1. Large & Mid-Size Business Division LMSB International Realignment NTEU Briefing Washington, DC August 2010 DISCUSSION DOCUMENT CONFIDENTIAL – DO NOT DISTRIBUTE

2. 2 Background  The IRS has identified increased compliance risk resulting from greater complexity of international tax laws and business structures  LMSB International is charged with providing guidance and support within LMSB on international issues and cases and leading IRS’ service-wide international tax strategy  Under the Large Business and International Expansion (LB&IE) Initiative, LMSB International will be positioned to (1) enhance the IRS’s focus on transfer pricing and on offshore and international individual compliance, (2) expand its overseas attaché staff, and (3) develop new international metrics Objectives  Augment and structure International organization to be successful in managing all service-wide international issues by: (1)Aligning international strategy with the frontline (2)Consolidating international specialists to optimize knowledge and allocation of resources (3)Developing a Transfer Pricing Practice that coordinates closely with APA  Realign LMSB to realize the vision of strategic issue focus, eliminate geographic barriers to expertise, improve collaboration between its examiners and policy makers Executive Summary

3. 3 Highlights of Proposed Change  The name of the Large and Mid-size Business (LMSB) will change on Oct. 1 to the Large Business and International division (LB&I)  The new LB&I division will realign from Industries and Pre-Filing & Technical Guidance (PFTG). International specialists and issue specialists, field specialist economists, international technical advisors, and related staff— approximately 875 employees in total—will move to the existing International organization, reporting to the Deputy Commissioner, International  The realigned LB&I will continue to serve the same population of taxpayers — corporations, subchapter S corporations and partnerships with assets greater than $10 million as well as certain high wealth individuals  LB&I will include a transfer pricing director, who will continue piloting the new transfer pricing practice, and a chief economist, who will oversee the IRS’s economic positions pertaining to transfer pricing  LB&I is also charged with overseeing the implementation of the recently enacted Foreign Account Tax Compliance Act (FATCA). Signed into law in March, FATCA will substantially improve international information reporting, increasing international transparency and compliance  Heather C. Maloy will continue serving as Commissioner of LB&I. Michael Danilack, Deputy Commissioner, International, will head the realigned global unit. Paul D. DeNard will continue serving as Deputy Commissioner (Operations)

4. 4 LMSB Commissioner LMSB Organizational Chart – Existing State Field OrganizationTotal Staff Total International Staff International Staff EastWest FIELD SPECIALISTS12221347658 CTM8381424993 FS7951551505 HMT9951006139 RFPH8051387167 NRC9101789484 PFTG16328 TOTAL5728875 NE 386 LMSB’s current structure illustrates wide dispersal of international specialists Deputy Commissioner International (Total Int’l Staff: ~549) Deputy Commissioner International (Total Int’l Staff: ~549) Deputy Commissioner Operations (Total Ops Staff: ~6080) Deputy Commissioner Operations (Total Ops Staff: ~6080) CTM NRC HMT FS RFPH GHW ICS&P TA&IC M&F EEO JITSIC RWI (PSP) PQAS BSP PFTG Field Specialists Field Specialists DeputyEast West East West East West East West East West 455292123786163 1222 838 795 995 910 805 43 458 364 501 471 451 438 360 424 641 565 Man. 380

5. 5 The realignment directly responds to challenges in the existing structure that make it difficult to link international strategy to frontline expertise Challenges with Existing LMSB Structure The current distribution of international specialists throughout LMSB creates the following challenges:  Impeding collaboration and program management  Creating geographic barriers to expertise  Separating International Examiners (IEs) from National Office policy makers  Preventing the strategic selection of workload Benefits of Realigned LB&I Division Centralizing international specialists will provide the following benefits:  Identifying emerging international compliance issues more quickly  Removing geographic barriers, allowing for the dedication of IRS experts to the most pressing international issues  Increasing international specialization among IRS staff by creating economies of scale and improving IRS international coordination  Ensuring the right compliance resources are allocated to the right cases  Consolidating oversight of international information reporting and implementing new programs, such as the Foreign Account Tax Compliance Act (FATCA)  Coordinating the Competent Authority more closely with field staff that originate cases, especially those dealing with transfer pricing  Otherwise centralizing and enhancing the IRS’s focus on transfer pricing

6. 6 Director, Int’l Strategy & Service- Wide Coordination Director, Int’l Corporate Taxation (ICT) Agreement Coord LB&I Commissioner Director, Int’l Individual Taxation (IIT) DFO Int’l Corp Tax East DFO Int’l Corp Tax West Int’l Corporate Tax Strategy Director, Transfer Pricing EA Deputy Commissioner, International IRS Commissioner Int’l TAs Foreign Payments Competent Authority EOI & JITSIC Service- Wide Strategy 222 111 1 4122222618 Deputy, Int’l Individual Tax Terr Mgr Territory 1 Terr Mgr Territory 2 Terr Mgr Territory 3 Terr Mgr Territory 5 Int’l Individual Tax Strategy IOC / FRC GHW Campus Compliance Unit 66 80 64 45 74 Terr Mgr Territory 4 36 212 TBD The realigned LB&I international structure will bring IEs, economists, and other international specialists together, supported by executives LB&I International Future State Organization Economists East 76 Territories 385 Territories 293 Economists West 58 Senior Advisors Executive Assistant Chief Economist 1 482 TAs 8 482 Issue Specialists 47 IRS Deputy Commissioner for Services & Enforcement Changes from Current State  International specialists and Economists shift to International to emphasize issue focus  Transfer Pricing specialization area includes 482 Issue Specialists, 482 TAs, and a Chief Economist 1 2 1 2

7. 7 The realignment will impact International Examiners and specialists, though most impacted employees will remain in their current group Impacted employees are those assigned to the following Standard Position Descriptions (SPDs): –91987 - GS-512-12 International Examiner –91983 - GS-512-13 International Examiner –96628 - GS-512-14 International Issue Specialist –94734 - GS-512-14 Senior International Examiner Details on Employee Impact  Most of the impacted employees will remain in their current group and the group will be realigned in its entirety  Employees who are currently in blended groups comprised of both domestic agents and IEs may be realigned to a different group: –If IEs are in a blended group, they will be realigned to an International group –If domestic agents are in a blended group which is managed by a team manager who is assigned to an International team manager SPD, the domestic agents will be realigned to a domestic group and remain in their current industry  International examiners will no longer control cases.

8. 8  LMSB foresees no change to employees' workstations, PODs, SPDs (other than organizational locations) or critical job elements as a result of this initiative. Flexi-place and AWS arrangements will likewise remain unchanged  Two domestic groups in Manhattan, Group 1031 and Group 1197, currently part of the Financial Services Industry, will be realigned to the International organization due to the specialized work they do related to qualified intermediaries and withholding respectively. They will function as they do currently and will continue to control their case work  LMSB's Economists, who currently are part of the Field Specialist organization, will be realigned to International, due to the fact that more than 90% of their work is international in nature. Their realignment will provide a uniform and consistent approach to international issues. The two current Economist territories will be realigned in tact under a new executive  The support staff who are assigned to any of the above impacted groups will be realigned with their groups The realignment will impact International Examiners and specialists, though most impacted employees will remain in their current group (cont.) Additional Details on Employee Impact

9. 9 Several pending decisions related to the international realignment are still being considered Description of Pending Decisions  Migration of International Examiners and Specialists in Non-IE Groups: We are still determining the process and criteria for deciding where and how to migrate international examiners and other international specialists who currently reside in blended groups, including those in the Global High Wealth Industry (Article 15, Section 2A.1)  Transition of IE Case Control for Current Inventory: We are still determining how to best transfer and complete cases that international examiners are currently controlling  Any other potential issues identified during the briefing