- 4.46.1.1 Introduction
- 4.46.1.2 Chapter Overview
- 4.46.1.3 Glossary of Terms
- 4.46.1.4 Index of Forms
- Exhibit 4.46.1-1 Glossary of LMSB Terms
- Exhibit 4.46.1-2 Index of Forms
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Part 4, Chapter 46, LMSB Guide for Quality Examinations, includes procedures for all LMSB cases, both Coordinated Industry Cases (CIC) and Industry Cases (IC). Some procedures pertain only to CIC examinations, while others pertain only to IC examinations, but most of the procedures set out in this chapter pertain to both. Judgment must be applied as to the extent that procedures apply to various cases. For instance, the examination plan, Form 4764, is to be used for both CIC and IC taxpayers. However, the extent to which the plan is used and degree of detail included in the plan for each case will depend upon the size of the case, the complexity, and other factors. All procedures in this IRM apply to both CIC and IC examinations unless otherwise stated.
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Team managers are concerned with the complex problems inherent in planning and managing both CIC and IC examinations. This includes properly fragmenting the examination for a multi-agent approach and assigning specific examination work to each team member (including agents from other offices), and directing, controlling, and evaluating the examination. The manager must be completely knowledgeable about the case (taxpayer and returns), and be involved in the examination as it progresses in order to make any necessary changes in the examination plan.
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All team members must perform their professional responsibilities in a way that supports the IRS Mission. This requires team members to provide top quality service and to apply the law with integrity and fairness to all.
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Taxpayers should receive quality customer service. Team members should assist taxpayers in solving any tax problems identified during an examination, even if the problems are not associated with the examination. This IRM emphasizes problem solving and one-stop service through the one-case concept.
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Team managers are expected to demonstrate their leadership on the examination site and to develop the relationships necessary to coordinate the examination across Industries and Operating Divisions and with Counsel when appropriate.
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The following sections are designed to address the particular complexities of LMSB examinations and the unique responsibilities they impose on team managers and examination teams. The sections are composed of suggestions and guidelines that will be of assistance to team managers and examination teams in satisfying their responsibilities and in orienting new team members in LMSB examination concepts and techniques. The guidelines contained here are not all inclusive and are not intended to replace or limit individual initiative in developing techniques in the management and examination of cases.
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Each of the sections in Chapter 46 is briefly discussed below.
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Administrative Matters and Annual Planning (IRM 4.46.2) – This chapter sets out the annual planning process for LMSB and describes the responsibilities of each office within LMSB contributing to the development of the plan. This IRM section also contains the revised LMSB point computation criteria used to identify cases as CIC or IC. The purpose of the Annual Plan and the LMSB point computation criteria is to ensure that LMSB applies its resources in the most efficient manner to reduce taxpayer burden, increase customer satisfaction and improve business results.
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Planning the Examination (IRM 4.46.3) - This chapter sets out the five-step planning process in the LMSB Examination Program. It emphasizes the use of risk analysis, the Joint Audit Planning Process and currency initiatives in LMSB. There is a detailed discussion of situations where examination records are in a foreign country. Procedures for requesting foreign travel and provisions for dealing with foreign governments are provided. Finally, it also provides guidance for requesting the participation of international examiners during the examination of tax returns of LMSB multinational corporations. A major emphasis is placed on the inclusion of the taxpayer and other stakeholders throughout the entire planning process and the leadership role expected to be played by the team manager.
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Inspection and Fact Finding (IRM 4.46.4) – A significant portion of this chapter covers examination techniques in detail. The application of penalties is given special attention in this chapter to help ensure uniform and sustainable application of penalties. Procedures are set out for requesting information to perform the examination using the Information Document Request (IDR) Management Process.
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Issue Development, Proposal and Resolution (IRM 4.46.5) – This chapter covers the development of issues through their resolution. It emphasizes that it is critical for LMSB examinations to be as current as possible. In addition, this chapter describes issue resolution tools that will assist the team manager in resolving issues at the group level. These tools will contribute overall cycle time reduction and improve customer satisfaction.
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Workpapers and Reports (IRM 4.46.6) - This chapter sets out the various procedures for preparation of workpapers and reports.
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Post Examination Activities (IRM 4.46.7) – This chapter sets out activities that must be performed at the end of an examination including review of reports, review and disposition of workpapers, evaluation of team members’ performance, and stresses the involvement of all stakeholders in the post-examination critique.
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Exhibit 4.46.1-1, Glossary of Terms lists manyl terms used in the following sections. The list is not all inclusive but should be useful to new LMSB team members.
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Exhibit 4.46.1-2, Index of Forms, describes the forms which are most frequently used by team managers and examination teams. This exhibit also lists the appropriate location in the IRM where the use of the form is described.
| Term | Definition |
| Administrative File | A file containing the tax returns, Revenue Agents’ Report (RAR), protest, rebuttal, workpapers and other information for each LMSB taxpayer. Administrative files may consist of several boxes of information. |
| Administrative Procedures Form 13327 | This is the LMSB Quality Measurement System Administrative Procedures Self-Certifying Check Sheet required to be used on all LMSB examinations |
| Area Counsel | Field attorneys in the LMSB Division of the Office of Chief Counsel, the division dedicated to providing legal services to the LMSB Operating Division. Area Counsel is the primary Counsel point of contact for LMSB. Area Counsel is also known as Local Counsel. |
| Assistance Examination | An examination that utilizes team members assigned to the same industry, but located in a different territory or work group. Team members providing assistance can be located in the same or a distant geographic area. |
| Assistant Team Manager | The front line manager in LMSB providing assistance or support to another LMSB case, often located in another geographic area or industry. |
| Associate Office Counsel | Associate Offices in Washington, DC issue technical guidance such as Revenue Rulings, Technical Advice Memorandum (TAMs), Technical Expedited Advice Memoranda (TEAMs), and Chief Counsel Advice (CCA). |
| Audit Standards | Work standards and measurements that have been developed to ensure that the examination team produces a quality product. These standards are intended to improve the examination process, but do not measure individual performance. |
| BRTVU | An IDRS command that generates a screen, for a business return, that shows all transcribed lines as reflected on the original return. It will not reflect any subsequent adjustments or duplicate filings. |
| Closing Agreement Form 906 |
An agreement between the taxpayer and the Service concerning the final disposition of an issue or tax liability. |
| Competent Authority | A tax treaty requires the designation of a competent authority for each country that is a party to the treaty. The respective competent authorities administer the provisions of the treaty. The Director, International acts as the U.S. competent authority in administering the operating provisions of tax treaties and in interpreting and applying these treaties. In interpreting and applying treaties, the Director, International acts only with the concurrence of the Associate Chief Counsel (International). See Delegation Order No. 114 (Rev. 13). |
| Coordinated Examination Management Information System (CEMIS) | A database that contains information about current CIC taxpayers and provides ongoing periodic updates on the progress of examinations. |
| Coordinated Industry Case (CIC) | Any case assigned to LMSB where the taxpayer and its effectively controlled entities warrant the application of team examination procedures. Cases normally have 12 or more points, as defined by the criteria found in IRM 4.46.2. |
| Criminal Investigation (CI) Coordinator | The special agent designated to coordinate and interact with LMSB. The CI coordinator has the responsibility for assisting LMSB by supplying information gathered by CI. |
| Currency | The time that we allow a case to be in the examination cycle. It is used as a diagnostic indicator that measures the open year average age in months of returns that are under examination. As an example, our goals for 2004 for in process work were 12.7 months for IC returns and 30 months for CIC returns. |
| Delegation Order | A formal numbered document that places authority in the position(s) where actual operational responsibility resides. It delegates authority to a certain level of management to execute given procedures. See IRM 1.2 |
| Director of Field Operations (DFO) | An LMSB executive who supervises territory managers within his/her area of responsibility. |
| Effectively Controlled Entities | Entities where more than 50% of a corporation's stock is directly or indirectly owned by the taxpayer under examination. Additional factors are discussed in Chapter 4.46.2. |
| Examination Officer's Activity Record - Form 9984 | A form used by field examiners to record all case processing actions. This form may be used to record delays in processing or to record daily time applications in order to comply with issue tracking requirements. |
| Examination History Record - Form 5698 | A spreadsheet showing the examination history by individual entity for the past 10 years. It is used in planning examinations to determine if a survey (cycling) is appropriate on an entity-by-entity basis. |
| Examination Plan - Form 4764 | A written document for each LMSB case containing agreements with the taxpayer, information for Service personnel, work assignments, audit procedures, time estimates, and special instructions. |
| Examination Span | Lapsed time from the status code 150 posting to status code 80 or above. |
| Federal Records Center | The depository for LMSB case files. All files must be retired to the Federal Records Center 4 years after the date of closing and should be destroyed 15 years from the date of closing. |
| Formal Document Request | A document used to gather information from abroad administratively. Formal document requests are used only by international examiners. IRC section 982 provides that if a taxpayer fails to comply with a formal document request arising out of the examination of the tax treatment of any item within 90 days after the mailing of the request by the Secretary, then the taxpayer shall be prohibited from introducing into evidence in a civil proceeding in which the tax treatment of the examined item is at issue any foreign-based documentation covered by the request. |
| IDRS | A system which enables authorized employees, in the IRS, to have instantaneous visual access to certain taxpayer accounts. IDRS provides access to twelve different data files. The data files most commonly accessed by LMSB employees are; Audit Information Management System (AIMS), Key Index File (KIF), IRS Individual Taxpayer Identification Number (ITIN) and the Taxpayer Information File (TIF). Additional information and definitions are found in the Department of the Treasury, Internal Revenue Service Document 6209 (Rev. 6-2004). |
| In-Depth Probe | A penetrating examination concentrated in a selected account, activity or transaction to determine the accuracy and proper reporting for tax purposes. |
| Industry Case (IC) | Any case within LMSB that has not been defined as a Coordinated Industry Case. |
| Industry Director | The senior LMSB executive within an LMSB industry. |
| Information Document Request (IDR) - Form 4564 | Form used to request information from the taxpayer. |
| Information Document Request (IDR) Management Process | A formal process for handle general and delinquent IDR's during the examination process. See IRM 4.46.4.4. |
| Issue Resolution Tools | Alternative dispute resolution methods such as Accelerated Issue Resolution (AIR), Early Referral to Appeals, Fast Track Settlement (FTS) program, and Pre-Filing Agreement (PFA) |
| Joint Audit Planning Process | A structured process where the Service and the taxpayer agree to work together to complete an examination in the most efficient manner possible. |
| Key Case | The case designated as the controlling taxpayer and tax period within a group of entities. One of the major objectives of LMSB is the concurrent consideration of the key case and all related returns under one team manager. The team manager becomes responsible for all examination activities of all entities comprising the key case. |
| Large, Unusual and Questionable Items (LUQ) | Depends on the examiner's perception of the return as a whole and the
separate items that comprise the return. Some factors to be considered when
identifying LUQs are: a: Comparative size of item b. Absolute size of the item c. Inherent character of the item d. Evidence of intent to mislead e.. Beneficial effect of the manner in which an item is reported f. Relationship to other items g. Whipsaw issues h. Automatic adjustments i. Missing items |
| Limited Scope Audit | Only the highest priority issues are considered. |
| LMSB Business Plan | An annual plan that sets out LMSB's key goals, objectives, and areas of focus for the coming year. |
| LMSB Sweeps | LMSB Sweeps involve accelerating the examination process by concentrating on the highest priority areas as indicated by risk analysis and closing cases by a given date. |
| The LMSB Quality Measurement System (LQMS) | A quality assessment process that serves as the quality measurement tool for Business Results. This process focuses management on results and improvement opportunities as a daily business practice. |
| Midwest Automated Compliance System (MACS) | A security-certified, menu driven computer system that contains a combination of the transcribed return transaction files and selected entity information for IMF and part of BMF (Forms 1041, 1065, 1120, and 1120S). |
| Multi-year Examinations | Involve an examination cycle including two or more years. |
| Notice of Proposed Adjustment (NOPA) Form 5701 | Forms 5701, Notice of Proposed Adjustment is used to summarize proposed adjustments to the taxpayer. Forms 886-A (Explanation of Items) will be used to present the entire explanation and will be included as attachments to Forms 5701 |
| Office of Chief Counsel | The independent legal counsel for the Internal Revenue Service. Its mission is to provide correct and impartial interpretations of the internal revenue laws and provide legal advice and representation for the Service. Associate Office Counsel and Area Counsel are part of the Office of Chief Counsel. |
| One-Case Concept | The concept that all components of an LMSB case remain together throughout the examination process under the control of the team manager. Exceptions may arise for returns that are not controlled by the Team Manager. This may include employment tax returns that are not controlled by the Team Manager. |
| One-Stop Service | The resolution of issues during the taxpayer's initial contact or as a direct result of that contact. One-stop service complements and promotes the Service's three key objectives: reduce taxpayer burden, improve voluntary compliance and improve customer satisfaction and quality-driven productivity. Service employees will take the necessary steps to provide one-stop service in all types of contacts initiated by the taxpayer whether the contact is by telephone, correspondence or face-to-face. |
| Opening Conference | The first formal meeting with authorized employees or corporate officers of the taxpayer. The main purpose of the meeting is to summarize agreements on coordination and accommodations, and to discuss the scope and depth of the examination. |
| Outside Expert | Individuals who are not employees of the Internal Revenue Service who provide specialized assistance in return for monetary compensation. Generally, they possess a high degree of knowledge, skill and experience in specific subject area. |
| Planning File (CIC) | A collection of information that would benefit subsequent examination teams. It is maintained on site and information is added to it throughout the cycle. The examination plan should contain instructions about the maintenance of the planning file. |
| Planning Meeting | A meeting (or series of meetings – sometimes called strategy meetings) that is held by the team manager with specialist managers and the examination team during the initial phase of the planning process. Its purpose is to review all available information and make decisions about the scope and depth of the examination. |
| Policy Statement | Published "Service Policies" that are major decisions of the Commissioner, Deputy Commissioners, Chiefs and Directors within the framework of basic tax administrative policies of Treasury and Congress. These "Service Policies" govern and guide Service personnel in the administration of the internal revenue laws. |
| Post-Appeals Conference | A conference held on all CIC cases after final disposition by Appeals unless an exception is agreed to between LMSB and Appeals. The purpose of the post-closing conference is to discuss the settlement reached and its subsequent impact on the taxpayer. |
| Post- Examination Critique | A meeting held with the examination team and taxpayer after a cycle closes to discuss the effectiveness of the audit. The objective of the critique is to establish the groundwork for improving the quality of subsequent examinations. |
| Pre-Appeals Conference | A meeting between LMSB team managers and agents and Appeals before the Appeals process begins. The conference is to discuss the issues, taxpayer's protest and the audit team's written response to the protest. |
| Preliminary Examination Work | The preliminary examination of records to validate decisions made during the risk analysis phase and to select issues to be included in the examination plan. It gives examiners a basis for developing audit procedures for each assigned area of responsibility. |
| Preliminary Meetings | Taxpayer involvement begins with a series of preliminary meetings prior to the opening conference. The purpose of these meetings is to plan the examination in a cooperative manner with the taxpayer to insure the best use of both parties' resources. |
| Preliminary Risk Analysis | The first step in the planning process is to perform a preliminary risk analysis to determine if the case is worthy of examination. This preliminary analysis applies to both CIC and IC cases and may indicate a situation where a survey would be appropriate. Consideration should be given to examining a more current year if the initial analysis so indicates |
| Primary Team Manager | The front line manager in LMSBto whom the case is assigned. This manager has ultimate control of the assigned case, even though resources from other groups are used in completing the examination and even through returns may be controlled by other groups. |
| Record Retention Limitation Agreement | A formal agreement between the Service and taxpayers subject to mandatory record retention requirements specifying that the taxpayer must retain all machine-sensible records generated by all automated data processing systems unless the CAS Territory Manager has consented to limit the retention to certain specific records. |
| Risk Analysis | The process of comparing the potential benefits to be derived from examining an issue to the resources required to perform the examination. Risk analysis is an integral part of the planning process to ensure the efficient and effective use of resources and should be based on experience, judgment, and objective analysis. |
| RTVUE | An IDRS command that generates a screen, for an individual return, that shows all transcribed lines as reflected on the original return. It will not reflect any subsequent adjustments or duplicate filings. |
| Senior Team Coordinator (STC) | A GS -14 revenue agent competitively selected to coordinate a complex LMSB case (with 28 or more points as determined by criteria in IRM 4.46.2) |
| Senior Specialist | A GS -14 specialist competitively selected to coordinate or examine a complex LMSB case. |
| Simultaneous Examination Program | A program under which the Service and the tax administration of a treaty partner agree to coordinate their examinations of related taxpayers in their respective jurisdictions. |
| Skip-cycle Examinations | Skip-cycle examinations are when an examination cycle is skipped. The option of skipping a year or more in order to get current may always be considered. The team manager would ask the taxpayer to file an amended return in order to incorporate all carryover adjustments. |
| Special Examination Feature | A special examination feature would be an unusual feature of an examination such as a special project. When an in-depth probe is included in an LMSB examination plan, it is called a special examination feature. |
| Specialist | A team member with special skills or training. Examples of specialists include: Financial Products, International, Computer Audit, Engineer, Employment, Excise, Employee Plans, Exempt Organizations, and Economist. Whenever "team member" is used in this IRM, the reference includes all revenue agents and specialists who may be assigned to an examination. |
| Specialist Manager | Manager of field specialists. |
| Specialist Referral System (SRS) | A totally electronic and web-enabled system used to generate referrals for a Computer Audit Specialist (CAS), Economist, Employee Plans, Employment Tax (LMSB), Employment Tax (SBSE), Employment Tax (TEGE), Engineering, Excise, Exempt Organizations, Federal, State & Local Government, Financial Products, Indian Tribal Government, International, and Tax-Exempt Bonds. SRS is also used to request informal consultations with a specialist. |
| Support Examination | An examination that utilizes team members or specialists assigned to another Industry. Support team members may be located in the same or a distant geographic area. |
| Taxpayer's Case Binder (CIC) | A binder of information about each CIC case controlled by the team manager. See IRM Exhibit 4.46.13-4 for an example of the type information maintained in the Taxpayer's Case Binder. |
| Team Coordinator (TC) | A revenue agent assigned to any LMSB case where one or more team members or specialists contribute to the examination work on the case. |
| Team Manager (TM) | A front line manager in LMSB who supervises LMSB examiners and cases. |
| Team Manager Settlement Authority | Team manager settlement authority is provided by Delegation Orders 4-24 and 4-25. DO 4-24 provides the authority to accept Settlement Offers where Appeals has effected a settlement with taxpayer for another cycle. Delegation Order 4-25 provides the authority to accept offers on issues coordinated in the Technical Advisor Program. |
| Team Member | A revenue agent or specialist assigned to an LMSB case. |
| Technical Advisor (TA) | A former revenue agent who has developed significant expertise in a given industry. The TA will provide the examination team with information relative to a particular industry or issues that will be helpful in setting the scope and depth of the audit. |
| Territory Manager (TTM) | A mid-level manager in LMSB who supervises team managers within his/her territory. |
| Time Tracking | A system for recording time by specific segment or Standard Audit Index Number (SAIN) line item for each examiner and specialist on the examination team. |
| Transcripts | On-line return data and master file account data that is transcribed or generated from original returns as they are processed at the submission processing sites. |
| Form Number | Title | IRM and/or Citation |
| 4485 | LMSB Request for Assistance or Support | IRM 4.46.3.9.12.3 |
| 4564 | Information Document Request | IRM 4.46.4.4 Exhibit 4.46.4-1 |
| 4764 | LMSB Examination Plan | IRM 4.46.3.5 |
| 4764A | Examination Plan (Special Instructions and Summary of Assignment) | IRM 4.46.3.5.2.3.1 |
| 4764B | LMSB Examination Procedures | IRM 4.46.3.5.2.3 |
| 5698 | Examination History Record | IRM 4.46.3.9.2 |
| 5699 | Information Document Request Log | IRM 4.46.4.4.1 Exhibit 4.46.4-1 |
| 5700 | Issue Control Sheet | IRM 4.46.3.3.3.4(3) |
| 5701 | Notice of Proposed Adjustments | IRM 4.46.3.3.3.4(2) |
| 6095 | Carryover Adjustment Schedule | IRM 4.46.7.4.7 |
| 6609 | Schedule of Work Assignments | IRM 4.46.3.5.2.2.6(2) IRM 4.46.3.5.2.3.3(6) |
| 6782 | Certification of Direct or Indirect Financial Interest in a Work Assignment | IRM 4.46.3.3.2.5 |
| 9984 | Audit Team Activity Information | IRM 4.46.3.9.3.2 |