Part 4. Examining Process

Chapter 1. Planning and Special Programs

Section 2. Workload Identification and Survey Procedures

4.1.2 Workload Identification and Survey Procedures

Manual Transmittal

September 21, 2020

Purpose

(1) This transmits revised IRM 4.1.2, Workload Identification and Survey Procedures.

Material Changes

(1) This IRM updates references and removes the use of area DIF cut-off scores and clarifies the classification plan.

(2) The following changes were made:

Reference Change Details
IRM 4.1.2.1.2 Updated the references.
IRM 4.1.2.1.7 Updated reference in paragraph 2.
IRM 4.1.2.5 Added ERCS Tableau.
IRM 4.1.2.7 Updated reference in paragraph 2.
IRM 4.1.2.7.2 Updated reference in paragraph 1.
IRM 4.1.2.7.4 Updated reference in paragraph 2
IRM 4.1.2.7.7 Removed DIF Area Cut-off scores as only National DIF Cut-off scores are utilized.
IRM 4.1.2.9.1 Updated what is needed for a classification plan.
Throughout IRM IRS Style changes - mainly removing italics from citations.

Effect on Other Documents

This IRM supersedes IRM 4.1.2 dated 10/19/2017.

Audience

Planning and Special Programs (PSP) in SB/SE Examination - Field

Effective Date

(09-21-2020)

Carol Madison
Director, Exam Case Selection
Small Business/Self-Employed

4.1.2.1 (10-19-2017)

Program Scope and Objectives

  1. Purpose. This IRM Section provides information for determining return needs, DIF ordering, and surveys in PSP. Guidelines and procedures described below are to ensure proper identification and authority for workload identification and return ordering, including surveying of returns.

  2. Objective. Ensure examinations are initiated based on indicators of non-compliance or on other criteria (such as selection for the National Research Program), identified in the Internal Revenue Manual. In addition, ensure a review of the decisions to survey a return (i.e., not initiate an examination) are based upon factors outlined in the Internal Revenue Manual and approved by an appropriate level of management.

  3. Audience. These procedures apply to SB/SE Field Exam employees who are responsible for return identification and delivery in Planning and Special Programs (PSP).

  4. Policy Owner. Exam Case Selection, is under Headquarters Examination.

  5. Program Owner. Exam Case Selection is the office responsible for the selection of cases and delivery of inventory.

  6. Contact Information. To recommend changes or make any other suggestions to this IRM section contact the senior program analyst in Field Case Selection (FCS) responsible for the PSP IRM Update. See http://mysbse.web.irs.gov/examination/examorg/hq/ecs/fieldexamretsel/10461.aspx for list of analysts in FCS.

4.1.2.1.1 (10-19-2017)

Background

  1. PSP is responsible for identifying and delivering returns to Field Exam. Those returns can come from a variety of sources. This chapter covers how to determine the number of returns needed, how to place a DIF order, and procedures for surveying excess inventory.

  2. The Planning and Special Programs (PSP) Territory Manager (TM) must ensure the correct activity codes of returns are available in PSP and the field to accomplish the exam plan.

  3. The PSP TM (or designee) must determine the number and activity code of returns needed. To facilitate that effort a "return needs analysis" and a "return starts analysis" should be completed on at least a bimonthly basis.

  4. The PSP TM (or designee) should analyze non-DIF direct examination staff year (DESY) application, non-DIF strategy inventory, projected future inventory and projected year-end accomplishments in relationship to the exam plan in conjunction with a return order.

  5. All return orders must be approved by the FCS Analyst responsible for return orders.

4.1.2.1.2 (09-21-2020)

Authority

  1. IRM 1.1.16.3.5.3, Exam Case Selection.

  2. IRM 1.2.1.2.36, Policy Statement 1-236, Fairness and Integrity in Enforcement Selection.

  3. IRM 1.2.1.5.7, Policy Statement 4-9, Highest Integrity Expected.

  4. IRM 1.2.1.5.10, Policy Statement 4-21, Selection of Returns for Examination.

4.1.2.1.3 (10-19-2017)

Responsibilities

  1. Director, Exam Case Selection (ECS) is the executive responsible for providing policy guidance on the selection of cases and delivery of inventory for SB/SE Examination.

  2. Program Manager, Field Case Selection is the program manager responsible for providing policy guidance on the selection of cases and delivery of inventory for SB/SE Field Exam.

  3. The PSP Territory Manager is the territory manager responsible for the selection of cases and delivery of inventory within an SB/SE Exam Area.

  4. The Program Manager, Field Exam Workload Planning and Analysis develops the Field Exam work plan.

4.1.2.1.4 (10-19-2017)

Program Reports

  1. The following are reports and/or systems that may be used in the returns needs, starts, or order calculations.

    • A-CIS

    • CDE Inventory Report

    • CDE select rates (CDE Select Rate Report)

    • Delivery of returns for classification (Tables 1040–2, 1041–2, 1065–2, 1120–2, 1120–3)

    • New starts (A-CIS Open and Closed Case databases or ERCS Tableau)

    • Select rates for area classification at the campus

    • Started returns (Status 12 and above) by status code, Tables 36 and 37, SSIVL, or ERCS Tableau

    • "Status 06" report of CDE inventory

    • Statutes (CDE Statute Report or use SSIVL)

    • Unstarted (Status 10 and below) returns by status code, Tables 36 and 37, SSIVL, or ERCS Tableau

    • Volume and timing of return orders (Classification/Order Plan)

4.1.2.1.5 (10-19-2017)

Acronyms

  1. This is a list of acronyms and their definitions.

    Acronym Definition
    A-CIS AIMS Centralized Information System
    AIMS Audit Information Management System
    AMDISA Displays up to six screens of information about the taxpayer's account for a specific tax period. Refer to IRM 2.8.3-7, Command Code AMDISA.
    AO Area Office
    BMF Business Master File
    CDE Compliance Data Environment
    CIP Compliance Initiative Project
    CORR Correspondence
    DIF Discriminant Function
    ECS Exam Case Selection
    ERCS Examination Returns Control System
    EUP Employee User Portal
    FCS Field Case Selection
    HQ Headquarters
    IMF Individual Master File
    LB&I Large Business and International
    MCC Martinsburg Computing Center
    ND Nuclear Decommissioning
    PC Property and Casualty
    PHC Personal Holding Company
    POD Post of Duty
    PSP Planning and Special Programs
    RA Revenue Agent
    REIT Real Estate Investment Transaction
    RIC Regulated Investment Companies
    RPP Return Preparer Program
    SB/SE Small Business Self-Employed
    SC Service Center
    SF Settlement Funds
    SOI Statistics of Income
    SSIVL Statistical Sampling Inventory Validation
    TCO Tax Compliance Officer
    TM Territory Manager
    TXPREFRET Tax Preference Returns
    YTD Year To Date

4.1.2.1.6 (10-19-2017)

Terms

  1. See IRM 4.1.1.1.6, Terms, for a listing of common terms used in PSP.

4.1.2.1.7 (09-21-2020)

Related Sources

  1. IRM 4.1.1, Planning, Monitoring, and Coordination.

  2. IRM 4.1.5, Case Building, Classification, Storage and Delivery.

4.1.2.2 (10-19-2017)

Return Needs Analysis

  1. The current available inventory and projected return needs should be analyzed on at least a bimonthly basis. Return needs should be analyzed by post-of-duty (POD) to prevent shortages in those PODs with staffing imbalances. Return needs for revenue agent and tax compliance officers should be determined separately.

  2. It generally takes 8 to 12 weeks for an original return Martinsburg Computing Center (MCC) Discriminant Function (DIF) order to be delivered for classification; therefore, the PSP must plan well in advance. Compliance Data Environment (CDE) orders take 1 to 2 weeks to be ready for classification. The "needs analysis" should project future requirements for 5-6 months.

  3. PSP should always be aware of training needs. The PSP area coordinators should stay in close communication with the SB/SE area training coordinator. A separate analysis must be done for training needs early enough to ensure returns are timely classified and delivered.

  4. A proper needs analysis should take the following into consideration:

    1. Current number of examiners in each POD. Sources: area or territory staffing charts, managers, ERCS.

    2. Available Inventory:

      Status Location Sources
      06 Campus automatics Audit Information Management System (AIMS) Open Case Database, Statistical Sample Inventory Validation Listing (SSIVL), Examination Returns Control System (ERCS)
      06 Campus DIF orders: pre-classification Audit Information Management System (AIMS) Open Case Database, Statistical Sample Inventory Validation Listing (SSIVL), Examination Returns Control System (ERCS)
      06 Non-DIF Inventory stored in PSP e.g., information referrals, non-filers, etc. Audit Information Management System (AIMS) Open Case Database, Statistical Sample Inventory Validation Listing (SSIVL), Examination Returns Control System (ERCS)
      06 CDE - Not in virtual inventory CDE status 06 report
      06 Approved return orders not yet processed Approved return orders
      08 CDE - Virtual inventory Audit Information Management System (AIMS) Open Case Database, Statistical Sample Inventory Validation Listing (SSIVL), Examination Returns Control System (ERCS)
      08 Campus DIF orders: post classification Audit Information Management System (AIMS) Open Case Database, Statistical Sample Inventory Validation Listing (SSIVL), Examination Returns Control System (ERCS)
      08 Non-DIF Inventory stored in PSP e.g., Compliance Initiative Project (CIP) cases, Return Preparer Projects (RPP), non-filers, etc. Audit Information Management System (AIMS) Open Case Database, Statistical Sample Inventory Validation Listing (SSIVL), Examination Returns Control System (ERCS)
      10 Exam groups Audit Information Management System (AIMS) Open Case Database, Statistical Sample Inventory Validation Listing (SSIVL), Examination Returns Control System (ERCS)

    3. CDE versus MCC ordering system impact on inventory. i.e. The amount of time between placing an order and having the inventory available to classify.

    4. Return orders that have been approved/processed but have not been classified and/or added to either the centralized files database or the area inventory. These returns should be considered as available inventory, giving consideration to the area’s select rate. Computation:expected returns from order = returns ordered × select rate percent.

    5. All available inventory in CDE, the campus, or PSP should be "discounted" as the statute date approaches. The discount should not be applied to returns with greater than 18 months remaining on the statute. Additional analysis will need to be done to determine returns out-of-cycle and needing to be surveyed as excess inventory. Computation: Statute Date minus Today’s Date must be > 540 days.

    6. Average number of returns needed for each POD, excluding specialty groups, for the 5–6 month period of the analysis. This should be based on average primary return starts for each POD.

      Source: Known issues impacting staffing and availability such as details and extended leave.
      Computation: Average primary return starts = (total number of primary returns started for each POD for a 12 month period ÷ total number of examiners in each POD)/12.
      Computation: Average number of primary returns needed = number of examiners × average primary return starts per examiner × 5 (or 6) months.

      Note:

      Consideration needs to be given to PODs with historically lower than needed starts. If starts are too low then an improvement factor may be applied to allow for an increase in new starts. Sources: AIMS Open Case Database, SSIVL, ERCS, Table 36, etc.

4.1.2.3 (10-19-2017)

Return Starts Analysis

  1. After determining the number of returns needed, the PSP Territory Manager (or designee) should determine the activity codes needed to deliver a balanced work plan. The mix of returns started each month must be monitored to maintain the optimal return mix of inventory. The optimal return mix of inventory is calculated separately for DIF returns than the overall exam plan. One method to facilitate this effort is a "return starts analysis."

  2. A "return starts analysis" analyzes the number of returns started during the fiscal year by activity code. This projects the mix of returns needed to be started for the remainder of the fiscal year.

  3. An effective "return starts analysis" generally includes the following by activity code:

    1. Optimal DIF Return Mix. Source: exam plan.

    2. Returns available in status 06, 08 and 10. Source: SSIVL, ERCS, etc.

    3. Returns starts accomplished YTD. Sources: ACIS Closed Case Database, ACIS Open Case Database, ERCS or PP&A Reports.

    4. Calculate return mix variance between mix accomplished, mix available and the optimal mix. Calculation: Optimal mix - (mix accomplished + mix available).

    5. Calculate work needed to allow for starts in the correct return mix. Calculation: Optimal mix - return mix variance.

    6. Non-DIF starts needed are independent of the DIF Optimal Mix and should be calculated to deliver the exam plan pro rata.Calculation: Non-DIF exam plan mix - mix accomplished. See Figure 4.1.2-1a Primary Non-DIF Strategy Calculation Example - Area Level.

  4. With the needed available return mix calculated, by activity code, the PSP Territory Manager (or designee) must determine if there is sufficient inventory on hand. If sufficient inventory is not on hand for each activity code, an order may be necessary. See Figure 4.1.2-1a Primary DIF Mix Calculation Example for Corporate Category - Area Level and for an example.

  5. The "return starts analysis" may indicate on an area level returns are not needed. However, be sure to review the "return needs analysis" to determine if a particular POD requires inventory.

    Figure 4.1.2-1a

    Primary DIF Mix Calculation Example for Corporate Category - Area Level

    Revenue Agent FY 20XX DIF Primary Plan Optimal DIF Mix FY YTD DIF Primary Starts Accomplished DIF Primary Status 10 Total Accomplished & Status 10 Total Accomplished & Status 10 Mix Variance Remaining for PSP to Deliver and Group to Start (Plan - (Accom + Status 10)) Available Primary Returns in Status 06 and 08
    Total 2096* 100% 1264 257 1521 100% 0.0% 575 608
    Corporate 350 16.7% 159 88 247 16.2% -0.5% 103 124
    203 46 2.2% 20 9 29 1.9% -0.3% 17 18
    209 99 4.7% 36 28 64 4.2% -0.5% 35 40
    213 84 4.0% 52 22 74 4.9% 0.9% 10 15
    215 75 3.6% 25 24 49 3.2% -0.4% 26 32
    217 46 2.2% 26 5 31 2.0% -0.2% 15 19

    Figure 4.1.2-1b

    Primary Non-DIF Strategy Calculation Example - Area Level

    Revenue Agent FY 20XX Primary Plan Pro-Rata FY 20XX Primary Plan FY YTD Primary Starts Accomplished Primary Status 10 Total Accomplished & Status 10 Remaining for PSP to Deliver and Group to Start (Plan - (Accom + Status 10)) Remaining for PSP to Deliver and Group to Start Pro-Rata (5 months remaining) Available Primary Returns in Status 06 and 08
    RPP 225 182 122 49 171 54 11 68
4.1.2.4 (10-19-2017)

Deciding to Order

  1. The "return needs analysis" helps to determine if there is a need for additional inventory in the various PODs and the number needed. The return starts analysis helps to determine the mix of activity codes needed to be started each month to ensure accomplishment of the optimal starts mix plan. Either one of these analyses, or both, could indicate a need to order returns. However, there are other considerations, with regard to the activity codes of the returns to be ordered:

    1. Productivity: while the area needs to meet the DIF optimal return mix, a single POD does not. There is sufficient flexibility to allow the PSP Territory Manager (or designee) to adjust for fallout among PODs where some may have higher quality returns of a certain activity code. Further, some PODs may have an abundance of non-DIF program work which could require adjustment to the mix of activity codes ordered for other PODs.

    2. Grade level of the examiners in the POD for which returns will be ordered.

4.1.2.5 (09-21-2020)

Monitoring Unassigned and Unstarted Inventory

  1. The PSP Territory Manager (or designee) is responsible for monitoring unassigned inventories (status 08), assigned-no time applied (status 10), and work-in-process inventories. The monitoring responsibility should be accomplished through the use of the following reports/systems:

    1. Statistical Sampling Inventory Validation Listing (SSIVL)

    2. Table 37 (monthly report MCC generated)

    3. AIMS Database Tables

    4. Inventory and Delivery Reports

    5. Examination Returns Control System (ERCS) and Tableau ERCS

    6. CDE Inventory Reports

  2. Unassigned inventories (status 08) should be maintained throughout the fiscal year. Generally, inventory levels should not exceed needs for 2–3 months.

  3. Unassigned inventories in status 10 should be kept to a minimum to allow for a quicker change of direction to meet program needs. Generally, inventory levels should not exceed 2 months.

  4. Non-DIF returns may be stored either in centralized files at the campus, in CDE, or physically in the area office.

  5. Returns are generally assigned to examination groups with at least 18 months on the statute to allow for the examination cycle time. PSP may send returns to the examination group with shorter statutes based on program needs and priorities.

  6. Monitoring allows the review of group return orders, status 10 aging, poor survey practices and more. Comparisons of status 10 availability within the same POD may allow for reassignment of returns to groups in need of inventory within the POD.

4.1.2.6 (10-19-2017)

Inventory Brokering

  1. If a shortage of resources exists in any major category of the exam plan, the affected Area Director and the PSP Territory Manager will take the appropriate actions to redirect inventory and to deliver a balanced exam plan.

  2. Inventory brokering within an area and between areas are options.

  3. Inventory brokering requests between areas are to be coordinated with the Director, Exam Case Selection (ECS) before movement of inventory.

4.1.2.7 (09-21-2020)

Discriminant Function (DIF) Overview

  1. This subsection discusses sources of discriminant function (DIF) returns.

  2. DIF as referenced in IRM 4.19.11.2.2, Sources of Returns for Classification, is a mathematical technique used to score income tax returns for examination potential. These formulas were developed based on available NRP data. Each return measured under DIF receives a DIF score. Generally, the higher the score, the greater the audit potential. The highest scored returns are made available to examination upon request.

  3. DIF mathematical formulas are confidential and for official use only. The DIF score assigned to a return should not be disclosed.

4.1.2.7.1 (10-19-2017)

Types of DIF Returns

  1. The following types of returns are computer scored under the DIF System:

    1. Individual

    2. Corporation

    3. S Corporation

    4. Partnership

    5. Fiduciary

4.1.2.7.2 (09-21-2020)

Individual Returns

  1. All individual returns are computer scored under the DIF system. DIF returns are generally ordered, but some returns are delivered to examination as automatics for manual screening without a return order being placed. These returns are identified as automatics by the use of audit codes. Audit codes can be found on Form 5546, Examination Return Charge-Out Sheet, and on page 2 of the AMDISA print. Audit codes are listed in IRM 3.11.3-3, Audit Codes.

  2. Correspondence (CORR) returns are certain individual low and medium non-business returns that are conducive to correspondence examinations. Returns identified as "CORR" can not be ordered by area offices. They can only be ordered at a national level.

4.1.2.7.3 (10-19-2017)

Corporation Returns

  1. Corporation returns having no balance sheet or assets under $10,000,000 are computer scored under the DIF system. Formula numbers are used to identify the asset classes when ordering corporate returns on Form 6897, Corporation Returns Orders. High asset returns, activity codes 219 through 230, are not DIF scored and are delivered automatically to classification at the Ogden Large Business & International (LB&I) Campus. The corporation DIF system includes:

    Activity Code Assets Formula
    203 No Balance Sheet 1
    209 Under $250,000 2
    213 $250,000 under $1,000,000 3
    215 $1,000,000 under $5,000,000 4
    217 $5,000,000 under $10,000,000 5

  2. Miscellaneous corporate returns are not DIF scored. These returns may be sample ordered. These returns could be classified by screening them in the Statistics of Income (SOI) Division located at the receiving campus before shipment to SOI at the Ogden Campus. Miscellaneous corporate returns include:

    Form or Schedule Description
    1120 PHC—LA Personal Holding Company—Low Asset
    Form 1120-L Form 1120-L U.S. Life Insurance Company Income Tax Return
    Form 1120-PC U.S. Property and Casualty Insurance Company Income Tax Return
    1120 INAC—LA Inactive—Low Asset
    Form 1120-H U.S. Income Tax Return for Homeowners Associations
    Form 1120-SF Form 1120-SF U.S. Income Tax Return for Settlement Funds (Under Section 468B)
    Form 1120-REIT U.S. Income Tax Return for Real Estate Investment Trusts
    Form 1120-RIC Form 1120-RIC U.S. Income Tax Return for Regulated Investment Companies
    Form 1120-ND Return for Nuclear Decommissioning Funds and Certain Related Persons

  3. Certain corporation returns are identified as Specials. These returns can be identified and ordered by specific audit codes. These audit codes are listed in IRM 3.11.16.9.1, Audit Codes.

4.1.2.7.4 (10-19-2017)

S Corporation Returns

  1. S Corporation returns having assets under $10,000,000 are computer scored under the DIF system. The S Corporation system includes:

    Activity Code Assets
    234 No Balance Sheet
    288 Under $200,000
    289 $200,000 under $10,000,000
    290 $10,000,000 and over (automatic, not DIF scored)

  2. Certain S corporation returns are identified as Specials. These returns can be identified and ordered by specific audit codes. These audit codes are listed in IRM 3.11.217.13.1, Audit Codes.

4.1.2.7.5 (10-19-2017)

Partnership Returns

  1. A partnership includes a syndicate, group, pool, joint venture or other unincorporated organization, through or by means of which a business, financial operation, or venture is carried on, and which is not a trust, estate or corporation. A partnership files a Form 1065, U.S. Return of Partnership Income. The Partnership system includes:

    Activity Code Gross Receipts
    481 10 or less partners under $100,000
    482 10 or less partners $100,000 and over
    483 11 or more partners

  2. Certain partnership returns are identified as Specials. These returns can be identified and ordered by specific audit codes. These audit codes are listed in IRM 3.11.15.19.1, Audit Codes.

4.1.2.7.6 (10-19-2017)

Fiduciary Returns

  1. A fiduciary is a trustee of a trust, or an executor, executrix, administrator, administratrix, personal representative, or person in possession of property of a decedent's estate. A trust or a decedent's estate is a separate legal entity for federal tax purposes. A fiduciary files a return using Form 1041, U.S. Income Tax Return for Estates and Trusts. The Fiduciary system includes:

    Activity Code Type
    496 Taxable - Automatic & Non-Automatic
    497 Nontaxable - Grantor, Bankruptcy & Pooled Income - Automatic & Non-Automatic
    498 Nontaxable - Other - Automatic & Non-Automatic

  2. Certain fiduciary returns are identified as Specials. These returns can be identified and ordered by specific audit codes in CDE. These audit codes are listed in IRM 3.11.14.10.1, Audit Codes.

4.1.2.7.7 (09-21-2020)

DIF Cutoff Score

  1. Each year (or as required), SB/SE Headquarters Exam Case Selection establishes a national SB/SE DIF cutoff score for ordering DIF returns in each activity code. Only returns with a DIF score higher than the minimum should be ordered for classification unless there are unusual circumstances associated with a particular post of duty (POD). The following items should be considered when establishing the cutoff score for each activity code:

    1. The predictive value of the DIF formula decreases at lower DIF levels.

    2. Volume of returns needed to meet the exam plan and the lowest DIF score necessary to secure enough returns to meet the needs of each area and POD.

    3. Filings which will not be available due to being accepted as filed or absorbed by other non-DIF strategy work.

  2. Annually the FCS analyst will provide DIF cut-off levels to each area. The FCS analyst will utilize two reports to compute the DIF cutoff score:

    • Report 1 - Actual Return Counts (for the file year) includes: DIF Level, % Coverage Rate, Activity Code, and Actual Count.

    • Report 2 - DIF Score Range includes: DIF Level, Coverage Rate, and DIF score by Activity Code.

    Example:

    1,000 Activity Code 275 returns are needed. Look at Report 1 to determine the DIF Level. In this case it would be DIF level 3 because there are 1,644 returns in DIF levels 1 - 3. Then look at Report 2, Level 3 and Activity Code 275 to see the DIF Level Cut-off is equivalent to a 735 or higher DIF score.

    Report 1 - Actual Return Counts

    DIF Level % Coverage Rate Actual Count 275 Actual Cumulative 275
    1 0.01 164 164
    2 0.05 653 817
    3 0.10 827 1644
    4 0.15 803 2447
    5 0.20 833 3280
    6 0.25 863 4143
     

    Report 2 - DIF Score Ranges

    DIF Level Coverage Rate Activity Code 275 Activity Code 276
    1 0.01 807 666
    2 0.05 759 614
    3 0.10 735 591
    4 0.15 720 576
    5 0.20 708 566
    6 0.25 698 557
     

  3. The PSP staff will be responsible for ensuring return orders do not exceed returns available above the DIF cutoff for their area for each activity code.

  4. Every available means to supply workload above the cutoff score in each activity code will be exhausted before a request is submitted to order returns below the cutoff score. For example, for a POD, if the geographical area permits, select returns from excess workload of a contiguous POD within the Area.

  5. Departures from the DIF cutoff score should be discussed with the FCS Analyst for return ordering.

4.1.2.8 (10-19-2017)

Inventory and Delivery Reports

  1. A list of inventory and delivery reports that are available and the exhibits where they can be found are shown in the table below:

    Report Exhibit Description
    1040–1, AO Individual Inventory and Delivery Report Exhibit 4.1.2-1. Individual filed and delivered returns by POD, Activity Code & DIF Score with a summary at the end for current and previous file year.
    1040–2, AO Individual Inventory and Delivery Analysis Exhibit 4.1.2-2 Individual Analysis, identifies by activity code filings, types of deliveries, specials, and lowest DIF score delivered.
    1040–3, Individual Inventory and Delivery Report (Unallowable, Tax, Preference and Self-Employment Tax) Exhibit 4.1.2-3 Self-Employment Tax returns
    1040–5, Individual Amended Returns Inventory and Delivery Report Exhibit 4.1.2-4 Amended Returns
    1120–4, Corporate DIF Inventory and Delivery Report Exhibit 4.1.2-5 Corp Filed and delivered by POD, activity code & DIF score & Summary
    1120–5, Corporate Inventory and Delivery Analysis Report Exhibit 4.1.2-6 Corp Analysis, filings, projected filings, deliveries by type, specials
    1120–6, AO 1120S and 1120F Inventory and Delivery Report Exhibit 4.1.2-7 1120S & 1120F report filings & delivery by POD, Activity code & DIF score (summary at end & separate summary)
    1065–3, Partnership Inventory and Delivery Report Exhibit 4.1.2-8 Partnership filed & delivered by POD, activity code & DIF Score (summary at end)
    1065–4, Partnership Inventory and Delivery Analysis Report Exhibit 4.1.2-9 Partnership Analysis, filings, projected filings, deliveries by type, specials

  2. The top section of the Inventory and Delivery Reports (1040–1, 1065–3, 1120–4, 1120–6) indicates the number of returns available for Martinsburg Computing Center (MCC) ordering. The bottom of the reports indicates the number of returns delivered for screening by examination class and DIF score range for each file year. These reports are cumulative for all returns received, processed, and delivered to examination during a file year, however available inventory is reduced as returns are delivered through processes other than DIF, (CDE, Compliance Initiative Projects (CIPs), return preparer, etc.). Inventory and Delivery Reports cover two different file years. Please ensure the correct file year report is used to place the order.

4.1.2.9 (10-19-2017)

Guidelines for Ordering Returns

  1. The PSP Territory Manager (or designee) is responsible for submitting orders so returns are received ratably during the fiscal year. Ratable is defined as a manner of ordering so all returns with similar DIF scores, regardless of the filing date, have an equal chance of being delivered to classification.

  2. Current file year individual DIF returns (activity codes 270 through 281) will be ordered so deliveries for total individual returns, when measured as a percent of the total DIF individual examination plan adjusted for select rate and delivery, will not exceed the following:

    1. No more than 30 percent in any one quarter.

    2. No more than 55 percent in any two consecutive quarters.

    3. No more than 108% in any four consecutive quarters.

    Example:

    The classification plan for fiscal year 16 (10/1/15 thru 9/30/16) reflects needs of 75,000 returns. No more than 22,500 should be ordered in the first quarter, no more than 41,250 (which includes what has been previously ordered) before the end of the second quarter, and no more than 81,000 (which includes what has been previously ordered) may be ordered before the end of the third quarter (Cycle 26).

  3. Exceptions to the above guidelines must be approved by the PSP TM (or designee) and should be considered when any of the following conditions are met:

    1. The area has an increased dependence on DIF work for general program expectations due to an insufficient volume of non-DIF strategy work;

    2. The area has a specific need for certain post of duties (PODs) where there is a historically low fallout of non-DIF strategy work.

  4. Due to numerous fiscal year corporate and other Business Master File (BMF) filings, high potential BMF returns are added to inventory throughout the entire file year. To ensure equal treatment of BMF taxpayers, BMF returns must be ordered in a ratable manner.

  5. As a guideline, DIF BMF return orders, when measured as a percent of the examination plan, should not exceed 200 percent of the total DIF examination plan adjusted for select rate and delivery rate for any DIF formula.

  6. All return orders will be submitted to the designated FCS Analyst for review and approval. The HQ analyst will forward the MCC orders to the campus and will return the CDE orders to the area PSP for input into CDE.

4.1.2.9.1 (09-21-2020)

Classification Plan

  1. At the beginning of the fiscal year, each area should plan their classification details. The classification plan will be used to determine when to place a DIF return order and schedule RAs and TCOs for classification details. Typically return orders are every other month. The PSP Territory Manager (or designee) will update the CDE Calendar with the classification details. Be sure to review the CDE Calendar for any planned down time. The CDE Calendar can be found on the CDE SharePoint. The CDE SharePoint site requires approval prior to accessing.

  2. The PSP Territory Manager (or designee) will monitor the classification plan to ensure the following:

    1. Returns are ordered ratably throughout the plan year.

    2. Returns are ordered timely in the correct activity codes.

    3. Classification is being done timely.

    4. Select rates are within acceptable levels.

    5. Returns are falling out in the correct posts of duty.

    6. Unassigned inventory levels are neither too low nor too high.

  3. An order computation system is available from the FCS analyst for return ordering.

4.1.2.9.2 (10-19-2017)

Ordering MCC Individual DIF Returns

  1. Form 6356, Individual DIF Returns Order, will be used to order MCC individual DIF returns. Instructions for completing Form 6356 are found on the back of the form. Returns may be ordered from any cycle for regular DIF inventory.

  2. Areas are expected to order returns for the entire area. However, the capability for ordering or excluding returns for a specific post-of-duty is also available. These orders should be kept to a minimum since it deviates from working the highest DIF returns first. These types of orders are:

    1. POD Exclusion Order — Where there is an excess workload at one or more posts-of-duty, the POD(s) may be excluded from any order cycle. A maximum of 11 PODs may be excluded each cycle. If an area wide (general) order is placed subsequent to a POD exclusion order, returns previously excluded may fall out.

    2. POD Supplement Order — Where there is a workload shortage at a specific POD, a supplemental order may be submitted.

  3. Exhibit 4.1.2-1, Inventory and Delivery Report 1040–1, shows the number of MCC DIF returns available for ordering and the number of returns delivered for screening by examination class and DIF score range for each file year. This report provides the number of Minimum Tax and Alternative Minimum Tax returns (combined under TXPREFRET). This is a cumulative report which is generated every even cycle for prior and current file years.

  4. Exhibit 4.1.2-2, Inventory and Delivery Analysis Report 1040–2, provides statistical data on individual returns processed and on returns delivered, including specials. This report is generated every cycle for the first 40 cycles and even cycles thereafter.

  5. Individual returns should not be ordered from the current file year until cycle 18. For current file year orders prior to cycle 26, Override Code "1" will be entered in Column 87 of Form 6356, Individual DIF Returns Order, to override the computer block.

    Caution:

    Tax returns filed through the Modernized e-File (MeF) system are not available for viewing in EUP during the end-of-year maintenance window that begins the last week of December until MeF opens for production in January.

  6. Previous file year returns can still be ordered after cycle 9 using the current ordering process. Override Code "9" will be entered in Column 87 of Form 6356 to override the computer block. Approval is needed from the PSP Territory Manager to utilize this override code.

  7. Figure 4.1.2-1 shows the recommended file year to order depending on the cycle. Availability of high DIF score returns may require ordering returns in different file years.

    Figure 4.1.2-2

    Return Ordering Cycles

    Cycle File Year to Order
    52–04 Dead Cycle (cannot order)
    05–17 Prior Year
    18–26 Depending on DIF scores either prior or current file years
    27–51 Current Year

  8. Alternative Minimum Tax returns may be ordered using Form 6356, Individual DIF Returns Order, with Indicator Code "W" entered on the order form.

  9. The Amended Returns inventory contains Category B (paid) claims. Form 8199, Amended Returns Order, is used to place orders. Exhibit 4.1.2-4, Table 1040–5, is the Inventory and Delivery Report for amended returns. These claims are ordered by the year in which the claims were filed, not by the tax year of the returns for which the claim applies. The highest dollar claims will be delivered first. The following categories of amended returns may be ordered:

    1. Adjustments to Income

    2. Filing Status and Exemptions

    3. Tax Computations

    4. Credits

    5. Itemized Deductions

    6. Schedule C or F

    7. Schedule D and Form 4797, Sales of Business Property

    8. Schedule E

    9. Other Taxes

    10. Multiples (any combination of the above categories)

    11. Other (reasons not covered in above categories)

4.1.2.9.3 (10-19-2017)

Ordering MCC Corporation Returns

  1. Form 6897, Corporation Returns Order, will be used to order MCC corporation returns. This form is separated into two sections, Corporation DIF Returns Order and Miscellaneous Corporation Returns Order. Instructions for completing Form 6897 are found on the back of the form. Returns may be ordered from odd numbered cycles only.

  2. Areas are expected to order returns for the entire area. However, the capability for ordering or excluding returns for a specific post-of-duty is available. These orders should be kept to a minimum since it deviates from working the highest DIF returns first. These types of orders are:

    1. POD Exclusion Order — Where there is an excess workload at one or more posts-of-duty, the POD(s) may be excluded from any order cycle. A maximum of 8 PODs may be excluded each cycle.

    2. POD Supplemental Order — Where there is a workload shortage at a specific POD, a supplemental order may be submitted.

  3. Exhibit 4.1.2-5, Corporate DIF Inventory and Delivery Report 1120–4, shows the number of DIF returns available to order for screening and the number of MCC DIF returns which have been delivered by DIF score range.

  4. Exhibit 4.1.2-6, Corporate DIF Inventory and Delivery Analysis Report 1120–5, provides data on corporations processed and on returns in inventory or delivered, including specials and automatics. BMF returns can be ordered from the current file year inventory at cycle 5 as long as there are enough filed returns to cover the order.

  5. Exhibit 4.1.2-7, 1120S DIF and 1120F Inventory and Delivery Report 1120–6, provides data on corporate returns processed and on returns in inventory or delivered, including specials and automatics.

  6. Indicator Codes for MCC Orders are entered on Form 6897 to designate the type of returns ordered as shown in the table below:

    Indicator Explanation
    0 The highest scored returns in inventory will be delivered. Valid for all types of DIF scored returns.
    1 Reserved.
    2 Taxable Inventory Returns. Valid for only the following returns:
    a. 1120L
    b. 1120PC
    c. 1120 PHC (low asset)
    3 Non Taxable Income Inventory Returns. Valid for only the following returns:
    a. 1120L
    b. 1120PC
    c. Inactive (low asset)
    d. 1120 PHC (low asset)
    5 To be used to order corporation returns of the current file year prior to Cycle 27 and is entered in Column 12

  7. Orders of miscellaneous returns in the taxable income category are filled from the top of the "file" (highest income to zero).

  8. Orders of miscellaneous returns in the non taxable income category are filled from the top of the "file" (greatest loss to zero).

  9. Only one indicator code may be used for returns in each examination class in the same cycle. However, different indicator codes may be used for different examination classes in the same cycle.

4.1.2.9.4 (10-19-2017)

Ordering MCC Partnership Returns

  1. Form 6162, Partnership Returns Order, will be used to order DIF partnership returns. Instructions for completing Form 6162 are found on the back of the form. Returns may be ordered monthly in cycles 05, 09, 13, 18, 22, 26, 31, 35, 39, 44, 48, and 52.

  2. Exhibit 4.1.2-8, Inventory and Delivery Report 1065–3, shows the number of partnership returns available for ordering and the number of partnership returns delivered for classification, by DIF score range, examination class and file year.

  3. Exhibit 4.1.2-9, Inventory and Delivery Report 1065–4, provides analytical data on partnership returns processed, inventoried and delivered for classification, including automatics and specials.

  4. Indicator Codes are entered on Form 6162 to designate the type of returns ordered as follows:

    Indicator Code Explanation
    0 Should be entered on all orders for Form 1065, U.S. Return of Partnership Income.
    5 To be used to order partnership returns of the current file year prior to Cycle 27.

  5. According to IRC 761(a), Partnership Returns, investment groups that are not required to file partnership returns, selected for examination by the campus, will be forwarded to their respective areas.

4.1.2.10 (10-19-2017)

Ordering Returns Using Compliance Data Environment (CDE) System

  1. The CDE system can be used to order 1040, 1041, 1065, 1120, and 1120S returns. It has the capability to include or exclude specific PODs, if necessary. The system can use the current file year, previous file year or look back 12 months from the date of input and identify the highest DIF scored returns. When placing orders take into account the data upload cycles for CDE. Orders should be placed following a CDE upload rather than immediately before.

  2. CDE orders require the approval of the PSP Territory Manager and the Headquarters FCS analyst for return orders.

4.1.2.11 (10-19-2017)

Procedures for Surveying Inventory in PSP

  1. When a PSP coordinator must survey inventory located in PSP deemed to be excess inventory (Disposal Code 35), they must stamp the front of the original return with a stamp marked "Excess Survey by PSP" or similar stamp. Excess inventory is inventory that is beyond cycle or will never get worked in a POD because of the group’s start capacity. If the return is "virtual" (stored in CDE) no stamp is needed

    Example:

    The number of examiners in a group decreases, which may contribute to less returns the group can start.

  2. The PSP coordinator must maintain documentation regarding the manager’s approval to survey inventory. Documentation must be kept for 1 year after input per Document 12990, Records Control Schedules, Schedule 23, Item 51, Examination Non-Examined Closing.

  3. If a return is surveyed using a disposal code other than 35, the PSP section chief will follow the procedures in IRM 1.4.40.4.6.2, Surveying Cases, using the same standard reason codes as referenced in IRM 4.1.5.3.2.5, Classification Documentation.

Exhibit 4.1.2-1

AO Individual Inventory and Delivery Report 1040–1

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Exhibit 4.1.2-2

AO Individual Inventory and Delivery Analysis 1040–2

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Exhibit 4.1.2-3

Individual Inventory and Delivery Report (Unallowable, Tax Preference and Self Employment Tax) 1040-3

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Exhibit 4.1.2-4

Individual Amended Returns Inventory and Delivery Report 1040–5

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Exhibit 4.1.2-5

Corporate DIF Inventory and Delivery Report 1120–4

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Exhibit 4.1.2-6

Corporate Inventory and Delivery Analysis Report 1120–5

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Exhibit 4.1.2-7

AO1120S DIF and 1120F Inventory and Delivery Report 1120–6

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Exhibit 4.1.2-8

Partnership Inventory and Delivery Report 1065–3

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Exhibit 4.1.2-9

Partnership Inventory and Delivery Analysis Report 1065–4

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