The IRS needs reliable compliance measures to determine which key areas of noncompliance to address and which treatments to apply to maximize the use of its limited resources. Data provided by NRP examinations gives us the information to meet these needs.

NRP applies specific guidelines to existing examination techniques and processes to capture necessary compliance data. Using enhanced internal information and established processes, NRP minimizes the burden to both the taxpayer and examination personnel.

NRP results are available for the IRS to effectively manage its compliance programs and design pre-filing activities that help taxpayers comply with the tax law.

NRP is critical to the organizational transformation of the IRS. NRP is one of several efforts the IRS is using to enhance its compliance-oriented programs.

By law, the IRS has the authority to conduct examinations under Title 26, Internal Revenue Code, Subtitle F – Procedure and Administration, Chapter 78, Discovery of Liability and Enforcement of Title, Subchapter A, Examination and Inspection, which includes, but is not limited to, the following IRC sections:

Under the Reform and Restructuring Act of 1998 (RRA '98), Congress mandated the IRS to deliver service to taxpayers at a new and much higher level of performance in the most cost-effective and least burdensome manner possible. Data from NRP examinations enable the IRS to operate as a more efficient and effective tax administration organization.

Director, Research, Applied Analytics and Statistics (RAAS) oversees the NRP Program.

Director, Data Management Division (DMD) oversees the Compliance Data Warehouse (CDW).

Chief, National Research Program manages and monitors NRP operations and provides guidance. This is the office with primary responsibility for administering the NRP program.

For all NRP studies, the NRP Office manages and monitors NRP operations and provides guidance and assistance to all participating Business Operating Divisions (Small Business and Self Employed (SB/SE), Large Business and International (LB&I) and Tax Exempt and Government Entities (TE/GE)) as needed.

Examination Directors have responsibility for NRP examinations within their areas.

Territory Managers have responsibility for NRP examinations within their territories.

The Planning and Special Programs (PSP) Territory Manager (TM) will coordinate the receipt, control, and assignment of NRP returns. The PSP TM will monitor and report on the status of the NRP inventory, approve transfer of cases and have second line authority for approval/disapproval of exclusion requests.

Group Managers and Case Managers are responsible for NRP cases within their groups, including timely assignment of NRP cases, and providing guidance to examiners on the scope and requirements of these examinations. They are also responsible for maintaining a workflow throughout the entire examination cycle that ensures timely completion. To ensure the quality of NRP examinations, managers will review cases according to procedures outlined in this IRM.

Effective management of the NRP study is achieved by training the NRP managers and examiners. This ensures that quality examinations are conducted and the IRS gets good data.

Acronyms relating to the NRP examination include:

IRM 4.22.6, Area Office - Examination of Individual Returns

IRM 4.22.8, NRP EITC Component of the Individual Reporting Compliance Study

NRP electronic case files contain all case building items in electronic format.

Upon receipt of NRP case files, the receiving office will verify that the case files are complete and agree with the accompanying transmittal list ( Form 3210). If files don’t agree with the accompanying transmittal, contact the NRP Office at the following e-mail address: ctr.aus.nrp@irs.gov.

After verification, the receiving office will sign and date (on each page) the original and one copy of the transmittal lists (Form 3210) within five workdays.

NRP cases are processed as part of the normal examination workload unless otherwise specified herein.

After receipt of cases from the NRP Coordinator, Group Managers and Case Managers will assign cases to examiners as quickly as possible.

NRP examinations will only be conducted by examiners who have completed the required NRP training. NRP examinations will be completed promptly without sacrificing quality.

Examiners with NRP cases assigned to them and group managers with NRP cases in their group are required to complete the Integrated Talent Management (ITM) NRP training course on an annual basis for as long as the NRP cases are active.

Importance of NRP Results -The examination outcomes of NRP returns provide the data used to understand the extent and nature of noncompliance for the relevant population of returns from which the NRP returns are drawn. These data are used in many ways. Primary among these are developing noncompliance estimates, including the tax gap estimates; developing estimates to satisfy the reporting requirements of the Improper Payments Information Act (IPIA) of 2002 as amended; and developing or updating models for scoring returns as to their probability of significant tax understatement. The scope and depth of the examination of an NRP-selected return are sufficient to provide reliable information for these purposes. Examiners must be mindful of causing unnecessary burden for the taxpayer.

Scope of Examination - Every classified item must be examined. An inquiry or an inspection of records and documents must be made for all classified line items. If an examiner has a question about the classified issues, refer to IRM 4.22.3, Classification of NRP Returns, for further instruction.

Depth of Examination - Examiners must use their professional judgment concerning the depth of examination required for any item on the tax return bearing in mind the future uses of the data collected from the examinations. See IRM 4.22.4.3.2, Evaluation of Books and Records.

Mandatory Probes - At a minimum, conduct some inquiry or inspection of records and documents supporting classified or mandatory items including, but not limited to, income, deductions, taxes and credits. In the examination of all NRP cases, be equally alert to discovering unreported income, as well as allowing taxpayers any additional deductions or credits to which they are entitled. Given the variety of taxpayers and types and sources of income and deductions, it is not practical to give specific guidelines for the scope and depth of such inquiry. This is a matter of judgment in each case. For minimum income probes refer to IRM 4.10.4, Examination of Income.

Required Workpaper Documentation - Lead sheets and any supporting workpapers are required for each issue, must be prepared electronically, and included in the applicable electronic case file. Lead sheets must contain the adjustment amount, audit procedures and conclusion. In addition, certain issues require completion of an NRP-specific lead sheet that contains data capture features. All supporting workpapers must be properly named so they can be associated with the appropriate issue/lead sheet. RGS users refer to IRM 4.10.15.8.9 & IRM 4.10.15.10, including subsections, for general lead sheet and workpaper information and requirements.

NRP Data Capture Lead Sheets - NRP Data Capture Lead Sheets are all presented in an Excel format and designed so that information entered by the examiner can be extracted and provided to the stakeholder requesting the information.

NRP examiners will gather facts to determine the accuracy of any item classified for examination. This determination will include all the facts supporting both sides of an issue.

Documentary evidence is emphasized in the conduct of an NRP examination. Records kept contemporaneously with the occurrence of an event generally reflect accurately of that event. Books of original entry are to be obtained if they exist. The contemporaneous records, invoices, bank statements, cancelled checks, and any other documents to support the books and records will be inspected to a depth adequate to support the accuracy of those books and records.

In situations where contemporaneous books and records do not exist or are incomplete, secondary written records (such as, copies of original documents obtained from third parties) or other reconstructions of records, if credible, can be used.

Oral testimony by a taxpayer is direct evidence which must be thoroughly considered. The degree of reliability placed on a taxpayer's oral testimony must be based on the credibility of the taxpayer and the surrounding circumstantial evidence.

Oral testimony by other than the taxpayer can also be credible if that person has first-hand knowledge of the facts and circumstances.

The steps to obtain evidence and the evaluation of it must be documented in the issue's workpapers.

Due to the future uses of the data collected through the NRP examinations, all adjustments must be entered and captured within RGS, IMS or the study specific Data Capture Instrument (DCI) on the key case examination only.

Each NRP Study has its own requirements regarding de minimis adjustments. For more information, refer to the applicable NRP training courses at https://nrp.web.irs.gov/training.

Wrong line adjustments occur when a taxpayer reports an amount on the wrong line of an income tax return. They include:

All wrong line adjustments must net to zero.

Wrong line adjustments do not include:

Each NRP Study has its own guidance regarding wrong line adjustments. For more information, refer to the applicable NRP training courses at: https://nrp.web.irs.gov/training.

Guidelines for making wrong line adjustments include:

Cases with flow-through income and expenses to other entities have special considerations. Form 1065, Form 1120S, and Form 1041 provide for items of income and expense to be distributed as ordinary income or (loss) and as separately distributed items (per Schedule K-1 and return attachments). In completing a report for examination changes at the conduit level, the examiner will not reflect changes that are in name only and used to determine ordinary income or (loss). If changes result in adjustments to the distributed items which could (based on statutory limitations and other requirements at the shareholder/partner level) affect tax liability, then the examiner will make those adjustments and use the appropriate Reason Code "10" or "14."

Even though wrong line adjustments do not affect the determination of taxable or ordinary income, their true nature can have a definite effect on the determination of tax liability for the NRP return or the shareholder associated with the NRP return. These changes (such as those to Self-Employment Tax, Minimum Tax, Earned Income Credit, etc.,) will be reflected on the report. In addition, changes will be made to misclassified items on a Form 1040 that could result in changes to the shareholder return due to statutory or other limitations at the recipient's level.

Once a decision has been made to transfer a case to another area and the requirements of IRM 4.11.29, Transfer of Returns Open for Examination, have been met, the following procedures apply:

A completed Form 3185, Transfer of Return, with "NRP study cycle" clearly entered in the "Comments" section will be used to transmit NRP cases and any related data to the transferee Area NRP Coordinator for review and updating of control records. The Area NRP Coordinator will establish local procedures for expediting transfers, both into and out of the Area.

Upon receipt of the NRP package, the receiving Area must acknowledge receipt by updating the NRP control system and by signing and acknowledging Form 3210, Document Transmittal.

The NRP Coordinator must also review the "Transfer Pending" report on the NRP control system periodically to see if any cases are being transferred into the Area. If a case is not received within 30 calendar days of the "Sent" date, the transferee Area NRP Coordinator must contact the transfer-in clerk within the Area and if necessary, the transfer-out Area NRP Coordinator to ensure transfer completion.

Formal discussions between the transferrer and transferee Areas are strongly recommended, to eliminate questionable transfers.

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NRP will test all transmitted data to ensure it is complete and consistent. Transmitted case data consists of EOAD data extracted from the electronic case files as well as examiner responses to the NRP questionnaire, if one is used for the study, NRP lead sheets or other NRP data capture instruments.

Data that is incomplete or inconsistent will be identified for correction. Data consistency tests for the Form 1040 NRP study are run by the NRP Coordinator.

Once the transmitted data has passed all NRP consistency tests and Coordinator review, the case can be forwarded to the appropriate location.

Transcribers must have access through BEARS to the NRP transcription application. Navigation and data input instructions are available within the transcription application.

NRP is interested in capturing what the taxpayer originally reported.

Not every form/schedule/line with taxpayer supplied data will be transcribed. Follow the transcription application prompts.

Disregard pipeline processing code and edit markings.

Do not combine multiple occurrences of forms and schedules unless stated otherwise below.

Refer to the special handling instructions in the NRP transcription job aid for specific form/schedule/line requirements.

Key Verification (KV) will validate Original Entry (OE). Additionally, NRP will perform data load tests on the transcribed data to ensure correct data input.

Verify that the Charge Out Sheet information matches the return.

Verify that the return is a Form 1040 or 1040A (TY17 and earlier) or 1040SR (TY19 and after), and that the supporting forms and schedules are for the correct taxpayer.

Select the appropriate tax year in the transcription application.

Verify that the Edit Sheet information matches the return.

Screen the return and populate the Edit Sheet.

Disregard any forms or schedules that have “AMT” or “Alternative Minimum Tax” noted by the taxpayer.

Locate and note the presence of any relevant supplemental statements in the Comments box.

The fields in the Edit Sheet header, including the TIN, Tax Period, Case #, Return Filed, Cycle, PBC, Taxpayer Name and DLN will be pre-populated.

The forms and schedules listed at the top of the Edit Sheet will receive extensive transcription. For each form and schedule included in the tax return, edit the number of times it appears in the Number for Transcription field. The Comments field can be used to communicate relevant information to the KV.

The SEID, date and time stamp will indicate when the OE and KV last saved the data.

The miscellaneous forms and schedules at the bottom will be transcribed directly from the Edit Sheet. If the form or schedule appears, edit the money amount from the specified line to the Amount field.

Populate missing TINs/SSNs/EINs where possible.

Populate missing money amounts using the transcription application’s calculation mismatch.

Pay special attention to the applicable check boxes.

If a line has multiple taxpayer entries on it, input the total unless stated otherwise below.

If a line has embedded brackets, do NOT enter the money amount as a negative. Only enter a money amount as negative if the taxpayer reported it as a negative on a line without embedded brackets.

Prepare a dummy form or schedule if the taxpayer submitted a statement in lieu of an actual form or schedule.

Ignore any pipeline processing markings, especially for transcription lines required by NRP.

Since taxpayers can report multiples of certain forms and schedules, pipeline processing will assign a unique sequence code to differentiate them. However, pipeline is limited in its ability to process multiples. Once these unique sequence codes run out, pipeline will combine the amounts reported on the remaining multiples and edit them on the last available sequence code.

In general, NRP is interested in capturing each instance of a particular form or schedule, not the combined amounts. Transcribe each multiple separately, exactly like the taxpayer reported them, unless stated otherwise in the NRP transcription job aid.