Internal Revenue Manual
IRM 4.19.11 — Examination Classification of Work
Part 4. Examining Process
Chapter 19. Liability DeterminationSection 11. Examination Classification of Work 4.19.11 Examination Classification of Work Manual Transmittal May 18, 2026 Purpose (1) This transmits revised IRM 4.19.11, Liability Determination, Examination Classification of Work Material Changes (1) Significant changes to this IRM are listed in the table below. Reference Change Details Various Updated IRM links and references throughout IRM. IRM 4.19.11.1 Updated purpose statement and expanded audience. IRM 4.19.11.1.1 Updated to provide clarity on case movement and remove paper procedures. IRM 4.19.11.1.4 Updated to modify and remove reports. IRM 4.19.11.1.5 Added acronyms and their definitions. IRM 4.19.11.2.1 Created a new subsection to outline priority inventory in CAT-A Classification. IRM 4.19.11.3 Added additional IRM references containing CAT-A criteria. IRM 4.19.11.3.1 Deleted out-dated inventory source. IRM 4.19.11.3.4 Clarified actions taken in CAT-A Classification if there is an open IDRS control base in Criminal Investigations (CI) and added information regarding the Fraud Coordinator. IRM 4.19.11.4.2 Updated Disallow and No Consider guidance. Incorporated IPU 24U1072: Updated to add guidance to include a specific CII note when returning a case to AM to be updated to a different referral reason. IRM 4.19.11.4.4 Updated to provide bundled claim guidance and an example. Incorporated IPU 24U1072: Removed HQ Reserved 3 guidance for LB&I. IRM 4.19.11.4.5 Added a new IRM subsection to address Protective Claims in CAT-A Classification. IRM 4.19.11.4.6 Added a new IRM subsection to address Bankruptcy/Litigation claims with a -W freeze in CAT-A Classification. IRM 4.19.11.5.1.1 Replaced out-dated references. IRM 4.19.11.5.1.2 Updated BMF Audit Reconsideration procedures. IRM 4.19.11.5.3 Replaced threshold amounts with an IRM reference. IRM 4.19.11.5.4 Updated referral delivery information including the delivery method, referral form, and response timeframe. IRM 4.19.11.5.8 Corrected IRM title. IRM 4.19.11.5.8.1 Updated subsection for clarity and to specify which area corresponds with the taxpayer. IRM 4.19.11.7.1 Deleted out-dated reference to HQ Reserved 15. Incorporated IPU 24U1072: Updated to clarify language regarding Bipartisan Budget Act (BBA) claim processing and referral information. IRM 4.19.11.7.2 Added information regarding referral reasons related to HQ Reserved 5 and HQ Reserved 15. Incorporated IPU 24U1072: Removed HQ Reserved 3 guidance. Added guidance for IMF Large Business & International (LB&I) inventory now being referred under HQ Reserved 15. IRM 4.19.11.7.3 Added information regarding referral reasons related to HQ Reserved 18. IRM 4.19.11.7.4 Added information regarding referral reasons related to HQ Reserved 9 and HQ Reserved 10. Incorporated IPU 24U1072: Added guidance for SB/SE Employment Tax inventory now being referred under HQ Reserved 9. IRM Exhibit 4.19.11-1 Updated HQ Reserved Code guidance and identified the area the inventory belongs to. IRM Exhibit 4.19.11-2 Updated IDRS numbers. (2) The IRM was revised to review and clarify language throughout. All references and websites were also updated. Effect on Other DocumentsThis revision supersedes IRM 4.19.11 dated December 22, 2023 and IPU 24U1072 dated October 25, 2024. The IPU changes are incorporated in this IRM. AudienceSmall Business/Self Employed (SB/SE), Taxpayer Services (TS), Large Business & International (LB&I), and Tax Exempt/Government Entities (TE/GE) Campus Examination Operations. Effective Date(05-18-2026)Heather J. Yocum,Director, Examination - Field and Campus PolicySmall Business/Self-Employed
Program Scope and Objectives
4.19.11.1 (05-18-2026) Program Scope and Objectives Purpose: This IRM contains guidelines for campus personnel who classify CAT-A referrals and provide determinations that may result in selection of Exam workload. Audience: These guidelines and procedures apply to Small Business/Self-Employed (SB/SE), Taxpayer Services (TS), and other Business Operating Division (BOD) Exam employees who are responsible for reviewing CAT-A referrals, identifying audit potential, and selecting cases for Correspondence and Field examinations. Policy Owner: Small Business/Self-Employed (SB/SE), Campus Examination and Field Support (CEFS). Program Owner: Small Business/Self-Employed (SB/SE) Examination - Field and Campus Policy (EFCP). Primary Stakeholders: Small Business/Self-Employed Division (SB/SE), Taxpayer Services (TS), Large Business & International (LB&I), and Tax Exempt/Government Entities (TE/GE).
Background
4.19.11.1.1 (05-18-2026) Background Campus Exam Classification is responsible for reviewing amended returns/refund claims submitted to the Internal Revenue Service and referred to Exam under the Category A (CAT-A) process. Accounts Management (AM), Submission Processing (SP) and other areas refer claims to Campus Exam Classification in both Small Business/Self Employment (SB/SE) and Taxpayer Services (TS) Return Integrity Compliance Services (RICS) Exam when they identify CAT-A criteria. Claims are typically referred via the Account Management Services (AMS) Correspondence Imaging Inventory System (CII) using the "2CATA" suspense option, which systemically reassigns the IDRS control base to the co-located Campus Exam Classification IDRS number. The CII case (claim) is reviewed by Campus Exam Classification (Revenue Agents for BMF and Tax Compliance Officers for IMF) to determine whether the issue being claimed is allowable and whether the amended return has audit potential. Claims that are either accepted as filed, not allowable, or have insufficient information to make a determination are returned to AM/SP via CII, which reassigns the IDRS control base back to the originator. The AM/SP originator then processes the adjustment (when accepted) or issues the disallowance notice (when not allowed) and closes the CII case, which closes the IDRS control base. Claims that are considered to have audit potential are selected for examination and routed to Campus Exam Classification Support. The CII case is returned to AM/SP with notations that the claim was selected and the originator closes the CII case. When a classifier identifies a claim with Large, Unusual, and/or Questionable (LUQ) items and decides it has audit potential, they send the claim to Classification Support (Case Building) for delivery to Correspondence or Field Exam. Campus Exam Classification Support builds the case by opening an AIMS base (which establishes a TC 420), closing IDRS control bases on CC TXMOD as necessary, and electronically delivering any necessary case documents to local area office Planning and Special Programs (PSP) or Campus Exam. See IRM 4.19.12, Classification Support.
Authority
4.19.11.1.2 (12-22-2023) Authority IRM 1.1.16.5.5.1, Examination Field and Campus Policy IRM 1.1.16.5.5.3, Exam Case Selection IRM 1.2.1.2.36, Policy Statement 1-236, Fairness and Integrity in Enforcement Selection IRM 1.2.1.5.7, Policy Statement 4-9, Highest Integrity Expected IRM 1.2.1.5.10, Policy Statement 4-21, Selection of returns for examination IRM 1.2.1.5.22, Policy Statement 4-76, Disallowed claims may be reconsidered on the merits IRM 1.2.1.5.23, Policy Statement 4-77, Claims may be allowed without examination IRM 1.2.1.5.31, Policy Statement 4-103, Abatement claims considered only in exceptional circumstances IRM 4.1.5.3, Classification IRM 10.5.1, Privacy Policy
Responsibilities
4.19.11.1.3 (12-22-2023) Responsibilities Examination Field and Campus Policy (EFCP) is responsible for leading the development and delivery of policy and guidance that impacts SB/SE taxpayers and SB/SE Campus and Field examination processes. Campus Exam and Field Support (CEFS) is responsible for providing policy on compliance processes that relate to campus examination classification operations for Correspondence, Field, and Specialty Exam programs. 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 accordance with taxpayer rights. See IRC 7803(a)(3), Execution of Duties in Accord with Taxpayer Rights.
Program Controls
4.19.11.1.4 (05-18-2026) Program Controls The following reports may be used to monitor inventory assigned in Classification: Account Management Services (AMS) Correspondence Imaging Inventory System (CII) Category A (CAT-A) Inventory Report Business Objects Enterprise (BOE) Crystal Reports Case Control Activity (CCA) 4243/ Overage Report Compiler and Sorter (ORCAS) AIMS Centralized Information System (A-CIS)
Acronyms
4.19.11.1.5 (05-18-2026) Acronyms The following table lists commonly used acronyms and their definitions used throughout this IRM. Acronym Definition A-CIS AIMS Centralized Information System AAR Administrative Adjustment Request ACTC Additional Child Tax Credit ADCCI Assistant Deputy Commissioner Compliance Integration AIMS Audit Information Management System AM Accounts Management AMS Account Management Services AOTC American Opportunity Tax Credit ASFR Automated Substitute For Return AUR Automated Under Reporter BMF Business Master File BOD Business Operating Division BOE Business Objects Enterprise CAT-A Category A (Examination Criteria) CAU Caution CC Command Code CCA Case Control Activity System CDE Compliance Data Environment CEA Campus Examination and Automated Underreporter CEFS Campus Exam and Field Support CI Criminal Investigation CII Correspondence Imaging Inventory Corr Correspondence Exam CWA Contemporaneous Written Acknowledgment DBA Doing Business As DDB Dependent Data Base DEBR Discretionary Exam Business Rules DIF Discriminant Function DLN Document Locator Number EBE Employee Business Expense EFTPS Electronic Federal Tax Payment System EIN Employer Identification Number EITC Earned Income Tax Credit ELF Electronic Return Filing EUP Employee User Portal EQ&TS Exam Quality and Technical Support ET Employment Tax FRP Frivolous Return Program FSLG Federal, State, & Local Governments GII Generalized IDRS Interface HQ Headquarters IAC Interest Abatement Coordinator IDRS Integrated Data Retrieval System IDT Identity Theft IMF Individual Master File IRA Individual Retirement Account IRDM Information Reporting Document Matching IRP Information Reporting Program IRMF Information Return Master File ITIN Individual Taxpayer Identification Number LB&I Large Business and International LIHC Low Income Housing Credit LIN Large Income and International Image Network MeF Modernized E-File MF Master File MFT Master File Tax MOU Memorandum of Understanding OFP Organization Function Program OIC Offer in Compromise ORCAS Overage Report Compiler and Sorter OUO Official Use Only PBC Primary Business Code PDT Potentially Dangerous Taxpayer POA Power of Attorney PSP Planning and Special Programs PTC Premium Tax Credit QRDT Questionable Refund Detection Team RA Revenue Agent RGS Report Generating Software RICS Return Integrity Compliance Services SARP State Audit Report Program SB/SE Small Business Self-Employed SEP Simplified Employee Pension SFR Substitute for Return SP Submission Processing SRA System Research and Applications SSIVL Statistical Sample Inventory Validation Listing SSN Social Security Number TEGE Tax Exempt/Government Entities TS Taxpayer Services TC Transaction Code TCO Tax Compliance Officer TE Tax Examiner TE/GE Tax Exempt/Government Entities TIN Taxpayer Identification Number WEIIC Withholding Exchange and International Individual Compliance
Related Resources
4.19.11.1.6 (05-18-2026) Related Resources IRM 4.1.5.3, Classification IRM 4.13, Audit Reconsideration IRM 4.10.11, Claims or Refund and Requests for Abatement IRM 4.19.14, Refundable Credits Strategy IRM 4.19.15, Discretionary Programs IRM 21.5.2.4.23.6, Discriminant Index Function (DIF) SCORE or Classification Send Return(s) to Examination for Review IRM 21.5.3, General Claims Procedures IRM 21.5.3-2, Examination Criteria (CAT-A) - General IRM 21.5.3-3, Examination Criteria (CAT- A) - Credits IRM 21.7.4.4.2.9, Form 1065 and 1065X, Amended Return, Administrative Adjustment Request (AAR) and Bipartisan Budget Act (BBA) IRM 21.8.1.2.10, Examination Criteria CAT-A International IRM 21.8.2.2.12, Examination Criteria IRM 25.6, Statute of Limitations IRM 25.23, Identity Protection and Victim Assistance
Classifier Considerations
4.19.11.2 (12-22-2023) Classifier Considerations Category A (CAT-A) Classification is the process of determining whether a claim should be selected for audit, the initial issues to be audited, and who should conduct the audit. Exam classifiers have a limited role in the examination process, which is to determine the audit potential of a return. Tax returns are to be selected and classified for audit by employees who will not be the examiner of the return. Therefore, classifiers do not take the following actions: correspond or make contact with taxpayers for any reason, or take any IDRS account actions. The classifier must be familiar with the National Office Tax Compliance Officer (TCO) and Revenue Agent (RA) Classification Guidelines found in IRM 4.1.5, Case Building, Classification, Storage and Delivery. The guidance promotes classification consistency nationwide and selection of returns for examination with issues that are material in scope. Claims should be classified by classifiers possessing experience commensurate with the type of return and issues they are classifying. According to Policy Statement P-4-21, the primary objective in identifying tax returns for examination is to promote the highest degree of voluntary compliance. See IRM 1.2.1.5.10, Policy Statement 4-21. Due to limited resources, the IRS can examine only a small percentage of the returns filed. The classifier's role is to ensure that these resources are used effectively. The classifier must decide which returns are most in need of examination. Thorough examination promotes the highest degree of voluntary compliance. Classification should be conducted by the most technically proficient experienced examiners, who have received appropriate tax law training. The Examination Operation ensures that each employee assigned to classification is able to recognize and identify a tax return that has an early statute expiration and is aware of the statute control procedures.
Priority Inventory
4.19.11.2.1 (05-18-2026) Priority Inventory The order for classifying all CAT-A claims is by IRS received date. Additional information can be found in IRM 4.19.16.2.2, Claims Processing in Accounts Management Branch. The following CAT-A Classification work types should be worked as a priority: Bundled Net Decrease 91-180 Joint Committee NOL Carryback/carryforward RINT & Carryback/carryforward TENT Referrals involving Taxpayer Advocate Service (TAS) Operation Assistance Requests ("OARs" ) Referrals involving Automated Underreporter (AUR)
CAT-A Claim Intake
4.19.11.3 (05-18-2026) CAT-A Claim Intake Accounts Management (AM), Submission Processing (SP), and other areas refer claims to Campus Exam Classification when they identify the claim meets Category A (CAT-A) criteria. CAT-A criteria is outlined throughout IRM 21, Customer Account Services. Most CAT-A criteria is located in IRM 21.5.3, General Claims Procedures. Additional criteria can be found in IRM 21.5.9, Carrybacks, IRM 21.7.4, Income Taxes/Information Returns, IRM 21.8.1, IMF International Adjustments and IRM 21.8.2, BMF International Adjustments.
Classification Inventory Sources
4.19.11.3.1 (05-18-2026) Classification Inventory Sources Claims are received, scanned, and stored in the Account Management Services (AMS) Correspondence Imaging Inventory System (CII). When an AM or SP assistor identifies CAT-A criteria they refer the claim to Exam Classification using the "2CATA" suspense option, which systemically reassigns the IDRS control base to the co-located Campus Exam Classification IDRS team number (see Exhibit 4.19.11-2, Campus Exam Classification Unit IDRS Numbers). The original CII case is moved to the AM/SP assistor's CII Suspense Folder and a copy of the CII case (with limited functionality enabled) is transferred to CAT-A inventory in CII. The Dependent Database (DDB) is a rules-based selection application that is designed to identify potentially ineligible tax returns claiming Earned Income Tax credit (EITC) and other refundable credits (for example, Premium Tax Credit (PTC), Additional Child Tax Credit (ACTC) and American Opportunity Tax Credit (AOTC)). DDB selects returns using an automated process based on programmed selection criteria designed to select the most productive returns for examination. The highest scored returns are made available for audit selection.
Corporate Inventory
4.19.11.3.1.1 (12-22-2023) Corporate Inventory The restructuring of the IRS in recent years resulted in numerous work types moving to new service centers. Since work is referred to Classification based on the co-location of the AM/SP site, and not based on the work type, Classification has no control over what work types are received in each site's Classification inventory. SB/SE Exam Classification IMF sites (BSC, MSC & PSC) work IMF inventory corporately, out of all SB/SE CII Classification queues, according to established business unit procedures. TS Exam Classification IMF sites (ANSC, ATSC, AUSC, KCSC, & FSC) work IMF inventory corporately, out of all TS CII Classification queues, according to established business unit procedures.
Classification Case Definitions
4.19.11.3.1.2 (12-22-2023) Classification Case Definitions Classification classifies both Claims for Refund and Requests for Abatement. A Claim for Refund is an amended return, Administrative Adjustment Request (AAR), or written request that asks for some amount of money to be refunded, whether or not it also involves an abatement. If a request is "part claim" and "part abatement" the request is a claim for refund, because the taxpayer is requesting an amount of money to be refunded. For additional information refer to IRM 4.10.11.2, Claims for Refund. Note: Tax does not have to be full paid to be treated as a claim for refund. A Request for Abatement is an amended return, AAR, or written request that asks for a reduction of the assessed liability. A request for abatement does not involve a refund; only a reduction in the module balance. For additional information refer to IRM 4.10.11.3, Requests for Abatement.
Employee Returns
4.19.11.3.2 (12-22-2023) Employee Returns To ensure impartiality, independence, and employee privacy, subordinates, associates or co-workers of an employee will not classify or examine that employee's return. Command Code IMFOL on IDRS shows the IRS employee indicator. A "P" indicates the primary taxpayer is an IRS employee, an "S" indicates the secondary taxpayer is an IRS employee, and a "B" indicates both the primary and the secondary taxpayers are IRS employees. See IRM 2.3.51-12, Command Code IMFOL Output Display - Index. Classification Support will send employee returns selected for examination to the PSP area office closest to where the employee lives. Classification Support will not route employee returns to Campus Correspondence Examination. For additional information reference IRM 4.1.1.6.7, Employee Audits and IRM 4.2.6, Examination of Employee Returns.
Identity Theft Accounts
4.19.11.3.3 (12-22-2023) Identity Theft Accounts IRM 25.23, Identity Protection and Victim Assistance, provides servicewide guidance on Identity Theft (IDT) issues, including documentation and actions required for general processing of IDT claims. BMF IDT indicators are not applied until required research has been completed to rule out a possible mixed entity issue. Never assume identity theft prior to completing preliminary research. Refer to IRM 25.23.9-7, BMF Identity Theft Research Requirement, and IRM 25.23.9-2, BMF ID Theft Indicators – Transaction Code (TC) 971 Action Code (AC) 522 IDTCLM - Initial Allegation or Suspicion of BMF Identity Theft, when researching BMF accounts.
Criminal Investigations
4.19.11.3.4 (05-18-2026) Criminal Investigations A "-Z" freeze or an unreversed TC 914 on a tax module indicates that return has Criminal Investigation (CI) controls. If a case is received in CAT-A Classification and there is an open CI control base on the IDRS tax module, return the case to AM/SP with advice to route the case to the open control base. The Fraud Coordinator in TS Refundable Credits Examination Operations (RCEO) makes selection determinations for TS Corr Exam.
CAT-A Claim Determinations
4.19.11.4 (12-22-2023) CAT-A Claim Determinations When a Correspondence Imaging Inventory System (CII) case meets CAT-A criteria and is referred to Exam Classification, a determination will be returned to Accounts Management (AM) or Submission Processing (SP) indicating whether the issue is allowable, whether the amended return has audit potential, and how the case should be handled. Cases referred to Exam Classification remain under AM/SP adjustment function control until a determination is made. If a case is selected, Exam assumes adjustment function control. Claims are returned to AM/SP via CII, which reassigns the IDRS control base back to the originator and returns the CII case back to their active inventory. When leaving Case Notes on CII do not include Personally Identifiable Information (PII) or Official Use Only (OUO) (including CAT-A thresholds), as these notes are subject to Freedom of Information Act (FOIA) and could be requested by the taxpayer or other parties. The term "Personally Identifiable Information" refers to information that can be used to distinguish or trace an individual's identity, either alone or when combined with other information that is linked or linkable to a specific individual. The term "Official Use Only" applies to sensitive information not made available to the public because it meets a Freedom of Information Act exemption and there is a reasonable expectation that disclosure would harm tax administration or IRS operations or when disclosure is specifically prohibited by law.
Large, Unusual, and Questionable (LUQ) Items
4.19.11.4.1 (12-22-2023) Large, Unusual, and Questionable (LUQ) Items Invariably, the definition of significant will depend on the classifier's perception of the return as a whole and the separate items that comprise the return. However, there are several factors to consider when determining whether an item is significant: Comparative size of the item: A questionable expense item of $6,000 with total expenses of $30,000 would be significant; however, if total expenses are $300,000, ordinarily the item would not be significant. Inherent character of the item: Although the amount of an item may be insignificant, the nature of the item may be significant; for example, airplane expenses claimed on a plumber's Schedule C. Evidence of intent to mislead: This may include missing, misleading, or incomplete schedules or incorrectly showing an item on the return. Beneficial effect of the manner in which an item is reported: Expenses claimed on a business schedule rather than claimed as an itemized deduction may be significant. Relationship to/with other item(s) on a return: Business expenses with corresponding income. Similarly, the lack of dividends reported when Schedule D shows sales of stocks. Taxpayer location: A taxpayer based out of a high cost of living area will incur higher expenses than a taxpayer based out of a moderate or low cost of living area.
Accepts, Disallows, Rejects
4.19.11.4.2 (05-18-2026) Accepts, Disallows, Rejects This subsection includes general and background information on Classification work processes. Classification responses will not contradict IRM 21.5.3-1, Claims Processing with Examination Involvement, which is the IRM Accounts Management follows when they receive a response from CAT-A Classification. Classification will only provide one determination when responding. The table below only applies to complete cases containing the necessary returns and taxpayer documentation to make a determination. If the case is not complete and can't be classified, it will be returned to the requestor/originator with an explanation of why it can't be classified. If Classification Determines: Then Classification Will: And Accounts Management Will: The amended return/claims will be Accepted as filed by the taxpayer and no examination should be started. Leave CII case remarks if needed. Return the case in CII by selecting the "Accepted" response option and clicking "Return to CSR." Input the necessary actions to adjust the account and release any overpayment. Note: If the amount of the claim is not computed or is computed incorrectly, AM will re-compute the allowable amount, correct if necessary, and advise the taxpayer of any changes to the amount claimed. Release the TC 470 (if appropriate). Note: Most adjustments will release the TC 470. Notify the taxpayer the adjustment has been made. The amended return/claim must be Disallowed in part or in full. Leave CII case remarks outlining the IRC/regulation/law the claim is being denied under. Return the case in CII by selecting the "Disallow" response option and clicking "Return to CSR." Refer to IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures. Input the disallowance or partial disallowance adjustment. Reject the claim with a Letter 105C or Letter 106C using the citations of law provided by the classifier. The amended return/claim lacks the forms, schedules, and/or worksheets to properly consider the items, and the case must be Rejected/No Considered. Leave CII case remarks outlining the forms/schedules/worksheets and/or explanation of the claim that needs to be submitted for the claim to be considered. Caution: Ensure books and records are NOT requested. Only documents required in form instructions, or an explanation of the claim, may be requested prior to examination. Return the case in CII by selecting the "No Consider" response option and clicking "Return to CSR." Refer to IRM 21.5.3.4.6.3, No Consideration Procedures and IRM 21.5.3.4.3, Tax Decrease and Statute Consideration, for information on processing statute year claims. Return the claim to the taxpayer with a Letter 916C and request the missing forms/schedules/worksheets and/or explanation of the claim. Resubmit the claim to CAT-A Classification if the taxpayer provides the requested forms/schedules/worksheets. The amended return/claim should not have been sent to Classification and returns it as "Not Category A Criteria." Leave CII case remarks to explain why the case does not meet CAT-A criteria. Return the case in CII by selecting the "Not Category A Criteria" response option and clicking "Return to CSR." Take the necessary actions to resolve the CII case. The amended return/claim was referred using the incorrect referral reason and the referral reason must be updated to ensure proper processing in Classification or if CII case data is incorrect or incomplete. Ensure a radio button is not selected. Add a Case Note stating which referral reason should have been used. Note: Provide IRM reference(s) when applicable. Select "Return to CSR". Take the necessary actions to refer the case back to Classification using the correct referral reason.
Selects
4.19.11.4.3 (12-22-2023) Selects If a classifier determines a claim has audit potential and selects the case, they will take appropriate actions to ensure the case is built and sent to the appropriate area. When Exam Classification selects a claim, AM/SP transfers claim resolution liability to the Exam function. Appropriate Exam functions are then responsible for establishing AIMS, and proceeding with auditing or processing the claim.
Determining if Examination Should be Conducted in Correspondence Exam or Field Exam
4.19.11.4.3.1 (12-22-2023) Determining if Examination Should be Conducted in Correspondence Exam or Field Exam Classifiers must be familiar with the National Office Tax Compliance Officer (TCO) and Revenue Agent (RA) Classification Guidelines. The guidance promotes classification consistency nationwide and selection of returns for examination with issues that are material in scope. The classification guidelines can be found in IRM 4.1.5.3, Classification. Once you determine that the return will be selected, decide if the examination should be conducted by a Tax Compliance Officer (TCO) or a Revenue Agent (RA). The designation of TCO or RA will be based upon: the complexity of the issues involved, the degree of accounting and auditing skills required to perform the examination, and whether it can be effectively completed by Correspondence Exam. Note: The Case Grading Tool is a working model of IRM 4.1.5.3.2.6, Grading Returns (RA, TCO-11, TCO-09 or below) and is available to classifiers to assist with making the determination of if the examination should be conducted by a TCO or RA. The Case Grading Tool can be found at MYSBSE Field Exam Web Documents WorkloadID Classification. Do not exclude substantial issues to convert what would be a Revenue Agent examination to a Tax Auditor examination. Do not exclude substantial items from the check-sheet to convert what might be an interview examination to a correspondence examination. The number of issues, standing alone, do not determine if the return is to be examined by a RA or TCO. Examinations are appropriate for Correspondence Exam when all the questioned items are verifiable by records that could be easily submitted by mail or when inspection of the previous or subsequent year returns is not necessary. Examinations are NOT appropriate for Correspondence Exam when the return requires an in-depth knowledge of accounting principles or if the classifier feels an office interview or on-site inspection of the taxpayer's books, records or assets is needed. Examples of items which generally cause the return to be excluded from correspondence examination include: Correspondence Examination Exclusions Complex books and records for deductions and expenses Complex Schedule D transactions Returns with unusually complex rental income and expenses Tax shelter returns Donations of real property which would involve an engineering specialist Alimony - if it appears there is a property settlement involving business property (accounts receivable, etc.) Returns which would most likely have voluminous records Extensive time frame could be required to complete the examination Returns where inventories are substantial and material Termination of business before the end of the taxable year Unusual issues that appear to be complex and time consuming to develop (Complex oil or mineral explorations, unstated interest (IRC 483), nontaxable transfers, etc.) Size of a business (high gross receipts, etc.) Businesses not adaptable to office examination, such as manufacturers, auto dealers, and funeral parlors Individual returns requiring the full accounting skills of a Revenue Agent Tax Compliance Officer not available in the geographical location of the taxpayer
Issues Appropriate for TS versus SB/SE
4.19.11.4.3.2 (12-22-2023) Issues Appropriate for TS versus SB/SE TS Campus Correspondence Exam, SB/SE Campus Correspondence Exam and SB/SE Field Exam typically work different issues. There may be some program overlap between Correspondence Exam and Field Exam work. TS Campus Correspondence Exam generally audits pre-refund issues and SB/SE Campus Correspondence Exam generally audits post-refund issues. Correspondence Exam guidance for auditing pre-refund issues can be found in IRM 4.19.14, Refundable Credits Strategy. Correspondence Exam guidance for auditing post-refund issues can be found in IRM 4.19.15, Discretionary Programs. TS Campus Classification delivers selections to TS Campus Correspondence Exam and SB/SE Field Exam. SB/SE Campus Classification delivers selections to SB/SE Campus Correspondence Exam and SB/SE Field Exam. The following are examples of issues appropriate for selecting for TS Campus Correspondence Exam: TS Correspondence Examination Inclusions Dependent exemptions when refundable credits are claimed Wages Interest Dividends Unemployment Compensation Social Security Income Received American Opportunity Tax Credit (AOTC) Child Tax Credit Additional Child Tax Credit (ACTC), including ITIN returns Earned Income Tax Credit (EITC) Fuel Tax Credit Health Coverage Tax Credit Premium Tax Credit Mortgage Interest Credit Pre-Refund The following are examples of issues appropriate for selecting for SB/SE Campus Correspondence Exam: SB/SE Correspondence Examination Inclusions Dependent exemptions when Adoption Credit and Child Care Credit are claimed Schedule C - income/expense issues Schedule F - Farm income/loss Other Income to be characterized as Self Employment income Taxable Refunds Alimony Income exclusions such as personal injury, sick pay, disability pay IRA/Pension distributions Adjustment to Income issues (for example, Self-Employment Tax adjustment and Moving Expenses) Employee Business Expenses – Form 2106 Home Office deductions Casualty theft/loss not requiring in-person audit Medical and Dental Expenses Real Estate Taxes State Taxes Paid Home Mortgage Interest Points paid Charitable Cash Contributions Charitable Non-Cash Contributions, not requiring an appraisal or engineering referral Miscellaneous Deductions Alternative Minimum Tax Self-Employment Tax 10% Tax on early retirement savings withdrawal Additional Child Tax Credit Non-ITIN Returns Adoption Credit Alternative Minimum Tax Credit (Form 8801) Premium Tax Credit Mortgage Interest Credit Post-Refund The following are examples of issues appropriate for selecting for SB/SE Field Exam: SB/SE Field Examination Inclusions Income issues beyond the scope of a correspondence examination Debt forgiveness Deferred Compensation Schedule D issues requiring examination of capital gains/losses on Form 4797 Investment Interest Expense Prior year cash contribution carried forward Non-cash charitable contributions requiring appraisal or engineering referral, such as artwork Complex casualty theft/loss requiring extensive research and verification of records Investment Expenses Attorney Fees Gambling Losses Alternative Minimum Tax
Correspondence Exam Referral Selects
4.19.11.4.3.3 (12-22-2023) Correspondence Exam Referral Selects This IRM subsection provides procedures for the delivery of IMF CAT-A cases selected in Exam Classification to Correspondence Exam. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Note: ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Classifiers will forward a completed classification sheet to Classification Support to initiate the case assembly process. The table below outlines the actions Classification and Accounts Management will take when a case is selected for Correspondence Exam. If Classification Determines: Then Classification Will: And Accounts Management Will: The amended return/claim has audit potential, and the case has been Selected in Exam for potential audit. Leave CII case remarks if needed. Return the case in CII by selecting the "Selected" response option and clicking "Return to CSR." Complete a Form 6754, Examination Classification Checksheet (IMF) or a Form 10264, Revenue Agent – Classification Checksheet (BMF). Note: Ensure the correct claim amount is computed. Include all increases and decreases on the amended return and compare the total to the original return/return as previously adjusted to calculate the claim amount. See IRM 4.10.11-6 for information on how to calculate the claim amount. Route to local Campus Exam Classification Support for case building. Refer to IRM 21.3.3.4.2.1, Use of Letter 86C, Referring Taxpayer Inquiry/Forms to Another Office. Input any required letters to the taxpayer. Input the necessary audit trail with a TC 971 and Action Code (AC) 013 (use the received date of the amended return for the transaction date) Route the case if necessary. Close the CII case.
Field Referral Selects
4.19.11.4.3.4 (12-22-2023) Field Referral Selects This IRM subsection provides procedures for the electronic delivery of IMF and BMF Category A cases selected in Exam Classification to Field Case Selection (FCS) via local area Planning and Special Programs (PSP). Classifiers forward a completed classification sheet to campus Classification Support to initiate the case assembly process. The table below outlines the actions Classification and Accounts Management will take when a case is selected for Field Exam. If Classification Determines: Then Classification Will: And Accounts Management Will: The amended return/claim has audit potential, and the case has been Selected in Exam for potential audit. Leave CII case remarks if needed. Return the case in CII by selecting the "Selected" response option and clicking "Return to CSR." Complete a Form 6754, Examination Classification Checksheet (IMF) or a Form 10264, Revenue Agent – Classification Checksheet (BMF). Note: Ensure the correct claim amount is computed. Include all increases and decreases on the amended return and compare the total to the original return/return as previously adjusted to calculate the claim amount. See IRM 4.10.11-6 for information on how to calculate the claim amount. Route to local Campus Exam Classification Support for case building. Refer to IRM 21.3.3.4.2.1, Use of Letter 86C, Referring Taxpayer Inquiry/Forms to Another Office. Input any required letters to the taxpayer. Input the necessary audit trail with a TC 971 and Action Code (AC) 013 (use the received date of the amended return for the transaction date) Route the case if necessary. Close the CII case.
Shared Drive Access
4.19.11.4.3.4.1 (12-22-2023) Shared Drive Access In March 2018, the President's Management Agenda established multiple goals to transition federal agencies' business processes and record keeping to a fully electronic environment. The PSP shared drive (\\VPWSENTSHRCMN43\Common\EO\HQ\ECS\FCS\Claims) was created to establish an electronic case delivery process and is available to stakeholders involved in Field case delivery. Whenever possible, Classification will transfer cases to Classification Support electronically via the designated PSP shared drive.
Electronic Delivery
4.19.11.4.3.4.2 (12-22-2023) Electronic Delivery Each site will establish and follow local procedures for sending selected cases from Exam Classification to Classification Support. The Classification folder in the shared drive is designated for Classifiers. It can be used by sites for pre-referral coordination between classifiers and Classification Support. Classifiers will ensure a Classification sheet and any other supporting documentation is provided to Classification Support.
Statute Considerations
4.19.11.4.4 (05-18-2026) Statute Considerations Statute awareness is vital and required to minimize barred assessments and erroneous abatements. The Assessment Statute Expiration Date (ASED) generally expires three years from the time the return was filed or two years from the time the tax was paid, whichever is later (see IRC 6511, Limitations on Credit or Refund). The ASED may be extended for specific reasons however, the expiration of the statute prohibits further assessment unless a valid extension is in place or exception to IRC 6501, Limitations on Assessment and Collection, applies. When a tax assessment is not made within the prescribed period for assessment it is considered a "barred assessment." In the event an ASED expires while a tax return is under Classification control, refer to IRM 25.6.1.13.2.1, Barred Statute Report (Form 9355/3999) and IRM 25.6.1.13.2.8.1, Procedures for the Submission of SB/SE Statute Expiration Reports. Statute information, including conditions which may extend the Assessment Statute Expiration Date (ASED), Refund Statute Expiration Date (RSED), or Collection Statute Expiration Date (CSED), can be found in IRM 25.6.1, Statute of Limitations Processes and Procedures. A bundled claim (tax and credit decreases or tax and credit increases) that results in an overall net increase (results in a balance due and/or increases the balance) should not be sent to CAT-A Classification. Return Bundled Claims with net increases back to the Accounts Management/Submission Processing originator as "Not CAT-A" and reference IRM Exhibit 21.5.3-2 Examination Criteria (CAT-A) – General. A bundled claim (tax and credit decreases or tax and credit increases) that meets CAT-A criteria and results in an overall net decrease (generate a refund and/or decrease the balance) is sent to CAT-A Classification using the following referral reasons: "Bundled Net Decrease (91-180)" if the ASED is within 91-180 days from today's date or Note: "Bundled Net Decrease (91-180)" referrals are worked on a priority basis. "Bundled Net Decrease (over 180)" if the ASED is over 180 days from today's date Note: All "HQ Reserved Code" referral reasons take precedence over "Bundled" referral reasons. Bundled Claim with an Net Decrease Example: A Form 1040X was filed reporting a decrease in itemized deduction to the standard deduction, which increased tax liability by $900. The taxpayer also amended their return to claim Premium Tax Credit of $10,740, which resulted in a net tax decrease of $9,840. Note: IRM 21.5.3.4.1, Tax Increase or Credit Decrease Processing, advises if the ASED is within 90 days of expiring or has expired, tax increases should be routed to the Statute Unit. If the claim is not within 90 days of the ASED, and it meets CAT-A criteria, it should be forwarded to Classification for a determination. If the $900 tax increase is not adjusted before the ASED expires, it is a barred statute.
Protective Claims
4.19.11.4.5 (05-18-2026) Protective Claims Protective claims are filed to preserve the taxpayer's right to claim a refund when the taxpayer's right to the refund is contingent on future events and may not be determinable until after the statute of limitations expires. Reference IRM 25.6.1.10.3.2.5, Protective Claims. The IRS has discretion in deciding how to process protective claims. In general, it is in the best interests of the IRS and taxpayers to delay action on protective claims until the pending litigation or other contingency is resolved. Once the contingency is resolved, the IRS may obtain additional information necessary to process the claim and then allow or disallow the claim. Reference IRM 25.6.1.10.3.2.5, Protective Claims. Protective Claims may be informal claims or amended returns for credit or refund normally based on expected changes in current regulation, pending legislation or current litigation. Any claim based on a pending court case or decision is considered a Protective Claim. A protective claim can be identified with a literal "protective claim" or similar language or verbiage related to current regulation or pending or current litigation on the claim itself. These claims are filed to protect the claimant's right to recover internal revenue tax before the expiration of the statute of limitations. For this reason, they are all considered to meet CAT-A criteria. Reference IRM 21.5.3.4.7.3, Protective Claims and IRM Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General. Submission Processing (SP) and Accounts Management (AM) verify Protective Claims are processable prior to sending to CAT-A Classification. Reference IRM 21.5.3.4.7.3.1, Processing Protective Claims. If a Protective Claim cannot be closed due to contingency action, the claim is reviewed in CAT-A Classification to ensure it is processable and valid before the claim is selected and forwarded to the appropriate area office (PSP). If the taxpayer makes a claim based on speculation of future possible law changes, and an open court case or pending legislation is verified, the Protective Claim is valid and should be Selected. If the taxpayer makes a claim based on speculation of future possible law changes, and an open court case or pending legislation is not verified, the Protective Claim is not valid and should be Not Considered. If the taxpayer claims the law is "unconstitutional", under moral grounds, or a similar reasoning, the Protective Claim should be Disallowed. Refer to IRM 25.25.10.2, Identification of Frivolous Submissions to identify frivolous submissions. If the court case has already been decided, do not select the claim because it does not need to be held in Technical Services. Provide a determination to Disallow or Accept based on the outcome of the court case. The PSP Claims Coordinator will forward valid protective claims to Technical Services and update status code, source code, and project code (if necessary). Reference IRM 4.1.1.6.5.1, Claims Coordinator. Technical Services will maintain area suspense cases while waiting for an event to occur, such as completion of litigation or other administrative action, based on national or area directive. Reference IRM 4.8.2.11, Suspense Cases.
Civil Penalties with Bankruptcy/Litigation Involvement
4.19.11.4.6 (05-18-2026) Civil Penalties with Bankruptcy/Litigation Involvement When a claim involving Penalty Reference Numbers (PRNs) 600 or 612 is received in CAT-A Classification with a -W Freeze Code, Classification will provide a determination and return the claim via the Account Management Services (AMS) Correspondence Imaging Inventory System (CII) system. Accounts Management (AM) or Submission Processing (SP) will coordinate with Appeals to close the case. Reference IRM 21.5.6.4.46, -W Freeze.
Supplemental CAT-A Work Types
4.19.11.5 (12-22-2023) Supplemental CAT-A Work Types In addition to general IMF and BMF Category A (CAT-A) claims, Classification may also review inventory based on work type, and not only line-item CAT-A criteria.
Audit Reconsiderations
4.19.11.5.1 (12-22-2023) Audit Reconsiderations An audit reconsideration is the process the IRS uses to reevaluate the results of a prior audit where additional tax was assessed and remains unpaid, or a tax credit was reversed.
IMF Audit Reconsiderations
4.19.11.5.1.1 (05-18-2026) IMF Audit Reconsiderations For procedures for working IMF audit reconsiderations see IRM 4.13, Audit Reconsideration. Area Office (AO) Exam Audit Reconsiderations are routed to the Central Reconsideration Unit (CRU) at each Campus per IRM Exhibit 4.13.1-1, Routing of Campus and Area Office Reconsideration Requests. Campus Exam Audit Reconsiderations are routed to the campus that conducted the original audit per IRM 4.13.1.3.2, Function Responsible & Routing Instructions. The appropriate SB/SE campus can be identified based on the alignment to AIMS Primary Business Code (PBC) in the TC 420.
BMF Audit Reconsiderations
4.19.11.5.1.2 (05-18-2026) BMF Audit Reconsiderations Both Area Office (AO) Exam Audit Reconsiderations and Campus Exam Audit Reconsiderations are routed per IRM 4.13.1.3.2, Function Responsible & Routing Instructions. Both Cincinnati and Ogden classifiers review BMF audit reconsiderations. If Classification determines criteria in IRM 4.13.1.2.1, Criteria for Reconsideration, has been met, select the claim to be routed to the Field. Per IRM 21.5.10.4.3, BMF Audit Reconsiderations; BMF Audit Reconsiderations are worked by Accounts Management if they are not selected. If a BMF Audit Reconsideration in IDRS Status 26 (assigned to a Revenue Officer) is received outside of the Account Management Services (AMS) Correspondence Imaging Inventory System (CII) system, the classifier will classify the case and return the determination to the originator for case processing/resolution.
Carryback Audit Reconsideration Routing
4.19.11.5.1.3 (12-22-2023) Carryback Audit Reconsideration Routing All Carrybacks (including Audit Reconsiderations for IMF and BMF) are routed to the Collection Centralized Case Processing team (also known as the FORT team) for processing to Accounts Management (AM). Refer to IRM 5.1.15.5.3, Amended Return/Claims – Carryback.
Erroneous Refunds
4.19.11.5.2 (12-22-2023) Erroneous Refunds When the IRS issues an erroneous refund on a BMF return that must be recovered with a Statutory Notice of Deficiency (SNOD), the case will be routed to the co-located Campus Examination function. Reference IRM 21.4.5, Erroneous Refunds. Note: SNODs are not used to recover erroneous refunds made on Employment Tax returns. BMF Classification will provide support for these cases by completing a technical review of the case. The technical review will include: confirming the erroneous refund meets criteria to be recovered with a SNOD, determining the amount to be recovered, and reviewing the case for any unusual issues and documenting the findings. After completing the review, BMF Classification will return the erroneous refund case to the Campus Examination operation to take the next routing or processing steps.
Joint Committee
4.19.11.5.3 (05-18-2026) Joint Committee Accounts Management (AM) and Submission Processing (SP) assistors identify Joint Committee cases by applying Category A (CAT-A) criteria outlined in IRM 21.5.3-2, Examination Criteria (CAT-A) – General. When any case results in a refund or credit greater than the amounts outlined in IRM 21.5.3-2, Examination Criteria (CAT-A) – General, regardless of the issue, the case is referred to CAT-A Classification. Note: Joint Committee criteria does not apply to Employment Tax returns or refundable credits. All refunds from source years open with respect to the statute of limitations need to be considered in determining the jurisdictional amount. For example, if tentative refunds added together exceed the amounts outlined in IRM 21.5.3-2, Examination Criteria (CAT-A) – General, both the source years and tentative refund years will be reported. This is true if none, one, or all, of the separate tentative refunds exceed the outlined thresholds. Classifiers must be aware that refunds meeting Joint Committee criteria require special processing. Generally, IRC 6405 requires the submission of reports by the IRS to the Joint Committee on Taxation. Classifiers will select all Joint Committee cases. Note: Joint Committee cases will be opened with Project Code 0077 on AIMS and delivered to Area PSPs based on the taxpayer's location and BOD. LB&I provides support to SB/SE and TEGE for the Joint Committee Review (JCR) program and oversees the preparation of the report sent to the Joint Committee for all agreed, partially agreed, no-change, and surveyed cases meeting Joint Committee criteria. Reference IRM 4.36, Joint Committee Procedures.
Automated Underreporter (AUR) Technical Advice and CAT-A Referrals
4.19.11.5.4 (05-18-2026) Automated Underreporter (AUR) Technical Advice and CAT-A Referrals Exam will monitor for incoming Automated Underreporter (AUR) technical advice and CAT-A referrals daily. Prior to electronically delivering the case, AUR will update the IDRS control base activity code to CATAmmdd (mmdd represents the month and day the referral is due back from CAT-A Classification). Incoming referrals will contain: a complete and accurate Form 15339, AUR case contents (including a copy of the last CP 2000 or CP 2501 Notice), and the document the taxpayer submitted. Exam Classification will review the referral to determine if the expenses are allowable or if the case has audit potential within 45 calendar days of receipt. Exam Classification will work AUR referrals from the aligned SB/SE Exam site(s) as outlined below. If case originates in referral will be delivered via to Exam Classification in Ogden (co-located) and Fresno EFax 855-244-3572 or other electronic method Ogden Brookhaven (co-located) EFax or other electronic method Brookhaven Andover EFax 855-241-0446 or other electronic method Brookhaven Atlanta & Austin EFax 855-887-7739 or other electronic method Cincinnati Philadelphia (co-located) Email *SBSE IMF CLASSIFICATIONS PSC REROUTES or other electronic method Memphis/Philadelphia If Classification determines the referral will be selected for audit: Classification will send the AUR coordinator an email stating Exam is selecting the case and AUR can close their controls (email title "Selected - Close AUR Controls" ). Exam Case Building will open AIMS prior to routing to the correspondence Exam area and/or Field PSP. Utilize project code 1504, AUR Amended Returns/A-CIS Priority - Miscellaneous Referrals Discretionary. If Classification determines the referral will be accepted as filed, Classification will send the AUR coordinator an email stating the Form 1040X can be accepted as filed (email title "Accepted as Filed" ). If Classification determines the additional expense is not allowable by law, Exam will send the AUR coordinator an email stating the expense is not allowable and provide a standard paragraph that can be sent to the taxpayer explaining why it is not allowable (email title Not Allowable).
DIF Scored Returns
4.19.11.5.5 (12-22-2023) DIF Scored Returns The DIF system is used to evaluate the examination potential of: All individual returns All Form 1120 returns for those corporations with assets of less than $10 million S Corporations Partnership returns
Review of the Entire DIF Return
4.19.11.5.5.1 (05-18-2026) Review of the Entire DIF Return Regardless of the type or class of return being classified/screened, you must first review the return in its entirety. This is important in that it: Provides a complete overview of the total return. Establishes the interrelationship of the various income, expense, and credit items on the return. Puts the classifier in a position to evaluate each item as to its significance. Provides an opportunity to quickly eliminate items or areas of the return with minimum or no examination potential. Remember that the DIF score indicates the overall tax change potential of the return as a whole. Do not assume any single item on a return caused the return to receive a high DIF score. The absence of any item(s) may have been equally important in the scoring process. In other words, the significant items that the classifier identifies may or may not have been scored. Give equal consideration to items that would result in potential over assessments. Classifiers need to be aware of the following: If Then The classifier identifies a relationship with the taxpayer which may create a potential conflict of interest Immediately alert management. The classifier is unfamiliar with the type of return, or industry, or potential issues Alert management. Frivolous filings are identified (See IRM 25.25.10, Frivolous Return Program) Refer to Ogden, Attn: FRP M/S 4450 (MAIN), 1973 N Rulon White Blvd., Ogden, UT 84404, or Coordinate with the campus Frivolous Return Preparer (FRP) Coordinator. Questionable returns which indicate fraudulent refund schemes are identified Report them to: QRDT (Questionable Refund Detection Team) at the Campus. Note: See IRM 4.19.14.9, Questionable Refund Program (QRP), for additional information. A return preparer scheme may be identified if a pattern of non-compliant issues appear on 3 or more original or amended returns. See IRM 4.19.10.7, Potential Return Preparer Scheme Identification, for additional information. The return has international issues. See IRM 21.8.2.2.12, Examination Criteria for International criteria. Refer to an International Examiner. All returns are identified for assignment to: A Revenue Agent (RA), A Tax Compliance Officer (TCO), or A Correspondence Tax Examiner (TE). Assignment is based upon: The complexity of the issues involved, The degree of accounting and auditing skills required to conduct a quality examination, The degree of tax law knowledge required, and Whether the issue can effectively be examined by correspondence. Give priority treatment to early expiration returns. These are returns with 13 months or less remaining on the assessment statute that are received in Classification. See IRM 4.4.34, Updating/Correcting AIMS Data Base, for transfer-out time frames and conditions for updating to an alpha code. The returns are immediately classified. If a return is selected for examination, it must be enclosed in a red file folder and Form 895, Notice of Statute Expiration, prepared. During the classification process: The scope of the examination is determined for all TCO and TE returns, and For designated RA returns. Note: The scope can be changed by TCOs and RAs.
Non-DIF Scored Returns
4.19.11.5.5.2 (12-22-2023) Non-DIF Scored Returns The following are returns that do not receive a DIF score. Returns not processed as an original return Claims ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Miscellaneous Corporate Returns. See IRM 4.1.2.6.3, Corporation Returns Returns that bypass the automatic DIF scoring are referred to Campus Classification when Exam criteria is met. See IRM 21.5.2.4.23.6, Discriminant Index Function (DIF) SCORE or CLASSIFICATION Send Return(s) to Examination for Review.
Section 761(a) Partnership Returns
4.19.11.5.6 (12-22-2023) Section 761(a) Partnership Returns A Section 761(a) partnership return is an unincorporated organization which qualifies under IRC 761(a) as: an investing partnership, or is participating in the joint production, extraction, or use of property under an operating agreement. A qualifying partnership may elect under IRC 761(a) to be excluded from treatment as a partnership. (See Treasury Regulation 1.761-2.) Additional processing information and Exam criteria can be found in the following: IRM 3.12.15.2.15.1.2, IRC 761(a) Return/Election IRM 3.11.15.5.8.1, IRC 761(a) Returns IRM 21.8.4.4.12.8.1, IRC 761 Partnerships For the first year for which it wants the exclusion, the unincorporated organization should make the election in a statement attached to the Form 1065, U.S. Partnership Return of Income. Submission Processing (SP) suspends processing 761(a) elections until a review is made by Classification. Classification will review returns that are identified as potential IRC 761(a) elections. Classification is responsible for making classifiers available to Code and Edit in SP to determine if IRC 761(a) elections will be accepted or rejected before processing is completed. If the classifier determines missing information needs to be obtained to validate the IRC 761(a) election: The classifier instructs Code & Edit to send Letter 1355C, Partnership Return Incomplete for Processing Form 1065 providing the applicable paragraphs, and Suspends the return for 45 days. If a response is not received timely the election will be rejected. Phone inquires and technical responses by taxpayers on the aforementioned letters are also directed to Classification. Classifiers of IRC Sec. 761(a) elections should have experience in tax shelters. Classifiers reject elections that are determined to be invalid. Valid elections are accepted as filed. After a determination is made on an IRC 761(a) election, SP processes the return as follows: Elections accepted are handled as a short return. Elections rejected are processed as regular returns. Elections selected for examination will be processed with an Audit Code 1. Returns selected for examination are forwarded to their respective area offices.
Abatement of Interest
4.19.11.5.7 (12-22-2023) Abatement of Interest The taxpayer may request abatement of interest due to an error or delay in the performance of a ministerial/managerial act. The IRS has the authority to abate interest in cases where the additional interest was caused by IRS errors or delays, per IRC 6404(e). See IRM 20.2.7.5, IRC 6404(e)(1), Unreasonable Error or Delay in Performing a Ministerial or Managerial Act. However, the IRS may act only if there was an error or delay in performing either a ministerial act or a managerial act (including loss of records by the IRS, transfers of IRS personnel, extended illness, extended personnel training or extended leave) and only if the abatement relates to a tax of the type for which a notice of deficiency is required. Such taxes would be those relating to income, generation-skipping transfers, estate, gift and certain excise taxes, but not abatement of interest for employment taxes or other excise taxes. The Accounts Management Operation at each campus generally receives requests for abatements of interest and determines which functional area is the source of the claimed error or delay. See IRM 21.5.2.4.10.1, Ministerial/Managerial Interest Abatement. Accounts Management will: Obtain the administrative file, Current transcripts and Route the file to the Interest Abatement Coordinator (IAC) in that functional area. Accounts Management will forward claims originating in Customer Account Services (CAS) to Examination as technical advice requests. Examination will review and return them with a recommendation whether to allow or disallow the claims. Interest abatement claims may also be received directly in Examination either in the processing of an examination program, or in a prior examination reconsideration request. If the interest abatement claim/request is received during the examination process, it should be forwarded to the IAC before the issuance of the statutory notice of deficiency and/or closing of the case. Correspondence examiners should initially screen the interest abatement claim for validity. Reminder: The Internal Revenue Service does not have the authority to abate interest charges due to reasonable cause, on the part of the taxpayer, for underpayment of taxes. If there is any question regarding the validity of the interest abatement claim, it should be forwarded to the IAC in the Campus Examination Operation. See IRM 20.2.7.5, IRC 6404(e)(1), Unreasonable Error or Delay in Performing a Ministerial or Managerial Act, for additional information.
Form 8697 Interest Computation Under the Look-Back Method
4.19.11.5.8 (05-18-2026) Form 8697 Interest Computation Under the Look-Back Method Form 8697, Interest Computation Under the Look-Back Method for Completed Long-Term Contracts, is required for each year after February 28, 1986, when a taxpayer completes a long-term contract that was accounted for using either the percentage of completion method or the percentage of completion - capitalized cost method for Federal income tax purposes. Form 8697 is required for any tax year in which the contract price or contract costs are adjusted for one or more of these long-term contracts from a prior year. See IRM 20.2.11.12, Look-Back Interest, and IRM 20.1.3.2.6, Form 8697, Interest Computation Under the Look-Back Method for Completed Long-Term Contracts, for additional information. Refer to IRM 21.7.4.4.20, Form 8697, Interest Computation Under the Look-Back Method for Completed Long-Term Contracts and IRM 21.7.12.5.8, Form 8697 - Interest Computation Under the Look-Back Method for Completed Long-Term Contracts Overview, for additional information.
Form 8697 General Procedures
4.19.11.5.8.1 (05-18-2026) Form 8697 General Procedures When a Form 8697 meets CAT-A criteria, as outlined in IRM 21.5.3-2, Examination Criteria (CAT-A) – General, Taxpayer Services (TS) Refund Inquiry function forwards the case to CAT-A Classification. Classification reviews the Form 8697 for completeness and accuracy. If errors are found, Classification will return the case to Refund Inquiry, explaining what is needed from the taxpayer. Prior to classifying, review the exception outlined in paragraph 6 of IRM 21.7.12.5.8.4, Form 8697 - Processing a Claim for Refund, No TC 150 Posted on Master File (MF). If the exception is met, return the claim to Refund Inquiry as Not CAT-A. If the correct amount is more than the amount claimed by the taxpayer, Classification will allow the additional amount and return the case to Refund Inquiry with a determination of Accepted with the calculation sheet and processing instructions. If the correct amount is less than the amount requested by the taxpayer, Classification will allow a partial refund and return the case to Refund Inquiry with a determination of Disallowed and advise Refund Inquiry to send a Letter 106C, Claim Partially Disallowed. If large, unusual, and/or questionable items are identified, Classification will Select the claim and refer for Correspondence or Field examination.
Unlawful Returns-Joint Filed Returns
4.19.11.5.9 (05-18-2026) Unlawful Returns-Joint Filed Returns Claims contending the taxpayer's signature was forged or they were not legally married may be referred to campus classification by Accounts Management (AM). See IRM 21.6.1.5.7, Married Filing Joint or Married Filing Separate is Invalid or Filed with Incorrect Status, for exam referral criteria. Allow claims based on unlawful filings where the marriage was not valid if the following is present: verification, such as court documents, showing the marriage was not valid for the tax period involved, and proper allocation of all return income, credits, and payments is provided. In accordance with IRC 6064, the taxpayer must prove that they did not intend to file jointly and that the signature was forged. If the claim cannot be allowed, follow selection criteria for field and campus exam for audit referrals. Classifiers should be alert to indications of identity theft on the account. Suspected Identity Theft Category A claim referrals should be returned back to Accounts Management for research and processing as outlined in IRM 25.23, Identity Protection Program. The following subsection contains procedures on identity theft accounts. IRM 4.19.15.37, Multiple Filers, provides guidance for Correspondence exam to process the claim.
International Support
4.19.11.6 (12-22-2023) International Support Accounts Management (AM) processes Foreign Tax Credit claims according to IRM 21.8.1.4, Foreign Tax Credit (Form 1116). AM determines which cases are defined as International in Account Management Services (AMS) Correspondence Imaging Inventory System (CII). See IRM 3.12.2.3.7, International Returns. Campus Classification provides support to LB&I by reviewing both IMF and BMF International claims meeting CAT-A criteria. See IRM 21.8.2.2.12, Examination Criteria.
Form 1120-F, U.S. Income Tax Return of a Foreign Corporation
4.19.11.6.1 (12-22-2023) Form 1120-F, U.S. Income Tax Return of a Foreign Corporation Every foreign corporation that is engaged in trade or business in the United States or is subject to tax under Subtitle A of the Internal Revenue Code must file a Form 1120-F, U.S. Income Tax Return of a Foreign Corporation. However, a foreign corporation which at no time during the taxable year is engaged in a trade or business in the United States is not required to file a return for the taxable year if its tax liability for the taxable year is fully satisfied by the withholding taxed at the source under chapter 3 of the Code. If required to file a return, a foreign corporation that has no gross income for the taxable year is not required to complete the return schedules but: must attach a statement to the return indicating the nature of any exclusions claimed, and the amount of such exclusions to the extent such amounts are readily determinable. Form 1120-F returns are filed at the Ogden Campus. See IRM 21.8.2.2.12, Examination Criteria, for claims and examination referral issues. Amendments to Form 1120-F are forwarded to Ogden and Cincinnati campuses for classification.
Form 1120 IC-DISC, Interest Charge Domestic International Sales Corporation
4.19.11.6.2 (12-22-2023) Form 1120 IC-DISC, Interest Charge Domestic International Sales Corporation Form 1120-IC-DISC, Interest Charge Domestic International Sales Corporation Return, is an informational return and is filed by a domestic corporation that has elected to be treated as an Interest Charge Domestic International Sales Corporation (IC–DISC) and has satisfied the requirements under IRC 992. It is also filed by a domestic corporation that is a former DISC or former IC-DISC. Generally, an IC-DISC is not taxed on its income. Shareholders of an IC-DISC are taxed on its income when the income is actually (or deemed) distributed. See IRM 21.7.4.4.4.11.6, Form 1120-IC-DISC, Interest Charge Domestic International Sales Corporation Return for additional information. A 1120-IC-DISC is required to make an election using Form 4876-A, Election To Be Treated as an IC-DISC, in order for it to be treated as an IC-DISC. Form 4876-A must be filed within 90 days after the beginning of the tax year if it is the taxpayer's first tax year. For any tax year other than the taxpayer's first tax year, the election must be made during the 90 days preceding the first day of that tax year. If the election is not timely filed, then the corporation must file the appropriate corporate (or other) return and pay income tax. The Form 4876-A election determination is made by Kansas City Submission Processing (SP). A data file is kept by Code and Edit during the processing of these forms. For additional information see IRM 3.11.16.44.1, Form 4876-A and Form 1120-IC-DISC Data File. Generally 1120-IC-DISC are not subject to tax. However, the shareholders of an IC-DISC are: taxed on distributions from the IC-DISC, and pay an interest charge with respect to any such tax that is deferred. If a corporation files as an IC-DISC but does not qualify as an IC-DISC Kansas City SP initiates correspondence to notify and explain to the corporation why it does not qualify as an IC-DISC. See IRM 3.11.16.45.3, Ineligible Filers.
Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation
4.19.11.6.3 (05-18-2026) Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation The Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation, is filed for transfers made after August 4,1997. These forms are considered information returns, and must be filed with the U.S. Transferor's annual tax return for the tax year that includes the date of transfer. Returns processed by Submission Processing with Form 926 attached are identified with audit codes. See IRM 3.12.2-6, Audit Codes, and IRM 3.11.3-3, Audit Codes. Claims filed with a Form 926 are considered Examination International Category A (CAT-A) criteria and are classified by an LB&I International Examiner. See IRM 21.8.1.2.10, Examination Criteria CAT-A International.
Cross-functional CAT-A Inventory
4.19.11.7 (12-22-2023) Cross-functional CAT-A Inventory Claims are received and stored in the Account Management Services (AMS) Correspondence Imaging Inventory System (CII). When an Accounts Management (AM) or Submission Processing (SP) assistor identifies Category A (CAT-A) criteria, they refer the claim to Exam Classification using the "2CATA" suspense option in CII, which systemically reassigns the IDRS control base to the co-located Campus Exam Classification IDRS number. See Exhibit 4.19.11-2, Campus Exam Classification Unit IDRS Numbers. The original CII case is moved to the AM/SP assistor's CII Suspense Folder and a copy of the CII case (with limited functionality enabled) is transferred to the co-located CAT-A inventory queue in CII. The restructuring of the IRS resulted in numerous work types moving to new service centers. Since work is referred to Classification based on the co-location of the AM/SP site, and not based on the work type, Classification has no control over what work types are received in each site's Classification inventory. AM does not separate its inventory by BOD or by the same work types that Exam does. Since referrals are received in CII based on co-location, SB/SE often receives work types that cannot be worked in SB/SE, which forces SB/SE to hold inventory for other BODs, including LB&I and TE/GE. Until systemic corrections can be implemented, and to the extent possible, SB/SE will avoid holding inventory in teams that are not responsible for the work type received.
LB&I CAT-A Inventory
4.19.11.7.1 (05-18-2026) LB&I CAT-A Inventory SB/SE holds BMF Large Business & International (LB&I) cases in their Accounts Management System (AMS) Correspondence Imaging Inventory (CII) system inventory under referral reason "HQ Reserved 5," (and sometimes other referral reasons related to HQ Reserved 5, such as OARS-HQ Reserved 5) pending review and determination by LB&I Assistant Deputy Commissioner Compliance Integration (ADCCI). SB/SE holds IMF Large Business & International (LB&I) cases in their Accounts Management System (AMS) Correspondence Imaging Inventory (CII) system inventory under referral reason "HQ Reserved 15," (and sometimes other referral reasons related to HQ Reserved 15, such as OARS-HQ Reserved 15) pending review and determination by LB&I Withholding Exchange and International Individual Compliance (WEIIC). SB/SE Classification will not work any LB&I inventory housed in CII CAT-A queues under referral reasons related to "HQ Reserved 5" or "HQ Reserved 15" .
LB&I/PTE CAT-A Inventory
4.19.11.7.1.1 (05-18-2026) LB&I/PTE CAT-A Inventory LB&I/PTE has responsibility for pass-through strategy including partnerships subject to the Bipartisan Budget Act (BBA) centralized audit regime procedures, partnerships and S Corporations subject to Investor Level Statute Control (ILSC) procedures and trusts. LB&I/PTE will regularly engage, as needed, with CAT-A to have inventory in CII returned to AM for processing. If LB&I/PTE Determines: Then Classification Will: And Accounts Management Will: The amended return/claim must bypass CAT-A Classification Ensure a radio button is not selected. Add a Case Note stating, "A CAT-A determination cannot be provided. Disregard CAT-A criteria and continue processing the claim." Select "Return to CSR." Process the claim. Administrative Adjustment Requests (AAR) meeting the criteria set forth in IRM 21.7.4.4.2.9, Form 1065 and Form 1065X, Amended Return, Administrative Adjustment Request (AAR) and Bipartisan Budget Act (BBA), should be routed to BBA Operations. Questions about the validity of a BBA AAR should be directed to the BBA Operations AAR SME. Related resources: IRM 4.31.4, TEFRA Administrative Adjustment Requests (AAR) IRM 4.31.9, Centralized Partnership Audit Regime (BBA) Field Examination Procedures IRM 21.7.4.4.2.9, Form 1065 and Form 1065X, Amended Return, Administrative Adjustment Request (AAR) and Bipartisan Budget Act (BBA) IRM 21.7.4.4.4.11.1, Form 1120-S, U.S. Income Tax Return for an S Corporation
TE/GE CAT-A Inventory
4.19.11.7.2 (05-18-2026) TE/GE CAT-A Inventory SB/SE holds Tax Exempt/Government Entities (TE/GE) cases in their Accounts Management System (AMS) Correspondence Imaging Inventory (CII) system inventory under referral reason "HQ Reserved 18," (and sometimes other referral reasons related to HQ Reserved 18, such as OARS-HQ Reserved 18) pending review by TE/GE. TE/GE claims are identified by BOD "TE" on IDRS. TE/GE claims must be referred under "HQ Reserved 18." Rare exceptions are outlined in IRM Exhibit 21.5.3-2, Examination Criteria (CAT-A)-General and IRM Exhibit 21.5.3-3, Examination Criteria (CAT-A) - Credits. SB/SE Classification will not work any TE/GE inventory housed in CII CAT-A queues under referral reasons related to HQ Reserved 18.
SB/SE Employment Tax CAT-A Inventory
4.19.11.7.3 (05-18-2026) SB/SE Employment Tax CAT-A Inventory SB/SE holds SB/SE Employment Tax (ET) cases in their Accounts Management System (AMS) Correspondence Imaging Inventory (CII) system inventory under referral reasons HQ Reserved 9 and "HQ Reserved 10," (and sometimes other referral reasons related to HQ Reserved 9 and HQ Reserved 10, such as OARS-HQ Reserved 10) pending review by SB/SE ET classifiers. HQ Reserved 9 and "HQ Reserved 10" claims typically involve high dollar net tax and refundable credit changes on an amended Employment Tax return. See IRM Exhibit 21.5.3-2, Examination Criteria (CAT A)-General. SB/SE Classification will not work any SB/SE ET inventory housed in AMS CII CAT-A queues under referral reasons related to HQ Reserved 9 or "HQ Reserved 10" .
CII CAT-A HQ Reserved Codes
Exhibit 4.19.11-1 CII CAT-A HQ Reserved Codes HQ Reserved Code Area Inventory Belongs To CAT-A Criteria References HQ Reserved 5 LB&I BMF - Assistant Deputy Commissioner Compliance Integration (ADCCI) IRM 21.5.3-2, Examination Criteria (CAT-A) – General IRM 21.5.3-3, Examination Criteria (CAT-A) – Credits IRM 21.5.9.4.2.1, Carryback Applications/Claims from Financial Institutions in Receivership - Form 56-F Filed IRM 21.5.9.5.6.2, Combination Carrybacks (Claims) Involving Research Credits IRM 21.5.9.5.12.7, Carryback of Excess Foreign Tax Credit (FTC) IRM 21.5.9.5.16.4, Carryback Application with Examination Criteria IRM 21.5.9.5.17.4, Carryback Claim with Examination Criteria IRM 21.7.4.4.4.13.2, Adjustment Procedures (RTCs/FDICs) IRM 21.7.4.4.4.13.3, Insolvent Financial Institutions/Failed Banks IRM 21.7.4.4.8.3.5, Form 6765, Credit for Increasing Research Activities HQ Reserved 9 SB/SE Specialty Employment Tax IRM 21.5.3-2, Examination Criteria (CAT-A) – General IRM 21.7.2.7.11, Replies to 105C Disallowance and 106C Partial Disallowance Letters issued disallowing ERC claims HQ Reserved 10 SB/SE Specialty Employment Tax IRM 21.5.3-2, Examination Criteria (CAT-A) – General IRM 21.7.2.7.8.13, Handling of Form 94XX ERC Claims Meeting RAAS Filtering Criteria for Risked ERC-Exam Potential HQ Reserved 13 SB/SE OSC (IMF Research Credits) IRM 21.5.3-3, Examination Criteria (CAT-A) – Credits IRM 21.5.9.5.6.2, Combination Carrybacks (Claims) Involving Research Credits HQ Reserved 15 LB&I IMF - Withholding Exchange and International Individual Compliance (WEIIC) IRM 21.5.3-2, Examination Criteria (CAT-A) – General IRM 21.5.3-3, Examination Criteria (CAT-A) – Credits IRM 21.8.1.2.10, Examination Classification CAT-A Criteria HQ Reserved 18 TE/GE IRM 21.5.3-2, Examination Criteria (CAT-A) – General IRM 21.5.3-3, Examination Criteria (CAT-A) – Credits IRM 21.7.2.5.15.4, Processing Guidelines Specific to Form 5884-D
Campus Exam Classification Unit IDRS Numbers
Exhibit 4.19.11-2 Campus Exam Classification Unit IDRS Numbers BOD Campus Classification Unit IDRS Number TS Andover 08607 TS Atlanta 07608 TS Austin 06606 SB/SE Brookhaven 01785 SB/SE Cincinnati 02609 TS Fresno 10609 TS Kansas City 09621 SB/SE Memphis 03607 SB/SE Ogden 04607 SB/SE Philadelphia 05606
Source: official text