Part 4. Examining Process

Chapter 71. Employee Plans Examination of Returns

Section 7. Survey Returns

4.71.7 Survey Returns

Manual Transmittal

October 04, 2019

Purpose

(1) This transmits revised IRM 4.71.7, Employee Plans Examination of Returns, Survey Returns.

Background

IRM 4.71.7 contains procedures for surveying EP examinations of Form 5500, Form 5329, Form 5330, Form 990-T, Non-Return Units (NRU), and Form 1040/Form 1120 discrepancy adjustments.

IRM 4.71.7 contains limited information about surveying claims. Survey of claims is covered fully in IRM 4.71.8, EP Claims.

Material Changes

(1) Enhanced IRM 4.71.7.1, Program, Scope and Objectives, and the subsections thereunder, by adding more information on the internal controls regulating EP Examinations. Reorganized material for improved readability and uniformity with other EP, Examination IRMs.

(2) Revisions were made throughout the IRM to incorporate the October 2, 2018 memorandum from the Acting Director, Government Entities/Shared Services titled, Revised Process for Surveying a Case When Using Certain Non-examination Disposal Codes.

(3) Revised paragraph (8) of IRM 4.71.7.3, Survey After Assignment, to incorporate the August 12, 2019 memorandum from the Director, EP Examinations titled, Supplemental guidance to IGM TE/GE-04-0918-0022.

(4) Made editorial changes, including changes for Plain Language (the Plain Writing Act of 2010), throughout the document.

Effect on Other Documents

This supersedes IRM 4.71.7 dated November 21, 2017.

Audience

Tax Exempt Government Entities
Employee Plans

Effective Date

(10-04-2019)


Robert S. Choi
Director, Employee Plans
Tax Exempt and Government Entities

4.71.7.1 (10-04-2019)

Program, Scope and Objectives

  1. The Employee Plans (EP) examination program was established to ensure:

    1. Compliance with the provisions of Internal Revenue Code (IRC) 401(a).

    2. That taxes related to trust assets are being properly reported.

  2. Purpose: IRM 4.71.7, Employee Plans Examination of Returns, Survey Returns, contains procedures for surveying EP examinations of Form 5500, Form 5330, Form 990-T, Non-Return Units (NRU), and Form 1040/Form 1120 discrepancy adjustments.

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

  4. Program Owner: Director, EP Examinations sets the program for the EP examination program.

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

4.71.7.1.1 (10-04-2019)

Authority

  1. EP Examination’s authority to resolve issues is derived from its authority to make determinations of tax liability under IRC 6201. EP Examination is the division designated to determine if a retirement plan is qualified under IRC 401, and the underlying regulations, and thus, exempt from tax under IRC 501.

4.71.7.1.2 (10-04-2019)

Program Controls

  1. EP Examinations established two review groups to make sure agents conduct examinations per technical, procedural and administrative requirements:

    1. Mandatory Review, see IRM 4.71.14, Employee Plans Examination of Returns, EP Mandatory Review.

    2. Special Review, see IRM 4.70.7, Special Review (SR) and Tax Exempt Quality Measurement System (TEQMS) Procedures.

  2. Tax Exempt Quality Measurement System (TEQMS) is the quality control system TE/GE uses to oversee the entire examination program. For more information on TEQMS, see IRM 4.70.7, Special Review (SR) and Tax Exempt Quality Measurement System (TEQMS) Procedures.

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

    Note:

    Find additional information at: Taxpayer Bill of Rights

    .

  4. The IRS is fully committed to protecting the privacy rights of taxpayers and employees. Privacy laws are included in the IRC, the Privacy Act of 1974, the Freedom of Information Act, and IRS policies and practices. For more information about these laws, visit the IRS Electronic Freedom of Information Act Reading Room. For questions concerning privacy, send an email to *Privacy. For question concerning disclosure, send an email to *Disclosure.

4.71.7.1.3 (10-04-2019)

Acronyms and Forms

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

    Acronyms and Abbreviations

    AIMS Audit Information Management System
    EIN Employer Identification Number
    EP Employee Plans
    ESSP Examinations Special Support and Processing (Closing Unit)
    IRA Individual Retirement Arrangements
    IRC Internal Revenue Code
    IRM Internal Revenue Manual
    MFT Master File Transaction
    NMF Non-Master File
    NRU Non-Return Unit
    SARSEP Salary Reduction Simplified Employee Pension
    SEP Simplified Employee Pension
    SIMPLE Savings Incentive Match Plan for Employees
    TEQMS Tax Exempt Quality Measurement System

     

    Forms

    Form Name
    Form 990-T Exempt Organization Business Income Tax Return
    Form 1040 U.S. Individual Income Tax Return
    Form 1120 U.S. Corporation Income Tax Return
    Form 1900 Income Tax Survey After Assignment
    Form 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts.
    Form 5330 Return of Excise Taxes Related to Employee Benefit Plans
    Form 5500 Annual Return/Report of Employee Benefit Plan
    Form 5596 TE/GE Non-Examined Closings

     

4.71.7.1.4 (10-04-2019)

Overview of Survey Returns

  1. Under certain circumstances, an EP group may make the determination to not examine a return selected for examination. These cases will be closed fully electronically as 100% paperless closures.

    Note:

    Cases controlled on NMF cannot be closed electronically as 100% paperless closing, therefore are excluded from this procedure.

  2. Group managers may survey a return, before or after assignment if an examination is not warranted or if the number of returns assigned to the group exceeds the number that can be examined and processed in a timely manner.

    Note:

    If the main reason for the survey is due to a lack of resources, group managers should exercise due diligence, with their Area Manager’s agreement, to assess whether they can reassign the return to another group/area before surveying it .

    Note:

    Survey of an NRU case also requires coordination with the responsible TE/GE Project Analyst.

  3. With group manager approval, returns selected for examination may be surveyed:

    1. Anytime prior to assignment to an agent.

    2. After assignment to an agent, but before receipt of plan records.

      Note:

      Once records are received or reviewed, the return may not be surveyed.

  4. The following types of returns are eligible to be closed by survey:

    1. Form 5500 series returns

    2. Form 1040 discrepancy adjustments

    3. Form 1120 discrepancy adjustments

    4. Form 5330

    5. Form 990-T

    6. Form 5329

    7. Non-Return Units (NRU)

  5. There are two types of surveys:

    1. Survey before assignment

    2. Survey after assignment

  6. When surveying a return that was established as a result of a referral from another governmental entity or another division within IRS, ensure that the referring entity is notified of the survey in a timely manner as specified in IRM 4.71.6, Employee Plans Referrals.

4.71.7.1.5 (10-04-2019)

Deciding to Survey and Documenting your Decision

  1. Before deciding to survey, agents and managers must consider all facts of the case.

  2. Conduct risk analysis by considering the following factors to help to strategically decide whether to survey the return. Factors include, but are not limited too:

    1. Consideration of existence and/or non-existence of classified issues and Large, Unusual, or Questionable (LUQs) items,

    2. Completion of return and related return reconciliation,

    3. Completion of required filing checks,

    4. Evaluation of examination potential (e.g., whether an exam would likely result in a material change”,

    5. Consider whether this is a repetitive exam or compliance activity and prior exam or compliance activity resulted in no change or minimal adjustments for same issue,

    6. Statute date is less than 18 months prior to expiration

    7. Lack of available resources to complete the exam, and

      Note:

      Managers should coordinate with Area Manager to determine if case should/can be reassigned to another group/area that has sufficient resources to complete.

    8. Consider if steps were taken to correct an identified issue as reflected in subsequent years' return.

4.71.7.2 (10-04-2019)

Survey Before Assignment

  1. Any return closed from an EP group before assignment to an agent and before contact with the taxpayer is considered surveyed before assignment.

  2. If the main reason for the survey is due to a lack of resources, group managers should exercise due diligence, with their Area Manager’s agreement, to assess whether they can reassign the return to another group/area before surveying it .

  3. Returns surveyed before assignment are closed with disposal code 31.

  4. Effective October 2, 2018, Form 5596 is no longer required to be completed when surveying a case before assignment.

  5. Capture the information about the survey on the RCCMS closing record:

    1. Complete the designated mandatory fields for a surveyed closure . When you select "Validate for: Close" in RCCMS, all required fields will be highlighted in red font.

    2. Select the appropriate Survey Reason Code from the drop-down and provide a narrative explanation supporting your decision to survey in the General tab, Remarks and Comments field.

  6. Managers will document their review and approval of the survey closure on the RCCMS Case Chronology Record.

    1. Manager’s comments will include any applicable Special Handling instructions as required.

    2. To add a manual chronology entry, click on the Chronology tab and select the new Chronology Button.

    3. The Untitled – Chronology Box opens and allows you to input various entries.

    4. Complete the required red asterisked fields.

    5. Click Save and Close to save your entry.

4.71.7.3 (10-04-2019)

Survey After Assignment

  1. To allow Area offices flexibility in managing workload, under certain circumstances, cases may be surveyed after assignment even though initial contact was made by the agent, if no records were received.

  2. If records were solicited and received, the case may not be surveyed.

  3. As long as no records have been received and group manager approval was obtained, an agent may survey a return if they believe the examination would result in no material change in tax liability or result in no change in the qualified status of the plan.

    Note:

    If the main reason for the survey is due to a lack of resources, group managers should exercise due diligence, with their Area Manager’s agreement, to assess whether they can reassign the return to another group/area before surveying it

    Note:

    Survey of an NRU case also requires coordination with the appropriate EP Project Analyst.

  4. Effective October 2, 2018, neither Form 1900 nor Form 5596 are required to be completed when surveying a case after assignment.

  5. When surveying a case after contact has been made with the taxpayer (but no records were received), use Letter 1024-A or Letter 1024-B to notify the taxpayer the case is closed.

    1. For cases other than Simplified Employee Pensions (SEP IRAs), Salary Reduction Simplified Employee Pensions (SARSEP IRAs), or Simple Retirement Accounts (SIMPLE IRAs), use Letter 1024-A.

    2. For SEP IRAs, SARSEP IRAs and SIMPLE IRAs, use Letter 1024-B.

    Note:

    Letters 1024-A and 1024-B will be prepared by the agent and mailed by the designated person in the group.

    Note:

    See IRM 4.71.7 Exhibit 3 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Letter 1024-A.

  6. Capture the information about the survey on the RCCMS closing record:

    1. Complete the designated mandatory fields for a surveyed closure . When you select "Validate for: Close" in RCCMS, all required fields will be highlighted in red font.

    2. Select the appropriate Survey Reason Code from the drop-down and when appropriate, provide a narrative explanation supporting your decision to survey in the General tab, Remarks and Comments field.

  7. Managers will document their review and approval of the survey closure on the RCCMS Case Chronology Record.

    1. Manager’s comments will include any applicable Special Handling instructions as required.

    2. To add a manual chronology entry, click on the Chronology tab and select the new Chronology Button.

    3. The Untitled – Chronology Box opens and allows you to input various entries.

    4. Complete the required red asterisked fields.

    5. Click Save and Close to save your entry.

  8. Use the following disposal codes:

    1. If no taxpayer contact was made, use disposal code 32 (AIMS) and 908 (RCCMS).

      Note:

      Use when you analyze the return and without contacting the taxpayer or reviewing any books and records, you believe that examining the return wouldn’t result in material change in plan qualification or tax liability.

    2. If taxpayer contact was made, use disposal code 32 (AIMS) and 908 (RCCMS) until AIMS and programming is completed to allow the use of disposal code 36 (AIMS) and 909 (RCCMS). Once AIMS and RCCMS programming is completed use disposal code 36 (AIMS) and 909 (RCCMS).

      Note:

      Use when you determine, after contacting the taxpayer, but before inspecting records that:
      1. Examining the return wouldn’t result in material change in plan qualification or tax liability, or
      2. The taxpayer is deceased, has a terminal illness, is in a disaster area, or other extraordinary circumstances exist.

    3. When surveying a claim allowed in full, use disposal code 34 (AIMS) and 103 (RCCMS).

      Note:

      Use when no taxpayer contact is made and you determine the claim issue is clearly allowable in full and the return doesn’t otherwise warrant examination.

4.71.7.4 (10-04-2019)

Case Closing

  1. Surveys of returns no longer require a paper file as RCCMS has been enhanced to process the closing action directly to AIMS.

  2. Except for cases controlled on NMF, all surveyed cases will be closed fully electronically as 100% paperless closings.

    Note:

    Cases controlled on NMF cannot be closed electronically as 100% paperless closing.

  3. A notation should be made in the Message screen and in the Compliance screen in RCCMS that the case is fully electronic.

    Note:

    To have an electronic 100% paperless closing, the return must have been established using Return Requisition Code 3 – Return, Chargeout & Labels Not Requested. Additionally, the Closing With field on the General Tab of the Closing Record must be completed by selecting option 7 – Paperless Non-Examined.

  4. For cases controlled on NMF, printed paper copies of the following documents must be included in the case file when the case is closed from the group to the TE/GE Closing Group:

    1. Form 5596

    2. The return being surveyed (if applicable)

      Note:

      Any surveyed return will be stamped with a "Closed Survey After Assignment" stamp or a "Closed Survey Before Assignment" and must be signed by the agent and the group manager approving the survey. Do not stamp an original filed return; instead make a copy of any original return and stamp the copy.

    3. Any other relevant documents

  5. When closing the case in RCCMS:

    1. Make sure the closing tab has the "Survey Reason Code" completed.

    2. Make sure disposal code 908 is entered for a "Survey After Assignment."

    3. Make sure disposal code 910 is entered for a "Survey Before Assignment."

    4. Select, "Closing with Original Return" .

  6. Prepare and mail Letter 1024-A or Letter 1024-B if contact was made with the taxpayer.

    Note:

    Letter 1024-A and Letter 1024-B will be prepared by the agent and mailed out by the designated person in the group.

  7. Save copies of all forms and letters generated by the agent in the RCCMS Office Documents folder using the RCCMS Naming Convention.

  8. Update the status code to 51 on RCCMS and AIMS when the case is closed from the group.

  9. Close the case to the TE/GE Closing Group.

4.71.7.4.1 (10-04-2019)

Survey Reason Codes (SRC)

  1. Use the following survey reason codes on the RCCMS Closing Record, General tab, Survey Reason Code field for all surveys.

    SRC Description Use When:
    A No large, unusual or questionable (LUQ) items The main reason for the survey is:

    1. classified issues don’t exist, and

    2. the return contains no LUQ items
    B No change in prior year The main reason for the survey is that the same issues identified on the current year return were just as significant in any of the four preceding years and were no-changed or had a small tax change.
    C Beyond cycle (includes statute issue) The main reason for the survey is based upon currency and/or statute considerations.
    D Lack of resources The main reason for the survey is due to a lack of resources. Managers should exercise due diligence, with their area manager’s agreement, to assess whether they can reassign the return to another group/area before surveying it
    E Other The main reason for the survey is other than A through D. Justification is critical as to the reasons why, therefore detailed statement is required.

  2. Narrative statements are optional for Survey Reason Codes A – D but explain details if you think it’s appropriate. For example, for Survey Reason Code A, include specific details as to why you have determined the classified issue(s) doesn’t exist. This will help in refining the workload selection process.

  3. For Survey Reason Code E (Other):

    1. Include a clear and concise narrative statement on the RCCMS Closing Record, General Tab, Remarks and Comments (field is limited to 250 characters).

    2. Explain why we aren’t examining the return. The justification is critical, so we can monitor and analyze trends as to why cases are being surveyed to improve our processes. A generic entry such as "survey" is not acceptable.

  4. Acceptable examples for Survey Reason Code E (Other), include:

    • Claim Allowed in Full.

    • During pre-examination research it was determined that the taxpayer has self-corrected the issue as reflected in subsequent years.