Tax Executives Institute--LMSB liaison meeting: February 24, 2003.

On February 24, 2003, Tax Executives Institute met with Larry R. Langdon, Commissioner of the IRS's Large and Mid-Size Business Division, and other representatives of LMSB. TEI President J.A. (Drew) Glennie led the Institute's delegation to the meeting. The agenda for the meeting was published in the March-April 2003 issue of The Tax Executive. The minutes follow:

On behalf of the Large and Mid-Size Business (LMSB) Division of the Internal Revenue Service, Commissioner Larry R. Langdon welcomed TEI President J.A. (Drew) Glennie 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. [Note: The minutes follow the order of the agenda submitted by TEI.]

1. Opening Comments

   Mr. Glennie thanked the LMSB representatives for taking the time to meet with the Institute. Mr. Langdon remarked on the symbolism of meeting in the government's version of "TEI"(or Treasury Executive Institute), which is the training facility for executives within the Treasury Department. He noted that TEI representatives were recently part of the classes held for IRS employees currently undergoing executive development training in the facility. These employees will also visit two taxpayers in the Detroit area to provide the trainees with a taste of corporate America. It is important for IRS employees to understand the issues of businesses, he added.

   Mr. Langdon highlighted three issues:

   * The tax shelter disclosure regulations. LMSB's interests in the regulations are similar to TEI's, Mr. Langdon stated. Neither party wants box cars of information to be provided in response to the regulations. He added that the rules were similar to Goldilocks's porridge: They shouldn't be too hot or too cold, but just right.

   * Penalties for non-disclosure. Mr. Langdon stated that there is a need for proper penalty administration. Those taxpayers that enter into reportable transactions that are not disclosed should be penalized, he said, otherwise, there will be no incentive for taxpayers to disclose. Referring to the recent report on the Enron situation released by the Joint Committee on Taxation, he stated that the report highlights les sons to be learned as well as challenges to be managed. Taxpayers must live with that history, he said, but we hope there is no overreaction for taxpayers who are trying to comply with the laws.

   * Tax shelter settlement initiatives. Mr. Langdon remarked on the challenges facing the IRS in attempting to settle cases involving abusive tax shelters. Existing cases must be expeditiously resolved, he added.

   Ms. Nolan commended the Institute for its valuable comments on the IRS's reorganization. TEI has adjusted its structure to work effectively with us, she stated, and the result has been more initiatives to settle audit disputes as quickly as possible. LMSB needs to know what's working and what's not, she added.

   Ms. Nolan noted that LMSB officials recently met with incoming Commissioner-nominee Mark Everson. The new Commissioner supports a balanced approach in effectively using LMSB resources to resolve outstanding cases, she stated.

   Noting he is in his last year as LMSB Commissioner, Mr. Langdon expressed his commitment to maintaining the strategic focus of the IRS. LMSB Team Managers are heading in the right direction, he said, expressing pride in the progress made to date. Although 42 percent of the LMSB workforce is eligible to retire, many are remaining. In addition, the division has received almost 1,000 resumes for the 40-60 new slots to be filled this year. Approximately 50 percent of the applicants have more than five years of experience and are certified public accountants or lawyers, or hold masters of tax degrees. [Note: Subsequently, Mr. Langdon announced that he would resign from LMSB effective May 31.]

   Mr. Glennie encouraged LMSB to stay on course. You have the full support of TEI, he stated, adding that the Institute is willing to work with the government to reduce taxpayer burdens.

2. Audit Processes

   1. Pre-Filing Initiatives

      Mr. Rossi referred to the use of the pre-filing agreement and industry issue resolution programs, asking for an update on the use of these procedures, including whether LMSB intends to initiate new IIR projects. Ms. Petronchak stated that the PFA program has received 78 applications since it was initiated, of which 48 have been accepted and 17 closed. The IRS is working on a new revenue procedure that will expand the program to include multiple years and more international issues. Mr. Ng added that the IRS is preparing its third report to Congress on the program, which will be submitted by the end of March. Anecdotal reports of the time savings realized by taxpayers participating in the program reveal a 20-60 percent time savings, with an average of 21 percent.

      In response to a question concerning the international issues to be included in the program, Ms. Dunahoo said that where the law is clear and the issues are fact-driven, international issues can qualify for the PFA program. The revised procedure will list potential international issues, but the list is not intended to be exclusive, she said.

      Mr. Ng stated that LMSB will stress the use of PFAs as one of its operational priorities with its field teams.

      Ms. Burke noted that cases involving mixed issues of law and fact are the most troublesome for the PFA program. She advised that if an issue is not accepted for the PFA program, the taxpayer should consider using the expedited process for obtaining legal advice (i.e., the TEAM process) to seek a solution. The time for obtaining that advice can be negotiated, she added.

      In respect of the IIR initiative, Ms. Petronchak noted that seven issues were selected for inclusion on the business plan, of which one has been published. A revision of the revenue procedure is under consideration. Taxpayers should be permitted to propose projects year-round, she stated, and the IRS may expand the program to select projects more than once a year for inclusion. The Small Business/Self-Employed Division is eager to include issues in the program, he added. Ms. Burke noted that the quarterly updating of the business plan makes it easier to include additional IIR issues during the year.

      Mr. Petrella noted that issues not selected for the IIR process are often developed within the industry sector. An issue management strategy will be included in the division's goals for FY2004. [Note: On April 17, the IRS announced new procedures for the IIR program.]

   2. LIFE Initiative

      Mr. Bernard noted that TEI is pleased with LMSB's recent announcement of its limited issue focused examination, or "LIFE," initiative. LIFE--an innovative process to focus government and taxpayer resources on the most...