Planning is crucial for an efficient examination. In order to use resources efficiently, examinations must be effectively planned employing an issue-driven strategy. A successfully executed plan requires active engagement by LB&I and the taxpayer, starting with the planning phase and continuing throughout the entire examination process.

Work identified under the Campaign Development Process (IRM 4.50) will follow the LB&I Examination Process (LEP) when the treatment stream is an examination. Examinations vary in scope, size, and complexity; therefore, portions of this IRM section may be more applicable to some cases than others. Cases identified through the campaign process have at least one issue identified; the risk analysis portion of the planning phase must be tailored accordingly.

The planning phase begins with an assessment of the tax return for examination potential. Once a return has been selected for examination, the examination team members should address the relevant planning considerations. These considerations include reviewing the information contained in the case-built file (CBF), the team members familiarizing themselves with the taxpayer and/or their industry, potential issues requiring specialist involvement, pending statute dates along with distribution of case file/taxpayer information to those involved with the risk analysis of the return.

Initial planning discussions lay the groundwork for a mutual exchange of information and understanding that will assist both the examination team and the taxpayer in defining and carrying out an issue-driven examination. Depending on the scope of the examination and the type of taxpayer’s enterprise, the number and type of meetings will vary.

Collaborating internally as well as with the taxpayer will allow the development of a well-defined, issue-driven, examination plan. Success will largely depend on the transparency, cooperation, and responsiveness of everyone involved in the examination.

IRM 4.60.6, International Referral Criteria and Procedures, was incorporated into IRM 4.46.3. These procedures apply to LB&I, SB/SE and TE/GE personnel. The rest of the LEP IRM applies only to LB&I personnel.

See IRM 4.46.1.1.2, Authority.

See IRM 4.46.1.1.3, Roles and Responsibilities (LB&I only).

LB&I, SB/SE and TE/GE are responsible for the international referral criteria and procedures incorporated into IRM 4.46.3.2.6.1 through 4.46.3.2.6.7.

See IRM 4.46.1.1.4, Program Management and Review.

See IRM Exhibit 4.46.1-1 , Glossary of LB&I Terms and IRM Exhibit 4.46.1-3 , Quick Reference Guide – Acronyms Only.

The LB&I intranet sites https://irsgov.sharepoint.com/sites/LBI/ and https://irsgov.sharepoint.com/sites/ETD-KMT-KB051 are resources for learning more about the concepts and procedures in this section. Type key words in the search box on the LB&I home page or virtual library for more information about a specific item.

The Issue Selection and Collaboration Process (ISCP) focuses on issue identification on a return prior to assignment to an examiner. It has two assessment tools for return and issue selection:

The source of the workload determines the applicability of the two components. The CAM can be used for all inventory. The MIRA/SIRA is not required for:

The following subject matter practice area specialist (SMPA) should complete the ISCP:

When the case manager receives inventory to which the ISCP applies, the case manager will forward a copy of the Form 3210, Document Transmittal, to the SMPA managers based on the potential audit site location. The case manager (or their designee) will access and complete the MIRA via the Team Website (TWS) to determine if there are any potential Geographic Practice Area (GPA) and SMPA issues. Once the MIRA has been completed, the case manager will assign Case Built File (CBF) access to each SMPA manager for which a SIRA is required. A SIRA is required when any SMPA question on the MIRA form has a “yes” or positive response. The MIRA will be available for viewing in the TWS to assist the SMPA manager (or their designee) in preparing the SIRA to identify SMPA issues that merit examination or review. The designee can be an assigned revenue agent or specialist who will assist in preparing the MIRA or SIRA input for review and submission by the manager. A designee can fill out a MIRA or SIRA but cannot submit the final MIRA or SIRA. The case manager or SMPA manager is required to review, make any required corrections, and submit the completed MIRA or SIRA.

The issues identified on the MIRA/SIRA will be discussed at a manager collaboration meeting within the timeframe agreed to by the managers. The use of these tools, along with manager discussions, will help the managers to identify and select the most strategically important issue(s) and cases for examination and determine resource availability.

If the return is selected for examination at this meeting, the selected issue(s) and subject matter practice area specialist/SME who will work them, if identified, will be shared with the TC.

Returns can be surveyed either before or after assignment. To survey a return an analysis and evaluation of audit potential and resources must be completed. If the managers decide the return has no audit potential, then the case manager will survey the return before assignment. If the return is selected for examination, the TC may still survey the return after further analysis of the return at any time before an actual inspection of the taxpayer’s books and records. If the return contained a manager’s recommendation to examine, the TC must discuss with the manager before surveying the return after assignment. Time spent to survey returns after assignment in which no contact with the taxpayer was made, except for Joint Committee (see (3) below), should be charged to Examination Activity Code 615, General - Survey. See IRM Exhibit 4.9.1-1, Definitions of Miscellaneous Examination Activity Codes.

A return may be surveyed after assignment provided both the following conditions are met:

There are special rules for Joint Committee surveys. Refer to IRM 4.36.3.4, Joint Committee Procedures, Examination Team Responsibilities, Survey After Assignment Criteria. Time spent for all surveys after assignment meeting Joint Committee criteria should be charged to Examination Activity Code 596, Joint Committee Survey. A Joint Committee case is identified on AIMS with a Project Code 0077.

For partnerships subject to the centralized partnership audit regime (BBA), refer to IRM 4.31.9.7.8(9) for survey after assignment procedures.

A Survey Reason Code (SRC) is required for all LB&I returns that are surveyed either before or after assignment (Disposal Code 31 or 32). The SRC values and definitions are as follows:

When preparing a case file for survey, one of the SRC values must be entered on the closing form (i.e., Form 4251, Return Charge-Out; or Form 5351, Examination Non-Examined Closings; or Form 5546, Examination Return Charge-Out Sheet) to the right of the Disposal Code. The SRC must also be entered in ERCS when closing the return from the group. Only one reason code can be entered. If more than one reason code applies, only use the code that reflects the primary reason for the survey.

For returns using SRC E, "Other," the case manager must include a separate form in the administrative case file that clearly explains the reason for the survey. Either Form 14235, LB&I Income Tax Survey or Form 1900, Income Tax Survey, can be used for this purpose. The form will remain in the case file when it is closed.

For paperless surveys, see IRM 4.46.3.2.2.1, Paperless Survey - Non-Examined Closures Using a Paperless Process.

Survey Claims After Assignment - IRM 4.10.2.5.3, Surveying Claims, provides guidance on surveying claims after assignment.

Review and consider both Policy Statement 4-5 (P-4-5) and Policy Statement 4-6 (P-4-6) for all cases when considering assignment of resources. For more detail see the following IRM subsections:

Certain factors should be considered when assigning a return for examination. These factors are listed below:

Managerial approval is needed for opening examination with less than 12 months on statute. See IRM 25.6.23.5.1.4, Initiation of Controls by an Examiner or Specialist - Area Offices and Campus Operations.

After a return is assigned, the TC will review and update the preliminary assessment/classification information and familiarize themselves with the taxpayer’s business operations. This research will assist in setting a preliminary examination scope and determining whether additional issue team members not already identified by the case manager may be needed. If the return was selected as part of a campaign, follow the instructions provided in the CBF.

For each potential issue where it was determined in the ISCP that a specialist is required, a referral should be submitted as early as possible in the Specialist Referral System (SRS) to document the collaborative risk analysis process. The SRS referral submitted should include the information relied upon during the initial return assessment, including the ISCP, to ensure proper resources are assigned. The case manager should collaborate with specialist peers to ensure that resources are available during the audit time frame. For more information on SRS see IRM 4.46.3.2.6, Specialist Referral System.

The case manager should estimate the examination starting date, so that resources can be identified in a timely manner. Priorities should be established through an issue-driven risk process, which compares the potential benefits to be derived from examining an issue to the resources required to perform the examination. The risk analysis should document any considerations regarding selection and control of any related returns.

Automated System for Requesting Specialist Assistance – The Specialist Referral System (SRS) automates the referral process requesting specialist assistance. Agents generate referral requests online and SRS automatically notifies the appropriate specialist managers of the request.

The SRS referral system should be used with all cases, including cases using the ISCP. The requester should use the comments section (located at the bottom of the page for each specialist requested) to document one of the following case types:

Specialists covered by the SRS – The following specialist services must be requested using SRS:

The SRS is accessible through the LB&I intranet at https://srs.web.irs.gov/.

The SRS is a database of referral information. Reports are only available on ad-hoc basis by requesting them from the SRS administrator at: *SRS

After the case has been selected for examination and assigned, contact with the taxpayer should be timely initiated.

All initial contacts with taxpayers to commence an examination must be made by mail using the appropriate initial contact letters. For the LB&I examination of a corporation or other business return types, examiners will use Letter 2205-L, LB&I Initial Contact Letter. For the LB&I examination of a partnership return, examiners will use Letter 2205-D, Initial Contact to Schedule Appointment - Partnership Returns. Both Letter 2205-L and Letter 2205-D are only applicable to business returns and include a reference to a web link to access and download Publication 1 and Notice 609 at www.irs.gov/businesses. Examiners can initiate contact by telephone with the taxpayer after mailing the contact letter, and allowing sufficient time for the taxpayer to respond (allow 14 calendar days from mailing the letter).

Refer to IRM 25.4.1 and IRM 25.4.2 for guidance in dealing with taxpayers designated under the "Potentially Dangerous Taxpayer" (PDT) and "Caution Upon Contact" (CAU) programs, respectively. Additional information can also be found on the Office of Employee Protection website.

For individual taxpayers, LB&I will use Letter 2205, Initial Contact, to ensure that taxpayers who have limited access to the web receive the required publications and notices. Pub 1, Your Rights as a Taxpayer, and Notice 609, Privacy Act Notice, must be included with the letters as required by RRA 98. See IRM 4.10.2.8, Initial Contact: Overview. Receipt of Publication 1 and Notice 609 will be confirmed at the first in-person meeting with the taxpayer and should be documented in the case file.

Prior to issuing the applicable initial contact letter, examiners must conduct research on IDRS command code CFINK for any Form 2848 on file that corresponds with the tax matter and tax year under examination. If so, examiners must mail a copy of the initial contact letter to the representative(s) designated on Form 2848 to receive copies of IRS notices and communications.

When the taxpayer calls to schedule the initial appointment, examiners must follow the procedures in IRM 4.10.2.8.2, Initial Telephone Conversation.

If the examiner receives a phone call from an individual other than the taxpayer, do not discuss any confidential return information until you secure Form 2848 or Form 8821.

Taxpayers and their representatives have the option of submitting Form 2848 or Form 8821 directly with the examiner or by filing online on IRS-approved platforms Submit Forms 2848 and 8821 Online at https://www.irs.gov/tax-professionals/submit-forms-2848-and-8821-online and Tax Pro Account at https://www.irs.gov/tax-professionals/use-tax-pro-account.

If you receive a Form 2848 or Form 8821 from the taxpayer or representative, verify that the form is accurate and complete and the representative is authorized to practice before the IRS. Refer to IRM 4.11.55, Power of Attorney Rights and Responsibilities.

After the initial telephone conversation with the taxpayer or representative, issue one of the following letters to confirm the initial appointment:

When additional years are added to an open examination, provide written notification to the taxpayer using Letter 5968, Prior or Subsequent Year Pickup. Provide a copy of the letter to the taxpayer representative if there is a Form 2848 on file.

Letters, forms and other documents issued to taxpayers or representatives can be signed digitally. However, the digital signature must display an image of the IRS employee’s handwritten signature in the signature block and the date signed. Refer to IRM 4.10.1.4.4, Digital Signatures.

Inventory received may contain preliminary risk analysis information and instructions. Review all information transmitted with the return. If no guidance is received, the agent must conduct a preliminary risk analysis using the information resources that are available to the examiner. Financial information resources available will depend on whether the entity is publicly or privately held.

Publicly held entities have published financial information that provides a basis for understanding the entity’s business activities, operations, accounting and financial data and policies. In contrast, privately held entities may have limited public information. When public financial information is not available, the examiner should determine whether any published financial information is necessary to develop the risk analysis and request it during the opening conference.

Internal information resources available for preparing the preliminary risk analysis include:

External resources include:

To facilitate the understanding of potential industry issues, any recent legislative changes and emerging issues, consider contacting LB&I Area Counsel or subject matter experts. They can provide assistance in risk analysis and other aspects of the case planning process. Counsel and SMEs are valuable technical resources.

A risk analysis must be completed during the planning stage of the examination. This risk analysis should be reviewed and updated throughout the examination as warranted. Risk analysis decision points to consider include:

Team members should collaborate at the earliest point of the planning phase to finalize the initial risk analysis of the return. The case manager in consultation with specialist manager(s) will collectively assess potential issues identified, approve issues and establish issue priorities. Throughout the risk analysis process, an ongoing dialogue should occur among the team members. For example, depending on the complexity of the return, informal discussion(s) prior to the internal planning meeting are encouraged to discuss logistical concerns such as assignment of issue(s), overlapping of multiple specialties, assignment of a team member to multiple issue teams, etc. The informal discussions will enhance the internal planning meeting by resolving issues beforehand. Any informal agreement(s) discussed should be formalized at the internal planning meeting.

As a reminder for cases subject to the ISCP process, the case managers and specialist managers, or their designees, should collaborate using the MIRA and SIRA process to determine the potential issues and availability of examiners having knowledge about each issue identified. See also IRM 4.46.3.2.1 for details about which specialists are subject to the MIRA and SIRA process.

LB&I examiners are required to contact the Merger & Acquisition (M&A) Project Team for an assessment of whether the case should be part of the M&A Project when their case has 40 or more planned staff days related to potential M&A issues. Contact with the M&A Project Team must be made early in the examination planning stage by emailing the case name, potential M&A issue(s) and respective planned staff day information to *LB&I M&A Project Team. If the case is selected to be part of the M&A Project, the M&A Project Team will assist the examination team in the planning, examination and resolution of the M&A issue(s). Refer to the Corporate Issues Knowledge Base in the Virtual Library at https://irsgov.sharepoint.com/sites/ETD-KMT-KB020 for information on potential M&A issues. M&A issues may include, but are not limited to:

The risk analysis is a process that is based on experience, judgment, and objective analysis. An issue-based approach should be used when performing the risk analysis to identify issues that are material or have significant compliance risk. Other goals of the issue-based approach are to:

The risk analysis is an ongoing process and should be periodically revisited and updated. Priorities can be established when weighing the potential impact on voluntary compliance and resources needed. Many factors can be considered during the risk analysis process which may change as additional facts are developed. Some of the factors that may be considered in conducting the risk analysis include the following:

To facilitate issue development, on-going risk analyses should occur in all cases. All issue teams must document an initial risk analysis.

Mid-cycle risk analysis is required on all LCC and LPC cases (or successors to the LCC and LPC programs) and must be approved by the territory manager. This should occur when the case reaches the earliest of either 50% of time applied or 50% of time lapsed based on ECD.

Mid-cycle risk analysis is optional on LB&I IC cases with ECDs of less than 12 months. Should the ECD of any LB&I case be extended to exceed 12 months, an updated risk analysis is required. The issue team's risk analysis is approved by the issue manager(s) and forwarded to the case manager for concurrence. Depending upon local management's practices, the risk analysis may need to be forwarded to the territory manager for approval. At mid-cycle, the issue team will submit the issue team’s risk analysis to the case manager with a recommendation to continue, expand, or reduce the scope of the examination.

Mid-cycle risk analysis is not required for micro-captive insurance cases if:

Because the risk analysis is an ongoing process, when significant events occur such as adding new issues or additional examination years, the risk analysis should be updated/revised as actions occur.

The initial, mid-cycle, and or updated risk analyses documents will be shared with the taxpayer once the updated documents have been approved by the case and issue managers.

The need to contact third parties should be considered early in the examination or as soon as the need arises. IRC 7602(c) provides that IRS personnel may not contact third parties with respect to the determination or collection of tax liability without providing advance notice to the taxpayer. IRS personnel are required to maintain a record of such contacts and provide taxpayers with this record upon request.

Section 1206 of the Taxpayer First Act amended IRC 7602(c)(2), Notice of Contact of Third Parties, and now requires IRS to:

Case and issue managers and examiners should refer to IRM 25.27.1, Third-Party Contact Program, for procedures and exceptions to the notification requirements.

RRA 98 Sec. 3705(a) provides that any manually or computer-generated correspondence shall include the name, telephone number, and unique identifying number (employee identification number) of an IRS employee who can be contacted with respect to the correspondence and resolve any subsequent inquiries.

The case manager will ensure that all personnel on the LB&I examination are aware of and understand the statute requiring disclosure of any financial interests or other conflicts of interest that might create a real or apparent conflict of interest. See Document 12011, Internal Revenue Service Ethics Handbook, for conflict of interest rules. Also see IRM 4.10.2.2.3, Conflict of Interest.

If an employee has a conflict, financial or otherwise, Form 6782, Certification of a Financial Interest in a Work Assignment, will be completed by the employee and given to their manager. This form will be completed only when a potential conflict exists. Managers will remove examiner(s) with potential conflicts of interest from the case unless determination(s) granting exemption are properly approved.

LB&I employees who are not issue team members on an examination, but have a potential conflict of interest (financial, personal, or business) in a work assignment should complete the Form 6782 at the beginning of their involvement. Such employees will be removed from the case unless determination(s) granting exemptions are properly approved. Examples of employees that may be affected include, but are not limited to:

There are various internal and external sources of information available to assist the case manager and agents in identifying potential issues, determining staffing requirements and the general approach to the examination. See IRM 4.46.3.3.1, Examiner's Preliminary Risk Analysis - Information Resources.

Depending on the resources deployed, the number of issues and complexity of those issues, use professional judgment to determine the depth of the procedures needed to efficiently prepare for the examination.

Depending upon the complexity of the return, internal discussions may involve only the TC and the case manager.

When the examination involves multiple issue team members, team members assigned to the case should have more formalized internal discussions prior to meeting with the taxpayer.

Team members assigned to the case will assess the risks of the potential issues with respect to their specialties. All team members will come to the internal planning meeting with a listing of the potential material issues and related preliminary audit procedures for consideration and collaboration.

An agenda should be created to emphasize the objectives of the internal planning discussions. See Exhibit 4.46.3-2, Sample Agenda Topics for Initial Internal Planning Meetings, for a suggested list of agenda items to cover in the planning discussions.

Specialist examiners and their managers who will be involved in the examination should be notified of:

Other participants who may be invited to the planning discussion(s) (depending on the size and complexity of the case) may include the following individuals:

Major topics to consider in internal planning discussions should include:

Minutes - Upon completion of the internal planning discussion, the discussion outcomes should be summarized in narrative form. The planning agenda should be used as a template when preparing the minutes. The minutes should capture the agreements, decisions, arrangements, etc. made during the internal planning discussion.

The examination team should exercise professional judgment when determining what items to include on the agenda, when to hold the opening conference/meeting and who should attend. For complex examinations it may be necessary for the TC, issue team members and their respective managers to attend the opening meeting. On less complex cases, the opening meeting may include only the team coordinator and the taxpayer.

An agenda should be prepared that covers mandatory topics as well as recommended items, including the items identified during internal planning. The examination team will provide a copy of the agenda and the preliminary risk analysis in advance to the taxpayer. The taxpayer may add any items they would like to address during the opening conference/meeting.

Disclosure Safeguards - The case manager or designee is responsible for making all arrangements authorizing discussion and exchange of information between team members and the taxpayer's personnel. It may be necessary to hold separate opening conferences in the following circumstances:

Depending on the size and type of the entity, the examination team may decide it is more efficient to hold an administrative opening conference before the internal planning meeting. If the internal planning meeting has occurred, the opening conference/meeting would be combined to include both the administrative items and a discussion of the preliminary risk analysis.

The timing of the opening conference and whether to hold an administrative-only opening conference or combined with the preliminary risk analysis is up to the judgment of the examination team.

The opening conference for a BBA partnership can be scheduled for a date only after the Notice of Administrative Proceedings issuance date. Refer to IRM 4.31.9.8.1, Notice of Administrative Proceeding (NAP)

Audits may require a separate opening conference to discuss administrative items and a separate meeting to discuss the preliminary risk analysis.

For example, during the examination of a small, privately-held entity with limited public information, the TC may want to hold the opening conference before an internal planning meeting to gain a better understanding of the taxpayer's business and activities, and to review the taxpayer's books and records, before submitting a referral for a specialist. In this situation, the TC can make a more informed specialist referral or consult after the opening conference/meeting and then conduct the internal planning meeting with the specialist(s).

In another example, with large complex taxpayers, the opening conference/meeting may serve only as an administrative meeting before the internal planning meeting is held. In this situation, the preliminary risk analysis would be prepared after the administrative opening conference/meeting. A subsequent meeting would then be scheduled for the examination team and the taxpayer to discuss the preliminary risk analysis.

The opening conference/meeting can be combined to include administrative items as well as a discussion of the preliminary risk analysis prepared during internal planning meeting(s). The examination team may determine that it is more efficient to combine the administrative items and the preliminary risk analysis discussion during the opening conference/meeting.

The preliminary risk analysis will be shared and discussed with the taxpayer with the intent of obtaining information that will help the examination team to narrow or focus the scope of the audit on the most significant issues.

The examination team should discuss with the taxpayer the reasons each tax issue was selected for audit. In this discussion, the team should carefully consider any information provided by the taxpayer that could explain what was initially risked as a large, unusual, or questionable item, and take this information into consideration in determining whether to continue with the issue, and if so, the appropriate audit steps. The following objectives should be addressed at either the opening conference/meeting or at separate issue discussion meeting(s) with the taxpayer:

The opening conference/meeting should be conducted by the case manager (or delegated to the TC) and attended by the TC and other issue team members including their manager(s) whose attendance adds value by being able to discuss potential issues or assist in gathering information. It is important to remember that the opening conference/meeting is a working conference/meeting. If the taxpayer will be presenting a thorough overview of their business activities, operational structure, and accounting systems, team members that will benefit should attend. Participants who add value can be determined during internal planning or other discussions with the TC, case manager, and issue manager(s).

For complex cases or large examination teams, there may be value in conducting an internal pre-meeting before the opening conference/meeting to review the opening conference/meeting agenda and confirm the role of each examination team member attending. In some instances, the pre-meeting may coincide with the internal planning meeting.

The opening conference/meeting should include the head of the tax department and other appropriate key employees who can adequately discuss the agenda items as well as the preliminary risk analysis. Only corporate officers are authorized to receive confidential return information absent a power of attorney or other authorization. Examiners should always be aware who is in the room and that the individual has authorization to receive confidential information from the IRS. See IRM 11.3.2.4.3, Disclosure to Persons with a Material Interest – Corporations and IRM 11.3.3.3.2, Disclosure to Designees and Practitioners – Requirements for Oral Authorization.

If the preliminary risk analysis is to be discussed at the opening conference/meeting , the examination team member(s) who can explain to the taxpayer why each issue is being considered for examination should attend. For issues selected for examination, the appropriate taxpayer personnel and examination team member(s) should work together to develop initial audit steps.

During the opening conference/meeting, materiality thresholds should be discussed as appropriate. Setting a materiality threshold involves both quantitative and qualitative factors. There is no economic or mathematical formula or standard that should be applied to determine whether an amount is material in an examination. See IRM 4.46.3.3.5.4, Materiality. The issue team(s) should use their professional judgment and experience in establishing materiality thresholds.

As with any other agreement, agreed materiality thresholds should be memorialized in the examination plan and should apply to issues examined as well as claims. The issue team and taxpayer will have to weigh all the facts and circumstances in assessing materiality either by category type (such as credits, deductions, etc.) or as specifically defined in the examination procedures of an issue.

Materiality threshold agreements should apply equally to both the examination team and the taxpayer. A cooperative and transparent taxpayer will use the same materiality thresholds before filing any claims.

The examination team will discuss the claim expectations at the opening conference/meeting.

The opening conference/meeting will also trigger the start of the 30 calendar-day window for submitting informal claims. LB&I examination teams will consider informal claims that are fully documented and supported within 30 days of the opening conference/meeting. However, after the 30-day window, claims for refund should be filed using Form 1120-X, Form 1040-X or Form 843 and a copy provided concurrently to the team along with supporting documentation to enable the examination team to make a tax determination without the use of IDRs. See IRM 4.46.3.7, LB&I Claims Process.

For partnership examinations subject to the centralized audit regime (BBA), informal claims may not be filed after the 30-day window. Refer to IRM 4.31.9.8.3, Informal Claims (LB&I Taxpayers). BBA partnerships cannot file an Administrative Adjustment Request (AAR) after a Notice of Administrative Proceeding (NAP) letter has been issued. Refer to IRM 4.31.9.7.7, Administrative Adjustment Request (AAR) and Other Subsequent Filings.

The case manager or their designee should conclude the conference/meeting by reviewing all agreements and understandings reached with the taxpayer.

Any modifications or additions to the preliminary risk analysis should be reviewed and approved. Also, arrangements made for future issue discussion meetings, presentations, site visits, review of corporate minutes, etc. should be scheduled and confirmed.

Upon completion of the opening conference/meeting, the discussion outcomes should be summarized in narrative form. The planning agenda should be used as a template when preparing the minutes. The minutes should capture the agreements, decisions, arrangements, etc. made during the opening conference/meeting.

The earlier the examination team receives a fully substantiated claim, the sooner it can be risk assessed to determine whether it should be accepted or examined. To improve efficiency in LB&I examinations, LB&I has set forth the following claim expectations.

Regardless of when a claim, formal or informal, is submitted during the examination, the examination team must timely review the claim to ensure the claim meets the standards of Treas. Reg. 301.6402-2. After the 30-day window, the claim must be filed using the prescribed form and in the manner specified in Treas. Reg. 301.6402-3. For an illustration of the LB&I claim review process, see Exhibit 4.46.3-7, LB&I Guidelines for Reviewing Non-Research Credit Claims.

Claim issue(s) should be risk assessed in the same manner as any other potential audit issue, after the claims have satisfied the appropriate treasury regulations. See IRM 4.46.3.7.3, Risk Assessing Claim Issue(s)

Claim issues(s) should be risk assessed in the same manner as any other audit issue. For an illustration of the LB&I claims risk assessing process see Exhibit 4.46.3-8, Risk Assessing Non-Research Credit Claim Issue(s).

Examiners must determine if the claim constitutes a request for a retroactive change in accounting method as outlined in IRM 4.11.6.7.5, IRC 446(e) - Taxpayer Files Amended Return or Claim (Formal or Informal) to Make Retroactive Change in Accounting Method, and if so, whether the claim should be allowed.

If the taxpayer provides sufficient documentation necessary for the examination team to make a proper tax determination, the examination team should weigh compliance and materiality against the risks, benefits and burdens of examining claim issue(s). Consideration should also be given to any materiality threshold agreements.

The burden of proof is on the taxpayer to support their claim issue(s), and as such the taxpayer must provide all credible evidence to support its claims, ideally without issuing an IDR.

If an IDR is issued and the taxpayer does not respond by the IDR response date or the response is incomplete, the issue team must decide whether to disallow the claim based on the taxpayer’s failure to satisfy its burden of proof. Generally, the IDR enforcement process should not be used since the taxpayer has an existing obligation to produce sufficient information to support its claim, without which the claim will be appropriately disallowed. Each situation has unique facts and circumstances; therefore, the issue manager in collaboration with the case manager must determine which option to follow and when it is appropriate to consult with senior management and/or counsel.

When fully or partially disallowing a claim, the written acknowledgment of facts process applies and must be followed. Taxpayers may attempt to present new information or evidence to Appeals on unagreed claim issue(s) and the added step of securing an acknowledgment of facts provides Appeals with a clear understanding of the facts that were presented to the examination team. Refer to IRM 4.46.4.11, Written Acknowledgment of the Facts (AOF).

To reduce administrative burden, if appropriate, claim and affirmative issue(s) accepted without examination may be grouped by character and tax treatment (income, expense, credit etc.) when establishing issues in IMS, and combined on one Form 5701 for processing. If the explanation of the adjustment is longer than the space provided on the Form 5701, then a Form 886-A can be used to list and briefly explain each accepted affirmative and claim issue. When grouping claim or affirmative issues, consideration should be given to the potential impact grouping issues can have on other items on the tax return, and carryback or carry forward attributes.

To identify claims or affirmatives in IMS not warranting examination, it is recommended to use either SAIN 060 for Claims or SAIN 061 for Self-Audit Adjustments (Affirmative Adjustments). To identify the character or tax treatment of the grouped issues, a general UIL code may be used, such as 162.00-00 for expenses and 61.00-00 for income. When using these general UIL codes, it is recommended that adjustments in BNA are entered on line 10 for "other income" and line 26 for "other deductions."

After the 30-day window, all issues that have not been identified for examination that result in a claim for refund (i.e. taxpayer’s favor), must be filed on a formal claim. The examination team should request that the taxpayer concurrently provide a copy of the formal claim to the team along with supporting documentation, including all information the taxpayer relied on when preparing the claim.

Occasionally, a taxpayer may net issues on an informal claim (i.e. issues in the government’s and the taxpayer’s favor); however, offsetting amounts do not preclude the requirement for filing a formal claim on issues that could result in a refund.

If the taxpayer submits a netted informal claim after the 30-day window, the examination team should explain that a formal claim is required for those issue(s) that result in a claim for refund (i.e. the taxpayer’s favor) unless there is an exception. See IRM 4.46.3.7.1.1(4).

Netting of claims after the 30-day window is not applicable to BBA partnerships. Refer to IRM 4.31.9.8.3, Informal Claims (LB&I Taxpayers).

Treas. Reg. 301.6402-2(b)(1) requires taxpayers that are filing a refund claim to apprise the Commissioner of the exact basis for the claim. To satisfy Treas. Reg. 301.6402-2(b)(1), taxpayers filing a claim for refund that includes a claim for the IRC 41 Credit for Increasing Research Activities "research credit claim" must provide, at a minimum, five items of information.

In addition to the five items of information listed above, a declaration signed under penalties of perjury verifying that the facts provided are accurate is required. In most cases, the signature on Form 1040-X or Form 1120-X serves this function.

If a taxpayer submits a claim late in the examination that adversely impacts the ECD, the statute of limitations and/or resources, a high-level discussion with senior management and the taxpayer equivalent should be held to ascertain the reason for the late claim and to discuss methods to improve tax administration.

If the claim is not valid or properly filed, and is not perfected by the target date, LB&I may decline to act on the claim. See IRM 4.46.3.7.2.3, Declining to Act on a Claim.

If the claim is valid and properly filed, the examination team should risk assess the issues on the claim. See IRM 4.46.3.7.3, Risk Assessing Claim Issue(s). The examination team and the taxpayer should determine the appropriate resources and issue timeline for all claim issue(s) that need to be examined. The case ECD and statute will be extended, if necessary, to allow sufficient time for the issue team(s) to properly examine all claim issues.

If the examination team determines that a claim issue(s) is material or has an impact on compliance and cannot be examined in the current cycle, the examination team and the taxpayer should collaborate on the most efficient option to examine the claim. Options may include, but are not limited to: examining the claim issue(s) in a separate examination or resolving the issues through an existing resolution tool. In the event the current cycle is unagreed, coordination with Appeals is required if the claim issue will be examined in a separate examination.

Time spent examining the protection of the revenue base must be kept separate from regular examination time. This is accomplished using the codes in IMS and ERCS. For guidance on how to correctly use the N, P, and R codes when reporting time, refer to the procedures in IRM 4.9.1.5.6, Protection of Revenue Base, and use IMS help topic "Handle claims in IMS."

During the issue discussions, potential tax issues that are identified in the preliminary risk analysis are discussed with the following joint objectives:

The issue manager is ultimately responsible for working with the taxpayer in setting the issue timeline, approving the audit steps, and managing the issue. The issue manager should coordinate with the case manager and team coordinator when setting the issue timeline.

Issues selected for examination, audit steps, issue team members, and issue timelines will be documented in the examination plan. As a part of the planning process, the case manager will collaborate with the issue manager(s) to determine the issues that warrant a separate timeline and the issues that run on a concurrent timeline. Once all issue timelines are determined, the overall case timeline and estimated case closing date will be driven by the tax issue requiring the longest time to complete.

The examination plan at a minimum should include:

The examination plan must be shared and discussed with the taxpayer before the plan is final. This discussion should be conducted in an interactive manner to increase the taxpayer's involvement in the planning process, which contributes to their understanding of the examination plan and also affords them the opportunity to propose changes before the plan is final.

The examination plan must be signed and approved by the case manager, issue manager(s), and in certain circumstances, the territory manager, before providing the plan to the taxpayer. A copy of the completed plan must be discussed with and provided to the taxpayer. The examination team is responsible for documenting this in the activity record. Request that the taxpayer sign a copy to acknowledge their receipt of the examination plan. This concludes the planning phase.

The examination plan is a flexible document and may be revised during the examination if warranted. Any proposed revisions to the examination plan will be shared and discussed with the taxpayer, issue manager(s), and affected issue team members for their input before being approved by the case manager, and for certain examinations approved by the territory manager.

The issue-based examination plan is prepared using Form 13744-I, Issue-Based Examination Plan and Risk Analysis. Form 13744-I is optional and may be used instead of Forms 4764, 4764-A (optional), 4764-B, 13744, and the examination timeline. Attach the opening conference/meeting minutes, including any pertinent agreements reached during the opening conference/meeting. See IRM Exhibit 4.46.3-3, Sample Agenda for Opening Conference/Meeting.

A complete issue-based examination plan will include:

If this option is selected, a complete IC Examination Plan will include the following:

The Administrative Summary Sheet Workpaper for an IC examination is available to assist in preparing the examination plan and is not part of the plan given to the taxpayer.

The examination plan will be prepared at the conclusion of the planning phase, it should be issue focused and also contain the following: the issues identified, audit steps, timeline(s), and communication agreements.

Written document - The examination plan is a written document for all LB&I cases containing agreements with the taxpayer, information for the IRS personnel, work assignments, examination scope, examination procedures, time estimates, and special instructions. The plan is prepared using Form 4764, LB&I Examination Plan, Form 4764A, LB&I Examination Plan - Summary of Assignments and Form 4764B, LB&I Examination Plan – Examination Procedures.

Organizational tool - The examination plan is the principal tool the case manager uses in collaboration with the examination team. The examination plan should:

Flexible - The examination plan should be only as sophisticated and detailed as needed for the examination to be performed. The plan for a single-location one-product business normally requires less detail than one written for an examination of a conglomerate type taxpayer having diversified products and global operations. An examination employing four or five team members may involve little or no coordination, whereas; a larger case with twenty or more agents will need more detailed written guidelines on how the members are to be used.

Balanced - The plan should also have a proper balance between rigidity and flexibility. Excessive rigidity may result in a poor examination or a misuse of resources; however, a plan which is too general or flexible will defeat the purpose for which it is intended - a tool for directing, controlling and monitoring the examination. Proper evaluations of these factors when drafting a plan will not only result in an effective examination but will also save planning time.

Taxpayer involvement - The examination plan is equally as important to the taxpayer as it is to the IRS. The taxpayer, through involvement during the entire planning process, develops a vested interest (aside from tax consequences) in how the examination is to be conducted. Both the taxpayer and the Service benefit when the taxpayer is able to plan ahead to provide space, equipment and personnel when needed by the team. Therefore, the taxpayer and the Service should have a mutual understanding in sufficient detail as to what, where, and when examination activity will take place.

Living document - The examination plan is not a static tool. Case/Issue managers should revisit and revise the plan throughout the examination to take advantage of the additional information and feedback obtained. Personnel resources are; thus, more effectively used and the most significant issue areas are covered.

Responsibility for the examination plan - The examination plan is the responsibility of the case manager, working in collaboration with the issue managers. The LB&I TC is responsible for coordinating the preparation of the examination plan.

Sequence - Parts I and II of the plan should be completed before any substantial amount of examination work is started. The preliminary analysis, planning conferences and the initial survey of the taxpayer's records provide the information for the preparation of these parts of the plan. Part I, Taxpayer Information Section, should be completed first, since decisions reached in completing this section could influence instructions to the team and work assignments. Other portions of the examination plan may be developed simultaneously.

Review and approval – Parts I and II of the examination plan contain important information such as the type of examination being planned, the time span scheduled and the estimated cost in resources and travel, which are of interest to second and top level LB&I management. This portion of the plan is subject to their review and approval (which must be documented) and must be submitted as early as possible so that the case manager can make any requested modifications. This further highlights the fact that Part I and Part II should be submitted before any substantial amount of examination time is expended.

Taxpayer agreement - The orderly progress of the examination will depend upon the taxpayer's full agreement to and complete understanding of the examination arrangements.

Review of books and records - The taxpayer's books and records should be reviewed for noncompliance areas before the last part of the Examination Procedures Section is completed.

Examination procedures - Team members are expected to develop the written examination procedures to be used to accomplish their assignments. Form 4764B, LB&I Examination Plan – Examination Procedures, has been designed for this purpose. Other formats may also be employed reflecting the required written procedures and other pertinent data. The case manager must require timely submission of the planned procedures to decide if they are compatible with the overall plan. This is a primary device for controlling examination time.

Three parts - The plan is the product of the case and issue team manager(s), team members, and the taxpayer. It is comprised of three individual sections, as follows:

Sharing the Plan with the Taxpayer - All parts of the plan should be shared with the taxpayer. Information which would impair tax administration such as Official Use Only (OUO) documents and some specialized audit compliance techniques cannot be included in the examination plan.

Responsibility - Case managers are fully responsible for all management aspects of their cases. This requires substantial activity on their part in reviewing and discussing matters with all members of the team. Their activity should be briefly outlined in this section of the examination plan so that team members and the taxpayer will be able to properly coordinate their activities. The outline should cover items such as:

Meetings and travel – The case manager (in collaboration with the issue manager(s)) should prepare estimates of likely dates for meetings and associated travel costs. Planned travel costs must be approved by the next level of management.

List of activities - The TC's activities should be fully explained in Part II of the examination plan so that all team members will be able to conform to the administrative procedures involved in those activities. For example, TCs will:

Scope – Risk analysis provisions should be followed in determining the scope of the examination.

List of components – Part II of the plan provides for the listing of all components of the taxpayer. The listing should indicate percentage ownership of components, the principal product or function of each component, filing location if the component files a separate return, and reasons for not examining components. This information will help acquaint team members with the nature of their assignment and alert them not only to the possibility of inter-company transactions but also to those accounts in which those transactions may be found. This list will be used in the risk analysis process to help determine scope.

Limiting the scope - Reasons for not including various items in the examination plan should be made known to team members, as well as to SMEs and management. Documenting this information allows management to evaluate decisions regarding cycle time and examination scope which may have a bearing on the territory's resource utilization, examination program, and currency. The individual team members also need to know this information to:

Team assignments - The case and issue manager(s) and TC should give specific assignments to each of the team members after the planning meetings. It should also be made clear to all of the team members that the instructions are a guide and are flexible depending upon the needs of the case. The case and issue manager(s) should always encourage independent thinking by all team members.

Special instructions – This part of the plan aids the TC or case and issue manager(s) in conveying special instructions to the team members and is used for summarizing the assignments. Variations of this format may be desirable in some cases. It should:

Distribution – Form 4764-A, LB&I Examination Plan – Summary of Assignments, should be given to each team member before work begins.

Format - Variation of the format for outlining procedures may be desirable in some cases, but should reflect the information contained on Form 4764-B, LB&I Examination Plan, Part III – Examination Procedures Section.

Preparation - Team members should begin preparing the procedures part of the plan upon receipt of their assignments. It should be prepared to reflect clearly the steps to be taken in the examination of each particular account or item. Changes to procedures should be shown so that there will be a record of what was actually done.

Preliminary examination work – Some preliminary work will have to be done before examination procedures can be finally determined. This could include a review of accounting procedures, internal controls and a test of their effectiveness, or other limited examination work. The procedures used in any preliminary or initial work should be documented in this section.

Modifications - The procedures may have to be modified as the examination progresses. The examiner must be alert for any changes that may be necessary and, after discussion with the case/issue manager, incorporate any revisions in the appropriate section of the examination plan. The TC or case manager will coordinate significant changes with the taxpayer.

Tailored procedures - The procedures to be used should be specific to the issues identified and the particular taxpayer, and not merely a copy of generally suggested audit procedures.

Sequence – The examination procedures should be divided or arranged in the sequence to be followed.

Assistance or support team - The case manager will decide if assistance or support group team members will also write the examination procedures for their assignments. It may be necessary for the case/issue manager to recommend procedures in those cases where it will be a first-time examination for the assistance or support group. It may also be necessary for the case/issue manager or TC to travel to the assistance or support group to help in identifying appropriate procedures.

Responsibility - The TC or case and issue manager(s) are responsible for planning the time necessary for each examination. Time planning is essential to ensure staff resources are effectively utilized and concentrated in the most productive areas.

Data available - TCs or case/issue managers have information developed during the preparation of Parts I and II of the examination plan that will assist in time planning. They must evaluate the information obtained, consult with team members, specialists, managers, the taxpayer, and others, including prior examiners who may be able to contribute to or supplement information about the taxpayer. The case/issue manager must then consider this accumulated information in determining the planned depth and scope of the examination to be conducted.

Prior cycle information available - The best judgment of the team members and the case/issue manager is an important factor in those cases where detailed information about time expended for the prior examination is available. The case/issue manager and examination team must consider any changes to the depth and scope of the current examination, as well as any other known factors which would influence the examination. The case/issue manager must be careful not to simply roll over time estimates from prior examinations.

No prior cycle - Some audits do not have a prior history of examination time. The detailed projection of time requirements in these audits should reflect the team members' and case/issue manager's best judgment after considering everything learned about the taxpayer.

Other considerations - The following additional factors should be considered:

Modifications - Case/Issue managers must keep in mind that in estimating time they are dealing with many variables and unknowns. Initial estimates of specific time requirements should be as accurate as possible; however, case/issue managers are expected to revise and adjust the time allocations during the examination (on-going risk analysis). This ensures the application of time to those areas having the greatest compliance potential.