The purpose of this section is to provide instructions unique to the Tax Compliance Officer (TCO) Program in SB/SE Specialty Examination, Employment Tax (ET). IRM 4.23.21 serves as a starting point for consistent administration of employment taxes by ET TCOs. It is intended that ET TCOs rely on the direction contained in this section for unique procedures that pertain to the assignment, audit, and closure of ET TCO cases. Any instructions or procedures not addressed in this section indicate there is no difference between the ET TCO process and other current employment tax and/or field procedures, and the ET TCO should rely on IRM 4.23, Employment Tax, or IRM 4.10, Examination of Returns.

Employment tax provisions are found at Internal Revenue Code Subtitle C:

The Employment Tax Program is governed by Policy Statements and other internal guidance that apply to all Service personnel regardless of operating division. The Policy Statements found in IRM 1.2.1, Servicewide Policies and Authorities - Servicewide Policy Statements, apply to all employment tax issues and examinations. Examiners should review these Policy Statements to properly perform their examination duties.

A website, Delegation Orders and Policy Statements by Process, located at https://www.irs.gov/privacy-disclosure/delegation-orders-and-policy-statements-by-process, summarizes data contained in the applicable IRM sections under IRM 1.2.1 and IRM 1.2.2, Servicewide Policies and Authorities, Servicewide Delegations of Authority, in a single electronic source.

IRM 4.23 provides Servicewide instructions for all operating divisions with employees involved with the correct filing, reporting, and payment of employment taxes. IRM 4.23 serves as the foundation for consistent administration of employment taxes by various IRS operating divisions. By providing one source of authority for all operating divisions, the Service greatly reduces philosophical and procedural inconsistencies.

Director, Specialty Examination Policy is responsible for the procedures and updates addressed in this IRM.

Director, Examination Specialty Tax, is the executive responsible for Specialty examination operational compliance.

Program Goals: The processes and procedures provided in this IRM are consistent with the objectives or goals for Employment Tax - Examination that are addressed in IRM 1.1.16.3.3.3, Employment Tax Examination and for Employment Tax Policy, found in IRM 1.1.16.3.5.2.2, Employment Tax Policy.

Program Effectiveness: Program goals are measured with Employment Tax Embedded Quality Performance Reports that monitor whether quality attributes are applied uniformly and consistently.

Annual Review: Employment Tax Policy - Program Manager, is responsible for reviewing the information in this IRM annually to ensure accuracy and promote consistent tax administration.

The following table lists commonly used acronyms and their definitions:

The following table lists the primary sources of guidance:

Other helpful information sources include:

The Taxpayer Bill of Rights (TBOR) lists rights that already existed in the tax code, putting them in simple language and grouping them into 10 fundamental rights. Employees are responsible for being familiar with and acting in accord with taxpayer rights. See IRC 7803(a)(3), Execution of Duties in Accord with Taxpayer Rights. For additional information about the TBOR. See IRC 7803(a)(3). For additional information about TBOR, see https://www.irs.gov/taxpayer-bill-of-rights.

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal procedures, or who believe that an IRS system or procedure is not working as it should. Pub 1546, Taxpayer Advocate Service - We Are Here to Help You, provides contact and additional information. The program is designed to alleviate taxpayer hardships that arise from systemic problems or the application of the Internal Revenue Code. In addition, see IRM 13.1.7, Taxpayer Advocate Service (TAS) Case Criteria, and IRM 13.1.19, TAS Operations Assistance Request (OAR) Process, for additional information.

Employment tax examiners should consider the disclosure provisions when preparing agreed and unagreed case reports. See the Privacy, Governmental Liaison and Disclosure web site at: https://irssource.web.irs.gov/PGLD/Pages/Home.aspx for additional information.

An Employment Tax TCO Desk Guide and a TCO Job Aid for Embedded Quality (EQ) are both available for use by ET TCOs when working their cases. These documents provide a more in-depth discussion of the ET TCO procedures and provide examples of best practices.

When a case is assigned to the ET TCO, initial set-up in Inventory Management System (IMS) must take place to organize the case file and allow the examiner time to perform pre-contact analysis. See "Issue Management System (IMS) –New User Introduction," ITM Course 40486a or Training Publication 56523-102, for additional assistance.

ET TCOs will complete their daily time report contemporaneously to account for all hours of the day. Examiners must use action codes and purge dates for the completion of the daily time report. See Exhibit 4.23.21-1, Action Codes and Purge Dates, for the specific action codes, definitions, and purge dates.

Examiners must utilize the ETLS - Employment Tax Lead Sheets for all examinations. See IRM 4.23.21.6.1, Workpapers, for more information on the use of these lead sheets in ET TCO examinations.

The scope of an ET TCO case is initially limited to issues shown on the classification sheet. Examiners must review the case file and other relevant information prior to contacting the taxpayer. If this pre-contact analysis leads to a change in the scope of the examination, either removing issues identified during classification or adding issues found during the pre-contact analysis, the examiner will discuss these changes with the manager. This discussion and conclusions reached will be documented on Form 9984, Examining Officer’s Activity Record.

Letter 3850-T, Employment Tax TCO Appointment, will be issued to schedule a date and time for a telephone interview; this letter was specifically developed for use in a remote audit.

When a taxpayer is located in the same area as the ET TCO, face-to-face appointments may be conducted. If a face-to-face appointment is scheduled, use the normal appointment letter, Letter 3850, Employment Tax Appointment Letter.

Both Letter 3850-T and Letter 3850 will include Pub 1, Your Rights as a Taxpayer, Pub 5146, Employment Tax Returns: Examinations and Appeal Rights, and Notice 609, Privacy Act Notice. During the initial conversation with the taxpayer, ET TCOs must ensure the taxpayer received these documents and have no questions concerning them. This discussion must be documented in the case file.

The ET TCO must attach a Form 4564, Information Document Request (IDR), to the Letter 3850-T or Letter 3850. The IDR will be tailored to each taxpayer, requesting specific information and documents to assist in developing the issues identified through both classification and pre-planning. IDRs should:

In a remote audit, the requested information will be due to the ET TCO prior to the initial telephone interview. If a face-to-face appointment is scheduled, the taxpayer will be asked to provide the information at the initial appointment.

Interviews are required in ET TCO examinations. The interview will help determine:

During the initial interview, the ET TCO will gain an understanding of the taxpayer's business and the taxpayer's understanding of employment tax laws by asking questions specific to the taxpayer and the classified issues.

Interviews are used to probe for other employment tax non-compliance and to help determine the applicability of penalties, including fraud. Therefore, some type of interview will be conducted in all ET TCO cases except when the taxpayer cannot be located, is unresponsive to the request for an appointment, or refuses to participate in an interview. See IRM 4.23.21.5.3 (2) for additional information.

If the taxpayer responds that they have already filed Forms W-2, see IRM 4.19.4.3.28, Reply States Taxpayer Already Filed Forms W-2, to submit a Form 9337, Social Security Administration (SSA) Reconciliation Referrals, to SSA.

When conducting a remote audit, ET TCOs should have the requested books, records, and supporting documentation prior to the initial interview. If documents were not received prior to the initial interview, the reasons for the delayed receipt must be fully documented. If after the receipt of the non-filed return(s) or interview, the ET TCO decides not to pursue obtaining the books and records previously requested, the rationale to discontinue the examination must be fully documented.

When taxpayers are unresponsive or uncooperative, ET TCOs must consider all options, (e.g., whether to issue a "no-show report" based on the information available or use appropriate enforcement actions such as issuance of a summons). These decisions will be based on the facts and circumstances and be documented in the case file.

In all non-filer cases, the ET TCO must determine the reasons for non-filing during the interview. If facts and circumstances warrant, the ET TCO will discuss the case with their manager to determine the following:

Follow-up IDRs may be required. The IDR will include a request for specific information needed to continue the development of the issues and include a specific due date and delivery method. Prior to issuance of this IDR, ET TCOs will attempt to discuss this request to ensure the taxpayer fully understands why additional records are being requested. This discussion will also allow the examiner to clarify the information that is needed. If attempts to discuss the request are unsuccessful, ET TCOs should document the case file and issue the IDR.

Appropriate research should be conducted to assist the examiner in developing the issue. This can include making third party contacts when warranted. See IRM 4.11.57, Examining Officers Guide (EOG) - Third Party Contacts, for information on making third party contacts.

ET TCOs are required to obtain managerial approval when:

If badges of fraud are present, the TCO will discuss the case with their manager and jointly decide when/if to contact the Fraud Enforcement Advisor (FEA).

All discussions with the manager must be documented in the case file either on the case activity record or appropriate lead sheet.

ET TCOs are not required to hold Group Manager Concurrence Meetings covered in (8) of IRM 4.23.4.3, Guide for Examiners Using ETLS – Employment Tax Lead Sheets.

ET TCO managers are encouraged to contact the taxpayer on unagreed cases being closed for assessment or issuance of Letter 3523, Notice of Employment Tax Determination Under IRC Section 7436; contact is not required on no-response cases. Managers are required to make contact on any case in which the taxpayer requests a formal appeal, unless the taxpayer specifically waived the right to a managerial conference offered by the examiner. See IRM 4.23.21.6.2 (3). The refusal must be documented in the case file.

In addition to the specific items noted here, other sections of IRM 4.23 may also apply when managerial involvement is required.

ET TCOs are required to use the ETLS - Employment Tax Lead Sheets.

ET TCOs are exempt from using the following lead sheets that are mandatory in other ET cases:

Refer to IRM 4.23.4, Employment Tax - General Procedures and Workpapers, for additional information on workpapers.

The ET TCO must notify the taxpayer of the examination of all periods and returns in which adjustments are being proposed prior to the issuance of the 30-day letter and report. This notification must be documented in the case file.

The ET TCO must attempt to discuss the issues with the taxpayer to ensure the taxpayer has a full understanding of the proposed adjustments; this can be done either before or after the issuance of the 30-day letter and report.

ET TCOs must offer a managerial conference or Fast Track Settlement (FTS) to all taxpayers when a request for an appeal is received. If the taxpayer declines one or both offers, that declination must be documented in the case file.

A no-response case occurs when a "deliverable" address exists, but the taxpayer does not respond to correspondence or does not "show" for a scheduled appointment. A follow-up attempt must be made to contact the taxpayer and secure their cooperation. The examiner will make a telephone call to the taxpayer or use Letter 3850-F, Employment Tax Second Contact, in an attempt to obtain their cooperation. If the ET TCO has a valid telephone number and makes telephone contact with the taxpayer, use this opportunity to discuss as much about the case as possible, as it may be the only contact. The ET TCO will not leave a message for the taxpayer to return the call. If the ET TCO does not have a valid telephone number or the taxpayer does not answer, the ET TCO will issue the Letter 3850-F to schedule the follow-up appointment within sixteen calendar days, and the IDR response within eleven calendar days. Document all attempts to contact the taxpayer, by phone or letter, on the Form 9984, Examining Officer’s Activity Record.

If the ET TCO can determine a substantially correct wage adjustment from the information available, a 30-day letter and report will be issued, even if the taxpayer fails to keep the appointment scheduled in Letter 3850-F or makes no attempt to reschedule.

If the examiner cannot determine a substantially correct wage adjustment based on the information available, the examiner will discuss the case with their manager to determine the best course of action to resolve the classified issues, as well as any additional issues identified through the pre-contact analysis. The final decision may include:

If a no-response occurs because the address is not valid (mail returned as undeliverable), appropriate steps must be taken to locate a valid address and make contact with the taxpayer before issuing a report. See IRM 4.10.2.8.4, Undeliverable Initial Contact Letters, for procedures to follow when a taxpayer is unlocatable. If the taxpayer cannot be located, the ET TCO must discuss whether the audit will continue with the manager.

If taxpayer does not file a small case request or formal written protest within the time allowed but indicates their intent to do so, follow the procedures in IRM 4.23.22.8.3, Follow-Up to 30-Day Letters, and issue Letter 923-P, Letter Extending Time to File Protest – Employment Tax, within seven calendar days after the expiration of the original 30-day letter.

Refer to IRM 4.23.10, Employment Tax - Report Writing Guide for Employment Tax Examinations, for more information on report writing.

ET Tax Compliance Officers should not use Status Code 13 as outlined in IRM 4.23.22.6 (13), 30-Day Letters: Unagreed Case Procedures. Managers will use action codes and purge dates, or other case monitoring systems, to ensure timely actions are taken after the issuance of the 30-day letter.

Refer to IRM 4.23.10.19.2, Assembly of Employment Tax Case File Folder - SB/SE, for information on case file assembly.