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| Source Code | Description |
|---|---|
| 17 | Tax Shelter Program |
| 39 | Tax Shelter Program Related Pick-Up |
| 64 | Pick-Up Related to Forms 1065, 1041 and 1120S—Other than Tax Shelters |
| Project Code | Description |
|---|---|
| 015 | Tax Shelter Program—Other |
| 074 | Related to Appeals |
| 085 | Frivolous Filers/Nonfilers |
| 101–118 | Tax Shelter Program—Specific |
| Push Code | Description |
|---|---|
| 020 & 021 | Delinquent and/or Substitute for Return |
| 037 | Potential CI Referral/Nonfiler |
| Aging Reason Code | Description |
|---|---|
| 04 | Coordinated Examination Program Cases |
| Status Code | Description |
|---|---|
| 17 | Referral to Criminal Investigation |
| 18 | Acceptance by Criminal Investigation |
| 30 | Form 1254 Suspense |
| 32 | General Fraud Suspense |
| 34 | TEFRA Suspense |
| 36 | Grand Jury Suspense |
| 38 | All Other Suspense |
| 41 | PSP Suspense |
| Source Code | Description |
|---|---|
| 11 | Studies, Tests, and Research |
| 23 | TEFRA Related |
| 24 | Refusal to File Delinquent Return |
| 30 | Claims for Refund/Abatement |
| 32 | Carryback Refund |
| 60 | Information Report |
| 77 | State Information, Including State Abstracts |
| 85 | IRP — Information Document Match |
| 88 | Special Enforcement |
| 90 | Fraud Regular |
- Result in a serious criticism of the Service’s administration of tax laws,
- Establish a precedent that would seriously hamper subsequent attempts by the Service to take corrective action,
- Result in inconsistent treatment of similarly situated taxpayers,
- Be contrary to an established Service position (the Service position must be clear at the time the approval, to initiate the examination, is granted and not in the developmental stages).
4.10.2.2.3
(05-14-1999)
Conflict of Interest
-
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.
- Personal relationships can include family members, friends and associates.
- A financial interest may be one involving the examiner’s spouse, minor child, partner, or organization in which the examiner is serving as an officer, director, trustee, partner or employee, or any person or organization with whom the examiner is negotiating or has any arrangement concerning prospective employment.
- 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.
4.10.2.2.4
(05-14-1999)
Repetitive Audits By the Same
Examiner
- 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.
4.10.2.3 (05-14-1999)
In-Depth Pre-Contact Analysis
- Once it is determined that a return will be examined, the next step is to identify potential issues on the return. An in-depth, pre-contact analysis includes the review of the return and available information to identify large, unusual or questionable items which should be examined for a correct determination of the tax liability.
4.10.2.3.1 (05-14-1999)
LUQs Defined
- 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:
- Comparative size of the item — an expense item of $6,000.00 with total expenses of $30,000.00 would be a large item; however, if total expenses are $300,000.00, the item would not be generally considered a large item.
- Absolute size of the item — despite the comparability factor, size by itself may be significant. For example, a $50,000 item may be significant even though it represents a small percentage of taxable income.
- Inherent character of the item — although the amount of an item may be insignificant, the nature of the item may be significant; e.g., airplane expenses claimed on a plumber’s Schedule C.
- Evidence of intent to mislead — this may include missing, misleading or incomplete schedules, or incorrectly showing an item on the return.
- Beneficial effect of the manner in which an item is reported — expenses claimed on a business schedule rather than claimed as an itemized deduction.
- Relationship to other items — incomplete transactions identified on the tax return. For example, the taxpayer reported sales of stock but no dividend income.
- Whipsaw Issues — whenever there is a transaction between two parties and characteristics of the transaction will benefit one party and harm the other. Examples include alimony vs. child support, sale vs. rental/royalty, employee vs. independent contractor, gift vs. income.
- Automatic adjustments — obvious errors, omissions, or items subject to thresholds and/or limitations, or omissions in excess of tolerances as identified in 241 of LEM IV.
- Missing items — consideration should be given to items which are not shown on the return but would normally appear on the returns of similar taxpayers. This applies not only to the examination of income, but also to expenses, deductions, etc., that would result in tax changes favorable to the taxpayer.
4.10.2.3.2 (05-14-1999)
Step 1: Review Return to
Identify LUQ’s
- 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:
- Examination Return Charge-Out Sheet, Form 5546 — contains information such as statute dates, prior audit results, no-change issue codes, collectibility indicators, and special messages. See IRM 4.4, AIMS/Processing Handbook and related exhibits for a more detailed description of the information contained on the charge-out sheet.
- Classification Sheets — most Office Audit cases, and some Field Exam cases, will have a classification sheet attached. The classification sheet is used to identify the specific issues to be considered by auditors in Office Audit examinations where there is no pre-contact analysis, and to identify unusual or significant reasons for selecting returns for Field Exam. The identified issues should be examined unless examiners determine that examination is not warranted and that decision should be documented in the workpapers.
- Other Source of Information — depending on how the case was selected for examination, the case file may contain additional information from internal sources, i.e., DIF selected returns may contain IRP transcripts while returns selected for an information gathering project may contain MACS prints and IRP transcripts. Information should be compared to the tax return and differences identified as potential issues. Internal sources of information are summarized in Exhibit 4.2.4–1.
- 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.
4.10.2.3.3 (05-14-1999)
Step 2: Examination of Income
- 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).
4.10.2.3.4 (05-14-1999)
Step 3: Required Filing Checks
- 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.
4.10.2.4 (05-14-1999)
Evaluation of Audit Potential
- After completing the in-depth pre-contact analysis, a determination must be made whether the return warrants examination. Examiners will evaluate the identified LUQ’s, the materiality of any preliminary Cash–T imbalances, and the results of the initial Required Filing Checks. Factors to consider when evaluating the audit potential are discussed below.
4.10.2.4.1 (05-14-1999)
Risk 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.
4.10.2.4.2 (05-14-1999)
Repetitive Audit
- 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:
- The year of the prior audit.
- The disposal code.
- The deficiency or overassessment amount.
- No-change issue codes.
- 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.
4.10.2.4.3 (05-14-1999)
Collectibility
-
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:
- B = Bankruptcy
- N = Currently Not Collectible Account
- C = Collection code 26: field contact activity
- 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.
4.10.2.5
(05-14-1999)
Decision Survey a Return
- Once the in-depth analysis and evaluation of audit potential is completed, examiners must decide if the return should be "surveyed after assignment."
4.10.2.5.1 (05-14-1999)
Conditions Allowing Survey of
Returns After Assignment
- 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.
4.10.2.5.2 (05-14-1999)
Procedures for Surveying Returns
After Assignment
-
Procedures for surveying returns
after assignment are as follows:
- Stamp the return with the following imprint:
- Examiners are required to sign the return the imprint described above.
- Group managers are required to indicate concurrence with the examiner’s decision to survey the return by signing the imprint under the examiner’s signature.
- When the examiner considers it necessary to explain why the return was surveyed after assignment, Form 1900, Income Tax Survey After Assignment, will be completed.
CLOSED SURVEY AFTER ASSIGNMENT Examiner’s Signature (and Date) _________________________ Approved — Group Manager’s Signature (and date) _________________________ Note:
The stamp should be approximately 3″ X 1″ and procured locally by the area.
4.10.2.5.3 (05-14-1999)
Completing Form 1900
- 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).
- Accepted As Filed — if surveying original returns on which no action has been taken, original returns on which tentative carryback allowances have been made, and amended returns filed after the due date and reporting additional tax liability.
- Allow in Full or Allow as Corrected — where claims or amended returns filed as claims are surveyed, whichever is appropriate.
- 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.
- Calendar Year — show ending date (12–31–1997).
- Fiscal Year — show ending date (6–30–1997).
- Short Period — show both beginning and ending date (1–1–1997 – 9–30–1997).
- 52/53 Week Year — show last day of year (6–22–1997).
- 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:
- If more than one return was filed for the same year prior to the due date of the return, the last return constitutes the original return and the tax liability shown on the last return should be entered.
- If a claim reducing the tax liability shown on the original return was filed after the due date of the return, the amended return is considered to be a claim and the tax shown on the original return should be entered under "Tax Liability Reported." The difference between the tax liability reported on the original return and the amended return is entered under "Claim Allowable."
- If an amended return, increasing the tax liability shown on the original return was filed after the due date of the return, and the additional tax was assessed, then the tax as shown on the amended tax return should be entered under "Tax Liability Reported."
- Where tentative carrybacks have been filed (Form 1045 or Form 1139) and the refunds have been made to the taxpayer, the tax as shown on the return before administrative adjustment is entered under "Tax Liability Reported." The amount refunded as a result of the filing of the tentative carryback is shown under "Tentative Allowance Approved."
- Where claims for refund (including amended and informal claims) have been filed, enter the tax liability as reported on the last processed return under "Tax Liability Reported" and enter the amount of the claim under "Claim Allowable."
- 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.
4.10.2.5.4 (05-14-1999)
Surveying Claims
- 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.
- Form 1900, Income Tax Survey After Assignment, should be used for income tax claims.
- Form 3187, Survey After Assignment, should be used for estate and gift tax claims.
- 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.
4.10.2.5.5 (05-14-1999)
Surveying Returns Meeting
Repetitive Audit Criteria After
Initial Contact With the
Taxpayer
- 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.
4.10.2.5.6 (05-14-1999)
Surveying Returns Transferred
From Another Area
- 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.
4.10.2.5.7 (05-14-1999)
Surveying Returns With
International Issues
- 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.
- A domestic return that is 25% or more foreign-owned.
- A foreign corporation that is 25% or more foreign owned and engaged in a trade of business within the U.S.
- After November 4, 1990, a foreign corporation which is engaged in a trade or business within the U.S. at any time during a taxable year.
4.10.2.6
(05-14-1999)
Pre-Contact Planning of Examination
Activities
- If the
in-depth analysis and evaluation of
audit potential indicate that a return
should be examined, then examiners
should begin planning the examination.
Consideration should be given to the
following items.
- Scope of the Examination
- Examination of Income
- Required Filing Checks
- Inventory Checks
- Depth of the Examination
- Preliminary Research
- Referrals for Specialists’ Assistance
- Examiners are expected to examine all large, unusual and questionable items (LUQ) . However, it is not intended that examiners should consider every possible issue. For instance, it is not proper for examiners to make a detailed analysis of a specific account unless the potential adjustment will materially affect the tax liability or will be important from a compliance viewpoint.
- Examiners are expected to adequately explain both the items which are examined and the large, unusual, and questionable items which are accepted without examination.
- The case file and workpapers will clearly indicate the scope of every examination, the depth of the examination, the reasons for the decisions.
4.10.2.6.1 (05-14-1999)
Determining the Scope of an
Examination
- 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.
- Office Audit: The scope of the examination of a return, not requiring pre-contact analysis, is prescribed on a classification checksheet during the classification process. However, the scope of an examination should not be artificially limited to the classified issues if other significant issues are revealed during the examination. Whenever possible, tax auditors should consult with their manager before raising new issues. The scope of the examination for returns requiring pre-contact analysis will be determined by the tax auditor.
- Field Exam: The scope of the examination will determined by the revenue agent.
- 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.
4.10.2.6.1.1 (05-14-1999)
Limiting the Scope of an
Examination
- The scope of an examination may be limited under conditions, as described in this subsection. Any limitations placed upon the scope of the examination should be documented in the case workpapers.
- The scope of an examination of a return may be limited to one or two issues if no other items appear worthy of examination. For example, it may be necessary to examine a claim because the issue is highly technical and requires factual development. If there are no other issues meriting development, then the exam should be limited to the claim issue.
- If a taxpayer is contacted with regard to an information document program item, the scope of the examination is generally limited to resolving differences between items reported by the taxpayer and items reported on the information returns. Emphasis should be placed on determining why the income was omitted and whether the omission occurred in more than one year. Verification inquiries do not constitute an examination, subject to the case reopening criteria. When it appears that a material amount of income may not have been reported, and there has not been a prior audit, an examination should be initiated.
- If a return is (a) selected due to an issue arising from an agency-investor relationship, or (b) identified as an Information Returns Program (IRP) or Information Returns Selection System (IRSS) case, and no other issues on the return appear worthy of examination, the scope of the examination may be limited to the identified issues.
- When a Form K–1 is inspected to determine that the flow through items have been reported correctly, the taxpayer and/or representative should be advised that the inspection does not constitute an examination and the taxpayer’s distributions from the related entity may be adjusted later if the related entity is examined.
- Short-term timing issues for examinations conducted by revenue agents using field techniques should not be examined, as it is not a good use of resources. Timing issues with long term, indefinite or permanent deferral features should be examined. Unplanned timing issues which arise as correlative adjustments during an examination of non-timing issues should be made if it is cost effective to do so.
- See LEM IV for criteria related to limited scope examinations and collectibility issues.
- The scope of the examination can also be limited during an examination if, based on information developed, it is determined that continuing the examination of additional issues is not warranted; i.e., the resulting additional tax is not expected to be material, or the time to develop additional issues is not justified, based on the potential for more tax. Examiners are expected to use their professional judgement to determine the "substantially correct" tax for the taxpayer under examination.
4.10.2.6.1.2 (05-14-1999)
Expanding the Scope of an
Examination
- Expanding the scope of the examination is based on the examiner’s judgment. If, while completing the Required Filing Checks, examiners discover that a taxpayer has not complied with a filing requirement or that an audit potential exists, then the examination should be expanded to include the additional returns. Refer to section 5, Required Filing Checks, for additional guidance.
- Office Audit: If it appears that a related entity (that is not another 1040 filer) warrants examination, the tax auditor should discuss the case with the group manager. Contact should be made with a revenue agent or Field Examination group manager to assess the audit potential. If an examination of the related entity is not warranted, the tax auditor should close the examination. If the related entity warrants examination, the tax auditor should secure a copy of the related entity return and prepare the case file for transfer to a revenue agent.
-
Field Examination: If a related
partnership return should be
examined and:
IF THEN Partners are individuals within the area. Proceed with the examination. Partners are individuals, not within the area. Prepare Form 5346, Examination Information Report, and forward to the PSP Support Manager Partners are non-individuals not within the area. Prepare Form 5346 and forward to the PSP Support Manager. Partners are non-individuals located within the area. May obtain group manager’s approval to examine.
4.10.2.6.2 (05-14-1999)
Examination of Income
- Gross income will always be examined during the examination of income tax returns unless the scope of the examination has been limited to one or two items because the return does not appear to be worthy of examination for any other issues. Refer to section 4 of this handbook for additional guidance.
4.10.2.6.3 (05-14-1999)
Required Filing Checks
- Required Filing Checks will be completed as outlined in section 5 of this chapter. Required Filing Checks may be limited to consideration of the taxpayer’s prior and subsequent year returns if the scope of the examination is limited to a flow-through adjustment. Refer to subsection 5.3 of this chapter, for additional guidance.
4.10.2.6.4 (05-14-1999)
Inventory Checks
- To
the extent necessary, examiners will
verify that inventories are reported
correctly. The techniques outlined
below are suggested as minimum
checks. It is not necessary that
all
the techniques be used; only that
they be used to the extent needed to
determine that inventories are
correctly reported.
- Verify that the taxpayer’s method of inventory valuation conforms to the "prescribed methods" as indicated in Tres. Reg. section 1.471. Check for unauthorized changes in the method used to account for inventory.
- Compare inventory balances on the return under examination, with the balances on the prior and subsequent years’ returns, and verify these with the taxpayer’s records.
- Check the gross profit percentages for variations. Determine that all direct, indirect, and overhead burdens are properly accounted for, that year-end purchases were included in closing inventory, and that any write-downs for "excess" inventory were properly accounted for (see Rev. Rul. 80–60).
- Analyze unusual entries to cost of sales for labor, materials and burden costs, not directly related to sales or transfers of finished goods.
- Determine the significance of any qualifying statements on financial reports prepared by independent accounting firms.
- Determine that inventory costing conforms to Tres. Reg. section 1.471–11 for taxpayers engaged in manufacturing or production activities.
- A more in-depth examination of inventory should be made if the results of the minimum checks warrant further consideration of the issue.
- In every case involving inventories, examiners will document the steps taken to verify that inventories are correctly reported. If inventories are not examined, examiners will note why inventories were not worthy of examination.
- If, with group manager approval, the minimum checks to verify that inventories are correctly reported are not completed, then the workpaper documentation outlined in (3) above will not be required and the group manager’s involvement in the case will be noted in the case file.
4.10.2.6.5 (05-14-1999)
Depth of an Examination
- Depth is the extent to which an issue is developed. It demonstrates the degree of intensity and thoroughness applied in order to make a determination as to the correctness of an item.
-
Examiners must exercise judgment in
determining the depth required for
the examination. Determining the
depth of the examination for
different issues will help to
estimate the time needed to complete
the examination. The following
factors should be considered:
- Type of evidence available or expected for the issue,
- Complexity of the issue,
- Materiality of issue.
4.10.2.6.6 (05-14-1999)
Preliminary Research
- Preliminary research of the applicable Internal Revenue Code sections, Treasury Regulations, rulings and court cases, concerning the proper tax treatment of a particular issue, should be performed on the issues identified in the pre-contact analysis. This will assist in the development of specific interview questions, determine possible audit procedures and help determine what information should be included on the Information Document Request. It is critical that examiners become familiar with the issues on the return. Extensive research, however, should not be conducted until the facts of the issues are established (see section 7, of this handbook).
- Review prior revenue agent’s report(s) to determine the issues previously proposed and any problems encountered during the examination. Ask for the taxpayer’s copy of the report or order the administrative file from the service center.
- Information about the taxpayer may be available at the area level in the Criminal Investigation, including the location of records, financial statements and currently not collectible information, copies of income tax returns, and special agents’ reports.