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Part 4. Examining Process

Chapter 1. Planning and Special Programs

Section 1. Planning and Monitoring

4.1.1  Planning and Monitoring

4.1.1.1  (10-24-2006)
Overview

  1. This chapter of the IRM provides guidance for the Area Planning and Special Programs (PSP) function in planning, ordering and delivering tax returns for examination to the field examination groups. PSP must balance the workload among the various priority programs, the mandatory work load and the other sources of work.

  2. The PSP Territory Manager works closely with the Area Director to provide feedback related to the Examination Plan, Area staffing, and the Area accomplishments.

  3. The Area PSP coordinates many types of national programs and serves as a liaison between the Headquarters Office and the Area Examination staff.

  4. This section addresses the planning and monitoring of the inventory of tax returns for examination.

  5. Policy statement P–4–21 states "The primary objective in selecting returns for examination is to promote the highest degree of voluntary compliance on the part of taxpayers." This section provides uniform procedures for planning and monitoring the inventory of tax returns for examination. Uniform procedures enable Headquarters, Area Office, and Campus program analysts to evaluate the program.

4.1.1.2  (10-24-2006)
Examination Plan

  1. The National SB/SE Examination Plan is based on long range coverage objectives and on resources requested in the Congressional Budget. From the approved National SB/SE Plan, staff years are allocated to Areas and Campuses using a resource allocation methodology. Planning and Special Programs Territory Managers (PSP) are responsible for preparing the Area response to the draft examination plan following the instructions in the Area user’s guide and cover memoranda from National Headquarters.

4.1.1.2.1  (10-24-2006)
Staffing Allocation Methodology

  1. The staffing allocation methodology SB/SE uses to prepare the examination plan considers the following factors:

    • Examination priorities

    • Front loaded programs

    • Marginal yield from examinations

    • Historic examination rates adjusted by an improvement factor

    • Current on-board staffing in Areas

    • Anticipated attrition

4.1.1.2.2  (10-24-2006)
Examination Priorities and Front Loaded Programs

  1. These programs are those activities Headquarters has determined are of such importance time must be allocated to them before resources are committed to other activities. The PSP Territory Manager will discuss this time with the Area and territory managers responsible for these programs to ensure the plan response shows the correct time allocations. Examples of these programs are:

    • National Research Program

    • Abusive Tax Avoidance Transaction (ATAT) Promoters

    • Offshore Credit Card (Credit Card Project - OCCP)

    • Abusive Tax Avoidance Transactions (Offshore ATAT and Domestic ATAT)

    • High Income Taxpayers (HITS)

    • High Income Non Filers (HINF)

    • Special Enforcement Program (SEP)

4.1.1.2.3  (10-24-2006)
Balanced Coverage

  1. The National work plan, supported by each of the Exam Area plans, provides a balanced approach for return delivery and allocation of Revenue Agent (RA) and Tax Compliance Officer (TCO) or Tax Auditor staffing. Resources and inventory are aligned to accomplish the staff years and return closures reflected in the fiscal year plans. Our focus provides a balanced coverage in the following categories:

    1. Individual returns less than $100,000

    2. Individual returns greater than $100,000 but less than $200,000

    3. Individual returns greater than $ 200,000

    4. Small Business Corporations

    5. Small Business Flow-Through Entities - S Corporations, Fiduciaries and Partnerships

4.1.1.2.4  (10-24-2006)
Area Responses

  1. In preparing the Area response to the examination plan, PSP will:

    1. Propose adjustments to plan bottom-line staffing.

    2. Verify operational priorities and front-loaded program time.

    3. Input training time based on the training return plan.

    4. Evaluate and propose adjustments, if necessary, time allocated to front loaded time and examination priorities. PSP should consider work in process, time applied in prior years, results of prior audits, and the availability of returns.

    5. Prepare comments on changes to the examination plan.

4.1.1.2.5  (10-24-2006)
Training Return Plan

  1. The revenue agent and tax compliance officer examination plans each include a line for training returns. The PSP Territory Manager, will review the training return plan showing the number of returns to be examined by trainees. The plan should show the training phase, number of agents/tax compliance officers, activity code(s), number of returns, rates, and Direct Examination Staff Years (DESY) to be applied.

4.1.1.2.6  (10-24-2006)
Classification Plan

  1. A classification plan will be prepared using the Area response to the draft examination plan. When the final plan is received, the classification plan will be updated for use for the remainder of the year. The classification plan will be used to plan DIF return orders and schedule agents and tax compliance officers for classification details. Prior to placing DIF return orders, consideration should be given to the number of Fast Track High DIF Returns that fallout for classification automatically, and non-DIF source work. PSP Territory Manager will provide a copy of the classification plan to the Campus Classification Manager and to Headquarters. At minimum, the classification plan will include:

    • Number of DIF returns needed by activity code

    • Select rates by activity code

    • Projected return orders by cycle for each activity code taking into account the number of anticipated Fast Track High DIF returns delivered for classification automatically.

  2. The PSP Territory Manager will monitor the classification plan to ensure:

    1. Returns are ordered ratably throughout the plan year.

    2. Returns are ordered timely in the correct activity codes.

    3. Returns are delivered to classification timely and the delivery rate is adequate.

    4. Classification is being done timely.

    5. Select rates are within acceptable levels

    6. Returns are falling out in the correct posts of duty.

    7. Unassigned inventory levels are neither too low nor too high.

  3. A ratable ordering tool and guide are also available on the Exam Planning and Delivery Web site, .http://sbse.web.irs.gov/epd/

4.1.1.3  (10-24-2006)
Minimum DIF Cutoff Score

  1. Each year, National Headquarters Examination establishes a National SB/SE DIF cutoff score for returns added to the DIF inventory. Returns with a DIF score higher than the minimum are added to the DIF inventory and may be ordered for classification.

4.1.1.3.1  (10-24-2006)
DIF Cutoff Score

  1. The PSP will calculate the Area DIF cutoff score for each activity code, giving consideration to the selection rate. This is the lowest DIF score necessary to secure the number of returns required for audit. For example, if the return plan shows 225 returns for an activity code and the selection rate is 70%, and the inventory report is as shown below, the Area will need to order 321 returns (225/70%). The DIF Cutoff Score is 500. The number of returns with DIF scores greater than 550 is 280, which is less than the number of returns required, so the lowest DIF score on an ordered return will be in the range of 500 to 550 and the DIF cutoff score is 500.

    Example:

    Inventory Report

    DIF Score Returns Cumulative Returns
    650 & UP 20 20
    600 50 70
    575 100 170
    550 110 280
    500 300 580
    450 350 930

4.1.1.3.2  (10-24-2006)
Use of DIF Cutoff Score for Return Orders

  1. The PSP Support Manager should monitor the inventory reports to ensure that Area-wide return orders do not result in the delivery of returns that are below the DIF cutoff score.

  2. For a POD Supplemental Order, the PSP may order returns below the DIF cutoff score provided the total ordered does not exceed 110% of the returns above the cutoff score, i.e., not more than 10% of the returns ordered for any POD should be below the DIF cutoff score.

  3. Every available means to supply workload above the cutoff score in each activity code will be exhausted before a request is submitted to order returns below the cutoff score. For example, for a POD, if the geographical Area permits, select returns from excess workload of a contiguous POD within the Area.

4.1.1.4  (10-24-2006)
Grade Structure Analysis

  1. Headquarters will perform a grade structure analysis, in conjunction with a workload study and/or development of the final examination plan. This information determines the optimum placement of revenue agents and tax compliance officers by post of duty and grade.

  2. Headquarters will provide the grade structure and workload study information to the Area PSP for review and comment.

4.1.1.5  (10-24-2006)
PSP Responsibility

  1. The PSP Territory Manager has the responsibility to assess program effectiveness. The PSP Territory Manager must be familiar with the Business Plan because the timing and type of returns entered into the audit stream determine whether the Area achieves its goals.

4.1.1.6  (10-24-2006)
Monitoring

  1. The PSP Territory Manager is responsible for monitoring the accomplishment of examination goals and providing timely reports to Area, territory and group managers to assist in the management of their operations. Much of this information is available on Tables 36 and 37, and also on the AIMS Open/Closed Case Data Base. The PSP often needs to monitor programs and projects that are not reflected in the standard reports. In other situations, there may be a need to present the data in a more user-friendly format or to provide return listings.

  2. The PSP may develop new tracking systems using AIMS open and closed case databases provided by Headquarters or using ERCS (Examination Returns Control System). Before doing so, however, check with Headquarters and the A-CIS Analyst to determine if a program already exists. PSPs are encouraged to share their programs and monitoring tools through the Manager, Workload Planning and Analysis.

  3. At minimum, the PSP should monitor the following for classification:

    • Delivery of returns for classification (Tables 1040–2, 1041–2, 1065–2, 1120–2, 1120–3)

    • Select rates (Campus Classification Report) and select rates for Area classification

    • Survey rates before and after assignment and survey of excess inventory (Table 37)

    • Volume and timing of return orders (Classification Plan)

  4. At minimum, the PSP should monitor the following for cycle time:

    • Average cycle time for closed cases (AIMS Centralized Information System or ACIS)

    • Average days in process for open cases (ACIS)

  5. At minimum, the PSP should monitor the following for inventory:

    • Started returns by status code (Tables 36 and 37)

    • Unstarted returns by status code (Tables 36 and 37)

    • AIMS Open Case Data Base

  6. At minimum, the PSP should monitor the following for results:

    • Dollars per hour by activity code (ACIS or Tables 36 and 37)

    • Dollars per return by activity code (ACIS or Tables 36 and 37)

    • Return accomplishments (ACIS or Tables 36 and 37)

    • Time applied by examination class (ACIS or Table 37)

    • Table 10.1B Assessments Over $100,000

  7. This data should be used for allocation of resources, workload selection and for assessment of program effectiveness. The Area and the PSP must stay within the operating guidelines as outlined in IRM 1.5 , Managing Statistics in a Balanced Measurement System.

4.1.1.6.1  (10-24-2006)
Classification Monitoring

  1. To monitor the delivery of DIF returns for classification and the volume and timing of return orders, the PSP should maintain a spreadsheet showing the date, cycle, and volume of return orders. When DIF orders are posted to master file, the ordered returns will move from the inventory section to the delivery section of the Inventory and Delivery Reports (1040-1, 1120-1, etc.). The returns will appear in the Inventory/Aging By Class section of Table 37 when the returns are delivered to classification. ACIS can also be monitored for new returns establishing on AIMS in Status 06

  2. SB/SE Campus section will provide monthly DIF classification reports to the PSP Territory Managers within five days after the close of the month where there is activity. The reports will capture classification results by class and by Area.

  3. If select rates are less than 50% for any class, the PSP Territory Manager will analyze a sample of the accepted returns and review local instructions to determine the reason for the low selection rates.

  4. Managers should monitor the volume of the surveys and take the necessary steps to reduce incorrect surveys and/or the number of returns without audit potential entering the examination stream. See IRM 4.1.3.5 , Survey of Examination Cases.

4.1.1.6.2  (10-24-2006)
Cycle Time Monitoring

  1. Examination and disposition of income tax returns will generally be completed within 26 months (individuals) and 27 months for business returns after the due date of the return or the date filed whichever is later. Many priority returns are exempt from this requirement. Exceptions for cases are listed in IRM 4.10.2.2.2, Examination Cycles.

  2. Average days in process for open cases and closed case cycle time can be monitored using AIMS open and closed case databases.

4.1.1.6.3  (10-24-2006)
Inventory Monitoring

  1. Started and unstarted returns by status code are shown in the Inventory/Aging Sections of Table 36 (Area, territory, and group levels), Table 37 (Area level), and can also be shown on the ACIS open case database. The PSP should determine whether there are adequate returns on hand to accomplish the examination plan. This should include an analysis of time applied, work in process by class, turnover rates, and base inventory.

  2. On a quarterly basis, PSP and Exam Planning and Delivery will analyze priority program inventory, projected future inventory, and work plan delivery. If a significant variance is determined in any specific priority program, the Area, Exam Planning and Delivery, the Exam Return Selection Team and the PSP will discuss the possibility of inventory brokering. See IRM 4.1.2.6, Inventory Brokering.

  3. Selected, Not Assigned inventories (Status 08) should be maintained at minimum levels. As a general rule, the inventory should not exceed the return needs for 3 to 4 months.

  4. Assigned, No Time Applied inventories (Status 10) should be kept to a minimum to allow for a quicker change of direction to meet program needs.

4.1.1.6.4  (10-24-2006)
Results Monitoring

  1. Dollars per hour, dollars per return, return accomplishments and time applied are monitored using Table 37. Table 37 also provides an analysis of the results and inventory by project code. The ACIS closed case database also monitors accomplishments.

  2. The PSP should closely monitor Table 10.1B on a monthly basis to ensure duplications are eliminated and corrections are made promptly.

4.1.1.7  (10-24-2006)
ZIP/POD Tables

  1. Examination inventory is assigned to Area offices based on ZIP codes using the ZIP/POD Lookup Table at Martinsburg Computing Center. Returns filed with a ZIP Code that is not on the ZIP/POD lookup table will post to POD 999.

4.1.1.7.1  (10-24-2006)
High Assault Risk Areas (HARA)

  1. Certain ZIP code areas are identified as High Assault Risk Areas (HARA). If a POD serves both HARA and non-HARA ZIP codes, it will be assigned two POD codes. For example, POD Anytown (now POD XXX) has 4 HARA and 6 non-HARA ZIP codes. POD Anytown would be assigned a POD code for the 4 HARA ZIP codes and POD XXX for the 6 non-HARA ZIP codes it serves.

4.1.1.7.2  (10-24-2006)
Updating ZIP/POD Tables

  1. Separate Individual Master File (IMF) and Business Master File (BMF) ZIP/POD listings are produced annually from the lookup table and distributed to Area offices for updating. The validity of these lists must be maintained to accurately identify examination workload by geographic areas. The PSP Territory Manager is responsible for correcting those ZIP Codes which appear in POD 999. If the ZIP Codes are valid, they should be incorporated into regular POD’s.

  2. When the ZIP/POD tables are updated the PSP Territory Manager can:

    • Add or delete posts of duty

    • Add or delete ZIP codes

    • Change post of duty names

    • Move ZIP codes from one POD to another

    • Align unstaffed PODs to the correct staffed POD. (This may be different for revenue agents and tax compliance officers.)

  3. Specific instructions for updating the ZIP/POD files are provided by Headquarters annually.

4.1.1.7.3  (10-24-2006)
POD 999

  1. After Cycle 52, the current file year Inventory and Delivery reports for all individual and corporate returns will be reviewed. For example, the Inventory and Delivery report for file year 2005 will be reviewed after 12/31/2005. Any high DIF scored returns remaining in POD 999 should be ordered for classification.

Exhibit 4.1.1-1  (05-19-1999)
Tables and Reports Important to PSP

The following tables and reports provide valuable information to PSP for managing the classification program.


Table 1.5A — NRP Return Listing
Table 2 — PSP Centralized Storage Inventory Report (Status 08)
Table 4.0 — Returns with Statute Date Pending
Table 4.1 — Returns with Statute Date Pending (Status Codes 10, 12, 13, 17, and 18)
Table 10.1(B) — $100,000 Cases Listing, $50,000 or Greater Delete Listing

Table 36 — Examination Program Monitoring (Campus Produced)
Table 37 — Examination Program Monitoring (Detroit Computing Center Produced)

Report 1040–1 — Individual Inventory and Delivery Report, IRM Exhibit 4.1.3-1
Report 1040–2 — Individual Inventory and Delivery Analysis, IRM Exhibit 4.1.3-2
Report 1040–3 — Individual Inventory and Delivery Report (Unallowable, Tax Preference, & Self Employment Tax), IRM Exhibit 4.1.3-3
Report 1040–5 — Individual Amended Returns Inventory and Delivery Report, Exhibit 4.1.3-4
Report 1040–6 — AO/SC Inventory and Delivery Report (DIF CORR), IRM Exhibit 4.1.3-5
Report 1041 — Inventory and Delivery Report for Fiduciary Income Tax Returns, IRM Exhibit 4.1.3-11
Report 1065–1 — Partnership Inventory and Delivery, IRM Exhibit 4.1.3-9
Report 1065–2 — Partnership Inventory and Delivery Analysis, IRM Exhibit 4.1.3-10
Report 1066–1 — Real Estate Mortgage Investment Conduit Inventory and Delivery Report, IRM Exhibit 4.1.3-12
Report 1120–1 — Corporate DIF Inventory and Delivery, IRM Exhibit 4.1.3-6
Report 1120–2 — Corporate Inventory and Delivery Analysis, IRM Exhibit 4.1.3-7
Report 1120–3 — AO 1120S DIF Inventory and Delivery, IRM Exhibit 4.1.3-8


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