The Internal Revenue Code limits the time in which the government may make an assessment of tax. Examiners have the primary responsibility for identifying and protecting the statutes of limitations for returns in their custody. IRM 121.2, Statute of Limitations Handbook, provides guidance for verifying statute dates. Failure to protect the statute of limitations can result in disciplinary action.

If the statute of limitations is imminent, or if it has already expired on the assigned return, the return should be immediately brought to the group manager to determine the return’s disposal.

A statute of limitations to assess tax can be extended with the taxpayer’s consent. Examiners must obtain the approval of the group manager before requesting a taxpayer to execute a consent. The need for a consent should be clearly identified before it is solicited and the group manager’s approval documented in the case file. The following conditions warrant extending the statute of limitation (this list is not all inclusive):

The examination and disposition of income tax returns is to be completed within 26 months for individual returns and within 27 months for business returns (Forms 1120, 1041, 1065, etc.) after the due date of the return or the date filed, whichever is later. Maximum adherence to these guidelines is needed to ensure that the examination and all other processing can be completed within the statute of limitation.

If the examination cycle objectives cannot be met if an examination is initiated, the matter should be discussed with the group manager. If the group manager and examiner agree that an examination should be initiated, approval for deviation from the examination cycle requirements should be documented in the workpapers.

The following types of returns are exempted from the requirement to complete the examination and other processing within the exam cycle.

Circumstances may warrant exceeding the exam cycle if failure to conduct the examination would:

Policy Statement P–4–6 prohibits examiners from examining or surveying a tax return if a relationship impairs impartiality. A conflict of interest exists if an examiner’s personal relationship(s) or private interest (usually of a financial or economic nature) conflict, or raise a reasonable question of conflict, with the examiner’s public duties and responsibilities.

Examiners must avoid any situation which creates a conflict of interest, or creates a reasonable question of a conflict of interest, with their official duties. Penalties prescribed by statute for established violations include both a fine and/or imprisonment.

An examiner assigned a return which might create a real or apparent conflict of interest must immediately bring this matter to the attention of the group manager.

Examiners should never initiate, terminate or in any way modify audit actions based on requests from certain Executive Branch employees (specifically the President, Vice President, employees of the executive offices of the President or Vice President, or any other cabinet level official with the exception of the Attorney General) . Any requests received by an examiner that violate this prohibition should be reported to the Treasury Inspector General for Tax Administration. Examiners should always consult with the group manager if anyone, other than the group manager, requests actions related to ongoing or potential examinations.

Policy Statement P–4–5 prohibits examiners from surveying or examining a tax return if they have examined a return for the same taxpayer for any of the three preceding tax periods unless there has been an intervening survey or examination by a different examiner.

If an examiner is assigned a return described in paragraph (1) above, the tax return should be returned to the group manager for reassignment.

The definition of a large, unusual, or questionable item (LUQ) will depend on the examiner’s perception of the return as a whole and the separate items that comprise the return. Some factors to be considered when identifying LUQs are:

Regardless of the type or class of return being examined, examiners should first review the return in its entirety. This review should include not only the line items and credits claimed, but also such things as the balance sheet, elections, schedules, or any other documents attached to the return.

Other documents included with the return should also be reviewed. Including:

In addition to taxpayer specific information available from internal sources, the Service also prepares audit technique guides (MSSP) and coordinated issue papers (ISP) designed to assist examiners in identifying and developing issues.

Complete the required pre-contact analysis for the examination of income as outlined in, 4.10.4.3.3 (individual business returns) and 4.10.4.3.4 (corporate and other business returns).

Complete the required pre-contact analysis for Required Filing Checks, as outlined in section 5 of this chapter. Refer to Exhibit 5–1 in section 5 for a summary of the minimum requirements during the pre-contact in-depth analysis.

Examiners should compare the potential benefits to be derived from examining a return to the resources required to perform the examination. Once the potential benefits and resources are considered, priorities can be established. Examiners are expected to effectively manage their workload by prioritizing the issues so that the issues with higher audit potential are examined over those with lower potential. Issues with little or no audit potential should not be selected for examination.

The repetitive examination concept applies when an examination of the same issue(s) in either of the two preceding years resulted in no-change. The examination return charge-out sheet can be referred to for indications of prior examinations. The charge-out sheet generally provides:

If the charge-out sheet reflects a no-change issue code for the issue(s) being considered in the current examination, the issue(s) should be eliminated from the audit plan unless some other information in the case file indicates that the issue(s) is worth examining.

If all issues are found to be repetitive, then group manager approval must be obtained to survey the return after assignment.

If the examination has been initiated when it is determined that all the issues are repetitive and will result in little or no change in the taxpayer’s tax liability, then the examination should be concluded immediately.

Examiners should consider the taxpayer’s financial status. A single character alpha code on the charge-out sheet is used to identify taxpayers with potential collectibility issues. The codes are:

Not all taxpayers lacking the means to satisfy additional tax liabilities will be identified. Examiners should be alert for indications in the file that collectibility may be a factor to consider; i.e., the taxpayer is deceased or the taxpayer is a defunct corporation and the issue of transferee liability is not present. Form 9439, Collectibility Evaluation Form, may be used to help document collectibility.

If collectibility is an issue in an assigned case, the group manager should be alerted as soon as the issue is discovered. Managers will make the final determination whether to survey the return or to limit the scope/depth of an examination. A tax return may be surveyed due to an absolutely uncollectible assessment or subjected to a limited scope examination where there is lack of collectibility. It should be emphasized, however, that returns should not be surveyed based solely on collectibility where a limited examination has the potential for developing leads to other non-compliant taxpayers.

A return will be surveyed after assignment if, after conducting the in-depth analysis and evaluating the audit potential, AND WITHOUT CONTACTING THE TAXPAYER (or representative) or inspecting any records, an examiner determines that an examination of the return will not result in a material change in the taxpayer’s tax liability. This authority extends to returns identified for examination on Form 3449, Referral Report.

Procedures for surveying returns after assignment are as follows:

Returns — check or enter the applicable form number of the return(s) being surveyed.

Name and Address — enter the last known name and address.

SSN/EIN — enter applicable numbers from the returns being surveyed.

Documents surveyed — identify the types of document(s) included with Form 1900.

Recommended action — complete this block to indicate recommended action for the returns identified in (3).

Related Cases — cases listed here would be those cases requiring adjustments of items of income or deductions reported (another taxpayer’s return) to secure consistent treatment of the issue (whipsaw issues).

Taxable year or period — list each year’s return being surveyed on a separate line.

Adjusted gross or taxable income reported—enter the last income figure computed by the taxpayer on the last processed return for the year being surveyed.

Tax liability reported, claim allowable, tentative allowance approved — generally, there will be just one return being surveyed and no administrative adjustments will have been made to the tax liability reported. As needed, the following procedures are applicable:

Explanation — explain why the return is being surveyed. If necessary, include computations.

Enclosures — list returns, claims, and other documents enclosed in the case file.

Examining Officer/Date — signature of the surveying examiner and the date the form was completed.

Approved By/Date — The signature and the title of approving management official (usually the examiner’s manager) and the date of concurrence.

Claims for refund (including amended returns and informal claims) of income, estate, and gift taxes may be surveyed after assignment if it is determined that the claim issue is clearly allowable in full and the return does not otherwise warrant examination. Claims requiring Appeals consideration cannot be surveyed.

Examiners will prepare a survey after assignment report to briefly explain why the claims is being surveyed. A report is not necessary if the reasons for surveying the claim are clearly stated with the claim document.

Claims should be stamped with the "survey after assignment" imprint and signed/dated by both the examiner and the group manager.

Any claim which, if allowed, would produce an overassessment/overpayment, requiring reporting to the Joint Committee of Taxation may be allowed without examination (surveyed) . However, the claim can be surveyed only after notification is received from the Joint Committee that the Service may proceed with disposition of the claim, as proposed in the report submitted to the Joint Committee, under the provisions of IRC section 6405(a). See IRM 4.3.5, Joint Committee Handbook.

For surveyed estate or gift tax claims, a Notice of Adjustment, Form 1331 or 1331–B, will be prepared when required by IRM 4.25, Estate and Gift.

If, after initial contact with the taxpayer, it is determined that the return meets the repetitive audit criteria outlined in subsection 2.4.2 above, the examination should be closed using the "survey after assignment" procedures.

The "survey after Assignment" stamp should be imprinted on the return and signed by both the examiner and manager as described above.

The examiner will note, directly under the group manager’s signature: "Send Letter 2684" (Repetitive Examination Letter.)

Form 1900 will be used to state the reason for concluding the examination.

Letter 2684 should be sent to the taxpayer.

If a return is received from another area and the other area only made the initial contact with the taxpayer, without beginning the examination and/or inspecting the taxpayer’s books and records, the receiving area can apply the survey after assignment procedures if the return does not warrant examination. Letter 1024 (DO/IO) can be used to notify the taxpayer.

Returns with international issues may be surveyed with the approval of the Area Program Manager if no significant tax adjustments would result from an examination or the action is needed in response to workload priorities.

The Area Program Manager will furnish the Key Area Program Manager (KAPM) a listing of returns approved for survey after assignment. The listing will identify which returns were surveyed because there was no international potential and which returns were surveyed due to workload priorities.

Form 2962, Foreign and Domestic Entity International Transaction Report and Referral, will not be prepared for surveyed returns.

Survey procedures are not applicable to the types of returns listed below. The returns must be referred to the Area Program Manager, using Form 2962 and may be surveyed only with the approval of the Key Area Program Manager.

Determining the scope of an examination is the process by which an examiner selects issues warranting examination. Examiners should select issues so that, with reasonable certainty, all items necessary for a substantially proper determination of the tax liability have been considered.

Examiners must assess the facts and apply judgement in determining the scope of the examination.

Examiners are expected to continually exercise judgment throughout the examination process to expand or contract the scope as needed.

If during the course of the examination the scope of the examination is expanded to include another tax period and the taxpayer has representation, the taxpayer should be notified of the expansion and given time to secure a power-of-attorney for the additional tax period, before any examination action is taken.