IRS Liaison Committee Meeting – 5/24/2010
Issue #1: IRS Disclosure Requirements of Uncertain Tax Positions
Please provide a general update on the status of Announcement 2010-9 regarding IRS
income tax return disclosure requirements for uncertain tax positions.
IRS Presenter: Jim Roosey, DFO-East RFPH
Limited ability to discuss this topic.
The effective date of the UTP disclosure is unknown at the date of the meeting.
The comment period on the draft ended 6/1/2010.
Issue #2: Sch M-3
Since LMSB taxpayers have been filing the Schedule M-3 for a number of years, please
explain what the IRS has done to analyze this data and how this information has
influenced the audit process.
IRS Presenter: Sharon Porter, Territory Manager RFPH
Compliance Initiative Project – 3 years to date. Filter tax returns to identify best returns
for audit, including a remedy for audit issues creating undo burdens. The IRS will issue a
report on the study, the results of which have not been funneled down to the audit level.
IRS completed Form M-3 focused training to assist examiners in how to utilize
information from the M-3 to better identify risk areas.
Failure to complete the form or complete the form accurately – 5% of taxpayers noncompliant. Currently no penalty for failure to complete – no incentive for taxpayer. IRS
has been following up on a case by case basis when the Sch M-3 is not completed of is
not completed accurately.
Some believe there is no longer be a need for Sch M-3 with requirement for UTP filing
but this is being reviewed and not currently an option.
Issue #3: Compliance Assurance Process (“CAP”) Program
How would the IRS characterize the results of the CAP Program? How many companies
are in the program in our territory? Is the number of companies increasing overall? How
many companies have dropped the program? Is the goal to eventually have all large case
taxpayers in the CAP program?
IRS Presenter: John Dunn, Team Manager
Total participants in CAP – 115 Nationwide; Territory: 8 RFPH and 6 HMT
CAP is being made permanent in 2011 and will have 3 levels of participation. Level 1
will be pre-CAP and will involve a currency plan for all filed tax years and one unfiled
tax year. Level 2 will be CAP. And Level 3 will be Cap Monitoring or CAP Lite. In the
future, one CAP coordinator will monitor between 1 and 5/6 taxpayers. Cap Lite or CAP
Monitoring status is at the transparent end of the spectrum. Pre-Cap will be voluntary,
while currently CAP is invitation only.
Possible causes for CAP taxpayers to drop out of program: acquisition, resource issues
or joint agreement with IRS that program not working for them.
CAP taxpayers are currently re-invited to participate each year in a Memorandum of
Understanding.
Certain issues may prevent Cap participation: listed transactions, DOJ investigation,
foreign ownership, Advanced Pricing Agreement participants.
Issue #4: Settlement of Cases at the Exam Team Level
It appears that the direction in recent years is to elevate all material issues to the National
level, and once this occurs, it is almost certain that the case will end up with the
Appellate Division. What is the settlement authority of the local exam team?
IRS Presenter: Matt Fritz\Richard Trogolo, Supervisory Attorney- LMSB Counsel
Today exists better coordination within the IRS to provide advice to the exam team. The
benefits of this coordination are 1) a check or balance on warranted actions by examiner
and 2) attorneys provide necessary in-depth look at certain issues.
Exam is charged with reviewing returns and setting up issues. Appeals settles issues on
hazards of litigation – resolve by looking at the facts.
Numerous settlement initiatives have been introduced involving various levels of Appeals
to resolve specific issues sooner.
Issue #5: Employment Tax Audits
As a part of the National Research Program, the IRS plans to randomly examine
employment tax returns for the 2008 to 2010 tax years. What is the basis for the random
selections? What can LMSB taxpayers expect from this initiative?
IRS Presenter: Marlene Snodgrass, Global Team Manager
An NRP study has not been completed in 22 years. The study is meant to provide a tax
gap measurement from employment taxes.
Taxpayers are chosen at random and will have received a Letter 3850B in March /April
2010. The years are under examination will be 2008, 2009 and 2010. 6,000 total audits
from SBSE and approximately 40 from LMSB.
No CIC cases will be picked unless a relationship exists with smaller taxpayer.
Information requests will include all Forms 941 and 1099.
Issues being reviewed include 1) fringe benefits, including IRC 409A; 2) executive
compensation; 3) backup withholding and 4) Forms 1099.
Worker classification and non-filers will also be an emphasis.
Issue #6: Electronic Filing
Has the IRS determined what savings, if any, have been achieved by requiring
corporations to file returns electronically? Has the IRS determined what savings, if any,
have been achieved by requiring tax practitioners to file client returns electronically?
Has the IRS determined a way to return these savings to the taxpayer and practitioners
who have to unfairly incur additional costs in order to comply with the requirement to file
returns electronically for the benefit of the IRS?
IRS Presenter: Sharon Porter, Territory Manager RFPH
Last year 60% of tax returns filed electronically
Previously stated goal was 80% by 2007
Study was performed and released in December 2008 showing 87% reduction in cost to
process an individual return. A second study has been performed for corporate taxpayers
and will be released this summer.
IRS has seen slight benefit of screening electronically filed returns for audit purposes.
Additionally, IRS has been able to redirect paper processing associates to other tasks.
Issue #7: Hiring Structure
Has the IRS been able to achieve hiring goals set to replace the significant staffing
shortfall that it announced a few years ago that it felt was going to happen due to attrition
of senior staff members? A general observation is that the IRS has made a concerted
effort to hire at the experienced level more so than in the past.
IRS Presenter: Darlene Seifert, International Team Manager
For LMSB SW Ohio and KY, a concerted effort is being made to hire at the experienced
level. Potential retirees have stayed longer and more qualified individuals are available
due to the economy. Nationally, the IRS is scheduled to hire 550 new employees in
2011.
Issue #8: Safety Precautions
In light of the recent tragedy in Austin, Texas by the actions of a distraught and unstable
taxpayer against the IRS office, has the Commissioner raised any new concerns or
procedures required to be followed by IRS personnel or taxpayers for the safety of IRS
personnel and their work locations at taxpayers’ offices?
IRS Presenter: Bill Mason, Team Manager
The IRS is a target of certain individuals and organizations. Security is always a concern,
but has been heightened in past few years. The IRS has systems in place to monitor data.
Commissioner has told employees to become alert to threats and provides annual training
to monitor threats and review facilities. Numerous plans are in place for dealing with
emergency incidents.
Taxpayers should emphasize evacuation for IRS employees.
Issue #9: Information Sharing process with the States – Update
How does the information sharing process work?
What information is sent to the states (e.g., consolidated return information versus
separate company information)? What information is the IRS receiving from the states?
Is there a joint effort in certain areas between the IRS and the states?
IRS Presenter: Jacqueline Nielson, Governmental Liaison
IRC 6103 deals with confidentiality and disclosure of returns and return information.
This provision is mandated by Congress and covers the 50 States, Territories, Cities with
250,000 residents or a group of cities such as RITA.
Information sharing must be requested by completing Form 8796. The information
requests are administered through large electronic extracts. The 17 total extracts may be
provided weekly, monthly or annually. Non-filer and income matching, gross receipts
(OH CAT), EIN tickler file, corporate affiliation, employment tax audit report,
exam\appeals report are extract examples.
IRS may also request information from States, such as reverse file match extract. The
database review allows IRS to match taxpayers income reported to States. The IRS may
request individual, corporate, sales and withholdings tax information.
Issue #10: Case Management and Risk Assessment – Update
Explain the concept of risk analysis that is conducted at the beginning of the audit cycle.
What are the changes from 2008 to 2009 in the LMSB examination closure rates, and
what affects have these changes had on other LMSB priorities?
What effect, if any, has the economic downturn had on examinations (e.g., budget
limitations, travel restrictions, etc.)?
IRS Presenter: Sid Saewitz, Team Manager
CIC cases require a mid-cycle risk analysis. This analysis is required to be provided to
the taxpayer when audit reaches 25% completion. Exam has been more consistent in
completion of the risk analysis. This mid-cycle risk analysis is not required if audit
timeline is less than one year.
Issue #11: International Financial Reporting Standards (“IFRS”) Transition –
Update
What steps are the IRS taking to identify and address the various tax issues associated
with the conversion from U.S. GAAP to IFRS (e.g., accounting methods, Advance
Pricing Agreement economic benchmarks, etc.)?
IRS Presenter: Don Murray, International Team Manager
The IRS is struggling to get a handle on the issues surrounding the IFRS conversion. The
PFTG group within LMSB is responsible. The conversion to IFRS transition is causing
the most problems.
Areas of concern: 1) Will the conversion require Form 3115, Change in Accounting
Method, filings? An if so, will the changes be automatic? 2) APA program impact; 3)
Form 5471 balance sheet is required to be presented on US GAAP basis
Issue #12 Expense Documentation
Please discuss the IRS’s position regarding the use of electronically scanned documents
as expense support in lieu of the original receipts.
IRS Presenter: Jim Ruwe, CAS Team Manager
The position on systems integrity, including the imaging of books and records, can be
found in Rev. Proc. 97-22.