The following tables (Discretionary Case Suspense and EITC Case Suspense) indicate the required suspense periods for all cases being worked in Correspondence Examination and the earliest day for the mailing of the next letter. The tables apply to both manually issued letters and those issued through the Automated Correspondence Exam (ACE) System (Formerly RGS Batch.).

Generally, a manually prepared letter/notice may be mailed on the 16th day after the taxpayer’s reply due date. Specifically, letters that the taxpayers are given 30 days to respond, the subsequent letter may not be mailed no earlier than the 46 days. The only exceptions to this are the Letter 692 and the EITC Initial Contact Letter (ICL). The manually prepared Statutory Notice of Deficiency may be mailed no earlier than the 31st day following a Letter 692. The EITC 30 day letter with report may be mailed no earlier than the 31st day following the ICL.

A letter cannot be transmitted (triggered) to a Consolidated Print Site (CPS) until the ACE suspense period has expired.

Research and Development (R&D) may be initiated by local or Headquarters Personnel. The program goal is to improve compliance through a more timely identification and resolution of emerging issues.

Program goals are accomplished as follows:

Compliance team personnel are expected to be innovative in their approach to identifying sources of returns with high potential for abuse or non-compliance and secure and screen those returns and recommend corrective actions.

MACS is a security-certified, menu driven computer system that contains a combination of the transcribed return transaction files and selected entity information. IMF (Individual Master File) includes Form 1040, Form 1040-A, Form 1040-EZ, and Form 1040-NR. BMF (Business Master File) includes Form 990-C, Form 1041, Form 1065, Form 1120, and Form 1120-S. EMF (Employment Master File) includes Form 940, Form 941, Form 943, Form 945, Form 1042, and Form CT-1. In addition, MACS contains fields calculated especially for the MACS data, such as Activity Codes, Business Operating Division (BOD) Codes, Cash-T, Gross Profit Percentage, Market Segment Code, perfected NAICS Code, Total Revenue, and others.

Refer to IRM 4.3.3, MACS Security Handbook or the MACS web sitehttp://sbse.web.irs.gov/epd/macs/MACS_DevelopmentCenter.htm for additional information.

Periodic meetings may be held for Campus Compliance Team Coordinators and National Representatives to ensure uniform operation of the program, to share information and expertise, and to develop national strategies for accomplishing program goals.

The Headquarters Examination Analyst will maintain a roster containing the names, telephone numbers, VMS numbers, fax numbers, and addresses of all Compliance Team Coordinators. This roster will be updated promptly. The Headquarters Examination Analyst should be notified promptly of all changes.

On a quarterly basis, the Campus Compliance Team Coordinators will forward a report to the Headquarters Examination Analyst on the status of all projects/initiatives in process as well as those in developmental stages. The Headquarters Examination Analyst will compile and distribute to all Coordinators and to the W&I Reporting Compliance Analyst a complete report of all projects/initiatives in process and in developmental stages.

It is imperative that an open line of communication between Compliance Teams at the Campuses and SB/SE Headquarters, continues to be the primary goal to have an efficient and effective early detection compliance program.

SB/SE Compliance Team personnel are expected to be innovative in looking for sources of returns where high potential for abuse or non-compliance may exist. Liaisons with other Campus functional areas should be used for assistance in identifying returns and employing methods from which projected conclusions can be drawn.

Contact the Campus MACS Coordinator when Compliance Team members identify programs containing specific selection criteria which can be matched against the Returns Transaction File data base records files.

MACS provides the capability to do market segmentation and issue identification with clear cross-functional benefits for SB/SE. SB/SE Campuses have a MACS database for each area office served. The MACS database will be updated by MDC on an annual basis to include the prior filing year. MACS has stringent operating restrictions to ensure the security of the data and that taxpayer privacy is not compromised.

MACS may be used to retrieve specific taxpayer data; e.g., a three year spread of a taxpayer's returns, including a Cash -T (cash transaction) analysis. This information may be used for case building or return selection decisions. A MACS facsimile may be used in lieu of the original return, much like RTVUE (IMF Taxpayer Data File) print.

MACS may be used to research a market segment to identify samples of returns to determine the level of non-compliance and to decide whether a formal Compliance Initiative Project (CIP) should be started.

No compliance initiative, examination action, taxpayer educational effort, etc., should be started on specific taxpayers identified using MACS, without the approval of a specific Compliance Initiative Project. The Compliance initiative documentation should clearly define the selection criteria used.

A discretionary source of returns for SB/SE can be made available through the Monitor Run Report (ATSO1). This report is produced locally at each Campus against the GMF16, which is a copy of the GMF15 (Campuses good tape which goes to MCC where it posts to the Master File) and is retained locally. The Monitor Run program produces charge outs (not AIMS) and a summary report of returns containing Schedule C, Profit or Loss From Business and/or Schedule F, Profit or Loss From Farming with criteria specified in LEM IV. Returns will be pulled and forwarded along with the charge outs to the Compliance Team Coordinator for further evaluation and examination potential.

If recurring significant errors of the same type are identified by one or more SB/SE Campus Compliance Teams, and it is determined that they should be addressed through examinations, projects are implemented to measure the extent of the non-compliance and determine whether an approved Examination program project is warranted.

Return selection methods are used that will provide the best estimates of noncompliance and that can be duplicated at the least cost if a program project is eventually implemented.

The SB/SE Headquarters Examination Analyst provides assistance for developing the methodology for project approval. Decisions can be made as to either working selected returns in Correspondence Examination or at the Area Offices, depending on the complexity and the availability of resources. Each return selected for examination is identified with a technical explanation of the tax issue.

A classification check sheet is prepared for non-project returns with potential non-compliance. Returns are established on AIMS using Source Code 20, Campus Examination Local Classification, and a locally defined Project Code 0500–0575.

Compliance Initiative Project procedures are followed when groups of returns with the same areas of potential non-compliance are selected and forwarded for examination in a project, either in the Campus or Area Office.

Compliance Initiative Project (CIP) refers to and replaces all Type III research activities previously categorized as RCP, Fed State initiatives, IGP, Compliance 2000 projects, etc. CIPs are characterized by the use of data to identify and quantify areas of noncompliance. They usually will involve a study, survey, or other analysis of a group of individuals such as those involved in a specific economic activity, undertaken to identify, measure, or analyze compliance with the tax laws. CIPs are often multi functional in their approach. Any project using taxpayer identifying data is a CIP research activity. CIPs do not include routine business operations. CIPs must be approved prior to compliance contact with taxpayers.

A CIP Form must be prepared for all compliance initiative projects. If the number of taxpayers involved is 100 or less, a CIP Part I must be completed. If more than 100 taxpayers are involved, a CIP Part II must be completed by the initiating office. In preparing CIP Form Part One, Compliance Initiative Project Authorization information, the background information, CRI research required, and the other data required will be entered. This authorization will require the signatures of the Project Coordinator, originating Operations Manager, and Campus Compliance Director for approval. A copy of this CIP Form should be forwarded to the Headquarters Examination Analyst.

If single returns have high examination potential, or have specific areas of potential non-compliance and are selected for examination, but not grouped with other returns as a project, no CIP documentation is prepared.

See IRM 4.17 Compliance Initiative Projects Handbook for detailed information and procedures.

The SB/SE Campus Compliance Team Coordinator ensures that a tax issue explanation is prepared for each project return selected for examination.

Establish each return selected for examination on AIMS using Source Code 11, SB/SE Campus Examination Compliance Team Studies, Tests and Research, with an appropriate locally Defined 0500–0575 Project Code, which will be communicated to the Headquarters Examination Analyst for monitoring purposes.

The SB/SE Campus Examination Compliance Team Coordinator can request to establish a specific Project Code in those instances where similar type project returns are being identified, selected and examined at multiple Campuses. In those instances, the SB/SE Headquarters Examination Analyst will secure a specific Project Code (0800 – 0899) and or Tracking Code to be used with that inventory.

During the course of an examination, information may be obtained which indicates that taxpayers may have or are attempting to understate their tax liability through fraudulent means. Although only a small percentage of cases are fraudulent, it is necessary to detect and report any potential fraudulent activities. The following list identifies examples of indicators of fraud that are most likely to be found in a campus environment (this list is not all inclusive and may involve a promoter/return preparer):

If fraud is suspected, it is essential that the case be referred to the designated Campus/Exam Fraud Coordinator (CFC/EFC). The case must be developed to determine if affirmative acts (deceit, subterfuge, camouflage, concealment or some attempt to color or obscure events or to make things seem other than they are) exist. The service must prove that the taxpayer acted deliberately and knowingly with the specific intent to violate the law.

Refer to IRM 25.1 (Fraud Handbook) for additional information.

Review the Campus Fraud Lead Sheets ( Form 13549) received from within the Examination Operation to determine if sufficient indicators of fraud exist. In the W&I campuses this will also include referrals from the co-located AUR Fraud Coordinator.

Ensure that Form 13549 is properly completed and approved by the initiators manager.

Conduct preliminary research including:

Make a determination to accept or decline a fraud lead ( Form 13549) within 21 days of receipt for the W&I campuses, or 10 days for the SB/SE campuses.

Additionally, the W&I EFCs will:

Screen all Forms 13549 from the Functional Coordinators for completion.

Perform additional research on Currency and Banking Retrieval System (CBRS) and internet as deemed necessary (if available).

Make a determination to accept or decline a fraud lead within 21 days of receipt. This includes contacting the Campus Fraud Technical Advisor (FTA) within 3 business days after determining that the fraud lead has potential for development. See IRM 4.19.10.1.9.4 (Accepting or Declining a Fraud Lead).

Development of the civil fraud penalty issue on correspondence examination cases for assertion of the penalty by the campus.

Coordination of the civil fraud penalty case with the FTAs and Counsel.

Issuing 30-day letter and composing language for the explanation of adjustments for the fraud issue.

Review of civil fraud and fraudulent failure to file penalty computations.

Preparation of the Statutory Notice of Deficiency containing the Civil Fraud and/or Fraudulent Failure to File Penalties, and ensuring that the proper alternative positions are specified in the 90-day letter package.

Evaluation of audit reconsideration requests of the civil fraud penalty asserted by the campus.

Monitoring and updating the Campus Fraud Monitoring Report

If the Campus/Exam Fraud Coordinator declines the fraud lead, the reason for the declination will be annotated on Form 13549 and returned to the initiator through the initiators manager.

If the Campus/Exam Fraud Coordinator accepts the fraud lead for further development of the fraud issue, the case will be transferred and reassigned to the Coordinators group.

If it is determined by the CFC/EFC and FTA that fraud development is beyond the scope of the campus environment, the case will be updated and transferred to the appropriate SB/SE Area Office PSP function. The case will be updated to Project Code 0076 (Campus Fraud Development) prior to release. The CFC/EFC will also:

Identify indicators of fraud during the examination process.

Maintain an accurate case record that reflects all statuses/actions taken, documents received and conversations with the taxpayer, representative, return preparer and third parties. All actions and statements made by the taxpayers need to be documented.

Documentation is critical in the development of fraud. It is essential to follow the existing Auditing Standards and preparation of work-papers as defined in IRM 4.19.13, General Case Development and Resolution.

Discuss the indicators of fraud with the Team Manager. If the Team Manager concurs, complete sections one and two of the Form 13549 (information and indicators of fraud), detailing the taxpayers' suspicious actions and the specific indicators of fraud identified. Secure the Team Managers initials, date and forward the sheet/case to the Campus/Exam Fraud Coordinator for consideration.

See IRM 25.1, Fraud Handbook. The FTA and his/her manager can be found on the National Fraud Program web site at http://sbse.web.irs.gov/fr/.

Generally, Campus Examination Operation personnel do not develop or assert penalties against tax return preparers. However, there may be instances where campus employees may be directed to do so. In that event, the following information and procedures will apply.

Refer to IRM 20.1, Penalty Handbook, for additional information.

A number of penalties apply to income tax return preparers. Any person who prepares an income tax return or claim for refund for compensation or who employs other persons to prepare income tax returns or claims is considered to be an income tax return preparer.

Absent reasonable cause and good faith, preparers incur a penalty if:

A penalty is charged for understating a taxpayer's tax liability when the understatement was due to willfulness or any reckless or intentional disregard of rules and regulations.

Examiners will flag cases where there are indications of possible income tax preparer violations by use of Form 3198, Special Handling Notice, and forward to the Examination Return Preparer Coordinator (RPC) for review and forwarding to Area Office RPCs.

The Office of Professional Responsibility (OPR) sets, communicates and enforces the rules of professional conduct applicable to tax professionals as defined by Treasury Department Circular 230. OPR may propose disciplinary action against a practitioner for noncompliance issues associated with their personal or business tax returns.

Make a referral to the Office of Professional Responsibility if the non-filer is a tax practitioner (attorney, certified public accountant, enrolled agent, or enrolled actuary). Forward copies of delinquent returns of tax practitioners through supervisory channels to the:

Sanctions for failure to file will be administered by the Headquarters, Office of Professional Responsibility.

Also furnish the following information: