Tax Executives Institute Minnesota Chapter TEI/IRS Liaison Meeting May 19, 2015 Jessica Samuel, Territory Manager, RFTH

Introduction Jessica R. Samuel Territory Manager Jessicia.R.Samuel@irs.gov 1550 American Blvd East Bloomington, MN 55425 (651) 726-1525 2

Agenda Professional Examinations Principles of Sound Tax Administration IDR Enforcement Process Issue Resolution Tools Pre-Filing Agreements (PFA) Fast Track Settlement (FTS) Industry Issue Resolution (IIR) Compliance Assurance Program (CAP) LB&I Exam Process CIC Centralized Classification Process

Professional Examinations Principles of Sound Tax Administration Accountability Professionalism Discipline Transparency

Professional Examinations Transparency Throughout Entire Audit Process IRS must ensure that the taxpayers know throughout audit the issues the examiner is considering, why the examiner is raising the issue, the legal argument the examiner is relying upon, and the examiner’s views of the taxpayer’s legal arguments. Taxpayers must fully participate in all stages of examination Planning Phase Timely presentation of all relevant facts and arguments with respect to each issue during the examination. 5

Professional Examinations IDR Enforcement Process Make IDR Process Efficient and Transparent LB&I examiners and specialists trained Meaningful engagement between IRS and Taxpayer Mandatory Process – No exceptions 6

Professional Examinations Requirements for Issuing IDRs IRS and taxpayer to discuss a draft of the IDR and its contents prior to issuance IDRs are to be issue focused, clear and concise Issue IDRs with clear, agreed-upon timeframes for response 7

Professional Examinations IDR Enforcement Process Applies to IDRs issued in compliance with requirements for issuing IDRs Mandatory process involves three graduated steps: Delinquency Notice Pre-Summons Letter Summons 8

Professional Examinations IDR Enforcement Process Delinquency Notice (Letter 5077) Discussed with the taxpayer (Tax Manager) and signed by team manager Pre Summons Letter (Letter 5078) Discuss lack of complete response to Notice with the exam team (specialist, team and territory management, counsel, DFO) Territory Manager must sign and discuss Pre-Summons Letter with the taxpayer (Tax Director) 9

Professional Examinations IDR Enforcement Process Summons Discuss lack of complete response to Letter with taxpayer (VP of Tax) Includes Team Manager, Specialist Manager, Territory Managers, DFOs and IRS Counsel Summons prepared and issuance coordinated with IRS Counsel 10

Issue Resolution Tools Pre-Filing Agreements (PFA) Fast Track Settlement (FTS) Industry Issue Resolution (IIR) Compliance Assurance Program (CAP)

Pre-Filing Agreements (PFA) Beneficial way to reach agreement on a issue in a cooperative environment before the return is filed. Revenue Procedure 2009-14 provides the program guidelines. User fee — $50,000 (Due only if the issue is accepted). Taxpayers overall satisfaction is 4.7 out of 5.

Fast Track Settlement (FTS) Key points about FTS include the following: The FTS program is jointly administered by the LB&I Division and the Office of Appeals. LB&I agents and taxpayers work together to resolve outstanding issues while in LB&I’s jurisdiction. The FTS process should be completed in 120 days. Not appropriate for all cases, agents strongly encouraged to consider Fast Track on ‘unagreed’ issues The taxpayer retains all standard appeal rights regarding any unresolved issues remaining at the time of termination

Fast Track Settlement (FTS) Appropriate resolution tool when: Issue cannot be resolved at exam level Factual and Legal Issues Taxpayer and IRS agree to utilize the program Hazards of Litigation exist Since program inception through March 2014 Accepted 984 cases Resolution rate over 80%

IIR Program – Rev Proc 2003-36 The program goals are to: Address frequently disputed or burdensome business tax issues that affect a significant number of taxpayers. Provide clear guidance to reduce the time and resources associated with resolving issues during tax examinations. The IIR process includes: Issue Submission and Selection Planning, Analysis and Development Resolution and Guidance

IIR Submission Taxpayers, associations, and others can submit an issue anytime No required format, but should include Issue statement and description of why the issue is appropriate for the program Explanation of the need for guidance and estimated number of taxpayers impacted Name and phone number of a contact person May include a recommendation as to how the issue could be resolved. Refer to Rev. Proc. 2003-36 for IIR application process

Issues Appropriate for IIR Issue should have two or more of the following attributes: Uncertain tax treatment of common factual situation, Uncertainty results in frequent, repetitive exam of the same issue, Uncertainty results in taxpayer burden, Significant and impacts a large number of taxpayers, or Extensive factual development, understanding of industry practices and views would assist the Service in determining the proper tax treatment.

Issues Not Appropriate for IIR Generally, issues not appropriate for the IIR program include: Issues unique to one or a small number of taxpayers. Issues primarily under the jurisdiction of the Operating Divisions of the Service other than the LB&I and SB/SE Divisions. Issues that involve transactions that lack a bona fide business purpose, or transactions with a significant purpose of improperly reducing or avoiding federal taxes. Issues involving transfer pricing or international tax treaties.

CAP Overview Collaborative program Pre-file identification and resolution of issues Efficient use of resources Tax and financial reporting certainty

CAP Program Eligibility Company assets > 10 million Publicly-held entity Privately-held with audited financial statements No investigation/litigation that limits access to current corporate tax records.

CAP Program Background 2005: 17 taxpayers CAP Pilot began 2011: 140 taxpayers CAP Program Permanent Compliance Maintenance and Pre-CAP added 2014: 185 taxpayers 2015: 194 taxpayers

Phases of the CAP Program Pre-Compliance Assurance Process Pre-CAP Compliance Assurance Process CAP Compliance Maintenance CM

LB&I Examination Process Update current Quality Examination Process Leverage LB&I best practices IDR Process Claims process for issues not included in the exam plan

CIC Centralized Classification Process Manage exam resources more effectively Work Cases with higher compliance impact Central Classification Team - Pilot

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