TEI monitors implementation of CEP-QIP changes.

TEI Monitors Implementation of CEP-QIP Changes

For more than a year, the Internal Revenue Service has been studying its Coordinated Examination Program, with a view toward revamping the program to facilitate more timely and efficient audits of large corporations. As the principal association of corporate tax executives, Tax Executives Institute has long been concerned about proposed changes in the CEP program, especially as they relate to the role of ligitating counsel in audits and the independence of the Appeal Division. TEI's most recent submission on the program - which addressed certain proposed changes developed by an IRS quality improvement (QIP) team - was published in the July-August 1990 issue of The Tax Executive.

IRS Approves CEP Changes

On July 30, 1990, the IRS's Executive Committee approved a series of changes in the CEP program. Specifically, the IRS leadership approved a decision paper calling for the creation of a National Policy Board, the establishment of a program of legal and technical assistance to the field, and the adoption of procedures to improve functional coordination among Examination, Appeals, and Counsel. The decision paper endorsed "the idea of pre-conference meeting[s] of Examination and Counsel with Appeals," stating that "Appeals will have continuing discussion with Examination when new arguments or developments arise."

With respect to the role of Counsel, the decision paper states: "Due to the complexity of the issues arising in CEP cases and the need for prompt legal and technical assistance, Counsel will provide that assistance from the start of each CEP Examination."

Meeting with

Commissioner Goldberg

On August 7, 1990, representatives of TEI met with IRS Commissioner Fred T. Goldberg, Jr. and Senior Deputy Commissioner Michael J. Murphy to discuss several items, including the CEP-QIP changes. TEI's delegation was headed by 1989-1990 TEI President William M. Burk of CPC International Inc. and included 1989-1990 Senior Vice President (and current President) Michael J. Bernard of Mobil Corporation and Neil P. Wissing of Weyerhaeuser Company, who is a member of the Institute's Executive Committee. TEI Executive Director Thomas P. Kerester and TEI Tax Counsel Timothy J. McCormally also attended the meeting.

During the meeting, TEI expressed its continuing concerns about the involvement of Counsel in the audit process and the independence of Appeals. TEI questioned whether the proposed changes would prolong, not shorten, the audit process and inevitably calibrate the audit process toward litigation. In response, IRS Commissioner Goldberg stated that Counsel's primary role would be to provide technical assistance and issue development during the audit. The Commissioner pointed out that the CEP decision paper included the following statements:

* The National Policy Board "is

expected to promote taxpayer

cooperation through meetings

with TEI, ABA, AICPA, and

other outside bodies such as

other taxing authorities."

* "Counsel's presence is not to

prepare for litigation from the

outset and the intent of this

recommendation is not to increase

the adversarial relationship

between the taxpayer

and the Service."

* "[I]t is absolutely essential

that Appeal's independence to

resolve cases be preserved.

Such meetings should serve

the purpose of communicating

information relative to cases

to insure that Appeals is able

to consider all relevant facts.

However, the meetings must

not be perceived as or become

a means by which Examination

positions are entrusted to

Appeals with the expectation

that Appeals will fully support

those positions."

Commissioner Goldberg solicited TEI's cooperation in monitoring the implementation of the CEP changes to ensure that the involvement of Counsel and the establishment of pre-Appeals conferencing do not impair the effective operation of the administrative audit and appeals process. He encouraged the Institute to advise him personally if its members encountered (i) situations where Counsel was preparing the issues for litigation from the outset of examination, or (ii) situations where pre-Appeals conferences compromised the independence and integrity of the Appeals process.

Letter to the Commissioner

Following up on the Commissioner's request, on September 17 TEI submitted a letter to Commissioner Goldberg on the CEP program. After reiterating its belief that improvements can and should be made in the CEP program, TEI focused on two developments that may create an impression at odds with stated purposes of the CEP-QIP changes.

Specifically, TEI noted that it had recently learned that the program for involving District Counsel in the audit process had received a rather ominous acronym in the international area - FIST (for Field International Support Team). "At a time when senior officials of the IRS have taken pains to assuage taxpayer concerns about heavy-handed Counsel participation in audits," the Institute stated, "the appearance of FIST seems unfortunate."

In addition, the Institute expressed concern about recent remarks reportedly made by an IRS representative in Chicago that attorneys from Counsel will be brought into a case at the examination level whenever the taxpayer engages outside counsel. In its letter to Commissioner Goldberg, the Institute suggested that a number of taxpayers may reasonably interpret the remarks as supporting their concerns that Counsel involvement will make the examination process more adversarial.

Meeting with New CEP

Executive Director

As part of its CEP-QIP strategic initiative, the IRS has appointed an Executive Director of the Coordinated Examination Program. The first appointee to the new position is John J. Monaco, formerly Assistant Director of the National Office of Appeals and Chief of Examination in the Chicago District. On September 24, TEI met with Mr. Monaco to confirm TEI's willingness to work with the IRS in improving the CEP program. TEI's delegation to the meeting consisted of Michael J. Bernard, TEI's President; Linda B. Burke, a member of the Institute's Executive Committee; Ralph J. Weiland, chair of the IRS Administrative Committee; and Institute Tax Counsel Timothy J. McCormally.

During the meeting, several proposals were discussed. First, TEI agreed to review any post-audit questionnaire that the National Office might choose to develop for distribution to taxpayers. In addition, the Institute affirmed its willingness to assist the IRS in developing the format for a taxpayer profile (or history) and in responding to requests for comments about (i) focused training for CEP agents and managers, (ii) providing case managers with settlement authority (on either a test or nationwide basis), and (iii) whether a procedure should be adopted to settle certain types of issues on a "forward" basis (through all open years). Finally, the Institute suggested that there would be merit in scheduling a formal meeting during which the IRS's plans and ideas could be explored in detail. In this regard, the Institute stated that as a principal stakeholder in the CEP program, TEI would be pleased to serve as an "early warning system" - to assist the IRS in refining its proposed changes to the CEP program.

TEI's IRS Administrative Affairs Committee continues to monitor the implementation of the CEP-QIP decision paper by the IRS. Anyone wishing to receive a copy of the IRS decision paper should send a written request to TEI Headquarters at 1001 Pennsylvania Avenue, N.W. (Suite 320), Washington, D.C. 20004-2505. Comments on the effects of the CEP-QIP changes should also be sent to that address.