Large business and international examination process changes.

• Author: Chambers, Valrie

While the IRS continues to increase its enforcement activities and the number of examinations each year, the Large Business and International (LB&I) Division has focused on improving the quality, efficiency, and effectiveness of the overall compliance and examination process for LB&I taxpayers. Two initiatives that stem from these efforts are the quality examination process (QEP) and the compliance assurance process (CAP). Both offer eligible taxpayers an opportunity to have a greater role in examination planning and to conserve resources in the process.

The Quality Examination Process

Most LB&I tax returns are complex, and their examinations are often time-consuming and involve many challenging issues. To make the examination process more efficient and to improve communications between examiners and taxpayers, the IRS updated the Internal Revenue Manual (IRM Section 4.46) to provide the QEP guidelines for administering quality examinations of LB&I returns.

QEP: A Three-Phase Process

The QEP guidelines provide for three distinct phases of the examination process. The first phase -- planning -- focuses on preexamination activities and is designed to develop an effective examination plan that the taxpayer and the IRS agree upon. Prior to meeting with the taxpayer, the examination team reviews all available public and internal IRS information concerning the taxpayer to perform a risk analysis and to identify potential issues to be examined. During this phase, the taxpayer and the exam team meet to discuss aspects such as timelines, transparency, taxpayer roles and responsibilities, the potential for involvement of technical specialists and counsel, and an overview of alternative dispute resolution options. At this initial meeting, the taxpayer provides an overview of its business operations, recordkeeping procedures, and financial statement and tax return preparations, as well as a discussion of any unusual events that occurred during the examination period. The exam team and the taxpayer should finalize and agree to a plan that will govern the examination.

Phase two of the QEP is the execution stage, during which an emphasis is placed on continuous dialogue. The exam team is responsible for keeping the taxpayer informed of any changes in the scope of the examination and any need to consult with a specialist or counsel, or to perform any new risk analyses. During this phase, the exam team explains the issues selected for examination and asks...