4.81.4 Examination Planning

Manual Transmittal

September 13, 2018


(1) This transmits revised IRM 4.81.4, Tax Exempt Bonds (TEB) Examination Program and Procedures, Examination Planning.

Material Changes

(1) Added IRM 4.81.4, Program, Scope and Objectives, Program Controls, and Acronyms to meet the internal controls requirements.

(2) Revised the manual to comply with the Plain Writing Act. For additional information on the Plain Writing Act, see http://www.plainlanguage.gov.

(3) Updated this IRM to include the Compliance, Planning and Classification role in case classification and assignment.

(4) Updated this IRM to change from market segment examination to compliance strategy approach.

(5) Updated to add a reference to IRM for surveys.

(6) Deleted previous section, Restrictions on Examinations of Bond Issue (Reserved).

Effect on Other Documents

This supersedes IRM 4.81.4 Tax Exempt Bonds (TEB) Examination Program and Procedures, Examination Planning, dated January 13, 2016.


Tax Exempt and Government Entities
Government Entities and Shared Services
Tax Exempt Bonds

Effective Date


Christie J. Jacobs
Director, Indian Tribal Governments/Tax Exempt Bonds
Government Entities and Shared Services
Tax Exempt and Government Entities

Program Scope and Objectives

  1. Purpose: This IRM section lists procedures for ITG/TEB revenue agents (agents) to use in planning Tax Exempt Bond examinations.

  2. Audience: ITG/TEB revenue agents (agents), group managers, the senior managers and other employees in the ITG/TEB Technical groups.

  3. Policy Owner: Director, Indian Tribal Governments/Tax Exempt Bonds

  4. Program Owner: Director, Indian Tribal Governments/Tax Exempt Bonds

  5. Authority: ITG/TEB’s examination planning authority is derived from its authority to determine tax liability under IRC Section 6201.

Program Controls

  1. All TEB examinations will be conducted in accordance with the Taxpayer Bill of Rights, consistent with the taxpayer rights in IRC Section 7803(a)(3).


  1. This manual uses the following acronyms.

    Acronym/Abbreviation Definition
    AIMS Audit Information Management System
    CP&C Compliance, Planning & Classification
    EIN Employer Identification Number
    EMMA Electronic Municipal Market Access website of the Municipal Securities Rulemaking Board
    FAC Functional Assignment Coordinator
    IDR Information Document Request
    IDRS Integrated Data Retrieval System
    ITG Indian Tribal Governments
    LUQ Large, unusual or questionable items
    MF Master File
    Pub 1 Publication 1, Your Rights As A Taxpayer
    RCCMS Reporting Compliance Case Management System
    TEB Tax Exempt Bonds

Case Assignment

  1. The ITG/TEB groups conduct TEB examinations based on:

    • referrals

    • claims review

    • approved compliance strategies


    Agents and managers generally should prioritize claims review and referrals.

  2. Generally, CP&C develops issues and classifies cases based on issue criteria. CP&C maintains a virtual shelf on RCCMS of cases awaiting assignment. Each case file contains:

    • A copy of the applicable Form 8038-series return

    • Classification sheet

    • TEB Classification Cover Sheet

    • TEB Case Build Sheet

    • Appropriate IDRS information using command codes AMDIS, BMFOLI, BMFOLT, BMFOLZ AND INOLES (see a description of these command codes in IRM (3) below).

  3. Group managers: To receive new cases for assignment, submit a request detailing the number of cases needed to the Functional Assignment Coordinator (FAC).

    1. The FAC determines which cases to assign based on a priority listing and case availability.

    2. The FAC sends an email to the Case Assignment manager to request assignment of the selected cases to the group.

    3. The Case Assignment Group generally initiates the assignment in RCCMS within five business days of the request.

    4. The group manager receives a notification in RCCMS that the requested cases are pending acceptance.

    5. The group manager accepts the cases, then they’re transferred in RCCMS to the group’s unassigned inventory folder in status 10, Assigned, No Taxpayer Contact.

  4. To assign a case, a group manager transfers the RCCMS case file to the agent’s inventory in status 10.

Scope of the Examination

  1. An examination’s scope is generally indicated on the case file’s TEB Classification Cover Sheet. TEB returns are generally classified as Limited Issue Examinations or Full Scope Examinations.

  2. In Limited Issue Examinations, the scope of the exam is limited to one or more specific areas the classifier identified before case assignment.

  3. You may, with your manager’s agreement, expand a Limited Issue Exam’s scope to address potential noncompliance identified.

  4. In Full Scope Examinations, the agent considers all items necessary to determine correct compliance:

    1. Review the transaction for compliance with all applicable Code provisions.

    2. Upload any workpapers, lead sheets and other information to develop the examination.

    3. Initially, consider all issues to determine which issues require in-depth review. A full scope exam doesn’t mean that all compliance issues warrant your in-depth review.

    4. You may, with your manager’s agreement, adapt the scope of any examination as appropriate or necessary.

  5. Always consider and explain any large, unusual or questionable (LUQ) items on the return, which if left unexplained, might raise compliance concerns.

  6. Surveyed cases require group manager approval before you survey. See IRM for additional information regarding surveys.

  7. Each Form 8038 series return may be the subject of an examination.

  8. When examining a bond issue, examiners routinely review information about other bond transactions and returns.

    1. You may need to open an exam on one or more related tax-advantaged bond returns to address potential noncompliance you identified during a TEB examination.

    2. Discuss material issues involving potential noncompliance on other returns with your manager before opening a related examination.

    3. Don’t treat or report a related exam in a compliance strategy case as a compliance strategy exam. Treat the related exam as a separate examination and don’t limit it to the compliance strategy exam’s scope.

  9. You may open a related return examination under the following common situations:

    1. Prior or subsequent bonds of a refunded or reissued bond.

    2. Bonds issued as part of the same plan of financing.

    3. Delinquent or inaccurate Form 8038-T.

    4. Returns of an issuer impacted by noncompliance determined as part of any other examination of the issuer's bonds.

    5. Returns of another issuer impacted by noncompliance of the same conduit borrower found to be noncompliant in a similar type of financing by another issuer of bonds.

  10. Establish related return: When you decide, with your group manager’s agreement, to examine a related tax-advantaged bond return, request the related return establishment through RCCMS and request an update to AIMS.

    1. Get appropriate IDRS information using Form 15036 requesting command codes BMFOLI, BMFOLT, AND BMFOLR (for a description of these command codes, see IRM (3)(g) below) to identify the correct module on master file (MF). Use the MF information (including the tax period, name control, and report number) to request establishment of the related return.


      It’s important that the information you use to establish the case on RCCMS matches the information on MF so the case won’t reject when the AIMS record is established.

    2. If there isn’t a MF record for a return or the MF information is incorrect (for example, the wrong EIN was used when the original return was processed), submit a copy of the return to be processed or reprocessed to your group manager who will then forward to the appropriate analyst to establish a correct MF module (see IRM, Secured Delinquent and Late Filed Returns and Forms, and IRM, Resequencing Non-Established Returns).This process may take eight weeks and must be completed before AIMS controls can be established.


    If there’s insufficient evidence that an issuer originally met the IRC 149(e) filing requirements, the bonds may not be exempt or qualified.

Planning the Examination

  1. Complete a pre-audit analysis for all examinations.

  2. Use the Tax Exempt Bond Workpaper Summary, or an equivalent document, to prepare an audit plan. Ask your manager for input in developing the plan.

  3. Analyze the following information, if applicable, during your pre-audit analysis:

    1. Form 8038 series information return filed for the bond issuance.

    2. For direct-pay bonds, related Form 8038-CP returns.

    3. Form 8038-T and Form 8038-R returns.

    4. The Official Statement.

    5. Consult EMMA (https://emma.msrb.org/Search/Search.aspx?hlt=search) for material event notices, redemptions, pricing information, refundings, tenders, and any other relevant information to the examination and financial statements.

    6. Code sections, regulations, court cases, revenue rulings and procedures applicable to the case.

    7. IDRS research conducted on issuers, conduit borrowers, and related parties, which may include:

      IDRS command Description
      INOLES Gives the most current name, address, and filing requirements for the entity and may also indicate the EINs of related entities.
      NAMEE Gives an EIN for business entities when the business name and address are known.
      BMFOL Lists business returns filed for identified tax periods, plan numbers, and report numbers for MFT 46, overpayments on the module, and any freeze codes. A review of the returns under MFT 46, 85, and 86 will provide some indication the issuer's activity in the tax-advantaged market.
      BMFOLT Shows the return filing date and any amounts assessed and paid.
      BMFOLR (Issuer) Shows CUSIP numbers, issue price, issue date, maturity date, yield reduction payments, total and unused volume cap, bond issuance costs, and rebate amounts.
      BMFOLR (Borrower) Gives a transcript of a borrower's filed tax return for a specific period.
      BRTVU Lists specific line item amounts for a business return.
      AMDIS Identifies all returns/tax periods currently under examination and the assigned group (organization code).
      AMDISA Gives all general pertinent information about the taxpayer's account for the requested period and identifies whether the issuer has other filed returns under exam.
      BMFOLZ Shows if the return was previously examined.
    8. Pertinent state or federal agency reports or files, such as audit reports, minutes of meetings, and annual financial reports.

    9. Issuer and borrower internet websites.

    10. Any other information obtained through internet search engines and other sources (e.g., Guidestar-990 Returns or EDGAR-SEC Filings).

  4. Document the steps you took in your pre-audit analysis in the workpapers.

  5. Notify your group manager if the issuer or borrower is under exam by another ITG/TEB agent, TE/GE function, or operating division. Your manager will coordinate with the group manager of the unit controlling the related examination as indicated on the AMDISA. If there is an open exam of a borrower, determine:

    • The years under examination.

    • The status of the examination.

    • Any extensions of the statutory period for assessment.

  6. Continue the examination planning throughout the exam. Because the general information returns filed to report bond transactions provide very limited information, you may plan a significant portion of the examination after you receive the response to the initial Information Document Request (IDR).

  7. Develop an IDR tailored to your audit plan and the examination scope.

  8. Prepare the appropriate initial contact letter to send to the issuer with the IDR, Pub 1 and the Supplement to the Form 2848.

Opening the Examination

  1. The examination of the issuer's identified bonds is considered opened when the IRS first contacts the taxpayer.

  2. Update the case status on RCCMS/AIMS to status 12 when you begin charging time to the case.

  3. If the issuer or conduit borrower is an Indian tribal government, notify ITG/TEB Technical before you contact the Indian tribal government to ensure compliance with all government-to-government relationship protocols.

  4. If the issuer is a territory or possession of the United States of America or the case otherwise impacts international tax administration:

    1. Follow the International Operating Procedures for TE/GE Employees.

    2. Contact the ITG/TEB Technical manager responsible for TEB’s International coordination function.

  5. If the borrower is a church, notify the FAC for Exempt Organizations’ examinations before you contact to ensure compliance with protocols involving churches.

Contacting the Taxpayer

  1. See IRM for procedures for contacting the taxpayer to open an examination.

On-site Visits

  1. An on-site visit is often an important part of a quality TEB examination:

    1. A well-planned tour of a financed facility, interviews of key personnel, or inspection of records can increase the quality and reduce the span of an examination.

    2. When an on-site visit is warranted, coordinate the site visit with the issuer, borrowers, or their designated representatives to tour the financed facility, conduct interviews, and examine records.

    3. You may delay the site visit until you obtain a description of the bond financed facilities, identify and determine availability of persons to be interviewed, and establish the plan for reviewing records on-site.

  2. Consider these factors to determine when an on-site visit may be warranted:

    1. Are the financed facilities conducive to impermissible private business use such that a site visit is warranted?

    2. Is the financed project unusual or complex?

    3. Is the arms-length valuation of facilities acquired with bond proceeds unclear, such as, purchases from related parties, developer driven transactions, recent sales before bond financed acquisition, etc.? If so, it may be useful to physically inspect the facilities for case development.

    4. Are allocations between qualified bond-financed facilities and equity-financed nonqualified facilities unclear or complex?

    5. Would it be more appropriate to review the required records on site, for example, to review voluminous records?

    6. For qualified private activity bonds, would a tour of the facilities help identify the financed facilities and determine whether these facilities qualify for bond financing?

    7. Can you obtain the necessary information virtually or through the electronic transfer of records?

  3. Examples of when you may decide not to do an on-site tour include:

    1. No facilities are financed, such as bonds issued to finance working capital, single family mortgage loans, student loans, and prepaid commodities contracts.

    2. The facilities financed are inherently governmental, such as publicly available roads, bridges, schools and parks.

    3. Financed facilities wouldn’t be visible during an on-site inspection, such as underground sewer lines.

  4. When bonds finance multiple projects, as in the case of multi-purpose bonds or pooled financing, identify all projects financed by the bonds:

    1. In many cases you don’t need to visit each financed facility.

    2. Consider the issuer’s description of the financed facilities and the likelihood of identifying potential noncompliance through a site visit.

    3. If after evaluating the considerations in IRM (2) and IRM (3), you determine a site visit is warranted, select one or more projects representing the greatest risk of material noncompliance.

    4. During a site visit, determine whether the issuer’s representation of the project was complete and accurate.

    5. If the project wasn’t adequately described or you identify noncompliance, consider site visits of other projects financed by the bonds.

  5. When you determine an on-site visit isn’t warranted or don’t conduct one, document the case file to show your determination or the case circumstances.

Employee Contact RRA Section 3705

  1. Employees must provide taxpayers with certain information when they contact them (Restructuring and Reform Act of 1988, section 3705). See IRM section, Taxpayer Contacts and Other Contacts, for specific procedures to follow when contacting taxpayers.