Purpose- This IRM section provides guidelines for the development of lead sheet and workpaper content and case file organization. These guidelines are provided to promote quality and consistency in the preparation and completion of lead sheets, workpapers, and case files.

Audience- These procedures apply to Small Business and Self-Employed (SB/SE) Field Examination employees.

Policy Owner- The Director, Examination Field and Campus Policy, who reports to the Director, Examination Headquarters.

Program Owner- Field Examination General Processes (FEGP), which is under the Director, Examination Field and Campus Policy.

Primary Stakeholders- Employees in SB/SE Field Examination and end users of the examination case file (e.g., Counsel, Appeals, etc.) are the primary stakeholders for this IRM.

Contact Information- To recommend changes or make any other suggestions related to this IRM section, see IRM 1.11.6.5, Providing Feedback About an IRM Section - Outside of Clearance.

The workpaper system is designed to facilitate consistent organization of examination case files and eliminate duplication.

The workpaper system includes:

Case file indexes are used to document all administrative and issue lead sheets, supporting workpapers, and other documents (e.g., information document requests, correspondence, case building materials, returns, etc.) in the electronic case file upon closure from the Examination group or another function (e.g., Planning and Special Programs (PSP), Technical Services). They allow other users and subsequent reviewers to verify that all documents closed with the case remain in the electronic file after closure. See IRM 4.10.9.11 for specific information on preparing case file indexes.

Form 4318 is the cover sheet that indexes the lead sheets and supporting documents. It lists the issues examined and examination adjustments. See IRM 4.10.9.11 for additional information. Form 4318 pertains to one taxpayer (or both spouses for jointly filed returns) and includes all tax years under audit. For cases in which Form 4318 is not generated by RGS and there are more than three years under audit, examiners must also use Form 4318-A, Continuation Sheet for Form 4318, Examination Workpapers Index.

See IRM 4.10.9.5 for guidance on Form 9984, Examining Officer’s Activity Record.

Lead sheets and workpapers are the written records that support the audit findings. Lead sheets and workpapers must document the audit activities including issues addressed during the audit, facts gathered, audit steps and techniques applied, tests performed, information obtained, and conclusions reached. They must include all the information necessary to reflect the audit trail and support the audit results. See IRM 4.10.9.7 and IRM 4.10.9.8 for additional information.

Case files are not ex parte communications within the context of Rev. Proc. 2012-18, 2012-10 IRB. 455. It is permissible to contemporaneously include statements or documents that are pertinent to the examiner's consideration of the case. However, examiners must refrain from placing notes, memoranda, or other documents that normally would not be included in the case file in the ordinary course of developing the case if the reason for including this material is to attempt to influence Appeals’ decision-making process.

See IRM 4.2.7, Ex Parte Communication Procedures, and Ex Parte Communications Frequently Asked Questions for additional information and guidance.

RGS is the software program utilized in the examination process for numerous actions and tasks, including the contemporaneous maintenance of electronic case files. See IRM 4.10.15.2, Report Generation Software (RGS) and Correspondence Examination Automation Support (CEAS).

All cases must be created, maintained, and stored in RGS. See IRM 4.10.15.3, Requirements to Use RGS and CEAS.

Form 9984, indexed as lead sheet 100-01, should be used to document each action taken on the case. The activity record should be prepared contemporaneously and provide a complete and concise case history. Form 9984 chronicles all actions on the part of the examiner, group manager, clerical support staff, taxpayer and/or the taxpayer's representative, etc. during the course of the audit.

Form 9984 is a brief summary of actions taken and in some cases will reference other workpapers for more detail. All entries on Form 9984 should be written factually and professionally, omitting personal opinions.

Examiners using the RGS program may use the RGS Case History application in place of Form 9984; however, they must use caution when using this application because the case history entries can be lost. Examiners must create and save a new RGS Case History Report each time a new entry is made and then back up to the CEAS file server. See IRM 4.10.15.8.3, Case History, for additional information.

Information recorded on Form 9984 should include the date, location, contact code (i.e., type of contact), time charged, and an explanation of each activity or contact, including but not limited to:

Employees (other than the assigned examiner) who document their actions on the case activity record (e.g., group manager, group clerical staff, reviewer, etc.) should include their name or initials next to the entry so that it is clear who performed the specific action. This will help preserve the audit trail and make it easy for subsequent reviewers to determine who is responsible for certain actions taken.

See IRM 4.10.7.6.1.3.1, Use of Examiner Activity Reports, for additional information on use of the activity record.

Lead sheets and workpapers serve four basic purposes:

Lead sheets and supporting workpapers constitute official government documents. They must be professional and objective in tone and language as well as free of unwarranted personal opinions and bias.

Examiners must contemporaneously update and finalize lead sheets and supporting workpapers during the audit and maintain them in the RGS electronic case file. If a physical (i.e., paper) administrative case file is required because the case is excluded from paperless electronic closure (see Cases Excluded from Paperless Electronic Closure), finalized lead sheets and workpapers (along with other documents pertinent to the case) must be printed and included in the physical administrative case file.

All case file documents, including lead sheets, workpapers, forms, reports, etc. must be prepared electronically or digitized, and saved in the RGS electronic case file. Refer to IRM 4.10.9.10 for required digitization procedures. Also see IRM 4.10.9.12 (5) for the pertinent documents that must be saved in the case file.

Examiners must use the administrative and generic issue lead sheets in the RGS program. The generic issue lead sheet must be used to create issue-specific lead sheets for all audit issues, including penalties. See IRM 4.10.15.8.9.3, Lead Sheets, and IRM 4.10.15.10, Office Documents (OD) and Case File Documents (CFD), for additional information.

Administrative and issue lead sheets serve as an index and summary for supporting workpapers and provide the following benefits:

Administrative and issue lead sheets must be numbered to agree with the reference code (i.e., issue number) assigned by RGS. See IRM 4.10.15.8.9.1, Issue Types. The lead sheet number should be shown in the footer of the page. RGS auto-populates the lead sheet number in the footer when the lead sheet is saved within the issue. For lead sheets not saved within an issue in RGS (e.g., lead sheets for statutory issues or generic workcenter cases saved directly to the RGS Office Documents (OD) folder), examiners must ensure the lead sheet is properly numbered. Additionally, lead sheets must be properly labeled in accordance with required file naming conventions. See IRM 4.10.15.10.1, File Naming Conventions, for file naming convention requirements.

Workpapers support the information included on the lead sheets and, when applicable, should reflect:

Original records secured from the taxpayer and/or third parties must be copied, if needed to support an issue or adjustment, and the copies used as workpapers. Examiners must not alter (e.g., make notations or other markings) the taxpayer’s original records. Form 2725-A, Document Receipt/History and Custody of Documents, should be issued to the taxpayer when hardcopy original records are received and temporarily retained for proposes of the examination. Form 2725-A should also be acknowledged with the taxpayer’s signature when the records are returned.

Many customers will use the case file; therefore, the quality and legibility of the workpapers are very important. In most instances, examiners should use computer software to prepare workpapers and reports in a way that will most efficiently and effectively document the audit process. Workpapers created electronically using a computer provide a product with a professional appearance. When it is necessary to prepare handwritten workpapers, they must be legible (i.e., clear and easily read) and subsequently digitized. See IRM 4.10.9.10.

Workpapers must be neat, legible, grammatically correct, and easily understood. See Documenting Lead Sheets and Workpapers job aid for additional information. The appearance of the workpapers reflects the professionalism and skills of the examiner. Poorly prepared workpapers can adversely impact the Service's credibility. Additional reasons workpapers must be neat, legible, and grammatically correct are:

If a physical (i.e., paper) administrative case file is needed in addition to the electronic case file, the workpapers should be assembled in uniform size. If odd sized paper or documents are included, they should be folded to the appropriate size. Adding machine tapes or other small size documents should be attached to uniform-sized sheets of paper.

The following situations require special documentary evidence:

Documentary evidence is needed to:

To the extent the required documentation is not already attached to the return, examiners should secure the following documentary evidence:

For cases started on or after July 27, 2022, all hardcopy documents (e.g., documents (including original returns) and correspondence received from taxpayers and third parties, handwritten workpapers, documents received from other IRS functions and offices, etc.) that are relevant to the case, must be digitized and included in the electronic case file.

Digitize the hardcopy document by converting it to an electronic format (e.g., PDF). Follow the steps below to digitize a hardcopy document:

Original returns and potentially altered or fabricated documents for fraud cases must be retained even after they are digitized. These documents must not be destroyed.

Original taxpayer records should generally be returned to the taxpayer and/or representative. See IRM 4.10.9.8 (2).

All other hardcopy documents must be destroyed after they are digitized and the case is backed up to the file server, or when the case is closed from the group. See IRM 1.15.3.2(1), Destroying Records in the Custody of the IRS, to determine the appropriate method to destroy records.

Form 4318, Examination Workpapers Index, must be saved in the RGS CFD folder and labeled with the prefix "001-01" at the beginning of the file name. See IRM 4.10.15.8.12(2), Reports, for information on generating Form 4318 in RGS. Also see IRM 4.10.15.10.1, File Naming Conventions, for information on RGS file naming conventions. If the case is excluded from paperless electronic closure (see Cases Excluded from Paperless Electronic Closure), Form 4318 must also be printed and included in the physical (i.e., paper) administrative case file.

Prior to closure from the group, Technical Services, etc., a case file index must be created for all documents saved in the electronic case file. Two separate listings of documents saved in OD (e.g., lead sheets, supporting workpapers, etc.) and documents saved in CFD (e.g., reports, returns, letters, etc.) must be prepared and saved to the appropriate folder (OD or CFD) in RGS. A case file index is required for all RGS cases, including cases in the RGS generic workcenter (see IRM 4.10.15.9, Generic Workcenter).

All cases must be fully electronic (see IRM 4.10.9.6 (4)) and most cases are closed using paperless electronic closure. However, cases excluded from paperless electronic closure (see Cases Excluded from Paperless Electronic Closure) require the creation of a physical (i.e., paper) administrative case file before the case is closed from the group. This section provides case file assembly instructions for physical administrative case files. Proper assembly of a case file helps to minimize delays, administrative problems, and procedural errors. The physical administrative case file must be shipped to the next function (e.g., CCP, PSP, or Technical Services) at the same time the electronic case file is closed out of the group. See IRM 4.10.15.12.2(3), Examined Closures - Manager Responsibilities.

Each case should be placed in a separate folder. A case constitutes all examined returns and workpapers with the same type of tax for the same taxpayer. Within the folder, the oldest year should be placed on top, followed by the other years in order, with the most current year on the bottom.

All related case folders should be kept together with the key case folder on top. Form 3198 is required for the key and each related case. The examiner must record the related or key case in the "Related Taxpayers or Key Cases" section of Form 3198.

If more than one folder is used to hold returns, workpapers, or related cases, they should be numbered to ensure they are not separated in error. For example, if there are three folders for one case, number the folders "1 of 3" , "2 of 3" , and "3 of 3" .

Examiners must follow the instructions listed in this section for:

The forms, reports and/or documents listed below will not be required in every case. While the list is not all inclusive, it addresses the most common items.

See IRM 4.10.1.4.8, Shipping Personally Identifiable Information (PII), and IRM 10.5.1.6.9.3, Shipping through Private Delivery Carrier, for procedures that must be followed when mailing cases, including the preparation and use of Form 3210, Document Transmittal.

Each case folder should be secured with a rubber band or strap. All related case folders should be grouped together with rubber bands, straps, or boxed together, as appropriate.

The RGS case must be forwarded to the next function (CCP, PSP, Technical Services) on the same day the paper case file is shipped.