McGladrey Tax Controversy Series Hot Topics in Tax Controversy Resolving Issues. January 26, 2012

Transcription

1 McGladrey Tax Controversy Series Hot Topics in Tax Controversy Resolving Issues January 26, 2012

2 Agenda Topic Mins Introduction 5 Pre-Return Opportunities 15 Examination Opportunities 15 Appeals Opportunities 15 Collections Opportunities 10

3 Today s Presenters Patti Burquest Principal Tax Controversy Services Washington National Tax patti.purquest@mcgladrey.com David Click Director Tax Controversy Services Denver Office David.click@mcgladrey.com

4 Objectives Participants will gain an understanding of available Alternative Dispute Resolution (ADR) Programs to resolve IRS issues and tax controversies at the prereturn, Examination, Appeals and Collection stages Participants will gain practical insights into the selection and use of various IRS ADR programs Participants will gain an understanding of the use of closing agreements to resolve various compliance issues and manage exposure to penalties Participants will be introduced to the use of ADR processes applicable to Collection disputes

5 Pre-Return Opportunities

6 Industry Issue Resolution Announced in Rev. Proc and updated in Notice Available to resolve frequently disputed or burdensome tax issues that affect a significant number of business taxpayers Businesses, industry associations and other interested parties may submit issues at any time

7 Industry Issue Resolution Issues are evaluated by LB&I, SB/SE, Appeals, Chief Counsel and Treasury simultaneously. The taxpayer group has input into the description and background of the issue Issues are resolved through published guidance Examples

8 Compliance Assurance Process (CAP) CAP is a pre-return examination process available to LB&I taxpayers where the IRS examines return issues prior to filing in real time Major potential issues are largely settled before the return is filed Announced as a pilot program in Now a permanent program with 2 additional components: - Pre-CAP Program: Steps to enter the program - CAP Maintenance: Participants with a CAP track record and fewer complex issues

9 Live Meeting Poll Polling Question 1 A successful outcome of the Industry Issue Resolution process is: A. A specific matters closing agreement between the IRS and the taxpayer B. The selection of a test case to litigate a particular issue of great importance C. The issuance of published guidance such as a revenue ruling, revenue procedure, announcement or notice Changes directly made to this slide will not be displayed in Live Meeting. Edit this slide by selecting Properties in the Live Meeting Presentation menu.

10 Pre-Filing Agreements (PFA) A PFA determines the tax treatment of a completed transaction prior to the time the return is filed. A closing agreement is executed by the taxpayer and the IRS. Agreement can be rolled back up to 4 prior years (and can resolve an issue under examination) - Program began in 2001 with the issuance of Rev. Proc It was updated by Rev. Proc An examination is conducted, but it is shorter, more collaborative and less contentious

11 Pre-Filing Agreement (PFA) (cont.) Average time to complete in 2010 was 385 days Available for domestic and international issues Most common issues include worthless stock/bad debts, research credit, cost segregation studies, disposition or acquisition of a subsidiary On a scale of 1 to 5, taxpayer satisfaction with the program is 4.7 with 4.6 on the likelihood to recommend the program to others Filing fee: currently $40K. In February, increased to $50K

12 Pre-Filing Agreements (PFA) (cont.) Eligible Taxpayers/Issues - Currently, the program applies to LB&I taxpayers - Taxpayer must apply for the program through LB&I via a written request to a local Team Manager or through the Director, Pre-Filing & Technical Guidance in the National Office - Best issues for a PFA are those that involve a factual determination or an application of well-established legal principles to known facts. Other issues are those involving methodology used to determine an item of income, deduction or credit - Acceptance into the Program may be driven by the complexity of the issue and by the resources of the field office to conduct the examination

13 Closing Agreements Voluntary Compliance Issues A specific matters closing agreement (Form 906) can be used to document the resolution of issues. It is used for PFAs, Fast Track Settlements (FTS), Accelerated Issue Resolution agreements (AIR), settlements/resolutions under the jurisdiction of Examination, Appeals or Counsel Closing agreements can also be used to resolve compliance issues that have not yet been discovered by the IRS - Unfiled returns (e.g., Form 1120-F, Form 1040-NR, Form 940/941, Form 1041, Form 706, Form 1099, GSTT returns, etc.) - Misfiled returns (e.g., Forms 941 that do not cover all employees or types of compensation.) - Tax exempt bond issues. (TEB VCAP)

14 Closing Agreements - Voluntary Compliance Issues (cont.) Goals: Reduce or eliminate penalties, gain compliance history Success stories: - Penalty-free and reduced tax GSTT filings - Penalty-free 941 and 1042 compliance - TEFRA partnership adjustments - Penalty-free Form 1120-F filings Tax controversy representation recommended

15 Examination Opportunities

16 Delegation Orders 4-24 and 4-25 Permit settlement of issues by Examination that are based on hazards of litigation Delegation Order 4-24 allows settlement consistent with Appeals settlement of the issue in prior examination cycles of the same taxpayer - Underlying issue must have been settled by Appeals independently of other issues (e.g., no trading of issues) and legal authorities relating to issue are unchanged Delegation Order 4-25 allows settlement consistent with Appeals settlement position - Requires pre-approval by the issue Technical Advisor and the Appeals Technical Guidance coordinator

17 Live Meeting Poll Polling Question 2 Delegation Order 4-24 allows Examination to settle an issue in the current cycle on the same terms as a hazards of litigation based settlement of the issue by Appeals in a prior cycle. A. True B. False Changes directly made to this slide will not be displayed in Live Meeting. Edit this slide by selecting Properties in the Live Meeting Presentation menu.

18 Early Referral to Appeals (Rev. Proc ) Allows for an issue or issues to be resolved by Appeals while the remaining issues in the case are undergoing examination Applies to developed unagreed issues in an open audit (pre-30 day letter) Remaining issues are not expected to be completed before Appeals resolves the early referral issue(s) If no agreement, taxpayer can request mediation or will be issued a statutory notice of deficiency. (No reconsideration of the Early Referral issue by Appeals, if remaining issues are protested to Appeals after the 30 day letter.)

19 Fast Track Settlement (FTS) Rev. Proc , Ann A non-binding procedure using a neutral party, trained in mediation techniques, to assist the taxpayer and Exam to come to a negotiated settlement of issues Exam Team Manager must consider FTS when there are unagreed issues which cannot be resolved. (Opening conference and mid-cycle case review) Applicable to pre-30 day letter LB&I and SB/SE issues for which Form 5701 (Notice of Proposed Adjustment) has been issued

20 Fast Track Settlement (cont.) Benefits of FTS: A prompt settlement of an issue (or issues) based on hazards of litigation No LCU ( hot ) interest on agreed tax liability Settlement generally takes place at a one-day session within 120 days (LB&I cases) or 60 days (SB/SE cases) of the acceptance into the program Taxpayer may withdraw from the process at any time Taxpayer may then take its case to Appeals under the normal process

21 Fast Track Settlement (cont.) Important considerations: Examination may involve Counsel and Technical Guidance coordinators in the Fast Track session You should prepare for the Fast Track almost like a trial or hearing (Include witnesses, factual evidence and technical experts) Certain issues are excluded from Fast Track While Examination must consider Fast Track, the team may not be supportive of a settlement The case is still in Examination s jurisdiction and if the FTS Appeals official believes the case requires further development, the case can be sent back to Exam Although the process is nonbinding, and the taxpayer can withdraw from the process at any time, the Fast Track session may allow Examination an opportunity to shore up weak areas in the case before issuing the 30 day letter

22 Live Meeting Poll Polliing Question 3 Which of the following statements about the IRS Fast Track Settlement (FTS) Program is false? A. The program is part of the IRS Examination process. B. Settlements are limited to IRS concessions of 25 percent or less. C. An Appeals officer works with the taxpayer and Exam in a one-day session to negotiate a settlement of issues. D. The FTS process is non-binding and taxpayer can withdraw at any time and then go to regular IRS Appeals. Changes directly made to this slide will not be displayed in Live Meeting. Edit this slide by selecting Properties in the Live Meeting Presentation menu.

23 Accelerated Issue Resolution (AIR) Rev. Proc Agreement applicable to CIC taxpayers to extend resolution of Examination issue to filed tax returns for later years May be requested by taxpayer for the same or similar issues resolved by Examination Resolved using specific matters closing agreement (AIR Agreement) Certain issues are excluded or require approval of other offices/functions

24 Appeals Opportunities

25 Telescoping Adjustments Typical fact pattern: multiple years under Appeals jurisdiction. Issues resolved by telescoping all adjustments into one year. Potential benefits - Fewer amended state returns - Lower interest costs - Lower penalties Important considerations: - Selection of year for interest - Selection of year for penalties - Review transcripts

26 Mediation (Rev. Proc ) A non-binding process for cases that are unagreed after Appeals consideration. An objective and neutral third party (Appeals officer) will assist the taxpayer and the initial Appeals officer to negotiate a settlement. Decision making authority remains with the taxpayer and Appeals. - Appeals officers, trained in mediation techniques, act as mediators to assist in obtaining a negotiated settlement - Co-mediation is also available - The mediator acts as a facilitator for settlement negotiations. He/she will define issues, find areas of agreement, and promote settlement discussions. - The mediator cannot determine a settlement (as in Fast Track), but must assist the parties in their negotiations

27 Mediation (cont.) Requesting Mediation - Written request pursuant to the Appeals Team Manager with copies to the Appeals Area Director and to the Chief of Appeals - The request should include identifying information and a description of the issue(s) to be mediated including the dollar amount at issue - Chief of Appeals office will set up a conference call to discuss the case and location issues. Input into Appeals mediator selection - Must identify the decision maker who will attend the session

28 Mediation (cont.) Ex parte rules are strictly enforced. (Neither side may speak with the mediator without the other party present.) Each party submits a discussion summary of the issues, including the party s arguments in favor of that party s position. (Generally submitted a few weeks before the session.) The mediation process is confidential and the discussions with each party (at the session) may not be disclosed

29 Mediation (cont.) Either party may withdraw from the process at any time before reaching a settlement of the issue(s) If agreement is reached, it is documented via a Form 906 closing agreement If no agreement is reached: arbitration or litigation

30 Live Meeting Poll Polling Question 4 Before negotiating a settlement which may include the telescoping of issues, it is advisable to obtain an IRS transcript of the taxpayer s account. A. True B. False Changes directly made to this slide will not be displayed in Live Meeting. Edit this slide by selecting Properties in the Live Meeting Presentation menu.

31 Collection Opportunities

32 Fast Track Mediation - IRS Publication 4167 Applies to SB/SE taxpayers to resolve disputes from examinations, offers in compromise, trust fund recovery penalties and other Collection actions Appeals mediator, taxpayer and IRS representative discuss resolution options and resolve matter Excluded issues/matters: - Docketed cases (Tax Court or other Courts) - Campus and Automated Collection System (ACS) cases - Collection Appeals Program cases - Issues with no legal precedent - Issues with split authority (between jurisdictions)

33 Live Meeting Poll Polling Question Which tax controversy topic would you most like to see covered in a future webinar? A. IRS Collection matters B. Offers in Compromise C. Small Business/Self Employed (SB/SE) examinations D. Wage & Investment (W&I) examinations E. Penalties and abatements F. Interest Changes directly made to this slide will not be displayed in Live Meeting. Edit this slide by selecting Properties in the Live Meeting Presentation menu.

34 Today s Presenters Patti Burquest Principal Tax Controversy Services Washington National Tax patti.purquest@mcgladrey.com David Click Director Tax Controversy Services Denver Office David.click@mcgladrey.com

35 Disclaimer The information contained herein is general in nature and based on authorities that are subject to change. McGladrey & Pullen, LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. McGladrey & Pullen, LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. Circular 230 Disclosure This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. McGladrey is the brand under which McGladrey & Pullen, LLP serves clients business needs. McGladrey & Pullen, LLP is the U.S. member of the RSM International ( RSMI ) network of independent accounting, tax and consulting firms. The member firms of RSMI collaborate to provide services to global clients, but are separate and distinct legal entities which cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. McGladrey, the McGladrey signatures, The McGladrey Classic logo, The power of being understood, Power comes from being understood and Experience the power of being understood are trademarks of McGladrey & Pullen, LLP McGladrey & Pullen, LLP. All Rights Reserved. McGladrey & Pullen, LLP 1501 M Street NW, Suite 340 Washington, DC