4.75.29  Exempt Organizations Team Examination Program Procedures

Manual Transmittal

May 22, 2012


(1) This transmits a revision with Table of Contents, text and exhibits for IRM 4.75.29, Exempt Organizations Examination Procedures, Exempt Organizations Team Examination Program Procedures.

Material Changes

(1) IRM, Assistance from the EO Mandatory Review Staff, has been revised to delete the statement: Any Unagreed TEP case involving revocation or modification of exempt status will be subject to Mandatory Review.

(2) IRM, 30-day Letter, is revised to delete the section that states EO Mandatory Review will issue the 30-day letter under special circumstances.

Effect on Other Documents

00This revision supersedes IRM 4.75.29, dated June 4, 2009.


TE/GE (Exempt Organizations Examinations) and primarily Exempt Organizations TEP Examiners

Effective Date


Lois G. Lerner
Director, Exempt Organizations
Tax Exempt and Government Entities  (02-01-2006)
Overview of the Team Examination Program

  1. The purpose of the Team Examination Program (TEP) is to provide an examination program designed to address the compliance issues of large and complex organizations under the jurisdiction of the Director, Exempt Organizations.

  2. Typically, the examination of a TEP case involves significant resources and planning, as well as complex technical and procedural matters. The Team Examination Program provides a tailored approach to meet the challenges of these examinations.

  3. TEP examinations may or may not employ the coordinated examination approach and procedures. As further discussed in this IRM a decision will be made on each examination on whether coordinated examination procedures will facilitate or enhance the examination. When a decision is made to employ a coordinated examination approach, the coordinated examination procedures described in IRM must be utilized.  (06-04-2009)
Definition of a TEP Examination and TEP Universe Criteria

  1. The following are TEP examinations that will involve TEP resources and should utilize a TEP project code:

    1. Any examination of an organization or return filed by an organization (including related organizations) included in the TEP universe, regardless of whether a coordinated team examination approach will be used to conduct the examination. This will include examinations of claims and limited scope examinations; and

    2. EO support or collateral examinations conducted in support of LB&I examinations as the result of a referral or request from LB&I, regardless of the size of the exempt organization. This type of TEP examination is usually initiated as a result of a Specialist Referral System request from LB&I. Referrals from LB&I that do not involve a request for EO Exams to conduct collateral or support examination with LB&I and are only referrals of information involving potential non compliance by exempt organizations will not be treated as TEP examinations unless the exempt organization meets the TEP universe criteria

  2. A TEP case consists of all returns of the primary entity, the related entities (both exempt and nonexempt), and any other entities or taxpayers (i.e. corporate officers) included in the examination.

  3. Bright-line standards will be used as the primary identifiers of organizations included in the TEP universe. Organizations meeting one of the following bright-line standards are included in the TEP universe and are systemically identified:

    1. Form 990 Filers - Total Income or Beginning of Year assets or End of Year assets > $250 million.

    2. Form 990-PF & 5227 Filers - Income or End of Year assets > $500 million.

  4. Organizations not meeting the bright-line standard may be manually identified and included in the TEP universe. This may include the following situations:

    1. Organizations, which meet the bright-line standards described above, but are not required to file a Form 990 or 990-PF (i.e., state universities and churches) There may not be sufficient information to identify a Church as a TEP taxpayer until the initiation of either the church tax inquiry or an Approved church examination. At the earliest opportunity, the Case Manager will make this determination; or

    2. Organizations that do not meet the bright-line standard, but the examination requires the extensive use of a coordinated team examination approach and procedures.

  5. Exhibit 4.75.29-1, TEP Case Identification Worksheet and Instructions, provides the procedures for recommending that an organization be manually included in or excluded from the TEP universe.

  6. A TEP Analyst (in EPP or Classification) will be assigned to maintain, refine and annually update the TEP universe  (06-04-2009)
Development of the TEP Workplan

  1. Examination Planning and Programs (EPP) has overall responsibility for the development and monitoring of the Examination Workplan. The TEP Program Manager will collaborate with EPP in the development of the TEP portion of the workplan.

  2. Annually, TEP examination priorities will be established and serve as guidance in the use and application of TEP resources. TEP examinations identified by either market studies or compliance projects, will be incorporated into the TEP Workplan. Early coordination by study or project teams with EPP and the TEP Program Manager will be essential in developing TEP priorities and planning the use of resources.

  3. EPP will maintain a running Area TEP Workplan, updated quarterly, for each of the EO Area Offices, as a monitoring and planning tool, that reflects the approved examinations and resources planned for the current and subsequent fiscal years. The purposes of the running Area TEP Workplans are:

    1. To provide the Area Managers, EPP, Classification, and the TEP Program Manager with a current and accurate document that reflects the planned utilization of TEP resources; and

    2. To assist the Area Manager and TEP Manager in ensuring that resources will be utilized for priority case work.

  4. The running TEP Area Workplans will be developed and maintained by EPP as follows:

    1. EPP will add cases to the running Area Workplans as they are approved for examination, (See IRM and Exhibit 4.75.29-2 for guidance and information on the approval process);

    2. EPP will update and revise the information reflected for approved cases in the running Area TEP Workplans utilizing the Quarterly TEP Monitoring Reports submitted by the Area Offices;

    3. Annually, EPP will request the Area Offices review the running TEP Area Workplan and identify any information that should be updated and corrected; and

    4. Quarterly, EPP will share a current running TEP Area Workplan with the Area Managers and TEP Program Manager. As needed, Area Managers may request an interim copy of the Area's Workplan from EPP.  (06-04-2009)
Classification and Identification of Potential TEP Examinations

  1. The identification of any TEP case for examination will be predicated upon either an identified potential noncompliance concern or, in the case of a market segment study or compliance project, the determination of the level of noncompliance.

  2. Classification will have overall responsibility for the independent classification and identification of TEP cases for examination, and generation of the TEP Case Selection Worksheet as the case is assigned, including cases from the following sources:

    1. Referrals from internal and external sources (including LB&I requests for EO support or collateral examinations regardless of the size of the exempt organization.) This also includes follow-up examinations to ensure an area of noncompliance identified in a prior examination has been corrected;

    2. Claims for refund; the merits or correctness of which, requires further review and/or examination; and

    3. The identification and classification of TEP returns or industries with noncompliance indicators may merit examination (i.e., Large, Unusual or Questionable (LUQ) items.)

    4. Market Segment Study and Compliance Project Teams may identify TEP taxpayers for examination as a part of a study or project. The Study or Project Team Leader will determine if any taxpayers identified for examination in a study or project are TEP taxpayers by consulting with the TEP EPP Analyst.

  3. For any TEP cases identified, the Team Leader will:

    1. Advise the TEP Program Manager and EPP as early as possible so any identified cases can be considered in the development of the TEP Workplan,

    2. Coordinate the assignment of any TEP examination through Classification.

    3. Ensure a TEP Case Selection Worksheet is sent to the Case Manager at the same time the case is assigned to the group.

  4. In the event a Case Manager or Revenue Agent becomes aware of potential noncompliance by a TEP taxpayer, not currently assigned for examination, a Form 5666 Information Report should be prepared and sent to Classification for consideration.  (06-04-2009)
TEP Examination Prior Approval Process

  1. EO Examinations' compliance strategies and priorities will drive the selection of cases that will be examined. While potential TEP examinations may be identified from various sources, the decision to conduct the examination and the basis for the examination must be documented and approved, prior to the start of the examination and inclusion in the TEP Workplan.

  2. The objectives of the approval process are:

    1. Provide written documentation of the approval of the examination prior to the start of the examination.

    2. Ensure the examination priorities are appropriately considered in the utilization of limited TEP resources;

    3. Provide a written archive, maintained by EPP, of the basis for the selection of an organization for examination; and

    4. Ensure he coordinated team examination approach is used to conduct an effective and efficient examination unless there is a written documented decision approved by the Area Manager that the coordinated examination approach will not enhance or facilitate the examination.

    5. Provide EPP with the necessary initial planning information needed for the TEP running workplan.

  3. The TEP Case Selection Worksheet and Workplan Schedule will be used to accomplish the objectives of the approval process.  (06-04-2009)
TEP Examination Prior Approval Procedures

  1. The Case Selection Worksheet, Workplan Schedule, and the specific instructions can be found in Exhibit 4.75.29-2. Exhibit 4.75.29-3, TEP Case Selection and Survey Process Overview, provides a flowchart of the steps involved in the processing of the Case Selection Worksheet.

  2. The Worksheet and Workplan Schedule must be prepared and processed electronically and will be transmitted via E-mail, using secured messaging or encrypted E-mail.

  3. The Selection Worksheet and Workplan Schedule will usually be initiated by Classification and E-mailed, via secured messaging, to the appropriate Case Manager, with a copy to the Area Manager and TEP Program Manager, as the case is being assigned to a group. In the event that a worksheet and workplan schedule was not pre-generated for a TEP case, the Case Manager will advise the TEP Program Manager and initiate the Worksheet and Workplan Schedule.

  4. Upon receipt of a Selection Worksheet and the associated case file, the Case Manager must review the case and complete one of the two following actions:

    1. Within 45 days of receipt, submit a recommendation on Form 1900, Income Tax Survey After Assignment, to survey the case. ( IRM for the TEP case survey procedures); or

    2. Prior to earlier of the planned start date or within 90 days of receipt, submit a completed Worksheet and Workplan Schedule requesting prior approval to initiate any examination and include the case in the TEP workplan.

  5. Prior to initiating the examination and within 90 days of receipt of the Selection Worksheet, the Case Manager should E-mail, via secured messaging, the completed and signed Worksheet and Workplan Schedule to the Area Manager for review and approval. Examination will not be started without approval of the Area Manager and TEP Program Manager.

  6. Upon receipt of the Worksheet and Workplan Schedule from the Case Manager, the Area Manager should review the Worksheet and Workplan Schedule in light of the Area's examination priorities, the resources planned, and the decision on whether a coordinated examination approach will be employed. If the Area Manager concurs with the Case Manager's recommendation, he/she will indicate such on the Worksheet and E-mail the Worksheet and Workplan Schedule to the TEP Program Manager for approval using secured messaging.

  7. Upon receipt of the Worksheet and Workplan Schedule, the TEP Program Manager will assess the recommendation, considering examination priorities and resources.

  8. If approved, the TEP Program Manager will distribute, by encrypted E-mail, a copy of the Worksheet and Workplan Schedule to the:

    1. Area Manager,

    2. Case Manager for inclusion in the workpapers and/or planning file, and

    3. TEP EPP Analyst to be archived and included in the Area's Running TEP Workplan.

  9. If the TEP Program Manager does not believe the examination should be approved, he/she will discuss his/her concerns with the Area Manager. If, as a result, the Area Manager and TEP Program Manager agree the examination should not be approved, the TEP Program Manager will indicate the examination has not been approved on the Worksheet and distribute a copy to the Area Manager to be shared with the Case Manager. If the Area Manager and TEP Program Manager cannot reach agreement, the approval of the Case Selection Worksheet will be elevated to the Manager, Examination Programs and Review.  (06-04-2009)
Approval of Surveys (Forms 1900) of Assigned TEP Examinations

  1. The TEP Program Manager must approve a Form 1900 before an assigned TEP case may be surveyed and closed from the group. In approving the Form 1900 the TEP Program Manager is:

    1. Not performing a technical review of the issues or technical conclusions reached by the Area and reflected on the Form 1900 submitted.

    2. Reviewing the Form 1900 to determine if the survey is based upon a lack of resources, and if so, ensure all available resources were considered prior to making the decision to survey.

  2. A Form 1900 recommending the survey of a TEP case must be E-mailed, by secured messaging, to the TEP Program Manager, within 45 days of assignment of the case to the group. Exhibit 4.75.29-3 provides a flowchart of steps involved in processing the Forms 1900.

  3. Prior approval of the Form 1900 before the case is surveyed and closed will not apply to a Form 1900 that involves:

    1. The full allowance of a claim or acceptance of a tentative allowance. In these situations, the Case Manager remains the approving official and an information copy of the Form 1900 must be E-mailed to the TEP Program Manager, by secured messaging, when the survey is closed from the group.

    2. The survey of an individual return that is merely a component part or an aspect of the case or examination as long as an examination of the assigned TEP taxpayer will still be conducted.

  4. When the survey of an assigned TEP case is being considered, the Case Manager and Area Manager must consider all available resources in light of the existing examination priorities, as well as the merits and significance of the potential issues involved.

  5. If resource availability is the primary concern with respect to a case assigned to a group, the Case Manager and/or the Area Manager will consider the following alternatives before recommending the case be surveyed:

    1. Are there planned lower priority TEP examinations that have not been started, and can either be delayed or surveyed to free resources for higher priority examinations?,

    2. If the nature of the case will allow it, (i.e. there is not a current statute of limitation concern or the issue is not one that must be addressed immediately) can the examination be planned for later in the fiscal year or for the next fiscal year?

    3. Is there another TEP group within the Area that has resources available to conduct the examinations and/or

    4. Is the case of such significance that the Area Manager should consider either the use of general program resources to conduct the examination or the reassignment of the case to a TEP group in another Area?  (06-04-2009)
TEP Form 1900 Prior Approval Processing Procedures

  1. Unless excepted under IRM the Case Manager will prepare the Form 1900 for approval prior to the case being surveyed and closed.

  2. The Form 1900 must provide a complete and detailed explanation of the basis for the survey. If lack of resources is the basis, the Form 1900 must document the consideration of the alternatives described in IRM

  3. The Case Manager will indicate his/her recommendation by signing and dating the "approved by" section of the Form 1900. The Form 1900 should be E-mailed, by secured messaging, to the Area Manager for review and concurrence.

  4. If the Area Manager concurs with the survey recommendation, he/she will annotate the Form 1900 in sufficient detail to describe the resource considerations, if any, and any other relevant information, and sign and date the annotation on the Form 1900. The Form 1900 should be e-mailed, by secured messaging, to the TEP Program Manager for approval.

  5. Upon receipt of the Form 1900, the TEP Program Manager will assess the recommendation, considering examination priorities and resources.

  6. If the TEP Program Manager approves the Form 1900, it will be distributed by encrypted E-mail to the:

    1. Area Manager,

    2. Case Manager for inclusion in the case file when the case is closed from the group, and

    3. EPP TEP Analyst to archive the records.

  7. If the TEP Program Manager does not believe the examination should be surveyed, he/she will discuss his/her concerns with the Area Manager. If the Area Manager and TEP Program Manager cannot reach agreement, the approval of the Form 1900 will be elevated to the Manager, Examination Programs and Review.  (06-04-2009)
Transfer of TEP Cases:

  1. For various reasons Area Offices may find it necessary to transfer an assigned TEP case either between Groups within their Area or to a Group in another Area and the procedures in this section should be followed.

  2. If the case is being transferred between two Areas, both Area Managers must agree to the transfer. If agreement can not be reached the matter should be elevated to the Director, EO Examinations for resolution.

  3. All normal procedures for the transfer of returns between Groups and Areas should be followed including the update of all inventory systems (i.e. AIMS, EOIC).

  4. Simultaneous with the transfer of the case, the transferring Case Manager must send to the receiving Case Manager and the TEP Program Manager, by encrypted E-mail, the following:

    1. The electronic TEP Case Selection Worksheet that was issued on the case when it was assigned.

    2. If the case has been started, a copy of the most recent TEP Quarterly Monitoring Report.  (06-04-2009)
Team Examination Program Case Reporting System Overview

  1. In order to effectively plan, monitor and report on the TEP examination program there are two reports in place. They are:

    • TEP Quarterly Monitoring Report

    • TEP Closed Case Report

  2. Detailed instructions for these reports can be found on the TEGE Intranet website in the TEP library at http://TEGE.web.irs.gov/templates/exmtOrgsHome.asp.  (06-04-2009)
TEP Quarterly Monitoring Report

  1. The Quarterly Monitoring Report is used to update and revise information relative to the TEP examination as originally reported on the Case Selection Worksheet. This information is used to monitor planned TEP resources as reflected in the TEP Running Workplan for each Area. The report is the responsibility of the Case Manager but may be delegated to the Team Coordinator. The TEP Running Workplans are used to:

    1. Track the progress in meeting certain TEP Balanced Measures/Workload Indicators.

    2. Analyze on-going TEP staffing and case work needs. In addition it is used to aid in constructing the next year's fiscal year workplan.

  2. Quarterly Monitoring Reports are due the 5th day following the quarter ending ETS period (December, March, June, September).

  3. The electronic file should include the taxpayer's name and quarter ending, e.g., ABC Organization Quarterly Monitoring Report September XX.

  4. Quarterly Monitoring Reports are required on each current and new TEP Case (approved through the TEP Case Selection Process) that is already open or projected to be open during the current quarter.

    1. If the planned start date is subsequently changed to a later quarter, the Quarterly Monitoring Report will provide the revised start date and reason for delay.

    2. The next Quarterly Monitoring Report for this case would then be due the quarter containing the new planned start date.

  5. A final Quarterly Monitoring Report is due for a Closed Case (as described in IRM the quarter following the date the case is considered close. The actual AIMS closed date will be noted on the final Quarterly Monitoring Report.

  6. The Quarterly Monitoring Reports should be forwarded to the TEP EPP Analyst through the Area office.  (06-04-2009)
TEP Closed Case Report

  1. The Closed Case Report captures the TEP case's various aspects including:

    1. the date the case was closed;

    2. all significant issues considered or identified; and

    3. the returns examined. The accuracy of this report is important to insure the historical data is correct.

  2. The Closed Case Report must be completed for all TEP examinations including claims, limited scope examinations, project cases, LB&I referrals and other referrals. The closed case report consists of 2 parts:

    1. Part I is a single record database entry.

    2. Part II is a spreadsheet listing all cases examined. The information reported on Part II discloses all of the related return closures not easily captured elsewhere.

  3. The Closed Case Reports are to be submitted 15 days after the last return is closed in Status 80 or above on AIMS.

  4. The TEP Closed Case Report is submitted to EPP.  (06-04-2009)
TEP Roles and Responsibilities

  1. The Area Manager is responsible for the overall direction and management of the Team Examination Program in their Area including:

    1. Monitoring compliance with respect to Policy Statement P-4-5 on the rotation of TEP Agents and Managers assigned to TEP cases and Policy Statement P-4-6 with respect to Conflicts of Interest.

    2. Collaborating with EPP in the development and monitoring of the TEP workplan and balanced measures for the TEP Program in their Area.

    3. Ensuring the TEP Case Selection Worksheets, Forms 1900, Quarterly Monitoring Reports, and Closed Case Reports for their Area are timely submitted.

    4. Approving TEP Case Selection Worksheets to ensure that: Resources planned for examinations are consistent with the established examination priorities. The coordinated examination approach is utilized where it will facilitate and/or enhance the examination.

    5. Ensuring the issue focused examination process, as described in IRM, is utilized to set the scope of the examination unless the case is otherwise excepted.

    6. Approving examination plans and significant revisions.

    7. Ensuring a risk analysis is performed and updated as appropriate for the case.

  2. The Case Manager is the supervisor responsible for the management of the TEP examination. The extent to which the Case Manager will be involved in each TEP examination will varying depending upon the scope of the examination and resources planned. The Case Manager's responsibilities include:

    1. Compliance with the Case Manager and Agent rotation requirements of Policy Statement P-4-5 and Policy Statement P-4-6 with respect to Conflicts of Interest.

    2. The timely submission of TEP Case Selection Worksheet and Form 1900 for pre-approval and quarterly monitoring reports, closed case reports, any other reports that may be required.

    3. The conduct of the TEP examination. This would include the organizing, motivating, controlling and directing the activities and assignments of the EO and non EO Revenue Agents and Specialists assigned to the case. The conduct of the TEP examination would also demand providing guidance to the Team Coordinator and Team Members from the early planning stage through the completion of the examination and ensuring the use of the coordinated examination approach and procedures to conduct the examination (as described in IRM unless this approach will not facilitate or enhance the examination. This decision must be documented on the Case Selection Worksheet. The TEP Case Manager is responsible for setting and monitoring the scope of the examination using the issue focused examination process including the use of risk analysis and materiality concepts (as described in IRM The Case Manager should head the development and subsequent revisions of the written examination plan appropriate for the examination and document the approval thereof as required by the Area Manager. The Case Manager should provide appropriate feedback to both EO and non EO Team Members and Specialist and the Managers of Specialists. The Case Manager is accountable for any other matters related to the sound management of the examination including; requesting technical advice as early as possible, timely involvement of Counsel when appropriate, and fiscal matters relating to the examination. Finally, the Case Manager will follow all case closing procedures including the development of a historical file, post exam critique, and the retention of workpapers as necessary.

  3. The Team Coordinator is a team member who, in addition to being responsible for specific examination assignments, performs duties to coordinate planning and conduct of the team examination. In cases which only one EO Agent is assigned to the examination, the Agent is treated as the Team Coordinator. During the examination, the Team Coordinator is the day-to-day focal point for communication between team members, the case manager, and the taxpayer. The Team Coordinator works closely with the Case Manager in the conduct of the examination and matters related to the examination including:

    1. The identification of any assignments which may require consideration of the rotational requirements of Policy Statement P-4-5 and compliance with Policy Statement P-4-6 with respect to Conflicts of Interest. .

    2. Using coordinated examination procedures in cases where a decision has been made to use the coordinated examination approach as described in IRM The coordinated examination procedures will provide for the Team Coordinator's control over the flow of the examination including the submission of the IDRs and Forms 5701.

    3. Unless the case is excluded, utilize the issued focused process (including risk analysis and materiality concepts) to set and revise the scope of the examination. The Team Coordinator should recommend the initial scope and changes to the Case Manager for approval.

    4. Working with the Case Manager in the development of the written examination plan.

    5. Coordinate the conduct of the examination consistent with the written examination plan, including coordinating the activities and assignments of Team Members and Specialists.

    6. Timely advising the Case Manager of significant matters or situations affecting the examination.

    7. Prepare the report(s) of the examination and coordinate the delivery of the overall examination plan.

    8. To coordinate the creation or update of the planning files and post exam critiques, when appropriate.

    9. When necessary prepare administrative reports such as quarterly monitoring and closed case reports for the Case Manager's review and submission.

  4. Team Members include EO Revenue Agents, non EO Revenue Agents, and Specialists assigned, as needed to work on certain aspects of the TEP examination under the direction of the Case Manager and their efforts will be coordinated by the Team Coordinator. Team Members are responsible for:

    1. Alerting the Case Manager if their assignment to the case may involve the consideration of the rotational requirements of Policy Statement P-4-5 and Policy Statement P-4-6 with respect to Conflicts of Interest.

    2. Providing input on the development of the written examination plan with respect to the areas of the examination they are responsible for.

    3. Performing risk analysis area of potential noncompliance they are responsible for and, when requested provide a written risk analysis to the Case Manager and/or Team Coordinator.

    4. Conducting their portion of the examination consistent with the examination plan,

    5. Coordinating their assigned areas of the examination through the Team Coordinator,

    6. Keeping the Case Manager and/or Team Coordinator timely informed of significant matters or situations affecting the examination.

    7. Preparing reports or information for reports of the examination related to their assigned areas.

    8. When requested, provide input for the planning file and post exam critique.  (06-04-2009)
TEP Case Assignment Guidelines

  1. The purpose of the TEP Case Assignment Guidelines, which can be found in Exhibit 4.75.29-4, Criteria for Assignment of Work to GS-13, GS-12, and GS-11 Revenue Agents, is to provide guidance for the assignment of work in team examination or large cases by grade level. The Guide is only for cases worked by a team of revenue agents, tax auditors, examination aides, and/or other clerical support personnel.

  2. This Guide should only be used in conjunction with IRM 4.75.7, EO Case Assignment Guide. The use of IRM 4.75.7 for team casework is limited to the assignment of vertical audits only. A vertical audit is an audit by a team member, who has primary responsibility for the audit of all issues of a single operating entity (i.e. the primary entity, a subsidiary, a division, or related entity).

  3. Exempt Organizations Revenue Agents may also be assigned to work on a horizontal basis. A horizontal audit is an audit by a team member who is responsible for pursuing issues occurring across all operating entities. These assignments should be done as part of the planning process and at the discretion of the Case Manager. Some examples of items that may be assigned on a horizontal basis are:

    1. Asset accounts;

    2. Liability accounts;

    3. Review of organizational documents; and

    4. Employment taxes.

  4. Case Managers may request, at their discretion, examination aides to assist on TEP examinations. These aides may be used for support work, such as the preparation of schedules, workpapers, and research.

  5. This Guide does not supersede the existing Office of Personnel Management (OPM) standard for classifying Internal Revenue Agent positions. Rather, provisions of this Guide are consistent with the grade level criteria outlined in the OPM standard for the GS-512 series.

  6. Position classification factors, such as supervision and guidance received cannot be measured by this Guide. Such factors are primarily related to the technical skills and knowledge demonstrated by an individual Internal Revenue Agent. The amount and kind of supervision required by an Internal Revenue Agent on a continuing basis may affect the grade of a position, but not the grade of the work assigned.

  7. Internal Revenue Agents may receive some assignments above their grade level for developmental purposes, consistent with the Service's policy on assignment of higher graded duties. Such assignments provide adequate developmental experiences.

  8. While developmental or priority assignments above the grade level of the agent are completed under closer than normal supervision, or supervisory instructions limit the scope of the audit, the assignment may be considered to be consistent with the Internal Revenue Agent's grade.

  9. Case Managers and position classifiers must be continually aware of the distinction between the grade levels of positions and grade levels of work assigned.

  10. Case Managers are responsible for:

    1. Generally assigned work consistent with the Internal Revenue Agent's grade level;

    2. Keeping developmental assignments within reasonable time limits; and

    3. Periodically apprising Internal Revenue Agents of the distinctions between the grade of the assignments and the grade of their positions

  11. Position Classifiers are responsible for:

    1. Making the final determinations on the grade levels of positions; and

    2. Providing advisory services to Case Managers on position management and work assignment practices.

  12. This Guide is intended for use under the "team work" concept and is not to be used for evaluating cases under the "one case one agent" concept.  (06-04-2009)
Setting the Scope of TEP Examinations & Issue Focused Examination Process

  1. TEP examinations often involve the use of very significant resources to conduct in-depth examinations. Setting the scope of TEP examinations to focus on only those issues represent our most significant compliance risks will allow EO Examinations to:

    1. Maximize the use of limited examination resources to address noncompliance within the TEP universe of taxpayers; and

    2. Reduce customer burden and cycle time.

  2. All TEP examinations are limited or focused in scope to some extent in varying degrees. TEP Examinations normally fall into one of the following two types of focused examinations:

    1. Directed Single Issue Examinations ( IRM, or

    2. Issue Focused Examinations ( IRM

  3. It is expected the guidance provided in this section of the IRM will be utilized to set the scope of every TEP examinations. IRM also addresses the roles and responsibilities with respect to setting the scope of a TEP examination.

  4. Both types of examinations described in the following sections recognize our resources are limited and it is imperative we focus our efforts and limited resources on our greatest compliance concerns using risk analysis and materiality concepts to guide our decisions in setting the scope of an examination. Use of the issue focused process recognizes and accepts the inherent risk associated with examinations more limited in scope. While this risk can never be eliminated, robust and continuous risk analysis can significantly ameliorate the risk.  (06-04-2009)
Directed Single Issue Examinations

  1. In certain situations examinations are clearly assigned as "directed single issue" examinations where only the pre-identified issue(s) are to be examined. In these situations the examinations should be limited to only the pre-identified issue(s). The scope of the examination should not be expanded beyond the pre-identified issues unless, as the direct result of the examination of the pre-identified issue(s), a separate and significant large, unusual, questionable (LUQ) item comes to the attention of the examiner. The Case Manager must approve any expansion of the examination beyond the original pre-identified issue(s).  (06-04-2009)
Introduction to Issue Focused Examination

  1. The scope of an issue focused examination includes the examination of

    1. The pre-identified issue(s) and

    2. Only the most significant LUQs identified during the examination.

  2. The primary sources of examinations of TEP taxpayers' are compliance initiatives, referrals and claims. The issue focused examination process will be the usual process for setting and revising the scope of all TEP examinations, unless:

    1. The examination is assigned as a directed single-issue examination,

    2. The examination is part of a market segment study or compliance project that requires a broader examination scope, or

    3. There are compelling special examination considerations (i.e. fraud and abusive tax avoidance transactions).

  3. Under the issue focused examination process cases are assigned with initial pre-identified issues. Appropriate pre-contact analysis "discovery" and "testing" examination procedures are utilized to identify other potential LUQs. Risk analysis and materiality concepts are applied to the potential LUQs to isolate those LUQs that represent our most significant compliance concerns. The result sets the scope of the examination that is focused on:

    1. The pre-identified issue(s) and

    2. The LUQs that reflect our most significant compliance concerns.

  4. Examinations of claims for refund should usually be limited to those issues that are relevant to the determination as to whether a claim for refund of taxes should be allowed.

  5. The issue focused process does not preclude the use of the coordinated examination approach. The coordinated examination approach will continue to be an important approach in planning and conducting many of the examinations of large complex Exempt Organizations, especially where significant resources are planned. TEP IRM provides additional guidance on the use of the coordinated examination approach and the decision to either employ or not employ the coordinated examination approach.

  6. Issue focused examinations are an alternative process to the traditional, more in-depth examination process. It is a streamlined process promoting the examination of those issues representing the greatest compliance risks. Features of this type of examination include:

    1. Focus on pre-identified issues serving as the basis for the selection of the return or case for examination and the large, unusual, and questionable (LUQ) items subsequently identified.

    2. The scope of the examination includes only the most significant compliance issues, taking into account materiality.

    3. Agents may expand the original scope with good cause, but only with the Case Manager's approval.

    4. A full and robust risk analysis during the planning for and the conduct of the examination to identify the most significant large, unusual, and questionable items (LUQs) that will be examined

  7. The issue focused examination process will normally be the standard process utilized to set the scope of TEP examinations. IRM for additional guidance of the application of the issue focused examination process).  (06-04-2009)
Steps in the Issue Focused Examination Process

  1. The scope of the issue focused examination is initially set and modified as the examination progresses, through a process utilizing the following basic steps:

    1. Perform pre-contact analysis and "discovery and testing" examination procedures to identify initial LUQs.

    2. Perform risk analysis

    3. Apply materiality concepts to LUQs

    4. Prioritize and pare down LUQs to items with greatest compliance concerns.

    5. Share and discuss LUQs with the taxpayer to allow for timely input into development of examination plan

    6. Reassess and modify risk analysis and the examination scope and/or plan as examination proceeds.  (06-04-2009)
Discussion of Steps in the Issue Focused Process

  1. Essentially the steps in the process provide for risk analysis to be completed on the LUQs identified. Materiality concepts are applied in order to prioritize and pare down the examination scope to those issues that present the greatest compliance risk. The process provides for written documentation which form the basis for the decisions made regarding the scope of the examination, including the decision to examine or not to examine an LUQ, which have a bearing on the utilization of resources in the TEP examination program.

    1. Pre-contact analysis and "discovery and testing" examination: In the pre-contact analysis the return, IDRS, and other sources of the information available are analyzed to identify LUQs. During this phase of the examination consideration should be given to any special compliance aspects of the cases such as the industry, ATAT, and compliance initiatives. The identification of LUQs continues as taxpayer contact is made and the examination procedures are employed to discover and test the records of the taxpayer. This step in the process is designed to identify the pool of LUQs to be considered in the examination. As the examination progresses previously unidentified LUQs will arise and need to be assessed under the issue focused examination process.

    2. Risk analysis: Risk analysis is an integral part of the planning process performed to ensure the efficient and effective use of resources. Once the initial LUQs are identified, a risk analysis is applied to consider our compliance concerns and limited resources.

    3. Materiality -Materiality is used to prioritize the issues identified during risk analysis. The application of materiality is based upon the consideration of various factors and the application of professional judgment to the whole of the relevant factors.

    4. Prioritize and pare down LUQs: This step in the process represents the application of materiality concepts in the risk analysis to identify those LUQs that represent our greatest compliance concerns and will be included in the examination plan. In addition, as applicable, materiality thresholds are established for those LUQs that will be examined.

    5. Taxpayer Involvement: The taxpayer should be involved in the development of the examination plan. Inclusion of the taxpayer, early in the planning process, can assist in the development of information to be considered in the risk analysis and identification of LUQs.

    6. Reassess and modify risk analysis and the examination plan: As the examination progresses factors with respect to previously considered LUQs may change and new LUQs may emerge. To maintain the examination's focus on those issues that reflect our greatest compliance concerns within our limited resources, it is essential the risk analysis and the examination plan be reassessed and modified at the key points during the examination.  (06-04-2009)
Risk Analysis

  1. Risk analysis is a subjective process comparing the potential benefits to be derived from examining an item to the resources required to examine the item in an effort to ensure the efficient and effective use of resources. Risk analysis is a tool that focuses our limited resources on our most significant compliance concerns.

  2. The Case Manager and Team Coordinator have the primary responsibility to ensure risk analysis is performed on every case and are responsible for the risk analysis performed. ( IRM for the roles and responsibilities of all involved in TEP examinations).

  3. Risk analysis is required on every TEP examination, whether or not a coordinated examination approach will be used. The level of the sophistication of the risk analysis will depend upon the size and complexity of the case as well as resources being considered for the examination. Depending upon the circumstances, this may range from notations in the case chronology record or workpapers to a formal risk analysis document.

  4. The risk analysis process starts with the pre-contact analysis and identification of potential LUQs to be considered for examination. The initial risk analysis is completed concurrently with the development of the written examination plan. As the examination progresses, the original factors considered and other factors subsequently identified will necessitate that the risk analysis be revisited and modified. In large more complex examinations, employing the coordinated examination approach, the risk analysis may be updated at various stages throughout the examination.

  5. There is no standard format required for a risk analysis. However, any risk analysis includes the consideration of the following key elements:

    1. ESAIN or Workpaper Reference - This ties the risk analysis to the examination plan and/or workpapers.

    2. Description of the LUQ - A brief, but clear description of the issue should be provided.

    3. Materiality of the Issue - An assessment of the various relevant materiality factors considered.

    4. Estimated Time to Complete - An estimate of the time it will take to examine the issue.

    5. Estimated Completion Date - The estimated date by which the examination of the item will be completed.

    6. Prioritization - The prioritization of the LUQs is based on materiality i.e., from highest to lowest priority.

    7. Decision to Examine or Not Examine an LUQ - A clear yes or no as to whether the issue will be examined.

    8. Reasons for Selection or Non-Selection of LUQ for Examination - Comments and information on why or why not an issue was selected for examination and will or will not be included in the examination plan. This is also an excellent place to provide any materiality thresholds that will be applied to LUQs that are selected for examination.  (06-04-2009)

  1. Materiality is used in risk analysis to prioritize the LUQs being considered and to focus on the issues of greatest compliance concern. Materiality is both a qualitative and quantitative assessment used in identifying those items that are most relevant and consequential in determining:

    1. continued tax exempt status;

    2. the overall accuracy and completeness of the information return (Form 990, 990 PF, etc.); and

    3. the correct tax liability (income, employment, excise).

  2. The process of evaluating materiality should be consistently applied, but the result will be different for each case. Absolute parameters cannot be established or used for every case because of the differing size, complexity, and industry of the returns being examined, as well as the differences in the experience and professional judgment of Revenue Agents and Case Managers.

  3. In an issue focused examination, applying materiality principles is the most critical factor in limiting the scope of an examination. Issue focused examinations identify those issues most consequential to the determination of continued exempt status, the complete and accurate filing of the organizations' information returns, and the overall tax liability, thereby, addressing the greatest compliance risks.

  4. In assessing the materiality of an LUQ the factors listed below should be considered. This is not an exhaustive list and there may be other relevant materiality factors to be considered depending upon the LUQ.

    1. The item's potential to affect tax exempt status.

    2. The item's potential to affect the overall accuracy of the information return e.g. Form 990.

    3. The dollar value of the item (sheer size of an item often has a direct impact of an item's materiality).

    4. Relative dollar value of the item (percentage of assets, income, expenses, etc.).

    5. Timing issues are generally items of income or deductions that are reported in the wrong year. Before selecting an item for examination that is likely to result in a timing adjustment, consideration should be given to the number of years that income is deferred or an expense is accelerated. The longer the deferral period or the shorter acceleration period, the more material the item may be.

    6. Permanency (given equal dollar value, an item which causes a permanent difference in tax liability is more material than one which will reverse itself in future periods).

    7. Future compliance impact. Occasionally an item may be immaterial in the current tax year, but may be significantly more material in future tax periods.

  5. In addition to the factors listed above, there will be some items which must be addressed or receive special consideration. In some instances, there will be issues or other areas that are not appropriate to apply materiality thresholds. These may include;

    1. abusive tax avoidance transactions;

    2. high impact industry or emerging issues;

    3. items indicating fraud; and

    4. items required to be examined as part of a market segment study or compliance project; and

    5. item that is not, in and of itself, material, but failing to examine it would be contrary to public or Service policy.  (06-04-2009)
Prioritization and Paring Down of Issues

  1. In this phase of the issue focused examination process materiality concepts are applied to the LUQs being considered in the risk analysis in an effort to prioritize the LUQs and pared them down, and to focus only on the those LUQs representing our most significant compliance concerns. The result will serve as the basis for the scope of the examination and development of the written examination plan. This process can consists of three basic steps.

    1. Step 1 - List all LUQs under consideration in the risk analysis

    2. Step 2 - Complete the risk analysis on all the LUQs and apply materiality concepts to prioritize the LUQs. After the LUQs have been prioritized those representing the most significant compliance concerns should be identified and selected for examination.

    3. Step 3 - For each LUQ selected for examination consideration is given to the establishment of a materiality threshold. Materiality thresholds provide focus on examining material items within the LUQ selected for examination and are designed to utilize resources to address material noncompliance.

  2. As a result of this phase in the process the Revenue Agent and Case Manager are able to focus limited resources on the most significant compliance concerns based upon a decision making model that provides for documented and reasoned analysis of LUQs.  (06-04-2009)
Taxpayer Involvement in the Issue Focused Examination Process

  1. The TEP IRM provides guidance on taxpayer involvement for TEP examinations that utilize a coordinated examination approach. The taxpayer involvement concepts expressed in that guidance should be considered and utilized, to the extent they are relevant, on all TEP examinations whether or not a coordinated examination approach is used.

  2. The TEP taxpayer can play an important role in the planning process and in the development of the scope of the examination. Timely communication with the taxpayer and involvement in the planning process provides for a more effective and efficient examination. Key aspects of taxpayer involvement in the planning process include the following:

    1. Discuss Information Document Request (IDR) turn around time frames with the taxpayer in and effort to manage IDR quality and quantity. This will contribute to a more precise and an effective risk analysis as well more reliable case planning time lines.

    2. Development of a case timeline using project management concepts to plan out when activities should occur. It is important to discuss such timeliness with the taxpayer to ensure all variables have been considered, and whenever possible, you have taxpayer "buy in" . Timeliness, when utilized with other planning tools can be a very effective case management tool

    3. Discussion of the potential items and/or LUQs under consideration for examination based upon the initial risk analysis. As applicable, consideration should be given to discussing records and/or information that may be requested and audit procedures that may be utilized that will facilitate the examination of the LUQs.

    4. Discuss the potential for the scope of the examination to be expanded or contracted based upon information subsequently discovered.

    5. The plan for the examination is to be shared with the taxpayer (unless there are compelling reasons not to). For TEP examinations using the coordinated examination approach, copies of the written examination plan, Forms 4764 (with the exception of the Service Management Section), 4764-A and 4764-B, should be provided to the taxpayer.  (06-04-2009)
Use and Consideration of the Coordinated Examination Approach and Procedures on TEP Examinations

  1. It is presumed a coordinated examination approach will be employed on every TEP examination, unless, in the judgment of the Case Manager, and with concurrence from the Area Manager, a coordinated examination approach will not facilitate the examination. Exhibit 4.75.29-2, TEP Case Selection Worksheet and Workplan Information Schedule and Instructions, provides an opportunity for each Area to document its decision to not use a coordinated team examination approach on a TEP examination.

  2. A coordinated approach and coordinated examination procedures should be utilized on any case requiring two or more Revenue Agents or specialists, with a division of work assignments and the need for on-going coordination by a Team Coordinator.

  3. On occasion, TEP cases may not employ a coordinated examination approach because either the scope of the examination has been significantly limited, or the case is simply not complex enough to benefit from a coordinated examination approach. While excepted cases may not employ a team examination approach, the Case Manager should consider utilizing those aspects of coordinated examination procedures that would benefit or enhance the examination (i.e. use of the Information Document Request, Form 4564 and Notice of Proposed Adjustment, Form 5701.)  (06-04-2009)
Control of the TEP

  1. Control of the TEP Exam is exercised through the Case Manager, except as provided elsewhere in this section.

  2. Once a case has been assigned to a Case Manager, he or she will initiate steps to assume control over all aspects of the examination including the returns of related entities, team members including Specialists, and the activities of the team.

  3. A principal benefit to taxpayers from the Case Manager’s control of the TEP exam is the centralization of all examination activity with the Case Manager.  (06-04-2009)
Obtaining Returns of Related Entities

  1. The Case Manager and/or Team Coordinator will identify all related entities including any taxable and tax-exempt subsidiaries, partnerships, LLCs, disregarded entities, etc., and secure the returns for the related entities as determined appropriate.

  2. If issues are present for which LB&I or SBSE does not want to address, the Case Manager may decide to establish the taxable entities on EO AIMS for purposes of making discrepancy adjustments.

  3. When a Case Manager decides a return will not be examined, he or she should consider whether it is necessary to notify others of the decision. (See IRM for instructions of surveys of assigned TEP examinations).

  4. Return Assignment - Consideration should be given to factors which could prevent Revenue Agents from initiating an examination before beginning the actual analysis of a return for examination of issues. These factors, which should be considered before an in-depth, pre-contact analysis is performed, include statute of limitations, conflicts of interest, and repetitive audits by the same Revenue Agent.

  5. Conflict of Interest - Policy Statement P-4-6 (IRM prohibits Revenue Agents and their Managers from examining or surveying a tax return if a relationship impairs impartiality. A conflict of interest exists if a Revenue Agent’s personal relationship(s) or private interests (usually of a financial or economic nature) conflict, or raise a reasonable question of conflict with the Revenue Agent’s public duties and responsibilities. For further information see IRM, Financial Interest and Disclosure.  (06-04-2009)
Employment Tax Returns

  1. Examination of the employment tax returns should be initiated as part of the TEP examination and will be under the control of the Case Manager.  (06-04-2009)
Returns of Pensions and Profit Sharing Trusts

  1. Examination of the trusts related to pension and profit sharing plans should be considered as part of the TEP examination.  (06-04-2009)
Corporate Returns (Form 1120)

  1. In instances where the Case Manager deems it appropriate, any Forms 1120 should be examined concurrently with the TEP examination.

  2. As part of the pre-audit process the Case Manager should request the assistance of LB&I and/or SBSE in examining any related Forms 1120. If LB&I and/or SBSE is unable to comply with the assistance request and the Case Manager determines the examination of the Forms 1120 is necessary, the Area Office should explore the feasibility of having the Exempt Organizations’ personnel secure jurisdiction of the Form 1120 and conduct the examination. Upper management should be involved to determine if LB&I and/or SBSE is an essential part of the examination; and if it is, to take the appropriate steps.

  3. The Case Manager could also consider handling the matter as a discrepancy adjustment, if that is appropriate.

  4. In instances where a specialist is provided, the specialist will function as part of the examination team. The Case Manager should involve the LB&I or SBSE Group Manager in developing the plan.  (06-04-2009)
Corporate Officers’ Returns

  1. The Case Manager will determine whether it is necessary to examine the returns of key corporate officers. However, at a minimum, and when relevant, the team coordinator will secure and inspect the individual returns of the key corporate officers of the organization and other key executives or highly compensated employees including the top officers of the organization’s subsidiaries if applicable.

  2. (2) Key corporate officers are officers who have control or authority over corporate activities or whose relationship with any segment of the case is close enough to significantly influence corporate management or tax results. Key corporate officers include the board chairman, chief executive officer, chief financial officer, officers in charge of subordinate operations, officers in charge of governmental activities, or any other officer with significant decision-making responsibility.

  3. When the Case Manager decides the examination of a corporate officer’s return is necessary, the appropriate request for assistance is made to W&I

    1. If W&I is unable to comply with the assistance request and the Case Manager determines the examination of the Forms 1040 is necessary, the Area Manager should explore the feasibility of having Exempt Organizations’ personnel obtain jurisdiction and conduct the examination.

    2. The Case Manager may also consider handling the matter as a discrepancy adjustment.  (06-04-2009)

  1. TEP examinations may involve technical subjects or areas of expertise team members may not be familiar with. Therefore, the need for Specialists as team members will be required in order to thoroughly complete the TEP exam.

  2. Specialists as part of the TEP Examination – Generally, Specialists provide specialized technical expertise to all business units within the IRS. The Specialists primarily serve as team members in the examination process. They work in partnership with other examiners and managers assigned to the examination. They are accountable for providing efficient, objective, and professional expertise leading to the timely completion and resolution of specialist issues and the overall examination

  3. Description of Specialists – The following Specialists are available:

    • Computer audit specialists (CAS) (see LB&I IRM

    • International examiner (see LB&I IRM

    • Engineer (see LB&I IRM

    • Economists (see LB&I IRM

    • Financial products (see LB&I IRM

    • Employment tax (LB&I) (see LB&I IRM

    • Excise tax (see LB&I IRM

    • Employee plans (EP)

    • Employment tax (SBSE)

    • Employment tax (TEGE)

    • Federal, state & local government (FSLG)

    • Indian tribal government (ITG)

    • Tax-exempt bonds specialists (TEB)

  4. In addition to Specialists, there are Technical Advisors in LB&I who can provide advice and assist the field in identifying, developing and resolving industry specific and cross-industry issues both domestic and international; provide educational opportunities to internal and external customers as appropriate; and maintain/develop industry and issue expertise. Examples of Technical Advisors include advisors for insurance, executive compensation, partnerships, and mergers & acquisitions. See the LB&I IRM 4.40.1 for more information.

  5. Role of the Specialist - The Specialist’s role in the examination process includes but is not limited to the following activities:

    1. Involvement in all phases of an examination,

    2. Participation as a team member in preliminary planning, including review of tax returns and historical files, performing risk analysis, issue prioritization, and determination of time requirements,

    3. Preparation of an examination plan to be reviewed and approved by the Specialist Manager,

    4. Attendance, as appropriate, at opening conferences on examinations,

    5. Preparation of IDRs,

    6. Discussions of IDRs with the audit team and with the taxpayer

    7. Development of issues, attendance at team meetings (i.e., to include risk analysis meetings) to better understand the relative weight of all issues raised by the team, and

    8. Discussions of issues with the Team Coordinator, Specialist Manager, and Case Manager to ensure understanding of the specialist's issues  (06-04-2009)
Specialist Referral System (SRS)

  1. The Specialist Referral System (SRS) is an automated system for requesting a Specialist to be assigned to the TEP team. Revenue Agents generate referral requests online and SRS automatically notifies the appropriate Specialist Managers of the request (Formal Referral Link).

  2. The Specialist Referral System (SRS) is also used to submit questions to a Specialist and is an informal way to get answers to questions submitted (Informal Assistance Link).

  3. Accessing the SRS - Access to the SRS can be made through the TEGE website home page and clicking the link "Specialist Referral System" . The SRS website may be directly accessed by using the website address, http://srs.web.irs.gov.  (06-04-2009)
Planning the Coordinated Team Examination

  1. Planning the Coordinated Team Examination is the first key to meeting the Quality Standards and ensuring an excellent examination.  (06-04-2009)
Overview of the Planning Process

  1. When a team examination approach is utilized, the Case Manager is responsible for planning the examination with the assistance of the Team Coordinator. The depth of the Case Manager’s involvement in planning the examination is the key to proper direction and control.

  2. Advanced Planning is vital to an effective and efficient coordinated examination. It is also helpful in deciding what matters should be discussed in agreements formulated at the pre-examination conference.

  3. Importance of Planning - The planning process should be viewed by the Case Manager as their single most important activity. In-depth and innovative planning of a well-defined examination plan will effectively serve the Case Manager in managing and monitoring the examination.

  4. Five-Step Process - A coordinated examination traditionally uses a five-step planning process. This process in the five steps is discussed in detail in IRM  (06-04-2009)
Planning Resources Available to the Case Manager and Team Coordinator

  1. When there has been a previous TEP examination, the planning file, Exhibit 4.75.29-6, Planning File, should be the best single source of information available to the Case Manager and Team Coordinator. In planning the examination typically, it should include information such as:

    1. Prior historical file (includes post examination critique)

    2. History of the taxpayer;

    3. Organizational structure, including current organization chart;

    4. History of reorganization(s) and acquisition(s);

    5. Identification of taxpayer’s principal officials and representatives;

    6. Location of records and facilities;

    7. Description of records;

    8. Transactions potentially affecting subsequent year returns;

    9. Summary of examination adjustments by year and techniques used;

    10. Unusual examination problems;

    11. Chart of accounts and taxpayer’s accounting manuals, if they can be obtained;

    12. Copies of rulings from the EO Rulings and Agreements’ Office affecting the taxpayer;

    13. Copies of elections, contracts, and agreements having a significant bearing on subsequent years;

    14. Difficulties encountered during the prior examination such as public relations, facilities problems, etc.

    15. Support Area Office problems encountered, requirements and recommendations;

    16. Most recent examination plan;

    17. Record retention agreements;

    18. Printed electronic media obtained via internet sites and

    19. Existing potential offset issues which should be considered in the event claims are subsequently filed.

  2. The Case Manager should retain the planning file, containing significant information on the organization in the historical file, as appropriate.  (06-04-2009)
Review of Prior Examination Case File Records

  1. Administrative file documents may be of assistance in preparing for the pre-examination conference as well as in the development of the examination plan. The review of prior examination workpapers is particularly important where there are carryover issues or adjustments from the last examination. This may also assist in resolving any issues regarding Revenue Procedure 94-69.  (06-04-2009)
Returns in The Planning Process

  1. The Case Manager, with the assistance of the Team Coordinator, should review all related returns to ascertain:

    1. The size and complexity of the case;

    2. Identity of persons authorized to sign the various returns;

    3. Dollar volume of items for the year to be compared with dollar volume of similar items in prior years;

    4. Location of entities, operations and plants; and

    5. Questionable items in regular or reconciliation accounts.  (06-04-2009)
Other Planning Sources

  1. The Case Manager, with the assistance of the Team Coordinator may wish to consult other sources such as:

    • Trade associations;

    • Print and electronically generated media reports; • Organizational web sites (if available);

    • Newspapers;

    • Other governmental agencies, e.g., FEC, SEC, postal service, HHS, etc.

    • Other audits;

    • Other Case Managers who have examined similar organizations; and

    • Various specialists.  (06-04-2009)
Planning the TEP Coordinated Examination

  1. The Case Manager should view the planning process as their single most important activity. The Team Coordinator will take an active role in assisting the Case Manager in developing the case plan.

  2. Return Assignment - Consideration should be given to factors which could prevent Revenue Agents from initiating an examination before beginning the actual analysis of a return for examination of issues. These factors, which should be considered before an in-depth, pre-contact analysis is performed; include statute of limitations, conflicts of interest, and repetitive audits by the same examiner. IRM - Obtaining Returns of Related Entities).

  3. Conflict of Interest - Policy Statement P-4-6 prohibits Revenue Agents and their Group Managers from examining or surveying a tax return if a relationship impairs impartiality. A conflict of interest exists if a Revenue Agent’s personal relationship(s) or private interests (usually of a financial or economic nature) conflict, or raise a reasonable question of conflict, with the Revenue Agents public duties and responsibilities. IRM - Obtaining Returns of Related Entities).

  4. TEGE Business Plan - The case planning process should include a review of the TEGE Business Plan and specific identified projects. Case Managers will discuss proposed deviations from these plans with their Area Manager. Specialist Managers will also be consulted concerning deviations when appropriate.

  5. Each TEP case has its own peculiarities in accounting systems, historical evidence of compliance, internal controls and industry practices. Therefore, planning the examination should be directed toward creating a written examination plan, tailored to the special circumstances of each taxpayer. Additionally, Case Manager should consider other matters such as the prevailing economic factors during the years to be examined, issues common to the particular industry or issue areas common to the taxpayer’s business operations. The taxpayer is uniquely situated to give the Case Manager and any appropriate Team Members information and training on industry practices, trends and prevailing economic factors.

  6. Resources Available - Planning an examination is often an intensive and time-consuming process, particularly in view of the many variables and unknowns that are part of every TEP examination. This activity is made easier when Case Managers take advantage of all available resources.

  7. It is especially important to bring the Computer Audit Specialist (CAS) into the planning process as early as possible. (See IRM 4.47.1, Computer Audit Specialist Program Handbook). By doing so, the CAS may provide some excellent Planning tools, i.e., comparative financial statements, stratification of accounts, etc. The Area Office should follow the automated Specialist Referral System (SRS) for requesting all non-EO Specialists.  (06-04-2009)
Five-Step Examination Planning Process

  1. Five-Step Process – The five-step planning process, as detailed later in this chapter, should be followed in most examinations. The steps are described in the order of normal occurrence; however, Case Managers should keep in mind the planning process should be flexible and patterned to fit each individual case. The planning process is arranged in five logical steps as follows:

    1. Step One - Preliminary Meetings with the Taxpayer

    2. Step Two - Planning Meeting(s) with the Examination Team

    3. Step Three - Opening Conference

    4. Step Four - Preliminary Examination Work

    5. Step Five - The Examination Plan  (06-04-2009)
Step One - Preliminary Meetings with the Taxpayer

  1. The TEP examination planning process should:

    1. Include appropriate taxpayer and Service personnel;

    2. Promote a mutual understanding of the taxpayer's accounting systems and the Service's processes;

    3. Best utilize each party's resources; and

    4. Generate quality examinations in a timely manner. To achieve such an objective, the TEP planning process must be flexible, ongoing and consider the concepts described below.

  2. Mutual Cooperation and Benefits - The examination should be approached in the spirit of mutual cooperation. This can be achieved if:

    1. Each party understands at the beginning of the process each other's priorities, resources, and available time frames;

    2. Steps are taken to mutually apply resources to ensure the minimum of "down time" for the taxpayer, as well as the Service; and

    3. The specialists and experts of the taxpayer and of the Service are matched and their work is scheduled to mutually benefit all parties.

  3. Open and Candid Communication - Planning with the taxpayer encourages open and candid communication between the parties. This can be achieved if both parties understand the examination will be conducted to minimize its impact on their resources. Delineating a clearly defined line of communication between the examination team and the organization's representatives should be established for purposes of preventing disclosure issues.

  4. Communications - Forthright communications throughout the entire planning process should include:

    1. A discussion of the potential issue areas which will be pursued to avoid surprises presented late in the examination, e.g., new issues, claims, and technical advice requests;

    2. Clarification on the use and role of specialists on the examination team;

    3. A discussion of the advisory role of Area Counsel;

    4. A discussion of any potential penalties as they arise;

    5. Commitments, by both parties, to share all information necessary to bring the examination to a quick and successful conclusion. Neither the report of examination nor the protest should be the vehicle to transmit new facts on an issue; and

    6. Planning for an ongoing mutual critique process of the taxpayer and the Service.

  5. Mutual Understanding of Processes and Procedures - Early in the planning process, the taxpayer and the Service should agree to develop an understanding of each other's processes and procedures. This will include a study of the taxpayer's accounting system, organizational structure, tax return preparation methodology, industry practices, language and terminology, and IRS audit procedures. The taxpayer should provide the necessary orientations, presentations and training regarding industry techniques, problems, and economic factors which impact on the financial condition of the company.

  6. Early Coordination - For the expeditious conclusion of an examination, both parties should recognize the importance of a commitment to, and reaching an understanding with regard to:

    1. Resolving any questions regarding the content of Information Document Requests (IDR), Form 4564;

    2. Response times for IDRs, which should be negotiated with the taxpayers with consideration for issue priority and the difficulty in securing the information;

    3. The need for periodic meetings to review progress and emerging problems in the administration of the examination plan;

    4. The need for flexibility and ongoing planning;

    5. Coordination of the examination of off-site records and facilities, e.g., support examinations, travel requirements and scheduling;

    6. The use of Service and taxpayer resources, such as working hours, office space and equipment, computer time, libraries and tax workpapers; and

    7. The need for Revenue Agents to timely communicate new potential issue areas identified during the course of the examination to the taxpayer.

  7. Collaborated Items - Initial joint planning sessions with the taxpayer should include negotiations regarding the following items:

    1. Procedures for obtaining the returns of related parties without the use of IDRs, e.g., corporate officers, partnerships and subsidiaries both taxable and nontaxable,

    2. Existence and presentation of taxpayer documentation of items which the taxpayer feels might affect the tax liability or other tax considerations;

    3. Specific time frame for the submission and response to IDRs, Forms 5701, Notice of Proposed Adjustment, and reports of examination;

    4. Use of, and access to, taxpayer's facilities, personnel, and equipment;

    5. The taxpayer’s role in supporting the Service's examination, e.g., NOL computations, and account reconciliations; and

    6. Procedures for obtaining statute extensions.

  8. Issue Resolution - The planning process should include a discussion directed toward resolving issues at the lowest possible level. This concept involves taxpayers and Revenue Agents working together to pursue all methods and means appropriate to resolve issues. For example:

    1. Early submission of Technical Advice Requests;

    2. Requests for legislative changes to clarify the law or resolve tax inequities;

    3. Development of regulations, revenue rulings or procedures; and

    4. Resolution of an issue through the current filing year, with the agreement of the taxpayer.

  9. Fast-Track – The Case Manager should discuss the Fast-Track initiative during preliminary meetings with the taxpayer. This initiative enables the Service to resolve tax disputes at an earlier stage within a shorter time than through the normal examination and appeals processes. The Appeals Officer, under the Fast-Track process, may go on-site to work with the examination team and the taxpayer to resolve unagreed issues. (See Rev. Proc. 2003-40, I.R.B. 2003-25 for details). Area Counsel is available to assist the examination team in preparing for and during Appeals Fast-Track sessions.

  10. Statute Extension – If a consent to extend the statute is requested, IRC §6501(c)(4)(B) provides the examiner must advise the taxpayer of their right to decline to extend statute date or to request any extension be limited to a specific period of time and/or to specific audit issues. The examiner should provide the taxpayer with a copy of Publication 1035, Extending the Tax Assessment Period. These actions must be documented in the case file. Publication 5, Your Appeal Rights, provides that Area Counsel is available to assist Case Manager in drafting restricted consents and other statute extension forms. A copy of this publication should be provided to the taxpayer.

  11. Joint Audit Planning Process - A Planning Tool. The Case Manager may use the Joint Audit Planning and Monitoring Tool during preliminary meetings with the taxpayer. (See Exhibit 4.75.29-5). This tool incorporates many of the actions listed above and ensures taxpayer involvement in the planning process. Involving the taxpayer in audit planning will have a positive impact on the way examinations are conducted. Joint participation in this process benefits both taxpayers and the Service by increasing the currency of examinations. Currency provides certainty of results for both taxpayers, i.e., financial statements and the Service, i.e., completed examinations) by minimizing open tax years.  (06-04-2009)
Step Two - Formal Planning Meeting(s) with Examination Team

  1. Purpose - The planning meeting (or series of meetings, sometimes called strategy meetings) is held during the initial phase of the planning process. The purpose of the meeting is to review all available information needed to form the basis for the examination plan. Normally, the planning meeting would be held before the formal opening conference.

  2. Application to Single-Issue or Issue Focused Cases. Smaller cases will not normally require a formal planning meeting while larger cases would benefit from it. The number of team members and complexity of the case will determine the need for a formal planning meeting. The Case Manager may consider including the risk analysis process in the planning meeting.

  3. First Steps - The following actions must be taken prior to setting up the formal planning meeting with the examination team:

    1. Data must be gathered from many sources.

    2. Specialists and their managers must be notified of the meeting.

    3. Information must be provided to specialists and team members prior to the meeting.

  4. Case Manager Responsibility - The Case Manager is responsible for planning, scheduling, and conducting this meeting with the assistance of the Team Coordinator.

  5. Initial Preparation for Planning Meeting - Much preparation is needed before conducting the planning meeting. The early selection of a Team Coordinator and Computer Audit Specialist (CAS) will facilitate the preliminary planning process. Attention must be given to the rotation policy set out in Policy Statement P-4-5. Generally, the CAS should be selected 3-6 months before the planning meeting. This may not be practical for smaller examinations. Various schedules and comparative analyses can be prepared by the CAS and made available for review. The Case Manager and Team Coordinator should work together to review all available information. The risk analysis process should begin at this time even though the entire team may not yet be assembled.

  6. First Specialist Selected - The CAS should be the first specialist selected for the examination team. The Case Manager should make arrangements with the taxpayer to allow the CAS to start work 3 - 6 months before the opening of the examination cycle. The CAS will assess the availability of automated records, execute requested computer programs, and (with the taxpayer’s concurrence) download various files to desktop computers in the examination area.

  7. Projected Starting Date - All specialist referrals should be generated as early in the examination process as possible. The Case Manager requests a CAS using the automated Specialist Referral System (SRS). It is important to stress the projected starting date for each specialist since the CAS starts work before the other specialists. IRM for specific information regarding the SRS).

  8. Review of Records - The initial review of records should include all related returns, the planning file, commercial services, and public records as well as consultations with Specialist Managers. The review should be recorded in the form of a general outline of observations regarding size, dispersion and diversification of the case, probable examination expertise and staffing requirements, and matters to be discussed or clarified at the opening conference. The initial review will form the basis for construction of the examination plan when supplemented by information gained at the opening conference.

  9. Area Counsel Assistance - Requesting Area Counsel assistance early on TEP cases is strongly advised. The need and scope of assistance from Area Counsel should be assessed and addressed early in the preparation process. Area Counsel can provide assistance in risk analysis and other aspects of the Planning Process.

  10. Risk Analysis - Issue priority should be established through a process which compares the potential benefits to be derived from examining an area to the resources required to perform the examination. This process, referred to as risk analysis, is an integral part of the planning process for both Coordinated, Single-Issue, and Issue-Focused examinations to ensure efficient and effective use of resources.

  11. Case Manager may wish to consult with an LB&I Technical Advisor for certain issues. See these resources and others listed on LB&I’s web site and request assistance via the Specialist Referral System.

  12. Review of Business Operations - The Case Manager should become thoroughly familiar with the taxpayer’s business operations as soon as possible. The Case Manager should, at a minimum, review the following for the purpose of determining staffing requirements, specialists needed, and the general approach to the examination:

    • Returns

    • Prior RARs including specialist’s reports

    • Planning files

    • Financial statements

    • Analyses prepared by Technical Advisor

    • Computer generated analyses

    • SEC reports

    • Other pertinent data relating to the years included in the current cycle

  13. Assistance or Support Examination Requests for other returns - A support examination could be requested from another IRS business unit or TEGE Area. Form 6229 "Collateral Examination" should be submitted through the Area Manager.  (06-04-2009)
Setting the Scope of the Coordinated Examination

  1. As previously discussed in this IRM under Setting the Scope of the Examination, the Issue Focused Process must be used to set the scope for all examinations. It is a requirement for each examination whether a coordinated examination or non-coordinated examination. The issue focused process discusses the risk analysis process in  (06-04-2009)
Application of Risk Analysis and Risk Management

  1. Risk analysis is an essential component of an effective issue management strategy. It should engage Case Managers, Revenue Agents, and taxpayers at the earliest stage of the examination to determine the appropriate scope and duration of the examination. It should be used for all TEP returns, although the detail and depth of the process will vary according to the complexity of the return.

  2. Benefits of Risk Analysis - Some of the benefits of risk analysis include the following:

    • Utilizes our resources more efficiently

    • Improves audit planning process

    • Reduces cycle time

    • Aids analyzing the root causes for delays

  3. Risk Analysis Decision Points - Listed below are common decision points for Risk Analysis:

    • Return received in group

    • Pre-contact analysis

    • Issue identification

    • Issue development

    • Issue resolution

    • Case closure

  4. Risk analysis and Management - Risk analysis and risk management are ongoing processes throughout the entire examination. Risk analysis must be conducted with the initial planning of the examination, when 50% of the case time has been reached, or when a significant event occurs. Risk analysis provides answers to the following questions:

    1. Does the return need to be examined? (consider currency)

    2. What is the level of compliance?

    3. How much time will the examination take?

    4. What are the expected results of the examination?

    5. How would a survey affect future examinations?

  5. Factors - Some factors to be considered are:

    1. Compliance considerations;

    2. Adjustment potential;

    3. Potential impact on future years;

    4. Historical examination data;

    5. Industry issues, practices, and trends;

    6. Coordinated issues;

    7. TEGE directives;

    8. Appeals and litigation considerations;

    9. Financial condition of the organization - collectible;

    10. Taxpayer’s systems and controls; and

    11. Revenue Procedure 94-69;

    12. TEGE Resources; and

    13. Other Resources.

  6. Subjective Process - . Risk analysis is a subjective process even where mathematical models are employed. It should be based on experience, judgment, and objective analysis. Priorities can be established once the potential benefits and resources are considered. Virtually all the factors discussed above are difficult to estimate and subject to change, therefore the risk analysis process should be periodically revisited and updated. Risk analysis considered during the planning process should be documented by the Case Manager and maintained in both the Case Manager’s binder and the case file.

  7. Revenue Agents’ Responsibility - It is mandatory Specialists involved in the examination conduct an initial and a mid-point (50% of the total case time has been reached) risk analysis. A Specialists will submit the risk analysis to their respective managers before it is submitted to the Case Manager. The Team Coordinator will then submit the risk analysis to the Case Manager with a recommendation to continue, expand, or reduce the scope of the examination. Upon request, the Specialists’ risk analysis should be submitted to the Case Manager. The Case Manager must approve the risk assessment and the examination plan. The initial risk analysis documents may be shared with the taxpayer through the audit plan once the revisions have been approved by the Case Manager.

  8. Mid-Cycle Assessment. At the audit mid-point, RGS or similar software may be used to compute any tax potential. The "What if computations" will show the impact of the any potential issues.

  9. Disagreements between Case Managers, specialist managers, and team members - Consensus among all team members should be the goal. All efforts should be made to resolve disagreements at the lowest level.

  10. Manager’s Responsibilities. Listed below are some key responsibilities associated with risk analysis:

    1. Conduct the initial risk analysis with the assistance of the Team Coordinator, on returns which will be examined,

    2. Leave the Case Manager’s risk analysis in the file when the case is assigned to the agent,

    3. Meet with the Revenue Agent to discuss depth and scope of examination,

    4. Prepare timeline with the team.

    5. Approve the examination plan and timeline,

    6. Review progress made at target dates, and

    7. Review and approve mid-cycle risk analysis.

  11. Forms to Use - There are no required forms to be used in performing a formal risk analysis. However the Case Manager may provide an optional format(s) identified in the TEP library.  (06-04-2009)
Conducting the Planning Meeting

  1. Agenda for the Planning Meeting - See Exhibit 4.75.29-6, Agenda for Planning Meeting, for a suggested list of agenda items to cover in the planning meeting.

  2. Specialists’ Recommendations - The Case Manager should review specialists’ recommendations and approve time allocations during the planning meeting. If the Case Manager decides to eliminate any specialty areas which were recommended for inclusion in the examination plan, a written explanation should be prepared and retained in the planning file, taxpayer case binder or case file. The Case Manager should decide those areas which will be included in the examination plan at the conclusion of the meeting.

  3. Third Party Contacts - Section 7602(c) requires the Service to;

    1. Provide advance notice to the taxpayer that third party contacts may be made; and

    2. The Publication 1 provided to the taxpayer identifies and provides to the taxpayer the information necessary regarding Third Party Contacts.

  4. Correspondence - RRA 98 Sec. 3705 provides any manually or computer generated correspondence shall include the name, telephone number, and unique identifying number of a Service employee who can be contacted with respect to the correspondence. The body of the correspondence should prominently contain the courtesy title; last name, telephone number, and the unique identifying number of the employee who can best answer the taxpayer’s questions and resolve any subsequent inquiries.

  5. Counsel Involvement - Area Counsel should be involved in all potentially significant Issues where the team has made a preliminary decision to pursue the issue and any of the following conditions exists:

    1. The issue is sufficiently complex and technical to require Counsel’s expertise.

    2. The issue has a known sensitivity.

    3. The Case Manager is reasonably assured an agreement is unlikely.  (06-04-2009)
Financial Interest and Disclosure

  1. Awareness of the Rules - The Case Manager should ensure each Team Member on the TEP examination, including Specialists and Revenue Agents, is aware of and understands the statute requiring disclosure of any financial interests or conflicts that might create a real or apparent conflict of interest.

  2. Disclosure - The Case Manager will ascertain from each Team Member that all financial interests which are potential conflicts of interest are properly disclosed as part of the planning process for each TEP examination.

  3. Documentation - A worksheet is available for use during the planning meeting to document financial interests and disclosure. Form 13664, Financial Interests and Disclosure, can be used to document whether financial interests exist and should be used to document actions taken by the Case Manager to address potential conflicts of interest. The Case Manager will notate in the written examination plan the above requirements were met for each team member.

  4. Forms to Be Completed - Other appropriate IRM sections should be reviewed for details of conflicts of interest, disclosure procedures, and completion of Form 6782, Certification of Financial Interest in a Work Assignment. This form will be completed only when a potential conflict exists. The Case Manager will remove Revenue Agents with potential financial conflicts of interest from the case until determinations granting exemptions for financial interests are properly approved.

  5. Self Certification - Case Managers will certify to respective Area Managers there are no conflicts of interest with respect to financial interests. The Case Manager will follow the disclosure procedures and complete the certification form discussed in the Rules of Conduct in instances where a potential conflict may exist.

  6. Minutes - The Case Manager, upon completion of the planning meeting, should summarize the meeting in narrative form and include the following information:

    1. Those issues which should take priority in the examination.

    2. The overall scope and approach to the examination,

    3. The Specialists and non-specialist members needed, and d. An initial estimate of time.  (06-04-2009)
Step Three - Formal Opening Conference with the Organization

  1. The opening conference is the first formal meeting with authorized employees or corporate officers of the taxpayer. The main purpose of the meeting is to summarize agreements on coordination and accommodations, and to discuss the scope and depth of the examination as agreed upon during the pre-examination conference(s) with the taxpayer.

  2. Meeting Arrangements - The Case Manager or Team Coordinator will secure a meeting space appropriate to accommodate the opening conference and notify participants of the meeting.

  3. Agenda - An agenda should be prepared for the opening conference meeting that covers all mandatory topics, as well as any items for discussion identified in the planning meeting. The Case Manager may ask the Team Coordinator to prepare an agenda for the opening conference and assign him/her certain agenda topics for discussion. The agenda for the opening conference may contain the following:

    • Arrangements for the necessary accommodations.

    • The use of Information Document Requests and response times.

    • Arrangements for the flow of communication between team members and the taxpayer.

    • Information pertaining to the organizations corporate structure (new entities, related entities, mergers, dissolutions etc.).

    • A discussion of the accounting records and automated systems including any change in accounting method.

    • Arrangements for the review of the necessary workpapers, reports, corporate minutes, and other pertinent records.

    • Procedures used for the discussion of issues, the use of Form 5701, and response times.

    • Agreement the organization will prepare its protest to identified unagreed issues during the course of the examination

    • A review of the disclosure provisions of Rev. Proc. 94-69 recheck and IRC section 6662.

    • Provisions for extending the statute of limitations and who will be authorized to execute Form 872 for the taxpayer.

    • Claims submissions that the taxpayer is aware of.

    • A discussion of the proposed target dates for starting and estimated completion of the audit.

    • Whether to hold progress reviews with upper level taxpayer representatives as the case progresses.

    • Third party contacts and notification

    • CAS access to ADP department

    • Secure an Authorization Letter and a Communications agreement from the taxpayer

    • Discuss contents of IRS Publication 1 "You Rights as a Taxpayer"

  4. Preparation - The opening conference is an important meeting and much preparation is involved. A fully developed agenda must be prepared in advance of the meeting and arrangements made for presentations by participants. The agenda should be shared with the taxpayer prior to the meeting, along with a list of IRS attendees. Prior to the opening conference, the Case Manager may find it beneficial to hold a meeting with those who will attend in order to reach an understanding of the role of each participant and to solicit suggestions on agenda coverage. (This may be accomplished during the planning meeting.)

  5. Participants - The opening conference should be conducted by the Case Manager and attended by the Team Coordinator and key team members. Others should also attend when their participation in the meeting would be helpful. Attendance should be limited to those who can contribute to the meeting. Any conference between the Case Manager and other team members and the taxpayer should be planned and conducted in an efficient manner. The entire team may attend if needed. The following is a listing of some guidelines for choosing participants for the opening conference:

    1. The Case Manager’s attendance is essential at the opening conference for TEP examinations. The Case Manager has primary responsibility for the opening conference and should conduct it. Normally, this is a responsibility that should not be delegated; however, other Service personnel may have assigned agenda topics.

    2. The Team Coordinator should attend the opening conference. This will afford the Case Manager an opportunity to reiterate to the taxpayer the Case Manager/Team Coordinator relationship. Explaining this relationship is sometimes necessary in order to prevent a misunderstanding of responsibilities.

    3. Specialists and specialist managers should attend if they are to be involved in a significant portion of the examination.

    4. Area Managers should be requested to participate if circumstances warrant higher level participation. This might be desirable in situations where Service procedures are being challenged.

    5. Other team members and support supervisors should attend only when their presence is needed.

  6. Authority to Make Decisions - The Case Manager is authorized to make decisions on behalf of the Service in connection with arrangements for the examination. It will be necessary for those representing the taxpayer to have commensurate authority since many agreements will be negotiated. The opening conference should include the senior executive and other officials who are necessary to adequately discuss the scope of the examination and how it will be conducted.

  7. Disclosure Safeguards - The Case Manager is responsible for making all arrangements authorizing discussion and exchange of information between team members and the taxpayer’s personnel. It may be necessary to hold separate opening conferences in the following circumstances:

    1. Separate meetings may be required if corporate authority is decentralized into various operating components of the entity.

    2. Separate meetings may be required to avoid unauthorized disclosure of information between related entities.


      The taxpayer, in these instances, may request separate examination plan sections for some of the entities.

    3. Separate meetings may be required to coordinate assistance and support audit operations.  (06-04-2009)
Opening Conference Process

  1. Goals of the Opening Conference - The following are the primary goals for an opening conference:

    1. Verification of the preliminary analysis regarding the taxpayer’s size, exempt purpose and activities (a visit of local facilities may be desirable),

    2. The availability of records and information,

    3. Discussion of the accounting system (whether centralized or decentralized, kind of cost controls and internal controls used, whether fully or partially automated, etc.) and arrangements for training to be provided by the taxpayer on these topics,

    4. Discuss whether or not the organization has acquired new entities or disassociated with entities during the years under examination.

    5. Establishment of the location and availability of controlled foreign corporation subsidiary and/or affiliated organizations records, including off-shore captive insurance companies to determine IRC 482, Form 1042S and excise tax issues,

    6. Discuss reviewing records pertaining to the proceeds of a tax-exempt bond issue to determine whether proceeds were used for purposes allowed under the Internal Revenue Code and further determine if there is any rebate of arbitrage due to the United States government.

    7. Arrangements for review of tax return workpapers, examination reports, including internal audit reports, and other available internal financial information,

    8. Establishment of procedures for the review of leases, employment agreements, royalty agreements, trust agreements, patents, insurance policies and other business documents,

    9. Agreement as to when, where, and who will review corporate minutes of the Board of Directors and the Executive Committee.

  2. Flow of Communications - The conference process should determine the flow of communications from the Case Manager and the examination team to the taxpayer and vice versa. The following are critical items needing to be addressed by the Case Manager: This is known as the Communications Agreement.

    1. The communications agreement must identify those individuals in the taxpayer’s organization who are authorized to furnish information to team members, those who may discuss tax matters and those to whom adjustments may be proposed.

    2. Taxpayer personnel designated to furnish information to team members should be those best qualified to give complete first hand information.

    3. The roles of Case Manager, Team Coordinator and team members should be fully explained. This will include information as to who has authority to secure information, discuss tax matters, and propose adjustments.

    4. Procedures for requesting information should be clearly established and communicated.

  3. Additional Goals of the Opening Conference - The opening conference also should accomplish the following additional goals:

    1. Arrangements, to the extent possible, as to when and where each team member (including support group and specialist team members) will begin work,

    2. Agreement on accommodations for the team including such items as locked file cabinets, desks, chairs, telephones and office machines, analog lines for modem access for all, building access, parking, hours of work, dress code,

    3. Agreement on how issues will be raised, discussed and resolved as the examination progresses,

    4. Agreement that both parties will attempt to resolve factual differences on unagreed issues and presentation of preliminary legal position(s),

    5. Agreement to identify the need for an early submission of technical advice requests,

    6. Agreement on the security of Service and taxpayer documents maintained on the taxpayer’s premises during the examination,

    7. Communication to the taxpayer of the TE/GE one-stop-service concept, where the examination team is the primary point of contact for TE/GE taxpayers on all Service matters, examination related or not, (It should be explained the team will take a proactive lead in resolving all taxpayer inquiries correctly, courteously, and as quickly as possible. A source for additional information may be required because some inquiries may not be resolved immediately. The team shall make the appropriate referrals for taxpayer assistance, and the taxpayer may contact this person directly.)

    8. If during a taxpayer contact it appears there may be a hardship situation, complete Form 911, Application for Taxpayer Assistance Order, and refer the taxpayer to the Taxpayer Advocate Service (TAS). (See IRM, Taxpayer Advocate Case Criteria),

    9. Communication to the taxpayer the possibility tax returns of key corporate executives and related organization returns may be inspected.  (06-04-2009)
Discussion of Issues

  1. The taxpayer should be involved in the development of the examination plan. Inclusion of the taxpayer, early in the planning process, can assist in the development of information to be considered in the risk analysis and identification of LUQs.

  2. Agreements - An agreement should be reached during the opening conference on the presentation of issues during the course of the examination since it would be inefficient and impractical to hold all adjustments until the closing conference. This agreement should be made a part of the Taxpayer Information Section of the examination plan. The following items concerning proposed adjustments should be discussed during the opening conference and agreed upon between the Case Manager and the taxpayer:

    1. Stress proposed adjustments should be reviewed immediately to determine their factual accuracy,

    2. Taxpayer responses to proposed adjustments and c. Establish the time periods in which the taxpayer will respond to the notice of proposed adjustment.

  3. Form 5701, Notice of Proposed Adjustment (NOPAs) - The Case Manager or Team Coordinator and taxpayer should agree on how notices of proposed adjustments are to be presented. Forms 5701 will be used to summarize proposed adjustments to the taxpayer. Forms 886-A, Explanation of Items, will be used to present the entire explanation and will be included as attachments to Forms 5701.

  4. Form 5700, Issue Control Log - The issuance of Form 5701 will be recorded by the Team Coordinator on Form 5700 or a similar computer-generated list. The Case Manager is responsible for ensuring the control sheet or computer-generated list is properly, accurately, and timely completed.

  5. Agreement on Factual Issues - The Case Manager or Team Coordinator and the taxpayer should work to resolve all factual issues during the examination.  (06-04-2009)
Concluding the Opening Conference

  1. Review Agreements - The Case Manager should conclude the conference phase by reviewing with the taxpayer all agreements and understandings reached with particular emphasis on the timetable and logistical arrangements.

  2. Minutes - The Case Manager or designated party will summarize, in writing, all pertinent information developed and agreements reached. Completeness of the minutes will facilitate the preparation of the Taxpayer Information Section of Form 4764 for the TEP Examination Plan.

  3. Modifications - Arrangements are subject to modification if warranted. Changes could be generated by suggestions from a team member or the taxpayer. The Case Manager should notify and discuss changes with the taxpayer and the team members if a decision is made to modify agreements.  (06-04-2009)
Step Four -Preliminary Examination Work

  1. Purpose - The preliminary examination of records is to validate decisions made during the risk analysis phase and the selection of issues to be included in the examination plan. It also gives Revenue Agents a basis for developing examination procedures for each assigned area of responsibility.

  2. Preliminary examination work involves the review of certain taxpayer records and analysis of accounts. Ongoing discussions should continue with the taxpayer in order to determine the availability and location of records and to keep the taxpayer involved in the planning process. This review of records will serve as the basis for:

    1. Identifying the procedures necessary to examine the noncompliance areas;

    2. Identifying other unusual and questionable items not apparent during the initial review; and

    3. Modifying decisions reached during the initial review.  (06-04-2009)
Examination Techniques Used to Gather Evidence

  1. The following are some of the examination techniques used to identify and develop issues:

    • Interviews

    • Tours of facilities

    • Evaluation of the Taxpayer’s Internal Controls

    • Examining the Taxpayer’s Books and Records

    • Analyzing return for completeness and unusual items

    • Balance Sheet Analyses

    • Analyzing income sources

    • Analyzing Expenses

    • Sampling Techniques

  2. Interviews

    1. Section 7602 authorizes the Secretary or a delegate to examine books and records and to take testimony under oath.

    2. Interviews provide information about the taxpayer’s financial history, business operations, and books and records. They are used to obtain leads, develop facts, and establish evidence. The record of interviews will usually take one of the following forms: Transcript of interview; Question-and-answer statement; Affidavit; Memorandum of interview; or Recording.

    3. IRC §7521(b)(2) requires the examiner to suspend the interview if the official clearly states that he/she wishes to consult with a qualified representative. This provision does not apply to an interview initiated by administrative summons and can not be used to repeatedly delay or hinder the examination process. Publication 1 advises the taxpayer of this right.


      See IRM for more information on Interviews.

  3. Tour of Facilities:

    1. The examiner should ask for a tour of the facilities. The authority for conducting tours can be found in Treas. Reg. §301.7605-1(d)(3)(iii). The Service may visit the taxpayer’s place of business to establish facts that can only be established by direct visit, such as inventory or asset verification. The Service generally will visit for these purposes on a normal workday of the Service during the Service’s normal tour of duty hours.

    2. A tour of facilities should be conducted during examinations of all entities. Generally, the principal location, and any locations acquired during the period under examination, should be visited. However, consideration should be given to the cost effectiveness and practicality of conducting the tour when appropriate alternatives are available.


      See IRM for more information on Tour of Facilities.

  4. Evaluation of the Taxpayer’s Internal Control:

    1. Internal Controls are defined as the taxpayer’s policies and procedures to identify, measure and safeguard business operations and avoid material misstatements of financial information. The evaluation of internal controls will assist Revenue Agents in determining the accuracy and reliability of the taxpayer’s books and records. Lack of good internal controls may indicate the potential for diverted receipts, diverted assets, or other problems. However, the lack of internal controls does not necessarily jeopardize exemption, but it may affect the scope of the examination.

    2. The Revenue Agents should review the existence and effectiveness of an organization’s internal controls and expand or contract the scope of the examination appropriately. In order to determine whether to rely on the organization’s books and records, the examiner should consider the extent to which control checks are utilized by the organization.
      Are the transactions are recorded in the books and records in a timely manner?
      Does the return reconciles to the books?
      Did the organization reconciles its bank statement balances to the books?
      Is there a segregation of duties?
      Does the organization have an active board of directors overseeing the operations?
      Are there any outside third parties such as a governmental agency overseeing the organization?
      Does the organization has an annual independent audit?

    3. The examiner should consider using indirect examination techniques to meet the examination objectives in those cases where the internal controls are found inadequate. These techniques may include: Oral testimony; Recheck Third-party records. IRM 4.75.21, Special Examination Procedures for required procedures that must be followed; Subsequent year examination if the election of new officers, etc. have resulted in better records being maintained, and/or issuance of an inadequate records notice. Oral testimony is particularly useful in cases where the organization's records have been lost or destroyed such as in a fire or flood. In such cases, the taxpayer's statements may be the only evidence available. However, if the examiner has reason to doubt the reliability of the oral testimony provided, he/she should attempt to locate other corroborating evidence.

  5. Examining the Taxpayer’s Books and Records

    1. It is important to determine the taxpayer’s method of accounting for both book and tax purposes. An accounting method is a system for stating income, expenses, assets, liabilities, and financial position. Taxable income must be computed not only on the basis of a fixed accounting period, but also in accordance with a method of accounting regularly employed in keeping the taxpayer’s books that clearly reflects income. A review of the financial information generally reveals important information about the organization’s activities. Additionally it verifies the information reported on the tax return is correct.


      For more information on the examination of Financial Records see IRM

  6. Analyzing return for completeness and unusual items

    1. The return should be reviewed for completeness to determine if all required line items and attachments are present. If information is missing, make a note to question the organization and organization's representative to obtain it.


      See IRM for Ensuring Completeness and Accuracy of Return.

    2. Consider any large, unusual and questionable items (LUQ). The definition of large, unusual or questionable items will depend on the perception of the return as a whole and the separate items that make up the return. These include, income, disbursements, assets, liabilities and fund balance. Document the reason why any large, unusual, or questionable items were not considered as an issue. Large, unusual, or questionable items fall into at least four categories. These include dollar amount, description on the return, presence on the return and absence from the return. The dollar amount may be a specific dollar amount or relative, unusual, or disproportionate to the income or disbursements shown on the return. It might be a large or unusual expense for the type of organization. Based on the manner in which an item is described on the return, it may not be possible to determine the validity of the item. Some items shown on the return invite close scrutiny simply because they are there. An item may be unusual because it does not appear on the return.


      See IRM for additional information on analyzing accounts.

  7. Balance Sheet Analyses

    1. The purposes for analyzing the balance sheet include: Identifying potential inurement, private benefit, or excess benefit transactions; Identifying assets generating unrelated business income; Verifying the accuracy of the items reported on the balance sheet; Identifying if significant balances and/or material fluctuations occur; Identifying changes in net assets/fund balances and in net worth and reconciling any increases or decreases with the income and expense statements.


      For Guidelines on analyzing balance sheet accounts see IRM

  8. Analyzing Income Sources

    1. The examination should include a review of the organization’s income to determine the size, extent and nature of income. It should also verify the information reported on the information and/or tax return is correct. The purposes for analyzing income are to determine whether the income: supports the organization’s exempt purpose; Is from related parties and may result in inurement if the transactions are not at arms-length; Is from an unrelated trade or business, and/or Is properly classified for purposes of the private foundation public support tests


      See IRM for Guidelines on analyzing income.

  9. Analyzing Expenses

    1. The examiner should review the expenses per the return and examine those which are large, unusual, or questionable. In addition, the examiner should select issues by understanding the taxpayer’s accounting methods and their applications to timing and economic performance, expense versus capitalization, and book-tax differences.

    2. The examiner should review disbursements to determine whether expenditures are made in accordance with the organization’s stated exempt purposes and to verify the information reported on the information and/or tax return is correct.


      For guidelines see IRM, Disbursement Analysis, and IRM, Identifying Inurement and/or Excess Benefit Transactions.

  10. Sampling Techniques

    1. The process of examining the taxpayer’s books and records can be substantially enhanced and improved through the appropriate use of sampling techniques. Materiality should be considered when planning the extent of the sampling. Too small a sample will invalidate the sampling, too large a sample creates unnecessary work. Before doing a sample you need to answer several questions What is your examination objective? What are you trying to accomplish by sampling? Is the sampling technique appropriate and statistically valid?

    2. The two basic types of sampling are judgment and statistical sampling. Judgment sampling requires Revenue Agents to use professional judgment in performing the sampling procedure and in evaluating the results of the sample. Statistical sampling is a procedure used to choose a portion of the whole to make a statement about the entire population. Other terms applied to statistical sampling include probability sampling and random sampling.

    3. Statistical sampling is a method often used with larger exempt organizations with voluminous accounts and/or departments that would make any of the preceding sampling methods impractical if not impossible. Therefore, care should be taken to ensure a valid, unbiased sample is taken. The accuracy of the statistical or random sampling techniques should not depend on the skill or judgment of the individual agent but rather on the accuracy of the mathematical laws and formulae.

    4. Assistance from a Computer Audit Specialist (CAS) is necessary when statistical sampling is performed. For additional guidelines see IRM for Judgment Sampling and for Statistical Sampling.

  11. Researching Federal Tax Law.

    1. TEP Revenue Agents must consider the various legal authorities and guidance available to them when developing and resolving issues. Some of these include: Internal Revenue Code; Committee Reports; Treasury Regulations; Revenue Rulings; Delegation Orders; Private Letter Rulings; Technical Advice Memoranda/Technical Expedited Advice Memoranda; Court Opinions; Tax Treaties. These can be found in Commercial Tax Services, such as BNA, CCH, Westlaw, Master Tax Guide, etc.

    2. Electronic tax research is recommended using the internet, compact discs, and on-line tax services when available. Most of the documents discussed above are available on compact disc or on-line.  (06-04-2009)
Step Five - The Examination Plan

  1. Written document - The examination plan is a written document for all TEGE cases containing agreements with the taxpayer, information for Service personnel, work assignments, examination scope, examination procedures, time estimates, and special instructions. The plan is prepared using

    • Form 4764, TEGE Examination Plan,

    • Form 4764-A, TEGE Examination Plan - Summary of Assignments,

    • Form 4764-B TEGE Examination Plan - Examination Procedures


  2. Organizational tool - The examination plan is the principal tool the Case Manager has for unifying a diverse group of Service personnel, having separate and distinct responsibilities, into an effective team. It should:

    1. Serve as a document for formalizing agreed upon arrangements with the taxpayer (these arrangements will have been negotiated through various preliminary planning meetings and the opening conference with the taxpayer);

    2. Provide management with information regarding the type of examination planned and resources required;

    3. Define each team member’s responsibility and how that responsibility is to be carried out;

    4. Serve as a basis for monitoring and directing the progress of the examination; and

    5. Contain the scope of the examination.

  3. Flexible - The examination plan should be only as sophisticated and detailed as needed for the examination to be performed. The plan for a single-location, one-product business normally requires less detail than one written for an examination of a conglomerate type taxpayer having diversified products and global operations. An examination employing four or five team members may involve little or no coordination, whereas a larger case with twenty or more agents will need more detailed, written guidelines on how the members are to be used.

  4. Balanced - The plan should also have a proper balance between rigidity and flexibility. Excessive rigidity may result in a poor examination or a misuse of resources; however, a plan which is too general or flexible will defeat the purpose for which it is intended - a tool for directing, controlling and monitoring the examination. Proper evaluations of these factors when drafting a plan will not only result in an effective examination but will also save planning time.

  5. Taxpayer involved - The examination plan is as important to the taxpayer as it is to the Service. The taxpayer, through involvement during the entire planning process, develops a vested interest (aside from tax consequences) in how the examination is to be conducted. Both the taxpayer and the Service gain when the taxpayer is able to plan ahead to provide space, equipment and personnel when needed by the team. Therefore, the taxpayer and the Service should have a mutual understanding in sufficient detail as to what, where, and when examination activity will take place.

  6. Living document - The examination plan is not a static tool and it should be revisited and revised throughout the examination to take advantage of the additional information and feedback obtained. Personnel resources are thus more effectively used and the most significant issue areas are covered.

  7. Responsibility for the Examination Plan - The examination plan is the responsibility of the Case Manager; however the Team Coordinator will assist in its preparation.

  8. Timing and Sequence - Parts I and II of the plan should be completed before any substantial amount of examination work is started. The preliminary analysis, planning conferences, and the initial survey of the taxpayer’s records provide the information for the preparation of these parts of the plan. Part I, Taxpayer Information Section, should be completed first since decisions reached in completing this section could influence instructions to the team and work assignments. Other portions of the examination plan may be developed simultaneously.

  9. Review and approval - Parts I and II of the examination plan contain important information such as the type of examination being planned, the time span scheduled and the estimated cost in resources and travel which are of interest to TEGE management. This portion of the plan is subject to their review and approval and must be submitted as early as possible so that the Case Manager can make any requested modifications. This further highlights the fact Part I and Part II should be submitted before any substantial amount of examination time is expended.

  10. Taxpayer agreement - The orderly progress of the examination will depend upon the taxpayer’s full agreement to and complete understanding of the examination arrangements.

  11. Review of books and records - The taxpayer’s books and records should be reviewed for noncompliance areas before the last part of the Examination Procedures Section can be completed.

  12. Examination procedures - Team members are expected to develop the written examination procedures to be used to accomplish their assignments. Form 4764B, TEGE Examination Plan - Examination Procedures, has been designed for this purpose. Other formats may also be employed reflecting the required written procedures and other pertinent data. The Case Manager must require timely submission of the planned procedures to decide if they are compatible with the overall plan. This is a primary device for controlling examination time. The planned procedures are to be submitted for the review and approval of the Case Manager.

  13. Sections of the Examination Plan - The plan is the product of the Case Manager, Team Members, and the Taxpayer. It is comprised of three individual sections as follows:

    1. Part I - Taxpayer Information Section (Examination Arrangements). This section is the overall plan of examination. It contains information extremely important to both the taxpayer and the team. The taxpayer is asked to sign this portion of the plan indicating agreement with its content.

    2. Part II - Service Management Information Section (Examination Program). This section is the Case Manager’s instructions to Team Members containing information about the taxpayer, as well as information of a general management nature.

    3. Part III - Examination Procedures Section. This section contains each team member’s assignment and the procedures to be used in accomplishing the assignment.

  14. Sharing the Plan with the Taxpayer - All parts of the plan should be shared with the taxpayer. Information which would impair tax administration such as Law Enforcement Manual (LEM) information, Official Use Only (OUO) documents and some specialized audit compliance techniques can not be included in the examination plan  (06-04-2009)
Part I - Taxpayer Information Section (Examination Arrangements)

  1. Two-fold purpose - The Taxpayer Information Section has a two-fold purpose. One is to formalize the groundwork for an examination consistent with the concepts of LB&I. The other is to prevent misunderstandings of commitments made and agreements reached. It should be sufficiently detailed and complete so Team Members and taxpayers will not unknowingly create a sensitive situation by acting contrary to the agreements. An electronic Form 4764, Large Cases Examination Plan, should be used in preparing this part of the plan.

  2. Preparation of Part I - Part I of Form 4764 should be prepared for the opening conference and should clearly identify, in writing, the agreements reached with the taxpayer. The preparation of this part of the plan is the responsibility of the Case Manager, who may delegate the assignment to the Team Coordinator.

  3. Signatures on Part I - Acknowledgments regarding the matters covered and agreements reached at the opening conference are best evidenced by signatures of both the Case Manager and a duly authorized corporate officer of the taxpayer in spaces provided on the last page of Part I.

  4. Single-Issue and Issue-Focused Examinations - Part I should be completed for each TEP examination, however, at the discretion of the Case Manager, during a single-issue or issue focused examination, only the pertinent portions of this section may be prepared. Examples of limited scope examinations include:

    1. Claims for Refund

    2. Follow up on issues raised in an earlier cycle,

    3. Special Project Cases with pre-identified issues and

    4. Coordinated Issue special purpose audits, etc.

  5. Commitments and Content - Taxpayer and Service commitments regarding examination activities should be realistic regarding examination activities. Every effort should be made to live up to them, particularly in the following areas:

    1. List of Service personnel including names, badge number, position, and telephone and fax numbers,

    2. Date each team member can be expected to begin working on the case,

    3. Location where examination activities are to be carried out,

    4. Records to be provided,

    5. Space and equipment required, and

    6. Requests for information.

  6. Authority - Case Managers should make certain the individual they are dealing with is a duly authorized corporate officer or delegate who can provide information and enter into agreements regarding examination procedures when seeking commitments from the taxpayer. Also, the individual will be responsible for notifying primary parties in the taxpayer’s organization of the arrangements affecting them.

  7. Communications - Part I of the plan should contain a Communications Agreement. This agreement should include the following items:

    1. Identification of individuals in the taxpayer’s organization who are authorized to furnish information to team members, who may discuss tax matters, and to whom adjustments may be proposed,

    2. Identification of the Team Coordinator and team members and the roles each will have in the examination, and

    3. Identification of persons best qualified to give complete firsthand information. (This may include persons responsible for preparing the documents to be examined, such as voucher clerks.)

  8. Arrangements - The Taxpayer Information Section should cover the details of all arrangements, including:

    1. The space set aside for the agents use;

    2. Work hours and parking arrangements;

    3. Names of individuals who will provide equipment needed by the team;

    4. Telephone and data lines needed; and

    5. Agreements regarding status meetings with the taxpayer to discuss problems.  (06-04-2009)
Service Management Information Section (The Examination Program)

  1. Purpose of Part II - This section provides information regarding the taxpayer, its organization and structure, including the relationships of its entities, and business purposes. Part II also contains instructions to the team and various procedures to be followed during the examination.

  2. Taxpayer Orientation - The taxpayer should be requested to provide an orientation that will provide much of this information needed for this section.

  3. Additional Information - Part II provides information for the team members regarding their specific assignments, the role of the Case Manager and Team Coordinator, scope of the examination and when necessary, special examination techniques. Information provided in Part II will allow team members to be in a position to make the best use of their time. They will know their role in the examination, how to proceed with the assignment and, if called for, what information to develop for other team members.  (06-04-2009)
Items Included in Part II of the Examination Plan

  1. Information Regarding Taxpayer - This section includes:

    1. A summary of the organization’s acquisitions, mergers, or liquidations;

    2. A description of accounting and internal control systems; (This should show accounting and record keeping centers where primary and summary records are maintained and establish the location where records are available for examination).

    3. A brief description of the organizational structure. (An organization chart is considered helpful in keeping team members aware of the structure and interrelationships of taxpayer’s components. This becomes extremely important where assistance or support group are involved since it assists them in coordinating their efforts with other components of the examination.)

    4. The record retention limitation agreement under Rev. Proc. 98-25;

    5. Titles and frequency of reports to regulatory agencies;

    6. Public or other sources of information; and

    7. Information regarding key taxpayer, effectively controlled entities, and divisions or branches, etc. (This would include a list of branches, plants, divisions, and entities not to be examined with an explanation why they should not be examined. This listing and analysis should include comments regarding relative size, last year examined and last year an on-site inspection/examination was conducted as well as information regarding the location of business activities and major product lines. It should include a description of any foreign subsidiaries including details of what books and records are overseas along with their locations and the responsible employees.)

  2. Instructions to Team Members - This section includes instructions related to the following subjects:

    1. Standard for workpapers (size, etc.),

    2. Indexing of workpapers and final report. This will include the use of the Exempt Standard Audit Index Numbering (ESAIN) method of indexing workpapers (See Exhibit 4.75.29-7).

    3. Routing of requests for information to and from the taxpayer,

    4. Procedures for requesting conferences with the taxpayer,

    5. Maintaining a folder of summary topics (planning file) and related background material to be used in preparation for the post-examination critique,

    6. Procedures for monitoring time,

    7. Development of examination procedures, presentation of issues and preparation of the report,

    8. Procedures for requesting information,

    9. Procedures for requesting accountants’ workpapers,

    10. Written communication procedures,

    11. Requirements associated with confidentiality privileges relating to taxpayer communications,

    12. Instructions for documentation of examining officer’s activity and interest abatement,

    13. Requirements associated with confidentiality of taxpayer information/taxpayer privacy,

    14. Awareness of Unauthorized Access (UNAX) requirements,

    15. Procedures related to third party contacts,

    16. Awareness of taxpayer rights, and

    17. Examiner verification requirements related to providing the taxpayer with official employee identification information.

  3. Information for Team Members - The following types of information would be beneficial to all team members:

    1. Brief outline of Case Manager’s planned activities,

    2. Brief outline of Team Coordinator’s activities,

    3. Industry practices and issues common to this type of organization,

    4. Special examination features to be used, and

    5. Projected travel expenses (optional).

  4. Outline of compliance and filing checks, procedures, and special techniques to be used - Revenue Agents should determine that taxpayers are in compliance with all Federal tax return filing requirements and all returns reflect the substantially correct tax. Compliance and filing checks similar to those in IRM 4.75.12 should be considered.

    1. Prior and subsequent year returns,

    2. Related returns,

    3. Employment taxes and other withholding taxes,

    4. Information returns,

    5. Forms 8300 and Currency Transaction Reports,

    6. Excise tax returns,

    7. Pension plan returns, and

    8. W-4 compliance checks.

  5. Examination Assignments - A schedule of examination assignments will be prepared showing the planned order of the examination focusing on the priority of the identified issues. Revenue Agents should use this schedule as a guide in preparing examination procedures in order to ensure the highest degree of coordination of the examination.  (06-04-2009)
Administrative and Processing Details

  1. Preparation of workpapers - Part II of the plan should contain instructions for preparation of workpapers and reports in enough detail to ensure the degree of uniformity desired. The workpapers and reports should be neat, legible, grammatically correct, and standardized for easy collating into a single file or report and procedures for disk control and labeling should be stated. Instructions should cover items such as:

    1. Type of workpaper (size, color, etc.);

    2. Type of workpaper indexing;

    3. Indexing of electronic storage media; and

    4. Form and content of feeder information for current TEP Case Management Reports.

  2. Software - RGS, and Employment Tax Reporting (ETR) (when released) software should be utilized to the greatest extent possible.

  3. Maintenance of planning file - The entire team should remain alert to current trends and subsequent events that may have an impact on a subsequent year audit. Any such events should be brought to the Team Coordinator’s attention for inclusion in the Planning File.

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