4.71.1 Overview of Form 5500 Examination Procedures

Manual Transmittal

May 12, 2017

Purpose

(1) This transmits revised IRM 4.71.1, Employee Plans Examination of Returns, Overview of Form 5500 Examination Procedures.

Material Changes

(1) IRM 4.71.1.1, Program, Scope and Objectives, and the subsections thereunder, were added to meet the new internal controls requirements.

(2) Paragraph (4) of IRM 4.71.1.4, Examination Objectives and Development of Issues, was revised to add IRC 401(a)(26).

(3) Paragraph (6)d) of IRM 4.71.1.4, Examination Objectives and Development of Issues, was revised to incorporate the April 7, 2017 memorandum from the Acting Director, EP entitled, Definitely Determinable Cash Balance Plan Benefit Formulas.

(4) Paragraph (13) of IRM 4.71.1.4, Examination Objectives and Development of Issues, was revised to incorporate the April 20, 2017 memorandum from the Acting Director, EP Exam entitled, Computation of Maximum Loan Amount under IRC § 72(p)(2)(A).

(5) IRM 4.71.1.7, Contacting the Taxpayer, and IRM 4.71.1.7.3, Concluding the Initial Audit Appointment and Additional Requests for Information, are revised to incorporate the November 21, 2016 memorandum from the Commissioner, Tax Exempt and Government Entities entitled, New Process for Information Document Requests.

(6) IRM 4.71.1.7.4, Enforcement Process: Delinquency Notice, Pre-Summons Letter and Summons, was added to incorporate the November 21, 2016 memorandum from the Commissioner, Tax Exempt and Government Entities entitled, New Process for Information Document Requests.

(7) Paragraph (1) a) of IRM 4.71.1.8, RCCMS and AIMS Updates, to provide that the case should be updated to status 12 when time is first applied to the case.

(8) Other minor editorial changes were made throughout the document.

Effect on Other Documents

This supersedes IRM 4.71.1 dated August 17, 2016.

Audience

Tax Exempt and Government Entities
Employee Plans

Effective Date

(05-12-2017)

Lisa J. Beard
Acting Director, Employee Plans
Tax Exempt and Government Entities

Program, Scope and Objectives

  1. Purpose: IRM 4.71.1, Employee Plans Examination of Returns, Overview of Form 5500 Examination Procedures, provides the basic examination procedures that will enable Employee Plans (EP) agents and their managers to apply uniform techniques and procedures when examining Form 5500 series returns (Form 5500, Annual Return/Report of Employee Benefit Plan; Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan; and Form 5500-EZ, Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan.

    Note:

    The procedures in this IRM apply to all Form 5500 series returns, so the term "Form 5500" applies to all Form 5500 series returns.

  2. Audience: This IRM provides procedures for agents, managers, and support staff in EP Exam.

  3. Program Owner: Director, EP Examination sets the program for the EP examination program.

  4. Program Authority: EP Examination’s authority to resolve issues is derived from its authority to make determinations of tax liability under IRC 6201.

Background

  1. EP Examination’s authority to resolve issues is derived from its authority to make determinations of tax liability under IRC 6201.

Acronyms, Forms and Pubs

  1. This manual uses the following acronyms and references the following forms.

    Acronyms

    Acronym Definition
    ACP Average Contribution Percentage
    ADP Average Deferral Percentage
    AIMS Audit Information Management System
    ATRA American Taxpayer Relief Act of 2012
    Audit CAP Audit Closing Agreement Program
    BMF Business Master File
    CAF Centralized Authorization File
    CCR Case Chronology Record
    CECA Checksheet for Employee Plans Compliance Activities
    CI Criminal Investigation Division
    CL Cumulative List
    CPG Compliance Planning Group
    CSEC Cooperative and Small Employer Charity Pension Flexibility Act
    DOL Department of Labor
    EBSA Employee Benefit Security Administration
    EDS EP/EO Determination System
    EFAST ERISA Filing Acceptance System
    EGTRRA Economic Growth and Tax Relief Reconciliation Act
    EIN Employer Identification Number
    EP Employee Plans
    EPMF Employee Plans Master File
    EPTA Employee Plans Team Audit
    EO Exempt Organizations
    ESSP Examinations Special Support and Processing (Closing Unit)
    FMV Fair Market Value
    FOIA Freedom of Information Act
    GE Governmental Entities Division
    HCE Highly Compensated Employee
    IDR Information Document Request
    IDRS Integrated Data Retrieval System
    IMF Individual Master File
    IRA Individual Retirement Arrangement
    IRC Internal Revenue Code (Code)
    IRM Internal Revenue Manual
    LB&I Large Business and International Division
    LDC Lead Development Center
    LITC Low Income Taxpayer Clinic
    M&P Master & Prototype Plan
    MAP-21 Moving Ahead for Progress in the 21st Century Act
    NRU Non-Return Unit
    OCEP Office Correspondence Examination Program
    PBGC Pension Benefit Guaranty Corporation
    POA Power of Attorney
    POD Post of Duty
    PPA Pension Protection Act of 2006
    PRA Pension Relief Act of 2010
    PTIN Preparer Tax Identification Number
    QLAC Qualified Longevity Annuity Contract
    QMS Quality Measurement System
    RAC Remedial Amendment Cycle
    RAP Remedial Amendment Period
    RAR Revenue Agent Report
    RCCMS Reporting Compliance Case Management System
    SB/SE Small Business /Self-Employed Division
    SBJA Small Business Jobs Act of 2010
    SRS Specialist Referral System
    STCP Student Tax Clinic Program
    TC Transaction Code
    TE/GE Tax Exempt & Government Entities Division
    TEQMS Tax Exempt Quality Measurement System
    UBI Unrelated Business Income
    URP Unenrolled Return Preparer
    VCP Voluntary Compliance Program
    VS Volume Submitter Plan
    W&I Wage and Investment Division


    Forms and Pubs

    Form Name
    Form 872-H Consent to Extend the Time to Assess Tax on a Trust
    Form 886-A Explanation of Items
    Form 895-EP Notice of Statute Expiration
    Form 940 Employer's Annual Federal Unemployment (FUTA) Tax Return
    Form 941 Employer's Quarterly Federal Tax Return
    Form 945 Annual Return of Withheld Federal Income Tax
    Form 990-T Exempt Organization Business Income Tax Return
    Form 1040 U.S. Individual Income Tax Return
    Form 1042 Annual Withholding Tax Return for U.S. Source Income of Foreign Persons
    Form 1096 Annual Summary and Transmittal of U.S. Information Returns
    Form 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
    Form 1120 U.S. Corporation Income Tax Return
    Form 1254 Examination Suspense Report
    Form 2363 Master File Entity Change
    Form 2797 Referral Report of Potential Criminal Fraud Cases
    Form 2848 Power of Attorney and Declaration of Representative
    Form 3177 Notice of Action for Entry on Master File
    Form 3185 Transfer of Return
    Form 3198-A TE/GE Special Handling Notice
    Form 3210 Document Transmittal
    Form 3244-A Payment Posting Voucher - Examination
    Form 4442 Inquiry Referral
    Form 4564 Information Document Request
    Form 4759 Address Information Request-Postal Tracer
    Form 5330 Return of Excise Taxes Related to Employee Benefit Plans
    Form 5456 Reviewer’s Memorandum – EP/EO
    Form 5457 Response to Reviewer’s Memorandum – EP/EO
    Form 5464 Case Chronology Record
    Form 5498 IRA Contribution Information
    Form 5500 Annual Return/Report of Employee Benefit Plan
    Form 5595 TE/GE Update
    Form 5599 TE/GE Examined Closing Record
    Form 5644 EP/EO Inquiry Request
    Form 5650 EP Examined Closing Record
    Form 5666 TE/GE Referral Information Report
    Form 5772-A Employee Plans (EP) Workpaper
    5773-A Employee Plans (EP) Workpaper Summary Continuation
    Form 6212-B Examination Referral Checksheet B
    Form 6490 EP/EO Technical Time Report
    Form 6533 Examination Referral Worksheet
    Form 6882 IDRS/Master File Information Request
    Form 8300 Report of Cash Payments Over $10,000 Received in a Trade or Business
    Form 8821 Tax Information Authorization
    Form 8955-SSA Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits
    Form 9308 EPMF Plan Data Change Request
    Form 10329 Transmittal Sheet-Related Cases
    Form 12175 Third Party Contact Report Form
    Form 12180 Third Party Contact Authorization Form
    Form W-2 Wage and Tax Statement
    Form W-4 Employee's Withholding Allowance Certificate
    Pub 1 Your Rights as a Taxpayer
    Pub 947 Practice Before the IRS and Power of Attorney


Examination Program

  1. The EP examination program was established to ensure compliance with the qualification provisions of IRC sections 401(a) and 501(a). Under this program, the returns within EP’s jurisdiction include, but are not limited to—

    • Form 5500 series returns

    • Form 5330 (see IRM 4.71.5, Form 5330 Examinations)

    • Form 990-T for unrelated business income as related to qualified plans (see IRM 4.71.10, Form 990-T Examination Procedures)

    • Non-Return Units (NRU) such as SIMPLE plans, SEP plans, SARSEP plans, IRC 457 plans and IRC 403(b) plans. See IRM 4.71.17, Non-Return Unit Examinations

Program Goals and Objectives

  1. In accordance with Policy Statement 4-117, EP examiners and managers:

    1. Have been given broad authority to consider and weigh conflicting factual information, data, and opinions.

    2. Will use professional judgement in accordance with auditing standards to make findings of fact and apply the Service’s position on issues of law to determine the correct tax liability.

    3. Will exercise this authority to obtain the greatest possible number of agreements to tax determinations without sacrificing the quality or integrity of those determinations, and to dispose of tax differences at the lowest level.

      Note:

      See IRM 1.2.13.1.34, Policy Statement 4-117.

  2. All examinations will be done in accordance with Policy Statement 1-236, Fairness and Integrity in Enforcement Selection,. See IRM 1.2.10.37, Policy Statement 1-236.

  3. All examinations will be done in accordance with the Taxpayer Bill of Rights as listed in 7803(a)(3).

    Note:

    Additional information may be found on the irs.gov website at www.irs.gov/taxpayer-bill-of-rights.

RCCMS Use Policy

  1. The TE/GE RCCMS use policy requires agents to use RCCMS when processing their examination/compliance cases.

    1. RCCMS is both an inventory control system and a case management system.

    2. RCCMS data supports the conclusions reached in the case.

  2. RCCMS supports the current examination process via electronic components that replace manual processes.

  3. RCCMS automatically backs up all stored data files when the user synchronizes with the central database server.

  4. RCCMS is used to create, control and assign compliance activities.

    1. Each RCCMS case will have an electronic copy of the return and/or related research material for the case.

    2. Agents will prepare, develop and store workpapers within the system.

    3. Agents are required to use the Microsoft Office software and Adobe pdf files, and the forms, letters and templates in the RCCMS repository.

  5. Case review and closing activities will continue using the electronic components within RCCMS.

    1. Reviewers will receive their case files electronically and use the system to review the electronic case file.

    2. Reviewers will use RCCMS to measure case quality through the QMS and update the QMS Survey.

  6. ESSP (Closing Unit) personnel will also receive cases electronically. Users will be able to review the case file, related documents and files, and the closing documents and process case closings.

  7. To ensure that data is as accurate and up to date as possible, all users should add workpapers to their case file and should make an effort to sync to the central server on a regular basis.

    1. To ensure case files are all up to date and case processing continues uninterrupted, users need to maintain an electronic case file that closely resembles the content that would be included in a paper case file prior to migrating to the electronic case file

    2. This electronic case file includes all workpapers and pertinent source documents used in determining whether there are any issues or proposed changes that will be discussed and resolved prior to closing the case.

Use of Form 5464, Case Chronology Record (CCR)

  1. Use Form 5464 (CCR) for all examinations to document all actions taken and all persons contacted.

    1. This form is an historical record and a quick reference of the examination activity.

    2. Update the CCR contemporaneously with actions taken.

  2. Include in the CCR all direct audit time charged to the case.

    1. The time must agree with the direct audit time reported on WebETS.

    2. When the case is ready to close, the total time on the CCR and WebETS must reconcile to the total time recorded on the RCCMS Closing Record and, if applicable, on Form 5650. See IRM 4.71.1.22.2, Completion of Form 5650 and RCCMS Tabs.

  3. Include in the CCR, at a minimum, the following entries related to pre-audit work:

    1. Any work performed prior to taxpayer contact

    2. The date the case was updated to status 12 on AIMS

    3. Dates IDRS and AIMS research is requested, received, and reviewed

    4. Dates of conversations with the taxpayer and/or representative and their telephone number(s)

    5. The date the initial appointment letter and initial IDR is mailed

    6. The initial appointment date, place, time and contact(s)

      Note:

      See IRM 4.71.1.6, Pre-audit Analysis

  4. Include in the CCR, at a minimum, the following entries related to work performed after the initial contact:

    1. Any work performed after contact with the taxpayer and/or representative

    2. Dates of contact with the taxpayer, representative, and third parties, whether in person or by telephone

    3. The date of receipt and processing of Form 2848 or Form 8821

    4. The date a tour of the taxpayer’s business was conducted

    5. Dates subsequent IDRs were issued to the taxpayer and/or representative and follow-up dates.

    6. Dates additional correspondence was received from the taxpayer and/or representative

    7. The date the Form 872-H is issued and secured (if applicable)

    8. Explanations for delays of significant activity on the case by the agent (training, details, leave, etc)

    9. Delays or lack of cooperation by the taxpayer and/or representative

  5. Include in the CCR, at a minimum, the following entries related to managerial involvement:

    1. Description of the group manager involvement, including information discussions about case development and quality

    2. Dates of formal, in-process case reviews, on-the-job-visitations, and workload reviews, where the case was discussed

      Note:

      Group managers should make these notations at the time of involvement. As cases are electronic in RCCMS, agents should e-mail their CCR to their group manager for comments, or note in the CCR the place for the manager to record approval.

    3. The date the case was closed to the group manager

    4. The date the case was approved for closing by the group manager

  6. As the CCR is part of the audit trail, the Form 5464 may be disclosed to the taxpayer under the Freedom of Information Act.

  7. Ensure entries are professional, accurate, and concise.

  8. If a lengthy discussion of the entry is desirable, for example, a long telephone call, place this information on a separate workpaper and index it to the CCR.

Examination Techniques

  1. EP agents conduct two basic types of examinations: Field examinations and OCEP examinations.

  2. Field examinations are:

    1. Examinations assigned by EP Classification to be worked at the taxpayer’s place of business. See IRM 4.71.1.7.1, Place of Examination.

    2. In extenuating circumstances, you and your group manager may decide that it is not in the government's best interest to make a field visitation (due to complexity, geographical location, etc.).

    3. If you and your manager decide to conduct the exam at a place other than the taxpayer's place of business, document this decision in the case file (either with a note from the group manager on Form 5464 (CCR) and/or an email from the manager).

    4. Even if you conduct the examination at a place other than the taxpayer’s place of business, you must perform the same examination procedures for all field exams.

  3. OCEP examinations are conducted through correspondence with the taxpayer or taxpayer's representative.

    1. OCEPs are specifically designated as such by EP Classification.

    2. OCEP examination procedures are found in IRM 4.71.11, Office/Correspondence Examination Program (OCEP).

Examination Jurisdiction

  1. The EP examination program was established to ensure compliance with the qualification provisions of IRC sections 401(a) and 501(a). Under this program, the returns within EP’s jurisdiction include, but are not limited to—

    • Form 5500 series returns

    • Form 5330 (see IRM 4.71.5, Form 5330 Examinations)

    • Form 990-T for unrelated business income as related to qualified plans (see IRM 4.71.10, Form 990-T Examination Procedures)

    • Non-Return Units (NRU) such as SIMPLE plans, SEP plans, SARSEP plans, IRC 457 plans and IRC 403(b) plans. See IRM 4.71.17, Non-Return Unit Examinations

  2. W&I, SB/SE and LB&I have examination responsibility for other federal tax returns. However, you are required to perform a package audit and inspect federal returns to ensure they have been properly filed. See IRM 4.71.1.14, Package Audit Requirements.

  3. During an examination of a Form 5500 (or other related EP return), an EP agent may identify certain issues that may affect other line items on a related income tax return such as Form 1040 or Form 1120.

    1. The Discrepancy Adjustment Program was established to reduce the number of referrals to W&I, SB/SE or LB&I. This program allows you to make certain line item adjustments to Forms 1040 and 1120 for issues connected to a Form 5500 (or other EP return).

    2. The Discrepancy Adjustment Program does not entirely preclude EP exams from being referred to W&I, SB/SE or LB&I. If the adjustment does not fall within the guidelines of the Discrepancy Adjustment Program, refer it to W&I, SB/SE or LB&I (whichever is applicable).

    3. See IRM 4.71.4, Discrepancy Adjustments, for procedural guidance.

  4. During an examination of a Form 1040 or a Form 1120 return, a W&I, SB/SE or LB&I agent may identify issues that involve a Form 5500 series return or other return that falls within EP’s jurisdiction and vice versa. For this reason, we have procedures for referring cases between W&I, SB/SE or LB&I and EP. See IRM 4.71.6, EP Referrals, and IRM 4.71.20, Employee Plans Large Case Support Examinations Procedures.

Examination Objectives and Development of Issues

  1. The primary objective of the examination is to determine if the plan is operating in accordance with the qualification provisions of the Internal Revenue Code and with the terms of the plan document.

    1. A second objective is to protect the government's interest for income and excise tax liabilities related to the plan.

    2. Most qualification provisions and tax issues will fall into the following categories and should be addressed, as applicable.

  2. Compliance in Form - Plan and Entity Background. Include a brief write-up on the plan’s history, including the most recent favorable determination, opinion and advisory letters and required amendments.

    1. If a favorable determination letter has not been issued for the plan and trust or if the plan sponsor adopted amendments after the last favorable determination letter, determine if the amendments are correct and whether the plan needs any additional amendments to remain qualified.

    2. If the plan was required to be amended in conjunction with the plan sponsor’s request for a favorable determination letter and the plan sponsor submitted proposed amendments, verify that the plan sponsor adopted the amendments by the required due date, generally 91 days after the date of the letter.

    3. Verify that the plan sponsor adopted the appropriate amendments to comply with subsequent statutory and administrative changes.

    4. It is also strongly recommended that you consult the Cumulative Lists, published annually around November of each year, to help determine the applicable laws, regulations or other published guidance effective for the year under examination.

    5. See IRM 4.71.1.4.1, Examinations of Individually Designed Plans under Post-EGTRRA Provisions and IRM 4.71.1.4.2, Examinations of Adopters of Master and Prototype and Volume Submitter Plans under Post-EGTRRA Provisions, for additional guidance.

  3. Package Audit. Determine whether the package audit requirements as specified in IRM 4.71.1.14, Package Audit Requirements, are satisfied. Package audit requirements vary depending on whether the examination is focused or full scope.

  4. Eligibility/Participation/Coverage. Determine whether all eligible employees are participating in the plan (IRC 410(a), IRC 410(b) and IRC 401(a)(26)).

  5. Vesting. Determine whether the minimum vesting standards of IRC 411 and, if applicable, top heavy requirements of IRC 416 are met.

  6. Allocations/Accruals.

    1. Determine whether the contributions, accruals and forfeitures are calculated correctly, in accordance with the plan provisions and IRC 411.

    2. Verify that the plan's definition of compensation is statutorily permitted for allocations/accruals and is being followed in operation.

    3. Verify that the allocations and/or accruals are not discriminatory under IRC 401(a)(4).

    4. When examining a cash balance plan in which the benefit formula is not the subject of a determination letter, follow the analysis (including examples) in the Issue Snapshot on Definitely Determinable Benefits for determining whether a benefit formula based on only a portion of annual compensation, a special bonus, or other measure not based on annual compensation, is "definitely determinable" . See IRM 4.71.1 Exhibit 12 at IRM 4.71 - Employee Plans Examination Exhibits for the Issue Snapshot on Definitely Determinable Benefits.

    5. Determine if IRC 436 benefit limits are applicable.

  7. Top-Heavy. Determine whether the plan is top-heavy and if so, operates in accordance with the plan provisions and IRC 416. See IRM 4.72.5, Top Heavy Plans.

  8. Discrimination.

    1. Verify whether the plan’s definition of compensation is being followed in operation and that participant allocations and accrued benefits are determined in accordance with the plan document.

    2. Verify that compensation is properly limited by IRC 401(a)(17) in operation.

    3. Determine whether the plan’s definition of compensation results in prohibited discrimination.

    4. Verify that the plan's definition of compensation satisfies the requirements of IRC 414(s). Compare compensation as defined in the plan to total compensation paid to the participants.

    5. Review and compare compensation reported on Forms 941, Forms W-2, Forms 1120 and payroll records.

    6. If family members are participants in the plan, ensure that they actually perform services for the employer and did not receive favored eligibility, benefits, vesting upon separation, etc., as compared to other participants.

  9. IRC 401(k)/401(m).

    1. Determine whether the plan meets all requirements of IRC 401(k) and IRC 401(m).

    2. If the plan is intended to be a safe harbor 401(k) plan, make sure the plan satisfies IRC 401(k)(12) and IRC 401(k)(13) if the plan is intended to be a safe harbor 401(k) plan

    3. Document in your workpapers all items addressed within your IRC 401(k) and IRC 401(m) analysis.

      Note:

      See IRM 4.72.2, Cash or Deferred Arrangements and IRM 4.72.3, Employee Contributions and Matching Contributions, for technical guidance on auditing plans with IRC 401(k) and/or 401(m) provisions.

  10. Deduction Limitation.

    1. Determine whether the total amount of employer contributions (considering contributions to all plans of the employer) are within the IRC 404 limits and that all contributions were paid by the IRC 404 due date.

      Note:

      See IRC 404 and IRC 412.

    2. Verify, in applicable defined benefit plans, that all gains or losses (such as cash surrender values, dividends, refund of premiums, etc.) are used in determining the employer’s allowable deduction in the current or next succeeding year or are properly amortized.

    3. See IRM 4.72.15, IRC 404 Examination Guidelines, for technical guidance related to IRC 404.

  11. Minimum Funding. Determine if the minimum funding standards of IRC 412, IRC 430, IRC 432 and IRC 436 are met and if not, determine tax due under IRC 4971.

    Note:

    Until the provisions of the Internal Revenue Code are revised, IRC 4971 cannot be applied to defined contribution plans for 2008 and subsequent tax years.

  12. Review of the Trust.

    1. Inspect the trust fund, by reviewing its balance sheet, the income and expense statement and asset source documents to verify that plan assets are properly recorded and held in the name of the trust.

    2. Secure information to determine if the trust has engaged in any of the following: prohibited transactions under IRC 4975(c), (see IRM 4.72.11, Prohibited Transactions, for technical guidance); transactions that generate unrelated debt financed income under IRC 514 or an unrelated trade or business as defined in IRC 513.

    3. Verify, in profit-sharing, stock bonus and money purchase plans that assets were valued annually at fair market value; that participants’ accounts were debited or credited for the change in market value; and that participants were notified of the change in value.

      Note:

      Fair market value must be used to value depreciable assets. Cost less depreciation or book value cannot be used to determine fair market value. See Rev. Rul. 80–155. Also see IRM 4.72.8, Valuation of Assets.

    4. Examine trust assets to determine whether the trust has invested in the employer's stock and securities. If so, find out whether there were prohibited transactions and/or violations of the exclusive benefit rule.

    5. Examine the income and expense schedules and records in detail to determine whether funds have reverted to the sponsor or have been used for purposes other than the exclusive benefit of employees or their beneficiaries.

    6. Closely inspect non-cash contributions by the employer (e.g., stocks, notes or other securities including employer stock and securities) before allowing a deduction. For defined benefit plans, money purchase plans and certain defined contribution plans, determine whether the non-cash contributions constituted prohibited transactions. Refer to the U.S. Supreme Court decision in Commissioner v. Keystone Consolidated Industries, Inc., 508 U.S. 152 (1993) and issued DOL Interpretive Bulletin 94-3 dated 12/28/94.

    7. Consider fraud if you have determined that trust assets have been mishandled or misappropriated. See IRM 4.71.25, EP Exam Fraud Procedures, for instructions on contacting the EP Fraud Coordinator.

    Note:

    See also IRM 4.71.1.4 (13) covering plan loans.

  13. Plan Loans.

    1. Determine whether plan loans are prohibited transactions under IRC 4975.

    2. Determine whether plan loans comply with IRC 72(p)

    3. If during an examination you determine that a qualified plan made two or more loans to the same participant during a 1-year period, determine if the plan has computed the "highest outstanding balance" under IRC 72(p) in one of the two ways described in the following example:

      Example:

      Assume that a plan participant borrowed $30,000 in February of 2016, which was fully repaid in April of 2016, and $20,000 in May of 2016, which was fully repaid in July of 2016. If the same participant applied for a third loan in December of 2016, the plan may determine that no further loan would be available, since $30,000 + $20,000 = $50,000. Alternatively, the plan may identify "the highest outstanding balance" as $30,000, and permit the third loan in the amount of $20,000. At this time, the law does not clearly preclude either computation of the "highest outstanding loan" balance in the above example. If it has, the requirement under 72(p)(2)(A) is met and no further inquiry need be done.

  14. IRC 415 Limits. Determine whether any participants’ annual additions or accrued benefits have exceeded the limits under IRC 415. The plan should contain language, when necessary, that coordinates with other plans of the employer (or related employer) to assure that participant benefits and/or contributions do not exceed the annual limits. See IRM 4.72.6, Section 415(b) and IRM 4.72.7, Examination Guidelines for IRC 415(c).

  15. Distributions.

    1. Verify that distributions to participants (terminated or otherwise) were paid in accordance with the plan’s provisions for the form of distribution (lump sum, annuity, etc.). Verify that the correct benefit amounts were timely distributed under the terms of the plan document and in accordance with the IRC (paid immediately, after a break-in-service, etc.).

    2. Verify that spousal consent was secured when required by the plan and the IRC.

    3. Verify that any hardship distributions were in accordance with plan terms and the IRC.

    4. Verify that the minimum distribution requirements of IRC 401(a)(9)are satisfied.

    5. Verify that the eligible rollover requirements and mandatory distribution requirements of IRC 401(a)(31)(A) and IRC 401(a)(31)(B), respectively, are met.

    6. Verify that the employer or trustee met the required reporting requirements, including filing Forms 1099-R, for those individuals who received a distribution and that the correct tax was withheld under IRC 3405.

      Note:

      See IRM 4.72.9, Qualified Joint & Survivor Annuity Requirements and IRM 4.72.10, Single-Sum Distributions, for technical guidance on forms of benefits and distributions.

    7. Verify that Form 8955-SSA was properly filed when applicable.

    8. Verify that participant loans complied with IRC 72(p) (i.e., should loans be treated as distributions?). See IRM 4.71.1.4 (13) covering plan loans.

  16. ESOP Plans. Verify that the ESOP requirements under IRC 409 and IRC 4975 have been met. See IRM 4.72.4, ESOPs.

  17. IRC section 403(b) Plans. Follow established procedures as reflected in IRM 4.72.13, IRC Section 403(b) Plans.

  18. Multiemployer Plans. Follow established procedures in IRM 4.72.14, Multiemployer Plan Examination Guidelines.

  19. SEP Plans. Determine whether the plan operates in accordance with IRC 408(k). Follow procedures in IRM 4.72.17, Simplified Employee Pensions (SEPs) and Salary Reduction SEPs (SARSEPs).

  20. SIMPLE IRAs. Determine whether the plan operates in accordance with IRC 408(p).

  21. International Issues. Determine if the plan and the sponsor are involved in any international operations that could affect the plan’s qualification or result in any associated tax liabilities. See the International Portal on TE/GE Connect for helpful information.

Examinations of Individually Designed Plans

  1. Confirm and document that the plan's language is in compliance with all applicable qualification requirements and that all amendments have been made within the required deadlines.

    1. Secure and retain in the case file the plan document and any amendments adopted or effective for each Cumulative List (CL) up through the year of examination.

    2. Verify all interim amendments were timely adopted by the end of the plan’s remedial amendment period (RAP). For example, for the second Cycle A filer, the plan should have been amended for the required amendments from the 2010 CL, as well as those from the 2006, 2007, 2008 and 2009 CL. Any good-faith amendments adopted with deficient language during the first RAC must have been corrected by January 31, 2012 or later if a DL was received.

  2. Plan sponsors are now within their second or third remedial amendment cycle (RAC). The second RAC for individually designed plans commenced with Cycle A sponsors subject to a restatement of their plans in compliance with the 2010 CL. The RAC for these plan sponsors ended on January 31, 2012.

    1. In reviewing these plan documents, agents are not required to verify that the document was amended for legislation effective before the immediately preceding RAC.

    2. Obtain your manager's approval to verify laws enacted prior to the plan's immediately preceding RAC. If the plan is currently in its second RAC, you should verify timely adoption and compliance with interim amendments from the first RAC if there is no determination letter for the first RAC. Verification of GUST should only be done with your manager’s documented approval and with documented reason to believe it was not timely adopted or compliant with all requirements.

    3. In addition, agents must verify the timely adoption of interim and discretionary amendments included in subsequent CLs. Thus, an agent auditing a 2015 Form 5500 return of a Cycle A plan will have to verify timely adoption of amendments included on the 2010, 2011, 2012, 2013, and 2014 CLs if the plan has a 2010 CL determination letter. If there is no DL the agent will need to also verify the first RAC including the 2004 through 2010 CLs.

  3. A plan sponsor must adopt interim amendments that were included on each year’s respective Cumulative List to retain the plan’s qualified status. The sponsor must adopt interim amendments by the later of:

    1. The due date (including extensions) for filing the income tax return for the employer’s taxable year that includes the date on which the amendment is effective

    2. The last day of the plan year that includes the date on which the amendment is effective

    Example:

    The 2014 Cumulative List includes a provision requiring plans sponsoring a qualified longevity annuity contract (QLAC) arrangement to adopt plan language by the remedial amendment period specified by in Section 5.05 of Revenue Procedure 2007-44. Therefore, if the corporate sponsor of a calendar year plan offered a QLAC to be effective on June 1, 2014, the sponsor would have been required to adopt an amendment by the later of December 31, 2014 or March 15, 2015, the due date of the 2014 corporate income tax return (assuming an extension to file a 2014 corporate income tax return was not filed).

    Example:

    Assume the same facts as in the previous example, but the plan maintained a June 30, plan year and the corporate plan sponsor maintained a September 30 tax year end. The amendment was effective on June 1, 2014, so the last day of the plan year in which the amendment was first effective is June 30, 2014. However, the QLAC amendment was effective within the corporation’s tax year that ended on September 30, 2014. The due date of the corporate tax return was due December 15, 2014; however, if a six month extension to file the corporation’s income tax return was filed by December 15, 2014, the amendment would have had to be adopted by June 15, 2015.

    Note:

    A second Cycle E filer in this example would have been required to amend its plan under the same RAPs for each interim amendment from the 2014 CL, as well as amendments from the 2010, 2011, 2012 and 2013 Cumulative Lists.

  4. A discretionary amendment is required to be adopted by the end of the plan year in which the plan amendment is first effective. The RAP for discretionary amendments is not extended to the due date of the income tax return.

  5. A plan document must be amended by the end of its remedial amendment cycle. However, the sponsor must have adopted all interim and discretionary amendments within their respective RAP to allow for the plan document’s restatement within the RAC.

    Example:

    A plan sponsor with an EIN ending in 5 or 0, a Cycle E RAC under the 2014 CL, had until February 1, 2016 to restate its plan for its required amendments included on the 2014, 2013, 2012, 2011 and 2010 CLs.

  6. Your responsibilities also include:

    1. Confirming a plan’s RAC.

    2. Verifying whether a determination letter application is pending or whether a favorable determination letter (i.e., Letter 2002) has been issued.

      Note:

      If the plan has a pending determination letter application, coordinate your examination with the determination specialist assigned to the case.

      Note:

      Announcement 2015-19, and related changes to the annual determination letter filing guidance (currently Rev. Proc. 2016-6) limit the ability of individually designed plan adopters to submit a determination letter application.

    3. Confirming that plan amendments were adopted by their required deadlines to comply with all applicable form requirements, including laws, regulatory and other published guidance. This includes the timely adoption of interim and discretionary amendments effective through the last day of the plan year under examination.

      Note:

      The Service has the statutory and regulatory authority to issue guidance to allow plan sponsors to adopt interim or discretionary amendments later than the remedial amendment periods stated above. (Specially, see section 5.07 of Rev. Proc. 2007-44). The Service can also mandate an earlier deadline to adopt discretionary or interim amendments than the time frames cited in section 5.05 of Rev. Proc. 2007-44 for sponsors to adopt an amendment earlier (e.g., an amendment to add a qualified cash or deferred arrangement to a profit sharing plan cannot be adopted retroactively).

      Note:

      A Plan’s termination requires that the plan document be amended for all statutory and regulatory provisions effective through the date of termination, even if the remedial amendment period has not yet expired.

  7. Confirm whether the RAC has expired:

    1. If the plan received Letter 2002 or Letter 5274, you are only required to verify that the plan sponsor adopted any required amendments listed on the subsequent CLs issued through the year under examination.

    2. If a RAC has expired and the plan does not have Letter 2002 or Letter 5274 for that specific RAC, then you must verify that all interim and discretionary amendments within that five year RAC were timely adopted.

    3. All amendments applicable through the last day of the plan year under examination must be in full compliance with the applicable IRC qualification requirements. The plan sponsor should perfect any defects or omissions related to such amendments before expiration of its RAC.

  8. If the plan does not have a favorable determination letter, confirm that the plan sponsor adopted all required interim and discretionary amendments for the immediately preceding and current RAC by their required due date, effective through the year of examination, as specified under the applicable CLs.

  9. Timely adoption of interim amendments within the RAP allows a plan sponsor to correct any disqualifying defective language until the end of the plan’s five-year RAC.

    1. If interim amendments were timely adopted, then the RAP for the disqualifying defect is extended to the end of the RAC and the plan sponsor can correct any defective provisions of the interim and discretionary amendments by the end of the plan’s RAC.

    2. If an interim amendment was not timely adopted, or the plan sponsor did not timely come to the conclusion the amendment was not needed, then the RAP for the disqualifying defect is not extended to the end of the RAC and the plan sponsor may not correct any defective provisions of required or discretionary amendments. In this situation, Audit CAP will be necessary to preserve the plan’s qualification.

  10. Any Letter 2002 issued under the first cycle will contain the following caveats with a reference to the applicable CL and expiration date:

    1. "This letter may not be relied on after the end of the plan’s first five year remedial amendment cycle that ends more than twelve months after the application is received. "

    2. "This letter expires on January 31, 20XX (12, 13, 14, 15, or 16)."

    3. "This letter considers the 200X (5, 6, 7, 8, or 9) Cumulative List of Plan Qualification requirements."

    Note:

    Confirm that the plan sponsor adopted interim and discretionary amendments effective after the 200X (5, 6, 7, 8, or 9) CL through the year of examination by their required deadlines.

  11. A Letter 2002 issued under second Cycle A will contain the following caveat. "This letter may not be relied on after the end of the plan’s second five-year remedial amendment cycle that ends more than twelve months after the application was received. This letter expires on January 31, 2017. This letter considered the 2010 Cumulative List of Changes in Plan Qualification Requirements." This caveat shows a plan complies in form with the requirements from EGTRRA to SBJA, except as noted in the CL. However, you should confirm that the plan sponsor adopted later interim and discretionary amendments effective through the year of examination as specified under the applicable Cumulative List.

  12. A Letter 2002 issued under second Cycle B will contain the following caveat. "This letter may not be relied on after the end of the plan’s second five-year remedial amendment cycle that ends more than 12 months after the application was received. This letter expires on January 31, 2018. This letter considered the 2011 Cumulative List of Changes in Plan Qualification Requirements." This caveat shows a plan complies in form with the requirements from PPA to the Preservation of Access to Care for Medicare Beneficiaries and PRA 2010, except as noted in the CL. However, you should confirm that the plan sponsor adopted later interim and discretionary amendments effective through the year of examination as specified under the applicable CL.

  13. A Letter 2002 issued under second Cycle C will contain the following caveat. "This letter may not be relied on after the end of the plan’s second five-year remedial amendment cycle that ends more than 12 months after the application was received. This letter expires on January 31, 2019. This letter considered the 2012 Cumulative List of Changes in Plan Qualification Requirements." This caveat shows a plan complies in form with the requirements from PPA to MAP-21, except as noted in the CL. However, you should confirm that the plan sponsor adopted later interim and discretionary amendments effective through the year of examination as specified under the applicable CL.

  14. A Letter 2002 issued under second Cycle D will contain the following caveat. "This letter may not be relied on after the end of the plan’s second five-year remedial amendment cycle that ends more than 12 months after the application was received. This letter expires on January 31, 2020. This letter considered the 2013 Cumulative List of Changes in Plan Qualification Requirements." This caveat shows a plan complies in form with the requirements from PPA to ATRA, except as noted in the CL. However, you should confirm that the plan sponsor adopted later interim and discretionary amendments effective through the year of examination as specified under the applicable CL.

  15. A Letter 2002 issued under second Cycle E will contain the following caveat. "This letter may not be relied on after the end of the plan’s second five-year remedial amendment cycle that ends more than 12 months after the application was received. This letter expires on January 31, 2021. This letter considered the 2014 Cumulative List of Changes in Plan Qualification Requirements." This caveat shows a plan complies in form with the requirements from PPA to CSEC, except as noted in the CL. However, you should confirm that the plan sponsor adopted later interim and discretionary amendments effective through the year of examination as specified under the applicable CL.

  16. Section 13.02 of Rev. Proc. 2007-44 provides that determination letters issued for individually designed plans will include a statement that the letter may not be relied on after the end of the plan's first 5-year remedial amendment cycle that ends more than 12 months after the application was received, and will include the specific "expiration date." This provision was enacted to discourage plan sponsors to request a determination letter prior to the beginning of its five- year remedial amendment cycle. In other words, a determination letter that is submitted during the submission period for a remedial amendment cycle (i.e., the last 12 months of that cycle) ordinarily expires at the end of the next cycle.

    Example:

    A sponsor filed an application for a determination letter for an individually-designed plan during the second Cycle B submission period (which began February. 1, 2012 and ended January. 31, 2013). A favorable IRS determination letter would have expired at the end of the third Cycle B remedial amendment cycle, which would have ended Jan. 31, 2018. A determination letter issued for an application filed more than 12 months before the end of a five-year remedial amendment cycle may not be relied on after that cycle. Thus if the sponsor filed the determination letter application prior to the second Cycle B one year submission period, before February 1, 2012, the sponsor’s determination letter would have expired on January 31, 2013.

  17. Expiration Dates.

    1. A determination letter issued before January 4, 2016 includes an expiration date.

    2. These expiration dates are no longer applicable.

    3. The Service will issue further guidance to clarify the extent a sponsor can rely on a determination letter.

    4. Future guidance will clarify the extent to which an employer may rely on a determination letter after a change in law, or a plan amendment. Effective January 1, 2017, the 5 year RACs for individually designed plans will be eliminated, and determination letters will only be issued for initial plan qualification, plan terminations and other circumstances as prescribed by the IRS.

      Note:

      See Announcement 2015-19.

  18. Announcement 2015-19 also provided that the IRS will extend the remedial amendment period for individually designed plans to a date that will be no earlier than December 31, 2017

  19. You are only required to confirm compliance with qualification requirements effective through the year under examination.

    1. Generally, you are not required to identify and confirm the plan’s compliance with law which is effective after the plan year under examination.

    2. However, if you become aware that the plan sponsor did not adopt required interim or discretionary amendments after the plan year under examination by their required deadlines, then expand the audit scope to include the subsequent year(s) Form 5500. Once you confirm correction, a closing agreement may be offered.

  20. Example 1: You are examining an individually designed defined contribution plan for the plan year ending December 31, 2014. The plan sponsor’s EIN ends in a "5." You have determined that the plan’s initial RAC (i.e., Cycle E) ends on January 31, 2011. You wish to know what your responsibilities are to determine whether the plan document complies with IRC 401(a).

    1. Your responsibility is to determine that the plan was timely amended to comply with all laws that were effective through the last day of the plan year under examination or as of December 31, 2014. However, since the end of RAC has passed (January 31, 2011), you will need to verify full compliance and not just "good faith" compliance, with all applicable form qualification requirements through the 2013 CL.

    2. If the plan sponsor timely submitted a determination letter request, which the IRS is currently processing, coordinate with the EP determination specialist assigned to review the application to ensure that all applicable amendments were timely adopted. The EP determination specialist should make certain that the plan sponsor perfected all amendments before the close of the RAC. In other words, the plan sponsor should have timely adopted all necessary interim and discretionary amendments and perfected any defects applicable to these amendments (including omissions) by amending on or before the end of the RAC or January 31, 2011 or as part of receiving a favorable determination letter.

    3. If a determination letter request is not pending, then you are responsible for confirming that the plan sponsor adopted all applicable laws by their required deadlines through the last day of the plan year under examination or as of December 31, 2014. This includes confirming the plan sponsor adopted "good faith" PPA and other interim and discretionary amendments applicable for all plan years up through and including December 31, 2014 by their required deadlines. To ensure that the plan has complied with prior law, you are required to confirm that the plan sponsor amended its plan for the immediately preceding RAC or received a determination letter for the first RAC (Letter 2002). A letter for the first RAC will indicate the plan has reliance on the 2005, 2006, 2007, 2008, or 2009 cumulative list. If the plan does not have a prior favorable determination letter, verify the plan timely amended interim amendments from the 2004 through 2014 cumulative lists, as well as discretionary amendments effective February 1, 2006 (beginning of 5 year RAC) through December 31, 2014.

  21. Example 2: You are examining an individually designed defined contribution plan for the plan year ending December 31, 2014. The plan sponsor’s EIN ends in a "1." You have determined that the plan’s initial RAC (i.e., Cycle A) ended on January 31, 2007 and the second RAC (i.e., Cycle A) ended on January 31, 2012. The third RAC and the final RAC for individually designed plans ends on January 31, 2017. You wish to know what your responsibilities are to determine whether the plan document complies with IRC 401(a).

    1. Your responsibility is to determine that the plan sponsor amended the plan to comply with all laws that were effective through the last day of the plan year under examination or as of December 31, 2014. You will need to confirm full compliance with all applicable form qualification requirements from the 2014 CL. You will need to verify compliance and timely adoption of all required interim amendments since the last determination letter, but no earlier than the immediately preceding RAC. If the plan has a second RAC DL (providing reliance on the 2010 CL), you will need to verify the interim and discretionary amendments included on the 2011 through 2014 CLs. If the plan has received a DL for the first RAC (reliance on the 2005 CL), verify the timely adoption of interim and required discretionary amendments from the 2006 through 2014 CLs. If the plan does not have a prior DL, verify the timely adoption of amendments included on the 2004 through 2014 CLs.

    2. Because you will close your examination after the second Cycle A RAC ends, confirm whether the plan has a second RAC favorable determination letter. If so, the determination letter should contain this caveat: "This letter may not be relied on after the end of the plan’s first five year remedial amendment cycle that ends more than twelve months after the application is received. This letter expires on January 31, 2017. This letter considers the 2010 Cumulative List of Plan Qualification requirements." Confirm that the plan sponsor adopted subsequent interim and discretionary amendments under the CLs effective through the year under examination (e.g., the 2011 through the 2014 CL in this example) by their required deadlines.

    3. If the plan does not have a favorable determination letter from the second RAC (2010 CL), confirm that the plan sponsor adopted "PPA and subsequent legislation" required interim and discretionary amendments that comply with the 2010 CL. Also, confirm that the plan sponsor adopted all subsequent interim and discretionary amendments required to be adopted through December 31, 2014, by their required deadlines and that they meet the "good faith" requirement.

    4. If the plan does not have a favorable determination letter from the first RAC, which in this example would provide reliance on the 2005 CL, you must also verify interim amendments required by the first RAC (2005-2009 CLs) were adopted timely. This RAC is closed, therefore any "good-faith attempts" must have been corrected by the end of the RAC, (i.e. January 31, 2012).

  22. Remedial Amendment Period for Government Plans.

    1. The adoption deadline for interim or discretionary amendments for a governmental plan is the later of:

      1. The deadline that would apply under the regular applicable rules of paragraphs (1) and (2) of section 5.05 of Rev. Proc. 2007-44, or

      2. The last day of the next regular legislative session beginning after the amendment’s effective date in which the governing body with authority to amend the plan can consider a plan amendment under the laws and procedures applicable to the governing body’s deliberations.

      Note:

      Many interim amendment requirements have special adoption deadlines for governmental plans as stated in published guidance.

    2. Government plans could apply for a determination letter in the second RAC during either Cycle C (2/1/13-1/31/14) or Cycle E (2/1/15-1/31/16).

  23. Government plans are exempt from complying with the following sections of the IRC:

    1. Coverage rules under IRC 401(a)(3)

    2. Nondiscrimination rules under IRC 401(a)(4), IRC 401(a)(5) and IRC 401(a)(6)

    3. IRC 401(a)(10) and top heavy plan rules under IRC 416

    4. Joint and survivor annuity requirements under IRC 401(a)(11)

    5. Merger and transfer of asset requirements under IRC 401(a)(12)

    6. Assignment and alienation of benefit requirements under IRC 401(a)(13)

    7. Commencement of benefit requirements under IRC 401(a)(14)

    8. Restriction regarding reduction in benefits due to social security increases under IRC 401(a)(15)

    9. Requirements regarding forfeiture of mandatory contributions under IRC 401(a)(19)

    10. Distributions on plan termination, discontinuance of contributions and PBGC notice requirements under IRC 401(a)(20)

    11. IRC 401(a)(22) - ESOP requirement to comply with the voting requirements of IRC 409(e)

    12. IRC 401(a)(23) - ESOP requirement to comply with IRC 409(h) and IRC 409 (o) (i.e. put and distribution requirements)

    13. Participation requirements under IRC 401(a)(26)

    14. IRC 401(a)(27) - Contributions need not be based on profits

    15. Employee stock ownership plans diversification and appraisal requirements under IRC 401(a)(28)

    16. IRC 401(a)(29) - limitations under IRC 436 on plan subject to the funding requirements under IRC 412

    17. Limits on elective deferrals under IRC 401(a)(30)

    18. Bankruptcy and funding rules under IRC 401(a)(32) and IRC 401(a)(33)

    19. Defined contribution plan investment diversification requirements under IRC 401(a)(35)

    20. Minimum coverage requirements under IRC 410

    21. Minimum vesting standards under IRC 411

    22. Minimum funding standards under IRC 412

    23. Merger rules under IRC 414(l)

    24. Prohibited transaction provisions under IRC 4975

Examinations of Adopters of Master and Prototype (M&P) and Volume Submitter (VS) Plans

  1. M&P sponsors and some VS practitioners are permitted to adopt required amendments from subsequent CLs (subsequent to the 2004 or 2010 CL for defined contribution plans or the 2006 CL for defined benefit plans) on behalf of adopting employers.

    1. M&P plans automatically carry this authority.

    2. VS plans may give the practitioner the power to amend.

      Note:

      Any VS plan where the practitioner does not have the power to amend must be reviewed to determine that the employer timely adopted all required interim amendments.

  2. Confirm and document that either the employer (or the M&P sponsor or VS practitioner, on behalf of the employer) has adopted all required amendments by its deadline to satisfy IRC qualification provisions.

  3. Verify that the plan sponsor adopted the M&P or VS plan document by the end of the remedial amendment cycle (RAC).

    Note:

    If a defined contribution plan is within its second RAC, you do not have to verify that the document was amended for legislation effective prior to the release of the 2004 CL. For audits of plans within the third RAC (after April 30, 2016) you will not need to verify laws enacted prior to the 2010 CL. The plan document(s) in effect for the examination year must be reviewed. Therefore if the 2010 CL restatement is not effective for your examination year, you must request the 2004 CL restatement.

  4. Your responsibilities also include:

    1. Identifying whether the plan has a pending determination application or whether a current favorable determination, opinion or advisory letter has been issued for the 2004 or 2010 CL for a DC plan or the 2006 CL (or later CL) for DB plans.

      Note:

      If the plan has a pending determination letter application, coordinate your exam with the determination specialist.

    2. Confirming that the pre-approved plan sponsor (or the employer if the plan is a VS plan that did not provide that the plan sponsor would adopt on behalf of the employer) timely executed all amendments to the plan to comply with all applicable form requirements, laws, regulatory guidance or other published guidance, including interim and discretionary amendments effective through the last day of the plan year under examination by their required deadlines.

      Note:

      An exception to this rule would be plan terminations, in which case the plan is required to be amended through the date of termination.

  5. Confirm whether the EGTRRA RAP has expired. The end of the initial EGTRRA RAC for plan qualification requirements for pre-approved defined contribution plans expired on April 30, 2010.

    Note:

    Notice 2010-48 provided an extension to certain taxpayers affected by natural disasters (flooding) to adopt the restatement until July 30, 2010.

  6. If an employer adopted an approved defined contribution plan by April 30, 2016, then verify that the employer (or the pre-approved plan sponsor) adopted interim and discretionary amendments for provisions on post- 2010 CLs by their deadlines.

  7. If the employer did not adopt an approved document by April 30, 2016, then verify that the employer adopted all required interim and discretionary amendments by their deadlines. The employer can no longer rely on the opinion or advisory letter after April 30, 2016 unless a pre-approved DC document is adopted.

    1. Compare the interim and discretionary amendments and the final plan document to determine if there are any deviations from the 2010 CL. If the plan lacks provisions or contains incorrect provisions, consider Audit CAP.

    2. The employer must have adopted all required amendments after the 2010 CL, through the last day of the plan year under examination and must also have satisfied the "good faith" requirement. The Employer must have perfected any defects or omissions related to the 2010 CL before April 30, 2016.

    3. The IRS issued opinion and advisory letters for defined contribution plans on March 31, 2014. The two year window for employers to restate their plan document for the second RAC is March 31, 2014, through April 30, 2016.

  8. The end of the RAP for plan qualification requirements for pre-approved defined benefit plans expired on April 30, 2012.

    1. Because the EGTRRA RAC has expired, it is not sufficient to merely confirm timely "good faith" EGTRRA, interim and discretionary amendments.

    2. If the employer adopted an approved DB plan for the 2006 CL (i.e., first RAC), verify that the plan complied with 2007 and later years’ CLs.

  9. If it is determined that the plan was not timely amended for the 1st cycle, then confirm that the plan sponsor adopted GUST amendments by their deadlines or that a GUST determination letter was issued. In either situation, confirm that the plan sponsor adopted all applicable laws, regulatory or other published guidance subsequent to GUST, including timely "good faith" EGTRRA, interim and discretionary amendments effective through the year under examination, under the applicable CL, by their deadlines.

  10. A plan’s EGTRRA RAP is contingent on the plan sponsor adopting "good faith" EGTRRA amendments within the GUST RAP.

    1. If the plan sponsor adopted "good faith" amendments within the GUST RAP, the plan’s EGTRRA RAP is extended to the end of the plan’s initial six-year RAC.

    2. If the plan sponsor adopted "good faith" amendments within the GUST RAP, then the RAC remains intact and the plan sponsor may correct any defective EGTRRA, interim and discretionary amendments by the end of the plan’s RAC.

    3. If the plan sponsor did not adopt "good faith" EGTRRA amendments within the GUST RAP, then the plan sponsor may not correct any defective EGTRRA, required or discretionary amendments because the RAC is no longer available. The plan sponsor must use Audit CAP to restore the plan’s RAC and preserve the plan’s qualification.

  11. If a pre-approved defined contribution plan has a favorable opinion letter (Letter 4333 or Letter 4334) or favorable advisory letter (Letter 4335), confirm that an adopting employer has executed the underlying plan by April 30, 2016. Also, confirm that the employer adopted interim and discretionary amendments effective after the 2010 CL through the year of examination by their required deadlines.

  12. If a pre-approved defined benefit plan has a Letter 4333, 4334 or 4335, confirm that an adopting employer has executed the underlying plan by April 30, 2012. Also, confirm that the plan sponsor adopted interim and discretionary amendments effective after the 2006 CL through the year of examination by their required deadlines.

  13. You are only required to confirm that the plan complies with qualification requirements effective through the year under examination.

    1. Generally, you are not required to identify and confirm a plan’s form compliance effective after the plan year under examination.

    2. However, if you become aware that the plan sponsor did not adopt required or discretionary amendments subsequent to the plan year under examination, expand the exam scope to include the subsequent year(s) Form 5500. Once you confirm correction, you may offer a closing agreement.

  14. Example 1: On November 30, 2016, you are examining a pre-approved defined contribution plan for the plan year ending December 31, 2014. You wish to know what your responsibilities are to determine whether the plan document complies with IRC 401(a).

    • Your responsibility is to determine that the plan was timely amended to comply with all laws that were effective through the last day of the plan year under examination or as of December 31, 2014. You will need to confirm full compliance with all applicable form qualification requirements from the 2010 CL through December 31, 2014.

    • Because you will close the examination after the end of the RAC, you should confirm whether the pre-approved plan received a favorable opinion or advisory letter for the 2010 CL. Also, confirm that the adopting employer timely executed the underlying plan within the RAC. If the employer adopted a pre- approved plan by April 30, 2016 (according to Announcement 2014-16), verify that the employer adopted later interim and discretionary amendments under the CLs effective through the year of examination. There may be exceptions to the April 30, 2010 adoption requirement. If the employer adopted a restated plan after April 30, 2014, it may be for a plan for which the pre-approved plan sponsor received an opinion or advisory letter dated March 31, 2014.

    • Because the audit year is 2014, if the restatement for the 2010 CL is not effective until 2015 or later, you will need to request the prior restatement in effect for the audit year (2014 in this example). This is the document you will need to use for your audit to determine operational compliance.

  15. Example 2: On October 30, 2016, you are examining a pre-approved defined benefit plan for the plan year ending December 31, 2014. You wish to know what your responsibilities are to determine whether the plan document is in compliance with IRC 401(a).

    • Your responsibility is to determine that the plan was timely amended to comply with all laws that were effective through the last day of the plan year under examination or as of December 31, 2014.

    • If the employer adopted a pre-approved plan according to Announcement 2010-20, then you would need to confirm that the employer adopted later interim and discretionary amendments by their required deadlines effective through the plan year being examined under the CLs effective through the year of examination. This would include the 2007 through 2014 cumulative list requirements in this example.

  16. Example 3: An employer maintains an individually designed DC plan but wants to adopt a pre-approved plan. The employer is a Cycle D filer having a five-year RAC that ended on January 31, 2015. What is this employer to do?

    • If the employer was a new or intended adopter of the pre-approved plan, then the employer should have adopted an existing pre-approved plan or interim pre- approved defined contribution plan or executed a Form 8905 on or before January 31, 2015. The employer should have already adopted timely interim amendments up through the date it becomes a pre-approved adopter.

  17. Notice 2016-3 extended the deadline for individually designed plans have until April 30, 2017 to adopt a pre-approved defined contribution plan. The plan must not have been a pre-approved plan prior to January 1, 2016 to be eligible for the extension.

Revenue Procedure 2016-37

  1. Effective January 1, 2017, Rev. Proc. 2016-37 modifies the IRS determination letter program to eliminate the 5-year remedial amendment cycle as provided by Rev. Proc. 2007-44.

    1. Effective January 1, 2017 plan sponsors of individually designed plan sponsors will not be required to adopt interim amendments.

    2. Cycle A sponsors will be the final employers permitted to be under the parameters of the 5-year remedial amendment cycle (i.e. amendments included in the 2015 Cumulative List) and can submit determination letter applications from February 1, 2016 through January 31, 2017.

  2. Rev. Proc. 2016-37 modifies the extension of the IRC 401(b) period for plan sponsors to amend plans for required guidance changes. Provisions that are effective on or after January 1, 2016 will have the following remedial amendment periods:

    1. The remedial amendment period for a disqualifying provision with respect to a provision of a new plan or the absence of a provision from such plan is extended to the later of:

      1. The 15th day of the 10th calendar month after the end of the plan's initial plan year, or

      2. The modified IRC 401(b) expiration date.

    2. The modified IRC 401(b) expiration date for a plan that is maintained by an employer that is not tax exempt is the last day of the remedial amendment period determined under 26 CFR 1.401(b)-1(d)(2), applied as though the employer has an extension to file its income tax return (or partnership return of income).

    3. The modified IRC 401(b) expiration date for a plan maintained by a tax exempt employer is generally the due date for the Form 990 series return, determined as if the extension applies or, if no Form 990 series filing is required, the 15th day of the 10th month after the end of the employer’s tax year (treating the calendar year as the tax year if the employer has no tax year).

    4. In the case of a discretionary amendment to a governmental plan within the meaning of IRC 414(d), the plan amendment deadline is the later of:

      1. The end of the plan year in which the plan amendment is operationally put into effect, or

      2. 90 days after the close of the second regular legislative session of the legislative body with the authority to amend the plan that begins on or after the date the plan amendment is operationally put into effect.

    5. For any disqualifying provision, which as of January 1, 2017 the RAP had not expired (other than disqualifying amendments included on the 2016 Required Amendments List), the RAP is extended to December 31, 2017.

    6. Amendments to existing plans that include disqualifying provisions or are a result of a change in qualification requirements will be required to adopt amendments by the end of the second calendar year after a disqualifying amendment is adopted and effective or included on the "Required Amendment List" .

      Note:

      The plan is required to operate in accordance with the amendment from when the amendment was first adopted and effective or included on the "Required Amendment List" .

  3. The IRS will publish a "Required Amendments List" that applies to changes in qualification requirements that become effective on or after January 1, 2016, and plan sponsors will have until the end of the second calendar year following the year the list is issued to adopt the required changes.

    Note:

    The "Required Amendments List" will be published on irs.gov.

  4. The IRS will also annually publish an "Operational Compliance List" to inform plan sponsors of the required guidance plan that must operationally be followed based on the effective date of the statutory or regulatory provision.

    Note:

    The "Operational Compliance List" will be published on irs.gov.

  5. Example: The 2017 "Required Amendments List" items will need to be adopted by the end of the 2019 calendar year. However, the plan would have to operate in accordance with the provisions included in the 2017 "Required Amendment List" during 2017. The 2017 "Operational Compliance List" would dictate the operational provisions effective in 2017.

  6. The RAP for discretionary amendments is unchanged. These amendments must be adopted by the end of the plan year in which the amendment first became effective.

Scope of the Examination

  1. The focused examination method is the standard approach for examinations.

    1. This method requires you to review the Form 5500 return and all supporting information to determine the scope of the exam and which specific issues you will examine.

    2. Under focused examinations, EP Classification will normally identify three issues that the agent must address in the examination. Based on the pre-audit review, you will normally determine if any additional issues need to be addressed. You may address up to two additional issues without managerial approval but must seek your manager’s approval if the total issues exceed five (Classification’s three issues plus any issues you have identified).

    3. If you expand beyond the three pre-selected issues, you must document the reason for selecting the additional issues.

    4. If you determine that a pre-determined issue does not apply or is not appropriate to the return, include your analysis that supports that conclusion in the file.

    5. You are not considered to have "opened" another issue if when verifying one of the focused issues requires you to examine certain aspects of a related issue and you include the related issue as a component of the original focused issue.

    6. If you determine that the related issue does not comply with the Internal Revenue Code (e.g., the issue causes a qualification issue), then you are considered to have "opened" a new issue. For example, if EPCRS is used to resolve an additional issue beyond that of an issue specified by Classification or an examination of a related issue associated with the pre-assigned issue, your have "opened" a new issue.

  2. Examples of the focused examination method are shown below. In all scenarios, assume you are assigned a 401(k) plan focused examination with the classified issues of ADP/ACP compliance, participation and coverage.

    1. Scenario A: An HCE’s compensation used in the ADP and ACP tests exceeded the IRC 401(a)(17) limit. You recalculated the ADP and ACP tests using the 401(a)(17) compensation limits. You determined that the tests actually passed when the HCE’s compensation was properly limited. You closed the case with an 08 AIMS and 206 RCCMS disposal code. Compensation is not considered a separate examination issue because it is a related component of the ADP/ACP tests.

    2. Scenario B: Testing reveals an HCE’s compensation was not limited to IRC 401(a)(17). You determine that the ADP and ACP tests failed when IRC 401(a)(17) compensation was used. IRC 401(a)(17) will be considered a separate examination issue, because the case will be closed using Employee Plans Compliance Resolution System (EPCRS). If the case is closed under an Audit CAP, the IRC 401(a)(17) issue will be specifically mentioned in the closing agreement. If it is closed using self-correction, the error must be cited in the closing letter.

    3. Scenario C: You determine that employer contributions were not allocated to participants and were also improperly excluded from the ACP test. Regardless of whether or not the plan passes the ACP test, the plan must correct allocations and include the employer contributions in the test. The contribution requirement will be considered a separate examination issue because it will be closed using EPCRS. The contribution requirement failures will be discussed in the closing agreement.

      Note:

      If the additional issues identified in Scenarios B and C result in more than 5 examination issues, obtain your group manager’s approval to expand the audit scope.

  3. Conduct full scope examinations only on training cases, certain designated special project cases or with your group manager's written approval.

  4. Your group manager will determine the scope of an examination for a related return picked up after the initiation of the initial exam.

    Note:

    When you determine that the scope of the examination needs to be expanded to other years or other returns, obtain your group manager’s approval to expand the examination.

  5. Obtain your manager’s approval to survey a case. See IRM 4.71.7, Survey Returns.

  6. Group managers will establish a process to allow agents to expand the scope of focused examinations and will require written approval if you select more than two additional issues.

  7. The scope and depth of the examination will depend on a number of factors:

    1. Issues identified

    2. Adequacy of the books and records

    3. Existence of effective internal controls

    4. Size of the entity

    5. Results of initial testing and/or sampling

  8. Examine and provide a proper conclusion for each identified issue.

    1. When deciding the extent to which you will pursue an issue, consider the amount of time necessary to develop the issue in light of all the facts and circumstances.

    2. Extend the examination to include any large, unusual or questionable items. Obtain your group manager's written approval if you expand the audit to more than five issues.

    3. Indicate in the workpapers the scope and depth of each issue and the reason for termination or extension of its review.

    4. Pursue any issues you find that impact the qualified status of the plan until the plan sponsor corrects the issue using either EPCRS or a Delegation Order 8-3 closing agreement; or, if the plan sponsor will not correct the issue, you close the case "unagreed" to Mandatory Review. See IRM 7.2.2, Employee Plans Compliance Resolution System (EPCRS) and IRM 4.71.3, Unagreed Form 5500 Examination Procedures and EP Exam Closing Agreements.

    5. In the end, the plan's qualification and the trust's exempt status (and tax liability where appropriate) will be determined.

  9. The scope of the examination may depend on the adequacy of the taxpayer’s records.

    1. Continue the examination to a point where it is reasonably certain that the plan sponsor and plan have satisfied the information return requirements and qualification requirements.

    2. If the records are inadequate, consider issuing an inadequate record notice under IRM 4.71.1.18, Failure to Maintain Proper Records.

  10. Take into account all necessary action to protect the government’s interest when the statutory period for assessment of any additional or potential tax is about to expire. This responsibility extends not only to the liability of the entity, but also to the liabilities of the related taxpayers, whether or not these returns are currently under exam. In these instances you are responsible for protecting the statute of limitations for:

    1. Forms 1041 and 990-T for the trust for the plan under examination.

    2. Forms 5330 for excise tax involving the plan under examination.

    3. Forms 1040 of highly compensated employees who are participants in the plan when there are taxable events involving the plan under examination unless these returns are currently under examination by W&I, SB/SE or LB&I.

    4. Forms 1120 filed by the plan sponsor when there are income tax adjustments related to the plan under examination, unless these returns are currently under examination by SB/SE or LB&I.

    Note:

    See IRM 4.71.9, Statute Control Procedures and IRM 25.6, Statute of Limitations, for procedures on statute control.

Pre-audit Analysis

  1. Perform a pre-audit analysis for both focused examinations and full scope examinations.

  2. Record the pre-audit steps taken and the conclusions reached during the pre-audit analysis in your workpapers.

  3. Verify the case grade prior to contacting the plan sponsor using EP Examination Case Grading Criteria per IRM 7.11.2, EP Case Assignment Guide.

  4. Use Form 5464 (CCR) for all examinations to document all actions taken and all persons contacted.

  5. Analyze the Form 5500 before you send the appointment letter and consider the focused issues and the items on the Examination Program Guide section of Form 5772-A.

  6. Obtain information about the taxpayer through ACCURINT, Department of State sites or Internet web sites (some businesses have their own business websites).

  7. Coordinate all EP examinations with any examination of the related income tax returns.

    1. Research IDRS. You can request a transcript of the taxable return using Form 6882, Form 5644, or through other established group procedures. A BMFOLT (for Form 1120) or IMFOLT (for Form 1040) transcript of the taxable entity will indicate whether the taxable return is under examination in W&I, SB/SE or LB&I. TC 420 indicates that the return is under examination and TC 421 indicates that the examination has been completed. Secure an AMDIS print to determine the current status and group number.

      Note:

      Contact EP Classification for the telephone number of the W&I, SB/SE or LB&I group that has the income tax return. EP Classification can be contacted through their group mailbox at: tege.ep.classification@irs.gov.

    2. If a related income tax return is under examination, coordinate your EP examination with W&I, SB/SE or LB&I Operating Divisions.

    3. If no related income tax return is under examination, proceed with the EP exam.

  8. Use IDRS research to obtain additional information about the employer (including satisfying the filing requirements of related returns such as Form 940 and Form 941). IDRS research should also be conducted to verify if the employer maintained other plans, and to view line items for a particular tax period for a specific return. Some of the more useful IDRS command codes are listed below. See IRM 4.71.2, Overview of IDRS, for more information.

    1. INOLES gives the most current name, address and filing requirements for the entity. It may also indicate the EINs of subsidiaries.

    2. INOLEX produces cross referenced EINs that may lead to related entities.

    3. INOLEP provides a list of all plans maintained by the employer.

    4. INOLET provides both BMF and EPMF information of a particular EIN.

    5. EMFOLI also provides a list of plans maintained by the employer along with the years for which a transcript can be requested.

    6. EMFOLD shows the plan administrator information from Form 5500.

    7. EMFOLL shows information about the plan sponsor such as business code and telephone number. It also includes information on the plan’s determination letter, the plan effective date and termination date.

    8. EMFOLT is a transcript of the Form 5500 filing for a particular tax period. The TC 150 posting date shows when the return was filed and you can use it to determine the statute date. A TC 154 posting indicates that a Form 5330 was filed for that period. The TC 154 posting will also show the IRC section and amount of the tax assessed on the Form 5330.

    9. ERTVU shows the Form 5500 line items for a particular plan and tax period. You can review the Form 5500 series returns for the prior and/or subsequent year or for other plans maintained by the employer.

    10. PMFOLS shows the number of Form W-2 filed by the taxpayer and related entities for each year.

    11. IRPTR gives details of Form W-2 (wages and salary deferrals), Form 1099-R (distributions) and Form 5498 (FMV and rollover contributions of IRA) information reports issued to a recipient.

    12. BMFOLI will list the business returns filed by the taxpayer (e.g., Forms 940, 941, 1120 and 5330), the years for which you can request a transcript and the years for which you can view the return through IDRS using command code BRTVU.

    13. BMFOLT (for Forms 5330, 990-T, 1120 and 1065) or IMFOLT (for Form 1040) shows the date that the employer’s taxable return was filed and whether any extensions of time to file were granted. It also reflects assessments of tax, penalties and interest.

    14. BRTVU (for Forms 990-T, 5330, 1120 and 1065) or RTVUE (for Form 1040) shows line items on a specific return including the pension deduction claimed for a specific tax period.

    15. AMDISA using a "P" after the EIN lists all Forms 5500 under examination. If you do not use a file source code after the EIN, it will list other returns (e.g., Forms 5330 and 1120) under examination.

    Note:

    Case files received on RCCMS from EP Classification will typically contain the following IDRS prints: INOLES, INOLES with a P after the EIN, AMDISA, AMDISA with a P after the EIN, BMFOLI, BMFOLT, EMFOLI, EMFOLL and EMFOLT.

  9. As part of the pre-audit analysis:

    1. Request from the taxpayer a copy of the plan document and amendments in effect for the year(s) under examination.

      Note:

      Verify that the plan is qualified in form for all years under examination. Therefore, review the plan document and all amendments in effect for the year(s) under exam. See IRM 4.71.1.4.1, Examinations of Individually Designed Plans under Post-EGTRRA Provisions.

    2. If the taxpayer has adopted a pre-approved plan (e.g., volume submitter plan), request the plan adoption agreement (if any), the basic plan document and the opinion letter or advisory letter for the pre-approved plan. See IRM 4.71.1.4.2, Examinations of Adopters of Master and Prototype (M&P) and Volume Submitter (VS) Plans under Post-EGTRRA Provisions.

    3. Review the return to determine if all required line items and attachments have been properly completed.

    4. Determine that information on the return is consistent with the EPMF data. If not, prepare appropriate input documents when you complete the exam. See IRM 4.71.1.20, Correcting Form 5500 Returns on the Master File.

    5. Review the return for items that would cause you to add other issues beyond the focused issues.

    6. Review the financial information on the return for any unusual items.

    7. Review income items on the return for indications of UBI. See IRM 4.71.10.2, Unrelated Business Income, for help in determining if UBI exists.

    8. Verify the statute of limitations date by securing an EMFOLT print or EP Classification Sheet and reconcile the date with an AMDISA print. Any errors should be corrected. A comment should be made in the workpapers stating that the statute date was confirmed. See IRM 4.71.9, Statute Control Procedures.

    9. Review any prior examination reports, workpapers, technical advice or technical assistance memoranda and correspondence regarding the entity.

    10. Check EDS for information on the status of pending determination letter requests or determination letter caveats. If you discover that the plan has a pending determination letter request, coordinate with Determinations. Do not close the examination without first ensuring that the determination request will receive favorable treatment. However, the group manager may approve closing the examination without waiting by indicating such approval on Form 5464. The determination file may be requested and worked concurrently with the examination, only with group manager approval.

    11. Secure IDRS prints to verify that related returns were filed in accordance with the package audit requirements discussed in IRM 4.71.1.14.

Contacting the Taxpayer

  1. Your initial contact with the taxpayer must be in writing using a 1346 series letter.

  2. Prepare the applicable 1346 series letter.

    1. Letter 1346, Form 5500 Field Examination Initial Appointment Letter, is used to initiate all general program Form 5500 field examinations.

    2. Other 1346 series letters are available for use for NRU and EPTA examinations.

      Note:

      See 4.71.17, Non-Return Unit Examination Procedures, and 4.71.16, Employee Plans Team Audit (EPTA) Program.

      Note:

      See IRM 4.71.11, Office/Correspondence Examinations (OCEP), for the initial contact letter for OCEPs.

  3. Address the letter to the taxpayer at the last known address. Unless another reliable source is available, secure an INOLES print to determine the taxpayer's last known address.

  4. Date the 1346 series letter with the date that it is mailed to the taxpayer.

  5. As a best practice, mail your initial Information Document Request (IDR) with the applicable 1346 series letter.

    1. Prepare the IDR after your pre-audit analysis.

    2. Limit your IDR solely to soliciting information specific to the items identified as having issue potential.

    3. In a focused examination, include an IDR for the pre-selected exam issues and any additional issues determined to have exam potential (limited to five total issues unless you obtain your manager’s approval).

      Note:

      Use IDRs available in the RCCMS Letters Folder to request items needed for the examination.

    4. Group the information being requested by issue and number or letter the items requested.

      Note:

      The goal is to make it easy for the taxpayer to respond to the request for information and to make it easier for both the examiner and the taxpayer to monitor the outstanding items

    5. Consider whether it is best to prepare a separate IDR for each issue.

      Note:

      Separate IDRs are recommended if taxpayer will have different departments or individuals handling different issues.

  6. Send the applicable 1346 series letter, the IDR and Pub 1 to the taxpayer (and POA, if applicable).

    Note:

    Pub 1-EP, Understanding the Employee Plans Examination Process, Pub 4324, Employee Plans Examination Flowchart, Pub 4325, EP Examination Bookmark are no longer to be sent to the taxpayer or POA with the initial appointment letter.

  7. After you mail the letter, call the taxpayer to discuss the availability of books and records, the scope of the audit, the items requested on the IDR, and to schedule the audit appointment.

  8. The agent’s phone call should be:

    1. No earlier than fourteen calendar days or ten business days (whichever is longer) after the 1346 series letter is mailed, and

    2. No later than fifteen business days after the letter is mailed.

    Note:

    The taxpayer must be given ample time to receive the letter before the agent calls to schedule the audit appointment.

  9. Schedule the initial examination appointment at a time and date convenient to the taxpayer, generally within 45 days of the first contact.

  10. Solicit and review the plan document, including applicable amendments, prior to the field audit.

    1. You should request the plan document in the initial IDR attached to the appointment letter or during the follow-up call to the taxpayer after the appointment letter is mailed.

    2. If the plan sponsor does not provide the plan document in advance, in spite of your best efforts to secure it, do not postpone the initial appointment date.

  11. Once an appointment is agreed to, the examination should be conducted on the confirmed appointment date, unless there are extenuating circumstances.

  12. It is suggested that you call the taxpayer (or POA if there is one) two to three business days prior to the appointment (i.e., the date the information requested on the IDR is due).

    Note:

    This will ensure that the taxpayer is prepared for the appointment (i.e., understands what is requested and will have the information available at the appointment).

  13. Agents are not authorized to assure taxpayers that their books and records will be used solely for civil purposes.

    1. If a taxpayer insists on an assurance or provides a statement that their books and records are only being made available for limited purposes, determine the taxpayer’s reasons for refusing to furnish the records without restriction.

    2. Document the taxpayer's response in the case chronology record.

    3. If a taxpayer or authorized representative asks if fraud is being considered, the IRS has a duty to respond if not answering the inquiry would be intentionally misleading.

    4. Your response must include a statement that fraud is considered in every case and we must fully develop every issue to ensure that any proposed tax and penalty adjustments are justified.

    5. Your response must also include a statement that we share information between civil and criminal authorities when indications of fraud are identified.

      Note:

      If you deceive or mislead a taxpayer, the criminal fraud case may be jeopardized. See IRM 4.71.25, EP Exam Fraud Procedures.

  14. If there is, in view of all known factors including the taxpayer’s refusal to furnish records, an indication that fraud may exist, consider whether to refer the case to Cl.

    1. Discuss the fraud indicators and a possible fraud referral with your group manager.

    2. Do not propose any type of civil settlement prior to discussing the issue(s) with your manager. A civil proposal jeopardizes criminal prosecution.

    3. If your manager concurs, contact the EP Fraud Coordinator in EP Special Review.

    4. See IRM 4.71.25, EP Exam Fraud Procedures, for procedural guidance.

Place of Examination

  1. Unless facts and circumstances dictate otherwise, conduct the examination at the plan sponsor’s place of business as provided in 26 CFR 301.7605-1(d).

  2. Reasons for holding the examination at the plan sponsor’s place of business include:

    1. It helps ensure your time is used efficiently by having access to source documents where they are stored.

    2. It is an opportunity for you to familiarize yourselves with the business operations by inspecting the premises.

    3. It enables you to better evaluate the internal controls in the operation of the plan.

  3. If holding the examination at the plan sponsor’s place of business is not a viable option, (e.g., if your presence would disrupt the business operations), request an opportunity to conduct a walk-through of the business premises and have an opportunity to direct questions to the plan sponsor or an employee, if the POA does not have the knowledge to provide an adequate answer. You could schedule your visit prior to the start time of the business (e.g., before office hours at a doctor’s office).

Employee Contact - RRA Section 3705

  1. Employees working tax related inquiries must give taxpayers information to identify the appropriate employee who can address any further questions (RRA section 3705). Therefore, all IRS employees will provide the following contact information:

    1. During a telephone or personal contact - name and identification number.

    2. On all correspondence - telephone number where the taxpayer’s questions can be answered.

  2. Consequently, you must include your name, telephone number and unique identifying number on all correspondence generated through an EP examination or compliance check.

Concluding the Initial Audit Appointment and Additional Requests for Information

  1. If possible, conduct an interview with the taxpayer or taxpayer's representative at the conclusion of the initial audit appointment to discuss unresolved issues and additional documents you need.

    1. You may discover that the necessary documents to resolve an issue are readily available, avoiding unnecessary delays.

    2. Furthermore, the taxpayer or its representative may be able to offer other ways to resolve the issue that may not be initially apparent to you.

  2. If the documents or records are not available during the initial office visit, issue a follow-up Form 4564 (IDR).

    Note:

    Form 4564 is generally prepared to request additional information after the initial appointment letter.

  3. If you do not have a printer at the audit site, you may use a handwritten IDR and:

    1. Discuss the document request with the taxpayer or its representative so that penmanship issues do not impede the examination process.

    2. Provide the taxpayer or POA with a photocopy of the IDR, so all parties have the same document.

    3. Print and send the taxpayer and the POA copies of the IDR when you return to the office and place a copy in the file.

  4. For all subsequent IDRs:

    1. Clearly state the agreed on response date.

    2. List the specific records, information and documents that the taxpayer should have available on the response date.

    3. Be specific and avoid requesting more information than is necessary to resolve the identified issues.

    4. Include an adequate description of the requested data.

    5. Include an adequate description of why the information is being requested (the facts and circumstances will dictate how much you need to describe each item).

    6. State the time period of the necessary records (e.g., if the agent is examining the 2014 plan year, but only needs records for July through August of 2014, then you should state on the IDR the specific periods you need).

    7. State how and where the information will be delivered. If the taxpayer or representative will provide the information at either the audit site or the POA’s office during a subsequent appointment, then state that the information is to be available at the next appointment date.

    8. Determine the date that you plan to review the IDR response for completeness, and note the acknowledgement date on the IDR

  5. Discuss the response date of the IDR with the taxpayer and agree on a date.

    Note:

    Select a response date that is reasonable to enable you to promptly complete the examination within the shortest possible cycle time.

    1. Ideally, the response dates should be within 10 business days.

    2. However, if your response date extends beyond the longest acceptable time period between significant activities (see the National Time Frame Standards in IRM 4.71.1.7.5, Time Frames for Conducting an Examination), document your CCR to explain why the extended time is necessary.

  6. When you mail the IDR to the taxpayer, send a copy to the POA (if applicable) with cover Letter 937, Transmittal Letter For Power of Attorney.

  7. As a best practice, call the taxpayer (or POA if there is one) two to three business days prior to the IDR response due date.

    Note:

    This will ensure that the taxpayer understands what is being requested and will serve as a reminder to the taxpayer of the deadline for a response to the IDR. If after discussing the IDR with the taxpayer or POA, you believe that further clarification of an item is needed, modify the request and re-send it to the taxpayer.

  8. When the taxpayer responds to the IDR, make it a priority to review the response by the agreed upon date noted on the IDR.

  9. If the response is complete, as a best practice call the taxpayer to advise the taxpayer that the response was complete and notate this action in the case chronology record (CCR).

  10. If the taxpayer did not respond or if the response was not complete, determine within 5 business days if an extension will be granted.

    Note:

    Two extensions may be granted.

  11. Discuss missing or incomplete items with the taxpayer to determine if an extension is warranted. If the extension is warranted, you may give the taxpayer up to 15 business days to provide the missing or incomplete items.

  12. When an extension is granted, send the taxpayer (or POA) Letter 5798, TE/GE Information Document Request Extension Notice, reflecting the new response date and attach an IDR listing the missing items.

  13. If the taxpayer does not respond by the response date, or if the response is still incomplete, you may grant a second extension for up to 15 business days with approval from your manager.

  14. If your manager approves a second extension, send the taxpayer (or POA) a second Letter 5798, reflecting the new response date and attach an IDR listing the missing items.

  15. Make it a priority to review the response provided by the taxpayer within 10 business days. If for some reason the review will be delayed, notate the delay in the CCR.

  16. When you review information received from the taxpayer, contact the taxpayer (or POA) to update them on the status of the case.

  17. If the information is not received after the second extension, begin the Enforcement Process discussed in IRM 4.71.1.7.4, Enforcement Process: Delinquency Notice, Pre-Summons Letter and Summons.

Enforcement Process: Delinquency Notice, Pre-Summons Letter and Summons

  1. If the taxpayer (or POA) fail to provide requested items within the allotted time-frames:

    1. Notify your group manager of the need to issue the appropriate Delinquency Notice.

      Note:

      The appropriate Delinquency Notice for items that can’t be summonsed is Letter 5077-B, TE/GE IDR Delinquency Notice. The appropriate Delinquency Notice for items that can be summonsed is Letter 5077-D, TE/GE Information Document Request Delinquency Notice - Pre-Summons.

    2. Prepare the Delinquency Notice

    3. Call the taxpayer to discuss an appropriate due date

    4. Mail the Delinquency Notice with the revised due date noted.

      Note:

      Managerial approval must be obtained if more than 10 business days is needed for the taxpayer to respond.

      Note:

      The Delinquency Notice is signed by agent.

  2. Review the response within 10 business days if the taxpayer responds to the delinquency notice.

  3. If the response is complete, notify the taxpayer that it is complete and notate the CCR. The IDR enforcement process is ended.

  4. If the taxpayer does not respond or if the response is not complete, discuss the issue with your group manager and Area Counsel to determine if:

    1. A summons will be issued to obtain the records

    2. We have enough information to propose revocation

    3. We have enough information to propose a tax adjustment

  5. After receiving approval from your manager (and advice from Counsel), advise the taxpayer of the next action (e.g., proposal of tax adjustment, summons or proposal of revocation).

  6. If the decision is made to issue a summons, prepare and issue Letter 5077-A, TE/GE Information Document Request Pre-Summons

    1. Letter 5077-A should be issued within 10 business days of the taxpayer’s response date for Letter 5077-B or Letter 5077-D. See IRM 4.71.1.7.4 (1).

    2. The examiner will attempt to notify the taxpayer and determine a response date.

      Note:

      Group manager approval is needed to grant more than 10 business days.

    3. Letter 5077-A must be signed by the group manager.

  7. If the taxpayer responds, review the response within 10 business days.

  8. If the response is complete, the employee will notify the taxpayer and notate the CCR. The IDR enforcement process is ended.

  9. If the taxpayer does not respond or the response is not complete,

    1. Discuss the issue within 10 business days with the Internal IRS Team.

      Note:

      The Internal IRS Team is made up of the agent, the group manager, the Area Manager and Area Counsel.

    2. Coordinate the issuance of the summons with Area Counsel

    3. Follow the summons procedures in IRM 25.5, Summons.

Time Frames for Conducting an Examination

  1. Taking timely actions on a case is an essential element of managing the examination cycle time and is key to taxpayer satisfaction. National mandated time frames dictate when you should initiate, follow-up on or complete certain actions.

  2. It is important that you notate your CCR to explain case processing delays that exceed the national standard time frames.

    1. Generally, there are reasonable explanations for delays such as details to training, illness and management-directed higher priority work.

    2. Regardless of the reason, note and clearly explain your delays.

  3. If you don’t meet a time frame because you must complete other assignments, explain the reason for the delay on the CCR.

    1. It is not acceptable to just state "higher priority work" . If you are directed by your manager to complete "higher priority work" , you must document your CCR with the specific reason for the delay; for example, working a short statute case.

    2. This "higher priority work" exception may justify a delay of up to seven calendar days.

  4. It is important for EP to track trends to properly respond to stakeholders such as Congress or taxpayer advocacy groups. Employee Plans’ TEQMS measures case quality using the recommended national standard of time measurement.

    1. These standards are considered maximum allowable time frames and TEQMS ratings may be adversely affected when you do not document the reasons for a delay or extended periods of inactivity.

    2. All time frames are measured by calendar days, except for the time frame to respond to telephone calls, which is measured by business days.

  5. Any other IRM requirements or managerial directed requirements for expedited processing will take precedence over the standard time frames indicated below.

  6. The national standard time frames are:

    1. Forty five days to start a field examination measured from the first contact to the initial appointment.

    2. Thirty days to start an OCEP examination measured from the date you mail the initial OCEP examination letter to the date you first review the records.

    3. Forty five days between significant activities (field exam).

    4. Thirty days between significant activities (OCEP exam).

    5. Ten days to close agreed or no-change examinations measured from the date you resolve all issues or you make a no change determination.

    6. Twenty days to close unagreed examinations measured from the date of your final closing conference, or if the plan sponsor declined a closing conference from the date it was declined.

    7. Ten days for the group manager to initial, date and close the case file after receiving the case from the agent.

    8. Three business days to respond to telephone calls.

    9. Fourteen days to respond to correspondence.

  7. If your manager directs you to do "higher priority work," you may be granted an addition seven days. Document your CCR with the specific reason for the delay. It’s not acceptable to just state "higher priority work."

Returned Mail

  1. If the Post Office returns the initial contact letter as undeliverable, obtain the taxpayer’s current address:

    1. Check all possible sources on the EP/EO Determination System (EDS).

    2. Research ACCURINT or the internet for names and addresses of officers, directors, trustees or plan officials, as well as of the taxpayer.

    3. Request the current address by submitting Form 6882, using IDRS Command Code INOLES. The information provided will be from the latest return module that posted to the Master File and will include entity and address data. Instructions to complete Form 6882 are on the back of the form.

    4. Contact the postmaster of the most recent address obtained under steps a through c. Do not take Step d unless you have first completed steps a through c. The postmaster requires the following certification statement. Stamp or type at the bottom of the request: "Change of address is required for official use. We have searched other known sources of information for the address."

      Note:

      Use Form 4759 to secure information from the Post Office.

    5. Use other sources such as the web site for the state responsible for business incorporations, (For example, the Vermont Secretary of State or the Utah Division of corporations).

  2. Use Form 5464 to document the steps you have taken to locate the taxpayer. If you find the taxpayer’s correct address, re-mail the correspondence.

RCCMS and AIMS Updates

  1. Update RCCMS and AIMS to status 12 when time is first applied to the case, and continue to update the status of the case anytime there is a status change.

    Note:

    See Document 6476, Employee Plans Computer System Codes, for a list of status codes.

  2. Update RCCMS and AIMS whenever the statute of limitations is updated.

  3. Secure and include an AIMS print in the RCCMS Office Documents folder for all AIMS updates.

Power of Attorney (Form 2848) and Tax Information Authorization (Form 8821)

  1. Form 2848, Power of Attorney and Declaration of Representative, is used to authorize an attorney, certified public accountant, enrolled agent, enrolled actuary, enrolled retirement plan agent or other qualified person to represent a taxpayer before the IRS. See IRM 1.25.1, Rules Governing Practice Before the Service. See IRM 4.71.1 Exhibit 4, Form 2848 Instructions, at IRM 4.71 - Employee Plans Examination Exhibits.

  2. Only one taxpayer can be listed on a Form 2848. If both the plan and trust are authorizing the same representative, obtain separate Forms 2848.

    1. Two or more taxpayers (as evidenced by separate Taxpayer Identification Numbers) may not be included on the same Form 2848. For a joint return, each spouse (or former spouse) must submit a separate Form 2848 when the taxpayer desires representation.

    2. If a Form 5500 is being examined, the initial Form 2848 would normally only cover the Form 5500 returns for the years(s) under examination.

    3. Soliciting information from the plan sponsor for information reported on a Form 5500 or related Schedule (e.g., Schedule H or Schedule I) does not, in itself, place the trust under exam and does not mean you must obtain two Forms 2848 (one for the plan and one for the trust).

    4. You must get a separate Form 2848 for the trust when you and your manager decide to place the trust under examination (e.g., Form 990-T is picked up for exam), or when you are requesting a statute extension for the trust and the representative is signing Form 872-H.

      Note:

      The term "under examination" in this context generally means that you have reached a point in your examination of the plan where you are looking at the trust records with the intent of possibly assessing tax on the trust (e.g., Form 1041 or 990-T). It doesn’t include the request for general trust information and the initial Letter 1346 sent to the plan sponsor as required by current standards.

  3. If the officers or authorized officials of the company or business entity sponsoring the plan want an employee of the company to represent the taxpayer during the exam, obtain Form 2848 for that employee.

    1. If the corporation or entity wants a specific employee (irrespective of title) to advocate, negotiate, or dispute issues with the IRS on behalf of the corporation (or business entity), obtain a Form 2848 from the corporation (or entity) authorizing that representation.

    2. The Form 2848 must be signed by a duly elected officer or director of the corporation (or other official with entity binding authority as determined by state law) as identified in the corporate articles or by-laws (typically, the same officer who signs the corporation's tax returns and consents to extend the time for assessment of tax).

    3. The designation in Part II of Form 2848 will be "e" , Full-Time Employee—a full-time employee of the taxpayer.

    4. Request the Form 2848 from the appropriate corporate official (or other authorized individual) when the employee is about to or has begun to represent the plan.

    Note:

    Representation under Circular 230 means, advocate, negotiate, or dispute issue. Form 2848 is not required if the role of the designated individual is limited to providing or receiving information or to offer general explanations.

  4. Any person allowed to perform "limited practice" per section 10.7(c)(1) of Circular 230 must be designated on a Form 2848.

  5. A valid Form 2848 must contain the following information in the Taxpayer Information section::

    1. If a Form 5500 is being examined, the plan sponsor’s name, address and EIN, and the three digit plan number must be listed. See IRM 4.71.1 Exhibit 5, Form 2848 for Plan Sponsor Example, at IRM 4.71 - Employee Plans Examination Exhibits.

      Note:

      The name of the plan may also be listed on line 3 with the plan number.

    2. If a trust is being examined, the name, title and address of the trustee, and the name and EIN of the trust (if the trust has an EIN) must be listed. See IRM 4.71.1 Exhibit 6, Form 2848 for the Trust Example, at IRM 4.71 - Employee Plans Examination Exhibits.

    3. If Form 5330 for an individual is being examined, the name, address and Social Security Number (SSN) of the individual must be listed. See IRM 4.71.1 Exhibit 7, Form 2848 for Excise Tax Individual Example, at IRM 4.71 - Employee Plans Examination Exhibits

    4. If Form 5330 for a corporation, partnership or association is being examined, the name, address and EIN of the entity owing the excise tax must be listed. See IRM 4.71.1 Exhibit 8, Form 2848 for Excise Tax Corporation Example, at IRM 4.71 - Employee Plans Examination Exhibits

      Note:

      The same Form 2848 could also be used to cover Form 1120 if "income" is added on "Description of Matters" line and "1120" is added on the "Tax Form Number" line.

    5. If the Form 2848 relates to a Form 1040 discrepancy adjustment, the name, address and SSN of the individual must be listed. See IRM 4.71.1 Exhibit 9, Form 2848 for Income Individual Primary SSN Example, at IRM 4.71 - Employee Plans Examination Exhibits and see IRM 4.71.1 Exhibit 10, Form 2848 for Income Individual Secondary SSN Example, at IRM 4.71 - Employee Plans Examination Exhibits.

      Note:

      For a joint return, each spouse (or former spouse) must submit a separate Form 2848, even if using the same representative.

    6. If the examination involves a Non-Return Unit (NRU), the name, address and EIN of the entity being examined must be listed.

  6. A valid Form 2848 must also contain the following information:

    1. In the Representative(s) section – the designated representative’s (POA) name, address, phone number and Centralized Authorization File (CAF) number.

      Note:

      Only the individual or individuals named on the Form 2848 can represent the taxpayer. Permission is not automatically extended to other personnel of the firm employing the representative(s). In order to provide a substitution, without the submission of a new Form 2848, the requirements of 26 CFR 601.505(b)(2) must be followed.

    2. In the Matters section - the type of tax (income, UBI, excise, employment, etc.) and the tax form number(s).

      Note:

      "Description of Matter" for Form 5500 should include the plan number and the description of the matter.

      Note:

      Only the type of tax that can be paid by that taxpayer can be entered.

      Note:

      "Description of Matter" for SEPs, SARSEPs and SIMPLEs should be "SEP IRA" , "SARSEP IRA" or "SIMPLE IRA" as applicable.

    3. For SEPs, SARSEPs and SIMPLEs, the "Tax Form Number" should be "Not Applicable" .

      Note:

      If you are doing a discrepancy adjustments on a related Form 1040, a separate Form 2848 would need to be secured.

    4. In the Matters section - the year(s) or period(s) covered must be listed.

      Note:

      Years covered must be specifically listed. It is not acceptable to list "all years."

      Note:

      If the examination is expanded into years not covered by the current Form 2848, secure another Form 2848 listing all years covered by the examination if that representative will represent the taxpayer for those years.

    5. In order to be valid, the Taxpayer listed in box 1 must sign and date the Form 2848.

    6. For Form 5500, the title of the individual (e.g., president) signing for the plan sponsor must be included next to the signature line.

    7. For Form 990-T or Form 1041, the trustee must sign and date the Form 2848 as the taxpayer and his/her title (trustee) must be included next to the signature line. Secure Form 56, Notice Concerning Fiduciary Relationship, with the trustee's signature.

    8. The representative(s) must sign and date the declaration (Part II) and enter his/her proper designation(s) (a through r) under which he or she is authorized to practice before the IRS.

    9. Pay special attention to Item 5a and 5b of Form 2848 to see if the taxpayer makes any restrictions or additions to acts automatically authorized by the Form 2848.

  7. In Part II, Declaration of Representative of Form 2848, the representative(s) must list the following information in the Designation column:

    1. Attorney—the two letter abbreviation for the state in which admitted to practice.

    2. Certified Public Accountant—the two letter abbreviation for the state in which licensed to practice.

    3. Enrolled Agent—the enrollment card number issued by the Office of Professional Responsibility.

    4. Officer—the title of the officer (e.g., President, Vice President or Secretary).

    5. Full-Time Employee—the title or position (e.g., Comptroller or Accountant).

    6. Family Member—the relationship to taxpayer (must be a spouse, parent, child, brother, sister, grandparent, grandchild, step-parent, step-child, step-brother or step-sister).

    7. Enrolled Actuary—the enrollment card number issued by the Joint Board for the Enrollment of Actuaries.

    8. Unenrolled Return Preparer—the two letter abbreviation for the state in which the return was prepared and the year(s) or period(s) of the return(s) they prepared.

    9. Registered Tax Return Preparer—registered as a tax return preparer under the requirements of section 10.4 of Circular 230. Their Preparer Tax Identification Number (PTIN) number must be included.

    10. Student Attorney or CPA (designation "k" on Form 2848) —receives permission to practice before the IRS by virtue of his/her status as a law, business or accounting student working in a Low Income Taxpayer Clinic (LITC) or a Student Tax Clinic Program (STCP) under section 10.7(d) of Circular 230.

    11. Enrolled Retirement Plan Agent (designation "r" on Form 2848) — The enrollment card number issued by the "Office of Professional Responsibility" must be entered.

      Note:

      This is an individual who is enrolled as a retirement plan agent under the requirements of Circular 230 (their authority to practice before the IRS is limited by section 10.3(e)).

  8. If a representative, who is appointed by the taxpayer, is not qualified to sign Part II of Form 2848, return the form to the taxpayer. You should not treat an invalid Form 2848 as authority for the individual to receive tax information.

  9. In a situation where the taxpayer appoints an individual as a representative during an examination and the person appointed is not qualified to sign Form 2848, advise the taxpayer to complete Form 8821. The Form 8821 will authorize the individual to receive or inspect tax return information, but will not authorize the individual or organization to represent the taxpayer before the IRS.

  10. An unenrolled return preparer (URP) may only represent the taxpayer for the return that he/she prepared and signed.

    1. For that reason a URP may not represent a taxpayer for a Form 5500 examination for years in which the Form 5500 doesn’t provide either a line for the return preparer to sign or an area for information identifying the return preparer.

    2. A URP may still represent a taxpayer for other types of tax returns (e.g., Forms 1040, 1120, 990-T or 1041) that he or she prepared and can sign or provide the necessary information, but Section 5 of Rev. Proc. 81-38 does limit this authority.

      Note:

      See also Pub 947 and Circular 230.

    3. Beginning with the 2012 plan year, the Form 5500 will again provide an area in which the URP can enter the necessary information. For that reason, beginning with the 2012 plan year, an URP can begin to represent a plan sponsor during an EP examination subject to the above mentioned limitations for plan years 2012 and later.

      Note:

      The URP should be verified on all subsequent year pick-ups.

  11. A URP may not represent a taxpayer before Appeals or Collection, execute closing agreements, extend the statute of limitations, execute waivers, execute claims for refund, receive refund checks or sign any documents for a taxpayer. Additionally, unless they check the appropriate box(es) below on Line 5, the representative(s) is (are) not authorized to execute a request for disclosure of tax returns or return information to a third party, substitute another representative or add additional representatives or sign certain tax returns.

  12. Unless the Form 2848 or Form 8821 applies to an NRU, forward a copy of Form 2848 or Form 8821 you secure during an examination to the appropriate Service Center as soon as possible.

    1. See Form 2848 instructions page 1 for the list of locations of where to fax or mail Form 2848.

    2. Mark the top of the file copy of Form 2848 (or Form 8821) with the date you sent the form and to which Service Center you sent it.

    3. Note in the case chronology record that you forwarded the form (Form 2848 or Form 8821) to the Service Center.

      Note:

      If a specific form number is not listed under "Tax Form Number" , the Service Center will not process the Form 2848 (or Form 8821). Therefore, do not forward the Form 2848 (or Form 8821) secured for an NRU to the Service Center. Form 2848 (or Form 8821) secured for Form 1040 related to an NRU will be processed under normal procedures.

  13. The filing of a Form 2848 automatically revokes all previously submitted Forms 2848 for the same tax matters and years or periods covered unless the box in item 6 of the Form 2848 is checked.

  14. If the taxpayer wants to retain previously designated representatives, he/she must check the box in Item 6 and attach copies of the applicable Forms 2848 for those representatives to the new Form 2848 being submitted.

  15. If the taxpayer wants the representative to receive correspondence from the IRS, he/she must check the box in Part I, Item 2 (below the representative's name and address). Only two representatives will receive correspondence.

  16. If the taxpayer chooses to revoke an existing power of attorney and not name a new representative, he/she must send a copy of the previously executed power of attorney to the IRS along with a cover letter. He/she must:

    1. Write "REVOKE" across the top of Form 2848.

    2. Include in the cover letter: a written statement that the authority of the power of attorney is revoked and list the name and address of each recognized representative whose authority is being revoked along with the applicable return(s), tax matter(s) and year(s) (or if the taxpayer is completely revoking a representative he/she may state: "remove all years/periods" ).

    3. Sign and date the cover letter.

  17. If a representative wants to withdraw from representation, he/she must send a copy of the previously executed power of attorney to the IRS along with a cover letter. He/she must:

    1. Write "WITHDRAW" across the top of Form 2848.

    2. Include in the cover letter: a written statement that he/she is withdrawing from representing the taxpayer and the taxpayer’s name, TIN and address with the applicable return(s), tax matter(s) and year(s) (or the representative may indicate that they are withdrawing from "all years/periods" ).

    3. Sign and date the cover letter.

  18. The taxpayer/representative must send the statement of revocation/withdrawal to the EP group responsible for the case.

  19. The EP agent or manager will forward the revocation/withdrawal request to the applicable Service Center. See IRM 4.71.1.9 (12).

  20. Maintain copies of all secured Forms 2848 in the paper case file or scan and save them in the RCCMS Office Documents folder when you close the case.

  21. "Pen and ink" changes to Form 2848 are not acceptable. If you discover imperfections on the Form 2848, then request that the taxpayer submit a new form.

  22. You should conduct research on the POA listed on the Form 2848 to make sure that disciplinary action has not been taken against him/her. You may do a "Search for Disciplined Tax Professionals" on the Office of Professional Responsibility website. SB/SE also has links to most licensing boards: SB/SE - Verifying the Status of a Practitioner.

  23. For other helpful information on Power of Attorney, see the IRS web site at: Power of Attorney Guidance. See also the Form 2848 instructions.

Overview of Power of Attorney By-Pass Procedures

  1. IRC 7521(c) states that an agent, with the approval of the group manager, "may notify the taxpayer directly that such officer or employee believes such representative is responsible for unreasonable delay or hindrance of an IRS examination or investigation of the taxpayer."

  2. The procedures to by-pass the power of attorney (POA) permit the agent to contact the taxpayer directly and to request any information necessary to complete the examination. See IRM 4.11.55.3, Examining Officers Guide, Power of Attorney Rights & Responsibilities, By-Pass of a Representative.

  3. Under the "By-Pass Procedures" the POA continues to represent the taxpayer, and you are required to send all correspondence issued to the taxpayer to the representative. The taxpayer may at his/her discretion forward the requested information/documentation to you through the representative.

By-Pass Procedures
  1. If any of the following issues occur, document the case chronology accordingly:

    1. The representative impedes or delays an examination by failing to submit the taxpayer’s records or information requested by the IRS.

    2. The representative impedes or delays an examination by failing to keep scheduled appointments.

    3. The representative impedes or delays an examination by failing to return telephone calls and written correspondence.

  2. If you note a trend and the examination is being hindered because of the representative, notify your group manager will be notified of the representative’s actions. The manager will ensure that all reasonable efforts have been taken to deal directly with the representative and that the case file sufficiently details the facts that support how the examination has been delayed or hindered.

  3. If you have not done so already, send all correspondence that you sent to the representative to the taxpayer. This includes all IDR’s.

    Note:

    In many cases, the taxpayer may not be aware that the representative is procrastinating and may correct the situation once he/she is made aware of the problem.

  4. The group manager will send Letter 4020-A, Warning Letter for By-Pass Procedures for Preparers Covered under Circular 230, to advise the representative of his/her responsibilities under Circular 230 and conveying advance notice of a possible "by-pass" because the representative is violating Circular 230.

    1. Attach copies of prior document requests, a list of outstanding items and a brief chronology of events to the letter.

    2. Send a copy of the Letter 4020-A to the taxpayer.

  5. If the representative continues to delay or refuses to provide the information requested, obtain the Area Manager's written approval to "by-pass" the representative.

  6. The "by-pass" permits the IRS to contact the taxpayer directly. The practitioner can continue to represent the taxpayer, if accompanied by the taxpayer. The representative will be afforded the courtesy of being advised of the time and place for future appointments with the taxpayer.

  7. Use a summons to secure information if both the taxpayer and the representative are both intentionally uncooperative.

Third Party Contacts

  1. The provisions of IRC 6103 and the regulations thereunder apply to all third party contacts. See IRM 25.27.1, Third Party Contacts – Third Party Contact Program.

  2. IRC 6103(k)(6) provides that IRS employees may disclose return information to the extent that such disclosure is necessary in obtaining information, which is not otherwise reasonably available, with respect to the correct determination of tax, liability for tax, or the amount to be collected.

  3. IRC 7602(c) stipulates that IRS personnel may not contact third parties with respect to the determination or collection of the tax liability without providing reasonable notice in advance to the taxpayer that contact with persons other than the taxpayer may be made. IRC 7602(c) also requires IRS personnel to maintain a record of such contacts and provide taxpayers with this record upon request.

  4. Generally, third party contacts are made whenever the IRS is unable to obtain or to verify the accuracy of the information received from the taxpayer/representative. However, employees should make every effort to first obtain information from the taxpayer/representative.

  5. IRC 7602(c) requires the IRS to:

    1. Provide advance notice to the taxpayer that third party contacts may be made.

    2. Periodically provide a list of all third party contacts to the taxpayer.

    3. Send a list of third party contacts to the taxpayer upon request.

      Note:

      Any tax period under investigation by Criminal Investigation (CI) is not subject to the requirements of IRC 7602(c). Third party contacts to develop a referral to CI are contacts under IRC 7602(c). See IRM 4.71.1.10.4, Exceptions to IRC Section 7602(c) Requirements. for other exceptions to the notification requirements.

  6. The term "taxpayer" means the person or entity for whom a return is filed or for an NRU, the entity responsible for the arrangement.

    1. With regard to Form 5500 examinations, the "taxpayer" is the plan sponsor responsible for all records covered by an EP examination except for the assets held on behalf of the participants.

    2. In some Form 5500 examinations, the "taxpayer" is the trustee when assets held on behalf of the plan participants becomes the concern.

    3. For an NRU, the "taxpayer" is typically the plan sponsor.

Third Party Contact Defined

  1. For purposes of IRC 7602(c), except for the situations in IRM 4.71.1.10.1 (2) below, a third-party contact has been made when an IRS employee initiates contact with a person other than the taxpayer and asks questions about a specific taxpayer with respect to that taxpayer’s federal tax liability, including the issuance of a levy or summons to someone other than the taxpayer.

  2. The following are not third party contacts:

    1. Searches made on computer databases that do not require any personal involvement on the other end (for example, searches on LexisNexis ACCURINT)

    2. Contacts made with any office of any local, state, federal, or foreign government entity

      Note:

      Referrals to the Employee Benefits Security Administration (EBSA) on Form 6212-B, referrals to Pension Benefit Guarantee Corporation (PBGC) on Form 6533, or referrals/contacts to any other governmental entity are not considered third party contacts under IRC 7602 (c).

    3. Unsolicited information received from a third party where the third party initiated the contact

    4. Information that the IRS receives from, or provides to the government of a foreign country or U.S. possession pursuant to information exchange programs under treaties or agreements with such governments or as authorized by domestic or foreign statutes, including programs concerning specific, routine, spontaneous and simultaneous exchanges of information

    5. Contacts made by the IRS to respond to a request from a government of a foreign country or U.S. possession concerning a foreign or possession tax liability

    6. Contacts made with third parties to collect taxes for another country as part of a Mutual Collection Assistance Agreement

    7. Exchanges of information via tape programs (for example, the State Income Tax Levy Program and the Federal Payment Levy Program)

    8. Contacts with individuals who have a valid power of attorney for the taxpayer

    9. Contacts made to obtain information regarding an industry or market segment where specific taxpayers have not been identified

    10. Contacts made by IRS employees during litigation if the contact relates to a matter and issue being litigated, including, but not limited to, service of Tax Court subpoenas on third parties by employees

    11. Contacts made with other IRS employees in the scope of an employee's official duties, including employees of the Office of Chief Counsel

    12. Contacts made as the result of unsolicited requests for a payoff of a Notice of Federal Tax Lien or to respond to requests for information regarding the priority of a lien (for example, contact with a lending institution)

    13. When the taxpayer under examination is a business, contacts made with employees who are acting within the scope of their employment

  3. The following are generally third party contacts:

    1. Solicitation by an IRS employee for additional information as a result of a follow-up to a third party-initiated call

    2. Contacts made with employees of the taxpayer who are questioned outside the scope of their normal employment when the taxpayer under examination is a business

  4. Returning an unsolicited call is not considered a third party contact; however a call made after the return call to gather additional information is considered a third party contact. Therefore, it is important to remember to make a reprisal determination during an initial conversation with an informant. See IRM 4.71.1.10.4.3, Reprisal, for specific requirements regarding reprisal determinations.

  5. When employees contact taxpayers who are represented by an authorized power of attorney (POA), be aware that in any situation involving any written contact (including a fax) between the IRS and a taxpayer, the taxpayer must receive the original copy of the correspondence and the authorized representative must be sent a copy of such correspondence, unless otherwise indicated on the Form 2848.

Notification Requirements

  1. It is the practice of the IRS to obtain information relating to a liability or collectability determination directly from the taxpayer whenever possible. Situations will arise when the IRS must contact third parties to complete an investigation.

  2. Advance notification of potential third party contact is incorporated into Pub 1.

  3. Use Letter 3164, Third Party Notice, to provide notification and include the:

    1. Date

    2. Taxpayer’s name, address and TIN

    3. Person to contact, telephone number and ID number

  4. The agent will issue the notice to the taxpayer when it is determined that there is a reasonable likelihood that a third party contact will be made.

  5. Issue a new Letter 3164 if the examination is expected to cover a new tax period and information is solicited for that period.

  6. The following versions of Letter 3164 are available for use:

    1. Letter 3164 E (DO) is used for general exams.

    2. Letter 3164 F (DO) is used when a third party contact will be made to verify taxpayer information involving examination issues, e.g., large case (CEP).

    3. Letter 3164 G (DO) is used when a third party contact will be made to obtain taxpayer information involving examination issues, e.g., large case (CEP).

    4. Letter 3164 K (DO) is used when a third party contact will be made in a ruling or determination matter (including compliance statements, closing agreements, etc.).

Notification Procedures
  1. When you determine that a third party contact is necessary, review the case file to determine if the taxpayer has received the required notification. Another employee or function may have issued the required notice. Look for a copy of Letter 3164 in the case file.

  2. If the taxpayer has not received prior notification and a third party contact is necessary, the agent should prepare and provide Letter 3164 to the taxpayer in accordance with the following instructions:

    1. Prepare the appropriate Letter 3164. On a jointly filed return, issue a separate Letter 3164 to each spouse.

    2. Include the taxpayer’s name, address and TIN, as well as your telephone number and ID number.

    3. Hand carry or mail the letter to the taxpayer’s current address.

    4. Document the case file with the date of the letter and the method of delivery.

    5. Retain a copy of the letter in the case file.

    6. Provide a copy of the letter to the POA.

  3. If Letter 3164 was mailed, do not make any third party contact until 10 days from the date the letter was mailed, unless you verify that either the taxpayer or POA (if applicable) has received Letter 3164. Once you verify that the taxpayer has received the letter you can make third party contact immediately. If you can verify that the taxpayer or the POA has received the Letter 3164, then you do not have to wait 10 days.

  4. If Letter 3164 was hand delivered, you can contact the third party immediately, as long as the taxpayer was given the opportunity to provide the information before you contact third parties.

Providing Taxpayers with Notice

  1. Per IRC 7602(c)(2), the IRS is required to provide a taxpayer with a list of third party contacts when requested.

Recording and Reporting Third Party Contacts
  1. When you make a third party contact, complete Form 12175.

    1. The employee who makes a third party contact is responsible for complying with these procedures regardless of which function has control of the case. See IRM 4.71.1.10.4.3, Reprisal, for specific requirements regarding reprisal determinations.

    2. If you have multiple contacts with the same third party on different dates, you must complete a separate Form 12175 for each contact.

    3. If the same employee makes more than one contact with the same third party on the same day, only complete one Form 12175.

  2. Include this information on Form 12175:

    1. Taxpayer Identification Number (TIN)

    2. Name Control

    3. Telephone number, mail stop number and ID number of the employee making the contact.

    4. Indicate on Line 5 if the recorded contact is for the primary TIN, secondary TIN (spouse on a joint account) or both (joint accounts only)

    5. Date of contact.

    6. Check the Reprisal Determination box if fear of reprisal is a concern. See IRM 4.71.1.10.4.3, Reprisal.

    7. Name of the third party contacted, if known. If the name of the third party is not known, please refer to the instructions to Form 12175 for the type of information to enter. DO NOT include the address or telephone number of the third party.

    8. Plan number or application form number and control date for certain EP accounts.

    9. Master File Tax (MFT) code and tax period relating to the primary TIN.

  3. When Form 12175 is completed:

    1. Send it to the Third Party Contact Coordinator in EP Special Review as soon as possible after you complete it.

    2. Place a copy with the case file.

    3. Document the CCR to show your actions.

Third Party Contact Coordinator’s Duties
  1. The Third Party Contact Coordinator’s duties include:

    1. Ensuring that the contact is added to the Third Party Contact database

    2. Maintaining Forms 12175

    3. Providing a contact list when requested by the taxpayer

Providing Taxpayers the Contact List Upon Request
  1. A taxpayer may request a record of contacts in any manner that the Commissioner permits ( 26 CFR 301.7602-2(e)(1)).

    1. A taxpayer can request a list of third party contacts at any time.

    2. The request can be oral or written.

  2. If you receive a request for a list of third party contacts either in person or by telephone:

    1. Obtain the taxpayer's name, address, and TIN (taxpayer identification number).

    2. Advise the taxpayer that he or she should receive the third party contacts list by mail within ten days.

    3. Immediately forward the taxpayer's name, address, and TIN to the Third Party Contact Coordinator.

  3. If you receive the request by mail, immediately forward the taxpayer's request to the Third Party Contact Coordinator.

  4. Taxpayers must submit a separate request for each list of contacts. Do not accept a blanket request for a list of future contacts.

    Note:

    The Commissioner may set reasonable limits on how frequently taxpayer requests need to be honored.

  5. The Third Party Contact Coordinator will research the request, prepare and mail Letter 3173, Third Party Contacts.

  6. Letter 3173 will list all third party contacts made since the taxpayer received the latest periodic report of third party contacts.

  7. Letter 3173 can be hand delivered or mailed to the taxpayer. If mailed, the letter should be sent to the address provided by the taxpayer or the Master File address (address on INOLES).

Exceptions to IRC Section 7602(c) Requirements

  1. The IRS is not required to give the taxpayer advance general notice or include a particular third party contact on the list of third party contacts provided to the taxpayer in these four situations (IRC 7602(c)(3)):

    1. Taxpayer authorizes the third party contact

    2. Jeopardy

    3. Reprisal

    4. Pending criminal investigation

Taxpayer Authorized Third Party Contacts
  1. When a taxpayer authorizes a third party contact,

    1. Prepare Form 12180, Third Party Contact Authorization Form. List each third party the taxpayer authorizes the IRS to contact. More than one contact can be listed on a form.

      Note:

      A blanket authorization covering all third party contacts is not acceptable.

    2. Secure the taxpayer’s signature and date on Form 12180 (for joint returns, both spouses must authorize the contact).

    3. Document the case history with the date the taxpayer provided the authorization.

    4. Keep Form 12180 (or other written authorization) in the case file.

    5. Continue documenting routine case actions, but you do not need to update Form 12175 and/or the database with the third party contact information.

  2. Taxpayer authorization can be expressed orally or in writing. Document the case file to reflect the date and method the taxpayer used to authorize the contact. If oral authorization is given, you do not need to complete Form 12180, but it would be the best practice. A complete Form 12180, signed by the taxpayer, would avoid any subsequent disputes as to whether the taxpayer authorized a specific contact.

    Note:

    IRC 7602(c) does not require an IRS employee to obtain authorization from the taxpayer in order to contact a third party. A taxpayer may not prevent an IRS employee from contacting a third party by refusing to provide authorization. Obtaining authorization only means that the employee is not required to provide the advance general notice to the taxpayer (if not already provided) or make a record of the contact that was authorized.

Jeopardy
  1. The employee making the contact may determine that providing the taxpayer with the advance general notice or including the name of the third party contact on the list provided to the taxpayer would jeopardize the collection of any tax liability.

  2. If a jeopardy situation exists:

    1. Document the case file with specific information about the third party contact.

    2. Document the case file with the circumstances surrounding the jeopardy determination.

    3. Complete Form 12175, but do not forward it to the Third Party Contact Coordinator.

  3. When the jeopardy situation no longer exists, forward Form 12175 to the Third Party Contact Coordinator.

  4. Jeopardy may apply to any type of tax.

Reprisal
  1. If you determine that providing the advance notice or a record of a specific contact to a taxpayer may result in reprisal ( i.e., an act of retaliation or revenge) against any person, prepare a separate Form 12175 to report the reprisal situation. Include only the following information:

    1. TIN

    2. Taxpayer’s name control

    3. Employee ID number, telephone number and mail stop

    4. Date of contact

    5. Place a check in the "REPRISAL" box.

  2. Send the Form 12175 to the Third Party Contact Coordinator to input in the database. The information will be retained in the database, but will not be included in the list of third parties contacted (Letter 3173) that is provided to the taxpayer.

    Caution:

    DO NOT INCLUDE THIRD PARTY INFORMATION ON THE FORM 12175.

  3. The employee making the contact must complete a reprisal determination for all third party contacts. The reprisal determination is made on a case by case basis with no blanket determinations for different types of contact.

  4. A reprisal determination may be based on any information available to the employee.

  5. Document the case chronology record with the facts surrounding the reprisal determination.

Reprisal Determination
  1. In some situations you can make a determination based on the case history that a person could be subject to reprisal if the taxpayer received the advance notice or notice of a particular third party contact. In these situations, sending the advance notice or notice of a particular contact is not required if doing so may result in reprisal against any person.

Reprisal Notification Procedures
  1. If the reprisal determination cannot be made based upon the facts already known, advise the third party that by law the IRS is required to provide his/her name to the taxpayer as a third party contact and ask if there is a fear of reprisal.

  2. Make sure the third party understands that his or her name will be provided to the taxpayer on a list of third parties contacted, but do not make the reprisal inquiry in a way that would influence the third party. The following suggested language may be used as part of direct third party contact: "By law I am required to include your name on a list of parties we have contacted. This list will be sent to (taxpayer's name). If you believe that including your name on the list may result in reprisal against any person, we can exclude you from the list. Do you have any reason to believe that reprisal against any person may occur?"

  3. If the third party indicates no reprisal concerns, complete and forward Form 12175 to the Third Party Contact Coordinator.

  4. If the third party does indicate fear of reprisal:

    1. Document the case file and

    2. Prepare Form 12175 as outlined above.

  5. Any concern raised by the third party with respect to reprisal will be taken at face value.

  6. If you send a letter to an individual third party, include the first part of the suggested language above and add the following: "If you have any reason to believe that reprisal against any person may occur, you should call me at the telephone number listed above by (insert a date that is ten calendar days from the day the letter is mailed)."

    Note:

    Consider including the reprisal script on a case by case basis when a form letter is mailed to a business entity.

  7. Complete Form 12175 manually and hold for ten calendar days. If no fear of reprisal is communicated, then forward the Form 12175 to the Third Party Contact Coordinator.

  8. If the third party does claim fear of reprisal:

    1. Document the case file.

    2. Replace Form 12175 with a new form to reflect the reprisal determination.

    3. Forward the new form to the Third Party Contact Coordinator.

  9. If the third party initially indicates no fear of reprisal and later advises there is fear of reprisal:

    1. Immediately contact the Third Party Contact Coordinator and advise him or her of the situation.

    2. Prepare a new Form 12175, as outlined above, and submit it to the coordinator.

    3. Place a copy of the new Form 12175 at the top of the inside right of the case file. Do not remove the previously completed Form 12175 from the case file.

    4. Attach the copy of the previously completed Form 12175 to the copy of the new Form 12175.

  10. Do not provide information to any persons that may result in the taxpayer learning the identity of a third party who has indicated a fear of reprisal. This information may be provided to IRS employees acting within the scope of their duties, including employees of the Office of Chief Counsel.

Disclosure Rules - Obtaining Taxpayer Information from Internet Sites

  1. This is a list of the applicable law for disclosure and internet research:

    1. IRC 6103(a)(1) provides that return or return information will be confidential.

    2. IRC 6103(b)(2) provides, in part, that return information means a taxpayer's identity, the nature, source or amount of income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax withheld, deficiencies, over assessments or tax payments, whether the return was, is being or will be examined or subject to other investigation.

    3. IRC 6103(b)(6) defines taxpayer identity information as: the name of a person who files the return, his/her mailing address, his/her taxpayer identifying number (as described in section 6109) or a combination thereof.

    4. IRC 6103(k)(6) provides that investigative disclosures of return information may be made to the extent that such disclosure is necessary in obtaining information, which is not readily available to determine tax liability or the current amount of tax due. Such disclosures will be made only in such situations and under such conditions as the Secretary may prescribe by regulations.

    5. 26 CFR 301.6103(k)(6)-1(a)(1) provides that an employee of the IRS may disclose return information, of any taxpayer, to the extent necessary to obtain information relating to such official duties or to accomplish properly any activity connected with such official duties.

    6. 26 CFR 301.6103(k)(6)-1(a)(2) provides in part, that the disclosure of return information is authorized only if the IRS employee reasonably believes the information is not otherwise reasonably available or if the activity connected with the official duties cannot occur properly without the disclosure.

  2. In light of these provisions of the law, follow this guidance:

    1. When searching the internet in the performance of official duties in compliance with IRC 6103(k)(6) and 26 CFR 301.6103(k)(6)-1, the fact that an identifying "cookie" trail is left behind on the internet site does not result in an unauthorized disclosure.

    2. When performing an investigative disclosure under IRC 6103(k)(6), only disclose return information that is necessary to obtain information relating to such official duties or to accomplish properly any activity connected with such official duties. See 26 CFR 301.6103(k)(6)-1.

    3. Generally, disclosure of a taxpayer’s name and/or address in the pursuit of information posted on the internet for an official purpose will meet the necessity test. However, return information should not be disclosed if the information can be secured without a disclosure.

    4. The necessity to disclose return information beyond a taxpayer’s name and/or address in the pursuit of information posted on the internet for an official purpose should be considered on a case-by-case basis.

    5. Disclosing a social security number is particularly sensitive. Be careful and disclose only when necessary.

    6. Based on the narrow interpretations in court cases under IRC 6103(k)(6) and related regulations, we have been advised by Area Counsel and the Disclosure office that any disclosure of return information beyond the taxpayer name and address during an internet search should be carefully analyzed on a case-by-case basis. Be alert to the "Necessity Test" as provided by IRC 6103(k)(6) and 26 CFR 301.6103(k)(6)-1 and that any disclosure of return information should be weighed against this criteria.

    7. 26 CFR 301.7602-2(c)(2)(i)(B) clarifies that accessing information from a computer database or an internet web site does not represent a third party contact under IRC 7602.

Taxpayer Confidentiality Privilege

  1. IRC 7525 extends the attorney–client privilege in noncriminal cases to communications between taxpayers and other federally authorized tax practitioners with respect to tax advice. Before this provision, there was no equivalent confidentiality privilege for communications between taxpayers and other federally authorized tax practitioners.

  2. The statute applies to any noncriminal tax matter before the IRS or any noncriminal tax proceeding in a federal court. IRC 7525 does not apply to written communications between a federally authorized tax practitioner and certain representatives of an entity in connection with the promotion of direct or indirect participation in a tax shelter. This privilege is not automatic, but it must be asserted by the taxpayer. The privilege may be asserted orally or in writing.

  3. This provision is effective for privileged communications made on or after the date of enactment of RRA 3411. This means that certain communications (oral or written) between federally authorized tax practitioners and taxpayers made on or after July 22, 1998, may now be privileged communications within the meaning of the statute and may be withheld from the IRS.

Federally Authorized Practitioners

  1. Federally authorized practitioners are individuals authorized to practice under 31 U.S.C. 330. Generally, this means attorneys, CPAs, enrolled agents, enrolled actuaries and enrolled retirement plan agents as set forth in Circular 230.

  2. Refer questions as to whether the privilege applies to communications made to other individuals to Area Counsel.

Privileged Tax Advice

  1. The statute is not clear as to what does or does not constitute privileged tax advice.

  2. Information disclosed for the purpose of preparing a tax return would not be privileged.

  3. This provision was not intended to provide tax practitioners a greater privilege than currently exists between attorneys and their clients.

Asserting Privilege

  1. When a taxpayer or federally authorized tax practitioner declines to provide testimony or documents citing IRC 7525 confidentiality privileges as the reason:

    1. Request that the taxpayer or federally authorized practitioner provide a written statement regarding the reason why IRC 7525 confidentiality privilege is being asserted.

    2. Contact Area Counsel for guidance.

  2. A case will cease to be a noncriminal tax matter before the IRS only after it is referred to the Criminal Investigation for the assignment of the special agent. Once the matter becomes a criminal matter, the taxpayer may no longer assert the IRC 7525 privilege.

Initial Interview

  1. The initial interview is an important part of the examination process. Interviews provide information not available from other documents. A properly planned and executed interview will provide an understanding of the taxpayer’s financial history, business operations and accounting records.

  2. An in-depth interview is required for both focused and full scope examinations.

  3. Plan your in-depth interview in advance to address items specific to the taxpayer under examination. Consider the type of return, potential issues and relevant facts and circumstances in your planned interview.

  4. Unless facts and circumstances dictate otherwise, conduct the initial interview at the plan sponsor's place of business. 26 CFR 301.7605-1(d) states, in part, "A field examination will generally take place at the location where the taxpayer’s original books, records and source documents pertinent to the examination are maintained. In the case of a sole proprietorship or taxpayer entity, this will usually be the taxpayer’s principal place of business."

  5. Holding the initial interview at the plan sponsor's place of business enables you to better:

    1. Use your time by having access to source documents where they are stored.

    2. Familiarize yourself with the business operations by inspecting the premises.

    3. Evaluate the internal controls in the operation of the plan.

  6. If holding the initial interview at the plan sponsor's place of business is not a viable option (e.g., if the agent’s presence would disrupt the business operations), request an opportunity to conduct a walk-through of the business premises and to have an opportunity to ask the plan sponsor or an employee questions that the POA could not readily answer. You can schedule these visits prior to the start time of the business (e.g., before office hours at a doctor’s office).

  7. If you do not conduct the interview with the plan sponsor, interview the person having sufficient knowledge about the plan’s financial status and operations.

  8. During the initial interview, remind the taxpayer of their rights during the examination process. Direct the taxpayer to Pub 1.

    Note:

    Pub 1 can be obtained at www.irs.gov and is now required to be sent to the taxpayer with the initial appointment letter (i.e., Letter 1346).

  9. IRC 7521 contains procedures involving taxpayer interviews.

    1. IRC 7521(b)(2) requires an agent to suspend an interview if the taxpayer states that he/she wishes to consult with a representative or otherwise seek advice. You must strictly observe the taxpayer’s right of consultation throughout the examination process and suspend and reschedule interviews.

      Note:

      This provision does not apply to an interview initiated by administrative summons and will not be used to repeatedly delay or hinder the examination process.

    2. IRC 7521(c) states that an agent cannot require a taxpayer to accompany an authorized representative to an examination interview in the absence of an administrative summons. However, the taxpayer’s voluntary presence at the interview can be requested through the representative as a means to expedite the examination process. This does not affect your right to conduct an on-site inspection of the taxpayer’s facility.

  10. During the initial interview, include an explanation of the examination process and appeal rights. See IRM 4.71.1 Exhibit 11, The Employee Plans Examination Process, at IRM 4.71 - Employee Plans Examination Exhibits for an audit guide that may be used for this purpose.

  11. Document in your CCR that the examination process and appeal rights were explained to the taxpayer.

  12. Document in your workpapers who you interviewed and the extent of the issues discussed in sufficient depth to give a clear understanding of the taxpayer and the plan operations.

  13. If pertinent information is disclosed in the interview that you find necessary for the administrative record, put it in writing and mail it to the taxpayer and POA.

Verbatim Recordings

  1. Requests by taxpayers or their representative to tape or make stenographic or other verbatim recordings of examination proceedings will ordinarily be allowed, except where the taxpayer’s or representative’s behavior is clearly disruptive of the normal examination process or investigative proceeding. Requests to videotape or otherwise film examination proceedings will not be granted.

  2. In situations where a taxpayer or his/her representative requests to tape or make stenographic or other verbatim recordings of examination proceedings, you will generally concur subject to the following provisions:

    1. Secure your group manager's approval prior to the recording.

    2. The taxpayer and/or representative should furnish his/her own recording equipment.

    3. The agent or group manager may also record the proceeding.

    4. The recording should take place in a suitable location, ordinarily in an IRS offices.

  3. Immediately refer any request to make a tape, stenographic or other verbatim recording to the group manager for approval. If granted, the manager will arrange an appropriate time and suitable location in an IRS office where equipment is available to make the IRS's recording.

  4. If a taxpayer, legal representative or witness appears in an examination proceeding and requests to make a verbatim recording without the IRS’s prior knowledge of this intent, the agent, with approval of the group manager, may attempt to make arrangements for space and recording equipment in order for the proceedings to continue.

  5. At the outset of the recording, you must identify yourself, the date, time, place and purpose of the proceeding. Each participant in the proceeding also must identify himself/herself, his/her role in the proceeding and acknowledge and consent to the making of a verbatim recording. If an additional participant arrives or a participant leaves the proceeding, note these facts on the recording.

  6. Describe written records presented during the proceeding in sufficient detail to make the verbatim recording a meaningful record when matched with the other documentation contained in the case file.

  7. At the conclusion of the proceeding, state that the proceeding has been completed and the recording is ended.

  8. Immediately review the recording produced by the IRS for clarity and substance and, if needed, immediately prepare a complete written report of the conference.

Package Audit Requirements

  1. During the course of auditing the assigned return, determine whether the plan sponsor is filing or has filed other federal tax or information returns he/she is required to file. In the interest of conserving resources, increasing compliance and reducing multiple contacts with taxpayers, this responsibility also extends to various returns under the jurisdiction of LB&I, SB/SE or W&I (collectively referred to as Exam Functional Units). See Policy Statement P-4-4 in IRM 1.2.13.1.2, Policy Statements for the Examining Process.

  2. As discussed in IRM 4.71.1.6 (6), Pre-audit Analysis, during the pre-audit analysis phase of the examination, you should use internal sources of information such as the IDRS to verify the filing of prior and subsequent year Forms 5500 series returns, related returns and other returns the taxpayer is required to file. Using internal sources will decrease taxpayer burden to provide copies of returns at the time of the actual examination. You can use ERTVU to view the Form 5500 line items for a particular tax period to determine audit potential for prior and subsequent Forms 5500 series returns (IRM 4.71.1.14.1 (2)).

  3. For focused examinations, use these guidelines:

    1. In all instances, verify that the plan sponsor filed Forms 5500 for the prior and subsequent plan year being examined by reviewing an EMFOL print.

    2. In all instances, verify that the plan sponsor filed Forms 940, 941 and an income tax return (e.g., Form 1120) for the periods corresponding to the plan year under exam. For example, if the plan year ending 6/30/2013 is being examined, verify that the plan sponsor filed Forms 941 for the last two quarters of 2012 and the first two quarters of 2013 and Forms 940 for 2012 and 2013. Likewise, verify that the plan sponsor filed Form 1120 for the 6/30/2013 tax year (or the tax year in which the plan year ends) by reviewing a BMFOLI print.

    3. The filing of the other forms listed above should be verified if they relate directly to one of the issues being addressed in the examination. For example, the filing of Forms 1099-R should be verified if plan distributions are being addressed as an audit issue.

  4. For full scope examinations, in addition to the focused examination guidelines above, use these guidelines. Verify that the plan sponsor filed:

    1. All related Forms 5500 series, 5330, and 990-T, returns. A related return is defined as a Form 5500 filed by the plan sponsor or an affiliated employer (e.g., member of a controlled group or an affiliated service group) for another plan.

    2. Income and employment taxes reported on Form W-2 and Form 1099-MISC

    3. Plan distributions reported on Form 1099-R

    4. Plan sponsors filing of Form 990, Form 1040, Form 1065, Form 1120, etc.

  5. If the taxpayer has not filed a required return, attempt to obtain the delinquent return (unless fraud or willful failure to file is indicated). See IRM 4.71.1.21, Amended, Substitute and Secured Forms 5500, for amended, substitute and secured Form 5500 procedures.

  6. If the taxpayer refuses to file a required return and the return is under EP jurisdiction, discuss the issue with your manager and determine whether you should initiate an examination of that year.

  7. If a return has not been filed that is not under the jurisdiction of EP, make a referral on Form 5666 as specified in IRM 4.71.6.7, Making Referrals to Exam Functional Units.

  8. If you determine that an issue exists on a return that is not under the jurisdiction of EP, make a referral on Form 5666 as specified in IRM 4.71.6.7, Making Referrals to Exam Functional Units.

  9. If you determine that an issue exists on the related income tax return (e.g., Forms 1120 or 1040), refer to IRM 4.71.4, Discrepancy Adjustments, to determine whether you should initiate a discrepancy adjustment or a referral to the appropriate Exam Functional Unit.

  10. To satisfy the package audit requirements, document your workpapers to show your audit steps and conclusions reached.

Prior Year, Subsequent Year and Related Returns

  1. During the course of the examination, inspect both the prior and subsequent year Form 5500 series returns of the plan being examined for potential examination issues, such as recurring issues or transactions that may adversely affect the plan’s qualified status or the trust's exemption for the year assigned for examination or the plan sponsor’s tax liability.

  2. If the taxpayer is unable to provide retained copies of these returns:

    1. Request a transcript (use command code EMFOLT on IDRS) to determine if the returns were filed and

    2. Request a transcript (use command code ERTVU on IDRS) to view the Form 5500 line items for a particular tax period or obtain a Returns Inventory and Classification System (RICS) return from EP Classification or

    3. Obtain a copy of the return through Form 5500/5500-SF Filing Search sponsored by DOL at www.efast.dol.gov/portal/app/.

  3. Document in your workpapers that you inspected prior and subsequent year returns and comment as to whether you found any potential issues.

  4. Do not open prior and subsequent year(s) returns for examination unless there are compelling reasons to do so. If an examination is warranted, include the supporting reasons in the workpapers. An examination of prior or subsequent year returns may be warranted if you identify:

    1. A potential substantive compliance, or

    2. An issue of an assigned return that carries back or over to the prior and/or subsequent year.

  5. If a qualification issue exists (i.e., the revocation or disqualification of the plan's exempt status is being proposed) in the year under examination, you normally include all subsequent year returns, due and filed during the examination.

    Note:

    If the plan is being disqualified and subsequent year returns are not included in the examination, the group manager will prepare a written statement either in the case chronology, in the form of a memo or in an email to include in the workpapers, giving the reasons the subsequent years are not included.

  6. Obtain group manager approval to extend an examination into either the prior and/or subsequent years.

    1. Document the group manager’s approval to extend the examination to subsequent years in the workpapers or case chronology record.

    2. If you extend the examination to a prior year, document your group manager's concurrence either through a confirmation email (include in your workpapers) or by the manager's signature in the case chronology.

  7. If plan or trust records are solicited for a given plan year, that year is considered to be under examination and you must establish it on AIMS and RCCMS even if the Form 5500/1041 statute has expired.

    1. Establishment is required when the IRS has determined that an operational issue has occurred that retroactively disqualifies the plan and plan/trust records are solicited.

    2. The IRS's ability to pursue a qualification issue in any year is not impacted by the Form 1041 statute of limitations. The expiration of the statute of limitations for Form 1041 for any given year does not prevent the IRS from pursuing a qualification issue in that year (see Yarish Consulting, Inc. v. Commissioner, T.C. Memo. 2010-74).

    3. If the statute of limitations has already expired, update the statute to alpha code "PP" in accordance with IRM 4.71.9.3 (5).

  8. When the decision is made to examine prior or subsequent year return(s), conduct the examination concurrently with the assigned return.

  9. Ensure that the statute of limitations is properly protected for open years. See IRM 4.71.9, Statute Control Procedures.

  10. The taxpayer must be informed in writing of the decision to examine a prior or subsequent return.

    Note:

    Letter 1346-J may be used for this purpose.

  11. Likewise, you may find it expedient to examine a related Form 5500 of the plan sponsor.

    1. A related return is defined as a Form 5500 filed by the plan sponsor or an affiliated employer (e.g., member of a controlled group or affiliated service group) for another plan.

    2. Obtain your group manager’s approval and document the examination of the related return in the case chronology.

    3. If possible, conduct the examination concurrently with the initially assigned return.

    4. Inform the taxpayer in writing of your decision to examine the related return.

  12. Use these procedures when you decide to examine a related or subsequent year Form 5500 series return that has posted on EPMF:

    1. Research IDRS to verify that the Form 5500 series return has posted on the EPMF.

      Note:

      If the return has not posted on the EPMF, follow the appropriate procedures in IRM 4.71.1.21, Amended, Substitute and Secured Forms 5500.

    2. Prepare and forward the Related and Subsequent Year Form 5500 Request form to your manager for approval. See IRM 4.71.1 Exhibit 1 at IRM 4.71 - Employee Plans Examination Exhibits.

    3. It is important that you correctly complete all the information (e.g., special project code, condition code, group number, etc.) on the form or it will be returned to the group. Note in your request that the return has posted to the EPMF.

    4. The group manager or designee will email the approved form to EP Classification's group mailbox at tege.ep.classification@irs.gov, and to the agent.

    5. The agent will save a copy of the approved form (Related and Subsequent Year Form 5500 Request) in the RCCMS Office Documents folder using the RCCMS Naming Convention. See IRM 4.71.1 Exhibit 2 at IRM 4.71 - Employee Plans Examination Exhibits.

    6. EP Classification will acknowledge receipt of the request to establish the return (normally within 5 business days).

    7. EP Classification will mark the return on RICS, establish the return on AIMS and RCCMS and update these systems to the group.

      Note:

      Since EP Classification establishes the return, the group should not attempt to establish the return on AIMS or RCCMS.

    8. EP Classification will inform the agent and group manager (normally within 10 business days) that the record has been assigned to the group on AIMS and RCCMS.

      Note:

      AIMS will be in status 10 when there is a full AIMS account.

  13. Use these procedures when you decide to examine a related or subsequent year Form 5500 series return that has not posted on EPMF, but was filed by the taxpayer:

    1. Research IDRS to verify that the Form 5500 series return has not posted on the EPMF.

    2. Verify that the return is signed and dated. If not signed, have the taxpayer sign the return with the current date.

    3. Verify that the EIN, Plan # and Plan Name are correct.

    4. Verify that there is an entity record on EPMF for the EIN and plan number.

    5. Write: "Taxpayer previously filed but return not posted" in the bottom margin of the Form 5500 series return.

    6. If penalties are to be waived, complete Form 3177, Notice of Action for Entry on Master File, and send it to the EP Classification mailbox at tege.ep.classification@irs.gov. See IRM 4.71.1 Exhibit 3 at IRM 4.71 - Employee Plans Examination Exhibits for assistance in completing Form 3177.

      Note:

      Email Form 3177 to EP Classification two weeks before sending the delinquent Form 5500 series return for sufficient time for processing so that penalties will not be assessed when the Form 5500 series return is filed. EP Classification will notify the agent when the Form 3177 has been processed and the TC 971 (with action code 632) has posted so that the Form 5500 series return can be submitted for processing and the penalties will not be assessed.

    7. Forward the Form 5500 series return to EP Classification at the following address:
      IRS –TE/GE EP Classification
      9350 Flair Drive, 4th Floor
      El Monte, CA 91731

  14. If, during the examination of the assigned return, you obtain information that indicates potential substantive noncompliance in subsequent year returns that have not yet been filed (or have been filed but not yet been processed through the EFAST system), prepare Form 5666, TE/GE Referral Information Report, and forwarded it to EP Classification. See IRM 4.71.6.5Making Referrals Within EP.

Employment Taxes

  1. During the course of an EP examination, verify that the plan sponsor filed Forms 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return and Forms 941, Employer’s Quarterly Federal Tax Return, for the same period as that of the 5500 exam.

  2. This verification should be done during the pre-audit analysis phase of the examination through the use of IDRS command code BMFOL. See IRM 4.71.1.6 (8), Pre-audit Analysis.

  3. During an audit of a plan, be alert to possible employment tax issues involving the plan sponsor (i.e., the employer). For example, when determining whether the eligibility and coverage requirements of IRC 410 are met, you must verify that all eligible employees are being covered by the plan. Therefore, during the interview, ask if the employer uses contractors, subcontractors, commissioned employees or casual labor. Also, review the Forms 1099-MISC the employer filed to identify any potential eligibility or coverage issues related to misclassification of employment tax status for employees and independent contractors. See IRM 4.23.5, Technical Guidelines for Employment Tax Issues, for helpful information on determining whether an individual is an employee or independent contractor.

  4. If you determine that a possible classification issue exists, contact an Employment Tax Specialist through the Specialist Referral System. See IRM 4.71.6.11, Specialist Referral System (SRS).

Form W-4 Compliance

  1. Employers must comply with the Form W-4 requirements according to 26 CFR 31.3402(f)(2)-1(g). Employers are required to keep records of all remuneration paid to employees and authorized IRS personnel are allowed to inspect employee withholding certificates (Forms W-4) (IRC 6001 and 26 CFR 31.6001-5(a)).

  2. Be alert to possible withholding issues.

    1. During an audit of a plan, EP reviews Forms W-2 to verify certain items for plan qualification, such as compensation and deferrals. While reviewing the Forms W-2, you may discover a Form W-4 withholding issue, such as employees who have little or no income tax withholding.

    2. In certain instances, you may want to obtain RTVUE prints for questionable employees.

  3. If you determine that the taxpayer has questionable Forms W-4, make copies of the Forms W-4 for those employees who are still employed by the taxpayer and forward them to the W-4 Coordinator at the appropriate Service Center. The following information must be contained on each Form W-4:

    1. Employee name, address and SSN

    2. Employer name, address and EIN

    3. Marital status and number of allowances claimed by the employee

    4. Date of the W-4

    5. Items pertaining to exempt status (complete when applicable)

  4. Make sure the Forms W-4 that you send to the Service Center's W-4 Coordinator are legible and complete.

    1. Submit Forms W-4 to the Service Center’s W-4 Coordinator, where the taxpayer files Form 941, at the earliest date possible on Form 3210. See Form 941 instructions for the appropriate Service Centers.

    2. Provide the employer’s name, address, EIN and the number of forms attached in the body of the Form 3210. If the employer has not filed any Forms W-4 with the IRS and the Forms W-4 are questionable, notate the Form 3210 with a note indicating multiple questionable Forms W-4 are attached.

    3. Specify in the workpapers that you sent the Forms W-4 to the Service Center.

Information Returns

  1. IRC 6041 through IRC 6053 provide the reporting requirements for certain information returns that should be inspected.

    1. Generally, the regulations require the reporting of items such as payments made in the course of trade or business to another person, payments of dividends, payments of interest, payments of wages, cash receipts in excess of $10,000, etc.

    2. It is important that taxpayers timely file these returns as required.

    3. See the specific return and instructions to the applicable return for more information on filing requirements.

      Note:

      The package audit requirements for focused examinations can be limited as provided in IRM 4.71.1.14 (4).

  2. Examples of information returns that should be inspected include:

    • Other Forms 5500 filed by the employer

    • Forms 1099-R and Forms 1096, which are related to plan distributions

    • Forms W-2

    • Form 8300, involving plan assets

    • Form 945, related to distributions from the plan

    • Form 1042

  3. The adequacy of taxpayer’s records is a critical factor in determining the scope of the examination. Normally, continue the examination to a point where it is reasonably certain that the information return requirements have been fulfilled. Generally, a detailed examination (including any penalty consideration) is warranted if available information indicates that:

    1. Information returns were not filed,

    2. Income amounts were materially incorrect as reported or

    3. The time required to make the necessary verifications and/or to secure copies of the incorrect or delinquent information returns justifies improving voluntary compliance (payor or payees).

  4. If you discover that the entity has not filed returns or forms that are within the exam jurisdiction of EO, Governmental Entities (GE) or one of the Exam Functional Units (LB&I, SB/SE or W&I), prepare and forward Form 5666 to EP Classification in accordance with IRM 4.71.6, Employee Plans Referrals.

  5. There are three specific areas where you may identify an invalid SSN:

    1. The SSN cannot be attributed to any specific person (e.g., the SSN is not a valid SSN).

    2. The SSN belongs to someone who is deceased.

    3. The SSN belongs to a living person other than the person identified as a plan participant.

    Note:

    If you find participants using invalid SSNs, consult your manager, forward a Form 5666 to the Referral Specialist in EP Classification. Classification will then forward this information to one of the SB/SE Identity Theft Coordinators.

  6. To satisfy the examination's package audit requirements, document your workpapers with sufficient information to explain your audit steps and conclusions reached for filed returns.

Workpapers

  1. This section covers the importance of the agent's workpapers to develop an examination, including using the accountant’s workpapers.

  2. Prepare a separate set of workpapers for each plan examined and for each type of related return examined. For example, if both plan #001 and plan #002 are examined and Forms 5330 related to each plan are also examined, you must prepare four sets of workpapers:

    • Workpapers for Form(s) 5500 #001

    • Workpapers for Form(s) 5330 #001

    • Workpapers for Form(s) 5500 #002

    • Workpapers for Form(s) 5330 #002

EP Workpapers

  1. The agent’s workpapers are the connecting link between the return and the examination report. Workpapers should document the audit trail and include the following:

    1. A list or copies, as appropriate, of the source documents reviewed

    2. Evidence or information gathered

    3. Procedures and techniques applied

    4. Tests performed

    5. Oral testimony received

    6. Documentation of actions taken

    7. Conclusions

  2. Workpapers should be clear, concise, legible, organized, labeled, dated and indexed.

    1. Index the workpapers to correspond to the indexing on Form 5772-A (discussed below).

    2. List the name of the plan, the year(s) under audit, your initials and the date you prepared the workpaper in the workpaper heading.

    3. When you complete additional workpapers for explanations, analyses, schedules, etc., prepare and index them under the index letter and subheading assigned to the specific item of discussion. For example, the vesting issue is Workpaper Index C, so label any separate workpapers for vesting C-1, C-2, etc.

    4. Explain any large, unusual or questionable items appearing on the return which might raise doubt to the accuracy of the information reported. If you initially conclude that plan qualification or tax return adjustments are required and the taxpayer supplies further information that changes your conclusions, provide an explanation in the workpapers.

    5. When changes are necessary, record the details to substantiate the changes and the actions you took. Explain the circumstances when there was a change, but no corrective measures were taken.

    6. State the facts gathered and the conclusions.

    7. Explain the items checked on Form 5772-A and the extent you verified them, such as how you determined the sample size, what records you reviewed and what type of tests you performed. Simply stating that an item is "okay" is not sufficient.

  3. Save workpapers electronically within RCCMS using the RCCMS Naming Convention. See IRM 4.71.1 Exhibit 2 at IRM 4.71 - Employee Plans Examination Exhibits.

  4. Verify examination issues listed on the Return Classification Record. If the issue was selected in error, note this on your workpapers, based on the facts found during the audit. For example, if a focused issue was selected in error because the Form 5500 was incorrectly completed, note this in the workpapers.

  5. Document the audit trail in your workpapers to support conclusions.

  6. Verify the accuracy of your workpapers from only reliable sources and detail all material facts. Examples of exhibits which support workpapers include:

    • Photocopies of relevant documents secured from the taxpayer during the examination

    • A spreadsheet documenting the samples selected, verifications of data and conclusions

    • Relevant correspondence from the taxpayer and/or Power of Attorney

    • Lists of questions or issues raised during the examination and conclusions

  7. Workpapers are used to:

    1. Demonstrate the measures you took to plan the audit and include your analysis of internal documents and substantiation of the examination’s scope.

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

    3. Provide support for technical conclusions and preparation of the Revenue Agent Report (RAR).

  8. Workpapers also provide a basis for review, such as:

    • Managerial and technical review

    • Agent review in subsequent audits of the plan

    • Submitting cases to Appeals

    • Preparing technical advice requests

    • Possible use in a court of law

    • Potential reviews by the Taxpayer Advocate Service, Internal Audit or the Government Accounting Office.

  9. Workpapers demonstrate the quality of the audit. To insure that the issues were properly addressed and that the appropriate legal provisions were applied to support the examination's conclusions, workpapers should include references, where applicable, to:

    1. Relevant portions of the IRM

    2. Legal authority such as the Internal Revenue Code, Treasury Regulations, Revenue Rulings, Revenue Procedures or court decisions

  10. If the closing letter is not Letter 992, include a statement in the case file indicating whether or not there were any indicators of fraud.

    1. The statement may appear on any workpaper that documents noncompliance with the Internal Revenue Code or another workpaper that cites the issue(s) of noncompliance, references the applicable workpaper(s) and includes a statement regarding indicators of fraud.

    2. If indicators of fraud are present and fraud is not pursued, include a detailed explanation supporting non-pursuit on the applicable workpaper.

  11. During the Appeals process, conferences are usually held without the agent being present to explain and substantiate the findings. The workpapers are the proper place for recording and clarifying all that the agent knows about the issue(s).

Workpaper Summary Forms

  1. The index and the forms to summarize the audit procedures, issues and conclusions are listed below. They are part of the examination case file and are available within the RCCMS templates.

    • Form 5772-A

    • Form 5773-A, Employee Plans (EP) Workpaper Summary Continuation Sheet (optional)

  2. Forms 5772-A and 5773-A are intended to simplify and standardize the referencing of examination workpapers. These forms are designed as working tools to pre-plan an examination and during the examination. See below for instructions on completing these forms.

  3. Form 5772-A is completed for all EP examinations.

    1. It is used for pre-examination planning and as the first page (index) of the workpapers.

    2. Form 5772-A contains a list of procedural and technical reminders.

    3. Review the list as part of the planning process and check the appropriate boxes to indicate those items considered during the examination.

    4. On a full-scope audit, address all applicable items.

      Note:

      Remember that full-scope examinations are conducted only on certain special projects, training cases or with the group manager's written approval.

    5. If you are assigned a focused examination or an OCEP, notate the Form 5772-A only with the issues you are addressing.

    6. When multiple year examinations result in both change and no change years, enter the appropriate disposal code for each year examined.

  4. Form 5773-A (optional) is used for the following purposes:

    1. To summarize the findings of the examination, summarizing the agent’s review of issues, materials and records relevant to the examination issues listed on the Return Classification Record

    2. As an index to the workpapers

Accountant's Audit Workpapers

  1. Certain plans are required to have an independent qualified public accountant issue an opinion on the plan’s financial statements (ERISA section 103(a)(3)(A) and 29 CFR 2520.103-1(b)). Review these financial statements and the opinion during the audit.

  2. When verifying the IRC 404 deduction, you may request the Tax Reconciliation Workpapers prepared as substantiation for the deduction reported on the employer’s income tax return (in addition to the plan workpapers), to verify or substantiate the deductions taken (e.g., whether deductions for plan contributions are taken on the pension line or cost of goods sold, etc.).

    Note:

    The term "Tax Reconciliation Workpapers" means workpapers used in preparing, assembling and compiling financial data for reporting plan deductions on an income tax return. Typically, these workpapers will include a final trial balance for each entity and a schedule of consolidating and adjusting entries. They include information used to trace financial information to the return.

  3. You may request Tax Reconciliation Workpapers, unlike Audit Workpapers, at the beginning of an examination. Tax Reconciliation Workpapers include information reconciling the Form 5500 information with the plan’s financial statements and analysis, which are used in the preparation of the return. Ordinarily, the taxpayer prepares and provides the Tax Reconciliation Workpapers. However, if these workpapers are unavailable from the taxpayer, ask the accountant.

    Note:

    The term "Audit Workpapers" means the independent accountant’s workpapers documenting the procedures followed, the tests performed, the information obtained and the conclusions reached pertinent to the audit. Workpapers may include work programs, analyses, memorandums, letters of confirmation and representation, abstracts of organization/plan documents and schedules or commentaries prepared or obtained by the examiner. These workpapers provide an important support for the independent certified public accountant’s opinion as to the fairness of the presentation of the financial statements, in conformity with generally accepted accounting principles and demonstrate compliance with the generally accepted auditing standards. (See Clarified Statements on Auditing Standards (SAS). Reference: Auditing Standards Board Codification of Statements on Auditing Standards (contained in AICPA Professional Standards).

  4. In unusual circumstances, you may obtain access to the Audit Workpapers. However, keep in mind that the taxpayer’s records are the primary source of factual data to support the return. Use the Accountant’s Audit Workpapers normally only when you cannot obtain factual data from the taxpayer’s records and then only as a collateral source for factual data. Use discretion to access them and not as a matter of standard examining procedure. See IRM 4.71.1.11, Taxpayer Confidentiality Privilege.

    Note:

    After you have examined the taxpayer’s records for an item on the return, you may request the Audit Workpapers relating to the item if you determine they are necessary. First request the Audit Workpapers from the taxpayer.

  5. These conditions are considered unusual circumstances. You have:

    1. Identified a specific issue and need additional facts,

    2. Sought from the taxpayer all facts known to the taxpayer for the identified issue, and

    3. Sought from the taxpayer’s accountant a supplementary analysis (not necessarily contained in the workpapers) of facts relating to the identified issue.

  6. In any case where the unusual circumstances in (5) exist, furnish a basis for requesting Audit Workpapers, limit the request only to the portion of the workpapers believed to be material and relevant to the examination. Whether an item is considered to be "material" is based on your judgment and evaluation of the facts and circumstances in the case. However, materiality does not depend entirely on amount. The concept involves qualitative as well as quantitative judgments.

    Example:

    The significance of an item or its impact on tax liability could be one of the factors to be considered in making a judgment regarding materiality.

    Note:

    The above provisions do not apply in cases referred to the Criminal Investigation Division (CI). In a fraud case, the request can be unlimited, until the point Form 2797 is submitted and accepted by CI.

    Exception:

    With respect to an Employee Plans matter involving a case under VCP or Audit CAP, see IRM 7.2.2, Employee Plans Compliance Resolution System, for special rules. Under this procedure, you should not request copies of a plan sponsor’s compliance audit report.

  7. Alternatively, it may be more productive to raise potentially significant issues based on the information provided to date and request any additional clarifying information. The agent may want to consider using language such as, "Based on the information provided to date, it appears the following issue(s) may exist..., please provide any additional relevant information that may help to clarify this matter within xx days." If adequate clarifying information is not provided, then consider proceeding with the issue as identified.

  8. Direct any questions about access to records to Area Counsel.

Use of Fax and Signature Stamps

  1. These guidelines apply to faxes received from plan sponsors and trustees:

    1. A taxpayer may file original tax returns via fax only as part of a return perfection process (e.g., securing missing schedule or missing signature) that IRS initiates or as a post-filing/non-filing activity. We can receive tax returns via fax as part of return perfection even if a taxpayer’s signature is required because Chief Counsel has advised that in circumstances where we have contacted the taxpayer and documented our contact, faxed signatures are legally sufficient.

    2. A taxpayer can fax documentation, forms, letters and returns for post-filing/non-filing inquiries and interactions based on a taxpayer or IRS request unless there is a specific prohibition. This allowance is for post-submission inquiries and interactions that EP conducts for applications for a determination or a request for a ruling. Taxpayers can fax documentation, forms, letters and returns in these circumstances even if a taxpayer signature is required because Chief Counsel has advised that in circumstances where we have contacted the taxpayer and documented our contact, faxed signatures are legally sufficient.

  2. For EP - we will accept faxes of these documents/forms/letters in routine operations:

    1. Form 2848

    2. Form 8821

    3. Appeals Conference Requests

    4. Responses/documentation needed to resolve filing or post-filing questions or correspondence

  3. These documents/forms/letters can be accepted by fax if we have contacted the taxpayer by phone or in-person and documented the case chronology record with the contact date and noted that the taxpayer requested to send the document/form/letter by fax:

    1. Installment Agreements

    2. Offers in Compromise

    3. Letter to request non-assertion of penalty

    4. Early Referral Requests

    5. Letter to provide reasonable cause

    6. Letter to designate a payment

    7. Consents to assess additional tax (Form 4549-E, Form 870-EP and others)

    8. Closing agreements

    9. Consents to extend the statute of limitations for assessing tax (Form 872, Form 872-H, Form SS-10 and other consent forms)

  4. We do not accept EP determination letter applications by fax.

  5. Return Preparers may sign original returns, amended returns or requests for filing extensions using a signature stamp to facilitate signing large numbers of returns. Taxpayers, however, must continue to sign their returns with an original signature or other authorized alternative (e.g., PIN).

  6. Preparer/taxpayer signature stamps are not permitted to sign other documents such as elections, applications for change in accounting method, powers-of-attorney, consent forms, revenue agent reports and other case inquiry/resolution related documents that require a signature.

Burden of Proof

  1. The burden of proof in a court proceeding shifts from the taxpayer to the IRS in these areas (IRC 7491):

    1. Income (for this purpose, self-employment taxes are treated as income taxes), estate, gift and generation skipping taxes, if the taxpayer meets certain requirements described below.

    2. Cases where any item of income is based solely on statistical information from unrelated taxpayers.

    3. Shift burden of production only with respect to penalties.

  2. The provisions are effective for court cases arising out of audits started after July 22, 1998. The term "examination" includes:

    1. An audit

    2. Matching amounts from information returns

    3. Reviewing a claim for refund prior to the issuance of the refund

  3. Congress reasoned that individual and business taxpayers were at a disadvantage in court against the IRS and that there was fundamental unfairness in the process. With the burden of proof on the taxpayer, there was a presumption of guilt, until proven innocent. Congress believed that if a taxpayer is generally law abiding, then the IRS should prove that the taxpayer’s position is in error.

General Burden of Proof

  1. The burden of proof in a court proceeding shifts from the taxpayer to the IRS if the taxpayer produces credible evidence for the factual issues relevant to determining tax liability and also satisfies IRC 7491(a).

  2. The burden of proof will only shift to the IRS if the taxpayer complies with the provisions of IRC 7491(a) as follows:

    1. Met all substantiation requirements of the Code and regulations.

    2. Maintained all records required by the Code and regulations.

    3. Cooperated with any reasonable request for information, documents and witnesses by the IRS.

    4. Exhausted all its administrative remedies, including appeal rights and

    5. Met certain net worth qualifications but only if the taxpayer is a partnership, corporation or trust. Special rules apply to Qualified Revocable Trusts (see IRC 7491(a)). There is no net worth qualification for individuals.

Relationship with IRC Section 6201(d)

  1. IRC 6201(d) became effective in 1996 and applies without regard to IRC 7491. If the taxpayer meets the conditions of IRC 6201(d), the IRS has the burden of producing information to support income items reported on the information return.

  2. IRC 6201(d) requires the IRS to produce reasonable and probative information in any court proceeding for a deficiency based on an information return if the taxpayer:

    1. Raises a reasonable dispute and

    2. Has fully cooperated with the IRS.

  3. Full cooperation includes timely compliance with requests for information including access to witnesses and documents within the taxpayer's control. If the taxpayer does not raise a "reasonable dispute" , the IRS will not be required to produce any information beyond the information return.

  4. When a taxpayer disputes receipt of income reported on an information return or disputes the accuracy of the information return:

    1. Contact the third party payer and request in writing verification of the accuracy of the information document;

    2. Document the CCR to show the date you sent the verification letter to the third party;

    3. Retain a copy of the letter and taxpayer’s response in the case file; and

    4. If the third party payer does not respond to the verification letter or responds that the records no longer exist, consider issuing a summons to obtain the information.

Case File Documentation

  1. Be cognizant of the shifting of the burden of proof to the IRS under IRC 7491. However, even before these burden of proof provisions were enacted, you should have maintained a well-developed case showing:

    1. Technical positions well thought out.

    2. A fully developed description of the facts.

    3. Audit conclusions well supported.

    4. A case file well documented.

  2. If the examination ultimately reaches litigation and it becomes necessary to determine whether you made reasonable requests for information and they were reasonable, the determination will depend upon the facts and circumstances as documented in the case file.

  3. Provide clear and complete documentation on the case chronology, noting:

    1. When you requested information from the taxpayer

    2. When the taxpayer sent information

    3. Whether the taxpayer responded fully and reasonably

    4. Reasons given for delays in the taxpayers responses

    5. Reasons why taxpayers could not or would not provide the information

    6. The precise documents or other information provided by the taxpayer

  4. Since the administrative record in declaratory judgment cases (which includes proposed revocation/non-qualification) consists only of the documentation that was submitted in writing and exchanged between the parties, you must reduce to writing all discussions and conferences and exchange them with the taxpayer.

    1. If you want pertinent portions of the CCR or similar documentation included in the administrative record, you must send it to the taxpayer/POA in letter format.

    2. The pertinent portions should include, but are not limited to, any discussions with the taxpayer or representative that are relevant to the audit scope, affirmation of tax liability or the qualified status of the plan.

Workpapers and Reports in Burden of Proof Cases

  1. Use workpapers and reports to support adjustments and document the extent of taxpayer cooperation. This includes making complete copies of documents the taxpayer submitted in appropriate cases.

  2. These documents should be used to:

    1. Explore and document all requirements of the law with respect to the plan qualification and trust’s tax-exempt status.

    2. Fully describe in the workpapers all documents you reviewed or inspected that support conclusions and proposed adjustments.

    3. Fully describe the steps you took and the analysis that supports your conclusions.

Use of Statistical Information

  1. The burden of proof is placed on the IRS in any court proceeding when the IRS reconstructs any item of the taxpayer's income using solely statistical information on unrelated taxpayers (IRC 7491(b)). This is true whether the taxpayer cooperates and provides evidence or otherwise meets the requirements of IRC 7491(a).

Assessment of Penalties and Definitions

  1. The IRS now has the burden of production in a court proceeding when the issue is a(n) (IRC 7491(c)):

    1. "Penalty"

    2. "Addition to Tax" or

    3. "Additional Amount" imposed by the Code.

    Note:

    IRC 7491(c) applies only to individuals.

  2. In any court proceeding, the IRS must first present evidence that imposition of the amount is appropriate. Only then must the taxpayer assume the burden of persuasion to raise appropriate defenses, such as reasonable cause, to the imposition of the penalty.

  3. "Penalties" include all penalties assessed under the Code.

    Example:

    IRC 6662 imposes the accuracy-related penalty.

  4. "Addition to Tax" is any amount computed by reference to the amount of tax.

    Example:

    An addition to tax is imposed by IRC 6654 for failure by an individual to pay estimated income tax.

  5. "Additional Amount" refers to an amount that can be assessed by the IRS that is not an addition to tax or penalty.

    Example:

    The amount imposed under IRC 6673 for the sanctions and costs awarded by a court when a taxpayer's position is frivolous.

    Note:

    The definition of additional amounts under IRC 7491(c) does not include excise taxes imposed by IRC Chapters 42 and 43 or interest under IRC 6601.

Explanation & Example

  1. The IRS must first present evidence that a penalty, addition to tax or additional amount is appropriately applied to the taxpayer. It is then the taxpayer’s responsibility to present evidence of reasonable cause, substantial authority or other similar defense in showing that the amount should not be asserted. See IRM 4.71.18, EP Penalties.

    Example:

    If a delinquency penalty is asserted under IRC 6651, the IRS would meet its burden of production by showing that the filing date was after the due date for the tax return and that there was no evidence the taxpayer filed for an extension.

  2. Agents should treat a penalty issue as any other issue by including the following information in the case file:

    1. The facts surrounding the issue

    2. Applicable law

    3. Application of the facts to the law

    4. Audit conclusion

    5. Taxpayer’s position

Failure to Maintain Proper Records

  1. Every taxpayer, whether an employee plan, exempt organization, individual, corporation or otherwise, is required by law and regulations to maintain accounting records sufficiently detailed to enable the preparation of a proper return. This requires the maintenance of such permanent books of account and records, sufficient to establish the amounts of income, deductions, credit or other matters to be shown on the taxpayer’s return. See IRC 6001.

  2. Taxpayers who maintain records in a machine sensible form can request a "record limitation retention agreement." This agreement would identify the machine sensible records to be retained or eliminated in accordance with provisions of Rev. Proc. 98–25.

  3. In any case where alternative methods are used to reconstruct the financial activities, workpapers must indicate that inadequate records notice provisions were considered.

  4. If the taxpayer has failed to comply substantially with the law and regulations for maintaining adequate books and records or with record retention limitation agreements, discuss the inadequacies with your group manager to determine whether an inadequate records notice should be recommended. See IRM 4.10.8.17, Inadequate Records Notice, for procedural guidance.

    Note:

    If the determination involves a record retention limitation agreement, contact the computer audit specialist manager. See IRM 4.47.2.3.1.1.1, Record Retention & Evaluation Guidelines.

  5. The determination of whether any particular taxpayer has maintained adequate records or has complied with a record retention limitation agreement is a matter of judgment based on the facts and circumstances of the particular case. Consider the following factors in reaching your decision:

    1. Prior history and present degree of noncompliance

    2. Indications of willful intent

    3. Evidence of refusal to keep records

    4. Other evidence of harm to the government

    5. Probability that poor record keeping will result in significant changes to the return

    6. Likelihood that compliance can be enforced if the taxpayer fails or refuses to correct the inadequacies

    7. Anticipated revenue in relation to the time and effort required to obtain compliance

  6. If a decision is made that follow-up actions are necessary, the agent (or Criminal Investigator, in joint investigations) will inform the taxpayer that the books and records are deemed insufficient for the preparation of a proper return or that the taxpayer has not complied with a record retention limitation agreement. Avoid criticizing the taxpayer's records or the work of employees, accountants or attorneys.

  7. When it is determined that an examination should be conducted of a return that is not yet due, prepare Form 5666, TE/GE Referral Information Report and send it to EP Classification in as specified in IRM 4.71.6.5, Making Referrals Within EP.

Summons Procedures

  1. The authorized purposes for a summons (IRC 7602) are to:

    1. Examine a return

    2. Prepare a return for a non-filer

    3. Determine the tax liability of any person or any transferee or fiduciary

    4. Inquire into any matter related to the administration or enforcement of the internal revenue laws

  2. You should issue a summons when the taxpayer refuses to send you important documents.

  3. Secure your group manager’s and Area Manager’s approval before issuing a summons.

  4. After securing approval to issue a summons, you should contact Area Counsel to help you perfect the summons before you issue it.

  5. For general summons information, procedures and examples, refer to IRM 25.5, Summons.

Suspense Procedures

  1. Sometimes it is necessary to suspend non-fraud cases involving certain issues. (Please see IRM 4.71.25, EP Exam Fraud Procedures, for guidance regarding placing cases into fraud suspense.)

    1. Non-fraud cases will be placed in suspense per managerial direction.

    2. Suspended non-fraud cases will be maintained at the group level.

    3. Non-fraud suspense cases should be updated to status code 30 (Suspense Issue) or status code 38 (Suspense, All Other).

      Note:

      Status code 30 is used to indicate that an account has been put into a suspense status and that Form 1254 has been put into the case file.

      Note:

      Status code 38 is used to indicate that an account has been put into a suspense status awaiting technical advice from Headquarters, or that the Area Office has put the account into a suspense status for a reason not defined by Status Code 30, 32 or 36.

    4. The front line agent and manager will continue to monitor all inventory controls to protect the government's interest and interface with the taxpayer as needed to communicate case status and secure statute extensions.

    5. Update RCCMS and AIMS to the applicable status code to reflect that the case has been placed in suspense.

  2. Place cases with suspense issues into suspense. This includes cases in which the issue is the same or similar to an issue(s) in a case awaiting final action by EP Rulings & Agreements or the Office of Chief Counsel.

  3. Complete the examination with regard to all other issues.

  4. Use Form 1254, Examination Suspense Report, at your manager’s or Area Manager’s discretion to locally track cases that have been placed in suspense.

    Note:

    Use of Form 1254 is optional.

  5. Use Letter 1014-A, Taxpayer Notification of Examination Delay, to maintain an appropriate level of contact with the taxpayer regarding case status.

  6. When a final decision is made on any issue in suspense, the impacted Area(s) will be advised with appropriate guidance regarding the issue(s) and case processing.

Correcting Form 5500 Returns on the Master File

  1. Occasionally, you discover during the course of your examination that the Master File information for a Form 5500 return is incorrect.

  2. Prior to closing a Form 5500 examination, verify that the return information on the Master File is correct.

  3. Initiate correction of any information that is incorrect in accordance with the instructions provided below.

Correcting the EIN, Plan Number or Tax Period

  1. If the Form 5500 was processed using an incorrect EIN, plan number or tax period, first delete the AIMS account that was established using incorrect information.

    1. To delete the incorrect AIMS account, prepare Form 10904, Request for Record Deletion from AIMS, as follows:

      Field: Entry:
      Name of Taxpayer: Input the plan name.
      Name Control: Input the four digit name control.
      Taxpayer Identification Number: Input the EIN for the record being deleted.
      Plan Num.: Input the plan number for the record being deleted.
      Tax Period: Input the plan year for the record being deleted.
      Disposal Code: Select disposal code "33" .
      Other: Select "Error Account" ; Select "AIMS" .
      Reason for Request: Input a brief explanation of the requested correction.
    2. Secure group manager and Area Manager approval on an electronic Form 10904. Attach the approved form in the Office Documents Folder within RCCMS.

    3. Close the Form 5500 examination on RCCMS (disposal code 901) and AIMS (disposal code 33) to ESSP, requesting status "51" . The EP AIMS Coordinator will delete the error account on AIMS and close it as an error on RCCMS.

    Note:

    Form 10904 is used to delete the incorrect record from AIMS. The incorrect record must be deleted before Form 4442 can be input.

  2. Prepare Form 4442 to correct the incorrect EIN, plan number or plan year in the entity record.

    1. Prepare Form 4442 as follows:

      Field: Entry:
      Item 1 - Recipient's Name: Input your name.
      Item 2 - ID Number: Input TE/GE:EP and your group number.
      Item 4 - Location: Input your POD city.
      Item 5 - Referring To: Input "Lead Tax agent" .
      Item 6 - Date: Input the date.
      Item 8 - Taxpayer's Name: Input the name of the plan.
      Item 9 - TIN: Input the correct Form 5500 EIN number.
      Item 15 - Form(s): Input "5500" .
      Item 16 - Tax Period: Input the correct plan year.
      Item 17 - Processing Campus: Input "Ogden" .
      Item 21 - Caller: Input your name.
      Section B: Input a description of the correction that is needed to be made.
    2. Fax Form 4442 to the EP Entity Team in the Ogden Service Campus at 801-620-6900.

    3. The Lead Tax agent will process the Form 4442 within five workdays, but it may take up to 30 days for the correction(s) to post in the entity module.

    4. Secure an EMFOLT print for the applicable return to verify that the change(s) have been made. Look for TC 150 and TC 446.

  3. When the corrections have been made to the entity module, use the Related and Subsequent Year Form 5500 Requests document to request establishment of the corrected Form 5500 from EP Classification on RCCMS and AIMS. See IRM 4.71.1 Exhibit 1 at IRM 4.71 - Employee Plans Examination Exhibits.

  4. Secure an AMDISA print for the case file to verify that the corrected Form 5500 is established on AIMS.

Correcting the Plan Name or Address

  1. Complete Form 9308, EPMF Plan Data Change Request, to correct the plan name or address.

  2. Complete Form 2363, Master File Entity Change, to correct the plan sponsor's name or address.

  3. Fax the completed Form 9308 or Form 2363 to the Brooklyn Processing Unit at (718) 834-6521.

Amended, Substitute and Secured Forms 5500

  1. Use these procedures to post a related, amended, substitute or secured Form 5500 series return to the EPMF:

    1. Research IDRS to determine if the Form 5500 series return has posted on the EPMF by securing an EMFOL print. See IRM 4.71.2.3, IDRS Command Codes.

      Note:

      If the Form 5500 series return has posted on the EPMF, the agent should follow the procedures in IRM 4.71.1.14.1 (12).

    2. When you determine that a Form 5500 return should have been filed but was not filed or that a filed return should be amended, ask the taxpayer to file the delinquent or amended Form 5500 through the EFAST2 System using an EFAST2 approved third party software or IFILE on the Department of Labor (DOL) web site www.efast.dol.gov.

    3. Forward all amended and secured Form 5500-EZ returns picked up during an examination to this address for posting to the EPMF:
      IRS –TE/GE EP Classification
      9350 Flair Drive, 4th Floor
      El Monte, CA 91731

      Note:

      Form 5500-EZ returns are no longer processed by DOL.

    4. IRC 6652(e) penalties will automatically be assessed on late filed returns. If there is reasonable cause not to assess penalties, complete Form 3177 and submit it to EP Classification in El Monte at the address listed in paragraph "c" . See IRM 4.71.1 Exhibit 3 at IRM 4.71 - Employee Plans Examination Exhibits for help in completing Form 3177.

      Note:

      Email Form 3177 to EP Classification (tege.ep.classification@irs.gov.) two weeks prior to the time the delinquent Form 5500 series return is filed to give sufficient time for processing so that penalties will not be assessed when the Form 5500 series return is filed. EP Classification will notify you once the Form 3177 has been processed and the TC 971 (with action code 632) has posted so that the Form 5500 series return can be submitted for processing and the penalties will not be assessed.

      Note:

      If penalties are improperly assessed, see IRM 4.71.1.21.1, Abatement of Late Filing Penalties.

    5. Schedule SSA, Separated Vested Participant Information, is no longer part of the Form 5500 series return. Participant information is now reported to Social Security on Form 8955-SSA.

      Note:

      If during the examination, you secure a Form 8955-SSA, forward it with a Form 3210 to:
      Social Security Administration
      Wilkes-Barre Data Operations Center
      Attn: ERISA
      1150 East Mountain Dr.
      Room 264
      Wilkes-Barre, PA 18707-7797

  2. If you secure a hard copy delinquent Form 5500 series return, process the return as follows, making sure:

    1. The plan sponsor's name, address and EIN are properly completed.

    2. The plan name, plan number and plan year are properly listed.

    3. All required schedules are attached.

    4. The return is signed (original signature) and dated by the taxpayer.

    5. The return is properly stamped with the date received.

    6. You write in red on the top margin of the original return, "Delinquent return secured by TE/GE Employee Plans" .

    7. You write in red on the bottom margin of the secured return "TC 599 CC97" .

    8. You prepare Form 3198-A, TE/GE Special Handling Notice, indicating the return is to be processed by EP Classification.

    9. You mail the return with Form 3210 to EP Classification at:
      IRS –TE/GE EP Classification
      9350 Flair Drive, 4th Floor
      El Monte, CA 91731

  3. If you secure a hard copy amended Form 5500 series return, process the return as follows:

    1. Research EMFOLI to verify an original return was filed and shows a TC150 posting.

    2. Verify the "amended return/report" box is checked in Part I of the return.

    3. Make sure the return is signed, dated and properly completed.

    4. Make sure the return is properly stamped with the date received.

    5. Prepare Form 3198-A. Notate in the "Other Instructions" section: "Amended Return Secured by TE/GE Employee Plans" .

    6. Mail the amended return with Form 3210 to EP Classification at:
      IRS –TE/GE EP Classification
      9350 Flair Drive, 4th Floor
      El Monte, CA 91731

  4. If a taxpayer refuses to file a Form 5500 series return, then you must prepare a "substitute for return" by completing the information below on the Form 5500, Form 5500-SF or Form 5500-EZ (you can print hard copies of the 5500 forms from the DOL web site www.efast.dol.gov) and mailing the 5500 to EP Classification for posting to the EPMF. Follow these steps:

    1. Complete the following information on a hard copy Form 5500 series return: Plan Sponsor Name, Sponsor Address, Sponsor EIN, Plan Year Ending, Plan Number and Plan Name.

    2. Prepare Form 3198-A. Notate in the "Other Instructions" section: "Substitute for Return Secured by TE/GE Employee Plans" .

    3. Attach only the Form 5500, Form 5500-SF or Form 5500-EZ to the Form 3198-A and forward it to EP Classification. Keep all other case file information (IDRS research, audit work papers, etc.) with you.

    4. Forward the substitute for return to the following address for posting to the EPMF:
      IRS –TE/GE EP Classification
      9350 Flair Drive, 4th Floor
      El Monte, CA 91731

  5. Follow these procedures when you decide to examine the related, amended, substitute or secured Form 5500 series return:

    1. Research IDRS to verify that the Form 5500 series return has posted on the EPMF.

    2. Prepare the Related and Subsequent Year Form 5500 Request form and forward it to your manager for approval. See IRM 4.71.1 Exhibit 1 at IRM 4.71 - Employee Plans Examination Exhibits.

    3. Verify that you have correctly completed all of the information (e.g. special project code, condition code, group number, etc.) on the form or it will be returned to the group. Note in your request that the return has posted to the EPMF and list the date the taxpayer filed the return or you sent it to EP Classification.

    4. The group manager or designee will email the approved form to EP Classification's group mailbox: tege.ep.classification@irs.gov.

    5. EP Classification will acknowledge receipt of the request for the return (normally within 5 business days).

    6. EP Classification will mark the return on RICS, establish the return on AIMS and RCCMS and update these systems to the group when the return posts to the EPMF.

      Note:

      Since the return is established by EP Classification, the group should not attempt to establish the return on AIMS or RCCMS.

    7. EP Classification will inform the agent and group manager (normally within 10 business days) that the record has been assigned to the group on AIMS and RCCMS.

      Note:

      AIMS will be in status 10 when there is a full AIMS account.

    8. The agent will update the status of the case to status 12 through RCCMS.

    9. The agent must inform the taxpayer in writing that the return is under examination.

Abatement of Late Filing Penalties

  1. If you discover that late filing penalties were incorrectly assessed on Forms 5500 and need to be abated:

    1. Secure an EMFOLT print for the applicable return,

    2. Email the EMFOLT print to the EP Classification mailbox at tege.ep.classification@irs.gov with an explanation of the problem.

  2. EP Classification will review the EMFOLT print and determine if penalties should be abated.

  3. If EP Classification determines that penalties should be abated, they will complete Form 3870, Request for Adjustment and email it to the designated person in the Ogden Service Center to abate the penalties.

    Note:

    The agent should not contact the Service Center directly, but should instead go through EP Classification.

  4. The agent should inform the taxpayer that he/she will have the penalties removed from the taxpayer's account.

Report Writing and Closing Procedures

  1. This section lists instructions to prepare examination reports for agreed Forms 5500.

  2. An agreed Form 5500 examination is one for which:

    1. The agent does not raise either a qualification issue or

    2. A qualification issue is raised but is resolved under the Employee Plans Compliance Resolution System (EPCRS) or through a Delegation Order 8-3 (DO 8-3) closing agreement. See IRM 7.2.2, EPCRS, for procedural guidance

  3. Instructions for processing an unagreed Form 5500 examination are found in IRM 4.71.3, Unagreed Form 5500 Examination Procedures and EP Exam Closing Agreements. An unagreed Form 5500 examination is one that involves a qualification issue that cannot be resolved through EPCRS or a DO 8-3 closing agreement.

Closing Procedures for Agreed Form 5500 Examinations

  1. Prior to closing any Form 5500 examination, conduct a closing conference with the taxpayer or taxpayer's representative (POA) either in person or by telephone. During the closing conference::

    1. Inform the taxpayer and/or POA that the audit has been completed.

    2. Inform the taxpayer and/or POA that a closing letter will be issued.

    3. Inform the taxpayer and/or POA of the years and returns covered by the letter.

    4. Discuss the issues found during the audit with the taxpayer and/or POA.

    5. Discuss the actions taken to resolve those issues and prevent future occurrences with the taxpayer and/or POA.

    6. Document the CCR that you completed the closing conference and describe what you and the taxpayer discussed.

  2. Prepare Form 5772-A and Form 5773-A (optional) to document audit procedures and findings and save them in the RCCMS Office Documents folder.

  3. Generate a closing letter addressed to the taxpayer (if applicable) covering all Form 5500 years examined.

    Note:

    Send the POA a copy of the closing letter with cover Letter 937.

  4. Use a 992 series letter when the examination is closed no change (disposal code 02) and you do not have advisory comments for your examination results. The current 992 series letters are:

    1. Letter 992-A, No Change Form 5500 Closing Letter

    2. Letter 992-B, SARSEP and SIMPLE Plan No Change Closing Letter

    3. Letter 992-C, Church Plan No Change Closing Letter

    4. Letter 992-D, 403(b)/457 No Change Closing Letter

    5. Letter 992-E, IRC 412(i) Non-Return Unit No Change Closing Letter

    6. Letter 992-F, Governmental Plan No Change Closing Letter

  5. Use Letter 1204, No Change Form 5500 Exam Letter-Amendment, when you secured an executed amendment during your examination.

  6. Use Letter 1744 series letters for all other agreed closings. Detail all issues that were addressed during the examination on the second page of the letter. The current 1744 series letters are:

    1. Letter 1744, No Change Form 5500 Closing with Adjustment Letter

    2. Letter 1744-A, SARSEP and SIMPLE Plan No Change with Comments Closing Letter

    3. Letter 1744-B, 403(b)/457 No Change with Adjustment Closing Letter

    4. Letter 1744-C, IRC 457(b) No Change with Correction Closing Letter

    5. Letter 1744-D, Church Plan No Change with Adjustment Closing Letter

    6. Letter 1744-E, Form 5500 Examination Closing Agreement Closing Letter

    7. Letter 1744-F, Form 5500 Examination Closing Agreement Closing Letter With Comments

    8. Letter 1744-G, SEP or SIMPLE Examination Closing Agreement Closing Letter

    9. Letter 1744-H, SEP & SIMPLE Examination Closing Agreement Closing Letter With Comments

    10. Letter 1744-I, IRC 412(i) Non-Return Unit No Change with Comments Closing Letter

    11. Letter 1744-J, Governmental Plan No Change With Adjustment Closing Letter

  7. Use 1745 series letters to close audits resolved through a DO 8-3 closing agreement where the plan is determined to be disqualified from inception.

    1. Letter 1745, DO 8-3 - Plan Disqualified from Inception - No SB/SE Involvement.

    2. Letter 1745-A, DO 8-3 - Plan Disqualified from Inception - SB/SE Involvement.

  8. The group will mail the closing letter after the group manager approves the case for closing and has saved the letter in the Office Documents folder within the RCCMS activity.

  9. Prepare Form 6212-B, Examination Referral Checksheet B, for all plans under DOL jurisdiction.

    1. If a referral to DOL is warranted, send the original Form 6212-B to EP Classification in El Monte, California in accordance with IRM 4.71.6.8, EP Group Procedures –Making Referrals to the Department of Labor (DOL) and save the referral in the Office Documents folder within the RCCMS activity.

    2. If a referral is not warranted, save the referral in the Office Documents folder within the RCCMS activity.

    Note:

    DOL doesn’t have jurisdiction of plans that only provide benefits to owners and their spouses. However, if you determine that a plan covering only one participant (or participant and spouse) should cover additional people, make a referral to DOL.

  10. Prepare Form 6533 for all EP examinations of plans that are subject to PBGC.

    1. If a referral to PBGC is warranted, send the original Form 6533 to PBGC (with a courtesy copy to EP Classification) in accordance with IRM 4.71.6.9, EP Referrals - Making Referrals to PBGC and save the referral in the Office Documents folder within the RCCMS activity.

    2. If a referral is not warranted, keep the original in the Office Documents folder within the RCCMS activity.

  11. Make sure other types of referrals are prepared as needed.

    1. Prepare Form 5666 if there are income tax issues that need to be referred to an Exam Functional Unit (e.g., SB/SE). See IRM 4.71.6.7, Making Referrals to Exam Functional Units.

    2. EP has created an Emerging Issue Compliance Planning Group (CPG) to evaluate leads involving potential emerging issues where a qualified plan is involved. These issues may involve abusive transactions or other non-compliance. See IRM 4.71.6.5.1, Emerging Issue Referrals.

    3. When agents or managers become aware of a practitioner who may be promoting an abusive transaction, they should make a referral on the LDC Referral Form to the Lead Development Center (LDC). See IRM 4.71.6.6, Promoter Referrals.

  12. If required, prepare Form 5650, EP Examined Closing Record, in accordance with IRM 4.71.1.22.2, Completion of Form 5650, for Form 5500 audits and IRM 4.71.17.7, Closing an NRU Case, for Non-Return Unit (NRU) audits.

  13. In many instances all examination records will be saved only in the RCCMS Office Documents folder and there will be no paper case file; however, see IRM 4.71.1.22.6, for paper documents that must be inside a manila folder with Form 10329 stapled on the outside of the folder.

  14. When the case is ready to close, complete all required fields in RCCMS.

    1. The information in RCCMS must accurately reflect the examination results.

    2. Make sure your time in RCCMS agrees with the time listed on the CCR, Form 5650 (if required) and Form 5772-A.

    3. Make sure the information recorded in RCCMS accurately reflects what is reported on Form 5650 (if required).

  15. Save all copies of workpapers, forms and letters that you generated in the RCCMS Office Documents folder using the RCCMS Naming Convention.

    Note:

    Any documents scanned into RCCMS should be the final version of that document that includes the date and signature, if applicable. For example, if the audit closing letter is scanned into RCCMS, it must be a copy that includes the date the letter was mailed and the signature of the Director, EP Exam.

  16. If the group has a scanner, scan all relevant case related documents received from the taxpayer or POA and save them in RCCMS using the RCCMS Naming Convention.

  17. You must complete all required fields in RCCMS before you close the case from the group.

    1. When you select "Validate for: Close" in RCCMS, all required fields will be highlighted in red font.

    2. Input the correct information for all fields highlighted in red.

  18. Request closure on RCCMS, making sure the Update AIMS box is:

    1. Checked if the return is on AIMS and

    2. Unchecked if the return is not on AIMS.

    Note:

    Once approved, this will move the case on RCCMS from your inventory to the group's unassigned inventory for managerial review and group closure.

  19. If the employer, plan sponsor or plan administrator desires a determination letter on amendments secured during an examination, establish an application through the Cincinnati Centralized EP Determination Site and a determination letter will be issued simultaneously with the examination report/letter.

  20. Groups located in Great Lakes, Gulf Coast and Pacific Coast Areas close all agreed Forms 5500 on RCCMS and AIMS to:

    IRS
    TE/GE EP Special Support Processing
    31 Hopkins Plaza
    Room 1550
    Baltimore, MD 21201

  21. Groups located in Northeast and Mid-Atlantic Areas close all agreed Forms 5500 on RCCMS and AIMS to:

    IRS
    TE/GE EP ESS Group 7697
    2 Metrotech Center
    100 Myrtle Avenue, 6th Floor
    Brooklyn, NY 11201

Completion of Form 5650 and RCCMS Tabs

  1. When you validate a case for closure in RCCMS, you must complete any field that appears in red. These fields correspond to the required items on Form 5650 as detailed below.

  2. Form 5650 is not required to be completed if the case is agreed and 180 days or more remain on the statute of limitations.

  3. Form 5650 is required to be completed if:

    1. The case is unagreed or

    2. Less than 180 days remain on the statute of limitations.

  4. The Form 5650 is available within the RCCMS templates. Complete the following line items on Form 5650 as noted:

    1. P7-18: Enter the taxpayer’s EIN followed by a "P" .

    2. P21-22: Enter the MFT code.

    3. P24-29: Enter the tax period.

    4. P31-34: Enter the name control.

    5. P59-61: Enter the plan number.

    6. Item C: Enter the name of the taxpayer.

    7. Item 13: Enter the applicable disposal code. See IRM 4.71.1.22.3, Disposal Codes.

    8. Item 14: Enter the current statute expiration date (without alpha codes) whether or not the statute has been extended with Form 872.

      Note:

      Do not use alpha codes in the blocks for item 14. If the statute has been updated to an alpha code (e.g., 12/PP/2014), write the alpha code statute to the right of the blocks; enter the actual numerical statute in the blocks (e.g., 12/31/2014).

    9. Item 28: Enter the agent’s time on the case.

    10. Item 30: Enter the technique code:

      2 – Office/Correspondence Exam (OCEP) - full scope
      4 – Field exam - full scope
      6 – OCEP - limited scope/focused exam
      7 – Field exam - limited scope/focused exam
    11. Item 31: Enter the agent’s grade.

    12. Item 32: Enter the grade of the case.

    13. Item 33: Enter the agent’s last name, leave a space and then first initial.

    14. Item 40: Enter the current fiscal year project code. If there is none, enter 0000.

    15. Item 42: If the disposal code is 15, enter the appropriate Accounts Receivable Dollar Inventory (ARDI) code.

    16. Item 50: Enter the agent’s group number.

    17. Item 416: Enter a "1" if a closing agreement was secured via fax. If not, leave blank.

    18. Item 602: Enter excise tax picked up during the exam that is not reflected on Form 5599 of a related Form 5330 exam.

    19. Item 603: Enter any penalties picked up during the exam that are not reflected on Form 5599 of a related Form 5330 exam.

    20. Item 604: Enter totals from item 603.

    21. Item 605: An entry is required when disposal code 13 is used. Enter the amount of proposed adjustments referred to an Examination Functional Unit (e.g., SB/SE) for the specific plan and year to which the Form 5650 relates. Do not enter an amount on this line if the case is being closed disposal code 15.

      Note:

      If you are working an EP Large Case Support Examination coordinated with LB&I or EO enter the total recommended deduction adjustment (increase or decrease) for all corporate tax years and for all deferred compensation arrangements qualified or otherwise when establishing only one record.

    22. Item 606: Enter deductions claimed for contributions to the specific plan and year to which the Form 5650 relates. Do not include salary deferrals. If the exam is a focused exam and "deductions" is not a selected issue, enter the employer contribution amount listed on line 2a(1) of Form 5500 Schedule I or Schedule H (as applicable). If the amount deducted is $0 or $1, enter $1.

      Note:

      If you are working an EP Large Case Support Examination coordinated with LB&I or EO and only one return is established on RCCMS and AIMS, enter the total deduction taken for all corporate tax years and for all deferred compensation arrangements qualified or otherwise.

    23. Item 607: Enter total trust assets as of the end of the plan year. Must be at least $1.

    24. Item 608: Enter the number of participants that were directly affected by the exam (e.g., a change in account balance or vesting percentage). Must enter 0 if none are directly affected (cannot be left blank).

      Note:

      A participant is not considered directly affected merely because the plan could have been disqualified.

    25. Item 609: Enter plan type (1) for a defined benefit plan or (2) for a defined contribution plan.

    26. Item 610: Enter the applicable Issue Code(s) that relate to the Disposal Code. Only one Issue Code for Disposal Code 02 (issue code 37Z) should be entered. Issue Codes should relate to the issues found during the examination. If a Disposal Code other than 02 is used then up to four Issue Codes can be entered. Any remaining spaces should be filled in with zeros. See Document 6476 for a list of Issue Codes.

    27. Item 612: Enter the applicable NAICS Code (see Document 6476).

    28. Item 613: Insert the sanction amount of any closing agreement entered into (if a closing agreement involves more than one year, enter the amount in the earliest year only and $1 in the other years). If the sanction amount is $0, $1 must be entered in item 613. When the closing agreement amount is entered in item 613, the entry should be right justified.

    29. Item M: Enter "5500" .

  5. In addition to the items listed above, the RCCMS Closing Record, "General tab" , "Closing with" field requires one of the following items to be selected, as applicable:

    Closing field entry: Reason for selection:
    1- Original Return This is a rare selection for EP Exam and should only be selected if you are closing an activity with an original return that has not been accepted, filed, or processed by any other function
    2- Taxpayer Return Select this option when the return for the activity is a copy of a return received from the taxpayer. This would be selected if you secure a delinquent Form 5500/5330 and submit a copy of return with your exam (the original was processed through DOL or Classification or the Service Center).
    3- Electronic Prints Select this option if the return used for the exam was the one provided in RCCMS AND you are closing the exam with a paper file (or a partial paper file).
    4- Paperless Examined Select this option if the return used for the exam was the one provided in RCCMS AND you are closing the exam fully electronic. Select this option for NRU closures that are paperless.
    5 - No Return Select this option when there is no return for the activity, such as a non-filer substitute for return (SFR) or a Non-Return Unit (NRU) exam with a paper file (or partial paper file)
    6- No Return/Workpapers Select this option when you have no return and no workpapers. This would be used for disposal code 33 closures (Error Accounts With No Returns). See IRM 4.71.5.11, Forms 5330 Established on AIMS in Error
    7- Paperless Non Examined Select this option for an all electronic case that is NOT examined, such as an all-electronic survey.

Disposal Codes

  1. The disposal code indicates the examination's outcome. Refer to Document 6476 for a list of disposal codes and for the disposal code reporting priority.

  2. Carefully select the correct disposal code to ensure that—

    1. The accomplishments of the examination program are accurately reported for monitoring and reporting purposes and

    2. Returns with examination potential are identified for examination.

  3. If more than one disposal code may apply, use the priority order specified in Document 6476 under the heading "Disposal Code Priority" .

    Note:

    The priority order has been developed with field input and gives priority to examination actions that foster voluntary compliance with the qualification requirements reflecting our regulatory responsibilities to plan beneficiaries.

Examples of Disposal Codes
  1. The following examples illustrate the appropriate disposal code to use:

    1. Example One: This example illustrates the priority order. Assume an examination of Form 5500 results in both an agreed revocation and in securing a delinquent Form 5330. Because a revocation is priority number 1 and securing a related delinquent return is priority number 7, the appropriate disposal code is 09 (Revocation - disposal code 211 on RCCMS) and not 05 (Delinquent Related Return Secured - disposal code 207 on RCCMS) for the Form 5500 examination.

    2. Example Two: Disposal code 03 (Agreed Tax or Penalty Change - disposal code 102 on RCCMS) is used for Form 5500 if the examination results in securing a delinquent Schedule SB and a penalty is assessed for late filing. Schedule SB is not established on AIMS because all required attachments to Form 5500 (e.g., Schedules A, SB, C, E, SSA), are considered part of one return. A penalty is assessed for late filing of Schedule SB and is shown in item 603 of Form 5650 and the total of all penalties is shown in item 604. For code 03 (Agreed Tax Change - disposal code 102 on RCCMS) to apply, an entry must appear in either item 602 (Tax) or item 604 (Penalty Total) of Form 5650.

    3. Example Three: Disposal code 04 (Change to related return - disposal code 205 on RCCMS) is used to close the primary return if an adjustment was proposed or made to a related return including discrepancy adjustments. This code is used only for the primary return examined and not for the related return. Disposal code 04 is used for Form 5500 if adjustments are made to a related Form 1040/1120 return. In such cases, Form 1040/1120 is closed using Form 5599 and the appropriate disposal code from the following listing: Closing code 03, 07, 10 or 11 (disposal codes 102, 601, 604 or 603 on RCCMS).

    4. Example Four: Disposal code 05 (Delinquent Related Return Secured - disposal code 207 on RCCMS) is used to close the primary return where a delinquent related return was secured. This code is used for Form 5500 if the examination resulted in securing a delinquent Form 5330. If established on AIMS, Form 5330 is closed using disposal code 06 (delinquent return secured - disposal code 208 on RCCMS). The tax for the delinquent return is entered in item 414 on Form 5599 for the Form 5330 file to which it relates (and not on Form 5650 for Form 5500). If the Form 5330 is not established on AIMS, then the tax and/or penalties are entered in items 602 and 603, respectively, on Form 5650 for the Form 5500.

      Caution:

      On the Form 5650 for the Form 5500, when tax and/or penalties are reflected, enter in the remarks section: " Do not assess tax and/or penalties." Failure to make this entry may result in the taxpayer being billed twice for the same assessment, as the original assessment was made when the delinquent return was posted at the Service Center.

    5. Example Five: Disposal Code 08 (Correction of Operational Practice -Future Impact - disposal code 206 on RCCMS) is used to close a return when the examination discloses an operational or administrative practice that, if continued or enlarged, would have an adverse impact upon the plan in the future.

    6. Example Six: Disposal Code 13 (Referrals to LB&I, SB/SE, W&I, DOL or PBGC - disposal code 501 on RCCMS) is used to close an examination in which a referral (including a proposed adjustment or delinquent return) is made to LB&I, SB/SE, DOL, W&I or PBGC.

    7. Example Seven: Disposal Code 06 (Delinquent Return Secured - disposal code 208 on RCCMS) is used to close an examination in which a delinquent Form 5500 is picked up.

Disposal Code 08
  1. For Disposal Code 08 (RCCMS Disposal Code 206) closings, discuss the issues with the taxpayer and summarize them in individually designed paragraphs. This is important to reinforce the plan sponsor using proper operational and/or administrative practice(s) for future years.

  2. Use of Disposal Code 08 as follows:

    1. The plan did not provide for adequate bonding as required by ERISA Act section 412.

    2. The ADP and/or ACP test were not properly performed due to misapplication of the required rules or systemic errors when performing of the test; however, when all errors were corrected and the test(s) re-run, the test(s) still passed for the year under examination.

    3. Misclassification of HCEs and non-HCEs in the ADP and/or ACP test; however, when all errors were corrected and the test(s) redone, the test(s) still passed for the year under examination.

    4. Failure to include several eligible participants who did not elect to make deferrals in the ADP and/or ACP test; however, when all errors were corrected and the test(s) redone, the test(s) still passed for the year under examination.

    5. Failure to follow plan terms with respect to using prior year or current year testing for the ADP/ACP test; however, when all errors were corrected and the test(s) redone, the test(s) still passed for the year under examination.

    6. Improper compensation used for testing purposes in the ADP and/or ACP test; however, when all errors were corrected and the test(s) re-run, the test(s) still passed for the year under examination.

    7. Top heavy calculations were performed improperly; however, after the agent re-ran the top heavy test, the plan was still not top heavy, although it could potentially be top-heavy in future years.

    8. Errors were made by the taxpayer when performing Nondiscrimination in Amounts Testing; however, after the agent re-ran the nondiscrimination test (Demo 6), the plan satisfied the nondiscrimination tests.

    9. The plan improperly recorded and reported several participants’ vesting percentages for the year under audit, but there were no distributions or forfeitures.

    10. The plan sponsor failed to deposit elective deferrals timely as prescribed by DOL Regulation section 2510.3-102(b)(1). However, as the lost interest per participant was de minimus, with group manager concurrence, it was decided to neither require correction nor solicit delinquent Forms 5330.

    11. A defined benefit pension plan invested in a couple of parcels of real estate that were purchased five years earlier, which were reported as representing approximately three percent (3%) of plan asset value. The property was carried at cost with no attempt by the plan fiduciary to verify the fair market value (FMV) of the properties. The agent raised this issue and requested that the fiduciary supply documentation as to the actual FMV of the property. It was determined that the value had remained substantially the same through the year of audit, so there was no current effect on the actuarial calculations related to either the maximum permitted deductions or the minimum funding standards.

  3. Do not use Disposal Code 08 in these cases:

    1. The agent determined that certain assets had not been properly reported on the Schedule H of Form 5500 and the Form 5500, line 8, did not reflect Plan Characteristic Code 2A (even though the plan utilized an age-weighted allocation formula). The correct Disposal Code for incomplete or inaccurate return information is 02 (assuming there are no other issues).

    2. The pension plan deduction was improperly reported on Form 1120, line 24 (Employee benefit program), instead of line 23 (pension, profit-sharing, etc., plans). However, the plan sponsor did not take an improper deduction; they merely completed the Form 1120 improperly. The correct Disposal Code for incomplete or inaccurate return information is 02 (assuming there are no other issues).

    3. The agent had difficulty conducting the examination due to problems securing requested records in a timely fashion and had to issue multiple IDRs for requested records before the examination could be completed. Even though the agent experienced difficulty securing necessary records, he eventually received the requested documents and resolved all potential issues. In general, the taxpayer substantially complied with the law and regulations for maintaining adequate books and records. This audit would be closed using Disposal Code 02 (RCCMS Disposal Code 107).

    4. The agent determined that the allowable deduction for the plan under examination was exceeded by a de minimus amount and decided with group manager concurrence, to neither pursue an adjustment using discrepancy adjustment procedures, nor make a referral to SB/SE. The over-deduction was an isolated error and not the result of any systemic error. This audit would be closed using Disposal Code 02.

Issue Codes

  1. Select an issue code (listed in Document 6476) that best relates to the RCCMS and AIMS disposal code.

  2. Carefully select the three digit issue code because it is used with the AIMS disposal code to validate the accuracy of our system for selecting returns having examination potential and reporting EP’s examination program accomplishments.

    1. Enter the issue code in the first three positions of Item 610 of Form 5650 (if used) and in the respective RCCMS field.

    2. If the case is closed no-change, use issue code 37Z (no issues).

    3. You may enter up to four issue codes. However, you can enter multiple issue codes only if each subsequent issue code relates to a disposal code other than disposal code 02. If only one issue code is entered, the other positions must be zero-filled.

    Example:

    Assume that the examination of Form 5500 results in securing a delinquent Form 5330 for a prohibited transaction. A vesting defect involving an error in applying the vesting schedule was also corrected by a closing agreement. Finally, a coverage issue was pursued and dropped, after determining compliance with the coverage requirements. The AIMS disposal code having the highest priority for the Form 5500 is disposal code 15 (disposal code 106 on RCCMS), "Closing Agreement" . The issue code that relates to this AIMS disposal code is issue code 06A. This code is used in the first three positions of item 610 of Form 5650 for the Form 5500. Issue code 02, "Prohibited Transactions" , with the appropriate alpha value, is entered in the next three positions of item 610 after issue code 06A for the Form 5500. With respect to the Form 5599 for the Form 5330 examination, because the prohibited transaction was not the subject of the closing agreement, the AIMS disposal code having the highest priority for the Form 5330 is disposal code 06, "Delinquent Return Secured" .

Checksheet for Employee Plans Compliance Activities (CECA Checksheets)

  1. You must complete a CECA checksheet for all EP examinations when a Form 5500 series or an NRU exam results in a "change" closure (all disposal codes except 02).

    1. List tax amounts, from a Form 5330 or Form 990-T that is picked up in relation to a Form 5500 or an NRU exam, on the checksheet that is completed for the Form 5500 or an NRU exam.

    2. Do not complete a separate CECA checksheet for a related Form 5330 or Form 990-T exam.

      Note:

      Results from a Form 5330 or Form 990-T exam that has no related Form 5500 exam will not be reported on any CECA checksheet.

    3. Input income tax amounts from a Form 1040/1120 discrepancy adjustment that you picked up during a Form 5500 or an NRU exam on the checksheet for the Form 5500 or an NRU exam.

    4. Do not complete a separate CECA checksheet for a Form 1040/1120 discrepancy adjustment.

      Note:

      Results from a Form 1040/1120 discrepancy adjustment that has no related Form 5500 exam will not be reported on any CECA checksheet.

  2. Complete one checksheet for each plan under examination.

    1. Complete only one checksheet that incorporates all years when multiple years for the same plan are under audit.

    2. Example: You are assigned a Form 5500 examination for a profit sharing plan for the plan year ending 12/31/2012. You discover several operational errors and pick up examinations of the plan years ending 12/31/2013 and 12/31/2014. Assume that all three returns are closed as "change" cases. In this instance, you should prepare one CECA checksheet with 12/31/2012 as the primary year and include the operational impact and restoration explanation for all three years.

  3. Complete a separate checksheet for each plan examined.

    1. Complete a checksheet for each plan you audit maintained by an employer.

    2. Example: You are assigned a Form 5500 examination for a profit sharing plan (#001) for the plan year ending 12/31/2012. Due to a systemic vesting violation, you not only open up an examination of the plan year ending 12/31/2013 for plan #001, but you also pick up the related returns for the money purchase plan (#002) for the plan years ending 12/31/2012 and 12/31/2013. Assume that all four returns are closed as "change" cases. You should prepare two CECA checksheets, one for the profit sharing plan #001 (covering both years) and one for the money purchase plan #002 (covering both years).

  4. Complete a CECA checksheet for "change" cases for special project cases that have their own special checksheet for the project. Prepare two checksheets: a CECA checksheet and the special project checksheet.

  5. Download the current version of the CECA Checksheet from the EP Examination web site using this link: Checksheet for EP Compliance Activities (CECA).

  6. When completing the CECA checksheet:

    1. Always set the Adobe View Percentage to "100%" . Using this setting will help you to complete "No" in Questions 12B, 12C and 12D, if applicable.

    2. Turn-off the Auto-Complete feature in Adobe: open an Adobe document; select Edit, then Preferences; within the Categories column, select Forms; set Auto-Complete to "Off" .

      Note:

      You may receive error messages for punctuation when answering "zero" to a question (for example, Questions 14A-14K). You can eliminate these error messages by turning-off the Auto-Complete feature in Adobe.

    3. Always provide an answer to every CECA question, even if the answer is "zero" . Leaving a question "blank" gives the impression that the questions were skipped.

      Note:

      If you do not answer some questions on the checksheet, (for example, Questions 14A–14K), it may be returned to you for completion.

  7. Remember to accurately report compliance results when you close a case:

    1. Complete and precise reporting is essential to the EP mission to ensure that our efforts and results are correctly captured.

    2. Even though the effect behind the scenes may not be visibly seen, this information is vitally important for reporting purposes and for determining future compliance initiatives.

  8. After completing the CECA checksheet:

    1. Save the CECA checksheet in the RCCMS Office Documents folder using the RCCMS Naming Convention.

    2. Note on the CCR that you completed the CECA checksheet and save the Form 5464 in the RCCMS Office Documents folder using the RCCMS Naming Convention.

      Note:

      You do not have to email an electronic copy of the CECA checksheet to your group manager.

      Note:

      You do not have to place a paper copy of the CECA checksheet in the case file.

    3. Close the case to your group manager.

  9. When the group manager receives the closed case from the agent, he/she will take the following actions:

    1. The group manager will access the CECA checksheet in the RCCMS Office Documents folder.

    2. The group manager will review the completed CECA checksheet, ensuring that all questions have been answered and that the entered data is within the statistical norms for the type and size of the taxpayer plan reviewed and the type of change issue(s) documented.

    3. If the case is "agreed" , after completing his/her review of the CECA checksheet, the group manager will securely email an "electronic copy" of the checksheet to the CECA mailbox (*TE/GE-EP-CECA).

      Note:

      When emailing a completed CECA checksheet, do not include the plan name or the taxpayer name in the subject line of the E-mail since it is not secure.

    4. If the case is "unagreed" , the group manager should not mail an "electronic copy" of the checksheet to the CECA mailbox.

      Note:

      EP Mandatory Review will email the CECA checksheet to the CECA mailbox for all unagreed cases.

    5. Whether the case is "agreed" or "unagreed" , a copy of the CECA checksheet will be saved in the RCCMS Office Documents folder.

    6. If the case is "agreed" , the group manager will note on the CCR that the CECA checksheet was completed by the agent, reviewed by the manager and forwarded to the CECA mailbox.

    7. If the case is "unagreed" , the group manager will note on the CCR (which was saved in RCCMS by the agent) that the CECA checksheet was completed by the agent, reviewed by the manager and left within RCCMS for processing by Mandatory Review.

  10. Voluntary Compliance (VC) personnel should not complete the CECA checksheet for VC cases because the results of these cases are already captured by the EPCRS Research & Inventory Management (ERIM) database.

  11. Mandatory Review should use these procedures for CECA checksheets for "unagreed" cases:

    1. Make changes to the CECA Checksheet (if necessary) after reviewing the "unagreed" case (and prior to case closure).

    2. Securely email an electronic copy of the checksheet to the CECA mailbox (*TE/GE-EP-CECA).

    3. Save a copy of the CECA checksheet in the RCCMS Office Documents folder.

    4. Note on the case chronology record within RCCMS that you: reviewed the CECA checksheet, revised the checksheet (explain revisions, if applicable) and forwarded it the CECA mailbox.

  12. On occasion, a case may be transferred, back and forth, between the group and Mandatory Review. The entity that has the case file prior to updating the status code to "51" is responsible for forwarding the CECA checksheet to the CECA mailbox.

  13. For additional information, please contact the Manager, EP Examinations Planning & Programs.

Case File Assembly

  1. Save all copies of workpapers, forms and letters you generated in the RCCMS Office Documents folder using the RCCMS Naming Convention. See IRM 4.71.1 Exhibit 2 at IRM 4.71 - Employee Plans Examination Exhibits for the RCCMS Naming Convention.

    Note:

    Any documents scanned into RCCMS should be the final version of that document that includes the date and signature, if applicable. For example, if the exam closing letter is scanned into RCCMS, it must be a copy that includes the date the letter was mailed and the signature of the Director, EP Exam.

  2. If the group has a scanner, scan all relevant case related documents (e.g., closing agreements) received from the taxpayer or POA and save them in the RCCMS Office Documents folder using the RCCMS Naming Convention.

  3. For an agreed case, if not scanned and saved in the RCCMS Office Documents folder, the following additional paper documents must be in a manila folder for all agreed Form 5500 exams with a completed Form 10329 stapled on front:

    • Form 872-H (attached face down to the back of Form 5500)

    • Fully executed closing agreement

    • Form 895-EP (if required to be prepared in accordance with IRM 4.71.9.3 (2), Group Manager Responsibilities and Procedures,

    • Form 5500 (if secured during the examination)

    • A copy of the check for payment of tax, penalties or interest

    • Form 2848 or Form 8821 attached to the back of the first page of the return (if there is a valid 2848 or 8821 and it's not scanned into the RCCMS Office Documents folder)

    • If the statute of limitations has been updated to alpha code "PP" in accordance with IRM 4.71.9.3 (5), a copy of the memorandum of explanation (signed by the manager). See Exhibit 2 of IRM 4.71.9, Statute Control Procedures at IRM 4.71 - Employee Plans Examination Exhibits.

    • Any other paper documents necessary to document the exam trail (that are not saved in the RCCMS Office Documents folder) should also be included in the paper file.

    • Note:

      All agreed Form 5500 exams can now be closed fully electronic if all documents are scanned and saved in the RCCMS Office Documents folder.

      Note:

      Form 10329 is not required if there are no related returns. See IRM 4.71.12 Exhibit 2 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Form 10329.

  4. All "unagreed" Forms 5500 must be assembled in accordance with IRM 4.71.12.4, Assembly Guidelines for All Unagreed Examinations.

Overview of Transfer of Form 5500 Exams to Another Group or Area

  1. Generally, the examination of any return is the responsibility of the Area in which the taxpayer resides, conducts its business or maintains its principal office. The examination will generally be assigned to an agent at the post-of-duty nearest to the taxpayer’s residence or place of business.

  2. It may become necessary to transfer a return to an office within the Area or to another Area after the examination has begun. The convenience of the taxpayer will be balanced with the requirements of sound and efficient tax administration in honoring a taxpayer’s or power of attorney’s request for transfer.

  3. Generally, the place where the records of the taxpayer are located, where the principal investigative work will be performed, or where the major issues can most conveniently be disposed of, will control the decision as to where the examination will be conducted.

  4. It is the agent's responsibility (with agreement from the group manager) to determine if the request for case transfer meets the criteria for transfer and to prepare the case for transfer if the criteria are met.

Circumstances Which Permit a Transfer of a Form 5500 Examination

  1. A taxpayer’s request to transfer an office examination to a different location will generally be granted under these circumstances (26 CFR 301.7605-1(e)(2)(i)):

    1. If the taxpayer’s books, records and source documents of an individual, a sole proprietorship (Schedule C) or a business (Form 1120, 1065, etc.) return is closer to a different IRS office in the same Area as the office where the examination has been scheduled, the IRS normally will agree to transfer the examination to the closer IRS office.

    2. If the taxpayer’s books, records and source documents of an individual, a sole proprietorship (Schedule C) or a business (Form 1120, 1065, etc.) return is closer to a different IRS office in an Area other than the Area where the examination has been scheduled, the IRS normally will agree to transfer the examination to the closest IRS office in the other Area.

  2. A taxpayer’s request to transfer the place of examination for field examinations will generally be granted under these circumstances (26 CFR 301.7605-1(e)(2)(ii)):

    1. If a taxpayer does not reside at the residence where an examination has been scheduled, the IRS will agree to transfer the examination to the taxpayer’s current residence.

    2. If the taxpayer’s books, records and source documents of an individual sole proprietorship (Schedule C) or a business (Form 1120, 1065, etc.) return are maintained at a location other than the location where the examination has been scheduled, the IRS will agree to transfer the examination to the location where the taxpayer’s books and records are maintained.

  3. We will consider written requests by representatives to change the place the IRS has set for an examination (26 CFR 301.7605-1(e)). For case transfer purposes, "representative" means a person that the taxpayer has properly designated by executing Form 2848. The written statement must include:

    1. The reason for the transfer

    2. The taxpayer’s current address and current phone number

    3. The address/location of the taxpayer’s current principal place of business

    4. The address/location at which the taxpayer’s books, records and source documents are maintained

    5. Sufficient information to establish that the transfer will result in an examination where the books, records and source documents are maintained

    6. Why the requested location is more efficient for the examination of the taxpayer

    7. Other factors which indicate that conducting the examination at a particular location could pose undue inconvenience to the taxpayer

      Note:

      We will not approve requests for transfers from individuals authorized to receive tax return information using Form 8821.

  4. The location of the place of business of a taxpayer’s representative will generally not be considered in determining the place for an examination. However, if the factors outlined in 26 CFR 301.7605-1(e)(2) are met, you (with group manager concurrence) have the discretion to transfer the place of examination to the representative’s office.

  5. To change the location of the examination, the representative must indicate that he/she is in possession of the records to be examined and will make them available in an expedient manner.

  6. In addition to a taxpayer’s or representative’s written request (as specified above), these requirements must be present:

    1. There must be resources available at the location to which the taxpayer has requested a transfer.

    2. At the time of the taxpayer’s request to transfer the return from one Area to another there must be at least 13 months remaining on the statute of limitations on assessment. Consistent with 26 CFR 301.7605-1(e)(4), an extension of the statute of limitations will be required as a condition for an otherwise permissible transfer if the 13 month period is not met.

Area Processing Guidelines

  1. When the taxpayer/representative requests a transfer, determine (with your manager’s concurrence) if the request is allowable based on the criteria in IRM 4.71.1.23.1, Circumstances Which Permit a Transfer of a Form 5500 Examination.

  2. The group manager in possession of the case will contact his/her Area Manager to discuss transferring the case. If the Area Manager agrees, he/she will contact the Area Manager who would be receiving the case to discuss the transfer request.

  3. If the case is to be transferred, immediately prepare the case for transfer on RCCMS and AIMS, as well as for any partial paper file.

    1. Transfer cases within 30 days from the date the request is granted.

    2. Include a detailed explanation of the reason for transfer in either the case chronology or in an attached memo from the sending group manager to the receiving group manager.

  4. If the case is being transferred to another Area:

    1. Prepare Form 3185 and attach it to the outside of the case folder and save within the Office Documents folder of the RCCMS activity. Ensure all information is shown on the transfer form, including a legible signature of the responsible employee, current telephone number and address. Indicate in the comments section the factors you considered for the transfer. Document the date of taxpayer’s request and the statute expiration date in the remarks section or in Item 6.

    2. Forward any paper case file to the receiving group with a Form 3210.

    3. Transfer the RCCMS account to the receiving group. Make sure the "Update AIMS" box in RCCMS is not checked. EP Classification will update AIMS for the RCCMS transfer.

    4. Contact EP Classification through their group mailbox at: tege.ep.classification@irs.gov to transfer the case on AIMS. Provide the EIN, plan name, plan number and year along with the group number of the receiving group.

      Note:

      Since the transfer is being done from one Area to another, the IDRS operator (in the EP Classification Unit) selected to execute the transfer to occur on AIMS will need to have the command code AMSOC in their IDRS profile.

  5. If the case is being transferred to another group within the same Area:

    1. Prepare the case for transfer on RCCMS and AIMS.

      Note:

      This type of transfer, within the same Area, requires an IDRS operator on RCCMS with the command code AMSTU in their IDRS profile. Most group secretaries have this command code in their profile.

    2. Make sure the "Update AIMS" box in RCCMS is checked.

    3. Mail any paper file directly to the group to which the case is being transferred.

  6. The group manager receiving the case will determine whether the case will be examined or surveyed.

  7. The receiving group will contact the taxpayer (or taxpayer's representative) within 30 days of receipt of the case.

Requests for Assistance

  1. You can get help with your technical questions on open examinations by selecting "Ask a Question" on the relevant Knowledge Networks (K-Nets) site on the Knowledge Management (KM) Portal. Submitted questions are normally answered within two business days.

  2. If you need assistance with procedural questions on an open examination, contact EP Exam Special Review through the EP Examination Special Review link: TE/GE-EP-Exam Proc Help. Procedural questions include issues associated with:

    • The IRM

    • Form 2848 and Form 8821

    • Third party contacts

    • Work paper documentation, including sampling and plan qualification documentation

    • Statute of limitations

    • TEQMS

    • Fraud development, including an initial inquiry

  3. You can contact the Specialist Referral System (SRS) for assistance with income tax and other special issues from other business units or specialty groups within the IRS through the Specialist Referral System (SRS).

    1. SRS assistance is comprised of either a consultation or referral.

    2. A consultation provides assistance for any question and will help determine if there is merit to making a referral to another business unit. Often, your issue can be resolved through a consultation. A consultation can also determine if the issue merits a referral to another examination unit.

    3. The SRS will automatically notify the appropriate Specialist Manager (in LB&I, SB/SE, W&I, CAS, EO or GE) of the request.

    4. The manager may then accept or reject that request.

    5. If accepted, the manager will assign a specialist to assist the agent on the case.

    6. Through SRS, employees can request referral for assistance to any of the following specialist groups:

      • Computer Audit Specialist (CAS)

      • Economist

      • Employee Plans

      • Employment Tax (LB&I)

      • Employment Tax (SB/SE)

      • Employment Tax (TE/GE)

      • Engineering, Excise

      • Exempt Organizations

      • Federal, State & Local Government

      • Financial Products

      • Fraud Specialist

      • Indian Tribal Government

      • International

      • Joint Committee

        Note:

        IRC 6405 provides that Joint Committee Review covers refunds over $2,000,000. See IRM 4.36, Joint Committee Procedure.

      • LB&I Actuary

      • Tax-Exempt Bonds

    7. The intranet address for the SRS home page is: https://srs.web.irs.gov.

Requests for Files and Workpapers

  1. During an examination, a taxpayer or representative may ask you for a copy of your files or workpapers.

    1. You should release information to the taxpayer or their representative (IRC 6103(e), Disclosure to Persons Having Material Interest).

    2. This section advises that the IRS will give taxpayers access to their returns or return information, unless the Secretary determines that the release of the information would seriously impair tax administration.

    3. The IRS may withhold return information (administrative file and workpapers) if that release would impair tax administration (IRC 6103(e)(7)).

  2. If requested to provide copies of administrative files, the agent should ensure that the person requesting access has a legal right to the information.

  3. The agent must also review the information prior to its release to determine that the release of the information would not seriously impair tax administration.

  4. Requests involving complex or unusual circumstances should be coordinated with the appropriate Disclosure personnel. Assistance from Disclosure should be requested when:

    1. The file contains informant information.

    2. The file contains sensitive information that could hamper the investigation (for example development of badges of fraud).

    3. The file contains third party tax information that cannot be disclosed.

    Note:

    If you have any concerns about whether something in the file should be released, contact Disclosure at: http://www.irs.gov/uac/IRS-Disclosure-Offices

  5. A taxpayer has the right to information used in determining his or her tax liability, so impairment determinations should not be so narrowly construed as to prevent the release of all information. Impairment determinations will be made by your group manager.

  6. At times the IRS is required to summons documents as well as contact third parties to obtain necessary information. Any summoned document and/or third party contact information is return information. Such information can be withheld if the IRS determines that its release would jeopardize collection of any tax, involve reprisal against any person, or jeopardize any pending criminal investigation.

  7. Sometimes a Freedom of Information Act (FOIA) request is necessary for the employee to provide the requester with information being sought.

    1. If a FOIA request is required, it must be processed by the Disclosure office that has jurisdiction over the records being sought.

    2. FOIA requirements are provided in IRM 11.3.13, Freedom of Information Act.

    3. See also information on the irs.gov web page at: http://www.irs.gov/uac/IRS-Disclosure-Offices.

  8. See IRM 11.3.2, Disclosure to Persons with a Material Interest, for additional information concerning who may be authorized to receive return information, including copies of files or workpapers. See also IRM 4.2.5, General Examination Procedures, Disclosure of Official Information.

  9. The agent and/or group manager will document the case chronology to reflect all actions taken regarding requests for information.