Tax Executives Institute-Internal Revenue Service liaison meeting.

On December 2, 1994, Tax Executives Institute is scheduled to hold a liaison meeting with the Commissioner of Internal Revenue and other officials of the IRS National Office. Reprinted below is the written agenda for the meeting, which was submitted to the IRS in mid-November. The minutes of the meeting will be reprinted in a future issue of The Tax Executive.

1. Introduction

   Tax Executives Institute is pleased to have this opportunity to meet with Commissioner Richardson, Chief Counsel Brown, and other senior officials of the Internal Revenue Service. Our periodic meetings give both organizations an opportunity to articulate policy and administrative concerns and considerations. We are especially pleased that the timing of the meeting has been advanced from February to December. By scheduling the meeting earlier in the government's (and the Institute's) fiscal year, there will be ample opportunity for productive follow-through on various agenda items. The scheduling of this year's meeting may be especially propitious given the monumental changes worked by the 1994 election and what they may portend for tax policy and administration. During the liaison meeting, we hope to identify a number of items (relating to both the examination process and the guidance process) on which we can arrange follow-up meetings and pursue real progress. We hence invite the IRS to provide us with its list of priorities and to join us in constructively discussing how the IRS and TEI (and other outside stakeholders) can most productively work together.

2. Improving the Examination Process

   During the Institute's liaison meetings with the Commissioner (most recently in February of this year), we have ordinarily devoted a considerable amount of time to how the IRS and taxpayers (individually and through TEI) can work together to improve the examination process. The overriding goal of the initiatives has properly been to enhance the currency of examinations and to reduce taxpayer burden. TEI is proud of its record of working with the IRS (through members' service on task forces, the preparation of comments on proposed procedures and draft reports, and otherwise) in improving the examination process, especially as it applies to taxpayers in the large-case program.

   1. IRS Quality Survey. Earlier this year, TEI reported to the Commissioner that it was in the final stages of analyzing the results of its 1993 IRS Quality Survey and of discussing those results with District and Regional IRS officials.(1) (This "bottom-up approach" was agreed to by TEI and the IRS when the survey was being developed in 1992.) The purposes, methodology, results, and "after-effects" of the IRS Quality Survey--including the major themes that emerged from district-level follow-up meetings--are discussed in Appendix I to this agenda [which is reprinted in this issue of The Tax Executive!.

      Although a detailed discussion of the survey results is beyond the scope of the liaison meeting, we call attention to the following issues, which resonate throughout all IRS districts and regions:

      * Training. Taxpayers across the country expressed concern about the inadequate training provided to team members, including specialists. They expressed the view that they had to expend considerable time helping to train the agents.

      * Information Document Requests. Taxpayers identified the IDR process as one needing immediate attention, though the situation is markedly better in some districts than in others. They reported that too often IDRs are unreasonably broad or openended (or even generic or "canned"), and that this characteristic led to unnecessary paperwork and undue documentation requests. It therefore led to delays. Interestingly, taxpayers report that progress is being made where the examining agent and the taxpayers discuss the area of inquiry before the IDR is issued; this has permitted the IRS to narrow the scope of the IDR, thereby reducing the burden on the taxpayer and the volume of documents that the IRS must examine. It was agreed that if IDRs are focused, taxpayers will be able to--and should--respond on a more timely basis.

      * Involvement of Specialists (including Counsel Personnel). Taxpayers expressed much frustration with the role of specialists--specifically, with the lack of control exercised over the specialists by the Case Manager and hence the failure to properly "integrate" the specialists' work with the overall audit.(2) This has led to delays and, to use the term used by respondents, "wild goose chases."(3) Interestingly, taxpayers report that where they have been involved in formulating (or fine-tuning) the audit plan, there is less confusion about the role of specialists. Moreover, where the specialists interact with the taxpayer on a fairly regular basis (rather than issuing IDRs or Forms 5701 without consulting with the taxpayer), there seems to be a better acceptance of the role. These comments apply not only to subject-matter specialists (such as international examiners or engineers), but also to Counsel personnel. Regular meetings between the taxpayer and the Case Manager, to discuss the status of IDRs and open issues and to identify and address possible problems (e.g., with the specialists), were suggested.

      * Length of Audits. An almost universal concern is the length of the audit process, including the time needed to resolve issues at Appeals. Taxpayers expressed the view that examinations could be shortened by providing Case Managers with greater settlement authority or, alternatively, by measuring Case Managers on how effectively they use the authority they currently have (or both), and by moving ahead on such initiatives as Accelerated Issue Resolution and Advance Pricing Agreements. Taxpayers expressed concern that the IRS's goal of enhancing currency may be undermined in some districts by efforts to expand the scope of audits and by the practice of applying relative lower thresholds of materiality. Finally, as to Appeals, taxpayers report both that it takes longer for Appeals to begin actively working their cases and that it is taking longer for cases to be resolved.

   2. The Need to Get "The Word" Down. A key goal of the Institute's IRS Quality Survey was to measure how well IRS National Office initiatives concerning the examination process (and the Coordinated Examination Program in particular) were being implemented and whether there were district-by-district, or regional, variations. Quite candidly, the results are at best mixed. If there was a single recurring theme that emerged from the survey it is that many of the changes approved by the National Office as many as five years ago (or by IRS CEP task forces in the interim) have not been implemented on a uniform basis throughout the country. Stated bluntly, our members like (for the most part) what they are hearing from the National Office, but they are not seeing it in the field. A prime example of field inconsistency is the recommendation that all parts of a detailed audit plan (focused on proposed adjustments) be shared early in the process with the taxpayer.

      TEI understands that the CEP Policy Board is intended to oversee the large-case program and to ensure that, to the extent possible, "the word" is communicated to--and heard by--the field. Is this correct? We appreciate that change does not always come quickly in large, decentralized organizations such as the IRS. Nevertheless, we believe that more should be done to inculcate field personnel on the need to implement, and the benefits to be derived from implementing, the agreed-upon changes. In this regard, we believe that much good would be accomplished by issuing a revised, comprehensive Case Manager's Manual that would spell out the IRS's policies concerning, among other things, the involvement of the taxpayer in the audit process, the extent of the Case Manager's settlement authority (and the expectation that the authority will be prudently exercised), and the availability of numerous tools to resolve issues at the lowest level. We had previously understood that such a revision of the Manual, which could be seen not as limiting the Case Manager's authority but as crystallizing it, was well underway. What is the status of the project?

   3. Field Service Advice. For nearly a decade, TEI and the IRS have engaged in a dialogue about the appropriate role of Counsel personnel in the...