4.63.4 Examination Procedures

Manual Transmittal

January 25, 2018

Purpose

(1) This transmits new IRM 4.63.4, Withholding and International Individual Compliance (WIIC), Examination Procedures.

Material Changes

(1) This is a new IRM section outlining exam procedures for use by IIC examiners in Withholding and International Individual Compliance (WIIC), in Large Business and International Division (LB&I).

Effect on Other Documents

None

Audience

LB&I WIIC employees

Effective Date

(01-25-2018)

John V. Cardone
Director, Withholding and International Individual Compliance
Large Business and International Division

Program Scope and Objectives

  1. The purpose of this section is to provide International Individual Compliance (IIC) examiners and managers procedural guidance for examining tax returns for the IIC taxpayer population.

  2. Audience: This IRM applies primarily to IIC examiners, which includes revenue agents, tax compliance officers and tax examiners.

  3. Policy Owner Director, Withholding and International Individual Compliance (WIIC)

  4. Program Owner The Director, WIIC manages and administers the WIIC Practice Area.

  5. Program Goals: The goals of the WIIC Practice Area align with the LB&I Strategic Goal to apply the tax laws with integrity and fairness through a highly skilled and satisfied workforce, in an environment of inclusion where each employee can make a maximum contribution to the mission of the team.

Background

  1. WIIC was established as one of nine practice areas within the LB&I in February 2016. Guidance was previously provided to IIC examiners in various other IRM sections authored by SB/SE as well as LB&I. This IRM is intended to be a primary resource for IIC examiners.

Authority

  1. The development, implementation and oversight of IIC case processing procedures are the prerogative of the Director, WIIC.

  2. IRM 4.10, Examination of Returns, provides the basic procedures, guidelines and requirements for use by revenue agents, tax compliance officers, tax auditors and tax examiners in conducting income tax examinations. Additional procedures for LB&I cases are found in IRM 4.46, LB&I Examination Process.

Responsibilities

  1. This section provides an explanation of the basic standards and responsibilities that all IIC examiners must understand and apply in the performance of their duties.

  2. IIC examiners and managers should be familiar with and use the examination procedures and information contained in this IRM and also be aware of the applicable procedures in other examination IRM chapters, as cited or linked.

  3. All IIC examiners will use the latest version of forms and letters available in electronic format on the Forms/Pubs/Products Repository, http://publish.no.irs.gov/catlg.html. It is acceptable to use the version of forms and letters in RGS until next RGS update unless IIC examiners are informed otherwise.

  4. IIC examiners receive case assignments through various international work streams and referrals from other business units, federal agencies and functions to include Criminal Investigation, Department of Justice, Whistleblower Office, deferred prosecution and non-prosecution leads, spontaneous exchange leads, case related and John Doe Summons requests from treaty partners, cooperating agent requests, claims, etc.

Program Management and Review

  1. Program Reports Director, WIIC Practice Area prepares periodic briefing reports for the LB&I commissioner focusing on:

    1. Significant accomplishments and opportunities for improvement

    2. Changes in procedures that have been implemented

    3. Operational, technical, and staffing updates

    4. Any other key information

  2. Program Effectiveness The efficiency of the case procedures is measured through combined business results of the teams that make up the WIIC Practice Area.

Program Controls

  1. The Director, Field Operations (DFO), IIC monitors the activities of the territories and administers procedures and updates related to the territories.

  2. The Director, WIIC identifies goals and objectives to be achieved by the organization, compiles periodic reports from the DFO and reports to LB&I executive management on a continuous basis via the director’s briefings.

Acronyms

  1. This table lists commonly used acronyms and their definitions.

    Acronym Definition
    ACCI Associate Chief Counsel International
    ATAT Abusive Tax Avoidance Transaction
    CCP Centralized Case Processing
    CEAS Correspondence Examination Automation Support
    DFO Director, Field Operations
    EEFax Enterprise e-Fax
    FATCA Foreign Account Tax Compliance Act
    HIRE Hiring Incentives to Restore Employment
    IDRS Integrated Data Retrieval System
    IIC International Individual Compliance
    IMD Internal Management Document
    IRC Internal Revenue Code
    LAN Local Area Network
    NRA Nonresident Alien
    PA Practice Area
    PN Practice Network
    RA Revenue Agent
    RGS Report Generation Software
    SB/SE Small Business/Self-Employed Division
    TCO Tax Compliance Officer
    TE Tax Examiner
    Treas. Reg. Treasury Regulation
    UIL Uniform Issue List
    USC United States Code

Related Resources

  1. For information regarding the WIIC international individual compliance strategies and program initiatives, refer to the WIIC website http://lmsb.irs.gov/pa/wii/.

Customer Service

  1. Providing all taxpayers with high quality service in all contacts is a primary area of emphasis for all IIC examination employees. All IIC examiners must perform their professional responsibilities in a way that supports the IRS Mission. IIC examiners are to provide top quality service and administer tax laws fairly and equitably, protect taxpayer rights and treat each taxpayer ethically, with honesty, integrity and respect.

  2. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service (TAS) if the IRS has not resolved their tax issues properly and timely through normal channels. Refer taxpayers to TAS when the contact meets TAS criteria (see IRM 13.1.7, Taxpayer Advocate Service (TAS) Case Criteria).

Focus on Problem Solving

  1. IIC examiners should assist taxpayers in resolving any tax problems identified during an examination, even if the problems are not directly related to the examination.

  2. IIC examiners should request assistance from customer service personnel, as needed to expedite resolution of taxpayer problems.

  3. IIC examiners contact the Taxpayer Advocate when appropriate.

  4. IIC examiners should make referrals to appropriate SB/SE ATAT Collection personnel if taxpayers have questions about current or past collection actions. If a taxpayer requests information about collection actions taken against a former or separated spouse, this request should also be referred to Collection personnel.

  5. IIC examiners should refer to IRM 4.9, Examination Technical Time Reporting System, to determine the appropriate time reporting codes to use when assisting taxpayers in solving problems that are unrelated to an ongoing examination.

Ensure Timely Actions

  1. The effective use of time is an essential element of a quality examination. WIIC examiners are responsible for the day-to-day management of their cases and are accountable for completing their work in the least amount of time necessary to perform a quality audit. Both the number of hours charged to a case and the span of time the case is open must be reasonable.

  2. Factors used to determine if the time charged and the length of time a case is open are reasonable include:

    1. Issue complexity and potential

    2. Condition of books and records

    3. Taxpayer and/or power of attorney cooperation

    4. Location of taxpayer and/or power of attorney

    5. Necessary case file documentation

    6. Internal coordination and collaboration with other practice areas, operating divisions, Counsel, fraud coordinators, FBAR coordinators, etc.

    7. Number of years under exam and related return pickups

  3. A focus on timely actions will reduce taxpayer burden. . For example, time span (timeliness) of the case should be appropriate for the actions taken. Case action should be completed in the most efficient manner and not result in unnecessary delays during the examination process. Guidelines for timely actions during each phase of the examination are contained in this IRM. These are national standard timeframes for which action should be taken:

    • 45 days to start the examination first action to first appointment.

    • 45 days between significant activities

    • 1 day (next business day) to return telephone calls to the taxpayer/representative

    • 14 days to follow up to correspondence from taxpayer/representative

    • 10 days for case closures for agreed or no –change exams

    • 20 days for case closures for unagreed examinations from date 30 day letter defaults

    See IRM Exhibit 4.8.3-1, Quality Attributes.

  4. In-process cases will be considered overage when they have been in status 12 (started) 395 days for revenue agent cases, 210 days for tax compliance officer cases and 180 days for tax examiner cases.

Ensure Quality Taxpayer Communication

  1. Effective oral and written communication with taxpayers is a significant factor in conducting a quality examination and in minimizing taxpayer burden. All communication with taxpayers must be timely, clear, courteous and professional.

  2. The taxpayer must be informed of the audit process to ensure their engagement and cooperation. Upon initial taxpayer contact, IIC examiners will provide Pub 1, Your Rights as a Taxpayer, and Notice 609, Privacy Act Notice. IIC examiners will also provide Pub 3498, The Examination Process, with the examination report to ensure the taxpayer’s understanding of the process. IIC examiners will establish facts, analyze the information and properly explain any adjustments and penalties in a clear and professional manner.

Oral Communication
  1. IIC examiners must always be courteous and professional in personal contacts with taxpayers and their representatives. See IRM 4.63.4.8.2.4, Investigative Techniques and Interview Desk Guide and IRM 4.10.3, Examination Techniques, for more information on conducting interviews.

  2. IIC examiners will interact and conduct the audit in a professional and effective manner. These skills become especially necessary in phone conversations with taxpayers who are located abroad or for whom English may be a second language. This interaction must not only be clear and professional, but also productive as to establish a positive rapport with the taxpayer throughout the examination. These skills are particularly important for tax examiners whose case work is generally completed entirely via phone and/or correspondence.

  3. The following are important tips applicable to all IIC examiners but specific to phone and/or correspondence examinations:

    1. Identify the taxpayer’s issue during the phone call to determine possible resolution.

    2. Provide accurate and complete information.

    3. Be courteous and professional, regardless of the opposing party’s behavior.

    4. Steer the direction of the conversation, remaining focused on the purpose of the call.

    5. Take ownership of the call and address issues raised.

    6. Make helpful and productive referrals, as applicable.

    7. Ensure that the taxpayer clearly understands the next case actions to be taken.

    8. Review IDRs and get commitment to the response due dates.

Written Communication
  1. All taxpayer correspondence must be clear, concise, and professional, as well as adhering to legal requirements.

  2. Write in plain language. A document is written in plain language if readers can read it once and find what they need, understand what they find, and use what they find to meet their needs. Examiners may refer to the Plain Language website for additional guidance, www.plainlanguage.gov.

  3. All correspondence should strive to meet the needs of the taxpayer.

  4. Where possible, all correspondence with taxpayers should be prepared using the applicable standard forms and letters.

  5. All correspondence must contain an employee name, contact telephone number, employee identification number, and signature. See IRM 4.63.4.6.2.1, Initial Contact for IIC Revenue Agent (RA) Examination Cases and Tax Compliance Officer (TCO) Cases, and IRM 4.63.4.6.2.2, Initial Contact for IIC Tax Examiner (TE) Cases, for information on the appropriate letters to use.

  6. Any original correspondence prepared by examiners will be approved by the team manager and such approval will be documented in the case file. If correspondence is not individually approved due to an exception, managers must develop an ongoing review process to ensure the quality of correspondence.

  7. IIC teams that do not use form letters should maintain read files of all taxpayer correspondence.

Taxpayer Rights

  1. IIC examiners have the ongoing responsibility to ensure that all taxpayer rights are protected and observed, whether these rights are mandated by statute or provided as a matter of policy. The Taxpayer Bill of Rights is contained in the revised Pub 1, Your Rights as a Taxpayer, and must be shared with the taxpayer along with Notice 609, Privacy Act Notice, at the initial contact in person or by mail.

  2. IIC examiners must be aware of all the rights provided by the IRC, Taxpayer Bill of Rights I & II, the IRS Restructuring and Reform Act of 1998 (RRA 98) and IRS policies. See http://irweb.irs.gov/AboutIRS/tbor/default.aspx.

  3. The rights specifically covered in this subsection are not all inclusive, but rather are mentioned here to provide special emphasis of the rights provided in RRA 98.

  4. The following taxpayer rights are covered in IRM 4.10.1.6 subsections as follows:

    IRM Cite Title
    IRM 4.10.1.6.1 Representation/Power-of-Attorney Requirements
    IRM 4.10.1.6.2 Confidentiality Privileges Relating to Taxpayer Communications - Accountant/Client Privilege
    IRM 4.10.1.6.3 Notification of Appeal Rights
    IRM 4.10.1.6.4 Innocent Spouse Relief
    IRM 4.10.1.6.5 Interest Abatement
    IRM 4.10.1.6.6 Consideration of Collectability
    IRM 4.10.1.6.7 Early Referrals to Appeals
    IRM 4.10.1.6.8 Separate Notice Requirements for Joint Filers
    IRM 4.10.1.6.9 Providing Taxpayers with Employee Contact Information
    IRM 4.10.1.6.10 Confidentiality of Taxpayer Information/Taxpayer Privacy
    IRM 4.10.1.6.11 Unauthorized Access (UNAX) Requirements
    IRM 4.10.1.6.12 Third Party Contacts - Background

Return Assignment

  1. Before beginning the actual analysis of a return for examination issues, consideration should be given to factors which could prevent examiners from initiating an examination. Listed below are some of the factors that must be considered before an in-depth, pre-audit or pre-contact analysis is performed:

    1. Statute of Limitations (SOL)

    2. Examination cycles on certain returns

    3. Conflict of interest

    4. Examiner conducted most recent audit

    5. Repetitive audits

    6. Other IRM divisions working with the taxpayer

    7. Collectability

    8. Risk analysis - evaluation of audit potential

    9. Large, unusual or questionable items

Decision to Survey a Return

  1. See IRM 4.10.2.5, Decision to Survey a Return.

Conditions Allowing Survey of Returns After Assignment

  1. See IRM 4.10.2.5.1, Conditions Allowing Survey of Returns After Assignment.

  2. In addition, examiners are reminded that non-military individuals, such as contractors, can be deployed to a Qualified Combat Zone (QCZ). Non-military individuals should be treated consistent with IRC 7508 and IRM 4.10.2.5.1 (3).

Surveying Cases Before Assignment

  1. Team managers may find it necessary to survey cases. Non-mandatory cases that will not result in a material tax change should be surveyed.

  2. The survey of cases may be performed before or after assignment.

    1. Before Assignment — A stamp, approximately 3' x 1' in size should be ordered and will be imprinted on each return (or return print) surveyed. The format of the stamp should be as follows: CLOSED—SURVEY BEFORE ASSIGNMENT
      By ________________ Date___________

    2. A return selected for examination is considered as surveyed before assignment if it is disposed of before contact with taxpayers and prior to assignment to an examiner. A team manager will survey returns before assignment if no examination is warranted. However, if cases are being surveyed because the group does not have sufficient resources to work the case, consideration should be given to returning the case to PSP or sending the case to another group. See IRM 1.4.40.4.6.3, Transferring Office Examination Cases to Field Examination.

  3. Only Disposal Code 31 (Survey Before Assignment) and Disposal Code 34 (Surveyed Claims) are valid when surveying a return before assignment.

  4. Managers are required to determine the appropriate survey reason code when surveying a return before assignment. See IRM 4.63.4.5.3, Survey Reason Codes. Depending on the survey reason code, the manager will need to complete a Form 1900, Income Tax Survey After Assignment, or Form 14235, LB&I Survey Form, when surveying a case before assignment.

  5. The completed Form 1900 or Form 14235 should be included in the case file and a copy electronically forwarded to the PSP Coordinator. The survey reason code also needs to be included on the Form 3198, Special Handling Notice for Examination Case Processing.

  6. It is critical that a team manager closely evaluate work needs when ordering returns, and that surveys be kept to a minimum.

Survey Reason Codes

  1. When surveying a WIIC return, either survey before assignment or survey after assignment, it is important that the appropriate survey reason code be used.

  2. Valid survey reason codes are:

    1. Survey Reason Code A: No Large Unusual Questionable (LUQ) Items – should be used if the primary reason for the survey is because there are no large, unusual or questionable items on the return. This survey reason code should rarely be used as all cases in IIC are classified based on LUQ items. This survey reason code requires the use of Form 1900 or Form 14235.

    2. Survey Reason Code B: No Change in Prior Year – should be used if the primary reason for the survey is that the same issues identified on the current year return, were just as significant in either of the two preceding years, and were no-changed (or had a small tax change). However, discretion should be used when using this survey code. Principally, examiners should consider the availability of information not previously available to the Service, such as whistleblower information. This survey reason code does not require the use of Form 1900 or Form 14235.

    3. Survey Reason Code C: Beyond Cycle (includes statute issue) - should be used if the primary reason for the survey is based upon statute considerations. This survey reason code requires the use of Form 1900 or Form 14235.

    4. Survey Reason Code D: Lack of Resources – should only be used by PSP and not by field managers. If an examination group has a lack of resources to examine the case, the case should be transferred to another group. If that is not feasible, the case should be returned to PSP for reassignment.

    5. Survey Reason Code E: Other – should be used if the primary reason for the survey is other than those indicated in Survey Reason Codes A through D. This survey reason code requires the use of Form 1900 or Form 14235.

Paperless Survey - Non-Examined Closures Using a Paperless Process

  1. Only returns surveyed before (Disposal Code 31) or after assignment (Disposal Code 32) can be closed by a virtually paperless process. If the original return was never requested and the survey reason code is either B (No Change in Prior Year) or D (Lack of Resources), the return can be closed using the paperless survey process.

    Note:

    The paperless process can only be used if there is no documentation that needs to go to Files.

  2. If the return was requested when you established the case on ERCS/AIMS (ALL DIF and Automatic Openings request the return) the case CANNOT be closed as paperless. Before requesting a paperless closure, pull an AMDISA and if the words "RETURN REQUESTED" appear on page 2 - line 8 then a paperless closure CANNOT be requested.

  3. An electronic print can be surveyed using the paperless process if there is no requirement to attach any documentation to the survey. Cases requiring the use of a Form 1900 or Form 14235 cannot be closed using the paperless process. For a definition of what constitutes an electronic print, please see IRM 4.46.3.1.2.1 (1), Paperless Survey - Non-Examined Closures Using a Paperless Process.

  4. If surveying a case using the paperless survey option, only a Form 5351, Examination Non Examined Closings, and a Form 3210, Document Transmittal, are needed.

  5. If it is determined that the case can be closed using the paperless survey option, examiners will complete the following steps:

    1. Complete Form 5351. Use only one MFT per Form 5351. The manager should sign their name in the "Approved By" box at the top of Form 5351 and enter the current date. Enter the taxpayer’s name, TIN, MFT, and tax year. If a label is available affix the label. Enter the disposal code in the lower left corner of the block. If a label is available, list the disposal code on the label below "STATUS" .

      Note:

      For additional guidance, refer to IRM 4.4.21.5.1.3, Form 5351, for line by line instructions for completion of Form 5351.

       

    2. Complete Form 3210. The completion of the Form 3210 should be done by the group clerk on the ERCS system.

    3. Fax or E-Mail the Form 5351 and Form 3210 to CCP.

  6. Do not send electronic prints, asset locator research, or charge-out documents to CCP. These documents should be shredded. If you have information that must be retained, you cannot use the paperless survey closure.

  7. If you cannot use the paperless survey closure, see IRM 4.63.4.5.2, Surveying Cases Before Assignment, and IRM 4.63.4.5.5, Procedures for Surveying Returns After Assignment.

Procedures for Surveying Returns After Assignment

  1. The following disposal codes are appropriate for surveying a return after assignment: 32, 34, 42 and 43.

  2. Procedures for surveying returns after assignment are as follows:

    1. Stamp the return with the following imprint:
      CLOSED SURVEY AFTER ASSIGNMENT
      Examiner’s Signature (and Date)
      Approved — Team Manager’s Signature (and date)

      Note:

      The stamp should be approximately 3” X 1” and procured locally by the area.

    2. Examiners are required to sign and date the imprint made on the return or electronic print if it is used for the return. The examiner should submit the surveyed return to their manager for approval.

    3. Team managers are required to indicate concurrence with the examiner’s decision to survey the return by signing and dating the imprint.

    4. The use of Form 1900, Survey after Assignment, or Form 14235, LB&I Survey Form, is mandatory when the survey reason code is “A – No LUQ, B – No Change in Prior Year, C – Beyond Cycle or E – Other”.

    5. Upon completion of the Form 1900 or Form 14235, the examiner needs to obtain managerial approval to survey the return. This is accomplished by having the team manager sign the Form 1900 or Form 14235. Whenever an examiner considers it necessary to explain why a return was surveyed after assignment, Form 1900 or Form 14235 should be completed. After the examiner and manager sign the Form 1900 or Form 14235, it should be electronically forwarded to the IIC PSP coordinator. In addition, the original should be maintained in the case file.

    6. When closing the case from the group, Form 3198 should be attached and the appropriate survey reason code listed under the “SRC” column.

    7. If an RGS file was created, the examiner will close the RGS file to the team manager. The team manager will forward the RGS file to archives. See IRM 4.10.15.3.3.3, Non-Examined Closures.

    8. The case is closed to Centralized Case Processing.

  3. For instructions in completing Form 1900, Income Tax Survey After Assignment, see IRM 4.10.2.5.4.

Instructions for Form 14235, LB&I Survey Form

  1. The instructions for completing Form 14235, LB&I Survey Form, are as follows:

    1. Return(s): Check or enter the applicable form number of the return(s) being surveyed.

    2. Name and address: Enter the last known name and address.

    3. SSN/EIN: Enter applicable numbers from the returns being surveyed.

    4. Tax period: List each year’s return being surveyed on a separate line.

      Type of Tax Year Dates Example
      Calendar Year Show ending date 12-31-2006
      Fiscal Year Show ending date 6-30-2006
      Short Period Show both beginning and ending date 1-1-2006 – 9-30-2006
      52/53 Week Year Show last day of year 6-22-2006
    5. Documents surveyed: Identify the types of document(s) included with Form 14235.

    6. Returns: The tax return filed by the taxpayer. If you do not have an original return in the file, use an electronic return print. See IRM 4.10.2.5.3 (2), Procedures for Surveying Returns After Assignment, for the definition of electronic print.

    7. Recommended action: Complete this block to indicate whether your recommended action for the return(s) is "Accepted as Filed" .

    8. Related cases: Cases related to the case being surveyed. Enter related case name and TIN when applicable.

    9. Taxable year or period: List each year’s return being surveyed on a separate line.

    10. Adjusted gross or taxable income reported: Enter the adjusted gross or taxable income as computed by the taxpayer on the last processed return for the year

    11. Tax liability reported: Generally, there will be just one return being surveyed and no administrative adjustments will have been made to the tax liability reported. If more than one return was filed for the same year prior to the due date of the return, the last return constitutes the original return and the tax liability shown on the last return should be entered.

    12. Tax-Shelter / Non-Tax Shelter: Check the appropriate box on the form to indicate whether the return being surveyed is a tax shelter or non-tax shelter.

    13. Reason for Survey: Check reason(s) for survey. Provide a detailed explanation for surveying.

    14. Explanation: Explain why the return is being surveyed. If necessary, include computations.

    15. Enclosures: List returns, claims, and other documents enclosed in the case file.

    16. Manager Signature/Date: The signature and the title of approving management official (usually the examiner’s manager) and the date of concurrence.

    17. LB&I Team Number: The Team Number of the team controlling the case on ERCS.

Surveying Claims

  1. WIIC examiners will adhere to IRM 4.10.2.5.5, Surveying Claims. However, WIIC examiners can use either Form 1900, Survey After Assignment, or Form 14235, LB&I Survey Form.

  2. The use of Form 1900 or Form 14235, is mandatory when surveying a claim, regardless of the survey reason code. Upon completion of the Form 1900 or Form 14235, the examiner needs to obtain managerial approval to survey the return. This is accomplished by having the team manager sign the Form 1900 or Form 14235. Upon receiving the team manager’s signature, a copy of the form should be transmitted to the IIC PSP coordinator and the original retained with the case file.

Other Types of Surveys

  1. See IRM 4.10.2.5.6, Surveying Returns Transferred From Another Area, for surveying returns transferred from another area.

  2. See IRM 4.2.6.6, Survey of Employee Returns, for surveying employee returns.

Planning the Examination

  1. The purpose of this subsection is to provide guidelines for procedures and techniques that should be used in conducting an effective IIC examination.

  2. Auditing includes the accumulation of evidence for evaluating the accuracy of the taxpayer’s tax return(s). Evidence takes many forms, including (but not exclusive to) the taxpayer’s testimony, the taxpayer’s books and records, the examiner’s own observations and third-party documentation.

  3. It is important to obtain sufficient evidence to determine the accuracy of the taxpayer’s return. IIC examiners must determine the appropriate amount of evidence to obtain while also establishing the proper depth of the examination. However, the cost of examining and evaluating all available evidence can be prohibitive. These decisions should be documented in the workpapers for revenue agent and tax compliance officer cases and in the case history notes within RGS for tax examiner cases.

  4. Factors to consider when establishing the depth of the examination include:

    1. The risk that the taxpayer has made errors that are individually or collectively material. The factors involved are addressed during the evaluation of the taxpayer’s internal controls.

    2. The risk that the audit tests will fail to uncover material errors. The factors involved are addressed during the evaluation of the taxpayer’s knowledge of the tax law and/or use of a tax preparer.

  5. Methods for accumulating evidence include:

    1. Analytical Tests, such as analysis of financial accounts to identify large, unusual or questionable transactions.

    2. Documentation, such as examining the taxpayer’s books and records to determine the content, verify the accuracy, and substantiate items shown on the tax return.

    3. Inquiry, such as interviewing the taxpayer or third parties. Information from independent third parties can confirm or verify the accuracy of information presented by the taxpayer.

  6. Factors to consider when choosing an examination technique are:

    1. Will the examination technique provide the required evidence?

    2. Will the benefits derived from using a technique justify the associated costs to both the Service and the taxpayer?

    3. Are there less expensive or faster alternatives that will provide the same evidence?

Pre-Contact Planning of IIC Examination Activities

  1. If an in-depth analysis and evaluation of audit potential indicate that a return should be examined, then examiners should begin planning the examination.

  2. Revenue Agent cases: The planning process begins with the completion of the steps and audit techniques listed on the mandatory lead sheets that are applicable at this stage of the examination (see IRM 4.10.2.3, In-Depth Pre-Contact Analysis, and IRM 4.10.9.4, Workpaper System for a complete discussion of lead sheets).

  3. Tax Compliance Officer cases: The planning process consists of the following:

    1. Review the tax return and classification sheet to ensure that the most egregious issues are correctly classified. If classified issues do not warrant examination, document the reasons for revising the scope and obtain approval from the team manager.

    2. Prepare and review the case building materials. This includes IDRS (Integrated Data Retrieval System) transcripts, required filing checks, examination of income, and verification on any changes to return as filed (amended return or adjustment made by Service Center).

    3. Assess the risk of potential issues and revise the scope as warranted.

    4. Verify tax return information on RGS.

    5. If the case is not on the LAN, the tax return information must be verified and input into RGS. All issues (classified as well as new issues added during pre-audit) are to be entered.

    6. Ensure RGS information matches IDRS. Verify statute, address, and Power of Attorney (TC 960 or CFINK) are correct and entered in RGS.

    7. Prepare case file documentation leadsheets.

    8. Develop a forecast.

      Note:

      A forecast is the amount of time the examiner will estimate for the total time beginning with the initial interview with the taxpayer and ending with the date the case is closed. The forecast time should be recorded on Form 9984, Examining Officer's Activity Record.

    9. Develop a focused Form 4564, Information Document Request (IDR).

    10. Prepare an appointment letter. See IRM 4.63.4.6.2.1, Initial Contact for IIC Revenue Agent and Tax Compliance Officer Cases, and determine if Letter 566 should be issued or if issuance of Form 4549 and Letter 915 are more appropriate.

      Note:

      IIC examiners working tax compliance officer cases are required to seek managerial approval prior to exceeding preplan time of 1 hour on non-business and 1 and 1/2 hours on business returns.

  4. Tax Examiner cases: The planning process consists of the following steps:

    1. Review the tax return and classification sheet to ensure that the most egregious issues are correctly classified.

    2. Prepare and review the case building materials.

    3. Assess the risk of potential issues and revise the scope as warranted.

    4. Verify tax return information on RGS.

    5. If the case is not on the LAN, the tax return information must be input into RGS and verified. All issues (classified as well as new issues added during pre-audit) are entered.

    6. Ensure RGS information matches IDRS.

    7. Prepare case file documentation lead sheets

    8. Develop a focused Form 4564, Information Document Request (IDR).

    9. Prepare an initial contact letter as applicable (i.e. Letter 566, 915, 4149, or 4149 (SP)). This letter notifies the taxpayer that their return is being examined, requests information to verify the correctness of tax returns and requests documentation of specified items that the taxpayer will mail.

  5. Examine all large, unusual and questionable items (LUQ). However, it is not intended that examiners should consider every possible issue. For instance, it is not proper for examiners to make a detailed analysis of a specific account unless the potential adjustment will materially affect the tax liability or will be important from a compliance viewpoint.

  6. Adequately explain the items which are examined and the LUQ items which are accepted without examination. The case file's activity record and workpaper will clearly indicate the scope of the examination, the depth of the examination, and the reasons for the decisions.

  7. Complete the workpapers contemporaneously. To the extent possible, prepare the mandatory lead sheets and issue specific lead sheets as the examination progresses. In addition:

    1. Add comments where required in the lead sheets or as the examiner deems necessary for clarification.

    2. Similarly, reference a supporting workpaper where required in the lead sheets or where the examiner deems necessary.

  8. Check boxes are available in the mandatory lead sheets and can be used in the examination process. They serve as a reminder of an action(s) to be completed. Checking a box does not eliminate the need for comments or workpapers, which document the the audit procedure(s) performed.

    Example:

    Documenting RRA98 (Restructuring and Reform Act of 1998) separate notice requirements: If the taxpayer is married, revenue agents and tax compliance officers are required to send the initial appointment letter to both the husband and wife. In this case, the "Yes" box would be checked and a copy of the letter included in the case file. No further comment is necessary.

    Example:

    Documenting assessment of collectability: Is collectability an issue? If the answer is yes, then revenue agents and tax compliance officers should include a workpaper with information that supports that conclusion.

  9. In all cases, professional judgment must be used. IIC examiners must ensure that the applicable tasks have been performed before checking the boxes. As the audit progresses the actions and audit steps may change. The examiner is responsible for ensuring that the correct audit response is checked with relevant comments and explanations are provided as warranted.

Determining the Scope of an IIC Examination

  1. Determining the scope of an examination is the process by which an IIC examiner selects issues warranting examination. Examiners should thoroughly review the classification sheet, if applicable, and select issues so that, with reasonable certainty, all items necessary for a substantially correct determination of the tax liability have been considered.

  2. IIC examiners must assess the facts and apply judgment in determining the scope of the examination.

    1. Revenue Agent Examinations: The scope of the examination will be determined by the revenue agent and team manager.

    2. Tax Compliance Officer and Tax Examiner Examinations: The scope of the examination of a return is prescribed on a classification check sheet during the classification process. Classification of cases is usually handled by the PSP classification team. However, the scope of an examination should not be limited to the classified issues if other significant issues are revealed during the examination. Whenever possible, tax examiners should consult with their manager before raising new issues.

  3. IIC examiners are expected to continually exercise judgment throughout the examination process to expand or contract the scope as needed.

  4. If during the examination, the scope is expanded to include additional tax period(s), the taxpayer should be notified verbally or in writing of the expansion. If the taxpayer has a power of attorney and it does not cover the tax period(s) being picked up for examination, the taxpayer must be given time to secure a power of attorney for the additional tax period(s). Also, the examiner must allow the taxpayer time to submit records on the newly added year(s). The appropriate appointment confirmation letters should be used by revenue agents, tax compliance officers, and tax examiners as noted in IRM 4.63.4.6.2.1 and IRM 4.63.4.6.2.2.

Initial Contact for IIC Revenue Agent and Tax Compliance Officer Cases
  1. All initial contacts with taxpayers to commence an examination must be made by mail using the appropriate initial contact letters.

    1. For individual income tax return examinations, Letter 2205 and Letter 2205-A are generally used, with Publication 1 and Notice 609 enclosed.

    2. For business income tax return examinations, Letter 2205-L is used with a reference to the availability of Publication 1 and Notice 609 online.

  2. After 14 calendar days from mailing the initial contact letter, examiners can initiate contact by telephone with the taxpayer as needed.

Initial Contact for IIC Tax Examiner Cases
  1. IIC tax examiner cases generally will always use written correspondence as initial contact to the taxpayer. An applicable initial contact letter (i.e. Letter 566, 915, 4149, or 4149(SP)) will be used as the first step to inform the taxpayer regarding the examination. The following items are required to be included in this mailing:

    1. Pub 3498–A, The Examination Process (Audits by Mail), explains the audit process from the initiation of the examination through the overview of the collection process, including Appeals options.

      Note:

      If the taxpayer has a Puerto Rico address, Letter 4149 and Pub. 3498(SP) are sent.

    2. Form 4564, Information Document Request

    3. A return envelope

Limiting the Scope of an IIC Examination

  1. The scope of an IIC examination may be limited under conditions described in this subsection and may be limited to one or two issues. Any limitations placed upon the scope of the examination should be documented in the case workpapers.

  2. Taxpayer documentation and responses to questions should be considered and documented and the scope adjusted as appropriate. Other potential compliance issues (e.g. claims filed before or during the audit) should be considered and reviewed as early in the audit as possible.

  3. If a taxpayer is contacted about an Information Return Processing (IRP) item, the scope of the examination is generally limited to resolving differences between items reported by the taxpayer and items reported on the information returns. Emphasis should be placed on determining if income was omitted and whether the omission occurred in more than one year. When it appears that a material amount of income may not have been reported, and there has not been a prior audit, an examination should be initiated.

  4. When a Schedule K–1, Partner's/Shareholder's Share of Income, Deductions, Credits, etc., is inspected to determine that the flow through items have been reported correctly, the taxpayer and/or representative should be advised that the inspection does not constitute an examination of the flow-through entity and the taxpayer’s distributions from the related entity may be adjusted later if the related entity is examined.

  5. Generally, short-term timing issues should not be examined. Timing issues with long-term, indefinite or permanent deferral features should be examined. Unplanned timing issues which arise as correlative adjustments during an examination of non-timing issues should be made if it is cost effective.

  6. The scope of the IIC examination may be limited due to collectability. Such a determination should be made when the taxpayer has no ability to pay or no expectation of a future ability to pay. Taxpayer assertions of inability to pay should not be considered without substantiation. Consult with SB/SE Collection or Field Counsel for assistance. See IRM 4.63.4.7, Collectability in WIIC Cases.

Documenting the Limited Scope Decision
  1. In pre-planning an examination, the IIC examiner should use sound judgment to determine the significant issues to be examined. This may necessitate declassifying issues and/or adding issues in lieu of those classified. The scope of the examination should be documented in the workpapers.

  2. When a classification sheet is not included with the return, the scope of the examination should be documented in the workpapers.

Related/Prior/Subsequent Year Returns
  1. Review of related, prior, and subsequent year returns are standard compliance checks to be completed when conducting an examination of the primary return. This may result in expanding the scope of an exam by opening additional tax years, entities, and/or issues.

  2. For further information on compliance checks, see the following IRM sections:

    IRM Cite Title
    IRM 4.10.5.3 Prior and Subsequent Year Returns
    IRM 4.10.5.4 Related and Spin-Off Returns
    IRM 4.10.5.5.2 Examination of Employment Tax Returns
    IRM 4.10.5.6.1 Analysis of Information Returns
    IRM 4.10.5.7 Information Returns and Forms Involving Foreign Entities
    IRM 4.10.5.9 Report of Foreign Bank and Financial Accounts (FBAR)
    IRM 4.10.5.10 Excise Tax Returns
    IRM 4.10.5.11 Pension Plan Returns
    IRM 4.10.4.3 Minimum Requirements for Examination of Income
    IRM 4.10.21 U.S. Withholding Agent Examinations - Form 1042

Depth of the IIC Examination

  1. Depth is the extent to which an issue is developed. It demonstrates the degree of intensity and thoroughness applied in order to make a determination as to the correctness of an item.

  2. IIC examiners must exercise judgment in determining the depth required for the examination. Determining the depth for different issues will help to estimate the time needed to complete the examination. The following factors should be considered:

    1. Type of evidence available or expected for the issue

    2. Complexity of the issue

    3. Materiality of the issue

    4. Internal controls and accuracy of the books and records

    5. Credibility of taxpayer

Preliminary Research

  1. Perform preliminary research of the applicable IRC sections, treasury regulations, rulings, and court cases concerning the proper tax treatment of the particular issues identified in the pre-contact analysis. This will assist in the development of specific interview questions, determine possible audit procedures, and help determine what information should be included on the information document request. It is critical that the examiner become familiar with the issues on the return. Extensive research, however, should not be conducted until the facts of the issues are established. See IRM 4.10.7, Issue Resolution.

  2. Secure the prior audit file(s) if applicable, including report(s), from the Correspondence Examination Automation Support (CEAS) database to determine the issues previously proposed and any problems encountered during the examination. If the prior audit file is not available in CEAS, ask the taxpayer for a copy of the report or request the administrative file from the campus.

Collectability in WIIC Cases

  1. Revenue agents and tax compliance officers are expected to consider collectability during the pre-contact phase as a factor in determining the scope and depth of the examination.

Consideration of Collectability

  1. If collectability is an issue on an assigned case, the team manager should be alerted as soon as the issue is discovered. Managers will make the final determination whether to survey the return or to limit the scope/depth of an examination. See IRM 4.10.2.4.1, Collectability.

  2. Revenue agents and tax compliance officers must balance compliance with collectability and should consider transferee liability, future income or denial of future refunds/credits, hidden assets, etc. Examiners should document known accounts and assets during examinations and interviews to ensure case files identify all assets.

  3. IIC examiners should take all possible steps to secure payment of agreed deficiencies resulting from examinations. Revenue agents and tax compliance officers are required to document their evaluation of collectability.

  4. IIC revenue agents and tax compliance officers work with SB/SE Collection ATAT groups. ATAT revenue officers have been trained to work international and offshore cases for collection.

  5. IIC revenue agents and tax compliance officers should solicit installment agreements by using Form 433-D, Installment Agreement, or Form 9465, Installment Agreement Request, as appropriate. See IRM 4.20.3.4, Coordination with Collection, for agreed unpaid cases over $100,000.

    Note:

    IIC revenue agents and tax compliance officers can prepare streamlined installment agreements as appropriate within their authority.

Collection Tools

  1. Collection tools are available to reach offshore assets in international cases when an offshore account is located. Some of the collection tools available are:

    • Levy on a domestic branch of a financial institution (for funds held offshore)

    • Writ Ne Exeat Republica

    • Customs Order or Prevent Departure Order

    • Appointment of a receiver

    • Suit to Repatriate Property - Repatriation Orders

    • Mutual Collection Assistance Request (MCAR)

  2. Refer to IRM 5.21.3, Collection Tools for International Cases, for further details on these collection tools and the following IRM Sections for more specific collection guidance:

    • IRM 5.21.1, Overview, defines matters that specifically relate to international collection issues. In today's global economy, there are an increasing number of taxpayers who travel and work overseas. U.S. taxpayers, residents of the U.S. and U.S. businesses are increasingly becoming involved in international transactions.

    • IRM 5.21.1.2, Definition of an International Case, provides specific procedural guidance for international revenue officers.

    • IRM 5.21.1.2.1, Difference Between Domestic ATAT and International ATAT Cases.

Mutual Collection Assistance Requests (MCARs)

  1. Certain tax treaties to which the United States is a party provide for mutual assistance in collection. The collection assistance provisions of a tax treaty enable one contracting state to collect taxes covered by the treaty on behalf of the other contracting state. A request for such assistance is referred to as a Mutual Collection Assistance Request (MCAR).

  2. Mutual collection provisions provide that IRS may request assistance from the treaty partner in collecting taxes owed to the United States by U.S. citizens or residents or other persons owing taxes to the United States located in their countries.

  3. See IRM 4.60.1.7.1, Tax Treaties with Collection Assistance Provisions, for a list of U.S. tax treaties, identified by country, type of treaty and treaty article, that currently provide for mutual collection assistance.

  4. See IRM 5.1.12.25, Outgoing Mutual Collection Assistance Requests, and IRM 4.60.1.7, Mutual Collection Assistance Request (MCAR) Program, for general information.

Transferee Liability - Summary

  1. For more information regarding transferee liability, as well as other third party liability, refer to IRM 5.17.14, Fraudulent Transfers and Transferee and Other Third Party Liability.

Examination Techniques

  1. This subsection addresses various sources of information, ways of obtaining information, and includes guidance on issuing Information Document Requests (IDRs).

Sources of Information

  1. The following subsections describe various sources of information, including TECS and EOI.

Treasury Enforcement and Communication System (TECS)
  1. Treasury Enforcement and Communication System (TECS) is a computerized information system designed to identify individuals and businesses suspected of or involved in violations of Federal law. TECS provides access to the Federal Bureau of Investigation (FBI), National Crime Information Center (NCIC), and the National Law Enforcement Telecommunication Systems (NLETS) with the capability of communicating directly with state and local enforcement agencies. NLETS provides direct access to state motor vehicle departments. TECS provides information to us that may not otherwise be available to the Service, such as where a taxpayer has traveled.

  2. To access TECS, the user must request access through his/her system administrator. The System Control Officer (SCO) in their field office will then establish a User Profile Record on TECS. The user will be required to take an on-line Security/Privacy Awareness Course and a National Crimes Information Center (NCIC) test. Instructions will be provided by the user's SCO. The user must retake these tests every two years for recertification.

  3. TECS also contains historical travel information of taxpayers. TECS contains extensive records of commercial airline flight arrivals and departures. TECS also contains other records of air and sea travel, records of border crossings, and the specific dates that individuals have traveled to and from the United States.

  4. The travel information in TECS can facilitate collection of delinquent liabilities from taxpayers who are not subject to ordinary administrative and judicial collection procedures because they often reside outside the jurisdiction of the US Courts. This travel information may lead to the discovery of where the taxpayer has assets or conducts business activity. Additionally, TECS travel information can help determine the taxpayer's correct country of current residency.

  5. TECS provides information in the following ways:

    1. Examiners can query TECS for historical travel information.

    2. The Service may also receive "current" travel information from the TECS Coordinator when taxpayers with a TECS lookout indicator are traveling into the United States.

    3. Examiners may learn possible address information to attempt taxpayer contact or identify assets.

    4. Examiners may obtain information indicating the taxpayer’s residency.

    5. TECS may also be used by examiners to confirm the validity of information on the taxpayer's returns

TECS Information Requests
  1. The three different information requests (queries) that can be made by field examination personnel to the TECS information system are:

    1. TECS Historical Travel Information

    2. Passport Information

    3. TECS Entry Request

    Each query has a different process that is completed by the examiner. The examiner then forwards the completed form to their manager for approval and forwarding to the correct email address.

  2. For IIC examination purposes, the first two types of requests should be used. The TECS Historical Travel Information is generally the most common request for IIC examiners. This query will provide information that would be useful in identifying the countries your taxpayer has visited, the amount of time they were in a country or in the United States, residency or physical presence determination, or to verify the accuracy of statements submitted to IRS as part of an examination or OVDI/P certification.

  3. These requests should not be part of a routine preplan checklist, but only be requested when necessary. Managers should review all requests, and exercise due diligence in approving the requests.

  4. Be alert for case situations where you can use the historical travel information in TECS to assist you in collecting delinquent liabilities to close your assigned cases. You can request TECS historical travel information on any taxpayer case that is currently controlled on ERCS. You do not have to have a BAL DUE case with a Notice of Federal Tax Lien on file.

  5. Use secure files and folders to store any TECS travel information. Stamp all historical travel information retrieved from TECS "OFFICIAL USE ONLY" if you receive a hardcopy not already stamped as such or if you create a hardcopy.

  6. Access the TECS web page at http://mysbse.web.irs.gov/Collection/international/tecs/default.aspx. You can also access the web page by going to the International Collection tab on the SB/SE Collecting Taxes web page and clicking on Treasury Enforcement Communications System (TECS).

TECS Historical Travel Information
  1. Request TECS Historical Travel Information. Prepare Form 13931, TECS Historical Travel Request, for submission to the TECS Coordinator and include the following information:

    • Taxpayer Name (Last, First, Initial)

    • Known Alias(s)

    • SSN

    • Date of Birth

    • Passport Number

  2. Prepare an email message with the title "Request for TECS Historical Travel Information" . Include all applicable, available information about the traveler on Form 13931. Attach the PDF file of the completed form to the e-mail message.

  3. The manager will send the message (with the attachment) via secure e-mail to the TECS Coordinator at *SBSE International TECS Coordinator.

  4. Information gathered from this search will be:

    • "Enter into" and "exit from" the United States by your taxpayer, sorted by date,

    • The country they have "departed from" or "flying to" will be provided.

    • Other information provided will be airline carrier flight number, departure location and arrival location.

    This information is very useful for making determinations as to residency, (or "abode" for foreign earned income exclusion determinations). The information can usually be obtained within about 3 weeks from the date of submission.

  5. If a taxpayer asks how you learned about his/her past travel, you can refer them to to the U.S. Customs and Border Protection Freedom of Information Act (FOIA) website at https://www.cbp.gov/site-policy-notices/foia for information on submitting a FOIA request..

    Caution:

    Never confirm or deny the existence of a TECS record of historical travel information if a taxpayer asks how you learned about his/her past travel. Taxpayers must submit a written request to obtain information about the source of the travel information.

Passport Information
  1. Passport Information is requested on Letter 4263, Passport Letter Request. On October 26, 2011, a Memorandum of Understanding (MOU) was signed between the IRS and the Department of State. This MOU will allow the IRS to have direct access to the Department of State Passport database. Passport information is a locator source that may be useful in developing potential fraud. The passport database contains copies of passport applications submitted by United States citizens. It is permissible for the IRS to extract information from the viewed applications but copies are not allowed.

  2. The information provided by a passport information request includes the taxpayer’s

    • Home and mailing address at the time the application was submitted

    • Date of birth

    • Place of birth

    • Parental information

    • Emergency contact information

    • Phone number (if available)

    • Email address (if available)

    • Employer (if available)

    • Social Security Number (if available)

  3. Complete the Letter 4263 with the following taxpayer information:

    • Name and/or alias

    • Place of birth

    • Date of birth

    • SSN

    • Type of information requested

    Note:

    Use IDRS command code MFTRA-U to obtain the taxpayer’s place of birth and or/date of birth

  4. Use MFTRA-U to obtain citizenship and status information. The following citizenship and status information codes are listed in Document 6209, IRS Processing Codes and Information:

    • A – U.S. Citizen

    • B – Legal Alien, authorized to work in the U.S.

    • C – Legal Alien, not authorized to work in the U.S.

    • D – Other

    • E – Alien Student (restricted work)

    • F – Conditional legal alien

TECS Entry Request
  1. A TECS Entry Request is obtained by completing Form 6668, Treasury Enforcement Communications System (TECS) Entry Request. The Form requires the name of the taxpayer, SSN, and unpaid tax assessments listed by MFT and tax period(s). This request is signed and approved by the team manager, and forwarded electronically to the specific IRS mailbox listed on the form. This request notifies Border Patrol and Enforcement Officials, located at United States airports and border crossings - to stop and discuss taxpayer unpaid liabilities with them when entering or departing the U.S. This is a very specific request and is most frequently requested by IRS Collection personnel. These specific TECS requests are sent to CBP Officials, who establish the necessary information on TECS. These requests can take up to 6 months or more depending on the volume and the backlog.

  2. Prepare and mail Letter 4106 to the taxpayer after your manager approves Form 6668. Verify that the taxpayer is on TECS before sending Letter 4106. Document the case history noting the reasons for placing the taxpayer on TECS and the manager’s approval. Retain copies of the Letter 4106 and the approved Form 6668 in the case file.

  3. The team manager will send the digitally approved PDF file of Form 6668 in a secure e-mail message to the TECS Coordinator at *SBSE International TECS Coordinator to request that the taxpayer be entered on TECS. The TECS Coordinator will send the taxpayer information to Criminal Investigation (CI); the actual input of the taxpayer data into TECS will be done by CI.

Exchange of Information (EOI)
  1. The United States has tax treaties and tax information exchange agreements (TIEAs) with many countries that provide for the exchange of information on tax matters. Examples of the types of information which may be requested include documentation related to items reported or omitted on a taxpayer's return and the current address information for a taxpayer who no longer resides at the last known international address of record.

    Note:

    To access a list of countries that have an income tax treaty and/or a TIEA with the United States, go to the Treasury Department website at:http://www.treasury.gov/resource-center/tax-policy/Pages/default.aspx

  2. See IRM 4.60.1, Exchange of Information, for more information on requests between the United States and foreign countries.

  3. The EOI Program administers the EOI provisions of U.S. tax treaties and tax information exchange agreements (TIEAs). EOI obtains foreign based information for IRS Examination personnel, provides U.S. based information to treaty partners, and coordinates the Mutual Collection Assistance provisions of certain treaties. All EOI requests with a U.S. Territory or State are handled by the Office of Governmental Liaison.

  4. The types of information that may be exchanged under an EOI request include but are not limited to:

    1. Tax returns and return information such as verification of filing status, citizenship, residency, income, expenses and tax liability

    2. Third party information return filings

    3. Bank records

    4. Business records

    5. Public records such as deeds, birth, death and marriage records

    6. Witness interviews

  5. The IIC examiner must exhaust all domestic sources for information before requesting information from a foreign country. In general, if the information can be obtained domestically, then a tax treaty or TIEA request is normally not appropriate.

  6. Current contact information for the Exchange of Information team is at http://lmsb.irs.gov/pa/ttp/EOI/EOIContacts.asp.

    Caution:

    All EOI requests must be transmitted via a member of the U.S. Competent Authority's office. Only the Competent Authority's office is authorized to communicate directly with a foreign country's tax office under a treaty or tax information exchange agreement (TIEA).

International Enforcement Guidelines

  1. In conducting examinations, particularly examinations of taxpayers with undisclosed offshore accounts and assets, examiners should employ the full array of investigative tools at their disposal. Because each examination is different, it is not possible to provide a definitive list of resources, their appropriate scope in a particular case, or the order in which they should be utilized. These decisions are made by examiners based on the facts and circumstances of each case.

Examination Tools
  1. Taxpayer Interviews – See IRM 4.10.3.3, Interviews: Authority and Purpose; IRM 4.10.3.3.7, Interview Techniques, IRM 4.10.7.3.2, Oral Testimony, and Form 2311, Affidavit.

  2. Third-Party Interviews – See authority for taxpayer interviews in paragraph (1) above.

  3. Third-party Contacts – See IRM 4.11.57, Third Party Contacts. When examining participants in multi-level schemes (such as abusive trust arrangements or other income-shifting schemes), you must treat each entity in the scheme as a third party with respect to all other entities. If all third-party contact procedures have been followed the examiner can make investigative disclosures of tax return information. See IRM 4.2.5.3, Investigative Disclosures.

  4. Formal Document Requests – Under IRC 982, the IRS may request foreign-based records from a taxpayer. If the requested records are not produced, the taxpayer generally cannot use the records in a subsequent civil trial.

Information Document Requests (IDRs)
  1. IDRs are an important part of the information gathering process in any examination. If information requested in an IDR that is issued in accordance with the following guidelines is not received by the IDR response date, the examiner, tax compliance officer or tax examiner must follow the IDR Enforcement Process (as applicable to IIC) described below.

IIC Guidelines for Issuing IDRs for OVDP Cases
  1. When issuing IDRs, IIC examiners should follow the requirements listed below:

    1. Ensure the IDR clearly states the issue that is being considered and that the IDR only requests information relevant to the issue(s).

    2. Use numbers or letters on the IDR for clarity.

    3. Ensure that the IDR is written using clear and concise language.

    4. Ensure that the IDR is customized to the taxpayer.

    5. Determine with the taxpayer a reasonable timeframe for a response to the IDR.

    6. If agreement on a response date cannot be reached, the examiner will set a reasonable response date for the IDR, typically 30 days for taxpayers with addresses within the United States or 45 days for taxpayers with a foreign address.

    7. If the information requested in the IDR is not received by the response date, the examiner will follow the OVDP Removal Process guidelines below.

    Note:

    It is the agent’s or team manager’s discretion to submit a follow-up IDR or extend a deadline, if a taxpayer is having difficulty in obtaining information from foreign institutions.

OVDP Removal Process - for OVDP Cases Only
  1. If a taxpayer does not provide a complete response to an OVDP IDR by the response date, or is otherwise nonresponsive or uncooperative, the examiner will begin the OVDP Removal Process. See the Opt Out and Removal Guide for 2009 OVDP and 2011 OVDI embedded in 2014 OVDP FAQ 51. That guide governs the opt out and removal process. Please consult that guide for complete procedures.

  2. The removal package consists of:

    • Summary of the facts of the case

    • Examiner’s recommendation of examination scope and potential penalties

    • Summary of income tax and penalties/Form 4549

    • Other potential FBAR or information return penalties

    • Copy of the case activity record

  3. Team manager and territory manager concurrence is required for all removals. The territory manager will forward the package to the Opt Out/Removal Committee. Upon committee approval, the case is updated to project code 1090.

  4. The case becomes a regular examination case. Examination procedures should begin with Letter 2205 or Letter 2205-A, Initial Contact Letter.

  5. If, during the OVDP Removal Process, the taxpayer requests to Opt Out, the examiner ceases the OVDP Removal Process steps. The taxpayer must conform with the FAQ 51 procedures. See IRM 4.63.3.21, Opt-Out and Removal.

IIC Guidelines for Issuing IDRs for All Other Cases
  1. The following are guidelines for issuing IDRs for regular examinations and claims.

    1. Discuss with the taxpayer how the information requested is related to the issue under consideration and why it is necessary.

    2. After consultation with the taxpayer, determine what information will be requested in the IDR.

    3. Ensure the IDR clearly states the issue that is being considered and that the IDR only requests information relevant to the stated issue(s).

    4. Prepare one or more IDRs for each issue. Make clear which IDRs relate to discrete issues.

    5. Use numbers or letters on the IDR for clarity.

    6. Ensure that the IDR is written using clear and concise language.

    7. Ensure that the IDR is customized to the taxpayer.

    8. Determine with the taxpayer a mutually agreed upon time frame for a response to the IDR.

    9. If agreement on a response date cannot be reached, the revenue agent (RA) or tax compliance officer (TCO) will set a reasonable response date for the IDR, typically 30 days for taxpayers with addresses within the United States or 45 days for taxpayers with foreign addresses.

    10. When determining an estimated response date, ensure that the examiner or specialist commits to a date by which the IDR information will be reviewed and a response provided to the taxpayer on whether the information received satisfies the IDR. This date should be noted on the IDR.

    11. If the information requested in the IDR is not received by the response date, the RA or TCO will follow the IDR Enforcement guidelines (as applicable to IIC) in IRM Exhibit 4.46.4-2.

  2. If it is necessary to issue a summons after following the IDR Enforcement Process, see IRM 25.5, Summons, and the Summons Desk Guide available at: https://organization.ds.irsnet.gov/sites/LBIINTL/Lists/Master%20Resource%20List/Attachments/1896/Summons%20Desk%20Guide%204_12_13%20(v2).doc. This guide provides an overview of the summons process. It is not an exhaustive discussion, nor may it be cited as authority.

Investigative Techniques and Interview Desk Guide
  1. This guide provides a broad overview of examination investigative techniques and a detailed discussion on interviewing witnesses. It is not an exhaustive discussion, nor may it be cited as authority. IIC examiners should begin with these primary references but should in no case limit their research to the areas cited in the guide. A link to the guide is provided below from the Offshore Arrangement PN website at: https://organization.ds.irsnet.gov/sites/LBIINTL/Lists/Master%20Resource%20List/Attachments/1825/Investigative%20Techniques%20and%20Interview%20Desk%20Guide.pdf

  2. Where information important to auditing a tax return is located outside the United States, special rules and processes can be used to obtain that information.

  3. The Internal Revenue Code contains a variety of provisions specifically designed to allow the IRS to gain access to certain foreign-based records which require taxpayers to to apprise the IRS of certain cross-border transactions. Section 982 sets forth a procedure by which the IRS can request foreign-based records by issuing a "formal document request" . Sections 6038, 6038A, 6038B, and 6038C require taxpayers to report certain information about foreign related parties, or transactions with certain related parties. These code sections impose special penalties on taxpayers who fail to timely report the required information.

  4. In addition, where information is located in a country with which the United States has a tax treaty or tax information exchange agreement (TIEA), the information may be obtainable by the tax administration of that country and provided to the IRS through the exchange of information (EOI) process. The EOI process can be used to obtain documents or to conduct interviews of foreign persons. The EOI process is effective and is used regularly by the United States and its treaty and TIEA partners.

Procedures for Obtaining Records Pursuant to IRC 6038A
  1. The ability to obtain foreign records is critical. The majority of records in an international examination may be located in a foreign jurisdiction.

  2. During an examination, examiners should keep IRC 6038A in mind. Also, the exchange of information programs, i.e., simultaneous examinations, specific requests for information, and spontaneous exchanges, are very helpful in obtaining records in foreign countries.

  3. Certain foreign-owned U.S. corporations and foreign corporations engaged in trade or business within the United States may be required to maintain records sufficient to establish the correctness of their federal income tax returns, including the correct treatment of transactions with related parties. See IRC 6038A, IRC 6038C and Treas. Reg. 1.6038A–3(a). Such records are generally required to be maintained within the United States, regardless of whether the records are prepared or maintained by a foreign related party. Treas. Reg. 1.6038A–3(f)(1). See IRM 4.60.8.3.5.4.2, Failure to Maintain Records or Comply with Non-U.S. Maintenance Requirements, and IRM 4.60.8.3.5.4.3, Record Maintenance Procedures and Guidelines.

  4. Treas. Reg. 1.6038A–3(f) permits a reporting corporation to maintain records outside the United States provided that the corporation either delivers any requested documents to the IRS within 60 days of the request and provides a translation of any such documents within 30 days of receiving a request for translations of specific documents, or moves any requested documents to the United States within 60 days of the request and provides the IRS with an index of the records and the name and address of their U.S. custodian.

  5. The Service may request that certain parties related to a domestic reporting corporation authorize such corporation to act as their agent for purposes of an IRS examination of books and records, or for the service and enforcement of a summons with respect to any transaction that it has with the reporting corporation. If the related party does not authorize the reporting corporation to act as its agent or does not substantially comply with the summons for records or testimony a noncompliance penalty may apply. A reporting corporation authorized to act as an agent may file a petition to quash any summons or subpoena or to review an IRS determination of noncompliance under IRC 6038A(e)(4)(A).

  6. IRM 20.1.9, Penalty Handbook, International Penalties, contains specific procedures for IRC 6038A cases.

  7. Go to the website: http://lmsb.irs.gov/pa/ttp/EOI/EOIContacts.asp for the current contact information for the Exchange of Information team.

    Caution:

    All EOI requests must be transmitted via a member of the U.S. Competent Authority's office. Only the Competent Authority's office is authorized to communicate directly with a foreign country's tax office under a treaty or TIEA.

Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC)
  1. The Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC) is a multi-country workgroup that originated in 2004 to address cross-border tax avoidance schemes, transactions and structures through use of the bilateral treaty process. In 2014, JITSIC was re-established and opened to all member countries in the Organization for Economic Cooperation and Development (OECD) Forum on Tax Administration (FTA).

  2. Current JITSIC members are: Australia, Austria, Belgium, Canada, Chile, China, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, India, Italy, Japan, Korea, Luxembourg, Malaysia, Mexico, Netherlands, New Zealand, Norway, Portugal, Russia, Slovak Republic, South Africa, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States.

  3. Go to website: http://lmsb.irs.gov/intl/jitsic/aboutJITSICprogram.asp for additional information about the JITSIC program, contact information, foreign based records and spontaneous exchange of information and JITSIC referral guidelines.

Statute Control

  1. This subsection provides an introduction to established policy and procedure as it pertains to issues encountered within IIC that are unique to some of our projects and cases.

  2. IRC 6501(a) provides that the general assessment statute of limitation is three years after a return is filed. If a return is mailed after the due date, the statute begins to run from the date the return is received (assuming IRC 7503 does not apply to a return under extension).

  3. IRC 6501(b) states if a return is mailed and received prior to the due date, the statute begins to run on the due date of the return.

  4. IRC 7502 states that if any return is postmarked in the U.S. before the due date, but received after the due date, the postmark date is the date of delivery and the statute starts to run on the due date.

  5. If a return is filed electronically, the date of the "electronic return transmitter" is deemed to be the received date of the return.

  6. Taxpayers residing outside the United States and Puerto Rico are generally entitled to an extension of time to file until June 15, upon request. See Treas. Reg 1.6081-5(b)

  7. See IRM 25.6.1.6.4, Statute of Limitations Chart for Tax Returns, for a statute of limitations chart for tax returns.

Researching Statutes

  1. Upon receipt of a case, managers and examiners should determine the correct statute date. Inspect the original return for information to establish the date of filing:

    1. A "received date" stamp

    2. The postmark date

    3. An extension of time to file

  2. If the original return is not in the case file or the return does not contain a date stamp, establish the date the return was received from the "Return Received Date" field of an IMFOLT/BMFOLT.

  3. For an understanding of procedures on statutes, refer to the following IRM sections as well as the Internal Revenue Code and other research:

    Citation Title
    IRM 1.2.12.1.5 Policy Statement 3-5 related to unsigned tax returns
    IRM 4.19.17.3.11.2 Refund Statute Expiration Date (RSED)
    IRM 8.13.1.1.2 Examples of Use of Closing Agreements
    IRM 21.8.1.6.10 Covering Over Net Collections of Tax When the Period of Limitations Has Expired - U.S. Virgin Islands
    IRM 25.6.1.2 What is a Statute of Limitation
    IRM 25.6.1.6.14 Criteria for Establishing a Statute of Limitations Period
    IRM 25.6.1.6.15 When a Document Is Treated As Filed Under the IRC
    IRM 25.6.1.9.10.6 Reduction in Foreign Tax Credit
    IRM 25.6.1.9.11 Self Employment Contributions Act (SECA)
    IRM 25.6.1.10.2.8.4 Foreign Tax Credit
    IRM 25.6.23 Examination Process-Assessment Statute of Limitations Controls
    Document 7368 Basic Guide for Processing Statute Cases

Statute Control and Monitoring Procedures

  1. It is primarily the responsibility of the individual to whom a case is assigned or who has custody of a return to protect the interest of the Government against the expiration of the assessment statute of limitation. See IRM 25.6.23.3, Components of Statute Controls, for the essential tools for controlling statutes for Examination cases.

  2. Statute controls are required for all returns controlled on AIMS/ERCS or being examined with assessment statutes that may expire within 210 days as most of WIIC’s taxpayer’s population resides abroad. Team managers and examiners are ultimately responsible for protecting the statute and ensuring the statute date is correctly reflected on AIMS/ERCS/IMS and in the case file.

  3. ERCS generates a Form 895 when a statute date expires within a specific number of days, but not less than 180 days. All returns must be controlled on the AIMS control database to ensure timely notification of statute expiration via Form 895. When a related return is picked up for examination, AIMS controls must be immediately established to monitor and protect the statute.

  4. A Form 895 should be included on any return with an alpha code if the computed statute date expires within the specified period. For cases with an alpha code where the normal statutory period for assessment is still open, a statement in the Remarks section of Form 895 is required with the signatures or initials of both the employee charged with the return and the manager.

  5. Although the ultimate responsibility rests with the examiner, the secretary will generally identify affected cases and forward Forms 895 to the examiner. Forms 895 must be monitored to ensure that they are returned to the manager (see IRM 1.4.40.4.3, Statute Controls). If the examiner does not return Form 895 to the group manager within 10 days, the group manager will follow up with the examiner (IRM 25.6.23.6.3, Form 895 Completion Requirements for Managers). Statute controls are critical to ensuring the protection of the statute of limitations and should be continually monitored even if the statute is no longer considered imminent.

  6. Every attempt should be made to complete a case before a statute extension is necessary. However, if the examiner cannot expeditiously conclude the examination, the examiner and the group manager may decide to solicit a statute extension form applicable to the case (Form 872, 872-A, 872-T etc.). Upon receipt of an executed statute extension, the statute expiration date on the Form 895 is updated and the case forwarded to the group manager for approval.

  7. When the case is closed or transferred from the group, Form 895 is attached to the front of the case file folder, on top of all other attachments.

Monitoring Statutes
  1. It is imperative that statutes are continually monitored to ensure they are fully protected and that statute control procedures are followed. Both the group manager and examiner are responsible for verifying and protecting the statute of limitations on all assigned cases. As tax returns are received in the group, it is required that the manager verify the accuracy of the assessment statute date (ASED). This verification is required whether there is a filed return or non-filer controls have been established.

  2. When an examiner receives a case file from the manager, he or she must also ensure the accuracy of the ASED. This screening by the examiner is even more important when alpha statutes codes are involved because various circumstances can cause the alpha statute codes to revert to the normal three year statute expiration date, which requires protection.

  3. The manager and examiner will use all available information in the administrative file, including information from internal systems such as IDRS (Integrated Data Retrieval System) and CFOL (Corporate Files On-Line), and application of appropriate Internal Revenue Code sections, Treasury Regulations, and the IRM to ensure the statute of limitations is correctly reflected. When errors are found, established procedures will be followed to update the ASED date.

  4. This statute date must be closely monitored to ensure the Government’s interest is protected. The statute date will not change unless it is updated to reflect the execution of a Form 872, a Form SS-10 or because updating to an alpha statute code is appropriate. The manager and examiner must continue to monitor the statute using the monthly Inventory Validation Listing, ERCS Statute Reports and Table 4.1 to ensure statute control procedures are started within 210 days of the expiration of the statute.

    Note:

    The fax policy now allows acceptance of signatures by fax on consents if taxpayer contact has been made and the case history documents the date of contact and the desire of the taxpayer to submit the consent by fax.

Conditions Which Extend the Assessment Statute Expiration Date

  1. If one or more of the following conditions is present, the Assessment Statute Expiration Date (ASED) may be extended.

    IRC Section Title
    664 Charitable Remainder Trusts
    1033(a) Involuntary Conversion
    1314(b) Mitigation
    6013(b) Joint Return After Filing Separate Return
    6229 Partnership Items
    6501(b)(3) Substitute for Return (SFR)
    6501(c)(1) False Return
    6501(c)(2) Willful Attempt to Evade Tax
    6501(c)(3) No Return
    6501(c)(4) Extension by Agreement
    6501(c)(5) Tax Resulting From Changes in Certain Income or Estate Tax Credits
    6501(c)(6) Termination of Private Foundation Status
    6501(c)(7) Certain Amended Returns
    6501(c)(8) Failure to Notify the Secretary of Certain Unreported Foreign Transfers
    6501(c)(9) Gift Tax (Form 709)
    6501(c)(10) Listed Transactions
    6501(e) Substantial Omission
    6501(e)(3) Excise Tax Substantial Omission
    6501(f), 543 & 544 Personal Holding Company
    6501(h) Net Operating Loss Carryback or Capital Loss Carrybacks
    6501(i) Foreign Tax Carrybacks
    6501(j) Certain Credit Carrybacks
    6501(m) Certain Credits Elected
    6503(a) Statutory Notice of Deficiency and Petitions to Tax Court
    6503(b) Bankruptcy
    6503(c) Taxpayer Outside United States
    6901 Transferred Assets (Transferees and Transferors)
    7609(e) John Doe Summonses
  2. If a timely filed individual amended return showing an increase in tax is received within 60 days of the ASED of the original return, the assessment of the amended return is extended for 60 days from the day the amended return was received on all subtitle A (Income) taxes.

    Caution:

    An additional assessment on a module, such as a TC 290 or TC 300, DOES NOT extend the ASED. The ASED is determined only by the received date or the due date of the original return, unless any of the above conditions are met.

Provisions Enacted in 2010

  1. Congress amended IRC 6501(e) in the HIRE Act in 2010 to add an additional provision under the definition of substantial omission of income. IRC 6501(e) was amended to add that an omission of more than $5000.00 in gross income attributable to specified foreign financial assets extends the period for assessment to 6 years from the later of the date the return was due (without regards to extensions) or filed, regardless of whether or not the specified foreign financial assets are reported as required under new IRC 6038D, Information with Respect to Foreign Financial Assets.

  2. The amendment to IRC 6501(e) applies to all returns as long as the period of time (determined without regard to the IRC 6501(e) amendments referenced above) for assessment of taxes has not expired as of March 18, 2010.

    If And Then
    The income tax return was filed after March 18, 2010, or the assessment statute was otherwise still open as of that date More than $5000 was omitted from gross income that is attributable to specified foreign financial assets The statute remains open under IRM 6501 for a total of six years from the date the return was filed
  3. Congress also provided that the failure to file various international information returns would hold open the assessment statute of limitation for three years after the date the taxpayer furnishes the required information. In addition, IRC 6501(c)(8) was amended to clarify that this statutory exception to the period of time for assessment, if applicable, applies to the entire return, not just those tax liabilities associated with the information not reported. If, however, the failure to furnish information required to be reported is due to reasonable cause and not willful neglect, the IRC 6501(c)(8) extended time for assessment applies only to the item or items associated with such failure.

  4. With limited exception (discussed below for returns subject to IRC 6038D), the amendment to the limitations period under IRC 6501(c)(8) applies as long as the period of time for assessment of taxes has not expired as of March 18, 2010.

  5. For returns subject to the reporting requirements under IRC 6038D, the amendment to the limitations period under IRC 6501(c)(8) applies to tax years beginning after March 18, 2010.

  6. Form 8938, Statement of Foreign Financial Assets, is designated for reporting the information required by IRC 6038D.

  7. Assessment statute expiration date (ASED) alpha codes "NN" and "UU" apply to IRC 6501(e) and IRC 6501(c)(8), respectively.

  8. In 2015, Section 2005 of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, P.L. 114-41, 129 Stat. 443 (2015), added language to IRC 6501(e)(1)(B) providing that an understatement of gross income by reason of an overstatement of unrecovered cost or other basis is an omission of gross income. This legislation applies to returns filed after July 31, 2015. It also applies to returns filed on or before July 31, 2015, if the period of limitations under IRC 6501 (determined without regard to the legislation) has not expired as of that date.

Offshore Voluntary Disclosure Cases - Special Provisions for Penalties

  1. Examiners are responsible for protecting all open statutes on Voluntary Disclosure cases. A Form 872, Consent to Extend the Time to Assess Tax, which is unrestricted, must be secured to protect all open statutes. Examiners should use the procedures in IRM Exhibit 25.6.23-3 for updating cases to the "YY" alpha status when applicable. See IRM 4.63.4.9.3, Conditions Which Extend the Assessment Statute Expiration Date, for a list of other IRC sections that may extend the ASED date.

  2. Examiners are not to update their case to the "AB" alpha status. Technical Services uses this alpha status after the case is closed to their status 21. At that point, Technical Services executes a Form 906, Closing Agreement on Final Determination Covering Specific Matters, which has been prepared and signed by the examiner and then signed by the taxpayer.

  3. Examiners are responsible for performing thorough statute inspections for each year included in the disclosure period. The most common statute issue on OVDI cases is Form 872 including extension for years with barred statutes. Locate "Authority to Allow Normal Assessment Statute of Limitations to Expire on Voluntary Disclosure Program Case" (commonly known as YY memo) and executed Form 872 and match to the statutes of limitations listed when assigned. Forms 872 executed at the OVDI unit includes all years under the applicable disclosure period however the form might have been executed after the statute of limitations expired for some years. Years with expired statute of limitations remain in alpha code YY if the regular 3-year ASED (including alternative statute dates under IRC 6501) time period has elapsed prior to the Form 872 execution.

Use of Alpha Code YY

  1. An alpha code is a two-digit alphabetic code designating a special statute situation. A two-digit alphabetic code designating a special statute situation may be entered in the day (DD) position of the statute on AIMS and ERCS. For example, if FF is entered for a reference return and the actual statute expiration is 04152014, the statute date will be entered on AIMS as 04FF2014. Examiners and managers must understand how the tax law impacting the periods of limitation applies in each particular situation before allowing the normal ASED to expire. Updating to an alpha code statute should only be considered after making an attempt to secure the taxpayer’s consent to extend the ASED. If there is not sufficient time to secure an extension of the ASED (generally, when the return is received in the group with less than 30 calendar days prior to the return’s ASED or the taxpayer has refused to agree to an extension of the statute), then the case should be updated to the appropriate alpha code statute.

  2. The YY alpha code may be used for any tax return filed involving abusive offshore arrangements where it has yet to be determined a specific statutory exception to the normal 3-year assessment statute of limitation.

  3. YY is also used when the decision is made to allow the normal statute of limitations to expire on the Offshore Project returns and the decision to allow the normal assessment statute to expire has been timely and properly documented, including approval by the Territory Manager. The documentation requirement to support the determination that special conditions exist will be satisfied by including the following statement:

    The examination of the above mentioned individual was initiated through a special project or because it was otherwise identified as potentially involving offshore noncompliance. Due to the complexity of the case, Revenue Agent (enter name) is working collaboratively with Counsel and both Area and National Office Subject Matter Experts. It has been determined that there is a likelihood in this case that one or a combination of the following conditions exists: (1) the tax return is false/fraudulent; (2) a sufficiently large omission of gross income to rely on the 6-year assessment statute; or, (3) failure to notify the Secretary of foreign transfers (IRC 6501(c)(8)).
  4. In the case of Offshore Voluntary Disclosure, a YY Memo should contain the following language:

    The above-identified taxpayer has been tentatively accepted into IRS’s Offshore Voluntary Disclosure Program, authorized in the Deputy Commissioner for Service and Enforcement’s March 23, 2009 and March 1, 2011 memorandums. To comply with the terms of the Program, the taxpayer is required to enter into a specific matters closing agreement under IRC 7121 in which the taxpayer waives any defense based on the expiration of the period of limitations on assessment or collection.
  5. Examiners should properly develop the facts and apply the law to the facts in order to make appropriate tax and penalty determinations before case closure. In cases that are ultimately determined to involve intent to evade or avoid taxes, it is customary to include as many taxable periods as possible to demonstrate patterns of conduct.

  6. To ensure that cases are properly developed and not forced prematurely into court, the courts have recognized that it is entirely appropriate for the Service to continue an investigation after the three-year period has expired when the purpose is to determine the existence of fraud or substantial unreported income.

  7. Alpha code YY may be used when the return meets one of the Offshore Project code definitions, even if AIMS properly reflects another approved project code rather than an approved Offshore Project code. If the return is not project coded on AIMS, the return should be project coded with the appropriate Offshore Project code either before or simultaneously with the input of ASED alpha code YY.

Other Common Alpha Codes Used in International Examinations

  1. Alpha codes used to designate special statute conditions are fully described in IRM Exhibit 25.6.23-3, Instructions for Updating the Statute on AIMS. Common alpha codes used in international examinations are briefly described below:

    1. AA - Claim for Refund/Credit Only Issue

    2. AB - Assessment Statute of Limitations Waived by Properly Executed Closing Agreement

    3. BB - NOL or Capital Loss Carryback

    4. EE - No Return Filed

    5. NN - Substantial Omission of Items (IRC 6501(e))

    6. OO - False or Fraudulent Return (taxpayer not under joint investigation)(IRC 6501(c))

    7. UU - Failure to Notify Secretary of Foreign Transfers

More Than One Special Statute Condition

  1. If more than one special alpha statute may apply, rely on the more conservative alpha statute. For example, if a case involves both a substantial omission of income (6-year statute) and fraud, rely on the 6-year statute first. The facts of the case must be considered in making the determination of which alpha statute to use. Generally the normal statute of limitations should not be updated to an alpha code earlier than 180 days before expiration of the normal assessment period. Alpha code EE (no return filed) is the exception to this general rule and may be entered on AIMS in non-filer situation at the time the AIMS record for the non-filed tax period is established.

  2. Most alpha codes apply only when precise requirements of the law are met. A statement in the Remarks section of Form 895 is required to explain the IRC section relied upon for updating the ASED. The signatures or initials of the employee charged with the return and the manager are placed next to the statement to give assurance that all aspects of the alpha code condition have been carefully considered.

  3. In cases involving more than one special alpha statute, consider requesting the advice of local SB/SE Counsel on assessment statute of limitations in your case.

Statute of Limitations and Offshore Project Cases

  1. For all cases where taxpayers are involved in offshore transactions examiners should properly develop the facts and apply the law to the facts in order to make appropriate tax and penalty determinations before case closure.

  2. In cases that are ultimately determined to involve intent to evade or avoid taxes, it is customary to include as many taxable periods as possible to demonstrate patterns of conduct.

  3. In some instances, examiners will be assigned cases with limited time remaining on the statute of limitations. In these instances, it will be difficult to accurately document a case-specific basis for the decision to continue the examination of the year beyond the statute date as required by current standard procedures. Cases selected for examination in offshore projects share many common challenges, namely:

    1. Examinations are complex and include the review of large volumes of documents to review as well as the need to secure documents located outside the United States.

    2. Examinations often involve multiple entities to include partnerships, trusts, and international business corporations.

    3. In many instances, there is the likelihood that one or more of the exceptions to the general three-year statute of limitations applies.

  4. IRM 25.6.23.6.6.2, Reliance on IRC Provisions Which Extend Normal Assessment Statute, and IRM Exhibit 25.6.23-3, Instructions for Updating the Statute on AIMS, provides the authority for a team manager to allow the normal assessment statute to expire, in other than joint investigation situations, if the manager determines that special conditions exist that extend the normal assessment statute.

  5. The IRM further instructs that the decision on each case should be documented, discussed, and approved, in writing by the territory manager. If additional examination activity is warranted, the statute should not be allowed to expire. In those instances, the following provisions apply:

    1. The examiner must timely and properly make a request to the taxpayer to extend the normal assessment statute of limitations and document the file accordingly with the request and the taxpayer's response (or lack thereof).

    2. Prior to the expiration of the normal assessment statute, the examiner must discuss with the team manager the decision to allow the normal statute of limitations to expire. This must be documented in writing by the team manager. The memo is then forwarded to the respective territory manager for final approval. The case file will be documented accordingly to include a copy of the final memorandum with all signatures. The memorandum should fully set forth the rationale and risk calculus to support the conclusion to allow the normal assessment statute to expire.

    3. The documentation should include the following statement:
      "As part of an offshore project, it has been determined that there is a likelihood in this case that one or a combination of the following conditions exist: 1) the tax return is false/fraudulent; 2) a sufficiently large omission of gross income to rely on the 6-year assessment statute; or 3) failure to notify the Secretary of Foreign Transfers (IRC 6501(c)(8))."

  6. If it is determined that an exception to the normal period for assessment applies, update the ASED to the applicable alpha code, for example, NN for IRC 6501(e), OO for IRC 6501(c)(1) or UU for the IRC 6501(c)(8) exception. The month (MM) and year (YYYY) entries accompanying the Alpha Code YY are the month and year the normal three-year statute expires.

  7. If it is ultimately determined that there is no exception to the normal ASED, then replace the YY alpha coded ASED with the actual statute expiration date. If the ASED has in fact expired and an assessment cannot be made, refer to IRM 4.63.4.9.14, Barred Assessment Statute Report, for the procedures for preparing and submitting a Form 3999, Statute Expiration Report.

  8. In instances where the decision to allow the three year statute to expire was discussed with the team manager, concurred by the territory manager and documented accordingly, all parties involved in the decision will be deemed to have acted appropriately.

  9. If a WIIC examiner desires legal advice on the applicability of the YY alpha code in offshore cases, contact local SB/SE Counsel.

John Doe Summons

  1. Under IRC 7609(e)(2), the statute of limitations on assessment in any case in which a third party summons remains unresolved for more than six months is suspended from the six month anniversary of the service of the summons until the final resolution of the response to the summons. This applies to "any person with respect to whose liability the summons is issued..." . For a John Doe summons, the suspension applies to each member of the John Doe class. In certain situations where the suspension period has not been finalized, the statute of limitations may be updated using alpha code LL. See IRM 25.6.23.6.6.2 and IRM Exhibit 25.6.23-3.

  2. For example, a John Doe summons, which sought records of all taxpayers who had undisclosed accounts at X Institution at any time from 2005 through 2011, was served on January 1, 2013. The six-month anniversary of that date is July 1, 2013. The production of account information was accomplished over a period of time, and the letter to X Institution notifying it of the substantial compliance of the summons was issued on June 1, 2014. Therefore, the statute of limitations on assessment was suspended under IRC 7609(e)(2) from July 1, 2013 until June 1, 2014, for any of the years 2005 through 2011 for which the statute was still open under any provision of the Internal Revenue Code. This statute suspension under the John Doe summons rules does not apply to 2012, 2013 and 2014 because those years were not included in the John Doe summons.

  3. Examiners can calculate a new ASED based on a suspension of the statute by adding to the old ASED the number of days remaining on the statute as of July 1, 2013.

    Example:

    For the 2011 calendar year, for which the three-year statute would have expired on April 15, 2015, the statute was suspended on July 1, 2013, at which time the unexpired portion of the statute was 653 days. The suspension ended on June 1, 2014, so the ASED will be 653 days after that date, or March 15, 2016. On the other hand, the normal three-year statute of limitations for 2009 expired on April 15, 2013, which was before the John Doe suspension began, so the suspension will have no effect on the three-year statute for 2009 and prior years. However, the suspension of IRC 7609(e)(2) applies equally to the six-year statute of limitations. If the Service finds a 25 percent omission of gross income in 2009, the six-year statute will apply, and the suspension will be effective to calculate a new six year statute for 2009. In that case, there would be 1,019 days remaining on the six-year statute when the suspension started on July 1, 2013. Adding that time to the date the suspension ended, June 1, 2014, gives a new ASED of March 16, 2017.

  4. In addition, once an examiner confirms that the taxpayer held a foreign financial asset and that the unreported income from that foreign financial asset exceeded $5,000.00, the six-year statute of limitations provided by IRC 6501(e)(1)(A)(ii) would apply and is included into the ASED calculation date.

  5. This analysis applies equally to any other case involving John Doe class members that were identified as a result of, or subsequent to, issuance of a John Doe summons.

Claim for Refund and Refund Statute Expiration Date

  1. Claims for credit or refund must be filed within the later of:

    1. 3 years of the filing of the return, or

    2. 2 years from the date the tax was paid.

  2. Claims for refund do not extend the statutory period for assessing additional tax; therefore, consider asking the taxpayer to sign a Form 872 extending the ASED for the years of the claim.

  3. An original delinquent return claiming an overpayment is a claim for refund. A taxpayer is entitled to a credit/refund for any payment paid within three years from the received date of an original delinquent return, including extensions.

Claims for Refund for Foreign Taxes Paid or Accrued

  1. There is a special statute of limitation for refund claims attributable to foreign tax credits. If a claim for credit or refund relates to an overpayment attributable to any taxes paid or accrued to any foreign country or to any U.S. possession for which credit is allowed against the tax imposed by subtitle A in accordance with the provisions of IRC 901 or the provisions of any treaty to which the U.S. is a party, then in lieu of the 3 year period of limitations prescribed in IRC 6511(a), the period of limitations shall be 10 years from the date prescribed by law for filing the return for the year in which such taxes were actually paid or accrued. Also see IRC 6511(d)(3).

  2. When examining claims for refund relating to foreign tax credits, watch for taxpayer attempts to change from the cash basis to the accrual basis in claiming foreign tax credit. A change from cash to accrual for foreign taxes paid or accrued is not permissible. Strong v. Willcuts, 1935 U.S. Dist. LEXIS 2063; 36-1 U.S. Tax Cas. (CCH) P9032 (D. Minn. 1935).

FBAR Statute and Authorities Overview

  1. The Report of Foreign Bank and Financial Accounts, previously TD F 90–22.1, (FBAR) now FinCEN Form 114, is required when a U.S. person has a financial interest in or signature authority over one or more foreign financial accounts with an aggregate value greater than $10,000. If a report is required, certain records must also be kept. FinCEN requires that all FBARs be electronically filed through the BSA e-filing system.

  2. In April 2003, the IRS was delegated civil enforcement authority for the FBAR.

  3. Income tax audits are Title 26 examinations while FBAR inquiries are Title 31 examinations. Therefore, information gathered in a Title 26 audit cannot be used in a Title 31 inquiry unless there is a related statute memorandum (RSM) approved by the team manager. Refer to IRM 4.26.17 for FBAR procedures.

  4. The statute of limitations on assessment of civil FBAR penalties is six years from the date of the violation. For information returns prior to 2015, the FBAR filing date is June 30 of the year following the calendar year for which the foreign financial account should be reported. Effective for tax years beginning after December 31, 2015, the new due date is changed from June 30 to April 15 of the year following the calendar year for which the foreign financial account should be reported. FinCEN now grants taxpayers an automatic six month extension for filing FBARs. The six month extension requires that FBARs be filed by October 15. If a filer fails to file by October 15, the FBAR violation date is effective the due date of the income tax return for the same reporting year

  5. The period of limitation on assessment of FBAR civil penalties is found in 31 U.S.C. 5321(b)(1). Section 5321(b)(1) provides that the Secretary of the Treasury may assess a civil penalty under subsection (a) at any time before the end of the six year period beginning on the date of the transaction with respect to which the penalty is assessed. The IRS takes the position that the filing due date for FBARs is the date from which to compute the six-year limitations period.

  6. A person may voluntarily waive the statute of limitations for assessing FBAR penalties. Unlike the statute of limitation for assessing income tax liabilities, a taxpayer may waive the assessment statute of limitation for FBAR penalties even after it has expired. A consent form is available at: http://lmsb.irs.gov/pa/wii/campus_compliance_unit/downloads_FBAR/_print/FBAR_Consent_to_Extend_Statute__Fillable_Form.pdf.

  7. Refer to 31 USC 5314, 31 CFR.1010.350, IRM 4.26.16, Report of Foreign Bank and Financial Accounts (FBAR), and the FBAR filing instructions for more discussion of FBAR .

Barred Assessment Statute Report

  1. When a tax assessment is not made within the prescribed period for assessment it is considered a "barred assessment" .

  2. In the event an ASED expires while a tax return is under the examiner’s control, the examiner must prepare a statute expiration report using Form 3999. Form 3999 is due within 10 business days of the date the examiner becomes aware of the expired statute.

  3. The preliminary report is routed to the Director, Field Operations and forwarded to Director, WIIC for transmittal to LB&I Headquarters. The report package should include the following information:

    1. Completed Form 3999.

    2. Memo of Disciplinary Action (barred statutes may result in disciplinary action)

    3. Any relevant supporting documentation to explain the events that led the barred statute and/or reason for barred statute. This information includes but is not limited to: time line of events, copies of any Forms 872 with taxpayer’s signature, copy of any memo allowing the statute to expire, IDRS transcripts of accounts and applicable statute calculations.

  4. IRM 25.6.1.13.2.9, Statute Expiration Reporting Responsibilities and Procedures for LB&I Field Operations and LB&I Campus Employees, identifies additional procedures that must be followed when an LB&I return has a barred statute.

Issue Resolution

  1. See IRM 4.10.7, Issue Resolution.

Report Writing

  1. See IRM 4.10.8, Report Writing, with the following exceptions:

    1. IRM 4.10.8.1.3.1 does not include the Revision of Policy for Use of Fax in Taxpayer Submissions revised 11/19/2015.

    2. IRM 4.10.8.2.1 No Change (No Adjustments)

    3. IRM 4.10.8.3.7 (1) and (2) Closing Letters for Agreed Cases

    4. IRM 4.10.8.19 Informant's Claims for Rewards

    In reference to the above sections the IIC procedures are not the same as outlined in IRM 4.10.8.

  2. Use of Fax in Taxpayer Submissions – If taxpayer contact has been made and the case history documents the date of contact and the desire of the taxpayer to submit the document by fax, the IRS can accept by fax:

    1. Consents to assess additional tax (Forms 4549, 870, and others) of any amount

    2. Taxpayer closing agreements involving any amount of tax

    3. Consents to extend the time to assess tax (Forms 872, SS-10, and others)

    See http://irweb.irs.gov/AboutIRS/co/dcse/memo/48254.aspx

  3. No-Change (No Adjustments) – IIC campus and field operations follow the Streamlined No-Change Process. IIC examiners will close cases that have no adjustments in any years without preparing a no-change audit report. Additionally, IIC examiners will no longer prepare the Letter 3401, No Change Report Transmittal Letter.

    1. IIC examiners will continue to prepare the No Change Final Letter 590, leaving the date field blank, obtaining the manager’s signature on the letter, and including it in the case file.

    2. IIC examiners 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.

    3. CCP will date and issue the No-Change Final Letter 590 to the taxpayer and any applicable representatives when the examination is officially closed.

    4. The streamlined process does not apply to returns closed using Disposal Code 01, No Change With Adjustments (or any examination with adjustments in one or more years which net to zero), returns subject to Joint Committee review, OVDP cases, TEFRA examinations, or Non-TEFRA returns which are linked.

  4. Closing Letters for Agreed Cases – IIC examiners will:

    1. Inform taxpayers that the agreed case is subject to review and once it is accepted, they will receive Letter 987, Agreed Income Tax Change, stating the case is closed.

    2. Prepare Letter 987, which is signed by the team manager for the director, and leave it undated and in the case file (with a copy for the file); Letter 987 contact information will be completed with the examiner’s name.

  5. Examining a Whistleblower Claim – Refer to IRM 25.2.2.5 Examining a Whistleblower Claim, and IRM 25.2.2.6 Form 11369, for whistleblower claim processing and report writing. Also refer to: http://lmsb.irs.gov/pmo/Whistleblower/default.asp for LB&I-specific processes and procedures.

  6. Audit reports should contain all the information necessary to ensure a clear understanding of the adjustments and document how the tax liability was computed. Examination report are legally binding documents, and, when executed, serve as the basis for assessment and collection action. Based on this importance, examiners should take all necessary steps to ensure report accuracy. If a corrected report is needed, see IRM 4.10.8.13, Corrected Reports.

Report Generation Software (RGS)

  1. Please refer to IRM 4.10.15, Examination of Returns, Report Generation Software (RGS), for general information and guidance on using this software program. There is a listing of RGS training materials on the RGS User Website at http://mysbse.web.irs.gov/examination/rgs/default.aspx.

Requirement to Use Report Generation Software (RGS)

  1. RGS is the software program used in cases that involve individual and business type tax returns. RGS will:

    1. Compute corrected tax, interest, penalties, and generate audit reports

    2. Create various forms and letters

    3. Allow examiners and reviewers to document their actions and findings

    4. Process and archive examination results.

Creating International Returns in RGS

  1. Special procedures are needed in order to use RGS for Form 1040NR and Form 1120F tax returns. In order to create Forms 1040NR and Forms 1120F in RGS the following workarounds must be performed:

    1. Examiners create Form 1040NR using the Form 1040 form type. In addition, examiners match the line descriptions on Form 1040NR to the return setup instead of using the line numbers. Generally, nonresident aliens are not allowed to take the standard deduction. However, there may be treaty exceptions that are applicable in regards to the standard deduction. Always check the box to the right of the line "Itemized when standard deduction was greater" .

    2. Form 1040NR may include tax on Not Effectively Connected Income (NEC). This type of tax is not a line item on the Form 1040; therefore, the NEC tax amount must be added on the line for "Tax" on return setup. Click on "Included in Line 44" and enter the NEC tax on the line entitled "Tax from Form 4972" . Any adjustments to tax on NEC must be computed outside of RGS and entered as a tax adjustment instead of an adjustment to income.

    3. Examiners create Form 1120F using the Form 1120 form type. Match the following lines to Form 1120 line numbers: Tax from Section I, Tax from Section II, Tax from Section III and Total Tax.

    For additional guidance, please contact the local Functional Automation Staff (FAS) for assistance or the local RGS coordinator.

Universal Issue List (UIL) Codes

  1. IIC developed Universal Issue List Codes (UIL) for WIIC audits. The codes are required for WIIC cases. The codes will be used for effective identification of cases and track the issues worked and to identify areas for training opportunities. Refer to the IIC UIL website at http://lmsb.irs.gov/pa/wii/foreign_resident/IIC%20UIL%20Codes.asp for more information on UIL codes.

Workpapers Overview

  1. The purpose of this section is to provide guidelines for the development of workpaper content and for workpaper organization. These guidelines are provided to promote quality and consistency in examiner workpapers.

  2. Workpapers are the written records kept by the examiner. They provide the principal support for the examiner’s report and document the procedures applied, tests performed, information obtained and the conclusions reached in the examination. They should include all the information necessary to document the examination activities and support the audit results.

  3. Workpapers serve four basic purposes:

    1. Assistance in planning the audit, including the analysis of internal documents and setting the scope of the exam

    2. Record of the evidence gathered, procedures completed, tests performed, and analyses conducted during the examination process

    3. Provide support for technical conclusions

    4. Basis for review by management

  4. Case files will be reviewed for various purposes. Well prepared workpapers facilitate any use of the file after the case is closed. If the workpapers are prepared well, others will be able to use the file effectively.

Workpaper System

  1. The workpaper system is designed to facilitate consistent organization of case files and eliminate duplication. The workpaper system includes:

    1. Form 4318, Examination Workpapers Index, or Form 4318-OA, Examination Workpapers Index - Office Audit.

    2. Form 9984, Examining Officer’s Activity Record, or RGS Case History Report

    3. Administrative and issue lead sheets

    4. Supporting workpapers

  2. Form 4318 or Form 4318-OA is the cover sheet that indexes the administrative and issue lead sheets, as well as supporting documents (e.g. information document requests, correspondence and case building materials). It pertains to one taxpayer (or both spouses for jointly filed returns) and includes all tax years under audit. If there are more than three years under audit, examiners must also use Form 4318-A, Continuation Sheet for Form 4318, Examination Workpapers Index.

  3. Lead sheets and supporting workpapers:

    • Reflect the evidence gathered, explanations provided, analyses conducted and conclusions reached.

    • Effectively explain the issues addressed during the audit.

    • Provide the evidence to reflect the scope and depth of the audit.

    • Support the determination of the tax liability.

    • Provide the audit trail, allowing a subsequent reviewer to trace a transaction or event and related information from beginning to end.

Activity Record

  1. The activity record should be prepared contemporaneously and provide a complete and concise case history. It chronicles all actions on the part of the IIC examiner, team manager, clerical support staff, taxpayer and/or the taxpayer’s representative, etc. during the audit.

  2. The activity record is a brief summary of actions taken and in some cases will reference other workpapers for more detail. All entries on the activity record should be written factually and professionally, omitting personal opinions.

  3. IIC revenue agents and IIC tax compliance officers generally use Form 9984, indexed as lead sheet 100, for their activity record. Examiners using the RGS program may use the RGS Case History application in place of Form 9984; however, they must use caution when using this application because the case history entries can be lost. Examiners using RGS must back up to the file server each time a new RGS Case History Report is saved. See IRM 4.10.15.2.3 , Case History (Optional), for additional information.

  4. Information recorded on the activity record should include the date, location, time charged, and an explanation of each activity or contact, including but not limited to:

    1. Work performed prior to, during, and subsequent to taxpayer contact

    2. Research activities

    3. Pre-plan actions taken to determine the depth and scope of the audit

    4. Date the tour of the business site or inspection of the taxpayer’s personal residence was conducted

    5. Brief summaries of telephone conversations

    6. Contacts with taxpayers, representatives, and third parties

    7. Causes for any delays by the Service (training, details, etc.)

    8. Causes for any delays by the taxpayer, and/or representative

    9. Group manager involvement (including informal discussions, formal discussions, in-process case reviews, on-the-job-visitations, and workload reviews, etc.)

    10. Collateral requests and referrals

    11. Actions with respect to the statute of limitations

    12. The dates the case was (1) closed to the group manager, (2) closed by the group manager, and (3) closed by the clerical staff

Administrative Lead Sheets

  1. Administrative lead sheets address the administrative items requiring comment by the examiner (e.g., initial interview, required filing checks and minimum income probes). They are also used as guides to assist the examiner with properly completing the audit.

    Caution:

    If a lead sheet contains check boxes, they should be used to notate the applicability of an action taken. Supporting documentation to explain the action taken should be included. Generally, check boxes by themselves are not adequate supporting documentation. IRM 4.63.4.6.1, Pre-Contact Planning of IIC Examination Activities, provides additional guidance regarding the use of check boxes.

  2. In general, administrative lead sheets do not contain an adjustment grid displaying "Per Return" and "Per Exam" amounts.

  3. The administrative lead sheets listed below are mandatory for IIC revenue agents and are generally applicable to all income tax cases:

    Lead Sheet Number Title
    110 Revenue Agent Audit Plan
    115 Group Manager Concurrence Meeting (mandatory for GS-12 and below)
    120-1 Initial Taxpayer Contact
    125-2 Initial Interview and Notes
    130 Multi-Year and Related Returns
    200 Internal Controls (business returns)
    205 Fraud Development Lead Sheet
    300 Civil Penalty Approval Form
    400 Minimum Income Probe
  4. The administrative lead sheets listed below are mandatory for IIC tax compliance officers and tax auditors and are generally applicable to all income tax cases:

    Lead Sheet Number Title
    110 Tax Compliance Officer Audit Plan
    125-1 Initial Taxpayer Contact - TCO
    125-2 Initial Interview and Notes
    125-3 Initial Interview Questions and Notes Business Supplement, for returns with Schedule C or F
    130 Multi-Year and Related Returns
    200 Internal Controls (business returns)
    300 Civil Penalty Approval Form
    400 Minimum Income Probe

    Note:

    In lieu of the above mandatory lead sheets, the TCO can elect to use a 110, International Individual Compliance Project Lead Sheet, or Foreign Resident Compliance (FRC) Administrative Lead Sheet, for single issue cases. If you choose the optional lead sheet, you still must complete a 300, Civil Penalty Approval Form,and secure managerial approval.

  5. The administrative lead sheets listed below are mandatory for IIC tax examiners and are generally applicable to all income tax cases:

    1. 110, International Individual Compliance Project Lead Sheet

    2. 300, Civil Penalty Approval Form

Issue Lead Sheet

  1. Issue lead sheets are used to:

    1. Document the adjustments, conclusion, audit steps, facts, law, and taxpayer’s position for examined issues

    2. Index and reference supporting workpapers

  2. In general, issue lead sheets contain an adjustment grid that displays a "Per Return" , "Per Exam" , and "Adjustment" amount. However, there are some issues that do not result in an adjustment to the tax return (e.g. innocent spouse and identity theft), and as a result the related issue lead sheet does not contain an adjustment grid.

    Note:

    All issues must be listed on Form 4318 or Form 4318-OA.

  3. An issue lead sheet is required for all issues. If an issue does not have a specific lead sheet, a generic lead sheet must be used. For RGS users, see IRM 4.10.15.2.14, Lead Sheets, for additional information.

  4. The examiner or team manager should document all managerial discussions on the relevant issue lead sheet or on the activity record.

Issue Lead Sheet Content
  1. Issue lead sheets must reflect the issue name, adjustments (when applicable), conclusion, audit steps, facts, law, and taxpayer’s position in the body. This information should be presented in a logical order so reviewers can easily determine what audit steps and actions were taken to support the conclusion.

    1. Adjustments – Document the adjustments resulting from the audit. The lead sheet will detail the "Per Return" , "Per Exam" , and "Adjustment" amounts with each adjustment referenced to the supporting workpapers.

    2. Conclusion – Document a conclusion summarizing the disposition of each issue.

    3. Audit Steps – Document references to the supporting workpapers that contain the procedures and the audit techniques performed during the audit. WIIC tax examiners may choose to document their audit steps in the Facts section provided they are presented in a logical order.

      Note:

      RGS issue-specific lead sheets are designed with suggested audit steps that are applicable to the issue. Examiners may customize the audit steps for their specific case. Steps that are not applicable should be deleted and additional steps could be added when warranted.

    4. Facts – Document the facts upon which the adjustment is based. The statement should be in narrative form.

    5. Law – Document the applicable law relied upon to resolve the issue (both accepted and adjusted).

    6. Taxpayer’s Position – Document the taxpayer’s position if provided for "Unagreed cases" . The taxpayer’s position should be stated objectively (in narrative form) if known.

Workpaper Content

  1. See IRM 4.10.9.7, Workpapers.

Workpaper Headers and Footers
  1. See IRM 4.10.9.7.1, Workpapers: Headers and Footers..

    Caution:

    For RGS users, IIC examiners will need to manually update the tax return form number on all workpapers and lead sheets when working on Form 1040NR cases due to the special procedures stated in IRM 4.63.4.12.2, Creating International Returns in RGS.

Workpaper Indexing
  1. Form 4318, Examination Workpapers Index, is used as a cover page for WIIC revenue agent workpapers. Form 4318 and its continuation page, Form 4318-A, Continuation Sheet for Form 4318, Examination Workpapers Index, should be used for all examinations unless otherwise specified. For RGS users, follow RGS guidelines for completing Form 4318 and Form 4318-A.

  2. Form 4318-OA, Examination Workpapers Index – Office Audit, is used as a cover page for WIIC tax compliance officers and WIIC tax examiner workpapers.

  3. All workpapers should be numbered. For RGS users, see IRM 4.10.15.1.4 (5) for guidance regarding naming files within RGS.

  4. Workpapers should be prepared using appropriate cross-referencing to point to the supporting workpaper(s) when applicable.

  5. Tick marks are generally used by WIIC revenue agents and WIIC tax compliance officers. They are used to simplify documentation of conditions found and work performed. Tick marks do not need to be standardized throughout the case file, but they must be consistent for each issue throughout the workpapers. Tick mark explanations must be a part of the workpaper or included in a separate tick mark legend workpaper.

  6. Document 12278, Examination Workpaper Index Reference Tabs, can be used by WIIC revenue agents to help index audit lead sheets and workpapers to the Form 4318 if necessary. Generally, the information on each tab identifies the numeric index and the associated lead sheet as depicted on the Form 4318.

  7. Document 13005, Office Examination Workpaper Index Reference Tabs, should be used by WIIC tax compliance officers to help index audit lead sheets and workpapers to the Form 4318-OA. Generally, the information on each tab identifies the numeric index and the associated lead sheet as depicted on the Form 4318-OA.

Disclosure
  1. Confidential information related to the case file must be safeguarded from unauthorized disclosure. If an examiner determines that information contained in a file is sensitive, the information should be placed in a confidential envelope inside the case file. If a Freedom of Information Act (FOIA) request is received on a case that contains sensitive information, a Disclosure Officer will determine if any information can be redacted. See IRM 11.3.13.7, Review and Redacting, for additional information.

  2. When a case file contains sensitive information Other Gov TDF 15-05.11 Catalog #56033J Sensitive But Unclassified (SBU) Cover Sheet, must be placed on the outside of the case jacket. This will alert users that there is sensitive information in the file requiring protection.

  3. Confidential information should be secured in envelopes marked "To be Opened by Addressee Only" or in envelopes with a SBU Cover Sheet, attached to the outside of the case jacket.

  4. Any communication with Chief Counsel attorneys concerning the case may be subject to various legal privileges and therefore not subject to disclosure. If there is any communication from Chief Counsel about the case in the case file, please consult with that Chief Counsel attorney for input on whether communication is subject to disclosure.

Documenting Pre-Audit Stage
  1. See IRM 4.10.9.7.4, Workpapers: Documenting Pre-Plan.

Documenting Initial Interview
  1. See IRM 4.10.9.7.5, Workpapers: Documenting Initial Interview.

Documenting Tour of Business
  1. See IRC 4.10.9.7.6, Workpapers: Documenting Tour of Business.

Documenting Development of Issues
  1. RGS is designed to be used by examiners or other users who select, control, process, or monitor tax cases. The system enhances the performance of the work process by automating numerous activities such as work paper preparation and reports.

  2. Workpapers prepared using the computer should be prepared as discussed in IRM 4.10.9.7.7, Workpapers: Documenting Issues. Various lead sheets have been developed that provide examination procedures and techniques. Additionally, special application tools are available on the RGS website to assist in the examination of passive losses, income analysis, NOL computations, depreciation, etc. A list of RGS training materials can be found on the RGS User Website at http://mysbse.web.irs.gov/examination/rgs/default.aspx.

  3. Examiners can use various tools to assist in the preparation of workpapers -see http://lmsb.irs.gov/GlobalNav/ExamResources.asp. These may include word processing, database, or spreadsheet applications. Examiners should select the tool that will provide the most utility and functionality for the issue being addressed in the most efficient and effective manner. Additionally, MySB/SE intranet site is continuously updated with new releases of tax administration tools that may be helpful.

Closing Cases Using Automated Workpapers and Reports

  1. Examiners must use computer generated reports in all audits, unless a computer generated report is not available. See IRM 4.10.15.1.2, RGS Inventory/Case Management.

  2. Cases required to be on RGS CEAS must be moved to the file server to close the case. All electronic workpapers saved within the RGS program automatically close to the file server. If workpapers are generated outside of any RGS application, they should be saved to the RGS electronic case folder to be saved to the file server.

  3. All lead sheets, workpapers and examination reports should be printed and included in the paper case file.

Special Situations Requiring Documentary Evidence

  1. See IRM 4.10.9.8, Special Situations Requiring Documentary Evidence.

Case File Assembly for Closing

  1. See IRM 4.10.9.9, Case File Assembly for Closing.

  2. The forms, reports and/or documents required vary for IIC revenue agents, tax compliance officers, and tax examiners.

  3. For IIC revenue agents and tax compliance officers, a case file assembly closing checklist is available at:http://lmsb.irs.gov/pa/wii/foreign_resident/downloads/Case%20Closing%20Checksheet%20v2013-04.pdf

  4. For IIC tax examiners, see Exhibit 4.63.4-1, Checklist for IIC Tax Examiners on Agreed Cases Sent to CCP, for forms, reports, and/or documents required for agreed cases. See Exhibit 4.63.4-2, Checklist for IIC Tax Examiners on Unagreed/Default Cases Sent to Technical Services, for a tax examiner case closing checklist for unagreed and default (no response) cases.

Jeopardy and Termination Assessments

  1. IRC 6861 and IRC 6851 give the Commissioner specific authority to take immediate assessment and collection action in situations where it is determined that collection of tax will be endangered if regular assessment and collection procedures are followed. A jeopardy assessment is used only where IRS makes its determination after the end of the tax year to which it relates. In a termination assessment, the determination is made before the related tax year ends or before the date to file a return and pay the tax. See IRM 4.15, Jeopardy/Termination Assessments.

  2. Jeopardy/termination assessments of tax are to be used sparingly. They are to be reasonable, appropriate, and limited to amounts which can be expected to protect the government.

  3. The mere fact that a taxpayer is the subject of a special fraud investigation is not sufficient grounds for a jeopardy/termination assessment. When it is determined that a taxpayer has few collectable assets to offset the assessment, jeopardy/termination assessments should, generally, not be pursued.

  4. Each jeopardy/termination assessment must receive the approval of the Area Director per Policy Statement 4-88(IRM 1.2.13.1.27), Policy Statement 4-89 (IRM 1.2.13.1.28) and Delegation Order No. 4–21 (IRM 1.2.43.19). In addition to the above referenced policy statements and delegation orders, IRC 7429(a)(1)(A) requires the additional, written approval of both the DFO and Chief Counsel (or delegate) for jeopardy assessments/levies.

Examination Responsibilities

  1. Examination is responsible for recommending jeopardy/termination assessments in cases under active consideration by Examination.

  2. Appeals may forward a report to Examination, on a case pending before Appeals, for Examination to determine if a jeopardy/termination situation exists. Examination must limit its investigation to a determination of whether the collection of the currently proposed deficiency will be endangered if regular assessment and collection procedures are followed. Appeals is responsible for making the final determination of the tax liability.

Jeopardy Assessment Considerations

  1. If the assessment or collection of a deficiency will be jeopardized by delay, the deficiency is immediately assessed, including penalties and interest. The assessment is made for a PRIOR YEAR where the filing date, including extensions, has passed. The legal authority for jeopardy assessments is:

    1. IRC 6861 for income, estate, gift, and certain excise taxes

    2. IRC 6862 for taxes other than income taxes including estate, gift, and certain excise taxes

Termination Assessment Considerations

  1. If the collection of a deficiency will be jeopardized by delay, the deficiency is immediately assessed. The deficiency may include penalties, additions to tax, and interest. The deficiency may be computed for a short period or the entire year. The assessment is made for the CURRENT YEAR or the preceding year if the filing date, including extensions, has not passed. The legal authority for termination assessments is:

    1. IRC 6851 for income tax

    2. IRC 6867 for "Possessor of Cash"

Manual, Quick and Partial Assessments

  1. The term "manual assessment" (also referred to as "prompt" or "quick" assessments) refers to the method used to make an assessment of tax, whether part or all of the tax is assessed. Most tax assessments made for examination cases are done via an AIMS command code. AIMS then sends the assessment information to master file. AIMS will accumulate all assessment amounts done this way and reflects the total on accomplishment reports when the case is closed.

  2. There are instances when an assessment must be made expeditiously in order to protect the government’s interest. In these instances, the assessment is made manually (entered directly into Master File). When assessments are done manually, AIMS is by-passed so the amount is not reflected in the cumulative total in AIMS.

  3. IIC examiners should keep in mind that a manual assessment is distinct from a partial assessment, even though the procedures are similar.

    Note:

    Due to the critical nature of these criteria, manual assessments will be given a higher priority than partial assessments.

  4. The most common cases requiring quick assessments meet one of the following criteria:

    1. Agreed Unpaid Deficiency over $100,000.00: There is a deficiency over $100,000.00 which is agreed to and unpaid, and the case will not be received in Centralized Case Processing (CCP) for final closure within 30 days of the agreement date.

    2. Agreed Deficiency Case with Imminent Statute: There is a deficiency and the statute is due to expire within 60 days or there is a deficiency and the case will not be received in CCP before the statute is within 60 days of expiration. (See IRM 4.4.25.4, Statute of Limitations Less Than 60 Days (Special Processing), Area Office Group and CCP Procedures, for special processing procedures).

      Note:

      Imminent statute situations do not include no-change or over-assessment cases. Quick assessments cannot be input on these types of cases. If no change or overassessment cases need to be closed prior to the statute expiration date, the cases should be routed to CCP in time to allow closure prior to the statute expiration date.

Case Closure After Quick Assessment

  1. All quick assessments are faxed to CCP prior to final closure. After confirmation of the assessment, final closure is made to CCP Status 51 as a regular agreed case. Form 5344 will show Disposal Code 03 with a TC 300 of zero and the amount of the quick assessment in Item 35, Manual Assessment Amount. Processing procedures and fax numbers are available on the Quick/Prompt and Partial Assessments web page at http://mysbse.web.irs.gov/examination/cp/pro/22651.aspx.

  2. If the case file contains a deficiency year and an over-assessment year, the over-assessment credit can be applied to the tax on the deficiency year by completing Form 3870, Request for Adjustment. Annotate Form 3198 in the "Other Instructions" section, "Form 3870 is enclosed in the case file" . On the "Special Features" section of Form 3198 check the box "Freeze from Refunding" .

  3. Quick assessments can be initiated in the field or in campus examination. The office initiating the quick assessment must:

    1. Obtain up-to-date, accurate account information; not more than 30 days old.

    2. Research the taxpayer’s account on IDRS, using TXMOD, IMFOL, or BMFOL. This should alert you to any filing of any amended tax returns or to the possibility of a quick assessment already in process.

    3. Determine If a balance due notice must be sent. If yes, send the notice to the taxpayer’s most current address of record.

      Note:

      The quick assessment will not post to Master File (MF) for approximately six weeks and will post with an accompanying TC 370.

Partial Assessments

  1. The term “partial assessment” means that only part of the total potential tax is agreed to and is being assessed. The most common example of a situation that would generate the required procedures for a Partial Assessment is where the taxpayer agrees to some adjustments and appeals other adjustments. In this situation, a partial assessment should be formalized for the agreed portion of the tax prior to forwarding the case to Appeals for the unagreed portion.

  2. Other situations where partial assessments are used include:

    1. When adjustments to a TEFRA partnership are agreed and flow to one of the partners whose return includes the potential for additional adjustments. Upon receiving the RAR for the partnership case, a partial assessment should be made for the flow-through issues while continuing to work the individual’s return.

    2. When a secured delinquent return has issues that warrant further examination (or has a math error). The delinquent return must first be processed so that an assessment for the amounts shown on the return can be made.

  3. Partial assessment procedures do not apply to no-change or to over-assessment cases. An exception would involve an adjustment to withholding. An examiner may use Partial Assessment procedures when the withholding amount on the tax return is greater than the withholding on Form W-2 or Form 1042-S. This is not considered a tax adjustment since withholding is a prepayment.

Procedures for Requesting Partial or Manual Assessments

  1. When the case has an imminent statute date or requires a quick assessment, the examiner must make contact with the CCP Field Office Resource Team (FORT) manager (for SBSE and LB&I cases) or the CCP Field Liaison (for Specialty cases) of his/her designated area to notify them that a quick assessment is needed on the case. Contacts for FORT can be found on the following site: http://mysbse.web.irs.gov/examination/cp/cont/21028.aspx.

  2. Email (preferred), fax, or e-Fax (depending on the site requirements) the following information:

    1. Form 4549, RAR, or equivalent

      Note:

      Be sure to include the taxpayer’s signature, as well as any schedules and relevant tax or penalty computations needed to process the assessment. It is not necessary to include the revenue agent’s "Explanation of Adjustments" .

    2. Form 5344, Examination Closing Record

    3. Form 3198, Special Handling Notice for Examination Case Processing

    4. Form 2285, Concurrent Determinations of Deficiencies and Overassessments in Cases Involving Restricted Interest Provisions of the Internal Revenue Code (when carryback issues and restricted interest may apply)

  3. On the subject line of the email or fax, notate either "Partial assessment request " or "Manual assessment request" .

    Note:

    Partial assessments that meet manual assessment criteria should be identified as a "manual assessment" request

  4. Do not ship the entire case file or update ERCS out of the group status until CCP:

    1. Acknowledges the request

    2. Completes the assessment

    3. Faxes back to the group a stamped copy of Form 5344 with "Request Completed"

    Acknowledgment usually occurs within 48 hours of receipt. Requests received on Friday afternoon will be acknowledged by close of business Monday. Wherever possible, the assessment is completed within five business days of receipt by the FORT. Assessments involving complex and restricted interest computations may take longer. The stamped Form 5344 must be associated with the original case file to verify that the assessment was completed. Allow at least 10 business days from the original request before following up with CCP.

  5. The group must update the electronic record in RGS prior to sending to CCP for final closure. The archived RGS Newsletter contains procedures on RGS partial closures at:.http://mysbse.web.irs.gov/examination/rgs/resources/27835.aspx.

  6. For multiple quick/prompt or partial assessments, the examiner must inform the FORT manager or the CCP Field Liaison that the assessments are being sent to the FORT using overnight mail. Overnight mail should only be used when the faxing of multiple assessment documents would be too time consuming and inefficient. Use the address for overnight mail found on the website: http://mysbse.web.irs.gov/examination/cp/pro/22651.aspx

Non-filers

  1. In general, all WIIC employees will follow the applicable guidelines listed in IRM 4.4.9, Delinquent and Substitute for Return Processing, related to substitute for return (SFR) procedures and the processing and closing of delinquent returns.

  2. For Project Code 0764, High Income Non-Filers (HINF), refer to procedural guidance in IRM 4.4.9 and IRM 4.12.1, Nonfiled Returns.

WIIC Non-Filer Projects Covered

  1. The following project codes are examples of the types of cases currently worked in WIIC which might require the use of the policy and procedures outlined in this IRM, including those referenced. This list is not meant to be all inclusive of the projects worked within WIIC because non-filers can exist within all types of projects worked in the organization and should be identified by the examiner accordingly.

    1. Project Code – 0704 Territories

    2. Project Code – 0705 Embassy Compliance

    3. Project Code – 0502 High Income Non-Filer Project

Identity Theft

  1. Identity theft occurs when someone commits fraud or another crime using an individual’s personal information such as name, Social Security number (SSN) or other identifying information. The Federal Trade Commission (FTC) website: http://www.consumer.ftc.gov/features/feature-0014-identity-theft contains valuable information about how to protect anyone from being a victim of identity theft. This subsection makes reference to the existing IRM sections that have guidance on issues dealing with identity theft – both tax-related and non-tax-related.

  2. An examiner may become aware of an identity theft issue in several ways, including:

    • The taxpayer may inform the examiner that he/she did not file the tax return under examination.

    • The examiner researches IDRS command code (CC) ENMOD, which reveals an identity theft indicator Transaction Code (TC) 971 with Action Code (AC) 522.

    • The examiner receives a Form 14027-B, Identity Theft Case Referral, from the Identity Theft Coordinator during an audit or even after an audit has closed.

    • The taxpayer advises the examiner that their identity has been compromised (for example, a lost or stolen wallet or questionable credit card activity), but there is no known tax administration impact.

  3. All identity theft cases are a priority and must be worked in a timely manner. All open identity theft inventory must be marked with the appropriate identity theft indicators per IRM 25.23.2.16 Initial Allegation or Suspicion of Tax-Related Identity Theft - IMF Identity Theft Indicators .

  4. The examiner’s response to the identity theft issue depends on whether or not there is a tax-related impact resulting from the identity theft.

Examiner Actions on Identity Theft Cases - No Tax-Related Impact

  1. If a taxpayer informs the examiner that their identity has been compromised (situations or events that put the taxpayer at risk for tax-related identity theft such as a data breach or lost/stolen personally identifiable information that compromises or involves the taxpayer’s SSN, etc.), there may be no known tax administration impact. In these situations, the examiner should provide some general identity theft guidance. See IRM 25.23.2.2, Taxpayer Interaction. If the taxpayer has additional identity theft questions, provide the identity theft toll-free number, 1-800-908-4490 (7 a.m. to 7 p.m. local time). The customer service representatives responding to the call will provide assistance to the taxpayer and place an identity theft indicator on the taxpayer’s account if the taxpayer requests IRS take action to protect their tax account information. The taxpayer can access information at the IRS.gov Identity Theft Website at https://www.irs.gov/individuals/identity-protection.

Examiner Actions on Identity Theft Cases - Tax-Related Impact

  1. If a taxpayer verbally informs the examiner, but has not completed the Form 14039, Identity Theft Affidavit, that an identity thief has used the taxpayer’s SSN and other personally-identifiable information for filing purposes and tax administration is affected, and no references to TC 971 AC 501-506 or AC 522-526 are on the taxpayer's account for the year of the incident, the examiner must input TC 971 with AC 522 PNDCLM on the taxpayer's Master File account by completing Form 4844, Request for Terminal Action.

    Note:

    Skip to paragraph (3) if Form 14039 has been received on initial contact.


    Certain fields on the form must be completed in the following manner:

    1. The Secondary Date Field is the incident tax year. For example, if the taxpayer claims the identity theft impacted the 2010 tax year, the Secondary Date is 12312010.

    2. The Miscellaneous Field Input should reflect that LB&I was informed of the identity theft in the following format: LBI LBI PNDCLM.

    3. Fax the completed Form 4844 to the Designated Identity Theft Adjustment (DITA) team located in Philadelphia at 855-786-6575(Attn: DITA). Please make sure it indicates LB&I Case on the top of the form. See Exhibit 4.63.4-3 for a sample document.

    See IRM Exhibit 25.23.2-10, IMF Only TC 971 AC 533 Tax Related Identity Theft, Case Status (Initial Claim/Suspicion), for additional information regarding the input of TC 971 AC 522.

  2. The examiner should then secure documentation to authenticate the identity of the taxpayer who is under examination following the guidance in IRM 25.23.2.7, Identity Theft Research and IRM 4.10.27, Identity Theft Case Processing for Field Examiners. However, if there are entries on the taxpayer's account similar to the ones in Step 3 in the paragraph below, the required ID theft substantiation has already been secured from the taxpayer.

  3. Once appropriate substantiation has been received, the examiner must then request (via Form 4844 to the DITA team) the input of updated TC 971 AC 522 codes as follows:

    1. The Secondary Date Field is the same as the date on the initial TC 971, AC 522 PNDCLM posting, if present. See IRM Exhibit 25.23.2-10 for additional information regarding the input of TC 972 AC 522.

    2. The Miscellaneous Field Input should reflect that LB&I has received the Form 14039, by inputting "LBI LBI UNWORK" .

    3. A complete listing and explanation of the Identity Theft Tracking Codes is in IRM 25.23.2.16, Initial Allegation or Suspicion of Tax-Related Identity Theft - IMF Identity Theft Indicators and IRM 25.23.2.17, Identity Theft Claims - Overview.

  4. If the year impacted by the identity theft is the one under audit, and the taxpayer has provided documentation to authenticate his/her identity, examiners must also update AIMS/ERCS (via Form 5348) with Aging Reason Code (ARC) 14 for the year under audit.

  5. LB&I will monitor identity theft cases open on AIMS/ERCS using ARC 14 (IRM Exhibit 4.4.1-4).

  6. If it is later determined that no identity theft impacting tax administration occurred, or the taxpayer failed to provide the documentation requested by the examiner, the examiner must request (via Form 4844 to the DITA team) the input of updated TC 972 AC 522 codes as follows:

    • The Secondary Date is the same as the date on the initial TC 971, AC 522 PNDCLM or UNWORK posted. See IRM Exhibit 25.23.2-11, IMF Only TC 972 AC 522 - Reversal of TC 971 AC 522, for additional information.

    • The Miscellaneous Field should reflect that LB&I was informed of the identity theft and how the identity theft claim was resolved:

      Use: When:
      LBI LBI NOIDT It is determined that no identity theft impacting tax administration occurred after all.
      LBI LBI NORPLY (no E) The taxpayer fails to provide the supporting documentation as requested by the examiner.

Identity Theft Case Referral (Form 14027-B)

  1. The Identity Protection Specialized Unit (IPSU) office handles identity theft inquiries and assists taxpayers who are victims of identity theft. If a taxpayer contacts IPSU and the identity theft inquiry involves a current or previous examination, IPSU will prepare Form 14027-B, Identity Theft Case Referral, and send it to the respective Identity Theft Coordinator in PSP.

  2. If an examiner receives a Form 14027-B during an open audit:

    1. The examiner must acknowledge receipt of the Form 14027-B by filling out Section V and contacting the IPSU case worker to acknowledge receipt of the Form 14027-B.

    2. If documentation supporting the theft of identity has not already been secured by the IRS, the examiner should contact the taxpayer to secure documentation to authenticate the taxpayer’s identity following guidance in IRM 25.23.2.7, Identity Theft Research, and IRM 4.10.27, Identity Theft Case Processing for Field Examiners.

    3. Once appropriate substantiation of identity theft has been received, the examiner must request (via Form 4844) the input of updated TC 971 with AC 522 (as discussed in IRM 4.63.4.17.2).

    4. Once the case is established, it should also have an ARC 14.

  3. If an examiner receives a Form 14027-B after an audit has closed:

    1. If the examiner determines the audited return was prepared by an identity theft perpetrator and not the legitimate taxpayer, the examiner should contact the PSP Identity Theft Coordinator to have the case reopened.

    2. Once appropriate substantiation of identity theft has been received, the examiner must request (via Form 4844) the input of updated TC 971 with AC 522 (as discussed in IRM 4.63.4.17.2).

    3. Once the case is established, it should also have an ARC 14.

  4. Once necessary actions have been taken to resolve the identity theft issue during an open or closed audit, the examiner is to complete Section VI of the Form 14027-B and fax it to the IPSU case worker who initiated the request. The fax number for the IPSU case worker will be located in Section II, Line 4 of Form 14027-B.

Identity Theft Job Aid for LB&I Examiners

  1. The following job aid will assist the LB&I-IIC examiners when working identity theft issues with domestic or international taxpayers:http://lmsb.irs.gov/pa/wii/Identity%20Theft-Draft.asp

Identity Theft IRM References

  1. The LB&I-IIC examiner can refer to the following IRM sections when working identity theft issues:

    1. IRM 25.23.1, Identity Protection and Victim Assistance, Policy Guidance, provides Servicewide identity theft policy.

    2. IRM 25.23.2, Identity Protection and Victim Assistance, General Case Processing, provides Servicewide identity theft procedures.

    3. IRM 21.1.1.7, Communication Skills, provides communications guidance for dealing with taxpayers, as identity theft often leaves its victims feeling helpless and distraught. Service employees should exercise empathy in dealing with victims.

    4. IRM 4.10.27, Identity Theft Case Processing for Field Examiners, provides procedures and information concerning identity theft case processing for examiners.

Checklist for IIC Tax Examiners on Agreed Cases Sent to CCP

AGREED CASE ASSEMBLY CHECKLIST
*Make copies of all documents for subsequent years

1 Form 895, Notice of Statute Expiration

Note:

Not required if delinquent return filed

2 Form 3198, Special Handling Notice for Examination Case Processing
Check for freeze codes and provide comments when necessary, e.g., A freeze code requires a comment on the Form 3198 for the amended/duplicate return.
3 Case History from RGS
4 IDRSCC: AMDISA (current for each year)
5 Form 5344, Examination Closing Record (3 pages)
6 Compliance Evaluation (for each year)
7 SFR only: Form 13496, IRC Section 6020(b) Certification packet in lieu of no tax return. Packet includes Form 13496 and the examination report.

Note:

Form 13496 is required for each tax year.

8 Tax Return (original return, copy of a return or electronic print RTVUE):
Attached to the back of the front page of the return are Form 872, Letter 907, Form 56, Form 2848 and Form 8821. Attached to the back of the return are: current transcript (IMFOLT) and any amended returns/claims.
9 Agreed Response (e.g.: signed Form 4549 or a delinquent return secured)
10 Form 4318-OA Examination Workpapers Index - Office Audit
Staple the following items in order of index:
  • Form 110, Form 300, Issue Lead Sheets, etc.

  • Classification sheet or source document (SFR) and variance report if applicable.

  • Form 5345-D (if available) and faxed Form 2363, 3177, etc. for case closing

    Note:

    "Miscellaneous" items listed on index do not have to be stapled

11 Correspondence (sent and received)
12 Undelivered Mail (if applicable)
13 Case Building Research (IDRS, Accurint, etc.)
14 Letter 987 should be undated (2 original prints paper-clipped to small windowed envelope with mail stop number.
15 Rubber band or binder clip all documents above and place in case folder.

Checklist for IIC Tax Examiners on Unagreed/Default Cases Sent to Technical Services

UNAGREED/DEFAULT CASE ASSEMBLY CHECKLIST
(Closed to Tech. Services for a Stat. Notice)
*Make copies of all documents for subsequent years

  Outside Front of case folder (A RED case folder is required if statute of limitations is 6 months or less):
1 Form 895 Notice of Statute Expiration (on top)
Required if statute of limitations is 6 months or less and it can be printed in ERCS before the 6-month date)

Note:

Not required if delinquent return filed

2 Form 3198 Special Handling Notice for Examination Case Processing
Check for freeze codes and provide comments when necessary, e.g., a freeze code requires a comment on the Form 3198 for the amended/duplicate return.
  Inside Left Side of case folder:
3 IDRSCC: AMDISA (current for each year)
4 Case History from RGS
  Inside the case folder:
5 Compliance Evaluation (for each year)
6 Form 5344, Examination Closing Record (3 pages)
7 Form 4089-B, Notice of Deficiency - Waiver (paper-clip to the top of the following examination report
8 Examination report with all of the RGS prints, e.g., S/E tax, penalties, interest and explanations for issues including Form 886-A
9 SFR only: Form 13496, IRC Section 6020(b) Certification packet in lieu of no tax return. Packet includes Form 13496 and the examination report.

Note:

Form 13496 is required for each tax year.

10 Tax Return (original return, copy of a return or electronic print RTVUE):
Attached to the back of the front page of the return are Form 872, Letter 907, Form 56, Form 2848 and Form 8821. Attached to the back of the return are: current transcript (IMFOLT) and any amended returns/claims.
11 Form 4318-OA Examination Workpapers Index - Office Audit
Staple the following items in order of index:
  • Form 110, Form 300, Issue Lead Sheets, etc.

  • Classification sheet or source document (SFR) and variance report if applicable.

  • Form 5345-D (if available) and faxed Form 2363, 3177, etc. for case closing

    Note:

    "Miscellaneous" items listed on index do not have to be stapled

12 Correspondence (sent and received)
13 Undelivered Mail (if applicable)
14 Case Building Research (IDRS, Accurint, etc.)

Sample Form 4844, Request for Terminal Action to Input Identity Theft Indicators

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