This IRM provides information on Examination general procedures for administrative matters and references for common issues and related items that might be found on tax returns.

W&I Refundable Credits Exam Operations (RCEO) and SB/SE Campus Examination support the mission of the Internal Revenue Service (IRS) by maintaining an enforcement presence and encouraging the taxpayers correct reporting of income, deductions and credits, and estate, gift, employment, and certain excise taxes, so as to instill the highest degree of public confidence in the tax system's integrity, fairness, and efficiency. Both W&I and SB/SE Campus Examination are referred to as "Examination" , "Campus Examination" , or "Correspondence Examination" .

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. Taxpayers contact TAS for assistance in resolving problems, when they:

The Internal Revenue Service has the authority to conduct examinations, make assessments, and apply penalties under Title 26 of the Internal Revenue Code, Subtitle F, Procedure and Administration. Additional information relating to conducting examinations is contained in 26 CFR 601.105, Examination of returns and claims for refund, credit, or abatement; determination of correct tax liability. Examiners conduct correspondence examinations for multiple programs using Internal Revenue Code, Regulations, Policy Statements, and Policies and Procedures relevant to Correspondence Exam. The authority for the assertion of the ten-year ban when there is a final determination that the taxpayer’s claim for credit is due to fraud is found in IRC 32(k)(1) for EITC, IRC 24(g)(1) for CTC/ACTC/ODC, and IRC 25A(b)(4) for AOTC.

Campus Examination employees:

Audits are conducted by W&I RCEO and SB/SE Campus Operations employees.

Headquarters analyzes audit results, performs program reviews, and monitors the rule-based applications used to select inventory. The results are used to make data-based decisions to improve quality, improve case selection, and to ensure the integrity of the selection methods.

W&I Program Management (PM) is responsible for providing oversight and monitoring the performance results of the EITC and Non-EITC programs for the W&I campuses.

SB/SE Examination Planning and Performance Analysis provides support and monitors the program results for the SB/SE campuses.

Case review is performed using the Embedded Quality Review System (EQRS). EQRS is an on-line database, used by Campus Compliance Services and Return Integrity and Compliance Services (RICS). EQRS is used by managers. The National Quality Review System (NQRS) is used by national quality reviewers. To input a Data Collection Instrument into the system, capturing results on case reviews performed. The EQ website contains an electronic Master Attribute Job Aid that provides information specific to Examination Paper and Phones. EQRS/NQRS report data is available through the EQRS/NQRS database as well as in the monthly Campus Operations Business Results reports.

The following is a listing of definitions for the most common acronyms used in this IRM:

Acronyms may also be checked on the Acronym Database, http://rnet.web.irs.gov/resources/acronymdb.aspx.

Examination employees are responsible for researching and using information contained in all reference materials. Other IRM chapters provide information on single topics that pertain to more than one function. Links to the most commonly used reference materials are listed below.

During an examination, information may be obtained which indicates the taxpayer has, or is 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 potentially fraudulent activities. The fraud may involve a promoter or return preparer.

Taxpayers who knowingly understate their tax liability often leave evidence in the form of identifying earmarks (or indicators). Indicators of fraud serve as a sign or symptom and may show that actions have been taken for the purpose of deceit, concealment, or to make things seem other than what they are. Indicators of fraud, by themselves, do not prove fraud. Fraud indicators are the starting point to complete further inquiry and analysis to determine if affirmative acts of fraud exist. See IRM 25.1.1.4, Indicators of Fraud vs. Affirmative Acts of Fraud. Some examples of common indicators of fraud are:

If fraud is suspected, the case will be referred to the FFC, CFC, or EFC, as applicable.

The case will be evaluated for fraud development by the CFC/EFC, working with the FEA, to determine if affirmative acts (e.g., deceit, subterfuge, camouflage, concealment) of fraud exist. The Internal Revenue Service (IRS) must prove that the taxpayer acted deliberately and knowingly with the specific intent to violate the law. If the CFC/EFC and the FEA determine the case has the potential for fraud development, the case will be referred to Brookhaven for SB/SE or Austin for W&I.

If preparer or promoter involvement is identified, a referral should be made. See IRM 4.19.10.6, Potential Return Preparer Scheme Identification, for procedures.

Refer to IRM 25.1.2, Recognizing and Developing Fraud, IRM 25.1.2.3, Indicators of Fraud, and IRM 25.1.14, Fraud Handbook, Campus Examination Fraud Procedures, for additional information.

Correspondence Examination Technicians/Tax Examiners (CET/TE) must familiarize themselves with indicators of fraud. See IRM 4.19.10.4.1, Identifying Fraud in Correspondence Examination, and IRM 25.1.2, Recognizing and Developing Fraud, for more information.

Identify indicators of fraud during the examination process. This may occur:

Maintain an accurate case record reflecting all statuses/actions taken, documents received from and conversations with the taxpayer, representative, return preparer, and third parties.

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 supervisor/lead. If the team supervisor/lead concurs, prepare the Form 13549, Campus Fraud Lead Sheet, detailing the indicators of fraud. For instructions, see Exhibit 4.19.10-1, Campus Fraud Lead Sheet.

Secure the team supervisor/lead's initials with the date and forward the Form 13549 to the FFC, the CFC, or the EFC, as applicable.

Expedite the referral process for cases in ST 22 when the taxpayer’s response indicates fraud. Do not change the status code. The RGS suspense date may need to be updated to prevent automatic issuance of the 90-day letter, Statutory Notice of Deficiency. You must document the actions taken.

If the case is in ST 24, only consider a referral if the taxpayer’s response includes suspected altered documents and was received after the 90-day letter was issued. Do not change the status code. The RGS suspense date may need to be updated to prevent an assessment of the tax and penalty as a result of the automatic default of the 90-day letter, Statutory Notice of Deficiency (SNOD). Only egregious cases may be considered for fraud development after a SNOD has been issued.

Research identity theft indicators on AIMS and IDRS and take the appropriate action. Refer to IRM 25.23, Identity Protection and Victim Assistance, and IRM 4.19.13.28, Campus Exam Identity Theft.

Serve as the point of contact for the tax examiner and team supervisor/lead for help with potential fraud referrals in their function.

Ensure Form 13549 is properly completed by the CET/TE and approved by the team supervisor/lead. If:

Review the information, provided by the tax examiner and team supervisor/lead, on Form 13549. If there is insufficient evidence for fraud development, decline the referral and return it to the originator. Document the reason for the declination so that the originator has a clear understanding of why the case could not be developed for fraud.

Conduct preliminary IDRS research, on the tax year submitted, for fraud development:

Expedite the referral when the case is in the ST 24 suspense period, only if it is egregious and involving suspected altered documents received after the date of the 90-day letter. Contact the CFC immediately and make a prompt decision regarding the case. The issuance of a Statutory Notice of Deficiency, Letter 3219, does not preclude subsequent fraud development; but it does create some additional considerations. Questionable documents received prior to the issuance of the statutory notice cannot be used to refer the case for fraud development. Referring the case for fraud development, after the issuance of the statutory notice, must be based on taxpayer responses and document submissions received after the issuance of the statutory notice. The CFC and the FEA will request Counsel assistance to determine the appropriate course of action, if needed.

Accept or decline the fraud referral within 10 business days; this includes transfer of cases to a co-aligned campus:

Document all research and activities on Form 13549. See Exhibit 4.19.10-1, Campus Fraud Lead Sheet.

Update the taxpayer information and Functional Fraud Coordinator sections in the Centralized Campus Fraud Monitoring Workbook. SB/SE will follow the instructions included under separate tab in the workbook.

Place the most current Form 13549 in the case file and save a copy of the form to the shared storage drive, after renaming the form to include the referral number (e.g., 0001-23PH-F13549).

Refer to IRM 25.1.14, Campus Examination Fraud Procedures, for additional information.

Ensure Form 13549 is properly completed and approved by the CET/TE supervisor/lead.

Review Form 13549 received from the CET/TE to determine if sufficient indicators of fraud exist.

Conduct further research as needed and document the results on Form 13549, Section V, Fraud Indicators and Development Actions.

Refer to IRM 4.19.13.28, if identity theft is present, IRM 4.19.13.28, Campus Exam Identity Theft.

Update referred cases to EGC 5024. Accept or decline the Form 13549 referral within 21 business days of receipt. This includes contacting the FEA within 10 business days to discuss the case.

The table below lists the actions that the EFC will take on referrals:

Update the Taxpayer Identification, Campus Fraud Coordinator and Fraud Enforcement Advisor Recommendation sections in the Centralized Campus Fraud Monitoring Workbook.

For additional information, see IRM 25.1.14, Campus Examination Fraud Procedures.

The Austin EFC will also follow the procedures under IRM 4.19.10.4.5.1, Responsibilities of the Brookhaven CFC (BCFC) and the Austin EFC, and IRM 4.19.10.4.7, Centralized Fraud Development Procedures, Brookhaven and Austin only.

Ensure Form 13549 is properly completed and approved by the initiator's supervisor/lead. The form must contain the required digital signatures and dates.

Update the Centralized Campus Fraud Monitoring Workbook. Follow the instructions included under separate tab in the Workbook. The referral tracking number on Form 13549 must match the entry on the Centralized Campus Fraud Monitoring Workbook.

If the case is not in status ST 24, update the case to ST 38. If the case is in ST 24, generally the referral should be declined. In rare instances, when the taxpayer submits fraudulent documents after a SNOD has been issued, the CFC should consult with the FEA and Counsel (if necessary) to determine the next appropriate course of action.

Update the referred cases to the appropriate employee group code (EGC); 5500 for Philadelphia & Memphis, 5335 for Cincinnati, 5195 for Ogden, and 5217 for Brookhaven.

Review the Form 13549 to determine if sufficient indicators of fraud exist.

Conduct further research as needed and document the results on Form 13549, Section V, Fraud Indicators and Development Actions.

Accept or decline the Form 13549 within 21 business days. This includes contacting the FEA within 10 business days to discuss the case and obtaining acceptance or denial from the Brookhaven CFC (BCFC).

If the CFC determines that the referral does not warrant fraud development (and the case will not be referred to the BCFC):

If the CFC and FEA determine the case should be referred to Criminal Investigation, the CFC will prepare Form 2797, Referral Report of Potential Criminal Fraud Cases, and refer the case to CI if affirmative acts of fraud are established and criminal criteria are met. The FEA will assist the CFC with completing the Form 2797, if needed.

If the CFC and FEA agree the case requires further development, and it is outside the scope of Campus Correspondence Examination, transfer the case to the SB/SE Area Office. See IRM 4.19.10.4.9.1, Transfer of Fraud Cases for Area (Field) Examination.

If the CFC and FEA determine that the referral has potential for fraud development in Brookhaven, the CFC will:

If the fraud referral is declined by the BCFC, the BCFC will return the completed form 13549 (dated, signed, and noting reasons for declination) to the CFC. Since the CFC accepted the fraud referral, the CFC will work the case through examination closure (including consideration of the negligence penalty and appropriate ban).

If the fraud referral is accepted by the BCFC, with the concurrence of the Brookhaven FEA, the referring CFC will:

The CFC/EFC will coordinate with the FEA and Counsel to discuss the subsequent course of action when the case is in ST 24 and the taxpayer submits apparently false or altered documentation after the issuance of the Statutory Notice of Deficiency.

The CFC/EFC will expedite contact with Counsel if the case is in ST 24 and the taxpayer’s response includes suspected altered documents. They will inform Counsel that the taxpayer is suspected of submitting false or altered documentation and ask whether fraud development should be pursued. Counsel should be consulted on a case-by-case basis and IRM 4.8.9, Statutory Notices of Deficiency, guidelines must be followed to ensure that the notice accurately reflects the IRS position, should the case proceed to Tax Court.

If the taxpayer's actions are serious enough to warrant a referral to Criminal Investigation (CI), Counsel must be consulted immediately.

The originating campus completes the Form 13549, including documenting the reasons for the potential fraud, and forwards the form to the Brookhaven CFC (for SB/SE) or the Austin EFC (for W&I) for fraud development consideration. W&I campuses will also transfer the case on AIMS/RGS to Austin. SB/SE campuses will only transfer the case once Brookhaven has approved and accepted the case for fraud development.

Form 13549 documents the approval of the CFC/EFC/FEA and CFC/EFC’s group manager for placing a case in ST 17, fraud development status. A case should not be placed into or taken out of ST 17, without consulting the FEA. If a disagreement arises over whether a case is placed into ST 17 or remains in ST 17, the final decision rests with the CFC/EFC's group manager.

The CFC/EFC's group manager reviews Form 13549, indicates their approval by signing their name, dating, and electronically forwarding the completed form to the FEA for consideration.

If the FEA concurs with fraud development, they will sign and date the Form 13549 and return it to the CFC/EFC and the CFC/EFC's group manager. A copy of the form is retained by the FEA and uploaded into the RGS casefile.

For cases approved for fraud development, the FEA must prepare and document the agreed upon "plan of action," under Section VII of the Form 13549. The plan will:

The CFC/EFC will update the case on AIMS/RGS to ST 17 and secure the original tax return(s), if requested by the FEA or Counsel. Usually, the case can be developed using the existing tax return facsimile or document. The CFC/EFC will proceed with the plan until affirmative acts of fraud are established or a determination is made that fraud is no longer potentially applicable or cannot be proven. Cycle time for cases in ST 17 is excluded from the monthly aging reports.

If affirmative acts of fraud are established:

If a determination is made that fraud is no longer potentially applicable, cannot be proven, or that the case will be transferred to the field or other BOD for fraud development::

For procedures relating to case transfer, see IRM 4.19.10.4.9, AIMS Case Control and Planning and Special Programs (PSP) Transfer Procedures and IRM 4.19.10.4.9.1, Transfer of Fraud Case for Area (Field) Examination.

See IRM 25.1.14, Fraud Handbook, Campus Examination Fraud Procedures.

If the case is not open on AIMS and it has been accepted into the campus fraud program for development, the BCFC/EFC, will establish the case on AIMS in the appropriate EGC.

In W&I, if a case is open on AIMS, and accepted by the EFC/FEA, the case is updated to EGC 5024 and transferred on RGS/AIMS to the Austin Campus. Refer to the W&I Fraud Transfers of Potential Fraud Cases to Austin job aid and the Transfer Checksheet on SERP.

In SB/SE, if the case is open on AIMS and accepted by the CFC/FEA, the case is updated to ST 38, within 21 business days. The case remains in the originating campus EGC until acceptance by the BCFC/FEA for fraud development. Once the BCFC/FEA accepts a case, it will be transferred to Brookhaven and updated to ST 17. The BCFC is then responsible for the examination, development of the fraud issue, and mailing of the Form 4549 and Form 886-A, etc.

When applicable, prior and subsequent year returns will be opened for exam. Current exam procedures will be followed.

Use the following organization function program (OFP) Code when working a fraud case:

Update the case(s), with FEA approval for fraud development, with the appropriate Project Code:

A case selected for field examination, on the joint recommendation of the FEA and CFC/EFC, will be transferred to the respective Area PSP Office, using Form 3185, Transfer of Return, and cover memo. See Exhibit 4.19.10-2, W&I PSP Fraud Memo, and Exhibit 4.19.10-3, SB/SE PSP Fraud Memo. The case will be transferred in ST 07 with an AIMS Aging Reason Code (ARC) of:

For additional information on transferring cases for field examination, see IRM 4.19.10.4.9.1, Transfer of Fraud Case for Area (Field) Examination.

For additional information on AIMS transfer procedures, contact your Campus AIMS Coordinators and refer to IRM 4.4.33, AIMS Procedures and Processing Instructions -Transfers.

For cases transferred to another campus or other examination location, the originating campus will mail Letter 86C, Referring Taxpayer Inquiry/Forms to Another Office, to the taxpayer. If any prior contact occurred with the taxpayer, or if correspondence was received from the taxpayer, the transfer notification procedures are required. For W&I, refer to the W&I Transfers of Potential Fraud Cases to Austin and Transfer Check Sheet job aids on SERP.

Interim Letters and Action 61 guidelines apply to fraud cases. See IRM 4.19.13.3.6, Standard 6 -Timely Actions, and IRM 4.19.3.22.1.5, Action 61/Policy Statement P-21-3.

When a case is accepted into the Fraud Program, the BCFC/EFC will issue the appropriate letters, following examination procedures in IRM 4.19.13, General Case Development and Resolution and observe suspense periods per IRM 4.19.10.1.7.2, Standard Suspense Periods for Correspondence Examination. Correspondence to the taxpayer should not include the use of the word “fraud”, nor similar languaage.

General assessment period - The normal assessment statute expiration date (ASED) is three years from the due date or three years from the date the original (valid) return was filed, whichever is later. See IRC 6501(a).

Special assessment periods:

See IRM 25.6, Statute of Limitations, for the procedures used to control the ASED.

Effective 8/15/19, Publication 1, Your Rights as a Taxpayer, will no longer satisfy the advance notice requirement of IRC 7602(c)(1).

Effective after 8/15/19, the Taxpayer First Act impacts third-party contact notice procedures. Section 1206 of the Taxpayer First Act amended IRC 7602(c)(1) (advance notice provision). The IRS is now required to:

For pre-notification of third-party contact, campuses will send Letter 3164-E, (Exam 1) Third Party Contact. A copy of the Letter 3164-E must be saved to the RGS case file folder.

The Letter 3164-E notification takes effect in 45 days from the date of the letter and remains valid for one year, from the 46th day.

No contact with the third-party should be initiated before the 46th day after the date of the Letter 3164-E.

If additional third-party contact is needed after the expiration of the original contact period, a new Letter 3164-E must be issued.

Other provisions of IRC 7602(c)(1) are unchanged and require the IRS to:

For procedures relating to third-party contact, refer to:

The Internal Revenue Code (IRC) provides that no EITC, and for tax years after 2015, CTC/ACTC or AOTC shall be allowed for a period of ten years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of the credit was due to fraud. The Credit for Other Dependents (ODC) is added for tax years 2018 - 2025. See:

The BCFC/Austin EFC will secure the FEA’s recommendation to impose the ten-year EITC, CTC/ACTC/ODC, or AOTC Ban(s) on the Form 13549, Campus Fraud Lead Sheet. The BCFC/Austin EFC will complete the form and electronically send it to the FEA. The FEA will complete Section VII, Fraud Indicators and Developmental Actions, indicating "Assert CFP/FFTFP (Fraudulent Failure to File Penalty), impose Ten-Year EITC, CTC/ACTC/ODC, or AOTC Ban(s)" and electronically return the form to the CFC/Austin EFC.

The case file must contain sufficient write-up and documentary evidence needed to prove the affirmative acts of fraud.

When fraud is established, both the CFP and the ten-year ban normally apply. However, there are instances when the CFP does not apply. Prior to assertion of the ten-year EITC, CTC/ACTC/ODC, or AOTC Bans without the Civil Fraud Penalty, agreement must be secured from the FEA.

If the FFC or BCFC/Austin EFC determine that the disallowance of the EITC, CTC/ACTC/ODC, or AOTC was not due to fraud, but instead a result of the taxpayer’s reckless and intentional disregard of the rules and regulations, the two-year EITC, CTC/ACTC/ODC, or AOTC ban(s) and negligence penalty should be considered. See IRM 4.19.14.7.1, 2/10 Year Ban - Correspondence Guidelines for Examination Technicians (CET), for information related to the two-year ban.

Priority Code 6 must be input on Form 5344, Examination Closing Record, to impose the ten-year ban for EITC. If an "A" freeze is present on the account, the examiner must use a priority code 7.

Priority codes are not required to assert the ten-year ban for CTC/ACTC/ODC or AOTC. When the CTC/ACTC/ODC, and/or AOTC issue is disallowed in RGS, a recertification code is systemically generated by RGS on the 5344. To assert the ten-year ban, the examiner must overwrite the recertification code with the appropriate reason code:

For more information on the two and ten year bans, refer to IRM 4.19.14.7.1, 2/10 Year Ban - Correspondence Guidelines for Examination Technicians (CET) and the Penalty Handbook IRM 20.1.5.3.5, Two and Ten Year Bans on Claiming the Earned Income Tax Credit (EITC), Child Tax Credit (CTC), Additional Child Tax Credit (ACTC), and American Opportunity Tax Credit (AOTC).

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.

Any person who prepares a tax return or claim for refund for compensation or who employs one or more persons to prepare for compensation, any return of tax, or claim for refund is a tax return preparer.

IRM 20.1, Penalty Handbook, is the primary source of authority for civil penalty administration by the Internal Revenue Service. IRM 20.1.6, Preparer and Promoter Penalties, provides servicewide policy for the administration of tax return preparer penalties and promoter penalties.

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. See IRM 20.1.6.4, IRC 6694 Understatement of Taxpayer’s Liability by Tax Return Preparer.

For other tax return preparer penalties, see IRM 20.1.6.5, IRC 6695 Penalties That May Apply to a Tax Return Preparer.

All documentation to support assertion of the penalty must be uploaded to the RGS case file.

SB/SE can refer penalty cases to the Return Preparer Penalty Working Group (RPPWG) for developing and proposing return preparer penalties under IRC 6694 and IRC 6695. See IRM 20.1.6.2.1, Optional Penalty Case Referral to Return Preparer Penalty Working Group (RPPWG).

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

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

IRS employees have an obligation to report apparent tax practitioner (e.g., attorney, enrolled agent, certified public accountant) misconduct to the OPR.

For more information on tax practitioner misconduct and how to make a referral to the OPR, go to: https://irsgov.sharepoint.com/sites/OPR/SitePages/Doing-your-diligence-Refer-to-the-OPR-practitioners-who-aren’t-diligent(1).aspx .