4.71.16 Employee Plans Large Case Examinations

Manual Transmittal

October 30, 2019

Purpose

(1) This transmits revised IRM 4.71.16, Employee Plans Examination of Returns, Employee Plans Large Case Examinations, and lists supplemental information for procedures specific to Large Case examinations.

Background

Revenue agents should follow these procedures when doing a Large Case examination (a plan with 2,500 participants or more).

General program agents should refer to the following processes and procedures:

  • as an audit tool for examining retirement plans with 2,500 or more participants

  • to support activity with Large Business and International (LB&I) and Exempt Organizations (EO)

Material Changes

(1) Removed reference in IRM 4.71.16.1.1 to IRM 1.2.10 and IRM 1.2.13 since the manual sections were obsoleted.

(2) Added the IRM section listed below to incorporate the March 20, 2019, Internal Guidance Memo (IGM) TE/GE-25-0319-0001 with the subject line Guidance for Cases Affected by a Federally Declared Disaster, or Terrorist or Military Action, issued by the Commissioner, Tax-Exempt/Government Entities (TE/GE). The IGM provides guidance to TE/GE employees working cases with taxpayers affected by a "federally declared disaster" (natural, terrorist, military) under IRC 7508A. Generally, contact with the taxpayer is suspended and outstanding deadlines are automatically extended to the end of the postponement period.

  1. IRM 4.71.16.1.8, Cases Affected by a Federally Declared Disaster, or Terrorist or Military Action

  2. IRM 4.71.16.1.8.1, Mandatory Suspension of Examination Activities

  3. IRM 4.71.16.1.8.2, Statute of limitations Expiring During the Postponement Period

(3) Reorganized the content of the IRM throughout.

(4) Made editorial changes, including changes to reflect plain language requirements throughout the document.

Effect on Other Documents

This supersedes IRM 4.71.16 dated December 6, 2018.

Audience

Tax Exempt and Government Entities
Employee Plans

Effective Date

(10-30-2019)


Catherine L. Jones
Acting Director, Employee Plans
Tax Exempt and Government Entities

Overview

  1. Purpose: IRM 4.71.16, Employee Plans Examination of Returns, Employee Plans Large Case Examinations, provides the basic examination procedures that will enable Employee Plans (EP) agents and their managers to conduct Large Case examinations.

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

  3. Program Owner: Director, EP Examinations

  4. Program Authority: EP Examinations derives its authority to conduct examinations, resolve issues and determine tax liability from Title 26, Internal Revenue Code, Subtitle F – Procedure and Administration, which includes but is not limited to:

    Cite Specific authority
    IRC Section 7602 - Examination of books and witnesses, which falls under Chapter 78 - Discovery of Liability and Enforcement of Title
    • Audit any books, papers, records or other data necessary to complete an audit.

    • Take testimony under oath to secure additional information needed.

    • Issue summons for information necessary to complete an audit.

    • Ask about any offense connected to the administering or enforcing of the Internal Revenue laws.

    IRC Section 6201- Assessment authority, which falls under Chapter 63 - Assessment. Resolve issues based on authority to make determinations of tax liability under IRC 6201.
  5. This IRM section is authored by EP Mandatory Review. For questions, information or suggestions, contact the manager of EP Mandatory Review.

Background

  1. EP Examinations determines if a retirement plan is qualified under IRC 401 and the underlying regulations, and therefore, exempt from tax under IRC 501.

  2. The Employee Plans examination program’s primary objective is regulatory, emphasizing continued qualification of employee benefit plans (Policy Statement 4-119) EP selects and examines returns to:

    1. Promote the highest degree of voluntary compliance with the tax laws on plan qualification.

    2. Determine qualified plans’ extent of compliance and the causes of noncompliance with the tax laws.

    3. Determine whether these plans meet the applicable qualification requirements in operation.

  3. Under Policy Statement 4-117, EP agents and managers are given broad authority to:

    1. Consider and weigh conflicting information, data, and opinions.

    2. To use professional judgement per auditing standards to find facts and apply the IRS’s position on issues of law to determine the correct tax liability.

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

  4. Agents do examinations per Policy Statement 1-236, Fairness and Integrity in Enforcement Selection.

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. EP uses the Tax Exempt Quality Measurement System (TEQMS) as the quality control system to oversee the examination program. For more information on TEQMS, see IRM 4.70.7, Special Review (SR) and Tax Exempt Quality Measurement System (TEQMS) Procedures.

  3. Agents do examinations per the Taxpayer Bill of Rights under 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.

    1. For questions about privacy, email *Privacy.

    2. For question about disclosure, email *Disclosure.

Acronyms and Forms

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

    Acronyms

    Acronym Definition
    AIMS Audit Information Management System
    Audit CAP Audit Closing Agreement Program
    CAS Computer Audit Specialist
    CCR Case Chronology Record
    CECA Checksheet for Employee Plans Compliance Activities
    CIS Case Identification Specialist
    EDS Employee Plans Determination System
    EP Employee Plans
    EPCU Employee Plans Compliance Unit
    EO Exempt Organizations
    ESAIN Employee Plans Standard Audit Index Numbers
    IDR Information Document Request (Form 4564)
    IDRS Integrated Data Retrieval System
    IRC Internal Revenue Code (Code)
    LB&I Large Business and International Division
    MAP Multiemployer Plan
    NOPA Notice of Proposed Adjustments
    NRU Non-Return Unit
    RAR Revenue Agent Report
    RCCMS Reporting Compliance Case Management System
    SCP Self-Correction Program
    SEC Securities and Exchange Commission
    SRS Specialist Referral System
    TE/GE Tax Exempt & Government Entities Division
    TEP Team Examination Program
    TEQMS Tax Exempt Quality Measurement System

     

    Forms and Pubs

    Form Name
    Form 886-A Explanation of Items
    Form 906 Closing Agreement on Final Determination Covering Specific Matters
    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 2848 Power of Attorney and Declaration of Representative
    Form 3210 Document Transmittal
    Form 4564 Information Document Request
    Form 4764-B Large Case Audit Plan
    Form 5330 Return of Excise Taxes Related to Employee Benefit Plans
    Form 5464 Case Chronology Record
    Form 5500 Annual Return/Report of Employee Benefit Plan
    Form 5666 TE/GE Referral Information Report
    Form 5701 Notice of Proposed Adjustment
    Form 5772-A Employee Plans (EP) Workpaper
    Form 5773-A Employee Plans (EP) Workpaper Summary Continuation
    Form 6490 EP/EO Technical Time Report
    Form 6782 Certification of Financial Interest in a Work Assignment
    Form 8821 Tax Information Authorization

     

Definitions

  1. This manual uses the following terms. See their definitions below.

    Term Definition
    Case identification specialist (CIS) EP employee who identifies the Large Case exam universe.
    Large Case team (team) An examination team made up of:
    • The Large Case manager

    • The Large Case team coordinator

    • EP agent(s)

    • Other Large Case team members as needed: CAS, the area actuary, EP Counsel, and other agents directed byf the Large Case manager

    Large Case audit plan a written document containing the examination scope, distribution of work assignments, examination procedures, time estimates, and special instructions.
    Large Case manager (manager) the Large Case group manager who organizes, controls, and directs Large Case field agents in doing the Large Case examinations
    Large Case team coordinator (coordinator) a Large Case team member who, in addition to being responsible for specific examination assignments, coordinates duties in planning and executing a team examination.
    Large Case engagement agreement A written document containing:
    • agreements made with the taxpayer

    • information for the taxpayer and IRS

    • the examination’s estimated completion date

    The Large Case engagement agreement is optional unless the case manager requires it. See IRM 4.71.16.8.4, The Large Case Engagement Agreement
    Large Case examination file All the documents prepared and secured during an examination, such as:
    • The closing letter

    • RARs including specialists’ reports

    • Closing agreements (Form 906), Audit CAP checksheet, and Maximum Payment Amount

    • SCP checksheet

    • Correspondence and correspondence log

    • IDRs and IDR log

    • IDR responses

    • Plan documents and amendments

    • Forms 5500

    • CECA checksheet

    • Examination workpapers and supporting exhibits

    • Minutes of conferences held with the Taxpayers and representatives

    Focused examination A process agents use to determine if the plan is operating with the provisions of the Internal Revenue Code. The Large Case team examines pre-selected issues and any additional issues the Large Case team determines. They emphasize evaluating the plan’s overall compliance level using specific examination techniques, and pursuing the examination to a point of reasonable assurance that the plan is qualified.
    IDR log A document the team uses to track the status of IDRs issued. See IRM 4.71.16.6, Responsibilities of the Large Case Team Coordinator
    Internal controls The taxpayer's policies and procedures they used to identify, measure and safeguard plan operations to avoid material misstatements of plan information.
    Opening conference A meeting of the Large Case team and the taxpayer’s employees to discuss: internal controls, coordination, accommodations, and the general scope of the examination. LB&I, EO, or Fed State Local/ET employees may also be present.
    Planning meeting A meeting(s) with the Large Case manager and team to discuss the scope of the examination and to review the case. At the meeting’s conclusion, the Large Case manager and the team coordinator determine areas to include in the Large Case audit plan. The LB&I coordinator, EO TEP Coordinator, Support Specialist manager(s), etc. may also be invited to these meetings at the manager’s discretion.
    Pre-contact analysis A study of available information to set the exam’s initial scope and depth. This includes discussions with the taxpayer to get or clarify return information. Use information you gain at the opening conference to supplement your pre-contact analysis. This helps construct the Large Case audit plan.
    Risk analysis A process which evaluates the potential benefit derived from examining an issue or a return, compared to the cost of resources required to perform the examination. The plan’s internal control systems and processes’ accuracy and reliability are important items to consider when you complete a risk analysis.
    Status meetings Scheduled meetings with the taxpayer to discuss case progress, items pending and time line for completion.
    Support specialists Actuaries, commodity and financial products agents, engineers, excise tax agents, economists, international examiners, CAS, Exempt Organizations agents, Tax-Exempt Bonds agents, Indian Tribal Government specialists, and any other specialist necessary. Use the automated Specialist Referral System (SRS) to request their help.
    Support specialist's manager Participates in managing the specialists’ activities, but the Large Case manager has primary responsibility for the audit.
    Taxpayer A business, person or trust associated with qualified retirement plans, including: MAP, IRC 403(b) and IRC 457 plans. The three potential taxpayers in a Large Case examination are: the sponsoring employer, the trust, and the plan participants/ beneficiaries.

Overview of Large Case Examinations

  1. Large Case examinations involve the largest qualified retirement plans.

    1. Most of the plans selected as a Large Case exam have at least 2,500 participants.

    2. Occasionally, managers assign a plan with less than 2,500 participants when the smaller plan is associated with a LB&I taxpayer or for training purposes.

  2. Large Case agents:

    1. Generally conduct focused examinations of large and complex employee plans.

    2. Evaluate and analyze the plan sponsor's internal controls, systems and processes to help them identify the examination areas, such as eligibility, participation, coverage, vesting, assets, distributions, accruals, forfeitures, and other compliance issues.

    3. Always verify that the plan is qualified in form for all years under examination. Review the plan document and all amendments in effect for the year(s) under examination.

  3. Large Case procedures and guidelines:

    1. Promote uniformity and consistency in administering Large Case examinations.

    2. Help the Large Case manager (manager) and Large Case Team coordinator (coordinator) with their examination responsibilities.

    3. Help orient prospective Large Case team members to Large Case examination concepts and techniques.

  4. Unless otherwise stated, the procedures for general program examinations apply to Large Case examinations.

Safeguarding Personally Identifiable Information (PII)

  1. When possible, mask the first five digits of a taxpayer’s SSN on letters, forms, notices, workpapers and emails.

    Example:

    XXX-XX-9999

Contact Information for Business Units

  1. Phone, efax and email addresses for business units:

    1. AIMS Coordinator:
      Efax: 855-821-0089
      Email: Charles.Mazzarisi@irs.gov

    2. Classification: *TEGE-CPC-Classification (tege-cpc-classification@irs.gov)

      Note:

      Classification & Case Assignment (C&CA) is a subfunction of Compliance Planning & Classification (CP&C), which is referred to in this IRM as simply Classification. There are two Classification groups. Requests to pick up an additional year for examination (see IRM 4.71.1.14.1, Prior Year, Subsequent Year and Related Returns) and the processing of Form 5500 SFRs (see paragraph (4) of IRM 4.71.1.21, Amended, Substitute and Secured Forms 5500) should be emailed to *TEGE-CPC-Classification (tege-cpc-classification@irs.gov). Referrals should be emailed to *Manager EO Classification (EOclass@irs.gov).

    3. TE/GE Closing Group 7697 (phone numbers):
      Brooklyn 718-834-5076
      Baltimore 443-853-5586

  2. Physical addresses for business units are listed below:

    1. Classification:
      IRS –Classification & Case Assignment
      1100 Commerce St., Mail Code 4910DAL
      Dallas, TX 75242

    2. TE/GE Closing Groups:

      Note:

      Groups in Great Lakes, Gulf Coast and Pacific Coast Areas close all agreed Forms 5500 on RCCMS and AIMS to Baltimore.


      IRS
      TE/GE Closing Group 7697
      31 Hopkins Plaza
      Room 1120
      Baltimore, MD 21201

      Note:

      Groups in Northeast and Mid-Atlantic Areas close all agreed Forms 5500 on RCCMS and AIMS to Brooklyn.


      IRS
      TE/GE Closing Group 7697
      2 Metrotech Center
      100 Myrtle Avenue, 6th Floor
      Brooklyn, NY 11201

Case Suspense for Federally Declared Disaster, or Terrorist or Military Action

  1. When the IRS issues a Declaration Notice under IRM 25.16.1.5.3, our computer system freezes all IMF and BMF accounts with addresses in the FEMA-designated, federally declared disaster area (the "covered disaster area" ) as qualifying for individual assistance during the "postponement period" in the Declaration Notice.

  2. A taxpayer may contact the IRS to self-identify as eligible for relief under a Declaration Notice. For these cases, contact the FAST Unit (*TEGE FAST) to have the –O freeze entered on the taxpayer’s account.

  3. Use the following guidance for all cases effected by a Declaration Notice:

    1. Use "soft contact procedures" when communicating with affected taxpayers: Be considerate and sensitive to personal circumstances such as stress and fatigue even if the taxpayer didn’t experience any personal, monetary, or physical damage from the declared disaster.

    2. If you already sent an initial contact letter, send Letter 6017 to notify the taxpayer that you’re suspending the examination and postponing any scheduled appointment until after the end of the postponement period. You don’t have to return documents you received from the taxpayer.

    3. Allow the taxpayer to continue with the examination, if they want to. Document your conversation or the taxpayer’s correspondence in the CCR and email *TEGE FAST and ask them to replace the –O freeze with a –S freeze.

    4. Continue to work the case (in status 12) if you have all the necessary information and don’t need to contact the taxpayer. If the result is favorable to taxpayer, close the case under normal processing procedures.

      Note:

      If your case can’t be closed with a –O Freeze in effect, email *TEGE FAST to remove the –O freeze, so you can close the case. The FAST Unit will put the –O freeze back on the module after the case is closed.

    5. If you have an appointment scheduled, cancel it subject to (f) and (g) below.

    6. If you have an IDR outstanding, postpone the due date to the end of the postponement period, subject to (g) below.

    7. If you don’t have all the necessary information to work the case and you previously spoke with the taxpayer, call the taxpayer/POA to inform them that we’ll postpone the examination activity unless they choose to continue the exam. Discuss the contents of Letter 6017 and document your CCR to explain your conversation and whether the taxpayer wants relief or chooses to bypass the postponement period and continue the examination.

    8. If you don’t have all the necessary information and you can’t reach the taxpayer by phone, or you never spoke with the taxpayer, send the taxpayer/POA Letter 6017, Taxpayer Contact After Disaster – TE/GE.

    9. If the taxpayer opts out of the postponement period after receiving Letter 6017, document the CCR, the taxpayer’s oral or written request to bypass the postponement period and continue the examination.

      Note:

      If your case has an –O Freeze in effect, email *TEGE FAST to replace the –O freeze with a –S freeze if the taxpayer chooses to move forward with the exam.

    10. If you can’t continue the case due to the Declaration Notice, place the case in status 21 suspense, cease all activity until the first business day after the close of the postponement period and document the CCR.

      Note:

      During the postponement period you may do electronic research (for example, West-Law, IDRS, Accurint) and prepare an action plan for the necessary case actions you’ll take when you resume examination activities, but you can’t require the taxpayer to provide documentation or take action unless the statute of limitations will expire during the postponement period and only if you get the Area Manager’s approval.

    11. If you’re working on a closing agreement and the taxpayer has signed the agreement and paid the sanction, process the payment and the closing agreement under normal procedures, and close the case. See IRM 4.71.3.5, Closing Agreements, and the subsections thereunder.

    12. If you issued a summons before the postponement period and the period for the taxpayer to quash expired before the beginning of the postponement period, you may proceed with summons enforcement if the bank or third party record-keeper doesn’t reply. Consult Division Counsel about enforcement of the summons. No other summons may be issued or enforced during the postponement period.

    13. Include in any correspondence (such as IDRs used to cancel an appointment, postpone an IDR deadline or to request additional information when the taxpayer opts out of the postponement period) you send to the taxpayer/POA during the postponement period Notice 1155, Disaster Relief from the IRS.

      Exception:

      You don’t have to include Notice 1115 when you send Letter 6017 because it contains the same information.

Mandatory Suspension of Activities During the Postponement Period
  1. You must suspend the following activities during the postponement period:

    • Contacting the taxpayer to schedule initial appointments when the taxpayer has been granted a suspension of examination activities and IDRS shows a –O freeze.

    • Making assessments except when the taxpayer agreed to the assessment before, or after, the start of the postponement period.

    • Inspecting books and records and conducting audit-related activities with the taxpayer unless the taxpayer gives you permission to continue with the examination.

    • Issuing summons to the taxpayer or third-party record-keeper.

    • Requiring the taxpayer to comply with a previously issued summon, except if the activity falls under IRM 4.71.4.1.6 (2)(k).

    • Initiating third-party contacts.

    • Issuing an audit report, except when the taxpayer agreed to the assessment before, or after, the start of the postponement period.

    • Entering into a Fast-track settlement.

    • Issuing a 30-day letter.

Statute of Limitations Expiring During the Postponement Period
  1. Discuss with your Area Manager approval to solicit a consent to extend the statute. If you solicit a statute extension, follow the procedures in IRM 4.71.9.

  2. If your Area Manager approves a statute extension during the postponement period, document the CCR accordingly.

  3. If you can’t contact the taxpayer or the taxpayer refuses to extend the statute of limitations, close the case to Mandatory Review.

    Note:

    You and your manager must contact the Manager, EP Mandatory Review to discuss the case and get mailing instructions.

Identification of Large Case Taxpayers

  1. A Large Case examination is an examination of an entity meeting the Large Case examination criteria.

  2. TE/GE considers the following factors (among others) when selecting an examination:

    • Emerging issues

    • Market segment impact

    • SEC information

    • Resource location

    • Referral information

    • Field input

    • Tax shelter information

    • Media attention

    • Impact on plan participants

    • Input from the EPCU

Large Case Jurisdiction

  1. The EP examination program ensures plans comply with the qualification provisions of the Code. See IRM 4.71.1.3, Examination Jurisdiction.

  2. EP has responsibility for these returns:

    1. Form 5500 series returns

    2. Non-return Units for IRC 403(b)/457 plans

    3. Form 5330

    4. Form 990-T

    5. Form 1040/1120 discrepancy adjustments

Coordination with LB&I, EO, and Fed State Local/ET

  1. The Large Case manager contacts the responsible LB&I, EO, or Fed State Local/ET manager when they assign a case to a Large Case agent.

  2. The Large Case manager may include the LB&I, EO or Fed State Local/ET manager or coordinator during the pre-planning stages of the Large Case examination to participate in the Large Case planning process.

Responsibilities of the Large Case Manager

  1. The Large Case manager is responsible for all assigned Large Case members’ activities and must be personally involved in the exam’s progress. The manager’s primary responsibilities are:

    1. Coordinating and planning the examination with the LB&I, Fed State Local/ET, or EO team manager, if necessary

    2. Coordinating with Area Counsel and the EP actuary, if necessary

    3. Consulting with the Large Case Team coordinator to determine plans and plan years to examine

      Note:

      These decisions depend on program objectives, agent availability, and taxpayer resources.

    4. Conducting examination visits, as necessary, while the Large Case examination is in progress

    5. Following and approving the Large Case engagement agreement (if prepared), the Large Case audit plan, and all substantial changes to the audit plan and examination procedures

    6. Ensuring that each team member disclosed all financial and conflict of interest issues

    7. Discussing continuously with the Large Case team coordinator and team members to determine the examination’s progress

    8. Consulting with the Large Case Team coordinator when problems develop such as delays in responses to IDRs

    9. Participating in taxpayer meetings

    10. Reviewing each team member’s workpapers and reports during and at end of the examination process

    11. Ensuring that the Large Case team coordinator has obtained appropriate written contact authorization from the taxpayer

    12. Approving expansion or contraction of issues in the Large Case Audit Plan including expanding to other years and related returns

    13. Reviewing and approving Notices of Proposed Adjustments

    14. Approving Employee Plans Compliance Resolution System (EPCRS) checksheets (CAP & SCP)

    15. Reviewing and approving the closing letter(s)

  2. The manager must monitor the Large Case examination progress.

  3. The primary monitoring techniques are visits and meetings with Large Case Team members and the taxpayer.

  4. The Large Case Manager should plan visits, whether on-site or at any other location, with the following objectives in mind:

    1. Determine that communications are open

    2. Evaluate the effectiveness of the Large Case engagement agreement (if prepared) and the Large Case audit plan and make necessary adjustments when appropriate

    3. Check on progress

    4. Identify problems

    5. Provide instructions for corrective action

    6. Evaluate personnel

    7. Help resolve issues

  5. The manager should keep a case file with the information necessary to stay informed of the case status. Examples of items that may be included in the file are:

    1. Large Case engagement agreement (if prepared)

    2. Form 4764 (Large Case) and updates. See IRM 4.71.16, Exhibit 9 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Form 4764 (Large Case).

    3. List of support specialists involved in the examination

    4. Minutes from status meetings, and

    5. Status report of the examination

  6. The manager is encouraged to maintain any other data that is useful in managing the case.

  7. The manager should consider a risk analysis at various intervals during the examination to assess the viability of issues and appropriateness of the resources used.

    Note:

    The manager and coordinator determine the format and timing of the risk analysis.

  8. The Large Case Manager will regularly communicate with the Large Case Team Coordinator to monitor the progress of the examination.

Visits

  1. On-site visits and meetings are important elements of the manager's involvement in the case. The manager shouldn’t delegate this responsibility to others.

  2. During a visit, the manager may:

    1. Determine whether the team is working examination issues in priority order and whether changes to the audit plan exam scope and depth are appropriate and timely

    2. Review progress on action items generated during previous reviews

    3. Review examination issues in process and discuss with the coordinator the need to expand, contract, or redirect examination activity

    4. Review examination issues not in process and determine what, if any, impact subsequent events have had on their potential for adjustment

    5. Review Form 5701-A for completeness and accuracy prior to issuing

    6. Review Form 4764-B and other completed workpapers to ensure that the audit trail is well documented and issues are being properly developed

    7. Review IDR log and IDR turnaround time

  3. There are several types of visits, depending on the stage of examination. These include:

    1. Planning visits to develop the Large Case engagement agreement (if prepared) and the Large Case audit plan

    2. Monitoring visits with team members and the taxpayer while the examination is underway

    3. Status meetings

    4. Problem-solving visits with team members and the taxpayer

    5. Visits with team members to develop a uniform presentation of proposed issues to the taxpayer

  4. During a visit to an examination site, the manager may need to meet with the appropriate levels of company management to discuss the progress of the examination and to resolve any potential problems.

Responsibilities of the Large Case Team Coordinator

  1. The Large Case Team coordinator’s primary responsibilities are:

    1. Preparing the Large Case audit plan and the optional Large Case engagement agreement

    2. Obtaining proper disclosure written authorization and Form 2848 signed by the taxpayer’s authorized official

    3. Coordinating the exam’s day-to-day activities

    4. Protecting the statute of limitations

    5. Coordinating the assignments, receipt of information and team members’ (including specialists assigned to the plan examination) progress

    6. Coordinating the correspondence between the team members and the taxpayer (help team members and specialists to follow up on IDRs and timely involve all levels of management, if necessary)

    7. Serving as the point of contact for the prompt and orderly flow of information

    8. Coordinating with the CAS to make sure the team receives records on time to conduct the examination, including record retention agreements, if necessary

    9. Reviewing Form 4764-B proposed by team members

    10. Approving Form 5701-A before the manager approves

      Note:

      See IRM 4.71.16, Exhibit 2 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Form 5701-A.

    11. Advising team members including LB&I, EO, or Fed State Local/ET of developing issues

    12. Preparing a write-up of the history of the company, owners and plans

    13. Coordinating our review of the internal controls and preparing an analysis identifying the strengths and weaknesses in the systems and processes to consider when preparing the audit plan

    14. Advising and helping team members to comply and understand agreements made at the opening conference

    15. Timely informing the manager of any problems between the taxpayer and team members or problems among team members

    16. Receiving and reviewing team members’ IDRs to ensure uniformity, clarity, and avoidance of duplication, (this includes coordinating IDRs issuance with the LB&I, EO, or Fed State Local/ET team coordinator)

    17. Keeping files of all IDR copies and following up on time

    18. Maintaining the IDR log (see IRM 4.71.16, Exhibit 1 at IRM 4.71 - Employee Plans Examination Exhibits for an example of an IDR Log)

    19. Participating in issue development and resolution

    20. Putting together all team members’ workpapers into one overall Large Case file

    21. Drafting the closing letter(s) for the manager's approval

  2. The coordinator is the first Large Case team member the manager selects.

  3. During the examination, the coordinator is the focal point for communication with the team members.

  4. The coordinator:

    1. Plans the examination including the analysis of the internal controls

    2. Assigns examination responsibilities to Large Case Team members

    3. Regularly reports the issues and examination progress to the manager

    4. Meet with the taxpayer to discuss issues and the progress of the examination

Documentation of Management Actions

  1. The coordinator documents significant Large Case management activity, which may change the approved Large Case audit plan. Examples of significant modifications are:

    1. Expanding the examination scope that will require a significant increase in planned time

    2. Contracting the examination with a significant reduction in staff time

    3. Redeploying employees

    4. Changing emphasis in exam areas regardless if the overall planned time is significantly changed

    5. Changing any other areas not previously identified

Planning the Large Case Examination

  1. The planning process is one of the most important case activities.

  2. Involve the taxpayer in the planning process.

  3. The manager actively helps the coordinator in this process.

  4. The manager should consider other matters such as the prevailing economic factors.

  5. The manager and coordinator evaluate the need for support when they plan the examination.

  6. If the taxpayer is engaged in an issue identified for specialization and coordination (such as abusive tax avoidance transaction (ATAT) issues), the Large Case team coordinator contacts the designated specialist for advice and help.

  7. The manager and coordinator must become familiar with the taxpayer’s business operations. They review and analyze the following to determine staffing requirements, specialists needed, and the general approach to the examination:

    1. Plan returns

    2. Plan sponsor’s returns

    3. Other planning sources (see IRM 4.71.16.7.3, Other Planning Sources)

  8. Upon completion of the preliminary review, the coordinator summarizes:

    1. Issues which will be priority in the examination

      Note:

      The coordinator must consider the internal controls analysis when selecting the examination issues.

    2. Overall exam scope and approach

    3. Specialists and non-specialists members needed

    4. Estimated completion date

  9. The coordinator notifies all specialists involved in the examination and advises them of:

    1. The date, time, and place of any scheduled meeting(s)

    2. The scheduled starting date of the examination

    3. The description of data available for review

Review of Returns in the Planning Process

  1. The manager and coordinator must review related returns to determine:

    1. The size and complexity of the case

    2. Comparison of items for the year(s) under examination with like items in prior and subsequent years as appropriate

    3. The existence of large or unusual questionable items

    4. Location of the primary taxpayer(s) subsidiaries

Requesting Support Staffing

  1. The manager and the coordinator must evaluate the need for support when they plan the examination.

  2. The team uses SRS to ask for a CAS specialist’s help and the coordinator forwards the support request as soon as they determine the need. It’s important to bring the CAS into the planning process as early as possible because they often provide valuable planning tools.

  3. The coordinator should request the Area Actuary or TE/GE Area Counsel’s help when the team determines the need.

Other Planning Sources

  1. The manager and coordinator may wish to consult other sources such as:

    1. The Taxpayer's website (organizational structure, business activities, etc.)

    2. Trade associations

    3. Published media reports

    4. Governmental agency audit reports (e.g., SEC reports)

    5. IDRS

    6. Employee Plans Determination System (EDS)

    7. Accurint Service

    8. Yk1 Analysis Tool

    9. Other Large Case managers and team coordinators who have examined similar entities

Time Planning

  1. The manager and the coordinator estimate the examination duration based on the following factors:

    1. Scope and complexity of examination areas selected

    2. Location and availability of records

    3. Extent of computer assisted examination techniques

    4. Coordination with LB&I, EO, or Fed State Local/ET

    5. Experience of the coordinator and team members

    6. Travel time (on-site vs. support)

    7. Taxpayer's staffing and cooperation

Financial Interests and Disclosure

  1. The manager ensures that each team member (including specialists, support examiners, and accounting aides) is aware of and understands the statute requiring disclosure of any financial interest or conflicts, which might create a real or apparent conflict of interest.

  2. At the start of every examination, each team member reports any financial interests that are potential conflicts of interest.

    1. Use the Large Case Financial Interest Disclosure Form. See IRM 4.71.16, Exhibit 3 at IRM 4.71 - Employee Plans Examination Exhibits for an example of this form.

    2. Each team member must complete and sign a separate form.

    3. See Policy Statement 4-6 and Policy Statement 4-7.

  3. The manager:

    1. Reviews each Financial Interest Disclosure form

    2. Determines whether a potential conflict of interest may exist

    3. Signs each form

  4. If a potential conflict of interest may exist:

    1. The manager and the applicable team member complete Form 6782.

      Example:

      A potential conflict of interest may exist if the team member owns publicly traded securities of the taxpayer valued at more than $15,000. See the instructions to Form 6782.

    2. If the manager determines that a financial interest (as defined in the Standards of Ethical Conduct for Employees of the Executive Branch, 5 C.F.R. part 2635, subpart D) does not exist, the team member will remain on the team.

      Note:

      A key factor in determining this is whether the team member's work on the case will cause others to question the his/her impartiality and independence.

    3. If the manager determines that a financial interest may exist, he/she won’t permit the member to work on the case.

    4. The manager may seek legal advice from the Ethics and General Government Law Branch of General Legal Services if they need help determining this and will remove the member from the case until he/she determines that there’s no financial conflict of interest.

  5. The manager certifies to their area manager that there is no conflict of interest with respect to their personal or financial interest using the Large Case Financial Interest Disclosure Form. See IRM 4.71.16, Exhibit 3 at IRM 4.71 - Employee Plans Examination Exhibits for an example of the Large Case Financial Interest Disclosure Form).

  6. If a potential conflict exists, the manager follows the disclosure procedures and completes the certification form discussed in the handbook for the Rules of Conduct.

  7. Save the Financial Interest Disclosure form in the RCCMS Office Documents folder using the RCCMS Naming Convention.

Conducting the Large Case Examination

  1. This section describes the following elements of the Large Case examination:

    1. Notice of examination

    2. Opening conference

    3. Internal controls

    4. Large Case engagement agreement

    5. Large Case audit plan

    6. Large Case workpapers

Notice of Examination

  1. The coordinator signs the "Notice of Examination Letter" and mails it to the taxpayer early in the examination process, either before or with the initial IDRs.

  2. Use Letter 1346-I,"Notice of Examination Letter - Plans Identified," when the team identifies the specific plans under examination. Letter 1346-I identifies the specific plan(s) under examination. See IRM 4.71.16, Exhibit 4 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a "Notice of Examination Letter."

  3. For Multiemployer Audit Program cases (MAP) use Letter 1346-M. See IRM 4.71.16, Exhibit 11 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Letter 1346-M. See also IRM 4.72.14, Multiemployer Plan Examination Guidelines.

    Note:

    MAP plans are plans covered by a collective bargaining agreement and should not be confused with Multiple Employer Plans (MEP).

Opening Conference

  1. The opening conference is a face-to-face meeting with the taxpayer’s authorized employees. Its purpose is to:

    1. Discuss the case selection process

    2. Verify the taxpayer’s size, dispersion, and all related entities

    3. Confirm the availability of the books and records

    4. Discuss the accounting system and compliance with Rev. Proc. 98-25, IRB 1998-19

    5. Arrange for the availability of information and documents at the start of the examination

    6. Arrange for flow of communications from the Large Case manager and the Large Case team coordinator to the taxpayer and vice versa

    7. Establish agreements as to accommodations for the team, including such items as secure office space, locked file cabinets, parking arrangements, and security badges

    8. Establish agreement that the coordinator will raise, discuss, and resolve issues as the examination progresses

    9. Establish agreement that the taxpayer will prepare its protest to identified unagreed issues during the examination

    10. Establish agreement on security of IRS and taxpayer documents kept on the taxpayer's premises during the examination

    11. Establish agreement for response time frames of IDRs, Notices of Proposed Adjustments/Issues (NOPAs), etc.

      Note:

      IDR response dates should be mutually agreed upon and comply with general program examination requirements.

    12. Discuss the exam scope and depth

    13. Plan a meeting with the taxpayer and appropriate staff to discuss the taxpayer's internal controls, processes and procedures for plan operations

    14. Provide an estimated completion date for the examination

  2. The coordinator gets a written authorization at the opening conference or planning stage that lists the names and titles of those individuals who have the authority to provide information and enter into agreements. This helps avoid potential miscommunication or inadvertent disclosure.

    1. A taxpayer-authorized official must sign the written authorization.

    2. If the authorization identifies an individual other than an employee(s) acting within the scope of their employment, then this form should be similar to Form 8821, and all of its restrictions.

    3. Because the Large Case authorization form’s use is limited, you may need to obtain a properly completed Form 2848 to address adjustments and negotiations. See paragraph (3) of IRM 4.71.1.9, Power of Attorney (Form 2848) and Tax Information Authorization (Form 8821).

  3. The manager should ensure that:

    1. Taxpayer employees designated to give team members information should be those who are best qualified to give complete first-hand information.

    2. The coordinator explains the roles of the team members, including those authorized to secure information and discuss issues.

  4. After concluding the opening conference, the coordinator prepares written minutes of the meeting which summarize pertinent information developed and agreements made.

Internal Controls

  1. Analyzing the taxpayer’s internal controls is an important part of a Large Case examination.

  2. Large Case agents must examine the internal controls of the plan sponsor, take appropriate actions and record the results of their actions and analysis in the case file.

  3. Internal controls are a system of procedures the taxpayer and the plan administrator use to:

    1. Ensure and promote the information’s reliability and accuracy to administer the plan and calculate benefits per the written plan document.

    2. Ensure that the plan operationally complies with plan provisions and the Internal Revenue Code (Code).

    3. Safeguard plan participant benefits and the trust assets from fraud, waste and abuse.

  4. These systems and processes support plan operations and include:

    1. The process for keeping plans qualified in form under IRC 401(a) and other applicable Code sections

    2. Day-to-day plan operations (both qualified and non-qualified plans)

    3. Payroll systems used to capture compensation data for benefit and testing purposes (such as allocations)

    4. Human Resources and Benefits Department actions (such as determination of eligibility)

    5. Process for determining pension expenses and deductions

    6. Trust investment strategies

    7. Distribution responsibilities

    8. End of year testing responsibilities

  5. In the early stages of the Large Case examination, the coordinator analyzes internal controls to determine their level within the various systems and processes the taxpayer uses to administer their plan(s) and capture data.

  6. The objectives of the internal controls analysis is to:

    1. Understand the systems the taxpayer uses to administer their qualified retirement plan processes

    2. Understand how these systems work independently and how they interact with each other

    3. Verify the level of data accuracy input into the various systems

    4. Help develop the audit plan

  7. An effective analysis of internal controls will help the Large Case Team:

    1. Identify the plan sponsor's internal controls of their systems and processes vulnerabilities

    2. Develop an audit plan that includes potential areas of non-compliance

    3. Get a level of confidence in how well the internal controls are working in operation

    4. Revise the preliminary review and formulate an audit plan for the focused examination

    5. Expand or limit the scope of the examination

  8. Suggested methods and types of analysis include:

    1. Interview of key employees who control the various systems and processes

    2. Analyze the information you secured through interviews, internal control questionnaires and other resources

    3. Perform limited testing on systems and processes as appropriate

    4. Expand testing to areas identified for potential non-compliance

The Large Case Engagement Agreement

  1. The Large Case engagement agreement has two purposes.

    1. To formalize the groundwork for an examination consistent with the Large Case Program concepts.

    2. To prevent misunderstandings of commitments and agreements made.

  2. The Large Case engagement agreement is optional. Another option is that the Large Case Team Coordinator may document all agreements discussed at the opening conference in the minutes. See IRM 4.71.16, Exhibit 6 at IRM 4.71 - Employee Plans Examination Exhibits for an example of the Large Case Engagement Agreement.

Preparation of the Large Case Engagement Agreement
  1. The coordinator completes the Large Case engagement agreement after the opening conference and in the early stages of the examination.

  2. The pre-contact analysis, the preliminary survey of the plan sponsor’s records, and the opening conference should provide the information necessary to prepare the Large Case engagement agreement.

  3. The Large Case engagement agreement should clearly identify, in writing, the agreements made with the taxpayer.

  4. The manager and the elected officer, or taxpayer’s delegate, should each sign the Large Case engagement agreement acknowledging the opening conference’s matters covered and agreements made.

Commitments and Content of the Large Case Engagement Agreement
  1. Taxpayer and IRS commitments for examination activities should be realistic. Both the Large Case team and the taxpayer should diligently try to meet these commitments, particularly in the following areas:

    1. The date to begin field work on the examination

    2. The location of the examination

    3. Records required

    4. Space and equipment required

    5. Requests for information (IDR due dates in general)

    6. Requests for statute extensions

  2. In seeking commitments from the taxpayer, the manager should be sure that the individual they are dealing with:

    1. Is an elected corporate officer, trustee, or delegate, who can provide information and enter into agreements regarding examination procedures

    2. Will be responsible for notifying primary individuals in the taxpayer’s organization of the arrangements affecting them

  3. In communicating with the taxpayer, the manager should be sure that:

    1. The written authorization agreement specifies the authorized individuals in the taxpayer’s organization who will furnish information, discuss tax matters, negotiate adjustments and approve adjustments to tax returns with the team.

    2. Taxpayer employees designated to furnish information to team members are the best-qualified persons to give complete first-hand information. This may include people responsible for preparing the examination documents.

Large Case Audit Plan

  1. The purpose of the Large Case audit plan is to outline the exam’s scope, depth and special techniques and inform team members of their specific assignments. Team members will:

    1. Use their time in the best way.

    2. Know their role in the examination, how to proceed and, if necessary, information they should develop for other team members.

  2. Use Form 4764 (Large Case), or similar computer generated form. See IRM 4.71.16, Exhibit 9 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a Large Case audit plan on Form 4764 (Large Case).

Workpapers

  1. Use standardized workpapers and reports and create a single file or report.

  2. State procedures for labeling and controlling electronic data.

  3. Use the same workpaper standards as for general program examinations. See IRM 4.71.1.15.1, EP Workpapers, for quality workpaper standards.

Workpaper Indexing
  1. Consistently index workpapers using the Employee Plans Examination Standard Audit Index Number (E-SAIN) system. See IRM 4.71.16, Exhibit 8 at IRM 4.71 - Employee Plans Examination Exhibits for a list of ESAIN numbers with descriptions.

  2. You can also use the E-SAIN system to:

    1. Assign work in the audit plan

    2. Develop standard examination procedures and workpapers (commonly done on Form 4764-B). See Exhibit 7 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Form 4764-B.

    3. Identify the subject and organize IDRs

    4. Link exhibits to the workpapers

  3. The manager can approve another method of indexing workpapers in appropriate circumstances; however, all team members assigned to the case must use the same system.

Information Document Request (IDR) Process

  1. The IDR process gives the team a structured process to use when gathering information during an examination.

  2. During the opening conference, the manager and coordinator discuss the process for managing IDRs and meet with the taxpayer to determine the IDR response times. Include the resulting agreement in the opening conference minutes and the Large Case engagement agreement.

  3. The coordinator keeps an IDR log to monitor IDR status and follow up when an IDR response is delinquent. See IRM 4.71.16, Exhibit 1 at IRM 4.71 - Employee Plans Examination Exhibits for an example of the IDR Log.

  4. The coordinator contacts the taxpayer to discuss problems and reasons for the delay. If necessary, involve the manager. Document these discussions for future tracking.

  5. Subsequent discussions include:

    1. Evaluating other ways or sources to get the requested or needed information

    2. If necessary, preparing and issuing a follow-up IDR to the delinquent IDR. Use a reasonable response date for the follow-up IDR based on discussions with the taxpayer. Attach the original IDR to the follow-up IDR.

  6. If the taxpayer doesn’t respond to requests for information, consider serving a summons when you need to pursue an issue and don’t have sufficient facts to develop or resolve the issue. The coordinator consults with Area Counsel for guidance to prepare and issue the summons.

Delinquent Returns Secured

  1. Team members are responsible for securing and processing:

    1. Delinquent Forms 5330 per IRM 4.71.5, Form 5330 Examinations

    2. Delinquent Forms 990-T per IRM 4.71.10, Form 990-T Examinations

    3. Delinquent Forms 5500 per IRM 4.71.1.21, Amended, Substitute and Secured Forms 5500

Completing the Large Case Examinations

  1. When an team member completes his/her part of the examination, they must do the following:

    1. Prepare Form 5701 (NOPA), Form 886-A, or other report and discuss any pending proposed issues with the coordinator and manager for their agreement.

      Note:

      The coordinator should raise issues throughout the examination per agreements made during the opening conference or per the Large Case engagement agreement.

    2. Discuss proposed issues with the appropriate taxpayer official per the protocol list discussed during the opening conference (generally include the coordinator or manager).

    3. Complete your portion of the workpapers and forward them to the coordinator.

    4. Report case time to the coordinator if the case is not ready to close.

    5. Close the case on WebETS (Form 6490) when all team members have completed their examination segment and the case is closed

      Note:

      Each team member closes the case on their individual WebETS, although the coordinator is the only one who has the case in RCCMS inventory.

  2. The workpapers should support the conclusions reached in each segment of the examination. See IRM 4.71.1.15, Workpapers.

  3. Team members forward all supporting workpapers to the coordinator to assemble in the final examination case file.

  4. Include NOPAs and other team member reports in the examination case file.

  5. After the coordinator completes and assembles the examination case file, he/she forwards it to the manager for review.

  6. When examining a taxpayer with LB&I, EO, or Fed State Local/ET, the coordinator prepares a closing coordination memo and sends it to the appropriate LB&I, EO, or Fed State Local/ET case manager when the case is closed. See IRM 4.71.16, Exhibit 10 at IRM 4.71 - Employee Plans Examination Exhibits for a sample report to LB&I.

  7. The closing coordination memo should include the following:

    1. A summary of the examination results

    2. Plans for any future examinations

    3. A copy of the closing letter(s)

    4. A copy of the closing agreement (if applicable)

    5. Any other information needed or requested by LB&I, EO, or Fed State Local/ET

  8. The coordinator may schedule a closing conference at their and the manager’s discretion. See IRM 4.71.16.10.1, Closing Conference.

Closing Conference

  1. The purpose of the closing conference, if held, is to discuss the results and the effectiveness of the Large Case examination.

  2. Those attending the closing conference typically include the Large Case team coordinator, any designated Large Case team member, and any individual designated by the Taxpayer.

  3. The coordinator prepare the closing conference minutes and includes them in the case file.

Review of the Large Case

  1. The manager reviews the case to:

    1. Determine compliance with IRM procedures and guidelines

    2. Evaluate potential Tax Exempt Quality Measurement System (TEQMS) deficiencies

    3. Review closing documents

    4. Review examination closing letter(s)

  2. Managers of specialty groups must develop issues and document separate specialty reports IRS issued. EP includes copies of specialty reports in the EP case file.

Closing the Large Case Examination

  1. Follow the Form 5500 examination closing procedures (unless noted differently) in IRM 4.71.1.22.1, Closing Procedures for Agreed Form 5500 Examinations.

  2. Prepare a closing letter for each return and non-return unit (NRU) examined the same as you would for any other EP examination.

  3. Mail closing letter(s) from your group or hand deliver them to the taxpayer.

    Note:

    Document your Form 5464 (CCR) with the date the letter was mailed or delivered.

  4. The coordinator works with LB&I, EO, and Fed State Local/ET on issuing the closing letter(s).

  5. The manager documents his review of closing letter(s) on the file copy of the closing letter(s) or on Form 5464.

  6. To the extent possible, the coordinator must save all workpapers, forms and letters the team generated in the RCCMS Office Documents folder using the RCCMS Naming Convention.

    Note:

    If the coordinator can’t save any portion of the Large Case examination file in RCCMS, they must keep it in hard copy or save it on a secured CD or retractable USB.

    Note:

    Form 5772 and Form 5773 are optional for Large Case examinations.

  7. For all "unagreed" cases, follow the "unagreed" examination procedures in IRM 4.71.

    1. Process "unagreed" Form 5500 examinations per IRM 4.71.3, Unagreed Form 5500 Examination Procedures and EP Exam Closing Agreements.

    2. Process "unagreed" Form 5330 examinations per IRM 4.71.5.9, Unagreed Cases.

    3. Process "unagreed" Form 990-T examinations per IRM 4.71.10.5, Unagreed Cases.

  8. The group closes the Large Case examination case(s) on RCCMS and AIMS and sends related paper files to the TE/GE Closing Group with Form 3210. See IRM 4.71.1.22, Report Writing and Closing Procedures.

Assessment of Specialist Team Members Performance

  1. After each Large Case examination involving employees from a supporting area, the Large Case Manager considers submitting written comments about the Large Case Team members' work to the appropriate manager.

  2. The Large Case Manager should detail in writing, a Large Case team member’s performance.