part4-179

The purpose of the IRS CAWR program is to ensure that employers paid the proper amount of taxes, withholding and advanced
earned income credit. This is done by comparing the Forms W–3/W–2/W–3c/W–2c totals and the Form 1099–R and Form W–2G withholding
amounts to the amounts reported on the employment tax returns.

Case Types 1 and 9 (non-filers) are extracted and reviewed for audit potential.

Employers filing Form W–2 but no Form 941 may be non-filers. Employers consistently out of balance between Form W–2 and Form
941, coupled with other employment tax audit potential indicators, may have increased audit potential.

See IRM 4.19.4, “CAWR Reconciliation Balancing,”
for additional information on CAWR notices.

The BWH program provides “B”
notices to payers who file information returns with incorrect Taxpayer Identification Numbers (TINs). The “B”
notice (CP2100) advises payers that backup withholding could become necessary if payees fail to certify their TIN. The
CP2100 Notice also lists accounts with missing TINs, on which the payer should have been backup withholding under IRC 3406(a)(1)(A).
Payers with missing TIN accounts should not wait to receive a CP2100 to begin backup withholding. The BWH program includes
Forms 1099-B, 1099–DIV, 1099–INT, 1099–MISC, 1099–OID, and 1099–PATR information returns.

Payers with payees receiving Form 1099–MISC with missing or false TINs have the highest audit potential. Backup withholding
should have been taken upon payment of qualifying amounts.

See IRM 5.19.3, “Backup Withholding Program,”
and IRM 20.1.7.1.6.3.3, “Special Notice Review CP 215/15,”
for additional information on CP2100 notices.

This project is an extract of employers issuing Forms 1099–MISC to workers. The examiner should refer to LEM 4.23.3 for selection
criteria.

A worker receiving only one Form 1099–MISC with no other income may be an employee and not an independent contractor. If the
report indicates that the employer has other workers that are employees, this may indicate inconsistent treatment of workers
performing the same job and indicate a worker classification issue.

Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, is the form
used by a business or worker to request a determination or ruling letter regarding a workers federal employment tax status.

Referrals from the SS-8 Unit are made to CWSD for classification and follow-up.

The Classification Settlement Program (CSP) establishes procedures that will allow businesses and tax examiners to resolve
worker classification cases as early in the administrative process as possible, thereby reducing taxpayer burden. The procedures
will also ensure that the taxpayer relief provisions under section 530 of the Revenue Act of 1978 are properly applied. Under
the CSP, Internal Revenue Service (IRS) examiners will be able to offer businesses under examination a worker classification
settlement using a standard closing agreement.

CSP Coordinators will identify taxpayers participating in CSP and Areas will establish systems for follow up. Since the CSP
closing agreement includes a provision that the taxpayer complies prospectively, CFOL command codes will be researched to
ensure that taxpayers are in compliance with the CSP closing agreements.

Taxpayers not in compliance may have high worker classification audit potential. See IRM 4.23.6, “Classification Settlement
Program, ”
for additional information.

Securing the agreement is only the first step in increasing compliance for employers with employees who receive tip income.
To ensure employers and their employees continue to report their tip income accurately, it is imperative that the Service
monitor the compliance level of the program participants. A unit consisting of workload identification examiners will monitor
the various tip agreements as defined in this section.

Follow-up procedures for establishments participating in a:

agreement will include a review of the employers Forms 941. If the tip program is working, an increase in the tip wages that
are reported on Forms 941 should be evident.

Under TRDA, GITCA and ATIP, tip rates are established for the various worker categories. These programs carry a threshold
level of employee participation. Consistent with the terms of TRDA and ATIP agreements, at least seventy-five percent of the
employees must sign an agreement and agree to report at or above the established tip rate for their job category.

Generally, when an employer enters into a TRDA or GITCA, the employer agrees to review its tip rates, determine whether a
tip rate increase/decrease is appropriate, and may submit proposed revisions to the Service by a date specified in its agreement.
The Service Representative should follow up to verify whether any rate increases are required if the employer fails to contact
the Service by the specified date.

TRAC and EmTRAC do not require any tip rates to be established. However, employers do agree to educate new employees and re-educate
continuing employees on a quarterly basis. TRAC also requires the employer to establish a reporting system and to file and
pay taxes properly.

Tip compliance agreements should be monitored at least annually. For TRAC, if the reporting of tip wages by tipped employees
has not improved six months after securing the agreement, the employer should be notified. The Service should correspond with
the employer to remind them of their tip reporting obligations and the consequences for failing to comply with the agreement
commitments.

Implementation of these follow-up procedures allows each employer to measure the effectiveness of their education program
and determine whether the employees are complying with their tip reporting requirements. If noncompliance is identified, then
examination referrals should be considered.

Taxpayers under tip agreements with egregious noncompliance issues will be considered for audit.

Some lead driven projects require Compliance Initiative Project (CIP) procedures, involving groups of taxpayers that may be
subject to audit as a result of the lead development activity.

CIP procedures are not required in the case of “routine business operations,”
as defined in IRM 4.17.1.3, “Activities Not Subject to CIP Procedures.”

Other source workloads included in this section for which CIPs are not required are Collection referrals, Criminal Investigation
referrals, TE/GE referrals, Information Reports, and Return Preparer Project.

The criteria mentioned in IRM 4.1.4.3.8, “Compliance Initiative Projects (CIP),”
must be used to determine when CIP procedures apply for Employment Tax projects.

Group managers responsible for the employment tax program will receive all Specialist Referral System (SRS) referrals for
their area of coverage. The group manager will ensure that the lead referrals are given appropriate consideration, consistent
with available staffing and resources. Compliance efforts and follow-up actions will be determined in accordance with resource
availability.

CWSD will establish a consistent process for evaluating all other leads for examination potential and priority. To ensure
there is consistency in lead evaluation, available internal information will be considered. Several Corporate Files On Line
(CFOL) command codes should be utilized to determine lead potential and priority. These include the following:

In determining the priority of a lead, the following factors should be considered, including, but not limited to:

When it becomes necessary to make third party contacts to properly evaluate a referral, i.e., to seek clarification from an
informant, the group manager will assign the case to an examiner. After third party contacts are made, the examiner will return
the referral to the group manager to prioritize it based on the additional information derived from the third party contacts.

If it becomes apparent that a lead will not be assigned for examination because of its low priority or other business reasons,
it will be closed (rejected).

Exhibit 4.23.3–1, “Guidelines for Evaluation of Referrals,”
contains further guidance for evaluation of referrals.

The group manager should be alert to possible employment tax issues in assigning non-employment tax cases and should, when
appropriate, call this to the attention of the examiner for consideration under the required filing checks procedures. See
IRM 4.10, Examination of Returns.

The related employment tax returns are not usually associated with the income tax returns or tax-exempt returns classified
for examination. Examination of the related returns will ordinarily be made from the taxpayer’s retained copies of such returns
or a BRTVU. If an employment tax examination is warranted and the examiner needs, but cannot secure, copies of the returns,
the examiner will requisition the originals of those returns for association with the case file.

Collection employees share full compliance check responsibilities. When making a field visit, the revenue officer should determine
whether all required employment tax returns were filed and paid. If the revenue officer encounters a situation where it appears
that the firm is treating employees as independent contractors or where there are questionable fringe benefits, they will
make a referral to the territory Employment Tax Group Manager, or to the PSP Support Manager, if no employment tax group manager
is located in the territory. Refer to the Collection Handbook for further guidance.

The relief provisions under Section 530 apply only to federal employment taxes, therefore the worker should be treated as
an employee for all other purposes. If an examiner encounters an employer entitled to the relief provisions of Section 530,
there is potential that an Employee Plans issue exists and a referral determination should be considered. Exhibit 4.23.3–2
contains an employee plans referral checksheet.

If a referral to TE/GE – Employee Plans is required as a result of a compliance check or an examination, the examiner will
report the findings on Form 3449, Referral Report, and mail to:

It is recognized that examinations, whether change or no-change, vary in scope. Normally, the examiner is expected:

In some cases, the examination will be extensive to properly determine the taxpayer’s employment tax liability and information
return compliance. In other cases, examiners will be able to complete the examination after inquiry into only a few items
because, in their judgment, to proceed any further with the examination would result in no material change in tax liability.

In examinations, Employment Tax Specialists should control all 4 quarters of Form 941 when an examination covers the entire
year. This applies even if the case results in a no-change, as it will more accurately reflect the audit work conducted. In
some cases, the examiner may determine that it is appropriate to control less than all four quarters of a year. Examples include
claims filed for a certain period or bonuses paid in a certain quarter. Managerial approval should be secured if the examination
is to be for less than four quarters. Also see IRM 4.23.10.12.4, “Employment Tax No-Change Report.”

LMSB examiners are required to open all four quarters of Form 941 in a calendar year when an examination covers the entire
year – this applies even if the case results in a no-change. This will more accurately reflect the audit work conducted. Three
to four months prior to the case closing, the examiner should ensure they control all applicable periods. Additionally, any
subsidiary and related employment tax returns should be established if taxpayer records relating to wage payments have been
requested from these entities.

The examination report will not include any calendar quarters for the current year, unless the taxpayer is no longer in business.
Inform the taxpayer to correct any errors for these quarters in accordance with IRC 6205 and the Administrative and Procedural
Regulations there under. For example, if the examination was concluded on November 1, 2008, prepare an examination report
for 2006 and 2007 and advise the taxpayer, assuming the same issue existed for 2008, to correct the error for the first three
quarters of 2008 in accordance with IRC 6205. This procedure is consistent with Policy Statements 4-4 and 5-133.

Generally, an employment tax examination should not be started for a calendar year until after the last filing date for all
employment tax returns of that year. Normally, this is January 31 following the end of the calendar year. If the employment
tax is to be computed under IRC 3509, it will be necessary to wait until after the filing date for information returns in
order to determine the applicable employment tax rate. These returns are due the last day of February following the end of
the calendar year.

Copies of the prior and subsequent year returns will be inspected. Expand the audit to include open periods where the issue
is recurring or where there appears to be other large, unusual or questionable items.

Document any factors used to limit the scope of the examination and the managerial approval of such action.

In arranging for a convenient time and place to start an examination, it is advisable to telephone the taxpayer or the representative.
If the initial appointment is scheduled by telephone, mail an appointment letter to confirm the appointment and summarize
the list of records to be made available during the examination.

At all times endeavor to make appointments at a time and place that will meet the convenience of the taxpayer and be consistent
with Federal Administrative and Procedural Regulations § 301.7605–1 on time and place of examination. Field examinations will
normally be conducted at the taxpayer’s place of business. Enter a taxpayer’s private premises only when invited in by the
rightful occupant. If fraud is a feature or if the interests of the Government may be jeopardized, the convenience of the
taxpayer need not be regarded as paramount.

Examinations should be conducted at the place where the taxpayer maintains the business operations. However, the examination
may be conducted at a place other than the location of the business operation if agreed to by the examiner and the taxpayer
or the authorized representative. Once the appointment is made, try to avoid cancelling it.

If the case file indicates that a power of attorney is on file or if a taxpayer or duly authorized representative requests,
orally or in writing, that Service notification be made through the representative, the examiner will determine if there is
a valid power of attorney on file with the Service and if any restrictions are contained therein.

Publication 1, Your Rights as a Taxpayer, and Notice 609, Privacy Act Notice, must be included with all initial contact letters.
If it has not been mailed to the taxpayer in advance of the interview, it will be provided at the initial meeting. Workpapers
should be documented to confirm that Publication 1 was provided to the taxpayer.

Examiners are not authorized to assure taxpayers that their books and records will be used solely for civil purposes. (See
the Criminal Investigations Handbook). If a taxpayer insists upon such assurances or gives the examiner a statement that the
books and records are only being made available for limited purposes, the examiner shall find out the taxpayer’s reasons for
refusing to furnish the records without restriction and then discontinue the examination and report this information to the
group manager. The group manager and the examiner should then discuss the matter with the Criminal Investigation function.
That office will study any available information on the taxpayer and will advise on further steps to be taken. It may decide
that in view of all known factors, including the taxpayer’s refusal to furnish records unconditionally, that there is a possible
indication that fraud exists. When appropriate, a referral to Criminal Investigation function will be made in accordance with
procedures in IRM 4.23.9.6.5, “Referrals to the Criminal Investigation Division.”
Advice should be sought from Area Counsel when necessary.

IRC 7521, Procedures Involving Taxpayer Interviews, was enacted by the Technical and Miscellaneous Revenue Act of 1988 (TAMRA)
as part of the Omnibus Taxpayer Bill of Rights. Under the Taxpayer Bill of Rights, the taxpayer has a right to:

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers who are
experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal procedures,
or who believe that an IRS system or procedure is not working as it should. Refer to IRM 13.1.7, “Taxpayer Advocate Case Procedures
– Taxpayer Advocate Service (TAS) Case Criteria, ”
for pertinent information and TAS criteria. Publication 1546, The Taxpayer Advocate Service, provides contact and additional
information. The program is designed to alleviate taxpayer hardships that arise from systemic problems or the application
of the Internal Revenue Code. All inquiries meeting TAS criteria should be documented on Form 911, Application for Taxpayer
Assistance Order (ATAO), or Form e-911, and forwarded to the Advocates office by the most expeditious method available. Also
see Delegation Order 13-1, (formerly D. O. 232, rev. 4) in IRM 1.2.50, “Delegation of Authorities for Taxpayer Advocate Service
Activities. ”

Accountants, attorneys, enrolled agents or other representatives, from whom a taxpayer has requested assistance on tax problems,
may submit inquiries to the Internal Revenue Service. The third party expects a reply to the inquiries so the problem can
be explained to the taxpayer. To authorize this third party reply, the representative may submit a Form 2848, Power of Attorney
and Declaration of Representative, (POA), or Form 8821, Tax Information Authorization (TIA).

The Form 2848 and Form 8821 should contain the following information:

If the POA/TIA is not attached to any return or document, either the original or a copy of the form should be promptly forwarded
to one of the three centralized CAF Units at the Campuses. See IRM 21.3.7.1.6 to determine where to send the POA/TIA. The
original or a copy of the POA/TIA should also be retained with the case file.

Forwarding the POA/TIA to the Campus will trigger required actions to ensure input of a POA code to the entity on the appropriate
master file or non-master file and will result in subsequent mailings of copies of computer communications to the authorized
representative. POAs/TIAs are maintained on an automated system know as the Centralized Authorization File (CAF).

POAs/TIAs filed for specific issues are not to be detached from the related document and sent to the Campus unless the document
authorizes recognition for a return in addition to the specific issue. In this case, a copy of the POA/TIA should be sent
to the CAF unit at the Campus to input the return portion on the CAF system. Examples of specific issues include, but are
not limited to, the following:

Occasionally, the POA of record states he or she is no longer representing the taxpayer, or the taxpayer indicates they wish
to cancel the existing POA. In such instances, it is important that the CAF be corrected to delete the existing POA. Cancellation
of an existing POA can be effected by securing a statement to that effect signed by the existing POA or the taxpayer. Such
signed statements will be sent to the CAF unit in the Campus.

The Form 8821 does not authorize a representative to sign documents on behalf of the taxpayer or represent the taxpayer before
Appeals.

In accordance with IRC 3401(d)(1) and the holding of the Supreme Court in Otte v. U.S., 419 U.S. 43 (1974), 1975-1 C.B. 329, a trustee in bankruptcy is an employer for purposes of income tax withholding and withholding
the employee’s share of FICA. This is because the trustee in bankruptcy has control of the payment of wages. The payor is
obligated to prepare and file Form 941 and to prepare, file, and distribute the related Form W–2 for each wage claimant. Furthermore,
Otte has been extended to provide that the person having control of the payment is also an employer for purposes of the employer’s
share of FICA and FUTA. See Lane Processing Trust v. United States, 25 F.3d 662 (8th Cir. 1994), and re Armadillo Corp., 410 F. Supp. 407 (D. Col. 1976), aff’d, 561 F.2d 1382 (10th Cir. 1977). Withholding and employment taxes incurred by the bankruptcy estate are entitled to be paid
as administrative expenses under BC 503(b)(1)(B).

The Otte doctrine may be applied in cases involving payers other than bankruptcy trustees.

As soon as it is determined that an examination will be conducted, the examiner will complete Form 5345-D, Examination Request-ERCS
(Examination Returns Control System) Users. A maximum of five tax periods for the same taxpayer may be requested on each Form
5345-D. TE/GE examiners may continue to use Form 5597, TE/GE IMF/BMF/EPMF Request. (Areas with automated inventory controls
systems, such as RGS and ERCS, should follow locally established procedures for requesting or updating controls.)

Examinations of LMSB coordinated industry cases (CIC) must be annotated on Form 5345-D by placing a “P”
in the field that asks if this is an LMSB/CIC case. Project Codes will be determined by the main issue on the case and
the appropriate tracking code will be chosen from the most current listing available.

After obtaining group manager approval, forward the Form 5345-D for terminal input. Retain a copy of each Form 5345-D in the
case file.

Form 5348, AIMS/ERCS Update, (or Form 5595, TE/GE Update) is used with examination audit labels to:

Instructions on the use of Form 5348 can be found in IRM 4.4.34.3, “Items that can be Updated/Corrected and Form to Use.”

Form 4844, Request for Terminal Action, will be completed where the results of a compliance check or examination reveal that
the taxpayer has filing requirements that are not currently on IDRS. Document 6209, IRS Processing Codes and Information,
lists the correct codes for BMF Filing Requirements.

Accurate time and activity reporting is essential to effective planning, budgeting, and evaluating the Employment Tax Program.
Currently, each division has separate reporting procedures.

For those employees working mixed inventories, time, as it relates to the specific tasks, will be charged to the appropriate
codes. Activity codes can be found in Chapter 12 of Document 6209. See IRM Handbook 4.9.1, Examination Technical Time Reporting
System and Procedures, Outline of System, Exhibits 4.9.1-1, 4.9.1-2, and 4.9.1-3 for complete explanations.