- 4.90.13 FSLG Large Case Examination Program
- 18.104.22.168 Overview
- 22.214.171.124 Large Case Examination Program Objective
- 126.96.36.199 Definitions
- 188.8.131.52 Identification of Large Case Examinations
- 184.108.40.206.1 General Case Selection Criterion
- 220.127.116.11 Responsibilities
- 18.104.22.168.1 Responsibilities of the office of FSLG Compliance and Program Management (CPM)
- 22.214.171.124.2 Responsibilities of the Primary Group
- 126.96.36.199.3 Responsibilities of the Team Coordinator
- 188.8.131.52.4 Responsibilities of the Field Manager
- 184.108.40.206 Reporting Requirements
- 220.127.116.11 Program Planning
- 18.104.22.168.1 Requesting Support Area Staffing
- 22.214.171.124.2 Resources Available to the Field Manager
- 126.96.36.199.2.1 Returns in the Planning Process
- 188.8.131.52 Support Activity
- 184.108.40.206.1 Use of Support vs. Primary Group Personnel
- 220.127.116.11.2 Perfecting Support Area Roles
- 18.104.22.168.3 Follow-up on Support Roles
- 22.214.171.124.4 Travel
- 126.96.36.199 Case Assignment Guidelines
- 188.8.131.52.1 Characteristics
- 184.108.40.206 The Examination Plan
- 220.127.116.11.1 Entity Information Section
- 18.104.22.168.2 Service Management Information Section
- 22.214.171.124.3 Examination Procedure Section
- 126.96.36.199 Planning the Large Case Examination
- 188.8.131.52.1 Government Entity Participation in the Planning Process
- 184.108.40.206.2 Workpapers
- 220.127.116.11.3 Stage 1 Pre-Contact Analysis
- 18.104.22.168.4 Stage 2 -- Review of Entities Books and Records
- 22.214.171.124.5 Stage 3 - Establishing Examination Procedures
- 126.96.36.199 Management of Differences
- 188.8.131.52.1 Differences Related to Scope and Depth
- 184.108.40.206.2 Differences Regarding Nature of Assignment or Examination Procedures
- 220.127.116.11.3 Differences Between Entity and Team Member (Including Field Manager)
- 18.104.22.168.4 Differences Between Team Members
- 22.214.171.124 Quality Measurement Standards
- 126.96.36.199.1 Seeking Technical Advice or Assistance from Counsel
- 188.8.131.52 Completing the Examination
- 184.108.40.206 Completing Unagreed Cases - Primary Group Procedures
- 220.127.116.11 Assessment of Team Members Performance Appraisal
- Exhibit 4.90.13-1 GSAIN For FSLG Large Case Examinations
- Exhibit 4.90.13-2 Index to Coordinated Examination Program Forms
Part 4. Examining Process
Chapter 90. Federal, State and Local Governments (FSLG)
Section 13. FSLG Large Case Examination Program
June 30, 2014
(1) This transmits revised IRM 4.90.13, Federal, State and Local Governments, Large Case Examination Program.
(1) Revised 18.104.22.168, Definitions, to reflect changed procedures regarding the Entity Case Binder.
(2) Deleted 22.214.171.124, Definitions; no longer applicable.
(3) Deleted 126.96.36.199(15), Primary Entity; no longer applicable.
(4) Deleted 188.8.131.52(19), Technical Advisor; no longer applicable.
(5) Revised 184.108.40.206.1, General Case Selection Criterion.
(6) Revised 220.127.116.11.1, Responsibilities of the office of FSLG Compliance and Program Management (CPM).
(7) Revised 18.104.22.168.2, Responsibilities of the Primary Group.
(8) Deleted 22.214.171.124.3.1, Planning Files; no longer applicable.
(9) Revised 126.96.36.199, Support Activity, reference to Primary Field Manager visits to the support site no longer applicable.
(10) Revised 188.8.131.52.2, Perfecting Support Area Roles.
(11) Revised 184.108.40.206.3, Follow-up on Support Roles.
(12) Deleted 220.127.116.11, Completing Unagreed Cases - Primary Group Procedures; no longer applicable.
(13) Deleted 18.104.22.168, Completing the Examination; no longer applicable.
(14) Deleted 22.214.171.124, Post-Examination Critique; no longer applicable.
(15) Deleted Exhibit 4.90.13-3, Project Codes for the Federal, State, and Local Government (FSLG) Large Case Examination Program ; topic addressed in 126.96.36.199 Reporting Requirements.
(16) Deleted Exhibit 4.90.13-4 Flowcharts – Six High Level Steps Required Within The FSLG Large Case Examination Process; no longer applicable.
Paul A. Marmolejo
Director, Federal, State and Local Governments
Examination activities in a large case raise concerns that involve properly fragmenting the examination and assigning specific examination work to each Team Member. These procedures and guidelines promote uniformity and consistency in the management of large cases.
The success of the Large Case Examination Program will depend in large part on the ability of the Field Manager to coordinate effectively with the other functions discussed in this subsection.
To conduct effectively planned and managed large case examinations that produce quality results.
CPM – Compliance and Program Management staff is the planning, special procedures and quality review organization within FSLG.
Entity refers to any entity for which the FSLG function has examination responsibility.
Entity Case Binder is a binder that CPM Classification will maintain if a manager recommends follow up action in subsequent periods. The binder should only contain hard copy documents which may be required for the future compliance contact that are not available in the RCCMS case file.
Examination Plan is a written document containing agreements with the entity, information for Service personnel, work assignments, examination procedures, time estimates, and special instructions. The plan is prepared using Forms 4764, Large Case Examination Plan, 4764-A, Coordinated Examination Program Audit Plan, and 4764-B, Large Case Examination Plan.IRM 188.8.131.52.below for details regarding the use of these forms.
Field Manager is the supervisor responsible for organizing, controlling and directing large case examinations.
GSAIN – Government Entities Standard Audit Index Numbers.
Large Case is a case involving a taxpayer, and/or an effectively controlled sub-segment, that warrants application of "team examination" procedures and meets the FSLG Large Case universe criteria. A large case may be an entire entity, such as a state government; it may also be a significant sub-segment such as a metropolitan transit authority.
Large Case Team consists of FSLG specialist(s) and other specialist revenue agents working under the direction of the Field Manager.
Planning Meeting is a meeting or meetings involving the Field Manager, Support Specialist Manager(s), Team Coordinator, and Team Member(s) to discuss the scope of the examination.
Pre-Contact Analysis is a study of available information for the purpose of tentatively establishing the scope and depth of the examination. It should include a review of all related returns, Integrated Data Retrieval System (IDRS) research, Internet research and examination of available public records. If there is an Entity Case Binder these documents should also be reviewed pre-contact.
Pre-Examination Conference is a meeting of Service and entity personnel to discuss such matters as coordination, accommodations, and the general scope of the examination. This meeting may be held in person or via conference call.
Primary Group is the group assigned responsibility for managing and controlling a large case examination.
Support Manager is the manager of any Support Specialist assigned.
Support Specialists are engineers, excise tax agents, international examiners, Computer Audit Specialists, Employee Plan agents, Exempt Organization agents, tax exempt bonds agents, and any other revenue agents as necessary.
Team Coordinator is a Team Member who is responsible for a specific examination assignment, including performing coordination duties in planning and executing a team examination.
Team Examination is a tax examination carried out according to a written plan and conducted by a team managed by a Field Manager.
These procedures apply to organizations under the jurisdiction of FSLG.
This section discusses the responsibilities of the office of FSLG Compliance and Program Management (CPM), the Primary Group, the Field Manager and the Team Coordinator.
Office of FSLG Compliance and Program Management (CPM) will:
Provide program assistance when requested;
Provide assistance in resolving jurisdictional disputes;
Provide quarterly reports on program results and progress;
Provide periodic reports of items of interest; and
Identify the FSLG Large Case examination universe.
The Primary Group responsibilities include the following:
Designation of a Team Coordinator(s);
Prepare pre-contact analyses, develop examination plans, organize examination teams, execute case examinations;
Reporting periodic information as requested by CPM;
Participation with support Field Managers in planning and executing support assignments;
Coordination with issue specialist(s); and
Monitoring and evaluation of the conduct of the examinations.
The Team Coordinator is responsible for the day-to-day coordination of a large case examination.
One of the primary responsibilities of a Team Coordinator is to serve as a focal point for communications between Team Members and the entity and/or Team Members and the Field Managers during the examination.
Other important duties of the Team Coordinator include:
Preparing the pre-contact analysis;
Participating in the pre-examination conference;
Seeking technical and/or Area Counsel advice as early as practical in the examination in every case that warrants such action;
Coordinating and editing the overall plan and the report of examination;
Coordinating and updating the planning and the administrative files;
Advising the Field Manager immediately of any apparent need for changes in the examination plan or the procedures being used;
Reporting to the Field Manager any developing problems regarding Entity/Team Member relationships;
Maintaining the Information Document Request Log;
Advising the Field Manager of significant proposed issues and the need for discussions with Team Members or the entity; and
Bringing all the important pieces of the final report together in a professional, orderly and useful package.
The Field Manager has overall responsibility for the activities of all members assigned to each large case examination. The Field Manager should be cognizant of the workload of the Team Coordinator and take the necessary actions to ensure the proper span of control.
The Field Manager must monitor case progress to determine the need for plan revision and rescheduling. The examination plan is not a static tool. Successful Field Managers plan throughout the examination to take advantage of additional information. The Field Manager may accomplish this objective through analysis and review of the following:
Information Document Requests (IDR) for timeliness, quality, etc.;
Notices of Proposed Adjustment for accuracy and completeness by the agent and responsiveness by the entity;
Reports for staff day comparison to plan; and
GSAIN time tracking system for time expended by Team Members.
Risk analysis should be performed to properly assess the viability of issues and appropriateness of the resources being used.
The Field Manager should work with the Team Coordinator to monitor time expended by Team Members and identify areas needing attention. Analysis of this information will:
Help him or her to make decisions regarding adjustments to the plan;
Provide evidence that the high priority areas are being developed early in the examination and according to plan;
When two or more Team Members are engaged in the development of an issue or are applying time to the same item, provide the information needed to compare actual time spent with the planned time. This system of recording time by examination segment will only be used by the Field Manager as a means to effectively manage the case. It is not intended nor will it ever be used for personnel evaluation purposes.
The Field Manager is responsible for monitoring time spent by all Team Members. Time spent on large case areas follows the normal time reporting requirements as provided in the Government Entities Code Book. Field Manager responsibilities include:
Ensuring that all FSLG Team Members will report their time on large case areas in WebETS on Form 6490, EP/EO Technical Time Report.
Ensuring that the transfer of all FSLG Team Member time to the Team Coordinator will be done upon completion of the Team Member's assignment.
Ensuring that the scope and depth of the examination assignments specific to Team Members are appropriate;
Approving examination plans; and
Disposing promptly and properly of problems and disagreements.
Field Manager will also arbitrate disagreements between operating divisions when they involve matters concerning team audits.
Large case examinations will be controlled on the Automated Inventory Management System (AIMS) and the Reporting Case Compliance Management System (RCCMS) using the appropriate AIMS Activity Code and Project Codes. FSLG large case examinations are generally controlled using Project Code 4241. In some circumstances a large case may be controlled using a higher priority Project Code, such as NRP (0087), International (4141) or other special Project Code. The Field Manager and the Team Coordinator are responsible for maintenance of all case controls.
This section discusses specific aspects pertaining to the program planning process including utilization of support assistance and the resources available.
The Team Coordinator will use support assistance in appropriate situations. For support external to FSLG, the use of the Specialty Referral System (SRS) is required. SRS requests should be forwarded to the appropriate area at least 60 days prior to the start of the support examination. Support Areas should respond to the request directly to the Primary Group within 15 calendar days of receipt.
The Team Coordinator should request that any CAS assigned has had previous experience in FSLG examinations or is experienced with employment tax.
Prior to the examination, the Field Manager will review any prior case files included in the current RCCMS record. These file names begin with "4" and are included by CPM as part of the classification and case building process.
The Field Manager should also review any Entity Case Binder provided.
The objective of the large case support program is to secure support assistance in each case when objectives warrant examination work in other field group areas.
The primary Field Manager is ultimately responsible for the examination. The Support Manager should advise the Field Manager of concerns or problems as they arise.
The basic principle of the support concept is that all segments of a case should be reviewed occasionally.
Under any of the following conditions, the use of support personnel is appropriate:
Examination requires use of personnel with specific technical knowledge.
Records required for examination are voluminous.
In-depth probes are planned.
The Support Manager will be consulted during the planning process.
The Team Coordinator will communicate with all Support Specialists and their managers to address the following:
What is expected of each participant;
Grade of specialist and type of work to be performed;
Location of work;
Flexibility of starting or completion dates; and
Specialists or special skills needed.
The Support Specialist should discuss proposed adjustments and identified issues with the Team Coordinator so that a consistent approach to the issues will be presented to the entity.
Maintaining communications with the Support Specialist will provide for a more efficient examination. The Team Coordinator should make periodic calls to the Support Specialist to discuss progress of the examination and any changes in starting or completion dates.
Any need for additional Support Specialist time will be discussed with the Field and Support Managers.
This section discusses guidelines to be used within the Large Case Examination Program when assigning cases. The use of large case examination procedures is not mandatory if not warranted.
The primary Field Manager will make the determination, based on an evaluation of the unique circumstances of each examination, whether an examination is sufficiently complex to warrant the Large Case Examination Program procedures. He or she should also address whether there is a need for external specialists requiring extensive coordination.
The examination plan usually contains three sections, each serving distinctly different purposes. Form 4764, Entity Information Section,, and Form 4764-A, LB&I, Examination Plan, Part III - Summary of Assignments, are generally used for Large Case examination procedures. The Form 4764-B, LMSB Examination Plan, Part III - Examination Procedures Section, is used as a lead sheet by Team members.
Section I of Form 4764, is devoted to management information that can be furnished to the entity. Information contained in this section should be of such content that it would aid and assist the entity in preparing to accommodate the needs of the examiners (space, equipment, files, records, etc.). This section contains the overall plan of examination. It also identifies those parties authorized by the entity to exchange documents and information during the examination. This section is executed by the Service and the entity and a copy is furnished to the entity.
Section II of the Form 4764, Service Management Information Section, should contain the instructions to Team Members and contains general management information. It is not intended for the entity, but a copy of this section may be furnished to the entity upon request.
Section III of the examination plan, Examination Procedures Section, includes the Forms 4764-A and B. This section contains each Team Member's assignment and plan for the procedures to be used in accomplishing the assignment and is not intended for use by the entity.
The Team Coordinators will revise and reschedule throughout the examination to take advantage of additional information and feedback obtained. The Field Manager has final responsibility for deciding whether any changes are justified. All changes to examination procedures will be documented in the examination plan.
Section I of the Form 4764 includes the following:
Name of entity;
Years to be examined;
Names of Field Manager, Team Coordinator, Team Members, and official telephone number of Field Manager;
Communication agreement for records requests, issue discussion and closing conferences;
Broad scope of the examination for each year (entities, divisions, activities and plans to be included);
Broad description of Team Member's individual assignments with scheduled beginning dates and estimated completion dates;
A list of participants at the pre-examination conference;
A list of records to be made available specifying dates, locations, and methods of request;
Other pertinent matters agreed to at the pre-examination conference; and
Notice to entity that the plan is general and will be modified as required to meet examination needs.
Section II of the Form 4764 contains the following information:
Brief description of the entity structure. This should include information regarding location of entity activities, types of employee plans maintained, and location of books and records;
A list of all agencies/plans of the entity;
Instructions to Team Members regarding:
Workpapers (size, format, etc.);
Indexing of workpapers and final reports;
Procedures for requesting information from entity and routing of information requests;
Procedures for requesting conferences with entity;
Development of examination procedures;
Raising of issues;
Preparation of the report; and
Procedures for monitoring time.
Information regarding practices and issues common to this type of entity;
Information regarding special examination features; and
Examination assignments for each Team Member with an estimate of staff days for completion of assignment.
Section III of the examination plan is found on Forms 4764-A and B. This section contains the following information:
Name of entity;
Brief description of examination assignments including:
Scheduled starting dates and planned completion dates;
An estimate of examination time; and
Specific audit techniques to be used; and
Name of Team Members.
The Team Coordinator and the Manager will take an active role in developing the case plan.
Priorities should be established through a process that compares the potential benefits to be derived from examining an issue to the resources required to perform the examination. This process, referred to as risk analysis, is an integral part of the planning process to ensure efficient and effective use of resources.
Risk analysis should be periodically revisited and the examination plan should be amended and or revised accordingly when necessary.
Planning the examination should be directed toward creating a written plan, tailored to the special circumstances of each entity. Additionally, Field Managers should consider other matters such as the prevailing economic factors during the years to be examined and issues common to the particular entity. The entity, which should be consulted during the planning process, is uniquely situated to give information on government practices, trends and prevailing economic factors.
A three-stage planning process, as outlined in IRM 184.108.40.206.3 through 220.127.116.11.5 below, should be followed in most large case examinations.
It is important to bring any Computer Audit Specialist (CAS) into the planning process as early as possible. By doing so, the CAS may provide some excellent planning tools.
Communications with the entity during the large case examination planning process should include discussions of the responsibilities of each party and should foster a spirit of partnership and cooperation towards a mutual end. Areas to discuss include:
Providing appropriate Government Entity and Service personnel needed to complete the examination;
Promoting a mutual understanding of the Government Entity systems and the Service's processes;
Best use of each party's resources; and
Generating quality examinations in a timely manner
To achieve these goals, the large case planning process must be flexible, ongoing and involve mutual cooperation.
Effective communications throughout the entire planning process should include:
A discussion of the potential issue areas which will be pursued to avoid surprises late in the examination (e.g., new issues, claims, and technical advice requests);
Clarification on the use and role of specialists on the examination team;
A discussion of the role of Counsel, when applicable;
A discussion of efforts to achieve and maintain progress in the examination process;
A discussion of any potential penalties as they arise;
Identification of problems associated with the examination of proprietary information not subject to public disclosure per statutes applicable to the particular entity; and
Commitments, by both parties, to share all information necessary to bring the examination to a quick and successful conclusion. Neither the Closing Agreement nor the protest should be the vehicle to transmit new facts on an issue.
Early in the planning process, the entity and the Service should agree to develop an understanding of each other's processes and procedures. This will include a study of the entity's accounting system, entity structure, tax return preparation methodology, operative procedures, language and terminology, and Service examination procedures. The entity should provide the necessary information regarding operating procedures, problems, and economic factors that impact on the tax considerations of the entity.
Both parties should recognize the importance of a commitment to reaching an understanding with regard to:
Resolving any questions regarding the content of Information Document Requests (IDR);
Response times for IDRs, which should be negotiated with the entities and with consideration for issue priority and the difficulty in securing the information;
The need for periodic meetings to review progress and emerging problems in the administration of the examination plan;
The need for flexibility and ongoing planning;
Coordination of the examination of off-site records and facilities (e.g., support examinations, travel requirements and scheduling);
The use of Service and entity resources, such as working hours, office space and equipment, computer time, libraries, tax workpapers, security concerns and personnel parking;
The need for examiners to timely communicate new potential issue areas identified during the course of the examination to the entity;
Existence and presentation of documentation of items which the entity feels might reduce the tax liability;
Specific time frame for the submission/honoring of Forms 5701, Notice of Proposed Adjustment, and receipt of Closing Agreement;
What the entities will do to support the Service's examination (e.g., reconciliations); and
Procedures for obtaining statute extensions elevated for authority to sign.
The planning process should include a discussion directed toward resolving issues at the lowest possible level. This concept involves entities and examiners working together to pursue all methods and means appropriate to resolve issues. For example:
Early submission of Technical Advice Requests; and
Resolution of an issue through the current filing year, with the agreement of the entity.
The size and complexity of large case examinations require that workpapers be standardized to a greater degree than other examinations. Specialist workpapers are subject to review by the Team Coordinator, Field Manager, review staff, Appeals and TEGE Counsel. Workpapers indexed in a uniform manner will permit efficient review.
Use of the Government Entities Standard Audit Index Number (GSAIN) system is required on all large case examination cases. (See Exhibit 4.90.13-1 Exhibit 4.90.13-1 of this manual.)
Workpapers should be prepared as described below:
Each workpaper page should include the following information in the footer:
Years Covered by Workpaper
Source of Information, when applicable
Team Member's Initials
GSAIN and page x of y if applicable
Cover Page -- Form 4318-A, Examination Workpapers, or suitable alternative, will be prepared as a summary of all workpapers. It should provide an index of the issues, tax years, dollar values of proposed examination adjustments and reference to associated workpapers based on GSAINs.
Issue Lead Sheet -- Will be prepared for each GSAIN account examined. The Lead Sheet will serve as a summary of workpapers for each GSAIN account and will be numbered as page 1.
Numbering-- Workpapers will be numbered consecutively for each GSAIN.
Indexing -- GSAIN is designed to be a flexible indexing system providing the uniformity required in FSLG large case examinations.
Pre-contact analysis is a study of available information to tentatively establish the scope and depth of the examination. It is recorded in the form of a general outline of observations regarding size, probable examination expertise and potential staffing requirements, and matters to be discussed or clarified at the pre-examination conference. When supplemented by information gained at the pre-examination conference, it will form the basis for construction of the examination plan.
The Team Coordinator will become thoroughly familiar with the entity's operations by reviewing the following to determine staffing requirements, Support Specialists needed and the general approach to the examination. It is recommended that at a minimum the following be reviewed:
Information reporting and taxable returns filed by the entity;
Prior Closing Agreements including specialists reports;
RCCMS case file;
Entity Case Binder, if provided by CPM;
Any computer generated analysis;
Reports made to other government agencies;
Any pertinent media coverage, such as newspaper articles, books, magazine articles, and radio or television broadcasts; and
Other data pertinent to the current examination.
Upon completion of this preliminary review the Team Coordinator will identify the following and make recommendations to the Field Manager:
Those areas which should take priority in the examination;
The overall scope and approach to the examination;
Support Specialist(s) needed for the team; and
An initial estimate of time.
Once the Field Manager approves the outline, the Team Coordinator will make any needed requests for non-FSLG Support Specialists using SRS. FSLG Support Specialists participation will be coordinated between the Field Manager and the related Support Manager.
Notify all Support Specialist managers who will be involved in the examination and advise them about:
The date, time and place of planning meeting(s);
The proposed scheduled starting date of the examination; and
A description of data available for review.
Meetings involving the Field Manager, Team Coordinator and Team Members should be held to discuss the Field Manager's review, specialist’s recommendations, and to decide which areas to include in the examination plan.
The Team Coordinator should solicit a written narrative from each Support Specialist to include the following:
A list identifying potential issue areas recommended for inclusion in the examination plan;
A description of the examination procedures to be performed; and
An estimate of the time necessary to complete this portion of the examination.
This phase involves preliminary examination work involving the pre-examination conference, review of entity minutes as warranted, and an overview of the entity's accounting system. The results should serve as a basis for:
Identifying the procedures necessary to examine the entity;
Identifying unusual items or issues not apparent during the pre-contact analysis in stage one; and
Modifying decisions reached during the pre-contact analysis.
In seeking commitments from the entity during the pre-examination conference, the Team Coordinator should ensure that the individual he or she is dealing with has the authority to provide information and enter into agreements regarding examination procedures. The Field Manager and Team Coordinator should attend the pre-examination conference. The Computer Audit Specialist and any other Support Specialists should also attend the meeting.
The Field Manager, through the Team Coordinator, is responsible for making all arrangements authorizing discussion and exchange of information between Team Members and entity personnel. The pre-examination conference is the proper time to make these arrangements. Appropriate taxpayer staff and/or representatives who will be authorized to receive and submit documents and information should be identified in Part 1(b), Communications Agreement of the Form 4764, LMSB Examination Plan, during the pre-examination conference. Note: Refer to IRM 18.104.22.168.5, Disclosure Of Official Information Handbook, regarding Disclosure to Persons with a Material Interest for Government Agencies.
The pre-examination conference is the first formal meeting with authorized employees of the entity. The main purpose of the meeting is to reach an agreement on coordination and accommodations and to discuss the scope and depth of the examination. The pre-examination conference can be conducted telephonically if the Field Manager agrees.
Commitments made by the Field Manager and the Team Coordinator regarding team activities should be realistic and every effort should be made to honor them.
The pre-examination conference should:
Verify the entity's size, organizational structure, and all related entities, and diversification;
Verify the address where books and records are maintained;
Include a thorough discussion of the accounting system and compliance with Rev. Proc. 98-25;
Include a discussion of independent management authority delegated to subordinate organizations and agents, when applicable;
Arrange for flow of communications from Field Manager and team to entity and vice versa;
Establish agreements as to accommodations for the team including such items as locked file cabinets, desks, chairs, telephone and office machines, when applicable;
Establish agreement that issues will be raised, discussed, and resolved as the examination progresses;
Establish agreement that the entity will prepare any protest to identified unagreed issues in writing during the course of the examination;
Establish agreement to identify the need for an early submission of technical advice requests;
Confirm implementation of agreements reached during any previous examination, when applicable; and
Establish agreement regarding security of Service and entity documents maintained on the entity's premises during the course of the examination, if needed.
The Field Manager should ensure that:
Part 1(b), Communications Agreement, of the Form 4764, LMSB Examination Plan, identifies those representatives of the entity who are authorized to furnish information to Team Members and those with whom issues may be discussed;
Entity personnel designated to furnish information to Team Members are those best qualified to give complete first-hand information; and
The roles of Field Manager, Team Coordinator and Team Members are fully explained, including information as to who has authority to secure information and discuss issues.
After concluding the pre-examination conference, the Team Coordinator will summarize, in writing, all pertinent information developed and agreements reached. The entity information section of the examination plan will be used for this purpose. Form 4764 should be used for the examination plan.
A copy of the entity information section, Part I of the Form 4764, should be furnished to the entity. The Team Coordinator will verify the entity receipt and discuss the document. This will provide an opportunity to:
Review the document with the entity;
Again point out that the examination plan is subject to change when necessary; and
Solicit the entity's signature as an acknowledgment of receipt; and that agreements and information are correctly stated. If the entity declines to sign, the Field Manager should document delivery of the plan and the fact that its correctness was orally acknowledged.
The Field Manager and/or Team Coordinator should at this point make specific assignments to each of the Team Members using Form 4764-A, LB&I Examination Plan, Part III - Summary of Assignments. Each member should be given a written set of instructions identifying what is expected of him or her and the specific areas of responsibility. Part II of the Form 4764 may be used for this purpose. Any questions or concerns regarding Team Member assignments should be brought to the attention of the Team Coordinator as early in the examination process as possible.
After completing this preliminary examination work, the Team Members and any requested Support Specialists will submit the following to the Team Coordinator on Form 4764-A:
A list of specific issues identified by GSAIN to be examined;
Planned start and completion dates, and
A time estimate for each specific issue.
The proposed issues, start and end dates, and time estimates are subject to the approval of the Field Manager.
This section discusses the responsibilities of the Field Manager for the prompt and proper disposition of problems and disagreements.
The prime consideration in resolving differences as to scope and depth is that the objectives remain consistent with national program and FSLG objectives. When the differences involve another functional activity (i.e. Excise, Employee Plans, Exempt Organizations), the Field Manager is responsible for determining the position to be taken. If necessary, the FSLG Director will be involved to assure an equitable resolution of serious differences.
Where differences arise regarding the nature of the Team Member's assignment or how the assignment is to be carried out, it is important that all parties understand and respect the other's responsibilities. The Field Manager's responsibility regarding approval of the procedures is twofold:
To ensure that the Team Member's procedures are consistent with the scope and depth of the examination; and
To ensure that the procedures are consistent with the overall examination plan and do not duplicate procedures performed by other Team Members.
Differences with the entity may involve a disagreement regarding case management or may relate to a technical area.
Differences in the case management area may be due to an inadequate plan or failure to follow the plan.
Careful consideration should be given to the entity’s point of view. However, the Field Manager should be on guard for actions that may adversely affect the examination.
Entity/Team Member differences are likely to result in polarization and a breakdown of communication and/or cooperation necessary for an efficient examination. If differences arise, corrective action must be taken immediately. Field Managers should include in the examination plan (Form 4764, Part I, Section 3, Conferences) a provision for regular meetings with designated officials to discuss the examination progress.
Most of the differences encountered with the entity will involve a position taken on technical issues. The Field Manager must fully consider the entity's position on the issue. If the Field Manager is convinced that the argument or information submitted by the entity warrants a change in position, he or she should carefully explain the change to the Team Member and make certain the team member understands the changed position and the reason for the change. If the Team Member still believes his or her position is correct, he or she should follow the procedures set out in IRM 22.214.171.124.4 (2).
Where differences of opinion arise among Team Members as to how a particular technical issue should be treated, the Field Manager should consider all views expressed and then make a decision.
If, after a complete discussion of the matter, the Team Member is still in disagreement with the Field Manager’s decision, the Team Member must follow the decision. The Team Member may include a dissenting argument in the case chronology record. The Field Manager will provide the Team Member and Team Coordinator with written instructions on the matter in question. These instructions will be included in the case file.
The FSLG Field Manager is responsible for the initial closing review of the large case and all effectively controlled entities that are included in the examination.
Managers of specialty groups will be responsible for the technical and mathematical accuracy and issue development/documentation of any separate specialty reports issued.
The CPM Review staff is responsible for the review of the large case and all effectively controlled entities that are included in the examination. The review staff will use the established Employment Tax Quality Measurement System (ETQMS) auditing standards as discussed in IRM 4.90.8.
The Field Manager will determine the need to request assistance from Counsel with approval of the FSLG Field Operations Manager. Written requests for assistance will be routed to the Field Operations Manager, who will determine the need for assistance after assessing staffing, type of case or problem, and if necessary, discussion with the appropriate Field Manager. Where there is a difference of opinion as to whether assistance from Counsel should be requested, the decision will be made by the Director of FSLG.
Procedurally, the Field Manager will request assistance after he or she is satisfied that the issues are fully developed factually and that key legal questions have been thoroughly researched prior to requesting advice from Counsel.
Generally, all Team Members will not complete their work at the same time. When the individual Team Member completes his or her examination, the following actions are required:
Prepare Form 5701, Notice of Proposed Adjustment, and discuss any pending proposed issues with the Team Coordinator and the Field Manager to obtain his or her concurrence. Issues should be raised throughout the examination as agreed to by both parties during the pre-examination conference (Form 4764 - Section I - Part 8, Other Pertinent Agreements).
Discuss proposed issues directly with the appropriate entity official per the communications agreement (Form 4764 - Section I - Part 1(b), Communications Agreement), generally with the Field Manager or Team Coordinator present.
Prepare his or her portion of the examination report and forward it to the Team Coordinator.
When Team Members have completed their examination segment they are to report cumulative time to the Team Coordinator, if not done previously.
Team Members will mail any paper workpapers for the item or transaction examined to the Team Coordinator. Most files will be electronic and sent to the Team Coordinator by secure email. A secure drive may also be used in some cases for the exchange of electronic data and documents. Only workpapers that support the conclusion of the Team Members should be included and forwarded to the Team Coordinator.
All Team Member reports must be included as a part of the case examination file.
Team Members are responsible for creating workpapers and reports that use the style and fonts agreed to in the examination plan (Form 4764 - Part II, Section 2, Instructions to Team Members).
The Team Coordinator will follow procedures laid out in IRM 4.90.12 to close the case to the Field Manager.
At the request of the entity, the Field Manager will grant a 60-day extension to prepare the protest, provided the following requirements are met:
The entity's request must be made in writing to the Field Manager and state the reasons why additional time is needed.
If the statute of limitations will expire within 365 days and the granting of an extension will not leave sufficient time on the period to adequately process the case, the extension will be contingent upon securing a consent to extend the statute.
Only those entities in the approved FSLG large case examination universe are eligible for the additional 60-day extension to file the protest.
When the additional 60-day extension is granted, the new protest due date should be given to the entity in writing. The entity should also be informed that granting of the extension to file the protest will not extend the period from which the Service will begin to compute the additional interest, if applicable.
The Team Coordinator will carefully review the protest filed by the entity within 30 days of receipt. This review will be in writing and will address each point raised by the entity that is inconsistent with the factual position presented in the Team Member's report. The review will also include appropriate responses to any new issues raised by the entity and an attempt must be made to secure any new records or documentation to which the entity refers. By conducting a thorough analysis of the protest, the Team Coordinator can provide the Appeals Officer with valuable information to thoroughly consider the entity's claims.
A copy of the rebuttal must be provided to the entity.
At the conclusion of each team examination involving personnel from a supporting area, the Field Manager will consider whether written comments regarding the Team Members' work should be submitted to appropriate managers.
Part 1: Planning and Information Gathering
100 INDEX TO AUDIT WORKPAPERS
101 GSAIN Index and Explanation--explanations may be expanded as needed
200 CASE CHRONOLOGY & STATUS REPORTS
201 GSAIN Time Tracking/Case Chronology--amount of time spent daily on each GSAIN area. 202 CEP Case Status Reports--reports to Internal Revenue Service management 203 Other Memos and communiqués--various communication documents of importance
300 INFORMATION DOCUMENT REQUESTS (IDR LOG)
301 IDR Log--notes the topic of the IDR, date given to the entity, date the entity is to respond, date the entity did respond and includes a copy of each IDR (if possible, only one topic per IDR)
400 BMF, AIMS and STATUTES
401 BMF/AIMS & UPDATES--copies of all ADP & IDRS information requested and received as well as copies of forms filed to update or change the existing Internal Revenue Service internal records 402 Statute Controls & Consents--copies of Form(s) SS-10, Consent to Extend the Time to Assess Employment Taxes, and related letters given to the entity
500 PRE-CONTACT PLANNING
501 Forms 940, 941 and 945 and claims if applicable--all these returns and charge-outs 502 IRM and Guidelines--all notes applicable to the IRM or other guidelines; if issues are to be stressed or waived, explain rationale 503 News Drop files--all newspaper, website, or Lexis information that would pertain to the examination 504 Public Records--applicable records on file at other government entities (i.e. deeds, reports, reviews) 505 Initial Meetings with Team Members--notes relating to such meetings 506 Audit Plan--copy of the plan, including all updates 507 Support Contacts--copies of all support requests such as CAS, EO, EP, Excise, Tax-exempt Bonds, etc. 508 Other Information--any other external information gathered for the examination (interviews with previous examining specialists, review of previous workpapers and/or administrative files)
600 INITIAL CONTACT & VISITATION
601 Pre-examination Meeting with Entity--all notes relating to who was at the meeting and what transpired 602 Organizational Chart--chart should show all entities controlled or related to the primary entity 603 Tour of the Facilities--notes on who conducted the tour and what facilities were reviewed and which were not and why 604 Private Letter Rulings--copies all PLRs that were issued to the entity 605 Legal Opinions on Specific Issues--copies of all legal opinions issued to the entity on issues that might pertain to the examination 606 Other information--any other information given or exchanged at the meeting
701 Board/Trustees Minutes--copies and/or notes of pertinent minutes 702 Committee & Other Minutes--copies and/or notes of pertinent minutes of committees or other decision-making bodies (i.e. Finance, Recreation, Personnel)
801 Pamphlets & Brochures--all copies of and/or notes on such printed material published by the entity for public consumption 802 Newsletters--all copies of and/or notes on internal and public newsletters 803 Employee Handbook(s)--copies of and/or notes on employee handbook(s) 804 Other Internal Publications--delineate the ones reviewed and why
900 FINANCIAL RECORDS
901 Auditor’s Report & Management Letter--copies of these documents and notes 902 Form 940,941, & 945 Reconciliation Workpapers--copies of the workpapers and notes pertaining to them 903 G/L, T/B, Chart of Accounts--copies of and/or notes on these documents 904 Reports to/from Other Agencies--copies of reports to/from the State or federal government, or other government entities (i.e. agencies and authorities) 905 Records--records maintained to determine income tax refunds in the filing of Forms 1099-G 906 Other--specify other records reviewed and why
1000 OTHER RETURNS/FORMS
1001 Forms W-2 & W-3--copies received from the entity and/or notes after reviewing 1002 Forms W-2G--copies received from the entity on gambling winnings and/or notes after reviewing 1003 Forms W-4, W-5, W-9--copies received from the entity and/or notes 1004 Forms 1098-E & 1098-T--copies received from the entity and/or notes 1005 Forms 1096 & 1099--copies received from the entity and/or notes 1006 Foreign Person Returns--copies of 1042, 1042-S, 1078 & 8233 and/or notes 1007 Support Division Returns--includes such returns as 5500 (EP), 8038G & 8038T (Tax-exempt bonds), 990 & 990T (EO), and excise tax returns 1008 Other Returns/Forms--specify
1100 CONTRACTS, GRANTS, LEASES, LOANS & OTHER AGREEMENTS
1101 Employee Contracts--copies and/or notes on pertinent employee contracts 1102 Grants--copies and/or notes on grants applicable to the filing of Form 1099-G 1103 Contractor Agreements--copies and/or notes on selected sub-contractor agreements 1104 Lease/Rental Agreements--copies and/or notes on selected agreements 1105 Loan Agreements--copies and/or notes on selected employee or other loan agreements 1106 Section 218 Agreement(s)--copy of the agreement(s) and modifications if any and notes 1107 Other Agreements--specify the agreements and why reviewed
1200 PLANS, POLICIES & PROCEDURES
1201 Cafeteria Plan--copy of plan and/or notes 1202 Dependent Care Assistance Program--copy of plan and/or notes 1203 Educational Assistance Program--copy of plan and/or notes 1204 Adoption Assistance Program--copy of plan and/or notes 1205 Health Plan--copy of plan and/or notes 1206 Meals & Lodging Policies--copy of policies and/or notes 1207 Group Long-term Care Insurance Plan & Group-term Life Insurance Plan & Disability Income Plan--copy of plans and/or notes 1208 Travel, Transportation, Moving & Entertainment Reimbursement Policies---copy of the plans and/or notes on the accountability required and verification provided 1209 Other Fringe Benefit Policies--copy of the policy(ies) and notes
Part 2: Issue Development
1300 APPLICABILITY OF FICA TAXES UNDER SECTION 218
|1301||Section 218--does the entity have an Agreement, and the extent to which it was followed|
|1301.1||Section 218--ALL wages were not properly treated as covered|
|1301.2||Section 218 Worker Classification Covered Positions--3509 rates were used|
|1301.3||Section 218 Worker Classification Covered Positions--full rates were used|
|1302||Mandatory Exclusions--applicability of the exclusions|
|1303||Optional 218 Exclusions--applicability of the exclusions (fee-bases, students, & election workers)|
|1304||Mandatory Social Security Coverage - applicability of 1991 coverage rules|
|1305||Medicare Continuing Employment Exception--applicability of the exception for employees hired before March 31, 1986.|
1400 EMPLOYEE VERSUS INDEPENDENT CONTRACTOR
1401 Reclassification of Workers--verification for change and rationale 1402 Section 530--applicability and substantiation 1403 IRC 3509--NON-CSP 1404 Statutory Employee--applicability 1405 Classification Settlement Program--wages adjusted under a CSP or AD HOC CLOSING AGREEMENT 1406 Other--specify
1500 STANDARD ITEMS OF COMPENSATION
1501 Regular Salary/wages--does W-2 agree with employee’s contract, if not, why not? 1502 Commissions--were they paid, and if so, why and were the amounts correct? 1503 Payments Made After Employee’s Death--note IRC 101(h) and IRC 3121(a)(13) & IRC 3121(14) 1504 Back Pay and Damage Award--were amounts received for past regular wages, or for physical injuries, or as punitive damages? See the MSSP audit guide issued by the Internal Revenue Service titled "Lawsuits, Awards and Settlements" (January 1, 2001) 1505 Awards & Prizes--see IRC 74(c) & 274(j) 1506 Loans with Below-Market Interest Rates--see IRC 7872(c)(3)(A) & IRC 7872(f)(10) 1507 Loan Forgiveness & Guarantees--determine time that the loan was forgiven and amount 1508 Severance Pay--was the employee involuntary terminated or was there a settlement of a canceled employment contract? See especially North State University v US, 87 AFTR 2d 2001-2522 1509 Grossing Up Wages When Employer Pays Employee’s Taxes--see Rev. Rul. 86-14 1510 Foreign Person Issues--refer to Publications 515 & 519 1511 Scholarships/Fellowships--see IRC 117(a) 1512 Sick Pay--see IRC 105(a), IRC 3121(a)(4) and IRC 3402(o)(3) 1513 Vacation Pay--should be all taxable 1514 Other--specify
1600 FRINGE BENEFITS
1601 Employee Discounts--see IRC 132(c) 1602 No-Additional Cost--see IRC 132(b) 1603 Working Condition (excluding autos)--see IRC 132 (d) 1604 Qualified Transportation--see IRC 132(f) 1605 Moving Expense Reimbursements--see IRC 132(g) 1606 On-premises Gyms and Other Athletic Facilities--see IRC 132(j)(4) 1607 Qualified Retirement Planning Services--see IRC 132(m) 1608 Meals and Lodging--see IRC 119 1609 Group Term Life Insurance--see IRC 79 1610 Cafeteria Plans--are requirements of IRC 125 met 1611 Dependent Care--see IRC 129 1612 Educational Assistance--see IRC 127 1613 Adoption Assistance--see IRC 137 1614 Medical & Accident Benefits--see IRC 105 1615 Health & Accident & Disability Insurance Premiums --see IRC 106 1616 Other--specify
1700 EMPLOYER PROVIDED TRANSPORTATION
1701 Automobiles--see IRC 3401(a)(1), 3121(a)(1) and Announcement 85-113 1702 Aircraft--same as above 1703 Other--specify
1800 EMPLOYEE PROVIDED TRANSPORTATION
1801 Automobiles--see 1.62-2(c) 1802 Other--specify
1900 ACCOUNTABLE/NONACCOUNTABLE PLANS
1901 Entertainment--see 1.62-2(c) and 1.62-2(i) 1902 Equipment & Uniform Allowances--see 31.3401(a) 1902.1 Uniforms/Clothing Provided - Clothing is not a UNIFORM or SAFETY RELATED 1902.2 Uniform/Clothing Allowance Paid - without an accountable plan 1902.3 Internet Allowance Paid - without an accountable plan 1902.4 Travel/Vehicle Allowance Paid - without an accountable plan 1902.5 Equipment Provided - without an accountable plan 1903 Other--specify
2000 FORMS 1098, 1099 & W2G ISSUES
2001 Form 1098-E--for student loan interest statements 2002 Form 1098-T--for tuition payments 2003 Form 1099-MISC--various income payments 2004 Form 1099-G--payments by governments 2005 Form 1099-INT--payments of interest 2006 Form 1099-R--retirement payments 2007 Form W2G--gambling winnings 2008 Other--specify
2100 PENSIONS & DEFERRED COMPENSATION (unless covered by the EP agent)
2101 IRC 457 Plans 2102 IRC 403(b) Plans 2103 Other Nonqualified Deferred Compensation Plans
2200 BACKUP WITHHOLDING
2201 W9 Review 2202 CP 2100 Notices 2203 B Notices 2204 Abatements of Backup Withholding 2205 Other--specify
2300 SPECIAL EMPHASIS PROGRAMS
2301 Chore Service Providers 2302 Medical Residents 2303 Other--specify
Part 3: SUMMARY & CONCLUSIONS
2400 FORMS 5701 & RESPONSES
2401 Proposed Issues and Conclusions 2402 Penalties 2403 Copies of Agreement Forms 2404 Other--specify
2500 OTHER AGENTS’ CONCLUSIONS
2501 EP Agent 2502 EO Agent 2503 Tax-exempt Bond Agent 2504 Others--specify
|4564||Information Document Request|
|4764||Large Case Examination Plan|
|4764-A||Large Case Examination Plan (Special Instructions and summary of Assignment)|
|4764B||Large Case Examination Plan (Outline of Examination Procedures)|
|5699||Information Document Request Log|
|5701||Notice of Proposed Adjustment|