4.70.13. Executing the Examination

(1) The initial interview is an important part of the examination process.

(2) Planning and organizing questions to ask in advance of the initial interview is as important as the initial IDR. The questions should be specific to the taxpayer under examination. Preparation gives you freedom to listen more carefully and proceed efficiently with the examination.

(3) Use the information developed in the pre-contact analysis, which should include a thorough review of the case file, review of internal and external data, along with items noted in the documents you received and processed in the days leading up to the interview. Be prepared to modify the interview at any time up to and during the interview.

(1) Base the questions on your observations during the pre-contact analysis and issues that you will develop. Write them down or outline them. List topics in their proper sequence. Leave enough space to jot down brief notes during the interview. Keep in mind that this doesn't limit the ability to ask additional questions. Be ready to ask for clarification or to follow up on responses.

(2) Some main areas to cover are:

1. Representation

2. Publication Pub 1

3. History of the taxpayer

4. Relevant document modifications (plan, organizational, etc.)

5. Taxpayer operations

6. Internal controls

7. Pre-Contact Analysis and Required Filing Checks

8. Unrelated business income activities

9. Any identified issues

10. EP large case exams – areas of commitment listed in IRM 4.70.11.14.1.3.2.2.2, Commitments and Content of the Large Case Engagement Agreement

(3) At the start of any interview, ask about representation (if not already represented) and confirm the taxpayer’s receipt of Publication 1. Ask if there are any questions about the examination process, their rights as outlined in Publication 1 or any other attachments and address any concerns.

(4) Suspend the interview if the taxpayer clearly states that he/she wishes to consult with a qualified representative and give the taxpayer reasonable time to secure representation (IRC 7521(b)(2)). You must strictly observe the taxpayer’s right of consultation throughout the examination process and suspend and reschedule interviews.

(5) Questions about the history of the taxpayer can either be general, such as asking for a complete history, or more pointed, discussing any items noted in an application, website or tax returns.

(6) Plan to discuss whether any changes were made to the documents relevant to the examination that weren’t already identified in the initial analysis and obtain explanations of any major changes.

(7) Questions about the taxpayer’s operations should include a general overview of the processes in place but also specific detail about the operations for the areas under examination.

(8) IRM 4.70.13.3.2, Internal Controls, discusses the internal controls portion of the initial interview.

(9) IRM 4.70.12.3.6, Required Filing Checks, provides information on required filing check procedures.

(10) For any unrelated business activities, questions should focus on the six "W" questions: when, where, who, what, why and how.

(11) If you need help developing questions, consult an assigned mentor, on-the-job instructor, or the Group Manager.

(1) IRC 7605(a) allows the Secretary to set the time and place of interviews as long as they are reasonable. In general, the IRS will determine if the interview is more appropriately conducted at an IRS office, a taxpayer or representative’s location, or by telephone. 26 CFR 301.7605-1(d) states, in part, "A field examination will generally take place at the location where the taxpayer’s original books, records and source documents pertinent to the examination are maintained. In the case of a sole proprietorship or taxpayer entity, this will usually be the taxpayer’s principal place of business."

(2) Holding the initial interview at the taxpayer’s place of business enables you to better:

1. Use your time by having access to source documents where they are stored.

2. Familiarize yourself with the business operations by inspecting the premises.

3. Evaluate internal controls.

(3) If holding the initial interview at the taxpayer’s place of business is not a viable option (e.g., if the examiner’s presence would disrupt the business operations), request an opportunity to conduct a walk-through of the business premises if needed. You can schedule these visits prior to the start time of the business (e.g., before office hours at a doctor’s office). See IRM 4.70.13.3.3, Tour of Business.

(4) During an interview, it’s important to create an environment where the taxpayer feels comfortable. Be friendly and professional. Establish rapport by:

1. Introducing yourself – provide all attendees with your name, contact information and employee ID number.

2. Explaining what to expect during the examination process.

3. Recognizing that the IRS exam is often a rare experience; the taxpayer may be nervous.

4. Being open, honest, and showing integrity.

5. Remaining calm and objective.

(5) Conduct the interview with an individual who has sufficient knowledge and the ability to answer questions about the taxpayer, procedures in place and books/records for the area(s) of interest.

(6) Without an administrative summons, you can’t require a taxpayer to accompany his/her authorized representative to an examination interview (IRC 7521(c)). However, the taxpayer’s voluntary presence at the interview can be requested through the representative to expedite the examination process. This does not affect your right to conduct an on-site inspection of the taxpayer’s facility.

(7) Use the following questioning techniques for an effective interview:

1. Plan the interview to address the items specific to the taxpayer under examination.

2. Ask clear, relevant, and objective questions.

3. Be direct, while maintaining a courteous, professional image.

4. Be receptive to all information volunteered, regardless of its nature. Listen carefully to responses and ask further questions about any responses that were inconsistent, vague or didn’t fully answer your question.

5. Use open-ended questions so the taxpayer has to answer using full sentences rather than a mere "yes" or "no" response.

6. Research questionable items to know what questions to ask.

(8) At a minimum, discuss the following items with the taxpayer:

1. Availability of requested books and records, if not already determined during the planning phase.

2. Explanation of the accounting system.

3. Internal controls

4. Description of operations during the year under examination to the present.

5. Issues identified during pre-contact analysis.

6. Items that come up during the interview that you didn’t previously identify but may lead to examination issues if pursued.

(9) IRC 7521(a) provides that taxpayers and IRS employees may audio record an “in-person” interview, provided that advance notice is given to the other party. The taxpayer must supply his/her own means of recording. The recording can be by tape, stenography, or other means at the taxpayer’s own expense. The taxpayer or representative does not have the right to record a telephone interview with or without the Service’s knowledge. For further information, see IRM 5.1.12.3, Taxpayer Recording of Interviews.

(1) Initial Interview — Hold the initial interview as soon as possible after you open a case. Your pre-contact analysis should include the preparation for the interview. See IRM 4.70.12.4, Examination Plan Development and Approval, for details on the pre-contact analysis.

(2) Subsequent Interview — Hold subsequent interviews if: a. The taxpayer doesn’t provide all the information requested. b. You need more detailed explanations. c. You need to review the examination progress. Your review should address information provided to date as well as outstanding information needed to complete the examination.

(3) Third-Party Interview — You may need to interview third parties when the taxpayer doesn’t or can’t provide documentation about a transaction, deduction, or income item.

(4) Closing Conference — You must hold a closing conference at the examination’s conclusion:

1. Discuss final conclusions with the taxpayer.

2. Solicit agreement to any proposed adjustments.

(1) Equally important to asking sufficient questions during the interview is your fully documenting this information. Many other employees review the case file after you close it, especially if the examination is unagreed. Document the interview(s) so that an employee subsequently reviewing the file doesn’t have questions. An adequately documented interview includes:

1. An examination pre-contact analysis addressing items specific to the taxpayer under examination.

2. Documentation giving a clear understanding of the nature of the taxpayer’s history and operations.

3. Explanations of large, unusual or questionable (LUQ) items and a conclusion as to whether such explanations resolve the potential issues.

4. Description of books and records maintained and their availability.

5. Complete explanation of the taxpayer's accounting system and methods, including any changes.

6. Explanation of the taxpayer’s internal controls.

7. For EP large case exams - areas of commitment listed in IRM 4.70.11.15.9.3.1, Commitments and Content of the Large Case Engagement Agreement.

(2) Document in your CCR that the examination process and appeal rights were explained to the taxpayer.

(3) If pertinent information is disclosed in the interview that you find necessary for the administrative record, put it in writing and mail it to the taxpayer/organization and POA.

(1) Use any of these five methods to document your interview:

1. Take informal notes

2. Memorandum of interview

3. Affidavit

4. Question and answer

5. Deposition

(2) Taking informal notes is a commonly used method of recording an interview. This may consist of:

1. An interview outline.

2. Notes you make immediately after an interview or conversation.

3. Notes you make on the case chronology record after a phone call with the taxpayer.

(3) A memorandum of interview is an informal statement about the facts you obtained during an interview.

1. Show the date, time, place, persons present, and describe the interview events and content.

2. Use the exact words of the taxpayer, if possible. Don’t assume or interpret meanings. Request clarification when needed. Just record the facts.

3. Promptly prepare, sign, and date it.

(4) An affidavit is a written statement of facts, made voluntarily and confirmed by oath. Affidavits are used to:

1. Record the testimony of a taxpayer.

2. Refresh the memory of a taxpayer.

3. Deter a taxpayer from changing their testimony.

4. Gather complete and accurate information

(5) Use Form 2311, Affidavit, when securing an affidavit; plain paper can also be used. The examiner or affiant can hand-write or type the affidavit. Verify that all words in the affidavit are spelled correctly. It’s permissible for one IRS representative to conduct an interview involving an affidavit, but ideally two IRS representatives should be present. At a minimum, an affidavit should contain the following information:

• The current full name of the person giving the affidavit as well as any current or prior aliases.

• The most current address of the person giving the affidavit.

• The present occupation of the person giving the affidavit. If the information relates to a prior occupation, then that occupation should be added.

• A listing of documents submitted as part of the affidavit.

• The date on which the affidavit was prepared, the person who prepared it, and any source from which it was prepared.

(6) After filling out the affidavit, one IRS representative will swear in the affiant by asking: "do you swear or affirm that the foregoing facts are true to the best of your knowledge?" The affiant must have his/her right hand raised when he/she replies to this statement.

(7) A question and answer statement is a transcript of questions, answers, and statements each participant makes at an interview. This form has the advantage of following the exact sequence of the questions asked in the interview. If confirmed by an oath, this form of recording an interview can become an affidavit by doing the following:

1. At the bottom of the interview, add on the statement, "Under penalties of perjury, I declare that I have reviewed the above interview information, and to the best of my knowledge and belief, it is true, correct, and complete"

2. Provide two lines at the bottom underneath the perjury statement (jurat) for the individual’s signature and a typed or printed name and title.

3. After signing, the individual should also date their signature.

4. Once signed, the interview transcript is considered an affidavit.

(8) Depositions are formal interviews primarily conducted during criminal investigations, where the examiner, Counsel, and a stenographer are present during the interview. For further information, see IRM 9.4.5, Criminal Investigation, Investigative Techniques, Interviews.

(1) In evaluating internal controls, consider the extent to which the taxpayer uses the following control checks:

1. Form 5500 reconciles to plan records

2. Reconciles Forms W-2 to plan census information.

3. Reconciles contributions from payroll and taxpayer accounts (salary deferrals, matching, non-elective contributions) with plan deposits.

4. Utilizes third party administrator in administering plan

(2) Taxpayer may have these other examples of internal controls in place:

• Payroll input/approval/reconciliations handled by different individuals

• Use of third-party payroll service

• Computerized payroll systems programmed to monitor contribution limits

• Compensation reconciliation to plan definition

• Committee approval of loans and hardship distributions

• Independent audit of plan records

(1) In evaluating internal controls, consider the extent to which the organization uses the following control checks:

1. Return reconciles to the books

2. Organization reconciles bank statement balances to the books

3. Active board of directors, with members independent of one another

(2) An organization may have these other examples of internal controls in place

• Insurance policies (property, directors and officers, etc.)

• Indemnification of officers and directors

• Establishment of reserve funds

• Physical safeguarding of assets

• Required executive approval for adjusting journal entries

• Independent reconciliations (outside auditors)

• Dual signatures on checks

• Non-use of signature stamps

• Bonding employees who have access to cash

• Modern computerized accounting systems

• Conflict of interest and whistleblower policies

• Written employee job descriptions

• Mandatory rotations of accounting employees (e.g., A/P to A/R to Payroll)

• Mandatory vacations of those responsible for record keeping

(1) Internal controls are the issuer’s policies and procedures (and the conduit borrower’s with respect to its books and records) that are intended to identify and measure business operations that impact bond compliance and ensure the accuracy of operating records. These include procedures the issuer or conduit borrower has in place to monitor post-issuance compliance.

(2) Evaluating the issuer’s internal controls will help you assess control risk. “Control risk” is the risk that a material misstatement in the books and records could occur and not be detected by the business’s internal control structure, policies, or procedures.

(3) Collect the information needed to review internal controls by:

1. Interviewing the issuer and/or representative.

2. Inspecting the documents and records.

3. Requesting information.

4. Observing the taxpayer’s activities and operations.

(4) Document the internal controls you evaluated, including

• Post-issuance compliance monitoring procedures

• The control environment

• The accounting system

• Other control procedures

(1) In evaluating internal controls, you might use the following techniques:

1. Evaluate taxpayer’s overall business operations and method of accounting.

2. Evaluate records of accounting system(s) maintained by the taxpayer (do books and records clearly reflect business operations).

3. Evaluate separation of duties/financial responsibilities.

4. Evaluate taxpayer’s procedures to safeguard business operations and assets.

5. Assess level of control risk (risk that a material misstatement could occur and it will not be prevented or detected by the taxpayer).

6. Interview key personnel.

7. Review relevant written internal control procedures manual.

8. Review Forms W-4 and Forms W-9.

9. Review identification verification procedures.

10. Review any examinations conducted by compliance officer, internal and external auditors.

11. Walk-through and document internal control procedures for:

• Slot hand pays

• Tournaments, prizes, and promotions

• Complementary items

• Disbursements for subcontractors, i.e., services, entertainers, per capitas, etc.

Note: The techniques described above are not intended to be all-inclusive nor are they mandatory steps to be followed. Use judgment in selecting the techniques that apply to each taxpayer.

(2) For more information, see IRM 4.10.3.5, Evaluating the Taxpayer’s Internal Controls.

(1) The primary objective of the examination is to determine if the plan is operating per the Internal Revenue Code qualification requirements and with the terms of the plan document. A second objective is to protect the government's interest for income and excise tax liabilities related to the plan. Most qualification provisions and tax issues fall into the categories below in IRM 4.70.13.3.4.1.1 through IRM 4.70.13.3.4.1.3.

(1) An examination of books and records will establish whether:

1. An organization is both organized and operated for tax-exempt purposes.

2. Any related returns have been or need to be filed by the organization.

3. Any tax reported is reasonably correct.

(2) Review the books and records to:

1. Verify that any changes made to organizing documents don’t jeopardize the exemption.

2. Substantiate and expand information about the organization's activities.

3. Verify the accuracy of the return.

4. Verify that all appropriate returns are filed, and taxes are paid.

5. Determine whether taxes (income, employment, excise) are accurately reported.

(3) While reviewing books and records, keep in mind the Protecting Americans from Tax Hikes Act of 2015 (PATH Act), P.L. 114-113 requirements:

1. The PATH Act requires all revocations to be treated the same.

2. All revoked exempt organization now have declaratory judgment rights. Therefore, you are strongly encouraged to create an administrative record file or folder at the beginning of every 501(c) and (d) exam and to keep it up to date as the examination develops.

3. While you aren’t required to create an administrative record file or folder until there are indications of a proposed revocation or an adverse change in foundation status, it works to your benefit to start one early. See IRM 4.70.14.2.4.1.3, EP & EO Administrative Record, and IRM 4.70.14.2.4.1.5, EP & EO Examiner’s Responsibility.

(4) Review the following books and records as appropriate:

• Governing instruments and amendments

• Organization's determination letter and application

• Minutes

• Publications (websites, newsletters, brochures, pamphlets, etc.)

• Operating manuals

• Contracts

• Leases, mortgages, and loans

• Deeds or other title documents

• Correspondence files

• Financial records (chart of accounts, trial balance, income statement, balance sheet, general ledger, transaction journals, etc.)

• Third-party records (bank statements, brokerage statements, invoices, receipts, etc.)

• Other filed federal returns

(5) If you have requested and received any of these documents during the planning phase, review them before the initial appointment. For pre-contact analysis procedures, see IRM 4.70.12.3.

(6) You have the discretion as to the order in which you exam these records. The following sections outline a suggested order of action.

(7) When two or more EO examiners are involved in an examination, the examiner assigned to the case decides the order of procedures to follow.

(1) You’re authorized to request and receive books, records, etc., necessary to properly examine an entity's tax return (IRC 7602, Examination of Books and Witnesses, and 26 CFR 301.7602-1(a), Examination of Books and Witnesses.)

(2) Insist courteously for the records, even when a taxpayer is reluctant to provide them. Follow these guidelines to handle this situation:

1. Apprise the taxpayer of the requirements to produce books and records. Explain that denying access to the records only prolongs the examination/investigation because we’ll initiate third party inquiries and this further lengthens the process.

2. Don’t attempt to mislead or misrepresent the examination/investigation scope to secure records.

3. Don’t assert your authority in a manner that could be interpreted as a threat.

4. Don’t summons the records unless you obtain your manager’s approval.

(3) Accountant's workpapers used to exam tax records or prepare a tax return aren’t the taxpayer’s property or privileged information. Therefore, you can summon the workpapers.

(4) See IRM 4.10.20, Requesting Audit, Tax Accrual, or Tax Reconciliation Workpapers.

(1) Generally, a tax-advantaged bond exam is conducted to determine compliance with federal tax laws and regulations. Records of the issuer, conduit borrower, and other parties to the transaction are the primary sources of information available for review during an exam. You should identify and review records necessary to determine compliance.

(2) The issuer of the tax-advantaged bond is treated as the taxpayer throughout the exam process. The issuer is responsible for maintaining and producing adequate records to substantiate the tax-advantaged status of the bonds. Generally, other parties to the transaction, including conduit borrowers, will also maintain records and might do so as part of a contractual agreement with the issuer.

(1) The following is a discussion of workpapers typically prepared by independent accountants:

1. Tax Reconciliation Workpapers: Workpapers used to assemble and compile financial data to prepare it to place on a return. Typically, these include a final trial balance and/or a schedule of adjusting entries. They include information used to trace financial information to the return.

2. Examination Workpapers: Documentation kept by an independent accountant as to the procedures followed, tests performed, information obtained, and conclusions they reached. They support the accountant's opinion as to the fairness of the presentation of the financial statements, conformity and compliance with generally accepted accounting principles.

3. Representation Letter: The 1998 Statement on Auditing Standards (SAS) No. 85 issued by the American Institute of Certified Public Accountants requires a CPA auditor to obtain client management's written representations for all financial statements and periods covered by the auditor's report. The statements include information concerning fraud, material errors, and the belief that the financial statements are fairly presented in conformity with Generally Accepted Accounting Principles (GAAP).

   Note: The representation letter may be a privileged communication under IRC 7525.

(2) Tax reconciliation workpapers, unlike audit workpapers, should be requested at the beginning of an examination. These workpapers are needed since they include the final amounts that should tie the filed return to adjusted trial balance to the general ledger.

(3) Request and review the accountant’s tax reconciliation work papers. They give you a good starting point for reconciling the return to the books.

(4) Request tax reconciliation work papers at the beginning of the audit since they include the final balance tying the return to the general ledger and other analyses necessary to complete the return.

(5) Ordinarily, tax reconciliation work papers are prepared and provided by the organization. However, if these work papers are unavailable from the organization, you can request them from the accountant.

(6) Limit any requests for audit work papers to only those material and relevant to the audit. Determine whether an item is material based on your judgment and evaluation of the case’s facts and circumstances.

(1) You can perform the following procedures either during the pre-audit phase or in the field. Request the general ledger and chart of accounts in the initial information document. Request the organization to send these items before the audit if you plan to review them before the initial interview.

(2) An organization’s use of its resources is an important indicator of its programs and activities. During your review of the general ledger and chart of accounts, identify certain accounts to analyze to determine the source of the revenue or expenditures.

(3) Look for any unusual (by amount, source or nature) or nonrecurring items. Examples include:

• Unusual in amount - amounts which are much larger or smaller than typical entries to an account.

• Unusual by source - "Source", as used here, means the journals from which the account was posted, as indicated in the folio column. There is a normal source pattern for most postings; investigate any deviations from the norm (e.g., a payroll entry in the office supplies account.

• Unusual by nature - credit entries in accounts usually containing only debits or accounts that exist at the beginning of the year but not at the end.

(4) Use these audit steps to review accounts:

1. Review year-end adjusting trial balance or similar summary of year-end general ledger account balances. Select LUQ accounts for further analysis.

2. Review transaction details in the general ledger for selected accounts.

3. Select samples of detailed transactions and trace to journals or other supporting documentation.

4. Discuss those items needing additional explanation with the organization.

5. Request any additional documentation (e.g., sales contracts and mortgage documents) you need to determine the impact of a large or unusual transaction on the organization's exempt status or tax liability.

Note: Use judgment to decide which accounts, if any, to select for further analysis.

(1) By reviewing the organization’s income you can determine its accuracy, extent, and nature.

(2) There are several purposes for analyzing income, including determining whether the income:

1. Supports the exempt purposes of the organization.

   Example: Income from government contracts to provide housing for mentally disabled individuals would support the exempt purposes of an organization formed to support the disabled.

2. Is subject to unrelated trade or business, and/or excise taxes.

   Example: Receipts from pull-tabs sold to the public are subject to UBIT, occupational and wagering excise taxes.

3. Is from related parties, potentially giving rise to inurement.

   Example: A church sells its parsonage to its pastor for $1,000. The market value of the building is $150,000.

4. Is properly classified for purposes of various tests.

   Example: An organization erroneously classified receipts from "social members" of a veterans post as member dues, when the bylaws explicitly prohibit social members.

(3) Using the LUQ items you originally selected on the return during the pre-audit, select the corresponding accounts from the trial balance for further in-depth review. At the same time, review the trial balance for any additional LUQ items not previously identified.

(4) The accounts selected will primarily depend on the type of organization audited.

(5) See the appropriate guidance on specific types of income to consider examining.

(6) Review the bank statements, bank reconciliations, and images of deposited checks, if available. Verify that the ending bank reconciliation balance matches up to the amount(s) reported on the return.

(7) Trace sampled transactions from the general ledger to the bank statement, and vice versa.

(8) Select specific days for sampling sales of inventory, contributions, and program service revenues.

(1) Review an organization’s expenses to:

• Determine the size, extent and nature of the expenses.

• Verify the amount reported is reasonably accurate.

• Verify the amount reported is correctly classified as an expense and not an asset (such as a prepaid expense).

(2) When analyzing an expense, determine whether the expense:

1. Is in furtherance of exempt purposes.

   Example: An IRC 501(c)(19) veterans organization purchases new flags. By distributing them to local schools, collecting, and retiring the old flags, the expenditure serves a patriotic purpose.

2. Gives rise to potential inurement.

   Example: An IRC 501(c)(3) private foundation spends $3,000 per person to send the founder and three other directors on a week-long board retreat in Hawaii. The foundation is located in the continental US.

3. Is for a political and/or legislative expenditure.

   Example: An IRC 527 political organization pays for signature gatherers to collect signatures for a ballot measure to repeal a tax voted into law by the state legislature. (This isn’t a political expenditure, but is a legislative expenditure. It isn’t expended for exempt purposes under IRC 527.)

4. Gives rise to additional tax liabilities (Chapters 41 and 42).

   Example: An IRC 501(c)(21) black lung trust lends $5,000,000 in a five-year loan to the coal mine operator that created the trust, at an interest rate of 1 percent. The coal mine operator is subject to the IRC 4951 excise tax (computed in the same manner as IRC 4941).

5. Triggers other filing requirements.

   Example: An IRC 501(c)(10) organization employs a favorite band four times in a year for holiday dances, paying $1,000 per performance, triggering the Form 1099-NEC filing requirement with the very first payment.

6. Is properly allocated against any UBI.

   Example: Form 990-T for an IRC 501(c)(3) educational organization that issues a monthly newsletter claims all of the expenses reported on the Form 990 against taxable advertising income, generating an enormous net operating loss deduction.

(3) Using the LUQ items you identified during the pre-audit, select the corresponding accounts from the trial balance for further-in depth review. At the same time, review the trial balance for any additional LUQ items not previously identified.

(4) Review the bank statements, bank reconciliations, and cancelled checks, if available. Match the checks/payments to invoices, receipts, or other documentation.

(5) Trace sampled transactions from the general ledger to the bank/brokerage statements and vice versa.

(6) Use credit card statements to trace to/from the general ledger expenses incurred by the organization’s employees. Match those amounts against vouchers or other supporting documentation.

(7) To detect possible inurement of income or serving of private interest, identify the board of trustees, directors, officers, and key members of the organization's staff. The Form 990 should list most of these individuals. Carefully analyze any business relationships or other dealings with these individuals to determine if they provide inappropriate benefits.

(8) Determine the reasonableness of total compensation paid or accrued to principal officers. Consider any compensation claimed under a heading other than officers' salaries (e.g., contributions to pension plans, payments of personal expenses, year-end bonuses, use of company car).

(9) Review the following accounts, as they may disclose lobbying activity:

• Advertising

• Printing

• Promotion

• Outside services

• Legal and professional fees

• Miscellaneous expenses

(10) If auditing a membership organization (other than an IRC 501(c)(3) organization), review the following aspects of the organization’s lobbying activities:

1. The existence and extent of its involvement in "grassroots" lobbying, or lobbying in support of, or opposition to legislation not directly connected with the trade or business of its members.

2. Whether dues and other general funds or special assessments financed the lobbying activities.

3. Whether part or all of the dues or special assessments for the years involved were or were not properly deductible by the member per IRC 162(e)(2).

(11) Review contract labor, repairs and maintenance, legal, consulting, and similar accounts for potential Form 1099 filing requirements. Consider the following:

1. Payments to individuals that may result in a discrepancy adjustment (e.g., prizes and fees)

2. Additional compensation in the form of expense accounts

(12) Analyze travel and other expense allowances. If the organization doesn’t require the employee to file an expense account, the payments should be included in the recipient’s gross income.

(13) Refer to IRM 4.70.12.3.6, Required Filing Check, for additional information on required package audit procedures.

(14) When reviewing UBI and expenses, verify:

1. That expenses bear a primary and proximate relationship to the income.

2. That expenses are allocated on a reasonable basis.

3. The deductibility of any losses.

(15) Organizations aren’t required to use any specific allocation method. Rather, the only requirement is that the method reasonably approximate the costs incurred to generate the unrelated income. If the method used is unreasonable, identify and use a more accurate method to allocate expenses.

(1) Analyze the balance sheet to identify:

1. Potential inurement, private benefit, or excess benefit transactions.

2. Assets generating UBI.

(2) Analyze the changes in net assets/fund balances and in net worth. Reconcile any increases or decreases with the income and expense statements.

(3) In reviewing assets:

1. Identify and analyze receivables with officers, directors, or other persons in a position of control to determine whether the transactions serve private interests.

2. Determine if the lack of intent to fulfill the obligations on the part of an officer or director has income tax consequences.

3. Look for personal use of automobiles, houses and other assets.

4. Look for rental property or property used in an unrelated trade or business.

5. Look for investments that generate UBI.

6. Analyze any disposition of assets for possible inurement to officials.

7. Identify any loans that became delinquent or foreclosed during the years under audit.

8. Identify receivables written off to determine if they were from an officer, director, trustee or key employee. This can also, in effect, be a reimbursement to the officer, director, trustee, or key employee for an illegal payment made on behalf of the organization.

9. Review payables, loans, or other liabilities involving officers, directors, trustees, or key employees. These amounts may in fact be disguised compensation amounts or returns of assets to the founders/substantial contributors.

(1) You should determine if the organization is liable for certain taxes and determine the correct amount of tax owed relating to:

(2) Please refer to the appropriate Knowledge Networks (K-Net), Knowledge Networks site for guidance on computing specific taxes. Also see IRM 4.23, Employment Taxes.

(1) Judgment sampling requires you to use professional judgment to:

1. Perform the sampling procedure.

2. Evaluate the results of the sample.

(2) Judgment sampling methods include:

1. Block sampling - uses groups of continuous items selected from a record or class of records. The sample may include all items in a numerical or alphabetical sequence.

   Example: You select one month or quarter of data to reach a conclusion about the data for the entire year. You review and compare the source documentation to records for the sampled period of time.

   Example: You select every 5th item from a class of data to draw a conclusion about that class of data. You review and compare the source documentation to records for the sampled selection.

2. Dollar limitation (or cut-off) sampling selects a minimum dollar amount (or some other significant data limitation) and creates a sample by selecting all items exceeding that dollar amount. This type of sampling prevents you from wasting time examining small and/or insignificant data.

   Example: You choose to review transactions of $1,000 or more. You review and compare all the source documentation and records for the sampled transactions.

   Example: You choose to review data for all items meeting a specific statutory cut-off (could be dollar amount or situational fact). You review and compare all the source documentation and records for the selected sample that meets the statutory cut-off.

   Caution: It is often helpful to perform dollar limitation sampling in conjunction with block sampling. Individuals who embezzle funds frequently do so in smaller amounts. Frequency of the transactions for the same amount may identify all but the most cautious embezzlers.

(1) Statistical sampling is a procedure used to choose a portion of the whole to make a statement about the entire body of information. Statistical sampling allows each sampling unit to stand an equal chance of selection, eliminating your judgment on which items to sample.

(2) Before performing a statistical sampling application discuss the facts and circumstances with your manager. Together you will determine whether to request a Computer Audit Specialist (CAS). Refer to IRM 4.47.3.2, Computer Audit Specialist, Statistical Sampling Audit Techniques, for instructions on requesting CAS assistance.

(3) The burden of proof is placed on the IRS in any court proceeding when the IRS reconstructs any item of income by using statistical information only on unrelated taxpayers (IRC 7491(b)).

(1) Make informal, and if needed, written requests for assistance to TEGEDC for:

1. Legal interpretations

2. Case development for "unagreed" issues

(2) Obtain approval from your group manager before contacting TEGEDC.

(3) In general, request assistance from the TEGEDC l office covering the taxpayer's state. However, if your case is part of a special project, your request is assigned to a project attorney, regardless of the taxpayer's location. See the TE/GE Division Counsel Geographic Coverage List for the office covering the taxpayer’s location and the TE/GE Division Counsel Office Listing for Counsel employees’ contact information.

(4) Generally, an opinion from TEGEDC is confined to the specific facts and circumstances of a case. You may not apply the opinion to other cases without contacting Counsel.

(5) Whenever you want to pursue the six-year statute of limitations (SOL) for a case, you must obtain written approval from TEGEDC. Keep a copy of the written response in the case file.

(6) When TEGEDC responds, the group manager sends a sanitized copy to the Manager, Special Review, who determines if TEGEDC’s guidance impacts other cases.

(7) If the Manager, Special Review determines that TEGEDC’s guidance impacts other cases, he/she will prepare a memo describing the guidance and distribute to EO/GE and/or EP Examination examiners and their managers.

(1) A TAM is defined as written advice prepared by TEGEDC as to:

1. The interpretation and proper application of tax law, tax treaties, regulations, revenue rulings, notices, or other published precedents.

2. A specific set of facts connected to the examination of a taxpayer's return, consideration of a taxpayer’s claim for refund or credit.

3. Any other matter under TE/GE Examinations’ jurisdiction.

(2) Request a TAM when the application of the law to the facts involved in your exam is unclear. The question must be on "the interpretation and proper application of tax laws, tax treaties, regulations, revenue rulings, notices, or other precedents to a specific set of facts that concerns the treatment of an item in a period under examination". See Rev. Proc. 2021-2.

(3) A taxpayer may request technical advice during an examination for an issue under Policy Statement 4-82.

(4) Contact the Area Counsel office responsible for the state in which the taxpayer is located before you request a TAM. See IRM 4.70.13.6.7.1, Assistance from TE/GE Division Counsel (TEGEDC).

(5) Prepare Form 4463, Request for Technical Advice Memorandum.

(6) Submit all TAM requests to TE/GE Division Counsel.

(1) When examining taxpayers, an examination record (or module) is required for control on Audit Information Management System (AIMS) and Reporting Compliance Case Management (RCCMS). The examination record identifies a

• Specific return.

• Tax period.

• Taxpayer.

  Note: This record is commonly referred to as a "return module".

(2) However, Form 990 (MFT 67) has unique characteristics, which pose procedural challenges when a MFT 67 examination control module has no filing requirement or a Form 990-N is filed (not a return). So, the term "return module" can be somewhat misleading.

(3) Refer MFT 67 examination records as NRU when:

• No Form 990 return is required and no Form 990 or Form 990-EZ is filed.

• No Form 990 return is due (including extensions), and no Form 990 or 990-EZ is filed.

• Form 990-N is filed instead, properly, or improperly.

(4) An MFT 67 NRU module is a module of:

• Any posted Form 990-N, assuming no actual MFT 67 return is subsequently filed.

• A MFT 67 AIMS record of a non-filer organization required to file Form 990-N.

• A MFT 67 AIMS record of a non-filer church (i.e., a church that hasn’t filed a Form 990 series return).

• A MFT 67 AIMS record where the return for the tax year isn’t yet due.

(5) An MFT 67 NRU module is not:

• The AIMS record of a church that actually filed a Form 990.

• The AIMS record of a non-filer required to file Form 990.

(6) An MFT 67 module loses its designation as a NRU module, becoming a "return module" if the examiner:

1. Receives a filed Form 990 or 990-EZ, whether or not the return was required.

2. Prepares a Substitute for Return (SFR) Form 990 (signifying a requirement to file Form 990).

(7) Every NRU AIMS record under examination is physically represented in the case file, by a dummy return.

(8) A "dummy return" is a skeletal first page of Form 990 serving as a placeholder in the MFT 67 NRU case file. Allowable entries on a dummy return include the organization’s:

• Name

• Address

• TIN

• Tax period

• The annotation, on the top margin, in red, "DUMMY RETURN" or "DUMMY RETURN- CHURCH" or "DUMMY RETURN-NON-FILER UNDER $50,000".

(9) Follow these AIMS establishment and case file instructions for various types of NRUs. SFRs are also included in this table for comparison purposes:

(10) If an organization voluntarily files a Form 990, 990-EZ or 990-N for the examination years after the group shipped the NRU case for closure, the closing function (or review function) generally doesn’t send the case back to the group for an AIMS MF establishment unless the closing function (or review function) either:

1. Rejects the case for other reasons or

2. Determines with reasonable certainty, the organization was indeed required to file Form 990 or 990-EZ for the examination years in the first place (requiring delinquent return procedure).

(11) If you establish an NRU examination record (MF or NMF), but you didn’t conduct the examination, follow the instructions in IRM 4.70.14.4.9, Non-Examined Closures. Delete MF and NMF accounts by preparing an electronic Form 10904, Request for Record Deletion from AIMS package:

1. Use Disposal Code (DC) 33 (901), Error Accounts with No Returns.

2. Complete first page ONLY, signed by you and your GM.

   Note: Area Manager must sign DC 33 requests.

3. AMDISA print for module being deleted.

4. AMDISA print for corresponding module established on MF.

5. TXMODA.

6. Supporting documentation:

1. Upload the Form 10904 package into RCCMS.

2. Close to your TE/GE Closing Unit in status code 56.

3. The Closing Unit accepts the case using current practice.

(1) Retroactive solicitation or enforcement should not exceed six years. See IRM 1.2.1.6.18, Policy Statement P-5-133.

(2) Apply shorter or longer periods as needed in the best interest of tax administration subject to managerial approval, see IRM 4.70.13.9.3.3, Manager Approval.

(3) When determining the extent of soliciting or enforcing returns, consider:

• Statutes for certain related returns to a primary return of record.

• The taxpayer's prior history of noncompliance.

• The extent of the delinquency.

• The effect upon voluntary compliance.

• Whether the delinquency involves diverted funds.

• Whether the circumstances are peculiar to a specific taxpayer.

• The estimated tax in relation to the time and effort to enforce it.

(4) EP - If the examination involves a plan or trust that has been granted a conditional waiver of the minimum funding deficiency, retroactive enforcement may exceed six years.

(1) Don't solicit a return under the following conditions:

1. Fraud is indicated. Consult with the TE/GE Fraud Specialist. See IRM 25.1, Fraud Handbook.

2. The taxpayer is exempt from filing a return by law.

3. The return was filed under another EIN.

4. In the case of converted returns: The underlying revocation or adverse status change is neither agreed nor final.

5. In the case of primary returns for EO, the organization is a subordinate in a group ruling and is included on a group return.

If	Then
If an organization isn't liable for filing Form 990 because it filed a group return with a parent organization:	Prepare Form 4844 to satisfy the module for the tax period. In the remarks, write: "Input TC 590 CC 14". Send the completed Form 4844 to the FAST by fax, secure e-mail, or mail.
Additional liabilities are found.	Pursue enforcement.

Note: You may solicit other delinquent returns from subordinate organizations, such as Form 990-T.

(2) Make the following considerations for taxpayers in bankruptcy:

1. If a taxpayer has filed for bankruptcy protection, don't solicit payments. Bankruptcy protection prevents the collection of tax.

2. Immediately contact an Examination Bankruptcy Coordinator (SB/SE). The coordinator determines if the bankruptcy is still pending and provides you with further instructions. For a list of coordinators, see http://mysbse.web.irs.gov/exam/tip/bankruptcy/contacts/12268. aspx.

3. Indications of a bankruptcy include:

• -V Freeze on TXMOD.

• -U Freeze on AIMS for bankruptcy petitions filed prior to October 22, 1994.

• -X Freeze on AIMS for bankruptcy petitions filed on or after October 22, 1994.

• TC 520.

• The taxpayer, through an officer, trustee, director, or representative indicates verbally or in writing that it is in bankruptcy.

4. Bankruptcy also prevents the assessment of tax. However, bankruptcy doesn't prevent the issuance of an examination report, a FADL or SNOD.

• An -X Freeze will prevent an examination tax assessment (TC 300), unless you use an agreed disposal code.

• A -U Freeze will prevent an examination tax assessment (TC 300).

• If you examine a taxpayer under bankruptcy protection, see IRM 4.19.13.19, IRM 4.27.1, and IRM 4.27.2.

5. Consult with a bankruptcy coordinator before:

• Soliciting delinquent or converted returns.

• Issuing a report.

• Imposing penalties.

(1) The group manager approves the number of periods for which delinquent returns are solicited. Document workpapers and CCR to:

• Outline the facts of the case.

• Detail the reasons for recommending a longer or shorter number of years than six years.

(2) Managerial approval is also required for most penalties IRC 6751(b)(1).

(1) When you determine that a Form 5500 return should have been filed but was not filed or that a filed return should be amended, ask the taxpayer to file the delinquent or amended Form 5500 through the EFAST2 System using an EFAST2 approved third party software or IFILE on the Department of Labor (DOL) web site www.efast.dol.gov. Taxpayers can seek filing support by emailing DOL at support@efast.dol.gov

(2) Using Form 3210, mail all amended and secured Form 5500-EZ returns picked up during an examination to Classification for posting to the EPMF.

(3) IRC 6652(e)penalties will automatically be assessed on late filed returns. If there is reasonable cause not to assess penalties, complete Form 3177 and submit the form along with the return to Classification.

(4) If during the examination, you get a Form 8955-SSA, forward it with a Form 3210 to the address noted in the instructions to Form 8955-SSA.

(1) EO examiners should make further considerations for taxpayers with these specific circumstances:

1. Out of Business, Terminated or Dissolved. If an organization is out of business, ceased to operate, terminated, or filed for dissolution, obtain all of the following:

• A final return. Ensure the check box for final return is marked.

• A written statement of disposition of assets.

• A dissolution document.

  Note: Don’t terminate the organization’s exempt status if either one of these three evidentiary items is missing.

(2) Inactive Organizations. Inactive organizations are organizations that continue to exist, but are not operational.

1. Refer to IRM 4.70.14.2.1.3.1.25, Inactive Organizations, for guidance on reports, letters and closure instructions. See also IRM Exhibit 4.70.14-17, EO Unable-to-Locate Scenario Guidance Table.

2. An EO that fails to file a required Form 990 series return or notice for three consecutive tax years, will be auto-revoked.

3. If an inactive organization contends it is exempt from filing Form 990 or an e-Postcard:

• Review the facts and the taxpayer's explanations and make a determination.

• If an organization is required to file a return, solicit the return after considering fraud.

• You may issue Letter 5325, 90-Day Demand Letter, for Form 990 after two or more attempts to secure a Form 990.

4. If an organization was inactive during the period under examination, and it has an open TDI for any taxable return (other than Form 990-PF), close the TDI if no taxable return is required as follows:

1. Prepare Form 4844. In the remarks, write:

• "Input TC 590 cc 50" for closing a TDI only for the period under examination (tax-exempt status continues).

• "Input TC 591 cc 50" for closing a TDI for the period under examination and all succeeding tax periods - no longer liable for the tax (tax-exempt status continues).

• "Input TC 598 cc 057" for closing a TDI for a return of an organization whose tax-exempt status has been or will be revoked.

2. Send Form 4844 to the FAST by FAX, secure e-mail, or mail.

3. If records were inspected, close the tax return examination with DC 02 (107), No Change, unless a higher priority disposal code applies.

4. If no records were inspected, close the tax return with DC 32 (908), Survey After Assignment.

   Note: Identify an open TDI by researching Command Code TXMOD. Go to the TDI Module Indicator field for BMF accounts and for IMF accounts. The opened and closed TDI field indicators are provided in Section 11 of Document 6209.

5. Inform the organization on the consequences of not filing Form 990 (or Form 990-N if eligible). Answers to frequently asked questions are found at Automatic Exemption Revocation for Non Filing: Frequently Asked Questions 2 | Internal Revenue Service (irs.gov).

(3) Subordinate Organizations Included in Group Return:

1. If an organization isn’t liable for filing Form 990 because it filed a group return with a parent organization:

1. Prepare Form 4844 to satisfy the module for the tax period.

2. In the remarks write, "Input TC 590 CC 14."

3. Send the completed Form 4844 to the FAST by FAX, secure e-mail, or mail.

2. You may solicit other delinquent returns from subordinate organizations, such as Form 990-T.

3. Pursue enforcement if additional liabilities are found.

(4) Bankruptcy:

1. If a taxpayer has filed for bankruptcy protection, don’t solicit payments. Bankruptcy protection prevents the collection of tax.

2. Immediately contact an Examination Bankruptcy Coordinator (SB/SE). The coordinator determines if the bankruptcy is still pending and provides you with further instructions. For a list of coordinators, see http://mysbse.web.irs.gov/exam/tip/bankruptcy/contacts/12268. aspx.

3. Indications of a bankruptcy include:

• -V Freeze on TXMOD

• -U Freeze on AIMS for bankruptcy petitions filed prior to October 22, 1994

• -X Freeze on AIMS for bankruptcy petitions filed on or after October 22, 1994

• TC 520

• The organization through an officer, trustee, director, or representative indicates verbally or in writing that it is in bankruptcy.

(5) Bankruptcy also prevents the assessment of tax. However, bankruptcy doesn't prevent the issuance of an examination report, a FADL or SNOD.

• An -X Freeze will prevent an examination tax assessment (TC 300) unless you use an agreed disposal code.

• A -U Freeze will prevent an examination tax assessment (TC 300).

• If you examine a taxpayer under bankruptcy protection, see IRM 4.19.13.19, RGS Case File Assembly; IRM 4.27.1, Bankruptcy, Examiner Responsibilities and Procedures.

(6) Consult with a bankruptcy coordinator before:

• Soliciting delinquent or converted returns

• Issuing a report

• Imposing penalties

(1) If you get a hard copy delinquent Form 5500 series return, process the return as follows, verify:

1. The plan sponsor's name, address and EIN are properly completed.

2. The plan name, plan number and plan year are properly listed.

3. All required schedules are attached.

4. The return is signed (original signature) and dated by the taxpayer.

5. The return is properly stamped with the date received.

6. You write in red on the top margin of the original return, "Delinquent return secured by TE/GE Employee Plans".

7. You write in red on the bottom margin of the secured return "TC 599 Cc".

8. You prepare Form 3198-A, TE/GE Special Handling Notice, indicating the return is to be processed by Classification.

9. Using Form 3210, mail the return to Classification.

(2) If you get a hard copy amended Form 5500 series return, process the return following IRM 4.70.13.9.6.2, EP Processing amended Form 5500 series returns.

(1) Date stamp all delinquent Forms 5330 or 990-T with the IRS received date as soon as possible after receipt from the taxpayer.

(2) Verify that the Form 5330 or 990-T submitted is the most current version of the form.

(3) Verify the accuracy of the entire Form, paying specific attention to the following items:

1. That the filer's name is correct and that it matches the name on INOLES for the applicable EIN/SSN. Note: If the filer's name does not match what is on INOLES, the return will reject at the campus.

2. The correct amount of tax is reported on all applicable lines of the return and that supporting schedules are completed.

   Example: An entry on line 8a on page one of Form 5330 also requires a corresponding entry on Schedule D lines 1 and 2.

3. The correct tax year is listed.

   Note: Form 990-T trust year MUST match the plan year. Unlike Form 1041, when filing a Form 990-T, trust years do not revert to a calendar year when the plan year is not on a calendar year.

4. The correct TIN is listed for the filer.

   Note: For Form 5330: Only one TIN (either an EIN or SSN) should be listed in Item B on page one of the return.

   Note: For Form 990-T: A Form 990-T sent to Ogden with an EIN that is used for any other purpose than for the filing of Form 990-T.

5. The correct plan number is listed.

6. The return is signed by the taxpayer.

   Note: Form 990-T, the signer is the Trustee.

(4) Solicited delinquent returns may be received by mail, fax or EEFax.

(5) If a SFR package was previously sent to the campus in accordance with IRM 4.70.14.3.4.2.3.2, Substitute For Return Package, and the taxpayer is now filing a delinquent return with the examiner, process the secured return as an amended return, See IRM 4.70.14.3.1.2.4.5.7, Amended 5330 and 990-T Returns.

1. Check block "H" at the top of the first page of Form 5330 or 990-T indicating it’s an amended return.

2. Write "AMENDED RETURN SECURED BY TE/GE: EMPLOYEE PLANS" on the top of Form 5330 or 990-T.

(6) If payment is received, process checks in accordance with Government Accountability Office (GAO) recommendations following IRM 4.70.13.9.10, Payment Processing.

(7) If no payment is received, send the Form package as soon as administratively possible (preferably within three business days) to the Ogden Submission Processing Campus.

(8) Write in bold red letters on the top margin of the original return: "DELINQUENT RETURN SECURED BY TE/GE EMPLOYEE PLANS".

(9) The prepared package forwarded to the campus will contain the following:

1. Form 3210

1.	Address Form 3210 to the P&A Analyst. See IRM 4.70.XX - Exhibit 13 for the P&A’s Analyst’s contact information
2.	List the forms secured, the taxpayer’s name and SSN, and the tax years being sent;
3.	If payment is received also list the check number and the amount of the check
4.	Include, both your telephone number and your EEFax number on the "Originator Telephone Number" line at the bottom of Form 3210.

2. Any payments received (a check) with Form 3244-A, must be placed in a separate addressed envelope.

1) SSN/EIN:	Enter the SSN or EIN (as applicable).
2) Form number/MFT:	MFT:
Form 5330	MFT 76
Form 990-T	MFT 34
3) Tax Period:	Enter the Tax Year.
4) Plan Number:	Enter the plan number of the related plan.
5) Transaction date:	Enter the date the payment was received.
6) Taxpayer Name, address and zip code:	Enter the date the payment was received.
7) Transaction Data:	List the entire amount received for the year under transaction code 610 (Remittance With Return) and the same amount under "Total payment".
8) Remarks:	List the check number and the amount of the check. If the check represents payments for more than one year, list each year and the amount applied to each year.
9) Prepared by:	Enter your name and group number.

Note: A Form 3244-A is required for each year for which payment is received. For example, if you receive a check from the taxpayer for $5,000 that includes payment of $2,000 for 201712 and $3,000 for 201812, you should prepare a Form 3244-A for 201712 reflecting $2,000 next to transaction code 610 and a second Form 3244-A for 201812 reflecting $3,000 next to transaction code 610.

Note: See Employee Plans Examination Exhibits for an example of a completed Form 3244-A.

3. Form 3198-A:

1. List all years for which the taxpayer’s Form(s) are being processed simultaneously, with the applicable statute date.

2. In the "Other Instructions" section, provide instructions regarding the assessment or non-assessment of IRC 6651(a) penalties. If penalties are not being assessed, write and highlight: "Do Not Assess Penalties, Reasonable Cause Established."

   Note: The OSC will automatically assess IRC 6651(a) penalties unless specific instructions to the contrary are provided.

   Note: The examiner should document in the workpapers the basis for the assessment or non-assessment of IRC 6651(a) penalties.

4. Original delinquent return

   Note: Fasten items b) through d) in corresponding order with the payment on top and the return on the bottom.

5. Paper clip the items listed in items (a) through (d), in order.

(10) Before mailing, scan a copy of the entire package and save in the RCCMS case file using the TE/GE RCCMS Naming Convention.

(11) Mail the delinquent packages to the campus address noted in Contact Information at Employee Plans Examination Exhibits.

• Form 5330 or 990-T – Ogden Submission Processing Campus

(12) Forms 5330 or 990-T: If the remittance is $100,000 or more, send an email to the teller unit &CTR ODN Ogden Tellers with the following information:

• UPS tracking number

• Dollar amount of the remittance

• The city/state the package is being shipped from

  Note: See IRM 5.1.2.6.1, Large Dollar Remittances.

(13) The following additional actions are required upon receipt of a single remittance of $1 million or more:

1. Locate the designated remittance liaison on the Submission Processing Field Office Payment Processing page website at http://win.web.irs.gov/SP/Programs_Information/Standard_Proce_Webpages/Field_Office_Pymt_Proc.htm to obtain the OSC liaison's email address provided in the "Phone" column.

2. Call, email, or EEFax the liaison that you will be sending a single remittance of $1 million or more and provide the tracking number for the overnight package containing the remittance. See IRM 5.1.2.6.1.1, Remittance Over $1M.

(14) When addressing the Express Services Routing slip (Form 9814):

1. Forms 5330 or 990-T: Use "Mail Supervisor" as the recipient’s name and recipient phone number of (801) 620-3750 (with or without payment).

2. The address listed on Form 9814 should match the address on Form 3210. Make sure the proper mail stop is used.

(15) Annotate in bold letters on the top of the retained copy: "DELINQUENT RETURN SECURED BY TE/GE EMPLOYEE PLANS— ORIGINAL RETURN SENT TO OGDEN SC (or KANSAS CITY) ON 00/00/00" (list the date mailed).

(16) Forms 5330 or 990-T: If an entity module was not previously established, generate a Form 4442 in accordance with IRM 4.70.14.3.9.5.2.2, EP Preparation of Form 4442. Form 4442 can be emailed or EEFaxed to the EP AIMS Coordinator. See Employee Plans Examination Exhibits for the EP AIMS Coordinator’s contact information.

(17) You no longer need to establish delinquent Forms 5330, Forms 5329, or Forms 990-T that you accept as filed on RCCMS and AIMS. You will still need to process the accepted as filed delinquent returns to the service center, but you will not need to establish these returns for examination on RCCMS and AIMS.

(18) In instances where you don’t need to examine a secured return as you can accept it as filed, then after processing it to the Service Center, you only need to save a copy of the accepted return, the acknowledged Form 3210 received from the service center, or comparable record of confirmed receipt document (i.e., EEFax confirmation) in RCCMS.

(19) Record the receipt of the return by completing the electronic RCCMS 3198-A Special Handling checksheet in the RCCMS compliance activity of the primary examination return.

(20) Also, properly note in your workpapers that you accepted the returns as filed. Use the RCCMS 3198-A Special Handling checksheet to record the number and types of return secured in RCCMS to let CP&C capture the fact that you secured a return and accepted it without having to establish a related examination or create a Form 5329 discrepancy adjustment.

(21) For returns not accepted as filed (you do not agree with the tax reported).Periodically request a BMFOLT print to confirm that the return was processed. When the return posts, a 150 transaction code (TC 150) and dollar amounts will be reflected on the account.

(22) When the return posts, examiners will use RCCMS to expand the scope of an examination and establish AIMS controls through RCCMS of filed Form 5330 returns, and filed Form 990-T returns that have posted to the master file that they determine warrant examination.

(23) Follow directions in these IRM sections to create and establish a RCCMS compliance activity, including AIMS controls for previously filed returns that you will examine:

1. IRM 4.70.13.9.7.1.1, EP Form 5330 Series Returns Determined to Be Examined

2. IRM 4.70.13.9.7.1.2, EP Form 990-T Series Returns Determined to Be Examined

(1) Background: Prior to the new process put in place on January 8, 2018, the IRS accepted and processed all paper-filed Form 990 series returns, even if they were incomplete or the wrong form was used.

(2) Procedural Change: All delinquent or amended Form 990 series returns, secured during an examination, are required to be scanned and emailed to the Campus for review, to ensure the return is complete.

1. Form 990 series returns should be emailed to Kathi Palmer at Kathi.T.Palmer@irs.gov.

2. You should keep the case open for two weeks after sending the scanned returns to the Campus.

3. The returns will be reviewed and sent back to you, within two weeks of receipt, if there is missing or inaccurate information.

4. If the return isn’t sent back within the two-week period, the return is deemed complete and will be posted within four to six weeks.

(1) Send all secured delinquent return packages to the FAST.

(2) If the delinquency involves:

• A return not under the examination jurisdiction of EO Exams, see IRM 4.70.13.9.5.10, Delinquent Returns Secured for Other Operating Division Jurisdiction.

• Payee information returns, see IRM 4.70.13.9.5.6, Processing Delinquent Information Returns (Other than Form 5500 series Returns).

(3) Securing a Delinquent Return by Fax. You may secure a delinquent (or converted) return by fax. Refer to IRM 3.12.279.32, Facsimile (FAX) Guidelines.

• The IRS only accepts a faxed original return in order to verify the taxpayer’s claim that they filed the original return.

• See IRM 4.19.4.3.22, Faxed Signatures - Replies.

  Caution: Taxpayers may never file an original return by fax.

(4) Check the secured return:

• For a list of items to check on a secured delinquent return, see table at IRM 4.5.3.19.1.1.

• If there is incorrect or missing information on the return, give the taxpayer an opportunity to submit a correct return.

  Note: Incomplete returns are not acceptable.

  Note: If the taxpayer insists on filing a tax return with information you disagree with, collect the return subject to examination adjustment.

  Note: If you believe a return to be fraudulent, consult with the Fraud Technical Advisor. See IRM 4.70.13.13.

(5) Prepare the original delinquent return package as follows:

1. Date stamp the return when received.

2. Don't cover a taxpayer entry. Avoid areas reserved for the Campus' Computer Condition Codes. See Exhibit 4.70.13-2, EO Computer Condition Code Locations.

3. If no date stamp is available, annotate in the middle of the return over the wording, but not over the numbers, "Received", the date received, your name and title.

4. Leave sufficient space on the upper right margin of the return for the Campus to stamp the DLN

5. Write across the top margin of the return in red, "Delinquent Return Secured by TE/GE".

6. Converted returns only: Write across the top margin of the return in red, "Form 990 Converted to Form [1120 or 1041 or 990-PF]".

7. Process any payments received within 24 hours. See IRM 4.70.14.3.

8. Determine the application of penalties. See IRM 4.70.13.12.

9. Prepare Form 13133 for each return.

10. Prepare Form 3198-A for each return.

(6) Assemble the original return package in the following order front to back; then scan or photocopy the package:

• Form 13133.

• Form 3198-A.

• A copy of the payment instrument (check, cashiers check, etc.).

• A copy of Form 3244-A.

• A copy of the taxpayer's written penalty relief request.

• The original delinquent return.

• Mark "Copy - Do Not Process" at the top margin of copies of returns to avoid inadvertent duplicate processing.

• If scanned, upload the copies of the returns to RCCMS. These copies will serve as working returns if you examine them.

  Note: If you waive a penalty under oral statement authority, include Form 886-A stating the cause provided by the taxpayer and your determination of reasonable cause. See IRM 4.70.13.9.9 for reasonable cause guidance and oral statement authority.

(7) Make a photocopy of the secured delinquent return for retention in the examination case file.

(8) Prepare Form 13133, as follows, one for each original return to be processed:

• Your name.

• Your phone number.

• Your address, including mail stop.

• Check the delinquent return box.

• For a list of valid computer condition codes, see Exhibit 4.70.13-2, EO Computer Condition Codes.

  Note: If penalties are to be assessed, don't make notations in the penalty area of Form 13133.

(9) Prepare Form 3198–A as follows, one for each original return to be processed:

• Complete the heading of Form 3198–A.

• Enter the correct ASED, listed in the earliest statute date field.

• If there is a power of attorney (POA) for the return, check box for "Send All Communications Per POA".

• Check the delinquent return box.

• For annual EO information returns, notate in the "Other Instructions" section, "Assess Delinquency Penalty", or "Do Not Assess Delinquency Penalty-Reasonable Cause Established".

• For tax returns if appropriate, notate in "Other Instructions" section, "Assess Delinquency Penalty", or "Do Not Assess Delinquency Penalty-Reasonable Cause Established".

• Converted returns only: Indicate "Converted Return 1120 [1041 or 990-PF] Secured by TE/GE - HOLD Pending Outcome of Revocation [Disqualification or Reclassification to PF]".

(10) Prepare Form 3210 and double envelopes addressed to the FAST.

• Send the delinquent return package to the FAST. Follow the shipping instructions in IRM 4.70.13.9.11.

• Converted returns only: Don’t send a converted return package to the FAST. Mandatory Review will send it to the FAST when the underlying adverse status change (e.g., revocation) is sustained

(11) Adjusting a Secured Delinquent Return. If you must adjust a secured delinquent tax return that reports amounts you disagree with, refer to IRM 4.70.13.9.7, for instructions. If you establish examination controls for a secured delinquent tax return:

• You can't close the return until after a TC 150 posts.

• Monitor IDRS for the posting of the delinquent return.

(12) Securing a Delinquent Return After a TC 150 Posted. If you secure a delinquent return after a TC 150 posted, such as a posted SFR or posted Form 990-N, treat the original delinquent return as an amended return. Refer to IRM 4.70.13.9.5.5.1, Processing Delinquent Employment Tax Returns After TC 150 SFR Posts, for instructions.

(13) If a primary return is open for examination and the exemption continues:

• Address the delinquent return on a Form 886-A, for inclusion with Letter 1744.

• State on the Form 886-A that you will prepare a separate report for the tax change if you further adjust the secured delinquent tax return.

(1) Before processing a delinquent return, the Examiner should

1. Review an account transcript (BMFOLT). Procedures for processing a delinquent return depend upon whether or not a TC 150 has posted.

2. EO: ensure that the entity has a filing requirement for the type of return being established, e.g., if a Form 945, Annual Return of Withheld Federal Income Tax, is being secured or established, use ENMOD to determine there is a filing requirement. If there is none, submit Form 2363, Master File Entity Change, immediately to have the filing requirement added to the entity's account prior to establishing controls on RCCMS.

(2) If no TC 150 has posted, the examiner will obtain a current transcript showing that no return has been filed. Attach the transcript to the back of the delinquent return, facing out. The transcript should be no older than two weeks, but less than seven days is preferred.

(3) Date stamp the delinquent return with the date received and the examiner’s name and title in the upper 1/3 of the return on the left side but not over any of the computations or numbers that have been input by the taxpayer.

(4) Write across the top of the delinquent return, in red “Delinquent Return Secured by TE/GE” on the top margin of the original return.

(5) Leave room in the upper right corner so the Campus will be able to enter the DLN.

(6) Write “TC 599-CC096 or TC 599-CC094” (whichever is applicable) in red in the bottom right-hand margin of the delinquent return.

(7) Verify the computations are correct.

(8) Prepare Form 4844, Request for Terminal Action, to suppress notices to the taxpayer.

• Write "TC 599 CC 096 or TC 599 CC 094" in the "Remarks" section of the form, with an explanation of why the action is requested.

• Digitally sign Form 4844 and forward it to the TE/GE FAST Unit as an attachment via secure e-mail with a copy to the Group Manager.

  Note: If the Group Manager requires all forms to be submitted thru him or her, then forward the signed copy of the form to the Group Manager via secure e-mail to be forwarded to FAST Unit for input. This form does not require the Group Manager’s signature.

(9) Prepare Form 13133 for each delinquent return:

• Attach a separate Form 13133 to the front of each return. IF multiple tax periods exist, indicate on the first Form 13133 "BLOCK TOGETHER-Related tax periods/do not separate".

• Check the box for "Delinquent Return".

• Contact Name will be the Examiner’s Name.

• If penalties are to be assessed: make NO notations in the penalty area.

• If penalties are NOT to be assessed: put an "X" in the box to the left of the applicable Computer Condition Codes/Return Processing Code. (See IRM 4.4.9.5.11.1(2)).

(10) Prepare Form 3198-A for each original return:

• Write ‘Assess Failure to File and/or Failure to Pay Penalty’ or ‘Do not assess Failure to File and/or Failure to Pay Penalty Reasonable Cause Established’, as applicable

• If penalties are not to be assessed, the reason must be stated on the 3198-A; simply stating ‘Reasonable Cause’ is not sufficient.

• If a Form 941, note if adjustment is interest-free

• If the normal ASED has expired or is within three months of expiration, enter an "X" in the box to the left of "W" Bypass Submissions Processing Statute List.

• To prevent tax deposits, withholding, or payments from refunding when the TC 150 posts, place an "X" in the BMF or IMF box to the left of "Hold Credits on Module-Generates TC 570".

(11) If a payment is secured, prepare a Form 3244-A, Payment Posting Voucher-Examination, for each delinquent return. Post the payment as TC 610, Remittance with Return. Attach the copy of Form 3244-A to the delinquent return. The original Form 3244-A is sent with the payment for processing. Submit original delinquent return packages to the Campus indicated below.

(12) Delinquent Return Package Assembly (top to bottom):

1. Form 3210, Document Transmittal

2. Form 4844, Request for Terminal Action

3. Form 13133, Expedite Processing Cycle

4. Form 3198-A, TE/GE Special Handling Notice

5. Form 3244-A, Payment Posting Voucher, if applicable, using TC 610 to record the remittance received with the return (if any)

6. BMFOLT or BMFOLI Current, showing no return posted (no TC 150)

(13) All pages should be uniform in size and stapled together in the center of the left-hand margin of the package (separate package for each tax return), so that the pages can be turned for easy viewing.

(14) Submit delinquent return package(s) (separate forms needed for each delinquent return secured) to the Group Manager for processing to the ESS/Ogden Closing Unit (exception: Form 730 and Form 11-C with payment go to Cincinnati).

(15) ALL original delinquent return packages, with or without payment, will be submitted via traceable deliver, usually UPS, directly to the Submission Processing Programs (SPP) at the appropriate campus. For Example:

(16) The examiner and their manager will need to determine if the delinquent return will be accepted as filed (deemed substantially correct) or if an examination of the return is warranted.

(17) If the return is Accepted as Filed/Not Examined:

1. Retain an electronic copy of the delinquent return in the RCCMS Office Documents folder.

2. Prepare and send an appropriate letter, per Group Managers instructions for signature and mailing.

Letter 1024, Return Accepted as Filed

Letter 1024-T, Employment Tax Return Accepted As Filed

Letter 5334, Tax Return Accepted as Filed with Penalties

3. Complete Form 2503, Survey After Assignment—Excise or Employment Tax.

4. Complete Form 3198-A, with notation, "Secured Delinquent Return, Survey After Assignment-DC 908".

5. Close RCCMS activity as "survey after taxpayer contact", using DC 908.

(18) If the delinquent return will be part of the examination, then the Examiner will make a copy of the return for the case file and establish the AIMS record via RCCMS by completing the following steps:

1. Write "COPY OF DELINQUENT RETURN SECURED BY TE/GE" in red across the top margin of the retained copy of the return, for your case file.

2. In the "Validate for:" field, select "Establish" and make sure there is a check mark in the "Update AIMS" box.

3. Update the following fields: --"Return Received" date under General tab -- "Statute Date" under General tab --"Source Code" to "44 Delinquent Return" under Codes tab --"Push Code" to 020 Delinquent Return under Codes tab --"Reason for Request" enter "Delinquent Return Secured by TE/GE"

4. "Save and Close"

5. Highlight the activity in the List View pane. From Actions menu, select "Request Establishment" and synchronize. The AIMS record will establish once the Field Manager approves the action.

(19) The examination may not be closed from the group until the TC 150 posts and a full AIMS record is established.

(20) At this point, the case will be treated like any other examination. These are some common items included in the case file the list is not all-inclusive.

• Form 3198-A, notating “Secured Delinquent Return, Additional Adjustments”.

• Form 3210, listing all delinquent return packages and payments.

• Copy of original delinquent returns

• Examination Report(s)

• Form 4318, Work Paper Index with work papers detailing your exam steps

• Form 9984, Activity Record

• Work papers (electronic work papers should be loaded to the RCCMS Office Documents folder)

• Closing Letter. Use appropriate letter for specific types of closures (agreed, unagreed, etc.)

• Follow procedures for the type of closure (agreed, unagreed, etc.) when closing the examination.

(1) During employment tax examinations, Examiners frequently identify information returns that were not furnished or filed. This subsection provides various procedures to be followed.

(1) If a worker classification case is unagreed, and neither Form 1099-NEC nor Form W–2 were filed, follow these special procedures:

1. Prepare two Forms 8278 to reflect penalty assessments. Don't provide to the taxpayer.

2. Prepare two Forms 3645 to reflect penalty assessments. Don't provide to the taxpayer.

3. The first set (pair) of Forms 8278 and 3645 will reflect Form W-2 penalty assessments.

4. The second set of Forms 8278 and 3645 will reflect Form 1099-NEC penalty assessments.

5. Staple the first set (Form W-2 penalty) to the inside front cover of the penalty case file folder.

6. Staple the second set (Form 1099-NEC penalty) to the inside back cover of the penalty case file folder.

7. Attach a post-It note to the first set (Form W-2 penalty) indicating "Primary Examiner Position".

8. Attach a post-It note to the second set (Form 1099-NEC) indicating "Alternate Examiner Position".

9. Prepare two explanations on Form 5773 at Section I, Penalties, Subsection 6, Other. Title the first explanation, "Primary Examiner Position". Title the second explanation, "Alternate Examiner Position".

10. Enter in the "Other" section of Form 3198-A, "Suspend assessment of information return penalties until the taxpayer's request for appeal period has expired."

11. Associate the penalty case file with the employment tax case file under examination.

    Note: If the organization doesn’t request an Appeals conference for the worker reclassification issue, the civil penalty recommendation shown in the penalty package as the "Primary Examiner Position" will be processed. If an Appeals Conference is requested, the civil penalty package with the worker classification case file under examination will be closed to Appeals by the review function, where a final penalty determination will be made.

(1) Examiners are expected to secure delinquent Forms W-2, Wage and Tax Statement, and Form W-3, Transmittal of Wage and Tax Statements, prior to closing an exam.

(2) Per Treasury Regulations, Forms W-2c, Corrected Wage and Tax Statement, and Forms W-3c, Transmittal of Corrected Wage and Tax Statements, are not required to be filed until January 31st of the year following the year the examination is completed but the taxpayer should be encouraged to file them earlier.

(3) If the employer is expected to file 250 or more Forms W-2c during a calendar year, the employer is required to file them electronically. Taxpayers should be referred to the SSA website for the current versions of Specifications for Filing Forms W-2 Electronically (EFW2) and Specifications for Filing Forms W-2c Electronically (EFW2C).

(4) If the taxpayer files the delinquent Forms W-2, W-3, W-2c, or W-3c electronically through the SSA Electronic Wage Reporting (EWR) system, then the Examiner should secure documentation from the taxpayer verifying the transmission. After submitting the file, the taxpayer can print the "Confirmation Receipt-Your File was Received" page and submit this to the Examiner as documentation of the transmission. The confirmation receipt includes the Wage File Identifier (WFID) and should be included in the workpapers as sufficient filing substantiation.

(1) During the course of an examination, an examiner may secure a delinquent or late filed return or form, including forms from the Form 8038 series and Form 8703 (a "Delinquent Return"). Processing secured Delinquent Returns in accordance with the applicable procedures helps to ensure the accuracy of reported exam results.