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IRS Audits

Chapter 4. AIMS Processing

Section 16. Inventory Control

4.4.16  Inventory Control

4.4.16.1  (02-08-1999)
Introduction

  1. This chapter covers inventory control:

    1. Group Control Cards

    2. Inventory Validations

    3. Other inventory validation tools

     

4.4.16.2  (02-08-1999)
Group Control Cards, Form 5345, 5354 or PCS Form 8338

  1. Control and filing of the group control card is the responsibility of the clerk in the function that has requested or is holding the return. Every return, including copies of taxpayer returns, in an Examination group must have a group control card whether the return was requisitioned or received through other channels. It is not necessary to control a BRTVU/RTVUE print on AIMS unless it has been determined that an examination will take place.

  2. When a case is received in a group, the card is prepared as follows:

    1. Attach a "file label" included in the case file, if available.

    2. Enter the statute of limitations date, if the statute date has been extended per a secured consent.

    3. Enter name of examiner to whom the case is currently assigned.

    4. Enter date assigned to group. For office examination returns, the entry of date assigned is optional.

    5. File the completed card alphabetically by examiner.

    6. Additional entries for local control may be made as appropriate.

     

  3. When a F5345 is used to requisition a return, the control card is to be suspensed a pending file. The pending file should be reviewed monthly to identify requests where no return or F5546, Examination Charge-Out has been received within a reasonable amount of time, usually 2 months. Follow the steps below depending on whether the return is received.

    1. If the return is received, remove the form from the pending tax return file and file it in the open inventory card file.

    2. If the return is not received, check the TC 424 Reject Registers to ensure the request did not reject. See the Reports Chapter if the request appears on the TC 424 Reject Register. Use Form 5348 to request a follow-up if there is a fully established data base. If the DLN of the tax return you are requesting is outside of the jurisdiction of your campus, request a return via CC ESTAB following local procedures.

     

  4. When the case is closed, enter the date closed and the function to which the case is being transferred. The card is filed alphabetically, by name of taxpayer, in a closed case file and retained three years in field examination groups, and 90 days in office examination groups or until the next inventory validation, whichever is later. No dollar amount will be recorded on these cards.

  5. A second group control card may be prepared at local option. This control card should accompany the case file when the return is closed out of the group, for use in other functions.

  6. When a case is returned from Case Processing Support or Technical Support, reactivate the closed card by entering the date received and file in the open case card file. When the case is reclosed, enter the returned to date on the card and refile in the closed case file.

  7. Automated control systems are acceptable if they meet all the requirements of the manual system.

4.4.16.3  (08-01-2003)
Inventory Validation (IVL)

  1. For status codes 09, 10, 12, 13, 17 and 18, a validation of 100% of the inventory must be conducted at least once each calendar year.

  2. For ALL other status codes, a validation of inventory that exceeds normal time frames, must be conducted quarterly, or a 100% IVL may be conducted at least once a year. If choosing the time frame validation, validate all records that exceed the following time frames:

    Status 00–07 – over 60 days
    Status 08 – over 180 days
    Status 20 – over 60 days for field cases
    Status 20 – over 30 days for office cases
    Status 22 – over 75 days old
    Status 23 – over 60 days old
    Status 23 – over 30 days old for field cases
    Status 24 – over 135 days
    Status 25 – over 60 days
    Status 30,32,33,34,36,38 – over 1 year
    Status 41 – over 180 days
    Status 51 – over 21 days
    Status 52–56, – over 45 days
    Status 57 – over 30 days

     

  3. The statistical sampling IVL feature of the SSIVL program may be used as an alternative to the annual 100% inventory validation or the time frame validation, see IRM 4.4.16.4.

4.4.16.3.1  (08-01-2003)
Requesting an IVL

  1. IVL’s are generated by the AIMS Coordinator using the SSIVL Program. The AIMS Coordinator should refer to the Technical Reference Manual for the SSIVL program can be found at the following web site: http://orion.grb.ser.irs.gov/PROJECTS/EXAM/DOCS/ERCS_DOCS/NEWDOCS/techref.html

  2. To request an IVL for cases in PBC 19X or 29X or cases in a field PBC but physically located at a campus, for example EGC 1000 or 2000, contact the Campus AIMS Coordinator.

  3. To request an IVL for field cases, contact the SB/SE Area AIMS Coordinator.

4.4.16.3.2  (08-01-2003)
Conducting the Validation

  1. The manager charged with the returns should start the validation within 2 working days of receipt of the list and must be completed no later than 25 calendar days from receipt of the listing.

  2. Review each element on the validation list to verify it's accuracy. See IRM 4.4.16.3.2.1.

  3. Update the data base to correct errors for returns in inventory by:

    1. Line through any incorrect information and enter correction above. Writing instructions in red ink under the " Comments" Section on the validation list.

    2. Using Form 8721, AIMS Inventory Validation Discrepancy, list the original returns not presently charged to the organization but actually in its possession.

    3. Inputting the updates and corrections timely.

    4. Enter a "C" if the case has been closed.

    5. Enter a "T" if the case has been transferred.

     

  4. Returns which have been in the actual physical possession of an examiner in excess of ten work days, but do not have an open AIMS base should be listed on a separate Form 8721. If a skeletal record exists, or the account appeared on the 424 Reject Register within the last ten days, notate the Form 8721. Do not count in error rate computation.

  5. Locate returns charged to the organization although not in physical inventory.

    1. After a complete search in the organization, list these returns on the Form 8722, AIMS Inventory Validation Discrepancy List #2.

    2. Give the Validation Discrepancy Lists to the manager for review and approval.

    3. Conduct IDRS research after the updates of all the validating organizations have been completed.

     

  6. See IRM 4.4.20, Missing Returns and Error Accounts.

4.4.16.3.2.1  (08-01-2003)
Elements to be Validated

  1. Returns charged to function, but not present in inventory.

  2. Returns present in inventory, but not charged to function.

  3. Returns with incorrect MFT code or tax period.

  4. Returns with incorrect status code.

  5. Returns with incorrect statute date. For example:

    1. Source Code 24 and 25 - "EE" Alpha Code (until TP files return)

    2. Source Code 30 - "AA" Alpha Codes

    3. Source Code 45 - "FF" Alpha Codes

     

  6. Returns with incorrect employee group code.

  7. Returns with incorrect aging reason code.

  8. Returns with incorrect activity code (SFR's only).

  9. Returns with incorrect activity code (SFR's only).

  10. Returns with incorrect source code.

  11. Returns with incorrect project code.

  12. Returns with incorrect claim amount.

4.4.16.4  (08-01-2003)
Error Rates and Revalidation Requirements

  1. The AIMS/ERCS Coordinator computes an error rate for each IVL and then determines whether revalidation is necessary.

4.4.16.4.1  (08-01-2003)
Computing the Error Rate

  1. If using the 100% validations, divide the total number of cases on the IVL plus cases in inventory but not on the IVL by the number of cases with errors. If using the Time Frame Validation, use the total number of cases exceeding the time frames specified in IRM 4.4.16.3. , by the number of cases with errors.

4.4.16.4.2  (08-01-2003)
Acceptable Error Rates

  1. Error rates of 5 percent or lower are acceptable

4.4.16.4.3  (08-01-2003)
Revalidation Requirements

  1. Revalidation requirements depend on whether a 100% annual validation or the quarterly time frame validation was performed.

4.4.16.4.3.1  (08-01-2003)
100% IVL

  1. If the initial error rate for any validating organization was more than 5 percent, but all errors have been resolved within 3 months, revalidation must be made within 6 months from original IVL.

  2. The first revalidation will be a sampling of returns selected by the AIMS/ERCS Coordinator for the organization. The size of the sample is determined using the sample size table below. The sample of returns selected must represent a mix of the class of returns present in the inventory of the validating organization. If this can be accomplished by selecting returns alphabetically from the inventory validation list, or by selecting returns at random, for example every 5th return, this method of selection is acceptable. If however, this method of selection does not meet this objective, the AIMS/ERCS Coordinator will enlarge the number of returns in the sample until each class of returns in an originator's inventory is represented in the sample. If the error rate is within the acceptable number of returns with errors, no further sample or validation is due until the next scheduled validation period. If it is not, a complete validation is required every 3 months until the error rate is reduced to the acceptable level.

    Inventory Size of Sample Acceptable Number of
    Returns with Errors
    1 30 All 0
    31 50 30 0
    51 100 37 0
    101 200 40 0
    201 300 95 2
    301 400 145 4
    401 500 150 4
    501 600 175 5
    601 800 200 6
    801 1,000 225 7
    1,001 2,000 280 9
    2,001 3,000 370 13
    3,001 4,000 420 15
    4,001 5,000 440 16
    5,001 7,000 490 18
    7,001 10,000 535 20
    10,001 20,000 610 23
    20,001 50,000 700 27

     

4.4.16.4.4  (08-01-2003)
Quarterly Time Frame Validation

  1. If the initial error rate for any validating organization was more than 5 percent, but all errors have been resolved by the next quarterly IVL, no revalidation is required. For offices that have a greater than 5 percent error rate for 2 consecutive quarters, a 100% validation of the status codes with the high error rate is required during the subsequent quarterly time frame validation, until the error rate is reduced to the acceptable level.

4.4.16.5  (08-01-2003)
Statistical Sampling Inventory Validation Listing (SSIVL)

  1. The statistical sampling application of the SSIVL may be used as an alternative to the annual 100% inventory validation. To ensure validation of returns which are not controlled on AIMS, a physical search of all returns related to a case file of the sampled return will be performed to ensure that AIMS controls are in place.

4.4.16.5.1  (08-01-2003)
Selection of the SSIVL

  1. Each Area must validate a minimum of 100 returns every other week. Exceptions to the minimum sample size and frequency must be approved by the area office PSP.

4.4.16.5.2  (08-01-2003)
Conducting the SSIVL

  1. The AIMS/ERCS Coordinator will distribute the listings to the groups/functions within two days of generating the sample.

  2. The validation will follow the procedures as outlined in IRM 4.4.16.3.2..

  3. The manager charged with the sample returns will be responsible for ensuring the sample is accurately completed and returning the listing to the AIMS/ERCS Coordinator within four workdays of receipt.

  4. The AIMS/ERCS Coordinator will compute an error rate on the completed listing.

4.4.16.6  (08-01-2003)
Validation Reports

  1. The AIMS/ERCS Coordinator prepares and sends the report of the validation, to the responsible manager.

  2. The results of the validation should be sent to the Area Office PSP annually if the 100% validation is performed and quarterly if the Time Frame validation or the Stat Sampling SSIVL is performed.

4.4.16.6.1  (08-01-2003)
100% Validation and Time Frame Validation Reports

  1. The report will contain the following information for each organization.

    1. Number of returns in validating function

    2. Number of returns in error

    3. Error rate by function/group

    4. Error trends

    5. Number of returns reported to the AIMS/ERCS Coordinator as missing

     

4.4.16.6.2  (08-01-2003)
Statistical Sampling SSIVL Report

  1. The report will contain the following information.

    1. Number of completed SSIVL’s for the period

    2. Number of returns validated for the quarter

    3. Number of returns in error

    4. Error rate by function/group

    5. Error trends

    6. Number of returns reported to the AIMS/ERCS Coordinator as missing

     

4.4.16.6.3  (08-01-2003)
Disposition of Validation Listings

  1. The validation lists and reports will be kept until the next full validation has been completed.

4.4.16.7  (08-01-2003)
Other Inventory Validation Tools

  1. There are a variety of other programs available to validate and analyze inventory.

    1. The SSIVL program allows for the review and analysis of inventory within the area. This information is updated weekly and should be worked on a consistent basis by the AIMS/ERCS Coordinator. Example of things to look for are:

     

    • BAD_AAC list - identifies cases in your area with an invalid AAC

    • Source code 62/49, no project code

    • PSP group errors—status greater than 09

    • Exam group errors—status less than 09

    • Source code 45 with status greater than 10

    • Potential 424 rejects—skeletal records pending

    • Statute reports

    • Overage case