Part 4. Examining Process
Chapter 23. Employment Tax
Section 19. Employment Tax Case Assignment and Grading Criteria
4.23.19 Employment Tax Case Assignment and Grading Criteria
Manual Transmittal
March 22, 2021
Purpose
(1) This transmits revised IRM 4.23.19, Employment Tax, Employment Tax Case Assignment and Grading Criteria.
Material Changes
(1) IRM 4.23.19.1.5. Added additional acronyms.
(2) IRM 4.23.19.1.6(3). TBOR content updated based on guidance from the Division Counsel/Associate Chief Counsel (National Taxpayer Advocate Program) and Branch 3 of the Associate Chief Counsel (Procedure and Administration).
(3) IRM 4.23.19.1.6(4). Additional information on TAS.
(4) IRM 4.23.19.1.6(5). Added information on Disclosure.
(5) Exhibit 4.23.19-1. Created six tables for each case grading factor.
(6) Editorial and technical changes have been made throughout this section.
Effect on Other Documents
This material supersedes IRM 4.23.19, dated January 12, 2018.
Audience
This section contains instructions and guidelines for SB/SE employees when identifying, selecting, and assigning employment tax cases.
Effective Date
(03-22-2021)
Wanda R. Griffin
Director, Examination - Specialty Examination Policy
Small Business/Self-Employed Division
Program Scope
(1) Purpose: This IRM provides guidance regarding case assignment by the group manager when assigning cases to an examiner. The section also provides factors managers should consider when making a final determination as to the grade of case for all employment tax examinations.
(2) Audience: This section contains instructions and guidelines for Small Business/Self-Employed (SB/SE) managers.
(3) Policy Owner: Director, Examination - Specialty Policy of the Small Business/Self-Employed Division.
(4) Program Owner: Program Manager - Employment Tax Policy. The mission of the Employment Tax Policy is to establish effective policies and procedures, to support compliance with employment tax laws.
(5) Primary Stakeholders:
Employment Tax – Workload Selection and Delivery (SE:S:DCE:E:HQ:ECS:S:ETEGCS:EWSD)
Specialty Examination - Employment Tax (SE:S:DCE:E:SE:ET)
Specialty Examination Policy, Employment Tax Policy (SE:S:DCE:HQ SP:ETP)
(6) Program Scope: The mission of the Employment Tax Policy is to establish effective policies and procedures, and to support compliance with employment tax laws.
Background
(1) Significant revenue to the government is reported on the various employment tax returns and compliance with employment tax law is critical to the funding of the government, including the social security trust fund.
(2) The identification, selection, and assignment of employment tax returns involves an approach that considers a variety of factors and analysis that identifies returns most worthy of examination. Many factors influence whether a case will be selected and subsequently assigned for examination. Principal among these factors is the appearance of non-compliance with employment tax filing and/or reporting. In addition:
Program priorities as stated in the annual Employment Tax Program Letter and Workplan,
Status of un-started and in-process work at the group level,
Complexity and industry (specialization) involved,
Experience and training level of examiners that may be assigned the case, and
Geographic location of examiners.
Note: When compliance impact warrants, cases not meeting the above factors may still be selected and assigned.
Authority
(1) Employment tax provisions are found at Internal Revenue Code Subtitle C:
Chapter 21, Federal Insurance Contributions Act (FICA),
Chapter 22, Railroad Retirement Tax Act (RRTA),
Chapter 23, Federal Unemployment Tax Act (FUTA),
Chapter 23A, Railroad Unemployment Repayment Tax
Chapter 24, Federal Income Tax Withholding (FITW), and
Chapter 25, General Provisions relating to employment taxes and collection of income taxes at source.
(2) The Employment Tax Program is governed by Policy Statements and other internal guidance that apply to all Service personnel regardless of operating division. The Policy Statements found in IRM 1.2, Servicewide Policies and Authorities, Policies of the Internal Revenue Service apply to all employment tax issues and examinations. Examiners should review these Policy Statements to properly perform their examination duties.
(3) A website, "Delegation Orders and Policy Statements by Process", located at https://www.irs.gov/privacy-disclosure/delegation-orders-and-policy-statements-by-process summarizes data contained in the applicable IRM sections under IRM 1.2, relating to Delegation Orders, in a single, electronic source.
(4) IRM 4.23 provides Servicewide instructions for all operating divisions with employees involved with the correct filing, reporting, and payment of employment taxes. IRM 4.23 serves as the foundation for consistent administration of employment taxes by various IRS operating divisions. By providing one source of authority for all operating divisions, the Service greatly reduces philosophical and procedural inconsistencies.
Responsibilities
(1) Director, Specialty Examination Policy is responsible for the procedures and updates addressed in this IRM.
(2) Director, Specialty Examination is the executive responsible for Specialty examination operational compliance.
Program Objectives and Review
(1) Program Goals: The processes and procedures provided in this IRM are consistent with the objectives or goals for Employment Tax - Examination that are addressed in IRM 1.1.16.3.3.3, Employment Tax Examination and for Employment Tax Policy, found in IRM 1.1.16.3.5.2.2, Employment Tax Policy.
(2) Program Effectiveness: Program goals are measured with Employment Tax Embedded Quality Performance Reports that monitor whether quality attributes are applied uniformly and consistently.
(3) Annual Review: Employment Tax Policy - Program Manager, is responsible for reviewing the information in this IRM annually to ensure accuracy and promote consistent tax administration.
Program Reports
(1) Program Reports: Information regarding the reporting of program objectives are included on, but not limited to, the following reports submitted to the Director, Examination - Specialty:
Headquarters Examination Monthly Briefing,
Program Manager Monthly Briefing,
Examination Operational Review, and
Business Performance Reviews.
Acronyms
(1) The following table lists commonly used acronyms and their definitions:
Acronym | Definition |
|---|---|
CAWR | Combined Annual Wage Reporting |
CI | Criminal Investigation |
DET | Direct Examination Time |
ET-WSD | Employment Tax - Workload Selection and Delivery |
FUTA | Federal Unemployment Tax Act |
LB&I | Large Business & International |
NTEU | National Treasury Employee Union |
RA | Revenue Agent |
ROE | Revenue Officer Examiner |
RRTA | Railroad Retirement Tax Act |
SB/SE | Small Business/Self-Employed |
TAS | Taxpayer Advocate Service |
TBOR | Taxpayer Bill of Rights |
TCO | Tax Compliance Officers |
TE | Tax Examiner |
TE/GE | Tax Exempt/Government Entities |
WSD | Workload Selection and Delivery |
Related Resources
(1) The following table lists the primary sources of guidance:
Source | Title | Description of Guidance |
|---|---|---|
IRM 4.23 | Employment Tax IRM | IRM sections, the majority owned by SB/SE Specialty Examination Policy, provides Servicewide instructions for employees of all operating divisions involved with the correct filing, reporting, and payment of employment taxes. IRM 4.23 serves as the foundation for consistent administration of employment taxes by various IRS operating divisions. |
(2) Other helpful information sources include:
The SB/SE Knowledge Management home page for Employment Taxes https://portal.ds.irsnet.gov/sites/vl014/pages/default.aspx.
The Specialist Referral System home page: https://srs.web.irs.gov/.
A list of SB/SE Employment Tax Policy Analysts, their contact information and program assignments, are found at: Policy Analyst Listing.
The web site "Examining an Employment Tax Case" at: https://portal.ds.irsnet.gov/sites/vl014/pages/home.aspx?bookshelf=examining%20an%20employment%20tax%20case.
(3) The Taxpayer Bill of Rights (TBOR) lists rights that already existed in the tax code, putting them in simple language and grouping them into 10 fundamental rights. Employees are responsible for being familiar with and acting in accord with taxpayer rights. See IRC 7803(a)(3), Execution of Duties in Accord with Taxpayer Rights. For additional information about the TBOR. See IRC 7803(a)(3). For additional information about TBOR, see https://www.irs.gov/taxpayer-bill-of-rights.
(4) The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal procedures, or who believe that an IRS system or procedure is not working as it should. Pub 1546, Taxpayer Advocate Service - We Are Here to Help You, provides contact and additional information. The program is designed to alleviate taxpayer hardships that arise from systemic problems or the application of the Internal Revenue Code. In addition, see IRM 13.1.7, Taxpayer Advocate Service (TAS) Case Criteria, and IRM 13.1.19, TAS Operations Assistance Request (OAR) Process, for additional information.
(5) Employment tax examiners should consider the disclosure provisions when preparing agreed and unagreed case reports. See the Disclosure and Privacy Knowledge Management web site at: https://portal.ds.irsnet.gov/sites/VL003/Pages/default.aspx for additional information.
Assignment of Employment Tax Cases - Overview
(1) The SB/SE Employment Tax field organization consists of employment tax specialists:
Revenue Agents (RA),
Revenue Officer Examiners (ROE),
Tax Compliance Officers (TCO), and
Tax Examiners (TE).
(2) This section provides criteria to be used by a manager when assigning cases to an examiner. The section also provides factors managers should consider when making a final determination as to the grade of case for all employment tax examinations.
(3) This guide establishes a uniform system to:
Identify the correct initial case assignment,
Identify the correct initial grade of case,
Identify the correct final grade of case,
Provide information that should be considered in making position classification determinations, and
Improve the utilization of an employment tax specialist’s time and talents.
(4) This guide will also aid in reviewing employment tax specialist positions for grade structure purposes. It is not intended to, nor does it evaluate, a specialist’s performance and cannot be considered the sole predictor of the appropriate overall grade level for individual positions. Variables such as the extent of supervision or the impact of other duties are not given consideration in this guide.
(5) It is emphasized that this is primarily a guide and is not intended as a substitute for the exercise of supervisory judgment.
Procedures for Initial Case Assignment
(1) Employment Tax - Workload Selection and Delivery Unit (ET-WSD) staff is responsible for the initial case assignment for most employment tax cases. Managers who receive referrals through the Specialist Referral System (SRS) should use the criteria found in the following table when determining initial case assignments. A referral may be transferred to another group if assignment to a certain type examiner is warranted (e.g., a referral is assigned to a field group but the issue is more conducive for a TCO).
Note: See IRM 4.11.29, Transfer of Returns Open for Examination, for additional guidance.
(2) The following table provides a basis for the proper case assignment by managers. This criteria will be used to ensure inventory received from ET-WSD or the SRS is appropriate for an examiner:
Correspondence (TE) | Remote (TCO) | Field (RA/ROE/Tax Specialists) |
|---|---|---|
Initial interviews will be limited but not be required, although verbal contact may be necessary to follow up on requests for information | Initial Interviews will be required with additional verbal contact necessary to follow up on requests for information | Initial interviews will be required with extensive verbal contact anticipated to follow up on additional requests for information |
Records can be verified to source documents that can be easily submitted via mail/correspondence | Analysis of original source documents may require follow-up to verify their appropriateness and tax law interpretation required | Tour of business is required to establish the initial scope of examination |
Limited review of journals, ledgers, or other books and records will be necessary to arrive at the correct determination | Multiple non-filed returns may be involved generally involving only one entity | Analysis of complex areas of tax law interpretation may be required |
Limited analysis of information/data required | Limited 3rd Party Contacts may be required to corroborate testimony | Multiple related entity transactions may be identified and developed |
Verification-type issues only conducive to substantiation | Simple to complex issues may be involved requiring verification and/or development that can be submitted by mail for review | Expanded 3rd Party Contacts may be required |
Badges of fraud are not apparent | Fraud may be identified and developed or referred to the field, if appropriate | Fraud may be identified based on FinCEN Query System, referrals, and other external sources |
Limited scope examinations will require the use of re-engineering workpaper Lead Sheet #130 | Review of financial records may be required to develop issues | Complex and multiple issues requiring verification and/or development are identified |
Referrals to other examiners required if scope and depth change during case development | Audits are conducive to remote audit procedures due to the frequency of contact and amount of information anticipated | Complex books and records are likely |
N/A | N/A | Issues may require on-site inspection of books and records and the business as a whole |
N/A | N/A | Financial records available as a source of information |
Additional Criteria for Tax Examiner (TE) Assignments
(1) The following provides additional criteria when determining if a case is appropriate for assignment to a Tax Examiner (TE). Cases not meeting the criteria will be deemed appropriate for TCOs or field examiners (RAs, ROEs, or Tax Specialists).
(2) General Assignment Criteria for TE Assignments:
Involves non-filed tax periods
May involve a full year Combined Annual Wage Reporting (CAWR) assessment if there are no other issues identified during classification
Requires only administrative processing to resolve the taxpayer’s module (e.g., unposted employment tax returns due to filing requirement issues)
Examination can be conducted via correspondence and requires limited review of books and records and taxpayer contact
Fraud is not identified or developed
(3) Work sources and issues that can meet the criteria for TE assignment:
Credit Balance cases
Small CAWR cases
Form 944 filing requirement cases where the quarters of the unposted Form 941 match the wages reported for the year
TC976 freeze cases where the return causing the TC976 is available and there are no other issues
Note: If issues outside the scope for TEs are found during development, the case should be transferred to the appropriate examiner (TCO or Field Examiner) to complete the examination. See IRM 4.11.29, Transfer of Returns Open for Examination, for additional guidance.
General Assignment Criteria for Tax Compliance Officer (TCO) Assignments
(1) The following provides additional criteria to use when determining if the case is appropriate for assignment to a Tax Compliance Officer (TCO). Cases not meeting the criteria will be deemed appropriate for field examiners (RAs, ROEs, or Tax Specialists).
(2) General Assignment Criteria for TCO Assignments:
Involves limited issues, such as CAWR and/or Form 1120-S officer compensation cases identified during classification
No related entities are identified during classification
Examination can be conducted using remote audit procedures
Adjustments are generally limited to pre-classified issues
Worker classification and potential section 530 issues are not identified during initial classification
Issues are well-established, such as Form 1120-S officer compensation cases
(3) Work sources and issues that can meet the criteria for TCO assignment:
Form 1120-S officer compensation and related fringe benefits where distributions are evident on the face of the return,
Claims meeting other selection criteria for TCOs,
CAWR,
Backup Withholding not involving a worker classification determination,
Fringe Benefit issues such as Bonus Payments not properly treated, and
Referrals where issues identified otherwise meet TCO assignment criteria.
Note: If issues outside the scope for TCOs are found during development, the case should be transferred to the appropriate field examiner to complete the examination. See IRM 4.11.29, Transfer of Returns Open for Examination, for additional guidance.
Training Returns
(1) The criteria in IRM 4.23.19.3.1 and IRM 4.23.19.3.2 are also used when identifying training returns for new employment tax examiners. Generally, new hires will be assigned cases originally identified for TCOs; however, the cases will be worked based on the position of the trainee, not the classification of the case. Managers must work with the new hire and the on-the-job-instructor to determine when or whether to assign work having more complex issues.
Manager Responsibilities for Initial and Final Case-Grading and Assignment
(1) Every employee should perform work consistent with the needs of the organization, the grade level of the case, and the examiner’s grade.
(2) IRM 4.23.19.6, Characteristics of ALL Employment Tax Examination Cases, provides guidelines for the grading of all employment tax returns.
(3) When assigning cases, the group manager will review the case and, based on the grading criteria, determine the appropriate initial grade level for assignment. A final grade level is determined at case closing and entered on the Form 5344, Examination Closing Record, based on the issues developed in the case. Note that the final grade of case may be different from the initial grade based on the issues identified and subsequently developed by the examiner. See IRM 4.23.19.5 below for specific instructions on determining the Form 5344 entry.
(4) In addition to determining the grade level of the case, the manager will review the criteria in IRM 4.23.19.3, Procedures for Initial Case Assignment, to determine if the case is properly assigned.
Example: When managers receive a case for assignment to a TCO or RA trainee, they will review the factors below in Exhibit 4.23.19-1, Employment Tax Case-Grading Factors, to ensure the case does not qualify for a Grade 12 or 13. If it does not, they will use the criteria in IRM 4.23.19.3 to ensure the issues are appropriate for a TCO/RA trainee. If the case is determined to be inappropriate for a TCO or RA trainee, the case will be reassigned to an examiner with the appropriate grade within the group for examination (or transferred to another group if necessary).
(5) A group manager may provide an employee with the opportunity to perform a limited quantity of higher graded work to enhance their career development subject to the National Treasury Employees Union (NTEU) contract.
Caution: A group manager must ensure, prior to the assignment of higher-graded work, that such work will not require more than 25 percent of the examiner’s direct examination time (DET). Review Document 11678, National Agreement - Internal Revenue Service (IRS) and National Treasury Employees Union (NTEU), Article 16, "Details and Non-Competitive Temporary Promotions," for details. Retroactive pay is required when it is determined that the time spent on higher-graded work exceeds 25 percent in any four-month period. A group manager should either assign the work at the appropriate grade level or secure advance permission for a temporary promotion. Managerial involvement is critical to ensure the examiner does not work more than 25 percent on higher graded cases.
Recording Grade of Case on Form 5344, Examination Closing Record, for Field Examination Cases
(1) A group manager determines the grade of case for all field examination employment tax cases and enters a three digit number in item 32 of Form 5344.
(2) The first digit will represent the class number for the industry, occupation, or type of case that most closely resembles the activity on the examined return.
"1": Class 1 – Manufacturing, Construction, Mining
"2": Class 2 – Retail, Wholesale, Transportation
"3": Class 3 – Services, Farming
"4": Class 4 – Financial and Utilities
"5": Class 5 – Non-Business Individual, Fiduciary
(3) The second digit is the second digit of the closing examiner's grade:
"1": GS-11 and below
"2": GS-12
"3": GS-13
Note: For cases closed by ROEs, the second digit can never be greater than a "2".
(4) The third digit is a "1" for all cases.
(5) When related returns are being closed by the same examiner who worked the primary return, enter the same three digit code as for the primary return, followed by an "R" (for related). If related returns are examined by a different examiner, each will be graded as a separate case and the "R" will not be recorded.
Example: A manager has determined that an employment tax examination involving a manufacturing company has been graded as a GS-12 examination. The final case grade in Item 32 on Form 5344 would be "121".
1st digit = "1" for Class 1 (Manufacturing, Construction, Mining)
2nd digit = "2" for a GS-12 grade
3rd digit = "1"
Related returns examined by the same revenue agent who examined the primary return would be coded "121R". Related returns examined by other revenue agents would be coded without the "R" and graded as a separate case.
Characteristics of ALL Employment Tax Examination Cases
(1) A case is defined as the primary return for one period plus other related returns. The primary return is the return that has been classified for examination. Related returns include returns filed subsequent and/or prior to the primary return of the taxpayer as well as returns for related taxpayers. For Management Information System purposes, when the primary return and related returns are examined by the same examiner, the related returns will carry the same grade as the primary return. If related entities are examined by other agents, entities examined by a separate agent will be graded as a separate case.
Example: The 2020/12 Form 941 for ABC Company is assigned to an examiner. After pre-analysis, the examiner determines an examination is warranted and expands the audit to include the 2020/03, 2020/06, and 2020/09 quarters. After the initial interview, the examiner expands the audit to include all four quarters of 2020 of both ABC Company and a related entity, XYZ Company. The 2020/12 Form 941 would be the primary (key) case and all other returns opened as a result of the examination would be related. Since the same examiner is working the entire case, the grade of case will be the same for all returns involved.
(2) The case-grading guidelines discussed in this IRM are not intended to cover all possible factors that may influence a final case grade. New projects, new programs, or other unusual situations may require a group manager to use their judgment in grading a case. Reliance must be placed on the case-grading factors for these situations.
Employment Tax Case-Grading Factors
(1) The case-grading factors listed in Exhibit 4.23.19-1, Employment Tax Case-Grading Factors, should be used for the initial and final grading of cases. In arriving at a grade, all factors do not have to be met; however, normally more than one of the most important factors is necessary. The factors involve:
Accounting Systems / Methods,
Issues / Knowledge,
Guidance / Tax Laws,
Scope and Effect,
Contacts, and
Other Characteristics.
Employment Tax Case-Grading Factors
(1) The following provides managers with issues and/or characteristics that MAY result in an upgrade:
I. ACCOUNTING SYSTEMS / METHODSGS-12 Case Characteristics: | GS-13 Case Characteristics: In addition to GS-12 characteristics, the case should have the following traits: |
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GS-12 Case Characteristics: | GS-13 Case Characteristics: In addition to GS-12 characteristics, the case should have the following traits: |
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GS-12 Case Characteristics: | GS-13 Case Characteristics: In addition to GS-12 characteristics, the case should have the following traits: |
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GS-12 Case Characteristics: | GS-13 Case Characteristics: In addition to GS-12 characteristics, the case should have the following traits: |
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GS-12 Case Characteristics: | GS-13 Case Characteristics: In addition to GS-12 characteristics, the case should have the following traits: |
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GS-12 Case Characteristics: | GS-13 Case Characteristics: In addition to GS-12 characteristics, the case should have the following traits: |
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