IRS Issues Exam Guidelines to Promote Consistency

In recent months various IRS and Chief Counsel officials have made public statements regarding the need for consistency in examinations of large corporate taxpayers. For example, readers who attended the Federal Bar Insurance Tax Conference heard Chief Counsel Korb highlight successful efforts in recent months to issue more guidance for field agents and taxpayers. Nevertheless, the IRS seems to have had some difficulty asserting control over high-profile issues. This may be the result of a reorganization that occurred late last year to realign IRS resources more along geographic lines. In order to remedy the perceived problem with inconsistency, the Large and Mid-Size Business Division (LMSB) recently published new “rules of engagement” for the examination of large and mid-size taxpayers. LMSB refers to the new rules as its Industry Issue Focus approach.

Under the new rules of engagement, contained in section 4.51.1 of the Internal Revenue Manual, LMSB has divided examination issues into a three-tiered system. Tier I issues are those that the IRS thinks present the most risk for non-compliance. The Tier I list currently includes all listed transactions (transactions the IRS has designated as potentially abusive tax shelters) and 14 other issues. Under the new rules, LMSB has appointed a single IRS employee as the Issue Owner Executive for each Tier I issue. The new rules establish a protocol under which examiners must coordinate the resolution of each Tier I issue through the Issue Owner Executive. Under the pro- tocol for Tier I issues, examiners will have no discretion in applying guidance to a taxpayer’s facts and circumstances and the Issue Owner Executive has nationwide jurisdiction including issue resolution.