- 4.24.5.1 Overview
- 4.24.5.2 CIC Program Procedures - General Procedures
- 4.24.5.3 Specialist Referral System (SRS)- Overview
- 4.24.5.4 Pre Contact Case Coordination
- 4.24.5.5 Procedures for the Examination of LMSB Coordinated Industry CIC Case Referrals
- 4.24.5.6 Time Charges
- 4.24.5.7 Compliance Assurance Program (CAP) Overview
- 4.24.5.8 Excise Tax Pre-Filing Agreements
- 4.24.5.9 Limited Issue Focused Examinations for Excise Tax Returns
- 4.24.5.10 Delegation Order Number DO-4-25
- Exhibit 4.24.5-1 An Example of a LMSB CIC Excise Tax Examination Plan
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LMSB cases fall into two categories, Coordinated Industry Cases (CIC) or Industry Cases (IC).
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A CIC is a taxpayer and its effectively controlled entities that warrants the application of team examination procedures and meets the required point criteria. A case qualifies as a CIC if after using the point criteria the case totals 12 or more points as outlined in IRM Exhibit 4.46.2-2.
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The factors used in computing the point criteria are as follows:
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Gross Assets
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Gross Receipts
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Operating Entities
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Multiple Industry Status
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Total Foreign Assets
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Total Related Transactions
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Foreign Tax
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An IC is a taxpayer and its effectively controlled entities that warrants the application of Case examination procedures but does not meet the definition of a CIC.
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The provisions below only pertain to LMSB CIC cases. Normal excise examination procedures apply for non-CIC LMSB cases.
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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.
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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.
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) 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.
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The Specialist Managers are the Group Managers for each of the specialists assigned to the case.
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This section provides specific procedures relating to LMSB CIC for Excise Tax Examiners.
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The majority of cases in the CIC program involve taxpayers liable for one or more types of excise taxes. Many excise taxes are complex and difficult to administer. The Excise Tax Examiner has the expertise to assist the Case Manager in identifying potential excise tax areas of the examination. Many of these areas, such as foreign insurance and the importation of ozone-depleting chemical products are related to international issues.
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CIC Case Managers and Case Coordinators will involve Excise Tax Examiners early in the examination to identify industry-related issues and to achieve uniform compliance on an industry-wide and issue basis.
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Excise Tax Group Managers will be involved in the planning of all CIC examinations. Both the Excise Tax Group Manager and Excise Tax Examiner will be invited by the Case Manager to both the pre-examination conference and the formal opening conference of each CIC examination.
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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.
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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.
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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).
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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.
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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.
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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.
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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.
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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.
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With the reorganization of the IRS, a division between agents who worked on large cases was formed as the large case agents and most specialists were placed in LMSB and Excise was placed in Small Business and Self Employed (SBSE). This created a problem in accounting for and allowing SBSE agents to work on LMSB cases. To rectify this problem, a Memorandum of Understanding (MOU) was signed by the Commissioners of LMSB and SBSE. The MOU is in effect from October 1, 2006 through September 30, 2009. The MOU outlines the responsibilities of the Excise Tax Examiner in assisting the LMSB agent. It also mandates that the SRS will be used for all CIC case referrals to the excise tax group.
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SRS is used to provide excise referrals on each CIC case. The SRS has been modified so that an entry in the excise screen is mandatory for the Case Coordinator. The referral is then assigned to the Excise Tax Examiner by the Excise Group Manager via the SRS system. See web site http://lmsb.irs.gov/hq/fs/referrals.asp for details about the system.
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The Excise Tax Group Manager must submit an Automated Information System User Registration/Change Form and Online Form 5081 in order to receive on line Excise Tax referrals from other operating divisions via the SRS. In order for an Excise Tax Examiner to receive SRS referrals, the Examiner must submit an Online Form 5081 subject to manager approval.
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Notification of the case assignment is received via an e-mail. The e-mail address will read "SRS Referral System@irs.gov" . The e-mail will provide a direct link to the SRS so that the Excise Tax Examiner can retrieve the referral information.
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The following information will be included on the referral:
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Name and address of the taxpayer,
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EIN of the taxpayer,
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Income tax years under audit,
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Estimated start date and closing date of the income tax audit,
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Any comments concerning excise taxes,
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Name and phone number of the Case Coordinator and Case Manager.
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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.
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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.
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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.
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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.
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Once the referral is received, the Case Coordinator is to be contacted by the Excise Tax Examiner within two weeks. During the contact, the Excise Tax Examiner is to obtain information concerning the business operations of the taxpayer as well as business operations of the taxpayer’s subsidiaries.
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The Excise Tax Examiner should pay special attention to the business activities of the taxpayer and subsidiaries which have excise tax potential.
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The Excise Tax Examiner is also to coordinate dates of the planning meeting, the opening meeting and on-site visits to the taxpayer with the Case Coordinator. A discussion of the time or number of days allocated to excise is also needed to help in determining the audit plan.
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The Excise Tax Examiner should also obtain a list of the other specialists assigned to the case as well as what information is located on site which will be useful in pre-audit activities. The Case Coordinator can request general information for the Excise Tax Examiner if needed. If the Excise Tax Examiner has not been out to the site before, obtain directions to the site as well as procedures to follow and/or directions to the audit room. Currently, with increased security at many large case sites, the Excise Tax Examiner may need to provide information to the Case Coordinator so that security clearances and temporary badges can be obtained.
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The Excise Tax Examiner should meet with the other audit Case members such as:
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The Computer Audit Specialist (CAS)
The CAS should be consulted to determine if a high volume of records is needed, a sort of a particular file is required, or to determine if the records related to excise taxes are machine sensible and contained in the Retention Agreement. As machine sensible records are identified, which would be useful for future excise tax examinations, the Excise Tax Examiner should consult with the CAS to have these records included in the new Retention Agreement at the end of the current income tax examination cycle. -
The International Examination Examiner (IE)
The IE should be consulted about captive off-shore insurance companies as the treatment of these off-shore insurance companies, reinsurance, and treaty considerations directly relate to the Foreign Insurance Excise Tax. The IE should also be consulted about imports from controlled subsidiaries and possible pricing issues as they relate to excise taxes on various imported products. Imported pricing used for computing excise tax on products containing ozone-depleting chemicals should agree with the pricing used by the IE for determining the profit center. The IE could also assist in determining the existence and location of all foreign subsidiaries and entities and help determine the business purpose of each of these foreign entities. -
The Financial Products Specialist
The Financial Products Specialist can help in determining the amount and type of imported products as well as the existence of any global notes and securities. -
The Excise Agent on the Prior Cycle Audit
The Excise Agent assigned to the prior cycle audit of the taxpayer is an invaluable resource of information about the taxpayer. In addition to discussing the taxpayer and the taxpayer’s operations, information concerning the taxes audited on the prior cycle as well as the findings of the prior cycle can help to determine the audit plan of the current cycle. For example, if an area of tax planned for the current cycle was reviewed in the prior cycle with no adjustment or no unusual items were noted and there has been no change in the operations of the taxpayer in this area of tax, the scope of the Excise audit may be limited in respect to this tax. Of course the facts and circumstances of the case need to be considered as well as managerial approval of the scope limitation. -
The Engineer
The Engineer should be consulted on related excise tax issues such as the water content of coal, various chemical manufacturing flow charts, chemical substance items, and ozone depleting chemical items. Depending on the expertise of the engineer assigned to the CIC examination, a separate excise tax referral to the engineer group for a mineral, chemical or other Specialty Engineer may be required. -
The Form 637 Coordinator.
The Form 637 Coordinator should be consulted to determine if the taxpayer or any subsidiary holds a Form 637 registration and to provide any relevant copies of work papers or forms located in the registration file. The Excise Tax Examiner will coordinate with the Form 637 Coordinator if a 637 Review is needed on the Registrant. Copies of any findings of the regular excise audit are to be forwarded to the Form 637 Coordinator for inclusion in the Form 637 file. -
Excise Issue Specialist (EIS)
The EIS can provide information concerning current issues in the specific Excise Tax as well as ideas and help in obtaining and reviewing information during the audit. Should an Excise Tax Examiner uncover an issue during the audit, the EIS can supply support and help in working the issue. The EIS web page on the Excise Web site, http://sbse.web.irs.gov/EX/Policy/EIS/default.htm, also provides updates on issues within each Excise Tax as well as information, sample IDRs, and audit guides for each type of Excise Tax.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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This section discusses the Exam procedures of LMSB coordinated cases.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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
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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.
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Include completion of Form 6782, Certification of Financial Interest in a Work Assignment, if requested by the Case Coordinator.
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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.
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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.
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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.
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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.
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All cases are to be worked using management specified report generating software system and utilize the appropriate lead sheets and templates.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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The Excise Tax Group Manager and the Excise Tax Examiner will be invited to participate in the closing examination critique meeting. The Excise Manager and Examiner should discuss all problems related to the examination, such as the taxpayer response time to IDR’s, and the overall cooperation during the course of the examination.
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All time spent in actual audit activities are to be charged to regular excise tax controls. Pre-examination activities such as consulting, research and review of company information is to be charged to Activity Code 598. Once the first IDR is issued and/or work performed on a specific issue has occurred, the regular excise tax controls are to be requested and used. Master File controls using SFR procedures may be used when the taxpayer has not filed a Form 720 and Form 720 taxes are under audit. See IRM 4.24.6.17 for the appropriate SFR procedures.
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In cases where a Form 4136 is under audit, controls for a collateral examination under the MFT of the income tax audit are to be requested.
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The Compliance Assurance Program is designed to provide a high level of certainty for both the IRS and taxpayers that returns are substantially compliant when filed or as close to the end of the reporting period as possible while minimizing resources required.
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The current Memorandum of Understanding (MOU) with LMSB requires Excise to support LMSB and does not distinguish the type of support and can be taken as all encompassing.
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The Excise Tax Examiner's role in the CAP case is essentially the same as in any post filed excise examination in that the agent will determine what excise tax liabilities exist, if any, and work with the taxpayer in determining the proper excise tax treatment of those transactions prior to the filing of Form 720.
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The Excise Tax Examiner will record his/her time on Form 4502 Technical Time Report by using MFT C1, Activity Code 525, the income tax CAP cycle year and the EIN of the CAP taxpayer. LMSB will input the case control. The Excise Tax Examiner will not request a separate case control. The Excise Tax Examiner should contact the Case Coordinator to obtain case control information for time reporting purposes. The time will be reflected at the bottom of Form 4502 as"returns are not owned by the employee." This will remain on Form 4502 until the income tax Case deletes the controls.
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The Excise Tax Examiner will request records for the most current unfiled Form 720 period. If an excise tax liability exists in the current period and no previous Form 720 returns were filed, the Excise Tax Examiner would secure previous periods using regular AIMS controls. If the taxpayer did file a Form 720 for the previous quarter and it was determined they are treating transactions incorrectly, the Excise Tax Examiner should examine the previous filed Form 720(s).
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Instances may occur where an analysis of the current period transactions does not reveal an excise tax liability, but the taxpayer has previously filed Form 720 during or prior to the CAP Cycle Year. In this case, the Excise Tax Examiner should consult with the Excise Group Manager as to whether to start an examination of the filed Form 720. In doing so, the Excise Tax Examiner could then determine if transactions were properly handled and what impact this may have on the CAP Cycle Year. If an analysis of the current period transactions does not reveal an excise tax liability at the end of the cycle, the period should be established and a no change report be issued to the taxpayer for that period.
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For more information regarding CAP see http://lmsb.irs.gov/hq/pftg/CAP/index.asp .
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Rev. Proc. 2007-17provides the guidelines that permit a taxpayer in the Large and Mid-Sized Business division to request the examination of specific excise issues relating to a return before the return is timely filed.
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The Pre-Filing Agreement guidelines outlined in IRM 4.30.1, should be utilized by the Excise Tax Examiner except for the following:
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When a request for an Excise Tax Pre-Filing Agreement is received by either the Case Manager or Office of Pre-Filing Services, a copy is forwarded to the Excise Policy Senior Manager in SB/SE, who has the responsibility for the resolution of all excise issues.
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The Tier One screening of the Excise Tax Pre-Filing Agreement information is to be forwarded to both the Industry Director and the SB/SE Policy Deputy Director.
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The Tier Two screening is completed jointly by both the appropriate LMSB Industry and the SB/SE Policy Deputy Director. A written notification letter from both the Industry Director and SB/SE Policy Deputy Director to the taxpayer will specify the reasons(s) for acceptance or non-acceptance, and the amount of the user fee if accepted and the remittance address.
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All meetings involving the excise issue submitted for a Pre-Filing Agreement will involve the EIS responsible for the excise tax abstract involved.
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The Closing Agreement finalizing the Pre-Filing Agreement will be jointly executed (sign and date) by both the Industry Director and the SB/SE Policy Deputy Director, or their designee’s.
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Effective November 1, 2002, LMSB implemented a new type of examination known as Limited Issue Focused Examination (LIFE). These procedures limit the scope of an examination to only those few issues that represent the greatest compliance risks.
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The Memorandum of Understanding between the Internal Revenue Service and the taxpayer covering a LIFE must specify the specific tax return covered by the agreement.
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No LIFE agreement covering excise tax returns can be entered into without the involvement of the Case Manager assigned to the case.
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The LIFE process provides Case managers with the authority to waive specific mandatory compliance items, but not the ability to waive the examiners obligation to make referrals to specialists when required. See IRM 4.10.2.6.5.
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Excise Tax Examiners and Excise Managers will participate in the risk analysis.
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If the Case Manager and the Excise Manager disagree on the scope of the examination with respect to the Excise Tax Examiner’s activity on the LIFE case, the matter should be resolved as described in IRM 4.46.3.7 Management of Specialists.
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Delegation Order Number DO-4-25 provides resolution authority to all LMSB Case Managers and SBSE Territory Managers on Technical Advisor (TA) Coordinated Issues and Appeals Coordinated Issues (ACI) for which appeals has approved settlement guidelines.
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For a TA Coordinated Issue, the procedures found in IRM 8.7.3 4 should be followed. IRM 8.7.3.4.3 allows LMSB Case Managers and SBSE Territory Managers to settle coordinated issues when an Appeals Settlement Guideline has been approved and discusses the relevant procedures. One of the goals of the program is to achieve fair, equal, and consistent treatment for all coordinated issues.
Excise Tax Examination Plan - XXX Corporation
Taxpayer: | XXX, Inc. 035 Weston Street East Northport, ME 04669 |
Subsidiary Under Examination: |
Note:Consolidated Form 720's are not permitted. Each subsidiary must file it's own Form 720. Each subsidiary should have it's own Examination Plan. |
Tax Form: | Form 720 |
Type of Tax: | Facilities and Services-Foreign Insurance IRS No.030 Air Transportation Tax IRS No.026 Obligations Not in Registered Form IRS No.031 Communications Taxes - Local Telephone Service IRS No.022 Environmental Taxes - ODC Tax-Import Products IRS No.019 |
Audit Period: | 200012 (199812, 199912, 200012 income tax return cycle) |
EST Excise Tax Reported: | $82,200 tax per quarter |
Audit Time: | 25 to 30 days |
Audit Scope
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Examine taxpayer’s copies of Form 720 and
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Supporting consolidated work papers,
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Supporting divisions and/or plant semi-monthly sales and/or tax reports.
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Examine taxpayer’s annual financial statements, income tax returns, general ledgers, and journals.
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Examine samples of credit memos for the periods under exam to detect any blind credits taken on the 720 returns.
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Request and inspect the insurance policies to see if the foreign insurance tax is properly computed on the correct premium amounts. Check other insurance amounts for policies placed with foreign insurance companies located in non-treaty countries. Coordinate with the International Examiner assigned to the case.
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Review all reinsurance contracts with companies in non-conduit treaty countries to see if a valid closing agreement is in place covering the foreign insurer.
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Review all reinsurance contracts with companies in conduit treaty countries to see if a valid certificate of residency for treaty coverage is in force.
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Review the Vermont insurance subsidiary for potential Vermont captive reinsurance issue.
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Check for subsidiaries that have made Section 953(c) or (d) elections to make sure that the foreign insurance tax is paid on further reinsurance by the electing foreign subsidiary.
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Check the corporate structure for offshore and domestic captive insurance companies and verify the actual shifting of risk time to determine if the correct excise tax rate was used in computing the foreign insurance tax. Also check the taxability of the transaction at the time of risk shifting and passing of consideration.
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Check for air transportation taxes due for use of corporate aircraft. Check aircraft log books for number of passengers and amount of cargo, trip route, and business purposes, and relationship of passengers to corporate family. Coordinate with the Employment Tax Specialists assigned to the case.
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Check the offering of foreign bonds and notes, verifying that the regulation requirements are met so as not to be subject to the tax on obligations not issued in registered form. Check FPI Currency Summary Report for debt offerings of the company. Coordinate with the Financial Product Specialists assigned to the case.
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Check the hotel related properties for evidence of a telephone service reseller. Taxpayer has one subsidiary for cellular phones, but no return filed.
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Review the corporate structure and determine if any manufacturing of electronic equipment takes place in the many South American and Asian subsidiaries. Imports of these products could be subject to ODC tax upon importation.
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For products manufactured by and /or imported by the taxpayer overseas which relate to ODC products, determine the manufacturing process and the method used to determine the use of ODC chemicals. If this information is not obtainable, the products will be taxed at the rate assigned by the Treasury Regulations.
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Prepare all necessary audit work papers and reports as required.
SAIN Number Description Days 002 Pre-Examination Conference 0 003 Preliminary Exam Time 2 004 Prepare Exam Plan 1 007 Report Preparation 2 008 Exam Critique 1 802-06 Taxes 19 Total Days: 25 Note:
All hours charged to the Excise tax examination are charged to Excise tax returns and Activity Codes and are not transferred to the Case Coordinator at closing.