4.75.27  Office/Correspondence Examination Program (OCEP)  (06-01-2010)

  1. (1)The Office/Correspondence Examination Program (OCEP) is an ongoing program in which EO Revenue Agents and Tax Compliance Officers (examiners) conduct the examination of returns either by an office interview or through correspondence.

    1. Correspondence examinations are those in which information needed to resolve the classified issues can readily be furnished by the organization through the mail

    2. Office interview cases are those in which the issues cannot completely be resolved through correspondence and the examiner requests the records be reviewed in an IRS office.

  2. OCEP examinations are generally limited in scope, usually dealing with no more than three to four issues, and generally assigned to grade level GS-9 or lower examiners.

  3. However, if determined necessary, such as in the case of restrictions on travel, OCEP procedures can be applied to more complex returns examined by higher graded agents.

  4. OCEP examinations are an efficient process for compliance. Internal resource should be use to determine non filed returns. See IRM 4.75.12. Non filed returns should be requested during the initial examination letter or appointment. Integrated Data Retrieval System (IDRS) can be used to verify filing compliance. IDRS command code BMFOLI can be used to determine compliance.

  5. The normal examination and closing procedures applicable to field examinations generally apply to OCEP exams. Exceptions include:

    1. The scope of the examination is limited to the issues identified by the classifier or the objective/initiative of a specific compliance project. See IRM relative to expanding the scope of the examination, if and when it becomes necessary.

    2. The examiner is not required to reconstruct a “Determination File”, which includes historical data about the organization, if one is not available.

    3. Exception: If the case results in proposed revocation a copy of the determination file should be requested for the Administrative Record.

  6. OCEP procedures can apply to all EO returns.

  7. Suspense files should be used to hold cases awaiting requested information or the date of a scheduled appointment. See IRM for information on suspense files.

  8. OCEP pattern letters should be used, if applicable. See Exhibit 4.75.27-1 for a list of suggested forms and letters used in OCEP examinations.  (06-01-2010)
Selection and Classification Criteria

  1. (1)EO returns under this program are selected either using Return Inventory Control System (RICS), or as part of a compliance project.

  2. Selection criteria Include entities with gross receipts or total assets under $100,000. However, entities exceeding this criteria may be included if the issues identified are suitable for resolution through the OCEP process.

  3. During the selection/classification process, the classifier will consider the entire return as well as possible related items not reported on the return.

  4. A classification sheet will be attached to each return identifying the classified issues.  (06-01-2010)
Compliance Projects

  1. The correspondence examination technique will generally be used for compliance projects, but may be converted to an office or field examination, if facts and circumstances warrant.

  2. The project issue(s) should be specified in the project letters sent to the organization. The project issue(s) and objective(s) are detailed in the project’s action plan.  (06-01-2010)
General Examination Guidelines

  1. During the normal pre-examination planning, if the examiner notes questionable items on the return or has other information available prior to sending the initial letter, consideration should be given to expanding the scope of the examination.

  2. If an examination cannot be satisfactorily completed under OCEP procedures due to complexity, geographical location, etc., the group manager may change the examination technique to a field examination.

  3. Use of suspense files to hold cases awaiting requested information or awaiting the date of a scheduled appointment is recommended. Where available, clerical personnel should maintain these files with a purge date relating to when additional action is required. In locations where a clerk is not available, the examiner will maintain the suspense files.

  4. Due to the limited scope of the examination, the normal package audit procedures per IRM do not apply. However, the examiner will research IDRS to verify the filing of information returns when applicable. The Payer Master File (PMF), IDRS command code PMFOL, Information Returns Master File (IRMF), IDRS command code IRPTR, and Business Master File (BMF), IDRS command code BMFOL, will be used to satisfy the compliance check requirements of Policy Statement 4-4 stated in IRM (1) & (3).

  5. Cancelled checks, receipts and other original records submitted by the organization during the examination will be returned as soon as possible using Form 3699, Return of Documents to Taxpayer, or Letter 1020 (DO). Letter 1020 (DO) can advises the taxpayer of the examination’s status, serving as well as a transmittal for returning records to the organization.

  6. If records are needed to document conclusions reached in the examination, copies should be made and the originals returned.  (06-01-2010)
OCEP Examination Procedures

  1. An interview examination usually will take place in the examiner’s office post of duty.

  2. If an interview examination is required away from the examiner’s post of duty, the examiner will arrange an examination at another IRS office agreeable to both the organization and the examiner.

  3. The organization should not have to travel more than 50 miles.

  4. A principal officer or a properly authorized representative should be informed the return is being examined and an officer and if applicable an authorized representative should bring the specified records to the office at the scheduled time.

  5. The Correspondence examination technique is normally used to examine compliance project returns.  (06-01-2010)
Office Interview Examination Procedures

  1. In Office Interview Examinations the examiner will notify the organization either by mail or telephone of the scheduled interview. The organizations address should be confirmed before mailing of initial letter.

  2. Letter 3606, Exempt Organizations examination appointment letter and information document request transmittal, or a compliance project’s initial contact letter will be used to:

    1. Initiate the examination, notify the organization of the time and location of the interview and the records to bring, or b.

    2. Confirm the appointment and records needed to conduct the examination, if initial contact was by telephone.

  3. Publication 1, “Your Rights As a Taxpayer”, must be included with the initial contact letter.

  4. Letter 1475-A should be used when requesting an additional appointment after review of information.  (06-01-2010)
Correspondence Examination Procedures

  1. In Correspondence Examinations the first contact should be made by telephone. Per Memorandum 04-23-07 T:EO:E -11-2007. The organizations address should be confirmed before mailing of initial letter.

  2. Letter 3606, Exempt Organizations examination appointment letter and information document request transmittal, or Letter 4055, Letter Converting Compliance Check to Examination Due to No Response, should be used for initial contact letter along with Form 4564, Information Document Request.

  3. Current activities must always be a consideration when using correspondence examination procedures. This allows us to determine if the organization is still operating within the perimeters of their exemption.

  4. Forms 8001, 8002, 8003, 8004, and 8005 can be used in place of Form 4564 to request information and documentation on issues identified by the classification check sheet. The following is a list of information that can be requested on these forms:

    1. Form 8001: Item 1 - Activities; Item 2 - Incomplete Return; and Item 3 - Payment for Personal Services.

    2. Form 8002: Item 4 - Specific Item(s) of Income; Item 5 - Specific Item(s) of Expenditure: and Item 6 - Specific Balance Sheet Item(s).

    3. Form 8003: Item 7 - Nonmember Income; Item 8 - Business Activities; Item 9 - Calculation of Net Investment Income; Item 10 – Minimum Investment Return Computation; Item 11 - non-distributed Income; and Item 12 - Advance Approval For Individual Grants.

    4. Form 8004: Item 13 - Private Operating Foundation Status; Item 14 - Foundation Status; Item 15 - Capital Gains or Losses; Item 16 – Final Return; and Item 17 - Organizations Described in IRC section 501(c)(19).

    5. Form 8005: Item 18 - Expenditures for Political Purposes; Item 19 - Activities Involving Influencing Legislation or Political Campaigns. and Item 20 - Other.

  5. If the case cannot be satisfactorily completed by correspondence, the group manager can convert the case to an office or field interview.

  6. The examiner will notify the organization by letter if the exam is changed to an office interview or field examination. Letter 1475 (DO) is used when converting the correspondence exam to an office interview.  (06-01-2010)
Procedures for Undeliverable Mail and Failure To Respond

  1. In order to obtain a current address the examiner will:

    1. Check all possible internal sources including the case file and IDRS using the Corporate Files On-Line (CFOL), BMFOLI, or Individual Master File On-Line (IMFOL), IMFOLI, command codes.

    2. Check telephone directories for names and addresses of the organization and its officers, directors, or trustees. Contact by telephone can be made to determine current mailing address.

    3. If the organization is incorporated, check state incorporation records to locate a list of officers or the name of the registered agent.

    4. If unsuccessful, use Form 4759, Address Information Request, to contact the postmaster for the most recent address. e.

    5. The examiner can contact their local Collection Field Function personnel for assistance in locating entities or individuals, if currently in collection status. Refer to IRM 105.3 “Locating Taxpayers”. Examiners must follow all third-party procedures as outlined in Treasury Regulation § 301.7602-2, if applicable.

  2. After all possible steps have been taken to obtain a current address see IRM (03-14-2006) Procedures When the Examiner is Unable to Locate a Taxpayer

  3. Refer to Exhibit 4.75.13-5 for examples of closing procedures to be followed for various “unable to locate” situations.  (06-01-2010)
Failure to Respond

  1. If the organization does not respond within 30 days, the examiner will contact the organization:

    1. If the case is a Compliance Project, an internally drafted letter will be used.

    2. Letter 1477(DO), “Follow-up For No Response” will be used in all other cases. Letter 1477 informs the organization that if they do not respond to us in a timely fashion the Service will propose revocation.

  2. If the organization fails to respond to the follow-up letter, the examiner will attempt to contact a principal officer or authorized representative by telephone and inform him/her of possible adverse action.

  3. The failure of an organization to respond to an OCEP examination may result in revocation of the organization’s exempt status. See Treas. Reg. section 1.6033-2(h)(2).

  4. Examination reports prepared for failure-to-respond cases must:

    1. Contain a list of the information that was not provided;

    2. Describe its relevance to the status involved; and

    3. Provide clear support for the conclusion that failure to substantiate the information leads to material questions as to whether the organization is entitled to continue exempt status.

  5. Established revocation procedures should be followed. See IRM 4.75.15 and IRM 4.75.16.  (06-01-2010)
Revocation versus Termination of Exempt Status

  1. IRM 7.25, the Exempt Organizations Determinations Manual, should be reviewed on issues that result in proposing revocation. If findings clearly indicate an organization does not materially meet the rules for continued exemption, revocation of the organization’s exempt status is appropriate. The case file and examination report must provide clear support for this adverse action. The revocation procedures contained in IRM 4.75.15, IRM 4.75.16, and IRM 4.75.20, Final Case Closing, should be followed.

  2. If findings indicate an organization has gone out of business, termination is appropriate. The examiner should prepare Form 4620, Transmittal Letter - Exempt Organizations, and a drafted letter indicating the organization exempt status has terminated and the date of dissolution. In cases involving IRC section 170, the letter should contain a statement terminating the deductibility of contributions. The termination procedures contained in IRM 4.75.15, IRM 4.75.16, and IRM 4.75.20 should be followed.

Exhibit 4.75.27-1 
OCEP Letters and Forms

L. 1020 Transmittal for Returning Records to the Organization
L. 1475 Convert from correspondence to office interview
L. 1476 Request for Additional Information Letter
L. 1477 Follow-up for No Response
L. 3164 E Third Party Contact Letter
L. 3606 Exempt Organizations examination appointment letter and information document request transmittal
L. 4055 Letter Converting Compliance Check to Examination Due to No Response
F. 8001–8005 Enclosures
F. 3699 Return Original Document of Taxpayer
Publication 1 Your Rights as a Taxpayer (mailed with initial contact letters)
NOTE: Internally drafted letters also may be used as an initial contact letter or follow-up letters after approval from manager.

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