Internal Revenue Manual
IRM 4.23.19 — Employment Tax Case Assignment and Grading Criteria
Part 4. Examining Process
Chapter 23. Employment Tax Section 19. Employment Tax Case Assignment and Grading Criteria 4.23.19 Employment Tax Case Assignment and Grading Criteria Manual Transmittal March 24, 2026 Purpose (1) This transmits revised IRM 4.23.19, Employment Tax, Employment Tax Case Assignment and Grading Criteria. Material Changes (1) IRM 4.23.19.1 - Revised the title of the subsection to Program Scope and Objectives to be consistent with IRM 1.11.2.2.4, Address Management and Internal Controls. (2) IRM 4.23.19.1 (3) - Updated paragraph (3), the Policy Owner, to Specialty Examination Policy of SB/SE. (3) IRM 4.23.19.1 (5) - Updated paragraph (5) due to changes in SB/SE organizational symbols to reflect the new Chief Tax Compliance Officer Organization. (4) IRM 4.23.19.1.1 (2) - Added paragraph (2) to update the IRM that SB/SE Employment Tax Workload Selection and Delivery (ET-WSD) has the primary responsibility for workload identification for the Employment Tax (ET) program. A note was added to paragraph (2) for TE/GE employers that workload identification is done by TE/GE Compliance, Planning and Classification (CP&C) function. All subsequent paragraphs are renumbered. (5) IRM 4.23.19.1.1 (3) - Clarified paragraph (3) that ET-WSD uses a data driven approach to identification, selection, and assignment of employment tax returns. (6) IRM 4.23.19.1.2 (3) - Clarified the paragraph and updated the URL link. (7) IRM 4.23.19.1.3 - Revised the title of the subsection to "Roles and Responsibilities" to be consistent with IRM 1.11.2.2.4, Address Management and Internal Controls. (8) IRM 4.23.19.1.3 (2) - Revised paragraph (2) to indicate the Director, Examination will be the executive responsible for operational compliance. (9) IRM 4.23.19.1.4 - Revised the title of the subsection to "Program Management and Review" to be consistent with IRM 1.11.2.2.4, Address Management and Internal Controls. (10) IRM 4.23.19.1.4 (4) - Added new paragraph (4) with the content from IRM 4.23.19.1.4.1. (11) IRM 4.23.19.1.4.1 - Removed the subsection. The content of the subsection was moved to IRM 4.23.19.1.4 paragraph (4). (12) IRM 4.23.19.1.5 - Added subsection titled "Program Controls" so the IRM section is consistent with IRM 1.11.2.2.4, Address Management and Internal Controls. This subsection documents the reviews and quality assurance activities associated with the ET Program. All subsequent subsections have been renumbered. (13) IRM 4.23.19.1.7 (1) - Added to the list of resources, IRM 1.4.40.4.6.6.6, Recording Grade of Case on Form 5344, Examination Closing Record for Field Examination Cases, that provides instruction and guidance for recording the grade of a case on Form 5344. (14) IRM 4.23.19.1.7 (2) - Updated paragraph (2) for clarity and replaced URL/web address to internal sites with a hyperlink. (15) IRM 4.23.19.1.7 (3) - Added paragraph (3) for clarity and brief description of Taxpayer Bill of Rights (TBOR). All subsequent paragraphs were renumbered. (16) IRM 4.23.19.1.7 (4) - Replaced content in paragraph (4) with Taxpayer Advocate Service (TAS) approved language. (17) IRM 4.23.19.1.7 (5) - Added paragraph (5) for clarify and understanding of disclosure and privacy provisions. All subsequent paragraphs were renumbered. (18) IRM 4.23.19.1.7 (6) - Added paragraph (6) regarding the Whistleblower Office with a cross-reference to Whistleblower Office Knowledge Base. All subsequent paragraphs were renumbered. (19) IRM 4.23.19.1.7 (7) - Added paragraph (7) regarding the Office of Servicewide Penalties (OSP) with a cross-reference to OSP Knowledge Base. (20) IRM 4.23.19.1.7 (8) - Added paragraph (8) with an IRM references to procedures for TE/GE employees. (21) IRM 4.23.19.2 (5) - Added a paragraph (5) that provides that a group manager determines the grade of case for all field examinations and the grade of case is entered in item 32 of Form 5344. All subsequent paragraphs were renumbered. (22) IRM 4.23.19.3 (1) - Clarified paragraph (1) to reflect that SB/SE ET-WSD has primary responsibility for workload identification for the SB/SE ET program. (23) IRM 4.23.19.3 (2) - Changed "FinCEN Query System" to "BSA Search." (24) IRM 4.23.19.5 (1) - Added a reference to IRM 1.4.40.4.6.6.6, Recording Grade of Case on Form 5344, Examination Closing Record for Field Examination Cases. (25) Exhibit 4.23.19-1 - Changed "FinCEN Query System" to "BSA Search." (26) Editorial changes were made throughout the IRM to update grammar, plain language, titles, IRM references, IRS organization, organization terminology, and hyperlinks. Effect on Other Documents This material supersedes IRM 4.23.19, dated March 22, 2021. Audience This section contains instructions and guidelines for SB/SE employees when identifying, selecting, and assigning employment tax cases. Effective Date (03-24-2026) Heather Yocum Acting Director, Specialty Examination Policy Small Business/Self-Employed Division
Program Scope and Objectives
4.23.19.1 (03-24-2026) Program Scope and Objectives Purpose: This IRM provides guidance regarding case assignment by the group manager when assigning cases to an employment tax (ET) examiner. The section also provides factors group managers should consider when making a final determination as to the grade of case for all employment tax examinations. Audience: This section contains instructions and guidelines for Small Business/Self-Employed (SB/SE) group managers. Policy Owner: Director, Specialty Examination Policy of SB/SE. Program Owner: Program Manager - Employment Tax Policy. The mission of the Employment Tax Policy is to establish effective policies and procedures, to support compliance with employment tax laws. Primary Stakeholders: Employment Tax – Workload Selection and Delivery (CTCO:S:E:HQ:ECS:S:ETEGCS:EWSD) Specialty Examination - Employment Tax (CTCO:S:E:SE:ET) Specialty Examination Policy, Employment Tax Policy (CTCO:S:E:HQ:SEP:EMTP) Program Scope: The mission of the Employment Tax Policy is to establish effective policies and procedures, and to support compliance with employment tax laws.
Background
4.23.19.1.1 (03-24-2026) Background Significant revenue to the government is reported on the various ET returns and compliance with employment tax law is critical to the funding of the government, including the social security trust fund. SB/SE Employment Tax Workload Selection and Delivery (ET-WSD) has the primary responsibility for workload identification for Employment Tax. However, ET examiners must be continuously aware of new developments, rulings, and decisions affecting industries within their jurisdictions. ET Examination is encouraged to forward suggestions for Preparer Projects, Compliance Initiative Projects (CIP) and partnering opportunities to ET-WSD at *SBSE ET WSD Referrals. Note: The identification, selection and delivery of employment tax work for TE/GE employers is done by TE/GE Compliance, Planning and Classification (CP&C) function. TE/GE employees are encouraged to forward suggestions for preparer projects, compliance initiative projects and partnering opportunities to CP&C at *Manager EO Classification. ET-WSD uses a data-driven approach to identification, selection, and assignment of employment tax returns involving the filtering and analyzing of electronically stored information from taxpayer forms and returns, searching for anomalies that may raise employment tax compliance issues. Many factors influence whether a case will be selected and subsequently assigned for examination. Principal among these factors is the appearance of non-compliance with employment tax filing and/or reporting. In addition: Program priorities as stated in the annual ET Program Letter and Workplan, Status of un-started and in-process work at the group level, Complexity and industry (specialization) involved, Experience and training level of examiners that may be assigned the case, and Geographic location of examiners. Note: When compliance impact warrants, cases not meeting the above factors may still be selected and assigned.
Authority
4.23.19.1.2 (03-24-2026) Authority Employment tax provisions are found at Internal Revenue Code (IRC) Subtitle C - Employment Tax (Sections 3101 to 3512): Chapter 21, Federal Insurance Contributions Act (FICA), Chapter 22, Railroad Retirement Tax Act (RRTA), Chapter 23, Federal Unemployment Tax Act (FUTA), Chapter 23A, Railroad Unemployment Repayment Tax, Chapter 24, Federal Income Tax Withholding (FITW), and Chapter 25, General Provisions Relating to Employment Taxes. The ET Program is governed by Policy Statements and other internal guidance that apply to all IRS personnel regardless of operating division. The Policy Statements found in IRM 1.2, Servicewide Policies and Authorities, apply to all ET issues and examinations. ET examiners should review these Policy Statements to properly perform their examination duties. A website, IMD Search Servicewide Delegation Orders, provides a searchable list of Servicewide Delegation Orders issued by the Commissioner of the Internal Revenue, or on their behalf by the deputy commissioner. Delegation Orders pertaining to each IRS business process can be found in IRM 1.2.2, Servicewide Delegations of Authority. IRM 4.23, Employment Tax, provides Servicewide instructions for all operating divisions with employees involved with the correct filing, reporting, and payment of employment taxes. IRM 4.23 serves as the foundation for consistent administration of employment taxes by various IRS operating divisions. By providing one source of authority for all operating divisions, the IRS greatly reduces philosophical and procedural inconsistencies.
Roles and Responsibilities
4.23.19.1.3 (03-24-2026) Roles and Responsibilities Director, Specialty Examination Policy is responsible for the procedures and updates addressed in this IRM. Director, Examination is the executive responsible for examination operational compliance.
Program Management and Review
4.23.19.1.4 (03-24-2026) Program Management and Review Program Goals: The processes and procedures provided in this IRM is consistent with the objectives or goals are addressed in IRM 1.1.16.5.3.3 , Employment Tax Examination, and IRM 1.1.16.5.5.2.2, Employment Tax Policy. Program Effectiveness: Program goals are measured with Employment Tax Embedded Quality Performance Reports that monitor whether quality attributes are applied uniformly and consistently. Annual Review: Employment Tax Policy - Program Manager, is responsible for reviewing the information in this IRM annually to ensure accuracy and promote consistent tax administration. Program Reports: Information regarding the reporting of program objectives is included on, but not limited to, the following reports submitted to the Chief, Employment Tax Examination: Headquarters Examination Monthly Briefing, Program Manager Monthly Briefing, Examination Operational Review, and Business Performance Reviews.
Program Controls
4.23.19.1.5 (03-24-2026) Program Controls All information management systems have safeguard measures in place that address key components of Information Technology (IT) security requirements to restrict access to sensitive data. Certain duties and functions are separate from the SB/SE ET Examination program: Policy and procedure are with ET Policy within SB/SE Specialty Examination Policy, Case selection is with ET-WSD within SB/SE Examination Case Selection, and Quality review is within SB/SE Exam Quality and Technical Support. The Issue Management System (IMS) is required to be used during ET examinations by ET examiners assigned to Specialty – ET Operations. ET examiners will use the Employment Tax Lead Sheets (ETLS) developed specifically for ET cases. ET examiners working ET Large Cases will use Large Case Lead Sheets (LCLS). LCLS are developed specifically for large case ET cases. ET examiners working ET Large Cases will follow workpaper preparation, specific examination techniques, and case closing procedures unique to these types of examinations. The Specialty Employment Tax Application (SETA) is a web-based application that ET examiners must use in ET examinations to generate most of the documents needed to prepare an examination report and close their examination.
Acronyms
4.23.19.1.6 (03-22-2021) Acronyms The following table lists commonly used acronyms and their definitions: Acronym Definition CAWR Combined Annual Wage Reporting CI Criminal Investigation DET Direct Examination Time ET Employment Tax ET-WSD Employment Tax - Workload Selection and Delivery FUTA Federal Unemployment Tax Act LB&I Large Business & International NTEU National Treasury Employee Union RA Revenue Agent ROE Revenue Officer Examiner RRTA Railroad Retirement Tax Act SB/SE Small Business/Self-Employed TAS Taxpayer Advocate Service TBOR Taxpayer Bill of Rights TCO Tax Compliance Officers TE Tax Examiner TE/GE Tax Exempt/Government Entities
Related Resources
4.23.19.1.7 (03-24-2026) Related Resources The following table lists the primary sources of guidance: Source Title Description of Guidance IRM 4.23 Employment Tax IRM IRM sections, the majority owned by SB/SE Specialty Examination Policy, provides Servicewide instructions for employees of all operating divisions involved with the correct filing, reporting, and payment of employment taxes. IRM 4.23 serves as the foundation for consistent administration of employment taxes by various IRS operating divisions. IRM 1.4.40.4.6.6.6 Recording Grade of Case on Form 5344, Examination Closing Record for Field Examination Cases A group manager determines the grade of case for all field examination including employment tax returns. This subsection of IRM 1.4.40, SB/SE Field and Office Examination Group Manager, provides instruction and guidance for recording the grade of a case on Form 5344. Other helpful information sources include: SB/SE Employment Tax Small Business Knowledge Base provides guidance, resources and information for ET examiners to aid in raising, developing, and resolving ET issues. Specialist Referral System can be used by any employee, regardless of operating division. In addition to requesting assistance or a referral, SRS may be used to submit informal questions or to request a consultation with an ET specialist to discuss ET potential in an examination. Contacts, Tools, and Training provides contact information and program assignments for SB/SE ET Policy Analysts and SB/SE ET group contacts and areas of coverage. The Taxpayer Bill of Rights (TBOR) lists rights that already existed in the IRC, 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). For additional information about the TBOR, see Pub 5170, Taxpayer Bill of Rights, or Taxpayer Bill of Rights. The Taxpayer Advocate Service (TAS) is an independent organization within the IRS, led by the National Taxpayer Advocate, that helps taxpayers and protects taxpayer rights. TAS offers free help to taxpayers when a tax problem is causing a financial difficulty, when they've tried and been unable to resolve their issue with the IRS, or when they believe an IRS system, process, or procedure just is not working as it should. TAS strives to ensure that every taxpayer is treated fairly and knows and understands their rights under the TBOR. TAS has at least one taxpayer advocate office located in every state, the District of Columbia, and Puerto Rico. IRS employees are required to protect the privacy of sensitive but unclassified (SBU) data for taxpayers and personnel, including personally identifiable information (PII), such as federal tax information (FTI), tax return, financial, and employment information regardless of format. See IRM 10.5.1 , Privacy Policy. For further information, see the Privacy, Government Liaison and Disclosure (PGLD) knowledge base at Disclosure and Privacy Knowledge Base Homepage. The Whistleblower Office administers the IRS Whistleblower Program for claims identifying suspected non-compliance by taxpayers. Overall responsibility for civil penalty programs is assigned to the Office of Servicewide Penalties (OSP). OSP is charged with coordinating policy and procedures concerning the civil penalty program administration, ensuring consistency with the penalty policy statement, reviewing and analyzing penalty information, researching penalty effectiveness on compliance trends, and determining appropriate action necessary to promote voluntary compliance. For further understanding of the civil penalty program and penalty relief, refer to the Penalties Knowledge Base Homepage. TE/GE employees must refer to IRM 4.70.6, Classification and Case Assignment (C&CA) Procedures and IRM 4.70.12.3.3.3, Employment Tax Case Grading, for guidance and procedures for TE/GE ET examinations. The identification, selection and delivery of employment tax work for TE/GE employers is done by TE/GE CP&C function.
Assignment of Employment Tax Cases - Overview
4.23.19.2 (03-24-2026) Assignment of Employment Tax Cases - Overview The SB/SE ET Field Organization consists of ET specialists or examiners: Revenue Agents (RA), Revenue Officer Examiners (ROE), Tax Compliance Officers (TCO), and Tax Examiners (TE). These employees report to a group manager, who in turn, reports to a territory or program manager who reports to the Chief, Employment Tax. This section provides criteria to be used by a group manager when assigning cases to an ET examiner. The section also provides factors group managers should consider when making a final determination as to the grade of case for all ET examinations. This guide establishes a uniform system to: Identify the correct initial case assignment, Identify the correct initial grade of case, Identify the correct final grade of case, Provide information that should be considered in making position classification determinations, and Improve the utilization of an ET specialist's time and talents. A group manager determines the grade of case for all field examination including employment tax returns. The case grade is entered as a three digit number in item 32 of Form 5344. See IRM 4.23.19.5. This guide will also aid in reviewing ET specialist positions for grade structure purposes. It is not intended to, nor does it evaluate, a specialist's performance and cannot be considered the sole predictor of the appropriate overall grade level for individual positions. Variables such as the extent of supervision or the impact of other duties are not given consideration in this guide. It is emphasized that this is primarily a guide and is not intended as a substitute for the exercise of supervisory judgment.
Procedures for Initial Case Assignment
4.23.19.3 (03-24-2026) Procedures for Initial Case Assignment ET-WSD is responsible for the initial evaluation and case selection for all ET examinations. The following table provides a basis for the proper case assignment by group managers. These standards will be used to ensure inventory received from ET-WSD is appropriate for an ET examiner: Correspondence (TE) Remote (TCO) Field (RA/ROE/Tax Specialists) Initial interviews will be limited but not be required, although verbal contact may be necessary to follow up on requests for information Initial Interviews will be required with additional verbal contact necessary to follow up on requests for information Initial interviews will be required with extensive verbal contact anticipated to follow up on additional requests for information Records can be verified to source documents that can be easily submitted via mail/correspondence Analysis of original source documents may require follow-up to verify their appropriateness and tax law interpretation required Tour of business is required to establish the initial scope of examination Limited review of journals, ledgers, or other books and records will be necessary to arrive at the correct determination Multiple non-filed returns may be involved generally involving only one entity Analysis of complex areas of tax law interpretation may be required Limited analysis of information/data required Limited 3rd Party Contacts may be required to corroborate testimony Multiple related entity transactions may be identified and developed Verification-type issues only conducive to substantiation Simple to complex issues may be involved requiring verification and/or development that can be submitted by mail for review Expanded 3rd Party Contacts may be required Badges of fraud are not apparent Fraud may be identified and developed or referred to the field, if appropriate Fraud may be identified based on BSA Search, referrals, and other external sources Limited scope examinations will require the use of re-engineering workpaper Lead Sheet 130 Review of financial records may be required to develop issues Complex and multiple issues requiring verification and/or development are identified Referrals to other examiners required if scope and depth change during case development Audits are conducive to remote audit procedures due to the frequency of contact and amount of information anticipated Complex books and records are likely N/A N/A Issues may require on-site inspection of books and records and the business as a whole N/A N/A Financial records available as a source of information
Additional Criteria for Tax Examiner Assignments
4.23.19.3.1 (01-12-2018) Additional Criteria for Tax Examiner Assignments The following provides additional criteria when determining if a case is appropriate for assignment to a TE. Cases not meeting the criteria will be deemed appropriate for TCOs or field examiners (RAs, ROEs, or Tax Specialists). General Assignment Criteria for TE Assignments: Involves nonfiled tax periods, May involve a full year Combined Annual Wage Reporting (CAWR) assessment if there are no other issues identified during classification, Requires only administrative processing to resolve the taxpayer's module (for example, unposted ET returns due to filing requirement issues), Examination can be conducted via correspondence and requires limited review of books and records and taxpayer contact, and Fraud is not identified or developed. Work sources and issues that can meet the criteria for TE assignment: Credit Balance cases, Small CAWR cases, Form 944, Employer's ANNUAL Federal Tax Return filing requirement cases where the quarters of the unposted Form 941, Employer's QUARTERLY Federal Tax Return match the wages reported for the year, and TC976 freeze cases where the return causing the TC976 is available and there are no other issues Note: If issues outside the scope for TEs are found during development, the case should be transferred to the appropriate examiner (TCO or Field Examiner) to complete the examination. See IRM 4.11.29, Transfer of Returns Open for Examination, for additional guidance.
General Assignment Criteria for Tax Compliance Officer Assignments
4.23.19.3.2 (01-12-2018) General Assignment Criteria for Tax Compliance Officer Assignments The following provides additional criteria to use when determining if the case is appropriate for assignment to a TCO. Cases not meeting the criteria will be deemed appropriate for field examiners (RAs, ROEs, or Tax Specialists). General Assignment Criteria for TCO Assignments: Involves limited issues, such as CAWR and/or Form 1120-S officer compensation cases identified during classification, No related entities are identified during classification, Examination can be conducted using remote audit procedures, Adjustments are generally limited to pre-classified issues, Worker classification and potential section 530 issues are not identified during initial classification, and Issues are well-established, such as Form 1120-S officer compensation cases Work sources and issues that can meet the criteria for TCO assignment: Form 1120-S, U.S. Income Tax Return for an S Corporation, officer compensation and related fringe benefits where distributions are evident on the face of the return, Claims meeting other selection criteria for TCOs, CAWR, Backup Withholding not involving a worker classification determination, Fringe Benefit issues such as Bonus Payments not properly treated, and Referrals where issues identified otherwise meet TCO assignment criteria. Note: If issues outside the scope for TCOs are found during development, the case should be transferred to the appropriate field examiner to complete the examination. See IRM 4.11.29, Transfer of Returns Open for Examination, for additional guidance.
Training Returns
4.23.19.3.3 (03-25-2014) Training Returns The criteria in IRM 4.23.19.3.1 and IRM 4.23.19.3.2 are also used when identifying training returns for new ET examiners. Generally, new hires will be assigned cases originally identified for TCOs; however, the cases will be worked based on the position of the trainee, not the classification of the case. Group managers must work with the new hire and the on-the-job-instructor to determine when or whether to assign work having more complex issues.
Manager Responsibilities for Initial and Final Case-Grading and Assignment
4.23.19.4 (03-25-2014) Manager Responsibilities for Initial and Final Case-Grading and Assignment Every employee should perform work consistent with the needs of the organization, the grade level of the case, and the ET examiner's grade. IRM 4.23.19.6 provides guidelines for the grading of all ET returns. When assigning a case, the group manager will review the case and determine the appropriate initial grade level for assignment, based on the grading standards. A final grade level is determined at case closing and entered on the Form 5344, Examination Closing Record, based on the issues developed in the case. Note that the final grade of case may be different from the initial grade based on the issues identified and subsequently developed by the ET examiner. See IRM 4.23.19.5 below for specific instructions on determining the Form 5344 entry. In addition to determining the grade level of the case, the group manager will review the standards in IRM 4.23.19.3 to determine if the case is properly assigned. Example: When a group manager receives a case for assignment to a TCO or RA trainee, they will review the factors in Exhibit 4.23.19-1 to ensure the case does not qualify for a Grade 12 or 13. If it does not, they will use the standards in IRM 4.23.19.3 to ensure the issues are appropriate for a TCO or RA trainee. If the case is determined to be inappropriate, the case will be reassigned to an ET examiner with the appropriate grade within the group for examination (or transferred to another group if necessary). A group manager may provide an employee with the opportunity to perform a limited quantity of higher graded work to enhance their career development subject to the National Treasury Employees Union (NTEU) contract. Caution: A group manager must ensure, prior to the assignment of higher-graded work, that such work will not require more than 25 percent of the examiner's direct examination time (DET). Review Document 11678, 2022 National Agreement - Internal Revenue Service (IRS) and National Treasury Employees Union (NTEU), Article 16, "Details and Non-Competitive Temporary Promotions," for details. Retroactive pay is required when it is determined that the time spent on higher-graded work exceeds 25 percent in any four-month period. A group manager should either assign the work at the appropriate grade level or secure advance permission for a temporary promotion. Managerial involvement is critical to ensure the examiner does not work more than 25 percent on higher graded cases.
Recording Grade of Case on Form 5344, Examination Closing Record, for Field Examination Cases
4.23.19.5 (03-24-2026) Recording Grade of Case on Form 5344, Examination Closing Record, for Field Examination Cases A group manager determines the grade of case for all field examination ET cases and enters a three digit number in item 32 of Form 5344. For further information on recording the grade of case refer to IRM 1.4.40.4.6.6.6, Recording Grade of Case on Form 5344, Examination Closing Record for Field Examination Cases. The first digit will represent the class number for the industry, occupation, or type of case that most closely resembles the activity on the examined return. "1" : Class 1 – Manufacturing, Construction, Mining, "2" : Class 2 – Retail, Wholesale, Transportation, "3" : Class 3 – Services, Farming, "4" : Class 4 – Financial and Utilities, or "5" : Class 5 – Non-Business Individual, Fiduciary The second digit is the second digit of the closing ET examiner's grade: "1" : GS-11 and below, "2" : GS-12, or "3" : GS-13. Note: For cases closed by ROEs, the second digit can never be greater than a "2" . The third digit is a "1" for all cases. When related returns are being closed by the same ET examiner who worked the primary return, enter the same three digit code as for the primary return, followed by an "R" (for related). If related returns are examined by a different ET examiner, each will be graded as a separate case and the "R" will not be recorded. Example: A group manager has determined that an ET examination involving a manufacturing company has been graded as a GS-12 examination. The final case grade in Item 32 on Form 5344 would be "121" . 1st digit = 1 for Class 1 (Manufacturing, Construction, Mining) 2nd digit = "2" for a GS-12 grade 3rd digit = "1" Note: Related returns examined by the same revenue agent who examined the primary return would be coded "121R" . Related returns examined by other revenue agents would be coded without the "R" and graded as a separate case.
Characteristics of Employment Tax Examination Cases
4.23.19.6 (01-12-2018) Characteristics of Employment Tax Examination Cases An ET examination case is defined as the primary return for one period plus other related returns. The primary return is the return that has been classified for examination. Related returns include returns filed subsequent and prior to the primary return of the taxpayer as well as returns for related taxpayers. For Management Information System purposes, when the primary return and related returns are examined by the same ET examiner, the related returns will carry the same grade as the primary return. If related entities are examined by other agents, entities examined by a separate agent will be graded as a separate case. Example: The 2020/12 Form 941 for ABC Company is assigned to an ET examiner. After pre-analysis, the ET examiner determines an examination is warranted and expands the audit to include the 2020/03, 2020/06, and 2020/09 quarters. After the initial interview, the ET examiner expands the audit to include all four quarters of 2020 of both ABC Company and a related entity, XYZ Company. The 2020/12 Form 941 would be the primary (key) case and all other returns opened as a result of the examination would be related. Since the same ET examiner is working the entire case, the grade of case will be the same for all returns involved. The case-grading guidelines discussed in this IRM are not intended to cover all possible factors that may influence a final case grade. New projects, new programs, or other unusual situations may require a group manager to use their judgment in grading a case. Reliance must be placed on the case-grading factors for these situations.
Employment Tax Case-Grading Factors
4.23.19.7 (03-25-2014) Employment Tax Case-Grading Factors The case-grading factors listed in Exhibit 4.23.19-1 should be used for the initial and final grading of cases. In arriving at a grade, all factors do not have to be met; however, normally more than one of the most important factors is necessary. The factors involve: Accounting Systems / Methods, Issues / Knowledge, Guidance / Tax Laws, Scope and Effect, Contacts, and Other Characteristics.
Employment Tax Case-Grading Factors
Exhibit 4.23.19-1 Employment Tax Case-Grading Factors The following provides group managers with issues and/or characteristics that may result in an upgrade: I. ACCOUNTING SYSTEMS / METHODS GS-12 Case Characteristics: GS-13 Case Characteristics: In addition to GS-12 characteristics, the case should have the following traits: Sizeable business organizations with several subdivisions involving varied systems of accounting present Data derived from multiple systems and maintained in different internal accounting organization Extensive system of computer records present which require sampling to project the degree of compliance and scope of examination Businesses where direct verification is not practical, such as situations in which books and records are incomplete, inadequate, or require interpretation of vague and unclear/conflicting documents Adaptation of standard investigative methods in the development of information Use of third party data and contacts to trace and/or reconstruct books and records Detailed and extensive analysis of books and records and analysis of contractual agreements is required Related examinations of other taxpayers required even if limited in scope Reorganizations, mergers, or similar transactions of large corporations having significant ET implications Organizations generating large amounts of data so that consolidation and reconciliation of data from numerous entities, divisions, related companies or profit centers is required Extensive system of computer records requiring sampling and adjustment in the initial scope of examination Required review of SEC and other compliance and regulatory filings Assistance of a Computer Audit Specialist required as it involves large complex firms normally with national and/or international operations Development of new and innovative examination approaches required Information is derived from a wide range of third parties Significant international transactions are apparent Taxpayers file consolidated ET returns II. ISSUES / KNOWLEDGE GS-12 Case Characteristics: GS-13 Case Characteristics: In addition to GS-12 characteristics, the case should have the following traits: Issues encompassing medium to large business operations, related affiliates, liquidations, mitigation of statute of limitations, transferee problems, negotiations, businesses with several subdivisions or with employment taxes from many sources Issues having regional, national, or industry wide impact Issues not restricted to the taxpayer entity Knowledge of business conditions and trade practices is necessary to develop issues for which research is required, but precedent has been established by case law, rulings, or prior examination Tip examinations involving multiple establishments in which extensive analysis and sampling techniques are required Complex cases involving section 530 – industry practice involving extensive analysis or documentation, law and regulations to establish proper classification of a worker Unusual determination of type of services required to establish proper classification of a worker Development of advanced fringe benefit issues, e.g., accountable/non-accountable plans, relocation pay, etc. required Wage compensation reportable on Form W-2 is improperly characterized Review and consideration of BSA Search derived transactions Complex officer compensation cases Cases involving abusive tax avoidance schemes, including offshore leasing, pyramiding schemes, and trusts Expert judgments required to be applied to business transactions requiring specialized knowledge of major industries Specialized knowledge of international ET issues including application of tax treaties Business transactions include reorganization, consolidation, intercompany transfers on a national or international level in which there are complex ET implications Development of Issues which could affect legislation or precedent Knowledge must be such that decisions are made based on lack of precedents, law, or non-definitive authority, i.e. new law or change in law Extensive analysis and sampling techniques required in tip examinations involving a multitude of establishments with nationwide impact Complex cases involving section 530 with regional or national industry practice Development of fringe benefit issues involving larger taxpayers required Complex issues, such as stock options, involving regional or national implications Complex situations involving interpretation/use of non-Title 26 federal statutes, for example, BSA Search International features regarding employees out of the country and employees working in the US Executive compensation issues involving stock and other forms of compensation which may be deferred Significant withholding issues Coordination with other areas of IRS is required (LB&I, TE/GE) III. GUIDANCE / TAX LAWS GS-12 Case Characteristics: GS-13 Case Characteristics: In addition to GS-12 characteristics, the case should have the following traits: Research and analysis required to establish proper interpretation of tax laws which are similar to, but may not be identical to precedent cases Interpretation and application of tax law with limited guidelines, although some precedents may exist Research of committee reports to determine the intent of Congress, particularly where the law and/or regulations are vague or non-existent Technical advice Interpretation and/or application of tax treaties A limited number of foreign corporations, subsidiaries, or partnerships situations exist Cases with tax/legal issues involving nonexistent or conflicting precedent(s) Cases with unusual, complex issues which are considered to be in "gray areas" of the law, with little precedent to make a determination Issues that have regional, national, or industry-wide impact and may set a precedent Extensive research is necessary to locate similar cases or evaluate the impact of the case Comprehensive analysis is required to ensure proper evaluation of all points involved in application of law Significant potential tax change that involve unclear provisions of law Issues may set precedent Complex separation of foreign and domestic operations to determine any employer/employee relationships and intercompany charges and/or payments relating to compensation Development of alternative resolution solutions to the issues raised in examination Complex interpretation and application of IRS ET laws, such as classification of employees, section 530, and executive compensation IV. SCOPE AND EFFECT GS-12 Case Characteristics: GS-13 Case Characteristics: In addition to GS-12 characteristics, the case should have the following traits: Examination potential is beyond immediate taxpayer and extends throughout the particular industry or significant section of the nation Extensive consequences due to recurring effects in prior and subsequent years Consequences have deterrent effects on other taxpayers in the community Development of evidence to support fraud Tax results are of major significance even for "no change" cases because the tax liability is large, or cumulative amounts over the years are large Indirect regional or nationwide deterrent effects Important principles are developed resulting in new precedents Large information gathering projects covering a large volume of taxpayers Highly complex cases involving development of evidence to support fraud V. CONTACTS GS-12 Case Characteristics: GS-13 Case Characteristics: In addition to GS-12 characteristics, the case should have the following traits: Contact with employees and representatives of medium to large size corporations Related or third parties placed under examination due to the audit of the primary taxpayer Interaction and involvement with members of Headquarters and/or National Office staff Interaction and involvement with Counsel to ensure consistency of treatment of a given issue Contacts with persons who are prominent because of their reputations in their fields, especially the accounting and ET fields, or officials of large businesses with national reputations Interaction and involvement with National Office and/or Counsel to ensure consistency of treatment of a given issue that involves more complex issues Advanced negotiation and communication skills due to political sensitivity issues and concerns VI. OTHER CHARACTERISTICS GS-12 Case Characteristics: GS-13 Case Characteristics: In addition to GS-12 characteristics, the case should have the following traits: Grand Jury information from a concluded investigation Contract interpretation to support the legal position, such as who is an employee versus independent contractor Closing agreements (including voluntary closing agreements) requiring coordination with both local counsel and national office counsel, as necessary Analysis of substance versus form, such as employee leasing, per diem payments, etc. Local or regional issues advanced by promoters, such as tool rental cases Extensive information gathering or enforcement coordination from Criminal Investigation/Grand Jury involvement, third party witnesses who may be reluctant to produce records, extensive summons enforcement procedures, or jeopardy/terminations Interpretation of contracts with national implications Complex issues with closing agreements requiring coordination with local and headquarters counsel Promotions with nationwide ramifications, e.g., promoters of tool rental schemes or use of unique, unusual, and/or precedent-setting schemes Referrals from LB&I Media involvement
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