Creative approaches to large-case tax administration: IRS budgetary limitations don't deter IRS from precision, speed, transparency goals.

• Author: Levin-Epstein, Michael

Despite budgetary and resource constraints at the Internal Revenue Service, corporate boards, securities regulators, and even the IRS are pressing to see increased transparency, greater speed, and enhanced precision on the part of large business taxpayers, according to KPMG tax professionals Mike Dolan and Tom Greenaway.

Dolan is national director of IRS policies and dispute resolution in the Washington National Tax practice of KPMG LLP and is based in Washington, D.C. Thomas Greenaway is a managing director in the tax controversy services practice of KPMG LLP and is based in Boston. This article includes input they provided on the topic of efficiencies in large-case tax administration. Their comments represent their own views and do not necessarily represent the views or professional advice of KPMG LLP.

Audit, tax, and advisory firm KPMG LLP is the U.S. member firm of KPMG International Cooperative. KPMG International's member firms have 162,000 professionals, including more than 9,000 partners in 155 countries.

In terms of U.S. tax administration, a "large case" is generally considered a matter involving the largest corporations and partnerships, many covered by the coordinated industry case (CIC) program administered by the IRS. Under that program, Dolan and Greenway explain, the IRS designates CIC cases on the basis of a points system, which places emphasis on size and complexity of the enterprise using a variety of criteria, including:

* assets

* number of subsidiaries, including controlled foreign corporations (CFCs)

* breadth of the company's international footprint

"We would expect the IRS Large Business & International (LB&I) division to apply many of the changes it is currently considering to a wider swath of cases than just those meeting traditional CIC standards," say Dolan and Greenaway.

Budgetary Constraints

The IRS is operating under more severe budgetary and personnel limitations than it was a decade ago. "Overall budget reductions have reduced the number of IRS personnel assigned to examine the largest entities," say Dolan and Greenaway.

For example, they explain, the total number of examiners and specialists employed by the IRS in the last five years has been cut through attrition. In addition, the IRS training budget has been cut significantly in the last several years, and the agency has reported that it has been forced to reduce its investment in new technology and other administrative tools and resources, which collectively place the service "at a great disadvantage when compared with the entities they are examining," according to Dolan and Greenaway.

Notwithstanding IRS budgetary and resource restraints, management, boards, and other regulators keep demanding greater speed and precision from tax executives, note the KPMG professionals.

The move toward more speed and accuracy requires taxpayers to "find facts faster; manage and access large volumes of data; apply technology such as predictive coding to the data; and present results in a timely manner to management, financial statement auditors--and the IRS--for review and testing," explain Dolan and Greenaway.

The IRS is not the only agency that is taking a...