Changes in the industry specialization program.

In the late seventies, the Internal Revenue Service recognized that its Examination personnel could not hope to be familiar with the many accounting and business practices peculiar to all the different industries. The IRS also identified the necessity for greater communication and coordination among the various IRS regions and individual examiners working similar cases. As a result, the Industry Specialization Program was initiated to promote better identification and development of issues under examination and ensure uniform and consistent treatment of issues throughout the examination cycle. This concept has been expanded to International Issues and Employee Plans/exempt Organization Issues.

The IRS currently has 20 nationwide industries that comprise Examination's Industry Specialization program. There are four International Issue Specialists and two Exempt Organization Industry Specialists. Industry Specialists not only advise case managers on current issues identification and development, but are also charged with the responsibility of keeping abreast of emerging issues that affect the industry.

Today, the Industry Specialization Program maintains these broad range goals. Its role, however, has been expanded to encompass the concepts of Compliance 2000 - that is, to reduce taxpayer burden, meet the needs of our stakeholders, and increase the understanding of tax laws.

Just What Does this Mean to our Specialists

and Revenue Agents in the Field?

Not only will they identify emerging or developing issues, but they will attempt to do so prior to returns being filed. We are asking our specialists to work with our stakeholders. Our goal is to reach the point where the corporate taxpayers can file a correct corporate tax return the first time. Naturally, differences of opinion will always be a part of our business. When this occurs, we hope to issue clarification in the form of regulations or rulings before the tax return that contains these issues comes under examination.

What Will the Effect of this Be on our Current

Coordinated Issue Process?

Since it is not always possible to recognize all potential issues before taxpayers file their returns, the coordinated issue procedures will remain the cornerstone of the Industry Specialization Program. As a result of the examination process, we will continue to identify issues warranting this coordination.

In short, we will first attempt to clarify the law and to simplify procedures. Formal and informal guidance will be given in a timely manner. And when issues are raised, we will resolve them at the lowest possible level.

We have been working with our Industry Specialists and the Office of Chief Counsel to update Examination's ISP Coordinated Issue papers. As a result of this review, we have identified a significant number of issues that no longer require coordination. A decoordinated issue is one that the case managers or group managers can resolve based upon the guidance given to the field without the Industry Specialist concurrence.

Appendix I lists the coordinated issues by industry that are being decontrolled and those that still remain viable industry issues.

What Are ISP Coordinated Issue Papers?

Coordinated Issue Papers set forth the current thinking with respect to key industry compliance issues and are designed to be used by revenue agents examining any tax return. If a "coordinated" issue is present, then it must be raised during the examination. In addition, the examining district must coordinate its handling of the issue with the appropriate Industry Specialist. A key purpose for the papers is to establish examination uniformity within industry categories that is, to ensure that key industry issues are raised in all cases, on a consistent basis, and subsequently resolve using the guidance provided.

Who Prepares ISP Coordinated Issue Papers?

The Industry Specialists (from Examination) for each industry category within the Industry Specialization Program have responsibility for proposing coordinated issues. Under the Internal Revenue Manual (IRM), the Industry Specialist is required to submit proposed issues to the Assistant Commissioner (Examination) for approval. Once a position paper is approved, the Assistant Commissioner communicates that approval to the specialist as well as to the regions.

Is Counsel Involved in the Process?

Yes. Although the IRM does not specifically require Counsel approval, the AC/Exam (National Industry Coordinator) forwards the proposed paper to the Special Counsel (Large Case) for review and comment. The Special Counsel(Large Case) then forwards the proposed paper to Domestic, International, and EB/EO for approval by the appropriate functions/ attorneys.

Are ISP Papers Available to the Public?

Yes. Once issued, revenue agents are instructed to give the ISP papers to taxpayers under examination in which the issue is raised. In addition, the IRS has determined that the papers may be obtained under FOIA. The major accounting firms and law firms routinely make formal FOIA requests for the papers (and the IRS complies with those requests). We are currently considering publication of the papers, but no decision has been made at this time.

Do Taxpayers Have Input on ISP Papers?

Yes. The IRM requires that when a new coordinated issue is proposed, the Industry Specialist must ask the appropriate industry trade association for comments. As a practical matter, this procedure ensures that the major accounting firms and law firms have an opportunity to comment. This is because the trade association will ask its outside counsel/accounting firm for assistance. In addition, taxpayers under examination in which the issue is raised are also asked for comments. The industry/taxpayer comments are directed to the Industry Specialist. The specialist, in turn, will share those comments with those in the National Office involved in the review process.

Are ISP Coordinated Issue Papers "Service Position"?

No. As indicated above, the papers are designed primarily to ensure consistency in ISP examinations by identifying key industry issues that should be raised. Thus the papers serve as audit guidance, advising revenue agents to examine certain issues. The papers are reviewed by Counsel to determine whether or not they are technically correct. So in that sense, the documents do set forth the IRS's current "thinking." The papers, however, are clearly not revenue rulings or regulations, and therefore are not official pronouncements of Service Position. In short, with respect to ISP Coordinated Issue Papers, the IRS makes a distinction between "official pronouncements" and unofficial guidance for the field.

May Taxpayers Rely on ISP Coordinated Issue Papers?

There are not written "rules" dealing with this question. The papers are not official pronouncements as envisioned by the Internal Revenue Code; therefore, there is no statutory authority for taxpayer reliance. ISP papers are closely analogous to Technical Assistance Memoranda (which are generic - i.e., not specific as to any particular taxpayer) that are occasionally issued by Counsel to the field (Examination or Appeals) in response to written inquiries. Technical Assistance Memoranda are not official pronouncements and may not be relied on by the taxpayers. Taxpayers are reminded that they cannot rely on position papers. They should seek Technical Advice or a Private Letter Ruling if they desire "protection." Indeed, the existence of a position paper does not per se preclude the issuance of Technical Advice.

Why Not Just Issue Rulings Instead if ISP Papers?

Examination has a critical need to identify tax compliance issues in a timely manner. One of the justifications behind the original decision to issue ISP position papers was that by keeping the papers "informal" and minimizing the level of review, timely advice could be provided to the field agents. Although Counsel reviews each proposed position paper, it does so recognizing the fact that the papers are intended primarily as an Examination audit tool and the guidance is based upon facts known to date and can subsequently be changed. Finally, some of the ISP position papers eventually do end up becoming revenue rulings, though clearly the majority of position papers do not have ruling counterparts.