4.71.22 Employee Plans Compliance Unit (EPCU)

Manual Transmittal

January 16, 2018

Purpose

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

Material Changes

(1) IRM 4.71.22.1, Program, Scope and Objectives, and the subsections thereunder, were added to meet the new internal controls requirements.

(2) Minor editorial changes were made throughout the document.

Effect on Other Documents

This supersedes IRM 4.71.22 dated January 6, 2017.

Audience

TE/GE Employee Plans

Effective Date

(01-16-2018)

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

Program, Scope and Objectives

  1. The Employee Plans (EP) examination program and the Employee Plans Compliance Unit (EPCU) were 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 4.71.22, Employee Plans Examination of Returns, Employee Plans Compliance Unit (EPCU), provides general guidance for employees in the EPCU conducting compliance checks.

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

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

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

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.

Program Controls

  1. Tax Exempt Quality Measurement System (TEQMS) is the quality control system used to oversee the entire examination program. For more information on TEQMS, see IRM 4.71.15.1.3, Program Controls and Program Reports - TEQMS.

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

    Note:

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

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

     

Overview of EPCU

  1. This IRM provides general guidance for employees in the EPCU conducting compliance checks.

  2. EP Examinations created the EPCU to leverage the limited EP examinations field staffing.

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

  4. The EPCU focuses on compliance projects in which EPCU project members make compliance contacts, referred to as Compliance Checks, with the retirement community.

  5. The EPCU also focuses on educational projects in which EPCU project members make educational contacts.

  6. The EPCU also provides support to 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 it usually does not include an examination or inspection of books and records.

      Note:

      Although a Compliance Check is not an examination, an examination can be opened if the taxpayer fails to properly respond to the Compliance Check.

    2. The taxpayer may legally choose not to participate.

    3. A Compliance Check does not necessarily directly relate to determining 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. Internal sources include EP employees and their managers as well as executives within EP and other IRS business units.

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

    3. The EPCU has an email box designated to receive ideas, suggestions, multiemployer certifications, and comments. The email address is *EPCU.

  2. In the past, the Project Selection Committee (PSC) evaluated and approved potential project ideas for the EPCU to work.

  3. Effective May of 2017, the TE/GE Governance Board approves compliance strategies to be worked as compliance checks.

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

    Note:

    This data analysis helps prioritize project ideas.

  5. Based upon the identified compliance issue, EP’s operating priorities, and the scope of plans involved, an idea may be approved, pending approval (subject to subsequent action), rejected or tabled for future action.

  6. The EPCU runs specific queries to identify plans or returns meeting the specified project criteria. This identification process provides the scope (number) of plans/returns related to the project and helps determine if a valid sample will be worked or the entire population as identified through data querying.

  7. The EPCU analyzes the data to determine the best approach for the project. This analysis helps ensure the EPCU meets the goal(s) of the project in the most efficient manner.

  8. The EPCU creates a prospectus for each project that identifies the purpose, scope, and action of a project.

  9. An initial contact letter and/or a request for information are prepared for the project to address the potential area of non-compliance. To initially contact the taxpayer, the EPCU generates either the EPCU generic initial contact letter (Letter 1562-D) with an attached request for information, or a customized letter designed specifically for the project.

  10. The EPCU creates a web page on the irs.gov web site for publishing the information for each project.

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

  12. The EPCU creates case files and reviews case data in preparation for contact with the project population.

  13. The EPCU makes follow-up contacts when there are no responses or mail was returned as undeliverable.

  14. The EPCU team member will determine if additional information is needed, or if the case can be closed based on the received information.

  15. The EPCU may refer a case for possible audit or submit a Request for Examination to resolve issues.

  16. When the case is closed, the EPCU usually sends a closing letter to the taxpayer. If the EPCU decides to not send a closing letter it usually involves the case being sent to the field for audit, or the taxpayer is unable to be located, or the case is being closed based upon information from other sources.

  17. The EPCU closes all of the project cases, conducts a review, and prepares a report documenting the results and making recommendations for future actions, as appropriate.

Compliance Check Inventory Control Process

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

  2. The EPCU will update all cases with subsequent activities.

  3. The RISE manual details use of 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, the EPCU will decide whether to recommend the return for examination or to close the case.

    1. If the EPCU decides to examine a return, then the appropriate procedures under IRM 4.71, Employee Plans Examination of Returns, will be followed.

    2. If the EPCU does not recommend examination, the project team will close the case.

    3. The EPCU will assist the taxpayer by explaining reasonable cause criteria and assisting with the preparation of an explanation for filing a late return.

    4. The compliance check workpapers will indicate the EPCU secured delinquent returns.

    5. The RISE disposal code will indicate the closing status of the case.

Compliance Check Case File Assembly

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

  2. The following guidelines in paragraphs (3) through (7) will be used when assembling paper case files for compliance checks.

  3. Outside-front— The EPCU case closing form will be attached to the outside (front) of the file folder for each case.

  4. Inside-left — The following items will be securely attached to the inside-left of each case file, from top to bottom:

    • Form 5464 (CCR)

      Note:

      The CCR should list the date and a statement of each action or step taken on a case. The CCR should include incoming and outgoing telephone calls, letters sent and received, research done, the case conclusion, etc. The CCR should be in sequential order, with the most recent date on the top.

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

    • Any AIMS forms and/or other closing documents

  5. Inside-right— The following items will be placed from top to bottom on the inside-right of the case file:

    • Project Lead Sheet

      Note:

      The Lead Sheet is an optional form used as a tool to facilitate the review of the case. It is 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 does not have a copy of the return, place Form 2848 (or Form 8821) and Form 872-H face up in this section.

    • Correspondence

      Note:

      Correspondence (letters, faxes, transcripts of telephone calls, and/or emails) should be in date order, with the most recent date on the top descending to the oldest correspondence on the bottom.

      Note:

      The envelope can be destroyed 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

      Note:

      Plan documents, adoption agreements and plan amendments should be in date order by category/item type, with the most recent date on top descending to the oldest date on bottom.

    • Any other related return(s)

    • EDS/TEDS information

    • IDRS prints

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

  7. Group together items in the folder using staples or fasteners. This helps maintain the appearance and organization of the file.

  8. The following guidelines will be used when assembling electronic case files for compliance checks:

    1. The electronic case file must include all case file documents. Documents that were originally paper documents should be scanned for the electronic case file.

    2. Electronic documents must be in the case file in a manner that is organized, labeled and assembled so the manager or an individual who is reviewing the case file will easily be able to 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, certain cases will be developed and recommended for audit in EP Exam to deal fully with the identified issues.

  2. These cases will be sent to:

    1. Email: send to Classification's group mailbox: tege.ep.classification@irs.gov.

    2. Mail: send to Classification at:


      IRS - Classification
      9350 Flair Drive, 4th Floor
      El Monte, CA 91731-2885

    3. For cases involving multiemployer plans, consult with your manager, who will coordinate with the appropriate group for possible examination assignment.

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

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

      Note:

      The EPCU Request for Examination form is used only by the EPCU.

    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.

  4. Before sending a Request for Examination case to Classification, consult with the project manager assigned to the project.

    1. Each case will be evaluated based on the specific issues involved and careful consideration should be made prior to making a Request for Examination.

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

      Note:

      In general, cases with funding deficiencies will be sent as referrals unless otherwise approved by the project manager.

  5. The EPCU group manager must approve cases with an assessment statute expiration date (ASED) of less than 12 months prior to making the request for examination. Additionally, consider requesting an examination in subsequent years if the issue is applicable to those tax periods as well.

  6. Each tax period or plan number should be in a separate folder.

  7. Band together related file folders.

  8. Document the CCR in detail stating the reason for the Request for Examination and clearly note the statute expiration date.

  9. 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

  10. 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 having a statute of limitations of 210 days or less, print the EPCU Request for Examination form on red paper.

  11. 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 Request for Examination is for a Form 5500 series return, the condition code should be completed.

      Note:

      Each project will be assigned a condition code as the need arises. EPCU members needing a condition code should contact their manager.

    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 prohibited transaction (PT), indicate whether the PT was corrected.

    9. Create an attachment if additional space is needed.

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

  13. Complete the case closure by sending a closing letter, generally Letter 1564-A, notifying the sponsor/taxpayer that the compliance check has been closed.

    Note:

    Cases with funding deficiencies may use the Letter 1564-D.

    1. An explanation of the problems found while conducting the compliance check and what action the sponsor/taxpayer should take for correction may be included.

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

      Note:

      There is an exception. Depending on the circumstances, describing the problems identified to the taxpayer may not be feasible or the best action to take. Consult with your manager in this type of situation.

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

  15. Contact your manager to discuss field assignment of the case (Area and group).

  16. The EPCU manager will coordinate with Classification for cases involving a request for exam.

  17. The following guidelines will be used when assembling Request for Exam case files.

    Note:

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

  18. Outside-front— Place the EPCU Request for Examination form on the top/outside of the case.

  19. Inside-left — Securely attach the following items to the inside-left of each case file, 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

  20. Inside-right— The following items will be placed from top to bottom on the inside-right of the case file:

    • Project Lead Sheet

    • The primary return

    • Correspondence

      Note:

      Correspondence (letters, faxes, transcripts of telephone calls, and/or e-mails) should be in date order, with the most recent date on the top descending to the oldest correspondence on the bottom.

    • Any other related return(s)

    • EDS/TEDS information

    • IDRS prints

    Note:

    For cases on AIMS, place a current AMDIS print inside the folder on top of the information on the right side of the folder.

    Note:

    Group items in the folder together using staples or fasteners.

Quality Measurement System

  1. Treasury Regulations section 801 implements the provisions of sections 1201 and 1204 of the IRS Restructuring and Reform Act of 1998 and provides rules relating to the establishment by the IRS of a balanced performance measurement system.

  2. The QMS addresses six quality standards. Each standard consists of two or more quality elements.

  3. General guidelines for completion of the case review are as follows and detailed in the EPCU QMS Guide.

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

    2. Based on the project, the number of "n/a" responses may range from minimal to substantial and will have no effect on the rating of the case.

    3. A single error will cause failure of only one element. Whenever a single problem appears to have a possible effect on 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.

    4. For each instance of a repeated error made by an "examiner" in a quarter, only the initial occurrence will be considered an error and each additional occurrence will be an advisory notification in the comments section of the case.

    5. Use the EPCU QMS input form in the review of the EPCU cases.

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

    7. In each instance where the term "taxpayer" is used, the reference shall include the POA, if applicable.