Tax Executives Institute--IRS Large Business & International Division liaison meeting agenda: February 26, 2013.

• Position: Calendar

1. Welcome and Introductions

2. Large Business & International (LB&I) Division 2013 Priorities

3. Examination Related Matters

   1. Budget/Staffing

      The IRS and taxpayers face a continuing challenge of "doing more with less." In the agenda for the meeting with the Acting Commissioner of Internal Revenue, TEI requested an update on agency-wide budget challenges. In our meeting with LB&I, we request a similar update on staffing and budgeting issues focused on LB&I's priorities, initiatives, and challenges, including the Division's efforts to maintain balance among enforcement and taxpayer services; domestic vs. international issues; and CAP vs. Coordinated Issue Case (or large Industry Case) examinations vs. the smaller businesses within LB&I's jurisdiction. To the extent LB&I is affected by resource drains --such as the implementation of FATCA or the Affordable Care Act--we welcome a discussion of those issues. More specifically, what steps has LB&I taken to prepare for compliance activities relating to the Affordable Care Act and FATCA, and what steps has LB&I taken to minimize the effect of potential budget cuts (from sequester or otherwise) or resource drains on enforcement or taxpayer services? As an example, the time to completion for transfer pricing examinations, APA requests, and other complex legal issues have grown--from taxpayers' perspectives--too lengthy and could be improved by the allocation of additional resources or streamlined decision-making. But in an age of budget cutting, addressing such matters in a more timely fashion may require shifting resources from other programs or priorities.

   2. Compliance Assurance Process

      Seven years after its inception, CAP remains an agency priority. Former Commissioner Shulman characterized the program as, "the paradigm of how things should work," and we cannot agree more. Many TEI members are active participants in CAP, and we are assembling real-time, in-the-field observations to share with LB&I executives in an upcoming CAP liaison meeting, which we expect to take place in March 2013. In addition, the GAO recently solicited assistance from TEI in developing metrics for evaluating the effectiveness of the CAP program. We anticipate providing input to the GAO by the end of March.

      One high-level concern reported by TEI members is that CAP examiners have begun to move away from the limited focus examination that is the hallmark of CAP in favor of a more traditional audit approach. This is troubling because it undermines the purpose of the CAP program.

      With this background, we invite an update on CAP program statistics on participation (in all three phases) and success in closing cases. We also invite discussion regarding resources devoted to the program and how the resource allocation has changed from past years. Finally, we invite a discussion about the experience level and training of CAP agents and opportunities for stakeholder input and participation in agent training.

   3. Transfer Pricing Operations, Including the APMA Program

      The IRS recently reorganized its Mutual Agreement and Advance Pricing Agreement programs into a single division under LB&I. TEI invites an update on the progress of the overall reorganization of the IRS's transfer pricing operations, including the key positive changes and an assessment of areas that are not meeting expectations. In addition, we invite a discussion of the following:

      1. Large taxpayers remain frustrated by the length of time required to obtain an APA or competent authority relief. What are the latest IRS statistics in respect of cases accepted, case inventory, time to closure, and backlog reduction for both programs? Do the statistics meet the IRS's expectations in light of the reorganization? Does the IRS plan to devote additional resources (including economists) to the APMA program? In addition, we invite an update on the status of new guidance on combining the procedures for APA and competent authority requests, including a summary of which provisions of the current revenue procedures may be significantly revised.

      2. The APA portion of the APMA program offers taxpayers an opportunity to enter into a contract pursuant to which the IRS agrees not to seek a transfer pricing adjustment for covered transactions if the taxpayer files its tax return for a covered year consistent with the agreed transfer pricing method. Although the primary focus of an APA is on prospective transfer pricing methods, Rev. Proc. 2006-9 contemplates a rollback of an APA to resolve issues regarding the same covered transaction in earlier years thereby providing an avenue for settling transfer pricing controversies covering a decade or more.

         Due to a variety of factors, an APA can require several years to complete. For example, a taxpayer may file for an APA in 2006 and request a rollback to 1998, but the APA may not be finalized until 2011. As a result, several prior year transfer pricing adjustments must be processed through an amended return for each year--a resource intensive process for taxpayers and the IRS. We welcome LB&I's input on whether this process could be shortened through a new elective procedure that would allow taxpayers to elect to roll all prior year transfer pricing adjustments arising from an APA into the current year's return or the current year's IRS examination. In TEI's view, such a process would be similar to a section 481(a) adjustment and, in certain respects, a "true up" computation under section 905(c). Under the proposed election, separate tax computations would be made for each taxable year, the year-by-year adjustments would be netted against each other, and a net adjustment would be processed in the current year return or as part of the current year examination. Interest would be computed and correctly treated for all taxable years in issue.

      3. Recent remarks by IRS officials indicate that the agency is considering guidance that would permit a taxpayer to seek competent authority relief resulting from taxpayer-initiated foreign transfer pricing adjustments and thus a larger foreign tax credit. We applaud this development and invite a discussion of the issue, the guidance that may be forthcoming, and the timing of such guidance.

      4. Taxpayers have also expressed frustration regarding the process for seeking foreign tax credits resulting from foreign-initiated adjustments. A common concern is the absence of a de minimis threshold that would allow U.S. taxpayers to claim a foreign tax credit from a foreign-initiated adjustment for small items without engaging in a competent authority proceeding. We welcome a discussion of LB&I's views on this issue.

      5. Finally, we invite an...