Report of the IRS CEP Currency Task Force.

• Position: Coordinated Examination Program - Tax Executives Institute's IRS Administrative Affairs Committee

On December 5, 1994, Tax Executives Institute submitted the following comments on a draft report of a special Internal Revenue Service task force on efforts to improve the currency of Coordinated Examination Program (CEP) examinations. The task force, which is chaired by Jack G. Holstein, Chief, Examination Division in the Hartford, Connecticut, District, was charged with -

reviewing ongoing currency improvement efforts in various locations to identify methods and techniques that can be recommended for consideration in other Districts; and

determining whether the "ultimate" currency goal proposed by the Executive Director of CEP (starting an examination within 12 months of its filing and completing the examination within the three-year statute of limitations on assessments) is attainable.

TEI's comments on the task force's draft report were prepared under the aegis of its IRS Administrative Affairs Committee, whose chair is Robert D. Adams of Halliburton Company. Also contributing materially to the comments were Sheldon A. Kimel of Brunswick Corporation, Robert J. McDonough, Jr. of Haemonetics Corp., and Thomas B. Rogers of Apple Computer, Inc. Anyone wishing a copy of the IRS's draft report should send a written request to TEI Headquarters.

On behalf of Tax Executives Institute, I am pleased to submit the following comments on the September 1994 draft report of the Internal Revenue Service's CEP Currency Task Force. The Institute appreciates the opportunity to review the draft report.

TEI's comments were developed following a review of the draft by a number of our members. Specifically, the draft standards were circulated to members of the Institute's IRS Administrative Affairs Committee and Executive Committee, as well as other interested members of the Institute. The views expressed in this letter represent a synthesis of the comments received. In addition, we have noted several typographical and grammatical errors in the draft. Rather than detail those comments in this letter, we enclose a marked-up copy of the draft, on which we have marked our proposed emendations.

General Comments

TEI is pleased that the Internal Revenue Service is reviewing its currency improvement efforts and undertaking to determine whether it is reasonable to adopt the goals of starting an examination within 12 months of a return's filing and of completing that examination within the three-year statute of limitations. We believe the draft report marks a salutary step in reaching those goals and we commend the Task Force for its contribution toward improving audit currency. The draft report reflects a flexibility that we find refreshing. We fear, however, that in certain circumstances the draft report may be too ambitious in the measures it seeks to establish.

TEI agrees with the Task Force that there is no single path to achieving currency. The report should recognize, however, that the use of the various tools available to the IRS and taxpayers depends upon the facts and circumstances of each case. The report should explicitly state that it presents a compendium, or sampling, of commonly used procedures to achieve currency but that the listing is not intended to be exhaustive. If the examination team and the taxpayer are committed to the goal, the means used to achieve currency is limited only by their creativity and initiative; there should be no artificial barriers erected.

TEI believes that there is an overriding need to involve taxpayers in the examination planning process - and in all stages of the process. Indeed, we have some sympathy for the view that the IRS should stop studying and restudying various issues (such as currency) and start insisting that the recommendations set forth in extant reports (most notably, the report on taxpayer involvement) be implemented in the field. At a minimum, we recommend that the Task Force report confirm that, with ongoing staffing constraints on both taxpayers and the IRS, an examination can be completed promptly and efficiently only by establishing and following a plan that the taxpayer was involved in developing. For example, the plan must recognize that in some companies the personnel who are responsible for taxpayer's planning and compliance functions will be involved in the audit and appeals functions. Consequently, advance scheduling and knowledge of the timing and scope of information requests will enable the tax department personnel to better serve all its functions and to provide timely responses to the CEP team. We sincerely believe that delays and attendant problems can be minimized where the taxpayer is intimately involved in the planning process. The IRS, too, is more likely to be thorough and professional in its identification and analysis of possible tax adjustments if the CEP team has a clear conception of the schedule and scope of the audit. Finally, detailed planning should enable both the IRS and the taxpayer to develop a greater variety of techniques for handling requests and issues expeditiously, thereby attaining the currency goals.

Definition of Case

Currency Goal

The Currency Task Force recommends (at page 1 of the draft report) that the following "case currency goal" be adopted:

A CEP case will be considered current when an examination is started within twelve months of the filing of the most recently filed return in a cycle and the planned examination span ... for the cycle is less than the cumulative number of months included in the cycle.

The Task Force's stated goal in its Mission Statement (page 1) of completing an examination within the three-year statute of limitations may technically be obtained, however, only if the audit cycle includes a single year. If the audit cycle includes two or more years, the currency goal - almost by definition - will often not be met.

For example, under a one-year audit cycle, the 1994 return of a calendar-year taxpayer (assuming no extensions) will be filed by March 15, 1995. The case will not fall within the proposed case currency goal unless it begins by March 15, 1996, and ends by March 15, 1997. Since the statute of limitations for 1994 will not expire until March 15, 1998, the 'ultimate' currency goal (page 1) could be achieved in such a case. The Mission Statement breaks down, however, where the cycle includes more than one year. Consider the case of a twoyear cycle (1994 and 1995). The examination will have to begin by March 15, 1997, and end by March 15, 1999 - one year beyond the three-year...