4.24.5 Large Business and International (LB&I) Examination Program Procedures for Excise Employees

Manual Transmittal

February 08, 2019

Purpose

(1) This transmits a revision to IRM 4.24.5, Excise Tax, Large Business and International (LB&I) Examination Program Procedures for Excise Employees.

Material Changes

(1) This IRM has been extensively rearranged and updated. Redundant content was deleted because it is addressed under IRM 4.46, LB&I Examination Process. Citations direct the reader to the appropriate authority.

(2) The table below identifies the significant changes in content since the August 24, 2016, revision of this IRM.

IRM Section Description of Change
4.24.5.1 Definition of a Coordinated Industry Case (CIC) Title changed to Program Scope and Objectives. New content added about information involving internal controls to comply with rules and requirements under 1.11.2.1. Redundant prior content removed because it is addressed under 4.46.2.4, 4.46.2.5, 4.46.2.6, 4.46.2.6.1, 4.46.2.6.1.1, 4.46.2.6.1.2, 4.46.2.6.2, 4.46.2.6.3 and 4.46.2.7.
4.24.5.1.1 LB&I Case Titles Title changed to Background. New content added about background to comply with rules and requirements under 1.11.2.1.1. Prior content moved to 4.24.5.1.5.
New 4.24.5.1.2 Title added Authority. New content added about legal authorities to comply with rules and requirements under 1.11.2.1.2.
New 4.24.5.1.3 Title added Responsibilities and Roles. New content added about responsibilities to comply with rules and requirements under 1.11.2.1.3.
New 4.24.5.1.4 Title added Program Objectives and Review. Information added from 1.11.2 and IRM Handbook 1.2.3, Internal Management Document System, to comply with rules and requirements under 1.11.2.1.4.
New 4.24.5.1.5 Title added Terms/Definitions/Acronyms. A list of terms, definitions and acronyms frequently used in this IRM, including those related to management and internal controls, added to comply with the rules and requirements under 1.11.2.1.5 and 1.11.2.1.6.
New 4.24.5.1.6 Title added Related Resources. Information added about IRM 4.46, LB&I Examination Process, that provide the operating rules and explain the responsibilities for LB&I examination procedures. Technical guidance and information processing steps and methods for excise tax abstracts added to comply with rules and requirements under 1.11.2.1.7.
4.24.5.2 CIC Program - General Procedures Title changed to LB&I Examinations - Categories for Excise Tax. New information added and content updated from 4.24.5.1. Redundant prior content removed because it is addressed under 4.46.2.2.2, 4.46.2.2.3, and 4.46.2.3.
4.24.5.2.1 Examination of Excise Tax Returns - General Procedures Removed subsection. Content updated and moved to 4.24.5.2.
4.24.5.3 Specialist Referral System (SRS) - Overview Title changed to Excise Examinations - Specialist Referral System - Overview. New information added. Selected content updated and moved from 4.24.5.2.1.
4.24.5.3.1 Timing Requirements Removed subsection. Content updated and moved to 4.24.5.3.
4.24.5.3.2 Examination Return Control System (ERCS) and IMS Controls Removed subsection. Content updated and moved to 4.24.5.3.
4.24.5.3.3 Consultation Expanded to Exam Removed subsection. Content updated and moved to 4.24.5.4.
4.24.5.3.4 Specialist and Manager Involvement Removed subsection. Redundant prior content removed because it is addressed under 4.46.3.2, 4.46.3.4, 4.46.3.6, 4.46.3.7, 4.46.3.8, 4.46.3.9, and 4.46.5.17.
4.24.5.4 Pre-Contact Case Coordination Title changed to Case Selection Considerations and MFT B5 Case Controls. New information added. Selected content updated and moved from 4.24.5.3.2 and 4.24.5.3.3. Prior content moved to 4.24.5.7.
4.24.5.4.1 Contact Other IRS Agents Removed subsection. Content updated and moved to 4.24.5.9.
4.24.5.4.2 Other Sources of Pre-Contact Analysis Removed subsection. Content updated and moved to 4.24.5.8.
4.24.5.4.3 Specialist Withdrawal Notification Procedures Removed subsection. Content updated and moved to 4.24.5.10.
4.24.5.5 Procedures for the Examination of LB&I Coordinated Industry CIC Case Referrals Title changed to Time Charges. Content updated and moved from 4.24.5.6. Redundant prior content removed because it is addressed under 4.46.3.2.6, 4.46.3.2.6.1, and 4.46.3.6.
4.24.5.5.1 The Planning Meeting Removed subsection. Content updated and moved to 4.24.5.11.2.
4.24.5.5.2 The Opening Conference Removed subsection. Content updated and moved to 4.24.5.11.3.
4.24.5.5.3 Preparation of Risk Analysis/Audit Plan Removed subsection. Content updated and moved to 4.24.5.11.1.
4.24.5.5.4 Information Document Request (IDR) Procedures Removed subsection. Content updated and moved to 4.24.5.11.4.
4.24.5.5.5 Periodic Audit Meetings Removed subsection. Content updated and moved to 4.24.5.11.5.
4.24.5.5.6 Audit Determination Removed subsection. Redundant content is addressed under 4.24.6.
4.24.5.5.7 Notice of Proposed Adjustment Form 5701 Removed subsection. Content updated and moved to 4.24.5.11.6.
4.24.5.5.8 Audit Report Removed subsection. Content updated and moved to 4.24.5.11.8.
4.24.5.5.9 Closing Memorandum Removed subsection. Content updated and moved to 4.24.5.11.9.
4.24.5.5.9.1 Closing Examination Critique Meeting Removed subsection. Content updated and moved to 4.24.5.11.9.
4.24.5.5.10 Group Historical Files Removed subsection. Content updated and moved to 4.24.5.12.
4.24.5.6 Time Charges Title changed to Closing the MFT B5 Case and Establishing and Examination. Content updated and moved from 4.24.5.3.3.
4.24.5.7 Compliance Assurance Process (CAP) Overview Title changed to Pre-Contact Case Coordination. Content updated and moved from 4.24.5.4. Redundant prior contact removed because it is addressed under 4.46.2.1 and 4.46.5.4.1.3.
4.24.5.8 Excise Tax Pre-Filing Agreement (PFA) Title changed to Pre-Contact Information: Sources, Analysis and Review Procedures. Content updated and moved from 4.24.5.4.2. Redundant prior content removed because it is addressed under 4.46.5.4.1, 4.46.5.4.1.1, 4.46.5.4.2.3, and 4.46.5.4.2.3.3.
4.24.5.9 Delegation Order Number DO-4-25 Title changed to Communications and Contacts with Other IRS Specialists. Content updated and moved from 4.24.5.4.1. Redundant prior content removed because it is addressed under Exhibit 4.46.1-1 and 4.46.5.4.2.2.
New 4.24.5.10 Title changed to Specialist Withdrawal Notification Procedures. Content updated and moved from 4.24.5.4.3.
New 4.24.5.11 Title added Excise Tax Considerations and Techniques. New information added.
New 4.24.5.11.1 Title added Risk Analysis. Content updated and moved from 4.24.5.5.3.
New 4.24.5.11.2 Title added Planning Meeting. Content updated and moved from 4.24.5.5.1.
New 4.24.5.11.3 Title added Opening Conference. Content updated and moved from 4.24.5.5.2.
New 4.24.5.11.4 Title added Information Document Requests Procedures. Content updated and moved from 4.24.5.5.4.
New 4.24.5.11.5 Title added Periodic Examination Meetings. Content updated and moved from 4.24.5.5.5.
New 4.24.5.11.6 Title added Form 5701, Notice of Proposed Adjustment.. Content updated and moved from 4.24.5.5.7.
New 4.24.5.11.7 Title added Written Acknowledgment of the Facts. New information added.
New 4.24.5.11.8 Title added Examination Report. Content updated and moved from 4.24.5.5.8.
New 4.24.5.11.9 Title added Closing Memorandum and Closing Examination Critique Meeting. Content updated and moved from 4.24.5.5.9 and 4.24.5.5.9.1.
New 4.24.5.12 Title added Case Historical Files. Content updated and moved from 4.24.5.5.10.

(3) Editorial changes, such as updates to IRM references, citations and websites have been made. Revisions to improve the content for plain language, active voice and reorganize the same content so it is more cohesive, current and accurate have also been made.

Effect on Other Documents

This material supersedes IRM 4.24.5 dated August 24, 2016.

Audience

This section is for Small Business/Self Employed (SB/SE) revenue agents (excise examiners), excise tax managers (excise managers) and personnel at Campus Exam/Automated Under Reporter Cincinnati (CEAC) who process Large Business and International (LB&I) issues specific to excise tax returns (excise returns), excise tax refunds (excise refunds) and excise tax claims (excise claims).

Effective Date

(02-08-2019)

Lisa M. Piehl
Acting Director, Examination - Specialty Policy
Small Business/Self Employed

Program Scope and Objectives

  1. General Overview - This IRM provides technical guidance and information processing steps necessary to prepare accurate excise tax examinations (excise examinations) with LB&I issues unless otherwise noted in IRM 4.24, Excise Tax.

  2. Purpose - This IRM explains the procedures and updates related to the technical guidance and information processing steps and methods for LB&I issues specific to excise returns, excise refunds and excise claims.

  3. Audience - This IRM is for SB/SE excise managers, excise examiners and personnel at CEAC who process LB&I issues for excise returns, excise refunds and excise claims.

  4. Policy Owner - Director, Examination - Specialty Policy is responsible for the administration, procedures and updates related to the technical guidance and information processing steps and methods for LB&I issues specific to excise tax examinations.

  5. Program Owner - Director, Examination - Specialty Examination owns Excise Tax Examination operations.

  6. Primary Stakeholders - Appeals, Counsel, Field and Specialty Exam Quality (FSEQ), LB&I and Specialty Examination are the primary stakeholders for this IRM.

Background

  1. To ensure examinations of excise returns, excise refunds and excise claims with LB&I issues are accurately prepared and submitted, managers, senior management officials, excise examiners and personnel at CEAC must understand and follow the technical guidance and information processes.

  2. Excise examinations are conducted by excise examiners located in field offices. CEAC personnel assess excise tax penalties.

Authority

  1. The most significant statutes affecting excise taxes with LB&I issues are listed in the table below.

    Type of Excise Tax Trust Fund IRC
    Air Transportation of Persons and Property Airport and Airways Air Transportation 4261-4263, 4271-4272, 4281-4282, 4291, 6672,7501
    Coal Black Lung Disability 4121
    Communications General 4251-4253, 4291, 6672,7501
    Ozone Depleting Chemicals General 4681-4682
    Foreign Insurance General 4371-4374
    Medical Device General 4191
    Leaking Underground Storage Tank Leaking Underground Storage Tank 4041, 4042, 4081
    Retail Truck Highway 4051-4053, 4221-4222
    Taxable Fuel (gasoline, diesel fuel, kerosene) Highway, Airport and Airway 4041, 4081, 4082, 6715
    Tires Highway 4071-4073, 4221-4222
    Patients-Centered Outcomes Research Institute (fee) Patients-Centered Outcomes Research Trust Fund 4375-4377
    Heavy Highway Vehicle Use Highway 4481-4483

Responsibilities and Roles

  1. Overall responsibility for examining corporations, subchapter S corporations and partnerships with assets greater than $10 million is assigned to LB&I. These businesses typically employ large numbers of employees, deal with complicated tax law issues, as well as sophisticated accounting principles, and conduct business in an expanding global environment. Excise Tax Policy is responsible for developing additional guidance or reference materials for its specific functional administrative needs as they apply to LB&I examinations with excise tax issues. Such material must remain consistent with LB&I policies and general procedural requirements.

  2. Director, Examination - Specialty Policy is responsible for Excise Tax Examination policy and procedures.

  3. Director, Examination - Specialty Examination is responsible for operational examination compliance activities.

  4. Chief, Estate & Gift/Excise Tax Exam is responsible for ensuring that approved policies and procedures specific to Excise Tax Examination are communicated to and carried out by excise examiners.

  5. The excise examiner is expected to collaborate and perform his or her professional responsibilities supporting the LB&I team. To achieve this, the excise examiner works with the team members and taxpayer personnel who have knowledge of the issues and can most effectively assist in developing and managing excise tax issues. Refer to IRM 4.46.1.3, Overview of the LB&I Examination Process, for more information.

Program Objectives and Review

  1. Program Goals - The program goals provided in this IRM are designed to increase compliance with excise tax laws by applying them with integrity and fairness, as well as by providing taxpayers top quality post-filing services for excise taxes administered by SB/SE.

  2. Program Reports - Information reporting of program objectives are included on Program Manager Monthly Briefings provided to Director, Examination - Specialty Policy.

  3. Program Effectiveness - FSEQ uses National Quality Review System (NQRS) to measure program effectiveness based on independent case reviews from a sample of examination work. National, area and territory trend analysis on the quality attributes are used to establish baselines to assess program performance, identify opportunities to improve work processes, analyze causes for failure, assess the feasibility of possible solutions and measure the success of quality improvement efforts.

  4. Annual Review - Program Manager - Excise Tax Policy is responsible for annually reviewing information in this IRM to ensure accuracy and promote consistent tax administration.

Terms/Definitions/Acronyms

  1. Terms and their definitions used throughout this IRM are listed in Exhibit 4.24.5-1.

  2. Acronyms and their definitions used throughout this IRM are listed in Exhibit 4.24.5-2.

Related Resources

  1. The IRMs listed below are the primary sources of information for excise examiners, excise managers and personnel at CEAC who process excise examinations with LB&I issues. Together this material forms the operating rules and explains the responsibilities for LB&I examination procedures.

    1. IRM 4.24.6, Technical Guidance and Information Processing for Excise Tax Examination Issues - This section provides the procedures for the preparation of excise tax workpapers.

    2. IRM 4.24.20, Excise Tax Report Writing Guide - This section provides the procedures for the preparation of excise tax reports.

    3. IRM 4.46.1, General Information and Definitions - This section provides an overview of the LB&I examination process, describes the principles of collaboration and includes a glossary of LB&I terms.

    4. IRM 4.46.2, Administrative Matters and Annual Compliance Plan - This section sets out the Annual Compliance Process for LB&I and describes the responsibilities for each office contributing to the development of the Compliance Plan. This IRM also contains the LB&I point computation criteria used to identify cases as a Coordinated Industry Case (CIC) or an Industry Case (IC). The purpose of the Annual Compliance Plan and the LB&I point computation criteria is to ensure LB&I applies its resources in the most efficient manner to reduce taxpayer burden, increase customer satisfaction and improve business results.

    5. IRM 4.46.3, Planning the Examination - This section sets out the LB&I examination process. It emphasizes the use of issue-based examination planning principles. It covers the importance of collaboration within the issue teams, as well as with the taxpayer during the various meetings (Internal, Opening and Issue Discussion). It also expands on expectations of the taxpayer regarding the filing of claims.

    6. IRM 4.46.4, Executing the Examination - A significant portion of this section covers examination techniques in detail. Procedures are set out for requesting information to perform the examination using the Form 4564, Information Document Request, (IDR) Enforcement Process. The application of penalties is given special attention to help ensure uniform and sustainable application of penalties.

    7. IRM 4.46.5, Resolving the Examination - This section covers the development of issues through their resolution. It emphasizes the requirement for LB&I examinations to be as current as possible. Additionally, this section describes resolution tools to assist the case manager in resolving issues at the team level. These tools will contribute to overall cycle time reduction and improve customer satisfaction.

    8. IRM 4.46.10. Outside Expert Program - This section describes the guidelines and procedures to ensure the proper procurement of outside expert services at the examination and Appeals level.

    9. IRM 4.51.8. LB&I Case Management, Compliance Assurance Process (CAP) Examinations - This section describes the Compliance Assurance Process (CAP), including how taxpayers apply for the CAP and how the CAP will be administered by IRS.

  2. Tools, resources, procedures, law and regulations for excise-related examinations are housed on the Excise Tax Knowledge Base Home Page located at https://portal.ds.irsnet.gov/sites/vl037/pages/default.aspx.

  3. IRS formally adopted a Taxpayer Bill of Rights (TBOR) in June 2014, which provides the nation’s taxpayers with a better understanding of their rights and helps reinforce the fairness of the tax system. In 2015, Congress charged the Commissioner with ensuring IRS employees are familiar with and act in accordance with taxpayer rights as afforded by IRC 7803(a)(3). IRS employees must be informed about taxpayer rights and be conscientious in the performance of their duties to honor, respect and effectively communicate those rights that may aid in reducing taxpayer burden. IRS employees must administer the law with integrity and fairness and exercise professional judgment, not personal opinions, in conducting enforcement activities. Refer to Pub 1, Your Rights as a Taxpayer, to read TBOR and learn how IRS employees carry out these rights.

LB&I Examinations – Categories for Excise Tax

  1. Information Document Retrieval System materials submitted in a case file issued for examination will include Command Code (CC) INOLES. The CC INOLES screen shot will indicate a Business Operating Division (BOD) Code. If "LM" is shown as the BOD Code, the case is under LB&I. If "LM" is present, the excise examiner should review CC AMDISA for the CIC-Case indicator. If present, the case is a CIC; if not present, it is an IC.

    Note:

    Refer to Exhibit 4.46.2-2, Criteria for the Identification of Coordinated Industry Case Program, for information on CIC and IC case categories.

  2. For excise examination issues, there are three types of LB&I examinations:

    1. Continuous examination using an LB&I team approach (Excise Tax and LB&I Income Tax are involved in the examination).

    2. Industry Case (IC) examination using an LB&I team approach (Excise Tax and LB&I Income are involved in the examination).

    3. CIC/IC stand-alone examination (Only Excise Tax is involved in the examination).

  3. If an IC or a CIC taxpayer is not under active examination status, the case will be worked as a CIC/IC stand-alone examination.

  4. Excise examiners working continuous and/or IC examinations should follow LB&I examination procedures. Refer to IRM 4.46.

  5. Excise examiners working CIC/IC stand-alone examinations may selectively use the lead sheets discussed in IRM 4.46 or those addressed under IRM 4.24.6.5, Workpaper and Lead Sheet Expectations, as well selectively choose to follow those Excise Tax Considerations and Techniques addressed under IRM 4.24.5.11. The excise examiner should document the case file accordingly.

  6. Excise work that is not classified or tracked by Excise Case Selection - Work Load Selection and Delivery (ECS-WSD), including but not limited to discretionary Form 637 reviews and excise claims, is processed under the preceding procedures.

Excise Examinations - Specialist Referral System - Overview

  1. LB&I requests the participation of excise examiners by making a mandatory referral through the Specialist Referral System (SRS) to ECS-WSD.

    Note:

    Refer to IRM 4.10.2.7.5, Examination of Returns, Pre-Contact Responsibilities, Referrals for Specialists for more information.

  2. The excise group manager must submit an Automated Information System User Registration/Change Form and Online Form 5081 to receive online referrals. An excise examiner must submit an Online Form 5081, subject to managerial approval, to receive an SRS referral.

  3. SRS is programmed to require an entry in the excise screen for the team coordinator. ECS-WSD and the excise group manager coordinate the referral assignment. The case is assigned to the excise examiner via SRS.

    Note:

    Refer to IRM 4.10.2.7.5.2.1, Specialist Referral System (SRS) - Online Referrals, for more information.

    Note:

    Refer to IRM 4.24.6.12, Specialist Referral System (SRS), for more information.

  4. Notification of the case assignment is received via secure email from "SRS Referral System@irs.gov." The communication provides a direct link to the SRS so that the excise examiner can retrieve the referral information. Refer to the Excise Tax Knowledge Base Homepage for Other Examination Work and Referrals located at https://portal.ds.irsnet.gov/sites/vl037/lists/otherexaminationworkandreferrals/landingview.aspx for more information.

  5. The referral includes the following information:

    • Taxpayer name and address

    • Taxpayer Employer Identification Number (EIN)

    • Tax periods under examination

    • Estimated start date and closing date of the income tax examination

    • Comments concerning excise taxes

    • Team name, team manager and contact telephone numbers

Case Selection Considerations and MFT B5 Case Controls

  1. ECS-WSD establishes the referral in Examination Return Controls System (ERCS) under MFT B5 at the time a referral is assigned to the field.

  2. The following codes are used for all referrals in IMS:

    • Cycle Type Code: EX - CIC 598 Referral

    • MFT: B5

    • Return Type: Form 720

    • Source Code (SC): 99

    • Activity Code: 598

    • Tracking Code: 6418 (Excise CIC Referrals)

    • Tracking Code 6500 (Excise IC Referrals)

    • Tracking Code 6501 (Excise SB/SE Referrals)

    • Standard Audit Index Number: EX-598

  3. ECS-WSD provides comprehensive internal information for each referral, such as CC AMDIS, CC AMDISA, transcripts, etc.

  4. The receiving excise examiner places the referral in the Issue Management System (IMS). If a related entity was controlled and subsequently examined, that event must be documented in the MFT B5 case file.

  5. All referrals are initially worked as "consultations."

  6. "Consultations" should include pre-contact case coordination procedures at IRM 4.24.5.7, as necessary, to determine the excise tax liability. Activities include, but are not limited to:

    • "Consultations" with the International Examination Examiner (IE), if applicable, assigned to the case.

    • "Consultations" with Excise Tax Policy Subject Matter Experts (SMEs).

    • Review of Form 851, Affiliations Schedule.

    • Review of Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations.

  7. A request for books and records constitutes actual examination time and would not be charged under Activity Code 598.

  8. If a "consultation" subsequently warrants examination potential, the excise examiner is required to upgrade it to an active examination. Examination controls will be requested on the entity at that time.

Time Charges

  1. All time spent in actual examination activities are charged to regular excise tax controls. Pre-examination activities, such as consulting, research and review of company information, are charged to Activity Code 598. All Activity Code 598 time is recorded on Form 9984, Examining Officer's Activity Record.

  2. Generally, "consultation" time should not exceed 24 hours without managerial approval, which allows for travel time, conferences, etc.

  3. Once the first IDR requesting books and records is issued and/or work is performed on a specific issue, regular excise tax controls are requested and used.

  4. Master File (MF) controls using Substitute for Return (SFR) procedures may be used when the taxpayer has not filed a Form 720,Quarterly Federal Tax Return, and Form 720 taxes are under examination. Refer to IRM 4.24.6.10, Establishing Substitute for Return Controls on Non-Filer Cases, for the appropriate SFR procedures.

Closing the MFT B5 Case and Establishing an Examination

  1. Once the excise examiner determines that examination controls will be established on a particular entity, the MFT B5 case is closed. Form 5345-D, Examination Request ERCS Users, is prepared. Refer to IRM 4.4.9.4.1.2, AIMS Procedures and Processing Instructions, Delinquent and Substitute for Return Processing, Form 5345-D , Examination Request ERCS (Examination Return Control System) Users. The following items on Form 5345-D must be completed:

    1. Is the case a LB&I/CIC? (N,P,S) N=Not Applicable, P=Primary/Secondary, S=Support

    2. For a CIC taxpayer, the proper entry is “P.”

    3. Use SC 71 for the pick-up of the primary return and SC 72 for the subsequent/related pick-up returns. If the taxpayer is a non-filer, use SC 24 for the primary return and SC 44 for the subsequent returns.

    4. Use tracking code 6418 when expanding the examination scope of an MFT B5 examination.

  2. Notebook has mandatory administrative forms for establishing an examination with CIC or IC issues. Numerous worksheets for non-CIC or IC examinations do not apply. Selected questions and procedures in those worksheets that do not apply were previously answered by the team coordinator.

Pre-Contact Case Coordination

  1. Within 30 days after the SRS referral is received from the excise group manager, the excise examiner is to contact the team coordinator. During the contact, the excise examiner:

    1. Obtains information concerning the business operations of the taxpayer, including its subsidiaries.

    2. Focuses special attention on the business activities of the taxpayer and its subsidiaries, which have excise tax potential.

    3. Coordinates dates of the planning and opening meetings and on-site visits to the taxpayer.

    4. Discusses the time commitment or number of days allocated to the excise tax issues, which helps determine the CIC examination plan.

    5. Obtains a list of the other assigned specialists and the information located on-site, which is useful in pre-examination activities.

Pre-Contact Information: Sources, Analysis and Review Procedures

  1. A Pre-Contact Analysis involves gathering sufficiently detailed information, both external and internal, about the taxpayer and its operations. The excise examiner reviews and analyzes this information to more effectively plan the examination and more efficiently deploy resources.

  2. To create a paper trail, excise examiners will document in the workpapers those actions taken to determine which excise taxes were considered in the examination planning process of the taxpayer or its subsidiaries.

  3. Excise examiners should consider the following excise taxes in the pre-planning of each CIC case:

    1. Ozone Depleting Chemicals and Imported Products - IRC 4681(b)(1) and IRC 4681(b)(2).

    2. Premiums paid to Foreign Insurers - IRC 4371.

    3. Transportation of Persons by Air - IRC 4261.

      Note:

      The above list does not constitute the only excise taxes considered in a CIC case, but they are those that could be present for any taxpayer in any industry.

  4. Sources of pre-contact analysis information may be gathered from, but are not limited to, the following activities:

    1. Review information contained in the case historical file from prior excise tax examinations. Information concerning the findings and resolutions of the case may be helpful in expanding or contracting the examination plan based on the facts and circumstances.

    2. Request transcripts for all entities related to the taxpayer. From the transcripts, determine the filing status, the amount and the types of excise taxes filed by each entity, as well as whether statutes are imminent.

    3. Internet research may be used to identify domestic and international manufacturing, as well as products and service offered by the parent and its subsidiaries.

    4. Inspect the income tax returns of the parent and any related entities to determine whether the taxpayer filed Forms 4136, Credits for Federal Tax Paid on Fuel. If so, obtain a copy of the form and any attachments. Review the information for any large and unusual fuel credits and/or potential for duplication of claims filed on the same type of fuel.

    5. Review "Other Deductions and Cost of Goods Sold" reported on the income tax return(s) of the parent and any related entities for insurance expense. The balance sheet for long-term liabilities, which may include global debt obligations, should also be reviewed.

    6. Review Form 851 to identify all affiliated taxpayers with potential excise tax issues and determine the business purpose for each. Request the appropriate Integrated Data Retrieval System research to determine each related entity’s filing requirements and compliance status. Consider each subsidiary for inclusion in the examination plan. In cases where the subsidiary list is voluminous, use risk analysis procedures to prioritize those entities to include in the examination plan and identify those entities and/or areas, which must be scheduled for another examination cycle. Refer to IRM, Risk Analysis Process, for more information.

      Note:

      A disregarded entity is listed on Form 851. A disregarded entity is a single-member LLC. The IRS disregards this type of entity as separate from its owner; however, a disregarded entity is not treated as a separate entity for purposes of certain excise taxes and employment taxes.

      Note:

      If the taxpayer did not file Form 851, request a comprehensive subsidiary schedule with EINs for all subsidiaries.

    7. Review filed Forms 720 and Forms 8849, Claims for Refund of Excise Taxes, for large and unusual items, as well as for current or emerging issues. Potential non-filed returns are considered based on the activities of the entity. Filed claims should be reviewed for large or unusual items, even if already paid. Should a paid claim be selected for review, follow paid claim procedures found at IRM 4.24.8.11, Paid Claims (AIMS Source Code 31) - Introduction.

    8. Each business unit that has or is required to have a separate EIN must file a separate Form 720 and Form 8849

    9. Inspect Form 5471 to identify ownership of foreign subsidiaries, their locations and business purpose. Information on the Form 5471 is helpful in determining potential imported products subject to excise tax, as well as foreign insurance on the transportation of these items. Form 5471 will also identify foreign insurance entities potentially subject to foreign insurance excise tax on premium transactions.

    10. Inspect Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business, to monitor transactions of foreign-owned corporations. This information may aid in determining foreign manufacturers for potential imported products and foreign insurance on shipments. It is an information source for whether the foreign parent is providing insurance to domestic companies. It also helps identify foreign insurance entities for potential foreign insurance excise tax. Review the statement attachments pertaining to various expenses, looking for fuel expenses, heavy highway vehicle operations, air transportation, or any indication of possible excise tax exposure. If there is heavy highway vehicle use, this may lead to questions concerning the filing of Form 2290, Heavy Highway Vehicle Use Tax Return.

    11. Review corporate annual reports, 10-Ks and publicly examined financial statements for the tax periods under examination, as well as for prior and subsequent tax periods, if available. Pay special attention to the discussions about the company’s operations, litigation, risk factors and note any changes in the corporate structure including new entities or divisions and/or sales or disbanded entities or divisions.

    12. All Securities and Exchange Commission (SEC) filings are available either on the taxpayer’s website or independently through sources, such as SEC/Electronic Data Gathering, Analysis, and Retrieval (EDGAR). All companies, foreign and domestic, are required to file registration statements, periodic reports and other forms electronically through EDGAR.

    13. Review state and local governmental reports because they may aid in determining the examination plan of the entity. Examples of state and local governmental reports are import documents, state fuel tax reports for fuels sold during the period and annual state reports filed by insurance companies with State Insurance Commissions. The annual state reports will note premium transactions with foreign reinsurers. In addition to the Office of Surface Mining Reclamation and Enforcement federal reports, many states prepare state coal reports. Reconcile the reported volumes on Form 720 to the federal and state reports.

    14. Review the Audit Technique Guides (ATGs) for each of the excise taxes to determine if potential tax issues are applicable to the taxpayer. If so, review the procedures necessary to properly develop the issue. For more information, refer to the Excise Tax Knowledge Base Homepage for Miscellaneous Job Aids and Case Closing Forms located at https://portal.ds.irsnet.gov/sites/vl037/lists/examinersmiscellaneousjobaids/landingview.aspx.

Communications and Contacts with Other IRS Specialists

  1. The excise examiner should meet with the other examination team members including:

    • CAS - The CAS should be consulted to determine if a high volume of records is needed, a specific type of file is required, or to determine if the excise tax records are machine-sensible and contained in the Retention Agreement. As machine-sensible records are identified, the excise examiner should consult with the CAS to include these records in the new Retention Agreement at the end of the current income tax examination cycle (useful for future excise tax examinations).

    • Financial Products Specialist - The Financial Products Specialist helps in determining the amount and type of imported products, as well as the existence of any global notes and securities. The Financial Products Specialist should be consulted for information on debt, which was issued in foreign markets. For excise tax, the issue applies to Obligations Not in Registered Form.

    • Excise Examiner on the Prior Cycle Examination - The excise examiner assigned to the prior cycle examination of the taxpayer is a valuable source of information about the taxpayer. In addition to discussing the taxpayer and the taxpayer’s operations, information concerning the taxes examined and findings during the prior cycle, the prior cycle excise examiner can help determine aspects of the current cycle examination plan. For example, if an area of tax planned for the current cycle was reviewed in the prior cycle with no adjustment or no unusual items were noted, and there has been no change in the operations of the taxpayer in this area of tax, the scope of the excise tax examination may be limited in respect to this tax. Facts and circumstances of the case need to be considered, as well as managerial approval for any limitations of examination scope.

    • Engineer - The Engineer should be consulted on related excise tax issues, such as the water content of coal, various chemical manufacturing flow charts, chemical substance items, and ozone depleting chemical items. Depending on the expertise of the engineer assigned to the CIC examination, a separate excise tax referral to the engineer group for a mineral, chemical or other specialty Engineer may be required.

    • Form 637Territory Lead Technician (LT) - The Form 637 Territory LT should be consulted to determine if the taxpayer or any subsidiary holds a Form 637 registration and to provide any relevant copies of work papers or forms located in the registration file. The excise examiner will coordinate with the Form 637 Territory LT, if a Form 637 compliance review is needed on the registrant. Copies of any findings of the regular excise examination are forwarded to the Form 637 LT for inclusion in the Form 637 IMS case file.

    • Excise Subject Matter Expert (SME) - The SME can provide information concerning current issues pertaining to specific excise taxes, as well as ideas and help in obtaining and reviewing information during the examination. Should an excise examiner discover an issue during the examination, an SME request is made by completing a Guidance Request Memorandum. Refer to IRM 4.24.6.16, Requesting Excise Subject Matter Expert Assistance, for procedures. The SME can supply support and help in working the issue. The SME web page Is located at: https://portal.ds.irsnet.gov/sites/vl037/lists/book5/sme.aspx

Specialist Withdrawal Notification Procedures

  1. If, after reviewing the available information concerning the taxpayer, it is determined that an excise examination is not warranted, the excise examiner will:

    1. Discuss the facts of the case as well as the recommendation to close the consultation with the excise group manager.

    2. Upon excise group manager concurrence, prepare a memorandum, which discusses the reasons for closing the consultation and obtain the excise group manager’s signature.

    3. Forward the original memorandum to the team coordinator and maintain a copy in the group’s historical file and in the IMS MFT B5 case file.

    4. Upload all work done in IMS and close the consultation in both ERCS and IMS. All work is performed in IMS, and there is to be no hard copy (paper file) of the consultation case.

    5. Close the consultation case using Disposal Code (DC) 00 in IMS. ERCS SC should be updated to 90, and DC to 00.

Excise Tax Considerations and Techniques

  1. Generally, the excise examiner should comply with the procedures articulated in IRM 4.46 when examining a CIC or an IC case with excise tax issues. Due to the discretionary authority granted to the team coordinator for directing a CIC or an IC examination, considerations and techniques tailored for excise tax have become customary, especially if they are perceived to increase the efficiency of the examination process.

  2. For a CIC or IC examination, deviations from IRM 4.46 policies and procedures should be disclosed on Form 9984 or in the workpapers.

  3. For a CIC/IC stand-alone examination, the excise examiner is not bound by IRM 4.46 policies and procedures.

Risk Analysis

  1. The risk analysis considers those excise taxes for which the taxpayer may be liable. The analysis identifies potential computational errors, incorrect exemptions, tax avoidance schemes and the compliance impact for future tax periods.

  2. Excise Tax Examination is not subject to LB&I case materiality thresholds. For this reason, the excise examiner should apply his or her best judgement when determining materiality.

  3. The time allocated for the examination should consider:

    1. Size and types of activities for the entity and its subsidiaries.

    2. Experience of the excise examiner.

    3. Potential research needed.

    4. Time required for general examination procedures, such as statute controls, meetings, case closings, etc.

  4. The time allocated to the examination may be reduced if the excise examiner is experienced in a specific type of excise tax; however, if this is not the situation, then the time allocated to the examination should be increased to allow for research and familiarization with the issues. Examination time may also be increased for actions by the SME or other specialists.

  5. The excise examiner and the excise group manager will determine the initial time allocated for a case, as well as an expansion or contraction of that time. This is done in collaboration with the team coordinator and team manager.

  6. Once the examination plan is finalized, the excise examiner will obtain the excise group manager’s approval and forward it to the team coordinator. A copy of the examination plan will remain with the case file. If an appointment date for an on-site visit has not been arranged then the excise examiner will collaborate with the team coordinator to schedule that appointment.

  7. Refer to IRM 4.46.3.3, Risk Analysis Process, for information about preparation of the risk analysis/examination plan.

Planning Meeting

  1. The planning meeting is an IRS meeting for all examiners, specialists, managers that may also include the taxpayer. The purpose of the meeting is to discuss the taxpayer’s business activities, as well as the planned areas of the examination. The excise examiner should be familiar with the types of excise taxes reported by the taxpayer. Refer to IRM 4.46.3.4, Internal Planning and Internal Planning Discussions, for information about the planning meeting.

Opening Conference

  1. The opening conference, which is conducted with the taxpayer present, introduces the examiners and specialists assigned to the case. The excise examiner provides a synopsis of the excise taxes that will be addressed and answer any questions raised by the taxpayer. Refer to IRM 4.46.3.6, Opening Conference (Meeting), for information about the opening conference.

Information Document Requests Procedures

  1. IDRs should be tailored to a specific issue and/or type of excise tax. An appropriate numbering system is required. The excise examiner and team coordinator should discuss the name of the person to whom an IDR should be issued. A discussion between the excise examiner and the taxpayer must be conducted. A mutually agreeable response date must also be established. Refer to IRM 4.46.4.6, Information Document Request Process, for information about IDR procedures.

Periodic Examination Meetings

  1. Periodic examination meetings are arranged by the team coordinator and the taxpayer to discuss open IDRs and provide updates on outstanding issues. Refer to IRM 4.46.3.8, Issue Discussion Meetings, for information about periodic examination meetings.

Form 5701, Notice of Proposed Adjustment

  1. The excise examiner must issue Form 5701,Notice of Proposed Adjustment (NOPA), along with an explanation on Form 886-A, Explanation of Items, for each proposed issue. The excise examiner must collaborate with the team coordinator for the issuance and numbering of the NOPA. Refer to IRM 4.46.4.12, Notice of Proposed Adjustment (NOPA), for information about Form 5701.

Written Acknowledgment of the Facts (AOF)

  1. For complex facts and circumstances, a written acknowledgment of facts (AOFs) may be necessary. Refer to IRM 4.46.4.10, Written Acknowledgment of the Facts (AOF), for information about AOF procedures.

Examination Report

  1. Once the taxpayer responds to the Form 5701, the appropriate excise examination reports are prepared. Refer to IRM 4.24.20 for information about excise report writing guidance. If a Form 4136 is under examination with an adjustment, the adjustment will be reflected on the Team Coordinator’s examination report. Therefore, a memorandum of adjustments is prepared to notify the Team Coordinator about:

    • The adjustment.

    • The amount adjusted.

    • The tax period(s) for the adjustment.

    • An explanation of the adjustment.

Closing Memorandum and Closing Examination Critique Meeting

  1. A closing memorandum may be requested at the conclusion of the examination, which identifies types of excise taxes examined, the entity name, EIN and tax period(s) examined. A detailed discussion of each type of excise tax examined along with the findings is issued even if the examination resulted in a no-change. Refer to IRM 4.46.5.17, Post-Examination Management Critique, for information about a closing memorandum and/or closing examination critique meeting.

Case Historical Files

  1. Upon completion of a CIC or an IC examination, a copy of the Excise Tax Revenue Agent Report (RAR) will be kept at the audit site location with the audit team. A copy of the RAR will also be maintained in IMS.

  2. Taxpayer information is customarily kept in the historical file for a minimum period of two examination cycles.

  3. After four years, the case historical file is labelled and sent to the Retention Center for another ten years before disposition.

  4. For CIC referrals worked as a "consultation" and not opened as an examination, a historical file is maintained, which includes a memorandum or other workpaper(s) detailing the actions taken in evaluating the referral’s non-acceptance for examination. The detail should be sufficient to provide a clear understanding of procedures used, documents reviewed and personnel queried to arrive at the determination. The file should be kept for a minimum period of two examination cycles at the examination site with the examination team.

Terms and Definitions

Terms and their definitions used throughout this IRM are listed in the table below.

Term Definition
Account Coordinator The lead income tax agent on a CAP case. All aspects of the case, including taxpayer contacts, are assigned to the account coordinator.
AMDIS Command Code that displays a summary of the Audit Information System File.
AMDISA Command Code that displays up to six screens of information about the taxpayer’s account for a specific tax period.
CIC Coordinated Industry Case that warrants the application of team procedures for examination purposes. Refer to IRM 4.46.2.6.2 for information about components of a CIC.
ECS-WSD Excise Case Selection - Workload, Selection and Delivery function that manages the selection, classification and delivery of returns for SB/SE excise tax compliance functions.
IC Industry Case that warrants the application of team procedures for examination purposes but does not qualify as a CIC. Refer to Exhibit 4.46.2-3 for IC/CIC distinctions.
LB&I Large Business and International business unit of IRS that is comprised of LB&I employees and LB&I stakeholders.
MFT B5 Case SRS inspection referral case that is generally a CIC taxpayer. Time is applied to a Non-Master File location to determine if an examination is warranted.
Retention Agreement A formal agreement between IRS and taxpayers subject to mandatory record retention requirements specifying the taxpayer must maintain machine-sensible records generated by all automated data processing systems unless the Computer Audit Specialist (CAS) Territory Manager consented to limit the retention to certain specific records.
Senior Team Coordinator The lead income tax agent on a CIC. All aspects of the case, including taxpayer contacts, are assigned to the senior team coordinator.
SME Subject Matter Expert is an IRS employee with specialized knowledge about IRS topics, such as specific excise tax abstracts.
Specialists Examiners that have received training in the respective specialty areas that include International, Excise, Employment, Financial Products, CAS, Engineer, Economist and Tax Computation Specialist.
Specialist Manager The team manager for each of the specialists assigned to the case.
SRS Specialist Referral System that automates the examination referral request process for LB&I, SB/SE, Tax Exempt & Governmental Entities and Wage & Investment field specialists.
Team Coordinator The examiner who has been assigned the AIMS controls for the case.
Team Manager The team coordinator’s manager. The team manager is the lead manager on the case who will potentially play a role in approving Form 4564, Information Document Request, and Form 5701, Notice of Proposed Adjustment, and adjustments on the case.

Acronyms and Definitions

Acronyms and their definitions used throughout this IRM are listed in the table below.

Acronym Definition
AIMS Audit Information Management System
AOF Acknowledgment of Facts
ATG Audit Technique Guide
BOD Business Operating Division
CAP Compliance Assurance Process
CAS Computer Audit Specialist
CC Command Code
CEAC Campus Exam/Automated Under Reporter Cincinnati
CIC Coordinated Industry Case
DC Disposal Code
ECS Excise Case Selection
EDGAR Electronic Data Gathering, Analysis, and Retrieval
EIN Employer Identification Number
ERCS Examination Return Control System
FSEQ Field and Speciality Exam Quality
IC Industry Case
IDR Information Document Request
IE International Examination Examiner
IMS Information Management System
LB&I Large Business and International
LT Lead Technician
MF Master File
RAR Revenue Agent Report
SB/SE Small Business/Self Employed
SC Source Code
SEC Securities and Exchange Commission
SFR Substitute for Return
SME Subject Matter Expert
SRS Specialist Referral System
TBOR Taxpayer Bill of Rights
WSD Workload Selection and Delivery