Section 4. cont. 1 Interview other corporate officers and key employees not included in Section 3.01 (i. e., those who have been dismissed or changed jobs, corporate airplane pilots, security officers, etc.). Where appropriate, the use of summonses and affidavits will be considered. 2 Examine internal audit reports and related workpapers to determine if any reference is made to the creation of any secret or hidden corporate fund. agencies. 3 Review taxpayer's copy of reports filed with other governmental regulatory 4 Determine the number and nature of foreign trips by top executives in the company. Examiners should be especially alert for itinerary stops in countries with protective banking and secrecy laws. 5 Trace significant corporate contractual arrangements with foreign individuals and entities. 6 Extend the examination to controlled foreign subsidiaries where the operations and activities of those corporations lend themselves to the creation and use of slush funds. (Be especially alert for shell corporations established in tax havens or countries with protective banking and secrecy laws.) For assistance in resolving legal and practical problems that will arise regarding the accessibility of records, refer to Sections 6 and 7 below. 7 Determine the manner in which funds are repatriated from subsidiaries, affiliates and/or associates. 8 Examine foreign cables to identify diversion of funds transactions. 9 Trace the use of foreign establishments to furnish services or products which are competitively available here. (10) Trace foreign pricing arrangements and excessive charges by foreign entities. (11) Scrutinize unusual transactions with foreign individuals or entities. 02 Items 4 through (11) are generally covered in Chapter 600 of IRM 4(12)10, Tax Audit Guidelines - Individuals, Partnerships, Estates and Trusts, and Corporations. They are repeated here to extend their use within the context of this Supplement. .03 In the preplanning stages where it is deemed advisable to make an on-site examination in a foreign country, assistance from the Office of International Operations (OIO) should be secured at the very earliest stage. In these instances, OIO should be contacted during preparation of the Audit Work Plan. The provisions of Section 6, Request for Office of International Operations Assistance, will be followed. .04 Where individuals' returns are associated with the examination of a corporation pursuant to Manual Supplement 48G-208 (Rev. 3), CR 81G-17 (Rev. 3), and 91G-29 (Rev. 3), dated August 8, 1975, or for any other reason, the audit plan will include procedures necessary to determine if the individual acted either as a conduit for corporate transactions or held secret corporate funds. Manual Supplement Section 4. cont. .05 Case managers and group managers will be responsible for planning sufficient time to carry out the aforementioned compliance checks. Case managers will indicate in Item 29 of Form 4451 (Large Case Status Report, Report Symbol No-CP:A-164) staff-days spent during the quarter and cumulative figures in complying with the provisions of this Manual Supplement. Significant information such as date of fraud referrals, issue involved, and date of acceptance or rejection by Intelligence Division should also be included. .06 All Audit Division managers should ensure that employees under their supervision are familiar with Chapter (12)00, In-Depth Probes, of IRM 42(11)8, Handbook for Field Audit Case Mangers, and IRM 4235, Techniques Handbook for In-Depth Audit Investigations, where appropriate. Also, audit managers will ensure that their employees are familiar with various evasion and slush fund schemes found in Intelligence Digests (Document No. 5590), and Manual Supplement 42G-319, CR 43G-14, dated December 31, 1974. .07 Case Managers and examiners should check with the Intelligence Division for any information they might have about the corporation, its affiliates or related entities and the individuals selected for questioning. .08 Upon finding indication of fraud during the examination, the examiner will refer the matter to the Intelligence Division in accordance with IRM 4565 or 42(11)9, as appropriate. Section 5. Information From Other Government Agencies .01 During the preplanning and examination of corporate cases, case managers, group managers, and examiners should consider IRM 4083, Information Requested From Government Agencies, and IRM 4084, Information Furnished by Government Agencies. .02 The National Office has established special liaison with the Securities and Exchange Commission to obtain information relating to slush funds, bribes, political contributions, and other tax-related information. Section 6. Request for Office of International Operations Assistance 01 To properly examine taxpayers with foreign slush fund issues and other schemes in the foreign area, it is necessary to obtain first-hand knowledge and independently verify information concerning related foreign entities or foreign branches of domestic entities. In most instances, information may be obtained from United States sources more quickly than from foreign sources. However, if it is determined that an on-site examination should be made in a foreign country, a request for support should be made to OIO. This request should be made following the coordinated examination support request provisions of IRM 42(11)5:(4)(f). Collateral request provisions of IRM 4597 will be followed in noncoordinated examination cases. OIO will work with the requesting district in developing the audit plan for an on-site examination and assist in planning other details of the on-site audit. Manual Supplement 77-169 - 76 17 Section 6. cont. .02 Once the details of the on-site examination have been finalized, formal request for approval of the on-site examination and foreign travel authorization will be made in accordance with IRM 42(10)(10) and Section 420 of IRM 1763, Travel Handbook. Section 7. Use of Summons .01 Every effort should be made to secure taxpayer's records, responses to questions and other pertinent financial data without the issuance of a summons. However, in certain instances it may be necessary to issue a summons. Under such circumstances, IRM 4022 will be followed in considering the need to issue such a summons. .02 Before issuing a summons where the records are outside the United States, a copy of the proposed summons will be submitted to the appropriate Regional Counsel for review. Regional Counsel will coordinate their review with Chief Counsel, CC:GL:1, which in turn will coordinate the matter with the appropriate National Office Division. The proposed summons will be accompanied by a statement describing the circumstances and efforts that have been made to secure the records and data from the taxpayer and why the taxpayer will not make the requested records available. In no event will the examiner issue the summons until advice has been received from the Regional Counsel. Section 8. Information Concerning Possible Nontax Violations of Federal, State, or Local Laws The purpose of these procedures is to obtain information that may relate to violations of Federal tax laws. However, if the Service receives information indicating violations of Federal laws which are not administered by the Service, or of violations of State or local laws, the case manager will set forth in a memorandum the pertinent facts concerning the suspected violation. Such memorandum, together with any document ation, will be promptly forwarded through the Chief, Audit Division, to the Chief, Intelligence Division for appropriate referral. (See IRM 4097.) However, see MS 12G-134, dated January 15, 1976, for exceptions. Section 9. Appellate Division Responsibilities .01 The Chief of each Appellate Branch Office will contact the District Director, in consultation with Regional Counsel, to decide on a case-by-case basis for every coordinated examination case in Appellate inventory whether the 11 questions in Section 3 above will be asked. The decision of the District Director and Chief, Appellate Branch Office, should be confirmed in a memorandum of understanding. .02 In a nondocketed case, where the taxpayer or his representative offers to make payment of additional tax liability for slush funds deductions or reveals their existence to Appellate officials for the first time, Appellate consideration of the case will be discontinued. The case will be returned to the Audit Division for verification of appropriate facts and possible referral to Intelligence. Under similar circumstances in a docketed case, Regional Counsel should be immediately consulted. Manual Supplement Section 10. Intelligence Division Responsibilities .01 All Referral Reports will be handled in accordance with IRM 9322.2 or 9322.3, as appropriate. .02 Intelligence Division personnel will be made available, as needed, to advise and assist Audit in training their personnel in interviewing procedures and techniques. .03 Information concerning possible violations of any local, state or Federal statute will be processed in accordance with IRM 9382.4 or Manual Supplement 12G-134, dated January 15, 1976, as appropriate. Section 11. Application .01 The compliance checks listed in Section 4 will be applied to all cases not processed to Review as of March 4, 1976. The applicability of these compliance checks to cases pending in Review as of March 4, 1976 is as follows: 1 If the compliance checks listed in Section 4 were not applied to the examined returns of a corporation with foreign subsidiaries or other foreign interests, the case should be returned to the examiner for such application. 2 If the compliance checks listed in Section 4 were not applied to the examined returns of a corporation without foreign subsidiaries or other foreign interests, the Chief, Review Staff, or Chief, Technical Branch, in some districts, will make a judgment as to the slush fund potential and either return the case to the examiner or release the case. In either instance, a statement of his/her decision and the basis for it will be included in the case file. Section 12. Effect on Other Documents .01 Manual Supplement 42G-329, CR 40G-111, 47G-107 and 4(12)G-8, dated August 29, 1975, and Amend. 1, dated April 6, 1976, are superseded. Annotations referring to that Supplement at IRM 4022, 4083, 4084, 4241.1, 4241. 4, 42(11)6, 4724.1 and Chapters 500 and 600 of IRM 4(12)10, Tax Audit Guidelines--Individuals, Partnerships, Estates and Trusts, and Corporations, should be removed. .02 This supplements IRM 4022, 4083, 4084, 4241.1, 4241. 4, 42(11)6, 4724.1, 8223, 8430, 9360 and 9382.4. This also supplements Chapters 500 and 600 of IRM 4(12)10, Tax Audit Guidelines--Individuals, Partnerships, Estates and Trusts, and Corporations; and 681 and 682 of IRM 8(24)40, Appellate Division Supervisors' Guide. This "effect" should be annotated by pen-and-ink beside the basic text and Handbook text cited, with a reference to this Supplement. S. B. Wolfe Manual Supplement MS 42G-348, CR 40G-119, 47G-111, 4(12)G-9, 82G-81, 84G-12, 8(24)G-123, 93G-168 GPO 905-632 Please attach Copy B of Form W-2 to back Income Exemptions Yours Occupation Spouse's Regular/ 65 or over/Blind Enter number of boxes checked 7 Yourself. 9 First names of your dependent children who lived with you 10 Number of other dependents (from line 34) 12 Wages, salaries, tips, etc. (Attach Forms W-2 to back. If unavailable, attach explanation). 12 Enter number See page 2 of instructions for rules under which the IRS will figure your tax and surcharge. If you do not itemize deductions and line 18 is under $10,000, find tax in Tables. Enter tax on line 19. 19 19 Tax (Check if from: Tax Tables 1-15, Tax Rate Schedule X, Y, or Z, Schedule D, or Schedule G ) Under penalties of perjury, declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief it is true, correct, and complete. |