50% Rule) concept of the ETLS process.


    The Risk Analysis Workpaper is not required for ET Tax Compliance Officers (TCOs). When an ET TCO expands the scope beyond the classified issue or limits the scope, the action is discussed with the manager and the decision is documented on Form 9984, Examining Officer’s Activity Record.

  8. All GS-12 and below ET specialists (except for ET TCOs) must hold a Group Manager Concurrence Meeting (GMCM) within 30 calendar days after completion of the initial appointment. During the GMCM, the examiner should be prepared to discuss:

    • The initial appointment and Mutual Commitment Date (MCD),

    • The plan for completing the case, and

    • Concerns.

    The GMCM should be documented on the GM Concurrence Meeting Check Sheet (Workpaper #115).


    While the GMCM is not required for TCOs or GS-13 and above examiners, they are encouraged to utilize the GMCM when the facts of the case indicate managerial involvement may become necessary.

Guide for Examiners Using Issue Management System (IMS)

  1. All examiners trained in the use of the Issue Management System (IMS) are required to use IMS for all case management, regardless of the type of case being worked. Use of IMS is required for all employment tax audits by employment tax examiners. IMS is designed to:

    • Support remotely located examiners,

    • Enhance issue identification,

    • Improve issue tracking and reporting,

    • Share information through a centralized data repository, and

    • Capture data in support of performance measures.

  2. Examiners will establish their cases in the IMS program. When required, the IMS system can be used to:

    • Perform preliminary risk analysis,

    • Perform in-process risk analysis for issues,

    • Set-up and monitor case assignments,

    • Input and monitor issue progress and status of IDRs,

    • Prepare and monitor Forms 5701,

    • Input case documents and time information for each issue,

    • Generate various time reports and activity records, and

    • Create a next case cycle automatically populating selected information from a previous case cycle.

  3. For more information on IMS, refer to the IMS web site at: https://irssource.web.irs.gov/LBI/SitePages/IMS-IBMIS.aspx.

Mandatory and Optional Input Requirements

  1. ET has four distinct categories of cases. Each category has different documentation requirements within IMS.

    1. ET General Cases: Work completed using ETLS. This category includes stand-alone claims.

    2. ET Large Cases: Work completed using LB&I team audit procedures (i.e., Form 5701, Notice of Proposed Adjustment, Form 4764-A, LB&I Examination Plan, Part III - Summary of Assignments, and/or Form 4764-B, LMSB Examination Plan, Part III - Examination Procedures Section (for non-ETLS process)). This category includes stand-alone claims.

    3. IRC 3121(q) Assessment Cases (Tip Issue Only): Tip cases involving only a IRC 3121(q) assessment. Refer to IRM, Report Writing Procedures for Tip Exams.


      If a taxpayer does not report the IRC 3121(q) assessment as required, the IRC 3121(q) case is worked following the IMS guidelines of either steps (1) or (2) above and the procedures in IRC, Section 3121(q) Notice and Demand Procedures.

    4. Tip Agreements TRDA/TRAC/GITCA: Generally, this includes "tip rate reviews." A Tip Agreement case is not a regular tip case or tip audit, so many of the guidelines for regular examinations do not apply. Tip agreements include: Tip Rate Determination Agreement (TRDA), Tip Reporting Alternative Commitment (TRAC), Employer Designed Tip Reporting Alternative Commitment (EmTRAC), and Gaming Industry Tip Compliance Agreement (GITCA).

  2. Exhibit 4.23.4-1, Mandatory Items - IMS, provides a quick reference of attributes and documents that are mandatory versus optional. Any forms or documents not specifically addressed in Exhibit 4.23.4-1 are considered optional. In all cases, IMS lead sheets and workpapers should support the audit trail. Mandatory attributes or documents should be maintained within IMS; however, when warranted, the examiner may obtain and document managerial authorization to deviate from IMS/Notebook guidance. Additional information on workpapers is contained throughout IRM 4.23.4.

Case Naming Convention

  1. All case names must begin with "ET" for ease in identifying employment tax cases. To ensure consistency, all examiners will use the following naming convention when naming a case in IMS:
    ET [Taxpayer Name] [Year]: (Example: ET Birch Plumbing Inc 2012)


    Do not use punctuation such as periods, commas, dashes, or quotation marks when case naming.

Mandatory Requirements for Information Document Requests (IDRs)

  1. To ensure consistency, all examiners will prepare and complete Information Document Requests (IDRs) within IMS, including annotating the Form 4564, Information Document Request, as appropriate (e.g., Date IDR Issued, Date Information due by). All Examiners will update the IDR form status and date fields via IDR Edit Status screen. The IDR form status choices will vary depending on the current status of the IDR (e.g., Issued, Received, Revoked, Closed, etc.).


    Updating an IDR status as "Received" will not stop the days outstanding from running. After reviewing an IDR response for completeness, the IDR status should be updated to "Closed" to prevent erroneous outstanding IDRs appearing in IDR statistics and managerial reports.

Charging Time on Cases/Returns and Issues

  1. To charge time to a case within IMS, each return must have an "ET 080-Administrative Procedures" issue. All other ET issues will be entered in IMS on the key return (generally, the 4th quarter return) for each tax year that the issue is examined. The time spent on the case will be charged to the examined ET issue(s) reflected on the key return(s), as appropriate. Examples of how to set up a case, its issues, and how to charge time are provided in supplemental training materials.

  2. Tax Compliance Officers (TCO) and Tax Examiners (TE) will set up the primary issue on each return included in the examination. If other issues are found, they will be added to the key return(s) (generally, the 4th quarter return), as appropriate. The time spent on the case will be charged to the examined issue(s) reflected on the key return(s). Examples of how to set up a case, its issues, and how to charge time are provided in supplemental training materials for TCOs and TEs.

  3. Each return must have time charged except when the return is closed using a non-examined disposal code such as Disposal Code "32" or "36" . Further detail on processing non-examined returns in IMS is provided in supplemental training material on surveys.

  4. See IRM, How to Input Time on ERCS and Issue Management System (IMS), through IRM, Inputting Time Into IMS, addressing charging time. Note that employees in Employment Tax who are required to input technical time now use IMS for time input. The Examination Returns Control System (ERCS) Group Handbook also addresses ERCS time entry and fractional hours.

  5. The Time Sheet in IMS Client allows the IMS user to enter all categories of daily time applied, including case time and below the line time. TCOs and TEs input daily time as well as purge actions.


    Time can be in increments of 0.3 = 15 minutes, 0.5 = 30 minutes, 0.7 = 45 minutes, or in hourly increments.

  6. The Form 9984, Examining Officer’s Activity Record, in IMS Client is used to document each action taken on the Entity/Return issues. Documentation should include the date, location, time charged, and an explanation of each activity or contact. The activity record should provide a complete and concise case history. Recordation of events should be made by examiners or other employees responsible for activity on the case as warranted (e.g., group managers, engineers, clerical staff, team members, actions taken by group secretaries, etc.)

  7. IRM, Item. 28: Examiner’s Time, et seq., addresses the requirement to enter time on the Form 5344. Time may be charged in 15 minute increments.

Closing Cases in IMS

  1. Tax and Penalty Data Fields: The examiner will:

    1. Complete the appropriate tax and penalty data fields under Entities/ERCS Closing Data TAB on the Edit Entity screen for every return/period in the IMS case; the case will not close in IMS until this closing data is entered for each return.

    2. Reference the proprietary Employment Tax Examination Report (ETER) program and Form 5344, Examination Closing Record, for the tax and penalty amounts to enter in these data fields.

    3. Enter the claim amounts, deficiency amounts, or over-assessments. If a data field is not applicable to the return, enter zero in the field.

    4. Examiner will complete the "IRC section" , "Penalty" , and "Penalty Abatement" data fields. Zeros are not required in these data fields if they are not relevant or applicable to the return.


      The information entered on the Entity Closing Data screen is summarized on the Team Web Site (TWS) under Case Entities and the Entity Closing Data screen.

  2. Wage Adjustment Data Fields: The examiner will:

    1. Complete the wage adjustment data fields under each Issue on the "Adjustment Amt/Source" screen. No entries are made for any Standard Audit Index Number (SAIN) 080 Administrative Procedures Issue.

    2. Check the applicable radio buttons for the "Flow-thru Adjustment" , "Claim" , and "Counsel Involvement" sections of the screen.

    3. Complete the "Proposed Adjustment per Examiner Amount" by entering the largest per exam wage adjustment amount for that issue; generally, this amount is the Medicare Wage adjustment per exam. If the issue is backup withholding, the examiner will enter the per exam amount of payments subject to backup withholding prior to abatements. If the issue is a penalty, the examiner will enter the amount of the penalty. If the issue is present in more than one year, the examiner will complete the "Proposed Adjustment per Examiner Amount" field for the appropriate year’s return. The examiner’s work papers will be the reference for the amounts entered in this field.


      The field accepts negative numbers. If the issue is a request for refund or claim case, the examiner will enter the largest wage decrease per exam (or allowed) for the claim as a negative number; generally, this amount is the Medicare Wage reduction.

    4. Complete the "Amount per Return" data field by entering a zero for the wage amount. For a claim, request for abatement, or audit reconsideration cases/issues, the examiner will enter the largest wage decrease requested by the taxpayer as a negative number. If the taxpayer requests a reduction or abatement of a penalty, the examiner will enter the requested penalty decrease as a negative number. The Form 941-X, Adjusted Employer's QUARTERLY Federal Tax Return or Claim for Refund, or similar form will be the reference material for amounts entered in this field.

    5. The "Sum of 5701 Adjustments" entry applies to ET large case examinations.

  3. Depending on the MFT on the Entity/Return, different types of closing forms (e.g., Form 5344, Examination Closing Record, Form 5351, Examination Non Examined Closings, or Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties) may be required to be completed in IMS before a case file can be closed in IMS. Refer to the IMS Job Aids and check sheets on Closing Cases in IMS and Tip Compliance Cases in IMS for more information.

  4. Examiners will close their cases in IMS to correspond with closure of the paper case file to their manager. ET Managers can then perform their reviews and indicate concurrence with the closure of cases from the group using the "Manager Concurrence" feature on the Team WebSite (TWS) and selecting "yes" . These timely steps allow other stakeholders (e.g., Appeals, Technical Services, and Centralized Case Processing) to access cases electronically in IMS/TWS. IMS case closing procedures and processes are described in more detail in ET IMS course books, job aids, and check sheets. Additional closing procedures in IMS involving stakeholders will be provided when they are fully operational for employment tax cases.

  5. If all workpapers are not added/uploaded/saved in IMS, examiners are reminded to include a compact disc of the downloaded closed file in the paper case file when closed to Technical Services.

Other IMS Issues, File Size, File Limitations and Encryption Policy

  1. Additional information:

    • Do not add/import/upload large files (over 40 megabytes per file) to IMS

    • Do not import databases of any size (e.g., a Microsoft Access file) or IRS databases (e.g., IRPTR-I or IRAS)

    • Examiners may add/import/upload reports generated from databases

    • Do not import zipped files of any size; they cannot be unzipped within IMS

    • Do not import password-protected files; they are not viewable on the Team Website

    • Examiners may add/import/upload encrypted files directly from the Sensitive But Unclassified (SBU) folder in IMS

Procedures for Employment Tax Examiners Working on Large Case Audits: General

  1. For employment tax purposes, there are three types of large case audits:

    1. Continuous exams using a team approach (ET and LB&I Income Tax are involved in the audit),

    2. Industry Case (IC) exams using a team approach (ET and LB&I Income Tax are involved in the audit), and

    3. LB&I stand-alone ET audits (Only ET is involved in the audit).

  2. All examiners working on Continuous and IC examinations must follow LB&I audit procedures. Examiners working LB&I stand-alone employment tax audits may use either the procedures discussed below or the ETLS - Employment Tax Lead Sheets, covered in IRM The sections included in IRM will provide guidance specific to LB&I procedures, including:

    • Mandatory workpapers,

    • Pre-examination analysis and audit plan requirements,

    • Risk Analysis,

    • Requests for Additional Time,

    • Information Document Request (IDR) preparation,

    • Form 5701, Notice of Proposed Adjustment preparation,

    • Issue Lead Sheet,

    • Workpaper Organization,

    • Package Audit, and

    • Workpaper Disposition.

Mandatory Workpapers

  1. Examiners must prepare an individual Form 4564, Information Document Request (IDR), for each issue being developed, and a Form 5701, Notice of Proposed Adjustment (NOPA), for each issue adjusted.

  2. The examiner will create Form 13744, Examiner’s Risk Analysis Worksheet.

  3. The examiner will create an audit plan for large case examinations consisting of examination workpaper cover sheets:

    • Form 4764-A, LB&I Examination Plan, Part III - Summary of Assignments, and

    • Form 4764-B, LB&I Examination Plan, Part III - Examination Procedures.

    Form 4764-IC, LB&I Examination Plan for Industry Case (IC) Audits, is also available for use by SB/SE Examiners but is not required. It does not replace either Form 4764-A or Form 4764-B. These forms are used for employment tax pre-examination planning and as the lead sheets to the audit workpapers and audit results.


    The most current versions of Forms 4764-A, 4764-B, and 4764-IC can be obtained via the Forms Repository at http://publish.no.irs.gov/catlg.html.

  4. For further guidance, examiners should refer to IRM 4.10.9, Workpaper System and Case File Assembly, and IRM 4.46, LB&I Examination Process.

Pre-Examination Analysis and Audit Plan

  1. The examination plan (audit plan) provides the following information:

    • Agreements with the taxpayer,

    • Information for Service personnel,

    • Examination scope,

    • Examination procedures, and

    • Time estimates.

  2. Examiners are required to prepare an audit plan. The due date of the plan will be agreed upon by the LB&I coordinator (or LB&I case manager if no LB&I coordinator), and ET specialist. The plan is prepared by the team coordinator using Form 4764, LB&I Examination Plan. In those cases where only an employment tax examination is being conducted, it will be the responsibility of the ET specialist to complete the relevant portions of Form 4764. The form should contain:

    • Name of entity,

    • Years involved,

    • Brief description of the examination assignment,

    • Planned start and completion dates of the ET examination,

    • Issues being examined shown by SAIN (Standard Audit Index Number), and

    • A description of the specific examination techniques to be used.

  3. Refer to IRM, Mandatory Workpapers, for the forms used in creating audit plans for Continuous and IC examinations. ET specialists working LB&I stand-alone employment tax audits may follow LB&I procedures or use the ETLS - Employment Tax Lead Sheets, covered in IRM In those cases, it is the responsibility of the ET specialist to complete the relevant portions of Form 4764 or use the optional method described for IC examinations in IRM, IC Examination Plan.


    The use of Form 13744-I, Issue Based Examination Plan and Risk Analysis, described in IRM, Issue-Based Examination Plan, is not suitable for ET Specialists.

  4. The taxpayer will be given a copy of the audit plan and such action should be documented in the Examining Officer’s Activity Record.

  5. During the pre-planning stages of the examination, the examiner should review a copy of the income tax return filed by the taxpayer to determine if there are any large, unusual or questionable (LUQ) employment tax issues. The relevant pages of the return should be included in the closed ET case file. Relevant pages may include, but are not limited to:

    • First four pages of Form 1120, U.S. Corporation Income Tax Return

    • Form 851, Affiliations Schedule,

    • Consolidated schedule of income and deductions,

    • Statement of "Other Deductions,"

    • Schedule M-1, Reconciliation of Income (Loss) per Books With Income per Return,

    • Schedule M-2, Analysis of Unappropriated Retained Earnings per Books, and

    • Schedule M-3, Net Income (Loss) Reconciliation for Corporations With Total Assets of $10 Million or More.

  6. In addition to reviewing the related income tax return, the examiner should review taxpayer historical files as well as any prior employment tax audit reports for potential issues. Verification that all required returns were filed can be completed by securing the IDRS command code "BMFOL" and placed in case file for documentation. IDRS command code "BMFOLZ" can be used to determine if there were any prior employment tax examinations.

  7. An officer of a corporation must sign either the communications agreement contained in the Audit Plan or any other type of written authorization that designates the persons with whom the examination team can communicate. A copy of the written authorization must be included and documented in the ET case file.

Risk Analysis

  1. Risk-based decision-making is critical to the effective allocation of limited Examination resources. A risk assessment must be conducted with the initial planning of the examination, when 50 percent of the case time has been reached, and when a significant event occurs.

  2. The first risk analysis described in (1) above is prepared during the initial planning phase of the examination. Depending on materiality and/or compliance considerations, the risk analysis can be done on an issue-by-issue or a case basis.

    • Form 13744, Examiner's Risk Analysis Worksheet, should be completed as part of the pre-audit analysis

    • Case Manager must approve all risk analyses

  3. Mid-cycle risk analysis is required on all Continuous examinations and must be approved by the Team Manager. Mid-Cycle risk analysis is optional on IC cases and stand-alone employment tax audits with an Estimated Completion Date (ECD) of less than 12 months. Should the ECD of an IC case be extended to exceed 12 months, an updated risk assessment is required. Refer to (2) and (3) of IRM, Documenting The Risk Analysis.

  4. The mid-cycle risk analysis includes time applied and indicates if additional time is needed. It also covers the number of Forms 5701, Notice of Proposed Adjustment, issued plus the number of Form 4564, Information Document Requests (IDRs), issued and outstanding. The examiner should also state the potential tax liability by issue and by year, and provide a brief assessment of the audit.

Request for Additional Time

  1. After the agent completes the mid-cycle risk analysis, it may be apparent that additional time is needed to complete the examination. If the examiner needs more time than was originally planned, provide an explanation of why additional time is warranted and how much additional time is needed to complete the examination.

  2. The SB/SE ET team manager and the LB&I case manager must approve a request for additional time.

Information Document Requests (IDRs)

  1. All requests for information should be specific, clear, and concise, and must be in writing using Form 4564, Information Document Request.

  2. Prior to issuing an IDR, the examiner should discuss with the taxpayer and the team coordinator the specific information that is needed. The taxpayer may be able to explain what type of information is available and may suggest a preferred wording for the IDR. Conferring with the team coordinator also ensures that the examiner does not ask for already available information.

  3. The team coordinator may determine the numbering system used for all IDRs issued. An IDR log is maintained to provide a source for assigning numbers and to monitor response times.

  4. Three copies of each IDR request are printed; One is given to the taxpayer, one is given to the team coordinator, and one is maintained in the examiner's case file. IMS can be used for this purpose. Refer to IRM, General IDR Procedures.

  5. IDRs should generally include only one issue or subject. This results in a faster turnaround time since information covering multiple topics may need to come from several sources.

  6. The IDR Management Process is used for all cases. Examiners should follow both the general IDR procedures and enforcement IDR procedures found in IRM Exhibit 4.46.4-1, Requirements for Issuing IDRs, and Exhibit 4.46.4-2, IDR Enforcement Process.

  7. The IDR process states that a reasonable response time to each IDR is determined when the draft IDR is discussed with the Taxpayer, prior to final IDR issuance. The importance of timely responses is emphasized as it improves cycle time and promotes earlier issue resolution. Refer to IRM, Information Document Request Process, IRM Exhibit 4.46.4-1, and IRM Exhibit 4.46.4-2.

  8. IDR procedures established by LB&I will be followed by the SB/SE examiner working with the LB&I income tax team. On May 1, 2014, SB/SE Employment Tax adopted the LB&I process for issuing IDR(s) and the IDR Enforcement Process covered in the LB&I directive, Updated Guidance for Examiners on Information Document Requests Enforcement Process, LB&I-04-0214-004, for all team audits conducted on LB&I taxpayers. The memorandum is available on the irs.gov website at: http://www.irs.gov/Businesses/Large-Business-and-International-Directive-on-Information-Document-Requests-Enforcement-Process.

  9. The mandatory Enforcement Process has three graduated steps:

    1. Delinquency Notice (Letter 5077, Delinquency Notice)

    2. Pre-Summons Letter (Letter 5078, Pre Summons)

    3. Summons


    If an examiner issues a Pre-Summons Letter or Summons under this process, the examiner must contact their local Tax Exempt/Government Entity (TEGE) Counsel for support, not LB&I Counsel. TEGE Counsel will contact LB&I Counsel for assistance and coordination as needed. If LB&I Counsel personnel are assigned to the case, the examiner must still use local TEGE Counsel.

  10. The process does not preclude the examination team from using judgment on a case-by-case basis. Continuous collaboration is needed to reach realistic due dates and dates can be revised based upon the facts and circumstances. A detailed description of the IDR Management Process can be found at IRM, Information Document Request Process and IRM Exhibit 4.46.4-1, Requirements for Issuing IDRs. The IDR Enforcement Process procedures can be found at IRM Exhibit 4.46.4-2, IDR Enforcement Process.

  11. If the taxpayer does not agree with the examiner’s determination and the issue is likely to be appealed, prepare a Form 886-A containing the facts and solicit the taxpayer’s written acknowledgment of the facts (AOF). Refer to IRM, Issue the Form 886-A with a Pro-Forma IDR. ET Specialists on team audits with the LB&I income tax team will generally use the AOF; ET Specialists working stand-alone employment tax audits can follow AOF at their discretion.

Form 5701 - Notice of Proposed Adjustment

  1. All adjustments are proposed on a Form 5701, Notice of Proposed Adjustment, as they are developed. This form serves as a cover sheet to Form 886 - A, Explanation of Adjustments, which is attached to fully explain the basis for proposing each adjustment.

  2. Potential adjustments should be discussed with the team coordinator and the taxpayer prior to issuing the notice.

  3. The ET team manager reviews and signs the Form(s) 5701. This signature indicates the team manager has accepted the examiner’s position on the issue. A Territory Manager’s approval/signature is required on all Form(s) 5701 involving issues on:

    • Industry Cases (IC) with adjustments of $10 million or more

    • Continuous Examination Cases with adjustments of $50 million or more

  4. The Form(s) 5701 and Form(s) 886-A are attached to the final audit report.

Issue Lead Sheets

  1. Form 4764-B, LB&I Examination Plan, Part III - Examination Procedures Section, is the lead sheet describing the audit procedures applied and the conclusions reached for each issue. It should

    • Be properly headed,

    • Include a discussion of the applicable law,

    • Document the audit trail, and

    • Lead to a clear and logical conclusion.

  2. Supporting documentation should be attached as a workpaper when further explanation is needed to support the conclusions reached.

  3. Lead sheets also serve as an index for any workpapers that relate to a specific issue. All workpapers should be numbered, indexed, and referenced to the issue lead sheet.

Workpaper Organization

  1. Workpapers should be organized by SAIN number. This will ensure all team members' audit case files are organized in a consistent manner, allowing for ease of review by the team coordinator, team managers, and others.

  2. SAIN codes for SB/SE examiners can be found by referring to the current SAIN Job Aid for ET, available on the "Employment Tax Knowledge Base" at "Employment Tax Resources/Tools" : https://portal.ds.irsnet.gov/sites/vl014/lists/employmenttaxtools/landingview.aspx.

Corporate Executive Compliance

  1. In support of the LB&I Executive Compensation Strategy, ET specialists are required to inspect officers' and key executives’ returns for audit potential and verify up-to-date filing using IDRS command code "IMFOLI" when conducting an LB&I stand-alone employment tax examination. If issues are found, Form 5346, Exam Information Report, will be completed and forwarded per local procedures. Additional guidance on inspection of officers' returns is found in Exhibit 4.46.3-6,Inspection of Corporate Officers and "Key" Executive Returns. Also see Corporate Executive Compliance at: http://www.irs.gov/Businesses/Corporations/Corporate-Executive-Compliance.

Workpaper Disposition

  1. For Continuous Examination cases, the employment tax audit workpapers will remain at the audit site. At the conclusion of the examination, they will be archived by the team manager along with the workpapers of the other team members. The workpapers provide important historical information and are valuable for any subsequent cycles that may be opened.


    Exhibit 4.23.4-1, Mandatory Items-IMS, lists the minimum workpapers that should be electronically filed within IMS.

  2. For other large case examinations, workpapers are included in the closed employment tax case file.

  3. When closing a related case at the same time as the primary/key case file, the required administrative workpapers do not need to be duplicated in the related case files if:

    • The related cases are being closed from the group at the same time, and

    • The returns are properly linked on the Examination Returns Control System (ERCS) and identified as being either the Primary/Key Return or the Related Return.

Mandatory Items - IMS General Case Requirements

General Case Requirements:

  Attributes and Documents ET General Cases ET Large Cases 3121q Assessment Cases (Tip Issue Only) Tip Agreements TRDA/TRAC/GITCA
1 Audit Plan - Forms 4764A and B Optional Mandatory Optional Optional
2 Case Activity Record - (Using Form 9984 within IMS) Mandatory Mandatory Mandatory Mandatory
3 Closing Agreements (including CSP Agreements) - Signed and Scanned Mandatory Mandatory Mandatory Appendices Mandatory
4 ETER Package - ET Examination Report (All Forms 2504, 4666, 4667, 4668) Mandatory Mandatory Form 4666 only N/A
5 ETER signed and scanned Form 2504, if applicable Mandatory Mandatory N/A N/A
6 ETLS or other types of leadsheet / workpaper packages Mandatory Optional Mandatory Mandatory
7 Form(s) 3198 (via ETER or other source) Mandatory Mandatory Mandatory N/A
8 Appropriate Closing Document: Form 5344, Form 5351, or Form 8278 Mandatory Mandatory Mandatory N/A
9 Form(s) 5701 (Notice of Proposed Adjustment) with Narrative Optional Mandatory Optional N/A
10 Fraud Cases: Forms 11661 and 2797 - signed and scanned Mandatory Mandatory Mandatory N/A
11 Information Document Requests (IDR) with status changes and dates as appropriate Mandatory Mandatory Mandatory Mandatory, if applicable
12 Letters 3263 and 3264 (Notice/Demand) Mandatory, if applicable Mandatory, if applicable Mandatory N/A
13 Risk Analysis Optional Mandatory Optional N/A
14 SS-10 Package (SS-10, Letters 907, 929) Optional Optional Optional N/A
15 SS-10 Signed and scanned, if applicable Mandatory Mandatory Mandatory N/A
16 Secure Messaging MOU and Personnel Routing Checksheet N/A Optional N/A Mandatory
17 Supporting workpapers for any issue adjusted, including Form 886A, if prepared Mandatory Mandatory Mandatory Mandatory
18 Taxpayer/Representative Contact Information (Taxpayer Contacts section in IMS) Mandatory Mandatory Mandatory Mandatory
19 Taxpayer Protest Optional Optional Optional N/A
20 Timekeeping within IMS Mandatory Mandatory Mandatory Mandatory
21 Tip Rate Calculations, McQuatters, Form 14439 and/or Tip Rate Templates Mandatory, if applicable Mandatory, if applicable Mandatory Mandatory

Unagreed Case Requirements: In addition to the general items noted above, the following are always mandatory:

  Attributes and Documents ET General Cases ET Large Cases 3121q Assessment Cases (Tip Issue Only) Tip Agreements TRDA/TRAC/GITCA
22 All Relevant Workpapers Mandatory Mandatory Mandatory N/A
23 Letter 950 - Employment Tax 30-Day Letter Mandatory Mandatory Mandatory N/A
24 Agent Rebuttal Mandatory Mandatory Mandatory N/A
25 Required Information used for Preparation of Letter 3523, Notice of Determination, if applicable Mandatory Mandatory Mandatory N/A
26 Form 4665, if applicable Mandatory Mandatory Mandatory N/A