Part 4. Examining Process Table of Contents 4.1 Planning and Special Programs 4.2 General Examining Procedures 4.4 AIMS Procedures and Processing Instructions 4.5 TE/ GE AIMS Manual 4.7 Examination Returns Control System ( ERCS) 4.8 Technical Services 4.9 Examination Technical Time Reporting System 4.10 Examination of Returns 4.11 Examining Officers Guide ( EOG) 4.12 Nonfiled Returns 4.13 Audit Reconsideration 4.15 Jeopardy/ Termination Assessments 4.16 Special Enforcement Program ( SEP) SEP Responsibilities and Case Development 4.17 Compliance Initiative Projects 4.18 Exam Offer- In- Compromise 4.19 Liability Determination 4.20 Examination Collectibility 4.21 Electronic Filing Program Monitoring the IRS e-file Program 4.22 National Research Program ( NRP) 4.23 Employment Tax 4.24 Excise Tax 4.25 Estate and Gift Tax 4.26 Bank Secrecy Act 4.27 Bankruptcy 4.28 Examination Specialization Examination Specialization ( ES) Program and Procedures 4.29 Partnership Control System ( PCS) 4.30 LMSB General Procedures Pre- Filing Agreement Program Overseas Posts 4.31 Pass- Through Entity Handbook 4.32 Abusive Transactions 4.35 Partnership and S Corporations Tax Audit Guidelines Audit Techniques for Business Returns 4.36 Joint Committee Procedures 4.37 Financial Products and Transactions Financial Products Specialty 4.40 Technical Advisor Program 4.41 Oil and Gas Industry Oil and Gas Handbook 4.42 Insurance Industry 4.43 Retail Industry 4.44 Subchapter T Cooperatives IRC section 521 Exempt Farmers’ Cooperatives 4.46 LB the Internal Revenue Manual contains a vast amount of procedures to follow – an IRS agent may realistically not know every one, or maybe details get lost in the everyday workflow. To get the best results in IRS negotiations, it can be necessary at times to remind the IRS of their own overlooked or forgotten Internal Revenue Manual guidelines. Deep in the Internal Revenue Manual are provisions that can put the brakes on the IRS, including getting a wage or bank levy released, or getting the IRS allow all of your living expenses when negotiating a payment agreement. The IRM details how the IRS values and investigates an offer in compromise, and the IRS’ views on seizing assets like retirement accounts and personal residences. How about knowing when the IRS Taxpayer Advocate help you? What about filing bankruptcy on the IRS? What are the IRS tax return examination techniques? All can be found in the Internal Revenue Manual. Knowing the IRS’ own guidelines can make all the difference in resolving your IRS problem. The IRM is broken down into multiple chapters, including sections on IRS audits, IRS collections, IRS appeals and criminal investigations. Let’s focus on three IRS collection issues that the Internal Revenue Manual can help you solve – limitations on the the IRS’ power to levy, lowering the value of your offer in compromise, and preventing an IRS levy on an retirement account. First, what limitations does the Internal Revenue Manual place on the IRS’ ability to.
Editor: Valrie Chambers, Ph. D., CPA Practice a brief description of the types of civil examinations; an explanation of the tools available to IRS examining agents and revenue agents; dispositions in IRS audits or examinations and, if necessary, where to seek relief from an unfavorable result in an examination or audit. Selecting Tax Returns for Examination At the outset, it is helpful to understand how tax returns are selected for examination. The IRS selects returns for examinations in several ways — some based upon objective criteria coded into a carefully protected computer program and others based upon old fashioned detective work. The main computer program that the Service uses to identify returns for examination is the Discriminate Function System. The Discriminate Function ( DIF) score is the product of a mathematical formula for identifying and selecting returns2 for examination. The program scores tax returns using a formula based on historic information obtained from specific examination programs. A high DIF score indicates a high potential for adjustment. The Service periodically conducts compliance studies to update and reformulate its basis for audit selection formulas. Different types of taxpayers and returns are subject to different DIF formulas. While the specifics of the program are not public, certain items appear to cause a return to be selected for examination, such as participation in a tax shelter.
The examiner’s role in evaluating internal controls must encompass a complete review of existing procedures. Adequate tests to validate the taxpayer’s records and testimony should be carried out as applicable. Information regarding internal controls may be obtained by interviewing the taxpayer and/or representative, inspecting the documents and records, and observing the taxpayer’s activities and operations. To complete a comprehensive evaluation of internal controls, the examiner should document the business operation and document the accounting system. Document the Business Operation — Draw-up an overview of the business operations. At a minimum, the information obtained should depict by whom, with what, how many, where, when and how business is transacted. Document the Accounting System — Identify what books and records are maintained. At a minimum examiners should determine: What the books of original entry are, whether they are automated, what types of subsidiary records (invoices, etc.) are maintained, what kinds of reports are prepared, how often they are prepared, and by whom. How income is received, how expenses are paid, and who is responsible for receiving and recording income and expenses. Who opens mail, deposits funds, writes checks, approves expenditures (both regular and extraordinary signs checks, makes book entries, prepares invoices, matches invoices, has access to cash registers, and receives and reconciles bank statements. Document Assets — Identify the taxpayer’s business and personal assets, including capital acquisitions, bank accounts and cash. At a minimum, the taxpayer and/or representative should be questioned regarding capital asset transactions, cash in bank, cash on hand, bartering, number and location of bank accounts, non-taxable sources of funds, and total assets held. Document the Flow of Transactions — Outline the flow of.
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