Examining the 1997 examination program.

Author:Fiore, Nicholas
Position:IRS examination principles - From the Tax Adviser

The Internal Revenue Service, like most other government agencies, has to tighten its budget while trying to achieve more goals and objectives. CPAs and their taxpayer clients can get an idea of the areas on which the IRS will concentrate its assets this year by reviewing the priorities, areas of emphasis and underlying philosophy of its 1997 examination program.


The service's main goal is to improve productivity on examinations by increasing the average amount assessed from and paring the time spent on each examination and reducing the number of corporate examinations in which no changes are recommended.

"Large business" examinations.

The IRS will continue to examine taxpayers with assets over $10 million that do not fit into its Coordinated Examination Program (CEP). Audit techniques currently used exclusively in CEP cases, such as the increased use of audit specialists (computer, employment, excise, employee plans), will be implemented for non-CEP taxpayers.

The IRS still will emphasize the use of alternative dispute resolution techniques to resolve issues at lower levels of examination. In addition, some practices that officially are available only to CEP taxpayers--such as opening conferences, periodic updates and briefings with the case manager--may be extended to non-CEP taxpayers.

Partnership returns. The IRS will increase its audits of partnership returns by (1) looking at a narrower range of issues on a larger number of returns, (2) encouraging the examination of returns associated with large corporate and CEP examinations, (3) focusing on real estate partnerships and (4) completing a project on the use of the low-income housing credit, which is claimed by many partnerships.

Excise taxes. The IRS will examine motor fuel excise taxes more closely, with additional emphasis and training directed toward motor fuel and petroleum by-products, telecommunications and manufacturing excise taxes.

Employment taxes. The IRS will continue to focus on the following worker classification issues, primarily among midsize companies:

* Reclassification of entire classes of workers.

* Cash payment...

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