The Internal Revenue Manual (IRM) is the IRS’s internal documentation of the policies and procedures of the agency. Practitioners should be aware of the many instructions that are found in the IRM; knowledge of these procedures can help in many areas, such as preparing returns, answering IRS correspondence, handling collection matters, and representing taxpayers in examinations of tax returns.
The IRS does not make all of the IRM available to the public, designating some material as for official use only; those parts that have been released are available on the IRS website.
Organization of the Manual
The manual is set up in 39 parts, 11 of which are particularly relevant for CPAs:
3. Submission Processing;
4. Examining Process;
5. Collecting Process;
7. Rulings and Agreements;
9. Criminal Investigation;
13. Taxpayer Advocate Service;
20. Penalty and Interest;
21. Customer Account Services;
32. Published Guidance and Other Guidance to Taxpayers; and
35. Tax Court Litigation.
There is a table of contents for each part, which allows for fast retrieval of relevant material.
Part 4, Examining Process
Part 4 of the IRM provides guidance to IRS employees for the examination process. Procedures are prescribed for planning and delivering returns to be examined, general examination procedures, instructions for examination personnel in processing cases, the examination returns control system, examination of returns, audit reconsideration, jeopardy assessments, procedures for examining various types of tax returns, the Bank Secrecy Act, and examination guidelines for the IRS’s various operating divisions.
Of particular interest is IRM Section 4.11, the Examining Officers Guide. This document contains discussions of various issues, such as changes in accounting methods, corporate liquidations, and net operating losses, and how examiners are expected to handle them. To train examiners, the IRS also publishes audit technique guides, which describe issues that arise in different types of industries and suggest audit techniques. Audit technique guides are currently provided for many industries such as real estate, agriculture, new vehicle dealerships, construction, and aerospace. They are available on the IRS website but must be found using a word search. The IRS website also contains guidelines for examining partnerships, cash-intensive businesses, and timber casualty losses and determining whether expenditures should be capitalized or deducted. CPAs who prepare returns for the above industries or particular issues may wish to review the examination guides.
Part 5, Collecting Process
Part 5 of the manual includes IRS procedures for working collection cases, collateral agreements, trust fund compliance, offers in compromise involving an inability to fully pay tax liabilities, bankruptcy and other insolvencies, seizures, notices of levy, federal tax liens, and installment agreements. Practitioners who have clients with collection issues with the IRS may want to study the pertinent sections of the IRM.
Part 8, Appeals
The Appeals function is described in Part 8, and guidelines are provided to IRS employees in resolving controversies. Guides are included for cases with special issues, such as personal holding company and accumulated earnings taxes, credit for increasing research activities, valuation issues, jeopardy assessments, refund suits, collection due process hearings, offers in compromise, and trust fund recovery penalties.
Part 13, Taxpayer Advocate Service
The Taxpayer Advocate Service (TAS) part includes information on case criteria and procedures, systemic advocacy, and methods for handling calls to the advocate’s toll-free number. The TAS uses the following criteria to determine if it should get involved in a case: economic burden to a taxpayer, systemic burden, best interests of a taxpayer, and public policy. The TAS should investigate the cases of all taxpayers who contact it and who meet any of the criteria.
The above is a brief synopsis of the IRM. CPAs should consider studying relevant parts of the manual when they encounter appropriate issues in order to provide quality services to clients.
Valrie Chambers is a professor of accounting at Texas A&M University–Corpus Christi in Corpus Christi, TX. Joe Marchbein is with Jack P. Fitter, CPA, APC, in Chesterfield, MO. Prof. Chambers and the author are members of the AICPA Tax Division’s IRS Practice and Procedures Committee. For more information about this column, contact Prof. Chambers at firstname.lastname@example.org.