For the Individual and S Corporation studies, the NRP Office, SB/SE, and LMSB will manage and monitor NRP operations, and provide guidance and assistance as needed.

Area Directors and LMSB Directors of Field Operations have responsibility for NRP examinations within their areas.

Territory managers have responsibility for NRP examinations within their territories.

The Area Planning and Special Programs (PSP) Territory Manager (TM) and the NRP TM work together jointly. They will coordinate NRP within the area, including, but not limited to, receipt, control, and assignment of NRP returns. They will monitor and report on the status of the area program. The Area PSP TM approves transfer of cases and has second line authority for approval/disapproval of exclusion requests.

Group Managers and Case Managers are responsible for NRP cases within their groups, including timely assignment of NRP cases, and counseling examiners on the scope and requirements of these examinations. (See Auditing Standards in IRM 4.10 and the Scope and Depth for NRP cases in this IRM at 4.22.4.4.1). They are also responsible for maintaining a workflow throughout the entire examination cycle that ensures timely completion, as well as minimizing the number of submissions based on estimated information. To ensure the quality of NRP examinations, managers should review cases according to procedures outlined in this IRM.

NRP case files containing tax returns, labels, Forms 5546 (Examination Return Charge-Out), and the appropriate case building materials will be compiled at the designated Campus and forwarded to the Area NRP Coordinators after classification.

Upon receipt of NRP case files, the NRP Coordinator will verify that case files are complete and that they agree with the accompanying transmittal list. If case files are incomplete, the NRP Coordinator will secure missing data to complete the case files or examiners may be provided with instructions to secure missing data.

After verification, the original and one copy of transmittal lists should be signed and dated on each page by the Area NRP Coordinator. Receipt of cases must be acknowledged within five workdays after receipt in the Area office.

NRP cases are processed as part of the normal examination workload unless otherwise specified herein.

After receipt of cases from the Campus, the NRP Area Coordinators will assign cases to NRP Examination Groups as quickly as possible.

After receipt of cases from the NRP Coordinator, Group Managers and Case Managers will assign cases to examiners as quickly as possible.

NRP examinations should be completed promptly without sacrificing quality. Cases will only be examined by examiners who have completed the required NRP training.

Importance of NRP Results - Because NRP results are used to develop/update formulas for scoring returns as to their probability for additional tax or additional income, among other uses, it is essential that examinations be thorough.

Scope of Examination - Every classified item must be examined. An inquiry or an inspection of records and documents must be made for all classified line items. If an examiner has a question on the rationale utilized by the classifier, he or she should refer to IRM Section 4.22.3, Classification of NRP Cases.

Depth of Examination - Examiners must use their professional judgment concerning the depth of examination required for any particular item on the tax return bearing in mind the research nature of the examination. See IRM 4.22.4.4.2.

Mandatory Probes - At a minimum, some inquiry or inspection of records and documents supporting reported or possible unreported income, deductions, and credits must be made.

Required Workpaper Documentation - All classified issues and any issue added as a result of the examination should be documented on the Lead Sheet including what action was taken to fulfill the requirements of an NRP examination. All Lead Sheets must be prepared electronically and included in the RGS case file as an attachment to the applicable issue or in the office documents folder. Lead Sheets must contain the adjustment amount, audit procedures and conclusion.

Individual Study Lead Sheets - Tax Year 2006 returns required that a supplemental questionnaire be completed. The supplemental questionnaire required access to a separate on-line application and answers to various questions submitted by external stakeholders. This often required answering the same question twice (once in the case file and again on the questionnaire). For Tax Year 2007 and forward the supplemental questionnaire has been eliminated and the questions added to NRP Mandatory Lead Sheets.

The research nature of these examinations requires care in evaluating evidence. Evidence tends to prove a fact or point in question.

NRP examiners should gather facts to determine the accuracy of any item classified for examination. This determination should include all the facts supporting both sides of an issue.

Documentary evidence is emphasized in the conduct of an NRP examination. Records kept contemporaneously with the occurrence of an event generally reflect accurately of that event. Books of original entry should be obtained if they exist. The contemporaneous records, invoices, bank statements, cancelled checks, and any other documents to support the books and records should be inspected to a depth adequate to support the accuracy of those books and records.

In situations where contemporaneous books and records do not exist or are incomplete, secondary written records (e.g. copies of original documents obtained from third parties) or other reconstructions of records, if credible, may be used.

Oral testimony by a taxpayer is direct evidence which must be thoroughly considered. The degree of reliability placed on a taxpayer's oral testimony must be based on the credibility of the taxpayer and the surrounding circumstantial evidence.

Oral testimony by other than the taxpayer may also be credible if that person has first hand knowledge of the facts and circumstances.

The steps to obtain evidence and the evaluation of it should be documented in the issue's workpapers.

The guidelines contained in IRM 4.10.7.3, Evaluating Evidence, should be utilized to make reasonable determinations in NRP examinations.

Due to the research nature of NRP examinations, de minimis adjustments will be captured within RGS on the key case examination only.

To simplify de minimis adjustment procedures for individual studies examiners should make all adjustments, even small ones, and include them in the examination report. No adjustments should be categorized as de minimis nor should the de minimis reason code be used in RGS.

For studies of S Corporation returns, if an examiner makes de minimis adjustments, the examiner will:

Wrong-Line Adjustments include:

Wrong-Line Adjustments do not include:

Guidelines for making Wrong-Line Adjustments include:

Cases with flow-through income and expenses to other entities have special considerations. Form 1065, Form 1120S, and Form 1041 provide for items of income and expense to be distributed as ordinary income or (loss) and as separately distributed items (per Schedule K-1 and return attachments). In completing a report for examination changes at the conduit level, the examiner should not reflect changes that are in name only and used to determine ordinary income or (loss). If, however, changes result in adjustments to the distributed items which could (based on statutory limitations and other requirements at the shareholder/partner level) affect tax liability, then the examiner should make those adjustments and use the appropriate RGS reason code "10" or "14" .

Even though Wrong-Line Adjustments may not affect the determination of taxable/ordinary income, their true nature can have a definite effect on the determination of tax liability for NRP return or the shareholder associated with the NRP return. These changes, such as those to self-employment tax, minimum tax, earned income credit, etc., should be reflected on the report. In addition, changes should be made to misclassified items on 1040s that could result in changes to the shareholder return due to statutory or other limitations at the recipient's level.

Occasionally, NRP examinations must be transferred from a the Campus to an Area Office, or transferred from an Area Examination Group to another group in the same or a different Area Office. This will occur if:

A completed Form 3185 (Transfer of Return) with "NRP study cycle" clearly entered in the "Comments" section should be used to transmit NRP cases and any related data to the transferee area. Form 3185 should be addressed to the transferee Area NRP Coordinator. The transfer package must be routed through the Area NRP Coordinator for review and update of control records. The Area NRP Coordinator should establish local procedures for expediting transfers, both into and out of the area.

Upon receipt of the NRP package, the transferee Area must acknowledge receipt by updating the NRP control system and by signing and acknowledging Form 3210. The Area transferring NRP Coordinator should review the Forms 3210 periodically to see if the "Acknowledgment Copy" of the Document Transmittal (Form 3210) has been received. If it has not been received within 30 days, follow-up action should be taken by contacting the transfer-out clerk within the Area and, if necessary, the transferee Area NRP Coordinator. In addition, the Area NRP Coordinator should review the "Transfer Pending" report on the NRP control system periodically to see if any cases are being transferred into the area. If a case is not received within 30 calendar days of the "Sent" date, the transferee Area NRP Coordinator should contact the transfer-in clerk within the Area and if necessary, the transfer-out Area NRP Coordinator to ensure transfer completion.

Formal discussions between the transferor and transferee Areas are strongly recommended, particularly prior to the six-month transfer cutoff if applicable for the study. This will eliminate questionable transfers.

Under certain circumstances, NRP returns may be excluded (removed) from the sample. LEM 4.22.4 lists exclusion criteria. All requests for exclusion must be approved by both the Area NRP Coordinator and National NRP Coordinator. Be aware that approval of a request will be contingent upon clear and convincing evidence that the return qualifies for exclusion.

To request the exclusion of a key case return, submit a completed Form 4981, NRP Exclusion Request . If additional information is needed to complete Form 4981, attach a memorandum to the form. For cases that meet exclusion criteria, the examiner completes Items 1, 2, 3, 4, and 6 of Form 4981, NRP Exclusion Request. Type or print in Item 1 the Document Locator Number (DLN), Taxpayer Identification Number (TIN), taxpayer’s name, and NRP sample code. List in Item 6 (Reason for Exclusion) sufficient information for Headquarters to properly evaluate the request. For example, if a request is made because the taxpayer could not be located, list the steps taken to locate the taxpayer. The Form 4981 is forwarded to the Area/Campus NRP Coordinator along with any supporting documentation. A copy of Form 4981 is retained at the group level.

The key case remains part of the study until the examiner is notified by the Area NRP Coordinator that a request for exclusion has been approved. If a request for exclusion is approved, the examiner will delete all reference to NRP in the case file and on the return. The return is then processed under normal examination procedures.

NRP Examination Records include:

NRP examination records must be transmitted to the Detroit Computing Center (DCC) and all data errors corrected before the study completion date.

If the case was previously transmitted to DCC as an estimated NRP Examination Record, remove the "E" in the EOAD Study Type field before transmitting the final NRP examination results.

Accuracy in the reporting of all NRP examination results is extremely important to enable proper decisions to be reached upon analysis of each study’s output. Therefore, examiners should make every reasonable effort to fully develop all examination issues and complete each NRP case within the time frame of the study. Managers should take necessary steps to ensure that the number of estimated NRP Examination Records are kept to an absolute minimum.

If the examination of an NRP return and/or any related return cannot be completed in sufficient time to meet the initial completion date specified for the study, complete EOAD data and the NRP questionnaire, if required by the study, by entering the most realistic estimates. In completing the EOAD data, the examiner should enter "E" in the Study Type field. Estimated NRP Examination Records must be transmitted to DCC and perfected by the initial completion date. In advance of the initial completion date for each study, the NRP Office will issue procedures for how examiners should transmit estimated NRP Examination Records to the Area NRP Coordinator.

Careful consideration must be taken to arrive at estimated "As corrected" entries. Estimates that do not correspond to the final examination results may have a negative impact on the development of new or updated formulas for scoring tax or income changes on returns and distort Voluntary Reporting Rate (VRR) measurements. The examiner and Group Manager should be satisfied that the estimates are reliable and based on facts and conclusions that are not likely to change significantly upon the completion of the examination. The examiner should indicate in the "Remarks" section of the examination report those line items that contain entries based on estimates.

Before the initial completion date, if there is insufficient time for the examiner to develop all of the significant issues of an NRP case, the examiner and Group Manager should notify the Area NRP Coordinator that it will not be possible to submit an estimated NRP Examination record.

Examiners of NRP returns will upload completed RGS audit records to their manager via the RGS LAN server.

Managers will review the cases and forward the audit records to the NRP Coordinator using status code 41.

NRP Coordinators will:

To help ensure that data collected by examiners is consistent, DCC will test all NRP data submitted by Area Offices and the Campus. The data consist of EOAD data extracted from RGS files, as well as examiner responses to the NRP questionnaire, if one is used for the study. To be consistent, data should meet certain expected results. Example: If the examiner identifies Schedule C1, Line 16 as an issue, records $5,000 as the per return amount, and records $1,000 as the "Adjustment" amount, DCC will compare the EOAD "Per Return" amount ($5,000) with the corresponding amount on the NRP database. If the amounts are not the same (within a reasonable tolerance), DCC will question the accuracy of the schedule and line reference.

For tests that fail, DCC will contact the NRP Coordinator and provide the identity of the test and values of variables used by the test. The NRP Coordinator will verify the accuracy of the questioned data and transmit any necessary corrections to DCC. If the NRP Coordinator is unable to resolve the discrepancy, they will call or return the case to the group. Upon receipt of the corrections, DCC will rerun the consistency tests and, if the data pass all tests, notify the NRP Coordinator that the audit data for the particular case are consistent.