This chapter contains information for "Other Source" Workload. Guidelines and procedures described below are to ensure proper identification and authority for workload identification, return ordering, inventory controls, classification and quality review, including maintenance of select and survey rates.

Generally, nonresident alien returns, Form 1040NR, will be examined by Director, Compliance. Under certain circumstances, some may be referred to the appropriate area PSP Support Manager for follow-up action. Returns on which an election under IRC Section 6013(g) or (h) has been taken, and returns falling under IRC Section 879, should be examined in the area office having jurisdiction over the spouse who is a resident or citizen of the United States. Exceptions are as follows:

Forms 1040 and 1040A filed and examined in domestic area offices will not be transferred to Director, Compliance merely because the taxpayer has left the United States. However, if the examination will need to be conducted overseas, the books and records are maintained overseas, or if the issues are sufficiently complex to warrant an international examination, returns may be transferred. Questions should be directed to the Chief, Technical Section, District Office 98.

Tax returns designated as "automatic" must be classified and either selected for examination or accepted as filed on classification. Certain individual, corporate, partnership and fiduciary returns are identified as "automatic" . See the LEM for the criteria used to categorize these returns.

The procedures after receiving Bankruptcy Notice from Collection are as follows:

When National Headquarters issues a letter to a taxpayer authorizing a change in accounting method, a copy is sent to the appropriate Area Director for follow-up action. The PSP Support Manager will prepare Form 5346 for subsequent (unfiled) years. Follow-up action is not required in all future years as long as the PSP Support Manager is reasonably certain that the taxpayer is complying with the terms, conditions and adjustments upon which permission is predicated.

Claims related to returns charged to Field Territory Managers are not classified by the Service/Customer Service Center Examination Branch. These claims are forwarded to the area for association with the return. All other claims which meet Category A criteria outlined in the LEM or as defined by instructions provided by the PSP Support Manager or Chief, Classification Section, are classified by Examination prior to processing. If the claim is selected, the original return is secured and forwarded to the appropriate area PSP Support Manager using Source Code 30.

Service/Customer Service Center Classification section will classify all claims with a vow of poverty issue to determine if the issue should be examined. Returns selected for examination with this issue will be transferred to the appropriate area PSP Support Manager. These cases will be "flagged" to alert the area that there is a frozen refund.

The area PSP Support Manager should provide local instructions to the Chief, Classification Section at the Service/Customer Service Center for use in the classification of claims.

Classification checksheets will be prepared by the Service/Customer Service Center for returns selected for area examination.

If a claim is selected by the Service/Customer Service Center and later surveyed by the area, the area will process the claim and send Letter 1024 to the taxpayer, if Letter 86C or Letter 96C was sent informing the taxpayer of the selection and status of the return.

This section provides instructions for screening and processing the following types of referrals:

Compliance Initiative Project procedures ensure conformance with Service policies and procedures regarding privacy, security and disclosure. CIPs are characterized by the use of internal or external data to identify, quantify, evaluate and correct areas of noncompliance. They usually involve a study or other analysis of a group of individuals such as those within an occupation, industry, geographic area or specific economic activity or event.

CIPs may be multifunctional in their approach. Fed-State and Fed-Fed activities already covered by the implementing agreement or author authority, Return Preparer Program, Criminal Investigation and routine business operations are exempt for CIP requirements. Routine business operations include:

Other source workload included in this chapter for which CIPs are not required are Collection referrals, Criminal Investigation referrals, TE/GE referrals, Information Reports and Return Preparers. Detailed information is located in the Compliance Initiative Projects Handbook.

Upon receipt of a Criminal Investigation Referral of an Information Item for potential civil action from the Field Territory Manager, the PSP Support Manager will evaluate the information for examination potential. The referral, prepared by CI, should include:

If an information item is selected, the PSP Support Manager will ensure that requests for any original returns are made before assignment and that AIMS control is established using project code 135.

After all necessary classification is complete, these information items should be promptly assigned.

For information items not selected, all returns should be closed using regular survey procedures.

Form 5666, TE/GE Referral Information Reports should be associated with the case file in Examination if a return for the taxpayer and class of tax is open. If the Form 5666 is for multiple years and only one return is open in the area, all returns should be forwarded to the area office.

Form 5666 should be returned to the Returns Program Manager (RPM), TE/GE, if there are less than 180 days remaining on the statute of limitations of the applicable return at the time the form is received in Examination.

If Form 5666 is for multiple years and any one of the returns has less than 180 days remaining on the statute of limitations, that return should not be corrected. If this should happen:

If there is no open case file in Examination, the PSP Support Manager should determine whether the information report or other issues indicate that the return warrants examination. If an examination is warranted, the return should be requisitioned, associated with the Form 5666, forwarded to an examiner or placed in priority files. The appropriate source code and project code, if applicable, should be used.

TE/GE referrals should be screened within 30 days of receipt. After the referral is screened, a copy of Form 5666 should be returned to TE/GE advising of the selection or rejection of the referral. If selected, the returned copy should indicate whether the referral has been assigned or has been placed in a priority file.

While screening the applicable return, the return should also be classified for other issues.

If the return has been previously examined, reopening procedures do not apply for this issue only.

Contacts with an employer to adjust a deduction claimed on the employer's return resulting from an examination of the employer, with respect to a Form 5500 series return (as reflected on Form 5666), is a continuation of the examination and reopening procedures do not apply.

The Chief, Classification Section will forward an employee return to the PSP Support Manager in the appropriate area when the return order has reached the DIF score level of the employee return. The return will be transmitted to the area in a pink envelope and a memorandum will be forwarded to the Field Territory Manager informing of such transfer and providing survey requirements.

When the return is being prepared for assignment, the PSP Support Manager will assign the return to a post-of-duty other than where the employee works.

All approved Examination Information Reports, Form 5346, and all reports received from other areas, including those relating to returns for tax years not yet filed, will be referred to the PSP Support Manager.

An approved Form 5346 which relates to a taxpayer filing in another area will be mailed to the PSP Support Manager in the other area.

All Forms 5346 which relate to area taxpayers will be AIMS researched to determine if a return for the same taxpayer and class of tax is open in Examination. If open, the Form 5346 will be associated with the case file.

The PSP Support Manager will promptly screen the Forms 5346 received and:

The PSP Support Manager will input Source Code 60 for Forms 5346 submitted for subsequent (unfiled) years. After input on AIMS, these Forms 5346 will be sent to the Chief, Classification Section at the Service/Customer Service Center.

The exchange of confidential tax information between the IRS and the states is intended to increase tax revenues, increase taxpayer compliance and reduce duplicate resource expenditures. This information may be covered by the Agreement on Coordination of Tax Administration executed by the Area Director on behalf of the Commissioner of the Internal Revenue Service and the head of the state tax agency.

It may also include a request for specific information not covered by the basic agreement discussed above. This request could be submitted to a state or some other governmental agency whether it be state, local or Federal.

Fed/State initiatives based on data covered by the Fed/State agreement signed by the Area Director do not require a CIP. The data is part of routine business operations. If the data is something "ad hoc" that is requested from the state or another governmental agency, a CIP is required. However, only Part One approval is necessary in order to secure the data.

Forms 1040 which have Form 8283, Non-Cash Charitable Contributions, attached and which meet the criteria of the LEM, will be sent to Examination using Audit Code C.

A comparison should be made of the Form 8282, Donee Information Return, amount received by the charity upon disposition, to the Form 8283 filed by the taxpayer with their return. RTVUE, BRTVUE or MACS facsimiles can be used to ascertain the acceptability of the deduction.

If significant differences are noted in these amounts, the return should be assigned for examination.

Any Form 8282 which does not warrant examination after screening will be disposed of.

A referral to the Art Panel, as necessary, will be anotated on Form 6754, Examination Checksheet, for donor tax returns selected for Office Examination. The presence of Form 8282 could eliminate the need for a referral since the form will show an exact recent sales price. If Form 8282 is not available, a referral to the Art Panel will be made.

All returns selected for examination which involve works of art will be sent to the area PSP Support Manager using Form 3210, Document Transmittal. The transmittal should state that the case(s) involve works of art and a referral to the Art Panel may be warranted.

The PSP Support Manager should select for examination all returns with Form 5346, Examination Information Report, attached, indicating that the taxpayer did not maintain adequate records of business expenses, unless they lack significant examination potential.

An Inadequate Records Notice (IRN) coordinator should be established in each area to monitor the follow-up investigations.

Returns that are surveyed must have a Form 1900, Income Tax Survey After assignment, completed and attached to the return.

The PSP Support Manager should forward to the Chief, Criminal Investigation all income tax returns indicating substantial income from illegal activities.

The PSP Support Manager will receive selected claims through the Informants' Claim Examiner (ICE) at the Service/Compliance Center. The Service/Compliance Service Center is responsible for establishing on AIMS the returns related to the claim for reward.

The PSP Support Manager may accept or survey these claims if the available information indicates that an examination is not warranted. If the claim is accepted or surveyed, the PSP Support Manager must inform the ICE expeditiously.

The PSP Support Manager will promptly assign any claims deemed worthy of examination to the appropriate group. These cases require seven point protection and should be assigned in double sealed pink security envelopes.

The identity of persons who furnish information regarding possible tax violations must be protected. All employees must handle such information in strict confidence. Special handling must be given to avoid disclosure to other than those employees having a "need to know."

The Information Returns Master File (IRMF) will match information returns and Currency Transaction Reports (CTR) with any current tax year return ordered from the DIF, DIF Programs Correspondence and Self-Employment Tax (SET) inventory files, or delivered as an Automatic/Special for the current year and two prior years.

This data will be printed on an IRMF transcript and summarized on a summary sheet. The transcript and summary will be associated with the related return prior to classification.

If the Information Returns Program (IRP) produces an underreporter transcript for a return located in an area, the transcript will be forwarded to the appropriate area and:

Under IRC Section 6015, a spouse may be relieved of income tax liability in some cases when he/she files a joint return but is not aware that the return is inaccurate as to items generated by the other spouse. In these cases, "Relief from Joint & Several Liability" provisions are applied. The PSP Support Manager should assign the case to the appropriate examiner.

The Chief, Classification Section is responsible for identifying all returns with international characteristics. These returns may be manually classified at the Service/Customer Service Center or, in some instances, shipped to areas to be manually classified by international examiners.

Returns selected for international features at the Service/Customer Service Center will be routed to the PSP Support Manager in the area office. These returns will be stored in Central Files, Priority Suspense Files or assigned to groups following area procedures.

Refer to the classification section of this handbook for specific instructions on classifying international returns.

MACS is an automated compliance tool that provides the capability to profile a population, identify market segments, and identify issues during screening. MACS contains Return Transaction File data and certain Master File information for three years for all taxpayers who filed within an area or service/customer service center area (IMF, 1120, 1120S, 1065 and 1041 only). MACS has stringent operating restrictions to ensure the securing of the data and that taxpayer privacy is not compromised.

MACS may be used for information on specific taxpayers even if only a partial name or address is known. This includes a return facsimile in either a one year or three year comparative format and a Cash-T analysis. This information may be used for case building or return selection decisions. A MACS facsimile may be used in lieu of the original tax return.

MACS may be used to identify potential noncompliance within a market segment, and to select a sample of returns to test the level of noncompliance.

No taxpayer compliance contact, including examination action, taxpayer service education, etc., should be made on specific taxpayers identified using MACS prior to the approval of a Compliance Initiative Project (CIP).

Returns selected for compliance contact using MACS based on any criteria other than activity code, POD, PIA/PBA code and DIF score equal to or greater than the local computed DIF cutoff score, must have an approved CIP before contact is made.

Using a classification checksheet on BMF returns selected by using MACS is suggested.

The PSP Support Manager will receive from the Transactional Processing Branch of the Support Services Division, Form 2677, Request for Account History and Tax Audit.

The PSP Support Manager will take the following action on Forms 2677:

This program encompasses all failures to file with probable unsatisfied tax liabilities. Nonfilers include, but are not limited to: Refund Hold; Federal Employee and Retiree Delinquency Investigations (FERDI); Individual Nonfiler Strategy (INS); Compliance Initiative Projects (CIP) generated; Examination Information Reports, Form 5346, Informants' Claims; Frivolous Filers/Non-filers; etc.

Offers in Compromise, based solely on doubt as to liability, not rejected by Service/Customer Service Center Classification or from the area Collection function, will be forwarded to Area Examination for further investigation. Area Examination will make a determination whether the offer merits further consideration. See the Examining Officer's Guide for further information on Offers in Compromise.

In the case of an offer in compromise which relates only to issues of liability of the taxpayer:

Any returns referenced in a request for prompt assessment or prompt examination that are selected for examination by the Service/Customer Service Center Classification Section will be controlled on AIMS by the Center to the appropriate area office. The Center will use Letter 621C, or another appropriate letter, to notify the requester that the request has been transferred to the area for consideration.

Upon receipt of requests for prompt assessments, Examination will proceed at the earliest possible date to close the returns which have not already been administratively closed. If an area is not in possession of the original returns for the taxable years needed in a prompt assessment request and such returns have not been administratively closed, the examination should proceed using the taxpayer's retained copies. The original returns should subsequently be requisitioned.

If the statutory period for assessment as prescribed in IRC 6501(d) is about to expire and the taxable years covered in the request cannot be closed prior to the expiration date, the taxpayer will be given an opportunity to file a consent. In no case should the taxpayer be requested to withdraw the request for prompt assessment.

When a request is received by an area involving a case that is pending before Appeals, a copy of the request will be sent to the Appeals office having physical possession of the returns.

The PSP Support Manager will then assign the return(s) to the appropriate function, Office or Field

Any questionable Form W–4, Employee's Withholding Allowance Certificate, case referred by the Service Center Collection Branch (SCCB) to an area office, will be set up in PSP under a manually controlled system using Form 5354, Examination Request Nonmaster File, and an employee label. In addition to the employee's name, address and SSN, which is printed on the label, you should record the W–4 Control Document Locator number, the date the case is received in the area and the date the case is closed from the area and returned to the SCCB W–4 Coordinator.

The SCCB W–4 Coordinator will send the W–4 case file to the PSP Support amanager in the area where the employee resides. SCCB will also send Letter 86(c) to the taxpayer to inform him/her of this action.

The PSP Support Manager will then assign the W–4 case to the appropriate Examination function, Office Examination or Field Examination.

If the employee does not respond to the appointment letter mailed by the Examination function, the file will be documented and returned to PSP. PSP will in turn close the case and return it to the SCCB W–4 Coordinator.

The determination on the questionable Form W–4 by the area Examination function and the subsequent return of the file to the SCCB W–4 Coordinator should be made within 60 days from the date the W–4 is received in the area. PSP will be responsible for the timely completion of these cases.

Form 3210, Document transmittal, will be used by PSP to forward completed case files to the SCCB W–4 Coordinator for further action.

Cases selected for reconsideration prior to payment of the tax will be noted as "Reopened" and established on AIMS using Source Code 73 by the Service/Customer Service Center. If the issues cannot be resolved by correspondence, the case will be forwarded to the appropriate area.

Return preparer penalties are described in IRM 20.1.6, the Penalty Handbook. Program action on any preparer must be approved by the Area Director before the client returns can be examined. The PSP Support Manager or the Examination Return Preparer Coordinator (RPC) is usually responsible for identification, classification and control of return preparer program cases.

The RPC reviews, generally within one day, all complaints and/or questions from any source concerning the quality of returns prepared by an individual.

Leads primarily originate in Office Examination. The RPC reviews these referrals and if a program action case is possible, the following occurs:

All Section 338 Elections, Certain Stock Purchases Treated as Asset Acquisitions, completed packages should be forwarded to the PSP Support Manager by the Section 338 Technical Reviewer.

For all elections on Form 8023, the PSP Support Manager in the area where the purchasing corporation is located will be responsible for securing all relevant returns and coordinating examinations of the returns by using collateral requests or support requests on CEP cases. Relevant returns include:

The PSP Support Manager will ensure that these returns are classified in the area as a group (purchaser, seller and target), and where possible, by agents with Section 338 technical expertise.

The following types of cases are identified at the Service/Customer Service Center and are forwarded to the area PSP Support Manager. For further information, you should refer to the Service/Customer Service Center manual.

When information is received by Criminal Investigation indicating that Examination activity relating to a Special Enforcement taxpayer appears warranted, they will refer the information to the Examination function.

The Examination function will independently evaluate the referred information. Examination standards for potential Strike Force cases should be consistent with Strike Force objectives. Civil case selection standards may not be applicable in any narrow sense to a potential Strike Force case. All available information needs to be considered that is relevant to the operations of a particular taxpayer. Information items determined as not having civil potential will be returned to Criminal Investigation.

Any return selected for examination will be ordered or updated using the appropriate source and/or project codes relating to SEP. Note that source and/or project codes currently being used in Information Gathering/Compliance Initiative Projects will not be used when such projects relate to SEP.

The following procedures are subject to change with Area approval.

Statistics of Income "SOI" returns will be classified in the Examination Branch at the Service/Customer Service Center. If selected, the returns will be photocopied as follows:

If the original of a partially copied return is urgently needed for immediate examination, the area PSP Support Manager should contact the Chief, Classification and provide the identifying information necessary to secure the return; name, TIN, tax year and type of return.

If there is a long delay in receiving a SOI return, National Headquarters Classification Section should be contacted through area channel.

After returning from SOI, selected returns must be established on AIMS before shipment to the area office.

Certain individual returns are identified as Specials based on specific features on the return. These returns are sent to the area PSP Support Manager for assignment. The following audit codes (see Exhibit 4.1.3–1 for definitions) are handled as follows:

Tax shelters utilize improper or extreme interpretations of law or the facts to secure for investors substantial tax benefits which are clearly disproportionate to the economic reality of the transaction.

Returns identified as tax shelters will be treated as Specials and delivered to the Examination Branch at the Service/Customer Service Center and screened by personnel experienced in the tax shelter area. If selected, the tax shelter return will be assigned to the area PSP Support Manager for examination. PCS controls should then be established.

For TEFRA shelters, Service/Customer Service Center Classification will screen investor returns to determine if the deductions and/or credits from the pre-filing notification were claimed.

If the deductions and/or credits from the pre-filing shelter are claimed and there are no other shelter issues on the return, the return will be selected for Service/Customer Service Center examination.

If the deductions and/or credits from the pre-filing shelter are claimed and there are other shelters on the return in addition to the pre-filing shelter, the return will be selected and sent to the area for mandatory examination of the pre-filing shelter and consideration of the other shelters.

If the deductions and/or credits from the pre-filing shelter are not claimed and there are no other shelters on the return, the return should be screened for other issues according to existing Classification procedures. If there are no other issues on the return, it will be accepted as filed.

If the pre-filing shelter is not claimed and there are other shelters on the return, the return will be selected and forwarded to the appropriate area office for examination. Source Code 17 will be used for key shelter returns and Source Code 39 will be used for related shelter returns. Project Code 121 will be used for Pre-filing Notification cases.

TEFRA procedures must be followed when distributions come from a TEFRA partnership and a pre-filing notification is issued.

For non-TEFRA shelters, after inputting PCS controls, the investor returns will be sent to the area PSP Support Manager and put into area suspense.

Taxpayer Compliance Measurement Program (TCMP). In some areas, the PSP Support Manager will be designated to be the Area TCMP Manager and will be responsible for monitoring the Area program, controlling the receipt and disposition of TCMP returns, checksheets and all other TCMP material.

The PSP Support Manager has the ability to analyze the inventory of the current phase of TCMP returns by utilizing the TCMP Generalized System (TGS) and/or the open case database. Activity code and post-of-duty can be determined for planning purposes. TCMP returns are identified by source code 80. As examinations begin, source code 91 is used for related returns.

TCMP returns are not ordered. These returns are delivered to the area in the initial months of the ongoing phase. TCMP returns should be assigned in accordance with TCMP program guidelines.

The area PSP Support Manager should take the following actions on an Administrative Adjustment Request (AAR) and the related partnership/S corporation return:

An AAR requesting "substituted return" treatment may be accepted as filed, assigned for examination or disallowed in full/part. For AARs which are allowed in full:

For AARs which are disallowed in full/part:

For AARs not requesting "substituted return" treatment or not allowed such treatment:

For AARs submitted by a partner/shareholder on his/her own behalf:

The PSP Support Manager or designee should screen all Title 31 and Form 8300 referrals within 30 days after receipt.

An INOLE should be obtained to determine the taxpayer's most current address, possible spousal information and related return information.

An IMFOLI should be requested to determine the filed and non-filed years open on master file. If the IMFOLI reads POSTED in the RETURN column for all years, then the taxpayer has filed all years. If the IMFOLI reads NONE in any of the years, or there are years missing, then the case must be developed for assessment.

An AMDIS should be secured to determine if there is an open year in status 10 or 12. If there is, the referral should be sent to that group along with the IDRS research previously mentioned in items 3 and 4. The referral will be forwarded along with a Document Transmittal (Form 3210). The group will determine the examination potential and follow local examination procedures.

If there is no open year in status 10 or 12, and the taxpayer has filed a return, PSP will requisition the return(s) on ERCS and forward the return(s) to an examiner based upon local procedures and guidelines for assignment of returns.

If it is determined that the taxpayer has not filed, PSP must develop the case information for the non-filed year(s). Spousal information, if applicable, should also be requested.

Locator Services (Trans Union and Data Quick) should be requested along with other