WIIC was established as one of nine practice areas within the LB&I in February 2016. Guidance was previously provided to IIC examiners in various other IRM sections authored by SB/SE as well as LB&I. This IRM is intended to be a primary resource for IIC examiners.

The development, implementation and oversight of IIC case processing procedures are the prerogative of the Director, WIIC.

IRM 4.10, Examination of Returns, provides the basic procedures, guidelines and requirements for use by revenue agents, tax compliance officers, tax auditors and tax examiners in conducting income tax examinations. Additional procedures for LB&I cases are found in IRM 4.46, LB&I Examination Process.

This section provides an explanation of the basic standards and responsibilities that all IIC examiners must understand and apply in the performance of their duties.

IIC examiners and managers should be familiar with and use the examination procedures and information contained in this IRM and also be aware of the applicable procedures in other examination IRM chapters, as cited or linked.

All IIC examiners will use the latest version of forms and letters available in electronic format on the Forms/Pubs/Products Repository, http://publish.no.irs.gov/catlg.html. It is acceptable to use the version of forms and letters in RGS until next RGS update unless IIC examiners are informed otherwise.

IIC examiners receive case assignments through various international work streams and referrals from other business units, federal agencies and functions to include Criminal Investigation, Department of Justice, Whistleblower Office, deferred prosecution and non-prosecution leads, spontaneous exchange leads, case related and John Doe Summons requests from treaty partners, cooperating agent requests, claims, etc.

Program Reports Director, WIIC Practice Area prepares periodic briefing reports for the LB&I commissioner focusing on:

Program Effectiveness The efficiency of the case procedures is measured through combined business results of the teams that make up the WIIC Practice Area.

The Director, Field Operations (DFO), IIC monitors the activities of the territories and administers procedures and updates related to the territories.

The Director, WIIC identifies goals and objectives to be achieved by the organization, compiles periodic reports from the DFO and reports to LB&I executive management on a continuous basis via the director’s briefings.

This table lists commonly used acronyms and their definitions.

For information regarding the WIIC international individual compliance strategies and program initiatives, refer to the WIIC website https://irssource.web.irs.gov/LBI/Lists/LBIOrgs/DispItemForm.aspx?ID=16.

IIC examiners should assist taxpayers in resolving any tax problems identified during an examination, even if the problems are not directly related to the examination.

IIC examiners should request assistance from customer service personnel, as needed to expedite resolution of taxpayer problems.

IIC examiners contact the Taxpayer Advocate when appropriate.

IIC examiners should make referrals to appropriate SB/SE ATAT Collection personnel if taxpayers have questions about current or past collection actions. If a taxpayer requests information about collection actions taken against a former or separated spouse, this request should also be referred to Collection personnel.

IIC examiners should refer to IRM 4.9, Examination Technical Time Reporting System, to determine the appropriate time reporting codes to use when assisting taxpayers in solving problems that are unrelated to an ongoing examination.

The effective use of time is an essential element of a quality examination. WIIC examiners are responsible for the day-to-day management of their cases and are accountable for completing their work in the least amount of time necessary to perform a quality audit. Both the number of hours charged to a case and the span of time the case is open must be reasonable.

Factors used to determine if the time charged and the length of time a case is open are reasonable include:

A focus on timely actions will reduce taxpayer burden. . For example, time span (timeliness) of the case should be appropriate for the actions taken. Case action should be completed in the most efficient manner and not result in unnecessary delays during the examination process. Guidelines for timely actions during each phase of the examination are contained in this IRM. These are national standard timeframes for which action should be taken:

See IRM Exhibit 4.8.3-1, Quality Attributes.

In-process cases will be considered overage when they have been in status 12 (started) 395 days for revenue agent cases, 210 days for tax compliance officer cases and 180 days for tax examiner cases.

Effective oral and written communication with taxpayers is a significant factor in conducting a quality examination and in minimizing taxpayer burden. All communication with taxpayers must be timely, clear, courteous and professional.

The taxpayer must be informed of the audit process to ensure their engagement and cooperation. Upon initial taxpayer contact, IIC examiners will provide Pub 1, Your Rights as a Taxpayer, and Notice 609, Privacy Act Notice. IIC examiners will also provide Pub 3498, The Examination Process, with the examination report to ensure the taxpayer’s understanding of the process. IIC examiners will establish facts, analyze the information and properly explain any adjustments and penalties in a clear and professional manner.

See IRM 4.10.2.5.1, Conditions Allowing Survey of Returns After Assignment.

In addition, examiners are reminded that non-military individuals, such as contractors, can be deployed to a Qualified Combat Zone (QCZ). Non-military individuals should be treated consistent with IRC 7508 and IRM 4.10.2.5.1 (3).

Team managers may find it necessary to survey cases. Non-mandatory cases that will not result in a material tax change should be surveyed.

The survey of cases may be performed before or after assignment.

Only Disposal Code 31 (Survey Before Assignment) and Disposal Code 34 (Surveyed Claims) are valid when surveying a return before assignment.

Managers are required to determine the appropriate survey reason code when surveying a return before assignment. See IRM 4.63.4.5.3, Survey Reason Codes. Depending on the survey reason code, the manager will need to complete a Form 1900, Income Tax Survey After Assignment, or Form 14235, LB&I Survey Form, when surveying a case before assignment.

The completed Form 1900 or Form 14235 should be included in the case file and a copy electronically forwarded to the PSP Coordinator. The survey reason code also needs to be included on the Form 3198, Special Handling Notice for Examination Case Processing.

It is critical that a team manager closely evaluate work needs when ordering returns, and that surveys be kept to a minimum.

When surveying a WIIC return, either survey before assignment or survey after assignment, it is important that the appropriate survey reason code be used.

Valid survey reason codes are:

Only returns surveyed before (Disposal Code 31) or after assignment (Disposal Code 32) can be closed by a virtually paperless process. If the original return was never requested and the survey reason code is either B (No Change in Prior Year) or D (Lack of Resources), the return can be closed using the paperless survey process.

If the return was requested when you established the case on ERCS/AIMS (ALL DIF and Automatic Openings request the return) the case CANNOT be closed as paperless. Before requesting a paperless closure, pull an AMDISA and if the words "RETURN REQUESTED" appear on page 2 - line 8 then a paperless closure CANNOT be requested.

An electronic print can be surveyed using the paperless process if there is no requirement to attach any documentation to the survey. Cases requiring the use of a Form 1900 or Form 14235 cannot be closed using the paperless process. For a definition of what constitutes an electronic print, please see IRM 4.46.3.1.2.1 (1), Paperless Survey - Non-Examined Closures Using a Paperless Process.

If surveying a case using the paperless survey option, only a Form 5351, Examination Non Examined Closings, and a Form 3210, Document Transmittal, are needed.

If it is determined that the case can be closed using the paperless survey option, examiners will complete the following steps:

Do not send electronic prints, asset locator research, or charge-out documents to CCP. These documents should be shredded. If you have information that must be retained, you cannot use the paperless survey closure.

If you cannot use the paperless survey closure, see IRM 4.63.4.5.2, Surveying Cases Before Assignment, and IRM 4.63.4.5.5, Procedures for Surveying Returns After Assignment.

The following disposal codes are appropriate for surveying a return after assignment: 32, 34, 42 and 43.

Procedures for surveying returns after assignment are as follows:

For instructions in completing Form 1900, Income Tax Survey After Assignment, see IRM 4.10.2.5.4.

The instructions for completing Form 14235, LB&I Survey Form, are as follows:

WIIC examiners will adhere to IRM 4.10.2.5.5, Surveying Claims. However, WIIC examiners can use either Form 1900, Survey After Assignment, or Form 14235, LB&I Survey Form.

The use of Form 1900 or Form 14235, is mandatory when surveying a claim, regardless of the survey reason code. Upon completion of the Form 1900 or Form 14235, the examiner needs to obtain managerial approval to survey the return. This is accomplished by having the team manager sign the Form 1900 or Form 14235. Upon receiving the team manager’s signature, a copy of the form should be transmitted to the IIC PSP coordinator and the original retained with the case file.

See IRM 4.10.2.5.6, Surveying Returns Transferred From Another Area, for surveying returns transferred from another area.

See IRM 4.2.6.6, Survey of Employee Returns, for surveying employee returns.

If an in-depth analysis and evaluation of audit potential indicate that a return should be examined, then examiners should begin planning the examination.

Revenue Agent cases: The planning process begins with the completion of the steps and audit techniques listed on the mandatory lead sheets that are applicable at this stage of the examination (see IRM 4.10.2.3, In-Depth Pre-Contact Analysis, and IRM 4.10.9.4, Workpaper System for a complete discussion of lead sheets).

Tax Compliance Officer cases: The planning process consists of the following:

Tax Examiner cases: The planning process consists of the following steps:

Examine all large, unusual and questionable items (LUQ). However, it is not intended that examiners should consider every possible issue. For instance, it is not proper for examiners to make a detailed analysis of a specific account unless the potential adjustment will materially affect the tax liability or will be important from a compliance viewpoint.

Adequately explain the items which are examined and the LUQ items which are accepted without examination. The case file's activity record and workpaper will clearly indicate the scope of the examination, the depth of the examination, and the reasons for the decisions.

Complete the workpapers contemporaneously. To the extent possible, prepare the mandatory lead sheets and issue specific lead sheets as the examination progresses. In addition:

Check boxes are available in the mandatory lead sheets and can be used in the examination process. They serve as a reminder of an action(s) to be completed. Checking a box does not eliminate the need for comments or workpapers, which document the the audit procedure(s) performed.

In all cases, professional judgment must be used. IIC examiners must ensure that the applicable tasks have been performed before checking the boxes. As the audit progresses the actions and audit steps may change. The examiner is responsible for ensuring that the correct audit response is checked with relevant comments and explanations are provided as warranted.

Determining the scope of an examination is the process by which an IIC examiner selects issues warranting examination. Examiners should thoroughly review the classification sheet, if applicable, and select issues so that, with reasonable certainty, all items necessary for a substantially correct determination of the tax liability have been considered.

IIC examiners must assess the facts and apply judgment in determining the scope of the examination.

IIC examiners are expected to continually exercise judgment throughout the examination process to expand or contract the scope as needed.

If during the examination, the scope is expanded to include additional tax period(s), the taxpayer should be notified verbally or in writing of the expansion. If the taxpayer has a power of attorney and it does not cover the tax period(s) being picked up for examination, the taxpayer must be given time to secure a power of attorney for the additional tax period(s). Also, the examiner must allow the taxpayer time to submit records on the newly added year(s). The appropriate appointment confirmation letters should be used by revenue agents, tax compliance officers, and tax examiners as noted in IRM 4.63.4.6.2.1 and IRM 4.63.4.6.2.2.

The scope of an IIC examination may be limited under conditions described in this subsection and may be limited to one or two issues. Any limitations placed upon the scope of the examination should be documented in the case workpapers.

Taxpayer documentation and responses to questions should be considered and documented and the scope adjusted as appropriate. Other potential compliance issues (e.g. claims filed before or during the audit) should be considered and reviewed as early in the audit as possible.

If a taxpayer is contacted about an Information Return Processing (IRP) item, the scope of the examination is generally limited to resolving differences between items reported by the taxpayer and items reported on the information returns. Emphasis should be placed on determining if income was omitted and whether the omission occurred in more than one year. When it appears that a material amount of income may not have been reported, and there has not been a prior audit, an examination should be initiated.

When a Schedule K–1, Partner's/Shareholder's Share of Income, Deductions, Credits, etc., is inspected to determine that the flow through items have been reported correctly, the taxpayer and/or representative should be advised that the inspection does not constitute an examination of the flow-through entity and the taxpayer’s distributions from the related entity may be adjusted later if the related entity is examined.

Generally, short-term timing issues should not be examined. Timing issues with long-term, indefinite or permanent deferral features should be examined. Unplanned timing issues which arise as correlative adjustments during an examination of non-timing issues should be made if it is cost effective.

The scope of the IIC examination may be limited due to collectability. Such a determination should be made when the taxpayer has no ability to pay or no expectation of a future ability to pay. Taxpayer assertions of inability to pay should not be considered without substantiation. Consult with SB/SE Collection or Field Counsel for assistance. See IRM 4.63.4.7, Collectability in WIIC Cases.

Depth is the extent to which an issue is developed. It demonstrates the degree of intensity and thoroughness applied in order to make a determination as to the correctness of an item.

IIC examiners must exercise judgment in determining the depth required for the examination. Determining the depth for different issues will help to estimate the time needed to complete the examination. The following factors should be considered:

Perform preliminary research of the applicable IRC sections, treasury regulations, rulings, and court cases concerning the proper tax treatment of the particular issues identified in the pre-contact analysis. This will assist in the development of specific interview questions, determine possible audit procedures, and help determine what information should be included on the information document request. It is critical that the examiner become familiar with the issues on the return. Extensive research, however, should not be conducted until the facts of the issues are established. See IRM 4.10.7, Issue Resolution.

Secure the prior audit file(s) if applicable, including report(s), from the Correspondence Examination Automation Support (CEAS) database to determine the issues previously proposed and any problems encountered during the examination. If the prior audit file is not available in CEAS, ask the taxpayer for a copy of the report or request the administrative file from the campus.

If collectability is an issue on an assigned case, the team manager should be alerted as soon as the issue is discovered. Managers will make the final determination whether to survey the return or to limit the scope/depth of an examination. See IRM 4.10.2.4.1, Collectability.

Revenue agents and tax compliance officers must balance compliance with collectability and should consider transferee liability, future income or denial of future refunds/credits, hidden assets, etc. Examiners should document known accounts and assets during examinations and interviews to ensure case files identify all assets.

IIC examiners should take all possible steps to secure payment of agreed deficiencies resulting from examinations. Revenue agents and tax compliance officers are required to document their evaluation of collectability.

IIC revenue agents and tax compliance officers work with SB/SE Collection ATAT groups. ATAT revenue officers have been trained to work international and offshore cases for collection.

IIC revenue agents and tax compliance officers should solicit installment agreements by using Form 433-D, Installment Agreement, or Form 9465, Installment Agreement Request, as appropriate. See IRM 4.20.3.4, Coordination with Collection, for agreed unpaid cases over $100,000.

Collection tools are available to reach offshore assets in international cases when an offshore account is located. Some of the collection tools available are:

Refer to IRM 5.21.3, Collection Tools for International Cases, for further details on these collection tools and the following IRM Sections for more specific collection guidance:

Certain tax treaties to which the United States is a party provide for mutual assistance in collection. The collection assistance provisions of a tax treaty enable one contracting state to collect taxes covered by the treaty on behalf of the other contracting state. A request for such assistance is referred to as a Mutual Collection Assistance Request (MCAR).

Mutual collection provisions provide that IRS may request assistance from the treaty partner in collecting taxes owed to the United States by U.S. citizens or residents or other persons owing taxes to the United States located in their countries.

See IRM 4.60.1.7.1, Tax Treaties with Collection Assistance Provisions, for a list of U.S. tax treaties, identified by country, type of treaty and treaty article, that currently provide for mutual collection assistance.

See IRM 5.1.12.25, Outgoing Mutual Collection Assistance Requests, and IRM 4.60.1.7, Mutual Collection Assistance Request (MCAR) Program, for general information.

For more information regarding transferee liability, as well as other third party liability, refer to IRM 5.17.14, Fraudulent Transfers and Transferee and Other Third Party Liability.

The following subsections describe various sources of information, including TECS and EOI.

In conducting examinations, particularly examinations of taxpayers with undisclosed offshore accounts and assets, examiners should employ the full array of investigative tools at their disposal. Because each examination is different, it is not possible to provide a definitive list of resources, their appropriate scope in a particular case, or the order in which they should be utilized. These decisions are made by examiners based on the facts and circumstances of each case.

Upon receipt of a case, managers and examiners should determine the correct statute date. Inspect the original return for information to establish the date of filing:

If the original return is not in the case file or the return does not contain a date stamp, establish the date the return was received from the "Return Received Date" field of an IMFOLT/BMFOLT.

For an understanding of procedures on statutes, refer to the following IRM sections as well as the Internal Revenue Code and other research:

It is primarily the responsibility of the individual to whom a case is assigned or who has custody of a return to protect the interest of the Government against the expiration of the assessment statute of limitation. See IRM 25.6.23.3, Components of Statute Controls, for the essential tools for controlling statutes for Examination cases.

Statute controls are required for all returns controlled on AIMS/ERCS or being examined with assessment statutes that may expire within 210 days as most of WIIC’s taxpayer’s population resides abroad. Team managers and examiners are ultimately responsible for protecting the statute and ensuring the statute date is correctly reflected on AIMS/ERCS/IMS and in the case file.

ERCS generates a Form 895 when a statute date expires within a specific number of days, but not less than 180 days. All returns must be controlled on the AIMS control database to ensure timely notification of statute expiration via Form 895. When a related return is picked up for examination, AIMS controls must be immediately established to monitor and protect the statute.

A Form 895 should be included on any return with an alpha code if the computed statute date expires within the specified period. For cases with an alpha code where the normal statutory period for assessment is still open, a statement in the Remarks section of Form 895 is required with the signatures or initials of both the employee charged with the return and the manager.

Although the ultimate responsibility rests with the examiner, the secretary will generally identify affected cases and forward Forms 895 to the examiner. Forms 895 must be monitored to ensure that they are returned to the manager (see IRM 1.4.40.4.3, Statute Controls). If the examiner does not return Form 895 to the group manager within 10 days, the group manager will follow up with the examiner (IRM 25.6.23.6.3, Form 895 Completion Requirements for Managers). Statute controls are critical to ensuring the protection of the statute of limitations and should be continually monitored even if the statute is no longer considered imminent.

Every attempt should be made to complete a case before a statute extension is necessary. However, if the examiner cannot expeditiously conclude the examination, the examiner and the group manager may decide to solicit a statute extension form applicable to the case (Form 872, 872-A, 872-T etc.). Upon receipt of an executed statute extension, the statute expiration date on the Form 895 is updated and the case forwarded to the group manager for approval.

When the case is closed or transferred from the group, Form 895 is attached to the front of the case file folder, on top of all other attachments.

If one or more of the following conditions is present, the Assessment Statute Expiration Date (ASED) may be extended.

If a timely filed individual amended return showing an increase in tax is received within 60 days of the ASED of the original return, the assessment of the amended return is extended for 60 days from the day the amended return was received on all subtitle A (Income) taxes.

Congress amended IRC 6501(e) in the HIRE Act in 2010 to add an additional provision under the definition of substantial omission of income. IRC 6501(e) was amended to add that an omission of more than $5000.00 in gross income attributable to specified foreign financial assets extends the period for assessment to 6 years from the later of the date the return was due (without regards to extensions) or filed, regardless of whether or not the specified foreign financial assets are reported as required under new IRC 6038D, Information with Respect to Foreign Financial Assets.

The amendment to IRC 6501(e) applies to all returns as long as the period of time (determined without regard to the IRC 6501(e) amendments referenced above) for assessment of taxes has not expired as of March 18, 2010.

Congress also provided that the failure to file various international information returns would hold open the assessment statute of limitation for three years after the date the taxpayer furnishes the required information. In addition, IRC 6501(c)(8) was amended to clarify that this statutory exception to the period of time for assessment, if applicable, applies to the entire return, not just those tax liabilities associated with the information not reported. If, however, the failure to furnish information required to be reported is due to reasonable cause and not willful neglect, the IRC 6501(c)(8) extended time for assessment applies only to the item or items associated with such failure.

With limited exception (discussed below for returns subject to IRC 6038D), the amendment to the limitations period under IRC 6501(c)(8) applies as long as the period of time for assessment of taxes has not expired as of March 18, 2010.

For returns subject to the reporting requirements under IRC 6038D, the amendment to the limitations period under IRC 6501(c)(8) applies to tax years beginning after March 18, 2010.

Form 8938, Statement of Foreign Financial Assets, is designated for reporting the information required by IRC 6038D.

Assessment statute expiration date (ASED) alpha codes "NN" and "UU" apply to IRC 6501(e) and IRC 6501(c)(8), respectively.

In 2015, Section 2005 of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, P.L. 114-41, 129 Stat. 443 (2015), added language to IRC 6501(e)(1)(B) providing that an understatement of gross income by reason of an overstatement of unrecovered cost or other basis is an omission of gross income. This legislation applies to returns filed after July 31, 2015. It also applies to returns filed on or before July 31, 2015, if the period of limitations under IRC 6501 (determined without regard to the legislation) has not expired as of that date.

Examiners are responsible for protecting all open statutes on Voluntary Disclosure cases. A Form 872, Consent to Extend the Time to Assess Tax, which is unrestricted, must be secured to protect all open statutes. Examiners should use the procedures in IRM Exhibit 25.6.23-3 for updating cases to the "YY" alpha status when applicable. See IRM 4.63.4.9.3, Conditions Which Extend the Assessment Statute Expiration Date, for a list of other IRC sections that may extend the ASED date.

Examiners are not to update their case to the "AB" alpha status. Technical Services uses this alpha status after the case is closed to their status 21. At that point, Technical Services executes a Form 906, Closing Agreement on Final Determination Covering Specific Matters, which has been prepared and signed by the examiner and then signed by the taxpayer.

Examiners are responsible for performing thorough statute inspections for each year included in the disclosure period. The most common statute issue on OVDI cases is Form 872 including extension for years with barred statutes. Locate "Authority to Allow Normal Assessment Statute of Limitations to Expire on Voluntary Disclosure Program Case" (commonly known as YY memo) and executed Form 872 and match to the statutes of limitations listed when assigned. Forms 872 executed at the OVDI unit includes all years under the applicable disclosure period however the form might have been executed after the statute of limitations expired for some years. Years with expired statute of limitations remain in alpha code YY if the regular 3-year ASED (including alternative statute dates under IRC 6501) time period has elapsed prior to the Form 872 execution.

An alpha code is a two-digit alphabetic code designating a special statute situation. A two-digit alphabetic code designating a special statute situation may be entered in the day (DD) position of the statute on AIMS and ERCS. For example, if FF is entered for a reference return and the actual statute expiration is 04152014, the statute date will be entered on AIMS as 04FF2014. Examiners and managers must understand how the tax law impacting the periods of limitation applies in each particular situation before allowing the normal ASED to expire. Updating to an alpha code statute should only be considered after making an attempt to secure the taxpayer’s consent to extend the ASED. If there is not sufficient time to secure an extension of the ASED (generally, when the return is received in the group with less than 30 calendar days prior to the return’s ASED or the taxpayer has refused to agree to an extension of the statute), then the case should be updated to the appropriate alpha code statute.

The YY alpha code may be used for any tax return filed involving abusive offshore arrangements where it has yet to be determined a specific statutory exception to the normal 3-year assessment statute of limitation.

YY is also used when the decision is made to allow the normal statute of limitations to expire on the Offshore Project returns and the decision to allow the normal assessment statute to expire has been timely and properly documented, including approval by the Territory Manager. The documentation requirement to support the determination that special conditions exist will be satisfied by including the following statement:

In the case of Offshore Voluntary Disclosure, a YY Memo should contain the following language:

Examiners should properly develop the facts and apply the law to the facts in order to make appropriate tax and penalty determinations before case closure. In cases that are ultimately determined to involve intent to evade or avoid taxes, it is customary to include as many taxable periods as possible to demonstrate patterns of conduct.

To ensure that cases are properly developed and not forced prematurely into court, the courts have recognized that it is entirely appropriate for the Service to continue an investigation after the three-year period has expired when the purpose is to determine the existence of fraud or substantial unreported income.

Alpha code YY may be used when the return meets one of the Offshore Project code definitions, even if AIMS properly reflects another approved project code rather than an approved Offshore Project code. If the return is not project coded on AIMS, the return should be project coded with the appropriate Offshore Project code either before or simultaneously with the input of ASED alpha code YY.

Alpha codes used to designate special statute conditions are fully described in IRM Exhibit 25.6.23-3, Instructions for Updating the Statute on AIMS. Common alpha codes used in international examinations are briefly described below:

If more than one special alpha statute may apply, rely on the more conservative alpha statute. For example, if a case involves both a substantial omission of income (6-year statute) and fraud, rely on the 6-year statute first. The facts of the case must be considered in making the determination of which alpha statute to use. Generally the normal statute of limitations should not be updated to an alpha code earlier than 180 days before expiration of the normal assessment period. Alpha code EE (no return filed) is the exception to this general rule and may be entered on AIMS in non-filer situation at the time the AIMS record for the non-filed tax period is established.

Most alpha codes apply only when precise requirements of the law are met. A statement in the Remarks section of Form 895 is required to explain the IRC section relied upon for updating the ASED. The signatures or initials of the employee charged with the return and the manager are placed next to the statement to give assurance that all aspects of the alpha code condition have been carefully considered.

In cases involving more than one special alpha statute, consider requesting the advice of local SB/SE Counsel on assessment statute of limitations in your case.

For all cases where taxpayers are involved in offshore transactions examiners should properly develop the facts and apply the law to the facts in order to make appropriate tax and penalty determinations before case closure.

In cases that are ultimately determined to involve intent to evade or avoid taxes, it is customary to include as many taxable periods as possible to demonstrate patterns of conduct.

In some instances, examiners will be assigned cases with limited time remaining on the statute of limitations. In these instances, it will be difficult to accurately document a case-specific basis for the decision to continue the examination of the year beyond the statute date as required by current standard procedures. Cases selected for examination in offshore projects share many common challenges, namely:

IRM 25.6.23.6.6.2, Reliance on IRC Provisions Which Extend Normal Assessment Statute, and IRM Exhibit 25.6.23-3, Instructions for Updating the Statute on AIMS, provides the authority for a team manager to allow the normal assessment statute to expire, in other than joint investigation situations, if the manager determines that special conditions exist that extend the normal assessment statute.

The IRM further instructs that the decision on each case should be documented, discussed, and approved, in writing by the territory manager. If additional examination activity is warranted, the statute should not be allowed to expire. In those instances, the following provisions apply:

If it is determined that an exception to the normal period for assessment applies, update the ASED to the applicable alpha code, for example, NN for IRC 6501(e), OO for IRC 6501(c)(1) or UU for the IRC 6501(c)(8) exception. The month (MM) and year (YYYY) entries accompanying the Alpha Code YY are the month and year the normal three-year statute expires.

If it is ultimately determined that there is no exception to the normal ASED, then replace the YY alpha coded ASED with the actual statute expiration date. If the ASED has in fact expired and an assessment cannot be made, refer to IRM 4.63.4.9.14, Barred Assessment Statute Report, for the procedures for preparing and submitting a Form 3999, Statute Expiration Report.

In instances where the decision to allow the three year statute to expire was discussed with the team manager, concurred by the territory manager and documented accordingly, all parties involved in the decision will be deemed to have acted appropriately.

If a WIIC examiner desires legal advice on the applicability of the YY alpha code in offshore cases, contact local SB/SE Counsel.

Under IRC 7609(e)(2), the statute of limitations on assessment in any case in which a third party summons remains unresolved for more than six months is suspended from the six month anniversary of the service of the summons until the final resolution of the response to the summons. This applies to "any person with respect to whose liability the summons is issued..." . For a John Doe summons, the suspension applies to each member of the John Doe class. In certain situations where the suspension period has not been finalized, the statute of limitations may be updated using alpha code LL. See IRM 25.6.23.6.6.2 and IRM Exhibit 25.6.23-3.

For example, a John Doe summons, which sought records of all taxpayers who had undisclosed accounts at X Institution at any time from 2005 through 2011, was served on January 1, 2013. The six-month anniversary of that date is July 1, 2013. The production of account information was accomplished over a period of time, and the letter to X Institution notifying it of the substantial compliance of the summons was issued on June 1, 2014. Therefore, the statute of limitations on assessment was suspended under IRC 7609(e)(2) from July 1, 2013 until June 1, 2014, for any of the years 2005 through 2011 for which the statute was still open under any provision of the Internal Revenue Code. This statute suspension under the John Doe summons rules does not apply to 2012, 2013 and 2014 because those years were not included in the John Doe summons.

Examiners can calculate a new ASED based on a suspension of the statute by adding to the old ASED the number of days remaining on the statute as of July 1, 2013.

In addition, once an examiner confirms that the taxpayer held a foreign financial asset and that the unreported income from that foreign financial asset exceeded $5,000.00, the six-year statute of limitations provided by IRC 6501(e)(1)(A)(ii) would apply and is included into the ASED calculation date.

This analysis applies equally to any other case involving John Doe class members that were identified as a result of, or subsequent to, issuance of a John Doe summons.

Claims for credit or refund must be filed within the later of:

Claims for refund do not extend the statutory period for assessing additional tax; therefore, consider asking the taxpayer to sign a Form 872 extending the ASED for the years of the claim.

An original delinquent return claiming an overpayment is a claim for refund. A taxpayer is entitled to a credit/refund for any payment paid within three years from the received date of an original delinquent return, including extensions.

There is a special statute of limitation for refund claims attributable to foreign tax credits. If a claim for credit or refund relates to an overpayment attributable to any taxes paid or accrued to any foreign country or to any U.S. possession for which credit is allowed against the tax imposed by subtitle A in accordance with the provisions of IRC 901 or the provisions of any treaty to which the U.S. is a party, then in lieu of the 3 year period of limitations prescribed in IRC 6511(a), the period of limitations shall be 10 years from the date prescribed by law for filing the return for the year in which such taxes were actually paid or accrued. Also see IRC 6511(d)(3).

When examining claims for refund relating to foreign tax credits, watch for taxpayer attempts to change from the cash basis to the accrual basis in claiming foreign tax credit. A change from cash to accrual for foreign taxes paid or accrued is not permissible. Strong v. Willcuts, 1935 U.S. Dist. LEXIS 2063; 36-1 U.S. Tax Cas. (CCH) P9032 (D. Minn. 1935).

The Report of Foreign Bank and Financial Accounts, previously TD F 90–22.1, (FBAR) now FinCEN Form 114, is required when a U.S. person has a financial interest in or signature authority over one or more foreign financial accounts with an aggregate value greater than $10,000. If a report is required, certain records must also be kept. FinCEN requires that all FBARs be electronically filed through the BSA e-filing system.

In April 2003, the IRS was delegated civil enforcement authority for the FBAR.

Income tax audits are Title 26 examinations while FBAR inquiries are Title 31 examinations. Therefore, information gathered in a Title 26 audit cannot be used in a Title 31 inquiry unless there is a related statute memorandum (RSM) approved by the team manager. Refer to IRM 4.26.17 for FBAR procedures.

The statute of limitations on assessment of civil FBAR penalties is six years from the date of the violation. For information returns prior to 2015, the FBAR filing date is June 30 of the year following the calendar year for which the foreign financial account should be reported. Effective for tax years beginning after December 31, 2015, the new due date is changed from June 30 to April 15 of the year following the calendar year for which the foreign financial account should be reported. FinCEN now grants taxpayers an automatic six month extension for filing FBARs. The six month extension requires that FBARs be filed by October 15. If a filer fails to file by October 15, the FBAR violation date is effective the due date of the income tax return for the same reporting year

The period of limitation on assessment of FBAR civil penalties is found in 31 U.S.C. 5321(b)(1). Section 5321(b)(1) provides that the Secretary of the Treasury may assess a civil penalty under subsection (a) at any time before the end of the six year period beginning on the date of the transaction with respect to which the penalty is assessed. The IRS takes the position that the filing due date for FBARs is the date from which to compute the six-year limitations period.

A person may voluntarily waive the statute of limitations for assessing FBAR penalties. Unlike the statute of limitation for assessing income tax liabilities, a taxpayer may waive the assessment statute of limitation for FBAR penalties even after it has expired. A consent form is available at: https://irssource.web.irs.gov/LBI/012/FBAR_Docs/FBAR_Consent_to_Extend_Statute__Fillable_Form.pdf.

Refer to 31 USC 5314, 31 CFR.1010.350, IRM 4.26.16, Report of Foreign Bank and Financial Accounts (FBAR), and the FBAR filing instructions for more discussion of FBAR .

When a tax assessment is not made within the prescribed period for assessment it is considered a "barred assessment" .

In the event an ASED expires while a tax return is under the examiner’s control, the examiner must prepare a statute expiration report using Form 3999. Form 3999 is due within 10 business days of the date the examiner becomes aware of the expired statute.

The preliminary report is routed to the Director, Field Operations and forwarded to Director, WIIC for transmittal to LB&I Headquarters. The report package should include the following information:

IRM 25.6.1.13.2.9, Statute Expiration Reporting Responsibilities and Procedures for LB&I Field Operations and LB&I Campus Employees, identifies additional procedures that must be followed when an LB&I return has a barred statute.

RGS is the software program used in cases that involve individual and business type tax returns. RGS will:

Special procedures are needed in order to use RGS for Form 1040NR and Form 1120F tax returns. In order to create Forms 1040NR and Forms 1120F in RGS the following workarounds must be performed:

For additional guidance, please contact the local Functional Automation Staff (FAS) for assistance or the local RGS coordinator.

WIIC developed Universal Issue List Codes (UIL) for WIIC audits. The codes are required for WIIC cases. The codes will be used for effective identification of cases and track the issues worked and to identify areas for training opportunities. Refer to the WIIC UIL website at https://irssource.web.irs.gov/LBI/Lists/WIIC/DispItemForm.aspx?ID=17&Source=https%3A%2F%2Firssource%2Eweb http://lmsb.irs.gov/pa/wii/foreign_resident/IIC%20UIL%20Codes.asp for more information on UIL codes.

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

Form 4318 or Form 4318-OA is the cover sheet that indexes the administrative and issue lead sheets, as well as supporting documents (e.g. information document requests, correspondence and case building materials). It pertains to one taxpayer (or both spouses for jointly filed returns) and includes all tax years under audit. If there are more than three years under audit, examiners must also use Form 4318-A, Continuation Sheet for Form 4318, Examination Workpapers Index.

Lead sheets and supporting workpapers:

The activity record should be prepared contemporaneously and provide a complete and concise case history. It chronicles all actions on the part of the IIC examiner, team manager, clerical support staff, taxpayer and/or the taxpayer’s representative, etc. during the audit.

The activity record is a brief summary of actions taken and in some cases will reference other workpapers for more detail. All entries on the activity record should be written factually and professionally, omitting personal opinions.

IIC revenue agents and IIC tax compliance officers generally use Form 9984, indexed as lead sheet 100, for their activity record. Examiners using the RGS program may use the RGS Case History application in place of Form 9984; however, they must use caution when using this application because the case history entries can be lost. Examiners using RGS must back up to the file server each time a new RGS Case History Report is saved. See IRM 4.10.15.2.3 , Case History (Optional), for additional information.

Information recorded on the activity record should include the date, location, time charged, and an explanation of each activity or contact, including but not limited to:

Administrative lead sheets address the administrative items requiring comment by the examiner (e.g., initial interview, required filing checks and minimum income probes). They are also used as guides to assist the examiner with properly completing the audit.

In general, administrative lead sheets do not contain an adjustment grid displaying "Per Return" and "Per Exam" amounts.

The administrative lead sheets listed below are mandatory for IIC revenue agents and are generally applicable to all income tax cases:

The administrative lead sheets listed below are mandatory for IIC tax compliance officers and tax auditors and are generally applicable to all income tax cases:

The administrative lead sheets listed below are mandatory for IIC tax examiners and are generally applicable to all income tax cases:

Issue lead sheets are used to:

In general, issue lead sheets contain an adjustment grid that displays a "Per Return" , "Per Exam" , and "Adjustment" amount. However, there are some issues that do not result in an adjustment to the tax return (e.g. innocent spouse and identity theft), and as a result the related issue lead sheet does not contain an adjustment grid.

An issue lead sheet is required for all issues. If an issue does not have a specific lead sheet, a generic lead sheet must be used. For RGS users, see IRM 4.10.15.2.14, Lead Sheets, for additional information.

The examiner or team manager should document all managerial discussions on the relevant issue lead sheet or on the activity record.

See IRM 4.10.9.7, Workpapers.

Examiners must use computer generated reports in all audits, unless a computer generated report is not available. See IRM 4.10.15.1.2, RGS Inventory/Case Management.

Cases required to be on RGS CEAS must be moved to the file server to close the case. All electronic workpapers saved within the RGS program automatically close to the file server. If workpapers are generated outside of any RGS application, they should be saved to the RGS electronic case folder to be saved to the file server.

All lead sheets, workpapers and examination reports should be printed and included in the paper case file.

See IRM 4.10.9.8, Special Situations Requiring Documentary Evidence.

See IRM 4.10.9.9, Case File Assembly for Closing.

The forms, reports and/or documents required vary for IIC revenue agents, tax compliance officers, and tax examiners.

For IIC revenue agents and tax compliance officers, a case file assembly closing checklist is available at: https://irssource.web.irs.gov/LBI/012/CaseClose/Case Closing Checksheet v2013-04.pdf

For IIC tax examiners, see Exhibit 4.63.4-1, Checklist for IIC Tax Examiners on Agreed Cases Sent to CCP, for forms, reports, and/or documents required for agreed cases. See Exhibit 4.63.4-2, Checklist for IIC Tax Examiners on Unagreed/Default Cases Sent to Technical Services, for a tax examiner case closing checklist for unagreed and default (no response) cases.

Examination is responsible for recommending jeopardy/termination assessments in cases under active consideration by Examination.

Appeals may forward a report to Examination, on a case pending before Appeals, for Examination to determine if a jeopardy/termination situation exists. Examination must limit its investigation to a determination of whether the collection of the currently proposed deficiency will be endangered if regular assessment and collection procedures are followed. Appeals is responsible for making the final determination of the tax liability.

If the assessment or collection of a deficiency will be jeopardized by delay, the deficiency is immediately assessed, including penalties and interest. The assessment is made for a PRIOR YEAR where the filing date, including extensions, has passed. The legal authority for jeopardy assessments is:

If the collection of a deficiency will be jeopardized by delay, the deficiency is immediately assessed. The deficiency may include penalties, additions to tax, and interest. The deficiency may be computed for a short period or the entire year. The assessment is made for the CURRENT YEAR or the preceding year if the filing date, including extensions, has not passed. The legal authority for termination assessments is:

All quick assessments are faxed to CCP prior to final closure. After confirmation of the assessment, final closure is made to CCP Status 51 as a regular agreed case. Form 5344 will show Disposal Code 03 with a TC 300 of zero and the amount of the quick assessment in Item 35, Manual Assessment Amount. Processing procedures and fax numbers are available on the Quick/Prompt and Partial Assessments web page at http://mysbse.web.irs.gov/examination/cp/pro/22651.aspx.

If the case file contains a deficiency year and an over-assessment year, the over-assessment credit can be applied to the tax on the deficiency year by completing Form 3870, Request for Adjustment. Annotate Form 3198 in the "Other Instructions" section, "Form 3870 is enclosed in the case file" . On the "Special Features" section of Form 3198 check the box "Freeze from Refunding" .

Quick assessments can be initiated in the field or in campus examination. The office initiating the quick assessment must:

The term “partial assessment” means that only part of the total potential tax is agreed to and is being assessed. The most common example of a situation that would generate the required procedures for a Partial Assessment is where the taxpayer agrees to some adjustments and appeals other adjustments. In this situation, a partial assessment should be formalized for the agreed portion of the tax prior to forwarding the case to Appeals for the unagreed portion.

Other situations where partial assessments are used include:

Partial assessment procedures do not apply to no-change or to over-assessment cases. An exception would involve an adjustment to withholding. An examiner may use Partial Assessment procedures when the withholding amount on the tax return is greater than the withholding on Form W-2 or Form 1042-S. This is not considered a tax adjustment since withholding is a prepayment.

When the case has an imminent statute date or requires a quick assessment, the examiner must make contact with the CCP Field Office Resource Team (FORT) manager (for SBSE and LB&I cases) or the CCP Field Liaison (for Specialty cases) of his/her designated area to notify them that a quick assessment is needed on the case. Contacts for FORT can be found on the following site: http://mysbse.web.irs.gov/examination/cp/cont/21028.aspx.

Email (preferred), fax, or e-Fax (depending on the site requirements) the following information:

On the subject line of the email or fax, notate either "Partial assessment request" or "Manual assessment request" .

Do not ship the entire case file or update ERCS out of the group status until CCP:

Acknowledgment usually occurs within 48 hours of receipt. Requests received on Friday afternoon will be acknowledged by close of business Monday. Wherever possible, the assessment is completed within five business days of receipt by the FORT. Assessments involving complex and restricted interest computations may take longer. The stamped Form 5344 must be associated with the original case file to verify that the assessment was completed. Allow at least 10 business days from the original request before following up with CCP.

The group must update the electronic record in RGS prior to sending to CCP for final closure. The archived RGS Newsletter contains procedures on RGS partial closures at:.http://mysbse.web.irs.gov/examination/rgs/resources/27835.aspx.

For multiple quick/prompt or partial assessments, the examiner must inform the FORT manager or the CCP Field Liaison that the assessments are being sent to the FORT using overnight mail. Overnight mail should only be used when the faxing of multiple assessment documents would be too time consuming and inefficient. Use the address for overnight mail found on the website: http://mysbse.web.irs.gov/examination/cp/pro/22651.aspx

The following project codes are examples of the types of cases currently worked in WIIC which might require the use of the policy and procedures outlined in this IRM, including those referenced. This list is not meant to be all inclusive of the projects worked within WIIC because non-filers can exist within all types of projects worked in the organization and should be identified by the examiner accordingly.

If a taxpayer informs the examiner that their identity has been compromised (situations or events that put the taxpayer at risk for tax-related identity theft such as a data breach or lost/stolen personally identifiable information that compromises or involves the taxpayer’s SSN, etc.), there may be no known tax administration impact. In these situations, the examiner should provide some general identity theft guidance. See IRM 25.23.2.2, Taxpayer Interaction. If the taxpayer has additional identity theft questions, provide the identity theft toll-free number, 1-800-908-4490 (7 a.m. to 7 p.m. local time). The customer service representatives responding to the call will provide assistance to the taxpayer and place an identity theft indicator on the taxpayer’s account if the taxpayer requests IRS take action to protect their tax account information. The taxpayer can access information at the IRS.gov Identity Theft Website at https://www.irs.gov/individuals/identity-protection.

If a taxpayer verbally informs the examiner, but has not completed the Form 14039, Identity Theft Affidavit, that an identity thief has used the taxpayer’s SSN and other personally-identifiable information for filing purposes and tax administration is affected, and no references to TC 971 AC 501-506 or AC 522-526 are on the taxpayer's account for the year of the incident, the examiner must input TC 971 with AC 522 PNDCLM on the taxpayer's Master File account by completing Form 4844, Request for Terminal Action.

Certain fields on the form must be completed in the following manner:

See IRM Exhibit 25.23.2-10, IMF Only TC 971 AC 533 Tax Related Identity Theft, Case Status (Initial Claim/Suspicion), for additional information regarding the input of TC 971 AC 522.

The examiner should then secure documentation to authenticate the identity of the taxpayer who is under examination following the guidance in IRM 25.23.2.7, Identity Theft Research and IRM 4.10.27, Identity Theft Case Processing for Field Examiners. However, if there are entries on the taxpayer's account similar to the ones in Step 3 in the paragraph below, the required ID theft substantiation has already been secured from the taxpayer.

Once appropriate substantiation has been received, the examiner must then request (via Form 4844 to the DITA team) the input of updated TC 971 AC 522 codes as follows:

If the year impacted by the identity theft is the one under audit, and the taxpayer has provided documentation to authenticate his/her identity, examiners must also update AIMS/ERCS (via Form 5348) with Aging Reason Code (ARC) 14 for the year under audit.

LB&I will monitor identity theft cases open on AIMS/ERCS using ARC 14 (IRM Exhibit 4.4.1-4).

If it is later determined that no identity theft impacting tax administration occurred, or the taxpayer failed to provide the documentation requested by the examiner, the examiner must request (via Form 4844 to the DITA team) the input of updated TC 972 AC 522 codes as follows:

The Identity Protection Specialized Unit (IPSU) office handles identity theft inquiries and assists taxpayers who are victims of identity theft. If a taxpayer contacts IPSU and the identity theft inquiry involves a current or previous examination, IPSU will prepare Form 14027-B, Identity Theft Case Referral, and send it to the respective Identity Theft Coordinator in PSP.

If an examiner receives a Form 14027-B during an open audit:

If an examiner receives a Form 14027-B after an audit has closed:

Once necessary actions have been taken to resolve the identity theft issue during an open or closed audit, the examiner is to complete Section VI of the Form 14027-B and fax it to the IPSU case worker who initiated the request. The fax number for the IPSU case worker will be located in Section II, Line 4 of Form 14027-B.

The following job aid will assist the LB&I-IIC examiners when working identity theft issues with domestic or international taxpayers:https://irssource.web.irs.gov/LBI/Lists/WIIC/DispItemForm.aspx?ID=32

The LB&I-IIC examiner can refer to the following IRM sections when working identity theft issues: