Part 4. Examining Process

Chapter 71. Employee Plans Examination of Returns

Section 22. Employee Plans Compliance Unit (EPCU)

4.71.22 Employee Plans Compliance Unit (EPCU)

Manual Transmittal

October 20, 2021

Purpose

(1) This transmits revised IRM 4.71.22, Employee Plans Examination of Returns, Employee Plans Compliance Unit (EPCU).

Material Changes

(1) Revised IRM 4.71.22.1.3 to incorporate the provisions of the July 31, 2020, Interim Guidance Memo (IGM) TEGE-04-0720-0018 with the subject line, Elimination of Requirement to Use Paper Form 895/895-EP, from the Deputy Commissioner, TEGE.

(2) Updated contact information in IRM 4.71.22.1.4

(3) Deleted IRM 4.71.22.3(3) which made a reference to an IRS.gov web page dedicated to providing an explanation of EPCU strategies.

(4) Removed the term "Focused Audit" from IRM 4.71.22.7(7)(e).

(5) Replaced the concept of Compliance Projects with Compliance Check Strategies throughout the IRM.

(6) Revised IRM 4.71.22, to incorporate the provisions of the July 28, 2020, Interim Guidance Memorandum, TEGE-04-0720-0014, with the subject line, Interim Guidance on Fully Electronic (100% Paperless) Cases, from the Director, EP Examinations.

(7) Revised IRM 4.71.22 throughout replacing the terms "agent" and "agents" with "examiner" and "examiners" , and replacing the terms "audit" , "auditing" and "audited" with "examination" , "examining" , and "examined" . Generally, official titles and designations do not reflect this change.

(8) Other minor IRM editorial changes were made for:

  • Updating organizational terms, titles, and acronyms. Updating or correcting references and citations, added links to references.

  • Updating for changes in disposal codes and letter renumbering.

  • Updating for broken links.

Effect on Other Documents

This supersedes IRM 4.71.22 dated July 11, 2019.

Audience

Tax Exempt and Government Entities
Employee Plans

Effective Date

(10-20-2021)

Eric D. Slack
Director, Employee Plans
Tax Exempt and Government Entities

4.71.22.1 (10-20-2021)

Program, Scope and Objectives

  1. Purpose: IRM 4.71.22, Employee Plans Examination of Returns, Employee Plans Compliance Unit (EPCU), gives general guidance to employees in the EPCU who conduct compliance checks that support and enhance Examination activities.

  2. Audience: This IRM provides procedures for examiners, analysts, managers, and support staff in EPCU.

  3. Program Owner: Director, EP Examinations sets the program for the EP Examinations program and the EPCU.

  4. Program Authority: EP Examinations’ authority to conduct examinations, resolve issues and determine tax liability is derived from Title 26, Internal Revenue Code, Subtitle F – Procedure and Administration, which includes but is not limited to:

    IRC Section Authority granted
    7602 - Examination of books and witnesses, which falls under Chapter 78 - Discovery of Liability and Enforcement of Title.

    • Examine any books, papers, records or other data necessary to complete an inquiry.

    • Take testimony under oath to secure additional information needed.

    • Issue summons for information necessary to complete an inquiry.

    • Ask about any offense connected to the administering or enforcing of the Internal Revenue laws.
    6201- Assessment authority, which falls under Chapter 63 - Assessment. EP Examinations’ authority to resolve issues is derived from its authority to make determinations of tax liability under IRC 6201

  5. EPCU wrote this IRM section. If you have questions, information or suggestions, contact an EPCU manager.

4.71.22.1.1 (07-11-2019)

Background

  1. EP Examinations is the division designated to determine if a retirement plan is qualified under IRC 401 and its regulations, and therefore, exempt from tax under IRC 501.

  2. The EP Examinations program’s primary objective is regulatory, emphasizing continued qualification of employee benefit plans (Policy Statement 4-119.) EP selects and examines returns to:

    1. Promote the highest degree of voluntary compliance with the tax laws on plan qualification.

    2. Determine qualified plans’ extent of compliance and the causes of noncompliance with the tax laws.

    3. Determine whether these plans meet the applicable qualification requirements in operation.

  3. EP examiners and managers are given broad authority under Policy Statement 4-117, to consider and weigh conflicting information, data, and opinions to:

    1. Use their professional judgement per auditing standards to make findings of fact and apply the IRS’s position on issues of law to determine the correct tax liability.

    2. Exercise this authority to get the greatest number of tax determination agreements without sacrificing their quality or integrity and to dispose tax differences at the lowest level.

  4. All examinations are done per Policy Statement 1-236, Fairness and Integrity in Enforcement Selection.

4.71.22.1.2 (07-11-2019)

Program Controls

  1. EPCU conducts quality reviews on closed cases, a percentage of which are pulled for review on a project basis.

4.71.22.1.3 (10-20-2021)

Acronyms and Forms

  1. This manual uses the following acronyms and references the following forms.

    Acronyms

    Acronym Definition
    AIMS Audit Information Management System
    ASED Assessment Statute Expiration Date
    CCR Case Chronology Record
    DOL Department of Labor
    EGC Employee Group Code
    EP Employee Plans
    EPCU Employee Plans Compliance Unit
    IDRS Integrated Data Retrieval System
    IRC Internal Revenue Code
    IRM Internal Revenue Manual
    LB&I Large Business and International Division
    PBGC Pension Benefit Guaranty Corporation
    POA Power of Attorney
    PSC Project Selection Committee
    PT Prohibited Transaction
    QMS Quality Measurement System
    RCCMS Reporting Compliance Case Management System
    SB/SE Small Business /Self-Employed Division
    TEQMS Tax Exempt Quality Measurement System
    W&I Wage and Investment Division
     

    Forms and Pubs

    Form Name
    Form 872 Consent to Extend the Time to Assess Tax
    Form 872-H Consent to Extend the Time to Assess Tax on a Trust
    Form 5330 Return of Excise Taxes Related to Employee Benefit Plans
    Form 2848 Power of Attorney and Declaration of Representative
    Form 5464 Case Chronology Record
    Form 5500 Annual Return/Report of Employee Benefit Plan
    Form 5666 TE/GE Referral Information Report
    Form 8821 Tax Information Authorization
     

4.71.22.1.4 (10-20-2021)

Contact Information

  1. EPCU contact information is listed in IRM 4.71.1 - Exhibit 13.

4.71.22.1.5 (10-20-2021)

Overview of EPCU

  1. This IRM provides general guidance for EPCU employees who work with compliance checks.

  2. EP Examinations created the EPCU to efficiently use the limited number of EP Exam field employees.

  3. EPCU’s primary objective is to identify vulnerable areas in EP for non-compliance using compliance check strategies.

  4. The EPCU employees focus on:

    1. Compliance check strategies, in which we make compliance contacts (compliance checks) with the retirement community.

    2. Educational projects within the retirement plans community.

  5. The EPCU also supports EP Examinations by:

    1. Screening initial contacts with taxpayers

    2. Conducting research

    3. Identifying potentially abusive trends

    4. Verifying reported information

    5. Obtaining correction to information reports, returns, and return information

    6. Providing alternate taxpayer compliance treatments.

      Note:

      EPCU performs a variety of data analysis.

4.71.22.2 (10-20-2021)

Compliance Checks

  1. A compliance check is contact with a taxpayer to confirm information reported on returns and compliance with retirement plan law.

    1. A compliance check is not an examination, and usually doesn’t include an examination or inspection of books and records.

      Note:

      Although a compliance check is not an examination, EP can open an examination if the taxpayer fails to properly respond.

    2. The taxpayer has the legal right not to participate.

    3. A compliance check doesn’t necessarily equate to a determination of a tax liability for a particular period.

    4. Compliance checks help educate practitioners, plan sponsors and participants about plan qualification and reporting requirements, and increases voluntary compliance.

4.71.22.3 (10-20-2021)

EPCU Compliance Check Strategies

  1. The EPCU receives compliance check strategies from Compliance Planning & Classification (CP&C).

  2. The TE/GE Governance Board approves compliance strategies for the EPCU to work as compliance checks.

  3. To address the potential area of non-compliance, the EPCU:

    • Generates either the generic initial contact letter (Letter 1562-D) with an attached request for information, or other letter designed specifically for the strategy.

    • Creates case files and reviews case data to prepare for initial contact with the strategy population.

    • Makes follow-up contacts when we don’t receive a response or mail is returned undeliverable.

    • Determines if additional information is needed, or if we can close the case based on the information received.

    • May refer a case for possible examination or submit a request for examination to resolve issues.

  4. When EPCU closes a case, we normally send a closing letter to the taxpayer. If not, it’s usually because we:

    1. Can’t locate the taxpayer, or

    2. Closed the case based on information from other sources.

  5. The EPCU:

    1. Reviews all strategy cases.

    2. Closes all of the strategy cases.

4.71.22.4 (10-20-2021)

Compliance Check Inventory Control Process

  1. EPCU is assigned compliance checks on RCCMS, an inventory tracking and case management system. See IRM 4.71.1.1.5, RCCMS Use Policy for further guidance on RCCMS usage.

  2. EPCU updates all cases with subsequent activities.

4.71.22.5 (10-20-2021)

Delinquent Returns or Adjustments to Related Returns Secured During Compliance Checks

  1. If the EPCU secures delinquent returns or adjustments to related returns during a compliance check, the EPCU will either recommend the return for examination or close the case.

    1. If the EPCU decides to examine a return, they will send a referral or request for examination in accordance with IRM 4.71.22.7, Requests and Referrals for Examinations.

    2. If the EPCU doesn’t recommend examination, the group will close the case.

    3. The EPCU helps taxpayers by explaining reasonable cause criteria and helping them prepare an explanation for their late filing of a return.

    4. The EPCU documents in the compliance check chronology activity that they’ve secured delinquent returns and the cases are established and associated in RCCMS as pick-up years.

    5. The EPCU uses the appropriate disposal code to show the issue resolution of the case.

4.71.22.6 (10-20-2021)

Compliance Check Case File

  1. EPCU works compliance check case files in RCCMS.

  2. Track your case actions in the embedded Chronology tab in RCCMS, including:

    • The date and a statement of each action or step you take on a case.

    • Incoming and outgoing telephone calls, letters sent and received, research done, the case conclusion, etc.

  3. Scan and upload all applicable documents into the RCCMS Office Documents folder using the RCCMS Naming Convention. These documents include:

    • Form 5666

    • Strategy lead sheet (if applicable)

      Note:

      The lead sheet is an optional form used to review the case. It’s different for each strategy, since strategy procedures vary.

    • The primary return

    • Any related returns

    • Form 2848 or Form 8821 (if applicable)

    • IDRS research

    • Correspondence (letters, faxes, transcripts of telephone calls, and/or emails) in chronological order, including the closing letter

4.71.22.7 (10-20-2021)

Requests and Referrals for Examinations

  1. As the EPCU conducts compliance checks, they develop certain cases and recommend them for examination in EP Exam to deal fully with the identified issues. These cases are sent to Classification. See IRM 4.71.22.1.4, Contact Information, for who and where to send referrals.

  2. It is important to know the difference between a "Request for Examination" and a "Referral" .

    1. A "Request for Examination" is made when the EPCU develops a known EP issue and additional field work is needed to resolve the issue. A Request for Examination should be sent to *TE/GE-EP-Classification (tege.ep.classification@irs.gov), with "EPCU REQUEST FOR EXAMINATION" in the subject line of the email.

      Note:

      Only the EPCU uses the EPCU Request for Examination form.

    2. A "Referral" is made when a problem is suspected but not known and is often used with cases that must be worked outside of EP (for example by SB/SE, W&I, or LB&I). A "Referral" may also be made to EP Exam, DOL or PBGC, depending on the type of return involved. Refer to IRM 4.71.6, Employee Plans Referrals, for referral procedures and for instructions to complete Form 5666. Save a copy of the Form 5666 to keep in your EPCU case file.

  3. Before you send an examination request to Classification, consult with the Compliance Check Strategy Lead assigned to the strategy.

    1. Carefully consider each case’s facts and evaluate based on the specific issues.

    2. Consider issues involving: excise tax, income tax (including discrepancy adjustments), prohibited transactions (PTs), losses due to dishonesty, unagreed issues, and administrative procedures requiring change.

      Note:

      Generally, refer cases with funding deficiencies unless your group manager approves the exam referral.

  4. Obtain EPCU group manager approval before making the examination request. Consider requesting an examination in subsequent years if the issue applies to those tax periods.

  5. Provide a detailed reason for the examination request in the Case Chronology Record and clearly note the statute expiration date.

  6. Compile electronically the following items (if applicable/available) from the EPCU case file:

    • Form 2848

    • Strategy Lead Sheet

    • Primary and Related Return(s)

    • Pertinent correspondence and information

    • IDRS research

  7. Complete the EPCU Request for Examination form.

    1. Complete the top half of the form.

    2. Check the box at the top of the form to route the case to Classification.

    3. Complete all of the requested taxpayer and strategy information.

    4. Complete the condition code if the examination request is for a Form 5500 series return.

      Note:

      Each strategy is assigned a condition code. Contact your manager if you need a condition code.

    5. Document the reason for the request under "Primary Reason for Assigning Case to EP Exam."

      Note:

      Include wording that Classification can use as their "Issue."

    6. List the dollar amounts involved.

    7. List any statute extension dates from a secured Form 872.

    8. Indicate whether the PT was corrected if the case involves a PT.

    9. Create an attachment if you need additional space.

  8. Get an INOLES print (if not in the case file) showing the current address of the taxpayer.

  9. Close the case by sending a closing Letter 1564, notifying the sponsor/taxpayer that the compliance check has been closed. Include:

    1. An explanation of the problems identified during the compliance check and the action the sponsor/taxpayer should take for correction.

    2. A statement similar to "Your plan remains subject to examination; you will be notified if your plan is selected," to let the sponsor/taxpayer know they are still susceptible to an examination.

      Exception:

      Depending on the circumstances, it may not be feasible or recommended to describe the problems identified to the taxpayer. Consult with your manager.

  10. Keep a copy of the EPCU Request for Examination form with your EPCU case file.

  11. The EPCU manager sends the request for exam to Classification.

4.71.22.8 (10-20-2021)

Quality Measurement System

  1. IRS must establish a balanced performance measurement system under the IRS Restructuring and Reform Act of 1998, Sections 1201 and 1204. Treasury Regulations Section 801 carries out this law.

  2. The Quality Measurement System (QMS) addresses six quality standards. Each standard consists of two or more quality elements.

  3. Review the concepts below and IRM 4.71.22 - Exhibit 1, Employe Plans Compliance Unit Quality Measurement System for the EPCU QMS Guide for general guidelines for completing a case review.

    1. Use the EPCU QMS input form to review EPCU cases.

    2. The Guide presents all elements as a question. The responses may be "met" , "not met" , or "n/a."

    3. Based on the strategy, the number of "n/a" responses may range from minimal to substantial and don’t affect the case rating.

    4. A single error causes only one element to fail. Whenever a single problem appears to affect elements in separate standards, the reviewer will use their judgment to decide which element to rate "not met." The guiding principle should be to select the most significant element. Comments are required for all items marked as "not met" , but may be included for any item.

    5. If an examiner repeats an error in a quarter, only the initial occurrence is considered an error. Additional occurrences are advisory notifications in the comments section of the case.

    6. The term "examiner" is the EPCU employee assigned the case.

    7. The term "taxpayer" includes the POA, if applicable.