25th Annual Health Sciences Tax Conference

Transcription

1 25th Annual Health Sciences Tax Conference Current topics in IRS risk management and tax controversy December 7, 2015

2 Disclaimer EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. This presentation is 2015 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party. Views expressed in this presentation are those of the speakers and do not necessarily represent the views of Ernst & Young LLP. This presentation is provided solely for the purpose of enhancing knowledge on tax matters. It does not provide tax advice to any taxpayer because it does not take into account any specific taxpayer s facts and circumstances These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice. Page 2

3 Presenters Michael Kurowski Community Health Systems Franklin, TN Mark Mesler Ernst & Young LLP Atlanta, GA Frank Ng Ernst & Young LLP Washington, DC Page 3

4 Agenda New IRS Large Business & International (LB&I) organization structure and examination approach Changing LB&I examination process Update on appeals process Page 4

5 New LB&I organization structure and examination approach Page 5

6 LB&I s future structure The high-level structure reflected in this presentation is largely final and could be revised at the exam team level. Changes have been broadly communicated to all levels of LB&I management and workforce. Implementation of this new structure is scheduled to take place in early calendar year Internal Revenue Manual provisions will include revised examination procedures and will be issued shortly. Page 6

7 The practice area approach LB&I will be organized by practice areas. A practice area is a group of employees organized together to focus on one or more areas of expertise. Each practice area (along with other activities) will study compliance issues within their area of expertise and suggest campaigns to be included in the compliance plan. Page 7

8 LB&I proposed restructuring LB&I will restructure into nine practice areas: five subject matter based and four geographically based. Subject matter practice areas Geographic practice areas Enterprise Northeast (New York) Pass-through entities East (Downers Grove, Illinois) Includes financial products and institutions, corporate issues and credits, and penalties Central (Houston) West (Oakland, California) Treaty and transfer pricing Withholding and international individual compliance Includes Foreign Account Tax Compliance Act (FATCA) Cross-border activities International activities other than those falling under the transfer pricing and withholding areas Page 8

9 LB&I high-level organization chart LB&I Commissioner Deputy Commissioner Program and Business Solutions Assistant Deputy Commissioner Compliance Integration Assistant Deputy Commissioner International Technology and Program Solutions Resource Solutions Data Mgt. Compliance Planning and Analytics Western Compliance PA Pass Through Entities PA Enterprise Activities PA Central Compliance PA Cross Border Activities PA Eastern Compliance PA Withholding and International Individual Compliance PA Treaty and Transfer Pricing Operations PA Northeastern Compliance PA Operations West Deputy Pass Through Entities Financial Institutions and Products Operations North Central Operations East Operations Great Lakes Operations Foreign Payments Practice Operations Transfer Pricing Practice Operations North Atlantic Operations Southwest Computer Audit Specialists Promoter Program Financial Products Engineers Operations West Banks/Insurance/ RICs-REITs- REMICs Operations South Central Tax Computation Specialists Operations Southeast Operations International Individual Compliance Economists Advance Pricing and Mutual Agreement Operations Mid-Atlantic Global High Wealth Affordable Care Act Treaty Administration Corporate/ Credit Treaty Assistance and Interpretation Team Corporate Issues and Credits Exchange of Information Penalties Joint International Tax Shelter Information Center Page 9

10 Geographic practice area map WA ME AK OR CA NV ID AZ UT MT WY CO NM ND SD NE KS OK MN WI IA IL MO AR MS NY MI PA IN OH WV VA KY NC TN SC AL GA DE NY DC VT NH MA RI CT NJ MD HI TX LA FL Engineers Computer Audit Specialists West Central East Northeast Field Operations (DFO) Global High Wealth Tax Compliance Specialists West Southwest South Central North Central Great Lakes Southeast North Atlantic Mid- Atlantic Page 10

11 Practice areas Pass Through Entities PA Enterprise Activities PA Cross Border Activities PA Withholding & Int. Ind. Compliance PA Treaty and TP Operations PA Deputy Pass Through Entities Financial Institutions and Products Operations East Operations Foreign Payments Practice Operations Transfer Pricing Practice Promoter Program Financial Products Banks/Insurance/ RICs-REITs- REMICS Operations West Operations International Individual Compliance Economists Advance Pricing and Mutual Agreement Affordable Care Act Treaty Administration Corporate/Credit Treaty Assistance and Interpretation Team Corporate Issues and Credits Exchange of Information Penalties Joint International Tax Shelter Information Center Page 11

12 Compliance practice areas Western Compliance PA Central Compliance PA Eastern Compliance PA Northeastern Compliance PA Operations West Operations North Central Operations Great Lakes Operations North Atlantic Operations Southwest Engineers Tax Computation Specialists Operations Mid- Atlantic Computer Audit Specialists Operations South Central Operations Southeast Global High Wealth Page 12

13 LB&I shift in audit focus LB&I is moving to a centralized issue selection and return selection approach over the next few years. LB&I is seeking to create a more flexible and knowledgeable workforce by using data analytics to better identify areas of noncompliance and creating tailored treatments for issue response. LB&I will shift to a centralized issue development process or campaign that focuses on how to identify and address compliance risks. Campaign-related actions would include development of training materials, technical positions and audit aids, among other tools. The new process integrates recent Information Document Request changes and the new claim filing policy. LB&I generally will be moving away from the Coordinated Industry Case (CIC) approach. Any potential changes to the compliance assurance process (CAP) have yet to be determined. Page 13

14 IRS issue examination approach Scan universe of external and internal inputs Analyze risk Strategically identify and prioritize areas of compliance risk to more effectively address taxpayer compliance Focus Execute Execute work with dynamic tools, enhanced training, a robust support infrastructure and timely feedback mechanisms Decide what work is performed, who performs it and what support is needed based on areas of compliance risk Execute work Plan Select work Adapt Continually gather, assess and incorporate feedback to enhance operations and improve taxpayer compliance Build campaigns Develop issues Page 14

15 Potential implications of new exam approach Fewer continuous large taxpayer examinations Will this affect your determination when a tax year is effectively settled? Uncertain future of compliance assurance program Greater centralization of issue identification and development What will be the level of IRS transparency on issues selected for examination? Greater scrutiny of issues with higher expectations to produce documentation quickly Potentially less flexibility to resolve issues at exam level Multiple examination teams and management chains based on type of issue selected for audit Page 15

16 Changing LB&I examination process Page 16

17 Proposed new LB&I exam process Publication 5125 Replaces current Quality Exam Process incorporating recent changes New Information Document Request directive Appeals Judicial Approach and Culture Establishes Issue Practice Groups and International Issue Networks to promote knowledge-sharing vision for focused issue examinations Establishes process for centralized issue identification and selection Exam teams may limit audit to pre-identified issues Issues to be managed and audited by issue teams Implementation linked to LB&I restructuring in CY 2016 and Internal Revenue Manual revisions Page 17

18 New LB&I exam process Will require a formal acknowledgement of the facts with taxpayer opportunity to provide statement on disputed facts Fast-track settlement must be considered on all unagreed issues Informal claims accepted by exam team during first 30 days after opening conference; must file formal claim after 30 days Fully documented claims will be risk assessed similar to other issues The claim could be accepted or worked separately from the current examination Page 18

19 LB&I examination process roles and responsibilities LB&I expectations Exam teams and taxpayers work transparently Engage each other in development of examination plan Follow information document request procedures Resolve issues at lowest level using appropriate resolution tools Taxpayers and representatives Identify personnel for each issue with significant knowledge Collaborate with the exam team to arrive at an acknowledgement of the facts Provide support for any additional facts Document facts remaining in dispute Page 19

20 LB&I examination process planning phase Initial planning meeting Work together to define the scope of the examination and process Exam team will explain why each issue is being considered Taxpayer should provide input on how each issue can be examined Issue team approach Comprises both LB&I and taxpayer personnel responsible for examining each issue Collaborate transparently to develop exam procedures for each issue Establish relevant facts and ensure each party s position is fully understood Examination plan Issue-focused and jointly reviewed Timelines, audit steps, risk analysis and methods of monitoring progress Page 20

21 LB&I examination process execution phase Issue development Identify and document all relevant facts Present legal positions Communicate both parties positions Facts Identifying areas of disagreement Resolution strategies Attempting to resolve at lowest possible level LB&I teams must seek taxpayer s concurrence Resolve any facts in dispute Consistent with Appeals Judicial Approach and Culture project Requires 365 days to remain on statute of limitation when received by Appeals Page 21

22 LB&I examination process resolution phase Issue resolution tools Consistently encourages available issue resolution tools Requires consideration of fast-track settlement with Appeals Taxpayer responsibility Ensuring all relevant facts and legal arguments provided during examination Prevent case being referred back to LB&I by Appeals Exit strategy Discussions must include efforts to resolve tax controversy for certainty Joint critique of the exam process to recommend improvements Address future tax treatment of issues to eliminate carryover/recurring issues Page 22

23 LB&I examination process expectations with respect to claims Informal claims for refund Provided to the exam team within 30 days of the opening conference After 30 days, must file formal claims Treasury Regulation Section standards Set forth in detail each ground upon which a credit or refund is claimed Present facts sufficient to apprise the IRS of the exact basis for the claim Contain a written declaration that it is made under penalties of perjury Claims will be disallowed if these standards are not met Page 23

24 LB&I examination process expectations with respect to claims Risk assessment Claims will be risk assessed similar to other issues Fully documented and factually supported claims may permit exam team to make tax determination without use of IDRs Fully documented claims enable a quick assessment to accept or examine claim If the claim warrants examination, then: Both the exam team and taxpayer discuss resources and timeline LB&I could decide that the claim will be worked separately from the current examination Page 24

25 LB&I directive on Information Document Requests (IDRs) issued February 28, 2014 Reiterates requirement that all IDRs must be: Issue-focused (i.e., identify and state the issue that led the examiner or specialist to request the information included in the IDR) Discussed with taxpayer prior to issuance, both in regard to content and determining a reasonable response time frame Outlines mandatory three-step IDR enforcement process: Delinquency Notice Pre-Summons Letter Summons Effective date March 3, 2014 Page 25

26 LB&I directive on IDRs Examiners and specialists are permitted to grant taxpayers one extension of up to 15 business days before the enforcement process begins. If no response is received by the IDR due date and no extension is granted, the IDR enforcement process begins on the date the extension determination is communicated to the taxpayer. IDR enforcement process An examiner or specialist and taxpayer will determine a reasonable response due date to the IDR. Page 26

27 LB&I directive on IDRs Delinquency Notice Signed by team manager, discussed with taxpayer and issued by examiner or specialist within 10 business days of the application of the enforcement process new response date no more than 10 business days from date of delinquency notice Pre-Summons Letter Signed by territory manager, who will issue and discuss the next steps with taxpayer at equivalent level within 10 business days after the Delinquency Notice due date new response date no more than 10 business days from date of Letter (unless Operations DFO approval) Summons If information is not provided, a summons will be issued for enforcement by IRS Counsel and Department of Justice Page 27

28 New IDR enforcement process timeline Within 10 business days No more than 10 business days No more than 10 business days 10 business days No timeline specified but likely quickly IDR deadline Delinquency Notice Response date Delinquency Notice Pre- Summons Letter Pre- Summons Letter response date Summons Under the new directive, the IDR process from the date of the initial draft IDR to the initiation of the summons process can take approximately 140 days. Page 28

29 LB&I Coordinated Industry Cases pilot LB&I initiated a new CIC pilot on April 30, Pilot will run for 18 months Currently, CIC cases are front-end staffed into the LB&I compliance plan, which limits flexibility to allocate resources to other compliance activities. Under the new process, all CIC cases would undergo a consistent classification process to determine tax return compliance risk and to identify issues for examination. The new classification process will include issue identification and written explanations on compliance risks and documentation to support compliance risk conclusions (pre-classification). All information will be included in case file for use during an examination Page 29

30 Appeals update Page 30

31 Appeals Judicial Approach and Culture (AJAC) July 18, 2013 Interim Guidance Memo for Appeals Employees AJAC applies to examination and collection cases AJAC themes: Judicial Approach to Appeals hearing by utilizing what is in the case file No new issues raised by Appeals Appeals will attempt to settle a case on factual hazards when the case submitted by Compliance is not fully developed and the taxpayer has presented no new information or evidence If a taxpayer provides Appeals with new information, Appeals will return the case to LB&I. If a taxpayer raises new arguments at Appeals, LB&I will be given the opportunity to review and comment on the arguments, but Appeals will maintain jurisdiction Page 31

32 Appeals Judicial Approach and Culture (AJAC) July 3, 2014 Appeals released second phase of AJAC Statute of limitations one year remaining prior to acceptance Providing Exam with opportunity to comment (specific time frame, 45 days) or return case to Exam (Appeals releases jurisdiction to Exam) Premature referral of case to Appeals or new information presented by taxpayer during Appeals hearing Page 32

33 Appeal procedure changes Elimination of Appeals arbitration program (Rev. Proc obsoleting Rev. Proc ) Fast Track Settlement Program updated Effective immediately, cases in which a 30-Day Letter has been issued are eligible for the Fast Track Settlement (FTS) Program. This does not change LB&I s general practice to offer FTS in appropriate situations prior to issuance of a 30-Day Letter. Also, FTS must be initiated prior to the issuance of the 90-Day Letter. Fast-track cases no longer qualify for post Appeals mediation process Page 33

34 Questions? Page 34

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