4.86.3 Title 26 Compliance Checks

Manual Transmittal

November 05, 2018

Purpose

(1) This transmits revised IRM 4.86.3, Indian Tribal Governments (ITG) Procedures, Title 26 Compliance Checks.

Material Changes

(1) Revises section title to Title 26 Compliance Checks, formerly Compliance Checks. Incorporates new text, reissues existing information, and reflects editorial and/or numbering changes throughout the subsections. Checked and corrected (where necessary) web addresses, IRM and legal resources. See below table for significant changes to this IRM:

IRM Reference Description of Change
Throughout IRM Updated manual to change references to certain positions in the ITG/TEB function as a result of the TE/GE reorganization. Changed references to the Director, Indian Tribal Governments to Director, Indian Tribal Governments/Tax Exempt Bonds (ITG/TEB). References to CPM were changed to CP&C or ITG/TEB Technical depending on where the program/process was realigned within TE/GE.
4.86.3.1, Program Scope and Objectives Title changed to Program Scope and Objectives, formerly Overview. Inserted new content for Internal Controls as required by IRM 1.11.2.
4.86.3.1.1, Background Moved and updated content formerly included in the Manual Transmittal Background section.
4.86.3.1.2, Authority Added new section.
4.86.3.1.3, Responsibilities Added new section.
4.86.3.1.3, Program Controls Added new section.
4.86.3.1.4, Acronyms Compiled a list of frequently used acronyms and their definitions used in ITG/TEB.
Former 4.86.3.3, Tribal Evaluation of Filing and Accuracy Compliance (TEFAC) Deleted subsection. This product isn’t offered in ITG. Renumbered remaining subsections.
4.86.3.4, Compliance Check Inventory Control Process References to CPM were changed to CP&C as a result of the TE/GE reorganization. Updated process to reflect CP&C’s current inventory control procedures when requesting a new compliance check work assignment.
4.86.3.5, Opening a Compliance Check Revised text throughout for clarity. Added new Letter 5690, Compliance Check Appointment/Declination and deleted references to obsoleted Compliance Check Letter Confirmation Appointment, Compliance Check Letter Request Phone Appointment and Compliance Check Letter Request Appointment.
4.86.3.6, Conducting a Compliance Check References to CPM were changed to CP&C as a result of the TE/GE reorganization. Revised text to instruct specialist to answer any questions the taxpayer may have concerning the notices and publications referenced in the appointment letter (Letter 5690) and verify the taxpayer has access to IRS.gov to obtain copies of notices or publications. Added examples of Other forms (e.g., Form W-2G, Form 730, Form 11-C, and Form 2290) in paragraph (2). Added wording "a partnership" to paragraph (6)(a).
4.86.3.7, Compliance Check Tools Removed reference to obsoleted Form W-2/1099 Analysis Program.
4.86.3.8, Compliance Check Case Documentation Title changed to Compliance Check Case Documentation, formerly ITG Compliance Check Case Documentation. New Letter 5690, Compliance Check Appointment/Declination, replaces obsolete Compliance Check Opening Letter. New Letter 5957, Compliance Check Summary Letter, replaces obsolete Compliance Check Closing Letter. Revised text to instruct specialist to also include in their case documentation Form 3198-A, TE/GE Special Handling Notice and Form 5666, TE/GE Referral Information Report, if applicable.
4.86.3.9, Case File Closing Procedures Updated entire section to reflect current procedures requiring group managers to close compliance check cases directly to Status 90. These cases are no longer sent to the ITG/TEB Technical Group II, formerly known as Compliance and Program Management (CPM) for review and closure. Add RCCMS Disposal Codes (DC) for Non-AIMS Activities. Compliance Check declinations disposal code has been changed from DC 908 to DC 805-TP Declination. The DC 908 will be retained on RCCMS for “Survey After Assignment”. Updated the name and address for shipping any paper files to ITG/TEB Technical Group II, formerly CPM. Include instruction not to include a Form 3210, Document Transmittal, when closing 100 percent electronic cases.
4.86.3.10, Survey Procedures - Before and After Assignment Added new section for Survey Procedures - Before and After Assignment.

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

Effect on Other Documents

This revision supersedes IRM 4.86.3, Compliance Checks, dated June 24, 2015.
This incorporates:
Interim Guidance Memorandum TE/GE-04-0218-0010, Form 3210 Not Required When Closing 100% Electronic Cases, dated February 8, 2018
Interim Guidance Memorandum TE/GE-04-1018-0022, Revised Process for Surveying a Case When Using Certain Non-examined Disposal Codes, dated October 2, 2018
Interim Guidance Memorandum TE/GE-04-1018-0026, Initial Taxpayer Contact in Examination Cases, dated October 23, 2018.

Audience

Tax Exempt and Government Entities
Indian Tribal Governments

Effective Date

(11-05-2018)

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 section provides general guidance for conducting Title 26 compliance checks for Indian Tribal Governments/Tax Exempt Bonds (ITG/TEB) specialists who work with Indian tribal governments.

  2. Audience: The procedures apply to all specialists, managers, and support staff in Indian Tribal Governments.

  3. Policy Owner: Tax Exempt and Government Entities (TE/GE).

  4. Program Owner: The Director, Indian Tribal Governments/Tax Exempt Bonds (ITG/TEB), under TE/GE is responsible for overseeing federal tax administration as it applies to Indian Tribal Governments.

  5. Contact Information. To recommend changes or make any other suggestions related to this IRM section, email the Product Content Owner shown on the Product Catalog Information page for this IRM.

Background

  1. The IRS established the Indian Tribal Governments’ function in 2000 under the TE/GE Division to serve as the primary contact in the IRS for federally recognized Indian tribes. In May 2017, the TE/GE Division reorganized and combined the Indian Tribal Governments (ITG) and Tax Exempt Bond (TEB) functions. The scope and mission of ITG/TEB remains the same, to help Indian tribes address their federal tax matters.

  2. This is the second revision to IRM 4.86.3, Indian Tribal Governments (ITG) Procedures, Title 26 Compliance Checks.

Authority

  1. A compliance check is a review under Title 26 of the Internal Revenue Code (IRC) to determine whether a taxpayer is adhering to record keeping and information reporting requirements. It doesn’t directly relate to the determination of a tax liability for any particular period.

Responsibilities

  1. ITG/TEB employees must be familiar with and acting according to the Taxpayer Bill of Rights. Every employee must consider these rights in carrying out their duties. See IRC 7803(a)(3).

  2. All compliance checks will be done in accordance with Policy Statement 1-236, Fairness and Integrity in Enforcement Selection. See IRM 1.2.10.37, Policy Statement 1-236, Fairness and Integrity in Enforcement Selection.

  3. IRS employees working tax related matters must identify themselves (The Restructuring and Reform Act of 1998 (RRA 98) Section 3705(a)).

    1. IRS employees are required to provide their name and unique identification number during taxpayer telephone, face-to-face, and written contact.

    2. IRS employees must put a telephone number on all taxpayer correspondence. This gives taxpayers enough information to identify an employee who has previously helped with a tax related matter.

Acronyms

  1. Acronyms used in this IRM section:

    Acronyms Definition
    AIMS Audit Information Management System
    C&CA Classification and Case Assignment
    CIS Case Information Sheet
    CP&C Compliance, Planning & Classification
    DC Disposal Code
    EIN Employer Identification Number
    GWE General Welfare Exception
    ICN Inventory Control Number
    IDRS Integrated Data Retrieval System
    IRAS Information Return Analysis System
    IRC Internal Revenue Code
    ITG Indian Tribal Governments
    ITG/TEB Indian Tribal Governments/Tax Exempt Bonds
    MFT Master File Tax
    RCCMS Reporting Compliance Case Management System
    TE/GE Tax Exempt and Government Entities
    TEQMS Tax Exempt Quality Measurement System
    TIN Taxpayer Identification Number
    WebETS Web-based Employee Technical Time System

Compliance Check Defined

  1. A compliance check is a tool to educate tribal entities about their reporting requirements and increase voluntary compliance.

  2. However, be careful to prevent auditing the taxpayer under the guise of a compliance check to avoid:

    • Infringing on taxpayer rights.

    • Establishing a Section 530 safe haven.

  3. To avoid the two consequences in IRM 4.86.3.2 (2), ITG/TEB doesn’t review an entity's books or records during compliance checks.

  4. A compliance check is neither:

    • An audit or an investigation under Internal Revenue Code (IRC) section 7605(b).

    • An audit under the Revenue Act of 1978 Section 530.

  5. The customer may legally choose not to participate in a compliance check. See Pub 3114, Compliance Checks.

Compliance Check Guidelines

  1. Compliance checks can be conducted on any entity within the tribe. Each Employer Identification Number (EIN) is considered one entity for this purpose. Complete a separate ITG Compliance Check Template for each entity.

    Example:

    A tribe with many related entities asks for a compliance check on their housing authority. The compliance check addresses only the filing requirements of the housing authority.

  2. A taxpayer can decline a compliance check.

  3. You can survey an assigned compliance check before contacting the customer. Use the Reporting Compliance Case Management System (RCCMS) to document the reason for the survey. See IRM 4.86.3.10, for survey procedures.

Compliance Check Inventory Control Process

  1. All compliance checks will be assigned by Compliance, Planning and Classification (CP&C). Compliance checks are initiated by CP&C as compliance strategies or as the result of a referral.

  2. A request to CP&C for a compliance check may be initiated by:

    1. A specialist by completing a request (with his/her group manager and ITG/TEB Field Operations manager approval).

    2. An information item.

    3. A customer request.

  3. Forward requests or recommendations for a compliance check to CP&C, Classification and Case Assignment (C&CA), Classification Group via email to *TEGE-CPC-Classification for evaluation and assignment. Include ITG Compliance Check Request in the email’s subject line. CP&C is responsible for obtaining background information about the tribe or tribal entity prior to the specialist contacting the customer. This information includes, but isn’t limited to:

    1. Filing requirements.

    2. Filing history according to Integrated Data Retrieval System (IDRS).

    3. Current compliance activity.

  4. CP&C establishes Title 26 compliance checks on RCCMS using activity code 590. The Functional Assignment Coordinator (FAC) assigns the case to the manager electronically via RCCMS.

  5. CP&C assigns compliance checks an Inventory Control Number (ICN).

  6. Each case assigned will have an ITG Case Information Sheet (CIS) included with the case information. The Classification Information section will be completed by CP&C. CP&C will also complete the first six columns of the Return Information section. Each CIS will be named CIS NNNNN where NNNNN is the Key/Primary ICN.

  7. Compliance checks are controlled on the ITG Database and RCCMS, but not on Audit Information Management System (AIMS) because they aren’t audits.

  8. Compliance checks are subject to Tax Exempt Quality Measurement System (TEQMS) quality review.

  9. Charge time on Web-based Employee Technical Time System (WebETS) to Activity Code 590 Compliance Checks Title 26.

Opening a Compliance Check

  1. Schedule an appointment to conduct a compliance check by issuing Letter 5690, Compliance Check Appointment/Declination, along with Notice 609, Privacy Act Notice.

    Note:

    No need to send a copy of Pub 3114, Compliance Checks. The recipient is referred to www.irs.gov/forms-instructions to obtain that document.

  2. Request and submit update to status 12 in RCCMS when you begin charging time to the case.

Conducting a Compliance Check

  1. Use the ITG Compliance Check Template to document compliance checks. Before starting a compliance check, download from RCCMS. The template is designed to document activities and reports data for one entity within the tribe.

  2. A compliance check is a tool to educate tribal entities about their reporting requirements and may include discussing their filing requirements for the following tax returns and information returns, such as:

    • Form 941, Employer’s Quarterly Federal Tax Return, (or Form 944, Employer’s Annual Federal Tax Return) and associated amendments (Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, Form 843, Claim for Refund and Request for Abatement)

    • Form 945, Annual Return of Withheld Federal Income Tax

    • Form W-2, Wage and Tax Statement, Form W-3, Transmittal of Wage and Tax Statements, and corrected Form W-2c, Statement of Corrected Income and Tax Amounts, and Form W-3c, Transmittal of Corrected Wage and Tax Statements

    • Form W-4, Employee’s Withholding Allowance Certificate

    • Form W-9, Request for Taxpayer Identification Number and Certification, or equivalent

    • Form 1099, U.S. Information Return for Calendar Year, and Form 1096, Annual Summary and Transmittal of U.S. Information Returns

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

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

    • Other forms, as applicable (e.g., Form W-2G, Certain Gambling Winnings, Form 730, Monthly Tax Return for Wagers, Form 11-C, Occupational Tax and Registration Return for Wagering, and Form 2290, Heavy Highway Vehicle Use Tax Return)

  3. Inform the taxpayer at the start of a compliance check that the appointment is merely a compliance check and doesn’t qualify as an inspection under IRC 7605(b) or as an audit for purposes of the Revenue Act of 1978, Section 530.

  4. Verify the taxpayer has access to IRS.gov to obtain notices and publications referenced in their appointment letter. Answer any questions the taxpayer may have concerning: Notice 609, Privacy Act Notice, and Pub 3114, Compliance Checks. If the taxpayer doesn’t have access to the internet you may need to mail paper copies.

  5. Do the following:

    • Verify with the taxpayer that all required returns were filed timely. If not, discuss filing deadlines and associated penalties. Secure delinquent returns, if warranted, and submit for processing. See IRM 4.23.12, Employment Tax, Delinquent Return Procedures.

    • Discuss deposit requirements and applicable penalties for failure to deposit timely.

  6. During a compliance check, don’t:

    • Inspect books and records.

    • Discuss books and records.

    • Question whether a worker is an employee or independent contractor.

    • Ask how the taxpayer determined that a Form W-2 or Form 1099 should be filed for a specific individual or entity.

  7. During a compliance check, do discuss internal controls and evaluation procedures the taxpayer used for:

    1. Determining whether a vendor is an individual, a partnership, or a corporation.

    2. Tracking vendor's Taxpayer Identification Numbers (TIN).

    3. Tracking payments to vendors.

    4. Determining whether or not to file information returns.

    5. Determining whether there are additional taxable payments not reported, such as fringe benefits.

  8. Discussing the items in IRM 4.86.3.6 (7) helps you determine whether the taxpayer has a process in place to file all the required information return forms, such as Forms 1099-MISC.

  9. During a compliance check, do provide employee/independent contractor information. However, don’t ask questions related to this issue.

  10. When you’ve identified a compliance issue, discuss it with the appropriate tribal representative. Resolve the issue using one of these actions:

    • Voluntary filing of delinquent returns or amended returns.

    • Agreement to prospective treatment of the issue.

    • ITG providing educational outreach.

      Note:

      If it’s determined that outreach is needed, refer to IRM 22.41.1, Outreach, for information regarding the procedures for customer education and outreach.

Compliance Check Tools

  1. You may use the Information Return Analysis System (IRAS) to analyze information on Forms 1099 and Forms W-2.

Compliance Check Case Documentation

  1. Include as your minimum documentation in your compliance check case file:

    1. Title 26 ITG Compliance Check Template

    2. Title 26 Compliance Check Questionnaire (Optional)

    3. Letter 5690, Compliance Check Appointment/Declination

    4. Letter 5957, Compliance Check Summary Letter, and include summary attachment that outlines findings and corrective recommendations

    5. Form 3198-A, TE/GE Special Handling Notice

    6. Form 5666, TE/GE Referral Information Report (if applicable)

  2. Generally, compliance check cases are 100 percent electronic, but they can also contain paper documents and be closed as a paper case file, if necessary.

Case File Closing Procedures

  1. Specialist:

    1. Complete the ITG Compliance Check Template to document your compliance check data and conclusions. Save the file using the following name convention "TribeCCMMYY.pdf" .

    2. Prepare the closing letter and sign, but don’t date or issue it. The compliance check closing letter allows you to outline your findings and make corrective recommendations. The recommendations are to encourage future compliance and to provide documentation that you discussed certain issues. Prepare one of these closing letters:

      • Letter 5690, Compliance Check Appointment/Declination

      • Letter 5957, Compliance Check Summary Letter, with summary attachment outlining findings and corrective recommendations.

    3. Prepare Form 5666, TE/GE Referral Information Report, if information noted in the ITG Compliance Check Template indicates the potential for noncompliance. Scan and attach any supporting documentation that provides additional details about the potential noncompliance. Securely email the Form 5666 to your manager who will review and forward it to the CP&C Referral group at EOClass@irs.gov, if applicable.

    4. Complete Form 3198-A, TE/GE Special Handling Notice. Use to communicate any special case features and closing instructions.

    5. Complete RCCMS tabs properly for type of closure. Use RCCMS Disposal Codes for Non-AIMS Activities - Title 26 Compliance Checks, as follows:

      • 107 - No Change. Nothing found requiring any action of any type by the IRS or the entity.

      • 303 - No Change with Adjustment. Any issue surfaced requiring an action (i.e., filing requirement change, change of address, need for outreach, delinquent tax or information returns identified whether or not immediately secured, etc.)

      • 805 - TP Declination. A declination of compliance check by the taxpayer.

    6. Properly package and ship paper files per IRM 10.5.1, Privacy and Information Protection - Privacy Policy, to ITG/TEB Technical Group II using Form 3210, Document Transmittal, listing all cases and activities being shipped from the group, to:

      Internal Revenue Service
      Attention: ITG/TEB Technical Group II
      55 North Robinson Avenue, Mail Stop 4900
      Oklahoma City, OK 73102-9229

    7. If no paper file, then the transfer is 100 percent electronic through RCCMS. Check the "All Electronic" box in RCCMS, and state "All Electronic" in the "Remarks and Comments" field. Do not use a Form 3210, Document Transmittal, when closing 100 percent electronic cases.

    8. Close the case in RCCMS to your group manager.

  2. Group Manager:

    1. Review and approve the compliance check case file for procedural compliance and technical accuracy.

    2. Sign and date the ITG Compliance Check Template and the case activity record to indicate the review has been completed and include comments on any actions taken.

    3. Date and mail the closing letter.

      Note:

      The group manager may determine whether the specialist or the group manager is the individual to mail the letter.

    4. Complete the final close process in RCCMS by updating the compliance check case to Status 90 - Final Close. The TE/GE Closing Group and the Ogden campus don’t process compliance check cases.

Survey Procedures - Before and After Assignment

  1. Compliance checks will not normally be surveyed since the taxpayer will either accept or decline the invitation for a compliance check. Consult with your group manager if there is a need to survey a compliance check.

  2. Prior to surveying a compliance check, you must obtain approval from your group manager and the ITG/TEB Field Operations manager must be notified. Specialists must document the case activity record that approval for the survey was obtained from the group manager and notification was given to the ITG/TEB Field Operations manager.

  3. All surveyed cases must contain a clear explanation of the circumstances and rationale for closing the case as a survey. Although a lengthy explanation isn’t required, the case activity record must document the clear rationale for the survey; a reviewer must be able to validate the decision-making process.

  4. Specialists will continue to generate a closing record in RCCMS and complete the fields identified as mandatory for a surveyed closure. On the closing record, the specialist will select the appropriate survey reason code from the drop-down list provided in completion of the field entitled Survey Reason Code and provide a narrative explanation supporting the decision to survey the case in RCCMS in the Remarks and Comments field located on the Closing Record General tab.

  5. If the General Welfare Exception (GWE) Moratorium is one of the reasons for the survey, the document must also include a statement that the ITG/TEB Field Operations manager has approved the survey due to the GWE Moratorium.