4.86.5 Conducting Indian Tribal Government Examinations

Manual Transmittal

March 28, 2019

Purpose

(1) This transmits revised IRM 4.86.5, Indian Tribal Governments (ITG) Procedures, Conducting Indian Tribal Government Examinations.

Material Changes

(1) 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. Significant changes to this IRM are listed in the table below:

IRM Reference Description of Change
Throughout IRM Updated manual to change references to certain positions within 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 Compliance and Program Management (CPM) were changed to CP&C or ITG/TEB Technical depending on where the program/process was realigned within TE/GE.
4.86.5.1, Program Scope and Objectives, formerly Overview Title changed to Program Scope and Objectives, formerly Overview. Inserted new content for Internal Controls as required by IRM 1.11.2.
4.86.5.1.1, Background Moved and updated content formerly included in the Manual Transmittal Background section.
4.86.5.1.2, Authority Added new section.
4.86.5.1.3, Responsibilities Added new section.
4.86.5.1.4, Program Controls Added new section.
4.86.5.1.5, Acronyms Compiled a list of frequently used acronyms and their definitions used in ITG/TEB.
4.86.5.1.6, Related Resources Added new section.
4.86.5.2, Examination Control and Processing, formerly 4.86.5.3 Renumbered section and revised text.
4.86.5.3, Case Assignment, formerly 4.86.5.6 Renumbered section and revised text.
4.86.5.4, Scope of the Examination, formerly 4.86.5.9 Renumbered section and revised text.
4.86.5.5, Planning the Examination, formerly 4.86.5.10, Pre-contact Analysis Changed title to Planning the Examination.
4.86.5.5.1, Statute of Limitations (SOL), formerly 4.86.5.7 Renumbered section and revised text.
4.86.5.5.1.1, Fax Signatures Added new section. Revised to reflect the new Policy for Use of Fax (fax policy) to eliminate the dollar ceiling for acceptance of consents to assess additional tax and taxpayer closing agreements. In addition, consents to extend the time to assess tax, which were not previously allowed by fax, are now acceptable.
4.86.5.5.2, Consideration of Collectibility, formerly 4.86.5.8 Renumbered section and revised text.
4.86.5.5.3, Reference Returns or Information Returns Added new section.
4.86.5.6, Opening the Examination, formerly 4.86.5.12 Renumbered section and revised text.
4.86.5.7, Return Documents for Examination Added new section.
4.86.5.8, Establishment of Related, Prior and Subsequent Period Returns, formerly 4.86.5.13 Renumbered section and revised text.
IRM 4.86.5.9, Initial Taxpayer Contact by Letter Added new section. Removed reference to initial contact by phone. Inserted a note to remind specialist that only after initially contacting the taxpayer by letter a contact by telephone is permitted.
4.86.5.9.1, Initial Telephone Conversation Added new section.
4.86.5.9.2, Employee Contact - Restructuring and Reform Act (RRA) of 1998 Section 3705, formerly 4.86.5.15.2 Changed title
4.86.5.10, Authority to Request Books, Records, and Accountant’s Workpapers, formerly 4.86.5.15.5.1 Renumbered section and revised text.
4.86.5.10.1, Securing Records, formerly 4.86.5.15.5 Renumbered section and revised text.
4.86.5.10.1.1, IDR Follow-up Added new section. Incorporate TEGE 04-1116-0028, New Process for Information Document Requests. IDR Enforcement Process, to support the new process for information document requests.
4.86.5.10.1.2, IDR Enforcement Process: Delinquency Notice Added new section.
4.86.5.10.1.3, IDR Enforcement Process: Pre-Summons and Summons Warranted Added new section.
4.86.5.10.1.3.1, Coordinating Summonses with Other Divisions, formerly 4.86.5.15.5.3.1 Renumbered section and revised text.
4.86.5.10.1.4, IDR Log Added new section.
4.86.5.10.2, Third-Party Contacts, formerly 4.86.5.15.5.2 Renumbered section and revised text.
4.86.5.11, Power of Attorney (Form 2848) and Tax Information Authorization (Form 8821), formerly 4.86.5.14 Added Note: Original documents, photocopies, or documents submitted by facsimile transmission (FAX) are acceptable for processing.
IRM 4.86.5.11.1, By-Passing a Taxpayer’s Representative Added new section.
4.86.5.12, Interviews, formerly 4.86.5.15.3 Changed title
4.86.5.13, Touring Facilities Added new section.
4.86.5.14, Evaluating Internal Controls Added new section.
4.86.5.15, Required Filing Checks, formerly 4.86.5.15.4 Renumbered section and revised text.
4.86.5.16, Evaluating the Facts Added new section.
4.86.5.17, Special Case Development Procedures Added new section.
4.86.5.17.1, Requesting Formal and Informal Technical Assistance Added new section.
4.86.5.17.2, Private Letter Rulings formerly 4.86.5.31 Changed title
4.86.5.17.3, Specialist Referral System - Online Added new section.
4.86.5.17.4, Closing Agreements Added new section.
4.86.5.18, Arriving at Conclusions Added new section.
4.86.5.19, Communicating Identified Issues, formerly 4.86.5.15.6 Renumbered section and revised text.
4.86.5.20, Reporting Compliance Case Management System (RCCMS), formerly 4.86.5.5 Changed title
4.86.5.21, Workpapers, formerly 4.86.5.15.7 Renumbered section and revised text.
4.86.5.21.1, Workpaper Preparation, formerly 4.86.5.15.7.1 Renumbered section and revised text.
4.86.5.21.1.1, Workpaper System, formerly 4.86.5.15.7.1.1 Renumbered section and revised text.
4.86.5.21.1.2, Form 4318, Examination Workpapers Index, formerly 4.86.5.15.7.1.2 Renumbered section and revised text.
4.86.5.21.1.3, Form 9984, Examining Officer’s Activity Record, formerly 4.86.5.15.7.1.3 Changed section title.
4.86.5.21.1.4, Lead Sheets and Supporting Workpapers, formerly 4.86.5.15.7.1.4 Renumbered section and revised text.
4.86.5.21.2, Workpapers: Disclosure Added new section.
4.86.5.21.3, Multiple Returns Added new section.
4.86.5.21.4, ITG RCCMS Naming Convention, formerly 4.86.5.16 Renumbered section and revised text.
4.86.5.22, Concluding the Examination, formerly 4.86.5.17 Renumbered section and revised text.
4.86.5.23, Appeals Alternative Dispute Resolution Programs Added new section.
4.86.5.23.1, Early Referral to Appeals, formerly 4.86.5.30 Renumbered section and revised text.
4.86.5.23.2, Fast Track Settlement Program (FTS) Added new section.
4.86.5.24, Claims for Refund or Abatement, Adjusted Returns and Audit Reconsiderations, formerly 4.86.5.19 Renumbered section and revised text.
4.86.5.24.1, Statute of Limitations (IRC 6511) Added new section.
4.86.5.25, Surveyed Claims, formerly 4.86.5.20 Renumbered section and revised text.
4.86.5.26, Claim Disallowance, formerly 4.86.5.21 Renumbered section and revised text.
4.86.5.27, Delinquent and Substitute for Returns (SFR),formerly 4.86.5.4 Changed titled and added IRM references to Substitute for Returns
4.86.5.28, ITG/TEB Classification Settlement Program (CSP) Added new section.
4.86.5.28.1, CSP Offer Case Closing Procedures Added new section.
4.86.5.28.2, CSP Coordinator Added new section.
4.86.5.29, Form 1040 Individual Income Tax Returns Added new section.
4.86.5.29.1, Innocent Spouse Relief from Joint and Several Liability Added new section.
4.86.5.29.2, IRC 6404(g) Suspension of Interest Added new section.
4.86.5.30, Penalty Overview Added new section.
4.86.5.30.1, Assessment of Penalties Added new section.
4.86.5.30.2, Reasonable Cause Added new section.
4.86.5.30.3, Managerial Approval of Penalties Added new section.
4.86.5.30.4, Assertion of Penalties Involving IRC 3509 Added new section.
4.86.5.30.5, Tax Return Preparer Penalties Added new section.
4.86.5.30.5.1, Coordination with Office of Professional Responsibility (OPR), formerly 4.88.1 Added new section.
4.86.5.31, Report Writing, formerly 4.86.5.18 Renumbered section and revised text.
4.86.5.31.1, Publications to Include with Audit Reports Added new section.
4.86.5.31.1.1, Reports Sent to the Taxpayer’s Representative Added new section.
4.86.5.31.2, Execution of Audit Reports and Payments Added new section.
4.86.5.31.2.1, Fax Signatures Added new section. Use of Fax and Signature Stamps. Material added to incorporate the November 19, 2015, Memorandum from the Deputy Commissioner for Services and Enforcement entitled, Revision of Policy for Use of Fax in Taxpayer Submissions.
4.86.5.31.3, Corrected Reports Added new section.
4.86.5.32, Surveying Cases - Before and After Assignment Added new section. Incorporated Interim Guidance Memo TE/GE 04-1018-0222. The memo’s purpose is to change survey procedures, including those for claims allowed in full. The procedural changes include: Establishing and refining criteria to use to decide whether to survey a case. Removing the requirement to complete: Form 1900, Income Tax Survey, Form 2503, Survey After Assignment - Excise or Employment Tax, Form 5596, TE/GE Non-Examined Closings, Form 5599, TE/GE Examined Closing Record, and Form 3198/3198-A, Special Handling Notice for Examination Case Processing. Adding Reporting Compliance Case Management System (RCCMS) procedures to document the RCCMS case file with the reasons you’re surveying the case. These procedural changes are to streamline and make processes consistent across TE/GE, to ensure good use of resources, and to ensure good feedback for compliance strategies and case selection processes.
4.86.5.33, Standard Time Frames for Closing Cases from the Group, formerly 4.86.5.24 Changed title
4.86.5.34, Cases Subject to Mandatory Review Added new section.
4.86.5.34.1, Time Frames for Submitting Cases for Mandatory Review, formerly 4.86.5.25 Changed title
4.86.5.34.2, Case Identification Added new section.
4.86.5.35, Cases Not Subject to Mandatory Review Added new section.
4.86.5.35.1, Unagreed Exam with Protest to Appeals Added new section.
4.86.5.36, Case Closing Procedures for Specialists, formerly 4.86.5.22 Changed title
4.86.5.37, Form 5666, Referral or Information Report, formerly 4.86.5.28 Changed title
4.86.5.38, Inadequate Records Notices, formerly 4.86.5.29 Renumbered section and revised text.
4.86.5.39, Closing Procedures for Group Managers, formerly 4.86.5.23 Changed title
4.86.5.39.1, Shipping from the Group Added new section.
4.86.5.40, Time Frames for Submitting Cases to the TE/GE Closing Group Added new section.
4.86.5.41, Advance Written Notification When Closing Short Statute Cases Added new section.
4.86.5.42, Cases Returned from ITG/TEB Technical, Actions by the Specialist, formerly 4.86.5.26 Changed title
4.86.5.43, Remittance Processing Procedures Added new section.
4.86.5.43.1, Advanced Payments - General Added new section.
4.86.5.43.2, IRC 6603 Deposits. Added new section.
4.86.5.43.3, Completion of Form 3244-A for IRC 6603 Deposits Added new section.
4.86.5.43.4, Processing Check Payments Added new section.
4.86.5.43.5, Payments less than $100,000 Added new section.
4.86.5.43.6, Payments of $100,000 or More Added new section.
4.86.5.43.7, EFTPS Option Added new section.
4.86.5.44, Installment Agreement Added new section.
4.86.5.45, ITG/TEB Mandatory Review Added new section.
4.86.5.45.1, Case Review Procedures, formerly 4.86.10 Added new section.
4.86.5.45.2, ITG/TEB Statutory Notices of Deficiency Added new section.
4.86.5.45.2.1, Preparation and Issuance Added new section.
4.86.5.45.2.2, Procedures Following the 90 Day Period Added new section.
4.86.5.45.2.3, Rescinding A Notice of Deficiency Added new section.
4.86.5.45.2.4, Protests, Correspondence and Waivers Received After Issuance Added new section.
4.86.5.45.3, Notice of Employment Tax Determination Under IRC 7436 Added new section.
4.86.5.45.4, Case Return Procedures, formerly 4.86.10 Added new section.
4.86.5.45.5, Form 5456, Reviewer’s Memorandum, formerly 4.86.10 Added new section.
4.86.5.45.6, Forwarding Cases to Appeals Added new section.
4.86.5.45.7, Cases Returned from Appeals, formerly 4.86.5.27 Added new section.

(2) Updated to meet the requirements of Public Law 111-274 (H.R. 946), the Plain Writing Act of 2010. The Act provides that 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 4.86.5, Indian Tribal Governments (ITG) Procedures, Conducting Indian Tribal Government Examinations, dated September 15, 2015, and incorporates Interim Guidance Memorandum TE/GE-04-1116-0028, New Process for Information Document Requests, dated November 21, 2016; Interim Guidance Memorandum TE/GE-04-0817-0027, Cases Subject to Mandatory Review, dated September 1, 2017; 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-04-0318-0004, ITG Case Closing Procedures for Cases Subject to Mandatory Review, dated March 9, 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; and 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

(03-28-2019)

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

Program Scope and Objectives

  1. Purpose: This section provides information about Indian Tribal Governments/Tax Exempt Bond’s (ITG/TEB) compliance program and contains general audit guidelines and procedures. This guidance applies to ITG/TEB compliance activities including, but not limited to:

    • Employment Tax Audits

    • Information Return Audits

    • Wagering Excise Tax

    • Income Tax Audits

    • Voluntary Tip Agreements

    • Tip Compliance Reviews

  2. Audience: These procedures apply to all ITG/TEB specialists, managers, tax law specialists, and support staff.

  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.

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 4.86.5, Conducting Indian Tribal Government Examinations.

Authority

  1. ITG/TEB’s examination authority to resolve issues is derived from its authority to make determinations of tax liability under IRC 6201.

  2. IRC 7602 gives specialists the authority to:

    1. Examine any books, papers, records or other data necessary to complete an audit.

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

    3. Issue summons for information necessary to complete an audit.

    4. Inquire into any offense connected with the administration or enforcement of the Internal Revenue laws.

Responsibilities

  1. In accordance with Policy Statement 4-117, ITG/TEB specialists and managers:

    1. Have been given broad authority to consider and weigh conflicting information, data, and opinions.

    2. Will use professional judgment in accordance with auditing standards to make findings of fact and apply the Service’s position on issues of law to determine the correct tax liability.

    3. Will exercise this authority to obtain the greatest possible number of agreements to tax determinations without sacrificing the quality or integrity of those determinations, and to dispose of tax differences at the lowest level.

      Note:

      See IRM 1.2.13.1.34, Policy Statement 4-117, Examination Authority to Resolve Issues.

  2. 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).

  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 give 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.

  4. All examinations 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.

Program Controls

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

Acronyms

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

    Acronym Definition
    AIMS Audit Information Management System
    ASED Assessment Statute Expiration Date
    BOD Business Operating Division
    C&CA Classification and Case Assignment
    CA Case Assignment
    CAF Centralized Authorization File
    CI Criminal Investigation
    CIS Case Information Sheet
    CP&C Compliance Planning and Classification
    CSP Classification Settlement Program
    DC Disposal Code
    DPC Designated Payment Code
    EIN Employer Identification Number
    EOG Examining Officer’s Guide
    ETER Employment Tax Examiner’s Report
    FAC Functional Assignment Coordinator
    FO Field Operations
    FOIA Freedom of Information Act
    FTA First Time Abatement
    FTS Fast Track Settlement
    GWE General Welfare Exception
    ICN Inventory Control Number
    IDR Information Document Request
    IDRS Integrated Data Retrieval System
    IMF Individual Master File
    IRAS Information Return Analysis System
    IRC Internal Revenue Code
    IRE Information Return Examination
    IRM Internal Revenue Manual
    IRN Inadequate Records Notice
    IRP Information Return Penalty
    IRS Internal Revenue Service
    ITG Indian Tribal Governments
    ITG/TEB Indian Tribal Governments/Tax Exempt Bonds
    K-Net Knowledge Network
    LUQ Large, Unusual or Questionable
    MF Master File
    MFT Master File Tax
    OPR Office of Professional Responsibility
    POA Power of Attorney
    PLR Private Letter Ruling
    RAR Revenue Agent Report
    RCCMS Reporting Compliance Case Management System
    RGS Report Generation Software
    RICS Return Integrity and Compliance Services
    RRA Revenue Restructuring Act
    SAA Survey After Assignment
    SBA Survey Before Assignment
    SB/SE Small Business Self Employed
    SFR Substitute for Return
    SOL Statute of Limitations
    SRS Specialist Referral System
    SND Statutory Notice of Deficiency
    SRC Survey Reason Code
    SSN Social Security Number
    TAM Technical Advice Memorandum
    TE/GE Tax Exempt and Government Entities
    TC Transaction Code
    TIN Taxpayer Identification Number
    WB Whistleblower

Examination Control and Processing

  1. ITG/TEB uses the following inventory control systems to manage and close examined return case files.

    • Reporting Compliance Case Management System (RCCMS)

    • Audit Inventory Management System (AIMS)

  2. ITG/TEB generally follows the exam case file control and processing procedures in IRM 4.5, TE/GE AIMS Manual.

  3. See IRM 4.5.1.3, TE/GE AIMS Forms, for other procedures for establishing, updating, correcting and deleting AIMS information.

  4. See IRM 4.23, Employment Tax, IRM 4.10, Examination of Returns, and IRM 4.24, Excise Tax, for general TE/GE audit procedures, including Package Audit, Survey of Returns, Suspense Procedures, and Basic Report Writing.

  5. See IRM 4.88.1, Indian Tribal Governments Examination Issues and Procedures, Examination Issues Pertaining to ITG Cases, for taxation issues and audit procedures with a specific impact on Indian tribal governments/enterprises.

  6. See IRM 25, Special Topics, for procedures that apply to more than one IRS process, including the exam process.

Case Assignment

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

    • approved compliance strategies

    • referrals

    • claims

    Note:

    Claims are considered priority work.

  2. Generally, Compliance, Planning and Classification (CP&C) develops issues and classifies cases based on issue criteria. CP&C maintains a virtual shelf in RCCMS of cases awaiting assignment. Although the information CP&C includes varies based on the type of recommended compliance activity, case files may include:

    • ITG Case Information Sheet (CIS)

    • Copy of electronic return

    • Returns Information and Classification System (RICS) data

    • Background information

    • Tribe and related entity information

    • Integrated Data Retrieval System (IDRS)/Audit Information Management System (AIMS) data

    • Referral information

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

    1. Upon receipt, the FAC determines the cases to be assigned based on a priority listing and case availability.

    2. The FAC sends an email to the Case Assignment (CA) manager requesting assignment of the selected cases to the requesting 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. Once the group manager accepts the cases, 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 specialist’s inventory in Status 10.

Scope of the Examination

  1. Determine an audit’s scope when selecting issues warranting exam. The scope of the audit is listed on the ITG Case Information Sheet during the classification process. However, don’t limit the scope of an audit to the classified issues if you discover other significant issues during the audit.

  2. Many tribal governments are complex entities with multiple subdivisions including various governmental functions and tribal commercial enterprises.

    1. In some instances, different subdivisions have separate employer identification numbers (EIN) and separate, well-defined books and records.

    2. In other instances, many subdivisions are operated under one EIN and combined on the tax returns.

  3. Consult your manager, and exercise judgment as to the audit’s scope and depth and your decision to expand or contract the scope.

    1. Conduct the audit to a point where you determine the reported employment tax liability is substantially correct.

    2. Determine whether the entity correctly filed information returns and wage statements.

    3. Determine whether the entity met all applicable federal return requirements.

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

    5. Consult with your group manager, ITG/TEB Field Operations manager and Tax Law Specialists when issues involving the General Welfare Exclusion (GWE) Act of 2014 are present.

      Note:

      The Tribal General Welfare Exclusion Act of 2014, which enacted IRC 139E, suspended all audits and examinations for Indian tribal governments and tribal members to the extent any audit or examination relates to a general welfare payment or benefit until IRS field staff and tribal financial officers receive further training. Currently, the suspension is in effect. Until the suspension is lifted, you should consult with your group manager and the National Office on all issues with general welfare implications.

  4. If you expand the audit scope to include another tax period(s):

    1. Notify the taxpayer in writing.

    2. Give the taxpayer time to secure a Power of Attorney (POA) for the additional tax period(s) (if the taxpayer has a power of attorney and it doesn’t cover the tax period(s) you pick up for audit).

    3. Allow the taxpayer time to submit records for the added year.

    4. Use the appropriate appointment confirmation letters.

  5. Document in the workpapers the factors you considered to determine whether to expand/contract the audit scope and your manager’s involvement.

  6. If you/manager decide to survey the return, follow the survey procedures in IRM 4.86.5.32, Surveying Cases - Before and After Assignment.

Planning the Examination

  1. Complete a pre-contact analysis including a thorough review of the case file to identify large, unusual, or questionable items (LUQs) beyond those selected on the ITG Case Information Sheet. It should include a review of all related returns, Integrated Data Retrieval System (IDRS) research, Internet research and examination of available public records.

  2. Use the Form 4318, Examination Workpaper Index, or an equivalent document, to prepare an audit plan based on the pre-audit analysis. Prepare and complete to the extent possible the administrative lead sheets including, but not limited to the following:

    • Audit Planning Worksheet

    • Internal Research Work Sheet

    • Required Filing Checks, Multi-Year and Related Returns

    • Audit Plan

    • Statute Controls

    • RRA ‘98 Check Sheet

    Note:

    You may solicit input from your group manager in developing the plan.

  3. Prepare your audit before contacting tribal representatives to enhance the quality of our service and form mutual respect and cooperation.

  4. Examples of pre-contact analysis:

    1. Review the ITG Case Information Sheet and case building materials.

    2. Review the complete tax return including line items, credits, elections and schedules, and any other items attached to the return.

    3. Review (RICS) returns for the quarters under audit, when available.

    4. Analyze Integrated Data Retrieval System (IDRS) data. These command codes can provide and verify the following information:

      • INOLES: What are their filing requirements? Does the address match the address in the case file? What is their Business Operating Division (BOD) Code, BOD Client Code, Employment Code? What year was the entity established?

      • AMDIS: Are the correct controls in place for all periods under examination? Are the status codes correct? Is the statute date correct?

      • CFINK: Is there a current Power of Attorney (POA) or Tax Information Authorization (TIA) on file? Which periods?

      • SUMRY: Are there balances owed? Are they currently assigned to collection? Are any balances in an uncollectible status? Are there any unfiled returns? If so, do they have credit balances?

      • BMFOLI: Review their filing history. Are there missing returns? Are there balances owed that are not showing up on SUMRY? Any lien indicators? Any unfiled returns? If so, with credit balances, or without credit balances? Have civil penalties been assessed in the past?

      • BMFOLT: Review each module under exam and every module up to the current quarter and address the following: Return timely filed? Timely deposits? Penalties? Adjustments? Amended returns? Any other information?

      • BMFOLZ: Have there been any prior audits?

      • BMFOLK: What type of depositor were they during the examined periods? What type of depositor are they now? Are they depositing according to their schedule?

      • BMFOLU: This command code compares the entity’s Form 941 filings for the year to the Forms W-2 and W-3 for the year. Do all the numbers match? If not, which ones don’t? How large is the difference? Are the numbers higher on Forms 941 or on the Forms W-2? How many Forms W-2 were filed?

      • PMFOLS: Summarizes the information returns by type, number filed and total dollars reported; were penalties proposed?

    5. Research the ITG Tribal Database.

    6. Review Internet websites for economic and historical information about the tribe.

    7. Discuss the specific tribe or issue with your manager.

    8. Identify the recognized tribal leadership and the location of tribal offices. The Bureau of Indian Affairs (BIA) maintains a list of federally recognized tribes and a Tribal Leader's Directory on their website at www.bia.gov.

    9. Determine if you should use the Information Analysis System (IRAS) to analyze information on Forms 1099 and Forms W-2.

    10. Verify the statute of limitations.

    11. Request of Reference or Information Returns

    12. Consider collectibility.

    13. Consider whether to consult a specialist on an issue.

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

  6. Determine immediately, the scope of the other agency's involvement and elevate that information to your manager (if another federal agency is currently working with the tribe on matters which closely relate to tax administration). Interagency cooperation may resolve conflicts and avoid misunderstandings.

    Note:

    Confidential taxpayer information cannot be disclosed to any federal agency.

  7. Closely coordinate your activities with the tribal official(s) or designee (when multiple IRS employees participate in a work assignment).

  8. Continue examination planning throughout the exam. As the exam progresses the actions and audit steps may change. Specialists are responsible for ensuring that comments and explanations are documented when applicable.

  9. Develop an Information Document Request (IDR) that is tailored to your audit plan and the scope of the examination.

Statute of Limitations (SOL)

  1. The Internal Revenue Code requires that the IRS will assess, refund, credit, and collect taxes within specific time limits. These limits are known as "Statutes of Limitations" . When they expire, the IRS can no longer assess additional tax, allow a claim for refund by the taxpayer, or take collection action.

  2. Use statute controls for all tax returns and/or information returns (filed and non-filed) under audit. Effective statute control procedures are a result of a collaborative effort. Any individual handling a return has the responsibility for identifying and protecting statutes of limitations for return(s) in their custody. Statute controls ensure the following:

    • Statute expiration dates for tax returns are properly determined and the records are annotated to reflect the correct assessment statute expiration date (ASED).

    • Miscellaneous civil penalties that have statute expiration dates, and are controlled on RCCMS and not AIMS, are properly determined and monitored.

    • Cases are closely monitored to prevent unintended expiration of the assessment statute of limitations.

    Caution:

    Failing to protect the statute of limitations can result in disciplinary action.

  3. See IRM 25.6.1, Statute of Limitations Processes and Procedures, and IRM 25.6.23, Examination Process - Assessment Statute of Limitations Controls, for Servicewide guidance on identifying, monitoring, controlling, and updating statute of limitations dates.

  4. Group managers are responsible for the overall supervision of statute controls for assigned and unassigned returns in the group. Group managers: when you receive cases in the group:

    1. Ensure you have policies to verify the statute of expiration is accurate, including proper determination of assessment statute expiration date (ASED) or any alpha codes used or to be used.

    2. Properly identify statute expiration dates on tax returns and/or information returns (filed and non-filed).

    3. Closely monitor and protect all statutes of limitations to prevent their expiration.

  5. Group managers are responsible for completion of Form 895, Notice of Statute Expiration, for any cases in the group’s unassigned inventory with less than 270 days on the statute.

    Note:

    In RCCMS there is a red (!) next to cases that have statutes that will expire within 270 days.

  6. Specialists are responsible for:

    1. Identifying and protecting the statute of limitations for returns in their inventory, including all primary and related returns covered by the scope and depth of exams being conducted.

    2. Verifying the correctness of the statute of limitations date shown on RCCMS/AIMS for each return in their inventory.

    3. Initiating and completing Form 895, Notice of Statute Expiration, for any case (AIMS and non-AIMS) with less than 270 days left on the statute of limitations, or otherwise meeting control criteria. Cases coming to Technical Group II also require Form 895 to be prepared for all cases with less than 270 days on the statute.

      Note:

      Complete instructions for preparation of Form 895 may be found in IRM Exhibit 25.6.23-1, Form 895 Instructions.

    4. Send Form 895 to your group manager via secured e-mail for approval and digital signature. Upon return of the digitally signed Form 895 from your group manager, delete the original Form 895 (if any) from RCCMS and load the new Form 895 to the RCCMS Office Documents folder.

    5. Place a red folder around the case file and attach Form 895 to the front of the paper case file (if any), on top of all other documents.

  7. If a decision is made to allow a statute to expire, there must be a memo in the case file approved by the Director, ITG/TEB before allowing the assessment statute expiration date (ASED) to expire. Form 895 will be appropriately noted and initialed by the specialist and group manager. Use the "Remarks" section to indicate why an extension of the statutory period is unnecessary. Appropriate notes should be made on the original, group manager’s copy and the electronic copy of Form 895.

  8. If you determine that the statute date is incorrect, update it per IRM Exhibit 25.6.23-3, Instructions for Updating the Statute on AIMS.

  9. After you determine the correct statute date and update it, if necessary, continue to monitor the statute date to protect the government's interest.

    1. The statute date doesn’t change unless you update it to reflect an executed statute extension or to an alpha statute code.

    2. The group manager and specialist must continue to monitor the statute.

    3. Use ITG/TEB Inventory Validation guidelines, monthly reconciliation of AIMS Table 4.0, Returns with Statute Date Pending, and RCCMS, to ensure you start statute control procedures within 270 days of its expiration.

  10. A statute of limitations to assess tax can be extended with the taxpayer's consent.

    1. Clearly identify the need for a consent before you solicit it.

    2. Obtain your group manager's approval before you request a taxpayer to execute a consent and document the approval in the case file.

    3. See IRM 25.6.22, Extension of Assessment Statute of Limitations by Consent, for instructions on obtaining consents, and see IRM 25.6.22.2.1(2), Assessment, for a list of some conditions that allow a statute extension.

      Note:

      A specialist cannot begin an audit on any return or requisition any return for audit if fewer than twelve months remain on the statutory period for assessment, without prior ITG/TEB Director’s approval.

    4. Once a statute extension is secured and properly executed, the specialist should update the Form 895 for the updated statute date. Send updated Form 895 to your group manager via secured email for final approval and updated digital signature. The email should state that the executed extension (indicate type) is being sent regular mail (or express shipping if necessary). Upon return of the digitally signed updated Form 895 from your group manager, delete the original Form 895 (if any) from RCCMS and load the new Form 895 to the RCCMS Office Documents folder.

    5. Attach the original consent form to the back of the first page of the appropriate return. For case files where there is no tax return (i.e., penalty case), the executed consent form should be placed in a visible place within the case file. Attach updated Form 895 to the front of the paper case file, on top of all other documents. Remove red folder from the case file if the statute will no longer expire within 270 days.

  11. When sending a case with a short statute to Technical Group II, the group manager of the specialist should contact the Technical Group II manager before sending the case. A short statute case is defined as a statute case with less than 270 days remaining on an unagreed case without a protest to Appeals when they are received in Technical Group II. These cases must include documentation of the approval of the ITG/TEB Director prior to closure to Technical Group II.

  12. All actions with respect to the statute of limitations, steps to protect the statute of limitations, Form 895 completion date(s) and consents to extend should be notated in the Form 9984, Examining Officer’s Activity Record.

  13. Unagreed cases closing to Appeals must have 425 days remaining on the statute of limitations for assessment on the date the TE/GE Closing Group receives the case (330 days for cases that Appeals previously returned to the group). See IRM 4.86.5.40, Time Frames for Submitting Cases to the TE/GE Closing Group.

Fax Signatures
  1. On November 19, 2015, the Deputy Commissioner for Services and Enforcement announced a revision to the IRS’s fax policy. This revision allows for the acceptance of taxpayer and/or taxpayer representative’s signatures by fax on consents to extend the time to assess tax under the following conditions:

    • Contact with the taxpayer(s) is made by phone or in-person,

    • The case activity record documents the date and method of contact, and

    • The taxpayer’s case activity record notes that the taxpayer wishes to send the consent by fax.

  2. If all the conditions listed above are met, the receipt of a signed consent to extend the time to assess tax via fax will be considered an "original" consent form with "original" signature(s) for the purposes of IRM 25.6.22, Statute of Limitations - Extension of Assessment Statute of Limitations by Consent.

    Note:

    This guidance does not extend to the use of faxed, or other electronically generated, signatures by Service personnel.

Consideration of Collectibility

  1. Consider collectibility during the pre-contact audit phase as a factor in determining scope and depth. If there is indication that collectibility may be an issue, discuss with your group manager and document the case file. See IRM 4.10.2.4.1, Collectibility.

Reference Returns or Information Returns

  1. When a return is needed for reference or information purposes, it must be requisitioned using Source Code 45. Source Code 45 is used to order reference returns (e.g., a tax return secured for information only). Upon receipt of the original reference return, a specialist must determine within 30 days of receipt, whether the return will be examined or closed on AIMS.

  2. When considering requesting a return as Reference or Information (Source Code 45), follow the procedures in the ITG Case Work Procedures Desk Guide https://organization.ds.irsnet.gov/sites/tege-ge/itg/itg/forms/1-caseproc2-guidesandprocs.aspx.

Opening the Examination

  1. The examination is considered opened when the IRS first contacts the taxpayer.

  2. Once you begin charging time to the case, update the case status on RCCMS/AIMS as follows:

    • For audits, update the AIMS status via RCCMS to Status Code 12 (audit opened).

    • For non-return compliance activities not on AIMS, update RCCMS to Status Code 12.

  3. Confirm that the source code, activity code, project and tracking codes are accurate.

Return Documents for Examination

  1. All examinations must be closed with a return document.

  2. If there is an original return, then it is the return document. The specialist must document in RCCMS that the case is closed with an original return. Select the tab "Closing General" , then select the "Closing With" screen, then select #1, "Original Return." Original returns must be closed in paper case files.

  3. If there is no original return, then a BRTVU or TRDBV print, if available, should be used to close an examination. If neither BRTVU nor TRDBV are available, (e.g. closing an examination based upon a substitute for return) the specialist must prepare Form 2275, Records Request, Charge and Recharge, (Parts A and B only) with "In Lieu of Return" written or typed across the top. Attach a BMFOLR. Form 3198-A, TE/GE Special Handling Notice, should identify the case file as being closed on the basis of an electronic print. The specialist must document in RCCMS that the case is closed on an electronic print by selecting the tab "Closing General," selecting the "Closing with" screen, then selecting #3 "Electronic print" or #4 "Paperless Examined." #4 should be used when the case is fully electronic.

  4. The specialist should verify tax payments and credits claimed on the return. An IDRS transcript should be secured when necessary to determine the true liability.

Establishment of Related, Prior and Subsequent Period Returns

  1. Specialists should expand any employment tax examination to include prior and subsequent years if the issue(s) under development are material and recurring, or if there appear to be other LUQ items, unless there are reasons for not doing so (e.g., statute concerns). All reasons must be fully documented.

  2. When you identify an issue that requires you to establish additional periods or related returns, ask your manager before you establish either in RCCMS. Use:

    • Source Code 05 (Related Pick-up) for all related returns.

    • Source Code 40 (Multi-Year Examination) for all prior and subsequent period returns.

  3. Normally, there is only one period with a primary source code on RCCMS and AIMS.

  4. In most cases, carry the project/tracking codes of the primary return to all related returns.

    Note:

    ITG/TEB uses exam data to capture business results, develop the work plan, and answer questions from internal and external stakeholders about resource application and results. Therefore, it’s important to use consistent and accurate coding for application of time and case data.

Initial Taxpayer Contact By Letter

  1. The "initial contact" is the first contact with the taxpayer after the pre-audit analysis. The initial contact notifies the taxpayer of the audit. You must make ALL INITIAL contact with a taxpayer by mail, using the appropriate initial contact letter. Specialists must use approved form letters to schedule and confirm examination appointments.

    Note:

    Don’t make initial contact by telephone.

  2. Prior to issuing the initial contact letter, specialists must check BMFOLT or TXMODA to determine if a valid power of attorney is on file for the tax periods and type of tax under examination. If a TC 960 is posted, the specialist must secure a CC CFINK and retain a copy in the file. If CC CFINK indicates a valid power of attorney is on file, the specialist will mail the appropriate initial contact letter to the taxpayer and a copy of the letter to the representative with Letter 3597, Transmittal Letter for Power of Attorney.

  3. The letter used depends on the type of tax under examination. See a list of appropriate initial contact letters by examination type in the ITG Case Work Procedures Desk Guide at https://organization.ds.irsnet.gov/sites/tege-ge/itg/itg/forms/1-caseproc2-guidesandprocs.aspx.

  4. Specialists should identify the tribal leader (Chairman, President, Chief) for the tribe or tribal entity and mail the initial contact letter to the tribal leader at the taxpayer’s last known address. The Service is required to exercise due diligence to find and use the taxpayer’s last known address. Generally, the last known address is the address on Master File unless the taxpayer has provided clear and concise notification. Clear and concise notification may be written, electronic, or oral. In all cases, clear and concise written notifications must be specific as to a change of address. Thus, a new address reflected in the letterhead of taxpayer correspondence will not by itself serve to change a taxpayer’s address of record.

  5. Call the taxpayer or their representative no earlier than 14 calendar days or 10 business days, whichever is longer, from the mailing of the letter to confirm that the taxpayer received the letter and IDR, if no response is received from the taxpayer or their representative.

  6. As a best practice, mail your initial Information Document Request (IDR) with the initial contact letter requesting specific documents, files, or information you need:

    • Request documents, files and information necessary and appropriate for the audit based on the audit plan and other factors considered during exam planning.

    • Be specific, understandable, and specify a response due date.

  7. Mail the following documents with the initial contact letter, as required by RRA 98:

    • Pub 1, Your Rights as a Taxpayer

    • Notice 609, Privacy Act Notice

    • Pub 3498, The Examination Process, or if an employment tax examination, use Pub 5146, Employment Tax Returns: Examinations and Appeal Rights.

      Note:

      Pub 5146, is a new publication and replaces Pub 3498, The Examination Process, for employment tax examinations.

      Note:

      Receipt of Publication 1 and Notice 609 will be confirmed at the first in-person meeting with the taxpayer.

      Note:

      Document the workpapers and the case activity record when and how these documents were provided to the taxpayer.

  8. If the taxpayer does not respond to the initial contact letter after 10 business days have expired since the initial contact letter was mailed, follow the procedures in IRM 4.10.2.8.3, No Response/No Show.

  9. If the initial contact letter is returned undeliverable, follow the procedures in IRM 4.10.2.8.4, Undeliverable Initial Letters.

  10. Document any contact or efforts to contact the taxpayer in the case activity record.

Initial Telephone Conversation

  1. During the initial telephone conversation, the specialist will:

    1. Immediately identify themselves and provide their unique employee identification number.

    2. Inform the tribal official(s) or representative of the return(s) being examined and tax period(s) involved.

    3. Briefly explain the examination process and answer the taxpayer or representative’s questions or concerns.

    4. Determine the tribal official designated by the tribe to work with the IRS concerning federal tax issues.

    5. Discuss the issues to be examined and inform the taxpayer or representative that the examination may be expanded to additional issues.

    6. Discuss the contents of the IDR and revise it based on the responses received.

    7. Explain what records should be available for the examination.

    8. Determine the type of business records maintained, as well as the location of the records.

    9. Ask the taxpayer about electronic records.

    10. If required, schedule the initial appointment at a time and date that is agreeable to the taxpayer and reduces the number of rescheduled appointments, generally within 45 days of the first contact.

    11. Identify the person(s) to be present at the initial interview.

    12. Establish a communication agreement with the tribe. It may be in writing, but doesn’t have to be. Each tribe has different protocols for handling audits and correspondence. Document this information in the file. Recognize the government-to-government relationship of federally recognized Indian tribes with the Federal Government. If you don’t establish a communication agreement, confirm with the tribal leader who should receive original correspondence and who should receive copies.

    13. Ask the taxpayer if they plan to secure a representative. If yes, explain that a Form 2848, Power or Attorney and Declaration of Representative, Form 8821, Tax Information Authorization, or a similar privately designed form, is needed.

      Caution:

      If the taxpayer(s) states they will secure a representative, allow the taxpayer a minimum of 10 business days to secure a representative before taking any follow-up action to schedule the appointment (extensions can be granted on a case by case basis). The specialist should not ask questions during this initial conversation because this may give the impression of attempting to by-pass the representative. For additional information, see IRM 4.10.3.3.7.2, Request for Representation - Suspension of Interview.

    14. Inform the taxpayer or representative that a letter confirming the scheduled appointment will be mailed to them.

      Note:

      Specialists should inform the taxpayer or representative that a detailed Form 4564, Information Document Request, will be included with the confirmation letter, if necessary.

    15. During the initial conversation by telephone or in person, specialists must explain and discuss the taxpayer’s rights as outlined in Pub 1, and answer any questions the taxpayer may have concerning their rights. See IRM 4.10.1.6, Taxpayer Rights, for additional guidance. Provide Pub 1976, Do you Qualify for Relief under Section 530?, if the examination is to address worker reclassification issues.

  2. Once the appointment is agreed to, the examination should be conducted on the confirmed appointment date, unless there are extenuating circumstances.

  3. You should call the taxpayer (or POA) two to three business days prior to the appointment (i.e., the date the information requested on the IDR is due).

    Note:

    Calling the taxpayer will ensure that the taxpayer is prepared for the appointment (i.e., understands what is requested and will have the information available at the appointment).

Employee Contact - Restructuring and Reform Act (RRA) of 1998 Section 3705

  1. IRS employees working tax related inquiries must give taxpayers information to identify the appropriate employee who can address any further questions (RRA section 3705). Therefore, provide the following information:

    1. During a telephone or personal contact - name, title, and employee identification number.

    2. On all correspondence - same as above and a telephone number for the taxpayer's questions.

  2. You don’t have to repeat your employee identification number on subsequent contacts with the "same" tribal official(s) or designated tribal official.

  3. However, you must repeat your name and employee identification number to each new subsequent contact you make during the work assignment. Document the person’s name, title and the date when you gave them your contact information in the case activity record. Also, complete Workpaper 5.105, RRA 98 Check Sheet, and include it in your RCCMS case file. This workpaper has check boxes and a space to document the name(s), title(s) and dates of any subsequent new contacts.

Authority to Request Books, Records, and Accountant’s Workpapers

  1. You’re authorized to request and receive books, records, etc., necessary to properly examine an entity's tax return (IRC 7602, Examination of Books and Witnesses, and 26 CFR 301.7602-1(a), Examination of Books and Witnesses.)

  2. Insist courteously for the records, even when a taxpayer is reluctant to provide them. Follow these guidelines to handle this situation:

    1. Apprise the taxpayer of the appropriate requirements to produce books and records. Explain that denying access to the records only prolongs the audit/investigation because we’ll initiate third party inquiries and this further lengthens the process.

    2. Don’t attempt to mislead or misrepresent the audit/investigation scope to secure records.

    3. Don’t assert your authority in a manner that could be interpreted as a threat.

    4. Don’t summons the records unless you obtain your manager’s approval.

  3. Accountant's workpapers used to audit tax records or prepare a tax return aren’t the taxpayer’s property or privileged information. Therefore, you can summon the workpapers.

  4. See IRM 4.10.20, Requesting Audit, Tax Accrual, or Tax Reconciliation Workpapers.

Securing Records

  1. Use Form 4564, Information Document Request (IDR), to request information from the taxpayer.

    1. Conduct initial research applicable to the taxpayer.

    2. Identify potential issues to identify the information that you need.

    3. Consider alternate sources for the information.

    4. Identify alternate means to obtain needed records.

  2. When preparing an IDR:

    • Be specific, clear and concise.

    • Group the information being requested by issue.

    • Number or letter the items requested.

    • Include a response date, such as a specific date or specific time frame, and the way they should submit data (by mail; made available on next field visit).

    Note:

    Organizing your IDR in this manner will make it easy for the taxpayer to respond to the requested information.

  3. Initial Contact:

    1. Include the initial IDR with the initial contact letter.

      Note:

      The response date for the initial IDR should be 30 days from the date of mailing and notate on the IDR the specialist will review the information within 10 days of receipt.

    2. Call the issuer no earlier than 14 calendar days or 10 business days, whichever is longer, from the mailing of the letter to confirm that the taxpayer received the letter and IDR if the taxpayer has not contacted the specialist prior to that.

    3. Discuss the issues being examined and the items being requested on the IDR. If after the discussions, the specialist believes that clarification to the IDR is needed, the specialist will modify the request and reissue to the taxpayer.

      • Agree on updated response date, which may also be an appointment date.

        Note:

        An updated response date from this initial call is not treated as the first extension, but as a modification to the IDR.

  4. For all subsequent IDRs:

    1. Clearly state the agreed-on response date.

    2. List the specific records, information and documents that the taxpayer should have available on the response date.

    3. Be specific and avoid requesting more information than is necessary to resolve the identified issues.

    4. Include an adequate description of the requested data.

    5. Include an adequate description of why the information is being requested (the facts and circumstances will dictate how much you need to describe each item).

    6. State the time period of the necessary records.

    7. State how and where the information will be delivered. If the taxpayer or representative will provide the information at either the audit site or the POA’s office during a subsequent appointment, then state that the information is to be available at the next appointment date.

    8. Determine the date that you plan to review the IDR response for completeness, and note the acknowledgement date on the IDR.

  5. Discuss the response date of the IDR with the taxpayer and agree on a date.

    Note:

    Select a response date that is reasonable to enable you to promptly complete the examination.

  6. When you mail the IDR to the taxpayer, send a copy to the POA (if applicable) with cover Letter 937, Transmittal Letter for Power of Attorney.

IDR Follow-up
  1. Follow-up with the taxpayer two to three business days prior to the IDR response due date.

  2. When the taxpayer responds to your IDR, make your best efforts to review the response by the agreed upon date noted on the IDR.

  3. If the response is complete:

    1. Call the taxpayer to advise that the response was complete.

    2. Notate this action in the case activity record.

  4. If the response was incomplete or they fail to respond:

    1. Determine, within five (5) business days, if you’ll grant an extension

    2. Discuss missing or incomplete items with the taxpayer to determine if an extension is warranted.

    3. If an extension is warranted, you may grant a first extension.

    4. You may grant up to 15 business days for the taxpayer to provide the incomplete or missing information.

    5. You must send an extension approval letter, Letter 5798, TE/GE Information Document Request Extension Notice, reflecting a new response date and attach an IDR listing the incomplete or missing items.

  5. If the taxpayer fails to respond to the extension in IRM 4.86.5.10.1.1 (4) or if the response is still incomplete you may:

    1. Determine, within five (5) business days, whether to grant a second extension.

    2. Discuss the missing or incomplete items with your group manager to determine if you will grant a second extension.

    3. If an extension is warranted, you may grant a second extension, but only with your manager’s approval.

    4. You may grant up to 15 business days for the taxpayer to provide the incomplete or missing information.

    5. Send a second extension approval letter, Letter 5798, TE/GE Information Document Request Extension Notice, reflecting a new response date and attach an IDR listing the incomplete or missing items.

  6. Make every effort to review the IDR within 10 business days of receipt of the documents.

  7. Notify the taxpayer of your review.

  8. If for some reason the review will be delayed, notate the delay in the activity record.

  9. If the requested information isn’t received after the second extension, begin the Enforcement Process.

IDR Enforcement Process: Delinquency Notice
  1. If after the second extension, the request is not complete, the specialist and prepares a delinquency notice.

    1. Notify your group manager

    2. Prepare a Delinquency Notice:

      • Letter 5077-B, TE/GE IDR Delinquency Notice, for items that can’t be summonsed.

      • Letter 5077-D, TE/GE IDR Delinquency Notice - Pre-Summons for items that can be summonsed.

    3. Call the taxpayer to discuss an appropriate due date.

    4. Sign and mail the delinquency notice, with a revised due date.

    5. Obtain manager’s approval if more than 10 business days are needed for the taxpayer to respond.

  2. If the taxpayer responds to the IDR Delinquency Notice, review the response within 10 business days.

  3. If the taxpayer provides a complete response:

    1. Inform the taxpayer their response is complete.

    2. Notate in the case activity record.

    3. The enforcement process is ended.

  4. If the taxpayer doesn’t respond or if the response is incomplete:

    1. Discuss with your group manager and Area Counsel within 10 business days.

    2. Determine whether a summons will be needed.

    3. Inform the taxpayer of the next action:

      • Proposal of adjustment

      • Summons

IDR Enforcement Process: Pre-Summons and Summons Warranted
  1. If the taxpayer has failed to respond to the IDR Delinquency Notice(s) and the requested items can be summonsed:

    1. Prepare Pre-Summons Notice (Letter 5077-A) within 10 business days of the taxpayer not responding to the Delinquency Notice.

    2. Notify the taxpayer and determine a response date.

    3. See group manager’s approval, if response date is more than 10 business days.

    4. Have group manager sign Pre-Summons Notice and issue to the taxpayer.

  2. If the taxpayer responds to the Pre-Summons Notice, review the response within 10 business days.

  3. If a complete response is provided by the taxpayer:

    1. Inform the taxpayer, their response is complete.

    2. Notate the case activity record.

    3. The enforcement process is ended.

  4. If the taxpayer doesn’t respond or the response is incomplete:

    1. Discuss with your group manager and Area Counsel, within 10 business days.

    2. Coordinate the issuance of the summons with Area Counsel.

    3. Notate the case activity record.

    4. Follow summons procedures in IRM 25.5, Summons.

Coordinating Summonses with Other Divisions
  1. Due to the unique laws affecting Indian tribes, IRS employees issuing summonses to a tribal entity must ensure that the information being sought is legally obtainable, and that the summons can be enforced, if necessary. For that reason, employees should strongly consider designated ITG/TEB field Counsel review their summons. This includes any IRS summons, except those initiated by Criminal Investigation, served to a tribal government/enterprise, regardless of its source.

  2. Other business units (except Criminal Investigation) must notify ITG/TEB before they serve a summons to a tribal entity. This includes summonses originating in other IRS operating divisions (LB&I, SB/SE, etc.) or in any other TE/GE office.

IDR Log
  1. As a best practice, you may use an IDR Log to help you track the IDRs you issued to taxpayers.

  2. Using an IDR Log is optional and may not be helpful on all cases; however, use it if it helps. See Form 5699, Information Document Request Log.

Third-Party Contacts

  1. See IRC 7602(c), Notice of contact of third parties, and related regulations for all third-party contacts. IRS policy requires us to obtain information relating to a liability or collectibility determination directly from the taxpayer whenever possible. See IRM 11.3.17.4, Collecting Information Relating to Individuals from Third Party Sources.

  2. Generally, we make contacts with third parties when unable to obtain the information from the taxpayer or to verify information provided by the taxpayer. However, make every effort to first obtain information from the taxpayer. See IRC 6103(k)(6) and corresponding regulations which apply to all third-party contacts.

  3. For third-party contacts made for determining or collecting a tax liability, IRS is required under IRC 7602(c) to provide:

    1. Advance notice to the taxpayer that third-party contacts may be made.

    2. A list of third-party contacts to the taxpayer upon request.

    3. Prepare Form 12175, Third Party Contact Report Form

      Note:

      IRC 7602(c) doesn’t require IRS employees to obtain taxpayer authorization to contact a third party. A taxpayer may not prevent an IRS employee from contacting a third party by refusing to provide authorization. Obtaining authorization only means that IRS employees aren’t required to give reasonable notice in advance that they may make a third-party contact. Authorization is made with Form 12180, Third Party Contact Authorization Form.

  4. See IRM 25.27.1, Third-Party Contact Procedures, for Servicewide procedures.

  5. Third-party contact procedures don’t apply to whistleblower claims for awards. Case files involving whistleblowers shouldn’t contain any reference to the whistleblower in the primary case documentation. Even referring to Form 11369, Confidential Evaluation Report on Claim for Reward, or to the whistleblower in the activity record is prohibited because the administrative case file is subject to Freedom of Information Act (FOIA) and could lead to disclosure. See IRM 25.2.2.9, Confidentiality of the Whistleblower.

Power of Attorney (Form 2848) and Tax Information Authorization (Form 8821)

  1. Attorneys, certified public accountants, enrolled agents or other representatives may submit a Form 2848, Power of Attorney and Declaration of Representative (POA), or Form 8821, Tax Information Authorization (TIA), on behalf of an Indian tribal government/entity.

  2. The Centralized Authorization File (CAF) function doesn’t process Forms 2848 submitted using a version older than the October 2011. So, if a POA submits an obsolete form, ask them to resubmit using the most current revision.

  3. Secure a valid Form 2848 and/or Form 8821 containing the following information if the taxpayer wants a POA or third-party representative:

    1. Taxpayer name (i.e. Indian tribal entity), address, employer identification number or social security number, and telephone number.

    2. Employee Plan Number, if applicable.

    3. Representative(s) or appointee(s) full name(s), address, telephone and fax numbers, and the representative's CAF number, if known. The taxpayer should check the appropriate boxes if the IRS should send the representative/appointee notices and communications.

    4. Type of specific tax involved (e.g., employment, excise, etc.) and/or the federal tax form number.

    5. The years covered must be specifically listed. It’s unacceptable to list "all years" .

    6. The taxpayer's signature is required (e.g., authorized tribal government official) and date of signature.

    7. For Form 2848, the representative must sign and date the declaration (Part II) and enter the designation under which he/she is authorized to practice before the IRS.

      Note:

      Don’t accept the Form 2848 if the appointed representative isn’t qualified to sign Part II, or the form is incomplete or inaccurate. Don’t accept the Form 8821 if it’s incomplete or inaccurate. Return invalid forms to the taxpayer.

    Note:

    Original documents, photocopies, or documents submitted by facsimile transmission (FAX) are acceptable for processing.

  4. Process the completed form to the appropriate CAF unit within five business days of receipt.

    1. Mark your name, telephone number, function, and date on the form.

    2. Fax or mail completed Forms 2848 and Forms 8821 to the CAF unit.

    3. Document the date you sent the form to the CAF unit on Form 9984, Examining Officer's Activity Record. Also document any delays in processing on Form 9984.

    4. Follow-up by researching CFINK to ensure the CAF unit processed the POA/TIA.

    5. Attach a copy of Form 2848 or Form 8821 to each return. Mark on the form the date you faxed it to the CAF unit.

  5. Specific use authorizations generally are not recorded on the CAF database. These authorizations must be provided by the representatives with each contact with the IRS. Don’t detach the POA/TlAs filed for specific issues from its related document or send it to the CAF function, unless the POA/TIA authorizes a return in addition to the specific issue. If so, send a copy of the POA/TIA to the CAF unit to input the return portion on the CAF system. Examples of specific issues include, but are not limited to the following:

    • Form SS-4, Application for Employer Identification Number

    • Form W-2 Series

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

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

    • Form 843, Claim for Refund and Request for Abatement

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

    • Form 1099 Series

    • Form 1128, Application to Adopt, Change, or Retain a Tax Year

    • Form 5308, Request for Change in Plan/Trust Year

    • "General" or "Durable" POA. Even if these instruments contain sufficient information to function as IRS power of attorneys, they usually lack information sufficient to process on CAF. If the taxpayer submits a general or durable POA, attach a completed Form 2848 (a transmittal POA) and send both forms to the CAF unit for processing.

  6. See IRM 4.23.3.6.8, Third Party Authorization/Power of Attorney, and IRM 21.3.7, Processing Third Party Authorization onto the Centralized Authorization File (CAF) for additional information about third-party authorization/power of attorney.

  7. Blank forms, notices and publications available on IRS.gov should not be sent to the taxpayer’s representative or appointee, including, but not limited to:

    • Form 9465, Installment Agreement Request

    • Form 12203, Request for Appeals Review

    • Notice 609, Privacy Act Notice

    • Pub 1, Your Rights as a Taxpayer

    • Pub 1035, Extending the Tax Assessment Period

Bypassing a Taxpayer’s Representative

  1. There may be occasions when it becomes necessary to bypass the taxpayer’s representative and communicate directly with the taxpayer. The procedures to by-pass the power of attorney (POA) permit you to contact the taxpayer directly and to request any information necessary to complete the exam.

Bypass Procedures
  1. Document the case chronology if any of the following issues occur:

    1. The representative impedes or delays an exam by failing to submit the records or information requested by the agent

    2. The representative impedes or delays an exam by failing to keep scheduled appointments.

    3. The representative impedes or delays an exam by failing to return telephone calls and written correspondence.

  2. If you note a trend and the exam is being hindered because of the representative, notify your manager of the representative's actions.

  3. The manager:

    1. Ensures the agent has taken reasonable efforts to deal directly with the representative and that the case file sufficiently details the facts supporting how the examination has been delayed or hindered.

    2. Advises the senior manager of the issue.

  4. Send all correspondence you sent to the representative to the taxpayer, including IDRs (if you haven’t done so already). In many cases, the taxpayer may not be aware that the representative is procrastinating and may correct the situation when they become aware of the problem.

  5. Prepare for your manager to issue Letter 4020-A, Warning Letter for Bypass Procedures for Preparers, covered under Circular 230, advising the representatives of their responsibilities in the conduct of examinations. The representatives must be advised that if his or her limited representation is a hindrance to the IRS’ examination or investigation of the taxpayer, the limits of the representation can be communicated to the taxpayer.

    1. Attach a brief chronology of events to the letter. If a reason for the bypass is the failure to submit records or information you requested, include copies of prior document requests and a list of outstanding items.

    2. Do not send a copy of the Letter 4020-A to the taxpayer.

    3. Forward a copy of the Letter 4020-A, with attachments, to the Field Operations Manager.

  6. If the representative continues to delay or refuses to provide the information requested, notify the FOM. The FOM issues Letter 4020-C, Final Bypass Letter, to the representative and a copy to the taxpayer. The FOM sends a copy of the Letter 4020-C to you and your manager as authority to bypass the representative on the exam.

  7. The bypass permits you to contact the taxpayer directly. The representative can continue to represent the taxpayer, if accompanied by the taxpayer. As a courtesy, we advise the representative of the time and place for future appointments with the taxpayer. Continue to send copies of all correspondence you send to the taxpayer to the bypassed representative.

  8. Use a summons to secure information if the taxpayer and the representative are intentionally uncooperative.

  9. Prepare a referral to the Office of Professional Responsibility per the IRM whenever a Letter 4020-C is issued. Send that referral to the ITG/TEB FOM via your manager.

Interviews

  1. Interviews should be scheduled to obtain information needed to make informed judgments. Interviews provide information that might not be available from other documents and are used to gain information.

  2. Prepare interview questions that are tailored to taxpayer and issues.

  3. Interview the person who has sufficient knowledge and ability to answer questions in a factual context for the area(s) of interest. Conduct interviews with the tribal leader, person(s) designated by the tribe to work with the IRS concerning federal tax issues, or an authorized tribal representative.

  4. If not already addressed during the pre-contact phase of the examination, the specialist must take the following actions during the initial interview:

    1. Verify the taxpayer's receipt of Publication 1, Your Rights as a Taxpayer, and Notice 609, Privacy Act Notice, with the audit notification letter.

      Note:

      Publication 1 fulfills your requirement to inform the taxpayer of the audit process and their rights during this process at or before the initial interview. (IRC 7521(b))

    2. Briefly describe the rights discussed in Pub 1 and Notice 609 and respond to any questions.

    3. Briefly describe the examination process and inform the taxpayer and/or representative of the resolution options available for unagreed cases (for example, managerial conference, Fast Track Settlement, formal appeal, right to petition the United States Tax Court, etc.).

    4. Document the confirmation of receipt of Pub 1, Your Rights as a Taxpayer, and Notice 609, Privacy Act Notice, and the discussion held with the taxpayer and/or representative on Form 9984, Examining Officer’s Activity Record.

    5. See IRC 7521, Procedures involving taxpayer’s interviews, and IRM 4.23.3.6.7, Taxpayer Rights, for other provisions that affect taxpayer interviews.

  5. Ask about available books and records during the interview. Use interviews to understand the taxpayer’s operations and help to reach informed judgments about the scope and depth of the exam.

  6. Use interviews to get information on unusual or questionable items. Ask follow-up questions to clarify questionable areas.

  7. Types of Interviews include:

    Type of Interviews Description of Interview
    Initial Interview Hold the initial interview as soon as possible after you open a case. Prepare for the interview by conducting a pre-contact analysis, which should include a thorough review of the case file, review of internal and external data, and preliminary research.
    Subsequent Interview Hold subsequent interviews if:
    • The taxpayer doesn’t provide all the information requested.

    • You need more detailed explanations.

    • You need to review the audit progress. Your review should address information provided to date as well as outstanding information needed to complete the audit.

    Third-Party Interview You may need to interview third-parties when the taxpayer doesn’t or can’t provide documentation about a transaction, deduction, or income item. Prepare Form 12175 and Form 12180, if appropriate.
    Closing Conference You must hold a closing conference at the audit’s conclusion:
    1. Discuss final conclusions with the taxpayer.

    2. Solicit agreement to any proposed adjustments.

    Note:

    Advise the taxpayer and/or representative of all appeal rights, including the option of Fast Track Settlement, if available. (See IRM 4.86.5.23.2, Fast Track Settlement, for more details.)

  8. Document taxpayer’s responses and summarize in the workpapers. If you limit the audit scope, still conduct the interview. Document, in the workpapers, who you interviewed and what you discussed. Interviews may be documented in several ways:

    • Informal notes

    • Memorandum of interview

    • Affidavit

    • Question and answer

    • Deposition

  9. See IRM 4.10.3.3, Interviews: Authority and Purpose, for detailed procedures when preparing, conducting and documenting interviews.

Touring Facilities

  1. An on-site visit is often an important part of a quality exam. Viewing the taxpayer’s facilities and observing business activities is an opportunity to:

    1. Acquire an overview of the business operation.

    2. Clarify information obtained previously through interviews.

    3. Establish that the books and records accurately reflect actual business operations.

    4. Observe and test internal controls.

    5. Identify potential audit issues.

  2. Conduct tours with knowledgeable individuals. Taxpayers, or their representatives, can often explain business practices that appear unusual to you.

  3. Document a completed tour or inspection and summarize in the workpapers. Indicate:

    • Those present during the tour

    • The facilities inspected and the result

    • Observations

    • Answers to questions.

  4. If a tour of the taxpayer’s business facilities is not conducted, the reason(s) should be documented in the workpapers.

  5. For additional information, see IRM 4.10.3.4.3, Audit Techniques for Tours of Business Sites.

Evaluating Internal Controls

  1. Internal controls are the policies and procedures a taxpayer has in place to identify, measure, and protect business operations.

  2. Evaluate the existence and effectiveness of the internal controls. Based on this evaluation, expand or contract the scope accordingly.

  3. In evaluating internal controls, you might use the following techniques:

    1. Evaluate taxpayer’s overall business operations and method of accounting.

    2. Evaluate records of accounting system(s) maintained by the taxpayer (do books and records clearly reflect business operations).

    3. Evaluate separation of duties/financial responsibilities.

    4. Evaluate taxpayer’s procedures to safeguard business operations and assets.

    5. Assess level of control risk (risk that a material misstatement could occur and it will not be prevented or detected by the taxpayer).

    6. Interview key personnel.

    7. Review relevant written internal control procedures manual.

    8. Review of Forms W-4s and Forms W-9s.

    9. Review of identification verification procedures.

    10. Review of any audits conducted by compliance officer, internal and external auditors.

    11. Walk-through and document internal control procedures for:

      • Slot hand pays

      • Tournaments, prizes, and promotions

      • Complementary items

      • Disbursements for subcontractors, i.e., services, entertainers, per capitas, etc.

      Note:

      The techniques described above are not intended to be all-inclusive nor are they mandatory steps to be followed. Use judgment in selecting the techniques that apply to each taxpayer.

  4. For additional information, see IRM 4.10.3.5, Evaluating the Taxpayer’s Internal Controls.

Required Filing Checks

  1. Perform required filing checks and related case analysis on all exams. Determine that taxpayers have complied with all federal tax return filing requirements and have timely filed all returns with the substantially correct tax.

  2. Return filing checks include income, employment tax, excise tax and information returns. Taxpayers are required to report various types of payments to both the IRS and payees. These payments include wages and payments that the entity makes in the course of a trade or business to another person (i.e., Form 1099s).

  3. For additional information, see IRM 4.10.5, Required Filing Checks; IRM 4.23.3.6.4, Procedures for Required Filing Checks and Scope of Employment Tax Examinations; and IRM 4.23.3.6.1, Required Filing Checks for Non-Employment Tax Cases, for procedures for verifying the filing of required returns by the taxpayer and assessing the audit potential of these returns.

Evaluating the Facts

  1. Gather facts to correctly determine a taxpayer’s tax liability. This determination must be made based on of all available facts, including facts supporting the taxpayer’s position. For this reason, you should analyze all the facts supporting both sides of an issue.

  2. Pursue an exam to the point where a reasonable determination of the correct tax liability can be made. In the daily application of this responsibility, you must deal with problems of substantiation and its evaluation.

  3. As part of the exam, you document the facts necessary to reach conclusions during the exam. Documentation of the facts may take several forms, including observations, documents, and oral testimony.

  4. There are many types of methods available for a specialist to consider in gathering facts, including observations, documentation of books and records, and oral testimony.

    • Observations. An observation is the act of recognizing and noting a fact or occurrence. Observations are generally obtained in an exam during a facility tour or an interview.

      Example:

      Visual confirmation of assets and functional processes are common observations. Body language, tone, openness, and other nonverbal clues are important observations you can make as well. It’s extremely important to document the observations to allow them to be used to support a conclusion.

    • Documentation. A taxpayer’s books and records, or records of third parties, are forms of documentation. Writings made contemporaneously with the happening of an event are more likely to reflect the facts and demonstrate the parties' intent. Likewise, original documents are generally given greater weight than copies or summaries. While documentation has great value, don’t solely rely on it so you exclude other facts and oral testimony.

    • Oral Testimony. Oral testimony can also establish facts and there are instances in which courts have given greater weight to it than to documentation. Oral testimony is the verbal testimony provided in support of a fact. Do not use oral testimony in lieu of available documentation when: The issue involves specific recordkeeping required by law or regulations, oral testimony alone cannot substitute for necessary written documentation. Oral testimony need not be accepted without further inquiry. If in doubt, attempt to establish other sources of documentation to support the facts.

  5. For additional information, see IRM 4.10.7.3, Evaluating Evidence.

Special Case Development Procedures

  1. You may need to apply special case development procedures to determine a tax liability. Special case development procedures are discussed below.

Requesting Formal and Informal Technical Assistance

  1. Specialists may secure technical assistance and/or technical advice when the need arises. Technical assistance is generally requested through the K-Net, an ITG/TEB Technical group or Division Counsel. Technical advice is formal advice issued to assist field offices, so the field office determines whether to request it. See IRM 4.80.1, Government Entities Examinations, Technical Assistance and Technical Advice Requests, for guidance in obtaining technical assistance or advice.

Private Letter Rulings (PLR)

  1. A "letter ruling" , also known as a "private letter ruling" (PLR), is a written determination issued to a taxpayer by an associate chief counsel office in response to the taxpayer’s written inquiry, filed prior to the filing of returns or reports that are required by the tax laws, about its status for tax purposes or the tax effects of its acts or transactions.

  2. PLRs are submitted under Rev. Proc. 2018-1(or its successor). The IRS updates this revenue procedure annually as the first revenue procedure of the year, and may modify or amplify the revenue procedure during the year. It sets forth the issues on which taxpayers may request PLRs and the circumstances under which the IRS does not issue PLRs. It also provides instructions on what documents and information are to be provided as well as the procedural requirements.

  3. A letter ruling interprets the tax law and applies them to the taxpayer’s specific set of facts. Specialists are cautioned not to cite a PLR in reports since the ruling only applies to the taxpayer requesting the ruling.

  4. Once issued, a letter ruling may be revoked or modified for a number of reasons, as outlined in the first revenue procedure issued each year.

  5. When a taxpayer is not under examination but discusses an issue with a specialist, the specialist may consult with TE/GE Division Counsel in providing information to the taxpayer. The specialist may also suggest to the taxpayer making a PLR request to receive further consideration of the issue from Chief Counsel.

  6. When a taxpayer decides to proceed with a PLR, the specialist may work with the taxpayer to facilitate the submission of the request. The specialist may provide the revenue procedure and may assist in processing the PLR request if approved by your group manager or the ITG/TEB Field Operations manager.

Specialist Referral System - Online

  1. The identification of issues outside ITG/TEB jurisdiction and request for assistance should be made as early in the examination as possible. Make requests for outside specialist assistance, including questions and informal requests, through the Specialist Referral System. It is found in the IRS Intranet at https://srs.web.irs.gov.

  2. Use the SRS for referrals to the following specialist groups:

    • Computer Audit Specialists (IRM 4.47)

    • Economists (IRM 4.49.1)

    • Employee Plans Agents (IRM 4.71.6)

    • Employment Tax Specialists (IRM 4.23)

    • Engineers (IRM 4.48)

    • Excise Tax (IRM 4.24)

    • Exempt Organizations Agents (IRM 4.75)

    • Federal, State, and Local Government Specialists (IRM 4.90)

    • Financial Products and Transactions Specialists (IRM 4.37.1)

    • International Specialist (IRM 4.60.6)

    • Tax Exempt Bonds Agents (IRM 4.81)

    • Art Appraisal Services (IRM 4.48.2)

Closing Agreements

  1. Treas. Reg. 301.7121-1(a) provides that a closing agreement may be entered into in any case in which there appears to be an advantage in having the case permanently and conclusively closed, or if good and sufficient reasons are shown by the taxpayer for desiring a closing agreement and it is determined by the Commissioner that the United States will sustain no disadvantage through consummation of an agreement.

  2. IRM 8.13.1, Closing Agreements, provides instructions and prescribes procedures for Service personnel handling closing agreements entered under IRC 7121.

Arriving at Conclusions

  1. After all the facts have been gathered through taxpayer interviews; examination of the books, records and supporting documents; interviews with third parties; and, having researched questionable items, the specialists have all the information to be considered in resolving the issues. At this point the specialists must use their professional judgement in considering all the information to arrive at a conclusion.

  2. Specialists are expected to arrive at a definite conclusion by a balanced and impartial evaluation of all the evidence. Specialists are given the authority to recommend the proper disposition of all identified issues, as well as any issues raised by the taxpayer.

  3. Once the specialist has reached a conclusion for an issue, the specialist should communicate their decision to the taxpayer and/or representative. Copies of the specialist’s workpapers may be provided to the taxpayer and/or their representative. The specialist should attempt to resolve issues as the audit progresses.

  4. Specialists will employ independent and objective judgment in reaching conclusions on issues being examined and in all aspects of their duties and will decide all matters on their merits, free from bias and conflicts of interest. Fairness will be demonstrated by:

    1. Making decisions impartially and objectively based on consistent application of procedural and the applicable tax law,

    2. Treating individuals equitably,

    3. Being open-minded and willing to seek out and consider all relevant information, including opposing perspectives,

    4. Voluntarily correcting mistakes and improprieties made by themselves or someone else in the Service and refusing to take unfair advantage of mistakes or ignorance of citizens, and

    5. Employing open, equitable, and impartial processes for gathering and evaluating information necessary to decisions.

  5. Specialists will use their professional judgment in evaluating all evidence to reach a conclusion. Specialists seldom have all the information they would like to have to definitively resolve an issue. Specialists, therefore, must decide when they have enough, or substantially enough, information to make a proper determination for all issues under consideration. The sooner this point is reached, the timelier the case can be completed and less burden will be placed on the taxpayer.

  6. To determine if the taxpayer has "substantially complied," the following factors should be considered:

    1. Number and type of expenditures involved,

    2. Elements of documentation missing,

    3. Reason(s) why deduction was not properly substantiated,

    4. Availability of other information to substantiate the expenditure,

    5. Materiality of unsubstantiated items, and

    6. Relative tax significance of the items.

Communicating Identified Issues

  1. A critical part of the audit process is continually communicating with the taxpayer or the taxpayer’s representative. When you identify a potential issue(s), discuss it with the taxpayer and/or the taxpayer's representative as soon as possible. Discussing the potential issue(s) can lead to an early resolution of the case.

  2. Keep the tribal leader and responsible tribal official(s) informed of your major steps and decisions during the assignment, and be prepared to answer any questions or concerns.

  3. If at any time the taxpayer requests technical advice on an identified issue, follow Rev. Proc. 2018-2, (or its successor). The IRS updates this revenue procedure annually as the second revenue procedure of the year, and may modify or amplify the revenue procedure during the year. See IRM 4.80.1, Government Entities Examinations, Technical Assistance and Technical Advice Requests, for additional procedures.

Reporting Compliance Case Management System (RCCMS)

  1. RCCMS is an inventory control and case management system. RCCMS supports the current examination process by replacing manual with electronic processes. The system stores documentation and research supporting the conclusions in the case and automatically backs up all stored data files when synchronized with the central database server. The system is used to create, control and assign compliance activities.

  2. Cases in RCCMS will have an electronic copy of the return and/or related research material regarding the case.

  3. Specialists will prepare, develop and store workpapers within the system. Users may make use of the Microsoft Office software and Adobe pdf files, along with the forms, letters and templates in the RCCMS repository.

  4. Specialists may maintain in-process and completed workpapers in RCCMS and synchronize with the central database regularly. The synchronization works as an automatic backup of stored data files in the central database server.

  5. An RCCMS electronic case file should closely resemble a paper case file’s content. This includes all workpapers and pertinent source documents you use to determine whether there are any issues or changes that you’ll discuss or resolve before you close the case.

Workpapers

  1. This subsection provides guidelines to develop lead sheet and workpaper content and to organize your workpapers and case file. Refer to IRM 4.23.4, Workpapers - Employment Tax Examinations, and IRM 4.10.9, Workpaper System and Case File Assembly, for details on preparing, formatting and the volume of workpapers.

    Note:

    Apply all guidance listed and referred to in this subsection to audit workpapers. However, you should apply these same general theories and principles equally to all case files you generate.

  2. Lead sheets and workpapers are key in supporting all IRS positions taken when making adjustments. They must include all the information necessary to support the audit results. Lead sheets and workpapers serve the following purposes:

    1. Provide a framework to plan the audit, including analyzing internal documents and setting the audit scope.

    2. Document the evidence gathered, audit steps and techniques applied, tests performed, analyses conducted during the audit process.

    3. Provide support for factual and technical conclusions.

    4. Provide a basis for review by: management, technical review, specialists/agents (for subsequent audits), and/or preparation of technical advice requests.

    5. Support the IRS position for any appealed or litigated case.

Workpaper Preparation

  1. Use the Employment Tax (ET) lead sheets and the ET Audit report program available in RCCMS.

  2. Prepare workpapers for every work assignment.

  3. Properly prepared workpapers must provide adequate documentation to support conclusions. Without sufficient documentation, your manager or reviewer can’t evaluate your work scope or the basis of the actions you took. Always cite legal authority, such as the Internal Revenue Code, applicable regulations and/or court cases to support conclusions.

  4. Make sure workpapers are:

    1. Neat, legible, and clearly state the issue, facts, audit steps, law, taxpayer’s position, and conclusion for each issue audited.

    2. Legible - an important aspect of the overall quality of the work assignment and improves a reviewer/taxpayer’s understanding.

    3. Include a heading that clearly shows the name of the taxpayer, tax year audited (or discussed in the case of a non-examination case), date workpapers were prepared, your name or initials, and the issues/items being audited or discussed.

    4. Completed electronically, to the extent possible.

    5. Prepared contemporaneously.

    6. Indexed, numbered, securely fastened together and/or uploaded into RCCMS and synchronized. Case synchronization ensures that all uploaded work is saved to the RCCMS server in cases of computer failure.

  5. Save copies of all workpapers, forms and letters you generate in the RCCMS Office Documents folder using the RCCMS Naming Convention. Every document in the file should have some relevance. If not, omit it.

Workpaper System
  1. The workpaper system is designed to facilitate consistent organization of case files and eliminate duplication. The workpaper system includes:

    1. Form 4318, Examination Workpapers Index,

    2. Form 9984, Examining Officer’s Activity Record, and

    3. Lead Sheets and Supporting workpapers.

Form 4318, Examination Workpapers Index
  1. Form 4318, Examination Workpapers Index, is the cover sheet that indexes the administrative and issue lead sheets and supporting documents (e.g. information document requests, correspondence, case building materials). It pertains to one taxpayer and includes all tax years under audit.

Form 9984, Examining Officer’s Activity Record
  1. Use Form 9984, Examining Officer’s Activity Record, (case activity record) to document each action you take on the work assignment. Documentation includes the date, location, time charged, and an explanation of each activity or contact. The activity record should be prepared contemporaneously and provide a complete and concise case history. Write all entries factually and professionally and omit personal opinions. Other employees responsible for activity on the case must also document their actions using the same criteria listed above (for example, group manager, Technical staff, clerical staff).

    Note:

    Don’t write brief, vague entries on Form 9984 such as "worked on case."

  2. Record information on Form 9984 such as, but not limited to:

    • All substantive actions taken on the issues. Meaningful action should occur at least every 45 days.

    • Reason for all delays and time gaps.

    • Significant case work prior to taxpayer contact.

    • Examination start date. This should be the same date as your RCCMS/AIMS Status 12 date.

    • Date you mailed the appointment letter.

    • Date you gave the taxpayer Pub 1, Your Rights as a Taxpayer; Notice 609, Privacy Act Notice; Pub 3948, The Exam Process; or Pub 5146, Employment Tax Returns, Examination & Appeal Rights. This should be upon initial contact. Also document any discussions with the taxpayer regarding their rights.

    • RRA 98 notifications.

    • Work performed prior to, during, and after taxpayer contact.

    • All research activities conducted.

    • Significant travel time to and from the work assignment location.

    • Brief summaries of telephone conversations.

    • All contacts with taxpayers, representatives, and third parties.

    • Causes for any delays by the IRS (training, details, etc.), the taxpayer and/or representative, and whether delays were communicated to any of the affected parties.

    • All actions with respect to the statute of limitations (e.g., verification, steps to protect the statute of limitations, Form 895 completion date(s), and consents to extend).

    • Follow-up dates for IDRs or other key dates.

    • Dates and explanation of manager involvement.

    • Dates and explanation of Counsel involvement, including the name of the attorney, and the attorney’s telephone number.

    • Date you issued the report and the date you received the signed report. Note that the Pub 3498, The Examination Process, or Pub 5146, Employment Tax Returns Examination & Appeal Rights, was issued (if required) to close the case.

    • Date you notified the taxpayer of your recommendation to close the case.

    • Date you closed the audit to your manager.

    • Date you submitted/shipped the audit to the manager.

  3. Group manager documentation: note your involvement such as, but not limited to:

    • Formal and informal discussions

    • In-process case reviews

    • On-the-job visitations and workload reviews

    • Plan to close meetings

    • Fraud awareness meetings

    • Approval regarding penalty assessments/abatements, etc.

    • Date you closed case

Lead Sheets and Supporting Workpapers
  1. Use lead sheets to plan and prompt activities to comply with administrative, procedural, and technical requirements. Lead sheets also serve as a workpaper index for specific issues. Number, index and refer all workpapers to the issue lead sheet.

  2. Administrative lead sheets list the administrative items that require your comment (taxpayer rights, RRA 98 notifications, statute controls, initial interview, required filing checks, payment solicitation, etc.). You can also use them as guides to properly complete the audit.

  3. Issue lead sheets identify the issue and steps or actions taken to develop the facts, determine the applicable law, conclusions made, and the taxpayer’s position for issues examined.

  4. If an administrative or issue lead sheet contains check boxes, use them to note an applicable action was taken. Include supporting documentation to explain the action taken. Generally, check boxes by themselves are not adequate supporting documentation.

  5. In addition to the Issue Lead Sheets, include other relevant supporting workpapers and documents in the case file.

    1. File workpapers or documents behind the appropriate Issue Lead Sheet,

    2. Include workpapers and documents that support the procedures and testing described on the Issue Lead Sheets, or otherwise referenced.

    3. Index the workpapers to the corresponding Form 4318 section and cross reference them to the Issue Lead Sheets or other workpapers as appropriate.

  6. Examples of workpapers include your generated workpapers and documents from the taxpayer:

    • Photocopies of relevant documents secured from the taxpayer during the audit.

      Note:

      Original documents obtained from the taxpayer or third parties should not be marked, indexed, hole punched, or in any way altered by the specialist.

    • A workpaper documenting samples taken, verifications made and conclusions reached.

    • Relevant correspondence from the taxpayer and/or representative.

    • Lists of questions or items raised during the audit and conclusions reached.

    • Tax law research supporting legal authority for conclusions reached.

Workpapers: Disclosure

  1. Safeguard confidential information related to the case file from unauthorized disclosure. If a specialist determines that information contained in the file is sensitive, it should be placed in a confidential envelope inside the case file. If a Freedom of Information Act (FOIA) request is received on a case that contains sensitive information, a Disclosure Officer will determine if any information should be redacted. See IRM 11.3.13.7 for additional information.

  2. When a case file contains sensitive or confidential information, it will normally be in a paper format. If the documents are received electronically, they should not be placed into RCCMS or kept in the same folders in the specialist’s hard drive. Examples of these types of documents are Whistleblower Claims and Fraud Referrals. These documents should be protected from disclosure. Place Document TD-F-15.11 on the outside of the case jacket. This will alert users that the file contains sensitive information requiring protection.

Multiple Returns

  1. Each RCCMS case should have only one type of activity.

    Example:

    If you have various quarters of Form 941 and a Form 945 under examination for the same taxpayer, all quarters of Forms 941 (subject to the 12 activities maximum limitation) can be in one case, while the Form 945 should be in a separate case.

  2. Information Return Examination (IRE) activities that morph into tax return examinations remain as separate activities in RCCMS; they must not be included in a RCCMS case with any other activities. Workpapers become part of the tax return examination. IRE cases must have their own Form 4318 and Closing Letter.

  3. Information Return Penalty (IRP) activities must be in separate case files from all other activities within RCCMS. IRP cases must have their own Form 4318 and Closing Letter.

  4. Multiple tax periods may be included in one RCCMS case file, to a maximum of 12. If a case contains more than 12 activities, the excess must be separated into additional RCCMS case files. Note in the "Remarks and Comments" field of the Closing Record General tab which additional RCCMS partial cases are included in the overall case file.

    Example:

    If a user is working a Form 941 and expands to 4 years, there will be 16 activities. Consequently, there will be two case files in RCCMS; one with no more than 12 activities, and another with the remaining activities (the second will contain 4 if the first contains 12).

  5. Note in the "Remarks and Comments" field of the Closing Record General tab, which paper file, if any, contains the workpapers.

  6. All forms and documents loaded to RCCMS must follow the ITG RCCMS Naming Convention.

ITG RCCMS Naming Convention

  1. Follow the procedures for naming electronic documents within, or imported into, RCCMS. By doing so, anyone viewing the RCCMS case can easily identify and locate case file documents.

  2. The naming convention ensures that documents in RCCMS case files are arranged within RCCMS in the order they’d be arranged in a paper file. Therefore, following the naming convention ensures that documents are sorted properly within RCCMS.

  3. For a discussion on the ITG RCCMS Naming Convention, see the ITG Case Work Procedures Desk Guide at https://organization.ds.irsnet.gov/sites/tege-ge/itg/itg/forms/1-caseproc2-guidesandprocs.aspx.

Concluding the Examination

  1. Meet with the tribal official(s) to inform them of any findings, recommendations or proposed tax adjustments when you finish your audit.

    • Provide your employee information again when you issue the report. Refer to IRM 4.10.1.6.9, Providing Taxpayers with Employee Contact Information.

    • Issue the audit report and attach Pub 3498, The Examination Process, or Pub 5146, Employment Tax Returns Examination & Appeal Rights.

    • Discuss proposed adjustments with the taxpayer and/or taxpayer’s representative including the law, regulations, rulings and court decisions supporting your conclusions.

    • Inform taxpayer the report is subject to the acceptance of the Director, ITG/TEB.

    • Solicit agreement.

    • Provide workpapers, if requested.

    • On agreed cases, request full payment of tax, penalties and interest.

      1. If taxpayer indicates an inability to pay the tax due at closing or within 120 days of the first notice, alternative payment methods should be discussed. An installment agreement should be offered if the taxpayer meets the requirements. See IRM 4.86.5.44, Installment Agreements.

      2. If the taxpayer and/or representative do not wish to pay the deficiency immediately, explain that a statement for the deficiency plus interest will be mailed. Their cancelled check will be their receipt. Secure appropriate waivers and close the case.

    • On unagreed cases, the specialist will:

      1. Offer the taxpayer a managerial conference.

      2. Determine if the case is wholly or partially agreed.

      3. Solicit the taxpayer’s position on unagreed issues.

      4. Advise the taxpayer about Fast Track Settlement (FTS), if eligible.

      5. Advise the taxpayer of the appellate process and their appeal rights.

  2. If the tribal leader isn’t in the closing meeting, explain your audit results in a letter. Thank the tribal official(s) for their cooperation.

  3. Issue all letters, publications and reports per the communication agreement. Send any audit correspondence you send to the designated tribal official also to the tribal leader.

    Example:

    Send all correspondence to both the designated tribal official and the tribal leader for: an audit, audit expansion, or notification to the tribal leader that someone else from the IRS will be working on their reservation.

Appeals Alternative Dispute Resolution Programs

  1. When taxpayers disagree with proposed adjustments, it is beneficial to all parties to resolve disputes at the lowest level possible. IRC 7123 provides for alternative dispute resolution techniques by Appeals. This code section was added by section 3465 of the IRS Reform and Restructuring Act of 1998. Two processes that may expedite dispute resolution are:

    1. Early referral to Appeals

    2. Fast Track Settlement

Early Referral to Appeals

  1. Taxpayers may request, under Rev. Proc. 99-28, 1999-2 C.B. 109, Early Referral of Issues to Appeals, an early referral of one or more unresolved audit or collection issues to the Appeals office. Appropriate issues for early referral are limited to those that:

    1. Are fully developed.

    2. If resolved, can reasonably be expected to result in a quicker resolution of the entire case.

    3. Both the taxpayer and the Director, ITG/TEB agree to.

    4. Are part of a case where the remaining issues are not expected to be completed before Appeals could resolve the early referral issue.

Fast Track Settlement Program (FTS)

  1. TE/GE and Appeals jointly administer FTS, an alternative dispute resolution program designed to help taxpayers settle disputes at the examination group level. An appeals officer trained in mediation serves as an impartial third party to resolve unagreed TE/GE issues by:

    1. Facilitating settlement negotiations.

    2. Using mediation techniques and sometimes settlement authority.

  2. The goal of TE/GE FTS is to resolve the issue within 60 days. The benefits of TE/GE FTS include less time, expense, and burden on both the taxpayer and the government.

  3. You or the taxpayer may consider the Fast Track Settlement (FTS) process after you fully develop a disputed issue, but before you issue a 30-day letter.

  4. Announcement 2008-105 originally announced FTS for TE/GE cases. Announcement 2012–34 makes the program permanent. This Announcement contains procedures as well as the types of issues that are eligible for FTS.

  5. Follow the procedures in IRM 8.26.7, Fast Track Settlement (FTS) for Tax-Exempt/Government Entities (TE/GE) Taxpayers, when considering the use of FTS. It is recommended that the group manager contact the ITG/TEB Field Operations manager to discuss the case/issues. When the group manager considers it appropriate, and if requested, such discussions may include the taxpayer. With the concurrence of the Appeals FTS Team manager and the ITG/TEB Operations manager, an issue maybe accepted when it is adequately developed to facilitate resolution.

  6. Find additional information regarding this program in Pub 5092, Fast Track Settlement A Process Resolution of Tax Exempt and Government Entities (TE/GE) Tax Issues, and at http://appeals.web.irs.gov/tech_services/adr/fasttrack.htm.

Claims for Refund or Abatement, Adjusted Returns and Audit Reconsiderations

  1. Claims are a source of work and considered priority work. Generally, CP&C receives claims with issues from tribal entities that can’t be addressed at the campus level. CP&C classifies and assigns them within 30 days of receipt. Claims can also be received on a case already under exam, and it should be considered during such exam.

  2. It is important to know the difference between a claim for refund and a request for abatement due to the examination procedures involved. The key is determining whether the assessed tax is paid.

    1. Requests for abatement occur when the taxpayer requests an abatement of tax, penalties and interest which have been assessed, but not paid. Requests for abatement, audit reconsiderations, and amended returns increasing tax are not considered claims.

    2. A claim is a request by the taxpayer for a refund of assessed tax that has been paid (tax, penalties and interest).

  3. An amended return is any subsequent return which changes information submitted on the original filed return. The taxpayer will send the amended return to the Campus Center where the original return was filed. A Transaction Code (TC) 976/977 will generally be posted to the taxpayers account to indicate an amended/duplicate return has been filed. These TCs will generate an –A freeze code. The specialist needs to determine whether the TC 976/977 indicates the filing of a claim.

  4. Request for Adjustment, Refund or Abatement – An adjusted return, claim for refund or abatement, tentative allowance or other request submitted by or for a taxpayer to reduce liabilities previously assessed. Such requests for adjustments, refunds or abatements include:

    • Form 843, Claim for Refund and Request for Abatement

    • Form 8849, Claim for Refund of Excise Taxes

    • Form 941-X, Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund

    • Form 945-X, Adjusted ANNUAL Return of Withheld Federal Income Tax or Claim for Refund

    • Form 1040X, Amended U.S. Individual Income Tax Return

    • Form 1120X, Amended U.S. Corporate Income Tax Return

    • Form 1139, Corporation Application for Tentative Refund

    • Informal claims filed after the due date and showing a decrease in liability.

    • A letter or other document (informal claim) which contains all the facts necessary to decide that a reduction in tax liability is involved.

  5. An amended return that shows an increase in tax over the originally reported tax isn’t a claim. Protect the statute of limitations, and assess the additional tax as soon as possible.

  6. A claim for abatement of an excise tax or employment tax that was assessed as the result of a prior audit is considered an Audit Reconsideration.

  7. The specialist must determine what type of request the taxpayer has made to properly examine, close and process the case. The following are the types of requests:

    • Claims for refund (Form 941-X, Box 2 checked or appropriate box on amended return)

    • Claims for abatement (Form 941-X, Box 2 checked or appropriate box on amended return)

    • Adjusted returns (Form 941-X, Box 1 checked or appropriate box on amended return)

    • Audit reconsideration requests

  8. The new "X" forms allow taxpayers to file either an "adjusted" (Box 1 for Form 941-X) or "claim" (Box 2 for Form 941-X) employment tax return. While the taxpayer’s selection between the two boxes does not affect how the specialist works the case, it does affect the final processing of the case. Returns with the "adjusted" box marked cannot result in a refund issued to the taxpayer. Any credit balance resulting from the exam or processing of the return MUST be moved to the quarter in which the "X" adjusted return was filed. Any credit balance transfer will be completed using a Form 3870 after the examination. See IRM Exhibit 4.23.13-2, Instructions for Completion of Form 3870 by the Examiner.

  9. Formal claims have a Source Code of 30, and informal claims have a Source Code of 73, if established on AIMS.

  10. See the ITG Case Work Procedures Desk Guide at https://organization.ds.irsnet.gov/sites/tege-ge/itg/itg/forms/1-caseproc2-guidesandprocs.aspx for processing procedures for claims for refund or abatement, adjusted returns and audit reconsideration cases.

  11. Research IRM 4.23.13, Employment Tax, Adjusted Returns, Abatements and Claims, when working claims that involve any employment tax.

  12. See IRM 4.24.8, Excise Tax, Examination Guidance for Excise Claims for Refund or Abatement, for excise tax claims.

  13. All claim cases need a completed Form 5599, TE/GE Examined Closing Record. Prepare the Form 5599 and include it in RCCMS Office Documents folder in addition to completing the RCCMS closing tabs. See IRM 4.5.2.3, Processing TE/GE Examined Closing Record, Form 5599, for instructions on completing Form 5599.

  14. Put claims in a pink folder for closing, if there is a paper file.

Statute of Limitations (IRC 6511)

  1. A taxpayer must file a claim for credit or refund by the later of:

    • Three years from the filing of the original tax return.

    • Two years from the payment of tax.

      Note:

      See IRM 25.6.1.6.15, When a Document is Treated as Filed Under the IRC, for the rules for determining when a return is filed.

Surveyed Claims

  1. You may survey claims for refund, including amended returns and informal claims, after assignment, if you determine that the claim issue is clearly allowable in full and the return doesn’t warrant examination. See IRM 4.86.5.32 for details on surveying cases before and after assignment.

  2. Claims may also be allowed without establishing them on AIMS when you receive an amended return from the taxpayer.

  3. The closing tabs in RCCMS must be completed as well.

  4. If you decide to survey an exam case, you must obtain approval from your group manager and the ITG/TEB Field Operations manager must be notified. Specialists must document the activity record that approval for the survey was obtained from the group manager and notification was given to the ITG/TEB Field Operations manager. The group manager must document their review and approval of the survey on the case activity record.

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

    2. 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.

    3. 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.

Claim Disallowance

  1. Disallowed claims (in whole or in part): send, a notification letter to the taxpayer. Prepare the following forms to notify the taxpayer of a full or partial disallowance of the claim:

    1. Form 2297, Waiver of Statutory Notification of Claim Disallowance

    2. Form 3363, Acceptance of Proposed Disallowance of Claim for Refund or Credit

    3. Letter 569, Full/Partial Preliminary Claim Disallowance Letter
      Use with the above forms to notify the taxpayer of the partial or full disallowance of the claim. Prepare the appropriate reports, unless the claim is disallowed in full, and there are no other adjustments.

      Note:

      Use Letter 5376, Full or Partial Claim Disallowance - Employment Tax, when disallowing employment tax claims in full or in part.

  2. Prepare other report forms for claims involving employment taxes. Refer to IRM 4.23.10.12.3, Employment Tax Claim Report, and IRM 4.23.13, Employment Tax, Adjusted Returns, Abatements and Claims.

  3. If the taxpayer doesn’t sign Form 2297, Waiver of Statutory Notification of Claim Disallowance, a certified notice of claim disallowance must be issued. Prepare the appropriate letter to notify the taxpayer of the full or partial disallowance of their claim:

    1. Letter 905, Final Partial Claim Disallowance

    2. Letter 906, Final Full Claim Disallowance

      Note:

      Include the reason for the disallowance in the letter.

  4. Complete Form 5599, TE/GE Examined Closing Record, and include it in RCCMS Office Documents folder in addition to completing the RCCMS closing tabs.

Delinquent and Substitute for Returns (SFR)

  1. Non-filers can be addressed using either Delinquent Return or Substitute for Return (SFR) procedures. Specialists should generally use SFR procedures when conducting examinations and making assessments of non-filed tax returns, but may use Delinquent Return procedures when appropriate. However, once SFR procedures have been started, they can’t be changed. The return controlled with an SFR must be processed to final closure.

  2. When you discover that an employer hasn’t filed required federal tax returns:

    1. Determine the taxable periods for which the employer was required to file returns.

    2. Find out the reasons the employer didn’t file the required returns.

    3. Determine whether any indications of fraud exist.

    4. Secure the non-filed return if the employer is under exam. If you’re conducting a compliance check, include a statement on the closing letter that the employer will prepare and file the non-filed return(s) as soon as possible.

  3. Before processing a delinquent return, the specialist should review an account transcript. Procedures for processing a delinquent return depend upon whether or not a TC 150 has posted.

  4. Use these IRMs to process delinquent returns:

    • IRM 4.5.3.15, Processing Delinquent and Substitute Returns

    • IRM 4.23.12, Delinquent Return Procedures

    • IRM 20.1.2, Failure to File/Failure to Pay Penalties

    • IRM 4.4.9, Delinquent and Substitute for Returns Processing

    • IRM 4.23.8.10, Delinquent Forms W-2/W-2c

  5. Use these IRMs to process SFRs:

    • IRM 4.4.9.6, Substitute for Return

    • IRM 4.5.3.15.6, Substitute for Return Processing

    • IRM 4.23.12.3, Substitute for Return Employment Tax Returns

    • IRM 4.23.12.3.3, IRC 6020(b) Procedures for SFR Employment Tax Cases

    • IRM 20.1.2.2.10, Substitute for Return

    • IRC 3402(d); IRC 6020(b); IRC 6651(a)(1); IRC 6651(a)(2); IRC 6651(g)

  6. See the ITG Case Work Procedures Desk Guide at https://organization.ds.irsnet.gov/sites/tege-ge/itg/itg/forms/1-caseproc2-guidesandprocs.aspx for delinquent return and SFR processing procedures.

  7. Delinquent returns and substitutes for returns require special procedures. See IRM 4.12.1, Nonfiled Returns, and IRM 4.4.9, Delinquent and Substitute for Return Processing.

ITG/TEB Classification Settlement Program (CSP)

  1. The Classification Settlement Program (CSP) establishes procedures that will enable Indian tribal governments and specialists to resolve worker classification cases as early in the administrative process as possible, thereby reducing taxpayer burden. The procedures also ensure that the taxpayer relief provisions under section 530 of the Revenue Act of 1978 are properly applied. Under the CSP, specialists can offer an Indian tribal government entity under examination a worker classification settlement using a standard closing agreement.

  2. CSP agreements are closing agreements that bind the Service and the taxpayer to prospective tax treatment for future tax periods. Therefore, it is important that CSP agreements be reviewed and approved.

  3. Except as otherwise provided in situations listed in IRM 4.23.6.6, Eligible CSP Employment Tax Cases, and IRM 4.23.6.7, Cases Included in the CSP, it is mandatory that the specialist present a CSP offer to a taxpayer. The taxpayer has the option of either accepting or rejecting the offer.

CSP Offer Case Closing Procedures

  1. Generally, regular examination case closing procedures apply with a few additional requirements. Those additional requirements are outlined in IRM 4.23.6.14, Procedures for CSP. In part, the additional instructions provide for preparation of a CSP Settlement Memorandum; preparation of Form 906, Closing Agreement; use of standard CSP language; and changes to the audit report.

CSP Coordinator

  1. The role of the CSP Monitor/Reviewer/Coordinator will be outlined in the ITG/TEB CSP Deskguide.

Form 1040 Individual Income Tax Returns

  1. Sometimes specialists may examine Form 1040 taxpayer cases because of information received from a related examination of an Indian tribal entity. Procedures for examining Form 1040 cases can be found in IRM Part 4, Examining Process.

  2. An individual return may also contain the following: A Schedule C, a sole proprietorship or Schedule F, farm and a Form K-1. The financial activities of the business entity and the individuals are usually audited simultaneously as one taxpayer.

  3. There are nine minimum income probes to be considered by the specialist, during an income tax examination of an individual or an individual business return. See IRM 4.10.4.3.3. The probes are designed as a set of analytical tests intended to determine whether the taxpayer accurately reported income.

    • Financial Status Analysis

    • Interview

    • Tour of Business

    • Internal Control

    • Reconciliation of Income

    • Gross Receipts Test

    • Bank Analysis

    • Business Ratios

    • E-Commerce and/or Internet Use

  4. Follow established case examination procedures in IRM 4.10 and use RGS to generate reports on any adjustment made during an examination. In ITG, we use a stand-alone version of RGS. Once the RGS file is complete, you must put the RGS file into a Word document for inclusion into RCCMS.

Innocent Spouse Relief from Joint and Several Liability

  1. IRM 25.15, Relief from Joint and Several Liability, contains detailed guidance for examining and processing innocent spouse cases.

  2. If the taxpayer inquires about IRC 6015 relief (innocent spouse relief), include documentation on Form 9984 that IRC 6015 relief was discussed. Note the taxpayer’s response, if any, regarding pursuit of this relief.

  3. If the taxpayer requests IRC 6015 innocent spouse relief, the issue is worked by specialist while the case is opened.

  4. On jointly filed returns, taxpayers may request relief from joint and several liability under IRC 6015. Taxpayer may use Form 8857, Request for Innocent Spouse Relief, or a similar statement containing the same information signed under penalties of perjury.

  5. If you receive Form 8857 or similar statement, date stamp the request and mail it within 10 business days to:


    Cincinnati Submission Processing Center (CSPC)
    Stop 840F
    201 W. Rivercenter Blvd
    Covington, KY 41012

  6. If the taxpayer submits Form 8857, Request for Innocent Spouse Relief, (or a statement that contains substantially the same information signed under penalty of perjury), and the case is closed, date stamp the receipt date on the request and send the IRC 6015 relief request to:

    Internal Revenue Service, CSPC
    Stop 840 F
    201 West Rivercenter Blvd.
    Covington, KY 41012

  7. Don’t solicit tax payments from the requesting spouse while a request for spousal relief is pending. You may however solicit tax payments from the non-requesting spouse. Refer the taxpayer to Pub 971, Innocent Spouse Relief.

  8. Check the "Innocent Spouse" block in the Mandatory Review section of Form 3198-A.

IRC 6404(g) - Suspension of Interest

  1. IRC 6404(g) provides for the suspension of interest when the Service fails to provide timely and adequate notice of a tax liability. Examination report Form 4549 is sufficient notice if it contains an explanation of each item of adjustment. See IRM 4.10.8.14.12, which addresses the requirements and delivery of the notice to the taxpayer.

  2. Every notice IRS sends to an individual that includes an amount of interest due must also include both, a:

    • Detailed computation of the interest charged.

    • Code section citation under which the interest is imposed.

Penalty Overview

  1. Abating or not asserting civil penalties based on reasonable cause or other relief provisions must:

    1. Be made in a consistent manner.

    2. Conform with the IRC, Treasury Regulations, Policy Statements, and IRM 20.1, Penalty Handbook.

  2. In accordance with Policy Statement 20-1, penalties are used to enhance voluntary compliance. The IRS administers a penalty system that is designed to:

    • Ensure consistency,

    • Ensure accuracy of results considering the facts and the law,

    • Provide methods for the taxpayers to have their concerns heard and considered,

    • Require impartiality and a commitment to achieving the correct decision,

    • Allow for prompt reversal of initial determinations when sufficient information has been presented to indicate that the penalty is not appropriate, and

    • Ensure that penalties are used for their proper purpose and not as bargaining points in developing or processing cases.
      See IRM 1.2.20.1.1, Policy Statements for Penalties and Interest Activities.

  3. If the taxpayers provide a valid reasonable cause argument, the specialists must document their position and should not proceed with assessment of the penalty.

  4. If upon review of the taxpayer's argument the specialist determines that reasonable cause does not exist, then he or she should recommend assessment of the applicable penalties and seek managerial approval.

  5. The identification of appropriate penalties, the determination whether to assert penalties and the accurate calculation of penalties is primarily the specialist’s responsibility. IRM 20.1.1, Penalty Handbook, contains a list of common civil tax penalties. This list includes the applicable IRC sections, penalty amounts and description, penalty reference numbers, and computation methods.

    • Return-related penalties for delinquency, negligence, or fraud can apply to examinations resulting in additional tax on Form 945 (for example, back-up withholding, withholding on per capita payments, or withholding on gambling winnings); Form 940/941 (for example, supplemental wages); or Form 1042 (withholding on certain payments to non-resident aliens), as well as on miscellaneous other types of tax returns that may be worked by specialists (e.g., income and excise tax returns).

    • These penalties appear on the examination report Forms 2504, 4666, 4667, 4668 and 4549 (for Form 1042 and income tax returns) and are subject to deficiency and reasonable cause provisions.

    • Return-related penalties are not applicable to Information Return Examinations (Forms 1042-S, 1099, W-2, W-2G, etc.) and are not considered in the applications of Failure to File and Failure to Furnish Information Return penalties (IRC 6721, IRC 6722, IRC 6723).

  6. The penalties covered in this section should not be considered all-inclusive and research should be done on a case-by-case basis to ensure correct penalty assessment. Specialists should refer to the various subsections of IRM 20.1, Penalty Handbook, for a list of common civil tax penalties and detailed criteria, guidelines and procedures for both assessing and abating penalties.

    Exception:

    Refer to IRM 9.1.3, Criminal Statutory Provisions and Common Law, for criminal penalty provisions.

  7. See IRM 4.23.9, Employment Tax Penalty and Fraud Procedures, for discussion on the penalties most frequently asserted in employment tax examinations.

Assessment of Penalties

  1. Consider the applicability and non-applicability of penalties in every case whenever an audit adjustment results in a deficiency.

    Note:

    The identification of appropriate penalties, the determinations whether to assert penalties and the accurate calculation of penalties is primarily the specialist’s responsibility.

  2. Reasonable cause must be considered when issues arise during the audit concerning the assertion of penalties. Reasonable cause is discussed in IRM 20.1.1.3.2, Reasonable Cause.

  3. The specialist:

    1. Must document their position and should not proceed with asserting the penalty if the taxpayer provides a valid reasonable cause argument.

    2. Should assert all applicable penalties if he or she determines reasonable cause does not exist.

    3. Should focus on educating the taxpayer about the errors to foster future compliance.

Reasonable Cause

  1. Reasonable cause is based on all the facts and circumstances in each situation and allows the IRS to provide relief from a penalty that would otherwise be assessed. Reasonable cause relief is generally granted when the taxpayer exercised ordinary business care and prudence in determining their tax obligations, but failed to comply with those obligations.

    Note:

    See IRM 20.1.1.3.2, Reasonable Cause, and Policy Statement 3-2, formerly P-2-7, Reasonable cause for late filing of return or failure to deposit or pay tax when due. See IRM 1.2.12.1.2, Policy Statements for Submission Processing Activities.

  2. If it is determined that the failure to act was due to reasonable cause, a written statement setting forth the reason should be obtained from the taxpayer. The specialist will document the decision and the basis for providing relief according to functional guidelines. The specialist will attach a copy of the information to the original return (if available) or other transaction (input) document. See IRM 20.1.1.3.5.2, Taxpayer Entitled to Relief, for additional information.

  3. For a further discussion of reasonable cause and the review of information to determine if ordinary business care and prudence were exercised, see IRM 20.1.1.3, Criteria for Relief from Penalties.

  4. Specialists must consider granting the first time abate (FTA) waiver or abatement before addressing reasonable cause in cases involving:

    • Failure to File (IRC 6651(a)(1), IRC 6698(a)(1), and IRC 6699(a)(1),

    • Failure to Pay (IRC 6651(a)(2) and IRC 6651(a)(3), and/or

    • Failure to Deposit IRC 6656 penalties.

      Note:

      The FTA waiver does not apply to Information Return Penalties.

  5. Address the FTA waiver when any of the above penalties are applicable or have been previously assessed. See IRM 4.23.9.12, First Time Abate (FTA), and IRM 20.1.1.3.6.1, First Time Abate (FTA), for procedures.

Managerial Approval of Penalties

  1. The group manager must perform a meaningful review of penalty determinations and must approve certain penalties in writing. The ITG Penalty Approval Form contains a penalty approval section for the group manager’s signature. The specialist should also document all management involvement regarding penalties in the Form 9984, Examining Officer’s Activity Record.

  2. Exceptions to these procedural requirements are found in IRC 6751(b)(2) that include the following:

    1. Any addition to tax under IRC 6651 failure to file or to pay tax, (with the exception to subpart (f)), IRC 6654, or IRC 6655, or

    2. Any other penalty automatically calculated through electronic means.

    See IRM 20.1.1.2.3, Managerial Approval for Penalty Assessments.

  3. Even though IRC 6651 penalties are exempted by statute from managerial approval requirement, the fraudulent failure to file penalty (FFTF) under IRC 6651(f) requires approval from both Counsel and your manager. See IRM 20.1.2.2.7.5.1, FFTF Penalty Assessment -- Procedural Requirements, paragraphs (2) and (8).

  4. The Service also requires managerial approval of the non-assertion of penalties when there is a substantial understatement of tax under IRC 6662(d), Substantial Understatement of Income Tax.

Assertion of Penalties Involving IRC 3509

  1. IRC 3509 provides reduced rates for computing the withholding tax under IRC 3402 and the employee’s share of FICA tax under IRC 3101, (including Additional Medicare Tax under IRC 3101(b)(2)). When IRC 3509 applies, the Service cannot compute the applicable penalties based on of the higher liability that would have resulted under IRC 3402 and IRC 3101.

  2. See IRM 4.23.9.8, Assertion of Penalties Involving IRC 3509, for a complete discussion.

Tax Return Preparer Penalties

  1. The Small Business and Work Opportunity Tax Act of 2007 amended IRC 6694 and IRC 6695 to include any tax return preparer.

  2. Preparer penalties became applicable to employment tax returns filed on or after May 25, 2007.

  3. For guidance, see:

    • IRM 4.23.17, Preparer Penalty Procedures for SB/SE Employment Tax

    • IRM 20.1.6, Preparer, Promoter, Material Advisor Penalties

Coordination with Office of Professional Responsibility (OPR)
  1. All issues regarding the performance of professional tax practitioners representing a tribe are to be referred to the IRS Office of Professional Responsibility (OPR). The OPR supports the IRS’s strategy to enhance enforcement of the tax law by ensuring that tax practitioners adhere to professional standards and follow the law. OPR is the governing body authorized to interpret and apply Circular 230 and is generally responsible for matters related to practitioner conduct and exclusive responsibility for discipline.

  2. See IRM 20.1.6.12, Office of Professional Responsibility (OPR), for more information and procedures to follow when the decision has been made to refer a matter to the OPR.

Report Writing

  1. Your report should contain all information necessary to ensure a clear understanding of the adjustments and show how you computed the tax liability.

  2. Exam reports (unlike workpapers) are legally binding documents and, when executed, serve as the basis for assessment and collection action. Also, exam reports may become the evidence on which the Government relies in a court case. Make sure the reports are accurate.

  3. See IRM 4.23.10, Report Writing Guide for Employment Tax Examinations, for instructions on the preparing exam reports covering employment tax returns. See IRM 4.24.20, Excise Tax Report Writing Guide, and IRM 4.10.8, Examination of Returns, Report Writing, for guidance on excise and individual exam reports, respectively.

  4. Report Generation Software (RGS) is required for generation of all income tax examination reports. See IRM 4.10.8.18.1, Reports Generation Software (RGS).

  5. No Change employment tax cases: prepare and furnish the taxpayer a no-change examination report on Form 4666, Summary of Employment Tax Examination, at the audit’s conclusion. Include appropriate Section 530 language and include the statement “No Change Subject to Approval by the Director, ITG/TEB”.

  6. Agreed employment tax cases: prepare and furnish the taxpayer a copy of the report at the audit’s conclusion. If the taxpayer doesn’t pay the additional tax, indicate the last day for an interest-free adjustment on the report.

    Note:

    Notate on the Form 3198-A, TE/GE Special Handling Notice, if the taxpayer is entitled to an interest-free period per IRC 6205. Also, on the closing document (Form 5599, Examination Closing Record), show TC 308 using the agreement date as the interest computation date if the taxpayer is entitled to an interest-free period. See IRM 20.2.10.5.1, Underpayment Adjustments on Employment Taxes.

  7. Unagreed cases: With your group manager, examine and confirm the statute date to determine whether a 30-Day Letter, Statutory Notice of Deficiency (90-Day Letter), or Notice of Employment Tax Determination Under IRC 7436 should be issued. Primary guidance and procedures for unagreed cases including the 30-Day letter process can be found at:

    • IRM 4.23.22, Employment Tax Unagreed Employment Tax Case Procedures

    • IRM 4.10.8.11, Unagreed Case Procedures

    Complete unagreed case write-up. See IRM 4.23.10.16.1, Preparing Explanation of Adjustments.

  8. Separate reports MUST BE prepared for IRC 7436 and non-section 7436 issues. See IRM 4.23.10.10, Preparation of the Employment Tax Report, and IRM 4.23.10.10.4, Employment Tax Change Report.

  9. Unagreed IRC 7436 issue, specialist must complete TABLE 1 and TABLE 2 to be included with Letter 3523, Notice of Employment Tax Determination Under IRC 7436. To assist in the preparation of Tables 1 and 2 of Letter 3523, the specialist will prepare a list of reclassified workers as defined in IRM 4.23.22.11.1, General Overview of Section 7436 Procedures, (5) and (6). In addition, specialists should prepare a work copy draft of Tables 3 and 4 to assist Technical Group II in the preparation of Letter 3523. Both the list of workers and the table of taxes should be included with the Employment Tax Examiner's Report (ETER) package in the front of the case file for use by Technical Group II in preparation of the Letter 3523.

    Note:

    To assist Technical Group II on preparing Letter 3523, specialists should include the ETER spreadsheet and associated workpapers in electronic format and include in the file when closing.

    See IRM 4.23.22.11, Special Procedures for Letter 3523 under IRC 7436.

  10. Any report that is given to the taxpayer must include a statement that the report is subject to the approval of the Director, ITG/TEB.

Publications to Include with Audit Reports

  1. The Internal Revenue Service Restructuring Act of 1998 (RRA 98) requires the IRS to include an explanation of the examination and collection process, as well as information about assistance from the Taxpayer Advocate with any first examination report and with any formal 30-Day letter. Pub 3498, The Examination Process, or Pub 5146 Employment Tax Returns, Examinations & Appeal Rights, will be used for this purpose. These publications incorporate Pub 1, Your Appeal Rights as a Taxpayer; Pub 5, Your Appeal Rights and How to Prepare a Protest If You Don’t Agree; and Pub 594, The IRS Collection Process, into one document.

  2. The following procedures will be followed:

    • Although Pub 3498 or Pub 5146 were provided with the initial opening letter these publications must also be provided to the taxpayer with the first report that is given to the taxpayer and with all 30-Day letters.

    • Pub 3498 is not required to be provided again to the same taxpayer for reports issued after the first report (in other words, corrected and supplemental reports) unless they are issued with a formal 30-Day letter.

    • Publications sent to the taxpayer should always agree with the enclosures listed on the cover letter to avoid confusion.

    • Publications are not required to be included with no-change reports but must be included with no-change with adjustment reports.

Reports Sent to the Taxpayer’s Representative
  1. If Form 2848, Power of Attorney and Declaration of Representative (POA), is on file for a taxpayer, it will be reviewed prior to the issuance of a report to determine who should receive a copy of the report. Centralized Authorization File (CAF), research on IDRS should be conducted because it is possible the POA may have been changed by the taxpayer submitting a new POA through channels other than the specialist. Refer to IRM 21.3.7, Processing Third Party Authorizations onto CAF, for more information regarding duties and responsibilities when dealing with a taxpayer’s representative.

  2. Per 26 CFR § 601.506 (Statement of Procedural Rules), the specialist should forward any correspondence (or copies), discussions, reports and/or other materials to the taxpayer at the same time they are sent to the representative. Refer to IRM 4.11.55, Examining Officer’s Guide (EOG), Power of Attorney, Rights, and Responsibilities, for more detailed information about how to mail correspondence when a POA is involved.

  3. Blank forms, notices and publications available on IRS.gov should not be sent to the taxpayer’s representative or appointee, including, but not limited to:

    • Form 9465, Installment Agreement Request

    • Form 12203, Request for Appeals Review

    • Notice 609, Privacy Act Notice

    • Pub 1, Your Rights as a Taxpayer

    • Pub 1035, Extending the Tax Assessment Period

Execution of Audit Reports and Payments

  1. Agreement forms are considered executed when the taxpayer(s) signs the form. The executed agreement form should indicate the date IRS received it. For this reason, the agreement form should be date-stamped upon receipt. Alternatively the specialists may, on the face of the agreement form, write the date it was received and authenticate the document with their initials.

  2. A taxpayer, upon receipt of a report, may wish to pay the deficiency immediately. Form 3244-A, Payment Posting Voucher, should be processed with the funds, if payment is received. A copy of the completed Form 3244-A should be attached to the face of the return. See IRM 4.86.5.43, Remittance Processing Procedures.

Fax Signatures
  1. In May 2003, the Tax Administration Council approved the use of faxes for receiving information and documents from taxpayers and practitioners when contact with the taxpayer has been made and documented on Form 9984, Examining Officer’s Activity Record (case activity record).

  2. On November 19, 2015, a revision to the IRS’s fax policy was announced by the Deputy Commissioner for Services and Enforcement, which eliminated the dollar ceiling for acceptance of consents to assess additional tax and taxpayer closing agreements received by fax.

  3. Specifically, consents to assess additional tax (Forms 2504, 2504-T, 2504-S, 870 and others) can be accepted by fax if taxpayer contact has been made and the case activity record documents:

    • The date of contact, and

    • The desire of the taxpayer to submit the consent by fax.

Corrected Reports

  1. A corrected report should be prepared as follows:

    1. Across the top of the corrected report write "Corrected Report."

    2. In the other information or remarks section write, "This report supersedes report dated (date)."

    3. The taxpayer’s signature is only required on the corrected report if the change is in the government’s favor, i.e., more tax or less refund. If the taxpayer disagrees with the corrected report, unagreed procedures are applicable. Consider each year separately with no netting of tax periods. New waivers may need to be solicited even though the net effect of the corrections may be in favor of the taxpayer.

  2. The original report will be noted across the top, "This report superseded by report dated (date)."

  3. Both the original and corrected reports are included in the case file.

  4. Note on Form 3198-A"Corrected Report."

Surveying Cases - Before and After Assignment

  1. If you decide to survey an exam case, you must obtain approval from your group manager and the ITG/TEB Field Operations manager must be notified. Specialists must document the Form 9984, Examining Officer’s Activity Record, (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. The group manager must document their review and approval of the survey in the case activity record.

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

    2. 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.

    3. 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.

  2. Under rare circumstances, a TE/GE group may make the determination to not examine a return selected for examination and close it by survey. Employees will carry out this duty per Policy Statement 1-236, "Fairness and Integrity in Enforcement Selection." See IRM 1.2.10.37. Surveys are not subject to mandatory review. These cases will be closed fully electronically as 100 percent paperless closings.

  3. Before deciding to survey, examiners and managers must consider all case facts. Analyze the following factors (not all-inclusive) to help you strategically decide whether to survey the return. While the group manager approves the decision to survey a return and must document it in the RCCMS case file, both managers and examiners must document the case file with all case actions:

    • Consideration of existence &/or non-existence of classified issues and Large, Unusual, or Questionable (LUQs) items.

    • Completion of return and related return reconciliation.

    • Completion of required filing checks.

    • Evaluation of audit potential, whether an audit would likely result in a material change.

    • Repetitive audit or compliance activity – prior audit or compliance activity resulted in no change or minimal adjustments for same issue.

    • Consider surveying returns with less than 18 months until the ASED, and whether the same issue is present in subsequent years. If so, consider establishing the subsequent year for examination.

    • Consider whether the case should be reassigned to another group/area if your group lacks the resources.

    • Consider whether an organization/entity has already taken steps to correct an identified issue, as reflected in subsequent years’ return.

      Note:

      Cases controlled on NMF cannot be closed electronically as 100 percent paperless closing, therefore are excluded from this procedure.

  4. When you decide to survey a case, use the appropriate disposal codes:

    Type of Survey Closing Disposal Code AIMS/RCCMS Use When
    Survey Before Assignment (SBA 31/910 Manager: you analyze the return before assigning it or contacting the taxpayer/representative (rep), and determine an exam isn’t warranted.
    Survey After Assignment (SAA) 32/908 Examiner: you analyze the return and without contacting the taxpayer/rep. or reviewing any books and records, and you believe that examining the return wouldn’t result in material change in exempt status, foundation status, plan qualification, tax-advantaged bond status, or tax liability.
    Surveyed After Initial Contact 36/909 Examiner: you determine, after contacting the taxpayer/rep, but before inspecting records that: examining the return wouldn’t result in a material change in exempt status, foundation status, plan qualification, tax-advantaged bond status, or tax liability. The taxpayer is deceased, has a terminal illness, is in a disaster area, or other extraordinary circumstances exist.
    Claims Allowed in Full (Surveyed) 34/103 Examiner: you determine the claim issue is clearly allowable in full and the return doesn’t otherwise warrant examination.
  5. You are no longer required to complete a Form 1900/2503, Form 5596, Form 5599, or Form 3198/3198-A nor post the forms as separate documents to the RCCMS Office Documents folder when surveying a case or claims allowed in full. Instead, capture the information about the survey on the RCCMS closing record:

    • Complete the designated mandatory fields for a surveyed closure.

    • Select the appropriate Survey Reason Code from the drop-down and when appropriate, provide a narrative explanation supporting your decision to survey in the General tab, Remarks and Comments field.

    • Managers will document their review and approval of the survey closure on the RCCMS Case Chronology Record. Manager’s comments will include any applicable Special Handling instructions as required. For example, instructions regarding Restricted Interest cases or Amended Return Freezes. To add a manual chronology entry, click on the Chronology tab and select the new Chronology Button. The Untitled – Chronology Box opens and allows you to input various entries. Complete the required red asterisk fields. Click Save and Close to save your entry.

      Note:

      To have an electronic 100 percent paperless closing, the return must have been established using Return Requisition Code 3 – Return, Charge out & Labels Not Requested. Additionally, the Closing With field on the General Tab of the Closing Record must be completed by selecting option 7 – Paperless Non-Examined.

  6. Use the following survey reason codes on the RCCMS Closing Record, General tab, Survey Reason Code field for all surveys.

    SRC Description Use When
    A No Large, Unusual or Questionable (LUQ) Items The main reason for the survey is:
    1. classified issues don’t exist, and
    2. the return contains no LUQ items
    B No Change in Prior Year The main reason for the survey is that the same issues identified on the current year return were just as significant in any of the four preceding years and were no-changed or had a small tax change.
    C Beyond Cycle (includes statute issue) The main reason for the survey is based upon currency and/or statute considerations.
    D Lack of Resources The main reason for the survey is due to a lack of resources. Managers should exercise due diligence, with their area manager’s agreement, to assess whether they can reassign the return to another group/area before surveying it.
    E Other The main reason for the survey is other than A through D. Justification is critical as to the reasons why, therefore detailed statement is required.
  7. SRC A – No Large, Unusual or Questionable (LUQ) Items:

    • Narrative statements are optional for Survey Reason Codes A – D but explain details if you think it’s appropriate. For example, for Survey Reason Code A, include specific details as to why you have determined the classified issue(s) doesn’t exist. This will help in refining the workload selection process.

  8. SRC E – Other:

    • Include a clear and concise narrative statement on the RCCMS Closing Record, General Tab, Remarks and Comments (field is limited to 250 characters).

    • Explain why we aren’t examining the return. The justification is critical, so we can monitor and analyze trends as to why cases are being surveyed to improve our processes. A generic entry such as "survey" is not acceptable.

  9. Examples of "Other" category:

    • Claim Allowed in Full.

    • Auto-revocation: Organization Auto-revoked while open for examination because of IRC section 6033(j). EO BMF Status 97 posted on [date]. The effective date of auto-revocation is [due date of return for 3rd tax year].

    • During pre-audit research it was determined that the taxpayer has self-corrected the issue as reflected in subsequent years.

    • Classification Settlement Program (CSP) in place for the tax period assigned and case assigned for reclassification of same class of workers.

    • Prior examination for reclassification and IRC section 530 applies.

    • Case assigned for potential Back-up withholding liability, but review of Form(s) 1099-MISC show no missing TINS.

    • Information Return Exam (IRE) case assigned for unreported or underreported Income Tax withholding on per capita payments. Further analysis showed per capita payments are under the IRC section 3402(r) withholding requirements.

Standard Time Frames for Closing Cases from the Group

  1. Generally, cases should be closed from the group within the following time frames:

    Calendar Days Measured From Required Action
    10 Date the agreement is secured or the no-change determination was made – from the first date that the report is received or from the date that the no-change status is communicated to the taxpayer. Close agreed or no-change audits.
    20 The earlier of the protest date or the 30-Day letter default date – from the date the 30-Day letter defaults or from the date that the request for Appeals conference is received from the taxpayer. Close unagreed audits.
    4

    Exception:

    4 days -


    for case closures for agreed high dollar unpaid deficiency or overassessment cases - See IRM 4.4.18, AIMS Procedures and Processing Instructions - Large Dollar Cases.
    Date the agreement is secured – from the first date that the waiver is received. Expedite processing - Close agreed high dollar unpaid deficiency or overassessment cases.
  2. Specialists and managers: document any delays in processing and the dates of closing actions in the case activity record.

Cases Subject to Mandatory Review

  1. Cases subject to Mandatory Review are as follows:

    1. Unagreed exam closures without protest to Appeals requiring issuance of:

      • A Statutory Notice of Deficiency, or

      • Letter 3523, Notice of Employment Tax Determination Under IRC 7436

    2. Claim disallowances, (full or partial) unagreed without protest to Appeals requiring the issuance of one of the following:

      • Letter 905, Final Partial Claim Disallowance

      • Letter 906, Final Full Claim Disallowance

      • Letter 5677, TEB Arbitrage Claim Notification of Final Adverse Determination

    3. Arbitrage claims – allowed refund claims greater than $2M

    4. All TEB protested unagreed cases (including claims) See IRM 4.81.14.5

    5. Managerial request (requires TE/GE senior manager approval)

Time Frames for Submitting Cases for Mandatory Review

  1. Close unagreed cases for statutory notice or Letter 3523, Notice of Employment Tax Determination Under IRC 7436 to ITG/TEB Technical Group II:

    If ... Then ...
    Unagreed cases (without a valid protest to Appeals) for statutory notice or Letter 3523, Notice of Employment Tax Determination Under IRC 7436 and claim disallowances The case must have 270 days (9 months) remaining on the statute for assessment on the date the "Technical Group II receives the case" .
  2. When sending a case with a short statute to Technical Group II, the group manager of the specialist should contact the Manager, Technical Group II, before sending the case. A short statute case is defined as a statute case with less than 270 days remaining on an unagreed case when they are received in Technical Group II. These cases must include documentation of the approval of the ITG/TEB Director prior to closure to Technical Group II.

Case Identification

  1. Specialists identify case files subject to mandatory review on Form 3198-A, TE/GE Special Handling Notice. The applicable mandatory review category should be indicated.

Cases Not Subject to Mandatory Review

  1. Cases not listed in IRM 4.86.5.34, Cases Subject to Mandatory Review, including any protested Appeals case.

Unagreed Exam with Protest to Appeals

  1. The TE/GE Closing Group will not accept any protested case with less than 425 days remaining on the statutory period of limitations for assessment (330 days for cases previously returned to the audit group by Appeals).

  2. Print and organize case files in a paper file.

  3. Confirm that the case file contains a signed, dated 30-Day letter with the manager’s signature, a valid protest, and a rebuttal to the protest, if prepared. If not prepared, the Form 9984, Examining Officer’s Activity Record, should explain why a rebuttal was not prepared.

  4. For all cases with a formal protest to Appeals (no longer subject to mandatory review), ensure the protest:

    • Includes the taxpayer's name, address, and employer identification number.

    • Includes a statement that the taxpayer wants to appeal the IRS findings to the Appeals Office.

    • Includes a copy of the 30-Day letter.

    • Identifies the tax periods or years involved.

    • Lists the adjustments with which the taxpayer does not agree.

    • Includes a statement of facts supporting the taxpayer's position in any contested factual issue.

    • Includes a statement outlining the law or other authority the taxpayer is relying on.

    • Includes a signed jurat statement.

    • Includes a copy of the rebuttal letter you issued to the taxpayer.

  5. The officer, director, or trustee's jurat statement must read "Under penalties of perjury, I declare that I have examined the statement of facts presented in this protest including any accompanying documents and, to the best of my knowledge and belief, they are true, correct, and complete."

  6. A designated representative submitting the protest on behalf of the taxpayer must submit their own substitute statement. They must state that they prepared the protest and accompanying documents, and whether they know personally that the statements of fact contained in the protest including any accompanying documents are true and correct.

  7. Attach a Form 3198-A, TE/GE Special Handling Notice, and mark the check box - Forward to Appeals.

  8. Complete Form 5599, TE/GE Examination Closing Record, on both the Form 5599 and the closing tabs on RCCMS compliance activity. In addition, for unagreed cases with a protest to Appeals, the specialist must complete the Appeals Office Code (Item 16), EO/GE Appeals Issue Code (Item 17), and Unagreed Amount (Item 18) on both the Form 5599 and on the closing tabs in the RCCMS compliance activity, as follows:

    • Item 16 - General Tab, Appeals Office Code 121 or 221

    • Item 17 - Indiv/Bus (1 of 3) tab, EO/GE Appeals Issue Code 7-8-5

    • Item 18 - Indiv/Bus (1 of 3) tab, Unagreed Amount

  9. Request the case closure on RCCMS. Front-line managers will approve the request for closure and close the RCCMS compliance activity to the TE/GE Closing Group (400-20011-7204) in status 51 with RCCMS disposal code 601/AIMS disposal code 07.

  10. Ship the paper case file to Appeals via Form 3210, Document Transmittal, to:

    Internal Revenue Service
    Attention: Ronda Pennington
    10 Causeway Street
    Appeals Office Room 493
    Boston, MA 02222-1083
    Phone Number: 617-788-0628

  11. Add a note to the RCCMS Comment box:

    Note:

    "Appeals case, DC 07 (601). Case file sent directly to Appeals."

Case Closing Procedures for Specialists

  1. When you complete the audit, make sure the conclusion is technically correct and you follow closing procedures.

  2. The specialist will prepare the case for closure using the "ITG Group Case Closing Job Aid" located on the TE/GE website at “ITG Group Case Closing Job Aid”.

  3. Access IDRS (AIMS and INOLES command codes) to ensure:

    1. Each return is fully established on AIMS.

    2. Each return being closed is in status 12 or higher.

    3. There are no freeze codes on any of the modules.

    4. Name and name control in RCCMS match IDRS.

  4. Agreed and No-Change cases will be closed directly to the TE/GE Closing Group by the group manager. The specialist will prepare the appropriate closing letter and include in the case file at closing. The letters are undated and are signed by the manager upon final closure. Signed examination reports should be scanned and stored in RCCMS.

    • Letter 3382, Notification Letter - Agreed Employment Tax Change Cases

    • Letter 987, Agreed Income Tax Change

    • Letter 3381, No-Change Letter for Employment Taxes

  5. Unagreed cases with a valid protest letter to Appeals will be closed in RCCMS to the TE/GE Closing Group by the group manager. If the case includes a paper administrative file, the paper file will be mailed directly to Appeals in Boston. As a courtesy, email a copy of the Form 3210, Document Transmittal, to the TE/GE Closing Group and include in the email’s subject line "E-Form 3210 for Closed Paper File to Appeals ICN NNNNN" . Properly package and ship paper files to Appeals per IRM 10.5.1, Privacy and Information Protection - Privacy Policy, using Form 3210, Document Transmittal, listing all cases and activities being shipped from the group. See IRM 4.86.5.39.1, Shipping from the Group, for the address.

  6. Unagreed cases without a protest to Appeals requiring mandatory review will be closed to the ITG/TEB Technical Group II. Close unagreed cases without a valid protest to Appeals using AIMS Disposal Code 10 and RCCMS Disposal Code 604. Properly package and ship paper files to ITG/TEB Technical Group II per IRM 10.5.1, Privacy and Information Protection - Privacy Policy, using Form 3210, Document Transmittal, listing all cases and activities being shipped from the group. See IRM 4.86.5.39.1, Shipping from the Group, for the address.

  7. All unagreed cases should include the following:

    1. Copies of the appropriate unagreed examination report form and 30-Day letter for the type of return, i.e., Form 940, 941, 945, 1042 or 1040. Copies of reports created electronically should be stored in RCCMS.

      • Letter 950-C, Employment Tax 30-Day Letter - Tax Court (TC) IRC 7436, for IRC Section 7436 issues (worker reclassification)

      • Letter 950-D, Employment Tax 30-Day Letter, for Non-IRC 7346 employment tax issues

      • Letter 950, 30-Day Letter - Straight Deficiency, used for various types of tax

        Note:

        The Letter 950 should be created using Report Generating Software (RGS).

        Note:

        If RGS is used, backup the RGS data file and include the RGS data file in the RCCMS folder for later used by ITG/TEB Technical Reviewers.

    2. For both agreed/unagreed issues, partial agreement procedures properly addressed.

    3. Form 886-A, Explanation of Items, completed for each examination adjustment and penalty asserted.

    4. Include an explanation of each worker classification separately on the Form 886-A and include a discussion of Section 530 applicability for each worker class.

    5. Taxpayer’s Protest Letter

    6. Specialist’s Rebuttal to Taxpayer Protest Letter

  8. You are ready to close the case when all substantive issues have been satisfactorily addressed with an adjustment or an explanation, within the scope set by the audit. Check the following items before closing and shipping your case:

    • Ensure all identified issues were resolved and documented.

    • Ensure fraud was appropriately considered.

    • Ensure penalties were appropriately considered.

    • Ensure the correct statute date or alpha ASED code is reflected on AIMS and RCCMS. See IRM 25.6.23, Assessment Statute of Limitations Controls.

    • Complete Form 895 if not already on the outside cover of the case file, and statute controls are required.

    • Purge unnecessary documents, including duplicate letters, envelopes, routing slips, etc.

    • Verify workpaper documentation supports the conclusion reached and properly index them to the Form 4318, Examination Workpaper Index. If files are too large for RCCMS, record them on an encrypted CD-ROM labeled only with the taxpayer’s Inventory Control Number (ICN).

    • Ensure conclusions are consistent with audit reports and closing letters.

    • Ensure the case file is properly assembled. See IRM 4.86.5.21, Workpapers; IRM 4.23.4, Workpapers Employment Tax Examinations; and IRM 4.10.9, Workpaper System and Case File Assembly.

    • Complete Form 3198-A, TE/GE Special Handling Notice, to note special instructions or case features.

    • Complete the Case Information Sheet (CIS), named "CIS NNNNN" in the RCCMS Office Documents folder. Complete the following sections:

      1. Completion Information

      2. Statute Date

      3. Case Information

      4. Return Information

    • Complete Form 5666, TE/GE Referral or Information Report, if necessary. See IRM 4.86.5.37, Form 5666, Referral or Information Reports, for more information.

    • Consider issuing an Inadequate Records Notice (IRN), if you determine during the audit that the taxpayer was not keeping adequate records to render a substantially correct return. See IRM 4.86.5.38, Inadequate Records Notices, for more information.

    • Correctly complete closing tabs on the RCCMS compliance activity.

      Note:

      A paper Form 5599, TE/GE Examined Closing Record, is required for claims, partial assessments, and cases being sent to Appeals. Therefore, in these instances the specialist should prepare the Form 5599 and include it in RCCMS Office Documents folder in addition to completing the RCCMS closing tabs. See IRM 4.5.2.3, Processing TE/GE Examined Closing Record, Form 5599, for instructions on completing Form 5599.

      Note:

      In addition, for unagreed cases with a protest to Appeals, the specialist must complete the Appeals Office Code (Item 16), EO/GE Appeals Issue Code (Item 17), and Unagreed Amount (Item 18) on both the Form 5599 and on the closing tabs in the RCCMS compliance activity, as follows:

      1. Item 16 - General Tab, Appeals Office Code 121 or 221

      2. Item 17 - Indiv/Bus (1 of 3) tab, EO/GE Appeals Issue Code 7-8-5

      3. Item 18 - Indiv/Bus (1 of 3) tab, Unagreed Amount

  9. Send all cases through the group manager for closing. Group managers will document their approval of the examined case closure on the case activity record.

    1. Properly package and ship paper files to your manager, if requested, or to the TE/GE Closing Group per IRM 10.5.1, Privacy and Information Protection - Privacy Policy, using Form 3210, Document Transmittal, listing all cases and activities being shipped from the group. If the case is unagreed with a protest to Appeals, send the paper file directly to Appeals. Unagreed cases without a protest requiring Mandatory Review will be closed to ITG/TEB Technical Group II. See IRM 4.86.5.39.1, Shipping from the Group, for the address of each of these functions.

    2. 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.

  10. See IRM 4.5, TE/GE AIMS Manual, for AIMS Special Processing procedures for TE/GE employees for case control and closing procedures.

Form 5666, Referral or Information Report

  1. Group managers and specialists may submit leads by submitting a Form 5666, TE/GE Referral or Information Report, and attaching any supporting documentation that provides details about 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. See IRM 4.5.1.3.9.2, TE/GE Referral or Information Report, and IRM Exhibit 4.5.1-12, Instructions for Preparing Form 5666, TE/GE Referral/Information Report.

Inadequate Records Notices

  1. Every taxpayer is required by law and regulations to maintain records with sufficient detail to prepare a proper tax return. See 26 CFR 1.6001-1.

  2. If, during the audit, you determine that the taxpayer was not keeping adequate records to render a substantially correct return, you will need to consider issuing an Inadequate Records Notice (IRN) at the audit’s conclusion.

  3. Inadequate Records Notices notify taxpayers that their recordkeeping practices are deficient and must be improved. The issuance of an IRN may result in a follow-up audit and is a tool to enforce taxpayer compliance with legal requirements to keep adequate records and properly report tax liabilities. See IRM 4.10.8.17, Inadequate Records Notices, for procedural guidance.

Closing Procedures for Group Managers

  1. All completed case files are sent through the group manager for closing.

  2. Managers should:

    1. Review the case timely on RCCMS and/or paper.

    2. Ensure the conclusion reached is technically correct.

    3. Ensure case processing procedures were followed.

    4. Approve any penalties requiring manager approval. See IRM 4.86.5.30.3, Managerial Approval of Penalties. IRC 6751 requires written documentation of your involvement in any decision to assess most penalties. Document your interaction on Form 9984. The following penalties do not require your approval:

      • IRC 6651, Failure to File or Failure to Pay - except where fraud is involved

      • IRC 6654, Failure to Pay Estimated Tax for Individuals

      • IRC 6655, Failure to Pay Estimated Tax for Corporations

      • Any other penalties automatically calculated through electronic means

    5. Approve the case for closing in RCCMS. Note your approval of the case on both the RCCMS version of the Form 9984 and the printed version.

    6. 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.

    7. Return the case to the specialist, as needed.

  3. Unagreed cases with a valid protest letter to Appeals will be closed in RCCMS to the TE/GE Closing Group (400-20011-7204) in Status 51 by the group manager.

  4. Unagreed cases without a protest requiring Mandatory Review will be closed to ITG/TEB Technical Group II. Update AIMS to Status Code 20 (Mandatory Review) and Disposal Code 10/RCCMS Disposal Code 604.

  5. Properly package and ship paper files included with RCCMS file from the group to the appropriate closing function (e.g., TE/GE Closing Group, Appeals, ITG/TEB Technical), per IRM 10.5.1, Privacy and Information Protection - Privacy Policy, using Form 3210, Document Transmittal, listing all cases and activities being shipped from the group, if the specialist has not already sent the paper file. See IRM 4.86.5.39.1, Shipping from the Group, for the address of each of these functions.

  6. If no paper file, 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.

Shipping from the Group

  1. Generate Form 3210 in triplicate for any paper case files, addressed to the appropriate function. Sign the forms and include your phone number. Include two copies of the Form 3210 with the closed case and maintain one copy in the group. When the acknowledgment copy of the Form 3210 is received in the group, staple it to the originator's copy. The addresses are:

    TE/GE Closing Group Appeals Office - TE/GE  
    Internal Revenue Service
    Attention: Tricia Wilson
    TE/GE Closing Group
    Mail Stop 7700
    1973 North Rulon White Boulevard
    Ogden, UT 84404
    Phone: 801-620-4486
    Internal Revenue Service
    Attention: Ronda Pennington
    Appeals Office Room 493
    10 Causeway Street
    Boston, MA 02222-1083
    Phone: 617-788-0628
     
  2. Double package the returns and related workpapers.

  3. For more information on shipping procedures, refer to Document 13056, Employee Toolkit - Shipping Procedures for Personally Identifiable Information (PII) and IRM 10.2.13, Shipping Personally Identifiable Information. Follow-up with Form 3210 in three (3) business days for overnight shipments and 10 business days for ground shipments.

Time Frames for Submitting Cases to the TE/GE Closing Group

  1. The group manager performs the final review of cases before closure to Appeals or to the TE/GE Closing Group. The TE/GE Closing Group needs sufficient time for processing. The chart below provides time frames for submitting cases to the TE/GE Closing Group.

  2. The date considered as "Received in TE/GE Closing Group" is the latter of:

    • the date the RCCMS case file is closed to the TE/GE Closing Group, or

    • the date that paper documents to be associated with the RCCMS case are physically received in the TE/GE Closing Group.

    If ... Then ...
    An unagreed case with a valid protest letter is initially closed to Appeals. The case must have 425 days remaining on the statute of limitations for assessment on the date the "TE/GE Closing Group receives the case" .
    Appeals returns a case to ITG/TEB for consideration of new information/issues, and the case remains unagreed after ITG/TEB considers the new information/issues, the case may be returned to Appeals as long as 330 days or more remain on the statute at the time the case is closed to the TE/GE Closing Group. If less than 330 days remain on the statute and the taxpayer does not extend the statute, the case will be closed unagreed without returning to Appeals. The case is closed from the field to the TE/GE Closing Group with a minimum of 330 days remaining on the statute.
    Appeals returns a case to ITG/TEB to consider new information or new issues raised by the taxpayer, and the case is now agreed after considering new taxpayer information/raised issues. The case is closed from the field to the TE/GE Closing Group with a minimum of 180 days (6 months) remaining on the statute.
    Agreed cases The case must have 180 days (6 months) remaining on the statute of limitations for assessment from the date the "TE/GE Closing Group receives the case" .
  3. Email the TE/GE Closing Group manager, of all cases (include no-change and survey cases) that don’t have the required amount of time remaining on the statute before you forward them to the TE/GE Closing Group. See IRM 4.86.5.41, Advance Written Notification When Closing Short Statute Cases.

Advance Written Notification When Closing Short Statute Cases

  1. Group managers must notify the receiving manager of the TE/GE Closing Group or ITG/TEB Technical Group II, via secure email, that a short statute return in forthcoming. Advance written notification includes:

    • The returns and years being closed

    • Actual statute expiration date for each return

    • The reason for the short statute condition

    • The dates a statute extension was solicited

    • The amount of tax and penalty for the short statute returns

    • An explanation why a statute extension wasn’t needed or wasn’t executed after extension requests.

Cases Returned from ITG/TEB Mandatory Review, Actions by the Specialist

  1. When the specialist receives a case file with Form 5456, Reviewer’s Memorandum - TE/GE (Inquiry or Correction Memo):

    1. Discuss the case with your manager and agree on a course of action.

    2. Reactivate the case on Form 6490, TE/GE Technical Time Reporting System WebETS.

    3. Make every attempt to respond to the inquiry within 60 days. If the response will take longer than 60 days, submit a short memo providing a status report at 60 days to ITG/TEB Technical Group II. Explain in the memo the case name, tax years, ICN(s), earliest statute of limitations, status explanation/reason for delay, and expected completion date.

    4. If it is necessary to re-contact the taxpayer, contact will be made within 15 days of receiving the case. Your group manager may choose to be present when the taxpayer is informed of a change in the government’s position.

    5. Keep all voided portions of the exam report and workpapers in the case file. If the report doesn’t contain math changes or additions, comment that the report is accurate in your response to the issues listed in Item 12 of the Form 5456.

    6. Respond to the issues listed in Item 12, using Form 886-A, Explanation of Items, if you need additional space.

    7. Correspond your responses to the issues listed in Item 12, to the order of the Technical reviewer’s comments on the Form 5456.

    8. Complete the Case Information Sheet (CIS) and make any needed updates to the "Return Information" section and check the box in the "Case Information" section for "This case was previously returned to the field by Technical Group II" and notate the "Date Back to Technical Group II" .

    9. Sign and date Form 886-A or include your signature and date in Item 12, if space is available.

    10. Return the case back to Technical Group II using the appropriate closing procedures.

  2. Retain Form 5456 and Form 886-A as follows:

    1. Keep originals in the administrative case file, if applicable.

    2. Include a copy of each form on the inside left of the case file.

    3. Save electronic versions of Form 5456 and Form 886-A in the RCCMS Office Documents folder using the RCCMS Naming Convention.

Remittance Processing Procedures

  1. The following procedures should be followed for processing payments and remittances.

Advanced Payments - General

  1. Taxpayers may pay a deficiency or proposed deficiency by either posting an IRC 6603 deposit or making an advanced payment by check, money order or electronic funds transfer.

  2. There are two types of advanced payments:

    • IRC 6603 deposit, and

    • A payment of tax deficiency.


    Specialists must ensure to properly identify the type of taxpayer payment.

  3. A specialist should not solicit a remittance from a taxpayer until the examination is completed and an agreement is secured. If the taxpayer offers a remittance prior to the completion of the examination as a means of stopping the accrual of interest, such remittance will be accepted to terminate interest accrual on the amount paid as of the date of the remittance.

IRC 6603 Deposits

  1. IRC 6603 permits a taxpayer to make a deposit in lieu of a payment to stop the accrual of interest on a potential deficiency. It also provides for the accrual of interest on a deposit returned to the taxpayer to the extent that the deposit is attributable to a disputable tax. Rev. Proc. 2005-18 provides all the requirements for a remittance to be treated as a 6603 deposit. Taxpayers must include a written statement designating the remittance as a deposit, including:

    • Type(s) of tax

    • Tax year(s)/tax period(s)

    • Amount(s) in dispute (enclosing the 30-Day letter is sufficient)

  2. Without the written statement, the remittance can be treated as a payment of tax. If the remittance is treated as a payment of tax, the taxpayer cannot contest the determination in Tax Court; if the taxpayer wishes to contest the determination in court, the taxpayer must sue for a refund in federal district court or the Court of Federal Claims. (If the taxpayer pays the full deficiency, there is no deficiency and the Tax Court does not have jurisdiction).

  3. For additional information, see IRM 4.4.24.6, IRC Section 6603 Deposits (formerly known as Cash Bond), IRM 4.23.11.3.1, Advance Payments - IRC 6603 Deposits, and IRM 20.2.4.8.2, IRC 6603 Deposits.

Completion of Form 3244-A for IRC 6603 Deposits

  1. Form 3244-A, Payment Posting Voucher — Examination, contains a check box on the form to designate a payment as an IRC 6603 deposit. If you are completing the form on the publishing website and check the 6603 Box, the form will automatically populate with a Designated Payment Code (DPC) 12. If you are completing the form manually, enter DPC 12.

  2. Apply as a Transaction Code (TC) 640, Advance Payment on Deficiency, and enter the amount of remittance.

  3. Submit the payment and Form(s) 3244-A using the same procedures discussed in IRM 4.86.5.43.4, Processing Check Payments.

Processing Check Payments

  1. Upon receipt of a payment, the specialist should prepare Form 3244-A, Payment Posting Voucher — Examination. Complete a separate Form 3244-A for each tax period and type of tax involved. See Exhibit 4.4.24-1, Preparation of Form 3244-A, for detailed instructions, and IRM 4.23.11.4, Form 3244-A, Payment Posting Voucher — Examination, for payments received during employment tax examinations.

    Note:

    Indicate on each Form 3244-A the amount of payment to be applied to that tax period.

  2. All specialists will post payments received during their examinations as a TC 640, Advance Payment on Deficiency.

  3. If a taxpayer designates any part of an advance payment for penalty or interest, the payment will be applied as designated by the taxpayer.

  4. Checks should be made payable to the "United States Treasury" . If the payee section is blank or illegible or has the initials "IRS" , it must be overstamped with the words "United States Treasury" .

  5. All payments must be sent via overnight traceable mail on the day of receipt or as soon as possible the following business day. The remittance package will consist of the payment, Form(s) 3244-A, Payment Posting Voucher — Examination, and a Form 3210, Document Transmittal. All payments must be double-wrapped (with the payment placed in a security envelope inside of the overnight mail envelope) and senders must affix a mailing label to both the inside envelope and the outside envelope. Send the remittance package to the Ogden address as shown in IRM 4.86.5.43.5 for payments less than $100,000, and IRM 4.86.5.43.6, for payments of $100,000 or more.

  6. If a remittance must be held overnight, it must be stored securely in a locked container.

  7. Form 3210 should be prepared in triplicate. Two copies should accompany the payment being sent to the processing center. If the payment applies to more than one tax period, the breakdown should be on Form 3210. The payment should be attached to the front of Form 3244-A and sent with the Form 3210 by overnight traceable mail.

  8. The mail service tracking number should be included on the Form 3210. Form 3210 should also include the taxpayer’s name, Taxpayer Identification Number (TIN), MFT, check amount and check number. Copies of all forms should be retained in the case file. Electronic copies may be imported to RCCMS.

  9. Copies of the Form 3210, Form(s) 3244-A and the check(s) should be sent to your group manager to be kept in a log maintained at the group level. The specialist should maintain a separate log of Form(s) 3210.

  10. Form 3210 should be acknowledged within 10 business days. An acknowledged Form 3210 confirms the receipt of each mailing. If the acknowledgement copy of Form 3210 is not received within 10 business days, the sender will immediately follow-up with the Campus processing site.

Payments less than $100,000

  1. Remittances less than $100,000 secured as part of an audit should be addressed to:

    Internal Revenue Service
    1973 North Rulon White Blvd., Mail Stop 1999
    Ogden, UT 84404
    Attention: Teller Unit

Payments of $100,000 or More

  1. If the remittance is $100,000 or more, you must notify your manager and the Teller Unit via email at: &CTR ODN Ogden Tellers. Include the following information in your email:

    • Date payment was mailed

    • Amount of the payment

    • Name and address/post of duty of the submitter

    • UPS tracking number, if remittance is $1 million or more

    Email is the preferred method of notification as it reaches the Teller Unit, the Teller Unit managers and the liaison. If email is not available, contact the Ogden Remittance Liaison at 801-620-3972 to provide notification or with any questions.

  2. Remittances $100,000 or more should be addressed to:

    Internal Revenue Service
    1973 North Rulon White Blvd., Mail Stop 2003
    Ogden, UT 84404
    Attention: Teller Unit

  3. Write "ITG over $100,000" in the upper left-hand corner on the inside envelope.

EFTPS Option

  1. Taxpayers have the option to post an IRC 6603 deposit and pay deficiencies using Electronic Federal Tax Payment System (EFTPS). Although not required, EFTPS streamlines payment processing.

  2. Payments will post to IDRS within days if the taxpayer uses EFTPS. Verify the payments have posted to the proper periods on IDRS and attach a TXMOD printout to the front of the return showing the payment posted before closing the case from the group. If the case is all electronic, upload a copy of the TXMOD into the "Office Documents" folder in RCCMS and document Form 9984, Examining Officer’s Activity Record, that EFTPS payment posted properly.

Installment Agreement

  1. If attempts to secure payment of an agreed unpaid tax case are unsuccessful and the taxpayer is unable to pay immediately or upon receipt of the first notice, consideration should be given to an installment agreement. This should be coordinated with Collection, as set forth in IRM 4.20.3, Examination Collectibility - Soliciting Payment.

    Note:

    The taxpayer will owe interest if full payment is not made by the assessment date, even if the interest-free provisions otherwise apply.

  2. If the taxpayer requests an installment agreement which is beyond the specialist’s installment agreement criteria or the agreed unpaid deficiency is over $100,000, the specialist, through his/her manager, will coordinate contact between the taxpayer and a Collection representative. See IRM 4.20.4, Installment Agreements, for additional information.

ITG/TEB Mandatory Review

  1. This section provides guidelines for the evaluation of cases that must be reviewed.

Case Review Procedures for Cases Subject to Mandatory Review

  1. Reviewers are responsible for the review of mandatory review cases and post-examination processing of certain special feature cases. Assignments also include preparing statutory notices of deficiency and Notice of Employment Tax Determination Under IRC 7436. Closed cases that are worked in Examination are updated to Status Code 20 by the groups and are sent directly to ITG/TEB Technical if the case is:

    • Is subject to mandatory review

    • Has special features requiring post-examination processing

  2. Reviewers will review the case in sufficient depth to ensure:

    1. Correct technical conclusions.

    2. Accurate computations.

    3. Proper completions of all procedural requirements.

    4. Proper managerial involvement.

    5. Proper protection of taxpayer rights.

  3. ITG/TEB Field Operations (FO) may forward at the FO Manager’s discretion a case for review. When reviewing the case, focus on technical and procedural accuracy, and complete exam processing requirements. Technical may review both in-process and closed cases.

  4. Case review actions:

    1. Determine the scope of the exam, evaluate case documents to support the specialist's conclusions, determine if technical conclusions are correct, and ensure proper completion of internal procedures and forms.

    2. Verify statute(s) of limitations.

    3. Complete exam processing requirements.

    4. If necessary, prepare, issue and monitor statutory notices of deficiency (SND) and Notice of Employment Tax Determination Under IRC 7436. See IRM 4.8.9, Statutory Notice of Deficiency, and IRM 4.8.10, Notice of Employment Tax Determination Under IRC 7436, for procedures.

    5. Document ITG/TEB Technical Review actions in the case activity record.

    6. Provide feedback to both specialists and management, if needed.

  5. Return cases to the group in Status Code 12 on RCCMS, with ITG/TEB Technical group manager’s concurrence, when any of the following conditions exist:

    1. Major technical deficiencies.

    2. Significant computation errors.

    3. Seriously underdeveloped issues.

    4. There is clear evidence that an incorrect determination has been reached or the case is seriously underdeveloped.

    5. There is a "clearly defined substantial" error based on an established IRS position existing at the time of the exam. "Clearly defined" means the error is apparent as opposed to being vague or uncertain. "Substantial" refers to the dollar amount of tax that we wouldn’t assess if we don’t return the case.

      Note:

      Normally we regard any proposed change to a case involving net additional tax of $10,000 or more, regardless of the years involved, as substantial. Don’t consider penalties and interest when making this determination.

    6. There is evidence of fraud, malfeasance, collusion, concealment or misrepresentation by the taxpayer or representative.

    7. The case can’t be processed due to administrative or procedural errors.

    8. The adjustment is favorable to the taxpayer and Review can’t readily correct the report.

    9. There are other circumstances indicating that not returning the case would be a serious administrative omission.

  6. Prepare Form 5456, Reviewer's Memorandum - TE/GE, before returning a case for further development. The reviewer’s report is an official communication between ITG/TEB Technical and Field Operations for technical/procedural errors or commendatory feedback observed in cases.

  7. Send the Form 5456 to the ITG/TEB Technical group manager for approval. The ITG/TEB Technical group manager forwards the Form 5456 to the group manager.

  8. You can make informal contacts with specialists (call or email) when a defect can be fixed without returning the case to the group. Reviewers should document the informal contact in the case activity record.

  9. Return mathematical, technical, managerial or procedural errors or omissions that require additional consideration or development to the group when you can’t perfect them.

ITG/TEB Statutory Notices of Deficiency

  1. ITG/TEB Technical prepares and issues all Statutory Notices of Deficiency and Notice of Employment Tax Determination Under IRC 7436, and suspends the case in ITG/TEB Technical during the 90-day period.

  2. The IRS is authorized to send this notice per IRC 6212(a) and 26 CFR 301.6212-1.

Preparation and Issuance
  1. The notice of deficiency is a legal determination that is presumptively correct. The notice of deficiency will consist of:

    1. A letter explaining the purpose of the notice, the amount of the deficiency, and the taxpayer's options.

    2. A copy of the letter in line a, above.

    3. A waiver, Form 4089-B, Notice of Deficiency - Waiver.

    4. Appropriate tax computation Form 4549-A, Income Tax Discrepancy Adjustments.

    5. A written explanation of all the adjustments, on Form 886-A, Explanation of Items.

    6. Information about the Taxpayer Advocate Service (TAS) services, along with the closest TAS office address.

  2. When you write the explanation of the adjustments, provide a short synopsis of the facts and law.

    Caution:

    Never include the complete revenue agent report in the statutory notice of deficiency.

  3. Reviewers should use Letter 531 for income tax assessments.

  4. Refer to IRM 4.8.9, Statutory Notices of Deficiency for directions on preparing notices. Focus on IRM 4.8.9.8, Preparing Notices of Deficiency, IRM 4.8.9.10, Signing and Dating the Notice of Deficiency, IRM 4.8.9.11, Disposition of Copies, IRM 4.8.9.15, Overassessments and Claims, IRM 4.8.9.16, Special Issues and IRM 4.8.9.17, Special Cases.

    Note:

    When reviewing directions in IRM 4.8.9, keep in mind that Area Counsel (TE/GE Division Counsel) reviews all TE/GE issued statutory notices of deficiency before they’re issued, and that TE/GE Closing Group processes the notices in lieu of Small Business/Self Employed's (SB/SE) Centralized Case Processing (CCP) units.

  5. TE/GE Counsel requires a PS Form 3811, Return Receipt, (green card) be used to provide proof of delivery in addition to the record of certified and registered mailing kept on PS Form 3877. See IRM 4.8.9.11.3, Records of Mailings.

  6. After issuing the notice, update to Status Code 24 and add 150 days (210 if sent to a foreign address) to the statute of limitations for each tax year in the notice. Update AIMS using RCCMS.

  7. The reviewer will monitor the case during the 90-Day suspense period to determine if the U.S. Tax Court has been petitioned by researching www.ustaxcourt.gov, selecting "Docket Inquiry" to determine if the taxpayer has petitioned the Tax Court.

  8. The issuance of a statutory notice of deficiency begins the litigation process. Once the 90-Day Letter is issued, the case will be placed in a suspense drawer for the earlier of 105 days (90 days plus 15 days) or the time the taxpayer petitions tax court or the taxpayer files the appropriate waiver.

Procedures Following the 90-Day Period
  1. If the taxpayer does not respond to the statutory notice of deficiency within 90 days and the case is not docketed, hold the case for an additional 15 days and then close to TE/GE Closing Group.

  2. Close case to the TEGE Closing Group on RCCMS:

    • PBC: 400

    • SBC: 20011

    • EGC: 7204

    • Status Code: 51

  3. Attach Form 3198-A, TE/GE Special Handling Notice, with the following instructions "STATUTORY NOTICE OF DEFICIENCY DEFAULTED - ASSESS TAX IMMEDIATELY."

  4. Before closing, verify that the case has not been docketed. If the case is docketed for Tax Court, update and forward to the closing unit to transfer to Appeals.

    Note:

    For information on petitions, see IRM 4.8.9.25, United States Tax Court Petition Filed

    .

  5. Properly package and ship paper files included with RCCMS file from the group to the TE/GE Closing Group, per IRM 10.5.1, Privacy and Information Protection - Privacy Policy, using Form 3210, Document Transmittal, listing all cases and activities being shipped from the group, to:
    Internal Revenue Service
    TE/GE Closing Group
    Mail Stop 7700
    1973 North Rulon White Boulevard
    Ogden, UT 84404

Rescinding A Notice of Deficiency
  1. Reviewers can rescind a notice of deficiency mailed to a taxpayer, but only with the consent of the taxpayer; Delegation Order 4-8, see IRM 1.2.43.9.

Protests, Correspondence and Waivers Received After Issuance
  1. See IRM 4.8.9.23, Protests, Correspondence and Waivers Received After Issuance of Notice of Deficiency, for general procedures when the taxpayer sends in something other than a signed Form 4089.

  2. Reviewer: If during the 90-day period the taxpayer submits a signed Form 4089-B, send the case to closing unit for assessment of the deficiency.

Notice of Employment Tax Determination Under IRC 7436

  1. The 30-day letter in employment tax cases that don’t involve IRC 7436 worker classification issues serves as the final report. Cases that involve IRC 7436 worker classification issues that go unagreed require a Letter 3523, Notice of Employment Tax Determination Under IRC 7436 to be issued.

  2. SB/SE holds jurisdiction over employment taxes, even though TE/GE Counsel provides the legal guidance to SB/SE. As such, when you need to prepare a Notice of Determination of Worker Classification, refer to IRM 4.8.10, Notice of Employment Tax Determination Under IRC 7436, and IRM 4.23.10, Report Writing Guide for Employment Tax Examinations.

  3. Mandatory Reviewer: When following the procedures in IRM 4.8.10, keep in mind that:

    • You have the authority to sign and issue the notice. See IRM 1.2.43.24, Delegation Order 4-26 (Rev. 1) (formerly DO-251).

    • Division Counsel (Formally "Chief Counsel TE/GE Field Service" ), reviews all TE/GE issued notices of determination of worker classification before they’re issued.

    • TE/GE Closing Group processes the case upon closure, not SB/SE's CCP.

Case Return Procedures

  1. Return case files to the group manager of the agent/specialist who worked the case.

  2. Complete Form 5456, Reviewer’s Memorandum - TE/GE, per its instructions. Identify the following:

    1. Name of responsible group manager/Field Operations Manager

    2. Required response date (60 days from date of issuance)

    3. Taxpayer name, identification number, and tax year(s)

    4. Inventory Control Number(s) (ICN)

    5. Earliest statute date (when statute date on any return in the case file being returned expires within 180 days (6 months) list statutes in Other box in Item 16)

    6. Type of report (Advisory, Inquiry, Correction, Commendatory)

    7. Reason for review (e.g., mandatory, notice of deficiency, IRC 7436) (complete as part of Item 12)

    8. Reason for case return and any necessary corrective action (complete as part of Item 12)

    9. ITG/TEB Technical reviewer’s name, signature, and date

    10. ITG/TEB Technical group manager’s name, signature, and date

  3. Email Form 5456 to the ITG/TEB Technical group manager for approval, and forward the case file, if requested.

  4. If approved, prepare the case for closure:

    1. If the Form 5456 is an Inquiry or Correction Memorandum, the ITG/TEB Technical group manager sends the Form 5456 to the appropriate group manager via secure email, and instructs the reviewer to return the case file to the group manager with the original and a copy of Form 5456.

    2. If the Form 5456 is an Advisory or Commendatory Memorandum, the ITG/TEB Technical group manager sends the Form 5456 (without the case file) to the appropriate group manager via secure email when the case is closed.

    3. One copy of the Form 5456 is retained by the ITG/TEB Technical reviewer.

    4. One copy of the Form 5456 is retained in the ITG/TEB Technical Group.

Form 5456, Reviewer’s Memorandum

  1. Use the Form 5456, Reviewer’s Memorandum - TE/GE, in four different ways:

    1. "Advisory Report" -- prepare when advising the manager and specialist of errors of omission or non-compliance with the quality elements that you’ve accepted or corrected with no change in tax liability. When you issue an advisory report, don’t return the case file.

    2. "Inquiry Report" -- prepare when you find significant issues in the exam that warrant you returning the case for further development.

    3. "Correction Report" -- prepare when an inquiry report shows the specialist’s revised recommendations result in an incorrect tax liability, or other significant incorrect determination.

    4. "Commendatory Report" -- prepare when a specialist does an exemplary job on an exam with difficult issues.

  2. The ITG/TEB Reviewer completes items 1 through 16 on the Form 5456 as shown in IRM 4.86.5.45.4 above. If additional space is needed for item 12 of the Form 5456, use Form 886-A, Explanation of Items, as an attachment to the Form 5456.

  3. The Form 5456 should:

    1. Clearly communicate the corrective action required.

    2. Explain the error objectively and in an understandable manner.

    3. For commendatory comments, clearly explain how the specialist’s actions were superior.

ITG/TEB Technical Forwarding Cases to Appeals

  1. Unless requested by management, the ITG/TEB Technical Group no longer reviews unagreed cases with a protest letter going to Appeals. Unagreed cases with a protest letter are submitted to the TEGE Closing Group by the field group and must have 425 days remaining on the statute of limitations when the case is received by Appeals.

  2. Unagreed cases without a protest letter may be subject to Mandatory Review and ITG/TEB Reviewers may also have cases involving a taxpayer that has responded to a statutory notice of deficiency by petitioning the Tax Court.

  3. For unagreed exams, with a protest to Appeals:

    • Print and organize case files in a paper file.

    • Confirm that the case file contains a signed, dated 30-Day letter with the manager’s signature, a valid protest, and a rebuttal to the protest, if prepared. If not prepared, the Form 9984, Examining Officer’s Activity Record, should explain why a rebuttal was not prepared.

    • Attach a Form 3198-A, TE/GE Special Handling Notice, and mark the check box - Forward to Appeals.

    • Correctly complete closing tabs on the RCCMS compliance activity.

      Note:

      A paper Form 5599, TE/GE Examined Closing Record, is required for cases being sent to Appeals.

    • Item 16 - General Tab, Appeals Office Code 121 or 221

    • Item 17 - Indiv/Bus (1 of 3) tab, EO/GE Appeals Issue Code 7-8-5

    • Item 18 - Indiv/Bus (1 of 3) tab, Unagreed Amount

  4. Request the case closure on RCCMS.

  5. Ship the paper case file to Appeals via Form 3210, Document Transmittal, to:

    Internal Revenue Service
    Attention: Ronda Pennington
    10 Causeway Street
    Appeals Office Room 493
    Boston, MA 02222-1083
    Phone Number: 617-788-0628

  6. Add a note to the RCCMS Comment box:

    Note:

    "Docketed Case"

Cases Returned from Appeals

  1. Periodically, Appeals may return cases to ITG/TEB for further development.

  2. If ITG/TEB doesn’t agree with Appeals’ recommendation and the group manager concurs, the specialist prepares a responding or clarifying memo and returns the case file to Appeals.

  3. If the specialist agrees with Appeals recommendations and the group manager concurs, the specialist will complete the required actions.

  4. Criteria for returning Appeals cases to the agent/specialist include:

    1. If the matter is factual.

    2. If the case requires further development or verification of new information or evidence.

    3. If it is more efficient and/or expedient for the agent/specialist to complete the work.

    4. If ITG/TEB has not fully developed its position, they may return the case to ITG/TEB for further development or concede the government’s position and close the case.

    5. Appeals, during their consideration of the case, receives a new argument from the taxpayer/issuer, they may return the case to ITG/TEB requesting its response to the taxpayers/issuer’s argument. Appeals may or may not release jurisdiction.

    6. Releases jurisdiction, ITG/TEB is free to re-engage in resolution actions or concede its position and close the case as agreed.

    7. If Appeals doesn’t release jurisdiction, ITG/TEB should provide the response requested and return the case to Appeals within the established time frames.

  5. If Appeals releases jurisdiction of the case, update AIMS to Status 12. When all additional actions are complete, close the case.

  6. If Appeals doesn’t release jurisdiction, don’t update AIMS. When you complete the additional actions, close the case and return the case to Appeals.