Tax Executives Institute--Internal Revenue Service Large and Mid-Size Business Division liaison meeting February 9, 2005.

On February 9, 2005, Tax Executives Institute met with Deborah Nolan, Commissioner of the IRS's Large and MidSize Business Division, and other representatives of LMSB. TEI President Judith P. Zelisko led the Institute's delegation to the meeting. The agenda for the meeting is reprinted below. Minutes of the meeting will be published in a future issue of the magazine.

1. Introduction

2. Service/Enforcement Initiatives

   1. Currency

      Enforcement of the tax law is one of the Internal Revenue Service's three primary strategic goals. One strategy for achieving that goal is the reduction of audit cycle time, thereby improving audits and permitting an expansion of audit coverage. During the last few years, LMSB has developed several audit techniques to improve currency and enhance compliance efforts.

      Approximately 18 months ago, TEI and LMSB launched the Joint Audit Planning Process, which compiles the "best practices" for conducting an audit and includes a planning and monitoring tool that lists the steps a taxpayer and audit team can take to enhance the quality and timeliness of tax examinations. A key to the initiative is the delineation of both the individual and the joint responsibilities of all participants--the taxpayer, team manager, audit team, specialists, and Counsel--thereby directing time and resources to the most important areas.

      Several other innovative procedures--such as Limited Issue Focused Examination (LIFE), Pre-Filing Agreements, Fast Track Mediation and Settlement, Accelerated Issue Resolution, Advance Pricing Agreements, and Early Referral to Appeals--have sought to improve the examination process and promote currency. LIFE in particular--with its focus on the resolution of material issues--holds great promise in reducing disputes and decreasing cycle time. These procedures all share a common denominator--a collaborative effort to resolve issues at the lowest level.

      TEI is proud of its partnership with LMSB and we remain committed to a collaborative approach to streamlining tax administration and obtaining currency. In response to a recent informal poll, however, several members volunteered that the quest for currency had seemingly caused their team managers to send certain complex issues to Appeals in order to meet deadlines for closing the case. Although currency is a laudable goal, it cannot come at the cost of other objectives. For example, the quest for currency should not unduly interfere with the IRS and taxpayers' ability to resolve issues at the lowest level. The agency will not achieve its goal of streamlining tax administration if the currency initiative pushes the resolution of issues from the examination team to Appeals. Such a result has the potential of overwhelming the Appeals process and prolonging the overall resolution of issues.

      During the liaison meeting, we invite a discussion whether LMSB has noticed a trend toward a larger number of unagreed issues.

   2. CAP Program

      LMSB's Compliance Assurance Process (CAP) employs real-time issue resolution to improve overall compliance and to enhance customer service. CAP's overall objectives are to: (i) work with the taxpayer to achieve federal tax compliance; (ii) resolve all or most issues prior to the filing of a tax return; (iii) reach an acceptable level of assurance regarding the accuracy and correctness of filed tax returns; and (iv) eliminate or substantially reduce the need for a post-filing examination.

      TEI is pleased that a number of its members have volunteered to participate in the CAP program. During the liaison meeting, we invite LMSB to provide an update on the progress of the new initiative.

   5. Appeals:

      National Taxpayer Advocate Nina Olson recently issued her 2004 Annual Report to Congress, which raises several key questions about the continuing independence of Appeals. She notes that Appeals has participated in three of the four IRS settlement initiatives for abusive tax shelters. Explaining that Appeals has historically served as a "check and balance" on IRS enforcement, Ms. Olson expressed concern that the involvement of Appeals in the settlement initiatives may impair its independence in both fact and appearance. Does the IRS anticipate making any changes in the Appeals process in light of the NTA's report?

3. Tax Administration

   1. Schedule M-3:

      TEI commends the IRS and Treasury Department for their collaborative approach in developing the new Schedule M-3 and revising it to minimize the burdens imposed on taxpayers. To permit taxpayers time to comply with the new requirements, the instructions provide that the filing of columns (a) and (d) of Parts II and III are optional for the first year. Although taxpayers appreciate the extra time to modify and redesign compliance systems, TEI remains concerned that the burden of providing this information outweighs its benefit. We urge the...