- 4.46.6 Workpapers and Reports Resources
- 18.104.22.168 Program Scope and Objectives
- 22.214.171.124 Workpaper Considerations
- 126.96.36.199 Examination Reports
- 188.8.131.52 Report Standards
- 184.108.40.206 Mandatory Managerial Approval
- 220.127.116.11 Tax Computations
- 18.104.22.168.1 TCS Procedures
- 22.214.171.124 Signed Agreement Procedures
- 126.96.36.199 Unagreed Report
- 188.8.131.52 Explanation of Items: Form 886-A
- 184.108.40.206 Cases with Unagreed Issues – Minimum Refund
- 220.127.116.11 Computer Data Backup
- Exhibit 4.46.6-1 LB&I Corporate SAIN Codes
- Exhibit 4.46.6-2 Life Insurance SAIN Codes
- Exhibit 4.46.6-3 Property & Casualty Insurance SAIN Codes
- Exhibit 4.46.6-4 IMS Mandatory Minimum Input Requirements
Part 4. Examining Process
Chapter 46. LB&I Examination Process
Section 6. Workpapers and Reports Resources
December 26, 2019
(1) This transmits revised IRM 4.46.6, LB&I Examination Process, Workpapers and Reports Resources.
This revision incorporates the changes to the LB&I examination plan and adds the electronic case file requirements for IMS.
(1) IRM 18.104.22.168 is renamed Program Scope and Objectives to conform to new requirements to address internal controls in the IRM.
(2) Rearranged content previously contained in the Overview, Definition of Workpapers and Purpose of Workpapers subsections and renumbered subsequent subsections.
(3) Added new content to IRM 22.214.171.124.1 regarding reasons for IMS electronic workpapers.
(4) Added new paragraph to IRM 126.96.36.199.1 about the possible disclosure of workpapers to the public under the Freedom of Information Act (FOIA).
(5) Added new IRM 188.8.131.52.2, Acronyms.
(6) Added new IRM 184.108.40.206.3, Related Resources.
(7) Added new sentence to IRM 220.127.116.11 referencing IMS electronic file requirements and lead sheet procedures.
(8) Added new sentences to IRM 18.104.22.168.1 regarding Form 9984 requirements.
(9) Added new sentences to IRM 22.214.171.124.2(1) regarding SAIN and time requirements in IMS.
(10) Deleted former IRM 126.96.36.199.2 regarding second tier SAIN issue tracking.
(11) Added new subsection 188.8.131.52.6 on the Examination Plan Issue Lead Sheet.
(12) Removed references to obsolete IRM 4.51.5 and Tier I/Tier II issues in renumbered IRM 184.108.40.206.3.
(13) Updated IRM 220.127.116.11, Approval, to be consistent with IRM 4.46.5, Resolving the Examination. Also added that assertion of penalties requires manager approval.
(14) Removed reference to Form 875 in renumbered IRM 18.104.22.168, Taxpayer Agreement and Payment.
(15) Added new content to IRM 22.214.171.124 regarding mandatory IMS case file requirements for unagreed cases.
(16) Added new content to IRM 126.96.36.199 regarding mandatory Form 886-A requirements in unagreed and Joint Committee cases.
(17) Updated Joint Committee threshold amount in IRM 188.8.131.52.
(18) Updated renumbered IRM 184.108.40.206, Computer Data Backup, to reflect current procedures.
(19) Renamed IRM 220.127.116.11.1 to Files from Laptop Computers, and removed obsolete information.
(20) Removed the following obsolete subsections under Computer Data Backup:
|Old IRM Subsection||Title|
|18.104.22.168.3||Audit Site Desktop and Laptop Computers|
|22.214.171.124.5||Equipment and Media Supplies|
|126.96.36.199.6||Training and Assistance|
(21) Revised or added the following SAIN codes in Exhibit 4.46.6-1:
|030||Administration Lead Sheet|
|404-01||Deferred foreign income (TCJA)|
|404-02||Participation exemption to included income (TCJA)|
|421-01||Subpart F - inclusion (TCJA)|
|421-02||Global Intangible Low-Taxed Income (TCJA - GILTI)|
|518||Limitation on business interest expense|
|530||Foreign-derived intangible income (TCJA - FDII)|
|604-02||Disallowance of foreign tax credit (TCJA)|
|610-03||Tax on base erosion payments and anti-abuse tax (TCJA)|
(22) Added Exhibit 4.46.6-4, IMS Mandatory Minimum Input Requirements.
(23) Editorial changes and corrections made throughout.
John V. Cardone
Assistant Deputy Commissioner Compliance Integration
Large Business and International Division
Purpose: This IRM provides guidelines for the development of workpaper content and organization, as well as preparation of audit findings for a completed report. These guidelines promote quality and consistency in examiner workpapers and reports. This section also describes the electronic case files required in the Issue Management System (IMS).
Audience: LB&I examiners
Policy Owner: Assistant Deputy Commissioner Compliance Integration
Program Owner: Policy Office within ADCCI
Primary Stakeholders: Many internal functions review LB&I case files after they leave the group, including:
Subject matter experts and technical specialists
SB/SE Technical Services reviewers
Joint Committee reviewers
LB&I Quality Review and Analysis reviewers
Tax examining technicians
TIGTA and GAO auditors
LB&I and Chief Counsel attorneys
Taxpayer Advocate case advocates
Examiners prepare workpapers, written records, to show the audit trail and to provide support for the conclusions reached in the examiner’s report.
Workpapers document the:
Conclusions reached in the examination
Electronic files are workpapers. Refer to Exhibit 4.46.6-4 for mandatory minimum input requirements for IMS workpapers.
Workpapers serve four basic purposes:
Assistance in planning the audit and setting the scope of the exam.
Record of the evidence gathered, procedures completed, tests performed, and analyses conducted during the examination process.
Support for technical conclusions.
Basis for review by management.
Workpapers reflect on the quality of the examination. Well-prepared workpapers quickly communicate the facts regarding the taxpayer’s tax liability. Poorly prepared and disorganized workpapers may confuse stakeholders. Electronic workpapers identified as mandatory in Exhibit 4.46.6-4 should be uploaded to IMS.
Workpapers, emails, reports, research, correspondence, photos and documents should be prepared with the expectation that they might be released to the public under the Freedom of Information Act.
The following table contains commonly used acronyms.
Acronym Definition BMF Business Master File EOAD Examination Operational Automation Database IMF Individual Master File IMS Issue Management System ITA Issue Tracking Attribute LIN LB&I Image Network RA Revenue Agent RAR Revenue Agent Report RGS Report Generation Software SAIN Standard Audit Index Number SRS Specialist Referral System TC Team Coordinator TCS Tax Computation Specialist UIL Uniform Issue List
The following IRMs are related to workpapers and reports:
IRM 4.10.9, Examination of Returns, Workpaper System and Case File Assembly
IRM 4.10.15, Examination of Returns, Report Generation Software (RGS)
IRM 4.10.16, Examination of Returns, Examination Operational Automation Database (EOAD)
Workpapers must be legible, indexed and organized. The workpapers are required to be identified by the appropriate Standard Audit Index Number (SAIN) and indexed in a logical order within each section so that others such as a reviewer or appeals officer, can easily follow the work product. A standard workpaper index must be utilized to organize electronic workpapers within IMS. The standard index will allow others to quickly find documents within the workpapers loaded in IMS and will serve as a reminder that all documents needed for a quality exam should be included. This will allow a paperless system in the future. It is suggested that the workpaper be labeled as "000-00-Workpaper Index" so that the document filters to the top during a workpaper sort within IMS. This will enable files to be easily located within IMS or the team website by utilizing the index.
Consider naming electronic workpapers with a 3 digit SAIN - numeric number - Description. This naming convention makes sure that the workpapers within each SAIN will show up in the desired order. If the numeric number is left out of the middle of the file name the workpaper will show up in the alphabetical order of the 1st letter in the description
Lead sheets with standardized audit procedures which can be tailored to each examination are available in IMS for many SAIN numbers. In the future, IMS will provide an electronic index for all case documents under the case document folder.
Workpapers should appropriately document techniques used and conclusions reached. For additional information regarding workpapers, refer to IRM 4.10.9, Workpaper System and Case File Assembly.
Workpapers (electronic or paper) that are required to be uploaded to IMS should identify the issue and show the development and conclusions reached. If electronic files are provided that are considered pertinent to the development of the issue, they should be added to IMS as well. All workpapers included in IMS should be associated with the appropriate issue SAIN number and issue name. Extraneous documents (electronic or paper) should be properly disposed or returned to the taxpayer and should not be included in IMS. Relevant workpapers should be separated from extraneous documents.
IMS offers examiners the option of using lead sheets for many issues based on SAIN input. Examiners should tailor these standardized audit procedures to each issue. Lead sheets created in IMS that are being used should be renamed to reflect the content of the workpaper, for example, "004 – Preparing the Examination Plan" .
Activity records must properly document examination activities. All examiners, including the case manager and issue manager(s), are required to document case activity on Form 9984, Examining Officer’s Activity Record.
Examiners are required to maintain Form 9984 in IMS. Examiners can enter their time and case activity in IMS by checking the box for "Open Activity Record with time entered" on the timesheet. Information entered on Form 9984 can be viewed from the team website. Team managers can document their examination activities using the "Case Comments " button on the IMS timesheet.
The team activity record becomes especially important if the taxpayer files a claim for interest abatement under IRC 6404(e). Examples of other events that should be documented on the activity record include loss of records, team member transfer, extended details, extended training, extended leave, extended acting assignments or any other event(s) that has the potential for delaying the closing of the examination. See IRM 188.8.131.52, Case File Assembly for Closing.
The primary purpose of the SAIN is to provide a consistent numbering system for examination workpapers. IMS uses SAIN to establish all issues. IMS also uses each issue’s SAIN to track the time charged to the issue. Time charged to the case is required to be entered and maintained in IMS.
SAIN codes have at least 3 digits with no alpha characters. The first digit identifies the code’s location as shown in the following table.
First 3 Digits: Item is: 000-099 Administrative 100-199 Balance Sheet - Assets 200-299 Balance Sheet - Liabilities 300-399 Balance Sheet - Equity 400-499 Profit & Loss - Income 500-599 Profit & Loss - Expenses 600-699 Income Tax Computations & Credits 700-799 Miscellaneous items 800-899 Specialists 900-999 Other Income and Expense Items
The IRS uses SAINs to track trends within LB&I and other IRS functions. A primary SAIN’s second and third digits may represent a line number on Form 1120. For example, the second and third digit of SAIN 517 refers to line 17, “Taxes and licenses” on page 1 of Form 1120. However, a SAIN number will not change when the tax return’s line number for an item changes, but will remain constant for the Examination Operational Automation Database (EOAD).
In some circumstances, multiple items might apply to a primary SAIN and a single line item on Form 1120. In instances where further refinement of a primary SAIN is appropriate, the number is extended by adding a hyphen and two additional digits. See the example below:
Primary SAIN SAIN Description Three Digit SAIN 322 Capital stock Five Digit SAIN 322-01 Preferred Five Digit SAIN 322-02 Common
Five Digit SAIN codes also occur when a primary activity has more than one significant aspect; for example, mandatory compliance checks, SAIN codes 713 through 713-07. The fourth and fifth digits are frequently referred to as second tier SAIN codes.
The second tier SAIN is added on the issue screen. Team managers use these codes to plan and track activity on specific cases. Teams may use second tier codes 00-99 (nn) to identify issues, examiners, divisions, or activities on their examinations. There are no restrictions on available captions.
Team coordinators often use second tier SAIN codes to track the source of audit adjustments. For example, a team coordinator uses SAIN 514, Repairs and Maintenance, for the examination of a parent corporation and its three subsidiaries. The team coordinator may use SAIN codes 514.01 for the parent corporation, 514.02 for domestic Sub A, 514.03 for domestic Sub B and 514.04 for foreign Sub A to track the source of any audit adjustment.
A team coordinator may track team member’s activity through second tier SAIN codes. For example, the team coordinator may assign two agents to work on a corporation’s repairs and maintenance accounts. The first agent reconciles the corporate book repair and maintenance expenses to the tax return. The team coordinator assigns the first agent SAIN 514.05. The team coordinator may assign a second agent SAIN 514.06 for coordinating with an engineer on the capitalization of the corporation’s property, plant, and equipment maintenance and repair expenses.
IMS gives team managers flexibility to track activity by particular subsidiaries, divisions, agents or specialties. These options should be considered before assigning second tier SAINs for this purpose
See Exhibit 4.46.6-1, for the SAIN table used for corporate and partnership examinations. Special SAIN tables are used for life insurance examinations, Exhibit 4.46.6-2, and property and casualty company examinations, Exhibit 4.46.6-3.
Use IMF codes for Form 1040 examinations. See IRM 4.10.16, Exhibits 1 - 3. SB/SE maintains and controls these tables.
Neither the SAIN nor the second tier SAIN is designed to track results of issues. IMS has an Issue Tracking Attribute (ITA) to accomplish the issue tracking functions assigned to the second tier SAIN. This attribute code also applies to specialist issues, tax shelters, listed transactions or items of interest. This attribute will also track results when a specialist is assigned to develop a primary SAIN issue.
The Business Review Board is the gatekeeper that sets criteria for approval of ITA codes. There is one ITA code for each approved compliance issue.
SAIN identifies an issue location on a tax return or in an audit plan; i.e., where it is.
Uniform Issue Locator (UIL) codes are unique eight-digit numbers keyed to the Internal Revenue Code or to the International Matrix for international issues; i.e., why it is.
ITA codes identify the assigned examiner and name of an issue, transaction, or other item of interest; i.e., what it is and who is assigned to it.
Tracking all three of these components will enhance LB&I's issue management strategy.
The case and issue manager(s) will ensure that workpapers include all required team manager comments and document managerial involvement during the development of the case.
Notations in the activity records
Workpapers summarizing discussions of issues
The case and issue manager will verify the UIL codes in IMS prior to case closure.
The Administrative Lead Sheet is included in IMS. Users creating a new SAIN 030 issue can "Create a Leadsheet" through Administrative Issues.
The Administrative Lead Sheet includes links under each step with other resources and guidance (IRM citations, for example). This lead sheet does not eliminate administrative steps provided in the IRM. Rather, it eliminates non-value-added documentation, thereby reducing administrative burden. This streamlined administrative lead sheet replaces the following administrative lead sheets:
SAIN 001 - Pre-contact Analysis
SAIN 003 - Preliminary Examination Time
SAIN 033 - Pre-audit Interview History
SAIN 080 - Planning file
SAIN 701 - Minutes and other records
Examination reports should contain all the information necessary to ensure a clear understanding of the adjustments and tax computation. Examination reports serve as the basis for assessment and collection action. Examiners should take all necessary steps to ensure the accuracy of examination reports. Unless stated otherwise, the provisions of IRM 4.10.8, Examination of Returns, Report Writing, apply to reports prepared by LB&I teams for consistency. The team coordinator should specify workpaper style and composition preferences before the report is prepared.
Tax computation and report preparation software is used by TCS to generate examination reports.
BNA Software is used to generate Form 1120, income tax examination reports.
Report Generation Software (RGS) is used to generate individual, partnership and S corporation income tax examination reports.
The 1041 Workcenter is used to generate trust income tax examination reports.
See IRM 4.10.16 for procedures related to EOAD.
Form 4549, Report of Income Tax Examination Changes, is used to prepare reports for most individual and corporate agreed examinations.
Form 4549-A, Report of Income Tax Examination Changes, is used in partially agreed cases, unagreed and Joint Committee cases. However, LB&I cases may make it practical to prepare reports using Form 4549-A with Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment, even for agreed cases.
Continuation sheet Form 4549-B, Report of Income Tax Examination Changes, is used on any case with adjustments exceeding the number allowed on Form 4549 or Form 4549-A.
Form 4605, Examination Changes - Partnerships, Fiduciaries, S Corporations and Interest Charge Domestic International Sales Corporations, is used to prepare reports for partnerships and S corporations.
Use Form 4666, Summary of Employment Tax Examination, to summarize the employment tax examination results. Also use Form 4667, Examination Changes – Federal Unemployment Tax, and Form 4668, Employment Tax Examination Changes Report. Refer to IRM 4.23.10, Report Writing Guide for Employment Tax Examinations.
Report adjustments and explanations must reconcile to the workpaper conclusions. Written explanations should be issued to the taxpayer on Form 5701, Notice of Proposed Adjustment, prior to issuing the final examination report. Form(s) 886-A, Explanation of Items, should be attached to all final agreed and unagreed reports issued to the taxpayer.
The requirement for issuing a no-change revenue agent report (RAR) for disposal code 02 examination closures has been eliminated. However, the no-change process does not eliminate the requirement to submit an SRS referral for a tax computation specialist (TCS) when an examination is initiated.
An RAR is required for the following:
No-change examinations with adjustments (Disposal Code 01)
Examination with adjustments in one or more years which net to zero
Returns subject to Joint Committee review
Offshore Voluntary Disclosure Initiative cases
Non-TEFRA returns which are linked
Revenue agents and team coordinators will contact the assigned TCS to inform them that the case will be no-changed and that all lMS files are checked in.
Once all IMS files are checked in, the revenue agent or team coordinator will prepare the appropriate no-change letter (Letter 590, for example), leaving the date field blank, and obtain the manager's signature on the letter.
The revenue agent or team coordinator will also check the applicable no-change letter box on page 2 of Form 3198 before forwarding the case to the Centralized Case Processing (CCP) function following existing case closing procedures.
CCP will date and issue the no-change letter to the taxpayer and any applicable representatives, when the examination is officially closed.
Examination reports must meet the following standards:
Examiners will adequately address issues, facts, law, taxpayer’s position(s), arguments and conclusions for all agreed and unagreed issues. See IRM 184.108.40.206, Explanation of Items: Form 886-A.
Examiners should reconcile reports to supporting workpapers and tax return data to a current transcript.
The examiner’s report will address pertinent legal arguments on unagreed issues. Legal citations support application of law for unagreed and agreed issues. IRM references, law or accounting journal articles, IRS training material and other internal communications do not qualify as legal citations.
Examiners will acknowledge the taxpayer’s position on agreed issues and respond to the taxpayer’s position on unagreed issues.
The examiner’s report will address pertinent legal arguments on unagreed issues.
The examiner’s report will include any specialists’ adjustment(s).
A Joint Committee spreadsheet that traces the appropriate carrybacks and carryforwards must be included if the case meets Joint Committee Review criteria. See 4.36.2, Identification of Joint Committee Cases.
MAP (Mutual Agreement Procedure) report is required if the audit proposes adjustments that affect the taxpayer’s income in a treaty country. See IRM 4.60.9, International Procedures, International Examiner’s Report.
Team managers are required to approve audit reports before they are issued to taxpayers. The manager’s approval must be documented in the case file. This approval may be documented via email, the manager’s initials on the audit report, a notation in the activity report, or other documentation in the case file. Secure the team manager’s documented approval of the audit report prior to issuing it to the taxpayer.
For LB&I examinations that result in a no-change report with no adjustments (disposal code 02), management approval will be evidenced by the manager’s signature on the no-change letter before closing the case to CCP. (See IRM 220.127.116.11.1.)
The assertion of penalties requires the written approval of the immediate supervisor of the issue team members determining the assertion of penalties before the Notice of Proposed Adjustment is issued to the taxpayer. This approval must be documented in the case file. (See IRM 18.104.22.168.6, Executing the Examination, Workpaper Documentation on Penalties.)
In any case where there is a substantial understatement of tax and no penalty is proposed, the non-assertion of the IRC 6662(e) penalty must be approved in writing by the immediate supervisor of the issue team members determining the non-assertion of this penalty. This approval must be documented in the case file.
LB&I revenue agents will use a tax computation specialist (TCS) for all LB&I cases with the exception of international withholding tax computations, excise tax computations and most employment tax computations. Requests for TCS services are made by the team coordinator (TC). A single request for TCS services is done through the Specialist Referral System (SRS) at the beginning of every case.
Separate SRS referrals for related entities (e.g., shareholders’ returns, officers’ returns, etc.) should be submitted as soon as it is determined that the returns will be examined. For S corporation examinations, separate SRS referrals for each S corporation shareholder should be submitted as soon as it is determined that the S corporation will have adjustments, if referrals have not already been submitted for the shareholders and the S corporation is not linked.
The SRS request for a TCS should include a LIN link for the latest return of the exam cycle. Amended returns and Forms 1139 should be provided by the TCS once a TCS is assigned to the case.
The TCS provides services that differ from those provided by other specialists. It is therefore important that the requesting revenue agent selects the correct practice area and DFO when submitting the SRS request. This will direct the request for TCS services to the correct practice area and TCS group.
Once a referral has been made and a TCS has been assigned to the case, the revenue agent will communicate directly with the assigned TCS to provide documents needed for the return input, any what-if computations, and to have RARs prepared.
Once the request has been assigned by the TCS manager, the revenue agent will assign the TCS "team coordinator" privileges in IMS so the TCS may complete the request for input, RAR computation, or tentative calculations.
For carryback cases, examiners are to provide the TCS with Forms 1120X, 1139, 1040X or 1045 that are the source documents for NOL, capital loss and credit carrybacks.
The revenue agent will verify the accuracy of the RAR prior to issuing it to the taxpayer.
The TCS will utilize RGS and BNA software to generate the appropriate report and associated tax computations and schedules.
The TCS is required to reconcile the income, deductions and tax per return to a current transcript.
For cases where amended returns were filed, the TCS may need to prepare two audit reports depending on whether the campus processed the amended return. One report (the case processing report) will be sent to Ogden CCP or Technical Services for case processing purposes. The other report will show the audit adjustments and will be provided to the taxpayer.
If the taxpayer filed Form 1139, a case processing report will also be required (presuming that the refund was remitted to the taxpayer as required by law).
The TCS should prepare BNA tax reports inside of IMS and create a final working copy of the CT file as a case document. If the BNA file was completed outside of IMS, the final CT file should be imported into IMS as a case document. RGS tax reports and RGS data files should be imported into IMS as a case document once the reports are finalized.
For Joint Committee cases the TCS will prepare the Joint Committee spreadsheets and Forms 2285.
The TCS will copy electronic workpaper files directly related to the tax computation, Joint Committee spreadsheet and Forms 2285 into the IMS Case Documents section
Electronic workpapers related to the report and computation of tax are saved in IMS Case Documents.
For LB&I no-change examinations with no adjustments (disposal code 02), the TCS will complete the initial input of all returns to verify the accuracy of the per return tax computations. Once accuracy of the return is verified, the TCS will check in all IMS files instead of preparing a no-change RAR. (See IRM 22.214.171.124.1(2) for exceptions.)
Secure the taxpayer’s agreement to the examination report on one of the following forms:
Form 4549, Report of Income Tax Examination Changes
Form 4605, Examination Changes - Partnerships, Fiduciaries, S Corporations, and Interest Charge Domestic International Sales Corporations
Form 2504, Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment (Excise or Employment Tax)
Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment
See IRM 126.96.36.199.3, Instructions for Completing Waiver.
Agreement waivers are considered executed after the taxpayer has signed them. Executed agreement waivers should be date stamped upon receipt.
In the event the taxpayer does not sign the waiver form, the examiner will follow the unagreed procedures. (See IRM 188.8.131.52 and IRM 184.108.40.206.)
For securing agreements for TEFRA entities refer to IRM 220.127.116.11.11, Securing Agreements from the TMP and the Partners.
All TEFRA agreements must be executed by a Technical Services TEFRA coordinator or other employee delegated by Delegation Order 4-19, Partnership Matters.
The TC and case manager will ensure that cases are processed promptly following receipt of signed agreement forms.
Solicitation of Deficiency - Examiners must solicit payment of tax deficiency, penalty and interest. Examiners will document this action on Form 9984, Examining Officer’s Activity Record.
If an examiner does not secure full payment or an installment agreement from the taxpayer, a referral to SRS Collection is mandatory for agreed unpaid BMF cases over $100,000 and should be considered for agreed unpaid IMF cases up to $100,000. For payments over $100,000 or more see IRM 18.104.22.168, Payments of $100,000 or More.
Cash Bonds or Payments - Taxpayers may pay a deficiency or proposed deficiency by making a deposit or making an advanced payment by check or electronic funds transfer. For payments received by check, prepare and process Form 3244-A, Payment Posting Voucher -- Examination, with the funds received, according to LB&I guidelines. If the taxpayer wishes to make a deposit under IRC 6603 for the purpose of suspending the running of interest on a potential underpayment, the taxpayer must follow the procedures in section 4 of Rev. Proc. 2005-18. If the taxpayer wishes to identify a deposit in the nature of a cash bond (that was previously made under Rev. Proc. 84-58) as a deposit eligible for interest under IRC 6603(d), the taxpayer must follow the procedures in section 5 of Rev. Proc. 2005-18. The taxpayer may also make advance payments or cash bond payments using Same Day Wire Transfer via the EFTPS (Electronic Federal Tax Payment System) systems.
Processing Checks Received – Procedures for processing remittance checks received from taxpayers are found at the Remittance Processing for LB&I Cases web site. See IRM 22.214.171.124, Processing Payments Received and IRM 126.96.36.199, Payments of $100,000 or More.
Report forms for an unagreed case are similar to those used for agreed cases. The instructions to complete agreed case reports generally apply; however, unagreed report forms do not include a signature line for the taxpayer. All unagreed reports and related documents/workpapers (tax computations / RAR / protest / rebuttal / T-letter, etc.) are mandatory items that are required to be included in the IMS case file.
Form 4549-A or Form 4605-A are used to summarize all adjustments. Explain each issue on a Form 886-A, Explanation of Items, detailing the facts, law and argument, taxpayer’s position, and a conclusion. See IRM 188.8.131.52, Unagreed Case Procedures: Preliminary (30-Day) Letters ( LB&I Examiners only).
Inform taxpayers of their rights to discuss proposed adjustments with the examiner’s team manager and of their formal appeal rights.
Examiners will solicit payment for tax deficiency, penalties and interest for all agreed issues, unless the agreed adjustments would generate a net refund.
If the taxpayer submits a protest, the examiner must review it and prepare a timely rebuttal. The rebuttal will address and/or resolve any factual differences between the protest and the audit report. The rebuttal will also address any new arguments or legal positions presented by the taxpayer.
If agreement is reached on some, but not all, issues or years, encourage the taxpayer to enter into a partial agreement by executing a waiver on Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment. No agreement should be solicited if the agreed adjustments would generate a net refund. See IRM 184.108.40.206 for instructions on the preparation of partially agreed RARs. See IRM 220.127.116.11, Cases with Unagreed Issues - Minimum Refund, paragraph (2).
Prepare Form 886-A and attach it to the report form to explain the adjusted items. Use a separate Form 886-A for each adjusted issue. If the adjustment applies to more than one year, show the years and adjustments on one combined Form 886-A. The Form 886-A attachment is mandatory and must be attached to all Form(s) 5701 for all unagreed issues. For Joint Committee cases, Form 886-A is required for all agreed and unagreed issues.
The following format should be used for LB&I cases:
Issue -- Number and label each issue explanation to correspond with the adjustment on the audit report. Include a reference to SAIN to facilitate tracing back to workpaper detail of the adjustment. For clarity, include the amount per return, the amount per audit, and the resulting adjustment
Facts -- Include a narrative statement of the facts upon which the adjustment is based. State the facts accurately and objectively. Include all relevant facts whether favorable to the IRS’ or taxpayer's position.
Applicable Law -- Cite and explain the applicable authority correctly. Clearly state the rulings and opinions relied upon in the explanation. Reports should fully inform the taxpayer of the legal basis for the proposed adjustments.
Taxpayer's Position -- State the taxpayer’s position in narrative form. Include any legal authority the taxpayer cites as the basis for the taxpayer’s position. If the taxpayer provides a written position statement, include the entire statement in this section or summarize the statement and include the entire document in the report as an exhibit.
Argument – Prepare a narrative with related facts, as previously discussed in b), and cite the authority to support the IRS’ position and the IRS’ rebuttal of the taxpayer's position.
Conclusion -- Briefly state a conclusion of the IRS’ position.
A taxpayer could be due a net refund upon completion of an examination even if none of the unagreed issues are resolved in the taxpayer’s favor. This is referred to as a "minimum refund" case. This is more likely in situations where the taxpayer has filed a claim for refund for one or more of the years in the cycle.
The examination team should solicit a partial agreement relating to the agreed issues. See IRM 18.104.22.168 for instructions on the preparation of partially agreed RARs.
The taxpayer agrees to the partial refund by signing Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment.
Other instructions in IRM 4.10.8, Examination of Returns, Report Writing, for the preparation of reports and the processing of partial agreements remain in effect.
If the taxpayer declines to execute the Form 870, the case is considered unagreed with respect to all issues.
In all minimum refund cases Form 9984, Examining Officer’s Activity Record, and Form 4665, Report Transmittal, will document the efforts to solicit a partial agreement from the taxpayer and the taxpayer’s response. After processing of the partial agreement, unagreed issues are forwarded to Appeals in the regular manner.
In the event the minimum refund amount exceeds $2,000,000 ($5,000,000 for corporations), and the taxpayer has demonstrated agreement with the examiner’s findings by executing the Form 870, the refund must be reported to the Joint Committee on Taxation and processed before the unagreed issues are forwarded to Appeals. For instructions on the preparation of case files for review and preparation of the report to the Joint Committee on Taxation see IRM 4.36.3, Examination Team Responsibilities.
The loss of computerized records related to examinations can have catastrophic consequences to the tax administration process and can potentially result in the loss of large sums of current and future revenue. Proper backup procedures facilitate data recovery if a data loss occurs. Workpapers that are maintained, uploaded and synchronized in IMS are automatically saved every 2 hours or when you close the case attribute screen.
Best practice from Case Management Systems Solutions encourages the use of IMS and Virtual Servers to back up your data and workpaper files.
Examiners are responsible for backing up the files from laptop computers that are not stored anywhere else. IMS and virtual servers are the primary backup storage devices.
Requirements for electronic record keeping systems are determined by the business unit and must comply with statutes and regulations of the records management regulatory agency, the National Archives and Records Administration.
The IRS Records Officer participates with the business unit and Information Technology in the design and development of recordkeeping systems to ensure the proper protection and disposition of recorded information.
Each backup media will be properly labeled. A label will be attached to the outside of each backup media (portable storage device or DVD) with at least the following information:
Team coordinator's name
Tax form and examination year(s)
|000||Issue Does Not Exist|
|002||Pre - Exam Conference|
|003||Preliminary Examination Time|
|004||Preparing Examination Plan|
|007-05||Qualified Tax Computation|
|010||Review Protest / Prepare Rebuttal|
|012||Form 5699 (Information Document Request Log)|
|013||Issue Control Sheet - Form 5701 (Notice of Proposed Adjustments)|
|014||Referrals to Specialists|
|017||POA / Form 8821 (Tax Information Authorization)|
|018||Statute of Limitations|
|020||Prior Revenue Agent Report|
|021||Prior Appeals Report|
|022||Joint Committee Reports|
|030||Administration Lead Sheet|
|033||Pre-audit Interview History Lead Sheet|
|034||Examiner's RRA 98 Compliance Guide|
|061||Self-Audit Adjustments (Affirmative Adjustments)|
|100||Balance sheet (no balance sheet attached)|
|102||Trade notes & accounts receivable|
|102-01||Allowance for bad debts|
|104||U.S. government obligations|
|106||Other current assets|
|107||Loans to stockholders|
|108||Mortgage & real estate loans|
|110||Buildings & other depreciable assets|
|217||Mortgages, notes, bonds payable in less than 1 year|
|218||Other current liabilities|
|218-01||Related party accruals|
|219||Loans from stockholders|
|220||Mortgages, notes, bonds payable in 1 year or more|
|323||Additional paid-in capital|
|324||Retained earnings - appropriated|
|325||Retained earnings - unappropriated|
|325-01||Reconciliation of retained earnings|
|326||Cost of treasury stock|
|327||Adjustments to shareholders equity|
|328||Distribution of property|
|329||Distributions, bargain sale|
|401||Gross receipts or sales|
|401-01||Sales to related entities|
|402||Returns & allowances|
|404-01||Deferred foreign income (TCJA)|
|404-02||Participation exemption to included income (TCJA)|
|408||Capital gain net income Schedule D|
|409||Net gain (loss) - Form 4797, Part II|
|411||Merchant card and third-party payments|
|421-01||Subpart F - inclusion (TCJA)|
|421-02||Global Intangible Low-Taxed Income (TCJA - GILTI)|
|430||Income (Expenses) Flow-through from Other Entities|
|502||Cost of goods sold (No Sch. A or F1125-A Detail)|
|502-03||Cost of labor|
|502-04||Additional Section 263A costs|
|512||Compensation of officers|
|513||Salaries and wages|
|514||Repairs and maintenance|
|517||Taxes and licenses|
|518||Limitation on business Interest expense|
|521||Depreciation (other than page 1 - Form 1120)|
|524||Pension, profit sharing plans|
|525||Employee benefit programs|
|526||Other deductions (not listed)|
|526-03||Auto & truck expenses|
|526-09||Dues & subscriptions|
|526-14||Gifts & awards expenses|
|526-18||Legal and professional fees|
|526-19||License and permit expenses|
|526-20||Maintenance and cleaning|
|526-21||Management and director fees|
|526-22||Meals and entertainment|
|526-23||Meetings, seminars, conventions|
|526-27||Postage & courier expense|
|526-28||Proposal or bidding expense|
|526-29||Public relations expense|
|526-31||Recruiting & training|
|526-32||Research & development|
|526-35||Shipping, freight & handling|
|526-36||Supplies - office|
|526-37||Supplies - tools & factory|
|527||Domestic production activities|
|528||Reconcile Schedule M-1 (Reconcile 1120A Part IV)|
|529-01||Net operating loss deduction (NOLD)|
|530||Foreign-derived intangible income (TCJA - FDII)|
|601||Income tax computation|
|601-01||Member of controlled group|
|601-02||Tax brackets and additional tax allocations|
|601-03||Qualified personal service corporation|
|601-04||Additions to regular income tax|
|604-01||Foreign tax credit|
|604-02||Disallowance of foreign tax credit (TCJA)|
|604-03||Orphan drug credit|
|604-04||Nonconventional source fuel credit|
|604-05||Qualified electric vehicle credit|
|604-06||General business credits|
|604-07||Credit for prior year minimum tax|
|604-11||Section 45R credit for health care|
|604-12||Recapture of investment credit|
|604-13||Recapture of low-income housing credit|
|606||Other nonrefundable credits|
|607||Personal holding company tax|
|608-01||Other recapture taxes|
|609||Alternative minimum tax|
|609-01||AMT Adjustments and Preferences|
|609-03||Adjusted Current Earnings|
|609-04||AMT Net Operating Loss Deduction|
|609-05||Alternative Minimum Taxable Income|
|609-06||Alternative Minimum Tax|
|609-07||AMT Foreign Tax Credit|
|609-08||Tentative Minimum Income Tax|
|610-01||Accumulated earnings tax|
|610-03||Tax on base erosion payments and anti-abuse tax (TCJA)|
|611||Enhanced Oil Recovery Credits|
|622-03||Additional LIFO Reserve LIFO tax|
|623-06||Fuel tax credit|
|623-07||Telephone excise tax credit|
|624-01||Accuracy-Related Penalty - 6662|
|624-02||Fraud penalty - 6663|
|624-03||Delinquency penalty - 6651|
|624-04||Estimated Tax penalty (Individual) - 6654|
|624-10||Other penalties (includes FBAR)|
|624-11||Estimated Tax Penalty (Corporation) - 6655|
|630||Renewable Electricity Tax Credit|
|631||Refined Coal Tax Credit|
|632||Indian Coal Production Tax Credit|
|633||Interest due under the look-back method - completed long term contracts|
|634||Interest due under the look-back method - income forecast method|
|635||Alternative tax on qualifying shipping activities|
|701||Minutes & other records|
|703||Acquisitions, liquidations, reorganizations|
|703-02||S Corp. vs. C Corp. Issues|
|704||Corporate slush fund checks|
|706||Section 482 potential|
|706-01||Advance Pricing Agreement|
|707||Method of accounting|
|708||Initial return - IRC 195, 246, 1060|
|709||Final return - distributions|
|710||Related party transactions|
|711||Distributions of earnings & profits|
|712||Distributions in excess of basis|
|713||Mandatory compliance checks|
|713-02||Prior & subsequent returns|
|713-03||Minimum inventory checks|
|713-04||Minimum income probe|
|713-05||Other filing checks|
|726||Potentially abusive schemes|
|726-01||Form 8275 disclosure statement|
|726-02||Form 8886 reportable transaction|
|726-03||Transaction lacks economic substance|
|732||Corporate level limits|
|750-01||M3 Part 1: Financial Statements|
|750-02||M3 Part 1: Includible & Non-includible entities|
|750-03||M3 Part 2: Income|
|750-04||M3 Part 3: Expenses & deductions|
|801||Statistical sampling procedures|
|802-01||Computer Audit Specialist (CAS) Non-Issue Data Preparation|
|802-05||Exempt Organization Examiner|
|802-06||Excise Tax Examiner|
|802-12||Exam Tech/Audit Aides|
|802-13||Contracting Officer's Technical Representative (COTR)|
|802-14||Tax Computation Specialist|
|803-01||Life Insurance Examiner|
|803-02||Property & Casualty Insurance Examiner|
|804||Other Classified Issue #1|
|805||Other Classified Issue #2|
|806||Other Classified Issue #3|
|807||Other Classified Issue #4|
|808||Other Classified Issue #5|
|809||Other Classified Issue #6|
Use the SAIN codes on this list for Forms 1120-L only. All the primary corporate SAIN codes from IRM 4.46.6-1 will remain available for these returns.
|240||Increase in Policy Cash Value – IRC §264(f)|
|243||Average Interest Rate Assumed|
|244||Pension Plan Reserves|
|245||Adjusted Life Insurance Reserve|
|247||Reserve Deduction and Reconciliation|
|340||Policyholders/Shareholders Surplus Account|
|404-02||Dividend Income (Proratable)|
|404-03||Domestic < 20% Owned|
|404-04||Domestic > 20% Owned|
|404-05||Debt Financed Stock|
|404-06||Public Utility Stock < 20% Owned|
|404-07||Public Utility Stock > 20% Owned|
|404-08||Foreign < 20% Owned|
|404-09||Foreign > 20% Owned|
|404-10||Wholly-owned Foreign Corporations|
|404-11||Certain Affiliated Company Dividends|
|404-12||Dividend Income (Not Proratable)|
|404-13||Affiliated Company Dividends|
|404-14||Other Corporate Dividends|
|406-01||Leases and terminations|
|460||Non-Insurance Trade or Business Income|
|461||Tax Exempt Interest|
|462||Increase in Policy Cash Value – IRC §264(f)|
|540||Policyholder Dividends and Reconciliation|
|541||Policy Acquisition Expenses|
|542||Small Life Insurance Company Deduction|
|543||Limitation on Non-Insurance Losses|
|546||Assumption of Liabilities by Others|
|548||Other Life Insurance Deductions|
|760||Gross Investment Income Reconciliation|
Use the SAIN codes on this list for Forms 1120-PC only. All the primary corporate SAIN codes from IRM 4.46.6-1 will remain available for these returns.
|224||Loss Adjustment Expenses|
|226||Taxes, Licenses Fees|
|227||Unearned Premium Reserves|
|229||Dividends Declared Unpaid|
|230||Ceded Reinsurance Premiums Payable|
|231||Funds held by company under reinsurance treaties|
|232||Amounts withheld or retained by company-account of others|
|233||Remittances and items not allocated|
|234||Provisions for reinsurance|
|235||Liability for amounts held under uninsured accident and health plans|
|236||Schedule P Part 2 Reserve Development - PC AS|
|236-01||Part 2B - Analysis Claims Unpaid - Health AS|
|325-02||Adjustments to shareholders' equity|
|325-03||Adjusted surplus for Section 833 organizations|
|401-03||Net premiums written|
|401-05||Sec. 832(b)(7)(A) life insurance reserves included in unearned premiums|
|401-06||Unearned premiums attributable to insuring certain securities|
|401-07||Discounted unearned premiums attributable to title insurance|
|404-01||Div. Rec’d deduction subject to Sec. 832(b)(5)(B)|
|405-01||Amortization of Bond Premium|
|405-02||Amortization of Tax-Exempt Bond Premium|
|405-03||Interest exempt under Sec. 103|
|440||Sec. 834, Electing Small Company|
|441-01||Limitation on deduction for investment expenses|
|441-02||Income from leases described in sections 834(b)(1)(B) and 834(b)(1)(C)|
|442||Certain mutual fire or flood ins. co. premiums Sec. 832(b)(1)(D)|
|443||Income on account of special income & deduction accounts|
|444||Income from protection against loss account|
|445||Mutual interinsurers or reciprocal underwriters – decrease in subscriber accounts|
|446||Income from a special loss discount amount, Sec. 847|
|515-01||Agency balances and bills receivable that become worthless during tax year|
|517-01||State and local insurance taxes|
|517-02||State premium taxes|
|517-03||Regulatory authority licenses and fees|
|531||Claim adjustment services|
|532||Commission and brokerage|
|532-01||Direct excluding contingent|
|532-02||Contingent - direct|
|533||Reimbursement by uninsured accident and health plans|
|534||Aggregate write in for miscellaneous expenses|
|535||Blue Cross Schedule H- Special Deduction|
|535-01||Claims and Expenses|
|535-02||Prior Year Surplus computations|
|536||Section 847 Additional Deduction|
|610-05||Tax that reciprocal must include|
|623-03||Special estimated tax payments (Sec. 847)|
|623-04||Credit by reciprocal for tax by attorney-in-fact under sec. 835(d)|
|770-01||Elections - Sec. 953(c) & (d)|
The purpose of this exhibit is to provide guidance to managers, team coordinators, and team members on input requirements for all in-process cases.
All IMS data input is mandatory unless it is identified as optional in the following grid. The amount of data to be input is based upon the requirements for LB&I at all levels.
|IMS Module||All Cases|
|Taxpayer Contact for Post Exam Survey – (Name and address only)||Mandatory|
|Taxpayer Contact – Unagreed Cases||Mandatory - Phone Number|
|Taxpayer Contact - Other than Mandatory - listed above||Optional|
|IDRs – No Narrative||Mandatory|
|IDRs – Narrative||Optional|
|IDR Enforcement Date||Mandatory|
|Workpapers - associated with an unagreed (partially agreed) Issue||Mandatory -
Workpapers include all electronically created or received documentation associated with an unagreed issue.
The workpapers should also include closing documents such as:
|5701 – No Narrative||Mandatory|
|5701 Narrative - Reasons for Proposed Adjustment or Form 886-A (Explanation of Items)||
Mandatory for 5701s associated with an unagreed or partially agreed issue. Optional for other issues
|Case Pointing||Mandatory (LCC)|
|Examination Closing Record||Mandatory|
|Timekeeping – User Setup||Mandatory|
|Timekeeping – Time Input||Mandatory|
|Case Activity Record||Mandatory|
|Team Web Site Entity Closing Data Screen||Mandatory|
Mandatory Workpapers: Any electronic data received in response to IDRs and 5701s is required to be maintained (uploaded) into IMS for the unagreed issue(s). If examiners chose to create Word or Excel files outside of IMS they should upload these documents to IMS workpapers for the unagreed issue(s). Please note, under no circumstances are examiners required to create an electronic version of a paper document solely for the benefit of Appeals in an unagreed case. But, if electronic documents are available they should maintain them in the unagreed IMS case.