4.75.12 Required Filing Checks and Package Audit Procedures

Manual Transmittal

November 12, 2019


(1) This transmits revised IRM 4.75.12, Exempt Organizations Examination Procedures, Required Filing Checks and Package Audit Procedures.

Material Changes

(1) New section to incorporate service-wide memorandum, Heightened Awareness, Sensitivity and Understanding of Internal Controls September 14, 2016.

(2) Changed terms such as agent to examiner, examination, and audit to examine.,

(3) IRM (9): Added the employment tax form changes for worker classification issues under section 7436 (affecting F.2504-S and 2504-T) per the IG memo TEGE-04-1418-0006 dated April 17, 2018.

(4) IRM Added the recreated CP2100 notice information in the Mandatory Review Alert dated April 7, 2017.

(5) IRM (9) & (10): Added the Report of Cash Payments Over $10,000 report as well as the form 8300 data in the Mandatory Review Alert notice dated April 7, 2017.

(6) Exhibit 4.75.12-5: Filing Check Guidance Table, Replaced all references to the obsolete IRM 4.76 series with the new private foundation technical resource guides.

(7) Modified IRM to update the link for the Policy Statement 4-119, as per IG Memo TEGE-04-0819-0015, Consolidation of policy statements and delegation orders into two new IRM sections.

Effect on Other Documents

This IRM replaces IRM 4.75.12, Required Filing Checks, dated March 14, 2017.
This IRM incorporates the Recreated CP2100 Notice and Form 8300 in the Mandatory Review Alert dated April 7, 2017.
This IRM also incorporates the IG memo "New Procedures For Employment Tax Issues Under IRC 7436" , TEGE-04-1418-0006, dated April 17, 2018.
This IRM also incorporates IG Memo "Consolidation of policy statements and delegation orders into two new IRM sections" , TEGE-04-0819-0015, dated August 23, 2019.


- Tax Exempt and Government Entities
Exempt Organizations

Effective Date


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

Program Scope and Objectives

  1. Purpose: This manual focuses on the examiner’s responsibility to determine a taxpayers compliance with federal tax and information return filing requirements, Topics addressed include:

    1. How to conduct a filing check

    2. How to waive a required filing check

    3. How to distinguish between a filing check and a package audit

    4. Actions taken on non-filed returns

    5. Reviewing the prior and subsequent years returns

    6. Guidelines for verifying employment tax returns

    7. Verifying cash payments exceeding $10,000

    8. Employee benefit return compliance

    9. Tax exempt bond compliance

  2. The procedures in this manual apply to Exempt Organization Examination examiners.

  3. Policy Owner: Director, Exempt Organizations

  4. Program Owner: Exempt Organizations


  1. Policy Statement 4-119 states that the primary objective of the EO examination program is regulatory, emphasizing continued qualification of exempt organizations. See IRM

  2. IRC 7602 gives examiners the authority to:

    1. Examine any books, papers, records or any data necessary to complete an exam (including data in electronic format).

    2. Issue a summons for information necessary to complete an exam.

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

    4. Ask about any offense connected with the administration or enforcement of the internal revenue laws.

  3. Internal Revenue Code (IRC) 6041 - 6053 provide requirements for the reporting of certain information concerning transactions with persons during the course of business, including wages paid to employees. Generally, the regulations require the reporting of items such as payments made in the course of trade or business to another person, payments of dividends, interest, wages, and cash receipts in excess of $10,000. Exempt organization must timely file these returns as required.

  4. IRC 6041A, Returns Regarding Payments of Remuneration for Services and Direct Sales, provides that if any person engaged in a trade or business pays compensation of $600 or more in a calendar year to an independent contractor for services in the course of that business, the payer must file an information return.

  5. IRC 6041A(e) requires the payer to furnish the payee a written statement setting forth the amount of such payments. The statement must be furnished to the payee on or before January 31 of the year following the calendar year for which the return was made.

  6. IRC 6051(a) and 26 CFR 31.6051-1(a) and (b) provide that employers must furnish Form W-2, Wage and Tax Statement, to employees for compensation paid during the calendar year showing the total amount of wages paid subject to withholding of income tax, the total amount of wages paid subject to Federal Insurance Contribution Act (FICA) tax, and the total amount of income tax and FICA tax deducted and withheld. The statement must be furnished to the employee on or before January 31 of the succeeding calendar year.

  7. Employers must file Forms W-2 with the Social Security Administration, which are due on or before January 31 of the succeeding calendar year. (See IRC 6071(c)).

  8. IRC 6050I and the regulations thereunder require that any person who, in the course of a trade or business, receives cash in excess of $10,000 in one transaction (or two or more related transactions), must file a report or Form 8300, Reports of Cash Payments Over $10,000 Received in a Trade or Business, within 15 days after receiving the cash.


  1. During an exam, examiners are responsible for determining if an organization:

    1. Continues to meet its requirements for exemption and retain its tax-exempt status.

    2. Filed all required tax and information returns.

    3. Merits waiving certain filing checks for certain returns.

    4. Reported information and tax liability correctly.

Program Controls

  1. Examiners consult the Knowledge Management Network (K-Net), to ensure proper issue development and consistent application of the law.


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

    Acronym Definition
    AIMS Audit Information Management System
    CFR Code of Federal Regulations
    EO Exempt Organizations
    IRC Internal Revenue Code
    IRM Internal Revenue Manual
    K-NET Knowledge Management Network
    NOL Net Operating Loss
    OCEP Office Correspondence Examination Program
    PF Private Foundation
    RAR Revenue Agent Report
    STAT NOTICE Statutory Notice of Deficiency
    SB/SE Small Business/Self Employment Division
    TE/GE Tax Exempt/Government Entities
    TAM Technical Advice Memorandum


  1. Examiners must determine whether the taxpayer complies with all federal tax and information return filing requirements. Examiners will ensure required returns have been filed, while assessing their examination potential.


  1. An examiner is required to address all issues listed on the classification sheet and any large, unusual and questionable items (LUQs) identified during the review of the assigned returns. The scope of each examination may be contracted or expanded depending on the facts or circumstances of each case and should be discussed with the group manager.

  2. Two required elements of the examination are filing checks and the package audit:

    1. Filing Checks – Involves verifying the filing of a return. A filing check can be as simple as reviewing IDRS printouts with return information, such as BMFOLI and BMFOLU, but may also include inspecting filed returns, BRTVU prints, or images of filed returns, obtained first from non-taxpayer sources.

    2. Package Audit – Although by itself not an actual examination, a package audit is a series of additional steps beyond a filing check, generally used in the pre-contact stage of the examination to evaluate completion and accuracy of a filed return. In a package audit process, the examiner reconciles and analyzes inconsistencies between filed returns or between returns and other documents available prior to reviewing books and records.


      Prior to examining the books and records, the examiner reconciles quarterly Forms 941 with a fiscal year Form 990. This is a package audit.


      Prior to examining the books and records, the examiner reconciles the Forms 941 to Forms W-2

    3. EO BMF - The Exempt Organizations Business Master File.

    4. Primary return – The annual EO information return. Primary returns include Form 990, Form 990-EZ, Form 990-PF, Form 990-BL, Form 5227, and Form 1065 (for IRC 501(d) organizations). This is the return under EO jurisdiction around which other returns revolve. The primary return also serves as the return-of-record for statute purposes for certain related tax returns, such as Form 990-T, 1120-POL, 4720, 1041 or 1120.

    5. Related return – Any return of the same taxpayer. Discrepancy adjustment returns and Forms 4720-A (MFT 66) filed by related persons with respect to an organization under exam will be treated as a related return.

Introduction to Filing Checks

  1. In all examinations you are required to conduct filing checks.

  2. See Exhibit 4.75.12-2, "Filing Check Guidance Table" for a list of returns that are subject to required or waiver-eligible filing checks.

General Guidelines - Filing Checks

  1. In the interest of conserving resources, increasing compliance, and reducing multiple contacts with exempt organizations, review the filing of other returns to determine whether the taxpayer is in compliance with all filing requirements.

  2. A filing check:

    • Requires minimal time

    • May be as simple as inspecting IDRS printouts of filed returns, including a BMFOLI print.

    • May be as involved as inspecting actual returns, BRTVU prints, or images of filed returns.

    • Doesn’t require a supplemental workpaper, but ensure you document the work completed on Form 5773, Section G

    • Is always required for annual EO returns, Form 990-N, and employment taxes

    • For other returns, a waiver of a filing check requires authorization and documentation.

  3. Be alert to possible liability for other federal taxes, potentially leading to referrals, securing delinquent returns, or expansion of the exam.

  4. Consider inspecting returns obtained first from non-taxpayer sources.

  5. Filing checks are further categorized as:

    • Always required (see IRM

    • Required but waiver-eligible (see IRM

    • Optional or not required (see IRM

Filing Checks Always Required

  1. A filing check is always required for:

    • Form 990 in the case of any IRC 501(c) organization or IRC 4947(a)(1) trust, not a private foundation and not a black lung benefit trust.

    • Form 990-EZ in the case of any IRC 501(c) organization or IRC 4947(a)(1) trust, not a private foundation and not a black lung benefit trust.

    • Form 990-N in the case of any IRC 501(c) organization other than a private foundation, except those ineligible to file Form 990-N listed in https://www.irs.gov/charities-non-profits/form-990-n-e-postcard-organizations-not-permitted-to-file

    • Form 5578 in the case of any IRC 501(c)(3) organization not filing Form 990 or Form 990-EZ that operates, supervises, or controls a private school.

    • Form 990-PF in the case of any private foundation or IRC 4947(a)(1) trust treated as a private foundation.

    • Form 990-BL in the case of any black lung benefit trust exempt under IRC 501(c)(21).

    • Form 1065 in the case of any religious or apostolic organization under IRC 501(d).

    • Form 5227 in the case of any IRC 4947(a)(2) split-interest trust.

    • Form 990-T in the case of any IRC 501(c) organization or government-owned college and university.

    • Form 1120 in the case of any taxable private foundation that is a corporation or unincorporated association.

    • Form 1041 in the case of any IRC 4947 trust, or any taxable private foundation that is a trust.

    • Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return (not applicable to IRC 501(c)(3) organizations).

    • Form 941, Employer’s Quarterly Federal Tax Return.

    • Form 944, Employer’s Annual Federal Tax Return.

    • Form 945, Annual Return of withheld Federal Income Tax.

    • Prior and subsequent year returns for each of the above.


    (1) EO examiner is assigned a 501(c)(3) organization that’s exempt from taxes and is filing Form 990 per EO BMF and it has employees. The examiner must conduct a filing check for Form 990 series and Form 941 for the current, prior and subsequent years. The examiner isn't required to check for Form 1120 and Form 940. These returns are outside the organization’s sphere of influence (returns a taxpayer can’t possibly file). The examiner will determine whether the organization is actually required to file any other return or notice at the conclusion of the exam.


    (2) EO examiner is assigned a IRC 501(c)(12) electrical cooperative. The examiner must check for the filing of Form 1120 as well as Form 990. Form 1120 is not outside the organization’s sphere of influence because a IRC 501(c)(12) organization that fails the 85 percent member income test for a specific tax year is required to file Form 1120 instead of Form 990 for that tax year. For the tax years the cooperative filed a Form 990, check for the filing of Form 990-T also. See Notice 92-33,1992-2 C.B. 363.


    (3) The FSL/ET examiner is assigned a local government entity. The examiner must check for filing of Forms W-2, Forms 1099, and Forms 941 for the current, prior, and subsequent years. Other forms may be required such as Forms 945 and Forms 720.

  2. Consider penalties under IRC 6651 and IRC 6652 for late or non-filed returns.

  3. See Exhibit 4.75.12-2, Filing Check Guidance Table, for a list of returns that are subject to required or waiver-eligible filing checks.

Filing Checks Required But Waiver-Eligible

  1. You can waive filing checks with managerial approval for certain returns. Group managers can waive a filing check for a return or return category if you show substantial compliance exists, or if specified conditions or circumstances warrant a waiver. Refer to a return’s instructions to better ascertain the need to waive a filing check.


    A group manager can authorize waivers of filing checks for Forms W-2G, 730 or 11C for certain types of IRC 501 (c) organizations under examination that don’t conduct gaming.

  2. The waiver must be properly authorized and documented.

  3. Document a manager’s authorization on Form 5773, at section G. Include the reason used to support the waiver, and an analysis if the waiver is based on a computation.


    An approved waiver of a filing check doesn’t relieve you from exercising due diligence in ensuring equitable and fair tax administration in any exam.

  4. Authorization and documentation can take the form of a group manager’s memo to the group specifying conditions or circumstances to justify a waiver. You can reference the group manager’s memo on Form 5773, at section G.

  5. Check for the filing of returns listed in the succeeding paragraphs, absent a waiver.

  6. In general, for any employer organization or payer of non-employee compensation, check for:

    • Form W-2, Wage and Tax Statement

    • Form W-3, Transmittal of Wage and Tax Statements

    • Form 1096, Annual Summary and Transmittal of U.S. Information Returns, including Form 1099 series

    • Form 1099-MISC, Miscellaneous Income

    • Form 1099-C, Cancellation of Debt (particularly with respect to officers and directors)

  7. In general, for any IRC 170(c) organization involved in fund-raising or receives donated property, check for:

    • Form 8282, Donee Information Return

    • Form 8870, Information Return for Transfers Associated with Certain Personal Benefit Contracts

    • Form 8899, Notice of Income from Donated Intellectual Property

    • Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes

  8. In general, for any organization involved in gaming, check for:

    • Form 730, Monthly Tax Return for Wagers

    • Form 11-C, Occupational Tax and Registration Return for Wagering

    • Form W-2G, Certain Gambling Winnings

  9. In general, for any educational, research or health care provider organization, check for:

    • Form 1098-E, Student Loan Interest Statement

    • Form 1098-T, Tuition Statement

    • Form 8899, Notice of Income from Donated Intellectual Property

    • Form 1099-Q, Payments from Qualified Education Programs (Under Section 529 and 530)

    • Form 1099-MISC, Miscellaneous Income (for reporting royalties)

    • See also IRM (12).

  10. In general, for any applicable large employer organization as defined by IRC 4980H or provider of minimal essential health coverage, check for:

    • Form 1094-B, Transmittal of Health Insurance Coverage Statements

    • Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns

    • Form 1095-B, Health Insurance Coverage

    • Form 1095-C, Employer-Provided Health Coverage

    • Form 8928, Return of Certain Excise Taxes Under Chapter 43 of the Internal Revenue Code

  11. In general, for any organization with a food or beverage establishment or social club where tipping is customary, check for:

    • Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips

  12. In general, for organizations with international or foreign features, or with foreign workers and contractors, check for:

    • Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons

    • Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding

    • Form 8288, U.S. Withholding Tax Return for Disposition by Foreign Persons of U.S. Real Property Interests

    • FBAR, Report of Foreign Bank and Financial Accounts (see IRM

  13. In general, for organizations that issue bonds, check for:

    • Form 8038, Information Return for Tax-Exempt Private Activity Bond Issues

    • Form 8038-T, Arbitrage Rebate and Penalty in Lieu of Arbitrage Rebate

  14. In general, for organizations with employee benefit plans, check for:

    • Form 5500, Annual Return/Report of Employee Benefit Plan

    • Form 5330, Return of Excise Taxes Related to Employee Benefit Plans

    • Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

  15. In general, for organizations that may be involved in reportable or abusive transactions, check for:

    • Form 4720, Return of Certain Excise Taxes on Charities and other persons under Chapters 41 and 42 of the IRC

    • Form 8300, Reports of Cash Payments Over $10,000 Received in a Trade or Business

    • Form 8870, Information Return for Transfers Associated with Certain Personal Benefit Contracts

    • Form 8886, Reportable Transaction Disclosure Statement

    • Form 8886-T, Disclosure by Tax-Exempt Entity Regarding Prohibited Tax Shelter Transaction

  16. In general, for organizations making political expenditures, or for political organizations, check for:

    • Form 4720, Return of Certain Excise Taxes on Charities and Other persons Under Chapters 41 and 42 of the IRC.

    • Form 8871, Political Organization Notice of Section 527 Status

    • Form 8872, Political Organization Report of Contributions and Expenditures

    • Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations

  17. In general, for federal, state or local governments, check for:

    • Form W-2, Wage and Tax Statement.

    • Form 1099,

    • Form 941, Employer’s Quarterly Federal Tax Return.

    • Form 945, Annual Return of Withheld Federal Income Tax.

    • Form 720, Quarterly Federal Excise Tax Return.

  18. See Exhibit 4.75.12-2 Filing Check Guidance Table, at the second column, for a complete list of filing checks that are required but are waiver-eligible.

Filing Checks and Other Checks Optional Or Not Required

  1. You are not required to explain your decision not to conduct a filing check for the returns and statements listed in IRM (3).

  2. If information obtained from the case file, outside sources, internal databases, or from the conduct of the exam, indicates potential non-compliance, you may conduct a compliance check.

  3. Optional filing and compliance checks include:

    • All other returns not listed in IRM

    • Returns of related persons including controlled organizations, such as the Forms 1040, 1041, 1120 -series, or Form 1065.

    • Withholding Compliance Program involving questionable Forms W-4.

  4. See Exhibit 4.75.12-2, Filing Check Guidance Table, second column, for a complete list of filing checks that are optional and non-required checks.

Package Audit Guidelines

  1. Package audits don't by themselves constitute an examination if the taxpayer’s books and records weren't examined. A package audit:

    • Is not a requirement.

    • Is performed at the discretion of the examiner.

    • Is more time intensive than a filing check and requires a supplemental workpaper.

    • Helps to evaluate returns for consistency, completion and accuracy in reporting where needed.

    • Involves reconciling and analyzing between filed returns, or between filed returns and other documents available prior to the examination.

    • Can involve a comparison between any type of return, not just employment tax returns.

  2. The conclusion of a package audit is useful in:

    • Identifying additional issues.

    • Deciding to expand the scope of the examination.

    • Revising examination steps and techniques.

  3. One reason to conduct a package audit includes reconciling a discrepancy between a Form 990’s salaries expense and payroll taxes, and amounts shown on Forms 941.

  4. Reconcile related returns with line items shown on the primary return under examination.

  5. For FSL/ET, examiners must determine whether or not an organization has a 403(b), 457, or Social Security alternative plan with a potential compliance problem that warrants a referral to Employee Plans.

  6. For FSL/ET, examiners must identify if government under examination is under a section 218 agreement.

  7. For FSL/ET, examiners must determine whether the taxpayer is self-insured for employee health insurance and subject to excise taxes reportable and payable on Form 720, Quarterly Federal Excise Tax Return.

Exam Jurisdiction

  1. EO has examination jurisdiction for all annual EO primary returns listed in IRM, Form 990-N, and related EO tax returns, such as Form 990-T, Form 1120-POL and Form 4720.

  2. Employee plan returns and bond returns of an EO are under the exam jurisdiction of Employee Plans and Tax-Exempt Bonds functions respectively. Miscellaneous excise tax returns, such as Form 720 are under the exam jurisdiction of SB/SE.

  3. EO also has primary examination responsibility for employment tax returns, withholding returns and gaming excise tax returns filed by IRC 501(a) organizations, IRC 4947 trusts, IRC 527 organizations, IRC 529 organizations, and government entities.

  4. The returns and schedules under EO jurisdiction are listed in Exhibit 4.75.12-1.

Filing Verification

  1. During the pre-exam phase, verify whether the organization filed all required returns indicated on Integrated Data Retrieval System (IDRS).


    An EO’s Form 990 reports salaries expense of $50,000. INOLES shows a Form 941 filing requirement, but Forms 941 weren't filed. On the surface it appears a filing delinquency exists, but the EO may have employed a Professional Payroll Organization (PPO). The Reporting Agents File in IDRS (BMFOLE) indicates if the organization authorized a PPO to file its employment tax returns.

  2. To minimize an organization’s burden, before requesting a retained copy of filed returns, use internal sources, such as IDRS, and online Statistics of Income Exempt Organizations Return Image Net (SEIN), to verify filing compliance.


    Before drafting any initial Information Document Request, (IDR), request BRTVUs for Forms 941 and 940 ; and, IRPTRI for Forms 1099 and W-2. Don’t request these returns in the initial IDR unless you identify issues that can only be resolved by viewing the organization’s copies of the returns.

  3. CFOL (Corporate File On-Line) provides online access (read-only research) to tax accounts, returns and other related information stored in IDRS. See Document 6209, IRS Processing Codes and Information, for CFOL command codes. Look for detailed information on any command code in IRM 2.3 or IRM 2.4. You can also search external sources, such as Guidestar, ERI, or Foundation Center for copies of Form 990, rather than requesting them from the organization. Examiners can go to the Tax Exempt Search Tool on IRS.GOV to obtain copies of tax returns.


    Treasury employees including IRS employees are prohibited from accessing tax account information, unless such employee’s official duties require access for tax administration purposes. See IRC 6103(h)(1). BROWSING IS ILLEGAL AND CONSTITUTES UNAUTHORIZED ACCESS. BROWSING COULD RESULT IN SEVERE ACTION AGAINST THE EMPLOYEE.

  4. Obtain and review IDRS prints:

    • BMFOL – Business Master File Online (BMFOL) provides research of nationwide entity and tax information posted to the Business Masterfile.

    • IMFOL – Individual Master File Online (IMFOL) provides research of nationwide tax information posted to the Individual Masterfile.

    • PMFOL – Payer Master File Online (PMFOL) is a research tool, which provides information from Payer Master File (PMF).

    • IRPTR – Information Returns Transcript File is used to request transcripts of Forms 1099 filed from the Information Returns Master File (IRMF) for a particular Taxpayer Identification Number (TIN). The request is made for Payee or Payer Information.

    • IRPOL – Information Return Data by Individual accesses Information return master file profile by TIN and tax year. This file makes available data extracted from Forms 1099, W-2 and W-4.

    • BRTVU – Business Returns Transaction View provides a display of the transcribed line items on all business tax returns and their accompanying schedules or forms as the returns are processed at the campus.

    • RTVUE – Return Review (IMF only) provides a display of line items transcribed from Form 1040 series and their accompanying schedules and/or forms as the returns are processed at the campus.

    • INOLE – Entity Information for all Master File Accounts provides access to the National Account Profile (NAP) which contains selected entity information for all Master File (MF) accounts. This command code will provide filing status, filing requirements, cross-references to other TINs, etc.

Case File Documentation

  1. Specify on Form 5773 at Section G:

    1. The required filing check procedures considered;

    2. Those returns and forms required to be filed, and

    3. Whether the returns were filed timely.

  2. If the taxpayer has correctly filed all required returns, state your conclusion to that effect. Identify specific returns in the comments.

  3. Document actions taken and decisions made with respect to non-filed returns. See IRM

  4. If you don’t complete the minimum required filing checks, include an explanation and document managerial involvement in the workpapers.

Required Actions on Non-Filed Returns

  1. If an organization or government failed to file what appears to be a required return, find out why the return was not filed. If the explanation cannot resolve the delinquency, take any of the following actions:

    • Request or obtain additional information, research the filing requirement, or perform additional examination steps. See IRM

    • Solicit a delinquent return, except when fraud or willful failure to file is indicated. See IRM

    • Establish a substitute for return (SFR) on AIMS and RCCMS. See IRM

    • Make a referral to another function using Form 5346, Form 5666, or Form 4632.

    • Request a collateral examination. See IRM 4.75.13, Issue Development.

  2. Consider the effect of delinquency on tax-exempt status. Include the delinquency matter in an advisory if exemption is maintained.

General Examination Procedures

  1. Refer to IRM 4.75.11 for On-Site Audit Guidelines.

  2. Consider the following examination steps:

    1. Identify returns that should be filed during the filing check phase.


      Salaries are reported on Form 990, but Forms 941 are not filed.


      Bingo income is reported on Form 990, but Form 990-T wasn’t filed to report the regularly carried-on sale of pull tabs or concessions.

    2. Reconcile related returns with line items shown on the primary return under examination.

    3. If the examination reveals transactions with related organizations, or the sharing of facilities, inspect pertinent related returns for accurate reporting.

    4. During the examination of a Form 990, 990-EZ, 990-PF or Form 990-BL where the facts and circumstances warrant, inspect the officers’ personal income tax returns by securing a RTVUE printout to determine whether all gross income items (from the EO exam) have been reported.

    5. If an officer didn't properly report all items of gross income, prepare a discrepancy adjustment report. If a full examination is warranted, complete Form 5666, TE/GE Referral Information Report, or Form 5346, and forward to CP&C Referrals for consideration by the appropriate function.

    6. Group manager: Refer an approved information report to CP&C Referrals for transmittal to the appropriate division for consideration.

    7. If an organization potentially violated the provisions of IRC 4980B concerning the continuation of health care benefits, prepare Form 5666 or Form 5346 and send to CP&C Referrals for forwarding to the appropriate PSP outside of EO.

  3. Inspect withholding and other statements retained by a payer organization on the Form W-4, Form W-4P, Form W-9 or Form 5754 series. In the case of organizations or governments with non-resident alien employees or foreign payees, inspect withholding statements on Form 8233, Form W-8BEN, Form W-8ECI, Form W-8EXP or Form W-8IMY.

Prior and Subsequent Years’ Returns

  1. Review the prior and subsequent years of the primary return assigned to you for proper filing and to evaluate examination potential. Minimize the organization’s burden by securing copies of the returns from IDRS, online SEIN or through a service such as Guidestar or Foundation Center (unless IRC 6104(d) compliance is part of the scope of the exam). Examiners can go to the Tax Exempt Search Tool on IRS.GOV to obtain copies of tax returns.


    If the returns aren't available under IDRS, Online SEIN, or other external sources (e.g. Guidestar), request to review the taxpayer’s retained copies of filed returns.

  2. Determine whether increases or decreases in activities and financial data affect the organization’s exempt status or result in tax. Such changes may warrant establishing the prior or subsequent tax year’s return for examination.


    Consult with the group manager before establishing prior and/or subsequent year returns for examination.

  3. A review of prior and subsequent year’s returns is essentially equivalent to the classification of a return to determine if an examination is necessary. If the group manager hasn’t approved the examination, don't request books and records related to those returns.


    If transactions occurred in prior or subsequent years that affect the assigned return, such transactions may be examined and the relevant books and records may be requested. Inform the organization that the request is only for a determination of tax or continuation of exempt status for the return and year under examination, and does not open another return or tax year for examination.

  4. When evaluating the returns for issues related to the year under examination:

    1. Check for large, unusual, and questionable items.

    2. Compare amounts on a proportional basis as a percentage of gross receipts or gross income.

    3. Question large variances or amounts only present in one year.


    Books and records cannot be requested to confirm amounts in prior or subsequent years returns without opening them for examination.


    If the examiner requests prior years’ records solely to verify the public support schedule of an IRC 501(c)(3) organization’s Schedule A (Form 990) already under examination, and this purpose is made clear in the IDR.

  5. Document in the workpapers whether prior and subsequent years’ returns were reviewed and explain why an exam wasn't warranted.

  6. If, during the examination, information is obtained that indicates potential substantive noncompliance in subsequent years for which returns haven't yet been filed by the organization or government, obtain managerial approval to open the year(s) on Non-Master File.

  7. An examination of prior or subsequent year returns may be warranted if:

    • Noncompliance exists.

    • An issue is developed during the examination of an originally assigned return that carries back or forward to other years’ returns.


      Generally, include all subsequent year returns in the examination if a revocation of exempt status is being considered for the current year. If all subsequent years are not established for examination, document your reasons in the case chronology including your discussions with the group manager.

    • There is a large, unusual or questionable item that must be resolved.

    • The adjustment in the examination year is likely to be treated the same in another tax year.

    • There are carryback or carryforward issues.

  8. If adjustments are made to the return(s) under examination, document the reasons other years weren't opened for examination.

  9. Obtain and document in the workpapers or the case chronology and/or case activity record, group manager approval to extend an examination into the prior or subsequent years. Upon the case closure, the manager will sign off on the case chronology and/or case activity record, which should serve to affirm the documented discussions.

  10. Examine prior or subsequent year return(s) concurrently with the assigned return. Ensure sufficient time remains on the statute of limitations before starting an examination of a prior or subsequent year return. See IRM 25.6, Statute of Limitations.

  11. Inform the organization or government of the decision to expand the examination to include a prior or subsequent year’s return. Verify the presence or absence of an audit indicator on a related return before initiating the examination. If an audit indicator is present, take appropriate steps to coordinate before contacting the organization.

  12. In order to establish cases on AIMS using retained copies of the organization or government's returns, create a module on RCCMS as soon as you know an examination will be initiated. Request establishment with the Update AIMS check box selected for Business Master File (BMF) modules.


    Ensure that the group manager approves the request for returns or establishment on AIMS and that all codes are correct.

  13. If it is not possible to secure the original return or if closing would be delayed by awaiting receipt of the original, close the case based on the organization or government's retained copy. If the organization or government doesn't provide a copy, secure BRTVUE and RTVUE prints internally. Original returns must be obtained in the following instances:

    • Unagreed cases involving fraud

    • Jeopardy assessments

    • When the closing is on the basis of a notice of deficiency

  14. Generally, examinations of prior and subsequent year returns will be limited to the issue(s) giving rise to the examination of the originally assigned return. However, the returns would still be reconciled to the taxpayer’s books and records, just as the originally assigned return

  15. If you discover that the entity hasn't filed returns or forms, the examination of which are within the jurisdiction of another function or Operating Division, prepare Form 5666 or Form 5346 and send to the CP&C Referrals for transmittal to the appropriate function. See IRM 4.75.16 for EO closing procedures.

Employment Tax Returns

  1. Employment tax is an integral part of the examination of an exempt organization or in the case of FSL/ET, the primary part. Review all employment tax returns to ensure filing compliance. For EO, a separate employment tax examination may be necessary if the review reveals a lack of compliance.

Employment Tax Returns Guidelines

  1. Using IDRS commands BMFOLI and BRTVU, verify proper filing and payment of taxes for each tax period, up to and including the period for which an employment tax return was due.

  2. Employment taxes include:

    • Federal Insurance Contributions Act (FICA)

    • Railroad Retirement Tax Act (RRTA)

    • Federal Income Tax Withholding (FITW)

    • Federal Unemployment Tax Act (FUTA)

    • Back-Up Withholding

    • Withholding on gambling winnings

    • Withholding on income paid to foreign persons (a filing check for Form 1042 can be waived in some cases)

  3. This responsibility also extends when the examined return is only a Form 990-T.

  4. Determine whether available information warrants an employment tax exam of the organization’s books and records. If an examination is warranted, conduct the employment tax exam concurrently with the organization’s return. See Policy Statement P-4-4. Refer to IRM 1.2 and IRM 4.23.

  5. Generally, an employment tax exam is warranted if:

    1. Available information indicates that the employment tax liabilities weren't correctly reported.

    2. Returns are delinquent.

    3. The potential additional liability or the resulting improvement in voluntary compliance will justify the time required to make the necessary adjustment.

  6. For EO only, discuss and secure group manager approval for employment tax examinations.

  7. In worker classification cases, give consideration to Section 530 relief before asserting that a worker is an employee.

  8. If research indicates there will be an adjustment to the organization’s employment tax liability, perform the following actions:

    1. Request BRTVU printouts or the original returns and a BMFOLT printout, or request retained copies of the returns from the organization (if readily available);

    2. For EO, if the determined adjustment is limited to a specific quarter, you should establish only that quarter (Form 941) on AIMS/RCCMS.

    3. Generally, for FSL/ET and EO cases, if there is an employment tax adjustment, establish all four quarters (Forms 941) on AIMS/RCCMS for the year under examination. See also IRM and IRM

  9. For all open employment tax cases where the examination didn't include either the identification of or the development of a worker classification issue, including requests for information or discussion regarding a reclassification issue, use Form 2504-S, Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment (Employment Tax Adjustments Not Subject to IRC 7436, Worker Classification or Section 530 Issues Not Addressed in this Exam). If any workers were reclassified as employees, use Form 2504-T, Agreement to Assessment and Collection of Additional Employment Tax and Acceptance of Overassessment in Worker Classification Cases (Employment Tax Adjustments Subject to IRC 7436), to report additional tax due to the change in worker status. If any workers are reclassified as employees and adjustments are made for an non-7436 issue, examiners should complete both Forms 2504 and Form 2504–T.

  10. If an employer willfully fails to deduct, withhold or pay the employee’s portion of employment taxes, consider asserting the penalty provisions under IRC 6672. The employer is liable for the correct amount of FICA tax and income tax withholding from wages, even if the employer failed to collect the withholding taxes from the employee.

  11. If the employer fails to deduct the tax, the employer is nevertheless liable for the correct amount of tax that should’ve been withheld. The employee is also liable for the correct amount of tax until it is collected.

  12. If you concurrently examine employment tax returns and Form 990, attach Forms 3198-A, TE/GE Special Handling Notice, to the front of both the primary return case file and the employment tax return case file. Indicate on both Forms 3198-A that the case files are related and shouldn’t be separated. Also indicate on the Form 3198-A attached to the front of the primary return case file that there’s a related employment tax examination.

  13. In cases where the returns must be separated for expediency of processing, e.g., the primary return has a short statute date, state on Forms 3198-A the reason the related return is being closed separately.

Information Returns

  1. Certain information returns are the primary input documents for computerized matching programs to detect potential unreported income and nonfilers. Policy Statement P-4-4 (see IRM 1.2) and the "required filing check but waiver eligible" provisions in this manual spell out EO’s (including FSL/ET) responsibility to ensure the timely and correct filing of information returns.

  2. Examples of information returns include:

    1. Form W-2.

    2. Form 8300.

    3. Form 1099 series.

  3. Group managers and special reviewers are responsible for ensuring that examiners properly document their workpapers to reflect adequate coverage of information return issues.

  4. Refer to IRM for information on waivers.

Form W-2

  1. Consider whether all items paid by an employer organization or government have been properly included in the employees’ wages. Consider whether tip income has been reported to the employer and included in the employees wages. Wages include such items as bonuses and fringe benefits (cash or noncash). Examples include:

    • Non-accountable automobile or housing allowances.

    • Corporate vehicles used for personal purposes.

    • Employer provided life insurance in excess of $50,000.

    • Prizes or awards.

    • Employer provided apartments for employees.

    • Health or social club dues and fees

    • Spousal travel

    • Payments on personal legal services and other services

    • Payments on personal debts, including tax debts

  2. For a Form 990 examination, review the following:

    1. Schedule J, Form 990, Compensation Information, to identify reported compensation of officers, directors, trustees, key employees, and the highest compensated employees.

    2. Forms W-2. Determine whether the highest paid employees' compensation presents a potential inurement issue. When considering whether compensation is reasonable, or could present potential inurement, remember to consider:

    • Employee benefits.

    • Personal use of assets owned by the organization.

    • Personal expenses paid by the organization for travel, entertainment or other personal accounts.

Form 1099

  1. IRC 6041 through IRC 6053 require that exempt organizations and governments report various types of payments to both the IRS and the recipients of the payments. These payments include such items as dividends, interest, rents, royalties and nonemployee compensation. These payments are reported on Form 1099.

  2. To ensure the timely and correct filing of information returns, determine whether all information returns required to be filed were filed by the organization for the calendar years that fall within the period of the assigned return under examination, to the most current calendar year. Consider the following minimum requirements:

    1. During the pre-planning stages of the examination, determine the potential filing requirements. Line items of Form 990 are often indicative of an information return filing requirement, e.g., interest paid, subcontractors labor, rents, consultants, legal and accounting fees, advertising, etc.

    2. Review highest paid contractors at Form 990 at Part VII, or Form 990-EZ at Part VI, or Form 990-PF at Part VIII.

    3. Use CFOL command PMFOL to determine if the organization has filed information returns. Use IRPTR to review filed Forms 1099.

    4. Question the organization or government about their internal procedures on information reporting and verify all reporting requirements have been met.

    5. Review copies of the Form 1099 series. These forms include:

    • Form 1099-DIV

    • Form 1099-INT

    • Form 1099-MISC


    Make every attempt to gather this information internally before asking the organization for it (e.g. IDRS).

  3. Review the procedures the organization or government uses to decide whether to file information returns on payments made to independent contractors.

  4. Reconcile Forms 1099 to Form 1096, Annual Summary and Transmittal of U.S. Information Returns, and to the books and records of the organization or government.

  5. Form 1099 isn't required for payments less than $600 during a calendar year. In addition, Form 1099 isn't required for payments made to exempt organizations or corporations. However, there are exceptions to the corporation rule and they include the following:

    • Medical and health care payments (including payments to veterinarians)

    • Gross proceeds paid to an attorney

    • Attorneys’ fees

    • Substitute payments in lieu of dividends or tax-exempt interest

    • Payments by a federal executive agency for services (vendors)

  6. You can request a “recreate” of CP2100 or CP2100A notices through the group manager by sending an encrypted email, fax,or by calling Technical Services Operations (TSO). (See IRM


    The IRS sends CP2100 or CP2100A notices to payers who file information returns with missing, incorrect or mismatched Taxpayer Identification numbers (TINS). These notices include a listing of the defective information returns filed for a particular payee. Analyzing these notices may identify backup withholding or information return reporting issues. (See IRM

  7. While examining disbursements, note payments to individuals, sole proprietorships or partnerships for which required Forms 1099 weren’t filed. Obtain name, address, and TIN and make a referral on Form 5666, if necessary. Secure all delinquent Forms 1099 and consider whether back-up withholding tax and penalties under IRC 6721 and IRC 6722 are applicable. See IRM 4.23.

Form 8282

  1. Form 8282, Non-Cash Charitable Contributions Donee Information Return, is required to be filed by exempt organizations who sell, exchange, transfer, or otherwise dispose of charitable deduction property within three years after the date of its receipt. See IRC 6050L. A copy of the return must be given to the donor. Consider the assertion of the non-filing penalty provided in IRC 6721 or IRC 6723 if the Form 8282 isn't filed.

  2. Review Schedule M, Form 990, Non-Cash Contributions, for current and prior years

Form 8300, Cash Payments Over $10,000

  1. Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, is required to be filed by any person who, in the course of carrying on a trade or business, receives more than $10,000 in cash in one transaction, or related transactions.

  2. Cash received as a charitable contribution isn't subject to the reporting requirements under IRC 6050I.

  3. Form 8300 must be filed with the IRS by the 15th day after the date the reportable cash payment was received. A person may elect to report as one payment, several independently reportable payments received within a 15-day period.

  4. Inspect the organization’s copies of Form 8300, along with the statements required to be furnished to an "identified person." See exceptions under IRC 6050I.

  5. The recipient of the cash payment must:

    1. Keep a copy of each Form 8300 for a period of five years from the date of filing.

    2. Furnish a written statement of each identified person on the Form 8300, showing the total amount of cash received during the year from that person(s).


      This statement isn't required to be in a particular form or format. A copy of Form 8300 may be used for this purpose, if the identified person had only one transaction during the year.

    3. Furnish a copy of the written statement to the identified person on or before January 31 of the succeeding calendar year.

  6. Form 8300 must include the following information:

    1. Name, address and TIN of the person for whom the transaction was completed

    2. Name, address, and TIN of the person conducting the transaction, if different from (6)a, e.g., an "agent" for a principal

    3. Verification of identity of aliens or non-residents, passport, alien ID card, or other official document showing foreign nationality or residence (If Residents or Citizens, driver’s license, credit card, or other similar ID)

    4. Description of the transaction and method of payment, i.e., name of business that received cash

  7. A transaction giving rise to the reporting requirements of IRC 6050I is the underlying event precipitating the payer’s transfer of cash to the recipient. A reportable transaction may be, but isn't limited to:

    1. Sale of goods or services;

    2. Sale or rental of property;

    3. Exchange of cash for cash; or

    4. Conversion of cash to a negotiable instrument.

  8. Interview the person(s) responsible for compliance with IRC 6050I. Generally, the person responsible for the filing of an EO return will also be responsible for filing Form 8300. During the interview, inquire as to:

    1. The names and titles of officers or employees who handle cash transactions and who may be responsible for filing Form 8300.

    2. The responsible person’s knowledge of the reports and records required under IRC 6050I.

    3. The internal controls of the business with regard to cash transactions.

    4. The types of records maintained on transactions required to be reported on Form 8300.

    5. Whether or not the organization has filed any Forms 8300.

    6. Whether procedures used to ensure that the information, such as the payer’s identity, contained in the report(s) were complete and correct.

  9. Examiners may request a Report of Cash Payments over $10,000 in a Trade or Business and Currency Transaction Report (Form 8300) data (Refer to IRM

  10. Form 8300 data is in a database that monitors currency transactions regulated by US Title 31 (The Bank Secrecy Act). Examiners use this data:

    1. To identify potential money laundering

    2. To identify structuring transactions

    3. To identify the operation of a criminal enterprise via cash


      In some instances, these cash transactions could indicate that wages are being paid in cash or that certain individuals are embezzling funds or using the funds for personal purposes.

  11. Inspect the cash receipts and sales journal, bank statements, and deposit slips to verify:

    1. Transactions involving cash receipts of more than $10,000.

    2. Consecutive or related transactions with total in excess of $10,000.

    3. Whether or not the currency transactions in excess of $10,000 were reported.

  12. Be alert to situations that may be an attempt to circumvent the reporting requirements of IRC 6050I, such as:

    1. A single transaction structured as multiple transactions of less than $10,000.

    2. Transactions in excess of $10,000 where large amounts of cash (under $10,000) are combined with small non-cash payments for purposes of avoiding the reporting requirements.

    3. A pattern or series of transactions of less than $10,000 conducted over a relatively short period of time by or for the same person.

  13. Submit Form 5666 or Form 5346 on unusual or questionable transactions discovered during an examination. Form 5666 or Form 5346 can be submitted on the "recipient" or the "identified person" , depending upon which party to the transaction is under examination when the questionable item is discovered. Prior to submitting Form 5666 or Form 5346, consider the following factors:

    1. Does the transaction appear to be an isolated incident, or one of many, which may have been unreported?

    2. Depending on the type of business, is it normal and customary for the business to conduct its transactions in cash?

    3. Is it reasonable for the business to receive large amounts of cash for any single transaction?

    4. Does the business pay its suppliers or vendors in cash, other than for petty cash type items?

  14. Refer to the final regulations for additional information and examples of reportable cash transaction under IRC 6050I.

Employee Benefit Plan Returns

  1. If the examination of an organization reveals that the organization maintains an employee benefit plan, conduct certain inspections of the benefit plan(s) in order to ensure compliance with all employee plan requirements. Consult with a pension specialist if further interpretation of the pension plan law is required, using the Online Specialist Referral System. As a required but waiver-eligible filing check, examiners will:

    1. Become familiar with the working provisions of the plan with particular emphasis on the operations as reflected in order to get background information.

    2. Note any transactions between the plan and the organization.

    3. Interview the responsible official with respect to transactions between the plan and the organization.

    4. Determine if Form 5330 is required (see IRC 4975).

    5. Inspect Form 5500 series return(s) in order to determine if it was filed correctly.

    6. Develop the facts and information necessary for the preparation of Form 4632-A, Employee Plans Referral Checksheet.

    7. Carefully review any unusual transactions encountered during the investigation with respect to other taxpayers involved.

    8. Consider the amount of deferred compensation in developing excessive compensation issues.

  2. Determine the type(s) of retirement plan(s) maintained by the organization. For each of the following plans, complete Form 4632-A to determine whether a referral would be made to Employee Plans:

    • Profit Sharing – IRC 401(a)

    • Money Purchase Pension – IRC 401(a)

    • Defined Benefit Pension – IRC 401(a)

    • Elective Salary Deferral – IRC 401(k)

    1. If all answers circled are in the left column, you are not required to refer the plan to Employee Plans (EP). In such cases, associate Form 4632-A with Form 5773, EO Workpaper Summary. This will satisfy the required filing check.

    2. If any answers in the right column of Form 4632-A are circled, refer the plan to EP. Use Form 4632 (Employee Plans Referral) to refer the plan. Attach copies of Form 4632-A and Form 5500 for each plan referred. Submit the referral package to CP&C referrals for assignment to EP.

  3. If an organization has a profit-sharing plan exempt under IRC 401 (a), determine the effect on the organization’s exempt status. Also, submit a referral to CP&C referrals for IRC 401(a) consideration.

  4. For examinations of employee welfare benefit plans exempt under IRC 501 (c)(9), (c)(17), and IRC 120 (Qualified group legal services plan), review plan documents and complete Form 6212-B, Examination Referral Checksheet B. If any item on Form 6212-B is checked in the right-hand column, forward the form to the Pension and Welfare Benefits Administration of the Department of Labor (DOL). The case won’t be closed until the earlier of receipt of a response from DOL, or 20 workdays after the date you submitted the document to DOL.

  5. Determine if fringe benefits constitute taxable wages. Review the chart of accounts for obvious employee benefits. Secure a copy of the personnel department’s employee benefits and executive benefits procedures.


    A helpful resource to determine benefits and forms of compensation is the employee handbook (if available).

  6. Complete Form 4632-A for each plan for which a deduction is claimed. Form 4632-A will remain in the case file.

  7. A completed Form 4632-A will assist in the preparation of Form 4632, Employee Plans Referral, if necessary.

  8. If a referral is warranted due to other issues or circumstances not covered by Form 4632-A, a referral may be accomplished by a narrative explaining the particular issues or circumstances.

  9. Complete Form 4632-B, Employee Plans Referral Checksheet or for FSL/ET complete Form 4632–C, Employee Plans Referral Sheet, for IRC 403(b) or IRC 457 plans, to determine if a referral on Form 4632 is necessary for the following plans;

    • Tax Deferred Annuities – IRC 403(b)

    • Eligible Deferred Compensation – IRC 457

    • Ineligible Executive Deferred Compensation – IRC 457(f)

  10. The revocation of a 501(c)(3) status may adversely impact deferred compensation programs sponsored by the organization. Consult with an Employee Plans IRC 403(b)/457 Coordinator.

Political Organization Returns (Form 1120-POL)

  1. IRC 527 explains the extent to which political organizations are taxed. Generally, only the political organization’s income from investments, less the expenses directly attributable to such income including a specific deduction of $100.00, is taxed at the highest corporate rate. Neither the NOL deduction nor the special deductions allowed for corporations are allowable pursuant to IRC 527(c).

  2. An IRC 501 (c) organization, on the other hand, is taxed under IRC 527 on the lesser of the amount expended for political purposes (exempt function), or the organization’s net investment income.

  3. Net investment income, for purposes of IRC 527 (f), means the gross amount of interest, dividends, rents, royalties, plus the excess (if any) of gains from the sale or exchange of assets over the losses from the sale or exchange of assets, over the deductions directly connected with the production of this income. To avoid double taxation (and double deductions), IRC 527 (f)(2) provides that income and deductions taken into account for purposes of the tax on UBI of IRC 501 (c) organizations under IRC 511 aren't to be included as either income or deductions in determining net investment income under IRC 527(f).

  4. For purposes of IRC 527, expenditures for an "exempt function" (political purposes), are expenditures for the purpose of influencing the outcome of an election to public office. Political expenditures don't include any expenditures for the purpose of influencing legislation regardless of whether those "lobbying" expenditures are for germane lobbying, non-germane lobbying, or grass roots lobbying.

  5. Review Schedule C, Form 990, Political Campaign and Lobbying Activities.

  6. Review Schedule R, Form 990, Related Organizations and Unrelated Partnerships, for identifying related organizations.

  7. Determine whether a separate segregated fund described in IRC 527(f)(3) is maintained by the organization. Also, determine if the organization has expended any amount from its funds during the taxable year directly (or through another organization) for an exempt function under IRC 527(e)(2). If so, a Form 1120-POL, U.S. Income Tax Return For Political Organizations, may be required. Check the minutes and other correspondence files for indications of political contributions. Also check disbursements for possible political expenditures.

  8. Compare the amount of political expenditures reported on Form 990, Schedule C, Part I, Line 2, to the amount of political expenditures on Form 1120-POL. Also, reconcile the investment income and expenses per return with those reported on Form 1120-POL. Establish Form 1120-POL for examination if adjustments are required.

  9. If the IRC 501(c) organization has $100 or less of net investment income for the tax year, no return or tax is due from the IRC 501(c) organization under IRC 527 regardless of the amount of its political expenditures.

  10. See K-Net for additional technical guidance on examinations involving political organizations.

Tax Exempt Bonds

  1. The Tax Exempt Bond (TEB) program, normally associated with large IRC 501(c)(3) organizations, was established to ensure compliance with the provisions of the Internal Revenue Code applicable to tax-advantaged bonds. Prior to considering a referral to Tax Exempt Bonds via the Specialist Referral System (SRS), be alert for the following transactions:

    1. The sale of assets financed with tax-exempt bonds

    2. The proceeds from tax-exempt bonds were invested, resulting in earnings from "materially higher" investments


      The definitions of "materially higher" investments (arbitrage) can be found in 26 CFR 1.148-2(d).

    3. The assets financed with tax-exempt bonds were used for personal gain

    4. A change in the original intended use of the assets

    5. The assets financed with tax-exempt bonds were used for an unrelated trade or business


      Exceptions to EO law for UBI don't alter a determination of UBI under TEB law (e.g. Volunteer labor may affect the designation of UBI for EO, but not for TEB determinations).

    6. Forms 8038 series are delinquent

    7. A for-profit developer or manager privately benefits from and controls the facility financed with tax-exempt bonds


      If proposing revocation of an IRC 501 (c)(3) organization issuing tax exempt bonds, a referral to Tax Exempt Bonds is mandatory.

  2. Review Schedule K, Form 990, Supplemental Information on Tax-Exempt Bonds

  3. The revocation of the issuing organization’s tax-exempt status may adversely impact the bonds. Consult with a TEB specialist.

Report of Foreign Bank and Financial Accounts (FBAR)

  1. FBAR is an information report required when a "U.S. Person" owns or has signature or other authority over foreign financial accounts worth over $10,000 in any year.

  2. Certain tax-exempt entities may be required to file FBARs:

    1. A pension plan or an exempt organization formed under U.S. laws which meets the definition of a U.S. person.

    2. A pension plan or an exempt organization may have a direct or indirect financial interest in reportable financial accounts.


      See IRM 4.26.16, Bank Secrecy Act, Report of Foreign Bank and Financial Accounts (FBAR), for legal definitions, foreign account valuation, account authority, etc.

  3. The determination to file the FBAR is made annually.

  4. FBAR is due on or before June 30.

  5. The FBAR is now filed electronically through the Financial Crimes Enforcement Network (FinCEN) BSA E-File system.

  6. The FBAR shouldn’t be filed with the filer’s federal tax return. Don’t discuss filing FBAR with a taxpayer.


    First, contact the FBAR Coordinator for more information. Refer to IRM for further guidance.

Withholding Compliance Program

  1. IRC 3401 and IRC 3402 set forth the requirements for withholding and claiming exemption from withholding. Employers must comply with the W-4 requirements in accordance with 26 CFR 31.3402(f)(2)-1 and 26 CFR 31.3402(f)(5)-1.

  2. Under IRC 6001 and 26 CFR 31.6001-5(a), employers are required to keep records of all remuneration paid to (including tips reported by) employees and make them available for inspection by authorized IRS personnel. When an employer is reluctant or refuses to permit an inspection of payroll records, advise them of their obligations under the Code and Regulations.

  3. Refer to IRM for information to determine when a filing check is required for Form W-4.


    The Withholding Compliance Program under SB/SE ensures that taxpayers who have serious under- withholding problems are brought into compliance with federal income tax withholding requirements. This process is based on W-2’s filed and is the responsibility of the Withholding Compliance Unit. See IRM5.19.11, Liability Collection, Withholding Compliance Program.

W-4 Compliance Techniques

  1. If you identify potential noncompliance, review only the most recent Forms W-4 on file with an employer, using analysis of the Forms W-2 as provided by IRPTR:

    1. Identify those employees whose taxes withheld are less than 10 percent of the wages or who had no withholding whatsoever.

    2. Sample the Forms W-4 for those employees to identify the marital status and number of exemptions.

    3. Prepare a workpaper recording the results of the sampling.

  2. In order to be exempt from withholding the employee must:

    • Have had no income tax liability in the previous year,

    • Expect to not have any in the current year, and

    • Submit a new Form W-4 each year before February 15.

  3. For those employees who claimed "exempt," check the date of the signature. Advise the employer of their obligation to obtain a new Form W-4, if the Form W-4 is dated from an earlier year.

  4. Under 26 CFR 31.3402(f)(5)-1(b), any unauthorized change or addition to Form W-4 makes Form W-4 invalid. This includes taking out any language by which the employee certifies the form is correct.

  5. Invalid Forms W-4 can be recognized by:

    1. Deletion of the language of the jurat.


      Crossed out penalty of perjury statement above the signature.

    2. Defacement of the certificate.

    3. Any writing on Form W-4 other than the entries requested.

  6. Under 26 CFR 31.3402(f)(2)-1(e) and Rev. Rul. 80-68, 1980-1 C.B. 225, a Form W-4 is also invalid if, by the date an employee gives Form W-4 to the employer, he or she indicates in any way it is false.

  7. The employer may treat a Form W-4 as invalid if the employee wrote "exempt" on line 7 and also entered a number on line 5 or an amount on line 6.

  8. An employer who receives an invalid Form W-4 from an employee must take the following actions:

    1. Inform the employee that the Form W-4 is invalid.

    2. Request another Form W-4 from that employee.

    3. Withhold tax from employee wages as single with zero allowances until the employee furnishes a valid Form W-4.


      If a prior valid Form W-4 is in effect for the employee, the employer must continue to withhold based on the prior Form W-4.

  9. IRC 6682 and 26 CFR 31.6682-1 allow the assessment of a $500 civil penalty on an individual for furnishing a false Form W-4 if:

    1. The statement made on the Form W-4 results in less income tax withheld than would’ve been withheld if the Form W-4 had been correctly completed, and

    2. There was no reasonable basis for such a statement at the time that the statement was made.

  10. False Forms W-4 are subject to a civil penalty of $500 for each Form W-4. Accordingly:

    1. Secure copies of any false Forms W-4.

    2. Send a referral for each Form W-4 for which the penalty assessment is being requested. Submit these using Form 9045, Withholding Compliance Referral Form. The form may be faxed to (855) 202-8300 and must include copies of the Forms W-4.

Returns Within the Jurisdiction of TE/GE Exempt Organizations

Form(s) Description
990 Return of Organization Exempt from Income Tax
990-T Exempt Organization Business Income Tax Return
990-PF Return of Private Foundation or Section 4947(a)(1) Trust Treated as a Private Foundation
990-BL Information and Initial Excise Tax Return for Black Lung Benefit Trusts and Certain Related Persons
Form 990-N Electronic Notice (e-postcard) for Tax Exempt Organizations Not Required to File Form 990 or 990-EZ. This form is technically not a return, but rather a non-return unit (NRU).
1041 U.S. Fiduciary Income Tax Return (when filed by 4947(a)(1) and (a)(2) trusts)
1041-A U.S. Information Return--Trust Accumulation of Charitable Amounts (when filed by 4947(a)(2) Trusts)
1065 U.S. Partnership Return of Income (when filed by section 501(d) religious and apostolic organizations)
1120 U.S. Corporation Income Tax Return (when filed by a private foundation whose exemption has been revoked)
Form 1120-POL U.S. Income Tax Return For Certain Political Organizations
4720 Return of Certain Excise Taxes on Charities and Other Persons under Chapters 41 and 42 of the Internal Revenue Code
5227 Split-Interest Trust Information Return
940, 941, 943 and 944 Employment Tax Returns (relating to the employment tax liability of organizations under the jurisdiction of EO, and also including Form CT-1 and Form CT-2)
945 Annual Return of Withheld Federal Income Tax
720 Quarterly Federal Excise Tax Return

Filing Check Guidance Table

Return Categories
(including prior/subsequent year returns)
Filing Check Requirement
(regardless of exam scope)
Form 990, 990-EZ, or 990-N (not a return) for all exams of IRC 501(c), 4947(a)(1) and 527 organizations. IRM
Form 990-PF, only for exams of private foundations
Form 990-BL, only for exams of IRC 501(c)(21) trusts
Form 5227, only for exams of IRC 4947(a)(2) split interest trusts
Form 1065, only for exams of IRC 501(d) religious and apostolic associations
Always Required)*
Form 990-T, for all exams of IRC 501(c) organizations and government-owned colleges and universities. IRM
Form 1120, only for exams of taxable private foundations (PFs)
Form 1041, only for exams of IRC 4947(a)(1), IRC 4947(a)(2) charitable lead trusts, taxable PFs (trusts)
IRM; IRM; https://www.irs.gov/pub/irs-tege/atg_private_foundations.pdf. ; https://www.irs.gov/pub/irs-tege/atg_fundraising.pdf.
Employment Tax Returns and Withholding
(Forms 940, 941, 944, 945 and 1042)
Information Returns
(Forms W-2, W-2G, 1042-S, 1094-B, 1094-C, 1095-B, 1095-C, 1098-series, 1099-series, 8027, 8282, 8300, 8870, 8871, 8872, 8886, 8886-T, or 8899)
IRM; IRM; IRM; IRM; https://www.irs.gov/pub/irs-tege/atg_gaming.pdf; IRM; IRM
Required but Waiver Eligible**
Bond Returns
Employee Benefit Returns
(Form 5500-series)
Other Related Tax Returns
(Forms 4720, 4720-A, 1120-POL, 730, 11-C, 1042)
IRM; IRM; IRM; https://www.irs.gov/pub/irs-tege/atg_gaming.pdf
FBAR (Title 31)
Don’t discuss filing of FBAR with taxpayer.
IRM; IRM; IRM 4.26.16; IRM 4.26.17; IRM https://www.irs.gov/pub/irs-tege/atg_private_foundations.pdf
Related Persons’ Returns (including "controlled organizations" )
(Forms 1040,1041, 1120-series, 1065)
Optional/Not Required***
Withholding Compliance Program
(Questionable W-4s)


* Always Required- Complete the filing check per IRM guidelines. Document your conclusions on Form 5773, Section G. These filing checks can’t be waived.

** Required but Waiver-Eligible- These filing checks are required, but can be waived with managerial approval. Documentation of the authorization and reason is required on Form 5773, Section G.

*** Optional/Not Required- These filing checks aren’t required; explanations aren’t needed. However, if information developed during the examination indicates a potential for noncompliance, you may conduct the filing check and document actions taken.

Related Return- Any return of the same taxpayer. However, a return subject to a discrepancy adjustment in IRM 4.75.28, such as a Form 1040 or 1120, and any Form 4720-A, filed by a disqualified person with respect to the organization under exam, is treated as a "related return." See IRM4.75.16.1(3)c.