IRS Audits - Part 4 Examining Process

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IRS Audits

4.1.5  Classification (Cont. 1)

4.1.5.9 
Identifying Issues on Individual Returns

4.1.5.9.22  (05-19-1999)
Bad Debt Deduction

  1. Is it a cash business?

  2. Is it disproportionate for the indicated value of sales?

4.1.5.9.23  (05-19-1999)
Depreciation

  1. Does the schedule contain an adequate description of the asset?

  2. Are personal assets being depreciated?

  3. Consider investment credit aspects and sales of property simultaneously with depreciation issues.

4.1.5.9.24  (05-19-1999)
Sale of Assets

  1. Is there a sale of business assets during the year without investment credit or depreciation recapture?

  2. Is the gain large enough to require the alternative minimum tax computation?

4.1.5.9.25  (05-19-1999)
Farm Returns

  1. In the analysis of a Schedule F, you should keep in mind the usual features of a farm return. The farmer may be engaged in a specialized area of dairy cattle, beef cattle, grain, swine, vegetables, poultry, or a multiple of these items. The operation may vary from that of a few acres to several thousand acres. The operator of the farm may rent all the land farmed or may own all or a portion of it. Consider whether the farm is an actual business operation or a hobby.

  2. Consider whether payments from farmers’ cooperatives are reported.

4.1.5.9.26  (05-19-1999)
Self Employment Tax

  1. All returns should be screened for self employment tax issues, including returns with Schedule SE attached. Look for income such as director’s fees, janitorial services, miscellaneous income, partnership income, etc., which may be subject to self-employment tax.

  2. Some items of income earned by independent contractors may be reported as wages or other income. Where the income appears to be personal service income, it must be considered for Social Security Tax purposes.

4.1.5.10  (05-19-1999)
Identifying Issues on Corporation Returns

  1. Classifiers must scrutinize corporation returns both as to line items and the return as a whole to identify and select returns with the highest examination potential.

  2. Classifiers will consider the grade level of the examiner that should ultimately examine the return when classifying/screening corporate returns.

4.1.5.10.1  (05-19-1999)
Corporate Classification—General

  1. You are responsible for selecting those corporate returns which are most in need of examination.

  2. The objectives of maximizing revenue, fostering taxpayer equity, and promoting voluntary compliance, must be considered.

  3. Corporate income tax returns are either computer classified under the DIF System or manually classified (Non-DIF).

  4. The corporate DIF System includes returns in Activity Codes 203 through 217. All other corporate returns are Non-DIF.

  5. Non-DIF returns are further identified as Automatics or Specials (returns that meet one or more specific conditions). Non-DIF Special returns may contain any of the following criteria: International features, Joint Committee aspects, or Miscellaneous refundable credits.

  6. Classification checksheets are elective for corporate returns selected for examination. If used, significant issues on the return should be identified on the classification checksheet, Form 6241.

  7. Classification of the corporation return must include the balance sheet and Schedule M items. Substantial change in accounts receivable, reserve for bad debts, loans to or from stockholders, accounts payable, treasury stock, capital stock, or retained earnings would indicate an examination of these items may be warranted. In addition, such potential issues as a "Thin Corporation," IRC 531, substantial changes in accruals, and decreases in assets which are not accounted for on Schedule D of the return may be identified from an inspection of the balance sheet.

  8. All Schedule M items should be scrutinized to determine the difference between income shown on the books, and taxable income shown on the tax return.

  9. The following general items must also be considered during classification:

    1. Overall composition of the return. Is the return complete, containing all necessary information and schedules? Who prepared the return?

    2. Data reported on the return compared to the norms and standards of the business or industry of the taxpayer.

    3. Location of the business. This could have a bearing on the volume of business.

    4. Prior examination results as indicated on Form 5546 (Examination Return Charge-Out).

    5. The existence of controlled groups, interests in foreign corporations, deductions for facilities, or convention expenses.

    6. Experience has shown that the following characteristics result in potentially productive features: International features; Copy of a National Office approved Technical Ruling attached, but all conditions as set forth in the Ruling have not been met; New corporation, which incorporated a going business and reflects goodwill, other boot, or accelerated depreciation; Liquidation under IRC 331, 332, 333, or 337 (these generally trigger recapture under the provisions of IRC 47, 1245, and 1250); A consolidated return, especially one that does not contain schedules showing each member’s respective share of income, expense, assets, liabilities, and capital; A short period return; Credits and/or losses that have been carried forward when information on the return indicates the item(s) should have been carried back; A member of a controlled group, claiming the full amount of the surtax exemption, etc., and not including a properly executed election; Last-In, First-Out (LIFO) inventory method being used for the first time; Manufacturing concern not using the Full-Absorption accounting method to value inventory; Substantial passive income which may indicate a Personal Holding Company; A low asset return, reflecting a net operating loss; Returns with Minimum Tax issues; and Foreign Tax Credit claimed on the return.

     

4.1.5.10.2  (05-19-1999)
Profit and Loss Method

  1. After considering the general guidelines above, you should begin a more detailed review of the return utilizing both the profit and loss, and balance sheet approaches. Some of the items to be considered under the profit and loss approach are.

    1. Large or unusual changes in inventories, or no inventory reflected for nonservice type business.

    2. Sales of assets without a Schedule D or Supplemental Schedule of Gains and Losses (Form 4797) attached.

    3. No amount claimed as amortization on a newly formed corporation.

    4. Amounts claimed as Other Deductions without supporting schedules attached.

    5. Questionable bad debt, either under the Specific Write-off or Reserve Method.

    6. Expenses which may be high or unusual for the type of business.

     

4.1.5.10.3  (05-19-1999)
Balance Sheet Method

  1. A balance sheet approach, paying particular attention to substantial changes between opening and closing balances, can disclose a number of potential issues:

    1. Cash: Large ending balance—possible IRC 531 issue; and/or negative balance—improper accruals.

    2. Trade Notes and Accounts Receivable: Change in accounting method; premature write-offs; excessive deduction for bad debts; and/or interest income unreported.

    3. Inventories: Change in method of valuation; change in nature of business; and/or possible write-down.

    4. Investments: Interest income and dividend income understated or omitted, expense(s) of tax-free income deducted; unreported sales, erroneous basis, installment election; stockholder loans buried; and/or related issue.

    5. Other current assets—deferred expenses.

    6. Loans to stockholders—dividend issue.

    7. Building and other depreciable assets: Unreported sales; investment credit recapture; and/or incorrect basis.

    8. Intangible assets: Goodwill has been written-off, sale of license or patent; and/or IRC 351.

    9. Loans from stockholders: Thin corporation; and/or interest deduction vs. dividend.

    10. Other liabilities: Improper accruals; deferred income accounts; and/or reserve for contingencies.

    11. Capital accounts: Unreported sale; stock issued for services; and/or thin corporation.

    12. Paid-in surplus: Diversion of earned income; and or IRC 531.

    13. Retained earnings—IRC 531.

    14. Treasury Stock: Potential dividend to stockholders and/or bargain purchase by a stockholder.

    15. Schedules M–1 and M–2: All items should be reviewed for proper tax treatment.

     

4.1.5.10.4  (05-19-1999)
Form 1120S Special Compliance Problems

  1. Distribution of net operating losses to stockholders in excess of their basis.

  2. Repayment of stockholder’s loans by the corporation where distribution of losses exceeds stockholder’s basis.

  3. Disqualification of election because of changes in stock ownership or amount of passive investment income.

  4. Recapture of investment credit from the Form 1120 corporation in the year preceding its election, under Regs. 1.47–4(a), unless the waiver is properly executed as provided by Regs. 1.47–4(b).

  5. Distributions and/or dividend payments made to shareholders in lieu of wages to avoid employment taxes. Rev. Rul. 74–44, 74–1 C.B. 287.

4.1.5.11  (05-19-1999)
Partnership Issues

  1. Partnership returns are identified by three categories; DIF, non-DIF, and Automatics. Returns with 10 partners or less, which do not meet automatic criteria, are scored under the DIF system. Returns with 11 or more partners and returns which meet automatic criteria, regardless of size, are not computer classified. Automatic criteria are contained in the LEM.

  2. Screening procedures for DIF scored partnership returns are essentially the same as for other DIF returns. No checksheet is required.

  3. Significant issues identified on non-DIF partnership returns will be reflected on Form 6250 (Partnership Classification Checksheet).

4.1.5.11.1  (05-19-1999)
Partnership Selection Features

  1. The general instructions for individual and corporate returns apply equally to partnership returns. The returns must be scrutinized both as to line items and the return as a whole in selecting returns with the highest examination potential.

  2. Initial and first year returns are often productive. Common issues are:

    1. Contributions to capital for possible recognition of gain or loss at the partners’ levels.

    2. Partners with no contributed capital where services may have been performed in exchange for the partnership interest.

    3. Large loss claimed on returns commencing business late in the year.

    4. Large loss claimed in relation to investment.

    5. Loss claimed in excess of investment through nonrecourse financing. Loan and prepaid interest costs should be amortized over the life of the loan.

    6. Large depreciation deduction where property may not have been placed in service during the year.

    7. Pre-opening expense (management fees, license fees, etc.) which should be capitalized.

     

  3. Other areas applicable to partnerships:

    1. Additional contributions by a partner which could constitute a sale or exchange.

    2. Disproportionate allocation of losses or specific deductions to partners. Review Schedule K–1 to determine the date of entry of new partners.

    3. Withdrawal by partners may include "phantom gain" through assumption of liabilities by others.

    4. The sale or exchange of partnership assets may result in recapture of ordinary income.

    5. Component or other depreciation method resulting in shorter than guideline lives.

     

4.1.5.11.2  (05-19-1999)
Partnership Distributions

  1. In general, errors are common in final year partnership returns. Basis and recognition vs. non-recognition of gain or loss are productive areas.

4.1.5.12  (05-19-1999)
Fiduciary Returns

  1. Manual screening of fiduciary returns requires consideration of issues that are peculiar to fiduciary returns. While income tax issues will not be overlooked, quality classification/screening requires consideration of the following issues and areas:

    1. Information omitted (date created, name of grantor, trust instrument or will).

    2. Estate unduly prolonged (should not be more than 5 years unless very large) (Reg. 1.641(b)–3(a)).

    3. Business Trust taxable as a corporation (IRC 7701(a)(3)), Rev. Rul. 75–258.

    4. Exemption—Estate $600; Simple Trust $300; Complex Trust $100.

    5. Indication of multiple trusts, which may be taxable as one trust (Reg. 1.663(c)–1(b)).

    6. Minimum tax (IRC 56)—tax preference items and/or exemption not apportioned between the estate or trust and beneficiaries based on share of income; also, prorate for short year.

    7. Wrong tax rate schedule used.

    8. Foreign tax credit, investment credit, and job tax credit not apportioned between estate or trust and beneficiaries based on income.

    9. Normally a trust cannot show Subchapter 5 income (IRC 643(a)).

    10. Indication of income taxable to grantor or another (IRC 671–678) (e.g., sale and leaseback among related parties).

    11. Error in computation of Distributable Net Income (DNI) (IRC 643(a)).

    12. Rental or other income (i.e., from non-probate assets) may be taxable to devisees (IRC 691).

    13. Partnership income; decedent’s death before close of partnership taxable year. Share of partnership income erroneously included on Form 1040 instead of Form 1041.

    14. Special tax for trusts electing to report gain realized on the sale of property acquired from a transferor under installment method (IRC 644).

     

  2. Distributions to Beneficiaries:

    1. Beneficiaries not listed. May not have picked up income.

    2. Normally estate is not required to distribute all income currently. No deduction is allowable if amount was not actually distributed.

    3. Normally an estate does not distribute capital gains.

    4. Simple trusts must distribute all ordinary income (IRC 651) except income allocable to corpus.

    5. Final year—all income deemed distributed, including capital gains (IRC 643(a) (3) and 662(a)(2)).

    6. No losses or excess deductions are distributable except in final year (IRC 642(h)).

    7. Distribution deduction may include: Specific legacy—not deductible (IRC 663(a)); or Widow’s allowance—deductible if from current income (Reg. 1.661(a)–2(c)) and taxable to widow.

    8. Excess (accumulated) distribution may indicate a complex trust. A separate Schedule J may be missing—reported by beneficiaries (Throwback Rule IRC 665(b))

    9. Administrative and other expenses may actually be a disguised distribution to beneficiary. Failure to file Form K–1 (e.g., family allowance).

    10. Excess distributions may indicate payment of specific legacies on which estate may have realized a gain.

    11. Nonresident alien beneficiary — were Forms 1042S filed and required amounts of tax withheld?

    12. Terms of governing instrument (local law issues).

    13. Family Trust?

     

  3. Capital Transactions:

    1. Normally there should be no significant capital losses in the first year of an estate.

    2. Capital loss (net) improperly claimed.

    3. Deduction limited to fiduciary’s portion of capital gains (IRC 1202).

    4. Basis of assets: Estate of testamentary trust—carryover basis (IRC 1023); Inter-vivos trust—usually the donor’s basis (IRC 1015); or income in respect of a decedent (IRC 691).

    5. Redemption of closely held stock may be dividend unless IRC 303 is complied with (IRC 302).

    6. Sale or exchange between related parties for inadequate consideration.

    7. Estate tax marital deduction—executor satisfies pecuniary bequest with appreciated assets, thus triggering a capital gain.

    8. Specific bequest—executor satisfies with appreciated assets, thus triggering a capital gain.

     

  4. Expenses and Deductions:

    1. Allocation of expenses to tax-free income not made (IRC 265).

    2. Depreciation taken (basis).

    3. Allocation of expenses.

    4. Funeral and medical expenses not deductible (IRC 641(b) and 162(a)).

    5. Other personal expenses and losses not deductible (IRC 641(b) and 162(a)) (e.g., child care, funeral costs, medical expenses).

    6. Administrative expenses (e.g., attorney’s and CPA’s fees, and executor commissions) not deductible unless waiver for estate tax purposes made (IRC 642(g)). Also, no "double deduction" allowed for selling expenses used to offset the sales price on a sale of property in determining gain or loss if deducted for Federal Estate Tax purposes.

    7. Federal Estate Tax on income in respect of a decedent (computation omitted or erroneous) (IRC 691(c)). Estate tax examination will affect the computation.

    8. Inheritance taxes are not deductible (IRC 164(b)(4)).

    9. Charitable contributions- "set aside" amount is generally not deductible (IRC 164(b)(4)).

    10. Executor’s commissions or attorney’s fees appear unreasonable under local law guidelines.

     

4.1.5.13  (05-19-1999)
Estate and Gift Tax Returns

  1. All estate and gift tax returns undergo a manual classification by experienced estate and gift attorneys. Local law and economic conditions have a significant impact on issues common to estate and gift tax returns. Heavy reliance, accordingly, is placed on local classification instructions.

  2. In general, local guidelines should include:

    1. Updated value ranges for real properties.

    2. Resource material for securities valuations.

     

  3. Local instructions for estate tax returns should consider selection of returns where:

    1. Interrelated marital and charitable deductions are not readily understandable or sufficiently explained.

    2. Contemplation of death transfers is material.

    3. Joint tenant contributions claimed is material.

    4. Credit for tax on prior estates is material.

    5. Trust instrument or will suggests material omission of assets or the size of the estate suggests complex estate planning.

    6. Large deductions claimed and no evidence of having been paid or debtors having filed claims for such.

    7. Deductions of debts and expenses which are erroneous or may be subject to change. Also, any returns involving claims for personal services rendered to the decedent.

    8. Possible excluded or accrued dividends.

    9. Possible omission of accrued rents and growing crops on estates possessing farm land.

     

  4. Local instructions for gift tax returns should consider selection of returns where:

    1. There is a question concerning valuation.

    2. There are indications of transfers of closely-held stock and/or real estate.

     

4.1.5.14  (05-19-1999)
Excise Tax Issues

  1. In most cases, excise tax returns do not in themselves provide a basis for classification. Classification is performed by excise tax specialists.

  2. You should be cognizant of potential excise tax liabilities when screening income tax returns. Be alert for:

    1. Gasoline tax credit for aviation gasoline or gasoline used for non-highway purposes. The first credit is not allowable. The second instance indicates that the taxpayer could be liable for highway use tax.

    2. Taxpayers with trucking operations may be liable for highway use tax, further manufacturers excise tax, and/or diesel fuel-gasoline taxes.

    3. Returns indicating issuance of policies by foreign insurers. This would involve returns of insurance agencies, brokers, etc.

    4. Returns reporting manufacturing or use of pistols, revolvers, and firearms Examples are gun shops, target ranges, etc.

    5. Returns reporting flying services or aircraft sales. Examples are charter service, flying schools, airplane repairs, etc.

     

4.1.5.15  (05-19-1999)
Employment Tax issues

  1. Employment tax returns do not in themselves provide a basis for classification. Independent selection of returns should be based on known or probable areas of noncompliance.

  2. You should be cognizant of potential employment tax issues when screening income tax returns.

  3. Known or probable areas on noncompliance are listed the IRM Handbook for Employment Tax Examination Program.

  4. Any information concerning local areas of noncompliance will be provided by district management.

4.1.5.16  (05-19-1999)
International Returns

  1. The Chief, Classification Section, is responsible for classifying all returns with international characteristics manually at the service center before sending them to the districts.

  2. An international examiner will classify all returns with international characteristics. Refer to the Law Enforcement Manual for international characteristics.

  3. The jurisdiction for the field examination of entities filing Form 1120F and individuals claiming the foreign earned income exclusion (Form 2555 or Form 2555EZ) is the area office where the taxpayer maintains the principal books and records.

    1. The Director, Compliance will maintain jurisdiction over all Form 1120F returns and Form 1040 returns (with Form 2555 or 2555EZ) if the taxpayer keeps the principal books and records outside the United States.

    2. The Philadelphia Service Center will transfer these returns to the appropriate service center.

     

4.1.5.16.1  (05-19-1999)
Standards for Classification

  1. In selecting returns for examination, consider the objectives of the International Enforcement Program. Select returns that contain significant international issues that:

    1. Are likely to result in tax changes, and

    2. Require an examination to achieve voluntary compliance by an identifiable group.

     

  2. General procedures in this handbook, and in the Law Enforcement Manual, are applicable to international classifiers.

  3. Classifiers are to review the Form 5546 (Examination Return Charge-Out), attached to the return. This document contains information that may be beneficial when deciding whether to select or accept a return. The AIMS handbook highlights areas of the Form 5546 used for classification. It contains a detailed explanation of all items on the Form 5546.

4.1.5.16.2  (05-19-1999)
Procedures for Processing International Returns During Classification

  1. Generally, returns received for classification for international potential will already have been classified for domestic issues. The international examiner, subject to area instructions to the contrary, will not screen returns for domestic issues.

  2. Returns accepted as filed for international features during centralized classification that have not been previously classified for domestic issues will be routed through regular classification at the service center for classification.

  3. Returns selected for international features will be routed to the PSP Support Manager in the area office. These returns will be filed in Central Files, Priority Suspense Files, or assigned to groups following area procedures.

  4. In classifying a return, if the classifier determines the taxpayer is part of an identified National Headquarters coordinated examination in another area, identify the return for transfer to the area PSP Support Manager for the Key Case.

  5. International classifiers separate returns into six categories:

    • Domestic issues not classified—selected for International

    • Domestic issues not classified—accepted for International

    • Accepted on classification for domestic issues—selected for International

    • Accepted on classification for domestic issues—accepted for International

    • Open in area

    • Transfers (show transferee area)

     

  6. Classification stamps provided for selected and accepted international returns are:

    1. Returns not having international potential are stamped as follows: "International—Accepted as Filed, Referral Not Mandatory" .

    2. Returns having international potential, or meeting mandatory selection criteria, are stamped as follows: "International—Selected" .

     

  7. With returns meeting mandatory selection criteria and/or selected for examination based on international features, international classifiers will:

    1. Affix AIMS status update labels to Form 5348 (Examination Update).

    2. Place an alpha character based on the following:

    3. Stamp "International—Selected" on the face of the return.

     

    If a return has: Then:
    Tax Haven issues Place a red "T" for Tax haven in the lower left-hand corner of the AIMS status update label.
    A Form 5713 Place a red "B" for Boycott in the lower left-hand corner of the AIMS status update label.

     

  8. For returns accepted as filed during international classification, classifiers will:

    1. Affix AIMS status update label to Form 5351 (Nonexamined Closing).

    2. Place a red "B" in the lower left-hand corner of labels if returns have a Form 5713 attached.

    3. Stamp returns: "International—Accepted as Filed, Referral Not Mandatory" .

     

  9. The Chief, Classification, will ensure that:

    1. Copies of Forms 5348 and 5351 are forwarded to Key Area Program Managers.

    2. All returns selected for possible examination, or those to be associated with returns already under examination, are identified as "International" .

    3. All selected returns are assigned the applicable project code from the table below, before sending them to the area:

    4. Form 3210 (Document Transmittal) sent to the PSP Support Mnager, states that the returns were selected for "International" , and includes special instructions. For example, Form 1120–DISC should be associated with the related return of another area or a return that is part of a national or area coordinated examination.

     

    Project Code Description
    Project code 090 Any selected return, except tax haven returns.
    Project code 091 All tax haven returns.
    Project code 155 Returns with responses to the foreign bank account question.
    Project code 155 Returns if both project codes 091 and 155 are applicable. Instructions in the Law Enforcement Manual apply to this international feature.
    Project code 162 Forms 1120F and 1040 (with Form 2555). Project code 162 takes precedence over project codes 091 and 155.

     

4.1.5.16.3  (05-19-1999)
Corporation, FSC, IC-DISC, Individual, Partnership, and Fiduciary Returns

  1. With the exceptions stated in (3) below, there are no mandatory requirements for selecting corporate, IC-DISC, FSC, individual, partnership, and fiduciary returns showing foreign business transactions or interest in a foreign bank, securities, and other financial accounts.

  2. When screening returns, classifiers will consider the objectives of the International Enforcement Program, and carefully scrutinize returns showing foreign business transactions and foreign financial accounts. When foreign business activity appears to be substantial, they should select the return for examination.

  3. Instructions for selecting returns identified during classification as reporting Subpart F income (IRC 951 to 964, inclusive) appear in the Law Enforcement Manual.

  4. Effective January 1, 1985, the Tax Reform Act of 1984 replaced the existing Domestic International Sales Corporation (DISC) with the Foreign Sales Corporation (FSC).

    1. The FSC is a taxable foreign corporation that files Form 1120–FSC (U.S. Income Tax Return of a Foreign Sales Corporation) at the PSC.

    2. The PSC will transfer Form 1120–FSC returns to the appropriate service center for screening and/or classification by an international classifier.

    3. A copy of a valid Form 8279 (Election to be treated as an FSC or a small FSC) must accompany each transferred Form 1120–FSC return. A Form 1120–FSC return that does not have a valid election to be treated as an FSC, should not be transmitted to a service center for classification and should be treated as an ineligible filer.

    4. A small DISC may still exist as an Interest Charge—Domestic International Sales Corporation (IC-DISC). Generally, this domestic corporation will be non-taxable and file Form 1120–IC–DISC.

     

4.1.5.16.4  (05-19-1999)
Identification of Issues on Form 1120–FSC Returns

  1. Review items on page 1 and questions on page 2 of Form 1120–FSC that relate to qualification requirements under IRC 922.

  2. Evaluate Schedules B, G, and P in an attempt to learn whether appropriate costs and expenses were properly allocated or apportioned in computing the FSC’s foreign trade income.

4.1.5.16.5  (05-19-1999)
Form 3520 Internal Processing

  1. Form 3520 (Annual Return To Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts) is filed at the PSC. A copy is forwarded to the Classification Section at the service center where the related tax return will be filed.

  2. During July of each year, the income tax return which relates to the prior year Form 3520 will be secured.

  3. When Forms 3520 are received in the service centers, they will be associated with copies of the related returns, prior to classification by an international examiner. The copies of Forms 3520 will remain with their related returns. Related returns to associate are:

    1. Form that applies to person filing the return, identified by the TIN (of the filer) on Form 3520, line 1b.

    2. Form 3520–A (Annual Information Return of Foreign Trust with a U.S. Owner) identified by TIN on Form 3520.

    3. Form 706, if check box describing U.S. person filing return is identified as "Executor" ’.

     

  4. Include a three-year Midwest Automated Classification System (MACS) run of the Form 3520 and for each related return. If the related return is already open, the copy of the Form 3520 will be forwarded for association. Upon receipt in the area, the related return will be referred to the International Program.

  5. The potential liability for a gift tax, generation skipping transfer tax, or income tax should be considered when classifying the returns. Additionally, consider the penalty for failure to timely file the Form 3520 under IRC 6677.

    If Form 3520 Then
    Line 8 is YES (the transfer is a completed gift or bequest) Form 706 and/or Form 709 should be filed and associated.
    Line 10 is NO (filer is not treated as owner of the assets)  
    Line 14a is NO (not treated as an exempt transfer) Associate Form 926 (Return by a U.S. Transferor of Property to a Foreign Estate or Trust, or Foreign Partnership) with Form 3520.
    Line 14b is not marked (no election under IRC 1057)
    Line 14c is not marked (no election under similar principles under IRC 367)

     

  6. Check the Currency and Banking Retrieval System (CBRS) for the following documents and if filed, associate with the related returns:

    1. TDF 90–22.1 Foreign Bank and Financial Accounts (FBAR)

    2. Cash Transaction Report (CTR)

    3. Suspicious Activity Report (SAR)

     

  7. A foreign trust without a U.S. owner which has effectively connected U.S. source income is filed currently on Form 1040NR—Fiduciary. This form is processed on the Automated Non-Master File System (ANMF).

4.1.5.16.6  (05-19-1999)
Form 926

  1. Taxpayers must file Form 926 (Return by a U.S. Transferor of Property to a Foreign Corporation, Foreign Estate or Trust, or Foreign Partnership) on the day of the transfer and at the service center where they normally file their return.

  2. The excise tax per IRC 1491 does not apply if Federal income tax avoidance is not a principal purpose of the transfer.

  3. After processing, Forms 926 will be forwarded to the Chief, Classification, who will enter a Transaction Code (TC 930) on the transferor’s account to secure the return when filed.

  4. The transferor’s return and Form 926 will be associated before classification. An international examiner will classify all Forms 926.

  5. Due to their potential use in classifying Forms 706NR (Estates of Nonresidents) and Forms 1040NR filed by foreign trusts, copies of Forms 926 indicating that the transferee is either an Estate or Trust should be forwarded to the Director, Compliance at the following address: Internal Revenue Service, Attn: Chief, Support and Services Branch OP:IN:D:C:55, 950 L’Enfant Plaza South, S.W., Washington, D.C. 20024.

  6. When classifying Form 926, the international examiner may generally accept as filed the following types of transfers:

    1. Forms 926 with a transferee that is an exempt organization (Reg. 1492–1(a)(1)). A copy of the Commissioner’s determination letter must be attached.

    2. Transfer plans approved by the Commissioner (Reg. 1492–1(a)(2)). A copy of the Commissioner’s approval letter must be attached.

     

  7. Returns selected for examination will be forwarded to the appropriate area office. Area offices should follow normal assignment, survey, and examination procedures.

4.1.5.16.7  (05-19-1999)
Foreign Information Documents

  1. Income tax treaties generally provide for the exchange of routine information relating to payments made to residents of the contracting countries (Foreign Information Documents). These documents reflect payments of dividends, interest, royalties, commissions, tax refunds, etc. PSC receives and stores documents from approximately 15 treaty countries in many formats.

  2. Foreign information documents showing individual taxpayers (Individual Master File—IMF) as recipients are subject to processing under the Information Returns Program (IRP).

4.1.5.16.8  (05-19-1999)
Foreign Information Return Program (FIRP) documents

  1. Foreign Information Return Program (FIRP) documents, which meet the selection criteria contained in the Law Enforcement Manual, will be processed as follows:

    1. The PSP Support Manager, PSC will sort the FIRP documents, and forward them to the payee’s service centers, Attention: Chief Classification. FIRP documents with incomplete taxpayer information will be forwarded to the Director, Compliance, Attn: Chief, Tax Treaty, for return to the submitting country.

    2. The Chief, Classification, at each service center will receive FIRP documents for payees within that service center, perfect those documents without TINs, perform a cross-reference search for spouses’ TIN, and forward the FIRP documents (after TIN perfection) to the PSP Support Manager in the payee’s areas, or per other area instructions.

    3. The area PSP Support Manager will follow the following procedures:

    4. Personnel screening FIRP documents to decide whether to secure related returns, should consider the following factors: the impact of Foreign Tax Credits (FTC) which may be available to the taxpayer; the source and type of the foreign income; and the underlying asset and the method of acquisition.

    5. The PSP Support Manager will place returns selected for examination into the appropriate program (Tax Auditor or Revenue Agent). If a return is surveyed, the FIRP document should be attached to the return.

     

    If the FIRP documents relate to: Then the PSP Support Manager will:
    Cases in Status 06 or 08 Request the return from the service center.
    Cases in Status 10 or 12 Forward FIRP documents to the group manager.
    Coordinated Examination Program (CEP) cases—open Forward FIRP documents to the CEP manager.
    CEP cases— not open Forward FIRP documents to the district CEP Program Manager.
    Banks or insurance companies Forward FIRP documents to banking or insurance group manager.
    TE/GE returns Forward FIRP documents to TE/GE Territory Manager.
    Survey cases Attach FIRP document to the return.

     

  2. ALL PERSONNEL WILL CONSIDER THESE DOCUMENTS SENSITIVE UNDER THE EXCHANGE OF INFORMATION PROVISIONS OF THE VARIOUS TAX TREATIES AND WILL NOT MAKE THEM AVAILABLE EXCEPT FOR FEDERAL TAX ADMINISTRATION PURPOSES UNDER ANY DISCLOSURE PROVISIONS. ADDRESS ALL INQUIRIES CONCERNING THE DISCLOSURE OF THIS INFORMATION TO THE DIRECTOR, GOVERNMENTAL LIASON & DISCLOSURE, NATIONAL HEADQUARTERS.

4.1.5.16.9  (05-19-1999)
Foreign Information Return Program (FIRP) Document Referrals to Collection

  1. FIRP documents which meet the following criteria will be referred to the service center collection branch:

    1. FIRP documents with TINs for which no TC150 has posted on the taxpayer’s account.

    2. Undeliverable documents will not be sent to the collection branch.

    3. A cross reference on the spouses’s TIN must be done before forwarding any FIRP document to Collection. All other research done on the FIRP document should be forwarded with the referral.

     

  2. FIRP documents forwarded to the controlling service centers, which are then determined to warrant referral to Collection, must be returned to the Chief, Classification, PSC. The Chief, Classification, PSC, will forward these returned documents to Collection, PSC.

  3. Forward all referrals of FIRP documents to the service center Collection Branch, on Form 3210. Itemize FIRP documents on the Form 3210, and identify them as "Foreign Information Documents" .

  4. If the collection function determines that a substitute for return is required, they will forward the information to the PSP Support Manager on Form 3449 (Referral Report).

4.1.5.16.10  (05-19-1999)
Form 5074

  1. Forms 1040 requiring a Form 5074 are filed at the PSC.

  2. These returns are processed, coded, and delivered to Examination as prompt examination returns.

  3. The Service Center Classification Section takes the following actions:

    1. Completes page 2 of Form 5074.

    2. Forwards a copy of the completed Form 5074 to the Service Center Accounting Branch.

    3. Classifies the return.

     

4.1.5.16.11  (05-19-1999)
Director, Compliance Special Instructions

  1. Procedures, instructions, and information for the identification and selection of Director, Compliance returns are the same as any other return, except as provided hereinafter.

  2. The mathematical DIF formulas for individual returns with certain modifications are applicable to returns identified for Director, Compliance:

    1. No minimum cutoff scores are applicable to Director, Compliance individual DIF returns. All individual returns except Specials are maintained on the DIF computer inventory file.

    2. Returns with APO/FPO addresses are also selected under the DIF System. Military personnel stationed overseas or on ships generally file these returns. They fall under the jurisdiction of the Director, Compliance. Taxpayers should file all APO/FPO returns at PSC.

    3. The same audit codes used for all individual returns apply when identifying individual returns as Special Returns. Many codes will not apply to Forms 1040NR, 1040PR, and 1040SS, since the criteria for identifying these special features will not be present on these returns.

     

  3. Computer reports for individual returns (1040–1, 1040–2, etc.) and corporate returns (1120–1, 1120–2, etc.) are generated for the Director, Compliance, DOs 66 (Puerto Rico) and 98 (International).

    1. Computer report 1040–2 contains the number of returns filed which have a Form 2555 or 2555EZ attached.

    2. The individual returns Post-of-Duty (POD) report 1040–1 is generated for DOs 66 and 98 by country or countries.

    3. Separate PODs are used for APO/FPO returns.

    4. All Forms 1040NR, except Specials, are assigned to DO 98 and POD 81.

    5. Various PODs within DO 66 will be assigned Forms 1040PR and 1040SS

    6. POD 99 will be primarily assigned DO 66 returns and APO/FPO returns without valid ZIP codes.

     

  4. Orders for returns will be submitted to the PSC.

    1. On orders for individual returns for DO 98, specify if the orders are to include the related Forms 2555 or 2555EZ.

    2. Use indicator code F to order returns with Form 2555 or 2555EZ attached.

    3. Use indicator code G to order returns without Form 2555 or 2555EZ attached.

    4. Forms 1040NR, 1040PR, or 1040SS may be deleted from DO 98 or 66 return orders by excluding the applicable POD(s) to which these returns are assigned from the individual return order.

    5. Forms 1040NR, 1040PR, or 1040SS may be separately ordered for Director, Compliance by placing a POD Supplemental Order for individual returns.

    6. Forms 1040NR are delivered only when the indicator code is either blank or a "J" .

    7. Forms 1040PR and 1040SS are delivered only when the indicator code is blank.

     

  5. Tax Auditors from the Director, Compliance will classify the following returns:

    1. Forms 1040 with Form 2555 or 2555EZ attached

    2. Forms 1040 with foreign addresses

    3. Forms 1040PR

    4. Forms 1040SS

    5. APO/FPO returns

     

  6. Revenue Agents from the Director, Compliance will classify Forms 1120F.

4.1.5.16.12  (05-19-1999)
Procedures for Processing Form 1120F

  1. Form 1120F returns are filed at the Philadelphia Service Center. Returns with primary books and records in a particular area will be transferred to the service center servicing that area. The location of the books and records is determined from the address in Question D, page 1 of the Form 1120F return.

  2. All returns with foreign addresses shown in question D of the Form 1120F will be processed for classification at the Philadelphia Service Center by Director, Compliance-Examination personnel.

  3. Philadelphia Service Center will transmit domestic address (question D, page 1) returns to the respective service centers on Form 3210 showing: "Expedite: Forms 1120F—International Returns to be Classified" .

  4. These returns are to be classified by international examiners.

  5. The returns selected for examination will be updated to Project Code 162 before transmission to the area.

4.1.5.16.13  (05-19-1999)
Classifying or Screening Foreign Corporate Returns (Form 1120F)

  1. Every foreign corporation, whether a resident or nonresident, which is subject to tax under Subtitile A of the Internal Revenue Code must file a Form 1120F, regardless of whether it has taxable income or gross income. If it has no gross income for the taxable year, it is not required to complete the return schedules. However, it must attach a statement to the return showing the nature of any exclusions claimed and the amount of such exclusions to the extent they are readily determinable.

  2. A Form 1120F is similar to Form 1120 filed by a U.S. corporation. The major difference is an additional section on Form 1120F for U.S. source income not effectively connected with a U.S. trade or business. Unlike a U.S. corporation, which is required to include worldwide gross income on Form 1120, a foreign corporation includes on Form 1120F only:

    1. U.S. source income not effectively connected with a U.S trade or business (IRC 881).

    2. Gross income effectively connected with a U.S. trade or business regardless of the source (IRC 882).

     

4.1.5.16.14  (05-19-1999)
Identification of Issues on Form 1120F Returns

  1. Effectively connected income is income generated from the active conduct of a trade or business in the United States. During classification:

    1. Review questions "A" through "L" on page 1, "M" through "U" on page 2. and "V" through "X" on page 5. Pay particular attention to location of books and records, type of business, and foreign country.

    2. Foreign-sourced business profits are taxable in the United States, if they are attributed (effectively connected) to the U.S. business.

    3. Check to see if interest, dividend, or other passive type income is being reported as effectively connected income (Section II of Form 1120F) as opposed to not effectively connected income (Section I of Form 1120F) and, therefore, subject to tax at a flat rate with no deduction allowed, particularly if the return is showing a loss in Section II. Check the balance sheet to see if there are investments that should be paying interest or dividends.

    4. Check foreign-sourced income that is being excluded on Schedule M–1 Are deductions being allocated to U.S. sourced and foreign sourced income? Are the allocated deductions being excluded in Schedule M–1?

    5. Review IRC 864(c)(4) for the definition of other types of income from sources outside the United States.

     

  2. Review the definition in Reg. 1.864–2. Note those activities that are not included in the general definition of a trade or business.

    1. Review question "A" through "F" on page 1, "M" through "U" on page 2, and "V" through "X" on page 5. Does the taxpayer meet the treaty definition of a trade or business?

    2. Indications of a U.S. place of business are: the return address; rents being paid and deducted on page 3; property taxes paid and depreciation schedule deductions; salaried employees; and/or location of books and records.

     

  3. Treaty benefits:

    1. Check tax rates on income reported on page 2, which is not effectively connected income.

    2. If a treaty country is involved, rates could be different.

     

  4. Schedule M–1 or M–2:

    1. If foreign sourced income or tax-exempt income is excluded for tax purposes, are there corresponding adjustments to deductions? Is income excluded reasonable in relation to the type of business?

    2. Are there any distributions that may be subject to 1042 withholding?

     

  5. 1042 liability:

    1. Check Schedule M–2 for any distributions that may be subject to withholding.

    2. Is the taxpayer paying interest, rent, royalties, or contract labor to foreign sources that could be subject to withholding? Besides Schedule II deductions, consider excluded deductions on Schedule M–1, or expenses used in the computation of a foreign tax credit.

     

  6. Home office expense or general and administrative expense:

    1. Review the method of allocating home office expense to the U.S. operation.

    2. Is the allocation made among U.S. source, foreign source, and tax exempt income?

     

  7. Banks must report U.S. and foreign sourced income if effectively connected with a U.S. business, unless the income is excluded by treaty.

    1. Check treaty provisions if income is excluded on the return.

    2. If income is excluded under the treaty, or is tax exempt, check for allocation of expenses to the excluded income.

    3. Check for computation of interest expense under Reg. 1.882–5.

    4. Check allocation of home office expenses to U.S. trade or business including allocation to excluded income.

    5. Computation of Reserves for Bad Debts—if the percentage method is used, verify: allowable percentage of eligible loans; eligible loans at year end (Reg. 1.585 (b) (4)); loans applicable to foreign sourced income for purposes of minimum tax preference items; and write-offs.

     

4.1.5.16.15  (05-19-1999)
Procedures for Processing Form 1040 Returns with Form 2555

  1. The Director, Compliance—Examination auditors will screen all Form 1040 returns with Form 2555 first. Returns identified for field examination with domestic addresses will be transferred to the respective service centers by Philadelphia Service Center.

  2. Philadelphia Service Center will transmit domestic address returns to the service centers on Form 3210 showing: "Expedite: Form 1040 with Form 2555—International Returns to be Classified" .

  3. These returns are to be classified by international examiners.

  4. The returns selected for examination will be updated to Project Code 162 before transmission to the area.

  5. Besides the items shown on Form 8419 (International/Program Checksheet) for Form 1040 U.S. Individual Income Tax Return with Form 2555 consider the following factors when classifying these returns:

    1. Is the income from all foreign sources reported on the U.S. income tax return?

    2. Has the taxpayer used the proper exchange rate for converting the foreign income?

    3. Is there a Form 1116 (Computation of Foreign Tax Credit—Individual, Fiduciary, or Non-Resident Alien Individual) attached to the return?

    4. If Form 1116 is attached to the return, determine if the credit claimed is at the treaty rate or at the foreign country’s statutory rate. A citizen or resident claiming the treaty benefit from a foreign country is limited to the treaty rate as a foreign tax credit or deduction on the tax return. Rev. Rul. 57–116 states in part that the allowance of a credit for taxes paid to a foreign country is limited to the tax that is a legal and actual liability. Tax withheld at the source is merely an advance collection of what may or may not be an actual tax liability.

     

4.1.5.17  (10-01-2001)
Accounts Receivable Dollar Inventory (ARDI) Returns—General

  1. The purpose of the Internal Revenue Service is to collect the proper amount of tax revenues at the least cost to the public, and in a manner that warrants the highest degree of public confidence in our integrity, efficiency and fairness.

  2. What Examination does impacts on other functions throughout the Service. Closed cases can have an impact on the workloads in Appeals, Counsel and Collection. Assessments made by Examination often result in an increase in the inventory of cases in Collection. A significant number of these assessments result in uncollectible accounts.

  3. In the continuing effort to reduce the Accounts Receivable Dollar Inventory (ARDI) and Currently Not Collectible (CNC) Accounts, the Service must strive for quality assessments and promote an increased emphasis on early collections. Taxpayers should be educated as to the benefits of paying a proposed tax deficiency in full or informed as to the availability of other arrangements (i.e., installment payments).

  4. ARDI represents the total (gross) dollar amount due on returns filed with balances owing, including any additional assessments plus all other accruals (i.e., interest).

  5. A CNC account is a taxpayer account that has been determined to be uncollectible for one or more of the following reasons:

    • Hardship

    • Insolvency/defunct corporation

    • Bankruptcy

    • Decedents (having no assets)

    • Unable to locate taxpayer

    • Unable to contact taxpayer

    • In business (hardship)

    • Other (de minimus/statute expired while in active status)

     

  6. The goal of the ARDI and CNC initiatives is to constrain the growth of accounts receivable and uncollectible accounts and to promote a more effective organizational operation by maximizing time and resources devoted to productive efforts

4.1.5.17.1  (05-19-1999)
ARDI "B" Coded Returns

  1. The "B" code on the return indicates the taxpayer has filed for bankruptcy. Classifiers will classify based on normal selection criteria. All returns selected will be flagged with Form 3198, Special Handling Notice. Note in Other Information Section: "B" coded return. Send to PSP Support Manager.

  2. All returns selected for Office Examination will be designated for precontact analysis.

  3. All "B" coded returns will be handled using normal procedures except for those stored in Centralized Files and Storage (CF&S). When "B" coded returns are pulled as part of a regular return order, they will be forwarded to the Chief, PSP, for rescreening.

  4. The PSP Support Manager, will consult with the Examination Bankruptcy Coordinator and the Insolvency Support Manager function in determining whether to select the return. PSP will hold the return awaiting advice from Insolvency Support concerning the bankrupt taxpayer.

  5. Insolvency Support will advise Examination, through the Examination Bankruptcy Coordinator, as to the type of bankruptcy, etc. This information will then be provided to PSP.

  6. If Insolvency Support advises Examination that the bankruptcy case is open, Examination should consider their advice in determining whether the examination of the taxpayer is worthwhile. The return may be surveyed unless there are specific reasons to examine. Specific reasons could include potential fraud, frivolous filings or manipulation of bankruptcy laws/procedures.

  7. If Insolvency Support advises that the bankruptcy case is closed and Examination has not started an examination, the return could be selected for examination based on the issues. Before selecting the return, secure a transcript and check for Collection activity. For a corporate return, a Chapter 7 filing will have special collectibility considerations.

4.1.5.17.2  (05-19-1999)
ARDI "N" Coded Returns

  1. The "N" code on the return indicates a taxpayer has an outstanding tax balance which has not been satisfied and is considered currently not collectible. Although this code implies the account is not collectible, it should be noted that the outstanding balance will remain on the Master File during the entire statutory collection period (10 years from the date of assessment). For example, the taxpayer’s account may reflect an outstanding tax balance from 7 years ago; however, the taxpayer may now be financially able to pay. Any account that has a Transaction Code (TC) 530 will also include a Collection closing code. Each closing code designates the reason the account was closed as currently not collectible. A CNC account has been determined to be uncollectible for one or more of the following reasons: Hardship, insolvent corporation, defunct corporation, decedent case (having no assets), unable to locate taxpayer, unable to contact taxpayer, unable to pay, statute expired, etc. See Document 6209, ADP and IDRS Information, for a complete list and explanation of these TDA closing codes.

  2. Classifiers will classify based on normal selection criteria. All returns selected will be flagged with Form 3198, Special Handling Notice. Note in Other Information Section: "N" coded return. Send to PSP.

  3. All returns selected for Office Examination will be designated for precontact analysis.

  4. All "N" coded returns will be handled using normal procedures except those stored on CF&S When "N" coded returns are pulled as part of a regular return order, they will be forwarded to the PSP Support Manager.

  5. If an Accounts Receivable Dollar Inventory (ARDI) transcript is attached to the return, use it to determine which periods are in CNC status and pull current transcripts of all CNC periods. If no ARDI transcripts are attached, Classification (Service Center)/PSP (Area) should try SUMRY and order Master File transcripts, for at least the current and prior periods, in an attempt to locate the CNC years. If there appears to be a possible collectibility problem, contact Collection to discuss the problem. Also, check the closing codes for a reason the module had a CNC indicator. If you cannot locate the CNC periods and if there are no collectibility problems in the current or prior periods, there should be no further consideration of collectibility. The return should be selected based on the issues.

  6. If research on the CNC periods and information on the return being screened indicates the taxpayer’s financial situation seems to have changed, the PSP Support Manager, will contact Collection regarding the possible change in financial situation. A copy of the return will be forwarded to Collection via Form 3210, Document Transmittal, or local transmittal option. Collection should consider reversing the CNC status due to the possible change in financial situation.

4.1.5.17.3  (05-19-1999)
ARDI "C" Coded Returns

  1. The "C" code on the return is an additional information element to be considered during an examination. It reflects a Collection Status 26, field contact. Classifiers will classify based on normal selection criteria. All returns selected will be flagged with Form 3198, Special Handling Notice. Note in Other Information Section: "C" coded return. Send to PSP.

  2. All returns selected for Office Examination will be designated for precontact analysis.

  3. All "C" coded returns will be handled using normal procedures except those stored in CF&S When "C" coded returns are pulled as part of a regular return order, they will be forwarded to the PSP, for rescreening.

  4. Upon receipt of a "C" coded return in the district, the PSP Support Manager will order SUMRY and TXMOD research. If the case is still in Collection Status 26, the SUMRY and TXMOD information will reflect a group and employee number of the revenue officer charged with the account.

  5. PSP should coordinate with the Collection liaison before the return is sent to the group to determine the assigned revenue officer’s name and telephone number. Contact should be made with the revenue officer and a request made for the collection status of the case.

  6. Based on the facts and circumstances and feedback received from Collection, a determination should be made as to the examination potential.

4.1.5.18  (05-19-1999)
Partnership Control System (PCS)

  1. The Partnership Control System was designed to control and monitor flow through entity and linked investor returns (whether TEFRA or non-TEFRA). Detailed information regarding the PCS system is contained in other areas of the IRM.

  2. Upon receipt of the return or Form 5546 Charge-Out Document, the PSP Support Manager will:

    1. Determine if there are issues other than partnership, fiduciary, or small business corporation issues on the return which warrant examination. If so, the case will be updated on AIMS and assigned to a group.

    2. If the return is open and in another organizational unit in the area, the Form 5546 will be forwarded to that function.

    3. If the return is charged-out to a campus, contact the campus to secure the return.

    4. If the Form 5546 contains "Return in Transit" in the Special Message portion, hold the Form 5546 until the return is received.

     

  3. Partner returns controlled by the areas pending completion of the partnership examination will be held in Status 41.

4.1.5.19  (05-19-1999)
Fraud Potential Consideration During Classification

  1. You should be alert for indications of fraud on the returns being classified:

    1. Refund schemes.

    2. Typed, handwritten, or altered W–2 Forms showing a large business corporation or government agency could indicate a potential fraudulent refund scheme. Large corporations or government agencies normally would use computer generated W–2 Forms.

     

  2. See the LEM and the Fraud Handbook for specific criteria on fraud.

4.1.5.20  (05-19-1999)
Employee Returns

  1. The tax returns of all Service employees, regardless of grades or position, will undergo the same initial computer screening process, the same classification process, and be subject to the same mass survey procedures that are applicable to all individual income tax returns.

  2. To assist Examination personnel in identifying IRS employee returns prior to screening, the word "employee" will be printed on the Form 5546, Examination Return Charge-Out.

  3. A return which is known to be an employee return, or determined to be an employee return from further inspection (e.g., W–2s, occupation, etc.), and there is no indication on the Form 5546 that it is an employee return, should be marked by writing the word "employee" in the information section on the charge-out document.

  4. Classifiers must ensure impartiality and independence when reviewing employee returns. Classifiers will not screen a return of an employee in the same post-of-duty. (See Policy Statement P–4–9.)

  5. Normal classification criteria should be used in screening employee returns. The scope of the examination should not be expanded/contracted merely because the case has been identified as an employee return.

  6. Once a classifier has completed classifying an employee return and the return has been selected for examination, the precontact analysis block (Item 2) on Form 6754, Office Examination Checksheet, should be "X" marked. After perfection of the Form 6754, the employee return selected for examination will be given to the PSP Support Manager. Note: With the exception of employee returns which require precontact analysis (e.g., power of attorney, 13 issues, etc.), these cases are only being "X" marked in Item 2 on Form 6754 as precontact analysis cases for administrative purposes.

  7. The Chief, Classification Section will place the employee return and all other information within the case file except a copy of the Form 5546 into a separate folder. This folder will be placed in a secure file to await assignment.

  8. The returns of Territory level personnel or above will be forwarded to the Area Director for assignment to another area.

  9. Any other manager’s return will be transmitted to the Field Territory Manager. The Field Territory Manager will determine if the return can be impartially and objectively examined in the area, or if the return should be forwarded to the Area Director for reassignment.

  10. Area Director returns will be forwarded to the Headquarters CWSD for transmission to another area for examination.

  11. Any other employee return will be forwarded to the PSP Support Manager for reassignment to a post-of-duty other than where the employee works.

 
 

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