4.70.5 Issue Identification and Research

Manual Transmittal

September 24, 2018

Purpose

(1) This transmits new IRM 4.70.5, TE/GE Examinations, Issue Identification and Research.

Background

This IRM provides an overview of the Compliance Strategy Development Process (CSDP).

Material Changes

(1) This is a new IRM.

Effect on Other Documents

This manual obsoletes the following manuals: N/A.

Audience

The primary users of this IRM are Tax Exempt & Government Entities (TE/GE) personnel and others impacted by TE/GE’s shift toward issue-based identification.

Effective Date

(09-24-2018)

Steven M. Martin
Director, Compliance Planning & Classification (CP&C)
Government Entities and Shared Services (GE/SS)
Tax Exempt and Government Entities (TE/GE)

Program Scope and Objectives

  1. Purpose: This IRM provides an overview of the Compliance Strategy Development Process (CSDP). The Director, Government Entities and Shared Services (GE/SS) is responsible for administering the CSDP and the governance processes.

  2. Audience: The primary users of this IRM are TE/GE employees and others impacted by TE/GE’s shift toward issue-based identification.

  3. Policy Owner: Director, GE/SS

  4. Primary Stakeholders: The primary stakeholders are TE/GE employees.

  5. The TE/GE Issue Submission Portal (the "Portal" ) opened to all TE/GE employees on November 1, 2017.

  6. The CSDP objectives include:

    1. Providing TE/GE employees with a workload focused on strategic issues while balancing resources.

    2. Providing feedback methods for capturing input on effectiveness of data analyses, issue identification filters, treatment streams, training and tools so that strategies can be refined, improved or reconsidered.

  7. Program Owner: The Compliance, Planning & Classification (CP&C) office within GE/SS is responsible for the administration of the CSDP.

Background

  1. On May 1, 2017, TE/GE formed the CP&C office to streamline and consolidate processes that identify, research, select and monitor inventory using data analytics.

Authority

  1. The TE/GE Compliance Governance Board (the "Board" ):

    1. Authorizes the operation of the CSDP.

    2. Governs the identification, selection, assignment, and allocation of resources for all compliance and enforcement activities for TE/GE taxpayers.

    3. Considers proposals from Issue Identification (II) Manager and Issue Development Specialists (IDSs), resulting from the CSDP.

    4. Approves proposals for implementation or recommends other actions commensurate with compliance risk and resources.

  2. The CSDP replaced the Compliance Initiative Process in TE/GE.

  3. The Board’s charter lists the following TE/GE officials as voting members of the Board:

    • Commissioner, TE/GE

    • Deputy Commissioner TE/GE

    • Director, GE/SS – Board Chair

    • Director, Exempt Organizations (EO)

    • Director, Employee Plans (EP)

    • TE/GE Division Counsel

  4. The Board’s non-voting members include:

    • TE/GE Deputy Division Counsel

    • Senior Technical Advisor, TE/GE

    • Director, Compliance Planning and Classification (CP&C)

  5. The Board’s Chair is responsible for presiding over meetings and administrative activities (for example, preparing agendas and meeting minutes).

Roles and Responsibilities

  1. CP&C’s responsibilities include, but are not limited to, the following tasks:

    1. Aligns work with TE/GE’s strategic goals.

    2. Collaborates across the various areas of TE/GE to improve taxpayer compliance.

    3. Analyzes the submissions.

    4. Develops return selection filters.

    5. Prepares and reviews developed Compliance Strategies for presentation to the Board.

    6. Manages data sources.

    7. Delivers work to the TE/GE functional offices.

    8. Maintains the Portal.

Terms/Definitions/Acronyms

  1. Classification: The group within the Classification & Case Assignment (C&CA) function in CP&C responsible for classifying cases. See IRM 4.70.6 for more information on Classification.

  2. Classifier: A person in the C&CA function who classifies Compliance Strategies.

  3. Compliance Governance Board (the "Board" ): See IRM 4.70.5.1.2, above.

  4. Compliance Strategy: An issue developed through the CSDP and approved by the Board. TE/GE uses them to identify, prioritize and allocate resources within TE/GE taxpayers.

  5. Exam Director: The Examination Director in EO or EP and the Director, Indian Tribal Governments/Tax Exempt Bonds (ITG/TEB).

  6. Issue Development Specialist (IDS): The analysts in TE/GE Issue Identification Group(s) (II Group) review submissions, develop proposals and make recommendations for compliance action(s) to the Board.

  7. Issue Development Team (ID Team): The team of experts brought together by the IDS to participate in the CSDP. This may include employees from the functions and from the Knowledge Networks (K-Nets), Communications and Liaison, Leadership Education and Delivery Services (LEADS) and/or compliance unit(s) (i.e., EOCU, EPCU, or GECU).

  8. Issue Identification and Special Review (II&SR): A function within CP&C that is responsible for Issue ID, Special Review and Research.

  9. Issue Identification Manager (II Manager): The frontline manager of an II Group.

  10. Research: A group within CP&C’s II&SR. This group is staffed with Researchers and Analysts who continually provide analytical support to Issue ID throughout the development process and respond to ad hoc data requests.

  11. TE/GE Issue Submission Portal (the "Portal" ): A SharePoint-based site where employees can submit ideas about an area of non-compliance. The CSDP determines if the submission is viable and may be developed into a Compliance Strategy.

  12. Work Plan Specialist (WPS): Employee designated by Planning and Monitoring (P&M) to support development of submissions and execution of Board approved Compliance Strategies.

  13. Acronyms:

    Acronym Description
    ACA Affordable Care Act (formally, the Patient Protection & Affordable Care Act, Public Law 111-148)
    AIMS Audit Information Management System
    C&L Communications & Liaison
    CMS Centers for Medicare & Medicaid Services
    CP&C Compliance Planning & Classification
    CSDP Compliance Strategy Development Process
    EO Exempt Organizations
    EOCU Exempt Organizations Compliance Unit
    EP Employee Plans
    EPCU Employee Plans Compliance Unit
    GECU Government Entities Compliance Unit
    GE/SS Government Entities/Shared Services
    IDS Issue Development Specialist
    ID Team Issue Development Team
    II Issue Identification (program within TE/GE, CP&C)
    II Group Issue Identification Group
    II&SR Issue Identification & Special Review (branch within TE/GE, CP&C)
    II Manager Issue Identification Group Manager
    ITG/TEB Indian Tribal Governments/Tax Exempt Bonds
    K-Nets Knowledge Networks
    LEADS Leadership Education and Delivery Services
    MF Master File
    OUO Official Use Only
    P&M Planning & Monitoring
    PII Personally Identifiable Information
    RAAS IRS’ Research, Applied Analytics & Statistics
    RRA 98 Restructuring & Reform Act of 1998
    SBU Sensitive but Unclassified
    TE/GE Tax Exempt & Government Entities division
    TE/GE HQ Tax Exempt & Government Entities’ Headquarters
    VC Voluntary Compliance
    WPS Work Plan Specialist

Program Objectives and Review

  1. The IRS has some main objectives surrounding workload selection:

    • Selecting cases or compliance strategies that will have the highest positive impact on voluntary compliance and tax administration

    • Selecting work in an unbiased manner without retaliating against, or harassing, a taxpayer (see IRM 4.1.5.1.1 and Section 1203(b)(6) of the IRS Restructuring and Reform Act of 1998 (RRA 98))

    • Protecting the confidentiality of the criteria used to select work so taxpayers cannot easily avoid detection

    • Ensuring fairness and integrity in the enforcement selection process (see IRS Policy Statement 1-236)

  2. CP&C was created to address concerns regarding the separation of classification, workload selection and examination activities.

  3. Program Reports: Within GE/SS, electronic systems are used to house documents related to CSDP. Access to the system is restricted.

  4. TE/GE ensures that adequate and effective controls are in place during the development, approval and execution of Compliance Strategies. Functional offices within TE/GE will provide resources to assist in the development and take appropriate actions as submissions move through the CSDP.

  5. Program Effectiveness:

    1. The Board:

      • Analyzes and reviews program goals

      • Considers information, including related metrics in the reports

      • Determines whether the approved Compliance Strategy should continue, be modified or be discontinued

    2. Documentation submitted to the Board for review includes:

      • Summary reports from P&M

      • Feedback from the IDS

      • Periodic feedback

    3. CP&C:

      • Maintains a portfolio of all active and discontinued submissions in the Portal

      • Documents decisions of the Board

  6. Annual Review: The Director, GE/SS reviews IRM 4.70.5 annually to ensure accuracy and promote consistent tax law administration.

Related Resources

  1. You can link to the Portal directly, or through the TE/GE CP&C Submission Portal landing page, which can be accessed from the TE/GE Connect homepage.

Compliance Strategy Development Process (CSDP)

  1. Part of TE/GE’s mission is to identify the highest potential compliance risks among TE/GE taxpayers and to assign resources to address these potential risks. CSDP is a component of this approach.

  2. The CSDP includes a thorough analysis of data to support the identification and evaluation of potential compliance risk within TE/GE taxpayers and development of proposals to the Board, in a well-documented systematic manner.

  3. During the process, II Group(s):

    1. Use internal and external data sources to their fullest potential.

    2. Encourage collaboration and effective use of the K-Nets and other subject matter experts.

    3. Select compliance treatments that will effectively and efficiently impact non-compliance.

    4. Identify key measures for monitoring success.

    5. Reflect on the results of each compliance treatment and re-evaluate the compliance treatments, when needed.

  4. CSDP considers:

    • Potential treatment streams

    • Deployment of resources

    • Identification and delivery of training

    • Audit tools

    • Metrics

    • Feedback mechanisms

Issue Identification Group (II Group)

  1. The II Group(s) includes IDSs with various technical backgrounds from the TE/GE functional offices (EP, EO, and GE/SS).

  2. IDSs assess the submissions and develop proposals through the CSDP, including:

    1. Documenting all steps taken in the Portal.

    2. Coordinating development of each issue by assembling ID Teams with appropriate background, based on the issue submitted.

The Portal

  1. The CSDP establishes controls and procedures to focus resources on potential non-compliance.

  2. The Portal uses an InfoPath template and SharePoint to aid in documenting the CSDP through the life cycle of a submission.

  3. All TE/GE employees may access Section A of a blank template through the Portal. Access to other sections of the template are limited to CP&C employees who are developing proposals and to those requiring oversight.

  4. Section A of the template contains sub-sections for the K-Net and IDS scoring.

  5. The chart below describes each section of the template:

    Phase Action Section Purpose
    Proposal Submission A – Issue Submission Identifies an issue where the submitter has seen non-compliance or the potential for non-compliance.
      Preliminary Review B – Issue Identification Documents issue characteristics, evaluates compliance history and documents initial decision whether to proceed with issue development.
        C – Issue Development Team (ID Team) Documents ID Team members.
        D – Issue Development Plan Documents the development of ID Team’s preliminary plan to identify and address the potential non-compliance. Also, documents briefing on preliminary issue development plan with the appropriate Exam Director.
      Issue Development E – Case Identification Methodology Documents the sources and techniques used to identify non-compliant returns/taxpayers.
        F – Estimated Resources Documents proposed compliance treatment(s) to address the issue and analyzes anticipated required resources.
        G – Measures Documents the metrics by which a submission will be evaluated.
        H – Tools and Training Recommendations Documents instructions to Classification, training needs, compliance tools required and outreach needs for implementing a proposal.
    Compliance Strategy Approval I – Board Outcome/ Approved Strategy Documents the Board’s comments and decision.
      Work Plan J – Issue Treatment Plan After the Board approves proposal and it is ready to be incorporated into the work plan, documents actual Compliance Strategies approved for work plan and proper inventory tracking codes used to monitor progress of approved workstreams.
      Follow-up K – Evaluation Process Documents results, based on P&M reports for approved Compliance Strategies.
Issue Submission
  1. CSDP’s main goal is to identify areas of potential non-compliance as soon as possible. All employees are encouraged to make submissions when non-compliance may be present in a broader population.

  2. Non-compliance may be identified by:

    1. Employees in TE/GE field groups or compliance units.

    2. Employees working within Voluntary Compliance programs (VC).

    3. K-Net members.

    4. Other TE/GE employees.

  3. A submission to the Portal should only include ONE issue.

  4. The Portal is NOT for examination tips, asking questions or requesting IRM or form changes.

  5. The submitter must:

    1. Describe the issue.

    2. Include the section of the IRC related to the issue.

    3. Include the tax form related to the issue.

    4. Explain how the issue was identified.

    5. Identify additional ways to identify the issue, if known.

  6. The submitter may include attachments to the submission but Personally Identifiable Information (PII) or Sensitive but Unclassified (SBU) is NOT allowed.

  7. The system will generate an e-mail to the:

    1. Submitter, thanking them for the submission.

    2. II Manager, indicating a submission has been made.

  8. After the submitter receives the initial e-mail, typically, no further feedback will be provided to protect work selection processes and procedures.

Preliminary Review
  1. An e-mail notification is sent to the IDS, when the ID Manager assigns the submission. New submissions are evaluated monthly for assignment purposes.

  2. When the IDS is ready to review the submission, the IDS:

    1. Opens the submission.

    2. Reviews the submission and if needed, contacts the submitter for additional information.

    3. Reviews the IRC section in the submission for accuracy, and if needed, corrects Section A of the template.

    4. Conducts a preliminary review of the submission.

    5. Decides whether to proceed with preliminary development, combine it with another related submission or reject the submission.

    6. Records his/her findings in Section B of the template.

Compliance Strategy Development Process
  1. The IDS will assemble an ID Team to determine if it is possible to develop a proposal.

  2. The IDS will document, within section D of the template, any delays in assembling the ID Team or developing a proposal.

  3. Once the IDS and the ID Team have refined the focus, scope and recommendation, the proposal must be documented in the template.

  4. Once the II Manager concurs, a briefing to the appropriate functional Exam Director will be conducted.

Functional Exam Director Briefing
  1. The IDS delivers a summary of the issue to the appropriate Exam Director. The synopsis is based solely on information contained in Sections A-D of the template which includes:

    1. ID Team’s plan for identifying the issue.

    2. The proposed workstreams.

    3. General timeline of the CSDP.

    4. Training needs and compliance tools required.

  2. The IDS will update the template to:

    1. Include comments made by the Exam Director during the briefing.

    2. Display the current status.

    3. Complete the briefing information, including the date of the briefing and who was briefed.

  3. Based upon the Exam Director’s concurrence with the proposal, the IDS will continue to develop the issue for presentation to the Board.

Case Identification Methodology

  1. During this phase of the CSDP, II and other ID Team members rely on the Research group within II&SR and IRS’ Research, Applied Analytics & Statistics (RAAS) to assist with testing and to help identify internal and external data sources. Description of data sources:

    1. Internal sources include information from filed tax and information returns, as well as prior compliance activity results.

    2. External sources may include publicly available information including data from other federal, state and local governments provided to the IRS.

    Note:

    Some internal IRS information is not readily available because it is not transcribed and/or is not a searchable field in system databases.

  2. See IRM 4.70.5.2.4 for more information on the Research group.

Estimated Resources
  1. The IDS and the ID Team:

    1. Recommend treatment workstreams.

    2. Identify training.

    3. Identify tools that are available or that need to be developed.

  2. The IDS and WPS:

    1. Estimate resources needed for each workstream.

    2. Establish compliance goals, metrics and a framework to gather feedback.

  3. The IDS will document the estimated resources in the template.

Board Approval of the Proposal
  1. CP&C Director and/or the Director, GE/SS review the proposal before it is presented to the Board.

  2. II Manager posts proposal documents and final PowerPoint slide deck for presentation, to the Board’s SharePoint site (restricted access).

  3. Board members review the proposal documents, PowerPoint slide deck and template prior to the monthly Board meeting.

  4. IDS and/or other ID Team member(s) will summarize the team’s proposal(s) at the next monthly Board meeting.

  5. Board members ask questions during the presentation and may request additional information to be provided at a future meeting.

  6. The proposal becomes a Compliance Strategy only when the Board approves it.

  7. The Board notifies the function’s designated person within five business days regarding approved Compliance Strategies.

  8. The Board evaluates the effectiveness of previously approved Compliance Strategies, including, but not limited to, the allocation of resources to the portfolio of previously approved and newly approved Compliance Strategies.

  9. Once a proposal has Board approval, the IDS updates the template to reflect the Board’s approval. The IDS begins to execute the treatment plan(s).

Treatment Plan
  1. The ID Team:

    1. Determines how to execute the treatment plan, based on the approved workstreams.

    2. Develops any relevant tools, documents, and other information needed.

    3. Periodically reports out progress made on the Compliance Strategy to the Board.

  2. If an approved Compliance Strategy needs to be modified, the IDS should consult the II Manager to determine whether the recommended changes need to be presented to the Board for approval.

  3. IDS requests project and/or tracking codes from P&M. Once received, the IDS will document the assigned codes in the template.

  4. The ID Team prepares any needed instructions for Classification.

  5. The ID Team prepares a cover sheet, describing the issue and any audit steps to be taken in determining whether the issue exists. If applicable, the cover sheet prepared by the ID Team mentions by name the training and K-net resources specifically identified for the Compliance Strategy. This document will be uploaded into the RCCMS file.

  6. The IDS forwards the cover sheet, the instructions for the Classifier and the identified cases, in the form of a list or query, to P&M for consideration in planning work.

Evaluation Process
  1. CP&C provides post-strategy monitoring and periodic updates to the Board.

  2. The Board considers the progress of all implemented Compliance Strategies.

  3. P&M gives the IDS and the Board feedback and metrics to help them determine whether a Compliance Strategy should be continued, modified or terminated.

Research

  1. The Research group supports the IDS with CSDP and develops, maintains and evaluates data-driven compliance efforts for:

    • Case Selection Models

    • Hospital Report

    • Customer Satisfaction Survey

    • Other TE/GE Executive ad hoc requests

  2. The Research manager coordinates with RAAS when either the CSDP or the IDS needs additional support and expertise that is not available in the Research group.

Case Selection Models
  1. The Case Selection Models are a collection of queries that Research uses to evaluate the audit potential of information and other returns under TE/GE jurisdiction.

How Case Selection Models Work
  1. Case selection models are a technique that Research uses to:

    1. Score certain TE/GE returns as to audit potential.

    2. Identify returns by assigning weights to basic information return characteristics.

    Note:

    Weights are added together to obtain a composite score for each return.

  2. Research:

    1. Uses this composite score to systematically rank the returns in numerical sequence (highest to lowest). Generally, the higher the score, the greater the probability of an issue warranting audit.

    2. Provides the scored returns to Classification twice a year to fill return orders.

  3. Return scoring is for Official Use Only (OUO) and should not be disclosed or discussed with unauthorized personnel.

Case Selection Model Development
  1. Research:

    1. Works with II to develop new issue-specific queries for models.

    2. Develops models for TE/GE returns - Developing models for case selection is a continuous process. Research may develop other models based on forms under TE/GE jurisdiction as the need arises.

    3. Submits the models to the Board for approval.

    4. Maintains the master list of queries in the model.

  2. The Board reviews and approves substantial changes to existing models and any new models before each update cycle.

Hospital Report

  1. The Affordable Care Act (ACA) §9007(e)(1) requires reporting to the Senate, annually. The annual report includes specific information on private, tax-exempt, taxable, and government-owned hospitals.

  2. Research assists TE/GE Headquarters (HQ) by providing summary statistics and trends for the annual report, using data from the Centers for Medicare and Medicaid Services (CMS), reporting hospital cost report data for each cost report year, and Form 990 Schedule H data files provided by Statistics of Income.

Customer Satisfaction Survey

  1. The Customer Satisfaction Survey is conducted as part of the IRS agency-wide initiative (RRA 98 and Executive Order 12862) to monitor and improve taxpayer satisfaction with the service provided. The objectives of this study are to:

    1. Track customer satisfaction over time.

    2. Identify areas where improvements will have the greatest impact on customer satisfaction.

    3. Encompass TE/GE customers from every function and include both the examinations and determinations programs.

  2. Research is responsible for:

    • Coordinating with the survey contractor and the print contractor to make sure the program runs smoothly

    • Data analysis

    • Report writing