4.71.22 Employee Plans Compliance Unit (EPCU)

Manual Transmittal

July 11, 2019

Purpose

(1) This transmits revised IRM 4.71.22, Employee Plans Examination of Returns, Employee Plans Compliance Unit (EPCU).

Material Changes

(1) Enhanced IRM 4.71.13.1, 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) IRM 4.71.1.1.7, Safeguarding Personally Identifiable Information, was added to comply with the December 20, 2016, Internal Guidance Memorandum (IGM) from the Director, Identity and Records Protection Privacy, Governmental Liaison and Disclosure, entitled Social Security Number Elimination and Reduction (SSN ER). This section augments compliance with the May 22, 2007 Memorandum (M-07-16) issued by the Office of Management and Budget (OMB) entitled Safeguarding Against and Responding to the Breach of Personally Identifiable Information to the Heads of Executive Departments and Agencies.

(3) Removed hyper links to the IRM when discussing policy statements and delegation orders in IRM 4.71.22.1.1, Background.

(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 4.71.22 dated January 16, 2018.

Audience

Tax Exempt and Government Entities
Employee Plans

Effective Date

(07-11-2019)

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

Program, Scope and Objectives

  1. Purpose: IRM 4.71.22, Employee Plans Examination of Returns, Employee Plans Compliance Unit (EPCU), provides general guidance for employees in the EPCU conducting compliance checks that support and enhance Examination activities.

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

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

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

    1. IRC section 7602 - Examination of books and witnesses, which falls under Chapter 78 - Discovery of Liability and Enforcement of Title.

      Note:

      IRC 7602 provides agents with the authority to:
      * 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.

    2. IRC section 6201- Assessment authority, which falls under Chapter 63 - Assessment.

      Note:

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

  5. This IRM section is authored by EPCU. For questions, information or suggestions, contact the manager of EPCU.

Background

  1. EP Examination is the division designated to determine 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 such plans meet the applicable qualification requirements in operation.

  3. Under Policy Statement 4-117, EP agents and managers are:

    1. Given broad authority to consider and weigh conflicting information, data, and opinions.

    2. To use professional judgement according to auditing standards to make findings of fact 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. All examinations will be done in accordance with Policy Statement 1-236, Fairness and Integrity in Enforcement Selection.

Program Controls

  1. EPCU conducts quality reviews on closed cases, a percentage of which are pulled for review on a project basis.

Acronyms and Forms

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

    Acronyms

    Acronym Definition
    AIMS Audit Information Management System
    ASED Assessment Statute Expiration Date
    CCR Case Chronology Record
    DOL Department of Labor
    EGC Employee Group Code
    EP Employee Plans
    EPCU Employee Plans Compliance Unit
    IDRS Integrated Data Retrieval System
    IRC Internal Revenue Code
    IRM Internal Revenue Manual
    LB&I Large Business and International Division
    PBGC Pension Benefit Guaranty Corporation
    POA Power of Attorney
    PSC Project Selection Committee
    PT Prohibited Transaction
    QMS Quality Measurement System
    RISE Research & Inventory System EPCU
    SB/SE Small Business /Self-Employed Division
    TEQMS Tax Exempt Quality Measurement System
    W&I Wage and Investment Division

     

    Forms and Pubs

    Form Name
    Form 872 Consent to Extend the Time to Assess Tax
    Form 872-H Consent to Extend the Time to Assess Tax on a Trust
    Form 895-EP Notice of Statute Expiration
    Form 5330 Return of Excise Taxes Related to Employee Benefit Plans
    Form 2848 Power of Attorney and Declaration of Representative
    Form 5464 Case Chronology Record
    Form 5500 Annual Return/Report of Employee Benefit Plan
    Form 5666 TE/GE Referral Information Report
    Form 8821 Tax Information Authorization

     

Contact Information

  1. Phone, fax and email information:

    1. EPCU:
      heidi.l.hansen@irs.gov (phone: 801-620-4366)
      craig.chomyok@irs.gov (phone: 312-292-3805)

    2. Classification: *Manager EO Classification (EOclass@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 Classification.

  2. Postal mailing addresses:

    1. EPCU - Odgen:
      Internal Revenue Service
      EPCU TEGE - EP
      ATTN: EPCU Group Manager
      1973 Rulon White Blvd.
      MS 1113
      Ogden, UT 84201-0251

    2. EPCU - Chicago:
      Internal Revenue Service
      TEGE EP EPCU
      ATTN: EPCU Group Manager
      230 S. Dearborn St.
      7602-CHI, Room 1700
      Chicago, IL 60604

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

Overview of EPCU

  1. This IRM provides general guidance for employees in the EPCU who work with compliance checks.

  2. EP Examinations created the EPCU to leverage the limited number of EP examinations field employees.

  3. EPCU’s primary objective is to identify vulnerable areas in EP for non-compliance through project development, design, and implementation.

  4. The EPCU employees (project members) focus on:

    1. compliance projects, in which they make compliance contacts (known as compliance checks) with the retirement community.

    2. educational projects within the retirement plans community.

  5. The EPCU also supports EP Examinations by:

    1. Screening initial contacts with taxpayers

    2. Conducting research

    3. Identifying potentially abusive trends

    4. Verifying reported information

    5. Obtaining correction to information reports, returns, and return information

    6. Providing alternate taxpayer compliance treatments.

      Note:

      EPCU performs a variety of data analysis.

Compliance Checks

  1. A compliance check is a contact with a taxpayer to review information, income and excise tax return items.

    1. A compliance check is not an examination, and usually doesn’t include an examination or inspection of books and records.

      Note:

      Although a compliance check is not an examination, EP can open one if the taxpayer fails to properly respond.

    2. The taxpayer has the legally right not to participate.

    3. A compliance check doesn’t necessarily equate to a determination of a tax liability for a particular period.

    4. Compliance checks help educate practitioners, plan sponsors and participants about plan qualification and reporting requirements, and increases voluntary compliance.

EPCU Project Life Cycle

  1. The EPCU receives project suggestions from internal and external sources.

    1. Internally, employees may email ideas, suggestions, multiemployer certifications, and comments to *EPCU.

    2. External sources include practitioners in the pension community as well as the Department of Labor.

  2. The TE/GE Governance Board approves compliance strategies for the EPCU to work as compliance checks.

    Reminder:

    Before May 2017, the Project Selection Committee (PSC) evaluated and approved potential project ideas for the EPCU to work.

  3. The EPCU evaluates suggestions and may perform some preliminary research to determine the compliance strategy’s feasibility by coordinating with Compliance Planning and Classification (CP&C).

    Note:

    This data analysis helps prioritize project ideas.

  4. Suggestions and ideas are considered based on the identified compliance issue, EP’s operating priorities, and the scope of plans involved, and may be:

    • approved

    • pending approval (subject to a subsequent action)

    • rejected

    • tabled for future action

  5. EPCU runs specific queries to identify plans or returns meeting the specified project criteria. This data querying process identifies the scope (number) of plans/returns for the project and helps determine if EPCU will work a valid sample for the entire population.

  6. EPCU analyzes the data to determine the best approach for the project. This analysis helps ensure the EPCU meets the project’s goal(s) in the most efficient way.

  7. EPCU creates a prospectus for each project that identifies its: purpose, scope, and action.

  8. To address the potential area of non-compliance, EPCU generates either the generic initial contact letter (Letter 1562-D) with an attached request for information, or a customized letter designed specifically for the project.

  9. The EPCU creates a webpage on IRS.gov to provide information for each project.

  10. All EP Directors review, edit, and approve the project prospectus, the contact letter (if newly designed), the request for information, and the webpage narrative.

  11. EPCU creates case files and reviews case data to prepare for initial contact with the project population.

  12. EPCU makes follow-up contacts when no response is received or when mail is returned undeliverable.

  13. EPCU team member determines if additional information is needed, or if the case can be closed based on the received information.

  14. EPCU may refer a case for possible audit or submit a request for examination to resolve issues.

  15. When a case is closed from EPCU, a closing letter is usually sent to the taxpayer. If EPCU doesn’t send a closing letter, it’s usually because EPCU:

    1. Sent the case to the field for audit.

    2. Can’t locate the taxpayer.

    3. Closed the case based on information from other sources.

  16. The EPCU:

    1. Reviews all project cases.

    2. Closes all of the project cases.

    3. Prepares a report documenting the results and making recommendations for future actions, as appropriate.

Compliance Check Inventory Control Process

  1. The EPCU establishes compliance checks on the Research & Inventory System EPCU (RISE), an inventory tracking system.

  2. The EPCU updates all cases with subsequent activities.

  3. See the RISE IRM for details on how to use the system.

Delinquent Returns or Adjustments to Related Returns Secured During Compliance Checks

  1. If the EPCU secures delinquent returns or adjustments to related returns during a compliance check, EPCU will either recommend the return for examination or close the case.

    1. If EPCU decides to examine a return, they’ll follow the appropriate procedures in IRM 4.71, Employee Plans Examination of Returns.

    2. If EPCU doesn’t recommend examination, the project team will close the case.

    3. EPCU helps taxpayers by explaining reasonable cause criteria and helping them prepare an explanation for their late filing of a return(s).

    4. EPCU documents in the compliance check workpapers that they’ve secured delinquent returns.

    5. EPCU uses the appropriate RISE disposal code to show how the case was closed.

Compliance Check Case File Assembly

  1. Compliance check case files may be paper case files or electronic case files.

  2. Use the guidance in IRM 4.71.22.6 (3) through IRM 4.71.22.6 (7) to assemble paper case files.

  3. Outside-front— Attach EPCU’s case closing form to each case folder.

  4. Inside-left — Attach the following items to the inside-left of each case file, from top to bottom:

    • Form 5464 (CCR)

      • list the date and a statement of each action or step taken on a case.

      • include incoming and outgoing telephone calls, letters sent and received, research done, the case conclusion, etc.

      • place in sequential order; the CCR with the most recent entries is on top

    • Form 5666 or Request for Examination form (if applicable)

    • Any AIMS forms and/or other closing documents

  5. Inside-right— Place the following items from top to bottom on the inside-right:

    • Project lead sheet

      Note:

      The lead sheet is an optional form used to review the case. It’s different for each project, since projects vary.

    • Form 895-EP (if applicable)

    • The primary return (for example, Form 5500) with the Form 2848 or Form 8821 stapled face down to the back of the first page and with the Form 872-H stapled face down to the back of the last page of the return. If the case file doesn’t have a copy of the return, place Form 2848 (or Form 8821) and Form 872-H face up in this section.

    • Correspondence

      • Put correspondence (letters, faxes, transcripts of telephone calls, and/or emails) in date order, with the most recent date on the top.

      • You may destroy the envelope unless: a statute issue is involved, the envelope contains a late filed return (attach the envelope to the return before sending it to be processed), or the envelope has other pertinent data.

    • Plan documents, adoption agreements and plan amendments (place each in date order by category/item type, with the most recent date on top).

    • Any other related return(s)

    • EDS/TEDS information

    • IDRS prints

  6. For cases reviewed in EPCU Quality Management System (QMS), print the administrative page and matrix. Staple the pages together and place inside the folder on the top.

  7. Staple or fasten items with clips. This keeps the file organized.

  8. Use the following guidelines to assemble electronic case files:

    1. Include all case file documents in the electronic case file. Scan paper documents for the electronic case file.

    2. Organize, label and assemble so anyone picking up the file can easily understand the case.

    3. For any case reviewed in EPCU QMS, save the administrative page and matrix in a QMS folder.

Request and Referrals for Examinations

  1. As EPCU conducts compliance checks, they develop certain cases and recommend them for audit in EP Exam to deal fully with the identified issues. These cases are sent to Classification. See IRM 4.71.22.1.4, Contact Information, for who and where to send cases.

  2. It is important to know the difference between a "Request for Examination" and a "Referral" .

    1. A "Request for Examination" is made when EPCU develops a known EP issue and additional field work is needed to resolve the issue.

      Note:

      Only EPCU uses the EPCU Request for Examination form.

    2. A "Referral" is made when a problem is suspected but not known and is often used with cases that must be worked outside of EP (for example by SB/SE, W&I, or LB&I). A "Referral" may also be made to EP Exam, DOL or PBGC, depending on the type of return involved. Refer to IRM 4.71.6, Employee Plans Referrals, for referral procedures and for instructions to complete Form 5666. Make a copy of the Form 5666 to keep in your EPCU case file.

  3. Before sending an examination request to Classification, consult with the project manager assigned to the project.

    1. Carefully consider each case’s facts and evaluate based on the specific issues involved before you make an examination request.

    2. Issues that may involve an examination request include (but are not limited to): excise tax, income tax (including discrepancy adjustments), prohibited transactions (PTs), losses due to dishonesty, unagreed issues, and administrative procedures requiring change.

      Note:

      Generally, cases with funding deficiencies are sent as referrals unless otherwise approved by the project manager.

  4. Obtain EPCU group manager approval on cases with an assessment statute expiration date (ASED) of less than 12 months before making the examination request. Consider requesting an examination in subsequent years if the issue applies to those tax periods.

  5. Place each tax period or plan number in a separate folder.

  6. Band together related file folders.

  7. Provide a detailed reason for the examination request in the CCR and clearly note the statute expiration date.

  8. Copy, print or compile electronically the following items (if applicable/available) from the EPCU case file:

    • Form 2848

    • Project Lead Sheet

    • Return(s)

    • Form 5464

    • Pertinent correspondence and information

    • IDRS research

  9. For a paper case file, print the EPCU Request for Examination form on bright yellow paper, unless the statute of limitations is within 210 days. For cases with a statute of limitations of 210 days or less, print the EPCU Request for Examination form on red paper.

  10. Complete the EPCU Request for Examination form.

    1. The initiator must complete the top half of the form.

    2. Check the box at the top of the form to route the case to Classification.

    3. Complete all of the requested taxpayer and project information.

    4. If the examination request is for a Form 5500 series return, complete the condition code.

      Note:

      Each project is assigned a condition code. Contact your manager if you need a condition code.

    5. Under "Primary Reason for Assigning Case to EP Exam" , document the reason for the request.

      Note:

      The documentation should include wording that Classification can use as their "Focused Audit Issue" .

    6. List the dollar amounts involved.

    7. List any statute extension dates from a secured Form 872.

    8. If the case involves a PT, indicate whether the PT was corrected.

    9. Create an attachment if you need additional space.

  11. Obtain an INOLES print (if not in the case file) showing the current address of the taxpayer.

  12. Complete the case closure by sending a closing letter, generally Letter 1564-A (use Letter 1564-D for cases with funding deficiencies), notifying the sponsor/taxpayer that the compliance check has been closed. Include:

    1. An explanation of the problems identified during the compliance check and the action the sponsor/taxpayer should take for correction.

    2. A statement similar to "Your plan remains subject to examination; you will be notified if your plan is selected," to let the sponsor/taxpayer know they are still susceptible to an audit.

      Exception:

      Depending on the circumstances, it may not be feasible or recommended to describe the problems identified to the taxpayer. Consult with your manager.

  13. Keep a copy of the EPCU Request for Examination form with your EPCU case file.

  14. Contact your manager to discuss field assignment of the case (area and group).

  15. The EPCU manager coordinates with Classification for the request for exam.

  16. Use the following guidelines to assemble Request for Exam case files.

    Note:

    An electronic case file will contain these documents, as applicable, with a naming convention clearly identifying each item.

  17. Outside-front— Place the EPCU Request for Examination form on the top of the file.

  18. Inside-left — Attach the following items from top to bottom:

    • Form 2848 or Form 8821

    • Form 872

    • Form 5464 (CCR)

    • Any AIMS forms and/or other closing documents

    • Current INOLE or Accurint print

  19. Inside-right— Place the following items from top to bottom on the inside-right:

    • For cases on AIMS, a current AMDIS print

    • Project Lead Sheet

    • The primary return

    • Correspondence (letters, faxes, transcripts of telephone calls, and/or emails) in date order, with the most recent date on top.

    • Any other related return(s)

    • EDS/TEDS information

    • IDRS prints

  20. Staple or use clips to fasten items.

Quality Measurement System

  1. The IRS Restructuring and Reform Act of 1998 sections 1201 and 1204 requires IRS to establish a balanced performance measurement system. Treasury Regulations section 801 implements this law.

  2. The Quality Measurement System (QMS) addresses six quality standards. Each standard consists of two or more quality elements.

  3. See below and Exhibit 1 for the EPCU QMS Guide for general guidelines for completing a case review. Click on the link below for Exhibit 1 Employee Plans Compliance Unit Quality Measurement System.

    1. Use the EPCU QMS input form to review EPCU cases.

    2. The Guide presents all elements as a question. The responses may be "met" , "not met" , or "n/a" .

    3. Based on the project, the number of "n/a" responses may range from minimal to substantial and don’t affect the case rating.

    4. A single error causes only one element to fail. Whenever a single problem appears to affect elements in separate standards, the reviewer will use their judgment to decide which element to rate "not met." The guiding principle should be to select the most significant element. Comments are required for all items marked as "not met" , but may be included for any relevant item.

    5. If an examiner repeats an error in a quarter, only the initial occurrence is considered an error. Additional occurrences are advisory notifications in the comments section of the case.

    6. The term "examiner" is used as a generic term to describe the EPCU employee assigned the case.

    7. The term "taxpayer" includes the POA, if applicable.