Managing the LB&I Examination Process: Using the Quality Examination Process and other Examination processes to your best advantage

Transcription

1 Managing the LB&I Examination Process: Using the Quality Examination Process and other Examination processes to your best advantage

2 Tax Controversy Web Series Second of Four sessions to be held through January 2012 August 30 - The Changing IRS Examination Process for Businesses and International Operations: How IRS changes may impact your company before and when it is examined. October 25 - Managing the Examination Process under the new LB&I Organization: Using the Quality Examination Process (QEP) and other Examination processes to your best advantage. December 8 - Getting the Most from IRS Appeals: Developing and executing your Appeals strategy. January 26 - Hot Topics and New Developments in Tax Controversy: An update on current developments. 1

3 Objectives Understand the overall process of an LB&I examination Explain the steps in the Quality Examination Process (QEP) Understand the statutes of limitation and guidelines agents must follow Explain the various types of advice related to guidance on a complex issue during the audit or examination 2

4 Agenda Topic Minutes Introduction 5 The Quality Examination Process 15 Managing Statutes of Limitation Issues 10 Information Gathering and Evaluations 10 Resolving the Examination 15 Questions & Answers 5 3

5 Today s Speakers Bob Adams, Managing Director Washington National Tax Bob.Adams@mcgladrey.com Patti Burquest, Managing Director Washington National Tax Patti.Burquest@mcgladrey.com 4

6 The Quality Examination Process

7 The Quality Examination Process Collaborative approach with standardized processes - Steps in the QEP (Examination Plan) Pre-audit planning by LB&I Planning meetings/opening conference and discussions with taxpayer 1. Discuss roles, expectations and responsibilities 2. IRS agenda a. IRS Team: Team Coordinator, Team Manager, other team members b. Rules of Engagement (IRM ) c. Communication Agreement 6

8 The Quality Examination Process - IRS Agenda for Opening Conference/Planning Meetings (continued) d. Initial IDR for examination planning and risk analysis e. Discuss UTP schedule and issues disclosed f. IDR tracking and milestones g. Exam team site requirements (office space, building security, information/data security) h. IRS will introduce specialty resources (such as counsel, technical advisors, CAS, engineers, etc.) i. Issue mandatory IDRs for listed transactions and transfer pricing 7

9 The Quality Examination Process Taxpayer Orientation - Overview of Taxpayer s business activities, record keeping, structure and organization Exchange Additional Transactional and Financial Information - Discuss potential examination areas/issues and business units to be examined Finalize Examination Plan - Review and sign Examination Plan (timeframes, response times, access to records, source documents) 8

10 The Quality Examination Process Items to consider during the course of the audit - IDRs (pre-issuance review, response time, NOPA response times) - How to prepare for the Opening Conference (document availability, company overview, tour) - Making requests of your own LIFE or LIFE-like agreements/approach Materiality thresholds - Client s team and communication plan - Developing a relationship with the Team Manager 9

11 The Quality Examination Process Items to consider during the course of the audit - Managing the involvement of Issue Management Teams or Industry/Issue Practice Groups/Networks - Using rules of engagement to resolve problems - Controlling the statute of limitations - Find out expected completion date of examination 10

12 The Quality Examination Process Limited Issued Focus Examinations (LIFE) - Effective Nov.1, 2002, LMSB implemented a new type of examination known as Limited Issue Focused Examination (LIFE). These procedures limit the scope of an examination to only those few issues that represent the greatest compliance risks - The Memorandum of Understanding (MOU) between the Internal Revenue Service and the taxpayer covering a LIFE must specify the specific tax return covered by the agreement 11

13 The Quality Examination Process Limited Issued Focus Examinations (LIFE) (cont d) - The LIFE process provides Case managers with the authority to waive specific mandatory compliance items, but not the ability to waive the examiners obligation to make referrals to specialists when required - See IRM LIFE-LIKE is an informal limited scope program using the LIFE approach, but without the standardized MOU 12

14 The Quality Examination Process Identify priority of potential issues, suggest ADR as early as possible - Like other forms of ADR, the IRS programs encourage cooperation among the parties, especially in mediation where the parties work with a neutral facilitator to reach a compromised settlement and a win-win outcome - The most common forms of ADR available at the IRS are Early Referral, Fast Track Mediation, Fast Track Settlement, Accelerated Issue Resolution (AIR), Post Appeals Mediation and Arbitration 13

15 Managing Statutes of Limitation Issues

16 Managing Statutes of Limitation Issues 6501 (General Rule and Special Rules) - Expires three years after the date the tax return was due or filed, whichever is later However, the IRS may assert a six-year SOL if there is an omission of income in excess of 25 percent as reported - Special Rules NOL/Credit Carry-Backs The SOL for the source year of the loss or credit governs the carry-back year 1. Form 1120X (sections 6501(h), (i) and (j)) 2. Form 1139 (section 6501(k)) 3. Other Guidelines Agents must follow 15

17 Managing Statutes of Limitation Issues Statute extensions A - Restricted consents A restricted consent is a consent which extends the assessment statute of limitations for one or more specific issues only. The statute of limitations is allowed to expire on all other issues 16

18 Managing Statutes of Limitation Issues Refund claims after the extension expires - If the claim was not filed within the three-year SOL, the amount of the refund cannot exceed the portion of the tax paid during the two years immediately preceding the filing of the claim - Note that under the terms of the Form 872, the SOL for a claim for refund is open for six months following the expiration of the Form

19 Information Gathering and Evaluations

20 Information Gathering and Evaluations Information Document Requests (IDRs) - Managing the process Mandatory IDRs - Boilerplate forms that the agent must issue Interviews Summons - A summons may be issued for the purpose of ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for, or with respect to, any internal revenue tax, or collecting any such liability. See section 7602(a) 19

21 Information Gathering and Evaluations Advice (TAM, CCA, and informal advice) - Technical Advice Memorandum (TAM) Issued either at the IRS's or the taxpayer's request for Chief Counsel guidance on a complex issue arising during the audit or examination of a particular taxpayer A TAM is binding only on the particular taxpayer - Chief Counsel Advice (CCA) is issued to Field or Service Center employees It conveys any legal interpretation of a revenue provision, or any legal interpretation of State law, foreign law, or other Federal law relating to the assessment or collection of any liability under a revenue provision - Other types of advice 20

22 Information Gathering and Evaluations Role of Chief Counsel, LB&I Counsel Notice of Proposed Adjustments (NOPAs) / Form Form 5701 may be used to present proposed adjustments to taxpayers. Form 5701 is a threepart form designed to provide written record of proposed adjustments - Use of Form 5701 is not mandatory. Any method, which provides a record of what was presented to taxpayers, may be used - Form 5701 is the ticket to Fast Track 21

23 Resolving the Examination Items to Consider

24 Resolving the Examination Items to Consider Final sensitivity calculations with interest and any penalty Analysis of impact on tax reserves including timing, disclosure wording, press release Early referral to Appeals - Taxpayer can request early referral to Appeals of developed unagreed issue in an open audit (prior to 30-day letter) - The objective of Early Referral is for Exam/Collection to work simultaneously with Appeals to resolve cases more expeditiously 23

25 Resolving the Examination Items to Consider Fast Track Settlement/Mediation - Enables the IRS to resolve tax disputes at an earlier stage often within a much shorter time than through the normal audit and appeal processes - Does not eliminate or replace existing dispute resolution options, including the opportunity to request a hearing before Appeals or a conference with a manager 24

26 Resolving the Examination Items to Consider Delegation Orders - They are internal IRS documents that grant authority to Examination to settle issues D.O D.O

27 Resolving the Examination Items to Consider Rules of Engagement - They are intended to: Clarify individual roles, responsibilities and lines of authority to help ensure end-to-end accountability and provide clear procedural guidance on how to manage tax case interactions Facilitate getting to the right answer for a particular case or issue Promote consistent tax treatment between similarly situated taxpayers or cases Reinforce the importance of integrity and ethical behavior in decision making 26

28 Resolving the Examination Items to Consider Closing Conference - Should be attended by Team Coordinator and Team Manager - Will discuss resolution of the case and next steps - Penalties, if applicable, may also be discussed - Discuss Fast Track - Be prepared with a resolution strategy which may include making an offer to resolve the case or informing the IRS team that you plan to go to Appeals 27

29 Resolving the Examination Items to Consider Agreed, Un-agreed, Partially agreed Accelerated Issue Resolution (AIR) Agreements - They resolve a single issue across multiple years and/or cycles of a coordinated examination taxpayer - In the right circumstances, an AIR agreement can be a very effective tool for managing a difficult, repetitive issue 28

30 Questions?

31 Today s Presenters Bob Adams Managing Director Washington National Tax IRS Practice and Procedure Bob.Adams@mcgladrey.com Patti Burquest Managing Director Washington National Tax Tax Controversy Services Patti.Burquest@mcgladrey.com 30

32 Thank you! The information contained herein is general in nature and based on authorities that are subject to change. RSM McGladrey, Inc. 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. RSM McGladrey, Inc. assumes no obligation to inform participants of any changes in tax laws or other factors that could affect information contained herein. This presentation 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. 31