How will the LB&I reorganization affect midmarket taxpayers?

• Author: Mattson, Andy
• Position: IRS Large Business and International Division

Practitioners should familiarize themselves with the new LB&I exam process since it is likely that LB&I will increase its exam coverage of mid market taxpayers.

The Large Business and International (LB&I) division within the IRS serves corporations and flowthrough entities with greater than $10 million in assets. In September 2015, LB&I announced that it was reorganizing. LB&I Commissioner Douglas O'Donnell discussed several key components of the reorganization in the LB&I FY2016 Focus Guide (available at tinyurl.com/ hc6dd4q). One noted change outlined in the FY2016 Focus Guide is how LB&I will approach its continuous audits by eliminating the coordinated industry case (CIC) designation.

As part of its reorganization, LB&I updated its procedures in the Internal Revenue Manual (IRM) and issued 1RS Publication 5125, Large Business & International Examination Process (available at tinyurl.com/zcp9ldp). The primary focus of the new procedures and process centers on issue-focused exams.

A couple of new concepts have been incorporated into the new exam process. For example, Publication 5125 talks about the issue team concept, which is described as a team composed of "LB&I employees who will work with taxpayer personnel, who are most knowledgeable about a given issue, to ensure the successful development and management of each issue examined." Each issue team will have an assigned issue team manager. A case manager will maintain responsibility for the overall management of the case and will collaborate with issue managers.

Another new concept incorporated into the LB&I exam process is that the issue team will seek the taxpayer's acknowledgment of the facts. According to the IRM and Publication 5125, the issue manager is required to seek the taxpayer's acknowledgment of the facts, resolve any factual differences, and/or document factual disputes before a case is sent to Appeals. The IRM states that the issue team will use a pro forma Information Document Request (IDR) along with a Form 886-A, Explanations of Items, to solicit a written acknowledgment of facts from taxpayers.

One thing that remains unchanged under LB&I's new exam procedures is the IDR process. In 2014, LB&I issued a directive outlining the IDR enforcement process, which included requirements for issuing IDRs (LB&I Directive 04-0214-004). Some of the key points outlined in the directive include (1) issuing one IDR per issue, (2) issuing IDRs in draft so that taxpayer feedback can be...