TEI Region VII -- Internal Revenue Service Southeast Regional District Liaison Meeting.

On December 14, 1999, representatives of Tax Executives Institute participated in a liaison meeting with representatives of the IRS's Southeast Region.

1. IRS Modernization. TEI members remain very interested in and concerned about the IRS's ongoing modernization. During the liaison meeting, we request a status report on the IRS reorganization, particularly in respect of the following issues:

A. Will CEP taxpayers see any immediate changes in the conduct of their audits? What will be the consequences of transitioning from the current geographically based organization to an organization based on industry lines? Will the IRS have the resources it needs to audit efficiently?

The objective of the reorganization is to provide better service to the IRS's customers by providing a more focused and service-oriented structure to support the field operations in providing customer service. By providing an industry-based organizational structure, the IRS will be better able to respond to the specific and often unique situations that arise in many industries. In addition to better training and awareness of industry-specific concerns, the nationwide responsibility by industry should promote more consistency and experience in handling cases.

Coordinated Examination Program (CEP) taxpayers will be the customers of the Large and Mid-Size Business (LMSB) Operating Division. The headquarters of this division will be located in the Mint Building in Washington, D.C. LMSB is scheduled to stand-up as a headquarters operation in the spring of 2000. As with the rest of the IRS, the affected components of this division are mainly at the mid, top, and executive levels of the organization. Initially, team members, Team Coordinators, and Case Managers will be unaffected by changes in the upper level structure. Changes to the audit process will also be minimal since current audit teams groups will continue operating after the reorganization. The major management differences will be at the Territory level, which may be located at a different geographical location from the current Branch Chief's office.

IRS resources have not been reduced by the reorganization and currently no major hiring initiatives are foreseen. Improvement of the efficiency of the audit process, however, continues to be a primary goal of the IRS.

B. Will the new organization cause any change in the "one-stop shopping" concept?

The IRS is committed to providing accurate and prompt service to each taxpayer. The new structure should work to further enhance the one-stop shopping goal because employees will be focused on taxpayers in particular industry groupings for which they will be trained and eventually experienced. LMSB's goals include resolving the taxpayer's issues at the earliest possible point.

C. How does the IRS see the reorganization affecting the way TEI and other groups interact with the agency? With regions and districts gone, what will be the best way for TEI to resolve local problems not requiring national attention?

Liaison with TEI and other groups will remain an integral part of the IRS's ability to ensure that taxpayers receive the service they should and the input of the member organizations can be quickly received and discussed. The Office of Communications and Liaison will have field office functions to coordinate the various liaison activities.

At the local level, there will still be the Case Manager or Large Business Entity (LBE) Manager, as well as Territory Manager, where most case-related problems can be handled. The Territory Manager will be equivalent to a combination of the current branch chief and division chief positions. Above that will be the Directors' Field Operations and then the Industry Directors. The chain of command will be more centralized, affording the opportunity for more direct dealings with our outside constituency.

D. TEI understands that one emphasis of the Large and Mid-Size Business Operating Division will be on creating a "pre-filing agreement" program to resolve issues before returns are filed. Can you provide any details on this initiative? Will the division have jurisdiction or will it rest with Counsel?

Greater emphasis will be placed on pre-filing and pre-audit initiatives, which are now being considered. The current proposal is for the Pre-Filing & Technical Guidance function to report directly to the Commissioner and Deputy Commissioner, LMSB. The function is proposed to "stand alone" to allow future growth to support the pre-filing vision. At this stage, no final decisions have been made regarding specific initiatives.

E. What do you see as the most significant changes in tax administration over the next five years?

The current reorganization of the IRS should produce many positive changes over the next few years. In utilizing the new Balanced Measures System to determine organizational success, we believe that tax administration will become more of a partnership with the taxpaying public. The most visible, significant effect will be in the area of increased customer service.

F. What can TEI and its members do to help the IRS during and after the transition?

Recent efforts by TEI have been beneficial in assisting the overall reorganization process. The letter to the National Director, Corporate Examinations, discussing balanced measures provided necessary public insight to the process. The IRS/TEI Customer Satisfaction Task Force produced specific recommendations regarding specialist and specialist managers' involvement in the CEP process to improve customer satisfaction. It is our desire that these types of mutual projects continue, both in the near-term and after the reorganization is completed.

G. With the new industry-based organization, will there be any changes in how the IRS coordinates its litigating positions ?

All Counsel resources will continue to report to the Chief Counsel. To enhance our ability to work in active partnership with the new IRS, we have created four new executive positions -- Operating Division Counsel -- one for each Operating Division Commissioner. These new executives will be located with their respective Operating Division Commissioner and serve as their principal point of contact, working closely with them on strategy and planning.

Most of Counsel's current field attorneys will be aligned with and report to one of the Operating Division Counsel. This alignment will increase the level of expertise and service available for the specialized needs of the Operating Divisions.

H. How will IRS executives and high-level Examination managers in the Southeast Region be affected by the structural changes?

The regional structure will no longer exist when the reorganization is completed. The new LMSB organization will be aligned into five major industry segments with no geographic boundaries, each headed by an Industry Director. Assisting the Industry Directors will be Field Operations Directors and Territory Managers. The District structure will also no longer exist, and Territory Managers will replace the current Branch/Division Chief Managers.

2. Interest Netting. On November 10, 1999, the IRS issued guidance on how taxpayers can secure retrospective relief in respect of the interest-netting provisions of the IRS Restructuring and Reform Act of 1998. When will the IRS have a system in place that will automatically apply interest netting (i.e., in respect of periods after June 1998)?

Because of current systemic limitations, an automated system will not be in place in the near future. Because netting can involve different classes of tax returns and different years of closed adjustments, this is a manual process. The IRS is, however, developing procedures and instructions to identify netting situations, as well as language for our notices to help taxpayers work with us to identify the applicability of the netting provisions.

3. Interest Calculations. Even before enactment of the interest-netting provisions, taxpayers have found it necessary to engage outside consultants to review IRS interest calculations. One reason for this is the difficulty taxpayers have in understanding IRS postings to taxpayer transcripts and how the interest calculations track to such postings. Does the IRS have any plans to make this system more user-friendly?

Because so many functions within the IRS need the different pieces of information recorded, simplification continues to be a challenge. We have, however, developed the Total Interest Program Software (TIPS), which is expected to be the IRS standard interest calculation used for manual computation of interest by the end of FY 2000. TIPS is currently being converted to Windows NT and in late spring 2000 the programmers will test a download of transcripts directly to TIPS to ensure the accuracy of transaction amounts and dates. TIPS will print a detailed explanation of how interest is computed. This should assist taxpayers to better understand how and when monies were applied in the calculation of interest.

4. Consistency Among Taxpayers. Taxpayers and the IRS have always been concerned with consistent treatment of issues among taxpayers. One effect of the IRS reorganization should be more consistent treatment of issues within a particular industry. Our understanding, however, is that specialists will not be assigned to a particular industry and, further, that specialists will not be under the control of audit coordinators. Is this understanding correct? If true, will the Case Manager really be "in charge"? More generally, please comment on how consistency and coordination will be handled with respect to specialists. Also what will Counsel's role be in ensuring consistency?

The Director, Field Specialists, reports to the Commissioner and Deputy Commissioner, LMSB, and is responsible for the full range of planning, managing, directing, and executing worldwide activities of these functions. This structure should facilitate both consistency and coordination of the various specialists' issues.

In the proposed LMSB structure, the mission of the Field Specialists is to provide Computer Audit, Economist, Engineering, and Financial Products specialties across all industries within LMSB, as well as other Divisions.

The Specialist Manager will be responsible for management of the assigned specialist. The Case Manager and Team Coordinator will be responsible for the overall case and will provide feedback to the Specialist Manager regarding performance of the specialist.

The current recommendation is for both Industry and Issue Specialists to be placed in the Pre-Filing and Technical Guidance Section (which resides in LMSB Headquarters) to allow "cross-industry" research, coordination, and increased use by field examination personnel.

5. Research Tax Credit. CEP taxpayers in the Southeast Region continue to report that IRS engineers are taking an extremely narrow view of what expenditures qualify for the research tax credit, despite the recent issuance of proposed regulations reflecting a more realistic (if still, in taxpayers' view, too narrow) view of the types of activities qualifying as "research." Since this does not appear to be an isolated occurrence, are engineers working from some unpublished guidance? What positions are taxpayers taking that the IRS believes are overly aggressive? Is the IRS considering further guidance that could serve to reduce these controversies? Will research tax credits be subject to "pre-filing agreements"?

Because recent regulations and court cases have brought some clarity to the issue, further guidance and decisions should help both the IRS and the public.

While sometimes a lack of clear guidance creates controversy, it can also be created by a lack of sufficient information. From the IRS's perspective, controversial issues arise when taxpayers claim an estimated or allocated amount on a project that they believe qualifies for the credit. While the method and the exercise of judgment may be reasonable from the taxpayer's perspective, the agents and engineers often reach different conclusions. When the taxpayer or its representative disagrees with the conclusions reached by the agents, managerial involvement should be requested.

Since there are no final regulations on the definition of qualified research, the Industry Specialist (ISP) has informed examiners to follow the instructions below. By doing this, examiners should be maintaining a consistent position.

* Follow the coordinated issue papers because they reflect the position of the IRS.

* Follow the guidance in the Norwest case.

* Follow the proposed regulations.

The ISP is working on guidance papers that will attempt to answer some of the controversies that develop with this issue. Pre-filing agreements in this area would have unlimited potential and would be applicable to exactly this type of issue. There have been discussions on pre-filing agreements relating to the research credit, but nothing has been finalized.

6. Reporting Requirements. There has been an increasing number of reporting requirements, such as Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation, Foreign Estate, or Foreign Partnership, and Form 8865, Information Return of U.S. Person with Respect to Certain Foreign Partnerships. For CEP taxpayers, these forms create significant increased compliance burdens especially since financial accounting systems are not set up to capture this data and foreign partners do not need similar data. Have any cost-benefit analyses been completed comparing the increased burdens on large taxpayers (as well as the increased audit requirements imposed on the IRS) to the potential benefits associated with these new reporting requirements? Are there any alternatives that can be explored such as providing any necessary information on audit?

The IRS acknowledges that reporting requirements continue to increase, such as those resulting from completion of these forms. The law requires, however, that we obtain the information for both monitoring and audit potential. We are not aware of any cost-benefit analysis in this area.

With regard to the Form 926, although the Revenue Reconciliation Act of 1998 repealed the excise tax reportable on this form, the form is still required to comply with section 6038B of the Internal Revenue Code.

With regard to Form 8865, the required information also resulted from provisions in the 1998 Act. Requesting information concerning transfers to foreign partnerships was for the express purpose of monitoring such transfers, not only to accumulate the data, but also to assess the audit potential of the information. Having the information available upon request, should an audit commence, is not the primary purpose of the reporting requirement.

7. Corporate Tax Shelters. The U.S. Treasury Department and the staff of the Joint Committee on Taxation have each issued papers and studies on the subject of corporate tax shelters, and both have crafted proposals to deal with this issue in the form of disclosure, sanctions, etc. In recent years, the IRS has gained significant victories in cases involving so-called corporate tax shelters transactions, with the Tax Court even imposing penalties in two of these cases. In view of these successes, and considering the sanctions already available to the IRS for combating abusive corporate transactions, does the IRS really believe that it needs additional legislative tools ? We note that at TEI's recent Annual Conference Commissioner Rossotti announced a new initiative to identify potentially abusive transactions. What has been the experience of the Southeast Region with "corporate tax shelters"? Does the region believe this is a growing problem? Do you have any suggestions for what TEI might do in cooperation with the IRS?

There is widespread agreement and concern among tax professionals that the corporate tax shelter problem is large and increasing. While corporate tax payments have been increasing, taxes have not grown as fast as corporate profits. One hallmark of corporate tax shelters is a reduction in taxable income with no accompanying reduction in book income. An article in USA Today, dated November 11, 1999, states that "despite the nation's decade-long prosperity, corporate income tax receipts fell 2.1% in the federal fiscal year ended September 30, 1999, the first drop since 1990." Some of this decline may be due to tax shelter activity.

The IRS, together with the Office of Chief Counsel, will bring together audit and technical resources to identify and deal with corporate tax shelter transactions. The IRS's LMSB Division will take the lead in this initiative, using its technical, industry, and examination specialists and working closely with Chief Counsel and Treasury.

The IRS is actively developing strategies to work internally and with outside stakeholders to address this area. Recent actions include:

* In July 1999, the Treasury Department issued an extensive "white paper" on corporate tax shelters. Much of this paper deals with identified problems concerning shelters. The paper addresses the substance vs. form issue that must be raised to deal with potential tax shelters and discusses the difficulty of developing this type of issue.

* In late October 1999, the National Office developed and issued to the field a Corporate Tax Shelter Survey to expand the information gathered from the ISP representatives in an earlier survey. This survey will provide information needed to assist in determining the loss of revenues, geographic locations, and the extent to which corporate tax shelters are being promoted.

* In mid-November 1999, a national corporate tax shelter meeting was held to discuss an action plan to deal with corporate shelters. The participants developed both short- and long-term goals to address the problem. These goals are predicated on close coordination among Appeals, Counsel, Examination, Compliance, and Industry Groups. The basic premise is to establish an independent structure at all levels to address the issue.

One of the strategic goals in dealing with corporate tax shelters is to work closely with industry groups to identify shelters. With the prospect of additional legislative proposals in doubt and the uncertain effectiveness of such proposals, it is imperative that IRS and industry groups work closely together in identifying and addressing potential abuses.

8. CEP Program Goals. What are the Southeast Region's 1999-2000 goals for CEP taxpayers and what progress did it make toward meeting its 1998-1999 goals for the CEP program?

The 1999-2000 goals for CEP, although not substantially different in concept from prior years, are being formally incorporated into the balanced measures format. In addition, the balanced measures framework is structured around two distinct types of casework: non-team cases and team cases, which will constitute the workload of the LMSB Division. (See Question 9, Balanced Measures.)

In addition to the Balanced Measures objectives, the Southeast Region has included the following specific objectives in the Fiscal Year 2000 CEP Operations Plan:

* Coordinate with Regional Appeals to facilitate, as appropriate, use of Alternative Dispute Resolution when appropriate (i.e., Delegation Orders 236 and 247, Case Manager Resolution Authority, Accelerated Issue Resolution, Early Referral to Appeals, Pre-Filing Determinations, and Advance Pricing Agreements).

* Coordinate with National Office and Southeast Region Districts to develop strategies to assist in identifying and addressing the problem of corporate tax shelters.

* Ensure that automation equipment at all CEP sites is state-of-the-art to facilitate examinations and reduce taxpayer burden.

During 1998-1999, the Southeast Region had a very successful year in the CEP program. We delivered both our planned operational time and achieved our currency objective (i.e., Cycle Months from File Date to Closure).

9. Balanced Measures. On August 5, 1999, the IRS issued final regulations to implement the changes in performance measures of IRS personnel that are mandated by the IRS Restructuring Act. On September 30, 1999, TEI submitted comments to the IRS on how these final regulations could be implemented for IRS employees in the CEP program and on November 3, 1999, TEI met with Richard Teed and Thomas Smith of the IRS to discuss the subject. What is the status of this project? Please comment on the points raised in TEI'S submission, including whether it is appropriate to take into account the degree to which an agent's proposed adjustments are sustained (or not sustained) by Appeals as well as whether agents should be expected to raise any taxpayer-favorable adjustments. [Note: TEI's comments were reprinted in the November-December 1999 issue of The Tax Executive.]

The Large and Mid-Size Business Measures Task Force has completed the preliminary balanced measures design for the new operating division and is testing the new measures.

LMSB structured its balanced measure framework around two distinct types of casework: non-team and team cases. The balanced measures recommendations for LMSB build on the previous phase of measures-design work and are discussed, as follows:

Customer Satisfaction: For the non-team case Customer Satisfaction measure, we recommend the use of a transactional taxpayer survey that will fall under the existing Pacific Consulting Group (PCG) contract. For the team case Customer Satisfaction measure, we are considering two options. The first option is to use a transactional survey similar to that currently administered by PCG. The second option is to develop a more involved "relationship" survey; Headquarters is currently working with PCG to flesh out this second option.

Employee Satisfaction: The existing Survey 99 tool will be used to measure Employee Satisfaction.

Business Results: Proposed Quality measures include (1) Months from File Date to Closure and (2) the LMSB quality review system. Proposed Quantity measures include (1) Number of Cases/Returns Closed and (2) Direct Staff Years Applied. The quality review system for non-team casework is modeled on the current Examination Quality Measurement System, with additional audit planning standards. The quality review system for team casework is modeled on the five-step CEP audit process and the current CEP auditing standards.

Corporate Outreach: Two executive-level measures were proposed for Corporate Outreach: (1) Total Direct Outreach Staff Years Applied and (2) Number of Alternative Dispute Resolutions. In developing these Outreach measures, the team also considered measures of (1) the presence/ materiality of industry and cross-industry issues and (2) the Number of Negotiated Strategic Industry Agreements and Fast-Track Published Service Positions.

Richard Teed, Acting National Director, Corporate Examinations, informed our Region that his November 3, 1999, meeting with TEI was very beneficial in exchanging ideas on the Balanced Measures initiative. Mr. Teed indicated that TEI's concerns and recommendations were "not that far apart" from the IRS's views and proposals in most of the areas discussed. We believe this is evident from the approved Balanced Measures.

In response to whether an agent should be evaluated regarding success of an issue in Appeals, we believe that the examining agent's responsibilities and the Appeal Officer's responsibilities differ to the extent that a clear nexus does not exist for evaluative purposes. Patterns that may develop regarding issues that are not sustained by Appeals, however, should be addressed, especially from the standpoint of taxpayer burden and effective use of resources.

10. Electronic Commerce. Has the IRS adopted any positions or undertaken any initiatives regarding the taxation of foreign corporations that sell products or services in the United States over the Internet? Assuming a foreign corporation has no other location that could be treated as a fixed place of business in the United States, does the answer change if the corporation maintains a server in the United States?

The Organisation for Economic Cooperation and Development, the forum for most international taxation issues, has several groups looking at this issue. We are aware of the importance of resolving the issue, although it is not a simple one from the international taxation and worldwide tax neutrality perspective. At this point, we do not have a definitive understanding of the direction this issue will take.

11. Capitalization Issues. The lack of guidance on capitalization issues continues to spawn considerable audit activity as field agents seek to capitalize expenses that have long been treated as currently deductible based on the Supreme Court's decision in INDOPCO v. United States, 503 US 79 (1992). These time-consuming controversies could be greatly reduced if the IRS issued guidance with respect to particularly troublesome areas, e.g., environmental costs, repair and maintenance costs, and plant relocation. Will the IRS provide any new guidance to field personnel in the year 2000?

Consistency with various capitalization issues should be facilitated with the LMSB's organization into five major industry segments. To reduce taxpayer burden and effectively utilize resources, it will be incumbent for Industry Directors to ensure that, to the extent possible, these types of issues receive guidance to ensure consistent treatment.

12. Capitalization of ERP Costs. The November 10, 1999, edition of the BNA Daily Tax Report reported that Robert Rible, the IRS national industry specialist for data processing, had announced at a High Technology Institute meeting, that the IRS will be focusing on treatment by taxpayers of the costs of enterprise resource planning (ERP) software. Mr. Rible expressed the view that such costs should be capitalized because the cost of obtaining software creates an asset with a life beyond the taxable year. This very narrow view seems to be at odds with Rev. Proc. 69-21, which would support the expensing of the costs associated with taking ERP software and virtually recreating it so that it meets the specific requirements of the purchaser. Please comment. Does the IRS intend to issue formal guidance on the proper treatment of ERP costs?

Many companies are changing over their management software systems to new Enterprise Resource Planning (ERP) ones. When a company buys such a system, it is not only buying and installing new accounting software, but also is receiving a totally integrated business software system.

Vendors frequently promote ERP software as a complete business solution for a company's operation. It is not uncommon for large companies to spend from $50 to $100 million in implementing it. Sometimes new hardware is purchased in conjunction with the software and the costs of implementation alone can be 50 percent or more of the total cost of getting the system up and running. In some instances, 25 percent of the total cost can be in the hardware, another 25 percent in the software license itself, and 50 percent or more for consultant fees in assisting the company's management and employees in adapting the software to the company's unique needs.

In most situations, the software has templates and pre-set programs that guide the implementers in adapting the system to the company's particular needs. Many of the people working on the implementation are business consultants, who may not be software programmers. Because the companies are redesigning and mapping out how they are going to do business, significant costs are incurred in discussing and planning how business processes are going to work in conjunction with the new software.

The issues are whether an asset is being created vs an ordinary expense and does the expenditure represent research and development (R&D) costs. Section 174 of the Code describes R&D as involving experimentation and activities that are intended to eliminate uncertainty concerning the development or improvement of a product. This makes it difficult for a company to maintain that any of this activity constitutes R&D, especially in light of the fact that templates and pre-set programs are involved. Treas. Reg. [sections] 1.174-2(a)(3) specifically excludes from R&D any expenditure for management studies. An additional factor to consider is that in some instances the vendor or consulting group bears the economic risk for getting the software to work as planned. Under Treas. Reg. [sections] 1.174-2(b)(3), any activity for the construction of depreciable property by another is also excluded from R&D, unless it is made upon the taxpayer's order and at his risk. This situation is not always the case with an ERP implementation, but the at-risk factor is something to consider when reviewing the series of transactions that are involved.

Taxpayers frequently cite Rev. Proc. 69-21, which states that software development so closely resembles the kind of research and experimental expenditures that fall within the purview of section 174 that the costs warrant similar accounting treatment. Business reengineering and the use of templates, however, would not generally be considered software development, which usually entails programming work, such as the writing of source code.

The only costs involved that may be eligible for expensing would be for software created to fill gaps between what the ERP system normally does and other company needs, such as custom reports that are created and data conversion from the old legacy software to the new software. It should also be emphasized that business reengineering and the use of templates fall entirely outside of Rev. Proc. 69-21.

The purchase and implementation costs involving ERP software are intangible assets with a life substantially beyond the fiscal year in which they are incurred. Since a clear long-term benefit is arising with regard to ERP software, capitalization under section 263 of the Code is appropriate. Another legal factor that supports this position is the fact that these costs are nonrecurring expenditures. Case law supports the position that the distinction between nonrecurring and recurring expenditures is a key factor in determining whether an item should be capitalized or expensed.

Substantial business consulting in conjunction with software templates and pre-set programs is being utilized in a typical ERP implementation. The IRS position is that these costs are neither section 174 costs nor costs that fall under Rev. Proc. 69-21 because they do not constitute software programming. Consequently, they are eligible for capitalization under section 263.

13. Appeals. IRS Notice 99-50 on ex parte communications by Appeals personnel with other IRS employees seems to adopt a narrow view of the types of contacts that are prohibited under the IRS Restructuring Act. Are Counsel personnel covered by the ban on ex parte communication? What is the region doing about contacts between Appeals and other functions of the IRS? On a broader basis, how will Appeals operate in the restructured environment?

The recent guidance provided on ex parte communications was in proposed form and will most likely not be finalized until at least the end of April 2000. The period for public comment expired on December 3, 1999. Although these guidelines may appear too narrow to the representative community, the prohibition is limited to those communications that "app ar to compromise the independence-of Appeals Officers." We recognize that the appearance of independence is an integral part of the legislation and will attempt to address this ore fully in the final version of the r venue procedure. An overly broad interpretation would inhibit Appeal's ability to accomplish its mission. As proposed in Notice 99-50, the prohibition on ex parte communications does not preclude communication with Counsel attorneys, who are the legal advisors to IRS officers and employees.

By issuing the guidance in proposed form and allowing public comment, we will hopefully arrive at final guidance that not only is acceptable to our customers but also allows us to fulfill our mission. In the interim, until the new guidelines are accepted and published in final form, Appeals is taking a business-as-usual approach. If a taxpayer asks to be present at a pre-conference meeting on a Team Chief CEP case, however, we will honor that request, barring any compelling reasons not to.

Although the restructuring is not complete, we know that Appeals will be comprised of approximately 2,100 employees and headquartered in the Washington, D.C., area. It is proposed that Appeals will be divided into four major components: Headquarters and three operating units, one each for Wage and Investment, LMSB, and Small Business/Self-Employed-Tax Exempt/Government Entities.

Headquarters will be staffed with approximately 25 employees involved in such activities as Planning and Finance, Strategic Human Resources, Equal Employment Opportunity and Diversity, Business Systems Planning and Strategy, and Planning and Communications. The operating units will have their own staff of employees responsible for Operations, Employee Services and Budget, and Measures, Planning and Analysis for the issues relating to the taxpayers in that segment.

The Appeals LMSB unit will have 5 Area Managers located in the same geographic areas as the Compliance Industry Managers. These Area Managers will report to the Director of the Appeals LMSB unit. The Appeals Small Business/Self Employed-Tax Exempt/Government Entities will have 12 Area Managers located in the same geographic areas as Compliance. These Area Mangers will report to the Director of the Small Business/ Self Employed-Tax Exempt/Government Entities.

Appeals will also establish an Appeals Quality Measurement Section for each of the two business units being implemented. The managers of these sections will report to the Measures, Planning, and Analysis Manager in the respective unit.

Based upon an analysis of current position descriptions and job responsibilities, the vast majority of current Appeals employees will be placed into the new organization by following the work they do now. All managers above the Associate Chief level, however, must compete for positions in the new organization.

As we continue the organizational restructuring, Appeals will continue to resolve tax disputes under current guidelines and procedures.

14. Taxpayer Advocate. National Taxpayer Advocate W. Val Oveson recently announced that his revamped office will be called the Taxpayer Advocate Service and that it is now finalizing the hiring of 1,500 associates and senior advocates. In addition, after a restructuring, the new office will have 2,400 full-time employees devoted to advocacy and problem-solving. We also understand that the Taxpayer Advocate will have a presence in the LMSB Division. Please describe the roles and responsibilities of this office as it relates to the CEP.

The Taxpayer Advocate Service (TAS) was restructured to improve and strengthen efforts to help taxpayers with problems they encounter in complying with the tax laws. The new Taxpayer Advocate Service organization is built around two major types of work activities:

* Casework: resolving individual taxpayer problems that have not been resolved through normal IRS channels; and

* Advocacy and Systemic Analysis: working with IRS operating functions to identify systemic problems that are causing problems for taxpayers, analyze root causes of those problems and implement solutions.

The position of Operating Division Taxpayer Advocate (ODTA) has been created to effectively work within the new structure of the IRS. The ODTA's primary responsibility is systemic analysis and advocacy, clearly separating these vital functions from casework. There is at least one local Taxpayer Advocate in each state who are responsible for all casework.

An Operating Division Taxpayer Advocate will be aligned with the four operating divisions, including the LMSB Division and will be responsible for systemic analysis-type work. Should CEP taxpayers encounter problems that warrant TAS involvement, their most likely contact will still be with the local Taxpayer Advocate.

Internal Revenue Service Representatives

Robert Johnson, Regional Commissioner, Southeast Region Bobby Scott, Regional Chief Compliance Officer, Southeast Region Linda M. Garrard, Regional Director of Appeals, Southeast Region John Miller, Assistant Regional Director of Appeals - Large Case Verlinda Farrar-Paul, Acting Executive Assistant, Southeast Region Vel McDaniel, Compliance Analyst, Southeast Region

Tax Executives Institute Representatives

Charles W. Shewbridge, III
Chief Tax Executive
BellSouth Corporation
TEI International President

Robert L. Ashby
Vice President, Taxation (U.S.)
NORTEL
TEI Secretary

Stuart D. Goldstein
Director, Planning, State &,
International
Taxes
Lockheed Martin Corporation
TEI Vice President-Region VII

Mitchell S. Trager
Senior Tax Counsel
Georgia-Pacific Corporation
TEI Atlanta Chapter

Walter A. Bell, Jr.
Director, Corporate Tax
Southwire Co.
TEI Chapter President, Atlanta

Robert H. Proehl
Director - Tax Audits
BellSouth Corporation
TEI Atlanta Chapter

Earl C. Brewer, Jr.
Vice President Taxation
LADD Furniture, Inc.
TEI Chapter Representative, Carolinas

Mindy Toback-Seiden
Vice President Corporate Taxes
JM Family Enterprises, inc.
TEI Chapter President, Florida

Winfield L. Ryan
Director - Taxes
Virginia Power
TEI Virginia Chapter

George A. Steiner
Assistant Vice President, Taxes
Scientific-Atlanta, Inc.
TEI Chapter Representative, Atlanta

Daniel P. Bork
Director of Tax
Lexmark International, Inc.
TEI Chapter Representative, Louisville

Michael J. Murphy
Executive Director
Tax Executives Institute, Inc.
Washington, D.C.