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Part 4. Examining Process

Chapter 87. Indian Tribal Governments Inventory Management

Section 1. Inventory Management (Cont. 1)

4.87.1  Inventory Management (Cont. 1)

4.87.1.6 
Ongoing Work Activity

4.87.1.6.3  (06-01-2006)
History/Activity Sheets

  1. Traditional methods of work control and quantitative measures do not lend themselves to the nature of ITG’s work. However, certain activities are recorded in the ITG Database, on Form 6490, TE/GE Technical Time Report and webETS. Specific details of contacts with the tribe need to be recorded separately.

  2. Names of contacts and specific actions taken or issues addressed should be maintained in the local office and/or with the Specialist.

  3. Documentation of contacts should be clear, concise, complete and legible. Anyone reading the contact record should know what actions have been taken, what follow-up action is required, and who was contacted. Properly recording the substance of all contacts helps to build credibility and ensure consistency in subsequent contacts with the tribe.

  4. Documentation procedures may vary from office to office.

    • For example, a group may consider using the Share Drive Group Folder and internal intranet in a way that allows each group to share information within their own group.

4.87.1.6.4  (06-01-2006)
ITG Database

  1. The ITG Database is designed to track all examination, compliance check and completed outreach activities of the Indian Tribal Governments function.

4.87.1.6.4.1  (06-01-2006)
Database Input and Maintenance

  1. Each ITG group is responsible for adding new assignments to the group database as they are proposed by the group, or assigned by CPM.

  2. New and updated data should be entered on the group database on a continuous basis so that it is current and reflects all of the non-examination activities within the group.

  3. All ITG employees must safeguard the use of the information in the database and ensure that access is for business purposes only.

  4. In order to ensure data consistency, ITG Managers and CPM staff are the only individuals who should perform input, maintenance, and reporting on the group database.

4.87.1.6.4.2  (06-01-2006)
Database Reference and Access

  1. The ITG Database and the group databases can be accessed from the Share Drive.

  2. A brief summary of the items included in the database, and instruction for its use can be found in IRM 4.89.1.3.2.

4.87.1.6.5  (06-01-2006)
General Reading and Indian Country Today

  1. ITG employees are required to keep up with current events and the evolution of policy and law in Indian Country (Indian lands, businesses and society). Employees are encouraged to take time during each workweek to read " Indian Country Today" and other relevant publications.

4.87.1.6.6  (06-01-2006)
Other Electronic Resources

  1. All ITG employees are encouraged to access a variety of electronic media relevant to their work with Indian tribes. Examples of available information on-line include:

    • ITG Intranet Page —This site includes links to legal and tax research, FAQs, and emerging issues.

    • Indian Tribal Websites — Many tribes maintain websites that include current local news events, as well as information regarding cultural and historical issues.

    • On-line News Services — Various tribal groups publish daily, weekly, or periodic "newspapers" that are available to the public and include news items that affect all of Indian Country.

4.87.1.7  (06-27-2008)
Compliance Checks

  1. A Compliance Check is a review conducted by IRS, under Title 26 or Title 31 of the Internal Revenue Code, to determine whether a taxpayer (tribal government or tribal entity) is adhering to record keeping and information reporting requirements.

  2. A Compliance Check represents an opportunity for the ITG Specialist to better understand the customer through both a review of their filing requirements, and a discussion of their tax issues, problems, and concerns. IRM 4.23.3.8 provides guidelines for Compliance Checks.

  3. A Compliance Check:

    1. Is not an examination

    2. Does not directly relate to determining a tax liability for any particular period

    3. Does not include a review of the books and records

  4. Tribal entities can now qualify to perform their own Compliance Check under a program known as TEFAC (Tribal Evaluation of Filing and Accuracy Compliance). Tribes interested in participating in TEFAC can submit a Request to Conduct Tribal Evaluation of Filing and Accuracy Compliance. For more information see Enhancing Federal Tax Compliance on IRS.gov.

4.87.1.7.1  (06-27-2008)
Compliance Check Guidelines

  1. Most ITG Compliance Checks will be generated through the work flow process outlined at http://www.irs.gov/govt/tribes/topic/index.html . The actual selection of an entity will normally come from two sources – either the annual ITG Workload Selection Plan, or as a result of a customer request.

  2. A Compliance Check may also be initiated by:

    1. an ITG Specialist recommendation with Group Manager and CPM Manager approval, or

    2. an Information item

  3. Do not report TDI support work as a Compliance Check. Use TDI and TDA support contacts as a springboard to do a full Compliance Check. The fact that an entity is late in filing or payment means that there may be other tax problems that have not surfaced to date.

  4. Compliance Checks are controlled on the ITG Database and TREES but not AIMS because Compliance Checks are not examinations.

  5. The initiating group (or CPM) is responsible for obtaining background information about the tribe or tribal entity prior to contacting the customer. This information includes, but is not limited to:

    1. filing requirements

    2. filing history according to IDRS

    3. current compliance activity, and

    4. historical files from prior IRS contact

  6. ITG Specialists must take care to prevent examining the taxpayer under the guise of a Compliance Check and establishing a Section 530 safe haven.

  7. A taxpayer can decline a Compliance Check. When that occurs, ITG Specialists and their Managers need to determine whether another action (such as an examination) should be undertaken. Any decision to undertake further action must be done in accordance with the ITG Work Flow processes.

  8. An assigned Compliance Check can be terminated by the ITG Manager or Specialist before contacting the customer. The ITG Database will be used to record the reasons for the termination of the assignment.

  9. Compliance Checks are documented through the use of the Compliance Check Report template. Before initiating a Compliance Check, the latest revision of the template report should be downloaded from the ITG Intranet site, since it is a "fill in the blank" template.

  10. The Taxpayer must be told at the start of a Compliance Check that it does not qualify as an inspection under IRC section 7605(b) of the Code or as an audit for purposes of Section 530 of the Revenue Act of 1978. A written notice of the same information should be given to the taxpayer at the same time: Publication 1, Your Rights as a Taxpayer, and Publication 3114, Compliance Checks, Audit, Examination, or Review?

  11. Generally, during a Compliance Check the ITG Specialist should record the identification numbers and filing requirements of all entities owned or related to the tribe. The ITG Specialist compares this information with the IDRS Master File and corrects any inconsistencies. Corrections to the Master File are made using Form 2363, Master File Entity Change.

  12. Compliance Checks are limited to IRS documents that have already been voluntarily supplied to the Service, or informational forms that are not actually in IRS possession (e.g., Form W-4 ). The taxpayer’s books and records should not be requested or examined.

  13. Do not ask how the taxpayer made determinations that a Form W-2 or 1099 should be filed. However, if no Forms 1099 were filed, it is reasonable to ask:

    • if any non-employees received payments,

    • whether the taxpayer is aware of the filing requirements for Form 1099,

    • whether the taxpayer is aware of the exceptions to the Form 1099 filing requirements, and,

    • other questions designed to determine whether or not filing was appropriate.

  14. Compliance Checks usually focus on a single entity (assigned its own EIN) of the tribe.

    • For example, a tribe with many related entities asks for a Compliance Check on their Housing Authority. The Compliance Check addresses only the filing requirements of the Housing Authority.

  15. The ITG Specialist uses the Compliance Check Report and summary letter to document the data and conclusions from the Compliance Check.

  16. The completed Compliance Check Report and summary letter will be forwarded to the ITG CPM Review staff for evaluation of technical accuracy, business results, and quality components. CPM Review will mail the summary letter to the customer.

  17. CPM will retain a copy of the Compliance Check Report and summary letter in a manner that can be accessed by ITG Managers, so as to mitigate the need for group level copies. The group will update their controls to record completed actions and closure to CPM.

  18. When a compliance issue has been identified by the ITG Specialist, it will be discussed with the appropriate tribal representative. Proper resolution of the issue may include:

    1. the voluntary filing of delinquent or amended returns

    2. agreement to prospective treatment of the issue, or

    3. ITG providing educational outreach

  19. If during a Compliance Check, the ITG Specialist decides an examination is warranted, approval of his/her Group Manager and the ITG Director is required.

  20. Compliance Checks are subject to mandatory review and also controlled through TREES and the ITG Database. Upon completion of a Compliance Check (whether completed, surveyed, or declined by the taxpayer), the file should be sent through the Manager via E-mail to CPM reviewers using Secure Messaging or if voluminous mailed to:
    Internal Revenue Service
    P.O. Box 227
    Buffalo, New York 14225-00227
    Att: SE:T:GE:ITG:CPM

4.87.1.8  (06-27-2008)
Closing Work Assignment Files

  1. When an assignment is completed that has been entered into the Group Database, a closing date and description of actions taken will be entered.

  2. History/Activity Sheets will not be maintained by the group and/or the Specialist. The CPM staff will maintain necessary historic records that can be accessed if necessary by the field groups. When determining the content of the historical file, consideration should be given to meeting the needs of tribal customers for future contacts.

  3. A series of templates are used to record relevant information from common ITG work processes. Use of the templates is mandatory. They are:

    1. Compliance Checks

    2. Tip Agreement Cases

    3. Information Return Reporting Examinations

    4. Non AML Outreach

    5. AML Outreach

  4. The templates are available in the Library section http://tege.web.irs.gov/templates/tribalhome.asp on the internal web site.

  5. Upon completion of a work assignment, the template and related file must be submitted to CPM Review through the Group Manager.

  6. Whenever possible, the templates and related files should be submitted electronically using Secure Messaging.

  7. All case file documents (for examinations, compliance checks, tip cases, IR exams and IR penalty cases, outreach and education activities) and templates should be included in the TREES case file. If they are too large for TREES, they should be recorded on an encrypted CD-Rom that is closed with the TREES file to the group manager and CPM.

4.87.1.9  (06-01-2006)
Tip Agreements and Rate Reviews

  1. ITG is responsible for tribal contacts with IRS regarding tips.

  2. ITG groups will forward copies of all new and revised tip agreements and addenda to CPM so that the data may be forwarded to SBSE Office of Compliance database.

  3. Original documents relating to Tip Rate Determination Agreements (TRDA) and Gaming Industry Tip Compliance Agreements (GITCA) will be maintained by CPM.

  4. See IRM 4.88.1.8 for information on tip agreements.

4.87.1.10  (06-27-2008)
Closing Procedures and Case File Assembly For Examinations

  1. Assembly of case files and preparation of the examined and non-examined case package is explained in IRM 4.5.2.

  2. All case file documents (for examinations, compliance checks, tip cases, IR exams and IR penalty cases, outreach and education activities) and templates should be included in the TREES case file. If they are too large for TREES, they should be recorded on an encrypted CD-ROM that is closed with the TREES file to the group manager and CPM.

  3. The encrypted CD-ROM may notbe labeled by taxpayer name or taxpayer identification number (TIN). The ITG Inventory Control Number (ICN) is the only identifying information to be used on the CD-ROM or its envelope.

  4. General case file assembly and closing procedures can be found in:

    1. IRM 4.23.10 for Employment Tax cases

    2. IRM 4.24 for Excise Tax procedures

    3. IRM 4.10.9.6 for other types of cases

  5. The TREES naming conventions will be followed in a consistent manner with other TREES names in TEGE.

  6. Some forms may be different than the exam forms that were used over the years:

    • TREES closing tabs must be used in place of Examination Closing Record, Form 5599

    • Form 2503, Survey After Assignment – Excise or Employment Tax is used when surveying any employment or excise tax returns

4.87.1.10.1  (06-27-2008)
AIMS Processing

  1. AIMS procedures for TE/GE employees are in IRM 4.5.

  2. AIMS Special Processing Procedures, in IRM 4.5.3 , describe how to handle most case control and closing situations, for example:

    • Reference or information returns

    • Transfer and shipment of returns

    • Copy of return examination procedures

    • Expedite processing of Large Deficiency or Over-assessment Cases

    • Statute Expiration cases

    • Joint Committee

    • Claims

    • Delinquent and Substitute for Returns procedures

  3. All cases are subject to review, both examined and non-examined closures. Paper files included with TREES file should be shipped from the group to CPM Review using Form 3210. If no paper file, then the transfer is solely electronic through TREES.

4.87.1.10.2  (06-01-2006)
Agreed Case Closings

  1. Any report that is given to the taxpayer must include a statement that the report is subject to the acceptance of the Director of ITG.

  2. Prepare the report forms in triplicate at the conclusion of the examination and distribute as follows:

    • Original retained in case file

    • First copy to taxpayer

    • Second copy to the taxpayer’s representative, if Form 2848 has been filed

4.87.1.10.3  (06-27-2008)
Unagreed Case Closings

  1. Refer to IRM 4.23.10.17, Unagreed Employment Tax -- Case Closings, and IRM 4.24.10, Excise Tax Examination Reports, Appeal Rights, and Inadequate Taxpayer Records.

4.87.1.10.4  (06-01-2006)
No Change

  1. Refer to IRM 4.23.10.12.4, Employment Tax No Change Report , and IRM 4.24.10., Excise Tax Examination Reports, Appeal Rights and Inadequate Taxpayer Records

4.87.1.10.5  (06-01-2006)
Referrals

  1. Form 5666, TE/GE Referral Information Report, is prepared whenever an information or referral notice is required or a future year examination is recommended. Instructions for completing Form 5666 are in IRM 4.5.1.3.9.2 and Exhibit 4.5.1–16.

4.87.1.11  (06-27-2008)
Case Review

  1. All examination cases are subject to review, both examined and non-examined closures. Paper files included with TREES file should be shipped from the group to CPM Review using Form 3210. If no paper file, then the transfer is solely electronic through TREES.

4.87.1.12  (06-01-2006)
Appeals and Counsel Involvement/Procedures

  1. ITG Specialists and Managers will, generally, be responsible for issuing the unagreed report, holding the informal conference, and soliciting the written protest from the taxpayer. For procedures relating to AIMS processing, see IRM 4.5, TE/GE AIMS and Reports.

  2. CPM Review Staff will prepare the statutory notice of deficiency, if required, and is responsible for follow up and forwarding the case to Appeals.

  3. All unagreed cases originating in ITG will be sent to the Appeals Office located in Oklahoma City, Oklahoma by CPM Review. The address and phone number of the Oklahoma City Appeals Office is:
    Internal Revenue Service Appeals Office
    MS 8000 55 N. Robinson, Suite 939
    Oklahoma City, OK 73102
    Phone: (405) 297-4900

  4. The Appeals Office should return cases to ITG CPM at:
    Internal Revenue Service
    SE:T:GE:ITG:CPM
    201 Como Park Blvd.
    Cheektowaga, NY 14227

4.87.1.12.1  (06-01-2006)
Early Referral Procedures

  1. Rev. Proc. 99-28 describes the method by which a taxpayer may request an early referral of one or more unresolved examination or collection issues to the Appeals Office.

  2. Appropriate issues for early referral are limited to those that:

    1. Are fully developed

    2. If resolved, can reasonably be expected to result in a quicker resolution of the entire case

    3. Both the taxpayer and the Director, ITG agree should be referred, and

    4. Are part of a case where the remaining issues are not expected to be completed before Appeals could resolve the early referral issue.

4.87.1.12.2  (06-01-2006)
Technical Advice Memorandums

  1. ITG Specialists can request technical advice from Counsel on any technical or procedural question that cannot be resolved on the basis of law, regulation, revenue ruling, or other precedent.

  2. ITG procedures for the submission of a Technical Advice Memorandum are stated in IRM 4.88.1.14.2.

4.87.1.12.3  (06-27-2008)
Informal Advice and Consultation with Counsel

  1. ITG Managers and Specialists are urged to coordinate all requests for advice through the designated ITG TEGE CC Area Counsel.

4.87.1.13  (06-01-2006)
Coordination and Feedback with CPM

  1. Communication between ITG Specialists/Managers and the staff of Compliance and Program Management (CPM) is an essential element of providing consistent service and information to our tribal customers.

  2. Specialists/Managers should feel free to contact the appropriate CPM staff for information and should expect a timely response.

  3. Similarly, CPM should expect to receive timely communication from the local offices regarding issues developing in the field.

  4. Temporary teams of ITG employees will provide CPM with feedback on specific administrative, policy or technical issues. These teams will be issue-oriented and may cross traditional group lines.

4.87.1.14  (06-27-2008)
Abuse Detection and Prevention Team (ADAPT)

  1. These procedures provide guidance to all ITG employees on abusive schemes, tax shelters, and other questionable tax transactions.

  2. With the growth of tribal economies and the increase of promoters' attempts to use the tax status of tribes to promote Abusive Tax Avoidance Transactions (ATAT), ITG has dedicated resources to address abuses through the formation of the Abuse Detection Prevention Team (ADAPT). ADAPT is an ITG field group made up of Specialists experienced in the detection of fraud and abuse.

  3. ADAPT is responsible for the detection and prevention of abusive shelters and other abusive schemes promoted in Indian Country.

  4. ADAPT performs examinations on the tax returns and books and records of Indian tribes to detect abusive schemes and to effect remedies.

  5. Cases are assigned or reassigned to ADAPT based on the potential to be referred to Criminal Investigation Division, or where the abusive issue(s) may affect other Indian tribes. The appropriate ITG field group will work cases that have little or no criminal potential or that will affect only one tribe.

  6. The ADAPT Manager is a participant on the Indian Gaming Working Group (IGWG), and also serves as the primary contact point for coordination with other Federal agencies and the Criminal Investigation function at the national level where appropriate and within the guidelines of disclosure rules and policies under IRC 6103 and IRM 4.2.5.

4.87.1.14.1  (06-27-2008)
Types of Cases That ADAPT Works

  1. Several types of cases are assigned to ADAPT.

    1. Issues involving a scheme designed to shelter transactions from normal oversight. An example would be the use of a tribal entity to avoid federal taxation, such as disguising a transaction to give the appearance that income was earned by the tribe, when the beneficial party to the transaction was not the tribe. This includes tax sheltering activities such as equipment leasing shelters and overstated basis transactions. It also includes property transfers where the tribe holds title to an asset for a brief period of time in a scheme to avoid taxation of a gain.

      Note:

      These schemes typically involve substance versus form arguments.

    2. Issues involving a potential criminal referral, where the books and records of the tribe require extensive review.

    3. Issues involving the use of the special tax status of a tribe or tribal entity to give the appearance that a transaction should receive a certain tax treatment that appears to be inconsistent with the intent of the law. An example would be the creation of an entity that purportedly belongs to a tribe, when in fact the tribe has little to no control and the purpose of the entity is to avoid Federal tax liability.

    4. Issues involving an investigation by external entities (such as FBI, DOI Inspector General, National Indian Gaming Commission, LMSB, SBSE, or CI) and involvement by ITG is appropriate, or the issue may be occurring or likely to occur in other tribes.

    5. The ITG Director deems that an issue should be assigned to ADAPT.

  2. In all such situations, ADAPT assumes responsibility for the development and disposition of the issue, and works closely with the ITG field groups to ensure that the field employees are aware of the issues being addressed and the disposition of the case where necessary for ongoing tax administration with that entity.

4.87.1.14.2  (06-27-2008)
Referrals on Potentially Abusive Tax Shelters, Emerging Issues and Practitioners

  1. These procedures identify how and where ITG employees should submit referrals involving potentially abusive tax shelters, emerging issues and practitioners. Procedures detailed in IRM 4.32.1, 4.32.2 and 4.32.3 apply to ITG except as outlined in this chapter.

  2. ADAPT will maintain a web based referral system. This will be located on the IRS ITG intranet site, IRWeb Abusive Schemes for IRS employees.

  3. ADAPT will maintain an E-mail portal through the ITG internet Abusive Schemes for use by external stakeholders in reporting abuse schemes.

  4. All referrals will receive thorough analysis and review, and be tracked and coordinated at the national level.

  5. No manager or specialist will begin a compliance action on a promoter/preparer until the action has been sent to the Lead Development Center (LDC) for review and returned to ADAPT for assignment.

  6. Referrals may come from various sources:

    1. The ITG referral form located on the ITG intranet site

    2. Information from tribal members

    3. Information from practitioners

    4. Other inside and outside sources

  7. The employee who receives the information or uncovers the scheme should forward a referral to the ADAPT Group Manager via the intranet, or if preferred, through regular mail to:
    ITG ADAPT Group Manager
    P.O. Box 227
    Buffalo, New York 14225-00227

  8. Any other information including, but not limited to, promotional material on the scheme or promoter should be forwarded to ADAPT for review.

  9. Promoter material will be forwarded by ADAPT to the LDC for consideration and assignment

4.87.1.14.3  (06-27-2008)
Practitioner Referrals

  1. Referrals involving practitioners concerning the performance of their actions are very sensitive and must be thoroughly reviewed and documented by the examiner.

  2. These referrals may arise as a result of a complaint from another practitioner, employer, employee or participant that the practitioner is not following the appropriate laws, regulations or rules.

  3. ITG will coordinate with the Office of Professional Responsibility (OPR) when the practitioner is promoting abusive tax shelters.

  4. All practitioner referrals should made through the IRS web-based referral system or be sent to:
    ITG ADAPT Manager
    P.O. Box 227
    Buffalo, New York 14225-00227

  5. When applicable, practitioner referrals may be forwarded to the Lead Development Center (LDC) for review and assignment back to ADAPT when a promoter scheme is involved.

4.87.1.14.4  (06-27-2008)
ITG Coordination of Listed Transactions and Emerging Issues

  1. If an ITG Specialist identifies a listed transaction during the course of an examination, compliance check, or any contact with a tribe, tribal member or other source, the information should be forwarded to ADAPT. Listed Transactions are identified in IRS Notice 2001-51 and later IRS guidance.

  2. Listed Transactions involve potentially abusive tax avoidance transactions that must be disclosed per Treas. Regs. 1.6011-4--Requirement Statement Disclosing Participation by Taxpayers. Other rules are applicable to organizers and promoters of these transactions.

  3. All emerging issues that are identified during an exam or other contact with a tribe should be forwarded to the ADAPT Group Manager through the IRS intranet referral system or by regular mail.

  4. Emerging issues usually involve an aggressive position on current tax law or published IRS guidance (such as PLR) taken by a promoter or practitioner.

4.87.1.14.5  (06-27-2008)
Approved IRC 6700 Penalty Case

  1. After the IRS Lead Development Center (LDC) assigns a case which involves Indian tribal government issues, the ITG ADAPT manager will coordinate with other appropriate IRS operating divisions and Counsel offices. An ITG Specialist from the ADAPT group will be assigned when warranted.

  2. The assigned ITG Specialist will work closely with Counsel and other operating divisions to assist:

    1. Determining if an IRC 6700 penalty is applicable

    2. Obtaining all necessary documentation

    3. Determining when and if pre-filing notification letters should be issued, and

    4. Determining if IRC 7408 injunction should be sought.

  3. The Specialist will work with Counsel to obtain legal assistance throughout then tenure of the case.

4.87.1.14.6  (06-27-2008)
Investigations

  1. Except as outlined above, ITG will follow the investigative procedures outlined in IRM 4.32.1, Process Guide for Combating Abusive Tax Avoidance Transactions

  2. The Examiner Injunction Referral (EIR) is similar to the format of a Special Agents Report and is very detailed and should contain the following information:

    1. Case Summary

    2. Facts and Findings

    3. Appendix of attached exhibits

    4. Investigative agent data

    5. List of Witnesses

4.87.1.14.7  (06-27-2008)
Penalty Assertion

  1. Penalties continue to be an important tool of the IRS to use in encouraging voluntary compliance.

  2. Refer to IRM 4.32.1 and IRM 20.1.6 for an overview on asserting penalties.

4.87.1.14.8  (06-27-2008)
Post Injunction Actions

  1. Actions will be required throughout the promoter investigation to ensure a fully coordinated effort is taken by the Service to stop abusive tax promotions. Refer to IRM 4.32.1

4.87.1.14.9  (06-27-2008)
Participant Cases

  1. Cases involving the participants of the promotion will be coordinated with and worked by SB/SE.

Exhibit 4.87.1-1  (06-27-2008)
ITG Workflow Diagram

The ITG Workflow diagram can be accessed at ITG Workflow Diagram or for IRS employees at IRWeb ITG Workflow.

Exhibit 4.87.1-2  (06-27-2008)
ITG Claims Procedures

A flowchart of ITG Claims procedures is now available on page 6 of the ITG Workflow Diagram at ITG Workflow Diagram or for IRS employees at IRS.gov Workflow.


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