Tax Executives Institute Meeting
Omaha Chapter
April 17, 2012
Laura M. Prendergast
Industry Director
Heavy Manufacturing and
Transportation (HMT)
1
LB&I Structure
The Large Business and International (LB&I) Division serves
corporations, subchapter S corporations, and partnerships
with assets greater than $10 million dollars.
 Filing population growth:
 Since Standup, the number of LB&I returns filed
has increased 75%
 The growth in flow-through returns represents 76%
of the filing population.
 Significant improvements in currency and processes:
 Cycle time for large taxpayers just over 2 years
 Fast Track and Early Referral to Appeals reduced
case processing in Appeals
 Electronic filing and other process improvements
shortened time frame for return receipt
2
International Realignment
 All under one Deputy Commissioner
 One place for internal and externals
 Clear lines of authority and
responsibilities
 New International Practice Network (IPN)
allows International employees to access
technical expertise, legal support and
tools to work challenging global issues
3
International Structure
Douglas Shulman, IRS
Commissioner
Steve Miller, IRS Deputy
Commissioner for
Services & Enforcement
Commissioner
Large Business &
International
Treaty Unit
Michael Danilack, Deputy
Commissioner
(International)
Doug O’Donnell, Assistant
Deputy Comm’r (Int’l)
Sam Maruca, Director, Transfer
Pricing Operations
EOI Program
Kathy Robbins, Director,
International Business
Compliance
(IBC)
JITSIC
Foreign Posts
Service-wide
Strategy
Rosemary Sereti, Director,
International Individual
Compliance (IIC)
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4
International Priorities
 Transfer Pricing Practice (TPP)
 Offshore Voluntary Disclosure
Initiative (OVDI)
 Foreign Account Tax Compliance Act
(FATCA)
 Collaboration with Foreign Tax
Administrations
 Tax Treaty/Mutual Agreement
Program (MAP)
5
Uncertain Tax Positions - UTP
Purpose of UTP
 Reduce time to identify issues
 Ensures more time spent discussing the law as it
applies to the facts vs. looking for information
 Identify areas of uncertainty requiring guidance
Filing Requirements
 2010 tax year:
 Forms 1120, 1120-F, 1120-L, and 1120-PC
 Assets = $100+ million
 2012 tax year: Assets = $50+ million
 2014 tax year: Assets = $10+ million
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Sch. UTP Filing Stats
(as of 1/1/2012)
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1,900 taxpayers filed Sch. UTP
IC taxpayers filed 79% of returns with Sch. UTP
4,000 issues disclosed
CIC returns with Sch. UTP averaged 3.1
uncertain tax positions
IC returns with Sch. UTP averaged 1.9
uncertain tax positions
53% of all Sch. UTP returns filed included only
one or no uncertain tax positions
Top 3 code sections = IRC 41, 482 and 162.
19% of all issues disclosed are transfer pricing
issues
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Use of Sch. UTP in Examinations
 August 31, 2011 - Guidance
memorandum for LB&I CAP teams re:
requirements and procedures to follow
when conducting post-filing reviews.
 November 1, 2011 - Guidance
memorandum for LB&I examination
teams re: requirements and procedures
for reviewing and using the Sch. UTP in
conjunction with their examinations.
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Use of Sch. UTP (continued)
 Just in Time Training to team members
 Part of QEP as another tool
 Learning for taxpayers and the IRS.
 Gather feedback from examiners
 Knowledge gained in 2012 used to identify
areas for additional procedures, instruction,
guidance and/or changes for future years.
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Compliance Assurance Process (CAP)
 2005 - Pilot program with 17 taxpayers.
 2012 - 159 taxpayers accepted (58 taxpayers in HMT).
 March 31, 2011 – CAP Permanency announcement. Two
additional components of CAP Permanency:
 Pre-Cap –Roadmap of steps required for entry into
CAP.
 CAP Compliance Maintenance program - For
taxpayers who have:
• Completed one CAP cycle through post-file
• Fewer complex issues and,
• Established a history of working collaboratively
and transparently.
 Compliance Maintenance program is evolving.
 Movement between CAP and CAP Maintenance.
 Aligning resources to be able to react timely.
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Benefits of CAP
 Quality work product using real time
records
 Post cycle-time decreased
 Emerging issues identified earlier
 Certainty
 Currency
 Potential to avoid amending state returns
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Issue Practice Groups (IPGs)
 The Knowledge Management Process

One of newest pilots in LB&I.

LB&I employees across the country share experiences.

Issue Practice Groups (IPGs) - Designed around
specific subject matters.
• IPGs seek to build:
• A network of broader technical expertise.
• A means for obtaining more efficient and
consistent technical advice and assistance.
• Greater opportunities for collaboration.
• IPGs have two or three subject matter experts and
many part-time examiners across the country.
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Issue Practice Groups (continued)
 Current IPGs:
 Changes of Accounting Method
 Life and Non-Life Insurance Issues
 Deductible and Capital Expenses
 Regulated Investment Company (RICs),
Real Estate Investment Trust (REITs) and
Real Estate Mortgage Investment
Conduit (REMICs)
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Issue Practice Groups (continued)
 Other IPGs under consideration:
 Inventory Costs and Accounting
 Flow-throughs
 General Business Credits
 Financial Products
 General Corporate Issues
 Penalties
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IPG Summary
 Almost half of IRS’s current workforce has:
 Five or less years IRS experience
 Significant private sector experience
 New IPG process will allow IRS to
effectively:
 Use private sector experience and,
 Combine career employee expertise,
 To ensure quality and consistent
arguments for positions taken
nationwide.
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Quality Examination Process (QEP)
 Builds on and replaces Joint Audit Planning Process
 Effective June 1, 2010, Team Coordinator (TC) to
provide and discuss QEP Publication 4837 at
beginning of new examinations.
 Benefits of the Quality Examination Process - TP
and Audit Team can reach agreements on:
 Issues to be examined,
 Timing of IDRs, etc.
 Promotes consistent communication and
engagement with taxpayers throughout the entire
exam cycle, from Planning through Resolution.
 Minimal impact if already actively engaged and
working together with audit teams.
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Issue Management Strategies
(IIRs, PFA,s Fast Track)
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Industry Issue Resolution (IIR)
 Goal is to resolve frequently disputed or
burdensome business tax issues affecting a
significant number of taxpayers.
 Provides clear guidance, thus reducing the time and
associated expenses.
 A multi-functional team (IRS, Chief Counsel, and
Treasury personnel) gathers and analyzes the
relevant facts from the submitter, industry groups
and taxpayers and recommends guidance.
 IRS resolves accepted applications through IRS
published guidance (E.g., Revenue Ruling, Revenue
Procedure or, Administrative Guidance).
 Not a tool for every issue, but can save resources
and provide certainty.
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Industry Issue Resolution (continued)
 154 Submissions, 36 Accepted.
 5 current projects:
 2 in Insurance industry & other financial
products
 3 in Utility & Cable companies on “Unit of
Property”
 Additional 3 under consideration.
 Taxpayers, representatives, and industry
trade associations, can submit requests for
guidance on an issue any time at
IIR@IRS.gov.
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PreFiling Agreements (PFA)
 Beneficial way to reach agreement on a
contentious issue before the return is filed.
 User fee = $50,000 (Due only if the issue is
accepted).
 Taxpayers overall satisfaction = 4.7 out of 5.
 Requests can be filed with the Team
Manager or PFA Program Manager.
 The application is evaluated by Counsel, the
Audit team, and Technical Specialists.
 Final acceptance decision at Industry
Director level; no appeal.
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Fast Track Settlement (FTS)
 Since its inception, 781 cases accepted, 82.7% resulted
in agreement. FTS jointly administered by the LB&I and
the Office of Appeals.
 LB&I agents and taxpayers work together to resolve
outstanding issues while in LB&I’s jurisdiction.
 The FTS process should be completed in 120 days.
 Not appropriate for all cases, agents strongly
encouraged to consider Fast Track on ‘unagreed’
issues.
 The taxpayer retains all standard appeal rights
regarding any unresolved issues remaining at the time
of termination.
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Rules of Engagement
Discuss with the team first
Resolve issues at the lowest
level
Regular Territory Manager
involvement in cases
Elevate unresolved issues to
next level
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Summary
Suggestions for smooth IRS interaction:
1. Engage with the team. Use the Quality Examination
Process (QEP). The QEP process:
 Promotes better, more consistent communication
and engagement with taxpayers throughout the
entire exam cycle, from very early planning activities
through resolution.
2. Be transparent, prompt and timely.
3. Expect LB&I teams to plan, communicate and be
responsive.
4. Expect tax department personnel to do the same. Work
to resolve issues or, quickly identify irresolvable issues
for alternative dispute resolution process, formal
appeals or litigation.
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Any Questions?
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