Pittsburgh Chapter's annual liaison meeting with the IRS Pittsburgh District; January 26, 1995.

• Position: Liaison Meeting Special

On January 26, 1995, representatives of Tax Executives Institute's Pittsburgh Chapter held their annual liaison meeting with officials of the Internal Revenue Service's Pittsburgh District. The minutes of that meeting are reprinted below. Certain questions and answers have been deleted or edited to take into account superseding events. In particular, the IRS's responses to questions 1, 2, and 3 under the heading Appeals (relating to early referral to Appeals under Announcement 94-41, mediation under Announcement 95-2, and coordination of Appeals' involvement in Competent Authority cases under Announcement 93-144) have been shortened inasmuch as those procedures hate been the subject of previous articles in The Tax Executive.

Examination

1. Status of Advance Determination Procedure.

   The National Director of Corporate Examinations, Tom Wilson, is currently reviewing the findings of a task force that was convened to study this issue. We anticipate some guidance to be issued soon.

2. Taxpayer Compliance Measurement Program (TCMP) for 1995-What Will It Mean to Pittsburgh Taxpayers?

   The TCMP examinations will begin in October 1995 and will conclude in May 1998. This program will be different from previous TCMP programs because it incorporates the market segmentation strategy the IRS is now using to identify areas of noncompliance within the tax markets and tax classes.

   The Pittsburgh District will be examining approximately 2,300 returns out of the 152,500 that will be done nationally. The breakdown of returns by tax class for Pittsburgh is, as follows: Form 1040 1,462 Form 1120 442 Form 1120S 156 Form 1065 223

   We understand that CEP partnership cases could be selected under the 1995 TCMP audits, meaning a more indepth audit for those cases selected.

3. Revocation of Record Retention Agreements--What Is the Effect on the Audit Process in Pittsburgh?

   Although we (the IRS) are automatically revoking all record retention agreements in CEP cases coming up for audit, there has been no adverse effect on CEP examinations in Pittsburgh. Revenue Procedure-91-59 mandates that all machine sensible records are to be maintained by the taxpayer in addition to hard-copy records. These are records that have a direct impact on the income tax returns. The revenue procedure goes into detail on what files are to be maintained and how they are to be formatted. Our computer audit specialists are available at (412) 644-2677 to answer questions about Rev. Proc. 91-59.

4. What Is the Status of IRS Approval for Use of Electronic Imaging for Record Retention Purposes?

   At the present time it is still a consideration that is being studied by IRS Headquarters in Washington, D.C.

5. Please Comment on New Form 5471 and How It Will Be Helpful in Conducting Audits.

   The new Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, which is expected to be released in [early] 1995, will continue to be the backbone of the international examination. Since it contains information relative to Controlled Foreign Corporations, it is essentially the starting point of all international examination cases.

   The form is being modified to accommodate the change that now requires a company to report information in the functional currency of the country involved and then convert it to U.S. dollars according to the generally accepted accounting principles (GAAP). There are minor modifications to some other schedules and some, such as Schedule D, have been eliminated.

6. Please Comment on New Developments to Improve the Audit Process (e.g., Procedures to Get More Current and Shorten the Audit Cycle).

   Steps we are taking to improve the audit process include

   (a) We are getting the taxpayer involved in the audit planning process, which helps to improve the level of understanding and communications between the taxpayer and the IRS.

   (b) We are training all Coordinated Examination Program agents in the use of databases in the audit process. With direct access to the taxpayer's database information, we will be able to decrease the time span of the audit as well as reduce the burden of supplying records, data, etc., on the taxpayer.

   (c) We are also trying to improve the currency of audits by conducting them in three- year cycles when appropriate.

7. Please Comment on Advance Pricing Agreements (APAs) to Resolve Transfer Pricing Disputes. Also, Comment on Preferred Format for Contemporaneous Documentation for Transfer Pricing Disputes.

   APAs are proving to be very helpful in resolving transfer pricing disputes. To date, the National Office has received nearly 100 APAs, and it expects that number to be doubled during 1995. The potential for...