Comments on managing the claims process: May 22, 2003.

On May 22, 2003, TEI sent the following letter to W. Kurt Meier, Senior Industry Adviser for the LMSB Retailers, Food, Pharmaceuticals and Healthcare Industry Group on a proposed procedure for managing the claims-for-refund process. The Institute's comments were prepared under the aegis of its IRS Administrative Affairs Committee, whose chair is David L. Bernard of the Kimberly-Clark Corporation. Kelly Nall of Electronic Data Systems Corporation contributed materially to the preparation of the comments. An attachment of responses from TEI members is also included.

On behalf of Tax Executives Institute, I am pleased to respond to your request for comments on LMSB's proposal for managing IRS resources when a claim is filed during the examination process.

The proposed process would apply only to taxpayers in the IRS's coordinated industry case (CIC) program and only in respect of "significant claims," i.e., adjustments to taxable income in excess of $2 million or in tax of $700,000. The proposal requires claims to be filed within 90 days of the opening conference, regardless of the amount of time allotted to the audit cycle. For taxpayers using the IRS's limited issue focused examination, or LIFE, process, claims would be subject to the time and materiality thresholds agreed upon in the memorandum of understanding. Although taxpayers have a statutory right to file claims anytime within the applicable statute of limitations, the procedure would require that claims filed after the 90-day deadline would be worked as part of a separate claims cycle with its own estimated completion date, unless the Team Manager determines to work the claim as part of the normal audit cycle.

TEI commends LMSB for seeking a uniform solution in respect of the management of claims. We recognize that late-filed claims may strain the IRS's resources and frustrate taxpayers when they lead to IRS requests for more time to conduct the audit. We suggest, however, that more flexibility should be built into the procedure.

TEI finds the 90-day time frame troubling, particularly in respect of examinations that often take 24-36 months to conduct. The audit is an interactive process and the vast majority of most taxpayers make every effort to file their claims...