TEI-Large Business & International Division liaison meeting minutes.

• Position: Tax Executive Institute

February 26, 2013

On February 26, 2013, a delegation from Tax Executives Institute met with Large Business & International (LB&I) Commissioner Heather C. Maloy, and other officials of the Internal Revenue Service. The following minutes were prepared by Tax Executives Institute and, although reviewed by the IRS, they have not been formally approved by the agency. The agenda for the meeting was submitted in advance and was published in the February-March 2013 issue of The Tax Executive as well as on TEI's website.

LB&I Commissioner Heather C. Maloy welcomed Institute President Carita R. Twinem and the TEI delegation. On behalf of TEI, Ms. Twinem thanked the IRS for its ongoing commitment to an active dialogue with taxpayers. Both organizations, she said, share the goal of ensuring that taxpayers file complete and accurate returns while minimizing administrative and compliance burdens. The liaison meeting affords an opportunity to assess where improvements can be made to improve the tax system's efficiency. The IRS and TEI delegations to the meeting are set forth below.

IRS Delegation

Heather C. Maloy

LB&I Commissioner

Paul D. DeNard

LB&I Deputy Commissioner (Operations)

Laura Prendergast

Industry Director, Heavy Manufacturing & Pharmaceutical

Richard McAlonan

Director, Advance Pricing & Mutual Agreement Program

Deborah T. Palacheck

Acting Deputy Director, Pre-Filing & Technical Guidance

Linda M. Kroening

Division Counsel

Drita Tonuzi

Deputy Division Counsel

Thomas A. Vidano

Deputy Division Counsel (International)

Lisa J. Shuman

Senior Level Counsel

Kathryn L. Gregg

Manager, LB&I Stakeholder Liaison

Jane K. Agule

Senior Program Analyst, IRS National Public Liaison

TEI Delegation

Carita R. Twinem

Spectrum Brands Holdings, Inc.

TEI International President

Terilea J. Wielenga

Allergan Inc.

TEI Senior Vice President

Mark C. Silbiger

The Lubrizol Corporation

TEI Secretary

Charles N. (Sandy) Macfarlane

Chevron Corporation

TEI Treasurer

Kim N. Berjian

ConocoPhillips Canada

TEI Executive Committee

Thomas J. DeGeorgio

BHP Billiton

TEI Executive Committee

Ernest N. Gates

Wal-Mart Stores, Inc.

TEI Executive Committee

Daniel R. Golf

Xilinx, Inc.

TEI Executive Committee

Katrina H. Welch

Texas Instruments Incorporated

TEI Executive Committee

Michael J. Bernard

Microsoft Corporation

Chair, TEI IRS Administrative Affairs Committee

Robert L. Howren

BlueLinx Corporation

Chair, TEI Federal Tax Committee

Eli J. Dicker

TEI Executive Director

W. Patrick Evans

TEI Chief Tax Counsel

Jeffery P. Rasmussen

TEI Senior Tax Counsel

Daniel B. De Jong

TEI Tax Counsel

Benjamin R. Shreck

TEI Tax Counsel

LB&I 2013 Priorities

Ms. Twinem invited an update on the LB&I Division's 2013 priorities. Since the financial downturn, she noted, taxpayers and the IRS have been stretched to do more with fewer resources and the budget sequestration process will exacerbate the IRS's challenge. Ms. Maloy referred to the Fiscal 2013 Field Focus Guide and said that LB&I is engaged in a top-to-bottom review of the examination process, including the historical classification of taxpayers into Coordinated Industry Case (CIC) and Industry Case (IC) categories. Those designations and many of the field's examination practices and processes were carried over from the IRS's Coordinated Examination Program, which predates the divisional realignment under the IRS Restructuring Act. The goal of the review is to standardize the examination process throughout LB&I. Thus, fundamental questions were asked about the nature of the CIC or IC taxpayer designations and whether those classifications make sense when the number of corporate income tax returns is declining and the number of complex, noncorporate returns is increasing. The first phase of the review shows that the current process front-loads a significant amount of IRS resources in the examination planning phase, but repetitious behaviors from year to year may impair efficient risk assessment, information gathering, and issue resolution. In addition, agents assigned to CIC cases receive a Grade 14 Civil Service rating; if the agent is reassigned to an IC case, or if the taxpayer merges with another taxpayer and control of the CIC case moves to a different jurisdiction, the agent may lose the higher civil service rating. LB&I is reviewing all the implications of the case designations and is working with the National Treasury Employees Union on personnel issues that may arise from process changes.

Ms. Prendergast explained that LB&I conducted a process and issue assessment of more than 100 CIC cases and 85 IC cases to determine how the examination process can be standardized and streamlined and taxpayer burdens reduced. Panels consisting of Directors of Field Operations, territory managers, and team managers from domestic, international and specialists reviewed all aspects of Quality Examination Process (QEP) cases to assess best practices and to identify and build on expertise in planning and executing examinations and resolving issues. The study identified two areas for improvement: the information-gathering process and the engagement of specialists by team leaders and case managers. Mr. DeNard added that the process review will assist LB&I management determine when and how best to engage all specialists, from engineers to economists to international examiners to computer audit and financial products specialists. Ms. Maloy explained that the current examination model calls for specialists to be assigned to the case from its inception and to remain on the case until its conclusion. The new model, she said, may permit teams to examine issues previously reserved for specialists, with specialists moving quickly from case to case in an advisory role. In addition, the Issue Practice Groups (IPGs) and International Practice Networks (IPNs), which are still in pilot phase, are developing a knowledge base of issues, fact patterns, and industry practices. Once the content is developed, training programs for the specialists and teams will assist in transitioning to a knowledge-management environment where the field can work the issues efficiently rather than having specialists address specific issues in every case.

Ms. Prendergast explained that the process and issue assessment identified inconsistencies in the conduct of examinations, including the issuance of Information Document Requests (IDRs). In some cases, agents were drafting IDRs and issuing them to the taxpayer without discussion or explanation. In other cases, the agents discussed the issues with the taxpayer prior to writing the IDR, then reviewed the IDR with the taxpayer and established a timeline for the taxpayer's response. By looking at QEP from agents' and taxpayers' perspectives, the assessment team determined that a new road map for examinations should be developed, including re-engineering the IDR process. Ms. Maloy noted that proper risk and issue assessment begins with an information-gathering process, which is a broader concept than issuing IDRs, so the re-engineering will include a two-phase training program. First, all examiners are being trained in writing issue-focused IDRs. Second, examiners will receive training on case management, including discussing IDRs with taxpayers prior to issuance, setting a mutually agreed date for a response, and following up with summons enforcement where deadlines are not met. In many cases, agents have received no formal training in the information gathering approach. LB&I will incorporate the process in its new-hire training rather than rely on on-the-job training. Once implemented, the revised process will be known as the LB&I examination program rather than QEP.

TEI queried whether LB&I has determined the context in which summonses should be issued. Ms. Maloy replied that there is no standardized IDR response period...