Tax Executives Institute--Internal Revenue Service Large and Mid-Size Business Division liaison meeting.February 3, 2004
On February 3, 2004, Tax Executives Institute met with Deborah Nolan, Commissioner of the IRS' s Large and Mid-Size Business Division, and other representatives of LMSB LMSB Large and Mid-Size Business . TEI 1. (communications) TEI - Terminal Endpoint Identifier.
2. (text, project) TEI - Text Encoding Initiative. President Raymond G. Rossi led the Institute's delegation to the meeting. The agenda for the meeting is reprinted below. Minutes of the meeting will be published in a future issue of the magazine.
II. The Audit Breakthrough Initiative
* IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. Commissioner Everson has announced an initiative for making audits more current. A recent survey of TEI members reveals that the push for currency is moving forward in the field. TEI supports this initiative, but cautions that a balanced approach to enforcement, and to taxpayer rights, is needed. Flexibility and communication remain the keys to efficient and timely audits.
* To further its currency goal, LMSB has held meetings to engineer a fundamental shift in the agency's approach to and process for ensuring compliance with the tax laws for large corporate taxpayers. TEI is pleased that several TEI members and staff participated in the meetings on December 18 and January 15.
* During the liaison meeting, we invite discussion of the breakthrough initiative and other related issues, including:
* The effect of the currency initiative on taxpayers. already undergoing a Limited Issue Focused Examination (LIFE). Is it intended to affect agreements already worked out with taxpayers? Several TEI members have reported that the time limits agreed upon Adj. 1. agreed upon - constituted or contracted by stipulation or agreement; "stipulatory obligations"
noncontroversial, uncontroversial - not likely to arouse controversy in their LIFE memorandum of understanding A Memorandum of Understanding (MoU) is a legal document describing a bilateral or multilateral agreement between parties. It expresses a convergence of will between the parties, indicating an intended common line of action and may not imply a legal commitment. have been adjusted to respond to this new initiative.
* Corporate governance Corporate Governance
The relationship between all the stakeholders in a company. This includes the shareholders, directors, and management of a company, as defined by the corporate charter, bylaws, formal policy, and rule of law. issues. One topic discussed during the reeingeering meetings is how corporate governance developments (at the Securities and Exchange Commission and other agencies) may affect tax administration. Has LMSB been in touch with other government agencies to discuss such issues? Will the IRS request copies of a taxpayer's documentation prepared for purposes of complying with the Sarbanes-Oxley Act See SOX. ? During the liaison meeting, we request a status report on this aspect of the initiative.
* The effect of becoming more current on Appeals. Speeding up the conduct of examinations will undoubtedly have an effect on Appeals. What steps are being taken to ensure that Appeals has the resources it needs to consider cases in a timely and efficient manner?
* The time required to respond to an information document request. One proposal under consideration is a 15-day response time. TEI urges LMSB to recognize that not all IDRs can be responded to in such a short time frame. For example, complex issues relating to relating to relate prep → concernant
relating to relate prep → bezüglich +gen, mit Bezug auf +acc net operating loss operating loss
The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. carry forwards or information regarding a foreign subsidiary may not easily be addressed in a 15-day--or even 30-day--response time. In addition, information requested from business units may require more time to produce. Finally, response time may depend on what other matters the tax department is contending with, e.g., year-end closings.
The audit team and the taxpayer should work together to ensure an audit plan that is reasonable--as envisioned by the LMSB-TEI Joint Audit Planning Process initiative. In addition, LMSB should institutionalize in·sti·tu·tion·a·lize
To place a person in the care of an institution, especially one providing care for the disabled or mentally ill.
in a discussion of IDRs with the taxpayer before they are issued. Narrowly focused, clear IDRs can be answered more quickly that those that offer a broad-brush approach.
* The need to hold LMSB examiners to the same standards as taxpayers. If the currency initiative is to succeed, the audit team must respond to taxpayers in a timely manner. Are steps being taken to include such a measurement in the managers' and agents' performance evaluations Performance evaluation
The assessment of a manager's results, which involves, first, determining whether the money manager added value by outperforming the established benchmark (performance measurement) and, second, determining how the money manager achieved the calculated return ?
* The use of specialists. LMSB should consider additional training in respect of its specialists. Although a recent informal survey of TEI members showed that LMSB's currency efforts are beginning to have some effect on speeding up audits, our members still report that the integration of specialists into the audit process remain a problem. In addition, the increased use of specialists in prefiling activities--as well as training and vacation activities--has made scheduling such personnel for examinations more problematic.
Additional training in areas such as accounting principles, the latest technology, and business practices is also needed for these functions. What steps are being taken to ensure that specialists are used effectively mid efficiently in the audit process? In addition, more guidance may need to be issued to Team Managers explaining their role in overseeing the specialists.
b. Schedule M Project
* TEI has been working with LMSB on a project to consider changes to the Schedule M, perhaps adding two new schedules or a new form to address permanent and timing differences in more specific detail. A meeting on the project is scheduled for January 23 and we understand a draft of the revised schedule will be issued on January 29. We also understand that the revised form will be applicable for 2004 returns. During the liaison meeting, we invite a discussion of this project, including how these and other reengineering initiatives will affect our members.
c. Tax Shelters tax shelter: see tax exemption.
* In December, the IRS and Treasury Department issued final regulations that narrow the "confidential transaction" category of reportable transactions that must be disclosed under section 6011 of the Internal Revenue Code The Internal Revenue Code is the body of law that codifies all federal tax laws, including income, estate, gift, excise, alcohol, tobacco, and employment taxes. These laws constitute title 26 of the U.S. Code (26 U.S.C.A. § 1 et seq. . The new regulations also remove the presumption against confidentiality for transactions containing a provision for a "tax confidentiality" waiver.
TEI commends the government for working with taxpayers to make these regulations more manageable.
* Another means of narrowing the focus of the regulations would be to create an exemption for tax planning Tax planning
Devising strategies throughout the year in order to minimize tax liability, for example, by choosing a tax filing status that is most beneficial to the taxpayer. transactions aimed solely at reducing foreign tax liabilities. Has the government considered such a clarification?
* TEI members report an increased interest in tax shelters at the audit level, particularly in respect of disclosure and the issuance of a standardized standardized
pertaining to data that have been submitted to standardization procedures.
standardized morbidity rate
see morbidity rate.
standardized mortality rate
see mortality rate. IDR IDR
In currencies, this is the abbreviation for the Indonesian Rupiah.
The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. . What has been the overall response to the increased activity? How will LMSB handle tax shelter disclosures and their related increase in the agency's workload? What level of reasonableness will be applied to the findings? How will the IRS handle protective disclosures in respect of any requests for tax accrual accrual,
n continually recurring short-term liabilities. Examples are accrued wages, taxes, and interest. workpapers?
* At end of December, the IRS issued proposed changes to Circular 230. What is the intended effect of these rules on opinions issued by in-house counsel on tax planning ideas?
III. The APA (All Points Addressable) Refers to an array (bitmapped screen, matrix, etc.) in which all bits or cells can be individually manipulated.
APA - Application Portability Architecture Program
* One initiative begun more than a decade ago that has worked well is the advance pricing agreement An Advance Pricing Agreement (APA) is an agreement between a taxpayer and the IRS on an appropriate transfer pricing methodology (TPM) for some set of transactions at issue (called "Covered Transactions"). (APA) program. This process permits taxpayers to work with the IRS to determine the appropriate price for transferring goods and services In economics, economic output is divided into physical goods and intangible services. Consumption of goods and services is assumed to produce utility (unless the "good" is a "bad"). It is often used when referring to a Goods and Services Tax. across international borders between related entities. A study performed last year found that 86 percent of parent companies identified transfer pricing Transfer pricing refers to the pricing of goods and services within a multi-divisional organization, particularly in regard to cross-border transactions. For example, goods from the production division may be sold to the marketing division, or goods from a parent company may be as the most important international issue they face. (1) Transfer pricing is not a tax shelter; it is the inevitable (and unavoidable) consequence of a global economy. And the APA program is designed not to "give away the store"--as some have intimated--but to reach a fair and equitable resolution of contentious issues between governments before the return is filed. As the program has expanded into the use of more bilateral agreements, it has eased pressures on competent authorities and taxpayers over the inevitable "tug of war tug of war
n. pl. tugs of war
1. Games A contest of strength in which two teams tug on opposite ends of a rope, each trying to pull the other across a dividing line.
2. " that occurs when several governments claim the same revenues. TEI is concerned that recent congressional inquiries may be adversely affecting the APA program. (2) Indeed, in TEI's view, the APA program is a model dispute avoidance and resolution program that is working well in the current structure. While it is appropriate to review the program, it would be a serious error to walk away from it.
IV. Relationship Issues
* Even before the creation of the LMSB Division, the IRS began a partnership with taxpayers to provide better customer service, to reduce administrative burdens, and to ensure efficient administration of the nation's tax laws. The division has shown a commendable openness to new and different ways of doing business. The partnership has resulted in several "pre-filing" initiatives that emphasize the need to resolve issues before a return is filed. The increased attention to "front-end" activities--by the use of pre-filing agreements and industry issue resolution techniques--may reduce contentious audits and prolonged pro·long
tr.v. pro·longed, pro·long·ing, pro·longs
1. To lengthen in duration; protract.
2. To lengthen in extent. litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute.
When a person begins a civil lawsuit, the person enters into a process called litigation. .
The LMSB-taxpayer partnership has also resulted in several important initiatives to empower agents to settle cases at the lowest possible level. TEI is pleased to have participated in one recent project to develop an audit planning process, which was rolled out to taxpayers and LMSB personnel in October. The goals of the LMSB-TEI Joint Audit Planning Process are two-fold: (i) to establish accountability in executing a jointly developed audit plan and (ii) to develop an issue-focused plan that will increase audit efficiency. Other projects in which TEI members have participated include the breakthrough initiative and the Schedule M revision.
The LMSB-TEI relationship has also benefitted from the conduct of several joint educational programs to discuss issues in the various industry groups. We urge LMSB to continue to work with taxpayers to emphasize that the keys to a successful audit are communication, trust, and openness.
* One issue that has the potential for affecting affects the environment is the IRS's examination of not only the annual corporate Form 1120, but also the individual income tax returns of the top corporate executives for the years under audit. It is unclear what procedures the IRS will use to obtain these Form 1040 tax returns, since it is unlikely that the companies under audit would have the individuals' tax returns in their possession. It is also unlikely the corporate tax department would (or should) handle the executives' tax return audit. What is the scope of the initiative? What is the envisioned role of the tax department? What will the agent's reactions be to the corporate response that the tax department has no access to the individual's tax return information? If the W-2 is correct, the IRS matching program should pick up whether the executive includes the same amount on his/her individual return.
(1) See Tropin, Concern Increasing Over Lack of Uniformity in Transfer Pricing Enforcement, E&Y Says, BNA BNA Bureau of National Affairs, Inc.
BNA Birds of North America
BNA block numbering area (US Census)
BNA British North America
BNA Banco Nacional de Angola (National Bank of Angola) DAILY TAX REP., No. 218, at G-4 (November 12, 2003).
(2) See Moses, APA Case Processing Grinds to Halt under Senate Inquiry, Practitioners Say, BNA DAILY TAX REP., No. 11, at G-1 (January 20, 2004).