Successful IIR pilot program becomes permanent.

• Author: Ely, Mark H.
• Position: IRS Industry Issue Resolution program

In its continuous effort to resolve issues earlier in the examination process, the IRS introduced the Industry Issue Resolution (IIR) program in 2000, for frequently disputed issues affecting many taxpayers. The IIR pilot program was established under Notice 2000-65. It proved to be a huge success, and the Service adopted the program permanently in 2002 (Notice 2002-20).

What is the Program About?

The IIR program was designed to provide guidance on common disputes. Its goal was to reduce the cost and burden of settling disputes for both taxpayers and the IRS, as well as to curtail the number of disputes that occur during post-filing examinations, thus cutting back on the time needed for audits.

The permanent IIR program is open to all business taxpayers, unlike the pilot program, which the Service restricted to only Large and Mid-Size Business (LMSB) Division taxpayers. The LMSB and Small Business/Self Employed (SBSE) divisions will share responsibility for operating the program.

In selecting the types of issues to include in the IIR program, the IRS solicits input from individuals, industry associations and other groups. In selecting program issues, the Service considers whether the issues are appropriate, the likelihood that it can provide timely guidance and the availability of necessary staff and resources.

An appropriate issue generally has two or more of the following characteristics:

* Uncertainty exists as to the correct tax treatment in a given situation.

* Uncertainty results in frequent, often repetitive, examinations of the same issue.

* Uncertainty results in a significant burden on the taxpayer.

* The issue is material and affects a significant number of taxpayers, either within an industry or across industry lines.

* A factual determination is a major component of the issue.

Inappropriate issues include:

* Issues unique to only one taxpayer or a small number of taxpayers.

* Issues under the jurisdiction of the Commissioner, Tax Exempt, and Government Entities Divisions (e.g., employee plans).

* Issues about transactions that lack a bona fide business purpose or for which taxpayers significantly reduce or specifically avoid paying Federal taxes.

* Issues involving transfer pricing or international tax treaties.

After reviewing the issues, the Service, the Office of Chief Counsel and Treasury select which ones they will include in the IIR program. Taxpayers do not have any input in this process.

Next, a team of appropriate...