4.24.25. Issue Management System (IMS), Notebook and Workpapers

(1) Excise examinations are conducted primarily by excise examiners located in field offices. CEAC personnel conduct correspondence excise examinations and assess excise tax penalties.

(2) For compliance purposes, it is essential excise managers, senior management officials, excise examiners and personnel at CEAC understand and follow correctly the responsibilities explained in this section regarding IMS, Notebook and the preparation and use of workpapers to ensure appropriate audit procedures are consistently applied, as well as meet quality standards.

(1) IRM 4.24 provides Servicewide instructions for all operating divisions with employees involved with the correct filing, reporting and payment of excise taxes. IRM 4.24 serves as the foundation for consistent administration of excise taxes by various Service operating divisions. By providing one source of authority for all operating divisions, the Service greatly reduces philosophical and procedural inconsistencies.

(2) The Excise 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 1.2.1, Servicewide Policies and Authorities, Policies of the Internal Revenue Service, apply to all excise tax issues and examinations. Excise examiners should review these Policy Statements to properly perform their examination duties.

(3) A website, Delegation Orders by Process, summarizes data relating to Delegation Orders contained in the applicable sections under IRM 1.2 in a single, electronic source.

(4) Memorandum of Understanding, Mandatory Use of Issue Management System and the Library of Forms Notebook, dated October 22, 2009, establishes a framework for IMS and Notebook requirements.

(1) Director, Examination - Specialty Policy is responsible for Excise Tax Examination policy and procedures.

(2) Director, Examination - Specialty Examination is responsible for operational examination compliance activities.

(3) Chief, Estate & Gift/Excise Tax is responsible for ensuring the policies and procedures specific to Excise Tax Examination are communicated to and carried out by excise examiners.

(1) Program Goals - The program goals provided in this section are designed to increase compliance with excise tax laws by applying the tax laws with integrity and fairness and to provide SB/SE taxpayers top quality post-filing services for excise taxes administered by SB/SE.

(2) Program Reports - Information reporting of program objectives are included on Program Manager Monthly Briefings provided to Director, Examination - Specialty Policy.

(3) Program Effectiveness - Program effectiveness is measured by the Exam Quality Review Staff, located in FSEQ. FSEQ supports the SB/SE Quality Improvement Program utilizing National Quality Review System (NQRS) to conduct independent case reviews from statistically valid samples of examination case work. National, area and territory trend analysis on the quality attributes are used to establish baselines to assess program performance, identify opportunities to improve work processes, analyze causes of failure, assess the feasibility of possible solutions and measure the success of quality improvement efforts.

(4) Annual Review - Program Manager - Excise Tax Policy is responsible for reviewing annually the information in this section to ensure accuracy and promote consistent tax administration.

(1) The following chart contains terms and their definitions used throughout this section.

(2) Refer to Exhibit 4.24.25-1 for Acronyms and the associated words or phrase that define them as used throughout this section.

(1) 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 accordance with taxpayer rights. Refer to IRC 7803(a)(3), Commissioner of Internal Revenue; other officials, execution of duties in accord with taxpayer rights. For additional information about the TBOR, refer to Taxpayer Bill of Rights.

(2) Procedures, law and regulations on a wide variety of excise-related examination issues are addressed on the Excise Tax Knowledge Base Homepage.

(1) The IMS Help function is designed so that a user may navigate IMS to initiate, work and close an examination.

(2) To access IMS Help, click the IMS desktop icon, then select Help from the top tool bar menu to select Help from the drop-down menu choice. The Welcome to IMS Help screen will appear.

(3) The Welcome to IMS Help screen explains IMS is designed to take the user to the topic most relevant to the screen or page currently accessed.

(4) The Client Application screen explains IMS Client is the laptop application that provides the tools to support examination planning, examination selections and the examinations themselves. IMS is used by excise examiners to undertake the following responsibilities:

1. Set up the examination.

2. Request information from taxpayers.

3. Propose adjustments.

4. Record hours.

5. Make recommendations for Form 637 registration reviews.

6. Track elapsed time between activities through the use of the activity record.

7. Upload lead sheets and workpapers.

8. Record examination case results.

9. Generate examination closing reports.

10. Close examination cases.

(5) The Case Management screen includes information to help a user navigate basic case management. The topics covered are:

• Access to IMS.

• How to (Case Management).

• IMS Basic Functions.

• IMS Adobe Forms Viewer.

(6) The Case Tree screen identifies program functions for excise tax that include:

• Case Attributes.

• WP Index.

• Entities.

• Team Members.

• Issues.

• Activity Record.

• IDRs.

• Workpapers.

• 637 Recommendation.

• Feedback Forms.

• Correspondence Letters.

• Documents to Taxpayer.

• Useful Links.

• Recycle Bin.

  Note: Functions available for other Specialty organizations that are not currently available for Excise Tax, such as Case Documents, Risk and Technical Issues, etc., may be added at a later date.

(7) The Timekeeping screen provides information about how to enter and classify examination time.

(8) The Team Website Application (TWS) screen provides information about the many different Business Operating Divisions and roles that use the TWS.

(9) The FAQs screen can be accessed for situations where the user is not sure what topic is available within the Help file. Many of the FAQs will link to the applicable topic within the Help file.

(1) A new IMS case can be created from existing ERCS Case Inventory or manually.

(2) IMS will generate a Case Tree when the case is created. The Case Tree contains auto-populated Case Attributes. The Case Attributes apply to all returns included in the case folder.

(3) For the Case Tree, the Case Attributes menu contains the following options:

• Workpaper Index.

• Entities.

  Note: This is categorized by Returns and Other Type.

• Team Members.

  Note: This is categorized by IRS and Taxpayer Contacts.

• Issues.

  Note: This is categorized by Activity Record, IDRs and Workpapers.

• Documents to Taxpayer.

• Correspondence Letters.

• Useful Links.

• Recycle Bin.

(4) IMS has features that allow the user to customize the grids displayed on several of the screens. Once the grid is customized, IMS will show the information for all cases in that format.

(1) The Entities section of the case tree is used to show the returns in the case. The Entities screen is where additional returns can be added or copied for a case. ERCS update forms can be created and the taxpayer closing data can be imported from Notebook into IMS. Additional topics relevant to Entities are:

1. View - Edit Entities.

2. Manage Entity - Coordinators.

3. Populate Closed Dates.

4. Populate Planned Close Date.

5. Verify Entity.

6. Export Taxpayer Entity Data.

7. Manage Claim.

(2) The Returns section of the case tree has two grids, a top and bottom grid. The top grid is the Returns grid, which lists all the Tax Returns within the IMS case. The Returns grid is only a listing of ERCS and manual tax returns already added to the IMS case. It will not include Other Type Entities. The bottom grid is the Returns Document grid, which lists all documents associated to the return highlighted in the Returns grid.

(1) The IMS Team Members screen is used to add, edit and remove IRS Members contacts from the case.

(2) IRS Team Members screen is used to add Team Member, Populate Planned Completion Date, Delete (an IRS Team Member), Customize Grid and Export Grid to Microsoft Excel. Team Coordinator permissions are not automatically given to IRS Team Members but may be granted to each Team Member as appropriate. Team Coordinator Permissions are managed from the Case Attributes screen. Manage Entity Coordinators is managed on the Entities Screen.

(3) The Taxpayer Contacts screen portion of IMS is used to add New Taxpayer Contact, Delete Contact, Copy Taxpayer Contact, Customize Grid and Export Grid to Microsoft Excel.

(1) Time spent examining claims is tracked using three different tracking codes. These codes are referred to as Protection of Revenue Base (P of RB). Time spent examining the P of RB issues is separate from regular examination time. The P of RB indicator in ERCS allows tracking of claim examinations. On IMS, these indicators are Revenue Protection Codes (RPCs). The three codes are:

1. N = Neither (i.e., no claim filed) − Used when there is no filed request for refund. "N" applies to regular examination activities prior to any request for refund. Once there is a request for refund, all subsequent time charges should be made to either "P" or "R."

2. P = Claims Issues (Protection) – Used to record time spent protecting the revenue base (i.e., working the claim issue). Excise examiners cannot charge "N" and "P" time for the same return; however, "N" can change to "P" during an examination when the issue is identified from the Entities Screen.

3. R = Related – Used to record time spent examining regular (non P of RB) issues on returns where a claim has been filed. ERCS allows time charges to "P" and "R" for the same return on the same day. Once an excise examiner charged either "P" or "R" time to a return, ERCS will no longer allow "N" time to be charged. The "N" time charges become invalid and will be converted to "P." Once a protection code issue is identified, IMS users should refer to IMS Help under Update RP Code for assistance.

(2) RPC’s are no longer modified at the issues level. Issue changes are done on the Entities screen when a claim is filed. All Issues related to the claim must be identified and edited for the claim amount. The RPC for the claims will change from an "N" to a "P" and the remaining issues will change to an "R." Any additional issues created will show an "N" until the case is synchronized and then "N" will change to "R." Manually entered claims will automatically change when the ERCS case is updated to the IMS case.

(1) Time is charged to the issues identified in the case. Issues are classified by selecting a Standard Audit Index Numbers (SAIN) or a number from the Uniform Issue List (UIL). Generally, the SAIN relates to how an issue is reported on a return. Tracking issues using both the SAIN and the UIL number will allow the Service to plan and allocate resources more efficiently. Consequently, at least one SAIN and one UIL number must be selected for each return within a case. Excise examiners will use their professional judgment to determine the appropriate SAIN codes to apply to the case issues. SAIN codes will be entered for case issues; however, all mandatory and administrative workpapers will be associated with the Administrative SAIN code. For situations where an excise examiner spends a significant amount of time on an particular issue, the time charged should be associated with the SAIN code for that issue. In situations where a case is not started on IMS and therefore time needs to be entered retroactively, these time charges may be input in IMS in blocks of up to 99 hours and a specific SAIN code need not be identified.

(2) An Administrative Issue (EX080) and Case Issues (Classified Issues for Issue Tracking and Feedback Form purposes) are required on all cases. An Administrative Issue (EX080) is created automatically. All case issues (classified issues) for the return and major issues that were not classified in the case file (i.e., any issues in the case that resulted in significant time expenditures regardless of change that was not identified during classification) must be added. Administrative Issues and Case Issues may be established for the Team Coordinator or assigned to other Team Members. From the Add Issue screen, select the Team Member to be assigned to the issue from the drop-down list. IMS defaults to the user adding the issue and can be changed by clicking the drop-down list and selecting a different Assigned Team Member.

(3) In the Add Issue Screen, enter the date the examination began in the Start Date and one year out for the from the Start Date for the End Date field. Having the dates consistently entered will keep the detailed case issue(s) from being displayed when time is entered into the time sheet screen.

(1) The UIL number relates the issue or SAIN to the applicable primary section. If not already populated in the Add Issue screen, add a UIL code that corresponds to the Issue from the pull-down menu. A UIL Code is required to close all cases off IMS. The Search UIL screen enables users to find the correct UIL code for the issue without scrolling through the entire UIL listing. To limit the number of UIL codes displayed, enter an Internal Revenue Code section in the Code box and/or a description of the issue in the Description box and click on the Search button. Select the appropriate UIL code for the issue from the grid and click OK to add the UIL code to the issue. Access this screen by clicking the Find UIL button on the Add Issue or Issue Details screen.

(1) The excise examiner will export entity data from IMS into Notebook or manually input case specific information into Notebook and generate the appropriate mandatory workpapers, lead sheets and letters. The excise examiner will then upload these documents into IMS from Notebook.

(2) The excise examiner will upload applicable source documents to support the examination findings. IMS lead sheets and workpapers should support the audit trail. Mandatory workpapers and all supporting documents should be maintained within IMS; however, when warranted, the excise examiner may obtain and document managerial authorization to deviate from IMS/Notebook guidance.

(3) To ensure consistency, all excise examiners will maintain Information Document Requests (IDRs) within IMS, including annotating the Form 4564, Information Document Request, as appropriate (e.g., Date IDR Issued, Information Due Date).

(1) To charge time to a case within IMS, issues will be entered for each tax period and issue examined. The time spent on the case will be charged to the examined EX issue(s) that are reflected on the key return(s), as appropriate.

(2) Each return or claim must have time charged except when the return is closed using a non-examined disposal code, such as Disposal Code "32" or "34."

(3) For charging time, refer to IRM 4.9.1.7.2, Time Input on ERCS and IMS, through IRM 4.9.1.7.2.2, Inputting Time into IMS. The Examination Returns Control System (ERCS) Group Handbook also addresses ERCS time entry and fractional hours.

(4) The Time Sheet in IMS Client allows the IMS user to enter all categories of daily time applied, including case time and below the line (BTL) time.

(5) Form 9984 in IMS Client is used to document each action taken on the Entity/Return issues. Documentation should include the date, location, contact, time charged and an explanation of each activity. The activity record should provide a complete and concise case history. Recordation of events should be made by excise examiners or other employees responsible for activity on the case as warranted (e.g., excise managers, team members, etc.).

(1) To close a case in IMS the excise examiner will take the following actions on the Edit Entity screen:

1. Access the Edit Entity screen from the Entities section. Double click on an entity period. This will open the Edit Entity screen.

2. Complete the Disposal Code field under the ERCS Data Tab. This will activate the Entity Closing Data Tab.

3. Complete the appropriate adjustment information under Issue Closing Data Tab for each issue.

4. Complete the Entity Closing Data Tab with applicable data. If a data field is not applicable to the return, enter zero in the field.

   Note: Amount Claimed cannot be edited. The Amount Claimed field is populated from ERCS.

   Note: Complete the IRC section, Penalty and Penalty Abatement data fields, if applicable. Zeros are not required in these data fields, if they are not relevant or applicable to the return.

   Note: Reference Form 5384 or Form 5385 and penalty workpapers generated from Notebook to complete these entries.

5. Complete any applicable fields on the 5344 Data Tab.

   Note: There will be an Edit Entity screen for every return/period in the IMS case. The case will not close in IMS until this closing data is entered for each return on the Issue Data screen.

(2) The excise examiner must also add return closing documents under Entities section to close a case in IMS. The excise examiner must select Returns and then select the Add Return Documents icon (which is the + symbol). There may be different types of closing documents (e.g., Form 3198, Form 5344, Form 5351 or Form 8278 ). Certain closing documents are required for each return period. For example, a Form 5344 is entered for each return period, but a Form 3198 is only entered for the primary period.

(3) Synchronize and check in all checked out items.

(4) Once all closing data is entered under the Entity tab and closing documents are created in the Entities/Returns, the excise examiner must enter the closing date in Case Attributes and populate the closing date in Entities.

(5) Excise examiners must close their cases in IMS to correspond with closure of the paper case file to the excise manager. Excise managers can then perform their reviews and indicate concurrence with the closure of cases from the group using the Manager Concurrence feature on the Team Website (TWS) and selecting yes. These timely steps allow other stakeholders (e.g., Appeals, Technical Services, FSEQ and Centralized Case Processing) to access cases electronically in IMS/TWS. IMS case closing procedures and processes are described in more detail in EX IMS course books, job aids, and check sheets. Refer to IRM 4.24.21.4.1, Paper Excise Closing/Electronic Issue Management System Excise Closing, for additional information.

(1) Synchronization is the process of transferring specific information and documents to/from the excise examiner’s computer and the IMS Server. Once the synchronization is complete, any information and documents synchronized on the excise examiner’s computer will be identical to the information and documents on the IMS Server. There are five types of synchronizations performed in IMS:

• Summary.

• ERCS.

• Case (Express or Detailed).

• Time Sheet.

• Reminder.

(2) Summary Synchronization downloads the case information for any case for which the user is a Team Member or Manager.

(3) ERCS Synchronization downloads the return data assigned to the user in ERCS. IMS receives a download from ERCS nightly.

1. ERCS changes made in IMS will not appear in ERCS. If information from ERCS is incorrect, the excise examiner should complete Form 5348, AIMS/ERCS Update, to change the data on ERCS. The ERCS record will be updated and downloaded through the ERCS synchronization.

2. If the recorded Taxpayer Identification Number (TIN) is incorrect in ERCS, the excise examiner must complete Form 5351 to dispose the wrong record on ERCS. Excise examiners can also establish a new record on ERCS with the correct TIN using Form 5345-D, Examination Request - ERCS (Examination Return Control System Users).

(4) Case Synchronization allows the excise examiner to ensure that all uploaded work is saved to the IMS Server in the event of computer failure. Case specific information such as Issues, Information Document Requests (IDRs) and Workpapers upload and download using the Case Synchronization process. Excise examiners must run an IMS case synchronization at least once every week that they have taken action on a case. Excise examiners are not required to synchronize a case if no action was taken on that case since the last synchronization. The excise examiner will also check-in and synchronize all case documents at the time the case is closed.

(5) Time Synchronization − The IMS timekeeping system will track Direct Exam Time, Miscellaneous Direct Exam Time (MDET) and BTL time. To input time on a return, the user must have created issues for the return. All Direct Exam Time applied on IMS is by EX-Issue, SAIN and UIL code. The time needs to be on the IMS Server by Thursday at 8:00 p.m. EST.

(6) Reminder Synchronization − The IMS Reminder menu is located on the IMS Toolbar. Users may view, edit, add, delete, activate or deactivate reminders. Others cannot view an excise examiner's reminders. IMS also generates system reminders. The user should run a Reminder Synchronization to view the IMS generated reminders. These system reminders include:

• A reminder five days prior to the end of each ERCS monthly reporting cycle.

• A reminder for any case not having a new activity record (or modifying an existing activity record) or a case comment on a particular case for more than 25 days.

(1) Do not add/import/upload large files (over 40 megabytes per file) to IMS.

(2) Do not import databases of any size (e.g., a Microsoft Access file) or IRS databases (e.g., IRPTR-I or IRAS). Excise examiners may add/import/upload reports generated from databases.

(3) Do not import zipped files of any size; they cannot be unzipped within IMS.

(4) Do not import password-protected files; they are not viewable on the Team Website.

(5) Excise examiners may add/import/upload encrypted files directly from the Sensitive But Unclassified folder in IMS.

(1) By selecting NB Menu and then References, the excise examiner can access Audit Guides, Rate Reference, FCO Tool Kit, RA Tool Kit and Forms Library Updates.

(2) For each option, the excise examiner will find reference materials useful in successfully completing the appropriate Excise Lead Sheets.

(1) Form 4318-E, Excise Workpapers Index, refers to the examination workpapers cover sheet that indexes the Lead Sheets, issue workpapers and supporting workpapers (e.g., appointment letters, IDRs, correspondence, case building materials, etc.). Form 4318-E pertains to one taxpayer.

(2) Adjustments reported on Form 5384, Excise Tax Examination Changes and Consent to Assessment & Collection, and/or Form 5385, Excise Tax Examination Changes, are documented on Form 4318-E. The explanations must correspond chronologically to the issue workpapers and supporting workpapers.

(1) The excise examiner must document each substantive action taken on a case on Form 9984. Form 9984 is required for uniform case file documentation of examination activities, NQRS case reviews, determining whether taxpayers cooperated fully with reasonable requests for information and the possibility of responding to a taxpayer’s claims for interest abatement under IRC 6404, Abatement of interest attributable to unreasonable errors and delays by Internal Revenue Service. In some situations, Form 9984will reference other workpapers or relevant lead sheets for more detail.

(2) Form 9984 should be prepared contemporaneously with the actions taken on the case and provide a complete and concise case history. Form 9984 chronicles all substantive actions taken during the course of an examination by excise examiners, excise managers, clerical support staff, the taxpayer and/or the representative. Alternatively, in lieu of Form 9984, excise managers may use the Case Level Activity Record feature at the IMS Team website.

(3) All entries on Form 9984should be written factually and professionally. Form 9984 is used to document activity including the date of the activity, location of the activity, contact code, time charged and remarks and/or substantive actions taken. Entries on Form 9984 should not be so brief as to be meaningless, i.e., "worked on case."

(4) If no significant activity occurs on a case for 45 days, the excise examiner must provide a written comment on Form 9984fully explaining why this occurred and whether the delay was communicated to the affected parties. Significant activity includes any activity where the excise examiner performed substantial work that moved the case toward a conclusion. This does not include telephone calls to or from the taxpayer to cancel or change an appointment. It would, however, include telephone calls if issues were discussed that helped move the case toward a conclusion, such as appointments were arranged, information requested, research conducted, etc. This requirement includes leave and extended temporary detail assignments.

(5) Each action taken on the case must be documented on Form 9984 or the Case Level Activity Record feature in IMS. This includes, but is not limited to:

1. Pre-contact examination steps.

   Note: Refer to IRM 4.10.2.8, Examination of Returns, Pre-Contact Responsibilities, Initial Contact: Overview, for additional information about initial contact with taxpayers.

2. All research activities.

3. Any evaluation of collectibility and any decision to survey or examine a return.

4. Significant travel time to and from the examination location.

5. Verification the taxpayer and/or the representative has the excise examiner’s correct name, telephone number and unique employee identification number at the inception of the examination.

6. Confirmation of taxpayer receipt of Publication 1, (Pub 1), Your Rights as a Taxpayer, Notice 609, Privacy Act Notice, and the related discussion held with the taxpayer and/or the representative.

7. If a tour or site visit of the taxpayer’s business was conducted.

8. Reasons for expanding or contracting the examination and the related discussions with the excise manager.

9. All actions taken with respect to the statute of limitations (SOL), including verification of the SOL, steps to protect the SOL, status of Form 895, Notice of Statute Expiration, completion date(s), discussions with the excise manager regarding soliciting statute extensions and actions taken for securing consents to extend.

10. The completion of the required filing checks, actions taken and the decisions made by the excise examiner, including internal documents secured and any analysis performed or workpapers created by the excise examiner in making this determination.

    Note: If the required filing checks are not completed, the excise examiner must document the reasons why and the extent of managerial involvement.

11. If an excise examiner determines a required return has not been filed (except when fraud or willful failure is indicated), actions and conclusions must be prepared addressing how the issue was resolved.

12. If the taxpayer was notified the inspection of a return did not result in an examination.

13. If an extension of the mutual commitment date (MCD) for more than 30 days was granted, the related discussions with the taxpayer and/or representative and excise manager must be prepared addressing how the issues were resolved.

14. When records are incomplete, nonexistent or suspect, all attempts to obtain the taxpayer’s records and actions to keep the excise manager informed.

15. Document any attempts by the taxpayer or the representative to delay the examination.

16. Documentation of excise manager involvement, including formal and informal discussions, in-process case reviews, on-the-job visitations and workload reviews, plan to close meetings, fraud awareness discussions and the date the case was closed to Centralized Case Processing or Technical Services.

17. If the facts and circumstances warrant a partial overassessment, excise manager approval and concurrence prior to such allowance.

18. If the taxpayer wants to submit a fax signature for consents or closing agreements, the related discussions and actions regarding contact with the taxpayer, the date of the contact and the desire of the taxpayer to submit the consent or closing agreement by fax.

19. Managerial involvement for all unagreed cases.

20. Actions related to report delivery and receipt, including date(s) of the notice, method of delivery of notice (i.e., personal delivery, regular mail, certified mail, etc.), person(s) to whom notice(s) were delivered and items included in the delivery (i.e., letter, report form, publications, etc.).

21. When collateral requests and referrals are made, accepted, when work begins and when progress reports are received.

22. Any actions taken regarding Form 5346, Examination Information Report.

23. If the facts and circumstances warrant the assertion of penalties, related actions and decisions.

24. If a deficiency results, the discussions about the solicitation of payment and payment options.

(1) A105 - Administrative Check Sheet provides administrative guidelines for examination tasks. The excise examiner completes the following portions of A105 by addressing:

1. Pre-audit issues, including verification of SOL and collectibility. Refer to IRM 10.2, Examination of Returns, Pre-Contact Responsibilities, and IRM 4.20.1, Examination Collectibility, Examination Collectibility Procedures.

2. Form 637Registration information, if applicable. Refer to IRM 4.24.2, Introduction to Form 637 Excise Tax Application for Registration for Certain Excise Tax Activities, IRM 4.24.23, Operational Procedures and Responsibilities for Form 637 Excise Tax Registrations and Secure Airports Terminals (SATs), and IRM 4.24.24, Form 637 Registration Files: Administrative Procedures for Initial Applications and Case Reviews.

3. Power of Attorney (POA).

4. Initial taxpayer contact by mail.

   Note: Initial contact by telephone is prohibited. After mailing the contact letter and sufficient time lapsed for the taxpayer to respond (14 calendar days from mailing the letter), the excise examiner may initiate contact with the taxpayer by telephone as needed.

5. Initial appointment.

6. Referrals.

7. Extensions to SOL.

8. Issue resolution.

9. Payment. Refer to IRM 4.20.1, Examination Collectiblity, Soliciting Payment, for guidance on using the tiered interview approach for soliciting payment, securing levy source information and coordinating with Collections.

Note: The excise examiner must check yes on A105 under the Payment heading (IRM 4.20.3 - IRM 4.4.24.2) to establish that payment was solicited whether full or partial. The substance of the discussion with the taxpayer or the representative as to payment options, how the taxpayer indicates the deficiency will be addressed and acknowledgement of the obligations must be documented on Form 9984.

10. For additional procedural items, including third party contacts, inadequate records notice and conversion of QuickBooks accounting software, refer to IRM 4.24.6.

(2) For case file assembly, refer to Excise Examination shelf, Closing an Examination book, Case File Assembly page located at the Excise Tax Knowledge Base Homepage.

(3) Excise examiners need to be aware of the Potentially Dangerous Taxpayer and Caution Upon Contact Programs. Refer to IRM 25.4.1, Employee Protection, Potentially Dangerous Taxpayer, and IRM 25.4.2, Caution Upon Contact Taxpayer.

(1) A110 - Excise Tax Plan to Close Check Sheet serves as a guide for the examination planning phase. A110 is a summary sheet of task reminders to complete as part of the examination process.

(2) A110 ensures the excise examiner:

• Is focused on a plan to close.

• Is organized.

• Knows the next steps needing completion.

• Completes each step in logical procession.

• Is prepared to go to the next step.

(3) A110 consists of the following steps:

1. Review the case-built file.

2. Establish initial taxpayer contact by mail.

3. Import, prepare and mail the approved taxpayer and/or the representative an appointment letter.

   Note: Refer to IRM 4.10.2.5.5, Surveying International Feature Returns, for exceptions for international excise examination cases.

4. If the appointment must be scheduled or re-scheduled beyond 45 days after the initial contact, managerial involvement must be documented in the case file.

5. Obtain the excise manager’s audit plan concurrence within 30 business days after initial appointment if case is not closed.

(1) A115 - Group Manager Concurrence Meeting Check Sheet documents the group manager concurrence meeting (GMCM). This occurs between the excise examiner and the excise manager within 30 business days after the initial meeting with the taxpayer or the first receipt of information from the taxpayer in a correspondence case. The GMCM will cover:

• The initial appointment meeting with the taxpayer or the first receipt of information from the taxpayer in a correspondence case.

• The reasonableness of the MCD established.

• Accomplishments and planned actions for completing the case.

• Issues identified.

• Location of the examination work.

• Concerns or barriers to closing the case.

(2) The GMCM is required for all excise examiners GS-12 and below.

(3) Excise examiners, GS-13, are encouraged to utilize a GMCM process to provide updates on cases and to obtain guidance from excise managers.

(4) When the 30 business day requirement cannot be met, reasons for the delay must be documented sufficiently. Only in rare circumstances should the meeting occur prior to the initial meeting with the taxpayer or the first receipt of information from the taxpayer in a correspondence case.

(5) The excise manager acknowledges completion of the GMCM by initialing and dating the A115.

(6) Refer to IRM 1.4.40.7.6, Resource Guide for Managers, SB/SE Field and Office Examination Group Manager, Group Manager Concurrence Meeting (GMCM) for Revenue Agents.

(1) A120 - Initial Appointment Check Sheet provides guidance in conducting the initial appointment with the taxpayer. It serves as a guide to assist the excise examiner for completing the excise examination. Additionally, it provides an index and reference to supporting workpapers.

(2) Initial contact procedures found in IRM 4.10.2.8 apply.

(3) At the beginning of the initial appointment, the excise examiner will discuss and document the following:

1. The mutual responsibilities (i.e., what the taxpayer can expect from the excise examiner and what the excise examiner can expect from the taxpayer).

2. The excise examiner’s availability to meet and resolve issues, the normal working hours of the excise examiner and the contact information for the excise manager, including name, address and telephone number.

3. The excise examiner will discuss the excise examination issues and explain the scope of the excise examination may expand as additional issues arise.

(4) Prior to concluding the initial appointment, the excise examiner will work with the taxpayer and/or the taxpayer’s representative to set the MCD. Consideration must be given to the number of expected field visits, the availability of the excise examiner and the taxpayer. Every effort should be made to complete the excise examination as soon as possible.

(1) Interviews will be documented on A125 - Initial Interview Questions and Notes.

(2) If not already addressed during the pre-contact phase of the excise examination, the excise examiner must take the following actions during the initial interview:

1. Verify the taxpayer’s receipt of Pub 1 and Notice 609.

2. Briefly describe the rights described in Pub 1 and Notice 609 and respond to any questions.

3. Briefly describe the excise examination process and inform the taxpayer and/or the representative of the options available for resolving unagreed cases.

4. Document confirmation of receipt of Pub 1 and Notice 609 and the discussion held with the taxpayer and/or the representative on Form 9984.

(3) Interviews provide information about the taxpayer’s financial history, business operations, use of internal controls and books and records not available from other sources. Interview questions are planned to address items specific to the taxpayer under excise examination. The type of return and relevant facts and circumstances need to be considered in the interview plan.

(4) Interviews should be documented in sufficient depth to give a clear understanding of the taxpayer and the taxpayer's operations.

(5) Interviews should obtain the information needed to make informed judgments about the scope and depth of the excise examination and to correctly resolve issues.

(6) Questions specific to the abstracts should be incorporated into A125.

(7) Appropriate follow-up questions should be asked. The person interviewed should have sufficient knowledge of the taxpayer’s operations to answer questions.

(8) Adequate narrative and specific abstract commentary is essential. Excise examiners need to follow the interview guidance contained in IRM 4.10.3.3, Examination of Returns, Examination Techniques, Interviews: Authority and Purpose.

(1) The excise examiner documents evidence of voluntary compliance on B200-1 - Required Filing Checks Prior/Subsequent Period Returns, Related Excise Tax Returns, Filing Verification, (RFC).

(2) Excise examiners should perform taxpayer filing verification checks to determine taxpayers are in compliance with all federal tax return filing requirements and all returns reflect the substantially correct tax. Refer to IRM 4.10.5, Examination of Returns, Required Filing Checks, for more detailed guidance.

(3) The excise examiner will:

1. Identify all prior, subsequent and related returns.

2. Include a summary of the analysis performed.

3. Document the conclusions reached.

(4) The excise examiner will indicate why a prior or subsequent period is not picked up when an adjustment is proposed in the current period.

(5) The RFC includes the analysis of prior, subsequent and related returns. The analysis and pick-up of prior, subsequent and related returns, when warranted, is an excise examiner’s primary responsibility.

(6) Limited scope examinations do not eliminate the need to perform RFC.

(7) The inspection of a return is not an examination. The excise examiner may question the taxpayer concerning items on the return in an attempt to understand how or why they occurred. The excise examiner may not request documentation concerning items on the return. If documentation is requested, an examination has been opened.

(8) When possible, excise examiners should use external sources of information, (e.g., FINCIN, Accurint, internet research, K-1s, etc.), as well as internal sources of information, (e.g., IDRS, Modernized e-File (MeF) and Compliance Data Environment), to complete the RFC. Filing should be verified for prior and subsequent period returns, related returns, information returns, employment tax returns, gift tax returns, other excise tax returns, pension plan returns, etc.

(9) Case file documentation should include key or summary documents secured from IDRS verifying filing such as:

• BMFOLI.

• BMFOLT.

• SUMRY.

(10) MeF is a web-based system that allows electronic filing of corporate, individual, partnership and other returns, including excise returns. The MeF system provides the excise examiner original transmitted tax return data in various formats, including a Form View, which resembles a tax return. If a return was filed using MeF, an excise examiner can access the Employee User Portal (EUP) to view the return. For additional information on EUP, refer to the Excise Examination shelf, Initiating an Examination book, EUP page located at the Excise Tax Knowledge Base Homepage.

(1) B200-2 - Related Excise Tax Returns Consideration documents the excise examiner’s appropriate follow-through, i.e., whether the taxpayer:

• Manufactures, produces, recycles or imports items for sale or use subject to excise taxes.

• Uses products subject to excise taxes.

• Receives payment for services subject to excise taxes.

• As a retailer or importer, engages in the sale, lease or use of goods subject to excise taxes.

• Has been a party to transactions subject to excise taxes.

• Engages in miscellaneous activities subject to excise taxes.

(1) C300 - Book to Return Reconciliation Check Sheet documents the excise examiner’s analysis and consideration of the taxpayer’s operations and activities for determining the proper excise examination scope.

(2) In the course of examining Form 720, Quarterly Federal Excise Tax Return, it is often necessary for the excise examiner to verify the taxpayer’s total sales of relevant products for a tax period.

(3) The excise examiner will often review the total sales for a year shown on a taxpayer’s income tax return and inquire into the purpose of any adjustments. This information helps establish the accuracy of all Form 720 returns filed during the taxable year.

(4) Conducting a books-to-return analysis is especially important when the taxpayer has not filed an excise return. Even if the taxpayer has not filed an excise return and there is no amount on the excise return to reconcile, the excise examiner must still perform a books-to-return analysis and document the conclusions reached regarding what sales/revenue should have been reflected on the non-filed return.

(5) An excise examination is started when actual books and records of sales are requested and examined for a period for which a return has been filed or is due to have been filed.

(6) The excise examiner will reconcile all sales/revenues shown on the excise return with those on the income tax return. The excise examiner will document the justification for any differences between the two amounts. The excise examination should account for all sales/revenues (and sometimes uses) as if they are subject to excise tax until verified and proven otherwise. Through the excise examination process, the excise examiner verifies and eliminates those sales/revenues (and sometimes uses) not subject to excise tax. All remaining items are then taxable.

(7) The excise examiner will document any adjustments made by the taxpayer to the amounts shown for sales/revenues on the books of the taxpayer.

(8) An in-depth job aid covering the book to return reconciliation may be found at the Excise Examination shelf, Examination in Process book, Books to Return Reconciliation page located at the Excise Tax Knowledge Base Homepage.

(1) C305 - Internal Controls Check Sheet documents the analysis of internal controls and assesses the level of control risk.

(2) It is important to obtain sufficient evidence to determine the accuracy of the taxpayer’s return. The excise examiner must determine the appropriate amount of evidence to accumulate and establish the proper depth of the excise examination. This decision is a matter of judgment and important because of the prohibitive cost of examining and evaluating all available evidence. Factors to consider when establishing the depth of the excise examination include:

1. The risk of taxpayer errors that are individually or collectively material.

2. The risk that excise examination tests will fail to uncover material errors (e.g., the excise examination techniques used, the nature of the errors (intentional or unintentional) and the reliability of available evidence).

(3) The excise examiner should either flowchart key business operations or document, in narrative form, with sufficient detail to provide information comparable to that shown by flowcharting the process.

(1) Excise examiners should familiarize themselves with the IRM 25.1, Fraud Handbook, when developing a fraud case.

(2) IRM 25.1.7, Failure to File, discusses the various procedures concerning fraud in failure to file cases.

(3) To assist in the timely development of fraud cases, the excise examiner, with the excise manager’s concurrence, should contact a Fraud Enforcement Advisor (FEA) and the Excise Fraud Analyst (Fraud Analyst) when initial indicators of fraud are uncovered. A plan of action is developed jointly to document firm indications of fraud. An integral part of the plan requires establishing that sufficient affirmative acts exist confirming fraud. The plan should be a joint effort by the excise examiner, the excise manager, the FEA and the Fraud Analyst.

(4) The FEA and Fraud Analyst serve as consultants during case development.

(5) The excise examiner will use the C310 to document actions taken.

(6) The excise examiner will complete Form 11661, Fraud Development Recommendation - Examination, when he or she suspects fraud. Form 11661 should be forwarded electronically via secure e-mail to the FEA through the excise manager. Upon receipt of an approved Form 11661, the case is placed in Status Code 17 (Fraud Development Status) on AIMS.

(7) When the excise examiner, excise manager and FEA have agreed that the case contains sufficient evidence to prove the existence of firm indicators of fraud, the excise examiner (with the help of the FEA, if needed) prepares Form 2797, Referral Report of Potential Criminal Fraud Cases, to refer the case to Criminal Investigation (CI). The excise examiner will route Form 2797 via secure e-mail to the excise manager, who forwards it to the FEA via secure e-mail.

(8) CI has 10 business days after receipt of the referral to contact the excise examiner, excise manager and FEA and set up a meeting to discuss the case. At the 10-day meeting, the excise examiner provides CI with the entire case file and discusses the issues.

(9) If a case referred to CI is accepted for a criminal investigation, the case will be placed in Status Code 18 (Accepted by CI). The excise manager monitors Status Code 18 cases through quarterly four-way conferences with CI.

(10) Excise examiners are responsible for monitoring all civil assessment Statutes of Limitations (SOLs) during joint investigations, including prior and subsequent tax periods and related tax returns under examination/collection activity.

1. When fewer than 210 days remain on the SOL for assessment, the excise examiner completes Form 10498-B, Joint Investigations Intent to Solicit Consent to Extend Statute, to request CI’s permission to solicit the taxpayer’s consent to extend the assessment SOL to issue a notice of deficiency. The completed Form 10498-B is sent via secure e-mail by the excise manager to the Supervisory Special Agent (SSA). CI must accept or decline the request within 10 days after receipt of Form 10498-B. The SSA indicates the desired action by checking the appropriate boxes on Form 10498-B. The SSA then forwards via secure e-mail Form 10498-B to the Special Agent in Charge (SAC). The SAC indicates approval by entering his/her signature and the date. The SAC forwards via secure e-mail the completed Form 10498-B to the Compliance Authorizing Official, who is generally the excise territory manager. The Compliance Authorizing Official forwards via secure e-mail the approved Form 10498-B to the excise manager.

2. For instructions on updating the statute on AIMS, refer to Exhibit 25.6.23-3, Instructions for Updating the Statute on AIMS and to Form 10498-B instructions.

3. Refer to IRM 25.1.4.3.8, Administrative Joint Investigation, Statute Protection, for further guidance.

(11) For additional information regarding fraud, refer to the Fraud Development Knowledge Base.

(1) D400 - Initial Taxpayer Contact Check Sheet documents action items the excise examiner should consider when making initial contact. Examples include:

1. Discussed taxpayer rights.

2. Discussed the examination process.

3. Advised the taxpayer that his or her return was selected for excise examination.

4. Addressed questions or concerns of the taxpayer.

(2) Initial contact procedures found under IRM 4.10.2.8 apply.

(3) All initial taxpayer contacts must be made by mail. For this reason, the excise examiner will issue Letter 2205-A, with Pub 1 and Notice 609. Prior to contacting the taxpayer, the excise examiner must determine if a POA is on file before mailing Letter 2205-A. If a valid POA is on file for the tax period(s) under examination, the excise examiner must make initial contact with the taxpayer and the representative. After mailing the contact letter and allowing sufficient time for the taxpayer to respond (allow 14 calendar days from mailing), excise examiners may initiate contact by phone with the taxpayer as needed. The initial IDR is not issued with this initial contact letter except for situations involving excise International examinations. The IDR is instead sent with the appointment confirmation letter after contact with the taxpayer is established and the appointment is scheduled.

(4) The excise examiner discusses taxpayer rights as outlined in Pub 1 with the taxpayer and answers questions the taxpayer may have about his or her rights.

(5) The excise examiner must explain to the taxpayer the records that should be available for the examination. If the taxpayer volunteers information concerning examination issues, the excise examiner should include that information when documenting the discussion.

(6) When the initial appointment is scheduled, Letter 3253 and/or Letter 3254are mailed to the taxpayer and/or the taxpayer’s representative confirming the time/place of the excise examination and the records that must be available. The items shown below must be enclosed with the letter to the taxpayer:

• Pub 1.

• Notice 609.

• Form 4564, Information Document Request.

(7) If the attempts to contact the taxpayer are not successful, refer to IRM 4.10.2.8.4, Undeliverable Initial Contact Letters.

(1) The E500 - Penalty Check Sheet and Approval Form documents the assertion or non-assertion of penalties by excise examiners and excise managers.

(2) IRC 6751(b)(1), Approval of assessment, in general, states that "[n]o penalty under this title shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate."

(3) Notwithstanding the exception noted in paragraph 4 below, this approval requirement also applies to the imposition of any fraud penalty including fraudulent failure to file penalty under IRC 6651(f), Increase in penalty for fraudulent failure to file.

(4) IRC 6751(b)(2), Approval of assessment, exceptions, provides an exception to the managerial approval requirement for certain penalties calculated through electronic means. This exception applies to the following penalties:

• IRC 6651, Failure to file tax return or pay tax.

• IRC 6654, Failure by an individual to pay estimated income tax.

• IRC 6655, Failure by corporation to pay estimated tax.

• Failure to deposit penalty IRC 6656, Failure to make deposit of taxes, if using CC FTDPN without any independent judgment with respect to the applicability of the penalty. Refer to IRM 20.1.1.2.3.2, Penalty Handbook, Introduction and Penalty Relief, Automated Underreporter and Correspondence Examination Automation Support Programs, and IRM 20.1.4.21.7, Failure to Deposit Penalty, Managerial Approval.

• Any other penalties calculated automatically through electronic means.

  Note: A penalty calculated automatically through electronic means is more than merely an electronic device used to perform arithmetic functions. Instead, the assessment of a penalty qualifies as one calculated through electronic means, if the penalty is assessed free of any independent determination by a Service employee as to whether the penalty should be imposed against a taxpayer.

(5) For purposes of this section, the term "penalty" includes "any addition to tax or any additional amount." Refer to IRC 6751(c), Penalties.

(6) The excise manager must perform a meaningful review of the excise examiner's penalty determination prior to assessment. The excise manager should verify the penalty impositions are accurate, as well as confirm that the excise examiner documented the findings in the case file including conclusions regarding the assertion or non-assertion of penalties. Excise examiners must include a completed and signed E500 - Penalty Check Sheet and Approval Form, located in the Forms Library of the Notebook, to document the assertion or non-assertion of penalties. Refer to IRM 20.1.1.2.3, Penalty Handbook, Introduction and Penalty Relief, Approval Prerequisite for Penalty Assessments.

(7) Group manager involvement is not required on automatic penalties such as Failure to File and Failure to Pay. Managerial review and written approval is required on assertion of all other penalties and the non-assertion of IRC 6719and/or IRC 6725 penalties. Effective May 20, 2020, for all penalties subject to IRC 6751(b)(1), written supervisory approval must be obtained prior to issuing any written communication of penalties that offers the taxpayer an opportunity to:

• Sign an agreement or consent to assessment of a penalty: A form soliciting a signature, which the IRS relies upon to make an assessment. For example, Form 2504-E, Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment (Excise Tax); Form 5384, Excise Tax Examination Changes and Consent to Assessment and Collection; or Form 5816, Report of Tax Return Preparer Penalty Case.

• Sign a consent to proposal of a penalty: A taxpayer may be provided an opportunity to consent to proposal of a penalty by signing an IRS form even though the IRS does not rely on the form to make the assessment. For example, the taxpayer has the opportunity to sign Form 5701, Notice of Proposed Adjustment, even though the IRS does not rely upon Form 5701 to make an assessment.

(8) Refer to IRM 4.10.6, Penalty Considerations, for the assertion and non-assertion of penalties.

(9) Refer to IRM 20.1.1.3.2, Reasonable Cause, for penalty relief.

(10) Refer to IRM 4.24.9, Excise Tax Penalties Guidance, and IRM 20.1.11, Excise Tax and Estate and Gift Tax Penalties.

(11) Refer to the Penalties Knowledge Base Homepage Site, Excise Tax Penalties Shelf for an overview of penalties applicable to excise tax including the Affordable Care Act and other penalties.

(1) The excise examiner should compare the potential benefits derived from examining a return to the resources required to perform the excise examination.

(2) The excise examiner is expected to effectively manage his or her workload by prioritizing the issues so that issues with higher audit potential are examined compared to those with lower potential.

(3) The excise examiner is expected to use professional judgment to determine if it is in the government’s best interest to continue the excise examination and to document the excise examiner's risk-based decisions with regard to depth and scope of the excise examination.

(4) At the mid-point of the excise examination, using risk analysis, the excise examiner should determine whether the remaining classified/identified issues should be examined. This decision should be based on the facts and circumstances, evaluation of internal controls (refer to IRM 4.24.25.5.11) and the excise examiner’s judgment. For example, if the resulting additional tax is not expected to be material, or the time to develop additional issues is not justified based on the potential for more tax, further examination steps are not appropriate.

(5) Refer to IRM 4.10.2.4, Evaluation of Audit Potential, for more detailed guidance.

(6) Refer to IRM 4.10.3.2, Examination Techniques, Risk Analysis, for more detailed guidance.