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Part 4. Examining Process

Chapter 1. Planning and Special Programs

Section 24. LMSB Sources of Returns, Ordering and Classification

4.1.24  LMSB Sources of Returns, Ordering and Classification

4.1.24.1  (08-01-2007)
Overview

  1. This section discusses sources of returns, ordering and classification of LMSB returns.

  2. LMSB has responsibility for all business returns having $10,000,000 or greater in assets.

  3. See LEM 4.1.24.1 (3).

  4. LMSB PSP Ogden has primary responsibility for ordering LMSB returns and ensuring returns are classified.

  5. See LEM 4.1.24.1 (5).

4.1.24.2  (08-01-2007)
LMSB Corporate Returns

  1. LMSB is responsible for corporate returns that have assets greater than or equal to $10 Million. The activity codes include 219, 221, 223, 226, 227, 228, 229 and 230. See LEM 4.1.24.2 (1).

  2. See LEM 4.1.24.2 (2). All activity code 225 returns are automatically opened. These returns are ultimately made available for ordering by the PSP Analyst using the LMSB Workload Identification System (LWIS).

4.1.24.2.1  (08-01-2007)
Miscellaneous LMSB Corporate Returns

  1. Miscellaneous corporate returns are not scored. Miscellaneous corporate returns include form 1120-C,1120F, 1120FSC, 1120L, 1120ND, 1120PC, 1120RIC, and 1120SF. Excluding Form 1120F, these returns can be ordered in for manual classification by LMSB PSP Ogden.

  2. Form 1120Fs, are automatically updated to status 08 and are available for ordering by the Industry PSP Analyst.

4.1.24.3  (08-01-2007)
LMSB S Corporation Returns

  1. LMSB is responsible for S Corporation Returns having assets greater than or equal to $10,000,000 in assets. These returns are assigned activity code 290.

  2. See LEM 4.1.24.3 (2).

  3. The LMSB compliance plan and classification plan is used to determine how many returns are needed. Returns are ordered by LMSB Ogden PSP for manual classification

  4. S Corporation returns will soon be classified using the LMSB Examination Classification System (LECS). See LEM 4.1.24.3. Currently, LMSB PSP Ogden coordinates with the Industry PSP Analysts to arrange classification of S Corporate returns.

    • Any return that is selected during classification is updated to status 08, and is available for ordering via LMSB Workload Identification System (LWIS) by the Industry PSP Analyst.

    • Any return accepted as filed is closed by LMSB PSP Ogden using disposal code 20.

4.1.24.4  (08-01-2007)
LMSB Partnership Returns

  1. LMSB is responsible for Partnership returns having assets greater than or equal to $10,000,000 in assets. Partnerships are not assigned an activity code by asset size as C and S corporations are, but rather by a combination of gross receipts and number of partners. Therefore, LMSB shares activity codes with SB/SE. For workload identification purposes, the LMSB population can be identified by reported assets

  2. See LEM 4.1.24.4(2).

  3. See LEM 4.1.24.4(3)

  4. LMSB Operations Support with the assistance of LMSB Research is responsible for determining which partnership returns will be ordered.

  5. The LMSB compliance plan and classification plan are used to determine how many returns are needed. Returns are ordered by LMSB Ogden PSP for manual classification.

  6. Partnership returns will soon be classified using the LMSB Examination Classification System (LECS). See IRM 4.1.24.8. LMSB PSP Ogden arranges for classification of partnership returns by coordinating with the Industry PSP Analysts

    • Any return that is selected during classification is updated to status 08, and is available to order for examination.

    • Any return accepted as filed is closed by LMSB PSP Ogden using Disposal Code 20 .

    .

4.1.24.5  (08-01-2007)
Form 1120-C, U.S. Income Tax Return for Cooperative Associations

  1. LMSB is responsible for all Form 1120-C (Formerly Form 990-C), U.S. Income Tax Return for Cooperative Associations.

  2. The Retail, Food, Pharmaceutical and Health Care (RFPH)Industry has responsibility for ensuring the necessary examination coverage of these return filings.

  3. All form 1120-C returns are classified for examination.

    • Any return that is selected during classification is updated to status 08, put on LWIS and is available to order for examination.

    • Any return accepted as filed is closed using Disposal Code 20 by LMSB PSP Ogden.

4.1.24.6  (08-01-2007)
Other Source Workload

  1. Other source Workload for LMSB includes but is not limited to the following:

    • Claims

    • Tax Shelters

    • Compliance Initiative Projects (CIPs)

    • Informant Claims

    • Bankruptcy

    • Information Reports

    • Remote Examinations

    • National Research Project (NRP)

    • Return Preparer Project

    • Change in Accounting Method

    • Flow through Entity Workload that crosses operating divisions

4.1.24.6.1  (08-01-2007)
Claims

  1. In general, LMSB taxpayers file claims for refund on form 1120X or form 1139. Claims related to returns already charged to the field are not classified. These returns are forwarded to the field for association with the return. All other LMSB taxpayers filing claims meeting Category A criteria (IRM 21.5.3-2) are classified and where necessary related returns are requested by Revenue Agents in LMSB PSP Ogden.

  2. All returns selected for examination are updated to organization code 1086, status 08 and the appropriate source code (Refer to Exhibit 4.4.1-27 in IRM 4.4 AIMS/Processing Handbook) and sent to SB/SE Classification Control. All returns accepted as filed are disposed of by LMSB PSP Ogden.

  3. SB/SE Classification control is responsible for sending the claim to the field. Classification Control assigns the returns based upon a Form 3210 that is generated by the LMSB Claims Assignment System (LCAS) (Refer to IRM 4.1.25.3). LCAS identifies a Point of Contact (POC) for the geographic location of the taxpayer. The POC is responsible for having the case assigned to a particular LMSB group.

4.1.24.6.1.1  (08-01-2007)
Joint Committee Claims

  1. Any tentative carryback allowance (form 1139) or claim (1120X), in excess of $2,000,000 to the same taxpayer must be selected for examination. These claims meet Joint Committee criteria.

  2. The primary reference for Joint Committee Cases is IRM 4.36.

  3. Returns meeting Joint Committee criteria are updated with project code 0077 and the appropriate source code (Refer to Exhibit 4.4.1-27 in IRM 4.4 AIMS/Processing Handbook).

  4. SB/SE Classification control is responsible for sending the claim to the field. Classification Control assigns the returns based upon a Form 3210 that is generated by the LMSB Claims Assignment System (LCAS) (Refer to IRM 4.1.25.3). LCAS identifies a Point of Contact (POC) for the geographic location of the taxpayer. The POC is responsible for having the case assigned to a particular LMSB group.

4.1.24.6.2  (08-01-2007)
Tax Shelters

  1. The Tax Shelter Support Unit (TSSU) receives all Form 8886 Disclosure Statements from the Office of Tax Shelter Analysis. These disclosures are screened and separated into listed and non listed transaction shelter types.

  2. TSSU is required to case build all listed transactions.

    • In general, assignment of returns is coordinated with the issue champion or issue management team.

    • If the shelter does not have executive oversight, the returns are distributed by industry and geographic location. Assignment is coordinated with the Industry PSP analyst or Industry tax shelter analyst.

  3. In addition to the listed transactions, TSSU revenue agents perform limited reviews of non listed transactions to identify potential emerging issues and regular income tax issues.

    • TSSU will notify OTSA of the emerging issue and case build the return

    • TSSU will coordinate assignment with the industry PSP Analyst or Industry Tax Shelter Analyst.

4.1.24.6.3  (08-01-2007)
Compliance Initiative Projects (CIPs)

  1. CIPs serve as a vehicle to deal with known or suspected compliance problems. They usually involve a study or other analysis of a group of taxpayers such as those within an occupation, industry, geographic area or specific economic activity or event. Internal and external data is used to identify, quantify, evaluate and correct areas of non-compliance.

  2. A CIP can be initiated in the field or by a headquarters office. IRM 4.17 discusses the procedural aspects of CIPs

  3. CIP returns are identified by the project coordinator. The project coordinator will work with LMSB Ogden PSP when information to identify returns is needed from MACS.

  4. LMSB Planning and Special Programs Ogden is responsible for identifying CIP returns for classification. Returns identified are matched to AIMS and LIN.DAT to determine status and image availability. Any return identified under the CIP is updated with the appropriate project and tracking code. Ogden PSP uses various organization codes to monitor CIP returns.

  5. The project coordinator is responsible for arranging classification of these returns.

    • Any LIN return is classified using the LMSB Examination Classification System(LECS), (See IRM 4.1.24.8.) and must be classified within 30 days of receipt via secure E-mail

    • Once all paper returns are received, classification must be arranged within 30 days.

  6. Once the returns are classified:

    1. If the return is selected for examination, LMSB PSP Ogden will work with the PSP Analyst to determine the appropriate AIMS Assignee Code for assignment to a team.

    2. If the return is accepted for the CIP issue, the return is either disposed of or updated back to the previous status and/or Employee Group Code (EGC). The project and tracking code is removed.

  7. LMSB PSP Ogden will maintain copies of all authorized CIPs.

  8. LMSB PSP Ogden will maintain lists of returns requested under each CIP.

4.1.24.6.4  (08-01-2007)
Informant Claims

  1. Informant Claims are documented on Form 10492. The informant Claims are all coordinated through SBSE Informant Claim Examination (ICE) Unit. LMSB PSP Ogden is responsible for classification of LMSB Informant Claims.

  2. LMSB PSP Ogden may accept or survey these claims if the available information indicates that an examination is not warranted. If the claim is accepted or surveyed, the agent must inform the SB/SE ICE unit expeditiously.

  3. If the Claim is selected for examination, LMSB PSP Ogden notifies the SB/SE ICE Unit. Assignment of the return must be coordinated with the Industry PSP Analyst.

  4. The identity of persons who furnish information regarding possible tax violations must be protected. All employees must handle such information in strict confidence. Special handling must be given to avoid disclosure to other than those employees having a need to know

4.1.24.6.5  (08-01-2007)
Bankruptcy

  1. SB/SE Insolvency Units notify/forward any Bankruptcy notifications or requests that are related to LMSB taxpayers to the LMSB Bankruptcy Coordinator. These can include but are not limited to proof of claims and prompt determinations. Refer to IRM 4.27 for detailed information on Examination Bankruptcy procedures.

  2. The LMSB Bankruptcy coordinator requests and controls all returns needed for determinations and presents them to LMSB PSP Ogden for classification.

  3. All selected returns will be coordinated through the Industry PSP for assignment to the field.

  4. All taxpayers are sent a notification of selection or acceptance of the return by the LMSB Bankruptcy coordinator.

4.1.24.6.6  (08-01-2007)
Information Reports

  1. All approved Examination Information Reports, Form 5346, relating to LMSB returns should be referred to LMSB PSP Ogden.

  2. An approved Form 5346 which relates to a non LMSB taxpayer will be mailed to the appropriate business unit (SB/SE, W&I, TEGE).

  3. All Forms 5346 which relate to LMSB taxpayers will be AIMS researched to determine if a return for the same taxpayer and class of tax is open in Examination. If open, the Form 5346 will be forwarded to the examining field group to be associated with the case file.

  4. The PSP Ogden will promptly screen the Forms 5346 received and take appropriate steps as outlined below.

    1. Those reports not properly completed, not approved, and/or lacking sufficient information will be returned to the originator.

    2. Those reports, for which the returns are necessary for classification, will be researched on IDRS to determine if the examination can be completed with a CC BRTVU print. If not, the return will be requisitioned.

    3. Forms 5346, which do not warrant examination for any reason, will be disposed of as provided by Records Control Schedule, Exhibit 1.15.46-1, General Records Schedule 9.

  5. The PSP Ogden AIMS coordinator will input Source Code 60 and Push Code 021 for Forms 5346 submitted for subsequent (unfiled) years. After input on AIMS, these Forms 5346 will be held until return has posted.

  6. If the return identified in the information report is selected, the original return will be requested and AIMS control will be established using project code 0135.

  7. Assignment of the return must be coordinated with the appropriate Industry PSP Analyst.

4.1.24.6.7  (08-01-2007)
Remote Examinations

  1. Remote Examination (RE) is an alternative to the full scope examination and consists of an off site examination of a limited number, generally one or two, pre-identified significant issues. This issue-driven enforcement process is applied to current year Industry Cases (IC) and aimed at determining if an identified issue is properly reported.

  2. In most instances, returns will be identified as inventory for Remote Examinations prior to assignment to the groups. Remote Examination inventory will be assigned to the groups as determined by LMSB Industry Workplans. RE inventory will originate from issues identified through various sources such as:

    • Emerging Issue Teams

    • Compliance Initiative Projects (CIP)

    • Tax Shelter Initiatives

    • New Legislation

    • Congressional Mandates and

    • Issues identified by field.

  3. In general, identification and classification of returns will be organized by the Remote Examination Program Analyst, located in LMSB Performance, Quality and Audit Assurance

  4. Returns selected for examination use aging reason codes to track results. LMSB PSP Ogden updates those returns that are designated as remote examination with aging reason code 10.

  5. Assignment of returns must be coordinated with the Industry PSP Analyst.

4.1.24.6.8  (08-01-2007)
National Research Program (NRP)

  1. NRP replaces the Taxpayer Compliance Measurement Program (TCMP). The objective of the program is to:

    • Measure reporting compliance at a strategic level

    • Enable development of enhanced exam workload selection methods

    • Improve IRS understanding of noncompliance to develop cost effective approaches for prevention or other pre-filing treatments

    • Provide IRS with compliance information to support strategic plans and budgets

  2. The NRP Office, with input from Operating Divisions, other Federal Agencies, and various interested parties, determine NRP Study return type, return years, and Study start date. Sample size is determined, and using an established sampling method unique to the return type, a random sample of returns is identified.

  3. Austin, TX NRP employees, LMSB PSP Ogden staff, and the LMSB NRP Project Lead work jointly to request the sample returns and related K-1s and secure AIMS controls. Imaged returns are printed to allow code and edit and other NRP data gathering functions to proceed.

  4. The sample returns are collected in the Covington, KY campus where they are case built and prepared for classification. LMSB agents trained in NRP classification and proficient in the examination of the return-type classify the returns per NRP guidelines.

  5. The final NRP sample returns are assigned to the field for examination. Working in conjunction with the Industry PSP Analysts, returns are assigned by the LMSB NRP Project Lead to LMSB Teams based primarily upon the geographic location of the return, and the availability of qualified examination personnel.

4.1.24.6.9  (08-01-2007)
Return Preparer Project Returns

  1. Return preparer penalties are described in IRM 20.1.6, the Penalty Handbook.

  2. Currently the Return Preparer Program for LMSB is controlled by Performance, Quality and Audit Assistance (PQA).

  3. Any inquiry regarding a Return Preparer Project should be referred to the PQA Return Preparer Analyst.

4.1.24.6.10  (08-01-2007)
Change in Accounting Method

  1. National Headquarters issues letters to taxpayers authorizing, or denying a change in accounting method. When this letter is issued, a copy of the letter is forwarded to the Industry Office. The Industry PSP Analyst researches AIMS to determine if the taxpayer is currently under examination. If so, a copy of the determination is forwarded to the LMSB Examination Team. If the return is not under examination, a Form 5456, Information Report, should be prepared and forwarded to Ogden PSP.

  2. Follow-up action is necessary when Ogden PSP is unable to ascertain that the taxpayer is complying with the terms, conditions and adjustments upon which permission is predicated. If the change in accounting method is denied, Ogden PSP should confirm that the taxpayer did not implement the change in accounting method. If either cannot be confirmed, the return should be assigned for examination.

4.1.24.6.11  (08-01-2007)
Cross Divisional Pass Thru Entity Workload

  1. The LMSB and SB/SE Operating Divisions established a Memorandum of Understanding that sets the procedures and responsibilities for Pass Through Entities and their related investors when the returns cross Operating Divisions.

4.1.24.6.11.1  (08-01-2007)
SB/SE Identified LMSB Return

  1. SB/SE may identify an issue on an LMSB Pass thru Entity that is not established on AIMS. A this point, SB/SE may request a collateral examination. See IRM 4.2.2

  2. SB/SE determines the proper routing of Form 6229, Collateral Examination, to LMSB. In general, the SB/SE Group Manager will contact the LMSB Territory Manager responsible for the applicable post of duty of the taxpayer.

  3. The SB/SE Group Manager will forward Form 6229 to the SB/SE Territory Manager, along with an information copy to the area Planning and Special Programs.

  4. The SB/SE Territory Manager will forward the Form 6229 to the LMSB Territory Manager. The receiving Territory Manager will forward a copy of the request to the responsible Industry PSP Analyst.

  5. The LMSB Territory Manager and Team Manager have 20 days to respond with a decision to examine to the SB/SE Territory Manager.

  6. If the collateral referral is accepted, the SB/SE controlled 1040 will be transferred to LMSB. LMSB will consider SB/SE classified issues.

  7. If LMSB rejects the collateral referral, then SB/SE will make a determination at the Territory Manager level if the return will be worked based on skill level, resources available, and scope of the work related to the 1040.

4.1.24.6.11.2  (08-01-2007)
LMSB Identified Return

  1. LMSB may identify an issue on a related SB/SE return when examining a Pass through Entity.

    1. If the return is TEFRA, then normal procedures apply for establishing investor returns on AIMS and PCS.

    2. If the return is non TEFRA and there are no returns open on AIMS, LMSB will follow normal AIMS opening procedures to request control of the return.

    3. If the investor(s) return is open on the SB/SE AIMS database, LMSB should contact the SB/SE Group Manager requesting the transfer of the return. LMSB must include a justification for transfer and agree to take full responsibility for examination of SB/SE classified issues. If SB/SE declines transfer, the SB/SE agent is responsible for coordinating with the LMSB agent.

4.1.24.7  (08-01-2007)
Classification Plan

  1. A classification plan is prepared using the LMSB Compliance Plan. The classification plan is used to plan Non CIC return orders and schedule agents for classification details. In addition, it is used to determine whether LMSB has enough returns in inventory to meet the overall Industry Case return plan. At a minimum the classification plan will include:

    • Number of returns planned by activity code per Post of Duty (POD)

    • Number of returns currently open (Status 10 and 12) by activity code and POD

    • Number of returns awaiting classification (Status 06)

    • Number of returns classified (Status 08)

    • Number of DAS scored returns needed by activity code and POD

    • Number of non-DAS returns needed by activity code per POD

    • Select Rates by activity code per POD

    • Survey rates by activity code per POD

  2. The LMSB classification plan is automated and pulls information from internal sources such as AIMS Centralized Information System (ACIS), LMSB Workload Delivery and Inventory System (LWIS), TIMIS maintained by Management and Finance and the CIC database. Information is pulled from LWIS at the end of each reporting cycle to adjust for inventory levels.

  3. Operations Support, Team North, is responsible for monitoring the classification plan. The plan most be monitored to ensure:

    • Returns are ordered ratably throughout the plan year

    • Returns are ordered timely for the correct POD in the correct activity codes

    • Returns are delivered to classification timely and that the delivery rate is adequate

    • Select rates are within acceptable levels

    • Returns are falling out in the correct Post of Duties

    • Unassigned inventory levels are neither too low nor too high

4.1.24.8  (08-01-2007)
LMSB Examination Classification System (LECS)

  1. The LMSB Electronic Classification System (LECS) was developed in an effort to modernize and thus improve the classification process. LECS is a database system which houses all returns that are available for classification. These returns will primarily include forms 1120S, 1065 and CIPs. LECS enables Revenue Agents to classify returns from their Post of Duty using the LIN system.

  2. Authorized personnel will need to have an approved 5081 to access the LECS system.

  3. The LECS Homepage provides instructions for accessing the system.

4.1.24.8.1  (08-01-2007)
Industry PSP Responsibilities

  1. Each Industry PSP is responsible for the coordination of the classification process including, but not limited to the following:

    • Soliciting classifier managers

    • Training the classifier managers

    • Selecting classifiers.

    • Adding classifier managers and the classifiers to the LECS system.

    • Selecting classification inventory and forwarding to the appropriate classifier manager.

  2. Once returns are selected by the PSP for classification LECS will generate an E-mail to the selected Classifier Manager advising them that classification must be completed in 30 days.

  3. The Technical Advisors and CIP Project Coordinators have the same permission access to LECS as the Industry PSP Analyst. However, they are prohibited from examining any return that they classify.

4.1.24.8.2  (08-01-2007)
Classification Manager Responsibilities

  1. The classifier manager is responsible for, but not limited to the following:

    • Contacting the classifiers and their managers to determine who is currently available to classify returns

    • Assigning returns, via LECS, for classification and providing classifiers with a deadline for review. This deadline should allow the manager enough time to complete the classification within 30 days.

    • Monitoring the classifiers progress.

    • Contacting the Industry PSP when more classifiers are needed.

    • Reviewing and either approving or disapproving the returns classified.

4.1.24.8.3  (08-01-2007)
Classifier Responsibilities

  1. The domestic classifier is responsible for, but not limited to the following:

    • Making classification determinations on inventory assigned by the classifier manager.

    • Filling out the classification sheet for each return selected.

  2. The international classifier will be responsible for, but not limited to the following:

    • Classifying returns that have been identified as having international features.

    • Adding the issues identified to the domestic classification sheet.


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