The Tax Audit Guidelines for Partnerships and S Corporations have been prepared for all examiners who make field examinations of income tax returns. They contain techniques relating to the evaluation and disposition of assigned returns and the auditing and reporting on examined returns.

The function of the Internal Revenue Service is to administer the Internal Revenue Code. It is the duty of the Service to correctly apply the laws enacted by Congress; to determine the true meaning of various Code provisions in light of the Congressional purpose in enacting them; and to perform this work in a fair and impartial manner, with neither a government nor a taxpayer point of view.

The mission of the Service is to provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities. (See policy statement P-1-1.) Examination supports the mission of the Service by encouraging the correct reporting by taxpayers of income, estate, gift, employment, and certain excise taxes. This is accomplished by:

The purpose of auditing a tax return is to determine the taxpayer’s correct liability—no more or no less. A quality audit is the examination of a taxpayer’s books and records in sufficient depth to fully develop relevant fact concerning issues of merit; ascertaining the true meaning of applicable tax laws; and correctly applying such laws to the relevant facts.

One responsibility of Examination is to conduct on a timely basis quality audits of selected tax returns to determine the correct tax liability. Examination standards were developed as the level of achievement required for you to discharge this responsibility. Examination procedures necessary to achieve the standards are explained in the sections of the Manual indicated. Efforts have been made to define all standards as fully as possible; however, certain terms in the standards are intangible or subjective, and, as such, do not lend themselves to explicit definition. These include terms such as reasonable and professional judgment. Although the explanations have been written in a manner to show you the intended meaning of the terms, you must use your technical knowledge, training, and experience to correctly apply these concepts to the examination process.