American Law Institute Continuing Legal Education. Current Issues in IRS Examinations Tips from the Tax Trenches!

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1 American Law Institute Continuing Legal Education Current Issues in IRS Examinations Tips from the Tax Trenches! Notice The following information is not intended to be written advice concerning one or more Federal tax matters subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. 2

2 Matthew T. Journy Venable LLP, Washington, D.C. Michelle Marion KPMG LLP, Boston, Massachusetts William E. Taggart, Jr. Law Offices of William E. Taggart Jr. Oakland, California Charles P. Rettig Hochman, Salkin, Rettig, Toscher & Perez, P.C. Beverly Hills, California 3 Presentation Overview IRS Operating Divisions and Principal Offices Current IRS Environment & Strategic Plan Trends in IRS Examinations Revisions to LB&I Examination Process New IDR Procedures, Issue-Based Approach, and Other Changes Audit Technique Guides (ATG) Current IRS Enforcement Procedures and Priorities Exempt Organization Examinations 4

3 Internal Revenue Service Operating Divisions Wage and Investment Division (W & I) Tax Exempt / Governmental Entities (TE/GE) Large Business & International (LB&I) Small Business / Self-Employed (SB/SE) 5 Internal Revenue Service Principal Offices Appeals Chief Counsel National Taxpayer Advocate Office of Professional Responsibility Criminal Investigation Whistleblower Office 6

4 John A. Koskinen IRS Commissioner, April 8, 2015 The risk to our tax system posed by underfunding goes deeper than uncollected dollars, unanswered phones or unpublished guidance. Service and enforcement need to be viewed as two sides of the same compliance coin, because our system is built on the notion of voluntary compliance. If people think they're not going to get caught if they cheat, or they're just fed up because they can't get the help they need from us to file their taxes, the system will be put at risk. Consider that a one-percent decline in the compliance rate translates into $30 billion in lost revenue for the government. 7 John A. Koskinen IRS Commissioner, April 8, 2015 But while our budget has been shrinking, the taxpayer base has grown by millions. We've also taken on many new responsibilities, such as implementation of the Foreign Account Tax Compliance Act and the tax-related provisions of the Affordable Care Act. But after five years of budget cuts, and a hiring freeze that has lasted four years, people need to understand that the IRS is going to have to do less with less. As highly skilled employees retire, we need to replace them with the next generation of talented, dedicated people. 8

5 Nina Olsen National Taxpayer Advocate, April 15, 2015 Taxpayer service is the #1 most serious problem for our nation's taxpayers. This year, taxpayers are receiving the worst levels of taxpayer service since at least 2001, when the IRS implemented its current performance measures. In fact, the levels of service are the lowest I have witnessed in my 40 years of working in the field of taxation. In addition to publishing forms and instructions, the IRS now typically receives more than 100 million telephone calls, 10 million letters, and 5 million visits from taxpayers each year. The IRS reduced its training funds by 83 percent from FY 2010 through FY 2014, leaving employees less equipped to do their jobs properly. 9 Current IRS Environment Severe Budget Constraints FY 2015 $10.9 billion ($346 million less than FY 2014 but equivalent to $600 million drop if you factor in $250 million mandated costs and inflation) 17% drop from 2010 ($1.2 billion) Impacts hiring, training, etc. throughout 75% of IRS budget is personnelrelated Significant, Ongoing Congressional Scrutiny 501(c)(4) [250 employees have spent 100,000 hours complying with the investigations costing $14+ million delivering 700,000 pages of documents] Affordable Care Act roles & responsibilities FATCA implementation 10