This section provides guidelines for the development of workpaper content and organization, as well as preparation of audit findings for a completed report. These guidelines are provided to promote quality and consistency in examiner workpapers and reports.

Workpapers are the written records kept by the examiner which provide the audit trail and principal support for the examiner's report and document the procedures applied, tests performed, information obtained, and the conclusions reached in the examination. Electronic files are considered workpapers.

Workpapers serve four basic purposes:

Workpapers must be legible and organized. The workpapers are required to be identified by the appropriate SAIN number, (See Exhibit 4.46.6-1), and there must be logical order within each section so that others such as a reviewer or Appeals Officer, can easily follow your work product. The " Audit Tools" website provides pro-forma lead sheets for each SAIN area with standardized audit procedures that can be tailored to each examination.

Workpapers should appropriately document techniques used and conclusions reached. For additional information regarding workpapers, refer to IRM 4.10.9 and IRM 4.46.3.10.2.2.

Relevant workpapers should be separated from extraneous documents. Extraneous documents should be properly disposed of or returned to the taxpayer.

Workpapers must properly document examination activities. which include Form 9984, Examining Officer’s Activity Record, is used to record this information.

The loss of computerized records related to examinations can have catastrophic consequences to the tax administration process and potentially result in the loss of large sums of current and future revenue. Proper backup and off-site storage procedures facilitate data recovery if a data loss occurs. Contact the Service’s Records Officer in AWSS for additional guidance.

These procedures are intended to define the LMSB minimum standards and expectations for backing up vital computer files at audit sites and provide direction to managers and other employees on minimum acceptable procedures to protect data. The requirements are intended for any LMSB audit site where a government desktop or file server containing taxpayer data is left overnight at the site. This is not intended to mandate procedures for smaller audit sites where government computers are not left overnight at the taxpayer’s location.

This policy outlines the minimum requirements for data backup and offsite storage for large audit sites. Additional or more frequent backups may be necessary depending on the audit site and should be determined by team coordinator.

Examination reports should contain all the information necessary to ensure a clear understanding of the adjustments and demonstrate how the tax liability was computed. Examination reports serve as the basis for assessment and collection action. Examiners should take all necessary steps to ensure the accuracy of examination reports.

Instructions – Team members should refer to the examination plan for specific instructions on the preparation of the examination report.

Consistency - The team coordinator, after receiving the individual portions from team members, should make whatever editorial changes are needed in order that the report going to the taxpayer is uniform as to composition and style of presentation. A team member’s transmittal letter should not be changed.

Tax computation and report preparation software are available to LMSB agents. Approved software is to be used to generate examination reports and for entry of all data required for the Examination Operational Automation Database (EOAD):

Form 4549, Income Tax Examination Changes, is the basic report form used to prepare the Revenue Agents Report for most LMSB examinations.

Reports for partnerships and subchapter S corporations are prepared on Form 4605, Examination Changes Partnerships, Fiduciaries, and S Corporations.

Form 4666, Summary of Employment Tax Examination is used to summarize the employment tax examination results. Form 4667, Examination Changes – Federal Unemployment Tax, and Form 4668, Employment Tax Examination Changes Report, are prepared by the Employment Tax Examiner. Refer to IRM 4.10.12.

Examination reports must meet the following standards

Taxpayer agreement to an examination report may be secured on Form 4549, 4605, 2504 or on Form 870, Waiver of Restrictions on Assessment & Collection of Deficiency in Tax & Acceptance of Overassessment. See IRM 4.10.8.4.3 Instructions for Completing Waivers on Form 870.

Agreement forms are considered executed when the taxpayer has signed the form. Executed agreement forms should be date stamped upon receipt.

When signed agreement forms are received, cases should be processed promptly.

Solicitation of Deficiency - Examiners must solicit payment of tax deficiency and interest. This action must be documented on Form 9984, Examining Officers Activity Record.

Cash Bonds or Payments - Taxpayers may pay a deficiency or proposed deficiency by either posting a bond or making an advanced payment. A Form 3244A, Payment Posting Voucher -- Examination, should be prepared and processed with the funds received, according to LMSB guidelines.

Processing Checks Received – Procedures for processing remittance checks received from taxpayers are found in IRM 5.1.2, Remittances, Form 809 and Designated Payments. Remittances made to the IRS must be made payable to the "United States Treasury" .

Report forms used to present the audit findings for an unagreed case are similar to those used for agreed cases and the instructions for completing agreed case reports generally apply. However, unagreed report forms do not include a signature line for the taxpayer's consent to assessment and collection.

Form 4549A or 4605A is prepared to summarize all adjustments. Form 886-A, Explanation of Items, provides a detailed discussion of each unagreed issue. Each issue should be explained on a Form 886-A, Explanation of Items, detailing the facts, law and argument, taxpayer’s position, and a conclusion.

Taxpayers will be informed of their rights to discuss proposed adjustments with the examiner’s team manager.

Taxpayers will also be informed of their formal appeal rights.

Examiners are required to solicit payment for tax deficiency and interest on all agreed issues, unless the adjustments agreed to generate a net refund.

Factual or legal differences must be addressed if the taxpayer submits a protest. The examiner must review the taxpayer’s position and prepare a rebuttal to share with the taxpayer.

Taxpayers should be encouraged to enter into a partial agreement by executing a waiver such as Form 870, if agreement can be reached on one or more, but not all issues or years, unless the adjustments generate a net refund.

Form 886-A will be prepared and attached to the report form to explain the adjusted items. A separate Form 886-A should be used for each adjustment. If the adjustment is applicable to more than one year, the adjustments should be shown on one combined Form 886-A. Form 886-A is often prepared as an attachment to Form 5701, Notice of Proposed Adjustment.

The following format should be used for LMSB cases:

The team manager will approve the audit report prior to issuing it to the taxpayer.