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1 Tax Executives Institute Meeting Omaha Chapter Laura M. Prendergast Industry Director Heavy Manufacturing and Transportation (HMT) April 17, 2012.

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Presentation on theme: "1 Tax Executives Institute Meeting Omaha Chapter Laura M. Prendergast Industry Director Heavy Manufacturing and Transportation (HMT) April 17, 2012."— Presentation transcript:

1 1 Tax Executives Institute Meeting Omaha Chapter Laura M. Prendergast Industry Director Heavy Manufacturing and Transportation (HMT) April 17, 2012

2 2 The Large Business and International (LB&I) Division serves corporations, subchapter S corporations, and partnerships with assets greater than $10 million dollars.  Filing population growth:  Since Standup, the number of LB&I returns filed has increased 75%  The growth in flow-through returns represents 76% of the filing population.  Significant improvements in currency and processes:  Cycle time for large taxpayers just over 2 years  Fast Track and Early Referral to Appeals reduced case processing in Appeals  Electronic filing and other process improvements shortened time frame for return receipt LB&I Structure

3 3 International Realignment  All under one Deputy Commissioner  One place for internal and externals  Clear lines of authority and responsibilities  New International Practice Network (IPN) allows International employees to access technical expertise, legal support and tools to work challenging global issues

4 4 International Structure 4 Sam Maruca, Director, Transfer Pricing Operations Kathy Robbins, Director, International Business Compliance (IBC) Kathy Robbins, Director, International Business Compliance (IBC) Commissioner Large Business & International Rosemary Sereti, Director, International Individual Compliance (IIC) Michael Danilack, Deputy Commissioner (International) Doug O’Donnell, Assistant Deputy Comm’r (Int’l) Douglas Shulman, IRS Commissioner Treaty Unit Steve Miller, IRS Deputy Commissioner for Services & Enforcement Foreign Posts Service-wide Strategy JITSIC EOI Program

5 5 International Priorities  Transfer Pricing Practice (TPP)  Offshore Voluntary Disclosure Initiative (OVDI)  Foreign Account Tax Compliance Act (FATCA)  Collaboration with Foreign Tax Administrations  Tax Treaty/Mutual Agreement Program (MAP)

6 6 Uncertain Tax Positions - UTP Purpose of UTP  Reduce time to identify issues  Ensures more time spent discussing the law as it applies to the facts vs. looking for information  Identify areas of uncertainty requiring guidance Filing Requirements  2010 tax year:  Forms 1120, 1120-F, 1120-L, and 1120-PC  Assets = $100+ million  2012 tax year: Assets = $50+ million  2014 tax year: Assets = $10+ million

7 7 Sch. UTP Filing Stats (as of 1/1/2012)  1,900 taxpayers filed Sch. UTP  IC taxpayers filed 79% of returns with Sch. UTP  4,000 issues disclosed  CIC returns with Sch. UTP averaged 3.1 uncertain tax positions  IC returns with Sch. UTP averaged 1.9 uncertain tax positions  53% of all Sch. UTP returns filed included only one or no uncertain tax positions  Top 3 code sections = IRC 41, 482 and 162.  19% of all issues disclosed are transfer pricing issues

8 8 Use of Sch. UTP in Examinations  August 31, 2011 - Guidance memorandum for LB&I CAP teams re: requirements and procedures to follow when conducting post-filing reviews.  November 1, 2011 - Guidance memorandum for LB&I examination teams re: requirements and procedures for reviewing and using the Sch. UTP in conjunction with their examinations.

9 9 Use of Sch. UTP (continued)  Just in Time Training to team members  Part of QEP as another tool  Learning for taxpayers and the IRS.  Gather feedback from examiners  Knowledge gained in 2012 used to identify areas for additional procedures, instruction, guidance and/or changes for future years.

10 10 Compliance Assurance Process (CAP)  2005 - Pilot program with 17 taxpayers.  2012 - 159 taxpayers accepted (58 taxpayers in HMT).  March 31, 2011 – CAP Permanency announcement. Two additional components of CAP Permanency:  Pre-Cap –Roadmap of steps required for entry into CAP.  CAP Compliance Maintenance program - For taxpayers who have: Completed one CAP cycle through post-file Fewer complex issues and, Established a history of working collaboratively and transparently.  Compliance Maintenance program is evolving.  Movement between CAP and CAP Maintenance.  Aligning resources to be able to react timely.

11 11 Benefits of CAP  Quality work product using real time records  Post cycle-time decreased  Emerging issues identified earlier  Certainty  Currency  Potential to avoid amending state returns

12 12 Issue Practice Groups (IPGs)  The Knowledge Management Process  One of newest pilots in LB&I.  LB&I employees across the country share experiences.  Issue Practice Groups (IPGs) - Designed around specific subject matters. IPGs seek to build: A network of broader technical expertise. A means for obtaining more efficient and consistent technical advice and assistance. Greater opportunities for collaboration. IPGs have two or three subject matter experts and many part-time examiners across the country.

13 13 Issue Practice Groups (continued)  Current IPGs:  Changes of Accounting Method  Life and Non-Life Insurance Issues  Deductible and Capital Expenses  Regulated Investment Company (RICs), Real Estate Investment Trust (REITs) and Real Estate Mortgage Investment Conduit (REMICs)

14 14 Issue Practice Groups (continued)  Other IPGs under consideration:  Inventory Costs and Accounting  Flow-throughs  General Business Credits  Financial Products  General Corporate Issues  Penalties

15 15 IPG Summary  Almost half of IRS’s current workforce has:  Five or less years IRS experience  Significant private sector experience  New IPG process will allow IRS to effectively:  Use private sector experience and,  Combine career employee expertise,  To ensure quality and consistent arguments for positions taken nationwide.

16 16 Quality Examination Process (QEP)  Builds on and replaces Joint Audit Planning Process  Effective June 1, 2010, Team Coordinator (TC) to provide and discuss QEP Publication 4837 at beginning of new examinations.  Benefits of the Quality Examination Process - TP and Audit Team can reach agreements on:  Issues to be examined,  Timing of IDRs, etc.  Promotes consistent communication and engagement with taxpayers throughout the entire exam cycle, from Planning through Resolution.  Minimal impact if already actively engaged and working together with audit teams.

17 17 Issue Management Strategies (IIRs, PFA,s Fast Track)

18 18 Industry Issue Resolution (IIR)  Goal is to resolve frequently disputed or burdensome business tax issues affecting a significant number of taxpayers.  Provides clear guidance, thus reducing the time and associated expenses.  A multi-functional team (IRS, Chief Counsel, and Treasury personnel) gathers and analyzes the relevant facts from the submitter, industry groups and taxpayers and recommends guidance.  IRS resolves accepted applications through IRS published guidance (E.g., Revenue Ruling, Revenue Procedure or, Administrative Guidance).  Not a tool for every issue, but can save resources and provide certainty.

19 19 Industry Issue Resolution (continued)  154 Submissions, 36 Accepted.  5 current projects:  2 in Insurance industry & other financial products  3 in Utility & Cable companies on “Unit of Property”  Additional 3 under consideration.  Taxpayers, representatives, and industry trade associations, can submit requests for guidance on an issue any time at

20 20 PreFiling Agreements (PFA)  Beneficial way to reach agreement on a contentious issue before the return is filed.  User fee = $50,000 (Due only if the issue is accepted).  Taxpayers overall satisfaction = 4.7 out of 5.  Requests can be filed with the Team Manager or PFA Program Manager.  The application is evaluated by Counsel, the Audit team, and Technical Specialists.  Final acceptance decision at Industry Director level; no appeal.

21 21 Fast Track Settlement (FTS)  Since its inception, 781 cases accepted, 82.7% resulted in agreement. FTS jointly administered by the LB&I 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.

22 22 Rules of Engagement  Discuss with the team first  Resolve issues at the lowest level  Regular Territory Manager involvement in cases  Elevate unresolved issues to next level

23 23 Summary Suggestions for smooth IRS interaction: 1.Engage with the team. Use the Quality Examination Process (QEP). The QEP process:  Promotes better, more consistent communication and engagement with taxpayers throughout the entire exam cycle, from very early planning activities through resolution. 2.Be transparent, prompt and timely. 3.Expect LB&I teams to plan, communicate and be responsive. 4.Expect tax department personnel to do the same. Work to resolve issues or, quickly identify irresolvable issues for alternative dispute resolution process, formal appeals or litigation.

24 24 Any Questions?

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