Pre-Contact Resp. Cont.

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Overview & Responsibilities
Pre-Contact Responsibilities
Pre-Contact Resp. Cont.
Examination Techniques
Examination Techniques Cont.
Examination of Income
Examination of Income Cont.
Required Filing Checks
Penalty Consideration
Issue Resolution
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Report Writing Cont.1
Report Writing Cont.2
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Determining Return Need
Source of Returns
Classification
Classification cont.
Assignment
Partnership page 1
Partnership Page2
Executive Compensation
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Split Dollar Life Insurance
Straddles

 
Pre-Contact Responsibilities Cont.

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4.10.2  Pre-Contact Responsibilities (Cont. 1)

4.10.2.6 
Pre-Contact Planning of Examination Activities

4.10.2.6.7  (05-14-1999)
Referrals for Specialists

  1. Specialized assistance in developing and resolving significant complex tax issues should be requested as early in the examination as the need is identified. Specialized assistance can be requested from:
    1. Computer Audit Specialist for analyzing, stratifying and sampling large volumes of computerized records. See IRM 4.47, Computer Audit Specialists.
    2. Economist for the determination of the economic substance and viability of transactions. See IRM 4.3.17, Economists.
    3. Engineers for valuation and quantitative assistance. See 4.48, Engineers.
    4. Employee Plan Specialist for the determination of employee pension and profit sharing plan qualifications and tax consequences of extraordinary deductions for payments to employee pension and profit sharing plans to the entity under examination.
    5. Employment Tax Specialist for the determination of compensation, subject to the Federal Insurance Contribution Act (FICA), Health Insurance Tax (HIT) , Federal Unemployment Tax Act (FUTA) and employer liability for withholding, paying, and remitting taxes.
    6. Excise Tax Specialist for the determination of manufactured products, natural resources, and floor stocks, subject to Federal Excise Tax and the applicable excise tax rate.
    7. Financial Products and Transactions Specialist for analysis of financial products and financial transactions, and their tax effect, including market to market securities valuation for dealers.
    8. International Examiners for analysis of transactions involving international features, such as foreign tax credit, tax treaty impact on transactions, and allocation of income. Domestic allocation of income under Section 482 may be referred to International Examiners. See IRM 4.60, International Procedures.
    9. Other — referrals can be made to Counsel, Estate and Gift Tax Attorneys, Industry Specialist, or other specialist through the Area Technical Coordinator.

     

4.10.2.6.7.1  (05-14-1999)
Referral Criteria

  1. Generally, referrals must be considered for all entities with gross assets exceeding $10 million. Mandatory referral guidelines are established for each specialty area. These include returns classified for those specialized features and Coordinated Examination Program cases exceeding 20 points. All returns can be considered for referral.
  2. Time required to work the issue by the specialist (including travel time) is included in the case. It is important to determine the projected tax from the specialist issue versus the time required to develop the issue. Cases which would result in minimal change to the taxpayer’s tax liability should not be referred.
  3. Once it is determined that a referral is warranted, or is mandatory, the referral must be made early in the examination to ensure the specialist is assigned to complete the work timely.
  4. Questions regarding referrals should be directed to the specialized program group manager through either the group manager or the area program coordinator.
  5. Informal advice should be solicited on referrals that do not appear to warrant a referral, but assistance is required.

4.10.2.6.7.2  (05-14-1999)
Referral Forms

  1. Specialized forms are used for referrals. Failure to complete the form or provide required information may delay consideration of the referral. Copies of key documents and return schedules should be included with the referral if it will clarify the issue(s) for the specialist.
    1. Computer Audit Specialist — local referral procedures using the regionally developed Request for ADP Assistance form, through the Program Coordinator.
    2. Economist — Form 9276, Request for Economic Assistance. See IRM 4.49, Economist Program.
    3. Engineers — Form 5202, Request for Engineering Services. See 4.48, Engineering Program.
    4. Employee Plan Specialist — Form 4632, Employee Plan Referral, and Form 4632A, Employee Plan Referral Checklist.
    5. Employment Tax Specialist — local referral procedures should be used.
    6. Excise Tax Specialist — local referral procedures should be used.
    7. Financial Products and Transactions Specialist — Form 9808, Financial Products and Transactions Assistance Referral.
    8. International Examiners — Form 2962, Foreign and Domestic International Entity Transaction Report and Referral. See IRM 4.3.1.1.

     

4.10.2.6.7.3  (05-14-1999)
Control of Referrals

  1. When a referral is made, a log of referrals from the group should be maintained.
  2. Referrals not acknowledged by the specialist group within 30 days should be followed up with a request for assignment or rejection.
  3. Referrals not assigned or rejected after the follow-up should be brought to the Field Territory Manager for resolution.

4.10.2.6.7.4  (05-14-1999)
Specialist’s Role in Examination

  1. When a specialist is involved in a case, the examiner maintains control of the return and its management.
  2. Specialist(s) assigned to the case should meet with the examiner and the taxpayer (if appropriate) to discuss the issue, information required, time for information to be presented, and an estimated completion date of the report.
  3. Coordination with the specialist is required to ensure issues are material to the return and time charged is commensurate with the issue.
  4. Disagreements on proposed adjustments between the examiner and specialist should be elevated to their respective managers for resolution.

4.10.2.6.7.5  (05-14-1999)
Subsequent Referrals

  1. Rejected cases may be referred again if substantial information is developed during the examination. If the case was rejected due to workload priorities, a specialist may be made available on a consulting basis for significant issues. Arrangements for consultations should be made with the approval of both managers.

4.10.2.6.7.6  (05-14-1999)
Documentation of Referral

  1. Documentation of consideration of referrals should be made for all entities with assets over $10 million. If a case is referred, a copy of the referral is sufficient. If the case was not referred, the reasons for not referring a case should be documented in the workpapers or the activity record.

4.10.2.7  (05-14-1999)
Initial Contact: Overview

  1. The term "initial contact" is defined as the first contact with the taxpayer after the pre-contact analysis and before the initial interview. Generally, the initial contact is for the purpose of arranging the initial interview.
  2. Although many cases in Office Audit are prescheduled by the service center prior to receipt in the groups, Field Examinations and Office Audit pre-contact examinations require the examiner to make the initial contact. It is necessary to locate the taxpayer prior to the initial contact. It is also important to contact the proper taxpayer.
  3. For Office Audit examinations which are not prescheduled, and do not require pre-contact analysis, clerical personnel may make the initial contact prior to assignment of the return to the tax auditor.

4.10.2.7.1  (05-14-1999)
Determining the Proper Person to Contact

  1. Initial contact is usually made with (but not limited to) the following:
    1. For individual income tax returns, Form 1040, the taxpayer(s) who signed the return.
    2. For corporate returns, Form 1120, the officer who signed the return; for Form 1120S, either the officer who signed the return or the tax matters person listed on the return.
    3. For partnership returns, Form 1065, the partner who signed the return or the tax matters partner listed on the return.
    4. For other returns, the person who signed the return.

     

  2. If a return or the case file indicates that a power of attorney is on file, examiners will determine if there is, in fact, a valid power of attorney on file with the Service, what restrictions are applicable, and follow the procedures in IRM 21.11, Processing Powers of Attorney.

4.10.2.7.2  (05-14-1999)
Locating the Taxpayer

  1. Once the examiner has determined who to contact, the person must be located.
    1. Check the local telephone directory for a current telephone number.
    2. Check the address on the tax return.
    3. Check IDRS or other internal data for the last known address.
    4. Consult the Taxpayer Locator Handbook for other methods of locating the taxpayer.

     

4.10.2.7.3  (05-14-1999)
Making Initial Contact

  1. For field examinations, it is advisable, when at all possible, to make the initial contact by telephone.
    1. It allows examiners to schedule the initial appointment at an appropriate time, which is agreeable to the taxpayer and reduce the number of rescheduled appointments.
    2. It allows the examiner to explain to the taxpayer what records should be available for the examination. Under no circumstances should the telephone conversation be used to verify items appearing on an income tax return; inspection of records or other data cannot be made by telephone.
    3. The pre-contact analysis (if required) should always be conducted by the examiner prior to contacting the taxpayer. This will ensure that the examiner is knowledgeable enough about the return to answer any questions the taxpayer may have when attempting to schedule the appointment. See 2.3, above.
    4. When the initial appointment is made by telephone, a follow-up letter will be mailed to the taxpayer confirming the time/place of the examination and the records which are to be available. See 2.9 below for additional instructions.
    5. See 2.7.4 below, Scheduling the Appointment: Overview, for additional guidance.

     

  2. When making the initial contact by telephone is impractical or for Office Audit examinations, form letters are to be used to arrange the initial interview.
    1. L–2201, Initial Contact Letter: To set the initial appointment of an Office Audit interview examination.
    2. L–2203, Initial Contact Letter: To ask taxpayer(s) to call us to set the initial appointment of an Office Audit interview examination.
    3. L–2205, Initial Contact Letter: To set the initial appointment for a Field examination of a business return.
    4. L–2206, Initial Contact Letter: To set initial appointment of an Office Audit interview examination of a business return.
    5. L–2207, Initial Contact Letter: To ask taxpayer(s) to call the IRS to set the initial appointment of an Office Audit interview examination of a business return.

     

  3. If none of the above form letters are appropriate, the only option (based on revised correspondence and notice requirements) is to create a one time use appointment letter for that specific taxpayer. Examiners can no longer create their own pro forma letters for routine use. All one time use letters must be approved by the group manager, prior to mailing.
    1. The IRS can request the taxpayer’s presence at the initial interview. However, IRC section 7521(c) states that when a taxpayer has executed a written power of attorney to represent the taxpayer in any interview, the IRS cannot require the taxpayer’s presence without issuance of a summons. Therefore, group managers must ensure that any initial appointment letters developed by examiners do not require (or imply a requirement) for the taxpayer to appear at the initial interview prior to approving the letter.
    2. Any letter, other than the form letters listed in paragraph (2), must be checked for spelling and grammatical accuracy prior to approval by the group manager.

     

  4. When contacting a taxpayer’s representative, it is advisable to telephone for an appointment ahead of time, but only when a Form 2848, Power of Attorney and Declaration of Representative, or Form 8821, Tax Information Authorization, has been received from the taxpayer. This procedure of telephoning in advance for an appointment may be waived in certain situations, with the group manager’ s approval.

4.10.2.7.4  (05-14-1999)
Scheduling the Appointment: Overview

  1. The purpose of the initial contact, whether by telephone or by letter, is to schedule the initial appointment. The initial contact will also be used to establish the time and place of the examination and the person(s) to be present at the initial interview.
  2. Every effort should be made to schedule the initial appointment within 14 days of the first action on the case. This allows for potential rescheduling problems. In the event that the appointment must be rescheduled, see 2.8 below, Scheduling Problems: Overview for additional guidance. Rescheduling the initial appointment beyond 45 days from the first action on the case requires documentation of the group manager’s approval.

4.10.2.7.4.1  (05-14-1999)
Contacting the Taxpayer By Telephone

  1. When initial contact is made by telephone, examiners will immediately identify themselves and state the purpose of the call. Examiners will also provide their telephone number and employee identification number. See 4.10.1.6, Taxpayer Rights, for more information on employee identification procedures.
  2. During the conversation, the examiner will tell the taxpayer which returns are being examined and the tax period(s) involved.
  3. Examiners will briefly explain the examination process to the taxpayer. Ask the taxpayer if a power of attorney is involved or if they plan to secure one. If yes, explain that a Form 2848, Power of Attorney and Declaration of Representative, is needed.
  4. Examiners will determine whether the taxpayer has been examined in prior years. If so, the prior examination report should be requested in the initial Information Document Request (IDR), Form 4564.
  5. When possible, examiners should generally discuss the issues initially planned to be examined. The taxpayer will also be informed that additional issues may be examined depending upon the information obtained during the examination. If the taxpayer states that he/she will be represented, take care not to begin the examination through questioning in this initial contact, since this may give the impression of attempting to by-pass the representative. If representation must be secured and the taxpayer does not want to schedule an appointment until after a representative is confirmed, allow the taxpayer a minimum of 10 business days to secure representation before taking any follow-up action to schedule the appointment (extensions can be granted on a case-by-case basis).
  6. Examiners will determine the type of business and records that are maintained. This will assist examiners in preparing the IDR.
  7. Determine if there are any indications of collectibility issues. See section 2.4.3 above for more information on collectibility determinations.
  8. Examiners will inform the taxpayer that a letter, confirming the scheduled appointment, along with a detailed Information Document Request will be mailed to them. The following documents must be included with the confirmation letter.
    1. Publication 1, Your Rights As A Taxpayer
    2. Notice 609, Privacy Act and Paperwork Reduction Act Notice

     

  9. For examinations involving joint returns, a confirmation letter will be sent separately to each spouse.
  10. Either an appointment letter or a confirmation letter, with the appropriate attachments, is required for all taxpayers selected for examination (this applies to both office and field examination).
  11. Examiners should ask for clear directions to the audit site for timely arrival at the initial appointment.
  12. Contacts with the taxpayer will not be attempted before 8:00 a.m. or after 9:00 p.m. as prescribed by the Debt Collectors Act.
  13. Always ask the taxpayer if they have any questions.
  14. The examiner will fully document this contact on Form 9984, Examining Officer’s Activity Record.

4.10.2.7.4.2  (05-14-1999)
Contacting the Taxpayer By Letter

  1. When making the initial contact by telephone is impractical, the examiner will send the taxpayer the appropriate appointment letter as determined in 2.7.3(2) above.
  2. A detailed Information Document Request will be mailed with the appointment letter listing all the information needed at the initial appointment. See 2.9 below for additional information.
  3. The following documents must be mailed to the taxpayer with the appointment letter and IDR:
    1. Publication 1, Your Rights As A Taxpayer
    2. Notice 609, Privacy Act and Paperwork Reduction Act

     

  4. Appointment Letters will be sent separately to each spouse for joint filers except for those appointment letters generated by the Centralized Files and Scheduling System for office examination.
  5. Either an appointment letter or a confirmation letter, with the appropriate attachments, is required for all taxpayers selected for examination (this applies to both office and field examination).
  6. Examiners will fully document this contact on Form 9984, Examining Officer’s Activity Record.

4.10.2.7.5  (05-14-1999)
Scheduling Appointment With the Taxpayer and/or Representative

  1. Usually the initial appointment will be scheduled with the taxpayer. Examiners cannot require the taxpayer’s presence at the initial interview per IRC section 7521(c). The examiner must be willing to talk to anyone who is authorized by the taxpayer. That person must commit to having first hand knowledge of the information requested and affirm that the examiner can rely on the information provided. In addition, the representative should agree to provide follow-up information timely if information requested at the initial interview is not available.
    1. If the taxpayer requests representation, proper authorization is required. Use of Form 2848, Power of Attorney and Declaration of Representative, or Form 8821, Tax Information Authorization, is preferred. If any other form is submitted, written approval by the group manager is required before relying on the authorization.
    2. If at any time during the examination, the taxpayer requests representation, the taxpayer has the right to postpone examination activity until, he/she has an opportunity to secure representation. Examiners must ensure that they take no actions that would violate or give the perception of violating the taxpayer’s right to representation.
    3. The person authorized to represent the taxpayer must be sufficiently knowledgeable to engage in dialogue concerning the taxpayer’s business and personal affairs.
    4. Examiners will use their judgment to determine whether an authorized representative is sufficiently knowledgeable, however examiners should take all reasonable steps to work effectively with authorized representatives.
    5. Procedures for handling assertions of accountant/client privilege can be found in IRM 4.10.1.6.2 of this handbook.

     

4.10.2.7.6  (05-14-1999)
Place of Examination

  1. Office Audit cases: Generally, examinations will be conducted in the office of the Internal Revenue Service closest to the taxpayer’s residence in the assigned area, providing that office has appropriate personnel.
    1. In extenuating circumstances, the tax auditor may meet with the taxpayer at the taxpayer’s home or place of business. This situation could occur due to the nature of the taxpayer’s business or due to the incapacity of the taxpayer.
    2. The location of a taxpayer’s representative will generally not be a consideration in determining the place of the examination.

     

  2. Field Examination: Generally, an examination will be conducted at the location where the original books, records and source documents are maintained. If a business is so small that a field examination would essentially require the taxpayer to close the business or would unduly disrupt business operations, the examiner will conduct the examination:
    1. In the office of the IRS closest to the taxpayer’ s business.
    2. At the representative’s office.

    3. Note:

      Per Treasury Regulation 301.7605–1(d)(3)(iii), examiners retain the right to tour the taxpayer’s business to establish facts that can only be ascertained by a direct visit, regardless of where the examination takes place.

       

     

  3. In cases where specialists are involved, the examiner will request enough space to accommodate the specialist’s needs.

4.10.2.7.7  (05-14-1999)
Time of Examination

  1. Examiners will schedule examinations during normal business hours of the Internal Revenue Service and without regard to seasonal fluctuations in the business hours of the taxpayer or his representative.
  2. Examiners will attempt to minimize scheduling problems for taxpayers and representatives. It is expected that examiners will accommodate taxpayers for religious or secular holidays.

4.10.2.8  (05-14-1999)
Scheduling Problems: Overview

  1. Examiners may encounter problems attempting to schedule the initial appointment during the initial contact with the taxpayer.

4.10.2.8.1  (05-14-1999)
Taxpayers Who Delay

  1. Examiners must attempt to accommodate the valid needs of the taxpayer(s) in scheduling the initial appointment. However, examiners must not allow the taxpayer(s) to delay or circumvent the examination of their tax return(s) . See "Rescheduling the Initial Appointment" at 2.10.2 of this section.
  2. When it is apparent that the taxpayer is attempting to delay the examination, examiners should discuss the situation with their group manager. Consideration will be given to the issuance of a summons. The discussion with the group manager and the considerations given will be documented on Form 9984, Examining Officer’s Activity Record.

4.10.2.8.2  (05-14-1999)
Appointments Scheduled During the Filing Season

  1. During the filing season, representatives are usually busy preparing the current year tax returns and will often request that the initial appointment be rescheduled until after the end of the filing season.
    1. If the initial appointment can be rescheduled within 45 days after the first action on the case, the examiner may treat the case as any other case and reschedule the appointment. The contact sheet will be documented regarding the reason for the rescheduling.
    2. If rescheduling the initial appointment would result in the appointment being more than 45 days after the first action on the case, then examiners should discourage the rescheduling of the appointment. If the taxpayer or representative persists, examiners should discuss the situation with their group manager. Group manager approval is required to reschedule the appointment beyond 45 days after the first action on the case. The examiner will document the contact sheet with the facts and the group manager’s decision.

     

4.10.2.8.3  (05-14-1999)
Transfers of Returns Prior to the Initial Appointment

  1. Generally, the examination of any income, estate, or gift tax returns is the responsibility of the area in which the taxpayer resides or conducts its business or maintains its principal office. The examination will generally be assigned to an examiner at the post-of-duty nearest to the taxpayer’s residence for a nonbusiness return or place of business for a business return.
  2. Transfer of returns for examination from area to area and between posts-of-duty in the same area will be governed by Treasury Regulation 301.7605–1(d). By observing the regulatory guidelines on time and place of examination, the convenience of the taxpayer will be balanced with the requirements of sound and efficient tax administration.
  3. In addition to the general guidelines noted below, examiners must be familiar with all details of the regulation.
    1. No less than thirteen months will remain on the statute of limitations for assessment when the return is transferred from one area to another.
    2. Service center transfers to area offices will not be initiated with less than seven months remaining on the statute of limitations.
    3. Office Audit: Taxpayers will be able to attend an audit interview at a service office closest to their residence in the assigned area providing that office has appropriate personnel.
    4. Field Examination: The audit will be conducted at the location where the original books, records, and source documents are maintained, unless, in the case of a small business, doing so would significantly disrupt the taxpayer’s operation and require the business to close; this does not preclude on-site visits by the examiner.

     

  4. A taxpayer may request a transfer of an examination if they no longer reside or conduct business at the site shown on the original return. The taxpayer’s request to transfer the place of examination must be written and must take into account the following factors:
    1. Location of the taxpayer’s residence,
    2. Location of the taxpayer’s business,
    3. Where the taxpayer’s books and records are maintained,
    4. Character and extent of inconvenience at origin of taxpayer’s request.

     

  5. The regulation provides further guidelines on time and place of examination with respect to incapacitated taxpayers, Service initiated transfers, location of representative’s office, seasonal fluctuations in the business of the taxpayer or representative, and requests for transfer to offices with insufficient resources.
  6. When an income, estate, or gift tax return is transferred from one area to another for examination, the following closing procedures should be followed:
    1. Form 3185, Transfer of Returns—Transfer of Administrative File, will be used as the transmittal notice.
    2. All cases will be routed to the Planning and Special Programs staff for review prior to transfer. This requirement will ensure that only those cases meeting appropriate criteria are being transferred.
    3. The transferring area will close out the return using Disposal Code 30.

     

  7. Examiners should strictly adhere to the "case-by-case" standard contained in the regulation for determining if a transfer is appropriate. No additional criteria should be developed by examiners or areas.
  8. If an examiner is assigned a case that was transferred from another area and it becomes clear that the books and records and other source documents needed to complete the examination are not available in that area, this case should be referred to your group manager for resolution. Group Managers (or PSP personnel) will contact PSP staff at the transferring area to determine which area will complete the examination. If agreement cannot be reached at the PSP level, the case will be referred to the Field Territory Manager level for resolution. Under no circumstances should the case be returned to the transferring area without prior telephone contact and agreement. Taxpayers and/or representatives should be consulted as necessary during this process and should be advised expeditiously where the examination will be completed.
  9. The transfer procedures outlined in this subsection apply to transfer requests that are received at any time during the examination.

4.10.2.8.4  (05-14-1999)
Taxpayer in Prison

  1. If the taxpayer is confined in prison or otherwise detained by federal, state or local authorities, examiners will temporarily delay interviewing the taxpayer until the case has been evaluated for possible fraud potential.
  2. If the case has no fraud potential, the examination may be continued in the ordinary manner. The examiner may interview the taxpayer in custody without providing the taxpayer their constitutional rights in accordance with the rules of Miranda v. Arizona, 86 S.Ct. 1602 (1966).
  3. If the case has definite indications of fraud, the examiner will refer the case to the Criminal Investigation under existing fraud referral procedures prior to interviewing the taxpayer in custody.
  4. If evaluation of fraud potential is not possible without personal contact with the taxpayer in custody, the examiner will make a memorandum request to the Special Agent in Charge (SAC), for assignment of a special agent to assist in interviewing the taxpayer. The special agent assigned to assist the examiner in the interview of the taxpayer in custody will, prior to the interview, advise the taxpayer of their constitutional rights.
  5. After a joint interview, the assigned special agent may assist the examiner in evaluating any possible fraud implications. If indications of fraud are present, the case will be referred to Criminal Investigation. If indications of fraud are not present, the case will be completed by the examiner.

4.10.2.8.5  (05-14-1999)
Repetitive Examinations

  1. The taxpayer may respond to the initial contact stating that an examination of the same issue(s) in either of the two preceding years resulted in no-change or a small tax change (deficiency or overassessment). The following actions should be taken:
    1. Ask the taxpayer for information which may help to determine if repetitive examination procedures apply, such as the prior year(s) audit reports, where the return(s) were filed and where the examination(s) were completed.
    2. Advise the taxpayer that the appointment is postponed pending a review of our files to determine if the examination should be continued.
    3. Secure transcripts of the taxpayer’s accounts for the two preceding years.

     

  2. When the taxpayer provides records identifying the issues examined in prior years:
    1. If the issues are the same as in the current year examination, and the transcripts indicate either no change or a small change to the taxpayer’s liability, then the current examination can be closed.
    2. If a substantive tax change is shown for either year, the taxpayer will be informed that repetitive audit procedures do not apply and the examination will be continued. Letter 2684, Repetitive Examination Letter, will be used to notify the taxpayer and reschedule the appointment.

     

  3. When the taxpayer does not furnish records to identify the issues examined in prior years use the following techniques to determine whether repetitive audit procedures apply:
    1. If the transcripts indicate a no-change or small tax change for both years, or for one of the years and no examination activity for the other year and the no change issue codes on the return charge out do not provide adequate information, then the return(s) and related files for the year(s) examined should be requisitioned. The requisitioned files should be reviewed to determine if the issues currently under examination are similar enough to the issues in the prior no change/small liability year(s) to warrant concluding the current examination.
    2. If a substantive tax change is shown for either year, the taxpayer will be informed that repetitive audit procedures do not apply and the examination will be continued. Letter 2684 will be used to notify the taxpayer and reschedule the appointment.

     

  4. Group manager approval must be obtained before applying repetitive audit procedures. Approval should be documented in the workpapers.
  5. If the group manager approves an examiner’s decision to conclude the examination then:
    1. If the taxpayer’s records were not examined, even though contact was made, the case may be closed using the "survey after assignment" procedures as outlined in 2.5 above.
    2. If the taxpayer’s records were examined, the case will be closed using regular no-change procedures as outlined in section 8. Also indicate under the survey stamp that Letter 2684 should be sent to the taxpayer.

     

4.10.2.8.6  (05-14-1999)
Undeliverable Initial Contact Letters

  1. Clerical personnel will be used (where possible) to obtain the taxpayer’s current address. Form 8572, Undeliverable Mail Procedures should be used to document actions taken to determine the taxpayer’s last known address.
    1. Check any correspondence in the case file for a change of address noted by the U.S. Postal Service.
    2. Check all possible sources in the case file.
    3. Check the telephone and/or city directory.
    4. The AIMS Weekly Update Report should be reviewed for address changes. Codes 18 and 19 show new addresses updated to Master File.
    5. CFOL research should be initiated to request an INOLE on SSNs (both for joint returns) for the current Master File address. INOLE will also provide a cross reference TIN. Request IROLE on SSNs (both for joint returns) for a new address of the taxpayer or an employer/payer address from an IRP document.
    6. Request IDRS research of the taxpayer’s phone number using command code TELER.
    7. Contact the taxpayer’s employer, return preparer, or third party, if known. If contact is made by mail, the following forms should be used: Form 3242, Request for Information from Employer (To Locate Person), when writing to the taxpayer’s employer, Form 2223, Request for Information From Military, when requesting information from military service, and Form 3241, Request for Information To Locate Person, when writing to a third party.
    8. Locator services should be used wherever possible. This will be required in cases meeting the criteria of LEM IV.

     

  2. If the taxpayer’s correct address is identified, the correspondence will be readdressed and remailed.
  3. If the steps set forth in (1) above do not result in locating the taxpayer, a report may be prepared with proposed adjustments to the specific items questioned and mailed to the taxpayer’s last known address as reflected on IDRS.

4.10.2.9  (05-14-1999)
Requesting Information: Overview

  1. During the initial contact, examiners will advise taxpayers of their rights and request information and/or documents from the taxpayer needed to perform the examination of the tax return.

4.10.2.9.1  (05-14-1999)
Advise Taxpayers of Their Rights

  1. When the initial contact is made by telephone, the examiner will briefly explain the taxpayer’s rights as outlined in Publication 1, Your Rights As A Taxpayer, and answer any questions the taxpayer may have concerning them or the Taxpayer Bill of Rights I and II.

4.10.2.9.2  (05-14-1999)
Determine the Type of Books and Records Available

  1. When the initial contact is made by telephone, examiners will ask taxpayers what type of records are maintained so that Form 4564, Information Document Request (IDR) , can be prepared.
  2. Examiners will ask the taxpayer about any computer records so that a determination, whether the services of a computer audit specialist are needed, can be made. If a computer audit specialist is necessary or required, the request should be made at this time so that the specialist can attend the initial interview.

4.10.2.9.3  (05-14-1999)
Requesting Information or Documents From the Taxpayer

  1. Examiners will prepare the IDR to mail to the taxpayer with the initial contact letter.
    1. The IDR may be discussed with the taxpayer during the initial telephone call.
    2. During the discussion, the examiner will explain to the taxpayer that the examination will be facilitated by having the information and documentation organized before the initial interview.

     

  2. The IDR will include documents needed to support items determined during the pre-contact analysis of the return, as well as items identified during the initial telephone contact with the taxpayer.
    1. In Office Audit cases not requiring pre-contact analysis and the issues were already classified, notices are used as inserts in the appointment letters mailed to the taxpayers. These notices advise the taxpayer about the specific records needed to verify the classified issues.
    2. In Field Examination cases and Office Audit pre-contact cases, the IDR will list the specific records, information, and documents the taxpayer should have available at the initial interview. Examiners should always carefully consider what data is necessary. Requests should be specific and should avoid requesting more information than is essential to resolve the issues identified.

     

  3. Facts in each case will determine what is considered an adequate description of the requested data. An IDR must sufficiently specify the books, papers, records, or other data. The request should also include the particular activity and time period. For example:
    1. "All books, papers, records and other data pertaining to the operation of XYZ Restaurant (address) for the period beginning —— and ending ——, including, but not limited to the following specific records: (list)."
    2. "All books, papers, records and other data of the XYZ Manufacturing Company pertaining to the depreciation expense on keypunch presses purchased in 1994, as claimed on its federal income tax returns for the taxable years ending March 31, 1995 and 1996."
    3. "Bank records, including cancelled checks and bank statements, relative to income and expenses, as reported by the XYZ Corporation on its federal income tax return for the taxable years ending February 15, 1995 and 1996. Include the records for the month prior to this period and the month following this period."

     

  4. It is advisable to include a statement on the IDR indicating that the examiner will probably request additional records as the examination progresses.
  5. Examiners may have access to pro-forma type IDRs that include a list of items which are commonly requested in examinations. Use of these pro-forma IDRs is acceptable; however, the examiner must be careful not to use a "shot-gun" approach and request everything on the list if some of it may not be relevant to the return under examination. The pro-forma IDR must be modified to the particular return being examined.
  6. The examiner may use either the manually prepared three-part snap-out assembly or a computer generated IDR.
    1. If the three-part snap-out assembly version is used, Parts I and II will be issued to the taxpayer or representative; Part III will be retained by the examiner in the case file.
    2. If a computer generated version is used, two copies will be issued to the taxpayer or representative and a copy retained by the examiner in the case file.

     

  7. The IDR must always include a date for submission of the requested information or documents.
  8. If it is necessary to make a second request for the same information or documents, the date(s) of previous request(s) will be entered in the appropriate space.

4.10.2.9.4  (05-14-1999)
Authority to Request Books, Records, and Accountant’s Workpapers

  1. The Internal Revenue Code, IRS Regulations, the Internal Revenue Manual, and the Revenue Agent’s Pocket Commission, provide the authority to request and receive books, records, etc., necessary to properly examine an entity’s tax return.
  2. When a taxpayer indicates a reluctance to provide the necessary records, the examiner must be insistent, yet courteous, in requesting the records. The following suggestions can be adopted in handling this situation.
    1. Apprise the taxpayer of the appropriate requirements to produce books and records. To deny access to the records will only prolong the examination or investigation since third party inquiries will, by necessity, be initiated.
    2. Do not ever attempt to mislead or misrepresent the scope of the examination or investigation in an effort to secure records.
    3. Do not assert your authority in a manner that could be interpreted as a threat.
    4. Do not summons the records unless the action is first approved by the group manager. If the examiner is advised that the taxpayer is the subject of a Strike Force investigation, the Strike Force Representative in Criminal Investigation (CI) should be contacted prior to issuing any summons.

     

  3. Accountant’s workpapers used in the audit of tax records or in preparation of a tax return are not the property of the taxpayer and are not privileged information. Therefore, the workpapers can be summoned.
  4. See IRM 21.11, Processing Powers of Attorney, for complete guidelines for requesting workpapers. The following guidelines provide that:
    1. The term "audit workpapers" means workpapers compiled for creditors, stockholders, and other third parties and not for compiling data preparatory to placing it on a tax return.
    2. The provisions of the Power-of-Attorney Handbook do not apply to cases under joint investigation with CI.
    3. Examiners will not request workpapers as a matter of standard investigative procedures; request only the workpapers believed to be materially relevant to the investigation. Examiners must remember that the primary source of information is the taxpayer’s records, and the accountant’s workpapers will normally be used only as a collateral source of information.
    4. If it is necessary to issue a summons to secure workpapers, IRC 7603 provides that the records should be described with reasonable certainty. This requirement can be satisfied if the description of the records is specific and unambiguous and the summoned party can reasonably identify the exact records sought.
    5. The fact that the accounting firm whose workpapers are needed did not prepare the tax return in no way diminishes the authority by IRC 7602.

     

4.10.2.10  (05-14-1999)
Follow-Up Contact Prior to Initial Interview

  1. After the initial contact and prior to the initial interview, follow-up contacts are made to confirm the initial appointment and/or to reschedule the initial appointment.

4.10.2.10.1  (05-14-1999)
Confirmation of the Initial Appointment

  1. In Field Examination cases where the initial contact was made by appointment letter and the taxpayer has not confirmed the appointment, the examiner should attempt to confirm the appointment with the taxpayer by telephone prior to the scheduled appointment date. This will reduce the potential lost time traveling to an appointment when the taxpayer is not prepared for the examination or may not be available.
  2. In cases where the initial contact was made by telephone, it is advisable to confirm the appointment with the taxpayer a day or two prior to the scheduled appointment date to ensure that the taxpayer is prepared for the appointment.
  3. For both Field and office Examination cases, if a taxpayer fails to respond to the initial contact letter or telephone call:
    1. Returns subject to pre-contact analysis: Adjustments to questioned items will not be made without first trying to contact the taxpayer to determine why they didn’t respond.
    2. Returns not subject to pre-contact analysis: Follow-up prior to issuing a report of adjustments is left to local discretion, however an additional attempt to contact the taxpayer either by mail or telephone is strongly encouraged.
    3. Returns with an income issue: Adjustments to income issues will not be made without first trying to contact the taxpayer in order to establish a basis for adjustment.
    4. For Office Audit examination cases not requiring re-contact, a "no-show" report can be issued, using Letter 915 (DO) , Letter to Transmit Examination Report.

     

  4. Cases where the taxpayer fails to respond to the initial contact letter or telephone call are not classifiable as no-contact cases and, therefore, may not be surveyed as such.
  5. Letter 2295 (DO), Initial Contact Letter, may be sent to recontact taxpayers who have not responded to the initial contact letter. It advises them to contact the Service or their tax liability will be adjusted or a summons served.

4.10.2.10.2  (05-14-1999)
Rescheduling the Initial Appointment

  1. If the examiner finds that the initial appointment must be rescheduled, the examiner will attempt to contact the taxpayer by telephone to reschedule the appointment as soon as the conflict arises.
    1. If the examiner cannot personally contact the taxpayer due to illness or other emergency, the group manager or group clerk will attempt to telephone the taxpayer to reschedule the appointment or to advise them that the examiner will recontact them to reschedule the appointment.
    2. In Office Audit cases where the return has not yet been assigned to the tax auditor, the group clerk will contact the taxpayer.

     

  2. If the taxpayer asks to reschedule the initial appointment, the examiner will attempt to accommodate the taxpayer when the request is reasonable. However, examiners must not allow taxpayers to delay the examination by continually rescheduling the initial appointment.
    1. In Field Exam cases, examiners may allow the taxpayer to reschedule the initial appointment for a valid reason one time. Any subsequent requests by the taxpayer to reschedule the initial appointment must be approved by the group manager. The group manager’s approval must be documented on Form 9984, Examining Officer’s Activity Record in the case file.
    2. In Office Audit cases where the examiner has performed the pre-contact analysis and scheduled the initial appointment, the group clerk will refer the taxpayer to the tax auditor whenever they request rescheduling of the initial appointment. The tax auditor may reschedule the appointment one time and will document the reason(s) in the case file. Any subsequent request(s) for rescheduling the initial appointment must be approved by the group manager. The reason(s) for the request(s) and the group manager’s decision must be documented on Form 9984 in the case file.
    3. In unassigned Office Audit cases, the group clerk may reschedule the initial appointment at the request of the taxpayer, one time. The group clerk will refer any subsequent requests by the taxpayer for rescheduling the initial appointment to the group manager. The group manager will consider the request and document the reason for the request and their decision on Form 9984 in the case file.

     

  3. Initial appointments will be rescheduled within 45 days from the first action on the case whenever possible. Group manager approval is required in order to reschedule an initial appointment beyond the 45 day time frame. The reasons for rescheduling beyond the 45 day time frame, as well as the group manager’s approval must be documented on Form 9984 in the case file.
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