LMSB has titles for the persons assigned to a CIC or IC case. First, the Case Coordinator is the Lead Income Tax Agent on the case. This person is in charge of all aspects of the case including taxpayer contacts.

The Case Manager is the Case Coordinator’s Manager. The Case Manager is the lead manager on the case who will potentially have a part in approving all IDRs, Form 5701's and adjustments on the case.

) All specialists assigned to the case are agents that have received training in their respective specialty areas. These agents would include International, Excise, Employment, Financial Products and/or a Computer Audit Specialist (CAS), Engineer, or Economist. Each specialist has specific areas that they are assigned to audit. Each of the specialists may have knowledge of the taxpayer’s operations which would help the Excise Tax Examiner in the audit.

The Specialist Managers are the Group Managers for each of the specialists assigned to the case.

IRM 4.46.3.6.4 requires centralized control by the Case Manager of each CIC examination, including the excise tax area. The Case Manager should plan for concurrent examinations of both income tax and excise tax even though periods examined may be different. The primary advantage in this approach is that the Case Manager can perform a coordinating role for the Case which may produce savings in time.

If concurrent examinations are not possible (e.g. the income tax examination is "skip-cycled" ) but an excise examination is warranted, separate examinations will be planned under the Case Manager’s control for the different tax periods involved, one following the other.

When the Excise Tax Examiner determines that a CIC taxpayer has delinquent returns associated with the examination, the Excise Tax Examiner should bring the taxpayer current (with the approval of the Case Manager).

IRM 4.46.3.6.9(4)presents instances where separate control is not justified. However, certain conditions may be present that require separate examinations of the excise portion of the CIC examination that will be controlled by the Excise Tax Examiner. The Excise Tax Examiner should maintain regular contact with the Case Coordinator to provide information about the excise tax examination, particularly if there is an ongoing income tax examination.

Upon conclusion of a separate excise tax examination (whether controlled by the Case Manager or separately controlled), the case will be closed and a copy of the historical file (including the excise tax report) will be transmitted to the Case Manager for inclusion in the next cycle’s results.

If the Excise Tax Group Manager feels that an examination is warranted, but the Case Manager does not, and the matter cannot be resolved, both Managers will document the facts and submit the matter to their respective Territory Managers.

Where the Excise Tax Group Manager and the Case Manager cannot agree as to whether control should be transferred to the Excise Tax Group Manager, both Managers will document the facts and submit the matter to the respective Territory Manager for resolution.

If the excise tax case and the income tax case are located in different areas and there is a difference of opinion as to separate examinations, the matter should be referred to the respective Territory Managers. If the Territory Managers cannot agree, the Director, Field Operations in LMSB, after hearing presentations by both Territory Managers and consulting with their counterpart in the area where the taxpayer is located, will make this decision.

Under the MOU, there are certain timing requirements to be met by Excise. Excise must notify LMSB of receipt of the referral within two weeks of the date the referral was made. With the use of the SRS system, receipt of the referral is acknowledged by the Excise Group Manager when the referral is accessed on the system.

Once the referral is received by Excise, Excise has 30 days to assign the referral to an Excise Tax Examiner or reject the referral. Assignment or rejection is noted by the Excise Group Manager on the SRS and is received by the Case Coordinator via an e-mail. Note that the referral can be assigned for the purpose of evaluating information to determine if an excise tax audit is warranted. If this request is made by the Excise Group Manager, the Excise Tax Examiner is to perform the evaluation and notify the Excise Group Manager of the recommendations before the expiration of the 30 days. The Excise Group Manager is to either assign or reject the referral within the 30 day time limit.

Once a referral is received for either a consultation or audit, the Excise Tax Examiner and the Excise Manager are to work together and coordinate with the Case Coordinator on the timing of the excise involvement in the case. This includes determining the date of case opening and the planned closing date of the audit. This will aid in determining the timing of the excise audit procedures. A risk analysis will be made to aid in determining the number of days needed for all planned issues and each entity under excise examination. Included in the determination is time spent on administrative items such as meetings, statutes, and case closing procedures.

The Excise Tax Examiner and the Excise Group Manager should also plan to attend all meetings concerning the case. This includes the planning meeting, the opening meeting, periodic audit meetings as warranted and the closing meeting.

The Excise Tax Examiner should meet with the other audit Case members such as:

In addition to other agents and specialists, the Excise Tax Examiner needs to gather information from other sources. A main source of information is Form 851, Affiliations Schedule, or a subsidiary schedule with Employer Identification Numbers (EIN) of all subsidiaries. It is important to identify all affiliates and related entities and determine the business purpose of each. Request the appropriate Integrated Data Retrieval System (IDRS) research to determine each related entity’s filing status. Consider each subsidiary for inclusion in the audit plan.

Review the income tax returns of the parent and any related entity to determine whether the taxpayer has filed a Form 4136 Credit for Federal Tax Paid on Fuels. If so, obtain a copy of the form and any attachments. Review the information for any large and unusual fuel credits and/or potential for duplication of claims filed on the same type of fuel.

In addition to the Form 4136, the income tax return of the parent and any related entity is to be reviewed for the existence of Form 5471 , Information Return of U.S. Persons with Respect to Certain Foreign Corporations. The Form 5471 notes ownership of a foreign subsidiary as well as the location and the business purpose of the subsidiary. Information on the Form 5471 is helpful in determining potential imported products subject to excise tax as well as foreign insurance on the transportation of the items. The Form 5471 will also note foreign insurance entities potentially subject to foreign insurance excise tax on premium transactions.

Review the income tax returns of the parent and any related entity to determine the amount of insurance expenses reported in Other Deductions and Cost of Goods Sold. Review the balance sheet for long term liabilities which may include global debt obligations.

Form 5472 , Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business, monitors transactions of foreign owned corporations. This form will aid in determining foreign manufacturers for potential imported products and foreign insurance on shipments. It is a source for further inquiries whether the foreign parent is providing insurance to domestic companies. It also will help in identifying foreign insurance entities for potential foreign insurance tax.

Corporate Annual Reports. 10-K’s, and audited financial statements can also yield information about the taxpayer. Review these financial reports for the years under audit and for prior and subsequent years if available. Pay special attention to the discussions about the company operations, litigation, and risk factors, and note any changes in the corporate structure including new entities or divisions and/or sales or disbanded entities or divisions.

Filed Form 720 720 Quarterly Federal Excise Tax Return and Form 8849 Claim for Refund of Excise Tax are to be reviewed for large and unusual items as well as for current or hot issues. Potential non-filed returns are to be considered based on the activities of the entity. Filed claims are to be reviewed for large or unusual items, even if already paid by the Service Center. Should a paid claim be selected for review, Erroneous Refund or Excessive Claims procedures are to be followed as noted in IRM 4.24.8.

State and Governmental reports may also aid in determining the audit plan of the entity. Examples of State and governmental reports are import documents, State fuel tax reports for fuels sold during the period, and Annual State Reports filed by insurance companies with their State insurance commission. The annual state reports will note premium transactions with foreign reinsurers.

Transcripts should be requested on all entities involved with the taxpayer. From the transcripts, determine the filing status, the amount, and the types of excise taxes filed for each entity, and whether statutes are imminent. The parent and all related entities can be researched on the internet for information concerning domestic and international manufacturing as well as products and services offered.

Review the information contained in the group historical file from prior excise audits. Information concerning prior excise taxes audited and the findings and resolutions of the case can be used to expand or contract the audit plan based on the facts and circumstances of the case.

If after reviewing the available information concerning the taxpayer, it is determined that an excise audit is not warranted, the facts of the case as well as the recommendation of withdrawal from the examination are to be discussed with the Group Manager. Upon agreement by the Group Manager, a memorandum is to be prepared which discusses the reasons for withdrawal from the examination and contains the Group Manager’s signature. The original memorandum is to be forwarded to the Case Coordinator and a copy maintained in the group historical file.

The first meeting that the Excise Tax Examiner and the Excise Group Manager are to attend is the planning meeting. The planning meeting is an internal IRS meeting for all agents, specialists, and their managers. The meeting is held to discuss the taxpayer’s activities as well as the planned areas of the audit. The Excise Tax Examiner should come to the meeting prepared to discuss the areas of excise tax which will be audited for each entity. The planning meeting is also a good time to coordinate with other specialists for information they may have. The Excise Tax Examiner should listen to all of the other agents and specialists for information on additional potential areas of excise tax.

The opening meeting is held with the taxpayer present and is an introduction to the agents and specialists on the case. The Excise Tax Examiner should be prepared to give a brief synopsis of the excise taxes to be covered in the excise portion of the audit and to answer any of the taxpayer’s questions. It is important to note that the opening meeting is not an interview of the taxpayer.

The use of a risk analysis is to aid in developing an audit plan and is mandatory. It is to be used to develop the audit potential of each type of tax for each entity. It can be a formal listing of the reasons to audit or not to audit a particular tax. It can also take the form of notes concerning each type of tax or entity. The risk analysis is used to determine the types of taxes to be audited for each entity as well as the potential issues to be audited. Once this information is determined, the number of days or hours to be spent on each issue can be determined. This will also aid in scheduling the time span of the audit to ensure timely completion.

Areas to consider within the risk analysis are areas of compliance with the excise taxes the taxpayer is exposed to. This could include potential computation errors in determining the tax due, especially for complex tax laws. Potential for incorrect exemptions to be taken, as well as any tax avoidance schemes is also to be considered . The impact on future years is also to be considered. For example, an entity expanding into a new industry may have excise compliance issues in the future. Although the tax may not be filed now or may be deminimus, the future may bring larger filing requirements.

The risk analysis is to consider current industry issues. These can be determined from the excise web site or by contacting an EIS. Considerations are also to be made for additional time, work, and research for issues which are in litigation and may result in unagreed cases.

In performing a risk analysis, the reliance on the taxpayer’s systems and controls is to be considered. If the taxpayer has a history of poor internal controls, additional time and sources of information may be needed including third party contacts. If the taxpayer has a good history of returning information requests quickly, the time span of the audit can potentially be adjusted. Determination of scope limitations and expansions goes hand in hand with historical examination information through consideration of prior issues and results.

The Excise Tax Examiner’s experience with each type of tax to be audited is to be considered. If the Excise Tax Examiner has a high amount of experience in a specific tax, the time allocated to the audit item may be reduced. However, if the Excise Tax Examiner has a small amount of experience with a particular tax, the amount of time allocated to the audit of that tax should be increased due to additional time needed for research and familiarization with the issues and tax. Time may also be increased or decreased depending upon the facts and circumstances of the case for EIS involvement and/or other specialists’ involvement.

After a risk analysis is performed for each entity and each type of tax, an audit plan is to be prepared for each entity. For an example of an audit plan See Exhibit 4.24.5-1. Each audit plan will note the taxes, the issues within each tax, the time allocated to each tax and issue. This number can be adjusted as the facts and circumstances of the audit change.

The determination of the time on case is based on a number of factors including size and types of activities of the entity and subsidiaries, the experience of the Excise Tax Examiner, the potential amount of research to be performed, and the amount of time needed for general examination items. General examination items can include statute controls, meetings, and case closings. History of the examiner with time charged on other cases can also be considered.

The Excise Tax Examiner and the Excise Group Manager need to work together to determine the time on case initially as well as with any expansion and contraction of the case and issues. All of this information is to be coordinated with the Case Coordinator

Once the audit plan is finalized, obtain the Excise Group Manager’s signature on the plan and forward the original to the Case Coordinator. Maintain a copy in the case file. If an appointment date for an on-site visit has not been arranged, set the appointment.

Include completion of Form 6782, Certification of Financial Interest in a Work Assignment, if requested by the Case Coordinator.

Prior to requesting information from the taxpayer, the Excise Tax Examiner should verify whether Form 2848 , Power of Attorney and Declaration of Representative, or Form 8821 , Tax Information Authorization, which may be on file, include excise tax for the period under examination. If not, the Excise Tax Examiner should work with the Case Coordinator in procuring the appropriate form from the taxpayer that will include excise tax for the examination period.

At the on-site appointment, the initial IDRs are to be issued. Discuss the issuance with the Case Coordinator and obtain information to be included on the IDRs such as the name of the person they are to be issued to, the numbering system of the IDRs, and the response due date for the information requested. Update the case IDR log as requested by the Case Coordinator. Each IDR is to be tailored to a specific issue and/or type of tax. Do not issue one IDR with many different types of taxes included. In addition to the case IDR log, maintain an Excise Tax IDR log with the following information; the IDR number, the entity to which it was issued, the issue involved, the date issued and the date the information is received from the taxpayer.

Do not overburden the taxpayer with requests for information or overly detailed requests for information. Determine what information is needed to make a decision as to whether there is an issue or not and then proceed with more detailed requests. For example, do not request insurance contracts with the first IDR. Instead, request a summary of all activity and choose specific contracts to view. The summary of insurance policies can then be reviewed and total premiums reconciled with General Ledger insurance expense accounts. The CAS can assist with these accounts. Use the Excise Tax IDR log to follow-up on overdue IDRs with the taxpayer on a regular basis. A helpful forum for obtaining updates on the progress of IDRs is the periodic meetings held with the taxpayer. Also, having open communication with the taxpayer may help in answering questions or clarifying what items are needed to fulfill the IDR. If the taxpayer is not responding in a timely fashion and resolution does not appear to be forthcoming, the Excise Tax Manager and Case Coordinator may be contacted to assist the Excise Tax Examiner in resolving the delays.

The periodic audit meetings are arranged by the Case Coordinator and are between the taxpayer and members of the IRS audit staff. These meetings can be formal monthly meetings or informal weekly updates. At each meeting, an update of open IDRs is obtained from the taxpayer including a potential date by which the taxpayer will provide the information requested. The taxpayer may also want to provide or obtain an update on an issue. Information concerning specific issues or the taxpayer’s position on an issue can be discussed.

All cases are to be worked using management specified report generating software system and utilize the appropriate lead sheets and templates.

Once all information is gathered, an audit determination for each issue can be made. All taxpayer contacts to obtain specific information are to be coordinated through the Case Coordinator. All issues need to be discussed with the Case Coordinator before they are raised with the taxpayer. The Case Coordinator will consider the overall materiality of the issue in making his or her decision. It is up to the Excise Tax Examiner to provide the Case Coordinator with information concerning materiality in relation to excise taxes as well as any future compliance issues.

When the audit determination is made, the issues are to be discussed in full with the taxpayer along with obtaining information concerning the taxpayer’s position to the issue. For unagreed issues, Fast Track Mediation is to be considered and discussed with the Case Coordinator and the taxpayer.

For each issue the Excise Tax Examiner is proposing adjustments, a Form 5701 is to be prepared along with a detailed explanation of the issue. The issuance of a Form 5701 is to be coordinated with the Case Coordinator concerning the numbering and entry into the Form 5701 log. A separate Form 5701 is to be prepared for each issue.

A separate Excise Form 5701 log is to be maintained by the Excise Tax Examiner which notes the Form 5701 number, the issue, the date issued, the date of receipt of a response and the taxpayer’s response to the issue.

Once all Form 5701's are returned from the taxpayer with the taxpayer’s response, audit reports are to be prepared according to directives in IRM 4.24.10 based on the type of report needed. If a Form 4136 is under audit with an adjustment, the adjustment will be reflected on the Case Coordinator’s audit report. Therefore, a memorandum of adjustments is to be prepared to notify the Case Coordinator of the adjustment, the amount adjusted, the tax year of the adjustment, and an explanation of the adjustment.

A closing memorandum is prepared at the conclusion of the audit which notes the name, EIN and quarter of each entity audited for excise taxes. The closing memorandum also notes the time charged to each entity. It provides a detailed discussion of each type of tax and issue audited along with the findings, even if the audit resulted in a no-change. Any Form 637 reviews performed are also noted along with the findings of the review.

The closing memorandum may also be used to provide a critique of the excise portion of the audit. The critique includes a discussion of the relationship with the taxpayer and a mention of any items needed for future excise audits. The original closing memorandum is to be forwarded to the Case Coordinator. A copy is to be placed in the group historical file. Another copy is to be forwarded to the Form 637 Coordinator for inclusion in the 637 file if applicable.