Tax Executives Institute - LMSB liaison meeting: February 3, 2004.

• Position: Large and Midsize Business Division

On February 3, 2004, Tax Executives Institute met with Deborah M. Nolan, Commissioner of the IRS's Large and Midsize Business Division, and other representatives of LMSB. TEI President Raymond G. Rossi led the Institute's delegation to the meeting. The agenda for the meeting was published in the March-April 2004 issue of The Tax Executive. These minutes were prepared by Tax Executives Institute and, although reviewed by LMSB, they have not been formally approved by the agency.

On behalf of the Large and Mid-Size Business (LMSB) Division of the Internal Revenue Service, Commissioner Deborah M. Nolan welcomed TEI President Raymond G. Rossi and the other members of the delegation from Tax Executives Institute to the liaison meeting. LMSB's and TEI's delegations to the liaison meeting are set forth below.

1. Opening Comments

   Mr. Rossi expressed his appreciation to LMSB Commissioner Nolan and her staff for meeting with TEI. The agenda for the meeting, he noted, is full of opportunities and challenges. He cited as evidence of the Institute's cooperative relationship with LMSB the presence of Mr. Riley, who participated in the LMSB-TEI Joint Audit Planning Process Task Force. He also noted that TEI representatives recently participated in several LMSB "breakthrough" meetings to discuss better ways of auditing large companies. If we can do it better, he concluded, it is in both taxpayers' and the IRS's best interests to pursue different ways of doing business.

   Ms. Nolan referred to the history of TEI's relationship with LMSB since the IRS's reorganization, thanking the Institute for its helpful and candid comments. You keep us informed of what is going on in the field, she stated, and you provide us with opportunities to interact with members not only nationally, but by inviting us to local chapter meetings. She cited the Institute's involvement in the redesign of Schedule M as positively affecting the way the agency approached the project. In addition, the participation of members in the reengineering process is proving invaluable, she said, adding that all taxpayers benefit from the TEI-LMSB relationship. The key is transparency, she said; LMSB expects it of taxpayers and you deserve it from us.

   Mr. Rossi commended LMSB for involving taxpayers early in the development of new programs and processes. A "real-time" dialogue enables taxpayers to highlight concerns and suggest changes during the development phase of a project.

2. Audit Initiatives

   1. Breakthrough Initiative. Mr. Rossi referred to IRS Commissioner Everson's objective of making audits more current. A recent survey of TEI members reveals that the push for currency is moving forward in the field, he stated. TEI supports the currency initiative, he said, but cautioned that a balanced approach to enforcement and taxpayer rights is needed. Flexibility and communication remain the keys to efficient and timely audits.

      Ms. Nolan responded that the IRS needs to improve currency and cycle time. Taxpayers also need to have a level of certainty that the return is substantially correct. Initiatives such as the pre-filing agreement program and the limited issue focused examination (LIFE) are aimed at pushing audits closer to the point of filing a return. We need to focus on taxpayers and issues that warrant enforcement efforts, she explained.

      The agency is at the data-gathering stage in the breakthrough initiative, Ms. Nolan said. The goal is not only to do more Coordinated Industry Case (CIC) audits quicker, but to rebalance the IRS's examinations among mid-market taxpayers. She said that an LMSB team, involving Messrs. Petrella and Ng, would be meeting in Philadelphia to design an implementation plan. The plan should be drafted by March, the LMSB Commissioner stated, with a limited rollout in 2004. When we have something more concrete, she added, we will share it with TEI.

      Mr. McCormally inquired whether implementing the new initiative will require statutory changes. Ms. Nolan replied that the design team will not be limited by statute or technology in considering solutions. Mr. DeNard said that the team is starting with a "white board," adding that the proposal will be discussed with (and required the support of) the union. (One issue to be considered is the manner in which agents are measured.) Ms. Nolan added that the IRS is undergoing a significant amount of new hiring and training.

      Mr. Boyle noted that one issue explored during the breakthrough meetings was the possibility of doing audits on a real-time basis. One suggestion was to increase the amount of disclosure in order to determine whether a company should be audited. Ms. Nall added that she left the January brainstorming session wondering what the next step will be.

      Ms. Nolan stated that Commissioner Everson has been briefed about the initiative, including a suggestion that additional organizational measures may be required, but it was unclear what the outcome would be. Mr. Ng noted that the meetings with stakeholders have proven invaluable in the IRS's planning process. He explained that compliance reeingineering does not mean throwing out all the processes now in place, but rather taking a fresh look at new ideas. The goals are to provide certainty and reduce administrative burden for taxpayers and the government. He explained that the design team will meet during the last two weeks in February to formulate the compliance concept, including possible legislative changes. There are, however, several administrative steps we can take right now, he added.

   2. Currency Initiative. Mr. Rossi noted that as part of the currency initiative LMSB has imposed several deadlines to review old cases and close old audits. Mr. Boyle asked about the effect of the currency initiative on taxpayers already undergoing a LIFE audit. Is it intended to affect agreements already worked out with taxpayers? he asked, noting that several TEI members have reported that the time...