The Internal Revenue Code limits the time in which the government may make an assessment of tax. Examiners have the primary responsibility for identifying and protecting the statutes of limitations for returns in their custody. IRM 25.6.23, Examination Process - Assessment Statute of Limitations Controls, provides guidance for verifying statute dates. Failure to protect the statute of limitations can result in disciplinary action.

If the statute of limitations is imminent, or if it has already expired on the assigned return, the return should be immediately brought to the group manager to determine the return’s disposal.

A statute of limitations to assess tax can be extended with the taxpayer’s consent. Examiners must obtain the approval of the group manager before requesting a taxpayer to execute a consent. The need for a consent should be clearly identified before it is solicited and the group manager’s approval documented in the case file. See IRM 25.6.22.2.1 (2), Assessment, for a listing of some of the conditions that allow for a statute extension.

The examination and disposition of income tax returns is to be completed within 26 months for individual returns and within 27 months for business returns (Forms 1120, 1041, 1065, etc.) after the due date of the return or the date filed, whichever is later. Strict adherence to these guidelines is needed to ensure that the examination and all other processing can be completed within the statute of limitation.

If the examination cycle can not be met during the initial screening, the matter should be discussed with the group manager. If the group manager and examiner agree that an examination should be initiated, approval for deviation from the examination cycle requirements should be documented in the workpapers.

The following types of returns are exempted from the requirement to complete the examination and other processing within the exam cycle.

IRC section 6404(g) suspends interest for timely filed individual returns for taxable years ending after July 22, 1998, if the Service fails to notify the taxpayer of a liability within 18 months after the due date of the return (including extensions). P.L. 110-28, Title VIII, Subtitle B, Part 2, section 8242(a), amended IRC 6404(g) interest suspension period from 18 months to 36 months for notices provided to taxpayer after November 25, 2007. See IRM 4.10.8.13.12, Notice Under IRC Section 6404(g) - Suspension of Interest, and IRC section 6404(g).

Circumstances may warrant exceeding the exam cycle if failure to conduct the examination would:

Policy Statement P–4–6, IRM 1.2.1.4.4, 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.

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.

Policy Statement P–4–5, prohibits an examiner or specialist from surveying or examining a tax return of a taxpayer for more than five consecutive years (60 months) from date of assignment. If the examination is in process at the five consecutive year point, the examiner or specialist is allowed to complete the examination provided the current cycle or audit has less than 12 months remaining from the five consecutive year point. An examiner or specialist will not be reassigned to the same taxpayer for at least one intervening examination or two intervening surveys.

If an examiner is assigned a return described in paragraph (1) above, the tax return should be returned to the group manager for reassignment.

The definition of a large, unusual, or questionable item 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:

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 that should be reviewed are:

Complete the required pre-contact analysis for the examination of income as outlined in IRM 4.10.4.3, Minimum Requirement for Examination of Income.

Required filing checks will be completed as outlined in IRM 4.10.5, Required Filing Checks. However, when the scope of the examination is limited to a flow-through adjustment, the required filing checks may be limited to consideration of the taxpayer's prior and subsequent year returns.

During the pre-contact phase the examiner should review internal information including IDRS and CFOL to determine whether the prior and subsequent year returns have been filed.

The examiner should similarly determine whether known related tax returns, information returns, employment tax returns, etc. have been filed.

The examiner must document their findings by checking the appropriate boxes and making any required comments on the multi-year and related returns lead sheet. Any documents used in this determination should be included in the case file.

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.

The goal of Examination is to determine the "substantially correct" tax liability. The 80/20 concept is "value-added" decision making that weighs the impact of our decisions (potential results) with the investment of additional case time (cost). See LEM 4.10.2.4.1.1. for discussion of Value Added Decision Making.

See IRM 4.10.2.4.2, Limiting the Scope When Issues Were Examined and No-Changed in Prior Audit.

Limiting the scope is appropriate when an examination of the same issue(s) in either of the two preceding years resulted in a no-change. All individual returns closed as a no-change, require entry of an IMF no change issue code to allow AIMS to record the issues considered during the examination and no-changed. The information is sent to Master file and captured by EOAD. You can review this information using command codes I/BMFOLZ. If a subsequent return is open on AIMS, the Form 5546 (C) will display the IMF issue codes. Also, the examination return charge-out sheet can be referred to for indications of prior examinations. The charge-out sheet generally provides:

If issue(s) being considered in the current examination were no-changed in either of the two preceding years or had a small tax change, 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 the case may qualify for repetitive audit. See IRM 4.10.2.8.5.

To decrease the Account Receivable Dollar Inventory (ARDI) and increase the quality of assessments, examiners should consider collectibility when setting the scope of an examination. Collectibility will be based on today’s financial condition and not the tax return (which reflects the taxpayer’s past financial condition.)

Form 5546 (C) may provide alerts to potential collectibility issues. Examiners should review this form for collectibility indicators. See IRM 4.20.2.2, General Collectibility Considerations, for a listing and definition of collectibility indicators and steps to take when evaluating collectibility potential during the pre-planning phase.

If a charge-out sheet is not in the file, the examiner must pull certain CFOL prints. See IRM 4.20.2.2(1)(b). General Collectibility Considerations, for a listing.

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.

Examiners are required to document their evaluation of collectibility during the preplanning phase of the examination.

A return will be surveyed after assignment if, after conducting the in-depth analysis and evaluating the audit potential the following conditions are met:

In accordance with IRC section 7508, field examiners must not conduct any examinations on taxpayers who have been deployed to a Qualified Combat Zone (QCZ). Also, ongoing examinations involving any individual identified as a QCZ taxpayer should be closed immediately, unless criteria under "Compelling Reasons" are determined. See IRM 4.10.8.2.6 through IRM 4.10.8.2.6.3 for guidance.

Procedures for surveying returns after assignment are as follows:

An electronic print can be used instead of the original return. Electronic prints include but are not limited to the following:

Return(s): 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. There are three categories to select from:

Recommended action: Complete this block to indicate whether your recommended action for the return(s) is "Accepted as Filed" or "Allow in Full or Allow as Corrected."

Accepted As Filed is used when the following conditions occur:

Allow in Full or Allow as Corrected: This category is selected when claims or amended returns filed as claims are surveyed.

Related cases: Cases related to the case being surveyed. Enter related case name and TIN when applicable.

Taxable year or period: List each year’s return being surveyed on a separate line.

Adjusted gross or taxable income reported: Enter the adjusted gross or taxable income as 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:

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.

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 can not be surveyed.

Examiners will prepare a survey after assignment report to briefly explain why the claims are being surveyed. A report is not necessary if the reasons for surveying the claim are clearly stated with the claim document.

Claims should be stamped with the "survey after assignment" imprint and signed/dated by both the examiner and the group manager.

The examiner must prepare Form 5344, Examination Closing Record, for cases closed survey. See IRM 4.4.12.3, Surveyed Claims, for instruction on completing the Form 5344.

Any claim which, if allowed, would produce an overassessment/overpayment, requiring reporting to the Joint Committee of Taxation ($2,000,000 refund) 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 4.36, Joint Committee Procedures, for instruction on how to survey a Joint Committee case.

For surveyed estate or gift tax claims see IRM 4.25, Estate and Gift.

If, after initial contact with the taxpayer, it is determined that the return meets the repetitive audit criteria, the examination should be closed using the "survey after assignment" procedures. See IRM 4.10.2.5.2.

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 (DO)" (Repetitive Examination Letter.)

Form 1900 will be used to state the reason for concluding the examination.

Letter 2684 (DO) should be prepared by the examiner. The group manager will sign the letter and send it to the taxpayer.

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), Return Accepted as Filed, can be used to notify the taxpayer.

International feature returns that meet the mandatory referral criteria of IRM 4.60.6.2, Mandatory Referral Criteria, may be surveyed only after the international referral is rejected.

An international referral is made using the Specialist Referral System at https://srs.web.irs.gov/Default.asp.

Certain non-examined cases can be closed virtually paperless if the original return was never requested. Only a Form 5351, Examination Non Examined Closings, and a Form 3210, Document Transmittal, are needed for a paperless survey. Generally, this process is used when the return was established on AIMS using an electronic print and the original return was never requested. See 4.10.2.5.2(2) above for the definition of an electronic print.

If the return was requested when you established the case on ERCS/AIMS (ALL DIF and Automatic Openings request the return) the case CANNOT be closed as paperless. Before requesting a paperless closure, pull an AMDISA and if the words "RETURN REQUESTED" appear on page 2 - line 8 then a paperless closure CANNOT be requested .

An electronic print can be surveyed using the paperless process if there is no requirement to attach any documentation to the survey. Cases requiring the use of a Form 1900 can not be closed using the paperless process. See IRM 4.10.2.5.2(1) above for example of cases that require a Form 1900 to survey.

Only survey cases closed at the group level with disposal code 31 or 32 can use the paperless survey process.

Only a Form 5351, Examination Non Examined Closings, and a Form 3210, Document Transmittal, are needed for a paperless survey. These should be faxed to Centralized Case Processing.

Complete Form 3210.

Complete Form 5351 as follows:

Do not send electronic prints, asset locator research, or charge-out documents to CCP. These documents should be shredded. If you have information that must be retained, you can not use the paperless survey closure.

For additional information on paperless closures visit the AIMS website.

If you can not use the paperless survey closure, see procedures for "Survey Before Assignment" and "Survey After Assignment" at IRM 1.4.40.4.7 and IRM 4.10.2.5.2 respectively.

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 judgment in determining the scope of the examination.

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(s), the taxpayer should be notified in writing of the expansion. If the taxpayer has a power of attorney and it does not cover the tax period(s) being picked up for examination, the taxpayer must be given time to secure a power-of-attorney for the additional tax period(s). Also, the examiner must allow the taxpayer time to submit records on the newly added year. Examiners should use the appropriate appointment confirmation letter. See IRM 4.10.2.7.3.1 for field letters and IRM 4.10.2.7.3.2 for office letters.

If inventory is classified as an issue, 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.

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 inventory as a classified issue, examiners will document the steps taken to verify that inventories are correctly reported. If inventories are not examined but classified, the 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 as required above, 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.

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:

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 IRM 4.10.7, Issue Resolution.

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 Campus.

Specialists are available to provide assistance with developing and resolving significant complex tax issues. During the pre-planning phase, examiners should determine if their case requires a referral for specialist assistance.

Mandatory referrals should be made as soon as possible; but, no later than 30 daysof the initial appointment. For field examination cases the referral must be made no later than 30 days of the initial appointment or the group manager's concurrence meeting whichever occurs first.

Non-mandatory referrals should be requested as early in the examination as the need is identified.