Purpose: This IRM provides guidelines for the development of workpaper content and organization, as well as preparation of audit findings for a completed report. These guidelines promote quality and consistency in examiner workpapers and reports. This section also describes the electronic case files required in the Issue Management System (IMS).

Audience: All LB&I personnel

Policy Owner: Assistant Deputy Commissioner Compliance Integration

Program Owner: The LB&I Policy Office within ADCCI

Primary Stakeholders: LB&I executives, senior managers, front-line managers, examiners, program analysts and paraprofessional staff. Reviewers of LB&I case files after they leave the group, including:

Contact Information: To recommend changes or to make any other suggestions to this IRM section, contact the IRM author or see SPDER’s IMD Contacts list by referencing guidelines provided in IRM 1.11.6.5 , Providing Feedback About an IRM Section - Outside of Clearance. A request or inquiry can also be made at LB&I Policy Gateway.

Examiners prepare workpapers to show the audit trail and to provide support for the conclusions reached in the examiner’s report.

Workpapers document the:

Electronic files are workpapers. Refer to:

Workpapers serve four basic purposes:

Workpapers reflect on the quality of the examination. Well-prepared workpapers quickly communicate the facts regarding the taxpayer’s tax liability. Poorly prepared and disorganized workpapers may confuse stakeholders. Electronic workpapers and case documents for paperless case closings must be uploaded in IMS.

Workpapers, emails, reports, research, correspondence, photos and documents must be prepared with the expectation that they might be released to the public under the Freedom of Information Act.

Workpapers must be legible, indexed and organized. The workpapers are required to be identified by the appropriate Standard Audit Index Number (SAIN) and indexed in a logical order within each section so that others such as a reviewer, Appeals Officer, or Counsel can easily follow the work product.

Workpapers include internal and external correspondence to and by IRS personnel. This includes electronic communication meeting the definition of a record, such as emails and messages sent or received through Taxpayer Digital Communication (TDC) or any other approved electronic communication platform. A record:

Do not include emails unrelated to the examination in the case file. Refer to IRM 1.15.2.2, Definition of a Record, IRM 1.15.6, Managing Electronic Records, and What is a Record? for more information. The workpaper naming convention per paragraph (5) of this section applies to emails. Recommended best practices for email correspondence are as follows:

See Exhibit 4.46.6-2 for suggested best practices for storage of internal and external correspondence within IMS. See IRM 1.15.6.9, Managing Electronic Mail Records, for guidance on maintaining email records after they are saved in IMS.

Point of contact (POC): Upon closing, every case must have an identified POC. The POC is generally the PTC and/or case manager. POCs vacating that role must document in the PTC activity record or memo saved to SAIN 005:

The POC's (PTC, team manager, etc.) responsibilities include:

A workpaper index must be used to organize electronic workpapers within IMS. The standard index will allow others to quickly find documents within the workpapers loaded in IMS and will serve as a reminder that all documents needed for a quality exam are included. The workpaper index is labeled as "000-00.00-Workpaper Index" so that the document filters to the top during a workpaper sort within IMS. This will enable files to be easily located within IMS or the team website by using the index.

Naming Convention: The mandatory standard naming convention (MSNC) ensures that workpapers within each SAIN show up in the desired order. If the SAIN extension or workpaper number is left out of the middle of the file name, the workpaper will show up in the alphabetical order of the first letter in the description.

Use the naming convention in the document name (i.e. description) field within the document in IMS. IMS will auto-populate the first 7 digits (or 6 to 8 digits for 1040 returns) of the naming convention. Examiners add the workpaper description in the respective form field. Examiners can enter the workpaper number in respective form field, or it will auto-populate with "00". Examiners can modify the auto populated fields as needed. The user needs to modify the last digits since IMS will auto-populate the last digits with 00. Do not modify the pre-populated SAIN for Information Document Requests (IDR’s) (SAIN 012), 5701’s (SAIN 013) and Correspondence (SAIN 016).

The mandatory standard naming convention applies to all documents saved in IMS including documents saved within the following IMS tabs:

Lead sheets with standardized audit procedures, which can be tailored to each examination, are available in IMS for many SAIN numbers. IMS provides an automated electronic index, named WP Index, for all case documents under the case attributes on the case tree.

Workpapers (electronic or paper) must appropriately document techniques used and conclusions reached. For additional information about workpaper documentation, refer to IRM 4.10.9.8, Workpapers.

Workpaper documents include reports, documents, and communication received from SMEs and specialists such as economists, engineers, CBA, and others. Workpapers (electronic or paper) must identify the issue and show the development and conclusions reached. If electronic files are provided that are considered pertinent to the development of the issue, they must be saved to IMS. All workpapers added IMS are associated with the appropriate issue SAIN number and issue name. Extraneous documents (electronic or paper) must be properly disposed or returned to the taxpayer and are not added to IMS. Relevant workpapers must be separated from extraneous documents. Extraneous documents include duplicate copies and documents not needed to support adjustments made on audit or critical to the case. Consult with your manager before disposing of extraneous documents to prevent unlawful/inadvertent destruction of records.

IMS offers examiners the option of using lead sheets for many issues based on SAIN input. Examiners can tailor these standardized audit procedures to each issue. Lead sheets created in IMS can be renamed to reflect the content of the workpaper, for example, "004-00.00–Preparing the Examination Plan" .

The PTC and case manager can mark or unmark workpapers as confidential by checking the "confidential" box in the IMS Workpapers screen in the TWS. Confidential workpapers may appear in the documents grid but have a description of "confidential". Documents not subject to FOIA release, are marked “confidential” such as legal memorandum and emails subject to attorney client privilege. Refer to Freedom of Information Act (FOIA) guidelines | Internal Revenue Service and IRM 4.46.6.3.1, paragraph (4) for more information.

Examiners can mark documents as final in IMS by checking the “final” box on the document header. You can use this feature even after the case is closed. You can use this feature to identify the final version of the document when there are multiple versions of the same document saved to IMS.

For examinations closing electronically, all forms and documents that are required in a paper case file must be saved in IMS. It is recommended that examiners upload these documents to IMS for all case closings as LB&I moves towards a paperless system. See Exhibit 4.46.6-1 for instructions on uploading documents to IMS. See Exhibit 4.46.6-2 for recommended best practices for IMS upload and storage of workpapers.

Examiners must keep their files clean of unrelated materials. For example, when examiners download information from services such as yK1 or CDW Knowledge Graph Environment (CKGE), they must immediately discard all material on unrelated parties (e.g., neighbors, prior property owners, etc.) unless such information is functionally declared necessary (e.g., to detail specific search methodology). See IRM 10.5.6.5.6, Privacy Act Requirement to Maintain Accurate, Relevant, Timely, and Complete Records, for additional guidance. If the examiner has a question about whether information is related to the case, they can consult their group manager.

Some types of sensitive but unclassified (SBU) data are more sensitive than others and thus warrant additional safeguarding measures to ensure proper protection. See IRM 10.5.1.6.5, Marking. An example of extremely sensitive information requiring additional safeguarding measures includes, but is not limited to:

Proper use of Other Gov TD F 15-05.11, Sensitive But Unclassified (SBU) Cover Sheet, depends on if the extremely sensitive information is in IMS, or if it is in a physical (i.e., paper) administrative file:

If a FOIA request is received on a case, a disclosure manager will determine what must be released or what can be withheld in full or in part. See IRM 11.3.13.5, Review and Redacting, for additional information. Field personnel are not permitted to provide any whistleblower information to the IRS Disclosure Office. FOIA requests for release of information on a whistleblower claim requires approval of the WO Director. See IRM 25.2.1.5.6(4), Whistleblower Claim File.

Examiners enter all required information on the FOIA screen on the TWS for FOIA requests. Refer to IMS Help for assistance with completing FOIA requests.

Litigation Hold: To designate a case identified for a litigation hold, check the box litigation hold in the Case Attributes menu in the IMS TWS. See IRM 25.3.1.7.6, What is a litigation hold?

Management Hold: An IMS management hold indicates the potential need to hold the case data history after the case is closed. In the Case Attributes menu in IMS, either the PTC, the team manager, the case manager, a territory manager or their actors can check and uncheck the box for Management Hold in the Case Attributes menu in IMS TWS.

The International Examiner’s Report (IER) serves several purposes:

International examiners will prepare a report of findings for each case in which they participate as a team member. A report is not required for consultation assignments.

The IER package consists of 4 parts:

The international examiner includes in the narrative part of the report:

Examination maintains a copy of the IER in the examination case file (paper or electronic).

Examination reports contain all the information necessary to ensure a clear understanding of the adjustments and tax computation. Examination reports serve as the basis for assessment and collection action. Examiners musttake all necessary steps to ensure the accuracy of examination reports. Unless stated otherwise, the provisions of IRM 4.10.8, Examination of Returns, Report Writing, apply to reports prepared by LB&I teams for consistency. The TC can specify workpaper style and composition preferences before the report is prepared.

Tax computation and report preparation software is used by TCS to generate examination reports.

Form 4549, Report of Income Tax Examination Changes, is used to prepare reports for most individual and corporate agreed examinations.

Form 4605, Examination Changes - Partnerships, Fiduciaries, S Corporations and Interest Charge Domestic International Sales Corporations, is used to prepare reports for partnerships and S corporations.

Refer to IRM 4.31.9.10 , Report Writing, for BBA examinations..

Use Form 4666, Summary of Employment Tax Examination, to summarize the employment tax examination results. Also use Form 4667, Examination Changes – Federal Unemployment Tax, and Form 4668, Employment Tax Examination Changes Report. Refer to IRM 4.23.10, Report Writing Guide for Employment Tax Examinations.

Report adjustments and explanations must reconcile to the workpaper conclusions. Written explanations are issued to the taxpayer on Form 5701, Notice of Proposed Adjustment, prior to issuing the final examination report. Form(s) 886-A, Explanation of Items, can be attached to all final agreed and unagreed reports issued to the taxpayer.

Examination reports must meet the following standards:

Team managers are required to approve audit reports before they are issued to taxpayers. The manager’s approval must be documented in the case file. This approval may be documented via email, the manager’s initials or electronic signature on the audit report, a notation in the activity report, or other documentation in the case file. Secure the team manager’s documented approval of the audit report prior to issuing it to the taxpayer.

For LB&I examinations that result in a no-change report with no adjustments (disposal code 02), management approval will be evidenced by the manager’s signature on the no-change letter before closing the case to CCP. (See IRM 4.46.6.7.1).

The assertion of penalties requires the written approval of the case manager or the immediate supervisor of the issue team members determining the assertion of penalties before the Notice of Proposed Adjustment is issued to the taxpayer. This approval must be documented in the case file. (See IRM 4.46.4.12.6, Workpaper Documentation on Penalties).

In any case where there is a substantial understatement of tax and no penalty is proposed, the non-assertion of the IRC 6662(d) penalty must be approved in writing by the case manager or the immediate supervisor of the issue team members determining the non-assertion of this penalty. This approval must be documented in the case file.

LB&I revenue agents will use a tax computation specialist (TCS) for all LB&I cases with the exception of international withholding tax computations, excise tax computations and most employment tax computations. Requests for TCS services are made by the TC . A single request for TCS services is done through the Specialist Referral System (SRS) at the beginning of every case, which avoids duplicate requests when tax computations or reports are needed.

Separate SRS referrals for related entities (e.g., shareholders’ returns, officers’ returns, etc.) are submitted as soon as it is determined that the returns will be examined. For S corporation examinations, separate SRS referrals for each S corporation shareholder are submitted as soon as it is determined that the S corporation will have adjustments, if referrals have not already been submitted for the shareholders and the S corporation is not linked.

The SRS request for a TCS includes a LIN link for the latest return of the exam cycle. Amended returns and Forms 1139 are provided to the TCS once a TCS is assigned to the case.

The TCS provides services that differ from those provided by other specialists. It is therefore important that the requesting revenue agent selects the correct practice area and DFO when submitting the SRS request. This will direct the request for TCS services to the correct practice area and TCS group.

Once a referral has been made and a TCS has been assigned to the case, the revenue agent will communicate directly with the assigned TCS to provide documents needed for the return input, any what-if computations, and to have RARs prepared.

Once the request has been assigned by the TCS manager, the revenue agent will assign the TCS "team coordinator" privileges in IMS so the TCS may complete the request for input, RAR computation, or tentative calculations. The TCS must follow the mandatory standard naming convention for documents saved to IMS. Refer to IRM 4.46.6.3 for guidance on the standard workpaper naming convention.

For carryback cases, examiners are to provide the TCS with Forms 1120X, 1139, 1040X or 1045 that are the source documents for NOL, capital loss and credit carrybacks.

The revenue agent will verify the accuracy of the RAR prior to issuing it to the taxpayer.

Refer to IRM 4.10.8.4., Regular Agreed Cases, for agreed report procedures.

Secure the taxpayer’s agreement to the examination report on one of the following forms:

Agreement waivers are considered executed after the taxpayer has signed them. Executed agreement waivers must be date stamped upon receipt.

In the event the taxpayer does not sign the waiver form, the examiner will follow the unagreed procedures. (See IRM 4.10.8.6, Partially Agreed Cases and IRM 4.10.8.12, Unagreed Case Procedures.

For securing agreements for TEFRA entities refer to IRM 4.31.2.3.11, Securing Agreements from the TMP and the Partners. For securing agreements for BBA entities refer to IRM 4.31.9.9, Resolving the Examination.

All TEFRA agreements must be executed by a Technical Services TEFRA coordinator or other employee delegated by Delegation Order 4-19, Partnership Matters.

The TC and case manager will ensure that cases are processed promptly following receipt of signed agreement forms.

Solicitation of Deficiency - Examiners must solicit payment of tax deficiency, penalty and interest. Examiners will document this action on Form 9984, Examining Officer’s Activity Record.

Cash Bonds or Payments - Taxpayers may pay a deficiency or proposed deficiency by making a deposit or making an advanced payment by check or electronic funds transfer. For payments received by check, prepare and process Form 3244-A, Payment Posting Voucher -- Examination, with the funds received, according to LB&I guidelines. If the taxpayer wishes to make a deposit under IRC 6603 for the purpose of suspending the running of interest on a potential underpayment, the taxpayer must follow the procedures in section 4 of Rev. Proc. 2005-18. If the taxpayer wishes to identify a deposit in the nature of a cash bond (that was previously made under Rev. Proc. 84-58) as a deposit eligible for interest under IRC 6603(d), the taxpayer must follow the procedures in section 5 of Rev. Proc. 2005-18. The taxpayer may also make advance payments or cash bond payments using Same Day Wire Transfer via the EFTPS (Electronic Federal Tax Payment System) systems.

Processing Checks Received – Procedures for processing remittance checks received from taxpayers are found at Remittance Processing for LB&I Cases . See IRM 4.20.1.3.1.1, Process Payments Received and IRM 3.8.47.3.1, Large Dollars ($100,000 or More).

Inform taxpayers that the agreed case is subject to review and once it is accepted they will receive Letter 987, Agreed Income Tax Change, stating the case is closed. Examiners will prepare Letter 987, which is signed by the team manager, and issue to the taxpayer when the case is closed to CCP. Examiners can send closing letters to taxpayers by mail, Efax or other approved digital methods. Refer to IRM 4.46.5.11.2.2 , General Information for all Paperless Case Closures

Report forms for an unagreed case are similar to those used for agreed cases. The instructions to complete agreed case reports generally apply; however, unagreed report forms do not include a signature line for the taxpayer. All unagreed reports and related documents/workpapers (tax computations / RAR / protest / rebuttal / T-letter, etc.) are mandatory items that are required to be included in the IMS case file.

Form 4549-A or Form 4605-A are used to summarize all adjustments. Explain each issue on a Form 886-A, Explanation of Items, detailing the facts, law and argument, taxpayer’s position, and a conclusion. See IRM 4.10.8.12, Unagreed Case Procedures.

Inform taxpayers of their rights to discuss proposed adjustments with the examiner’s team manager and of their formal appeal rights.

Examiners will solicit payment for tax deficiency, penalties and interest for all agreed issues, unless the agreed adjustments would generate a net refund.

If the taxpayer submits a protest, the examiner must review it and prepare a timely rebuttal. The rebuttal will address and/or resolve any factual differences between the protest and the audit report. The rebuttal will also address any new arguments or legal positions presented by the taxpayer.

If agreement is reached on some, but not all, issues or years, encourage the taxpayer to enter into a partial agreement by executing a waiver on Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment. No agreement is solicited if the agreed adjustments would generate a net refund. See IRM 4.10.8.6, Partially Agreed Cases, for instructions on the preparation of partially agreed RARs. See IRM 4.46.6.14, Cases with Unagreed Issues - Minimum Refund, paragraph (2).

For BBA examinations, refer to IRM 4.31.9.10.2 , 30-Day Letter Package.

Prepare Form 886-A and attach it to the report form to explain the adjusted items. Use a separate Form 886-A for each adjusted issue. If the adjustment applies to more than one year, show the years and adjustments on one combined Form 886-A. The Form 886-A attachment is mandatory and must be attached to all Form(s) 5701 for all unagreed issues. For Joint Committee cases, Form 886-A is required for all agreed and unagreed issues.

The following format is used for LB&I cases:

For taxpayer’s statements marked as “FRE 408” or “For Settlement Purposes Only,” or variations thereof, see IRM 4.46.5.3, Resolution vs. Settlement.

A taxpayer could be due a net refund upon completion of an examination even if none of the unagreed issues are resolved in the taxpayer’s favor. This is referred to as a "minimum refund" case. This is more likely in situations where the taxpayer has filed a claim for refund for one or more of the years in the cycle.

The examination team should solicit a partial agreement relating to the agreed issues. See IRM 4.10.8.6, Partially Agreed Cases, for instructions on the preparation of partially agreed RARs.

In the event the minimum refund amount exceeds $2,000,000 ($5,000,000 for corporations), and the taxpayer has demonstrated agreement with the examiner’s findings by executing the Form 870, the refund must be reported to the Joint Committee on Taxation and processed before the unagreed issues are forwarded to Appeals. For instructions on the preparation of case files for review and preparation of the report to the Joint Committee on Taxation see IRM 4.36.3, Examination Team Responsibilities.

The loss of computerized records related to examinations can have catastrophic consequences to the tax administration process and can potentially result in the loss of large sums of current and future revenue. Proper backup procedures facilitate data recovery if a data loss occurs. Workpapers that are maintained, uploaded and synchronized in IMS are automatically saved every 2 hours or when you close the case attribute screen.

Best practice from Case Management Systems Solutions encourages the use of IMS and Virtual Servers to back up your data and workpaper files. Refer to Document 12990, Records Control Schedule (RCS) 26, Item 47 - Issue Management System (IMS) for the National Archives and Records Administration (NARA) approved records retention and disposition authority to ensure records, in hard copy and electronic format, are appropriately managed, retained and archived. Workpapers that are maintained or uploaded in IMS are automatically synchronized every 2 hours and when you close the case attribute screen.

The Download All feature in IMS allows anyone associated with the IMS case file the ability to download all case documents to an electronic zip file that is downloaded to the employee’s hard drive. The electronic zip file will retain the mandatory standard naming convention for electronic workpapers (refer to IRM 4.46.6.3 ).

The electronic zip file created from the Download All feature will include the entire electronic case file in IMS except for:

The Download All feature can only be used in limited situations for a valid business purpose after the case is closed in IMS. The valid business purpose for using the Download All feature must be approved by the employee’s manager and documented in the activity record. Retaining a copy of the electronic case file on an employee’s hard drive is NOT a valid business purpose. Examples of a valid business purpose for using the Download All feature include:

The Download All feature will create a zip file in the employee’s unencrypted "Downloads" folder on the hard drive. The electronic zip file must be moved immediately after download to an encrypted SBU folder. The zipped file also contains the Workpaper Index Summary grid allowing users to select any documents needed.

Users can download all documents or specific documents from the Workpaper Index screen on the TWS.

Refer to the Documents Menu in IMS Help for instructions on how to use the Download All feature.

Records which contain color (such as blue ink, color letterhead).

Records in which the taxpayer used white-out or any other alterations or markings that would render the scanned document not identical to the original document.

Criminal Investigation accepts the referral and exam transfers the record for inclusion in their investigative file; or

Exam Team/Manager/Fraud Enforcement Advisor/Criminal Investigation Division determine that the case has no criminal fraud potential.