4.75.7 EO Case Assignment Guide

Manual Transmittal

June 19, 2017

Purpose

(1) This transmits revised IRM 4.75.7, Exempt Organizations Examination Procedures, EO Case Assignment Guide.

Material Changes

(1) Updated to meet the requirements of P.L. 111-274 (H.R. 946), the Plain Writing Act of 2010. The Act states writing must be clear, concise, well-organized, and follow other best practices appropriate to the subject or field and intended audience.

(2) Revised 4.75.7.1 to incorporate Service-wide Memorandum, Heightened Awareness, Sensitivity, and Understanding of Internal Controls, dated September 14, 2016.

(3) Revised IRM 4.75.7.4.1, Grade 9 Cases, to include case grade table.

(4) Revised IRM 4.75.7.4.2, Grade 11 Cases, to include case grade table.

(5) Revised IRM 4.75.7.4.3, Grade 12 Cases, to include case grade table.

(6) Revised IRM 4.75.7.4.4, Grade 13 Cases, to include case grade table.

(7) Revised Exhibit 4.75.7-1 Case Assignment Guide to reflect Form 5599, entries only.

(8) Deleted Exhibit 4.75.7-2 Case Assignment Guide.

Effect on Other Documents

This IRM replaces the information currently contained in IRM 4.75.7, EO Case Assignment Guide dated May 1, 2010.

Audience

Tax Exempt and Government Entities
Exempt Organizations
Examinations

Effective Date

(06-19-2017)


Margaret Von Lienen
Director, Exempt Organizations
Tax Exempt and Government Entities

Program Scope and Objectives

  1. Purpose: This IRM provides procedures on using of the EO Case Assignment Guide (CAG), a quick and reliable tool for:

    1. A classifier to assign a case grade.

    2. A group manager to use to assign work commensurate with the grade level of expertise of an agent.

  2. Audience: The procedures in this IRM apply to Exempt Organizations Examination employees in the following series:

    • GS-512.

    • GS-526.

    • GS-987.

  3. Policy Owner: Director, Exempt Organizations.

  4. Program Owner: Exempt Organizations.

Authority

  1. Policy Statement 4-119, states the primary objective of the EO audit program is regulatory, emphasis on continued qualification of exempt organizations. IRM 1.2.13.1.36.

  2. IRC 7602 gives agents the authority to:

    1. Examine any books, papers, records or other data necessary to complete an audit.

    2. Take testimony under oath to secure additional information needed.

    3. Issue summons for information necessary to complete an audit.

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

Responsibilities

  1. During audit, agents are responsible for:

    1. Analyzing returns assigned for audit.

    2. Insuring case grade is correct, based upon CAG criteria.

  2. Agents are also responsible for being familiar with and acting in accord with taxpayer rights. See IRC 7803(a)(3).

Program Controls

  1. Agents should consult the Related Sources listed in IRM 4.75.7.1.5 to ensure accurate case processing and consistent application of the law.

Acronyms

  1. The table lists commonly used acronyms and their definitions.

    Acronym Definition
    CAG Case Assignment Guide
    EO Exempt Organizations
    IRC Internal Revenue Code
    IRM Internal Revenue Manual
    OPM Office of Personnel Management
    TE/GE Tax Exempt and Government Entities
    WebETS Web-based Employee Technical Time System

Related Sources

  1. The following are related sources that provide guidance on the procedures outlined in this IRM section:

    1. Document 6379, Information System Codes for FY 2017: Quick Reference for EO Employees, updated annually.

Group Manager Duties

  1. Group managers are responsible for:

    1. Ensuring the final case grade is accurate.

    2. Assigning cases consistent with their agent’s grade level.

    3. Keeping developmental assignments to no more than 25 percent of an employee’s time.

  2. If you think the CAG grade doesn’t yield the appropriate case grade, use sound judgement to grade the case.

  3. To the extent a questionable case resembles one or another of the descriptions (taken in their entirety), you may rely on these descriptions as both a case assignment tool and a check on grades assigned using the CAG criteria.

Audit Grading Criteria

  1. CAG is derived from positions description factors listed in the Office of Personnel Management (OPM) Standards. Work graded using the CAG reflects complexity and impact equivalent to those specified in OPM standards for that grade, assuming normal supervision.

    • Income and assets reported on the return are used to determine the case grade of EO examination cases based on type and size of the organization.

Grade 9 Cases

  1. Cases are graded as Grade 9 when they have fewer and less complex issues.

  2. The table below shows a Grade 9 case assignment’s maximum thresholds for gross receipts or assets.

    Probable Grade 9 Total Assets Gross Receipts
    IRC 501(c)(3) private foundations Up to $100,000 Up to $100,000
    IRC 501(c)(3) other than private foundations Up to $100,000 Up to $100,000
    IRC 501(c) all others Up to $100,000 Up to $100,000
    IRC 521 black lung trusts N/A N/A
    IRC 527 political organizations Up to $100,000 Up to $100,000

Grade 11 Cases

  1. Grade 11 cases are those in which:

    1. You need experience as necessary to determine and resolve issues and apply established laws, precedents and methods frequently used and generally applicable;

    2. May have complicated features involving controversy or a number of interrelated issues;

    3. The impact of case decisions may extend beyond the organization or metropolitan area because of the scope of activities or the nature of the issues.

  2. The table below shows a Grade 11 case assignment maximum thresholds for gross receipts or assets.

    Probable Grade 11 Total Assets Gross Receipts
    IRC 501(c)(3) private foundations From $100,000 to $1,000,000 From $100,000 to $500,000
    IRC 501(c)(3) other than private foundations From $100,000 to $1,000,000 From $100,000 to $1,000,000
    IRC 501(c) all others From $100,000 to $1,000,000 From $100,000 to $500,000
    IRC 521 black lung trusts N/A Up to $1,000,000
    IRC 527 political organizations From $100,000 to $1,000,000 From $100,000 to $500,000

Grade 12 Cases

  1. Grade 12 cases are those that have major issues with difficult or complex legal or accounting problems and require extensive investigation to resolve problems, such as:

    1. Direct precedent isn’t available or appropriate.

    2. Controversy due to interpretation or adaptation of precedents.

    3. Complications involving interrelated questions of a factual, financial, legal or accounting nature.

    4. Issues impacting larger organizations of regional or national stature or that may arouse public attention.

  2. The table below shows a Grade 12 case assignment’s maximum thresholds for gross receipts or assets.

    Probable Grade 12 Total Assets Gross Receipts
    IRC 501(c)(3) private foundations From $1,000,000 to $10,000,000 From $500,000 to $1,000,000
    IRC 501(c)(3) other than private foundations From $1,000,000 to $10,000,000 From $1,000,000 to $5,000,000
    IRC 501(c) all others From $1,000,000 to $10,000,000 From $500,000 to $1,000,000
    IRC 521 black lung trusts N/A From $1,000,000 to $10,000,000
    IRC 527 political organizations From $1,000,000 to $10,000,000 From $500,000 to $1,000,000

Grade 13 Cases

  1. Grade 13 cases are those which have major issues significantly affected by the lack of applicable precedents or the presence of conflicting precedent. Therefore:

    • Investigation of issues requiring ingenuity.

    • Resolution of issues requiring considerable tact and discretion.

    • Complexities necessitating a high degree of experience and sophistication.

    • Decisions that may involve substantial and/or large sums of money or large numbers of people, with the possibility of widespread public attention.

    • Complications that could occur, involving intricately related major issues or unusual issues with conflicting or nonexistent precedents.

  2. The table below shows a Grade 13 assignment’s threshold for gross receipts or assets.

    Probable Grade 13 Total Assets Gross Receipts
    IRC 501(c)(3) private foundations Over $10,000,000 Over $1,000,000
    IRC 501(c)(3) other than private foundations Over $10,000,000 Over $5,000,000
    IRC 501(c) all others Over $10,000,000 Over $1,000,000
    IRC 521 black lung trusts N/A Over $10,000,000
    IRC 527 political organizations Over $10,000,000 Over $1,000,000

Use of the Case Assignment Guide: Group Managers

  1. Use the CAG to:

    1. Make sure accurate data is available for financial planning and grade structure changes.

    2. Help to assign appropriately higher level work for developmental purposes.

  2. Don’t use the CAG to evaluate an agent’s performance.

  3. Don’t use the CAG to classify agent’s positions. For example, don’t use the CAG to either:

    1. Predict the appropriate overall grade level for the position of employees doing work assigned in accordance with it, or

    2. Supersede OPM standards in any way.

  4. Don’t change agent’s grade level when assessing higher or lower level cases for short periods of time.

  5. Monitor higher graded work by:

    1. Restricting the scope to single issue items to reduce the grade.

    2. Assigning the case to a senior agent, while assigning the junior agent to help in the audit.

    3. Assigning the case to the junior agent, while assigning a senior agent to coach the junior agent through the audit.

    4. Reviewing WebETS monthly to ensure that the time spent doesn’t exceed the 25 percent threshold.

Changing Case Grade

  1. A case grade may go up if one or more of the following items materially increases its complexity:

    • Difficulty in classifying the organization’s exempt purpose.

    • IRC 501(c)(7) organizations with substantial gross receipts from the general public (nonmembers).

    • Termination of private foundation status or other changes to foundation status.

    • Unusually complex private foundation issues.

    • Denials, revocations, terminations or reinstatement of exempt status.

    • Changes in activities or purposes of the organization requiring a termination or redetermination.

    • Extensive research and/or interpretation of the law, regulations and court decisions. Laws and regulations may be ambiguous, in a proposed state, or little precedent exists.

    • Unrelated business income or operations (complex allocation problems).

    • Organization is known and/or operates on an international, national or regional basis.

    • Determination regarding the organization’s exempt status is of concern to many individuals (political or public figures).

    • Controversial issues are present which are of interest to the public.

    • Church issues.

    • Unusually large payments to officers, employees or professionals.

    • Organizations with substantial receipts from sources other than members seeking exemption or exempt under IRC 501(c)(12).

    • Allocations of substantial amounts to political purposes or legislative activities.

    • Valuation problems requiring the assistance of an engineering specialist.

    • Affiliated organizations, multiple entities, or related interests (taxable or nontaxable).

    • Large refund case (over $100,000).

    • Fraud referrals (accepted or rejected).

    • Termination - mergers.

    • Group Rulings.

    • Complex accounting system.

    • Cases involving transferee liability.

    • Cases involving Rev. Proc. 75-50 compliance.

    • Organizations filing under the rules IRC 501(q) such as credit counseling organizations or organizations that provide as a substantial part of their activities financial counseling or education as defined in IRC 501(q).

    Note:

    The group manager can lower a case grade for good cause, such as, anticipated complexities don’t develop. Fully document the basis for the grade change, in the case file.

Form 5599, Item 32, Possible Entries

1st Digit - Type of Cases Based on Exempt Status
1 Private Foundation
2 Other IRC 501(c)(3) Organizations
3 IRC 501(c) Other
4 Black Lung Trusts
2nd Digit - Case grade based on the above table or upgraded or downgraded based on other factors
9 Grade 9 case
1 Grade 11 case
2 Grade 12 case
3 Grade 13 case
3rd Digit - Method used to grade the case
1 Grade based on tables above
2 Upgraded or downgraded based on other factors (requires GM initials)
4th Box - Related Returns
R Enter "R" for related returns, e.g. Form 990-T, 940, 941, or 1120-POL, which are granted based on the grade of the primary return, Form 990, 990-EZ, or 990-PF.
Blank If the return receives its own grade based on the table above or is upgraded or downgraded by the manager, the 4th digit is left blank